SERVICES MARKETING

SM

Chapter 1

INTRODUCTION

TO
SERVICES

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

INTRODUCTION
Services are deeds,processes and performance Intangible, but may have a tangible component Generally produced and consumed at the same time Need to distinguish between SERVICE and CUSTOMER SERVICE

WHAT IS A SERVICE?
A

service is an act or performance offered by one party to another They do not directly produce a physical product E.g.- car, a good is usually sold with the benefit of intangible service elements like warranty, financial facility etc. On the other hand a intangible service like a holiday package includes tangible elements like taxi pick up, hotel room etc.

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

EXAMPLES OF SERVICE INDUSTRIES

Health Care

hospital, medical practice, dentistry, eye care

accounting, legal, architectural banking, investment advising, insurance

Professional Services Financial Services Hospitality

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

airlines, travel agencies, theme park hair styling, pest control, plumbing, lawn maintenance, counseling services, health club

Travel

Others:

FIGURE 1-1

TANGIBILITY SPECTRUM
Salt

Soft Drinks Detergents Automobiles Cosmetics Fast-food Outlets

Fast-food Outlets

Intangible Dominant

Tangible Dominant

Advertising Agencies Airlines Investment Management Consulting

Teaching

POWERFUL FORCES ARE TRANSFORMING SERVICE MARKETS

FORCES TRANSFORMING THE SERVICE ECONOMY

Social Changes Government Policies Business Trends

Advances in IT Globalization

New markets and product categories Increase in demand for services More intense competition

Innovation in service products & delivery systems, stimulated by better technology

Customers have more choices and exercise more power

Success hinges on: Understanding customers and competitors Viable business models Creation of value for customers and firm

FORCES TRANSFORMING THE SERVICE ECONOMY (1)

Social Changes Government Policies Business Trends Advances in

IT
Globalization

Changes in regulations Privatization New rules to protect customers,

employees, and the environment

New agreement on trade in services

FORCES TRANSFORMING THE SERVICE ECONOMY (2)

Social Changes Government Policies Business Trends Advances in

IT
Globalization

Rising consumer expectations More affluence Increased desire for buying experiences vs.
things

Rising consumer ownership of high tech

equipment

Easier access to more information Immigration

FORCES TRANSFORMING THE SERVICE ECONOMY (3)

Social Changes Government Policies Business Trends Advances in

IT
Globalization

Push to increase shareholder value Emphasis on productivity and cost savings Manufacturers add value through service and
sell services

More strategic alliances Focus on quality and customer satisfaction Growth of franchising

FORCES TRANSFORMING THE SERVICE ECONOMY (4)

Social Changes Government Policies Business Trends

Advances in IT Globalization

Growth of Internet Greater bandwidth Compact mobile equipment Wireless networking Faster, more powerful software Digitization of text, graphics, audio, video

FORCES TRANSFORMING THE SERVICE ECONOMY (5)

Social Changes Government Policies Business Trends Advances in

IT
Globalization

More companies operating on transnational

basis

Increased international travel International mergers and alliances Offshoring of customer service Foreign competitors invade domestic markets

FOUR BROAD CATEGORIES OF SERVICES

FOUR BROAD CATEGORIES OF SERVICES

Based on differences in nature of service act (tangible/intangible) and who or what is direct recipient of service (people/possessions), there are four categories of services:
People

processing Possession processing Mental stimulus processing Information processing

FOUR CATEGORIES OF SERVICES (FIG 1.10)

FOUR CATEGORIES OF SERVICES

People Processing Customers must:
physically enter the service factory co-operate actively with the service operation

Managers should think about process and output from customers perspective
to identify benefits created and non-financial costs: - Time, mental, physical effort

POSSESSION PROCESSING
Possession Processing Customers are less physically involved compared to people processing services Involvement is limited

MENTAL STIMULUS PROCESSING

Mental Stimulus Processing Ethical standards required when customers who depend on such services can potentially be manipulated by suppliers Physical presence of recipients not required Core content of services is information-based

INFORMATION PROCESSING
Information Processing Information is the most intangible form of service output, Line between information processing and mental stimulus processing may be blurred.

CHALLENGES POSED BY SERVICES

SERVICES POSE DISTINCTIVE MARKETING CHALLENGES

Marketing management tasks in the service sector differ from those in the manufacturing sector. The eight common differences are:

Most service products cannot be inventoried Intangible elements usually dominate value creation Services are often difficult to visualize and understand Customers may be involved in co-production People may be part of the service experience Operational inputs and outputs tend to vary more widely The time factor often assumes great importance Distribution may take place through nonphysical channels

DIFFERENCES, IMPLICATIONS, AND MARKETING-RELATED TASKS (1) (TABLE 1.1)

Difference
Most service products cannot be inventoried Intangible elements usually dominate value creation Services are often difficult to visualize & understand Customers may be involved in coProduction

Implications
Customers may be turned away Harder to evaluate service & distinguish from competitors Greater risk & uncertainty perceived

Marketing-Related Tasks
Use pricing, promotion, reservations to smooth demand; work with ops to manage capacity Emphasize physical clues, employ metaphors and vivid images in advertising Educate customers on making good choices; offer guarantees Develop user-friendly equipment, facilities & systems; train customers, provide good support

Interaction between customer & provider; but poor task execution could affect satisfaction

DIFFERENCES, IMPLICATIONS, AND MARKETING-RELATED TASKS (2) (TABLE 1.1)

Difference
People may be part of service experience

Implications
Behavior of service personnel & customers can affect satisfaction Hard to maintain quality, consistency, reliability Difficult to shield customers from failures Time is money; customers want service at convenient times Electronic channels or voice telecommunications

Marketing-Related Tasks
Recruit, train employees to reinforce service concept Shape customer behavior Redesign for simplicity and failure proofing Institute good service recovery procedures

Operational inputs and outputs tend to vary more widely Time factor often assumes great importance

Find ways to compete on speed of delivery; offer extended hours

Create user-friendly, secure websites and free access by telephone

Distribution may take place through nonphysical channels

DIFFERENCES BETWEEN GOODS AND SERVICES

Intangibility

Heterogeneity

Simultaneous Production and Consumption

Perishability

IMPLICATIONS OF INTANGIBILITY

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

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

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

IMPLICATIONS OF PERISHABILITY

It is difficult to synchronize supply and demand with services Services cannot be returned or resold

TABLE 1-2

SERVICES ARE DIFFERENT

Goods
Tangible

Services
Intangible

Resulting Implications
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. 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. It is difficult to synchronize supply and demand with services. Services cannot be returned or resold.

Production separate from consumption

Nonperishable Perishable

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.

FIGURE 1-5

THE SERVICES MARKETING TRIANGLE

Company (Management)
Internal Marketing
enabling the promise

External Marketing
setting the promise

Employees

Interactive Marketing
delivering the promise

Customers

Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler

WAYS TO USE THE SERVICES MARKETING TRIANGLE

Overall Strategic Assessment

Specific Service Implementation

How is the service organization doing on all three sides of the triangle? Where are the weaknesses? What are the strengths?

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?

Figure 1-6

The Services Triangle and Technology

Company

Technology

Providers
Source: Adapted from A. Parasuraman

Customers

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

TRADITIONAL MARKETING MIX

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

Price

Place
Promotion

EXPANDED MIX FOR SERVICES -THE 7 PS

Product
Price Place Promotion

People Process Physical

Evidence

TABLE 1-3

EXPANDED MARKETING MIX FOR SERVICES

PRODUCT PLACE PROMOTION PRICE
Promotion blend Salespeople Advertising Flexibility

Physical good Channel type features Quality level Accessories Packaging Warranties Product lines Branding Exposure Intermediaries

Price level Terms Differentiation Allowances

Outlet location Sales promotion Transportation Publicity Storage

TABLE 1-3 (CONTINUED)

EXPANDED MARKETING MIX FOR SERVICES

PEOPLE
Employees

PHYSICAL EVIDENCE
Facility design

PROCESS
Flow of activitiescustomized/standar dized Number of stepssimple/complex Level of customer involvement

Customers Communicating culture and values Employee research

Equipment Signage Employee dress Ambient conditions Guarantee Corporate image

WAYS TO USE THE 7 PS

Overall Strategic Assessment How effective is a firms services marketing mix? Is the mix well-aligned with overall vision and strategy? What are the strengths and weaknesses in terms of the 7 Ps? 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?

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?

SM Part 2

FOCUS ON THE CUSTOMER

Gaps Model of Service Quality

CUSTOMER

Expected

Service
Customer Gap

Perceived Service
External Communications to Customers

COMPANY

Service Delivery
GAP 3
Customer-Driven Service Designs and Standards

GAP 4

GAP 1

GAP 2
Part 1 Opener

Company Perceptions of Consumer Expectations

GAPS MODEL OF SERVICE QUALITY

Customer Gap: difference between expectations and perceptions Provider Gap 1: not knowing what customers expect Provider Gap 2: not having the right service designs and standards Provider Gap 3: not delivering to service standards Provider Gap 4: not matching performance to promises

Part 1 Opener

The Customer Gap

Expected Service
GAP

Perceived Service

Part 1 Opener

SM Chapter 2

CONSUMER BEHAVIOR IN SERVICES

OBJECTIVES FOR CHAPTER 2: CONSUMER BEHAVIOR IN SERVICES

Overview the generic differences in consumer behavior between services and goods Introduce the aspects of consumer behavior that a marketer must understand in five categories of consumer behavior: Information search Evaluation of service alternatives Service purchase and consumption Postpurchase evaluation Role of culture

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

FIGURE 2-1

CONTINUUM OF EVALUATION FOR DIFFERENT TYPES OF PRODUCTS

Most Goods
Easy to evaluate

Most Services
Difficult to evaluate

High in search qualities

High in experience High in credence qualities qualities

FIGURE 2-2

CATEGORIES IN CONSUMER DECISION-MAKING AND EVALUATION OF SERVICES

Information Search

Use of personal sources Perceived risk

Evaluation of Alternatives
Evoked set Emotion and mood

Purchase and Consumption

Service provision as drama Service roles and scripts Compatibility of customers

Post-Purchase Evaluation
Attribution of dissatisfaction Innovation diffusion Brand loyalty

FIGURE 2-3

CATEGORIES IN CONSUMER DECISION-MAKING AND EVALUATION OF SERVICES

Information Search
Use of personal sources Perceived risk

Evaluation of Alternatives
Evoked set Emotion and mood

Values and attitudes

Culture

Manners and customs Material culture Aesthetics Educational and social

institutions

Service provision as drama Service roles and scripts Compatibility of customers

Purchase and Consumption

Attribution of dissatisfaction Innovation diffusion Brand loyalty

Post-Purchase Evaluation

INFORMATION SEARCH
In buying services consumers rely more on personal sources. WHY? Personal influence becomes pivotal as product complexity increases Word of mouth important in delivery of services With service most evaluation follows purchase

PERCEIVED RISK
More risk would appear to be involved with purchase of services (no guarantees) Many services so specialised and difficult to evaluate (How do you know whether the plumber has done a good job?) Therefore a firm needs to develop strategies to reduce this risk, e.g, training of employees, standardisation of offerings

EVOKED SET
The

evoked set of alternatives likely to be smaller with services than goods If you would go to a shopping centre you may only find one dry cleaner or single brand It is also difficult to obtain adequate prepurchase information about service The Internet may widen this potential Consumer may choose to do it themselves, e.g. garden services

EMOTION AND MOOD

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

SERVICE PROVISION AS DRAMA

Need to maintain a desirable impression Service actors need to perform certain routines Physical setting important, smell, music, use of space, temperature, cleanliness, etc.

GLOBAL FEATURE: DIFFERENCES IN THE SERVICE EXPERIENCE IN THE U.S. AND JAPAN

Authenticity Caring Control Courtesy Formality Friendliness Personalization Promptness

SM

Chapter 3

CUSTOMER EXPECTATIONS OF SERVICES

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

DEFINITIONS
Customers have different expectations re services or expected service Desired service customer hopes to receive Adequate service the level of service the customer may accept

Figure 3-1

Dual Customer Expectation Levels

(Two levels of expectations)
Desired Service Zone of Tolerance

Adequate Service

Figure 3-2

The Zone of Tolerance

Desired Service

Zone of Tolerance
Adequate Service

Figure 3-3

Zones of Tolerance VARY for Different Service Dimensions

Desired Service

Level of Expectation

Zone of Tolerance
Adequate Service

Desired Desired Service Service Zone of Tolerance Adequate Adequate Service Service

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

Figure 3-4

Zones of Tolerance VARY for First-Time and Recovery Service

First-Time Service Outcome Process

Recovery Service Outcome Process LOW

Source: Parasuraman, Berry and Zeithaml (1991)

Expectations

HIGH

Figure 3-5

Factors that Influence Desired Service

Enduring Service Intensifiers

Desired Service Personal Needs Zone of Tolerance

Adequate Service

 Personal

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

Enduring

Figure 3-6

Factors that Influence Adequate Service

Transitory Service Intensifiers
Desired Service Zone of Tolerance Adequate Service

Perceived Service Alternatives

Self-Perceived Service Role

Situational Factors

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

Figure 3-7

Factors that Influence Desired and Predicted Service

Explicit Service Promises Implicit Service Promises Word-of-Mouth

Desired Service Zone of Tolerance Adequate Service

Past Experience

Predicted Service

SM

Chapter 4

CUSTOMER PERCEPTIONS OF SERVICE

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

FIGURE 4-1

CUSTOMER PERCEPTIONS OF SERVICE QUALITY AND CUSTOMER SATISFACTION

Reliability Responsiveness Assurance
Service Quality
Situational Factors

Empathy
Tangibles

Product Quality

Customer Satisfaction

Price

Personal Factors

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

OUTCOMES OF CUSTOMER SATISFACTION Increased customer retention Positive word-of-mouth communications Increased revenues

FIGURE 4-3

RELATIONSHIP BETWEEN CUSTOMER SATISFACTION AND LOYALTY IN COMPETITIVE INDUSTRIES

100%

Loyalty (retention)

80% 60% 40% 20% 0%

Very dissatisfied Dissatisfied Neither satisfied nor dissatisfied Satisfied Very satisfied

Satisfaction measure
Source: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p. 83.

SERVICE QUALITY

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

THE FIVE DIMENSIONS OF SERVICE QUALITY

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

Reliability

SERVQUAL Attributes
ASSURANCE

RELIABILITY

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

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

EMPATHY

RESPONSIVENESS

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

Giving customers individual attention Employees who deal with customers in a caring fashion Having the customers best interest at heart Employees who understand the needs of their customers Convenient business hours Modern equipment Visually appealing facilities Employees who have a neat, professional appearance Visually appealing materials associated with the service

TANGIBLES

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

FIGURE 4-4

A SERVICE ENCOUNTER CASCADE FOR A HOTEL VISIT

Check-In Bellboy Takes to Room Restaurant Meal Request Wake-Up Call Checkout

Figure 4-5

A Service Encounter Cascade for an Industrial Purchase

Sales Call

Delivery and Installation

Servicing Ordering Supplies

Billing

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

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)?

COMMON THEMES IN CRITICAL SERVICE ENCOUNTERS RESEARCH

Recovery:
Employee Response to Service Delivery System Failure

Adaptability:
Employee Response to Customer Needs and Requests

Coping:
Employee Response to Problem Customers

Spontaneity:
Unprompted and Unsolicited Employee Actions and Attitudes

RECOVERY
DO

DONT

Acknowledge problem Explain causes Apologize Compensate/upgra de Lay out options Take responsibility

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

ADAPTABILITY
DO
Recognize

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

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

SPONTANEITY
DO

DONT

Take time Be attentive Anticipate needs Listen Provide information (even if not asked) Treat customers fairly

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

COPING
DO

DONT

Listen Try to accommodate Explain Let go of the customer

Take customers dissatisfaction personally Let customers dissatisfaction affect others

FIGURE 4-6

EVIDENCE OF SERVICE FROM THE CUSTOMERS POINT OF VIEW

Contact employees Customer him/herself Other customers

Operational flow of activities Steps in process

People

Flexibility vs. standard

Technology vs. human

Process

Physical Evidence

Tangible communication

Servicescape
Guarantees Technology

SM

Chapter 5

UNDERSTANDING CUSTOMER EXPECTATIONS AND PERCEPTIONS THROUGH MARKETING RESEARCH

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

COMMON RESEARCH OBJECTIVES FOR SERVICES

To To

identify dissatisfied customers 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

FIGURE 5-1

CRITERIA FOR AN EFFECTIVE SERVICES RESEARCH PROGRAM

Occurs with Appropriate Frequency

Includes Perceptions and Expectations of Customers

Research Objectives

Measures Priorities or Importance

Includes Statistical Validity When Necessary

Includes Measures of Loyalty or Behavioral Intentions

PORTFOLIO OF SERVICES RESEARCH

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

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

STAGES IN THE RESEARCH PROCESS

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

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

SM

Chapter 6

BUILDING

CUSTOMER
RELATIONSHIPS

OBJECTIVES FOR CHAPTER 6: BUILDING CUSTOMER RELATIONSHIPS

Explain relationship marketing, its goals, and the benefits of long-term relationships for firms and customers Explain why and how to estimate customer lifetime value Specify the foundations for successful relationship marketing--quality core services and careful market segmentation Provide you with examples of successful customer retention strategies Introduce the idea that the customer isnt always right

RELATIONSHIP MARKETING

is a philosophy of doing business that focuses on keeping and improving current customers does not necessarily emphasize acquiring new customers is usually cheaper (for the firm)--to keep a current customer costs less than to attract a new one goal = to build and maintain a base of committed customers who are profitable for the organization thus, the focus is on the attraction, retention,

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

Exhibits Psychological Commitment

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?

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

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

THE CUSTOMER ISNT ALWAYS RIGHT

Not all customers are good relationship customers:
wrong

segment customers

not

profitable in the long term

difficult

STRATEGIES FOR BUILDING RELATIONSHIPS

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

Figure 6-6

Levels of Retention Strategies

Volume and Frequency Rewards Integrated Information Systems Stable Pricing Bundling and Cross Selling

I. Financial Bonds
IV. Structural Bonds

Continuous Relationships

Joint Investments

Excellent Quality and Value

II. Social Bonds

Personal Relationships

Shared Processes and Equipment

III. Customization Bonds

Social Bonds Among Customers

Anticipation / Innovation Mass Customization

Customer Intimacy

FIGURE 6-1

CUSTOMER GOALS OF RELATIONSHIP MARKETING

Enhancing Retaining Satisfying Getting

FIGURE 6-3

UNDERLYING LOGIC OF CUSTOMER RETENTION BENEFITS TO THE ORGANIZATION

Customer Satisfaction

Customer Retention & Increased Profits

Quality Service

Employee Loyalty

SM

Chapter 7

SERVICE RECOVERY

OBJECTIVES FOR CHAPTER 7: SERVICE RECOVERY

Illustrate

the importance of recovery from service failures in building loyalty Discuss the nature of consumer complaints and why people do and do not complain Provide evidence of what customers expect and the kind of responses they want when they complain Provide strategies for effective service recovery Discuss service guarantees

FIGURE 7-1

UNHAPPY CUSTOMERS REPURCHASE INTENTIONS

Unhappy Customers Who Dont Complain Unhappy Customers Who Do Complain

9% 37% 19% 46% 54% 70% 82%

Complaints Not Resolved

Complaints Resolved

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.

FIGURE 7-3

CUSTOMER RESPONSE FOLLOWING SERVICE FAILURE

Service Failure

Take Action

Do Nothing

Switch Providers Complain to Provider

Complain to Family & Friends

Stay with Provider

Complain to Third Party

Switch Providers

Stay with Provider

Figure 7-5

Service Recovery Strategies

Service Recovery Strategies

Pricing
High Price Price Increases Unfair Pricing Deceptive Pricing

FIGURE 7-6

Inconvenience
Location/Hours Wait for Appointment Wait for Service

CAUSES BEHIND SERVICE SWITCHING

Core Service Failure

Service Mistakes Billing Errors Service Catastrophe

Service Encounter Failures

Uncaring Impolite Unresponsive Unknowledgeable

Response to Service Failure

Negative Response No Response Reluctant Response

Service Switching Behavior

Competition
Found Better Service

Ethical Problems
Cheat Hard Sell Unsafe Conflict of Interest

Involuntary Switching
Customer Moved Provider Closed

Source: Sue Keaveney

SERVICE GUARANTEES
guarantee

= an assurance of the fulfillment of a condition (Websters Dictionary)

products, guarantee often done in the form of a warranty are often not guaranteed cannot return the service service experience is intangible

for

services

TABLE 7-7

CHARACTERISTICS OF AN EFFECTIVE SERVICE GUARANTEE

Unconditional Meaningful
The guarantee should make its promise unconditionally no strings attached. It should guarantee elements of the service that are important to the customer. The payout should cover fully the customer's dissatisfaction. For customers - they need to understand what to expect. For employees - they need to understand what to do. There should not be a lot of hoops or red tape in the way of accessing or collecting on the guarantee.

Easy to Understand and Communicate

Easy to Invoke and Collect

Source: Christopher W.L. Hart, The Power of Unconditional Guarantees, Harvard Business Review, July-August, 1988, pp. 54-62.

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

SERVICE GUARANTEES

Does everyone need a guarantee? Reasons companies do NOT offer guarantees:

guarantee

would be at odds with companys

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

SERVICE GUARANTEES
service

guarantees work for companies who are already customer-focused effective guarantees can be BIG deals - they put the company at risk in the eyes of the customer customers should be involved in the design of service guarantees the guarantee should be so stunning that it comes as a surprise -- a WOW!! factor its the icing on the cake, not the cake

New Service Development Process

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

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

FIGURE 8-3

NEW SERVICE STRATEGY MATRIX FOR IDENTIFYING GROWTH OPPORTUNITIES

Markets

Offerings
Existing Services

Current Customers

New Customers

SHARE BUILDING

MARKET DEVELOPMENT

New Services

SERVICE DEVELOPMENT

DIVERSIFICATION

FIGURE 8-4

SERVICE MAPPING/BLUEPRINTING
A tool for simultaneously depicting the service process, the points of customer contact, and the evidence of service from the customers point of view.
Process

Service Mapping

Points of Contact Evidence

SERVICE BLUEPRINT COMPONENTS

CUSTOMER ACTIONS line of interaction ONSTAGE CONTACT EMPLOYEE ACTIONS line of visibility

BACKSTAGE CONTACT EMPLOYEE ACTIONS line of internal interaction

SUPPORT PROCESSES

EXPRESS MAIL DELIVERY SERVICE

CONTACT PERSON CUSTOME PHYSICAL EVIDENCE (Back Stage) (On Stage) R

Truck Packaging Forms Hand-held Computer Uniform

Customer Calls Customer Gives Package

Truck Packaging Forms Hand-held Computer Uniform

Receive Package

Driver Picks Up Pkg.

Deliver Package

Customer Service Order

Dispatch Driver

Airport Receives & Loads

Fly to Sort Center Load on Airplane Sort Packages

SUPPORT PROCESS

Fly to Destinatio n

Unload & Sort

Load On
Truck

OVERNIGHT HOTEL STAY

CUSTOMER PHYSICAL EVIDENCE Hotel Exterior Parking Cart for Bags Desk Elevators Cart for Registration Hallways Bags Papers Room Lobby Key
Go to Room Receive Bags

Room Menu Amenities Bath

Delivery Food Tray Food Appearance

Bill Desk Lobby Hotel Exterior Parking

Check out and Leave

Arrive at Hotel

Give Bags Check in to Bellperson

Sleep Shower

Call Room Service

Receive Food

Eat

CONTACT PERSON SUPPORT PROCESS (Back Stage) (On Stage)

Greet and Process Take Registration Bags

Deliver Bags

Deliver Food

Process Check Out

Take Bags to Room

Take Food Order

Registration System

Prepare Food

Registration System

Figure 8-8

Building a Service Blueprint

Step 1
Identify the process to be blueprinted.

Step 2
Identify the customer or customer segment.

Step 3
Map the process from the customers point of view.

Step 4
Map contact employee actions, onstage and backstage.

Step 5
Link customer and contact person activities to needed support functions.

Step 6
Add evidence of service at each customer action step.

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

BLUEPRINTS CAN BE USED BY:

Service

Marketers

Human

Resources

creating realistic customer expectations

service system design promotion

empowering the human element

job descriptions selection criteria appraisal systems

Operations

Management

rendering the service as System Technology promised providing necessary tools: managing fail points
training systems quality control

system specifications personal preference databases

SM

Chapter 9

CUSTOMER-DEFINED SERVICE STANDARDS

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

CUSTOMER-DRIVEN STANDARDS AND MEASUREMENTS EXERCISE

Service Encounter
Customer Requirements Measurements

Service Quality

Figure 9-3

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 Measure by TransactionBased Surveys

Hard

5. Develop Feedback Mechanisms

Soft

6. Establish Measures and Target Levels 7. Track Measures Against Standards 8. Update Target Levels and Measures

Figure 9-6

Aligning Company Processes with Customer Expectations

Customer Expectations

Customer Process Blueprint

Company Process Blueprint

48 Hours
Report Lost Card Receive New Card

Company Sequential Processes

Lost Card Reported

40 Days

New Card Mailed

SM

Chapter 11

EMPLOYEES ROLES IN SERVICE DELIVERY

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 boundary-spanning roles Provide examples of strategies for creating customer-oriented service delivery Show how the strategies can support a service culture where providing excellent service is a way of life

SERVICE EMPLOYEES
They are the service They are the firm in the customers eyes They are marketers Importance is evident in

The

Services Marketing Mix (People) The Service-Profit Chain The Services Triangle

SERVICE EMPLOYEES

Who are they?

boundary

spanners

What are these jobs like?

emotional

labor many sources of potential conflict

person/role organization/client interclient quality/productivity

FIGURE 11-3

BOUNDARY SPANNERS INTERACT WITH BOTH INTERNAL AND EXTERNAL CONSTITUENTS

External Environment

Internal Environment

FIGURE 11-4

SOURCES OF CONFLICT FOR BOUNDARY-SPANNING WORKERS

Person vs. Role
Organization vs. Client Client vs. Client Quality vs. Productivity

FIGURE 11-5

HUMAN RESOURCE STRATEGIES FOR CLOSING GAP 3

Hire for Service Competencies and Service Inclination

Hire the Right People

Customeroriented Service Delivery
Develop People to Deliver Service Quality
Empower Employees

Treat Employees as Customers

Retain the Best People

Provide Needed Support Systems

Provide Supportive Technology and Equipment

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.

FIGURE 12-3

STRATEGIES FOR ENHANCING CUSTOMER PARTICIPATION

Define Customer Jobs

Effective Customer Participation

Recruit, Educate, and Reward Customers

Manage the Customer Mix

STRATEGIES FOR ENHANCING CUSTOMER PARTICIPATION

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

STRATEGIES FOR RECRUITING, EDUCATING AND REWARDING CUSTOMERS

1. Recruit the right customers 2. Educate and train customers to perform effectively 3. Reward customers for their contribution 4. Avoid negative outcomes of inappropriate customer participation

Manage the Customer Mix

SM

Chapter 15

INTEGRATED MARKETING COMMUNICATION

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

FIGURE 15-1

Communications and the Services Marketing Triangle

Company
Internal Marketing
Vertical Communications Horizontal Communications

External Marketing Communication

Advertising Sales Promotion Public Relations Direct Marketing

Employees

Interactive Marketing
Personal Selling Customer Service Center Service Encounters Servicescapes

Customers

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

APPROACHES FOR INTEGRATING SERVICES MARKETING COMMUNICATION

Manage Customer Expectations

Figure 15-3

Manage Service Promises

Goal: Delivery greater than or equal to promises

Improve Customer Education

Manage Internal Marketing Communication

Figure 15-4

Approaches for Managing Service Promises

MANAGING SERVICE PROMISES

Create Effective Services Communications Coordinate External Communicatio n Offer Service Guarantees Goal: Delivery greater than or equal to promises

Make Realistic Promises

Figure 15-8

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

Figure 15-9

Approaches for Improving Customer Education

Goal: Delivery greater than or equal to promises

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

Figure 15-10

Approaches for Managing Internal Marketing Communications

Goal: Delivery greater than or equal to promises
Create Effective Vertical Communications

Create Effective Horizontal Communications

Align Back Office Personnel w/ External Customers Create Cross-Functional Teams

SM

Chapter 17

THE FINANCIAL AND ECONOMIC IMPACT OF SERVICE QUALITY

OBJECTIVES FOR CHAPTER 17: THE FINANCIAL AND ECONOMIC IMPACT OF SERVICE
Examine the direct effects of service on profits Consider the impact of service on getting new customers Evaluate the role of service in keeping customers Examine the link between perceptions of service and purchase intentions Emphasize the importance of selecting profitable customers Discuss what is know about the key service drivers of overall service quality, customer retention and profitability Discuss the balanced performance scorecard to focus on strategic measurement other than financials

FIGURE 17-1

THE DIRECT RELATIONSHIP BETWEEN SERVICE AND PROFITS

Service Quality

Profits

FIGURE 17-2

OFFENSIVE MARKETING EFFECTS OF SERVICE ON PROFITS

Service Quality
Market Share
Reputation

Profits
Sales

Price Premium

FIGURE 17-3

DEFENSIVE MARKETING EFFECTS OF SERVICE ON PROFIT

Costs

Service Quality

Customer Retention

Volume of Purchases Price Premium

Margins

Word of Mouth

Profits

FIGURE 17-5

PERCEPTIONS OF SERVICE, BEHAVIORAL INTENTIONS AND PROFITS

Costs
Volume of Purchases Price Premium

Margins

Customer Retention

Service

Behavioral Intentions

Word of Mouth

Profits
Sales

Figure 17-6

The 80/20 Customer Pyramid

Most Profitable Customers
What segment spends more with us over time, costs less to maintain, spreads positive word of mouth?

Best Customers

Other Customers
Least Profitable Customers

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?

Figure 17-7

The Expanded Customer Pyramid

Most Profitable Customers

Platinum Gold

What segment spends more with us over time, costs less to maintain, spreads positive word of mouth?

Iron
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?

Lead
Least Profitable Customers

FIGURE 17-8

THE KEY DRIVERS OF SERVICE QUALITY, CUSTOMER RETENTION, AND PROFITS

Key Drivers Service Encounters
Service Encounter

Service Encounter

Service Quality
Service Encounter

Behavioral Intentions

Customer Retention

Profits

Service Encounter

Figure 17-9

Sample Measurements for the Balanced Scorecard

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

Customer Perspective
Service Perceptions Service Expectations Perceived Value Behavioral Intentions:

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

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

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

Adapted from Kaplan and Norton

Figure 17-10

Service Quality Spells Profits

Costs

Defensive Marketing

Volume of Purchases Price Premium

Margins

Service Quality

Customer Retention

Word of Mouth

Profits
Sales

Market Share

Offensive Marketing

Reputation

Price Premium

Last ModuleService sector & Indian Economy Presentation by Students!!