Summary Book Services Marketing

Summary Book Services Marketing
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Summary
Services Marketing: Integrating
Customer Focus Across the Firm
Alan Wilson Valarie A. Zeithaml Mary Jo Bitner Dwayne D. Gremler
Third European Edition
CHAPTER 1 INTRODUCTION TO SERVICES 1
CHAPTER 2 - CONSUMER BEHAVIOUR IN SERVICES 9
CHAPTER 3 - CUSTOMER EXPECTATIONS OF SERVICE 14
CHAPTER 4 - CUSTOMER PERCEPTIONS OF SERVICE 18
CHAPTER 5 - THE GAPS MODEL OF SERVICE QUALITY 24
CHAPTER 6 - LISTENING TO CUSTOMERS 27
CHAPTER 7 - BUILDING CUSTOMER RELATIONSHIP 31
CHAPTER 8 - SERVICE INNOVATION AND DESIGN 36
CHAPTER 9 - CUSTOMER-DEFINED SERVICE STANDARDS 44
CHAPTER 10 - THE PHYSICAL AND VIRTUAL SERVICESCAPE 48
CHAPTER 11 - EMPLOYEES ROLES IN SERVICE DELIVERY 53
CHAPTER 13 - DELIVERING SERVICE THROUGH ELECTRONIC CHANNELS AND INTERMEDIARIES 57
CHAPTER 14 - MANAGING DEMAND AND CAPACITY 60
CHAPTER 15 - SERVICE RECOVERY 66
CHAPTER 16 - MANAGING EXTERNAL AND INTERNAL COMMUNICATIONS 69
CHAPTER 17 - PRICING OF SERVICES 73
CHAPTER 18 - THE FINANCIAL IMPACT OF SERVICE QUALITY 75
Chapter 1 Introduction to Services

What are Services?
Put in a very broad context, services are deeds, processes and performances. A more specific definition
of a service is, a change in the condition of a person or of a good belonging to the same economic unit
which is brought about as a result of the activity of some other economic unit, with the prior
agreement of the former person or economic unit (Hill, 1977). It is important to note that a service is
generally consumed at the time it is produced. In Europe, the service sector accounts for 72% of all
European employment and 73% of European GDP. Lovelock has developed a classification model which
categorises different types of services into four distinct categories:
People as Recipients Possessions as Recipients
People Processing Possessions Processing

Services Directed at Peoples Bodies Services Directed at Peoples Tangible Possessions
Tangible Actions
Passenger Transportation Courier Services
Healthcare Car Repair
Spa Treatments Laundry and Dry Cleaning
Mental Stimulus Processing Information Processing

Services Directed at Peoples Minds Services Directed at Intangible Assets/Possessions
Intangible Actions
Education Accounting
Entertainment Banking
Psychotherapy Legal Services
Lovelocks Classifications of Services
People Processing: Services Directed At Peoples Bodies

For services within this category, the recipient needs to be physically present (e.g. dentist, train,
massage). Mostly, you have to go to the service provider, however in some cases they can also come to
you (e.g. haircut). The recipient therefore plays a key role in the delivery. Therefore, it is vital that the
service provider gives the customer the required information they need to carry out the right actions and
behaviour. For instance, an airline cannot provide their service properly if the customer does not check in
on time. Also, the premises/transportation vehicles where the service is performed need to be inviting
and attractive, and should be conveniently located.
Possession Processing: Services Directed At Peoples Tangible Possessions

The customer does not need to be present when services within this category are being performed,
though they might have to be for at the beginning and the end of the service - e.g. when dropping off and
collecting their car from a car repair centre. The attractiveness and location is less of an issue given that
emphasis is put more on operational matters.
Mental Stimulus Processing: Services Directed At Peoples Minds

These services include education, the arts, professional advice, news and information. Customers can go
to physical premises - e.g. universities and theatres - modern technology (Internet, broadcasting
technologies) can deliver these services at a distance. Therefore, the customer does not need to physically
present in the place where the service is produced. In the case of distant learning, for instance, the
service can even be produced, then stored for delayed use through digital recording.
Information Processing: Services Directed At Peoples Intangible Possessions

Services like banking, insurance, and accountancy require very little interaction between customers and
the organisation. The customer sees very
little of these kinds of services that is
tangible, making it difficult to
differentiate and communicate their true
value.
Tangibility Spectrum
Intangibility is a key determinant of
services; however, some services tend to
be more intangible than manufactured
products, and manufactured products are
generally more tangible than services. A
good example for this is the fast-food
industry: while classified as a service,
there are many tangible parts such as the
food, packaging, etc.
Service Dominant Logic

Service Dominant Logic looks at a service from a broader perspective. It suggests that all products and
physical goods are valued for the service they provide. For instance, a pharmaceutical product provides
medical services and computers provide
information and data manipulation
services. The thinking behind this theory is
that value is not simply created and
delivered to a customer, the value is co-
created in a process which requires the
active participation of the producer, its
customers, and other stakeholders (of
both the producer and the customer). That
value is not created at the time of the
exchange, but when the customer
integrates, applies and uses the product.
The role of interaction is important when it

comes to value creating; while the
company (merely) produces an offering of
potential value to the customer, the
customers, in turn, are responsible for the value-creating process.
Services Industries, Services as Products, Services as Experiences and

Customer Service
Sometimes when people think of service, they think only of customer service, but service can be divided
into four distinct categories.
1. Service Industries and Companies

Industries and companies typically classified in this sector have a service as their core product. These
include: Accor (hotels), Lufthansa (airline), and HSBC (banking). The market for services is growing
worldwide, and with it the specific demand for services marketing concepts. What is more, many large
service industries (e.g. airlines, banking, telecommunications, and energy supply) which used to be
controlled by the government are now partially, or in some cases even totally, within the control of
individual companies.
2. Services as Products
This category represents the range of intangible products that consumers value and pay for. These
services can either be sold by service- or non-service companies (e.g. IBM and HP offer IT consulting
services; retailers like Tesco sell insurance and photograph processing). When services marketing first
started developing, the key driving forces came from industries such as banking, transportation, and
retailing. In this day and age, however, the need for effective services marketing and marketing strategies
becomes more and more important given the growing competition in the marketplace. Customers no
longer expect companies to only deliver high-quality products; they also expect high levels of customer
service and total service solutions along with them.
3. Services as Experiences
Service companies evolve from merely providing a service to creating a memorable event where the
memory of the experience actually becomes the product. While many hospitality organisations (boutique
hotel) and the entertainment sector (Disneyland Paris) have been focussing on activities for many years,
other service providers like retailers (Nike Stores) and Airlines doing the same.
4. Customer Service
This is also a critical aspect of service. In fact, it is the service provided in support of a companys core
product, which can occur on-site (e.g. retail employee helps a customer find a desired item) or over the
telephone/via the Internet (e.g. Dell provide a real-time chat session to help customers with their
hardware problems). High-quality customer service is essential to building good relationships. This,
however, should not be confused with the services provided for sale by the company.
Why Services Marketing?

Services marketing is different. Skills acquired in, for instance, the packaged good industries are not
directly transferable to, say, the airline industry. Hence, services marketing is very different from product
marketing.
Service and Technology

Information technology is shaping the field of services marketing. It is, in fact, together with globalisation
the most profound influencer.
Potential for New Service Offerings

The fast development of technology in recent years has made many innovations possible. Especially the
Internet makes it possible for companies like Amazon or Facebook to offer services previously unheard of.
Also established companies, e.g. the Financial Times, find that the Internet is a door-opener to an
extension of their existing offerings; they now offer an interactive edition which allows for customers to
organise the newspapers content according to individual preferences and needs.
New Ways to Deliver Services

Technology also allows for existing services to become more accessible, convenient, and productive; this
includes basic customer service functions (e.g. bill-paying, questions, bank account record, tracking
orders), transactions (both in retail and B2B), and learning or information seeking.
New forms of providing services also include telephone-based service, interactive voice response
systems, Internet-based customer service, and mobile services
Online shopping and transactions have revolutionised many industries, such as the music and
book sector
Consumers can seek information, learn, and research online much more easily
Enabling Both Customers and Employees

Technology enables both customers and employees to be more effective in getting and providing services.
Self-service technologies allow for customers to serve themselves more effectively, for example via
online or mobile phone banking. CRM and sales support software aid employees in providing better
services to their customers, for instance by having quick access to information about both the companys
product/service offerings and about particular customers, allowing them to customise services according
to customers needs.
Extending the Global Reach of Services

Nowadays, it is much easier to reach out to customers around the globe; information, customer service,
and transactions can move across countries and continents. It also allows for employees of international
companies to stay in touch easily, share information, ask questions, and work on virtual teams across the
globe. So not only does technology facilitate the global reach, but also does it increase the effectiveness
of service businesses.
The Internet is a Service

Basically, all businesses operating on the Internet are essentially service providers - whether they give
information, perform basic customer service functions or facilitate transactions. This, however, does not
in any way change the fact that customers still want basic service including dependable outcomes, easy
access, responsive systems, flexibility, apologies and compensation whenever things go wrong.
The Paradoxes and Dark Side of Technology and Service

Customer concerns about privacy and confidentiality raise major issues for firms. Also, some the
technological readiness of some customers is simply not that advanced, which causes them to refuse to
make use of technology; the same holds for employees refusing to integrate technology into their work
lives. Many argue that personal relationships and face-to-face contact are decreasing: children spending
hours talking to friends on instant messengers, co-worker communication only via email even though the
other person is in the next office, etc. What is more, payback in technology investments is often uncertain
as it may take a long time for an investment to result in productivity or customer satisfaction gains.
Characteristics of Services Impacting on Marketing Activities

The distinctive characteristics discussed above lead to both challenges and advantages for managers of
services. It must be noted that the differences between goods and services are not black and white by any
means.
Intangibility
Given that services are performances rather than objects, they cannot be seen, felt, tasted or touch in the
same way as tangible goods. For instance, healthcare services are actions (e.g. surgery), performed by
providers and directed towards patients and families, that cannot be seen or touched by the patient.
What is more, such services might be difficult for the customer to grasp even mentally, i.e. even after a
surgery has been completed, the patient might still not fully comprehend the service performed.
Marketing implementations: Services cannot be patented easily, therefore easy for competitors to copy
Services cannot be readily displayed or easily communicated to customers, so
quality might be difficult to assess
Difficult to determine the costs of a unit of service
Price-quality relationship is complex
Heterogenity
No two services will be precisely alike given that they are performances, frequently produced by humans,
and people might differ in ther performance from day to day or even hour to hour. Also, no two
customers are precisely alike, each will have unique demands or experience that affect the service in a
unique way.
Marketing implementations: Ensuring consistent service quality is challenging

Cannot be fully controlled by the service supplier (Is the customer able to articulate
his or her needs? Is the employee able/willing to satisfy those needs?
Service manager cannot always ensure that service is being delivered with what was
promoted and planned
Inseparability
Unlike many products, most services are sold first and then produced and consumed simultaneously. This
also means that customers will frequently interact with each other during the service production and
consumption and might thus affect each others experiences. For instance, business travellers go to great
lengths to make sure they are not seated next to families with small children.
Marketing implementations: Mass production is difficult

Quality of service and customer satisfaction will be highly dependent on what
happens in real time, including actions of employees and the interactions between
employees and customers
Possibility to customise in real time
Not usually possible to gain economies of scale through centralisation
Perishability
This characteristic refers to the fact that services cannot be saved, stored, resold, or returned. Goods,
however, can be inventoried or resold another day (except for, for example, fresh food products) A
haircut, for instance, cannot be resold to another customer. Learning and entertainment, on the other
hand, make it possible for performances to be captured and replayed time and time again.
Marketing implementations: Issue of inability to hold stock, making demand planning and forecasting very
important
Creative planning for capacity utilisation (e.g. hotels with a peak season)
Goods Services Implications
Services impossible to inventory

Services cannot be easily patented
Tangible Intangible
Services cannot be readily displayed or communicated
Pricing is difficult
Service delivery and customer satisfaction depend on employee

and customer actions
Standardised Heterogeneous Service quality depends on many uncontrollable factors
There is no sure knowledge that the service delivered matches
what was planned and promoted
Customers participate in and affect the transaction

Production Inseparable, i.e. Customers affect each other
separate from simultaneous production Employees affect the service outcome
consumption and consumption Decentralisation may be essential
Mass production is difficult
Difficult to synchronise supply and demand with services

Non-perishable Perishable
Services cannot be returned or resold
Goods vs. services: a conceptual model of service quality and its implications for future research (Parasuraman, Zeithaml & Berry, 1985)
The Services Triangle

Services marketing is all about promises - promises
made and promises kept to customers. The services
triangle shows that there are three interlinked
groups working together in order to deliver these
promises.
The company or strategic business unit, or

the management
The customers
The employees/technology (either firms
employees/subcontractors or technology
e.g. an ATM)
Between these three groups, we can identify different types or marketing:
External marketing: efforts of company to set up customers expectations as to what is to be

delivered
Interactive marketing or real-time marketing: whether or not promises are kept or broken
Internal marketing: steps taken to enable the promises recruiting, training, motivating,
rewarding, and providing equipment
In order to provide the best service for the customer, these three groups should be aligned with what is
expected of the service providers and the employees.
Services Marketing Mix

The four Ps require some modifications when applied to services. Furthermore, there are usually three
other Ps added to the marketing mix when it comes to services: people, physical evidence, and process.
Product Place Promotion Price
Physical good features Channel type Promotion blend Flexibility

Quality level Exposure Salespeople Price level
Accessories Intermediaries Selection Terms
Packaging Outlet location Training Differentiation
Warranties Transportation Incentives Discounts
Product lines Storage Advertising Allowances
Branding Managing channels Media types
Types of ads
Sales promotion
Publicity
Digital media
People Physical Evidence Process
Employees Facility design Flow of activities

Recruiting Equipment Standardized
Training Signage Customised
Motivation Employee dress Number of steps
Rewards Other tangibles Simple
Teamwork Reports Complex
Customers Business cards Customer involvement
Education Statements
Training Guarantees
Web page design
Expanded marketing mix for services
People
All the human actors participating in the delivery of a service provide cues to the customer regarding the
nature of the service itself. Things like how they are dressed, their personal appearance, their attitudes
and behaviours - this all influences the customers perception of the service. Sometimes (e.g for
consulting, counselling, teaching, etc.) the provider is the service; in other cases, the contact person (e.g.
a telephone installer or baggage handler) plays a rather small role, but can play a focal role in service
encounters that shape customers experiences.
Physical Evidence
This includes all tangible representations of the service, such as brochures, letterhead, business cards, or
equipment. It might also, in some cases, include the facility where the service is offered (e.g. the retail
bank branch facility). It is important to know that, especially when customers have littel on which to judge
the actual quality of the service, they are very likely to rely on these few tangible cues.
Process
The actual delivery steps that the customers experience give them evidence on which to judge the
service. Complex services that require for the customer to follow an extensive series of actions to
complete the process, such as highly bureaucratised services, might not appear logical to customers.
Some processes might be highly customised (as opposed to following standard patterns) - none of these
characteristics is better or worse, it just gives customers other evidence to judge the service on. For
instance, easyJet (being a no-frills, low-cost airline follows standardised patterns whereas Singapore
Airlines, on the other hand, focus on a more customised approach. Both airlines are very successful
because their processes are in line with their vision and market position.
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The Servuction System Model

This model distinguishes between two parts
of the service delivery process. The invisible
part consists of systems, backroom
procedures, and the technology or
equipment needed (e.g. restaurant setting:
ordering ingredients, cooking facilities, etc.).
The visible part can be categorised into the
inanimate environment which is the physical
evidence that customers perceive (e.g.
lighting, place settings, staff uniforms, etc.)
and the service personnel (i.e. the people
the customers come into contact with). In
addition, this model suggests that other customers also influence the perception of the service.
Services Process Matrix

Based on the service process, services can be allocated to one of four distinct categories:
Degree Low Service Factory Service Shop

of Labour Transport Hospital
Intensity Hotel Car Service Centre
Airlines
High Mass Service Professional Service

Retailers Doctors
Wholesale Lawyers
University Accountants
Low High
Degree of Interaction and Customisation
Chapter Recap - Key Concepts

Heterogeneity Self-service technologies
Inseparability Service dominant logic
Intangibility Services marketing mix
People Services marketing triangle
Perishability Servuction system
Physical evidence Tangibility spectrum
Process
Chapter 2 - Consumer Behaviour in Services

Search, Experience and Credence Properties
We can distinguish between different categories of qualities on which the consumer evaluates a service:
Search qualities which are attributes that a consumer can determine before purchasing a product (high
for cars, clothing, furniture, amongst other categories, because their attributes can be determined and
evaluated beforehand).
Experience qualities which can be perceived only after purchase or during consumption (high for
vacations or restaurant meal, for instance, because their attributes cannot be assessed until they have
been purchased and
consumed).
Credence quality includes the

inability of a customer to
evaluate the service even after
purchase and consumption.
This includes insurance and
brake replacement amongst
other things.
The major takeaway of this is

that most goods fall into the
left of the continuum, whereas
most services fall into the right
of it. This makes services more difficult to be evaluated, especially prior to purchasing.
Goods Services
Search Attributes *** *
Experience Attributes * **
Credence Attributes * ***
Consumer Choice
Marketers are concerned with how customers make their
choices and the steps that lead to the purchase of a
particular service. This section discusses the steps
involved and the logical sequence they follow.
1. Need Recognition
In this stage, the consumer recognises the existence of a
need or a want. These needs can be specified according
to Maslows hierarchy and illustrated with an example:
Physiological needs such as food, water, and sleep. You are on holiday, sightseeing in a new place,
and you notice that you get hungry. Restaurants, cafs and bistros are more likely to become noticed
at this point.
Safety and security needs such as shelter, protection, and security. People will seek accommodation
in safe areas for their vacations, or travel with airlines that have good safety records.
Social needs such as affection, friendship, and acceptance. These are critical to all cultures but
particularly important in the East. However, consumers in all parts of the world use different types of
services to address social needs, for instance health and dance clubs, dating services, etc.
Ego needs for prestige, accomplishment and self-esteem. These needs are responsible for the growth
of education, training, and other services that increase the skills and prestige of customers; this
includes spa services, plastic surgery, teeth whitening and gym memberships.
Self-actualisation involves self-fulfilment and enriching experiences. This might include experiences
such as skydives, jungle safaris or bungee jumping - or even classes in oil painting or poetry writing.
2. Information Search
Once a need has been recognised, consumers obtain information about goods and services in order to
satisfy that need. In some cases, the information search might be extensive and formalised if the service
or good is important or expensive (e.g. Australian vacation package), or quite quick and relatively
automatic (e.g. a restaurant for a quick lunch). In this process, the following factors play an important
role:
Customer opinion, social media and online review sites - When buying a service, people tend to be
less influenced by promotional material, than they are by their friends/families/online reviews given
the fact that experience qualities can be conveyed more easily. Also, another reason for greater use
of customer opinion sources of information for services is that many types of promotional sources
are not as readily available for services, given that many service providers are local, independent
merchants with neither the knowledge nor the funds to advertise. A greater risk in selecting a little
known service provider triggers people te rely on their personal network and positive word-of-
mouth.
Perceived risk - Generally speaking, services have to be selected based on less pre-purchase
information than for goods; greater intangibility increases the perception of risk. Also, the non-
standardised nature, the fact that they do not come with warranties, the inability to return a
service, etc. make for consumers to perceive relatively more risk. This calls for the use of strategies to
reduce risk; companies can do that in many ways (e.g. free or reduced trial-period, tracking numbers
for customers to follow shipments, etc.)
3. Evaluation of Service Alternatives

Traditionally, the evoked set of alternatives - i.e. products that are considered acceptable alternatives -
has been smaller with services than with goods. For instance, retail stores present competing products in
close proximity to each other, whereas for services, a consumer mostly had to visit several establishments
(e.g. bank branches) in order to be able to compare their services. This can be related to the fact that each
provider usually offers one brand of services, and that in a certain geographic area, service providers
offering the same service are likely to be limited. Nowadays, however, the Internet makes it possible for
consumers to evaluate a large number of service providers within no time, e.g. on comparison websites
for airlines, hotels or insurances. For non-professional services (e.g. dry cleaning, cleaning the house, etc.),
10
some consumers might even consider doing it themselves, thus the evoked set also includes self-provision
of the service.
4. Service Purchase
Having considered the alternatives available, customers make a purchase decision to buy a certain
service. Unlike goods, which are completely produced prior to purchasing and thus can be tested by
consumers, services present much uncertainty upon purchasing. This holds for gym memberships,
restaurant meals or live entertainment as much as it does for other packaged holidays and university
education amongst many other things. In order to reduce risk in the final purchase decision of the
customers, many service providers offer free or deeply discounted initial trials to their customers.
5. Consumer Experience
Given the high uncertainty of the quality of the service, much evaluation is done during the customer
experience and the decision to repurchase later - the experience is the marketing. It must be noted that
not only fun, exciting or memorable services are considered an experience, but that all services have
experiences, even if they are less exciting or spectacular.
Services as Processes - Services typically include a sequence of steps. In medical care, for instance,
these steps might include (a) a doctor interacting with their patient, (b) the patient following the
doctors order to take medications and (c) going to a hospital for tests. The combination of all these
steps shapes the customer experience and influences the overall impression which can be good, bad
or indifferent.
Service Provision as Drama - In some cases, the physical setting of the service can be compared to a
theatrical performance, including scenery, props and other physical cues to create desired
impressions - the service personnel are the actors, service customers are the audience, the physical
evidence is the setting, and the process of delivering the service is the performance. These
metaphors are often used to improve the service performance.
Service Roles - These guide and direct behaviour in a given setting just like in a dramatic
performance, e.g. the role of a hostess in a restaurant is to acknowledge and greet customers and
lead them to a table. The success of any service performance depends (in part) on how well the role
is performed by the service actor and to what extent it lives up to the expectations of the customer.
Service Scripts - This is the logical sequence of events expected by the customer. For instance, for a
dental check-up, a well-defined script exists: the consumer expects to enter the reception area, greet
the receptionist, sit in the waiting room, follow the nurse to a separate room, recline in a chair while
the teeth are examined by the dentist. When the service conforms to this script, the customer has a
feeling of confirmed expectations, while deviations from it lead to confusion and dissatisfaction.
Compatibility of Service Customers - For some services, the presence of other customers is crucial.
For instance, at dances, bars, clubs and spectator sports - if no one else shows up, people will not get
to socialise with other which might have been one of their primary expectations. Also, the way in
which other customers behave with many services - e.g. airlines, education, clubs, etc. - also has
great impact on a customers experience. Different customers can be incompatible for many reasons,
such as differences in beliefs, values, experiences, age, health, and many more. Service marketers
must anticipate and deal with heterogeneous customers or bring homogeneous customers together.
Customer Co-Production - Counselling, personal training or educational services have little value
without the full participation of the client; in those cases, the client co-produces the service.
Customers need to understand and be trained in ways that are similar to the training of service
employees so that they have the ability and role clarity to co-produce effectively.
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Emotion and Mood - Given that services are experiences, moods and emotions are critical factors
shaping the perceived effectiveness of service encounters. For instance, if a customer is in a bad
mood upon entering a service establishment, they might perceive the service to be more negative
than if they were in a very positive mood. It comes without saying that the mood of the service
provider and other customers present in the establishment also shapes the perception of a service.
6. Post-Experience Evaluation
After the service experience, customers will form an evaluation that determines whether they will return.
Post-purchase evaluations are typically most important in predicting if a customer will or will not return.
Word-of-Mouth (WOM) Communication - Post-experience evaluations will significantly impact what

consumers tell others about the service. Given the strong influence of the personal opinions of other
when it comes to choosing a certain service, controlling WOM is very important. This can obviously
be done by making sure to create memorable and positive service experiences. When a service is
perceived to be unsatisfactory, it is critical to have an effective service recovery strategy (see Chapter
15).
Attribution of Dissatisfaction - Attribution of a customer's dissatisfaction may be to a number of
different sources, e.g. the producers, the retailers, or themselves. Given that consumers participate
in the service, they might attribute some of the responsibility to themselves. For instance, when a
customer purchases a haircut, he or she might, if disappointed blame the hairstylist (for lack of skills)
or him or herself for choosing the wrong stylist or for not communicating his or her own need clearly.
Positive or Negative Biases - Customers tend to remember negative events more than positive ones
and are more influenced by negative information. Interestingly, recent research suggests that
consumers tend to infer positive qualities for the firm and its employees if they have had a good
experience with one service employee. On the other hand, if they have had a negative experience
with one employee, they are less likely to draw negative inferences about all employees or the entire
firm. This is called the positivity bias.
Brand Loyalty - Customers commitment to a particular brand in influenced by a variety of factors,
such as the switching cost, the availability of substitutes, social ties to the company and the
satisfaction in the past to only name a few. The recognition of having to cultivate a relationship with
the seller for the latter to gain knowledge of the customers tastes and preferences might also be a
reason not to switch.
External Sources of Information

In addition to dependet sources of information (ads, salespeople in a store), customers also consult
independent sources. Consulting these sources takes away some of the perceived risk and customers feel
like they make the right choice.
Independent Source Dependent Source
Personal Sources Friends, family, other Salespeople, service provider

consumers, independant
consultants
Impersonal Sources Consumer organisations, Advertising, sales promotion,

government agencies public relations
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Understanding Differences Among Consumers

Global Differences: The Role of Culture
Cultural differences are likely to affect the way in which customers evaluate and use services - both when
taking services to another country (internationalising), but also within countries to deal with multicultural
societies.
Values and attitudes form the way customers behave, so service marketers have to adapt their
services accordingly.
Manners and customs represent a cultures view of appropriate behaviour, so for instance,
McDonalds requires Polish employees to always smile when they interact with customers which
might seem strange to members of different cultures.
Aesthetics refer to cultural ideas about what is beautiful, which reflects on clothing, car design, the
interior design of a restaurant or caf, etc. Therefore, care must be taken in designing service
environments to ensure the target market is comfortable with the aesthetic qualities presented.
Group Decision-Making
It is important to note that group buying decisions are likely to differ from individual ones due to the
collective decision-making process, mixed motives or goals, role in the purchasing process, and group
culture.
Households
When a family makes a service purchase decision, it has a collective style of decision-making that might
be different to what any of the individuals would do if they were to make an independent choice. In group
purchasing decisions, the needs and goals of the various members must be balanced so that the service
(e.g. a vacation) delivers optimal satisfaction for as many members as possible.
Organisations
Given the amount of money organisations spend on IT services, call centres, travel management, payroll
services et cetera, making the right decision as to which service to purchase is critical. For routine and
even complex purchases, organisations often rely on a small number of buyers, many of whom specialise
in purchasing. Among the characteristics distinguishing organisation from individual decision-making are
current business climate, technology trends, organisational strategy and culture, and the group forces
influencing purchasing decisions. Organisational purchasers also rely on references of other organisational
customers in making their service purchase decisions. Therefore, many businesses provide customer
stories, cases and testimonials on their websites to reduce the risk of these complex decisions.
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Attribution of dissatisfaction Purchase
Culture Perceived Risk
Customer co-production Service roles
Evaluation of alternatives Service script
Information search Service as theatre
Moods and emotions Search vs. experience vs. credence qualities
Need recognition Word of mouth communication
Chapter 3 - Customer Expectations of Service

Customer expectations are beliefs about service delivery that serve as reference points when judging a
performance. Being wrong about what the customer expects can mean losing their business when
another provider hits the target exactly. Or it could mean spending time, money and resources on things
customers do not care about. In a worst-case scenario, it can mean not surviving in a fiercely competitive
market.
Meanings and Types of Service Expectations

Expected Service: Levels of Expectations
Customers hold different types of expectations about service. The highest level can be termed desired
service (i.e. the level of service the customer hopes to receive, a.k.a. the wished for level of
performance). For example, customers using an online travel-planning site such as Expedia would want
them to find a flight when they want to travel and a hotel close to the centre at a price they can afford.
However, other factors like high demand during holidays might constrain the availability of airline seats
and hotels. In those situations, customers hope to achieve the desired service, though accepting that this
might not be possible, they might take a level of acceptable service as a reference point, i.e. the level of
service the customer will accept. It represent the minimum tolerable expectation.
Typically, customers hold similar desired expectations across categories of service, though these
reference points are not as broad as whole industries. For restaurants, for example, these subcategories
might include expensive restaurants, fast-food restaurants, and airport restaurants. That being said, a
customers expectations might also vary for firms within that category, e.g. they might have different
expectations for Burger King than they do for McDonalds.
The Zone of Tolerance

The extent to which customers are willing to accept a certain variation is called the Zone
of Tolerance. If the service quality falls below the adequate, the minimum level which is
acceptable, customers will be dissatisfied. If it exceeds the zone of tolerance at the top
end, customers will be very pleased and might even be surprised. This zone might be
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described as the range within which customers do not particularly notice service performance; when it
falls out of that range, the service quality gets noticed - either in a positive or a negative way.
Different Customers Possess Different Zones of Tolerance - Some customers zones of tolerance are
narrower than those of others. For instance, very busy customers who are always pressed for time
desire short waiting times in general. The zone of tolerance of an individual customer increases or
decreases depending on a number of factors, e.g. price; when the price increases, they tend to be
less tolerant of poor service.
Zones of Tolerance Vary for Service Dimensions - The more important the factor, the narrower the
zone of tolerance is likely to be.
Factors that Influence Customer Expectations of Service

Sources of Desired Service Expectations
Personal Needs - These states or conditions, essential to the physical or psychological well-being of
the customer, can fall into many different categories, e.g. physical, social, psychological and
functional.
Lasting Service Intensifiers - These are individual stable factors that lead the customer to an elevated
sensitivity to service. For instance, a niece planning the 90th birthday party for her favourite aunt, so
her needs and demands are driven by the whole family. This intensifies important factors, as they
must meet a groups expectations each of them with different expectations. These are called
derived service expectations. A second category is personal service philosophy, which is the
customers underlying generic attitude about the meaning of a service. To illustrate, someone who
has been working as a waiter in a restaurant for a long time might have certain standards for
restaurant service.
Sources of Adequate Service Expectations

Temporary Service Intensifiers - These are short-term, individual factors that make a customer more
aware of the need for a service. This could include in emergency situations or a the customer service
centres need to have well-working and clear telephone lines to be able to take customers calls.
Perceived Service Alternatives - These are other providers from whom the customer can obtain
services; if they have multiple service providers to chose from, or if they can provide the service for
themselves, their bottom-line adequate service is higher than for those customers who believe it is
not possible to get better service elsewhere. To put it in other words, the customers perception that
service alternatives exist raises the level of adequate service and narrows the zone of tolerance.
Customers Self-Perceived Role - This is defined as customer perceptions of the degree to which
customers exert an influence on the level of the service they receive, i.e. how well they think they are
performing their own roles in service delivery. For instance, a customer who regularly gets their car
serviced might be less tolerant and blame the manufacturer when the experience a problem than
someone who does not. In other words, customers tolerance zones seem to expand whenever they
feel they are not carrying out their role appropriately.
Situational Factors - When customers recognise that situational factors, which are beyond the
companys control, influence the service quality, they are likely to accept lower levels of adequate
service. This could be applied to an insurance company dealing with many customers after a
catastrophe such a floods or storms.
Predicted Service - This is the level of service customers think they are going to get, i.e. predictions of
customers about what is likely to happen. For instance, travellers may expect poorer service from a
no-frills airline such as Ryanair in comparison to a full-cost airline like KLM. It is an estimate of the
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service that a customer will receive in an individual transaction rather than the overall relationship
with a service provider.
Sources of Both Desired and Predicted Service Expectations

Explicit Service Promises - Personal (e.g. by members of staff) and non-personal (e.g. from
advertising) statements about the service made by the organisation to customers are explicit service
promises. These influences are completely in the control of the service provider and have a direct
influence on desired service expectations.
Implicit Service Promises - These are service=reated cues that are infered by the customer and taken
as a reference point as to what the servie should and be like. In general, the higher the price, the
more a customer will expect from the service.
Online and Offline Word-of-Mouth - Being an important factor in shaping customers expectations,
these personal and sometime non-pesonal statements made by parties other than the organisation
convey to the customer what the service will be like. For customers, it is an importatnt source to
which they attached high value as it is perceived to be unbiased. For services in general, consumer
rely on WOM because of the fact that it is difficutlt to evaluate a service before buying and
consuming it.
Past experience - A customers previous exposure to service that is relevant to the focal service is
another force in shaping predictions and desires. When staying at a hotel, customers might compare
this stay to a previous stay in either the same hotel or a different one. .
Issues Involving the Management of Customer Service

What Does a Services Marketer Do If Customers Expectations Are Unrealistic?
There is evidence that customers main expectations are quite simple and basic; they expect service
companies to do what they are supposed to do - fundamentals, not fanciness. They want their planes to
take off on time, hotel rooms to be clean and food to be hot. Many service customers, however, are
disappointed and let down by companies inability to meet these basic service expectations. When asking
customers about their expectations, this does not so much raise the levels of the expectations but rather
increases the belief that the company will do something with the information. Companies should
acknowledge to consumers that they have received the information and try to act on it. If they are unable
to deliver to these expressed expectations, they should let the customers know the reasons why this
alternative service is not being provided and explain efforts planned to address them.
Sometimes under-promising increases the likelihood of meeting or exceeding customers expectations,

thereby narrowing the gap between expectations and perceptions. This, however, may also reduce the
appeal of the offer.
How Does a Company Exceed Customer Service Expectations?

Should a service provider try simply to meet customer expectations or to exceed them? Firstly, it must be
noted that exceeding customers expectations of the basics (e.g. meeting deadlines, delivering the core
service, having the reserved room available, etc.) is virtually impossible. However, customer expectations
can be exceeded, for instance, by developing a CRM system. Ritz-Carlton Hotels do that by storing client
data about their likes/dislikes, recency/frequency of stays, previous difficulties or personal interest
amongst other things to deliver service that might exceed customers expectations.
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Another approach is to deliberately under-promise and, consequently, over-deliver. If every service

promise is less that what will actually happen, customers can be delighted easily. There are two problems
that should be evaluated before deciding to under-promise:
Firstly, customers interacting with the company on a regular basis might notice the under-promising
and adjust their expectations accordingly.
Secondly, under-promising in a sales situation can reduce the competitive appeal of an offering.
When competitive pressures are high, presenting a cohesive and honest portrayal of the service and
ensuring the companys promises are consistent with the deliverable service might be a better
approach.
Do Customer Service Expectations Continually Escalate?

Customer service expectations are dynamic. Adequate service expectations rise with service delivery and
promises, which is why companies need to monitor them; the more turbulent the industry, the more
often this should be done. Desired service expectations are much more stable given they are driven by
long-lasting factors, such as personal needs and lasting service intensifiers.
How Does a Service Company Stay Ahead of Competition in Meeting Customer

Expectations?
The adequate service level is considered the minimum performance level expected by the customer after
consideration of previously mentioned personal and external factors. Companies who cannot live up to
this clearly have a competitive disadvantage, leading to customers being willing to take their business
elsewhere. If a company want to use their service quality for competitive advantage, they must perform
above the adequate service level. This, however, is likely to have an impact on what customers take as a
reference point which will set their minimum level of service they tolerate higher. To develop a true
customer loyalty, companies must not only consistently exceed the adequate service level but also reach
the desired service level - ideally up to the point at which a customers loyalty might make them resistant
to other competitive options.
Customer expectations Personal needs

Exceeding customer expectations Self-perceived service role
Explicit and implicit service promises Situational factors
Past experience Temporary and lasting service intensifiers
Perceived service alternatives Online and offline word-of-mouth
Predicted service Zone of tolerance
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Chapter 4 - Customer Perceptions of Service

Customer Perceptions
How does my customer perceive the service they have received, how do they assess whether they have
experienced quality service, and how can they be satisfied with the overall experience?
Satisfaction Versus Service Quality

Sometimes the terms satisfaction and quality are used interchangeably, however they mean two different
things. Although they have certain things in common, satisfaction is viewed as a broader concept,
whereas service quality focuses on dimensions of service. Based on the view, perceived service quality is
a component of customer satisfaction. Service quality is the focus of an evaluation reflecting the
customers perceptions of reliability, responsiveness, assurance, empathy and tangibles period.
Satisfaction, on the other hand, is more influenced by perceptions of service quality, product quality and
price as what the situation of factors and personal factors. For instance, customers judge the service
quality of the health club on attributes such as whether equipment is available and working, how
responsive the staff are to customer needs, the skills of the trainers and whether the facility is well
maintained. Customer satisfaction, on the other hand, is a broader concept there will certainly be
influenced by perceptions of service quality, but it will also include perceptions of product quality (e.g.
quality of products sold in the bar/restaurant), price membership, personal factors such as consumers
emotional state, and uncontrollable situational factors such as experiences driving to and from the health
club.
Transaction versus Cumulative Perceptions

It must be noted that consumers will have perceptions of single, transaction-specific encounters as well
as overall perceptions of a company based on all their experiences. For instance, a bank customer will
have a perception of how they were treated in a particular encounter with a bank employee and overall
perceptions of the bank, which might include several in-person encounters at the branch, online banking
experiences, and ATM using experiences.
Customer Satisfaction
What is Customer Satisfaction?
Satisfaction is the consumers fulfilment response. It is a judgement that the product and service feature,
or the product or service itself, provides a pleasurable level of consumption-related fulfilment. In other
words, it is the customers evaluation of a product or service in terms of whether or not it has met the
customers expectations. Failure to meet them results in dissatisfaction.
What Determines Customer Satisfaction?

Product and Service Features - This is a significant base upon which a consumers satisfaction in
influenced. For a hotel resort, important features could be the pool area, access to golf facilities,
restaurants, room comfort and privacy, etc. Focus groups and other types of research can help a firm
determine what the important features and attributes are.
Consumer Emotions - These emotions can be stable, pre-existing emotions (e.g. mood state or life
satisfaction); or specific/current emotional state. They can also be triggered during the consumption
of the service, e.g. emotional responses both good and bad to a tour guide.
Attributions for Service Success or Failure - Attributions, i.e. the perceived causes of events, also
influence perceptions of satisfaction. When, from the customers point of view, a service has a
surprising outcome (either much better or much worse than expected), consumers tend to look for
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reasons. For instance, if a customer of a weight-loss organisation fails to lose weight as hoped for,
they will likely search for the reasons was it the customers fault or the fault of the organisation?
Perceptions of Equity and Fairness - Have I been treated fairly? Did other customers get better
treatment, better prices or better quality service? These questions also determine customer
satisfaction.
Other Consumers, Family Members and Coworkers - Ones own beliefs about satisfaction are often
influenced by other people. In the case of a family holiday, for instance, the satisfaction of each
member of the group is influenced by reactions and expressions of other members of the family.
Later it will be shaped by telling the stories of the holiday
National Consumer Satisfaction Indices

Many countries have a national customer satisfaction index, aiming to measure the quality of economic
output as opposed to the quantity of the output. These indices measure customer satisfaction over a wide
range of different industries and organisations, including public sector organisation.
Ensuring High Customer Satisfaction

1. Be Customer Centric - Looking at each situation from a customers point of view
2. Have Superior Staff - Staff should know more than the basics about the product or service
3. Delight the Customers - Over-delivering either through excellent customer service or exceeding
post-purchase expectations
4. Keep your promises - Well-articulated promises that set clear expectations are the key to
customer satisfaction
5. Sort out Service Recovery - Services and products sometimes fail dealing with this promptly and
effectively is paramount to maintaining a brands reputations
6. Build a relationship - The one-stop-shop concept, i.e. where the left hand of the company knows
what the right hand is doing, is essential
Service Quality
Service Quality Dimensions
Reliability: Delivering on Promises - In the broadest sense, this means that the company delivers on
its promises about delivery, service provision, problem resolution and pricing.
Responsiveness: Being Willing to Help - This is the willingness to help customers and provide prompt
service; it emphasises attentiveness and promptness in dealing with customer requests, questions,
complaints and problems. It also captures the notion of flexibility.
Assurance: Inspiring Trust and Confidence - Being particularly important for high risk services or those
which customers do not feel like they can evaluate properly, it measures the employees knowledge
and courtesy. This can be embodied in the person linking the customer to the provider (e.g. insurance
agents) or in the organisation itself (e.g. ING Direct, Its Your Money Were Saving)
Empathy: Treating Customers as Individuals - This is defined as the caring, individualised attention
the firm provides its customers; the essence of it is personalised or customised service. Customers
want to feel understood by and important to the firm.
Tangibles: Representing the Service Physically and Virtually - Tangibles provide physical and virtual
representations or images of the service which customers (particularly new customers) will use to
evaluate the quality. These include appearance of physical facilities, equipment, personnel, websites,
mobile phone apps and communication materials.
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E-Service Quality
In a study, e-SQ has been defined as the extent to which a website facilitates efficient and effective
shopping, purchasing and delivery. Through focus groups and two phases of empirical data collection and
analysis, seven dimensions which are critical for core service evaluation (4) and service recovery (3) have
been identified:
Service evaluation:
Efficiency: the ability of customers to access the website, find the desired product and information
associated with it and check out with minimal effort
Fulfilment: the accuracy of service promises, having products in stock, and delivering the products in
the promised time.
Reliability: the technical functioning of the site, particularly the extent to which is available and
functioning properly.
Privacy: the assurance that shopping behaviour data are not shared and that credit information is
secure.
Service recovery:
Responsiveness: the ability of e-tailers to provide appropriate information to customers when a

problem occurs, to have mechanisms for handling returns, and to provide online guarantees.
Compensation: the degree to which customers are to receive money back and I reimbursed for
shipping and handling costs.
Contact: the availability of live customer service agents online or by telephone.
Perceived Service Quality (PSQ)

The perceived service quality of a service is the evaluation of a customer about the overall performance
of the service. Definitions inclue:
The customers assessment of the overall excellence of the service (Zeitham)

The consumers overall impression of the relative inferiority/superiority of the organisation and its
services (Bitner)
There are two components: consumer expectations and perceptions of performance. While satisfaction
refers to the customer, PSQ focuses on the service. Also, PSQ is focused on the get component (get
quality), whereas satisfaction also takes the give part (price) into account.
PSQ = Perceptions Expectations
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Service Customer
Expect
PS Quality
"get"
Perceive
Value Satisfaction
Price
"give"
Measuring PSQ
To measure PSQ, there are several models:
SERVQUAL
Reliability
Assurance = Understanding customer, Access
Tangibles
Empathy = Communication, Credibility, Security, Competence, Courtesy
Responsiveness
Reliability: ability to perform the promised service dependably and accurately

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 knowledge and courtesy and their ability to inspire trust and confidence
Employees who instil 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: appearance of physical facilities, equipment, personnel and written materials

Modern equipment
Visually appealing facilities
Employees who have a neat, professional appearance
Visually appealing materials associated with the service
Empathy: caring, individualised attention given to customers

Giving customers individual attention
Employees who deal with customers in a caring fashion
Having the customers best interest at heart
Employees who understand the needs of their customers
Convenient business hours
Responsiveness: willingness to help customers and provide prompt service

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Keeping customers informed as to when services will be performed

Prompt service to customers
Willingness to help customers
Readiness to respond to customers requests
The aim is to make expectations and experiences measurable. It must be noted that the SERVQUAL method is
subjective. It is often used when analysing questionnaires that have been filled out by customers or employees.
Another downside of the presented model is the difficulty to accurately capture service expectations. Given
that these questionnaires are mostly filled out after the service has been experienced, the customer might
already have altered their expectations. Also, it is criticised that expectation and perception are related;
therefore, when asked for their perception, people already take their expectations into account.
ServPerf
The most crucial difference to SERVQUAL is that ServPerf only measure what customers have de facto
experienced; the expectations are left out. ServPerf uses the same five dimensions, however (given that
expectations are not measured) there is no need to measure the different scores as one would do if the
SERVQUAL was employed.
SERVQUAL vs. ServPerf Validity

Convergent validity (correlation): the extent to which scale items assumed to represent a construct
do, in fact, converge on the same construct;
Do the questions/values measure what they have to measure?
Discriminant validity (Cronbachs Alpha): the extent to which SERVQUAL has five distinct dimensions;
This describes the extent to which the five distinct dimensions actually can be seen as five unrelated
dimensions (Is reliability not the same as responsiveness?)
Predictive/concurrent validity (r2): extent to which SERVQUAL scores are associated as hypothesised with
other conceptually related measures;
The extent to which differences between two groups have been shown (e.g. if you expected
differences between men and women, this has to be confirmed by your research)
Satisfiers and Dissatisfiers

The presence and absence of satisfiers and dissatisfiers can alter customer satisfaction:
Satisfiers Dissatisfiers
If these are present, it is surprising for the If, to a customer, it seems normal that certain
customer. Their absence is normal. A customers element is part of the service, its absence will lead
perception can go from neutral to positive by to dissatisfaction. A customers perception is likely
providing these satisfiers. to go from neutral to negative.
e.g. free coffee at a lecture e.g. enough seats for all students
Service Encounters: The Building Blocks For Customer Perceptions

Service encounters - a.k.a. Moments of truth or real-time marketing - are where promises are kept or
broken, namely during the interaction of the customer with the firm. It is the most vivid impression of the
service and customers build their perceptions upon these service encounters. In these encounters, the
customer receives a snapshot of the firms service quality, and each encounter contributes to an overall
impression and willingness to do business with them again.
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Importance of Encounters
Early events in the encounter cascade are likely to be especially important, however any encounter can
potentially be critical in determining customer satisfaction and loyalty. Even when a customer has had
multiple interactions with the firm, each individual encounter is important in creating an impression. In
addition, there are momentous encounters that can ruin the rest and drive the customer away no matter
how many of what type of encounters have occurred in the past, e.g. failure to deliver an essential piece
of equipment before a critical deadline.
Types of Service Encounters

A service encounter occurs every time a customer interacts with the service organisation. There are three
general types of encounters:
Remote Encounters - These occur without any human contact, such as interacting with a bank
through their ATM system, with a car park management through an automated ticketing machine,
with a retailer through their website, etc. Each of these encounters represents an opportunity for the
firm to reinforce or establish quality perceptions in the customer. Here, tangible evidence of the
service become the primary bases for judging quality.
Telephone Encounters - The judgment of telephone encounters is different from remote encounters;
tone of voice, employee knowledge and effectiveness in handling customer issues become important
criteria for judging quality in these encounters.
Face-to-face Encounters - At a Disney theme park, for instance, these encounters occur between
customers and ticket-takes, actors, ride personnel, food and beverage servers, amongst others. Here,
both nonverbal and verbal behaviours are very important determinants of quality, as are tangible
cues such as employee dress.
Sources of Pleasure and Displeasure in Service Encounters

To determine the sources of customers favourable and unfavourable impressions, researchers use the
critical incident technique to get customers opinions about satisfying and dissatisfying service
encounters. Customers are told, Think of a time when, as a customer, you had particularly satisfying or
dissatisfying interaction with XXX, and are asked a set of questions about when the incident happened,
which circumstances led up to the situation, what the employee or firm member said or did, etc. There
are four common themes of service encounter stories that we can identify:
Recovery: Employee Response to Service Delivery Failures - incidents where there has been a failure
of the service delivery system and an employee is required to respond in some way to consumer
complaints and disappointment
Adaptability: Employee Response to Customer Needs and Requests - how adaptable is the service
delivery system to when the customer has special needs or requests; in those cases, service
encounter qualities are judged based on the flexibility of the employees and the system
Spontaneity: Unprompted and Unsolicited Employee Actions - satisfying incidents in this group
represent very pleasant surprises for the customer (special attention, receiving some nice but not
requested, etc.); dissatisfying events include unacceptable employee behaviours (e.g. rudeness,
discriminations, ignoring the customer, etc.)
Coping: Employee Response to Problem Customers - how does staff deal with uncooperative
customers, that is customers who are unwilling to cooperate with the service provider, other
customers or industry regulations/laws?
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The Evidence of Service

Given the intangible nature of services, customers are searching for evidence of service in every
interaction they have with an organisation. There are three major categories of evidence as experienced
by the customer: people, process and physical evidence. All of these evidence elements, or a subset of
them, are present in every service encounter a customer has with a service firm.
For instance, when at a dentists practice, the first encounter is usually with the receptionist in the waiting
area. The quality of the service will be judged based on how the appointment registration process works
(Is there a queue? How long is the wait? Is the registration process accurate?), the actions and attitudes
of the people (Is the receptionist courteous, helpful, knowledgeable? Does he or she treat the patient as
an individual?) and the physical evidence of the service (Is the waiting area clean and comfortable? Is the
signage clear?). These types of evidence may be differentially important depending on the type of service
encounter - remote, telephone, face-to-face.

Assurance Remote encounters
Critical incident technique (CIT) Responsiveness
E-service Quality Satisfaction
Empathy Service encounter
Equity and fairness Service encounter cascade
Moment of truth Service quality
National customer satisfaction indices Service recovery
Nordic model of service quality Service recovery
Reliability Tangibles
Chapter 5 - The Gaps Model of Service Quality

Effective services marketing is a complex undertaking that involves many different strategies, skills and
tasks. Viewing services in a structured integrated way called the Gaps Model of Service Quality. It
positions the key concepts, strategies and decisions in services marketing.
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The Customer Gap (Gap 5)

The Customer Gap is the difference between the customer expectations and perceptions. Expectations
are standards or reference points that customers bring to the service experience; perceptions are
subjective assessments of actual service experiences. It is critical to close this gap in order to deliver
quality service; it forms the basis for the gaps model. In a best-case scenario, expectations and
perceptions would be identical and customers would perceive that they have received what they thought
they would and should. The key to closing the customer gap (gap 5) is to make sure the provider gaps
(gaps 1 - 4) are closed and are kept closed.
The Provider Gaps (Gap 1 - 4)

To close the Customer Gap, the Provider Gaps also need to be closed. These gaps will be described in the
following sections.
Provider Gap 1: Not Knowing What Customers Expect

Gap 1 describes the difference between customer expectations of service and a companys understanding
of those expectations. A primary reason for this is a lack of accurate understanding of what the
customers expectations really are. This might be because employees/managers do not interact with the
customers themselves, because they are unwilling to ask about expectations or because they are
unprepared to address them - this might lead to a chain of bad decisions and bad resource allocations.
The three main factors leading to a wider gap 1 are:
Inadequate Marketing Research Orientation - Managers and employees do not gather accurate
information about customers expectations through marketing research (e.g. customer interviews,
survey research, complaint systems and customer panels).
Inadequate Use of Marketing Research - In order to close this gap, front-line employees knowing a
lot about the customers should regularly pass this information onto management.
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Insufficient Relationship Focus - When an organisation has a strong relationship focus with their
existing clients, gap 1 is less likely to occur. Relationship marketing has always been a practice within
large firms with big business-to-business accounts, however smaller firms serving the end customer
only often view this as superfluous and focus too much on attracting new clients.
Provider Gap 2: Not Selecting The Right Service Quality Designs and Standards
Another key factor for good service is the presence of service designs and performance standards that
reflect those accurate perceptions. A problem that arises in many firms in the translation of customer
expectations into service quality specifications which employees can understand and execute. This leads
to gap 2, the difference between company understanding of customer expectations and development of
customer-driven service designs and standards. The following factors widen gap 2:
Poor Service Design - Since services are intangible and difficult to describe or communicate, this is a
difficulty that becomes especially evident when new services are developed. Managers, behind-the-
scenes support staff and front-line employees should be involved in the design process.
Absence of Customer-Driven Standards - The quality of customer-contact personnel is influenced by
the standards against which the employees are evaluated and compensated. When service standards
are absent, the customers perception of service quality is likely to suffer.
Inappropriate Physical Evidence and Servicescape - Physical evidence includes everything from
business cards to reports, Internet presence, equipment, etc.; the servicescape is the physical setting
where the service is delivered (especially important for hotels, a theme park, a health club, amongst
others). Both physical evidence and the servicescape can be critical in terms of communicating about
the service and making the entire experience pleasurable.
Provider Gap 3: Not Delivering to Service Designs and Standards

The service company must have systems, processes and people in place to ensure that service delivery
actually matches (or even exceeds) the designs and standards in place. Gap 3 is the discrepancy between
development of customer-driven service standards and actual service performance by the companys
employees. The standards that have been put in place must be backed by appropriate resources (people,
systems, and technology) and must be enforced to be effective. The following factors have an influence
on gap 3:
Deficiencies in Human Resource Policies - When employees do not know/clearly understand the
roles they are to play in the company, when employees are poorly selected, when they are
inappropriately compensated or not empowered - these factors all relate to the companys human
resource function.
Customers Who Do Not Fulfil Roles - Even if employees do their job 100% accurately, the
uncontrollable customer can have a positive or negative impact on the service delivery. Service
quality is jeopardised if the customer fails to provide all the information necessary or if they neglect
to follow instructions.
Problems With Service Intermediaries - Control over the service encounter by the company is
crucial, but rarely fully possible; that makes it difficult for companies working with intermediaries like
retailers, franchisees or agents. As a matter of fact, it is in the execution of the intermediary that the
customer evaluates the service quality.
Failure to Match Supply and Demand - Service firms frequently face the problem of over-demand or
under-demand. As services are impossible to be inventoried, service companies frequently lose sales
when capacities are inadequate to handle customer needs.
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Inadequate Service Recovery - Even the best companies sometimes fail. It is critical to understand
the importance of service recovery, that is why people complain, what they expect when they
complain, and how to develop effective service recovery strategies for dealing with service failures.
This might involve a detailed complaint-handling procedure and an empowerment of employees to
react on the spot to fix the failure.
Gap 4: Not Matching Performance to Promises

Gap 4 illustrates the difference between service delivery and the service providers external
communications. Customers expectations are likely to be risen by promises made by the companys sales
force, media advertising and other communications, leading to a shift in standards against which the
customer evaluates the service. The following key factors lead to provider gap 4:
Lack of Integrated Marketing Communications and Inadequate Horizontal Communications -

Because service advertising promises what people do, and because what people do cannot be
controlled like machines producing a product, this type of marketing involves employees from several
departments. This interactive form of marketing must be coordinated by making sure employees do
not make exaggerated promises, which could lead to poor service quality perceptions.
Ineffective Management of Customer Expectations - Elevating expectations through exaggerated
claims, failing to capitalise on opportunities to educate customers to use services appropriately and
neglecting to manage customer expectations of what will be delivered.
Chapter 6 - Listening to Customers

Many companies make the mistake of thinking they know what customers should want and deliver that,
as opposed to finding out what they really want. By doing so, they deliver services that do not match
customer expectations and important features are left out.
Customer Databases and Big Data

Thanks to the improvements in computerisation and database management, companies now hold huge
amounts of data on each of their customers. For instance, an airline with a frequent flyer programme will
have details on the customer's frequency of flying, dates and times they fly, value of annual flights,
seating and check-in preferences, price sensitivity and much more. Database management has a major
strength in tracking down reactions to promotional offerings and making one-on-one comparisons
between two marketing options. Customers sensitivity to such offerings can be stored on the database,
and can project and assess their behaviour in a true-life marketing environment.
Big data is a general term for any collection of data sets that become so large that it is difficult to process
using traditional data processing applications. Data mining software is required to select, explore and
model this big data in order to uncover previously relationships and patterns of behaviour. It can
determine possible trends and patterns by using statistics and probabilities to map out relationships and
to model/predict customer behaviour.
Using Marketing Research to Understand Customer Expectations

Marketing research is the key to understanding customer perceptions and expectations - even though
behavioural information in the form of customer databases might be available.
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Research Objectives for Services

Defining the problem and research objectives it the most critical step in the research process. It is
essential to devote time and resources to define the problem thoroughly and accurate. For services, the
research objectives are similar to those for physical products: they aim to assess customer requirements,
dissatisfaction and demand. Services research, however, incorporates additional elements that require
specific attention, such as continually monitoring and tracking service performance by capturing human
performance - at the level of individual employee, team, branch, organisation as a whole and
competition.
Elements in an Effective Services Marketing Research Programme

Services Marketing Research includes several types of information source and research studies.
Complaint Solicitation (Identifying and Attending to Dissatisfied Customers) - Companies should take
complaints seriously and using these to improve their service and the performance of their service
employees.
Critical Incident Studies (Identifying Customer Requirements as Input for Quantitative Studies) - This
technique can be used to let customers tell satisfying and dissatisfying service encounters they have
experienced. The data collected are usually vivid and reflect the way customers think. Providing
concrete information about the way the company and their employees behave and react, the
research is easily translatable into action. Furthermore, it is useful for when the topic is new and little
information currently exists.
Researching Customer Needs (Identifying Customer Requirements as Input for Quantitative Studies) -
This method helps identify the benefits and attributes that customers expect in a service. This form of
qualitative research is basic and essential as it determines the type of questions that will be asked in
a survey.
Relationship and SERVQUAL Surveys (Monitoring and Tracking Service Performance to Assess Overall
Company Performance) - see Chapter 4
Exit Survey (Obtaining Immediate Feedback on Performance of Service Transaction to Use as Input for
Process Improvement) - Customers are asked a set of questions immediately after a transaction about
their satisfaction with the transaction and the contact personnel. This type of research is simple and
fresh and provides companies with continuous information about interactions with customers. One
type of post-transaction survey that is becoming more and more common is on websites following
online purchases.
Service Expectations Meetings and Reviews (Creating Dialogue with Important Customers to Identify
Their Expectations) - A highly effective form of customer research involves eliciting the expectations
of the client at a specified time of the year and then following up later to determine whether the
expectations were fulfilled. These studies are conducted by senior members of the account team so
they can listen carefully to the clients needs. This usually consists of (1) asking clients what they
expect in terms of eight to ten basic requirements determined from focus groups, (2) enquiring what
particular aspects of these requirements the account team performed well in the past and what
aspects need improvement, and (3) requesting the the client rank the relative importance of the
requirements.
Market-Oriented Ethnography (Studying Customers While They Are in a Service Encounter) - This set
of approaches allows for researchers to observe consumption behaviour in natural settings through
observation or interviews.
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Netnography (Monitoring Changes in Customer Expectations Over Time) - Being the study of online
communities, netnography includes the participation of a researcher participating fully as a member
of that respective community. In online communities, customers may speak more freely, as they do
not feel to be under as much scrutiny.
Mystery shopping (Measuring Individual Employee Performance for Evaluation, Recognition and
Rewards, and Identifying Strengths and Weaknesses in Customer-Contact Services) - Companies
employ outside research organisations to send people into service establishments to experience the
service as if they were customers. It keeps workers alert because they know they may be evaluated at
any time. It can be very effective to reinforce service standards.
Customer Panels (Providing a Forum for Customers to Suggest and Evaluate New Service Ideas) -
Customer Panels are ongoing groups of customers assembled to provide attitudes and perceptions
about a service over time.
Lost Customer Follow-Up (Identifying Reasons for Customer Defection and Addressing Gaps Between
Customer Expectations and Perceptions) - This involves deliberately seeking out customers who have
dropped the companys service to enquire about their reasons for leaving. It identifies failure points
and common problems in the service.
Future Expectations Research (Forecasting Future Expectations of Customers and Testing New
Service Ideas) - This form of research consists of several types to predict future expectations:
scanning and querying of customers about desirable futures of possible services & asking opinion
leaders and/innovators to specify what requirements are not being met by existing products or
services.
Service Research Systems

In order to choose the right form of research that is to be conducted, the following questions must be
asked in advanced:
Design Phase of New Services

In this phase, it is impossible to evaluate customers satisfaction given that the service does not exist yet.
Along with asking key or leading customers or doing focus group research, laddering is a common
technique.
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Laddering is used to explore underlying factors/elements of a service that

influence customers and it determines in what way these different criteria
contribute to achieving certain personal goals. This insight can be very valuable to
companies as it might shape the way they communicate with clients, how they
position themselves and how they segment their market. In laddering, the ACV-
chain is used which describes a certain
service attribute, its consequences and
values.
For example, buying a business-class ticket as opposed to an

economy-class ticket might evoke the following advantages for
customers: More space physical comfort getting more done
accomplishment self esteem.
Test Phase of New Services

Conjoint analysis is a technique used to determine how people value different attributes (feature,
function, benefits) that make up a service. The objective is to determine what combination of a limited
number of attributes is most influential on customer decision making. Based on this data, service
companies can create different segments.
Evaluation of Events
To test events objectively, companies can make use of two techniques: measuring process quality
indicators (i.e. from process, so they are easy to measure) or mystery shopping (i.e. where trained
experts observe the service environment based on the process, not the outcome.
There are also ways to evaluate events on a more subjective level. Customer cards, a short survey after a
customer has experienced the service, might be filled out to measure how the respective client has
experienced the service. Exit interviews and the critical incident technique (see above) can also be used.
Evaluation of Relationship
Relationship with can be measured with the SERVQUAL - SERVPERF method, satisfaction surveys and lost
customer research (see above).
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Big Data Panels

Complaint solicitation Post-transaction survey
Critical incident technique Research objectives
Data Mining Research programme
Disconformation paradigm SERVPERF
Ethnography SERVQUAL
Lost customer research Upward communication
Marketing research User-generated content monitoring
Mystery shopping Zones of tolerance charts
Netnography
Chapter 7 - Building Customer Relationship

Many companies fail to focus on keeping their customers (customer relationship) and solely focus on
acquiring new customers. They can easily fall into the traps of short term promotions, price discounts or
catchy advertisements that bring customers in but are not enough to bring them back.
Relationship Marketing
Relationship marketing describes a shift within marketing by which companies turn away from an
acquisition/transaction focus towards a retention/relationship focus. It focuses on keeping and improving
relationships with current customers.
The bucket theory illustrates that a relationship approach

can help plugging the holes in the bucket. However, due to
the fact that, historically, marketers have been more
concerned with acquisition of customers, this new
approach calls for a change in mind-set and employee
reward system.
The Evolution of Customer Relationships

Like social relationships, customer relationships also have to evolve over time:
Customers as Strangers - Those customers who are not aware of, or those who have not yet had any
transaction with, a firm. The primary goal for the firm is therefore to attract and acquire these
customers.
Customers as Acquaintances - The customer and the firm become acquainted, creating the basis for
an exchange relationship. The primary goal is to satisfy the new customers. In acquaintance
relationships, firm focus on providing value comparable to the competition, however, then, creating
competitive advantage is difficult. As an example, Amazon has acquaintance relationships with many
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customers which is why, for new customers, they can fall back onto a large dataset that helps them
predict the new customers behaviour based on similar purchase behaviours.
Customers as Friends - In this phase, the company begins to acquire specific knowledge of that
customers needs which allows them to create a unique offering. As customers become friends, they
not only become familiar with the company but they also come to trust that it provides superior
value. A primary goal is customer retention.
Customers as Partners - In order to move the relationship into a partner relationship, the firm must
use customer knowledge and information about the individual customer to deliver highly
personalised and customised offerings. The firm is committed with enhancing the relationship.
The Goal of Relationship Marketing

The primary goal is to build and maintain a base of committed customers who are profitable for the
organisation. The formation of satisfaction, trust and commitment corresponds to the customers
willingness to engage in an exchange relationship as an acquaintance, friend or partner. As customers
make the step from satisfaction-based acquaintanceship to trust-based friendships to commitment-based
partnership, increases in both the value received and the level of cooperation are required.
Benefits for Customers

Benefits for Customers - Customers loyal to a firm (perceive they) receive greater value relative to
what they expect from competing firms.
Confidence Benefits - These comprise feelings of trust or confidence in the provider and include a
sense of reduces anxiety and comfort in knowing what to expect. As switching costs are often high in
terms of the monetary and time-related resources that will have to be reallocated.
Social Benefits - Over time, customers develop a social relationship with their service provider which
might make it hard to switch, even when a competitor has lower prices or a better quality. For
instance, people who have been going to the same hairdresser for years might have built a social
relationship with them. The flipside of this customer benefit is the risk that when a valued employee
leaves, the customers will also leave.
Special Treatment Benefits - When customers get the benefit of the doubt, are being given a special
deal or price or getting preferential treatment.
Benefits for Firms

Economic Benefits - Research has shown that across industries, customers generally spend more
each year with a particular relationship partner that they did in the preceding period. Also, marketing
expenditures to trigger existing customers to repeat a purchase are 90% lower than for new
customers.
Customer Behaviour Benefits - Word-of-mouth is a great benefit for firms, as satisfied and loyal
customers are likely to provides strong word-of-mouth endorsements (also in the form of online
reviews or blogs. Furthermore, loyal customers can serve as mentors and help other customers
understand the explicitly or implicitly stated rules of conduct.
Human Resource Management Benefits - Firstly, loyal customers may, because of their experience
with and knowledge of the provider, be able to contribute to the coproduction of the service; they
can often make the service employees job easier. Also, it is easier for companies to retain employees
when it has a stable base of satisfied customers, as people like to work for companies whose
customers are happy and loyal.
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Relationship Value of Customers

Relationship value is a concept that looks at customers from the point of view of their lifetime revenue
and/or profitability contributions to a company.
Factors that Influence Relationship Value

The lifetime or relationship value is influenced by:
The length of an average lifetime

The average revenues generated per relevant time period over that time
Sales and additional products and services over time, referrals generated bz the customer over time
Costs associated with serving the customer
Estimating Customer Lifetime Value

One way to estimate customer lifetime value is to document the increased value or profits that accrue for
each additional customer who remains loyal to the company rather than defecting to the competition.
Firms can be quite precise in documenting the value and costs of retaining customers. Value of word-of-
mouth advertising, employee retention and declining account maintenance costs can also enter into the
calculation.
Customer Profitability Segments

As customers differ in their relationship value and it is neither practical nor profitable to meet (and
certainly not to exceed) all customers expectations. Companies try to identify different segments that
differ in current and/or future profitability to a firm. After identifying profitability bands, the firm offers
services and service levels in line with the identified segments.
Profitability Tiers
A minority of the customers account for the highest proportion of sales or profit (the 80/20 rule: 20 per
cent of the customer generate 80% of the profit). A four-tier system can be useful to categorise different
groups of customers:
1. Platinum tier: the companys most profitable customers, typically those who are heavy users and
who are not price sensitive
2. Gold tier: profitability levels are not as high, perhaps because the customers want price discounts
that limit margins or they are not as loyal
3. Iron tier: essential customers who provide the volume to utilize the firms capacity, but their
spendings levels, loyalty and profitability are not substantial enough for special treatments
4. Lead tier: consists of customers who are costing the company money, demanding more attention
that they are due given their spending and profitability
In this classifications, the profitability rather than the usage are used to define all levels. The lover levels
require a different sort of attention. The firm must work either to change the customers behaviour to
make them more profitable or to change the firms cost structure to make them more profitable through
decreases in costs.
The Customers View of Profitability Tiers

While profitability tiers make sense from a companys point of view, customers are not always happy to
be placed in a less desirable segment. At some companies, top-tier customers have their individual
account representative whom they can contact personally, whereas lower-tier customers may have to
contact a representative who has 100 clients, or even are served by a call centre. It is therefore crucial for
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companies to to communicate with customers what level of service they can expect and what they would
need to do or pay to receive faster or more personalised service.
Relationship Development Strategies

A variety of factors influence the development of strong customer relationships.
Core Service Provision

A firm must make sure to deliver a good core service that, at a minimum, meets customer expectations.
Companies need to know what is important to customers at each touchpoint they experience. Customer
Experience Management needs to involve the whole organisation; it is only effective if it is seen as a
priority of senior management and when an organisation works to best serve the customer. Retention
strategies will have little success unless the firm has a solid base of service quality and customer
experience management on which to build.
Switching Barriers
A customer may face a number of barriers that make it difficult to leave on service provider and begin a
relationship with another. Switching barriers influence consumers decision to exit from relationships
with firms and therefore facilitate customer retention.
Customer Inertia - A certain amount of effort might be required to change firms; therefore,
consumers think it might not be worth it to switch providers. People do not like change in their
behaviour; if a customer thinks a great deal of effort is required to change providers, they are less
likely to switch.
Switching Costs - In many cases, customers develop loyalty to an organisation in part because of
(monetary and non-monetary) costs involved in changing to and purchasing from a different firm. In
order to retain customers, companies might consider increasing their switching costs to make it
difficult for customers to exit the relationship.
Relationship Bonds
Whereas switching barriers might serve as constraints that keep customers in relationships with firms
because they have to, relationship bonds encourage customers to stay with the firm because the want to.
Level 1 - Financial Bonds

The customer is tied to the firm primarily through financial incentives, e.g. lower prices for greater volume
purchases. For instance airlines and their frequent flyer programmes provide financial incentives and
rewards for travellers who bring more of their business to a particular airline. This is likely to deliver short-
term profits, though in the long run, they do not different the company from its competitors.
Other types including focussing on bundling and cross-selling of services, enabling customers to use other
firms services and to enjoy even greater financial benefits in exchange for their loyalty. In other cases,
customers can be offered a stable price, or at least lower price increases than those paid by new
customers. All in all, financially-based loyalty programmes are easy to imitate by competitors.
Level 2 - Social Bonds

Binding customer to the firm through more than financial incentives, social bonds enable marketers to
build long-term relationships through socail and interpersonal as well as financial bonds. These are
common among professional service providers like lawyers, accountants and architects, as well as
hairdressers, counsellors and healthcare providers. By bringing personal details into the conversation, the
service provider can reveal a genuine interest in the customer.
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Level 3 - Customisation Bonds

Level 3 strategies include elements of level 1 and 2 encompassed within a customisation strategy and vice
versa. Customer loyalty can be encouraged through intimate knowledge of individual customers and
through the development of one-to-one solutions. Mass customisation means using flexible processes
and organisational structures to produce varied and customised products at the price of standardised
alternatives. It involves providing customers with tailored services to fit their individual needs through
little effort on their part.
Level 4 - Structural Bonds

These are the most difficult strategies to imitate. Structural bonds are created by providing services to the
client that are designed right into their very own service delivery system. Structural bonds are often
created by providing customised services to the client that make the customer more productive.
Relationship Challenges
The Customer is Not Always Right
The statement, The customer is always right is not always true. In some cases, it might even be
preferable to not continue a relationship with a specific customer:
The Wrong Segment - A companys services cannot be targeted to all customers; some segments will
be more appropriate to establish relationships with. It would not be wise to forge relationships with
incompatible market segments, either (e.g. a conference hotel mixing senior managers for a training
programme & an end-of-year student ball).
Not Profitable in the Long Term - For instance, banks can refuse to do business with individuals
whose credit histories are unreliable. These customers are probably fairly unreliable in the long term.
Difficult Customers - Firm can have failed service encounters with their customers because of
dysfunctional customers; customers that intentionally or unintentionally act in a way that disrupt
otherwise well-functioning service encounters. This can affect employees, other customers and the
organisation.
Some Customers May Not Want Relationships - Some customers might see relationship marketing
activities as being irritating, intrusive, too time-consuming or unattractive. Customers need to be
segmented based on the relationship and the rewards that these different customer required.
Ending Business Relationships

Effective management of service relationships also includes knowing how to end one.
Relationship Ending
Relationships can end in different ways. It might be because the relationship had been established for a
certain purpose or time period (e.g. house painting company) and then dissolves or it might have a
natural ending whereby the need for the relationship has diminished (e.g. piano lessons). In some cases,
relationships can end because the customer does not fulfil their obligations (e.g. a bank ending a
relationship with a customer regularly having insufficient funds.
Should Firms Fire their Customers?

Although it might seem like a logical conclusion to be drawn from the discussion, firing customers is not
that easy and must be done it such a way that negative publicity is avoided. Raising prices or charging for
services that used to be free might move unprofitable customers out of the firm. Helping them find a new
supplier might be another way to end the relationship gracefully.
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Customer pyramid Relationship endings
Customer experience marketing Relationship marketing
Lifetime value Retention strategies
Profitability tiers Switching barriers
Relationship bonds Touchpoints
Chapter 8 - Service Innovation and Design

Challenges of Service Innovation Policy
Describing Service Innovations
When new services are developed and described to the customer, there are risks in attempting to
describe them with words alone. Oversimplification refers to the difficulty of describing services
inadequately by using words that are not enough to describe complex systems. Incompleteness refers to
the risk that services are described in an incomplete way by omitting details or elements of the service. In
addition, any person describing the service might have their own biases influenced by their personal
opinions, so subjectivity also plays a role in describing services. Lastly, biased interpretation refers to the
fact that people tend to interpret words in a different way (e.g. think of fast, responsive, reliable, etc.).
These challenges can be extremely tough when designing new services that have never been experienced
by the customer before.
New Service Development Processes

Services that are designed based on research and data about the customer are more likely to be succesful
than those not developed within a framework, i.e. based on managers and employees subjective
opinion. Given the fact that services are usually co-created by customers in real time, it is also critical to
get both customers and employees involved in the service design process.
Types of New Services

Major or Radical Innovations - New services for markets yet undefined, e.g. Internet auctions when
eBay was first launched
Startup Businesses - New services for a market that is already served by existing products meeting
the same generic needs, e.g. door-to-door airport shuttle services competing with traditional taxis
and limousine service
New Services for the Currently Served Market - Attempts to offer existing customers of the
organisation a service not previously available from that company, e.g. Tesco offering insurance
services
Service Line Extensions - Augmentations of the existing service line, e.g. a restaurant adding new
menu items or an airline offering new routes
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Service Improvements - Changes in features of services that are already offered, e.g. faster
execution or extended hours of service
Style Changes - The most modest service innovations although these are often highly visible, e.g.
changing the colour scheme of a restaurant
Stages in Service Innovation and Development

The following steps should be followed when designing new services:
Front-End Planning
Business Strategy Development or
Review - Assuming that a company
has an overall strategic orientation,
vision and mission, a first step
would be to review these in order
to make new service ideas fit
within the larger strategic mission
of the firm. Also, the companys
orientation towards growth will
affect how the new services
strategy is defined. Are they (1)
prospectors seeking to innovate
and taking on risks; (2) defenders,
experts in their own areas but not
tending to seek new opportunities
outside that domain; (3) analysers
maintaining stability in certain
areas of operation, yet open to experimenting and seeking out opportunities on the margins; or are
they (4) reactors who seldom make adjustments unless forced to do so by environmental changes?
New-Service Strategy Development - Without a clear, underlying new product or service strategy,
front-end decisions become ineffective. The new types of services have to match with the
organisations goals, visions, capabilities and growth plans, and service strategies should be defined
in terms of markets, types of services, time horizon for development, profit criteria, etc. One way to
start formulating a new service strategy is to use the new service strategy matrix.
Idea Generation - The next step is the generation of ideas that fit with the strategy chosen in the
previous step. Formal brainstorming, lead user research or learning about competitors offerings are
common approaches; even collaborating with outsiders (e.g. competitors, vendors, alliance partners,
etc.) Social media and crowdsourcing can also be a source of new ideas by asking those people who
know the services best: the customers. Companies such as Starbucks or Marriot Hotels have used this
method to redesign/reshape their service offerings.
Service Concept Development and Evaluation - Drawing pictures and describing an intangible service
is difficult, which makes it so important to have an agreement reached on what the service is going to
entail and which customer need(s) it is going to fill. The service concept for a passenger flight entails
much more than just its core benefit of getting the customer from A to B: what are the booking and
check-in procedures, what is the frequency of in-flight services, what is the design of the plane, etc.
After the concept has been defined clearly, a description of the service representing its specific
features and characteristics, and determining initial customer and employee responses to the
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concept is important. Then, the new service concept would be evaluated by asking employees and
customers whether they understand the idea of the proposed service and what they thoughts on it
are.
Business Analysis - Assuming that the idea has been evaluated favourably by customers and
employees, economic feasibility and potential profit estimations have to be analysed; this includes
predicting demand, revenue, costs and operational feasibility. By doing so, it can be determined
whether the new service idea meets the minimum requirements.
Implementation
Service Development and Testing - Once the service concept has passed all the front-end planning
hurdles, it is ready for the implementation stages of the process. The service development and
testing stage should involve all stakeholders, i.e. customers, employees, especially representatives
from marketing, operations and HR. At this stage, a detailed service blueprint can be produced. This
blueprint can then be translated into specific implementation plans for parts of the service delivery
process.
Market Testing - The new service might be offered to employees of the organisation and their
families to assess their responses to the variation in the marketing mix. The company could also
chose to test variations in pricing and promotion in less realistic contexts by presenting customers
with hypothetical mixes on whether they would try the service under varying circumstances. Doing a
pilot run of the service is also critical to be sure the operational details are running smoothly.
Commercialisation - The service goes live and is introduced to the marketplace. At that stage, there
are two primary objects: (1) building and maintaining acceptance among employees who will be
responsible for service quality and (2) monitor all aspects of the service during introduction and the
complete service cycle - every detail should be assessed and operating efficiency/costs should also be
tracked.
Post-Introduction Evaluation - Information gathered during commercialisation can be reviewed and
changes to the delivery process, staffing or marketing mix can be made. No service will ever stay the
same, so formalising the review process to enhance service quality from the customers point of view
is critical.
Service Growth Strategies

Multi-Service Strategy
The company focuses on providing different services, e.g. KPN (telephone, internet, television).
Goal: increase market share by Share-of-Wallet
Challenges: service development, cross-selling, maintaining focus
Multi-Segment Strategy
The company provides one service to various segments, e.g. hotel (business travellers, honeymooners,
retired people, congresses).
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Goals: yield management, increase market share

Difficulties: attracting customers, minimalising conflicts, maintaining focus
Multi-Site Strategy
The company copies its success by opening multiple outlets, e.g. McDonalds (33,000 restaurants in 119
countries).
Advantage: increase turnover through geographic spread
Difficulties: service standardisation, quality control, financial growth
Service Blueprinting
Given the difficulty of describing and depicting the service at the concept development, service
development and market test strategies, a service blueprint is a useful tool for designing and specifying
intangible service processes.
What is a Service Blueprint?

A service blueprint is a picture or a map that accurately portrays the service system so that the different
people involved
in providing it can
understand and
deal with it
objectively.
Blueprint
Components
Customer Actions - This area encompasses the steps, choices, activities, and interactions that the
customer performs in the process of purchasing, consuming and evaluating the service. For instance,
in legal services, these might include a decision to contact a lawyer, telephone calls to the lawyer,
face-to-face meetings, etc.
Onstage Contact Employee Actions - These are visible to the client. In the legal services setting, this
might include the initial interview, intermediate meetings and final delivery of legal documents.
Backstage Contact Employee Actions - These are the actions that occur behind the scenes to support
the onstage activities. In the example, these would entail all preparation for client meetings or the
final documents, along with telephone call contacts the lawyer or other front-line staff have with the
customer. In other words, it includes all non-visible contact employee actions.
Support processes - This covers the internal services and interactions that take place to support the
contact employees in delivering the service. In our example, this would include things like legal
research by staff, preparation of documents and secretarial support to set up meetings.
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Physical Evidence - Typically, above each point of contact, the actual physical evidence of the service
is listed. This would be things like office decor, written documents, lawyers clothing etc.
The four key areas are separated by horizontal lines:
Line of Interaction - representing direct interactions between the customer and the organisation
(whenever a vertical line crosses a horizontal line, a direct contact between the customer and the
organisation or a service has occurred);
Line of Visibility - separating all service activities that are visible to the customer from those that are
not, i.e. separating the onstage activities from the backstage activities
Line of Internal Interaction - separating contact employees activities from those of other service
support activities and people (here, a vertical line represents an internal service encounter)
In general, it is recommended to start the designing of a blueprint with what the customers see of the
process and work back into the delivery system. The boxes shown within each action area depict steps
performed or experienced by the actors at that level.
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Service Blueprint Example for Overnight Hotel Stay
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Blueprints for Technology-Delivered Services

What about technology-delivered services like websites or interactive check-in kiosks? Can a blueprint be
made for these too? Yes, it can but the lines of demarcation change.
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Reading and Using Service Blueprints

A service blueprint can be read in different ways, depending on the purpose:
If the purpose is to understand the customers views, it can be read from left to right (How is the
service initiated by the customer? What choices does the customer make? What is the physical
evidence of the service?).
If the purpose is to understand contact employees roles, the blueprint can also be read horizontally
but this time focussing on the activities directly above and below the line of visibility (How
rational/effective/efficient is the process? Who interacts with customers, when and how often?)
If the purpose is to understand the integration of the various elements of the service process, it can
be analysed vertically. (What actions are being performed backstage to support critical customer
interaction points? What are the associated support actions?)
If the purpose is service redesign, the blueprint can be looked at as a whole to assess the complexity
of the process, how it might be changed, and how changes would impact the customers/the contact
employees. It can also be used to analyse failure points or bottlenecks.
Building a Blueprint
Step 1: Identify the Service Process to be Blueprinted - There needs to be agreement on the starting
point. For instance, an express mail delivery service blueprint, specific blueprints could be developed
for two-day express mail, large accounts, high street drop-off centres, amongst others. Those
blueprints would share common features, but would also include unique features.
Step 2: Identify the Customer or Customer Segment Experiencing the Service - Blueprints are most
useful when developed for a certain customer or customer segment, assuming that the process vary
across segments.
Step 3: Map the Service Process from the Customers Point of View - This involves charting the
choices and actions that the customer performs or experiences in purchasing, consuming and
evaluating the service.
Step 4: Map Contact Employee Actions, both Onstage and Backstage, and/or Technology Actions -
First, the lines of interaction and visibility are drawn, and then the process from the customer-contact
persons point of view is mapped, distinguishing visible activities from invisible, backstage activities.
This involves questioning front-line employees to learn what they do and which activities are
performed.
Step 5: Link Contact Activities to Needed Support Functions - The line of internal interaction can be
drawn and linkages drawn from contact activities to internal support functions. The direct and
indirect impact of internal actions on customers becomes apparent.
Step 6: Add Evidence of Service at each Customer Step - The evidence of the service can be added to
the blueprint to illustrate what they see and receive as tangible evidence of the service.
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Divergence and Complexity

Jobs can differ in their extent of complexity and divergence. Complexity describes how difficult the
execution of a certain step within a blueprint is. Divergence is the extent of personnel discretion to fulfill
client desires. Examples for jobs could be:
Highly divergent Less divergent
Highly complex Lawyer Cleaner
Less complex Painter (artist) Filling cigarette cases
When changing their service offer, companies can choose to alter one or both dimension(s):
Decrease divergence more standardisation (e.g. franchising), personnel is less empowered, cost
price is likely to decrease;
Increase divergence more customisation (e.g. private banking), higher price/margin and more
flexibility, however more difficult to manage and control the service;
Decrease complexity specialisation and limitation (e.g. self-service gas station or Tie Rack),
increased efficiency and easy to control, however limited offer and mostly more expensive;
Increase complexity extension (e.g. V&D), might result in a larger customer base, however
customers might not understand what you stand for: the bigger the divergence between the new
service and your core service, the larger the chance the new service will fail.

Business analysis New service development
Crowdsourcing Service blueprint
Idea generation Service concept development and evaluation
Market testing Switching barriers
Chapter 9 - Customer-Defined Service Standards

A critical challenge for managers is using the knowledge they have about the customer to set service
quality standards and goals for the organisation.
Factors Necessary for Appropriate Service Standards

Translating customer expectations into specific service quality standards depends on the degree to which
standardisation is possible. In reality, many service tasks are routine (such as opening a bank account) for
which specific rules and standards can be established.
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Standardisation of Service Behaviours and Actions

There are three options: (1) substitution of personal contact and human effort by technology (e.g. ATMs
or airport X-rays), (2) improvement in work methods (e.g. restaurants like Pizza Hut), and (3) a
combination of these two methods. Standardisation facilitates consistent delivery to customers; it allows
for the company to set specific service standards that meet customers expectations.
When is Customisation Better Than Standardisation?

Some services can standardised more easily than others. For instance, in most expert services or in a B2B
setting (e.g. accounting, consulting, engineering and dentistry), standardisation is perceived as impersonal
and not in the customers best interests as clinet needs differ. Many consumer services are very
customised, such as spa visits, exotic vacations, and even haircuts from expensive salons. The steps taken
are often standardised behind the scenes but appear to be very customised to the customer.
Formal Service Targets and Goals

One type of formal goal setting involves targets for individual behaviours or actions. Goals like calls the
customer back quickly are too vague, unmeasurable and subject to personal interpretation of the
respective contact employee.
Customer- Not Company-Defined Standards

Many companies possess service standards that are company defined which do not meet customer
expectations (e.g. voice activated telephone support systems, saving the company money and actually
providing faster service). To close gap 2, standards set by companies must be based on customer
requirements and expectations rather than internal company goals. Customer-defined standards are
operational standards based on customer requirements and deliberately chosen to match customers
views.
Types of Customer-Defined Service Standards

Hard Customer-Defined Service Standards
Reliability is often the single most important
concern of service customers. In online retailing, on
time and accurate fulfilment of orders is one of the
most important aspects of reliability. Also,
responsiveness standards are set to ensure the
speed or promptness with which companies deliver
products, handle complaints, answer questions, etc.
Soft Customer-Defined Standards

Not all customer priorities can be counted, timed or observed through audits. In contrast to hard
measures, soft measures are those that must be documented using perceptual data; they are opinion-
based data and cannot be directly observed. They are especially important for person-to-person
interactions such as the selling process and the delivery process for professional services.
One-Time Fixes
One-time fixes are technology, policy or procedure changes that, when instituted, address customer
requirements. Companies like KLM, Tesco or Europcar have succeeded in providing successful one-time
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fixes to their customers frustration of waiting in long lines; they did that by implementing self-service
check-in kiosks or self-scanning tills.
Development of Customer-Defined Service Standards

Basing Standards on the Service Encounter Sequence
A customers overall service quality evaluation is the accumulation of evaluations of multiple service
experiences. Several service encounters shape this evaluation. Many services have multiple encounters;
therefore, research has been carried out to determine whether some encounters (e.g. the first or the last)
are more important than others. Strong starts (e.g. the first encounter as the most important one) have
been suggested by literature, however recent studies show that the last encounter has a greater impact
on overall satisfaction.
Expressing Customer Requirements as Specific Behaviours and Actions

Service standards should be defined in very specific ways that enable employees to understand what they
are to deliver. These standards should be set and measured in terms of specific responses of human
behaviours and actions.
The figure shows how abstract requirements (e.g. satisfaction, relationship, etc.) can be linked to concrete
behaviours and actions that customers expect of a service provider.
Measuring Behaviours and Actions

Hard measurements for behaviours and actions are countable/timeable and can therefore be captured
continuously and operationally without asking the customers opinion. Given that not everything can be
counted or timed, it is desirable to link these hard measures with soft measures (relationship surveys or
follow-up satisfaction surveys) to be sure they are strongly correlated.
Satisfaction surveys and relationship surveys cover all aspects related to a customers relationship with
the company and are usually completed once a year. Follow-up satisfaction surveys are related to a
specific service encounter (usually very shortly after the relevant encounter) and are administered
continuously. The company must decide on a survey strategy combining relationship surveys and follow-
up satisfaction surveys to provide soft measurement feedback.
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Developing Customer-Defined Standards

Step 1: Identify Existing or Desired Service Encounter Sequence - Delineating the customer journey
through the service encounter sequence and the various customer touchpoints
Step 2: Translate Customer Expectations Into Behaviours and Actions for Each Service Encounter -
Customer requirements and expectations must be translated into concrete, specific behaviours and
actions associated with each service encounter.
Step 3: Select Behaviours and Actions for Standards - Prioritising the behaviours and actions for
which the customer-defined standards will be established. When the standards are created, it is
important that they:
are based on behaviours that are very important to the customer;
cover performance that needs to be improved or maintained;
cover behaviours and actions employees can improve;
are accepted by employees;
are predictive rather than reactive.
Step 4: Decide Whether Hard Or Soft Standards Are Appropriate - Which standards are appropriate
to capture the behaviour and action?
Step 5: Develop Feedback Mechanisms for Measurement to Standards - Feedback mechanisms that
adequately measure those standards must be developed.
Step 6: Establish Measures and Target Levels - Without concrete target levels in place, the company
fails to quantify whether the standards have been met.
Step 7: Track Measures Against Standards - Having careful and comprehensive fact-base systems
about the companys operations enables them to measure service performance
Step 8: Provide Feedback About Performance to Employees - Data must be deployed quickly so that
the people who need access to it to make decisions can do so.
Step 9: Periodically Update Target Levels and Measures - Targets should be revised and measured
regularly to keep up with customer expectations.
Importance-Performance Matrix
There is a critical correlation between importance
and performance. The Importance-Performance
Matrix can help identify what companies should
focus on. The more important an element of the
service is for the customer, the more the company
should focus on delivering high performance in
that area.
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Customisation vs. standardisation One-time fixes
Goal-setting Service performance indices
Hard customer-defined service standards Service standards
Measuring behaviours and actions Soft customer-defined service standards
Chapter 10 - The Physical and Virtual Servicescape

Physical Evidence
What is Physical Evidence?
Customers often rely on tangible cues (i.e. physical evidence) to evaluate the service before its purchase
and to assess the satisfaction after consumption. These include all aspects of the organisations physical
facility (i.e. the servicescape) as well as other tangible communications (e.g. business cards, stationery,
reports, etc.).
How Does Physical Evidence Affect the Customer Experience?

Physical evidence can have an important effect on the customer experience, especially when the service
in mundane/uneventful (e.g. a bus or train ride), personally meaningful (e.g. a wedding) or spectacular
(e.g. weeklong travel adventure). The physical evidence of the service will influence the flow of the
experience, the meaning customers attach to it, their satisfaction and their emotional connections with
the organisation delivering the experience.
Types of Servicescapes
Servicescape Usage
Organisations differ in terms of whom the servicescape will actually affect, i.e. who comes into the service
facility and who is potentially influenced by the design: customers, employees, or both groups?
Self-service Environment - In this environment, the customers mostly perform most of the activities;
few (if any) employees are involved. Here, the organisation can focus on planning the servicescape so
that the right market segment is attracted, the facility is pleasing and esasy to use and delivers the
desired service experience.
Interpersonal Services - These represent situations in which both the consumer and the employee
are present and active in the servicescape (e.g. hotels, restaurants, banks, etc.). In these cases, it
should be designed in a way that attracts, satisfies and facilitates the activities of both customers and
employees simultaneously.
Remote Services - These services have little or no customer involvement with the servicescape (e.g.
telecommunications, online services, financial consultants, etc.). The facility may even be in a
different region or a different country. It should be set up to keep employees happy and motivated,
and to facilitate productivity, teamwork etc.
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Servicescape Complexity
Some services are very simple and include few elements/few pieces of equipment; these are termed lean
environments and examples for this type would be shopping-centre information kiosks or ATMs. Design
of these servicescapes are relatively straightforward.
Elaborate environments, i.e. very complicated environments with many forms, the full range of
marketing and organisational objectives can be approached through careful management of the
servicescape. A guests hotel room, for instance, can be designed to enhance comfort and satisfaction
while facilitating low-energy usage and costs.
Strategic Roles of the Servicescape

Package
Figuratively, the servicescape wraps the service, so customers can get an idea of what is inside. The
physical setting of a service is the outward appearance of the organisation and can be critical in forming
initial impression or forming customer expectations. The packaging role also extends to the appearance of
contact personnel (i.e. their uniforms, dress and other elements of their outward appearance). Smart
companies like H&M, KLM and Novotel spend much time and money relating their servicescape design to
their brand in order to convey the brand position.
Facilitator
The servicescape can also be a facilitator to aid the performance of the persons in the environment; its
design can enhance or inhibit the efficient flow of activities in the service setting, i.e. making it easier for
customers and employees to accomplish their goals.
Socialiser
The servicescape can also serve as a socialiser of both employees and customers in the sense that it helps
convey expected roles, behaviours and relationships. The design of the establishment can suggest to
customers what their role is relative to employees, what parts of the servicescape they are welcome in,
etc. For instance, the interiour design of Starbucks coffee houses invites customers to spend social time
there rather than coming in for a quick coffee (e.g. comfortable lounge chairs).
Differentiator
The design of the facilities can differentiate a company from its competitors and signal the market
segment the service is intended for. Changes in the physical environment of a company can be used to
reposition a firm and/or to attract new market segments.
Framework for Understanding Servicescape Effects on Behaviour

The Underlying Framework - The Physical Servicescape
In order to understand servicescape effects on behaviour, the basic stimulus-organism-response theory is
required. In the framework, the service environment is the stimulus, consumers and employees are the
organism responding to it, and behaviours directed at the environment are the responses.
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Behaviours in the Servicescape

Individual Behaviours
Individuals react to places with two general and opposite forms of behaviour: (1) approach (e.g. desire to
stay, explore, work, affiliate) and (2) avoidance (e.g. not wanting to stay, explore). In addition, each
individual comes to a particular service organisation with a goal or purpose - the design of the service
environment can aid or hinder the execution of that plan.
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Social Interactions
Also, the servicescape influences the nature and quality of customer and employee interactions, most
directly in interpersonal services. Things like the seating arrangements, size and flexibility can define the
possibilities and limits of social episodes that occur between customers and employees, or customers and
other customers.
Internal Responses to the Servicescape

The perceived servicescape does not directly cause people to behave in certain ways; a persons belief
(i.e. their cognitive response) may well influence the persons emotional response, and vice versa.
Environment and Cognition

The perceived servicescape can influence peoples beliefs about a place and their beliefs about the people
and products found in that place. For instance, particular environmental cues such as the type of office or
the clothes worn by a lawyer may influence the clients beliefs on the success of the lawyer or the price of
his services. The overall perception of the servicescape enables the consumer or employee to categorise
the firm mentally.
Environment and Emotion

Also, it can elicit emotional responses which, in turn, influence behaviours. Being at a particular place can
make a person feel happy, light-hearted, relaxed or, on the other hand, sad, depressed and gloomy.
Research has revealed that, generally speaking, an environment can elicit emotions that can be captured
by two dimensions: (1) pleasure/displeasure and (2) degree of arousal (amount of stimulation or
excitement).
Environment and Physiology

The design of the servicescape might also affect people in physiological ways (e.g. music too loud,
temperature too high or too low, air quality bad, etc.). These aspects determine whether a person will
stay longer and if they enjoy their stay. It also affects whether the employees can perform their jobs well.
Variations in Individual Responses

The responses will not be the same for every individual, every time. Personality differences as well as
temporary conditions cause variation in the way that people respond to the servicescape.
Environmental Dimensions of the Physical Servicescape

The environmental dimensions of the physical surroundings can include all the objective physical factors
that can be controlled by the firm to enhance or constrain employee and customer actions.
Ambient Conditions
These include background characteristics of the environment such as temperature, lighting, noise, music,
scent and colour; they can profoundly influence the way people feel, think, and respond to a service
establishment. For instance, when there is music, people tend to stay longer given the fact that they
perceive to be spending less time shopping or waiting in queues. Another example is the scent in, for
example, a bakery or a coffee shop which can be used to draw people in and to reduce the perceived time
people spend in the establishment.
Spatial Layout and Functionality

Spatial layout refers to the ways in which machines, equipment and furnishings are arranged;
functionality refers to the ability of the same items to facilitate the customers and employees goals. It is
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very important, especially in self-service environments, that the service establishment is designed in such
a way.
Signs, Symbols and Artefacts

Many items in the physical environment serve as explicit or implicit signals that communicate about the
place to its users. Signs are examples of explicit communicators (e.g. name of company, name of
department, no smoking, and so on). Other symbols and may communicate less directly, giving implicit
cues to customers about expected behaviour in that place. Signs, symbols and artefacts are particularly
important in forming first impressions and for communicating service concepts.
The Underlying Framework - The Virtual Servicescape

A large part of this framework can also be applied to virtual servicescpaes such as online services and
websites. Some environmental dimension would be different, though the perceived servicescape would
create similar customer responses and behaviours.
Guidelines for Physical Evidence Strategy

Some general guidelines for an effective physical evidence strategy:
Recognise the Strategic Impact of Physical Evidence - Physical evidence can play a prominent role in
determining service quality expectations and perceptions. An evidence strategy must be linked
clearly to the organisations overall goals and visions for it to be effective.
Blueprint the Physical Evidence of Service - Everyone should be able to see the service process and
the existing elements of physical evidence; a service blueprint can be an effective way to ensure that.
Clarify Strategic Roles of the Servicescape - Sometimes, the servicescape has no role in service
delivery or marketing from the customers point of view such as in telecommunications service or
utilities. If the servicescape is important, it should be used in an optimal way to create and shape
customer experiences
Assess and Identify Physical Evidence Opportunities - Are there missed opportunities to provide
service evidence? Do the evidences provided send the messages they are supposed to send?
Be Prepared to Update and Modernise the Evidence - Some elements of the physical evidence,
especially the servicescape require periodic updating and modernising. Over time, different colours,
designs and styles may communicate different messages.
Work Cross-Functionally - A multifunctional team approach to physical evidence strategy is often
necessary, particularly when it comes the decisions about the servicescape. If a company fails to work
cross-functionally, the physical evidence of the service may at time be less consistent.

Clue management Servicescape
Environmental psychology Socializer
Environmental dimensions Stimulus-organism-response theory
Package vs. facilitator vs. differentiator Virtual servicescapes
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Chapter 11 - Employees Roles in Service Delivery

Service Culture
The behaviour of employees will be influenced by the type of organisation, its norms and values - these
aspects shape individual and group behaviour. Corporate culture is the pattern of shared values and
beliefs that give the members of an organisation meaning and provide them with the rules for behaviour
within that organisation. A customer and service-oriented company will have a service culture at its
heart; a culture where an appreciation for good services exists, and where giving good service to internal
and external customers is considered a natural way of life.
Exhibiting Service Leadership - Service leadership consists of continuously and consistently showing
ones values. Employees are more likely to embrace a service culture when they see management
living out these values.
Developing a Service Culture - A service culture cannot be developed overnight; hundreds of little
(but significant) factors are required to build and sustain a service culture. Even for companies that
already have a strong service and customer focus it takes constant attention to sustain their
established service cultures.
Transporting a Service Culture - It is challenging to transport a service culture through international
business expansion as exporting a corporate culture creates additional issues. Will it clash with
national cultures? There exist many opportunities in the global marketplace, however legal, cultural
and language barriers become particularly evident for services which depend on human interaction.
The Critical Importance of Service Employees

People - front-line employees and those supporting them from behind the scenes - are critical to the
success of any service organisation. Employees are (1) the service (e.g. haircutting, personal trainers, etc.),
(2) the organisation in the customers eyes (from the professional at a law firm providing the service to
the receptionists, everything these employees do or say can influence perceptions of the organisation),
(3) the brand (e.g. an IKEA sales assistant or a KLM flight attendant, they form the primary image the
customer has about the brand) and (4) the marketers (i.e. they physically embody the product and are a
walking billboard).
Employee Satisfaction, Customer Satisfaction and Profits

Satisfied employees make for satisfied customers - and satisfied customers can, in turn, reinforce
employees sense of satisfaction in their jobs. The underlying logic is illustrated by the service profit chain
which suggests that there are critical linkages among internal service quality, employee satisfaction,
service value and customer satisfaction/retention. This, ultimately, leads to revenue and profits. These
factors are interrelated and feed off each other.
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The Effect of Employee Behaviours on Service Quality Dimensions

Customers perceptions of service quality can be influenced by service employees on all five dimensions:
Reliability - Delivering the service as promised is often totally within the control of front-line
employees; in the case of ATMs, for instance, behind-the-scenes employees are critical for making
sure all the systems are working.
Responsiveness - Front-line employees can directly influence customer perceptions of this dimension
through their willingness to help and their promptness in serving customers (e.g. the range of
responses received from retail staff.
Assurance - This highly depends on the employees ability to communicate their credibility and to
inspire trust and confidence.
Empathy - When employees are customer oriented, customers will evaluate the service more highly
and are more likely to return.
Tangibles - For this dimension, employee appearance and dress are important for the evaluation of
the tangibles dimension of quality (along with other factors such as decor, brochures, signage, etc.).
Boundary-Spanning Roles
The front-line service employees interacting directly with customers are referred to as boundary
spanners: they provide a link between the external customer and environment and the internal
operations of the organisation. No matter what the level of skill or pay, these positions are usually high-
stress jobs.
Emotional Labour
Labour that goes beyond the physical or mental skills is referred to as emotional labour. Generally, front-
line employees (boundary-spanning employees) are to align the emotions they display with the emotions
desired by the organisation. This includes delivering smiles, making eye-contact, showing sincere interest
and being friendly and courteous.
Strategies for Managing Emotional Labour

Customer-contact employees are often required to display (or, conversely, to hide) a variety of emotions.
The following activities help to foster an environment that helps employees deal with the realities of
emotional labour on the job:
1. Screen for Emotional Labour Abilities: This involves hiring employees who are well suited to meet
emotional labour requirements for that position and letting them go through simulated exercises to
see the kind of friendliness and warmth they naturally communicate before hiring them.
2. Teach Emotional Management: Customer-contact employees are taught that they need to be
courteous with customers. Though if customers cause trouble, an employee might face real challenge
in suppressing their true feelings. Surface acting (a process in which the employee pretend to feel
emotions they do not actually feel) and deep acting (where the employee attempts to experience the
real feelings they must express to the customer) are two techniques that can help employees convey
the appropriate emotions.
3. Carefully Fashion the Physical Work Environment: The environment in which the service is
delivered can have an impact on employee behaviours and emotions. For instance, a call centre
might want to reduce staff stress and boredom through airy decorations with windows allowing
employees to see the weather, trees, people and cars driving by.
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4. Allow Employees to Air Their Views: Emotional labour requires for employees to let off steam
every once in a while to get rid of their frustrations. If done in a group setting, this can provide
emotional support and encouragement.
5. Put Management on the Front Line: Customer-contact employees often feel that management has
a lack of understanding of and appreciation for the emotional labour they must carry out. Many
companies management teams work alongside customer service representative occasionally to
make the front-line employees feel heard and understood, and their work appreciated.
6. Give Employees a Break: Letting employees rotate into different positions within a retail store
throughout the day or giving them a break after they have had to deal with a tough customer, will
allow the employee to regroup and be re-energised.
7. Hand Off Demanding Customers to Managers: In troublesome situations, to alleviate pressure on
the frontline employee, firms may shift responsibility for the interaction to managers.
Sources of Conflict
Front-line employees often face interpersonal and inter-organisational conflicts on the job. A subordinate
service role describes the perception of an employee (e.g. waiters or bus drivers) feeling they perform a
role that gives them a status below that of the customer. The frustration of front-line employees can lead
to stress, dissatisfaction or even burnout. Managers need to understand the conflicts their front-line
employees are dealing with.
Person/Role Conflict - Boundary spanners might feel a conflicts between what they are asked to do
and their own personalities, orientations or values. It might also occur when an employee is asked to
wear specific clothing or change aspects of their outward appearance to conform to the job
requirements.
Organisation/Client Conflict - This is a conflict between the employees two bosses: the organisation
and the individual customer. The employee might have to chose whether to follow the policies or to
satisfy the customers demands. The conflict is the greatest when the employee believes that the
organisation is wrong.
Inter-Client Conflict - This type of conflicts occurs when serving customers with unequal expectations
and requirements. When serving customers in turn (e.g. at a supermarket checkout), spending
additional time to customise the service and to satisfy one particular customer, waiting customers
might become dissatisfied as their needs are not being met in a timely manner. When serving many
customers at the same time (e.g. a teacher), employees often find it difficutl to serve all needs of a
heterogeneous group.
Strategies for Delivering Service Quality Through People

Hiring the Right People
To deliver service quality effectively, hiring the right people should be a key focus.
Compete for the Best People - Companies have to compete to hire the best employees.
Hire for Service Competencies and Service Inclination - Service competencies are the skills and
knowledge necessary to do the job. These might be degree related (e.g. doctors or airline pilots) or
related to basic intelligence or physical requirements (e.g. a checkout assistant must possess basic
mathematical skills). Service inclination is the employees interest in doing service-related work,
which is reflected in their attitudes towards serving customers.
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Be the Preferred Employer - This is achieved by being known for extensive training, career and
advancement opportunities, attractive incentives and quality goods and services that employees are
proud be associated with.
Develop People to Deliver Service Quality

Train for Technical and Interactive Skills - Employees need ongoing training in the necessary skills
and knowledge (e.g. underwriting procedures in an insurance company). These skills might be taught
through formal education or on-the-job training. Interactive skills should be trained to allow for
employees to be courteous, caring, responsive and empathic.
Empower Employees - Empowerment means giving employees the skills and tools as well as the
authority to serve the customer. Front-line employees need to be empowered to accommodate
customer requests and to recover on the spot when things go wrong. Empowered employees are
likely to feel better about their jobs and themselves, to interact with customers with more warmth
and enthusiasm and generate great word-of-mouth by doing special and unique things.
Promote Teamwork - It is suggested that the customers satisfaction is enhanced when employees
work as a team.
Provide Needed Support Systems

Measure Internal Service Quality - Internal customer service audits can be used to implement a
culture of internal service quality. By encouraging supportive internal service relationships, internal
service can be measured and rewarded. One risk this approach brings with it is that people are so
focussed on meeting internal customers demands that they might forget their job is to serve the
external customer.
Provide Supportive Technology and Equipment - Employees get frustrated when they do not have
the right equipment at their disposal to do their jobs effectively and efficiently.
Develop Service-Oriented Internal Processes - Internal processes should be designed with customer
value and customer satisfaction in mind. In other words, these internal processes must support
quality service performance to the external customer.
Retain the Best People

When investing into hiring and training employees, companies must attempt to retain them.
Include Employees in the Companys Vision - In order to remain motivated and stick with the
organisation, employees should understand the organisations vision.
Treat Employees as Customers - If employees are taken care of, they are likely to stay with the
organisation. Companies should offer their employees jobs (with assorted benefits) and quality of
work life.
Measure and Reward Strong Service Performers - Rewarding and promoting the strongest service
performers might result in retaining them within the organisation. The reward systems need to be
linked to the organisations vision and to outcomes that are truly important.
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Empower Employees or Not?

The benefits are:
Faster response to customer desire

Faster response to dissatisfied customers
More true warmth and enthusiasm
Source of service ideas
Positive WOM of customers
The costs are:

Large investment in selection and training
Higher labour costs
Possibly slower and inconsistent service
Potential for feelings of unjustified treatment
Potential for bad decision and give aways (e.g. giving away free beers to people you know)

Boundary spanners Hiring service employees
Corporate culture Internal customer service audit
Emotional labour Internal marketing
Employee retention Service culture
Employee satisfaction Service leadership
Employees are the brand Service profit chain
Empowerment Subordinate service role
Chapter 13 - Delivering Service Through Electronic

Channels and Intermediaries
Delivering Service Through Electronic Channels
The Internet has revolutionised the way we purchase our goods and services, manage our money, and
gather information. Electronic channels differ from the other channels as they do not require direct
human interaction. The more a service relies on technology, the less it requires face-to face contact with
service providers.
Benefits of Electronic Channels

Consistent Delivery for Standardised Services - Electronic channels do not alter the service, as
channels with human interaction might do. For instance, the process of booking an easJet flight is the
same for each customer.
Low Cost - Electronic media offer more efficient means of delivery than interpersonal distribution.
Customer Convenience - Customers can access the companys service(s) when and where they want.
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Wide Distribution - These channels also allow the service provider to interact with a large number of
intermediaries. The cost and effort for promotional activities through offline channels are higher than
the costs to accomplish the same activities with electronic channels.
Customer Choice and Ability to Customise - The Internet allows many customers to design their
service as the want (e.g. the options available in movies and videos to customers who use video-on-
demand services)
Quick Customer Feedback - Rapid customer feedback is one of the major strengths of e-commerce.
Companies can find out immediately what consumers think of services and can gain far higher
participation from customers in surveys.
Challenges in Distributing Services Through Electronic Channels

Price Competition - It has always been difficult to directly compare features and prices of services
with each other, whereas goods could always be compared in retail settings. The Internet has
changed that and has made it possible to compare prices for a wide variety of services.
Inability to Customise Due to the Standardised Nature of Electronic Services - When you are on a
distance learning course for example, it is difficult to ask questions, interact with the lecturer, raise
points for clarification, etc.
Lack of Consistency Because of Customer Involvement - Electronic channels are very effective in
minimising the inconsistency from employees and providers of service, however when customers use
the technology themselves which can lead to frustration and errors based on their level of
technological readiness.
Security Concerns - One issue many customers might have is the concern about the security of
information, particularly health and financial information. Many customers are hesitant about giving
credit card information on the Internet.
Competition from Widening Geographies - Historically, many services were protected from
competition because customers had limited choice among the providers they could physically drive
to. Through the Internet, many services can be purchased from service provides far from the local
area.
Delivering Service Through Mobile Channels

Smartphone Applications
The growth in smartphone and tablet computers has provided an important platform for delivering
services. Software developed for these platform (apps) now include reservation systems for hotels and
airlines, retailing channels, entertainment and games, and so on. This allows customers to access the
information whilst on the move. Simplicity and functionality are crucial for customers to have a good
perception of the service. Smartphones also allow the service provider to provide location-based services
based on the GPS information provided.
Other Forms of Service Distribution

When a service is delivered through intermediaries, there are two service marketers: the service
principal, i.e. the entity that creates the service concept, and the service deliverer, i.e. the entity
interacting with the customer in the actual execution of the service. Travel and insurance agents, amongst
others, represent multiple service principals providing a retail function for customers for them to have a
broader choice. The primary types of intermediaries used in service delivery are franchisees, agents and
brokers.
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Direct or Company-Owned Channels

It is important to note that many services are distributed from provider to consumer directly. Some of
these are local services (e.g. doctors, dry-cleaners, etc.), others are national chains with multiple local
outlets (e.g. HSBC bank). The major benefit of company-owned channels is that the organisation has
complete control over the outlets. Disadvantages include that the company has to bear all financial risks,
they are not experts in all international markets which makes it difficult for them to succeed beyond their
home countries borders.
Franchising
Franchising is the most common type of distribution in services. It works particularly well with services
that can be standardised and duplicated through the delivery process, service policies, branding,
warranties, guarantees and promotion.
There are different forms of franchising:
1. Product/Trade franchising: a. manufacturer-distributor (e.g. car dealer)

b. manufacturer-wholesaler (e.g. Coca-Cola)
c. wholesaler-distributor (e.g. buying association)
2. Business Format: e.g. McDonalds, Body Shop, Albert Heijn
3. Conversion Franchise: Belongs to a chain, but named differently (e.g. Best Western Hotel)
One major advantage of franchising is quick growth.
Agents and Brokers

An agent is an intermediary acting on behalf of a service principal (such as an estate agent) or a customer
(e.g. travel agent) and is authorised to make agreements between the principal and the customer. A
broker is an intermediary who bring buyers and sellers together while assisting in negotiation. They are
paid by the party who hired them, rarely become involved in financing or assuming risk and are not long-
term representatives of buyers or sellers.
Common Issues Involving Intermediaries

Channel Conflict Over Objectives and Performance - A channel conflict can occur between the
service provider and the service intermediary when the various parties have different goals,
competing roles and rights, and conflicting views of the way the channel is performing.
Difficulty Controlling Quality and Consistency Across Outlets - A lack of uniform quality can result
from multiple outlets delivering services. Even when a single outlet performs poorly, the service
principal is likely to suffer because the entire brand and reputation are jeopardised.
Tension Between Empowerment and Control - Unless an intermediary delivers service exactly the
same way the successful company outlets provide it, the service may not be as desirable to
customers. From the principals point of view, as its name and reputation are on the line in each
outlet, careful control is a necessity. Control, however, can have negative effects on the franchisees
given that they are usually entrepreneurs by nature and want to operate their own business.
Channel Ambiguity - When a control strategy is not chosen, doubts exist about the roles of the
company and the intermediary. Who will undertake market research? Who should train a dealers
customer service representatives? In other words, the roles of the principal and its intermediaries can
be unclear, which can lead to confusion and conflicts.
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Strategies for Effective Service Delivery Through Intermediaries

Control Strategies
In this category of strategies, the service principal believes that intermediaries perform best when
standards for revenues and service performance are created. Some franchisors maintain control by
ongoing measurement programmes. In addition, some franchisors control their franchisees through
terminations, non-renewals, quotas and restrictive supplier sources.
Empowerment Strategies
If the service principal allows greater flexibility to intermediaries based on the belief that their talents are
the best revealed in participation, we are talking about an empowerment strategy. The intermediary
should be supported and provided customer research studies outcomes in order for them to improve
their service delivery. Also, they need to be given the right tools and support systems.
Partnering Strategies
Partnering strategies between intermediaries and service principals have a very high potential for
effectiveness to learn together about end customers and improve service delivery. By aligning company
and intermediary goals at an early stage, both the service principal and intermediary strive for the same
goals. Consultation between principals and intermediaries should also occur on a regular basis.

Agents and brokers Partnering strategies
Channel ambiguity Franchising
Channel conflict Location-based services
Control strategies Mobile apps
Electronic channels Service deliverer
Empowerment strategies Service principal
Chapter 14 - Managing Demand and Capacity

The Underlying Issue: Lack of Inventory Capability
The fundamental issue underlying supply and demand management is that services are impossible to be
inventoried during periods of slow demand and be used later when demand increases. Also, services
cannot be transported to another place or transferred from person to person. The lack of inventory
capacity combined with fluctuating demand leads to four different outcomes:
1. Excess Demand - The level of demand exceeds maximum capacity; some customers will be turned
away, resulting in lost business opportunities. Customers who do get served might not be given the
service quality they were promised.
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2. Demand Exceeds Optimum Capacity - No one is being turned away, however the quality of service
may still suffer due to
overuse or crowding.
3. Demand and Supply are
Balanced at the Level of
Optimum Capacity - Staff
and facilities are occupied
at an ideal level, and
customers receive quality
service without undesirable
delays.
4. Excess Capacity - The level
of demand is below
optimum capacity, leading
to productive resources in the form of labour, equipment and facilities are underutilised. In some
cases, this might be beneficial for the customers (e.g. at a theme park), though if the service quality
depends on the presence of other customers (e.g. at a football match), customers may be
disappointed.
To identify effective strategies so as to manage supply and demand fluctuations, the organisation has to
have a clear understanding of its demand patterns.
Capacity Constraints
Time, Labour, Equipment, Facilities
Determining a companys (primary) capacity constraint, is important to design strategies that help them
deal with supply and demand issues.
Time - For instance, a lawyers or a hairdressers major constraint might be time. When they are not
available or their time is not used productively, profits are lost.
Labour - Companies employing a large number of service providers might have labour constraints,
meaning that during times of high demand the staff cannot meet the demand although they are
operating at peak capacity.
Equipment - Health clubs and sports centres, for example, have to deal with this limitation caused by
insufficient equipment during peak hours (e.g. during lunch; before/after work)
Facilities - Hotels only have a finite number of rooms to sell, airlines have a limited number of seats
on their aircraft and a restaurants capacity is restricted to the number of tables and seats available.
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Optimal Use of Capacity vs. Maximum Use of Capacity

To fully understand capacity issues, knowing the difference between optimum and maximum use of
capacity; these might not be the same. Using capacity at an optimum level means that resources are fully
employed but not overused. In that case, customers receive service quality in a timely manner. Maximum
capacity, in contrast, represents the absolute limit of service availability which might result in excessive
waiting times for customers. This may vary, though, as for a football match, for instance, optimum and
maximum capacity might be the same as we have seen in the first part of this chapter.
Demand Patterns
To manage the fluctuations in demand of a service, companies must have a clear understanding of their
demand patterns. In order to do so, information about the predictability and underlying reasons for
demand must be gathered:
Recording of Demand Patterns - The organisation should record the level of demand over relevant
time periods. Depending on the service, these patterns should be detected for different times of the
day, days of the week or months. Sometimes even seasonality can have a great impact on demand,
so in that case graphs should be drawn for data of the last year.
Predicting Cycles - Once the data has been gathered, cycles might be predicted. If that is the case,
what are the underlying causes? These could be linked to certain holidays in a retail setting or when
taxes are due for a firm of tax advisors.
Random Demand Fluctuations - Sometimes the pattern might appear to be random, though even in
these cases causes can often be identified. These might include weather conditions or natural
disasters such as floods or storms.
Demand Patterns by Market Segment - Patterns within patterns, i.e. for different market segments
might be identified.
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Strategies for Matching Capacity and Demand

When a company has a clear grasp of
its capacity constraints and an
understanding of the demand
patterns, it can develop strategies for
matching capacity and demand.
Shifting Demand to Match

Capacity
With this strategy, organisations seek
to shift customers away from periods
in which demand exceeds capacity,
perhaps by convincing them to use
the service at a time of lower demand. This can be done by:
Reducing demand during peak times;

Communicating with customers to let them know the time of peak demand so they can chose to use
the service at alternative times and avoid crowding or delays;
Modifying timing and location of the service delivery by changing opening hours that match with
customers availabilities;
Offering incentives for non-peak usage;
Setting priorities, i.e. taking care of loyal or high-need customers first;
Charging the full price during periods of time when demand is high.
Adjusting Capacity to Meet Demand

Rather than shifting demand to match capacity, the fundamental idea here is to stretch and align the
capacity to match customer demand. This can be done by temporarily:
Stretching time, i.e. extending the hours of service temporarily;

Stretching labour, i.e. by asking employees to work longer during periods of peak demand;
Stretching facilities, i.e. adding chairs and tables in a restaurant or an extra carriage to a train;
Stretching equipment, i.e. stretching computers, power lines, and maintenance equipment for short
periods to accommodate peak demand.
Adjusting Capacity to Meet Demand

This basic strategy, sometimes known as a chase demand strategy, allows for companies to adjust their
service resources creatively to match capacity with customer demand. They can do so by:
Using part-time employees to align their labour resources with demand;

Outsourcing whenever firms have a temporary peak in demand for a service they cannot perform
themselves, e.g. software-related services;
Renting or sharing facilities or equipment during periods of peak demand, e.g. express mail delivery
services rent or lease trucks during the peak holiday delivery season;
Scheduling downtime during periods of low demand, such as repair, maintenance and renovations;
Cross-training employees so that they can shift among tasks and can fill in wherever they are most
needed;
Modifying or moving facilities and equipment, e.g. hotels reconfiguring rooms (two rooms with a
locking door in-between that can be rented to different parties or used as a suite).
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Revenue Management
Revenue management (also referred to as yield management) refers to matching demand and supply in
capacity-constrained services. Its goal is to produce the best possible financial return from a limited
available capacity.
Yield = Actual Revenue Potential Revenue
Implementing a Revenue Management System

In order to implement a revenue management system, an organisation needs detailed data on past
demand patterns by market segment as well as methods of projecting current market demand. These
programmes can significantly improve revenues, however it does not come without risks. By becoming
focused on maximising financial returns through differential pricing, an organisation my encounter the
following problems:
Loss of competitive focus, i.e. over-focussing on profit maximisation and hence neglecting aspects of
the service that provide long-term competitive success;
Customer alienation, i.e. if customers find out they paid a higher price for a service than someone
else, they might perceive the price as unfair;
Overbooking, i.e. if customers fall victim to overbooking and are not compensated adequately;
Lack of employee training, i.e. employees need to understand the purpose of the system, how it
works and what the implications are;
Inappropriate organisation of the revenue management function, i.e. a revenue management
system can be difficult to use if companies have decentralised reservations systems.
Queuing Strategies: When Demand and Capacity Cannot Be Matched

Sometimes, it is impossible to manage capacity to match demand, or vice versa. Waiting customers are a
fact of life for most organisations. It can occur on the telephone, in person or even through the mail.
Waiting is not something most people tolerate well; customers are looking for efficient quick services with
no wait. To deal with the inevitable, organisations can utilise a variety of queuing strategies.
Customers perception of the waiting time might differ from the actual waiting time. Objective Reality in
waiting describes the fact that customers would prefer not having to wait at all. However, naturally, this is
impossible; the costs for a company would be far too high. Subjective Reality implies that customers judge
based on the perceived waiting time rather than on the actual waiting time. Depending on the situation,
the cost of waiting for an organisation can be quite high e.g. if people have to wait too long in a
restaurant, they might eat somewhere else or never come back.
There are several levels of perceived control that influence customers perceptions of waiting times.
Behavioural control describes the customers ability to change the real waiting time. For instance, this
can be done by purchasing priority boarding for a flight. When customers have decisional control, they
cannot change the actual waiting time, however they can decide to avoid the wait altogether. For
example, a customer who sees the queue at a supermarket checkout is very long can decide to turn
around and go to a different supermarket for their groceries. Cognitive control is given when people are
provided with information. In the case of an unexpected wait in the train caused by someone who has
committed suicide, for instance, customers should be informed about this incident. Even though they
cannot do anything to reduce the actual waiting time, it decreases their stress.
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Queue Configurations
Single Queue, Single Stage

e.g. elevator, bus, etc.
Single Queue, Sequential Stages

e.g. University restaurant: throw away food, put away tray
Parallel Queues to Multiple Servers

e.g. Supermarket, McDonalds
Designated Queues
e.g. bank, airport check-in
Single Queues to Multiple Servers (Snake)

e.g. checkouts Primark, Efteling
Take a Number
e.g. Studentdesk
Parallel Queues to Multiple Servers can cause much frustration amongst customers as they might
perceive another server to work much faster than the one they are queuing for. A small extent of control
aggravates this. Single Queues to Multiple Service are not frequently used in the Netherlands, although
they work according to a first come, first served approach and present the most social justice.
Differentiate Waiting Customers

Though the most popular discipline is first come, first served not all customers need to wait the same
length of time. The waiting time can be differentiated based on factors like importance of the customer,
urgency of the job, duration of the service or payment of a premium price.
Making Waiting Pleasurable Or At Least Tolerable

The actual length of the wait will affect how customers feel about their service experience, but it is not
the actual time spent waiting that will affect how customers feel about their service experience - it is how
customers feel about the wait and their perceptions during it. The psychology of queueing including
several principals about waiting in lines has implications for how organisations can make waiting times
more pleasurable.
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Unoccupied Time vs. Occupied Time: reading materials, interesting displays, mirrors, fish tanks,
music, entertainment, etc.
Pre-Process Waits vs. In-Process Waits: waiting to be seated for 10 minutes feels longer than waiting
for the food for 20 minutes; waiting to pay (= post-process wait) is the worst form given that
customers have already achieved their goal
Anxiety - uncertainty caused by situation, e.g. waiting for the doctor to come back with test results
Uncertain Waits - when the length of the wait is unknown, the actual waiting time is perceived longer
Unexplained Waits vs. Explained Waits - explaining the reasons for a wait (decisional and cognitive
control)
Unfair Waits vs. Equitable Waits - customers who have to wait longer than other customers who
have arrived later
Value of the Service - the more expensive/valuable the service, the more customers accept longer
waiting times
Solo Waits vs. Group Waits - group waits are perceived shorter than solo waits
Capacity Psychology of queueing

Capacity constraints Queueing strategies
Demand patterns Revenue management/ yield management
Matching capacity and demand
Chapter 15 - Service Recovery

A service failure is a service performance that falls below a customers expectations in such a way that it
leads to dissatisfaction. Service recovery refers to the actions taken by an organisation in response to a
service failure. The majority of customers do not complain when they experience a problem.
The Impact of Service Failure and Recovery

Resolving customer issues effectively has a strong impact on customer satisfaction, loyalty, word-of-
mouth communication and bottom-line performance. Customers who experience service failures but who
are ultimately satisfied thanks to recovery efforts will be more loyal than those whose problems are not
resolved. Effective service recovery strategies can have multiple impacts: they can (1) increase customer
satisfaction, loyalty and positive word-of-mouth; (2) provide information that can be used to improve a
companys services which leads to (3) increased chances of doing it right the first time when dealing with
subsequent customers.
When a customer is initially dissatisfied with the service but consequently experiences great service
recovery, they might be even more satisfied and loyal as a result. This phenomenon is referred to as the
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service recovery paradox. However, it highly depends on the context and the situation. Doing it right the
first time, therefore, is the best and safest strategy in the long run.
How Customers Respond to Service Failures

Customers who experience service failures can respond in a variety of ways. It is assumed that after a
service failure, dissatisfaction will occur to some extent, i.e. they feel anger, discontent, disappointment,
self-pity and anxiety. Many customers are passive about their dissatisfaction which means that they say or
do nothing; these customers are the least likely to return and are a threat to future success.
Why People Do and Dont Complain

Those people who do complain believe that positive consequences will occur and that there are socail
benefits (e.g. It will help others in the future!) of to them complaining; they believe they should and will
be provided compensation. The exact opposite is true for those who do not complain; they believe
complaining is a waste of effort and time and that nothing positive will occur as a result of their actions.
Also, they may believe the failure was somehow their own fault. Personal relevance can also influence
whether or not people take action. If the failure is really important to them, if it is expensive, high-risk or
ego involving, people are also more likely to complain. Finally, people are more likely to complain when
here are remote channels set up that make it easier to voice their dissatisfaction.
Types of Complaint Actions

Customer complaint actions can be of various types. A customer can either decide to complain to the
service provider on the spot, giving the company the opportunity to respond immediately, or later by
telephone, in writing, etc. This leaves the company with a chance to recover. Some customer chose not to
complain directly to the provider but rather spread negative word-of-mouth (both online and offline)
about the company. This can be extremely detrimental as it can reinforce the customers feelings and
spread that negativity to others. Lastly, customers can also decide to complain to third parties such as the
Consumer Association, government bodies or to radio/television programmes.
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Types of Complainers
Passives are unlikely to say anything to the provider nor to spread negative WOM, thinking that the
consequences will not merit the time and effort.
Voicers actively complain to the servie providers but are not very likely to spread negative WOM,
tending to believe that their actions have social benefits.
Irates are more likely to engage in negative WOM; given they are fairly angry with the provider, they
might switch to a competitor but are unlikely to turn to a third party.
Activists are characterised by above average tendency to complain to all dimensions - the provider,
their friends and family and to third party - which can be linked to their very optimistic sense of the
potential positive consequences of all types of complaining.
Customers Recovery Expectations

When they take the time and effort to complain, customers generally have high recovery expectations,
i.e. they expect the firm to be accountrable and to be helped/compensated quickly and adequately.
Customers want to understand what happened and for firms to be accountable for their actions. They
expect an aplogy when things go wrong, and a company that apologises shows curtesy and respect.
In addition, customers want fair treatment and justice in handling their complaints:
Outcome Justice - Customers expect outcomes or compensation to match the level of their
dissatisfaction; this can take the form of actual monetary compensation, an apology, future service
for free, etc.
Procedural Justice - In addition, customers expect fairness in terms of policies, rules and timeliness of
the complaint process. That is, they want easy access to the complaint process, and they want things
handled quickly, preferably by the first person they contact.
Interactional Justice - Interactional justice refers to the customer wanting to be treated politely, with
care and honesty. This form of fairness can dominate the other forms if customers feel the company
has uncaring attitudes and employees have done little to try to resolve the problem.
Switching vs. Loyalty Following Service Recovery

Whether or not a customer will switch to another provider after a service failure depends on a number of
factors: the magnitude and criticality, i.e. the more serious the failure, the more likely the customer is
going to switch; the customers relationship with the firm, i.e. for how long the customer has been a
client of the firm; and the customers overall attitude to service switching. Finally, the decision to switch
to a new provider may not occur immediately, but may follow an accumulation of events.
Service Recovery Strategies

Make the Service Fail-Safe: Do It Right the First Time! - By doing it right the first time, recovery per
se becomes superfluous.
Encourage and Track Complaints - Develop the mind-set that complaints are good, make
complaining easy, be an active listener, ask customers about specific service issues and conduct short
surveys.
Act Quickly - Customers want quick responses to their complaints; staff should therefore be trained
and empowered to take actions.
Provide Adequate Explanations - Customers try to understand why the failure occured. Explanations
can help to defuse negative reactions and convey respect for the customers
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Treat Customers Fairly - Customers expect to be treated fairly in terms of the outcome they receive,
the process by which the service recovery takes place, and the interpersonal treatment received from
employees attempting to address the service failure.
Cultivate Relationships with Customers - If the firm fails in service delivery, those customers who
have a strong relationship with the firm are often more forgiving of service failures and more open to
the firms service recovery efforts.
Learn from Lost Customers - Formal market research to discover the reasons customers have left can
assist in preventing service failures in the future.
Act Before Being Forced to Do So Through Legislation - National or European governmental bodies
may step in and ompose rugliations and legisation to ensure the protection of the consumer.
Service Guarantees
A guarantee is an assurance that a product offered by a firm will perform as promised and, if not, some
form of reparation will be undertaken by the firm.
The benefits include that service guarantees can serve as a marketing tool, a thorough customer focus,
clear standards for the organisation, generate immediate feedback from customers and reduce the sense
of risk for customers.
Companies should not use a guarantee if service quality is poor, service quality is truly uncontrollable,
potential exists for customer abuse of the guarantee, costs of the guarantee outweigh the benefits or if
customers perceive little risk in the service.
Customer complaint actions Service guarantees

Empowerment Service recovery
Fairness Service recovery paradox
Interactional justice Service switching
Lost customer research Types of complainers
Outcome justice Web-based consumer opinion platforms
Procedural justice Zero defects
Recovery expectations
Chapter 16 - Managing External and Internal

Communications
Customer expectations are shaped by uncontrollable and company-controllable factors. Uncontrollable
factors include word-of-mouth, social media, publicity, customer-generated media, and so on.
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Controllable factors are company advertising, corporate websites, mobile apps, personal selling and
service promises made by service employees.
The Need for Coordination in Online and Offline Marketing Communication

Channels
Nowadays, marketing communication is more complex than it used to be. While customers, in the past,
received marketing information about goods and services from a limited number of sources, such as
mass-communication ones like TV and newspaper, in todays digital environment, consumers receive
information through many more sources - websites, direct mail, interactive communication tools
(Facebook, Linkedin, Twitter), blogs, apps, viral marketing and gaming.
Any company sending out promotional messages through multiple channels needs to be certain that
customers receive unified messages and promises. Integrated marketing communications, therefore, are
more important than ever; this term refers to companies carefully integrating and organising all of their
external communications channels to build a strong brand identity in the marketplace. For services, a
more complex type of integrated marketing communications is needed than it is for goods. The aim is to
create consistent service promises.
Key Service Communication Challenges

Discrepancies between what is communicated about a service and what a customer receives, or perceives
that they receive, can powerfully affect consumer evaluations of service quality The following factors
strongly contribute to this:
Service Intangibility
The intangible nature of services creates problems for consumers both before and after purchase. Before
buying services, consumers have difficulty understanding what they will be buying; during purchase,
consumers often cannot clearly see the differences among services and after purchase, consumers have
trouble evaluating their experiences. There are five properties with implications for services marketing
communication:
Incorporeal existence - The service product itself does not occupy physical space; showing the service
is difficult, if not impossible.
Abstractness - Service benefits such as financial security, fun or health do not directly correspond
with objects, making it difficult to visualise and communicate.
Generality - Many services are described in generalities (wonderful experience, superior education),
making them difficult to differentiate from those of competitors.
Non-searchability - Given that service is a performance, it cannot be previewed or inspected in
advance of purchase.
Mental impalpability - Services are often complex, multidimensional, and difficult to grasp mentally
Research has shown that the greater the risk that customers perceive in purchasing services, the more
actively they will seek and rely on online or offline word-of-mouth communications to guide their choices.
Management of Service Promises

A serious problem occurs when a company fails to manage service marketing communications and service
falls short of what is promised. This often occurs when the part of the company making the promise lacks
the information necessary to make accurate statements.
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Management of Customer Expectations

Marketing must accurately reflect what happens in actual service encounters; operations must deliver
what is promised in communications. Raising expectations to unrealistic levels may lead to more initial
business but invariably fosters customer disappointment and discourages repeat business.
Customer Education
Service companies must educate their customers. If they are unclear about how the service will be
provided, what their role in delivery involves, and how to evaluate services they have never used before,
they will be disappointed.
Internal Marketing Communications

Multiple functions in the organisation, such as marketing and operations, must be coordinated to achieve
the goal of service provision. Because service advertising and personal selling promise what people do,
frequent and effective communication across functions - horizontal communication - is critical.
Five Categories of Strategies to Match Service Promises With Delivery

The goal of an organisation is to deliver service that is greater than, or equal to, the promises made.
Address Service Intangibility

Use narrative to demonstrate the service experience: consumers with low familiarity with a service
category prefer appeals based on stories based on lists of service attributes;
Present vivid information, i.e. create a strong or clear impression on the senses (e.g. British Airways:
To fly. To serve.);
Use interactive imagery: two or more items in some mutual action, resulting in improved recall (e.g.
an insurance company using an umbrella in their logo to demonstrate that they provide protection);
Focus on the tangibles, e.g. showing a banks gold credit card to provide cues about the nature and
quality of the service;
Use brand icons to make the service tangible, e.g. Ronald McDonald to generate brand visibility;
Use association, physical representation, documentation and visualisation to tangibilise the
service
Association: linking the service to a tangible person, place or subject (e.g. Virgin
Richard Branson);
Physical representation: showing tangibles that are part of the service, e.g. employees,
building or equipment;
Documentation: featuring objective data and factual information;
Visualisation: vivid mental picture of a services benefit, such as showing people on
vacation having fun;
Feature service employees in communication;
Feature satisfied customers in the communication;
Encourage word-of-mouth communication: communications that generate talk because they are
humorous, compelling or unique can be particularly effective;
Leverage social media and make use of video-sharing networks.
Managing Service Promises

In services, marketing employees make promises about what other employees in the organisation will
fulfil. Given that what employees do cannot be standardised to the same extent and physical goods,
greater coordination and management promises are required.
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Creating a Strong Service Brand

In contrast to branding in product situations where each individual product has its own brand, the primary
brand in service is frequently to company itself. Companies like KLM, DHL and Vodafone all focus on
communications about their services rather than about the individual products they offer.
Coordinate External Communication

This task has become far more challenging because of the emergence of new types of media in addition to
traditional types of media:
Websites: companys own online communication to customers;

Search Engine Optimisation: achieving the highest position in search engines listing of results for a
specific combination of keywords entered by search engine users;
Traditional Advertising;
Online Advertising: this includes banner advertising and paid search advertising;
Social Media Advertising;
Mobile Apps;
Sales Promotion;
Public Relations;
Direct Marketing;
Viral Marketing: the seeding of interesting content or website, blogs or by e-mail
Personal Selling
Manage Customer Expectations

Make realistic promises;
Offer service guarantees;
Offer choices, e.g. two-page report in three days or 10-page report in a week - that way, customers
understand the trade-off and are asked to make the choice themselves;
Create tiered-value service offerings, i.e. offering different versions of the service (e.g. green, gold
and platinum credit card). This leaves the customer more choice, consequently familiarising
themselves with specific service expectations. Secondly, the company can identify which customers
are willing to pay more for higher service levels.
Manage Customer Education

Prepare customers for the service process, i.e. whenever a customer is inexperienced or a service
process is new or unique, education about what to expect is essential (e.g. check-in process airline);
Confirm performance to standards and expectations;
Clarify expectations after the sale;
Teach customers to avoid peak demand periods and seek slow demand periods
Manage Internal Marketing Communication

Create effective vertical and horizontal communication;
Sell the brand inside the company;
Create effective upward communication;
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Advertising Public relations

Banner advertisement Personal selling
Corporate websites Sales promotion
Customer education Search Engine Optimisation
Customer expectations Services marketing triangle
Direct marketing Service promises
Horizontal communications Social Media Advertising
Integrated service marketing communications Tangibilisation strategies
Internal Marketing Tiered-value service offerings
Mobile apps Vertical communications
Paid search advertising Viral marketing
Chapter 17 - Pricing of Services

Three Key Ways that Service Prices Are Different For Consumers
Customer Knowledge of Service Prices
Service Variability Limits Knowledge - Given that services are not created in a factory, service firms
have great flexibility in the configurations and can offer an infinite variety of combinations; this leads
to a complex and complicated pricing structure.
Providers Are Unwilling to Estimate Prices - Many providers are unwilling to estimate price in
advance. The reason for that is that they dont know themselves what the services will involve until
they have fully examined the clients situation.
Individual Customer Needs Vary - Some hairstylists, for instance, charge different prices for different
customers based on their hair length, type of haircut, and so on.
Collection of Price Information is Overwhelming in Services - Customers feel overwhelmed with the
information they need to gather. If customers want to compare prices of e.g. dry cleaning, they will
have to call or to drive to different outlets. Customers might therefore lack a reference price for
certain services.
Prices Are Not Visible - The existence of reference prices is influenced by price visibility, which can
hardly be found with services. If costs are not know, price is unlikely to be a key criterion for
purchase. However, it is an important criterion for repurchase.
The Role of Non-Monetary Costs

Non-monetary costs represent other sources of sacrifice perceived by consumers when buying and using
a service. These include:
Time Costs - Most services require direct participation of the consumer and thus consume real time:
both waiting time and time interacting with the service provider.
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Search Costs - The effort invested to identify and select among services you desire are the search
costs. These are often higher than
Convenience Costs - If customers have to travel to a service, the convenience (or, perhaps more
accurately, inconvenience costs) increase.
Psychological Costs - These include fear of not understanding (insurance), fear of rejection (bank
loans), fear of outcomes (medical treatment or surgery)
Customers non-monetary costs priorities might vary; some customers might accept having to travel
longer for a cheaper car service centre or to one that provides better-quality service.
Non-monetary costs can be reduced by increasing monetary costs. For instance, customers might be
willing to pay extra to have their purchase items delivered to their home.
Approaches to Pricing Services

Cost-Based Pricing - In cost-based pricing, a company determines expenses from raw materials and
labour, add amounts for overhead costs and profit, and thereby arrives at the price.
Competition-Based Pricing - This approach focuses on the prices charged by other firms in the sam
industry or market, however it does not always imply charging the identical rate other charge.
Rather, it uses others prices as an anchor for the firms price.
Demand-Based Pricing - This strategy involves setting the prices consistent with customer
perceptions of value: prices are based on what customers will pay for the service provided.
Pricing Strategies that Link to the Four Value Definitions

There are four different value strategies (i.e. what a customer perceives as value) and corresponding
pricing strategies:
Value Is Low Price - monetary price is the most important determinant of value to a customer
(Monetary Give)
Discounting
Odd pricing (e.g. 39.90 instead of 40.00)
Synchro-pricing (i.e. adjust prices according to customer demand, e.g. early bird/last
minute plane tickets)
Dynamic pricing (i.e. technology-led synchro-pricing, frequently used as part of a yield
management model)
Value Is Everything I Want In a Service - the customer is concerned with what they receive (Get)
Prestige pricing (i.e. charging a higher price for the luxury nature of the service)
Skimming pricing (i.e. introducing a product at high prices with large promotional
expenditures to skim the customers most willing to pay the highest prices)
Value Is the Quality I Get for the Price I Pay - when customers consider both quality and monetary
price (Get - Monetary Give)
Value pricing (i.e. giving more for less by assembling a bundle of services and then pricing
them lower than they would cost separately)
Market segmentation pricing (i.e. charging different prices to different groups of
customers
Value Is All That I Get For All That I Give - when customers not only consider the benefits they
receive, but also the time, money, and effort put into a service (Get - Total Give)
Price bundling (i.e. pricing and selling grouped rather than individual services)
Complementary pricing
74
Results-based pricing (i.e. price the service based on the results of the service)

Competition-based pricing Penetration pricing
Complementary pricing Perceived value
Cost-based pricing Prestige pricing
Demand-based pricing Price bundling
Discounting Reference prices
Dynamic pricing Results-based pricing
Market segmentation pricing Skimming pricing
Non-monetary costs Synchro- pricing
Odd pricing Value pricing
Chapter 18 - The Financial Impact of Service Quality

Many managers still see service and service quality as costs rather than as contributors to profits. Service
qualitys results - like advertising results - are cumulative, and therefore, evidence of the link may not
come immediately or even quickly after the investments, and, like advertising, service quality is one of the
many variables - among them pricing, advertising, efficiency and image - that simultaneously influence
profits.
Service and Profitability: The Direct Relationship

Many studies have identified a strong link between customer satisfaction and firm probability. As stated
previously, customer satisfaction is a broader concept than service quality but service quality is almost
always an important driver of customer satisfaction across all types of industries. Furthermore, it has
been found that the link between customer satisfaction and firm performance is asymmetric. That means
that increases in the former do not always have the same impact on the latter. The strength of the
satisfaction-profitability link varies across industries as well as across firms within an industry.
Offensive Marketing Effects of Service: Attracting More and Better Customers

Service quality can help companies attract more and better customers to the business through offensive
marketing. Offensive effects involve market share, reputations and price premiums. When a service is
good, a company gains a positive reputation and through that reputation a higher market share as well as
the ability to charge more than the competitors. Customers who are satisfied with a companys service
are likely to increase the amount of money they spend with that company or the types of service offered.
Defensive Marketing Effects of Service: Customer Retention

The approach by which the company tries to retain its existing customers is called defensive marketing.
Generally speaking, the longer a customer remains with a company, the more profitable the relationship
is for the organisation. This can be explained through the following factors:
75
Lower Costs: attracting new customers is much costlier than retaining existing ones;
Volume of Purchases: customers satisfied with a companys services are likely to increase the
amount of money they spend with that company or the types of services offered;
Price Premium: a customer who notices and values the services provided by a company will pay a
price premium for those services;
Word-of-Mouth Communication: probably the best type of promotion for a service given that other
peoples opinions tend to be more credible than advertising promises - this is likely to bring new
customers to the firm.
Company Performance Measurement: The Balanced Performance Scorecard

Traditionally, companies have measured their performance almost completely on the basis of financial
indicators such as profit, sales and ROI. This short-term approach leads companies to emphasise financials
to the exclusion of other performance indicators. Nowadays, many companies have stepped away from
this approach and focus on a more comprehensive performance measurement approach: the balance
scorecard. It measures more than just the financial perspective and brings together, in a single
management report, many of the elements of a companys competitive agenda. In other words, it offers a
strategic approach for measuring all aspects of a companys performance.
An extension of the balanced scorecard is the Multi-Dimensional Performance Framework. It focuses more on
contributions of employees and suppliers, the role of the environment in which the company works and the
role of motivated personnel.
76
Balanced scorecard Service quality/customer intention relationship

Defensive marketing Service quality/profitability relationship
Offensive marketing
77
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Third European Edition

CHAPTER 1 INTRODUCTION TO SERVICES 1

CHAPTER 2 - CONSUMER BEHAVIOUR IN SERVICES 9

CHAPTER 3 - CUSTOMER EXPECTATIONS OF SERVICE 14

CHAPTER 4 - CUSTOMER PERCEPTIONS OF SERVICE 18

CHAPTER 5 - THE GAPS MODEL OF SERVICE QUALITY 24

CHAPTER 6 - LISTENING TO CUSTOMERS 27

CHAPTER 7 - BUILDING CUSTOMER RELATIONSHIP 31

CHAPTER 8 - SERVICE INNOVATION AND DESIGN 36

CHAPTER 9 - CUSTOMER-DEFINED SERVICE STANDARDS 44

CHAPTER 10 - THE PHYSICAL AND VIRTUAL SERVICESCAPE 48

CHAPTER 11 - EMPLOYEES ROLES IN SERVICE DELIVERY 53

CHAPTER 13 - DELIVERING SERVICE THROUGH ELECTRONIC CHANNELS AND INTERMEDIARIES 57

CHAPTER 14 - MANAGING DEMAND AND CAPACITY 60

CHAPTER 15 - SERVICE RECOVERY 66

CHAPTER 16 - MANAGING EXTERNAL AND INTERNAL COMMUNICATIONS 69

CHAPTER 17 - PRICING OF SERVICES 73

CHAPTER 18 - THE FINANCIAL IMPACT OF SERVICE QUALITY 75

Chapter 1 Introduction to Services

People as Recipients Possessions as Recipients

People Processing Possessions Processing

Mental Stimulus Processing Information Processing

People Processing: Services Directed At Peoples Bodies

Possession Processing: Services Directed At Peoples Tangible Possessions

Mental Stimulus Processing: Services Directed At Peoples Minds

Information Processing: Services Directed At Peoples Intangible Possessions

Service Dominant Logic

The role of interaction is important when it

Services Industries, Services as Products, Services as Experiences and

1. Service Industries and Companies

Why Services Marketing?

Service and Technology

Potential for New Service Offerings

New Ways to Deliver Services

Enabling Both Customers and Employees

Extending the Global Reach of Services

The Internet is a Service

The Paradoxes and Dark Side of Technology and Service

Characteristics of Services Impacting on Marketing Activities

Marketing implementations: Ensuring consistent service quality is challenging

Marketing implementations: Mass production is difficult

Goods Services Implications

Services impossible to inventory

Service delivery and customer satisfaction depend on employee

Customers participate in and affect the transaction

Difficult to synchronise supply and demand with services

The Services Triangle

The company or strategic business unit, or

External marketing: efforts of company to set up customers expectations as to what is to be

Services Marketing Mix

Product Place Promotion Price

Physical good features Channel type Promotion blend Flexibility

People Physical Evidence Process

Employees Facility design Flow of activities

Expanded marketing mix for services

The Servuction System Model

Services Process Matrix

Degree Low Service Factory Service Shop

High Mass Service Professional Service

Degree of Interaction and Customisation

Chapter Recap - Key Concepts

Chapter 2 - Consumer Behaviour in Services