Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 1
Service as Theater
“ All the world’s a stage and all the men and women merely players. They have their exits and their entrances and each man in his time plays many parts”
William Shakespeare
As You Like It
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 2
The Dramaturgy of Service Delivery
Service dramas unfold on a “stage”--settings may change as performance unfolds
Many service dramas are tightly scripted, others improvised
Front-stage personnel are like members of a cast
Like actors, employees have roles, may wear special costumes, speak required lines, behave in specific ways
Support comes from a backstage production team
Customers are the audience—depending on type of performance, may be passive or active
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 3
Role and Script Theories
Role: A set of behavior patterns learned through experience and communication
Role congruence: In service encounters, employees and customers must act out defined roles for good outcomes
Script: A sequence of behavior to be followed by employees and customers during service delivery
Some scripts (e.g. teeth cleaning) are routinized, others flexible Technology change may require a revised script Managers should reexamine existing scripts to find ways to improve
delivery, increase productivity, enhance experiences
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 4
The Flower of Service:Categorizing Supplementary Services (Fig. 4-5)
Core
Information
Consultation
Order-Taking
Hospitality
Payment
Billing
Exceptions
Safekeeping Facilitating elements
Enhancing elements
KEY:
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 5
Facilitating Services - Information (Table 4.1)
Core
Customers often requireinformation about how toobtain and use a product orservice. They may alsoneed reminders anddocumentation
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 6
Facilitating Services - Order-Taking(Table 4.2)
Many goods and services must be ordered or reservedin advance. Customers need to know what is available andmay want to secure commitment to delivery
Core
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 7
Facilitating Services - Billing(Table 4.3)
“How much do I owe you?”Customers deserve clear, accurate and intelligiblebills and statements
Core
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 8
Facilitating Services - Payment(Table 4.4)
Customers may pay faster and more cheerfully if youmake transactions simpleand convenient for them
Core
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 9
Enhancing Services - Consultation(Table 4.5)
Value can be added to goods and services byoffering advice andconsultation tailored toeach customer’sneeds and situation
Core
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 10
Enhancing Services - Hospitality(Table 4.6)
Customers who invest time and effort in visiting abusiness and using itsservices deserve to betreated as welcome guests (after all, marketing invitedthem there!)
Core
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 11
Enhancing Services - Safekeeping(Table 4.7)
Customers prefer not toworry about looking afterthe personal possessions that they bring with themto a service site.
They may also want deliveryand after-sales services forgoods that they purchaseor rent
Core
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 12
Enhancing Services - Exceptions(Table 4.8)
Customers appreciate some flexibility in a businesswhen they make special requests. They expect itwhen not everything goesaccording to plan
Core
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 13
What is Brand Equity and Why Does It Matter?(From Berry, “Cultivating Brand Equity”)
Definition: A set of assets and liabilities linked to a brand’s name and symbol that adds to (or subtracts from) the perceived value of the product
Insights
Brand equity can be positive or negative
Positive brand equity creates marketing advantage for firm plus value for customer
Perceived value generates preference and loyalty
Management of brand equity involves investment to create and enhance assets, remove liabilities
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 14
A Service Branding Model: How Communications + Experience Create Brand Equity
Firm’s Presented Brand (Sales, Advertising, PR)
What Media, Intermediaries,Word-of-Mouth Say re: Firm
Customer’s Experience with Firm
Awareness of Firm’s Brand
Meaning Attached To Firm’s Brand
Firm’sBrand Equity
Source: Adapted from L. L. Berry ( Fig. 1)
Marketer-controlled communications
Uncontrolled brand communications
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 15
Marketing Communication and the Internet (1)
International in Scope Accessible from almost anywhere in the world Simplest form of international market entry
Internet Applications Promote consumer awareness and interest Provide information and consultation Facilitate 2-way communications through e-mail and chat rooms Stimulate product trial Enable customers to place orders Measure effectiveness of specific advertising/promotional
campaigns
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 16
Chapter 6
Pricing and Revenue Management
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 17
What Makes Service Pricing Strategy Different (and Difficult)?
No ownership of services--hard for firms to calculate financial costs of creating an intangible performance
Variability of inputs and outputs--how can firms define a “unit of service” and establish basis for pricing?
Many services hard for customers to evaluate--what are they getting in return for their money?
Importance of time factor--same service may have more value to customers when delivered faster
Delivery through physical or electronic channels--may create differences in perceived value
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 18
Objectives of Pricing Strategies
Revenue and profit objectives Seek profit Cover costs
Patronage and user base-related objectives Build demand Build a user base
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 19
The Pricing Tripod (Fig. 6.1)
Pricing Strategy
CostsCompetition
Value to customer
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 20
Three Main Approaches to Pricing
Cost-Based PricingSet prices relative to financial costs
(problem: defining costs)
Competition-Based PricingMonitor competitors’ pricing strategy
(especially if service lacks differentiation)Who is the price leader? (one firm sets the pace)
Value-BasedRelate price to value perceived by customer
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 21
Perceived Benefits
Timee
Effort
Net Value = (Benefits – Outlays) (Fig. 6.3)
Perceived Outlays
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 22
Enhancing Gross Value
Pricing Strategies to Reduce Uncertainty service guarantees benefit-driven (pricing that aspect of service that creates value) flat rate (quoting a fixed price in advance)
Relationship Pricing non-price incentives discounts for volume purchases discounts for purchasing multiple services
Low-cost Leadership Convince customers not to equate price with quality Must keep economic costs low to ensure profitability at low price
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 23
Paying for Service:The Customer’s Perspective
Customer “expenditures” on service comprise both financial and non-financial outlays
Financial costs: price of purchasing service expenses associated with search, purchase activity, usage
Time expenditures
Physical effort (e.g., fatigue, discomfort)
Psychological burdens (mental effort, negative feelings)
Negative sensory burdens (unpleasant sensations affecting any of the five senses)
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 24
Determining the Total Costs of a Service to the Consumer (Fig. 6.4)
Price
Related Monetary Costs
Time Costs
Physical Costs
Psychological Costs
Sensory Costs
Necessary follow-up
Problemsolving
Operating Costs
Incidental Expenses
Purchase andUse Costs
Search Costs
After Costs
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 25
Place vs. Cyberspace
Place - customers and suppliers meet in a physical environment
Cyberspace - customers and suppliers do business electronically in virtual environment created by phone/internet linkages
Required for people processing services
Offers live experiences, social interaction, e.g., food services
More emphasis on eye-catching servicescape, entertainment
Ideal for info-based services Saves time Facilitates information gathering May use express logistics service
to deliver physical core products
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 26
Technology Revolutionizes Service Delivery: Some Examples
Smart mobile telephones to link users to Internet
Voice recognition software
Automated kiosks for self-service (e.g. bank ATMs)
Web sites provide informationtake orders and accept paymentdeliver information-based services
Smart cards that can act as “electronic wallets”
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 27
The Problem of Customer Misbehavior – Identifying and Managing “Jaycustomers”
What is a jaycustomer?
A customer who behaves in a thoughtless or abusive fashion, causing problems for the firm itself, employees, other customers
Why do jaycustomers matter? Can disrupt processes Affect service quality May spoil experience of other customers
What should a firm do about them? Try to avoid attracting potential jaycustomers Institute preventive measures Control abusive behavior quickly Take legal action against abusers BUT firm must act in ways that don’t alienate other
customers
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 28
Six Types of “Jaycustomer”
Thief – seeks to avoid paying for service
Rule breaker – ignores rules of social behavior and/or procedures for safe, efficient use of service
Belligerent – angrily abuses service personnel (and sometimes other customers) physically and/or emotionally
Family Feuders – fight with other customers in their party
Vandal – deliberately damages physical facilities, furnishings, and equipment
Deadbeat – fails to pay bills on time
Can you think of others?
How should firms deal with each of these problems?
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 29
Planning the
Service Environment
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 30
The Purpose of Service Environments
The service environment influences buyer behaviour in 3 ways
Message-creating Medium: symbolic cues to communicate the distinctive nature and quality of the service experience.
Attention-creating Medium: to make the servicescape stand out from other competing establishments, and to attract customers from target segments.
Effect-creating Medium: colors, textures, sounds, scents and spatial design to enhance the desired service experience, and/or to heighten an appetite for certain goods, services or experiences
Helps the firm to create a distinctive image & positioning that is unique.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 31
Comparison of Hotel Lobbies (Figure 10.1)
Four Seasons Hotel, New York
Orbit Hotel and Hostel, Los Angeles
The servicescape is part of the value proposition!
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 32
The Mehrabian-Russell Stimulus-Response Model (Figure 10.2)
Response Behaviors:
Approach/ Avoidance &
Cognitive Processes
Environmental Stimuli & Cognitive Processes
Dimensions of Affect:
Pleasure and Arousal
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 33
The Mehrabian-Russell Stimulus-Response Model
Simple and fundamental model of how people respond to environments
Peoples’ conscious and unconscious perceptions and interpretation of the environment influence how they feel in that environment
Feelings, rather than perceptions or thoughts drive behavior
Typical outcome variable is ‘approach’ or ‘avoidance’ of an environment, but other possible outcomes can be added to the model as well
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 34
The Russell Model of Affect
Arousing
Pleasant
Sleepy
Unpleasant
Exciting
RelaxingBoring
Distressing
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 35
The Russell Model of Affect
Emotional responses to environments can be described along two main dimensions, pleasure and arousal.
Pleasure is subjective depending on how much the individual likes or dislikes the environment
Arousal quality of an environment is dependent on its “information load”, i.e., its degree of
Novelty (unexpected, surprising, new, familiar) and Complexity (number of elements, extent of motion or change)
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 36
Drivers of Affect
Affect can be caused by perceptions and cognitive processes of any degree of complexity.
Simple Cognitive Processes, Perception of Stimuli
tangible cues (of service quality)consumer satisfaction
Complex Cognitive Processes
affective charged schemata processingattribution processes
The more complex a cognitive process becomes, the more powerful its potential impact on affect.However, most service encounters are routine. Simple processes can determine affect.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 37
Behavioral Consequence of Affect
Basically, pleasant environments result in approach, and unpleasant environments result in avoidance
Arousal acts as an amplifier of the basic effect of pleasure on behavior
If the environment is pleasant, increasing arousal can lead to excitement and stronger positive consumer response. If the environment is unpleasant, increasing arousal level will move consumers into the Distressing region
Feelings during the service encounter is also an important driver of customer loyalty
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 38
An Integrated Framework – Bitner’s ServiceScape Model (Figure 10.4)
Environmental Dimensions
Perceived ServiceScape
AmbientConditions
Space/Function
Signs,Symbols & Artefacts
CognitiveEmotional Psychological
Customer Response Moderator
Employee Responses
ApproachorAvoid
ApproachorAvoid
Social Interaction Between Customers & Employees
Holistic Environ-ment
Moderators Internal Responses Behaviour
Customer Responses
EmployeeResponse Moderator
CognitiveEmotional Psychological
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 39
An Integrated Framework – Bitner’s ServiceScape Model(con’t)
Identifies the main dimensions in a service environment and views them holistically
Customer and employee responses classified under, cognitive, emotional and psychological which would in turn lead to overt behavior towards the environment
Key to effective design is how well each individual dimension fits together with everything else
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 40
Dimensions of the Service Environment
Ambient Conditions Music (e.g, fast tempo and high volume increase arousal
levels)
Scent (strong impact on mood, affect and evaluative responses, purchase intention and in-store behavior)
Color (e.g, warm colors associated with elated mood states and arousal but also increase anxiety, cool colors reduce arousal but can elicit peacefulness and calm)
Service environments are complex and have many design elements. The main dimensions in the servicescape model includes:
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 41
Dimensions of the Service Environment (con’t)
Spatial Layout and Functionality Layout refers to size and shape of furnishings and the ways it
is arranged Functionality is the ability of those items to facilitate
performance
Signs, Symbols and ArtifactExplicit or implicit signals to communicate the firm’s image,
help consumers find their way and to convey the rules of behavior
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 42
Selection of Environmental Design Elements
There is a multitude of research on the perception and impact of environmental stimuli on behaviour, including:
People density, crowdingLightingSound/noiseScents and odoursQueues
No standard formula to designing the perfect combination of these elements.
Design from the customer’s perspectiveDesign with a holistic view!
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 43
Tools to Guide in Servicescape Design
Keen Observation of Customers’ Behavior and Responses to the service environment by management, supervisors, branch managers, and frontline staff
Feedback and Ideas from Frontline Staff and Customers using a broad array of research tools ranging from suggestion boxes to focus groups and surveys.
Field Experiments can be used to manipulate specific dimensions in an environment and the effects observed.
Blueprinting or Service Mapping - extended to include the physical evidence in the environment.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 44
Managing People
for Service Advantage
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 45
Frontline Service Personnel: Source of Customer Loyalty and Competitive Advantage
Frontline is an important source of differentiation and competitive advantage. It is: a core part of the product the service firm the brand
Frontline also drives customer loyalty, with employees playing key role in anticipating customer needs, customizing service delivery and building personalized relationships
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 46
Boundary Spanning Roles
Boundary spanners link the inside of the organization to the outside world
Multiplicity of roles often results in service staff having to pursue both operational and marketing goals
Consider management expectations of restaurant servers:
deliver a highly satisfying dining experience to their customers be fast and efficient at executing operational task of serving
customers do selling and cross selling, e.g. “We have some nice desserts to
follow your main course”
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 47
Role Stress in the Frontline
Person vs. Role: Conflicts between what jobs require and employee’s own personality and beliefs
Organization vs. Customer: Dilemma whether to follow company rules or to satisfy customer demands
Customer vs. Customer: Conflicts between customers that demand service staff intervention
3 main causes of role stress:
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 48
Emotional Labor
“The act of expressing socially desired emotions during service transactions” (Hochschild, The Managed Heart)
Three approaches used by employees surface acting deep acting spontaneous response
Performing emotional labor in response to society’s or management’s display rules can be stressful
Good HR practice emphasizes selective recruitment, training, counseling, strategies to alleviate stress
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 49
How to Manage People for Service Advantage?
1. Hire the right people
2. Enable your people
3. Motivate and energize your people
Staff performance is a function of both ability and motivation. How can we get able service employees who are motivated to productively deliver service excellence?
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 50
Hire the Right People
“The old saying ‘People are your most
important asset’ is wrong.
The RIGHT people are your most
most important asset.”
“The old saying ‘People are your most
important asset’ is wrong.
The RIGHT people are your most
most important asset.”
Jim Collins
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 51
Recruitment
The right people are a firm’s most important asset: take a focused, marketing-like approach to recruitment
Clarify what must be hired versus what can be taught
Clarify nature of the working environment, corporate values and style, in addition to job specs
Ensure candidates have/can obtain needed qualifications
Evaluate candidate’s fit with firm’s culture and values
Fit personalities, styles, energies to the appropriate jobs
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 52
Select And Hire the Right People: (1) Be the Preferred Employer
Create a large pool: “Compete for Talent Market Share”
What determines a firm’s applicant pool?
Positive image in the community as place to work Quality of its services The firm’s perceived status
There is no 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
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 53
Observe Behavior
Hire based on observed behavior, not words you hear Best predictor of future behavior is past behavior Consider group hiring sessions where candidates given group tasks
Personality Testing
Willingness to treat co-workers and customers with courtesy, consideration and tact
Perceptiveness regarding customer needs Ability to communicate accurately and pleasantly
Select and Hire the Right People:(2) How to Identify the Best Candidates
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 54
Select and Hire the Right People:(3) How 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 effects
Give Applicants a Realistic Preview of the Job
Chance to have “hands-on” with the job Assess how the candidates respond to job realities Allow candidates to self select themselves out of the job
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 55
The Organizational Culture, Purpose and Strategy Promote core values, get emotional commitment to strategy Get managers to teach “why”, “what” and “how” of job.
Interpersonal and Technical Skills Both are necessary but neither is sufficient for optimal job
performance
Product/Service Knowledge Staff’s product knowledge is a key aspect of service quality Staff need to be able to explain product features and to position
products correctly
Train Service Employees
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 56
Factors Favoring Employee Empowerment
Firm’s strategy is based on competitive differentiation and on personalized, customized service
Emphasis on long-term relationships vs. one-time transactions
Use of complex and non-routine technologies
Environment is unpredictable, contains surprises
Managers are comfortable letting employees work independently for benefit of firm and customers
Employees seek to deepen skills, like working with others, and are good at group processes
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 57
Suggestion involvement Employee recommendation
Job involvement Jobs redesigned Employees retrained Supervisors facilitate
High involvement Information is shared Employees skilled in teamwork,
problem solving etc. Participate in decisions Profit sharing and stock ownership
Levels of Employee Involvement
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 58
Motivate and Energize the Frontline
Job content
Feedback and recognition
Goal accomplishment
Use the full range of available rewards effectively, including:
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 59
The Inverted Organizational Pyramid (Fig. 11.5)
Frontline Staff
Top Mgmt
Middle Mgmt
Legend: = Service encounters, or ‘Moments of Truth.’
Traditional Organizational Pyramid
Inverted Pyramid with a Customer & Frontline Focus
Customer Base
Frontline Staff
Middle Mgmt & Top Mgmt
Support Frontline
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 60
The Wheel of Successful HR in Service Firms (Fig. 11.6)
Leadership that:
Focuses the entire organization on supporting the frontline
Fosters a strong service culture with passion for service and productivity
Drives values that inspire, energize and guide service providers
1. Hire theRight People
3. Motivate & Energize Your People
2. Enable Your People
Be the preferred employer & compete for talent market share
Intensify the selection process
Empower FrontlineBuild high performance service
delivery teams Extensive Training
Utilize the full range of rewards
Service Excellence& Productivity
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 61
Managing Relationships
and Building Loyalty
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 62
Four Stages of Brand Loyalty in a Consumer
Cognitive loyalty – perception from brand attribute information that one brand is preferable to its alternatives
Affective loyalty – developing a liking for the brand based on cumulatively satisfying usage occasions
Conative loyalty – commitment to rebuying the same brand
Action loyalty – exhibiting consistent repurchase behavior
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 63
What Makes Loyal Customers More Profitable?
Tend to spend more as relationship developscustomer’s balances may growmay consolidate purchases to one supplier
Cost less to serve less need for information and assistancemake fewer mistakes
Recommend new customers to firm (act as unpaid sales people)
Trust leads to willingness to pay regular prices vs. shopping for discounts
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 64
Customer-Firm Relationship
Database Marketing: Involves the use of technology by delivering differentiated service levels to consumers and subsequently tracking the relationship.
Interaction Marketing: Usually in B2B context where people and the social process also add mutually beneficial value.
Network Marketing: Common in B2B context where companies commit resources to develop positions in a network of relationships with the stakeholders and relevant agencies.
Today’s marketers seek to develop long-term relationships with customers. Relationship marketing includes:
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 65
Basic Segmentation Issues: Building an Appropriate Customer Portfolio
Target customers whose needs match firm’s capabilities
Focus on value of prospective customers within each segment, not just numbers
Avoid targeting customers who might abuse:our employees, facilitiesother customers
Create a mix of segments to reduce risks of volatility during swings of economic cycles
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 66
Service-Relevant Segmentation Variables
Timing of service use (e.g., by hour, day, season)
Level of skill and experience as co-producer/self-server
Preferred language in face-to-face contact
Access to electronic delivery systems (e.g., Internet)
Attitudes toward use of new service technologies
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 67
Identifying and Selecting Target Segments (Mgt Memo 12.2)
User characteristics demographics psychographics geographic location benefits sought
User behavior when, where, how services used quantity/value of purchases frequency of use profitability of relationship sensitivity to marketing variables
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 68
The Customer Pyramid (Fig. 12.5)
Lead
Iron
Gold
Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-of-mouth?
Which segment costs us in time, effort and money, yet does not provide the return we want? Which segment is difficult to do business with?
Platinum
Good Relationship Customers
Poor Relationship Customers
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 69
How Customers See Relational Benefits in Service Industries (Research Insights 12.1)
Confidence benefits less risk of something going wrong, less anxiety ability to trust provider know what to expect get firm’s best service level
Social benefits mutual recognition, known by name friendship, enjoyment of social aspects
Special treatment benefits better prices, discounts, special deals unavailable to others extra services higher priority with waits, faster service
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 70
The Customer Satisfaction-Loyalty Relationship (Fig. 12.6)
0
20
40
60
80
100
1 2 3 4 5
Lo
yalt
y (R
eten
tio
n)
Verydissatisfied Dissatisfied
Neithersatisfied
nor dissatisfiedSatisfied
VerySatisfied
Satisfaction
Near Apostle
Zone of Defection
Zone of Indifference
Zone of Affection
Terrorist
Apostle
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 71
The Wheel of Loyalty (Fig. 12.7)
1. Build aFoundationfor Loyalty
2. Create LoyaltyBonds
3. Reduce Churn Drivers
CustomerLoyalty
Be selective in acquisition
Conduct churn diagnosticSegment the market
Use effective tiering of service.
Deliver quality service.
Deepen the relationship
Give loyalty rewards
Build higher level bonds
Implement complaint handling & service recovery
Address key churn drivers
Increase switching costs
Enabled through: Frontline staff Account
managers Membership
programs CRM Systems
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 72
Drivers of Service Switching (Fig. 12.9)
Service Switching
Service Encounter Failures• Uncaring• Impolite• Unresponsive• Unknowledgeable
Response to Service Failure• Negative Response• No Response• Reluctant Response
Pricing• High Price• Price Increases• Unfair Pricing• Deceptive Pricing
Inconvenience• Location/Hours• Wait for Appointment• Wait for Service
Competition• Found Better Service
Ethical Problems• Cheat• Hard Sell
Involuntary Switching• Customer Moved• Provider Closed
Value PropositionValue Proposition
OthersOthers
Service Failure / RecoveryService Failure / Recovery
Core Service Failure• Service Mistakes• Billing Errors• Service Catastrophe
• Unsafe• Conflict of Interest
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 73
Improving Service Quality
and Productivity
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 74
Importance of Productivity and Quality for Service Marketers
Productivity Helps to keep costs down
lower prices to develop market, compete better increase margins to permit larger marketing budgets raise profits to invest in service innovation
May impact service experience (must avoid negatives)
May require customer involvement, cooperation
Quality Gain competitive advantage, maintain loyalty
Increase value (may permit higher margins)
Improve profits
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 75
Perspectives on Service Quality
Transcendental: Quality = excellence. Recognized only through experience
Quality is precise and measurable
Quality lies in the eyes of the beholder
Quality is conformance to the firm’s developed specifications
Quality is a trade-off between price and value
Product-Based:
User-Based:
Manufacturing-Based:
Value-Based:
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 76
Dimensions of Service Quality
Tangibles
Reliability
Responsiveness
Assurance competence, courtesy credibility security
Empathy access communication understanding of customer
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 77
Seven Service Quality Gaps (Fig. 14.1)
Customer experience relative to expectations
Advertising and sales promises
Customer interpretation of communications
1. Knowledge Gap
2. Standards Gap
3. Delivery Gap
5. Perceptions Gap
7. Service Gap
Customer needs and expectations
Management definition of these needs
Translation into design/delivery specs
Execution of design/delivery specs
Customer perceptions of product execution
6. Interpretation Gap
4. I.C.Gap
MANAGEMENT
CUSTOMER
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 78
Prescriptions for Closing Service Quality Gaps (Table 14.3)
Knowledge: Learn what customers expect--conduct research, dialogue, feedback
Standards: Specify SQ standards that reflect expectations
Delivery: Ensure service performance matches specs--consider roles of employees, equipment, customers
Internal communications: Ensure performance levels match marketing promises
Perceptions: Educate customers to see reality of service delivery
Interpretation: Pretest communications to make sure message is clear and unambiguous.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 79
Tools to Address Service Quality Problems
Fishbone diagrams: A cause-and-effect diagram to identify potential causes of problems.
Pareto charts: 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: A visualization of service delivery. It allows one to identify fail points in both the frontstage and backstage.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 80
Efficiency, Effectiveness, and Productivity
Efficiency: 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 quality or value of service
Effectiveness: degree to which firm is meeting its goals
Cannot divorce productivity from quality/customer satisfaction
Productivity: financial valuation of outputs to inputs
Consistent delivery of outcomes desired by customers should command higher prices
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 81
Measuring Service Productivity
Traditional measures of service output tend to ignore variations in quality or value of service That is, they focus on outputs rather than outcomes, and stress
efficiency but not effectiveness.
Firms that are more effective in consistently delivering outcomes desired by customers can command higher prices. Furthermore, loyal customers are more profitable.
Measures with customers as denominator include: profitability by customer capital employed per customer shareholder equity per customer