CHAPTER 1

THE SERVICE AND

RELATIONSHIP
IMPERATIVE: MANAGING
IN SERVICE
COMPETITION
 “Everyone faces
service competition.
By providing
service, firms make
themselves
meaningful for
their customers.”
Chapter Content:
– The logic of service as a business perspective and the
relationship between service and customer interactions.
– Introduction of the concept of service competition.
– The details in service as a strategy in comparison with
other strategic approached.
– Strategic and tactical implications of a service strategy
and of a relationship approach to customers.
Chapter Content:
– The concept of service logic and its implications for the
value generation process and value co-creation.
– The meaning of a customer relationship approach and a
number of aspects of customer relationships.
ONCE UPON
A TIME: A
CASE OF
SERVICE
AND
CUSTOMER
RELATIONSHIPS
THE NATURE OF SERVICE AND
CUSTOMER RELATIONSHIPS
Key aspects of service are:
• Service is support for customers’ individual processes in a way that
facilitates their value creation, and this support is enabled when
knowledge and skills are used on resources.
• The ultimate goal of service-based business is to facilitate value creation
for the customer, which in return enables the service provider to capture
value from the relationship, with service as a mediator.
• Service is a process, where the service provider’s resources and the
customer often interact to some extent.
• To become a service provider, the resources of the firm’s offering can be of
any kind, such as physical goods (e.g. rice), service activities (services),
information, or combinations of these and other types of resources.
THE NATURE OF SERVICE AND
CUSTOMER RELATIONSHIPS
Key relationship-based characteristics are:
• The service provider and customer engage in long-term business contact.
• The relationship requires that the service provider gains insight into the
customer’s everyday processes.
• The goal of the relationship is mutual value creation, i.e. a win–win
situation.
THE NATURE OF SERVICE AND
CUSTOMER RELATIONSHIPS
Three important strategic requirements of a
relationship strategy:
1. Redefine the business as a service business and the key competitive element as
service competition (competing with service and a total service offering, not just
the sale of rice alone).
2. Look at the organization from a process management perspective and not from a
functionalistic perspective (to manage the process of supporting and facilitating
value creation for the villagers, not only to distribute rice).
3. Establish partnerships and a network to handle the whole service process (close
contacts with well-known rice farmers).
The three strategic requirements set the strategic base for the successful management of
relationships.
THE NATURE OF SERVICE AND
CUSTOMER RELATIONSHIPS
Three tactical elements of a relationship
strategy are:
1. Seek direct contacts with customers and other business partners (such as
rice farmers).
2. Build a database covering necessary information about customers and
others.
3. Develop a customer-centric service system.
The three tactical elements are required to successfully provide service and
implement customer management.
A COMMERCIAL ANALYSIS: FROM
PRODUCT-FOCUSED TO SERVICE-
FOCUSED MANAGEMENT
 A customer satisfaction analysis is not enough to understand the effect of a
service approach and the implementation of a service strategy. We also
have to do a commercial analysis.
 The commercial outcome of a business can be described with three
elements:
• Revenues
• Costs
• Capital
 A firm’s profitability is a function of all three elements, whereas the profit level is a
function of the revenue generation capability and the cost level. Finally, the revenue
generation capability is dependent on how well the firm understands its customers
and their processes, and how well it manages to gear its resources.
A COMMERCIAL ANALYSIS: FROM
PRODUCT-FOCUSED TO SERVICE-
FOCUSED MANAGEMENT
 A service provider’s revenue generation capability is not only
dependent on sales and traditional marketing of a more or less
standardized product. Because the customer interface is much
broader than that, the customers’ interest in paying for the
firm’s service is influenced by a whole host of other activities
and processes managed by the service provider.
 For understanding the business from a commercial point of
view, therefore, two variables are enough, namely the profit
variable and the process variable.
A COMMERCIAL ANALYSIS: FROM
PRODUCT-FOCUSED TO SERVICE-
FOCUSED MANAGEMENT

FIGURE 1.1
Chart for
analyzing
commercial focus.
A COMMERCIAL ANALYSIS: FROM
PRODUCT-FOCUSED TO SERVICE-
FOCUSED MANAGEMENT
The end points of the profit and resource
variables are:
• Dominating focus on revenues and revenue generation, or
dominating focus on costs.
• Dominating focus on the firm’s resources and processes,
or dominating focus on the customers’ resources and
processes.
SERVICE MANAGEMENT REQUIRES AN
OUTSIDE-IN MANAGEMENT APPROACH

FIGURE 1.2
From product-focused
inside-out
management to
service-focused
outside-in
management.
SERVICE MANAGEMENT REQUIRES
AN OUTSIDE-IN MANAGEMENT
APPROACH
SERVICE MANAGEMENT REQUIRES
AN OUTSIDE-IN MANAGEMENT
APPROACH
SERVICE MANAGEMENT REQUIRES
AN OUTSIDE-IN MANAGEMENT
APPROACH
SERVICE MANAGEMENT REQUIRES
AN OUTSIDE-IN MANAGEMENT
APPROACH
SERVICE MANAGEMENT REQUIRES AN
OUTSIDE-IN MANAGEMENT APPROACH

TABLE 1.1
Fundamental
differences between
outside-in and inside-
out management.
DEFINING THE FIRM AS A
SERVICE BUSINESS
 Key requirements in a service and relationship strategy:
• A manufacturer, wholesaler, retailer, service firm or supplier has a
thorough insight into the customers’ everyday processes, and into
the relationship between them and the customers’ life or business
processes, and the long-term needs and desires of their
customers.
• Value-supporting service is offered based on the technical
solutions imbedded in consumer goods and industrial equipment,
or in service activities.
DEFINING THE FIRM AS A
SERVICE BUSINESS
 The core of a service firm’s offering is by definition a service activity.
 The service approach to costumers are for any type of firms which
one must deliver, install, update, repair, maintain, and correct
solutions the costumers needs for the things they’ve bought. All
suppliers must deliver their service in a friendly, trustworthy and
timely manner.
A PROCESS MANAGEMENT
PERSPECTIVE
 This is an ongoing relationship with costumers, where consumers
look for value support by the total service offering requires internal
collaboration among departments responsible for different elements
of the offering, such as the core product (goods or services),
advertising the product, delivering the product, taking care of
complaints and rectifying mistakes and quality faults, maintain the
product, billing routines, product documentation, etc.
PARTNERSHIPS AND
NETWORKS
 A service and relationship approach to customers is based on
cooperation.
 Service providers and customers will not view each other from a
win-lose perspective but will rather benefit from a win-win
situations, where the parties involved will be best off as partners.
 Key ingredient of relationship marketing is trust between the
parties of network.
SEEKING DIRECT CONTACTS
WITH CUSTOMERS
 A service and relationship approach to customers is based on a
notion of trusting cooperations between the business partners.
Hence, firms have to get to know their costumer much better than
normally been the case.
 The best way to get the consumers trust is to treat all costumers
individually.
DEVELOPING A CUSTOMER
DATABASE
 In order to pursue a relationship marketing strategy, a firm cannot
let such ignorance last. A costumer information database must be
established.
 A well-prepared, updated, easily retrievable and easy-to-lead
costumer informationfile is needed in such cases to make it
possible for the employeeto pursuea relationship-oriented
customer contact.
 A good database will be as effective support for cross-sales and
new product offerings.
CUSTOMER VALUE AND
VALUE CREATION
 Value in business-to-business markets can be measured in
monetary terms.
 Instead we define value in a simple but practical way as ‘being
better off’.
 It should be observed that a customer does not always have
positive experiences.
CUSTOMER VALUE AND
VALUE CREATION
 Considered a key aspect for decades.
 The difference between value-in-use and value-in-exchange is that
value-in-exchange materializes at one particular point of time.
 positive, ‘value creation; better off’, and negative, ‘value
destruction; worse off’.
CUSTOMER VALUE AND
VALUE CREATION
 positive, ‘value creation; better off’, and negative, ‘value
destruction; worse off’.
 Value for customers is created throughout the relationship by the
customer, partly in interactions between the customer and the
supplier or service provider.
HIDDEN AND RECOGNIZED
SERVICES
 Recognized services, such as repair and maintenance and cosultancy, are
thought of a service activities by management.
 Hidden services, such as invoicing, complaints handling, documentation and
customer training as that they seldom perceived as service by management.
And therefore are frequently not designed and managed as a value-supporting
service to customer.
CHOOSING STRATEGIC
PERPECTIVE
Characteristic of a corresponding
Strategic perspective strategic approach
 Service perspective The firm takes the view that a service
offering is required to support the
customer’s value creation, and that
the core solution is not sufficient to
differentiate the offering from those
competitors.
CHOOSING STRATEGIC
PERPECTIVE
Characteristic of a corresponding
Strategic perspective strategic approach
 Core product perspective The firm concentrates on the
development of the core solution,
weather this is physical product or
services, as the main provider of the
value for the customer’s value –
creating process.
CHOOSING STRATEGIC
PERPECTIVE
Characteristic of a corresponding
Strategic perspective strategic approach
 Price perspective The firm takes the view that price is
the dominating purchasing criterion of
its customers, and that being able to
offer a low price is a necessity for
survival in the marketplace.
CHOOSING STRATEGIC
PERPECTIVE
Characteristic of a corresponding
Strategic perspective strategic approach
 Image perspective The firm differentiate its offering by
creating imaginary extras (brand
image) around its core product.
CUSTOMER RELATIONSHOP
PERPECTIVE
Service as a perspective and service activities are inherently relational. A service
encounter, where a customer, for example, is a restaurant guest or has a machine
repaired, is a process. At some point in this process the service provider is normally
present, interacting with the customer. Even a single encounter includes relational
element.

If a customer feels that there is something special and valuable in his contacts with
a given firm, a relationship may develop.
THE LOGIC OF SERVICE
COMPETION
Customers are gradually becoming more sophisticated, more informed and,
consequently, more demanding. By and large, they are looking for more comfort,
fewer problems, lower additional cost and less trouble cost by the use of goods
and services; In short, they are looking for better value.
Three reason for the need to focus on services:
 Customer
 Competition
 Technology
WHAT IS RELATIONSHIP?

One way of defining when a relationship has developed is to measure how many
times a customer has made purchases from the same firms.
Repetitive purchases by a customer can be a sign of the development of a
relationship between the firm and this customer, but this measure is not a good
way of assessing weather a relationship has developed of not.
WHEN IS THE CUSTOMER A
CUSTOMER?
In a transaction approach to marketing the customer is considered a customer is
considered a customer when he is the target of marketing and sale efforts.
According to the relationship perspective, the situation is different, a relationship is
an ongoing process. Once a relationship has been established, customers are
customers on a continuous basis and they should be treated as such regardless of
whether at any given point in time they are making a purchase or not. To sum up,
unless customers are treated as customers between purchases as well, the firm
does not show a genuine relational intent.
ARE ALL CUSTOMER
INTERESTED IN RELATIONSHIP?

Customers are interested in either a relational or transactional contract with a firm.

The customers is either in a relational mode or in transactional mode. Consumers
or users in a relational mode can either be in an active or a passive relational
mode.
Transactional mode
Are looking for solutions to their
needs at acceptable price and they do
not appreciate contracts from the
supplier or service provider in
between purchases.
Active Relational mode
Are looking for opportunities to
interact with the supplier or service
provider in order to get additional
value.
Passive Relational mode
Are looking for the knowledge that they could contact the supplier or service
provider if they wanted to.
BENEFITS CAN BE THREE
TYPES:
 Confidence
 Social benefit
 Special treatment
Trust, Commitment and Attraction
END