MKT 356 Services Marketing Spring, 2009 Web Slides, Ch. 9-17, x 16 I. Khera.

MKT 356 Services MarketingSpring, 2009

Web Slides, Ch. 9-17, x 16I. Khera

Service Innovation and Design

• Challenges of Service Innovation and Design

• New Service Development Processes

• Types of Service Innovations

• Stages in Service Innovation and Development

• Service Blueprinting

• High-Performance Service Innovations

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Risks of Relying on Words Alone to

Describe Services

• Oversimplification

• Incompleteness

• Subjectivity

• Biased Interpretation

Types of Service Innovations

• major or radical innovations

• start-up businesses

• new services for the currently served market

• service line extensions

• service improvements

• style changes

See Exhibits 9-1, 9-2, 9-3

Service Blueprint Components

Customer Actions

line of interaction

Visible Contact Employee Actions

line of visibility

Invisible Contact Employee Actions

line of internal interaction

Support Processes

Service Blueprint Components

See Exhibits 9-5, 9-6 and 9-7

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

Uses of Blueprints

• Service Marketers– creating realistic

customer expectations:• service system design• promotion

• Operations Management– rendering the service as

promised:• managing fail points• training systems• quality control

• Human Resources Management– empowering the human

element:• job descriptions• selection criteria• appraisal systems

• System Technology– providing necessary tools:

• system specifications• personal preference

databases

Benefits of Service Blueprinting

• Provides a platform for innovation.• Recognizes roles and interdependencies among

functions, people, and organizations.• Facilitates both strategic and tactical innovations.• Transfers and stores innovation and service knowledge.• Designs moments of truth from the customer’s point of

view.• Suggests critical points for measurement and feedback

in the service process.• Clarifies competitive positioning.• Provides understanding of the ideal customer

experience.

Common Issues in Blueprinting

• Clearly defining the process to be blueprinted• Clearly defining the customer or customer

segment that is the focus of the blueprint• Who should “draw” the blueprint?• Should the actual or desired service process be

blueprinted?• Should exceptions/recovery processes be

incorporated?• What is the appropriate level of detail?• Symbology• Whether to include time on the blueprint

Tangible Cues or Indicators of Quality

• Exterior and Interior Design

• Presentation of Food/Drinks

• Appearance of Staff

• Cleanliness of Tables, Utensils

• Cleanliness of Restrooms

• Location of Restaurant

• Appearance of Surrounding Customers

Possibility of Standardization

• Hostess Greeting

• Pre-Prepared Sauces (Mild, Medium and Hot)

• Time Standards

• Food and Drink Quality Standards

• Bill Standards

Potential Fail Points and Fixability

• Bar– train to make drinks; create ample seating space for wait area overflow

• Food– revise food presentation; create quality control checks to ensure order is

correct before delivering to customer• Staff

– training; set number of times to check-in on customers; behavioral and attitude guidelines; dress code

• Billing– standards for when to bring bill, how to deliver, when to pick-up, how

quickly to process transaction; ensure one fortune cookie per customer• Cleanliness

– standards for amount of time it takes to clear and clean tables; regular restroom checks

Customer-Defined ServiceStandards

• Factors Necessary for Appropriate Service Standards

• Types of Customer-Defined Service Standards

• Development of Customer-Defined Service Standards

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Standards are based on the most important customerexpectations and reflect the customer’s view of these expectations.

Customer-Defined

Standards

Customer-Defined

Standards

Company-Defined

Standards

Company-Defined

Standards

SOURCESCustomer ExpectationsCustomer Process BlueprintCustomer Experience Observations

SOURCESProductivity ImplicationsCost ImplicationsCompany Process BlueprintCompany View of Quality

Service Standards

SOFT STANDARDS AND MEASURESOpinion-based measures that cannot be observed and must be collected bytalking to customers (perceptions, beliefs)

HARD STANDARDS AND MEASURESThings that can be counted, timed,or observed through audits (time,numbers of events)

Standards…

See Exhibits 10-1 and 10-2

What Customers Expect: Getting to Actionable Steps

Process for Setting Customer-Defined Standards

See Exhibit 10-5

Hard (Mostly) Service Standards at Ford

• Appointment available within one day of customer’s requested service day

• Write-up begins within four minutes• Service needs are courteously identified,

accurately recorded on repair order and verified with customer

• Service status provided within one minute of inquiry

• Vehicle serviced right on first visit• Vehicle ready at agreed-upon time• Thorough explanation given of work done,

coverage and charges

Soft Standards at Toyota in Japan

• Standards for salespeople patterned after samurai behaviors:– assume the samurai warrior’s

“waiting position” by leaning five to ten degrees forward when a customer is looking at a car

– stand with left hand over right, fingers together and thumbs interlocked, as the samurais did to show they were not about to draw their swords

– display the “Lexus Face,” a closed-mouth smile intended to put customers at ease

Samura

i warri

or

“waiti

ng posit

ion”

More Soft Standards at Toyota in Japan

• Standards for salespeople patterned after samurai behaviors:– when serving coffee or tea, kneel on the

floor with both feet together and both knees on the ground

– bow more deeply to a customer who has purchased a car than a casual window shopper 

– stand about two arms’ lengths from customers when they are looking at a car and come in closer when closing a deal

– point with all five fingers to a car door’s handle, right hand followed by left, then gracefully open the door with both hands 

Standards at Four Seasons

• Seven Service Culture Standards

• Core Worldwide Service Operating Standards1. Smile

2. Eye

3. Recognition

4. Voice

5. Informed

6. Clean

7. Everyone

• Reservations• Hotel Arrival• Messages and Paging• Guest Room Evening

Service• Breakfast• Room

Exceptions are permitted if they make local sense

Ritz-Carlton’s SQI IndexSQI Defects Points

1. Missing Guest Preferences 10

2. Unresolved Difficulties 50

3. Inadequate Guestroom Housekeeping 1

4. Abandoned Reservation Calls 5

5. Guestroom Changes 5

6. Inoperable Guestroom Equipment 5

7. Unready Guestroom 10

8. Inappropriate Hotel Appearance 5

9. Meeting Event Difficulties 5

10. Inadequate Food/Beverage 1

11. Missing/Damaged Guest Property/Accidents 50

12. Invoice Adjustment 3

Physical Evidence and the Servicescape

• Physical Evidence

• Types of Servicescapes

• Strategic Roles of the Servicescape

• Framework for Understanding Servicescape Effects on Behavior

• Guidelines for Physical Evidence Strategy

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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.

See Exhibits 11-1, 11-2 and 11-3

Roles of the Servicescape

• Package– conveys expectations – influences perceptions

• Facilitator– facilitates 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

• Socializer– facilitates interaction between:

• customers and employees• customers and fellow customers

• Differentiator– sets provider apart from competition in the mind of the consumer

A Framework for Understanding Environment-User Relationships in Service Organizations

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.

Part 5

DELIVERING AND PERFORMING SERVICE

DELIVERING AND PERFORMING SERVICE

Key Factors Leading to Provider Gap 3

Employees’ Roles in ServiceDelivery

• Service Culture

• The Critical Importance of Service Employees

• Boundary-Spanning Roles

• Strategies for Delivering Service Quality Through People

• Customer-Oriented Service Delivery

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Service Culture

“A culture where an appreciation for good service exists, and where giving good service to internal as well as ultimate, external customers, is considered a natural way of life and one of the most important norms by everyone in the organization.”

- Christian Grönroos (1990)

The Critical Importance of Service Employees

• Every encounter counts• Employees are the service.• Every employee can make a difference• They are the organization in the customer’s eyes.• They are the brand.• They are marketers.• Through their actions, all employees shape the brand

• Their importance is evident in:– the services marketing mix (people)– the service-profit chain– the services triangle

The Services Marketing Triangle

Aligning the Triangle

• Organizations that seek to provide consistently high levels of service excellence will continuously work to align the three sides of the triangle.

• Aligning the sides of the triangle is an ongoing process.

Services Marketing TriangleApplications Exercise

• Focus on a service organization. In the context you are focusing on, who occupies each of the three points of the triangle?

• How is each type of marketing being carried out currently?

• Are the three sides of the triangle well aligned?

• Are there specific challenges or barriers in any of the three areas?

Making Promises

• Understanding customer needs

• Managing expectations

• Traditional marketing communications

• Sales and promotion

• Advertising

• Internet and web site communication

Keeping Promises

• Service delivery– Reliability, responsiveness, empathy, assurance,

tangibles, recovery, flexibility

• Face-to-face, telephone & online interactions

• The Customer Experience

• Customer interactions with sub-contractors or business partners

• The “moment of truth”

Enabling Promises

• Hiring the right people

• Training and developing people to deliver service

• Employee empowerment

• Support systems

• Appropriate technology and equipment

• Rewards and incentives

Ways to Use the Services Marketing Triangle

• Overall Strategic Assessment– How is the service

organization doing on all three sides of the triangle?

– Where are the weaknesses?

– What are the strengths?

• Specific Service Implementation– What is being promoted

and by whom?– How will it be delivered

and by whom?– Are the supporting

systems in place to deliver the promised service?

See Exhibit 12-2

Service Employees• Who are they?

– Boundary Spanners: Interact with both internal and external constituents

• What are these jobs like?– emotional labor– many sources of potential conflict

• person/role• organization/client• interclient

– quality/productivity tradeoffs

Human Resource Strategies for Delivering Service Quality through People

The grocery chain paid over $54 million for college scholarships for 17,500+ employees over the past 20 years.

Wegmans did not hesitate to send cheese manager Terri Zodarecky on a ten-day sojourn to cheesemakers in Europe.

The firm gives employees flexibility to deliver great customer satisfaction.

How can this be justified?

How Employee Satisfaction Drives Productivity and Customer Satisfaction at Wegmans

How does this affect performance?

• Wegmans’ labor costs are 15-17% of sales, compared with 12% for industry.

• But annual turnover is just 6% (19% for similar grocery chains).

• 20% of employees have 10+ years of service. • This in an industry where turnover costs can

exceed annual profits by more than 40%. • Wegmans’ operating margins are 7.5%, double

what the big grocers earn. • Sales per square foot are 50% higher than

industry average.

Empowerment

• Benefits:– quicker responses to

customer needs during service delivery

– quicker responses to dissatisfied customers during service recovery

– employees feel better about their jobs and themselves

– employees tend to interact with warmth/enthusiasm

– empowered employees are a great source of ideas

– great word-of-mouth advertising from customers

• Drawbacks:– potentially greater dollar

investment in selection and training

– higher labor costs– potentially slower or

inconsistent service delivery– may violate customers’

perceptions of fair play– employees may “give away

the store” or make bad decisions

Traditional Organizational Chart

Manager

Supervisor

Front-lineEmployee

Customers

Front-lineEmployee

Front-lineEmployee

Front-lineEmployee

Supervisor

Front-lineEmployee

Front-lineEmployee

Front-lineEmployee

Front-lineEmployee

Customer-Focused Organizational Chart

Inverted Services Marketing Triangle

Customers’ Roles in ServiceDelivery

• The Importance of Customers in Service Cocreation and Delivery

• Customers’ Roles

• Self-Service Technologies—The Ultimate in Customer Participation

• Strategies for Enhancing Customer Participation

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See Exhibit 13-1

How Customers Widen the Service Performance Gap

• Lack of understanding of their roles

• Not being willing or able to perform their roles

• No rewards for “good performance”

• Interfering with other customers

• Incompatible market segments

Importance of Other (“Fellow”) Customersin Service Delivery

• Other customers can detract from satisfaction:– disruptive behaviors– overly demanding behaviors– excessive crowding– incompatible needs

• Other customers can enhance satisfaction:– mere presence– socialization/friendships– roles: assistants, teachers, supporters, mentors

Customer Roles in Service Delivery

Productive Resources

Contributors to Service Quality and Satisfaction

Competitors

See Exhibit 13-1

Customers as Productive Resources

• customers can be thought of as “partial employees”– contributing effort, time, or other resources to the

production process

• customer inputs can affect organization’s productivity

• key issue:– should customers’ roles be expanded? reduced?

Customers as Contributors toService Quality and Satisfaction

• Customers can contribute to:– their own satisfaction with the service

• by performing their role effectively• by working with the service provider

– the quality of the service they receive• by asking questions• by taking responsibility for their own satisfaction• by complaining when there is a service failure

Customers as Competitors

• customers may “compete” with the service provider

• “internal exchange” vs. “external exchange”• internal/external decision often based on:

– expertise capacity– resources capacity– time capacity– economic rewards– psychic rewards– trust– control

See Exhibit 13-2

Strategies for Enhancing customer Participation

• Define customers’ jobs– helping oneself– helping others– promoting the company

• Recruit, educate, and reward customers– recruit the right customers– educate and train customers to perform effectively– reward customers for their contributions– avoid negative outcomes of inappropriate customer

participation

• Manage the customer mix

See Exhibit 13-2

• Service Distribution

• Direct or Company-Owned Channels

• Franchising

• Agents and Brokers

• Electronic Channels

• Common Issues Involving Intermediaries

• Strategies for Effective Service Delivery Through Intermediaries

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Service Provider Participants

• Service principal (originator)– creates the service concept

• (like a manufacturer)

• Service deliverer (intermediary)– entity that interacts with the customer in the

execution of the service• (like a distributor/wholesaler)

Services Intermediaries

• Franchisees– service outlets licensed by a principal to deliver a unique

service concept it has created• e.g., Jiffy Lube, Blockbuster, Holiday Inns, McDonald’s

• Agents and Brokers– representatives who distribute and sell the services of

one or more service suppliers• e.g., travel agents, independent insurance agents

• Electronic Channels– all forms of service provision through electronic means

• e.g., ATMs, university video courses, TaxCut software

Benefits and Challenges for Franchisors of Service

Benefits• Leveraged business

format for greater expansion & revenues

• Consistency in outlets• Knowledge of local

markets• Shared financial risk &

more working capital

Challenges• Difficult to maintain &

motivate franchisees• Highly publicized

disputes & conflicts• Intermediaries control

customer relationship

Benefits and Challenges forFranchisees of Service

Benefits• An established

business format• International, national,

or regional brand marketing

• Minimized risk of starting a business

• Poorly capitalized or managed franchisor

Challenges• Encroachment of other

outlets into franchised territories

• Disappointing profits & revenues

• Lack of perceived control over operations

• High fees

Benefits and Challenges in Distributing Services through Agents and Brokers

Benefits• Reduced selling &

distribution costs• Intermediary’s

possession of skills & knowledge

• Wide representation• Knowledge of local

markets• Customer choice

Challenges• Loss of control over

pricing• Representation of

multiple service principals

Benefits and Challenges in Electronic Distribution of Services

Benefits• Consistent delivery of

standardized services• Customer convenience• Wide distribution• Customer choice & ability

to customize• Quick customer feedback

Challenges• Price competition• Inability to customize• Lack of consistence due

to customer involvement• Changes in customer

behavior• Security concerns• Competition from

widening geographics

Common Issues Involving Intermediaries

• conflict over objectives and performance

• difficulty controlling quality and consistency across outlets

• tension between empowerment and control

• channel ambiguity

Strategies for Effective Service Delivery Through Intermediaries

• Control Strategies:– Measurement– Review

• Partnering Strategies:– Alignment of goals– Consultation and

cooperation

• Empowerment Strategies:– Help the intermediary

develop customer-oriented service processes

– Provide needed support systems

– Develop intermediaries to deliver service quality

– Change to a cooperative management structure

Managing Demand andCapacity

• The Underlying Issue: Lack of Inventory Capability

• Capacity Constraints

• Demand Patterns

• Strategies for Matching Capacity and Demand

• Yield Management: Balancing Capacity Utilization, Pricing, Market Segmentation, and Financial Return

• Waiting Line Strategies: When Demand and Capacity Cannot Be Matched

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Failure to Deliver

• Inventory and demand don’t match

• Capacity is often fixed - service perishability, simultaneous production and consumption

• Demand often can’t be controlled or predicted

• Result: Lost business or wasted capacity

• Can’t ever be regained or resold

Results of Mismatch

• Demand is either above or below capacity

• Excess demand - turn them away

• Demand above optimal capacity - resources are stretched in the short term

• Excess capacity - resources underutilized, often sends the wrong message

Variations in Demand Relative to Capacity

Source: C. Lovelock, “Getting the Most Out of Your Productive Capacity,” in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.

Understanding Capacity Constraintsand Demand Patterns

Capacity Constraints– Time, labor, equipment,

and facilities– Optimal versus

maximum use of capacity

Demand Patterns– Charting demand

patterns– Predictable cycles– Random demand

fluctuations– Demand patterns by

market segment

Demand versus Supply

Source: C. H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing 47, (Summer 1983): 17.

See Exhibit 15-2

Addressing the Mismatch

• May be able to smooth the demand by...– Modifying what we offer the customer– Communicate to switch people to off-peak– Modify service times and locations– Offer price incentives to move to other times

Strategies for Shifting Demand to Match Capacity

• Use signage to communicate busy days and times.

• Offer incentives to customers for usage during nonpeak times.

• Take care of loyal or “regular” customers first.

• Advertise peak usage times and benefits of nonpeak use.

• Charge full price for the service—no discounts.

• Use sales and advertising to increase business from current market segments.

• Modify the service offering to appeal to new market segments.

• Offer discounts or price reductions.

• Modify hours of operation.• Bring the service to the

customer.

Demand Too High Demand Too LowShift Demand

Strategies for Adjusting Capacity to Match Demand

Challenges and Risks in UsingYield Management

Yield Management: securing maximum profits from available capacity by manipulating pricing to gain business at different times, and from differing market segments.

• Customer alienation

• Employee morale problems

• Incompatible incentive and reward systems

• Lack of employee training

• Inappropriate organization of the yield management function

Airline Inventory Example

• 48 days before departure– 41 seats reserved

• Passengers are paying $O for Aeroplan seats and between $228 to over $1,000 for revenue seats.

– Based on past cancellation history, the computer authorizes the booking of 154 economy seats in various inventory classes; this is 15 seats over the airplane’s capacity of 139 passengers.

• 13 days before departure– 101 seats booked

• 21-day & 14-day advance purchase seats for this flight are no longer available.

– The Airline’s computer allows overbooking by 21 seats.– The price of a full economy ticket has risen.

Airline Inventory Example• Four hours before departure

– The flight is overbooked by 11 passengers, but the computer authorizes the sale of 3 more economy class seats at full fare Y.

– Business class, which had 2 bookings 5 days ago, has now been filled .

• Twenty minutes before departure– Overbooked by 13 passengers;

• 3 left on earlier flight• 8 others do not show up• 2 passengers are denied boarding

– Offered compensation and a Business Class seat on the next flight

• Departure– Ten minutes late – had to remove baggage for the two passengers not

travelling– The flight was full – 139 passengers

Waiting Line Strategies

• Employ operational logic– modify operations– adjust queuing system

• Establish a reservation process

• Differentiate waiting customers– importance of the customer– urgency of the job– duration of the service transaction– payment of a premium price

• Make waiting fun, or at least tolerable

The Psychology of Waiting Lines• Unoccupied time feels longer than occupied time.• Preprocess waits feel longer than in-process

waits.• Anxiety makes waits seem longer.• Uncertain waits seem longer than known, finite

waits.• Unexplained waits seem longer than explained

waits.• Unfair waits feel longer than equitable waits.• The more valuable the service, the longer the

customer will wait.• Solo waits feel longer than group waits.

See Exhibit 15-4

Part 6

MANAGING SERVICE PROMISES

MANAGING SERVICE PROMISES

Pricing of Services

• Three Key Ways that Service Prices Are Different for Consumers

• Approaches to Pricing Services

• Pricing Strategies that Link to the Four Value Definitions

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Pricing Quiz

Which dentist would you choose for a filling in your tooth?

Dentist Cost for the filing

Distance to Dentist

Wait Period for an

Appointment

Time in Waiting Room

Anesthesia

A $50 15 miles 3 Weeks 1.5 hour None

B $75 15 miles 1 Week .5 hour Novocain

C $125 3 miles 1 Week 1 hour Novocain

D $200 3 miles 1 Week No wait Nitrous Oxide

& Novocain

List Price of Chest X-Rays, CA Hospitals

Doctors Hospital, (Modesto) $1,519

Sutter General, Sacramento $790

UC Davis, Sacramento $451.50

Cedars-Sinai, LA $412.90

West Hills Hospital $396.77

Scripps Memorial, La Jolla $120.90

SF General $120

List Prices for Complete Blood Count, CA Hospitals

Doctors Hospital, (Modesto) $547.30

Sutter General, Sacramento $234

West Hills Hospital $172.42

UC Davis, Sacramento $166

Cedars-Sinai, LA $165.80

SF General $50

Scripps Memorial, La Jolla $47

Some Issues in Service Prices

• Customers often lack reference prices for service

• Service variability limits knowledge

• Providers are unwilling to estimate prices

• Individual customer needs vary

• Collection of price information by customers is difficult

• Prices are not visible

The Role of Non-monetary Price

• Time costs• Search costs• Convenience costs• Psychological costs

Do people trade time for money?

Price as an Indicator of Service Quality

Infers Low Quality Service

Infers High Quality Service

Three Basic Marketing Price Structures and Challenges for Services

A Customer-Focused Approach to The Pricing Process

See Exhibits 17-2 to 17-6

Summary of Service Pricing Strategies for

Four Customer Definitions of Value

MKT 356 Services Marketing

End of Slides, Spring 2009