Company

(Management)

Internal External
Marketing Marketing
enabling setting
promises promises

Employees Interactive Marketing Customers

keeping promises
Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler

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 Ways to Use the
Services Marketing Triangle
• Overall Strategic • Specific Service
Assessment Implementation
– What is being promoted and
– How is the service by whom?
organization doing on all
– How will it be delivered and
three sides of the by whom?
triangle?
– Are the supporting systems
– Where are the in place to deliver the
weaknesses? promised service?
– What are the strengths?

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Source: An exhibit from J. L. Heskett, T. O. Jones, W. E. Sasser, Jr., and L. A. Schlesinger,
“Putting the Service-Profit Chain to Work,” Harvard Business Review, March-April 1994, p. 166.

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 Service Employees
• They are the service - provider.
• They are the organization in the customer’s eyes.
• They are the brand.
• They are marketers.
• Their importance is evident in:
– The Services Marketing Mix (People)
– The Service-Profit Chain
– The Services Triangle

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 Service Employees
• Who are they?
“boundary spanners” – periphery, link the inside of the
organization to the outside world.
Emotional Labour - “The act of expressing socially desired
emotions during service transactions”.
Consider management expectations of restaurant servers:
– deliver a highly satisfying dining experience to their customers
– be fast and efficient at executing operational task of serving
customers
– do selling and cross selling, e.g. “We have some nice desserts
to follow your main course”

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• Person vs. Role
Conflicts between what jobs require and employee’s own personality and beliefs

• Organization vs. Client

Dilemma whether to follow company rules or to satisfy customer demands

• Client vs. Client

Conflicts between customers that demand service staff intervention

• Quality vs. Productivity

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 Hire for
r Service
fo Competencies B
Pr e t
e
t t
pe es and Service Em efe he
m B le pl rred
Co the op Inclination oy
Pe er

Str ard nd

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ch rac
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Hire the
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ers

fo and
rfo ce Right People
n
w
as

S
o

r
rm
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Develop
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Empower
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se
s Technology Qu
and
Equipment
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 Factors Favoring Employee Empowerment
• Firm’s strategy is based on competitive differentiation and on
personalized, customized service
• Emphasis on long-term relationships vs. one-time transaction
• Environment is unpredictable, contains surprises
• Managers are comfortable letting employees work independently for
benefit of firm and customers
• Employees seek to deepen skills, like working with others, and are good
at group processes

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 Empowerment
• Benefits:
– quicker responses
– employees feel more
responsible
– employees tend to interact
with warmth/enthusiasm
– empowered employees are
a great source of ideas
– positive word-of-mouth from
customers
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• Drawbacks:
– greater investments in
selection and training
– higher labor costs
– slower and/or inconsistent
delivery
– may violate customer
perceptions of fair play
– “giving away the store”
(making bad decisions)
 Service Culture
“A culture where an appreciation for good
service exists, and where giving good service to
internal as well as ultimate, external customers,
is considered a natural way of life and one of the
most important norms by everyone in the
organization.”

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 Relationship Marketing
• is a philosophy of doing business that focuses on keeping
current customers and improving relationships with them
• does not necessarily emphasize acquiring new
customers
• is usually cheaper (for the firm)
– 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

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 Customer Satisfaction

Customer Retention & Quality

Increased Profits Service

Employee Loyalty

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 Benefits to the Organization of Customer Loyalty
• loyal customers tend to spend more with the organization
over time
• on average costs of relationship maintenance are lower
than new customer costs: less need for information and
assistance & make fewer mistakes
• employee retention is more likely with a stable customer
base
• Recommend new customers to firm (act as unpaid sales
people)
• Trust leads to willingness to pay regular prices vs.
shopping for discounts
• lifetime value of a customer can be very high

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 How Customers See Relational Benefits in Service Industries
• Confidence benefits
– less risk of something going wrong, less anxiety
– ability to trust provider
– know what to expect
– get firm’s best service level
• Social benefits
– mutual recognition, known by name
– friendship, enjoyment of social aspects
• Special treatment benefits
– better prices, discounts, special deals unavailable to others
– extra services
– higher priority with waits, faster service

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 “The Customer Isn’t Always
Right”
• Not all customers are good relationship
customers:
– wrong segment
– not profitable in the long term
– difficult customers
– Avoid inappropriate mix of customer segments at same
time
Solution: Proper Segmenting OR Manage
customer behavior

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 Measuring Customer Equity:
Calculating Life Time Value of Each Customer

• Value at Acquisition
– revenues (application fee + initial purchase)
– Less costs (marketing +credit check + account set up)
• Annual Value (project for each year of relationship)
– revenues (annual fee + sales + service fees + value of referrals)
– Less costs (account management + cost of sales + write-offs)
• Net Present Value
– Determine anticipated customer relationship lifetime
– Select appropriate discount figure
– Sum anticipated annual values (future profits) at chosen discount rate
• Customer Equity is total sum of NPVs of all current customers

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 Strategies for Building Relationships
• Foundations:
– Excellent Quality/Value
– Careful Segmentation
• Bonding Strategies:
– Financial Bonds
– Social & Psychological Bonds
– Structural Bonds
– Customization Bonds
• Relationship Strategies Wheel

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