Unit 4 - Service Quality

SYBBA Semester-III
Introduction to Service Marketing

Core Course: 170101301
UNIT 4: SERVICE QUALITY

Meaning of service quality, Components & Dimensions
Gaps in service quality
Measuring service quality
Servqual
Scope of Service quality
Cost of quality
374 Services Marketing
INTRODUCTION
One of the critical tasks of service companies is service quality management.
The quality of services is considered to be a critical success factor for contem-
porary service companies.1 Quality means the degree of excellence in service
performance. Consumers perceive the quality of a service by experiencing
the consumption process and comparing the experience with their expecta-
tions. Though consumers are co-producers and their participation also affects
the quality, service firms cannot blame them for poor quality. Service orga-
nizations need to formulate strategies for quality performance. As service
quality is antecedent to consumer satisfaction and consumer satisfaction is
antecedent to purchase intentions, there is a strong link between quality and
customer retention in the services sector.2 Therefore, how to manage service
quality is the pivotal issue for any service company.
Service organizations perceive service quality differently. Quality is related
to costs, profitability, customer satisfaction, customer relation, behavioural
intention and positive word of mouth. Service organizations ascertain qual-
ity by taking either of these variables or a combination of them. However, a
common understanding among all is that quality is one of the most influen-
“
tial factors in the consumers’ purchase decision process. According to Buzell
and Gale, “empirical research clearly shows the positive relationship between
Service quality service quality and organizational performance. Using a large database of
management is the most thousands of strategic business units, research shows that the most critical
critical task of service factor affecting a business unit’s performance is the quality of its products and
companies. Quality may services as perceived by the market relative to the perception of its competi-
be perceived in many tors.”3. A. Parasuraman, V. A Zeithaml and L. L. Berry define service quality
dimensions. It may relate as “the degree and direction of discrepancy between consumer’s perceptions
to costs, profitability, and expectations in terms of different but relatively important dimensions of
customer satisfaction, the service quality, which can affect their future purchasing behaviour.4” This
customer relations or definition clearly indicates that what the consumers assess through their own
positive word of mouth. measurement criteria based on their expectations and perceptions of a service
Customers assess service
“ experience is service quality. Service organizations, therefore, have to manage
quality with their own the concept from the customer’s point of view. In order to develop services
criteria. marketing programmes, it is necessary to understand what consumers are
really looking for and what and how they evaluate a service.
HOW IS SERVICE QUALITY PERCEIVED?

When service organizations understand how services are evaluated by con-
sumers in terms of quality, it is possible to design strategies to manage these
evaluations and influence them in a desired direction. In a service encounter,
buyer–seller interactions take place in large numbers. Each interaction obvi-
ously has a critical impact on customers’ quality perceptions. Thus, a method-
ology is necessary to understand how customers perceive quality. Grönroos5
has identified two dimensions of service quality in relation to quality percep-
tion by customers: technical quality and functional quality (see Fig. 19.1).
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Service Quality Management 375
Expected Experienced
Total Perceived Quality
Quality Quality
Image
• Market Communication
• Image
• Word-of-mouth Technical Quality: Functional Quality:
• Customer Needs What How
Fig. 19.1:
Source: C. Grönroos, “Service Quality: The Six Criteria of Good Service Quality,” Review of Business The total perceived
(New York: St. John’s University Press, 1988): 12. Reproduced with permission. quality
“
Technical Quality: What is offered to the customer from the organiza-
tion and what customers receive in their interactions with the service Service quality has two
firm is called the technical product. The quality in designing the basic dimensions—technical
service package (BSP) is reflected in the technical quality of a service. quality and functional
In other words, it speaks of the technical quality of blueprinting and its quality. Technical quality
execution. Technical quality moulds the first impressions of customers. refers to the design
Functional Quality: Technical quality contributes only to a part of the quality of the service
total quality experienced by the customer. Customers are also influ- while functional quality
enced by how they receive the service and how they experience the ser- refers to performance.
vice process in which they also played a part. Research studies indicate Consumers perceive
that customers are influenced mostly by the way technical quality is these two dimensions
transferred to them. The way service processes are handled in a service
encounter is called functional quality.
“
from the perspective of
the company image.
Image
Most consumers evaluate a firm by taking into consideration its resources,
history and ways of operating service activities. Therefore, a firm’s image
at the corporate as well as at the local level is of utmost importance in
quality perception. If an organization enjoys a favourable image, custom-
ers probably might forgive the occasional minor mistake of the organiza-
tion. However, if the mistakes are repetitive, there is a danger of spoiling
the market image. Customers use a firm’s image as a filter or a net while
perceiving quality.
Expected Versus Experienced Quality

Every consumer makes an assessment of quality based upon the expectations
that they have developed of a service offering. Customers are influenced by the
service provider and the quality of the experience. Receiving service is both a
personal and psychological experience. There is a psychological and physical

closeness between employees and customers in the service encounter.6 Gen-

erally, consumers get influenced by four important factors while forming
expectations. They are as follows:
1. Market Communication: Service firms communicate, through direct
and indirect channels, to the target market relating to the features and
specialities of the BSP. This is the promise the service provider makes
with the customer. Market communication is an authentic source of
information with an identified sponsor and, therefore, plays a vital role
in the formation of consumer expectation.
2. Image: The image of a service firm at the corporate level as well as the
local level influences the expectations of the customers. It pervades
various dimensions. An image of proven skills, consistency, innovative-
ness, care and concern, empathy, ability of handling problems, perfor-
mance and so on are some of the identities companies develop over a
period of time. These identities mould consumer expectations.
3. Word-of-mouth Communication: This is an informal communication
channel. Word-of-mouth communication is considered to be the most
powerful, particularly, in the case of services. As services are intangible
and variable, comparison of alternatives and trials is not possible. Con-
sumers often feel less confident about taking a purchase decision, based
upon the communication from the service provider. They look for
advice and information support from others, whom they consider as
having more knowledge and experience in that particular service and
will give a frank opinion about the service.
4. Customer Needs: Besides the three factors mentioned above, the need
intensity of consumers influences the expectations. A relaxed customer
may expect quality of a high level compared to a customer who is hard
pressed for time. For example, in the case of health care services, at the
“
time of emergency, people expect better and quicker response than in
The total perceived normal conditions.
quality results only
after the consumers Total Perceived Quality
compare expected with The total perceived quality (TPQ) is the outcome of customer’s assessment
experienced quality. of expected quality and experienced quality. The consumer feels satisfied
When experienced with the service when experienced quality matches with expected qual-
quality supersedes ity. If the expected quality is more than the experienced quality, the con-
the expected one, sumer is dissatisfied. If the experienced quality is more than the expected
the consumers are quality, the consumer is highly satisfied. The degree of dissatisfaction can
highly satisfied or be assessed by ascertaining the extent of deviation (negative) between the
delighted. If the result is expected quality and the experienced quality. Similarly, the degree of satis-
otherwise, consumers “
get dissatisfied with the
service.
faction can be ascertained by measuring the deviation (positive) between
the two factors. To know the level of satisfaction of the customer, it is nec-
essary for service companies to study and measure expected quality and
experienced quality.

DETERMINANTS OF SERVICE QUALITY

What factors really determine the quality of service as perceived by cus-
tomers? The answer to the question is fundamental for service companies
to design their service quality management strategy. The determinants of
service quality are not universal but are service specific. However, a general
understanding of the identified service quality determinants by various ser-
vice researchers is useful to policy makers.
Alfrecht and Zemke identified four factors that influence the perceived
service quality. They are:
1. Care and Concern: How devoted employees and operational systems of
a service are in solving the problems of customers.
2. Spontaneity: How employees demonstrate willingness and readiness to
serve.
3. Problem Solving: The expertise and skill of contact employees in per-
forming services.
4. Recovery: The special efforts of a service provider in handling a situa-
tion when something goes wrong or something unexpected happens
A. Parasuraman, V. A. Zeithaml and L. L. Berry have identified five influencing
variables of customer-perceived service quality. The five quality determinant
factors are:
X Tangibles
X Reliability
X Responsiveness
X Assurance
X Empathy
Grönroos7 developed six criteria of good perceived service quality based
upon a solid body of empirical and conceptual research. The criteria basically
are outcome, process and image related. The six criteria are:
1. Professionalism and Skills: Customers should perceive that the employ-
ees, operating systems and physical resources of the service provider
have the competencies to provide services in a professional way (out-
come-related criteria).
2. Attitude and Behaviour: Customers should perceive that the employees
are positive, friendly and interested in solving their service problems
(process-related criteria).
3. Accessibility and Flexibility: Customers should perceive that the service
provider, its location, operating hours, employees and operational
systems are designed and operated in such a way so that it is easy to
access the service and the service providers are prepared to adjust to
the demands and wishes of the customer in a flexible way (process-
related criteria).

“
4. Reliability and Trustworthiness: Customers should perceive that the ser-
The identification vice provider, employees and systems are reliable and keep promises
of service quality and perform with the best interest of the customers at heart (process-
determinants is very related criteria).
useful for service quality 5. Recovery: Customers should perceive that whenever something goes
management. The wrong or something unpredictable happens, the service provider
determinants are not immediately and actively takes action to control the situation and finds
universal but service a new, acceptable solution (process-related criteria).
specific. Further, the
6. Reputation and Credibility: Customers should perceive that the opera-
influence of each “
determinant also varies
from service to service.
tions of the service provider can be trusted and give adequate value
for money. The service firm stands for good performance and values
that can be shared by customers and the service provider (image-
related criteria).

Rev.Confirming Pages
Service Quality
Service “with a smile” used to be enough to satisfy most customers. Today, however, some
service firms differentiate themselves in the marketplace by offering a “service guaran-
tee.” Unlike a product warranty, which promises to repair or replace the faulty item, ser-
vice guarantees typically offer the dissatisfied customer a refund, discount, or free service.
Take, for example, the First Interstate Bank of California. After interviewing its custom-
ers, the bank management discovered that they were annoyed by a number of recurring
problems, such as inaccurate statements and broken automatic teller machines (ATMs).
Account retention improved after the bank began to pay customers $5 for reporting each
such service failure. What is surprising, however, is that the service guarantee also had a
motivating effect on the employees. When an ATM failed at a branch, the employees, out
of pride, decided to keep the branch open until the machine was repaired at 8:30 PM.
Another hidden benefit of a guarantee is customer feedback. Now customers have a
reason and motivation to talk to the company instead of just to their friends.
In addition to advertising the firm’s commitment to quality, a service guarantee focuses
employees by defining performance standards explicitly and, more important, builds a
loyal customer base. The experience of Hampton Inns, an early adopter of a “100 percent
satisfaction guarantee,” illustrates that superior quality is a competitive advantage. In a
survey of 300 guests who invoked the guarantee, more than 100 already had stayed again
at a Hampton Inn. The hotel chain figures that it has received $8 in revenue for every $1
paid to a disgruntled guest.1
Chapter Preview
Service quality is a complex topic, as shown by the need for a definition that includes
five dimensions: reliability, responsiveness, assurance, empathy, and tangibles. We use
these dimensions to introduce the concept of a service quality gap. This gap is based
on the difference between a customer’s expectations of a service and the perceptions of
115
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116 Part Two Designing the Service Enterprise
the service that is delivered. A survey instrument that measures service quality, called
SERVQUAL, is based on implementing the service quality gap concept.
Quality begins with the design of the service delivery system. Thus, concepts bor-
rowed from product design such as Taguchi methods, poka-yoke, and quality function
deployment are applied to the design of service delivery systems. Statistical process con-
trol is used to monitor variation in service performance metrics and signal when interven-
tion is necessary. A customer satisfaction survey instrument, called a walk-through audit
(WtA), is built on the premise that each customer is a participant in the service process.
However, service failures do occur and the use of an unconditional service guarantee
may be offered as the equivalent of a product warranty. Because the customer is present
during service delivery, service recovery strategies can be planned in anticipation of a
service failure.
Defining Service Quality

For services, the assessment of quality is made during the service delivery process. Each
customer contact is referred to as a moment of truth, an opportunity to satisfy or dis-
satisfy the customer. Customer satisfaction with a service can be defined by comparing
perceptions of service received with expectations of service desired. When expectations
are exceeded, service is perceived to be of exceptional quality—and also to be a pleasant
surprise. When expectations are not met, however, service quality is deemed unaccept-
able. When expectations are confirmed by perceived service, quality is satisfactory. As
shown in Figure 6.1, these expectations are based on several sources, including word of
mouth, personal needs, and past experience.
Dimensions of Service Quality
The dimensions of service quality as shown in Figure 6.1 were identified by market-
ing researchers studying several different service categories: appliance repair, retail
banking, long-distance telephone service, securities brokerage, and credit card com-
panies. They identified five principal dimensions that customers use to judge service
quality—reliability, responsiveness, assurance, empathy, and tangibles, which are listed
in order of declining relative importance to customers.2
Reliability. The ability to perform the promised service both dependably and accu-
rately. Reliable service performance is a customer expectation and means that the
service is accomplished on time, in the same manner, and without errors every time.
For example, receiving mail at approximately the same time each day is important to
most people. Reliability also extends into the back office, where accuracy in billing
and record keeping is expected.
Responsiveness. The willingness to help customers and to provide prompt service.
Keeping customers waiting, particularly for no apparent reason, creates unnecessary
FIGURE 6.1 Word Personal Past

Perceived Service of mouth needs experience
Quality
Source: Reprinted with permis-
Dimensions of Expected Perceived Service Quality
sion of the American Marketing
Association: adapted from Service Quality service 1. Expectations exceeded
A. Parasuraman, V. A. Zeithaml, Reliability ES < PS (Quality surprise)
and L. L. Berry, “A Conceptual 2. Expectations met
Responsiveness
Model of Service Quality and Its
Assurance ES ≈ PS (Satisfactory quality)
Implications for Future Research,”
Perceived 3. Expectations not met
Journal of Marketing 49, Fall 1985, Empathy
service ES > PS (Unacceptable quality)
p. 48. Tangibles
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Confirming Pages
Chapter 6 Service Quality 117
negative perceptions of quality. If a service failure occurs, the ability to recover

quickly and with professionalism can create very positive perceptions of quality. For
example, serving complimentary drinks on a delayed flight can turn a potentially
poor customer experience into one that is remembered favorably.
Assurance. The knowledge and courtesy of employees as well as their ability to con-
vey trust and confidence. The assurance dimension includes the following features:
competence to perform the service, politeness and respect for the customer, effective
communication with the customer, and the general attitude that the server has the
customer’s best interests at heart.
Empathy. The provision of caring, individualized attention to customers. Empathy
includes the following features: approachability, sensitivity, and effort to understand
the customer’s needs. One example of empathy is the ability of an airline gate attend-
ant to make a customer’s missed connection the attendant’s own problem and to find
a solution.
Tangibles. The appearance of physical facilities, equipment, personnel, and commu-
nication materials. The condition of the physical surroundings (e.g., cleanliness) is
tangible evidence of the care and attention to detail that are exhibited by the service
provider. This assessment dimension also can extend to the conduct of other custom-
ers in the service (e.g., a noisy guest in the next room at a hotel).
Customers use these five dimensions to form their judgments of service quality, which
are based on a comparison between expected and perceived service. The gap between
expected and perceived service is a measure of service quality; satisfaction is either nega-
tive or positive.
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The GAP Model of Service Quality
The GAP model of service is divided into two parts. Part one relates to the
internal process in a customer and part two relates to the process involved
between service provider and consumer. In the GAP model, five gaps are
identified, taking into consideration the possible discrepancies between the
elements of the service management process. Each gap arises due to inconsis-
tencies and deficiencies in the quality management process. Let us examine
how gaps arise and the possible reasons for each gap to develop in a service
organization.
Consumer
Word-of-mouth
Personal Needs Past Experience
Communications
Expected Service
GAP 5
Perceived Service
Marketer
Service Delivery GAP 4 External
(including pre- Communications
and post-contacts) to Consumers
GAP 3
Translation of
Perceptions into Service
GAP 1 Quality Specifications
GAP 2
Management
Perceptions of
Consumer Expectations
Fig. 19.3:
Source: V. A. Zeithaml, L. L. Berry and A. Parasuraman, Communication and Control Processes Conceptual model of
in the Delivery of Service Quality, Journal of Marketing (April, 1988): 36. Reproduced with service quality—the
permission. GAP analysis model

GAP One: Management Perception Gap

It is the difference between expected service by customers and the manage-
ment’s perceptions of consumer expectations. Service companies often fail
to understand properly the expectations of the consumers. Improper under-
standing or misunderstanding of consumer expectations is one of the root
causes for not delivering services that satisfy consumer expectations. The rea-
sons for the gap to arise may be many. The key factors leading to GAP one
are as follows:
X Insufficient marketing research
X Inaccurate information from marketing research
X Poorly interpreted information about expectations
X No demand analysis
X Research not focused on service quality
X Lack of interaction between management and the customers
X Insufficient upward and downward internal communication
X Too many organizational layers between contact personnel and top
management
X No market segmentation
X No relationships focus
Lack of proper understanding of consumer expectations may trigger a chain
of bad decisions and finally result in poor quality perceptions by the custom-
ers. Service companies should analyse the gap properly and try to fill it.
GAP Two: Quality Specification Gap

It is the difference between the company perception of customer expectation
and customer-driven service designs and standards. The accurate percep-
tions of service providers about customers’ expectations may not be suf-
ficient for delivering superior quality service. Service companies may have
excellent communication and information network and may be capable of
managing without any gap at the first level. GAP two is the second mile-
stone the companies should cross with excellence in performance. Service
design and performance standards are prerequisites for that. Translation of
the service quality specifications is really a complex job the service provid-
ers have to handle.
GAP two may occur due to the following reasons:
X Mistakes in planning or insufficient planning procedures
X Lack of customer-driven service standards
X Lack of formal process for setting service quality goals
X Lack of management commitment
X Unclear service designs
X Unsystematic new service development process
X Lack of support from top management

GAP Three: Service Delivery Gap

It is the difference between customer-driven service designs and standards
and service delivery. Formulation of clear guidelines for performing services
may not assure quality service performance. The standards must be sup-
ported by adequate and appropriate resources such as people, systems and
technology. Employee motivation and satisfaction play an important role in
this process. The possible major reasons for GAP three are as follows:
X Complicated and/or rigid process specifications
X Deficiencies in human resource policies such as ineffective recruitment,
role ambiguity, role conflict, improper evaluation and compensation
system, lack of empowerment, absence of perceived control and team
work, poor employee job fit and so on
X Ineffective internal marketing
X Poor management of service operations
X Failure to match demand and capacity
X Inappropriate customer meets
X Lack of proper customer education and training and so on
GAP Four: Market Communication Gap
It is the difference between service delivery and external communications to
customers. Service companies make promises through external marketing
process to current as well as potential customers. The promises made through
communication media potentially raise customer expectations. These expec-
tations serve as standards against which the customer evaluates the expe-
rienced quality of service. The discrepancy between actual service and the
promised one may occur due to the following reasons:
X Negatively confirmed quality
X Bad reputation
X Lost customers
X Negative corporate or local image
X When a company fails to integrate marketing communication with ser-
“
vice operations
X Over-promising in external communication campaign The five possible
X Failure to manage customer expectations gaps identified in
X Failure to perform according to specifications the GAP model help
the management to
GAP Five: Perceived Service Quality Gap develop a workable
It is the gap between perceived and expected service. The reasons for this gap system to ensure quality
are difficult to analyse, but organizations can reasonably expect some negative performance from the
effects when such a gap arises. GAP five may result in the following: word- company. Continual
of-mouth communication, personal needs, past experiences, service process gap analysis is necessary
performance, service promises and service environment.
Service companies need not look for negative results only in this process.
“
for ensuring consistent
quality offerings.
This gap can also be positive. If the perceived quality exceeds the expected
quality, the customers are satisfied and it benefits the organization.

The GAP analysis model guides the management to find out the real
reasons for quality problems and to discover appropriate ways to close
such gaps. The understanding of the possible gaps will help the manage-
ment to check various levels and prevent possible errors. A thorough audit
of all these possible errors, time and again, makes the service provider
confident and such confidence percolates to the frontline employees of the
organization; they can then perform well in encounters with customers.
This is exemplified in “Services Marketing Insight: Quality Management in
Sterilization Services”.

Measuring Service Quality
I t is commonly said that “what is not measured is not managed.” Without measurement,
managers cannot be sure whether service quality gaps exist, let alone what types of
gaps, where they exist, and what potential corrective actions should be taken.
Soft and Hard Service Quality Measures

Customer-defined standards and measures of service quality can be grouped into two
broad categories: “soft” and “hard.” Soft standards and their measures are those that
cannot be easily observed and are typically collected by talking to customers. Soft
standards “provide direction, guidance, and feedback to employees on how to achieve
customer satisfaction, and they can be quantified by measuring customer perceptions
and beliefs.”5 SERVQUAL (see Chapter 2) is an example of a sophisticated soft
measurement system. We will discuss a variety of other customer feedback tools later
in this chapter.
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Hard standards and measures, in contrast, are typically process activities
and outcomes that can be counted, timed, or measured. Such measures
may include the number of orders that were filled correctly, the time
required to complete a specific task, and the number of minutes
customers had to wait in line at a particular stage in the service
delivery. Standards are often set with reference to the percentage of
occasions on which a particular measure is achieved. The challenge
for service marketers is to ensure that operational measures of service
quality reflect customer needs and wants (Figure 14.5).
Figure 14.5 Social media

learninG FrOM cuSTOMer FeeDbacK6 such as Facebook and Twitter
have been deployed by
H ow can companies measure their performance against soft standards

of service quality? Let’s first review the objectives of measurement
before we turn to the different types of measures.
organizations to gather valuable
feedback from customers.
Key Objectives of Effective Customer lO 5

Feedback Systems Explain the common objectives
of effective customer feedback
“It is not the strongest species that survive, nor the most intelligent, but the ones systems.
most responsive to change,” wrote Charles Darwin. Similarly, many strategists have
concluded that in increasingly competitive markets, the best competitive advantage
for a firm is to learn and change faster than the competition.7
Customer feedback is a key input for becoming and remaining a customer-driven

learning organization, and effective customer feedback systems facilitate fast learning.
Their objectives typically fall into the following three main categories:
1) Assessment and Benchmarking of Service Quality and Performance. The

objective is to answer the question, “How satisfied are our customers?” This
includes learning about how well a firm has performed in comparison to its
main competitor(s) or in comparison to the previous year (or quarter, or month),
whether investments in certain service aspects have paid off in terms of customer
satisfaction, and where the firm wants to be the following year. Often, a key
objective of comparison against other units (branches, teams, service products,
competitors) is to motivate managers and service staff to improve performance,
especially when the results are linked to compensation.
2) Customer-Driven Learning and Improvements. Here, the objective is to answer
the questions, “What makes our customers happy or unhappy?” and “What are
the strengths we want to cement and the weaknesses we need to improve on?”
PART V
More specific or detailed information on processes and products is required to

guide a firm’s service improvement efforts.
3) Creating a Customer-Oriented Service Culture. This objective is concerned
with bringing the “voice of the customer” into the organization, focusing the
organization on customer needs and customer satisfaction, and rallying the entire
organization toward a service quality culture. It also includes fostering a culture
of continuous improvement and change.
Striving for Service Excellence 455
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Table 14.2 Strengths and weaknesses of key customer feedback collection tools.
level of Measurement Potential

for
Transaction representative, Service Firsthand cost-
collection Tools Firm Process Specific actionable reliable recovery learning effectiveness
Total market survey

(including competitors)
Annual survey on
overall satisfaction
Transactional survey
Service feedback cards

and messages
Mystery shopping
Unsolicited feedback
(e.g., complaints)
Focus group discussions
Service reviews
Online reviews and

discussions
Legend: meets requirements fully; moderately; hardly at all
Source
From Jochen Wirtz and Monica Tomlin, “Institutionalizing Customer-driven Learning through Fully Integrated Customer Feedback Systems,” Managing Service Quality 10(4):
210, © 2000 Emerald Group Publishing Ltd.
lO 6 Use a Mix of Customer Feedback Collection Tools

Describe key customer feedback
collection tools. Renee Fleming, soprano and America’s beautiful voice, once said: “We singers are
unfortunately not able to hear ourselves sing. You sound entirely different to yourself.
We need the ears of others—from outside.” Likewise, firms need to listen to the voice
Figure 14.6 Qualitative and quantitative feedback collection tools complement each other.
456 Chapter 14 • Improving Service Quality and Productivity
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of the customer. Table 14.2 gives an overview of typically used feedback tools and their
ability to meet various requirements. Recognizing that different tools have different
strengths and weaknesses, service marketers should select a mix of customer feedback
collection tools that jointly deliver the needed information (Figure 14.6). As Leonard
Berry and A. Parasuraman observed, “Combining approaches enables a firm to tap
the strengths of each and compensate for weaknesses.”8
Total Market, Annual, and Transactional Surveys. Total market surveys and annual
surveys typically measure satisfaction with all major customer service processes and
products.9 The level of measurement is usually high, with the objective of obtaining a
global index or indicator of overall service satisfaction for the entire firm. Overall indices
such as these tell us how satisfied customers are but not why they are happy or unhappy. Figure 14.7 Transactional
There are limits to the number of questions that can be asked about each individual surveys are typically conducted
process or product. For example, a typical retail bank may have 30–50 key customer after service delivery.
service processes (e.g., from car loan applications and cash deposits at the teller to online
banking). Due to the sheer number of processes, many surveys have room for only one
or two questions per process (e.g., how satisfied are you with our ATM services?) and
cannot address issues in greater detail.
In contrast, transactional surveys, also called intercept surveys, are typically conducted
after customers have completed a specific transaction (Figure 14.7). At this point, if
time permits, they may be queried about the process in some depth. In the case of a
bank, all key attributes and aspects of ATM services could be included in the survey,
including some open-ended questions such as “liked best,” “liked least,” and “suggested
improvements.” Such feedback is more actionable, can tell the firm why customers
are happy or unhappy with the service, and usually yields specific insights on how
customer satisfaction can be improved.
PART V
Figure 14.8 Point-of-transaction terminals have become common in airports, hotels, and
government offices around the world.
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Many market research agencies offer cost-effective e-mail, SMS, electronic terminal, and
app-based transactional survey tools. For example, after checking out of a hotel, guests
receive an automated e-mail or message with a link to an online survey. Monthly online
reports are then automatically generated for the hotel group at the overall level, for each
of the individual hotels in a chain, and even for individual units within each hotel (e.g.,
front desk, rooms, room service, restaurants, spa, and gym). Such solutions are fully
automated and can therefore be provided at a low cost (as low as $100 per hotel per
month in a large chain).
Similarly, point-of-transaction surveys on terminals allow the measurement of customer

satisfaction on key attributes immediately after a transaction has taken place (Figure 14.8).
Again, the collection, analysis, and reporting are fully automated and cost-effective.
The analysis can even be broken down to the individual service employee as they sign
out of their service terminal.
All three survey types are representative and reliable when designed properly.
Representativeness and reliability are required for:
1) Accurate assessments of where a company, process, branch, team, or individual

stands relative to quality goals. It is important to have a representative and reliable
sample so as to ensure that observed changes in quality scores are not the result
of sample biases and/or random errors.
2) Evaluations of individual service employees, service delivery teams, branches,
and/or processes, especially when incentive schemes are linked to such measures.
The methodology has to be water-tight if employees are to trust and buy into the
results, especially when surveys deliver bad news.
The potential for service recovery is important and should, if

possible, be designed into feedback collection tools. However,
many surveys promise anonymity, making it impossible to
identify and respond to dissatisfied respondents.
Service Feedback Cards, Online and Mobile Messages. These

powerful and inexpensive tools involve providing customers
the opportunity to use feedback cards, online forms, e-mail,
text messaging, or apps10 to provide feedback, typically to a
central customer feedback unit (Figure 14.9). For example,
a feedback card can be attached to each housing loan
approval letter or to each hospital invoice. These cards
are a good indicator of process quality and yield specific
feedback on what works well and what doesn’t. However,
customers who are delighted or very dissatisfied are likely
to be over-represented among the respondents, and this
affects the reliability and representativeness of the tool.
Mystery Shopping. Service businesses often use “mystery shoppers” to determine

Figure 14.9 The widespread whether front-line staff displays desired behaviors (see Service Insights 14.1). Banks,
use of SMS text messaging retailers, car-rental firms, and hotels are among the industries making active use of
allows for convenient mobile mystery shoppers. For example, the central reservation offices of a global hotel chain
feedback. may appoint a research agency to conduct a large-scale monthly mystery-caller survey
9781292089959_CH14.indd 458 3/7/17 1:39 PM

to assess the skills of individual associates in relation to the phone sales process. Actions
such as the correct positioning of the various products, up-selling and cross-selling,
and closing the deal are measured. The survey also examines the quality of the phone
conversation on such dimensions as “a warm and friendly greeting” and “establishing
rapport with the caller.” Mystery shopping provides highly actionable and in-depth
insights for coaching, training, and performance evaluation.
Service inSiGhTS 14.1
customers as Quality control inspectors?

Mystery shopping is a good method for checking Room Number: _______________
whether front-line employees display the desired and
trained behaviors and follow the specified service Limo Number: ____________
procedures, but customer surveys should not be used Date: ___________
for this purpose. Ron Kaufman, founder of Up Your
Service! College, describes a service experience: Kaufman continued: “As I read the form, all the
good feelings fell away. The driver’s enthusiasm
“We had a wonderful ride in the hotel car from the suddenly seemed a charade. His concern for our
airport. The driver was so friendly. He gave us a cold well-being became just a checklist of actions to
towel and a cool drink. He offered a choice of music, follow. His good mood was merely an act to meet
talked about the weather, and made sure we were the standard, not a connection with his guests. I
comfortable with the air conditioning. His smile and felt like the hotel’s quality control inspector, and I
good feelings washed over us, and I liked it!” did not like it. If the hotel wants my opinion, make
me an advisor, not an inspector. Ask me: What did
“At the hotel, I signed the guest registration and gave you enjoy most about your ride from the airport?
my credit card. Then the counter staff asked me to (I’d told them about their wonderful driver). What
complete another form.” It read: else could we do to make your ride even more
enjoyable? (I’d have recommended offering the use
Limousine Survey of a cell phone).”
To consistently ensure the proper application of our
quality standards, we value your feedback on our
limousine service:
1. Were you greeted by our airport YES/NO

representative?
2. Were you offered a cold towel? YES/NO
3. Were you offered cold water? YES/NO
4. Was a selection of music available? YES/NO
5. Did the driver ask you about the air YES/NO
PART V
conditioning?
6. Was the driver driving at a safe YES/NO
speed?
Source
Copyright © 2009 Ron Kaufman.
9781292089959_CH14.indd 459 3/7/17 1:39 PM

As the number of mystery calls or visits is typically small, no individual survey is
reliable or representative. However, if a particular staff member performs well (or
poorly) month after month, managers can infer with reasonable confidence that this
person’s performance is good (or poor).
Unsolicited Customer Feedback. Customer complaints, compliments, and suggestions

can be transformed into a stream of information that can be used to monitor quality
and highlight necessary improvements to the service design and delivery.
Like feedback cards, unsolicited feedback is not a reliable measure of overall

customer satisfaction, but it is a good source of ideas for improvement. If the main
objective of collecting feedback is to get ideas on what to improve (rather than
for benchmarking and/or assessing staff), reliability and representativeness are not
essential. More qualitative tools such as complaints, compliments, or focus groups
generally suffice.
Furthermore, detailed customer complaint and compliment letters, recorded telephone

conversations, and direct feedback from employees can serve as an excellent tool for
communicating internally what customers want. They allow employees and managers
at all levels to “listen” to customers first hand. Such learning is much more powerful
for shaping the thinking and customer orientation of service staff than using “clinical”
statistics and reports. For example, Singapore Airlines prints excerpts from complaint
and compliment letters in its monthly employee magazine, Outlook. Seeing actual
customers giving comments about their service (positive and negative) leaves a much
deeper and lasting impression on staff members than any statistical analysis and
encourages them to improve further.
For complaints, suggestions, and inquiries to be useful as research input, they have
to be funneled into a central collection point, logged, categorized, and analyzed.11
This requires a system for capturing customer feedback where it is made and
then reporting it to a central unit. Some firms use a simple intranet site to record
all feedback received by any staff member. Coordinating such activities is not a
simple matter because of the many entry points, including the firm’s own front-
line employees who may be in contact with customers face to face, by telephone,
via mail or e-mail, or through intermediary organizations acting on behalf of the
original supplier. Managers normally work back stage, but they may be contacted
by a customer seeking higher authority.
Focus Group Discussions and Service Reviews. Both tools give specific insights
on potential service improvements and ideas. Typically, focus groups are organized
by key customer segments or user groups to drill down on the needs of these users.
Service reviews are in-depth, one-on-one interviews that are usually conducted
once a year with a firm’s most valuable customers (Figure 14.10). Typically, a senior
executive of the firm visits the customer and discusses issues such as how well the
firm performed the previous year and what should be maintained or changed. The
senior executive then goes back to the organization and discusses the feedback with
account managers. Subsequently, both write a letter to the client detailing how the
firm will respond to their service needs and how the account will be managed the
following year.
9781292089959_CH14.indd 460 3/7/17 1:39 PM

Figure 14.10 Service reviews
Apart from providing an excellent learning opportunity (especially when the being conducted with an
important B2B customer.
reviews across all customers are compiled and analyzed), service reviews focus on
retention of the most valuable customers and get high marks for service recovery
potential.
Online Reviews and Discussions. User-generated content and data can increasingly
provide rich insights into the quality perceptions of a firm and its competitors. They
also show how these comparisons vary over time at an increasingly granular attribute
and temporal level.12 Sentiment analysis of postings and automated text processing
often allow real time insights into changes in consumer perceptions.13 As one study
showed, monitoring online sentiments has been shown to be a leading indicator of
oﬄine brand tracking surveys and even stock market prices.14 Online monitoring tools
combined with big data analytics allow real-time sensing of information. Location-based
and user-generated content will be analyzed increasingly using techniques such as text
mining, image processing and classification, social geo-tagging, human annotations,
and geo-mapping.15
However, such analyses should be seen as augmenting more traditional tools such as
surveys and focus groups. Consider the following example. A high-quality, high-priced
grab-and-go-food business showed high growth (i.e., their customers must have loved
what they offer), but online reviews were critical (e.g., “If you have money to spare,
PART V
you could do worse” and “The prices are seriously whacked”), and its rating on an
important review website was only three out of five stars.
One of the co-owners then attended a meeting of elite reviewers of this site and, to his
surprise, found that these reviewers looked nothing like their customers, who tended
to be professionals in their 30s or older. These reviewers were mostly in their 20s,
had ample spare time to write free reviews, and seemed much less aﬄuent than the
firm’s customers. The co-owner learned from his conversations with these reviewers
9781292089959_CH14.indd 461 3/7/17 1:39 PM

Level of Key Owners
Analysis of Feedback
Increasing reliability and representativeness of data
High level
Increasing specificity and richness of data
benchmarking and
KPI; little/ no
ACSI, CSI and/or diagnostics possible Senior
NPS benchmarked Management
against national
and/or industry indices Internal benchmarking
and KPI by process,
Annual surveys (on specific branch, team, etc.; good
processes, services, branches and/or diagnostics possible
service delivery teams), net promoter score,
e-mail/SMS/feedback cards solicited after
specific transactions
Rich data that allow
detailed diagnostics, drill Middle
Complaints, compliments, social media,
down analysis and Management
customer feedback cards, online monitoring
generate ideas for and Frontline
improvement and
innovation
Mystery shopping, focus groups, service reviews
Legend: ACSI = American Customer Satisfaction Index; CSI = Customer Satisfaction Index, typically at the firm level; NPS = Net Promoter Score.
Figure 14.11 Mapping reporting of tools to levels of management.
that they were highly price-sensitive and were not willing to pay premium prices for
premium food. These factors undoubtedly colored their reviews. In fact, they liked
the food, but they downgraded the business as they felt the price was too high. The
management of this firm responded to these findings with increasing investment
in traditional focus groups to ensure that they respond to the needs of their core
market.16 Not relying too much on online user-generated content seems especially
important if a firm’s core target segments are expected to differ from those people
who post online comments.
Analysis, Reporting, and Dissemination of

Customer Feedback
Choosing the relevant feedback tools and collecting customer feedback is meaningless
if the company is unable to disseminate the information to the relevant parties and
take action. Hence, to drive continuous improvement and learning, a reporting system
needs to deliver feedback and its analysis to front-line staff, process owners, branch or
department managers, and top management. Figure 14.11 provides an overview on the
types of information that should go to different key stakeholders in the organization.
It also illustrates how the different tools complement each other: the top-level tools
provide the benchmarking over time and against competition, and the lower-level
tools help to identify which ratings go up or down and generate insights and ideas on
how the service can be improved.
The feedback loop to the front line should be immediate for complaints and compliments,
as is practiced in a number of service businesses where complaints, compliments, and
suggestions are discussed with staff during a daily morning brief. In addition, we
9781292089959_CH14.indd 462 3/7/17 1:39 PM

recommend three types of service performance reports to provide the information
necessary for service management and team learning:
1) A monthly Service Performance Update provides process owners with timely

feedback on customer comments and operational process performance. Here,
the verbatim feedback should be passed on to the process managers, who can in
turn discuss it with their service delivery teams.
2) A quarterly Service Performance Review provides process owners and branch or
department managers with trends in process performance and service quality.
3) An annual Service Performance Report gives top management a representative
assessment of the status and long-term trends relating to customer satisfaction
with the firm’s services.
These reports should be short and reader-friendly, focus on key indicators, and provide
an easily understood commentary for the people in charge to act on. In addition to
customer feedback, these reports should also contain key operational measures (as
discussed in the next section).
harD MeaSureS OF Service QualiTy lO 7

Be familiar with hard measures
H aving learnt about the various tools for collecting soft service quality measures,
let’s explore hard measures in greater detail. Hard measures typically refer
to operational processes or outcomes and include such data as uptime, service
of service quality and control
charts.
response times, and failure rates. In a complex service operation, multiple measures
of service quality will be recorded at many different points. In low-contact services
in which customers are not deeply involved in the service delivery process, many
operational measures apply to back-stage activities that have only a second-order
effect on customers.
FedEx was one of the first service companies to understand the need for a firm-wide
index of service quality that embraced all the key activities that affect customers.
By publishing a single, composite index on a frequent basis, senior managers
hoped that all FedEx employees would work toward improving quality. The firm
recognized the danger of using percentages as targets, because they might lead
to complacency. In an organization as large as FedEx, which ships millions of
packages a day, even delivering 99.9% of packages on time (which would mean
one in 1,000 packages is delivered late) or having 99.999% of flights arrive safely
would lead to horrendous problems. Instead, the company decided to approach
quality measurement from the baseline of zero failures (see Service Insights 14.2).
As noted by a senior executive:
PART V
It’s only when you examine the types of failures, the number that occur of
each type, and the reasons why, that you begin to improve the quality of your
service. For us the trick was to express quality failures in absolute numbers.
That led us to develop the Service Quality Index or SQI [pronounced “sky”],
which takes each of 12 different events that occur every day, takes the numbers
of those events and multiplies them by a weight . . . based on the amount of
aggravation caused to customers—as evidenced by their tendency to write to
FedEx and complain about them.17
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Confirming Pages
Measuring Service Quality

Measuring service quality is a challenge because customer satisfaction is determined by
many intangible factors. Unlike a product with physical features that can be objectively
measured (e.g., the fit and finish of a car), service quality contains many psychological
features (e.g., the ambiance of a restaurant). In addition, service quality often extends
beyond the immediate encounter because, as in the case of health care, it has an impact on
a person’s future quality of life. The multiple dimensions of service quality are captured
in the SERVQUAL instrument, which is an effective tool for surveying customer satisfac-
tion that is based on the service quality gap model.
SERVQUAL3
The authors of the service quality gap model shown in Figure 6.3 developed a multi-
item scale called SERVQUAL for measuring the five dimensions of service quality (i.e.,
reliability, responsiveness, assurance, empathy, and tangibles). This two-part instrument,
which can be found in the Student CD-ROM, pairs an expectation statement with a cor-
responding perception statement. Customers are asked to record their level of agreement
or disagreement with the statements using a seven point Likert scale. The 22 statements
in the survey describe all aspects of the five dimensions of service quality.
A score for the quality of service is calculated by computing the differences between
the ratings that customers assign to paired expectation and perception statements. This
score is referred to as GAP 5, as was shown in Figure 6.3. Scores for the other four gaps
also can be calculated in a similar manner.
This instrument has been designed and validated for use in a variety of service encoun-
ters. The authors have suggested many applications for SERVQUAL, but its most impor-
tant function is tracking service quality trends through periodic customer surveys. For
multisite services, SERVQUAL could be used by management to determine if any unit
has poor service quality (indicated by a low score); if so, management can direct attention
to correcting the source of customers’ poor perceptions. SERVQUAL could be used in
marketing studies to compare a service with a competitor’s and again identify the dimen-
sions of superior or inadequate service quality.
fit03350_ch06_115-152.indd 119 1/8/10 2:23:09 PM

SERVQUAL
For the purpose of measuring customer satisfaction with respect to dif-
ferent aspects of service quality, a survey instrument was developed by
Parasuraman, Zeithaml and Berry10 in 1988. The instrument is called
SERVQUAL. The basic assumption of the measurement was that custom-
ers can evaluate a firm’s service quality by comparing their perceptions
with their expectations. SERVQUAL is applicable to all service industries.
The SERVQUAL scale includes five dimensions. They are tangibles, reli-
ability, responsiveness, assurance and empathy. Each dimension can have
several items measured on a seven-point scale varying from “strongly
agree” to “strongly disagree.” Researchers suggested a total of 21 items
under the identified five dimensions. The following are the details relating
to a study on banks:
Tangibles
Excellent banks will have
X modern equipment,
X visually appealing physical facilities,
X neat, well-dressed employees and
X visually appealing materials associated with the service (such as brochures
and statements).
Reliability
Excellent banks will
X carry out what they promise to do,
X show sincere interest in solving problems,
X perform well right from the first time and
X insist on error-free records.
Responsiveness
“
Employees of excellent banks will
X tell customers exactly when the service will be performed, SERVQUAL is popularly
X give prompt service to customers , used to find out the
X always be willing to help customers and position of the company
in quality performance.
X have the knowledge to answer customer questions.
The five determining
Assurance criteria such as tangibles,
The employees of excellent banks will reliability, responsiveness,
assurance and empathy
X instil confidence in customers, reflect the consumers’
X
X
be consistently courteous to customers,
have the answers to customers’ questions and
“
view and expectations of
service quality.
X ensure safety in transactions with customers.

Empathy
Excellent banks will
X give individual attention to customers,
X have convenient operating hours for all their customers and
X understand the specific needs of their customers.

A huge source of revenue for
fast food chains, Taco Bell has
excelled in its drive-through
speed and accuracy.
Source: Taco Bell Corp.

The New Services Realities
Service firms once lagged behind manufacturers in their understanding and use of marketing because they were
small or they faced large demand or little competition. This has certainly changed. Some of the most skilled mar-
keters now are service firms. One that wins consistent praise for its brand-building success is Singapore Airlines.23
Singapore Airlines Singapore Airlines (SIA) has been consistently recognized as the world’s
“best” airline, in large part due to its stellar marketing. The carrier wins so many awards, it has to update its Web site
monthly to keep up to date. Famous for pampering passengers, it continually strives to create a “wow effect” and surpass
customers’ expectations. SIA was the first to launch on-demand entertainment systems in all classes, Dolby sound systems,
and a book-the-cook service that allows business- and first-class passengers to order meals before boarding. Thanks to
a first-of-its-kind $1 million simulator the airline built to mimic the air pressure and humidity inside a plane, it found that
taste buds change in the air and that, among other things, it needed to cut back on spices in its food. New SIA recruits
receive four months of training, twice the industry average, and existing staff get nearly three weeks of refresher training a
year (costing $70 million). With its stellar reputation, the carrier attracts some of the best local graduates and staffs each
flight with more attendants and other cabin crew members than other airlines. SIA applies a 40–30–30 rule: 40 percent of
resources go to training and motivating staff, 30 percent to reviewing process and procedures, and 30 percent to creating
new product and service ideas.
A Shifting Customer Relationship

Because U.S. consumers generally have high expectations about service delivery, they often feel their needs are
not being adequately met. A 2013 Forrester study asked consumers to rate 154 companies on how well they met
their needs and how easy and enjoyable they were to do business with. Almost two-thirds of the companies
were rated only “OK,” “poor,” or “very poor.” Retail and hotel companies were rated the highest on average, and
Internet, health service, and television service providers were rated the worst. The highest-ranking companies
were Marshalls, USAA (bank), Amazon.com, Kohl’s, Target, Courtyard by Marriott, Sam’s Club, Rite Aid, Costco,
Lowe’s, TJ Maxx, JCPenney, and Marriott Hotels & Resorts.24
Service providers receive low marks for many reasons. Customers complain about inaccurate information;
unresponsive, rude, or poorly trained workers; and long waits. Even worse, many find their complaints never reach
M14_KOTL2621_15_GE_C14.indd 428 09/03/15 6:30 PM

Singapore’s exemplary service
quality starts with its famed
flight attendants.
Source: AFP/Getty Images
a human ear because of slow or faulty phone or online reporting systems. They say companies mishandle online
complaints by responding selectively or inconsistently (or not at all) and by “cutting and running,” appearing insin-
cere, or attempting to just “bribe” the consumer.25
It doesn’t have to be that way. Fifty-five operators on Butterball Turkey’s 800 number handle 100,000 calls a year
about how to prepare, cook, and serve turkeys; 12,000 people call on Thanksgiving Day alone. Trained at Butterball
University, the operators have all cooked turkeys dozens of different ways and can handle any queries that come
their way, including why you shouldn’t stash turkeys in snow banks and how to tell when the turkey is done.26
Savvy services marketers are recognizing the new services realities, such as the importance of the newly em-
powered customer, customer coproduction, and the need to engage employees as well as customers.
Customer Empowerment The digital era has clearly altered customer relationships. Customers are
becoming more sophisticated about buying product-support services and are pressing for “unbundled services”
and the right to select the elements they want. They increasingly dislike having to deal with a multitude of
service providers handling different types of products or equipment. With that in mind, some third-party service
organizations now service a greater range of equipment. A plumbing business may also service air conditioners,
furnaces, and other components of a household infrastructure.
Most importantly, the Internet has empowered customers by letting them send their comments around the
world with a mouse click. A person who has a good customer experience is more likely to talk about it, but some-
one who has a bad experience will talk to more people.27 Ninety percent of angry customers reported sharing their
story with a friend; now, they can share it with strangers too. At PlanetFeedback.com shoppers can send a com-
plaint, compliment, suggestion, or question directly to a company, with the option to post comments publicly on
the site as well. Online sites such as Angie’s List, Yelp, Google Places, and Urbanspoon are other popular means to
spread the word on customer service adventures.
Even more challenging for firms, unhappy customers may choose to download a damaging video to share their
customer service miseries with others. “Marketing Memo: Lights! Camera! Customer Service Disasters!” describes
some notable customer service disasters brought to light with online videos.
When a customer complains, most companies now respond quickly. Comcast allows contact 24/7 by phone
and e-chat but also reaches out to customers and monitors blogs, Web sites, and social media. If employees see a
customer report a problem on a blog, they get in touch and offer help. Clear, helpful e-mail replies to customers’ que-
ries can be effective too.28 Delta Airlines introduced Delta Assist to monitor customer Twitter tweets and Facebook
posts around the clock with a 10-person team and to provide real-time replies to any queries or problems.29
More important than simply responding to a disgruntled customer, however, is preventing dissatisfaction from
occurring in the future. That may mean simply taking the time to nurture customer relationships with attention
from a real person. Solving a customer’s problem quickly and easily goes a long way toward winning long-term
loyal customers.30
Customer Coproduction The reality is that customers do not merely purchase and use a service;
they play an active role in its delivery. Their words and actions affect the quality of their service experiences and
those of others as well as the productivity of frontline employees.31
M14_KOTL2621_15_GE_C14.indd 429 09/03/15 6:30 PM

marketing Lights! Cameras! Customer Service Disasters!
memo
The explosion of videos online has posed many challenges to firms. Not only customers but also employees can damage the firm’s reputation, and the Internet
greatly magnifies the impact.
Many fast-food chains have had to deal with unflattering or inappropriate behavior their employees capture on video as a prank. Online clips have shown
a Wendy’s worker with his mouth wide open under a Frosty machine, a Domino’s employee putting cheese up his nose and mucus on food meant for delivery,
and a Taco Bell employee licking a stack of empty taco shells.
Any service organization may pay the price for a service breakdown. When Canadian singer Dave Carroll faced $1,200 in damages to his $3,000 Gibson
guitar after a United flight, he put his creative energy to good use and launched a humorous YouTube video, United Breaks Guitars, with this catchy refrain:
“United, you broke my Taylor guitar. United, some big help you are. You broke it, you should fix it. You’re liable, just admit it. I should have flown with
someone else or gone by car ’cuz United breaks guitars.”
Carroll’s follow-up video about his frustrating efforts to get United to pay for the damage was viewed more than 5 million times. The airline got the mes-
sage and donated a check for $1,200 to a charity Carroll designated. It now uses the incident to train baggage handlers and customer-service representatives.
After a security camera caught a FedEx driver delivering a computer monitor by throwing it over a six-foot fence instead of ringing the doorbell, the
21-second YouTube video placed by the irate customer received millions of views and heaps of negative publicity. FedEx cut a YouTube apology of its own,
titled “Absolutely, Positively Unacceptable”—a play on its old advertising slogan, though with only a fraction of the views. FedEx not only replaced the cus-
tomer’s computer monitor free of charge, it also has shared the video internally with employees.
Critics credit the companies for attempting to deal with their problems quickly and forcefully, while often faulting them too for their hiring and training
practices and for not creating a stronger, brand-supportive climate with employees.
Sources: “Bruce Horovitz, “Wendy’s Is Latest to See Gross Photo Go Viral,” USA Today, June 13, 2013; Bruce Horovitz, “Photo of Taco Bell Worker Licking Shells Sends
Shudders,” USA Today, June 3, 2013; Chad Brooks, “Caught on Video: Employees Behaving Badly,” Business News, March 28, 2012; Chunka Mui, “The 5 Most Brand-
Damaging Viral Videos of 2011,” Forbes, December 28, 2011; Laurent Belsie, “FedEx Delivery Video: Package Thrown. FedEx Apologizes on YouTube,” Christian Science
Monitor, December 23, 2011; Dan Reed, “United Makeover Aims to Refresh and Renew,” USA Today, September 17, 2009, pp. 1B–2B; Elisabeth Sullivan, “Happy Endings
Lead to Happy Returns,” Marketing News, October 30, 2009, p. 20.
Customers often feel they derive more value, and feel a stronger connection to the service provider, if they are
actively engaged in the service process. This coproduction can put stress on employees, however, and reduce their
satisfaction, especially if they differ from customers culturally or in other ways.32 Moreover, one study estimated
that one-third of all service problems are caused by the customer.33 The growing shift to self-service technologies
will likely increase this percentage.
Preventing service failures is crucial because recovery is always challenging. One of the biggest problems is
attribution—customers often feel the firm is at fault or, even if not, that it is still responsible for righting any
wrongs. Unfortunately, although many firms have well-designed and executed procedures to deal with their own
failures, they find managing customer failures—when a service problem arises from a customer’s mistake or lack of
understanding—much more difficult. Solutions come in all forms, as these examples show:34
1. Redesign processes and redefine customer roles to simplify service encounters. Staples transformed its
business with its “Easy” program to take the hassle out of ordering office supplies.
2. Incorporate the right technology to aid employees and customers. Comcast, the largest U.S. cable operator,
introduced software to identify network glitches before they affected service and to better inform call-center
operators about customer problems. Repeat service calls dropped 30 percent as a result.
3. Create high-performance customers by enhancing their role clarity, motivation, and ability. USAA reminds
enlisted policyholders to suspend their car insurance when they are stationed overseas.
4. Encourage “customer citizenship” so customers help each other. At golf courses, players can not only follow
the rules by playing and behaving appropriately, they can encourage others to do so.
Satisfying Employees as Well as Customers Excellent service companies know that positive
employee attitudes will strengthen customer loyalty.35 Instilling a strong customer orientation in employees can also
increase their job satisfaction and commitment, especially if they have high customer contact. Employees thrive in
customer-contact positions when they have an internal drive to (1) pamper customers, (2) accurately read their needs,
(3) develop a personal relationship with them, and (4) deliver high-quality service to solve customers’ problems.36
M14_KOTL2621_15_GE_C14.indd 430 09/03/15 6:30 PM

Consistent with this reasoning, Sears found a high correlation be-
tween customer satisfaction, employee satisfaction, and store profitability.
The downside of not treating employees right is significant. A survey of
10,000 employees from the largest 1,000 companies found that 40 percent
of workers cited “lack of recognition” as a key reason for leaving a job.37
Given the importance of positive employee attitudes to customer
satisfaction, service companies must attract the best employees they
can find. They need to market a career rather than just a job. They must
design a sound training program and provide support and rewards for
good performance. They can use an intranet, internal n ewsletters, daily
reminders, and employee roundtables to reinforce customer-centered
attitudes. Finally, they must audit employee job satisfaction regularly.
The Panda Express restaurant chain has management turnover that’s
half the industry average, due in part to a combination of ample bonuses
and health benefits with a strong emphasis on worker self-improvement
through meditation, education, and hobbies. Special wellness seminars
and get-to-know-you events outside work help create a caring, nurtur-
ing atmosphere.38
Zappos has built a customer-focused organization admired by many.39
Zappos Online retailer Zappos was cofounded by Tony Hsieh

in 1999 with superior customer service at the core of its culture. With
free shipping and returns, 24/7 customer service, and fast turnaround
on the numerous products offered on the site from thousands of brands,
the company works hard to create repeat customers. Unlike many other
companies, it has not outsourced its Zappos.com call centers, and half
the interview process is devoted to finding out whether job candidates are
Source: Zappos.com Inc.

sufficiently outgoing, open-minded, and creative to be a good cultural fit.
Zappos empowers its customer service reps to solve problems. When a
customer called to complain that a pair of boots was leaking after a year
of use, the rep sent a new pair even though the company’s policy is that
only unworn shoes are returnable. Every employee has a chance each
year to contribute to the company’s Culture Book, about life at Zappos Founder Tony Hsieh’s customer service practices at online retailer
and how each department implements superior customer service from Zappos are widely-admired and studied.
selling to warehousing, delivery, pricing, and billing. Bought by Amazon.
com in 2009 for a reported $850 million but still run separately, the company now also sells clothing, handbags, and
accessories. Thanks to its success, it even offers two-day seminars to business executives eager to learn the secrets
behind Zappos’s unique corporate culture and approach to customer service.
Achieving Excellence
In Services Marketing
The increased importance of the service industry has sharpened the focus on what it takes to excel in the market-
ing of services.40 Here are some guidelines.
Marketing Excellence
Marketing excellence in services requires excellence in three broad areas: external, internal, and interactive
marketing (see Figure 14.3).41
• External marketing describes the normal work of preparing, pricing, distributing, and promoting the service
to customers.
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| Fig. 14.3 | Company
Three Types of
Marketing in Service
Industries
Internal External
Marketing Marketing
$
Cleaning/ Financial/ Restaurant
maintenance banking industry
services services
Employees Interactive Customers

Marketing
• Internal marketing describes training and motivating employees to serve customers well. Arguably the most
important contribution the marketing department can make is to be “exceptionally clever in getting everyone
else in the organization to practice marketing.”42
• Interactive marketing describes the employees’ skill in serving the client. Clients judge service not only by
its technical quality (Was the surgery successful?), but also by its functional quality (Did the surgeon show
concern and inspire confidence?).43 In interactive marketing, teamwork is often key. Delegating authority
to frontline employees can allow for greater service flexibility and adaptability because it promotes better
problem solving, closer employee cooperation, and more efficient knowledge transfer.44
A good example of a service company achieving marketing excellence is Charles Schwab.45
Charles Schwab Charles Schwab, one of the nation’s largest discount brokerage houses, uses
the telephone, Internet, and wireless devices to create an innovative combination of high-tech and high-touch services.
One of the first major brokerage houses to provide online trading, the company today serves more than 8 million indi-
vidual and institutional accounts. It offers account information and proprietary research from retail brokers, real-time
quotes, an after-hours trading program, the Schwab learning center, live events, online chats with customer service rep-
resentatives, a global investing service, and market updates delivered by e-mail. It has also been adding a slew of mobile
capabilities to satisfy its customer on the go. Schwab grew during the financial crisis by offering new products for sophis-
ticated investors, such as managed portfolio ETFs and fixed income funds. Besides the discount brokerage, the firm offers
mutual funds, annuities, bond trading, and now mortgages through its Charles Schwab Bank. Its success has been driven
by its efforts to lead in three areas: superior service (online, via phone, and in local branch offices), innovative products,
and low prices. Its long-running “Talk to Chuck” marketing campaign reinforces how the firm is always there to help its
customers.
Technology and Service Delivery

Technology is changing the rules of the game for services in a very fundamental way. Banking, for instance, is
being transformed by the ability to bank online and via mobile apps—some customers rarely see a bank lobby or
interact with an employee anymore.46 Technology also has great power to make service workers more productive.
When USAirways deployed handheld scanners to better track baggage, mishandled baggage decreased almost
50 percent. The new technology paid for itself in the first year and helped contribute to a 35 percent drop in
complaints.47
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Sometimes new technology has unanticipated benefits. When BMW introduced Wi-Fi to its dealerships to help
customers pass the time more productively while their cars were being serviced, more chose to wait rather than use
loaner cars, an expensive item for dealers to maintain.48
Companies must avoid pushing technological efficiency so hard, however, that they reduce perceived
quality.49 Some methods lead to too much standardization, but service providers must deliver “high
touch” as well as “high tech.”50 Amazon has some of the most innovative technology in online retailing,
but it also keeps customers extremely satisfied when a problem arises even if they don’t actually talk to an
Amazon employee.51 More companies are introducing “live chat” features to blend technology with a human
voice.52
As Chapter 5 reviewed, the Internet lets firms improve their service offerings and strengthen their relationships
with customers by allowing for true interactivity, customer-specific and situational personalization, and real-time
adjustments of the firm’s offerings. But as companies collect, store, and use more information about customers,
they have also raised concerns about security and privacy. Companies must incorporate the proper safeguards and
reassure customers about their efforts.
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Achieving Service Quality

Services are difficult for customers to evaluate before the fact. As we have already noted,
they are intangible and consumed simultaneously with production. This presents a chal-
lenge to the service manager because quality-inspection intervention between the cus-
tomer and the contact employee is not an option as in manufacturing (e.g., no slip of
paper can be placed in the box by Inspector Number 12).
Cost of Quality
Caveat emptor—“let the buyer beware”—has become obsolete. As American businesses
discovered in the late 1980s and early 1990s, impersonal service, faulty products, and bro-
ken promises all carry a price. A very visible example of this reality today is the prominent
part that liability concerns and insurance play in almost every service imaginable. Poor
quality can lead to bankruptcy. A gourmet soup company, for example, was forced out of
business when its vichyssoise was found to contain poison-producing botulism organisms.
Announcements of automobile recalls for correcting defects are commonplace as well.
Products can be returned, exchanged, or fixed, but what recourse does the customer of
a faulty service have? Legal recourse! Medical malpractice lawsuits have been notorious
for their large settlements, and although some cases of abuse by the legal system surely
have occurred, the possibility of malpractice litigation does promote a physician’s sense
of responsibility to the patient. The threat of a negligence suit might induce a responsible
doctor to take more time in an examination, seek more training, or avoid performing
a procedure for which he or she is not competent. Unfortunately, as evidenced by the
frequent claims of physicians that extra testing is necessary to defend against potential
malpractice claims, the cost of care might increase without any improvement in quality.
No service has immunity from prosecution. For example, a Las Vegas hotel was sued for
failing to provide proper security when a guest was assaulted in her room. An income tax
preparer can be fined up to $500 per return if a taxpayer’s liability is understated because of
the preparer’s negligence or disregard of Internal Revenue Service rules and regulations.
A noted quality expert, Joseph M. Juran, has advocated a cost-of-quality accounting
system to convince top management of the need to address quality issues.9 He identified
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Confirming Pages
130 Part Two Designing the Service Enterprise
four categories of costs: internal failure costs (from defects discovered before ship-
ment), external failure costs (from defects discovered after shipment), detection costs
(for inspection of purchased materials and during manufacture), and prevention costs (for
keeping defects from occurring in the first place). Juran found that in most manufacturing
companies, external and internal failure costs together accounted for 50 to 80 percent of
the total cost of quality. Thus, to minimize this total cost, he advocated that more atten-
tion be paid to prevention. Suggestions have been made that $1 invested in prevention is
worth $100 in detection costs and $10,000 in failure costs.
In Table 6.4, we have adapted Juran’s cost-of-quality system for use by service firms
with a banking example. In the prevention row, recruitment and selection of service per-
sonnel are viewed as ways to avoid poor quality. Identifying people with appropriate
attitudes and interpersonal skills can result in hiring contact persons with the natural
instincts that are needed to serve customers well.
Inspection is included in the detection row, but generally it is impractical except in the
back-office operations of a service.
Because service is an experience for the customer, any failure becomes a story for that
customer to tell others. Service managers must recognize that dissatisfied customers not
only will take their future business elsewhere but also will tell others about the unhappy
experience, thus resulting in a significant loss of future business.
TABLE 6.4
Costs of Quality Cost Category Definition Bank Example
for Services Prevention Costs associated with operations Quality planning
or activities that keep failure from Recruitment and selection
Source: Adapted from C. A. Aubry
and D. A. Zimbler, “The Banking happening and minimize detection Training programs
Industry: Quality Costs and costs Quality improvement projects
Improvement,” Quality Progress,
December 1983, pp. 16–20. Detection Costs incurred to ascertain the Periodic inspection
condition of a service to deter- Process control
mine whether it conforms to safety Checking, balancing, verifying
standards Collecting quality data
Internal failure Costs incurred to correct noncon- Scrapped forms and reports
forming work prior to delivery to the Rework
customer Machine downtime
External failure Costs incurred to correct noncon- Payment of interest penalties
forming work after delivery to the Investigation time
customer or to correct work that Legal judgments
did not satisfy a customer’s special Negative word-of-mouth
needs Loss of future business
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The Role of Nonmonetary Costs
Economists have long recognized that monetary price is not the only sacrifice
consumers make to obtain products and services. Demand, therefore, is not just a func-
tion of monetary price but is influenced by other costs as well. Nonmonetary costs
represent other sources of sacrifice perceived by consumers when buying and using a
service. Time costs, search costs, and psychological costs often enter into the evaluation
of whether to purchase or repurchase a service and may at times be more important
concerns than monetary price. Customers will trade money for these other costs.
Time Costs
Most services require customers’ direct participation and thus consume real time:
time waiting as well as time when the customer interacts with the service provider.
Consider the investment you make to exercise, see a physician, or get through the
crowds to watch a concert or baseball game. Not only are you paying money to receive
these services, but you are also expending time. Time becomes a sacrifice made to
receive service in multiple ways. First, because service providers cannot completely
control the number of customers or the length of time it will take for each customer
to be served, customers are likely to expend time waiting to receive the service. The
average waiting time in physicians’ offices is 24 minutes, according to the American
Medical Association.6 Waiting time for a service is frequently longer and less predict-
able than waiting time to buy goods. Second, customers often wait for an available
appointment from a service provider (in the price quiz, dentist A required a three-week
wait, whereas dentist D required only one week). Virtually everyone has expended
waiting time to receive services.
Search Costs
Search costs—the effort invested to identify and select from among services you
desire—are often higher for services than for physical goods. Prices for services are
rarely displayed on shelves of service establishments for customers to examine as they
shop, so these prices are often known only when a customer has decided to experience the
service. As an example, how well did you estimate the costs of an hour of housecleaning
in the price quiz? As a student, it is unlikely that you regularly purchase houseclean-
ing, and you probably have not seen the price of an hour of cleaning displayed in any
retail store. Another factor that increases search costs is that each service establish-
ment typically offers only one “brand” of a service (with the exception of brokers
in insurance or financial services), so a customer must initiate contact with several
companies to get information across sellers. Price comparisons for many services
(e.g., travel and hotels) are now facilitated through the Internet, reducing search costs.
Orbitz and Travelocity, for example, offer customers a search of most airlines (with the
notable exception of Southwest, which does not participate in reservation services),
many hotels, and rental car companies. However, as reflected in the chapter opener,
the added fees that airlines now charge still make searching for the final costs of airline
flights difficult.
Convenience Costs
There are also convenience (or, perhaps more accurately, inconvenience) costs of
services. If customers have to travel to receive a service, they incur a cost, and the cost
becomes greater when travel is difficult, as it is for elderly persons. Further, if a service
provider’s hours do not coincide with customers’ available time, they must arrange their
schedules to correspond to the company’s schedule. And if consumers have to expend
effort and time to prepare to receive a service (such as removing all food from kitchen
cabinets in preparation for an exterminator’s spraying), they make additional sacrifices.
Psychological Costs
Often the most painful nonmonetary costs are the psychological costs incurred in
receiving some services. Fear of not understanding (insurance), fear of rejection (bank
loans), and fear of outcomes (medical treatment or surgery) all constitute psychological
costs that customers experience as sacrifices when purchasing and using services. New
services, even those that create positive change, bring about psychological costs that
consumers factor into the purchase of services. While many grocery stores now offer
self-checkout that allows customers to bypass long lines, the number of customers who
use them has not lived up to expectations. Many customers find the self-checkout lines
confusing and frustrating to use, and others are embarrassed when they cannot move
through them quickly.

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SYBBA Semester-III

Introduction to Service Marketing

UNIT 4: SERVICE QUALITY

HOW IS SERVICE QUALITY PERCEIVED?

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Expected Versus Experienced Quality

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closeness between employees and customers in the service encounter.6 Gen-

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DETERMINANTS OF SERVICE QUALITY

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116 Part Two Designing the Service Enterprise

Defining Service Quality

FIGURE 6.1 Word Personal Past

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Chapter 6 Service Quality 117

negative perceptions of quality. If a service failure occurs, the ability to recover

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GAP One: Management Perception Gap

GAP Two: Quality Specification Gap

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GAP Three: Service Delivery Gap

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Soft and Hard Service Quality Measures

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Figure 14.5 Social media

H ow can companies measure their performance against soft standards

Key Objectives of Effective Customer lO 5

Customer feedback is a key input for becoming and remaining a customer-driven

1) Assessment and Benchmarking of Service Quality and Performance. The

More specific or detailed information on processes and products is required to

Striving for Service Excellence 455

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level of Measurement Potential

Total market survey

Service feedback cards

Focus group discussions

Online reviews and

Legend: meets requirements fully; moderately; hardly at all

lO 6 Use a Mix of Customer Feedback Collection Tools

456 Chapter 14 • Improving Service Quality and Productivity

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Striving for Service Excellence 457

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Similarly, point-of-transaction surveys on terminals allow the measurement of customer

1) Accurate assessments of where a company, process, branch, team, or individual

The potential for service recovery is important and should, if

Service Feedback Cards, Online and Mobile Messages. These

Mystery Shopping. Service businesses often use “mystery shoppers” to determine

458 Chapter 14 • Improving Service Quality and Productivity

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Service inSiGhTS 14.1

customers as Quality control inspectors?

1. Were you greeted by our airport YES/NO