Services Marketing Chapter 8 Designing and Managing Service

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Services Marketing Chapter 8: Designing and Managing Service Processes Slide © 2010 by Lovelock

Services Marketing Chapter 8: Designing and Managing Service Processes Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 1

Services Marketing Flowcharting Customer Service Processes Slide © 2010 by Lovelock & Wirtz Services

Services Marketing Flowcharting Customer Service Processes Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 2

Flowcharting Service Delivery Helps to Clarify Product Elements Services Marketing = Technique for displaying

Flowcharting Service Delivery Helps to Clarify Product Elements Services Marketing = Technique for displaying the nature and sequence of the different steps in delivery service to customers = Offers way to understand total customer service experience = Shows how nature of customer involvement with service organizations varies by type of service: è People processing è Possession processing è Mental-Stimulus processing è Information processing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 3

Flowcharts for People and Possession Processing Services Slide © 2010 by Lovelock & Wirtz

Flowcharts for People and Possession Processing Services Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Services Marketing Chapter 8– Page 4

Flowcharts for Mental Stimulus and Information Processing Services Slide © 2010 by Lovelock &

Flowcharts for Mental Stimulus and Information Processing Services Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Services Marketing Chapter 8– Page 5

Services Marketing Blueprinting Services to Create Valued Experiences and Productive Operations Slide © 2010

Services Marketing Blueprinting Services to Create Valued Experiences and Productive Operations Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 6

Developing a Blueprint Services Marketing = Developing a Blueprint è Identify key activities in

Developing a Blueprint Services Marketing = Developing a Blueprint è Identify key activities in creating and delivering service è Define “big picture” before “drilling down” to obtain a higher level of detail = Advantages of Blueprinting è Distinguish between “front stage” and “back stage” è Clarify interactions and support by backstage activities and systems è Identify potential fail points; take preventive measures; prepare contingency è Pinpoint stages where customers commonly have to wait Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 7

Key Components of a Service Blueprint Services Marketing Define standards for frontstage activities Specify

Key Components of a Service Blueprint Services Marketing Define standards for frontstage activities Specify physical evidence Identify principal customer actions Line of visibility Frontstage actions by frontline personnel Line of interaction Backstage actions by customer contact personnel Support processes involving other personnel Support processes involving IT Objectives: ØIdentify fail points & risks of excessive waits ØSet service standards ØFail-proof process Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 8

Blueprinting the Restaurant Experience: Act 1 Slide © 2010 by Lovelock & Wirtz Services

Blueprinting the Restaurant Experience: Act 1 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Services Marketing Chapter 8– Page 9

Improving Reliability of Processes Through Fail-Proofing Services Marketing = Identify fail points = Analysis

Improving Reliability of Processes Through Fail-Proofing Services Marketing = Identify fail points = Analysis of reasons for failure reveals opportunities for failure-proofing to reduce/eliminate future errors = Need fail-safe methods for both employees and customers Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 10

Setting Service Standards and Targets Services Marketing = Service providers set standards for each

Setting Service Standards and Targets Services Marketing = Service providers set standards for each step sufficiently high to satisfy and even delight customers è Include time parameters, script and prescriptions for appropriate style and demeanor è Must be expressed in ways that permit objective measurement = Performance targets – specific process and team performance targets for which staff are responsible for = Evaluated based on distinction between standards and targets Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 11

Setting Service Standards and Targets Services Marketing = First impression is important è Affects

Setting Service Standards and Targets Services Marketing = First impression is important è Affects customer’s evaluations of quality during later stages of service delivery as customer perceptions of service experiences tend to be cumulative = For low-contact service, a single failure committed front stage is relatively more serious than in a high -contact service Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 12

Setting Standards and Targets for Customer Service Processes Service Attributes Service Process Indicators Services

Setting Standards and Targets for Customer Service Processes Service Attributes Service Process Indicators Services Marketing Service Process Standards Performance Targets 24 hours 80% of all • Reliability • Competence Processing time to • Accessibility approve • Courtesy applications in 24 applications hours • Communication • Credibility • Confidentiality Creates a Base to • Responsiveness Measure Customer • Listening to the Satisfaction customer Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 13

Services Marketing Redesigning Service Processes Slide © 2010 by Lovelock & Wirtz Services Marketing

Services Marketing Redesigning Service Processes Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 14

Why Redesign? Services Marketing = Revitalizes process that has become outdated = Changes in

Why Redesign? Services Marketing = Revitalizes process that has become outdated = Changes in external environment make existing practices obsolete and require redesign of underlying processes = Rusting occurs internally è Natural deterioration of internal processes; creeping bureaucracy; evolution of spurious, unofficial standards è Symptoms: - Extensive information exchange - Data that is not useful - High ratio of checking control activities to value-adding activities Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 15

Why Redesign? Services Marketing “Institutions are like steel beams—they tend to rust. What was

Why Redesign? Services Marketing “Institutions are like steel beams—they tend to rust. What was once smooth and shiny and nice tends to become rusty. ” Mitchell T. Rabkin, MD, former president of Boston’s Beth Israel Hospital Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 16

Why Redesign? Services Marketing = Redesign aims to achieve these performance measures: è Reduced

Why Redesign? Services Marketing = Redesign aims to achieve these performance measures: è Reduced number of service failures è Reduced cycle time from customer initiation of a service process to its completion è Enhanced productivity è Increased customer satisfaction Service process redesign encompasses reconstitution, rearrangement, or substitution. Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 17

Process Redesign: Approaches and Potential Benefits Eliminating nonvalue-adding steps Shifting to selfservice Delivering direct

Process Redesign: Approaches and Potential Benefits Eliminating nonvalue-adding steps Shifting to selfservice Delivering direct service Slide © 2010 by Lovelock & Wirtz Services Marketing • Streamline front-end and back-end processes of services • Improve productivity and customer satisfaction • • Increase in productivity and service quality Lower costs and perhaps prices Enhance technology reputation Differentiates company • Improve convenience for customers • Productivity can be improved by eliminating expensive retail locations • Increase customer base Services Marketing 7/e Chapter 8– Page 18

Process Redesign: Approaches and Potential Benefits Bundling services Redesigning physical aspects of service process

Process Redesign: Approaches and Potential Benefits Bundling services Redesigning physical aspects of service process Slide © 2010 by Lovelock & Wirtz Services Marketing • Involves grouping multiple services into one offer, focusing on a well-defined customer group • A better fit to the needs of target segment • Increase productivity with customized service • Increase per capita service use • Focus on tangible elements of service process (facilities and equipment) • Increase convenience • Enhance satisfaction and productivity of frontline staff • Cultivate interest in customers Services Marketing 7/e Chapter 8– Page 19

Services Marketing The Customer as Co. Producer Slide © 2010 by Lovelock & Wirtz

Services Marketing The Customer as Co. Producer Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 20

Levels of Customer Participation Services Marketing High – Customer works actively with provider to

Levels of Customer Participation Services Marketing High – Customer works actively with provider to co-produce the service • Service cannot be created without customer’s active participation • Customer can jeopardize quality of service outcome Medium – Customer inputs required to assist provider • Provide needed information and instructions • Make some personal effort; share physical possessions Low – Employees and systems do all the work • Involves standardized work Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 21

Customers as Partial Employees Services Marketing = Customers can influence productivity and quality of

Customers as Partial Employees Services Marketing = Customers can influence productivity and quality of service processes and outputs = Customers not only bring expectations and needs but also need to have relevant service production competencies = For the relationship to last, both parties need to cooperate with each other Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 22

Managing Customers Services Marketing Recruitment and Selection Job Analysis Education and Training • Recruit

Managing Customers Services Marketing Recruitment and Selection Job Analysis Education and Training • Recruit customers that possess the competency to perform the necessary tasks • Are customers aware of their roles and equipped with the required skills? • Information required for them to perform their roles via instructions or video demonstration Motivate • Ensure that they will be rewarded for good performance Appraise • For sub-par performances, improve customer training or change the role or process Ending Slide © 2010 by Lovelock & Wirtz • Last resort: if customer is non compliant consider termination of the relationship Services Marketing 7/e Chapter 8– Page 23

Services Marketing Chapter 9: Balancing Demand Productive Capacity Slide © 2010 by Lovelock &

Services Marketing Chapter 9: Balancing Demand Productive Capacity Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 24

Services Marketing Fluctuations in Demand Threaten Service Productivity Slide © 2010 by Lovelock &

Services Marketing Fluctuations in Demand Threaten Service Productivity Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 25

Defining Productive Capacity? Services Marketing = Productive capacity can take several forms in services

Defining Productive Capacity? Services Marketing = Productive capacity can take several forms in services è Physical facilities designed to contain customers è Physical facilities designed for storing or processing goods è Physical equipment used to process people, possessions, or information è Labor è Infrastructure = Financial success in capacity-constrained business is a function of management’s ability to use productive capacity as efficiently and profitably as possible. Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 26

From Excess Demand to Excess Capacity Services Marketing Excess demand Too much demand relative

From Excess Demand to Excess Capacity Services Marketing Excess demand Too much demand relative to maximum capacity Demand exceeds optimum capacity Service quality is perceived to have deteriorated Optimum capacity Staff is not overworked and customers receive good service Excess capacity Too much capacity relative to demand Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 27

Variations in Demand Relative to Capacity Services Marketing VOLUME DEMANDED Demand>Capacity (business is lost)

Variations in Demand Relative to Capacity Services Marketing VOLUME DEMANDED Demand>Capacity (business is lost) CAPACITY UTILIZED Maximum Available Capacity Optimum Capacity (Demand Supply) Low Utilization (may send bad signals) Demand> optimum capacity (quality declines) Excess capacity (wasted resources) TIME CYCLE 1 Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e TIME CYCLE 2 Chapter 8– Page 28

Addressing Problem of Fluctuating Demand Services Marketing Two basic approaches of which most firms

Addressing Problem of Fluctuating Demand Services Marketing Two basic approaches of which most firms use a mix of: = Adjust level of capacity to meet demand è Need to understand productive capacity and how it varies on an incremental basis = Manage level of demand è Use marketing strategies to smooth out peaks, fill in valleys è Inventorying demand until capacity becomes available Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 29

Services Marketing Managing Capacity Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e

Services Marketing Managing Capacity Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 30

Managing Capacity Services Marketing = Enables more people to be served at same level

Managing Capacity Services Marketing = Enables more people to be served at same level of capacity = Stretch and shrink: è Offer inferior extra capacity at peaks (e. g. , bus/train standees) è Use facilities for longer/shorter periods è Reduce amount of time spent in process by minimizing slack time = Adjusting capacity to match demand è Rest during low demand è Ask customers to share è Cross-train employees è Create flexible capacity è Use part-time employees è è Customers perform self-service Rent/share facilities and equipment Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 31

Services Marketing Analyze Patterns of Demand Slide © 2010 by Lovelock & Wirtz Services

Services Marketing Analyze Patterns of Demand Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 32

Demand Varies by Market Segment Services Marketing = Understand why customers from specific market

Demand Varies by Market Segment Services Marketing = Understand why customers from specific market segments select this service = Keep good records of transactions to analyze demand patterns è Sophisticated software can help to track customer consumption patterns = Record weather conditions and other special factors that might influence demand Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 33

Predictable Demand Patterns and Their Underlying Causes Predictable Cycles of Demand Levels è day

Predictable Demand Patterns and Their Underlying Causes Predictable Cycles of Demand Levels è day è week è month è year è other Slide © 2010 by Lovelock & Wirtz Services Marketing Underlying Causes of Cyclical Variations è è employment billing or tax payments/refunds è pay days è school hours/holidays è seasonal climate changes è public/religious holidays è natural cycles (e. g. , coastal tides) Services Marketing 7/e Chapter 8– Page 34

Causes of Seemingly Random Changes in Demand Levels Services Marketing Question: Which of these

Causes of Seemingly Random Changes in Demand Levels Services Marketing Question: Which of these events can be predicted? 1. Weather 2. Health problems 3. Accidents, Fires, Crime 4. Natural disasters Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 35

Services Marketing Managing Demand Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e

Services Marketing Managing Demand Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 36

Managing Demand Services Marketing = Take no action è Let demand find its own

Managing Demand Services Marketing = Take no action è Let demand find its own levels = Interventionist approach è Reduce demand in peak periods è Increase demand when there is excess capacity = Inventorying demand until capacity becomes available è Formal wait and queuing system è Reservation system Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 37

Marketing Mix Elements to Shape Demand Patterns Services Marketing = Use price and other

Marketing Mix Elements to Shape Demand Patterns Services Marketing = Use price and other non-monetary costs to manage demand = Change product elements = Modify place and time of delivery è No change è Vary times when service is available è Offer service to customers at a new location = Promotion and Education Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 38

Hotel Room Demand Curves by Segment and Season Price per room night Bl Bh

Hotel Room Demand Curves by Segment and Season Price per room night Bl Bh Th Bh = business travelers in high season Bl = business travelers in low season Th = tourist in high season Tl = tourist in low season Tl Bl Bh Th Tl Quantity of rooms demanded at each price by travelers in each segment in each season Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Note: hypothetical example Chapter 8– Page 39

Services Marketing Inventory Demand Through Waiting Lines and Queuing Systems Slide © 2010 by

Services Marketing Inventory Demand Through Waiting Lines and Queuing Systems Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 40

Waiting Is a Universal Phenomenon! Services Marketing = An average person may spend up

Waiting Is a Universal Phenomenon! Services Marketing = An average person may spend up to 30 minutes/day waiting in line—equivalent to over one week per year! = Nobody likes to wait = It's boring, time-wasting, and sometimes physically uncomfortable Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 41

Why Do Waiting Lines Occur? Services Marketing = Because number of arrivals at a

Why Do Waiting Lines Occur? Services Marketing = Because number of arrivals at a facility exceeds capacity of system to process them at a specific point in the process = Queues are basically a symptom of unresolved capacity management problems = Not all queues take form of a physical waiting line in a single location è Queues may be physical but geographically dispersed è Some are virtual (e. g. , phone) Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 42

Managing Waiting Lines Services Marketing = Rethink design of queuing system = Install a

Managing Waiting Lines Services Marketing = Rethink design of queuing system = Install a reservations system = Tailoring the queuing system to different market segments = Manage customer behavior and perceptions of wait = Redesign processes to shorten transaction time Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 43

Queuing Systems can be Tailored to Market Segments Services Marketing = Urgency of job

Queuing Systems can be Tailored to Market Segments Services Marketing = Urgency of job è Emergencies vs. non-emergencies = Duration of service transaction è Number of items to transact è Complexity of task = Payment of premium price = Importance of customer è Frequent users/high volume purchasers vs. others Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 44

Services Marketing Customer Perceptions of Waiting Time Slide © 2010 by Lovelock & Wirtz

Services Marketing Customer Perceptions of Waiting Time Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 45

Ten Propositions on Psychology of Waiting Lines Services Marketing Feels longer than Unoccupied time

Ten Propositions on Psychology of Waiting Lines Services Marketing Feels longer than Unoccupied time Occupied time Solo waits Group waits Physically uncomfortable waits Comfortable waits Pre- and post-process waits In-process waits Unexplained waits Explained waits Unfamiliar waits Known, finite waits Unfair waits Fair waits Anxious waits Calm waits Monotonous waits Valued waits Sources: Maister; Davis&Heineke; Jones &Peppiatt Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 46

Services Marketing Chapter 12: Managing Customer Relationships& Building Loyalty Slide © 2010 by Lovelock

Services Marketing Chapter 12: Managing Customer Relationships& Building Loyalty Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 47

Services Marketing The Wheel of Loyalty Slide © 2010 by Lovelock & Wirtz Services

Services Marketing The Wheel of Loyalty Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 48

The Wheel of Loyalty Services Marketing Slide © 2010 by Lovelock & Wirtz Services

The Wheel of Loyalty Services Marketing Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 49

Services Marketing Building a Foundation for Loyalty Slide © 2010 by Lovelock & Wirtz

Services Marketing Building a Foundation for Loyalty Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 50

Targeting the Right Customers Services Marketing = Target the right customer è è è

Targeting the Right Customers Services Marketing = Target the right customer è è è How do customer needs relate to operations elements? How can service personnel meet expectations of different customers? Can company match or exceed competing services that are directed at same types of customers? = Focus on number of customers served and value of each customer è è Some customers more profitable than others in the short term Others may have room for long-term growth = “Right customers” are not always high spenders è Can be a large group of people that no other supplier is serving well Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 51

Effective Tiering of Service The Customer Pyramid Slide © 2010 by Lovelock & Wirtz

Effective Tiering of Service The Customer Pyramid Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Services Marketing Chapter 8– Page 52

The Customer Satisfaction Loyalty Relationship Slide © 2010 by Lovelock & Wirtz Services Marketing

The Customer Satisfaction Loyalty Relationship Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Services Marketing Chapter 8– Page 53

Services Marketing Strategies for Building Loyalty Bonds with Customers Slide © 2010 by Lovelock

Services Marketing Strategies for Building Loyalty Bonds with Customers Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 54

Strategies for Developing Loyalty Bonds with Customers Services Marketing = Deepening the relationship è

Strategies for Developing Loyalty Bonds with Customers Services Marketing = Deepening the relationship è Bundling/Cross-selling services makes switching a major effort that customer is unwilling to undertake è Customers benefit from consolidating their purchasing of various services from the same provider Slide © 2010 by Lovelock & Wirtz One-stop-shopping, potentially higher service levels Higher service tiers, etc. Services Marketing 7/e Chapter 8– Page 55

Strategies for Developing Loyalty Bonds with Customers Services Marketing = Reward Based Bonds: Incentives

Strategies for Developing Loyalty Bonds with Customers Services Marketing = Reward Based Bonds: Incentives that offer rewards based on frequency of purchase, value of purchase, or combination of both è Financial bonds - Discounts on purchases, loyalty program rewards (e. g. , frequent flyer miles), cash-back programs è Non-financial rewards - Priority to loyalty program members for waitlists and queues in call centers; higher baggage allowances, priority upgrading è Intangible rewards - Special recognition and appreciation, tiered loyalty programs = Reward-based loyalty programs are relatively easy to copy and rarely provide a sustained competitive advantage Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 56

Strategies for Developing Loyalty Bonds with Customers Services Marketing = Social Bonds è Based

Strategies for Developing Loyalty Bonds with Customers Services Marketing = Social Bonds è Based on personal relationships between providers and customers è Harder to build and imitate and thus, better chance of retention in the long term = Customization Bonds è Customized service for loyal customers è Customers may find it hard to adjust to another service provider who cannot customize service Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 57

Strategies for Developing Loyalty Bonds with Customers Services Marketing = Structural Bonds è Mostly

Strategies for Developing Loyalty Bonds with Customers Services Marketing = Structural Bonds è Mostly seen in B 2 B settings è Align customers' way of doing things with supplier’s own processes - Joint investments in projects and sharing of information, processes and equipment è Can be seen in B 2 C environment too - Airlines - SMS check-in, SMS e-mail alerts for flight arrival and departure times è Difficult for competition to draw customers away when they have integrated their way of doing things with existing supplier Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 58

Services Marketing Strategies for Reducing Customer Defections Slide © 2010 by Lovelock & Wirtz

Services Marketing Strategies for Reducing Customer Defections Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 59

Analyze Customer Defections and Monitor Declining Accounts Services Marketing = Understand reasons for customer

Analyze Customer Defections and Monitor Declining Accounts Services Marketing = Understand reasons for customer switching = Churn Diagnostics è Analysis of data warehouse information on churned and declining customers è Exit interviews: - Ask a short set of questions when customer cancels account; in-depth interviews of former customers by third party agency è Churn Alert Systems: - Monitor activity in individual customer accounts to predict impending customer switching - Proactive detention efforts – send voucher, customer service representative calls customer Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 60

What Drives Customers to Switch? Slide © 2010 by Lovelock & Wirtz Services Marketing

What Drives Customers to Switch? Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Services Marketing Chapter 8– Page 61

Addressing Key Churn Drivers Services Marketing = Delivery quality = Minimize inconvenience and non-monetary

Addressing Key Churn Drivers Services Marketing = Delivery quality = Minimize inconvenience and non-monetary costs = Fair and transparent pricing = Industry specific drivers è Cellular phone industry: handset replacement a common reason for subscribers discontinuing services – offer proactive handset replacement programs = Reactive measures è Save teams Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 62

Other Ways to Reduce Churn Services Marketing = Implement Effective Complaint Handling and Service

Other Ways to Reduce Churn Services Marketing = Implement Effective Complaint Handling and Service Recovery Procedures = Increase Switching Costs è Natural switching costs - e. g. , Changing primary bank account – many related services tied to account è Can be created by instituting contractual penalties for switching - Must be careful not to be perceived as holding customers hostage - High switching barriers and poor service quality likely to generate negative attitudes and word of mouth Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 63

Services Marketing Chapter 13: Complaint Handling And Service Recovery Slide © 2010 by Lovelock

Services Marketing Chapter 13: Complaint Handling And Service Recovery Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 64

Services Marketing Customer Complaining Behavior Slide © 2010 by Lovelock & Wirtz Services Marketing

Services Marketing Customer Complaining Behavior Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 65

Customer Response Categories to Service Failures Slide © 2010 by Lovelock & Wirtz Services

Customer Response Categories to Service Failures Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Services Marketing Chapter 8– Page 66

Understanding Customer Responses to Service Failure Services Marketing = Why do customers complain? è

Understanding Customer Responses to Service Failure Services Marketing = Why do customers complain? è Obtain compensation è Vent their anger è Help to improve the service è Altruistic reasons = What proportion of unhappy customers complain? = Why don’t unhappy customers complain? Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 67

Understanding Customer Responses to Service Failure Services Marketing = Who is most likely to

Understanding Customer Responses to Service Failure Services Marketing = Who is most likely to complain? = Where do customers complain? = What do customers expect once they have made a complaint? è Procedural, interactional, and outcome justice Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 68

Three Dimensions of Perceived Fairness in Service Recovery Slide © 2010 by Lovelock &

Three Dimensions of Perceived Fairness in Service Recovery Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Services Marketing Chapter 8– Page 69

Services Marketing Customer Responses to Effective Service Recovery Slide © 2010 by Lovelock &

Services Marketing Customer Responses to Effective Service Recovery Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 70

Service Recovery Services Marketing = Service Recovery è Plays a crucial role in achieving

Service Recovery Services Marketing = Service Recovery è Plays a crucial role in achieving customer satisfaction by testing a firm’s commitment to satisfaction and service quality è Impacts customer loyalty and future profitability è Severity and “recoverability” of failure (e. g. , spoiled wedding photos) may limit firm’s ability to delight customer with recovery efforts = Service Recovery Paradox: Customers who experience a service failure that is satisfactorily resolved may be more likely to make future purchases than customers without problems è If second service failure occurs, the paradox disappears Best Strategy: Do it Right the First Time Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 71

How to Enable Effective Service Recovery Services Marketing = Methods: (See Service Perspectives 13.

How to Enable Effective Service Recovery Services Marketing = Methods: (See Service Perspectives 13. 1) è Be proactive—on the spot, before customers complain è Plan recovery procedures è Teach recovery skills to relevant personnel è Empower personnel to use judgment and skills to develop recovery solutions = Rules of Thumb for Adequate Compensation: è What is positioning of our firm? è How severe was the service failure? è Who is the affected customer? Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 72

Services Marketing Service Guarantees Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e

Services Marketing Service Guarantees Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 73

Service Guarantees Help Promote and Achieve Service Loyalty Services Marketing = Force firms to

Service Guarantees Help Promote and Achieve Service Loyalty Services Marketing = Force firms to focus on what customers want = Set clear standards = Highlight cost of service failures = Help firm identify and overcome fail points = Reduce the risk of purchase decision and build long-term loyalty Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 74

How to Design Service Guarantees Services Marketing = Unconditional = Easy to understand communicate

How to Design Service Guarantees Services Marketing = Unconditional = Easy to understand communicate = Meaningful to the customer = Easy to invoke = Easy to collect on = Credible Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 75

Is it Always Suitable to Introduce a Guarantee? Services Marketing = It may not

Is it Always Suitable to Introduce a Guarantee? Services Marketing = It may not be appropriate to introduce guarantees when è Companies have a strong reputation for service excellence è Company does not have good quality level è Quality cannot be controlled because of external forces è Consumers see little financial, personal, or physiological risk associated with the purchase Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 76

Services Marketing Discouraging Abusive and Opportunistic Customer Behavior Slide © 2010 by Lovelock &

Services Marketing Discouraging Abusive and Opportunistic Customer Behavior Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 77

Addressing the Challenge of Jaycustomers Services Marketing = Jaycustomer: A customer who behaves in

Addressing the Challenge of Jaycustomers Services Marketing = Jaycustomer: A customer who behaves in a thoughtless or abusive fashion, causing problems for the firm, its employees, and other customers = More potential for mischief in service businesses, especially when many customers are present = No organization wants an ongoing relationship with an abusive customer Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 78

Seven Types of Jaycustomers Services Marketing The Cheat: = Thinks of various ways to

Seven Types of Jaycustomers Services Marketing The Cheat: = Thinks of various ways to cheat the firm The Thief = No intention of paying — sets out to steal or pay less è Services lend themselves to clever schemes to avoid payment e. g. , bypassing electricity meters, circumventing TV cables, riding free on public transportation è Firms must take preventive actions against thieves, but make allowances for honest but absent-minded customers Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 79

Seven Types of Jaycustomers Services Marketing The Rulebreaker = Rules guide customers safely through

Seven Types of Jaycustomers Services Marketing The Rulebreaker = Rules guide customers safely through the service encounter è Government agencies may impose rules for health and safety reasons è Some rules protect other customers from dangerous behavior e. g. , ski patrollers issue warnings to reckless skiers by attaching orange stickers on their lift tickets = Ensure company rules are necessary, should not be too much or inflexible Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 80

Seven Types of Jaycustomers Services Marketing The Belligerent = Shouts loudly, maybe mouthing insults,

Seven Types of Jaycustomers Services Marketing The Belligerent = Shouts loudly, maybe mouthing insults, threats, and curses è Service personnel are often abusedeven when they are not to be blamed è Confrontations between customers and service employees can easily escalate = Firms should ensure employees have skills to deal with difficult situations Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 81

Seven Types Of Jaycustomers Services Marketing Family Feuders = People who get into arguments

Seven Types Of Jaycustomers Services Marketing Family Feuders = People who get into arguments with other customers – often members of their own family The Vandal = Service vandalism includes pouring soft drinks into bank cash machines, slashing bus seats, breaking hotel furniture è Sources: bored and drunk young people, and unhappy customers who feel mistreated by service providers take revenge è Prevention is the best cure Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 82

Seven Types Of Jaycustomers Services Marketing The Deadbeat = Customers who fail to pay

Seven Types Of Jaycustomers Services Marketing The Deadbeat = Customers who fail to pay (as distinct from “thieves” who never intended to pay in the first place) è Preventive action is better than cure — e. g. , insisting on prepayment; asking for credit card number when order is taken è Customers may have good reasons for not paying If the client's problems are only temporary ones, consider longterm value of maintaining the relationship Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 83

SERVQUAL & SIX SIGMA Services Marketing = APENDIX Slide © 2010 by Lovelock &

SERVQUAL & SIX SIGMA Services Marketing = APENDIX Slide © 2010 by Lovelock & Wirtz Services Marketing 7/e Chapter 8– Page 84