srm-m1

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 Service and Relationship Marketing Module:1 Chapter:1  Basics of Service Marketing

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Service and Relationship Marketing

Module:1

Chapter:1  – Basics of Service Marketing

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• What are services?

The word service originally associated with the work

performed by servants for their masters.

“ the action of serving, helping or benefiting; conduct tending

to the welfare or advantage of another” 

Services are acts, deeds, performance or efforts.

The aim of service is to provide solution to the customers

problem.

SRM/M1/SS

Service and Relationship Marketing 

Module:1

Chapter:1 – Basics of Service Marketing

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Services is an activity or series of activities take place by

interaction between customer and service employees

It’s an economic activity which is consumed at a time it is

produced and provide added value in forms of Convenience,

amusement, timeliness , comfort or health

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Services Defined… 

“Activities, Benefits or Satisfactions

which are offered for sale

or

provided in connection with the sale of goods” 

 American Marketing Association

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Services Defined… 

“Separately identifiable, intangible activities whichprovide want satisfaction

when marketed to consumers and/or industrial users

and which are not necessarily tied to the sale of aproduct or another service” 

William J. Stanton

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Services Defined… 

“Any activity or benefit that one party can offer to

another 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” 

Philip Kotler and Bloom

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Goods Vs. Services

• Goods are tangible

• Goods are homogeneous

• Goods are produced in thefactory

• Production, distribution andconsumption are separate andindependent functions in goods

• Services are intangible

• Services are heterogeneous

• Services are produced in buyer-seller interactions

• Production, distribution andconsumption take placesimultaneously in the case of services

Why Services Marketing ???  

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Goods Vs. Services

• Consumers do not generally

participate in the

production of goods

• Goods can be stored

• In sale of goods, transfer of 

ownership takes place

• Consumers are co-

producers in services

Services can not be stored

• In the sale of services,

transfer of ownership will

not take place

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Characteristics of Services… 

• Intangibility

• Inseparability

Variability• Perishability

• Customer participation

• No ownership

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Intangibility… 

• Challenges :

- Cannot be communicatedeasily

- Consumer suspects due to

absence of concreteevidences

- Design of total servicepackage not possible

- Comparative presentation isnot possible

• Strategic Options :

- Making the service process

tangible to the maximum

possible extent

- Managing and promoting

word-of-mouth

communication

- Strengthening internal and

external marketing

- Use of Relationship

Marketing

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Inseparability… 

• Challenges :

- Problems of market

expansion

- Maintenance of servicequality

- Compulsory presence of 

consumer

- Limited production capacity- Operation at limited

capacity

• Strategic Options :

- Minimization of customer

interactions

- Innovating techniques of indirect interaction

- Standardization to the

maximum possible extent

- Developing distributionnetwork with quality control

mechanisms

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Variability… 

• Challenges :

- Limited scope for

standardization

- Not possible tocommunicate exactly what

the consumer is going to

receive

- Quality can be determined

only after the service is

consumed

• Strategic Options :

- More focus on

standardization

- Internal marketing andemployee training

- Positioning variation as a

strength of innovation

- Promote research andinnovation

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Perishability… 

• Challenges :

- Storage of service is not

possible

- Sales volumecontinuously in relation

to the capacity

- Time pressure in sales

• Strategic Options :

- Demand management

- Capacity management

- Tactical approaches

- Continuous study on

demand patterns and

competitive parameters

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Customer Participation… 

• Challenges :

- Customers are not

controllable

- Production quality alsodepends upon customer’s

knowledge and ability to

participate

- Customers are evaluating at

every stage of service

production

• Strategic Options:

- Effective external marketing

- Customer education and

training- Effective interactive

marketing

- Management of 

movements of truth- Effective internal marketing

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No ownership… 

• Challenges:

- Nothing remains after

consumption

- Very less time to theconsumer to evaluate the

product

- High consumer dissonance

• Strategic Options:

- Making communication

tangible

- Customer relationshipmarketing

- Managing high level of 

company image

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Sources for service sector growth

Innovation

-: Push Theory of Innovation-: Pull theory of Innovation

Social Trends

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Reasons for Growth in Services Sector…

Growth in intermediate demand from firmGrowth in final demand from customers

• Increase in affluence

• More leisure time

Working woman• Growth in population of DINKS

• Greater life expectancy

• Greater complexity of products

• Greater complexity in life

• Greater concern for resource scarcity and ecology• Increasing number of new products

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Service Sector in Indian

Economy… 

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Reasons for growth of Services in India… •

Economic Affluence• Changing Role of Women

• Cultural Changes

• IT Revolution

• Development of Markets

• Unbundling Corporations

• Increasing Consciousness of Health Care

• Economic Liberalization

• Migration

• Export Potential

• Service Tax

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Factors Stimulation the transformation of the

Service Economy

Government Policies Change in regulation

Privatization

New rules to protect customer, employees and the environment

New agreements on trade in services

Social Changes

 Rising consumer Expectation

More affluence

More people short of time

Increased desire for buying experience vs things

Rising consumer ownership of computer, cell phones, and high tech

equipments

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Rising consumer ownership of computer, cell phones, and high tech

equipments

Easier access to more information

Immigration

Gewoning but aging population

Business Trends Push to increase shareholders value

Emphasis on productivity and cost saving

Manufacturera add value through service service and sell services

More strategic alliances and outsourcing

Focus on quality and customer satisfaction

Growth of franchising

Marketing emphasis by nonprofits

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Advance in Information Technology Growth of Internet

Greater bandwidth

Compact Mobile Equipment

Wireless networking

Faster, more powerful software

Digitization of text, graphics, audio and video

Globalization More companies operation on transnational basis

Increased international Travel

International merger and acquisitions, JV’s 

‘Off shoring’ of customer service 

Foreign competitors invade domestic markets

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Role (Type) of Services in Economy

Value Added Services

Financing, Leasing, Insurance

Infrastructure service

Communications, Transportation, Utilities, Banking

Manufacturing Services inside company

Finance, Accounting, Legal , R&D and design

Distribution service

Wholesaling, Retailing, Repairing

Personal Service

Health care, Restaurants, Hotels

Business Service supporting Manufacturing

Consulting, Auditing, Advertising, Waste Disposal

Governments Service

Military, Education, Judicial, Police and fire protectionSRM/M1/SS

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Service Classification :Service process Matrix

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LOW High

LOW

High

Mass services •Retailing

•Wholesaling

•School

•Retail aspect of commercial Banking

Service factory • Airlines

•Trucking

•Hotels

•Resorts & Recreation

Service Shop •Hospitals

• Auto Repair 

•Other repair 

services

Professional Services •Physicians

•Lawyers

• Accountants

• Architects   D  e  g

  r  e  e  o   f   L  a   b  o  r   i  n   t  e  n  s   i   t  y

Degree of Interaction and Customization

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How to win customer in Service

Business(USP’s) 

• Availability

How accessible is the service?

(ATM’s  – service beyond the traditional banker’s hours) 

• Convenience

(The location of service where customer must travel to that service-Fast

food restaurants)

• Dependability

Hoe reliable is the service?(Airlines- on time departure & arrival performance will build huge trust)

• Personalization

need for Customization -Are you treated as an individual?

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• Price

The price is viewed as being a surrogate for quality.

• Quality

Quality is judged by both the process of services delivery and the put

comes of the service. It is difference between service expectation &

service experience

• Reputation

Unlike a product, a poor service experience can note exchanged orreturned for a different model. Positive word-of-mouth is the most

effective form of advertising.

• Safety

In air travel and medicine, the customers are putting their lives in thehands of the service provider

• Speed

How long must I wait for service? For emergency service such as fire or police

protection, response time is the major criterion of performance.SRM/M1/SS

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Technology in Services

The introduction of technology often empowers the customer to perform

the service unassisted.

For, example ,

the credit card reader at the pump facilitates the purchase of a gasoline

without help and

Internet allows customer to book their own flights

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• Technology in Service Encounter

Advances in communication and information technology are having

profound effect on ways customers interface with service providers.

There are five modes of technology’s contribution to the service

encounter.

(A) Technology free service encounter

where the customer is in physical proximity to and interacts with a

human service provider.

This mode represents the traditional high-touch service in which

technology does not pay a direct role. Such as Saloon, hair dresser, tailor 

SRM/M1/SS

CUSTOMER SERVER

TECHNOLOGY

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(B)Technology-assisted service encounter

Here only the service provider has access to the technology to improve

the quality of face to face service.A health care service performed by technology which is operated by only

professionals

SRM/M1/SS

CUSTOMER SERVER

TECHNOLOGY

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(C)Technology- facilitated service encounterHere both the customer and service provider have access to the same

technology.For example

a financial planner in consultation with a client can refer to a financial

model on a personal computer to illustrate projected returns for different

risk profiles

SRM/M1/SS

CUSTOMER SERVER

TECHNOLOGY

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(D)Technology-meditated service encounter

The customer and human service provider are not physically together and

thus the service encounter no longer is the traditional face to face contact.

Its about Getting technical help on a distance call .

Example

GPS services or services provided by Just dial .

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CUSTOMER SERVER

TECHNOLOGY

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(E)Technology-generated service encounter

Human service provider is replaced entirely with technology that allows

the customer to self-service.

It reduces the cost of service delivery

For Example

bank ATM’s, website based information, e-commerce

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CUSTOMER SERVER

TECHNOLOGY

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The Emergence of Self Service

Elimination of labor costs for nonproductive activity is the principle driver

for the service provider.

Customer acceptance results from increased opportunity for

customization, accuracy, convenience and speed.

Cost saving and place & Time has lead the buisiness to become Self 

Service by customer him/herself.

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Evolution of Self Service

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Service Industry Human Contact Machine-Assisted

Service

Electronic Service

Banking  Teller ATM Online Banking

Grocery  Checkout Clerk Self-check out

station

Online order/pick

up

Airlines  Ticket Agent Check in kiosks Print boarding

passRestaurants  Wait person Vending machine Online

order/delivery

Movie theater  Ticket sale Kiosk Ticketing Pay-for-view

Book store  Information clerk Stock-availability

terminal

Online shopping

Education  Teacher Computer

Tutorial

Distance Learning

Gambling  Poker dealer Computer Poker Online poker

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Automation in Services

Automation means replacing human manual activity by the machine.

for Example:-

-an automatic lawn sprinkler system a hotel

-automated answering systems that route callers by means of Touch -Tone pones

like Toll free or customer care services of the service provider

David A Collier has suggested following automation categories

1. Fixed sequence (F)

A machine that repetitively performs successive steps in a given operation

according to a predetermined sequence, condition and position and whose set

information cannot be changed easily. E.g. automatic parking lot gate

2. Variable sequence(V)

A machine same as fixed sequence robot but whose set information can be

changed easily. E.g. automated teller machine

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3. Playback(P)

A machine that can produce operation from memory that were

originally executed under human control. E.g. telephone answering

machine

4. Numerical Controlled(N)

A machine that can perform task according to sequence as

command by stored information tat can be reprogrammed easily. E.g.

animated character at an amusement park.

5. Intelligent(I)

A machine with sensory perception devices, such as visual or tactile

receptors, that can detect changes in the work environment or task byitself and has its own decision-making abilities. E.g. autopilot for a

commercial airplane

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6. Expert system(E)

A computer program that uses an inference engine (e.g. decision rules)

and a knowledge base (i.e. information on a particular subject) to

diagnose problem

ex- maintenance trouble shooting for elevator repair

7. Totally automated system(T)

A system of machine and computers that performs all the physical andintellectual tasks that are required to produce or deliver a service.

ex- electronic fund transfer

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Internet Services

Websites can be used in many different ways

As a channel to sell a product or service (amazone.com, wine.com)

As a supplemental channel (online booking of order)

For technical support (dell.com, nike.com)

To Embellish existing service (HBR cases & Research paper)

To convey information (Dr. Koop, wikipedia)

To communicate with Membership

To play Games

Internet Models

Internet Access Provider

Portal

Information content

Online Retailer

Transaction Enablers

Market Makers

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Comparison of Electronic and Traditional Services

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Features Electronic Service Traditional ServiceService Encounter Screen to face Face to Face

Availability Anytime Standard Working

Hour

Access From home Travel to location

Market Area Worldwide Local

Ambiance Electronic Interface Physical

Environment

Competitive

Differentiation

Convenience Personalization

Privacy Anonymity Social interaction

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E-Business Models

Peter Weill and Michael Vitale have described eight generic e-

business models.Content Provider

Provides content such as information, digital products and services. Ex-

Reuters, a British news agencyDirect to customer

Provides goods & services directly to the customer, often bypassing

traditional retail channel memebers. Ex-Dell computer

Full service ProviderProvide full range of service in one domain directly. E.g. financial, health,

indusyrial chemicals. Ex – General Electric Supply

I

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Intermediary

Brings together buyers and sellers by concentrating information. Ex-eBay

Shared Infrastructure

Brings together multiple competitors to cooperate by sharing common IT

infrastructure. An example is SABRE reservation system for airlines.

Value Net Integrator

Coordinates activities across the value net by gathering, synthesizing, and

distributing information. Ex 7-eleven Japan

Virtual Community

Created & facilitates online community of people with Monster.com, the

 job-placement service firm.

Whole-of-Enterprise

Provides a firm wide single point of contact, consolidating all services

provides by a large multiunit organization. An example is the U S federal

government

SRM/M1/SS

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Managing the New Technology Adoption Process

SRM/M1/SS

Orientation

& Education 

Technology

opportunityAnalysis

Implementation

Equipment

selection and

contract

commitments

Implementation

Planning

Design

specification

Functional

specification

Application

requirementsanalysis

Testing of 

technology

Review of 

Results

Managing theNew

Technology

Adoption

’ f k

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8p’s of Services Marketing Mix 

Product elements - the core and periphery service elements at the

centre of the company's marketing strategy;

Place and Time - delivering product elements to customers can be

done physically and/or electronically, depending upon the service. Speed

and convenience are essential to the customer and are important value-

adds;

Price and Other User Outlays - pricing is only a part of what

customers may part with when purchasing a service; one must also

consider time and convenience;

Promotion and Education - speaks for itself, but the marketer must

make sure communications not only provide information, but also

persuade the customer of the service's relevance to the customer's

particular 'problem';

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 Process - the means by which the firm delivers product elements;

People - front-line staff will have a direct impact on perceptions; and

Physical Environment - the appearance of the place where the

services are delivered may have a significant impact upon whether the

service was satisfactory;

Productivity and Quality - improving productivity is a requisite in

cost management; but quality, as defined by the customer, is essential for

a service to differentiate itself from other providers.

SRM/M1/SS

S i d R l ti hi M k ti

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Service and Relationship Marketing

Module:1

Chapter:2 – Customer Behavior in Service Encounter

Four Broad Categories of Service- A Process Perspective

In service, people, physical objects, and data can be processed , and the

nature of the processing can be tangible or intangible.

Tangible actions are performed on people’s bodies or to their physical 

 possession. Intangible actions are performed on people’s minds or to theirintangible assets.

This gives rise to classification of services into four broad categories.

They are

People processing

Possession processing

Mental stimulus processing

Information processing

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Who or What is the Direct Recipient of the service ?

Nature of the Service Act People Possessions

Tangible Actions People-processing

(services directed to

 people’s bodies): 

Passenger

Transportation,

Lodging

Health care

Possession-processing

(Services directed at 

 physical possessions)

Freight transportation

Repair and Maintenance

Laundry and dry cleaning

Intangible Actions Mental Stimulus

processing

(service directed at 

 people’s mind): 

EducationAdvertising/PR

Psychotherapy

Information Processing

(services directed at 

intangible assets)

Accounting

BankingLegal services

SRM/M1/SS

The Three Stage Model of Service Consumption/

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The Three Stage Model of Service Consumption/

Customer Decision Making

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Pre-purchase Stage

Post-encounter Stage

Service Encounter Stage

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Pre-purchase Stage

Pre-purchase Stage -

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Pre purchase Stage

Overview

• Customers seek solutions toaroused needs

• Evaluating a service may bedifficult

Uncertainty about outcomesIncreases perceived risk

• What risk reduction strategies canservice suppliers develop?

• Understanding customers’ serviceexpectations

• Components of customerexpectations

• Making a service purchasedecision

Pre-purchase Stage

Service EncounterStage

Post-encounter Stage

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Need Arousal

• Decision to buy or use a service is triggered by need arousal

• Triggers of need:

 – Unconscious minds (e.g., personal identity and aspirations)

 – Physical conditions (e.g., hunger )

 – External sources (e.g., a service firm’s marketing activities) 

• Consumers are then motivated to find a solution for their need

Courtesy of Masterfile Corporation 

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Information Search

• Need arousal leads to attempts to find a solution

• Evoked set – a set of products and brands that a consumer

considers during the decision-making process – that is derived

from past experiences or external sources

• Alternatives then need to be evaluated before a final decision is

made

Evaluating Alternatives –

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Evaluating Alternatives   

Service Attributes

• Search attributes help customers evaluate a product before purchase

 – E.g., type of food, location, type of restaurant and price

• Experience attributes cannot be evaluated before purchase

 – The consumer will not know how much s/he will enjoy the

food, the service, and the atmosphere until the actualexperience

• Credence attributes are those that customers find impossible to evaluate

confidently even after purchase and consumption

 – E.g., hygiene conditions of the kitchen and the healthiness of the cooking ingredients

How Product Attributes Affect

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How Product Attributes AffectEase of Evaluation

Most Goods

Difficult

Toevaluate

Easy

ToEvaluate

MostServices

Clothing

Chair

Motor

Vehicle

FoodsHigh InSearch

Attributes

Restaurant

Meals

Lawn Fertilizer

HaircutEntertainment

High InExperienc

eAttributes

Computer

Repair

Education

Legal ServicesComplex

SurgeryHigh InCredenceAttributes

Source: Adapted from Valarie A. Zeithaml , “How Consumer Evaluation Processes Differ Between Goods & Services,” in J.H. Donelly and W. R. George,

Marketing of Services (Chicago: American Marketing Association, 1981)

Perceived Risks of Purchasing and Using

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Perceived Risks of Purchasing and Using

Services

• Functional  – unsatisfactory performance outcomes

• Financial   – monetary loss, unexpected extra costs

• Temporal   – wasted time, delays leading to problems

• Physical   – personal injury, damage to possessions

• Psychological   – fears and negative emotions

• Social  – how others may think and react

• Sensory   – unwanted impact on any of five senses

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How Might Consumers Handle Perceived Risk?

• Seek information from respected personal sources

• Compare service offerings and search for independent reviews and

ratings via the Internet

• Relying on a firm with good reputation

• Looking for guarantees and warranties

• Visiting service facilities or going for trials before purchase and

examining tangible cues or other physical evidence

• Asking knowledgeable employees about competing services

Strategic Responses to Managing Customer Perceptions

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Strategic Responses to Managing Customer Perceptions

of Risk

Free trial (forservices with high

experienceattributes)

Advertise (helps tovisualize)

Display credentials

Use evidencemanagement (e.g.,

furnishing,equipment etc.)

Offer guaranteesEncourage visit toservice facilities

Give customersonline access about

order status

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Understanding Customers’ Service Expectations 

• Customers evaluate service quality by comparing what they

expect against what they perceive

 – Situational and personal factors also considered

• Expectations of good service vary from one business to another,and differently positioned service providers in same industry

• Expectations change over time

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Factors Influencing Customer Expectations of Service

Source: Adapted from Valarie A. Zeithaml, Leonard A. Berry, and A. Parasuraman, “The Nature and

Determinants of Customer Expectations of Service,” Journal of the Academy of Marketing Science 21, no. 1

(1993): 1-12 

f

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Components of Customer Expectations

• wished-for level of service quality that customer believes can andshould be delivered

Desired Service Level

• minimum acceptable level of service

Adequate Service Level

• service level that customer believes firm will actually deliver

Predicted Service Level

• Acceptable range of variations in service delivery

Zone of Tolerance

P h D i i

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Purchase Decision

Purchase Decision: Possible alternatives are compared andevaluated, whereby the best option is selected

 – Simple if perceived risks are low and alternatives are clear

 – Complex when trade-offs increase

• Trade-offs are often involved

• After making a decision, the consumer moves into the service

encounter stage

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Service Encounter Stage

Service Encounter Stage

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Service Encounter Stage

- Overview

Pre-purchase Stage

Service EncounterStage

Post-encounter Stage

● Service encounters range fromhigh- to low-contact

● Understanding the servuctionsystem

● Theater as a metaphor forservice delivery: An integrativeperspective

Service facilities

Personnel

Role and script theories

S i E S

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Service Encounter Stage

• Service encounter – a period of time during which a customer

interacts directly with the service provider – Might be brief or extend over a period of time (e.g., a phone call or visit to

the hospital)

• Models and frameworks:

1. “Moments of Truth” – importance of managing touchpoints

2. High/low contact model – extent and nature of contact points

3. Servuction model – variations of interactions

4. Theater metaphor – “staging” service performances 

M t f T th

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Moments of Truth

“[W]e could say that the perceived quality is realized at

the moment of truth, when the service provider and the

service customer confront one another in the arena. At

that moment they are very much on their own… It is the

skill, the motivation, and the tools employed by the firm’s

representative and the expectations and behavior of the

client which together will create the service delivery

process.” 

Richard Normann

Service Encounters Range from High-Contact to Low-Contact

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g g

i i i b Hi h C d L C S i

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Distinctions between High-Contact and Low-Contact Services

• High-Contact Services

 – Customers visit service facility

and remain throughout service

delivery – Active contact

 – Includes most people-processing

services

• Low-Contact Services

 – Little or no physical contact

 – Contact usually at arm’s length

through electronic or physicaldistribution channels

 – Facilitated by new technologies

Th S ti S t

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The Servuction System

Source: Adapted and expanded from an original concept by Eric Langeard andPierre Eiglier

The Servuction System:

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y

Service Production and Delivery

• Servuction System: visible front stage and invisible backstage

• Service Operations

 – Technical core where inputs are processed and service elements created

 – Contact people

 – Inanimate environment

• Service Delivery

 – Where “final assembly” of service elements takes place and service is

delivered

 – Includes customer interactions with operations and other customers

Theater as a Metaphor for

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p

Service Delivery

“All the world’s a stage and all the

men and women merely players.

They have their exits and their

entrances and each man in his time

plays many parts.” 

William ShakespeareAs You Like It

Theatrical Metaphor:

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p

an Integrative Perspective

Good metaphor as service delivery is a series of events thatcustomers experience as a performance

Service facilities

• Stage on which drama

unfolds• This may change from one

act to another

Personnel

• Front stage personnel are

like members of a cast• Backstage personnel are

support production team

Roles

• Like actors, employeeshave roles to play andbehave in specific ways

Scripts

• Specifies the sequences of behavior for customersand employees

Implications of Customer Participation in Service Delivery

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Implications of Customer Participation in Service Delivery

• Greater need for information/training

 – Help customers to perform well, get desired results

• Customers should be given a realistic servicepreview in advance of service delivery

 – This allows them to have a clear idea of their

expected role and their script in this whole

experience

 – Manages expectations and emotions

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Post-Encounter Stage

Post-purchase Stage -

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p gOverview

Pre-purchase Stage

Service EncounterStage

Post-encounterStage

●Evaluation of serviceperformance

● Future intentions

Customer Satisfaction with Service Experience

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Customer Satisfaction with Service Experience

• Satisfaction: attitude-like judgment following a service purchaseor series of service interactions

 – Whereby customers have expectations prior to consumption, observe

service performance, compare it to expectations

• Satisfaction judgments are based on this comparison

 – Positive disconfirmation (better)

 – Confirmation (same)

 – Negative disconfirmation (worse)

Customer Delight:

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Going Beyond Satisfaction

• Research shows that delight is a function of three components – Unexpectedly high levels of performance

 – Arousal (e.g., surprise, excitement)

 – Positive affect (e.g., pleasure, joy, or happiness)

• Strategic links exist between customer satisfaction and corporate

performance

 – By creating more value for customers (increased satisfaction), the firm

creates more value for the owners

Customer Delight:

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• Best Practice in Action 2.1:

Progressive Insurance Delights

Its Customers

 – Provided excellent customer

service which allowed them to

lower costs and also increase

customer satisfaction and

retention

Going Beyond Satisfaction

Summary

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Summary

Pre-purchaseStage

ServiceEncounter Stage

Post-encounterStage

• In evaluating serviceperformance, customers canhave expectations positivelydisconfirmed, confirmed, ornegatively disconfirmed

• Unexpectedly high levels ofperformance, arousal, andpositive affect are likely tolead to delight

• Moments of Truth: importanceof effectively managingtouchpoints

• High/low contact service model – understanding the extent and

nature of contact points

• Servuction model – variationsof interactions

• Theater metaphor – “staging”service performances

• Key Steps1. Need arousal2. Information search3. Evaluation of alternative

solutions4. Purchase decision

• Customers face perceived riskswhich marketers should reducewith some strategic responses

• Zone of tolerance: Adequate todesired. Dissatisfaction ifservice level falls belowadequate level.