2. Introduction to Services
Chapter 1
Introduction to Services
What are services?
Why services marketing?
Service and Technology
Characteristics of Services Compared to Goods
Services Marketing Mix
Staying Focused on the Customer
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Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Examples of Service Industries
Health Care
hospital, medical practice, dentistry, eye care
Professional Services
accounting, legal, architectural
Financial Services
banking, investment advising, insurance
Hospitality
restaurant, hotel/motel, bed & breakfast
ski resort, rafting
Travel
airline, travel agency, theme park
Others
hair styling, pest control, plumbing, lawn maintenance, counseling services, health club, interior design

4. Tangibility Spectrum

5. Why Services Matter?
Services dominate U.S. and worldwide economies and are growing dramatically
Service leads to customer retention and loyalty
Service leads to profits
Services help manufacturing companies differentiate themselves

6. Where Americans Work Today. As of July, 2008
Industry % of Labor Force
Government 16
Wholesale & Retail Trade 16
Education & Health Services 14
Professional & Business Services 13
Leisure & Hospitality 10
Manufacturing 10
Financial Activities 6
Construction
Information
Transportation & Utilities 4
Natural Resources & Mining 1
Other
Source: Business Week, 9/8/08, p. 009 (Based on BLS Statistics)

7. Why do firms focus on Services?
Services can provide higher profit margins and growth potential than products
Customer satisfaction and loyalty are driven by service excellence
Services can be used as a differentiation strategy in competitive markets
Jerome
The are 3 main reasons why our program is focusing on services.
It provides a higher profit margin than tangible products,
Increases satisfaction and retention,
Provides a competitive advantage over others.
I am going to use two examples to illustrate these points.
The automotive industry has typically been perceived as a manufacturing industry. However,
after-sale services and parts account for nearly 80% of all revenue opportunities, and more than 50% of the average automobile dealer’s profits
It is by far the largest creator of shareholder value on a percentage basis. A GM study revealed that $9 billion in after sale revenue produced $2 billion in profits (22% margin). Profits from $150 billion car sales were much lower.
JD Power and Associates published a report showing a strong correlation between customer satisfaction with after-sale services and customer intent to repurchase the same brand (Lexus and Saturn cars)
Hyundai’s success is due largely to its differentiation strategy of offering 10 year - 100,000 mile guarantee. The service offering is changing customer’s perception of the brand
The same can be said about the personal computer industry.
With the advancement of technology, personal computers are now becoming more and more of a commodity. While 25% of revenue opportunities are in the initial sale, most revenue opportunities are from after-sale.
Company responsiveness to customer calls is the biggest driver customer satisfaction with its product.
Dell revolutionized the industry by being the first to offer mass customization of personal computers.
Across manufacturing companies, after-sale services and parts contributes about 25% of total revenue, and 40%-50% of all profits
Services related revenue exceeds first-time product sales by 500% %
Retail industry derive largest margins from sale of extended warranties
It is a program that is designed in response to a business environment that is increasingly moving away from a product orientation to a service-focus
GE, IBM other good examples.

8. Why study Services Marketing?
Most advanced economies are service-based
Service as a business imperative in manufacturing and IT
As industries deregulate need for professional services increases
Services marketing is different than product mktg.
Service equals profits

9. What is Service? The New View
Service includes every interaction between any customer and anyone representing the company, including:
Dealers
Web interaction
Salespeople
Customer
Billing,
Accounting
Receptionists,
Schedulers
Service
employees
Managers/Executives
Service can be product by itself, customer service,
value added for goods, embedded in a tangible product …

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

11. Implications of Intangibility
Services cannot be inventoried
They cannot be easily patented
They cannot be readily displayed or communicated
Pricing services is difficult

12. Implications of Heterogeneity
Service delivery and customer satisfaction depend on employee and customer actions
Service quality depends on many uncontrollable factors
There is no sure knowledge that the service delivered matches what was planned and promoted

13. Implications of Simultaneous Production and Consumption
Customers participate in and affect the transaction
Customers affect each other
Employees affect the service outcome
Decentralization may be essential
Mass production is difficult

14. Implications of Perishability
It is difficult to synchronize supply and demand with services
Services cannot be returned or resold
Perishability generally results in no residual value

15. Challenges for Services
Defining and improving quality
Ensuring the delivery of consistent quality
Designing and testing new services
Communicating and maintaining a consistent image
Accommodating fluctuating demand
Motivating and sustaining employee commitment
Coordinating marketing, operations, and human resource efforts
Setting prices
Finding a balance between standardization versus customization

16. Expanded Mix for Services – The 7 Ps
Product
Price
Place
Promotion
People
All human actors who play a part in service delivery and thus influence the buyer’s perceptions: namely, the firm’s personnel, the customer, and other customers in the service environment.
Physical Evidence
The environment in which the service is delivered and where the firm and customer interact, and any tangible components that facilitate performance or communication of the service.
Process
The actual procedures, mechanisms, and flow of activities by which the service is delivered—the service delivery and operating systems.

17. Ways to Use the 7 Ps Overall Strategic Assessment
How effective is a firm’s services marketing mix?
Is the mix well-aligned with overall vision and strategy?
What are the strengths and weaknesses in terms of the 7 Ps?
Specific Service Implementation
Who is the customer?
What is the service?
How effectively does the services marketing mix for a service communicate its benefits and quality?
What changes/ improvements are needed?

18. Gap Model of Service Quality
Chapter 2
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Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

19. Why Services do not Measure Up?.
Customer Gap: Difference between customer expectations
and perceptions of service received
Expected
Service
Customer
Gap
Perceived
Service

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

21. Ways to Use Gap Analysis
Overall Strategic Assessment:
How are we doing overall in meeting or exceeding customer expectations?
How are we doing overall in closing the four company gaps?
Which gaps represent our strengths and where are our weaknesses?

22. Ways to Use Gap Analysis
Specific Service Implementation
Who is the customer? What is the service?
Are we consistently meeting/exceeding customer expectations with this service?
If not, where are the gaps and what changes are needed?

23. Customer Behavior in Services
Chapter 3
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Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

24. 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

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. Customer Expectations of Service
Chapter 4
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

27. The Zone of Tolerance Delights Desirables Musts Desired Service
Adequate Service
Musts

28. Zones of Tolerance
The range of expectations between desired and adequate…
can be wide or narrow
can change over time
can vary among individuals
may vary with the type of product/service

29. 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?

30. Customer Perceptions of Service
Chapter 5
Customer Perceptions of Service
Customer Perceptions
Customer Satisfaction
Service Quality
Service Encounters: The Building Blocks for Customer Perceptions
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

31. The customer is . . .
Anyone who receives the company’s services, including:
external customers (outside the organization, business customers, suppliers, partners, end consumers)
internal customers (inside the organization, e.g., other departments, fellow employees)

32. Customer Perceptions of Quality and Customer Satisfaction

33. Factors Influencing Customer Satisfaction
Product quality
Service quality
Price
Specific product or service features
Consumer emotions
Attributions for service success or failure
Perceptions of equity or fairness
Other consumers, family members, and coworkers
Personal factors
Situational factors

34. How Customers Judge the Five Dimensions of Service Quality
Car Repair (consumer customers)
- Reliability: car fixed first time, on time
- Responsiveness: Accessible, no waiting, responds on time
- Assurance: knowledgeable mechanics
- Empathy: Knows my name, previous problem, my preferences
- Tangibles: repair area, uniforms, equipment
Airline (consumer customers)
- Reliability: leave/arrive on-time
- Responsiveness: systems for speedy ticketing, check-in, etc.
- Assurance: trusted brand, safety record, competent staff
- Empathy: anticipate/deliver on customer needs/special needs
- Tangibles: aircraft, ticket counters, baggage area, uniforms
Medical Care (consumer customers)
- Reliability: on-schedule appointments, accurate diagnosis
- Responsiveness: accessible, no waiting, willingness to listen
- Assurance: knowledge, skills, credentials, reputation
- Empathy: patient is a person, remember previous problems, listen, be patient
- Tangibles: waiting room, exam room, equipment, written materials

35. Top Box Scores – A Higher Standard
Overall Satisfaction
with XYZ
(% of customers)
Definitely Will Repurchase from XYZ
Definitely Would Recommend XYZ
TOP BOX Very Satisfied
(64%) =
96% =
91%
44-point drop
55-point drop
SECOND BOX
Somewhat Satisfied
(29%)
All Customers =
52% =
36%
32-point drop
BOTTOM 3 BOXES
Neutral to Very Dissatisfied
(7%)
45-point drop = 7% = 4%
Source: Technical Assistance Research Bureau (TARP), 2007.

36. 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 Customer Gap
physical environment quality

37. The Five Dimensions of Service Quality RATER scale
Reliability
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.
Assurance
Tangibles
Empathy
Responsiveness

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

39. 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

40. Build Customer Relationships
Chapter 7
Build Customer Relationships
Relationship Marketing
Relationship Value of Customers
Customer Profitability Segments
Relationship Development Strategies
Relationship Challenges
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

41. Relationship Marketing…
is a philosophy of doing business, a strategic orientation that focuses on keeping current customers and improving relationships with them
does not necessarily emphasize acquiring new customers
is usually cheaper for the firm because keeping a current customer costs less than attracting a new one
thus, the focus is less on attraction, and more on retention and enhancement of customer relationships

42. Customer Goals of Relationship Marketing
Move customers up the ladder from acquiring to enhancing:
Enhancing
Retaining
Satisfying
Acquiring

43. Benefits of Relationship Marketing
Benefits for Customers:
Receipt of greater value
Confidence benefits:
trust
confidence in provider
reduced anxiety
Social benefits:
familiarity
social support
personal relationships
Special treatment benefits:
special deals
price breaks
Benefits for Firms:
Economic benefits:
increased revenues
reduced marketing and administrative costs
regular revenue stream
Customer behavior benefits:
strong word-of-mouth endorsements
customer voluntary performance
social benefits to other customers
mentors to other customers
Human resource management benefits:
easier jobs for employees
social benefits for employees
employee retention

44. Profit Impact of 5 Percent Increase in Retention Rate
Source: F. F. Reichheld, “Loyalty and the Renaissance of Marketing,” Marketing Management, vol. 2, no. 4 (1994), p. 15.

45. The Customer Pyramid Platinum Tier Gold Tier Iron Tier Lead Tier
Company’s most profitable customers, typically heavy users of the product, not overly price sensitive, willing to invest in and try new offerings, and committed customers of the firm
Gold Tier
Profitability levels are not as high, perhaps because customers want price discounts that limit margins or are simply not as loyal. May be heavy users who minimize risk by working with multiple vendors.
Iron Tier
Essential customers that provide the volume needed to utilize the firm'’ capacity but their spending levels, loyalty, and profitability are not substantial enough for special treatment
Lead Tier
Customers who are costing the firm money. They demand more attention than they are due given their spending and profitability and are sometimes problem customers—complaining about the firm to others and tying up firm resources.

46. Segmenting Customers Based on Commitment and Profitability
BUTTERFLIES
Good fit of company offering and customer needs
High profit potential
Action:
Aim to achieve transactional satisfaction, not attitudinal loyalty
Milk the accounts as long as they are active
Key challenge: cease investment once inflection point is reached
TRUE FRIENDS
Good fit of company offering and customer needs
Highest profit potential
Actions:
Consistent intermittently spaced communication
Achieve attitudinal and behavioural loyalty
Invest to nurture/defend/retain
High
(Behavioral Loyalty)
CLV
STRANGERS
Little fit of company offering and customer needs
Lowest profit potential
Action:
No relationship investment
Profitize every transaction
BARNACLES
Limited fit of company offering and customer needs
Low profit potential
Action:
Measure size and share-of-wallet
If share-of-wallet is low, specific up and cross-selling
If size of wallet is small, strict cost control
Low
Relationship Commitment
(Attitudinal Loyalty)
Low
High
W. Reinhartz & V. Kumar, "The Mismanagement of Customer Loyalty," Harvard Business Review 80 (July 2002), pp

47. Relationship Development Model

48. Strategies for Building Relationships
Core Service Provision:
service foundations built upon delivery of excellent service:
satisfaction, perceived service quality, perceived value
Switching Barriers:
customer inertia
switching costs:
set up costs, search costs, learning costs, contractual costs
Relationship Bonds:
financial bonds
social bonds
customization bonds
structural bonds

49. “The Customer Is NOT Always Right”
Not all customers are good relationship customers:
wrong segment
not profitable in the long term
difficult customers

50. Service Recovery 8 Chapter McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

51. Reliability is Critical in Service but…
In all service contexts, service failure is inevitable.
Service failure occurs when service performance falls below a customer’s expectations and leads to customer dissatisfaction.
Service recovery: the actions taken by a firm in response to service failure.

52. Eight Most Common Remedies Customers Seek with Serious Problems
1.Have the product repaired or service fixed
2. Be reimbursed for the hassle of having experienced a problem
3. Receive a free product or service in the future
4. Explanation by the firm as to what happened
5. Assurance that the problem will not be repeated
6. A thank you for the customer’s business
7. An apology from the firm
8. An opportunity for the customer to vent his or her frustrations to the firm

53. Service Recovery Paradox
The service recovery paradox is more likely to occur when:
the failure is not considered by the customer to be severe
the customer has not experienced prior failures with the firm
the cause of the failure is viewed as unstable by the customer
the customer perceives that the company had little control over the cause of the failure
Conditions must be just right in order for the recovery paradox to be present!

54. Service Recovery Strategies

55. Service Guarantees
guarantee is an assurance of the fulfillment of a condition (Webster’s Dictionary)
in a business context, a guarantee is a pledge or assurance that a product offered by a firm will perform as promised and, if not, then some form of reparation will be undertaken by the firm
for tangible products, a guarantee is often done in the form of a warranty
services are often not guaranteed
cannot return the service
service experience is intangible (so what do you guarantee?)

56. Characteristics of an Effective Service Guarantee
Unconditional
the guarantee should make its promise unconditionally – no strings attached
Meaningful
the firm should guarantee elements of the service that are important to the customer
the payout should cover fully the customer’s dissatisfaction
Easy to Understand and Communicate
customers need to understand what to expect
employees need to understand what to do
Easy to Invoke and Collect
the firm should eliminate hoops or red tape in the way of accessing or collecting on the guarantee

57. Benefits of Service Guarantees
A good guarantee forces the company to focus on its customers.
It sets clear standards for the organization.
Generates immediate and relevant feedback from customers.
When invoked there is an instant opportunity to recover, thus satisfying the customer and helping retain loyalty.
Information generated through the guarantee can be tracked and integrated into continuous improvement efforts.
Employee morale and loyalty can be enhanced as a result of having a service guarantee in place.
A service guarantee reduces customers’ sense of risk and builds confidence in the organization.

58. Does everyone need a service guarantee?
Reasons companies might NOT want to offer a service guarantee:
existing service quality is poor
guarantee does not fit the company’s image
too many uncontrollable external variables
fears of cheating or abuse by customers
costs of the guarantee outweigh the benefits
customers perceive little risk in the service
customers perceive little variability in service quality among competitors