Ch-4:

1. What Is Customer Satisfaction?

Ans: Satisfaction is the consumer’s fulfillment response. It is a judgment that a product or

Service feature, or the product or service itself, provides a pleasurable level of consumption-
Related fulfillment.

2. What Determines Customer Satisfaction? Measure or determines Customer satisfaction

factors

Ans: Customer satisfaction is influenced by specific product or Service features, perceptions of

product and service quality, and price. In addition, Personal factors such as the customer’s mood
or emotional state and situational factors Such as family member opinions influence satisfaction.

 Product and Service Features: Customer satisfaction with a product or service is

influenced significantly by the customer’s evaluation of product or service features. For a
service such as a resort hotel, important features might include the pool area, access to
golf facilities, restaurants, room Comfort and privacy, the helpfulness and courtesy of
staff, room price, and so forth.
 Customer Emotions: Customers’ emotions can also affect their perceptions of
satisfaction with products and services. These emotions can be stable, preexisting
emotions—for example, Mood state or life satisfaction.
 Attributions for Service Success or Failure: Attributions—the perceived causes of
events—influence perceptions of satisfaction As well. When customers have been
surprised by an outcome, they tend to look for the reasons, and their Assessments of the
reasons can influence their satisfaction.
 Perceptions of Equity or Fairness: Customer satisfaction is also influenced by
perceptions of equity and fairness. For example AT&T Settled a case to stop them from
“mobile cramming,” a practice deemed as unfair, and even unknown, too many
consumers.
 Other Customers, Family Members, and Coworkers: In addition to product and
service features and one’s own feelings and beliefs, customer satisfaction is often
influenced by other people. For example, family decisions about a vacation destination
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 and satisfaction with the trip are dynamic phenomena, Influenced by the reactions and
emotions of individual family members.
 National Customer Satisfaction Indexes: Because of the importance of customer
satisfaction to firms and overall quality of life, many countries have a national index that
measures and tracks customer satisfaction at a macro level.

2. CUSTOMER PERCEPTIONS

Ans: How customers perceive services, how they assess whether they have experienced Quality
service and whether they are satisfied. We will be focusing on the perceived service box in the
gaps model. Because expectations are dynamic, evaluations may also shift over time—from
person To person and from culture to culture.

3. Service Quality Dimensions

Ans: The dimensions of service quality have been identified through the pioneering research of
Parsuparasuraman, Valarie Zenithal, and Leonard Berry. Their research has identified five
Dimensions of service quality that apply across a variety of service contexts

1. Reliability: Delivering on Promises: Reliability is defined as the ability to perform the

promised service dependably and accurately. In its broadest sense, reliability means that
the company delivers on its promises—promises about delivery, service provision,
problem resolution, and pricing. Customers want to do business with companies that keep
their promises, particularly their promises about the service outcomes and core service
attributes.
2. Responsiveness: Being Willing to Help: Responsiveness is the willingness to help
customers and to provide prompt service. This dimension emphasizes attentiveness and
Promptness in dealing with customer requests, questions, complaints, and problems.
Responsiveness is communicated to customers by the length of time they have to wait for
assistance, answers to questions, or Attention to problems.
3. Assurance: Inspiring Trust and Confidence: Assurance is defined as employees’
knowledge and courtesy and the ability of the Firm and its employees to inspire customer
trust and confidence. This dimension is Likely to be particularly important for services
that customers perceive as high risk or for services of which they feel uncertain about

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 their ability to evaluate outcomes—for Example, banking, insurance, brokerage, medical,
and legal services.
4. Empathy: Treating Customers as Individuals: Empathy is defined as the caring,
individualized attention that the firm provides its Customers. The essence of empathy is
conveying, through personalized service, that Customers are unique and special and that
their needs are understood. In business-to-business services, customers want supplier
firms to understand their Industries and issues.
5. Tangibles: Representing the Service Physically: Tangibles are defined as the
appearance of physical facilities, equipment, personnel, and communication materials.
Tangibles provide physical representations or images of the service that customers,
particularly new customers, will use to evaluate quality. For Example, Jiffy Lube, a car
maintenance and servicing chain in the United States, Emphasizes both responsiveness
and tangibles—providing fast, efficient service and A comfortable, clean waiting area

4. What is service encounters?

Ans: Service encounters are where promises are Kept or broken and where the proverbial rubber
meets the road—sometimes called real-time marketing. It is from these service encounters that
customers build their Perceptions.

5. The Importance of Encounters

Ans: Although early events in the encounter cascade are likely to be especially important, any
encounter can be critical in determining customer satisfaction and loyalty. If a customer is
interacting with a firm for the first time, that initial encounter will create a first impression of the
organization. In these first encounter situations, the Customer frequently has no other basis for
judging the organization, and the initial Phone contact or face-to-face experience with a
representative of the firm can take on significant importance in the customer’s perceptions of
quality. Even if the technical quality of the firm’s repair service is superior, the firm may not get
the chance to demonstrate it if the initial telephone encounter drives the customer away. Even
when the customer has had multiple interactions with a firm, each individual Encounter is
important in creating a composite image of the firm in the customer’s Memory. On the other
hand, a Combination of positive and negative interactions leave the customer feeling unsure Of

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the firm’s quality, doubtful of its consistency in service delivery, and vulnerable To the appeals
of competitors.

Logic suggests that not all encounters are equally important in building relationships. For every
organization, certain encounters are probably key to customer satisfaction. For Marriott Hotels,
as noted, the early encounters are most important.

6. Types of Service Encounters

Ans: A service encounter occurs every time a customer interacts with the service organization.
There are three general types of service encounters:

 Remote encounters: First, encounters can occur without any direct human contact, such
as when a customer interacts with a bank through the ATM system, with a retailer
through its website, or with a mail-order service through automated touchtone phone
ordering. Remote encounters also occur when the firm sends its billing Statements or
communicates other types of information to customers by regular mail or e-mail.Retail
purchases, airline ticketing, repair and maintenance troubleshooting, and package and
shipment tracking are just a few examples of services available via The Internet.
 Technology-Mediated encounters: In many organizations, the most frequent type of
encounter between an end-customer and the firm Occurs over the telephone or via
simultaneous texting, live chats, or other platforms that Allow technology-based
communication with a real person in real time .For real time e-mail or text exchanges or
live chat encounters, where there Is no human voice to rely on for cues, the actual words
chosen and tone of the communication will determine perceptions of quality.
 Face-to-face encounters: A third type of encounter is the one that occurs between an
employee and a customer in direct personal contact. At Mayo Clinic, face-to-face
Encounters occur between patients and reception staff, nurses, doctors, lab technicians,
Food service workers, pharmacy staff, and others. Both verbal and nonverbal behaviors
are important Determinants of quality, as are tangible cues such as employee dress and
other symbols of service. In face-to-face Encounters the customer also plays a role in
creating quality service for herself through her own behavior during the interaction.

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Ch-6:

1. Importance of relationship marketing (bucked theory need to mention)

Ans: Relationship marketing (or relationship management) is a philosophy of doing business, a

strategic orientation, that focuses on keeping and improving relationships with current customers
rather than on acquiring new customers. This philosophy assumes that many consumers and
business customers prefer to have an ongoing relationship with one organization rather than to
switch continually among providers in their search for value. It is usually less expensive to keep
a current customer than to attract a new one, successful marketers develop effective strategies for
retaining customers.

There is a theory called as “Bucket theory of marketing.” According to this theory marketing can
be thought of as a big bucket: it is what the sales, advertising, and promotion programs do that
pours customers into the top of the bucket. As long as these programs are effective, the bucket
stays full. But the problem is, if there are holes in the bucket.” Here hole referred as when the
operation is weak and customers are not satisfied with what they are getting—and therefore the
relationship is weak—people start falling out of the bucket through the holes faster than they can
be poured in through the top. Relationship marketing helps the company to hold their existing
customer rather than focusing on acquiring new customers. Customer relationship management
is the essence of today’s competitive business environment. Creating new customers for the
organization is not enough; enhancing the customer experience is also necessary for an
organization. It brings profit for the company and helps to build a loyal customer base for the
company and that’s why relationship marketing is important.

2. Goal of relationship marketing?

Ans: The primary goal of relationship marketing is to build and maintain a base of committed
customers who are profitable for the organization. The overriding goal is to move customers up
the ladder from the point at which they are strangers that need to be attracted through to the point
at which they are highly valued, long-term customers whose relationship with the firm has been
enhanced.

1. Acquiring 2.Satisfying 3.Retaining 4.Enhancing.

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3. Customer relationship Evolution

Ans: Firms’ relationships with their customers, like other social relationships, tend to evolve
over time. Scholars have suggested that marketing exchange relationships between providers and
customers often have the potential to evolve from strangers to acquaintances to friends to
partners.

 Customers as Strangers: Strangers are those customers who have not yet had any
transactions with a firm and may not even be aware of the firm. Clearly the firm has no
relationship with the customer at this point. Consequently, the firm's primary goal with
these potential customers is to initiate communication with them in order to attract them
and acquire their business.
 Customers as Acquaintances: Once customer awareness and trial are achieved,
familiarity is established and the customer and the firm become acquaintances, creating
the basis for an exchange relationship. A primary goal for the firm at this stage of the
relationship is satisfying the customer.
 Customers as Friends: As a customer continues to make purchases from a firm and to
receive value in the exchange relationship, the firm begins to acquire specific knowledge
of the customer's needs, allowing it to create an offering that directly addresses the
customer's situation. The provision of a unique offering, and thus differential value,
transforms the relationship from acquaintance to friendship.
 Customers as Partners: As a customer continues to interact with a firm, the level of
trust often deepens and the customer may receive more customized product offerings and
interactions. The trust developed in the friendship stage is a necessary but not sufficient
condition for a customer firm partnership to develop. That is the creation of trust leads to
the creation of commitment and that is the condition necessary for customers to extend
the time perspective of a relationship.

4. Customer benefit or firm benefit by relationship/ retention strategy/benefit of

relationship marketing for customer and firm.

Ans: Both parties in the customer–firm relationship can benefit from customer retention or
relationship marketing. That is, it is not only in the best interest of the organization to build and

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maintain a loyal customer base, but customers themselves also benefit from long-term
associations.

Benefits for Customers: customers will remain loyal to a firm when they receive greater value
relative to what they expect from competing firms. Customers benefit:

 Confidence Benefits: Confidence benefits comprise feelings of trust or confidence in the

provider along with a sense of reduced anxiety and comfort in knowing what to expect.
One customer described his confidence that resulted from having developed a
relationship with a service provider: Example: There is a comfort [in having] a certain
level of experience [with the service provider], In other words, I know that I am going to
be treated right because they know me.
 Social Benefits: Social Benefits Over time, customers develop a sense of familiarity and
even a social relationship with their service providers. These ties make it less likely that
they would consider switching, even if they learn about a competitor that might have
better quality or a lower price. Example: Hairdressers, I like him. . . . He’s really funny
and always has lots of good jokes. He’s kind of like a friend now.
 Special Treatment Benefits: Special treatment includes being given a special deal or
price, getting preferential treatment, or perhaps receiving the “benefit of the doubt” from
the service provider, as exemplified by the following quotes from the research: For
example, I always pay my VISA bill on time, before a service charge is assessed. One
time my payment didn’t quite arrive on time. When I called them, by looking at my past
history, they realized that I always make an early payment. Therefore, they waived the
service charge.

Benefits for Firms: The benefits to organizations of maintaining and developing a loyal
customer base are numerous. In addition to the economic benefits that a firm receives from
cultivating close relationships with its customers, a variety of customer behavior benefits and
human resource management benefits are also often received.

 Economic Benefits: One of the most commonly cited economic benefits of customer
retention is increased purchases over time; in many industries customers tend to spend
more each year with a particular relationship partner. As customers get to know a firm and

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 are satisfied with the quality of its services relative to that of its competitors, they tend to
give more of their business to the firm. Another economic benefit for the firm is lower
costs. Some estimates suggest that repeat purchases by established customers require as
much as 90 percent less market ing expenditure.
 Customer Behavior Benefits: The contribution that loyal customers make to a service
business can go well beyond their direct financial impact on the firm. Maybe the most
easily recognized customer behavior benefit that a firm receives from long-term customers
is the free advertising provided through word-of-mouth communication. At a physical
therapy clinic, for example, a patient who is recovering from knee surgery is likely to think
more highly of the clinic when fellow patients provide encouragement and emotional
support to the patient during the rehabilitation process.
 Human Resource Management Benefits: Loyal customers may also provide a firm with
human resource management benefits. First, loyal customers may, because of their
experience with and knowledge of the provider is able to contribute to the coproduction of
the service by assisting in service delivery; often the more experienced customers can make
the service employees’ job easier. A second benefit is that customers who are loyal and
thus familiar with a firm’s processes and procedures are likely to have more realistic
expectations of what the firm can achieve for them. A third benefit of customer retention is
employee retention. It is easier for a firm to retain employees when it has a stable base of
satisfied customers. People like to work for companies whose customers are happy and
loyal.

5. Customer profitability segment tiers

Ans: Grouping of customers labels of the tiers can be very useful internally. Labels are
especially valuable if they help the company keep track of which customers are profitable.
Virtually all firms are aware at some level that their customers differ in profitability and that a
minority of their customers’ accounts for the highest proportion of sales or profit. One useful
approach for thinking of how customers differ in terms of profitability is the four-tier system,

 The platinum tier describes the company’s most profitable customers, typically those
who are heavy users of the product, are not overly price sensitive, are willing to invest in
and try new offerings, and are committed customers of the firm.
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  The gold tier differs from the platinum tier in that profitability levels are not as high,
perhaps because these customers are not as loyal or they want price discounts that limit
margins. They may be heavy users who minimize risk by working with multiple
providers rather than just the focal company.
 The iron tier contains essential customers who provide the volume needed to utilize the
firm’s capacity, but their spending levels, loyalty, and profitability are not substantial
enough for special treatment.
 The lead tier consists of customers who are costing the company money. They demand
more attention than they are due given their spending and profitability and are sometimes
problem customers—complaining about the firm to others and tying up the firm’s
resources.

6. Making business decision by profitability tier.

Ans: Prudent business managers are well aware that past customer purchase behavior, although
useful in making predictions, can be misleading. What a customer spends today, or has spent in
the past, may not necessarily be reflective of what he or she will do (or be worth) in the future.
Banks serving college students know this well—a typical college student generally has minimal
financial service needs (i.e., a checking account and a debit card) and tends to not have a high
level of deposits. However, within a few years that student may embark on a professional career,
start a family, and/or purchase a house, and thus require several financial services and become a
potentially very profitable customer to the bank. Generally speaking, a firm would like to keep
its consistent big spenders and lose the erratic small spenders. But all too often a firm also has
two other groups they must consider: erratic big spenders and consistent small spenders. So, in
some situations where consistent cash flow is a concern, it may be helpful to a firm to have a
portfolio of customers that includes steady customers, even if they have a history of being less
profitable. Some service providers have actually been quite successful in targeting customers
who were previously considered to be unworthy of another firm’s marketing efforts. Paychex, a
payroll processing company, became very successful in serving small businesses that the major
companies in this industry did not think were large enough to serve profitably. Similarly,
Progressive Insurance became very successful in selling automobile insurance to undesirable
customers—young drivers and those with poor driving records—that most of the competition did

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not feel had a sufficient relationship value. As these examples suggest, firms should think
carefully and strategically when applying customer value calculations.

7. Relationship challenges

Ans: Given the many benefits of long-term customer relationships, it would seem that a
company would not want to refuse to serve or terminate a relationship with any customer. Yet
situations arise in which either the firm or the customer, or both want to end (or have to end)
their relationship. Firms may identify some customers who are not their targeted segment, who
are not profitable in the long run, or who are difficult to work with or dysfunctional. A company
may not want to continue in a relationship with every customer.

 The Customer Is Not Always Right: The assumption that all customers are good
customers is very compatible with the belief that “the customer is always right,” an almost
sacrosanct tenet of business. Yet any service worker can tell you that this statement is not
always true, and in some cases it may be preferable for the firm to not continue its
relationship with a customer. The following discussion presents a view of customer
relationships suggesting that all relationships may not be beneficial and that every customer
is not right all the time.
 The Wrong Segment: A company cannot target its services to all customers; some
segments are more appropriate than others. It would not be beneficial to either the company
or the customer for a company to establish a relationship with a customer whose needs the
company cannot meet. For example, a school offering a lock-step, daytime MBA program
would not encourage full-time working people to apply for its program,
 Not Profitable in the Long Term: In the absence of ethical or legal mandates,
organizations will prefer not to have long-term relationships with unprofitable customers.
Some examples of this situation are when there are not enough customers in the segment to
make it profitable to serve, when the segment cannot afford to pay the cost of the service,
and when the projected revenue flows from the segment would not cover the costs incurred
to originate and maintain their business.
 Difficult Customers: Firms have service encounters that fail because of dysfunctional
customers. Dysfunctional customer behavior consists of the actions by customers who
intentionally, or perhaps unintentionally, act in a manner that in some way disrupts
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 otherwise functional service encounters. Such customers have been described as
“customers from hell,” “problem customers,” or “jay customers.” Example: Drunken
customer.

8. Ending relationship

Ans: Relationships end in different ways depending on the type of relationship in place. In some
situations, a relationship is established for a certain purpose and/or time period and then
dissolves when it has served its purpose or the time frame has elapsed. For example, sometimes a
relationship has a natural ending. Piano lessons for children, for example, often cease as the child
gets older and develops interests in other musical areas (such as singing or playing the
saxophone); In other situations, an event may occur that forces the relationship to end; a provider
who relocates to the other side of town may force some customers to select a different company.
Or an ending may occur because the customer is not fulfilling his obligations. For example, a
bank may choose to end the relationship with a customer who regularly has insufficient funds in
her checking account. Whatever the reason for ending the relationship, firms should clearly
communicate their reasons for wanting (or needing) to terminate it, so that customers understand
what is occurring and why.

9. Can company or firm fine customer?

Ans: Yes they can, Firms should seek to get rid of those customers who are not right for the
company. Many companies make these types of decisions based on the belief that troublesome
customers are usually less profitable and less loyal and that it may be counterproductive to retain
their business. Another reason for “firing” a customer is the negative effect that these customers
can have on employee quality of life and morale. Companies today are making it easier to justify
firing customers. Service providers such as Uber, Lyft, and Airbnb, for example, allow drivers
and hosts to review and rate customers. If a customer receives low scores or has several
complaints from enough people, that customer may not be chosen to receive services or, even
more, no longer be allowed to use the company’s website to schedule services. Although it may
sound like a good idea, firing customers is not that simple and needs to be done in a way that
avoids negative publicity or negative word of mouth.

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Chapter 7

1) Definition of Service recovery / Impact of Service failure and recovery

Ans: - Service recovery refers to the actions taken by an organization in response to a service
failure to improve the situation for the customer.

A service failure is generally described as service performance that falls below a customer’s
expectations in such a way that leads to customer dissatisfaction. Service recovery refers to
the actions taken by an organization in response to a service failure to improve the situation
for the customer. Failures occur for all kinds of reasons—the service may be unavailable
when promised, it may be delivered late or too slowly, the outcome may be incorrect or
poorly executed, or employees may be rude or uncaring.

Research has shown that recovering customer problems effectively have a strong impact on
customer satisfaction, loyalty, word-of-mouth communication, and bottom-line performance.
That is, customers who experience service failures, but who are ultimately satisfied based on
recovery efforts by the firm, will be more loyal than those whose problems are not resolved.

2) How Customers Respond To Service Failures

Ans:-Customers who experience service failures can respond in a variety of ways. These are

o Following a failure, dissatisfaction at some level will occur for the customer. Variety
of negative emotion can occur such as anger, discontent, disappointment,
self-pity.
o Service Failures will affects how customer evaluates service recovery efforts & their
ultimate decision.
o Whether they take action or not, at some point customer will decide whether to stayor
switch.

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3) Why people do (and do not) complain

Ans: - Why complaining:

(1.) Believe positive consequences may occur & social benefits of complaining,

(2.) Fair treatment & good service are their due & someone should make good,

(3.) Social obligation that others avoid similar situations,

(4.) Complaining personalities like complain or cause trouble.

Why not complaining:

(1.) Complaining as waste of time & effort,

(2.) Believe nothing positive will occur for them or others,

(3.) Do not know how to complain – the process or avenues open to voice them,

(4.) emotional-focused coping involving self-blame, denial & seeking social support,

(5.) personal relevance of failure -more likely if it is expensive, high risk & ego-involving
then less expensive, frequently purchased services -more likely when remote channels set
up to make it easy to provide feedback e.g.: online forums, twitter pages etc.

4) Types of complainers

Ans: - Vary across industries & context but types relatively consistent – each found in
all companies

 Passives-Least likely to act – unlikely to say anything to provider, less likely to

spread negative WoM. Doubt the effectiveness of complaining, thinking that the
consequences will not merit the time and effort, feel uncomfortable complaining -Feel
less alienated from marketplace than irates & activists.
 Voicers-Actively complaint o providers, less likely to spread WoM, to switch to
patronage or to go to third parties should be viewed as service providers best friends
Give company second chance – less alienated from marketplace, believe

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 complaining has social benefits & do not hesitate to voice their opinions -
Consequences of complaining to provider can be very positive & believe less in other
types of complaining.
 Irate-More likely than others to engage in neg. WoM communication with friends
& to switch to providers average in propensity to complain to the providers, unlikely
to complain to third parties -Feel somehow alienated from the marketplace-Angrier
with the provider, although they do believe that complaining to the provider can
have social benefits less likely to give second change & will switch to
competitor
 Activists-Above average propensity to complain on all dimensions, they will
complain to the provider, tell others & third parties -Complaining fits with their
personal norms -More alienated from marketplace  optimistic sense of
potential positive consequences of all types of complaining.
5) Fixing the Customer / Fixing the Problem

Ans: Fixing the Customer

o Respond Quickly: Complaining customers want quick responses. Thus, when the
company has service failures or receives complaints from customers, it must be
prepared to act on them quickly.
o Provide Appropriate Communication: In many service failure situations,
customers are not looking for extreme actions from the firm; however, they are
looking to understand what happened and for firms to be accountable for their
actions. Research suggests that when the firm's ability to provide an adequate
outcome is not successful, further dissatisfaction can be reduced if an adequate
explanation is provided to the customer. Customer discontent can be moderated if
firms simply communicate well with customers. Firms need to put more effort
into their response than simply apologizing well, such as providing appropriate
compensation, if they want to fully recover from a severe service failure.
o Treat Customers Fairly: Customers also want justice and fairness in handling
their complaints. Firms are responsible for making sure customers are treated
fairly. By treating customers fairly, Consumers can be confident that they are

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 dealing with firms where the fair treatment of customers is central to the corporate
culture.
o Cultivate Relationships with Customers: One additional benefit of relationship
marketing is that 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 firm's service recovery efforts. That is, it may be easier to "fix
the customer" if the firm has established a strong relationship with that customer,

Fixing the Problem

o Encourage and Track Complaints: Even if an organization aims 100 percent

service quality, failures occur. A critical component of a service recovery strategy
is thus to encourage and track complaints. Firms can utilize a number of ways to
encourage and track complaints.
o Learn from Recovery Experiences: Service recovery situations are more than
just opportunities to fix flawed services and strengthen ties with customers. They
can also provide valuable information for improving service delivery, by tracking
service recovery efforts and solutions, managers can often learn about systematic
problems in the delivery system that need fixing.
o Learn from Lost Customers: Another key component of an effective service
recovery strategy is to learn from the customers who defect or decide to leave.
Formal marketing research to discover the reasons customers have left can assist
in preventing failures in the future.
o Make the Service Fail-Safe: The first rule of service quality, and arguably the
best service recovery strategy, is to do it right the first time. In this way recovery
is unnecessary, customers get what they expect, and the costs of redoing the
service and compensating for errors can be avoided.
6) Benefits of Service Guarantees
Ans: - Service organizations are now recognizing that guarantees can serve not only as a
marketing tool but also as a means for defining, cultivating, and maintaining quality
throughout an organization. The benefits to the company of an effective service guarantee
are numerous:

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 • A good guarantee forces the company to focus on its customers.
• An effective guarantee sets clear standards for the organization. It prompts the company
to clearly define what it expects of its employees and to communicate that expectation to
them.
• A good guarantee generates immediate and relevant feedback from customers.
• When the guarantee is invoked there is an instant opportunity to recover.
• Information generated through the guarantee can be tracked and integrated into
continuous improvement efforts.
• For customers, the guarantee reduces their sense of risk and builds confidence in the
organization. Because services are intangible and often highly personal or ego-involving,
customers seek information and cues that will help reduce their sense of uncertainty.

The bottom line for the company is that an effective guarantee can affect profitability
through building customer awareness and loyalty, through positive word-of-mouth
communication, and through reduction in costs as service improvements are made and
service recovery expenses are reduced. Indirectly, the guarantee can reduce costs of
employee turnover through creating a more positive service culture.

7. When to use and when not to use guarantee?

Ans: Service guarantees are not appropriate for every company and certainly not in every
service situation.

 Existing service quality in the company is poor. Before instituting a guarantee, the
company should fix any significant quality problems. A guarantee will certainly draw
attention to failures and to poor service quality, so the costs of implementing the
guarantee could easily outweigh any benefits.
 A guarantee does not fit the company's image. If the company already has a
reputation for very high quality, and in fact implicitly guarantees its service, then a
formal guarantee is most likely unnecessary.
 Service quality is truly uncontrollable. Service providers can encounter situations in
which service quality is truly uncontrollable. To illustrate, it would not be a good

16
 practice for a university to guar tee that all MBA students will get the job they want
immediately upon graduation.
 Costs of the guarantee outweigh the benefits. As it would with any quality
investment, the company will want to carefully calculate expected costs (payouts for
failures and costs of making improvements) against anticipated benefits (customer
loyalty, quality improvements, attraction of new customers, word-of-mouth
advertising).

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