The document discusses concepts related to services marketing. It introduces the topic of services marketing and outlines differences between goods and services. Key frameworks are presented, including the services marketing triangle, the expanded services marketing mix (7Ps), and gaps model of service quality. The document provides an overview of important topics in services marketing through definitions, figures, and tables.

1. 1
SM
Services Marketing

2. 2
SM
Chapter 1
INTRODUCTION
TO
SERVICES

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

8. Figure 1-2 8
SM 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. Figure 1-3 9
SM 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
Differences Between
SM
Goods and Services
Intangibility Heterogeneity
Simultaneous
Production Perishability
and
Consumption

11. 11
SM Implications of Intangibility
 Services cannot be inventoried
 Services cannot be patented
 Services cannot be readily displayed
or communicated
 Pricing is difficult

12. 12
SM 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
Implications of Simultaneous
SM
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
SM Implications of Perishability
 It is difficult to synchronize supply and
demand with services
 Services cannot be returned or resold

15. 15
SM 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
Figure 1-5
SM 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
Ways to Use the
SM
Services Marketing Triangle
Overall 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
Figure 1-6
SM The Services Triangle
and Technology
Company
Technology
Providers Customers
Source: Adapted from A. Parasuraman

19. 19
SM 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
SM 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
SM Expanded Mix for Services --
the 7 Ps
• Product
• Price
• Place
• Promotion
• People
• Process
• Physical Evidence

22. 22
Table 1-3
SM Expanded Marketing Mix for
Services
PRODUCT PLACE PROMOTION PRICE
Physical good Channel type Promotion Flexibility
features blend
Quality level Exposure Salespeople Price level
Accessories Intermediaries Advertising Terms
Packaging Outlet location Sales Differentiation
promotion
Warranties Transportation Publicity Allowances
Product lines Storage
Branding

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
SM Ways to Use the 7 Ps
Overall 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
Services Marketing Triangle
SM
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
SM
Part 1
FOCUS ON THE CUSTOMER

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 Expectations
Part 1 Opener

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

30. 30
SM
Chapter 2
CONSUMER BEHAVIOR
IN SERVICES

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
SM 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
Figure 2-1
SM Continuum of Evaluation for
Different Types of Products
Most Most
Goods Services
Easy 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. Figure 2-2 34
Categories in Consumer
SM 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
Figure 2-3
SM 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
SM 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
SM 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
SM 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
SM 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
SM 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
Global Feature:
SM Differences in the Service
Experience in the U.S. and Japan
 Authenticity
 Caring
 Control Courtesy
 Formality
 Friendliness
 Personalization
 Promptness

42. 42
SM
Chapter 3
CUSTOMER
EXPECTATIONS OF
SERVICES

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
SM 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
Figure 3-1
SM Dual Customer
Expectation Levels
(Two levels of expectations)
Desired Service
Zone of
Tolerance
Adequate Service

46. 46
SM Figure 3-2
The Zone of Tolerance
Desired Service
Zone of
Tolerance
Adequate Service

47. Figure 3-3 47
SM Zones of Tolerance VARY for
Different Service Dimensions
Desired Service
Level
of
Zone of Desired
Expectation 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. Figure 3-4 48
Zones of Tolerance VARY for
SM
First-Time and Recovery Service
First-Time Service
Outcome
Process
Recovery Service
Outcome
Process
LOW HIGH
Expectations
Source: Parasuraman, Berry and Zeithaml (1991)

49. Figure 3-5 49
SM Factors that Influence
Desired Service
Enduring Service
Intensifiers
Desired
Service
Personal Needs
Zone
of
Tolerance
Adequate
Service

50. 50
SM
• 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
Figure 3-6
SM 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
SM
• 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. Figure 3-7 53
Factors that Influence
SM
Desired and Predicted Service
Explicit Service
Promises
Implicit Service
Promises
Desired Word-of-Mouth
Service
Zone
Past Experience
of
Tolerance
Adequate Predicted
Service Service

54. 54
SM
Chapter 4
CUSTOMER
PERCEPTIONS OF
SERVICE

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. Figure 4-1 56
Customer Perceptions of
SM
Service Quality and
Customer Satisfaction
Reliability Situational
Factors
Responsiveness Service
Quality
Assurance
Customer
Empathy Satisfaction
Product
Quality
Tangibles
Personal
Price Factors

57. 57
Factors Influencing
SM
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
Outcomes of
SM
Customer Satisfaction
• Increased customer retention
• Positive word-of-mouth communications
• Increased revenues

59. Figure 4-3 59
Relationship between Customer
SM
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 measure
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.

60. 60
SM 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
SM The Five Dimensions of
Service Quality
Reliability Ability to perform the promised
service dependably and accurately.
Knowledge and courtesy of
Assurance 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
SM Exercise to
Identify 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:

63. 63
SERVQUAL Attributes
SM ASSURANCE
Employees who instill confidence in
customers
Making customers feel safe in their
transactions
RELIABILITY 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 heart
RESPONSIVENESS 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
SM 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
Figure 4-4
SM A Service Encounter
Cascade for a Hotel Visit
Check-In
Check-In
Bellboy Takes to
Bellboy Takes to
Room
Room
Restaurant
Restaurant
Meal
Meal
Request Wake-Up
Request Wake-Up
Call
Call
Checkout
Checkout

66. Figure 4-5 66
A Service Encounter
SM
Cascade for an Industrial
Purchase
Sales Call
Sales Call
Delivery and Installation
Delivery and Installation
Servicing
Servicing
Ordering Supplies
Ordering Supplies
Billing
Billing

67. 67
Critical Service Encounters
SM
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
Sample Questions for Critical
SM
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
SM 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
SM 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
SM 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
SM 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
SM 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
Figure 4-6
SM Evidence of Service from the
Customer’s Point of View
 Contact employees
 Customer
 Operational flow of him/herself
activities  Other customers
People
 Steps in process
 Flexibility vs.
standard
 Technology vs. Physical  Tangible
human Process
Evidence communication
 Servicescape
 Guarantees
 Technology

75. 75
SM
Part 2
LISTENING TO
CUSTOMER
REQUIREMENTS

76. 76
SM Provider GAP 1
CUSTOMER
Expected
Service
GAP 1
Company
COMPANY Perceptions of
Consumer
Expectations
Part 2 Opener

77. 77
SM
Chapter 5
UNDERSTANDING
CUSTOMER
EXPECTATIONS AND
PERCEPTIONS THROUGH
MARKETING RESEARCH

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
SM 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
Figure 5-1
SM 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
SM Portfolio of Services Research
Research Objective Type of Research
Identify dissatisfied customers to attempt recovery;
identify most common categories of service failure Customer Complaint
for remedial action
Solicitation
Assess company’s service performance compared to
competitors; identify service-improvement priorities; track
service improvement over time “Relationship” Surveys
Obtain customer feedback while service experience is still
fresh; act on feedback quickly if negative patterns develop
Post-Transaction Surveys
Use as input for quantitative surveys; provide a
forum for customers to suggest service-improvement
ideas Customer Focus Groups
Measure individual employee service behaviors for use in
coaching, training, performance evaluation, recognition and
rewards; identify systemic strengths and weaknesses in “Mystery Shopping” of
service
Service Providers
Measure internal service quality; identify employee-
perceived obstacles to improve service; track
employee morale and attitudes Employee Surveys
Determine the reasons why customers defect
To forecast future expectations of customers Lost Customer Research
To develop and test new service ideas
Future Expectations Research

82. 82
Stages in the Research
SM
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
Figure 5-5
SM 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
Service Quality Perceptions
SM 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
Figure 5-6
SM Importance/Performance Matrix
HIGH
High  
Leverage
Attributes to Improve Attributes to Maintain

Importance
  

Low

 Leverage

Attributes to Maintain Attributes to De-emphasize
LOW
HIGH
Performance

86. 86
SM
Chapter 6
BUILDING
CUSTOMER
RELATIONSHIPS

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

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

96. 96
Figure 6-1
SM Customer Goals of
Relationship Marketing
Enhancing
Retaining
Satisfying
Getting

97. Figure 6-3 97
SM Underlying Logic of Customer
Retention Benefits to the
Organization
Customer Satisfaction
Customer Retention & Quality
Increased Profits Service
Employee Loyalty

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 that
Bases for Profiles of Measures Target Segments
Segmenting Resulting of Segment Segments Are
the Market Segments Attractive- Compatible
ness

99. Figure 6-6 99
SM 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
SM
Chapter 7
SERVICE RECOVERY

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
Figure 7-1
SM Unhappy Customers’
Repurchase Intentions
Unhappy 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. Figure 7-3 103
SM Customer Response
Following Service Failure
Service Failure
Take Action Do Nothing
Switch Providers Stay with Provider
Complain to Complain to Complain to
Provider Family & Friends Third Party
Switch Providers Stay with Provider

104. 104
Figure 7-5
SM 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. Pricing
105
•
•
High Price
Price Increases
Figure 7-6
SM Causes Behind Service
• Unfair Pricing
• Deceptive Pricing
Inconvenience
• Location/Hours
• Wait for Appointment
• Wait for Service
Switching
Core Service Failure
• Service Mistakes
• Billing Errors
• Service Catastrophe
Service Encounter Failures
Service
• Uncaring
• Impolite
• Unresponsive
• Unknowledgeable Switching
Response to Service Failure
• Negative Response
Behavior
• No Response
• Reluctant Response
Competition
• Found Better Service
Ethical Problems
• Cheat
• Hard Sell
• Unsafe
• Conflict of Interest
Involuntary Switching
• Customer Moved Source: Sue Keaveney
• Provider Closed

106. 106
SM 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
Table 7-7
SM 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 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. 108
Why a Good Guarantee
SM
Works
• forces company to focus on customers
• sets clear standards
• generates feedback
• forces company to understand why it failed
• builds “marketing muscle”

109. 109
SM 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
SM 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”

111. 111
SM
Part 3
ALIGNING STRATEGY,
SERVICE DESIGN
AND STANDARDS

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

113. 113
SM
Chapter 8
SERVICE DEVELOPMENT
AND DESIGN

114. Objectives for Chapter 8: 114
SM 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. Figure 8-1 115
SM Risks of Relying on Words
Alone to
Describe Services
 Oversimplification
 Incompleteness
 Subjectivity
 Biased Interpretation

116. Figure 8-2 116
New Service Development Process
SM  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. Figure 8-3 117
SM 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. Figure 8-4
Service Mapping/Blueprinting
A tool for simultaneously depicting the service
process, the points of customer contact, and the
evidence of service from the customer’s point of
view.
Process
Service Points of Contact
Mappin
g Evidence

119. 119
SM 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
Express Mail Delivery Service
SM 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 Truck
SUPPORT
Load on
PROCESS
Airplane
n
Sort
Packages

121. 121
SM 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 Leave
SUPPORT 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
SM Figure 8-8
Building a Service Blueprint
Step 11
Step Step 22
Step Step 33
Step Step 44
Step Step 55
Step Step 66
Step
Identify the Identify the Map the Map contact
Map contact Link customer Add
Add
Identify the Identify the Map the Link customer
process to customer or process from employee
employee and contact evidence of
evidence of
process to customer or process from and contact
be blue- customer the actions,
actions, person service at
service at
be blue- customer the person
printed. 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
Application of Service
SM
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
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

125. 125
SM
Chapter 9
CUSTOMER-DEFINED
SERVICE STANDARDS

126. Objectives for Chapter 9: 126
SM 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. Figure 9-1 127
AT&T’s Process Map for Measurements
SM
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 Interval
Quality 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 Inquiries
Source: AT&T General Business Systems

128. 128
Exercise for Creating
SM 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
Customer-Driven Standards and
SM Measurements Exercise
Service Encounter Customer Requirements Measurements
Service
Quality

130. Figure 9-2 130
SM Getting to Actionable Steps
Requirements: Diagnosticity:
Satisfaction Value Abstract Low
Relationship General Concepts
Solution Provider
Dig Reliability Empathy
Deeper 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. Figure 9-3 131
Process for Setting
SM 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 Feedback
Operating 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
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 on
Importance promised date (9.02, 7.84)
8.0
LOW 7.0
HIGH
8.0 9.0 10.0
Performance

133. 133
Figure 9-5
SM 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. Figure 9-6 134
Aligning Company
S 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

135. 135
SM
Chapter 10
PHYSICAL EVIDENCE
AND THE SERVICESCAPE

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
Table 10-1
SM 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. Table 10-2 138
Examples of Physical Evidence from the
SM 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. Table 10-3 139
Typology of Service Organizations
SM 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. 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
Emotional
Source: Adapted from Mary Jo Bitner, “Servicescapes.”
Physiological

141. 141
SM
Part 4
DELIVERING AND
PERFORMING SERVICE

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

143. 143
SM
Chapter 11
EMPLOYEES’ ROLES IN
SERVICE DELIVERY

144. 144
Objectives for Chapter 11:
SM Employees’ Roles in
Service Delivery
• Illustrate the critical importance of service
employees in creating customer satisfaction and
service quality
• Demonstrate the challenges inherent in boundary-
spanning roles
• Provide examples of strategies for creating
customer-oriented service delivery
• Show how the strategies can support a service
culture where providing excellent service is a way
of life

145. 145
SM Service Employees
• They are the service
• They are the firm in the customer’s eyes
• They are marketers
• Importance is evident in
– The Services Marketing Mix (People)
– The Service-Profit Chain
– The Services Triangle

146. 146
SM Service Employees
• Who are they?
– “boundary spanners”
• What are these jobs like?
– emotional labor
– many sources of potential conflict
• person/role
• organization/client
• interclient
• quality/productivity

147. Figure 11-3 147
Boundary Spanners Interact
SM with Both Internal
and External Constituents
External Environment
Internal Environment

148. 148
Figure 11-4
SM Sources of Conflict for
Boundary-Spanning Workers
• Person vs. Role
• Organization vs. Client
• Client vs. Client
• Quality vs. Productivity

149. Figure 11-5 149
Human Resource Strategies for Closing GAP 3
SM
Hire for
r Service
fo Competencies B
Pr e t
te t
pe es and Service E m e f e he
m B le pl rred
Co the op Inclination oy
Pe er
Str ard nd
Te Inte kills
Tr nica tive
Re ure a
ch rac
Hire the
ai n l
Pr ervic g
fo and
ide e
Right People
on
rs
w
as
S
r
Me
ov
S
Develop
Customer-
Employees
Empower
Employees
Customers
Retain the People to
oriented
Treat
Deliver
Best
as
Service Service
People Delivery Quality
Em th any’
wo e
rk
Inc
am ot
Provide
plo e
Te rom
Co Visio
lud es in
ye
Needed Support
mp n
P
e
De Systems
Se v e l o
s
e
ur
or rvic p as nal
i
Int ente -
e
Provide Me ter e
Pr ern d In rvic y
oc Supportive Se alit
es al
se
s Technology Qu
and
Equipment

150. 151
SM Service Culture
“A culture where an appreciation for good service
exists, and where giving good service to internal
as well as ultimate, external customers, is
considered a natural way of life and one of the
most important norms by everyone in the
organization.”

151. 152
SM
Chapter 12
CUSTOMERS’ ROLES IN
SERVICE DELIVERY

152. 153
Objectives for Chapter 12:
SM Customers’ Roles in Service
Delivery
• Illustrate the importance of customers in
successful service delivery
• Enumerate the variety of roles that service
customers play
• Productive resources
• Contributors to quality and satisfaction
• Competitors
• Explain strategies for involving service customers
effectively to increase both quality and
productivity

153. 154
Importance of Other
SM Customers in Service
Delivery
• Other customers can detract from
satisfaction
• disruptive behaviors
• excessive crowding
• incompatible needs
• Other customers can enhance satisfaction
• mere presence
• socialization/friendships
• roles: assistants, teachers, supporters

154. 155
SM How Customers Widen Gap 3
• Lack of understanding of their roles
• Not being willing or able to perform their roles
• No rewards for “good performance”
• Interfering with other customers
• Incompatible market segments

155. Figure 12-2 156
SM Customer Roles in Service
Delivery
Productive Resources
Contributors to
Quality and
Satisfaction
Competitors

156. 157
SM Customers as Productive
Resources
• “partial employees”
– contributing effort, time, or other resources to
the production process
• customer inputs can affect organization’s
productivity
• key issue:
– should customers’ roles be expanded?
reduced?

157. 158
Customers as Contributors
SM to Service Quality and
Satisfaction
• Customers can contribute to
– their own satisfaction with the service
• by performing their role effectively
• by working with the service provider
– the quality of the service they receive
• by asking questions
• by taking responsibility for their own satisfaction
• by complaining when there is a service failure

158. 159
SM Customers as Competitors
• customers may “compete” with the service provider
• “internal exchange” vs. “external exchange”
• internal/external decision often based on:
– expertise
– resources
– time
– economic rewards
– psychic rewards
– trust
– control

159. 160
Technology Spotlight:
SM Services Production Continuum
Customer Production Joint Production Firm Production
1 2 3 4 5 6
Gas Station Illustration
1. Customer pumps gas and pays at the pump with automation
2. Customer pumps gas and goes inside to pay attendant
3. Customer pumps gas and attendant takes payment at the pump
4. Attendant pumps gas and customer pays at the pump with automation
5. Attendant pumps gas and customer goes inside to pay attendant
6. Attendant pumps gas and attendant takes payment at the pump

160. Figure 12-3 161
SM Strategies for Enhancing
Customer Participation
Effective
Define Customer
Customer Recruit, Educate,
Participation and Reward
Jobs
Customers
Manage the
Customer
Mix

161. 162
Strategies for Enhancing
SM
Customer Participation
1. Define customers’ jobs
- helping himself
- helping others
- promoting the company
2. Individual differences: not everyone wants
to participate

162. 163
Strategies for Recruiting,
SM Educating and Rewarding
Customers
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

163. 164
SM
Chapter 14
MANAGING DEMAND
AND CAPACITY

164. 165
Objectives for Chapter 14:
SM Managing Demand and
Capacity
• Explain:
• the underlying issue for capacity-constrained services
• the implications of capacity constraints
• the implications of different types of demand patterns
on matching supply and demand
• Lay out strategies for matching supply and demand
through:
• shifting demand to match capacity or
• flexing capacity to meet demand
• Demonstrate the benefits and risks of yield management
strategies
• Provide strategies for managing waiting lines

165. 166
Understanding Capacity
SM Constraints and Demand
Patterns
Capacity Constraints Demand Patterns
• Time, labor, • Charting demand
equipment and patterns
facilities • Predictable cycles
• Optimal versus • Random demand
maximal use of fluctuations
capacity • Demand patterns by
market segment

166. 167
Figure 14-3
SM Strategies for Shifting Demand
to Match Capacity
Demand Too High Shift Demand Demand Too Low
• Use signage to communicate • Use sales and advertising to
busy days and times increase business from current
• Offer incentives to customers market segments
for usage during non-peak • Modify the service offering to
times appeal to new market segments
• Take care of loyal or regular • Offer discounts or price
customers first reductions
• Advertise peak usage times and • Modify hours of operation
benefits of non-peak use • Bring the service to the
• Charge full price for the customer
service--no discounts

167. Figure 14-4 168
Strategies for Flexing Capacity
SM
to Match Demand
Demand Too High Flex Capacity Demand Too Low
• Stretch time, labor, facilities
and equipment
• Perform maintenance
renovations
• Cross-train employees
• Schedule vacations
• Hire part-time employees
• Schedule employee training
• Request overtime work from
employees
• Lay off employees
• Rent or share facilities
• Rent or share equipment
• Subcontract or outsource
activities

168. Table 14-1 169
SM What is the Nature of Demand
Relative to Supply?
Extent of demand fluctuations over time
Extent to which
supply is Wide Narrow
constrained
Peak demand can 1 2
usually be met Electricity Insurance
without a major Natural gas Legal services
delay Telephone Banking
Hospital maternity unit Laundry and dry cleaning
Police and fire
emergencies
Peak demand 4 3
regularly exceeds Accounting and tax Services similar to those in
capacity preparation 2 but which have
Passenger transportation insufficient capacity for
Hotels and motels their base level of business
Restaurants
Theaters
Source: Christopher H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing, 47, 3 (Summer 1983): 17.

169. Table 14-2 170
What is the Constraint on
SM 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

170. 171
SM Waiting Line Issues
and Strategies
• unoccupied time feels longer
• preprocess waits feel longer
• anxiety makes waits seem longer
• uncertain waits seem longer than finite waits
• unexplained waits seem longer
• unfair waits feel longer
• longer waits are more acceptable for
“valuable” services
• solo waits feel longer

171. 172
SM
Part 5
MANAGING SERVICE
PROMISES

172. 173
SM
Provider GAP 4
CUSTOMER
COMPANY
Service Delivery External
Communications
GAP 4 to Customers
Part 5 Opener

173. 174
SM
Chapter 15
INTEGRATED
MARKETING
COMMUNICATION

174. 175
Objectives for Chapter 15:
SM Integrated Services
Marketing 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

175. 176
Figure 15-1
SM Communications and the
Services Marketing Triangle
Company
Internal Marketing External Marketing
Vertical Communications Communication
Horizontal Communications Advertising
Sales Promotion
Public Relations
Direct Marketing
Employees Interactive Marketing Customers
Personal Selling
Customer Service Center
Service Encounters
Servicescapes
Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler

176. Figure 15-3 177
Approaches for
SM Integrating Services Marketing
Communication
Manage
Customer
Expectations
Goal:
Manage Delivery Improve
Service greater than Customer
Promises or equal to Education
promises
Manage
Internal
Marketing
Communication

177. 178
Figure 15-4
SM Approaches for
Managing Service Promises
MANAGING SERVICE PROMISES
Goal:
Create Coordinate Offer Delivery
Effective Make
External Realistic Service greater than
Services Communication Guarantees or equal to
Communications Promises
promises

178. Figure 15-8 179
Approaches for
SM Managing Customer Expectations
Offer Choices
Create Tiered-Value
Offerings
Communicate Criteria for
Service Effectiveness
Negotiate
Unrealistic
Expectations
Goal:
Delivery
greater than
or equal to
promises

179. 180
Figure 15-9
SM Approaches for
Improving Customer Education
Teach
Customers
Prepare Confirm Clarify to Avoid
Goal: Performance Expectations
Delivery Customers Peak
for the to Standards after the Sale Demand
greater than Service
or equal to Periods
Process and
promises
Seek Slow
Periods

180. 181
Figure 15-10
SM Approaches for Managing
Internal Marketing Communications
Goal:
Delivery
greater than
or equal to
promises
Create Effective
Vertical
Communications
Create Effective
Horizontal
Communications
Align Back
Office Personnel
w/ External Customers
Create
Cross-Functional
Teams

181. 182
SM
Chapter 17
THE FINANCIAL AND
ECONOMIC IMPACT OF
SERVICE QUALITY

182. 183
Objectives for Chapter 17:
SM The Financial and Economic
Impact of Service
• Examine the direct effects of service on profits
• Consider the impact of service on getting new
customers
• Evaluate the role of service in keeping customers
• Examine the link between perceptions of service and
purchase intentions
• Emphasize the importance of selecting profitable
customers
• Discuss what is know about the key service drivers of
overall service quality, customer retention and
profitability
• Discuss the balanced performance scorecard to focus
on strategic measurement other than financials

183. 184
Figure 17-1
SM The Direct Relationship between
Service and Profits
Service
Quality
? Profits

184. 185
Figure 17-2
SM Offensive Marketing Effects of
Service on Profits
Service
Quality
Profits
Market
Share
Reputation Sales
Price
Premium

185. 186
Figure 17-3
SM Defensive Marketing Effects of
Service on Profit
Costs
Volume of Margins
Service Customer
Purchases
Quality Retention Price
Premium
Word of
Mouth Profits

186. 187
Figure 17-5
SM Perceptions of Service,
Behavioral
Intentions and Profits
Costs
Volume of Margins
Purchases
Customer
Retention Price
Behavioral Premium
Service Intentions
Word of
Mouth Profits
Sales

187. Figure 17-6 188
SM The “80/20” Customer Pyramid
Most Profitable
What segment spends more with
Customers us over time, costs less to maintain,
Best
Customers spreads positive word of mouth?
Other
Customers What segment costs us in
time, effort and money yet
does not provide the return
Least Profitable we want? What segment is
Customers difficult to do business with?

188. 189
Figure 17-7
SM The Expanded Customer Pyramid
Most Profitable
What segment spends more with
Customers Platinum us over time, costs less to maintain,
spreads positive word of mouth?
Gold
Iron
What segment costs us in
Lead time, effort and money yet
does not provide the return
Least Profitable we want? What segment is
difficult to do business with?
Customers

189. 190
Figure 17-8
SM The Key Drivers of Service Quality,
Customer Retention, and Profits
Key Drivers Service Encounters
Service
Encounter
Service
Encounter
Service Behavioral Customer
Quality Intentions Retention Profits
Service
Encounter
Service
Encounter

190. Figure 17-9 191
Sample Measurements for the
SM Balanced Scorecard
Financial Measures
Price Premium
Volume Increases
Value of Customer
Referrals
Customer
Perspective
Value of Cross Sales Operational
Long-term Value of Perspective:
Customer
Service Perceptions
Right first time (% hits)
Service Expectations
Right on time (% hits)
Perceived Value
Responsiveness (% on
Behavioral Intentions: Innovation and time)
% Loyalty Learning Perspective Transaction time (hours,
% Intent to Switch days)
# Customer Number of new products Throughput time
Referrals Return on innovation Reduction in waste
# Cross Sales Employee skills Process quality
# of Defections Time to market
Time spent talking to
customers
Adapted from Kaplan and Norton

191. Figure 17-10 192
SM Service Quality Spells Profits
Costs
Defensive Volume of Margins
Marketing Purchases
Price
Premium
Service Customer
Quality Retention
Word of
Mouth Profits
Market
Share
Sales
Offensive
Marketing Reputation
Price
Premium

192. 193
SM