Crafting the Service Environment Overview of the session

Crafting the Service Environment

Overview of the session § What Is the Purpose of Service Environments? § Understanding Consumer Responses to Service Environments § Dimensions of the Service Environment § Putting It All Together

What Is the Purpose of Service Environments?

Purpose of Service Environments § Helps firm to create distinctive image and unique positioning § Service environment affects buyer behavior in three ways: Ø Message-creating medium: Symbolic cues to communicate the distinctive nature and quality of the service experience Ø Attention-creating medium: Make servicescape stand out from competition and attract customers from target segments Ø Effect-creating medium: Use colors, textures, sounds, scents and spatial design to enhance desired service experience

Comparison of Hotel Lobbies Each servicescape clearly communicates and reinforces its hotel’s respective positioning and sets service expectations as guests arrive Orbit Hotel and Hostel, Los Angeles Four Seasons Hotel, New York

Servicescape as Part of Value Proposition § Physical surroundings help shape appropriate feelings and reactions in customers and employees Ø For example: Disneyland § Servicescapes form a core part of the value proposition Ø For example: Las Vegas, Florida-based Muvico - Las Vegas: Repositioned itself to a somewhat more wholesome fun resort, visually striking entertainment center - Florida-based Muvico: Builds extravagant movie theatres and offers plush amenities. “What sets you apart is how you package it. . ” (Muvico’s CEO, Hamid Hashemi) § The power of servicescapes is being discovered

Understanding Consumer Responses to Service Environments

The Mehrabian-Russell Stimulus-Response Model Feelings Are a Key Driver of Customer Responses to Service Environments Environmental Stimuli and Cognitive Processes Dimensions of Affect: Response/ Behavior: Pleasure and Arousal Approach Avoidance and Cognitive Processes

Insights from Mehrabian-Russell Stimulus-Response Model § 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 Russell Model of Affect Arousing Distressing Exciting Unpleasant Pleasant Relaxing Boring Sleepy

Insights from Russell Model of Affect § Emotional responses to environments can be described along two main dimensions: Ø Pleasure: Direct, subjective, depending on how much individual likes or dislikes environment Ø Arousal: How stimulated individual feels, depends largely on information rate or load of an environment § Russell separated cognitive part of emotions from these two emotional dimensions § Advantage: simplicity, allows a direct assessment of how customers feel Ø Firms can set targets for affective states

Drivers of Affect § Affect can be caused by perceptions and cognitive processes of any degree of complexity § It’s the simple cognitive processes that determine how people feel in a service setting § If higher levels of cognitive processes are triggered, the interpretation of this process determines people’s feelings § The more complex a cognitive process becomes, the more powerful its potential impact on affect. § However, most service encounters are routine and simple processes can determine affect.

Behavioral Consequence of Affect § Pleasant environments result in approach, whereas unpleasant ones result in avoidance § Arousal amplifies the basic effect of pleasure on behavior Ø If environment is pleasant, increasing arousal can generate excitement, leading to a stronger positive consumer response Ø If environment is unpleasant, increasing arousal level will move customers into the “distressed” region § Feelings during service encounters are an important driver of customer loyalty

An Integrative Framework: Bitner’s Servicescape Model ENVIRONMENTAL DIMENSIONS MODERATORS HOLISTIC ENVIRONMENT Ambient Conditions Space/ Function Signs, Symbols, and Artifacts Employee Response Moderator INTERNAL RESPONSES Cognitive Emotional Psychological BEHAVIOR Approach • • Avoid Employee Responses (opposite of approach) Social Interaction Between Customers and Employees Perceived Servicescape Customer Response Moderator Affiliation Exploration Stay longer Satisfaction Customer Responses Cognitive Emotional Psychological Source: Mary J. Bitner, “Servicescapes: The Impact of Physical Surroundings on Customers and Employees, ” Journal of Marketing 56 (April 1992), pp. 57 -71. Approach • • Attraction Stay/Explore Spend More $$$ Satisfaction Avoid (opposite of approach)

An Integrative Framework: Bitner’s Servicescape Model (2) § Identifies the main dimensions in a service environment and views them holistically § Internal customer and employee responses can be categorized into cognitive, emotional, and psychological responses, which lead to overt behavioral responses towards the environment § Key to effective design is how well each individual dimension fits together with everything else

Dimensions of the Service Environment

Main Dimensions in Servicescape Model § Ambient Conditions Ø Characteristics of environment pertaining to our five senses § Spatial Layout and Functionality Ø Spatial layout: - Floorplan - Size and shape of furnishings, counters, machinery, equipment, and how they are arranged Ø Functionality: Ability of those items to facilitate performance § Signs, Symbols, and Artifacts Ø Explicit or implicit signals to: - Communicate firm’s image - Help consumers find their way - Convey rules of behavior

Impact of Ambient Conditions § Ambient environment is composed of hundreds of design elements and details that must work together to create desired service environment § Ambient conditions are perceived both separately and holistically, and include: Ø Lighting and color schemes Ø Size and shape perceptions Ø Sounds such as noise and music Ø Temperature Ø Scents § Clever design of these conditions can elicit desired behavioral responses among consumers

Impact of Music § In service settings, music can have a powerful effect on perceptions and behaviors, even if played at barely audible levels § Structural characteristics of music―such as tempo, volume, and harmony―are perceived holistically Ø Fast tempo music and high volume music increase arousal levels Ø 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 Music on Restaurant Diners Restaurant Patron Behavior Fast-beat Slow-beat Difference between Music Slow- and Fast-beat Environments Consumer time spent at table Spending on food Absolute Difference % Difference 45 min 56 min +11 min +24% $55. 12 $55. 81 +$0. 69 +1% Spending on beverages $21. 62 $30. 47 +$8. 85 +41% Total spending $76. 74 $86. 28 +$9. 54 +12% Estimated gross margin $48. 62 $55. 82 +$7. 20 +15% Source: Ronald E. Milliman (1982), “Using Background Music to Affect the Behavior of Supermarket Shoppers, ” Journal Of Marketing, 56 (3): pp. 86– 91

Impact of Scent § An ambient smell is one that pervades an environment Ø May or may not be consciously perceived by customers Ø Not related to any particular product § Scents have distinct characteristics and can be used to solicit emotional, physiological, and behavioral responses § In service settings, research has shown that scents can have significant effect on customer perceptions, attitudes, and behaviors

Effects of Scents on Perceptions of Store Environments (1) Evaluation Unscented Environment Mean Ratings Scented Environment Mean Ratings Difference Negative/positive 4. 65 5. 24 +0. 59 Outdated/modern 3. 76 4. 72 +0. 96 Unattractive/ attractive Drab/colorful 4. 12 4. 98 +0. 86 3. 63 4. 72 +1. 09 Boring/Stimulating 3. 75 4. 40 +0. 65 Store Evaluation Store Environment Source: Eric R. Spangenberg, Ayn E. Crowley, and Pamela W. Hendersen (1996), “Improving the Store Environment: Do Olfactory Cues Affect Evaluations and Behaviors? , ” Journal Of Marketing, (April): pp. 67– 80.

Effects of Scents on Perceptions of Store Environments (2) Evaluation Unscented Environment Mean Ratings Scented Environment Mean Ratings Difference Outdated/up-to-date style 4. 71 5. 43 +0. 72 Inadequate/adequate 3. 80 4. 65 +0. 85 Low/high quality 4. 81 5. 48 +0. 67 Low/high price 5. 20 4. 93 -0. 27 Merchandise Source: Eric R. Spangenberg, Ayn E. Crowley, and Pamela W. Hendersen (1996), “Improving the Store Environment: Do Olfactory Cues Affect Evaluations and Behaviors? , ” Journal Of Marketing, (April): pp. 67– 80

Aromatherapy: Effects of Selected Fragrances on People (Table 10. 2) Fragrance Eucalyptus Aroma Type Camphoraceous Aroma. Therapy Class Traditional Use Potential Psychological Effect on People Toning, stimulating Deodorant, Stimulating and antiseptic, energizing soothing agent Muscle relaxant, soothing agent, astringent Lavender Herbaceous Calming, balancing, soothing Lemon Citrus Energizing, uplifting Antiseptic, Soothing energy soothing agent levels Spicy Balancing, soothing Muscle relaxant, aphrodisiac Black pepper Relaxing and calming Balancing people’s emotions

Impact of Color § Colors can be stimulating, calming, expressive, disturbing, impressional, cultural, exuberant, symbolic § Color pervades every aspect of our lives, embellishes the ordinary, gives beauty and drama to everyday objects § Colors have a strong impact on people’s feelings § Colors can be defined into three dimensions: Ø Hue is the pigment of the color Ø Value is the degree of lightness or darkness of the color Ø Chroma refers to hue-intensity, saturation, or brilliance

Common Associations and Human Responses to Colors Color Degree of Warmth Nature Symbol (Table 10. 3) Common Association and Human Responses to Color Red Warm Earth High energy and passion; can excite and stimulate Orange Warmest Sunset Emotions, expressions, warmth Yellow Warm Sun Optimism, clarity, intellect, moodenhancing Green Cool Growth, grass, and trees Nurturing, healing, unconditional love Blue Coolest Sky and ocean Relaxation, serenity, loyalty Indigo Cool Sunset Mediation and spirituality Violet Cool Violet flower Spirituality, reduces stress, can create an inner feeling of calm

Impact of Signs, Symbols, and Artifacts § Guide customers clearly through process of service delivery Ø Customers will automatically try to draw meaning from the signs, symbols, and artifacts Ø Unclear signals from a servicescape can result in anxiety and uncertainty about how to proceed and obtain the desired service Ø For instance, signs can be used to reinforce behavioral rules (see picture on next slide)

Signs Teach and Reinforce Behavioral Rules in Service Settings

People Are Part of the Service Environment Distinctive Servicescapes Create Customer Expectations

Putting It All Together

Selection of Environmental Design Elements § Consumers perceive service environments holistically § Design with a holistic view Ø Servicescapes have to be seen holistically: No dimension of design can be optimized in isolation, because everything depends on everything else Ø Holistic characteristic of environments makes designing service environment an art § Must design from a customer’s perspective

Tools to Guide Servicescape Design § Keen observation of customers’ behavior and responses to the service environment by management, supervisors, branch managers, and frontline staff § Feedback and ideas from frontline staff and customers, using a broad array of research tools from suggestion boxes to focus groups and surveys. § Field experiments can be used to manipulate specific dimensions in an environment and the effects observed. § Blueprinting or service mapping—extended to include physical evidence in the environment.

Managing People for Service Advantage

Overview of Session § Service Employees Are Crucially Important § Frontline Work Is Difficult and Stressful § Cycles of Failure, Mediocrity, and Success § Human Resources Management: How to Get It Right? § Service Leadership and Culture

èService Employees Are Crucially Important

Service Personnel: Source of Customer Loyalty and Competitive Advantage § Customer’s perspective: Encounter with service staff is most important aspect of a service § Firm’s perspective: Frontline is an important source of differentiation and competitive advantage. It is: Ø A core part of the product Ø the service firm Ø The brand § Frontline is an important driver of customer loyalty Ø Anticipating customer needs Ø Customizing service delivery Ø Building personalized relationships

Frontline in Low-Contact Services § Many routine transactions are now conducted without involving frontline staff, e. g. , Ø ATMs (Automated Teller Machines) Ø IVR (Interactive Voice Response) systems Ø Websites for reservations/ordering, payment, etc. § Though technology and self-service interface is becoming a key engine for service delivery, frontline employees remain crucially important § “Moments of truth” drive customer’s perception of the service firm

èFrontline Work Is Difficult and Stressful

Boundary Spanning Roles § Boundary spanners link inside of organization to outside world § Multiplicity of roles often results in service staff having to pursue both operational and marketing goals § Consider management expectations of service staff: Ø Delight customers Ø Be fast and efficient in executing operational tasks Ø Do selling, cross selling, and up-selling Ø Enforce pricing schedules and rate integrity

Role Stress in Frontline Employees Three main causes of role stress: § Person versus Role: Conflicts between what jobs require and employee’s own personality and beliefs Ø Organizations must instill “professionalism” in frontline staff § Organization versus Client: Dilemma whether to follow company rules or to satisfy customer demands Ø This conflict is especially acute in organizations that are not customer oriented § Client versus Client: Conflicts between customers that demand service staff intervention

Emotional Labor § “The act of expressing socially desired emotions during service transactions” (Hochschild, The Managed Heart) § Three approaches used by employees: Ø Surface acting—simulate emotions they don’t actually feel Ø Deep acting—psych themselves into experiencing desired emotion, perhaps by imagining how customer is feeling Ø Spontaneous response § Performing emotional labor in response to society’s or management’s display rules can be stressful § Good HR practices emphasize selective recruitment, training, counseling, and strategies to alleviate stress

èCycles of Failure, Mediocrity, and Success

Cycle of Failure (1) èCustomer èturnover èFailure to develop ècustomer loyalty èRepeat emphasis on èattracting new customers èLow profit èmargins èHigh employee turnover; èpoor service quality èUse of technology èEmphasis on èto control quality èrules rather èthan service èPayment of èlow wages èEmployees èbecome bored è èNo continuity in èrelationship for ècustomer èEmployee dissatisfaction; èpoor service attitude èNarrow design of èjobs to accommodate èlow skill level è èMinimization of èselection effort èCustomer èdissatisfaction èMinimization èof training èEmployees can’t èrespond to customer èproblems èSource: Schlesinger and Heskett

Cycle of Failure (2) § The employee cycle of failure Ø Narrow job design for low skill levels Ø Emphasis on rules rather than service Ø Use of technology to control quality § The customer cycle of failure Ø Managers’ short-sighted assumptions about financial implications of low pay, high turnover human resource strategies

Cycle of Failure (3) § Costs of short-sighted policies are ignored Ø Loss of expertise among departing employees Ø Disruption to service from unfilled jobs Ø Constant expense of recruiting, hiring, training Ø Lower productivity of inexperienced new workers Ø Loss of revenue stream from dissatisfied customers who go elsewhere Ø Loss of potential customers who are turned off by negative wordof-mouth Ø Higher costs of winning new customers to replace those lost— more need for advertising and promotional discounts

Service Sabotage (Fig 11 a) “Openness” of Service Sabotage Behaviors Covert Routinized Customary-Private Service Sabotage “Normality” of Service Sabotage Behaviors èCustomer-Public Service èSabotage èe. g. Waiters serving smaller servings, bad beer or sour wine èe. g. Talking to guests like èyoung kids and putting them down èSporadic-Private Service èSabotage èSporadic-Public Service èSabotage èe. g. Chef occasionally èpurposefully slowing down orders Intermittent Overt èe. g. Waiters spilling soup onto èlaps, gravy onto sleeves, or hot plates into someone’s hands

Cycle Of Mediocrity (1) (Fig 11. 5) èCustomers trade èhorror stories èOther suppliers (if any) èseen as equally poor èEmployees spend èworking life èin environment èof mediocrity èComplaints met by èindifference or èhostility ècooperative relationship èto obtain better service èJobs are boring and èrepetitive; employees èunresponsive èResentment at inflexibility and èlack of employee initiative; è ècomplaints to employees èCustomer dissatisfaction èTraining emphasizes èlearning rules èSuccess = ènot making èmistakesèService not focused è èon customers’ needs èGood wages/benefits è high job security èPromotion èand pay Initiative is èincreases basedèè discouraged èon longevity, èlack of mistakes è èNo incentive for èEmphasis on rules èNarrow design èè vs. pleasing èof jobs ècustomers èEmployee èdissatisfaction è(but can’t easily quit) èSource: Heskett and Schlesinger

Cycle Of Mediocrity (2) § Most commonly found in large, bureaucratic organizations § Service delivery is oriented toward Ø Standardized service Ø Operational efficiencies Ø Prevention of employee fraud and favoritism toward specific customers

Cycle of Mediocrity (3) § Job responsibilities narrowly and unimaginatively defined § Successful performance measured by absence of mistakes § Training focuses on learning rules and technical aspects of job—not on improving interactions with customers and co-workers

Cycle of Success (1) èLow ècustomer èturnover èRepeat emphasis on ècustomer loyalty and èretention èCustomer èloyalty èHigher èprofit èmargins èLowered turnover, èhigh service quality èBroadened èjob designs è èContinuity in èrelationship with èTrain, empower frontline ècustomer èEmployee satisfaction, èpositive service attitudeèpersonnel to control quality è èIntensified èselection effort èAbove average èwages è èHigh customer èsatisfaction èExtensive ètraining èSource: Heskett and Schlesinger

Cycle of Success (2) § Longer-term view of financial performance; firm seeks to prosper by investing in people § Attractive compensation packages attract better job applicants § More focused recruitment, intensive training, and higher wages make it more likely that employees are: Ø Happier in their work Ø Provide higher quality, customer-pleasing service

Cycle of Success (3) § Broadened job descriptions with empowerment practices enable frontline staff to control quality and facilitate service recovery § Regular customers more likely to remain loyal because: Ø Appreciate continuity in service relationships Ø Have higher satisfaction due to higher quality

èHuman Resources Management— How to Get It Right?

How to Manage People for Service Advantage? § Staff performance involves both ability and motivation § How can we get able service employees who are motivated to productively deliver service excellence? Ø Hire the right people Ø Enable these people Ø Motivate and energize your people

The Wheel of Successful HR in Service Firms (Fig 11. 7) Leadership that: § Focuses the entire organization on supporting the frontline § Fosters a strong service culture with passion for service and productivity § Drives values that inspires, energizes and guides service providers è 1. Hire the Right People è 3. Motivate and Energize Your People Ø Utilize the full range of rewards Ø Be the preferred employer & compete for talent market share èService Excellence Ø Intensify the selection process è& Productivity è 2. Enable Your People Ø Empower frontline Ø Build high performance service delivery teams Ø Extensive training

Hire the Right People “The old saying ‘People are your most important asset’ is wrong. The RIGHT people are your most important asset. ” Jim Collins

Recruitment § The right people are a firm’s most important asset: Take a focused, marketing-like approach to recruitment § Clarify what must be hired versus what can be taught § Clarify nature of the working environment, corporate values and style, in addition to job specs § Ensure candidates have/can obtain needed qualifications § Evaluate candidate’s fit with firm’s culture and values § Match personalities, styles, energies to appropriate jobs

Select and Hire the Right People: (1) Be the Preferred Employer § Create a large pool: “Compete for Talent Market Share” § What determines a firm’s applicant pool? Ø Positive image in the community as place to work Ø Quality of its services Ø The firm’s perceived status § There is no perfect employee Ø Different jobs are best filled by people with different skills, styles, or personalities Ø Hire candidates that firm’s core values and culture Ø Focus on recruiting naturally warm personalities for customer-contact jobs

Select and Hire the Right People: (2) How to Identify Best Candidates § Observe behavior Ø Hire based on observed behavior, not words you hear Ø Best predictor of future behavior is past behavior Ø Consider group hiring sessions where candidates are given group tasks § Conduct personality tests Ø Willingness to treat co-workers and customers with courtesy, consideration, and tact Ø Perceptiveness regarding customer needs Ø Ability to communicate accurately and pleasantly

Select and Hire the Right People: (3) Identifying Best Candidates § Employ multiple, structured interviews Ø Use structured interviews built around job requirements Ø Use more than one interviewer to reduce “similar to me” biases § Give applicants a realistic preview of the job Ø Chance for candidates to “try on the job” Ø Assess how candidates respond to job realities Ø Allow candidates to self select themselves out of the job Ø Manage new employees’ expectation of job

Train Service Employees Service employees need to learn: § Organizational culture, purpose, and strategy Ø Promote core values, get emotional commitment to strategy Ø Get managers to teach “why, ” “what, ” and “how” of job § Interpersonal and technical skills Ø Both are necessary but neither alone is sufficient for optimal job performance § Product/service knowledge Ø Staff’s product knowledge is a key aspect of service quality Ø Staff must explain product features and position products correctly

Is Empowerment Always Appropriate? Empowerment is most appropriate when: Ø Firm’s business strategy is based on competitive differentiation and on personalized, customized service Ø Emphasis on extended relationships versus short-term transactions Ø Use of complex and nonroutine technologies Ø Business environment is unpredictable, consisting of surprises Ø Managers are comfortable letting employees work independently for benefit of firm and customers Ø Employees seek to deepen skills, like working with others, and are good at group processes

Control versus Involvement Model of Management Control concentrates four key features at top organization, involvement pushes them down 1. Power to influence work procedures and organizational direction (e. g. , quality circles, self-managing teams) 2. Information about operating results and measures of competitive performance 3. Rewards based on organizational performance (e. g. , bonuses, profit sharing, stock ownership) 4. Knowledge/skills that enable employees to understand contribute to organizational performance

Levels of Employee Involvement § Suggestion involvement Ø Employee make recommendation through formalized programs § Job involvement Ø Jobs redesigned Ø Employees retrained, supervisors reoriented to facilitate performance § High involvement Ø Information is shared Ø Employees skilled in teamwork, problem solving etc. Ø Participate in management decisions Ø Profit sharing and stock ownership

Build High-Performance Service Delivery Teams § The Power of Teamwork in Services Ø Facilitate communication among team members and knowledge sharing Ø Higher performance targets Ø Pressure to perform is high § Creating Successful Service Delivery Teams Ø Emphasis on cooperation, listening, coaching and encouraging one another Ø Understand how to air differences, tell hard truths, ask tough questions Ø Management needs to set up a structure to steer teams toward success

Motivate and Energize the Frontline Use full range of available rewards effectively, including: § Job content Ø People are motivated and satisfied knowing they are doing a good job § Feedback and recognition Ø People derive a sense of identity and belonging to an organization from feedback and recognition § Goal accomplishment Ø Specific, difficult but attainable and accepted goals are strong motivators

Role of Labor Unions § Challenge is to work jointly with unions, reduce conflicts, and create a service climate § Labor unions and service excellence are sometimes seen as incompatible § Yet many of the world’s most successful service businesses are highly unionized (e. g. , Southwest Airlines) § Management consultation and negotiation with union representatives are essential if employees are to accept new ideas

èService Leadership and Culture

Service Leadership and Culture § Service culture can be defined as: Ø Shared perceptions of what is important Ø Shared values and beliefs of why they are important § Charismatic/transformational leadership: Ø Change frontline’s values, goals to be consistent with firm Ø Motivate staff to perform their best § Internal Marketing: Ø Play a vital role in maintaining and nurturing a corporate culture Ø Help ensure service delivery, working relationships, employee trust, respect, and loyalty

The Inverted Organizational Pyramid èCustomer Base èTop Mgmt èFrontline Staff èMiddle Mgmt èAnd Top Mgmt èFrontline Staff èTraditional Organizational Pyramid èLegend: èSupport Frontline èInverted Pyramid with a Customer and Frontline Focus = Service encounters, or “Moments of Truth”