1

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Services Marketing

Contact: +923006641921

Usman Waheed

SM
If You want these slides then send me at
E-mail at ch_paki@hotmail.com or call me at
+923006641921

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Usman Waheed

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Chapter 1

INTRODUCTION

TO
SERVICES
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Usman Waheed

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Objectives for Chapter 1:

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

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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
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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
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Examples of Service
Industries

SM
Health Care

hospital, medical practice, dentistry, eye care

Professional Services
accounting, legal, architectural

Financial Services
banking, investment advising, insurance

Hospitality
restaurant, hotel/motel, bed & breakfast,
ski resort, rafting

Travel
airlines, travel agencies, theme park

Others:
hair styling, pest control, plumbing, lawn maintenance, counseling
services, health club

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Figure 1-1

Tangibility Spectrum

Salt

Soft Drinks
Detergents
Automobiles
Cosmetics Fast-food
Outlets

Tangible
Dominant

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Intangible
Dominant

Fast-food
Outlets

Advertising
Agencies Airlines
Investment
Management
Consulting

Usman Waheed

Teaching

Figure 1-2

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Percent of
U.S. Labor Force by Industry

Percent of GDP

80
70
60
50
40
30
20
10
0

Services
Manufacturing
Mining & Agriculture

1929 1948 1969 1977 1984 1996

Year

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.
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10

Figure 1-3

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Percent of U.S. Gross Domestic

Product by Industry

Percent of GDP

80
70
60
50
40
30
20
10
0

1948 1959 1967 1977 1987 1996

Year

Services
Manufacturing
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.
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Differences Between
Goods and Services

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Intangibility

Heterogeneity

Simultaneous
Production
and
Consumption

Perishability

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11

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Implications of Intangibility

Services cannot be inventoried

Services cannot be patented
Services cannot be readily displayed
or communicated
Pricing is difficult

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13

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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
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Implications of Simultaneous
Production and Consumption

SM

Customers participate in and affect the

transaction
Customers affect each other
Employees affect the service outcome
Decentralization may be essential
Mass production is difficult
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14

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Implications of Perishability

It is difficult to synchronize supply and

demand with services
Services cannot be returned or resold

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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
separate from
consumption

Simultaneous
production and
consumption

Nonperishable Perishable

Customers participate in and affect the transaction.

Customers affect each other.
Employees affect the service outcome.
Decentralization may be essential.
Mass production is difficult.
It is difficult to synchronize supply and demand with
services.
Services cannot be returned or resold.

Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Problems and Strategies in Services Marketing,
Journal of Marketing 49 (Spring 1985): 33-46.
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17

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Figure 1-5

The Services Marketing Triangle

Company
(Management)
Internal
Marketing

External
Marketing

enabling the
promise

Employees

setting the
promise

Interactive Marketing

Customers

delivering the promise

Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler
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Ways to Use the

Services Marketing Triangle

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Overall Strategic
Assessment

18

Specific Service
Implementation

How is the service

organization doing on
all three sides of the
triangle?

What is being promoted and

by whom?

Where are the

weaknesses?

Are the supporting systems

in place to deliver the
promised service?

What are the strengths?

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How will it be delivered and

by whom?

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19

Figure 1-6

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The Services Triangle

and Technology
Company

Technology

Providers

Customers

Source: Adapted from A. Parasuraman

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20

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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

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21

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Traditional Marketing Mix

All elements within the control of the firm that
communicate the firms capabilities and image to
customers or that influence customer satisfaction
with the firms product and services:
Product
Price
Place
Promotion

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22

Expanded Mix for Services -the 7 Ps

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Product
Price
Place
Promotion

People
Process
Physical Evidence

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SM

23

Table 1-3

Expanded Marketing Mix for

Services

PRODUCT

PLACE

PROMOTION PRICE

Physical good Channel type

features

Promotion
blend

Flexibility

Quality level

Exposure

Salespeople

Price level

Accessories

Intermediaries

Advertising

Terms

Packaging
Warranties

Outlet location Sales

promotion
Transportation Publicity

Product lines

Storage

Differentiation
Allowances

Branding

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Table 1-3 (Continued)

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Expanded Marketing Mix for

Services
PEOPLE

PHYSICAL
EVIDENCE

PROCESS

Employees

Facility design

Flow of activities

Customers

Equipment

Number of steps

Communicating
culture and values

Signage

Level of customer
involvement

Employee research

Employee dress
Other tangibles

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24

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Ways to Use the 7 Ps

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

Usman Waheed

SM

Services Marketing Triangle

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?

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26

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Part 1

FOCUS ON THE CUSTOMER

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Gaps Model of Service Quality

Expected

CUSTOMER

Service
Customer
Gap

Service Delivery

COMPANY

GAP 1

Perceived
Service

GAP 3
Customer-Driven Service
Designs and Standards

GAP 2
Part 1 Opener

Company Perceptions of
Consumer Expectations

GAP 4

External
Communications
to Customers

SM

Gaps Model of Service

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:
not matching performance to promises

Part 1 Opener

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The Customer Gap

Expected
Service
GAP

Perceived
Service

Part 1 Opener

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Chapter 2

CONSUMER BEHAVIOR
IN SERVICES

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Objectives for Chapter 2:

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

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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

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Figure 2-1

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Continuum of Evaluation for

Different Types of Products
Most
Services

Most
Goods
Easy to evaluate

High in search
qualities

Medical diagnosis

Auto repair

Root canals

Legal services

Television repair

Child care

Haircuts

Vacations

Restaurant meals

Automobiles

Houses

Furniture

Jewelry

Clothing

Difficult to evaluate

High in experience High in credence

qualities
qualities

Figure 2-2

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Categories in Consumer
Decision-Making and Evaluation of
Services
Information
Search
Use of personal sources
Perceived risk

Purchase and
Consumption
Service provision as
drama
Service roles and scripts
Compatibility of customers

Evaluation of
Alternatives
Evoked set
Emotion and mood

Post-Purchase
Evaluation
Attribution of dissatisfaction
Innovation diffusion
Brand loyalty

35

36

Figure 2-3

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Categories in Consumer DecisionMaking and Evaluation of Services

Information
Search

Evaluation of
Alternatives
Evoked set
Emotion and mood

Use of personal sources

Perceived risk

Culture
Values and attitudes
Manners and customs
Material culture
Aesthetics
Educational and social
institutions

Purchase and
Consumption
Service provision as
drama
Service roles and scripts
Compatibility of
customers

Post-Purchase
Evaluation
Attribution of dissatisfaction
Innovation diffusion
Brand loyalty

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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

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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

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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

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Emotion and Mood

Emotion and mood are feeling states that

influence peoples perception and
evaluation of their experiences
Moods are transient
Emotions more intense, stable and
pervasive
May have a negative or positive influence

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

SM

Global Feature:
Differences in the Service
Experience in the U.S. and Japan

Authenticity
Caring
Control Courtesy
Formality
Friendliness
Personalization
Promptness

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Chapter 3

CUSTOMER
EXPECTATIONS OF
SERVICES

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Objectives for Chapter 3:

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
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44

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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?
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46

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Figure 3-1

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

Adequate Service

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47

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Figure 3-2

The Zone of Tolerance

Desired Service

Zone of
Tolerance
Adequate Service

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48

Figure 3-3

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Zones of Tolerance VARY for

Different Service Dimensions
Desired Service

Level
of
Expectation

Zone of
Tolerance
Adequate Service

Desired
Desired
Service
Service
Zone
of
Tolerance
Adequate

Adequate
Service
Service

Most Important Factors

Least Important Factors
Source: Berry, Parasuraman, and Zeithaml (1993)

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Figure 3-4

SM

49

Zones of Tolerance VARY for

First-Time and Recovery Service

First-Time Service
Outcome
Process

Recovery Service
Outcome
Process
LOW

Expectations

HIGH

Source: Parasuraman, Berry and Zeithaml (1991)

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50

Figure 3-5

Factors that Influence

Desired Service

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Enduring Service
Intensifiers

Desired
Service
Personal Needs

Zone
of
Tolerance
Adequate
Service

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51

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Personal needs include physical, social,
psychological categories
Enduring service intensifiers are individual, stable
factors that lead to heightened sensitivity to
service
This can further divided into Derived Service
Expectations and Personal service Philosophies
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52

Figure 3-6

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Factors that Influence

Adequate Service
Transitory Service
Intensifiers

Perceived Service
Alternatives

Self-Perceived
Service Role

Desired
Service
Zone
of
Tolerance
Adequate
Service

Situational
Factors
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53

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Transitory service intensifiers temporary
a computer breakdown will be less tolerated
at financial year-ends
Perceived service alternatives
Perceived service role of customer
Situational factors

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Figure 3-7

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54

Factors that Influence

Desired and Predicted Service
Explicit Service
Promises
Implicit Service
Promises
Word-of-Mouth

Desired
Service
Zone
of
Tolerance
Adequate
Service
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Past Experience

Predicted
Service
Usman Waheed

55

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Chapter 4

CUSTOMER
PERCEPTIONS OF
SERVICE

SM

Objectives for Chapter 4:

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

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Figure 4-1

Customer Perceptions of
Service Quality and
Customer Satisfaction

SM
Reliability
Responsiveness

Service
Quality

Situational
Factors

Assurance
Empathy
Tangibles

Product
Quality

Price

Customer
Satisfaction

Personal
Factors

58

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Factors Influencing
Customer Satisfaction

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

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Outcomes of
Customer Satisfaction
Increased customer retention
Positive word-of-mouth communications
Increased revenues

Figure 4-3

60

Relationship between Customer

Satisfaction and Loyalty in
Competitive Industries

SM
Loyalty (retention)

100%
80%
60%
40%
20%
0%
Very
dissatisfied

Dissatisfied

Neither
satisfied nor
dissatisfied

Satisfied

Very
satisfied

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.

61

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Service Quality
The customers judgment of overall
excellence of the service provided in
relation to the quality that was expected.
Process and outcome quality are both
important.

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Reliability

The Five Dimensions of

Service Quality

Ability to perform the promised

service dependably and accurately.
Knowledge and courtesy of
Assurance
employees and their ability to
convey trust and confidence.
Physical facilities, equipment, and
Tangibles
appearance of personnel.
Empathy
Caring, individualized attention the
firm provides its customers.
Responsiveness Willingness to help customers and
provide prompt service.

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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
customers point of view.

Reliability:

Assurance:
Tangibles:
Empathy:
Responsiveness:

SM

SERVQUAL Attributes
ASSURANCE

RELIABILITY

Providing service as promised

Dependability in handling customers
service problems
Performing services right the first time
Providing services at the promised time
Maintaining error-free records

Keeping customers informed as to

when services will be performed
Prompt service to customers
Willingness to help customers
Readiness to respond to customers
requests

Employees who instill confidence in

customers
Making customers feel safe in their
transactions
Employees who are consistently courteous
Employees who have the knowledge to
answer customer questions

EMPATHY

RESPONSIVENESS

64

Giving customers individual attention

Employees who deal with customers in a
caring fashion
Having the customers best interest at heart
Employees who understand the needs of
their customers
Convenient business hours

TANGIBLES

Modern equipment
Visually appealing facilities
Employees who have a
neat, professional
appearance
Visually appealing materials
associated with the service

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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

66

Figure 4-4

SM

A Service Encounter
Cascade for a Hotel Visit

Check-In
Check-In
Bellboy
BellboyTakes
Takesto
toRoom
Room
Restaurant
RestaurantMeal
Meal
Request
Request Wake-Up
Wake-UpCall
Call
Checkout
Checkout

67

Figure 4-5

A Service Encounter
Cascade for an Industrial
Purchase

SM
Sales
SalesCall
Call

Delivery
Deliveryand
andInstallation
Installation
Servicing
Servicing
Ordering
OrderingSupplies
Supplies
Billing
Billing

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Critical Service Encounters

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

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Sample Questions for Critical

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)?

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Common Themes in Critical

Service Encounters
Research
Recovery:

Adaptability:

Employee Response
to Service Delivery
System Failure

Employee Response
to Customer Needs
and Requests

Coping:
Employee Response
to Problem Customers

Spontaneity:
Unprompted and
Unsolicited Employee
Actions and Attitudes

71

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Recovery

DO
Acknowledge
problem
Explain causes
Apologize
Compensate/upgrade
Lay out options
Take responsibility

DONT
Ignore customer
Blame customer
Leave customer to
fend for him/herself
Downgrade
Act as if nothing is
wrong

72

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Adaptability
DO

Recognize the
seriousness of the need
Acknowledge
Anticipate
Attempt to accommodate
Explain rules/policies
Take responsibility
Exert effort to
accommodate

DONT
Promise, then fail to
follow through
Ignore
Show unwillingness to
try
Embarrass the customer
Laugh at the customer
Avoid responsibility

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Spontaneity
DO

Take time
Be attentive
Anticipate needs
Listen
Provide information
(even if not asked)
Treat customers fairly
Show empathy
Acknowledge by name

DONT

Exhibit impatience
Ignore
Yell/laugh/swear
Steal from or cheat a
customer
Discriminate
Treat impersonally

74

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Coping

DO

Listen
Try to accommodate
Explain
Let go of the customer

DONT
Take customers
dissatisfaction
personally
Let customers
dissatisfaction affect
others

SM

75

Figure 4-6

Evidence of Service from the

Customers Point of View

Operational flow of
activities

People

Steps in process

Contact employees
Customer
him/herself
Other customers

Flexibility vs.
standard
Technology vs.
human

Process

Physical
Evidence

Tangible
communication
Servicescape
Guarantees
Technology

76

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Part 2

LISTENING TO
CUSTOMER
REQUIREMENTS

77

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Provider GAP 1

CUSTOMER

Expected
Service

GAP 1
COMPANY

Part 2 Opener

Company
Perceptions of
Consumer
Expectations

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Chapter 5

UNDERSTANDING
CUSTOMER
EXPECTATIONS AND
PERCEPTIONS THROUGH
MARKETING RESEARCH

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Objectives for Chapter 5:

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

80

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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

81

Figure 5-1

SM

Criteria for An Effective

Services Research Program
es
d
u
l
ve
Inc litati h
a
c
Qu esear
R
Occurs
with
Appropriate
Frequency

Measures
Priorities
or
Importance

Includes
Quantitative
Research

Research
Objectives

Includes
Perceptions
and
Expectations
of
Customers
Includes
Measures
of
Loyalty or
Behavioral
Intentions

ost
C
es of
c
n
e
la
Ba Valu ion
Includes
Statistical
and ormat
Validity
Inf
When Necessary

82

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Portfolio of Services Research

Research Objective
Identify dissatisfied customers to attempt recovery;
identify most common categories of service failure
for remedial action
Assess companys service performance compared to
competitors; identify service-improvement priorities; track
service improvement over time
Obtain customer feedback while service experience is still
fresh; act on feedback quickly if negative patterns develop
Use as input for quantitative surveys; provide a
forum for customers to suggest service-improvement
ideas
Measure individual employee service behaviors for use in
coaching, training, performance evaluation, recognition and
rewards; identify systemic strengths and weaknesses in
service
Measure internal service quality; identify employeeperceived obstacles to improve service; track
employee morale and attitudes

Type of Research
Customer Complaint
Solicitation
Relationship Surveys
Post-Transaction Surveys
Customer Focus Groups
Mystery Shopping of
Service Providers
Employee Surveys

Determine the reasons why customers defect

To forecast future expectations of customers
To develop and test new service ideas

Lost Customer Research

Future Expectations Research

SM

Stages in the Research

Process

Define Problem
Develop Measurement Strategy
Implement Research Program
Collect and Tabulate Data
Interpret and Analyze Findings
Report Findings

Stage 1 :
Stage 2 :
Stage 3 :
Stage 4 :
Stage 5 :
Stage 6 :

83

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Figure 5-5

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Service Quality Perceptions

Relative to Zones of Tolerance
by Dimensions

9
8
7
6

O
O

5
4
3
2
1
0

Reliability

Retail Chain

Responsiveness

Assurance

Empathy

Tangibles

Zone of Tolerance O S.Q. Perception

85

Service Quality Perceptions

Relative to Zones of Tolerance by
Dimensions

SM
10
8

6
4
2
0
Reliability

Responsiveness

Computer
Manufacturer

Assurance
Zone of Tolerance

Empathy

Tangibles

O S.Q. Perception

86

SM

Figure 5-6

Importance/Performance Matrix

HIGH

High
Leverage
Importance

Attributes to Improve

Attributes to Maintain

Low
Leverage

Attributes to Maintain

LOW

Performance

Attributes to De-emphasize

HIGH

87

SM

Chapter 6

BUILDING
CUSTOMER
RELATIONSHIPS

SM

Objectives for Chapter 6:

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 isnt always right

88

89

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

90

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??

91

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

wouldnt consider terminating the relationship-psychological commitment
has a positive attitude about the supplier
says good things about the supplier

92

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?

93

SM

Benefits to the Organization

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

94

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

95

SM

The Customer Isnt Always

Right
Not all customers are good relationship
customers:
wrong segment
not profitable in the long term
difficult customers

96

SM

Strategies for Building

Relationships
Foundations:
Excellent Quality/Value
Careful Segmentation
Bonding Strategies:
Financial Bonds
Social & Psychological Bonds
Structural Bonds
Customization Bonds
Relationship Strategies Wheel

Figure 6-1

SM

Customer Goals of
Relationship Marketing

Enhancing
Retaining

Satisfying

Getting

97

98

Figure 6-3

SM

Underlying Logic of Customer

Retention Benefits to the
Organization
Customer Satisfaction

Customer Retention &

Increased Profits

Employee Loyalty

Quality
Service

SM

STEP 1:

99

Figure 6-5

Steps in Market Segmentation

and
Targeting for Services

STEP 2:

Develop
Identify
Profiles of
Bases for
Segmenting Resulting
the Market Segments

STEP
3:
Develop

Measures
of Segment
Attractiveness

STEP4:
Select the
Target
Segments

STEP
5:
Ensure that
Segments
Are
Compatible

100

Figure 6-6

SM

Levels of Retention Strategies

Volume and
Frequency
Rewards

Stable
Pricing

Bundling and
Cross Selling
Continuous
Relationships

I. Financial
Bonds

Integrated
Information
Systems

IV.
Joint
Structural
Investments
Bonds
Shared
Processes
and
Equipment

Excellent
Quality
and
Value

II.
Social
Bonds

III. Customization
Bonds

Anticipation
/ Innovation

Mass
Customization

Personal
Relationships

Social Bonds
Among
Customers

Customer
Intimacy

101

SM

Chapter 7

SERVICE RECOVERY

SM

Objectives for Chapter 7:

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

SM

103

Figure 7-1

Unhappy Customers
Repurchase Intentions

Unhappy Customers Who Dont Complain

9%

37%

Unhappy Customers Who Do Complain

Complaints Not Resolved

19%

46%
54%

Complaints Resolved

70%
82%

Complaints Resolved Quickly

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.

95%

104

Figure 7-3

SM

Customer Response
Following Service Failure
Service Failure

Take Action

Do Nothing

Switch Providers
Complain to
Provider

Complain to
Family & Friends

Switch Providers

Complain to
Third Party

Stay with Provider

Stay with Provider

SM

105

Figure 7-5

Service Recovery Strategies

il
Fa

fe
Sa

e
th

c
vi
r
Se

We
En lcom
co
ura e an
ge d
Co
m

pla
i

n ts

Act Quickly

Learn from
ers
Lost Custom

Service
Recovery
Strategies

Le
Re arn f
co rom
ve
ry
Ex
pe
ri

en
ce
s

ea
Tr

om
t
s
Cu

er

i
Fa

rl y

Pricing

High Price
Price Increases
Unfair Pricing
Deceptive Pricing

SM

Inconvenience
Location/Hours
Wait for Appointment
Wait for Service

Figure 7-6

Causes Behind Service

Switching

Core Service Failure

Service Mistakes
Billing Errors
Service Catastrophe

Service Encounter Failures

Uncaring
Impolite
Unresponsive
Unknowledgeable

Response to Service Failure

Negative Response
No Response
Reluctant Response

Service
Switching
Behavior

Competition
Found Better Service

Ethical Problems

Cheat
Hard Sell
Unsafe
Conflict of Interest

Involuntary Switching
Customer Moved
Provider Closed

106

Source: Sue Keaveney

107

SM

Service Guarantees

guarantee = an assurance of the fulfillment of a condition

(Websters 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?)

SM

Table 7-7

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

SM

Why a Good Guarantee

Works
forces company to focus on customers
sets clear standards
generates feedback
forces company to understand why it failed
builds marketing muscle

109

110

SM

Service Guarantees

Does everyone need a guarantee?

Reasons companies do NOT offer guarantees:

guarantee would be at odds with companys image

too many uncontrollable external variables
fears of cheating by customers
costs of the guarantee are too high

111

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
its the icing on the cake, not the cake

112

SM

Part 3

ALIGNING STRATEGY,
SERVICE DESIGN
AND STANDARDS

113

SM

Provider GAP 2

CUSTOMER

Customer-Driven
Service Designs and
Standards

COMPANY

GAP 2

Company
Perceptions of
Consumer
Expectations
Part 3 Opener

114

SM

Chapter 8

SERVICE DEVELOPMENT
AND DESIGN

SM

Objectives for Chapter 8:

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

SM

Risks of Relying on Words

Alone to
Describe Services

Oversimplification
Incompleteness
Subjectivity
Biased Interpretation

116

Figure 8-2

SM

117

New Service Development Process

Business Strategy Development or Review
New Service Strategy Development

Front End
Planning

Idea Generation
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

Implementation

Market Testing
Test service and other marketing-mix elements
Commercialization
Postintroduction Evaluation

Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997.

118

Figure 8-3

SM

New Service Strategy Matrix

for Identifying Growth
Opportunities
Markets
Offerings
Existing
Services

New
Services

Current Customers

New Customers

SHARE BUILDING

MARKET
DEVELOPMENT

SERVICE
DEVELOPMENT

DIVERSIFICATION

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 customers point of
view.

Service
Mappin
g

Proces
s
Points of
Contact
Evidenc
e

120

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

Express Mail Delivery Service

CONTACT PERSON CUSTOME PHYSICAL

EVIDENCE
(Back Stage) (On Stage)R

SM

Customer
Gives
Package

Receive
Package

Driver
Picks
Up Pkg.

Deliver
Package

Customer
Service
Order

Dispatch
Driver

SUPPORT
PROCESS

Truck
Packaging
Forms
Hand-held
Computer
Uniform

Truck
Packaging
Forms
Hand-held
Computer
Uniform
Customer
Calls

121

Airport
Receives
& Loads

Fly to
Sort
Center
Load on
Airplane
Sort
Packages

Fly to
Destinati
on

Unload
&
Sort

Load
On
Truck

122

Overnight Hotel Stay

CONTACT PERSON
SUPPORT PROCESS(Back Stage)(On Stage) CUSTOMER PHYSICAL
EVIDENCE

SM
Hotel
Exterior
Parking

Arrive
at
Hotel

Cart for Desk

Elevators Cart for
Bags Registration
Hallways Bags
Papers
Room
Lobby
Key
Give Bags
Check in
to
Bellperson

Go to
Room

Greet and
Process
Take
Registration
Bags

Receive
Bags

Room
Menu
Amenities
Bath

Sleep
Shower

Call
Room
Service

Deliver
Bags

Take Bags
to Room

Registration
System

Delivery
Food
Tray
Food
Appearance
Receive
Food

Deliver
Food

Eat

Bill
Desk
Lobby
Hotel
Exterior
Parking
Check out
and
Leave

Process
Check Out

Take
Food
Order

Prepare
Food

Registration
System

123

SM

Figure 8-8

Building a Service Blueprint

Step
Step11

Step
Step22

Step
Step33

Step
Step44

Step
Step55

Step
Step66

Identify
Identifythe
the
process
to
process to
be
beblueblueprinted.
printed.

Identify
Identifythe
the
customer
customeroror
customer
customer
segment.
segment.

Map
Mapthe
the
process
processfrom
from
the
the
customers
customers
point
pointofofview.
view.

Map
Mapcontact
contact
employee
employee
actions,
actions,
onstage
onstageand
and
back-stage.
back-stage.

Link
Linkcustomer
customer
and
contact
and contact
person
person
activities
activitiestoto
needed
needed
support
support
functions.
functions.

Add
Add
evidence
evidenceofof
service
serviceatat
each
each
customer
customer
action
actionstep.
step.

SM

Application of Service
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

SM

Blueprints Can Be Used By:

Service Marketers

Human Resources

creating realistic customer

expectations
service system design
promotion

empowering the human element

job descriptions
selection criteria
appraisal systems

Operations Management
rendering the service as promised

managing fail points

training systems
quality control

125

System Technology
providing necessary tools:
system specifications
personal preference databases

126

SM

Chapter 9

CUSTOMER-DEFINED
SERVICE STANDARDS

SM

Objectives for Chapter 9:

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

SM

128

AT&Ts Process Map for Measurements

Business Process
30% Product

30% Sales
Total
Quality 10% Installation

15% Repair

15% Billing

Source: AT&T General Business Systems

Internal Metric

Customer Need
Reliability

(40%)

% Repair Call

Easy To Use

(20%)

% Calls for Help

Features / Functions

(40%)

Functional Performance Test

Knowledge

(30%)

Supervisor Observations

Responsive

(25%)

% Proposal Made on Time

Follow-Up

(10%)

% Follow Up Made

Delivery Interval Meets Needs (30%)

Average Order Interval

Does Not Break

(25%)

% Repair Reports

Installed When Promised

(10%)

% Installed On Due Date

No Repeat Trouble

(30%)

% Repeat Reports

Fixed Fast

(25%)

Average Speed Of Repair

Kept Informed

(10%)

% Customers Informed

Accuracy, No Surprise

(45%)

% Billing Inquiries

Resolve On First Call

(35%)

% Resolved First Call

Easy To Understand

(10%)

% Billing Inquiries

SM

Exercise for Creating

Customer-Defined Service
Standards

Form a group of four people

Use your schools undergraduate or graduate
program, or an approved alternative
Complete the customer-driven service standards
importance chart
Establish standards for the most important and
lowest-performed behaviors and actions
Be prepared to present your findings to the class

129

SM

Customer-Driven Standards and

Measurements Exercise

Service Encounter

Service
Quality

Customer Requirements

Measurements

130

131

Figure 9-2

Getting to Actionable Steps

SM

Requirements: Diagnosticity:
Satisfaction Value
Relationship
Solution Provider
Dig
Deeper

General Concepts

Reliability
Empathy
Assurance
Tangibles
Responsiveness Price

Dig
Deeper

Dig
Deeper

Abstract

Low

Dimensions

Delivers on Time
Returns Calls Quickly
Knows My Industry
Delivers by Weds 11/4
Returns Calls in 2 Hrs
Knows Strengths of
My Competitors

Attributes

Behaviors
and Actions
Concrete

High

Figure 9-3

132

Process for Setting

Customer-Defined Standards

SM

1. Identify Existing or Desired Service Encounter Sequence

2.2.Translate
TranslateCustomer
CustomerExpectations
ExpectationsInto
IntoBehaviors/Actions
Behaviors/Actions
3.3.Select
SelectBehaviors/Actions
Behaviors/Actionsfor
forStandards
Standards
4. Set Hard or Soft Standards
Measure by
Audits or
Operating Data

Hard

5.5.Develop
DevelopFeedback
Feedback
Mechanisms
Mechanisms

Soft

6.6.Establish
EstablishMeasures
Measuresand
andTarget
TargetLevels
Levels
7. Track Measures Against Standards
8.8. Update
UpdateTarget
TargetLevels
Levelsand
andMeasures
Measures

Measure by
TransactionBased Surveys

133

SM
HIGH

Importance/Performance Matrix
10.0

Maintain

Improve
Does whatever it takes to
correct problems (9.26, 7.96)

Delivers on promises specified in proposal/contract (9.49, 8.51)

Gets project within budget, on time (9.31, 7.84)

Completes projects
Gets price we originally agreed upon (9.21, 8.64)

correctly, on time (9.29, 7.68)

Tells
9.0

me cost ahead of time (9.06, 8.46)
Provides equipment that operates as vendor said it would (9.24, 8.14)

Importance

Gets back to me when

promised (9.04, 7.63)

Takes responsibility for their mistakes (9.18, 8.01)

Delivers or installs on
promised date (9.02, 7.84)

8.0

LOW

7.0
8.0

Performance

9.0

10.0

HIGH

134

Figure 9-5

SM

Linkage between Soft Measures and

Hard Measures for Speed of
Complaint Handling
S
A 10
T 9
I

O 1
N 0

Large Customers
Small Customers

WORKING

12

16

HOURS

20

24

135

Figure 9-6

Aligning Company Processes

with Customer Expectations

SM

Customer Expectations

Customer
Process
Blueprint
Company
Process
Blueprint

A
A

B
B

Lost Card
Reported

48 Hours
Report Lost
Card

Receive New
Card

Company Sequential Processes

C
C

D
D

EE

40 Days

FF

G
G

H
H

New Card
Mailed

136

SM

Chapter 10

PHYSICAL EVIDENCE
AND THE SERVICESCAPE

SM

Objectives for Chapter 10:

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

Table 10-1

SM

Elements of Physical
Evidence
Servicescape

Other tangibles

Facility exterior

Business cards
Stationery
Billing statements
Reports
Employee dress
Uniforms
Brochures
Internet/Web pages

Exterior design
Signage
Parking
Landscape
Surrounding environment
Facility interior
Interior design
Equipment
Signage
Layout
Air quality/temperature

138

Table 10-2

SM

139

Examples of Physical Evidence from the

Customers
Point of View
Service
Physical evidence
Servicescape

Other tangibles

Insurance

Not applicable

Hospital

Building exterior
Parking
Signs
Waiting areas
Admissions office
Patient care room
Medical equipment
Recovery room
Airline gate area
Airplane exterior
Airplane interior (dcor, seats, air
quality)
Not applicable

Policy itself
Billing statements
Periodic updates
Company brochure
Letters/cards
Uniforms
Reports/stationery
Billing statements

Airline

Express mail

Sporting
event

Parking, Seating, Restrooms

Stadium exterior
Ticketing area, Concession Areas
Entrance, Playiing Field

Tickets
Food
Uniforms
Packaging
Trucks
Uniforms
Computers
Signs
Tickets
Program
Uniforms

140

Table 10-3

SM

Typology of Service Organizations

Based on Variations in Form
and Use of the Servicescape
Complexity of the servicescape evidence
Servicescape
usage

Elaborate

Lean

Self-service
(customer only)

Golf Land
Surf 'n' Splash

ATM
Ticketron
Post office kiosk
Internet services
Express mail drop-off

Interpersonal
services
(both customer and
employeee)

Hotel
Restaurants
Health clinic
Hospital
Bank
Airline
School

Dry cleaner
Hot dog stand
Hair salon

Remote service
(employee only)

Telephone company
Insurance company
Utility
Many professional services

Telephone mail-order desk

Automated voice-messagingbased services

Figure 10-3

SM

141

A Framework for Understanding

Environment-user Relationships
in Service Organizations

PHYSICAL
ENVIRONMENTAL
DIMENSIONS

HOLISTIC
ENVIRONMENT

INTERNAL
RESPONSES

BEHAVIOR

Cognitive
Emotional
Physiological
Employee
Responses

Ambient
Conditions
Space/Function

Individual
Behaviors
Social
Interactions
between and
among
customer and
employees

Perceived
Servicescape

Signs, Symbols,
and Artifacts
Customer
Responses
Cognitive
Source: Adapted from Mary Jo Bitner, Servicescapes.

Emotional
Physiological

Individual
Behaviors

142

SM

Part 4

DELIVERING AND
PERFORMING SERVICE

143

SM

Provider GAP 3

CUSTOMER

Service Delivery
COMPANY

GAP 3
Customer-Driven
Service Designs and
Standards

Part 4 Opener

144

SM

Chapter 11

EMPLOYEES ROLES IN
SERVICE DELIVERY

SM

Objectives for Chapter 11:

Employees Roles in
Service Delivery

145

Illustrate the critical importance of service employees

in creating customer satisfaction and service quality
Demonstrate the challenges inherent in boundaryspanning roles
Provide examples of strategies for creating customeroriented service delivery
Show how the strategies can support a service culture
where providing excellent service is a way of life

146

SM

Service Employees

They are the service

They are the firm in the customers eyes
They are marketers
Importance is evident in
The Services Marketing Mix (People)
The Service-Profit Chain
The Services Triangle

147

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

Figure 11-3

SM

Boundary Spanners Interact

with Both Internal
and External Constituents
External Environment

Internal Environment

148

SM

Figure 11-4

Sources of Conflict for

Boundary-Spanning Workers
Person vs. Role
Organization vs. Client
Client vs. Client
Quality vs. Productivity

149

150

Figure 11-5

Me
as
Re ure a
w
Str ard nd
o
S
n
Pr ervic g
ov
ide e
rs

Develop
People to
Deliver
Service
Quality

e
lud s in
Inc ee
y
plo e
s
Em th any
mp n
Co Visio

Provide
Needed Support
Systems

De
Se v e l o
or rvic p
i
e
Int ente Pr ern d
oc
es al
se
s

Provide
Supportive
Technology
and
Equipment

Empower
Employees

Retain the
Best
People

Customeroriented
Service
Delivery

r
fo and
ain l
Tr nica tive
ch rac
Te nte kills
I S

Hire the
Right People

B
Pr e t
E m e f e he
pl rred
oy
er

P
Te rom
am ot
wo e
rk

Hire for
Service
Competencies
and Service
Inclination

r
fo
e
t t
pe es
m B le
Co the op
Pe

Treat
Employees
as
Customers

SM

Human Resource Strategies for Closing GAP 3

re
su al
a
Me tern e
In rvic y
Se alit
Qu

152

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.

153

SM

Chapter 12

CUSTOMERS ROLES IN
SERVICE DELIVERY

SM

Objectives for Chapter 12:

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

154

SM

Importance of Other
Customers in Service
Delivery

155

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

156

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

Figure 12-2

SM

Customer Roles in Service

Delivery
Productive Resources

Contributors to
Quality and
Satisfaction

Competitors

157

158

SM

Customers as Productive
Resources
partial employees
contributing effort, time, or other resources to
the production process

customer inputs can affect organizations

productivity
key issue:
should customers roles be expanded? reduced?

SM

Customers as Contributors
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

159

160

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

161

SM

Technology Spotlight:
Services Production Continuum

Customer Production

Joint Production

Firm Production

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

162

Figure 12-3

SM

Strategies for Enhancing

Customer Participation

Define Customer
Jobs

Effective
Customer
Participation

Manage the
Customer
Mix

Recruit, Educate,
and Reward
Customers

163

SM

Strategies for Enhancing

Customer Participation

1. Define customers jobs

- helping himself
- helping others
- promoting the company
2. Individual differences: not everyone wants
to participate

SM

Strategies for Recruiting,

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

164

165

SM

Chapter 14

MANAGING DEMAND
AND CAPACITY

SM

Objectives for Chapter 14:

Managing Demand and
Capacity

166

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

SM

Understanding Capacity
Constraints and Demand
Patterns

Capacity Constraints
Time, labor, equipment
and facilities
Optimal versus maximal
use of capacity

Demand Patterns
Charting demand patterns
Predictable cycles
Random demand
fluctuations
Demand patterns by market
segment

167

Figure 14-3

SM

Strategies for Shifting Demand

to Match Capacity

Demand Too High

Shift Demand

Use signage to communicate busy days and

times
Offer incentives to customers for usage during
non-peak times
Take care of loyal or regular customers first
Advertise peak usage times and benefits of
non-peak use
Charge full price for the service--no discounts

Demand Too Low

Use sales and advertising to increase

business from current market
segments
Modify the service offering to
appeal to new market segments
Offer discounts or price reductions
Modify hours of operation
Bring the service to the customer

168

Figure 14-4

SM

Strategies for Flexing Capacity

to Match Demand

Demand Too High

Flex Capacity

Stretch time, labor, facilities and equipment

Cross-train employees
Hire part-time employees
Request overtime work from employees
Rent or share facilities
Rent or share equipment
Subcontract or outsource activities

Demand Too Low

Perform maintenance
renovations
Schedule vacations
Schedule employee training
Lay off employees

169

170

Table 14-1

SM

What is the Nature of Demand

Relative to Supply?
Extent of demand fluctuations over time

Extent to which
supply is
constrained

Wide

Peak demand can

1
usually be met
Electricity
without a major
Natural gas
delay
Telephone
Hospital maternity unit
Police and fire
emergencies
Peak demand
regularly exceeds
capacity

4
Accounting and tax
preparation
Passenger transportation
Hotels and motels
Restaurants
Theaters

Narrow
2
Insurance
Legal services
Banking
Laundry and dry cleaning

3
Services similar to those in
2 but which have
insufficient capacity for
their base level of business

Source: Christopher H. Lovelock, Classifying Services to Gain Strategic Marketing Insights, Journal of Marketing, 47, 3 (Summer 1983): 17.

Table 14-2

What is the Constraint on

Capacity?

SM

Nature of the constraint

Type of service

Time

Legal
Consulting
Accounting
Medical

Labor

Law firm
Accounting firm
Consulting firm
Health clinic

Equipment

Delivery services
Telecommunication
Utilities
Health club

Facilities

Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches

171

172

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

173

SM

Part 5

MANAGING SERVICE
PROMISES

174

SM

Provider GAP 4
CUSTOMER

COMPANY

Service Delivery
GAP 4

Part 5 Opener

External
Communications
to Customers

175

SM

Chapter 15

INTEGRATED
MARKETING
COMMUNICATION

SM

Objectives for Chapter 15:

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

176

177

SM

Figure 15-1

Communications and the

Services Marketing Triangle
Company
Internal Marketing

Vertical Communications
Horizontal Communications

Employees

External Marketing
Communication
Advertising
Sales Promotion
Public Relations
Direct Marketing

Interactive Marketing

Personal Selling
Customer Service Center
Service Encounters
Servicescapes

Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler

Customers

Figure 15-3

SM

Approaches for
Integrating Services Marketing
Communication
Manage
Customer
Expectations

Manage
Service
Promises

Goal:
Delivery
greater than
or equal to
promises

Manage
Internal
Marketing
Communication

Improve
Customer
Education

178

SM

179

Figure 15-4

Approaches for
Managing Service Promises

MANAGING SERVICE PROMISES

Create
Effective
Services
Communications

Coordinate
External
Communication

Make
Realistic
Promises

Offer
Service
Guarantees

Goal:
Delivery
greater than
or equal to
promises

Figure 15-8

SM

Approaches for
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

180

SM

Goal:
Delivery
greater than
or equal to
promises

181

Figure 15-9

Approaches for
Improving Customer Education

Prepare
Customers
for the
Service
Process

Confirm
Performance
to Standards

Clarify
Expectations
after the Sale

Teach
Customers
to Avoid
Peak
Demand
Periods
and
Seek Slow
Periods

182

SM

Figure 15-10

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

183

SM

Chapter 17

THE FINANCIAL AND

ECONOMIC IMPACT OF
SERVICE QUALITY

Contact: +923006641921

Usman Waheed

SM

Objectives for Chapter 17:

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

Contact: +923006641921

Usman Waheed

184

SM

185

Figure 17-1

The Direct Relationship between

Service and Profits

Service
Quality

Contact: +923006641921

Profits

Usman Waheed

186

SM

Figure 17-2

Offensive Marketing Effects of

Service on Profits

Service
Quality

Profits
Market
Share
Reputation

Sales

Price
Premium
Contact: +923006641921

Usman Waheed

187

Figure 17-3

SM

Defensive Marketing Effects of

Service on Profit

Costs

Service
Quality

Customer
Retention

Volume of
Purchases
Price
Premium

Word of
Mouth

Contact: +923006641921

Margins

Profits

Usman Waheed

188

Figure 17-5

Perceptions of Service,
Behavioral
Intentions and Profits

SM

Costs

Customer
Retention

Service

Behavioral
Intentions

Volume of
Purchases

Margins

Price
Premium

Word of
Mouth

Profits
Sales

Contact: +923006641921

Usman Waheed

189

Figure 17-6

SM

The 80/20 Customer Pyramid

Most Profitable
Customers

Best
Customers

Other
Customers
Least Profitable
Customers

Contact: +923006641921

What segment spends more with

us over time, costs less to maintain,
spreads positive word of mouth?

What segment costs us in

time, effort and money yet
does not provide the return
we want? What segment is
difficult to do business with?

Usman Waheed

190
Figure 17-7

SM

The Expanded Customer Pyramid

Most Profitable
Customers

Platinum

What segment spends more with

us over time, costs less to maintain,
spreads positive word of mouth?

Gold
Iron
Lead
Least Profitable
Customers

Contact: +923006641921

What segment costs us in

time, effort and money yet
does not provide the return
we want? What segment is
difficult to do business with?

Usman Waheed

SM

191

Figure 17-8

The Key Drivers of Service Quality,

Customer Retention, and Profits

Key Drivers

Service Encounters
Service
Encounter

Service
Encounter

Service
Quality
Service
Encounter

Behavioral
Intentions

Customer
Retention

Service
Encounter

Contact: +923006641921

Usman Waheed

Profits

Figure 17-9

192

Sample Measurements for the

Balanced Scorecard

SM

Financial Measures

Customer
Perspective
Service Perceptions
Service Expectations
Perceived Value
Behavioral Intentions:

% Loyalty
% Intent to Switch
# Customer
Referrals
# Cross Sales
# of Defections

Contact: +923006641921

Price Premium
Volume Increases
Value of Customer
Referrals
Value of Cross Sales
Long-term Value of
Customer

Innovation and
Learning Perspective
Number of new products
Return on innovation
Employee skills
Time to market
Time spent talking to
customers

Adapted from Kaplan and Norton

Operational
Perspective:
Right first time (% hits)
Right on time (% hits)
Responsiveness (% on
time)
Transaction time (hours,
days)
Throughput time
Reduction in waste
Process quality

Usman Waheed

193

Figure 17-10

Service Quality Spells Profits

SM

Costs

Defensive
Marketing

Service
Quality

Volume of
Purchases

Margins

Price
Premium

Customer
Retention

Word of
Mouth

Profits

Market
Share

Offensive
Marketing

Sales
Reputation
Price
Premium

Contact: +923006641921

Usman Waheed