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Service Recovery

Chapter 8

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Reliability is Critical in Service but

In all service contexts, service failure is inevitable

Service fai lure:when service performance falls

below a customers expectations to cause customerdissatisfaction.

Service recovery: actions taken by a firm inresponse to service failure.

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Customer Complaining Behavior

Only 1-5% complain to management orcompany headquarters

45% complain to a frontline employee

50% of those who encounter a problem, donot complain

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Unhappy Customers Repurchase

Intentions

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Dissatisfied Consumers Behavior

The Retail Customer Dissatisfaction Study 2006by the Verde Group found:

48% of respondents reported avoiding a store

because of someone elses negative experience for those who encountered problems, 33% said they

would definitely not or probably not return

The exponential power of storytelling:

as people tell the story, the negativity is embellishedand grows

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What Complainants Got:

A study at Arizona State University foundthat:

56% of complainants felt they gotNOTHING

(i.e., no satisfactory resolution of thecomplaint)

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Customer Complaint Actions Following Service Failure

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Service Recovery Paradox 1/2

A good recovery can turn angry, frustratedcustomers into loyal ones. ..can, in fact, createmore goodwill than if things had gone smoothly inthe first place. (Hart et al.)

HOWEVER: only a small percent of customers complain service recovery must be SUPERLATIVE

only with responsiveness, redress, and empathy/courtesy only with tangible rewards

even though service recovery can improve satisfaction, ithas not been found to increase purchase intentions orperceptions of the brand

service recovery is expensive

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Service Recovery Paradox 2/2

The service recovery paradox is more likely tooccur when: the failure is not considered by the customer to be severe the customer has not experienced prior failures with the

firm the cause of the failure is viewed as unstable by the

customer the customer perceives that the company had little

control over the cause of the failure

Conditions must be just right in order for therecovery paradox to be present!

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Why Customers Switch ServiceProviders?

- High/Unfair/Deceptive Pricing

- Inconvenience (of location, appointment, excessive wait)

- Core service failure (service mistakes, billing errors, catastrophe)

- Service encounter failure- Poor response to service failure

- Competition (customer discovers better alternatives)

- Ethical problems (cheat, hard sell, unsafe)- Involuntary switching (customer moved, provider closed)

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Service Recovery Strategies

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Eight Most Common Remedies CustomersSeek with Serious Problems

1. Have the product repaired or service fixed2. Be reimbursed for the hassle of having

experienced a problem3. Receive a free product or service in the future4. Explanation by the firm as to what happened5. Assurance that the problem will not be repeated6. A thank you for the customers business

7. An apology from the firm8. An opportunity for the customer to vent his orher frustrations to the firm

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Service Guarantees

guarantee = an assurance of the fulfillment of a condition(Websters Dictionary)

in a business context, it 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 formof a warranty

services are often not guaranteed cannot return the service

service experience is intangible (so what do you guarantee?)

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Characteristics of an EffectiveService Guarantee

Unconditional the guarantee should make its promise unconditionallyno strings

attached

Meaningful the firm should guarantee elements of the service that are important

to the customer the payout should cover fully the customers dissatisfaction

Easy to Understand and Communicate customers need to understand what to expect employees need to understand what to do

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

collecting on the guarantee

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Benefits of Service Guarantees

Force the company to focus on its customers. Set clear standards for the organization. Generate immediate and relevant feedback from customers. When invoked, they provide an instant opportunity to recover, thus

satisfying the customer and helping retain loyalty.

Information generated through the guarantees can be tracked andintegrated into continuous improvement efforts. Employee morale and loyalty can be enhanced as a result of having

a service guarantees in place. Service guarantees reduce customers sense of risk and build

confidence in the organization.

Force company to understand why it failed Build marketing muscle

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Reasons companies might NOT wantto offer a service guarantee:

existing service quality is poor

guarantee does not fit the companys image

too many uncontrollable external variables

fears of cheating or abuse by customers costs of the guarantee outweigh the benefits

customers perceive little risk in the service

customers perceive little variability in service quality

among competitors

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Effective Service Guarantees

work better for companies who are alreadycustomer-focused

can be BIG dealsthey put the company at riskin the eyes of the customer

customers should be involved in the design ofservice guarantees

the guarantee should be so stunning that it

comes as a surprisea WOW!! factor its the icing on the cake, not the cake

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Part 4

ALIGNING

SERVICE DESIGNAND STANDARDS

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Key Factors Leading to Provider Gap 2(Service Design and Standards Gap)

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Service Innovation and Design

Challenges of Service Innovation andDesign

New Service Development Processes

Types of Service Innovations

Stages in Service Innovation and

Development Service Blueprinting

High-Performance Service Innovations

Chapter

9

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Risks of Relying on Words Alone toDescribe Services

Oversimplification

IncompletenessSubjectivity

Biased Interpretation

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New Service Development Process

- Business strategy development or review

- New service strategy development

- Idea generation

-Concept development & evaluation

- Business analysis

- Service development & testing

- Market testing- Commercialization

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New Service Strategy Matrix for Identifying

Growth Opportunities (Fig. 9-2)Markets

Offerings Current Customers New Customers

Existing Services Share Building Mkt. Development

New Services Service Development Diversification

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Service Blueprinting

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Service Blueprint Components

Customer Actions

line of interaction

Visible Contact Employee Actions

line of visibility

Invisible Contact Employee Actionsline of internal interaction

Support Processes

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Building a Service Blueprint

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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

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Uses of Blueprints

Service Marketers creating realistic

customer expectations: service system design

promotion

OperationsManagement

rendering the serviceas 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 preferencedatabases

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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 customers point of

view.

Suggests critical points for measurement and feedbackin the service process.

Clarifies competitive positioning.

Provides understanding of the ideal customerexperience.

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Common Issues in Blueprinting(Exhibit 9.4)

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? Whether to include time & cost on the blueprint

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Tangible Cues or Indicators ofQuality

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

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Possibility of Standardization

Hostess Greeting

Pre-Prepared Sauces (Mild, Medium andHot)

Time Standards

Food and Drink Quality Standards Bill Standards

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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 iscorrect 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, howquickly 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

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Customer-Defined ServiceStandards

Factors Necessary for Appropriate ServiceStandards

Types of Customer-Defined ServiceStandards

Development of Customer-Defined ServiceStandards

Chapter

10

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Standards are based on the mos t impor tant cu stomer

expectations and reflect the customers view of these expectations.

Customer-

DefinedStandards

Company-Defined

Standards

SOURCES

Customer Expectations

Customer Process Blueprint

Customer Experience

Observations

SOURCES

Productivity ImplicationsCost Implications

Company Process Blueprint

Company View of Quality

Service Standards

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SOFT STANDARDS AND MEASURES

Opinion-based measures that cannot

be observed and must be collected by

talking to customers (perceptions, beliefs)

HARD STANDARDS AND MEASURESThings that can be counted, timed,

or observed through audits (time,

numbers of events)

Hard vs.Soft Standard

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What Customers Expect: Getting toActionable Steps

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Process for Setting Customer-Defined Standards

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Hard (Mostly) Service Standards atFord

Appointment available within one day ofcustomers requested service day

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

accurately recorded on repair order and verifiedwith customer

Service status provided within one minute ofinquiry

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

coverage and charges

http://images.google.com/imgres?imgurl=http://embarqblog.wri.org/wp-content/uploads/2007/04/ford_logo.jpeg&imgrefurl=http://embarqblog.wri.org/%3Fp%3D88&h=304&w=587&sz=18&hl=en&start=9&tbnid=95CuGUiJycjZyM:&tbnh=70&tbnw=135&prev=/images%3Fq%3DFord%2Blogo%26gbv%3D2%26hl%3Den

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Soft Standards at Toyota in Japan (1 of 2)

Standards for salespeoplepatterned after samurai behaviors: assume the samurai warriors waiting

position by leaning five to tendegrees forward when a customer is

looking at a car stand with left hand over right, fingers

together and thumbs interlocked, asthe samurais did to show they werenot about to draw their swords

display the Lexus Face, a closed-mouth smile intended to putcustomers at ease

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Soft Standards at Toyota in Japan(2 of 2)

Standards for salespeople patternedafter samurai behaviors: when serving coffee or tea, kneel on the

floor with both feet together and bothknees on the ground

bow more deeply to a customer who haspurchased a car than a casual windowshopper

stand about two arms lengths fromcustomers when they are looking at a car

and come in closer when closing a deal point with all five fingers to a car doors

handle, right hand followed by left, thengracefully open the door with both hands

Ch t

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Physical Evidence and theServicescape

Physical Evidence

Types of Servicescapes

Strategic Roles of the Servicescape Framework for Understanding Servicescape

Effects on Behavior

Guidelines for Physical Evidence Strategy

Chapter

11

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Elements of Physical Evidence

Facility exterior: design, signage, parking, landscape

Facility interior: design, equipment, layout,atmospherics, ...

Other tangibles: business cards, stationery, billing

statements, reports, web pages,

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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

G id li f Ph i l E id

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Guidelines for Physical EvidenceStrategy

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.

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Part 5

DELIVERING AND

PERFORMINGSERVICE

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Key Causes of Provider Gap 3

Chapter

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Employees Roles in Service

Delivery

Service Culture

The Critical Importance of ServiceEmployees

Boundary-Spanning Roles

Strategies for Delivering Service QualityThrough People

Customer-Oriented Service Delivery

Chapter

12

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Service Culture

A culture where an appreciation for good

service exists, and where giving goodservice to internal as well as ultimate,

external customers, is considered anatural way of life and one of the mostimportant norms by everyone in the

organization.- Christian Grnroos (1990)

Th C iti l I t f S i

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The Critical Importance of ServiceEmployees

Every encounter counts Employees arethe service.

Every employee can make a difference

They are the organization in the customers 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

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The Services MarketingTriangle

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Aligning the Triangle

Organizations that seek to provideconsistently high levels of serviceexcellence will continuously work to align

the three sides of the triangle.

Aligning the sides of the triangle is an

ongoing process.

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Making Promises

Understanding customer needs

Managing expectations

Traditional marketing communications

Sales and promotion

Advertising

Internet and web site communication

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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

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Enabling Promise Keeping

Hiring the right people

Training and developing people to deliverservice

Employee empowerment

Support systems

Appropriate technology and equipment Rewards and incentives

Ways to Use the Services

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Ways to Use the ServicesMarketing Triangle

Overall Strategic Assessment

How is the serviceorganization doing onall three sides of the

triangle? Where are the

weaknesses?

What are the

strengths?

Specific Service Implementation

What is being promotedand by whom?

How will it be delivered

and by whom? Are the supporting

systems in place todeliver the promised

service?

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H R St t i f D li i

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Human Resource Strategies for DeliveringService Quality through People

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

Wegmans did not hesitate to send cheese manager TerriZodarecky on a ten-day sojourn to cheese makers inEurope.

The firm gives employees flexibility to deliver greatcustomer satisfaction.

How can this be justified?

How Employee Satisfaction Drives Productivity

and Customer Satisfaction at Wegmans

How does this affect

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How does this affectperformance?

Wegmans labor costs are 15-17% of sales, compared with12% for industry.

But annual turnover is just 6% (19% for similar grocerychains).

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.

E

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Empowerment

Benefits:

quicker responses to customerneeds during service delivery

quicker responses todissatisfied customers duringservice recovery

employees feel better abouttheir jobs and themselves

employees tend to interact withwarmth/enthusiasm

empowered employees are a

great source of ideas great word-of-mouth advertising

from customers

Drawbacks:

potentially greater dollarinvestment in selection andtraining

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

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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

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Customer-Focused OrganizationalChart

Customers Roles in Service Chapter

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Customers Roles in Service

Delivery

The Importance of Customers in ServiceCocreation and Delivery

Customers Roles

Self-Service TechnologiesThe Ultimatein Customer Participation

Strategies for Enhancing CustomerParticipation

Chapter

13

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How Customers Widen the ServicePerformance 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 (Fello ) Customers

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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

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Customer Roles in ServiceDelivery

Productive Resources

Contributors toService Quality and

Satisfaction

Competitors

Customers as Productive

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Customers as ProductiveResources

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

production process

customer inputs can affect organizations

productivity

key issue: should customers roles be expanded? reduced?

Customers as Contributors to Service

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Customers as Contributors to ServiceQuality 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

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Customers as Competitors

customers may compete with the serviceprovider

internal exchange vs. external exchange internal/external decision often based on:

expertise capacity resources capacity time capacity economic rewards

psychic rewards trust control

Strategies for Enhancing customer

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Strategies for Enhancing customerParticipation

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

ChapterDelivering Service Through

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Service Distribution

Direct or Company-Owned Channels

Franchising

Agents and Brokers

Electronic Channels

Common Issues Involving Intermediaries Strategies for Effective Service Delivery

Through Intermediaries

p

14Delivering Service ThroughIntermediaries & Electronic Channels

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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)

S i I t di i

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Services Intermediaries Franchisees

service outlets licensed by a principal to deliver aunique service concept it has created

e.g., Jiffy Lube, Blockbuster, Holiday Inns, McDonalds

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, Tax Prep software

Benefits and Challenges for

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Benefits and Challenges forFranchisorsof Service

Benefits Leveraged business

format for greaterexpansion & revenues

Consistency in outlets

Knowledge of localmarkets

Shared financial risk &more working capital

Challenges Difficult to maintain &

motivate franchisees

Highly publicizeddisputes & conflicts

Intermediaries controlcustomer relationship

Benefits and Challenges for

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Benefits and Challenges forFranchiseesof Service

Benefits

An established businessformat

International, national, or

regional brand marketing

Minimized risk of startinga business

Poorly capitalized or

managed franchisor

Challenges

Encroachment of otheroutlets into franchisedterritories

Disappointing profits &revenues

Lack of perceived controlover operations

High fees

Benefits and Challenges in Distributing

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Benefits and Challenges in DistributingServices throughAgents and Brokers

Benefits

Reduced selling &distribution costs

Intermediarys

possession of skills &knowledge

Wide representation

Knowledge of local

markets

Customer choice

Challenges

Loss of control overpricing

Representation ofmultiple serviceprincipals

Benefits and Challenges in Electronic

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Benefits and Challenges in ElectronicDistributionof Services

Benefits

Consistent delivery ofstandardized services

Customer convenience

Wide distribution

Customer choice & abilityto customize

Quick customer feedback

Challenges

Price competition

Inability to customize

Lack of consistence dueto customer involvement

Changes in customerbehavior

Security concerns

Competition fromwidening geographics

Common Issues Involving

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Common Issues InvolvingIntermediaries

conflict over objectives and performance

difficulty controlling quality andconsistency across outlets

tension between empowerment andcontrol

channel ambiguity

Strategies for Effective Service Delivery

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g yThrough Intermediaries

Control Strategies: Measurement

Review

Partnering Strategies:

Alignment of goals

Consultation and

cooperation

EmpowermentStrategies: Help the intermediary

develop customer-oriented serviceprocesses

Provide needed supportsystems

Develop intermediaries

to deliver service quality Change to a cooperative

management structure

Chapter

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Managing Demand and Capacity

15

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C f F il t D li S i

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Causes of Failure to Deliver Service

Inventory and demand dont match Capacity is often fixed

Service characteristics: perishability,

simultaneous production and consumption Demand often cant be controlled or

predicted

Result: Lost business or wasted capacity Cant ever be regained or resold

R lt f Mi t h

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Results of Mismatch

Demand is either above or below capacity Excess demandturn customers 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

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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 Constraints

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Understanding Capacity Constraintsand Demand Patterns

Capacity Constraints

Time (accounting, medical,consulting)

Labor (law firm, post office)

Equipment (telecom,utilities, delivery service)

Facilities (hotels, hospitals,

schools) Optimal versus

maximum use ofcapacity

Demand Patterns

Predictable cycles

Random demand

fluctuations

Demand patterns bymarket segment

D d S l

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Demand versus Supply

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

Strategies for Shifting Demand to Match Capacity

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Strategies for Shifting Demand to Match Capacity

Use signage tocommunicate busy daysand times.

Offer incentives tocustomers for usageduring non-peak times.

Take care of loyal orregular customers first.

Advertise peak usage

times and benefits of non-peak use.

Charge full price -- nodiscounts.

Use advertising to increasebusiness from current marketsegments.

Modify service offering toappeal to new marketsegments.

Offer discounts or pricereductions.

Modify hours of operation. Bring the service to the

customer.

Demand Too High Demand Too LowShift Demand

More Strategies for Adjusting Capacity to Match

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More Strategies for Adjusting Capacity to MatchDemand

Challenges and Risks in Using

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Challenges and Risks in UsingYield Management

Yield Management: Maximizing profit from available capacity bymanipulating pricing to gain business at different times, and fromdiffering market segments. Yield= Actual Revenue (capacity used x averageprice)/Potential Revenue (total capacity x maximum price)

Revenue Management: Maximizing profits from the sale of all goodsand services offered by the service firm

Problems:

Customer alienation

Employee morale problems

Incompatible incentive and reward systems

Lack of employee training

Inappropriate organization of the yield management function

Waiting Line Strategies

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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

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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.

P t 6

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Part 6

MANAGING

SERVICE

PROMISES

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Pricing of Services

Ways in which Service Prices are Differentfor Consumers

Approaches to Pricing Services

Pricing Strategies that Link to the Four

Value Definitions

Chapter

17

McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Some Issues in Service Prices

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Some Issues in Service Prices

Customers often lack reference prices forservice

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

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The Role of Non-monetary Price

Time costs Search costs

Convenience costs

Psychological costs

Three Basic Marketing Price Structures and

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gChallenges for Services

Four Customer Definitions of Value

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Four Customer Definitions of Value

Pricing Strategies When the Customer

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Defines Value as Low Price

Pricing Strategies When the Customer Defines

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Value as Everything Wanted in a Service

Pricing Strategies When the Customer

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Defines Value as Quality for the Price Paid

Pricing Strategies When the Customer Defines

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Value as All that Is Received for All that Is Given

Bid Pricing

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Bid PricingCompetition-based pricing where one bidder has little

or no knowledge of other bidders price. An expected

profit model is used:

Bid Price Cost Profit (P) p of success Expected Profit (P*p)

$1,000 $700 $300 .9 $270

$1,100 $700 $400 .8 $320

$1,200 $700 $500 .65 $325

$1,300 $700 $600 .55 $330

$1,400 $700 $700 .4 $280$1,500 $700 $800 .3 $240

MKT 356 Services Marketing

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MKT 356 Services Marketing

End of Slides, Winter 2010