Marketing Service Organisations

BM404 – 2006

Lecture 2

Overview

Defining services Understanding the services economy The service sector in Australia Mega-trends and the service sector:

Professional services Characteristics of services Marketing implications

Defining services?

Any act, performance or experience that one party can offer another; one that is essentially intangible, and does not result in the ownership of anything. Its production may or may not be tied to a physical product

Lovelock (2004)

Characteristics of ServicesCompared to Goods

Intangibility

Perishability

SimultaneousProduction

andConsumption

Heterogeneity

Challenges for Services

Defining and improving qualityDesigning and testing new servicesCommunicating and maintaining a consistent

imageAccommodating fluctuating demandEnsuring the delivery of consistent quality

Challenges for Services (cont.) Motivating and sustaining employee

commitment Coordinating marketing, operations, and

human resource efforts Setting prices Finding a balance between standardization

versus personalization

Further challenges for services managers Differentiation and competitive advantage may be

difficult to achieve Marketing orientation is still relatively new to many

managers Operations management, rather than marketing,

continues to dominate Customer service management and marketing is

often in the hands of lower paid subordinates, possibly in multiple locations

Limited data on competitive performance is available Problems in determining costs for pricing purposes

An expanded marketing mix for services

Customers PricePlace & Time

Promotion

Product (Service)People Process

Physical Evidence

Customers Pricecustomers

Place, Cyber-space & Time

Internal marketing

Traditional marketing

OrganisationOrganisation

EmployeesEmployees CustomersCustomers

Satisfaction; Quality; Brand Loyalty

Relationship management

A framework for analysing servicesmarketing

Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR Functions (Fig. 1.14)

Customers

Operations Management

Marketing Management

Human Resources Management

Gaps model of service quality

Zeithaml, Bitner and Gremler (2006)

The Gaps model of service quality (Zeithaml, Parasuraman & Berry 1990)

Expectedservice

Perceivedservice

Customer Gap

The Customer GapDifference between customer expectations and perceptions

Gaps Model of Service QualityProvider Gap 1 (The Knowledge Gap):not knowing what customers expect

Provider Gap 2 (The Service Design & Standards Gap):not having the right service designs and standards

Provider Gap 3 (The Service Performance Gap):not delivering to service standards

Provider Gap 4 (The Communication Gap):not matching performance to promises

Provider Gap 1: Not knowing what customers expect

Provider Gap 2: Not selecting the right service designs and standards

Provider Gap 3: Not delivering to service standards

Provider Gap 4: Not matching performance to promises

Customer Expectations

Customer Perceptions

Key Factors Leadingto the Customer Gap

CustomerGap

Customer Expectations

Company Perceptions of Customer Expectations

Inadequate marketing research orientation Insufficient marketing research Research not focused on service quality Inadequate use of market research

Lack of upward communication Lack of interaction between management and customers Insufficient communication between contact employees and managers Too many layers between contact personnel and top management

Insufficient relationship focus Lack of market segmentation Focus on transactions rather than relationships Focus on new customers rather than relationship customers

Inadequate service recovery Lack of encouragement to listen to customer complaints Failure to make amends when things go wrong No appropriate recovery mechanisms in place for service failures

Figure 2.2

Key Factors Leading to Provider Gap 1

Gap1

Customer-Driven Service Designs and Standards

Management Perceptions of Customer Expectations

Poor service design Unsystematic new service development process Vague, undefined service designs

Failure to connect service design to service positioning Absence of customer-driven standards

Lack of customer-driven service standards Absence of process management to focus on customer

requirements Absence of formal process for setting service quality goals

Inappropriate physical evidence and servicescape Failure to develop tangibles in line with customer expectations Servicescape design that does not meet customer and

employee needs Inadequate maintenance and updating of the servicescape

Figure 2.3

Key Factors Leading to Provider Gap 2

Gap2

Service Delivery

Customer-Driven Service Designs and Standards

Deficiencies in human resource policies Ineffective recruitment Role ambiguity and role conflict Poor employee-technology job fit Inappropriate evaluation and compensation systems Lack of empowerment, perceived control, and teamwork

Customers who do not fulfill roles Customers who lack knowledge of their roles and responsibilities Customers who negatively impact each other

Problems with service intermediaries Channel conflict over objectives and performance Difficulty controlling quality and consistency Tension between empowerment and control

Failure to match supply and demand Failure to smooth peaks and valleys of demand Inappropriate customer mix Overreliance on price to smooth demand

Figure 2.4

Key Factors Leading to Provider Gap 3

Gap3

Service Delivery

Lack of integrated services marketing communications Tendency to view each external communication as independent Not including interactive marketing in communications plan Absence of strong internal marketing program

Ineffective management of customer expectations Absence of customer expectation management through all forms of

communication Lack of adequate education for customers

Overpromising Overpromising in advertising Overpromising in personal selling Overpromising through physical evidence cues

Inadequate horizontal communications Insufficient communication between sales and operations Insufficient communication between advertising and operations Differences in policies and procedures across branches or units

External Communications to Customers

Figure 2.5

Key Factors Leading to Provider Gap 4

Gap4

PerceivedService

Expected Service

CUSTOMER

COMPANY

CustomerGap

Gap 1

Gap 2

Gap 3

External Communications

to CustomersGap 4ServiceDelivery

Customer-Driven Service Designs and

Standards

Company Perceptions of Consumer Expectations

Figure 2.6

Gaps Model of Service Quality

Consumer behaviour in services Examine how consumers choose and

evaluate services Identify the elements of consumer behaviour

that services marketers must understand: Choice behaviour Consumer experiences Post-purchase evaluation

Consumer Evaluation Processes for ServicesSearch Qualities

attributes a consumer can determine prior to purchase of a product

Experience Qualitiesattributes a consumer can determine after purchase (or

during consumption) of a product

Credence Qualitiescharacteristics that may be impossible to evaluate even

after purchase and consumption

Figure 3.2

Continuum of Evaluation for Different Types of Products

Clo

t hin

g

Jew

elry

Fur

n itu

re

Hou

ses

Aut

omob

iles

Res

tau

rant

mea

ls

Vac

a tio

ns

Ha i

r cut

s

Ch i

ld c

a re

Tel

evis

ion

repa

ir

Leg

a l s

ervi

ces

Roo

t c a

nals

Aut

o re

pair

Med

ical

dia

gno

sis

Difficult to evaluateEasy to evaluate

High in searchqualities

High in experiencequalities

High in credencequalities

MostGoods

MostServices

Figure 3.3

Stages in Consumer Decision Making and Evaluation of Services

Issues to Consider in Examining the Consumer’s Service ExperienceServices as processes

Service provision as drama

Service roles and scripts

The compatibility of service customers

Customer coproduction

Emotion and mood

Post purchase evaluation

Captured in measures of satisfaction, service quality, loyalty, emotional engagement:

Word of mouth communication Attribution of dissatisfaction Positive or negative bias

positivity bias for services Brand loyalty

Customer expectations of service Identify the different types of expectations

customers hold for service performance Sources of customer expectations

Figure 4.2

Possible Levels of Customer Expectations

Figure 4.3

Dual Customer Expectation Levels

Adequate Service

Desired Service

Figure 4.4

The Zone of Tolerance

Adequate Service

Desired Service

Zone ofTolerance

Reliability Tangibles

Level of

Expectation

Source: L. L. Berry, A. Parasuraman, and V. A. Zeithaml, “Ten Lessons for Improving Service Quality,” Marketing Science Institute, Report No. 93-104 (May 1993).

Adequate ServiceAdequate Service

Desired ServiceDesired Service

Desired Service

Adequate Service

Figure 4.5

Zones of Tolerance for DifferentService Dimensions

Zone of

Tolerance

Zoneof

Tolerance

Lasting ServiceIntensifiers

Lasting ServiceIntensifiers

Personal NeedsPersonal NeedsZone

of Tolerance

Desired Service

Adequate Service

Figure 4.6

Factors That Influence Desired Service

Self-PerceivedService Role

Self-PerceivedService Role

Situational Factors

Situational Factors

Perceived ServiceAlternatives

Perceived ServiceAlternatives

Temporary ServiceIntensifiers

Temporary ServiceIntensifiers

Zone of

Tolerance

Desired Service

Adequate Service

Figure 4.7

Factors That Influence Adequate Service

PredictedService

PredictedService

Predicted Service

Explicit ServicePromises

Explicit ServicePromises

Implicit ServicePromises

Implicit ServicePromises

Word-of-MouthWord-of-Mouth

Past ExperiencePast ExperienceZone

of Tolerance

Desired Service

Adequate Service

Figure 4.8

Factors That Influence Desired and Predicted Service

Frequently Asked QuestionsAbout Customer ExpectationsWhat does a service marketer do if customer expectations are “unrealistic”?

Should a company try to delight the customer?

How does a company exceed customer service expectations?

Do customer service expectations continually escalate?

How does a service company stay ahead of competition in meeting customer expectations?

Customer perceptions

Identify the factors which influence consumers’ perceptions

Examine the factors which influence satisfaction

Develop an understanding of the dimensions of service quality

Examine the importance of service encounters

Customer Perceptions of Quality and Customer Satisfaction

Factors Influencing Customer SatisfactionProduct/service qualitySpecific product or service featuresConsumer emotionsAttributions for service success or failure

Factors Influencing Customer Satisfaction Perceptions of equity or fairness Other consumers, family members, and

coworkers Price Personal factors

the customer’s mood or emotional state situational factors

Outcomes of Customer SatisfactionIncreased customer retentionPositive word-of-mouth communicationsIncreased revenues

ASCI and Annual Percentage Growthin S&P 500 Earnings

Source: C. Fornell “Customer Satisfaction and Corporate Earnings,“ commentary appearing on ACSI website, May 1, 2001,http://www.bus.umich.edu/research/nqre/Q1-01c.html.

Figure 5.4

Relationship between Customer Satisfaction and Loyalty in Competitive Industries

Source: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p. 83.

Models of service quality

Service Quality

The customer’s judgment of overall excellence of the service provided in relation to the quality that was expected.

Service quality assessments are formed on judgments of:outcome quality interaction qualityphysical environment quality

The evolution ofservice quality

Disconfirmation of expectations The Nordic model The three component model The Gaps model of service quality &

SERVQUAL

Disconfirmation of expectations (Oliver 1980)

The Nordic model (Gronroos 1990)

Represents the service experience on the basis of functional and technical elements

Technical quality refers to what the customer receives from the service

Functional quality refers to service delivery Model emphasises companies must be careful what

they promise

The three-component model Rust & Oliver (1994)

Source: Rust & Oliver, 1994. p. 11

The SERVQUAL dimensions – Perceived Service Quality (Parasuraman, Zeithaml & Berry 1988) Reliability (dependability, accurate performance)

Assurance (competence, courtesy, credibility & security)

Tangibles (appearance of physical elements)

Empathy (easy access, good communications & customer

understanding)

Responsiveness (promptness & helpfulness)

SERVQUAL

SERVQUAL (cont.)

The Five Dimensions of Service Quality

Ability to perform the promised service dependably and accurately.

Knowledge and courtesy of employees and their ability to inspire trust and confidence.

Physical facilities, equipment, and appearance of personnel.

Caring, individualized attention the firm provides its customers.

Willingness to help customers and provide prompt service.

Tangibles

Reliability

Responsiveness

Assurance

Empathy

Exercise to Identify Service AttributesIn groups of five, choose a services industry and spend 10 minutes brainstorming specific requirements of customers in each of the five service quality dimensions. Be certain the requirements reflect the customer’s point of view.

Reliability:

Assurance:

Tangibles:

Empathy:

Responsiveness:

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

Keeping customers informed as to when services will be performed

Prompt service to customers Willingness to help customers Readiness to respond to customers’

requests

RELIABILITY

RESPONSIVENESS

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

ASSURANCE

Giving customers 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

EMPATHY

Modern equipment Visually appealing facilities Employees who have a neat,

professional appearance Visually appealing materials

associated with the service

TANGIBLES

SERVQUAL Attributes

The Service Encounter

is the “moment of truth”occurs any time the customer interacts with the firmcan potentially be critical in determining customer satisfaction and loyalty

types of encounters:remote encounters, phone encounters, face-to-face

encounters is an opportunity to:

build trustreinforce qualitybuild brand identity increase loyalty

Check-InCheck-In

Request Wake-Up CallRequest Wake-Up Call

CheckoutCheckout

Bellboy Takes to Room Bellboy Takes to Room

Restaurant MealRestaurant Meal

Figure 5.5

A Service Encounter Cascadefor a Hotel Visit

Sales CallSales Call

Ordering SuppliesOrdering Supplies

BillingBilling

Delivery and Installation Delivery and Installation

ServicingServicing

A Service Encounter Cascade for an Industrial Purchase

Critical Service Encounters ResearchGOAL:

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

dissatisfaction with service encounters

Sample Questions for Critical Incidents Technique StudyThink 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 CriticalService Encounters Research

Recovery: Adaptability:

Spontaneity:Coping:

employee responseto service delivery

system failure

employee responseto customer needs

and requests

employee responseto problem customers

unprompted andunsolicited employeeactions and attitudes

Recovery

Acknowledge problemExplain causesApologizeCompensate/upgradeLay out optionsTake responsibility

Ignore customerBlame customerLeave customer to fend

for him/herselfDowngradeAct as if nothing is

wrong “Pass the buck”

DO DON’T

Adaptability

Recognize the seriousness of the need

AcknowledgeAnticipateAttempt to accommodateAdjust the systemExplain rules/policiesTake responsibility

IgnorePromise, but fail to follow

throughShow unwillingness to tryEmbarrass the customerLaugh at the customerAvoid responsibility “Pass the buck”

DO DON’T

Spontaneity

Take timeBe attentiveAnticipate needsListenProvide informationShow empathy

Exhibit impatience IgnoreYell/laugh/swearSteal from customersDiscriminate

DO DON’T

Coping

ListenTry to accommodateExplainLet go of the customer

Take customer’s dissatisfaction personally

Let customer’s dissatisfaction affect others

DO DON’T

Figure 5.7

Evidence of Service from theCustomer’s Point of View

People

Process PhysicalEvidence

Contact employees Customer him/herself Other customers

Operational flow of activities

Steps in process

Flexibility vs. standard

Technology vs. human

Tangible communication

Servicescape

Guarantees

Technology

WebsiteSource: From “Managing the Evidence of Service” by M. J. Bitner from The Service Quality Handbook, eds. E. E. Scheuing and W. F. Christopher (1993), pp. 358-70.