Chapter 9: Service as the Core Offering Copyright © McGraw-Hill Education.  All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Part 3: Develop the Value Offering—The Product Experience McGraw-Hill Education

LEARNING OBJECTIVES Understand why service is a key source of potential differentiation Explain the characteristics that set services apart from physical goods Explain the service-profit chain and how it guides marketing management decisions about service Describe the continuum from pure goods to pure services Discuss concepts of service quality and gap analysis Measure service quality through use of SERVQUAL Understand service blueprinting and how it aids marketing managers

WHY SERVICE IS IMPORTANT A service is a product in the sense that it represents a bundle of benefits that can satisfy customer wants and needs, yet it does so without physical form. More than 80% of U.S. jobs are service-related Services produce 75% of GDP

Service as a Differentiator Focusing on service and on enabling employees to effectively deliver service can be one differentiator that is hard for the competition to replicate. Great service provides sustainable competitive advantage

A New Dominant Logic for Marketing Customers do not buy goods or services: They buy offerings which render services which create value …. The traditional division between goods and services is long outdated. A service-centered perspective leads to market expansion by assisting customers in the process of specialization and value creation.

Characteristics of Services EXHIBIT 9..1 Characteristics of Services Intangibility Inseparability Variability Perishability

Intangibility A service cannot be experienced through the physical senses. It cannot be seen, heard, tasted, felt, or smelled by a customer. Goods can easily be experienced through the senses.

Inseparability A customer still can’t really experience it until it is actually consumed. It is produced and consumed at the same time and cannot be separated from its provider.

Variability Because it cannot be separated from the provider, a service’s quality can only be as good as that of the provider him/herself.

Perishability A service cannot be stored or saved up for future use. Perishability is a major potential problem for service providers. Fluctuating demand is related to perishability of services.

The Service-Profit Chain EXHIBIT 9.2 The Service-Profit Chain Reprinted by permission of Harvard Business Review, from “Putting the Service–Profit Chain to Work”, by James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser Jr. and Leonard A. Schlessinger, March/April 1994. Copyright © 1994 by the Hardvard Business School Publishing Corporation; all rights reserved.

THE SERVICE-PROFIT CHAIN Internal Service Quality Internal marketing, treating employees as customers, and developing systems and benefits that satisfy their needs, is an essential element of internal service quality.

Internal Service Quality Firms practicing internal service quality are customer-centric: They do the following: Instill an organization-wide focus on understanding customers’ requirements. Generate an understanding of the marketplace and disseminate that knowledge to everyone in the firm. Align system capabilities internally so that the organization can respond effectively with innovative, competitively differentiated, satisfaction-generating goods and services.

Satisfied, Productive, and Loyal Employees Internal marketing must include the following: Competing for talent Offering an overall vision Training and developing people Stressing teamwork Modeling desired behaviors by managers Enabling employees to make their own decisions Measuring and rewarding great service performance Knowing and reacting to employees’ needs.

Greater Service Value for External Customers There is strong evidence that attention to internal service quality and to employee satisfaction, productivity, and retention result in stronger value to external customers of a service.

Greater Service Value for External Customers Customers set their expectations based largely on the evidence provided by the marketer before the purchase. Customer Expectations Management Do not set customer expectations so high that they cannot be effectively met on a consistent basis.

Customer Satisfaction and Loyalty Loyalty sparks: High customer retention – low propensity to switch, as well as repeat business and referrals. Customer advocacy – a willingness and ability on the part of a customer to participate in communicating the brand message to others.

Focus on the Most Satisfied Customers EXHIBIT 13.4 Focus on the Most Satisfied Customers Reprinted by permission of Harvard Business Review, from “Putting the Service–Profit Chain to Work”, by James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser Jr. and Leonard A. Schlessinger, March/April 1994. Copyright © 1994 by the Hardvard Business School Publishing Corporation; all rights reserved.

Continuum of Evaluation for Different Types of Offerings EXHIBIT 9.5 Continuum of Evaluation for Different Types of Offerings Source: Valarie A. Zeithaml, “How Consumer Evaluation Processes Differ between Goods and Services,” in Marketing of Services, James H. Donnelly and William R. George, eds. 1991. Reprinted with permission of the American Marketing Association.

SERVICE ATTRIBUTES Search Attributes Experience Attributes Credence Attributes

SERVICE QUALITY Service quality represents a formalization of the measurement of customer expectations of a service compared to their perceptions of actual service performance. Service Encounter Customer Delight Moment Of Truth

Gap Analysis Gap 1 Management’s Perceptions of Customer Service Expectations versus Actual Customer Expectations of Service Gap 2 Management’s Perceptions of Customer Service Expectations versus the Actual Service Quality Specifications Developed

Gap Analysis Gap 3 Actual Service Quality Specifications versus Actual Service Delivery Gap 4 Actual Service Delivery versus What the Firm Communicates it Delivers Gap 5 Perceived Service by Customers versus Actual Customer Expectations of Service

Gap Model of Service Quality EXHIBIT 9.6 Gap Model of Service Quality Source: A. Parasuraman, Valarie A. Zeithaml, and Leonard L. Berry, “A Conceptual Model of Service Quality and its Implications for Future Research,” Journal of Marketing, Fall 1985, pp. 41–50. Reprinted with permission of the American Marketing Association.

Five dimensions of service quality SERVQUAL: A Multiple Item Scale to Measure Service Quality Five dimensions of service quality Tangibles Reliability Responsiveness Assurance Empathy

SERVICE BLUEPRINTS Service blueprints map out a complete pictorial design and flow chart of all the activities from the first customer contact to the actual delivery of the service.

Service Blueprint for Floral Delivery EXHIBIT 9.13 Service Blueprint for Floral Delivery

Photo Credits Slide 9-4: Image Club Slide 9-20: Tom Grill/Corbis