1. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 1 Chapter 8: Designing and Managing Service Processes

2. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 2 Overview of Chapter 8 1.Blueprinting Services to Create Valued Experiences and Productive Operations* 2.Service Process Redesign 3.The Customer as Co-Producer* 4.Dysfunctional Customer Behavior

3. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 3 1. Blueprinting Services to Create Valued Experiences and Productive Operations

4. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 4 Developing a Blueprint 1.Identify key activities in creating and delivering service 2.Define “big picture” before “drilling down” to obtain a higher level of detail 3.Distinguish between “front stage” and “backstage” 4.Clarify interactions between customers and staff, and support by backstage activities and systems 5.Identify potential fail points; take preventive measures; prepare contingency 6.Develop standards for execution of each activity — times for task completion, maximum wait times, and scripts to guide interactions between employees and customers

5. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 5 Key Components of a Service Blueprint (Figure 8.1: pp. 236-239) 1. Define standards for front-stage activities 2. Specify physical evidence 3. Identify principal customer actions 4. Line of interaction (customers and front-stage personnel) 5. Front-stage actions by customer-contact personnel 6. Line of visibility (between front stage and backstage) 7. Backstage actions by customer contact personnel 8. Support processes involving other service personnel 9. Support processes involving IT - Set service standards and do failure-proofing* - Identify fail points and risks of excessive waits*

6. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 6 Blueprinting the Restaurant Experience: A Three Act Performance  Act 1: Prologue and Introductory Scenes*  Act 2: Delivery of Core Product  Cocktails, seating, order food and wine, wine service  Potential fail points: Menu information complete? Menu intelligible? Everything on the menu actually available?  Mistakes in transmitting information a common cause of quality failure— e.g. bad handwriting; poor verbal communication  Customers may not only evaluate quality of food and drink, but how promptly it is served, serving staff attitudes, or style of service  Act 3: The Drama Concludes  Remaining actions should move quickly and smoothly, with no surprises at the end  Customer expectations: Accurate, intelligible and prompt bill, payment handled politely, guest are thanked for their patronage

7. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 7 Blueprinting the Restaurant Experience: Act 1 (Fig 8.1) Make Reservation Coat Room Valet Parking Accept reservation Greet customer, take car keys Greet, take coat, coat checks Check availability, insert booking Take car to parking lot Hang coat with visible check numbers Maintain reservation system Maintain (or rent) facilities Maintain facilities/ equipment Line of interaction Line of visibility Line of internal physical interaction Contact person (visible actions) Contact person (invisible actions) Front - Stage Back - Stage … Timeline Act 1 Physical Evidence Service Standards and Scripts Support Processes W W W

8. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 8 Setting Service Standards 1.Service providers should design standards for each step sufficiently high to satisfy and even delight customers 1.Standards may include time parameters, script for a technically correct performance, and prescriptions for appropriate style and demeanor 2.Must be expressed in ways that permit objective measurement 2.First impression is important as it affects customer ’ s evaluations of quality during later stages of service delivery 1.Research by Marriott Hotels: four of five top factors contributing to customer loyalty come into play during the first 10 minutes of service delivery 3.Customer perceptions of service experiences tend to be cumulative 4.For low-contact service, a single failure committed front stage is relatively more serious than in high-contact service 1.Viewed more seriously because there are fewer subsequent opportunities to create a favorable impression

9. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 9 Improving Reliability of Processes by Failure Proofing 1.Analysis of reasons for failure often reveals opportunities for failure proofing to 2.Need fail-safe methods for both employees and customers 3.Errors include: 1.Treatment errors—human failures during contact with customer 1.e.g., lack of courteous or professional behavior, failure to acknowledge, listen to, or react appropriately to the customer 2.Tangible errors—failures in physical elements of service 1.e.g., noise pollution, improper standards for cleaning of facilities and uniforms, equipment breakdown 4.Goal of fail-safe procedures is to prevent errors such as: 1.Performing tasks incorrectly, in the wrong order, too slowly 2.Doing work that wasn ’ t requested in the first place

10. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 10 2. Redesigning Service Processes

11. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 11 Mitchell T. Rabkin MD, formerly president of Boston’s Beth Israel Hospital Why Redesign? (1) “ Institutions are like steel beams — they tend to rust. What was once smooth and shiny and nice tends to become rusty. ”

12. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 12 Why Redesign? (2)  Revitalizes process that has become outdated  Changes in external environment make existing practices obsolete and require redesign of underlying processes  Creation of brand-new processes to stay relevant  Rusting occurs internally  Natural deterioration of internal processes; creeping bureaucracy; evolution of spurious, unofficial standards  Symptoms: - Extensive information exchange - Data redundancy - High ratio of checking or control activities to value-adding activities, increased exception processing - Customer complaints about inconvenient and unnecessary procedures

13. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 13 Process Redesign: Approaches and Potential Benefits (1) (Table 8.1)  Eliminating non-value-adding steps  Streamline front-end and back-end processes of services with goal of focusing on benefit-producing part of service encounter  Eliminate non-value-adding steps  Improve efficiency  More customized service  Differentiate company  Delivering direct service  Bring service to customers instead of bringing customers to provider  Improve convenience for customers  Productivity can be improved if companies can eliminate expensive retail locations  Increase customer base

14. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 14 Process Redesign: Approaches and Potential Benefits (2) (Table 8.1)  Shifting to self-service  Increase in productivity and service quality  Lower costs and perhaps prices  Enhance technology reputation  Greater convenience  Bundling services  Involves grouping multiple services into one offer, focusing on a well-defined customer group  Often has a better fit to the needs of target segment  Increase productivity  Add value for customers through lower transaction costs  Customize service  Increase per capita service use

15. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 15 Process Redesign: Approaches and Potential Benefits (3) (Table 8.1)  Redesigning physical aspects of service processes  Focus on tangible elements of service process; include changes to facilities and equipment to improve service experience  Increase convenience  Enhance the satisfaction and productivity of front-line staff  Cultivate interest in customers  Differentiate company

16. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 16 3. The Customer as Co-Producer*

17. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 17 Levels of Customer Participation  Three Levels  Low—Employees and systems do all the work - Often involves standardized service  Medium—Customer inputs required to assist provider - Provide needed information and instructions - Make some personal effort; share physical possessions  High—Customer works actively with provider to co-produce the service - Service cannot be created without customer ’ s active participation - Customer can jeopardize quality of service outcome (e.g., weight loss, marriage counseling)

18. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 18 Self-Service Technologies (SSTs)*  Ultimate form of customer involvement  Customers undertake specific activities using facilities or systems provided by service supplier  Customer’s time and effort replace those of employees ― e.g. Internet-based services, ATMs, self-service gasoline pumps  Information-based services lend selves particularly well to SSTs  Used in both supplementary services and delivery of core product ― e.g. eBay—no human auctioneer needed between sellers and buyers  Many companies and government organizations seek to divert customers from employee contact to Internet-based self-service  Economic trade-off between declining cost of these self-service systems and rising cost of labor  Challenge: Getting customers to try this technology

19. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 19 Psychological Factors in Customer Co-Production  Economic rationale of self-service  Productivity gains and cost savings result when customers take over work previously performed by employees  Lower prices, reflecting lower costs, induce customer to use SSTs  Critical to understand how consumers decide between using an SST option and relying on a human provider  SSTs present both advantages and disadvantages  Benefits: Time and cost savings, flexibility, convenience of location, greater control over service delivery, and a higher perceived level of customization  Disadvantages: Anxiety and stress experienced by customers who are uncomfortable with using them

20. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 20 What Aspects of SSTs Please or Annoy Customers?  People love SSTs when …  SST machines are conveniently located and accessible 24/7 — often as close as nearest computer!  Obtaining detailed information and completing transactions can be done faster than through face-to-face or telephone contact  People in awe of what technology can do for them when it works well  People hate SSTs when …  SSTs fail — system is down, PIN numbers not accepted, etc  They mess up — forgetting passwords, failing to provide information as requested, simply hitting wrong buttons  Key weakness of SSTs: Too few incorporate service recovery systems  Customers still forced to make telephone calls or personal visits  Blame service provider for not providing more user-friendly system

21. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 21 HSBC: “The world’s local bank” (Fig 8.2) Source: Courtesy HSBC Global site brought to customer’s local computer

22. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 22 Putting SSTs to Test by Asking a Few Simple Questions  Does the SST work reliably?  Firms must ensure that SSTs are dependable and user-friendly  Is the SST better than interpersonal alternatives?  Customers will stick to conventional methods if SST doesn ’ t create benefits for them  If it fails, what systems are in place to recover?  Always provide systems, structures, and technologies that will enable prompt service recovery when things go wrong

23. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 23 Customers as Partial Employees  Customers can influence productivity and quality of service processes and outputs  Customers who are offered opportunities to participate at active level are more likely to be satisfied  However, customers cause one-third of all service problems  Difficult to recover from instances of customer failure  Focus on preventing customer failure by collecting data on problem occurrence, analyzing root causes, and establishing preventive solutions  Managing customers as employees helps to avoid customer failures  Conduct “ job analysis ” of customer ’ s present role in business — compare against role that firm would like customers to play  Educate customers on how expected to perform and skills needed  Motivate customers by ensuring that rewarded if they perform well  Appraise customers ’ performance regularly

24. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 24 4. Dysfunctional Customer Behavior

25. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 25 Addressing the Challenge of Jaycustomers  Jaycustomer: A customer who behaves in a thoughtless or abusive fashion, causing problems for the firm, its employees, and other customers  More potential for mischief in service businesses, especially when many customers are present  Divergent views on jaycustomers  “ The customer is king and can do no wrong. ”  Marketplace is overpopulated with nasty people who cannot be trusted to behave in ways that self-respecting services firms should expect and require  No organization wants an ongoing relationship with an abusive customer

26. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 26 Six Types of Jaycustomers: 1. The Thief  No intention of paying — sets out to steal or pay less  Services lend themselves to clever schemes to avoid payment  For example: bypassing electricity meters, circumventing TV cables, riding free on public transportation  Firms must take preventive actions against thieves, but not alienate honest customers by degrading their service experience  Make allowances for honest but absent-minded customers

27. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 27 Six Types of Jaycustomers: 2. The Rulebreaker  Many services need to establish rules to guide customers safely through the service encounter  Government agencies may impose regulations that service suppliers must enforce  Some rules protect other customers from dangerous behavior  For example: Vail and Beaver Creek, Colorado — ski patrollers issue warnings to reckless skiers by attaching orange stickers on their lift tickets  Ensure company rules are necessary, not bureaucratic

28. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 28  Expresses resentment, abuses service employees verbally or even physically  Confrontations between customers and service employees can easily escalate  Firms should ensure employees have skills to deal with difficult situations  In a public environment, priority is to remove person from other customers  May be better to make a public stand on behalf of employees than conceal for fear of bad publicity Six Types of Jaycustomers: 3. The Belligerent Confrontations between Customers and Service Employees Can Easily Escalate

29. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 29  Family Feuders: People who get into arguments with other customers — often members of their own family  The Vandal:  Service vandalism includes pouring soft drinks into bank cash machines; slashing bus seats, breaking hotel furniture  Bored and drunk young people are a common source of vandalism  Unhappy customers who feel mistreated by service providers take revenge  Prevention is the best cure Six Types Of Jaycustomers: 4&5: Family Feuders and Vandals

30. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 30 Six Types Of Jaycustomers: 6. The Deadbeat  Customers who fail to pay (as distinct from “ thieves ” who never intended to pay in the first place)  Preventive action is better than cure — for example: insisting on prepayment; asking for credit card number when order is taken  Customers may have good reasons for not paying - If the client's problems are only temporary ones, consider long-term value of maintaining the relationship  For an industry-specific categorization, see Research Insights 8.1: Categorizing Jaycustomers in Hotels, Restaurants, and Bars

31. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 8 - 31 Consequences of Dysfunctional Customer Behavior  Consequences for staff working front stage  Abused employees may find their emotions negatively affected and/or suffer long-term psychological damage  Productivity and quality may suffer  Consequences for customers can be both negative and positive  Exposure to unpleasant incidents can spoil consumption experience; some customers may even terminate their use of the service  Bad behavior can be contagious  But customers may rally to support of abused employee  Consequences for organization  Unmotivated employees may work less effectively  Abused employees may take medical leave  Direct financial costs of restoring damaged property, legal fees, paying fraudulent claims