Chapter III: Service, Satisfaction & Price

Dr. Karim Kobeissi

Section 1: The Service Encounter

Within the framework of services, the product of the marketing mix
becomes the service offering marked by the service encounter
which was defined as a period of time during which a consumer
directly interacts with a service Shostack, 1985.
Product ----------------------------> Service Offer
This definition of service encounter includes all aspects of the service
firm with which a consumer may interact, including its personnel and
physical assets.
The interaction between the contact staff, physical support, and the
client is represented by the service delivery system which can be
divided into two parts:
1) The visible part (apparent to customers).
2) The hidden part or the technical core (the customer may not even
know of its existence).

The Service Delivery System

The

service

process

delivery
which

system

describes

is

a
the

production of a service in a industrial

way, that is in a large number.

The Service Delivery System (con)

Every elementary service is made by its
own service delivery system. The only
element

common

to

all

service

delivery systems of the elementary

services is: the customer.

Service Delivery System & Blueprinting

Shostack has

proposed

that a

service

delivery

system can be captured in a visual diagram (i.e.,

aservice blueprint)which might be used for the
design of services.
The

blueprinting

exercise

gives

managers

the

opportunity to identify potential failpoints(F) and

to

design

foolproof1procedures

to

avoid

their

occurrence, thus ensuring the delivery of highquality service.

Service Blueprinting1 (Bank Lending Operation)2

Loan application

Branch
30min--1hr.

Officer

Pay book

===
====
====

=====

$ 0 $

=====

Line of visibility
Decline

Verify
income
data

Credit
check
2 days

Credit
bureau

Employer

Accept

Confirm

1 day

Bank
accounts

Final
payment

Issue
check

Deny

Initial
screening

Receive
Payment

Notify
customer

====

Print
payment
book
3 days

Confirm

Delinquent

F
Close
account

F
Verify
payer

Branch
records
Accounting

Data base
records

Fail point

Customer wait

Employee decision

1.1 Management of the Physical Environment

The
management
of
the
physical
environmentconcerns three categories of
elements:
The External Equipments
Structure, decoration, signalization, parking, environment,

The Internal Equipments

Internal structure, equipments used to serve the customer or to
manage the business activity,

Other Tangible Elements

Papers, visit cards, booklets, employees appearance,

Influence of the Physical Environmenton Perceived Quality

By nature, a service is difficult to evaluate but

potential customers can find indications in the
specificities of the service system.

The

equipments,

installations,

and

financial

resources will be examined carefully. In fact before

or during a consumption of a service, deliberately
or

accidentally, the

customer

locates

all

material signs which inform him on its quality.

the

Influence of the Physical Environmenton the Service Process

The physical environmentcontributes to the improvement

of the service process by giving to the customer the
necessary information on the available services and
their different acquiring modes.
The physical environment improves the formulation of the
request,

the

conditions

of

the

management of the of waiting lines.

service,

and

the

Influence of the Physical Environment on Differentiation

The

physical

environment

is

tool

of

differentiation for the bank and its services

with respect to its competitors.
In fact, the appearance of facilities often
directly impact how consumers perceive
the way that the firm will handle the
service aspects of its business.

Influence of the Physical environment on Consumers Behavior

The impact of the physical environment on the consumers behavior is
represented in the SOR model : stimulus organism response.

Taken from an environmental psychology perspective, this model

proposes that stimuli (S) from the environment would arouse
emotions in the organism (O) that will consequently influence
behavior responses (R). The model suggests that all behavioral
responses toward and within an environment can be classified as
either approach or avoidance (Hoffman Bateson 1997).

The S-O-R Model

1.2 The Management of Contact Staff

Like all service activities, banking is characterized by the vital
role played by direct human relations between the banks
staff and its customers.The predominant role of personal
contact is due to the intangible nature of the activity. If the
contact staff does not provide to the customer the expected
service level, it is the corporate image of the bank that will
be deteriorated.In this regard, the contact staff form a
strong

cause of

flexibility,

adapt

differentiation.
to

different

They have to promote

consumer

behaviors,

andrepresent an obstacle against consumers doubts.

The Management of Contact Staff (con)

Generally, the contact staff

is trained according to two

strategies :
1) Bureaucratic strategy: according to this strategy, the prime
responsibility of the employee is to protect the interests of
the bank, the customer becomes then the enemy from whom
we protect ourselves by setting him the standards to which
he has to approve.
2) Laxiste strategy: according to this strategy, the prime
responsibility of the employee is to protect the interests of
the customer. The employee should do his best to satisfy the
customer.

1.3 The Management of Client Participation

Two questions are usually raised when discussing
the management of clients participation:
a)

Which theory should we adapt to manage the clients

waiting periods?

Two conflicting theoretical models are proposed:

1)

Field Theory: predicts that perceived waiting time should

be longer, and affective response should be more negative
during the pre-process and post-process rather than in-

process delay.
2) Expectancy Theory: suggests that a delay that happened
during an in-process stage should be more irritating than a
delay in pre-process or post-process stage.
Whatever is the adapted model, it appears that the time is
perceived as longer and the delay as more important in an
inactivate delay than in an occupied delay.

The Management of Client Participation (con)

b) What is the best level of clients participation (low, average,
or high) in co-productionofthe service ?
Advantages of the customers participation in service production:
The service is better adapted to the customers expectations
The service is obtained faster
The service is delivered at a lower cost for the bank
Disadvantages of the customers participation in service production :
- Loss of control on the quality of the service by the bank
- Loss of control on the cost of the service by the bank
- Getting far from the clients views and experiences.

IT IS BETTER TO PRE-RESTRICT THE LEVEL OF CLIENTS

PARTICIPATION IN THE SERVICE PRODUCTION.

Section 2: Customer Satisfaction

Definition of the concept
Despite many attempts to measure andexplain
customer satisfaction,therestill doesnotappear
to be aconsensusregarding itsdefinition(Giese
and Cote, 2002).
Referring

toVanhamme(2003),

customer

satisfactionisdefinedas a psychological state,

which results from a buying or a consumption

experience.

2.1 The Importance of Customer Satisfaction

There is only one valid definition of business purpose - to
create a customer'. Having created customers, the next step
is to satisfy them (Peter Drucker, 1954)

Studies conducted by banks showed that customer loyalty is

triggered only above a very high level of satisfaction.This
level of satisfaction is doubly intensified when it is remote
operations such as online banking.It is in this perspective
that we must therefore capitalize on the new market of the
Internet, manage risks that new drains, raise the profile of
the user and guide trade policy first to satisfaction, not
directly to profitability.

2.2 The Expectation Disconfirmation Paradigm1

Having roots in social psychology and organizational behavior,
expectancy
consisting

disconfirmation
of

the

formation

is

actually
of

two

expectations

processes
and

the

disconfirmation of those expectations. Assuming that the

customer is capable of evaluating the product performance,
the result is compared to expectations prior to purchase or
consumption. Any discrepancy leads to disconfirmation; i.e.
positive disconfirmation increases or maintains satisfaction
and negative disconfirmation creates dissatisfaction. Even
though positive disconfirmation and negative disconfirmation
are both clearly related to a subsequent level of satisfaction,
the outcome is more confusing for zero disconfirmation.

The Expectation Disconfirmation Paradigm: Model of Consumer Behavior

Perceived Quality & Satisfaction

Zeithaml

(1988)

defined

perceived

qualityas

the

consumer'sjudgmentabout a product'soverall excellence

or superiority.

Perceived service quality results from comparisons

by

customers

of

expectations

with

their

perceptions of service delivered by the suppliers. If

the

delivered

service

exceeds

customers

expectations, perceived quality is high, if the

delivered

service

is

below

expectations, perceived quality is low.

customers

Perceived Quality & Satisfaction

The

objective

perceived

of

quality

management
and

is

to

upgrade

consequently

increase

customers satisfaction. In this perspective two

components of quality can be analyzed:
1)Technical quality which concerns the technical
properties

of

the

product

that

the

consumer

receives as result of the interaction buyer - seller.

2)Functional quality which is related to the way
buyer and seller interact during the transaction.

Section 3: Pricing of Financial Services

Throughout the service industry, pricing methods are increasingly
avoiding the classical computing approach price = cost +
margin" (Desmet and Zollinger, 1997).

The reasons for this trend include both behaviors of the customer
and the supplier.The customer perceives the price based on
the existence of a normal price, which serves as a reference,
and

often

interprets

the

price

level

as

guarantee

of

quality.For the supplier, the quality of service and cost depend

on the rate of use of its equipments, as well as the number of
products sold to the same customer.

3.1 Foundations of Pricing Strategy

The

foundations

underlying

pricing

strategy

can

be

described as a tripod,
with

costs

provider,
and

to

the

competition,

value1

to

the

customer as the three

legs.

3.2 Traditional Pricing Approach

The pricing of banking services is
particularly important in a context of
increased
competition
leading
institutions to review their pricing
policy and to redefine their objectives
in one of the four major pathways:
- Penetration of one or more segments.
- Sales volume maximization.
- Profit maximization.
- Domination by the quality.

Traditional Pricing Approach (con)

a) Penetration of One or More Segments
Penetration pricing includes setting the price
low with the goals of
largest

number

of

attracting the

consumers

in

the

targeted segment(s) and gaining market

share. The price will be raised later once
this market share is gained.

Traditional Pricing Approach (con)

b) Domination by the Quality

In some cases, the practice of a low price may be adversely

affected if the customer is concerned about the quality of the
product.If a banking product has a high perceived quality,
the consumer is willing to accept a high price and his
demand can be affected by a low price level.Thus a bank can
increase its prices despite intense competition.

Traditional Pricing Approach (con)

c) Sales Volume Maximization
The objective is to use pricing to stimulate the demand, according to the
observed price elasticity of demand.

Percentage change in quantity demanded

Price Elasticity of Demand = ------------------------------------------------------------Percentage change in price

We have an elastic demand when the percentage change in the quantity of

demanded service is greater than the percentage change in price. This
makes the ratio more than one.

We have an inelastic demand when the percentage change in the quantity of

demanded service is lower than the percentage change in price. This makes
the ratio less than one.

Traditional Pricing Approach (con)

Accordingly, If the market demand for a banking service or
product is elastic a price decrease by X% will cause an
increase of Y% in the demand (Y>X). Alternatively, If the
market demand is inelastic a price decrease by X % will
cause an increase of Y% in the demanded (Y<X).

Banks try to maximize their revenues by reducing

the prices of elastic demand and increasing prices
to inelastic demand.

Traditional Pricing Approach (con)

d) Profit Maximization

It is often sought in a short-term perspective

and leads to adopting the highest price that
the market will bear, regardless of the cost
or of long-term consequences.

Traditional Pricing Approach (con)

d) Profit Maximization
It is often looked for in a short-term perspective and leads to
practise the highest price which the market can tolerate,
without

taking

into

account

costs

or

long-term

consequences. However, profit maximization can also be

applied in the long-term perspective. For instance, some
banking services are offered free of charge or to low price
whereas

other

related

services

are

highly

charged

to

compensate for the low profits of the first ones.

Whatever

the

perspective,

short-term

or

long-term,

profit

maximization does not necessarily apply to a single product

or service but rather a set of interrelated products.

3.3 Emerging Pricing Approach

Among the recent developments and prospects for developing
new pricing methods in the services sector, two methods are
of particular interest in the banking sector:
1) Relational Pricing
It can be defined as a strategy that encourages the client to
develop its contacts with the service provider, it's main
objective is to strengthen and retain relationships. This
method of pricing can take two forms:

Emerging Pricing Approach (con)

a) Long term supply
In this context, new customers are offered price and non-price
incentives to maintain a long-term relationship with the same
service provider.A continuous flow of transactions with the
same customer will reduce management costs and therefore
improved profitability for the supplier.

Emerging Pricing Approach (con)

b) Packages
Designed as a bundle comprising at least two products or
services, it leads to a reduction in the marginal cost of each
product or service and development of shared costs.Some
services and products firms give consumers

a choice

between buying services separately and buying bundle for a

discount (mixed bundling- Complementary Products).

Emerging Pricing Approach (con)

2) Efficient Pricing
It aims to:
1) Identify and eliminate those products and services that are unprofitable and lower
the prices of those that are overpriced (product and service portfolio aim).
2) Identify and eliminate production or service processes that are ineffective and
allocate processing concepts that lead to the very same product at a better yield
(process re-engineering aim).

In this way, the ABC method "Activity Based Costing was developed. It is a costing
methodology that identifies activities in an organization and assigns the cost of each
activity according to its actual consumption of resources.
With ABC, an organization can soundly estimate the cost elements of entire products
and services.