Services marketing


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Services marketing

  1. 1. 1SM Services Marketing
  3. 3. 3 Objectives for Chapter 1:SM 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
  4. 4. 4SM 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
  5. 5. 5SM 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
  6. 6. 6 Examples of ServiceSM 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
  7. 7. 7 Figure 1-1 SM Tangibility Spectrum Salt  Soft Drinks  Detergents  Automobiles  Cosmetics Fast-food  Outlets  Intangible DominantTangible Dominant Fast-food Outlets  Advertising Agencies  Airlines  Investment Management  Consulting  Teaching
  8. 8. Figure 1-2 8SM Percent of U.S. Labor Force by Industry 80 70 Percent 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.
  9. 9. Figure 1-3 9SM Percent of U.S. Gross Domestic Product by Industry 80 Percent 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.
  10. 10. 10 Differences BetweenSM Goods and Services Intangibility Heterogeneity Simultaneous Production Perishability and Consumption
  11. 11. 11SM Implications of Intangibility Services cannot be inventoried Services cannot be patented Services cannot be readily displayed or communicated Pricing is difficult
  12. 12. 12SM 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
  13. 13. 13 Implications of SimultaneousSM 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
  14. 14. 14SM Implications of Perishability  It is difficult to synchronize supply and demand with services  Services cannot be returned or resold
  15. 15. 15SM 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.
  16. 16. 16 Figure 1-5SM The Services Marketing Triangle Company (Management) Internal External Marketing Marketing “enabling the “setting the promise” promise” Employees Interactive Marketing Customers “delivering the promise” Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler
  17. 17. 17 Ways to Use theSM 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?
  18. 18. 18 Figure 1-6SM The Services Triangle and Technology Company Technology Providers Customers Source: Adapted from A. Parasuraman
  19. 19. 19SM 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
  20. 20. 20SM 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
  21. 21. 21SM Expanded Mix for Services -- the 7 Ps • Product • Price • Place • Promotion • People • Process • Physical Evidence
  22. 22. 22 Table 1-3SM 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
  23. 23. 23 Table 1-3 (Continued)SM Expanded Marketing Mix for Services PEOPLE PHYSICAL PROCESS EVIDENCE Employees Facility design Flow of activities Customers Equipment Number of steps Communicating Signage Level of customer culture and values involvement Employee research Employee dress Other tangibles
  24. 24. 24SM 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 services marketing mix for a with overall vision and service communicate its strategy? benefits and quality?• What are the strengths and • What weaknesses in terms of the changes/improvements are 7 Ps? needed?
  25. 25. 25 Services Marketing TriangleSM Applications 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?
  26. 26. 26SM Part 1FOCUS ON THE CUSTOMER
  27. 27. 27 SM 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
  28. 28. 28 Gaps Model of Service SM Quality • 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:Part 1 Opener • not matching performance to promises
  29. 29. 29 SM The Customer Gap Expected Service GAP Perceived ServicePart 1 Opener
  31. 31. 31 Objectives for Chapter 2:SM 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
  32. 32. 32SM Consumer Evaluation Processes 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
  33. 33. 33 Figure 2-1 SM Continuum of Evaluation for Different Types of Products Most Most Goods ServicesEasy to evaluate Difficult to evaluate Clothing Jewelry Furniture Houses Automobiles Restaurant meals Vacations Haircuts Child care Television repair Legal services Root canals Auto repair Medical diagnosis { { High in search qualities High in experience High in credence qualities qualities {
  34. 34. Figure 2-2 34 Categories in ConsumerSM 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 dissatisfaction drama  Service roles and scripts  Innovation diffusion  Compatibility of  Brand loyalty customers
  35. 35. 35 Figure 2-3SM 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 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
  36. 36. 36SM 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
  37. 37. 37SM 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
  38. 38. 38SM 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
  39. 39. 39SM 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
  40. 40. 40SM 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.
  41. 41. 41 Global Feature:SM Differences in the Service Experience in the U.S. and Japan  Authenticity  Caring  Control Courtesy  Formality  Friendliness  Personalization  Promptness
  43. 43. 43 Objectives for Chapter 3:SM 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
  44. 44. 44SM 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?
  45. 45. 45 Figure 3-1SM Dual Customer Expectation Levels (Two levels of expectations) Desired Service Zone of Tolerance Adequate Service
  46. 46. 46SM Figure 3-2 The Zone of Tolerance Desired Service Zone of Tolerance Adequate Service
  47. 47. Figure 3-3 47 SM 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)
  48. 48. Figure 3-4 48 Zones of Tolerance VARY forSM First-Time and Recovery Service First-Time Service Outcome Process Recovery Service Outcome Process LOW HIGH ExpectationsSource: Parasuraman, Berry and Zeithaml (1991)
  49. 49. Figure 3-5 49SM Factors that Influence Desired Service Enduring Service Intensifiers Desired Service Personal Needs Zone of Tolerance Adequate Service
  50. 50. 50SM• 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
  51. 51. 51 Figure 3-6SM Factors that Influence Adequate Service Transitory Service Intensifiers Desired Perceived Service Service Alternatives Zone of Tolerance Self-Perceived Service Role Adequate Service Situational Factors
  52. 52. 52SM• 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
  53. 53. Figure 3-7 53 Factors that InfluenceSM Desired and Predicted Service Explicit Service Promises Implicit Service Promises Desired Word-of-Mouth Service Zone Past Experience of Tolerance Adequate Predicted Service Service
  55. 55. 55 Objectives for Chapter 4:SM 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
  56. 56. Figure 4-1 56 Customer Perceptions of SM Service Quality and Customer Satisfaction Reliability Situational FactorsResponsiveness Service Quality Assurance Customer Empathy Satisfaction Product Quality Tangibles Personal Price Factors
  57. 57. 57 Factors InfluencingSM Customer Satisfaction • Product/service quality • Product/service attributes or features • Consumer Emotions • Attributions for product/service success or failure • Equity or fairness evaluations
  58. 58. 58 Outcomes ofSM Customer Satisfaction • Increased customer retention • Positive word-of-mouth communications • Increased revenues
  59. 59. Figure 4-3 59 Relationship between CustomerSM Satisfaction and Loyalty in Competitive Industries 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.
  60. 60. 60SM 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.
  61. 61. 61SM The Five Dimensions of Service QualityReliability Ability to perform the promised service dependably and accurately. Knowledge and courtesy ofAssurance employees and their ability to convey trust and confidence.Tangibles Physical facilities, equipment, and appearance of personnel.Empathy Caring, individualized attention the firm provides its customers.Responsiveness Willingness to help customers and provide prompt service.
  62. 62. 62SM Exercise to Identify Service AttributesIn 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:
  63. 63. 63 SERVQUAL AttributesSM 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
  64. 64. 64SM 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
  65. 65. 65 Figure 4-4SM 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
  66. 66. Figure 4-5 66 A Service EncounterSM Cascade for an Industrial PurchaseSales CallSales Call Delivery and Installation Delivery and Installation Servicing Servicing Ordering Supplies Ordering Supplies Billing Billing
  67. 67. 67 Critical Service EncountersSM 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
  68. 68. 68 Sample Questions for CriticalSM Incidents 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)?
  69. 69. 69SM Common Themes in Critical Service Encounters Research Recovery: Adaptability: Employee Response Employee Response to Service Delivery to Customer Needs System Failure and Requests Coping: Spontaneity: Employee Response Unprompted and to Problem Customers Unsolicited Employee Actions and Attitudes
  70. 70. 70SM Recovery DO DON’T• Acknowledge • Ignore customer problem • Blame customer• Explain causes • Leave customer to• Apologize fend for him/herself• Compensate/upgrade • Downgrade• Lay out options • Act as if nothing is• Take responsibility wrong
  71. 71. 71SM 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
  72. 72. 72SM Spontaneity DO DON’T• Take time • Exhibit impatience• Be attentive • Ignore• Anticipate needs • Yell/laugh/swear• Listen• Provide information • Steal from or cheat a (even if not asked) customer• Treat customers fairly • Discriminate• Show empathy • Treat impersonally• Acknowledge by name
  73. 73. 73SM Coping DO DON’T• Listen • Take customer’s• Try to accommodate dissatisfaction• personally Explain • Let customer’s• Let go of the customer dissatisfaction affect others
  74. 74. 74 Figure 4-6 SM Evidence of Service from the Customer’s Point of View  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
  76. 76. 76 SM Provider GAP 1 CUSTOMER Expected Service GAP 1 Company COMPANY Perceptions of Consumer ExpectationsPart 2 Opener
  78. 78. 78 Objectives for Chapter 5:SM 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
  79. 79. 79SM 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
  80. 80. 80 Figure 5-1SM Criteria for An Effective Services Research Program Includes es Quantitative lud ive Inc litat h Research Includes a c Qu esear Perceptions R and Expectations Occurs of Customers with Appropriate Research Includes Frequency 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
  81. 81. 81SM Portfolio of Services Research 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
  82. 82. 82 Stages in the ResearchSM 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
  83. 83. 83 Figure 5-5SM Service Quality Perceptions Relative to Zones of Tolerance by Dimensions 9 8 7 O O O O O 6 5 4 3 2 1 0 Reliability Responsiveness Assurance Empathy Tangibles Retail Chain Zone of Tolerance O S.Q. Perception
  84. 84. 84 Service Quality PerceptionsSM Relative to Zones of Tolerance by Dimensions 10 8 O O O O O 6 4 2 0 Reliability Responsiveness Assurance Empathy Tangibles Computer Zone of Tolerance O S.Q. Perception Manufacturer
  85. 85. 85 Figure 5-6SM Importance/Performance MatrixHIGH High   Leverage Attributes to Improve Attributes to Maintain Importance     Low   Leverage  Attributes to Maintain Attributes to De-emphasizeLOW HIGH Performance
  87. 87. 87 Objectives for Chapter 6:SM 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”
  88. 88. 88SM 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
  89. 89. 89SM 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??
  90. 90. 90SM 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. 91. 91SM 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?
  92. 92. 92 Benefits to the OrganizationSM 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
  93. 93. 93SM 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
  94. 94. 94 “The Customer Isn’t AlwaysSM Right” • Not all customers are good relationship customers: – wrong segment – not profitable in the long term – difficult customers
  95. 95. 95 Strategies for BuildingSM Relationships • Foundations: – Excellent Quality/Value – Careful Segmentation • Bonding Strategies: – Financial Bonds – Social & Psychological Bonds – Structural Bonds – Customization Bonds • Relationship Strategies Wheel
  96. 96. 96 Figure 6-1SM Customer Goals of Relationship Marketing Enhancing Retaining Satisfying Getting
  97. 97. Figure 6-3 97SM Underlying Logic of Customer Retention Benefits to the Organization Customer SatisfactionCustomer Retention & Quality Increased Profits Service Employee Loyalty
  98. 98. 98 Figure 6-5 SM Steps in Market Segmentation and Targeting for Services 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
  99. 99. Figure 6-6 99SM 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 Personal Investments and Social Relationships Bonds Value Bonds Shared Social Bonds Processes III. Customization Among and Bonds Customers Equipment Anticipation Customer / Innovation Intimacy Mass Customization
  100. 100. 100SM Chapter 7 SERVICE RECOVERY
  101. 101. 101 Objectives for Chapter 7:SM 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
  102. 102. 102 Figure 7-1 SM 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.
  103. 103. Figure 7-3 103SM Customer Response Following Service Failure 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
  104. 104. 104 Figure 7-5SM Service Recovery Strategies We En lcom e co ic ura e an rv ge d Se Co e m th pla fe i n ts Sa il Fa Act Quickly Service Learn from Lost Custom Recovery Strategies ers rl y Fai Le s er Re arn f om co rom t ve C us ry Ex e at pe Tr ri en ce s
  105. 105. Pricing 105•• High Price Price Increases Figure 7-6 SM Causes Behind Service• Unfair Pricing• Deceptive PricingInconvenience• Location/Hours• Wait for Appointment• Wait for Service SwitchingCore 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
  106. 106. 106SM 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?)
  107. 107. 107 Table 7-7SM 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.
  108. 108. 108 Why a Good GuaranteeSM Works • forces company to focus on customers • sets clear standards • generates feedback • forces company to understand why it failed • builds “marketing muscle”
  109. 109. 109SM 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
  110. 110. 110SM 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”
  112. 112. 112 SM Provider GAP 2 CUSTOMER COMPANY Customer-Driven Service Designs and Standards GAP 2 Company Perceptions of Consumer ExpectationsPart 3 Opener
  114. 114. Objectives for Chapter 8: 114SM 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
  115. 115. Figure 8-1 115SM Risks of Relying on Words Alone to Describe Services Oversimplification Incompleteness Subjectivity Biased Interpretation
  116. 116. Figure 8-2 116 New Service Development ProcessSM  Business Strategy Development or Review  New Service Strategy Development Front End  Idea Generation Planning 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 Testing Implementation Test service and other marketing-mix elements  Commercialization  Postintroduction Evaluation Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997.
  117. 117. Figure 8-3 117SM New Service Strategy Matrix for Identifying Growth Opportunities Markets Offerings Current Customers New Customers Existing SHARE BUILDING MARKET Services DEVELOPMENT New Services SERVICE DIVERSIFICATION DEVELOPMENT
  118. 118. Figure 8-4Service Mapping/BlueprintingA tool for simultaneously depicting the serviceprocess, the points of customer contact, and theevidence of service from the customer’s point ofview. Process Service Points of Contact Mappin g Evidence
  119. 119. 119SM Service 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. 120. 120 Express Mail Delivery ServiceSM Truck Packaging Truck 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
  121. 121. 121SM Overnight Hotel Stay 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
  122. 122. 122SM 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.
  123. 123. 123 Application of ServiceSM 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
  124. 124. 124 Blueprints Can Be Used By:SM• 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
  126. 126. Objectives for Chapter 9: 126SM 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
  127. 127. Figure 9-1 127 AT&T’s Process Map for MeasurementsSM 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
  128. 128. 128 Exercise for CreatingSM Customer-Defined Service 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
  129. 129. 129 Customer-Driven Standards andSM Measurements Exercise Service Encounter Customer Requirements MeasurementsServiceQuality
  130. 130. Figure 9-2 130 SM 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
  131. 131. Figure 9-3 131 Process for SettingSM 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
  132. 132. 132 SM Importance/Performance Matrix HIGH 10.0 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
  133. 133. 133 Figure 9-5SM Linkage between Soft Measures and Hard Measures for Speed of Complaint Handling S A 10 T 9 I 8 Large Customers S 7 Small Customers F 6 A 5 C 4 T 3 I 2 O 1 2 4 6 8 12 16 20 24 N 0 WORKING HOURS
  134. 134. Figure 9-6 134 Aligning CompanyS M Processes with Customer Expectations Customer Expectations 48 Hours Customer Process Blueprint Report Lost Receive New Card Card Company Process Company Sequential Processes Blueprint A A B B C C D D E E F F G G H H Lost Card New Card Reported 40 Days Mailed
  136. 136. 136 Objectives for Chapter 10:SM 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
  137. 137. 137 Table 10-1SM Elements of Physical Evidence Servicescape Other tangibles Facility exterior Business cards Exterior design Stationery Signage Billing statements Parking Reports Landscape Employee dress Surrounding environment Uniforms Brochures Facility interior Internet/Web pages Interior design Equipment Signage Layout Air quality/temperature
  138. 138. Table 10-2 138 Examples of Physical Evidence from theSM Customer’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 Uniforms Parking Reports/stationery Signs Billing statements Waiting areas Admissions office Patient care room Medical equipment Recovery room Airline Airline gate area Tickets Airplane exterior Food Airplane interior (décor, seats, air Uniforms quality) Express mail Not applicable Packaging Trucks Uniforms Computers Sporting Parking, Seating, Restrooms Signs event Stadium exterior Tickets Ticketing area, Concession Areas Program Entrance, Playiing Field Uniforms
  139. 139. Table 10-3 139 Typology of Service OrganizationsSM Based on Variations in Form and Use of the Servicescape Complexity of the servicescape evidence Servicescape Elaborate Lean usage Self-service Golf Land ATM (customer only) Surf n Splash Ticketron Post office kiosk Internet services Express mail drop-off Interpersonal Hotel Dry cleaner services Restaurants Hot dog stand (both customer and Health clinic Hair salon employeee) Hospital Bank Airline School Remote service Telephone company Telephone mail-order desk (employee only) Insurance company Automated voice-messaging- Utility based services Many professional services
  140. 140. Figure 10-3 140 A Framework for Understanding SM Environment-user Relationships in Service Organizations 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
  142. 142. 142 SM Provider GAP 3 CUSTOMER Service Delivery COMPANY GAP 3 Customer-Driven Service Designs and StandardsPart 4 Opener