Service Quality and Design David Ward-Perkins SKEMA Business School

Seminar objectives To understand: the particular nature of services, and what this implies why service quality is a critical business objective how it is possible to design good service.

1. The nature of services

Categories of service Temporary rights over goods Access to a defined space or to a shared physical environment Usage of systems & networks Obtaining labour & expertise

What is a service ? “A service is any act or performance one party can offer to another that is essentially intangible and does not result in the ownership of anything.” (Kotler & Keller 2009)

2. How does this change the way you work?

Important characteristics of services There is no implication of ownership Intangible elements dominate value creation (eg feeling secure, getting to destination on time). Time is a central component (start, end, duration) Unused capacity is wasted Maximising the usage is therefore essential. For these reasons, the relationship between provider and receiver is essential to service quality

The need for a close relationship Services can be intangible, difficult to visualise & conceptualise (e.g. insurance). There must be clarity and understanding All services require involvement and engagement by the customers (co- production) Both sides need to manage time. Wastage through misunderstanding, poor cooperation & inefficient time- management = lost money.

3. The most basic component of service design: process design

What is the purpose of process design? Reduce wastage Save time Increase capacity Reduce frustration Improve customer experience Improve competitiveness Protect/increase margin

Pre- booked Non- booked Recept. staff Dining area Call restaurant Note booking Organise tables Go to location Select restaurant Enter premises Waiting area Go to table See menu Greet customers Show to table Bring menus Exterior design Blueprinting: restaurant example

Pre- booked Non- booked Recept. staff Dining area Call restaurant Note booking Organise tables Go to location Select restaurant Enter premises Waiting area Go to table See menu Greet customers Show to table Bring menus Exterior design Identifying fail-points Fail-points: Walk-bys; waiting to be seated; menus & drinks; expensive for mediocre service

Benefits of process design Reduce wastage Save time Increase capacity Reduce frustration Improve customer experience Improve competitiveness Protect/increase margin

An example case The chain, ‘Hair Craft’, positions itself as offering quality and value to the middle of the market.

Critical business info A typical outlet has a staff of 6 to 8, most of them directly providing hairdressing or beauty services A hair/beauty executive can service a maximum of 3 persons an hour x 6 = 20 per day at the most. The average is closer to 12 Average billing is €30 per appointment, i.e. a maximum of €12,000 a month per executive. As a whole, the chain is currently running at 60% capacity. Under €20k revenues per month, a salon is not viable.

Benefits of process design Reduce wastage Save time Increase capacity Reduce frustration Improve customer experience Improve competitiveness Protect/increase margin

4. Revenue management (or yield management)

The principle Optimise revenue streams for time-based services in limited supply (or perishable goods) Past the operative date, the value of the service is zero, for both partners For the customer approaching the cut-off date, the value may rise or fall, depending on ease of substitution Airlines, hotels, concerts, theatres, …

Example: airline seats Limited supply on a specific plane Empty seats have zero value Last minute seats may have high value for the customer (point-to-point model) Or may be important for the airline to offload, depending on the circumstances (‘last minute’ model)

4. CRM & loyalty management

Risks for a service company Barriers to market entry may be low, and new entrants may have an advantage. The service may be easily replaceable. In other words, customers may easily switch. It may be difficult to prove superior benefits as compared to the competition. The service may be perceived as a commodity

Reducing the risk Address the customer experience: Consistency of service quality. Consistent value for money. And … Establish and maintain a strong and personal relationship i.e. work on the touchpoints. Reinforce them though personal contact.

The pillars of CRM Improve processes that affect the customer (cf. blueprinting) Recognize the customer. Personalise the offer. Reward loyalty. Recognition & personalisation can be facilitated by technology

Recognize the customer

Reward loyalty Three main functions Recognition of the customer Accumulation of reward Immediate benefit

The technology of loyalty A question of intelligence. Four main levels: Anonymous (e.g. store coupons) Visual (I see your name on a card or badge) Small memory, data cannot be modified (e.g. magnetic stripe, bar code). Intelligence is not on the card. Intelligent card (chip technology). Can store data. (+ Reprogrammable chips ).

New keys to success The trends Servicisation Mobility Collaborative delivery of service The new techniques Pop-up Home … Simulators (& virtual reality); Online expertise.