Service Marketing Book

McGraw-Hill
2000 The McGraw-Hill Companies

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Chapter 1
I NTRODUCTI ON
TO
SERVI CES
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A note on the
PowerPoint Slides...
These PowerPoint slides contain selected exhibits,
figures and tables from the chapters as well as
objectives for the chapters. For many chapters, we
include extra lecture slides and in-class exercises
that we have compiled and used in our classes.
The lecture slides are not intended to provide full
outlines or complete lectures for the chapters, but
rather may be used selectively to enhance class
sessions.
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Objectives for Chapter 1:
Introduction to Services
Explain what services are and identify service
trends
Explain the need for special services marketing
concepts and practices
Outline the basic differences between goods and
services and the resulting challenges for service
businesses
Introduce the service marketing triangle
Introduce the expanded services marketing mix
Introduce the gaps model of service quality
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Challenges for Services
Defining and improving quality
Communicating and testing new services
Communicating and maintaining a consistent
image
Motivating and sustaining employee commitment
Coordinating marketing, operations and human
resource efforts
Setting prices
Standardization versus personalization
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Examples of Service
Industries

Health Care
hospital, medical practice, dentistry, eye care
Professional Services
accounting, legal, architectural
Financial Services
banking, investment advising, insurance
Hospitality
restaurant, hotel/motel, bed & breakfast,
ski resort, rafting
Travel
airlines, travel agencies, theme park
Others:
hair styling, pest control, plumbing, lawn
maintenance, counseling services, health club

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Figure 1-1
Tangibility Spectrum
Tangible
Dominant
Intangible
Dominant
Salt
Soft Drinks
Detergents
Automobiles
Cosmetics
Advertising
Agencies
Airlines
Investment
Management
Consulting
Teaching
Fast-food
Outlets
Fast-food
Outlets

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Figure 1-2
Percent of
U.S. Labor Force by Industry
0
10
20
30
40
50
60
70
80
1929 1948 1969 1977 1984 1996
P
e
r
c
e
n
t

o
f

G
D
P

Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and
July 1992, Table 6.4C; Eli Ginzberg and George J. Vojta, The Service Sector of the U.S.
Economy, Scientific American, 244,3 (1981): 31-39.
Year
Services
Manufacturing
Mining & Agriculture
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0
10
20
30
40
50
60
70
80
1948 1959 1967 1977 1987 1996
Figure 1-3
Percent of U.S. Gross Domestic
Product by Industry
P
e
r
c
e
n
t

o
f

G
D
P

Year
Source: Survey of Current Business, August 1996, Table 11, April 1998, Table
B.3; Eli Ginzberg and George J. Vojta, The Service Sector of the U.S.
Economy, Scientific American, 244,3 (1981): 31-39.
Services
Manufacturing
Mining & Agriculture
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Differences Between
Goods and Services
Intangibility
Perishability
Simultaneous
Production
and
Consumption
Heterogeneity
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Implications of Intangibility
Services cannot be inventoried
Services cannot be patented
Services cannot be readily displayed
or communicated
Pricing is difficult
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Implications of Heterogeneity
Service delivery and customer satisfaction
depend on employee actions
Service quality depends on many
uncontrollable factors
There is no sure knowledge that the service
delivered matches what was planned and
promoted
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Implications of Simultaneous
Production and Consumption
Customers participate in and affect the
transaction
Customers affect each other
Employees affect the service outcome
Decentralization may be essential
Mass production is difficult
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Implications of Perishability
It is difficult to synchronize supply and
demand with services
Services cannot be returned or resold
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Table 1-2
Services are Different
Goods Services Resulting Implications
Tangible Intangible Services cannot be inventoried.
Services cannot be patented.
Services cannot be readily displayed or communicated.
Pricing is difficult.
Standardized Heterogeneous Service delivery and customer satisfaction depend on
employee actions.
Service quality depends on many uncontrollable factors.
There is no sure knowledge that the service delivered
matches what was planned and promoted.
Production
separate from
consumption
Simultaneous
production and
consumption
Customers participate in and affect the transaction.
Customers affect each other.
Employees affect the service outcome.
Decentralization may be essential.
Mass production is difficult.
Nonperishable Perishable It is difficult to synchronize supply and demand with
services.
Services cannot be returned or resold.
Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Problems and Strategies in Services Marketing,
Journal of Marketing 49 (Spring 1985): 33-46.
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Figure 1-5
The Services Marketing Triangle
Internal
Marketing
Interactive Marketing
External
Marketing
Company
(Management)
Customers Employees
enabling the
promise
delivering the promise
setting the
promise
Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler
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Services Marketing Triangle
Applications Exercise
Focus on a service organization. In the context
you are focusing on, who occupies each of the
three points of the triangle?
How is each type of marketing being carried out
currently?
Are the three sides of the triangle well aligned?
Are there specific challenges or barriers in any of
the three areas?
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Ways to Use the
Overall Strategic
Assessment
How is the service
organization doing
on all three sides of
the triangle?
Where are the
weaknesses?
What are the
strengths?

Specific Service
Implementation
What is being promoted
and by whom?
How will it be delivered
and by whom?
Are the supporting
systems in place to
deliver the promised
service?

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Source: Adapted from A. Parasuraman
Company
Customers
Providers
Technology
Figure 1-6
The Services Triangle
and Technology
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Services Marketing Mix:
7 Ps for Services
Traditional Marketing Mix
Expanded Mix for Services: 7 Ps
Building Customer Relationships Through
People, Processes, and Physical Evidence
Ways to Use the 7 Ps
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Traditional Marketing Mix
All elements within the control of the firm that
communicate the firms capabilities and image to
customers or that influence customer satisfaction
with the firms product and services:
Product
Price
Place
Promotion
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Expanded Mix for Services --
the 7 Ps
Product
Price
Place
Promotion
People
Process
Physical Evidence
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Table 1-3
Expanded Marketing Mix for
Services
PRODUCT PLACE PROMOTION PRICE
Physical good
features
Channel type Promotion
blend
Flexibility
Quality level Exposure Salespeople Price level
Accessories Intermediaries Advertising Terms
Packaging Outlet location Sales
promotion
Differentiation
Warranties Transportation Publicity Allowances
Product lines Storage
Branding
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PEOPLE PHYSICAL
EVIDENCE
PROCESS
Employees Facility design Flow of activities
Customers Equipment Number of steps
Communicating
culture and values
Signage Level of customer
involvement
Employee research Employee dress
Other tangibles
Table 1-3 (Continued)
Expanded Marketing Mix for
Services
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Ways to Use the 7 Ps
Overall Strategic
Assessment
How effective is a firms
services marketing mix?
Is the mix well-aligned
with overall vision and
strategy?
What are the strengths and
weaknesses in terms of the
7 Ps?

Specific Service
Implementation
Who is the customer?
What is the service?
How effectively does the
services marketing mix for a
service communicate its
benefits and quality?
What
changes/improvements are
needed?
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Part 1
FOCUS ON THE CUSTOMER
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Perceived
Service
Expected
Service
CUSTOMER
COMPANY
Customer
Gap
GAP 1
GAP 2
Gaps Model of Service Quality
GAP 3
External
Communications
to Customers GAP 4
Service Delivery
Customer-Driven Service
Designs and Standards
Company Perceptions of
Consumer Expectations
Part 1 Opener
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Gaps Model of Service
Quality
Customer Gap:
difference between expectations and
perceptions
Provider Gap 1:
not knowing what customers expect
Provider Gap 2:
not having the right service designs and
standards
Provider Gap 3:
not delivering to service standards
Provider Gap 4:
not matching performance to promises
Part 1 Opener
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The Customer Gap
Expected
Service
Perceived
Service
GAP
Part 1 Opener
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Chapter 2
CONSUMER BEHAVI OR
I N SERVI CES
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Consumer Behavior in
Services

Overview the generic differences in consumer behavior
between services and goods
Introduce the aspects of consumer behavior that a
marketer must understand in five categories of consumer
behavior:
Information search
Evaluation of service alternatives
Service purchase and consumption
Postpurchase evaluation
Role of culture
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Consumer Evaluation
Processes for Services
Search Qualities
attributes a consumer can determine prior to
purchase of a product
Experience Qualities
attributes a consumer can determine after
purchase (or during consumption) of a product
Credence Qualities
characteristics that may be impossible to evaluate
even after purchase and consumption
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Figure 2-1
Continuum of Evaluation for
Different Types of Products
Difficult to evaluate
Easy to evaluate
High in search
qualities
High in experience
qualities
High in credence
qualities
Most
Goods
Most
Services
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Figure 2-2
Categories in Consumer
Decision-Making and Evaluation of
Services
Information
Search
Evaluation of
Alternatives
Purchase and
Consumption
Post-Purchase
Evaluation
Use of personal sources
Perceived risk
Evoked set
Emotion and mood
Service provision as drama
Service roles and scripts
Compatibility of customers
Attribution of dissatisfaction
Innovation diffusion
Brand loyalty
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Figure 2-3
Categories in Consumer Decision-
Making and Evaluation of Services
Information
Search
Evaluation of
Alternatives
Purchase and
Consumption
Post-Purchase
Evaluation
Use of personal sources
Perceived risk
Evoked set
Emotion and mood
Service provision as
drama
Service roles and scripts
Compatibility of customers
Attribution of dissatisfaction
Innovation diffusion
Brand loyalty
Culture
Values and attitudes
Manners and customs
Material culture
Aesthetics
Educational and social
institutions

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Global Feature:
Differences in the Service
Experience in the U.S. and Japan
Authenticity
Caring
Control Courtesy
Formality
Friendliness
Personalization
Promptness
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Chapter 3
CUSTOMER
EXPECTATI ONS OF
SERVI CES
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Customer Expectations of
Service

Recognize that customers hold different types of
expectations for service performance
Discuss controllable and uncontrollable sources of
customer expectations
Distinguish between customers global expectations of
their relationships and their expectations of the service
encounter
Acknowledge that expectations are similar for many
different types of customers
Delineate the most important current issues surrounding
customer expectations
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Figure 3-1
Dual Customer
Expectation Levels
Adequate Service
Desired Service
Zone of
Tolerance
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Figure 3-2
The Zone of Tolerance
Adequate Service
Desired Service
Zone of
Tolerance
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Figure 3-3
Zones of Tolerance for
Different Service Dimensions

Most Important Factors Least Important Factors
Level
of
Expectation
Source: Berry, Parasuraman, and Zeithaml (1993)
Adequate Service
Desired Service
Zone of
Tolerance
Desired
Service
Adequate
Service
Zone
of
Tolerance
Desired Service
Adequate Service
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Figure 3-4
Zones of Tolerance for
First-Time and Recovery Service

First-Time Service
Outcome
Process
Outcome
Process
Recovery Service
Expectations
LOW HIGH
Source: Parasuraman, Berry and Zeithaml (1991)
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Figure 3-5
Factors that Influence
Desired Service
Desired
Service
Adequate
Service
Zone
of
Tolerance
Enduring Service
Intensifiers
Personal Needs
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Figure 3-6
Adequate Service
Desired
Service
Adequate
Service
Zone
of
Tolerance
Self-Perceived
Service Role
Situational
Factors
Perceived Service
Alternatives
Transitory Service
Intensifiers
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Figure 3-7
Desired and Predicted Service
Desired
Service
Adequate
Service
Zone
of
Tolerance
Predicted
Service
Explicit Service
Promises
Implicit Service
Promises
Word-of-Mouth
Past Experience
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Chapter 4
CUSTOMER
PERCEPTI ONS OF
SERVI CE
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Customer Perceptions of
Service

Provide you with definitions and
understanding of customer satisfaction and
service quality
Show that service encounters or the
moments of truth are the building blocks of
customer perceptions
Highlight strategies for managing customer
perceptions of service
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Figure 4-1
Customer Perceptions of
Service Quality and
Customer Satisfaction
Service
Quality
Reliability
Responsiveness
Assurance
Empathy
Tangibles
Product
Quality
Price
Personal
Factors
Customer
Satisfaction
Situational
Factors
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Factors Influencing
Product/service quality
Product/service attributes or features
Consumer Emotions
Attributions for product/service success or
failure
Equity or fairness evaluations
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Outcomes of
Increased customer retention
Positive word-of-mouth communications
Increased revenues
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Figure 4-3
Relationship between Customer
Satisfaction and Loyalty in
Competitive Industries
0%
20%
40%
60%
80%
100%
Very
dissatisfied
Dissatisfied Neither
satisfied nor
dissatisfied
Satisfied Very
satisfied
Satisfaction measure
L
o
y
a
l
t
y

(
r
e
t
e
n
t
i
o
n
)
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.
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Service Quality
The customers judgment of overall
excellence of the service provided in
relation to the quality that was expected.
Process and outcome quality are both
important.
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The Five Dimensions of
Service Quality
Ability to perform the promised
service dependably and accurately.
Knowledge and courtesy of
employees and their ability to
convey 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
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Exercise to
Identify Service Attributes
In 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
customers point of view.
Reliability:

Assurance:

Tangibles:

Empathy:

Responsiveness:

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SERVQUAL Attributes
n Providing service as promised
n Dependability in handling customers
service problems
n Performing services right the first time
n Providing services at the promised time
n Maintaining error-free records
n Keeping customers informed as to
when services will be performed
n Prompt service to customers
n Willingness to help customers
n Readiness to respond to customers
requests
RELIABILITY
RESPONSIVENESS
n Employees who instill confidence in
customers
n Making customers feel safe in their
transactions
n Employees who are consistently courteous
n Employees who have the knowledge to
answer customer questions
ASSURANCE
n Giving customers individual attention
n Employees who deal with customers in a
caring fashion
n Having the customers best interest at heart
n Employees who understand the needs of
their customers
n Convenient business hours
EMPATHY
n Modern equipment
n Visually appealing facilities
n Employees who have a neat,
professional appearance
n Visually appealing materials
associated with the service
TANGIBLES
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The Service Encounter
is the moment of truth
occurs any time the customer interacts with the firm
can 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 trust
reinforce quality
build brand identity
increase loyalty
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Check-In
Request Wake-Up Call
Checkout
Bellboy Takes to Room
Restaurant Meal
Figure 4-4
A Service Encounter
Cascade for a Hotel Visit
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Sales Call
Ordering Supplies
Billing
Delivery and Installation
Servicing
Figure 4-5
A Service Encounter
Cascade for an Industrial
Purchase
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Critical Service Encounters
Research
GOAL - 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
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Sample Questions for Critical
Incidents Technique Study
Think 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)?
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Common Themes in Critical
Service Encounters Research
Recovery: Adaptability:
Spontaneity: Coping:
Employee Response
to Service Delivery
System Failure
Employee Response
to Customer Needs
and Requests
Employee Response
to Problem Customers
Unprompted and
Unsolicited Employee
Actions and Attitudes
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Recovery
Acknowledge
problem
Explain causes
Apologize
Compensate/upgrade
Lay out options
Take responsibility
Ignore customer
Blame customer
Leave customer to
fend for him/herself
Downgrade
Act as if nothing is
wrong
DO
DONT
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Adaptability
Recognize the
seriousness of the need
Acknowledge
Anticipate
Attempt to
accommodate
Explain rules/policies
Take responsibility
Exert effort to
accommodate
Promise, then fail to
follow through
Ignore
Show unwillingness to
try
Embarrass the customer
Laugh at the customer
Avoid responsibility
DO DONT
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Spontaneity
Take time
Be attentive
Anticipate needs
Listen
Provide information
(even if not asked)
Treat customers fairly
Show empathy
Acknowledge by name
Exhibit impatience
Ignore
Yell/laugh/swear
Steal from or cheat a
customer
Discriminate
Treat impersonally
DO
DONT
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Coping
Listen
Try to accommodate
Explain
Let go of the
customer
Take customers
dissatisfaction
personally
Let customers
dissatisfaction affect
others
DO
DONT
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Figure 4-6
Evidence of Service from the
Customers Point of View
People
Process
Physical
Evidence
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
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Part 2
LI STENI NG TO
CUSTOMER
REQUI REMENTS
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Provider GAP 1
Company
Perceptions of
Consumer
Expectations
Expected
Service
CUSTOMER
COMPANY
GAP 1
Part 2 Opener
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Chapter 5
UNDERSTANDI NG
CUSTOMER
EXPECTATI ONS AND
PERCEPTI ONS THROUGH
MARKETI NG RESEARCH
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Understanding Customer Expectations
and Perceptions through
Marketing Research

Present the types of and guidelines for marketing
research in services
Show the ways that marketing research information
can and should be used for services
Describe the strategies by which companies can
facilitate interaction and communication between
management and customers
Present ways that companies can and do facilitate
interaction between contact people and management
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Common Research Objectives
for Services
To identify dissatisfied customers
To discover customer requirements or expectations
To monitor and track service performance
To assess overall company performance compared to
competition
To assess gaps between customer expectations and
perceptions
To gauge effectiveness of changes in service
To appraise service performance of individuals and teams
for rewards
To determine expectations for a new service
To monitor changing expectations in an industry
To forecast future expectations
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Figure 5-1
Criteria for An Effective
Services Research Program
Research
Objectives
Includes
Perceptions
and
Expectations
of
Customers
Includes
Measures
of
Loyalty or
Behavioral
Intentions
Includes
Statistical
Validity
When Necessary
Measures
Priorities
or
Importance
Occurs
with
Appropriate
Frequency
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Portfolio of Services Research
Customer Complaint
Solicitation
Relationship Surveys
Post-Transaction Surveys
Customer Focus Groups
Mystery Shopping of
Service Providers
Employee Surveys
Lost Customer Research
Identify dissatisfied customers to attempt recovery;
identify most common categories of service failure for
remedial action
Obtain customer feedback while service experience is still
fresh; act on feedback quickly if negative patterns develop
Use as input for quantitative surveys; provide a forum
for customers to suggest service-improvement ideas
Assess companys service performance compared to
competitors; identify service-improvement priorities; track
service improvement over time
Measure individual employee service behaviors for use in
coaching, training, performance evaluation, recognition and
rewards; identify systemic strengths and weaknesses in
service
Measure internal service quality; identify employee-
perceived obstacles to improve service; track
employee morale and attitudes
Determine the reasons why customers defect
Research Objective
Type of Research
Future Expectations Research
To forecast future expectations of customers
To develop and test new service ideas
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Stages in the Research
Process
Stage 1 : Define Problem
Stage 2 : Develop Measurement Strategy
Stage 3 : Implement Research Program
Stage 4 : Collect and Tabulate Data
Stage 5 : Interpret and Analyze Findings
Stage 6 : Report Findings
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Figure 5-5
Service Quality Perceptions
Relative to Zones of Tolerance
by Dimensions
Retail Chain
9
8
7
6
5
4
3
2
1
0
Reliability Responsiveness Assurance Empathy Tangibles
O
O
O
O
Zone of Tolerance S.Q. Perception O
O
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Service Quality Perceptions
Relative to Zones of Tolerance by
Dimensions
Computer
Manufacturer
10
8
6
4
2
0
Reliability Responsiveness Assurance Empathy Tangibles
O
O
O
O
O
Zone of Tolerance S.Q. Perception
O
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Figure 5-6
Importance/Performance Matrix
HIGH
HIGH
LOW
Performance
I
m
p
o
r
t
a
n
c
e

Attributes to Improve Attributes to Maintain
High
Leverage
Attributes to De-emphasize Attributes to Maintain
Low
Leverage
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Chapter 6
BUI LDI NG
CUSTOMER
RELATI ONSHI PS
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Building Customer
Relationships

Explain relationship marketing, its goals, and the benefits
of long-term relationships for firms and customers
Explain why and how to estimate customer lifetime value
Specify the foundations for successful relationship
marketing--quality core services and careful market
segmentation
Provide you with examples of successful customer
retention strategies
Introduce the idea that the customer isnt always right
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Relationship Marketing
is a philosophy of doing business that focuses on keeping
and improving current customers
does not necessarily emphasize acquiring new customers
is usually cheaper (for the firm)--to keep a current
customer costs less than to attract a new one
goal = to build and maintain a base of committed
customers who are profitable for the organization
thus, the focus is on the attraction, retention, and
enhancement of customer relationships
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Lifetime Value of a Customer
Assumptions
Income
Expected Customer Lifetime
Average Revenue (month/year)
Other Customers convinced via WOM
Employee Loyalty??
Expenses
Costs of Serving Customer Increase??
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A Loyal Customer is One Who...
Shows Behavioral Commitment
buys from only one supplier, even though other options
exist
increasingly buys more and more from a particular
supplier
provides constructive feedback/suggestions
Exhibits Psychological Commitment
wouldnt consider terminating the relationship--
psychological commitment
has a positive attitude about the supplier
says good things about the supplier

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Customer Loyalty Exercise
Think of a service provider you are loyal to.
What do you do (your behaviors, actions, feelings)
that indicates you are loyal?
Why are you loyal to this provider?
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Benefits to the Organization
of Customer Loyalty
loyal customers tend to spend more with the
organization over time
on average costs of relationship maintenance are
lower than new customer costs
employee retention is more likely with a stable
customer base
lifetime value of a customer can be very high
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Benefits to the Customer
inherent benefits in getting good value
economic, social, and continuity benefits
contribution to sense of well-being and quality
of life and other psychological benefits
avoidance of change
simplified decision making
social support and friendships
special deals
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The Customer Isnt Always
Right
Not all customers are good relationship
customers:

wrong segment

not profitable in the long term

difficult customers
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Strategies for Building
Relationships
Foundations:
Excellent Quality/Value
Careful Segmentation
Bonding Strategies:
Financial Bonds
Social & Psychological Bonds
Structural Bonds
Customization Bonds
Relationship Strategies Wheel
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Getting
Satisfying
Retaining
Enhancing
Figure 6-1
Customer Goals of
Relationship Marketing
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Figure 6-3
Underlying Logic of Customer
Retention Benefits to the
Organization
Customer Retention &
Increased Profits
Employee Loyalty
Quality
Service
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Figure 6-5
Steps in Market Segmentation
and
Targeting for Services

Identify
Bases for
Segmenting
the Market
STEP 1:
Develop
Profiles of
Resulting
Segments
STEP 2:

Develop
Measures
of Segment
Attractive-
ness
STEP 3:
Select the
Target
Segments
STEP4:
Ensure that
Segments
Are
Compatible
STEP 5:
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Excellent
Quality
and
Value
Figure 6-6
Levels of Retention Strategies
I. Financial
Bonds
II.
Social
Bonds
IV.
Structural
Bonds
III. Customization
Bonds
Volume and
Frequency
Rewards
Bundling and
Cross Selling
Stable
Pricing
Social Bonds
Among
Customers
Personal
Relationships
Continuous
Relationships
Customer
Intimacy
Mass
Customization
Anticipation
/ Innovation
Shared
Processes
and
Equipment
Joint
Investments
Integrated
Information
Systems
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McGraw-Hill

Chapter 7
SERVI CE RECOVERY
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Service Recovery

Illustrate the importance of recovery from service
failures in building loyalty
Discuss the nature of consumer complaints and
why people do and do not complain
Provide evidence of what customers expect and
the kind of responses they want when they
complain
Provide strategies for effective service recovery
Discuss service guarantees
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Figure 7-1
Unhappy Customers
Repurchase Intentions
95%
70%
46%
37%
82%
54%
19%
9%
Complaints Resolved Quickly
Complaints Resolved
Complaints Not Resolved
Minor complaints ($1-$5 losses) Major complaints (over $100 losses)
Unhappy Customers Who Dont Complain
Unhappy Customers Who Do Complain
Percent of Customers Who Will Buy Again
Source: Adapted from data reported by the Technical Assistance Research Program.
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Figure 7-3
Customer Response
Following Service Failure
Service Failure
Do Nothing Take Action
Stay with Provider
Switch Providers
Complain to
Provider
Complain to
Family & Friends
Complain to
Third Party
Stay with Provider
Switch Providers
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Figure 7-5
Service Recovery Strategies
Service
Recovery
Strategies
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Figure 7-6
Causes Behind Service
Switching
Service
Switching
Behavior
High Price
Price Increases
Unfair Pricing
Deceptive Pricing
Pricing
Location/Hours
Wait for Appointment
Wait for Service
Inconvenience
Service Mistakes
Billing Errors
Service Catastrophe
Core Service Failure
Uncaring
Impolite
Unresponsive
Unknowledgeable
Service Encounter Failures
Negative Response
No Response
Reluctant Response
Response to Service Failure
Found Better Service
Competition
Cheat
Hard Sell
Unsafe
Conflict of Interest
Ethical Problems
Customer Moved
Provider Closed
Involuntary Switching
Source: Sue Keaveney
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Service Guarantees
guarantee = an assurance of the fulfillment of a
condition (Websters Dictionary)

for products, guarantee often done in the form of a
warranty

services are often not guaranteed
cannot return the service
service experience is intangible
(so what do you guarantee?)
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Table 7-7
Characteristics of an
Effective Service Guarantee
Unconditional
The guarantee should make its promise unconditionally -
no strings attached.
Meaningful
It should guarantee elements of the service that are
important to the customer.
The payout should cover fully the customer's
dissatisfaction.
Easy to Understand and Communicate
For customers - they need to understand what to expect.
For employees - they need to understand what to do.
Easy to Invoke and Collect
There should not be a lot of hoops or red tape in the way
of accessing or collecting on the guarantee.
Source: Christopher W.L. Hart, The Power of Unconditional Guarantees, Harvard Business Review, July-August, 1988, pp. 54-62.
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Why a Good Guarantee
Works
forces company to focus on customers

sets clear standards

generates feedback

forces company to understand why it failed

builds marketing muscle
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Service Guarantees
Does everyone need a guarantee?

Reasons companies do NOT offer guarantees:
guarantee would be at odds with companys
image
too many uncontrollable external variables
fears of cheating by customers
costs of the guarantee are too high
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Service Guarantees
service guarantees work for companies who are
already customer-focused
effective guarantees can be BIG deals - they put the
company at risk in the eyes of the customer
customers should be involved in the design of
service guarantees
the guarantee should be so stunning that it comes as
a surprise -- a WOW!! factor
its the icing on the cake, not the cake
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McGraw-Hill

Part 3
ALI GNI NG STRATEGY,
SERVI CE DESI GN
AND STANDARDS
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CUSTOMER
COMPANY
GAP 2
Customer-Driven
Service Designs and
Standards
Company
Perceptions of
Consumer
Expectations
Provider GAP 2
Part 3 Opener
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McGraw-Hill

Chapter 8
SERVI CE DEVELOPMENT
AND DESI GN
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Service Development and
Design

Describe the challenges inherent in service design
Present steps in the new service development
process
Show the value of service blueprinting and quality
function deployment (QFD) in new service design
and service improvement
Present lessons learned in choosing and
implementing high-performance service
innovations
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Figure 8-1
Risks of Relying on Words
Alone to
Describe Services
Oversimplification
Incompleteness
Subjectivity
Biased Interpretation
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Figure 8-2
New Service Development Process
Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997.
Business Strategy Development or Review
New Service Strategy Development
Idea Generation
Concept Development and Evaluation
Business Analysis
Service Development and Testing
Postintroduction Evaluation
Commercialization
Market Testing
Screen ideas against new service strategy
Test concept with customers and employees
Test for profitability and feasibility
Conduct service prototype test
Test service and other marketing-mix elements
Front End
Planning
Implementation
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Figure 8-3
New Service Strategy Matrix
for Identifying Growth
Opportunities
Markets
Offerings
Existing
Services
New
Services
Current Customers New Customers
SHARE BUILDING
DIVERSIFICATION
MARKET
DEVELOPMENT
SERVICE
DEVELOPMENT
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Figure 8-4

Service Mapping/Blueprinting
A tool for simultaneously depicting the service
process, the points of customer contact, and the
evidence of service from the customers point of
view.
Service
Mapping
Process
Points of Contact
Evidence
McGraw-Hill
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Service Blueprint Components
CUSTOMER ACTIONS
line of interaction
ONSTAGE CONTACT EMPLOYEE ACTIONS
line of visibility
BACKSTAGE CONTACT EMPLOYEE ACTIONS
line of internal interaction
SUPPORT PROCESSES
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Driver
Picks
Up Pkg.
Dispatch
Driver
Airport
Receives
& Loads
Sort
Packages
Load on
Airplane
Fly to
Destinatio
n
Unload
&
Sort
Load
On
Truck
Express Mail Delivery Service
S
U
P
P
O
R
T

P
R
O
C
E
S
S

C
O
N
T
A
C
T

P
E
R
S
O
N

(
B
a
c
k

S
t
a
g
e
)

(
O
n

S
t
a
g
e
)

C
U
S
T
O
M
E
R

P
H
Y
S
I
C
A
L

E
V
I
D
E
N
C
E

Customer
Calls
Customer
Gives
Package
Truck
Packaging
Forms
Hand-held
Computer
Uniform
Receive
Package
Truck
Packaging
Forms
Hand-held
Computer
Uniform
Deliver
Package
Customer
Service
Order
Fly to
Sort
Center
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Overnight Hotel Stay
S
U
P
P
O
R
T

P
R
O
C
E
S
S

C
O
N
T
A
C
T

P
E
R
S
O
N

(
B
a
c
k

S
t
a
g
e
)

(
O
n

S
t
a
g
e
)

C
U
S
T
O
M
E
R

Hotel
Exterior
Parking
Cart for
Bags
Desk
Registration
Papers
Lobby
Key
Elevators
Hallways
Room
Cart for
Bags
Room
Amenities
Bath
Menu Delivery
Tray
Food
Appearance
Food
Bill
Desk
Lobby
Hotel
Exterior
Parking
Arrive
at
Hotel
Give Bags
to
Bellperson
Check in
Go to
Room
Receive
Bags
Sleep
Shower
Call
Room
Service
Receive
Food
Eat
Check out
and
Leave
Greet and
Take
Bags
Process
Registration
Deliver
Bags
Deliver
Food
Process
Check Out
Take Bags
to Room
Take
Food
Order
Registration
System
Prepare
Food
Registration
System
P
H
Y
S
I
C
A
L

E
V
I
D
E
N
C
E

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Figure 8-8
Building a Service Blueprint
Step 1

Identify the
process to
be blue-
printed.
Step 2

Identify the
customer
or
customer
segment.
Step 3

Map the
process
from the
customers
point of
view.
Step 4

Map
contact
employee
actions,
onstage
and back-
stage.
Step 5

Link
customer
and contact
person
activities to
needed
support
functions.
Step 6

Add
evidence
of service
at each
customer
action
step.
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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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Blueprints Can Be Used By:
Service Marketers
creating realistic customer
expectations
service system design
promotion

Operations Management
rendering the service as
promised
managing fail points
training systems
quality control
Human Resources
empowering the human
element
job descriptions
selection criteria
appraisal systems

System Technology
providing necessary tools:
system specifications
personal preference databases
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McGraw-Hill

Chapter 9
CUSTOMER-DEFI NED
SERVI CE STANDARDS
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Customer-defined Service
Standards

Differentiate between company-defined and
customer-defined service standards
Distinguish among one-time service fixes and
hard and soft customer-defined standards
Explain the critical role of the service encounter
sequence in developing customer-defined
standards
Illustrate how to translate customer expectations
into behaviors and actions that are definable,
repeatable, and actionable
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Figure 9-1
AT&Ts Process Map for Measurements
Reliability (40%)
Easy To Use (20%)
Features / Functions (40%)

Knowledge (30%)
Responsive (25%)
Follow-Up (10%)

Delivery Interval Meets Needs (30%)
Does Not Break (25%)
Installed When Promised (10%)

No Repeat Trouble (30%)
Fixed Fast (25%)
Kept Informed (10%)

Accuracy, No Surprise (45%)
Resolve On First Call (35%)
Easy To Understand (10%)
Business Process
Customer Need
Internal Metric
30% Product

30% Sales

10% Installation

15% Repair

15% Billing
% Repair Call
% Calls for Help
Functional Performance Test

Supervisor Observations
% Proposal Made on Time
% Follow Up Made

Average Order Interval
% Repair Reports
% Installed On Due Date

% Repeat Reports
Average Speed Of Repair
% Customers Informed

% Billing Inquiries
% Resolved First Call
% Billing Inquiries
Total
Quality
Source: AT&T General Business Systems
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Exercise for Creating
Customer-Defined Service
Standards
Form a group of four people
Use your schools undergraduate or graduate
program, or an approved alternative
Complete the customer-driven service standards
importance chart
Establish standards for the most important and
lowest-performed behaviors and actions
Be prepared to present your findings to the class
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Service Encounter
Customer Requirements Measurements
Service
Quality

Customer-Driven Standards and
Measurements Exercise
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Figure 9-2
Getting to Actionable Steps
Satisfaction Value
Relationship
Solution Provider
Reliability Empathy
Assurance Tangibles
Responsiveness Price
Delivers on Time
Returns Calls Quickly
Knows My Industry

Delivers by Weds 11/4
Returns Calls in 2 Hrs
Knows Strengths of
My Competitors

Requirements:

Abstract
Concrete
Dig
Deeper

Dig
Deeper

Dig
Deeper

Diagnosticity:

Low
High
General Concepts
Dimensions
Behaviors
and Actions
Attributes
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Figure 9-3
Process for Setting
Customer-Defined Standards
1. Identify Existing or Desired Service Encounter Sequence
2. Translate Customer Expectations Into Behaviors/Actions
4. Set Hard or Soft Standards
5. Develop Feedback
Mechanisms
7. Track Measures Against Standards
Measure by
Audits or
Operating Data
Hard
Soft
Measure by
Transaction-
Based Surveys
3. Select Behaviors/Actions for Standards
6. Establish Measures and Target Levels
8. Update Target Levels and Measures
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HIGH
HIGH
Performance

10.0
8.0
7.0
9.0
LOW
8.0 9.0 10.0
Importance
Improve
Maintain
Delivers on promises specified in proposal/contract (9.49, 8.51)
Gets project within budget, on time (9.31, 7.84)
Completes projects
correctly, on time (9.29, 7.68)
Does whatever it takes to
correct problems (9.26, 7.96)
Provides equipment that operates as vendor said it would (9.24, 8.14)
Gets price we originally agreed upon (9.21, 8.64)
Takes responsibility for their mistakes (9.18, 8.01)
Delivers or installs on
promised date (9.02, 7.84)
Tells me cost ahead of time (9.06, 8.46)

Gets back to me when
promised (9.04, 7.63)
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Figure 9-5
Linkage between Soft Measures and
Hard Measures for Speed of
Complaint Handling
S
A
T
I
S
F
A
C
T
I
O
N
2 4 6 8 12 16 20 24
W O R K I N G H O U R S
Large Customers
Small Customers
10
9
8
7
6
5
4
3
2
1
0
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Figure 9-6
Aligning Company Processes with
Customer Expectations
Customer
Process
Blueprint
Company
Process
Blueprint
Company Sequential Processes
A B C D E F G H
40 Days
New Card
Mailed
Lost Card
Reported
Report Lost
Card
Receive New
Card
48 Hours
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McGraw-Hill

Chapter 10
PHYSI CAL EVI DENCE
AND THE SERVI CESCAPE
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Physical Evidence and the
Servicescape

Explain the impact on customer perceptions of physical
evidence, particularly the servicescape
Illustrate differences in types and roles of servicescapes
and their implications for strategy
Explain why the servicescape affects employee and
customer behavior
Analyze four different approaches for understanding the
effects of physical environment
Present elements of an effective physical evidence
strategy
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Table 10-1
Elements of Physical
Evidence
Servicescape Other tangibles
Facility exterior
Exterior design
Signage
Parking
Landscape
Surrounding environment
Facility interior
Interior design
Equipment
Signage
Layout
Air quality/temperature
Business cards
Stationery
Billing statements
Reports
Employee dress
Uniforms
Brochures
Internet/Web pages
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Table 10-2
Examples of Physical Evidence from the
Customers Point of View
Service Physical evidence
Servicescape Other tangibles
Insurance Not applicable Policy itself
Billing statements
Periodic updates
Company brochure
Letters/cards
Hospital Building exterior
Parking
Signs
Waiting areas
Admissions office
Patient care room
Medical equipment
Recovery room
Uniforms
Reports/stationery
Billing statements
Airline Airline gate area
Airplane exterior
Airplane interior (dcor, seats, air
quality)
Tickets
Food
Uniforms
Express mail Not applicable Packaging
Trucks
Uniforms
Computers
Sporting
event
Parking, Seating, Restrooms
Stadium exterior
Ticketing area, Concession Areas
Entrance, Playiing Field
Signs
Tickets
Program
Uniforms
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Table 10-3
Typology of Service Organizations
Based on Variations in Form
and Use of the Servicescape
Complexity of the servicescape evidence
Servicescape
usage
Elaborate Lean
Self-service
(customer only)
Golf Land
Surf 'n' Splash
ATM
Ticketron
Post office kiosk
Internet services
Express mail drop-off
Interpersonal
services
(both customer and
employeee)
Hotel
Restaurants
Health clinic
Hospital
Bank
Airline
School
Dry cleaner
Hot dog stand
Hair salon
Remote service
(employee only)
Telephone company
Insurance company
Utility
Many professional services
Telephone mail-order desk
Automated voice-messaging-
based services
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Figure 10-3
A Framework for Understanding
Environment-user Relationships
in Service Organizations
Source: Adapted from Mary Jo Bitner, Servicescapes.
PHYSICAL
ENVIRONMENTAL
DIMENSIONS
HOLISTIC
ENVIRONMENT
INTERNAL
RESPONSES
BEHAVIOR
Ambient
Conditions

Space/Function

Signs, Symbols,
and Artifacts
Perceived
Servicescape
Cognitive

Emotional

Physiological
Cognitive

Emotional

Physiological
Employee
Responses
Customer
Responses
Individual
Behaviors
Social
Interactions
between and
among
customer and
employees
Individual
Behaviors
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Part 4
DELI VERI NG AND
PERFORMI NG SERVI CE
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CUSTOMER
COMPANY
Provider GAP 3
Service Delivery
GAP 3
Customer-Driven
Service Designs and
Standards
Part 4 Opener
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Chapter 11
EMPLOYEES ROLES IN
SERVI CE DELI VERY
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Employees Roles in
Service Delivery

Illustrate the critical importance of service
employees in creating customer satisfaction and
service quality
Demonstrate the challenges inherent in boundary-
spanning roles
Provide examples of strategies for creating
customer-oriented service delivery
Show how the strategies can support a service
culture where providing excellent service is a way
of life
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Service Employees
They are the service
They are the firm in the customers eyes
They are marketers
Importance is evident in
The Services Marketing Mix (People)
The Service-Profit Chain
The Services Triangle
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Service Employees
Who are they?
boundary spanners
What are these jobs like?
emotional labor
many sources of potential conflict
person/role
organization/client
interclient
quality/productivity
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Figure 11-3
Boundary Spanners Interact
with Both Internal
and External Constituents
Internal Environment
External Environment
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Figure 11-4
Sources of Conflict for
Boundary-Spanning Workers
Person vs. Role

Organization vs. Client

Client vs. Client

Quality vs. Productivity
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Figure 11-5
Human Resource Strategies for Closing GAP 3
Customer-
oriented
Service
Delivery
Hire the
Right People
Provide
Needed Support
Systems
Retain the
Best
People
Develop
People to
Deliver
Service
Quality
Hire for
Service
Competencies
and Service
Inclination
Provide
Supportive
Technology
and
Equipment
T
r
e
a
t

E
m
p
l
o
y
e
e
s

a
s

C
u
s
t
o
m
e
r
s

E
m
p
o
w
e
r

E
m
p
l
o
y
e
e
s

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Service Culture
A culture where an appreciation for good service
exists, and where giving good service to internal
as well as ultimate, external customers, is
considered a natural way of life and one of the
most important norms by everyone in the
organization.
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McGraw-Hill

Chapter 12
CUSTOMERS ROLES IN
SERVI CE DELI VERY
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Customers Roles in Service
Delivery

Illustrate the importance of customers in
successful service delivery
Enumerate the variety of roles that service
customers play
Productive resources
Contributors to quality and satisfaction
Competitors
Explain strategies for involving service customers
effectively to increase both quality and
productivity
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Importance of Other
Customers in Service
Delivery
Other customers can detract from
satisfaction
disruptive behaviors
excessive crowding
incompatible needs
Other customers can enhance satisfaction
mere presence
socialization/friendships
roles: assistants, teachers, supporters
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How Customers Widen Gap 3
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
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Figure 12-2
Customer Roles in Service
Delivery
Productive Resources
Contributors to
Quality and
Satisfaction
Competitors
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Customers as Productive
Resources
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?
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Customers as Contributors
to Service Quality 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 service provider
internal exchange vs. external exchange
internal/external decision often based on:
expertise
resources
time
economic rewards
psychic rewards
trust
control
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Technology Spotlight:
Services Production Continuum
1 2 3 4 5 6
Gas Station Illustration
1. Customer pumps gas and pays at the pump with automation
2. Customer pumps gas and goes inside to pay attendant
3. Customer pumps gas and attendant takes payment at the pump
4. Attendant pumps gas and customer pays at the pump with automation
5. Attendant pumps gas and customer goes inside to pay attendant
6. Attendant pumps gas and attendant takes payment at the pump
Customer Production Joint Production Firm Production
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Figure 12-3
Strategies for Enhancing
Customer Participation
Effective
Customer
Participation
Recruit, Educate,
and Reward
Customers
Define Customer
Jobs
Manage the
Customer
Mix
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Strategies for Enhancing
Customer Participation
1. Define customers jobs
- helping himself
- helping others
- promoting the company

2. Individual differences: not everyone wants
to participate
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Strategies for Recruiting,
Educating and Rewarding
Customers
1. Recruit the right customers
2. Educate and train customers to perform
effectively
3. Reward customers for their contribution
4. Avoid negative outcomes of inappropriate
customer participation
Manage the Customer Mix
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Chapter 13
DELI VERI NG SERVI CE
THROUGH
I NTERMEDI ARI ES AND
ELECTRONI C CHANNELS
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Delivering Service through
Intermediaries and Electronic
Channels

Identify the primary channels through which
services are delivered to end customers
Provide examples of each of the key service
intermediaries
View delivery of service from two perspectives--
the service provider and the service deliverer
Identify the benefits and challenges of each
method of service delivery
Outline the strategies that are used to manage
service delivery through intermediaries
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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)
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Key Issues
Involving Intermediaries
conflict over objectives and performance

conflict over costs and rewards

control of service quality

empowerment versus control

channel ambiguity
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Services Intermediaries
franchisees
e.g., Jiffy Lube, H&R Block, McDonalds

agents and brokers
e.g., travel agents, independent insurance
agents

electronic channels
e.g., ATMs, university video courses, TaxCut
software
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Exhibit 13-4
Summary of Benefits and Challenges
for Franchisers of Service
Leverages the business
format to gain
expansion and revenues
Maintains consistency in
outlets
Gains knowledge of
local markets
Shares financial risk and
frees up capital
Difficulty in maintaining and
motivating franchisees
Highly publicized disputes
and conflict
Possibility of inconsistent
quality that can undermine
the company name
Control of customer
relationship by intermediary
Benefits
Challenges
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Summary of Benefits and
Challenges for Franchisees of
Service
Obtaining an established
business format on
which to base a business
Receiving national or
regional brand
marketing
Minimizing the risks of
starting a business
Disappointing profits and
revenues
Encroachment and franchise
saturation
High failure rates and unfair
terminations
Lack of perceived control
High fees and rigid contracts
Unrealistic expectations
Benefits Challenges
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Exhibit 13-6
Summary of Benefits and Challenges
in Distributing Services through
Agents and Brokers
Reduced selling and
distribution costs
Intermediarys
possession of special
skills and knowledge
Wide representation
Knowledge of local
markets
Customer choice
Loss of control over
pricing and other
aspects of marketing
Representation of
multiple service
principals
Benefits
Challenges
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Exhibit 13-7
Summary of Benefits and Challenges in
Electronic Distribution of Services
Consistent delivery for
standardized services
Low cost
Customer convenience
Wide distribution
Customer choice and
ability to customize
Quick customer feedback
Customers are active, not passive
Lack of control of electronic
environment
Price competition
Inability to customize with
standardized services
Lack of consistency with
customer involvement
Security concerns
Competition from widening
geographies
Benefits
Challenges
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Strategies for Effective Service
Delivery through Intermediaries
Measurement
Review
Control Strategies
Alignment of goals
Consultation and
cooperation
Help the intermediary
develop customer-based
service processes
Provide needed support
Develop the
intermediary to deliver
service quality
Change to a cooperative
management structure
Empowerment Strategies
Partnering Strategies
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McGraw-Hill

Chapter 14
MANAGI NG DEMAND
AND CAPACI TY
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Managing Demand and
Capacity

Explain:
the underlying issue for capacity-constrained services
the implications of capacity constraints
the implications of different types of demand patterns
on matching supply and demand
Lay out strategies for matching supply and demand
through:
shifting demand to match capacity or
flexing capacity to meet demand
Demonstrate the benefits and risks of yield management
strategies
Provide strategies for managing waiting lines
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Understanding Capacity
Constraints and Demand
Patterns
Time, labor,
equipment and
facilities
Optimal versus
maximal use of
capacity
Charting demand
patterns
Predictable cycles
Random demand
fluctuations
Demand patterns by
market segment
Capacity Constraints
Demand Patterns
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Figure 14-3
Strategies for Shifting Demand
to Match Capacity
Use signage to communicate
busy days and times
Offer incentives to customers
for usage during non-peak times
Take care of loyal or regular
customers first
Advertise peak usage times and
benefits of non-peak use
Charge full price for the
service--no discounts
Use sales and advertising to
increase business from current
market segments
Modify the service offering to
appeal to new market segments
Offer discounts or price
reductions
Modify hours of operation
Bring the service to the
customer
Demand Too High Demand Too Low Shift Demand
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Figure 14-4
Strategies for Flexing Capacity
to Match Demand
Stretch time, labor, facilities
and equipment
Cross-train employees
Hire part-time employees
Request overtime work from
employees
Rent or share facilities
Rent or share equipment
Subcontract or outsource
activities
Perform maintenance
renovations
Schedule vacations
Schedule employee training
Lay off employees
Demand Too High Demand Too Low Flex Capacity
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Table 14-1
What is the Nature of Demand
Relative to Supply?
Extent of demand fluctuations over time
Extent to which
supply is
constrained
Wide Narrow
Peak demand can
usually be met
without a major
delay
1
Electricity
Natural gas
Telephone
Hospital maternity unit
Police and fire
emergencies
2
Insurance
Legal services
Banking
Laundry and dry cleaning
Peak demand
regularly exceeds
capacity
4
Accounting and tax
preparation
Passenger transportation
Hotels and motels
Restaurants
Theaters
3
Services similar to those in
2 but which have
insufficient capacity for
their base level of business
Source: Christopher H. Lovelock, Classifying Services to Gain Strategic Marketing Insights, Journal of Marketing, 47, 3 (Summer 1983): 17.
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Table 14-2
What is the Constraint on Capacity?
Nature of the constraint Type of service
Time
Legal
Consulting
Accounting
Medical
Labor
Law firm
Accounting firm
Consulting firm
Health clinic
Equipment
Delivery services
Telecommunication
Utilities
Health club
Facilities
Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches
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Waiting Line Issues
and Strategies
unoccupied time feels longer
preprocess waits feel longer
anxiety makes waits seem longer
uncertain waits seem longer than finite waits
unexplained waits seem longer
unfair waits feel longer
longer waits are more acceptable for
valuable services
solo waits feel longer
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Part 5
MANAGI NG SERVI CE
PROMI SES
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CUSTOMER
COMPANY
External
Communications
to Customers
GAP 4
Service Delivery
Provider GAP 4
Part 5 Opener
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Chapter 15
I NTEGRATED
MARKETI NG
COMMUNI CATI ON
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Integrated Services
Marketing Communications

Introduce the concept of Integrated Services
Marketing Communication
Discuss the key reasons for service communication
problems
Present four key ways to integrate marketing
communication in service organizations
Present specific strategies for managing promises,
managing customer expectations, educating
customers, and managing internal communications
Provide perspective on the popular service objective
of exceeding customer expectations
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Figure 15-1
Communications and the
Internal Marketing
Vertical Communications
Horizontal Communications
Personal Selling
Customer Service Center
Service Encounters
Servicescapes
External Marketing
Communication
Advertising
Sales Promotion
Public Relations
Direct Marketing
Company

Customers
Employees
Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler
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Approaches for
Integrating Services Marketing
Communication
Goal:
Delivery
greater than
or equal to
promises
Improve
Customer
Education
Manage
Service
Promises
Manage
Customer
Expectations

Manage
Internal
Marketing
Communication
Figure 15-3
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Goal:
Delivery
greater than
or equal to
promises
Offer
Service
Guarantees
Create
Effective
Services
Communications
MANAGING SERVICE PROMISES
Make
Realistic
Promises
Coordinate
External
Communicatio
n

Figure 15-4
Approaches for
Managing Service Promises
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Communicate Criteria for
Service Effectiveness
Create Tiered-Value
Offerings
Figure 15-8
Approaches for
Managing Customer Expectations
Negotiate
Unrealistic
Expectations
Goal:
Delivery
greater than
or equal to
promises
Offer Choices
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Goal:
Delivery
greater than
or equal to
promises
Prepare
Customers
for the
Service
Process
Clarify
Expectations
after the Sale
Figure 15-9
Approaches for
Improving Customer Education
Teach
Customers
to Avoid
Peak
Demand
Periods
and
Seek Slow
Periods
Confirm
Performance
to Standards
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Goal:
Delivery
greater than
or equal to
promises
Figure 15-10
Approaches for Managing
Internal Marketing Communications
Create Effective
Vertical
Communications
Align Back
Office Personnel
w/ External Customers
Create Effective
Horizontal
Communications
Create
Cross-Functional
Teams
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McGraw-Hill

Part 5
MANAGI NG SERVI CE
PROMI SES
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CUSTOMER
COMPANY
External
Communications
to Customers
GAP 4
Service Delivery
Provider GAP 4
Part 5 Opener
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M
McGraw-Hill

Chapter 15
I NTEGRATED
MARKETI NG
COMMUNI CATI ON
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Integrated Services
Marketing Communications

Introduce the concept of Integrated Services
Marketing Communication
Discuss the key reasons for service communication
problems
Present four key ways to integrate marketing
communication in service organizations
Present specific strategies for managing promises,
managing customer expectations, educating
customers, and managing internal communications
Provide perspective on the popular service objective
of exceeding customer expectations
McGraw-Hill
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Figure 15-1
Communications and the
Internal Marketing
Vertical Communications
Horizontal Communications
Personal Selling
Customer Service Center
Service Encounters
Servicescapes
External Marketing
Communication
Advertising
Sales Promotion
Public Relations
Direct Marketing
Company

Customers
Employees
Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler
McGraw-Hill
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Approaches for
Integrating Services Marketing
Communication
Goal:
Delivery
greater than
or equal to
promises
Improve
Customer
Education
Manage
Service
Promises
Manage
Customer
Expectations

Manage
Internal
Marketing
Communication
Figure 15-3
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Goal:
Delivery
greater than
or equal to
promises
Offer
Service
Guarantees
Create
Effective
Services
Communications
MANAGING SERVICE PROMISES
Make
Realistic
Promises
Coordinate
External
Communicatio
n

Figure 15-4
Approaches for
Managing Service Promises
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Communicate Criteria for
Service Effectiveness
Create Tiered-Value
Offerings
Figure 15-8
Approaches for
Managing Customer Expectations
Negotiate
Unrealistic
Expectations
Goal:
Delivery
greater than
or equal to
promises
Offer Choices
McGraw-Hill
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Goal:
Delivery
greater than
or equal to
promises
Prepare
Customers
for the
Service
Process
Clarify
Expectations
after the Sale
Figure 15-9
Approaches for
Improving Customer Education
Teach
Customers
to Avoid
Peak
Demand
Periods
and
Seek Slow
Periods
Confirm
Performance
to Standards
McGraw-Hill
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Goal:
Delivery
greater than
or equal to
promises
Figure 15-10
Approaches for Managing
Internal Marketing Communications
Create Effective
Vertical
Communications
Align Back
Office Personnel
w/ External Customers
Create Effective
Horizontal
Communications
Create
Cross-Functional
Teams
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Chapter 16
PRI CI NG OF SERVI CES
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Pricing of Services

Discuss three major ways that service prices differ
from goods prices for customers
Demonstrate what value means to customers and
the role that price plays in value
Articulate the key ways that pricing of services
differs from pricing of goods
Delineate strategies that companies use to price
services
Give examples of pricing strategy in action
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Figure 16-2
What Do Customers Know about
the Prices of Services?
Pet Sitter?
Nutritionist?
Wedding
Advisor?
Braces?
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Figure 16-3
Customers Will Trade Money for
Other Service Costs
Effort
=
Time
or or
Psychic Costs
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Figure 16-4
Three Basic Price Structures and
Difficulties Associated with Usage for
Services
PROBLEMS:
1. Costs difficult to trace
2. Labor more difficult to
price than materials
3. Costs may not equal value
PROBLEMS:
1. Small firms may charge too
little to be viable
2. Heterogeneity of services
limits comparability
3. Prices may not
reflect customer
value
PROBLEMS:
1. Monetary price must be adjusted to reflect
the value of non-monetary costs
2. Information on service costs less available to
customers, hence price may not be a central factor
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Figure 16-5
Four Customer Definitions of Value
Value is Low Price
Value is Everything
I Want in a Service
Value is the
Quality I Get for
the Price I Pay

Value is All that
I Get for All
that I Give

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Figure 16-6
Pricing Strategies When the
Customer Defines Value as Low Price
Value is Low Price
n Discounting
n Odd Pricing
n Synchro-pricing
n Penetration Pricing
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Figure 16-7
Customer Defines Value as
Everything Wanted in a Service
Value is Everything
I Want in a Service
n Prestige Pricing
n Skimming Pricing
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Figure 16-8
Customer Defines Value as
Quality for the Price Paid
Value is the Quality
I Get for the Price I Pay

n Value Pricing
n Market Segmentation
Pricing
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Figure 16-9
Pricing Strategies
When the Customer Defines Value as
All that is Received for All that is Given
Value is All that
I Get for All
that I Give

n Price Framing
n Price Bundling
n Complementary Pricing
n Results-based Pricing

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Figure 16-10
Summary of Service Pricing Strategies
for Four Customer Definitions of Value
Value is Low Price
Value is Everything
I Want in a Service
Value is the Quality
I Get for the Price I Pay

Value is All that
I Get for All that I Give

n Discounting
n Odd Pricing
n Synchro-pricing
n Penetration Pricing
n Prestige Pricing
n Skimming Pricing
n Value Pricing
n Market Segmentation
Pricing
n Price Framing
n Price Bundling
n Complementary
Pricing
n Results-based Pricing
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Chapter 17
THE FI NANCI AL AND
ECONOMI C I MPACT OF
SERVI CE QUALI TY
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The Financial and Economic
Impact of Service

Examine the direct effects of service on profits
Consider the impact of service on getting new
customers
Evaluate the role of service in keeping customers
Examine the link between perceptions of service and
purchase intentions
Emphasize the importance of selecting profitable
customers
Discuss what is know about the key service drivers of
overall service quality, customer retention and
profitability
Discuss the balanced performance scorecard to focus
on strategic measurement other than financials
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Figure 17-1
The Direct Relationship between
Service and Profits
Profits
?
Service
Quality
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Figure 17-2
Offensive Marketing Effects of
Service on Profits
Profits
Market
Share

Reputation

Sales
Price
Premium

Service
Quality
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Figure 17-3
Defensive Marketing Effects of
Service on Profit
Margins
Profits
Customer
Retention
Costs
Price
Premium
Word of
Mouth
Volume of
Purchases
Service
Quality
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Figure 17-5
Perceptions of Service,
Behavioral
Intentions and Profits
Customer
Retention
Costs
Price
Premium
Word of
Mouth
Margins
Profits
Volume of
Purchases
Service
Behavioral
Intentions
Sales
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Figure 17-6
The 80/20 Customer Pyramid
Most Profitable
Customers
Least Profitable
Customers
What segment spends more with
us over time, costs less to maintain,
spreads positive word of mouth?
What segment costs us in
time, effort and money yet
does not provide the return
we want? What segment is
difficult to do business with?
Other
Customers
Best
Customers
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Figure 17-7
The Expanded Customer Pyramid
Most Profitable
Customers
Least Profitable
Customers
What segment spends more with
us over time, costs less to maintain,
spreads positive word of mouth?
What segment costs us in
time, effort and money yet
does not provide the return
we want? What segment is
difficult to do business with?
Gold
Iron
Lead
Platinum
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Figure 17-8
The Key Drivers of Service Quality,
Customer Retention, and Profits
Key Drivers
Service
Quality
Service
Encounter

Service
Encounter

Service
Encounter

Customer
Retention
Behavioral
Intentions
Profits
Service
Encounter

Service Encounters
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Figure 17-9
Sample Measurements for the
Balanced Scorecard
Adapted from Kaplan and Norton
Innovation and
Learning Perspective
Customer
Perspective
Service Perceptions
Service Expectations
Perceived Value
Behavioral Intentions:

Operational
Perspective:

Right first time (% hits)
Right on time (% hits)
Responsiveness (% on
time)
Transaction time (hours,
days)
Throughput time
Reduction in waste
Process quality

Financial Measures
Price Premium
Volume Increases
Value of Customer
Referrals
Value of Cross Sales
Long-term Value of
Customer

% Loyalty
% Intent to Switch
# Customer
Referrals
# Cross Sales
# of Defections
Number of new products
Return on innovation
Employee skills
Time to market
Time spent talking to
customers
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Figure 17-10
Service Quality Spells Profits
Service
Quality
Customer
Retention
Costs
Price
Premium
Word of
Mouth
Margins
Profits
Defensive
Marketing
Volume of
Purchases
Market
Share

Reputation

Sales
Price
Premium
Offensive
Marketing
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Part 6
THE BI G PI CTURE:
CLOSI NG ALL THE GAPS
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Chapter 18
THE I NTEGRATED GAPS
MODEL OF SERVI CE
QUALI TY
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Perceived
Service
Expected
Service
CUSTOMER
COMPANY
Customer
Gap
GAP 1
GAP 2
Gaps Model of Service Quality
GAP 3
External
Communications
to Customers GAP 4
Service Delivery
Consumer Expectations
Figure 18-1
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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
Figure 18-2
Key Factors Leading to
the Customer Gap

Customer
Gap
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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
GAP
1
Figure 18-3
Key Factors Leading to Provider Gap 1
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Management Perceptions
of Customer
Expectations
Poor Service Design
Unsystematic new service development process
Vague, undefined service designs
Failure ot 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
GAP
2
Figure 18-4
Key Factors Leading to Provider Gap 2
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Service Delivery
Key Factors Leading to Provider GAP 3
Figure 18-5
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
Failure to Match Supply and Demand
Failure to smooth peaks and valleys of demand
Inappropriate customer mix
Over-reliance on price to smooth demand
Customers Not Fulfilling Roles
Customers lack knowledge of their roles and responsibilities
Customers negatively impact each other
Problems with Service Intermediaries
Channel conflict over objectives and performance
Channel conflict over costs and rewards
Difficulty controlling quality and consistency
Tension between empowerment and control
GAP
3
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Service Delivery
Key Factors Leading to Provider GAP 4
Figure 18-6
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
Not managing customer expectations through all forms of
communication
Not adequately educating 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
GAP
4
External Communications to
Customers

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