1. Marketing Service Organisations BM404 – 2006 Lecture 2

2. Overview Defining services Understanding the services economy The service sector in Australia Mega-trends and the service sector:  Professional services Characteristics of services Marketing implications

3. Defining services? Any act, performance or experience that one party can offer another; one that is essentially intangible, and does not result in the ownership of anything. Its production may or may not be tied to a physical product Lovelock (2004)

4. Characteristics of Services Compared to Goods Intangibility Perishability Simultaneous Production and Consumption Heterogeneity

5. Challenges for Services Defining and improving quality Designing and testing new services Communicating and maintaining a consistent image Accommodating fluctuating demand Ensuring the delivery of consistent quality

6. Challenges for Services (cont.) Motivating and sustaining employee commitment Coordinating marketing, operations, and human resource efforts Setting prices Finding a balance between standardization versus personalization

7. Further challenges for services managers Differentiation and competitive advantage may be difficult to achieve Marketing orientation is still relatively new to many managers Operations management, rather than marketing, continues to dominate Customer service management and marketing is often in the hands of lower paid subordinates, possibly in multiple locations Limited data on competitive performance is available Problems in determining costs for pricing purposes

8. An expanded marketing mix for services CustomersPrice Place & Time Promotion Product (Service) People Process Physical Evidence Customers Price customers Place, Cyber- space & Time

9. Internal marketing Traditional marketing Organisation Employees Customers Satisfaction; Quality; Brand Loyalty Relationship management A framework for analysing services marketing

10. Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR Functions (Fig. 1.14) Customers Operations Management Marketing Management Human Resources Management

11. Gaps model of service quality Zeithaml, Bitner and Gremler (2006)

12. The Gaps model of service quality (Zeithaml, Parasuraman & Berry 1990)

13. Expected service Perceived service Customer Gap The Customer Gap Difference between customer expectations and perceptions

14. Gaps Model of Service Quality Provider Gap 1 (The Knowledge Gap):  not knowing what customers expect Provider Gap 2 (The Service Design & Standards Gap):  not having the right service designs and standards Provider Gap 3 (The Service Performance Gap):  not delivering to service standards Provider Gap 4 (The Communication Gap):  not matching performance to promises

15. Customer Expectations Customer Perceptions Key Factors Leading to the Customer Gap Customer Gap

16. Customer Expectations Company Perceptions of Customer Expectations Figure 2.2 Key Factors Leading to Provider Gap 1 Gap 1

17. Customer-Driven Service Designs and Standards Management Perceptions of Customer Expectations Figure 2.3 Key Factors Leading to Provider Gap 2 Gap 2

18. Service Delivery Customer-Driven Service Designs and Standards Figure 2.4 Key Factors Leading to Provider Gap 3 Gap 3

19. Service Delivery External Communications to Customers Figure 2.5 Key Factors Leading to Provider Gap 4 Gap 4

20. Perceived Service Expected Service CUSTOMER COMPANY Customer Gap Gap 1 Gap 2 Gap 3 External Communications to Customers Gap 4 Service Delivery Customer-Driven Service Designs and Standards Company Perceptions of Consumer Expectations Figure 2.6 Gaps Model of Service Quality

21. Consumer behaviour in services Examine how consumers choose and evaluate services Identify the elements of consumer behaviour that services marketers must understand:  Choice behaviour  Consumer experiences  Post-purchase evaluation

22. Consumer Evaluation Processes for Services Search Qualities  attributes a consumer can determine prior to purchase of a product Experience Qualities  attributes a consumer can determine after purchase (or during consumption) of a product Credence Qualities  characteristics that may be impossible to evaluate even after purchase and consumption

23. Figure 3.2 Continuum of Evaluation for Different Types of Products Clothing Jewelry Furniture Houses Automobiles Restaurant meals Vacations Haircuts Child care Television repair Legal services Root canals Auto repair Medical diagnosis Difficult to evaluate Easy to evaluate High in search qualities High in experience qualities High in credence qualities Most Goods Most Services

24. Figure 3.3 Stages in Consumer Decision Making and Evaluation of Services

25. Issues to Consider in Examining the Consumer’s Service Experience Services as processes Service provision as drama Service roles and scripts The compatibility of service customers Customer coproduction Emotion and mood

26. Post purchase evaluation Captured in measures of satisfaction, service quality, loyalty, emotional engagement:  Word of mouth communication  Attribution of dissatisfaction  Positive or negative bias positivity bias for services  Brand loyalty

27. Customer expectations of service Identify the different types of expectations customers hold for service performance Sources of customer expectations

28. Figure 4.2 Possible Levels of Customer Expectations

29. Figure 4.3 Dual Customer Expectation Levels Adequate Service Desired Service

30. Figure 4.4 The Zone of Tolerance Adequate Service Desired Service Zone of Tolerance

31. Reliability Tangibles Level of Expectation Source: L. L. Berry, A. Parasuraman, and V. A. Zeithaml, “Ten Lessons for Improving Service Quality,” Marketing Science Institute, Report No. 93-104 (May 1993). Adequate Service Desired Service Adequate Service Figure 4.5 Zones of Tolerance for Different Service Dimensions Zone of Tolerance Zone of Tolerance

32. Lasting Service Intensifiers Lasting Service Intensifiers Personal Needs Zone of Tolerance Desired Service Adequate Service Figure 4.6 Factors That Influence Desired Service

33. Self-Perceived Service Role Self-Perceived Service Role Situational Factors Situational Factors Perceived Service Alternatives Perceived Service Alternatives Temporary Service Intensifiers Temporary Service Intensifiers Zone of Tolerance Desired Service Adequate Service Figure 4.7 Factors That Influence Adequate Service Predicted Service Predicted Service

34. Predicted Service Explicit Service Promises Explicit Service Promises Implicit Service Promises Implicit Service Promises Word-of-Mouth Past Experience Zone of Tolerance Desired Service Adequate Service Figure 4.8 Factors That Influence Desired and Predicted Service

35. Frequently Asked Questions About Customer Expectations What does a service marketer do if customer expectations are “unrealistic”? Should a company try to delight the customer? How does a company exceed customer service expectations? Do customer service expectations continually escalate? How does a service company stay ahead of competition in meeting customer expectations?

36. Customer perceptions Identify the factors which influence consumers’ perceptions Examine the factors which influence satisfaction Develop an understanding of the dimensions of service quality Examine the importance of service encounters

37. Customer Perceptions of Quality and Customer Satisfaction

38. Factors Influencing Customer Satisfaction Product/service quality Specific product or service features Consumer emotions Attributions for service success or failure

39. Factors Influencing Customer Satisfaction Perceptions of equity or fairness Other consumers, family members, and coworkers Price Personal factors  the customer’s mood or emotional state  situational factors

40. Outcomes of Customer Satisfaction Increased customer retention Positive word-of-mouth communications Increased revenues

41. ASCI and Annual Percentage Growth in S&P 500 Earnings Source: C. Fornell “Customer Satisfaction and Corporate Earnings,“ commentary appearing on ACSI website, May 1, 2001, http://www.bus.umich.edu/research/nqre/Q1-01c.html.

42. Figure 5.4 Relationship between Customer Satisfaction and Loyalty in Competitive Industries Source: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p. 83.

43. Models of service quality

44. Service Quality The customer’s judgment of overall excellence of the service provided in relation to the quality that was expected. Service quality assessments are formed on judgments of:  outcome quality  interaction quality  physical environment quality

45. The evolution of service quality Disconfirmation of expectations The Nordic model The three component model The Gaps model of service quality & SERVQUAL

46. Disconfirmation of expectations (Oliver 1980)

47. The Nordic model (Gronroos 1990) Represents the service experience on the basis of functional and technical elements Technical quality refers to what the customer receives from the service Functional quality refers to service delivery Model emphasises companies must be careful what they promise

48. The three-component model Rust & Oliver (1994) Source: Rust & Oliver, 1994. p. 11

49. The SERVQUAL dimensions – Perceived Service Quality (Parasuraman, Zeithaml & Berry 1988) Reliability (dependability, accurate performance) Assurance (competence, courtesy, credibility & security) Tangibles (appearance of physical elements) Empathy (easy access, good communications & customer understanding) Responsiveness (promptness & helpfulness)

50. SERVQUAL

51. SERVQUAL (cont.)

52. The Five Dimensions of Service Quality Ability to perform the promised service dependably and accurately. Knowledge and courtesy of employees and their ability to inspire trust and confidence. Physical facilities, equipment, and appearance of personnel. Caring, individualized attention the firm provides its customers. Willingness to help customers and provide prompt service. Tangibles Reliability Responsiveness Assurance Empathy

53. Exercise to Identify Service Attributes In groups of five, choose a services industry and spend 10 minutes brainstorming specific requirements of customers in each of the five service quality dimensions. Be certain the requirements reflect the customer’s point of view. Reliability: Assurance: Tangibles: Empathy: Responsiveness:

54. n Providing service as promised n Dependability in handling customers’ service problems n Performing services right the first time n Providing services at the promised time n Maintaining error-free records n Keeping customers informed as to when services will be performed n Prompt service to customers n Willingness to help customers n Readiness to respond to customers’ requests RELIABILITY RESPONSIVENESS n Employees who instill confidence in customers n Making customers feel safe in their transactions n Employees who are consistently courteous n Employees who have the knowledge to answer customer questions ASSURANCE n Giving customers individual attention n Employees who deal with customers in a caring fashion n Having the customer’s best interest at heart n Employees who understand the needs of their customers n Convenient business hours EMPATHY n Modern equipment n Visually appealing facilities n Employees who have a neat, professional appearance n Visually appealing materials associated with the service TANGIBLES SERVQUAL Attributes

55. The Service Encounter is the “moment of truth” occurs any time the customer interacts with the firm can potentially be critical in determining customer satisfaction and loyalty types of encounters:  remote encounters, phone encounters, face-to-face encounters is an opportunity to:  build trust  reinforce quality  build brand identity  increase loyalty

56. Check-In Request Wake-Up Call Checkout Bellboy Takes to Room Restaurant Meal Figure 5.5 A Service Encounter Cascade for a Hotel Visit

57. Sales Call Ordering Supplies Billing Delivery and Installation Servicing A Service Encounter Cascade for an Industrial Purchase

58. Critical Service Encounters Research GOAL:  understanding actual events and behaviors that cause customer dis/satisfaction in service encounters METHOD:  Critical Incident Technique DATA:  stories from customers and employees OUTPUT:  identification of themes underlying satisfaction and dissatisfaction with service encounters

59. Sample Questions for Critical Incidents Technique Study Think of a time when, as a customer, you had a particularly satisfying (dissatisfying) interaction with an employee of ______________. When did the incident happen? What specific circumstances led up to this situation? Exactly what was said and done? What resulted that made you feel the interaction was satisfying (dissatisfying)?

60. Common Themes in Critical Service Encounters Research Recovery: Adaptability: Spontaneity:Coping: employee response to service delivery system failure employee response to customer needs and requests employee response to problem customers unprompted and unsolicited employee actions and attitudes

61. Recovery Acknowledge problem Explain causes Apologize Compensate/upgrade Lay out options Take responsibility Ignore customer Blame customer Leave customer to fend for him/herself Downgrade Act as if nothing is wrong “Pass the buck” DODON’T

62. Adaptability Recognize the seriousness of the need Acknowledge Anticipate Attempt to accommodate Adjust the system Explain rules/policies Take responsibility Ignore Promise, but fail to follow through Show unwillingness to try Embarrass the customer Laugh at the customer Avoid responsibility “Pass the buck” DODON’T

63. Spontaneity Take time Be attentive Anticipate needs Listen Provide information Show empathy Exhibit impatience Ignore Yell/laugh/swear Steal from customers Discriminate DODON’T

64. Coping Listen Try to accommodate Explain Let go of the customer Take customer’s dissatisfaction personally Let customer’s dissatisfaction affect others DODON’T

65. Figure 5.7 Evidence of Service from the Customer’s Point of View People Process Physical Evidence Contact employees Customer him/herself Other customers Operational flow of activities Steps in process Flexibility vs. standard Technology vs. human Tangible communication Servicescape Guarantees Technology Website Source: From “Managing the Evidence of Service” by M. J. Bitner from The Service Quality Handbook, eds. E. E. Scheuing and W. F. Christopher (1993), pp. 358-70.