Chapter 14 Improving Service Quality and Productivity Copyright

Chapter 14 Improving Service Quality and Productivity Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 1

Learning Objectives - Chapter 14 § Define service quality § Diagnose service quality problems using The Gaps Measuring and improving service quality § Explore key tools for measuring and improving productivity Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 2

What Is Service Quality? Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 3

Components of Quality: Service-based Tangibles: Appearance of physical elements Reliability: Dependable and accurate performance Responsiveness: Promptness; helpfulness Assurance: Competence, courtesy, credibility, security Empathy: Easy access, good communication, understanding of customer Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 4

Capturing the Customer’s Perspective of Service Quality: SERVQUAL § Survey research instrument based on premise that customers evaluate firm’s service quality by comparing Ø Their perceptions of service actually received Ø Their prior expectations of companies in a particular industry § Developed primarily in context of face-to-face encounters § Scale contains 22 items reflecting five dimensions of service quality § Subsequent research has highlighted some limitations of SERVQUAL § See Research Insights 14. 1: Measuring E-Service Quality Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 5

Other Considerations in Service Quality Measurement § In uncompetitive markets or in situations where customers do not have a free choice, researchers should use needs or wants as comparison standards Ø Time constraints § Services high in credence characteristics may cause consumers to use process factors and tangible cues as proxies to evaluate quality—halo effect Ø Process factors: Customers’ feelings Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 6

The Gaps Model—A Conceptual Tool to Identify and Correct Service Quality Problems Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 7

Seven Service Quality Gaps (Fig 14. 3) CUSTOMER Customer needs and expectations 1. Knowledge Gap MANAGEMENT Management definition of these needs 2. Standards Gap Translation into design/delivery specs 4. Internal Communications Gap 3. Delivery Gap Execution of design/delivery specs 4. Advertising and sales promises 6. Interpretation Gap 5. Perceptions Gap Customer perceptions of service execution 7. Service Gap Customer interpretation of communications Customer experience relative to expectations Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 8

Prescriptions for Closing the Seven Service Quality Gaps (Table 14. 3) 1. Knowledge gap: Learn what customers expect 2. Standards gap: Specify SQ standards that reflect expectations 3. Delivery gap: Ensure service performance meets standards 4. Internal communications gap: Ensure that communications promises are realistic 5. Perceptions gap: Educate customers to see reality of service quality delivered 6. Interpretation gap: Pretest communications to make sure message is clear and unambiguous 7. Service gap: Close gaps 1 to 6 to meet customer expectations consistently Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 9

Measuring and Improving Service Quality Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 10

Soft and Hard Measures of Service Quality § Soft measures—not easily observed, must be collected by talking to customers, employees, or others Ø Provide direction, guidance, and feedback to employees on ways to achieve customer satisfaction Ø Can be quantified by measuring customer perceptions and beliefs ― For example: SERVQUAL, surveys, and customer advisory panels § Hard measures—can be counted, timed, or measured through audits Ø Typically operational processes or outcomes Ø Standards often set with reference to percentage of occasions on which a particular measure is achieved Ø Control charts are useful for displaying performance over time against specific quality standards Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 11

Composition of Fed. Ex’s Service Quality Index—SQI Failure Type Weighting Number of Daily X = Factor Incidents Points Late delivery—right day Late Delivery—wrong day Tracing request unanswered Complaints reopened Missing proofs of delivery Invoice adjustments Missed pickups Lost packages Damaged packages Aircraft delays (minutes) Overcharged (packages missing label) Abandoned calls Source: See Services Marketing textbook, page 417, for full source information. Copyright © 2008 Pearson Education Canada (Table 14. 4) 1 5 1 1 10 10 10 5 5 1 Total Failure Points (SQI) = XXX, XXX Services Marketing, Canadian Edition Chapter 14 - 12

Control Chart for Departure Delays (Fig 14. 3) % Flights Departing Within 15 Minutes of Schedule 100% 90% 80% 70% 60% J F M A M J J A S O N D Month Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 13

Tools to Analyze and Address Service Quality Problems § Fishbone diagram Ø Cause-and-effect diagram to identify potential causes of problems § Pareto Chart Ø 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 Ø Visualization of service delivery, identifying points where failures are most likely to occur Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 14

Tools to Analyze and Address Service Quality Problems (Appendix) § Total Quality Management (TQM) § ISO 9000 Ø Comprises requirements, definitions, guidelines, and related standards to provide an independent assessment and certification of a firm’s quality management system § Malcolm Baldrige Model Applied to Services Ø To promote best practices in quality management, and recognizing, and publicizing quality achievements among U. S. firms § Six Sigma Ø Statistically, only 3. 4 defects per million opportunities (1/294, 000) Ø Has evolved from defect-reduction approach to an overall businessimprovement approach Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 15

Cause-and-Effect Chart for Flight Departure Delays (Fig 14. 4) Facilities, Equipment Arrive late Oversized bags Customers Frontstage Front-Stage Personnel Procedures Delayed check-in Gate agents Aircraft late to procedure gate cannot process fast enough Mechanical Acceptance of late Failures passengers Late/unavailable Late pushback airline crew Delayed Departures Late food service Other Causes Weather Air traffic Late cabin cleaners Poor announcement of departures Late baggage Weight and balance sheet late Late fuel Materials, Supplies Copyright © 2008 Pearson Education Canada Backstage Personnel Information Services Marketing, Canadian Edition Chapter 14 - 16

Case: Analysis of Causes of Flight Departure Delays (Fig 14. 5) 15. 3% 23. 1% 15. 4% 4. 9 % All stations, excluding Chicago-Midway Hub 19% 11. 7% 23. 1% Newark 33. 3% 53. 3% 15% Late passengers Waiting for pushback Waiting for fuelling Copyright © 2008 Pearson Education Canada 9. 5% 8. 7% 11. 3% 33. 3% Washington Natl. Late weight and balance sheet Late cabin cleaning/supplies Source: For full source information, see Services Other Marketing textbook, page 419. Services Marketing, Canadian Edition Chapter 14 - 17

Blueprinting § Depicts sequence of front-stage interactions experienced by customers plus supporting backstage activities § Used to identify potential fall points—where failures are most likely to appear § Shows how failures at one point may have a ripple effect later § Managers can identify points which need urgent attention Ø Important first step in preventing service quality problems Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 18

Six Sigma Methodology to Improve and Redesign Service Processes Process Improvement Define Measure Analyze § § § § § Process Design/Redesign Identify the problem Define requirements Set goals Validate problem/process Refine problem/goal Measure key steps/inputs Develop causal hypothesis Identify root causes Validate hypothesis § § § Identify specific or broad problems Define goal/change vision Clarify scope and customer requirements Measure performance to requirements Gather process efficiency data § Identify best practices § Assess process design § Refine requirements Improve § Develop ideas to measure root causes § Test solutions § Measure results Control § Establish measures to maintain § Establish measures and reviews to maintain performance § Correct problems as needed Copyright © 2008 Pearson Education Canada § Design new process § Implement new process, structures, and systems Services Marketing, Canadian Edition Chapter 14 - 19

TQM in a Service Context: Twelve Critical Dimensions for Implementation § Top management commitment and visionary leadership § Human resource management § Technical system, including service process design and process management § Information and analysis system § Benchmarking § Continuous improvement § Customer focus § Employee satisfaction § Union intervention and employee relations § Social responsibility § Servicescapes § Service culture Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 20

Return On Quality (ROQ) § Assess costs and benefits of quality initiatives Ø ROQ approach is based on four assumptions: – – Quality is an investment Quality efforts must be financially accountable It’s possible to spend too much on quality Not all quality expenditures are equally valid Ø Implication: Quality improvement efforts may benefit from being related to productivity improvement programs Ø To determine feasibility of new quality improvement efforts, determine costs and then relate to anticipated customer response § Determine optimal level of reliability Ø Diminishing returns set in as improvements require higher investments Ø Know when improving service reliability becomes uneconomical Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 21

When Does Improving Service Reliability Become Uneconomical? (Fig 14. 7) Satisfy Target Customers through Service Recovery Service Reliability 100% Optimal Point of Reliability: Cost of Failure = Service Recovery A B C Small Cost, Large Improvement Copyright © 2008 Pearson Education Canada Satisfy Target Customers through Service Delivery as Planned D Large Cost, Small Improvement Investment Assumption: Customers are equally (or even more) satisfied with the service recovery provided than with a service that is delivered as planned. Services Marketing, Canadian Edition Chapter 14 - 22

Defining and Measuring Productivity Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 23

Productivity in a Service Context § 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. § Intangible nature of many service elements makes it hard to measure productivity of service firms, especially for informationbased services Ø Difficult in most services because both input and output are hard to define Ø Relatively simpler in possession-processing services, as compared to information- and people-processing services Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 24

Service Efficiency, Productivity, and Effectiveness § Efficiency: Involves comparison to a standard, usually time-based (for example: how long employee takes to perform specific task) Ø Problem: Focus on inputs rather than outcomes Ø May ignore variations in service quality/value § Productivity: Involves financial valuation of outputs to inputs Ø Consistent delivery of outcomes desired by customers should command higher prices § Effectiveness: Degree to which firm meets goals Ø Cannot divorce productivity from quality and customer satisfaction Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 25

Measuring Service Productivity: Variability Is a Major Problem § Traditional measures of service output tend to ignore variations in quality or value of service Ø Focus on outputs rather than outcomes Ø Stress efficiency but not effectiveness § Firms that consistently deliver outcomes desired by customers can command higher prices; loyal customers are more profitable § Measures with customers as denominator include: Ø Profitability by customer Ø Capital employed per customer Ø Shareholder equity per customer Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 26

Improving Service Productivity Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 27

Questions When Developing Strategies to Improve Service Productivity § § § How to transform inputs into outputs efficiently? Will improving productivity hurt quality? Will improving quality hurt productivity? Are employees or technology the key to productivity? Can customers contribute to higher productivity? Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 28

Generic Productivity Improvement Strategies § Typical strategies to improve service productivity: Ø Careful control of costs at every step in process Ø Efforts to reduce wasteful use of materials or labour Ø Replacing workers by automated machines Ø Installing expert systems that allow paraprofessionals to take on work previously performed by professionals who earn higher salaries § Although improving productivity can be approached incrementally, major gains often require redesigning entire processes Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 29

Improving Service Productivity: (1) Operations-Driven Strategies § Control costs, reduce waste § Set productive capacity to match average demand § Automate labour tasks § Upgrade equipment and systems § Train employees § Broadening array of tasks that a service worker can perform § Leverage less-skilled employees through expert systems § Service process redesign Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 30

Improving Service Productivity: (2) Customer-Driven Strategies § Change timing of customer demand Ø By shifting demand away from peaks, managers can make better use of firm’s productive assets and provide better service § Involve customers more in production Ø Get customers to self-serve Ø Encourage customers to obtain information and buy from firm’s corporate websites § Ask customers to use third parties Ø Delegate delivery of supplementary service elements to intermediary organizations Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 31

Backstage and Front-stage Productivity Changes: Implications for Customers § Backstage improvements can ripple to front and affect customers Ø Keep abreast of proposed backstage changes, not only to identify such ripples but also to prepare customers for them ― For example: New printing peripherals may affect appearance of bank statements § Front-stage productivity enhancements are especially visible in high contact services Ø Some improvements only require passive acceptance, while others require customers to change behaviour Ø Must consider impacts on customers and address customer resistance to changes Ø Better to conduct market research first if changes are substantial § See Service Perspectives 14. 1: Managing Customers’ Reluctance to Change Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 32

Summary – Chapter 14 § Customers evaluate services using five different categories Ø Tangibles, reliability, responsiveness, assurance, empathy § There are seven service quality gaps and solutions presented in the Gaps Model Ø Knowledge, standards, delivery, internal communications gap, perceptions, interpretation, service § Key tools for measuring and improving productivity are: Ø Ø Ø Ø Fishbone diagram Pareto Chart Blueprinting Total Quality Management (TQM) ISO 9000 Malcolm Baldrige Model Applied to Services Six Sigma Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 14 - 33