You are on page 1of 214



Module 1. Basics of Services


The term services cover a heterogeneous range of intangible products and activities
that are difficult to encapsulate within a simple definition.

Services are also often difficult to separate from goods with which they may be
associated in varying degrees.

"There is a group of industries, generally classified as service industries, that

produce outputs that have many of the characteristics of goods, i.e., those
concerned with the provision, storage, communication and dissemination of
information, advice and entertainment in the broadest sense of those terms--the
production of general or specialized information, news, consultancy reports,
computer programs, movies, music, etc. The outputs of these industries, over which
ownership rights may be established, are often stored on physical objects--paper,
tapes, disks, etc.--that can be traded like ordinary goods. Whether characterized as
goods or services, these products possess the essential characteristic that they can
be produced by one unit and supplied to another, thus making possible division of
labour and the emergence of markets."

Examples of service activities are wholesale, retail, certain kinds of

repair, hotel, catering, transport, postal, telecommunication, financial, insurance,
real estate, property rental, computer-related, research, professional, marketing
and other business support, government, education, health, social, sanitation,
community, audiovisual, recreational, cultural, personal, and domestic services.

Why Study Services?

Good customer service is all about bringing customers back.

And about sending them away happy - happy enough to pass positive feedback
about your business along to others, who may then try the product or service you
offer for themselves and in their turn become repeat customers.
By maintaining good customer service, you will be keeping customers - which in the
long run is quicker, easier and cheaper then finding new ones!

Good customer service is much cheaper and far more effective

A satisfied customer that has purchased a product from you, or used your service
will tell friends and colleagues about their experience. Generally, happy customers
will recommend your business to others.

Good customer service is important as it’s easier and cheaper to keep existing
customers happy than to keep finding new ones.

every member of staff needs to take ownership of customer care and be proactive
when dealing with customers so that problems do not arise.

Marketing brings a customer in, customer service keeps them coming back.

Good customer service can be the difference between being able to compete and
survive and failing.

customer service that builds customer loyalty, gives positive word-of-mouth

advertising, and increases sales – in short, the good, better or even superior
customer service that consumers want.

Providing excellent customer service is one way a small business can distinguish
itself from the competition.

The essence of good customer service is forming a relationship with customers – a

relationship that that individual customer feels that he would like to pursue.




Role of Services in an Economy

What is a service?

n An idea?

n A circumstance?

n A convenience?
n A physical thing?

Goods vs. Services

n Good: tangible physical object; created and transfered; existence over time

n Service: intangible and perishable; created and used simultaneously; only the
effect has an existence over time

» Book, restaurant, TV

Challenge to managers

n Identify appropriate techniques developed in manufacturing that are

applicable to service operations

n Initiate the innovative use of information systems

n Recognise the consumer as a productive resource

Service Definition

A Service is a Time-perishable, Intangible Experience Performed for a Customer

Acting in the Role of a Coproducer.

-- James Fitzsimmons

Definition of Service Firms

Service Enterprises are Organizations that Facilitate the Production and

Distribution of Goods, Support Other Firms in Meeting Their Goals, and Add Value to
Our Personal Lives.

-- James Fitzsimmons

Taxonomy of services

n Domestic services

n Trade and Commerce

n Services that refine and extend human capacities

Role of Services in an Economy


· Military
· Education

· Judicial

· Police and fire protection


· Consulting

· Auditing

· Advertising

· Waste disposal


Services inside company:

· Finance

· Accounting

· Legal

· R&D and design


· Wholesaling

· Retailing

· Repairing


· Healthcare

· Restaurants

· Hotels




· Communications
· Transportation

· Utilities

· Banking


· Financing

· Leasing

· Insurance

Stages of Economic Development



Pre- Use of Standard

Dominant human Unit of of living

Society Game activity labor social life measure Structure



Pre- Against Agriculture Raw Extended Sub- Routine

Simple hand

Industrial Nature Mining muscle household sistence Traditional




Industrial Against Goods Machine Individual Quantity Bureaucratic


fabricated production tending of goods



Post- Among Services Artistic Community Quality of Inter-

Industrial Persons Creative life in terms


Intellectual of health, Global



The New Experience Economy

The Four Realms of an ExperienceThe Four Realms of an ExperienceThe Four
Realms of an Experience

Experience Design Principles

n Theme the Experience (Big Chefs)

n Harmonize Impressions with Positive Cues

n Eliminate Negative Cues

(Cinemark talking trash containers)

n Mix in Memorabilia (Hard Rock T-shirts)

n Engage all Five Senses (Mist in Rainforest)

Source of Service Sector Growth

n Information Technology (e.g. Internet)

n Innovation
Push theory (e.g. Post-it)
Pull theory

Services derived from products

Exploiting information (e.g. Auto part sales)

Difficulty of testing service prototypes

n Changing Demographics
Aging of the population
Two-income families

Role of the Service Manager

n Entrepreneurial Innovation

n Capitalizing on Social Trends

n Management Challenges
Economies of Scale (MRI scanner)
Economies of Scope(Convenience store)
Complexity (Yield Management)
Boundary Crossing (Bank vs Brokerage)
International Competitiveness( Cultural Diversity)

Services and Technology -


Service encounters were viewed as person-to-person interactions. Now, in many contexts, technology
is replacing human providers and either giving customers an option of, or requiring, the use of self-
service technologies. Technology is also being deployed to enhance the performance of the front line
employee in interacting with the customer. In still other cases, technology is allowing introduction of
entirely new service innovations. Across all these situations, the infusion of technology is
dramatically altering the very essence of service encounters formerly anchored in a “low tech, high
touch” paradigm.

The objective of this research is to explore the changing nature of service encounters emanating from
the infusion of technology, with an emphasis on how service encounters can be improved through
technology. We examine the influence of technology on the ability of firms to effectively:

(1) customize service offerings;

(2) recover from service failure; and,
(3) delight customers.

The role of technology infusion is examined as an enabler of both employees and customers in
creating satisfying service encounters across all three of these categories. Examples are featured and
managerial and research implications highlighted.


As companies race to introduce technology that enables customers to get service on their own,
managers often find that it is more difficult than it looks to implement and manage effective self-
service technologies (SSTs). In this research, we present findings from qualitative interviews and
survey research investigating SSTs from the customer’s point of view. Based on this research and our
work with companies, we present and develop insights around important lessons listed below to
guide managers in developing successful SSTs.

Lesson 1: Be very clear on the strategic purpose of the SST.

Lesson 2: Maintain a Customer Focus.
Lesson 3: Actively promote the use of SSTs.
Lesson 4: Prevent and Manage Failures.
Lesson 5: Offer Choices.
Lesson 6: Be prepared for constant updating and continuous improvement.

Descriptions of technologically based service encounters were collected from over 800 customers.
Results indicate that the determinants of satisfaction or dissatisfaction with SSTs are quite different
from factors that determine satisfaction or dissatisfaction in interpersonal encounters. Satisfactory
encounters result primarily from the customer’s delight at being able to solve an immediate need,
fascination with being able to conduct transactions electronically, or being able to do something more
easily and conveniently. On the other hand, all dissatisfactory encounters resulted from some type of
service failure, either with the technology itself, the design of the technology, the resulting service
process, or occasionally from the customers’ own mistake.

As expected, satisfactory encounters lead to significantly greater occurrence of

positive word of mouth and repeat purchases, and less complaining than
dissatisfactory encounters. It was also determined that customers found certain
types of failures (design of the technology or service process) to be more
unforgivable than other more temporary failures such as an out of order SST.
This research examines the issue of employee behaviors and motivation with regard to
recommending a new SST to end customers. Over 300 sales and service employees in dealerships of
a major manufacturer were surveyed to assess their motivation for recommending a new consumer
SST that allows online scheduling of service appointments and tracking of service status by end
customers. Conclusions from the study suggest that:

• Employees who have more positive beliefs & feelings about the new SST will be more likely
to recommend it.
• Employees are more motivated when they feel they are competent to recommend the
technology and when they feel free to decide to recommend it.
• Employee competence and freedom of choice, and thereby motivation and ultimate
recommending behaviors, are increased through:

o Creating a sense of the importance of the strategic SST initiative and buy-in
throughout the organization.
o Increasing management and co-worker support of the SST initiative.
o Having managers clearly expect, or even require, that employees recommend the SST
to customers.
o Training and re-training all managers and employees to use the SST themselves.
o Promoting and advertising the SST internally to employees as well as externally to

An overall conclusion from the study is the need for organizations to implement
an internal marketing and employee roll out plan for new SSTs in addition to the
more common customer advertising and customer roll out plans.


A service encounter may be described as the direct or indirect interaction between

a service provider (i.e., a firm) and its customer.

The availability and use of appropriate technologies govern the success of a service
encounter. An examination of the role of OT is therefore essential to the
comprehensive understanding of the service encounter. Recent efforts (e.g., Mills
and Moberg, 1990; Quinn and Paquette, 1990) have provided a first attempt at
understanding the role of OT in service encounters. Findings suggest that the
customer is often not just a passive recipient of the service, but an active
participant in the service production process. In fact, in most service encounters
(from a simple tax return preparation to something as complex as psychoanalytic
therapy), the active participation of the customer is not just helpful, but rather an
essential necessity. In general, as customer involvement increases, so does the
complexity of a given service encounter.

The firm's inability to adequately control the extent of customer participation has
prompted researchers to treat the customer as an uncertainty faced by a firm.
Contemporary investigations have accepted the existence of this uncertainty and
have focused on how firms can best manage and control the encounter

Others have suggested the use of appropriate governance structures that match
the nature of the service (e.g., Jones, 1990). A common thread in these arguments
is the need for the firm to focus on the difficult task of managing the customer. The
active role that the customer plays in service encounters makes this task even more
critical for the firm. Therefore, any attempt at understanding OT in service
encounters must account for the active and often unpredictable involvement of the
customer during the encounter.

The article hopes to make several academic and managerial contributions. First, it
extends the research on the co-alignment of customer and firm in service
encounters. Next, it provides a framework for investigating technologies as they
enter the service encounter. This is particularly relevant since the customer is a
provider of technological inputs. Third, to understand the role of OT in service
encounters researchers need to define the broad constructs at a lower level of
abstraction than the words denoting the construct

The article is organized in three sections. The first section of the article sets the
stage for framework development by describing the two primary constructs (i.e.,
service encounters, and OT). Next, the conceptual framework for viewing OT in
service encounters is developed. The conclusions section of the article includes a
discussion on the implications and usefulness of the proposed model.


Two streams of research have directly influenced the theory development process proposed in
this article --research on service encounters and that on OT. These two areas offer rich sources of
information for the necessary rationale and support of the framework developed in this paper.
This section contains a brief discussion of the relevant research on service encounters and OT.

The Service Encounter

There is increasing agreement among researchers on the basic form and definition of a service.
This consensus has stemmed from an agreement on the unique and distinctive characteristics of a
service (e.g., Gronroos, 1983; Lovelock, 1981; Norman, 1984; Uhl and Upah, 1983; Zeithaml et
al., 1985). The unique characteristics of a service dictate the structure and the conduct of the
service encounter. A review of commonly accepted definitions suggests two unique
characteristics of service encounters. First, both the customer and the firm have key roles to play
in the service encounter. Scholars in management and marketing (e.g., Bowen, 1990;Jones, 1990;
Gronroos, 1990) have noted that service encounters call for a high level of coordination between
the customer and the firm. The interaction between the customer and the firm results in the
sharing and/or use of resources held by the firm and by the customer. Since technology is a
resource that the customer can contribute to the service encounter, researchers must study, (1) the
complimentary roles of the firm and the customer as contributors of technology in a service
encounter, and (2) the process of assembling appropriate technological resources.

The second characteristic noted in the literature is the dynamic interaction between the two key
participants (the customer and the firm) in a service encounter. Researchers have consistently
noted that the customer is not a passive participant in the resource transformation process.
Bowen (1986) suggests that the customer should be considered an active participant in the
resource transformation process. Mills, Chase and Margulies (1983) have suggested that the
customer's willingness to participate in the transaction depends on the expected value of that
outcome. Similar sentiments are expressed by Czepiel (1990), and Larsson and Bowen (1989).
Thus, understanding the role of both the customer and the firm in combining technologies during
the transformation process is the second issue that must be explored when developing a
framework for OT in service encounters.


The value of technology in service encounters

To gain competitive advantage in the market, several retail banks have recently started to deploy
biometric technologies in their service encounters. Biometrics is an emerging technology that
authenticates individuals using their unique physical characteristics. While the application of
biometrics is expected to increase security of a certain physical or logical area, this new
technology seems to engender various consumer concerns.

This study aimed to understand consumers' value perception of using biometric technology, in
particular fingerprint recognition technology at ATMs. Following the utilitarian approach to
define consumers' value, perceived benefit and perceived risk were measured as a "get"
component and a "give" component, respectively. The levels of trust in a bank and personal
innovativeness were also measured as constructs that may influence individuals' value judgment
of using the new technology.

The perceived benefit and the perceived risk were hypothesized as multi-dimensional constructs
and measured by formative indicators. Specific dimensions of those two molar constructs were
determined based on informal personal interviews as well as reviews of extant literature. To
validate the research model of this study, an empirical study was conducted with an Internet
survey. Customers' e-mail addresses were randomly selected from the database of the bank that
deployed fingerprint recognition technology for its ATMs.

Understanding what attracts or inhibits consumers from using such a new

technology-embedded service would enable businesses to evaluate the
technology from their customers' perspectives and develop effective
marketing strategies. This study concludes with discussion on the use of
formative and reflective indicators, limitation, and direction for future

Automation Service is the World's largest remanufacturer

of process controls. Our major brands include:
Rosemount, Fisher, Foxboro, Honeywell and Moore

Automation Service is a leading remanufacturer of electronic transmitters, diaphragm seals and

capillary systems, pneumatic transmitters, electronic controllers, recorders, indicators and
auxiliary stations, butterfly valves, rotary valves, sliding stem valves, pneumatic controllers,
recorders, indicators and auxiliary stations, valve positioners, transducers, and magnetic flow
systems. Primary industries served include pulp & paper, petro-chemical, chemical, petroleum,
utility and water & wastewater industries. Automation Service also offers the most extensive
process controls recycling program in the world.

Automation Service remanufactures or reconditions equipment originally manufactured by

Fisher Controls and Rosemount and is not a representative, distributor, agent, affiliate, or factory
authorized repair center for Fisher Controls and Rosemount. Specifications and certification
marks applied by the orignial manufacturer may no longer apply.
automation in services

Internet services

Internet Services is the embedded HTTP server application that is available on a

network enabled Document Centre (DC 220/230/332/340). Internet Services
enables you to access printing, faxing and scanning features of the Document
Centre, as well as view device status, perform queue management and perform
device management, over the internet.

Using a browser application, such as Netscape Navigator or Microsoft Internet

Explorer, you can access any Document Centre on a network using the TCP/IP
protocol. By entering the Document Centre’s IP address as the URL in the
browser, you have access to the Document Centre 220/230/332/340 for scanning,
printing, faxing, performing device management and many other functions you
would normally have to execute at the Document Centre control panel.

Internet Services gives users access to the Document Centre 220/230/332/340
printing, faxing and scanning control panel features over the internet.
Additionally, many system administration tasks can be performed without the use
of native network utilities, allowing faster and easier set up of the Document
Centre 220/230/332/340.

The features that are described in this section correspond to the tabs that are
available within the Internet Services interface.

The following features are available with Internet Services:

• Services
• Queue
• Status
• Properties
• Maintenance
• Assistance

There are three primary areas within Services that are available for general users
encompassing Job Submission and Stored Templates selections:

• Scanning offers the functionality of scanning a paper document into electronic

format. Scan options, such as scanning to a specified repository or
manipulating templates, allow customisation of scan jobs. Scanning with
Internet Services is a component of other scanning capabilities provided with
the Document Centre 220/230/332/340 ST.

• Printing offers the high-speed, high-quality, laser printer functionality of the

Document Centre 220/230/332/340. Print ready files can be submitted for
printing from the Internet Services user interface. Print options, such as
number of copies, collation and paper specifications, allow flexible choices for
print jobs.

• Faxing optionally offers the functionality of a fax machine. If faxing is

configured and available on the Document Centre, files can be submitted for
faxing from a workstation. Fax options, such as delayed fax and recipient
phone number list, provide preferences for fax jobs.

Many system options can be set using Internet Services. The Properties feature
includes options for system administrators:

• Modify the system default template that defines how to file, fax, or distribute a
scanned document.

• Select a Template Pool for scanning use.

• Modify PCL (font information, form length) or PostScript (error sheet)
emulation settings.
• Modify connectivity settings that are used by the Document Centre 220/230/

• Select public and private repositories for scanning.

• Define job defaults for print, fax, or scan jobs that do not require

• Define attributes, such as filing policy and confirmation sheet, for stored

• Obtain device information, such as device profile, fault history, support

contacts and billing meters.


General setup consists of configuring your Document Centre with TCP/IP,
configuring your browser to use Internet Services and then accessing a Document
Centre over the internet.


NOTE: For complete information on the installation and setup of Internet

Services and Scanning Services with the DC 220/230/332/340 ST, see the Xerox
Document Centre 220/230/332/340 ST or 230 LP System Administration Guide.

To setup a Document Centre for internet access:

1. Configure an IP address for the Document Centre on your network.

2. Setup the embedded HTTP server.


Internet Services can be used on any system that has an internet browser.
Microsoft Internet Explorer 4.x or later, or Netscape Navigator 3.x or later are
recommended. Other browsers may work but could produce unexpected results.

Internet Browser Configuration

If any problems are encountered using Internet Services, check the following
internet browser settings have been correctly configured.

1. The internet browser should be configured to run Java programs.

2. The internet browser should also be configured with caching disabled.
The procedures to configure these settings vary on different browsers - see the
internet browser on-line help or documentation for assistance.
To access the Document Centre using Internet Services:

• Type the Document Centre’s IP address in your browser’s URL location field.

TIP: Once you have accessed the embedded HTTP server, you can designate it as
a bookmark in your browser, then directly access it simply by clicking this bookmark.

Scanning with Internet Services provides the following options:

• printing your electronic document using Print Service options

• faxing your electronic document using Fax Service options
• specifying a scanning template
• scan to public or private repository

On the Services, Job Submission page, printing with Internet Services provides
the following output options:

• number of copies to print

• collation
• duplexing (2-sided)
• stapling (if Document Centre has a Finisher configured)
• input paper tray
• output destination
• paper size, type, color
• file format

The table below lists the common buttons that are available on many of the pages
and frames. Some of them match the look of the actual button on the Document
Centre control panel.

Button Action Internet Services Buttons

Apply (new settings, settings) Apply changes.
Cancel Exit the page without updating.
Device Index Access Internet Services index for the Document Centre.
Help Access Internet Services help system.
Print/Fax Submission Submits a job for printing or faxing.
Refresh (status, now, latest values, jobs) Update the page with the new information.
Restore Settings Return the settings to their last saved values.
Restore Default Values Return the settings to their default values.
Browse Access network or local directory paths. Note that the Browse buttons do not
appear if you are using Internet Explorer version 3.0 or less.
Device Home Access the Document Centre home page.
Queue Refresh job listing.


This section discusses the different tasks that users and system administrators can
perform using Internet Services.

Print-ready (PCL, PostScript, or ASCII) files can be submitted for printing or
faxing directly from Internet Services to the Document Centre.

NOTE: Existing preformatted jobs do not take priority over options that are set
on the Job Submission page.

To submit files for processing to the Document Centre:

1. Access the Document Centre embedded HTTP server.

2. Click Services.
3. Click the Job Submission radio button to display the Job Attributes. Perform
the following if these options are not already set according to your job

• Type in the number of copies needed.

• Select other options, such as finishing options, for your job from the dropdown lists.

4. Type the path and file name or click Browse (if available) to locate the file to process.

5. When finished with your selections, click the submission button to process your job.

NOTE: It is recommended that print files should not be larger than 6 MB.

Basic network types

System area network (SAN)

• same room (meters)

• 300 MB/s Cray T3E

Local area network (LAN)

• same bldg or campus (kilometers)

• 10 Mb/sEthernet

• 100 Mb/s Fast Ethernet

• 100 Mb/s FDDI

• 150 Mb/s OC-3 ATM

• 622 Mb/s OC-12 ATM

Metropolitan area network (MAN)

• same city (10’s of kilometers)

• 800 Mb/s Gigabit Nectar

Wide area network (WAN)

• nationwide or worldwide (1000’s of kilometers)

• telephone system

• 1.544 Mb/s T1 carrier

• 44.736 Mb/s T3 carrier

• Global Internet

The internetworking idea (Kahn, 1972)

Build a single network (an interconnected set of networks, or

internetwork, or internet) out of a large collection of separate

• Each network must stand on its own, with no internal changes

allowed to connect to the internet.

• Communications should be on a best-effort basis.

• “black boxes” (later called routers) should be used to connect

the networks.

• No global control at the operations level.

Internetworking challenges


• heterogeneity

– lots of different kinds of networks (Ethernet, FDDI, ATM,

wireless, point-to-point)

– how to unify this hodgepodge?

• scale
– how to provide uniques names for potentially billions of
nodes? (naming)

– how to find all these nodes? (forwarding and routing)

Note: internet refers to a general idea, Internet refers to a

particular implementation of that idea (The global IP Internet).

Internetworking with repeaters: Pros and cons


• Transparency

– LANS can be connected without any awareness from the


• Useful for serving multiple machines in an office from one

ethernet outlet.


• Not scalable

– ethernet standard allows only 4 repeaters.

– more than 4 would introduce delays that would break

contention detection.

• No heterogeneity

– Networks connected with repeaters must have identical

electrical properties.

Internetworking with bridges: Pros and cons


• Transparency

– LANS can be connected without any awareness from the


– popular solution for campus-size networks


• Transparency can be misleading

– looks like a single Ethernet segment, but really isn’t

– packets can be dropped, latencies vary

• Homogeneity

– can only support networks with identical frame headers

(e.g., Ethernet/FDDI)

– however, can connect different speed Ethernets

• Scalability

– tens of networks only

» bridges forward all broadcast frames

» increased latency

Internetworking with routers

Def: An internetwork (internet for short) is an arbitrary

collection of physical networks interconnected by routers to
provide some sort of host-to-host packet delivery service.

Building an internet

We start with two separate, unconnected computer networks


which are at different locations, and possibly built by different


Next we physically connect one of the computers, called a


to each of the networks.

Finally, we run a software implementation of the Internet

Protocol (IP)

on each host and router. IP provides a global name space for

the hosts, routing messages between network1 and network 2
if necessary.

At this point we have an internet consisting of 6 computers

built from

2 original networks. Each computer on our internet can

with any other computer. IP provides the illusion that there is

one network.

IP: Internetworking with routers

IP is the most successful protocol ever developed

Keys to success:

• simple enough to implement on top of any physical network

– e.g., two tin cans and a string.

• rich enough to serve as the base for implementations of more

complicated protocols and applications.

– The IP designers never dreamed of something like the


• “rough consensus and working code”

– resulted in solid implementable specs.

Basic Internet components

An Internet backbone is a collection of routers (nationwide or
worldwide) connected by high-speed point-to-point networks.

A Network Access Point (NAP) is a router that connects

multiple backbones (sometimes referred to as peers).

Regional networks are smaller backbones that cover smaller

geographical areas (e.g., cities or states)

A point of presence (POP) is a machine that is connected to the


Internet Service Providers (ISPs) provide dial-up or direct

access to POPs.

The Internet circa 1993

In 1993, the Internet consisted of one backbone (NSFNET) that

connected 13 sites via 45 Mbs T3 links.

• Merit (Univ of Mich), NCSA (Illinois), Cornell Theory Center,

Pittsburgh Supercomputing Center, San Diego Supercomputing
Center, John von Neumann Center (Princeton), BARRNet (Palo
Alto), MidNet (Lincoln, NE), WestNet (Salt Lake City),
NorthwestNet (Seattle), SESQUINET (Rice), SURANET (Georgia

Connecting to the Internet involved connecting one of your

routers to a router at a backbone site, or to a regional network
that was already connected to the backbone.


One of the most basic ideas in economics is goods and services. More than
anything else, money is spent on goods and services. It helps to know the difference
between two.

A good is something that you can use or consume, like food or CDs or books or a car or clothes.
You buy a good with the idea that you will use it, either just once or over and over again.

A service is something that someone does for you, like give you a haircut or fix you dinner or
even teach you social studies. You don't really get something solid, like a book or a CD, but you
do get something that you need.

The basic difference is that a good is something you can hold in your hand (unless it's something
big, like a car or a house).

Now, a service can also contain a good. Someone who fixes you dinner gives you food, which
was bought. In this example, the food is the good and the person's fixing it for you is the service.

In the same way, your teacher gives you a service by teaching you social studies. He or she also
gives you a good by giving you a textbook.

Your teacher teaching you social studies is a good example of a service that you personally don't
pay for. (Your family might pay for it, but you don't.)

And not all services are economic, either. A service can be as simple as reading a book to
someone. This kind of activity doesn't cost anything, but it is something that one person did for

A good doesn't have to cost anything, either. If you give your friend a book or a CD, then you
given that friend a good, since we have already defined books and CDs as goods. Your friend
didn't give you any money for the good. But you didn't really do something for your friend,
either; you just gave your friend something he or she could hold or touch.

Remember, the one thing that sets goods and services apart is the ability to touch them. You can
touch a good, but you can't touch a service. You can touch the result of a service but not the
service itself.

1. Goods are tangible, and transferable while the services are intangible and
non transferable.
2. Goods are separable, and non - perishable while services are inseparable.
3. Goods are homogeneous while services are heterogeneous

A good is a tangible object used either once or repeatedly. A service is intangible.

The tangibility differentiator indicates the ability to touch, smell, taste and see
which is absent in services. This can be a deterrent to the service receiver to gauge
the quality and dependant on the service company reputation. In the case of goods
the ownership of the product is transferable from sellers to buyers, whereas in
services there is no ownership involved.

On the quality front, with goods it is homogeneous, once produced the quality is
uniform across all line of products. They can be separated from the seller/ provider
and not dependant on the source for its delivery to the purchaser. With regard to
service it is inseparable from the service provider and heterogeneous, where each
time the service is offered it may vary in quality, output, and delivery. It cannot be
controlled and is dependant on the human effort in achieving that quality hence is
variable from producer, customer and daily basis.

Another key distinction is perishability of services and the non perishability of

goods. Goods will have a long storage life and are mostly non perishable. Whereas
services are delivered at that moment and do not have a long life or cannot be
stored for repeat use. They do not bear the advantage of shelf life as in the case of
goods like empty seats in airlines. With the production and consumption taking
place simultaneously in services, it differs from goods on simultaneity and the
provisions for quality control in the process.


Service marketing mix means…………

Seven P's: 4 P's of a tangible good (price, presentation, place, and Promotion) plus 3
P's of an intangible service participants, physical evidence, and process (of service

The service marketing mix comprises off the 7’p’s. These include:
• Product
• Price
• Place
• Promotion
• People
• Process
• Physical evidence.

7 Ps of Services Marketing

Marketing services is different from marketing goods, and the marketing tools and practices
developed for goods marketing are often not directly transferable to the marketing of services.
There are several major differences, including:

• The buyer purchases are intangible

• The service may be based on the reputation of a single person
• It's more difficult to compare the quality of similar services
• The buyer cannot return the service
• 4 P's product promoation placement and price
• The differences have resulted in a divergence in the education of services marketing
versus regular marketing. Apart from the traditional "4 P's," Product, Price, Place,
Promotion, there are three additional "P's" consisting of People, Physical
evidence, and Process.

• Product refers to the creation of a service concept that will offer value to target
customers and satisfy their needs better than competing alternatives. This consists of a
core product that responds to the customer primary need and an array of supplementary
service elements that are mutually reinforcing value-added enhancements that help
customers to use the core product more effectively.

• Place and time may involve physical or electronic channels such as banks now offer
customers a choice of distribution channels including visiting a branch, using a network
of ATMS, doing business by phone or conducting them over the Internet.

• Price and other user outlays are crucial as well. To determine if a particular service is
“worth it”, customers go beyond monetary considerations and assess the outlays of their
time and effort. Thus, service marketers must set prices that target customers are willing
and able to pay and minimize other burdensome outlays that are incurred. These may
include additional monetary expense in traveling, time expenditures, unwanted mental
and physical effort and exposure to negative sensory experiences.
• Promotion in services marketing is also educational in nature, especially for new
customers. Suppliers need to teach these customers about the benefits of the service,
where and when to obtain it, and how to participate in service processes to get the best
results. This can be delivered via individuals such as salespeople, at websites, on display
screens in self-service equipment and through a variety of advertising media.

• The process of delivering the service is very often as important as the function of the
service. Operational inputs and outputs can vary widely due to the lack of inventory and
real time interaction involved. Nonetheless, variability can be reduced through careful
design of the customer service process, adopting standardized procedures, implementing
rigorous management of service quality, high standards of training, and automation.
Furthermore, customers are often involved in co-production as partial employees through
self-service, telecommunications and the Internet.

• Physical environment includes the appearance of buildings, landscaping, vehicles,

interior furnishing, equipment, uniforms, signs, printed materials and other visible cues
that provide evidence of service quality, facility service delivery and guide customers
through the service process. This can also be referred to as the “servicescape” which can
have a profound impact on customer satisfaction and service productivity.
• People refer to the human capital of the firm, i.e. the employees. These individuals
should possess the required technical skills, good interpersonal skills and positive
attitudes that can become a key competitive advantage for the firm.


• What exactly are the characteristics of a service? How are services different from a
product? In fact many organisations do have service elements to the product they sell, for
example McDonald’s sell physical products i.e. burgers but consumers are also
concerned about the quality and speed of service, are staff cheerful and welcoming and
do they serve with a smile on their face?

• There are five characteristics to a service which will be discussed below.

• 1. Lack of ownership.
• You cannot own and store a service like you can a product. Services are used or hired for
a period of time. For example when buying a ticket to the USA the service lasts maybe 9
hours each way , but consumers want and expect excellent service for that time. Because
you can measure the duration of the service consumers become more demanding of it.

• 2. Intangibility
• You cannot hold or touch a service unlike a product. In saying that although services are
intangible the experience consumers obtain from the service has an impact on how they
will perceive it. What do consumers perceive from customer service? the location, and
the inner presentation of where they are purchasing the service?.

• 3. Inseparability
• Services cannot be separated from the service providers. A product when produced can
be taken away from the producer. However a service is produced at or near the point of
purchase. Take visiting a restaurant, you order your meal, the waiting and delivery of the
meal, the service provided by the waiter/ress is all apart of the service production process
and is inseparable, the staff in a restaurant are as apart of the process as well as the
quality of food provided.

• 4. Perishibility
• Services last a specific time and cannot be stored like a product for later use. If travelling
by train, coach or air the service will only last the duration of the journey. The service is
developed and used almost simultaneously. Again because of this time constraint
consumers demand more.

• 5. Heterogeneity
• It is very difficult to make each service experience identical. If travelling by plane the
service quality may differ from the first time you travelled by that airline to the second,
because the airhostess is more or less experienced.
A concert performed by a group on two nights may differ in slight ways because it is very
difficult to standardise every dance move. Generally systems and procedures are put into
place to make sure the service provided is consistent all the time, training in service
organisations is essential for this, however in saying this there will always be subtle

Services marketing is a form of marketing which focuses on selling services.

Services can be tricky to sell and the marketing approach for them is much different
than the approach for products. Some companies offer both products and services
and must use a mixture of styles; for example, a store which sells computers also
tends to offer services such as helping people select computers and providing
computer repair. Such a store must market both its products and the supporting
services it offers to appeal to customers.


Four Categories of Services

1.Direct Caring for or providing for others face-to-face who

are different in age/experience.


• Tutoring children
• Reading to the elderly
• Serving as a mentor or buddy
• Working with animals/shelters

Indirect Doing something to care for the community, a group or

the environment as a whole; often done with a partner or group.


• River/roadside clean up
• Donation programs for the homeless or poor
• Stocking a food pantry
3.Advocacy  Creating awareness or promoting action on an issue
of public interest.


• Letter writing campaign

• Sponsoring a public meeting on an issue
• Public speaking
• Performing a play on an issue

4. Research Finding, gathering, and reporting on information in

the public interest.


• Conducting surveys on issues related to public

safety, school, the environment, etc.
• Testing water or soil samples for pollution

Differences among Services Affect Customer Behavior

Consumers are rarely involved in the manufacture of goods butoften participate in

service creation and delivery

Challenge for service marketers is to understand how customersinteract with

service operations

Based on differences in nature of service act (tangible/intangible)and who or what

is direct recipient of service(people/possessions), there are four categories of

People processing
Possession processing

Mental stimulus processing

Information processing
Who or What Is the Direct Recipient of the Service?

Nature of the Service Act People Possessions

Tangible Actions People processing

(services directed at people’s bodies): People



Is the Direct Recipient of the Service?

Who or What Is the Direct Recipient of the Service?

Nature of the Service Act People


Tangible Actions People processing

Possession processing

(services directed at
(services directed at

people’s bodies):
physical possessions):

Health care

…………………………..................... Intangible Actions
Mental stimulus Information processing


(services directed at
(services directed at

people’s minds):
intangible assets):




People Processing

 Customers must:

 Physically enter the service factory

 Co-operate actively with the service operation

 Managers should think about process and output from customer’s perspective

 To identify benefits created and non-financial costs:

― Time, mental, physical effort

Possession Processing

 Customers are less physically involved compared to people processing services

 Involvement is limited

 Production and consumption are separable

Mental Stimulus Processing

 Ethical standards required when customers who depend on such services can
potentially be manipulated by suppliers
 Physical presence of recipients not required

 Core content of services is information-based

 Can be “inventoried”

Information Processing

 Information is the most intangible form of service output

 But may be transformed into enduring forms of service output

 Line between information processing and mental stimulus processing may be


Customer Decision Making

Three-Stage Model of Service Consumption

The Purchase Process for Services

1. Prepurchase Stage

2. Service Encounter Stage

3. Post-Encounter Stage

Pre-purchase Stage
 Customers seek solutions to aroused needs

 Evaluating a service may be difficult

 Uncertainty about outcomes increases perceived risk

 What risk reduction strategies can service suppliers develop?

 Understanding customers’ service expectations

 Components of customer expectations

 Making a service purchase decision

Customers Seek Solutions to Aroused Needs

 People buy goods and services to meet specific needs/wants

 External sources may stimulate the awareness of a need

 Companies may seek opportunities by monitoring consumer attitudes and behavior

Evaluating a Service May Be Difficult

 Search attributes help customers evaluate a product before purchase

 Style, color, texture, taste, sound

 Experience attributes cannot be evaluated before purchase—must “experience”

product to know it

 Vacations, sporting events, medical procedures

 Credence attributes are product characteristics that customers find impossible to

evaluate confidently even after purchase and consumption

 Quality of repair and maintenance work

Perceived Risks in Purchasing and Using Services

 Functional—unsatisfactory performance outcomes

 Financial—monetary loss, unexpected extra costs

 Temporal—wasted time, delays leading to problems

 Physical—personal injury, damage to possessions

 Psychological—fears and negative emotions

 Social—how others may think and react

 Sensory—unwanted impact on any of five senses

How Might Consumers Handle Perceived Risk?

 Seeking information from respected personal sources

 Relying on a firm that has a good reputation

 Looking for guarantees and warranties

 Visiting service facilities or trying aspects of service before purchasing

 Asking knowledgeable employees about competing services

 Examining tangible cues or other physical evidence

 Using the Internet to compare service offerings and search for independent reviews
and ratings

Strategic Responses to Managing Customer Perceptions of Risk

 Offer performance warranties, guarantees to protect against fears of monetary loss

 For products where customers worry about performance, sensory risks:

 Offer previews, free trials (provides experience)

 Advertising (helps to visualize)

 For products where customers perceive physical or psychological risks:

 Institute visible safety procedures

 Deliver automated messages about anticipated problems

 Websites offering FAQs and more detailed background

 Train staff members to be respectful and empathetic

Understanding Customers’ Service Expectations

 Customers evaluate service quality by comparing what they expect against what
they perceive

 Situational and personal factors also considered

 Expectations of good service vary from one business to another, and among
differently positioned service providers in the same industry

 Expectations change over time

 Example: Service Perspectives 2.1

 Parents wish to participate in decisions relating to their children’s medical treatment

for heart problems

 Media coverage, education, the Internet has made this possible

Components of Customer Expectations

 Desired Service Level:

 Wished-for level of service quality that customer believes can and should be delivered

 Adequate Service Level:

 Minimum acceptable level of service

 Predicted Service Level:

 Service level that customer believes firm will actually deliver

 Zone of Tolerance:

 Range within which customers are willing to accept variations in service delivery

Factors Influencing Customer Expectations of Service

Personal Needs  Desired Service

Beliefs about what is possible Desired Service

Perceived Service alterations Adequate Service

Situational Factors Adequate Service

Service Encounter Stage
 Service encounters range from high- to low-contact

 Understanding the servuction system

 Service marketing systems: high-contact and low-contact

 Role and script theories

 Theater as a metaphor for service delivery: An integrative perspective

 Implications for customer participation in service creation and delivery

Distinctions between High-Contact and Low-Contact Services

 High-Contact Services

 Customers visit service facility and remain throughout service delivery

 Active contact between customers and service personnel

 Includes most people-processing services

 Low-Contact Services

 Little or no physical contact with service personnel

 Contact usually at arm’s length through electronic or physical distribution channels

 New technologies (e.g. the Web) help reduce contact level

 Medium-Contact Services Lie in between These Two

The Servuction System: Service Production and Delivery

 Service Operations (front stage and backstage)

 Where inputs are processed and service elements created

 Includes facilities, equipment, and personnel

 Service Delivery (front stage)

 Where “final assembly” of service elements takes place and service is delivered to

 Includes customer interactions with operations and other customers

 Service Marketing (front stage)

 Includes service delivery (as above) and all other contacts between service firm and
Service Marketing System for a High-Contact Service


Service Delivery
System Other Contact Points

Service Operations System Other Customers


Sales Calls

Interior & Exterior

Market Research Surveys

Technical Facilities The Customer

 =====Billing/Statements

Core Equipment
Misc. Mail, Phone Calls

E-mails, Faxes, etc.

Service People

Random Exposure to


Back Stage Front Stage

Chance Encounters with

( Invisible ) ( Visible ) Other Customers

Service Personnel

Word of Mouth
Theater as a Metaphor for Service Delivery

“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”

 Theatrical Metaphor: 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 participants

An Integrative Perspective

Implications for customer participation in service creation and delivery

 Greater need for information/training to help customers to perform well, get

desired results

 Customers should be given a realistic service preview in advance of service

delivery, so they have a clear picture of their expected role

Post-Encounter Stage

 Evaluation of service performance

 Future intentions

Customer Satisfaction Is Central to the Marketing Concept

 Satisfaction defined as attitude-like judgment following a service purchase or series

of service interactions

 Customers have expectations prior to consumption, observe service performance,

compare it to expectations

 Satisfaction judgments are based on this comparison

 Positive disconfirmation if better than expected

 Confirmation if same as expected

 Negative disconfirmation if worse than expected

 Satisfaction reflects perceived service quality, price/quality tradeoffs, personal and

situational factors

 Research shows links between customer satisfaction and a firm’s financial


Customer Delight: Going Beyond Satisfaction

 Research shows that delight is a function of three components:

 Unexpectedly high levels of performance

 Arousal (e.g., surprise, excitement)

 Positive affect (e.g., pleasure, joy, or happiness)

 Is it possible for customers to be delighted by very mundane services?

 Strategic links exist between customer satisfaction and corporate performance.

 Getting feedback during service delivery help to boost customer loyalty

 Progressive Insurance seeks to delight customers through exceptional customer

service (Best Practice in Action 2.1)


 Four broad categories of services

 People processing, possession processing, mental stimulus processing,

information processing

 Based on differences in nature of service act (tangible or intangible), and

who or what is direct recipient of service (people or possessions)

 Each poses distinctive service management challenges

 Three-Stage Model of service consumption helps us to understand and better

manage customer behavior

Prepurchase stage

 Customers seek solutions to aroused needs

 Evaluation alternatives are more difficult when a service involves experience

and credence attributes

 Customers face a variety of perceived risks in selecting, purchasing and

using services
 Steps taken to reduce customers’ risk perceptions, include: (1) guarantees
and warranties, (2) previews of service and visits to service facilities, (3)
employee training, (4) instituting visible safety procedures, (5) easy access
to information, and (6) advance notice of problems or delays

 Customer expectations of service range from “desired” to “adequate” with a

zone of tolerance in between; if actual service is perceived as less than
adequate, customers will be dissatisfied

 Service encounter stage

 Service encounters range from high contact to low contact

 Servuction system differs by level of contact:

 High-contact services: Most parts of operations, service delivery, and

marketing systems are exposed to customers

 Low-contact services: Some parts of systems are invisible to


 Role and script theories help us understand and manage customer behavior
during encounters

 Theatrical view of service delivery offers insights for design, stage-managing

performances, and relationships with customer “audience”

 Post-encounter stage

 In evaluating service performance, customers can have expectations

positively disconfirmed, confirmed, or negatively disconfirmed

 Unexpectedly high levels of performance, arousal and positive affect are

likely to lead to delight


How Might Consumers Handle Perceived Risk?

 Seeking information from respected personal sources

 Relying on a firm that has a good reputation

 Looking for guarantees and warranties

 Visiting service facilities or trying aspects of service before purchasing

 Asking knowledgeable employees about competing services

 Examining tangible cues or other physical evidence

 Using the Internet to compare service offerings and search for independent reviews
and ratings

Strategic Responses to Managing Customer Perceptions of Risk

 Offer performance warranties, guarantees to protect against fears of monetary loss

 For products where customers worry about performance, sensory risks:

 Offer previews, free trials (provides experience)

 Advertising (helps to visualize)

 For products where customers perceive physical or psychological risks:

 Institute visible safety procedures

 Deliver automated messages about anticipated problems

 Websites offering FAQs and more detailed background

 Train staff members to be respectful and empathetic

Understanding Customers’ Service Expectations

 Customers evaluate service quality by comparing what they expect against what
they perceive

 Situational and personal factors also considered

 Expectations of good service vary from one business to another, and among
differently positioned service providers in the same industry

 Expectations change over time

 Example: Service Perspectives 2.1

 Parents wish to participate in decisions relating to their children’s medical

treatment for heart problems

 Media coverage, education, the Internet has made this possible

Factors Influencing Customer Expectations of Service

 Personal Needs  Desired Service

 Beliefs about what is possible  Desired Service

 Perceived Service alterations  Adequate Service

 Situational Factors  Adequate Service

Components of Customer Expectations

 Desired Service Level:

 Wished-for level of service quality that customer believes can and should be

 Adequate Service Level:

 Minimum acceptable level of service

 Predicted Service Level:

 Service level that customer believes firm will actually deliver

 Zone of Tolerance:

 Range within which customers are willing to accept variations in service




service marketing mix means…………

Seven P's: 4 P's of a tangible good (price, presentation, place, and Promotion) plus 3
P's of an intangible service participants, physical evidence, and process (of service

The service marketing mix comprises off the 7’p’s. These include:
• Product
• Price
• Place
• Promotion
• People
• Process
• Physical evidence.

7 Ps of Services Marketing

Marketing services is different from marketing goods, and the marketing tools and practices
developed for goods marketing are often not directly transferable to the marketing of services.
There are several major differences, including:

• The buyer purchases are intangible

• The service may be based on the reputation of a single person
• It's more difficult to compare the quality of similar services
• The buyer cannot return the service
• 4 P's product promoation placement and price
• The differences have resulted in a divergence in the education of services marketing
versus regular marketing. Apart from the traditional "4 P's," Product, Price, Place,
Promotion, there are three additional "P's" consisting of People, Physical
evidence, and Process.

• Product refers to the creation of a service concept that will offer value to target
customers and satisfy their needs better than competing alternatives. This consists of a
core product that responds to the customer primary need and an array of supplementary
service elements that are mutually reinforcing value-added enhancements that help
customers to use the core product more effectively.

• Place and time may involve physical or electronic channels such as banks now offer
customers a choice of distribution channels including visiting a branch, using a network
of ATMS, doing business by phone or conducting them over the Internet.

• Price and other user outlays are crucial as well. To determine if a particular service is
“worth it”, customers go beyond monetary considerations and assess the outlays of their
time and effort. Thus, service marketers must set prices that target customers are willing
and able to pay and minimize other burdensome outlays that are incurred. These may
include additional monetary expense in traveling, time expenditures, unwanted mental
and physical effort and exposure to negative sensory experiences.

• Promotion in services marketing is also educational in nature, especially for new

customers. Suppliers need to teach these customers about the benefits of the service,
where and when to obtain it, and how to participate in service processes to get the best
results. This can be delivered via individuals such as salespeople, at websites, on display
screens in self-service equipment and through a variety of advertising media.

• The process of delivering the service is very often as important as the function of the
service. Operational inputs and outputs can vary widely due to the lack of inventory and
real time interaction involved. Nonetheless, variability can be reduced through careful
design of the customer service process, adopting standardized procedures, implementing
rigorous management of service quality, high standards of training, and automation.
Furthermore, customers are often involved in co-production as partial employees through
self-service, telecommunications and the Internet.

• Physical environment includes the appearance of buildings, landscaping, vehicles,

interior furnishing, equipment, uniforms, signs, printed materials and other visible cues
that provide evidence of service quality, facility service delivery and guide customers
through the service process. This can also be referred to as the “servicescape” which can
have a profound impact on customer satisfaction and service productivity.
• People refer to the human capital of the firm, i.e. the employees. These individuals
should possess the required technical skills, good interpersonal skills and positive
attitudes that can become a key competitive advantage for the firm.

• Characteristics of a Service

• What exactly are the characteristics of a service? How are services different from a
product? In fact many organisations do have service elements to the product they sell, for
example McDonald’s sell physical products i.e. burgers but consumers are also
concerned about the quality and speed of service, are staff cheerful and welcoming and
do they serve with a smile on their face?

• There are five characteristics to a service which will be discussed below.

1. Lack of ownership.

• You cannot own and store a service like you can a product. Services are used or hired for
a period of time. For example when buying a ticket to the USA the service lasts maybe 9
hours each way , but consumers want and expect excellent service for that time. Because
you can measure the duration of the service consumers become more demanding of it.

2. Intangibility

• You cannot hold or touch a service unlike a product. In saying that although services are
intangible the experience consumers obtain from the service has an impact on how they
will perceive it. What do consumers perceive from customer service? the location, and
the inner presentation of where they are purchasing the service?.

3. Inseparability

• Services cannot be separated from the service providers. A product when produced can
be taken away from the producer. However a service is produced at or near the point of
purchase. Take visiting a restaurant, you order your meal, the waiting and delivery of the
meal, the service provided by the waiter/ress is all apart of the service production process
and is inseparable, the staff in a restaurant are as apart of the process as well as the
quality of food provided.

4. Perishibility

• Services last a specific time and cannot be stored like a product for later use. If travelling
by train, coach or air the service will only last the duration of the journey. The service is
developed and used almost simultaneously. Again because of this time constraint
consumers demand more.

5. Heterogeneity

• It is very difficult to make each service experience identical. If travelling by plane the
service quality may differ from the first time you travelled by that airline to the second,
because the airhostess is more or less experienced.
A concert performed by a group on two nights may differ in slight ways because it is very
difficult to standardise every dance move. Generally systems and procedures are put into
place to make sure the service provided is consistent all the time, training in service
organisations is essential for this, however in saying this there will always be subtle

Services marketing is a form of marketing which focuses on selling services.

Services can be tricky to sell and the marketing approach for them is much different
than the approach for products. Some companies offer both products and services
and must use a mixture of styles; for example, a store which sells computers also
tends to offer services such as helping people select computers and providing
computer repair. Such a store must market both its products and the supporting
services it offers to appeal to customers.
Product – Core and Supplementary Elements

A service product consists of two components, the core product

and supplementary services. The core product is based on the
core set of benefits and solutions delivered to customers.
Supplementary services are those elements that facilitate and
enhance the use of the core product.
Designing a service concept is a complicated task that requires an
understanding of how the core and supplementary services
should be combined, sequenced, delivered, and scheduled to
create benefits that meet the needs of the target market

Different types of core products often share similar

supplementary elements. The Flower of Service concept
categorizes supplementary services into eight groups (each
represented as a petal surrounding
the core).

The eight groups can be categorized as

(1) facilitating and

(2) enhancing supplementary services.

Facilitating supplementary services are needed for service

delivery or help in the use of the core product. They are:

o Information
o Order-taking
o Billing, and
o Payment.

Enhancing supplementary services add extra value for the

customer and include:

o Consultation
o Hospitality
o Safekeeping
o Dealing with exceptions.

The use of a flower helps us to understand that all the

supplementary elements must be performed well. A weakness in
one element will spoil the
overall impression.

Core Product
Central component that supplies the principal, problem-solving
Benefits customers seek

Supplementary Services

Augment the core product, facilitating its use and enhancing its
Value and appeal

The Service Offering

In this chapter, we address the question, what should be the core and
supplementary elements of our service product? The core addresses the customer’s
need for a basic benefit – such as transportation to a desired location, resolution of
a specific health problem, or repair of malfunctioning equipment.
As an industry matures and competition increases, there’s a risk that prospective
customers may view competing core products as commodities that are
indistinguishable from each other.

The Augmented Product

Marketers use the term augmented product to describe the combination of a

core product with a bundle of value-adding supplementary elements. Molecular
model that can be applied to either goods or service. The model uses a chemical
analogy to help marketers visualize and manage what she termed a “total market

At the center benefit that addresses the basic customer need, with links to a series
of other service characteristics. Surrounding the molecules is a series of bands
representing price, distribution, and market positioning (communication messages).
The molecule model helps identify the tangible and intangible elements involved
in service delivery.
Identifying and Classifying Supplementary Services

The more we examine different types of core services, the more we find that
most of them have many supplementary series in common. There are dozens of
different supplementary services, but almost all of them can be classified into one
of the following eight clusters.

We have listed them as either facilitating supplementary services, which aid in

the use of the core product or are required for service delivery.

o Information
o Order taking
o Billing
o Payment

Enhancing supplementary services, which add extra value for customers.

o Consultation
o Hospitality
o Safekeeping
o Exceptions
These eight clusters are displayed as petals surrounding the center of a flower,
which we call the Flower of Service.

o A visual framework for understanding the supplementary service elements that

surround and add value to the product core.


To obtain full value from any service experience, customers need relevant
information. New customers and prospects are especially information hungry.
Customers needs may include directions to the physical location where the product
is sold (or details of how to order it by telephone or Website), service hours, prices,
and usage instructions. Some information is required by law like notifications of
changes, reminders, warnings, and conditions of sale and use. Customers may want
documentation of what has already taken place, such as confirmation of
reservations, receipts and tickets, and monthly summaries of account activity.

Companies should make sure the information they provide is both timely and
accurate; if it’s not, customers may be annoyed or inconvenienced.

Order Taking

Once customers are ready to buy, companies must have effective supplementary
service processes in place to handle applications, orders, and reservations. The
process of order taking should be polite, fast, and accurate so that customers do not
waste time and endure unnecessary mental or physical effort.

Certain companies need to receive information about the potential clients, with
that information they can decide to either provide services or not. I.G. would be
universities, banks, insurance companies, and utilities, and other.

Ticketless systems, based upon telephone or online reservations, provide

enormous cost savings for airlines. Eliminates the need to compensate agents.


Billing is common to almost all services (unless it is free). Inaccurate, illegible, or

incomplete bills risk disappointing customers who may, up to that point, have been
quite satisfied with their experience. Such failures add insult to injury if the
customer is already dissatisfied.

Customers usually expect bills to be clear and informative, and itemized in a way
that makes it clear how the total was computed.
Marketing Research can help companies design user-friendly bills by identifying
what information customers want and how they would like it to be organized.

Busy customers hate to be kept waiting for a bill. Some service providers offer
express checkout options, taking customers’ credit card details in advance and
documenting changes later by mail.

A bill requires the customer to take action on payment. Bank statements are an
exception, since they detail charges that have already been deducted from the
customer’s account. Ease and convenience is what customers expect.

A variety of options exists to facilitate customer bill paying. Self-service payment

systems. For instance, require customers to insert coins, banknotes, tokens, or
cards in machines. Equipment breakdown destroy the whole purpose of having such
a system.

To ensure that people actually pay what they owe, some services employ control
systems, such as ticket collection before entering a movie theater or boarding a
train. Those collecting those tickets must be trained to be polite and professional, so
that the customer does not feel harassed.


Consultation is an enhancing service that involves a dialog to identify customer

requirements and develop a personalized solution.

Counseling represents a more subtle approach to consultation. It involves

helping customers better understand their situations so that they can come up with
their “own” solutions and action programs.


Hospitality-related services should ideally reflect pleasure at meeting new

customers and greeting old ones when they return. Courtesy and consideration for
customers’ needs apply to both face-to-face encounters and telephone.

The quality of a firm’s hospitality services can increase or decrease satisfaction

with the core product.

Some air transportation companies differentiate themselves from their

competitors with better meals and more attractive cabin crew.


While visiting a service site, customers often want assistance with their personal
Additional safekeeping services are directed at physical products that customers
buy or rent.


Exceptions involve supplementary services that fall outside the routine of normal
service delivery. Astute businesses anticipate exceptions and develop contingency
plans and guidelines in advance.

1. Special requests. There are many circumstances when a customer may request
service that requires a departure from normal operating procedures.

2. Problem Solving. Situations arise when normal service delivery fails to run
smoothly as a result of accidents, delays, equipment failures, or customer
experiencing difficulty in using the product.

3. Handling of complaints/suggestions/compliments. This activity requires well-

defined procedures. It should be easy for customers to express dissatisfaction, offer
suggestions for improvement, or pass on compliments, and service providers should
be able to make an appropriate response quickly.

4. Restitution. Many customers expect to be compensated for serious performance

• Direction to service site
• Schedules/service hours
• Prices
• Reminders
• Warnings
• Conditions of sale/service
• Notification of changes
• Documentation
• Confirmations of reservations
• Summaries of account activities
• Receipts and tickets


• Memberships in clubs/programs
• Subscription services (e.g., utilities)
• Prerequisite based services (e.g., financial credit, college enrolment)

Order Entry

• On-site order fulfillment

• Mail/telephone/e-mail/web order

Reservations and Check-in

• Seats/tables/rooms
• Vehicles or equipment rental
• Professional appointments
• Periodic statements of account activity
• Invoices for individual transactions
• Verbal statements of amount due
• Self-billing (computed by customer)
• Machine display of amount due


• Insert card, cash or token into machine

• Electronic funds transfer
• Mail a check
• Enter credit card number online

Direct to Payee or Intermediary

• Cash handling or change giving

• Check handling
• Credit/charge/debit card handling
• Coupon redemption

Automatic Deduction from Financial Deposits

• Automated systems (e.g., machine-readable tickets that operate entry gate)

• Human systems (e.g., toll collectors)


• Customized advice
• Personal counseling
• Tutoring/training in product use
• Management or technical consulting

Greeting Food and beverages Toilets and washrooms Waiting facilities and amenities

• Lounges, waiting areas, seating

• Weather protection
• Magazines, entertainment, newspapers

Caring for Possessions Customer Bring with Them

• Child care, pet care

• Parking for vehicles, valet parking
• Coat rooms
• Baggage handling
• Storage space
• Safe deposit boxes
• Security personnel

Caring for Goods Purchased (or Rented) by Customers

• Packaging
• Pickup
• Transportation and delivery
• Installation
• Inspection and diagnosis
• Cleaning
• Refueling
• Preventive maintenance
• Repair and renovation

Special Requests in Advance of Service Delivery

• Children’s needs
• Dietary requirements
• Medical or disability need
• Religious observances

Handling Special Communications

• Complaints
• Compliments
• Suggestions

Problem Solving

• Warranties and guarantees

• Resolving diffi culties that arise from using the product
• Resolving diffi culties caused by accidents, service failures
• Assisting customers who have suffered an accident or a medical emergency
• Refunds and compensation
• Free repair of defective goods


Many firms offer several service products with different

performance attributes and brand each package with a distinctive
name. They can use a
variety of branding strategies such as branded house, sub-brands,
endorsed brands, and house of brands. However, each of these
different brands in the family should offer a meaningful benefi t or
this strategy is
likely to be ineffective against competition.
Six basic steps

To develop and deliver the Branded Customer


1 Target profitable customers, employing behavior rather than

demographic segmentation as behavior is a more accurate
indicator of tastes and preferences.

2 Achieve a superior understanding about your targeted

customers’ value.

3 Create a brand promise—an expression of what target

customers can expect from their experience with your
organization—which is of value to customers, addresses a need,
can be implemented, can be incorporated
into standards, and provides focus for the organization and its

4 Apply that understanding to provide a truly different customer


5 Give employees the skills, tools, and supporting processes

needed to deliver the customer experience that has been defined.

6 Make everyone a brand manager who is behind the brand and

supports the brand.

7 Make promises that your processes can exceed.

8 Measure and monitor. Consistency of delivery is paramount.

Product Lines and Brands

Most service firms offer a line of products rather than just a single
product. As a result, they must choose among three broad
alternatives: using a single brand to cover all products and
services, a separate stand-alone brand for each offering, or some
combination of these two extremes.
These alternatives are represented as a spectrum

. The term branded house is used to describe a company like the

Group, which applies its brand name to multiple offerings in often
unrelated fields.

Next on this spectrum are what they term sub-brands. A sub-

brand is one where
the master brand is the main reference point, but the product
itself has a distinctive name too. Singapore Airlines Raffles Class,
the company’s business class service, is an example. The next
category of brands are endorsed brands, where the product brand
is the main focus, but the corporate name is still featured (many
hotel corporations use this approach). At the far end of the
spectrum is the house of brands strategy. Yum!

Brands Inc. adopts the house of brands strategy, with more than
35,000 restaurants in 110 countries. While we may not have
heard of Yum! Brands, many certainly are familiar with their
restaurant brands—A & W, KFC, Pizza Hut, Taco Bell, and Long
John’s Silver. Each of these brands is actively promoted under
their own brand name.

“Branded House”
e.g., Virgin Group

e.g., Raffl es Class at
Singapore Airlines

Endorsed Brands
e.g., Starwood
Hotels & Resorts

“House of Brands”
e.g., Yum! Brands

Offering a Branded Experience

Branding can be used at both the company and product level by

almost any service business. In a well-managed firm, the
corporate brand is not only easily recognized, but it also has
meaning for customers. The brand stands for a particular way of
doing business. Applying distinctive brand names to individual
products helps marketers to establish a mental picture of the
service in customers’ minds and to clarify the nature of the value

The Forum Corporation, a consulting firm, differentiates between

(1) Experience with high variation from customer to customer,
(2) A branded experience that is similar across different firms,
differentiated only by the brand name (ATMs are a good
example), and
(3) A “Branded Customer Experience” in which the customer’s
Experience is shaped in a specific and meaningful ways.

For Forum’s recommendations on how to achieve this.)

Don Shultz emphasizes that “The brand promise or value
proposition is not a tagline, an icon, or a color or a graphic
element, although all of these may contribute. It is, instead, the
heart and soul of the brand….”

An important role for service marketers is to become brand

champions, familiar with and responsible for shaping every aspect
of the customer’s experience. We can relate the notion of a
branded service experience to the Flower of Service metaphor by
emphasizing the need for consistency in the color and texture of
each petal. Unfortunately, many service experiences remain
much disorganized and create the impression of a
flower stitched

together with petals drawn from many diff erent plants!



What it costs a customer (other than money) to buy aproduct, including the
time spend on shopping and the risk taken in the assumption that the product will
deliver expected or promised benefit.

Non-monetary costs refer to the time spent undertaking the journey. Time is converted to a money value
using a value of time figure, which usually varies according to the traveller's income and the purpose of
the trip.

Role of Non-monetary Costs

1. Improving service patronage, accessibility and sustainability

2. Maximising integration of public transport system

3. Setting clear boundaries for policy, ownership, regulation, service specification and operational delivery

4. Establishing effective levers to incentivise and influence performance and outcomes, focusing more closely on the
needs of service users

5. Facilitating controlled private-sector involvement in the market where this is appropriate


Price planning that takes into view factors sucha firm'soverall marketing objectives, con
sumer demand, productattributes, competitors' pricingand market and economictrends.





























Predatory pricing
(also known as destroyer pricing) is the practice of a firm selling a product at very low price with
the intent of driving competitors out of the market, or create a barrier to entry into the market for
potential new competitors. If the other firms cannot sustain equal or lower prices without losing
money, they go out of business. The predatory pricer then has fewer competitors or even a
monopoly, allowing it to raise prices above what the market would otherwise bear.
In many countries, including the United States, predatory pricing is considered anti-competitive
and is illegal under antitrust laws. However, it is usually difficult to prove that a drop in prices is
due to predatory pricing rather than normal competition, and predatory pricing claims are difficult
to prove due to high legal hurdles designed to protect legitimate price competition.

Limit Pricing
A Limit Price is the price set by a monopolist to discourage economic entry into a market, and is illegal
in many countries. The limit price is the price that the entrant would face upon entering as long as the
incumbent firm did not decrease output. The limit price is often lower than the average cost of
production or just low enough to make entering not profitable.

Loss Leader
In marketing, a loss leader (also called a key value item in the United Kingdom) is a type of pricing
strategy where an item is sold below cost in an effort to stimulate other, profitable sales. It is a kind of
sales promotion.


Pricing strategies for products or services include the following:

• 1 Competition-based pricing

• 2 Cost-plus pricing

• 3 Creaming or skimming

• 4 Limit pricing

• 5 Loss leader
• 6 Market-oriented pricing

• 7 Penetration pricing

• 8 Price discrimination

• 9 Premium pricing

• 10 Predatory pricing

• 11 Contribution margin-based pricing

• 12 Psychological pricing

• 13 Dynamic pricing

• 14 Price leadership

• 15 Target pricing

• 16 Absorption pricing

• 17 High-low pricing

• 18 Premium Decoy pricing

• 19 Marginal-cost pricing

• 20 Value Based pricing

• 21 Nine Laws of Price Sensitivity & Consumer Psychology

Pricing and Revenue Management

Revenue management (also called yield management) involves managing a
demand-side decisions (e.g. segmentation, pricing and availability) to
maximize rev-
enues. It has gained attention recently as one of the most impactful areas of
management (OM) and operations research (OR). It has grown from its
origins as a
relatively obscure practice among a handful of major airlines in the post-
era here in the U.S. (about 1978), to its status today as a mainstream
business prac-
tice, with its own supporting industry of established consulting ¯rms and
range of
industry users from Walt Disney Resorts to National Car Rental. Major airlines
including American, British Air, Continental, Lufthansa, Northwest and SAS
large sta®s of developers and OR analysts working on revenue
management. Ma-
jor consulting/software ¯rms such as PROS, Sabre and Tallus (now merged
Manugistics) each have over 400 professionals devoted to their revenue
practices, working on a range of activities from business consulting to
software devel-
opment to OR methodology.

At the same time, research on the methodology behind revenue

management has
been growing rapidly. In academic circles, the number of published papers
on revenue
management has increased dramatically in the last ten years. INFORMS has
a Revenue Management and Pricing Section, which will organize its 4th.
Meeting in 2004. There are other important revenue management
conferences each
year: AGIFORS1 sponsors an annual revenue management conference that
close to 200 professionals, and IATA2 hosts an annual revenue management
conference that draws even more attendees (approximately 800). A new
journal, The Journal of Pricing and Revenue Management, has recently been
launched, etc.

This course provides a comprehensive introduction to both the theory and
the prac-
tice of revenue management and pricing. Fundamentally, revenue
management is an
applied discipline; its value derives from the business results it achieves. At
the same
time, it has strong elements of an applied science and the technical
elements of the
subject deserve rigorous treatment. The plan of this course is to cover both
practice and theory elements.

The Role of Revenue Management in the Supply Chain

u Revenue management is the use of pricing to increase the

profit generated from a limited supply of supply chain assets

u Supply assets exist in two forms: capacity and inventory

u Revenue management may also be defined as the use of

differential pricing based on customer segment, time of use,
and product or capacity availability to increase supply chain

u Most common example is probably in airline pricing

Conditions Under Which Revenue Management Has the Greatest


u The value of the product varies in different market segments

(Example: airline seats)

u The product is highly perishable or product waste occurs

(Example: fashion and seasonal apparel)

u Demand has seasonal and other peaks (Example: products

ordered at

u The product is sold both in bulk and on the spot market

(Example: owner of warehouse who can decide whether to
lease the entire warehouse through long-term contracts or
save a portion of the warehouse for use in the spot market)

Revenue Management for Multiple Customer Segments

u If a supplier serves multiple customer segments with a fixed

asset, the supplier can improve revenues by setting different
prices for each segment

u Prices must be set with barriers such that the segment willing
to pay more is not able to pay the lower price
u The amount of the asset reserved for the higher price segment
is such that the expected marginal revenue from the higher
priced segment equals the price of the lower price segment

u pL = the price charged to the lower price segment

u pH = the price charged to the higher price segment

u DH = mean demand for the higher price segment

u sH = standard deviation of demand for the higher price


u CH = capacity reserved for the higher price segment

u RH(CH) = expected marginal revenue from reserving more


u = Probability(demand from higher price segment > CH) x pH

u RH(CH) = pL

u Probability(demand from higher price segment > CH) = pL / pH

u CH = F-1(1- pL/pH, DH,sH) = NORMINV(1- pL/pH, DH,sH)

Revenue Management for Perishable Assets

u Any asset that loses value over time is perishable

u Examples: high-tech products such as computers and cell

phones, high fashion apparel, underutilized capacity, fruits
and vegetables

u Two basic approaches:

– Vary price over time to maximize expected revenue

– Overbook sales of the asset to account for cancellations

u Overbooking or overselling of a supply chain asset is valuable

if order cancellations occur and the asset is perishable

u The level of overbooking is based on the trade-off between the

cost of wasting the asset if too many cancellations lead to
unused assets and the cost of arranging a backup if too few
cancellations lead to committed orders being larger than the
available capacity

u p = price at which each unit of the asset is sold

u c = cost of using or producing each unit of the asset

u b = cost per unit at which a backup can be used in the case of

asset shortage

u Cw = p – c = marginal cost of wasted capacity

u Cs = b – c = marginal cost of a capacity shortage

u O* = optimal overbooking level

u s* = Probability(cancellations < O*) = Cw / (Cw + Cs)

u If the distribution of cancellations is known to be normal with

mean mc and standard deviation sc then

u O* = F-1(s*, mc, sc) = NORMINV(s*, mc, sc)

u If the distribution of cancellations is known only as a function

of the booking level (capacity L + overbooking O) to have a
mean of m(L+O) and std deviation of s(L+O), the optimal
overbooking level is the solution to the following equation:

u O = F-1(s*,m(L+O),s(L+O))

u = NORMINV(s*,m(L+O),s(L+O))

Revenue Management for Seasonal Demand

u Seasonal peaks of demand are common in many supply chains

u Examples: Most retailers achieve a large portion of total

annual demand in December (

u Off-peak discounting can shift demand from peak to non-peak


u Charge higher price during peak periods and a lower price

during off-peak periods

Revenue Management for Bulk and Spot Customers

u Most consumers of production, warehousing, and
transportation assets in a supply chain face the problem of
constructing a portfolio of long-term bulk contracts and short-
term spot market contracts

u The basic decision is the size of the bulk contract

u The fundamental trade-off is between wasting a portion of the

low-cost bulk contract and paying more for the asset on the
spot market

u Given that both the spot market price and the purchaser’s
need for the asset are uncertain, a decision tree approach as
discussed in Chapter 6 should be used to evaluate the amount
of long-term bulk contract to sign

u For the simple case where the spot market price is known but
demand is uncertain, a formula can be used

u cB = bulk rate

u cS = spot market price

u Q* = optimal amount of the asset to be purchased in bulk

u p* = probability that the demand for the asset does not exceed

u Marginal cost of purchasing another unit in bulk is cB. The

expected marginal cost of not purchasing another unit in bulk
and then purchasing it in the spot market is (1-p*)cS.

u If the optimal amount of the asset is purchased in bulk, the

marginal cost of the bulk purchase should equal the expected
marginal cost of the spot market purchase, or cB = (1-p*)cS

u Solving for p* yields p* = (cS – cB) / cS

u If demand is normal with mean m and std deviation s, the

optimal amount Q* to be purchased in bulk is

u Q* = F-1(p*,m,s) = NORMINV(p*,m,s)

Using Revenue Management in Practice

u Evaluate your market carefully

u Quantify the benefits of revenue management

u Implement a forecasting process

u Apply optimization to obtain the revenue management


u Involve both sales and operations

u Understand and inform the customer

u Integrate supply planning with revenue management


Yield management is the process of understanding, anticipating and influencing consumer behavior in
order to maximize yield or profits from a fixed, perishable resource (such as airline seats or hotel room

As a specific, inventory-focused branch of Revenue Management, Yield Management involves strategic

control of inventory to sell it to the right customer at the right time for the right price. This process can
result in price discrimination, where a firm charges customers consuming otherwise identical goods or
services a different price for doing so. Yield management is a large revenue generator for several major
industries; Robert Crandall, former Chairman and CEO of American Airlines, gave Yield Management its
name and has called it "the single most important technical development in transportation management
since we entered deregulation."

There are three essential conditions for yield management to be applicable:

 That there is a fixed amount of resources available for sale.

 That the resources sold are perishable (there is a time limit to selling the resources, after which
they cease to be of value).
 That different customers are willing to pay a different price for using the same amount of

Where and Why Firms Practice Yield Management

Business environments with the following five characteristics are appropriate for the
practice of yield management (in parentheses we apply each characteristic to the Hyatt
1. It is expensive or impossible to store excess resource (we cannot store tonight’s room
for use by tomorrow night’s customer).

2. Commitments need to be made when future demand is uncertain (we must set aside
rooms for business customers – “protect” them from low-priced leisure travelers -
before we know how many business customers will arrive).

3. The firm can discriminate among customer segments, and each segment has different
demand curves (purchase restrictions and refundability requirements help to segment
the market between leisure and business customers. The latter are more indifferent to
the price.).

4. The same unit of capacity can be used to deliver many different products or services
(rooms are essentially the same, whether used by business or leisure travelers).

5. Producers are profit-oriented and have broad freedom of action (in the hotel industry,
withholding rooms from current customers for future profit is not illegal or morally
irresponsible. On the other hand, such practices would be questionable in emergency
wards or with organ transplants).
Complications and Extensions
There are a wide variety of complications we face when implementing a yield
management system. Here we discuss a few of the more significant challenges.

Demand Forecasting

In the examples above, we used historical demand to predict future demand. In an actual
application, we may use more elaborate models to generate demand forecasts that take
into account a variety of predictable events, such as the day of the week, seasonality, and
special events such as holidays. In some industries, such as retail clothing, greater weight is
given to the most recent demand patterns since customer preferences change rapidly.
Another natural problem that arises during demand forecasting is censored data, i.e.,
company often does not record demand from customers who were denied a reservation.
In our example in Sections 3-5 used a discrete, empirical distribution to determine the
protection level. A statistical forecasting model would generate a continuous distribution,
such as a Normal or t distribution. Given a theoretical distribution and its parameters,
such as the mean and variance, we would again place the protection level where the distribution
has a cumulative probability equal to the critical fractile.

Variation and Mobility of Capacity

Up to now, we have assumed that all units of capacity are the same; in our Hyatt example
we assumed that all 210 hotel rooms were identical. However, rooms often vary in size
and amenities. Airlines usually offer coach and first-classes. Car rental firms offer
subcompact, compact, and luxury cars. In addition, car rental firms have the opportunity
to move capacity among locations to accommodate surges in demand, particularly when a
central office manages the regional allocation of cars. The EMSR framework described
above can sometimes be adapted for these cases, but the calculations are much more
complex. Solving such problems is an area of active research in the operations

Customers in a Fare Class Are Nor All Alike

While two leisure travelers may be willing to pay the same price for a particular night’s
stay, one may be staying for just one day while the other may occupy the room for a week.
A business traveler on an airplane flight may book a ticket on just one leg or may be
continuing on multiple legs. Not selling a ticket to the latter passenger means that revenue
from all flight legs will be lost.


Yield management is the umbrella term for a set of strategies that enable capacity-constrained service
industries to realize optimum revenue from operations. The core concept of yield management is to
provide the right service to the right customer at the right time for the right price. That concept
involves careful definition of service, customer, time, and price. The service can be defined according
to the dimensions of the service, how and when it is delivered, and how, when, and whether it is
reserved. Timing involves both the timing of the service delivery and the timing of when the customer
makes known the desire for the service, whether by reservation or by walking in to the business. Price
can be set according to the timing of the service, the timing of the reservation, the type of service, or
according to other rules that seem appropriate. Finally, the customer can be defined according to
demand characteristics relating to the service, the timing, and the price. The ideal outcome of a
revenue management strategy is to match customers' time and service characteristics to their
willingness to pay-ensuring that the customer acquires the desired service at the desired time at an
acceptable price, while the organization gains the maximum revenue possible given the customer and
business characteristics.

The strategic levers of yield management can be summarized as four Cs: namely, calendar, clock,
capacity, and cost. They are bound together by a fifth C: the customer. The strategic levers of yield
management are geared to matching service timing and pricing to customers' willingness to pay for
service in relation to its timing. Based on customers' demand levels and characteristics, management
can shift the demand of those customers who are relatively price sensitive but time insensitive to off-
peak times. Shifting that demand clears prime times for customers who are relatively time sensitive
but price insentive.



Direct Delivery of Service

Channels for services are often direct- from creator of the service directly to the customer

Services cannot be owned, there are no titles or rights to most services that can passed along a delivery channel
Inventories cannot exist, making warehousing a dispensable function

Delivery of Service through Intermediaries

Intermediaries may co-produce service, fulfilling service principals’ promises to customers.

e.g.: Franchise Services

They make service locally available

Provide time and place convenience for the customers

Provide retailing function for customers because they represent multiple service principals.

e.g.: travel agents

Primary types of intermediaries – Franchisees, Agents & Brokers, Electronic Channel


Conflict over objectives and performance

Conflict over costs and rewards
Control of service quality
Empowerment versus control
Channel ambiguity – lack of role clarity



Company has control over the outlets thus owner can maintain consistency in service provision
Control over hiring, firing, and motivating employees
Allow expansion or contraction of sites without being bounded by contractual agreements
Owns the customer relationship


Company must bear all financial risk

Large companies are rarely experts in local market. When adjustments are needed in business formats for
different markets, they may be unaware of what these adjustments should be
Service partnerships – they are very much like company owned channels except that they have multiple
owners. e.g.: Jet & Kingfisher

Benefit: risk, resources and effort are shared

Disadvantage: control and returns gets distributed

Benefits for Franchisor

Leveraged business format for greater expansion and revenues- increased revenues, market share, brand
name recognition and economies of scale for Franchisors

Can maintain consistency in outlets across cultures and countries

Company can obtain connection to the (knowledge about) local markets

Franchisees must contribute their own capital for equipment and personnel, thereby bearing part of the
financial risk of doing business.

Franchisees obtain an en established business format

They receive benefit of national or regional brand marketing expertise as well as established reputation

Minimized risk of starting a business

Challenges for Franchisor

Difficulty in maintaining and motivating franchisees

Highly publicized disputes and conflict

Inconsistent quality that may undermine the company’s image, reputation and brand name

Customer relationships are controlled by the franchisee rather than the franchisor

Encroachment – the opening of new units near existing ones without compensation to the existing

Disappointing profits and revenues

Lack of perceived control over operations

High fees



Reduced selling and distribution costs –

e.g.: if an airline needs to contact every potential traveler to promote its offerings, cost would be exorbitant

Intermediaries possess special skills and knowledge in their areas –

e.g.: Passport Agent

Wide representation – they act as company representative in different areas

Knowledge of local markets – knowing the culture and taboos of a country is critical for successful selling

Customer choice – agents provide retailing service (assorted services of multiple service providers) for


Loss of control over pricing and other aspects of marketing

Representation of multiple service principals



Consistent delivery for standardized services

Low cost
Customer convenience
Wide distribution
Customer choice and ability to customize
Quick customer feedback


Customers are active, not passive

Lack of control of electronic environment
Price competition
Inability to customize with highly standardized services
Lack of consistency with customer involvement
Requires changes in consumer behavior
Security concerns
Competition from widening geographies


Control Strategies

create standards both for revenues and service performance, measures results, and compensates or
rewards on basis of performance level

Empowerment Strategies

Service principal allows greater flexibility to intermediaries

Help intermediary develop customer oriented service processes
Provide needed support systems
Develop intermediaries to deliver service quality
Change to a cooperative management structure
Partnering strategies

Partnering with intermediaries to learn together about end customers, set specifications, improve delivery,
and communicate honestly
Alignment of company and intermediary’s goals
Consultation & Cooperation


Product distribution (or place) is one of the four elements of the marketing mix. An organization or set
of organizations (go-betweens) involved in the process of making a product or service available for use or
consumption by a consumer or business user.

The other three parts of the marketing mix are product, pricing, and promotion.

The distribution channel

Distribution is also a very important component of Logistics & Supply chain management. Distribution in
supply chain management refers to the distribution of a good from one business to another. It can be
factory to supplier, supplier to retailer, or retailer to end customer. It is defined as a chain of
intermediaries, each passing the product down the chain to the next organization, before it finally reaches
the consumer or end-user. This process is known as the 'distribution chain' or the 'channel.' Each of the
elements in these chains will have their own specific needs, which the producer must take into account,
along with those of the all-important end-user.

A number of alternate 'channels' of distribution may be available:

 Distributor, who sells to retailers,

 Retailer (also called dealer or reseller), who sells to end customers
 Advertisement typically used for consumption goods

Distribution channels may not be restricted to physical products alice from producer to consumer in
certain sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their
services (typically rooms) directly or through travel agents, tour operators, airlines, tourist boards,
centralized reservation systems, etc. process of transfer the products or services from Producer to
Customer or end user.

There have also been some innovations in the distribution of services. For example, there has been an
increase in franchising and in rental services - the latter offering anything from televisions through tools.
There has also been some evidence of service integration, with services linking together, particularly in
the travel and tourism sectors. For example, links now exist between airlines, hotels and car rental
services. In addition, there has been a significant increase in retail outlets for the service sector. Outlets
such as estate agencies and building society offices are crowding out traditional grocers from major
shopping areas.

Channel decisions

Channel Sales is nothing but a chain for to market a product through different sources.

 Channel strategy
 Gravity & Gravity
 Push and Pull strategy
 Product (or service)
 Cost
 Consumer location

Type of marketing channel

1. Intensive distribution - Where the majority of resellers stock the 'product' (with
convenience products, for example, and particularly the brand leaders in
consumer goods markets) price competition may be evident.
2. Selective distribution - This is the normal pattern (in both consumer and industrial
markets) where 'suitable' resellers stock the product.
3. Exclusive distribution - Only specially selected resellers or authorized dealers (typically
only one per geographical area) are allowed to sell the 'product'.

Channel motivation

It is difficult enough to motivate direct employees to provide the necessary sales and service support.
Motivating the owners and employees of the independent organizations in a distribution chain requires
even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is
`incentive': the supplier offers a better margin, to tempt the owners in the channel to push the product
rather than its competitors; or a compensation is offered to the distributors' sales personnel, so that they
are tempted to push the product. Julian Dent defines this incentive as a Channel Value Proposition or
business case, with which the supplier sells the channel member on the commercial merits of doing
business together. He describes this as selling business models not products.

Monitoring and managing channels

In much the same way that the organization's own sales and distribution activities need to be monitored
and managed, so will those of the distribution chain.

In practice, many organizations use a mix of different channels; in particular, they may complement a
direct salesforce, calling on the larger accounts, with agents, covering the smaller customers and
prospects. These channels show marketing strategies of an organization. Effective management of
distribution channel requires making and implementing decision in these areas.


Customers’ Roles in Service Delivery


• Illustrate the importance of customers in successful service delivery

• Enumerate the variety of roles that service customers play

o Productive resources

o Contributors to quality and satisfaction

o Competitors

• Explain strategies for involving service customers effectively to increase both quality and


• Other customers can detract from satisfaction

 disruptive behaviors

 causing delay

 excessive crowding
 incompatible needs

• Other customers can enhance satisfaction

 mere presence

 socialization/friendships

 roles: assistants, teachers, supporters

How Customers Widen Gap

• Lack of understanding of their roles

• Not being willing or able to perform their roles

• No rewards for “good performance”

• Interfering with other customers

• Incompatible market segments

Customer Roles in Service Delivery

(1) Productive Resources (2) Contributors to Quality and Satisfaction (3) Competitors


o contributing effort, time, or other resources to the production process

• customer inputs can affect organization’s productivity

• key issue:

o Should customers’ roles be expanded? Reduced?


• Customers can contribute to

o their own satisfaction with the service

 by performing their role effectively

 by working with the service provider

o the quality of the service they receive

 by asking questions

 by taking responsibility for their own satisfaction

 by complaining when there is a service failure

• customers may “compete” with the service provider

• “ internal exchange” vs. “external exchange”

• internal/external decision often based on:

o expertise

o resources

o time

o economic rewards

o psychic rewards

o trust

o control

Technology Spotlight

Services Production Continuum

1. Customer pumps gas and pays at the pump with automation

2. Customer pumps gas and goes inside to pay attendant

3. Customer pumps gas and attendant takes payment at the pump

4. Attendant pumps gas and customer pays at the pump with automation

5. Attendant pumps gas and customer goes inside to pay attendant

6. Attendant pumps gas and attendant takes payment at the pump Customer Production Joint Production Firm

Strategies for Enhancing Customer Participation

Define customers’ jobs - helping himself - helping others - promoting the company 2. Individual differences: not
everyone wants to participate

Strategies for Recruiting, Educating and Rewarding Customers

1. Recruit the right customers

2. Educate and train customers to perform effectively

3. Reward customers for their contribution

4. Avoid negative outcomes of inappropriate customer participation Manage the Customer Mix

Importance of Customers in Service Delivery

• Co-production

• Levels of customer participation:

o low -

o moderate -

 inputs:

o high -

 customer


Self-Service Technologies (SSTs) are technological interfaces allowing customers to produce services
independent of involvement of direct service employee. Self-Service technologies are replacing many
face-to-face service interactions with the intention to make service transactions more accurate,
convenient and faster.

Examples of SSTs
Automatic Teller machines (ATMs), Self pumping at gas stations, Self-ticket purchasing on
the Internet and Self-check-out at hotels

The maxim of automated, self-service technologies goes something

like this: Help others, help thyself. Whether it's an airline kiosk,
employee-benefits intranet or Web-based customer support site,
when users solve their own problems, big cost savings and greater
efficiency follows for forward-thinking companies.

End user expectations

But when it comes to considering self-service applications, beware

of inflated expectations, as well as a track record of some bungled
attempts. Who, for example, hasn't been stuck in computerized
telephone-based Interactive Voice Response (IVR) hell, hoping to
talk with a live agent?
And a complicated Web site can frustrate consumers, leading them
to a competitor. In another study of self-service applications, Jupiter
Research in New York noted that a large percentage of online
customers surveyed could be turned off by a bad experience, never
to return. Sophisticated end users are accustomed to graphical
user interfaces and demand 24/7 customer service, driving the
investment toward self-service.
Power to the people

The ability to access and control information raises customer

satisfaction, whether it's conducting a banking transaction, checking
cellular minutes, ordering an on-demand movie or requesting time
off. "Self-service empowers people to do things on their own," said
Elizabeth Harrell, an analyst at Cambridge, Mass.-based Forrester
Research Inc.

Shifting data management to the customer also lowers a company's

overhead costs by reducing the number of customer service agents
needed and allowing existing personnel to focus on higher-value
activities, such as targeted marketing.

Self-service tools of the trade

The tools of self-service -- Web browsing, broadband, email

response management services, intelligent search engines, IVR and
Short Message Service (SMS) -- are often incremental IT investments
that can be added to existing platforms. "Take advantage of the
plumbing that you have built up over the last decade," said Allen
Bonde, senior vice president, strategy and marketing, at eVergance.
Multiple layers of security technologies and intelligence are
mandatory parts of such additions, he added, to protect critical
information from threats.
Self-service applications abound. Internal corporate functions
include automated interfaces for human resources, payroll business
processes and call dispatch requests for mobile field service teams.
But it's companies that conduct outward-facing customer
interactions -- including the banking, travel and retail industries --
that have embraced self-service technologies with particular gusto.
"Self-service is better for companies with high-volume, low-
complexity products and services," said Ian Jacobs, an analyst at
Frost & Sullivan Inc. in Palo Alto, Calif. The classic example of self-
service, of course, is the automated teller machine, which provides
convenience to customers while lowering the cost of transactions or

Tailor to your needs

Is self-service the heavenly solution it appears to be? Only if you

ignore the hype and tailor self-service technologies to work for your
customers and your company, said Esteban Kolsky, an analyst at
Stamford-Conn.-based Gartner Inc. When evaluating self-service
technologies, companies need to consider all costs related to
implementation, not simply development and deployment. Count on
a long-term commitment to maintenance, and create a feedback
system that tracks the self-service products customers use to
resolve their issues, Kolsky added.


Promotion is one of the four elements of marketing mix (product, price, promotion, distribution). It is the
communication link between sellers and buyers for the purpose of influencing, informing, or persuading a
potential buyer's purchasing decision.

The following are two types of promotion:

1. Above the line promotion: Promotion in mass

media (e.g. TV, radio, newspapers,internet, mobile phones, and, historically, illustrated songs) in
which the advertiser pays an advertising agency to place the advertisement
2. Below the line promotion: All other promotion. Much of this is intended to be subtle
enough for the consumer to be unaware that promotion is taking place. E.g.sponsorship, product
placement, testimonials, sales promotion, merchandising, direct mail, personal selling, public
relations, trade shows

The specification of five elements creates a promotional mix or promotional plan. These elements are
personal selling, advertising, sales promotion, direct marketing, and publicity. A promotional mix specifies
how much attention to pay to each of the five subcategories, and how much money to budget for each. A
promotional plan can have a wide range of objectives, including: sales increases, new product
acceptance, creation of brand equity, positioning, competitive retaliations, or creation of a corporate
image. Fundamentally, however there are three basic objectives of promotion. These are:

1. To present information to consumers as well as others

2. To increase demand
3. To differentiate a product.


Marketing communications (marcomm) extends well beyond the common items
of public relations and advertising. Marketing communications encompasses all
of the information that is put forth about a product, sometimes including
internal information. Price lists, catalogs, promotional pieces, collateral material
and a host of other types of marketing literature are all part of marketing
communications and represent one of the most important aspects of the
marketing of a product or service. Marketing communications are an integral
part of the marketing mix, and although marcomm is most closely associated
with promotion, it is dependent on (and can greatly affect) other areas of the
marketing mix. This research considers the role of marketing communications
within the marketing mix, how effective marketing communications are
developed, and considers a particularly effective use of marketing

Marketing is the process of strategizing and implementing the ideology, pricing, promotion and
distribution of a product or service and even ideas in order to cater to the needs, wants and
objectives of the customer as well as the enterprise to which the specific product, service or idea

Basically marketing has four aspects, the sound combination of which is termed as the marketing
mix or more precisely the four elements of the marketing mix are called the 4 P's of marketing that
consist of product, pricing, place (channels of distribution) and promotion. The last element of the
marketing mix that is promotion is also termed as marketing communications. It is the element that
actually becomes the source of introducing the product to the final consumer that intrigues the
consumer towards the product and motivates him to enquire furthermore about its price and other
vital feature. The role of marketing communications is very important as it is the basic source that
edifies the consumer about the existence of the product on a general basis


marketing communication functions within a marketing framework. Traditionally known as the

promotional element of the four Ps of marketing (product, place, price, and promotion), the
primary goal of marketing communication is to reach a defined audience to affect its behavior by
informing, persuading, and reminding. Marketing communication acquires new customers for
brands by building awareness and encouraging trial. Marketing communication also maintains a
brand's current customer base by reinforcing their purchase behavior by providing additional
information about the brand's benefits. A secondary goal of marketing communication is
building and reinforcing relationships with customers, prospects, retailers, and other important

Successful marketing communication relies on a combination of options called the promotional

mix. These options include advertising, sales promotion, public relations, direct marketing, and
personal selling. The Internet has also become a powerful tool for reaching certain important
audiences. The role each element takes in a marketing communication program relies in part on
whether a company employs a push strategy or a pull strategy. A pull strategy relies more on
consumer demand than personal selling for the product to travel from the manufacturer to the
end user. The demand generated by advertising, public relations, and sales promotion "pulls"
the good or service through the channels of distribution. A push strategy, on the other hand,
emphasizes personal selling to push the product through these channels.

The Role of Communication in the Marketing Process

Marketing communication is a strategic part of the marketing process and not merely a single part
thereof. Communication is the message that is relayed to the customer rather than the nuts and bolts
of the technology that delivers it. Communicating with your customers enables you to deliver your
message to them so that they will react to it.
Communications Reaches the Consumer
Consumers are affected by the communication a brand has with them. This communication as well as
the experience they have adds to the brand's value in the mind of the consumer and builds on their
cognitive and emotional ties to a brand.
Think of it this way: communication is the message that is delivered to the client; marketing is the
means of getting it there. Therefore, communication is not just a part of the marketing mix but also
should be integrated into your customer service process -- from the accounts payable department all
the way through to your sales staff and even the CEO of your company. It is your message to the
customer. The message you wish to communicate with them, your ethos and way of thinking.
Knowing that communication is part of the marketing mix but also your entire company message, you
need to think about what that madjadajkhaessage will be and think about it seriously. As an
organization you should all be delivering the same message and the same ethos. There is little point
being customer friendly and bending over backwards for them on the advertising if the salesperson is
harsh and unmovable. There is no point giving guarantees as a salesperson that your customer
service team is unable to deliver on

Marketing Communication Mix

A marketing communications mix is the same as a promotion mix and is just another term for
promotion mix. There are five marketing communications to put into the mix: Advertising, Sales
Promotion, Public Relations, Personal Selling, and Direct Marketing. This basically all boils down to a
mix of promotional efforts to bring in sales and increase brand equity.
The elements of the marketing communications mix

The Marketing Communications Mix is the specific mix

of advertising, personal selling, sales promotion, public relations,
and direct marketing a company uses to pursue its advertising and
marketing objectives.


Advertising - Any paid form of nonpersonal presentation and

promotion of ideas, goods, or services by an identified sponsor.

Personal selling - Personal presentation by the firm’s sales force for

the purpose of making sales and building customer relationships.

Sales promotion - Short-term incentives to encourage the purchase or

sale of a product or service.

Public relations - Building good relationships with the company’s

various publics by obtaining favorable publicity, building up a good
"corporate image", and handling or heading off unfavorable rumors,
stories, and events.

Direct marketing - Direct communications with carefully targeted

individual consumers to obtain an immediate response and cultivate
lasting customer relationships.
Setting the Promotion Mix

When deciding how to properly utilize the marketing communications mix to

meet your marketing objectives, it is important to consider the relative strengths
and weaknesses of each component of the mix. Further, you must always define
your total budget first (generally defined in the Marketing and/or Business
Plan) and then decide upon the best way to leverage the different elements of
the mix to maximize the return on your investment. You will balance the
various parts of the mix to not only create an integrated approach to your
marketing communications but you must also devote enough resources for each
component to be successful.

Here are some things to keep in mind:

Reaches large, geographically dispersed

audiences, often with high frequency; Low cost per exposure,
though overall costs are high; Consumers perceive advertised
goods as more legitimate; Dramatizes company/brand; Builds
brand image; may stimulate short-term sales; Impersonal, one-
way communication; Expensive

Most effective tool for building buyers’

preferences, convictions, and actions; Personal interaction allows
for feedback and adjustments; Relationship-oriented; Buyers are
more attentive; Sales force represents a long-term commitment;
Most expensive of the promotional tools

May be targeted at the trade or ultimate

consumer; Makes use of a variety of formats: premiums, coupons,
contests, etc.; Attracts attention, offers strong purchase incentives,
dramatizes offers, boosts sagging sales; Stimulates quick
response; Short-lived; Not effective at building long-term brand
Highly credible; Very believable; Many
forms: news stories, news features, events and sponsorships, etc.;
Reaches many prospects missed via other forms of promotion;
Dramatizes company or product; Often the most under used
element in the promotional mix; Relatively inexpensive (certainly
not 'free' as many people think--there are costs involved)

Many forms: Telephone marketing, direct

mail, online marketing, etc.; Four distinctive
characteristics: Nonpublic, Immediate, Customized,
Interactive; Well-suited to highly-targeted marketing efforts

When deciding upon your unique marketing communications mix, you should
also consider the Product Life Cycle. Here are some general guideline as to
how and when to emphasize different parts of the mix according to the stages
of a typical product life cycle:

Product Life Cycle

Pre-Introduction: Light advertising, pre-introduction publicity

Introduction: Heavy use of advertising, public relations for awareness, sales
promotion for trial

Growth: Advertising, public relations, branding and brand marketing, personal

selling for distribution

Maturity: Advertising decreases, sales promotion, personal selling, reminder

& persuasion

Decline: Advertising and public relations decrease, limited sales promotion,

personal selling for distribution

Next let's briefly walk through each of the various parts of the marketing
communications mix


• Personal Selling.
• Sales Promotion.
• Public Relations (and publicity).
• Direct Marketing.
• Trade Fairs and Exhibitions.

• Advertising (above and below the line).

• Sponsorship.

• Packaging.

• Merchandising (and point-of-sale).

• EMarketing (and Internet promotions).

• Brands.
Integrated marketing communications see the elements of the communications mix 'integrated' into a coherent whole.
This is known as the marketing communications mix, and forms the basis of a marketing communications campaign.



 The Foundation - corporate image and brand management; buyer

behavior; promotions opportunity analysis.
 Advertising Tools - advertising management, advertising design:
theoretical frameworks and types of appeals; advertising design: message
strategies and executional frameworks; advertising media selection. Advertising
also reinforces brand and firm image.[3]

 Promotional Tools - trade promotions; consumer promotions;

personal selling, database marketing, and customer relations management; public
relations and sponsorship programs.

 Integration Tools - Internet Marketing; IMC for small business and

entrepreneurial ventures; evaluating and integrated marketing program


Several shifts in the advertising and media industry have caused IMC to develop into a primary
strategy for marketers:

1. From media advertising to multiple forms of communication.

2. From mass media to more specialized (niche) media, which are centered on specific
target audiences?
3. From a manufacturer-dominated market to a retailer-dominated, consumer-controlled
4. From general-focus advertising and marketing to data-based marketing.
5. From low agency accountability to greater agency accountability, particularly in
6. From traditional compensation to performance-based compensation (increased sales or
benefits to the company).
7. From limited Internet access to 24/7 Internet availability and access to goods and


The evolution of this new perspective has two origins. Marketers began to realize that
advertising, public relations, and sales were often at odds regarding responsibilities,
budgets, management input and myriad other decisions affecting the successful
marketing of a brand. Executives in each area competed with the others for resources
and a voice in decision making. The outcome was inconsistent promotional efforts,
wasted money, counterproductive management decisions, and, perhaps worst of all,
confusion among consumers.
Secondly, the marketing perspective itself began to shift from being market oriented to
market driven. Marketing communication was traditionally viewed as an inside-out way
of presenting the company's messages. Advertising was the dominant element in the
promotional mix because the mass media could effectively deliver a sales message to a
mass audience. But then the mass market began to fragment. Consumers became better
educated and more skeptical about advertising. A variety of sources, both controlled by
the marketer and uncontrolled, became important to consumers. News reports, word-
of-mouth, experts' opinions, and financial reports were just some of the "brand
contacts" consumers began to use to learn about and form attitudes and opinions about
a brand or company, or make purchase decisions. Advertising began to lose some of its
luster in terms of its ability to deliver huge homogeneous audiences. Companies began
to seek new ways to coordinate the multiplicity of product and company messages being
issued and used by consumers and others.

Thus, two ideas permeate integrated marketing communication: relationship building

and synergy. Rather than the traditional inside-out view, IMC is seen as an outside-in
perspective. Customers are viewed not as targets but as partners in an ongoing
relationship. Customers, prospects, and others encounter the brand and company
through a host of sources and create from these various contacts ideas about the brand
and company. By knowing the media habits and lifestyles of important consumer
segments, marketers can tailor messages through media that are most likely to reach
these segments at times when these segments are most likely to be receptive to these
messages, thus optimizing the marketing communication effort.

Ideally, IMC is implemented by developing comprehensive databases on customers and

prospects, segmenting these current and potential customers into groups with certain
common awareness levels, predispositions, and behaviors, and developing messages and
media strategies that guide the communication tactics to meet marketing objectives. In
doing this, IMC builds and reinforces mutually profitable relationships with customers
and other important stakeholders and generates synergy by coordinating all elements in
the promotional mix into a program that possesses clarity, consistency, and maximum
Practitioners and academics alike, however, have noted the difficulty of effectively
implementing IMC. Defining exactly what IMC is has been difficult. For example,
merely coordinating messages so that speaking "with one clear voice" in all promotional
efforts does not fully capture the meaning of IMC. Also, changing the organization to
accommodate the integrated approach has challenged the command and control
structure of many organizations. However, studies suggest that IMC is viewed by a vast
majority of marketing executives as having the greatest potential impact on their
company's marketing strategies, more so than the economy, pricing, and globalization.


Advertising has four characteristics: it is persuasive in nature; it is non-personal; it is

paid for by an identified sponsor; and it is disseminated through mass channels of
communication. Advertising messages may promote the adoption of goods, services,
persons, or ideas. Because the sales message is disseminated through the mass media—
as opposed to personal selling—it is viewed as a much cheaper way of reaching
consumers. However, its non-personal nature means it lacks the ability to tailor the
sales message to the message recipient and, more importantly, actually get the sale.
Therefore, advertising effects are best measured in terms of increasing awareness and
changing attitudes and opinions, not creating sales. Advertising's contribution to sales is
difficult to isolate because many factors influence sales. The contribution advertising
makes to sales are best viewed over the long run. The exception to this thinking is within
the internet arena. While banner ads, pop-ups and interstitials should still be viewed as
brand promoting and not necessarily sales drivers, technology provides the ability to
track how many of a website's visitors click the banner, investigate a product, request
more information, and ultimately make a purchase.

Through the use of symbols and images advertising can help differentiate products and
services that are otherwise similar. Advertising also helps create and maintain brand
equity. Brand equity is an intangible asset that results from a favorable image,
impressions of differentiation, or consumer attachment to the company, brand, or
trademark. This equity translates into greater sales volume, and/or higher margins, thus
greater competitive advantage. Brand equity is established and maintained through
advertising that focuses on image, product attributes, service, or other features of the
company and its products or services.

Cost is the greatest disadvantage of advertising. The average cost for a 30-second spot
on network television increased fivefold between 1980 and 2005. Plus, the average cost
of producing a 30-second ad for network television is quite expensive. It is not
uncommon for a national advertiser to spend in the millions of dollars for one 30-
second commercial to be produced. Add more millions on top of that if celebrity talent is

Credibility and clutter are other disadvantages. Consumers have become increasingly
skeptical about advertising messages and tend to resent advertisers' attempt to
persuade. Advertising is everywhere, from network television, to daily newspapers, to
roadside billboards, to golf course signs, to stickers on fruit in grocery stores. Clutter
encourages consumers to ignore many advertising messages. New media are emerging,
such as DVRs (digital video recorders) which allow consumers to record programs and
then skip commercials, and satellite radio which provides a majority of its channels
advertising free.


Public relations is defined as a management function which identifies, establishes, and

maintains mutually beneficial relationships between an organization and the publics
upon which its success or failure depends. Whereas advertising is a one-way
communication from sender (the marketer) to the receiver (the consumer or the retail
trade), public relations considers multiple audiences (consumers, employees, suppliers,
vendors, etc.) and uses two-way communication to monitor feedback and adjust both its
message and the organization's actions for maximum benefit. A primary tool used by
public relations practitioners is publicity. Publicity capitalizes on the news value of a
product, service, idea, person or event so that the information can be disseminated
through the news media. This third party "endorsement" by the news media provides a
vital boost to the marketing communication message: credibility. Articles in the media
are perceived as being more objective than advertisements, and their messages are more
likely to be absorbed and believed. For example, after the CBS newsmagazine 60
Minutes reported in the early 1990s that drinking moderate amounts of red wine could
prevent heart attacks by lowering cholesterol, red wine sales in the United States
increased 50 percent. Another benefit publicity offers is that it is free, not considering
the great amount of effort it can require to get out-bound publicity noticed and picked
up by media sources.

Public relations' role in the promotional mix is becoming more important because of
what Philip Kotler describes as an "over communicated society." Consumers develop
"communication-avoidance routines" where they are likely to tune out commercial
messages. As advertising loses some of its cost-effectiveness, marketers are turning to
news coverage, events, and community programs to help disseminate their product and
company messages. Some consumers may also base their purchase decisions on the
image of the company, for example, how environmentally responsible the company is.
In this regard, public relations plays an important role in presenting, through news
reports, sponsorships, "advertorials" (a form of advertising that instead of selling a
product or service promotes the company's views regarding current issues), and other
forms of communication, what the company stands for.



Direct marketing, the oldest form of marketing, is the process of communicating directly
with target customers to encourage response by telephone, mail, electronic means, or
personal visit. Users of direct marketing include retailers, wholesalers, manufacturers,
and service providers, and they use a variety of methods including direct mail,
telemarketing, direct-response advertising, and online computer shopping services,
cable shopping networks, and infomercials. Traditionally not viewed as an element in
the promotional mix, direct marketing represents one of the most profound changes in
marketing and promotion in the last 25 years. Aspects of direct marketing, which
includes direct response advertising and direct mail advertising as well as the various
research and support activities necessary for their implementation, have been adopted
by virtually all companies engaged in marketing products, services, ideas, or persons.
Direct marketing has become an important part of many marketing communication
programs for three reasons. First, the number of two-income households has increased
dramatically. About six in every ten women in the United States work outside the home.
This has reduced the amount of time families have for shopping trips. Secondly, more
shoppers than ever before rely on credit cards for payment of goods and services. These
cashless transactions make products easier and faster to purchase. Finally, technological
advances in telecommunications and computers allow consumers to make purchases
from their homes via telephone, television, or computer with ease and safety. These
three factors have dramatically altered the purchasing habits of American consumers
and made direct marketing a growing field worldwide.

Direct marketing allows a company to target more precisely a segment of customers and
prospects with a sales message tailored to their specific needs and characteristics.
Unlike advertising and public relations, whose connections to actual sales are tenuous or
nebulous at best, direct marketing offers accountability by providing tangible results.
The economics of direct marketing have also improved over the years as more
information is gathered about customers and prospects. By identifying those consumers
they can serve more effectively and profitably, companies may be more efficient in their
marketing efforts. Whereas network television in the past offered opportunities to reach
huge groups of consumers at a low cost per thousand, direct marketing can reach
individual consumers and develop a relationship with each of them.

Research indicates that brands with strong brand equity are more successful in direct
marketing efforts than little-known brands. Direct marketing, then, works best when
other marketing communication such as traditional media advertising supports the
direct marketing effort.

Direct marketing has its drawbacks also. Just as consumers built resistance to the
persuasive nature of advertising, so have they with direct marketing efforts. Direct
marketers have responded by being less sales oriented and more relationship oriented.
Also, just as consumers grew weary of advertising clutter, so have they with the direct
marketing efforts. Consumers are bombarded with mail, infomercials, and
telemarketing pitches daily. Some direct marketers have responded by regarding privacy
as a customer service benefit. Direct marketers must also overcome consumer mistrust
of direct marketing efforts due to incidents of illegal behavior by companies and
individuals using direct marketing. The U.S. Postal Service, the Federal Trade
Commission, and other federal and state agencies may prosecute criminal acts. The
industry then risks legislation regulating the behavior of direct marketers if it is not
successful in self-regulation. The Direct Marketing Association, the leading trade
organization for direct marketing, works with companies and government agencies to
initiate self-regulation. In March of 2003 the National Do Not Call Registry went into
affect whereby consumers added their names to a list that telemarketers had to
eliminate from their out-bound call database.


Database marketing is a form of direct marketing that attempts to gain and reinforce
sales transactions while at the same time being customer driven. Successful database
marketing continually updates lists of prospects and customers by identifying who they
are, what they are like, and what they are purchasing now or may be purchasing in the
future. By using database marketing, marketers can develop products and/or product
packages to meet their customers' needs or develop creative and media strategies that
match their tastes, values, and lifestyles. Like IMC, database marketing is viewed by
many marketers as supplanting traditional marketing strategies and is a major
component of most IMC programs.

At the core of database marketing is the idea that market segments are constantly
shifting and changing. People who may be considered current customers, potential
customers, and former customers and people who are likely never to be customers are
constantly changing. By identifying these various segments and developing a working
knowledge of their wants, needs, and characteristics, marketers can reduce the cost of
reaching non-prospects and build customer loyalty. Perhaps the most important role of
database marketing is its ability to retain customers. The cumulative profit for a five-
year loyal customer is between seven and eight times the first-year profit.

Since database marketing is expensive to develop and complex to implement effectively,

companies considering database marketing should consider three important questions.
First, do relatively frequent purchasers or high dollar volume purchasers for the brand
exist? Secondly, is the market diverse enough so that segmenting into subgroups would
be beneficial? Finally, are there customers that represent opportunities for higher
volume purchases?



Sales promotions are direct inducements that offer extra incentives to enhance or
accelerate the product's movement from producer to consumer. Sales promotions may
be directed at the consumer or the trade. Consumer promotions such as coupons,
sampling, premiums, sweepstakes, price packs (packs that offer greater quantity or
lower cost than normal), low-cost financing deals, and rebates are purchase incentives
in that they induce product trial and encourage repurchase. Consumer promotions may
also include incentives to visit a retail establishment or request additional information.
Trade promotions include slotting allowances ("buying" shelf space in retail stores),
allowances for featuring the brand in retail advertising, display and merchandising
allowances, buying allowances (volume discounts and other volume-oriented
incentives), bill back allowances (pay-for-performance incentives), incentives to
salespeople, and other tactics to encourage retailers to carry the item and to push the

Two perspectives may be found among marketers regarding sales promotion. First, sales
promotion is supplemental to advertising in that it binds the role of advertising with
personal selling. This view regards sales promotion as a minor player in the marketing
communication program. A second view regards sales promotion and advertising as
distinct functions with objectives and strategies very different from each other. Sales
promotion in this sense is equal to or even more important than advertising. Some
companies allocate as much as 75 percent of their advertising/promotion dollars to sales
promotion and just 25 percent to advertising. Finding the right balance is often a
difficult task. The main purpose of sales promotion is to spur action. Advertising sets up
the deal by developing a brand reputation and building market value. Sales promotion
helps close the deal by providing incentives that build market volume.
Sales promotions can motivate customers to select a particular brand, especially when
brands appear to be equal, and they can produce more immediate and measurable
results than advertising. However, too heavy a reliance on sales promotions results in
"deal-prone" consumers with little brand loyalty and too much price sensitivity. Sales
promotions can also force competitors to offer similar inducements, with sales and
profits suffering for everyone.


Sponsorships, or event marketing, combine advertising and sales promotions with

public relations. Sponsorships increase awareness of a company or product, build
loyalty with a specific target audience, help differentiate a product from its competitors,
provide merchandising opportunities, demonstrate commitment to a community or
ethnic group, or impact the bottom line. Like advertising, sponsorships are initiated to
build long-term associations. Organizations sometimes compare sponsorships with
advertising by using gross impressions or cost-per-thousand measurements. However,
the value of sponsorships can be very difficult to measure. Companies considering
sponsorships should consider the short-term public relations value of sponsorships and
the long-term goals of the organization. Sports sponsorships make up about two-thirds
of all sponsorships.


Exhibits, or trade shows, are hybrid forms of promotion between business-to-business

advertising and personal selling. Trade shows provide opportunities for face-to-face
contact with prospects, enable new companies to create a viable customer base in a
short period of time, and allow small and midsize companies that may not be visited on
a regular basis by salespeople to become familiar with suppliers and vendors. Because
many trade shows generate media attention, they have also become popular venues for
introducing new products and providing a stage for executives to gain visibility.

Personal selling includes all person-to-person contact with customers with the purpose
of introducing the product to the customer, convincing him or her of the product's value,
and closing the sale. The role of personal selling varies from organization to
organization, depending on the nature and size of the company, the industry, and the
products or services it is marketing. Many marketing executives realize that both sales
and non-sales employees act as salespeople for their organization in one way or another.
One study that perhaps supports this contention found that marketing executives
predicted greater emphasis being placed on sales management and personal selling in
their organization than on any other promotional mix element. These organizations
have launched training sessions that show employees how they act as salespeople for the
organization and how they can improve their interpersonal skills with clients,
customers, and prospects. Employee reward programs now reward employees for their
efforts in this regard.

Personal selling is the most effective way to make a sale because of the interpersonal
communication between the salesperson and the prospect. Messages can be tailored to
particular situations, immediate feedback can be processed, and message strategies can
be changed to accommodate the feedback. However, personal selling is the most
expensive way to make a sale, with the average cost per sales call ranging from $235 to
$332 and the average number of sales calls needed to close a deal being between three
and six personal calls.

Sales and marketing management classifies salespersons into one of three groups:
creative selling, order taking, and missionary sales reps. Creative selling jobs require the
most skills and preparation. They are the "point person" for the sales function. They
prospect for customers, analyze situations, determine how their company can satisfy
wants and needs of prospects, and, most importantly, get an order. Order takers take
over after the initial order is received. They handle repeat purchases (straight rebuys)
and modified rebuys. Missionary sales reps service accounts by introducing new
products, promotions, and other programs. Orders are taken by order takers or by

Just as direct marketing has become a prominent player in the promotional mix, so too
has the Internet. Virtually unheard of in the 1980s, the 1990s saw this new medium
explode onto the scene, being adopted by families, businesses and other organizations
more quickly than any other medium in history. Web sites provide a new way of
transmitting information, entertainment, and advertising, and have generated a new
dimension in marketing: electronic commerce. E-commerce is the term used to describe
the act of selling goods and services over the Internet. In other words, the Internet has
become more that a communication channel; it is a marketing channel itself with
companies such as, CDNow, eBay, and others selling goods via the
Internet to individuals around the globe. In less than 10 years advertising expenditures
on the Internet will rival those for radio and outdoor. Public relations practitioners
realize the value that web sites offer in establishing and maintaining relationships with
important publics. For example, company and product information can be posted on the
company's site for news reporters researching stories and for current and potential
customers seeking information. Political candidates have web sites that provide
information about their background and their political experience.

The interactivity of the Internet is perhaps its greatest asset. By communicating with
customers, prospects, and others one-on-one, firms can build databases that help them
meet specific needs of individuals, thus building a loyal customer base. Because the cost
of entry is negligible, the Internet is cluttered with web sites. However, this clutter does
not present the same kind of problem that advertising clutter does. Advertising and
most other forms of promotion assume a passive audience that will be exposed to
marketing communication messages via the mass media or mail regardless of their
receptivity. Web sites require audiences who are active in the information-seeking
process to purposely visit the site. Therefore, the quality and freshness of content is vital
for the success of the web site.


Marketing communication has become an integral part of the social and economic
system in the United States. Consumers rely on the information from marketing
communication to make wise purchase decisions. Businesses, ranging from
multinational corporations to small retailers, depend on marketing communication to
sell their goods and services. Marketing communication has also become an important
player in the life of a business. Marketing communication helps move products, services,
and ideas from manufacturers to end users and builds and maintains relationships with
customers, prospects, and other important stakeholders in the company. Advertising
and sales promotion will continue to play important roles in marketing communication
mix. However, marketing strategies that stress relationship building in addition to
producing sales will force marketers to consider all the elements in the marketing
communication mix. In the future new information gathering techniques will help
marketers target more precisely customers and prospects using direct marketing
strategies. New media technologies will provide businesses and consumers new ways to
establish and reinforce relationships that are important for the success of the firm and
important for consumers as they make purchase decisions. The Internet will become a
major force in how organizations communicate with a variety of constituents,
customers, clients, and other interested parties.


Integrated Marketing Communication means different things depending on who you ask.
Marketing guru Philip Kotler defined IMC as, "the concept under which a company
carefully integrates and coordinates its many communications channels to deliver
a clear, consistent message".

This concept is expanded on in the 4Cs of IMC which define how various Marketing
Communication Mix tools should be coordinated in the following ways:


Do your various marketing communications make sense together as a whole? Each message
within your Marketing Communication Mix should be part of the "bigger picture" in how it
relates to other messages and your core sales and marketing theme.

Are your various marketing communications saying the same thing? The messages your
customers receive through your various promotional efforts should not be contradictory and
should all repeat your core sales and marketing theme.


How does your marketing message change over time? As well as coordinating
communication tools and messages to be consistent, thought must be given to how the
message you convey evolves through various stages in the sales cycle.


How do the sum of the parts of your communication effort come together? The beauty of a
well-managed Integrated Marketing Communication effort is when the complementary
synergy you create overall exceeds any one effort.

Integrated Services Marketing Communications

 One major reason that customers may perceive service poorly is the
difference between what a firm promises and what it actually delivers.

 Controllable factors such as company advertising, personal selling, and

the promises made by service employees are important influences on
customer expectations.

The Need for Coordination in Marketing Communication

 The services marketing triangle emphasizes how the customer is the target of
two types of communications:

 1. External Marketing – Includes advertising, sales promotion and

personal selling.

 2. Interactive Marketing – Involves the messages that employees give

to customers through channels such as personal selling, customer
service interactions, service encounters and servicescapes.

Communications and the Services Marketing Triangle

 Service firms must ensure that interactive messages are consistent among
themselves, as well as with the messages sent through external marketing.

 In order to ensure that these messages are consistent, internal

marketing communications must be managed.

 This involves ensuring that the information sent from the company to
its employees is accurate, complete, and consistent with the messages
presented to customers.

 Recently, more and more companies are adopting what is known as

integrated marketing communications (IMC).

 IMC is accomplished by integrating and organizing all of a company’s

external communications channels.

Where service firms are involved, both external communications and interactive
communication channels must be integrated in order to create consistent service

Approaches for Integrating Services Marketing Communication

1. Manage customer expectations

2. Improve customer education

3. Manage service promises

4. Manage internal marketing communication

Key Reasons for Service Communication Challenges

 When differences exist between service delivery and external

communications, consumer perceptions of service quality can be powerfully

 Four main factors that contribute to these communication problems


• 1. Inadequate management of service promises

• 2. Elevated customer expectations

• 3. Insufficient customer education

• 4. Inadequate internal communications

Inadequate Management of Service Promises

 A discrepancy between service delivery and promises occurs when

companies fail to manage service promises – the vows made by salespeople,
advertising, and service personnel.

 One main reason for this discrepancy is that the company lacks the
integration needed to make promises that can be fulfilled.

 For example, due to demand and supply fluctuations the service may
be possible at one time, but cannot be completed at another time.

Inadequate Management of Customer Expectations

 Appropriate and accurate communication about services is the responsibility

of two functional departments: marketing and operations.

 It is the responsibility of marketing to accurately reflect what happens

in service encounters.

 It is the responsibility of operations to deliver what is promised in


• Problems arise if advertising, personal selling or other external

communications set up unrealistic expectations – actual
encounters are likely to disappoint customers.
Inadequate Customer Education

 If customers are unclear or confused about how service will be provided,

what their role in delivery of the service involves, and how to evaluate
unfamiliar services, they will be disappointed.

 When customers are disappointed, they will likely blame the service
provider rather than themselves.

Inadequate Internal Marketing Communications

 It is important to coordinate multiple functions within the service
organization, so that service goals may be achieved.

 Because service advertising and personal selling promises what people do,
horizontal communication (communication across functions) is critical.

 If internal communication is poor, customer perceptions of service

quality may be affected.

 For example, if advertising and other promises are developed without

consulting operations, service employees may not be able to deliver
service that matches the image portrayed in external communications.

Four Categories of Strategies to Match Service Promises with


 showed four categories of strategies to match service delivery with promises:

1. Manage service promises

2. Manage customer expectations

3. Improve customer education

4. Manage internal marketing communication

Manage Service Promises

 In services, sales and marketing departments make promises about what

other employees in the organization will do.

 Because what employees do cannot be standardized, it is important to

coordinate and manage promises.
 Figure 16.3 below shows several approaches for managing service promises

1. Approaches for Managing Service Promises

1. Create effective services communications

2. Coordinate external communication

3. Make realistic promises

4. Offer service guarantees

2. Approaches for Managing Customer Expectations

1. Offer Choices

2. Create Tiered-Value Offerings

3 Communicate Criteria for Service Effectiveness

4. Negotiate Unrealistic Expectations

3. Approaches for Improving Customer Education

1. Teach Customers to Avoid Peak Demand Periods and Seek Slow Periods

2. Clarify Expectations after the Sale

3. Confirm Performance to Standards

4. Prepare Customers for the Service Process

4. Approaches for Managing Internal Marketing Communications

1. Create Cross-Functional Teams

2. Align Back Office Personnel w/ External Customers

3. Create Effective Horizontal Communications

4. Create Effective Vertical Communications

Communications and the Services Marketing Triangle

Integrated Services Communications

 Integrated Services Communications

 a strategy that carefully integrates all external and internal

communication channels to present a consistent message to

 This means coordination across:

 sales and service people

 print

 Internet
 other forms of tangible communication including the servicescape

 How is this done in services?

 advertising

 sales presentations

 service encounters with employees

 servicescape and other tangibles

 Internet and web presence

 public relations

 pricing

 service guarantees

 customer education

Five Major Approaches to Overcome Service Communication Channels

Approaches for Addressing Service Intangibility

 Use narrative to demonstrate the service experience

 Present vivid information

 Use interactive imagery

 Focus on the tangibles

 Use brand icons to make the service tangible

 Use association, physical representation, documentation, and visualization

 Feature service employees in communication

 Use buzz or viral marketing

 Leverage social media

 Aim messages to influencers

 Create advertising that generates talk because it is humorous, compelling, or


 Feature satisfied customers in the communication

 Generate word-of-mouth through employee relationships

Services Advertising Strategies Matched with Properties of Intangibility

Approaches for Managing Service Promises

 Create a strong service brand

 Coordinate external communication

Service Branding Model

Approaches for Managing Customer Expectations

 Make realistic promises

 Offer service guarantees

 Offer choices

 Create tiered-value service offerings

 Communicate the criteria and levels of service


Approaches for Managing Customer Education

 Prepare customers for the service process

 Confirm performance to standards and

 Clarify expectations after the sale

 Teach customers to avoid peak demand periods

and to seek slow demand periods

Approaches for Managing Internal Marketing Communication

 Create effective vertical communications

 Sell the brand inside the company

 Create effective upward communication

 Create effective horizontal communications

 Align back-office and support personnel with external customers through

interaction or measurement

 Create cross-functional teams of sales, service, and operations people when

developing new services or engaging in service improvements

 Maintain a customer focus throughout all functions




The Critical Importance of Service Employees

Key focus on customer contact service

employees because:
They are the service

They are the organization in customer’s eye

They are the brand

They are the marketers

Their importance is evident in:

The Services Marketing Mix (People)

The Service-Profit Chain The Services Triangle

The Service Triangle

External Marketing: includes anything or anyone that communicates to

the customer before service delivery

Interactive Marketing: it’s the real time marketing were promises are
Internal Marketing: management aids the providers in their ability to
deliver the service promise- recruiting, training, motivating, rewarding, and providing
equipment & technology

Ways to Use the Services Marketing Triangle

Overall Strategic Assessment

How is the service organization doing on all three sides of the triangle?

Where are the weaknesses?

What are the strengths?

Specific Service Implementation

What is being promoted and by whom?

How will it be delivered and by whom?

Are the supporting systems in place to deliver the promised service?

 This chapter’s objectives are to:

 1. Show the importance of creating a service culture in which providing

excellent service to all customers is paramount.

 2. Illustrate the important role of service employees in creating

customer satisfaction and service quality.

 3. Identify challenges in boundary-spanning roles.

 4. Provide examples of strategies for creating customer-oriented
service delivery through a variety of ways.

Service Culture
 It has been suggested that a customer-oriented, service-oriented
organization will have at its heart a service culture. A service culture exists

 There is an appreciation for good service.

 Good service is given to internal as well as external customers.

 Good service comes naturally, and is an important norm of the


The Critical Importance of Service Employees

 Front-line employees and those supporting them are critical to the success of
any service organization because:

 They are the service.

 In the customer’s eyes, they are the organization.

 They are the brand.

 They are marketers.

The Services Triangle

 The triangle shows three interlinked groups that work together to develop,
promote and deliver services. These key players are labelled on the points of
the triangle:

 The company (management)

 The customers

 The providers (employees, or those who actually deliver the service)

 The sides of the services triangle are labelled:

 External marketing – External marketing efforts set up its customers’

expectations prior to service delivery.

 Interactive marketing – This is where promises are kept or broken by a

firm’s employees or agents.
 Internal marketing – Management engages in internal marketing
activities to help providers deliver on the service promise. They
accomplish this through recruiting, training, motivating, rewarding and
providing equipment and technology.

Employee Satisfaction, Customer Satisfaction, and Profits

 Satisfied employees can make for satisfied customers.

The service profit chain suggests that there are critical linkages among internal
service quality; employee satisfaction/productivity; the value of services provided to
the customer; and ultimately customer satisfaction, retention and profits

The Effect of Employee Behaviours on Service Quality Dimensions

 Reliability – Delivering the service as promised is often totally within the

control of front-line employees.

 Responsiveness – Front-line employees directly influence customer

perceptions of responsiveness through their willingness to help and
promptness in serving customers.

 Assurance – This is highly dependent on employees’ ability to communicate

and inspire trust and confidence.

 Empathy – Employees will pay attention, listen, adapt and be flexible in

delivering what customers need.

 Tangibles – Employee appearance and dress are important aspects of this

dimension of service quality.

Boundary-Spanning Roles

 Front-line service employees are referred to as “boundary-spanners” because

they operate at the organization’s boundary.

 They provide a link between the external customer and the internal
operations of the organization.

 Boundary-spanning positions require:

 Emotional labour

 Ability to handle interpersonal and inter-organizational conflict

 Ability to make trade-offs between quality and productivity

Emotional Labour
 Emotional labour refers to “the labour that goes beyond the physical or
mental skills needed to deliver quality service.”

 Friendliness, courtesy, empathy and responsiveness directed towards

customers all require huge amount of emotional labour.

 For example, a front-line service employee who is having a bad day is

still expected to put on the face of the organization when dealing with

Boundary-Spanning Workers Juggle Many Issues

 Person versus role

 Organization versus client

 Client versus client

Sources of Conflict

 Front-line employees are expected to deal with several types of conflicts.

 Person/role conflicts arise when boundary-spanners feel conflicts

between what they are asked to do and their own ideas or values.

 Organization/client conflicts are between the organization and the

individual customer.

• Employees may have to choose between following standard

rules and procedures or satisfying the demands of the customer.

 Inter-client conflict occurs when incompatible expectations or

requirements arise from two or more customers.

• This situation occurs most often when customers are being

served in turn.

Quality/Productivity Tradeoffs

 Front-line service workers must be both effective and efficient – they are
expected to deliver satisfying service to customers and at the same time be
both cost-effective and productive.

 This trade-offs between effectiveness and efficiency can put demands

and pressures on service employees.
 Finding a balance can be particularly difficult in the service industry –
service employees are required to provide customized service offerings
while still pursuing the goals of customer satisfaction and productivity.

Strategies for Delivering Service Quality Through People

 The strategies for enabling service promises are referred to as internal


 A combination of strategies is needed to ensure that service

employees are willing and able to deliver quality services, and stay
motivated to perform in customer-oriented ways.

 Four basic themes exist for building a customer-oriented, service-

minded workforce. An organization must:

• Hire the right people

• Develop people to deliver service quality

• Provide the necessary support systems

• Retain the best people

Hire the Right People

 To effectively deliver service quality, firms should focus considerable

attention on hiring and recruiting service personnel.

 Traditional practices dictate that in many service industries, service

personnel are lowest in the organizational hierarchy and work for minimum

 Now, many organizations are looking beyond the technical qualifications of

applicants to assess their level of customer and service orientation.

Compete for the Best People

 An organization must identify the right people and compete with other
organizations to hire them.

 When firms act as marketers in their pursuit of the best employees, they are
better able to attract potential valuable, long-term employees.

Hire for Service Competencies and Service Inclination

 Service employees must possess the following capacities:

 Service competencies – the skills and knowledge necessary to do the

 Service inclination – their interest in doing service related work,

reflected in employees’ attitudes.

Be the Preferred Employer

 One way to attract the best people is to be known as the preferred employer
in a particular industry or location.

 Some strategies that can support this goal include:

• Extensive training

• Career and advancement opportunities

• Excellent internal support

• Attractive incentives

• Quality goods and services that employees are proud to be

associated with

Develop People to Deliver Service Quality

 In order to grow and maintain a workforce that is customer-oriented and

focused on delivering quality, an organization must develop its employees to
deliver service quality.

 Three strategies for training individuals to ensure service performance are:

 1. Training for Technical and Interactive Skills

 2. Empowering Employees

 Promoting Teamwork

Train for Technical and Interactive Skills

 In order to provide quality service, employees need training in necessary
technical skills as well as in process or interactive skills.

 Most service organizations are relatively effective at training

employees in technical skills (Ex. McDonald’s). However, service
employees also need training in interactive skills that allow them to
provide courteous, caring, responsive and empathetic service.
Successful companies will invest heavily in training and ensure that training is
congruent with the organization’s business goals and strategies.

Empower Employees

 In order to truly be responsive to customer needs, front-line employees must

be empowered to accommodate customer requests and recover on the spot
when problems arise.

 Empowerment means giving employees the desire, skills, tools and

authority to serve the customer.

 It is important to remember however, that authority alone is not

enough. Employees need the knowledge and tools to be able to make
decisions on the customer’s behalf, and they need incentives that
encourage them to make the right decisions.

Potential Costs and Benefits of Empowerment

 Benefits

 Quicker responses to customer needs during service delivery.

 Quicker responses to dissatisfied customers during service recovery.

 Employees feel better about their jobs and themselves.

 Employees will interact with customers with more warmth and


 Empowered employees are a source of service ideas.

 Word-of-mouth advertising from customers.

 Costs

 Potentially greater dollar investment in selection and training.

 Higher labour costs.

 Potentially slower or inconsistent service delivery.

 May violate customers’ perceptions of “fair play.”

 Employees may “give away the store,” or make poor decisions.

Service Culture

 Good service delivery begins with an appropriate service culture

 A customer orientated and service orientated organization will have a good

service culture

Strategies for Delivering Service Quality Through People

1. Hire the right people

2. Develop to deliver service quality

3. Provide needed support systems

4. Retain the best people


Service blueprinting

• A special kind of flow-chart is called service blueprint, which also includes the line of
visibility, between customers and service provider. In other words, in service
blueprinting, the line of visibility separates activities of the front office, where customers
obtain tangible evidence of the service, from those of the back office, which is out of the
customers’ view.

• The high and low contact parts of the service delivery process are kept physically
separate, but they remain linked by communications. This separation highlights the need
to give special attention to operations above the line of visibility, where customer
perceptions of the service’s effectiveness are formed. Designing an efficient process is
the goal of the back office, but the back office operations have an indirect effect on the
customer because of delays and errors. The blueprinting exercise also gives managers the
opportunity to identify potential fail points and to design foolproof (Poka-Yoke is the
term borrowed from Japan) procedures to avoid their occurrence, thus ensuring the
delivery of high quality service (Fitzsimmons and Fitzsimmons, 1999).

• A process chart gives a more detailed breakdown of the process into tasks, and it
classifies each activity as being either a processing operation, a movement, an inspection,
a delay, or a storage. All those charts can be based on an existing process for a redesign
or a tentative design for a new process (Martinich, 1997). Service blueprinting is chosen
as the most popular and useful tool for service operations analysis. This type of analysis
not only can lead to the elimination of tasks, reduction movements, and simplification of
work, but it can also help to identify opportunities to create work cells or to use more
efficient flow processing for some set of activities. This tool also provides an excellent
communication device for visualizing and understanding the service operation. Shostack
(1984; 1987) was the one who first suggested service blue printing for service process
analysis. He showed how the service process could be modified by using service
blueprinting for a typical shoe repair service and a discount brokerage service. He
proposed a four steps approach for designing a blueprint as:

(1) Identifying processes of service delivery and present them in a diagrammatic form. The
level of details will depend on the complexity and nature of the service.

(2) Identify the fail points. These are stages where things might go wrong. The actions
necessary to correct these must be determined, and systems and procedures developed to
reduce the likelihood of them occurring in the first instance.

(3) Establishing time frame. Set standards against which the performance of the various
steps might be measured. Frequently, this is the time taken.

(4) Analyzing the profitability of the service delivered, in terms of the number of customers
served during a period of time.

• list of benefits about using service blueprinting, while a more

list of benefits is given by Martinich (1997) as follows:

• (1) The visual representation makes it easier to determine which activities are truly
necessary,which can be deleted, and which can be modified.

• (2) Customer contact points are clearly identified. This helps to point out activities that
can be performed separately and where opportunities for co processing of activities exist.

• (3) Likely service failure points are identified. This is helpful in developing plans to
minimize the chance of a failure and in identifying possible corrective actions, if failure
does occur.

• (4) The service blueprint is an excellent tool for training workers. They can see what
activities must be performed and how; where failures are most likely to occur and how to
prevent and correct them.
• (5) The blueprint is useful for identifying the equipment and materials needed and how
the service facilities should be spatially arranged to facilitate the services.

• (6) Service blueprints can be reconstructed regularly and used to evaluate and improve
the service system over time, especially as new technologies become available and the
services provided by the system change or expand.

Service blueprinting Service mapping

(1) Primary an engineering paradigm
(2) Organizational structure not specifically included
(3) Physical products included in a limited sense
(4) Fail points are identified
(5) Line of visibility identified
(6) Line of interaction not shown
(7) Line of implementation not shown
(8) Time and cost partly referred to
(9) Comments to each service element not systematically presented
(10)Not related to quality dimensions

Service blueprinting shares similarities with other process modeling approaches in that it
1) is a visual notation for depicting business processes via symbols that represent actors and

2) can be used to represent high-level overviews of conceptual processes or details

of particular support or subprocesses, and

3) will accommodate links to parallel and sub-process documents and diagrams via other more
internally-focused process modeling tools and languages such as BPMN (Business Process
Modeling Notation) and UML (Unified Modeling Language). However, service blueprinting is
not as complex or as formal as some business process modeling tools such as UML (Siau and
Loo, 2006).


In today's booming service economy, providing customers with high-quality and quick services has been
widely recognised as an essential means of achieving business excellence. To attain a higher quality
level of service than the competitor in the market, Design for Six Sigma (DFSS) has been developed as a
breakthrough strategy for service process design and/or redesign, which is fundamental to the delivery of
service quality to the customer. Meanwhile, a faster time-to-market capability of service can be obtained
through utilising the speed advantage of Lean. Therefore, it is the motivation of this paper for researching
that DFSS when combined with Lean can be synergistic in the upfront design phases of the service
development process
Dell Services’ Process Redesign Service provides value in the following ways:

• Identify process barriers and issues, areas of rework and risk in current environment, and
opportunities for improvement
• Improve operational efficiencies through the redesign of patient care processes, patient care
forms, and nursing documentation tools
• Integrate performance improvement principles with care process redesign activities

• Integrate patient care workflow into training strategy and approach

• Identify benefits with regards to patients, physicians, financials, labor, best practices, safety, and
• Improve clinician satisfaction and adoption through process redesign that engages and involves the

Service Process Redesign

The mission statement and agenda of the improvement project

were revised after the as-is process had been evaluated. Although
SCF had come to an agreement on what needed to be improved,
A number of procedures for the redesign of business processes
have been proposed in the literature. Hammer and Champy
recommended 17 general
principles for process reengineering in their BPR book Although
these principles were thought provoking, they were not specified
in much detail,
much less empirically validated. Subsequently, a number of
authors proposed transformation methods for BPR projects, e.g.
To extend these efforts, Reijers et al. consolidated 28 best
practices of business process design based on literature reviews
and lessons learned from consulting projects .These best
practices were packaged in reusable patterns and
assigned to different application levels of process design
(compare table 1).

In this project we focused our effort on task redesign, process

routing, and resource allocation, which were comparable to the
best practices in the task, routing, and allocation categories of
Reijers’s framework. Figure 4 shows an excerpt of the to-be
process model.
1.Task 2.Routing 3.Allocation 4.Resource 5.External Party 6Integral Best Process

Resequencing 3.Case Manager

Case Type


2.Knockout Case
Case Assignment
Extra Resource

Outsourcing Technology
Task Automation

Control Relocation

Interfacing Exception




Physical evidence as part of the marketing mix

Physical evidence is the material part of a service. Strictly speaking there are no physical attributes to a service, so
a consumer tends to rely on material cues.

There are many examples of physical evidence, including some of the following:

• Packaging.

• Internet/web pages.

• Paperwork (such as invoices, tickets and dispatch notes).

• Brochures.

• Furnishings.

• Signage (such as those on aircraft and vehicles).

• Uniforms.

• Business cards.

• The building itself (such as prestigious offices or scenic headquarters).

• Mailboxes and many others . . . . . .

• The evidence that is presented during a trial usually plays a major role in the outcome. There are
several types of evidence that can be used. One type, physical evidence, refers to items that can
be brought into a courtroom for observation. Examples of physical evidence include a bloody
shirt, the mold of a foot print, and a bullet casing.
• In many instances, law officials are the first to discover and handle physical evidence. This is
because such items are often obtained from crime scenes, meaning that suspects have not been
named, and therefore no lawyers are involved at that point. The manner in which this type of
evidence is collected and maintained is important because such items can be crucial in winning a
case. If it is not obtained according to procedure or it is damaged, it may be deemed inadmissible
or useless.
• Physical evidence often supersedes other types of evidence because it is commonly less
problematic. For example, testimonial evidence refers to things people say regarding some
aspect of a court case. This type of evidence can be riddled with problems such as false
statements, faulty memory, or hidden agendas.
• The reliability of such evidence can, however, have drastically differing effects. In some
instances, such items can be used to confirm what someone has asserted. In other instances,
they can disprove or cast doubt upon the things that have been said or alleged. For example, a
fingerprint lifted from the crime scene can prove that an individual has indeed visited a place that
he has claimed he never visited. Likewise, a photo of the individual at a certain event can prove
that at the time of a crime he was not at the crime scene.

 Servicescape is a concept that was developed by Booms and Bitner to emphasize the impact of the
physical environment in which a service process takes place. If you were to try to describe the differences
a customer encountered when entering a branch of say like McDonald'scompared with a small family
restaurant, the concept of servicescapes may prove useful. Booms and Bitner defined a servicescape as
"the environment in which the service is assembled and in which the seller and customer interact,
combined with tangible commodities that facilitate performance or communication of the service" (Booms
and Bitner, 1981, p. 36).

Physical evidence may be likened to 'landscape'. It includes facilities exterior (landscape, exterior design,
signage, parking, surrounding environment) and facilities interior (interior design & decor, equipment,
signage, layout, air quality, temperature and ambiance). Servicescape along with other tangibles like
business cards, stationery, billing statements, reports, employee dress, uniforms, brochures, web pages
and virtual servicescape forms the 'Physical Evidence' in marketing of services.

Servicescape is not defined as above. The definition above is the definition for physical evidence.
Physical evidence consist of servicescape combined with the tangible elements, so servicescape is a part
of physical evidence.
Service Environments

With the rapid deployment of wireless LAN connectivity in the private and public sectors,
opportunities for businesses to offer services to users moving within their physical
premises with portable computers (including PDAs and smart phones) are increasing. At
the same time, emerging sensing and semantic interpretation technologies enable the
implementation of presence, identity and localization services that are key enablers for the
types of pervasive, context-aware services we envision. Also, a variety of low cost sensors
can easily be embedded in the environment and in user devices.

Possible service providers include companies owning (or operating their business
within) conference / training centers, shopping centers, airports or stations. In the public
sector, government agencies and hospitals provide additional examples of environments
that may provide contextualized services to visitors.

We refer to these kinds of space as ‘physical service environments1. Physical service

environments provide services that are enhanced by knowledge of the physical
environment: for example, the distance between users and objects located in this space,
position of users, and specific characteristics of environment and user. A physical
environment seamlessly integrates the services provided by the computing devices it
contains. These are likely to include sensors, embedded systems and portable devices
owned by mobile users as well as more traditional application servers running in a separate
computer room, or remotely on a “grid”.

Service users operating in physical service environments may include, members of the
organization owning the environment, who can use the service infrastructure to perform
management tasks, surveillance, and other activities, as well as visitors from outside.

The major classes of services that a physical service environment can deliver include:

• Information provisioning: delivery of personalized, context-dependent content

• Physical environment awareness and control: access to information collected from

sensors (e.g. video from cameras, events from presence sensors, smoke detectors) and
control of the physical environment (e.g. open/close doors)

• Remote work support: access to personal data stores and services for users visiting
the environment

• Collaborative work support: sharing information among users and service

components present in the environment (e.g. by generating a context-based virtual
shared data space)

• Sharing or leasing of networked devices and appliances, e.g. printers, fax machines,

main characteristics of a Physical Service Environment.

Personal Device: The user is equipped with a portable personal device (e.g. PDA,
smartphone, wearable computer, or - more generally - a set of interconnected wireless
devices forming a Body Area Network). The device or devices adapt dynamically to
different radio protocols.

Network Architecture: The user moves within a space where heterogeneous wireless
communications islands form an extension of the wired network. User devices interconnect
using ad hoc or infrastructure-based wireless networks. They may also connect to devices,
sensors and services present in the environment.

Service Provisioning: In the envisioned service model, the user moves through
‘environments’ within which she can use local services provided by the environment and
by wireless connectivity resources. These services are delivered by devices embedded
within the environment and by application servers accessible over a network infrastructure.
Another group of potential service providers are other mobile users with whom the user
comes into contact in the environments visited, either in ad hoc mode or via the
environment’s network infrastructure. Applications and services may belong to a
‘personal’ zone (e.g. sharing of data on one’s own PDA). More often they are
environmental (e.g. local information services delivered by an environment). These
services may include both paying services and services that are available free of charge

Sensing Architecture: To support the delivery of these services, environments are

‘augmented’ with heterogeneous sensors. These allow the extraction of context
information making interaction with the user and service delivery more efficient. The
sensors capture information continuously, taking into account users’ activities. They then
communicate the information to an “ambient intelligence” module which processes context
information and distributes it to applications. Sensors may include both traditional sensing
devices (e.g temperature, pressure, light and humidity sensors), and more complex devices
such as cameras connected to a wired network. Since users’ personal devices are often able
to capture data from the physical world (e.g. through GPS and other position sensors

Modes of Interaction between the User and the Services: The user interacts with
services through a multimodal user interface, which uses the personal device’s resources to
communicate with the user. Alternatively the interface may use I/O devices embedded
within the environment. Communication between the user and services (or other users)
may be mediated by a ‘Personal Agent’ belonging to the user. This is an application with
reasoning capabilities. The task of the Personal Agent is to filter information and provide
intelligent support for the management of interpersonal communications.

OR Service Blueprinting.
• A picture map that visually portrays the service system –

 process of delivery

 role of customers & employees,

 visible elements of the service

• Breaks down a service into logical components & easily definable tasks &

Blueprinting – Key components

• Customer Action – Line of External Interaction

• “Onstage” Contact Employee Action - Line of Visibility

• “Backstage” Contact Employee Action Line of Internal Interaction

• Support Processes

Process 

1.Service Blueprint 2. Point of Contact 

Evidence =

• 3. A tool for simultaneously depicting the service process, the points of
customer contact, and the evidence of the service from the customers point
of view

( Service blueprint )

• Useful at design & redesign stages of service development

• Different from other “product” blueprints because here it includes customers

& their views of the service process

Application…..a few

1. Restaurant service

2. Hotel Stays

 Check–in procedures

 Room services

 Housekeeping

 Laundry

 Express Mail delivery

Steps in Building a Blueprint

1. Identify the service process to be blueprinted

2. Map the service process from the customers point of view

3. Map Contact Employee Actions –

• Onstage - Line of External Interaction

• Backstage – Line of Visibility – what customers should see and which

employees are in contact with the customers.

4. Map Internal Support activities

 Line of Internal Interaction – clarify interfaces across departmental lines,

their interdependencies

5. Add Evidence of Service at each Customer Action Step

Benefits of Blueprinting

• Provides a customer orientation overview – employees can relate to –”what I

do”in the process

• Identifies Fail points- weak links in the chain of service activities

• Basis for identifying costs, revenues, capital investment required

• Facilitates top-down, bottom-up approach to quality improvements.


Perishability – implications for demand and supply

Present the implications of time, labor, equipment, and facilities constraints

combined with variations in demand patterns.

strategies for matching supply and demand through

(a) shifting demand to match capacity or

(b) adjusting capacity to meet demand.

 Demonstrate the benefits and risks of yield management strategies in forging
a balance among capacity utilization, pricing, market segmentation, and
financial return.

 Provide strategies for managing waiting lines for

times when capacity and demand cannot be

Variations in Demand Relative to Capacity

Alternative supply and demand outcomes

Demand versus Supply
Understanding Capacity Constraints and Demand Patterns

1.Capacity Constraints

 Time, labor, equipment, and facilities

 Optimal versus maximum use of capacity

2. Demand Patterns

 Charting demand patterns

 Predictable cycles

 Random demand fluctuations

 Demand patterns by market segment

Strategies for Shifting Demand to Match Supply

(a)Demand Too High

• Use signage to communicate busy days and times.

• Offer incentives to customers for usage during nonpeak times.

• Take care of loyal or “regular” customers first.

• Advertise peak usage times and benefits of nonpeak use.

• Charge full price for the service—no discounts.


(b)Demand Too Low

• Use sales and advertising to increase business from current market


• Modify the service offering to appeal to new market segments.

• Offer discounts or price reductions.

• Modify hours of operation.

• Bring the service to the customer.

Adjusting demand to meet supply

Strategies for Adjusting Supply to Match Demand

Demand Too High

• Stretch time, labor, facilities and equipment.

• Cross-train employees.

• Hire part-time employees.

• Request overtime work from employees.

• Rent or share facilities.

• Rent or share equipment.

• Subcontract or outsource activities.

-- Adjust Capacity

Demand Too Low

• Perform maintenance, renovations.

• Schedule vacations.

• Schedule employee training.

• Lay off employees.

Adjusting supply to meet demand



Service Quality
Service quality involves a comparison of expectations with performance. According to Lewis
and Booms (1983) service quality is a measure of how well a delivered service matches the
customer’s expectations.

Generally the customer is requesting a service at the service interface where the service
encounter is being realized, then the service is being provided by the provider and in the same
time delivered to or consumed by the customer.

The main reason to focus on quality is to meet customer needs while remaining economically
competitive in the same time. This means satisfying customer needs is very important for the
enterprises survive.

The outcome of using quality practices is

 Understanding and improving of operational processes

 Identifying problems quickly and systematically
 Establishing valid and reliable service performance measures
 Measuring customer satisfaction and other performance outcomes

Service quality is a business administration's term and describes the degree of achievement of
an ordered service.

 Objective service quality is the concrete measurable conformity of a working result with
the previous defined benefit; since the measurability is remarkable dependent on the
definition's accuracy, a measurable quality criterion easily can turn out as a subjective one.

 Subjective service quality is the customers perceived conformity of the working result
with the expected benefit; this perception is overlayed with the customers original
imagination of the service and the service providers talent to present his performance as a
good one.

Criteria of service quality

Word-of-mouth, personal needs and past experience creates an expected service (Expectation
of the service). The perceived service will be compared with the expected service by the
customer. And leads to the perceived service quality as a result. Between the expected and the
perceived service can appear a gap if the perceived service does not match with the expected
service. Factors which influence the appearing of the gap were found by Parasuraman, Zeithaml
and Berry in 1985.

Parasuraman, Zeithaml and Berry (1985) identified ten determinants of service quality that may
relate to any service:

 Competence (Possession of the required skills and knowledge to perform the service:
knowledge and skill of the contact personnel, knowledge and skill of the operational support
personnel, research capability of the organization)
 Courtesy (Politeness, respect, consideration and friendliness of the contact personnel:
consideration for the customer's property, clean and neat appearance of public contact
 Credibility (Trustworthiness, believability and honesty. It involves having the customer's
best interest at heart: company name, company reputation, personal characteristics of the
contact personnel)
 Security (Freedom from danger, risk or doubt: physical safety, financial security,
 Access (Approachability and ease of contact: Service is easily accessible, waiting time
to receive service is not extensive, convenient hours of operation, convenient location of
service facility)
 Communication (Informing the customers in a language they can understand and
listening to them. It may mean that the company has to adjust its language for different
consumers: explaining the service itself, explaining how much the service will cost,
explaining the tradeoffs between service and cost, assuring the consumer that the problem
will be handled)
 Understanding/ knowing the customer (Making the effort to understand the
customer's needs: understanding customer's specific needs, providing individualized
attention, recognizing the customer)
 Tangibles (Physical evidence of the service: appearance of physical facilities, tools and
equipments used to provide the service, appearance of personnel and communication
materials, other customers in the service facility)
 Reliability (The ability to perform the promised service dependably and accurately:
service is performed right at the first time, the company keeps its promises in accuracy in
billing, in keeping records correctly and in performing the services at the designated time)
 Responsiveness (The willingness and/ or readiness of employees to help customers
and to provide prompt service, timeliness of service: mailing a transaction slip immediately,
setting up appointments quickly)

Later they were reduced to five by Parasuraman, Zeithaml and Berry (1988):

 Tangibles (Physical evidence of the service: appearance of physical facilities, tools and
equipments used to provide the service, appearance of personnel and communication

 Reliability (The ability to perform the promised service dependably and accurately:
consistency of performance and dependability, service is performed right at the first time,
the company keeps it's promises in accuracy in billing and keeping records correctly,
performing the services at the designated time)

 Responsiveness (The willingness and/ or readiness of employees to help customers

and to provide prompt service, timeliness of service: mailing a transaction slip immediately,
setting up appointments quickly)

 Assurance (The knowledge and courtesy of employees and their ability to convey trust
and confidence: competence (possession of the required skills and knowledge to perform
the service), courtesy (consideration for the customer's property, clean and neat appearance
of public contact personnel), trustworthiness, security (safety and confidentiality))

 Empathy (The provision of caring, individualized attention to customers: informing the

customers in a language they can understand, Understanding customer's specific needs,
Providing individualized attention)


There are two main models:

 Service Quality Model of Grönroos Grönroos says that the expectations of the
customer depend on the 5 determinants market communication, image, word of mouth,
customer needs and customer learning. Experiences depends on the techniqal quality
(what/ outcome) and the functional quality (how/process), which are filtered through the
image (who). Both expectations and experiences can create a perception gap.
 GAP Model of Parasuraman, Zeithaml and Berry The model says that the expected
service is influenced by the word-of-mouth, the personal needs , past experience and also
by the external communication to customers. A perception gap can appear between the
expected service and the perceived service. This gap is called the GAP 5 (also called the
service quality gap), it occurs if the customer is not satisfied and depends on the other 4

The perceived quality depends on the external communication to customers and the service
delivery. The GAP 4 (also called the communication gap) is appearing between the external
communication to customers and the service delivery. It appears when promises do not match
the delivery.
The service delivery depends on the service quality specifications. If they are not match each
other the GAP 3 (also called the service performance gap) appears.

The service quality specification depends on the management perceptions of customer

expectations, where the management perceptions of customer expectations influence the
external communication to customers. The GAP 2 (also called the standards gap) occurs
between the management perceptions of customer expectations and the service quality
specifications if the wrong quality standards were consulted.
The biggest gap, the GAP 1 (also called the marketing information gap) occurs between the
management perceptions of customer expectations and the expected service. It appears
because the service provider does not know what the customer expects.


GAP 1: Not knowing what customers expect:

 Lack of marketing research orientation

 Inadequate upward communication
 Too many levels of management

GAP 2: The wrong service quality standards:

 Inadequate management commitment to service quality

 Perception of infeasibility
 Inadequate task standardization
 Absence of goal setting

GAP 3: Service performance gap:

 Employee role ambiguity

 Employee role conflict
 Poor Employee job fit
 Poor Technology job fit
 Inappropriate evaluation and reward systems
 Lack of empowered service employees
 Lack of teamwork

GAP 4: When promises do not match delivery:

 Inadequate horizontal communication

 Tendency to overpromise

GAP 5: customer satisfaction:

 depends on gap 1-5

 The greater the gap the lower the customer satisfaction, because expectation and
perception do not match.


Quality measurement is separated in subjective and objective processes, at which mostly the
customers satisfaction is being measured. Measuring the customers satisfaction is an indirect
way to measure quality.

Objective processes are being subdivided into primary and secondary processes:

 During primary processes, test buyings from silent shoppers are being made or normal
customers are being watched.
 During secondary processes quantifiable enterprise numbers like amount of complaints
or the amount of given back goods are being analyzed, and with this information
conclusions to quality can be drawn.

Subjective processes are being subdivided into characteristic orientated, incident orientated and
problem orientated processes.

 To the characteristic focused processes counts the SERVQUAL method

 To the incident focused processes counts the Critical Incident Theory
 To the problem focused processes counts the Frequenz Relevanz Analyse (german)
The most important and most used process to measure service quality is
the SERVQUAL method.


Generally the service design or the service delivery can be improved to achieve a high quality

The service design consists in:

 Service product design

 Service facility design
 Service process designated

The service delivery consists in:

 Service delivery process

 Service encounter environment
 Customer-Provider interaction

And the following approaches can be used for the improvement:

 Quality function deployment (QFD)

 Failsafing
 Moving the line of visibility and line of accessibility
 Blueprinting


In order to ensure and increase the conformance quality of services, i.e. the service delivery
happens as designed, various methods are available. Some of these are listed below:

 Guaranteeing
 Mystery Shopping
 Recovering
 Setting standards and measuring
 Statistical process control
 Customer involvement


The GAP model

The figure below shows the "GAP" model of service quality from Parasuraman et al. (Zithaml &
Bitner 1996). This model offers an integrated view of the consumer-company relationship. It is
based on substantial research amongst a number of service providers. In common with the
Grönroos model it shows the perception gap (Gap 5) and outlines contributory factors. In this
case expected service is a function of word of mouth communication, personal need and past
experience, and perceived service is a product of service delivery and external communications
to consumers.

This model offers an integrated view of the consumer-company relationship. It is based on

substantial research amongst a number of service providers.
In this Gap model service is a function of word of mouth communication, personal need and
past experience, and perceived service is a product of service delivery and external
communications to consumers.

There is Different level in this model:-

Level 1:- Word of Mouth communications, Personal Needs, Past Experience

Level 2:- Expected Service
Level 3:- Perceived Service
Level4:- Service Delivery, External Communications to Customers.
Level5:- Service Standards
Level 6:- Management Perceptions of Consumer exceptions
However the GAP model goes further in its analysis of these key
contributory factors. It not only provides a more rigorous description
of the contributory Gaps, it lists key drivers for each gap and generic
breakdown of each of these drivers. These are illustrated below in
summary form below.
Gap 1

• Inadequate market research orientation

Lack of upward communication

 Insufficient relationship focus

Gap 2

• Absence of customer driven standards

 Inadequate service leadership

 Poor service design

Gap 3

• Deficiencies of human resource policies

 Failure to match supply and demand

 Customers not fulfilling roles

Gap 4

• Ineffective management of customer expectations

 Overpromising

 Inadequate horizontal communications

Key factors in the GAP model (Zeithaml 1990)


This level of detail allows powerful analysis of the contributory factors to a perception
gap at a practical level. The model shows the importance of marketing, business
leadership quality and HR systems in the management of the expectation gap.

What is the measurement of service quality?

• To recap, service quality focuses on the needs and expectations of customers

to improve products and/or services.

• The measurement of service quality measures the gap between the

customer’s level of expectation and how well they rated the service(s).

Measuring service quality in libraries can be both a specific project as well as a

continual process to enhance and improve services.

Why measure service quality?

The benefits of measuring service quality include:

• You will be able to identify where services need improving in the view of your

• It will enable you to provide services that are more closely aligned with the
expectations of your users.

It will allow you to compare your service quality with peer institutions in an effort to
develop benchmarks (more on benchmarking on Days 13 and 14!) and understand
best practice.

What should I measure?

• You first need to decide if you want to measure a specific aspect of your
library and information service (e.g. the provision of information skills
training) or the service as a whole?

• If you are measuring the whole service, you will need indicators from each
aspect of the service: e.g. inter-library loans, literature searching, enquiry
handling, training etc.

How do I measure it?

Generally organisations use a mixture of qualitative and quantitative methods:

• Qualitative Methods: interviews, focus groups, observation (including mystery


• Quantitative Methods: surveys (questionnaires, customer comments cards),

statistics (routine data collection).

• There are also specific tools that can be used to measure service quality in
organisations. For example:

• ISO Standards


• LibQUAL+ (specially for use in library and information services)

• RATER scale.

More on these tomorrow!

The Ten Determinants of Service Quality

1. Access - the ease and convenience of accessing the service(s).

2. Communication - keeping your users informed; listening to your users.

3. Competence - having the skills and knowledge to provide the service(s).

4. Courtesy - politeness, respect, consideration, and friendliness of staff at all


5. Credibility - trustworthiness, reputation and image.

6. Reliability - providing consistent, accurate and dependable service(s);

delivering the service that was promised.

7. Responsiveness - being willing and ready to provide service(s) when needed.

8. Security - physical safety; financial security; confidentiality.

9. Tangibles - the physical aspects of the service such as equipment, facilities,


10.Understanding the customer - knowing individual customer needs.


1. Access - convenient opening times; alternative methods to accessing

services: e.g. telephone and internet/email.

2. Communication - “plain English” signs & pamphlets/guides; suggestions and

complaints procedures.

3. Competence - all staff knowing, and able to do, their job.

4. Courtesy - staff behaving politely and pleasantly.

5. Credibility - the reputation of the service in the wider community; staff

generating a feeling of trust with users.

6. Reliability - standards defined in local service charters; accuracy of

information provided; doing jobs right first time; keeping promises and

7. Responsiveness - resolving problems quickly; allowing users to book an

“appointment” for help (e.g. in literature searching, reference management

8. Security - ensuring service meets health and safety requirements, for staff
and users.

9. Tangibles - up to date equipment and resources.

10.Understanding the customer - tailoring services where practical to meet
individual needs.


Key customer-centric SQ measures include:

o Total market surveys, annual surveys, transactional surveys

o Service feedback cards

o Mystery shopping

o Analysis of unsolicited feedback — complaints and compliments, focus

group discussions, and service reviews

Ongoing surveys of account holders to determine satisfaction in terms of broader relationship issues

Customer advisory panels offer feedback/advice on performance

Employee surveys and panels to determine:

o Perceptions of the quality of service delivered to customers on specific


o Barriers to better service

o Suggestions for improvement

Hard Measures of Service Quality

Control charts to monitor a single variable

o Offer a simple method of displaying performance over time against

specific quality standards

o Are only good if data on which they are based is accurate

o Enable easy identification of trends

Customer Relationships

Defination:-The ways in which your company communicates and deals with existing

When it comes in increasing profits, it's tempting to concentrate on making new sales or
pursuing bigger accounts. But attention to your existing customers, no matter how small
they are, is essential to keeping your business thriving. The secret to repeat business is
following up in a way that has a positive effect on the customer.

Effective follow-up begins immediately after a sale, when you call the customer to say
"Thank you" and find out if he or she is pleased with your product or service. Beyond this,
there are several effective ways to follow up that ensure your business is always in the
customer's mind.

Let customers know what you are doing for them. This can be in the form of a
newsletter mailed to existing customers, or it can be more informal, such as a phone call.
Whichever method you use, the key is to dramatically point out to customers what excellent
service you're giving them. If you never mention all the things you're doing for them,
customers may not notice. You're not being cocky when you talk to customers about all the
work you've done to please them. Just make a phone call and let them know they don't
have to worry because you handled the paperwork, called the attorney or double-checked
on the shipment--one less thing they have to do.

Write old customers personal, handwritten notes frequently. "I was just sitting at my
desk, and your name popped into my head. Are you still having a great time flying all over
the country? Let me know if you need another set of luggage. I can stop by with our latest
models anytime." Or, if you run into an old customer at an event, follow up with a note: "It
was great seeing you at the CDC Christmas party. I'll call you early in the new year to
schedule a lunch."

Keep it personal. Voice mail and e-mail make it easy to communicate, but the personal
touch is lost. Don't count these as a legitimate follow-up. If you're having trouble getting
through, leave a voice-mail message that you want to talk to the person directly or will stop
by his or her office at a designated time.

Remember special occasions. Send regular customers birthday cards, anniversary cards,
holiday name it. Gifts are excellent follow-up tools, too. You don't have to spend
a fortune to show you care; use your creativity to come up with interesting gift ideas that tie
into your business, the customer's business or his or her recent purchase.
Pass on information. If you read an article, see a new book or hear about an organization
a customer might be interested in, drop a note or make a quick call to let them know.

Consider follow-up calls business development calls. When you talk to or visit old
clients or customers, you'll often find they have referrals to give you, which can lead to new

With all that your existing customers can do for you, there's simply no reason not to stay in
regular contact with them. Use your imagination, and you'll think of plenty of other ideas that
can help you develop a lasting relationship.

Customer relationships are at the heart of every business: how the people who keep your
company afloat are treated.

That's what customers do: they pay your wages.

But too often we see customers as a nuisance, as difficult, even as incidental to the

We all go back to the people and places who make an effort, extend themselves and create
some kind of connection with us.

When we have been well 'managed' we become good customers.

Because loyalty and trust are built, dealing with those who treat us well is something we
look forward to and appreciate.

In turn, when you manage your customers well they will want to come back; they will want
to deal with you or your company.

They will know that if they present you with a difficulty they're not going to get a blank
stare, you won't get defensive or respond with, "Well, it's not really my problem."

Actually, we believe that if you create good, healthy customer relationships, people will
even forgive you your mistakes (as long as mistakes aren't the norm!).

A couple of tips for building a good Customer Relationship

Tell customers what's going on.

If you don't have an answer to a complaint, tell the customer you don't have one yet, but
you'll get one.

If you have to give bad news, just give it.

You'd be surprised how reasonable people can be when they're are told straight out about
something, instead of hedging around or implying something might happen that you know

Of course, there will always be unreasonable customers, but there's no point in assuming
everyone's going to be difficult.

Find out what customers want.

This seems so obvious and simple that it gets overlooked surprisingly often.

It's easy to assume what customers want without checking it out.

To compound things, we often give people what we want to give them (or think they should
want), rather than what they actually need.

By finding out what it is that will support them, you are demonstrating concern and

If you're able to give your customers what they want, all the better.

When that isn't possible, it's still better to ask and make the try than to stick with your
assumptions, which may or may not be accurate.

Give customers more than they expect

Not necessarily do more.

But keeping your relationships with other people dynamic means noticing what's going on
with them and offering insight, ideas and support (if needed).

It means recognising and acknowledging their contributions.

In other words, by adding something they aren't expecting, you create or reinforce a
positive impact.

You're looking here at the customer relationship equivalent of loyalty points!


1. Build your network--it's your sales lifeline. Your network includes business
colleagues, professional acquaintances, prospective and existing customers, partners,
suppliers, contractors and association members, as well as family, friends and people you
meet at school, church and in your community.

Contacts are potential customers waiting for you to connect with their needs. How do you
turn networks of contacts into customers? Not by hoping they'll remember meeting you six
months ago at that networking event. Networking is a long-term investment. Do it right by
adding value to the relationship, and that contact you just made can really pay off.
Communicate like your business's life depends on it. (Hint: And it does! Read on.)

2. Communication is a contact sport, so do it early and often.Relationships have a

short shelf life. No matter how charming, enthusiastic or persuasive you are, no one will
likely remember you from a business card or a one-time meeting. One of the biggest
mistakes people make is that they come home from networking events and fail to follow up.
Make the connection immediately. Send a "nice to meet you" e-mail or let these new
contacts know you've added them to your newsletter list and then send them the latest
copy. Immediately reinforce who you are, what you do and the connection you've made.

You rarely meet people at the exact moment when they need what you offer. When they're
ready, will they think of you? Only if you stay on their minds. It's easier to keep a connection
warm than to warm it up again once the trail goes cold. So take the time to turn your
network of connections into educated customers.

3. E-mail marketing keeps relationships strong on a shoestring budget. Build your

reputation as an expert by giving away some free insight. You have interesting things to
say! An easy way to communicate is with a brief e-mail newsletter that shows prospects
why they should buy from you. For just pennies per customer, you can distribute an e-mail
newsletter that includes tips, advice and short items that entice consumers and leave them
wanting more. E-mail marketing is a cost-effective and easy way to stay on customers'
minds, build their confidence in your expertise, and retain them. And it's viral: Contacts and
customers who find what you do interesting or valuable will forward your e-mail message or
newsletter to other people, just like word of mouth marketing.

4. Reward loyal customers, and they'll reward you. According to global management
consulting firm Bain and Co., a 5 percent increase in retention yields profit increases of 25
to 100 percent. And on average, repeat customers spend 67 percent more than new
customers. So your most profitable customers are repeat customers. Are you doing enough
to encourage them to work with you again? Stay in touch, and give them something of value
in exchange for their time, attention and business. It doesn't need to be too much; a coupon,
notice of a special event, helpful insights and advice, or news they can use are all effective.
Just remember: If you don't keep in touch with your customers, your competitors will.
5. Loyal customers are your best salespeople. So spend the time to build your network
and do the follow-up. Today there are cost effective tools, like e-mail marketing, that make
this easy. You can e-mail a simple newsletter, an offer or an update message of interest to
your network (make sure it's of interest to them, not just to you). Then they'll remember you
and what you do and deliver value back to you with referrals. They'll hear about
opportunities you'll never hear about. The only way they can say, "Wow, I met somebody
who's really good at XYZ. You should give her a call," is if they remember you. Then your
customers become your sales force.

With a recognition that existing customers are the source of most companies' profits,
there has been an explosion of interest in understanding customers from a long-term,
relationship view.

Frequently though this "relationship" view just means trying to sell more things to more
customers. If companies are really going to embrace the concept of relationships they
have to understand more about what their customers need and want to build a "shared
future" with their customers.

Relationship marketing and relationships in marketing are used to describe a variety of

different marketing approaches. CRM specialists use relationships when talking about
analyzing customer databases to uncover who the most valuable customers are.
Advertising people use brand to describe how brands bind consumers emotionally to
products as a statement of self-identity. Business-to-businessmarketeers use
relationships to describe the day-to-day interaction of account management and
choices about which accounts to develop and which to leave.
The dictionary definition of a relationship refers to "the state of having a connection or
correspondence or feeling that prevails between persons or things". But there is more
to a relationship than just a connection.
A genuine relationship is two-sided, takes place over a period of time and is strongly
reliant on trust. It has value to both parties, but it also brings with it costs in terms of
time and commitment.

When we describe customer relationships we have to reflect the fact that is is time
based. It has a past, a present and a future. And going forwards, customers rely on
trust based on past performance. We use the description "shared future" to describe
these type of long-term on-going relationships.
A shared future is a challenging concept since it means that both parties have to
understand how the other will help them get to where they want to go and what has
happened in the past. To commit to one supplier means a customer risks missing out
on a better deal or a better product elsewhere.

And relationships are not always wanted or desirable. In many situations purchasers
would choose to reduce the relationship-overhead to focus on pure cost and value.
Building customer knowledge to understand where and when a relationship approach
adds value is essential in defining the product/service mix. Removing relationship costs,
as discount stores and "DIY sheds" have found, may be more successful than layering
on marginally valued service.


Key external relationships exist with all three tiers of government, industry, clients, all
participants in the education sector, both public and private
and the general community.

An external perspective is needed to:

 Enrich and broaden the organization by keeping it ‘in touch’ with issues and needs in the
broader community.

 Source advice, information and resources from informed external resources.

 effectively promote the organization in the market place, to the public and to specific,
identified stakeholders.

 Facilitate strategic alliances for mutual advantage both domestically and internationally.

 Ensure the organization remains sensitive to the need for a culture that balances internal and
external factors.

Mutual advantage: to conduct our business on a long-term and sustainable basis, founded on
relationships that are mutually advantageous and capable of enduring beyond a single transaction.

Social impact: to respect the quality of life and the economic and social progress of the communities in
which the group operates and, in the context of the board goals, to give support to their advancement.

Human rights: to support the Voluntary Principles on Security and Human Rights. Understanding that
governments have the primary responsibility to promote and protect human rights, the group shares the
common goal of promoting respect for human rights, particularly those set forth in the Universal
Declaration of Human Rights.

Transparency: to deal openly and transparently with shareholders and third parties. The group will set
appropriate external targets in line with its internal targets and report against them periodically. The group
will also act in accordance with the principles of the Extractive Industries Transparency Initiative (EITI).
Government relations and influence: always to conduct business in a manner that does not abuse the
influence that may exist (or be perceived to exist) by virtue of the scope and scale of the group. The group
will engage honourably with all governments in whose jurisdictions it operates but will take no part in
partisan politics.


There are several drivers for this increased emphasis on internal relationship

• Increased focus on external relationship management has demanded that all the efforts of the
organisation are aligned to meeting the needs of customers in the most effective ways.

• Post merger/acquisition integration has led to more rigorous examination of support services.

• The trend towards outsourcing has prompted debate about the best ways of supporting the

• The growing emphasis on customer service and the “internal customer” has raised the stakes.
As Jan Carlson, then the CEO of SAS put it: “If you’re not serving the customer, you better be
serving someone who is”. The heightened expectation of customer service that we have all
experienced as consumers has percolated through into corporate life.

Understanding their clients and their key issues

The best internal relationship managers will have invested time to really understand their clients.
They will be able to provide heir own departments not only with accurate information but with
useful insights that can confirm or challenge intended strategies. They will often hear the words
“You seem to understand us better than we understand ourselves!” This understanding will be
demonstrated on three levels:
• The world in which the relationship operates - the big picture
• The client as a business, its goals, its markets, its financial drivers, above all its critically
important issues
• The way it takes decisions - the people, the politics and the procedures

Our most important clients will expect us to invest time in understanding them - and this
investment will produce a substantial return.

Understanding the internal client’s requirements and the ability of the department’s
offer to meet these needs

Understanding the client’s key issues is only part of the challenge. This understanding needs to
be translated into a grasp of how those issues correlate with one’s own department’s core
competence and an analysis of its strengths and weaknesses. The relationship manager needs
to lead a vigorous appraisal of how the current offering stacks up and how it could be improved
or extended to ensure that the solutions remain effective.
Understanding the way the relationship is being managed today; the people, the

All too often the current way of working is unclear. One of the greatest challenges to
relationship management is to make the whole approach transparent and accessible. This is
why over half of our KAM Survey respondents felt the single biggest improvement they could
make in relationship management would be in improved planning and the realisation of plans.
This is mirrored in internal relationship management.

Creating motivating visions and achievable objectives for the relationship and
forming an overall relationship strategy

It is in the nature of business relationships that they have unfulfilled potential for development.
That potential can sometimes be substantial. This can be of benefit to both the department and
its clients. Decisions can be made more quickly. Resources can be allocated appropriately.
Above all individuals see the purpose and end result of their actions and motivation is
significantly improved.

Planning ways to extend the existing services

By investing time talking and thinking about the services we offer, we can make a major
contribution to the value we provide our internal customers. In particular service providers are
often unaware of the peripheral aspects of their service that they take for granted but which are
actually seen as hugely valuable by the “customer”. By the same token there may be small
changes in the offering which can make a big difference to provider and customer alike.

Working with virtual or formal relationship teams

The relationship manager needs to exercise leadership but not in the same way as a line
manager. Particularly when working with complex customers they will need to be a highly
effective influencer, persuading those involved in the relationship to stick to the plan. They will
also have to be an astute politician, arguing for resource, trading favours and convincing unit
managers to behave in the interests of the client and the group. They may need to forge a group
of individuals from different departments into a cohesive team with a common purpose and a
consistent way of working. Again this means that the relationship manager needs to be flexible
with strongly developed and transferable people skills.

Forming and implementing effective relationship plans

We have already noted that one of the areas providers highlight is the forming and
implementing of relationship plans. Some of the first real relationship plans we saw in the late
Eighties were so big and unwieldy they must have needed to be delivered to relationship
meetings by truck! However relationship plans often are (at best) written on the back of an
envelope and even more often held in the head of the relationship manager. While there will be
some components common to every relationship plan (vision, objectives, contact matrix, some
form of measurement), the plan should draw on a “box of tools” to create a plan that is
appropriate for the business. These tools might include selection criteria, service analyses, team
role descriptions, processes, relationship protocols and stability indicators, to name just a few)2.
The challenge is to balance the creativity that each relationship manager will want to bring to
their “unique” situation and to have a consistency that allows senior management to interpret a
range of relationships efficiently and usefully.

Measuring the relationship

Finally, there is a compelling need to measure these key relationships better. It is crucial that we
measure more and measure better. One member of Mercuri’s international relationship project
team, Uffe Tollet, put it compellingly: “How many instruments do you have on a bike? Usually
none, perhaps a speedometer. How many on your car? Perhaps ten. How many on a
passenger jet? Hundreds. Tollet goes on to argue the reasons for this: “The faster you go, the
further you travel, the more people involved, the more complex the machinery, the greater the
risk, then the more you need to have a clear picture. This is just as true of relationship
management. We need to measure effectively and clearly, interpreting complex information and
presenting in an understandable way.”


Good purchasing practices are integral to small business success,
and few factors are as vital in ensuring sound purchasing
methodologies as the selection of quality suppliers. Indeed,
finding good suppliers and maintaining solid relations with
them can be an invaluable tool in the quest for business
success and expansion. As James Morgan observed
in Purchasing, "for a surprisingly large number of
procurement organizations, suppliers have become an
important factor in their planning. In fact, for many
procurement organizations, suppliers have become their
secret competitive weapon, their hidden resource, their
competitive edge." These competitive gains can manifest
themselves in a wide range of areas, from better prices and
delivery times to increased opportunities to consider and
implement innovative practices. But management consultant
Paul Inglis noted in Purchasing that such improvements will
not be realized without meaningful leadership from business
owners and executives. "Leading companies develop tailored
supply strategies that are directly linked to their corporate
strategies," he said. These leaders emphasize shareholder-
value creation, revenue growth, and cost competitiveness, and
establish specific programs with their key suppliers in order to
ensure that these priorities are addressed. Smart business
leaders, he added, "use suppliers to maximize their own
product competitiveness, going beyond the narrow focus of
cost reduction. Leaders exceed traditional sourcing practices,
adopt new models to fully leverage supplier capabilities, and
further their own position in the marketplace."

In recent years, countless management experts and analysts have touted the
benefits that businesses of all sizes can realize by establishing "partnerships"
with their suppliers. Under such a plan, which is also sometimes referred to as
"supply chain management," distribution channels are set up across
organizations so that all the members of the channel, from suppliers to end
users, coordinate their business activities and processes to minimize their
total costs and maximize their effectiveness in the marketplace. But while this
trend has become more prevalent in today's business environment, it is still
practiced in only spotty fashion in many industries. According to a 1997 A.T.
Kearney survey of business executives, common impediments to establishing
true business partnerships with suppliers include: attachment of greater
importance to other initiatives; comfortable relationships with existing
suppliers; dearth of cross-business unit cooperation; doubts about the benefits
of instituting such practices; lack of cross-functional cooperation; poor
monitoring and control systems; inexperience at managing improvement
programs; and distrust of suppliers. Companies that feature many of these
characteristics typically cling to old competitive bidding practices that center
on perfectly legitimate concerns about price, but at the exclusion of all else.

As a result, these businesses miss out on the many benefits that can accrue
when effective partnering initiatives are established with suppliers. As Morgan
indicated, suppliers can be an important source of information on ways in
which both small and large businesses can improve performance and
productivity. After studying a major mid-1990s buyer survey, he cited five
general categories in which supplier involvement can help buyers compete in
the marketplace:
1. Improvement of products through contributions to product design,
technology, or ideas for producing new products. In most such
instances, suppliers help buyers by pointing out ways in which designs
can be improved or more desirable materials can be used.
2. Improvements in product quality. In addition to providing design
recommendations that result in improved products, suppliers are often
sources of suggestions that allow buyers to hold consistent tolerances in
3. Improvements in "speed to market." "Some of the most significant
contributions in this area came from suppliers to OEM [original
equipment manufacturer] manufacturers," said Morgan. "Typical is the
instance of an equipment maker whose supplier helped cut 30 months
from the design to market schedule."
4. Reductions in total product cost, either through streamlining of work
processes (inventory management, new product design, scheduling, etc.)
or replacement of costly components with less expensive—but still
5. Improvements in customer satisfaction.


Establishing close relationships with suppliers, though, means that buyers

have to conduct the necessary research to make sure that they select the right
companies. "Purchasing needs to know a great deal more about supplier
capabilities than it did when everything depended on a bid/buy relationship,"
confirmed Purchasing’s Ernest L. Anderson. "Today's emphasis on
partnership requires suppliers who can become part of a whole supply system.
In fact, major suppliers need to be critically screened and evaluated before
they are brought into any new system." Thriving small- and mid-sized
businesses that are already well-established will be better able to take on such
tasks than will fledgling businesses, but even start ups should take the time to
learn more about their suppliers than their prices.

Of course, desired supplier traits vary somewhat depending on who is being

surveyed. For example, design engineers tend to place the most weight on
product quality when analyzing suppliers, while purchasing professionals
place greater importance on cost considerations in conjunction with product
quality. Anderson noted that criteria to be evaluated will also vary depending
on product category. "There's a difference, for instance, between how you
evaluate suppliers for MRO and how you evaluate raw materials suppliers," he
said. "Whether an item is proprietary or generic will make a difference in what
gets stressed in selection of significant suppliers. Still, the objective of all
evaluations is the same: To compare all potential suppliers in a market
segment to determine the one best qualified to be your partner. It's important
to evaluate strengths and weaknesses of potential suppliers in terms of which
one can best help purchasing meet prime objectives. Typical objectives include
inventory reduction, quality improvement, elimination of paperwork, and
improved handling of incoming goods."

Companies that do not do the necessary legwork, on the other hand, may find
themselves linked to a poor or untrustworthy supplier that can erode a
business's financial fortunes and industry/community reputation in a
remarkably short span of time. "Poor supplier performance is not the only risk
a purchaser faces" in situations where it has linked with a bad supplier,
noted The Economist. "It must also worry about the possibility of a supplier
passing trade secrets to competitors, or, with its newfound abilities, venturing
out on its own. A company that abdicates too many things [to suppliers] may
'hollow' itself out. All of these risks are especially great in fast-moving,
knowledge-intensive industries, which are precisely those for which integrated
supply chains otherwise make the most sense." Given these potential pitfalls,
businesses seeking to establish partnerships with suppliers are urged to
proceed with caution.


Whether searching out new suppliers or benchmarking the performance of

current suppliers, businesses are urged to consider the following when
evaluating their options:

• Commitment to quality—Not surprisingly, product quality is regarded as

an essential factor in selecting a supplier. Specifics in this realm include
the suppliers' statistical process control methods, its QS-9000
registration, its approaches to problem solving and preventive
maintenance, and its methods of equipment calibration. "What gets
looked at varies by whether the supplier is a distributor or
manufacturer," pointed out Anderson. "With a distributor, the team
wants to determine whether it carries mainly Grade A lines or B lines in
a particular group. With a manufacturer it's important to have QC
people on the team to realistically appraise the supplier's control
standards and methods of measuring quality."
• Cost-competitive—Competitive pricing is another huge factor, especially
for businesses that are smaller or experiencing financial difficulties.
• Communication—Suppliers that do not maintain a policy of open
communication—or even worse, actively practice deception—should be
avoided at all costs. The frustrations of dealing with such companies can
sometimes assume debilitating dimensions. Moreover, constant
exposure to such tactics can have a corrosive effect on internal staff.
• Timely service—Businesses strategies are predicated on schedules,
which in turn are based on receiving shipments at agreed-upon times.
When those shipments slip, business strategies suffer. The blow can be
particularly severe if the supplier is negligent or late in reporting the
problem. "Reliable delivery is first among the basics of what we expect
[from suppliers]," one executive told Industrial Distribution. "It doesn't
have to be instantaneous—it just needs to get there when they promised
it would."
• Flexibility and special services—Many purchasers express appreciation
for suppliers that take extra measures to satisfy their customers. These
"perks" can range from after-hours accessability to training or inventory
• Market knowledge—Suppliers with extensive knowledge of market
conditions and mastery of contemporary issues impacting your business
can be immensely valuable in helping small companies chart a course to
sustained financial success.
• Production capabilities—the supplier's capacity for program
management and production should be considered, including its ability
to integrate design and manufacturing functions, its approach to design
changes, and its program measurement features.
• Financial stability—Businesses that allocate large sums for purchasing
materials often prefer to make long-term deals with suppliers that are
financially stable. Such arrangements not only convey security, but they
allow companies to learn about one another and gain a fuller
understanding of each business's needs, desires, operating practices,
and future objectives. Moreover, The Economist noted that "being in a
meaningful relationship instead of a one-part stand encourages
suppliers to make investments that are tailored to the purchasing firm's
needs—and to be more thrifty…. A trusted supplieris more likely to think
about the purchasing firm's own customers."
• Logistics/Location—Supplier capabilities in this area include
transportation capacity, sourcing capabilities, and 'just-in-time'
• Inventory—According to Purchasing, evaluation of this consideration is
dependent somewhat on the supplier's business. "If the supplier is a
distributor, the emphasis will be on how well his inventory is set up to
avoid stock outs. With a manufacturer, emphasis has to be on inventory
accessibility. If the supplier has a [just in time] program with 24-hour
assured delivery, it's in better condition than the manufacturer with a lot
of raw material inventory and an eight-week leadtime for raw material."
• Ability to provide technical assistance—Suppliers with top research and
development capacities can be quite valuable to buyers, providing them
with significant savings in both price and quality.


A common lament of suppliers is that buyer organizations all too often have
unrealistic expectations about the supplier's ability to anticipate buyer needs.
As one purchasing executive admitted to Purchasing, "In new technology
areas we have great difficulty getting the users in our own company to define
what they want. Most have an attitude of 'I'll know it when I see it.' And many
of these users keep changing their minds."

Honesty on both sides is another important quality in effective buyer-supplier

relations. Small business owners hate being misled by their suppliers, yet they
are often less than above-board in their own communications with suppliers.
This is most common when the business is grappling with past-due payments,
but entrepreneurs should avoid subterfuge and be upfront with suppliers
about their situations. "Instead of lying and saying the check's in the mail, tell
suppliers what's happening and what you propose to do about it," one small
business owner told Nation’s Business. "If you have a note that's due, you call
them, instead of waiting for them to call you. They appreciate that. Business
people are afraid to make that phone call; they want to make it all sound rosy.
But … if you owe them, suppliers are eager to find a way to work with you."

View of Buyer-Supplier Relationship

• total cost of ownership

• end-customer driven

• long-term

• opportunity maximization

• cross-functional teams and top management involvement

• strategic

• both supplier and buyer on both sides share short- and long-term plans

• shared risk and opportunity

• standardization

• joint ventures

• share data

Partner Selection

• cost

• safety

• quality

• delivery

• environment

• financial stability
• management stability

• continuing improvement

• technological accomplishment

• congruence of management values on issues like customer satisfaction

• concern for quality

• employee involvement

• supplier relationships

• personal compatibility between functional counterparts

Supplier Development

• prospective supplier must be persuaded to accept an order

• purchaser is aware of benefits to both parties that the supplier may not be aware

• purchaser pre-determines prices, terms and conditions

• purchaser must understand supplier’s capability to ensure win-win proposal

• assures future sources of supply



Why Focus on Customer Retention (CR)?

• Service encounter failures

• Inconvenience

• Response to failed service

• Pricing

• Competition

• Ethical concerns

• Involuntary switching

• Other factors

Philips Kotler on Customer Retention

The key to customer retention is customer satisfaction

• Satisfied Customers

• Stay loyal longer

• Talk favorably about the organization

• Pay less attention to the competition

• Are less price sensitive

• Offer service ideas to the organization

• Cost less to serve than new customers

Customer Retention Tactics

• Image/Promotion - community service, direct mail, educational offerings,

integrated marketing communications, newsletters, regular customer contact,
informational materials, website

• Service Quality - continuous quality initiatives, convenience,customer service

training, demonstrate that customers are highly valued, mystery shopping, customer
representatives/ ombudsman, service failure training, smile, treat customers as family.

• Research - analyze defection rates/reasons, classify customers by

usage/satisfaction/loyalty, develop targeted retention programs.

• Internal Marketing - loyalty task force, prepare “solutions” to recurring problems,

share appropriate customer data with staff, reward and publicize customer care person
of the month.

• * Customer-Centered - “dialogue” marketing, customer bill of rights, customer care

councils, understand customer expectations.

Sequences in Retention process

• Exploring

• Evaluating

• Establishing Strategies

• Examining feedback

Attrition: The Negative Signal to Retention

• Increase in the number of complaint

• Decrease in the frequency of contacts

• Decrease in personal visits

• Decrease in enquiries

• Decrease in the volume of business

• Decrease in the number of active buyers

• Decrease in the extent of interaction

• Decrease in the flow of communication.

Customer Retention Approaches

• CR tactics are short term in nature while CR strategies create lasting value for

• CR efforts should begin once the firm wins a customer

These efforts should include

• Learning as much as possible about customer needs

• Responding promptly to any indications of disinterest

• Making customers feel truly cared for

• Resolving complaints quickly and efficiently

• Be willing to negotiate with high-value customers who show signs of inactivity

Common/Effective Approaches for Enhancing Retention

• Build a customer database/marketing information system

• Design ongoing customer programs - continuity and loyalty-based initiatives

• Offer long term services - membership/subscription programs

• Custom promotion - use reminder advertising and press releases

• Focus on key accounts and heavy users

• Use newsletters/informational materials to stay in touch with infrequent customers

• Attend trade shows

• Research customers needs and wants

• Welcome suggestions and complaints

Other Customer Retention Tools

• Customer relationship management ( CRM ), an expensive information technology,

is also frequently used by large companies for business usage analyses
• The 80/20 principle was integral in determining the focus & location of Fast
Industries’ most important customers

• SWOT analysis -- strengths, weaknesses, opportunities, and threats -- information

can be gathered from each strategic customer

7 Criteria for Selecting CR Approaches

• ■ Efficiency - low cost

• ■ Effectiveness - likelihood to succeed

• ■ Adaptability - strategic fit with the organizational culture

• ■ Consistency - works well with the current marketing plan

• ■ Competitive advantage

• ■ Ease of implementation

• ■ Projected profitability

5-Step Process for Designing a Customer Retention Program

• Determine your current CR rate

• Analyze the defection problem

• Establish a new CR objective

• Invest in a targeted CR plan to enhance customer loyalty

• Evaluate the success of the CR program

Measuring Customer Retention

• Annual and targeted customer retention rates

• Weighted customer retention rates - accounts for usage differences

• Segmented retention indicators - subgroup analysis based on geographic,

demographic, lifestyle, product preferences, etc.

• Share-of-customer

• Customer lifetime value ( CLTV )

• Regency, frequency, and monetary value ( RFM )

Useful Metrics for CR Evaluation

• Innovative customer value managers should consider the measures below to gain
additional insight on retention:

• Expected future use

• Anticipated regret

• Intent to switch

• Intent to remain loyal – likelihood to return to provider and to recommend provider


Customer Retention is the activity that a selling organisation undertakes in order to reduce
customer defections. Successful customer retention starts with the first contact an organisation
has with a customer and continues throughout the entire lifetime of a relationship. A company’s
ability to attract and retain new customers, is not only related to its product or services, but
strongly related to the way it services its existing customers and the reputation it creates within
and across the marketplace.

Customer retention is more than giving the customer what they expect, it’s about exceeding
their expectations so that they become loyal advocates for your brand. Creating customer
loyalty puts ‘customer value rather than maximizing profits and shareholder value at the center
of business strategy’[1]. The key differentiator in a competitive environment is more often than
not the delivery of a consistently high standard of customer service.

Customer retention has a direct impact on profitability. Research by John Fleming and Jim
Asplund indicates that engaged customers generate 1.7 times more revenue than normal
customers, while having engaged employees and engaged customers returns a revenue gain of
3.4 times the norm.

repeat customers or people who buy from you again and again. remember: you
can sell anybody anything once but can you do it again and again? make them
happy and they will return. good luck.
The art of implementing business strategies to an effect that will make clients and
customers keep on patronizing what you have to offer be it a product or your own

On the other hand, to retain customers, you have to employ methods that were
found to be an effective way to do just that for your business. One way of doing
that as a tip is to use promotional items or corporate gifts and distribute them to
all your clients on a level per level basis like from a regular customer to a a
prospect customer. This way, your promotional item or corporate gift helps you
retain customers and at the same time grow them for business profits and higher
return on investment.


Customer Retention marketing is a tactically-driven approach based on

customer behavior. It's the core activity going on behind the scenes
in Relationship Marketing, Loyalty Marketing, Database
Marketing, Permission Marketing, and so forth. Here’s the basic
philosophy of a retention-oriented marketer:

1. Past and Current customer behavior is the best predictor of

Future customer behavior. Think about it. In general, it is more often
true than not true, and when it comes to action-oriented activities like
making purchases and visiting web sites, the concept really shines

We are talking about actual behavior here, not implied behavior. Being a
35-year-old woman is not a behavior; it’s a demographic characteristic.
Take these two groups of potential buyers who surf the ‘Net:

• People who are a perfect demographic match for your site, but have
never made a purchase online anywhere
• People who are outside the core demographics for your site, but
have purchased repeatedly online at many different web sites

If you sent a 20% off promotion to each group, asking them to visit and
make a first purchase, response would be higher from the buyers (second
bullet above) than the demographically targeted group (first bullet
above). This effect has been demonstrated for years with many types of
Direct Marketing. It works because actual behavior is better at predicting
future behavior than demographic characteristics are. You can tell
whether a customer is about to defect or not by watching their behavior;
once you can predict defection, you have a shot at retaining the customer
by taking action.

2. Active customers are happy (retained) customers; and they

like to "win." They like to feel they are in control and smart about
choices they make, and they like to feel good about their behavior.
Marketers take advantage of this by offering promotions of various kinds
to get consumers to engage in a behavior and feel good about doing it.

These promotions range from discounts and sweepstakes to loyalty

programs and higher concept approaches such as thank-you notes and
birthday cards. Promotions encourage behavior. If you want your
customers to do something, you have to do something for them, and if
it’s something that makes them feel good (like they are winning the
consumer game) then they’re more likely to do it.

Retaining customers means keeping them active with you. If you don't,
they will slip away and eventually no longer be customers. Promotions
encourage this interaction of customers with your company, even if you
are just sending out a newsletter or birthday card.
The truth is, almost all customers will leave you eventually. The trick is
to keep them active and happy as long as possible, and to make money
doing it.

3. Retention Marketing is all about:

Action – Reaction – Feedback – Repeat.

Marketing is a conversation, as the ClueTrain Manifesto and Permission

Marketing have pointed out. Marketing with customer data is a highly
evolved and valuable conversation, but it has to be back and forth
between the marketer and the customer, and you have to LISTEN to what
the customer is saying to you.

For example, let's say you look at some average customer behavior. You
look at every customer who has made at least 2 purchases, and you
calculate the number of days between the first and second purchases.
This number is called "latency" - the number of days between two
customer events. Perhaps you find it to be 30 days.

Now, look at your One-Time buyers. If a customer has not made a

second purchase by 30 days after the first purchase, the customer is not
acting like an "average" multi-purchase customer. The customer data is
telling you something is wrong, and you should react to it with a
promotion. This is an example of the data speaking for the customer;
you have to learn how to listen.

This site and the Drilling Down book are all about how to discover,
manage, and listen to customer data. The data is speaking for the
customer, telling you by its very existence (or non-existence) there has
been an action (or non-action) waiting for a reaction.
4. Retention Marketing requires allocating marketing resources.
You have to realize some marketing activities and customers will
generate higher profits than others. You can keep your budget flat or
shrink it while increasing sales and profits if you continuously allocate
more of the budget to highly profitable activities and away from lower
profit activities. This doesn't mean you should "get rid" of some
customers or treat them poorly.


What is Customer Loyalty?

Customer loyalty is all about attracting the right customer, getting them to
buy, buy often, buy in higher quantities and bring you even more customers.
However, that focus is not how you build customer loyalty.

You build loyalty buy treating your team well so they treat your customers
well. You build it by showing that you care and remembering what they like
and don’t like. You build it by rewarding them for choosing you over your
competitors. You build it by truly giving a damn about them and figuring out
how to make them more success, happy and joyful.

Increased loyalty can bring cost savings to a company in at least six areas:

1. Reduced marketing costs (customer acquisition costs require more dollars)

2. Lower transaction costs such as contract negotiation and order processing
3. Reduced customer turnover expenses ( fewer lost customers to replace/no churning)
4. Increased cross selling success leading to larger share of customer
5. More positive word of mouth
6. Reduced failure costs

Five reasons for making a first time customer a life time buyer:

1. Sales go up because the customer is buying more from you

2. You strengthen your position in the marketplace when customers are buying from you
instead of your competition
3. Marketing costs go down when you don’t have to spend money to attract a repeat
customer, since you already have him. In addition, as a satisfied customer he tells his
friends thereby decreasing your need to advertise.
4. You are better insulated from price competition because a loyal customer is less
likely to be lured away by a discount of a few dollars.

5. Finally, a happy customer s likely to sample your other product lines thus helping you

achieve a larger share of customer


Each time a customer buys, he progresses through a buying cycle. A first time buyer
goes through five steps:

1. Becomes aware of the product

2. Makes an initial investment
3. Post purchase evaluation
4. Decision to repurchase
5. Repurchase

Growing a loyal customer

A customer is a person who becomes accustomed to buying from you. Without a

strong track record of contact and repeat purchase, this person is NOT your
customer; he is a buyer. A true customer is grown over time.

A loyal customer is one who:

• Makes regular purchases

• Purchases across product and service lines
• Refers others
• Demonstrates immunity to the pull of the competition. (Harley owners refuse to
Admit that another bike even exists)

People become loyal through stages.

Stage One: A suspect is anyone who might possibly buy your product or service. We
call them suspects because we believe or suspect that they might buy from us – we don’t
know for sure.

Stage Two: A prospect is someone who has a need for your product or service and is
able to buy. Although a prospect has not yet purchased from you, he may have heard
about you, read about you, or had someone recommend you to him.

Stage Three: Disqualified Prospect. These are those who don’t need, or do not have the
ability to buy your products

Stage Four: First time customer is one who has purchased from you one time. This
person can be a customer of yours and a customer of your competitor as well.

Stage Five: Repeat customers are people who have purchased from you two or more

Stage Six: A client buys everything you have to sell that he can possibly use. This
person purchases regularly. You have a strong, on going relationship that makes him
immune to the pull of the competition.

Stage Seven: Like a client, an Advocate encourages others to buy from you. He talks
about you and does marketing for you.


The term customer loyalty is used to describe the behavior of repeat customers, as well as
those that offer good ratings, reviews, or testimonials. Some customers do a particular company
a great service by offering favorable word of mouth publicity regarding a product, telling friends
and family, thus adding them to the number of loyal customers. However, customer includes
much more. It is a process, a program, or a group of programs geared toward keeping a client
happy so he or she will provide more business.

Customer loyalty can be achieved in some cases by offering a quality product with a firm
guarantee. Customer loyalty is also achieved through free offers, coupons, low interest rates on
financing, high value trade-ins, extended warranties, rebates, and other rewards and incentive
programs. The ultimate goal of customer loyalty programs is happy customers who will return to
purchase again and persuade others to use that company's products or services. This equates
to profitability, as well as happy stakeholders.

Customer loyalty may be a one-time program or incentive, or an ongoing group of programs to

entice consumers. Buy-one-get-one-free programs are very popular, as are purchases that
come with rebates or free gifts. Another good incentive for achieving customer loyalty is offering
a risk free trial period for a product or service. Also known as brand name loyalty, these types of
incentives are meant to ensure that customers will return, not only to buy the same product
again and again, but also to try other products or services offered by the company.
Excellent customer service is another key element in gaining customer loyalty. If a client has a
problem, the company should do whatever it takes to make things right. If a product is faulty, it
should be replaced or the customer's money should be refunded. This should be standard
procedure for any reputable business, but those who wish to develop customer loyalty on a
large-scale basis may also go above and beyond the standard. They may offer even more by
way of free gifts or discounts to appease the customer.


Customer loyalty describes the tendency of a customer to choose one

business or product over another for a particular need. In the packaged
goods industry, customers may be described as being "brand loyal"
because they tend to choose a certain brand of soap more often than
others. Note the use of the word "choose" though; customer loyalty
becomes evident when choices are made and actions taken by
customers. Customers may express high satisfaction levels with a
company in a survey, but satisfaction does not equal loyalty. Loyalty is
demonstrated by the actions of the customer; customers can be very
satisfied and still not be loyal.

Customer Loyalty has become a catch-all term for the end result of many
marketing approaches where customer data is used. You can
say Relationship Marketing or Database Marketing or Permission
Marketing or CRM, and what you are really talking about is trying to
increase customer loyalty - getting customers to choose to buy or visit
more. Increased customer loyalty is the end result, the desired benefit of
these programs. All of the above approaches have two elements in
common - they increase both customer retention and the LifeTime
Value of customers.

Customer loyalty is the result of well-managed customer

retention programs; customers who are targeted by a retention program
demonstrate higher loyalty to a business. All customer retention
programs rely on communicating with customers, giving them
encouragement to remain active and choosing to do business with a

You want customers to do something, to take action. You want them to

visit your website, make a purchase, sign up for a newsletter. And once
they do it for the first time, you want them to continue doing business
with you, especially since you probably paid big money to get them to do
business with you the first time. You don’t want to pay big money the
second time. You want to create a "loyal" customer who engages in
profitable behavior.

Customer data and models based on this data can tell you which
customers are most likely to respond and become loyal, no matter what
kind of front-end marketing program you are running or how you "wrap it
up" and present it to the customer. The data will tell you who to
promote to, and how to save precious marketing dollars in the process of
creating customers who are loyal to you longer.

For example, let's say you look at your most loyal customers and find on
average they buy or visit at least once every 30 days. So you begin
tracking these customers, and discover 20% of them "skip" their 30 day
activity. In addition, 90% of the 20% who skip never come back. You
are watching the erosion of customer loyalty right before your eyes.

And it's too late to do anything about it, because they're already
gone. You will waste a tremendous amount of money trying to get them
back. You have to develop a way to identify high loyalty customers who
are at risk, and take action before they leave you.

This is accomplished by using the data customers create through their

interactions with you to build simple models or rules to follow. These
models can be your early warning system, and will alert you to
situations like the "30 day skip" example abovein time for you to do
something before the customer defects. Behavior models cause the data
to speak to you about the loyalty status of the customer before it's too

Zone 1: Unstated/Expected...The Zone of Indifference

Literally, this includes all those customer needs and wants that are basic to fulfilling the
contract between you and them. For example, customers expect to be treated with courtesy
and respect, and would probably be puzzled (and maybe even insulted) if you asked them if
this was a need. It of course is, and if you don't meet this need, you will cause
DISSATISFACTION. If you meet this basic and obvious need, the best you can hope for is

Zone 2: Stated/Expected...The Zone of Satisfaction

This is where your customer actually TELLS you what is important to them. Listen carefully
here, as this is a key stepping stone to customer loyalty. Meeting a customer's needs here
will cause SATISFACTION, whereas not meeting them will cause DISSATISFACTION. For
example, a customer might expect a volume discount on a purchase, but knows that they
have to specifically ask (or negotiate) for it. It is an expectation, simply because other
organizations that the customer deals with provide this benefit.

Zone 3: Stated/Unexpected...The Zone of Delight

This is where your customer HOPES for something, ASKS for it, but really does not expect
you to provide it. This is your opportunity to provide something beyond their expectations
and by so doing will create DELIGHT. For example, a customer might ask for something that
is usually available only in a premium priced product. Not providing it will unlikely cause
dissatisfaction. Therefore this is an area for particular attention in building a LOYAL
customer base.

Zone 4: Unstated/Unexpected...The Zone of Loyalty

This is an area where your expertise in whatever product or service you provide and the
customer's lack of expertise can really pay off! Providing benefits above and beyond what
the customer is even aware of can create a LOYAL customer. This requires you to be really
proactive in suggesting to customers new innovations that they can really benefit from.
Many customers will be even willing to pay extra for this. For example, airbags in
automobiles when first introduced were an innovation that saved lives, but customers had
no way of asking for this innovation, or expecting it, before it became known to them.

All Zones are equally important

To get to the Zone of Loyalty, you must first conquer the other zones...there are no short-
cuts. If your organization is really good at innovations (the key factor in creating Loyalty),
but struggles at reliability (the key factor in creating Satisfaction), then it will end up
struggling in all four zones.

Loyalty creating innovations are time limited

What was once an unstated/unexpected innovation will eventually become

unstated/expected...would you now purchase a car without a CD player? Would you even
ask the salesperson if it is installed? So maintaining a rate of innovation that matches or
exceeds what the market demands is crucial to maintaining customer loyalty.



There are five main steps a company can take to reduce the defection rate.

First, the company must define and measure its retention rate. For a
magazine, the renewal rate is a good measure of retention. For a college, it
could be the first-to second –year retention rate, or the class graduation

Second, the company must distinguish the causes of customer attrition and
identify those that can be managed better. The Forum Corporation analyzed
the customers lost by 14 major companies for reasons other than leaving the
region or going out of business: 15 percent switched because they found
better product; another 15 percent found a cheaper product; and 70 percent
left because of poor or little attention from the supplier. Not much can be done
about customers who leave the region or go out of business, but much can be
done about those who leave because of poor service, shoddy products, or
high prices.

Third, the company needs to estimate how much profit it loses when it loses
customers. In the case of an individual customer, the lost profit is equal to the
customer’s lifetime value—that is, the present value of the profit stream
that the company would have realized if the customer had not defected
prematurely—through some of the calculations outlined above.

Fourth, the company needs to figure out how much it would cost to reduce
the defection rate. As long as the cost is less than the lost profit, the company
should spend the money.

And fifth, nothing beats listening to customers. Some companies have

created an ongoing mechanism that keeps senior managers permanently
plugged in to front-line customer feedback. MBNA, the credit card giant, asks
every executive to listen in on telephone conversations in the customer
service area or customer recovery units. Deere & Company, which makes
John Deere tractors and has a superb record of customer loyalty—nearly 98
percent annual retention in some product areas –uses retired employees to
interview defectors and customers

In today’s hyper competitive markets, companies are taking critical steps to reduce defection rates of
customers. First, the company needs to determine and measure its current retention rate, or the rate of
which customers remain as loyal customers. A good example of retention is the renewal of a club
membership at a wholesale store such as Sam’s or BJ’s.

However, companies must be careful in defining the retention rate. For example, measuring the number
of returning college students in their senior year may not be a good indication or accurate measurement
of retention. By the senior year, it is unlikely that a student will transfer schools and risk loosing hard
earnedcredits. Such a measurement may result in a skewed higher retention rate. A more accurate and
reflective retention measurement would be to capture the number of returning sophomores, who have
less to risk in transferring schools at an earlier stage in the educational process.
Accurately measuring retention rates will help evaluate customer satisfaction. If a company experiences
high retention rates, then it appears that they are performing well and have satisfied customers. As a
result, they can increase their focus on acquiring new customers for growth. However, if the retention rate
is low and the defection rate is high, the company should place their main focus on satisfying
customers. The main focus should be reverted to implementing changes to fix the problem in an effort to
satisfy customers through strong customerrelations management.
Once you determine that your retention rate has decreased, the company must act to avoid further
customer defections. A company must, “distinguish the cause of customer attrition and identify those that
can be managed better.” (Kotler and Keller. 2009. pg. 137) A company must determine what they are
doing wrong to cause customers to defect. They must also determine how to make improvements to
avoid further defection and to retain customers on the verge of defection. It is important to realize that
defection isn’t always the result of poor service or inadequate quality. The competition may have
developed a new product or service that your company currently does not offer. If you do not fill this need,
the opportunity to defect will increase as the need and/or desire for this product or service grows in the
mind of the customer.

Whatever the case for defection, a company must act quickly and determine what factors need to be
changed, added, eliminated or adjusted to provide the best possible customer experience. “Listening to
customers is crucial to customer relationship management.” (Kotler and Keller. 2009. pg. 138) Find out
what they want and deliver.

Another important thing that companies must realize is that customer defection is not always a bad
situation. There is a cost associated with servicing customers. Depending on the amount of money spent
within a company, some customers can actually cost the company money to make a sale. Companies
view customers in relations to profitable stature based on purchasing history and the level of attention
required to service. Marketers understand that there are profitable customers and unprofitable
customers. This can be determined by the customers lifetime value (CLV). “In marketing, customer
lifetime value (CLV), a new concept of ‘customer life cycle management’ is the present value of the
future cash flows attributed to the customer relationship. Use of customer lifetime value as a marketing
metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather
than on maximizing short-term sales.”
Understanding the customer lifetime value can better explain why losing some customers is not the end of
the world. The key factor related to defection is to, “compare the lost profit equal to the customer’s lifetime
value from a lost customer to the costs to reduce the defection rate. As long as the cost to discourage
defection is lower than the lost profit, the company should spend the money to try to retain the
customer.” (Kotler and Keller. 2009. pg. 137) In the case where the cost to discourage defection is higher
than the lost profit, the company should accept and allow the loss of the customer.

A company should do everything possible to keep profitable customers. This goal should be expressed as
the key to sales since the cost of finding new customers is far more expensive than retaining current
ones. Progressive companies will adjust sales commissions to include compensation for both new sales
as well as customer retention rates achieved through strong customer relations management by the sales
person. If a company experiences high retention rates, they can adjust their focus on acquiring new
customers in an effort to increase profits and growth. In addition, companies should not overlook the
possibility of new profit growth potential within the current customers. It’s typically easier to cross sell
additional products and services to a current customer than to generate a new sale customer.
By measuring retention rates, making necessary adjustments and evaluating the cost of retention efforts
to profit, a company can increase its chances for profitable operations.


One basic customer retention strategy available to small business

owners involves focusing on employee retention and satisfaction. A company
with a high turnover rate may not be able to maintain strong personal
relationships with its customers. Even if relationships are established, the
customer may decide to take its business to a new company when its contact
person leaves. At the very least, high turnover creates a negative environment
and reduces the quality of service provided to customers. In order to reduce
turnover, it is important to provide employees with career development
opportunities and high degrees of involvement in the business.
Another possible strategy for retaining customers involves
institutionalizing customer relationships. Rather than just providing
contact with individual employees, a small business can provide value to
customers through the entire company. For example, it could send newsletters
or provide training programs in order to become a source of information and
education for customers. It may also be possible to establish membership
cards or frequent-buyer programs as direct incentives for customer retention.

Some companies may be able to use electronic links to improve the

service they provide to customers. For example, e-mail connections could be
used to provide updates on the status of accounts, electronic order systems
could be used to simplify reordering and reduce costs, and online services
could be used to provide general information.

Sherden noted that customer retention programs are particularly important in

volatile industries—those characterized by fluctuating prices and product
values. In this situation, superior service may discourage but not prevent
customer defections. Some strategies that may be useful to companies in
volatile industries include providing stable prices over the customer life cycle,
basing prices on the overall cost and profitability of the customer relationship,
and cross-selling additional products and services. All of these strategies are
intended to minimize the changes and problems customers experience, thus
making them want to maintain the business relationship.

Strategies for customer retention

Positive customer retention strategies

In the following sections we look at a number of positive customer retention strategies,

including creating customer delight, adding customer-perceived value, creating social and
structural bonds and building customer engagement.

Customer delight
It is very difficult to build long-term relationships with customers if their needs and
expectations are not understood and well met. It is a fundamental precept of modern
customer management that companies should understand customers, and then acquire and
deploy resources to ensure their satisfaction and retention. This is why CRM is grounded on
detailed customer-related knowledge. Customers that you are not able to serve well may be
better served by your competitors.

Delighting customers, or exceeding customer expectations, means going beyond what

would normally satisfy the customer. This does not necessarily mean being world-class or
best-in-class. It does mean being aware of what it usually takes to satisfy the customer and
what it might take to delight or pleasantly surprise the customer. You cannot really
strategize to delight the customer if you do not understand the customer's fundamental
expectations. You may stumble onto attributes of your performance that do delight the
customer, but you cannot consistently expect to do so unless you have deep customer
insight. Consistent efforts to delight customers show your commitment to the relationship.
Commitment builds trust. Trust begets relationship longevity.

Customer delight occurs when the customer's perception of their experience of doing
business with you exceeds their expectation.

Add customer-perceived value

The second major positive customer retention strategy is to add customer-perceived value.
Companies can explore ways to create additional value for customers. The ideal is to add
value for customers without creating additional costs for the company. If costs are incurred
then the value-adds may be expected to recover those costs. For example, a customer club
may be expected to generate a revenue stream from its membership.

There are three common forms of value-adding programme: loyalty schemes, customer
clubs and sales promotions.

Loyalty schemes

Loyalty schemes reward customers for their patronage. Loyalty schemes or programmes can
be defined as follows:

A loyalty programme is a scheme that offers delayed or immediate incremental rewards to

customers for their cumulative patronage. The more a customer spends, the higher the
reward. Loyalty schemes have a long history. In 1844, in the UK, the Rochdale Pioneers
developed a cooperative retailing operation that distributed surpluses back to members in
the form of a dividend. The surpluses were proportionate to customer spend. S & H Pink
Stamps and Green Shield stamps were collected in the 1950s and 1960s, and redeemed for
gifts selected from catalogues. In the 1970s, Southwest Airlines ran a ' Sweetheart Stamps '
programme that enabled travellers to collect proofs of purchase and surrender them for a
free fl ight for their partner.

Customer clubs

Customer clubs have been established by many organizations. A customer club can be defi
ned as follows:

A customer club is a company-run membership organization that offers a range of value-

adding benefits exclusively to members. The initial costs of establishing a club can be quite
high, but thereafter most clubs are expected to cover their operating expenses and,
preferably, return a profit. Research suggests that customer clubs are successful at
promoting customer retention.

To become a member and obtain benefits, clubs require customers to register. With these
personal details, the company is able to begin and services for them. Clubs can only
succeed if members experience benefi ts they value. Club managers can assemble and offer
a range of value-adding services and products that, given the availability of customer data,
can be personalized to segment or individual level. Among the more common benefi ts of
club membership are access to memberonly products and services, alerts about upcoming
new and improved products, discounts, magazines and special offers.

Sales promotions

Whereas loyalty schemes and clubs are relatively durable, sales promotions offer only
temporary enhancements to customer value. Sales promotions, as we saw in the last
chapter can also be used for customer acquisition. Retention-oriented sales promotions
encourage the customer to repeat purchase, so the form they take is different.


The next positive customer retention strategy is customer bonding. B2B researchers have
identified many different forms of bond between customers and suppliers. These include
interpersonal bonds, technology bonds (as in EDI), legal bonds and process bonds. These
different forms can be split into two major categories: social and structural.

Build customer engagement

The final positive strategy for building customer retention is to build customer engagement.
Various studies have indicated that customer satisfaction is not enough to ensure customer
longevity. For example, Reichheld reports that 65 to 85 percent of recently defected
customers claimed to be satisfi ed with their previous suppliers. Another study reports that
one in ten customers who said they were completely satisfied, scoring ten out of ten on a
customer satisfaction scale, defected to a rival brand the following year. Having satisfi ed
customers is, increasingly, no more than a basic requirement of being in the game.


Customer relationship management (CRM) is a widely-implemented strategy for managing a

company’s interactions with customers, clients and sales prospects. It involves using technology
to organize, automate, and synchronize business processes—principally salesactivities, but also
those for marketing, customer service, and technical support. The overall goals are to find,
attract, and win new clients, nurture and retain those the company already has, entice former
clients back into the fold, and reduce the costs of marketing and client service. Customer
relationship management describes a company-wide business strategy including customer-
interface departments as well as other departments
Benefits of CRM
The use of a CRM system will confer several advantages to a company:[citation needed]

 Quality and efficiency

 Decrease in overall costs
 Decision support
 Enterprise agility
 Customer Attention

Tools and workflows can be complex, especially for large businesses. Previously these tools
were generally limited to contact management: monitoring and recording interactions and
communications. Software solutions then expanded to embrace deal tracking, territories,
opportunities, and at the sales pipeline itself. Next came the advent of tools for other client-
interface business functions, as described below. These tools have been, and still are, offered
as on-premises software that companies purchase and run on their own IT infrastructure.

Often, implementations are fragmented—isolated initiatives by individual departments to

address their own needs. Systems that start disunited usually stay that way: siloed thinking and
decision processes frequently lead to separate and incompatible systems, and dysfunctional

Business reputation has become a growing challenge. The outcome of internal fragmentation
that is observed and commented upon by customers is now visible to the rest of the world in the
era of the social customer, where in the past, only employees or partners were aware of it.
Addressing the fragmentation requires a shift in philosophy and mindset within an organization
so that everyone considers the impact to the customer of policy, decisions and actions. Human
response at all levels of the organization can affect the customer experience for good or ill.
Even one unhappy customer can deliver a body blow to a business.
Sales force automation
Sales force automation (SFA) involves using software to streamline all phases of the sales
process, minimizing the time that sales representatives need to spend on each phase. This
allows sales representatives to pursue more clients in a shorter amount of time than would
otherwise be possible. At the heart of SFA is a contact management system for tracking and
recording every stage in the sales process for each prospective client, from initial contact to final
disposition. Many SFA applications also include insights into opportunities, territories, sales
forecasts and workflow automation, quote generation, and product knowledge. Modules for Web
2.0 e-commerce and pricing are new, emerging interests in SFA

CRM systems for marketing help the enterprise identify and target potential clients and generate
leads for the sales team. A key marketing capability is tracking and measuring multichannel
campaigns, including email, search, social media, telephone and direct mail. Metrics monitored
include clicks, responses, leads, deals, and revenue. Alternatively, Prospect Relationship
Management (PRM) solutions offer to track customer behavior and nurture them from first
contact to sale, often cutting out the active sales process altogether.

In a web-focused marketing CRM solution, organizations create and track specific web activities
that help develop the client relationship. These activities may include such activities as free
downloads, online video content, and online web presentations.

Customer service and support

Recognizing that service is an important factor in attracting and retaining customers,
organizations are increasingly turning to technology to help them improve their clients’
experience while aiming to increase efficiency and minimize costs. Even so, a 2009 study
revealed that only 39% of corporate executives believe their employees have the right tools and
authority to solve client problems

Creating and scheduling appointments with customers is a central activity of most customer
oriented businesses. Sales, customer support, and service personnel regularly spend a portion
of their time getting in touch with customers and prospects through a variety of means to agree
on a time and place for meeting for a sales conversation or to deliver customer service.
Appointment CRM is a relatively new CRM platform category in which an automated system is
used to offer a suite of suitable appointment times to a customer via e-mail or through a web
site. An automated process is used to schedule and confirm the appointment, and place it on
the appropriate person's calendar. Appointment CRM systems can be an origination point for a
sales lead and are generally integrated with sales and marketing CRM systems to capture and
store the interaction.

Departments within enterprises — especially large enterprises — tend to function with little
collaboration. More recently, the development and adoption of these tools and services have
fostered greater fluidity and cooperation among sales, service, and marketing. This finds
expression in the concept of collaborative systems that use technology to build bridges between
departments. For example, feedback from a technical support center can enlighten marketers
about specific services and product features clients are asking for. Reps, in their turn, want to
be able to pursue these opportunities without the burden of re-entering records and contact data
into a separate SFA system.

Small business
For small business, basic client service can be accomplished by a contact manager system: an
integrated solution that lets organizations and individuals efficiently track and record
interactions, including emails, documents, jobs, faxes, scheduling, and more. These tools
usually focus on accounts rather than on individual contacts. They also generally include
opportunity insight for tracking sales pipelines plus added functionality for marketing and
service. As with larger enterprises, small businesses are finding value in online solutions,
especially for mobile and telecommuting workers,

Social media
Social media sites like Twitter, LinkedIn and Facebook are amplifying the voice of people in the
marketplace and are having profound and far-reaching effects on the ways in which people buy.
Customers can now research companies online and then ask for recommendations through
social media channels, making their buying decision without contacting the company.

People also use social media to share opinions and experiences on companies, products and
services. As social media is not as widely moderated or censored as mainstream media,
individuals can say anything they want about a company or brand, positive or negative.

Increasingly, companies are looking to gain access to these conversations and take part in the
dialogue. More than a few systems are now integrating to social networking sites. Social media
promoters cite a number of business advantages, such as using online communities as a
source of high-quality leads and a vehicle for crowd sourcing solutions to client-support
problems. Companies can also leverage client stated habits and preferences to "hyper-target"
their sales and marketing communications.

Some analysts take the view that business-to-business marketers should proceed cautiously
when weaving social media into their business processes. These observers recommend careful
market research to determine if and where the phenomenon can provide measurable benefits
for client interactions, sales and support. It is stated that people feel their interactions are peer-
to-peer between them and their contacts, and resent company involvement, sometimes
responding with negatives about that company.

Non-profit and membership-based

Systems for non-profit and membership-based organizations help track constituents and their
involvement in the organization. Capabilities typically include tracking the following: fund-raising,
demographics, membership levels, membership directories, volunteering and communications
with individuals.

Many include tools for identifying potential donors based on previous donations and
participation. In light of the growth of social networking tools, there may be some overlap
between social/community driven tools and non-profit/membership tools.
Customer Relationship Management

• “Process of creating and maintaining relationships with business customers

or consumers”

• “A holistic process of identifying, attracting, differentiating, and retaining


• “Integrating the firm’s value chain to create enhanced customer value at

every step”

• “An integrated cross-functional focus on improving customer retention and

profitability for the company.”


• The use of information-enabled systems for enhancing individual

customer relationships to ensure long-term customer loyalty and retention
CRM Objectives
• Lifetime Value (LTV)

– Refers to the net present value of the potential revenue stream for any
particular customer over a # of years

– Starts with current purchase activity then extrapolates to include

potential additions from cross-selling, upgrades, total ownership, etc.

• Customer Ownership

– Attempts to “own” the lion share of customer spending and/or “share

of mind” in a particular product category

– Building brand equity, maintaining vigilant customer contact, keeping

current with the market trends is critical

– 5% points increase in customer retention=20-125% increase in profit

Is CRM New?


• Simply an extension of relationship marketing

• Builds on customer service and satisfaction concepts

• Just the latest buzzword for creating customer orientation

• Bottom-line is still the same


• A shift in corporate philosophy concerning the approach to value


• Customer-centric approach to value chain

• New and technology-enhanced processes

• Focus is not just on bottom-line, but on top-line

• Goal is to create satisfying experiences across all customer contact


CRM Programs Can Potentially Improve

• Analytical CRM

– Customer Segmentation

– Trend Analysis

• Operational CRM

– Campaign Management

– Tele-Marketing/Tele-Sales

– Activity and Time Management

– Quotation and Order Processing

– Delivery and Order Fulfillment

– Customer Service and Support

– Remote Access

• Collaborative CRM

– Enterprise Portals

– Customer Access

– Supplier Access

– Personalization

Areas of CRM Activity

• Sales Force Automation (SFA)

• Customer Service and Support (CSS)

• Help Desk

• Field Service

• Marketing Automation

1. Sales Force Automation

• 35-40% of all CRM activity

• Manages lead generation, tracks movement of leads through the pipeline,

allows better usage of customer data, integrates activities across sales
channels, simplifies relationship management, forecasts for opportunities

• Goldmine and SalesLogix are examples of prepackaged SFA solutions.

• Ex. Staples used SFA to integrate catalog, online, in-store sales efforts
directed at its best customers

2. Customer Service and Support (CSS)

• 20-25% of CRM

• Assign, escalate, and track trouble tickets, inquiries, solution attempts

through resolution

• Provides information to support customer call center activity

• Gleans customer data from those interactions and records it in SFA for later

• Remedy, Siebel, Vantive, and Clarify are major vendors

• Ex., 3M Adhesive Products division

3. Help Desk

• 15-20% of all CRM

• Allows individuals to access network database to solve their own problems or

find information.

• Can be internal or external

• Offers many bottom-line savings

• Human Click, Tivoli, LivePerson, are providers

• Ex., Land’s End Live allows customers browse FAQ’s but also click a link to
talk directly with live representative.

4. Field Service CRM

• 3-5% of all CRM activity

• Mobile service technicians can log information about work orders and service
calls, as well as access information from the remote site.

• Can feed information from customer problems into SFA for salesperson leads.

• Market information can be gathered and logged into central database.

• Ensures appropriate resource allocation by matching available resources to

job requirements

• Major vendors are RTS, Metrix, eDispatch

5. Marketing Automation

• 3-5% of CRM, but growing 5X faster than all others

• Interfaces with data warehouses and data mining activities to tailor page
views, products, and promotions, so that the right offer goes to the right
person at the right time.

• Can interact with SFA to support field sales efforts

• Provides customized customer interactions critical to segment of one

marketing, mass customization, customerization, etc.

•, Epiphany, Oracle, Siebel, and Personify are leaders

New Frontiers in CRM

• Commercial E-Communities
– What are people loyal to?

• Families

• Football teams

• Schools

• Clubs

• Cultures

• Countries

• I.E.: Communities not Corporations

New Frontiers in CRM

• Customerization

– Mass Customization – Using flexible processes and organizational

structures to produce varied and individualized products and services
at the price of standard mass-produced offerings.

– Personalization – Customization of some features of a product or

services so that the customer enjoys more convenience, lower costs, or
some other benefit.

– Segment-of-One Marketing – Based on the idea of the firm learning

individual reactions to marketing strategies, then treating this
customer differently than other customers.

– Customerization – Mass customization + personalization + segment-of-

one, dependent on a web-based or electronic interaction

Mass Customerization
Relationship Customer is Customer is
with customers passive active co-
participant in producer,
Customer Researched May not be
needs and articulated
Product and Marketing Customized
service offering and R&D based on
drive offering customer
Price Fixed prices Value based
with pricing; customer
discounting determined
Communication Advertising Integrated,
and PR interactive
Distribution Mix of direct Direct (online)
and indirect

Making CRM Happen

• Evaluate products and processes customers’ terms.

• Analyze the multiple channels through which the company interacts

with customers.

• Examine how the company understands its customers. Does it keep

good data? How does it get that data? Does information flow
between functional areas?

• Provide fingertip access to all information.

• Analyze human resources and ensure that everyone has an

understanding of philosophy of CRM

Customer Relationship Management enables real-time availability checks, contract management,

billing management, fulfillment visibility, and order tracking, giving you the features and functions
necessary for marketing planning, campaign management, telemarketing, lead generation, and
customer segmentation. In addition, CRM allows you to offer ongoing customer care across all
channels – with a customer-interaction center, Web-based customer self-service capabilities, service
and claims management, field service and dispatch, and installed-base management.

CRM helps your business:

• Provide better customer service

• Make call centers more efficient
• Cross-sell products more effectively
• Have sales staff close deals faster
• Simplify marketing and sales processes
• Discover new customers
• Increase customer revenues
Customer Relationship Management goes beyond sales, marketing and customer-service applications
into business intelligence, analytics, hosted applications, mobile capabilities and much more! By
thinking more insightfully about what your customers are worth, you can focus your resources on
attracting and keeping the right type of customers. This focus, in turn, will make your CRM efforts
more productive and position you better for innovation and growth.