Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Chapter 14: Improving Service Quality and Productivity

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Overview of Chapter 14  Integrating service quality and productivity strategies  What is service quality?  The Gaps Model—a conceptual tool to identify and correct service quality problems  Measuring and improving service quality  Defining and measuring productivity  Improving service productivity

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Integrating Service Quality and Productivity Strategies

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Integrating Service Quality and Productivity Strategies  Quality and productivity are twin paths to creating value for both customers and companies  Quality focuses on the benefits created for customers; productivity addresses financial costs incurred by firm  Importance of productivity:  Keeps costs down to improve profits and/or reduce prices  Enables firms to spend more on improving customer service and supplementary services  Secures firm’s future through increased spending on R&D  May impact service experience—marketers must work to minimize negative effects, promote positive effects

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter What Is Service Quality?

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Different Perspectives of Service Quality Transcendent: Product-based: User-based: Manufacturing- based: Value-based: Quality = Excellence. Recognized only through experience Quality is precise and measurable Quality lies in the eyes of the beholder Quality is in conformance to the firm’s developed specifications Quality is a trade-off between price and value

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Components of Quality: Manufacturing-based Performance: Primary operating characteristics Features: Bells and whistles Reliability: Probability of malfunction or failureConformance: Ability to meet specifications Durability: How long product continues to provide value to customer Serviceability: Speed, courtesy, competenceEsthetics: How product appeals to usersPerceived Quality: Associations such as brand name

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Components of Quality: Service-based Tangibles: Appearance of physical elements Reliability: Dependable and accurate performance Responsiveness: Promptness; helpfulness Assurance: Competence, courtesy, credibility, security Empathy: Easy access, good communication, understanding of customer

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Capturing the Customer ’ s Perspective of Service Quality: SERVQUAL (1)  Survey research instrument based on premise that customers evaluate firm’s service quality by comparing  Their perceptions of service actually received  Their prior expectations of companies in a particular industry  Poor quality  Perceived performance ratings < expectations  Good quality  Perceived performance ratings > expectations

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Capturing the Customer ’ s Perspective of Service Quality: SERVQUAL (2)  Developed primarily in context of face-to-face encounters  Scale contains 22 items reflecting five dimensions of service quality  Subsequent research has highlighted some limitations of SERVQUAL  See Research Insights 14.1: Measuring E-Service Quality

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter How Customers Might Evaluate Online Businesses: Seven Dimensions of E-S-QUAL  Accessibility : Is site easily found?  Navigation: How easy is it to move around the site?  Design and presentation: Image projected from site?  Content and purpose: Substance and richness of site  Currency and accuracy  Responsiveness:Firm’s propensity to respond to s  Interactivity, customization, and personalization  Reputation and security Source:Shohreh A. Kaynama (2000), “ A Conceptual Model to Measure Service Quality of Online Companies: E-qual, in Developments in Marketing Science, ” Harlan E. Spotts and H. Lee Meadows, eds., Proceedings of the Academy of Marketing Science, Vol. 22, pp. 46 – 51. For more information pertaining to online service quality see A. Parasuraman, Vlerie A. Zeithaml, and Arvind Malhotra (2005), “ E-S-QUAL: A Multiple-Item Scale for Assessing Electronic Service Quality. ” Journal of Service Research, Vol. 7. issue 3. pp. 213 – 234.

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Other Considerations in Service Quality Measurement  In uncompetitive markets or in situations where customers do not have a free choice, researchers should use needs or wants as comparison standards  Time constraints  Services high in credence characteristics may cause consumers to use process factors and tangible cues as proxies to evaluate quality—halo effect  Process factors: Customers’ feelings

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter The Gaps Model—A Conceptual Tool to Identify and Correct Service Quality Problems

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Seven Service Quality Gaps (Fig 14.3) Customer experience relative to expectations 1. Knowledge Gap 2. Standards Gap 3. Delivery Gap 5. Perceptions Gap 7. Service Gap Customer needs and expectations 6. Interpretation Gap 4. Internal Communications Gap MANAGEMENT CUSTOMER 4. Customer perceptions of service execution Management definition of these needs Translation into design/delivery specs Execution of design/delivery specs Advertising and sales promises Customer interpretation of communications

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Prescriptions for Closing the Seven Service Quality Gaps (1) (Table 14.3) 1.Knowledge gap: Learn what customers expect  Understand customer expectations  Improve communication between frontline staff and management  Turn information and insights into action 2.Standards gap: Specify SQ standards that reflect expectations  Set, communicate, and reinforce customer-oriented service standards for all work units  Measure performance and provide regular feedback  Reward managers and employees

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Prescriptions for Closing the Seven Service Quality Gaps (2) (Table 14.3) 3.Delivery gap: Ensure service performance meets standards  Clarify employee roles  Train employees in priority setting and time management  Eliminate role conflict among employees  Develop good reward system 4.Internal communications gap: Ensure that communications promises are realistic  Seek comments from frontline employees and operations personnel about proposed advertising campaigns  Get sales staff to involve operations staff in meetings with customers  Ensure that communications sets realistic customer expectations

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Prescriptions for Closing the Seven Service Quality Gaps (3) (Table 14.3) 5.Perceptions gap: Educate customers to see reality of service quality delivered  Keep customers informed during service delivery and debrief after delivery  Provide physical evidence 6.Interpretation gap: Pretest communications to make sure message is clear and unambiguous  Present communication materials to a sample of customers in advance of publication 7.Service gap: Close gaps 1 to 6 to meet customer expectations consistently

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Measuring and Improving Service Quality

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Soft and Hard Measures of Service Quality  Soft measures—not easily observed, must be collected by talking to customers, employees, or others  Provide direction, guidance, and feedback to employees on ways to achieve customer satisfaction  Can be quantified by measuring customer perceptions and beliefs ― For example: SERVQUAL, surveys, and customer advisory panels  Hard measures—can be counted, timed, or measured through audits  Typically operational processes or outcomes  Standards often set with reference to percentage of occasions on which a particular measure is achieved  Control charts are useful for displaying performance over time against specific quality standards

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Soft Measures of Service Quality  Key customer-centric SQ measures include:  Total market surveys, annual surveys, transactional surveys  Service feedback cards  Mystery shopping  Analysis of unsolicited feedback — complaints and compliments, focus group discussions, and service reviews  Ongoing surveys of account holders to determine satisfaction in terms of broader relationship issues  Customer advisory panels offer feedback/advice on performance  Employee surveys and panels to determine:  Perceptions of the quality of service delivered to customers on specific dimensions  Barriers to better service  Suggestions for improvement

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Hard Measures of Service Quality  Control charts to monitor a single variable  Offer a simple method of displaying performance over time against specific quality standards  Are only good if data on which they are based is accurate  Enable easy identification of trends  Service quality indexes  E mbrace key activities that have an impact on customers

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Composition of FedEx’s Service Quality Index—SQI (Table 14.4) Late delivery—right day Late Delivery—wrong day Tracing request unanswered Complaints reopened Missing proofs of delivery Invoice adjustments Missed pickups Lost packages Damaged packages Aircraft delays (minutes) Overcharged (packages missing label) Abandoned calls Failure Type Total Failure Points (SQI) = Weighting Factor XXX,XXX Daily Points X Number of Incidents =

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Control Chart for Departure Delays (Fig 14.4) JFMAMJJASOND 60% 70% 80% 90% 100% Month % Flights Departing Within 15 Minutes of Schedule

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Tools to Analyze and Address Service Quality Problems  Fishbone diagram  Cause-and-effect diagram to identify potential causes of problems  Pareto Chart  Separating the trivial from the important. Often, a majority of problems is caused by a minority of causes (i.e. the 80/20 rule)  Blueprinting  Visualization of service delivery, identifying points where failures are most likely to occur

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Tools to Analyze and Address Service Quality Problems (Appendix)  Total Quality Management (TQM)  ISO 9000  Comprises requirements, definitions, guidelines, and related standards to provide an independent assessment and certification of a firm’s quality management system  Malcolm Baldrige Model Applied to Services  To promote best practices in quality management, and recognizing, and publicizing quality achievements among U.S. firms  Six Sigma  Statistically, only 3.4 defects per million opportunities (1/294,000)  Has evolved from defect-reduction approach to an overall business- improvement approach

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Cause-and-Effect Chart for Flight Departure Delays (Fig 14.5) Aircraft late to gate Late food service Late fuel Late cabin cleaners Poor announcement of departures Weight and balance sheet late Delayed Departures Delayed check-in procedure Acceptance of late passengers Facilities, Equipment Front-Stage Personnel Procedures Materials, Supplies Customers Gate agents cannot process fast enough Late/unavailable airline crew Arrive late Oversized bags Weather Air traffic Frontstage Personnel Procedures Materials, Supplies Backstage Personnel Information Customers Other Causes Mechanical Failures Late pushback Late baggage

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Late passengers Waiting for pushback Waiting for fuelling Late weight and balance sheet Late cabin cleaning/supplies Other Newark All stations, excluding Chicago-Midway Hub Washington Natl. 23.1% 15.3% 15.4% 53.3% 15% 11.3% 8.7% 11.7% 33.3% 19% 9.5% 4.9 % Case: Analysis of Causes of Flight Departure Delays

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Blueprinting  Depicts sequence of front-stage interactions experienced by customers plus supporting backstage activities  Used to identify potential fall points—where failures are most likely to appear  Shows how failures at one point may have a ripple effect later  Managers can identify points which need urgent attention  Important first step in preventing service quality problems

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Six Sigma Methodology to Improve and Redesign Service Processes Process Improvement Process Design/Redesign Define  Identify the problem  Define requirements  Set goals  Identify specific or broad problems  Define goal/change vision  Clarify scope and customer requirements Measure  Validate problem/process  Refine problem/goal  Measure key steps/inputs  Measure performance to requirements  Gather process efficiency data Analyze  Develop causal hypothesis  Identify root causes  Validate hypothesis  Identify best practices  Assess process design  Refine requirements Improve  Develop ideas to measure root causes  Test solutions  Measure results  Design new process  Implement new process, structures, and systems Control  Establish measures to maintain performance  Correct problems as needed  Establish measures and reviews to maintain performance  Correct problems as needed

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter TQM in a Service Context: Twelve Critical Dimensions for Implementation  Top management commitment and visionary leadership  Human resource management  Technical system, including service process design and process management  Information and analysis system  Benchmarking  Continuous improvement  Customer focus  Employee satisfaction  Union intervention and employee relations  Social responsibility  Servicescapes  Service culture

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Return On Quality (ROQ)  Assess costs and benefits of quality initiatives  ROQ approach is based on four assumptions: – Quality is an investment – Quality efforts must be financially accountable – It ’ s possible to spend too much on quality – Not all quality expenditures are equally valid  Implication: Quality improvement efforts may benefit from being related to productivity improvement programs  To determine feasibility of new quality improvement efforts, determine costs and then relate to anticipated customer response  Determine optimal level of reliability  Diminishing returns set in as improvements require higher investments  Know when improving service reliability becomes uneconomical

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter When Does Improving Service Reliability Become Uneconomical? (Fig 14.7) Satisfy Target Customers through Service Recovery Optimal Point of Reliability: Cost of Failure = Service Recovery Satisfy Target Customers through Service Delivery as Planned 100% Service Reliability Investment Small Cost, Large Improvement Large Cost, Small Improvement AB C D Assumption: Customers are equally (or even more) satisfied with the service recovery provided than with a service that is delivered as planned.

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Defining and Measuring Productivity

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Productivity in a Service Context  Productivity measures amount of output produced relative to the amount of inputs.  Improvement in productivity means an improvement in the ratio of outputs to inputs.  Intangible nature of many service elements makes it hard to measure productivity of service firms, especially for information-based services  Difficult in most services because both input and output are hard to define  Relatively simpler in possession-processing services, as compared to information- and people-processing services

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Service Efficiency, Productivity, and Effectiveness  Efficiency: Involves comparison to a standard, usually time-based (for example: how long employee takes to perform specific task)  Problem: Focus on inputs rather than outcomes  May ignore variations in service quality/value  Productivity: Involves financial valuation of outputs to inputs  Consistent delivery of outcomes desired by customers should command higher prices  Effectiveness: Degree to which firm meets goals  Cannot divorce productivity from quality and customer satisfaction

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Measuring Service Productivity: Variability Is a Major Problem  Traditional measures of service output tend to ignore variations in quality or value of service  Focus on outputs rather than outcomes  Stress efficiency but not effectiveness  Firms that consistently deliver outcomes desired by customers can command higher prices; loyal customers are more profitable  Measures with customers as denominator include:  Profitability by customer  Capital employed per customer  Shareholder equity per customer

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Improving Service Productivity

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Questions When Developing Strategies to Improve Service Productivity  How to transform inputs into outputs efficiently?  Will improving productivity hurt quality?  Will improving quality hurt productivity?  Are employees or technology the key to productivity?  Can customers contribute to higher productivity?

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Generic Productivity Improvement Strategies  Typical strategies to improve service productivity:  Careful control of costs at every step in process  Efforts to reduce wasteful use of materials or labor  Replacing workers by automated machines  Installing expert systems that allow paraprofessionals to take on work previously performed by professionals who earn higher salaries  Although improving productivity can be approached incrementally, major gains often require redesigning entire processes ???

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Long Waiting Times May Indicate Need for Service Process Redesign (Fig 14.8)

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Improving Service Productivity: (1) Operations-driven Strategies  Control costs, reduce waste  Set productive capacity to match average demand  Automate labor tasks  Upgrade equipment and systems  Train employees  Broadening array of tasks that a service worker can perform  Leverage less-skilled employees through expert systems  Service process redesign

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Improving Service Productivity: (2) Customer-driven Strategies  Change timing of customer demand  By shifting demand away from peaks, managers can make better use of firm ’ s productive assets and provide better service  Involve customers more in production  Get customers to self-serve  Encourage customers to obtain information and buy from firm ’ s corporate websites  Ask customers to use third parties  Delegate delivery of supplementary service elements to intermediary organizations

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Backstage and Front-stage Productivity Changes: Implications for Customers  Backstage improvements can ripple to front and affect customers  Keep abreast of proposed backstage changes, not only to identify such ripples but also to prepare customers for them ― For example: New printing peripherals may affect appearance of bank statements  Front-stage productivity enhancements are especially visible in high contact services  Some improvements only require passive acceptance, while others require customers to change behavior  Must consider impacts on customers and address customer resistance to changes  Better to conduct market research first if changes are substantial  See Service Perspectives 14.1: Managing Customers’ Reluctance to Change

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter A Caution on Cost Reduction Strategies  In absence of new technology, most attempts to improve service productivity seek to eliminate waste and reduce labor costs  Workers who try to do several things at once may perform each task poorly  Excessive pressure breeds discontent and frustration among customer contact personnel, who are caught between:  Meeting customer needs  Achieving management's productivity goals  Better to search for service process redesign opportunities that lead to  Improvements in productivity  Simultaneous improvement in service quality  See Service Perspectives 14.2: Biometrics

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Summary of Chapter 14: Improving Service Quality and Productivity (1)  Quality and productivity need to be considered jointly in marketing services  Service quality is a combination of manufacturing-based components of quality and service-based components  SERVQUAL is used to measure customer perceptions of service quality and the dimensions are:  Credibility  Security  Access  Communication  Understanding the customer  Tangibles  Reliability  Responsiveness  Competence  Courtesy

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Summary of Chapter 14: Improving Service Quality and Productivity (2)  Research consolidated service quality dimensions into five  Tangibles  Reliability  Responsiveness  Competence  Courtesy  The GAPS model is a tool to diagnose problems in service design and delivery. Service gap is the most critical and can only be closed if the other six gaps are closed  Both soft and hard measures used to measure service quality

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Summary of Chapter 14: Improving Service Quality and Productivity (3)  Tools used to analyze and address service quality problems:  Fishbone diagram  Pareto chart  Blueprinting  TQM  ISO9000  Malcolm-Baldrige Model  Six sigma  Measuring productivity in services is difficult—there is a need to determine when service reliability becomes uneconomical  Efficiency, productivity, and effectiveness need to be distinguished when measuring service quality

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter Summary of Chapter 14: Improving Service Quality and Productivity (4)  To improve service productivity, there are generic improvement strategies and customer-driven approaches  Customer-driven approaches to improving productivity include:  Changing timing of customer demand  Involving customers more in production  Asking customers to use third parties  Backstage and front-stage productivity changes both affect customers  Cost-reduction strategies should be used with caution as this may impact service quality negatively. A better way may be to look for service process redesign opportunities