test 2 Flashcards
Four conditions potentially faced by fixed-capacity services
- Excess demand: Too much demand relative to capacity at a given time. (Christmas, Thanksgiving, disasters, others?)
- Demand exceeds optimum capacity: Upper limit to a firm’s ability to meet demand at a given time.
- Optimum capacity: Point beyond which service quality declines as more customers are serviced. (standing room on a subway)
- Excess capacity: Too much capacity relative to demand at a given time.
Productive capacity in a service context (can take several forms in services):
Physical facilities designed to contain customers
Physical facilities designed for storing or processing goods
Physical equipment used to process people, possessions, or information
Labour
Infrastructure
Stretch and shrink:
Offer inferior extra capacity at peaks (e.g. bus/train standees, fewer servers when busy)
Use facilities for longer/shorter periods (24/7 digital)
Reduce amount of time spent in process by minimizing slack time
Adjusting Capacity to Match Demand
Schedule downtime during periods of low demand
Cross-train employees
Use part-time employees
Invite customers to perform self-service
Ask customers to share – examples?
Create flexible capacity; use terrasse, serve meals at bar, add another car to train, more?
Rent or share extra facilities and equipment
Understanding patterns of demand
Demand Varies by Market Segment
- Demand may seem random, but analysis may reveal a predictable demand cycle for different segments.
ex. Students travel at study week, Families travel for thanksgiving
- Keep good records of transactions to analyse demand patterns.
- Sophisticated software can help to track customer consumption patterns
Record weather conditions and other special factors that might influence demand
cycles of demand and causess of cyclical varitations
- Predictable Cycles of Demand Levels: day, week, month, year, other (black friday)
- Underlying Causes of Cyclical Variations: employment, billing or tax payments/refunds, pay days, school hours/holidays, seasonal climate changes, public/religious holidays, natural cycles, seasonality (change tires for winter / summer)
- Underlying causes of randomly changing demand levels: Weather, Health problems, Accidents, Fires, Crime, Natural disaster
- Disaggregate demand by market segment for a particular service over time→ Use patterns by particular type of customer or for a particular purpose, Variations in net profitability for each completed transaction
Four ways to change demand
- Take no action: Let customers sort it out
- Reduce demand: Higher prices, Communication encouraging use of other time slots; movies on Tuesdays less expensive
- Increase demand; Lower prices, Communication, including promotional incentives. Vary product features to increase desirability, More convenient delivery times and places
- Inventory demand by formalized queuing or by reservation system
Using the marketing mix elements to shape demand patterns
- Use price and nonmonetary costs to manage demand
- Change product elements
- Modify place and time of delivery: no change, vary times when service is available, offer service to customers at a new location
- promotion and education
When Demand Exceeds Supply
- Steps to take to inventory demand (keep for use later)
- Asking customers to wait in line (queue), usually on a first-come first-served basis
- Offering customers the opportunity to reserve or book capacity in advance
Reduce waiting time by…
Rethinking the design of the queuing system
Installing reservations system
Tailoring queuing system to different market segments
Managing customer behaviour and their perceptions of the wait
Redesigning processes to shorten the time of each transaction
SST
Virtual Waits
- One problem of waiting is the waste of customers’ time
- Virtual queues can eliminate the need to wait
- Customers register their place in line on a computer, which estimates the time they need to reach the front of the virtual line, customers then return later to claim their place
Queuing Systems
Allocate queues based on
Urgency of job, Duration of service transaction,Payment of premium price, Importance of customer
Ten Propositions to Make Waiting More Bearable
Unoccupied time feels longer than occupied time
Solo waits feel longer than group waits
Physically uncomfortable waits feel longer than comfortable ones
Pre- and post-process waits feel longer than in-process waits
People will wait longer for more valuable services
Unexplained waits are longer than explained waits
Unfamiliar waits seem longer than familiar ones
Uncertain waits are longer than known, finite waits
Unfair waits are longer than fair waits
Anxiety makes waits seem longer
Benefits of reservations:
Avoid customer dissatisfaction due to excessive waits
Controls and smooths demand
Allows implementation of revenue management and preselling of service to different customer segments
Data captured helps organizations: prepare financial projections, plan operations and staffing levels
Reservations Strategies Should Focus on Yield
- Yield analysis helps managers recognize opportunity cost of allocating capacity to one customer/segment when another segment might yield a higher rate later
- Decisions need to be based on good information
Detailed record of past usage, supported by current market intelligence and good marketing sense, realistic estimate of changes of obtaining higher rated business - When firms overbook to increase yield, victims of over- booking should be compensated to preserve the relationship.
Residual surplus capacity
Create alternative use for otherwise wasted capacity: Use capacity for service differentiation, reward your best customers and build loyalty, customer and channel development, reward employees, barter free capacity
If there is a plan to change the system to meet increase in demand, be cognizant of:
Customer trust, Customer habits, Pre-test innovations, Teach and train customers the use of new technology, Promise benefits, Stimulate trial, Monitor and evaluate
Four core purposes service environments (servicescapes) fulfil
Shape Customers’ Service Experiences and Behaviors
Signal Quality and Position, Differentiate, and Strengthen the Brand
Core Component of the Value Proposition
Facilitate the service encounter and enhance productivity
The Mehrabian-Russell Stimulus-Response Model
Feelings are a key driver of customer responses to service environments
Environmental stimuli and cognitive processes → affective responses (pleasure and arousal) → response behaviours (approach or avoidance-including time and money spent- and cognitive processes-including perception of quality and satisfaction)
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 behaviour
Typical outcome variable is ‘approach’ or ‘avoidance’ of an environment
The Russell Model of Affect
- Emotional responses to environments can be described along two main dimensions
a. Pleasure: direct, subjective, depending on how much individual likes or dislikes environment
b. Arousal: how stimulated individual feels, depends largely on information rate or load of an environment - Advantage: simplicity, allows a direct assessment of how customers feel
Firms can set targets for affective states
Integrative servicescape model
The integrative framework identifies the main dimensions in a service environment (servicescape): Ambient conditions
Space/functionality
Signs, symbols and artifacts
People perceive them as a whole
Key to effective design is how well each individual dimension fits together with everything else
Internal customer and employee responses can be categorized into cognitive, emotional and physiological responses, which lead to observable behavioural responses towards the environment
Design dimensions that might be encountered in a retail outlet:
Exterior facilities: Architectural style, window displays, marquee, etc.
General interior: Flooring and carpeting, cleanliness, scents, etc.
Store layout: Traffic flow, department locations, furniture, etc.
Interior displays: Interactive screens, ensemble, price display, etc.
Social dimensions: Employee uniforms, privacy, self-service, etc.
Ambient conditions :
Ambient environment is composed of hundreds of design elements and details that must work together to create desired service environment
Music : In service settings, music can have powerful effect on perceptions and behaviours, even if played at barely audible levels.
Scents : An ambient smell is one that pervades an environment. research has shown that scents can have significant effect on customer perceptions, attitudes, and behaviours
Colour : Colours have a strong impact on people’s feelings – ppl drawn to warm. Colours can be defined into three dimensions:
Hue is the pigment of the colour
Value is the degree of lightness or darkness of the colour
Chroma refers to hue-intensity, saturation or brilliance
Functionality
The ability of those items to make the performance of the service easier
Signs, Symbols, and Artifacts
- Communicates the firm’s image, help customers find their way, let customers know the service script
- First-time customers will automatically try to draw meaning from the signs, symbols and artifacts – I disagree
-The challenge is to design such that these guide customer through the service delivery process
Unclear signals from a servicescape can result in anxiety and uncertainty about how to proceed and obtain the desired service
Selection of Environmental Design Elements
- Design with a holistic view
- Servicescapes have to be seen holistically: No dimension of design can be optimized in isolation, because everything depends on everything else
- Holistic characteristic of environments makes designing service environment an art - Design should be from a customer’s perspective
- Environmental aspects that irritate shoppers :
Ambient conditions
Environmental design variables
Service personnel are important! Help maintain firm’s positioning… They are:
A core part of the product
The service firm
The brand
Affects sales
Is a key driver of customer loyalty
Determine productivity
Boundary spanners
link inside of organization to outside world and often experience role stress from multiple roles they have to perform
3 main causes of role stress:
Organization vs. Client: Dilemma whether to follow company rules or to satisfy customer demands → This conflict is especially acute in organizations that are not customer oriented
Person vs. Role: Conflicts between what jobs require and employee’s own personality and beliefs
Client vs. Client: Conflicts between customers that demand service staff intervention
Emotional Labour:
“The act of expressing socially desired emotions during service transactions”
Occurs when there is gap between what employees feel inside, and emotions that management requires them to display to customers
Performing emotional labour in response to society’s or management’s display rules can be stressful
Good HR practice emphasizes selective recruitment, training, counselling, strategies to alleviate stress
Service Sweatshops
- Deployment of new technology and methods can change the nature of the work environment
- In many firms, face-to-face contact is replaced by the use of the internet or call-centre services
- Call centres must have up to date lists.
- Such jobs can offer flexible working hours and part-time employment
- The work is often intense, with a high level of monitoring
- Motivated agents suffer less customer stress
The cycle of failure
- The employee cycle of failure: Narrow job design for low skill levels, Emphasis on rules rather than service, Use of technology to control quality, Bored employees who lack ability to respond to customer problems, Dissatisfied with poor service attitude, Low service quality, High employee turnover
- The customer cycle of failure: Repeated emphasis on attracting new customers, Customers dissatisfied with employee performance, Customers always served by new faces, Fast customer turnover, Ongoing search for new customers to maintain sales volume
Costs of short-sighted policies are ignored:
Constant expense of recruiting, hiring, training / Lower productivity of inexperienced new workers / Higher costs of winning new customers to replace those lost—more need for advertising and promotional discounts / Loss of revenue stream from dissatisfied customers who go elsewhere / Loss of potential customers who are turned off by negative word-of-mouth
The cycle of mediocrity
Most commonly found in large, bureaucratic organizations
Service delivery is oriented towards: Standardized service, Operational efficiencies, Promotions based on long service, Successful performance measured by absence of mistakes, Rule-based training, Little freedom in narrow and repetitive jobs
- Customers find organizations frustrating to deal with
- Little incentive for customers to cooperate with organizations to achieve better service
- Complaints are often made to already unhappy employees
- Customers often stay because of lack of choice
Cycle of success
- Longer-term view of financial performance; firm seeks to prosper by investing in people
- Attractive pay and benefits attract better job applicants
- More focused recruitment, intensive training, and higher wages make it more likely that employees are: Happier in their work, Provide higher quality, customer-pleasing service
- Broadened job descriptions with empowerment practices enable front-line staff to control quality, facilitate service recovery
- Regular customers more likely to remain loyal because: Appreciate continuity in service relationships, Have higher satisfaction due to higher quality
Service talent cycle for service firms = service excellence and productivity
- recruit the right people:
- Be the Preferred Employer: Create a large pool: “Compete for Talent Market Share” – What determines a firm’s applicant pool?
Positive image in the community as place to work
Quality of its services
The firm’s perceived status
- Is there such a thing as a perfect employee?
Different jobs are best filled by people with different skills, styles or personalities, Hire candidates that fit firm’s core values and culture, Focus on recruiting naturally warm personalities for customer-contact jobs - enable the front line (bbuild good teams, empower them, training)
- motivate & energize the front line
Tools to Identify the Best Candidates
- Employ multiple, structured interviews: Use structured interviews built around job requirements, Use more than one interviewer to reduce “similar to me” biases
- Observe candidate behaviour: Hire based on observed behaviour, not words you hear, Best predictor of future behaviour is past behaviour, Hire those with service excellence awards and complimentary letters
- Conduct personality tests: Willingness to treat co-workers and customers with courtesy, consideration and tact, Perceptiveness regarding customer needs, Ability to communicate accurately and pleasantly
- Give applicants a realistic preview of the job: Chance for candidates to “try on the job”, Assess how candidates respond to job realities, Allow candidates to self-select themselves out of the job
Need to learn in training employees
Org culture, purpose and strategy, interpersonal and technical skills, product/service knowledge
Type of training programs:
- Orientation Training 2.Onboarding Training 3.Compliance Training 4.Product Training 5.Leadership Training 6.Technical Training 7.Quality Assurance (Q/A) Training 8.Sales Training 9.Soft-Skills Training 10.Team Training 11.Diversity Training 12.Safety Training 13.Upskilling 14.Reskilling
7 Types Of Employee Training
1.Leadership training. … 2.Compliance training. … 3.Onboarding training. … 4.Technical training. … 5.Product training. … 6.Sales training. …7.Anti-bias and diversity training.
IMC and employees
Employees need to be kept informed about new policies, changes in service features, and new quality initiatives
Try to nurture team spirit and support common corporate goals across national frontiers
- Can complement training…..
ensures efficient and satisfactory service delivery o achieves productive and harmonious working relationships
& builds employee trust, respect, and loyalty
Empowerment is most appropriate when
- the firm’s business strategy is based on personalized, customized service and competitive differentiation
- emphasis is on extended relationships rather than short-term transactions
- complex and non-routine technologies are used
- service failures are non-routine and cannot be designed out of the system
- the business environment is unpredictable
- managers are comfortable letting employees work independently for the benefit of firm and customers
Requirements for Empowering the Front Line
- Information about organizational, team, and individual performance
- Knowledge that enables employees to understand and contribute to organizational, team, and individual performance
- Power to make decisions that influence work procedures and organizational direction at the higher level and transaction-specific decisions at the micro level
- Rewards based on organizational, team, and individual performance (few and far between these days)
Levels of Employee Involvement
Suggestion involvement
– Employee make recommendation through formalized programs
Job involvement
– Jobs redesigned
– Employees retrained, supervisors reoriented to facilitate performance
High involvement
– Information is shared
– Employees skilled in teamwork, problem solving, etc. – Participate in management decisions
– Profit sharing and stock ownership
Building high-performance service delivery teams
Many service require cross-functional coordination for excellent service delivery
Teams, training and empowerment go hand-in-hand
Creating Successful Service Delivery Teams:
a. Emphasis on cooperation, listening, coaching and encouraging one another
b. Understand how to air differences, tell hard truths, ask tough questions
c. Management needs to set up a structure to steer teams towards success
Ways to reduce conflict and break down the barriers between departments
- Transferring individuals internally to other departments and functional areas.
- Establishing cross-departmental and cross-functional project teams.
- Having cross-departmental and cross-functional service delivery teams.
- Appointing individuals whose job is to integrate specific objectives, activities, and processes between departments.
- Carrying out internal marketing, training, and integration programs.
- Having top management’s commitment to ensure that the overarching objectives of all departments are integrated.
Motivating and energize service employees
Use full range of available rewards effectively, including
- Job content: People are motivated and satisfied knowing they are doing a good job
- Feedback and recognition: People derive a sense of identity and belonging to an organization from feedback and recognition
- Goal achievement:
Specific, difficult but attainable and accepted goals are strong motivators
Organizational culture involves:
Shared perceptions or themes regarding what is important in the organization, Shared values about what is right and wrong, Shared understanding about what works and what doesn’t work, Shared beliefs and assumptions about why these beliefs are important, Shared styles of working and relating to others
Service culture is defined by:
Shared perceptions of what is important in the organization, Shared values and beliefs about why those things are important.
Organizational climate
The shared perceptions of employees about the practices, procedures, and types of behavior that get supported and rewarded in a particular setting
Employees form perceptions based on daily experiences with HR; operations; marketing; and IT policies, practices, and procedures
Essential features of a climate for service include clear marketing goals and a strong drive to be the best
Qualities of effective leaders in a service organization:
Leaders should love their business
Do you like what you do?
Leaders should be driven by a set of core values that are related to service excellence and performance.
Leaders must recognize the key part played by employees in delivering service.
Effective leaders can involve the team in decision- making rather than dominating the process.
Leaders must be able to role model the behaviors they expect
Effective leaders have a talent for communicating with others in a way that is accessible.
There are two leadership styles in a service climate:
management of the “basics”
transformational leadership that sets strategy and drives change. However, both are important. Persistent management of the basics and endless details create a strong climate for service
Leaders create a strong climate for service when they
- demonstrate commitment to service quality
- set high standards, recognize and remove obstacles
- ensure the availability of the resources required to do it
Customers become more profitable the longer they remain with a firm:
- Increase purchases and/or account balances
Customers/families purchase in greater quantities as they grow - Reduced operating costs
- Fewer demands from suppliers and operating mistakes as customer becomes experienced - Referrals to other customers
- Positive word-of-mouth saves firm from investing money in sales and advertising - Price premiums
- Long-term customers willing to pay regular price
- Willing to pay higher price during peak periods
Tasks
Determine costs and revenues for customers from different market segments at different points in their customer lifecycles
Predict future profitability
Measuring Customer Equity: Lifetime Value of Each Customer
- Acquisition revenues less costs:
Revenues (application fee + initial purchase)
Costs (marketing + credit check + account set up) - Projected annual revenues and costs:
Revenues (annual fee + sales + service fees + value of referrals)
Costs (account management + cost of sales + write- offs) - Value of referrals:
Percentage of customers influenced by other customers
Other marketing activities that drew the firm to an individual’s attention - Net Present Value:
Sum anticipated annual values (future profits)
Suitably discounted each year into the future
Customers stay loyal when we create value for them !! Value can be created for customers through use of technology to control quality
Confidence benefits
Confidence in correct performance
Ability to trust the provider
Lower anxiety when purchasing
Knowing what to expect and receive
Why stay loyal?
1) Social benefits (Mutual recognition and friendship between service
provider and customer)
2) Special treatment (Better price, Discounts not available to most customer, Extra services, Higher priority when there is a wait)
wheel of loyalty
- build a foundation for loyalty: segment maket, be selective, deliver quality service
- create loyalty bonf: social customization and structural bonds, give loyalty rewards, deepen rel through cross-selling and bundling
- reduce churn drivers: conduct churn diagnosis and monitor declining customers, adress key churn drivers, complaint handling, inc swithcing costs
other things about wheel of loyalty
Target the right customer and match them to what firm can deliver
- How do customer needs relate to operations elements?
- How well can service personnel meet expectations of different types of customers?
- Can company match or exceed competing services that are directed at same types of customers?
Focus on number of customers served as well as value of each customer:
- 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: Can come from a large group of people that no other supplier is serving well
Customer pyramid
Poor relationship to good relationship customers: lead (cost time effort and money), iron, gold, platinum (see high value in our offers, spend time with us, cost less to maintain spread positive WOM)
The sat-loyalty rel can be divided into
the defection, indifference, and affection zones (chart in nbotes)
Financial bonds, non financial, intangible rewards
Financial bonds :
Discounts on purchases, loyalty program rewards (e.g. frequent flier miles), cash-back programs
Non-financial rewards:
Priority to loyalty program members for waitlists and queues in call centres; higher baggage allowances, priority upgrading, access to airport lounges for frequent flyers
Intangible rewards
Special recognition and appreciation
Reward-based loyalty programs are relatively easy to copy and rarely provide a sustained competitive advantage
social bonds
Based on personal relationships between providers and customers
Harder to and takes a longer time to build, but also harder to imitate and thus, better chance of retention in the long term
Customization bonds
Customized service for loyal customers . ex. Starbucks
Customers may find it hard to adjust to another service provider who cannot customize service
Structural Bonds
Mostly seen in B2B settings
Align customers way of doing things with supplier’s own processes
Joint investments in projects and sharing of information, processes and equipment.
Can be seen in B2C environment too: Airlines: SMS check-in, SMS email alerts for flight arrival and departure times
Difficult for competition to draw customers away when they have integrated their way of doing things with existing supplier
What drives customers to switch????!!!!!
service failure (core and encounter and response), value prop (pricing, inconvenience, competition), other (involuntary switching, ethical problems)
Address Key Churn Drivers
Deliver quality service
Reduce inconvenience and non-monetary costs
Have fair and transparent pricing
Industry-specific drivers
Take active steps to retain customers:
Save teams: specially trained call centre staff to deal with customers who want to cancel their accounts
Be careful about how save teams are rewarded
Increase Switching Costs
- Natural switching costs
e.g., Changing primary bank account; many related services tied to account
- 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 bad word of mouth
CRM systems applications (5)
- Data collection:
Customer data such as contact details, demographics, purchasing history, service preferences, anything else special to the customer (location, personal history) - Data analysis:
Data captured is analysed and categorized, used to tier customer base and tailor service delivery accordingly - Sales force automation
Sales leads and cross-sell and up-sell opportunities can be effectively identified and processed
Entire sales cycle from lead generation to close of sales and after-sales service can be tracked and facilitated through CRM system - Marketing automation
Mining of customer data enables the firm to target its market
Goal to achieve one-to-one marketing and cost savings, often in the context of loyalty and retention programs
Results in increasing the ROI on its marketing expenditure
CRM systems also allows firms to judge effectiveness of marketing campaigns through the analysis of responses - Call centre
Call centre staff have customer information at their fingertips and can improve their service levels to all customers
Caller ID and account numbers allow call centres to identify the customer tier the caller belongs to, and to tailor the service accordingly
Five key processes of an effective CRM strategy
- Strategy development
2.Value creation - Multi-channel integration
- Information management
- Performance assessment: Is the CRM creating value for the customers and the firm? Are its marketing objectives being achieved? Is the CRM system itself performing according to expectations?
CRM systems and delivering customized services and building loyalty
(5)
- Strategy development process: assessment of business start, business strat guides development of customer strat
- Value creation process: translates business and customer strats into specific value props for both customers and firm, customers need to participate in CRM to reap value from firm’s CRM initiatives
- Multi channel integration process : Offer a unified interface that delivers customization and personalization
- Performance assessment process: Is CRM system creating value for key stakeholders?
- Information management : Collect customer information from all channels, Integrate it with other relevant information, Make useful information available to the frontline, Create and manage data repository, IT systems, analytical tools, specific application packages
Common reasons for failures
CRM implementations
Viewing CRM as a technology Initiative
Lack of customer focus
Not enough understanding of customer lifetime value (CLV)
Inadequate support from top management
Failure to reengineer business processes
Underestimating the challenges in data integration
Response to service failure
/ Why do customers complain
Response to service failure
= take some form of public action, take some form of private action, take no action
Why do customers complain:
Obtain compensation, release their anger, help to improve the service, out of concern for others
What customers expect when they complain
complaint handling and service recovery process
Procedural justice, interactional justice, outcome justice → customer satisfaction with the service recovery
How customers respond to effective service recovery
Plays a crucial role in achieving customer satisfaction
Tests a firm’s commitment to satisfaction and service quality : Confidence benefits
Impacts customer loyalty and future profitability: Complaint handling should be seen as a profit center, not a cost center
The 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 (Note: not all research supports this paradox)
- If second service failure occurs, the paradox disappears— customers’ expectations have been raised and they become disillusioned
- Severity and “recoverability” of failure (e.g., spoiled wedding photos) may limit firm’s ability to delight customer with recovery efforts
- Best strategy: Do it right the first time
Strategies to Reduce Customer Complaint Barriers
Inconvenience = Make feedback easy and convenient,doubtful payoff = reassure customers that their feedback will be taken seriously and will will pay off, unpleasantness = make providing feedback a positive experience
How to Enable Effective Service Recovery
Be proactive
Plan recovery procedures
Teach recovery skills to relevant personnel
Empower personnel to use judgment and skills to develop recovery solutions
Rule of thumb for managers to consider for compensation: positioning, how severe, who is the affected consumer
Rules for Staff with cust complaints
Have fun, Acknowledge the customer immediately, Involve the customer in important business decisions, Don’t be afraid to say, “I am sorry” and mean it, Disarm difficult customers and turn them into satisfied ones, Measure customer satisfaction, Continuously motivate and train staff
How to handle complaining customers and recover from a service failure :
Time is of the essence to achieve a full recovery
Acknowledge the customer’s feelings
Don’t argue with customers
Show that you understand the problem from the customer’s point of view
Clarify the facts and sort out the cause
Give customers the benefit of the doubt
Propose the steps needed to solve the problem
Keep customers informed of progress
Consider compensation
Persevere to regain customer goodwill
Self-check the service delivery system and improve it
Power of service guarantees
Force firms to focus on what customers want, Set clear standards,Require systems to get & act on customer feedback, Force organizations to understand why they fail and to overcome potential fail points, Reduce risks of purchase and build loyalty
Designing effective service guarantees
Whatever is promised in the guarantee must be totally unconditional.The customer must be clearly aware of the benefits that can be gained from the guarantee.
The guarantee must be on something that is important to the customer; the compensation should be more than adequate to cover the service failure.
- It should be easy for the customer to invoke the guarantee.
If a service failure occurs, the customer should be able to easily collect on the guarantee.
- The guarantee should be believable
When firms should not offer service guarantees
Companies that already have a strong reputation for service excellence may not need a guarantee
A firm whose service is poor must first work to improve quality to a level above what is guaranteed.
Service firms whose quality is truly uncontrollable should not offer a guarantee.
- If consumers see little risk associated with a service, a guarantee adds little value.
Jaycustomer
A customer who behaves in a thoughtless or abusive fashion, causing problems for the firm, its employees, and other customers
The Cheat and the Thief
The Cheat: thinks of various way to cheat the firm
The Thief: No intention of paying―sets out to steal or pay less
- Services lend themselves to clever schemes to avoid payment, e.g., bypassing electricity meters, circumventing TV cables, riding free on public transportation
- Firms must take preventive actions against thieves, but make allowances for honest but absent-minded customers
The rulebreaker
- Many services need to establish rules to guide customers safely through the service encounter
- Government agencies may impose rules for health and safety reasons
- 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, not should not be too much or inflexible
The belligerent
Shouts loudly, maybe mouthing insults, threats and curses. Service personnel are often abused even when they are not to be blamed
Confrontations between customers and service employees can easily escalate
In a public environment, priority is to remove the person from other customers
Family feuders and vandals
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, Bored and drunk young people are a common source of vandalism
Unhappy customers who feel mistreated by service providers take revenge → Prevention is the best cure
The deadbeat
Customers who fail to pay (as distinct from “thieves” who never intended to pay in the first place)
Preventive action is better than cure–e.g., insisting on prepayment; asking for credit card number when order is taken
Customers may have good reasons for not paying → If the client’s problems are only temporary ones, consider long-term value of maintaining the relationship
Dealing with customer fraud
If in doubt, believe the customer, Keep a database of how often customers invoke service guarantees or of payments made for service failure
Amount of a guarantee payout had no effect on customer cheating: Repeat-purchase intention reduced cheating intent, customers are reluctant to cheat if service quality is high (rather than just satisfactory)
Managerial implications: Firms can benefit from offering 100 percent money-back guarantees, Guarantees should be offered to regular customers as part of membership program since regular customers are unlikely to cheat, Excellent service firms have less to worry about than average providers
Service quality, productivity, and profitability
Quality focuses on the benefits created for customers; productivity addresses financial costs incurred by the firm
- If service processes are more efficient and increase productivity, this may not result in better quality experience for customers
- Getting service employees to work faster to increase productivity may sometimes be welcomed by customers, but at other times feel rushed and unwanted
- Marketing, operations and human resource managers need to work together for quality and productivity improvement
Different perspectives of service quality
Common perspectives on service quality:
manufacturing-based approach : delivery against measurable standards within certain tolerance levels
User’s perspective: standard of performance that consistently meets or exceeds customer expectations
The gaps model
6
- The knowledge gap = educate management about what customers expect
- Policy gap = establish the right service products, processes and standards based on customer needs and expectations
- The delivery gap = ensure that performance meets standards
- Communications gap = close the internal and external comms gaps by ensuring that communication promises are realistics and correctly understood by customers
- The perception gap = tangibilize and communicate the quality delivered
- The service gap = Close gaps 1 to 5 to consistently meet or exceed customer expectations
Soft measures of service quality
Soft measures—not easily observed, must be collected by talking to customers, employees or others
- Provide direction, guidance and feedback to employees on ways to achieve customer satisfaction
- Can be quantified by measuring customer perceptions and beliefs e.g., SERVQUAL, surveys, and customer advisory panels
Hard measures of service quality
Hard measures—can be counted, timed or measured through audits
- Typically operational processes or outcomes
- Standards often set with reference to percentage of occasions on which a particular measure is achieved
Objectives of effective customer feedback systems
- Assessment and benchmarking of service quality and performance
- Customer-driven learning and improvements
- Creating a customer-oriented service culture
Deming cycle:
PLAN DO CHECK ACT (pcda) = aims to continually improve processes.
* To adapt to market changes, improve efficiency, boost productivity, and meet the needs of your customers, having a method is required.
Deming’s 14 Point Program
- Create consistency of purpose for improvements of service
- Adopt the new philosophy
- Cease dependence on mass inspection
- End the practice on awarding business on price alone
- Constantly and forever improve the system of production and service
- Institute modern methods of training
- Institute modern methods of supervision
- Drive out fear
- Break down barriers between departments
- Eliminate numerical goals for the workforce
- Eliminate work standards and numerical quotas
- Remove barriers that hinder the hourly worker
- Institute a vigorous program of education and training
- Create a structure in top management that will push every day the aforementioned 13 points
Customer feedback collection tools
Total market surveys, Annual surveys, Transactional surveys, Service feedback cards, Mystery shopping, Unsolicited customer feedback, Focus group discussions, Service reviews
SERVQUAL & five dimensions
is a multi-dimensional research instrument designed to capture consumer expectations and perceptions of a service along five dimensions that are believed to represent service quality.
5 dimensions: reliability, assurance, tangibles, empathy, responsiveness –? Service expectation and performance –? Service quality → cust sat
Reporting system for cust feedback 3 types
Reporting system needs to deliver feedback to frontline staff, process owners, branch/department managers and top management
Three types of performance reports: Monthly Service Performance Update Quarterly Service Performance Review Annual Service Performance Report
Service quality indexes:
Embrace key activities that have an impact on customers
Control charts to monitor a single variable:
Offer a simple method of displaying performance over time against specific quality standards, Enable easy identification of trends, Are only good if data on which they are based are accurate
Tools to analyze service problems
3
- Fishbone diagram: Cause-and-effect diagram to identify potential causes of problems
- Pareto Chart: 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: Visualization of service delivery, identifying points where failures are most likely to occur
Return on quality and the optimal level of reliability
Assess costs and benefits of quality initiatives
– Implication: Quality improvement efforts may benefit from being related to productivity improvement programs
To see if new quality improvement efforts make sense, determine costs and then relate to anticipated customer response
- Determine optimal level of reliability → Diminishing returns set in as improvements require higher investments, Know when improving service reliability becomes uneconomical
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
Productivity measures…
Improvement in productivity means…
Productivity measures the 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 information-based services
- Difficult in most services because both input and output are hard to define
- Relatively simpler in possession-processing services as compared to information- and people-processing services
defs: efficiency, productivity, effectiveness
- Efficiency: involves comparison to a standard, usually time- based (e.g., how long employee takes to perform specific task)
Problem: focus on inputs rather than outcomes – May ignore variations in service quality/value - Productivity: involves financial value of outputs to inputs
Consistent delivery of outcomes desired by customers should command higher prices - Effectiveness: degree to which firm meets goals
Cannot divorce productivity from quality and customer satisfaction
Improve service productivity
(generic)
Careful control of costs at every step in process
Reduction of wasteful use of materials or labor
Teaching employees how to work more productively
Providing employees with equipment and databases to work faster and to a higher quality
Broadening variety of tasks that service worker can perform
Installing expert systems that allow paraprofessionals to take on work previously performed by professionals who earn higher salaries
Customer-driven Ways to Improve Productivity
a. Change timing of customer demand: By shifting demand away from peaks, managers can make better use of firm’s productive assets and provide better service
b. Encourage use of lower cost channels: Get customers to self-serve, Encourage customers to obtain information and buy from firm’s corporate Web sites
c. Ask customers to use third parties: Delegate delivery of supplementary service elements to intermediary organizations
A Caution on Cost Reduction Strategies
- Most attempts to improve service productivity seek to eliminate waste and reduce labor costs and does not involve new technology
- Reducing staff means workers try to do several things at once and may perform each task poorly
- Better to search for service process redesign opportunities that lead to: Improvements in productivity, Simultaneous improvement in service quality
An integrated nine-step approach to customer service process improvement
- Determine priority processes for improvement and redesign
- Shortlist processes set targets for cust sat, defect, produ, cycle time
- Identify key elements of quality in priority service processes and det cust needs and expectations
- Assess process perf
- Identify perf shortfalls
- Identify root causes od quality haps
- Improve process perf
- Control and continuously fine tune the process to improve it further
- Start again
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 – (my favorite)
Customer focus
Employee satisfaction
Union intervention and employee relations
Social responsibility
Servicescapes
Service culture
Managing and improving quality and prod
4 systems to do it
- TQM can help organizations to attain service excellence, increase productivity, and create value continuously through innovative process improvements.
- ISO 9000 Certification comprises requirements, definitions, guidelines, and related standards to provide an independent assessment and certification of a firm’s quality management system.
- Six Sigma is favoured by service firms that have high- volume processes to reduce defects and cycle times and improve productivity.: define, measure, analyze, improve, control
- The Malcolm Baldrige National Quality Award aims to promote the best practices in quality management and recognize and publicize quality achievements among U.S. firms.
Employee has a role in service quality
Individual development, Training, HR planning, Standards of performance, Career progression, Opinion surveys, Fair treatment, Profit sharing
Philosophy of Continual Improvement
(7 step method)
Define the project
Study the current situation
Analyze the potential causes
Implement a solution
Check the results
Standardize the improvements
Establish future plans
Share of wallet and how calculated
Share of wallet (SOW) is a marketing metric that measures the percentage of a customer’s spending within a specific product category that goes to a particular company or brand, indicating how well a brand is performing against its competitors.
How it’s calculated: It’s typically calculated by dividing the total amount a customer spends with a particular company or brand by the total amount the customer spends in the relevant product category or market.
What determines a customer’s share-of-wallet?
the relative satisfaction rank of a brand used by a customer, the number of brands used by that customer
Using the Wallet Allocation Rule (WAR), one can predict share-of-wallet
Increasing a firm’s satisfaction score does not increase its share-of-wallet if it does not also achieve a change in ranking vis-à-vis competitors
Why SOW is important:
5
- Customer Loyalty: It’s an indicator of brand loyalty and the depth of a client relationship.
- Market Performance: It shows how well a brand is performing against its competitors in the marketplace.
- Revenue Growth: Increasing a customer’s share of wallet can lead to increased revenue.
- Customer Retention: Focusing on existing customers and maximizing their spending can improve customer retention.
- Brand Loyalty: A higher share of wallet can indicate stronger brand loyalty.
Four Levels of Service Performance
- Service Losers: Bottom of the barrel from both customer and managerial perspectives, Customers patronize them because there is no viable alternative, New technology introduced only under duress; uncaring workforce
- Service Nonentities: Dominated by a traditional operations mindset – Unsophisticated marketing strategies, Consumers neither seek out nor avoid them
- Service Professionals: Clear market positioning strategy, Customers within target segment(s) seek them out, Research used to measure customer satisfaction – Operations and marketing work together, Proactive, investment-oriented approach to HRM
- Service Leaders: The crème da la crème of their respective industries, Names synonymous with outstanding service, customer delight, Service delivery is seamless process organized around customers,Employees empowered and committed to firm’s values and goals
Three pathways to CESE: Cost effective service excellence
dual culture strategy , opts mgmt, focused service factory strategy
Financial success follows from : a long-term perspective, customer-centricity, high customer satisfaction
By creating more value for the customer, the firm creates more value for its owners
Dual-culture strategy
- In the dual-culture strategy, the organization pursues service excellence and productivity simultaneously
- Leadership ambidexterity: Leaders direct organizations to pursue and integrate conflicting demands
- Contextual ambidexterity: Guides employee thinking and decision-making about
when to focus on service excellence
when to emphasize cost-effectiveness
how to integrate both objectives synergistically - Employee buy-in: Employees need a strong rationale.
- harder to implement / driven by intensifying competition and cost pressures pushing organizations to seek new ways to increase efficiencies while maintaining high levels of quality
Operations management approach
Relies on three tools to reduce process variability:
1. buffering and industrializing the back office, and shifting activities from the expensive front office to an industrialized back office
2. modularizing service, allowing increased deployment of systems and technologies in the front office
3. the deployment of self-service technologies (SSTs), robotics, and AI
- Enabled after processes and products have been modularized and have low complexity
Three tools to reduce customer induced process variability
1) isolate the technical core and shift activities to back office 2) reduce customer churn 3) reduce customer contact
Focused service factory strategy
Tailors a single solution to meet the exact needs of a specific customer segment combined with a culture for service excellence
Customers can receive a single, highly standardized, but excellent service offering.
This approach benefits from – simplicity, repetition, homogeneity, experience
How firms can achieve CESE using a focused service factory strategy
Highly standardized offering & tightly defined target segment => production line and industrialized service ops => high cust sat and low unit costs CESE
intl strats and forces for intlization
Multi domestic : developing and implementing independent strategies in each of many countries (examples?)
Transnational: developing and implementing an integrated strategy across all countries in which the company does business (examples?)
Forces for Internationalization: Market drivers *Competition drivers *Technology drivers *Cost drivers *Government drivers
Modes of Internationalization
Export information-based services
: transmit via electronic channels, store in physical media, ship as merchandise
Use third parties to market/deliver service concept: licensing agents, brokers, franchising, alliance partners, minority joint ventures, Agents
Control service enterprise abroad : direct investment in new business
Elements of a Global Transnational Strategy 5
Global market participation - Countries selected for contribution to globalization benefits
Globally standardized core product - Core product (a good or service) requires minimum of local adaptation
Global location of value-adding activities - Value chain is broken up, individual service elements may be delivered to consumption point from separate countries
Global marketing - Uniform (if not identical) marketing approach used globally
Global competitive moves - Integrated across countries; take place simultaneously or in planned sequence
