1 SM CHAPTER 4 Services Marketing 2 SM

1 SM CHAPTER 4 Services Marketing 2 SM

1 SM CHAPTER 4 Services Marketing 2 SM Learning Objectives: After studying this chapter, you should be able to: Understand the nature of services Understand marketing strategies for service firms 3 SM 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 4 SM Define the services Any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. SM Types of Service Government Sector Courts, employment services, hospitals, loan agencies, military services, police and fire departments, postal services, regulatory agencies and schools. Private Non-profit Sector

Museums, charities, mosques, colleges, foundations and hospitals. Business Sector Airlines, banks, hotels, insurance companies, law firms, management consulting firms, medical practices, motion-picture companies, plumbing-repair companies and real estate firms. 5 Types of Service SM Manufacturing Sector Computer operators, accountants and legal staff. Retail Sector Cashiers, clerks, salespeople and customer service representatives. 6 7 SM Scope of Services Marketing

Service as an organization Services as core product Service as product augmentation Service as product support Services as an act 8 SM Figure 1-1 Tangibility Spectrum Salt Soft Drinks Detergents Automobiles Cosmetics Fast-food Outlets Tangible Dominant

Intangible Dominant Fast-food Outlets Advertising Agencies Airlines Investment Management Consulting Teaching 9

SM Characteristics of services marketing Intangibility Variability or Heterogeneity Inseparability Perishability 10 SM Intangibility Services cannot be inventoried Services cannot be patented Services cannot be readily displayed or communicated Pricing is difficult

11 SM Variability or 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 12 SM Inseparability Customers participate in and affect the transaction Customers affect each other Employees affect the service outcome Decentralization may be essential Mass production is difficult

13 SM Perishability It is difficult to synchronize supply and demand with services Services cannot be returned or resold 14 SM Table 1-2 Services are Different Goods Services Resulting Implications Tangible Intangible

Services cannot be inventoried. Services cannot be patented. Services cannot be readily displayed or communicated. Pricing is difficult. Standardized Heterogeneous Service delivery and customer satisfaction depend on employee actions. Service quality depends on many uncontrollable factors. There is no sure knowledge that the service delivered matches what was planned and promoted. Production separate from consumption Simultaneous production and consumption Nonperishable Perishable Customers participate in and affect the transaction. Customers affect each other. Employees affect the service outcome.

Decentralization may be essential. Mass production is difficult. It is difficult to synchronize supply and demand with services. Services cannot be returned or resold. Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Problems and Strategies in Services Marketing, Journal of Marketing 49 (Spring 1985): 33-46. SM Categories of Services Marketing Pure tangible good The offering consists primarily of a tangible good Example: soap, toothpaste, salt No services accompany the product Tangible good with accompanying services The offering consists of a tangible good accompanied by one or more services. Hybrid The offering consists of equal parts of goods and services. 15

SM Categories of Services Marketing Major service with accompanying minor goods and services The offering consists of a major service along with additional services or supporting goods. Pure Service The offering consists primarily of a service. 16 17 SM Figure 1-5 The Services Marketing Triangle Company (Management) Internal Marketing

External Marketing enabling the promise Employees setting the promise Interactive Marketing Customers delivering the promise Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler 18 SM 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? What is being promoted and by whom? Where are the weaknesses? Are the supporting systems in place to deliver the promised service? What are the strengths? How will it be delivered and by whom? 19 Figure 1-6

SM The Services Triangle and Technology Company Technology Providers Source: Adapted from A. Parasuraman Customers 20 SM 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

21 SM 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 22 SM Expanded Mix for Services -the 7 Ps Product Price Place

Promotion People Process Physical Evidence SM 23 Table 1-3 Expanded Marketing Mix for Services PRODUCT PLACE PROMOTION PRICE Physical good Channel type features Promotion blend

Flexibility Quality level Exposure Salespeople Price level Accessories Intermediaries Advertising Terms Packaging Warranties Outlet location Sales promotion Transportation Publicity Product lines

Storage Branding Differentiation Allowances SM Table 1-3 (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 24 25 SM 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? 26 SM Services Marketing Triangle Applications Exercise

Focus on a service organization. In the context you are focusing on, who occupies each of the three points of the triangle? How is each type of marketing being carried out currently? Are the three sides of the triangle well aligned? Are there specific challenges or barriers in any of the three areas? 27 SM Part 1 FOCUS ON THE CUSTOMER 28 SM Gaps Model of Service Quality Expected CUSTOMER

Service Customer Gap Service Delivery COMPANY GAP 1 Perceived Service GAP 3 Customer-Driven Service Designs and Standards GAP 2 Part 1 Opener Company Perceptions of Consumer Expectations GAP 4 External Communications

to Customers SM Gaps Model of Service Quality Customer Gap: difference between expectations and perceptions Provider Gap 1: not knowing what customers expect Provider Gap 2: not having the right service designs and standards Provider Gap 3: not delivering to service standards Provider Gap 4: not matching performance to promises Part 1 Opener 29 30 SM The Customer Gap

Expected Service GAP Perceived Service Part 1 Opener 31 SM Chapter 2 CONSUMER BEHAVIOR IN SERVICES SM 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 32 33 SM 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 34

Figure 2-1 SM Continuum of Evaluation for Different Types of Products Most Services Most Goods Easy to evaluate High in search qualities Medical diagnosis { Auto repair Root canals Legal services

Television repair Child care { Haircuts Vacations Restaurant meals Automobiles Houses { Furniture Jewelry Clothing Difficult to evaluate High in experience High in credence

qualities qualities Figure 2-2 SM Categories in Consumer Decision-Making and Evaluation of Services Information Search Use of personal sources Perceived risk Purchase and Consumption Service provision as drama Service roles and scripts Compatibility of customers Evaluation of Alternatives Evoked set Emotion and mood

Post-Purchase Evaluation Attribution of dissatisfaction Innovation diffusion Brand loyalty 35 36 Figure 2-3 SM Categories in Consumer DecisionMaking and Evaluation of Services Information Search Evaluation of Alternatives Evoked set Emotion and mood Use of personal sources Perceived risk

Culture Values and attitudes Manners and customs Material culture Aesthetics Educational and social institutions Purchase and Consumption Service provision as drama Service roles and scripts Compatibility of customers Post-Purchase Evaluation Attribution of dissatisfaction Innovation diffusion Brand loyalty 37

SM Information search In buying services consumers rely more on personal sources. WHY? Refer p32 Personal influence becomes pivotal as product complexity increases Word of mouth important in delivery of services With service most evaluation follows purchase 38 SM 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 39 SM 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 40 SM Emotion and Mood Emotion and mood are feeling states that influence peoples perception and evaluation of their experiences

Moods are transient Emotions more intense, stable and pervasive May have a negative or positive influence SM Service Provision as Drama Need to maintain a desirable impression Service actors need to perform certain routines Physical setting important, smell, music, use of space, temperature, cleanliness, etc. 41 SM Global Feature: Differences in the Service Experience in the U.S. and Japan

Authenticity Caring Control Courtesy Formality Friendliness Personalization Promptness 42 43 SM Chapter 3 CUSTOMER EXPECTATIONS OF SERVICES SM 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 44 45 SM DEFINITIONS Customers have different expectations re services or expected service Desired service customer hopes to receive Adequate service the level of service the

customer may accept DO YOUR EXPECTATIONS DIFFER RE SPUR and CAPTAIN DOREGO? SM Figure 3-1 Dual Customer Expectation Levels (Two levels of expectations) Desired Service Zone of Tolerance Adequate Service 46 47 SM Figure 3-2 The Zone of Tolerance Desired Service

Zone of Tolerance Adequate Service 48 Figure 3-3 SM Zones of Tolerance VARY for Different Service Dimensions Desired Service Level of Expectation Zone of Tolerance Desired Desired Service Service

Adequate Service Zone of Tolerance Adequate Adequate Service Service Most Important Factors Least Important Factors Source: Berry, Parasuraman, and Zeithaml (1993) Figure 3-4 SM 49 Zones of Tolerance VARY for First-Time and Recovery Service First-Time Service Outcome Process

Recovery Service Outcome Process LOW Source: Parasuraman, Berry and Zeithaml (1991) Expectations HIGH 50 Figure 3-5 SM Factors that Influence Desired Service Enduring Service Intensifiers Desired Service Personal Needs Zone of

Tolerance Adequate Service 51 SM Personal needs include physical, social, psychological categories Enduring service intensifiers are individual, stable factors that lead to heightened sensitivity to service This can further divided into Derived Service Expectations and Personal service Philosophies SM 52 Figure 3-6 Factors that Influence Adequate Service Transitory Service Intensifiers Perceived Service

Alternatives Self-Perceived Service Role Situational Factors Desired Service Zone of Tolerance Adequate Service 53 SM 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

SM 54 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 55

SM Chapter 4 CUSTOMER PERCEPTIONS OF SERVICE SM Objectives for Chapter 4: Customer Perceptions of Service Provide you with definitions and understanding of customer satisfaction and service quality Show that service encounters or the moments of truth are the building blocks of customer perceptions Highlight strategies for managing customer perceptions of service 56 57

Figure 4-1 Customer Perceptions of Service Quality and Customer Satisfaction SM Reliability Responsiveness Service Quality Situational Factors Assurance Empathy Tangibles Product Quality Price Customer

Satisfaction Personal Factors 58 SM 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 59 SM

Outcomes of Customer Satisfaction Increased customer retention Positive word-of-mouth communications Increased revenues Figure 4-3 60 Relationship between Customer Satisfaction and Loyalty in Competitive Industries SM Loyalty (retention) 100% 80% 60% 40% 20% 0% Very dissatisfied Dissatisfied

Neither satisfied nor dissatisfied Satisfied Very satisfied Satisfaction measure Source: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p. 83. 61 SM 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. 62 SM

Reliability The Five Dimensions of Service Quality Ability to perform the promised service dependably and accurately. Knowledge and courtesy of Assurance employees and their ability to convey trust and confidence. Physical facilities, equipment, and Tangibles appearance of personnel. Caring, individualized attention the Empathy firm provides its customers. Responsiveness Willingness to help customers and provide prompt service. 63 SM Exercise to Identify Service Attributes

In groups of five, choose a services industry and spend 10 minutes brainstorming specific requirements of customers in each of the five service quality dimensions. Be certain the requirements reflect the customers point of view. Reliability: Assurance: Tangibles: Empathy: Responsiveness: SM SERVQUAL Attributes ASSURANCE RELIABILITY Providing service as promised Dependability in handling customers

service problems Performing services right the first time Providing services at the promised time Maintaining error-free records Keeping customers informed as to when services will be performed Prompt service to customers Willingness to help customers Readiness to respond to customers requests Employees who instill confidence in customers Making customers feel safe in their transactions Employees who are consistently courteous Employees who have the knowledge to answer customer questions

EMPATHY RESPONSIVENESS 64 Giving customers individual attention Employees who deal with customers in a caring fashion Having the customers best interest at heart Employees who understand the needs of their customers Convenient business hours TANGIBLES

Modern equipment Visually appealing facilities Employees who have a neat, professional appearance Visually appealing materials associated with the service 65 SM The Service Encounter is the moment of truth occurs any time the customer interacts with the firm can potentially be critical in determining customer satisfaction and loyalty types of encounters: remote encounters phone encounters face-to-face encounters is an opportunity to:

build trust reinforce quality build brand identity increase loyalty 66 Figure 4-4 SM A Service Encounter Cascade for a Hotel Visit Check-In Check-In Bellboy BellboyTakes Takesto toRoom Room Restaurant RestaurantMeal Meal Request RequestWake-Up Wake-UpCall

Call Checkout Checkout 67 Figure 4-5 SM A Service Encounter Cascade for an Industrial Purchase Sales SalesCall Call Delivery Deliveryand andInstallation Installation Servicing Servicing Ordering OrderingSupplies Supplies Billing

Billing 68 SM 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 69 SM 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)? 70 SM Common Themes in Critical Service Encounters Research Recovery: Adaptability: Employee Response to Service Delivery System Failure Employee Response to Customer Needs and Requests

Coping: Employee Response to Problem Customers Spontaneity: Unprompted and Unsolicited Employee Actions and Attitudes 71 SM Recover y DO Acknowledge problem Explain causes Apologize Compensate/upgrade Lay out options Take responsibility DONT Ignore customer

Blame customer Leave customer to fend for him/herself Downgrade Act as if nothing is wrong 72 SM Adaptability DO Recognize the seriousness of the need Acknowledge Anticipate Attempt to accommodate Explain rules/policies Take responsibility Exert effort to accommodate DONT Promise, then fail to follow through

Ignore Show unwillingness to try Embarrass the customer Laugh at the customer Avoid responsibility 73 SM Spontaneity DO Take time Be attentive Anticipate needs Listen Provide information (even if not asked) Treat customers fairly

Show empathy Acknowledge by name DONT Exhibit impatience Ignore Yell/laugh/swear Steal from or cheat a customer Discriminate Treat impersonally 74 SM Coping DO

Listen Try to accommodate Explain Let go of the customer DONT Take customers dissatisfaction personally Let customers dissatisfaction affect others SM 75 Figure 4-6 Evidence of Service from the Customers Point of View

Operational flow of activities People Steps in process Contact employees Customer him/herself Other customers Flexibility vs. standard Technology vs. human Process Physical Evidence Tangible communication Servicescape Guarantees Technology

76 SM Part 2 LISTENING TO CUSTOMER REQUIREMENTS 77 SM Provider GAP 1 CUSTOMER Expected Service GAP 1 COMPANY Part 2 Opener

Company Perceptions of Consumer Expectations 78 SM Chapter 5 UNDERSTANDING CUSTOMER EXPECTATIONS AND PERCEPTIONS THROUGH MARKETING RESEARCH SM 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 79 80 SM Common Research Objectives for Services To identify dissatisfied customers

To discover customer requirements or expectations To monitor and track service performance To assess overall company performance compared to competition To assess gaps between customer expectations and perceptions To gauge effectiveness of changes in service To appraise service performance of individuals and teams for rewards To determine expectations for a new service To monitor changing expectations in an industry To forecast future expectations 81 Figure 5-1 SM Criteria for An Effective Services Research Program es d u l ve Inc litati h a

c Qu esear R Occurs with Appropriate Frequency Measures Priorities or Importance Includes Quantitative Research Research Objectives Includes Perceptions and Expectations of Customers Includes

Measures of Loyalty or Behavioral Intentions ost C es of c n e la Includes Ba Valu ion Statistical and rmat o Validity Inf When Necessary 82 Portfolio of Services Research Type of Research

Research Objective SM 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 Customer Complaint Solicitation Relationship Surveys Post-Transaction Surveys Customer Focus Groups

Mystery Shopping of Service Providers Employee Surveys Determine the reasons why customers defect To forecast future expectations of customers To develop and test new service ideas Lost Customer Research Future Expectations Research SM Stages in the Research Process Define Problem Develop Measurement Strategy Implement Research Program Collect and Tabulate Data

Interpret and Analyze Findings Report Findings Stage 1 : Stage 2 : Stage 3 : Stage 4 : Stage 5 : Stage 6 : 83 84 Figure 5-5 SM Service Quality Perceptions Relative to Zones of Tolerance by Dimensions 9 8 7 6

O O O O O 5 4 3 2 1 0 Reliability Retail Chain Responsiveness Assurance Empathy Tangibles

Zone of Tolerance O S.Q. Perception 85 Service Quality Perceptions Relative to Zones of Tolerance by Dimensions SM 10 8 O O O O O 6 4 2 0

Reliability Responsiveness Computer Manufacturer Assurance Zone of Tolerance Empathy O Tangibles S.Q. Perception 86 SM HIGH Figure 5-6 Importance/Performance Matrix High

Leverage Importance Attributes to Improve Attributes to Maintain Low Leverage

Attributes to Maintain LOW Performance Attributes to De-emphasize HIGH 87 SM Chapter 6 BUILDING CUSTOMER RELATIONSHIPS SM Objectives for Chapter 6: Building Customer Relationships

Explain relationship marketing, its goals, and the benefits of long-term relationships for firms and customers Explain why and how to estimate customer lifetime value Specify the foundations for successful relationship marketing--quality core services and careful market segmentation Provide you with examples of successful customer retention strategies Introduce the idea that the customer isnt always right 88 89 SM Relationship Marketing is a philosophy of doing business that focuses on keeping and improving current customers does not necessarily emphasize acquiring new customers is usually cheaper (for the firm)--to keep a current customer costs less than to attract a new one goal = to build and maintain a base of committed customers who are profitable for the organization thus, the focus is on the attraction, retention, and enhancement of customer relationships

90 SM Lifetime Value of a Customer Assumptions Income Expected Customer Lifetime Average Revenue (month/year) Other Customers convinced via WOM Employee Loyalty?? Expenses Costs of Serving Customer Increase?? 91 SM A Loyal Customer is One Who... Shows Behavioral Commitment buys from only one supplier, even though other options exist increasingly buys more and more from a particular supplier provides constructive feedback/suggestions

Exhibits Psychological Commitment wouldnt consider terminating the relationship-psychological commitment has a positive attitude about the supplier says good things about the supplier 92 SM Customer Loyalty Exercise Think of a service provider you are loyal to. What do you do (your behaviors, actions, feelings) that indicates you are loyal? Why are you loyal to this provider? 93 SM Benefits to the Organization of Customer Loyalty loyal customers tend to spend more with the organization over time on average costs of relationship maintenance are lower than new customer costs

employee retention is more likely with a stable customer base lifetime value of a customer can be very high 94 SM Benefits to the Customer inherent benefits in getting good value economic, social, and continuity benefits contribution to sense of well-being and quality of life and other psychological benefits avoidance of change simplified decision making social support and friendships special deals 95 SM The Customer Isnt Always Right Not all customers are good relationship customers: wrong segment

not profitable in the long term difficult customers 96 SM Strategies for Building Relationships Foundations: Excellent Quality/Value Careful Segmentation Bonding Strategies: Financial Bonds Social & Psychological Bonds Structural Bonds Customization Bonds Relationship Strategies Wheel Figure 6-1 SM Customer Goals of Relationship Marketing Enhancing

Retaining Satisfying Getting 97 98 Figure 6-3 SM Underlying Logic of Customer Retention Benefits to the Organization Customer Satisfaction Customer Retention & Increased Profits Employee Loyalty Quality Service

SM STEP 1: 99 Figure 6-5 Steps in Market Segmentation and Targeting for Services STEP 2: Develop Identify Profiles of Bases for Segmenting Resulting the Market Segments STEP 3: Develop Measures of Segment

Attractiveness STEP4: Select the Target Segments STEP 5: Ensure that Segments Are Compatible 100 Figure 6-6 SM Levels of Retention Strategies Volume and Frequency Rewards Stable Pricing

Bundling and Cross Selling Continuous Relationships I. Financial Bonds Integrated Information Systems IV. Joint Structural Investments Bonds Shared Processes and Equipment Excellent Quality and Value

II. Social Bonds III. Customization Bonds Anticipation / Innovation Mass Customization Personal Relationships Social Bonds Among Customers Customer Intimacy 101 SM

Chapter 7 SERVICE RECOVERY SM Objectives for Chapter 7: Service Recovery Illustrate the importance of recovery from service failures in building loyalty Discuss the nature of consumer complaints and why people do and do not complain Provide evidence of what customers expect and the kind of responses they want when they complain Provide strategies for effective service recovery Discuss service guarantees 102 SM 103 Figure 7-1

Unhappy Customers Repurchase Intentions Unhappy Customers Who Dont Complain 9% 37% Unhappy Customers Who Do Complain Complaints Not Resolved 19% 46% 54% Complaints Resolved 70% 82% Complaints Resolved Quickly Percent of Customers Who Will Buy Again Minor complaints ($1-$5 losses)

Major complaints (over $100 losses) Source: Adapted from data reported by the Technical Assistance Research Program. 95% 104 Figure 7-3 SM Customer Response Following Service Failure Service Failure Take Action Do Nothing Switch Providers Complain to Provider Complain to Family & Friends

Switch Providers Complain to Third Party Stay with Provider Stay with Provider SM 105 Figure 7-5 Service Recovery Strategies il Fa fe Sa e th

We En lcom co ura e an ge d Co m e ic v r Se pla i nts Act Quickly Learn from ers Lost Custom Service Recovery

Strategies Le Re arn f co rom ve ry Ex pe ri en ce s Tr st u tC a e om s er

ir l a F y Pricing High Price Price Increases Unfair Pricing Deceptive Pricing SM Inconvenience Location/Hours Wait for Appointment Wait for Service Figure 7-6

Causes Behind Service Switching Core Service Failure Service Mistakes Billing Errors Service Catastrophe Service Encounter Failures Uncaring Impolite Unresponsive Unknowledgeable Response to Service Failure Negative Response No Response Reluctant Response Service Switching Behavior

Competition Found Better Service Ethical Problems Cheat Hard Sell Unsafe Conflict of Interest Involuntary Switching Customer Moved Provider Closed 106 Source: Sue Keaveney 107 SM

Service Guarantees guarantee = an assurance of the fulfillment of a condition (Websters Dictionary) for products, guarantee often done in the form of a warranty services are often not guaranteed cannot return the service service experience is intangible (so what do you guarantee?) SM Table 7-7 Characteristics of an Effective Service Guarantee Unconditional The guarantee should make its promise unconditionally no strings attached. Meaningful It should guarantee elements of the service that are important to the customer. The payout should cover fully the customer's dissatisfaction.

Easy to Understand and Communicate For customers - they need to understand what to expect. For employees - they need to understand what to do. Easy to Invoke and Collect There should not be a lot of hoops or red tape in the way of accessing or collecting on the guarantee. Source: Christopher W.L. Hart, The Power of Unconditional Guarantees, Harvard Business Review, July-August, 1988, pp. 54-62. 108 SM Why a Good Guarantee Works forces company to focus on customers sets clear standards generates feedback forces company to understand why it failed builds marketing muscle 109 110 SM

Service Guarantees Does everyone need a guarantee? Reasons companies do NOT offer guarantees: guarantee would be at odds with companys image too many uncontrollable external variables fears of cheating by customers costs of the guarantee are too high 111 SM Service Guarantees service guarantees work for companies who are already customer-focused effective guarantees can be BIG deals - they put the company at risk in the eyes of the customer customers should be involved in the design of service guarantees the guarantee should be so stunning that it comes as a surprise -- a WOW!! factor

its the icing on the cake, not the cake 112 SM Part 3 ALIGNING STRATEGY, SERVICE DESIGN AND STANDARDS 113 SM Provider GAP 2 CUSTOMER Customer-Driven Service Designs and Standards COMPANY GAP 2

Company Perceptions of Consumer Expectations Part 3 Opener 114 SM Chapter 8 SERVICE DEVELOPMENT AND DESIGN SM Objectives for Chapter 8: Service Development and Design Describe the challenges inherent in service design Present steps in the new service development process Show the value of service blueprinting and quality function deployment (QFD) in new service design

and service improvement Present lessons learned in choosing and implementing high-performance service innovations 115 Figure 8-1 SM Risks of Relying on Words Alone to Describe Services Oversimplification Incompleteness Subjectivity Biased Interpretation 116 Figure 8-2 SM 117

New Service Development Process Business Strategy Development or Review New Service Strategy Development Front End Planning Idea Generation Screen ideas against new service strategy Concept Development and Evaluation Test concept with customers and employees Business Analysis Test for profitability and feasibility Service Development and Testing Conduct service prototype test Implementation Market Testing Test service and other marketing-mix elements Commercialization Postintroduction Evaluation Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997. 118

Figure 8-3 SM New Service Strategy Matrix for Identifying Growth Opportunities Markets Offerings Existing Services New Services Current Customers SHARE BUILDING SERVICE DEVELOPMENT New Customers MARKET DEVELOPMENT

DIVERSIFICATION Figure 8-4 Service Mapping/Blueprinting A tool for simultaneously depicting the service process, the points of customer contact, and the evidence of service from the customers point of view. Service Mappin g Proces s Points of Contact Evidenc e 120 SM Service Blueprint Components

CUSTOMER ACTIONS line of interaction ONSTAGE CONTACT EMPLOYEE ACTIONS line of visibility BACKSTAGE CONTACT EMPLOYEE ACTIONS line of internal interaction SUPPORT PROCESSES Express Mail Delivery Service CONTACT PERSON CUSTOME PHYSICAL EVIDENCE (Back Stage) (On Stage)R SM Customer Calls Customer Gives Package Receive Package Driver

Picks Up Pkg. Deliver Package Customer Service Order Dispatch Driver SUPPORT PROCESS Truck Packaging Forms Hand-held Computer Uniform Truck Packaging Forms Hand-held

Computer Uniform Airport Receives & Loads Fly to Sort Center Load on Airplane Sort Packages Fly to Destinati on Unload & Sort Load On Truck

121 122 Overnight Hotel Stay CONTACT PERSON SUPPORT PROCESS (Back Stage)(On Stage) CUSTOMER PHYSICAL EVIDENCE SM Hotel Exterior Parking Arrive at Hotel Cart for Desk Elevators Cart for Bags RegistrationHallways Bags Papers Room

Lobby Key Give Bags Check in to Bellperson Go to Room Greet and Process Take Registration Bags Receive Bags Room Menu Amenities Bath Sleep Shower

Call Room Service Deliver Bags Take Bags to Room Registration System Delivery Food Tray Food Appearance Receive Food Deliver Food Eat Bill

Desk Lobby Hotel Exterior Parking Check out and Leave Process Check Out Take Food Order Prepare Food Registration System 123 SM Figure 8-8

Building a Service Blueprint Step Step11 Step Step22 Step Step33 Step Step44 Step Step55 Step Step66 Identify Identifythe the process to process to

be beblueblueprinted. printed. Identify Identifythe the customer customeroror customer customer segment. segment. Map Mapthe the process processfrom from the the customers customers point pointofof view.

view. Map Mapcontact contact employee employee actions, actions, onstage onstageand and back-stage. back-stage. Link Linkcustomer customer and contact and contact person person activities activitiestoto needed needed

support support functions. functions. Add Add evidence evidenceofof service serviceatat each each customer customer action actionstep. step. SM Application of Service Blueprints New Service Development concept development market testing

Supporting a Zero Defects Culture managing reliability identifying empowerment issues Service Recovery Strategies identifying service problems conducting root cause analysis modifying processes 124 SM Blueprints Can Be Used By: Service Marketers Human Resources creating realistic customer expectations service system design promotion empowering the human element job descriptions selection criteria

appraisal systems Operations Management rendering the service as promised managing fail points training systems quality control 125 System Technology providing necessary tools: system specifications personal preference databases 126 SM Chapter 9 CUSTOMER-DEFINED SERVICE STANDARDS SM

Objectives for Chapter 9: Customer-defined Service Standards Differentiate between company-defined and customer-defined service standards Distinguish among one-time service fixes and hard and soft customer-defined standards Explain the critical role of the service encounter sequence in developing customer-defined standards Illustrate how to translate customer expectations into behaviors and actions that are definable, repeatable, and actionable 127 Figure 9-1 SM 128 AT&Ts Process Map for Measurements Business Process 30% Product

30% Sales Total Quality 10% Installation 15% Repair 15% Billing Source: AT&T General Business Systems Internal Metric Customer Need Reliability (40%) % Repair Call Easy To Use (20%) % Calls for Help Features / Functions

(40%) Functional Performance Test Knowledge (30%) Supervisor Observations Responsive (25%) % Proposal Made on Time Follow-Up (10%) % Follow Up Made Delivery Interval Meets Needs (30%) Average Order Interval Does Not Break

(25%) % Repair Reports Installed When Promised (10%) % Installed On Due Date No Repeat Trouble (30%) % Repeat Reports Fixed Fast (25%) Average Speed Of Repair Kept Informed (10%)

% Customers Informed Accuracy, No Surprise (45%) % Billing Inquiries Resolve On First Call (35%) % Resolved First Call Easy To Understand (10%) % Billing Inquiries SM Exercise for Creating Customer-Defined Service Standards Form a group of four people

Use your schools undergraduate or graduate program, or an approved alternative Complete the customer-driven service standards importance chart Establish standards for the most important and lowest-performed behaviors and actions Be prepared to present your findings to the class 129 SM Customer-Driven Standards and Measurements Exercise Service Encounter Service Quality Customer Requirements Measurements 130 131

Figure 9-2 Getting to Actionable Steps SM Requirements: Diagnosticity: Satisfaction Value Relationship Solution Provider Dig Deeper Abstract General Concepts Reliability Empathy Assurance Tangibles Responsiveness Price Dig Deeper Dig

Deeper Low Dimensions Delivers on Time Returns Calls Quickly Knows My Industry Delivers by Weds 11/4 Returns Calls in 2 Hrs Knows Strengths of My Competitors Attributes Behaviors and Actions Concrete High Figure 9-3 132 Process for Setting

Customer-Defined Standards SM 1. Identify Existing or Desired Service Encounter Sequence 2.2.Translate TranslateCustomer CustomerExpectations ExpectationsInto IntoBehaviors/Actions Behaviors/Actions 3.3.Select SelectBehaviors/Actions Behaviors/Actionsfor forStandards Standards 4. Set Hard or Soft Standards Measure by Audits or Operating Data Hard 5.5.Develop DevelopFeedback Feedback Mechanisms

Mechanisms Soft 6.6.Establish EstablishMeasures Measuresand andTarget TargetLevels Levels 7. Track Measures Against Standards 8.8. Update UpdateTarget TargetLevels Levelsand andMeasures Measures Measure by TransactionBased Surveys 133 SM HIGH Importance/Performance Matrix

10.0 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) Gets price we originally agreed upon (9.21, 8.64) Tells me cost ahead of time (9.06, 8.46) Provides equipment that operates as vendor said it would (9.24, 8.14) Completes projects correctly, on time (9.29, 7.68) 9.0

Gets back to me when promised (9.04, 7.63) Importance Takes responsibility for their mistakes (9.18, 8.01) Delivers or installs on promised date (9.02, 7.84) 8.0 LOW 7.0 8.0 Performance 9.0 10.0 HIGH 134

Figure 9-5 Linkage between Soft Measures and Hard Measures for Speed of Complaint Handling SM S A 10 T 9 I 8 S 7 F 6 A 5 C

4 T 3 I 2 O 1 N 0 Large Customers Small Customers 2 4 6 8 WORKING

12 16 HOURS 20 24 135 Figure 9-6 Aligning Company Processes with Customer Expectations SM Customer Expectations Customer Process Blueprint Company Process Blueprint

A A B B Lost Card Reported 48 Hours Report Lost Card Receive New Card Company Sequential Processes C C D D EE

40 Days FF G G H H New Card Mailed 136 SM Chapter 10 PHYSICAL EVIDENCE AND THE SERVICESCAPE SM Objectives for Chapter 10: Physical Evidence and the Servicescape

Explain the impact on customer perceptions of physical evidence, particularly the servicescape Illustrate differences in types and roles of servicescapes and their implications for strategy Explain why the servicescape affects employee and customer behavior Analyze four different approaches for understanding the effects of physical environment Present elements of an effective physical evidence strategy 137 Table 10-1 SM Elements of Physical Evidence Servicescape Other tangibles Facility exterior Business cards

Stationery Billing statements Reports Employee dress Uniforms Brochures Internet/Web pages Exterior design Signage Parking Landscape Surrounding environment Facility interior Interior design Equipment Signage Layout Air quality/temperature 138 Table 10-2 SM 139

Examples of Physical Evidence from the Customers Point of View Service Physical evidence Servicescape Other tangibles Insurance Not applicable Hospital Building exterior Parking Signs Waiting areas Admissions office Patient care room Medical equipment Recovery room Airline gate area Airplane exterior Airplane interior (dcor, seats, air quality)

Not applicable Airline Express mail Sporting event Parking, Seating, Restrooms Stadium exterior Ticketing area, Concession Areas Entrance, Playiing Field Policy itself Billing statements Periodic updates Company brochure Letters/cards Uniforms Reports/stationery Billing statements Tickets Food Uniforms Packaging

Trucks Uniforms Computers Signs Tickets Program Uniforms 140 Table 10-3 SM Typology of Service Organizations Based on Variations in Form and Use of the Servicescape Complexity of the servicescape evidence Servicescape usage Elaborate Lean Self-service (customer only)

Golf Land Surf 'n' Splash ATM Ticketron Post office kiosk Internet services Express mail drop-off Interpersonal services (both customer and employeee) Hotel Restaurants Health clinic Hospital Bank Airline School Dry cleaner Hot dog stand Hair salon

Remote service (employee only) Telephone company Insurance company Utility Many professional services Telephone mail-order desk Automated voice-messagingbased services Figure 10-3 SM 141 A Framework for Understanding Environment-user Relationships in Service Organizations PHYSICAL ENVIRONMENTAL DIMENSIONS HOLISTIC ENVIRONMENT

INTERNAL RESPONSES BEHAVIOR Cognitive Emotional Physiological Employee Responses Ambient Conditions Space/Function Signs, Symbols, and Artifacts Individual Behaviors Social Interactions between and among customer and employees

Perceived Servicescape Customer Responses Cognitive Emotional Source: Adapted from Mary Jo Bitner, Servicescapes. Physiological Individual Behaviors 142 SM Part 4 DELIVERING AND PERFORMING SERVICE 143 SM

Provider GAP 3 CUSTOMER Service Delivery COMPANY GAP 3 Customer-Driven Service Designs and Standards Part 4 Opener 144 SM Chapter 11 EMPLOYEES ROLES IN SERVICE DELIVERY SM Objectives for Chapter 11:

Employees Roles in Service Delivery Illustrate the critical importance of service employees in creating customer satisfaction and service quality Demonstrate the challenges inherent in boundaryspanning roles Provide examples of strategies for creating customeroriented service delivery Show how the strategies can support a service culture where providing excellent service is a way of life 145 146 SM Service Employees They are the service They are the firm in the customers eyes They are marketers Importance is evident in The Services Marketing Mix (People)

The Service-Profit Chain The Services Triangle 147 SM Service Employees Who are they? boundary spanners What are these jobs like? emotional labor many sources of potential conflict person/role organization/client interclient quality/productivity Figure 11-3 SM

Boundary Spanners Interact with Both Internal and External Constituents External Environment Internal Environment 148 SM Figure 11-4 Sources of Conflict for Boundary-Spanning Workers Person vs. Role Organization vs. Client Client vs. Client Quality vs. Productivity 149 150 Figure 11-5

Me as Re ure a w Str ard nd o S n Pr ervic g ov ide e rs Develop People to Deliver Service Quality e lud s in Inc ee y plo e s Em th any mp n

Co Visio Provide Needed Support Systems De Se v e l o or rvic p i e Int ente Pr ern d oc es al se s Provide Supportive Technology and Equipment Empower Employees Retain the

Best People Customeroriented Service Delivery r fo and ai n l Tr nica tive ch rac Te Inte kills S Hire the Right People B Pr e t E m e f e he pl rred oy er P Te rom

am ot wo e rk Hire for Service Competencies and Service Inclination r fo e t t pe es m B le Co the op Pe Treat Employees as Customers SM Human Resource Strategies for Closing GAP 3

re su al a Me tern e In rvic y Se alit Qu 152 SM Service Culture A culture where an appreciation for good service exists, and where giving good service to internal as well as ultimate, external customers, is considered a natural way of life and one of the most important norms by everyone in the organization. 153 SM Chapter 12

CUSTOMERS ROLES IN SERVICE DELIVERY SM Objectives for Chapter 12: Customers Roles in Service Delivery Illustrate the importance of customers in successful service delivery Enumerate the variety of roles that service customers play Productive resources Contributors to quality and satisfaction Competitors Explain strategies for involving service customers effectively to increase both quality and productivity 154 SM Importance of Other Customers in Service Delivery

155 Other customers can detract from satisfaction disruptive behaviors excessive crowding incompatible needs Other customers can enhance satisfaction mere presence socialization/friendships roles: assistants, teachers, supporters 156 SM How Customers Widen Gap 3 Lack of understanding of their roles Not being willing or able to perform their roles No rewards for good performance Interfering with other customers

Incompatible market segments Figure 12-2 SM Customer Roles in Service Delivery Productive Resources Contributors to Quality and Satisfaction Competitors 157 158 SM Customers as Productive Resources partial employees contributing effort, time, or other resources to the production process

customer inputs can affect organizations productivity key issue: should customers roles be expanded? reduced? SM Customers as Contributors to Service Quality and Satisfaction Customers can contribute to their own satisfaction with the service by performing their role effectively by working with the service provider the quality of the service they receive by asking questions by taking responsibility for their own satisfaction by complaining when there is a service failure 159 160 SM

Customers as Competitors customers may compete with the service provider internal exchange vs. external exchange internal/external decision often based on: expertise resources time economic rewards psychic rewards trust control 161 SM Technology Spotlight: Services Production Continuum Customer Production 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 162 Figure 12-3 SM Strategies for Enhancing Customer Participation

Define Customer Jobs Effective Customer Participation Manage the Customer Mix Recruit, Educate, and Reward Customers 163 SM Strategies for Enhancing Customer Participation 1. Define customers jobs - helping himself - helping others - promoting the company

2. Individual differences: not everyone wants to participate SM Strategies for Recruiting, Educating and Rewarding Customers 1. Recruit the right customers 2. Educate and train customers to perform effectively 3. Reward customers for their contribution 4. Avoid negative outcomes of inappropriate customer participation Manage the Customer Mix 164 165 SM Chapter 14 MANAGING DEMAND

AND CAPACITY SM Objectives for Chapter 14: Managing Demand and Capacity 166 Explain: the underlying issue for capacity-constrained services the implications of capacity constraints the implications of different types of demand patterns on matching supply and demand Lay out strategies for matching supply and demand through: shifting demand to match capacity or flexing capacity to meet demand Demonstrate the benefits and risks of yield management strategies Provide strategies for managing waiting lines SM Understanding Capacity Constraints and Demand Patterns

Capacity Constraints Time, labor, equipment and facilities Optimal versus maximal use of capacity Demand Patterns Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment 167 Figure 14-3 SM Strategies for Shifting Demand to Match Capacity Demand Too High

Shift Demand Use signage to communicate busy days and times Offer incentives to customers for usage during non-peak times Take care of loyal or regular customers first Advertise peak usage times and benefits of non-peak use Charge full price for the service--no discounts Demand Too Low Use sales and advertising to increase business from current market segments Modify the service offering to appeal to new market segments Offer discounts or price reductions Modify hours of operation

Bring the service to the customer 168 Figure 14-4 SM Strategies for Flexing Capacity to Match Demand Demand Too High Flex Capacity Stretch time, labor, facilities and equipment Cross-train employees Hire part-time employees Request overtime work from employees

Rent or share facilities Rent or share equipment Subcontract or outsource activities Demand Too Low Perform maintenance renovations Schedule vacations Schedule employee training Lay off employees 169 170 Table 14-1 SM What is the Nature of Demand Relative to Supply?

Extent of demand fluctuations over time Extent to which supply is constrained Wide Peak demand can 1 usually be met Electricity without a major Natural gas delay Telephone Hospital maternity unit Police and fire emergencies Peak demand regularly exceeds capacity 4 Accounting and tax preparation Passenger transportation Hotels and motels

Restaurants Theaters Narrow 2 Insurance Legal services Banking Laundry and dry cleaning 3 Services similar to those in 2 but which have insufficient capacity for their base level of business Source: Christopher H. Lovelock, Classifying Services to Gain Strategic Marketing Insights, Journal of Marketing, 47, 3 (Summer 1983): 17. SM Table 14-2 171 What is the Constraint 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 172 SM Waiting Line Issues and Strategies unoccupied time feels longer preprocess waits feel longer anxiety makes waits seem longer uncertain waits seem longer than finite waits unexplained waits seem longer unfair waits feel longer longer waits are more acceptable for valuable

services solo waits feel longer 173 SM Part 5 MANAGING SERVICE PROMISES 174 SM Provider GAP 4 CUSTOMER COMPANY Service Delivery GAP 4 Part 5 Opener External

Communications to Customers 175 SM Chapter 15 INTEGRATED MARKETING COMMUNICATION SM Objectives for Chapter 15: Integrated Services Marketing Communications Introduce the concept of Integrated Services Marketing Communication Discuss the key reasons for service communication problems Present four key ways to integrate marketing communication in service organizations Present specific strategies for managing promises, managing customer expectations, educating customers, and managing internal communications

Provide perspective on the popular service objective of exceeding customer expectations 176 177 SM Figure 15-1 Communications and the Services Marketing Triangle Company Internal Marketing Vertical Communications Horizontal Communications Employees External Marketing Communication Advertising Sales Promotion Public Relations Direct Marketing

Interactive Marketing Personal Selling Customer Service Center Service Encounters Servicescapes Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler Customers Figure 15-3 SM Approaches for Integrating Services Marketing Communication Manage Customer Expectations Manage Service Promises

Goal: Delivery greater than or equal to promises Manage Internal Marketing Communication Improve Customer Education 178 179 Figure 15-4 SM Approaches for Managing Service Promises MANAGING SERVICE PROMISES

Create Effective Services Communications Coordinate External Communication Make Realistic Promises Offer Service Guarantees Goal: Delivery greater than or equal to promises Figure 15-8 SM

Approaches for Managing Customer Expectations Offer Choices Create Tiered-Value Offerings Communicate Criteria for Service Effectiveness Negotiate Unrealistic Expectations Goal: Delivery greater than or equal to promises 180 SM Goal: Delivery greater than or equal to promises 181

Figure 15-9 Approaches for Improving Customer Education Prepare Customers for the Service Process Confirm Performance to Standards Clarify Expectations after the Sale Teach Customers to Avoid Peak Demand Periods and

Seek Slow Periods 182 SM Figure 15-10 Approaches for Managing Internal Marketing Communications Goal: Delivery greater than or equal to promises Create Effective Vertical Communications Create Effective Horizontal Communications Align Back Office Personnel w/ External Customers Create

Cross-Functional Teams 183 SM Chapter 17 THE FINANCIAL AND ECONOMIC IMPACT OF SERVICE QUALITY SM Objectives for Chapter 17: The Financial and Economic Impact of Service Examine the direct effects of service on profits Consider the impact of service on getting new customers Evaluate the role of service in keeping customers Examine the link between perceptions of service and

purchase intentions Emphasize the importance of selecting profitable customers Discuss what is know about the key service drivers of overall service quality, customer retention and profitability Discuss the balanced performance scorecard to focus on strategic measurement other than financials 184 SM 185 Figure 17-1 The Direct Relationship between Service and Profits Service Quality ? Profits SM

186 Figure 17-2 Offensive Marketing Effects of Service on Profits Service Quality Profits Market Share Reputation Price Premium Sales 187 Figure 17-3 SM

Defensive Marketing Effects of Service on Profit Costs Service Quality Customer Retention Volume of Purchases Margins Price Premium Word of Mouth Profits 188 Figure 17-5

SM Perceptions of Service, Behavioral Intentions and Profits Costs Customer Retention Service Behavioral Intentions Volume of Purchases Margins Price Premium Word of Mouth

Profits Sales 189 Figure 17-6 SM The 80/20 Customer Pyramid Most Profitable Customers Best Customers Other Customers Least Profitable Customers What segment spends more with us over time, costs less to maintain, spreads positive word of mouth? What segment costs us in

time, effort and money yet does not provide the return we want? What segment is difficult to do business with? 190 SM Figure 17-7 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

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? SM Key Drivers 191 Figure 17-8 The Key Drivers of Service Quality, Customer Retention, and Profits Service Encounters Service Encounter Service Encounter Service Quality Service Encounter

Service Encounter Behavioral Intentions Customer Retention Profits Figure 17-9 192 Sample Measurements for the Balanced Scorecard SM Financial Measures Customer Perspective Service Perceptions Service Expectations Perceived Value

Behavioral Intentions: % Loyalty % Intent to Switch # Customer Referrals # Cross Sales # of Defections Price Premium Volume Increases Value of Customer Referrals Value of Cross Sales Long-term Value of Customer Innovation and Learning Perspective Number of new products Return on innovation Employee skills Time to market Time spent talking to customers Adapted from Kaplan and Norton

Operational Perspective: Right first time (% hits) Right on time (% hits) Responsiveness (% on time) Transaction time (hours, days) Throughput time Reduction in waste Process quality 193 Figure 17-10 Service Quality Spells Profits SM Costs Defensive Marketing Service

Quality Volume of Purchases Margins Price Premium Customer Retention Word of Mouth Profits Market Share Offensive Marketing Sales Reputation Price

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