Services marketing

Contact: +923006641921 Usman Waheed
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Services MarketingServices Marketing

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SMSM
Chapter 1
INTRODUCTION
TO
SERVICES

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SM
Objectives for Chapter 1:Objectives for Chapter 1:
Introduction to ServicesIntroduction 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

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SM IntroductionIntroduction
• 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

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SM Challenges for ServicesChallenges 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

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Examples of ServiceExamples of Service
IndustriesIndustries
• 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

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Figure 1-1Figure 1-1
Tangibility SpectrumTangibility Spectrum
Tangible
Dominant
Intangible
Dominant
Salt
Soft Drinks
Detergents
Automobiles
Cosmetics
Advertising
Agencies
Airlines
Investment
Management
Consulting
Teaching
Fast-food
Outlets
Fast-food
Outlets













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Percent ofPercent of
U.S. Labor Force by IndustryU.S. Labor Force by Industry
0
10
20
30
40
50
60
70
80
1929 1948 1969 1977 1984 1996
PercentofGDP
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.
Yea
r
 Services
 Manufacturing
 Mining & Agriculture

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0
10
20
30
40
50
60
70
80
1948 1959 1967 1977 1987 1996
Percent of U.S. Gross DomesticPercent of U.S. Gross Domestic
Product by IndustryProduct by IndustryPercentofGDP
Year
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.
 Services
 Manufacturing
 Mining & Agriculture

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Differences BetweenDifferences Between
Goods and ServicesGoods and Services
Intangibility
Perishability
Simultaneous
Production
and
Consumption
Heterogeneity

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SM Implications of IntangibilityImplications of Intangibility
 Services cannot be inventoried
 Services cannot be patented
 Services cannot be readily displayed
or communicated
 Pricing is difficult

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SM Implications of HeterogeneityImplications 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

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SM
Implications of SimultaneousImplications of Simultaneous
Production and ConsumptionProduction 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

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SM Implications of PerishabilityImplications of Perishability
 It is difficult to synchronize supply and
demand with services
 Services cannot be returned or resold

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Table 1-2Table 1-2
Services are DifferentServices 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
separate from
consumption
Simultaneous
production 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.
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.

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The Services Marketing TriangleThe Services Marketing Triangle
Internal
Marketing
Interactive Marketing
External
Marketing
Company
(Management)
CustomersEmployees
“enabling the
promise”
“delivering the promise”
“setting the
promise”
Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler

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Ways to Use theWays to Use the
Services Marketing TriangleServices Marketing Triangle
Overall Strategic
Assessment
• How is the service
organization doing
on all three sides of
the triangle?
• Where are the
weaknesses?
• What are the
strengths?
Specific Service
Implementation
• What is being promoted
and by whom?
• How will it be delivered
and by whom?
• Are the supporting
systems in place to
deliver the promised
service?

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Source: Adapted from A. Parasuraman
Company
CustomersProviders
Technology
The Services TriangleThe Services Triangle
and Technologyand Technology

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Services Marketing Mix:Services Marketing Mix:
7 Ps for Services7 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

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SM Traditional Marketing MixTraditional 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

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Expanded Mix for Services --Expanded Mix for Services --
the 7 Psthe 7 Ps
• Product
• Price
• Place
• Promotion
• People
• Process
• Physical Evidence

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Table 1-3Table 1-3
Expanded Marketing Mix forExpanded Marketing Mix for
ServicesServices
PRODUCT PLACE PROMOTION PRICE
Physical good
features
Channel type Promotion
blend
Flexibility
Quality level Exposure Salespeople Price level
Accessories Intermediaries Advertising Terms
Packaging Outlet location Sales
promotion
Differentiation
Warranties Transportation Publicity Allowances
Product lines Storage
Branding

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PEOPLE PHYSICAL
EVIDENCE
PROCESS
Employees Facility design Flow of activities
Customers Equipment Number of steps
Communicating
culture and values
Signage Level of customer
involvement
Employee research Employee dress
Other tangibles
Table 1-3 (Continued)Table 1-3 (Continued)
Expanded Marketing Mix forExpanded Marketing Mix for
ServicesServices

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SM Ways to Use the 7 PsWays to Use the 7 Ps
Overall Strategic
Assessment
• How effective is a firm’s
services marketing mix?
• Is the mix well-aligned
with overall vision and
strategy?
• What are the strengths and
weaknesses in terms of the
7 Ps?
Specific Service
Implementation
• Who is the customer?
• What is the service?
• How effectively does the
services marketing mix for a
service communicate its
benefits and quality?
• What
changes/improvements are
needed?

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Applications ExerciseApplications 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?

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SMSM
Part 1
FOCUS ON THE CUSTOMER

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Perceived
Service
Expected
Service
CUSTOMER
COMPANY
Customer
Gap
GAP 1
GAP 2
Gaps Model of Service QualityGaps Model of Service Quality
GAP 3
External
Communications
to CustomersGAP 4
Service Delivery
Customer-Driven Service
Designs and Standards
Company Perceptions of
Consumer Expectations
Part 1 Opener

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Gaps Model of ServiceGaps Model of Service
QualityQuality
• Customer Gap:
• difference between 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

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SM The Customer GapThe Customer Gap
Expected
Service
Perceived
Service
GAP
Part 1 Opener

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SMSM
Chapter 2
CONSUMER BEHAVIOR
IN SERVICES

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Consumer Behavior inConsumer Behavior in
ServicesServices
• 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

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SM Consumer EvaluationConsumer Evaluation
Processes for ServicesProcesses 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

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Continuum of Evaluation forContinuum of Evaluation for
Different Types of ProductsDifferent Types of Products
Clothing
Jewelry
Furniture
Houses
Automobiles
Restaurantmeals
Vacations
Haircuts
Childcare
Televisionrepair
Legalservices
Rootcanals
Autorepair
Medicaldiagnosis
Difficult to evaluate
Easy to evaluate
{High in search
qualities
High in experience
qualities
High in credence
qualities
{
{Most
Goods
Most
Services

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Categories in ConsumerCategories in Consumer
Decision-Making and Evaluation ofDecision-Making and Evaluation of
ServicesServices
Information
Search
Evaluation of
Alternatives
Purchase and
Consumption
Post-Purchase
Evaluation
 Use of personal sources
 Perceived risk
 Evoked set
 Emotion and mood
 Service provision as
drama
 Service roles and scripts
 Compatibility of
customers
 Attribution of dissatisfaction
 Innovation diffusion
 Brand loyalty

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Categories in Consumer Decision-Categories in Consumer Decision-
Making and Evaluation of ServicesMaking and Evaluation of Services
Information
Search
Evaluation of
Alternatives
Purchase and
Consumption
Post-Purchase
Evaluation
 Use of personal sources
 Perceived risk
 Evoked set
 Emotion and mood
 Service provision as
drama
 Service roles and scripts
 Compatibility of
customers
 Attribution of dissatisfaction
 Innovation diffusion
 Brand loyalty
Culture
 Values and attitudes
 Manners and customs
 Material culture
 Aesthetics
 Educational and social
institutions

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SM Information searchInformation 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

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SM Perceived RiskPerceived 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

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SM Evoked SetEvoked 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

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SM Emotion and MoodEmotion 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

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Service Provision asService Provision as
DramaDrama
• Need to maintain a desirable impression
• Service “actors” need to perform certain
routines
• Physical setting important, smell, music,
use of space, temperature, cleanliness, etc.

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Global Feature:Global Feature:
Differences in the ServiceDifferences in the Service
Experience in the U.S. and JapanExperience in the U.S. and Japan
 Authenticity
 Caring
 Control Courtesy
 Formality
 Friendliness
 Personalization
 Promptness

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SMSM
Chapter 3
CUSTOMER
EXPECTATIONS OF
SERVICES

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Customer Expectations ofCustomer Expectations of
ServiceService
• 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

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SM DEFINITIONSDEFINITIONS
• 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?

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Dual CustomerDual Customer
Expectation LevelsExpectation Levels
(Two levels of expectations)(Two levels of expectations)
Adequate Service
Desired Service
Zone of
Tolerance

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The Zone of ToleranceThe Zone of Tolerance
Adequate Service
Desired Service
Zone of
Tolerance

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Zones of ToleranceZones of Tolerance VARYVARY forfor
Different Service DimensionsDifferent Service Dimensions
Most Important Factors Least Important Factors
Level
of
Expectation
Source: Berry, Parasuraman, and Zeithaml (1993)
Adequate Service
Desired Service
Zone of
Tolerance
Desired
Service
Adequate
Service
Zone
of
Tolerance
Desired Service
Adequate Service

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Zones of ToleranceZones of Tolerance VARYVARY forfor
First-Time and Recovery ServiceFirst-Time and Recovery Service
First-Time Service
Outcome
Process
Outcome
Process
Recovery Service
Expectations
LOW HIGH
Source: Parasuraman, Berry and Zeithaml (1991)

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Factors that InfluenceFactors that Influence
Desired ServiceDesired Service
Desired
Service
Adequate
Service
Zone
of
Tolerance
Enduring Service
Intensifiers
Personal Needs

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• 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

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Adequate ServiceAdequate Service
Desired
Service
Adequate
Service
Zone
of
Tolerance
Self-Perceived
Service Role
Situational
Factors
Perceived Service
Alternatives
Transitory Service
Intensifiers

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• 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

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Desired and Predicted ServiceDesired and Predicted Service
Desired
Service
Adequate
Service
Zone
of
Tolerance
Predicted
Service
Explicit Service
Promises
Implicit Service
Promises
Word-of-Mouth
Past Experience

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SMSM
Chapter 4
CUSTOMER
PERCEPTIONS OF
SERVICE

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Customer Perceptions ofCustomer Perceptions of
ServiceService
• 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

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Customer Perceptions ofCustomer Perceptions of
Service Quality andService Quality and
Customer SatisfactionCustomer Satisfaction
Service
Quality
Reliability
Responsiveness
Assurance
Empathy
Tangibles
Product
Quality
Price
Personal
Factors
Customer
Satisfaction
Situational
Factors

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Factors InfluencingFactors Influencing
• Product/service quality
• Product/service attributes or features
• Consumer Emotions
• Attributions for product/service success or
failure
• Equity or fairness evaluations

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Outcomes ofOutcomes of
• Increased customer retention
• Positive word-of-mouth communications
• Increased revenues

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Relationship between CustomerRelationship between Customer
Satisfaction and Loyalty inSatisfaction and Loyalty in
Competitive IndustriesCompetitive Industries
0%
20%
40%
60%
80%
100%
Very
dissatisfied
Dissatisfied Neither
satisfied nor
dissatisfied
Satisfied Very
satisfied
Satisfaction measure
Loyalty(retention)
Source: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p.
83.

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SM Service QualityService 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.

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SM
The Five Dimensions ofThe Five Dimensions of
Service QualityService Quality
Ability to perform the promised
service dependably and accurately.
Knowledge and courtesy of
employees and their ability to
convey trust and confidence.
Physical facilities, equipment, and
appearance of personnel.
Caring, individualized attention the
firm provides its customers.
Willingness to help customers and
provide prompt service.
Tangibles
Reliability
Responsiveness
Assurance
Empathy

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SM Exercise toExercise to
Identify Service AttributesIdentify Service Attributes
In groups of five, choose a services industry and spend 10 minutes
brainstorming specific requirements of customers in each of the five
service quality dimensions. Be certain the requirements reflect the
customer’s point of view.
Reliability:
Assurance:
Tangibles:
Empathy:
Responsiveness:

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SERVQUAL AttributesSERVQUAL Attributes
Providing service as promised
Dependability in handling customers’
service problems
Performing services right the first time
Providing services at the promised time
Maintaining error-free records
Keeping customers informed as to
when services will be performed
Prompt service to customers
Willingness to help customers
Readiness to respond to customers’
requests
RELIABILITY
RESPONSIVENESS
Employees who instill confidence in
customers
Making customers feel safe in their
transactions
Employees who are consistently courteous
Employees who have the knowledge to
answer customer questions
ASSURANCE
Giving customers individual attention
Employees who deal with customers in a
caring fashion
Having the customer’s best interest at heart
Employees who understand the needs of
their customers
Convenient business hours
EMPATHY
Modern equipment
Visually appealing facilities
Employees who have a
neat, professional
appearance
Visually appealing materials
associated with the service
TANGIBLES

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SM The Service EncounterThe 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

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Check-InCheck-In
Request Wake-Up
Call
Request Wake-Up
Call
CheckoutCheckout
Bellboy Takes to
Room
Bellboy Takes to
Room
Restaurant
Meal
Restaurant
Meal
A Service EncounterA Service Encounter
Cascade for a Hotel VisitCascade for a Hotel Visit

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Sales CallSales Call
Ordering SuppliesOrdering Supplies
BillingBilling
Delivery and InstallationDelivery and Installation
ServicingServicing
A Service EncounterA Service Encounter
Cascade for an IndustrialCascade for an Industrial
PurchasePurchase

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Critical Service EncountersCritical Service Encounters
ResearchResearch
• 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

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Sample Questions for CriticalSample Questions for Critical
Incidents Technique StudyIncidents Technique 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)?

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SM Common Themes in CriticalCommon Themes in Critical
Service EncountersService Encounters
ResearchResearch
Recovery: Adaptability:
Spontaneity:Coping:
Employee Response
to Service Delivery
System Failure
Employee Response
to Customer Needs
and Requests
Employee Response
to Problem Customers
Unprompted and
Unsolicited Employee
Actions and Attitudes

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SM RecoveryRecovery
• Acknowledge
problem
• Explain causes
• Apologize
• Compensate/upgrade
• Lay out options
• Take responsibility
• Ignore customer
• Blame customer
• Leave customer to
fend for him/herself
• Downgrade
• Act as if nothing is
wrong
DO DON’T

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SM AdaptabilityAdaptability
• Recognize the
seriousness of the need
• Acknowledge
• Anticipate
• Attempt to
accommodate
• Explain rules/policies
• Take responsibility
• Exert effort to
accommodate
• Promise, then fail to
follow through
• Ignore
• Show unwillingness to
try
• Embarrass the customer
• Laugh at the customer
• Avoid responsibility
DO DON’T

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SM SpontaneitySpontaneity
• Take time
• Be attentive
• Anticipate needs
• Listen
• Provide information
(even if not asked)
• Treat customers fairly
• Show empathy
• Acknowledge by name
• Exhibit impatience
• Ignore
• Yell/laugh/swear
• Steal from or cheat a
customer
• Discriminate
• Treat impersonally
DO DON’T

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SM CopingCoping
• Listen
• Try to accommodate
• Explain
• Let go of the customer
• Take customer’s
dissatisfaction
personally
• Let customer’s
dissatisfaction affect
others
DO DON’T

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Evidence of Service from theEvidence of Service from the
Customer’s Point of ViewCustomer’s Point of View
People
Process
Physical
Evidence
 Contact employees
 Customer
him/herself
 Other customers
 Operational flow of
activities
 Steps in process
 Flexibility vs.
standard
 Technology vs.
human
 Tangible
communication
 Servicescape
 Guarantees
 Technology

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SMSM
Part 2
LISTENING TO
CUSTOMER
REQUIREMENTS

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SM
Provider GAP 1Provider GAP 1
Company
Perceptions of
Consumer
Expectations
Expected
Service
CUSTOMER
COMPANY
GAP 1
Part 2 Opener

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SMSM
Chapter 5
UNDERSTANDING
CUSTOMER
EXPECTATIONS AND
PERCEPTIONS THROUGH
MARKETING RESEARCH

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SM
Understanding Customer ExpectationsUnderstanding Customer Expectations
and Perceptions throughand Perceptions through
Marketing ResearchMarketing 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

79
SM
Common Research ObjectivesCommon Research Objectives
for Servicesfor 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

80
SM
Criteria for An EffectiveCriteria for An Effective
Services Research ProgramServices Research Program
Research
Objectives
Includes
Qualitative
Research
Includes
Quantitative
Research Includes
Perceptions
and
Expectations
of
Customers
Includes
Measures
of
Loyalty or
Behavioral
Intentions
Balances Cost
and Value of
InformationIncludes
Statistical
Validity
When Necessary
Measures
Priorities
or
Importance
Occurs
with
Appropriate
Frequency

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SM
Portfolio of Services ResearchPortfolio of Services Research
Customer Complaint
Solicitation
“Relationship” Surveys
Post-Transaction Surveys
Customer Focus Groups
“Mystery Shopping” of
Service Providers
Employee Surveys
Lost Customer Research
Identify dissatisfied customers to attempt recovery;
identify most common categories of service failure
for remedial action
Obtain customer feedback while service experience is still
fresh; act on feedback quickly if negative patterns develop
Use as input for quantitative surveys; provide a
forum for customers to suggest service-improvement
ideas
Assess company’s service performance compared to
competitors; identify service-improvement priorities; track
service improvement over time
Measure individual employee service behaviors for use in
coaching, training, performance evaluation, recognition and
rewards; identify systemic strengths and weaknesses in
service
Measure internal service quality; identify employee-
perceived obstacles to improve service; track
employee morale and attitudes
Determine the reasons why customers defect
Research Objective Type of Research
Future Expectations Research
To forecast future expectations of customers
To develop and test new service ideas

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SM
Stages in the ResearchStages in the Research
ProcessProcess
• 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

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Service Quality PerceptionsService Quality Perceptions
Relative to Zones of ToleranceRelative to Zones of Tolerance
by Dimensionsby Dimensions
Retail Chain
9
8
7
6
5
4
3
2
1
0 Reliability Responsiveness Assurance Empathy Tangibles
OO O
O
Zone of Tolerance S.Q. PerceptionO
O

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SM
Service Quality PerceptionsService Quality Perceptions
Relative to Zones of Tolerance byRelative to Zones of Tolerance by
DimensionsDimensions
Computer
Manufacturer
10
8
6
4
2
0
Reliability Responsiveness Assurance Empathy Tangibles
OO O
O
O
Zone of Tolerance S.Q. PerceptionO

85
SM
Importance/Performance MatrixImportance/Performance Matrix
HIGH
HIGH
LOW
Performance
Importance


 






Attributes to Improve Attributes to Maintain
High
Leverage
Attributes to De-emphasizeAttributes to Maintain
Low
Leverage

86
SMSM
Chapter 6
BUILDING
CUSTOMER
RELATIONSHIPS

87
SM
Building CustomerBuilding Customer
RelationshipsRelationships
• 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”

88
SM Relationship MarketingRelationship 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

89
SM Lifetime Value of a CustomerLifetime 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??

90
SM
A Loyal Customer is One Who...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

91
SM Customer Loyalty ExerciseCustomer 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?

92
SM
Benefits to the OrganizationBenefits to the Organization
of Customer Loyaltyof 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

93
SM Benefits to the CustomerBenefits 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

94
SM
““The Customer Isn’t AlwaysThe Customer Isn’t Always
Right”Right”
• Not all customers are good relationship
customers:
– wrong segment
– not profitable in the long term
– difficult customers

95
SM
Strategies for BuildingStrategies for Building
RelationshipsRelationships
• Foundations:
– Excellent Quality/Value
– Careful Segmentation
• Bonding Strategies:
– Financial Bonds
– Social & Psychological Bonds
– Structural Bonds
– Customization Bonds
• Relationship Strategies Wheel

96
SM
Getting
Satisfying
Retaining
Enhancing
Customer Goals ofCustomer Goals of
Relationship MarketingRelationship Marketing

97
SM
Underlying Logic of CustomerUnderlying Logic of Customer
Retention Benefits to theRetention Benefits to the
OrganizationOrganization
Customer Retention &
Increased Profits
Employee Loyalty
Quality
Service
Customer Satisfaction

98
SM
Steps in Market SegmentationSteps in Market Segmentation
andand
Targeting for ServicesTargeting for Services
Identify
Bases for
Segmenting
the Market
STEP 1:
Develop
Profiles of
Resulting
Segments
STEP 2:
Develop
Measures
of Segment
Attractive-
ness
STEP 3:
Select the
Target
Segments
STEP4:
Ensure that
Segments
Are
Compatible
STEP 5:

99
SM
Excellent
Quality
and
Value
Levels of Retention StrategiesLevels of Retention Strategies
I. Financial
Bonds
II.
Social
Bonds
IV.
Structural
Bonds
III. Customization
Bonds
Volume and
Frequency
Rewards
Bundling and
Cross Selling
Stable
Pricing
Social Bonds
Among
Customers
Personal
Relationships
Continuous
Relationships
Customer
Intimacy
Mass
Customization
Anticipation
/ Innovation
Shared
Processes
and
Equipment
Joint
Investments
Integrated
Information
Systems

100
SMSM
Chapter 7
SERVICE RECOVERY

101
SM
Service RecoveryService 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

102
SM
Unhappy Customers’Unhappy Customers’
Repurchase IntentionsRepurchase Intentions
95%
70%
46%
37%
82%
54%
19%
9%
Complaints Resolved Quickly
Complaints Resolved
Complaints Not Resolved
Minor complaints ($1-$5 losses) Major complaints (over $100 losses)
Unhappy Customers Who Don’t Complain
Unhappy Customers Who Do Complain
Percent of Customers Who Will Buy Again
Source: Adapted from data reported by the Technical Assistance Research Program.

103
SM
Customer ResponseCustomer Response
Following Service FailureFollowing Service Failure
Service Failure
Do NothingTake Action
Stay with ProviderSwitch Providers
Complain to
Provider
Complain to
Family & Friends
Complain to
Third Party
Stay with ProviderSwitch Providers

104
SM
Service Recovery StrategiesService Recovery Strategies
Learn from
Recovery Experiences
Treat Custom
ers
Fairly
Learnfrom
LostCustomers
Welcome and
Encourage Complaints
Fail Safe
the
Service
ActQuickly
Service
Recovery
Strategies

105
SM
Causes Behind ServiceCauses Behind Service
SwitchingSwitching
Service
Switching
Behavior
• High Price
• Price Increases
• Unfair Pricing
• Deceptive Pricing
Pricing
• Location/Hours
• Wait for Appointment
• Wait for Service
Inconvenience
• Service Mistakes
• Billing Errors
• Service Catastrophe
Core Service Failure
• Uncaring
• Impolite
• Unresponsive
• Unknowledgeable
Service Encounter Failures
• Negative Response
• No Response
• Reluctant Response
Response to Service Failure
• Found Better Service
Competition
• Cheat
• Hard Sell
• Unsafe
• Conflict of Interest
Ethical Problems
• Customer Moved
• Provider Closed
Involuntary Switching
Source: Sue Keaveney

106
SM Service GuaranteesService 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?)

107
SM
Table 7-7Table 7-7
Characteristics of anCharacteristics of an
Effective Service GuaranteeEffective 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 customer's
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.

108
SM
Why a Good GuaranteeWhy a Good Guarantee
WorksWorks
• forces company to focus on customers
• sets clear standards
• generates feedback
• forces company to understand why it failed
• builds “marketing muscle”

109
• 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

110
• 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”

111
SMSM
Part 3
ALIGNING STRATEGY,
SERVICE DESIGN
AND STANDARDS

112
SM
CUSTOMER
COMPANY
GAP 2
Customer-Driven
Service Designs and
Standards
Company
Perceptions of
Consumer
Expectations
Part 3 Opener

113
SMSM
Chapter 8
SERVICE DEVELOPMENT
AND DESIGN

114
SM
Service Development andService Development and
DesignDesign
• 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

115
SM
Risks of Relying on WordsRisks of Relying on Words
Alone toAlone to
Describe ServicesDescribe Services
 Oversimplification
 Incompleteness
 Subjectivity
 Biased Interpretation

116
SM
New Service Development ProcessNew Service Development Process
Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997.
 Business Strategy Development or Review
 New Service Strategy Development
 Idea Generation
 Concept Development and Evaluation
 Business Analysis
 Service Development and Testing
 Postintroduction Evaluation
 Commercialization
 Market Testing
Screen ideas against new service strategy
Test concept with customers and employees
Test for profitability and feasibility
Conduct service prototype test
Test service and other marketing-mix elements
Front End
Planning
Implementation

117
SM
New Service Strategy MatrixNew Service Strategy Matrix
for Identifying Growthfor Identifying Growth
OpportunitiesOpportunities
Markets
Offerings
Existing
Services
New
Services
Current Customers New Customers
SHARE BUILDING
DIVERSIFICATION
MARKET
DEVELOPMENT
SERVICE
DEVELOPMENT

Service Mapping/BlueprintingService 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.
Service
Mappin
g
Process
Points of Contact
Evidence

119
SM Service Blueprint ComponentsService Blueprint Components
CUSTOMER ACTIONS
line of interaction
“ONSTAGE” CONTACT EMPLOYEE ACTIONS
line of visibility
“BACKSTAGE” CONTACT EMPLOYEE ACTIONS
line of internal interaction
SUPPORT PROCESSES

120
SM
Driver
Picks
Up Pkg.
Dispatch
Driver
Airport
Receives
& Loads
Sort
Packages
Load on
Airplane
Fly to
Destinatio
n
Unload
&
Sort
Load
On
Truck
Express Mail Delivery ServiceExpress Mail Delivery Service
SUPPORT
PROCESS
CONTACTPERSON
(BackStage)(OnStage)
CUSTOME
R
PHYSICAL
EVIDENCE
Customer
Calls
Customer
Gives
Package
Truck
Packaging
Forms
Hand-held
Computer
Uniform
Receive
Package
Truck
Packaging
Forms
Hand-held
Computer
Uniform
Deliver
Package
Customer
Service
Order
Fly to
Sort
Center

121
SM
Overnight Hotel StayOvernight Hotel StaySUPPORTPROCESS
CONTACTPERSON
(BackStage)(OnStage)
CUSTOMER
Hotel
Exterior
Parking
Cart for
Bags
Desk
Registration
Papers
Lobby
Key
Elevators
Hallways
Room
Cart for
Bags
Room
Amenities
Bath
Menu Delivery
Tray
Food
Appearance
Food
Bill
Desk
Lobby
Hotel
Exterior
Parking
Arrive
at
Hotel
Give Bags
to
Bellperson
Check in
Go to
Room
Receive
Bags
Sleep
Shower
Call
Room
Service
Receive
Food
Eat
Check out
and
Leave
Greet and
Take
Bags
Process
Registration
Deliver
Bags
Deliver
Food
Process
Check Out
Take Bags
to Room
Take
Food
Order
Registration
System
Prepare
Food
Registration
System
PHYSICAL
EVIDENCE

122
SM
Building a Service BlueprintBuilding a Service Blueprint
Step 1
Identify the
process to
be blue-
printed.
Step 1
Identify the
process to
be blue-
printed.
Step 2
Identify the
customer or
customer
segment.
Step 2
Identify the
customer or
customer
segment.
Step 3
Map the
process from
the
customer’s
point of view.
Step 3
Map the
process from
the
customer’s
point of view.
Step 4
Map contact
employee
actions,
onstage and
back-stage.
Step 4
Map contact
employee
actions,
onstage and
back-stage.
Step 5
Link customer
and contact
person
activities to
needed
support
functions.
Step 5
Link customer
and contact
person
activities to
needed
support
functions.
Step 6
Add
evidence of
service at
each
customer
action step.
Step 6
Add
evidence of
service at
each
customer
action step.

123
SM
Application of ServiceApplication of Service
BlueprintsBlueprints
• 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

124
SM
Blueprints Can Be Used By:Blueprints Can Be Used By:
• Service Marketers
– creating realistic customer
expectations
• service system design
• promotion
• Operations Management
– rendering the service as
promised
• managing fail points
• training systems
• quality control
• Human Resources
– empowering the human
element
• job descriptions
• selection criteria
• appraisal systems
• System Technology
– providing necessary tools:
• system specifications
• personal preference databases

125
SMSM
Chapter 9
CUSTOMER-DEFINED
SERVICE STANDARDS

126
SM
Customer-defined ServiceCustomer-defined Service
StandardsStandards
• 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

127
SM
AT&T’s Process Map for MeasurementsAT&T’s Process Map for Measurements
Reliability (40%)
Easy To Use (20%)
Features / Functions (40%)
Knowledge (30%)
Responsive (25%)
Follow-Up (10%)
Delivery Interval Meets Needs (30%)
Does Not Break (25%)
Installed When Promised (10%)
No Repeat Trouble (30%)
Fixed Fast (25%)
Kept Informed (10%)
Accuracy, No Surprise (45%)
Resolve On First Call (35%)
Easy To Understand (10%)
Business Process Customer Need Internal Metric
30% Product
30% Sales
10% Installation
15% Repair
15% Billing
% Repair Call
% Calls for Help
Functional Performance Test
Supervisor Observations
% Proposal Made on Time
% Follow Up Made
Average Order Interval
% Repair Reports
% Installed On Due Date
% Repeat Reports
Average Speed Of Repair
% Customers Informed
% Billing Inquiries
% Resolved First Call
% Billing Inquiries
Total
Quality
Source: AT&T General Business Systems

128
SM
Exercise for CreatingExercise for Creating
Customer-Defined ServiceCustomer-Defined Service
StandardsStandards
• 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

129
SM
Service Encounter Customer Requirements Measurements
Service
Quality
Customer-Driven Standards andCustomer-Driven Standards and
Measurements ExerciseMeasurements Exercise

130
SM
Getting to Actionable StepsGetting to Actionable Steps
Satisfaction Value
Relationship
Solution Provider
Reliability Empathy
Assurance Tangibles
Responsiveness Price
Delivers on Time
Returns Calls Quickly
Knows My Industry
Delivers by Weds 11/4
Returns Calls in 2 Hrs
Knows Strengths of
My Competitors
Requirements:
Abstract
Concrete
Dig
Deeper
Dig
Deeper
Dig
Deeper
Diagnosticity:
Low
High
General Concepts
Dimensions
Behaviors
and Actions
Attributes

131
SM
Process for SettingProcess for Setting
Customer-Defined StandardsCustomer-Defined Standards
1. Identify Existing or Desired Service Encounter Sequence
2. Translate Customer Expectations Into Behaviors/Actions2. Translate Customer Expectations Into Behaviors/Actions
4. Set Hard or Soft Standards
5. Develop Feedback
Mechanisms
5. Develop Feedback
Mechanisms
7. Track Measures Against Standards
Measure by
Audits or
Operating Data
Hard Soft
Measure by
Transaction-
Based Surveys
3. Select Behaviors/Actions for Standards3. Select Behaviors/Actions for Standards
6. Establish Measures and Target Levels6. Establish Measures and Target Levels
8. Update Target Levels and Measures8. Update Target Levels and Measures

132
SM Importance/Performance MatrixImportance/Performance Matrix
HIGH
HIGH
Performance







10.0
8.0
7.0
9.0
LOW
8.0 9.0 10.0
Importance
Improve Maintain
Delivers on promises specified in proposal/contract (9.49, 8.51)
Gets project within budget, on time (9.31, 7.84)
Completes projects
correctly, on time (9.29, 7.68)
Does whatever it takes to
correct problems (9.26, 7.96)
Provides equipment that operates as vendor said it would (9.24, 8.14)
Gets price we originally agreed upon (9.21, 8.64)
Takes responsibility for their mistakes (9.18, 8.01)
Delivers or installs on
promised date (9.02, 7.84)
Tells me cost ahead of time (9.06, 8.46)

Gets back to me when
promised (9.04, 7.63)

133
SM
Linkage between Soft Measures andLinkage between Soft Measures and
Hard Measures for Speed ofHard Measures for Speed of
Complaint HandlingComplaint Handling
S
A
T
I
S
F
A
C
T
I
O
N
2 4 6 8 12 16 20 24
W O R K I N G H O U R S
Large Customers
Small Customers
10
9
8
7
6
5
4
3
2
1
0

134
SM
Aligning CompanyAligning Company
Processes with Customer ExpectationsProcesses with Customer Expectations
Customer Expectations
Customer
Process
Blueprint
Company
Process
Blueprint
Company Sequential Processes
AA BB CC DD EE FF GG HH
40 Days
New Card
Mailed
Lost Card
Reported
Report Lost
Card
Receive New
Card
48 Hours

135
SMSM
Chapter 10
PHYSICAL EVIDENCE
AND THE SERVICESCAPE

136
SM
Physical Evidence and thePhysical Evidence and the
ServicescapeServicescape
• 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

137
SM
Table 10-1Table 10-1
Elements of PhysicalElements of Physical
EvidenceEvidence
Servicescape Other tangibles
Facility exterior
Exterior design
Signage
Parking
Landscape
Surrounding environment
Facility interior
Interior design
Equipment
Signage
Layout
Air quality/temperature
Business cards
Stationery
Billing statements
Reports
Employee dress
Uniforms
Brochures
Internet/Web pages

138
SM
Examples of Physical Evidence from theExamples of Physical Evidence from the
Customer’s Point of ViewCustomer’s Point of View
Service Physical evidence
Servicescape Other tangibles
Insurance Not applicable Policy itself
Billing statements
Periodic updates
Company brochure
Letters/cards
Hospital Building exterior
Parking
Signs
Waiting areas
Admissions office
Patient care room
Medical equipment
Recovery room
Uniforms
Reports/stationery
Billing statements
Airline Airline gate area
Airplane exterior
Airplane interior (décor, seats, air
quality)
Tickets
Food
Uniforms
Express mail Not applicable Packaging
Trucks
Uniforms
Computers
Sporting
event
Parking, Seating, Restrooms
Stadium exterior
Ticketing area, Concession Areas
Entrance, Playiing Field
Signs
Tickets
Program
Uniforms

139
SM
Typology of Service OrganizationsTypology of Service Organizations
Based on Variations in FormBased on Variations in Form
and Use of the Servicescapeand Use of the Servicescape
Complexity of the servicescape evidence
Servicescape
usage
Elaborate Lean
Self-service
(customer only)
Golf Land
Surf 'n' Splash
ATM
Ticketron
Post office kiosk
Internet services
Express mail drop-off
Interpersonal
services
(both customer and
employeee)
Hotel
Restaurants
Health clinic
Hospital
Bank
Airline
School
Dry cleaner
Hot dog stand
Hair salon
Remote service
(employee only)
Telephone company
Insurance company
Utility
Many professional services
Telephone mail-order desk
Automated voice-messaging-
based services

140
SM
A Framework for UnderstandingA Framework for Understanding
Environment-user RelationshipsEnvironment-user Relationships
in Service Organizationsin Service Organizations
Source: Adapted from Mary Jo Bitner, “Servicescapes.”
PHYSICAL
ENVIRONMENTAL
DIMENSIONS
HOLISTIC
ENVIRONMENT
INTERNAL
RESPONSES
BEHAVIOR
Ambient
Conditions
Space/Function
Signs, Symbols,
and Artifacts
Perceived
Servicescape
Cognitive
Emotional
Physiological
Cognitive
Emotional
Physiological
Employee
Responses
Customer
Responses
Individual
Behaviors
Social
Interactions
between and
among
customer and
employees
Individual
Behaviors

141
SMSM
Part 4
DELIVERING AND
PERFORMING SERVICE

142
SM
CUSTOMER
COMPANY
Service Delivery
GAP 3
Customer-Driven
Service Designs and
Standards
Part 4 Opener

143
SMSM
Chapter 11
EMPLOYEES’ ROLES IN
SERVICE DELIVERY

144
SM
Employees’ Roles inEmployees’ Roles in
Service DeliveryService 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

145
SM Service EmployeesService 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

146
SM Service EmployeesService 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

147
SM
Boundary Spanners InteractBoundary Spanners Interact
with Both Internalwith Both Internal
and External Constituentsand External Constituents
Internal Environment
External Environment

148
SM
Sources of Conflict forSources of Conflict for
Boundary-Spanning WorkersBoundary-Spanning Workers
• Person vs. Role
• Organization vs. Client
• Client vs. Client
• Quality vs. Productivity

149
SM
Human Resource Strategies for Closing GAP 3Human Resource Strategies for Closing GAP 3
Customer-
oriented
Service
Delivery
Hire the
Right People
Provide
Needed Support
Systems
Retain the
Best
People
Develop
People to
Deliver
Service
Quality
Com
pete
for
the
Best
People
Hire for
Service
Competencies
and Service
Inclination
Provide
Supportive
Technology
and
Equipment
Treat
Employees
as
Customers
Empower
Employees
Be the
Preferred
Em
ployer
Train
for
Technicaland
Interactive
SkillsProm
ote
Team
work
Measure
Internal
Service
Quality
Develop
Service-
oriented
Internal
Processes
Measureand
RewardStrongService
Providers
Include
Employeesin
the
Company’s
Vision

151
SM Service CultureService 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.”

152
SMSM
Chapter 12
CUSTOMERS’ ROLES IN
SERVICE DELIVERY

153
SM
Customers’ Roles in ServiceCustomers’ Roles in Service
DeliveryDelivery
• 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

154
SM
Importance ofImportance of OtherOther
Customers in ServiceCustomers in Service
DeliveryDelivery
• 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

155
SM How Customers Widen Gap 3How 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

156
SM
Customer Roles in ServiceCustomer Roles in Service
DeliveryDelivery
Productive Resources
Contributors to
Quality and
Satisfaction
Competitors

157
SM
Customers as ProductiveCustomers as Productive
ResourcesResources
• “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?

158
SM
Customers as ContributorsCustomers as Contributors
to Service Quality andto Service Quality and
SatisfactionSatisfaction
• 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

159
SM
Customers as CompetitorsCustomers 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

160
SM
Technology Spotlight:Technology Spotlight:
Services Production ContinuumServices Production Continuum
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
Customer Production Joint Production Firm Production

161
SM
Strategies for EnhancingStrategies for Enhancing
Customer ParticipationCustomer Participation
Effective
Customer
Participation
Recruit, Educate,
and Reward
Customers
Define Customer
Jobs
Manage the
Customer
Mix

162
SM
Strategies for EnhancingStrategies for Enhancing
Customer ParticipationCustomer Participation
1. Define customers’ jobs
- helping himself
- helping others
- promoting the company
2. Individual differences: not everyone wants
to participate

163
SM
Strategies for Recruiting,Strategies for Recruiting,
Educating and RewardingEducating and Rewarding
CustomersCustomers
1. Recruit the right customers
2. Educate and train customers to perform
effectively
3. Reward customers for their contribution
4. Avoid negative outcomes of inappropriate
customer participation
Manage the Customer Mix

164
SMSM
Chapter 14
MANAGING DEMAND
AND CAPACITY

165
SM
Managing Demand andManaging Demand and
CapacityCapacity
• 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

166
SM
Understanding CapacityUnderstanding Capacity
Constraints and DemandConstraints and Demand
PatternsPatterns
• Time, labor,
equipment and
facilities
• Optimal versus
maximal use of
capacity
• Charting demand
patterns
• Predictable cycles
• Random demand
fluctuations
• Demand patterns by
market segment
Capacity Constraints Demand Patterns

167
SM
Strategies for Shifting DemandStrategies for Shifting Demand
to Match Capacityto Match Capacity
• Use signage to communicate
busy days and times
• Offer incentives to customers
for usage during non-peak
times
• Take care of loyal or regular
customers first
• Advertise peak usage times and
benefits of non-peak use
• Charge full price for the
service--no discounts
• Use sales and advertising to
increase business from current
market segments
• Modify the service offering to
appeal to new market segments
• Offer discounts or price
reductions
• Modify hours of operation
• Bring the service to the
customer
Demand Too High Demand Too LowShift Demand

168
SM
Strategies for Flexing CapacityStrategies for Flexing Capacity
to Match Demandto Match Demand
• Stretch time, labor, facilities
and equipment
• Cross-train employees
• Hire part-time employees
• Request overtime work from
employees
• Rent or share facilities
• Rent or share equipment
• Subcontract or outsource
activities
• Perform maintenance
renovations
• Schedule vacations
• Schedule employee training
• Lay off employees
Demand Too High Demand Too LowFlex Capacity

169
SM
What is the Nature of DemandWhat is the Nature of Demand
Relative to Supply?Relative to Supply?
Extent of demand fluctuations over time
Extent to which
supply is
constrained
Wide Narrow
Peak demand can
usually be met
without a major
delay
1
Electricity
Natural gas
Telephone
Hospital maternity unit
Police and fire
emergencies
2
Insurance
Legal services
Banking
Laundry and dry cleaning
Peak demand
regularly exceeds
capacity
4
Accounting and tax
preparation
Passenger transportation
Hotels and motels
Restaurants
Theaters
3
Services similar to those in
2 but which have
insufficient capacity for
their base level of business
Source: Christopher H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing, 47, 3 (Summer 1983): 17.

170
SM
What is the Constraint onWhat is the Constraint on
Capacity?Capacity?
Nature of the constraint Type of service
Time Legal
Consulting
Accounting
Medical
Labor Law firm
Accounting firm
Consulting firm
Health clinic
Equipment Delivery services
Telecommunication
Utilities
Health club
Facilities Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches

171
SM Waiting Line IssuesWaiting Line Issues
and Strategiesand 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

172
SMSM
Part 5
MANAGING SERVICE
PROMISES

173
SM
CUSTOMER
COMPANY
External
Communications
to CustomersGAP 4
Service Delivery
Part 5 Opener

174
SMSM
Chapter 15
INTEGRATED
MARKETING
COMMUNICATION

175
SM
Integrated ServicesIntegrated Services
Marketing CommunicationsMarketing 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

176
SM
Communications and theCommunications and the
Internal MarketingInternal Marketing
Vertical Communications
Horizontal Communications
Interactive Marketing
Personal Selling
Customer Service Center
Service Encounters
Servicescapes
External Marketing
Communication
Advertising
Sales Promotion
Public Relations
Direct Marketing
Company
CustomersEmployees
Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler

177
SM
Approaches forApproaches for
Integrating Services MarketingIntegrating Services Marketing
CommunicationCommunication
Goal:
Delivery
greater than
or equal to
promises
Improve
Customer
Education
Manage
Service
Promises
Manage
Customer
Expectations
Manage
Internal
Marketing
Communication

178
SM
Goal:
Delivery
greater than
or equal to
promises
Offer
Service
Guarantees
Create
Effective
Services
Communications
MANAGING SERVICE PROMISES
Make
Realistic
Promises
Coordinate
External
Communication
Managing Service PromisesManaging Service Promises

179
SM
Communicate Criteria for
Service Effectiveness
Create Tiered-Value
Offerings
Managing Customer ExpectationsManaging Customer Expectations
Negotiate
Unrealistic
Expectations
Goal:
Delivery
greater than
or equal to
promises
Offer Choices

180
SM
Goal:
Delivery
greater than
or equal to
promises
Prepare
Customers
for the
Service
Process
Clarify
Expectations
after the Sale
Improving Customer EducationImproving Customer Education
Teach
Customers
to Avoid
Peak
Demand
Periods
and
Seek Slow
Periods
Confirm
Performance
to Standards

181
SM
Goal:
Delivery
greater than
or equal to
promises
Approaches for ManagingApproaches for Managing
Internal Marketing CommunicationsInternal Marketing Communications
Create Effective
Vertical
Communications
Align Back
Office Personnel
w/ External Customers
Create Effective
Horizontal
Communications
Create
Cross-Functional
Teams

182
SMSM
Chapter 17
THE FINANCIAL AND
ECONOMIC IMPACT OF
SERVICE QUALITY

183
SM
The Financial and EconomicThe Financial and Economic
Impact of ServiceImpact 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

184
SM
The Direct Relationship betweenThe Direct Relationship between
Service and ProfitsService and Profits
Profits
?Service
Quality

185
SM
Offensive Marketing Effects ofOffensive Marketing Effects of
Service on ProfitsService on Profits
Profits
Market
Share
Reputation Sales
Price
Premium
Service
Quality

186
SM
Defensive Marketing Effects ofDefensive Marketing Effects of
Service on ProfitService on Profit
Margins
Profits
Customer
Retention
Costs
Price
Premium
Word of
Mouth
Volume of
PurchasesService
Quality

187
SM
Perceptions of Service,Perceptions of Service,
BehavioralBehavioral
Intentions and ProfitsIntentions and Profits
Customer
Retention
Costs
Price
Premium
Word of
Mouth
Margins
Profits
Volume of
Purchases
Service Behavioral
Intentions
Sales

188
SM
The “80/20” Customer PyramidThe “80/20” Customer Pyramid
Most Profitable
Customers
Least Profitable
Customers
What segment spends more with
us over time, costs less to maintain,
spreads positive word of mouth?
What segment costs us in
time, effort and money yet
does not provide the return
we want? What segment is
difficult to do business with?
Other
Customers
Best
Customers

189
SM
The Expanded Customer PyramidThe Expanded Customer Pyramid
Most Profitable
Customers
Least Profitable
Customers
What segment spends more with
us over time, costs less to maintain,
spreads positive word of mouth?
What segment costs us in
time, effort and money yet
does not provide the return
we want? What segment is
difficult to do business with?
Gold
Iron
Lead
Platinum

190
SM
The Key Drivers of Service Quality,The Key Drivers of Service Quality,
Customer Retention, and ProfitsCustomer Retention, and Profits
Key Drivers
Service
Quality
Service
Encounter
Service
Encounter
Service
Encounter
Customer
Retention
Behavioral
Intentions Profits
Service
Encounter
Service Encounters

191
SM
Sample Measurements for theSample Measurements for the
Balanced ScorecardBalanced Scorecard
Adapted from Kaplan and Norton
Innovation and
Learning Perspective
Customer
Perspective
Service Perceptions
Service Expectations
Perceived Value
Behavioral Intentions:
Operational
Perspective:
Right first time (% hits)
Right on time (% hits)
Responsiveness (% on
time)
Transaction time (hours,
days)
Throughput time
Reduction in waste
Process quality
Financial Measures
Price Premium
Volume Increases
Value of Customer
Referrals
Value of Cross Sales
Long-term Value of
Customer
% Loyalty
% Intent to Switch
# Customer
Referrals
# Cross Sales
# of Defections
Number of new products
Return on innovation
Employee skills
Time to market
Time spent talking to
customers

192
SM
Service Quality Spells ProfitsService Quality Spells Profits
Service
Quality
Customer
Retention
Costs
Price
Premium
Word of
Mouth
Margins
Profits
Defensive
Marketing
Volume of
Purchases
Market
Share
Reputation
Sales
Price
Premium
Offensive
Marketing

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