Service quality is measured by comparing customer expectations of service to their actual perceptions of the service received. There are gaps between customer expectations and company perceptions that can lead to poor quality. The SERVQUAL model identifies gaps between customer expectations and management perceptions, service design and standards, service delivery and standards, and external communications and the customer experience. High quality service closes these gaps by understanding customer expectations through research, designing standards to meet expectations, delivering services as designed, and managing customer expectations through communications.

1. BE557
Service and Relationship Marketing
Dr. Jingyu Zhu
Email: jingyu.zhu@essex.ac.uk
Office hours: Monday 3-4pm
Tuesday 2-4pm

2. Slide
TODAY
1. What are services? And why it’s important?
2. Key Characteristics of Services
3. Service Quality & Gap Model & Measurement
4. Service Blueprint
5. Relationship Marketing

3. Slide
Quick RECAP

4. Slide
We just hate badly designed service process!

5. Slide
What are SERVICES（The historical view）
• Attempts to define services go back more than two centuries.
‒ Late 18th century: creation and possession of wealth.
‒ Adam Smith, The Wealth of Nations, 1776: two types of outputs:
• Productive labour: produced goods that could be stored after
production and be exchanged for money.
• Unproductive labour: honourable, useful, or necessary created
services that perished at the time of production, so do not contribute
to wealth.
• Services are things that can be bought and sold but which cannot be
dropped on your foot!
• Goods are objects of value over which ownership rights could be
established and exchanged.
• What about transfer of ownership!
5

6. Slide
What are services? （Transfer of ownership）
• Do we acquire ownership of the hotel room that we stay for a night?
• Do we have ownership over our physicians?
• Services involve a form of rental through which customers can obtain benefits.
• What we are happy to pay for are desired experiences and solutions.
• Non-Ownership
1. ‒ Labor, skills, and expertise rental: other people are hired to perform work that we cannot or choose not to
do ourselves
2. ‒ Rented goods services: obtaining the exclusive temporary right to use a good that we prefer not to own
3. ‒ Defined space and facility rentals: obtaining the use of a certain portion of a larger facility
4. ‒ Access to shared facilities: renting the right to share the use of a facility
5. ‒ Access and use of networks and systems: Renting the right to participate in a special network
6

7. Slide
What are services? Some Definitions and
Categories
7
• Service industries and companies
‒ include those industries and companies typically classified
within the service sector whose core product is a service.
‒ Healthcare.
‒ Professional Services.
‒ Financial Services.
‒ Hospitality.
‒ Travel.
‒ Others (Hair styling, pest control, plumbing, lawn
maintenance,, health club, interior design).
• Services as products
‒ A wide range of intangible product offerings sold by service
companies and by non-service companies.
• Customer service
‒ The service provided in support of a company’s core
products.

8. Slide
Why is service important?
(Uppenberg and Strauss, 2010; Howarth and Sadeh, 2012)
8
Services Dominate the Global Economy
• Increasing size of the service sector across the globe
• The relative share of employment between agriculture, industry and services is changing
dramatically
• Service output is growing rapidly and represents more than 60% of Gross Domestic Product (GDP).
Growth in the EU service sector
• Service sector accounts for around two-thirds of total economic output in Europe
• Manufacturing employment in the EU has contracted; 70%+ of EU jobs now in services.
In the UK it accounts for 80% of the GDP (CIA Factbook, 2018)

9. Slide
Why Study Services
Changing structure of employment as an economy develops Contribution of services industries to GDP globally

10. Slide 10
Why is service important?
Source: Survey of Current Business, Online, April 2016.
Source: U.S Bureau of Economic Analysis, 2022

11. Slide
Proportions of economic sectors in the (GDP) in selected countries in 2021
11

12. 12
Government Policies Social Changes Business Trends Advances in IT Globalization
•Changes in
regulations
•Privatization
•New rules to protect
consumers,
employees and the
environment
•New agreement on
trade in services
•Rising consumer
expectations
•Ubiquitous social networks
•More affluence
•More people short of time
•Increased desire for
•buying experiences vs. things
•Rising consumer ownership
of computers, cell phones,
and high-tech equipment
•Easier access to more
information
•Immigration
• Push to increase
shareholder value
• Emphasis on productivity
and cost savings
• Manufacturers add value
through service and sell
services
• More strategic alliances and
outsourcing
• Focus on quality and
customer satisfaction
• Growth of franchising
• Marketing emphasis by non-
profits
•Growth of the Internet
•Wireless networking and
technology
•Digitization of text,
•graphics, audio, and
video
•Cloud technology
•Location-based services
•Big data
•Artificial intelligence
•Improved predictive
analysis
•More companies
operating on a
transnational basis
•Increased
international travel
•International mergers
and alliances
•“Offshoring” of
customer service
•Foreign competitors
invade domestic
markets
New markets and product categories create increased demand for services in many existing markets, making it more
competition intensive.
Innovation in service products and delivery systems is stimulated by the application of new and improved technologies.
Success hinges on (1) understanding customers and competitors, (2) viable business models, and (3) creation of value for both
customers and the firm, (4) increased focus on services marketing and management.
Factors Stimulating Transformation of Service Economy

13. Slide
Why Do Firms Focus on Services?
• Price and margin pressures on many physical goods.
‒ Services can help firms to customize their offerings, adding value for customers.
• Customers are demanding services and solutions, especially in B2B markets.
• Services can provide higher profit margins.
• ‒ Providing services to customers is where the real money is.
• ‒ In 2000, GE generated nearly 75% of its revenue from services.
• Services have higher growth potential than products.
• Customer satisfaction and loyalty are driven by service excellence.
• Corporate strategies focused on customer satisfaction, revenue generation, and service quality may actually be more
profitable than strategies focused on cost-cutting or strategies that attempt to do both simultaneously.
• Services can be used as a differentiation strategy in competitive markets.
13

14. Slide
Example: Rolls-Royce Sells Power by the Hour
• Rolls-Royce engines power about half of the latest wide-bodied passenger jets.
• Revenue from servicing and selling parts is 7 times the revenue from selling just the engines.
‒ Servicing and selling parts are very profitable
‒ Many independent servicing firms compete with Rolls-Royce.
‒ Competitors offer spare parts as low as one-third of the price charged by Rolls-Royce.
• Don’t sell the engine first and the parts later!
‒ Rolls-Royce offers “TotalCare”; customers are charged for every hour that the engine runs.
‒ New business model integrating sensor data and big data analytics
14

15. Slide
Example: Apple’s service revenue
15
Almost double the
revenue in 2025!!!

16. Slide
But “Service Stinks”
16
• Consumers perceive that overall the quality of service is declining:
‒ Tiered service
‒ Self-service and technology-based
‒ Technology-based services
‒ Higher expectations
‒ Cut costs
‒ Less-skilled people
‒ Lip service

17. Slide
The 7Ps in Service
Product – Core product meets consumer needs
Place – Through physical or electronic channels (or both), Time factor
Price – Consumer willing to pay & Minimize other burdensome outlays
Promotion – Provide needed information; Persuade target customers; Encourage; Educational
17
PROCESS – Operational inputs and outputs; Co-
production; Demand and Capacity
PEOPLE – Interaction between customers and service
employees
PHYSICAL ENVIRONMENT – Physical environment
or servicescape

18. Slide
Components of a Service Product
Core Service
- ‘What’ the customer is fundamentally buying.
- The core product is the main component that supplies the desired
- Experience, or the problem-solving benefit that customers are looking for
Supplementary Services
- Delivery of the core product is usually accompanied by a variety of other
service-related activities referred to as supplementary services.
- Supplementary services augment the core product, both facilitating its
use and enhancing its value.
- Supplementary services play a key role in differentiating and positioning the
core products against competing services, helping to create a competitive advantage.
Delivery Processes
- The processes used to deliver both the core product and each of the supplementary services.
18
Facilitating Supplementary services is required for either
service delivery or aiding in the use of the core product
Enhancing Supplementary services add extra value and
appeal for customers

19. Slide
Discussion:
Name organizations and discuss their core
and supplementary services
19

20. Slide
Characteristics of Services Compared to Goods
20

21. Slide
Intangibility
21
• The most basic distinguishing characteristic of services is intangibility.
• Services are performances rather than objects, thus they cannot be seen, felt, tasted, or touched in the same manner that you
can sense tangible goods.
• Implications:
‒ Services cannot be inventoried
‒ Services cannot be easily patented
‒ New service concepts can easily be copied by competitors
‒ Services cannot be readily displayed or communicated
‒ Pricing is difficult

22. Slide
Inseparability
22
• Whereas most goods are produced first, then sold and consumed, most services are sold
first and then produced and consumed simultaneously
• Simultaneity also means that customers will frequently interact with each other during
the service production process and thus may affect each other’s experiences.
• Service producers find themselves playing a role as part of the product itself and as an
essential ingredient in the service experience for the consumer.
• Implications:
‒ Customers participate in and affect the transaction
‒ Poor task execution by customers may hurt productivity and spoil the service
experience
‒ Customers affect each other
‒ Employees affect the service outcome
‒ Appearance, attitude, and behaviour of service personnel and other customers can
shape the experience and affect satisfaction
‒ Decentralization may be essential
‒ Mass production is difficult

23. Slide
Heterogeneity
23
•No two services will be precisely alike!
•The employees delivering the service frequently are the service in the customer’s eyes,
and people may differ in their performance from day to day or even hour to hour.
•Also, no two customers are precisely alike! each will have unique demands or experience
the service in a unique way.
• Implications:
‒ Service delivery and customer satisfaction depend on employee and customer actions
‒ Service quality depends on many uncontrollable factors; hard to maintain consistency
‒ Hard to lower costs through higher productivity
‒ There is no sure knowledge that the service delivered matches what was planned and
promoted
‒ Sometimes services are provided by a third party, further increasing the potential
heterogeneity of the offering

24. Slide
Perishability
24
• Perishability refers to the fact that services cannot be saved, stored, resold, or returned.
• Implications:
‒ It is difficult to synchronize supply and demand with services
‒ Services cannot be returned or resold
‒ Customers may be turned away or have to wait

25. Slide
Four categories of service – a process perspective
25

26. Slide 26
The Four Service Marketing Myths
Remnants of a Goods-Based, Manufacturing Model
• Intangibility – Services often have tangible results; tangible goods are
often purchased for intangible benefits; tangibility can be a limiting factor in
distribution
• Heterogeneity – Tangible goods are often heterogeneous; many services
are relatively standardized
• Inseparability – The consumer is always involved in the production of value
• Perishability – Tangible goods are perishable; many services result in long-
lasting benefits; both tangible and intangible capabilities can be inventoried;
inventory represents an additional marketing cost

27. Slide
Service Quality Measurement and Management

28. Slide
▪ Search Quality - more often applied to goods, assessed before purchase
▪ Experience quality - assessed after purchase
▪ Credence quality - assessed only with appropriate knowledge
How are services assessed?

29. Slide
• The customer’s judgment of the overall excellence of the service provided in relation to the quality that
was expected. An attitude formed by a long-term, overall evaluation of a firm’s performance.
• Service quality assessments are formed on judgments of:
- outcome quality.
- interaction quality.
- physical environment quality.
• Early conceptualizations of service quality are based on the disconfirmation paradigm
• The disconfirmation paradigm suggests that quality results from a comparison of perceived with
expected performance
What is Service Quality?

30. Slide
The Gaps Model
30

31. Slide
The Gaps Model
31

32. Slide
The Customer/Service Gap
32
• Customer gap is the difference between customer expectations and
perceptions.
• Customer expectations are standards or reference points that
customers bring into the service experience.
• Customer perceptions are subjective assessments of actual service
experience.
Gaps at any point in service design and delivery can damage relationships with
customers

33. Slide
Key Factors Leading to the Customer Gap
33

34. Slide
Key Factors Leading to Provider Gap 1
34
• Inadequate marketing research orientation
‒ Insufficient marketing research
‒ Research not focused on service quality
• Inadequate use of marketing research
‒ Lack of upward communication
‒ Lack of interaction between management and customers
‒ Insufficient communication between contact employees and
managers
‒ Too many layers between contact personnel and top
management
• Insufficient relationship focus
‒ Lack of market segmentation
‒ Focus on transactions rather than relationships
‒ Focus on new customers rather than relationship customers
Customer Expectation
Company perceptions of
customer expectations
Listening/Knowledge
gap: Difference
between what
management
believes customers
expect and what
customers actually
need and expect.

35. Slide
Key Factors Leading to Provider Gap 2
35
• Poor service design
‒ Unsystematic new service development process
‒ Vague, undefined service designs
‒ Failure to connect service design to service positioning
• Absence of customer-driven standards
‒ Lack of customer-driven service standards
‒ Absence of process management to focus on customer requirements
‒ Absence of formal process for setting service quality goals
• Inappropriate physical evidence and servicescape
‒ Failure to develop tangibles in line with customer expectations
‒ Servicescape design that does not meet customer and employee needs
‒ Inadequate maintenance and updating of the servicescape
Customer-driven service
designs and standards
Company perceptions of
customer expectations
Design/standards
gap:
Difference
between
management’s
understanding of
customers’
expectations and
service standards
they set for
service delivery.

36. Slide
Key Factors Leading to Provider Gap 3
36
• Deficiencies in human resource policies
‒ Ineffective recruitment
‒ Role ambiguity and role conflict
‒ Poor employee-technology job fit
‒ Inappropriate evaluation and compensation systems
‒ Lack of empowerment, perceived control, and teamwork
• Customers who do not fulfil roles
‒ Customers lack knowledge of their roles and responsibilities ‒ Customers
negatively impact each other
• Problems with service intermediaries
‒ Channel conflict over objectives, costs, rewards, and performance ‒
Difficulty controlling quality and consistency
‒ Tension between empowerment and control
• Failure to match supply and demand
‒ Failure to smooth peaks and valleys of demand ‒ Inappropriate customer
mix
‒ Over-reliance on price to smooth demand
• Inadequate service recovery
‒ Lack of encouragement to listen to customer complaints ‒ Failure to
make amends when things go wrong
‒ No appropriate mechanisms in place for service failures
Service delivery
Customer-driven service
designs and standards
Delivery/perfor
mance gap:
Difference
between
specified service
standards and
service delivery
teams’ actual
performance on
these standards.

37. Slide
Key Factors Leading to Provider Gap 4
37
• Lack of integrated marketing communications
‒ Tendency to view each external communication as independent
‒ Not Including interactive marketing in communications gap
‒ Absence of strong internal marketing program
• Ineffective management of customer expectations
‒ Not managing customer expectation through all forms of communication
‒ Not adequately educating customers
• Over-promising
‒ Overpromising in advertising
‒ Overpromising in personal selling
‒ Overpromising through physical evidence cues
• Inadequate horizontal communications
‒ insufficient communication between sales and operations
‒ Insufficient communication between advertising and operations
‒ Difference in policies and procedures across branches or units
Service delivery
External communication
to customers
Communication
gap: Difference
between what
company
communicates,
and what
customer
understands and
subsequently
experiences.

38. Slide
Customer Expectation Levels
•Desired service
• The highest expectation
• The level of service the customer hopes to receive
• The wished-for level of performance
• The desired service is a blend of what the customer
believes “can be” and “should be”
•Adequate service
• The threshold level of acceptable Service
• The level of service that the customer will accept
Desired service expectation may differ:
• For a fast-food restaurants - quick, convenient, tasty food in a clean setting.
• For expensive restaurants - elegant surroundings, gracious employees, candlelight and fine food.
ZONE OF
TOLERANCE

39. Slide
Factors That Influence Desired and Predicted Service

40. Slide
Customer perceptions of service
• Customers perceive services in terms of the quality of the service and how satisfied they
are overall with their experiences.

41. Slide
Determinants of Customer Satisfaction

42. Slide
The Kano Model of Customer Satisfaction
•The Kano model shows which attributes have the
strongest impact on customer (dis)satisfaction.
•Companies can then decide for which qualities
and behaviours of contact employees they should
design effective training programmes.
•It also identifies which qualities prospective job
candidates for posts with customer contact should
possess
Threshold attribute
Performance attribute
Excitement attribute

43. Slide
Outcomes of Customer Satisfaction
• Increased customer loyalty
• Positive word-of-mouth communications
• Increased revenues
• Increased return to shareholders
• The relationship between customer satisfaction and
customer loyalty is particularly strong when customers are
very satisfied. Thus, companies that just “satisfy” their
customer may not be doing enough to engender loyalty.

44. Slide
How to measure Customer Satisfaction
• Some firms ask customers to rate the firm’s performance on a 100-point scale. In essence, the firm is asking
customers to give the firm a grade. However, the problems with this approach are readily apparent.
On a scale that ranges from 1– 100, how satisfied are you with the service that you received today?
Score: ______________
• An improvement on the “Scale of 100” approach is the use of the “very dissatisfied/very satisfied” approach.
This approach presents customers with a five-point Likert scale, which is typically labelled using the following
format:
• The combination approach

45. Slide
The Five Dimensions of SERVQUAL
A. Parasuraman, Valarie A. Zeithaml and Leonard L. Berry (1986, 1988)
Ability to
perform the
promised service
dependably and
accurately
Willingness
to help customers
and provide
prompt service
Caring,
individualized
attention the
firm provides its
customers
Physical facilities,
equipment, and
appearance of
personnel
Knowledge and
courtesy of
employees and
their ability to
inspire trust and
confidence

46. Slide
The Five Dimensions of SERVQUAL
A. Parasuraman, Valarie A. Zeithaml and Leonard L. Berry (1986, 1988)

47. Slide
Criticisms to SERVQUAL
• Dimensions:
- Dimensions used in the SERVQUAL instrument are not appropriate for all service offerings and need to be contextualised to
reflect different service activities.
- Dimensions are not clear: what should be reliable, responsive, empathic, ...
• Disconfirmation Paradigm:
- If expectations are measured after the service experience has taken place, then what is measured is not really expectation but
something which has been influenced by the service experience.
- It may not make sense to measure expectations prior to the service experience either, because the expectations that exist
before a service is delivered may not be the same as the factors that a person uses when evaluating their experiences e.g.
background music in restaurant becomes more important in evaluating service quality when the music is very loud.
• Also…
- Length of the Questionnaire
DISCUSSION: How can we modify SERVQUAL?

48. Slide
How to design/documenting a service process?
• The Heart of the Challenge
‒ Services are largely intangible,
‒ Process oriented, and
‒ Unstandardized
• Risks of Relying on Words Alone to Describe Services
‒ Oversimplification: Service systems are complex. Words are simply inadequate to describe a complex service system.
Any attempt to describe these complex services in words alone would surely be oversimplified.
‒ Incompleteness: In describing the service, people (employees, managers, customers) tend to omit details or elements of
the service with which they are not familiar. Especially the complex parts.
‒ Subjectivity: Any one person describing a service in words will be biased by personal experiences and degree of exposure
to the service. Persons working in different functional areas of the same service organization (a marketing person, an
operations person, a finance person) are likely to describe the service very differently, biased by their own functional
blinders.
‒ Biased Interpretation: No two people will define “responsiveness,” “quick,” or “flexibility” in exactly the same way.

49. Slide
Service Blueprinting
• A useful technique for designing and specifying intangible service processes.
• A picture or map that portrays the service system so that different people involved in providing it can understand
and deal with it objectively.
• Blueprints are particularly important at the service design stage.
• Service Blueprint shows interrelationships among employee roles, operational processes, supplies, IT and
customer interactions.

50. Slide
An Example of a Simple Service Blueprint

51. Slide
Modified

52. Slide
Alternate

53. Slide
Design Characteristics of a Service Blueprint

54. Slide
Building a Service Blueprint
Step 1
Identify the
process
to be
blueprinted
Step 2
Identify the
customer or
customer
segment
Step 3
Map the
process
from the
customer’s
point of view
Step 4
Map contact
employee
actions
and/or
technology
actions
Step 5
Link contact
activities to
needed
support
functions
Step 6
Add
evidence of
service at
each
customer
action step

55. Slide
Blueprint for Express Mail Delivery Service

56. Slide
Blueprint for DVD Rental Kiosk

57. Slide
Relationship Marketing
• RM is a philosophy of doing business, a strategic orientation, that focuses on keeping current
customers and improving relationships with them.
• Two assumptions:
‒ Many customers prefer an ongoing relationship with one organisation than to switch
continually among them.
‒ It is cheaper to keep a current customer than to attract a new one.
• Less focus on attraction, and more on retention and enhancement

58. Slide
A Typology of Exchange Relationships

59. Slide
Benefits of Relationship Marketing
Benefits for customers:
• Receipt of greater value
• Confidence benefits
‒ Trust
‒ Confidence in provider
‒ Reduced anxiety
• Social benefits
‒ Familiarity
‒ Social support
‒ Personal relationships
• Special treatment benefits
‒ Special deals
‒ Price breaks
Benefits for firms:
• Economic benefits
‒ Increased revenues
‒ Reduced marketing and administrative costs ‒
Regular revenue stream
• Customer behavior benefits
‒ Strong word-of-mouth endorsements
‒ Customer voluntary performance
‒ Social benefits to other customers
‒ Mentors to other customers HRM benefits
‒ Easier jobs for employees
‒ Social benefits for employees
‒ Employee retention

60. Slide
The Customer Pyramid

61. Slide
Relationship Development Model
• Positive switching costs are the risks of
losing relationship benefits such as special
treatment.
• Negative switching costs refer to the
effort of searching for alternatives and
the process of switching.

62. Slide
Design:
Blueprint for Overnight Hotel Stay Service
Free template: free template

63. Slide
Design:
Blueprint for Overnight Hotel Stay Service

64. Slide
Case study:

65. Slide
READING
Key reading:
Hoffman, K. D., & Bateson, J. E. (2016). Services marketing: concepts, strategies, & cases. Cengage learning. Chapters 5, 11, 12
Recommended:
Brady, M. K., & Cronin Jr, J. J. (2001). Some new thoughts on conceptualizing perceived service quality: a hierarchical approach. Journal of marketing, 65(3), 34-49.
Zeithaml, V. A., Berry, L. L., & Parasuraman, A. (1996). The behavioral consequences of service quality. Journal of marketing, 60(2), 31-46.
Sauerwein, E., Bailom, F., Matzler, K., & Hinterhuber, H. H. (1996, February). The Kano model: How to delight your customers. In International working seminar on
production economics (Vol. 1, No. 4, pp. 313-327).
Rawson, A., Duncan, E. and Jones, C., (2013). The truth about customer experience. Harvard Business Review, 91(9), pp.90-98.
Tsiotsou, R. H., & Wirtz, J. (2015). The three-stage model of service consumption. In Handbook of service business (pp. 105-128). Edward Elgar Publishing.
Rust, R. T., & Oliver, R. L. (Eds.). (1993). Service quality: New directions in theory and practice. Sage Publications.
Dabholkar, P A; Thorpe, D I and Rentz, J O (1996). “A Measure of Service Quality for Retail Stores: Scale Development and Validation,” Journal of the Academy of
Marketing Science, 24(1), 3-16.
Coulter, R. A., & Ligas, M. (2004). A typology of customer-service provider relationships: the role of relational factors in classifying customers. Journal of Services
Marketing, 18(6), 482-493.