Services Marketing

• Facilitator – Anoop R Ohri (PGDM IIM Lucknow)

– anoopohri@yahoo.co.in


• Course – Services Marketing



• Evaluation
– End Term – 40
– Mid Term – 20
– Case Study Analysis – 20
– Project - 10


• Objective – Industry Perspective

• Why do we need a whole course on
this?
• Remember the concept of value?
 Why study Services
Marketing?
• Service-based economies
– More than 60% of GDP of developed
countries
– India 56% of GDP (2008), increasing
»
• Service as a business imperative in
manufacturing and IT
»
• Services marketing is different
»
• Service = differentiation = CA = profits

• Are services new to India?
•
•
• Only as an organized sector
• Sahukar, vaid, champi, dharamshala,
tailor, kiryana…
• …..coming the full circle to Walmart,
Ritu Beri, Taj, and Spas!
 Percent of
U.S. Labor Force by Industry
80
70
Percent of GDP

60
50
40
30
20
10
0 nServices
1929 1948 1969 1977 1984 2006 nManufacturing
nMining & Agriculture
Yea
r

Source: Survey of Current Business, April 2008

 Percent of U.S. Gross Domestic
Product by Industry

80
Percent of GDP

70
60
50
40
30
20
10
0
nServices
1948 1959 1967 1977 1987 2006 nManufacturing
Year nMining & Agriculture
Source: Survey of Current Business, August 2008
• All economies start being agrarian
•
• As nation progresses and technology
develops, more industry
•
• As per capita income increases
further, people look for services…
health, insurance, finance,
communication, entertainment
Why the growing importance of
services?
• Demographics
– Increasing avg. age as development
happens
– More women working, so outsource services
• Social changes
– Increasing living standards..Maslow
– Experience desire…Amex card opens doors
• Economic changes
– Socialist to capitalist – competition
– Show off consumption
• Technology
– Basis of differentiation – delight (mobile
pizza, banking, Dell on site support)

• Government Policies (e.g., regulations,
trade agreements)
• Business Trends
– Manufacturers offer service
– Growth of chains and franchising
– Pressures to improve productivity and
quality
– More strategic alliances..STAR
• Internationalization (travel,
transnational companies, WTO, high
awareness)
 How Important is the Service
Sector in
• Economy?
• In most countries, services add more
economic value than agriculture and
manufacturing combined
• In developed economies, employment is
dominated by service jobs and most
new job growth comes from services
• Jobs range from high-paid professionals
and technicians to minimum-wage
positions
• Service organizations can be any size—
from huge global corporations to local
small businesses
• Most activities by government agencies
and nonprofit organizations involve
services
•

Internal Services
• Service elements within an organization
that facilitate creation of--or add value
to--its final output
• Includes:
– employees
– legal services
– transportation
– catering and food services
– Cleaning
– DSAs
• Increasingly, these services are being
outsourced
 Examples of Service
Industries
»
• Health Care
– hospital, medical practice, dentistry,
eye care
• Professional Services
– accounting, legal, architectural
• Financial Services
– banking, investment advising,
insurance
• Hospitality
– restaurant, hotel/motel, bed &
breakfast,
• Travel
– airlines, travel agencies, theme park
• Others:
– hair styling, carpenter, plumbing, lawn
maintenance, counseling services,
health club
•
• Services Economic Impact
 The Direct Relationship
between
Service and Profits

Service
Quality ? Profit
s
 Offensive Marketing Effects of
Service on Profits

Service
Quality Profit
Market
s
Share

Reputati Sales
on
Price
Premiu
m
 Defensive Marketing Effects of
Service on Profit

Costs
Volume
of Margin
s
Service Customer
Purchase
s
Quality Retention Price
Premium

Word of Profit
Mouth
s
 Perceptions of Service,
Behavioral
Intentions and Profits

Costs
Volume
of Margin
Purchase s
Customer s
Retention Price
Behaviora Premium
Servic l
e Intentions
Word of Profit
Mouth
s

Sales
 The Key Drivers of Service Quality,
Customer Retention, and Profits

Key Drivers Service Encounters

Service
Encounter

Service
Encounter
Custom
Service Behavioral er
Quality Intentions Retenti Profits
Service on
Encounter

Service
Encounter
• How have services evolved in India?
•
•
•
• As discussed.. Earlier unorganized
services
• Private providers
• 1965 – death of LBS
• The advent of Indira
– To create an identity: Garibi Hatao, Bank
Nationalization, Abolition of Privy Purses
• Nationalization
– LIC in 1950
– GIC in 1972
– SBI in 1955
– Air India taken from Tatas in 1956
– 19 banks in 1969
– Further 6 banks in 1982
• Purpose of Banks Nationalization –
development work, rural banking
• The martyrs – NPAs, customer service,
innovativeness, competitiveness



• Garibi hatao – the socialist agenda
– Rise of unionism – lowered
competitiveness and service
– Higher taxes and import duties
• Abolition of Privy Purses
– 500 kingdoms in 1947
– One lacs rupees per month!
– 1969 – privy abolished
– Princes became paupers

• Enter : two legendary service
providers
– JRD
– P N Haksar (Imperial Tobacco)
• Saw the opportunity in the crisis of
1969
– JRD – acquired the royal’s properties
– ITC : foresaw the coming taxations on
cigarettes, and MRTP
– ITC ventured into paper, edible oils
and hotels
• Even today…services in nascent
stage
•
• Ever thought ..“I know the provider is
charging a premium, I hope he
doesn't at least spoil the
possession/experience!”
• Destination retailing is the new buzz in the country’s $20-billion
organised retailing sector. Besides their regular offerings, top
retailers now woo consumers through services such as salons,
spa, laundry and even travel services.
Retail chains such as Spencer’s Retail, Hypercity, and have
already initiated moves to convert their large-format outlets
into destination stores that offer a plethora of consumer-
oriented services.
“The line between products and services is blurring in
organised retail,” says Sanjay Gupta, head (marketing) at
Spencer’s Retail. “Services retailing is going to be the next big
thing that retailers will offer in order to truly become a one-stop
shop, since shopping time is slowly becoming a premium with
most consumers of modern trade,” he adds.
Spencer’s Retail is already offering exclusive wine and liquor
corner, cigar zone, live bakery, gourmet section, pet care and
florist service in select outlets. The RPG Retail flagship is also in
talks with reputed chains to introduce salons and laundry
services by the end of this financial year.
Country’s largest retailer Future Group has set up salons,
fitness centres and food courts inside all its Big Bazaar Family
Centers, while Retail offers laundry, salon and spa services in
seven outlets. Jewellery retailer Gitanjali Group too plans such a
model for its Maya chain.
• “What retailers are looking at is to engage the customers. These services
lead to a lot of additional footfalls and help increase the average ticket
value, says Rohit Bhatiani, principal consultant (retail and consumer
products division) at Technopak. Destination retailing is an established
concept in the global market, with retailers such as Wal-Mart and Tesco
even selling financial services like insurance, auto loans and medical
insurance under their store banner.

Analysts expect the concept, now primarily targeted at metros and

other top cities, to pick up in India over time as shoppers look for new
concessions and retailers add new offerings to increase footfalls in their
outlets. The model of operation is hybrid. While sometime retailers run
such services themselves, they also partner with established players
for other services. For instance, while Hypercity runs bookstores under
its own banner Crossword, it also has a number of partnerships: Kodak
for imaging service, Vodafone for telecom, Café Coffee Day for cafes,
Pressto and Jyothy Fabrics to run laundry, Enrich Salon and Pinks &
Bloos for salons and Orchid Thai Spa for spa services.

Likewise, Future Group runs the salon ‘Star & Sitara’ under its own
label. When the retailer ties up with a partner, it charges a rent and
usually has a revenue-sharing deal with the service provider. “It is a
win-win-win model for the retailer, consumer and the concessionaire,”
says Kumar Rajagopalan, CEO of industry lobby, Retailers Association of
India. On an average, hypermarkets in India are spread over 45,000 sq
• Destination shopping is still at a nascent stage in India. Across the
country, Spencer’s has only nine wine and liquor corners, one
cigar zone, four live bakeries and one pet care centre. And,
across its seven stores, K Raheja Group’s Hypercity has one
ATM, four bookstores, five cafes, two laundries, one pharmacy
and three spas and salons.
But they plan to scale it up. Kishore Biyani, CEO of Future
Group, says the group plans to open around 11 salons and 4-5
entertainment zones inside the upcoming Big Bazaar stores
over the next one year.
“It’s all about engaging with the customer. We try and develop
niches which would build up a better engagement with our
stores,” says Mr Biyani.
Hypercity, which also runs the Shopper’s Stop and Crossword
stores, plans to roll out 3-4 more salons and spas and has three
ATMs under installation. “We develop concessions based on
need and market development,” says B Nagesh of Hypercity.
“For instance if we can get a lady to stay back for 30-35 extra
minutes within our store for a haircare or pampering session,
that’s good for us.” He estimates that such services account for
3-5% of Hypercity’s overall revenues.
According to Spencer’s Gupta, such services improve customer
loyalty, adding they have led to 25-30% growth in store
revenue.
Aditya Birla Retail is using concessions selectively for its
network of 525 More superstores and the eight hypermarts,
• So then how do you define a service?
 Service
a product .
one party for another …”
eting of goods apply to services as well .
some special characteristics that make them d
 Service

l characteristics ;
nd symbolic attributes designed to produce co
 Defining the Essence of a
Service
•
• An act or performance offered by one party to
another
• An economic activity that does not result in
ownership
• A process that creates benefits by facilitating a
desired change in:
– customers themselves..haircut
– physical possessions..audited b/s
– intangible assets..teaching
 Services can be core or supplementary…
what is the difference?


Most products have a service



component. Products could be:

• Equipment based
• People based – varying skill levels
 Tangibility Spectrum
• Pure tangibles – wheat, sugar, soap
• Tangible goods with intangible
service – cars, computers, ac
• Service with accompanying tangible
goods – airlines, beauty salon,
• Pure service – consulting, doctor,
teacher
 Tangibility Spectrum
Salt
 Soft Drinks
 Detergents
 Automobiles
 Cosmetics Food
 Outlets
Intangible
 Dominant

Tangible
Dominant 
Food
Outlets


Advertising
Agencies
Airlines 
Investment
Management

Consulting
Teaching
• Remember this chart? Can you tell
how this is relevant here?
 Augmented
Installation product

Packaging Actual
product
Brand Features
name
Delivery Core After-
and benefit sales
credit or service service

Core
product
Quality Styling

Warranty

Three levels of produ

 Services could meet
• Personal needs – haircuts, tution,
massage parlours
• Business needs – courier services,
office cleaning services, delivering
fresh flowers
Classification of services based
on customer involvement
• People processing – physical presence
of cust necessary (dance classes,
gym, transport service)
• Possession processing – service
performed on physical possession of
cust (car service, computer, laundry,
postal service)
• Mental processing – service performed
on mind of cust (teaching,
consultancy)
• Information processing – service
involves collecting, analyzing data
 Distinguishing Characteristics of
Services


• Unique. Complete standardization not possible

• Generally related to wants, not needs
• Customers do not obtain ownership of services
• Often command premium
• Incomparable
• Experiential element..Volvo, Reynolds,
• Well served customer – appreciating asset
• The importance of word of mouth
• Service products are ephemeral and cannot be
inventoried
• Intangible elements dominate value creation
• Greater involvement of customers in production
process
• Other people may form part of product
experience
• Greater variability in operational inputs and
outputs
• Many services are difficult for customers to
evaluate
• Time factor is more important--speed may be
key
• Delivery systems include electronic and
physical channels
• May involve physical products, may not
 Differences Between
Goods and Services

Intangibility Heterogeneity

Simultaneous
Production Perishability
and
Consumption
 Implications of Intangibility

üServices cannot be inventoried

üServices cannot be patented
üServices cannot be readily
displayed or communicated
üPricing is difficult
ngibility - “u can’t touch this”
to explain and display Services if you can’t see the
es are difficult to set - depends on customers
tations
can’t touch this”

eg. Smiling face, ambience

on, sources, references

r they buy to stimulate continued enthusiasm and hop

 Intangibility

• VS.
• Pick up the shoes
•
• Feel the quality of
materials •
• View specific style •
and color • Entitles the
• Sample the fit consumer to an
experience
• Subjectively
evaluated
 Implications of Heterogeneity

üService delivery and customer

satisfaction depend on employee
actions
üService quality depends on many
uncontrollable factors..moods,
weather etc
üThere is no sure knowledge that the
service delivered matches what
was planned and promoted
üCan be promoted as customisation
s delivered the same way
services
tandard size 100% of the time
scoop cannot do it the same amount each time, unless
 same way

y the same time each day because the traffic pattern

annot guarantee you will like the trip exactly the s
 Implications of Simultaneous
Production and Consumption

üCustomers participate in and

affect the transaction
üCustomers affect each other
üEmployees affect the service
outcome
üDecentralization may be
essential
üMass production is difficult
rforming the service) and Consumption (using th

Marketing Strategies
•Emphasize how much you train your people - so
their ability to give you good service will be
high
•Have many locations so customers can get to
you
•ie. Insurance salesman come to your home –
customer can’t compare the service with that
 Implications of Perishability

üIt is difficult to synchronize

supply and demand with
services
üServices cannot be returned or
resold
ot be put in inventory or stored for later use
ts

nges, sometimes depending on the season, or weather –

tion in summer
 Marketing Implications - 1
• No ownership
– Customers obtain temporary rentals, hiring of
personnel, or access to facilities and systems
– Pricing often based on time and need
– Customer choice criteria may differ for renting vs.
purchase--may include convenience, quality of
personnel
– Can’t own people (no slavery!) but can hire
expertise and labor
• Services cannot be inventoried after
production
– Service performances are ephemeral—transitory,
perishable
 Exception: some information-based output can
be recorded
 in electronic/printed form and re-used many
times
 Marketing Implications - 2
• Customers may be involved in production process
– Customer involvement includes self-service and
cooperation with service personnel
– Think of customers in these settings as “partial
employees”
– Customer behavior and competence can help or hinder
productivity, so marketers need to educate/train
customers…remember Chintamani?
– Changing the delivery process may affect role played
by customers
– Design service facilities, equipment, and systems with
customers in mind: user-friendly, convenient
locations/schedules
• Intangible elements dominate value creation
– Understand value added by labor and expertise of
personnel
– Effective HR management is critical to achieve service
quality
– Make highly intangible services more “concrete” by
creating and communicating physical images or
 Marketing Implications - 3
• Other people are often part of the service product
– Achieve competitive edge through perceived quality
of employees
– Ensure job specs and standards for frontline service
personnel reflect both marketing and operational
criteria
– Recognize that appearance and behavior of other
customers can influence service experience
positively or negatively
– Avoid inappropriate mix of customer segments at
same time
– Manage customer behavior (the customer is not
always right!)
• Greater variability in operational inputs and
outputs
– Must work hard to control quality and achieve
consistency
– Seek to improve productivity through
 Marketing Implications - 4
• Often difficult for customers to evaluate
services
– Educate customers to help them make good
choices, avoid risk
– Tell customers what to expect, what to look for
– Create trusted brand with reputation for
considerate, ethical behavior
– Encourage positive word-of-mouth from
satisfied customers
• Time factor assumes great importance
– Offer convenience of extended service hours
up to 24/7
– Understand customers’ time constraints and
priorities
– Minimize waiting time
– Look for ways to compete on speed
• Distribution channels take different forms
– Tangible activities must be delivered through
physical channels
• Shoppers in Kolkata, Bangalore and Chennai got a
chance to check out the in-flight experience of
Singapore Airlines in select malls for a few days last
month. The airline popped open 400 square feet
facilities complete with mock-up seats, in-flight
amenities and cutlery to announce the launch of its
enhanced economy and business class seats in a
new way.
"We thought the best way to communicate the
experience was to let consumers see, touch and
feel it. It was the perfect platform to engage them,”
says Foo Chai Woo, general manger (India),
Singapore Airlines. “And the response that we got
was excellent."
Welcome to the world of pop-up stores—temporary
shops that usually sell goods for a limited period of
time. Designed to generate buzz and lure shoppers
with a get-in-while-you-can appeal, pop-ups allow
brands to move quickly, opening up shops to test a
new product or market, and closing them without
much fuss.
 Other marketing strategies
• Service Trial to overcome intangibility
• Providers to display their credentials
to overcome credence issue
(doctors, lawyers)
• Display the service process..Krispy
Kreme theater
•
 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
• Technology in Services
• Prime example of a service company
using technology to gain
competitive advantage..
•
• Google!
•
• Others – ICICI Bank, Dell, FedEx,
• Reasons for using technology in
services
– Productivity
– Standardization
– Increase Customer involvement
– Enabler for internal customers
• Technology uses in services
– Processing customer (information or
on customer) POS, MRI
– Processing possession (online
tracking of courier, GPS)
– Processing information
(consultancies)
– Creating new services (www, DTH)
– Use of UPC and Credit Cards by
retailers
 Some Impacts of Technological

Change
• Radically alter ways in which service firms do
business:
– with customers (new services, more
convenience)
– behind the scenes (reengineering, new value
chains)
• Create relational databases about customer
needs and behavior, mine databanks for
insights..J C Penny (500 Gb /day, Walmart,
Shoppers)
• Leverage employee capabilities and enhance
mobility
• Centralize customer service—faster and more
responsive
• Develop national/global delivery systems
Welcome to the world of analytics. Providing retailers valuable
insights to decide on where to operate, what to stock, which
customers they should try and retain, how to communicate to
them and even how to minimise own-store cannibalisation.
That’s analytics, the gospel which is increasingly playing a
more critical role in the retail business in India.

Most retailers today have revved up on using analytics inside

their stores. Shopper’s Stop, for instance, has used analytics
to start an internal programme called ‘First Insight’, which
leverages its ‘First Citizen’ loyalty database. This has a nine-
year historical track of every stock keeping unit (SKU) every
First Citizen consumer ever bought from ther retail chain, and
in that, reflects the actual buying behaviour of the Indian
consumer.
“To benefit from this data we work on models such as analysis of
buying behaviour to support merchandise planning,” says
VinayBhatia, VP - marketing & loyalty, Shopper’s Stop, who also
manages the analytics team. Analytics is being used in the retail
sector in three broad areas — studying customers, analysis of
transactional data and for predictive modelling. In the first instance,
retailers try and track their prime customers, their locations, their
lifestyle, socio-economic background and even their level of
maturity as buyers. Transactional data throws light on areas like
layout planning and adjacencies, where merchandise is moved from
one area in the store to another to maximise sales. The third area is
probably the toughest and yet extremely critical — predictive
modelling. Using this, retailers can get an idea of how customers’
upgrade their purchase behaviour, categories they might be
interested in the future as per changes in lifestyle and where to set
up future stores depending on the future lifestyle of consumers in a
catchment area. “Retail analytics are very important to ensure the
‘right product, at the right time in the right store’. We have used
retail analytics to optimise our supply chain as well,” says Rakesh
Biyani, CEO (retail), Future Group. Prior to opening a Shoppers Stop
store at South City Mall in Kolkata, the company studied the buying
patterns of ‘First Citizens’ residing in South Kolkata and shopping at
the Elgin Road Forum store. This indicated that these customers
were shopping for accessories more frequently as compared to
Like Shopper’s Stop and the Future Group, most retailers can’t stress enough
on the importance of analytics in the days to come. Analytics is also a tool
likely to be used by retailers to expand their network in the coming time.
Therefore, a scientific assessment of the catchment is a departure from
the manic retail expansion spree witnessed couple of years back in the
market. Says Spencer’s Retail head (consumer insight and consumer
intelligence) Pankaj Mishra: “In our future expansion, we would do more of
primary research to understand market potential value of the catchment
areas. Such analysis helps us in deciding where to open, which format to
go for and how many stores to open. Consumption expenditure analysis,
category-wise analysis, market potential value analysis are also some of
the research exercises undertaken before a robust expansion strategy is
drawn up.” According to Biyani, by monitoring demand rate at stores, the
group has been able to push sales in many cases by up to 300%. “Close
monitoring on point of sales data coupled with quicker review of the
reorder points helped us achieve a new level of consistent sales. Analytics
is also playing a more important role in future store planning,” says Biyani.
Even as there’s bullishness all around, Himanshu Chakrawarti, COO,
Landmark Retail says usage of analytics is still at its infancy. “Analytics in
Indian retail is still largely limited to studying consumers and transactions.
In contrast, sectors like banking in India have matured more in using
analytics and even using predictive modelling. But the heartening thing is
that Indian retailers have understood the importance of analytics and are
now inv e s t i n g significantly,” says Chakrawarti . Landmark, the book-
music-gifts retail chain of the Tata Group has set up an internal team for
• Classification of Services
 By end user
• Industrial services – audit,
consultancy, term loans
• Consumer services – entertainment,
health, personal finance
 By degree of tangibility
• Highly tangible – car rental
• Service-goods – laptop repair, fast
food restaurant
• Highly intangible – psychiatrist,
consultant, teacher
 Degree of contact
• High contact – teaching, surgery
• Low contact – ATM, Interactive TV, E-
bookings
•
 Expertise
• Professional – PWC, Surgeons,
Lawyers
• Non-professional – cobbler, masons,
carpenters, garbage cleaners
•
 Profit orientation
• Commercial – Pvt Banks, Kingfisher
• Non-profit organizations – Govt
library, NGOs, charities
 Nature
of Who or what is the direct recipient of the
Service service?
Act
What is the nature ofPeople Things
the service act?
Tangible Actions Services directed at Services directed at
people’s bodies goods and other
-restaurants, physical possessions
Intangible Actions haircutting, beautyat
Services directed -freight
Servicestransport,
direct at
salons
people’s mind laundry/dry cleaning
intangible assets
-education, theatres -banking, legal
services
 Customization vs .
Judgment
Extent to which service characteristics
are customized
Extent to which customer High Low
contact personnel exercise
judgment in meeting
High
individual customer needs Ex) legal services, Ex) preventative
taxi service, real health programs,
estate agents, education (large
Low plumber
Ex) hotel service, class)
Ex) public
telephone service transportation, fast
food restaurants,
movie theaters
 Nature of
Demand &Extent of demand fluctuations over time
Supply
Extent to which Wide Narrow
supply is
constrained
Peak demand Could use increases in Must decide whether to seek
can usually be demand outside of peak cont. growth in demand &
met without a periods capacity or maintain status quo
major delay Ex) electricity, telephone, Ex) banking, insurance, legal
Peak demand Must trygas
natural to smooth demand to A growing organization that
services
regularly match capacity- must both may need temporary
exceeds stimulate and discourage demarketing until capacity can
capacity demand be reach to meet current needs
Ex) theatres, hotels/motels, Ex) services similar to those in
restaurants above field but with insufficient
capacity
Service Availability of service outlets
Delivery
Nature of interaction Single Site Multiple Site
between customer
and service
Customer goes to Ex) theatre, Ex) bus service, fast
organization
service organization barbershop food chain
Service organization Ex) pest control Ex) mail delivery
comes to customer service, taxi

Customer and Ex) credit card Ex) telephone

service organization company company
transact at arms
length (mail or e-
communications)
• Supplementary Services
• Services can be core or
supplementary
• Core – basic service, minimum
required (transportation)
• Supplementary – additional
features/service, objective to
differentiate in mature PLC, or to
delight
 Why?
• Higher awareness
• Supplementary service have become
part of basic expectation
• Enhanced accessability
 In what shape can
supplementary services be
provided?
• More locations
• Better customer experience..reduce
waiting, better service employees
etc
• Easier customer participation..less
forms, no. of visits, user friendly
technology
•
Classification of supplementary
services
• Consultancy
• Hospitality
• Safekeeping of belongings
• Information
• Order taking
• Billing
• Payment
• Special requests
• Service Processes
Implications of Service Processes-
Seeking Efficiency May Lower

Satisfaction
Processes determine how services are
created/delivered—
process change may affect customer satisfaction


• Imposing new processes on customers,

especially replacing people by machines, may
cause dissatisfaction
• New processes that improve efficiency by cutting
costs may hurt service quality
• Best new processes deliver benefits desired by
customers
– Faster
– Simpler
– More conveniently
• Customers may need to be educated about new
procedures and how to use them
 Implications of Service
Processes:
Designing the Service Factory
People-processing services
require customers to visit the

“service factory,” so:

• Think of facility as a “stage” for

service performance
• Design process around customer
• Choose convenient location
• Create pleasing appearance,
avoid unwanted noises, smells
• Consider customer needs--info,
parking, food, toilets,
etc….PVR?
Implications of Service Processes:
Evaluating Alternative Delivery

Channels
For possession-processing, mental-stimulus
processing, or
information processing services, alternatives

include:


 1. Customers come to the service factory

2. Customers come to a retail office

3. Service employees visit customer’s home or

workplace
4. Business is conducted at arm’s length

through
 - physical channels (e.g., mail, courier
 Processes:
Balancing Demand and
Capacity
When capacity to serve is


limited and demand

varies
widely, problems arise

because
service output can’t be

stored:

1. If demand is high and
exceeds supply,
business may be lost
2.If demand is low,

productive capacity is
wasted
Potential solutions:

- Manage demand
- Manage capacity


Implications of Service
Processes:
Applying Information
Technology
All services can benefit
from IT,
but mental-stimulus

processing
and information-

processing
services have the most

to gain:
• Remote delivery of
information-based
services “anywhere,
anytime”
• New service features
through websites,
email, and internet
(e.g., information,
Implications of Service Processes:
Including People as Part of the
Product
Involvement in service
delivery often entails

contact with other

people
• Managers should be
concerned about
employees’
appearance, social
skills, technical
skills
• Other customers may
enhance or detract
from service
 The Services Marketing Triangle
Company
( Management )

Internal External
Marketing Marketing

“enabling the “setting the

promise” promise”

Employees Interactive Marketing Customers

“delivering the promise…
MOMENT OF TRUTH”
 Services Marketing Triangle
Applications Exercise

• Focus on a service organization..let’s

say a bank. 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?
 Ways to Use the
Services Marketing Triangle

Overall Strategic
  Specific Service
Assessment Implementation
• How is the • What is being
service promoted and
organization by whom?
doing on all • How will it be
three sides delivered and by
of the whom?
triangle? • Are the supporting
• Where are the systems in place
weaknesses to deliver the
? promised
• What are the service?
strengths? •
 The Services Triangle
and Technology
Company

Technology

Providers 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
 Traditional Marketing Mix

• All elements within the control of the

firm that communicate the firm’s
capabilities and image to customers or
that influence customer satisfaction with
the firm’s product and services:
üProduct
üPrice
üPlace
üPromotion
 Expanded Mix for Services --
the 7 Ps

• Product
• Price
• Place
• Promotion
• People
• Process
• Physical Evidence
 Evidence of Service from the
Customer’s Point of View

 Contact employees
 Customer
Operational flow of him/herself
activities People  Other customers
Steps in process
Flexibility vs.
standard
Technology vs. Physical
human Process Evidence
Tangible
communication
Servicescape
Guarantees
Technology
 Ways to Use the 7 Ps

 Overall Strategic  Specific Service

Assessment Implementation
• How effective is a • Who is the customer?
firm’s services • What is the service?
marketing mix? • How effectively does
• Is the mix well- the services
aligned with marketing mix for a
service
overall vision and communicate its
strategy? benefits and
• What are the quality?
strengths and • What
weaknesses in changes/improveme
• Lets talk about the customer..
The Customer Gap

Expected
Service

GAP

Perceived
Service
 Gaps Model of Service Quality

CUSTOMER
Expected
Service

Customer
Gap
Perceived
Service

External
COMPANY Service Delivery Communications
GAP 4 to Customers
GAP 1 GAP 3
Customer-Driven Service
Designs and Standards

GAP 2
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
Key Factors Leading to Provider
Gap 1
Customer Expectations

Gap
1
 Inadequ
Insuffic
Resea
Company Perceptions of
Customer Expectations
Key Factors Leading to Provider
Gap 2
Customer - Driven Service
Designs and Standards

Gap
2
 Poor ser
Unsyste
Vague,
Management Perceptions of
Customer Expectations
Key Factors Leading to Provider
Gap 3
Customer - Driven Service
Designs and Standards

Gap
3  Deficiencies in hum
Ineffective recruitme
Role ambiguity and
Poor employee-tech
Inappropriate evalua
Lack of empowerme
Service Delivery
Key Factors Leading to Provider
Gap 4
Service Delivery

Gap
4
 Lack of in
Tendenc
Not inclu
External Communications
to Customers
• Can you think of any other gap?
•
•
•
•
• The gap between expected and
perceived service
 Consumer Evaluation
for Services
• Search Qualities
– attributes a consumer can determine
prior to purchase of a
product..tangibility, credibility
• Experience Qualities
– attributes a consumer can determine
after purchase (or during
consumption) of a product..access,
courtesy, reliability, experience
• Credence Qualities
– characteristics that may be impossible
to evaluate even after purchase and
consumption..faith (doctor, organic
foods, consultants)
• Goods tend to be higher in search
attributes, services tend to be
higher in experience and credence
attributes
• Credence attributes force customers
to trust that desired benefits have
been delivered
•
 Continuum of Evaluation
for Different Types of
Products

Most Most
Goods Services

Easy to evaluate
Difficult to evaluate
Clothing

Jewelry

Furniture

Houses

Automobiles

Restaurant meals

Vacations

Haircuts

Child care

Television repair

Legal services

Root canals

Auto repair
Medical diagnosis
{
{
High in search
qualities
High in experience High in credence
qualities qualities
{
 Remember the consumer
decision making process?
• Need (or problem) recognition – (may
be basic need, acquired need due
to environment, or because of
marketing activities)
• Information search – internal
(memory) or external
• Evaluation of alternatives
• Purchase
• Post purchase evaluation
How does this process apply to
services?
• More impact of internal recall and
informal sources when making service
purchase decision, rather than
company communication
• Customer usually involved in service
provision – online ticket booking,
ATM :train customers like employees
• Time saving and convenience important
attributes for services
• Customers pay more for customization
– opportunity for service providers
(employability assessment)
• Consumer Behavior in Services
• Beer and Nappy Pads at Walmart!
 Where Does the Customer Fit in a

Service Organization?
• Consumers rarely involved in
manufacture of goods but often
participate in service creation and
delivery
• Challenge for service marketers is to
understand how customers interact
with service operations
 The black box effect
• Company communications
– Promotions, distribution, people,
offers
• WOM, PR

What happens in between?

C u sto m e r D e cisio n –
b u y /n o t b u y
 The company needs to
address:
• Who is the customer?
– Institutional v individual
– Rational v emotional
– Decision maker

• What is the customer buying?
– Which benefit is most valuable
– Existing v latent needs
– Price perception
– Self concept

• When does the customer buy?
– Problem recognition
– Cues
– Occasions


–
• How does the customer buy?
– Buying process
– Evaluation of alternatives
– How much effort is ok
– Evaluation of risk
– Social impact
• Where does the customer buy?
– Outlets
– Influence of BTL

 High-Contact and Low-
Contact Services


High Contact Services

• Customers visit service facility and remain
throughout service delivery
• Active contact between customers and
service personnel
• Includes most people-processing services
Low Contact Services

• Little or no physical contact with service

personnel
• Contact usually at arm’s length through
electronic or physical distribution channels
• New technologies (e.g. Web) help reduce
 Levels of Customer Contact
with Service Organizations
E m p h a size s e n co u n te rs
High w ith se rvice p e rso n n e l
N ursin g H o m e
H airCut
4- Star H otel
M a na ge m e nt Consultin g
G o o d Re sta ura nt
Tele p h one Ba n kin g
Airlin e Tra vel (Eco n.)

Retail Ba nkin g Car Re pair

M otel In sura nce
Dry Clea nin g
Fa st Food
Movie Theater

Ca ble TV
Metro Rail

•Internet Banking

E m p h a size s Internet-based Low

e n co u n te rs w ith Services

e q u ip m e n t
 Managing Service
Encounters
•
• Service encounter: A period of time
during which customers interact
directly with a service
• Moments of truth: Defining points in
service delivery where customers
interact with employees or
equipment
• Critical incidents: specific encounters
that result in especially
satisfying/dissatisfying outcomes for
 Managing Service
Encounters
•
• Service success often rests on
performance of junior contact
personnel
• Must train, coach, role model desired
behavior
• Thoughtless or badly behaved
customers can cause problems for
service personnel (and other
customers)
• Must educate customers, clarify what is
expected, manage behavior
Three stages service
model
Components of service
decisions
 Phase 1: Pre-purchase
phase
• Problem recognition – there is a
difference between actual and
desired states
• Search for information – the
collection of data on the service of
interest (either internal or external)
•
Stage 1: Pre-purchase phase

• Evaluation of alternatives
• Choice of intended purchase
Determinants of phase 1
Perceived risk
Categories of risk
Categories of risk
(cont.)
 Reducing risk
• Consumers will:
– Seek more information
– Seek guarantees or warranties
– Rely on price as a surrogate indicator
– Evaluate the reputation and image of a company
– Use an initial trial to evaluate the service
– Consider tangible cues as guide to service quality
Stage 2: Service encounter

• The consumer’s assessment

of the level of service
quality is determined during
this phase of the purchase
process

Factors affecting
satisfaction
Stage 3: Post-purchase
phase

• Customers determine their

level of satisfaction or
dissatisfaction by
comparing their
expectations with their
perceptions
• Can be subconscious
 Customer Satisfaction is
Central to the Marketing
• Concept
Satisfaction defined as attitude-like judgment
following a service purchase or series of
service interactions
• Customers have expectations prior to
consumption, observe service performance,
compare it to expectations
• Satisfaction judgments are based on this
comparison
– Positive disconfirmation if better than
expected
– Confirmation if same as expected
– Negative disconfirmation if worse than
expected
• Satisfaction reflects perceived service quality,
 Customer Delight:
Going Beyond Satisfaction


• Research shows that delight is a

function of 3 components
– Unexpectedly high levels of performance
– Arousal (e.g., surprise, excitement) – creating
buzz
– Positive affect (e.g., pleasure, joy, or
happiness)
 Post purchase evaluation
• Captured in measures of satisfaction,
service quality, loyalty, emotional
engagement:
–
– Word of mouth communication
– Brand loyalty
 A Service Business is a System
Comprising Three Overlapping
Subsystems
 Service Operations (front stage and backstage)
• Where inputs are processed and service elements
created.
• Includes facilities, equipment, and personnel
Service Delivery (front stage)

• Where “final assembly” of service elements takes

place
 and service is delivered to customers
• Includes customer interactions with operations
and other customers
Service Marketing (front stage)

• Includes service delivery (as above) and all other

contacts between service firm and customers
 Service Marketing System:
High Contact Service--e.g.,
Hotel
Service Delivery System Other Contact Points
Advertising
Service Operations System Other
Customers Sales Calls
Interior & Exterior Market Research
Facilities Surveys
Billing / Statements
Te ch n ica l Equipment The
C o re C u sto m e r Miscellaneous Mail,
Phone Calls, Faxes, etc.
Service People Random Exposure to
Facilities / Vehicles
Other Chance Encounters
Backstage Front Stage
Customers with Service Personnel
(invisible ) (visible)
Word of Mouth
 Service Marketing System:
Low Contact Service--e.g., Credit
Card
Service Delivery System Other Contact Points
Service Operations
System
Advertising
M a il
Market Research
The Surveys
Te ch n ica l S e lf S e rvice
C o re ( ATM )
Customer Random Exposures
Facilities, Personnel
Phone,
W eFa
b xsi, te Word of Mouth
e tc . Front Stage
Backstage (visible)
(invisible)
• Customer Expectations
• Exceed customer expectations—an old cliché, but it still
works. The only difference perhaps is that one needs to
exceed the of the customer not by an inch but by a mile
so that the results are there for all to see. that have
managed to overwhelmingly exceed customer
expectations have been rewarded by increased market
share and profitability.
Take the example of Apple iPod, which not only turned
around Apple but also changed the way many of us
consume music today. When iPod was introduced in the
market, there were many other rival music players and
consumers were not actually looking for a replacement.
But the consumer experience with the product was so
great that many of them decided to switch brand loyalty.
By picking up customer-user-experience, I am not
negating other advantages that the product had in terms
of better technology and availability of iTunes. I would
put the difference in customer-user-experience as the
one that tilted the balance in the favour of iPod.
If one were to search for similar examples in the Indian
context, introduction of Volvo buses in India would be
one of them. When they were first introduced, there was
a lot of skepticism around. How would they run on Indian
roads and who would pay the huge premium to travel in
such buses? But today, with the kind of response that it
• This differential is generally easier to create in
services and higher priced luxury products, but it is
also possible to create it at the lower end of the
price band. A rather old example: it was in the late
80’s that Reynolds pens were introduced in the
Indian market. I was in school those days happily
using the normal ball point pen, and then came
Reynolds, it was priced at least 3-4 times higher
than the local pens which were there in the
marketplace, but one had to use the product once
and he would not go back to the old ball point pen
again. The qualities of pens have generally
improved post-Reynolds, because the benchmark
itself has moved higher. Similarly, we can also
attribute the success of Titan watches against HMT
watches to the same phenomenon.
Meru cabs is an example from the services sector.
Most of us still feel anxious when or flight lands in a
new city (or even your own home town for that
matter) and one needs to hire a cab to hotel or
home. Meru cabs, with an assurance of a car
waiting for you at the airport, comes with details of
the driver and the cab. And as soon as you enter
the car, there is an electronic screen that shows the
Possible Levels of Customer
Expectations
 Dual Customer
Expectation Levels

Desired Service

Zone of
Tolerance

Adequate Service
 Zones of Tolerance for
Different Service Dimensions

Desired Service

Level
of Zone of Desired
Expectation Tolerance Service
Adequate Service
Zone
of
Tolerance

Adequate
Service

Most Important Factors Least Important Factors

 Factors that Influence
Customer Expectations of Services

Explicit & Implicit

Personal Needs Service Promises
Word-of-Mouth
Desired Service Past Experience
Beliefs about
What Is Possible
ZONE
OF
TOLERANCE
Perceived Service
Alterations
Adequate Service Predicted Service

Situational Factors

Source: Adapted from Zeithaml, Parasuraman & Berry

 Components of Customer
Expectations
•
• Desired Service Level: wished-for level
of service quality that customer
believes can and should be
delivered
• Adequate Service Level: minimum
acceptable level of service…low
threshold
• Predicted Service Level: service level
that customer believes firm will
actually deliver
• Zone of Tolerance: range within which
• Consider the example of income tax
CA
•
• Or that of Delhi Metro in monsoon
•
• Or Domino’s delivery..incorrect
toppings
•
• Or the supply of electricity after a
 Zones of Tolerance for
First-Time and Recovery Service

First-Time Service

Outcome

Process

Recovery Service

Outcome

Process

LOW HIGH
Expectations
 Factors that Influence
Desired and Predicted Service

Explicit Service
Promises

Implicit Service
Promises

Desired Word-of-Mouth
Service

Zone Past
of Experience
Tolerance

Adequate Predicted
Service Service
 Molecular Model of Service
Expectations
• bundle of benefits that customers
buy
• we must first determine a list of
those benefits as consumers
perceive them
• We then determine which specific
characteristics (or elements} of the
service provide each of the
identified benefits.
• The identified benefits are then
classified as either primarily
Molecular Model
 How to manage customer
expectations
• Manage promise
• Reliability ..the first time
• Customer Perception
Customer Perceptions of Service


• Service quality has five key dimensions:

reliability, responsiveness, empathy,
assurance, and tangibles.
»
• Service encounters or “moments of truth”
are the essential building blocks from
which customers form their perceptions.
 Customer Perceptions of Service Quality and
Customer Satisfaction

Reliability Situation
al
Factors
Responsiveness Service
Quality

Assurance
Customer
Satisfactio
Empathy n
Product
Quality
Tangibles

Personal
Price Factors
 Service Quality
• The customer’s 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

Reliability  Ability to perform the

promised service
dependably and accurately.
Assurance  Knowledge and courtesy
of employees and their
ability to convey trust and
Tangibles confidence.
 Physical facilities,
Empathy equipment, and appearance
of personnel.
 Caring, individualized
Responsiveness attention the firm provides
its customers.
 Willingness to help
customers and provide
 Exercise to
Identify Service Attributes
In groups of five, choose a services industry and spend 10 minutes
brainstorming specific requirements of YOU as customers in each of the
five service quality dimensions.

Reliability:

Assurance:

Tangibles:

Empathy:

Responsiveness:
 SERVQUAL Attributes
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
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
ASSURANCE
■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
■Givingcustomers individual attention
■Employees who deal with customers in a
caring fashion
■Having the customer’s best interest at heart
■Employees who understand the needs of their
customers
■Convenient business hours
TANGIBLES
■Modern equipment
■Visually appealing facilities
■Employees who have a neat,
professional appearance
■Visually appealing materials
associated with the service
 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..ATM, Internet, answering
machine
– phone encounters
– face-to-face encounters
• is an opportunity to:
– build trust
– reinforce quality
– build brand identity
– increase loyalty
 A Service Encounter
Cascade for a Hotel Visit

Check-In
Check-In

Attendant
AttendantTakes
Takesto
toRoom
Room

Restaurant
RestaurantMeal
Meal

Request
RequestWake-Up
Wake-UpCall
Call

Checkout
Checkout
 A Service Encounter
Cascade for an Industrial
Purchase

Sales
SalesCall
Call

Delivery
Deliveryand
andInstallation
Installation

Servicing
Servicing

Ordering
OrderingSupplies
Supplies

Billing
Billing
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
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: Adaptability:
Employee Response Employee Response
to Service Delivery to Customer Needs
System Failure and Requests

Coping: Spontaneity:
Employee Response Unprompted and
to Problem Customers Unsolicited Employee
Actions and Attitudes
 Recovery..service failure

DO DON’T
• Acknowledge • Ignore customer
problem • Blame customer
• Explain causes • Leave customer
• Apologize to fend for
• Compensate/upgr him/herself
ade • Downgrade
• Lay out options • Act as if nothing
• Take is wrong
responsibility
 Adaptability..dealing with
special cust requests
DO DON’T
• Recognize the • Promise, then fail
seriousness of to follow
the need through
• Acknowledge • Ignore
• Anticipate
• Show
• Attempt to unwillingness to
accommodate
try
• Explain
rules/policies • Embarrass the
customer
• Take
responsibility • Laugh at the
• Exert effort to customer
• Ever been in a situation where a
customer service representative
has blamed the rules for his
inability to help?
 Mr. Richard Branson says..
• An organization must establish a clear framework employees can
refer to when carrying out their duties, and that framework will
involve written procedures and rules—particularly when cash
and accounting are at issue. BUT…The rulebook should not
become an excuse for poor customer service or an obstacle to
great service. Almost everyone has at some point experienced
a situation where a customer service representative has
blamed the rules for his inability to help.
• If your company is going to stand out from the rest due to its truly
excellent customer service, staffers should treat the rules more
as flexible guidelines, to be followed as the situation demands.
The customer is not always right, and neither is the rulebook.
The customer service representative’s goal should be to strike
a balance that serves both the customer’s and company’s
interests in the best way possible.
• To a great extent, this can be achieved by empowering the staff at
call centres, on aircraft and trains or in retail environments to
use their common sense when handling questions and
problems. Encouraging a good attitude toward problem solving
is crucial, but so is a corporate culture that rewards initiative
and does not discourage a creative approach.
• One customer service mantra that I have always loved is: first to
know, first to handle. In other words, when a problem arises,
there is a fleeting opportunity to solve it on the spot.
• Resolving problems this way has multiple benefits for both the
customer and the company. For the customer, the advantages
are obvious: The problem is solved, or at least alleviated. And
for the company, there is an obvious public-relations benefit:
the customer is likely to tell other people how well the situation
was handled.
• There are also significant cost benefits. For example, a reduction
in the number of back-office customer relations staffers
required to handle a formerly lengthy back-and-forth process
for resolving customer complaints.
• At Virgin, a few senior managers and I host an annual Stars Dinner
recognizing top performers—staff members who have been
nominated by their peers—and celebrating their achievements.
We look for the best examples of customer service, innovation,
community service and environmental work. This sort of event
demonstrates to employees that you care about them and that
you notice and appreciate their hard work and initiative.
• In the world of customer service, nice words from a supervisor are
relatively easy to come by; the real proof is in positive feedback
from customers. That’s when you know that the right kind of
culture is taking hold.
• I was particularly pleased by a note I received recently from Phil
Williamson, a Virgin customer in Kenya who wrote to me about
a trip to London he’d booked with his wife. Shortly before the
trip, Phil’s wife was travelling for business and was able to
meet Phil in London using an aircraft ticket she’d received from
a client. So they put her original ticket aside to use another
time, but later, when they tried to book a new flight using that
ticket, they found that it had expired because they hadn’t paid
• Hawa, a Virgin representative based in Kenya, explained the
Williamsons’ situation to an accountant, who evidently
told her that rules are rules, and that the airline would
not make an exception in this case. In the end, though,
Hawa appealed to another supervisor, the ticket was
refunded and a new one was purchased.
• “All’s well that ends well,” Phil told me. “But wouldn’t it
have been so much better if the accountant had
displayed a little more general business sense instead of
sticking to his strict interpretation (of the rules)?”
• Phil’s story aptly demonstrates how close organizations
come to losing customers every day, due to rigid
adherence to rules and not enough thought on the part
of those supervising front-line employees. Keep in mind
this classic statistic: an unhappy customer will tell 10
people about a problem, while a satisfied customer will
only tell four people about a good experience.
• So, work on developing a corporate culture that—as I’ve
said before—tries to catch employees doing something
right, and rewards dedication and initiative. Looking after
 Spontaneity..voluntary
response to cust needs
DO DON’T
• Take time • Exhibit
• Be attentive impatience
• Anticipate needs • Ignore
• Listen
• Yell/laugh/swear
• Provide
information • Steal from or
(even if not cheat a
asked) customer
• Treat customers
• Discriminate
fairly
• Show empathy • Treat
 Coping..managing
problem situations

DO DON’T
• Listen • Take customer’s
• Try to dissatisfaction
accommodate personally
• Explain • Let customer’s
dissatisfaction
• Let go of the
affect others
customer
 Also,
• Service evidence also influences cust
perception of service
• Includes people, processes and
physical evidence
• These elements
– shape the first impression,
– build trust & confidence,
– provide sensory stimulation
 Factors Influencing
Customer Satisfaction

• Service quality
• Service attributes or features
• Consumer Emotions
• Equity or fairness evaluations
 Factors Influencing
Customer Satisfaction
• Other consumers, family members,
and coworkers
• Price
• Personal factors
– the customer’s mood or emotional
state
– situational factors

 Outcomes of
Customer Satisfaction

• Increased customer retention

• Positive word-of-mouth
communications
• Increased revenues
 Relationship between Customer
Satisfaction and Loyalty in
Competitive Industries
000%
Loyalty (retention)

00%

00%

00%

00%

0%
Very Dissatisfied Neither Satisfied Very
dissatisfied satisfied nor satisfied
dissatisfied

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)
• CRM
• Axis bank did a survey, on reasons
for losing its existing customers
• Findings:
– Did not understand product : 5%
– Personnel rude/indifferent : 12%
– Dissatisfied with bank/products : 18%
– No follow ups from bank : 65%.....!
 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
 CRM Pays..
• A software firm that increases customer
retention by 5% will increase bottom-line
profits by 35%t
•
• A bank branch that increases customer
retention by 5% will increase bottom-line
profits by 85%
•
• For an industrial distributor, 5% increase in
customer retention brings about a 45%
increase in profits

• U S COMPANIES LOSE HALF OF THEIR CUSTOMERS
EVERY FIVE YEARS
•
• A LARGE BANK LEARNED THAT 20% OF THE
CUSTOMERS CONTRIBUTE 150 % OF PROFITS
AND 40-50 % OF CUTOMERS ELIMINATE 50 %
OF IT
•
• COST OF SALES GOES UP EVERY YEAR
•
• EASY NEW SALES COME FROM EXISTING
CUSTOMERS
•
 Lifetime Value of a
Customer
• Assumptions
• Income
– Expected Customer Lifetime - duration
– Average Revenue (month/year)
– Other Customers convinced via WOM
– Employee Loyalty??
• Expenses
– Costs of Serving Customer Increase??
 Measuring Customer Equity:
Calculating Life Time Value of Each
Customer
• Value at Acquisition
– revenues (application fee + initial purchase)
– Less costs (marketing +credit check + account set
up)
• Annual Value (project for each year of
relationship)
– revenues (annual fee + sales + service fees +
value of referrals)
– Less costs (account management + cost of sales
+ write-offs)
• Net Present Value
– Determine anticipated customer relationship
lifetime
– Select appropriate discount figure
– Sum anticipated annual values (future profits) at
chosen discount rate
 Four Stages of Brand Loyalty in
a Consumer


• Cognitive loyalty – perception from

brand attribute information that one
brand is preferable to its alternatives
• Affective loyalty – developing a liking
for the brand based on cumulatively
satisfying usage occasions
• Conative loyalty – commitment to
rebuying the same brand..intent
• Action loyalty – exhibiting consistent
repurchase behavior
 What Makes Loyal Customers
More Profitable?
• Tend to spend more as relationship develops
– customer’s balances may grow
– may consolidate purchases to one supplier
• Cost less to serve
– less need for information and assistance
– make fewer mistakes
• Recommend new customers to firm (act as
unpaid sales people)
• Trust leads to willingness to pay regular prices
vs. shopping for discounts
• Pays premium
• Forgives one-off mistakes
Analyzing Why Customers Are
More Profitable over Time
Profit from price
premium
Profit from references

Profit from reduced

op. costs
Profit from increased
usage
Base Profit

1 2 3 4 5 6 7
Year Source: Reichheld and Sasser
 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
• Referrals & Price premiums
• lifetime value of a customer can be very
high
 Benefits to the Customer
• Inherent benefits in getting good
value..trust, satisfaction
• Value expressive
• Economic and continuity benefits
– contribution to sense of well-being
and quality of life and other
psychological benefits
– avoidance of change
– simplified decision making..save
time, effort
– special deals
• Confidence benefits
– less risk of something going wrong, less
anxiety
– get firm’s best service level
• Social benefits
– mutual recognition, known by name
– friendship, enjoyment of social aspects
• Special treatment benefits
– better prices, discounts unavailable to
others
– extra services
– higher priority with waits, faster service
“The Customer Isn’t Always Right”

• Not all customers are good

relationship customers:
–
– wrong segment
–
– not profitable in the long term
–
– difficult customers
 Strategies for Building
Relationships
• Foundations:
– Careful Segmentation
• Bonding Strategies:
– Financial Bonds
– Social & Psychological Bonds
– Structural Bonds
– Customization Bonds
• Relationship Strategies Wheel
• Switching Barriers:
– customer inertia
– Increase switching costs

 Levels of Retention Strategies

Stable
Volume and Pricing
Frequency Bundling and
Rewards Cross Selling

Integrated I. Financial Continuous

Information Bonds Relationships
Systems

IV. Excellent
Quality II.
Joint Structural Personal
and Social
Investments Bonds Relationships
Value Bonds

Shared Social Bonds

Processes III. Customization Among
and Bonds Customers
Equipment

Anticipation Customer
/ Innovation Intimacy
Mass
Customization
 Customer Goals of
Relationship Marketing

Enhancing Advocate

Retaining Supporter

Satisfying Client

Getting Customer

Prospect
 Underlying Logic of Customer
Retention Benefits to the
Organization

Customer Satisfaction

Customer Retention & Quality

Increased Profits Service

Employee Loyalty
 Steps in Market Segmentation and

Targeting for Services

STEP 1: STEP 2: STEP 3: STEP4: STEP 5:

Identify Develop Develop Select the Ensure that
Bases for Profiles of Measures Target Segments
Segmenting Resulting of Segment Segments Are
the Market Segments Attractive- Compatible
ness
 The Customer Pyramid
Good Relationship
Customers
Which segment sees high value in
our offer, spends more with us over
Platinum time, costs less to maintain, and
spreads positive word-of-mouth?

Gold

Iron Which segment costs us in time,

effort and money, yet does not
provide the return we want?
Which segment is difficult to do
Lead business with?

Poor Relationship
Customers
• Platinum – heavy users, few in number,
contribute large % of profits, less
price sensitive, expect top service,
likely to try new services from the co.
• Gold – larger number of customers,
lesser contribution to profits,
commitment to co. lower
• Iron – bulk of customers, basis of
economies of scale, necessary to
reduce cost of production, marginally
profitable
• Lead – loss making (cost of servicing
exceeds revenue), often outsourced
 The Strategic Advantage of
Customer Centric Marketing
 UNIT/$
CUSTOMER
RELATIONSHIP
MANAGEMENT
CUSTOMER
TRANSACTION CUSTOMER
MANAGEMENT OUTSOURCING
MANAGEMENT
COST

REVENUES
BIGGEST CUSTOMERS SMALLEST
 The Customer Satisfaction-
Loyalty Relationship
Apostle
100

Zone of Affection
80
Loyalty (Retention)

Near Apostle
60 Zone of Indifference

40 Zone of Defection

20

Terrorist 0
1 2 3 4 5
Very Neither Very
dissatisfied Dissatisfied satisfied Satisfied Satisfied
nor dissatisfied
Satisfaction
• Zone of defection – customers will
switch unless cost of switching
high, or no alternatives
– Terrorists spread negative WOM
• Zone of indifference – customers will
switch if better alternative comes
(no active search)
• Zone of affection – customers have
high satisfaction, loyalty, good
WOM (apostles)
 The Wheel of Loyalty

3. Reduce 1. Build a
Churn Drivers Foundation
for Loyalty
ØConduct churn diagnostic
ØSegment the market
ØAddress key churn drivers
ØBe selective in acquisition
Enabled through: ØImplement complaint
handling & service ØUse effective tiering of
ØFrontline staff service.
ØAccount
recovery Customer
managers ØIncrease switching Loyalty ØDeliver quality
ØMembership costs service.
programs
ØCRM 2. Create Loyalty
Bonds
Systems ØBuild higher level ØDeepen the
bonds relationship
Ø ØGive loyalty
rewards
 Drivers of Service Switching
Service
ServiceFailure
Failure/ /Recovery
Recovery Value
ValueProposition
Proposition
Core Service Failure
•Service Mistakes Pricing
•Billing Errors •High Price
•Service Catastrophe •Price Increases
•Unfair Pricing
Service Encounter Failures •Deceptive Pricing
•Uncaring
•Impolite Service Switching Inconvenience
•Unresponsive •Location/Hours
•Unknowledgeable •Wait for Appointment
•Wait for Service
Response to Service Failure
•Negative Response
Competition
•No Response
•Found Better Service
•Reluctant Response

Others
Others
Involuntary Switching Ethical Problems
•Customer Moved •Cheat •Unsafe
•Provider Closed •Hard Sell •Conflict of Interest
 Need for CRM systems
• Many customer contact points
• Large number of customers
• Different staff service the clients
•
• Need for automation to capture,
clean, analyze and present
customer information to deciders in
co.
 Common CRM Applications
• Signifies the whole process by which
relationships with customers are built
and maintained.
• CRM as an enabler, offering a “unified
customer interface” and allow firms to
better understand and segment the
customers etc. Applications include:
– Data collection
– Data analysis
– Sales force automation
– Marketing automation
– Call center automation
• Understanding Demand
• Services – perishable, no inventory
•
• Always pressure on capacity – more
on people processing & possession
processing services
 Relating Demand to Capacity:
Four Key Concepts


• Excess demand: too much demand

relative to capacity at a given time
• Excess capacity: too much capacity
relative to demand at a given time
• Maximum capacity: upper limit to a
firm’s ability to meet demand at a
given time
• Optimum capacity: point beyond which
service quality declines as more
customers are serviced
• Optimum and maximum capacity
may be the same (theater,
stadium), or the maximum capacity
may be more than optimum, and
spoil service quality (think about a
fully packed restaurant, or a
crowded mela, nokia service
center)
 Defining Productive Capacity
in Services
•
• Physical facilities to contain customers…
clinics, hotels, aircraft, classrooms
• Physical facilities to store or process goods
..warehouse, auto repair shop
• Physical equipment to process people,
possessions, or information (ATMs, toll
bridges, MRI machine)
• Labor used for physical or mental work
(service staff)
• Public/private infrastructure—e.g., highways,
airports, electricity
 Variations in Demand Relative
to Capacity
VOLUME DEMANDED
Demand exceeds capacity
(business is lost)
CAPACITY UTILIZED

Maximum Available Demand exceeds

Capacity optimum capacity
(quality declines)
Optimum Capacity
(Demand and Supply
Well Balanced)

Excess
Low Utilization (wasted
capacity
(May Send Bad Signals) resources)

TIME CYCLE 1 TIME CYCLE 2

 Why does demand vary?
• Seasonality..hotels
• Economic Recession & Boom..luxury
services
• Technology
• Demographics
• Natural calamities..9/11, SARS, Swine
Flu, Bird Flu
 Can capacity be
stretched/shrunk?
• Think Delhi Metro in rush hour!
• Holiday trains..
• Staff can work more, or quicker, for a
short time
• Change infrastructure used..aircraft
• Longer time, shifts
• Cut service process time
 Predictable Demand Patterns
and
Their Underlying Causes
Predictable Cycles Underlying Causes of
of Demand Levels Cyclical Variations

– day – employment
– week – billing or tax
payments/refunds
– month
– pay days
– year – school hours/holidays
– other – seasonal climate

changes
– public/religious
holidays
– natural cycles
 Strategies for Shifting Demand
to Match Capacity

Demand Too High Shift Demand Demand Too Low

• Use signage to •U se sa le s a n d a d ve rtisin g to

communicate busy days in cre a se b u sin e ss fro m
and times..customers cu rre n t m a rke t se g m e n ts
won’t like to wait
• Offer incentives to •M o d ify th e se rvice o ffe rin g
customers for usage to a p p e a lto n e w m a rke t
during non-peak se g m e n ts.. h o te ls fo r
times..happy hours
co n fe re n ce
• Take care of loyal or
regular customers first •O ffe r d isco u n ts o r p rice
• Advertise peak usage re d u ctio n s
times and benefits of
non-peak use •M o d ify h o u rs o f o p e ra tio n
• Charge full price for the •B rin g th e se rvice to th e
service--no discounts cu sto m e r
Adjusting demand to meet
supply
Adjusting demand to meet
supply (cont.)
 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
 Strategies for Flexing Capacity

to Match Demand
Demand Too High Flex Capacity Demand Too Low
• Stretch time, labor,
facilities and •Pe rfo rm m a in te n a n ce
equipment re n o va tio n s.. M a ru ti
• Cross-train employees
• Hire part-time employees
•S ch e d u le va ca tio n s
• Request overtime work •S ch e d u le e m p lo ye e
from employees tra in in g
• Rent or share facilities… •La y o ff e m p lo ye e s/ p a rt
STAR Alliance, Sky
Team tim e e m p lo ye e s
• Rent or share equipment •R e n t o u t e q u ip m e n t
• Subcontract or outsource
activities
Adjusting supply to meet
demand
Adjusting supply to meet
demand (cont.)
 Hotel Room Demand Curves by
Segment and by Season
Price p e r
R o o m N ig h t
Bl Bh
Th Bh= business travelers in high season
Bl= business travelers in low season
Tl Th= tourist in high season

Tl = tourist in low season

Th
Bh
Bl Tl
Q u a n tity o f R o o m s D e m a n d e d a t E a ch Price
b y Tra ve le rs in E a ch S e g m e n t in E a ch S e a so n
 Waiting
• Method to inventory demand
•
• Must be made pleasant
• Opportunity for cross sell
• Usually FIFO
• Must provide reservation/advance
booking facility to cust to avoid
waiting
 Avoiding Burdensome Waits
for Customers


• Add extra capacity so that demand can

be met at most times (problem: may
add too many costs)
• Rethink design of queuing system to
give priority to certain customers or
transactions
• Redesign processes to shorten
transaction time
• Manage customer behavior and
perceptions of wait
 Alternative Queuing
Configurations
Single line, single server, single stage

Single line, single servers at sequential stages

Parallel lines to multiple servers

Designated lines to designated servers

Single line to multiple servers (“snake”)

21
29
28
“Take a number” (single or multiple servers) 30 25
20

26 24
31 27
32 23
Tailoring Queuing Systems to Market
Segments: Criteria for Allocation to

Designated Lines
• Urgency of job…hospitals
– emergencies vs. non-emergencies
• Duration of service transaction..express
check out, customs green line
– number of items to transact
– complexity of task
• Payment of premium price..HNI clients,
economy check in
– First class vs. economy
• Importance of customer & demographics
– frequent users/loyal customers vs. others
 Ten Propositions on the
Psychology of Waiting Lines
1.
 Unoccupied time feels longer ..give the cust
something to do/read
2. Preprocess/postprocess waiting feel longer
than in-process
3. Anxiety makes waiting seem longer
4. Uncertain waiting is longer than known, finite
waiting..flight delay
5. Unexplained waiting seems longer..electricity
off in lift
6. Unfair waiting is longer than equitable waiting
7. People will wait longer for more valuable
services…IPAD, concert
8. Waiting alone feels longer than in groups
9. Physically uncomfortable waiting feels longer
10. Waiting seems longer to new or occasional
 Benefits of Effective

Reservations Systems
• Controls and smoothes demand
• Pre-sells service
• Informs and educates customers in
advance of arrival
• Customers avoid waiting in line for
service (if service times are honored)
• Data capture helps organizations
prepare financial projections
 Characteristics of Well-
designed


•
Reservations Systems
Fast and user friendly for customers and
staff
• Can answer customer questions
• Offers options for self service (e.g. Web)
• Accommodates preferences (e.g., room
with view)
• Deflects demand from unavailable first
choices to alternative times and
locations
• Includes strategies for no-shows and
overbooking
– requiring deposits to discourage no-shows
– canceling unpaid bookings after
 Setting Capacity Allocation
Sales Targets for a Hotel by
Segment
W eek 7
and Time Period
Week 36
Capacity (% rooms) (Low Season) (High Season)
100%
Out of commission for renovation Loyalty Program guests

Loyalty Program
guests
Transient guests
Weekend
package
50% W/E
package
Transient guests
Groups and conventions

Groups (no conventions)

Airline contracts Airline contracts

Nights: M Tu W Th F S Sn M Tu W Th F S Sn
Time
 Information Needed for Demand
and Capacity Management

Strategies
• Historical data on demand level and
composition, noting responses to marketing
variables
• Demand forecasts by segment under
specified conditions
• Fixed and variable cost data, profitability of
incremental sales
• Site-by-site demand variations
• Customer attitudes towards queuing
• Customer evaluations of quality at different
levels of capacity utilization
• Research
• Why do we have 2 ears and 1
mouth?
 Provider GAP 1

CUSTOMER Expected
Service

GAP 1

Company
COMPANY Perceptions of
Consumer
Expectations
Where does a company get to
know about the customer?
• Internal sources
• Competitors, regulators, www,
intermediaries
• MR
 Why MR in services?
• Intangibility – accurately know what
customer wants
• Keep in touch – due to growing
length of channels
• Minimizing risk and marketing costs –
risk & cost of failure



 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
• To determine SLEPT factors
• To determine the 4 P’s…Godrej Soap….Mumbai v
Ahmedabad
Criteria for An Effective Services
Research Program
Includes
e s Quantitat
l ud tive ive
c a h R e s e a r c
In lit rc h Includes
a e a
Qu Res Perceptions
and
Expectations
of
Occurs Customers
with
Appropriate
Frequency
Research Includes
Objectives Measures
of
Loyalty or
Behavioral
Intentions
Measures
Priorities
or C ost
Importance nc es e of
a u
Includes Bal Val tion
Statistical and orma
Validity Inf
When Necessary
 Portfolio of Services Research
Research Objective Type of Research
Identify dissatisfied customers to attempt recovery;
identify most common categories of service failure
for remedial action
Customer Complaint
Solicitation
Assess company’s service performance compared to
competitors; identify service-improvement priorities; track
service improvement over time “Relationship” Surveys
Obtain customer feedback while service experience is still
fresh; act on feedback quickly if negative patterns develop Post-Transaction Surveys
Use as input for quantitative surveys; provide a
forum for customers to suggest service-improvement
ideas
Customer Focus Groups
Measure individual employee service behaviors for use in
coaching, training, performance evaluation, recognition and
rewards; identify systemic strengths and weaknesses in
“Mystery Shopping” of
service Service Providers
Measure internal service quality; identify employee-
perceived obstacles to improve service; track Employee Surveys
employee morale and attitudes

Determine the reasons why customers defect

Lost Customer Research
To forecast future expectations of customers
To develop and test new service ideas
Future Expectations Research
 Stages in the Research Process

• Stage 1: Define Problem & research

objective
• Stage 2: Develop Measurement
Strategy
• Stage 3: Implement Research
Program
• Stage 4: Collect and Tabulate Data
• Stage 5: Interpret and Analyze
Findings
• Stage 6: Report Findings
• Some examples of research findings..
 Service Quality Perceptions
Relative to Zones of Tolerance
by Dimensions

9
8
7 O
O O
6 O O
5
4
3
2
1
0
Reliability Responsiveness Assurance Empathy Tangibles

Retail Chain Zone of Tolerance O S.Q. Perception

 Service Quality Perceptions
Relative to Zones of Tolerance by
Dimensions
10

8
O O O O
O
6

0
Reliability Responsiveness Assurance Empathy Tangibles

Computer Zone of Tolerance O S.Q. Perception

Manufacturer
 Other ways of listening to the
customer
• Upward communication
• Market visits, observation ..Airtel
Customer Contact
• Talking to intermediaries
• Employee suggestions….airline food
– Marriot employee, TC in BankAM,
Southwest Airlines CEO letter to
employees
•
• Service Design
 Provider GAP 2
CUSTOMER

COMPANY Customer-Driven
Service Designs and
Standards
GAP 2
Company
Perceptions of
Consumer
Expectations
 Risks of Relying on Words
Alone to
Describe Services

nOversimplification
nIncompleteness
nSubjectivity
nBiased Interpretation
 Types of New Services

• major or radical innovations

• start-up businesses..new service to
the company
• new services for the currently served
market
• service line extensions
• service improvements
• style changes
 New Service Development Process
hBusiness Strategy Development or Review

hNew Service Strategy Development

Planning
hIdea Generation
Screen ideas against new service strategy
hConcept Development and Evaluation
Test concept with customers and employees

hBusiness Analysis

Test for profitability and feasibility

hService Development and Testing

Conduct service prototype test

hMarket Testing
Implementation
Test service and other marketing-mix elements
hCommercialization

hPostintroduction Evaluation
 New Service Strategy Matrix
for Identifying Growth
Opportunities
Markets

Offerings
Current Customers New Customers

Existing
SHARE BUILDING/ MARKET
Services
PENETRATION DEVELOPMENT

New
Services SERVICE DIVERSIFICATION
DEVELOPMENT
Service Mapping/Blueprinting
A tool for simultaneously depicting the


service process, the points of customer

contact, and the evidence of service
from the customer’s point of view.
Process

Service Points of Contact

Mapping
Evidence
• Blueprinting clarifies interactions
between customer and employees
• Can identify potential fail points
•
 Building a Service Blueprint

p11 Step
Step22 Step
Step33 Step
Step44 Step
Step55 Step
Step66
Map Map contact employee actions, Add
onstage evidence
Addand ofofservice
back-stage.serviceatateach
eachcustomer
fy the
tify theprocess
process totothe
Identify
Identify be
the Mapthe
beblue-printed.
customer theprocess
oror
blue-printed.
customer from
customer
Map
process
customer the
thecustomer’s
segment.
contact
from Link
employee
customer’s
segment. point
pointofofview.
Linkcustomer
actions,
customer onstage
view. evidence
and back-stage. custome
and contact person activities to needed support functions.
and contact person activities to needed support functions.
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
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 – empowering the
customer human element
expectations • job descriptions
• service system • selection criteria
design • appraisal systems
• promotion 

•
• Operations • System Technology
Management
– providing necessary
– rendering the service tools:
as promised
• system
• managing fail specifications
points
• personal preference
• training systems databases
• quality control
 Mail Delivery Service
Truck Truck
Packaging Packaging
EVIDENCE
PHYSICAL

Forms Forms
Hand-held Hand-held
Computer Computer
Uniform Uniform
CUSTOMER

Customer Customer Receive

Calls Gives Package
Package
(Back Stage) (On Stage)

Driver
CONTACT PERSON

Picks Deliver
Up Pkg. Package

Customer
Service
Order

Airport Fly to
Dispatch
Receives Sort Unload Load
Driver Fly to
& Loads Center & On
Destination Sort Truck
Load on
PROCESS
SUPPORT

Airplane

Sort
Packages
 Overnight Hotel Stay
Bill
EVIDENCE
CUSTOMER PHYSICAL

Desk
Hotel Cart for Desk Elevators Cart for Room Menu Delivery Food Lobby
Exterior Bags Registration Hallways Bags Amenities Tray Hotel
Parking Papers Room Bath Food Exterior
Lobby Appearance Parking
Key

Arrive Give Bags Call Check out

Go to Receive Sleep Receive
at to Check in Room Eat and
Room Bags Shower Food
Hotel Bellperson Service Leave
SUPPORT PROCESS (Back Stage) (On Stage)
CONTACT PERSON

Greet and
Process Deliver Deliver Process
Take
Registration Bags Food Check Out
Bags

Take
Take Bags Food
to Room Order

Registration Prepare Registration

System Food System
 Improving Reliability of
Processes

by Failure Proofing
• Analysis of reasons for failure often reveals
opportunities for failure proofing to
reduce/eliminate risk of errors
• Errors include:
– treatment errors—human failures during contact
with customers
– tangible errors—failures in physical elements of
service
• Fail-safe procedures include measures to prevent
omission of tasks or performance of tasks
– incorrectly
– in wrong order
– too slowly
– not needed or specified
• Need fail-safe methods for both employees and
customers
 Process Redesign: Principal
Approaches


• Why redesign?
– Processes get outdated
– Institutional rust – unofficial standards


• Eliminating non-value-adding steps

• Shifting to self-service
• Bundling services
• Redesigning physical aspects of
service processes
 Self Service Technologies
(SSTs)


• Self-service is ultimate form of customer involvement

in service production
– Customers undertake specific activities using
facilities or systems provided by service supplier
– Customer’s time and effort replace those of
employees
• Concept is not new—self-serve supermarkets date
from 1930s, ATMs and self-serve gas pumps from
1970s
• Today, customers face wide array of SSTs to deliver
information-based services, both core and
supplementary
• Many companies seek to divert customers from
employee contact to Internet-based self-service
 Service Firms as Teachers:
Well-trained Customers Perform
Better


• Firms must teach customers

roles as co-producers of
service
• Customers need to know how
to achieve best results
• Education can be provided
through:
– Brochures
– Advertising
– Posted instructions
– Machine-based instructions
– Websites, including FAQs
– Service providers
– Fellow customers
–
• Employees must be well-
 Employees
to Increase Productivity and
Quality


 1. Analyze customers’ present roles in

the business and compare to
management’s ideal
2. Determine if customers know how to

perform and have necessary skills

3. Motivate customers by ensuring that

will be rewarded for performing well

4. Regularly appraise customers’

performance; if unsatisfactory,
consider changing roles or
 The Problem of Customer
Misbehavior – Identifying and
Managing “Jaycustomers”
What is a jaycustomer?


 A customer who behaves in a thoughtless or

abusive fashion, causing problems for the firm
itself, employees, other customers
 Why do jaycustomers matter?
• Can disrupt processes
• Affect service quality
• May spoil experience of other customers
 What should a firm do about them?
• Try to avoid attracting potential jaycustomers
• Institute preventive measures
• Control abusive behavior quickly
• Take legal action against abusers
• BUT firm must act in ways that don’t alienate
other customers
 Six Types of “Jaycustomer”


• Thief – seeks to avoid paying for service

• Rule breaker – ignores rules of social behavior and/or
procedures for safe, efficient use of service
• Belligerent – angrily abuses service personnel (and
sometimes other customers) physically and/or
emotionally
• Family Feuders – fight with other customers in their party
• Vandal – deliberately damages physical facilities,
furnishings, and equipment
• Deadbeat – fails to pay bills on time


 How should firms deal with each of these problems?

• Service Standards
 Process for Setting
Customer-Defined Standards

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 Measure by
Audits or Hard 5.5.Develop Transaction-
DevelopFeedback
Feedback Soft
Operating Data Mechanisms Based Surveys
Mechanisms

6.6.Establish
EstablishMeasures
Measuresand
andTarget
TargetLevels
Levels

7. Track Measures Against Standards

8.8. Update
UpdateTarget
TargetLevels
Levelsand
andMeasures
Measures
 AT&T’s Process Map for Standards

Business Process Customer Need Internal Metric

Reliability (40%) % Repair Call
30% Product
Easy To Use (20%) % Calls for Help
Features / Functions (40%) Functional Performance Test

30% Sales Knowledge (30%) Supervisor Observations

Responsive (25%) % Proposal Made on Time
Follow-Up (10%) % Follow Up Made
Total
Quality 10% Installation Delivery Interval Meets Needs (30%) Average Order Interval
Does Not Break (25%) % Repair Reports
Installed When Promised (10%) % Installed On Due Date

15% Repair
No Repeat Trouble (30%) % Repeat Reports
Fixed Fast (25%) Average Speed Of Repair
Kept Informed (10%) % Customers Informed
15% Billing
Accuracy, No Surprise (45%) % Billing Inquiries
Resolve On First Call (35%) % Resolved First Call
Easy To Understand (10%) % Billing Inquiries

Source: AT&T General Business Systems

Examples of Hard Customer-Defined
Standards
Examples of Soft Customer-Defined
Standards
• Its simple…either delight customers,
or lower their expectations