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Page 1: Bm404 lecture5

BM404

Lecture 5

Page 2: Bm404 lecture5

Portfolio of Services Research

Customer Complaint Solicitation/ CIStudies

“Relationship”/SERVQUAL Surveys

Post-Transaction Surveys

Customer Focus Groups

“Mystery Shopping” of Service Providers

Employee Surveys

Identify dissatisfied customers to attempt recovery; identify most common categories of service failure for remedial action

Obtain customer feedback while service experience is fresh; act on feedback quickly if negative patterns develop

Use as input for quantitative surveys; provide a forum for customers to suggest service-improvement ideas

Assess company’s service performance compared to competitors; identify service-improvement priorities; track service improvement over time

Measure individual employee service behaviors for use in coaching, training, performance evaluation, recognition and rewards; identify systemic strengths and weaknesses in service

Measure internal service quality; identify employee-perceived obstacles to improve service; track employee morale and attitudes

Determine the reasons why customers defect

Research Objective Type of Research

Lost Customer Research

Future Expectations ResearchForecast future expectations of customers; develop and test new service ideas

Page 3: Bm404 lecture5

Tracking of Customer Expectations and Perceptions of Service Reliability

Source: E. Sivadas, “Europeans Have a Different Take on CS [Customer Satisfaction] Programs,” Marketing News, October 26, 1998, p. 39.

Page 4: Bm404 lecture5

Retail Chain

9

8

7

6

5

4

3

2

1

0Reliability Responsiveness Assurance Empathy Tangibles

OO

= Zone of Tolerance = Service Quality Perception

O

O

OO

Service Quality Perceptions Relative to Zones of Tolerance

Page 5: Bm404 lecture5

Importance/Performance Matrix

HIGH

HIGHLOW Performance

Imp

ort

ance

Attributes to Improve Attributes to Maintain

HighLeverage

Attributes to De-emphasizeAttributes to Maintain

LowLeverage

LowLeverage

Page 6: Bm404 lecture5

Upward communication

Executive visits to customers Executive/management listening to

customers Research on intermediate

customers Research on internal customers Executive/management listening to

employees Employee suggestion

Page 7: Bm404 lecture5

Building customer relationships

Page 8: Bm404 lecture5

Relationship MarketingCustomer relationships

Strangers Acquaintances Friends Partners

Page 9: Bm404 lecture5

Customer Goals of Relationship Marketing

Page 10: Bm404 lecture5

Relationship marketing

Benefits for customers Benefits for firms

Page 11: Bm404 lecture5

Lifetime Value of an Average Business Customer at Telecheck International

Page 12: Bm404 lecture5

Most profitable customers

Least profitable customers

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

What segment costs us in time, effort and money yet does not provide the return we want?

What segment is difficult to do business with?

Gold

Iron

Lead

Platinum

The Customer Pyramid – Profitability Segments

Page 13: Bm404 lecture5

Relationship Development Model

Customer BenefitsConfidence benefitsSocial benefitsSpecial treatment benefits

Relationship BondsFinancial bondsSocial bondsCustomization bondsStructural bonds

Switching BarriersCustomer inertiaSwitching costs

Core Service ProvisionSatisfactionPerceived service qualityPerceived value

Strong CustomerRelationship

(Loyalty)

Firm BenefitsEconomic benefitsCustomer behavior benefitsHuman resource management benefits

Page 14: Bm404 lecture5

Strategies for Building Relationships

Core Service Provision:service foundations built upon delivery of

excellent service: satisfaction, perceived service quality, perceived

valueSwitching Barriers:

customer inertiaswitching costs:

set up costs, search costs, learning costs, contractual costs

Relationship Bonds

Page 15: Bm404 lecture5

Excellentservice

and value

1. Financial

bonds

2.Socialbonds

4. Structural

bonds

3. Customization

Bonds

Volume and frequency rewards

Bundling and cross selling

Stable pricing

Social bonds among

customers

Personal relationships

Continuous relationships

Customer intimacy

Mass customization

Anticipation/ innovation

Sharedprocesses

and equipment

Joint investments

Integrated information

systems

Levels of Relationship Strategies

Page 16: Bm404 lecture5

Service recovery

Page 17: Bm404 lecture5

Unhappy Customers’ Repurchase Intentions

82%

54%

19%

9%

Complaints Resolved Quickly

Complaints Resolved

Complaints Not Resolved

Unhappy Customers Who Don’t Complain

Unhappy Customers Who Do Complain

Percent of customers who will buy again after a major complaint (over $100 in losses)

Source: Adapted from data reported by the Technical Assistance Research Program.

Page 18: Bm404 lecture5

Customer Complaint Actions Following Service Failure

Page 19: Bm404 lecture5

Satisfaction consequences McColl-Kennedy

(2003)

Page 20: Bm404 lecture5

Satisfaction consequences (cont.) McColl-Kennedy (2003)

Page 21: Bm404 lecture5

Types of complainers

Passives Voicers Irates Activists

Singh ‘ A typology of customer complaint styles’

Page 22: Bm404 lecture5

Causes Behind Service Switching

Service Switching Behavior

• High price• Price increases• Unfair pricing• Deceptive pricing

Pricing

• Location/hours• Wait for appointment• Wait for service

Inconvenience

• Service mistakes• Billing errors• Service catastrophe

Core Service Failure

• Uncaring• Impolite• Unresponsive• Unknowledgeable

Service Encounter Failures

• Negative response• No response• Reluctant response

Response to Service Failure

• Found better service

Competition

• Cheat• Hard sell• Unsafe• Conflict of interest

Ethical Problems

• Customer moved• Provider closed

Involuntary Switching

Source: Sue Keaveney, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing, April, 1995, pp. 71-82.

Page 23: Bm404 lecture5

Learn from R

ecovery E

xperiences

Act

Qui

ckly

Treat Customers Fairly

Fail-safethe Service

Cultivate Relationships

with Customers

Encourage and Track

Complaints

Provid

e Ade

quat

e

Explan

ation

s

Lear

n fro

m L

ost

Custo

mer

s

ServiceRecoveryStrategies

Service Recovery Strategies

Page 24: Bm404 lecture5

Service Guarantees

in a business context, a guarantee is a pledge or assurance that a product offered by a firm will perform as promised and, if not, then some form of reparation will be undertaken by the firm

for tangible products, a guarantee is often done in the form of a warranty

services are often not guaranteedcannot return the serviceservice experience is intangible

(so what do you guarantee?)

Page 25: Bm404 lecture5

Why a Good Guarantee Works

forces company to focus on customers

sets clear standards

generates feedback

forces company to understand why it failed

builds “marketing muscle”

Page 26: Bm404 lecture5

Characteristics of an EffectiveService Guarantee

Unconditionalthe guarantee should make its promise unconditionally – no

strings attachedMeaningful

the firm should guarantee elements of the service that are important to the customer

the payout should cover fully the customer’s dissatisfactionEasy to Understand and Communicate

customers need to understand what to expectemployees need to understand what to do

Easy to Invoke and Collectthe firm should eliminate hoops or red tape in the way of

accessing or collecting on the guarantee

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

Page 27: Bm404 lecture5

Service Guarantees

Does everyone need a guarantee?Reasons companies might NOT want to offer a service guarantee:existing service quality is poorguarantee does not fit the company’s imagetoo many uncontrollable external variablesfears of cheating or abuse by customerscosts of the guarantee outweigh the benefitscustomers perceive little risk in the servicecustomers perceive little variability in service

quality among competitors

Page 28: Bm404 lecture5

Service Guarantees

service guarantees work for companies who are already customer-focused

effective guarantees can be BIG deals – they put the company at risk in the eyes of the customer

customers should be involved in the design of service guarantees

the guarantee should be so stunning that it comes as a surprise – a WOW!! factor

“it’s the icing on the cake, not the cake”

Page 29: Bm404 lecture5

Service Development and Design

Page 30: Bm404 lecture5

Risks of Relying on Words Alone to Describe Services

Oversimplification

Incompleteness

Subjectivity

Biased Interpretation

Page 31: Bm404 lecture5

Types of New Services

major or radical innovationsstart-up businessesnew services for the currently served market

service line extensionsservice improvementsstyle changes

Page 32: Bm404 lecture5

New Service Development Process

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

Business strategy development or review

New service strategy development

Idea generation

Concept development and evaluation

Business analysis

Service development and testing

Postintroduction evaluation

Commercialization

Market testing

Screen ideas against new service strategy

Test concept with customers and employees

Test for profitability and feasibility

Conduct service prototype test

Test service and other marketing-mix elements

Front-end Planning

Implementation

Page 33: Bm404 lecture5

New Service Strategy Matrix for Identifying Growth Opportunities

Markets

Offerings

ExistingServices

NewServices

Current Customers New Customers

Sharebuilding

Diversification

Marketdevelopment

Servicedevelopment

Page 34: Bm404 lecture5

Service 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.

ServiceBlueprint

Process

Points of contact

Evidence

Page 35: Bm404 lecture5

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

Page 36: Bm404 lecture5

Service Blueprint Components

Page 37: Bm404 lecture5

Blueprint for Express Mail Delivery Service

DriverPicks Up Package

DispatchDriver

AirportReceives& Loads

SortPackages

Load onAirplane

Fly toDestination

Unload&

Sort

LoadOn

Truck

SU

PP

OR

T P

RO

CE

SS

CO

NT

AC

T P

ER

SO

N(B

ack

Sta

ge)

(On

Sta

ge)

CU

ST

OM

ER

PH

YS

ICA

LE

VID

EN

CE

CustomerCalls

CustomerGives

Package

TruckPackagingFormsHand-held ComputerUniform

ReceivePackage

TruckPackagingFormsHand-held ComputerUniform

DeliverPackage

CustomerServiceOrder

Fly toSort

Center

Line of interaction

Line of visibility

Line of internal interaction

Page 38: Bm404 lecture5

Blueprint for Overnight Hotel Stay Service

SU

PP

OR

T P

RO

CE

SS

CO

NT

AC

T P

ER

SO

N

(Bac

k S

tage

)(O

n S

tage

)

CU

ST

OM

ER

Hotel ExteriorParking

Cart for Bags

DeskRegistrationPapersLobbyKey

ElevatorsHallwaysRoom

Cart for Bags

RoomAmenitiesBath

Menu DeliveryTrayFoodAppearance

Food BillDeskLobbyHotel ExteriorParking

Arriveat

Hotel

Give Bagsto

BellpersonCheck in

Go toRoom

ReceiveBags

SleepShower

CallRoom

Service

ReceiveFood

EatCheck out

andLeave

Greet andTakeBags

ProcessRegistration

DeliverBags

DeliverFood

ProcessCheck Out

Take Bagsto Room

TakeFoodOrder

RegistrationSystem

PrepareFood

PH

YS

ICA

LE

VID

EN

CE

Line of Interaction

Line of Visibility

Line of Internal Interaction

RegistrationSystem

Page 39: Bm404 lecture5

Step 1

Identify the process to be blue-printed

Step 1

Identify the process to be blue-printed

Step 2

Identify the customer or customer segment

Step 2

Identify the customer or customer segment

Step 3

Map the process from the customer’s point of view

Step 3

Map the process from the customer’s point of view

Step 4

Map contact employee actions, onstage and back-stage, and/or technology actions

Step 4

Map contact employee actions, onstage and back-stage, and/or technology actions

Step 5

Link contact activities to needed support functions

Step 5

Link contact activities to needed support functions

Step 6

Add evidence of service at each customer action step

Step 6

Add evidence of service at each customer action step

Building a Service Blueprint

Page 40: Bm404 lecture5

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

Page 41: Bm404 lecture5

Blueprints Can Be Used By:Service Marketers

creating realistic customer expectations: service system design promotion

Operations Managementrendering the service as

promised: managing fail points training systems quality control

Human Resources Managementempowering the human

element: job descriptions selection criteria appraisal systems

System Technologyproviding necessary tools:

system specifications personal preference

databases

Page 42: Bm404 lecture5

10ChapterChapter

Customer-Defined Service Standards

Factors Necessary for Appropriate Service Standards

Types of Customer-Defined Service Standards

Development of Customer-Defined Service Standards

Page 43: Bm404 lecture5

Customer-Defined Service Standards

Distinguish between company-defined and customer-defined service standards.

Differentiate among one-time service fixes and “hard” and “soft” customer-defined standards.

Explain the critical role of the service encounter sequence in developing customer-defined standards.

Illustrate how to translate customer expectations into behaviors and actions that are definable, repeatable, and actionable.

Explain the process of developing customer-defined service standards.

Emphasize the importance of service performance indexes in implementing strategy for service delivery.

Page 44: Bm404 lecture5

Examples of Hard Customer-Defined Standards

Page 45: Bm404 lecture5

Examples of Soft Customer-Defined Standards

Page 46: Bm404 lecture5

AT&T’s Process Map for Measurements

Source: R. E. Kordupleski, R. T. Rust, and A. J. Zaharik, “Why Improving Quality Doesn’t Improve Quality (or Whatever Happened to Marketing?),” California Management Review 35, no. 3 (Spring 1993).

Page 47: Bm404 lecture5

AT&T’s Process Map for Measurements

Reliability

(40%)

Easy To Use

(20%)

Features / Functions

(40%)

Knowledge

(30%)

Responsive

(25%)

Follow-Up

(10%)

Delivery Interval Meets Needs

(30%)

Does Not Break

(25%)

Installed When Promised

(10%)

No Repeat Trouble

(30%)

Fixed Fast

(25%)

Kept Informed

(10%)

Accuracy, No Surprise

(45%)

Resolve On First Call

(35%)

Easy To Understand

(10%)

Business Process Customer Need Internal Metric

30% Product

30% Sales

10% Installation

15% Repair

15% Billing

% Repair Call

% Calls for Help

Functional Performance Test

Supervisor Observations

% Proposal Made on Time

% Follow Up Made

Average Order Interval

% Repair Reports

% Installed On Due Date

% Repeat Reports

Average Speed Of Repair

% Customers Informed

% Billing Inquiries

% Resolved First Call

% Billing Inquiries

TotalQuality

Source: AT&T General Business Systems

Page 48: Bm404 lecture5

Exercise for Creating Customer-Defined Service Standards

Form a group of four peopleUse your school’s undergraduate or graduate program, or an approved alternative

Complete the customer-driven service standards importance chart

Establish standards for the most important and lowest-performed behaviors and actions

Be prepared to present your findings to the class

Page 49: Bm404 lecture5

Service Encounter Customer Requirements Measurements

ServiceQuality

Customer-Driven Standards and Measurements Exercise

Page 50: Bm404 lecture5

SatisfactionRelationship

Reliability EmpathyAssurance TangiblesResponsiveness Price

Delivers on timeReturns calls quicklyKnows my industry

Delivers by WednesdayReturns calls in two hoursKnows strengths of my

competitors

Requirements:Abstract

Concrete

Dig deeper

Dig deeper

Dig deeper

Diagnosticity:Low

High

General concepts

Dimensions

Behaviors and actions

Attributes

Figure 10.3

What Customers Expect:Getting to Actionable Steps

ValueSolution

Provider

Page 51: Bm404 lecture5

1. Identify existing or desired service encounter sequence

2. Translate customer expectations into behaviors/actions

2. Translate customer expectations into behaviors/actions

4. Set hard or soft standards

5. Develop feedback mechanisms5. Develop feedback mechanismsMeasure by

audits oroperating

data

Hard Soft

Measure bytransaction-

based surveys

3. Select behaviors/actions for standards3. Select behaviors/actions for standards

6. Establish measures and target levels6. Establish measures and target levels

Figure 10.4

Process for Setting Customer-Defined Standards

7. Track measures against standards7. Track measures against standards

8. Provide feedback about performance to employees8. Provide feedback about performance to employees

9. Update target levels and measures9. Update target levels and measures

Page 52: Bm404 lecture5

Figure 10.5

Importance/Performance Matrix

Page 53: Bm404 lecture5

2 4 6 8 12 16 20 24

WORKING HOURS

Large Customers

Small Customers

10

9

8

7

6

5

4

3

2

1

0

SA

TIS

FA

CT

ION

Figure 10.6

Linkage between Soft Measures and Hard Measures for Speed of Complaint Handling

Page 54: Bm404 lecture5

11ChapterChapter

Physical Evidence and the Servicescape

Physical EvidenceTypes of ServicescapesStrategic Roles of the Servicescape

Framework for Understanding Servicescape Effects on Behavior

Guidelines for Physical Evidence Strategy

Page 55: Bm404 lecture5

Objectives for Chapter 11:Physical Evidence and the Servicescape

Explain the profound impact of physical evidence, particularly the servicescape, on customer perceptions and experiences.

Illustrate differences in types of servicescapes, the roles played by the servicescape, and the implications for strategy.

Explain why the servicescape affects customer and employee behavior, using a framework based in marketing, organizational behavior, and environmental psychology.

Present elements of an effective physical evidence strategy.

Page 56: Bm404 lecture5

Figure 11.1

Speedi-Lube Spells Out the Service Offering

Page 57: Bm404 lecture5

Table 11.1

Elements of Physical Evidence

Servicescape Other tangibles Facility exterior Exterior design Signage Parking Landscape Surrounding environment

Facility interior Interior design Equipment Signage Layout Air quality/temperature

Business cards Stationery Billing statements Reports Employee dress Uniforms Brochures Web pages Virtual servicescape

Page 58: Bm404 lecture5

Table 11.2

Examples of Physical Evidence fromthe Customer’s Point of View

Page 59: Bm404 lecture5

Table 11.3

Typology of Service Organizations Based on Variations in Form and Use of the Servicescape

Complexity of the Servicescape Servicescape usage

Elaborate Lean

Self-service (customer only)

Golf course eBay

ATM Car wash Simple Internet services Express mail drop-off

Interpersonal services (both customer and employee)

Hotel Restaurant Health clinic Hospital Bank Airline School

Dry cleaner Retail cart Hair salon

Remote service (employee only)

Telephone company Insurance company Utility Many professional services

Telephone mail-order desk Automated voice messaging

services

Page 60: Bm404 lecture5

Roles of the Servicescape

Packageconveys expectations influences perceptions

Facilitatorfacilitates the flow of the service delivery process

provides information (how am I to act?) facilitates the ordering process (how does this work?) facilitates service delivery

Socializerfacilitates interaction between:

customers and employees customers and fellow customers

Differentiatorsets provider apart from competition in the mind of the

consumer

Page 61: Bm404 lecture5

Figure 11.2

A Framework for Understanding Environment-User Relationships in Service Organizations

Source: M. J. Bitner, “Servicescapes: The Impact of Physical Surroundings on Customers and Employees,” Journal of Marketing 56 (April 1992), 57–71.

Page 62: Bm404 lecture5

Guidelines for Physical Evidence Strategy

Recognize the strategic impact of physical evidence.

Blueprint the physical evidence of service.

Clarify strategic roles of the servicescape.

Assess and identify physical evidence opportunities.

Be prepared to update and modernize the evidence.

Work cross-functionally.