Service and Relationship Marketing
Module:1
Chapter:1 – Basics of Service Marketing
Service and Relationship Marketing
Module:1
Chapter:1 – Basics of Service Marketing
• What are services?
The word service originally associated with the work
performed by servants for their masters.
“ the action of serving, helping or benefiting; conduct tending
to the welfare or advantage of another”
Services are acts, deeds, performance or efforts.
The aim of service is to provide solution to the customers
problem.
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Services is an activity or series of activities take place by
interaction between customer and service employees
It’s an economic activity which is consumed at a time it is
produced and provide added value in forms of Convenience,
amusement, timeliness , comfort or health
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Services Defined…
“Activities, Benefits or Satisfactions
which are offered for sale
or
provided in connection with the sale of goods”
American Marketing Association
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Services Defined…
“Separately identifiable, intangible activities which
provide want satisfaction
when marketed to consumers and/or industrial users
and which are not necessarily tied to the sale of a
product or another service”
William J. Stanton
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Services Defined…
“Any activity or benefit that one party can offer to
another that is essentially intangible and does not
result in the ownership of anything.
Its production may or may not be tied to a physical
product”
Philip Kotler and Bloom
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Why Services Marketing ???
Goods Vs. Services
• Goods are tangible
• Services are intangible
• Goods are homogeneous
• Services are heterogeneous
• Goods are produced in the
factory
• Services are produced in buyerseller interactions
• Production, distribution and
consumption are separate and
independent functions in goods
• Production, distribution and
consumption take place
simultaneously in the case of
services
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Goods Vs. Services
• Consumers do not generally
participate in the
production of goods
• Consumers are coproducers in services
• Services can not be stored
• Goods can be stored
• In sale of goods, transfer of
ownership takes place
• In the sale of services,
transfer of ownership will
not take place
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Characteristics of Services…
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Intangibility
Inseparability
Variability
Perishability
Customer participation
No ownership
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Intangibility…
• Challenges :
- Cannot be communicated
easily
- Consumer suspects due to
absence of concrete
evidences
- Design of total service
package not possible
- Comparative presentation is
not possible
• Strategic Options :
- Making the service process
tangible to the maximum
possible extent
- Managing and promoting
word-of-mouth
communication
- Strengthening internal and
external marketing
- Use of Relationship
Marketing
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Inseparability…
• Challenges :
• Strategic Options :
- Problems of market
expansion
- Maintenance of service
quality
- Compulsory presence of
consumer
- Limited production capacity
- Operation at limited
capacity
- Minimization of customer
interactions
- Innovating techniques of
indirect interaction
- Standardization to the
maximum possible extent
- Developing distribution
network with quality control
mechanisms
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Variability…
• Challenges :
• Strategic Options :
- Limited scope for
standardization
- Not possible to
communicate exactly what
the consumer is going to
receive
- Quality can be determined
only after the service is
consumed
- More focus on
standardization
- Internal marketing and
employee training
- Positioning variation as a
strength of innovation
- Promote research and
innovation
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Perishability…
• Challenges :
- Storage of service is not
possible
- Sales volume
continuously in relation
to the capacity
- Time pressure in sales
•
-
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Strategic Options :
Demand management
Capacity management
Tactical approaches
Continuous study on
demand patterns and
competitive parameters
Customer Participation…
• Challenges :
• Strategic Options:
- Customers are not
controllable
- Production quality also
depends upon customer’s
knowledge and ability to
participate
- Customers are evaluating at
every stage of service
production
- Effective external marketing
- Customer education and
training
- Effective interactive
marketing
- Management of
movements of truth
- Effective internal marketing
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No ownership…
• Challenges:
• Strategic Options:
- Nothing remains after
consumption
- Very less time to the
consumer to evaluate the
product
- High consumer dissonance
- Making communication
tangible
- Customer relationship
marketing
- Managing high level of
company image
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Sources for service sector growth
 Innovation
-: Push Theory of Innovation
-: Pull theory of Innovation
 Social Trends
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Reasons for Growth in Services Sector…
 Growth in intermediate demand from firm
 Growth in final demand from customers
•
•
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•
•
•
•
•
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Increase in affluence
More leisure time
Working woman
Growth in population of DINKS
Greater life expectancy
Greater complexity of products
Greater complexity in life
Greater concern for resource scarcity and ecology
Increasing number of new products
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Service Sector in Indian
Economy…
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Reasons for growth of Services in India…
•
•
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Economic Affluence
Changing Role of Women
Cultural Changes
IT Revolution
Development of Markets
Unbundling Corporations
Increasing Consciousness of Health Care
Economic Liberalization
Migration
Export Potential
Service Tax
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Factors Stimulation the transformation of the
Service Economy
 Government Policies
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Change in regulation
Privatization
New rules to protect customer, employees and the environment
New agreements on trade in services
 Social Changes
 Rising consumer Expectation
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More affluence
More people short of time
Increased desire for buying experience vs things
Rising consumer ownership of computer, cell phones, and high tech
equipments
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 Rising consumer ownership of computer, cell phones, and high tech
equipments
 Easier access to more information
 Immigration
 Gewoning but aging population
Business Trends
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Push to increase shareholders value
Emphasis on productivity and cost saving
Manufacturera add value through service service and sell services
More strategic alliances and outsourcing
Focus on quality and customer satisfaction
Growth of franchising
Marketing emphasis by nonprofits
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Advance in Information Technology
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Growth of Internet
Greater bandwidth
Compact Mobile Equipment
Wireless networking
Faster, more powerful software
Digitization of text, graphics, audio and video
Globalization
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More companies operation on transnational basis
Increased international Travel
International merger and acquisitions, JV’s
‘Off shoring’ of customer service
Foreign competitors invade domestic markets
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Role (Type) of Services in Economy
 Value Added Services
Financing, Leasing, Insurance
 Infrastructure service
Communications, Transportation, Utilities, Banking
 Manufacturing Services inside company
Finance, Accounting, Legal , R&D and design
 Distribution service
Wholesaling, Retailing, Repairing
 Personal Service
Health care, Restaurants, Hotels
 Business Service supporting Manufacturing
Consulting, Auditing, Advertising, Waste Disposal
 Governments Service
Military, Education, Judicial, Police
and fire protection
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Service Classification :Service process Matrix
Degree of Interaction and Customization
Degree of Labor intensity
LOW
LOW
High
Service factory
Service Shop
•Airlines
•Trucking
•Hotels
•Resorts & Recreation
•Hospitals
•Auto Repair
•Other repair
services
Mass services
High
Professional
Services
•Retailing
•Wholesaling
•School
•Retail aspect of
commercial Banking
•Physicians
•Lawyers
•Accountants
•Architects
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How to win customer in Service
Business(USP’s)
• Availability
How accessible is the service?
(ATM’s – service beyond the traditional banker’s hours)
• Convenience
(The location of service where customer must travel to that service-Fast
food restaurants)
• Dependability
Hoe reliable is the service?
(Airlines- on time departure & arrival performance will build huge trust)
• Personalization
need for Customization -Are you treated as an individual?
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• Price
The price is viewed as being a surrogate for quality.
• Quality
Quality is judged by both the process of services delivery and the put
comes of the service. It is difference between service expectation &
service experience
• Reputation
Unlike a product, a poor service experience can note exchanged or
returned for a different model. Positive word-of-mouth is the most
effective form of advertising.
• Safety
In air travel and medicine, the customers are putting their lives in the
hands of the service provider
• Speed
How long must I wait for service? For emergency service such as fire or police
protection, response time is the major criterion of performance.
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Technology in Services
The introduction of technology often empowers the customer to perform
the service unassisted.
For, example ,
the credit card reader at the pump facilitates the purchase of a gasoline
without help and
Internet allows customer to book their own flights
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• Technology in Service Encounter
Advances in communication and information technology are having
profound effect on ways customers interface with service providers.
There are five modes of technology’s contribution to the service
encounter.
(A) Technology free service encounter
where the customer is in physical proximity to and interacts with a
human service provider.
This mode represents the traditional high-touch service in which
technology does not pay a direct role. Such as Saloon, hair dresser, tailor
TECHNOLOGY
CUSTOMER
SERVER
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(B)Technology-assisted service encounter
Here only the service provider has access to the technology to improve
the quality of face to face service.
A health care service performed by technology which is operated by only
professionals
TECHNOLOGY
CUSTOMER
SERVER
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(C)Technology- facilitated service encounter
Here both the customer and service provider have access to the same
technology.
For example
a financial planner in consultation with a client can refer to a financial
model on a personal computer to illustrate projected returns for different
risk profiles
TECHNOLOGY
SERVER
CUSTOMER
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(D)Technology-meditated service encounter
The customer and human service provider are not physically together and
thus the service encounter no longer is the traditional face to face contact.
Its about Getting technical help on a distance call .
Example
GPS services or services provided by Just dial .
TECHNOLOGY
CUSTOMER
SERVER
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(E)Technology-generated service encounter
Human service provider is replaced entirely with technology that allows
the customer to self-service.
It reduces the cost of service delivery
For Example
bank ATM’s, website based information, e-commerce
TECHNOLOGY
CUSTOMER
SERVER
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The Emergence of Self Service
Elimination of labor costs for nonproductive activity is the principle driver
for the service provider.
Customer acceptance results from increased opportunity for
customization, accuracy, convenience and speed.
Cost saving and place & Time has lead the buisiness to become Self
Service by customer him/herself.
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Evolution of Self Service
Service Industry
Human Contact
Machine-Assisted Electronic Service
Service
Banking
Teller
ATM
Grocery
Checkout Clerk
Airlines
Ticket Agent
Self-check out
station
Check in kiosks
Restaurants
Wait person
Movie theater
Ticket sale
Book store
Information clerk
Stock-availability
terminal
Online shopping
Education
Teacher
Distance Learning
Gambling
Poker dealer
Computer
Tutorial
Computer Poker
Online Banking
Online order/pick
up
Print boarding
pass
Vending machine Online
order/delivery
Kiosk Ticketing
Pay-for-view
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Online poker
Automation in Services
Automation means replacing human manual activity by the machine.
for Example:-an automatic lawn sprinkler system a hotel
-automated answering systems that route callers by means of Touch -Tone pones
like Toll free or customer care services of the service provider
David A Collier has suggested following automation categories
1. Fixed sequence (F)
A machine that repetitively performs successive steps in a given operation
according to a predetermined sequence, condition and position and whose set
information cannot be changed easily. E.g. automatic parking lot gate
2. Variable sequence(V)
A machine same as fixed sequence robot but whose set information can be
changed easily. E.g. automated teller machine
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3. Playback(P)
A machine that can produce operation from memory that were
originally executed under human control. E.g. telephone answering
machine
4. Numerical Controlled(N)
A machine that can perform task according to sequence as
command by stored information tat can be reprogrammed easily. E.g.
animated character at an amusement park.
5. Intelligent(I)
A machine with sensory perception devices, such as visual or tactile
receptors, that can detect changes in the work environment or task by
itself and has its own decision-making abilities. E.g. autopilot for a
commercial airplane
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6. Expert system(E)
A computer program that uses an inference engine (e.g. decision rules)
and a knowledge base (i.e. information on a particular subject) to
diagnose problem
ex- maintenance trouble shooting for elevator repair
7. Totally automated system(T)
A system of machine and computers that performs all the physical and
intellectual tasks that are required to produce or deliver a service.
ex- electronic fund transfer
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Internet Services
Websites can be used in many different ways
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As a channel to sell a product or service (amazone.com, wine.com)
As a supplemental channel (online booking of order)
For technical support (dell.com, nike.com)
To Embellish existing service (HBR cases & Research paper)
To convey information (Dr. Koop, wikipedia)
To communicate with Membership
To play Games
Internet Models
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Internet Access Provider
Portal
Information content
Online Retailer
Transaction Enablers
Market Makers
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Comparison of Electronic and Traditional Services
Features
Electronic Service
Traditional Service
Service Encounter
Screen to face
Face to Face
Availability
Anytime
Standard Working
Hour
Access
From home
Travel to location
Market Area
Worldwide
Local
Ambiance
Electronic Interface
Physical
Environment
Competitive
Differentiation
Convenience
Personalization
Privacy
Anonymity
Social interaction
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E-Business Models
Peter Weill and Michael Vitale have described eight generic ebusiness models.
Content Provider
Provides content such as information, digital products and services. ExReuters, a British news agency
Direct to customer
Provides goods & services directly to the customer, often bypassing
traditional retail channel memebers. Ex-Dell computer
Full service Provider
Provide full range of service in one domain directly. E.g. financial, health,
indusyrial chemicals. Ex – General Electric Supply
I
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Intermediary
Brings together buyers and sellers by concentrating information. Ex-eBay
Shared Infrastructure
Brings together multiple competitors to cooperate by sharing common IT
infrastructure. An example is SABRE reservation system for airlines.
Value Net Integrator
Coordinates activities across the value net by gathering, synthesizing, and
distributing information. Ex 7-eleven Japan
Virtual Community
Created & facilitates online community of people with Monster.com, the
job-placement service firm.
Whole-of-Enterprise
Provides a firm wide single point of contact, consolidating all services
provides by a large multiunit organization. An example is the U S federal
government
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Managing the New Technology Adoption Process
Orientation
& Education
Technology
opportunity
Analysis
Application
requirements
analysis
Functional
specification
Design
specification
Managing the
New
Technology
Adoption
Review of
Results
Testing of
technology
Implementation
Planning
Implementation
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Equipment
selection and
contract
commitments
8p’s of Services Marketing Mix
Product elements - the core and periphery service elements at the
centre of the company's marketing strategy;
Place and Time - delivering product elements to customers can be
done physically and/or electronically, depending upon the service. Speed
and convenience are essential to the customer and are important valueadds;
Price and Other User Outlays - pricing is only a part of what
customers may part with when purchasing a service; one must also
consider time and convenience;
Promotion and Education - speaks for itself, but the marketer must
make sure communications not only provide information, but also
persuade the customer of the service's relevance to the customer's
particular 'problem';
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Process - the means by which the firm delivers product elements;
People - front-line staff will have a direct impact on perceptions; and
Physical Environment - the appearance of the place where the
services are delivered may have a significant impact upon whether the
service was satisfactory;
Productivity and Quality - improving productivity is a requisite in
cost management; but quality, as defined by the customer, is essential for
a service to differentiate itself from other providers.
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Service and Relationship Marketing
Module:1
Chapter:2 – Customer Behavior in Service Encounter
Four Broad Categories of Service- A Process Perspective
In service, people, physical objects, and data can be processed , and the
nature of the processing can be tangible or intangible.
Tangible actions are performed on people’s bodies or to their physical
possession. Intangible actions are performed on people’s minds or to their
intangible assets.
This gives rise to classification of services into four broad categories.
They are
People processing
Possession processing
Mental stimulus processing
Information processing
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Who or What is the Direct Recipient of the service ?
Nature of the Service Act
People
Possessions
Tangible Actions
People-processing
(services directed to
people’s bodies):
Passenger
Transportation,
Lodging
Health care
Possession-processing
(Services directed at
physical possessions)
Freight transportation
Repair and Maintenance
Laundry and dry cleaning
Intangible Actions
Mental Stimulus
processing
(service directed at
people’s mind):
Education
Advertising/PR
Psychotherapy
Information Processing
(services directed at
intangible assets)
Accounting
Banking
Legal services
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The Three Stage Model of Service Consumption/
Customer Decision Making
Pre-purchase Stage
Service Encounter Stage
Post-encounter Stage
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Pre-purchase Stage
Pre-purchase Stage Overview
Pre-purchase Stage
Service Encounter
Stage
Post-encounter Stage
•
Customers seek solutions to
aroused needs
•
Evaluating a service may be
difficult
•
Uncertainty about outcomes
Increases perceived risk
•
What risk reduction strategies can
service suppliers develop?
•
Understanding customers’ service
expectations
•
Components of customer
expectations
•
Making a service purchase
decision
Need Arousal
• Decision to buy or use a service is triggered by need arousal
• Triggers of need:
– Unconscious minds (e.g., personal identity and aspirations)
– Physical conditions (e.g., hunger )
– External sources (e.g., a service firm’s marketing activities)
• Consumers are then motivated to find a solution for their need
Courtesy of Masterfile Corporation
Information Search
• Need arousal leads to attempts to find a solution
• Evoked set – a set of products and brands that a consumer
considers during the decision-making process – that is derived
from past experiences or external sources
• Alternatives then need to be evaluated before a final decision is
made
Evaluating Alternatives –
Service Attributes
• Search attributes help customers evaluate a product before purchase
– E.g., type of food, location, type of restaurant and price
• Experience attributes cannot be evaluated before purchase
– The consumer will not know how much s/he will enjoy the
food, the service, and the atmosphere until the actual
experience
• Credence attributes are those that customers find impossible to evaluate
confidently even after purchase and consumption
– E.g., hygiene conditions of the kitchen and the healthiness of
the cooking ingredients
How Product Attributes Affect
Ease of Evaluation
Most Goods
Easy
To
Evaluate
Most
Services
Difficult
To
evaluate
Clothing
Restaurant
Computer
Chair
Meals
Repair
Motor
Lawn Fertilizer
Education
Vehicle
Haircut
Legal Services
Foods
High In
Search
Attributes
Entertainment
High In
Experienc
e
Attributes
Complex
High In
Surgery
Credence
Attributes
Source: Adapted from Valarie A. Zeithaml , “How Consumer Evaluation Processes Differ Between Goods & Services,” in J.H. Donelly and W. R. George,
Marketing of Services (Chicago: American Marketing Association, 1981)
Perceived Risks of Purchasing and Using
Services
• Functional – unsatisfactory performance outcomes
• Financial – monetary loss, unexpected extra costs
• Temporal – wasted time, delays leading to problems
• Physical – personal injury, damage to possessions
• Psychological – fears and negative emotions
• Social – how others may think and react
• Sensory – unwanted impact on any of five senses
How Might Consumers Handle Perceived Risk?
• Seek information from respected personal sources
• Compare service offerings and search for independent reviews and
ratings via the Internet
• Relying on a firm with good reputation
• Looking for guarantees and warranties
• Visiting service facilities or going for trials before purchase and
examining tangible cues or other physical evidence
• Asking knowledgeable employees about competing services
Strategic Responses to Managing Customer Perceptions
of Risk
Free trial (for
services with high
experience
attributes)
Advertise (helps to
visualize)
Display credentials
Use evidence
management (e.g.,
furnishing,
equipment etc.)
Offer guarantees
Encourage visit to
service facilities
Give customers
online access about
order status
Understanding Customers’ Service Expectations
• Customers evaluate service quality by comparing what they
expect against what they perceive
– Situational and personal factors also considered
• Expectations of good service vary from one business to another,
and differently positioned service providers in same industry
• Expectations change over time
Factors Influencing Customer Expectations of Service
Source: Adapted from Valarie A. Zeithaml, Leonard A. Berry, and A. Parasuraman, “The Nature and
Determinants of Customer Expectations of Service,” Journal of the Academy of Marketing Science 21, no. 1
(1993): 1-12
Components of Customer Expectations
Desired Service Level
• wished-for level of service quality that customer believes can and
should be delivered
Adequate Service Level
• minimum acceptable level of service
Predicted Service Level
• service level that customer believes firm will actually deliver
Zone of Tolerance
• Acceptable range of variations in service delivery
Purchase Decision
• Purchase Decision: Possible alternatives are compared and
evaluated, whereby the best option is selected
– Simple if perceived risks are low and alternatives are clear
– Complex when trade-offs increase
• Trade-offs are often involved
• After making a decision, the consumer moves into the service
encounter stage
Service Encounter Stage
Service Encounter Stage
- Overview
Pre-purchase Stage
● Service encounters range from
high- to low-contact
● Understanding the servuction
system
Service Encounter
Stage
● Theater as a metaphor for
service delivery: An integrative
perspective
 Service facilities
 Personnel
Post-encounter Stage
 Role and script theories
Service Encounter Stage
• Service encounter – a period of time during which a customer
interacts directly with the service provider
– Might be brief or extend over a period of time (e.g., a phone call or visit to
the hospital)
• Models and frameworks:
1.
2.
3.
4.
“Moments of Truth” – importance of managing touchpoints
High/low contact model – extent and nature of contact points
Servuction model – variations of interactions
Theater metaphor – “staging” service performances
Moments of Truth
“[W]e could say that the perceived quality is realized at
the moment of truth, when the service provider and the
service customer confront one another in the arena. At
that moment they are very much on their own… It is the
skill, the motivation, and the tools employed by the firm’s
representative and the expectations and behavior of the
client which together will create the service delivery
process.”
Richard Normann
Service Encounters Range from High-Contact to Low-Contact
Distinctions between High-Contact and Low-Contact Services
• High-Contact Services
– Customers visit service facility
and remain throughout service
delivery
– Active contact
– Includes most people-processing
services
• Low-Contact Services
– Little or no physical contact
– Contact usually at arm’s length
through electronic or physical
distribution channels
– Facilitated by new technologies
The Servuction System
Source: Adapted and expanded from an original concept by Eric Langeard and
Pierre Eiglier
The Servuction System:
Service Production and Delivery
• Servuction System: visible front stage and invisible backstage
• Service Operations
– Technical core where inputs are processed and service elements created
– Contact people
– Inanimate environment
• Service Delivery
– Where “final assembly” of service elements takes place and service is
delivered
– Includes customer interactions with operations and other customers
Theater as a Metaphor for
Service Delivery
“All the world’s a stage and all the
men and women merely players.
They have their exits and their
entrances and each man in his time
plays many parts.”
William Shakespeare
As You Like It
Theatrical Metaphor:
an Integrative Perspective
Good metaphor as service delivery is a series of events that
customers experience as a performance
Service facilities
Personnel
• Stage on which drama
unfolds
• This may change from one
act to another
• Front stage personnel are
like members of a cast
• Backstage personnel are
support production team
Roles
Scripts
• Like actors, employees
have roles to play and
behave in specific ways
• Specifies the sequences of
behavior for customers
and employees
Implications of Customer Participation in Service Delivery
• Greater need for information/training
– Help customers to perform well, get desired results
• Customers should be given a realistic service
preview in advance of service delivery
– This allows them to have a clear idea of their
expected role and their script in this whole
experience
– Manages expectations and emotions
Post-Encounter Stage
Post-purchase Stage Overview
Pre-purchase Stage
● Evaluation of service
performance
Service Encounter
Stage
Post-encounter
Stage
● Future intentions
Customer Satisfaction with Service Experience
• Satisfaction: attitude-like judgment following a service purchase
or series of service interactions
– Whereby customers have expectations prior to consumption, observe
service performance, compare it to expectations
• Satisfaction judgments are based on this comparison
– Positive disconfirmation (better)
– Confirmation (same)
– Negative disconfirmation (worse)
Customer Delight:
Going Beyond Satisfaction
• Research shows that delight is a function of three components
– Unexpectedly high levels of performance
– Arousal (e.g., surprise, excitement)
– Positive affect (e.g., pleasure, joy, or happiness)
• Strategic links exist between customer satisfaction and corporate
performance
– By creating more value for customers (increased satisfaction), the firm
creates more value for the owners
Customer Delight:
Going Beyond Satisfaction
• Best Practice in Action 2.1:
Progressive Insurance Delights
Its Customers
– Provided excellent customer
service which allowed them to
lower costs and also increase
customer satisfaction and
retention
Summary
•
Key Steps
1. Need arousal
2. Information search
3. Evaluation of alternative
solutions
4. Purchase decision
Pre-purchase
Stage
Service
Encounter Stage
•
•
Moments of Truth: importance
of effectively managing
touchpoints
High/low contact service model
– understanding the extent and
nature of contact points
• In evaluating service
Post-encounter
Stage
performance, customers can
have expectations positively
disconfirmed, confirmed, or
negatively disconfirmed
•
Customers face perceived risks
which marketers should reduce
with some strategic responses
•
Zone of tolerance: Adequate to
desired. Dissatisfaction if
service level falls below
adequate level.
•
Servuction model – variations
of interactions
•
Theater metaphor – “staging”
service performances
• Unexpectedly high levels of
performance, arousal, and
positive affect are likely to
lead to delight