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  • 1. Objectives for Chapter 1: Introduction to Services Explain what services are and identify service trends Explain the need for special services marketing concepts and practices Outline the basic differences between goods and services and the resulting challenges for service businesses Introduce the service marketing triangle Introduce the expanded services marketing mix Introduce the gaps model of service quality
  • 2. IntroductionServices are deeds,processes and performanceIntangible, but may have a tangible componentGenerally produced and consumed at the same timeNeed to distinguish between SERVICE and CUSTOMER SERVICE
  • 3. Challenges for ServicesDefining and improving qualityCommunicating and testing new servicesCommunicating and maintaining a consistent imageMotivating and sustaining employee commitmentCoordinating marketing, operations and human resource effortsSetting pricesStandardization versus personalization
  • 4. Examples of Service Industries Health Care  hospital, medical practice, dentistry, eye care Professional Services  accounting, legal, architectural Financial Services  banking, investment advising, insurance Hospitality  restaurant, hotel/motel, bed & breakfast,  ski resort, rafting Travel  airlines, travel agencies, theme park Others:  hair styling, pest control, plumbing, lawn maintenance, counseling services, health club
  • 5. Salt  Soft Drinks  Detergents  Automobiles  Cosmetics Fast-food  Outlets  Intangible DominantTangible Dominant Fast-food Outlets  Advertising Agencies  Airlines  Investment Management  Consulting  Teaching
  • 6. Figure 1-2 Percent of U.S. Labor Force by Industry 80 70Percent of GDP 60 50 40 30 20 10 0  Services 1929 1948 1969 1977 1984 1996  Manufacturing  Mining & Agriculture Yea r Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and July 1992, Table 6.4C; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.
  • 7. Figure 1-3 Percent of U.S. Gross Domestic Product by Industry 80Percent of GDP 70 60 50 40 30 20 10 0  Services 1948 1959 1967 1977 1987 1996  Manufacturing Year  Mining & Agriculture Source: Survey of Current Business, August 1996, Table 11, April 1998, Table B.3; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.
  • 8. Differences BetweenGoods and Services Intangibility HeterogeneitySimultaneous Production Perishability andConsumption
  • 9. Implications of Intangibility Services cannot be inventoried Services cannot be patented Services cannot be readily displayed or communicated Pricing is difficult
  • 10. Implications of Heterogeneity Service delivery and customer satisfaction depend on employee actions Service quality depends on many uncontrollable factors There is no sure knowledge that the service delivered matches what was planned and promoted
  • 11. Implications of SimultaneousProduction and Consumption  Customers participate in and affect the transaction  Customers affect each other  Employees affect the service outcome  Decentralization may be essential  Mass production is difficult
  • 12. Implications of Perishability  It is difficult to synchronize supply and demand with services  Services cannot be returned or resold
  • 13. Table 1-2 Services are Different Goods Services Resulting Implications Tangible Intangible Services cannot be inventoried. Services cannot be patented. Services cannot be readily displayed or communicated. Pricing is difficult. Standardized Heterogeneous Service delivery and customer satisfaction depend on employee actions. Service quality depends on many uncontrollable factors. There is no sure knowledge that the service delivered matches what was planned and promoted. Production Simultaneous Customers participate in and affect the transaction. separate from production and Customers affect each other. consumption consumption Employees affect the service outcome. Decentralization may be essential. Mass production is difficult. Nonperishable Perishable It is difficult to synchronize supply and demand with services. Services cannot be returned or resold.Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, “Problems and Strategies in Services Marketing,”Journal of Marketing 49 (Spring 1985): 33-46.
  • 14. Company (Management) Internal External Marketing Marketing“enabling the “setting thepromise” promise”Employees Interactive Marketing Customers “delivering the promise” Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler
  • 15. Ways to Use the Services Marketing TriangleOverall Strategic Specific Service Assessment Implementation • How is the service • What is being promoted organization doing and by whom? on all three sides of • How will it be delivered the triangle? and by whom? • Where are the • Are the supporting weaknesses? systems in place to deliver the promised • What are the service? strengths?
  • 16. Figure 1-6 The Services Triangle and Technology Company Technology Providers CustomersSource: Adapted from A. Parasuraman
  • 17. Services Marketing Mix:7 Ps for Services Traditional Marketing Mix Expanded Mix for Services: 7 Ps Building Customer Relationships Through People, Processes, and Physical Evidence Ways to Use the 7 Ps
  • 18. Traditional Marketing Mix All elements within the control of the firm that communicate the firm’s capabilities and image to customers or that influence customer satisfaction with the firm’s product and services:  Product  Price  Place  Promotion
  • 19. Expanded Mix for Services -- the 7 Ps Product Price Place Promotion People Process Physical Evidence
  • 20. Table 1-3 Expanded Marketing Mix for ServicesPRODUCT PLACE PROMOTION PRICEPhysical good Channel type Promotion Flexibilityfeatures blendQuality level Exposure Salespeople Price levelAccessories Intermediaries Advertising TermsPackaging Outlet location Sales Differentiation promotionWarranties Transportation Publicity AllowancesProduct lines StorageBranding
  • 21. Table 1-3 (Continued) Expanded Marketing Mix for Services PEOPLE PHYSICAL PROCESS EVIDENCEEmployees Facility design Flow of activitiesCustomers Equipment Number of stepsCommunicating Signage Level of customerculture and values involvementEmployee research Employee dress Other tangibles
  • 22. Ways to Use the 7 PsOverall Strategic Specific Service Assessment ImplementationHow effective is a firm’s Who is the customer? services marketing mix? What is the service?Is the mix well-aligned How effectively does the with overall vision and services marketing mix for a service communicate its strategy? benefits and quality?What are the strengths What and weaknesses in terms changes/improvements are of the 7 Ps? needed?
  • 23. Services Marketing TriangleApplications Exercise Focus on a service organization. In the context you are focusing on, who occupies each of the three points of the triangle? How is each type of marketing being carried out currently? Are the three sides of the triangle well aligned? Are there specific challenges or barriers in any of the three areas?
  • 24. Gaps Model of Service Quality CUSTOMER Expected Service Customer Gap Perceived Service External COMPANY Service Delivery Communications GAP 4 to Customers GAP 1 GAP 3 Customer-Driven Service Designs and Standards GAP 2 Company Perceptions of Consumer ExpectationsPart 1 Opener
  • 25. Gaps Model of Service Quality Customer Gap:  differencebetween expectations and perceptions Provider Gap 1:  not knowing what customers expect Provider Gap 2:  not having the right service designs and standards Provider Gap 3:  not delivering to service standards Provider Gap 4:  not matching performance to promisesPart 1 Opener
  • 26. The Customer Gap Expected Service GAP Perceived ServicePart 1 Opener
  • 27. Objectives for Chapter 2: Consumer Behavior in ServicesOverview the generic differences in consumer behavior between services and goodsIntroduce the aspects of consumer behavior that a marketer must understand in five categories of consumer behavior: • Information search • Evaluation of service alternatives • Service purchase and consumption • Postpurchase evaluation • Role of culture
  • 28. Consumer EvaluationProcesses for Services Search Qualities attributes a consumer can determine prior to purchase of a product Experience Qualities attributes a consumer can determine after purchase (or during consumption) of a product Credence Qualities characteristics that may be impossible to evaluate even after purchase and consumption
  • 29. Easy to evaluate Clothing Jewelry Furniture qualities Houses { MostHigh in search Goods Automobiles Restaurant meals Vacations Haircuts Child care qualities { Television repair Most Legal services Services Root canals Auto repair Medical diagnosis qualitiesHigh in experience High in credence { Difficult to evaluate
  • 30. Figure 2-2 Categories in Consumer Decision-Making and Evaluation of Services Information Evaluation of Search Alternatives Use of personal sources  Evoked set Perceived risk  Emotion and mood Purchase and Post-Purchase Consumption Evaluation Service provision as  Attribution of dissatisfactiondrama Service roles and scripts  Innovation diffusion Compatibility of  Brand loyaltycustomers
  • 31. Figure 2-3Categories in Consumer Decision-Making andEvaluation of Services Information Evaluation of Search Alternatives Use of personal sources  Evoked set Perceived risk  Emotion and mood Culture  Values and attitudes  Manners and customs  Material culture  Aesthetics  Educational and social institutions Purchase and Post-Purchase Consumption Evaluation  Service provision as  Attribution of dissatisfaction drama  Service roles and scripts  Innovation diffusion  Compatibility of  Brand loyalty customers
  • 32. Information searchIn buying services consumers rely more on personal sources. WHY? Refer p32Personal influence becomes pivotal as product complexity increasesWord of mouth important in delivery of servicesWith service most evaluation follows purchase
  • 33. Perceived RiskMore risk would appear to be involved with purchase of services (no guarantees)Many services so specialised and difficult to evaluate (How do you know whether the plumber has done a good job?)Therefore a firm needs to develop strategies to reduce this risk, e.g, training of employees, standardisation of offerings
  • 34. Evoked SetThe evoked set of alternatives likely to be smaller with services than goodsIf you would go to a shopping centre you may only find one dry cleaner or “single brand”It is also difficult to obtain adequate prepurchase information about serviceThe Internet may widen this potentialConsumer may choose to do it themselves, e.g. garden services
  • 35. Emotion and MoodEmotion and mood are feeling states that influence people’s perception and evaluation of their experiencesMoods are transientEmotions more intense, stable and pervasiveMay have a negative or positive influence
  • 36. Service Provision as DramaNeed to maintain a desirable impressionService “actors” need to perform certain routinesPhysical setting important, smell, music, use of space, temperature, cleanliness, etc.
  • 37. Global Feature:Differences in the Service Experience in the U.S. andJapan  Authenticity  Caring  Control Courtesy  Formality  Friendliness  Personalization  Promptness
  • 38. Objectives for Chapter 3: Customer Expectations of ServiceRecognize that customers hold different types of expectations for service performanceDiscuss controllable and uncontrollable sources of customer expectationsDistinguish between customers’ global expectations of their relationships and their expectations of the service encounterAcknowledge that expectations are similar for many different types of customersDelineate the most important current issues surrounding customer expectations
  • 39. DEFINITIONSCustomers have different expectations re services – or expected serviceDesired service – customer hopes to receiveAdequate service – the level of service the customer may acceptDO YOUR EXPECTATIONS DIFFER RE SPUR and CAPTAIN DOREGO?
  • 40. Figure 3-1 Dual Customer Expectation Levels(Two levels of expectations) Desired Service Zone of Tolerance Adequate Service
  • 41. Figure 3-2The Zone of Tolerance Desired Service Zone of Tolerance Adequate Service
  • 42. Figure 3-3 Zones of Tolerance VARY for Different Service Dimensions Desired Service Level of Zone of DesiredExpectation Desired Service Tolerance Service Adequate Service Zone of Tolerance Adequate Adequate Service Service Most Important Factors Least Important Factors Source: Berry, Parasuraman, and Zeithaml (1993)
  • 43. Figure 3-4 Zones of Tolerance VARY for First-Time and Recovery Service First-Time Service Outcome Process Recovery Service Outcome Process LOW HIGH ExpectationsSource: Parasuraman, Berry and Zeithaml (1991)
  • 44. Figure 3-5 Factors that Influence Desired ServiceEnduring Service IntensifiersPersonal Needs Zone of Tolerance
  • 45. Personal needs include physical, social, psychological categoriesEnduring service intensifiers are individual, stable factors that lead to heightened sensitivity to service This can further divided into Derived Service Expectations and Personal service Philosophies
  • 46. Figure 3-6 Factors that Influence Adequate ServiceTransitory Service Intensifiers DesiredPerceived Service Service Alternatives Zone of Tolerance Self-Perceived Service Role Adequate Service Situational Factors
  • 47. Transitory service intensifiers – temporary – a computer breakdown will be less tolerated at financial year-endsPerceived service alternativesPerceived service role of customerSituational factors
  • 48. Figure 3-7 Factors that InfluenceDesired and Predicted Service Explicit Service Promises Implicit Service Promises Desired Word-of-Mouth Service Zone Past Experience of Tolerance Adequate Predicted Service Service
  • 49. Objectives for Chapter 4: Customer Perceptions of ServiceProvide you with definitions and understanding of customer satisfaction and service qualityShow that service encounters or the “moments of truth” are the building blocks of customer perceptionsHighlight strategies for managing customer perceptions of service
  • 50. Reliability Situational FactorsResponsiveness Service Quality Assurance Customer Empathy Satisfaction Product Quality Tangibles Personal Price Factors
  • 51. Factors InfluencingCustomer Satisfaction Product/service quality Product/service attributes or features Consumer Emotions Attributions for product/service success or failure Equity or fairness evaluations
  • 52. Outcomes ofCustomer Satisfaction Increased customer retention Positive word-of-mouth communications Increased revenues
  • 53. 100% Loyalty (retention) 80% 60% 40% 20% 0% Very Dissatisfied Neither Satisfied Very dissatisfied satisfied nor satisfied dissatisfied Satisfaction measureSource: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p.83.
  • 54. Service Quality The customer’s judgment of overall excellence of the service provided in relation to the quality that was expected. Process and outcome quality are both important.
  • 55. The Five Dimensions of Service QualityReliability Ability to perform the promised service dependably and accurately.Assurance Knowledge and courtesy of employees and their ability to convey trust and confidence.Tangibles Physical facilities, equipment, andEmpathy appearance of personnel. Caring, individualized attentionResponsiveness the firm provides its customers. Willingness to help customers and provide prompt service.
  • 56. In groups of five, choose a services industry and spend 10 minutesbrainstorming specific requirements of customers in each of the fiveservice quality dimensions. Be certain the requirements reflect thecustomer’s point of view.Reliability:Assurance:Tangibles:Empathy:Responsiveness:
  • 57. SERVQUAL Attributes ASSURANCE Employees who instill confidence in customers Making customers feel safe in their transactionsRELIABILITY Employees who are consistently courteous Employees who have the knowledge to Providing service as promised answer customer questions Dependability in handling customers’ service problems EMPATHY Performing services right the first time Giving customers individual attention Providing services at the promised time Employees who deal with customers in a Maintaining error-free records caring fashion Having the customer’s best interest at heartRESPONSIVENESS Employees who understand the needs of their customers Keeping customers informed as to Convenient business hours when services will be performed TANGIBLES Prompt service to customers Modern equipment Willingness to help customers Visually appealing facilities Readiness to respond to customers’ Employees who have a requests neat, professional appearance Visually appealing materials associated with the service
  • 58. The Service Encounter is the “moment of truth” occurs any time the customer interacts with the firm can potentially be critical in determining customer satisfaction and loyalty types of encounters:  remote encounters  phone encounters  face-to-face encounters is an opportunity to:  build trust  reinforce quality  build brand identity  increase loyalty
  • 59. Figure 4-4 A Service Encounter Cascade for a Hotel VisitCheck-InCheck-In Bellboy Takes to Bellboy Takes to Room Room Restaurant Restaurant Meal Meal Request Wake-Up Request Wake-Up Call Call Checkout Checkout
  • 60. Figure 4-5 A Service Encounter Cascade for an Industrial PurchaseSales CallSales Call Delivery and Installation Delivery and Installation Servicing Servicing Ordering Supplies Ordering Supplies Billing Billing
  • 61. Critical Service Encounters Research GOAL - understanding actual events and behaviors that cause customer dis/satisfaction in service encounters METHOD - Critical Incident Technique DATA - stories from customers and employees OUTPUT - identification of themes underlying satisfaction and dissatisfaction with service encounters
  • 62. Sample Questions for Critical IncidentsTechnique Study Think of a time when, as a customer, you had a particularly satisfying (dissatisfying) interaction with an employee of . When did the incident happen? What specific circumstances led up to this situation? Exactly what was said and done? What resulted that made you feel the interaction was satisfying (dissatisfying)?
  • 63. Recovery: Adaptability:Employee Response Employee Response to Service Delivery to Customer Needs System Failure and Requests Coping: Spontaneity: Employee Response Unprompted andto Problem Customers Unsolicited Employee Actions and Attitudes
  • 64. Recovery DO DON’TAcknowledge problem Ignore customerExplain causes Blame customerApologize Leave customer toCompensate/upgrade fend for him/herselfLay out options DowngradeTake responsibility Act as if nothing is wrong
  • 65. Adaptability DO DON’TRecognize the Promise, then fail to seriousness of the need follow throughAcknowledge IgnoreAnticipate Show unwillingness toAttempt to try accommodate Embarrass the customerExplain rules/policies Laugh at the customerTake responsibility Avoid responsibilityExert effort to accommodate
  • 66. Spontaneity DO DON’TTake time Exhibit impatienceBe attentive IgnoreAnticipate needs Yell/laugh/swearListen Steal from or cheat aProvide information customer (even if not asked) DiscriminateTreat customers fairly Treat impersonallyShow empathyAcknowledge by name
  • 67. Coping DO DON’TListen Take customer’sTry to accommodate dissatisfactionExplain personally Let customer’sLet go of the customer dissatisfaction affect others
  • 68.  Contact employees  Customer Operational flow of him/herselfactivities  Other customers People Steps in process Flexibility vs.standard Technology vs. Physical  Tangiblehuman Process Evidence communication  Servicescape  Guarantees  Technology
  • 69. Provider GAP 1 CUSTOMER Expected Service GAP 1 Company COMPANY Perceptions of Consumer ExpectationsPart 2 Opener
  • 70. Objectives for Chapter 5: Understanding Customer Expectations and Perceptions through Marketing ResearchPresent the types of and guidelines for marketing research in servicesShow the ways that marketing research information can and should be used for servicesDescribe the strategies by which companies can facilitate interaction and communication between management and customersPresent ways that companies can and do facilitate interaction between contact people and management
  • 71. Common Research Objectives for ServicesTo identify dissatisfied customersTo discover customer requirements or expectationsTo monitor and track service performanceTo assess overall company performance compared to competitionTo assess gaps between customer expectations and perceptionsTo gauge effectiveness of changes in serviceTo appraise service performance of individuals and teams for rewardsTo determine expectations for a new serviceTo monitor changing expectations in an industryTo forecast future expectations
  • 72. Includes es Quantitative lud ive Inc litat h Research Includes a c Qu esear Perceptions R and Expectations Occurs of Customers withAppropriate Research IncludesFrequency Measures Objectives of Loyalty or Behavioral Measures Intentions Priorities st or s Co Importance lance ue of Includes Ba Val ion Statistical and ormat Validity Inf When Necessary
  • 73. Research Objective Type of ResearchIdentify dissatisfied customers to attempt recovery;identify most common categories of service failure Customer Complaintfor remedial action SolicitationAssess company’s service performance compared tocompetitors; identify service-improvement priorities; trackservice improvement over time “Relationship” SurveysObtain customer feedback while service experience is stillfresh; act on feedback quickly if negative patterns develop Post-Transaction SurveysUse as input for quantitative surveys; provide aforum for customers to suggest service-improvementideas Customer Focus GroupsMeasure individual employee service behaviors for use incoaching, training, performance evaluation, recognition andrewards; identify systemic strengths and weaknesses in “Mystery Shopping” ofservice Service ProvidersMeasure internal service quality; identify employee-perceived obstacles to improve service; trackemployee morale and attitudes Employee SurveysDetermine the reasons why customers defectTo forecast future expectations of customers Lost Customer ResearchTo develop and test new service ideas Future Expectations Research
  • 74. Stages in the Research ProcessStage 1 : Define ProblemStage 2 : Develop Measurement StrategyStage 3 : Implement Research ProgramStage 4 : Collect and Tabulate DataStage 5 : Interpret and Analyze FindingsStage 6 : Report Findings
  • 75. Figure 5-5 Service Quality Perceptions Relative to Zones of Tolerance by Dimensions987 O O O O O6543210 Reliability Responsiveness Assurance Empathy TangiblesRetail Chain Zone of Tolerance O S.Q. Perception
  • 76. Service Quality Perceptions Relative to Zones of Tolerance by Dimensions10 8 O O O O O 6 4 2 0 Reliability Responsiveness Assurance Empathy TangiblesComputer Zone of Tolerance O S.Q. PerceptionManufacturer
  • 77. Figure 5-6 Importance/Performance MatrixHIGH High   Leverage Attributes to Improve Attributes to Maintain Importance     Low   Leverage  Attributes to Maintain Attributes to De-emphasizeLOW HIGH Performance
  • 78. Objectives for Chapter 6: Building Customer RelationshipsExplain relationship marketing, its goals, and the benefits of long-term relationships for firms and customersExplain why and how to estimate customer lifetime valueSpecify the foundations for successful relationship marketing--quality core services and careful market segmentationProvide you with examples of successful customer retention strategiesIntroduce the idea that “the customer isn’t always right”
  • 79. Relationship Marketingis a philosophy of doing business that focuses on keeping and improving current customersdoes not necessarily emphasize acquiring new customersis usually cheaper (for the firm)--to keep a current customer costs less than to attract a new onegoal = to build and maintain a base of committed customers who are profitable for the organizationthus, the focus is on the attraction, retention, and enhancement of customer relationships
  • 80. Lifetime Value of a CustomerAssumptionsIncome Expected Customer Lifetime Average Revenue (month/year) Other Customers convinced via WOM Employee Loyalty?? Expenses Costs of Serving Customer Increase??
  • 81. A Loyal Customer is One Who...Shows Behavioral Commitment  buys from only one supplier, even though other options exist  increasingly buys more and more from a particular supplier  provides constructive feedback/suggestionsExhibits Psychological Commitment  wouldn’t consider terminating the relationship-- psychological commitment  has a positive attitude about the supplier  says good things about the supplier
  • 82. Customer Loyalty Exercise Think of a service provider you are loyal to. What do you do (your behaviors, actions, feelings) that indicates you are loyal? Why are you loyal to this provider?
  • 83. Benefits to the Organization of Customer Loyalty loyal customers tend to spend more with the organization over time on average costs of relationship maintenance are lower than new customer costs employee retention is more likely with a stable customer base lifetime value of a customer can be very high
  • 84. Benefits to the Customer inherent benefits in getting good value economic, social, and continuity benefits contribution to sense of well-being and quality of life and other psychological benefits avoidance of change simplified decision making social support and friendships special deals
  • 85. “The Customer Isn’t Always Right” Not all customers are good relationship customers: wrong segment not profitable in the long term difficult customers
  • 86. Strategies for Building Relationships Foundations: Excellent Quality/Value Careful Segmentation Bonding Strategies: Financial Bonds Social & Psychological Bonds Structural Bonds Customization Bonds Relationship Strategies Wheel
  • 87. EnhancingRetainingSatisfying Getting
  • 88. Customer SatisfactionCustomer Retention & Quality Increased Profits Service Employee Loyalty
  • 89. STEP 1: STEP 2: STEP 3: STEP4: STEP 5:Identify Develop Develop Select the Ensure thatBases for Profiles of Measures Target SegmentsSegmenting Resulting of Segment Segments Arethe Market Segments Attractive- Compatible ness
  • 90. Figure 6-6 Levels of Retention Strategies Stable Volume and Pricing Frequency Bundling and Rewards Cross Selling Integrated I. Financial Continuous Information Bonds Relationships Systems IV. Excellent Quality II.Joint Structural PersonalInvestments and Social Relationships Bonds Value Bonds Shared Social Bonds Processes III. Customization Among and Bonds Customers Equipment Anticipation Customer / Innovation Intimacy Mass Customization
  • 91. Objectives for Chapter 7: Service RecoveryIllustrate the importance of recovery from service failures in building loyaltyDiscuss the nature of consumer complaints and why people do and do not complainProvide evidence of what customers expect and the kind of responses they want when they complainProvide strategies for effective service recoveryDiscuss service guarantees
  • 92. Figure 7-1 Unhappy Customers’ Repurchase IntentionsUnhappy Customers Who Don’t Complain 9% Unhappy Customers Who Do Complain 37% 19% Complaints Not Resolved 46% 54% Complaints Resolved 70% Complaints Resolved Quickly 82% 95% Percent of Customers Who Will Buy Again Minor complaints ($1-$5 losses) Major complaints (over $100 losses) Source: Adapted from data reported by the Technical Assistance Research Program.
  • 93. Service Failure Take Action Do Nothing Switch Providers Stay with ProviderComplain to Complain to Complain to Provider Family & Friends Third Party Switch Providers Stay with Provider
  • 94. e and Welcom plaints ge Com Encoura Act Q ui ckl y ice e Serv e fe th i rl y vic ry er ve es i l Sa rs Fa S co i gFa R e ra t e tome St Figure 7-5 t C us L Trea n Le os ar t C u fr sto om m om er Learn fr s s erience Recov ery Exp Service Recovery Strategies
  • 95. Pricing• High Price• Price Increases• Unfair Pricing• Deceptive PricingInconvenience• Location/Hours• Wait for Appointment• Wait for ServiceCore Service Failure• Service Mistakes• Billing Errors• Service CatastropheService Encounter Failures Service• Uncaring• Impolite• Unresponsive• Unknowledgeable SwitchingResponse to Service Failure• Negative Response Behavior• No Response• Reluctant ResponseCompetition• Found Better ServiceEthical Problems• Cheat• Hard Sell• Unsafe• Conflict of InterestInvoluntary Switching• Customer Moved Source: Sue Keaveney• Provider Closed
  • 96. Service Guaranteesguarantee = an assurance of the fulfillment of a condition (Webster’s Dictionary)for products, guarantee often done in the form of a warrantyservices are often not guaranteed cannot return the service service experience is intangible (so what do you guarantee?)
  • 97. Table 7-7 Characteristics of an Effective Service Guarantee Unconditional • The guarantee should make its promise unconditionally - no strings attached. Meaningful • It should guarantee elements of the service that are important to the customer. • The payout should cover fully the customers dissatisfaction. Easy to Understand and Communicate • For customers - they need to understand what to expect. • For employees - they need to understand what to do. Easy to Invoke and Collect • There should not be a lot of hoops or red tape in the way of accessing or collecting on the guarantee.Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.
  • 98. Why a Good Guarantee Works forces company to focus on customers sets clear standards generates feedback forces company to understand why it failed builds “marketing muscle”
  • 99. Service Guarantees Does everyone need a guarantee? Reasons companies do NOT offer guarantees: guarantee would be at odds with company’s image too many uncontrollable external variables fears of cheating by customers costs of the guarantee are too high
  • 100. Service Guaranteesservice guarantees work for companies who are already customer-focusedeffective guarantees can be BIG deals - they put the company at risk in the eyes of the customercustomers should be involved in the design of service guaranteesthe guarantee should be so stunning that it comes as a surprise -- a WOW!! factor“it’s the icing on the cake, not the cake”
  • 101. Provider GAP 2 CUSTOMER COMPANY Customer-Driven Service Designs and Standards GAP 2 Company Perceptions of Consumer ExpectationsPart 3 Opener
  • 102. Objectives for Chapter 8: Service Development and DesignDescribe the challenges inherent in service designPresent steps in the new service development processShow the value of service blueprinting and quality function deployment (QFD) in new service design and service improvementPresent lessons learned in choosing and implementing high-performance service innovations
  • 103.  Oversimplification Incompleteness Subjectivity Biased Interpretation
  • 104. Figure 8-2 New Service Development Process  Business Strategy Development or Review  New Service Strategy DevelopmentFront End  Idea GenerationPlanning Screen ideas against new service strategy  Concept Development and Evaluation Test concept with customers and employees  Business Analysis Test for profitability and feasibility  Service Development and Testing Conduct service prototype test  Market TestingImplementation Test service and other marketing-mix elements  Commercialization  Postintroduction Evaluation Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997.
  • 105. MarketsOfferings Current Customers New CustomersExisting SHARE BUILDING MARKETServices DEVELOPMENTNewServices SERVICE DIVERSIFICATION DEVELOPMENT
  • 106. Figure 8-4Service Mapping/Blueprinting A tool for simultaneously depicting the service process, the points of customer contact, and the evidence of service from the customer’s point of view. Process Service Points of Contact Mappin g Evidence
  • 107. CUSTOMER ACTIONSline of interaction“ONSTAGE” CONTACT EMPLOYEE ACTIONSline of visibility“BACKSTAGE” CONTACT EMPLOYEE ACTIONSline of internal interactionSUPPORT PROCESSES
  • 108. Truck Truck Packaging Packaging Forms Forms EVIDENCE CONTACT PERSON CUSTOME PHYSICAL Hand-held Hand-held Computer Computer Uniform Uniform Customer Customer Receive Calls Gives Package Package(Back Stage) (On Stage) R Driver Picks Deliver Up Pkg. Package Customer Service Order Airport Fly to Dispatch Unload Load Driver Receives Sort Fly to & Loads Center & On Destinatio Sort TruckSUPPORT Load onPROCESS Airplane n Sort Packages
  • 109. Bill EVIDENCE CUSTOMER PHYSICAL Desk Hotel Cart for Desk Elevators Cart for Room Menu Delivery Food Lobby Exterior Bags Registration Hallways Bags Amenities Tray Hotel Parking Papers Room Bath Food Exterior Lobby Appearance Parking Key Arrive Give Bags Call Check out Go to Receive Sleep Receive at to Check in Room Eat and Room Bags Shower Food Hotel Bellperson Service LeaveSUPPORT PROCESS (Back Stage) (On Stage) CONTACT PERSON Greet and Process Deliver Deliver Process Take Registration Bags Food Check Out Bags Take Take Bags Food to Room Order Registration Prepare Registration System Food System
  • 110. Figure 8-8 Building a Service BlueprintStep 11 Step Step 22 Step Step 33 Step Step 44 Step Step 55 Step Step 66 StepIdentify the Identify the Map the Map contact Map contact Link customer Add Add Identify the Identify the Map the Link customerprocess to customer or process from employee employee and contact evidence of evidence of process to customer or process from and contactbe blue- customer the actions, actions, person service at service at be blue- customer the personprinted. segment. customer’s onstage and onstage and activities to each each printed. segment. customer’s activities to point of view. back-stage. back-stage. needed customer customer point of view. needed support action step. action step. support functions. functions.
  • 111. Application of Service Blueprints New Service Development  concept development  market testing Supporting a “Zero Defects” Culture  managing reliability  identifying empowerment issues Service Recovery Strategies  identifying service problems  conducting root cause analysis  modifying processes
  • 112. Blueprints Can Be Used By:Service Marketers Human Resources  creating realistic customer  empowering the human expectations element  service system design  job descriptions  promotion  selection criteria  appraisal systemsOperations Management  rendering the service as System Technology promised  managing fail points  providing necessary tools:  training systems  system specifications  quality control  personal preference databases
  • 113. Objectives for Chapter 9: Customer-defined Service StandardsDifferentiate between company-defined and customer-defined service standardsDistinguish among one-time service fixes and “hard” and “soft” customer-defined standardsExplain the critical role of the service encounter sequence in developing customer-defined standardsIllustrate how to translate customer expectations into behaviors and actions that are definable, repeatable, and actionable
  • 114. Figure 9-1 AT&T’s Process Map for Measurements Business Process Customer Need Internal Metric Reliability (40%) % Repair Call 30% Product Easy To Use (20%) % Calls for Help Features / Functions (40%) Functional Performance Test Knowledge (30%) Supervisor Observations 30% Sales Responsive (25%) % Proposal Made on Time Follow-Up (10%) % Follow Up Made Total Delivery Interval Meets Needs (30%) Average Order IntervalQuality 10% Installation Does Not Break (25%) % Repair Reports Installed When Promised (10%) % Installed On Due Date No Repeat Trouble (30%) % Repeat Reports 15% Repair Fixed Fast (25%) Average Speed Of Repair Kept Informed (10%) % Customers Informed Accuracy, No Surprise (45%) % Billing Inquiries 15% Billing Resolve On First Call (35%) % Resolved First Call Easy To Understand (10%) % Billing InquiriesSource: AT&T General Business Systems
  • 115. Exercise for Creating Customer-DefinedService StandardsForm a group of four peopleUse your school’s undergraduate or graduate program, or an approved alternativeComplete the customer-driven service standards importance chartEstablish standards for the most important and lowest-performed behaviors and actionsBe prepared to present your findings to the class
  • 116. Customer-Driven Standards and Measurements Exercise Service Encounter Customer Requirements MeasurementsServiceQuality
  • 117. Figure 9-2 Getting to Actionable Steps Requirements: Diagnosticity: Satisfaction Value Abstract Low Relationship General Concepts Solution ProviderDig Reliability EmpathyDeeper Assurance Tangibles Dimensions Responsiveness Price Dig Delivers on Time Deeper Returns Calls Quickly Attributes Knows My Industry Dig Delivers by Weds 11/4 Behaviors Deeper Returns Calls in 2 Hrs Knows Strengths of and Actions My Competitors Concrete High
  • 118. Figure 9-3 Process for Setting Customer-Defined Standards 1. Identify Existing or Desired Service Encounter Sequence 2. Translate Customer Expectations Into Behaviors/Actions 2. Translate Customer Expectations Into Behaviors/Actions 3. Select Behaviors/Actions for Standards 3. Select Behaviors/Actions for Standards 4. Set Hard or Soft Standards Measure by Measure by Audits or Hard 5. Develop Feedback Soft Transaction- 5. Develop FeedbackOperating Data Mechanisms Based Surveys Mechanisms 6. Establish Measures and Target Levels 6. Establish Measures and Target Levels 7. Track Measures Against Standards 8. Update Target Levels and Measures 8. Update Target Levels and Measures
  • 119. HIGH 10.0 Importance/Performance Matrix Improve Maintain Does whatever it takes to correct problems (9.26, 7.96) Delivers on promises specified in proposal/contract (9.49, 8.51)  Completes projects Gets project within budget, on time (9.31, 7.84) correctly, on time (9.29, 7.68)   Gets price we originally agreed upon (9.21, 8.64) 9.0   Tells me cost ahead of time (9.06, 8.46) Provides equipment that operates as vendor said it would (9.24, 8.14) Gets back to me when Takes responsibility for their mistakes (9.18, 8.01) promised (9.04, 7.63) Delivers or installs onImportance promised date (9.02, 7.84) 8.0 LOW 7.0 HIGH 8.0 9.0 10.0 Performance
  • 120. Figure 9-5 Linkage between Soft Measures and Hard Measures for Speed of Complaint HandlingSA 10T 9I 8 Large CustomersS 7 Small CustomersF 6A 5C 4T 3I 2O 1 2 4 6 8 12 16 20 24N 0 WORKING HOURS
  • 121. Figure 9-6 Aligning Company Processes with Customer Expectations Customer Expectations 48 HoursCustomerProcessBlueprint Report Lost Receive New Card CardCompanyProcess Company Sequential ProcessesBlueprintAA B B C C D D E E F F G G H H Lost Card New Card Reported 40 Days Mailed
  • 122. Objectives for Chapter 10:Physical Evidence and the Servicescape Explain the impact on customer perceptions of physical evidence, particularly the servicescape Illustrate differences in types and roles of servicescapes and their implications for strategy Explain why the servicescape affects employee and customer behavior Analyze four different approaches for understanding the effects of physical environment Present elements of an effective physical evidence strategy
  • 123. Table 10-1 Elements of Physical EvidenceServicescape Other tangiblesFacility exterior Business cards Exterior design Stationery Signage Billing statements Parking Reports Landscape Employee dress Surrounding environment Uniforms BrochuresFacility interior Internet/Web pages Interior design Equipment Signage Layout Air quality/temperature
  • 124. Service Physical evidence Servicescape Other tangiblesInsurance Not applicable Policy itself Billing statements Periodic updates Company brochure Letters/cardsHospital Building exterior Uniforms Parking Reports/stationery Signs Billing statements Waiting areas Admissions office Patient care room Medical equipment Recovery roomAirline Airline gate area Tickets Airplane exterior Food Airplane interior (décor, seats, air Uniforms quality)Express mail Not applicable Packaging Trucks Uniforms ComputersSporting Parking, Seating, Restrooms Signsevent Stadium exterior Tickets Ticketing area, Concession Areas Program Entrance, Playiing Field Uniforms
  • 125. Complexity of the servicescape evidenceServicescape Elaborate LeanusageSelf-service Golf Land ATM(customer only) Surf n Splash Ticketron Post office kiosk Internet services Express mail drop-offInterpersonal Hotel Dry cleanerservices Restaurants Hot dog stand(both customer and Health clinic Hair salonemployeee) Hospital Bank Airline SchoolRemote service Telephone company Telephone mail-order desk(employee only) Insurance company Automated voice-messaging- Utility based services Many professional services
  • 126. PHYSICAL HOLISTIC INTERNAL BEHAVIOR ENVIRONMENTAL ENVIRONMENT RESPONSES DIMENSIONS Cognitive Emotional Physiological Individual Behaviors Employee Responses Ambient Social Conditions Interactions Space/Function Perceived between and Servicescape among customer and Signs, Symbols, employees and Artifacts Customer Responses Individual Behaviors Cognitive EmotionalSource: Adapted from Mary Jo Bitner, “Servicescapes.” Physiological
  • 127. Provider GAP 3 CUSTOMER Service Delivery COMPANY GAP 3 Customer-Driven Service Designs and StandardsPart 4 Opener
  • 128. Objectives for Chapter 11: Employees’ Roles in Service DeliveryIllustrate the critical importance of service employees in creating customer satisfaction and service qualityDemonstrate the challenges inherent in boundary- spanning rolesProvide examples of strategies for creating customer-oriented service deliveryShow how the strategies can support a service culture where providing excellent service is a way of life
  • 129. Service EmployeesThey are the serviceThey are the firm in the customer’s eyesThey are marketersImportance is evident in The Services Marketing Mix (People) The Service-Profit Chain The Services Triangle
  • 130. Service Employees Who are they? “boundary spanners” What are these jobs like? emotional labor many sources of potential conflict  person/role  organization/client  interclient  quality/productivity
  • 131. External EnvironmentInternal Environment
  • 132. • Person vs. Role• Organization vs. Client• Client vs. Client• Quality vs. Productivity
  • 133. Hire for r Service fo Competencies B Pr e t te t pe es and Service E m e f e he m B le pl rred Co the op Inclination oy Pe er Str ard nd Te Inte kills Tr nica tive Re ure a ch rac Hire the ai n lPr ervic g fo and ide e Right People on rs w as S r Me ov S Develop Customer- Employees EmpowerEmployeesCustomers Retain the People to oriented Treat Deliver Best as Service Service People Delivery QualityEm th any’ wo e rk Inc am ot Provide plo e Te rom Co Visio lud es in ye Needed Support mp n P e De Systems Se v e l o s e ur or rvic p as nal i Int ente - e Provide Me ter e Pr ern d In rvic y oc Supportive Se alit es al se s Technology Qu and Equipment
  • 134. EmpowermentBenefits: Drawbacks: quicker responses greater investments in employees feel more selection and training responsible higher labor costs employees tend to interact slower and/or inconsistent with warmth/enthusiasm delivery empowered employees are may violate customer a great source of ideas perceptions of fair play positive word-of-mouth “giving away the store” from customers (making bad decisions)
  • 135. Service Culture “A culture where an appreciation for good service exists, and where giving good service to internal as well as ultimate, external customers, is considered a natural way of life and one of the most important norms by everyone in the organization.”
  • 136. Objectives for Chapter 12: Customers’ Roles in Service DeliveryIllustrate the importance of customers in successful service deliveryEnumerate the variety of roles that service customers play • Productive resources • Contributors to quality and satisfaction • CompetitorsExplain strategies for involving service customers effectively to increase both quality and productivity
  • 137. Importance of Other Customers in Service DeliveryOther customers can detract from satisfaction  disruptive behaviors  excessive crowding  incompatible needsOther customers can enhance satisfaction  mere presence  socialization/friendships  roles: assistants, teachers, supporters
  • 138. How Customers Widen Gap 3Lack of understanding of their rolesNot being willing or able to perform their rolesNo rewards for “good performance”Interfering with other customersIncompatible market segments
  • 139. Productive ResourcesContributors toQuality andSatisfactionCompetitors
  • 140. Customers as Productive Resources “partial employees” contributing effort, time, or other resources to the production process customer inputs can affect organization’s productivity key issue: should customers’ roles be expanded? reduced?
  • 141. Customers as Contributors to Service Quality and SatisfactionCustomers can contribute to their own satisfaction with the service  by performing their role effectively  by working with the service provider the quality of the service they receive  by asking questions  by taking responsibility for their own satisfaction  by complaining when there is a service failure
  • 142. Customers as Competitorscustomers may “compete” with the service provider“internal exchange” vs. “external exchange”internal/external decision often based on: expertise resources time economic rewards psychic rewards trust control
  • 143. Customer Production Joint Production Firm Production 1 2 3 4 5 6 Gas Station Illustration 1. Customer pumps gas and pays at the pump with automation 2. Customer pumps gas and goes inside to pay attendant 3. Customer pumps gas and attendant takes payment at the pump 4. Attendant pumps gas and customer pays at the pump with automation 5. Attendant pumps gas and customer goes inside to pay attendant 6. Attendant pumps gas and attendant takes payment at the pump
  • 144. EffectiveDefine Customer Customer Recruit, Educate, Participation and Reward Jobs Customers Manage the Customer Mix
  • 145. 1. Define customers’ jobs - helping himself - helping others - promoting the company2. Individual differences: not everyone wants to participate
  • 146. 1. Recruit the right customers2. Educate and train customers to perform effectively3. Reward customers for their contribution4. Avoid negative outcomes of inappropriate customer participation Manage the Customer Mix
  • 147. Objectives for Chapter 14: Managing Demand and CapacityExplain: • the underlying issue for capacity-constrained services • the implications of capacity constraints • the implications of different types of demand patterns on matching supply and demandLay out strategies for matching supply and demand through: • shifting demand to match capacity or • flexing capacity to meet demandDemonstrate the benefits and risks of yield management strategiesProvide strategies for managing waiting lines
  • 148. Understanding Capacity Constraints and Demand PatternsCapacity Constraints Demand Patterns Time, labor, • Charting demand equipment and patterns facilities Optimal versus • Predictable cycles maximal use of • Random demand capacity fluctuations • Demand patterns by market segment
  • 149. Figure 14-3 Strategies for Shifting Demand to Match CapacityDemand Too High Shift Demand Demand Too Low Use signage to communicate busy days and times • Use sales and advertising to Offer incentives to customers for usage increase business from current during non-peak times Take care of loyal or regular customers first market segments Advertise peak usage times and benefits of non-peak use • Modify the service offering to Charge full price for the service--no appeal to new market segments discounts • Offer discounts or price reductions • Modify hours of operation • Bring the service to the customer
  • 150. Figure 14-4 Strategies for Flexing Capacity to Match DemandDemand Too High Flex Capacity Demand Too Low Stretch time, labor, facilities and equipment Cross-train employees • Perform maintenance Hire part-time employees renovations Request overtime work from employees • Rent or share facilities Schedule vacations Rent or share equipment Subcontract or outsource activities • Schedule employee training • Lay off employees
  • 151. Extent of demand fluctuations over time Extent to which supply is Wide Narrow constrained Peak demand can 1 2 usually be met Electricity Insurance without a major Natural gas Legal services delay Telephone Banking Hospital maternity unit Laundry and dry cleaning Police and fire emergencies Peak demand 4 3 regularly exceeds Accounting and tax Services similar to those in capacity preparation 2 but which have Passenger transportation insufficient capacity for Hotels and motels their base level of business Restaurants TheatersSource: Christopher H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing, 47, 3 (Summer 1983): 17.
  • 152. Table 14-2What is the Constraint on Capacity?Nature of the constraint Type of serviceTime Legal Consulting Accounting MedicalLabor Law firm Accounting firm Consulting firm Health clinicEquipment Delivery services Telecommunication Utilities Health clubFacilities Hotels Restaurants Hospitals Airlines Schools Theaters Churches
  • 153. Waiting Line Issues and Strategiesunoccupied time feels longerpreprocess waits feel longeranxiety makes waits seem longeruncertain waits seem longer than finite waitsunexplained waits seem longerunfair waits feel longerlonger waits are more acceptable for “valuable” servicessolo waits feel longer
  • 154. Provider GAP 4 CUSTOMER COMPANY Service Delivery External Communications GAP 4 to CustomersPart 5 Opener
  • 155. Objectives for Chapter 15:Integrated ServicesMarketing Communications Introduce the concept of Integrated Services Marketing Communication Discuss the key reasons for service communication problems Present four key ways to integrate marketing communication in service organizations Present specific strategies for managing promises, managing customer expectations, educating customers, and managing internal communications Provide perspective on the popular service objective of exceeding customer expectations
  • 156. Communications and the Services Marketing Triangle Company Internal Marketing External Marketing Vertical Communications CommunicationHorizontal Communications Advertising Sales Promotion Public Relations Direct MarketingEmployees Interactive Marketing Customers Personal Selling Customer Service Center Service Encounters Servicescapes Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler
  • 157. Figure 15-3 Manage Customer Expectations Goal: Manage Delivery Improve Service greater than CustomerPromises or equal to Education promises Manage Internal Marketing Communication
  • 158. Figure 15-4 Approaches for Managing Service Promises MANAGING SERVICE PROMISES Goal: Create Coordinate Offer Delivery Effective Make External Realistic Service greater than Services Communication Guarantees or equal toCommunications Promises promises
  • 159. Figure 15-8 Approaches forManaging Customer Expectations Offer Choices Create Tiered-Value Offerings Communicate Criteria for Service Effectiveness Negotiate Unrealistic Expectations Goal: Delivery greater than or equal to promises
  • 160. Figure 15-9 Approaches for Improving Customer Education Teach Customers Prepare Confirm Clarify to Avoid Goal: Performance Expectations Delivery Customers Peak for the to Standards after the Sale Demandgreater than Service or equal to Periods Process and promises Seek Slow Periods
  • 161. Figure 15-10 Approaches for ManagingInternal Marketing Communications Goal: Delivery greater than or equal to promises Create Effective Vertical Communications Create Effective Horizontal Communications Align Back Office Personnel w/ External Customers Create Cross-Functional Teams
  • 162. Objectives for Chapter 17: The Financial and Economic Impact of ServiceExamine the direct effects of service on profitsConsider the impact of service on getting new customersEvaluate the role of service in keeping customersExamine the link between perceptions of service and purchase intentionsEmphasize the importance of selecting profitable customersDiscuss what is know about the key service drivers of overall service quality, customer retention and profitabilityDiscuss the balanced performance scorecard to focus on strategic measurement other than financials
  • 163. ServiceQuality ? Profits
  • 164. ServiceQuality Profits Market Share Reputation Sales Price Premium
  • 165. Costs Volume of MarginsService Customer PurchasesQuality Retention Price Premium Word of Mouth Profits
  • 166. Costs Volume of Margins Purchases Customer Retention Price Behavioral PremiumService Intentions Word of Mouth Profits Sales
  • 167. Figure 17-6 The “80/20” Customer Pyramid Most Profitable What segment spends more with Customers us over time, costs less to maintain, Best Customers spreads positive word of mouth? Other Customers What segment costs us in time, effort and money yet does not provide the returnLeast Profitable we want? What segment is Customers difficult to do business with?
  • 168. Figure 17-7 The Expanded Customer Pyramid Most Profitable What segment spends more with Customers Platinum us over time, costs less to maintain, spreads positive word of mouth? Gold Iron What segment costs us in Lead time, effort and money yet does not provide the returnLeast Profitable we want? What segment is difficult to do business with? Customers
  • 169. Key Drivers Service Encounters Service Encounter Service Encounter Service Behavioral Customer Quality Intentions Retention Profits Service Encounter Service Encounter
  • 170. Figure 17-9 Sample Measurements for the Balanced Scorecard Financial Measures Price Premium Volume Increases Value of Customer Referrals Customer Perspective Value of Cross Sales Operational Long-term Value of Perspective: CustomerService Perceptions Right first time (% hits)Service Expectations Right on time (% hits)Perceived Value Responsiveness (% onBehavioral Intentions: Innovation and time) % Loyalty Learning Perspective Transaction time (hours, % Intent to Switch days) # Customer Number of new products Throughput time Referrals Return on innovation Reduction in waste # Cross Sales Employee skills Process quality # of Defections Time to market Time spent talking to customers Adapted from Kaplan and Norton
  • 171. Figure 17-10 Service Quality Spells Profits Costs Defensive Volume of Margins Marketing Purchases Price PremiumService CustomerQuality Retention Word of Mouth Profits Market Share Sales Offensive Marketing Reputation Price Premium