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MODULE III
Understanding Customer
Requirements
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CompanyPerceptions of
ConsumerExpectations
Expected ServiceCUSTOMER
COMPANYListening Gap
Provider Gap 1
Part 3 Opener
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Objectives for Chapter 6:
Listening to Customers through Research
Present the types of and guidelines for marketingresearch in services.
Show how marketing research information can and
should be used for services.
Describe the strategies by which companies canfacilitate interaction and communication betweenmanagement and customers.
Present ways that companies can and do facilitateinteraction between contact people and management.
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Common Research Objectives
for Services
To discover customer requirements or expectations for service.
To monitor and track service performance.
To assess overall company performance compared with that ofcompetition.
To assess gaps between customer expectations and perceptions. To identify dissatisfied customers, so that service recovery can
be attempted.
To gauge effectiveness of changes in service delivery.
To appraise the service performance of individuals and teams for
evaluation, recognition, and rewards. To determine customer expectations for a new service.
To monitor changing customer expectations in an industry.
To forecast future expectations of customers.
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Criteria for an Effective
Service Research Program
Includes both qualitative and quantitative research
Includes both expectations and perceptions ofcustomers
Balances the cost of the research and the value of theinformation
Includes statistical validity when necessary
Measures priorities or importance of attributes
Occurs with appropriate frequency Includes measures of loyalty, behavioral intentions, or
actual behavior
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Stages in the Research Process
Stage 1 : Define Problem
Stage 2 : Develop Measurement Strategy
Stage 3 : Implement Research Program
Stage 4 : Collect and Tabulate Data
Stage 5 : Interpret and Analyze Findings
Stage 6 : Report Findings
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Portfolio of Services Research
Customer Complaint Solicitation
Relationship Surveys
Post-Transaction Surveys
Customer Focus Groups
Mystery Shopping of Service
Providers
Employee Surveys
Identify dissatisfied customers to attempt recovery; identifymost common categories of service failure for remedial action
Obtain customer feedback while service experience is fresh; act onfeedback quickly if negative patterns develop
Use as input for quantitative surveys; provide a forum forcustomers to suggest service-improvement ideas
Assess companys service performance compared tocompetitors; identify service-improvement priorities; trackservice improvement over time
Measure individual employee service behaviors for use incoaching, training, performance evaluation, recognition andrewards; identify systemic strengths and weaknesses in service
Measure internal service quality; identify employee-perceivedobstacles to improve service; track employee morale andattitudes
Determine the reasons why customers defect
Research Objective Type of Research
Lost Customer Research
Future Expectations ResearchForecast future expectations of customers; develop and testnew service ideas
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Retail Chain
9
8
76
5
4
3
2
1
0Reliability Responsiveness Assurance Empathy Tangibles
OO
= Zone of Tolerance = Service Quality PerceptionO
O
OO
Figure 6.4
Service Quality Perceptions
Relative to Zones of Tolerance
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Computer Manufacturer
10
8
6
4
2
0
Reliability Responsiveness Assurance Empathy Tangibles
OO OO
O
= Zone of Tolerance = S.Q. PerceptionO
Service Quality Perceptions
Relative to Zones of Tolerance
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Objectives for Chapter 7:
Building Customer Relationships
Explain relationship marketing, its goals, and the benefits oflong-term relationships for firms and customers.
Explain why and how to estimate customer relationship value.
Introduce the concept of customer profitability segments as astrategy for focusing relationship marketing efforts.
Present relationship development strategiesincluding qualitycore service, switching barriers, and relationship bonds.
Identify challenges in relationship development, including thesomewhat controversial idea that the customer is not alwaysright.
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Relationship Marketing
is a philosophy of doing business, a strategic orientation, that
focuses on keeping current customers and improving
relationships with them
does not necessarily emphasize acquiring new customers
is usually cheaper (for the firm)
keeping a current customer costs less than attracting a new one
thus, the focus is less on attraction, and more on retention and
enhancement of customer relationships
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Figure 7.1
Customer Goals of Relationship Marketing
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Benefits of Relationship Marketing
Benefits for Customers:
Receipt of greater value
Confidence benefits:
trust
confidence in provider
reduced anxiety
Social benefits:
familiarity
social support
personal relationships
Special treatment benefits: special deals
price breaks
Benefits for Firms:
Economic benefits:
increased revenues
reduced marketing andadministrative costs
regular revenue stream
Customer behavior benefits:
strong word-of-mouth endorsements
customer voluntary performance
social benefits to other customers
mentors to other customers
Human resource managementbenefits:
easier jobs for employees
social benefits for employees
employee retention
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Customer Loyalty Exercise
Think of a service provider to who you areloyal.
What do you do (your behaviors, actions,feelings) that indicates you are loyal?
Why are you loyal to this provider?
What factors have influenced the formation ofyour loyalty?
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Most profitable
customers
Least profitable
customers
What segment spends more with us over
time, costs less to maintain, spreads
positive word-of-mouth?
What segment costs us in time, effortand money yet does not provide the
return we want? What segment is
difficult to do business with?
Gold
Iron
Lead
Platinum
Figure 7.4
The Customer Pyramid
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Figure 7.5
Relationship Development Model
Customer BenefitsConfidence benefits
Social benefits
Special treatment benefits
Relationship BondsFinancial bonds
Social bonds
Customization bonds
Structural bonds
Switching BarriersCustomer inertia
Switching costs
Core Service ProvisionSatisfaction
Perceived service quality
Perceived value
Strong Customer
Relationship
(Loyalty)
Firm BenefitsEconomic benefits
Customer behavior benefits
Human resource management
benefits
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Strategies for Building Relationships
Core Service Provision: service foundations built upon delivery of excellent
service: satisfaction, perceived service quality, perceived value
Switching Barriers: switching costs:
set up costs, search costs, learning costs, contractual costs
Relationship Bonds: financial bonds social bonds customization bonds structural bonds
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Excellent
service
and value
1. Financial
bonds
2.
Social
bonds
4.
Structural
bonds
3. Customization
Bonds
Volume and
frequency
rewards
Bundling and
cross selling
Stable
pricing
Social bonds
amongcustomers
Personal
relationships
Continuous
relationships
Customer
intimacyMass
customization
Anticipation/
innovation
Shared
processes andequipment
Joint
investments
Integrated
information
systems
Figure 7.6
Levels of Relationship Strategies
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The Customer Is NOT Always Right
Not all customers are good relationship
customers:
wrong segment
not profitable in the long term
difficult customers
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Relationship Value of Customers
Relationship value of a customer is a concept
or calculation that looks at customers from
the point of view of
Their life time revenue and / or
Profitability contributions to the company
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Table 7.1
Lifetime Value of an Average Business Customer at
Telecheck International
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Objectives for Chapter 8:
Service Recovery
Illustrate the importance of recovery from service failures inkeeping customers and building loyalty.
Discuss the nature of consumer complaints and why people doand do not complain.
Provide evidence of what customers expect and the kind ofresponses they want when they do complain.
Present strategies for effective service recovery, together withexamples of what does and does not work.
Discuss service guaranteeswhat they are, the benefits ofguarantees, and when to use themas a particular type ofservice recovery strategy.
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Figure 8.1
Unhappy Customers Repurchase Intentions
82%
54%
19%
9%
Complaints Resolved Quickly
Complaints Resolved
Complaints Not Resolved
Unhappy Customers Who Dont Complain
Unhappy Customers Who Do Complain
Percent of customers who will buy again after a
major complaint (over $100 in losses)
Source:Adapted from data reported by the Technical Assistance Research Program.
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Figure 8.3
Customer Complaint Actions Following Service
Failure
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Figure 8.4
Causes Behind Service Switching
Service Switching
Behavior
High price
Price increases
Unfair pricing
Deceptive pricing
Pricing
Location/hours
Wait for appointment
Wait for service
Inconvenience
Service mistakes
Billing errors
Service catastrophe
Core Service Failure
Uncaring
Impolite
Unresponsive
Unknowledgeable
Service Encounter Failures
Negative response
No response
Reluctant response
Response to Service Failure
Found better service
Competition
Cheat
Hard sell
Unsafe
Conflict of interest
Ethical Problems
Customer moved
Provider closed
Involuntary Switching
ource: Sue Keaveney, Customer Switching Behavior in Service Industries: An Exploratory Study,Journal of Marketing, April, 1995, pp. 71-82.
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LearnfromRecovery
Experiences
Act
Quickly
Treat Customers FairlyFail-safe
the Service
Service
Recovery
Strategies
Figure 8.5
Service Recovery Strategies
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Service Guarantees
guarantee = an assurance of the fulfillment of a condition(Websters Dictionary)
in a business context, a guarantee is a pledge or assurance that aproduct offered by a firm will perform as promised and, if not,
then some form of reparation will be undertaken by the firm
for tangible products, a guarantee is often done in the form of awarranty
services are often not guaranteed cannot return the service
service experience is intangible(so what do you guarantee?)
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Exhibit 8.6
Characteristics of an Effective
Service Guarantee
Unconditional
the guarantee should make its promise unconditionally no stringsattached
Meaningful
the firm should guarantee elements of the service that are importantto the customer
the payout should cover fully the customers dissatisfaction
Easy to Understand and Communicate
customers need to understand what to expect
employees need to understand what to do Easy to Invoke and Collect
the firm should eliminate hoops or red tape in the way of accessing orcollecting on the guarantee
Source: Christopher W.L. Hart, The Power of Unconditional Guarantees, Harvard Business Review, July-August, 1988, pp. 54-62.
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Benefits of Service Guarantees
A good guarantee forces the company to focus on its customers.
An effective guarantee sets clear standards for the organization.
A good guarantee generates immediate and relevant feedbackfrom customers.
When the guarantee is invoked there is an instant opportunity torecover, thus satisfying the customer and helping retain loyalty.
Information generated through the guarantee can be trackedand integrated into continuous improvement efforts.
Employee morale and loyalty can be enhanced as a result ofhaving a service guarantee in place.
A service guarantee reduces customers sense of risk and buildsconfidence in the organization.
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Why a Good Guarantee Works
forces company to focus on customers
sets clear standards
generates feedback
forces company to understand why it failed
builds marketing muscle
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Service Guarantees
Does everyone need a guarantee?
Reasons companies might NOT want to offer aservice guarantee: existing service quality is poor guarantee does not fit the companys image too many uncontrollable external variables fears of cheating or abuse by customers
costs of the guarantee outweigh the benefits customers perceive little risk in the service customers perceive little variability in service quality
among competitors
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Service Guarantees
service guarantees work for companies who arealready customer-focused
effective guarantees can be BIG deals they put
the company at risk in the eyes of the customer customers should be involved in the design of
service guarantees
the guarantee should be so stunning that it
comes as a surprise a WOW!! factor
its the icing on the cake, not the cake
