Service Marketing

Unit 4
 TOPICS

Planning and Managing Service Delivery

1. Employee's Roles in Service Delivery
2. Customer's Role in Service delivery
3. Delivering Service through Intermediaries and
Electronic Channels
4. Managing Demand and Capacity
5. Integrated Service Marketing Communications
6. The Financial and Economic Effect of Services
 1. Employee's Roles in Service Delivery
Topics
Importance of service culture

Importance of service employees in creating

customer satisfaction

Challenges inherent in boundary spanning roles

Strategies
Service Culture

A culture where an appreciation for good service

exists, and where giving good service to internal
as well as ultimate , external customers is
considered a natural way of life and one of the
most important norms by everyone
Importance of service cultures'

Exhibiting service leadership

Developing a service culture

Transporting a service culture

 Critical importance of service employees
Service employees are very important because:

They are the service

They are the organization in the customers eye
They are the brand
They are marketers

These all could be understood through the

framework, tools and strategies.
The service Triangle:- Framework
Employee satisfaction, customer
satisfaction and profits:- Tools

Climate for service and a climate for well being

Employee turnover relates with customer
satisfaction
Employee satisfaction and loyalty(diagram)
Effect of employee behaviour on
service quality dimensions

The 5 dimensions of service quality can be

influenced by service employees
1. R

2. R
3. A
4. E
5. T
Boundary spanning roles

The frontline service employees are called

boundary spanners because they operate at the
organizations boundary.
They are a link between the internal and external
constituents.
They face a lot of stress and trade offs.
 Emotional Labour

Sources of Conflicts
a. person vs. role
b. organizational vs. client
c. Client vs. client

Quality/ Productivity Trade offs

Strategies for delivering service quality
through people

1. Hire the right people

2. Develop people to deliver service quality

3. Provide needed support systems

4. Retain the best people

Strategies for Delivering Service
Quality through People
Hire for service
competencies and
service
Compete for inclination Be the
the best preferred
people employer

Measure and Train for

reward strong technical and
Hire the
service interactive
performers
right people skills

Develop
Treat Customer-
Retain the people to
employees as Oriented Empower
best deliver
customers
people
Service service
employees
Delivery quality

Include Provide
employees in needed support Promote
the companys systems teamwork
vision

Develop Measure
service-oriented
Provide internal service
internal quality
supportive
processes
technology and
equipment
 2. Customer's Role in Service delivery
Topics
The Importance of Customers in Service Delivery

Customers Roles

Self-Service Technologies The Ultimate in Customer

Participation

Strategies for Enhancing Customer Participation

 How Customers Widen the Service
Performance Gap
Lack of understanding of their roles

Not being willing or able to perform their roles

No rewards for good performance

Interfering with other customers

Incompatible market segments

 Importance of Customers in service delivery

Other customers can detract from satisfaction:

disruptivebehaviors
overly demanding behaviors

excessive crowding

incompatible needs

Other customers can enhance satisfaction:

mere presence
socialization/friendships

roles: assistants, teachers, supporters, mentors

 2. Customer Roles in Service Delivery

Productive Resources

Contributors to Service Quality and Satisfaction

Competitors
 Customers as Productive Resources

Customers can be thought of as partial employees

contributing effort, time, or other resources to the production
process

Customer inputs can affect organizations productivity

Key issue:
should customers roles be expanded? reduced?
 Customers as Contributors to
Service Quality and Satisfaction
Customers can contribute to:
their own satisfaction with the service
by performing their role effectively
by working with the service provider

the quality of the service they receive

by asking questions
by taking responsibility for their own satisfaction

by complaining when there is a service failure

 Customers as Competitors

customers may compete with the service provider

internal exchange vs. external exchange
internal/external decision often based on:
expertise capacity
resources capacity

time capacity

economic rewards

psychic rewards

trust

control
3. Self service Technologies for service
participation

What are SSTs?

Services produced entirely by the customer without any
direct involvement or interaction with the firms
employees.
ATMs
Pay at the pump
Internet banking
Internet shopping
Distance education
 Figure 13.2 Services Production
Continuum

1 2 3 4 5 6
Gas Station Illustration
1. Customer pumps gas and pays at the pump with automation
2. Customer pumps gas and goes inside to pay attendant
3. Customer pumps gas and attendant takes payment at the
pump
4. Attendant pumps gas and customer pays at the pump with
automation
5. Attendant pumps gas and customer goes inside to pay
attendant
6. Attendant pumps gas and attendant takes payment at the
pump
 Success with SSTs
Key Questions While Moving Into
SSTs
What is our strategy? What do we hope to achieve through the SST(cost
saving, revenue growth, competitive advantage)?
What are the benefits to customers of producing the service on their own
through the SST? Do they know and understand these benefits?
How can customers be motivated to try the SST? Do they understand their
role? Do they have the capability to perform this role?
How technology ready are our customers? Are some segments of
customers more ready to use the technology than others?
How can customers be involved in the design of the service technology
system and processes so that they will be more likely to adopt and use the
SST?
What forms of customer education will be needed to encourage adoption?
Will other incentives be needed?
How will inevitable SST failures be handled to regain customer confidence?
4.Strategies for Enhancing Customer
Participation
 1. Define Customer jobs

Helping Oneself
Helping Others

Promoting The Company

Individual Differences: Not Everyone

Wants To Participate
 2.Recruit, Educate, and Reward
Customers

Recruit the Right Customers

Educate and Train Customers to Perform

Effectively
Reward Customers for Their

Contributions
Avoid Negative Outcomes of

Inappropriate Customer Participation- do

not understand, non performance of
roles, frustrated
 3. Manage The Customer Mix
Table 13.2 Characteristics of Service that Increase the Importance of Compatible Segments
 Conclusion
Through understanding the importance of customers in service
delivery and identifying the roles played by the customer in a
particular context, managers can develop strategies to enhance
customer participation.
By implementing these strategies, organization should see a
reduction in gaps caused due to effective, efficient customer
contributions to service delivery.
 3. Delivering Service through
Intermediaries and Electronic
Channels
Topics
Identify the primary channels through which services
are delivered to end customers.
Provide examples of each of the key service
intermediaries.
View delivery of service from two perspectives- the
service provider and the service deliverer.
Discuss the benefits and challenges of each method of
service delivery.
Outline the strategies that are used to manage service
delivery through intermediaries.
 Distribution in a service context

In a services context, we often

move nothing

Experiences, performances and

solutions are not being
physically shipped and stored

More and more informational

transactions are conducted
through electronic and not
physical channels
Distribution---Time and Place Utility
Availability ---when
Access --- easy to
conduct transaction
Operating Hours
Direct channels ---no
intermediaries
Indirect channels ---
 Service Provider Participants

service principal (originator)

creates the service concept
(like a manufacturer)

service deliverer (intermediary)

entity that interacts with the customer in the
execution of the service
(like a distributor/wholesaler)
Functions Performed by Intermediaries

Co-producing the service

Making services locally available
Functioning as a link between the brand and the
customer
 Types of Intermediaries
Agents
selling --- contractual authority to sell
purchasing--- purchase for a buyer
facilitating --- help with marketing process
Brokers --- bring buyers and sellers together
Electronic Channels --- do not require human
interaction
Franchises --- Service outlets licensed by a
principal to deliver a unique service concept it had
created or popularized.
 Service Distribution

Direct Delivery of Service

Delivery of Service through Intermediaries

a. franchisees
e.g., Jiffy Lube, H&R Block, McDonalds

b. agents and brokers

e.g., travel agents, independent insurance agents

c. electronic channels
e.g., ATMs, university video courses, TaxCut software
Direct or Company Owned Channels

Benefits
1. Complete control
2. Expand or contract sites
3. Customer relationship
. Demerits
1. Financial Risk
2. Expertise of local markets
Key Issues Involving
Intermediaries

conflict over objectives and performance

conflict over costs and rewards

control of service quality

empowerment versus control

channel ambiguity
 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 -managed
sites
Franchisor provides training, equipment and
support marketing activities. Franchisees
invest time and finance, and follow copy and
media guidelines of franchisor
Growth-oriented firms like franchising because
franchisees are motivated to ensure good
customer service and high-quality service
operations
Study shows significant attrition rate among
franchisors in the early years of a new
franchise system
One third of all systems fail within first four
 Benefits and Challenges for
Franchisers of Service
Benefits Challenges
Leverages the business
Difficulty in maintaining and
format to gain
motivating franchisees
expansion and revenues
Highly publicized disputes
Maintains consistency
and conflict
in outlets
Possibility of inconsistent
Gains knowledge of
quality that can undermine
local markets
the company name
Shares financial risk
Control of customer
and frees up capital
relationship by intermediary
 Benefits and Challenges for
Franchisees of Service

Benefits Challenges
Obtaining an Disappointing profits and
established business revenues
format on which to Encroachment and franchise
base a business saturation
Receiving national or High failure rates and unfair
regional brand terminations
marketing Lack of perceived control
Minimizing the risks of High fees and rigid contracts
starting a business Unrealistic expectations
Agents/Brokers

A agent works for the pricipal continuously

An agent receives commissions (usually two to
six percent of selling price)
An agent delivers the rights to services
An agent is entrusted with influence over prices,
terms, and conditions of sale.
Benefits and Challenges in Distributing
Services through Agents and Brokers

Benefits Challenges
Reduced selling and Loss of control over
distribution costs pricing and other
Intermediarys aspects of marketing
possession of special Representation of
skills and knowledge multiple service
Wide representation principals
Knowledge of local
markets
Customer choice
 Benefits and Challenges in Electronic
Distribution of Services

Benefits Challenges
Consistent delivery for Customers are active, not passive
standardized services Lack of control of electronic
Low cost environment
Price competition
Customer convenience
Inability to customize with
Wide distribution standardized services
Customer choice and Lack of consistency with
ability to customize customer involvement
Quick customer Security concerns
feedback Competition from widening
geographies
 Strategies for Effective
Service Delivery through
Intermediaries

Control Strategies Empowerment Strategies

Measurement Help the intermediary
Review develop customer-based
service processes
Partnering Strategies Provide needed support
Alignment of goals Develop the
intermediary to deliver
Consultation and service quality
cooperation
Change to a cooperative
management structure
 4. Managing Demand and Capacity
Topics
Explain:
the underlying issue for capacity-constrained services
the implications of capacity constraints
the implications of different types of demand patterns on matching
supply and demand
Present the implications of time, labor, equipment, and facilities constraints
combined with variations in demand patterns.
Strategies for matching supply and demand through (a) shifting demand to
match capacity or (b) adjusting capacity to meet demand.
Demonstrate the benefits and risks of yield management strategies in forging a
balance among capacity utilization, pricing, market segmentation, and financial
return.
Provide strategies for managing waiting lines for times when capacity and
demand cannot be aligned.
Fundamental Issue

Capacity is usually constant whereas demand

usually fluctuates.
Fluctuations could be due to various reasons,
predictable or unpredictable
Lack of inventory
perish ability (cannot store up)
simultaneous product and consumption (cannot be
transported from one place to another)
Variations in Demand Relative
to Capacity

Source: C. Lovelock, Getting the Most Out of Your Productive Capacity, in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.
Managing Demand and Capacity
No buffer for services from
demand.
Demand volatile
Goal: supply and demand
balanced at optimum capacity
Under utilizing when demand
is below optimum capacity
If demand is above capacity
then quality may suffer
Matching Supply and Demand

Determine demand
pattern.
Assess causes of demand
variations.
Develop methods for
managing capacity.
Develop methods for
managing demand.
 Understanding Capacity Constraints
and Demand Patterns

Capacity Constraints Demand Patterns

Time, labor, equipment, Charting demand patterns
and facilities Predictable cycles
Optimal versus maximum Random demand
use of capacity fluctuations
Demand patterns by
market segment
Constraints on Capacity
Managing Demand
Shift demand from high to low demand periods.
Decrease demand during peak demand periods.
Stimulate demand during low demand periods.
Strategies for matching capacity and demand

1. Shifting demand to match capacity :

When the demand is too high;

(a) Communicate busy hours to the customers.

(b) Offer incentives for lean time usage
(c) Focus on loyal customers
(d) Communicate advantages of lean time usage.
(e) Do not offer discounts.
 When the demand is too low;
(a) Attract current market segments by focusing on
sales and advertising.
(b) Attract new segments with promotional schemes.
(c) Offer discounts.
(d) Bring the service to the customer
(e) Modify hours of operation.
 Strategies for Shifting Demand
to Match Capacity
Demand Too High Shift Demand
Use signage to communicate
busy days and times
Offer incentives to customers
for usage during non-peak
times
Take care of loyal or regular
customers first
Advertise peak usage times
and benefits of non-peak use
Charge full price for the
service--no discounts
Demand Too Low
Use sales and advertising to
increase business from current
market segments
Modify the service offering to
appeal to new market segments
Offer discounts or price
reductions
Modify hours of operation
Bring the service to the
customer
 Shifting Demand

Advantages Disadvantages
Business is not lost. Customers may not
Service quality is not want to shift.
adversely affected. Customers may not
Increased efficiency. have control over
when they use the
service.
 Reducing Demand

Advantages Disadvantages
Service quality is Lost revenue.
normally improved. Not a good strategy
Increased efficiency. for firms in the for-
profit sector.
 Stimulating Demand

Advantages Disadvantages
Increased efficiency. May not be
Increased income. profitable.
Increased utilization May cause some
of facility. current customers to
shift usage.
 Tools for Managing Demand

Reservation system.
Differential pricing.

Communication
2. Adjusting capacity to match demand
When the demand is too high;
(a) Stretch time, labour, facilities and equipment
(b) Train employees for multiple skills

(c) Hire part-time employees.

(d) Pay the employees to work overtime.
(e) Rent facilities and equipments.
(f) Outsource activities.
When the demand is too low;
(a) carry out maintenance, repairs and renovations.
(b) Conduct training for employees.
(c) Offer leave to employees.

(d) Retrench employees.

 Strategies for Adjusting Supply
to Match Demand

Demand Too High Adjust Capacity Demand Too Low

Stretch time, labor, facilities and Perform maintenance, renovations.
equipment. Schedule vacations.
Cross-train employees. Schedule employee training.
Lay off employees.
Hire part-time employees.
Request overtime work from
employees.
Rent or share facilities.
Rent or share equipment.
Subcontract or outsource
activities.
Managing Capacity

Part-time employees.
Employees work overtime.
Peak-time operating
procedures.
Cross-training of
employees.
Increase customer
participation.
Shared facilities.
Outsourcing.
 Part-time Employees

Benefits Concerns
Reduce costs. Less training.
Increase capacity. Lower performance.
Lower productivity.
Poor attitude.
Less knowledgeable.
Less personalization.
Higher turnover.
 Employees Work Over-time

Benefits Concerns
Employees Lower service quality
knowledgeable. due to fatigue.
Employees know Higher costs.
customers.
Cost effective for
some services.
Increase capacity.
 Peak-time Operating Procedures

Benefits Concerns
Keep operations at Identifying peak
capacity. routines.
Lack of personal
attention.
Incomplete job.
Crowded facility.
Feeling of being
cheated.
 Cross-Training of Employees

Benefits Concerns
Keep operation at Lower service quality.
capacity. Lower productivity.
Reduce bottlenecks.
Fill-in for absent
employees.
 Increased Customer Participation

Benefits Concerns
Increase productivity. Customers lack
Maximize capacity. expertise.
Reduce costs. Conflict of scripts.
Lower service quality.
Sometimes decrease
productivity - if
customer too slow.
 Shared Facilities or Equipment

Benefits Concerns
Reduce capital Efficient scheduling.
investment costs. Access to facility or
Maximize facility equipment.
utilization. Customer confusion.
 Outsourcing

Benefits Concerns
Expand capacity. Level of service
Expand supply. quality.
Stealing of customers.
Conflicts as to who
was hired.
3. When demand and capacity cannot be controlled;
Employ operational logic.
Have a reservation procedure.
Follow Queue discipline depending on;

- Importance of the customer

-Urgency of the job
-Duration of the service transaction
-Payment of a premium price.
Make waiting tolerable.
Yield Management

The process of allocating the right type of

capacity to the right kind of customer at the right
price so as to maximize revenue.
Yield = Actual revenue/Potential revenue
Where actual revenue = actual capacity used
times average actual price
and Potential revenue = total capacity times
maximum price
What does it mean?

Yield can be raised by increasing capacity used

or by increasing price.
It is basically a differential capacity allocation
and pricing strategy
Yield management strategy is most profitable
when those who arrive early or reserve early are
more price sensitive than those who reserve or
arrive late.
 Challenges and Risks in Using Yield Management

Loss of competitive focus

Customer alienation

Overbooking

Employee morale problems

Incompatible incentive and reward systems

Lack of employee training

Inappropriate organization of the yield management function

Waiting Line Strategies

Employ operational logic

modify operations
adjust queuing system

Establish a reservation process

Differentiate waiting customers

importance of the customer
urgency of the job
duration of the service transaction
payment of a premium price

Make waiting fun, or at least tolerable

 Issues to Consider in Making Waiting More
Tolerable (Maister, 1986)
unoccupied time feels longer than occupied time

preprocess waits feel longer than in-process waits

anxiety makes waits seem longer

uncertain waits seem longer than known, finite waits

unexplained waits seem longer than explained waits

 unfair waits feel longer than equitable waits

the more valuable the service, the longer the

customer will wait

solo waits feel longer than group waits

 Waiting Line Configurations

Source: J. A. Fitzsimmons and M. J. Fitzsimmons, Service Management, 4th ed. (New York: Irwin/McGraw-Hill,
2004), chap. 11, p. 296.
 Integrated Service Marketing Communications

Discuss the key service communication challenges.

Introduce the concept of integrated service marketing

communications.

Discuss ways to integrate marketing communications

in service organizations.

Present specific strategies for addressing service

intangibility, managing promises, managing
customer expectations, educating customers, and
managing internal communications.
Communications and the Services
Marketing Triangle
 Integrated Services Communications

Integrated Services Communications

a strategy that carefully integrates all external and internal
communication channels to present a consistent message to
customers
This means coordination across:
sales and service people
print
Internet
other forms of tangible communication including the service scape
How is this done in services? public relations
advertising pricing
sales presentations service guarantees
service encounters with employees customer education
Service scape and other tangibles
Internet and web presence
Key Service Communication Challenges

Service Intangibility
a. Incorporal Existence
b. Abstractness
c. Generality
d. Non-search ability
e. Mental Impalpability
. Management of Service Promises
. Management of Customer Expectations
 Customer Education
Internal Marketing Communication
Approaches for Integrating Services
Marketing Communication

Manage
Customer
Expectations
Improve
Manage
Service Customer
Promises Education
Goal:
Delivery
greater than
or equal to
promises

Manage Address
Internal Service
Marketing Intangibility
Communication
(1) Approaches for Addressing Service Intangibility
Use narrative to demonstrate
the service experience
Present vivid information
Use interactive imagery
Focus on the tangibles
Use brand icons to make the
service tangible
Use association, physical
representation,
documentation, and
visualization
Feature service employees
in communication
Use buzz or viral marketing
Leverage social media
Aim messages to influencers
Create advertising that
generates talk because it is
humorous, compelling, or
unique
Feature satisfied customers
in the communication
Generate word-of-mouth
through employee
relationships
(2) Approaches for Managing Service
Promises

Create a strong service brand

Coordinate external communication

Service Branding Model
(3) Approaches for Managing
Customer Expectations

Make realistic promises- promise what is

possible
Offer service guarantees- formal promises made
Offer choices- options that are meaningful
Create tiered-value service offerings- choose the
service, pay for high service customers.
Communicate the criteria and levels of service
effectiveness-
(4) Approaches for Managing
Customer Education

Prepare customers for the service process

Confirm performance to standards and

expectations

Clarify expectations after the sale

Teach customers to avoid peak demand periods

and to seek slow demand periods
 (5) Approaches for Managing Internal
Marketing Communication

Create effective vertical communications

Sell the brand inside the company
Create effective upward communication
Create effective horizontal communications
Align back-office and support personnel with external
customers through interaction or measurement
Create cross-functional teams of sales, service, and
operations people when developing new services or
engaging in service improvements
Maintain a customer focus throughout all functions
Best Practices for Closing the
Communication Gap

Employing integrated services marketing

communication strategies around everything and
everyone that sends a message or signal.
Manage customer expectations effectively
throughout the experience.
Develop mechanisms for internal communication
to avoid over-promising and ensure successful
delivery.
DHLs Integrated Marketing Campaign

Source: http://www.newdhl.com/advertising.asp?cid=dhlbt1hmpg1
DHLs Outdoor Advertising
DHLs Print Advertising
DHLs Print Advertising Links to
Employees
Service Brand Icons
The Financial and Economic Effect of
Services

Examine the direct effects of service on profits

Consider the impact of service on getting new
customers
Evaluate the role of service in keeping customers
Discuss what is know about the key service
drivers of overall service quality, customer
retention and profitability
Discuss the balanced performance scorecard to
focus on strategic measurement other than
financials
The Direct Relationship between
Service and Profits

Service
? Profits
Relationship Between Service and
Profits

Best strategy for improving profitability:

1. Reduce costs: focus on cost cutting and
efficiencies.
2. Build revenues through improvements to
customer service, customer satisfaction, and
customer retention.
3. Combine (1) and (2).
Return on Service Quality
(ROSQ)

Return on Service Quality (ROSQ): best known and

widely respected approach for making decisions
about service quality investments

Replaces intuition as a guide for service quality

investments
ROSQ

Assumptions:
Quality is an investment (cost)
Quality efforts are financially accountable
It is possible to spend too much on quality

Not all quality expenditures are equally valid

Offensive Marketing

use of service quality to attract better and more

customers to the business
Effects: market share, reputation, price premium

Example:
There are several auto repair shops in a three block
area. One of the shop owners decides to extend
his operating hours until 10:00pm Monday-
Thursday and provide a pick-up and delivery
service, and guarantee all repairs for six months.
Offensive Marketing (Applications)

Relationship between service quality and market

share:
When service is good, you can charge more and still
maintain or increase market share
Superior service yields higher than normal market share
growth
This relationship is hard to discern because it happens
over time
Advertising service excellence without sufficient service
quality will not increase market share
 Offensive Marketing Effects of
Service on Profits

Profits
Service
Market
share

Reputation Sales

Price
premium
Defensive Marketing

used by companies to prevent customer defection

(churn)

Effects of Defensive Marketing: Customer retention

that leads to:
lower costs
volume of purchases
increased price premium
increased word of mouth communication
Defensive Marketing

used by companies to prevent customer defection

(churn)

Effects of Defensive Marketing: Customer retention

that leads to:
lower costs
volume of purchases
increased price premium
increased word of mouth communication
Defensive Marketing

Customer Retention:

In general, the longer a customer remains with the

company, the more profitable the relationship is
for the organization

Cost of finding new customers:

Provide consistently good service
 Figure 18.3

Defensive Marketing Effects of

Service on Profit

Lower
costs

Volume of Margins
purchases
Customer
Service Price
retention premium

Word of
mouth
Profits
 Perceptions of Service,
Behavioral Intentions, and Profits
The link between customer satisfaction, service quality,
and increased purchases is apparent.
There is also evidence showing that customer satisfaction
and perceptions of service quality affect consumer
intentions to behave in other positive ways (Positive word
of mouth, increased purchase volume, increased purchase
volume etc).
Relationships have also been discovered between service
quality and specific behavioral between service quality and
specific behavioral intentions, as shown in the following
diagram. intentions, as shown in the following diagram
 Figure 18.4

Perceptions of Service,
Behavioral Intentions, and Profits

Lower
costs

Volume of Margins
purchases
Customer
Retention Price
Behavioral premium
Service Intentions
Word of Profits
mouth

Sales
The Key Drivers of Service Quality,
Customer Retention, and Profits

It can be extremely useful to managers to identify

the specific drivers of service quality that relate
to profitability.
Once these drivers have been identified, firms can
better understand what aspects of service quality
will be most influential to the relationship, and
therefore where resources should be invested.
 Figure 18.5

The Key Drivers of Service Quality,

Customer Retention, and Profits
Service Service
Attributes Encounters
Service
encounter

Service
encounter

Service Behavioral Customer

Quality Intentions Retention Profits
Service
encounter

Service
encounter
 Company Performance Measurement:
The Balanced Performance Scorecard
Balanced performance scorecard is a strategic
measurement systems that capture areas of
performance other than traditional indicators such
as profit and sales.
In addition to the financial perspective, the balanced
performance scorecard also captures the customer,
operational and learning perspectives.
The balanced scorecard combines these elements in
a single report, allowing managers to view all
measures together.
 Changes to Financial Measurement

One way that service managers are changing

financial measurement is by measuring the effect of
retaining and losing customers.
The monetary value of retaining customers can be
identified, as well as the lost revenue from customer
defections.
By identifying the value of a loyal customer,
companies are able to measure increases
or decreases in revenue from retention or defection
of customers.
 Customer Perceptual Measures

Customer perceptual measures can be leading

measures of financial performance.
Perceptual measures reflect customer beliefs and
feelings toward the company and its services, and
area predictor of how the customer will behave in the
future.
A decline in overall service perceptions
and expectations, customer satisfaction, perceptual
measures of value, and behavioral intention measures
could result in lost revenue
Operational Measures

Operational measures involve the translation of

customer perceptual into the standards that must
be set within the company in order to meet
customer expectations
The balanced scorecard approach requires that
these operational measures stem from the
business processes that have the greatest effect
on customer satisfaction -
customer defined standards.
Innovation and Learning

This area of measurement involves a companys

ability to innovate, improve and learn.
This can be accomplished by launching new
products, creating more value for customers and
improving operating efficiencies.
Innovation and learning is very difficult to
measure, however this can be accomplished by
using performanceto-goal percentages.
 Figure 18.6

Sample Measurements for the

Balanced Scorecard
Financial Measures

Price Premium
Volume increases
Value of customer
referrals
Value of cross sales
Customer Long-term value of Operational
Perspective customer Perspective

Service perceptions
Right first time (% hits)
Service expectations
Right on time (% hits)
Perceived value
Responsiveness (% on time)
Behavioral intentions: Innovation and Transaction time (hours, days)
% Loyalty Learning Perspective Throughput time
% Intent to Switch Reduction in waste
# Customer Referrals Number of new products Process quality
# Cross Sales Return on innovation
# of Defections Employee skills
Time to market
Time spent talking to
customers

Source: Adapted from: R.S. Kaplan and D.P. Norton, The Balanced ScorecardMeasures That Drive Performance, Harvard Business Review, January-February 1992.
 Service Quality Spells Profits
Lower
costs

Defensive Volume of Margins

Marketing purchases

Price
premium

Service Customer Word of

Retention mouth Profits

Market
share
Sales
Offensive
Reputation
Marketing

Price
premium
 Figure 18.8
The Measures that Matter Most

Source: Christopher D. Ittner and David F. Larcker, Coming Up Short on Nonfinancial Performance Measurement, Harvard Business Review,
November 2003, pp. 8895.