SMark PDF Chapter 2 - 15 PDF

9/18/2018
Learning Objectives
2.1 Understand the three-stage model of service
consumption.
2
2.2 Use the multi-attribute model to understand how
consumers evaluate and choose between alternative
service offerings.
Consumer Behavior 2.3 Learn why consumers often have difficulty
evaluating services, especially those with many
IN A SERVICES CONTEXT experience and credence attributes.
2.4 Know the perceived risks customers face in
purchasing services and the strategies firms can use to
WIRTZ LOVELOCK reduce consumer risk perceptions.
Copyright © 2018 Pearson Education Ltd. 2-2
Learning Objectives Learning Objectives

2.5 Understand how customers form service 2.9 Obtain insights from viewing the service encounter
expectations and the components of these as a form of theater.
expectations. 2.10 Know how role, script, and perceived control
2.6 Know the “moment of truth” metaphor. theories contribute to a better understanding of
2.7 Contrast how customers experience and evaluate service encounters.
high- versus low-contact services. 2.11 Describe how customers evaluate services and
2.8 Be familiar with the servuction model and what determines their satisfaction.
understand the interactions that together create the 2.12 Understand service quality, its dimensions and
service experience. measurement, and how quality relates to customer
loyalty.
4
Copyright © 2018 Pearson Education Ltd. 2-3 Copyright © 2018 Pearson Education Ltd. 2-4
Consumer Behavior The three-stage model of service

in a Services Context consumption
• Overview
CONSUMER BEHAVIOR IN A SERVICES CONTEXT
2.1
Understand the three-stage model of
service consumption.
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The three-stage model of service The three-stage model of service

consumption consumption
• Need awareness

• Information search
• Evaluation of alternatives
o Multi-attribute model
o Service attributes
o Perceived risk
o Service expectations
• Purchase decision
The three-stage model of service The three-stage model of service

consumption consumption
Need Awareness Information Search
• A service purchase is triggered by • When a need is recognized,

an underlying need (need arousal) people will search for
• Needs may be due to: solutions.
o People’s unconscious minds (e.g., • Several alternatives may
aspirations) come to mind, and these
o Physical conditions (e.g., chronic back form the evoked set
pain) o Evoked set: set of possible services or brands that a
o External sources (e.g., marketing customer may consider in the decision process
activities) • When there is an evoked set, the different
• When a need is recognized, people alternatives need to be evaluated before a final
are likely take action to resolve it choice is made
Consumer Behavior
The Multi-attribute Model
in a Services Context
2.2
Use the multi-attribute model to
understand how consumers evaluate
and choose between alternative service
offerings.
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Consumer Behavior
Service Attributes
• Search attributes help customers evaluate a product
before purchase

• Experience attributes cannot be evaluated before
2.3
purchase—must “experience” product to know it
o Vacations, sporting events, medical procedures
• Credence attributes are product characteristics that
customers find impossible to evaluate confidently even
Learn why consumers often have after purchase and consumption
Quality of repair and maintenance
difficulty evaluating services, especially o
work
those with many experience and
credence attributes.
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Consumer Behavior
Perceived Risks
• Functional―unsatisfactory performance
outcomes
• Financial―monetary loss,
2.4
unexpected extra costs
• Temporal―wasted time,
delays leading to problems
Know the perceived risks customers • Physical―personal injury,
face in purchasing services and the damage to possessions
strategies firms can use to reduce • Psychological―fears and negative emotions
• Social―how others may think and react
consumer risk perceptions. • Sensory―unwanted impact on any of five senses
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Perceived Risks Perceived Risks

How Do Consumers Handle Them? Strategies for Firms to Manage Consumer Perceptions of
Risk
• Seeking information from respected personal

• Preview service through brochures, websites, videos
sources
• Encourage visit to service facilities before purchase
• Using Internet to compare service offerings and • Free trial (for services with high experience attributes)
search for independent reviews and ratings • Advertise (helps to visualize)
• Relying on a firm that has a good reputation
• Looking for guarantees and warranties
• Visiting service facilities or trying aspects of
service before purchasing
• Asking knowledgeable employees about
competing services
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Consumer Behavior
Perceived Risks
Strategies for Firms to Manage Consumer
Perceptions of Risk
• Display credentials
2.5
• Use evidence management (e.g., furnishing,
equipment etc.)
• Give customers online
access to information
about order status Understand how customers form
• Offer guarantees service expectations and the
components of these expectations.
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Service Expectations Service Expectations

• Customers evaluate service quality by
comparing what they expect against what

they perceive
o Situational and personal factors also
considered
• Expectations of good service vary from
one business to another, and differently
positioned service providers in same
industry
• Expectations change over time
Service Expectations Service Expectations

Components of Customer Expectations Components of Customer Expectations
• Desired Service Level: • Predicted Service Level:

o Wished-for level of service quality that customer o Service level that customer believes firm will actually
believes can and should be delivered deliver
• Adequate Service Level: • Zone of Tolerance:
o Minimum acceptable o Range within which customers
level of service are willing to accept variations
in service delivery
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Consumer Behavior
Service Expectations
Purchase Decision
• When possible alternatives have been compared

and evaluated, the best option is selected
2.6
• Can be quite simple if perceived risks are low
and alternatives are clear
• Very often, trade-offs are involved. The more
complex the decision, the more trade-offs need
to be made Know the “moment of truth” metaphor.
• Price is often a key factor in the purchase
decision
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Consumer Behavior
Moments of truth
• The “moment of truth”
is when the customer

directly interacts with
2.7
the service firm.
• It involves the skills,
motivation and tools
employed by the firm
Contrast how customers experience
to prove to the customer that they are the best
alternative for them. and evaluate high- versus low-contact
services.
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High- versus low-contact services High- versus low-contact services

• Service Encounters Range from High-contact to Low- • High-contact Services
contact
o Customers visit service facility and remain throughout service

delivery
o Active contact between customers and service personnel
o Includes most people-processing services
• Low-contact Services
o Little or no physical contact with service personnel
o Contact usually at arm’s length through electronic or physical
distribution channels
o New technologies (e.g. Web) help reduce contact levels
• Medium-contact services lie in between these two
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Consumer Behavior
The Servuction System

2.8
Be familiar with the servuction model
and understand the interactions that
together create the service experience.
WIRTZ LOVELOCK
Consumer Behavior
The Servuction System
• Visible front stage and invisible backstage
• Service Operations system
2.9
o Technical core where inputs are processed and
service elements created, usually backstage
o Includes facilities, equipment, and personnel
• Service Delivery System (front stage)
o Where “final assembly” of service elements takes Obtain insights from viewing the
place and service is delivered to customers
service encounter as a form of theatre.
o Includes customer interactions with operations and
other customers
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Consumer Behavior
Theatrical Metaphor
• Good metaphor as service delivery is a series of
events that customers experience as a

performance
2.10
• Service facilities
o Stage on which drama
unfolds
o This may change from
one act to another Know how role, script, and perceived
• Personnel control theories contribute to a better
o Front stage personnel are like members of a cast understanding of service encounters.
o Backstage personnel are support production team
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Role, script, and perceived control Role, script, and perceived control
theories theories
• Roles • Behavioral control

o Like actors, employees have o Allows the customer to change the service situation
roles to play and behave in by asking the firm to customize its typical offerings
specific ways • Decisional control
• Scripts o The customer can choose between two or more
o Specifies the sequences of standardized options without changing either option
behavior for customers and • Cognitive control
employees o Exercised when the customer understands why
something is happening and knows what will happen
next
Consumer Behavior How customers evaluate services and

in a Services Context what determines their satisfaction
• Expectancy-disconfirmation model of
satisfaction.
2.11
Describe how customers evaluate
services and what determines their
satisfaction.
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How customers evaluate services and Consumer Behavior

what determines their satisfaction in a Services Context
Customer Satisfaction Is Central to the Marketing Concept
• Satisfaction defined as attitude-like judgment following a
service purchase or series of service interactions
2.12
• Customers have expectations prior to consumption,
observe service performance, compare it to expectations
• Satisfaction judgments are based on this comparison
o Positive disconfirmation if better than expected
o Confirmation if same as expected
o Negative disconfirmation if worse than expected Understand service quality, its
dimensions and measurement, and how
quality relates to customer loyalty.
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Understand service quality Understand service quality

• Service quality is the high standard of performance that • 10 dimensions used by consumers in evaluating
consistently meets or exceeds customer expectations.

service quality
• Customer satisfaction and service quality are determined
by comparing customers’ expectations with their
performance perceptions.
o Satisfaction is an evaluation of a
single consumption experience
o Service quality refers to relatively
stable attitudes and beliefs about
a firm
• Transaction quality and attribute
satisfaction are also transaction-
specific and determine overall
customer satisfaction.
Understand service quality

Thank You.
Copyright © 2018 Pearson Education Ltd. 2-45 2-46
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Learning Objectives
3.1 Understand how customer, competitor, and
company analyses (i.e., the 3 Cs) help to develop a
3
customer-driven services marketing strategy.
3.2 Know the key elements of a positioning strategy
(i.e., STP) and explain why they are so crucial for service
Positioning Services firms.
3.3 Segment customers on the basis of needs before
IN COMPETITIVE MARKETS using other common bases to further identify and
profile the segments.
3.4 Distinguish between important and determinant
WIRTZ LOVELOCK attributes for segmentation.
Positioning Services
Learning Objectives in Competitive Markets
3.5 Use different service levels for segmentation.
3.6 Target service customers using the four focus
3.1
strategies for competitive advantage.
3.7 Position a service to distinguish it from its
competitors.
3.8 Understand how to use positioning maps to analyze
Understand how customer, competitor,
and develop competitive strategy.
and company analyses (the 3 Cs) help
3.9 Develop an effective positioning strategy.
to develop a customer-driven services
marketing strategy.
WIRTZ LOVELOCK
Customer, competitor, and Customer, competitor, and

company analyses company analyses
• Developing a services marketing positioning
POSITIONING SERVICES IN COMPETITIVE MARKETS
strategy
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Customer, Competitor and Positioning Services

Company Analysis in Competitive Markets
• Customer analysis:
o Overall examination of market characteristics

o Customer needs and related characteristics and behaviors
3.2
• Competitor analysis:
o Current positioning
o Strengths and weaknesses
• Company analysis:
o Current brand positioning and
image Know the key elements of a positioning
o Resources
strategy (i.e., STP) and explain why
o Limitations and constraints
they are so crucial for service firms.
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Segmentation, Targeting, and Positioning Services

Positioning in Competitive Markets
• Segmentation:
o Dividing population of possible customers into groups with

common service-related characteristics
3.3
o Similar needs within same segment, different needs between
segments
• Targeting:
o Choose one/more segments to
focus on
• Positioning: Segment customers on the basis of
o Unique place in the minds of needs before using other common
customers
o Differentiation forms first step
bases to further identify and profile the
to creating unique positioning segments.
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Segmenting Service Markets Segmenting Service Markets

• Firms vary widely in ability to serve different • Various ways to segment markets:
types of customers o Demographics: on its own will not result in meaningful segments
– Adopt strategy of market segmentation, identifying o Psychographic segmentation: useful for strengthening brand
identity and creating emotional connection
those parts of market can serve best
o Behavioral segmentation: focuses on observable behavior
– A market segment is composed of a group of buyers
o Needs-based segmentation: focuses on what customers truly
sharing common: want in a service
o Characteristics
o Needs
o Purchasing behavior
o Consumption patterns
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Segmenting Service Markets in Competitive Markets
Developing the Right Service Concept for a Specific Segment
• Use research to identify and prioritize which attributes of a
given service are important to specific market segments
3.4
• Individuals may set different priorities according to:
o Purpose of using the service
o Who makes decision
o Timing of use
o Whether service is used alone
or with a group Distinguish between important and
o Composition of that group
determinant attributes for
segmentation.
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Important versus Determinant Positioning Services

Service Attributes in Competitive Markets
• Consumers usually choose between alternative
service offerings based on perceived differences

between them
3.5
• Attributes that distinguish competing services
from one another are not necessarily the most
important ones
• Determinant attributes determine buyers’
choices between competing alternatives: Use different service levels for
o Service characteristics that are important to segmentation.
purchasers
o Customers see significant differences between
competing alternatives on these attributes WIRTZ LOVELOCK
Segmenting Based on Service Positioning Services

Levels in Competitive Markets
• Need to make decisions on service levels―level
of performance firm plans to offer on each

attribute
3.6
o Easily quantified attributes
are easier to understand
and generalizable (e.g.,
vehicle speed, physical
dimensions) Target service customers using the four
o Qualitative attributes focus strategies for competitive
are ambiguous and
subject to individual advantage
interpretation (e.g., physical comfort, noise levels)
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Considerations for Using the Focus Considerations for Using the Focus
Strategies Strategies
• Fully focused: • Risks:

o Limited range of services to narrow and specific o Market may be too small to generate needed volume of business
market o Demand for a service may be displaced by generic competition
from alternative products
• Opportunities: o Purchasers in chosen segment may be susceptible to economic
o Developing recognized expertise in a well- downturn
defined niche may provide protection • Market focused:
against would-be competitors o Narrow market segment with wide range of services
o Allows firms to charge premium prices o Need to make sure firms have operational capability to do an
deliver each of the different services selected
o Need to understand customer purchasing practices and
preferences
Copyright © 2018 Pearson Education Ltd. Copyright © 2018 Pearson Education Ltd. 3-20
Considerations for Using the Focus Positioning Services

Strategies in Competitive Markets
• Service focused:
o Narrow range of services to

fairly broad market
3.7
o As new segments are added,
firm needs to develop
knowledge and skills in serving
each segment
• Unfocused:
Broad markets with wide range
o
of services Position a service to distinguish it from
o Many service providers fall into its competitors.
this category
o Danger of becoming a “jack of
all trades and master of none”
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Distinguishing a service from its Distinguishing a service from its

competitors competitors
Four Principles of Positioning Strategy Six Questions for Effective Positioning Strategy
• Must establish position for firm or product in minds • What does our firm currently stand for in the minds of
current and potential customers?
of target customers
• What types of customers do we serve now, and which ones
• Position should provide one simple, consistent would we like to target in future?
message
• Position must set firm/product apart from
competitors
• A company cannot be all things to all people; it must
focus its efforts
Jack Trout
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Distinguishing a service from its Positioning Services

competitors in Competitive Markets
Six Questions for Effective Positioning Strategy
• What is value proposition for each of our current service
products, and what market segments is each one targeted at?
3.8
• How does each of our service products differ from
competitors’?
• How well do customers in chosen target segments perceive
our service products as meeting their needs?
• What changes must we make to our offerings to strengthen
our competitive position? Understand how to use positioning
• Avoid the trap of investing too heavily in points of differences maps to analyze and develop
that are easily copied.
competitive strategy.
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Using positioning maps Using positioning maps

• Great tool to visualize competitive positioning • Positioning of Belleville Hotels: Service Level vs. Price
and map developments of time

• Useful way to represent consumer perceptions
of alternative products graphically
• Typically confined to two attributes, but 3-D
models can be used to portray positions on
three attributes simultaneously
• Also known as perceptual maps
• Information about a product can be obtained
from market data, derived from ratings by
representative consumers, or both

• Positioning of Belleville Hotels: Location vs. Physical • Future Positioning of Belleville Hotels: Service Level vs.
Luxury Price
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• Future Positioning of Belleville Hotels: Location vs. Positioning Maps Help Managers to Visualize

Physical Luxury Strategy
• Positioning maps display relative performance of
competing firms on key attributes
• Research provides inputs to development of
positioning maps―challenge is to ensure that
o Attributes employed in maps are important to target
segments
o Performance of individual firms on each attribute
accurately reflects perceptions of customers in target
segments
Using positioning maps in Competitive Markets
Positioning Maps Help Managers to Visualize Strategy
• Predictions can be made of how positions may change in

light of future developments
3.9
• Simple graphic representations are often easier for
managers to grasp than tables of data or paragraphs of
prose
• Charts and maps can
facilitate “visual awakening” to threats and
opportunities, suggest
Develop an effective positioning
alternative strategic strategy.
directions
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Developing an Effective Positioning Developing an Effective Positioning

Strategy Strategy
• Segmentation, targeting and positioning • Point of difference
integrates with customer, competitor and o Most compelling benefit offered by brand that stands
company analyses to give us a positioning out from competitors
statement • Reason to believe
• Target audience: o Proof that brand can
o Specific group(s) of people that the brand wants to deliver the benefits
sell to and serve that are promised
• Frame of reference:
o Category the brand is competing in
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Thank You.
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Learning Objectives
4.1 Understand what constitutes a service product.
4.2 Be familiar with the Flower of Service model.
4
4.3 Know how facilitating supplementary services relate
to the core product.
4.4 Know how enhancing supplementary services relate
Developing Service to the core product.
PRODUCTS AND BRANDS 4.5 Understand branding at the corporate and
individual service product levels.
4.6 Examine how service firms use different branding
strategies.
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Developing Service
Learning Objectives Products and Brands
4.7 Understand how branding can be used to tier
service products.
4.1
4.8 Discuss how firms can build brand equity.
4.9 Understand what is required to deliver a branded
service experience.
4.10 List the categories of new service development,
ranging from simple style changes to major Understand what constitutes a service
innovations. product.
4.11 Describe how firms can achieve success in new
service development.
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Understand what constitutes a Understand what constitutes a

service product service product
• The components of a service product
DEVELOPING SERVICE PRODUCTS AND BRANDS
o Core Product
o Supplementary Services
o Delivery Processes
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Developing Service
Products and Brands The Flower of Service model
• A core product

surrounded by cluster
of supplementary
4.2
services
Be familiar with the Flower of Service

model.
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Developing Service
The Flower of Service model Products and Brands
• There are two kinds of supplementary services:
o Facilitating supplementary services: either needed for service

delivery, or help in the use of the core product
4.3
o Enhancing supplementary service: add extra value for the
customer
• In a well-designed and well-managed service

organization, the petals and core are fresh and well-
formed.
Know how facilitating supplementary
• Market positioning strategy helps to determine which
supplementary services should be included.
services relate to the core product.
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Developing Service
Facilitating supplementary services Products and Brands
• Information:
o Customers often require information about how to obtain and

use a product or service.
4.4
• Order-Taking:
o Customers need to know what is available and may want to
secure commitment to delivery. The process should be fast and
smooth.
• Billing:
o Bills should be clear, accurate and intelligible. Know how enhancing supplementary
• Payment: services relate to the core product.
o Customers may pay faster and more cheerfully if you make
transactions simple and convenient for them.
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Enhancing supplementary services Enhancing supplementary services

• Consultation: • Safekeeping:

o Value can be added to goods and services by offering advice and o Customers prefer not to worry about looking after the personal
consultation tailored to each customer’s needs and situation. possessions that they bring with them to a service site.
• Hospitality: • Exceptions:
o Customers who invest time and effort in visiting a business and o Customers appreciate some flexibility when they make special
using its services deserve to be treated as welcome guests. requests and expect responsiveness when things don’t go
according to plan.
Developing Service Branding: corporate and individual

Products and Brands service products
• A product implies a
defined and consistent
“bundle of output”
4.5
• Brand names enables
the firm to communi-
cate the distinctive
experiences and
benefits associated
Understand branding at the corporate with a specific service
and individual service product levels. concept.
• A firms can differentiate its bundle of output from its
competitors’.
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Developing Service How service firms use different

Products and Brands branding strategies
• Branded House:
o A company that applies its brand name to multiple offerings in

unrelated fields
4.6
• Sub-brands:
o The corporate or the master brand is the main reference point,
but each product has a distinctive name as well
• Endorsed Brands:
o The product brand dominates, but the corporate name is still
Examine how service firms use featured
different branding strategies. • House of Brands:
o Each of the brands owned by the corporation is promoted under
its own name
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How service firms use different Developing Service

branding strategies Products and Brands
4.7
Understand how branding can be used
to tier service products.
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How branding can be used to tier Developing Service

service products Products and Brands
British Airways offers seven distinct air travel
products
• Four intercontinental offerings:
4.8
o First (deluxe service)
o Club World (business class)
o World Traveller Plus (premier economy class)
o World Traveller (economy class)
• Two intra-European offerings: Discuss how firms can build brand
Club Europe (business class)
o
o Euro-Traveller (economy class)
equity.
o UK Domestic (economy class between London and major British
cities)
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Discuss how firms can build brand Developing Service

equity Products and Brands
4.9
Understand what is required to deliver
a branded service experience
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Delivering Branded Service Delivering Branded Service

Experiences Experiences
• Besides designing great service products and • Besides designing great service

giving them a brand name, service marketers products and giving them a brand
must consider: name, service marketers must
o Having great processes in place consider:
o The servicescape o Having great processes in place
o Investing in good employees o The servicescape
o Investing in good employees
Developing Service Hierarchy of New Service

Products and Brands Categories
• Style changes:
o Visible changes in service design or scripts

• Service improvements:
4.10
o Modest changes in the performance of current products
• Supplementary service innovations:
o Addition of new or improved facilitating or enhancing elements
List the categories of new service • Process-line extensions:
development, ranging from simple style o Alternative delivery procedures
changes to major innovations.
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Hierarchy of New Service Developing Service

Categories Products and Brands
• Product-line extensions:
o Additions to current product lines

• Major process innovations:
4.11
o Using new processes to deliver
existing products with added
benefits
• Major service innovations
o New core products for
previously undefined markets
Describe how firms can achieve
success in new service development
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Achieving Success in Developing How branding can be used to tier

New Services service products
• In developing new services: • Market synergy

o Core product is of secondary importance o Good fit between new product and firm’s image/resources
o Ability to maintain quality of the total service offering is key o Advantage vs. competition in meeting customers’ needs
o Accompanying marketing support activities are vital o Strong support from firm during/after launch
o Market knowledge is of utmost importance o Firm understands customer purchase decision behavior
• Organizational factors
o Strong interfunctional cooperation and coordination
o Internal marketing to educate staff on new product and its
competition
o Employees understand importance of new services to firm
• Market research factors
o Scientific studies conducted early in development process
o Product concept well defined before undertaking field studies
Thank You.
4-33
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Learning Objectives
5.1 Know the four key questions that form the
foundation of any service distribution strategy: What?
How? Where? When?
5
5.2 Describe the three interrelated flows that show what
is being distributed.
Distributing Services 5.3 Know how services can be distributed using three
main options, and understand the importance of
THROUGH PHYSICAL AND distinguishing between the distribution of core and
ELECTRONIC CHANNELS supplementary services.
WIRTZ LOVELOCK

5.4 Recognize the issues of delivering services through 5.8 Describe the when (time) decisions of physical
electronic channels, and discuss the factors that have channels and the factors that determine extended
fueled the growth of service delivery via cyberspace. operating hours.
5.5 Understand the determinants of customers’ channel 5.9 Understand the role, benefits, and costs of using
preferences. intermediaries in distributing services.
5.6 Know the importance of channel integration. 5.10 Know why franchising is such a common way of
5.7 Describe the where (place) decisions of physical delivering services to end users.
channels, and be familiar with the strategic and tactical 5.11 Understand the challenges of distribution in large
location considerations. domestic markets.
Distributing Services through

Learning Objectives Physical and Electronic Channels
5.12 Be familiar with the forces that drive service firms to
go international.
5.13 Appreciate the special challenges of distributing
5.1
services internationally.
5.14 Explain the determinants of international market
entry strategies.
Know the four key questions that form
the foundation of any service
distribution strategy.
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The foundation of any service

Distribution in a Services Context
distribution strategy
• What is being
DISTRIBUTING SERVICES THROUGH PHYSICAL AND

distributed?
• How should a service be
ELECTRONIC CHANNELS
ELECTRONIC CHANNELS
distributed?
• Where should a service
facility be located?
• When should service be
delivered?

Physical and Electronic Channels What is being distributed?
• In a typical service sales cycle, distribution
embraces three interrelated flows:

o Information and promotion flow
5.2
o Negotiation flow
ELECTRONIC CHANNELS
o Product flow
Describe the three interrelated flows

that show what is being distributed.
WIRTZ LOVELOCK
Distributing Services through How should a service be

Physical and Electronic Channels distributed?
5.3
ELECTRONIC CHANNELS
How services can be distributed using

three main options; the importance of
distinguishing between the distribution
of core and supplementary services.
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Distributing Services through Delivering services through

Physical and Electronic Channels electronic channels
• Information, consultation, order-taking, billing, and payment can all

be transmitted using online channels.
• Service businesses that involve physical core products are closing
5.4
physical branches and shifting delivery of many supplementary
services to the internet.
ELECTRONIC CHANNELS
• Factors that attract customers
to online services:
o Convenience
Recognize the issues of delivering o Ease of search
services through electronic channels, o A broader selection
o Potential for better prices
and discuss the growth of service o 24/7 service with prompt
delivery via cyberspace. delivery
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Distributing Services through Channel Preferences Vary among

Physical and Electronic Channels Customers
• For complex and high-perceived risk services, people
tend to rely on personal channels.

Individuals with greater confidence and knowledge
5.5
•
about a service/channel tend to use impersonal and self-

ELECTRONIC CHANNELS
service channels
• Customers who are more technology savvy
• Customers with social motives tend to use personal
Understand the determinants of channels
customers’ channel preferences. • Convenience is a key driver of channel choice
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Distributing Services through The importance of channel

Physical and Electronic Channels integration
• A service that is delivered through multiple channels
requires a seamless and consistent user experience.

• New delivery channels are prone to inconsistent and
5.6
disjointed experiences for customers
ELECTRONIC CHANNELS
• Service providers need effective pricing strategies to deliver

value and capture it through the appropriate channel.
Know the importance of channel

integration
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Distributing Services through Strategic and tactical location

Physical and Electronic Channels considerations
• To develop a location strategy, a firm must understand customer

needs and expectations, competitive activity, and the nature of the
service operation.
5.7
• The following factors need to be considered for selecting a specific
site:
ELECTRONIC CHANNELS
o Population size and characteristics
o Pedestrian and vehicular traffic
and its characteristics
Describe the where (place) decisions of o Convenience of access for

customers
physical channels, and be familiar with o Competitors in this area
the strategic and tactical location o Nature of nearby businesses and

stores
considerations. o Availability of labor
o Availability of site locations, rental costs and contractual conditions, and
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Strategic and tactical location Strategic and tactical location

considerations considerations
Places of service delivery Places of service delivery
• Ministered: • Cost, productivity and access to labor are key determinants to locating
a service facility.
o Creating many small service factories to maximize geographic
coverage (automated kiosks) • Locational constraints:
ELECTRONIC CHANNELS
ELECTRONIC CHANNELS
o Separating front and back stages of operation (Taco Bell) o Operational requirements (airports)
o Purchasing space from another provider in complementary field o Geographic factors (ski resorts)
(Dunkin Donuts with Burger King) o Need for economies of scale (hospitals)
• Locating in Multipurpose Facilities:

o Proximity to where customers live or work (service stations)

Physical and Electronic Channels Time of Service Delivery
• Traditionally, schedules were
restricted.
o Service availability limited to daytime,
5.8
40–50 hours a week
ELECTRONIC CHANNELS
• Today:
o For flexible, responsive service
operations
Describe the when (time) decisions of o 24/7 service – 24 hours a day, 7 days a week,
around the world
physical channels and the factors that
determine extended operating hours.
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Physical and Electronic Channels The Role of Intermediaries

5.9
ELECTRONIC CHANNELS
Understand the role, benefits, and
costs of using intermediaries in
distributing services • Challenges for original supplier:
o Act as guardian of overall process
o Ensure that each element offered by intermediaries fits overall
service concept
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Physical and Electronic Channels Franchising
• Popular way to expand delivery of effective service
concept, without a high level of monetary investments

compared to rapid expansion of company-owned and -
5.10
managed sites
ELECTRONIC CHANNELS
• Franchisor provides training, equipment and support

marketing activities. Franchisees invest time and finance,
and follow copy and media guidelines of franchisor
Know why franchising is such a
• Growth-oriented firms like franchising because
common way of delivering services to franchisees are motivated to ensure good customer
end users. service and high-quality service operations
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Franchising Franchising
• Study shows significant attrition rate among franchisors • Alternative: license another supplier to act on
in the early years of a new franchise system: the original supplier’s behalf to deliver core
o One third of all systems fail within first four years product, for example:
o Three fourths of all franchisors cease to exist after 12 years o Trucking companies
ELECTRONIC CHANNELS
ELECTRONIC CHANNELS
o Banks selling insurance products

• Disadvantages of franchising:
o Some loss of control over delivery system and,
thereby, over how customers experience
actual service
o Effective quality control is important
but yet difficult
o Conflict between franchisees may
arise especially as they gain
experience
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Distributing Services through Challenges of distribution in large

Physical and Electronic Channels domestic markets
• There are special challenges in

federal nations covering a large
geographic area:
5.11
o the distances involved and the
ELECTRONIC CHANNELS
existence of multiple time zones
o multiculturalism is also an issue,
leading to segmenting issues
o there are differences between
Understand the challenges of the laws and tax rates of the
various states or provinces and
distribution in large domestic markets those of the respective federal
governments
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Distributing Services through Forces that drive service firms to

Physical and Electronic Channels go international
• Factors favoring adoption of transnational strategies:
o Market Drivers
o common customer needs across many countries
5.12
o global customers who demand consistent service from suppliers around the
world
ELECTRONIC CHANNELS
o availability of international
channels
o Competition Drivers
o presence of competitors
from different
Be familiar with the forces that drive o Countries
service firms to go international. o interdependence of countries

o transnational policies of the
competitors
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Forces that drive service firms to Forces that drive service firms to
go international go international
• Factors favoring adoption of transnational strategies: • Factors favoring adoption of transnational strategies:
o Technology Drivers o Government Drivers

o enhanced performance and capabilities in telecommunications, o favourable trade policies
computerization, and software o compatible technical standards
o miniaturization of equipment o common marketing regulations
ELECTRONIC CHANNELS
ELECTRONIC CHANNELS
o digitization of voice, video, and text

o the growing availability of broadband telecommunication channels
o Cost Drivers
o economies of scale
o sourcing efficiencies
o improved performance and lower operating costs for telecommunications
and transportation
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Distributing Services through Challenges of distributing services

Physical and Electronic Channels internationally
• Airline access:

o If one country is willing to allow entry by a new carrier but the
other is not, access will be blocked
5.13
o Capacity limits at certain major airports lead to denial of new or
additional landing rights for foreign airlines
ELECTRONIC CHANNELS
• Financial, healthcare, and telecommunications service
markets are typically very highly regulated
Appreciate the special challenges of • Companies that offer a global reservation service and
connect this with local facilities and/or micro
distributing services internationally. entrepreneurs often face regulatory roadblocks
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Distributing Services through Determinants of international

Physical and Electronic Channels market entry strategies
5.14
ELECTRONIC CHANNELS
Explain the determinants of

international market entry strategies
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Thank You.
5-41
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Learning Objectives
6.1 Recognize that effective pricing is central to the
financial success of service firms.
6
6.2 Outline the foundations of a pricing strategy as
represented by the pricing tripod.
6.3 Define different types of financial costs and explain
Distributing Services the limitations of cost-based pricing.
6.4 Understand the concept of net value and know how
THROUGH PHYSICAL AND gross value can be enhanced through value-based
ELECTRONIC CHANNELS pricing and reduction of related monetary and non-
monetary costs.
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6.5 Describe competition-based pricing and situations 6.9 Understand how fairness can be designed into
where service markets are less price-competitive. revenue management policies.
6.6 Define revenue management and describe how it 6.10 Discuss the six questions marketers need to
works. answer to design an effective service- pricing strategy.
6.7 Discuss the role of rate fences in effective revenue
management.
6.8 Be familiar with the issues of ethics and consumer
concerns related to service pricing.
Distributing Services through Effective pricing for financial

Physical and Electronic Channels success
6.1
ELECTRONIC CHANNELS
Recognize that effective pricing is

central to the financial success of
service firms.
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Foundations of a Pricing Strategy
Physical and Electronic Channels
• Pricing Strategy Stands on Three Legs

6.2
ELECTRONIC CHANNELS
Outline the foundations of a pricing
strategy as represented by the pricing
tripod.
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Cost-Based Pricing
• Set prices relative to financial costs (problem:
defining costs)
• Activity-based costing
6.3
• Pricing implications of cost analysis
ELECTRONIC CHANNELS
Define different types of financial costs

and explain the limitations of cost-
based pricing.
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Value-based pricing
• Understanding Net Value:
o Customers weigh the perceived

benefits of the service against the
6.4
perceived costs they will incur.
o Value is a low price.
ELECTRONIC CHANNELS
o Value is whatever I want in a product.

o Value is the quality I get for the price I pay.
o Value is what I get for what I give.
Understand the concept of net value • Managing the Perception of Value:

and know how gross value can be o Effective communications and even personal explanations are
needed to help customers understand the value they receive.
enhanced.
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Value-based pricing Value-based pricing

Reducing Related Monetary and Non-Monetary Costs • Service users can incur costs during any of the

• Reduce related-monetary costs. three stages of the service consumption model
o Cut time spent searching for, purchasing and using service
ELECTRONIC CHANNELS
ELECTRONIC CHANNELS
• Reduce non-monetary costs.
o Time Costs
o Physical Costs
o Psychological (Mental) Costs
o Sensory Costs (unpleasant sights,
sounds, feel, tastes, smells)

Competition-based pricing
• Non-price-related costs of using competing alternatives
are high
• Personal relationships matter
6.5
•
ELECTRONIC CHANNELS
Switching costs are high

• Time and location specificity reduces choice
• Managers should not only look at competitor’s prices
Describe competition-based pricing dollar for dollar, but should examine all related financial
and situations where service markets and non-monetary costs
are less price-competitive.
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Distributing Services through Define revenue management and

Physical and Electronic Channels describe how it works
Maximizing Revenue from Available Capacity at a Given
Time
• Most effective when
6.6
o Relatively high fixed capacity
ELECTRONIC CHANNELS
o High fixed cost structure

o Perishable inventory
o Variable and uncertain demand
o Varying customer price sensitivity
Define revenue management and
• Revenue management is price customization
describe how it works. o Charge different value segments different prices for same
product based on price sensitivity
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Revenue management Revenue management

Maximizing Revenue from Available Capacity at a Given Maximizing Revenue from Available Capacity at a Given

Time Time
• Revenue management is price customization • Most effective when
o Charge different value segments different prices for same o Relatively high fixed capacity
ELECTRONIC CHANNELS
ELECTRONIC CHANNELS
product based on price sensitivity o High fixed cost structure
o Perishable inventory
o Variable and uncertain demand
o Varying customer price sensitivity
Revenue management Revenue management

Maximizing Revenue from Available Capacity at a Given
Time
• Revenue management uses mathematical models to
examine historical data and real time information to
ELECTRONIC CHANNELS
ELECTRONIC CHANNELS
determine
o What prices to charge within each price bucket
o How many service units to allocate to each bucket
• Rate fences deter customers willing to pay more from
trading down to lower prices (minimize consumer
surplus)

Role of rate fences
Key Categories of Rate Fences: Physical
6.7
ELECTRONIC CHANNELS
Discuss the role of rate fences in

effective revenue management.
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Role of rate fences Role of rate fences

Key Categories of Rate Fences: Non-Physical (1) Key Categories of Rate Fences: Non-Physical (2)

ELECTRONIC CHANNELS
ELECTRONIC CHANNELS
Role of rate fences Role of rate fences

Key Categories of Rate Fences: Non-Physical (3) Relating Price Buckets
and Fences to Demand

Curve
ELECTRONIC CHANNELS
ELECTRONIC CHANNELS
Distributing Services through Issues of ethics and consumer

Physical and Electronic Channels concerns
• Customers are vulnerable when service is hard to evaluate
as they assume that higher price indicates better quality

• Many services have complex pricing schedules
6.8
o Hard to understand
ELECTRONIC CHANNELS
o Difficult to calculate full costs

in advance of service
• Quoted prices not the only
Be familiar with the issues of ethics prices
and consumer concerns related to o Hidden charges
service pricing. o Many kinds of fees

• Too many rules and regulations
o Customers feel constrained, exploited
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How fairness can be designed
• Design clear, logical and fair price schedules and fences

• Use high published prices and present fences as opportunities for
discounts (rather than quoting lower prices and using fence as basis
to impose surcharges
6.9
• Communicate consumer benefits of revenue management
ELECTRONIC CHANNELS
• Use bundling to “hide” discounts
• Take care of loyal customers
• Use service recovery to compensate for overbooking
Understand how fairness can be

designed into revenue management
policies
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Putting Strategy into Practice
• How much to charge?
• What basis for pricing?
6.10
• Who should collect payment?
ELECTRONIC CHANNELS
• Where should payment be made?

• When should payment be made?
Discuss the six questions marketers • How should payment be made?
need to answer to design an effective • How to communicate prices?
service-pricing strategy.
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Thank You.
6-35
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Learning Objectives
7.1 Know the 5 Ws of the Integrated Service
Communications Model; i.e., Who, What, How, Where,
7
and When.
7.2 Be familiar with the three broad target audiences
(i.e., “Who”) for any service communications program.
Promoting Services 7.3 Understand the most common strategic and tactical
service communications objectives (“What”).
AND EDUCATING 7.4 Be familiar with the Services Marketing
CUSTOMERS Communications Funnel and the key objectives in that
funnel.
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7.5 Know a few important roles that service marketing 7.9 Understand the role, benefits, and costs of using
communications can assume. intermediaries in distributing services.
7.6 Understand the challenges of service 7.10 Know the communications mix elements available
communications and know how they can be overcome via service delivery channels.
(“How”). 7.11 Know the communications mix elements that
7.7 Be familiar with the Services Marketing originate from outside the firm.
Communications Mix (“Where”). 7.12 Understand when communications should take
7.8 Know the role of the internet, mobile phones, apps, place (“When”), how budgets for service
QR codes, and other electronic media in service communications programs may be set, and how these
marketing communications. programs may be evaluated.
Promoting Services and

Learning Objectives
Educating Customers
7.13 Appreciate ethical and consumer-privacy-related
issues in service marketing communications.
7.1
7.14 Understand the role of corporate design in
communications.
7.15 Know the importance of Integrated Marketing
Communications to deliver a strong brand identity.
Know the 5 Ws of the Integrated
Service Communications Model.
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Know the 5 Ws of the Integrated Promoting Services and

Service Communications Model Educating Customers
PROMOTING SERVICES AND EDUCATING CUSTOMERS
7.2
Be familiar with the three broad target
audiences (i.e., “Who”) for any service
communications program.
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Be familiar with the three broad Promoting Services and

target audiences Educating Customers
• Prospects:
o Employ traditional communication

mix because prospects are not
7.3
known in advance
• Users:
o More cost effective channels
• Employees:
o building a service brand and positioning it and its service Understand the most common
products against competition. strategic and tactical service
persuading target customers that their service product offers a
o
better solution for customer needs. communications objectives (“What”).
o attracting new users and maintaining contact with existing
customers.
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Strategic and tactical service Promoting Services and

communications objectives Educating Customers
• Strategic objectives:
o Building a service brand and positioning it and its service

products against competition
7.4
o Persuading target customers that their service product offers a
better solution for customer needs
o Attracting new users and maintaining contact with existing
customers
Be familiar with the Services Marketing

Communications Funnel and the key
objectives in that funnel.
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The Services Marketing Promoting Services and

Communications Funnel Educating Customers
7.5
Know a few important roles that service
marketing communications can
assume.
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Important roles that service marketing Promoting Services and

communications can assume Educating Customers
• Promote tangible cues to communicate quality
• Add value through communication content

• Facilitate customer involvement in service production
7.6
• Promote the contribution of service personnel and back-
stage operations
Understand the challenges of service

communications and know how they
can be overcome (“How”)
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The challenges of service The challenges of service

communications communications
Overcoming Problems of Intangibility To overcome intangibility
• Use tangible cues in advertising

• May be difficult to communicate service benefits to
• Use metaphors to communicate benefits of service offerings
customers, especially when intangible
• Intangibility creates 4 problems:
o Generality: Items that comprise a class of objects, persons, or
events
o Non-searchability: Cannot be searched or inspected before
purchase
o Abstractness: No one-to-one correspondence with physical
objects
o Mental impalpability: Customers find it hard to grasp benefits of
complex, multidimensional new offerings
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Promoting Services and The Services Marketing

Educating Customers Communications Mix

7.7
Be familiar with the Services Marketing
Communications Mix (“Where”).
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The Services Marketing Promoting Services and

Communications Mix Educating Customers
7.8
Know the communications mix
elements of the traditional marketing
communication channels.
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Traditional Marketing Channels Traditional Marketing Channels

Advertising Direct Marketing
• Build awareness, inform, persuade, and remind • Mailings, recorded telephone

• Challenge: How stand out from the crowd? messages, faxes, email
• Effectiveness remains • Potential to send personalized

messages to highly targeted
controversial
microsegments
• Research suggests that o Need detailed database of information
less than half of all ads about customers and prospects
generate a positive • Advance in on-demand technologies empower
return on their invest-
consumers to decide how and when they prefer to be
ment
reached, and by whom
o e.g., email spam filters, pop-up blockers, podcasting
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Direct Marketing Sales Promotion

• Defined as “Communication that
• Permission Marketing goal is to persuade customers to comes with an incentive”
volunteer their attention • Should be specific to a time period,
o Enables firms to build strong relationships with customers price, or customer group
o e.g., People invited to register at a firm’s website and specify • Motivates customers to use a
what type of information they like to receive via email specific service sooner, in greater
volume with each purchase, or
more frequently
• Interesting sales promotions can generate attention and put firm in
favorable light (especially if interesting results publicized)
o SAS International Hotels: If a hotel had vacant rooms, guests over 65
years old could get a discount equivalent to their years. When a guest
announced his age as 102 and asked to be paid 2% of the room rate in
return for staying the night, he received it— and got a game of tennis
with the general manager!

Personal Selling Public Relations
• Interpersonal encounters educate customers and • PR/Publicity involves efforts to stimulate positive interest in an
promote preferences for particular brand or product organization and its products through third parties
• Common in b2b and infrequently purchased services
o e.g., press conferences, news releases, sponsorships
• Many b2b firms have dedicated salesforce to do

• Corporate PR specialists teach senior managers how to present
themselves well at public events, especially when faced with hostile
personal selling
questioning
o Customer assigned to a designated
account manager • Unusual activities can present an opportunity to promote
company’s expertise
• For services that are bought less
o e.g., FedEx – safely transported two giant pandas
often, firm’s representative acts from Chengdu, China, to the National Zoo in
as consultant to help buyers Washington, D.C. in a FedEx aircraft renamed
make selection FedEx PandaOne
• Face-to-face selling of new products is expensive—
telemarketing is lower cost alternative
Copyright © 2018 Pearson Education Ltd. 7-27 Copyright © 2018 Pearson Education Ltd.

Messages Transmitted Online
Educating Customers
Company’s Website
• The web is used for a variety of communication tasks
7.9
o Creating consumer awareness and interest
o Providing information and consultation
o Allowing two-way communication with customers through email
and chat rooms
o Encouraging product trial
Know the role of the internet, mobile o Allowing customers to place orders
phones, apps, QR codes, and other o Measuring effectiveness of
advertising or promotional
electronic media in service marketing campaigns
communications. • Innovative companies look for ways to improve the
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appeal and usefulness of their sites
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Messages Transmitted Online Messages Transmitted Online

Online Advertising Online Advertising

• Banner advertising • Search engine advertising
o Placing advertising banners o Reverse broadcast network: search engines let advertisers know
and buttons on portals such as exactly what consumer wants through their keyword search
Yahoo, Netscape and other o Can target relevant messages directly to desired consumers
firms’ websites o Several advertising options:
o Draw online traffic to the o Pay for targeted placement of ads to relevant keyword searches
advertiser’s own site o Sponsor a short text message with a click-through link
o Web sites often include o Buy top rankings in the display of search results
advertisements of other
related, but non-competing
services.
o e.g., advertisements for financial
service providers on Yahoo’s stock
quotes page

Messages Transmitted Online
Educating Customers
Moving from Impersonal to Personal Communications
• There used to be a difference between personal and impersonal

communication
Technology has created a gray area between the two
7.10
•
• Direct mail and email can be personalized
• Electronic recommendation agents can also personalize
communications
• With advances of on-demand technologies, consumer are increasingly
empowered to decide how and when they like to be reached
elements available via service delivery
channels.
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Messages through Service Delivery Promoting Services and

Channels Educating Customers
• Service outlets
o Can be through banners, posters, signage, brochures, video

screens, audio etc.
7.11
• Frontline employees
o Communication from frontline staff can be for the core service
or supplementary elements
o New customers in particular need help from service personnel
• Self-service delivery points

o ATMs, vending machines and websites are examples elements that originate from outside
the firm.
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Communications mix elements that Communications mix elements that

originate from outside the firm originate from outside the firm
Word of Mouth (WOM) Blogs, Twitter, and Other Social Media

• Recommendations from other customers viewed as
• Blogs:
more credible o Communications about customer experiences influence opinions
• Strategies to stimulate positive WOM: of brands and products
o Having satisfied customers providing comments o Some firm have started to monitor blogs
o Using other purchasers and knowledgeable as form of market research and feedback
individuals as reference
o Creating exciting promotions that
• Twitter:
get people talking o Becoming increasingly popular;
o Offering promotions that fastest-growing social networking service
encourage customers to • Media Coverage:
persuade their friend to purchase
o Compares, contrasts service offerings
o Developing referral incentive schemes
from competing organizations
o Advice on “best buys”
Promoting Services and Understand when communications

Educating Customers should take place
• Service firms are capacity-constrained and do not
generally promote during heavy usage periods.

• Timing is closely matched to the perceptions and
7.12
behaviors the firm wants to manage.
• The timing of communications is typically managed with
the help of a media-plan flowchart
Understand when communications

should take place (“When”), budgets
for service communications programs,
and how to evaluate them.
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Budgets for service Promoting Services and

communications programs Educating Customers
Methods used to determine a communications budget
• Objective-and-task method:
7.13
o Define the communications objectives along the Services
Marketing Communications Funnel
o Determining the tasks needed to achieve these objectives
o Estimating the costs of the program
• Empirical-research method:
o Run a series of tests or field experiments with different
Appreciate ethical and consumer-
communications budgets to determine the optimum level of privacy-related issues in service
communications spent
marketing communications.
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Ethical Issues in Communication
Educating Customers
• Advertising, selling, and sales promotion all lend themselves easily
to misuse
• Communication messages often include promises about benefits
7.14
and quality of service delivery. Customers are sometimes
disappointed
• Why were their expectations not met?:
o Poor internal communications
between operations and marketing
personnel concerning level of
service performance Understand the role of corporate
Over promise to get sales
design in communications.
o
o Deceptive promotions
• Unwanted intrusion by aggressive
marketers into people’s personal
lives
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Corporate design in Corporate design in

communications communications
Strategies for Corporate Design Strategies for Corporate Design
• Many service firms employ a unified and distinctive visual

appearance for all tangible elements: • How to stand out and be different?
o e.g., Logos, uniforms, physical facilities o Use colors in corporate design
• Provide recognition and strengthen brand image: o Use names as central element in their corporate designs
o e.g., BP’s bright green-and o Use trademarked symbol rather than name as primary logo
yellow service stations o Create tangible recognizable symbols to connect with corporate
• Especially useful in competitive brand names
markets to stand out from the
crowd and be instantly
recognizable in different
locations:
o e.g. Shell’s yellow scallop shell
on a red background
o McDonald’s “Golden Arches”
Promoting Services and Integrated Marketing

Educating Customers Communications
• Different departments look after different aspects of the
firm’s market communications

Service failures could result from lack of effective
7.15
•
coordination among these various departments
• IMC ties together and reinforces all communications to
deliver a strong brand identity.
• Firms can give ownership of IMC to a single department
Know the importance of Integrated or by appointing a marketing communications director
Marketing Communications to deliver a
strong brand identity.
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Thank You.
7-49
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Learning Objectives
8.1 Know the difference between a service experience
and a service process.
8
8.2 Tell the difference between flowcharting and
blueprinting.
8.3 Develop a blueprint for a service process with all
Designing the typical design elements in place.
8.4 Understand how to use fail-proofing to design fail
SERVICE PROCESSES points out of service processes.
8.5 Know how to set service standards and
performance targets for customer service processes.
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8.6 Appreciate the importance of consumer 8.11 Understand the factors that lead customers to
perceptions and emotions in service process design. accept or reject new self-service technologies (SSTs).
8.7 Explain the necessity for service process redesign. 8.12 Know how to manage customers’ reluctance to
8.8 Understand how service process redesign can help change their behaviors in service processes, including
improve both service quality and productivity. the adoption of SSTs.
8.9 Understand the levels of customer participation in
service processes.
8.10 Be familiar with the concept of service customers
as “co-creators” and the implications of this
perspective.
Designing Service Processes What is a service process?
8.1
DESIGNING SERVICE PROCESSES
Know the difference between a service

experience and a service process.
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Designing Service Processes Flowcharting service delivery

• Technique for displaying the nature and sequence of the
different steps in delivery service to customers.
Offers way to understand total customer service
8.2
•

experience
• Shows how nature of customer involvement with service
organizations varies by type of service:
o People processing
Tell the difference between o Possession processing
flowcharting and blueprinting. o Mental Stimulus processing
o Information processing
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Flowcharting service delivery Flowcharting service delivery

Simple Flowchart for Delivery of a People-Processing Simple Flowchart for Delivery of a Possession-Processing
Service Service
Flowcharting service delivery Flowcharting service delivery

Simple Flowchart for Delivery of a Mental Stimulus Simple Flowchart for Delivery of a Information-Processing
Processing Service Service
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Develop a blueprint for a

Designing Service Processes
service process
• Developing a Blueprint:
o Identify key activities in creating and delivering service
o Define “big picture” before “drilling down” to obtain a higher
8.3

level of detail
• Advantages of Blueprinting:
o Distinguish between “frontstage” and “backstage”
o Clarify interactions between customers and staff, and support by
Develop a blueprint for a service backstage activities and systems
process with all the typical design o Identify potential fail points; take preventive measures; prepare
contingency
elements in place. o Pinpoint stages in the process where customer commonly have
to wait
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Develop a blueprint for a Develop a blueprint for a

service process service process
• Key Components of a Service Blueprint: A Three-Act Performance (1)
o Define standards for front-stage activities
• Act 1: Introductory Scenes
o Specify physical evidence
o Identify main customer actions • Act 2: Delivery of Core Product:

o Line of interaction (customers o Cocktails, seating, order food and wine, wine service
and front-stage personnel) o Potential fail points: Menu information complete? Menu
o Frontstage actions by customer- intelligible? Everything on the menu actually available?
contact personnel o Mistakes in transmitting information a common cause of quality
o Line of visibility (between front failure – e.g. bad handwriting; poor verbal communication
stage and backstage) o Customers may not only evaluate quality of food and drink, but
o Backstage actions by customer contact personnel how promptly it is served, serving staff attitudes, or style of
o Support processes involving other service personnel service
o Support processes involving IT
Develop a blueprint for a

service process
A Three-Act Performance (2)
• Act 3: The Drama Concludes:
8.4
Remaining actions should move quickly
o
and smoothly, with no surprises
at the end
o Customer expectations: accurate,
intelligible and prompt bill, payment
handled politely, guests are thanked
for their patronage
Understand how to use fail-proofing to
design fail points out of service
processes.
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How to use fail-proofing Designing Service Processes

Improving Reliability of Processes by Failure Proofing
• Identify fail points
• Analysis of reasons for failure often reveals opportunities
8.5
for failure proofing to reduce/eliminate future risk of

errors
• Need fail-safe methods for both employees and customers
• Have poka-yokes to ensure service staff do things
correctly, as requested, or at the right speed Know how to set service standards and
• Customer poka-yokes focus on preparing the customer performance targets for customer
for: service processes.
o The encounter
o Understanding and anticipating their roles
o Selecting the correct service or transaction WIRTZ LOVELOCK
Service standards and performance

targets
8.6
Appreciate the importance of

consumer perceptions and emotions in
service process design.
WIRTZ LOVELOCK
The importance of consumer

perceptions and emotions
• Key principles for sequencing
service encounters:
o Start strong
8.7
o Build an improving trend

o Create a peak
o Get bad experiences over with early
o Segment pleasure, combine pain
o Finish strong
Explain the necessity for service
process redesign.
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The Necessity for Service Process

Redesign
• Indications that processes are not working well and need to be
redesigned:
o Extensive information exchange
8.8
o Data that is not useful

o High ratio of checking or control activities to value-adding activities
o Increased exception processing
o Customer complaints about inconvenient and unnecessary procedures
Understand how service process

redesign can help improve both service
quality and productivity.
WIRTZ LOVELOCK
How service process redesign improves

service quality and productivity Designing Service Processes
• Redesign efforts typically focus on
o Reduced number of service failures
o Reduced cycle time from customer
8.9
initiation of a service process to its

completion
o Enhanced productivity
o Increased customer satisfaction
• Service process redesign often
involves: Understand the levels of customer
o Examining the service blueprint with key stakeholders participation in service processes.
o Eliminating non-value-adding steps
o Addressing bottlenecks in the process
o Shifting to self-service
WIRTZ LOVELOCK
Levels of customer participation Designing Service Processes

• Customer Participation
o Actions and resources supplied
by customers during service
8.10
production and/or delivery

o Includes mental, physical, and
even emotional inputs
Be familiar with the concept of service

customers as “co-creators” and the
implications of this perspective.
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Service customers as “co-creators” Designing Service Processes

• Customers can influence productivity and quality of
service processes and outputs
• Customers not only bring expectations and needs, they
8.11
also need to have relevant service production

competencies
• Customers also need to be recruited as they are “partial
employees”. Firms need to get those with the skills to do Understand the factors that lead
the tasks
customers to accept or reject new self-
• For the relationship to last, both parties need to
cooperate with each other service technologies (SSTs).
WIRTZ LOVELOCK
Customer Benefits and Adoption of Customer Benefits and Adoption of

Self-Service Technology Self-Service Technology
• Key advantages: • Assessing and Improving SSTs:
o Greater convenience, including time savings, faster service, o Does the SST work reliably?
flexibility of timing, and flexibility of location o Is the SST better than the inter-personal alternative?
o Greater control over service delivery, more information, and o Are there systems in place to recover the service if the SST fails?
higher perceived level of customization
o Lower prices and fees
• People hate SSTs when:

o SSTs fail—the system is down,
PIN numbers not accepted, etc.
o Poorly designed technologies
that make service processes
difficult to understand and use
o they mess up—forgetting passwords; failing to provide
information as requested; simply hitting wrong buttons
Designing Service Processes Managing customers’ resistance

Steps to reducing customer reluctance to change:
• Develop customer trust.
8.12
• Understand customers’ habits and expectations.

• Pre-test new procedures and equipment.
• Publicize the benefits of changes.
Know how to manage customers’ • Teach customers to use innovations and promote trial.
reluctance to change their behaviors in • Monitor performance and continue to seek
service processes, including the improvements.
adoption of SSTs.
WIRTZ LOVELOCK
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Thank You.
8-37
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Learning Objectives
9.1 Know the different demand–supply situations that
fixed-capacity firms may face.
9
9.2 Describe the building blocks of dealing with the
problem of fluctuating demand.
9.3 Understand what is meant by productive capacity in
Balancing a service context.
9.4 Be familiar with the basic ways to manage capacity.
DEMAND and CAPACITY
9.5 Recognize that demand patterns vary by segment
and examine how segment-specific variations in
demand may be predicted.
WIRTZ LOVELOCK

9.6 Be familiar with the five basic ways to manage 9.10 Know how to use reservations systems to
demand. inventory demand.
9.7 Understand how to use the marketing mix elements 9.11 Be familiar with strategic approaches to utilize
of price, product, place, and promotion to smooth out residual surplus capacity even after all other options of
fluctuations in demand. matching demand and capacity have been exhausted.
9.8 Know how to use waiting lines and queuing systems
to inventory demand.
9.9 Understand how customers perceive waits and how
waiting may be made less burdensome for them.
Distributing Services through Demand–supply situations that

Physical and Electronic Channels fixed-capacity firms may face
• Four conditions potentially faced by fixed-capacity
services
PHYSICAL AND ELECTRONIC CHANNELS
Excess demand:
DISTRIBUTING SERVICES THROUGH
9.1
o Too much demand relative to capacity at a given time.
• Demand exceeds optimum capacity:
o Upper limit to a firm’s ability to meet demand at a given time.
• Optimum capacity:
Know the different demand–supply o Point beyond which service quality
situations that fixed-capacity firms may declines as more customers are
face. serviced.
• Excess capacity:
o Too much capacity relative to demand at a given time.
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Demand–supply situations that Distributing Services through

fixed-capacity firms may face Physical and Electronic Channels
Variations in Demand Relative to Capacity
9.2
Describe the building blocks of dealing
with the problem of fluctuating
demand.
WIRTZ LOVELOCK
The problem of fluctuating Distributing Services through

demand Physical and Electronic Channels
9.3
Understand what is meant by
productive capacity in a service
context.
WIRTZ LOVELOCK
Productive capacity in a service Distributing Services through

context Physical and Electronic Channels
• Productive capacity can take several forms in services:
o Physical facilities designed to contain customers
o Physical facilities designed for storing or processing goods

9.4
o Physical equipment used to process people, possessions, or
information
o Labor
o Infrastructure
Be familiar with the basic ways to

manage capacity.
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Ways to manage capacity Ways to manage capacity

Alternative Capacity Management Strategies Adjusting Capacity to
Match Demand
• Financial success in businesses that are limited in Schedule downtime during

•

capacity depends largely on how capacity is used. periods of low demand
• Cross-train employees
• Capacity is fixed, but more people are served at the
• Use part-time employees
same level of capacity.
• Invite customers to
• Stretch and shrink: perform self-service
o Offer inferior extra capacity at peaks (e.g. bus/train standees) • Ask customers to share
o Use facilities for longer/shorter periods • Create flexible capacity
• Rent or share extra
o Reduce amount of time spent in process by minimizing slack
facilities and equipment
time

Understanding patterns of demand
Demand Varies by Market Segment
• Demand may seem random, but analysis may reveal a
predictable demand cycle for different segments.
9.5
• Keep good records of transactions to analyze demand
patterns.
o Sophisticated software can help to track customer consumption
patterns
Recognize that demand patterns vary
Record weather conditions and other special factors that
by segment and examine how segment- •
might influence demand.
specific variations in demand may be
predicted.
WIRTZ LOVELOCK
Understanding patterns of demand Understanding patterns of demand

Predictable Demand Patterns and Their Underlying Causes (1) Predictable Demand Patterns and Their Underlying Causes (2)
• Predictable Cycles of Demand Levels. • Underlying Causes of Cyclical Variations.

o day o employment
o week o billing or tax payments/refunds
o month o pay days
o year o school hours/holidays
o other o seasonal climate changes
o public/religious holidays
o natural cycles
3
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Understanding patterns of demand
Predictable Demand Patterns and Their Underlying Causes (3)
• Underlying causes of randomly changing demand levels.
9.6
o Weather
o Health problems
o Accidents, Fires, Crime
o Natural disasters
• Disaggregate demand by
market segment for a Be familiar with the five basic ways to
particular service over time. manage demand.
o Use patterns by particular
type of customer or for a particular purpose
o Variations in net profitability for each completed transaction
WIRTZ LOVELOCK
Managing Demand Managing Demand

Alternative Demand Management Strategies (1) Alternative Demand Management Strategies (2)
• Take no action • Increase demand

o Let customers sort it out o Lower prices

o Communication, including promotional incentives
• Reduce demand
o Vary product features to increase desirability
o Higher prices
o More convenient delivery times and places
o Communication encouraging use
of other time slots • Inventory demand by formalized queuing
• Inventory demand by reservation system
Distributing Services through Using the marketing mix elements

Physical and Electronic Channels to shape demand patterns
• Use price and nonmonetary costs to manage demand
• Change product elements
9.7
• Modify place and time of delivery
o No change
o Vary times when service
is available
Offer service to customers
Understand how to use the marketing o
at a new location
mix elements of price, product, place, • Promotion and Education
and promotion to smooth out
fluctuations in demand.
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Waiting lines and queuing systems
When Demand Exceeds Supply
• Steps to take to inventory demand (keep for use later)

• Asking customers to wait in line (queue), usually on a
9.8
first-come first-served basis
• Offering customers the opportunity to reserve or book
capacity in advance
Know how to use waiting lines and

queuing systems to inventory demand.
WIRTZ LOVELOCK
Waiting lines and queuing systems Waiting lines and queuing systems
Managing Waiting Lines Alternative queuing configurations
• Almost nobody likes to wait

• An average person may spend up to 30 minutes/day
waiting in line—equivalent to 20 months in an 80 year

lifetime
• Reduce waiting time by
o Rethinking the design of the queuing system

o Installing reservations system
o Tailoring queuing system to different market segments
o Managing customer behavior and their perceptions of the wait
o Redesigning processes to shorten the time of each transaction
Waiting lines and queuing systems Waiting lines and queuing systems
Virtual Waits Queuing Systems
• One problem of waiting is the waste of customers’ time • Allocate queues based on:

o Urgency of job
• Virtual queues can eliminate the need to wait o Duration of service
• Customers register their place in line on a computer, transaction
which estimates the time they need to reach the front of o Payment of premium price
the virtual line, customers then return later to claim their o Importance of customer
place
5
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Distributing Services through Customer perceptions of waiting

Physical and Electronic Channels time
Ten Propositions to Make Waiting More Bearable
• Unoccupied time feels longer than occupied time
• Solo waits feel longer than group waits

Physically uncomfortable waits feel longer than comfortable ones
9.9
•
• Pre- and post-process waits feel longer than in-process waits
• Unexplained waits are longer than explained waits
• Unfamiliar waits seem
longer than familiar ones
• Uncertain waits are longer
Understand how customers perceive than known, finite waits
waits and how waiting may be made • Unfair waits are longer
than fair waits
less burdensome for them. • Anxiety makes waits seem
longer
• People will wait longer for
more valuable services
WIRTZ LOVELOCK
Distributing Services through Inventory Demand Through

Physical and Electronic Channels Reservation System
Benefits of Reservations
• Avoid customer dissatisfaction due to excessive waits
• Controls and smooths demand
9.10
• Allows implementation of revenue management and
preselling of service to different customer segments

• Data captured helps organizations
o Prepare financial projections

Know how to use reservations systems o Plan operations and
to inventory demand. staffing levels
WIRTZ LOVELOCK
Inventory Demand Through Distributing Services through

Reservation System Physical and Electronic Channels
Reservations Strategies Should Focus on Yield
• Yield analysis helps managers recognize opportunity cost
of allocating capacity to one customer/segment when
9.11
another segment might yield a higher rate later
• Decisions need to be based on good information
o Detailed record of past usage
o Supported by current market intelligence and good marketing
sense
Be familiar with strategic approaches to
o Realistic estimate of changes of obtaining higher rated business utilize residual surplus capacity even after
• When firms overbook to increase yield, victims of overall other options of matching demand and
booking should be compensated to preserve the capacity have been exhausted.
relationship.
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Create alternative use for

otherwise wasted capacity
• Use capacity for service
differentiation
• Reward your best customers

and build loyalty
• Customer and channel
development
Thank You.
• Reward employees
• Barter free capacity
7
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Learning Objectives
10.1 Recognize the four core purposes service
environments fulfill.
10
10.2 Know the theoretical underpinning from
environmental psychology that helps us to understand
how customers and employees respond to service
Crafting the environments.
10.3 Be familiar with the integrative servicescape
SERVICE ENVIRONMENT model.
10.4 Know the three main dimensions of the service
environment.
WIRTZ LOVELOCK
Learning Objectives Introduction to Services Marketing

10.5 Discuss the key ambient conditions and their
effects on customers.
10.1
10.6 Determine the roles of spatial layout and
functionality.
10.7 Understand the roles of signs, symbols, and
artifacts.
10.8 Know how service employees and other customers Recognize the four core purposes
are part of the servicescape. service environments fulfill.
10.9 Explain why designing an effective servicescape
has to be done holistically and from the customer’s
perspective. WIRTZ LOVELOCK
Purpose of service environments Purpose of service environments

• Shape Customers’ Service Experiences and Behaviors
• Signal Quality and Position, Differentiate, and Strengthen
INTRODUCTION TO SERVICES MARKETING
the Brand
• Core Component of the Value Proposition
• Facilitate the Service Encounter and Enhance
Productivity
1
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Purpose of service environments Introduction to Services Marketing

• Physical surroundings help
shape appropriate feelings
and reactions in customers
10.2
and employees.
• Servicescapes form a core
part of the value proposition.
• Each servicescape here
clearly communicates and Environmental psychology and how
reinforces its hotel’s customers and employees respond to
respective positioning and
sets service expectations as
service environments.
guests arrive.
WIRTZ LOVELOCK
The Theory Behind Consumer The Theory Behind Consumer

Responses to Service Environments Responses to Service Environments
The Mehrabian-Russell Stimulus-Response Model Insights from Mehrabian-Russell Stimulus-Response
• Feelings are a key driver of customer responses to service Model
environments • Simple yet fundamental model of how people respond to

environments
• The environment, its conscious and unconscious
perceptions and interpretation influence how people
feel in that environment
• Feelings, rather than perceptions/thoughts, drive
behavior
• Typical outcome variable is ‘approach’ or ‘avoidance’ of
an environment, but other possible outcomes can be
added to model
The Theory Behind Consumer The Theory Behind Consumer

Responses to Service Environments Responses to Service Environments
The Russell Model of Affect Insights from Russell Model of Affect
• Emotional responses to environments can be described
along two main dimensions

o Pleasure: direct, subjective, depending on how much individual
likes or dislikes environment
o Arousal: how stimulated individual feels, depends largely on
information rate or load of an environment
• Advantage: simplicity, allows a direct assessment of how
customers feel
o Firms can set targets for affective states
2
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Introduction to Services Marketing The integrative servicescape model

An Integrative
Framework: Bitner’s

Servicescape Model
10.2
Be familiar with the integrative
servicescape model.
WIRTZ LOVELOCK
The integrative servicescape model Introduction to Services Marketing

An Integrative Framework: Bitner’s Servicescape Model
• Identifies the main dimensions in a service environment
(servicescape)
10.4
o Ambient conditions
o Space/functionality
o Signs, symbols and artifacts
• People perceive them as a whole
• Key to effective design is how well each individual
dimension fits together with everything else Know the three main dimensions of the
• Internal customer and employee responses can be service environment.
categorized into cognitive, emotional and physiological
responses, which lead to observable behavioral
responses towards the environment
WIRTZ LOVELOCK
Dimensions of the service

Introduction to Services Marketing
environment
10.5
Discuss the key ambient conditions and
their effects on customers.
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Discuss the key ambient conditions Discuss the key ambient conditions
and their effects and their effects
• Ambient environment is composed of hundreds of design Impact of Music
elements and details that must work together to create • In service settings, music can have powerful effect on

desired service environment perceptions and behaviors, even if played at barely
• Ambient conditions are perceived both separately and audible levels.
holistically, and include: • Structural characteristics of music―such as tempo,
o Music volume, and harmony―are perceived holistically.
o Scents o Fast tempo music and high volume music increase arousal levels
o Color o People tend to adjust their pace, either voluntarily or
involuntarily, to match tempo of music
• Careful selection of music can deter wrong type of
customers.
Impact of Scent Aromatherapy: Effects of Selected Fragrances on People
• An ambient smell is one that pervades an environment.
o May or may not be consciously perceived by customers

o Not related to any particular product
• Scents have distinct characteristics and can be used to
obtain emotional, physiological, and behavioral
responses.
• In service settings, research has shown that scents can
have significant effect on customer perceptions,
attitudes, and behaviors
Impact of Color Common Associations and Human Responses to Colors
• Colors have a strong impact on people’s feelings
• Colors can be defined into three dimensions:

o Hue is the pigment of the color
o Value is the degree of lightness or darkness of the color
o Chroma refers to hue-intensity, saturation or brilliance
• Research has shown that in service environments,
despite differing color preferences, people are generally
drawn to warm color environments.
• Warm colors encourage fast decision making and are
good for low-involvement decisions or impulse buys
• Cool colors are preferred for high-involvement decisions
4
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Introduction to Services Marketing Spatial Layout and Functionality

• Spatial Layout
o Floorplan;

o Size and shape of furnishings, counters, machinery, equipment,
10.6
and how they are arranged
• Functionality
o The ability of those items to make the performance of the
service easier
Determine the roles of spatial layout

and functionality.
WIRTZ LOVELOCK
Introduction to Services Marketing Signs, Symbols, and Artifacts

• Communicates the firm’s image
• Help customers find their way
• Let customers know the service script
10.7
• First-time customers will automatically try to draw
meaning from the signs, symbols and artifacts
• The challenge is to design
such that these guide
customer through the
Understand the roles of signs, symbols, service delivery process
and artifacts. o Unclear signals from a
servicescape can result in
anxiety and uncertainty
about how to proceed and
obtain the desired service
WIRTZ LOVELOCK
People are part of the service

Introduction to Services Marketing
environment
• Appearance and behavior of both service personnel and
customers can strengthen impression created by service
environment or weaken it
10.8
• For employees, once they are dressed up, they must
perform their parts
• For customers, marketing communication may seek to
attract those who appreciate the service environment
Know how service employees and other and are also able to enhance it by their appearance and
behavior
customers are part of the • In hospitality and retail settings, newcomers often look
servicescape. at existing customers before deciding whether to
patronize the service firm
WIRTZ LOVELOCK
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Introduction to Services Marketing Putting It All Together

Selection of Environmental Design Elements
• Design with a holistic view

o Servicescapes have to be seen holistically: No dimension of
10.9
design can be optimized in isolation, because everything
depends on everything else
o Holistic characteristic of environments makes designing service
environment an art
• Design should be from a
Explain why designing an effective customer’s perspective
servicescape has to be done • Environmental aspects that
holistically and from the customer’s irritate shoppers
o Ambient conditions
perspective. o Environmental design variables
WIRTZ LOVELOCK
Thank You.
10-33
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Learning Objectives
11.1 Explain why service employees are so important
for the success of a firm.
11
11.2 Understand the factors that make the work of
front-line staff demanding and often difficult.
11.3 Describe the cycles of failure, mediocrity, and
Promoting Services success in human resources for service firms.
11.4 Understand the key elements of the Service Talent
AND EDUCATING Cycle for successful human resource management in
CUSTOMERS service firms.
WIRTZ LOVELOCK

11.5 Know how to attract, select, and hire the right 11.9 Explain how to build high-performance service
people for service jobs. delivery teams.
11.6 Explain the key areas in which service employees 11.10 Know how to integrate teams across
need training. departments and functional areas.
11.7 Understand the role of internal marketing and 11.11 Know how to motivate and energize service
communications. employees so that they will deliver service excellence
11.8 Understand why empowerment is so important in and productivity.
many front-line jobs. 11.12 Understand what a service-oriented culture is.
Promoting Services and Educating

Learning Objectives
Customers
11.13 Know the difference between service climate and
culture, and describe the determinants of a climate for
service.
11.1
11.14 Explain the qualities of effective leaders in
service organizations.
11.15 Understand different leadership styles and
realize the importance of role modeling and focusing 11.1
the entire organization on the front line. Explain why service employees are so
important for the success of a firm.
WIRTZ LOVELOCK
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The importance of service The importance of service

personnel personnel
• Help maintain firm’s positioning. They are:
o A core part of the product
PROMOTING SERVICES AND EDUCATING

o The service firm
o The brand
o Affects sales
CUSTOMERS
CUSTOMERS
o Is a key driver of
customer loyalty
o Determine productivity
Promoting Services and Educating Frontline work is difficult and

Customers stressful
• Boundary spanners link inside
of organization to outside
world and often experience
11.2
role stress from multiple roles
they have to perform
CUSTOMERS
• 3 main causes of role stress:

o Organization vs. Client: Dilemma
whether to follow company rules
Understand the factors that make the or to satisfy customer demands
work of front-line staff demanding and o This conflict is especially acute in organizations that are not customer
oriented
often difficult. o Person vs. Role: Conflicts between what jobs require and
employee’s own personality and beliefs
o Client vs. Client: Conflicts between customers that demand
service staff intervention
WIRTZ LOVELOCK
Frontline work is difficult and Frontline work is difficult and

stressful stressful
Emotional Labor Service Sweatshops
• Deployment of new technology and methods can change the nature
• “The act of expressing socially desired emotions during service
of the work environment

transactions” (Hochschild, The Managed Heart) • In many firms, face-to-face contact is replaced by the use of the
• Occurs when there is gap between what employees feel internet or call-center services
inside, and emotions that management requires them to • Such jobs can offer flexible working hours and part-time employment
CUSTOMERS
CUSTOMERS
display to customers • The work is often intense, with a high level of monitoring
• Motivated agents suffer less customer stress
• Performing emotional labor in response to
society’s or management’s display rules can
be stressful
• Good HR practice emphasizes selective
recruitment, training, counseling,
strategies to alleviate stress
2
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Promoting Services and Educating The cycles of failure, mediocrity,

Customers and success
Cycle of Failure

11.3
CUSTOMERS
Describe the cycles of failure,
mediocrity, and success in human
resources for service firms
WIRTZ LOVELOCK
The cycles of failure, mediocrity, The cycles of failure, mediocrity,

and success and success
The employee cycle of failure The customer cycle of failure
• Repeated emphasis on attracting new customers
• Narrow job design for low skill levels
• Customers dissatisfied with employee performance

• Emphasis on rules rather than service
• Customers always served by new faces
• Use of technology to control quality • Fast customer turnover
CUSTOMERS
CUSTOMERS
• Bored employees who lack ability to respond to • Ongoing search for new customers to maintain sales
customer problems volume

• Dissatisfied with poor service attitude
• Low service quality
• High employee turnover

Costs of short-sighted policies are ignored Cycle of Mediocrity
• Constant expense of recruiting, hiring, training
• Lower productivity of inexperienced new workers

• Higher costs of winning new customers to replace those
CUSTOMERS
CUSTOMERS
lost—more need for advertising and promotional

discounts
• Loss of revenue stream from dissatisfied customers who
go elsewhere
• Loss of potential customers who are turned off by
negative word-of-mouth
3
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Cycle of Mediocrity Cycle of Mediocrity
• Most commonly found in large, bureaucratic organizations • Customers find organizations frustrating to deal with

• Service delivery is oriented towards:
• Little incentive for customers to cooperate with
o Standardized service
organizations to achieve better service
o Operational efficiencies
CUSTOMERS
CUSTOMERS
o Promotions based on long • Complaints are often made to already unhappy
service employees
o Successful performance • Customers often stay because of lack of choice
measured by absence of
mistakes
o Rule-based training
o Little freedom in narrow and repetitive jobs

Cycle of Success Cycle of Success (1)
• Longer-term view of financial performance; firm seeks to
prosper by investing in people

• Attractive pay and benefits attract better job applicants
CUSTOMERS
CUSTOMERS
• More focused recruitment, intensive training, and higher

wages make it more likely that employees are:
o Happier in their work
o Provide higher quality, customer-pleasing service
The cycles of failure, mediocrity, Promoting Services and Educating

and success Customers
Cycle of Success (2)
• Broadened job descriptions with empowerment
practices enable front-line staff to control quality,
11.4
facilitate service recovery
• Regular customers more likely to remain loyal because:
CUSTOMERS
o Appreciate continuity in service relationships

o Have higher satisfaction due to higher quality
Understand the key elements of the
Service Talent Cycle for successful
human resource management in
service firms.
WIRTZ LOVELOCK
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The Service Talent Cycle for Promoting Services and Educating

Service Firms Customers
11.5
CUSTOMERS
Know how to attract, select, and hire

the right people for service jobs.
WIRTZ LOVELOCK
Hiring the right people Hiring the right people

• Be the Preferred Employer: Tools to Identify the Best Candidates (1)
o Create a large pool: “Compete for Talent Market Share” • Employ multiple, structured interviews:
o What determines a firm’s applicant pool? o Use structured interviews built around job requirements
o Positive image in the community as place to work
o Use more than one interviewer to reduce
o Quality of its services
o The firm’s perceived status
“similar to me” biases
CUSTOMERS
CUSTOMERS
• Observe candidate behavior:

• Select the right people:
o Hire based on observed behavior, not words
o There is no perfect employee
you hear
o Different jobs are best filled by
people with different skills, styles o Best predictor of future behavior is past
or personalities behavior
o Hire candidates that fit firm’s core
values and culture
o Hire those with service excellence awards and
o Focus on recruiting naturally warm personalities for customer-contact jobs
complimentary letters
Copyright © 2018 Pearson Education Ltd. 11-27 Copyright © 2018 Pearson Education Ltd.

Hiring the right people
Customers
Tools to Identify the Best Candidates (2)
• Conduct personality tests:
o Willingness to treat co-workers and customers with courtesy,
11.6
consideration and tact
o Perceptiveness regarding
customer needs
CUSTOMERS
o Ability to communicate
accurately and pleasantly
• Give applicants a realistic Explain the key areas in which service
preview of the job:
o Chance for candidates to employees need training.
“try on the job”
o Assess how candidates respond to job realities
o Allow candidates to self select themselves out of the job
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Training service employees actively
Customers
• Service employees need to learn:
o Organizational culture, purpose and strategy
o Get emotional commitment to core strategy and core values
11.7
o Get managers to teach “why”, “what” and “how” of job
o Interpersonal and technical skills
o Both are necessary but neither alone is enough for performing a job well
CUSTOMERS
o Product/service knowledge
o Staff’s product knowledge is a
key aspect of service quality
o Staff must explain product
features and help consumers
Understand the role of internal
make the right choice marketing and communications.
WIRTZ LOVELOCK
Internal marketing and Promoting Services and Educating

communications Customers
• Especially necessary in large
service businesses that operate
in widely dispersed sites
Employees need to be kept
11.8
•
informed about new policies,
changes in service features, and
CUSTOMERS
new quality initiatives

• Nurtures team spirit and support
common corporate goals across
national frontiers
• Can complement training Understand why empowerment is so
o ensures efficient and satisfactory service delivery
o achieves productive and harmonious working relationships
important in many front-line jobs.
o builds employee trust, respect, and loyalty
WIRTZ LOVELOCK
The importance of empowerment The importance of empowerment

• Empowerment is most appropriate when • Requirements for Empowering the Front Line
o the firm’s business strategy is based on personalized, customized o Information about organizational, team, and individual
service and competitive differentiation performance

o emphasis is on extended relationships rather than short-term o Knowledge that enables employees to understand and
transactions contribute to organizational, team, and individual performance
o complex and non-routine o Power to make decisions that influence work procedures and
CUSTOMERS
CUSTOMERS
technologies are used organizational direction at the higher level and transaction-
o service failures are non-routine specific decisions at the micro level
and cannot be designed out of o Rewards based on organizational, team, and individual
the system performance
o the business environment is
unpredictable
o managers are comfortable letting employees work
independently for the benefit of firm and customers
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The importance of empowerment
Customers
Levels of Employee Involvement
• Suggestion involvement
o Employee make recommendation through formalized programs
11.9
• Job involvement
o Jobs redesigned
CUSTOMERS
o Employees retrained, supervisors reoriented to facilitate performance

• High involvement
o Information is shared
o Employees skilled in teamwork, Explain how to build high-performance
problem solving, etc.
o Participate in management service delivery teams.
decisions
o Profit sharing and stock
ownership
WIRTZ LOVELOCK
Building high-performance service Promoting Services and Educating

delivery teams Customers
• Many service require cross-functional coordination for excellent
service delivery
• Teams, training and empowerment go hand-in-hand
11.10
• Creating Successful Service Delivery Teams
o Emphasis on cooperation, listening, coaching and encouraging one
another
CUSTOMERS
o Understand how to air differences, tell hard truths, ask tough questions
o Management needs to set up a structure to steer teams towards
success
Know how to integrate teams across

departments and functional areas.
WIRTZ LOVELOCK
Integrating teams across Promoting Services and Educating

departments and functional areas Customers
• Ways to reduce conflict and break down the barriers between
departments
o Transferring individuals internally to other departments and functional
11.11
areas.
o Establishing cross-departmental and cross-functional project teams.
o Having cross-departmental and cross-functional service delivery teams.
CUSTOMERS
o Appointing individuals whose job is to integrate specific objectives,

activities, and processes between departments.
o
o
Carrying out internal marketing, training, and integration programs.
Having top management’s commitment to ensure that the overarching
Know how to motivate and energize
objectives of all departments are integrated. service employees so that they will
deliver service excellence and
productivity.
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Motivating and energize service Promoting Services and Educating

employees Customers
Use full range of available rewards effectively, including
• Job content:
11.12
o People are motivated and satisfied knowing they are doing a
good job
• Feedback and recognition:

CUSTOMERS
o People derive a sense of identity and belonging to an

organization from feedback and recognition
• Goal achievement: Understand what a service-oriented

o Specific, difficult but attainable and accepted goals are strong culture is.
motivators
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What is a service-oriented culture?
Customers
• Organizational culture involves:
o Shared perceptions or themes regarding what is important in the
organization
11.13
o Shared values about what is right and wrong
o Shared understanding about what works and what doesn’t work
CUSTOMERS
o Shared beliefs and assumptions about why these beliefs are

important
Shared styles of working and relating to others
o
Know the difference between service
Service culture is defined by
•
climate and culture, and describe the
o Shared perceptions of what is important in the organization
o Shared values and beliefs about why those things are important. determinants of a climate for service.
WIRTZ LOVELOCK

Service climate and culture
Customers
• Organizational climate
o The shared perceptions of employees about the practices, procedures,
and types of behavior that get supported and rewarded in a particular
setting
11.14
o Employees form perceptions based on daily experiences with HR;
operations; marketing; and IT policies, practices, and procedures
o Essential features of a climate for service include clear marketing goals
CUSTOMERS
and a strong drive to be the best
Explain the qualities of effective

leaders in service organizations.
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Effective leaders in service Promoting Services and Educating

organizations Customers
• Qualities of effective leaders in a
service organization:
o Leaders should love their business.
11.15
o Leaders should be driven by a set of
core values that are related to service
excellence and performance.
CUSTOMERS
o Leaders must recognize the key part

played by employees in delivering service.
o Effective leaders can involve the team in decision-making rather Understand different leadership styles
than dominating the process. and realize the importance of role
Leaders must be able to role model the behaviors they expect
o
o Effective leaders have a talent for communicating with others in
modeling and focusing the entire
a way that is accessible. organization on the front line.
WIRTZ LOVELOCK
Leadership styles, role modelling,

and the front line
• There are two leadership styles in a service climate:
o management of the “basics”
o transformational leadership that sets strategy and drives change

However, both are important.
• Persistent management of the basics and endless details

Thank You.
CUSTOMERS
create a strong climate for service:

• Leaders create a strong climate for service when they :
o demonstrate commitment to service quality
o set high standards, recognize and remove obstacles
o ensure the availability of the resources required to do it
• A strong service culture is one where the entire

organization focuses on the front line.
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Learning Objectives
12.1 Recognize the important role customer loyalty
plays in driving a service firm’s profitability.
12
12.2 Calculate the life-time value (LTV) of a loyal
customer.
12.3 Understand why customers are loyal to a
Promoting Services particular service firm.
12.4 Know the core strategies of the Wheel of Loyalty
AND EDUCATING that explain how to develop a loyal customer base.
CUSTOMERS 12.5 Appreciate why it is so important for service firms
to target the “right” customers.
WIRTZ LOVELOCK

12.6 Use service tiering to manage the customer base 12.11 Understand what factors cause customers to
and build loyalty. switch to a competitor and how to reduce such
12.7 Understand the relationship between customer switching.
satisfaction and loyalty. 12.12 Know why loyalty programs and customer
12.8 Know how to deepen the relationship through relationship management (CRM) systems are important
cross-selling and bundling. enablers of delivering loyalty strategies.
12.9 Understand the role of financial and non-financial 12.13 Understand the part played by CRM systems in
loyalty rewards in enhancing customer loyalty. delivering customized services and building loyalty.
12.10 Appreciate the power of social, customization,
and structural bonds in enhancing loyalty.
Promoting Services and Educating The importance of service

Customers personnel
12.1
CUSTOMERS
Recognize the important role customer

loyalty plays in driving a service firm’s
profitability.
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The importance of customer The importance of customer

loyalty loyalty
• Customers become more profitable the longer they
remain with a firm:

o Increase purchases and/or account balances
o Customers / families purchase in greater quantities as they grow
o Reduced operating costs
o Fewer demands from suppliers and operating mistakes as customer becomes
CUSTOMERS
CUSTOMERS
experienced
o Referrals to other customers
o Positive word-of-mouth saves firm from investing money in sales and
advertising
o Price premiums
o Long-term customers willing to pay regular price
o Willing to pay higher price during peak periods
The importance of customer Promoting Services and Educating

loyalty Customers
Why customers are more profitable over time.
12.2
CUSTOMERS
Calculate the life-time value (LTV) of a

loyal customer.
WIRTZ LOVELOCK
Assessing the value of a loyal Assessing the value of a loyal

customer customer
• Must not assume that loyal customers are always more profitable Measuring Customer Equity: Lifetime Value of Each
than those making one-time transactions: Customer (1)
o Large customers may expect price discounts in return for loyalty

o Revenues don’t necessarily increase with time for all types of customers • Acquisition revenues less costs:
• Tasks: o Revenues (application fee + initial purchase)
o Determine costs and revenues for customers from different market o Costs (marketing + credit check + account set up)
CUSTOMERS
CUSTOMERS
segments at different points in their customer lifecycles

• Projected annual revenues and costs:
o Predict future profitability
o Revenues (annual fee + sales + service fees + value of referrals)
o Costs (account management + cost of sales + write-offs)
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Assessing the value of a loyal Promoting Services and Educating

customer Customers
Measuring Customer Equity: Lifetime Value of Each
Customer (2)
Value of referrals:
12.3
•
o Percentage of customers influenced by other customers

o Other marketing activities that drew the firm to an individual’s
CUSTOMERS
attention
• Net Present Value:

o Sum anticipated annual values (future profits) Understand why customers are loyal to
Suitably discounted each year into the future
o
a particular service firm.
WIRTZ LOVELOCK
Why are customers loyal? Why are customers loyal?

• Customers stay loyal when we create value for them • Social benefits
• Value can be created for customers through use of o Mutual recognition and
technology to control quality friendship between service

provider and customer
o Confidence benefits
o Confidence in correct performance • Special treatment
CUSTOMERS
CUSTOMERS
o Ability to trust the provider o Better price

o Lower anxiety when purchasing o Discounts not available to
o Knowing what to expect and receive most customer
o Extra services
o Higher priority when there is
a wait

Why are customers loyal?
Customers
12.4
CUSTOMERS
Know the core strategies of the Wheel

of Loyalty that explain how to develop a
loyal customer base.
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Targeting the right customers
Customers
• Target the right customer and match them to what firm
can deliver

o How do customer needs relate to operations elements?
12.5
o How well can service personnel meet expectations of different
types of customers?
o Can company match or exceed competing services that are
CUSTOMERS
directed at same types of customers?
• Focus on number of customers served as well as value of
Appreciate why it is so important for each customer:
service firms to target the “right” o Some customers more profitable than others in the short term
customers. o Others may have room for long-term growth
• “Right customers” are not always high spenders:
o Can come from a large group of people that no other supplier is
serving well
WIRTZ LOVELOCK

Managing the customer base
Customers
12.6
CUSTOMERS
Use service tiering to manage the

customer base and build loyalty.
WIRTZ LOVELOCK

Customer satisfaction and loyalty
Customers
12.7
CUSTOMERS
Understand the relationship between

customer satisfaction and loyalty.
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Cross-selling and bundling
Customers
• Bundling/cross-selling services makes switching a major
effort that the customer is unwilling to go through

unless extremely dissatisfied with service provider
12.8
• Customers benefit from buying all their various services
from the same provider
CUSTOMERS
o One-stop-shopping, potentially higher service levels, higher
service tiers, etc.
Know how to deepen the relationship

through cross-selling and bundling.
WIRTZ LOVELOCK
Cross-selling and bundling Cross-selling and bundling

• Reward Based Bonds • Social Bonds
o Can be financial or non-financial bonds or a combination of both o Based on personal relationships between providers and
o Financial bonds customers

o Discounts on purchases, loyalty program rewards (e.g. frequent flier miles), o Harder to and takes a longer time to build, but also harder to
cash-back programs imitate and thus, better chance of retention in the long term
o Non-financial rewards
CUSTOMERS
CUSTOMERS
o Priority to loyalty program members for waitlists and queues in call centers; • Customization Bonds
higher baggage allowances, priority upgrading, access to airport lounges for o Customized service for
frequent flyers
loyal customers
o Intangible rewards o e.g. Starbucks
o Special recognition and appreciation
o Customers may find it hard
o Reward-based loyalty programs to adjust to
are relatively easy to copy and another service provider
rarely provide a sustained who cannot customize
competitive advantage service

Cross-selling and bundling
Customers
• Structural Bonds
o Mostly seen in B2B settings
o Align customers way of doing things
12.9
with supplier’s own processes
o Joint investments in projects and sharing
of information, processes and equipment.
CUSTOMERS
o Can be seen in B2C environment too

o Airlines: SMS check-in, SMS email alerts
for flight arrival and departure times
Understand the role of financial and
o Difficult for competition to draw
customers away when they have non-financial loyalty rewards in
integrated their way of doing things
with existing supplier
enhancing customer loyalty.
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Financial and non-financial loyalty Promoting Services and Educating

rewards Customers
• Financial Rewards: customer incentives that have a
financial value
o Brand loyalty versus deal loyalty
12.10
o How buyers value rewards
o Timing
CUSTOMERS
• Non-financial Rewards: benefits that cannot be

translated directly into monetary terms
o Special recognition and appreciation of customers Appreciate the power of social,
o Status benefits to customers in the top tiers customization, and structural bonds in
enhancing loyalty.
WIRTZ LOVELOCK
Integrating teams across Promoting Services and Educating

departments and functional areas Customers
• Higher-level bonds offer sustained competitive
advantage
o Social Bonds
12.11
o Based on personal relationships
between providers and customers
o Longer and harder to achieve
CUSTOMERS
o Customization Bonds
o Achieved when the service
provider succeeds in providing
customized service to loyal
customers
Understand what factors cause
o May be difficult for customers to adjust to another service provider who customers to switch to a competitor
cannot customize the service
o Structural Bonds and how to reduce such switching.
o When customers to align their way of doing things with the supplier’s own
processes
o Frequently seen in B2B settings; also found in B2C environments (e.g., car
rental companies) WIRTZ LOVELOCK
Reducing customers defections Reducing customers defections

What Drives Address Key Churn Drivers
Customers to • Deliver quality service
Switch?
• Reduce inconvenience and
non-monetary costs
• Have fair and transparent pricing
CUSTOMERS
CUSTOMERS
• Industry specific drivers:
o Cellular phone industry: handset replacement a common reason

for subscribers discontinuing services – offer handset
replacement programs
• Take active steps to retain customers:
o Save teams: specially trained call center staff to deal with
customers who want to cancel their accounts
o Be careful about how save teams are rewarded
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Reducing customers defections
Customers
Other Ways to Reduce Churn
• Implement Effective Complaint Handling and Service
Recovery Procedures
12.12
• Increase Switching Costs
CUSTOMERS
o Natural switching costs

o e.g., Changing primary bank account; many related services tied to account
o Can be created by instituting contractual penalties for switching
o Must be careful not to be perceived as holding customers hostage Know why loyalty programs and
o High switching barriers and poor service quality likely to generate negative
attitudes and bad word of mouth
customer relationship management
(CRM) systems are important enablers
of delivering loyalty strategies.
WIRTZ LOVELOCK
Loyalty programs and CRM systems Loyalty programs and CRM systems
as enablers of loyalty strategies as enablers of loyalty strategies
• Transactional marketing:
o A transaction between a customer and a supplier is anonymous,
with no long-term record kept and little or no mutual

recognition
o The focus is mostly on segmenting the market, matching
customer needs with firm capabilities, and delivering high
CUSTOMERS
CUSTOMERS
service quality
• Relationship marketing
o The firm and the customer have an interest in deeper
engagement and higher value-added exchange
o Requires a membership-type relationship
Promoting Services and Educating CRM systems and delivering customized

Customers services and building loyalty
Common Objectives Of CRM Systems
• Customer perspective:
12.13
o Unified customer interface that delivers customization and
personalization
o Vast service improvement and increase customer value
CUSTOMERS
• Company perspective
Better segment, tier customer base and target promotion
Understand the part played by CRM o
o Implement churn alert systems if customers are in danger of
systems in delivering customized defecting
services and building loyalty.
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CRM systems and delivering customized CRM systems and delivering customized
services and building loyalty services and building loyalty
Common Applications of CRM Systems (1) Common Applications of CRM Systems (2)
• Data collection: • Sales force automation

o Customer data such as contact details, demographics, o Sales leads and cross-sell and up-sell opportunities can be
purchasing history, service preferences, and the like effectively identified and processed
o Entire sales cycle from lead generation to close of sales and
• Data analysis:
CUSTOMERS
CUSTOMERS
after-sales service can be tracked and facilitated through CRM
o Data captured is analyzed and system
categorized
o Used to tier customer base and
tailor service delivery accordingly
Common Applications of CRM Systems (3) Common Applications of CRM Systems (3)
• Marketing automation: • Call center automation
o Mining of customer data enables the firm to target its market o Call center staff have customer information at their finger tips
o Goal to achieve one-to-one marketing and cost savings, often in and can improve their service levels to all customers
the context of loyalty and retention programs o Caller ID and account numbers allow call centers to identify the
CUSTOMERS
CUSTOMERS
o Results in increasing the ROI on its marketing expenditure customer tier the caller belongs to, and to tailor the service
accordingly
o CRM systems also allows firms to judge effectiveness of
o For example, platinum callers get priority in waiting loops.
marketing campaigns through the analysis of responses
© Pearson Education South Asia Pte Ltd 2013. All rights reserved © Pearson Education South Asia Pte Ltd 2013. All rights reserved
Strategy Development
CUSTOMERS
CUSTOMERS
• Assessment of business strategy

• Business strategy guides development of
customer strategy
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CRM systems and delivering customized CRMCRM

12.13 systems andand
systems delivering customized
delivering
customized services and building loyalty
© Pearson Education South Asia Pte Ltd 2013. All rights reserved

Value Creation
• Translates business and customer strategies into specific Multi-channel Integration
value propositions for both customers and firm • Serve customers well across many potential
CUSTOMERS
CUSTOMERS
• Customers benefit from priority, tiered services,
interfaces
loyalty rewards and customization • Offer a unified interface that delivers
• Company benefits from reduced customer acquisition
customization and personalization
and retention costs, and increased share-of-wallet
• Dual creation of value: customers need to participate in
CRM to reap value from firm’s CRM initiatives
Information Management
Performance Assessment • Collect customer information from all channels
• Is CRM system creating value for key
CUSTOMERS
CUSTOMERS
• Integrate it with other relevant information

stakeholders?
• Make useful information available to the frontline
• Are marketing and service standard objectives
being achieved? • Create and manage data repository, IT systems,
• Is CRM system meeting performance
analytical tools, specific application packages
standards?
• Unfortunately, there is a high failure rate for CRM • How to get CRM right
implementations o How should our value proposition change to increase customer
loyalty?
• Common reasons for failures
o How much customization or one-to-one marketing and service
o Viewing CRM as a technology Initiative delivery is appropriate and profitable?
o Lack of customer focus o What is the increase in profit from increasing share-of-wallet
CUSTOMERS
CUSTOMERS
o Not enough understanding of customer lifetime value (CLV) with current customers? How much does this vary by customer
o Inadequate support from top management tier and/or segment?
o Failure to reengineer business processes o How much time and resources can we provide to CRM right
o Underestimating the challenges in data integration now?
o If we believe in customer relationship management, why haven’t
we taken more steps in that direction in past?
o What can we do today to develop customer relationships
without spending on technology?
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Thank You.
12-55
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Learning Objectives
13.1 Recognize the actions that customers may take in
response to service failures.
13
13.2 Understand why customers complain.
13.3 Know what customers expect from the firm when
they complain.
Complaint Handling 13.4 Understand how customers respond to effective
service recovery.
AND SERVICE RECOVERY
13.5 Explain the service recovery paradox.
13.6 Know the principles of effective service recovery
systems.
WIRTZ LOVELOCK
Complaint Handling and Service

Learning Objectives
Recovery
13.7 Be familiar with the guidelines for front-line
employees on how to handle complaining customers
and recover from a service failure.
13.1
13.8 Recognize the power of service guarantees.
13.9 Understand how to design effective service
guarantees.
Recognize the actions that customers
13.10 Know when firms should not offer service
guarantees. may take in response to service
13.11 Be familiar with the seven groups of
failures.
jaycustomers and understand how to manage them
effectively. WIRTZ LOVELOCK
How customers respond to service How customers respond to service

failures failures
COMPLAINT HANDLING AND

SERVICE RECOVERY
SERVICE RECOVERY
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Complaint Handling and Service Understand why customers

Recovery complain
• Why do customers complain?
o Obtain compensation
o Release their anger
13.2

o Help to improve the service
o Out of concern for others
SERVICE RECOVERY
• What proportion of unhappy
customers complain?
• Why don’t unhappy customers complain?
Understand why customers complain. • Who is most likely to complain?
• Where do customers complain?
• What do customers expect once they have made a
complaint?
– Procedural, interactional, and outcome justice
WIRTZ LOVELOCK
Complaint Handling and Service What customers expect when they

Recovery complain
13.3
SERVICE RECOVERY
Know what customers expect from the

firm when they complain.
WIRTZ LOVELOCK
Complaint Handling and Service How customers respond to

Recovery effective service recovery
• Plays a crucial role in achieving customer
satisfaction
• Tests a firm’s commitment to satisfaction and
13.4
service quality
SERVICE RECOVERY
o Confidence benefits
• Impacts customer loyalty and future profitability
o Complaint handling should be seen as a profit center, not a cost
Understand how customers respond to center
effective service recovery.
WIRTZ LOVELOCK
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The service recovery paradox
Recovery
• Customers who experience a service
failure that is satisfactorily resolved
may be more likely to make future
purchases than customers without
13.5

problems (Note: not all research
supports this paradox)
SERVICE RECOVERY
• If second service failure occurs, the
paradox disappears—customers’
expectations have been raised and
they become disillusioned
Explain the service recovery paradox. • Severity and “recoverability” of failure
(e.g., spoiled wedding photos) may
limit firm’s ability to delight customer
with recovery efforts
• Best strategy: Do it right the first time
WIRTZ LOVELOCK
Complaint Handling and Service The principles of effective service

Recovery recovery systems
13.6
SERVICE RECOVERY
Know the principles of effective service

recovery systems.
WIRTZ LOVELOCK
The principles of effective service The principles of effective service

recovery systems recovery systems
Strategies to Reduce Customer Complaint Barriers How to Enable Effective Service Recovery
• Be proactive
o On the spot, before customers complain
• Plan recovery procedures

SERVICE RECOVERY
SERVICE RECOVERY
o Identify most common service problems and have prepared

scripts to guide employees in service recovery
• Teach recovery skills to relevant personnel
• Empower personnel to use judgment and skills to
develop recovery solutions
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The principles of effective service Complaint Handling and Service

recovery systems Recovery
How Generous Should Compensation Be?
• Rules of thumb for managers to consider
o What is positioning of our firm?
13.7
o How severe was the service failure?

SERVICE RECOVERY
o Who is the affected customer?
Be familiar with the guidelines for

front-line employees on how to handle
complaining customers and recover
from a service failure.
WIRTZ LOVELOCK
Guidelines for the front line on Complaint Handling and Service

handling complaining customers Recovery
• How to handle complaining customers and recover from a service
failure
o Time is of the essence to achieve a
full recovery
13.8
o Acknowledge the customer’s feelings

o Don’t argue with customers
SERVICE RECOVERY
o Show that you understand the

problem from the customer’s point
of view
o Clarify the facts and sort out the
o
cause
Give customers the benefit of the doubt
Recognize the power of service
o
o
Propose the steps needed to solve the problem
Keep customers informed of progress
guarantees.
o Consider compensation
o Persevere to regain customer goodwill
o Self-check the service delivery system and improve it
WIRTZ LOVELOCK

The power of service guarantees
Recovery
• Force firms to focus on what customers want
• Set clear standards
• Require systems to get & act on customer feedback
13.9
• Force organizations to understand why they fail and to

SERVICE RECOVERY
overcome potential fail points

• Reduce risks of purchase and build loyalty
Understand how to design effective

service guarantees.
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Designing effective service Complaint Handling and Service

guarantees Recovery
• Whatever is promised in the guarantee
must be totally unconditional.
• The customer must be clearly aware of
13.10
the benefits that can be gained from
the guarantee.
SERVICE RECOVERY
• The guarantee must be on something that is important

to the customer; the compensation should be more than
adequate to cover the service failure.
• It should be easy for the customer to invoke the Know when firms should not offer
guarantee. service guarantees.
• If a service failure occurs, the customer should be able to
easily collect on the guarantee.
• The guarantee should be believable
WIRTZ LOVELOCK
When firms should not offer Complaint Handling and Service

service guarantees Recovery
• Companies that already have a strong reputation for
service excellence may not need a guarantee.
• A firm whose service is poor must first work to improve
13.11
quality to a level above what is guaranteed.
• Service firms whose quality is truly uncontrollable should

SERVICE RECOVERY
not offer a guarantee.

• If consumers see little risk associated with a service, a
guarantee adds little value. Be familiar with the seven groups of
jaycustomers and understand how to
manage them effectively.
WIRTZ LOVELOCK
The seven types of jaycustomers The seven types of jaycustomers

Addressing the Challenge of Jaycustomers The Cheat and Thief
• Jaycustomer: A customer who behaves in a thoughtless • The Cheat: thinks of various
or abusive fashion, causing problems for the firm, its way to cheat the firm
employees, and other customers

• The Thief: No intention of
SERVICE RECOVERY
SERVICE RECOVERY
• More potential for mischief in service businesses, paying―sets out to steal or

especially when many customers are present pay less
o Services lend themselves to clever schemes to avoid payment
• No organization wants an ongoing relationship with an
o e.g., bypassing electricity meters, circumventing TV cables, riding free on
abusive customer public transportation
o Firms must take preventive actions against thieves, but make
allowances for honest but absent-minded customers
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The Rulebreaker The Belligerent
• Many services need to establish rules • Shouts loudly, maybe mouthing insults, threats and curses
to guide customers safely through the • Service personnel are often abused even when they are not to be
service encounter blamed

• Government agencies may impose • Confrontations between customers and service employees can
SERVICE RECOVERY
SERVICE RECOVERY
rules for health and safety reasons easily escalate
• Some rules protect other customers • Firms should ensure employees have skills to deal with difficult
from dangerous behavior situations
o e.g., ski patrollers issue warnings to o In a public environment, priority is to remove
reckless skiers by attaching orange person from other customers
stickers on their lift tickets
o May be better to support employee’s actions
• Ensure company rules are necessary, and get security or the police if necessary if
not should not be too much or an employee has been physically attacked
inflexible

Family Feuders And Vandals The Deadbeat
• Family Feuders: People who get into arguments with
• Customers who fail to pay (as distinct from “thieves”
other customers ― often members of their own family
who never intended to pay in the first place)
• The Vandal:
o Preventive action is better than cure--e.g., insisting on

o Service vandalism includes pouring soft drinks into bank cash
SERVICE RECOVERY
SERVICE RECOVERY
prepayment; asking for credit card number when order is taken

machines; slashing bus seats, breaking hotel furniture
o Bored and drunk young people are a common source of o Customers may have good reasons for not paying
vandalism o If the client's problems are only temporary ones, consider long-term value of
maintaining the relationship
o Unhappy customers who feel
mistreated by service providers
take revenge
o Prevention is the best cure

Dealing with Customer Fraud (1) Dealing with Customer Fraud (2)
• If in doubt, believe the customer • Managerial implications
o Firms can benefit from offering
• Keep a database of how often customers invoke service
100 percent money-back

guarantees or of payments made for service failure
SERVICE RECOVERY
SERVICE RECOVERY
guarantees
• Insights from research on guarantee cheating o Guarantees should be offered to
regular customers as part of
o Amount of a guarantee payout had no effect on customer
cheating membership program since
regular customers are unlikely to
o Repeat-purchase intention reduced cheating intent cheat
o Customers are reluctant to cheat if service quality is high (rather o Excellent service firms have less
than just satisfactory) to worry about than average
providers
6
9/18/2018
Thank You.
13-37
7
9/18/2018
Learning Objectives
14.1 Explain the relationships between service quality,
productivity, and profitability.
14
14.2 Be familiar with the different perspectives of
service quality.
14.3 Demonstrate how to use the Gaps Model for
Improving Service diagnosing and addressing service quality problems.
14.4 Differentiate between hard and soft measures of
QUALITY AND service quality.
PRODUCTIVITY 14.5 Explain the common objectives of effective
customer feedback systems.
WIRTZ LOVELOCK

14.6 Describe key customer feedback collection tools. 14.12 Recommend the key methods to improve service
14.7 Be familiar with hard measures of service quality productivity.
and control charts. 14.13 Know how productivity improvements impact
14.8 Select suitable tools to analyze service problems. quality and value.
14.9 Understand return on quality and determine the 14.14 Understand how to integrate all the tools to
optimal level of reliability. improve the quality and productivity of customer
14.10 Define and measure service productivity. service processes.
14.11 Understand the difference between productivity, 14.15 Explain how TQM, ISO 9000, Six Sigma, and the
efficiency, and effectiveness. Malcolm Baldrige and EFQM approaches relate to
managing and improving service quality and
productivity.
Improving Service Quality Service quality, productivity,

and Productivity and profitability
14.1
IMPROVING SERVICE QUALITY
AND PRODUCTIVITY
Explain the relationships between

service quality, productivity, and
profitability.
WIRTZ LOVELOCK
1
9/18/2018
Service quality, productivity, Improving Service Quality

and profitability and Productivity
• Quality and productivity are twin paths to creating value
for both customers and companies
Quality focuses on the benefits created for customers;
14.2
•
productivity addresses financial costs incurred by the

AND PRODUCTIVITY
firm
o If service processes are more efficient and increase productivity,
this may not result in better quality experience for customers
o Getting service employees to work faster to increase
productivity may sometimes be welcomed by customers, but at Be familiar with the different
other times feel rushed and unwanted perspectives of service quality.
• Marketing, operations and human resource managers
need to work together for quality and productivity
improvement WIRTZ LOVELOCK
Different perspectives of Improving Service Quality

service quality and Productivity
Dimensions of Service Quality
Tangibles: Appearance of physical elements
14.3
Reliability: Dependable and accurate performance

AND PRODUCTIVITY
Responsiveness: Promptness; helpfulness
Demonstrate how to use the Gaps

Assurance: Competence, courtesy, credibility, security
Model for diagnosing and addressing
Empathy: Easy access, good communication, understanding of customer service quality problems.
WIRTZ LOVELOCK
The Gaps Model The Gaps Model

Suggestions for Closing the 6 Service Quality Gaps (1) Suggestions for Closing the 6 Service Quality Gaps (2)

AND PRODUCTIVITY
AND PRODUCTIVITY
2
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The Gaps Model The Gaps Model

Suggestions for Closing the 6 Service Quality Gaps (3) Suggestions for Closing the 6 Service Quality Gaps (4)

AND PRODUCTIVITY
AND PRODUCTIVITY
Improving Service Quality Hard and soft measures of

and Productivity service quality
• Soft measures—not easily observed, must be collected
by talking to customers, employees or others
o Provide direction, guidance and feedback to employees on ways
14.4
to achieve customer satisfaction

o Can be quantified by measuring customer
AND PRODUCTIVITY
perceptions and beliefs

o e.g., SERVQUAL, surveys, and customer advisory
panels
• Hard measures—can be counted,

Differentiate between hard and soft timed or measured through audits
measures of service quality. o Typically operational processes or outcomes
o Standards often set with reference to percentage of occasions
on which a particular measure is achieved
WIRTZ LOVELOCK
Improving Service Quality Objectives of effective customer

and Productivity feedback systems
• Assessment and benchmarking of service quality and
performance
• Customer-driven learning and improvements
14.5
• Creating a customer-oriented service culture

AND PRODUCTIVITY
Explain the common objectives of

effective customer feedback systems.
WIRTZ LOVELOCK
3
9/18/2018
Improving Service Quality

Customer feedback collection tools
and Productivity
• Total market surveys
• Annual surveys
14.6
•

Transactional surveys
AND PRODUCTIVITY
• Service feedback cards
• Mystery shopping
• Unsolicited customer
Describe key customer feedback feedback
collection tools. • Focus group discussions
• Service reviews
WIRTZ LOVELOCK
Customer feedback collection tools Customer feedback collection tools

Analysis, Reporting and Dissemina-
tion of Customer Feedback
• Choosing the relevant feedback
tools and collecting customer

feedback is meaningless if the
AND PRODUCTIVITY
AND PRODUCTIVITY
information is not passed back

to the relevant parties to take action
• Reporting system needs to deliver feedback to frontline
staff, process owners, branch/department managers and
top management
• Three types of performance reports:
o Monthly Service Performance Update
o Quarterly Service Performance Review
o Annual Service Performance Report
Improving Service Quality Hard measures of service quality

and Productivity and control charts
• Service quality indexes
o Embrace key activities that have an
impact on customers
14.7
• Control charts to monitor a

AND PRODUCTIVITY
single variable
o Offer a simple method of displaying
performance over time against
specific quality standards
Be familiar with hard measures of o Enable easy identification of trends
service quality and control charts. o Are only good if data on which they
are based are accurate
WIRTZ LOVELOCK
4
9/18/2018

Tools to analyze service problems
and Productivity
• Fishbone diagram
o Cause-and-effect diagram to identify potential causes of
problems
14.8

• Pareto Chart
AND PRODUCTIVITY
o Separating the trivial from the important. Often, a majority of
problems is caused by a minority of causes (i.e., the 80/20 rule)
• Blueprinting
Select suitable tools to analyze service o Visualization of service delivery, identifying points where failures
are most likely to occur
problems.
WIRTZ LOVELOCK
Tools to analyze service problems Tools to analyze service problems

Cause-and-Effect Chart for Flight Departure Delays Pareto analysis of causes of flight departure delays.

AND PRODUCTIVITY
AND PRODUCTIVITY
Improving Service Quality Return on quality and the optimal

and Productivity level of reliability
• Assess costs and benefits of quality initiatives
o ROQ approach is based on four assumptions:
o Quality is an investment
14.9
o Quality efforts must be financially accountable

o It’s possible to spend too much on quality
AND PRODUCTIVITY
o Not all quality expenditures are equally valid
o Implication: Quality improvement efforts may benefit from being

related to productivity improvement programs
Understand return on quality and
determine the optimal level of
reliability.
WIRTZ LOVELOCK
5
9/18/2018
Return on quality and the optimal Return on quality and the optimal
level of reliability level of reliability
• To see if new quality improvement efforts make sense, When Does
determine costs and then relate to anticipated customer Improving Service
response Reliability Become

• Determine optimal level of reliability Uneconomical?
AND PRODUCTIVITY
AND PRODUCTIVITY
o Diminishing returns set in as improvements require higher
investments
o Know when improving service reliability becomes uneconomical
Improving Service Quality Define and measure service

and Productivity productivity
• Productivity measures amount of output produced relative to the
amount of inputs.
• Improvement in productivity means an improvement in the ratio of
outputs to inputs.
14.10
• Intangible nature of many service elements makes it hard to

AND PRODUCTIVITY
measure productivity of service firms, especially for information-

based services
o Difficult in most services
because both input and
output are hard to define
Define and measure service o Relatively simpler in
possession-processing
productivity. services as compared to
information- and people-
processing services
WIRTZ LOVELOCK
Improving Service Quality Productivity, efficiency, and

and Productivity effectiveness
• Efficiency: involves comparison to a standard, usually time-based
(e.g., how long employee takes to perform specific task)
o Problem: focus on inputs rather than outcomes
o May ignore variations in service quality/value
14.11
• Productivity: involves financial value of outputs to inputs

o Consistent delivery of outcomes desired by customers should command
AND PRODUCTIVITY
higher prices
• Effectiveness: degree to which firm meets goals
o Cannot divorce productivity from quality and customer satisfaction
Understand the difference between
productivity, efficiency, and
effectiveness.
WIRTZ LOVELOCK
6
9/18/2018

Improving service productivity
and Productivity
Generic Productivity Improvement Strategies
• Typical strategies to improve service productivity
o Careful control of costs at every step in process
o Reduction of wasteful use of materials or labor
14.12

o Teaching employees how to work more productively
o Providing employees with
AND PRODUCTIVITY
equipment and databases to work
faster and to a higher quality
o Broadening variety of tasks that
service worker can perform
Recommend the key methods to o Installing expert systems that allow
paraprofessionals to take on work
improve service productivity. previously performed by professionals
who earn higher salaries
• Although improving productivity can be approached incrementally,
major gains often require redesigning entire processes
WIRTZ LOVELOCK

Improving service productivity
and Productivity
Customer-driven Ways to Improve Productivity
• Change timing of customer demand
o By shifting demand away from peaks, managers can make better
14.13
use of firm’s productive assets and provide better service

• Encourage use of lower cost channels
AND PRODUCTIVITY
o Get customers to self-serve

o Encourage customers to obtain
information and buy from firm’s
corporate Websites
• Ask customers to use third Know how productivity improvements
parties impact quality and value.
o Delegate delivery of supplementary
service elements to intermediary organizations
WIRTZ LOVELOCK
How Productivity Improvements How Productivity Improvements

Impact Quality Impact Quality
• Front-stage productivity enhancements are especially • A Caution on Cost Reduction Strategies
visible in high contact services o Most attempts to improve service productivity seek to eliminate
o Some improvements only require passive acceptance, while waste and reduce labor costs and does not involve new
others require customers to change behavior technology

o Must consider impacts on customers and address customer o Reducing staff means workers try to
AND PRODUCTIVITY
AND PRODUCTIVITY
resistance to changes do several things at once and may

perform each task poorly
• Backstage changes may impact customers o Better to search for service process
o Keep track of proposed backstage changes, and prepare redesign opportunities that lead to
customers for them o Improvements in productivity
o e.g., new printing peripherals may affect appearance of bank statements o Simultaneous improvement in service quality
7
9/18/2018

Integrating all the tools
and Productivity
An integrated nine-step approach to customer service
process improvement (1)
14.14

AND PRODUCTIVITY
Understand how to integrate all the
tools to improve the quality and
productivity of customer service
processes.
WIRTZ LOVELOCK
Integrating all the tools Integrating all the tools

An integrated nine-step approach to customer service An integrated nine-step approach to customer service
process improvement (2) process improvement (3)

AND PRODUCTIVITY
AND PRODUCTIVITY

The service recovery paradox
and Productivity
• TQM can help organizations to attain service excellence,
increase productivity, and create value continuously
through innovative process improvements.
14.15
• ISO 9000 Certification comprises requirements,

definitions, guidelines, and related standards to provide
AND PRODUCTIVITY
an independent assessment and certification of a firm’s

quality management system.
Explain how TQM, ISO 9000, Six Sigma, • Six Sigma is favoured by service firms that have high-
volume processes to reduce defects and cycle times and
and the Malcolm Baldrige and EFQM improve productivity.
approaches relate to managing and • The Malcolm Baldrige National Quality Award aims to
improving service quality and productivity. promote the best practices in quality management and
recognize and publicize quality achievements among U.S.
WIRTZ LOVELOCK firms.
8
9/18/2018
Thank You.
14-49
9
9/18/2018
Learning Objectives
15.1 Know the characteristics of world class service
organizations and be familiar with the four levels of
15
service performance.
15.2 Understand what is required for transforming a
service firm from a service loser to a service leader.
Improving Service 15.3 Know the long-term impact of customer centricity
on profitability and shareholder value.
QUALITY AND
PRODUCTIVITY
WIRTZ LOVELOCK

Four Levels of Service Performance
and Productivity
• Service Losers
o Bottom of the barrel from both customer and managerial
perspectives
IMPROVING SERVICE QUALITY AND
15.1
o Customers patronize them because there is no viable alternative
o New technology introduced only under duress; uncaring
PRODUCTIVITY
workforce
• Service Nonentities
o Dominated by a traditional
Know the characteristics of world class operations mindset
service organizations and be familiar o Unsophisticated marketing
strategies
with the four levels of service o Consumers neither seek out
performance. nor avoid them
WIRTZ LOVELOCK

Four Levels of Service Performance
and Productivity
• Service Professionals
o Clear market positioning strategy
o Customers within target segment(s)
15.2
seek them out
o Research used to measure customer
satisfaction
PRODUCTIVITY
o Operations and marketing work together

o Proactive, investment-oriented approach to HRM
• Service Leaders Understand what is required for

o The crème da la crème of their respective industries
o Names synonymous with outstanding service, customer delight
transforming a service firm from a
o Service delivery is seamless process organized around customers service loser to a service leader.
o Employees empowered and committed to firm’s values and goals
WIRTZ LOVELOCK
1
9/18/2018
Transforming a service firm from a Improving Service Quality

service loser to a service leader and Productivity
• Firms can move either up or down the performance ladder
• Organizations that are devoted to satisfying
their current customers may miss important
15.3
shifts in the marketplace
o As a result, they may face difficulties
attracting demanding new consumers with
PRODUCTIVITY
different expectations
• Companies defending their control of their
competitive edge may have encouraged
competitors to find higher-performing
Know the long-term impact of customer
alternatives centricity on profitability and
• Organizations with a service-oriented culture may turn otherwise as
a result of a merger or acquisition that brings in new leaders who
shareholder value.
emphasize short-term profits
WIRTZ LOVELOCK
The impact on profitability

and shareholder value
• Research shows that creating more value for the
customer creates more value for the firm’s owners.
• Satisfied customers improve the level and the stability of
cash flow
• Becoming a service champion requires a long-term
Thank You.
PRODUCTIVITY
perspective.

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9/18/2018

Learning Objectives Learning Objectives

Consumer Behavior The three-stage model of service

The three-stage model of service The three-stage model of service

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

The three-stage model of service The three-stage model of service

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• A service purchase is triggered by • When a need is recognized,

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

Perceived Risks Perceived Risks

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Seeking information from respected personal

Service Expectations Service Expectations

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

comparing what they expect against what

Service Expectations Service Expectations

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Desired Service Level: • Predicted Service Level:

• When possible alternatives have been compared

is when the customer

High- versus low-contact services High- versus low-contact services

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

o Customers visit service facility and remain throughout service

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

• Service Operations system

events that customers experience as a

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

Consumer Behavior How customers evaluate services and

How customers evaluate services and Consumer Behavior

service purchase or series of service interactions

Understand service quality Understand service quality

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

Understand service quality

Copyright © 2018 Pearson Education Ltd. 2-45 2-46

Customer, competitor, and Customer, competitor, and

POSITIONING SERVICES IN COMPETITIVE MARKETS

Customer, Competitor and Positioning Services

o Overall examination of market characteristics

Segmentation, Targeting, and Positioning Services

o Dividing population of possible customers into groups with

Segmenting Service Markets Segmenting Service Markets

POSITIONING SERVICES IN COMPETITIVE MARKETS

Important versus Determinant Positioning Services

service offerings based on perceived differences

Segmenting Based on Service Positioning Services

of performance firm plans to offer on each

POSITIONING SERVICES IN COMPETITIVE MARKETS

Considerations for Using the Focus Positioning Services

o Narrow range of services to

Distinguishing a service from its Distinguishing a service from its

Distinguishing a service from its Positioning Services

Using positioning maps Using positioning maps

POSITIONING SERVICES IN COMPETITIVE MARKETS

and map developments of time

Using positioning maps Using positioning maps

POSITIONING SERVICES IN COMPETITIVE MARKETS

Using positioning maps Using positioning maps

POSITIONING SERVICES IN COMPETITIVE MARKETS

• Predictions can be made of how positions may change in

Developing an Effective Positioning Developing an Effective Positioning

POSITIONING SERVICES IN COMPETITIVE MARKETS

Understand what constitutes a Understand what constitutes a

DEVELOPING SERVICE PRODUCTS AND BRANDS