Chapter 14:

Improving Service Quality and Productivity

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 1

Overview of Chapter 14 1. Integrating service quality and productivity strategies 2. What is service quality? 3. The Gaps Modela conceptual tool to identify and correct service quality problems 4. Measuring and improving service quality 5. Defining and measuring productivity 6. Improving service productivity
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 14 - 2

1. Integrating Service Quality and Productivity Strategies

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 3

Integrating Service Quality and Productivity Strategies

Quality and productivity are twin paths to creating value for both customers and companies Quality focuses on the benefits created for customers; productivity addresses financial costs incurred by firm Importance of productivity:
Keeps costs down to improve profits and/or reduce prices Enables firms to spend more on improving customer service and supplementary services Secures firms future through increased spending on R&D May impact service experiencemarketers must work to minimize negative effects, promote positive effects
Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 4

Components of Quality: Manufacturing-based

Performance: Primary operating characteristics Features: Bells and whistles Reliability: Probability of malfunction or failure

Conformance: Ability to meet specifications

Durability: How long product continues to provide value to customer Serviceability: Speed, courtesy, competence Esthetics: How product appeals to users Perceived Quality: Associations such as brand name
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 14 - 5

Components of Quality: Service-based

Tangibles: Appearance of physical elements

Reliability: Dependable and accurate performance Responsiveness: Promptness; helpfulness

Assurance: Competence, courtesy, credibility, security Empathy: Easy access, good communication, understanding of customer

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 6

Capturing the Customers Perspective of Service Quality: SERVQUAL (1)

Survey research instrument based on premise that customers evaluate firms service quality by comparing
Their perceptions of service actually received Their prior expectations of companies in a particular industry

Poor quality
Perceived performance ratings < expectations

Good quality
Perceived performance ratings > expectations

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 7

Capturing the Customers Perspective of Service Quality: SERVQUAL (2)

Developed primarily in context of face-to-face encounters
Scale contains 22 items reflecting five dimensions of service quality Subsequent research has highlighted some limitations of SERVQUAL See Research Insights 14.1: Measuring E-Service Quality*

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 8

How Customers Might Evaluate Online Businesses: Seven Dimensions of E-S-QUAL

Accessibility : Is site easily found? Navigation: How easy is it to move around the site? Design and presentation: Image projected from site? Content and purpose: Substance and richness of site Currency and accuracy Responsiveness:Firms propensity to respond to e-mails Interactivity, customization, and personalization Reputation and security

Source:Shohreh A. Kaynama (2000), A Conceptual Model to Measure Service Quality of Online Companies: E-qual, in Developments in Marketing Science, Harlan E. Spotts and H. Lee Meadows, eds., Proceedings of the Academy of Marketing Science, Vol. 22, pp. 4651. For more information pertaining to online service quality see A. Parasuraman, Vlerie A. Zeithaml, and Arvind Malhotra (2005), E-S-QUAL: A Multiple-Item Scale for Assessing Electronic Service Quality. Journal of Service Research, Vol. 7. issue 3. pp. 213234.

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 9

Other Considerations in Service Quality Measurement

In uncompetitive markets or in situations where customers do not have a free choice, researchers should use needs or wants as comparison standards Services high in credence characteristics may cause consumers to use process factors and tangible cues as proxies to evaluate qualityhalo effect
Process factors: Customers feelings

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 10

3. The Gaps Model

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 11

Seven Service Quality Gaps

(Fig 14.3)
Customer needs and expectations 1. Knowledge Gap Management definition of these needs 2. Standards Gap Translation into design/delivery specs

CUSTOMER MANAGEMENT

3. Delivery Gap
Execution of design/delivery specs 5. Perceptions Gap Customer perceptions of service execution 7. Service Gap Customer experience relative to expectations
Slide 2007 by Christopher Lovelock and Jochen Wirtz

4. Internal Communications Gap 4. Advertising and sales promises 6. Interpretation Gap Customer interpretation of communications

Services Marketing 6/E

Chapter 14 - 12

Prescriptions for Closing the Seven Service Quality Gaps (1)

(Table 14.3)

1. Knowledge gap: Learn what customers expect

Understand customer expectations Improve communication between frontline staff and management Turn information and insights into action

2. Standards gap: Specify SQ standards that reflect expectations

Set, communicate, and reinforce customer-oriented service standards for all work units Measure performance and provide regular feedback Reward managers and employees

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 13

Prescriptions for Closing the Seven Service Quality Gaps (2)

(Table 14.3)

3. Delivery gap: Ensure service performance meets standards

Clarify employee roles Train employees in priority setting and time management Eliminate role conflict among employees Develop good reward system

4. Internal communications gap: Ensure that communications promises are realistic

Seek comments from frontline employees and operations personnel about proposed advertising campaigns Get sales staff to involve operations staff in meetings with customers Ensure that communications sets realistic customer expectations
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 14 - 14

Prescriptions for Closing the Seven Service Quality Gaps (3)

(Table 14.3)

5. Perceptions gap: Educate customers to see reality of service quality delivered

Keep customers informed during service delivery and debrief after delivery Provide physical evidence

6. Interpretation gap: Pretest communications to make sure message is clear and unambiguous
Present communication materials to a sample of customers in advance of publication

7. Service gap: Close gaps 1 to 6 to meet customer expectations consistently

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 15

4. Measuring and Improving Service Quality

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 16

Soft Measures of Service Quality

Key customer-centric SQ measures include:
Total market surveys, annual surveys, transactional surveys Service feedback cards Mystery shopping Analysis of unsolicited feedbackcomplaints and compliments, focus group discussions, and service reviews

Ongoing surveys of account holders to determine satisfaction in terms of broader relationship issues Customer advisory panels offer feedback/advice on performance Employee surveys and panels to determine:
Perceptions of the quality of service delivered to customers on specific dimensions Barriers to better service Suggestions for improvement
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 14 - 17

Hard Measures of Service Quality

Control charts to monitor a single variable
Offer a simple method of displaying performance over time against specific quality standards Are only good if data on which they are based is accurate Enable easy identification of trends

Service quality indexes*

Embrace key activities that have an impact on customers

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 18

Composition of FedExs Service Quality IndexSQI

Failure Type

(Table 14.4)

Weighting Number of Daily X = Factor Incidents Points

1 5 1 5 1 1 10 10 10 5 5 1

Late deliveryright day Late Deliverywrong day Tracing request unanswered Complaints reopened Missing proofs of delivery Invoice adjustments Missed pickups Lost packages Damaged packages Aircraft delays (minutes) Overcharged (packages missing label) Abandoned calls

Total Failure Points (SQI) =

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E

XXX,XXX
Chapter 14 - 19

Control Chart for Departure Delays

(Fig 14.4)
% Flights Departing Within
15 Minutes of Schedule

100% 90%

80%
70% 60%
J F M A M J J A S O N D

Month
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 14 - 20

Tools to Analyze and Address Service Quality Problems

Fishbone diagram
Cause-and-effect diagram to identify potential causes of problems

Pareto Chart
Separating the trivial from the important. Often, a majority of problems is caused by a minority of causes (i.e. the 80/20 rule)

Blueprinting
Visualization of service delivery, identifying points where failures are most likely to occur

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 21

Cause-and-Effect Chart for Flight Departure Delays (Fig 14.5)

Facilities, Equipment Frontstage Front-Stage Personnel Personnel Procedures
Procedures

Arrive late Oversized bags

Customers
Customers

Delayed check-in Gate agents Aircraft late to procedure gate cannot process fast enough Mechanical Acceptance of late Failures passengers Late/unavailable Late pushback airline crew

Delayed Departures Other Causes

Weather Air traffic Late food service Late baggage Late fuel
Materials, Materials, Supplies Supplies

Late cabin cleaners

Poor announcement of departures Weight and balance sheet late

Backstage Personnel

Information

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 22

Case: Analysis of Causes of Flight Departure Delays

All stations, excluding Chicago-Midway Hub

15.3% 15.4%

23.1%

4.9 %
19% 9.5% 33.3% 33.3%

11.7%
23.1% 8.7% 11.3% Newark 15% 53.3%

23.1%

Washington Natl.

Late passengers Waiting for pushback Waiting for fuelling

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Late weight and balance sheet Late cabin cleaning/supplies Other

Services Marketing 6/E Chapter 14 - 23

Blueprinting
Depicts sequence of front-stage interactions experienced by customers plus supporting backstage activities Used to identify potential fall pointswhere failures are most likely to appear

Shows how failures at one point may have a ripple effect later
Managers can identify points which need urgent attention
Important first step in preventing service quality problems

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 24

Tools to Analyze and Address Service Quality Problems (Appendix)

Total Quality Management (TQM) ISO 9000
Comprises requirements, definitions, guidelines, and related standards to provide an independent assessment and certification of a firms quality management system

Malcolm Baldrige Model Applied to Services

To promote best practices in quality management, and recognizing, and publicizing quality achievements among U.S. firms

Six Sigma
Statistically, only 3.4 defects per million opportunities (1/294,000) Has evolved from defect-reduction approach to an overall businessimprovement approach

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 25

Return On Quality (ROQ)

Assess costs and benefits of quality initiatives
ROQ approach is based on four assumptions: Quality is an investment Quality efforts must be financially accountable Its possible to spend too much on quality Not all quality expenditures are equally valid Implication: Quality improvement efforts may benefit from being related to productivity improvement programs To determine feasibility of new quality improvement efforts, determine costs and then relate to anticipated customer response

Determine optimal level of reliability

Diminishing returns set in as improvements require higher investments Know when improving service reliability becomes uneconomical
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 14 - 26

When Does Improving Service Reliability Become Uneconomical? (Fig 14.7)

Satisfy Target Customers through Service Recovery
Optimal Point of Reliability: Cost of Failure = Service Recovery

100%

Service Reliability

B C
Large Cost, Small Improvement

Satisfy Target Customers through Service Delivery as Planned

Small Cost, Large Improvement

Investment
Assumption: Customers are equally (or even more) satisfied with the service recovery provided than with a service that is delivered as planned. Chapter 14 - 27

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

5. Defining and Measuring Productivity

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 28

Productivity in a Service Context

Productivity measures amount of output produced relative to the amount of inputs. Improvement in productivity means an improvement in the ratio of outputs to inputs. Intangible nature of many service elements makes it hard to measure productivity of service firms, especially for information-based services Difficult in most services because both input and output are hard to define Relatively simpler in possession-processing services, as compared to information- and people-processing services

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 29

Service Efficiency, Productivity, and Effectiveness

Efficiency: Involves comparison to a standard, usually time-based (for example: how long employee takes to perform specific task) Problem: Focus on inputs rather than outcomes May ignore variations in service quality/value Productivity: Involves financial valuation of outputs to inputs Consistent delivery of outcomes desired by customers should command higher prices

Effectiveness: Degree to which firm meets goals

Cannot divorce productivity from quality and customer satisfaction Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 14 - 30

Measuring Service Productivity: Variability Is a Major Problem

Traditional measures of service output tend to ignore variations in quality or value of service
Focus on outputs rather than outcomes Stress efficiency but not effectiveness

Firms that consistently deliver outcomes desired by customers can command higher prices; loyal customers are more profitable Measures with customers as denominator include:
Profitability by customer Capital employed per customer Shareholder equity per customer
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 14 - 31

6. Improving Service Productivity

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 32

Questions When Developing Strategies to Improve Service Productivity

1.

How to transform inputs into outputs efficiently?

2. 3. 4. 5.

Will improving productivity hurt quality? Will improving quality hurt productivity? Are employees or technology the key to productivity? Can customers contribute to higher productivity?

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 33

Generic Productivity Improvement Strategies

Typical strategies to improve service productivity:
Careful control of costs at every step in process Efforts to reduce wasteful use of materials or labor Replacing workers by automated machines Installing expert systems that allow paraprofessionals to take on work previously performed by professionals who earn higher salaries

Although improving productivity can be approached incrementally, major gains often require redesigning entire processes

?
Slide 2007 by Christopher Lovelock and Jochen Wirtz

?
Services Marketing 6/E

?
Chapter 14 - 34

Long Waiting Times May Indicate Need for Service Process Redesign (Fig 14.8)

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 35

Improving Service Productivity: (1) Operations-driven Strategies

Control costs, reduce waste
Set productive capacity to match average demand Automate labor tasks Upgrade equipment and systems Train employees Broadening array of tasks that a service worker can perform Leverage less-skilled employees through expert systems Service process redesign

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 36

Improving Service Productivity: (2) Customer-driven Strategies

Change timing of customer demand
By shifting demand away from peaks, managers can make better use of firms productive assets and provide better service

Involve customers more in production

Get customers to self-serve Encourage customers to obtain information and buy from firms corporate websites

Ask customers to use third parties

Delegate delivery of supplementary service elements to intermediary organizations

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 37

Backstage and Front-stage Productivity Changes: Implications for Customers

Backstage improvements can ripple to front and affect customers Keep abreast of proposed backstage changes, not only to identify such ripples but also to prepare customers for them
For example: New printing peripherals may affect appearance of bank statements

Front-stage productivity enhancements are especially visible in high contact services Some improvements only require passive acceptance, while others require customers to change behavior Must consider impacts on customers and address customer resistance to changes Better to conduct market research first if changes are substantial See Service Perspectives 14.1: Managing Customers Reluctance to Change*
Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 14 - 38

A Caution on Cost Reduction Strategies

In absence of new technology, most attempts to improve service productivity seek to eliminate waste and reduce labor costs Workers who try to do several things at once may perform each task poorly Excessive pressure breeds discontent and frustration among customer contact personnel, who are caught between: Meeting customer needs Achieving management's productivity goals Better to search for service process redesign opportunities that lead to Improvements in productivity Simultaneous improvement in service quality See Service Perspectives 14.2: Biometrics
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 14 - 39