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Chapter
1
•
•
•
•
•
•
•
Introduction to Services
What are services?
Why services marketing?
Service and Technology
Differences in Goods vs. Services Marketing
Services Marketing Mix
Staying Focused on the Customer
The Gaps Model of Service Quality
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A note on the
PowerPoint Slides...
• These PowerPoint slides contain selected exhibits,
figures and tables from the chapters as well as
objectives for the chapters. For many chapters,
we include extra lecture slides and in-class
exercises that we have compiled and used in our
classes. The lecture slides are not intended to
provide full outlines or complete lectures for the
chapters, but rather may be used selectively to
enhance class sessions.
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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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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
• 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
McGraw-Hill/Irwin

Fast-food
Outlets
Intangible
Dominant


Advertising
Agencies
Airlines
Investment
Management
Consulting



Teaching
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Percent of U.S. Labor Force
Figure 1.2
Percent of U.S. Labor Force by Industry
80
70
60
50
40
30
20
10
0
1929 1948 1969 1977 1984 1999
Year
 Services
 Manufacturing
 Mining & Agriculture
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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Figure 1.3
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 1999
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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Table 1.1
Industries Classified within the Service Sector
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Differences Between
Goods and Services
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Intangibility
Heterogeneity
Simultaneous
Production
and
Consumption
Perishability
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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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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
•
•
•
•
•
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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Implications of Perishability
• It is difficult to synchronize supply and demand
with services
• Services cannot be returned or resold
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Table 1.3
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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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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Traditional Marketing Mix
•
All elements within the control of the firm that
communicate the firm’s capabilities and image to
customers or that influence customer satisfaction
with the firm’s product and services:
–
–
–
–
Product
Price
Place
Promotion
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Expanded Mix for Services -The 7 Ps
•
•
•
•
•
•
•
Product
Price
Place
Promotion
People
Process
Physical Evidence
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Table 1.4
Expanded Marketing Mix for Services
PRODUCT
PLACE
PROMOTION PRICE
Physical good
features
Channel type
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 1.4 (Continued)
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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Ways to Use the 7 Ps
Overall Strategic
Assessment
– How effective is a firm’s
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?
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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 4
External
Communications
to Customers
GAP 3
Customer-Driven Service
Designs and Standards
GAP 2
Part 1 Opener
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Company Perceptions of
Consumer Expectations
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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:
Part 1 Opener
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– not matching performance to promises
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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
• Services: Search versus Experience versus
Credence Properties?
• Services: Categories in the Decisionmaking Process and Framework of the
Chapter
• The Role of Culture 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:
–
–
–
–
–
Need recognition.
Information search.
Evaluation of service alternatives.
Service purchase and consumption.
Postpurchase evaluation.
• Understand the roles of culture and group consumer
behavior in services
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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 2.2
Continuum of Evaluation for Different
Types of Products
Most
Goods
Easy to evaluate
Difficult to evaluate
High in search
qualities
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Most
Services
High in experience High in credence
qualities
qualities
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Figure 2.3
Stages in Consumer Decision Making
and Evaluation of Services
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Categories in Consumer DecisionMaking 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
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Evaluation of
Alternatives
 Evoked set
 Emotion and mood
Post-Purchase
Evaluation
 Attribution of dissatisfaction
 Innovation diffusion
 Brand loyalty
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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
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Post-Purchase
Evaluation
 Attribution of dissatisfaction
 Innovation diffusion
 Brand loyalty
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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 Service
• Meaning and Types of Services
Expectations
• Factors that Influence Customer
Expectations of Service
• A Model of Customer Service
Expectations
• Issues Involving Customer Service
Expectations
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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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Figure 3.2
Possible Levels of Customer Expectations
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Figure 3.3
Dual Customer Expectation Levels
Desired Service
Adequate Service
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Figure 3.4
The Zone of Tolerance
Desired Service
Zone of
Tolerance
Adequate Service
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Figure 3.5
Zones of Tolerance for
Different Service Dimensions
Desired Service
Level
of
Expectation
Zone of
Tolerance
Desired Service
Adequate Service
Zone
of
Tolerance
Adequate Service
Most Important Factors
Least Important Factors
Source: Berry, Parasuraman, and Zeithaml (1993)
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Zones of Tolerance 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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Figure 3.6
Factors That Influence
Desired Service
Enduring Service
Intensifiers
Desired Service
Personal Needs
Zone
of
Tolerance
Adequate Service
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Figure 3.7
Factors That Influence
Adequate Service
Transitory Service
Intensifiers
Desired Service
Perceived Service
Alternatives
Self-Perceived
Service Role
Zone
of
Tolerance
Adequate Service
Situational
Factors
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Figure 3.8
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
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Chapter
4
Customer Perceptions
of Service
•
•
•
•
Customer Perceptions
Customer Satisfaction
Service Quality
Service Encounters: The Foundations for
Satisfaction and Service Quality
• Strategies for Influencing Customer
Perceptions
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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
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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
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Figure 4.3
ASCI and Annual Percentage Growth
in S&P 500 Earnings
Source: C. Fornell “Customer Satisfaction and Corporate Earnings,“ commentary appearing on ACSI website, May 1, 2001,
http://www.bus.umich.edu/research/nqre/Q1-01c.html.
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Figure 4.4
Relationship between Customer Satisfaction and
Loyalty in Competitive Industries
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.
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Service Quality
• The customer’s judgment of overall excellence of
the service provided in relation to the quality that
was expected.
• Service quality assessments are formed on
judgments of:
– Outcome quality
– Process quality
– Physical environment quality
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The Five Dimensions of
Service Quality
Reliability
Assurance
Tangibles
Empathy
Responsiveness
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Ability to perform the promised
service dependably and accurately.
Knowledge and courtesy of
employees and their ability to
convey trust and confidence.
Physical facilities, equipment, and
appearance of personnel.
Caring, individualized attention the
firm provides its customers.
Willingness to help customers and
provide prompt service.
©2003. The McGraw-Hill Companies. All Rights Reserved
Exercise to
Identify Service Attributes
In groups of five, choose a services industry and spend 10 minutes
brainstorming specific requirements of customers in each of the five
service quality dimensions. Be certain the requirements reflect the
customer’s point of view.
Reliability:
Assurance:
Tangibles:
Empathy:
Responsiveness:
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SERVQUAL Attributes
RELIABILITY
n
n
n
n
n
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
RESPONSIVENESS
n
n
n
n
Keeping customers informed as to
when services will be performed
Prompt service to customers
Willingness to help customers
Readiness to respond to customers’
requests
ASSURANCE
Employees who instill confidence in
customers
n
Making customers feel safe in their
transactions
n
Employees who are consistently courteous
n
Employees who have the knowledge to
answer customer questions
McGraw-Hill/Irwin
EMPATHY
n
n
n
n
n
Giving customers individual attention
Employees who deal with customers in a
caring fashion
Having the customer’s best interest at heart
Employees who understand the needs of
their customers
Convenient business hours
TANGIBLES
n
n
n
n
Modern equipment
Visually appealing facilities
Employees who have a neat,
professional appearance
Visually appealing materials
associated with the service
n
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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
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Figure 4.5
A Service Encounter
Cascade for a Hotel Visit
Check-In
Bellboy Takes to Room
Restaurant Meal
Request Wake-Up Call
Checkout
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A Service Encounter
Cascade for an Industrial Purchase
Sales Call
Delivery and Installation
Servicing
Ordering Supplies
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
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Spontaneity:
Unprompted and
Unsolicited Employee
Actions and Attitudes
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Recovery
DO
• Acknowledge
problem
• Explain causes
• Apologize
• Compensate/upgrade
• Lay out options
• Take responsibility
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DON’T
• Ignore customer
• Blame customer
• Leave customer to
fend for him/herself
• Downgrade
• Act as if nothing is
wrong
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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
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DON’T
• 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
DON’T
DO
•
•
•
•
•
Take time
Be attentive
Anticipate needs
Listen
Provide information
(even if not asked)
• Treat customers fairly
• Show empathy
• Acknowledge by name
McGraw-Hill/Irwin
•
•
•
•
Exhibit impatience
Ignore
Yell/laugh/swear
Steal from or cheat a
customer
• Discriminate
• Treat impersonally
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Coping
DO
•
•
•
•
Listen
Try to accommodate
Explain
Let go of the
customer
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DON’T
• Take customer’s
dissatisfaction
personally
• Let customer’s
dissatisfaction affect
others
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Figure 4.7
Evidence of Service from the
Customer’s Point of View



 Operational flow of
activities
Contact employees
Customer him/herself
Other customers
People
 Steps in process
 Flexibility vs.
standard
 Technology vs.
human
Process
Physical
Evidence
 Tangible
communication
 Servicescape
 Guarantees
 Technology
 Website
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Part 2
LISTENING TO
CUSTOMER
REQUIREMENTS
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Provider GAP 1
CUSTOMER
Expected
Service
GAP 1
COMPANY
Company
Perceptions of
Consumer
Expectations
Part 2 Opener
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Chapter
Understanding Customer
Expectations and Perceptions
Through Marketing Research
5
• Using Marketing Research to Understand
Customer Expectations
• Elements in an Effective Services Marketing
Research Program
• Analyzing and Interpreting Marketing
Research Findings
• Using Marketing Research Information
• Upward Communication
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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.
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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
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Figure 5.1
Criteria for an Effective
Service Research Program
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Portfolio of Services Research
Research Objective
Type of Research
Identify dissatisfied customers to attempt recovery;
identify most common categories of service failure for
remedial action
Customer Complaint
Solicitation
Assess company’s service performance compared to
competitors; identify service-improvement priorities; track
service improvement over time
“Relationship” Surveys
Obtain customer feedback while service experience is still
fresh; act on feedback quickly if negative patterns develop
Post-Transaction Surveys
Use as input for quantitative surveys; provide a forum
for customers to suggest service-improvement ideas
Customer Focus Groups
Measure individual employee service behaviors for use in
coaching, training, performance evaluation, recognition and
rewards; identify systemic strengths and weaknesses in
service
“Mystery Shopping” of
Service Providers
Measure internal service quality; identify employeeperceived obstacles to improve service; track
employee morale and attitudes
Employee Surveys
Determine the reasons why customers defect
Lost Customer Research
To forecast future expectations of customers
To develop and test new service ideas
McGraw-Hill/Irwin
Future Expectations Research
©2003. The McGraw-Hill Companies. All Rights Reserved
Stages in the Research Process
•
•
•
•
•
•
Stage 1 :
Stage 2 :
Stage 3 :
Stage 4 :
Stage 5 :
Stage 6 :
McGraw-Hill/Irwin
Define Problem
Develop Measurement Strategy
Implement Research Program
Collect and Tabulate Data
Interpret and Analyze Findings
Report Findings
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 5.3
Tracking of Customer Expectations and
Perceptions of Service Reliability
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 5.4
Service Quality Perceptions
Relative to Zones of Tolerance
(by Dimensions)
9
8
7
O
6
O
O
O
O
5
4
3
2
1
0
Reliability
Retail Chain
McGraw-Hill/Irwin
Responsiveness
Assurance
Empathy
Tangibles
= Zone of Tolerance O = S.Q. Perception
©2003. The McGraw-Hill Companies. All Rights Reserved
Service Quality Perceptions
Relative to Zones of Tolerance
(by Dimensions)
10
8
O
O
O
O
O
6
4
2
0
Reliability
Responsiveness
Computer
Manufacturer
McGraw-Hill/Irwin
Assurance
Empathy
= Zone of Tolerance
Tangibles
O = S.Q. Perception
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 5.5
Importance/Performance Matrix
Importance
HIGH
High
Leverage

Attributes to Improve

Attributes to Maintain





Low
Leverage



Attributes to Maintain
LOW
McGraw-Hill/Irwin
Attributes to De-emphasize
Performance
HIGH
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
6
•
•
•
•
•
•
Building Customer
Relationships
Relationship Marketing
Relationship Value of Customers
Foundations for Relationship Strategies
The Customer Isn’t Always Right
Customer Profitability Segments
Levels of Relationship Strategies
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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 isn’t always right.”
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Relationship Marketing
• is a philosophy of doing business that focuses on keeping
current customers and improving relationships with them
• does not necessarily emphasize acquiring new customers
• is usually cheaper (for the firm)
– keeping a current customer costs less than attracting a new one
• thus, the focus is less on attraction, and more on retention
and enhancement of customer relationships
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.1
Customer Goals of Relationship
Marketing
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.2
Profit Generated by a Customer
Over Time
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.3
Profit Impact of 5 Percent Increase in
Retention Rate
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 6.1
Lifetime Value of an Average Business
Customer at Telecheck International, Inc.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
A Loyal Customer is One Who...
• Shows Behavioral Commitment
– buys from only one supplier, even though other options exist
– increasingly buys more and more from a particular supplier
– provides constructive feedback/suggestions
• Exhibits Psychological Commitment
– wouldn’t consider terminating the relationship--psychological
commitment
– has a positive attitude about the provider
– says good things about the provider
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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?
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Underlying Logic of Customer Retention
Benefits to the Organization
Customer Satisfaction
Customer Retention &
Increased Profits
Quality
Service
Employee Loyalty
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
“The Customer Isn’t Always Right”
• Not all customers are good relationship customers:
– wrong segment
– not profitable in the long term
– difficult customers
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.4
Steps in Market Segmentation and
Targeting for Services
STEP 1:
Identify
Bases for
Segmenting
the Market
McGraw-Hill/Irwin
STEP 2:
Develop
Profiles of
Resulting
Segments
STEP 3:
STEP4:
STEP 5:
Develop
Measures
of Segment
Attractiveness
Select the
Target
Segments
Ensure that
Segments
Are
Compatible
©2003. The McGraw-Hill Companies. All Rights Reserved
Strategies for Building Relationships
• Foundations:
– Excellent Quality/Value
– Careful Segmentation
• Bonding Strategies:
–
–
–
–
Financial Bonds
Social & Psychological Bonds
Structural Bonds
Customization Bonds
• Relationship Strategies Wheel
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.5
The “80/20” Customer Pyramid
Most Profitable
Customers
Best
Customers
What segment spends more with
us over time, costs less to maintain,
spreads positive word of mouth?
Other
Customers
Least Profitable
Customers
McGraw-Hill/Irwin
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?
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.6
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
McGraw-Hill/Irwin
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?
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.7
Levels of Retention Strategies
Volume and
Frequency
Rewards
Bundling and
Cross Selling
Continuous
Relationships
I. Financial
Bonds
Integrated
Information
Systems
Joint
Investments
Stable
Pricing
IV.
Structural
Bonds
Shared
Processes
and
Equipment
Excellent
Quality
and
Value
II.
Social
Bonds
III. Customization
Bonds
Anticipation/
Innovation
Personal
Relationships
Social Bonds
Among
Customers
Customer
Intimacy
Mass
Customization
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
7
•
•
•
•
Service Recovery
The Impact of Service Failure and Recovery
How Customers Respond to Service Failures
Why Do (and Don’t) People Complain?
When They Complain, What Do Customers
Expect?
• Switching vs. Staying Following Service
Recovery
• Service Recovery Strategies
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
• Service Guarantees
Objectives for Chapter 7:
Service Recovery
• Illustrate the importance of recovery from service
failures in keeping customers and 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.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 7.1
Unhappy Customers’
Repurchase Intentions
Unhappy Customers Who Don’t Complain
9%
37%
Unhappy Customers Who Do Complain
Complaints Not Resolved
19%
46%
54%
Complaints Resolved
70%
82%
Complaints Resolved Quickly
95%
Percent of Customers Who Will Buy Again
Minor complaints ($1-$5 losses)
Major complaints (over $100 losses)
Source: Adapted from data reported by the Technical Assistance Research Program.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 7.3
Customer Complaint Actions
Following Service Failure
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 7.4
Fairness and Satisfaction
Source: Reproduced from S.S. Tax and S. W. Brown, “Recovering and Learning from Service Failure, “
Sloan Management Review, Fall 1998, p. 80.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 7.5
Service Recovery Strategies
Service
Recovery
Strategies
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 7.6
Causes Behind Service Switching
Pricing
•
•
•
•
High Price
Price Increases
Unfair Pricing
Deceptive Pricing
Response to Service Failure
• Negative Response
• No Response
• Reluctant Response
Inconvenience
• Location/Hours
• Wait for Appointment
• Wait for Service
Core Service Failure
• Service Mistakes
• Billing Errors
• Service Catastrophe
Service Encounter Failures
•
•
•
•
Uncaring
Impolite
Unresponsive
Unknowledgeable
Competition
Service
Switching
Behavior
• Found Better Service
Ethical Problems
•
•
•
•
Cheat
Hard Sell
Unsafe
Conflict of Interest
Involuntary Switching
• Customer Moved
• Provider Closed
Source: Sue Keaveney, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing, April, 1995, pp. 71-82.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Service Guarantees
• guarantee = an assurance of the fulfillment of a
condition (Webster’s Dictionary)
• for products, guarantee often done in the form of a
warranty
• services are often not guaranteed
– cannot return the service
– service experience is intangible
(so what do you guarantee?)
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 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.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 7.2
The Hampton Inn 100 Percent
Satisfaction Guarantee
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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”
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Service Guarantees
• Does everyone need a guarantee?
• Reasons companies do NOT offer guarantees:
–
–
–
–
guarantee would be at odds with company’s image
too many uncontrollable external variables
fears of cheating by customers
costs of the guarantee are too high
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Service Guarantees
• service guarantees work for companies who are
already customer-focused
• effective guarantees can be BIG deals - they put
the company at risk in the eyes of the customer
• customers should be involved in the design of
service guarantees
• the guarantee should be so stunning that it comes
as a surprise -- a WOW!! factor
• “it’s the icing on the cake, not the cake”
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Part 3
ALIGNING STRATEGY,
SERVICE DESIGN,
AND STANDARDS
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Provider GAP 2
CUSTOMER
Customer-Driven
Service Designs and
Standards
COMPANY
GAP 2
Part 3 Opener
McGraw-Hill/Irwin
Company
Perceptions of
Consumer
Expectations
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
8
•
•
•
•
•
•
•
•
Service Development
and Design
Challenges of Service Design
New Service Development
Types of New Services
Service Redesign
Stages in New Service Development
Service Blueprinting
Quality Function Deployment
High-Performance Service
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 8.1
Risks of Relying on Words Alone to
Describe Services
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 8.2
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
1993; Khurana
Rosenthal 1997. Companies. All Rights Reserved
McGraw-Hill/Irwin Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper,©2003.
The &McGraw-Hill
Figure 8.3
New Service Strategy Matrix for
Identifying Growth Opportunities
Markets
Offerings
Current Customers
New Customers
Existing
Services
SHARE
BUILDING
MARKET
DEVELOPMENT
New
Services
SERVICE
DEVELOPMENT
DIVERSIFICATION
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 8.5
Service Mapping/Blueprinting
• A tool for simultaneously depicting the service
process, the points of customer contact, and the
evidence of service from the customer’s point of
view.
Process
Service
Mapping
Points of Contact
Evidence
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 8.6
Service Blueprint Components
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
CONTACT PERSON CUSTOME PHYSICAL
EVIDENCE
(Back Stage) (On Stage) R
Express Mail Delivery Service
Truck
Packaging
Forms
Hand-held
Computer
Uniform
Customer
Calls
Truck
Packaging
Forms
Hand-held
Computer
Uniform
Customer
Gives
Package
Receive
Package
Driver
Picks
Up Pkg.
Deliver
Package
Customer
Service
Order
SUPPORT
PROCESS
Dispatch
Driver
McGraw-Hill/Irwin
Airport
Receives
& Loads
Fly to
Sort
Center
Load on
Airplane
Fly to
Destinatio
n
Unload
&
Sort
Load
On
Truck
Sort
Packages
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 8.8
CONTACT PERSON
SUPPORT PROCESS(Back Stage) (On Stage) CUSTOMER PHYSICAL
EVIDENCE
Overnight Hotel Stay
Hotel
Exterior
Parking
Arrive
at
Hotel
McGraw-Hill/Irwin
Cart for
Bags
Desk
Elevators Cart for
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
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 8.9
Building a Service Blueprint
Step 1
Step 2
Step 3
Step 4
Step 5
Step 6
Identify the
process to
be blueprinted.
Identify the
customer
or
customer
segment.
Map the
process
from the
customer’s
point of
view.
Map
contact
employee
actions,
onstage
and backstage.
Link
customer
and contact
person
activities to
needed
support
functions.
Add
evidence
of service
at each
customer
action
step.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Blueprints Can Be Used By:
• Service Marketers
– creating realistic customer
expectations
• service system design
• promotion
• Operations Management
– rendering the service as
promised
• managing fail points
• training systems
• quality control
McGraw-Hill/Irwin
• Human Resources
– empowering the human
element
• job descriptions
• selection criteria
• appraisal systems
• System Technology
– providing necessary tools:
• system specifications
• personal preference
databases
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 8.10
House of Quality for Village Volvo
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
9
Customer-Defined
Service Standards
• Factors Necessary For Appropriate Service
Standards
• Customer-Defined Service Standards
• Process for Developing Customer-defined
Standards
• Service Performance Indexes
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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.
• Explain the process of developing customer-defined service
standards.
• Emphasize the importance of service performance indexes in
implementing strategy for service delivery.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 9.1
Examples of Hard
Customer-Defined Standards
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 9.2
Examples of Soft
Customer-Defined Standards
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 9.2
AT&T’s Process Map for Measurements
Business Process
Internal Metric
Customer Need
30% Product
Reliability
Easy To Use
Features / Functions
(40%)
(20%)
(40%)
% Repair Call
% Calls for Help
Functional Performance Test
30% Sales
Knowledge
Responsive
(30%)
(25%)
Follow-Up
(10%)
Supervisor Observations
% Proposal Made on Time
% Follow Up Made
Total
Quality 10% Installation
15% Repair
15% Billing
Delivery Interval Meets Needs (30%)
Does Not Break
(25%)
Installed When Promised
(10%)
Average Order Interval
% Repair Reports
% Installed On Due Date
No Repeat Trouble
Fixed Fast
Kept Informed
(30%)
(25%)
(10%)
% Repeat Reports
Average Speed Of Repair
Accuracy, No Surprise
Resolve On First Call
Easy To Understand
(45%)
(35%)
(10%)
% Billing Inquiries
% Resolved First Call
% Billing Inquiries
% Customers Informed
Source: AT&T General Business Systems
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Exercise for Creating Customer-Defined
Service Standards
• Form a group of four people
• Use your school’s undergraduate or graduate
program, or an approved alternative
• Complete the customer-driven service standards
importance chart
• Establish standards for the most important and
lowest-performed behaviors and actions
• Be prepared to present your findings to the class
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Customer-Driven Standards and
Measurements Exercise
Service Encounter
Customer Requirements
Measurements
Service
Quality
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 9.3
Getting to Actionable Steps
Requirements: Diagnosticity:
Abstract
Low
Satisfaction Value
Relationship
Solution Provider
Dig
Deeper
Reliability
Assurance
Responsiveness
Dig
Deeper
Dig
Deeper
General
Concepts
Empathy
Tangibles
Price
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
McGraw-Hill/Irwin
High
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 9.4
Process for Setting
Customer-Defined Standards
1. Identify Existing or Desired Service Encounter Sequence
2. Translate Customer Expectations Into Behaviors/Actions
3. Select Behaviors/Actions for Standards
4. Set Hard or Soft Standards
Measure by
Audits or
Operating Data
Hard
5. Develop Feedback
Mechanisms
Soft
Measure by
TransactionBased Surveys
6. Establish Measures and Target Levels
7. Track Measures Against Standards
8. Update Target Levels and Measures
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 9.5
Importance/Performance Matrix
HIGH
10.0
Improve
Maintain
Does whatever it takes to
correct problems (9.26, 7.96)
 Delivers on promises specified in proposal/contract (9.49, 8.51)

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
me cost ahead of time (9.06, 8.46)
9.0
 

Provides equipment that operates as vendor said it would (9.24, 8.14)
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)
Importance
8.0
LOW
7.0
8.0
McGraw-Hill/Irwin
Performance
9.0
10.0
HIGH
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 9.6
Linkage between Soft Measures and Hard
Measures for Speed of Complaint Handling
10
SATISFACTION
9
8
Large Customers
7
6
Small Customers
5
4
3
2
1
0
McGraw-Hill/Irwin
2
4
6
8
12
WORKING
16
20
24
HOURS
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
10
Physical Evidence
and the Servicescape
•
•
•
•
Physical Evidence—What is it?
Types of Servicescapes
Roles of the Servicescape
Framework for Understanding Servicescape
Effects on Behavior
• Approaches for Understanding Servicescape
Effects
• Guidelines for Physical Evidence Strategy
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 10.1
Elements of Physical Evidence
Servicescape
Other tangibles
Facility exterior
Business cards
Stationery
Billing statements
Reports
Employee dress
Uniforms
Brochures
Web pages
Virtual servicescape
Exterior design
Signage
Parking
Landscape
Surrounding environment
Facility interior
Interior design
Equipment
Signage
Layout
Air quality/temperature
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 10.2
Examples of Physical Evidence from
the Customer’s Point of View
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 10.3
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 10.2
A Framework for Understanding EnvironmentUser Relationships in Service Organizations
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Part 4
DELIVERING AND
PERFORMING
SERVICE
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Provider GAP 3
CUSTOMER
Service Delivery
COMPANY
GAP 3
Customer-Driven
Service Designs and
Standards
Part 4 Opener
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
11
Employees’ Roles
in Service Delivery
• The Critical Importance of Service
Employees
• Boundary Spanning Roles
• Strategies for Closing Gap 3
• Service Culture
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Objectives for Chapter 11:
Employees’ Roles in Service Delivery
• 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
customer-oriented service delivery
• Show how the strategies can support a service
culture where providing excellent service is a way
of life
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 11.2
The Services Marketing Triangle
Company
(Management)
Internal
Marketing
External
Marketing
enabling
promises
Employees
setting
promises
Interactive Marketing
Customers
keeping promises
Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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?
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Ways to Use the
Services Marketing Triangle
• Overall Strategic
Assessment
– How is the service
organization doing on all
three sides of the triangle?
– Where are the weaknesses?
– What are the strengths?
McGraw-Hill/Irwin
• Specific Service
Implementation
– What is being promoted
and by whom?
– How will it be delivered
and by whom?
– Are the supporting systems
in place to deliver the
promised service?
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 11.3
The Service Profit Chain
Source: An exhibit from J. L. Heskett, T. O. Jones, W. E. Sasser, Jr., and L. A. Schlesinger, “Putting
the Service-Profit Chain to Work,” Harvard Business Review, March-April 1994, p. 166.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Service Employees
•
•
•
•
•
They are the service.
They are the organization in the customer’s eyes.
They are the brand.
They are marketers.
Their importance is evident in:
– The Services Marketing Mix (People)
– The Service-Profit Chain
– The Services Triangle
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 11.4
Boundary Spanners Interact with Both
Internal and External Constituents
External Environment
Internal Environment
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 11.5
Sources of Conflict for
Boundary-Spanning Workers
• Person vs. Role
• Organization vs. Client
• Client vs. Client
• Quality vs. Productivity
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 11.6
Human Resource Strategies for Closing GAP 3
Hire for
Service
Competencies
and Service
Inclination
Retain the
Best
People
CustomerOriented
Service
Delivery
Develop
People to
Deliver
Service
Quality
Empower
Employees
Treat
Employees
as
Customers
Hire the
Right People
Provide
Needed Support
Systems
McGraw-Hill/Irwin
Provide
Supportive
Technology
and
Equipment
©2003. The McGraw-Hill Companies. All Rights Reserved
Empowerment
• Benefits:
– quicker responses
– employees feel more
responsible
– employees tend to interact
with warmth/enthusiasm
– empowered employees are
a great source of ideas
– positive word-of-mouth
from customers
McGraw-Hill/Irwin
• Drawbacks:
– greater investments in
selection and training
– higher labor costs
– slower and/or inconsistent
delivery
– may violate customer
perceptions of fair play
– “giving away the store”
(making bad decisions)
©2003. The McGraw-Hill Companies. All Rights Reserved
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.”
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
12
Customers’ Roles
in Service Delivery
• The Importance of Customers in Service
Delivery
• Customers’ Roles
• Self-Service Technologies—The Ultimate in
Customer Participation
• Strategies for Enhancing Customer
Participation
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 12.1
Levels of Customer Participation across
Different Services
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Importance of Other Customers in
Service Delivery
• Other customers can detract from satisfaction:
– disruptive behaviors
– excessive crowding
– incompatible needs
• Other customers can enhance satisfaction:
– mere presence
– socialization/friendships
– roles: assistants, teachers, supporters
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 12.2
Customer Roles in Service Delivery
Productive Resources
Contributors to
Quality and
Satisfaction
Competitors
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Customers as Productive Resources
• “partial employees”
– contributing effort, time, or other resources to the
production process
• customer inputs can affect organization’s
productivity
• key issue:
– should customers’ roles be expanded? reduced?
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 12.3
Services Production Continuum
Customer Production
1
2
Joint Production
3
4
Firm Production
5
6
Gas Station Illustration
1. Customer pumps gas and pays at the pump with automation
2. Customer pumps gas and goes inside to pay attendant
3. Customer pumps gas and attendant takes payment at the pump
4. Attendant pumps gas and customer pays at the pump with automation
5. Attendant pumps gas and customer goes inside to pay attendant
6. Attendant pumps gas and attendant takes payment at the pump
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 12.4
Strategies for Enhancing Customer
Participation
Define Customer
Jobs
Effective
Customer
Participation
Recruit, Educate,
and Reward
Customers
Manage the
Customer
Mix
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Strategies for Enhancing
Customer Participation
• Define customers’ jobs
– helping himself
– helping others
– promoting the company
• Individual differences:
– not everyone wants to participate
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 12.2
Characteristics of Service that Increase
the Importance of Compatible Segments
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
13
•
•
•
•
•
Delivering Service Through
Intermediaries and Electronic
Channels
Service Intermediaries
Direct or Company-owned Channels
Common Issues Involving Intermediaries
Key Intermediaries for Service Delivery
Strategies for Effective Service Delivery
Through Intermediaries
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Objectives for Chapter 13:
Delivering Service through Intermediaries
and Electronic Channels
• Identify the primary channels through which
services are delivered to end customers.
• Provide examples of each of the key service
intermediaries.
• View delivery of service from two perspectives-the service provider and the service deliverer.
• Identify the benefits and challenges of each
method of service delivery.
• Outline the strategies that are used to manage
service delivery through intermediaries.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Service Provider Participants
• service principal (originator)
– creates the service concept
• (like a manufacturer)
• service deliverer (intermediary)
– entity that interacts with the customer in the execution
of the service
• (like a distributor/wholesaler)
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Key Issues
Involving Intermediaries
• conflict over objectives and performance
• conflict over costs and rewards
• control of service quality
• empowerment versus control
• channel ambiguity
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Services Intermediaries
• franchisees
– e.g., Jiffy Lube, H&R Block, McDonald’s
• agents and brokers
– e.g., travel agents, independent insurance agents
• electronic channels
– e.g., ATMs, university video courses, TaxCut software
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 13.1
Benefits and Challenges for Franchisers
of Service
Benefits
• Leveraged business
format for greater
expansion and revenues
• Consistency in outlets
• Knowledge of local
markets
• Shared financial risk
and more working
capital
McGraw-Hill/Irwin
Challenges
• Difficulty in maintaining and
motivating franchisees
• Highly publicized disputes
and conflict
• Inconsistent quality
• Control of customer
relationship by intermediary
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 13.1 (Continued)
Benefits and Challenges for Franchisees
of Service
Benefits
• An established business
format
• National or regional
brand marketing
• Minimized risk of
starting a business
McGraw-Hill/Irwin
Challenges
• Encroachment
• Disappointing profits and
revenues
• Lack of perceived control
over operations
• High fees
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 13.2
Benefits and Challenges in Distributing
Services through Agents and Brokers
Benefits
• Reduced selling and
distribution costs
• Intermediary’s
possession of special
skills and knowledge
• Wide representation
• Knowledge of local
markets
• Customer choice
McGraw-Hill/Irwin
Challenges
• Loss of control over
pricing and other
aspects of marketing
• Representation of
multiple service
principals
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 13.3
Benefits and Challenges in Electronic
Distribution of Services
Benefits
• Consistent delivery for
standardized services
• Low cost
• Customer convenience
• Wide distribution
• Customer choice and
ability to customize
• Quick customer feedback
McGraw-Hill/Irwin
Challenges
• Customers are active, not passive
• Lack of control of electronic
environment
• Price competition
• Inability to customize with highly
standardized services
• Lack of consistency with customer
involvement
• Requires changes in consumer
behavior
• Security concerns
• Competition
from widening
©2003. The McGraw-Hill
Companies. All Rights Reserved
Strategies for Effective Service Delivery
through Intermediaries
Control Strategies
• Measurement
• Review
Partnering Strategies
• Alignment of goals
• Consultation and
cooperation
McGraw-Hill/Irwin
Empowerment Strategies
• Help the intermediary
develop customeroriented service
processes
• Provide needed support
systems
• Develop intermediaries
to deliver service quality
• Change to a cooperative
management structure
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
14
Managing Demand
and Capacity
• The Underlying Issue: Lack of Inventory
Capability
• Understanding Capacity Constraints
• Understanding Demand Patterns
• Strategies for Matching Capacity and
Demand
• Yield Management
• Waiting Line Strategies
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Objectives for Chapter 14:
Managing Demand and Capacity
• Explain the underlying issue for capacity-constrained
services: lack of inventory capacity.
• Present the implications of time, labor, equipment, and
facilities constraints combined with variations in demand
patterns.
• Lay out strategies for matching supply and demand
through (a) shifting demand to match capacity or
(b) flexing capacity to meet demand.
• Demonstrate the benefits and risks of yield management
strategies.
• Provide strategies for managing waiting lines.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 14.1
Variations in Demand
Relative to Capacity
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Understanding Capacity Constraints and
Demand Patterns
Capacity Constraints
Demand Patterns
• Time, labor, equipment,
and facilities
• Optimal versus maximal
use of capacity
• Charting demand patterns
• Predictable cycles
• Random demand
fluctuations
• Demand patterns by
market segment
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 14.1
Demand vs. Supply
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 14.2
Constraints on Capacity
Nature of the constraint
Type of service
Time
Legal
Consulting
Accounting
Medical
Labor
Law firm
Accounting firm
Consulting firm
Health clinic
Equipment
Delivery services
Telecommunication
Utilities
Health club
Facilities
Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 14.3
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.
McGraw-Hill/Irwin
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.
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 14.4
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.
• Outsource.
McGraw-Hill/Irwin
Demand Too Low
• Perform maintenance,
renovations.
• Schedule vacations.
• Schedule employee training.
• Lay off employees.
©2003. The McGraw-Hill Companies. All Rights Reserved
Waiting Issues
•
•
•
•
•
•
•
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Waiting Strategies
•
•
•
•
Employ operational logic to reduce wait
Establish a reservation process
Differentiate waiting customers
Make waiting fun, or at least tolerable
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 14.5
Waiting Line Strategies
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 14.6
Waiting Line Configurations
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Part 5
MANAGING SERVICE
PROMISES
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Provider GAP 4
CUSTOMER
COMPANY
Service
Delivery
GAP 4
External
Communications
to Customers
Part 5 Opener
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
15
Integrated Services
Marketing Communications
• The Need for Coordination in Marketing
Communication
• Key Reasons for Service Communication
Problems
• Four Categories of Strategies to Match
Service Promises with Delivery
• Exceeding Customer Expectations: Caveats
and Strategies
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 15.2
Communications and the
Services Marketing Triangle
Company
Internal Marketing
External Marketing
Communication
Vertical Communications
Horizontal Communications
Employees
Advertising
Sales Promotion
Public Relations
Direct Marketing
Interactive Marketing
Customers
Personal Selling
Customer Service Center
Service Encounters
Servicescapes
Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 15.3
Approaches for Integrating Services
Marketing Communication
Manage
Customer
Expectations
Manage
Service
Promises
Goal:
Delivery
greater than
or equal to
promises
Improve
Customer
Education
Manage
Internal
Marketing
Communication
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 15.4
Approaches for
Managing Service Promises
MANAGING SERVICE PROMISES
Create
Effective
Services
Communications
McGraw-Hill/Irwin
Coordinate
External
Communicatio
n
Make
Realistic
Promises
Offer
Service
Guarantees
Goal:
Delivery
greater than
or equal to
promises
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 15.1
Services Advertising Strategies Matched
with Properties of Intangibility
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 15.7
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 15.8
Approaches for
Improving Customer Education
Goal:
Delivery
greater than
or equal to
promises
McGraw-Hill/Irwin
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
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 15.9
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
16
Pricing of Services
• Three Key Ways Service Prices are Different
for Consumers
• Approaches to Pricing Services
• Pricing Strategies That Link to the Four
Value Definitions
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Objectives for Chapter 16:
Pricing of Services
• Discuss three major ways that service prices differ
from goods prices for customers.
• Demonstrate what value means to customers and
the role that price plays in value.
• Articulate the key ways that pricing of services
differs from pricing of goods.
• Delineate strategies that companies use to price
services.
• Give examples of pricing strategy in action.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 16.1
Customers Will Trade Money for
Other Service Costs
=
or
Time
McGraw-Hill/Irwin
or
Effort
Psychic Costs
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 16.2
Three Basic Price Structures and
Difficulties Associated with Usage for Services
PROBLEMS:
PROBLEMS:
1. Costs difficult to trace
2. Labor more difficult to
price than materials
3. Costs may not equal value
1. Small firms may charge too
little to be viable
2. Heterogeneity of services
limits comparability
3. Prices may not
reflect customer
value
PROBLEMS:
1. Monetary price must be adjusted to reflect
the value of non-monetary costs
2. Information on service costs less available to
customers, hence price may not be a central factor
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 16.3
Four Customer Definitions of Value
Value is low price.
Value is everything
I want in a service.
Value is the
quality I get for
the price I pay.
Value is all that
I get for all
that I give.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 16.4
Pricing Strategies When the
Customer Defines Value as Low Price
Value is low price.
• Discounting
• Odd pricing
• Synchro-pricing
• Penetration Pricing
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 16.5
Pricing Strategies When the Customer Defines
Value as Everything Wanted in a Service
Value is everything
I want in a service.
• Prestige pricing
• Skimming pricing
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 16.6
Pricing Strategies When the Customer
Defines Value as Quality for the Price Paid
Value is the quality I
get for the price I pay.
• Value pricing
• Market segmentation
pricing
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 16.7
Pricing Strategies When the Customer Defines
Value as All That Is Received for All That Is Given
Value is all that I get
for all that I give.
•
•
•
•
McGraw-Hill/Irwin
Price framing
Price bundling
Complementary pricing
Results-based pricing
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 16.8
Summary of Service Pricing Strategies
for Four Customer Definitions of Value
Value is everything
I want in a service.
Value is low price.
• Discounting
• Odd pricing
• Synchro-pricing
• Penetration Pricing
• Prestige pricing
• Skimming pricing
Value is the quality
I get for the price I pay.
• Value pricing
• Market segmentation
pricing
McGraw-Hill/Irwin
Value is all that I get
for all that I give.
•
•
•
•
Price framing
Price bundling
Complementary pricing
Results-based pricing
©2003. The McGraw-Hill Companies. All Rights Reserved
Part 6
THE BIG PICTURE:
CLOSING ALL THE
GAPS
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
The Financial and Economic
Impact of Service Quality
17
• 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.
• Discuss what is known about the key service
drivers of overall service quality, customer
retention, and profitability.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Objectives for Chapter 17:
The Financial and Economic Impact of Service
•
•
•
•
Examine the direct effects of service on profits.
Consider the effect of service on getting new customers.
Evaluate the role of service in keeping customers.
Examine the link between perceptions of service and
purchase intentions.
• Discuss what is known about the key service drivers of
overall service quality, customer retention, and
profitability.
• Present a model called the balanced performance
scorecard that allows for a strategic focus on
measurements other than financials.
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Figure 17.1
The Direct Relationship between
Service and Profits
Service
McGraw-Hill/Irwin
?
Profits
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 17.2
Offensive Marketing Effects of
Service on Profits
Profits
Service
Market
Share
Reputation
Sales
Price
Premium
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 17.3
Defensive Marketing Effects of
Service on Profit
Costs
Service
Customer
Retention
Volume of
Purchases
Price
Premium
Word of
Mouth
McGraw-Hill/Irwin
Margins
Profits
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 17.4
Perceptions of Service,
Behavioral Intentions, and Profits
Costs
Customer
Retention
Service
Behavioral
Intentions
Volume of
Purchases
Margins
Price
Premium
Word of
Mouth
Profits
Sales
McGraw-Hill/Irwin
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Figure 17.5
The Key Drivers of Service Quality,
Customer Retention, and Profits
Key Drivers
Service Encounters
Service
Encounter
Service
Encounter
Service
Quality
Behavioral
Intentions
Customer
Retention
Profits
Service
Encounter
Service
Encounter
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Figure 17.6
Sample Measurements for the
Balanced Scorecard
Financial Measures
Customer
Perspective
Service Perceptions
Service Expectations
Perceived Value
Behavioral Intentions:
% Loyalty
% Intent to Switch
# Customer Referrals
# Cross Sales
# of Defections
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
Operational
Perspective
Right first time (% hits)
Right on time (% hits)
Responsiveness (% on time)
Transaction time (hours, days)
Throughput time
Reduction in waste
Process quality
Adapted from: R.S. Kaplan and D.P. Norton, “The Balanced Scorecard—Measures That Drive Performance,” Harvard Business Review, January-February 1992.
McGraw-Hill/Irwin
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Service Quality Spells Profits
Costs
Defensive
Marketing
Volume of
Purchases
Margins
Price
Premium
Service
Customer
Retention
Word of
Mouth
Profits
Market
Share
Offensive
Marketing
Sales
Reputation
Price
Premium
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Chapter
18
The Integrated Gaps
Model of Service Quality
• Closing the Customer Gap
• Provider Gap 1: Not Knowing What Customers Expect
• Provider Gap 2: Not Having the Right Service Quality
Designs and Standards
• Provider Gap 3: Not Delivering to Service Standards
• Provider Gap 4: When Promises Do Not Match
Performance
• Putting It All Together: Closing the Gaps
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Objectives for Chapter 18:
The Integrated Gaps Model of Service Quality
• To overview the framework of the book and the
gaps model of service quality
• To identify the factors responsible for each of the
gaps.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 18.1
Gaps Model of Service Quality
Expected
Service
CUSTOMER
Customer
Gap
COMPANY
GAP 1
Perceived
Service
Service
Delivery
External
Communications
GAP 4 to Customers
GAP 3
Customer-Driven
Service Designs and
Standards
GAP 2
Company Perceptions
of Consumer
Expectations
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 18.2
Key Factors Leading to the Customer Gap
Customer
GAP
Customer
Expectations
 Provider Gap 1: Not knowing what customers expect
 Provider Gap 2: Not selecting the right service designs and standards
 Provider Gap 3: Not delivering to service standards
 Provider Gap 4: Not matching performance to promises
Customer
Perceptions
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 18.3
Key Factors Leading to Provider Gap 1
Customer
Expectations
GAP
1

Inadequate Marketing Research Orientation
Insufficient marketing research
Research not focused on service quality
Inadequate use of market research

Lack of Upward Communication
Lack of interaction between management and customers
Insufficient communication between contact employees
and managers
Too many layers between contact personnel and top
management

Insufficient Relationship Focus
Lack of market segmentation
Focus on transactions rather than relationships
Focus on new customers rather than relationship
customers

McGraw-Hill/Irwin
Inadequate Service Recovery
Company Perceptions of
Customer Expectations
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 18.4
Key Factors Leading to Provider Gap 2
Customer-Driven Service
Designs and Standards
GAP
2



Poor Service Design
Unsystematic new service development process
Vague, undefined service designs
Failure ot connect service design to service
positioning
Absence of Customer-Driven Standards
Lack of customer-driven service standards
Absence of process management to focus on
customer requirements
Absence of formal process for setting service
quality goals
Inappropriate Physical Evidence and Servicescape
Management Perceptions of
Customer Expectations
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 18.5
Key Factors Leading to Provider GAP 3
Customer-Driven Service
Designs and Standards
GAP
3

Deficiencies in Human Resource Policies
Ineffective recruitment
Role ambiguity and role conflict
Poor employee-technology job fit
Inappropriate evaluation and compensation systems
Lack of empowerment, perceived control and teamwork

Failure to Match Supply and Demand
Failure to smooth peaks and valleys of demand
Inappropriate customer mix
Over-reliance on price to smooth demand

Customers Not Fulfilling Roles
Customers lack knowledge of their roles and responsibilities
Customers negatively impact each other

Problems with Service Intermediaries
Channel conflict over objectives and performance
Channel conflict over costs and rewards
Difficulty controlling quality and consistency
Tension between empowerment and control
McGraw-Hill/Irwin
Service Delivery
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 18.6
Key Factors Leading to Provider GAP 4
Service Delivery

GAP
4



McGraw-Hill/Irwin
Lack of Integrated Services Marketing Communications
Tendency to view each external communication as
independent
Not including interactive marketing in communications plan
Absence of strong internal marketing program
Ineffective Management of Customer Expectations
Not managing customer expectations through all forms of
communication
Not adequately educating customers
Overpromising
Overpromising in advertising
Overpromising in personal selling
Overpromising through physical evidence cues
Inadequate Horizontal Communications
Insufficient communication between sales and operations
Insufficient communication between advertising and operations
Differences in policies and procedures across branches or units
External Communications to
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Customers