Fundamentals of Service Marketing
Fundamentals of Service Marketing
Fundamentals of Service Marketing
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Unit I: Understanding Service Markets, Products and Customers
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1) Perspectives on Marketing in the Service
Economy: Introduction to services, importance
& role in new economy, distinguishing
characteristics from physical products posing
marketing challenges, expanded marketing
mix.
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Teaching Pedagogy
• Ppt
• Case
• Video
• Case-let on Queens Hospital- A Classic example of
services marketing.
• Oks at Ojai
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What are services?
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BASIS FOR COMPARISON GOODS SERVICES
Goods are the material items that Services are amenities, facilities,
Meaning can be seen, touched or felt and are benefits or help provided by
ready for sale to the customers. other people.
Separable Yes, goods can be separated from No, services cannot be separated
the seller. from the service provider.
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Why Study Services?
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Services Dominate the U.S. Economy
(Fig 1.1)
Manufacturing and
Construction, 17.3%
Government, 12.4%
(mostly Services)
Source: Bureau of Economic Analysis, Survey of Current Business, May 2005, Table 1
INSIGHTS
Private sector service industries account for over two-thirds of GDP
Adding government services, total is almost four-fifths of GDP
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Estimated Size of Service Sector in
Selected Countries (Fig 1.2—updated 10/06)
India (48%)
China (40%)
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Why Study Services? (2)
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Changing Structure of Employment as Economic
Development Evolves
Share of
Employment Agriculture
Services
Industry
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Transformation of the Service Economy
Government
Globalization
Policies
New markets and product categories
Increase in demand for services
More intense competition
Government
Globalization
Policies
Changes in regulations
Privatization
New rules to protect customers, employees,
and the environment
New agreement on trade in services
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Factors Stimulating Transformation of the Service Economy (2)
Government
Globalization
Policies
Rising consumer expectations
Ubiquitous social network
More affluence
More people short of time
Increased desire for buying experiences versus
things
Rising consumer ownership of high tech equipment
Easier access to information
Immigration
Growing but aging population
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Factors Stimulating Transformation of the Service Economy (3)
Government
Globalization
Policies
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Factors Stimulating Transformation of the Service Economy (4)
Government
Globalization
Policies Growth of the Internet
Wireless networking and technology
Cloud technology
User generated content
Location-based services
Big data
AI
Improved predictive analysis
Greater bandwidth
Compact mobile equipment
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Wireless networking
Factors Stimulating Transformation of the Service Economy (5)
Government
Globalization
Policies
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What Are Services?
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What Are Services?
• Five broad categories within non-ownership framework:
1. Labor, skills and expertise rentals
2. Rented goods services
3. Defined space and place rentals
4. Access to shared facilities (physical environments)
5. Access and use of systems and networks
• Implications of renting versus owning
– Markets exist for renting durable goods rather than selling them
– Renting portions of larger physical entity (e.g., office space,
apartment) can form basis for service
– Customers more closely engaged with service suppliers
– Time plays central role in most services
– Customer choice criteria may differ between rentals and outright
purchases
– Services offer opportunities for resource sharing
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Defining Services
• Services
– Are economic activities offered by one party to another
– Most commonly employ time-based performances to bring
about desired results in:
• recipients themselves
• objects or other assets for which purchasers have
responsibility
• In exchange for their money, time, and effort, service customers
expect to obtain value from
– Access to goods, labor, facilities, environments, professional
skills, networks, and systems
– But they do not normally take ownership of any of the physical
elements involved
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Service Products versus Customer Service and After-Sales Service
Barbers Refueling
People Processing
• Customers must:
– Physically enter the service factory
– Co-operate actively with the service
operation
• Managers should think about
process and output from
customer’s perspective
– To identify benefits created and
non-financial costs:
• Time, mental, physical effort
Possession Processing
Possession Processing
Involvement is limited
Information Processing
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Differences, Implications, and
Marketing-Related Tasks (2) (Table 1.1)
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The 8Ps of Services Marketing
• Product Elements
• Place and Time
• Price and Other User Outlays
• Promotion and Education
• Process
• Physical Environment
• People
• Productivity and Quality
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The 8Ps of Services Marketing:
(1) Product Elements
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1. Product:
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The 8Ps of Services Marketing:
(2) Place and Time
2) Place:
• Geographic locations served
• Service schedules
• Customer control and convenience
• Channel partners/intermediaries
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• Delivering product element to customers involves
decisions
• Delivery decision: Where; When; How
• Delivery may involve use of physical or electronic
channel
• Speed and convenience of place and time have
become important determinants of effective service
delivery
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The 8Ps of Services Marketing:
(3) Price and Other User Outlays
3) Price
• Marketers must recognize that customer outlays
involve more than price paid to seller
• Traditional pricing tasks:
– Selling price, discounts, premiums
– Margins for intermediaries (if any)
– Credit terms
• Identify and minimize other costs incurred by users:
– Additional monetary costs associated with service usage
(e.g., travel to service location, parking, phone, babysitting,
etc.)
– Time expenditures, especially waiting
– Unwanted mental and physical effort
– Negative sensory experiences
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4. Promotion:
• Promotion is nothing but communication between manufacture and customer
• This component plays three vital roles
– Providing information and advice
– Persuading target customers of the merit of a specific brand or service
product
– Encourage customer to take action at specific time
• Communication is educational for new customer
• Communication can be done by individual or in wide array
– individual: salespeople, front line staff; websites
– wide array of advertising media
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The 8Ps of Services Marketing:
(4) Promotion and Education
4) Promotion
• Informing, educating, persuading, reminding customers
• Marketing communication tools
– Media elements (print, broadcast, outdoor, retail, the Internet, etc.)
– Personal selling, customer service
– Sales promotion
– Publicity/PR
• Imagery and recognition
– Branding
– Corporate design
• Content
– Information, advice
– Persuasive messages
– Customer education/training
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Services Require
An Expanded Marketing Mix
• Marketing can be viewed as:
– A strategic and competitive thrust pursued by top
management
– A set of functional activities performed by line managers
– A customer-driven orientation for the entire organization
• Marketing is the only function to bring operating
revenues into a business; all other functions are cost
centers
• The “8Ps” of services marketing are needed to create
viable strategies for meeting customer needs
profitably in a competitive marketplace
5. Process:
•How firm does things may be as important as what
it does
• Customer are often involve in the process, especially when
acting as co-producers.
• Creating and delivering product elements requires design and
implementation of effective processes.
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The 8Ps of Services Marketing:
(5) Process
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The 8Ps of Services Marketing:
7) People
• In service, always require direct
interaction between customers
and contact personnel.
• Interactions between customers
and contact personnel strongly
influence customer perceptions of
service quality
• The right customers for firm’s mission
– Contribute positively to experience of other
customers
– Possess—or can be trained to have— needed skills
(co-production)
– Can shape customer roles and manage customer
behavior
• Service quality/customers' satisfaction depends on
front-line staff
• Therefore, successful service firm give significant
effort to recruiting, training, and motivating employees
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The 8Ps of Services Marketing:
(8) Productivity and Quality
8. Productivity and quality must work hand in hand
• Improving productivity key to reducing costs
• Improving and maintaining quality essential for
building customer satisfaction and loyalty
• Ideally, strategies should be sought to improve both
productivity and quality simultaneously—technology
often the key
– Technology-based innovations have potential to create high
payoffs
– But, must be user friendly and deliver valued customer
benefits
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CHARACTERISTICS OF SERVICES
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1. Intangibility:
Because services are performances or actions
rather than objects, they cannot be seen, felt,
tasted, or touched in the same manner that you
can sense tangible goods.
Ex: health care services are actions performed by providers and directed
toward patients and their families
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2. Heterogeneity
Because services are performances, frequently
produced by humans, no two services will be
precisely alike.
Ex: No two customers are alike, each will have
unique demand or experience , since services are
coproduced too, there will be variability,
resulting in heterogeneity of outcomes.
Ex: Tax accountant providing differing services
to differing needs
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3. Simultaneous production and consumption:
Services are sold first and then produced and
consumed simultaneously.
EX: University, class room interaction
(simultaneously)
4. Perishability
Services cannot be stored, saved, resold or
returned.
Ex:Rock concert, hair cut
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Marketing Must Be Integrated with
Other Management Functions (Fig 1.10)
Three management functions play central and interrelated roles in
meeting needs of service customers
Operations Marketing
Management Management
Customers
Human Resources
Management
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2) Customer Behaviour in Service Encounters:
Customer decision making: The 3 stage model
of service consumption, understanding service
encounters, defining moments of truth,
Customer expectation and perception of
services
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• Opening vignette –Susan Munro
• Three stage model of service consumption:
1. Prepurchase stage: need awareness, information
search, evaluation of alternatives, and making a
purchase decision.
2. Service encounter stage: customer initiates,
experiences, and consumes the service.
3. Post-encounter stage: evaluation of service
performance, and recommending
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A Framework for Developing Effective Service
Marketing Strategies
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The Purchase Process for Services
Prepurchase Stage
Post-Encounter Stage
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Prepurchase Stage: Overview
1. Need awareness
Prepurchase Stage
2. Information search: evoked set and
consideration set
3. Evaluation of alternatives:
• Multiattribute model linear
compensatory rule and conjunctive
rule.
Service Encounter Stage
• Service attributes: search attributes,
experience attributes and credence
attributes.
Post-Encounter Stage
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Evaluating a Service May Be Difficult
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How Product Attributes/characteristics Affect
Ease of Evaluation
Easy Difficult
to evaluate to evaluate*
Clothing Restaurant meals Computer repair
Chair Lawn fertilizer Education
Motor vehicle Haircut Legal services
Foods Entertainment Complex surgery
Prepurchase Stage
Perceived Risk:
• Uncertainty about outcomes increases
perceived risk
• What risk reduction strategies can
service suppliers develop?
Service Encounter Stage
Post-Encounter Stage
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Perceived Risks in Purchasing and Using
Services
• Functional—unsatisfactory performance
outcomes
• Financial—monetary loss, unexpected extra
costs
• Temporal—wasted time, delays leading to
problems
• Physical—personal injury, damage to
possessions
• Psychological—fears and negative emotions
• Social—how others may think and react
• Sensory—unwanted impact on any of five
senses
How Might Consumers Handle Perceived Risk?
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Strategic Responses to Managing Customer
Perceptions of Risk
• Offer performance warranties, guarantees to
protect against fears of monetary loss
• For products where customers worry about
performance, sensory risks:
– Offer previews, free trials (provides experience)
– Advertising (helps to visualize)
• For products where customers perceive physical or
psychological risks:
– Institute visible safety procedures
– Deliver automated messages about anticipated problems
– Websites offering FAQs and more detailed background
– Train staff members to be respectful and empathetic
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Understanding Customers’
Service Expectations
• Customers evaluate service quality by comparing what
they expect against what they perceive
– Situational and personal factors also considered
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Factors Influencing Customer Expectations of
Service (Fig 2.8)
Situational Factors
Source: Adapted from Valarie A. Zeithaml, Leonard A. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of
Service,” Journal of the Academy of Marketing Science 21, no. 1 (1993): pp 1–12.
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Service expectations
1. Desired service
(highest level)
2. Adequate service
(threshold
level) minimum
tolerable
expectations
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SERVICE ENCOUNTERS: The
building blocks for customer perceptions:
Service encounters are where promises are
kept or broken real time marketing
Service encounters or moments of truth:
From customer’s point of view, the most realistic
impression of service occurs in the service encounter, or
moment of truth, when the customer interacts with the
service firm.
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The importance of encounters:
• A service encounter occurs every time a customer
interacts with the service organization.
• Types of service encounters:
Or technology-
mediated encounter
Prof.KG (Source:Zeitham et al and
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websitesl)
Prof.KG (Source:Zeitham et al and
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websitesl)
The importance of encounters:
• A service encounter occurs every time a customer
interacts with the service organization.
• Types of service encounters:
Or technology-
mediated encounter
Prof.KG (Source:Zeitham et al and
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websitesl)
Prof.KG (Source:Zeitham et al and
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websitesl)
Service Encounter Stage: Overview
1. moments of truth
Prepurchase Stage
2. High or low contact service model
3. Servuction model
Post-Encounter Stage
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Service Encounters Range from
High-Contact to Low-Contact (Fig 2.9)
Figure 2.9
Levels of Customer Contact with
Service Organizations
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Distinctions between High-Contact and Low-
Contact Services
• High-Contact Services
– Customers visit service facility and remain throughout
service delivery
– Active contact between customers and service personnel
– Includes most people-processing services
• Low-Contact Services
– Little or no physical contact with service personnel
– Contact usually at arm’s length through electronic or
physical distribution channels
– New technologies (e.g. the Web) help reduce contact levels
• Medium-Contact Services Lie in between These Two
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• The servuction system: The servuction model
shows the interactions that together make up a
typical customer experience in a high-contact
service.
• Servuction system comprises of technical core
and services delivery system.
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Service Marketing System for a High-Contact Service
Advertising
Service Operations System Other
Customers Sales Calls
Interior & Exterior
Market Research Surveys
Facilities
Billing/Statements
Technical The
Equipment Misc. Mail, Phone Calls,
Core Customer E-mails, Faxes, etc.
Website
Service People Random Exposure to
Facilities/Vehicles
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The Servuction System:
Service Production and Delivery
• Service Operations (front stage and backstage)
– Where inputs are processed and service elements created
– Includes facilities, equipment, and personnel
• Service Delivery (front stage)
– Where “final assembly” of service elements takes place
and service is delivered to customers
– Includes customer interactions with operations and other
customers
• Service Marketing (front stage)
– Includes service delivery (as above) and all other contacts
between service firm and customers
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Service Marketing System for a
Low-Contact Service
Service Operations SERVICE MARKETING SYSTEM
System
Service Delivery System Other Contact Points
Mail Advertising
Market Research
Surveys
Technical Self The
Core Service Billing/Statements
Equipment Customer
Random Exposure to
Phone, Fax, Facilities/Vehicles
Web- site,
etc. Word of Mouth
Front Stage
Backstage (visible)
(invisible)
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Theater as a Metaphor for
Service Delivery
William Shakespeare
As You Like It
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Theatrical Metaphor:
An Integrative Perspective
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Post-Encounter Stage: Overview
Prepurchase Stage
Evaluation of service
performance
Customer satisfaction
Service quality
Service Encounter Stage
perception
Repeat purchase
Customer loyalty
Future intentions
Post-Encounter Stage
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Customer satisfaction: The expectancy-
disconfirmation model of satisfaction
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Customer Satisfaction Is Central to the
Marketing Concept
• Satisfaction defined as attitude-like judgment following a service purchase
or series of service interactions
• Customers have expectations prior to consumption, observe service
performance, compare it to expectations
• Satisfaction judgments are based on this comparison
– Positive disconfirmation if better than expected
– Confirmation if same as expected
– Negative disconfirmation if worse than expected
• Satisfaction reflects perceived service quality, price/quality tradeoffs,
personal and situational factors
• Research shows links between customer satisfaction and a firm’s financial
performance
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Customer Delight:
Going Beyond Satisfaction
• Research shows that delight is a function of three
components:
– Unexpectedly high levels of performance
– Arousal (e.g., surprise, excitement)
– Positive affect (e.g., pleasure, joy, or
happiness)
• Is it possible for customers to be delighted by very
mundane services?
• Strategic links exist between customer satisfaction
and corporate performance.
• Getting feedback during service delivery help to
boost customer loyalty
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• Service Quality: service quality is excellent when
it meets high standard of performance that
consistently meets or exceeds customer
expectations.
• Customer satisfaction and service quality are
contrasting customer expectations with their
performance perceptions. Ex: Starbucks coffee
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• SERVQUAL Dimensions of service quality:
RATER:
Reliability
Assurance
Tangibles
Empathy
Responsivesness
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Prof.KG (Source:Zeitham et al and
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websitesl)
• Understanding what customers evaluate and later
understand 5 dimensions of service that customers rely on
in forming their judgments.
• Customers evaluate- based on their perceptions of the
technical outcome provided, the process by which that
outcome was delivered, and the quality of the physical
surroundings where the service is delivered.
• Example:restaurant customer ,meal (technical outcome
quality) and on how the meal was served and how the
employees interacted with him/her (interaction quality) .
The décor and surroundings (physical environment
quality) of both the law firm and the restaurant will also
affect the customer’s perceptions of overall service
97
• These dimensions represent how consumers
organise information about service quality in
their minds.
• These 5 were found relevant for banking,
insurance, appliance repair and maintenance,
securities brokerage, long distance telephone
service, …also in retail and business services
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• Customer loyalty
99
Customer perception of service:
• Customer perception and satisfaction
• Service quality
• Service encounters
• Relationship strategies for influencing
customer perceptions
100
• Perceptions are always considered relative to
expectations. Because expectations are dynamic,
evaluations may also shift over time– from
person to person and from culture to culture.
Satisfaction Vs service quality
Satisfaction is a broader concept while quality
focuses specifically on dimensions of service. Thus,
perceived service quality is a component of
customer satisfaction.
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Prof.KG (Source:Zeitham et al and
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websitesl)
• Activity
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UNIT II BUILDING THE SERVICE MODEL
105
1. Developing Service Concepts: Defining the core and supplementary
elements of a service, The flower of service, Planning and branding
service products, Development of new services.
2. Distributing Services: Determining the type of contact: Options for
service delivery, Place and time decisions, the role of intermediaries,
Distributing services internationally.
3. Pricing and Revenue Management: Tripod strategy of pricing, Activity
based costing, Demand elasticity based on pricing & customer
segments, Yield management to maximize revenues.
4. Services marketing communication: Setting communication objectives,
Challenges (intangibles) and opportunities in communicating services,
Marketing communications mix using internet.
106
1. Developing Service Concepts: Defining the
core and supplementary elements of a
service, The flower of service, Planning and
branding service products, Development of
new services.
107
Developing
Service Concepts:
Core and
Supplementary Elements
1. Planning and Creating Services*
2. The Flower of Service*
3. Planning and Branding Service Products
4. Development of New Services
Service Products
• Core Product
– Central component that supplies the principal,
problem-solving benefits customers seek
• Supplementary Services
– Augment the core product, facilitating its use and
enhancing its value and appeal
• Delivery Processes
– Used to deliver both the core product and each of the
supplementary services
Core and Supplementary Product Design:
An Integrated Perspective
Delivery Concept
Supplementary Nature of for Core Product
services offered Scheduling
Process
and delivered
Reservation
Parking
Receptioncheck-in/check out
Overnight stay
Room
Service Baggage
Service
Wake-up Cocktail
Call Bar
Internet Entertainment/
Sports/ Exercise Restaurant
Defining Core and Supplementary
Elements of Our Service Product
• How is our core product defined and what supplementary
elements augment it?
• What product benefits create most value for customers?
• What are current levels of service on core product and
each supplementary element?
• Can we charge more for higher service levels? For
example:
• Alternatively, should we cut service levels and charge
less?
b) Documenting Delivery Sequence
Over Time
• Must address sequence in which customers will use
each core and supplementary service
• Determine length of time for each step
• Information should reflect good understanding of
customers, especially their:
– Needs
– Habits
– Expectations
• Question: Do customers’ expectations change during
service delivery in light of perceived quality of each
sequential encounter?
What Happens, When, in What Sequence?
Time Dimension in Augmented Product
Reservation
Parking Get car
Check in Check out
Internet Internet
Use
internet
room USE GUESTROOM OVERNIGHT
Porter
Pay TV
Meal
Room service
Maid Makes
Breakfast
up Room
Prepared
Simple Flowchart for Delivery of a
Possession-Processing Service
Information
Payment Consultation
Exceptions Hospitality
Safekeeping
KEY:
Facilitating elements
Enhancing elements
The Flower of Service:
Facilitating Services—Information
Examples of elements:
Core
Directions to service site
Schedule/service hours
Prices
Conditions of sale
Usage instructions
The Flower of Service:
Facilitating Services—Order Taking
Applications
Order entry
Reservations and check-in
The Flower of Service:
Facilitating Services—Billing
Periodic statements of
account activity
Machine display of amount
due
The Flower of Service:
Facilitating Services—Payment
Examples of elements:
Customized advice
Personal counseling
Management consulting
The Flower of Service:
Enhancing Services—Hospitality
Customers who invest time and effort in
visiting a business and using its services
deserve to be
treated as welcome guests—
after all, marketing invited them!
Greeting
Waiting facilities and amenities
Food and beverages
Toilets and washrooms
Security
The Flower of Service:
Enhancing Services—Safekeeping
– Easily recognized
– Holds meaning to customers
– Stands for a particular way of doing business
• Product brand:
“Branded House”
“House of Brands”
e.g., Virgin Group
e.g., P&G
141
• Google books
• Google videos
• Google maps
142
• Sub-brands:
Example:
144
Example: British Airways Sub-brands
146
• House of brands:
Example: KFC, Pizza Hut and Taco Bell
147
• Tiering service products with branding:
Branding is not only used to differentiate core
service, but also to clearly differentiate service
levels.
• Example: Airline: Classes-first, business,
premium economy, economy
148
Building Brand Equity
• Brand equity is the value premium that comes with a brand
149
• Presented brands
• External brand communication
• Customer experiences with company
• Brand awareness
• Brand meaning
• Brand equity
150
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153
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Offering a Branded Experience (2)
Don Schultz
4. Developing New Services
New Service Development OR A Hierarchy of New Service
Categories:
1. Style changes: Visible changes in service design or scripts
2. Service improvements: Modest changes in the
performance of current products
3. Supplementary service innovations: Addition of new or
improved facilitating or enhancing elements
4. Process line extensions: Alternative delivery procedures
5. Product line extensions: Additions to current product
lines
6. Major process innovations: Using new processes to
deliver existing products with added benefits
7. Major service innovations 157
Achieving Success/Success Factors in New Service
development
• Market synergy
– Good fit between new product and firm’s image/resources
– Advantage versus competition in meeting customers’ needs
– Strong support from firm during/after launch
– Firm understands customer purchase decision behavior
• Organizational factors
– Strong interfunctional cooperation and coordination
– Internal marketing to educate staff on new product and its competition
– Employees understand importance of new services to firm
• Market research factors
– Scientific studies conducted early in development process
– Product concept well defined before undertaking field studies
2. Distributing Services: Determining the type of
contact: Options for service delivery, Place and
time decisions, the role of intermediaries,
Distributing services internationally.
159
• What?
• How?
• Where?
• When?
What is being distributed:
• Information and promotion flow (information and
consultation petals)
• Negotiation flow (order taking, billing and
payments)
• Product flow (core and the remaining petals)
160
1. How should a service be distributed?
• Customers visit the service site
• Service providers go to their customers
• Service transactions is conducted remotely
2. Channel preference vary among customers
3. Where should a service facility be located?
a. Strategic location consideration
b. Tactical location consideration
161
1. How should a service be distributed?
• Customers visit the service site
• Service providers go to their customers
• Service transactions is conducted remotely
162
Information
processes
Information
Payment Consultation
Order-
Billing Core taking
Exceptions Hospitality
Safekeeping
Physical
processes
163
2. Channel preference vary among customers:
• Not all consumers prefer the same channel
• Complex and perceived high-risk….
• Convenience in time , place, higher confidence
and knowledge in technology……
• Channel integration
• Channel arbitrage
164
1. How should a service be distributed?
• Customers visit the service site
• Service providers go to their customers
• Service transactions is conducted remotely
2. Channel preference vary among customers
3. Where should a service facility be located?
a. Strategic location consideration
b. Tactical location consideration
165
3. Where should a service facility be located?
a. Strategic location consideration: consistent
with its marketing strategy and target
segments. Availability of site locations, rental
cost, contractual conditions and regulations.
b. Tactical location consideration
166
Locational constraints:
• Multi-specialty hospitals located in single location.
• Location of Airports
Innovative location strategies:
• Mini-stores: automated kiosks, K-minus strategy of
Taco Bell, and small bank branches inside
supermarkets
• Locating in multi-purpose facilities
167
• When should service be delivered?
168
The role of intermediaries
169
Splitting Responsibilities For Supplementary
Service Elements
As created by As enhanced As experienced
originating firm by distributor by customer
Core + = Core
172
Challenge of distribution in large domestic markets:
McD-Segmentation.mp4
173
Distributing services internationally
Factors favoring:
• Market drivers- common customer needs
• Competition drivers
• Technology drivers
• Cost drivers
• Government drivers
174
• Barriers:
• Bi-lateral agreement
175
Unit II
3. Pricing and Revenue Management: Tripod
strategy of pricing, Activity based costing,
Demand elasticity based on pricing &
customer segments, Yield management to
maximize revenues.
176
• DYNAMIC PRICING
177
The Pricing Tripod
Pricing strategy
Competition
Costs Value to customer
Three Main Approaches to Pricing
• Cost-based pricing
– Set prices relative to financial costs (problem: defining
costs)
– Activity-based costing
– Pricing implications of cost analysis
• Competition-based pricing
– Monitor competitors’ pricing strategy (especially if
service lacks differentiation)
– Who is the price leader? Does one firm set the pace?
• Value-based pricing
– Relate price to value perceived by customer
1) Cost-based Pricing:
Traditional vs. Activity-based Costing
189
• Target audience
• Specifying service communication objectives:
Strategic service communications objectives
(building service brand and positioning it) and
Tactical service communications ( shaping and
managing customer’s perceptions, beliefs,
attitudes and behavior)
190
Adding Value through
Communication Content
• Information and consultation represent important ways to add value to a product
• Promote the contribution of service personnel and backstage
operations….advertising
• Provide information to prospective customers
– Service options available, cost, specific features, functions,
service benefits: example-Video of dental surgery
• Persuade target customers that service offers best solution to meet their needs and
build relationship with them
• Help maintain relationships with existing customers
– Requires comprehensive, up-to-date customer database and
ability to make use of this in a personalized way
– Direct mail and contacts by telephone, e-mail, websites, text
messages
• For example, doctors sending annual checkup reminders to patients
Overcoming Problems of Intangibility
• May be difficult to communicate service
benefits to customers, especially when
intangible
• Intangibility creates four problems:
– Abstractness
• No one-to-one correspondence with physical objects, financial security etc
– Generality
• Items that comprise a class of objects, persons, or events
– Nonsearchability
• Cannot be searched or inspected before purchase
– Mental impalpability
• Customers find it hard to grasp benefits of complex, multidimensional new
offerings
Advertising Strategies for
Overcoming Intangibility
Intangibility problem Advertising strategy
Generality
objective claims Document physical system capacity
Cite past performance statistics
subjective claims Present actual service delivery incident
Source: Banwari Mittal and Julie Baker, “Advertising Strategies for Hospitality Services,” Cornell Hotel and Restaurant Administration Quarterly 43, April 2002, 53
Services Marketing Communication Mix:
194
Channel categories:
1. Personal (direct marketing and personal
communications) and non-personal (TV,
print, outdoor)
2. Traditional Vs online (online advertising,
social media, and mobile communication)
195
• Advertising: pro’s and con’s
• Direct marketing: huge database
196
Prof.KG (Source:Zeitham et al and
197
websitesl)
UNIT III Managing the Customer Interface (9 Hrs)
1) Designing and managing service processes: Blueprinting service
operations to create valued experiences, Service process redesign, The
customer as co-producer.
198
Designing and managing service processes:
• Blueprinting service operations to create
valued experiences,
• Service process redesign,
• The customer as co-producer.
199
• Difference between a flowchart and a
blueprint
200
201
Simple Flowchart for Delivery of a People-
Processing Service
Maid Makes
Breakfast
up Room
Prepared
• Blueprint is a complex form of a flowchart,
specifies in detail how a service process is
constructed, including what is visible to the
customer and all that goes on in the back-
office.
• Service blueprints map customer, employee
and service system interactions.
• Line of interactions
203
Developing a Blueprint
Timeline Act 1
Service Standards W
W W
and Scripts Make Valet Parking
Coat Room …
Physical
Reservation
Front - Stage
Evidence Line of
interaction
Greet customer, Greet, take
Accept take car keys Contact person
reservation coat, coat (visible actions)
checks
Line of visibility
(invisible actions)
insert booking parking lot numbers
Line of internal
physical
Maintain Maintain (or Maintain interaction
reservation rent) facilities/
Support system facilities equipment
Processes
2. Redesigning Service Processes
Why Redesign? (1)
222
4) Managing People for Service Environment:
• Importance of Service Employees,
• Frontline & back office,
• Cycles of failure, mediocrity and success,
• Human resource management,
• Service Leadership & Culture.
223
Chapter :
Managing People for
Service Advantage
225
1. Importance of Service Employees
Service Personnel: Source of Customer Loyalty
and Competitive Advantage
• Frontline is an important driver of customer loyalty
– Anticipating customer needs
– Customizing service delivery
– Building personalized relationships
• Customer’s perspective: Encounter with service staff is
most important aspect of a service
• Firm’s perspective: Frontline is an important source of
differentiation and competitive advantage. It is…
– A core part of the product
– the service firm
– The brand
Frontline in Low-Contact Services
• Many routine transactions are now conducted
without involving frontline staff, e.g.,
– ATMs (Automated Teller Machines)
– IVR (Interactive Voice Response) systems
– Websites for reservations/ordering, payment, etc.
• Though technology and self-service interface is
becoming a key engine for service delivery,
frontline employees remain crucially important
• “Moments of truth” drive customer’s perception
of the service firm
2. Frontline Work Is
Difficult and Stressful
Boundary Spanning Roles
Customer
turnover Repeat emphasis on
attracting new customers
Failure to develop
customer loyalty
Low profit
margins Narrow design of
jobs to accommodate
low skill level
High employee turnover;
poor service quality
Employees
become bored Minimization of
Customer selection effort
dissatisfaction Minimization
of training
Employees can’t
respond to customer
problems
Employees spend
working life
in environment
Employee of mediocrity
dissatisfaction
(but can’t easily quit) Emphasis
on rules
Narrow design vs. pleasing
of jobs
customers
No incentive for Complaints met by
cooperative relationship Training emphasizes
indifference or Success =
to obtain better service hostility learning rules
not making
mistakes
Service not focused
Jobs are boring and on customers’ needs
repetitive; employees
unresponsive Good wages/benefits
high job security
Resentment at inflexibility and
lack of employee initiative; Promotion
and pay
complaints to employees increases based Initiative is
discouraged
on longevity,
lack of mistakes
Source: Heskett and Schlesinger
Customer dissatisfaction
Cycle Of Mediocrity
Low
customer
turnover Repeat emphasis on
customer loyalty and
retention
Customer
loyalty
Higher
profit
margins
Broadened
Lowered turnover, job designs
high service quality
Continuity in
relationship with Train, empower frontline
customer Employee satisfaction, personnel to control quality
positive service attitude
Above average
Extensive wages
training
High customer Intensified
satisfaction selection effort
Leadership that:
Focuses the entire 1. Hire the
organization on Right People
supporting the frontline
3. Motivate and Energize Be the preferred employer
Your People & compete for talent
Fosters a strong service market share
Utilize the full range
culture with passion for
of rewards
service and productivity Intensify the
Service Excellence
selection process
& Productivity
Drives values that
inspires, energizes
and guides service
2. Enable Your People
providers Empower frontline
Build high performance service
delivery teams
Extensive training
1. Hire the Right People
Jim Collins
Recruitment
• The right people are a firm’s most important asset: Take a focused,
marketing-like approach to recruitment
• Clarify what must be hired versus what can be taught
• Clarify nature of the working environment, corporate values and style,
in addition to job specs
• Ensure candidates have/can obtain needed qualifications
• Evaluate candidate’s fit with firm’s culture and values
• Match personalities, styles, energies to appropriate jobs
“If people come for money, they will leave for money”
- James Treybig (CEO of Tandem Computers)
Select and Hire the Right People:
(1) Be the Preferred Employer
• Create a large pool: “Compete for Talent Market Share”
• What determines a firm’s applicant pool?
– Positive image in the community as place to work
– Quality of its services
– The firm’s perceived status
• There is no perfect employee
– Different jobs are best filled by people with different skills,
styles, or personalities
– Hire candidates that fit firm’s core values and culture
– Focus on recruiting naturally warm personalities for customer-
contact jobs
Select and Hire the Right People:
(2) How to Identify Best Candidates
• Observe behavior
– Hire based on observed behavior, not words you hear
– Best predictor of future behavior is past behavior
– Consider group hiring sessions where candidates are
given group tasks
• Conduct personality tests
– Willingness to treat co-workers and customers with
courtesy, consideration, and tact
– Perceptiveness regarding customer needs
– Ability to communicate accurately and pleasantly
Select and Hire the Right People:
(3) Identifying Best Candidates
• Employ multiple, structured interviews
– Use structured interviews built around job requirements
– Use more than one interviewer to reduce “similar to me”
biases
• Give applicants a realistic preview of the job
– Chance for candidates to “try on the job”
– Assess how candidates respond to job realities
– Allow candidates to self select themselves out of the job
– Manage new employees’ expectation of job
2. Train Service Employees
Service employees need to learn:
• Organizational culture, purpose, and strategy
– Promote core values, get emotional commitment to
strategy
– Get managers to teach “why,” “what,” and “how” of job
• Interpersonal and technical skills
– Both are necessary but neither alone is sufficient for
optimal job performance
• Product/service knowledge
– Staff’s product knowledge is a key aspect of service
quality
– Staff must explain product features and position
products correctly
Is Empowerment Always Appropriate?
Empowerment is most appropriate when:
Customer Base
Top
Mgmt Frontline Staff
Middle
Mgmt
Middle Mgmt
Frontline And Top Mgmt
Staff Support Frontline
261
Managing Customer
Relationships and
Building Loyalty
• Customer Loyalty???
263
Why Is Customer Loyalty Important to a Firm’s
Profitability?
• Customers become more profitable the longer
they remain with a firm:
– Increase purchases and/or account balances
• Customers/families purchase in greater quantities as they grow
– Reduced operating costs
• Fewer demands from suppliers and operating mistakes as customer
becomes experienced
– Referrals to other customers
• Positive word-of-mouth saves firm from investing money in sales and
advertising
– Price premiums
• Long-term customers willing to pay regular price
• Willing to pay higher price during peak periods
How Much Profit a Customer Generates Over
Time
(Year 1=100)
350 –
300
250
200
150
100
50
0
Year 1 Year 2 Year 3 Year 4 Year 5
Base Profit/Loss
Loss
1 2 3 4 5 6 7
Year
Source: Why Are Customers More Profitable Over Time from Fredrick R. Reichheld and W. Earl Sassar, Jr., “Zero Defections: Quality Comes from Services,” Harvard
Business Review 73 (Sep.–Oct. 1990): p. 108.
Assessing the Value of a Loyal Customer
– Revenue
• Large customers may expect price discounts in return for loyalty
• Revenues don’t necessarily increase with time for all types of
customers
Assessing the Value of a Loyal Customer
• Interaction Marketing:
– Face-to-face interaction between customers and supplier’s
representatives
– Value is added by people and social processes
– Increasing use of technologies make maintaining meaningful
relationships with customers a marketing challenge
• For example, self-service technology, interactive websites, call centers
• Network Marketing:
– Common in b2b context where companies commit resources to
develop positions in network of relationships with stakeholders and
relevant agencies
The Wheel of Loyalty
The Wheel of Loyalty
Gold
Which segment costs us time,
Iron effort, and money, yet does not
provide return we want? Which
segment is difficult to do business
Lead with?
Poor Relationship
Customers
Source: Valarie A Zeithaml, Roland T Rust, and Katharine N. Lemon, “The Customer Pyramid: Creating and
Serving Profitable Customers,” California Management Review 43, no. 4, Summer 2001, pp.118–142.
The Customer Satisfaction
Loyalty Relationship
Apostle
100
Zone of Affection
Loyalty (Retention)
80
40 Zone of Defection
20
Terrorist 0
1 2 3 4 5
Very Dissatisfied Neither Satisfied Very
Dissatisfied Satisfied
Source: Adapted from Thomas O. Jones and W. Earl Sasser, Jr.,
Satisfaction
“Why Satisfied Customers Defect,” Harvard Business Review,
November-December 1995, p. 91.
• True loyalty=behavioural (share-of-wallet)
+attitudinal loyalty (share-of-heart)
279
Creating Loyalty Bonds
Strategies for Developing Loyalty Bonds with
Customers (1)
• Deepening the relationship
– Bundling/cross-selling services makes switching a
major effort that customer is unwilling to undertake
unless extremely dissatisfied with service provider
– Customers benefit from consolidating their
purchasing of various services from the same provider
– See Research Insights 12.2: How do customers see
relational benefits?
• One-stop-shopping, potentially
higher service levels,
higher service tiers, etc.
Strategies for Developing Loyalty Bonds with
Customers (2)
• Reward-based Bonds
– Incentives that offer rewards based on frequency of
purchase, value of purchase, or combination of both
– Financial bonds
• Discounts on purchases, loyalty program rewards (e.g., frequent flier miles), cash-
back programs
– Non-financial rewards
• Priority to loyalty program members for waitlists and queues in call centers: higher
baggage allowances, priority upgrading, access to airport lounges for frequent flyers
– Intangible rewards
• Special recognition and appreciation, tiered loyalty programs
– Reward-based loyalty programs are relatively easy to
copy and rarely provide a sustained competitive
advantage
Strategies for Developing Loyalty Bonds with
Customers (3)
• Social Bonds
– Based on personal relationships between providers and customers
– Harder to build and imitate and thus, better chance of retention in
the long term
Customization Bonds
Customized service for loyal
customers
― e.g., Starbucks
Customers may find it hard
to adjust to another service
provider who cannot
customize service
– Timing
• Send customers periodic updates on account status and progress
towards particular milestones
Strategies for Reducing
Customer Defections
Analyze Customer Defections and Monitor
Declining Accounts
• Understand reasons for customer switching
• Churn diagnostics common in mobile phone
industry
– Analysis of data warehouse information on churned and
declining customers
– Exit interviews:
• Ask a short set of questions when customer cancels account; in-depth
interviews of former customers by third party agency
– Churn Alert Systems:
• Monitor activity in individual customer accounts to predict impending customer
switching
• Proactive detention efforts—send voucher, customer service representative calls
customer
Addressing Key Churn Drivers
• Delivery quality
• Minimize inconvenience and nonmonetary costs
• Fair and transparent pricing
• Industry specific drivers
– Cellular phone industry: Handset replacement a common reason for
subscribers discontinuing services—offer proactive handset replacement
programs
• Reactive measures
– Save teams: Specially trained call center staff to deal with customers
who want to cancel their accounts
– Be careful about how save teams are rewarded
Other Ways to Reduce Churn
Source: Adapted from: Adrian Payne and Pennie Frow, “A Strategic Framework for Customer
Relationship Management,” Journal of Marketing 69 (October 2005): pp.167–176.
Integrated Framework for CRM Strategy
Development
• Strategy Development
– Assessment of business strategy
– Business strategy guides development of
customer strategy
Integrated Framework for CRM Strategy:
Value Creation
• Value Creation
– Translates business and customer strategies into specific value
propositions for both customers and firm
• Customers benefit from priority, tiered services, loyalty
rewards, and customization
• Company benefits from reduced customer acquisition and
retention costs, and increased share-of-wallet
– Dual creation of value: Customers need to participate in CRM to
reap value from firm’s CRM initiatives
Integrated Framework for CRM
Strategy: Multi-Channel Integration
• Multi-Channel Integration
– Serve customers well across many potential
interfaces
– Offer a unified interface that delivers
customization and personalization
Integrated Framework for CRM
Strategy: Performance Assessment
• Performance Assessment
– Is CRM system creating value for key stakeholders?
– Are marketing and service standard objectives
being achieved?
– Is CRM system meeting performance standards?
Integrated Framework for CRM Strategy:
Information Management
• Information Management
– Collect customer information from all channels
– Integrate it with other relevant information
– Make useful information available to the frontline
– Create and manage data repository, IT systems,
analytical tools, specific application packages
Common Objectives Of CRM Systems
• Data collection
– Customer data such as contact details, demographics, purchasing
history, service preferences, and the like
• Data analysis
– Data captured is analyzed and categorized
– Used to tier customer base and tailor service delivery accordingly.
• Sales force automation
– Sales leads, cross-sell, and up-sell opportunities can be effectively
identified and processed
– Entire sales cycle from lead generation to close of sales and after-
sales service can be tracked and facilitated through CRM system
Common Objectives Of CRM Systems
• Marketing automation
– Mining of customer data enables the firm to target its market
– Goal to achieve one-to-one marketing and cost savings, often in the
context of loyalty and retention programs
– Results in increasing the ROI on its marketing expenditure
– CRM systems also enable the assessment of the effectiveness of
marketing campaigns through the analysis of responses
• Call center automation
– Call center staff have customer information at their fingertips and can
improve their service levels to all customers
– Caller ID and account numbers allow call centers to identify the
customer tier the caller belongs to, and to tailor the service accordingly
• For example, platinum callers get priority in waiting loops
Common Failures in
CRM Implementation
• Service firms often equate installing CRM systems with having a
customer relationship strategy
• Challenge of getting it right with wide-ranging scope of CRM
• Common reasons for failures
– Viewing CRM as a technology initiative
– Lack of customer focus
– Insufficient appreciation of customer lifetime value
(CLV)
– Inadequate support from top management
– Failure to reengineer business processes
– Underestimating the challenges in date integration
Key Issues in Defining a
Customer Relationship Strategy
• How should our value proposition change to increase customer
loyalty?
• How much customization or one-to-one marketing and service
delivery is appropriate and profitable?
• What is incremental profit potential of increasing share-of-wallet with
current customers? How much does this vary by customer tier and/or
segment?
• How much time and resources can we allocate to CRM right now?
• If we believe in customer relationship management, why haven’t we
taken more steps in that direction in past?
• What can we do today to develop customer relationships without
spending on technology?
Summary : Managing Customer Relationships and Building Loyalty
306
Customer Complaining Behavior
Customer Response Categories to
Service Failures
Complain
Complaintotothe
the
service firm
service firm
Take
Takesome
someform
formofof Complain
Public Complaintotoaathird
third
PublicAction
Action party
party
Take
Takelegal
legalaction
actiontoto
Service Take
Takesome
someform
formofof
ServiceEncounter
Encounterisis Private
seek
seekredress
redress
Dissatisfactory
Dissatisfactory PrivateAction
Action
Defect
Defect(switch
(switch
provider)
provider)
Take
TakeNo
NoAction
Action
Negative
Negativeword-of-
word-of-
mouth
mouth
Any
Anyone
oneororaacombination
combinationofof
these
theseresponses
responsesisispossible
possible
Understanding Customer Responses to
Service Failure
• Why do customers complain? (restitution, vent anger, help improve service,
altruistic reason)
• What proportion of unhappy customers complain?
• Why don’t unhappy customers complain?
• Who is most likely to complain?
• Where do customers complain?
• What do customers expect once they have made a complaint?
310
Customer Responses to Effective Service
Recovery
Service Recovery
Conduct research
Identify Service Monitor complaints
Complaints Develop “Complaints as
opportunity” culture
338
1. Integrating service quality and productivity strategies
2. What is service quality?
3. The Gaps Model—a conceptual tool to identify and
correct service quality problems
4. Measuring and improving service quality
5. Defining and measuring productivity
6. Improving service productivity
1. Integrating Service Quality and
Productivity Strategies
Integrating Service Quality and
Productivity Strategies
• Quality and productivity are twin paths to creating value
for both customers and companies
• Quality focuses on the benefits created for customers;
productivity addresses financial costs incurred by firm
• Importance of productivity:
– Keeps costs down to improve profits and/or reduce prices
– Enables firms to spend more on improving customer service and
supplementary services
– Secures firm’s future through increased spending on R&D
– May impact service experience—marketers must work to
minimize negative effects, promote positive effects
2. What Is Service Quality?
Components of Quality:
Manufacturing-based
Performance: Primary operating characteristics
349
1. The customer gap: The customer gap is the
difference between customer expectations and
customer perceptions.
2. The provider gaps:
• Listening gap
• Service design and standard gap
• Service performance gap
• Communication gap
350
351
2. Provider gap 1: Listening gap: customer
expectations of service ~ company understanding
of those expectations
Reasons for the gap:
• Unaware of what customers expect
• Listening gap due to lack of upward
communication
• Lack of retaining customers-------RM
(relationship marketing)
• Service recovery (handling complaints)
352
353
• Provider gap 2: Service design and standard
gap
354
355
• To close this gap, design services without
oversimplification, incompleteness,
subjectivity and bias, physical evidence
starting from business cards, signage, internet
presence, health club
1. Knowledge Gap
MANAGEMENT
Management definition of
these needs
2. Standards Gap
Translation into
design/delivery specs
4. Internal Communications
3. Delivery Gap Gap
Materials,
Materials, Backstage Information
Supplies
Supplies Personnel
• Pareto Analysis…80/20 rule
373
Blueprinting
389
390