Chapter 1 Introduction to Services Marketing

Companies that provide services: Google, FB, Twitter, Uber, Netflix.

Importance of Services
79% of workers are in the service sector
Services account for 76% of US. GDP and 63% of global GDP
Service occupations are responsible for the majority of job growth
What

is a Service?
An act or performance offered by one party to another. An act that creates value.
An economic activity that does not result in ownership
Performances that create desired results for customers themselves, their physical
possessions or intangible assets.
You cannot own a service.
Economic growth has demanded for more services. We value convenience and
leisure time.

Some

industries in the service sector

Banking
Lodging
Restaurants, bars, catering
Insurance
Education
News and entertainment

Health care
Transportation
Repair and maintenance
Laundries, dry cleaning
Wholesaling and retailing
Professional (law, architecture,
consulting)

Internal services
Service elements within an organization that facilitate creation of-or add value to
its final output.
Includes: increasingly, these services are being outsourced.
o Accounting and payroll administration
o Legal services
o Catering and food services
o Cleaning and landscaping
o Transportation
o Recruitment and training
o
o How services differ from goods
Customers do not obtain ownership of services
Service products are intangible performances, not objects.
Customers often actively involved in production process
Other people may form part of product experience. Ex. crying baby
More variability in operational inputs and outputs harder to improve productivity,
control quality.
Often difficult for customer to evaluate. Ex. how confident can you be you got a
good diagnosis, a good financial advice, etc.
Absence of inventories after production
Time factor is more important speed may be key.

Delivery systems include electronic and physical channels. Electronic: Banks

(deposit checks), Netflix. Physical: doctor.
o
o
o Unique features of services
Intangibility: customers do not obtain ownership of services. Services products are
intangible performances not objects. Often difficult for customers to evaluate.
Inseparability: produced and consumed at the time. Customers often actively
involved in production process. Other people may form part of product experience.
Delivery systems include electronic and physical channels.
Variability: More variability in operational inputs and outputs harder to improve
productivity, control quality. Ex. train all employees the same exact way, giving
power to employees.
Perishability: they cannot be stored. Time factor is more important speed may be
key.
o
o Resulting marketing
o Marketing strategies
problems
Services cannot be stored
Stress tangible cues
Cannot readily display or
Simulate or stimulate word of mouth
communicate services
communications
o
Price to signal quality
o intangibility
Engage in post-purchase communications
Create strong organizational image. Ex. GEICO
(lizard), Progressive (Flo)
Customer involved in production
Emphasize selection and training of public contact
personnel
Centralized mass production of

Manage
customers
services can be difficult
o
Use multi-site locations
Encourage client participation
o inseparability
Level of personalization
Standardization
Standard versus customized
Quality control
GAPS model: what the customer expects and what
o
you are actually given the customer.
o variability
Services cannot be inventoried
Use strategies to cope with fluctuating demand
o
Make simultaneous adjustments in demand and
capacity to achieve a closer match between the
o perishability
two.
o
o Fig 1.4: Dominance of Tangible and Intangible elements in goods and
services

o
o
o Fig 1.5: The 7Ps of Integrated Service Management
Product: end result. Core service and supplement services. Customer service is a
supplement services. Ex. Apple does not have core service because they sell tangible
items, but they do have supplement services.
Place: how a service is delivered to you. Electronically or in person.
Price: signal quality. More nervous purchasing services.
Promotion: word of mouth, referral system, educating people on how to use a service.
Process: how do you make services consistent, train your employees so you delivery
services consistently.
People
Physical evidence: cleanness.
o
o Chapter 2 Consumer Behavior in a Service Context
o Three stages of service consumption
1. Pre-purchase:
a. Need: unconscious (inside of you due to different beliefs), physical
conditions, external sources (you see some else have it,
marketing/advertising).
b. Information search: your consideration set= the ones that come to mind.
c. Evaluation of alternatives:
i. Search attributes: how easy you can find it. Easy to identify. Ex.
restaurant atmosphere. High in search attributes: clothing, chair,
motor vehicle, foods.
ii. Experience attributes: you will not know how good something is until
you try it. Ex: haircut, restaurant meals, lawn fertilizer, entertainment.
iii. Credence attributes: even though you did it, you are not able to know
if they really did it right. Ex. education, computer repair, legal
services, complex surgery.

o
d. Perceived risks: the more difficulty you have evaluating a service before
purchase, the more risk you will perceive. This is one of the biggest
differences between services and tangible goods.
i. Functional risk: unsatisfactory performance outcomes. Ex. laundry
service that is not able to take out a stain.
ii. Financial: monetary loss, unexpected extra costs
iii. Temporal: wasted time, delays leading to problems. Ex. airline that
has delays and you have a wedding to attend, restaurant before you
have class or a meeting.
iv. Physical: personal injury, damage to possessions
v. Psychological: fears and negative emotions
vi. Social: how others may think and react. Ex. what will others say if you
stay in a cheap hotel.
vii. Sensory: unwanted impact on any of five senses. Ex. you come out of
a restaurant smelling like garlic. Place to loud to have a conversation.
o Strategic responses to managing customer perceptions of risk
Free trial
Advertise: familiarize celebrities or blogger.
Display credentials: restaurants use things like zagat #1 restaurant or they show the
reviews and papers in the news. Lawyers, doctors, and professors display their
diplomas.
Offer guarantees
Encourage visit to service facilities
Use evidence management (furnishing equipment): creating atmosphere. Ex. salons,
restaurants.
Give customers online access about order status.
o
e. Expectations: formed during the search and decision making process.
Shaped by search an evaluation of attributes. Can change over time. Big
implication for satisfaction.
o
Fig. 4.2 - Levels of service expectation: Difference between the service
you want and the minimum service you expect. You should aim mostly to the
zone of tolerance.

o
Purchase decision: repeat purchases can be simple and fast. Sometimes
purchases can involve tradeoffs.
o
2. Service encounter: actual delivery of the service.
a. Moments of truth. Touch points that can make or break relations.
o
[W]e could say that the perceived quality is realized at the moment
of truth, when the service provider and the service customer
confront one another in the arena. At that moment they are very much
on their own It is the skill, the motivation, and the tools employed by the
firms representative and the expectations and behavior of the client which
together will create the service delivery process. -Richard Normann
b. High contact to low contact encounters: service factories, low contact=
ordering online, banking (online), oil changes. High contact= hotels,
nannies.
f.

c. Theater as metaphor: facilities are a stage, employees are the actors.

d. Role and script theories
o
Role theory: set of learned behavior patterns used in certain social
interactions (customers and employees).
o
Script theory: a service script specifies behavior sequences of
employees and customer during a service encounter.

o
3. Post-encounter
a. Satisfaction: attitude-like judgment following a service purchase or series of
service interactions. Satisfaction judgements are based on comparison.
Positive disconfirmation (better), confirmation (same), negative
disconfirmation (worse).

b. Delight: goes past satisfaction. Is a function of= unexpectedly high levels of

performance, arousal (surprise and excitement), positive effect (pleasure,
joy or happiness). Strategic links exist between customer satisfaction/delight
and corporate performance. By creating more value for customer (increased
satisfaction), the firm creates more value for the owners.
o
o Service Quality The Gap Model
o Customer service champions includes:
Ritz Carlton
Neiman Marcus
Southwest airlines
Amazon.com
Apple


How these champs consistently achieve high marks from their customers?
Understand what customers expect
Set service quality standards that match customers expectations
Motivate employees to meet managements standards. Ex. recognition, financial
incentive, creating a great work environment.
Realistically portray the service delivered to customers
Provide customers with the service that they expect.

What customers say matters most

Knowledgeable staff: 47%
Friendly staff: 14.7%
Service after the sale: 12.5%
Readily available staff: 12.4%
Flexible policies for returns/exchanges: 8%
None-product is all that matters: 2.8%
Not sure/other: 2.6%

The service quality gap model

Five dimensions of service quality: are you satisfied with the value provided. Each
person values them differently.
1. Tangibles: appearance of physical facilities, equipment, personnel, and communication
materials. Ex. appearance of the place (cleanness), websites appearance (formal).
2. Reliability: performs the promised service dependably and accurately, and are you
consistent?. Ex. show up in the correct time, do what they are supposed to. (most
important according to surveys).
3. Responsiveness: willingness to help customers and provide prompt service, are they
timely?. Ex. Publix employee guides you to the aisle you need.
4. Assurance: knowledge and courtesy of employees and their ability to inspire trust and
confidence. Ex. confident someone can fix your car. Feeling safe.
5. Empathy: caring, individualized attention the firm provides its customers, good
communications, you want to actually solve their problems. Ex. career services wants
to help you get a job.

Perceived service quality: how you as an individual interpret things

The service quality customers believe they are getting it may not always be
accurate! Service quality can be difficult to evaluate!
*Look at PPT pg.12

5 GAPS
-GAP 1: Knowledge gap. Gap between customers expectations of service and
management perceptions of customer expectations. Ex. hotels.
How to close this gap: customer feedback (how was your experience, what can we
do to improve your experience, what are your expectations, detailed questions),
market research, upward communication.
Service quality research approaches: transactional surveys, market surveys,
mystery shopping, service reviews, customer advisory panels, focus group
interviews (6 or 7 consumers together and facilitate their discussion), employee
research, employee field reporting, new declining & former customer surveys.

Dominos had a large knowledge gap. They had no idea what their customers
expectation were, and what expectations they had. They only focused on the
speediness. They then started using focus groups to ask customers. They
completely revamp their recipe.
-GAP 2: Policy gap. Gap between management perception and translation of
perceptions into service quality specifications. You as an organization are setting
standards and need to be able to accomplish them. Ex. Is management comitted to
service quality?
How to close this gap: management commitment to service quality, goal setting:
set standards, task standardization, perception of feasibility: you want to set this
policies, but they have to be realistic.
-GAP 3: Delivery gap. We set the policies and the standards, are we actually
following them? Gap between service quality specifications and service delivery.
Employees need to actually execute them.
How to close this gap: teamwork, employee job fit (competent and honest),
technology job fit: makes your job easier and does not complicate them.
(Dominos order, Uber, banking system, self-checkout in groceries), perceived
control (managers overlooking employees), supervisory control system, role
conflict, role ambiguity (everyone needs to know what their duties are).
-GAP 4: Communication gap. Are you actually managing expectations? Gap
between service delivery and external communications to customers. When they
marketed to you it sound amazing, but when you get it you are not as satisfied. Ex.
movie trailers, food advertising.
How to close the gap: horizontal communication (communication within the firm)
and propensity to overpromise.
-GAP 5: Perception gap. Gap between expected service and perceived service.
Umbrella gap. You are doing everything right; customers just dont see it that way.
How to close the gap: tangibles, reliability, responsiveness, assurance, empathy.
Follow up after the service. Tell the customer why you did a good job (educate
them). Ex. This are all of the things I did and why. Compliment customers when
they are leaving (beauty salons).
Measuring service quality: SERVQUAL
Computing SERVQUAL Scores
SERVQUAL Score = Perception Score Expectation Score
(For all 5 SQ dimensions: tangibles, reliability, responsiveness, assurance, and
empathy)
0= you have an average services, meeting their expectations.
Negative= Not meeting their expectations.
Positive= you are exceeding expectations.

Calculate average gap scores across all customer surveyed; sum and divide by 5.

Weighted SERVQUAL Scores

1) Calculate average importance weights across all customers

2) Multiply average importance scores by average dimension scores for each SERVQUAL
dimension
3) Add weighted dimension scores

Service recovery: getting it right the second time

Research shows:
60% of Americans believe businesses have not increased their focus on service
Among this group, 26% think companies are paying less attention to service
61% of most frequently angered customers are 30-49 years old.

What upsets customers?

Unfair outcomes (outcome justice). Ex. loss of baggage, loss of plane ride due to the taxi.
Unfair procedures (procedural justice). Policies that are set into place but do not help you.
Ex. jet blue kept people in a plane for 8 hours, no refunds for returns due to a loss
receipt (returns).
Unfair interactions (interactional justice). Not showing empathy or remorse.

Recent ClickFox Survey: what frustrates customers the most

41%: having to speak with multiple agents and starting over every time
13%: rude or inexperienced employees
9.3%: being kept on hold for long periods of time
8.5%: not getting what I need on the first time
7.6%: not being understood

What happens when customers are upset?

Decrease their purchases, criticize you, leave and dont come back.

Recent ClickFox Survey: how customers react to bad service experience

54.4%: ask for a manager
51.8%: tell others about it
39.7%: stop doing business with the company
24.6%: submit negative customer satisfaction survey.
20.6% post comments on social media.

Complaints or no complaints?
Most customers dont complain at all
Only 5 to 10% of dissatisfied customers complain
Many dont feel like it is worth it
More educated customers are likely to complain

Other Research Findings

One in ten customers will switch retailers after just one bad customer service
experience
Service failures and failed recoveries account for nearly 60 percent of service
provider switching behavior
More than half of all efforts to respond to customer complaints actually reinforce
negative feelings about the service or service provider

Double deviation: firms try to make it right in the process, but they end up making
it worse than before.
You never get a second chance to make a first impression but, customer will often
forgive mistakes if: the service recovery effort is successful, past experiences with
the service provider have been successful.

The good news

When customers see a service recovery as satisfactory, their repurchase rate may be as
much as 3 times as great as before the recovery. this is called service recovery paradox.
Firms have a better chance of winning back lost customers (20%-40%) than from selling
to new prospects (5%-20%).

Caveat: effective service recovery is not a cure for chronic unreliability.

Three reasons for service recovery underachievement:

1. The costs of service recovery are immediate and visible while the benefits are longterm and indirect.
2. Many managers are cynical about customer motives and purposefully establish proof
of injury requirements.
3. Many dissatisfied customers (about 80%) do not complain

Customer expectations for service recovery

To receive a sincere apology (no form letters).
To be offered a fair fix (solutions) for the problem compensation equivalent to the
burden the customer has endured.
To be treated in a way that shows the company cares about the problem and helping the
customer solve it.
To receive a timely response.
To receive the recovery service promised rather than one that falls short.

Service recovery studies suggest:

An outcome failure calls for material compensation while poor treatment from a server
calls for an apology.
Compensation had a more positive effect on satisfaction among North American subjects
than on East-Asian subjects.
If failure occurs infrequently or the company is not responsible, compensation does not
affect repurchase intentions.

Fig 6.3: components of an effective service recovery system

Successful recoveries
Make it easy for customers to give feedback
Recovery should be proactive. You should not wait for the customer to come to you
complaining. If you know you do something wrong, recover it before they complain.
Recovery should be planned. There should be a process set up.
Recovery requires empowered and trained employees
Employees should care and compensate

The Service Guarantee

Guarantees allow customers to reduce risk.
3 components
The promise: what a company offers its customers in exchange for their money.
The payout: what customers get if a company does not delivery on its promise.
The recovery/ payout process: the way guarantee payouts are made.

The power of service guarantees

Forces firms to focus on what their customers expect
Sets clear standards for customers and employees
Require development of systems for generating customer feedback
Forces firms to understand why they fail
Builds marketing muscle by reducing risk

Criteria for good service guarantees

Unconditional: we are going to stand be what we say. No loopholes.
Easy to understand and communicate: simple.
Meaningful to the customer: needs to actually matter. Ex. money back
Easy to invoke
Easy to collect on
Credible

Internal marketing Employee engagement

Is attracting, developing, motivating and retaining qualified employees through
satisfying their needs. It is a philosophy of treating employees as customers.

Recent study of national retailers

71% of respondents do not have an identified career path for employees who
might want to stay with the company. 65% have no formal employee recognition
program. 61% have no formal customer service training.

Importance of internal marketing

Employee productivity increases with every year they stay with a firm
High costs involved with recruiting/training new employees
Customer loyalty tied to employees
Satisfied employees provide better quality service

Cost of employee churn (turnover) is high

Marriott International loses 60% of frontline staff in their hotels. It costs them
$1100 to recruit and train each replacement
Replacing an experienced car salesman with an inexperienced one costs the dealer
an average of $36,000 a month in sales
A securities broker with 5 years of experience has relationships with customers
worth up to $1M a year to firm

Seven essential of internal marketing

Compete for talent: do we compete as hard for employees as we do customers? Aim high,
use a variety of recruiting methods, broaden pool, internal market segmentation.
Tailoring benefits for different employee segments
The 26-year old Wunderkind: Stock options, Low-cost, catastrophic health
insurance, Education assistance
The 40-year old, Family-focused worker: Supplementary health and term-life
insurance, Family vision/dental insurance, Flex time, work at home days, Basic
qualified retirement plan
The 54-year old who knows your company: A qualified retirement plan or two, A
defined benefit plan, Cash-value life insurance and long-term care insurance
Offer a vision: does our company stand for something worthwhile.
Prepare people to perform: do we view knowledge development as an investment? Do we
go beyond training to educate? Do we explain the why and not just the how?
Stress team play: does your organizational set up and physical space foster team play?
Ex. space. Open environments allow people to work together.
Leverage the freedom factor (empowerment): do we give our employees the freedom to
serve our customers? Do we make the rules to help our best employees or protect us
from our worst employee?
Measure and reward: do we measure what is most important? Do we have multiple
measures?
Know thy customer: do we listen to our employees?

Chapter 12: managing customer relationships and building loyalty

Among marketing professionals in participants companies:
77% focus their budget on acquisition
23% focus their budget on retention
Acquisition programs annually outnumber retention programs 2 to 1.

There is a disconnect among marketers when it comes to attaining and

successfully converting customer insights.
The search for customer loyalty
Relationship marketing focuses on attracting, developing and retaining customer
relationships. (long-term)
Transaction marketing is focus on that one sale.

Customers become more profitable the longer they remain with a firm:
Increased purchases and/or account balances: customers purchase in greater quantities
as they grow.
Reduced operating costs: fewer demands from suppliers and operating mistakes as
customer becomes experienced.
Referrals to other customers: positive word of mouth saves firm from investing money in
sales and advertising.
Price premiums: long term customers willing to pay regular price. Willing to pay higher
price during peak periods.

Why are customers loyal?

Customers stay loyal when firms create value for them
Values can be created for customers through:
Confidence benefits: confidence in contract performance, ability to trust the provider,
lower anxiety when purchasing, knowing what to expect and receive.
Social benefits: mutual recognition and friendship.
Special treatment: better price, discounts not available to most customers, extra
services, and higher priority when there is a wait.

Understanding the customer-firm relationships: The wheel of loyalty (3 steps)

1) Want to build a foundation with the customer. Basic. Segment the market to match
customer needs and firm capabilities. Be selective: acquire customers who fit the core
value proposition. Manage the customer base via effective tiering of service. Delivery
quality service.
Targeting the right customer:
Focus on number of customers served and value of each customer. Some
customers more profitable than others in the short term. Others may have room for
long-term growth.
right customers are not always high spenders. Can be a large group of people
that no other supplier is serving well.

Understanding the different kinds of relationships customers want

Recent HBR article by Avery, Fournier and Wittenbraker(2014) identified a
number of different types of relationships, each with a set of expectations about
their relationships. For example:
Best Friends are looking for intimacy and emotional support, an honest 2-way
flow of communications and expects that the company will not disclose personal
information
Example: A retail customer expects to be notified in advance of changes in
operations, prices, or other relevant business decisions and offers loyalty in return

Master-Slave wants to intensify feelings of self-worth, and demands that the

company listen, anticipate his or her every need, satisfy every demand and not ask
questions.
Example: An online retail customer cuts off her relationship after a series of small
service infractions that signal disrespect
Effective Tiering of Service: the customer pyramid
Platinum: 20 % of your customers give you 80% of your business.
Gold: they spent a lot with you, but not outrageous. Thousands not millions
Iron: bulk of the customers. Economies of scale comes from this. Ex. people that go
to Vegas once a year. Vegas needs them, because they are a big majority
Lead: costing you money.

2) Creating those bonds of loyalty. Higher service levels, interaction, actual rewards. Build
higher-level bonds: social, customization and structural.
Deepening the relationship: Bundling/Cross-selling services makes switching a major
effort that customer is unwilling to undertake. Customers benefit from consolidating
their purchasing of various services from the same provider (One-stop-shopping,
potentially higher service levels, Higher service tiers, etc.)
Reward base bonds: incentives that offer rewards based on frequency of purchase, value
of purchase, or combination of both. Reward-based loyalty programs are relatively easy
to copy and rarely provide a sustained competitive advantage.
-Financial bonds: discount or purchases, loyalty program rewards (frequent flyer miles),
cash back programs. Anything to do with money (free item, discounts, cash back).
-Non-financial rewards: priority to loyalty program members for waitlist and queues in
call centers; higher baggage allowances, priority upgrading.
-Intangible rewards: special recognition and appreciation, tiered loyalty programs.
Thank you, making you feel like they care about you, knowing your name.
Social Bonds: Based on personal relationships between providers and customers. Harder
to build and imitate and thus, better chance of retention in the long term
Customization Bonds: Customized service for loyal customers. Customers may find it hard
to adjust to another service provider who cannot customize service.
Structural bonds: mostly seen in B2B settings. Align customers way of doing things with
suppliers own processes (joint investments in projects and sharing of information,
processes and equipment). Can also be seen in B2C. difficult for competition to draw
customers away when they have integrated their way of doing things with existing
supplier.

3) Reduce churn drivers: try to retain people from leaving. Address key churn drivers:
proactive retention measures, reactive retention measures (save teams). Put effective
complaint handling and service recovery processes in place.
Understand reasons for customer switching
Churn (customer turnover) Diagnostics: Analysis of information on churned and
declining customers.
Exit interviews: Ask a short set of questions when customer cancels account; indepth interviews of former customers by third party agency.
Churn Alert Systems: Monitor activity in individual customer accounts to predict
impending customer switching. Proactive detention efforts send voucher,
customer service representative calls customer.

Addressing key churn drivers: Deliver quality, Minimize inconvenience and nonmonetary costs, Fair and transparent pricing, Industry specific drivers (Cellular phone
industry: handset replacement a common reason for subscribers discontinuing
services offer proactive handset replacement programs), Reactive measures (Save
teams).
Increase switching costs: natural switching costs (e.g. changing primary bank account
many related services tied to account). Can be created by instituting contractual
penalties for switching.