Unit 3

Service Quality Management (SQM)

Quality has been the subject of many and varied definitions leading to the view that no one definition
(of quality) is “best” in every situation because each definition has both strengths and weaknesses in
relation to criteria such as measurement and generalizability, managerial usefulness and consumer
relevance.

David Garvin is noteworthy for analyzing the range of quality definitions, classifying them into five
groups.
1. The Transcendent approach
2. The Product-based approach
3. The User-based approach
4. The Manufacturing-based approach
5. The Value-based approach

Service quality can be defined as “the collective effect of service performances which determine the
degree of satisfaction of a user of the service” (ITU E.800). In other words, quality is the customer’s
perception of a delivered service. By service-quality management, we refer to the monitoring and
maintenance of end-to-end services for specific customers or classes of customers.

Dimensions of Service Quality

1. Access
2. Communication
3. Competence
4. Courtesy
5. Credibility
6. Reliability
7. Responsiveness
8. Security
9. Tangibles
10. Understanding/Knowing the Customer

Definitions of Service Quality Dimensions:

Reliability: Perform promised service dependably and accurately. Example: receive mail at same time
each day.
Responsiveness: Willingness to help customers promptly. Example: avoid keeping customers waiting
for no apparent reason.
Assurance: Ability to convey trust and confidence. Example: being polite and showing respect for
customer.
Empathy: Ability to be approachable. Example: being a good listener.
Tangibles: Physical facilities and facilitating goods. Example: cleanliness.

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The GAP model

The Gaps Model is a useful framework for understanding the impact of the organization on
quality. A technique for determining what to measure, and how, has been developed for
service quality. It is called SERVQUAL.

Quality of service has been studied in the area of business management for years because the market is
more competitive and marketing management has transferred its focus from internal performance such
as production to external interests such as satisfaction and customers' perception of service quality.
Based on this traditional definition of service quality, Parasuraman, Zeithaml, and Berry (1985)
developed the "Gap Model" of perceived service quality. This model has five gaps:
 Gap 1: Consumer expectation - Management perception gap
 Gap 2: Management perception - Service quality specification gap
 Gap 3: Service quality specifications - Service delivery gap
 Gap 4: Service delivery - External communication gap
 Gap 5: Expected service - Experienced service Gap.

The figure below shows the "GAP" model of service quality from Parasuraman et al. (Zeithaml &
Bitner 1996). This model offers an integrated view of the consumer-company relationship. It is
based on substantial research amongst a number of service providers. In common with the
Grönroos model it shows the perception gap (Gap 5) and outlines contributory factors. In this
case expected service is a function of word of mouth communication, personal need and past
experience, and perceived service is a product of service delivery and external communications
to consumers.

However the GAP model goes further in its analysis of these key contributory factors. It not only
provides a more rigorous description of the contributory Gaps, it lists key drivers for each gap and
generic breakdown of each of these drivers. These are illustrated below in summary form below.

Gap 1
 Inadequate market research orientation
 Lack of upward communication
 Insufficient relationship focus

Gap 2
 Absence of customer driven standards
 Inadequate service leadership
 Poor service design

Gap 3
 Deficiencies of human resource policies
 Failure to match supply and demand
 Customers not fulfilling roles

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Gap 4
 Ineffective management of customer expectations
 Overpromising
 Inadequate horizontal communications

This level of detail allows powerful analysis of the contributory factors to a perception gap at a practical
level. The model shows the importance of marketing, business leadership quality and HR systems in the
management of the expectation gap.

The model’s key features are:

 The identification of key attributes of service quality from a management and consumer
perspective
 Highlighting the gaps between consumers and service providers with particular reference to
perceptions and expectations
 Understanding the implications for service management of closing the gaps

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A Small Walk-through on Service Quality Audit:
 Service delivery system should conform to customer expectations.
 Customer impression of service influenced by use of all senses.
 Service managers lose sensitivity due to familiarity.
 Need detailed service audit from a customer’s perspective.

Another Form of Service Quality GAP Model:

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 Service Excellence
“Excellence is an art won by training and habituation. We are what we repeatedly do
- Aristotle
Service Excellence means exceeding customers’ expectations and paying attention to detail.” -
Disney Institute

Service Excellence Is End-User Thinking

 Always focusing on the expectations and needs of the client
 Asking the client what constitutes excellent service
 Making the client the starting point for change
 Building the Department from the outside-in

Service Excellence Has Many Benefits

• Improved relationship between clients and the public service
• Promotion of innovation and creativity in the delivery of services
• Recognition of employees who deliver excellent service
• Higher levels of confidence in the public service
• Services that are designed and delivered with clients in mind

“Customers don’t expect you to be perfect. They do expect you to fix things when they go
wrong.” - Donald Porter

“People don’t want to communicate with an organization or a computer. They want to talk to a
real, live, responsive, responsible person who will listen and help them get satisfaction.” - Theo
Michelson

The Service Excellence Framework

The Service Excellence Framework identifies ways to improve the delivery of services in the
public service. The key elements of the Framework are to Build Commitment, Enhance
Capacity, Measure Effectively, and Communicate Effectively at every stage of the Service
Excellence planning process. The key to Service Excellence is not only focusing on what services
we provide, but how we deliver them.

Building Commitment Means…

• Leadership
• Accountability
• End-user thinking
• Pride in the work of the department
• Integration of Service Excellence into organizational planning

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Enhancing Capacity Means…
• Innovation
• Flexibility
• Training
• Recognition
• Consulting with stakeholders
• Developing service partnerships

Measuring Effectively Means…

• Client and staff involvement
• Measurement tools linked to achieving goals of business plans
• Evaluating Service Excellence
• Developing service standards

Communicating Effectively Means…

• Communicating with clients, service partners and other service-providers
• Clients and providers sharing clear service expectations and knowledge about the provision of
services

The Pricing of Services

Determining prices if you own a consulting or service-oriented business is not much different from
determining prices for a product-driven company. The main difference is that your service or your time
is your product. To get started, you must evaluate what your competition is charging for similar services,
and then determine where your services fit in. Can you, for example, offer the same service at a higher
quality? If so, you will probably be able to charge more. But if your competitors are offering more to the
consumer than you are capable of, you may want to set your prices lower.

You will also want to look at the market itself to determine what the market will bear and what effect
your geographic location has on your pricing strategy. A manicurist in New York City, for example, could
probably charge more than a manicurist in Idaho simply because people in metropolitan areas are more
willing and able — because of the relative higher costs of all products and services in those areas — to
pay a higher price than folks living in rural areas.

Similarly, the principle of supply and demand applies to service companies. If there are several other
businesses in your area performing the same or a similar service, the demand will probably be less
because the supply is greater. Hence, you may have to charge less. On the other hand, if you own a dry-
cleaning service, and you are the only dry cleaner in town, you can charge higher prices than you could if
there were several dry cleaners located very close to you.

A final thing to consider in pricing a service is reputation. If you have a stellar reputation, people will
most likely be willing to pay more for your service since their perception will be that they are getting
more. If you own a printing service, and you have a reputation as someone who can take on big jobs at
the last minute, perform high quality work, and deliver on schedule, you will be able to charge premium

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prices. If you are a consultant, you must consider all of the above and add into the mix your credentials.
For example, if you are a financial advisor, what is your degree? Do you have an M.B.A. from Harvard?
The higher your credentials, the more you will be able to charge. Remember, when consulting, a good
part of what people are buying is your experience.

Buyer’s Perception of Value

Demand Considerations

 Demand tends to be more inelastic

 Cross price elasticity considerations need to be examined
 Price discrimination is a viable practice to manage demand and supply challenges

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 Price Sensitivity Factors
Perceived Substitute Effect
 Few search attributes
 Providers often lack resources and marketing expertise
 Limited product mix

Unique Value Effect

 Conveying “uniqueness” is difficult
 Provider may need to educate the market
 Uniqueness is often short-lived

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Switching Costs
 Higher levels of perceived risk
 Uncertainty involved in changing providers
 Consequences associated with a bad outcome

Difficult Comparison Effect

 High number of experience attributes
 Inherent heterogeneity

Price-Quality Effect

Price acts as a quality indicator when consumers:

 Believe that quality differs among providers
 Believe that low quality imposes greater consequences
 Lack other sources of objective information

Expenditure Effect

 Amount of expenditure relative to consumer household income

End-benefit Effect

The more price sensitive consumers are to the cost of the end-benefit, the more
sensitive they will be to purchases that contribute to the end-benefit.
 Price bundling adds value to the consumer’s end-benefit

Shared-cost Effect

 Consumer price sensitivity decreases as the shared-costs with third parties increase

Fairness Effect
 Fairness is typically assessed by comparing the price to:
 Previous prices paid for similar services
 Prices paid for similar services under similar circumstances
 The benefit gained
 Assessing “service” fairness is difficult

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Inventory Effect

 Consumers are able to protect themselves from future price increases by

building inventories

Criteria for Effective Price Discrimination

1. Different groups of consumers must have different responses to price.

2. Different segments must be identifiable, and a mechanism must exist to price them
differently.
3. No opportunity should exist for individuals in one segment who have paid a low price to
sell their tickets to those in other segments.
4. The segment should be large enough to make it worthwhile.
5. Costs should not exceed the incremental revenues obtained.
6. Customers should not be confused.

Cost Considerations

 Price is sometimes not know until after the service has been produced
 Cost-oriented pricing is more difficult
 Activity-based costing breaks down the organization into a set of activities, and
activities into tasks, which convert materials, labor, and technology into outputs.
 High fixed cost to variable cost ratio
 Economies of scale tend to be limited

Customer Considerations
 Price tends to be one of the few search clues available
 More likely to use price as a quality cue
 Consumers are less certain about reservation prices

Competitive Considerations
 Comparing prices is more difficult
 Self-service is a viable alternative

Profit Considerations
 Price bundling makes the determination of individual prices in the bundle of services more
complicated
 Price bundling is more effective in a service context

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Product Considerations
 Many different names for price
 Consumers are less able to stockpile by taking advantage of discount prices
 Product-line pricing is more difficult
 Home sellers have three levels of service (6, 7, or 8%)

Legal Considerations
 Opportunity for illegal pricing practices to go undetected is greater for services than
goods.
 To consumers, the issue is one of fairness and dual entitlement

Emerging Service Pricing Strategies

Satisfaction-based pricing
 Primary goal is to reduce the amount of perceived risk
 Service guarantees
 Benefit-driven pricing: charges customers for services actually used as opposed to
overall membership fees
 Flat-rate pricing: customer pays a fixed price and the provider assumes the risk of price
increases and overruns

Relationship Pricing
 Primary objective is to enhance the firm’s relationship with its targeted consumers.
 Long-term contracts: offers price and non-price incentives for dealing with the same
provider over a number of years
 Pricing bundling: marketing two or more services as a single package for a single price

Efficiency Pricing
 Primary objective is to appeal to economically-minded consumers by delivering the best
and most cost-effective service for the price.
 Example: Southwest Airlines

The price should:

 Be easy for customers to understand
 Represent value to the customer
 Encourage customer retention and facilitate the customer’s relationship with the
providing firm
 Reinforce customer trust
 Reduce customer uncertainty

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