Unit-10 Relationship Marketing

1
Unit- 2
Consumer Behavior
In Services
Unit-2 Consumer Behaviour in Services
4
Consumer Behavior In Services

The primary objective of service producers is to develop and provide
offerings that satisfy consumer needs and expectations, thereby
ensuring their own economic survival.
To close the customer gap between expectations and perceptions
service providers need to understand:
How consumers choose and
Evaluate their service offerings.
Consumers have a more difficult time evaluating and choosing services
than goods, because;
2 Consumer Behaviour in Services
5
Services are intangible and non-standardized and

Consumption is so closely intertwined with production .
Unit-

Consumer evaluation processes for goods and services
varies in all stages of the buying process.
Information search,
Evaluation of alternatives,
4
Purchase and consumption, and

Post purchase evaluation. Unit-2 Consumer Behaviour in Services
Consumption Value
Consumers services and service providers choice
is influenced by consumption value.
Consumption value is the perceived value or utility that an
individual believes a specific choice will provide.

5
Consumption value includes:

I. Functional value II. Social value
Emotional value
Epistemic value
Unit-
Conditional value
6
……Consumption Value
i)Functional Value is the perceived utility acquired
when a particular choice provides utilitarian or
functional benefits for the consumer.
the functional value of any automobile is to
provide a transportation service.

9
the functional benefits of cosmetics isto

increase ones personal attractiveness Unit-
.
…..Consumption Value
ii)Social Value is the perceived utility acquired
from making a purchase decision that is
associated with a particular referent group.

1
0
Mercedes Benz is perceived as a symbol of status

which enhances ones social
value.
….Consumption Value
iii)Emotional value is the feeling derived from a choice,
within a consumer.

9
Tattoos are as a means of self-expression iv)Epistemic value is the

value acquired when a purchase decision is perceived to satisfy a
desire for knowledge, provide novelty, or arouse curiosity.
Museums, historical sites, zoos, and botanical gardens are visited
because of the epistemic value provided.
v)Conditional Value is the perceived utility
provided when an alternative is chosen

1
0
because of temporary situational factors that will

enhance one of the consumption values.
Time pressure or

1
1
Classification of Properties of Offerings

1.Search Qualities : attributes a consumer can
determine prior to purchase of a product
2.Experience Qualities : attributes a consumer can

determine after purchase (or during consumption) of a
product
3.Credence Qualities: characteristics that may be

impossible Unit- to evaluate even after purchase
an consumptio
Clothing
Jewelry
Most
Furniture
Easy to evaluate
Houses
Automobiles
Most
d
Restaurant meals
Goods Services
Vacations
n
Haircuts
Child care
Television repair
Legal services
Root canals
Auto repair
Medical diagnosis
Continuum of Evaluation for Different Types of Products
Difficult to evaluate
1
3
High in search High in experience High in credence qualities qualities qualities

Search Qualities
Attributes that a consumer can determine before purchasing a
product
Search qualities include color, style, price, fit, feel, hardness,
and smell
Examples: Goods such as automobiles, clothing,
furniture, Unitand -2 Consumer Behaviour in Services jewelry are high in search
qualities
1
Experience Qualities
5

Attributes that can only be discerned after purchase or during
consumption.
Experience qualities include taste and we arability.
Examples: vacations and restaurant meals are high in
experience qualities
Credence Qualities
Ctd….
Goods high in search qualities are the easiest to evaluate
(left end of the continuum).
Goods and service high in experience qualities are more
difficult to evaluate because they must be purchased and
consumed before assessment is possible (center of
continuum).
Goods and services high in credence qualities are the
most Unit-2 Consumer Behaviour in Services difficult to evaluate because the
consumer may be unaware of or may lack

1
7
Differential Factors of Consumers Behavior in

Services
14
Specific areas where characteristics of services

may lead to divergent evaluation processes and
altered consumer behavior are:
1) Information search 2) Evaluative criteria 3) Size and composition
of the evoked set of alternatives 4) Perceived risk 5) Adoption of
innovations 6) Brand loyalty 7) Assessment of value
8) Attribution of dissatisfacti Unit-2 Consumer Behaviour in Services on
Services: Categories In The Decision-Making Process
1
9
Information Search
Evaluation of Alternatives
Purchase and Consumption and
Post Purchase Evaluation
…..Differential Factors of Consumers Behavior in

Services
16

1. Information Search 2.Evaluation of Alternatives
 Use of personal sources  Evoked set
Perceived risk Emotion and mood
3.Purchase and Consumption 4. Post purchase Evaluation

 Service provision as drama  Attribution of dissatisfaction
Service roles and scripts Innovation diffusion
Compatibility of customers Brand loyalty
Perceived risk
Information Search
17

Use of Personal Sources
Consumers seek and rely to a greater extent on personal
sources.
Personal influence becomes pivotal where:
Experience qualities are high
Product complexity increases
Objective standards by which to evaluate a product decreases.

2
2
…Information Search
…..Most managers in service industries recognize
the strong influence of word of mouth in services.
Consumers find post purchase information seeking more
essential with services than with goods because services
possess experience qualities that cannot be adequately
assessed before purchase.
Audience Response - to Communication

Unit

Perceived Risk
19
 More risk is involved in the purchase of services

than in the purchase of goods because services are:
Intangible
Non-standardized
Sold with out guarantees or warranties
High in experience and credence qualities
2
4
Unit-
Types Of Risk In The Consumer Decision Making Process
Performance Risk - the chance that the service will

not perform or provide the benefit for which it was
purchased.
Financial Risk - the amount of monetary loss
incurred by the consumer if the service fails.
by the consumer as a resul of the failur

t e
Time Loss UnitRisk -2 Consumer Behaviour in Services - the amount of

time lost

no
t
…..Types Of Risk In The Consumer Decision Making
Process
21
Opportunity Risk - The risk involved when

consumers must choose one service over another
Psychological Risk - the chance that the purchase of
a service will not fit the individual’s self-concept.
Social Risk Unit-2- Consumer Behaviour in Services the probability that a
service
wil mee the approval o others wh are

l t f o
Risk Reduction Strategies Used by Consumers

3
1
Risk Reduction Strategies Used by
Consumers includes the following:
Continue to patronize the same firm which has
offered with a positive experience.
Seek the opinion of others such as friends,
relatives, Unit-2 business Consumer Behaviour in Services associates,
local
Risk Reduction Strategies Used by Service Firms
opinio leaders, o experts in th field.

n r e

3
2
includes the following:
Financial risks can be reduced by offering trial
purchases, sampling, and promotional incentives.
To reduce the consequences of financial
risk, service firms can offer money back

…Risk Reduction Strategies Used by Service Firms
The uncertainty of psychological and social risk
3
1
can be reduced by branding and communication.
Testimonials are especially effective to reduce
psychological and social risks because they tend to
be more believable.
Follow strict quality control standards and
procedures to reduce physical risks.

2) Evaluation of Service Alternatives
3
Evoked Set
2
Evoked set is smaller with services than with goods for the following reasons.
Differences in retailing between goods and services.
Consumers are unlikely to find more than one or two businesses providing the
same services in a given geographical area.
The difficulty of obtaining adequate pre-purchase information about
services.
Faced with the task of collecting and evaluating experience qualities,
consumers select the first acceptable alternative rather than searching Service
Purchase and Consumption - Emotion and Mood
Emotion and mood are feeling states that influence people's perceptions
3 and evaluations of their experiences.
1
If a service customer is in a "bad mood" service provision will likely be

interpreted more negatively
Any service characterized by human interaction is strongly dependent on
the moods and emotions of the service provider, the service customer, and
other customers
receiving the service at the same time.

…..Service Purchase and Consumption - Emotion and Mood
In what specific ways can mood affect the behavior of service

customers?
Positive moods can make customers more obliging and
willing to participate in behaviors that help service
3
2
encounters succeed.
Moods and emotions influence service customers is to bias
the way they judge service encounters and providers.
Moods Unit and -2 Consumer Behaviour in Services emotions affect theway
information abou service i absorbe an

t s d d
3
3
Service Provision as Drama

Services Drama
Selection of personnel Auditioning the actors Creation of the service
Setting the stage
Service environment
provision Deciding which aspects of the service should be Onstage
and performed in the
drama presence of the customer

aim to Deciding which should be Backstage create performed in
the back room and maintain a

The Compatibility of Service Customers
The presence, behavior, and similarity of other customers
receiving services has a strong impact on the satisfaction and
dissatisfaction of any given customer.
Customers can be incompatible for many reasons differences
in:
Beliefs,
Values,
Experiences,
Abilities to pay,
3 Appearance,
5
Age,
Customer compatibility is a factor that influences custome r

satisfaction
4) Post Purchase Evaluation - Attribution of Dissatisfaction
30
Consumers may be disappointed with purchases

when the products:
Did not fulfill the intended needs,
Did not perform satisfactorily, or
Were not worth their price
Consumers may attribute their dissatisfaction to a

number of different sources :

3
7
……………Post Purchase Evaluation - Attribution of Dissatisfaction
Because consumers participate to a greater extent

in the definition and production of services, they
may feel more responsible for their dissatisfaction:
when they purchase services than when they
purchase goods.
With services, consumers attribute some of
4
0
Unit-2 Consumer Behaviour in Services their dissatisfaction to their

own inability to
Innovation Diffusion
The rate of diffusion of an innovation

depends on consumers' perceptions of the
innovation with regard to five
characteristics:
3
9
Relative advantage, Unit-2 Consumer Behaviour in Services
…..Innovation Diffusion
An Offering:
That has a relative advantage over existing or
competing products;
That is compatible with existing norms, values,
and behaviors;
o tested o a limite basis) diffuses

r n d
4
0
That is communicable; and

That Unitis -2 Consumer Behaviour in Services divisible (i.e., That can be
tried
4
1
Services are :
Less communicable,
Less divisible,
More complex, and
Less compatible than goods.
4
8
Services are less communicable because they are intangible (e.g.,
their features cannot be displayed, illustrated, or compared) and
often unique to each buyer (as in a medical diagnosis or dental
care).
Services are less divisible because of Impossibility to
sample or test on a limited basis (e.g., how does one
"sample" a medical diagnosis or a haircut?).

4
7
Services are frequently more complex than goods

because they are composed of a bundle of different
attributes, not all of which will be offered to every
buyer on each purchase.
Brand Loyalty
The degree to which consumers are committed to

particular brands of goods or services depends on
a number of factors:
4
8
the cost of changing brands (switching cost),
the availability of substitutes,

the perceived risk associated with the purchase, and
the degree to which they have obtained satisfaction in the past.
Consumers are more loyal with services than with

goods because:
It is more costly to change brands of services,
Greater search costs and monetary costs may be involved in changing brands of
services than in changing brands of goods

4
7
Brand Loyalty
Consumers have more difficulty being aware of the
availability of substitutes, and higher risks may
accompany services because of the:
difficulty of obtaining information about service,
consumers may be unaware of alternatives or substitutes for
their brands
4
8
the recognition of the need for repeated patronage in order to
obtain optimum satisfaction from the seller .

4
7
Unit-2
Consumer Behavior
In Services
The primary objective of service producers is to develop and provide offerings that satisfy consumer needs and expectations, thereby ensuring
their own economic survival.
To close the customer gap between expectations and perceptions service providers need to understand:
How consumers choose and
Evaluate their service offerings.
Consumers have a more difficult time evaluating and choosing services than goods, because;
Services are intangible and non-standardized and
Consumption is so closely intertwined with production.

4
8
Unit-
Consumer evaluation processes for goods and services varies in all stages of the buying process.
Information search,
Evaluation of alternatives,
Purchase and consumption, and
Post purchase evaluation.Unit-2 Consumer Behaviour in Services
Consumption Value
Consumers services and service providers choice is influenced by consumption value.
Consumption value is the perceived value or utility that an individual believes a specific choice will provide.
Consumption value includes:
I. Functional value II. Social value
Emotional value
Epistemic value

4
7
Unit-
Conditional value
5
0
……Consumption Value
i)Functional Value is the perceived utility acquired when a particular choice provides utilitarian or functional benefits for the consumer.
the functional value of any automobile is to provide a transportation service.
the functional benefits of cosmetics is to increase ones personal attractivenessUnit- .
…..Consumption Value
ii)Social Value is the perceived utility acquired from making a purchase decision that is
associated with a particular referent group.
Mercedes Benz is perceived as a symbol of status which enhances ones social
value.
iii)Emotional value is the feeling derived from a choice,
within a consumer.
Tattoos are as a means of self-expression iv)Epistemic value is the value acquired when a purchase decision is perceived to satisfy a desire for
knowledge, provide novelty, or arouse curiosity.
Museums, historical sites, zoos, and botanical gardens are visited because of the epistemic value provided.

5
1
v)Conditional Value is the perceived utility provided when an alternative is chosen
because of temporary situational factors that will enhance one of the consumption values.
Time pressure or

5
2
1.Search Qualities: attributes a consumer can
determine prior to purchase of a product
2.Experience Qualities: attributes a consumer can determine after purchase (or during consumption) of a product
3.Credence Qualities: characteristics that may be
impossibleUnit- to evaluate even after purchase
Continuum of Evaluation for Different Types of Products
Most Most
Goods Services
Easy to evaluate
an consumptio
d n
5
3
Difficult to evaluate
Restaurant meals
Medical diagnosis
Television repair
Legal services
Automobiles
Root canals
Auto repair
Child care
Vacations
Furniture
Haircuts
Clothing
Jewelry
Houses
High in search High in experience High in credence qualities qualities qualities
Search Qualities
Attributes that a consumer can determine before purchasing a product
Search qualities include color, style, price, fit, feel, hardness, and smell
Examples: Goods such as automobiles, clothing,
furniture,Unitand-2 Consumer Behaviour in Services jewelry are high in search qualities

Experience Qualities
5
5 Attributes that can only be discerned after purchase or during consumption.
Experience qualities include taste and we arability.
Examples: vacations and restaurant meals are high in experience qualities
Credence Qualities
Ctd….
Goods high in search qualities are the easiest to evaluate (left end of the continuum).
Goods and service high in experience qualities are more difficult to evaluate because they must be purchased and consumed before assessment is
possible (center of continuum).
Goods and services high in credence qualities are the mostUnit-2 Consumer Behaviour in Services difficult to evaluate because the
Differential Factors of Consumers Behavior in
Services
14
Specific areas where characteristics of services may lead to divergent evaluation processes and altered consumer behavior are:
1) Information search 2) Evaluative criteria 3) Size and composition of the evoked set of alternatives 4) Perceived risk 5) Adoption of
innovations 6) Brand loyalty 7) Assessment of value
consumer may be unaware of or may lack

8) Attribution of dissatisfactiUnit-2 Consumer Behaviour in Services on
1
3
Services: Categories In The Decision-Making Process
Information Search
5
7 Evaluation of Alternatives
Purchase and Consumption and
Post Purchase Evaluation
…..Differential Factors of Consumers Behavior in Services
16

1. Information Search 2.Evaluation of Alternatives
 Use of personal sources  Evoked set
Perceived risk Emotion and mood
3.Purchase and Consumption 4. Post purchase Evaluation

 Service provision as drama  Attribution of dissatisfaction
Service roles and scripts Innovation diffusion
Compatibility of customers Brand loyalty
Perceived risk
Information Search
17
Use of Personal Sources
Consumers seek and rely to a greater extent on personal sources.

Personal influence becomes pivotal where:
Experience qualities are high
Product complexity increases
Objective standards by which to evaluate a product decreases.

6
0
…Information Search
…..Most managers in service industries recognize the strong influence of word of mouth in services.
Consumers find post purchase information seeking more essential with services than with goods because services possess experience qualities that
cannot be adequately assessed before purchase.
Audience UnitResponse- to Communication
Perceived Risk
19
More risk is involved in the purchase of services than in the purchase of goods because services are:
Intangible
Non-standardized
Sold with out guarantees or warranties
High in experience and credence qualities
Unit-
Types Of Risk In The Consumer Decision Making Process
Performance Risk - the chance that the service will not perform or provide the benefit for which it was purchased.
by the consumer as a resul of the failur

t e
5
4
Financial Risk - the amount of monetary loss incurred by the consumer if the service fails.
Time LossUnitRisk-2 Consumer Behaviour in Services - the amount of time lost

no
t
…..Types Of Risk In The Consumer Decision Making
Process
21
Opportunity Risk - The risk involved when consumers must choose one service over another
Psychological Risk - the chance that the purchase of a service will not fit the individual’s self-concept.
Social RiskUnit-2- Consumer Behaviour in Services the probability that a service
Risk Reduction Strategies Used by Consumers
Risk Reduction Strategies Used by
Consumers includes the following:
Continue to patronize the same firm which has offered with a positive experience.
Seek the opinion of others such as friends,
relatives, Unit-2business Consumer Behaviour in Services associates, local
Risk Reduction Strategies Used by Service Firms includes the following:
Financial risks can be reduced by offering trial purchases, sampling, and promotional incentives.
To reduce the consequences of financial
opinio
wil mee
leaders,
the oapproval
expertsoinothers
th field.
wh are
n
l t r f e o
risk, service firms can offer money back
…Risk Reduction Strategies Used by Service Firms

6
4 The uncertainty of psychological and social risk can be reduced by branding and communication.
Testimonials are especially effective to reduce psychological and social risks because they tend to be more believable.
Follow strict quality control standards and
procedures to reduce physical risks.
2) Evaluation of Service Alternatives
Evoked Set
Evoked set is smaller with services than with goods for the following reasons.
Differences in retailing between goods and services.
Consumers are unlikely to find more than one or two businesses providing the same services in a given geographical area.
The difficulty of obtaining adequate pre-purchase information about services.
Faced with the task of collecting and evaluating experience qualities,
consumers select the first acceptable alternative rather than searching Service Purchase and Consumption - Emotion and Mood
Emotion and mood are feeling states that influence people's perceptions and evaluations of their experiences.
If a service customer is in a "bad mood" service provision will likely be interpreted more negatively
Any service characterized by human interaction is strongly dependent on the moods and emotions of the service provider, the service
6 customer, and other customers
3
receiving the service at the same time.
…..Service Purchase and Consumption - Emotion and Mood
In what specific ways can mood affect the behavior of service customers?
Positive moods can make customers more obliging and willing to participate in behaviors that help service encounters succeed.
Moods and emotions influence service customers is to bias the way they judge service encounters and providers.
Moods Unitand-2 Consumer Behaviour in Services emotions affect the way
information abou service i absorbe an

t s d d
Service Provision as Drama
6
5
Services Drama
Selection of personnel Auditioning the actors Creation of the service Setting the stage
Service environment
provision Deciding which aspects of the service should be Onstage and performed in the
drama presence of the customer
aim to Deciding which should be Backstage create performed in the back room and maintain a
The Compatibility of Service Customers
The presence, behavior, and similarity of other customers receiving services has a strong impact on the satisfaction and dissatisfaction of any given
customer.
Customers can be incompatible for many reasons differences in:
Beliefs,
Values,
Experiences,
Abilities to pay,
Appearance,

Age,
Customer compatibility is a factor that influences customer satisfaction

5
3 4) Post Purchase Evaluation - Attribution of Dissatisfaction
30
Consumers may be disappointed with purchases when the products:
Did not fulfill the intended needs,
Did not perform satisfactorily, or
Were not worth their price
Consumers may attribute their dissatisfaction to a numberof different sources :

6
7
……………Post Purchase Evaluation - Attribution of Dissatisfaction
Because consumers participate to a greater extent in the definition and production of services, they may feel more responsible for their
dissatisfaction:
when they purchase services than when they purchase goods.
With services, consumers attribute some of
Unit-2 Consumer Behaviour in Services their dissatisfaction to their own inability to
Innovation Diffusion
The rate of diffusion of an innovation depends on consumers' perceptions of the innovation with regard to five characteristics:
Relative advantage, Unit-2 Consumer Behaviour in Services
An Offering:
That has a relative advantage over existing or competing products;
That is compatible with existing norms, values, and behaviors;
That is communicable; and
ThatUnitis-2 Consumer Behaviour in Services divisible (i.e., That can be tried
o tested o a limite basis) diffuses

r n d
Services are:
Less communicable,
Less divisible,
More complex, and
Less compatible than goods.
Services are less communicable because they are intangible (e.g., their features cannot be displayed, illustrated, or compared) and often unique to
each buyer (as in a medical diagnosis or dental care).
Services are less divisible because of Impossibility to sample or test on a limited basis (e.g., how does one "sample" a medical diagnosis or a haircut?).
Services are frequently more complex than goods because they are composed of a bundle of different attributes, not all of which will be offered to
every buyer on each purchase.
Brand Loyalty
The degree to which consumers are committed to particular brands of goods or services depends on a number of factors:
the cost of changing brands (switching cost),
the availability of substitutes,
the perceived risk associated with the purchase, and

Unit-3 Customer Servcie
the degree to which they have obtained satisfaction in the past.
Consumers are more loyal with services than with goods because:
It is more costly to change brands of services,
Greater search costs and monetary costs may be involved in changing brands of services than in changing brands of goods
Brand Loyalty
Consumers have more difficulty being aware of the availability of substitutes, and higher risks may accompany services because of the:
difficulty of obtaining information about service,
consumers may be unaware of alternatives or substitutes for their brands
the recognition of the need for repeated patronage in order to obtain optimum satisfaction from the seller.

Unit- 3
Customer Service
Customer Service

Defintion-1
Customer Service is defined as the ability of knowledgeable, capable, and enthusiastic employees to deliver products and services to their internal
and external customers in a manner that satisfies identified and unidentified needs and ultimately results in positive word-of-mouth publicity and
return business. (Robert W. Lucas).
Customer Service
Definition -2
Customer Service is a series of activities designed to enhance the level of customer satisfaction – that is, the feeling that a product or service has
met the customer expectation. Its importance varies by product, industry and customer. Although the goal of providing customer service may vary
depending on the focus of the organization, such as retailing, industry, or service- all organizations provide some degree of customer service.
(Jamier L.Scott)
Characteristics of a Customer-Focused Organizations
Customer- Focused Organizations
Have internal customers
Have external customers
3. determines and meets the needs of its internal and external customers
Information, products, and services are easily accessible
policies are in place to allow employees to make decisions in order to better serve customers.
…Characteristics of a Customer-Focused Organizations

5
the management and systems support and appropriately reward employee’s effort to serve customers.
Reevaluation of the way business is conducted is on going and results in necessary changes and upgrades to deliver timely, quality service to the
customer.
Build relationship through customer relationship management (CRM) programs.
Learning Organizations
A customer- focused company emphasizes providing service excellence and an environment in which customer needs are identified and satisfied.
To achieve the objective of becoming a customer- focused, a company has to become a learning organization.
A learning organization is an organization that uses knowledge as a basis for
competitive advantage. (Peter Senge)
In a learning organization
Employees are provided with on going training development opportunities so that they gain and maintain cutting- edge skills and knowledge while
projecting a positive can- do customer focused attitude.
Systems that can adequately compensate and reward employees based on their performance are present.
Systems and processes are continuously examined and up dated.
A proactive approach of anticipating customer needs is necessary and becoming common.

7
6
Six Components of a Customer-Service
The six components that make up the customer service environment are:
1. The customer 2. Organization culture 3. Human resources 4. Product/ deliverables 5. Delivery systems 6. Service
Service Culture
Culture includes the values, beliefs, norms, rituals, and practices of a group or organization.
Any policy, procedure, action, or inaction on the part of your organization contributes to the service culture.
Many companies are product centered and view customers from the stand point of what company products or services they use.
Successful organizations are customercentered and focusUnit-3 Customer Servcie on individual needs.
Typical Elements of Service Culture
Service philosophy or mission
Policies and procedures
Management support
Products and services

Delivery systems
Employees roles and expectations
Training
Motivators and rewards

Tools for Service Measurement
11
7
8 In a customer- oriented environment, it is important to constantly gauge service effectiveness.
Techniques or tools available for customer service data collection:
Employee focus groups
Customer focus groups
Mystery shoppers
Customer satisfaction surveys
Customer comment cards
Profit and loss statements or management reports
Employee exit interviews
Walk-through audits
On-site management visits
What Customers Want?
Customers expect effective, efficient service and value for their money.
What customers want is value for their money and effective, efficient service.
Customers also expect certain intangible things during a service encounter.

Seven common things that customers want and expect
Personal Recognition
Courtesy
Timely Service
Professionalism 5. Enthusiastic Service.
Empathy
Patience
Effective Communication for Effective
Customer Service
13
Communication is a key element that make the relationship between service personnel and customers successful.
Elements of two-way communication that facilitate- performance of job efficiently, goodwill, and customer loyalty for company and provide
service excellence.
The Importance of Effective Communication
Customer service professionals have the power to make or break the organization.
A service provider is the front line in delivering quality service to customers.
A service provider’s
Appearance,

Actions or inactions, and
Ability to communicate say volumes about the organization and its focus on customer satisfaction.
7
8

8
0
The Importance of Effective Communication
A service provider should continually strive to project a polished, professional image and make a customer’s visit or conversation a
pleasant and successful one.
A key element in making interactions with customers successful is to recognize how you tend to communicate.
Ask a variety of people for their feedback because each person will likely have a different perspective Unit- .
Ensuring Two- Way Communication
Two-way communication involves the sender and the receiver who each contribute to the communication process.
Part of the process is deciding which is the best channel to ensure clear message delivery.
As a customer service professional, you are responsible for ensuring that a meaningful exchange of information takes place.
Through effective two way communication, you can perform your job more efficiently, generate goodwill and customer loyalty for the
organization, and provide service excellence.
Be aware of all the elements of two-way communication and the importance of each. (See the communication process) Avoiding
Negative Communication
Use positive words or phrases, rather than emphasizing the negative.
Your choice of words or phrasing can often lead to either satisfaction or confrontation or it can destroy a customer- provider
relationship.
3 Customer Servcie
78
Customers do not want to hear what you can’t do; they want to hear how you’re going to help satisfy their needs or expectations.
Focus your message on how you can work with the customerUnit - to accomplish needs satisfaction.

Avoiding Negative Communication
Don’t use vague or weak terminology.

8
2 Instead of “I'm not sure…” or “I'll try…” SAY,
“let me get that answer for you…” or “I can do…”
Do not use ofUnit-global terms (inclusive
Avoiding Negative Communication
Be careful about “Verbal Finger Pointing,” especially if your customer is already upset.
Avoid expressions like you didn’t follow the directions I gave you.“
This is like pointing your finger at someone people are likely to react powerfully and negatively to this type of treatment.
Words and Phrases that Damage Customer
Relationships
You don’t understand.
You’re wrong or mistaken.
Aren’t listening to me.
You don’t see my point.
Listen to me. Hold on (or hang
Uniton) a second.
3 Customer Servcie
80
Words and Phrases that Damage Customer
Relationships
What’s your problem?
That’s not my job (or responsibility).
You are not being reasonable.
Do you understand?
Global terms (always, never,
Words and Phrases that Build Customer Relationships
You’re right.
Thank you.
May I…?
you considered… 5) How may I help?
Unit-
…..Words and Phrases that Build Customer Relationships
6) I’m sorry ( I apologize) for… 7) I was wrong.
However, and or yet (instead of but). I understand (appreciate) how you feel
It’s my (our) fault.
3 Customer Servcie
Situation, issue, concern (instead of problem) Would you mind…?
I appreciate…
Communication Positively
Plan your messages
Greet customers warmly and sincerely
Use customer- focused language
4) Listen carefully and respond appropriately
Be specificUnit-
….Communication Positively
Use positive “I” or “we” messages
Use “small Talk”
Use simple language
Paraphrase
….Communication Positively
Communicate to your customer’s learning style
Visual (Seeing) – Focus on images or pictures, amount of stimulus, lighting, colors, etc
Aural (Hearing) – Focus on words or language, voice level, sound pitch, speed of message, etc
Kinesthetic (Touching) – Focus of experience of practical applications, proxemics (space), room arrangement, etc
82
Unit-
……Communication Positively
Ask positively phrased questions
Ask permission
Agree with customers
Elicit customer feedback and
participation
3 Customer Servcie
28
15. Address Pet Peeves (Potential Irritants)
Disinterest in serving
Excessive wait times
Unprofessional service provider appearance
Lack of cleanliness (environment or service provider)
Abruptly putting someone on telephone hold without their permission
Failing to answer telephone within four ringsUnit-
Eating or chewing while dealing with a customer
Lack of knowledge or authority
Poor quality of service
Condescension (taking an air of superiority to the customer)
Rudeness or over familiarity
16) Body language
Assertive Versus Aggressive Service
The two modes of dealing with customers create very different service experiences.
3 Customer Servcie
84
The manner in which you nonverbally or verbally approach, address, and interact with customers may label you as either assertive or aggressive Unit- .
1) Assertiveness assists in solving problems
Assertiveness means that you project an image of confidence, are selfassured, and state what you believe to be true in a self –confident manner.
An assertive person states [verbally and nonverbally], “Here’s my position.
What’s your reaction to that?”
3 Customer Servcie
8
8
2)
Aggressio
n escalatesUnit-3 Customer Servcie
Nonverbal Communication
33
In Mehrabian's study, it was found that in communication between two people:
55 percent of message meaning (feelings) is extracted from facial and other body cues,
38 percent is taken from vocal cues, and
7 percent is received from the actual words used.
Background, culture, physical conditions, communication ability, and many other factors influence whether and how well people use body cues.
Categories of Nonverbal Cues
Body Language
Eye Contact
86
Posture
Facial Expressions
Nodding of the Head Gestures
Unit-
Vocal Cues
Pitch
Volume
Articulation
Pauses
Appearance and Grooming
Effective hygiene :
Regular washing and combing of hair,
3 Customer Servcie
Semantic
s
Bathing,
Brushing teeth,
Use of mouthwash and deodorant,
Washing hands and cleaning fingernails is basic to successful Unit- customer service.
Spatial Cues
Intimate space (up to 2 feet)
Personal space (2 to 4 feet) Social space (4 to 12 feet) and
Public space (greater than 12 feet).
Miscellaneous Cues
Personal Habits
Touching the customer
Scratching or touching parts or your body.
Using pet phrases or speech patterns excessively

88
Talking endlessly without letting the customer speak.
Talking about personal problems.
Unit-
Complaining about your job, employer,
3 Customer Servcie
9
3
Miscellaneous Cues
Follow- Through
Unproductive Non Verbal Behaviors
Scratching,
Pulling an ear, or
Playing with hair can send annoying or negative messages to customers.
Unprofessional handshake Miscellaneous Cues
Fidgeting
Nervous mannerisms or signals that you are anxious, annoyed, or distracted and lack confidence should be avoided.
Playing with or putting hair in your mouth, handwringing, throat-clearing, playing with items as you speak (pencil, pen, or other object),
biting or licking your lips, or drumming your fingers can all send annoyingUnitand/-3 Customer Servcie or negative message.
Holding hands near mouth
Advantages of Customers- Focused Behavior
Image is enhanced
Customer loyalty increases

92
Word-of-mouth advertising increases
Complaints are reduced
Employee morale and esteem increase
Financial losses decrease
Employee- customer communication improves

Customer Service Foundations
First Impressions Matter

9
4 Courtesy Counts
Attitude Is Everything
Effective communication makes the difference
Positive First Impression
First Impressions Matter……
People see you first, hear you second
Wear appropriate clothing for the type of work you do.
Make sure you are groomed –
your hair and fingernails shall be clean and neat;
your face, body, and teeth shall be clean;
your clothes shall be clean and pressed;
your shoes shall be polished;
your hair shall be styled; and
your overall image shall be professional.
Put all that together, and you present a groomed look.

Courtesy
44
Courtesy……
Say please, thank you, and you’re welcome.
Say excuse me and I’m sorry
Use a person’s name when you know it
Say it with a smileUnit-
3 Customer Servcie
96
Attitude Is Everything
Attitude…………..
Appreciate the good in yourself and in others
Believe in yourself
Believe you can make a
difference Unit-3 Customer Servcie
Effective Communication
Step 1: Saying What You Mean and Meaning What You Say
Choose the right words
Make sure your tone fits the message you are sending
Add welcome words to your vocabulary
Keep business conversations professional
……Effective Communication
Step 2: What You Don’t Say: Nonverbal Communication
Keep an open mind; do no

t
98
Actions speak louder than words
Smile often
Make eye contact
Maintain good posture
Get enough rest
Keep your energy level steady
…..Effective Communication
Step 3: Putting Words Together: Grammar Usage
Reflect your company’s personality
Speak clearly
Use everyday language
Avoid using slang, jargon, company terms, and technical language
….Effective Communication
Step 4: Asking the Correct Questions and Answering the Questions

97
Correctly
Keep your questions simple
Ask open questions when you need information
Ask closed questions to control the conversation
Before answering a customer’s question, make sure you understand it
Try to give more than a one word answer

99
Step 5: When the Customer Says No
Listen to the customer’s objection
Acknowledge the objection
Follow up with a question
Consider the customer’s answerUnit-3 Customer Servcie
Step 6: Listening Actively
Focus entirely on your customer
Listen completely
Remain objective; do not judge
Listen for what is not said Relationship Building
Step 1: Establishing Rapport
Be friendly
Be interested
Be sensitive
Be trustful
Find common ground

….Relationship Building
53
Step 2: Interacting Positively with Customers
Be helpful
Be committed
Be a problem solver
Be credible
Believe in your products
…..Relationship Building
Step 3: Identifying Customers’ Needs
Ask questions
Summarize customers’ needs
Recommend appropriate solutions
Handle objections
…..Relationship Building
Step 4: Making the Customer Feel Valued
Go out of your way for your customers
Validate customers’ decisions

Instill positive feelings
95

….Relationship Building
1
0
3
Step 5: Maintaining Ongoing
Relationships
Remember your customers
Learn customers’ names
Remember something about your customers
Learn your customers’ preferencesUnit-3 Customer Servcie
Types of Organization Culture
Based on the work of Harrison and Handy, the following cultural typologies are significant for service organizations:
Culture Characteristics and examples: Role Culture
Large pyramid organizations
Authority based on place in hierarchy
Emphasis on roles and job titles
Fast, efficient systems designed to produce uniform and pre dictable outcomes
Rules and procedures predominate
4 The traditional Services Marketing Mixes

 Uncaring, rigid, unresponsive, e.g. private and
The Traditional Services Marketing Mix
101
Customers feel depersonalized
Club Or Power Culture
Small organizations where the owner exerts a strong influence
Emphasis on personal interaction rather than memos and meetings
Personality and speed of response often critical
Service delivery can be erratic and range from excellent to poor
Demand can outstrip organization’s capacity to cope, e.g. plumber, garage, hairdresser, guest house
Task Culture
Organization is active and creative
Dedicated to excellence, innovation, professional integrity
Warm and friendly with little emphasis on hierarchy and procedure
Challenging and questioning environment
Staffed, usually, by young, clever, energetic people, e.g. advertising agency, consulting firm

Person Culture
Puts the individual rather than the
organization first. Individual talent is all important
Do not think in terms of ‘organization and management’
Employees can have considerable autonomy
Support Culture
Compassionate, caring, responsive, receptive
Listening to customers/clients, empathizing, responding to their concerns
The essence of the support culture is ‘what can we do for you?’, e.g. the caring services like social work
62
Unit-4 The traditional Services Marketing Mixes

103

Unit-4
Unit-
The traditional marketing mix involves the four P’s.
1)Service Outcome /Product
The product component of the marketing mix is the outcome of the service.
It consists of two components: the technical and functional
a) The technical
The technical outcome is the end result of the service or the “what” of the service.
For dental services, it would be the completed crown.
b)The functional outcomes
The functional outcome is the process of receiving the service or “how” the service was provided.
Functional service is the way the customer or client was treated by the firm’s staff.
For dental service, it is the way the dentist, the dental assistant, and the receptionist interacted with the patientUnit- .

105
2)Price
Because services are intangible and experiential in nature, the price becomes more important to consumers as a cue of what to expect.
Consumers often use price as one of the inputs or tangible cues into forming expectations of a service and in making purchase decisions.
The more consumers pay for a service, the more they expect.
Higher prices tend to convey higher quality.
However, an extremely high price may be viewed by consumers as rip-off.
Lower prices tend to convey lower quality but for some services and for some consumers, this is acceptable.

1
0
9
Price is an important element in controlling demand.
Increasing the price at peak demand
times reduces the demand.
Restaurants, movie theaters, and airlines often use this strategy when demand exceeds supply.
The higher price will cause some demand to shift
Price Determinants
Price determinants includes the following:
Organizational Pricing objectives
Cost
Demand/price curve
Elasticity of price
Competition
Operational position and 7) Marketing mix composition.

107
1)Organizational Pricing Objectives
Profit Maximization - the price is set at the level that will yield the highest total revenue for the firm within a pre specified profit constraint.
Sales Maximization - the price is set at the level that will yield the highest total revenue.
Market Share Maximization - the price is set at the levelUnit-4 The traditional Services Marketing Mixesthat will provide the firm with the
largest
1 2)Cost Analysis
1
Costs normally serve as a pricing floor.
1
To remain a viable business, firms must obtain a certain level of gross profit to cover overhead expenses.
Calculating the cost of a service is more
Variable Costs are those that change with demand.
Food and fuel costs for an airplane are
variable costs.
Chemicals for a pest control service are
variableUnit-4 The traditional Services Marketing Mixescosts.
3)Demand/ Price Curve
Demand/ Price Curve shows the demand for a service at various prices.
The demand/ price schedule can be generated from historical data or sales
Unitforecasts-4 The traditional Services Marketing Mixes .
4)Price Elasticity
Price elasticity of demand is the percentage change in demand divided by the percentage change in price.
If the percentage
 difficul
Customer’ fee
tha fochange
for the
a good. in deman
quality io les
the
ts n rl d sf s
101
If the percentage change in demand is greater than the percentage change in price, the price is said to be elastic at that Unitprice-4 The
traditional Services Marketing Mixespoint.
1
1
4 The Traditional Services Marketing Mix
5)Competition
Prices that are drastically different than competitors’willbemoreelasticthanprices thatareclosetothecompetition.
Inadditiontoprimarycompetitors,firmsmust be aware of secondary and third level
Unit-
competitors.
6) Operational Position
Theoperationalpositionchosenbytheservice willhaveamajorimpactontheprice.
Firms using the cost efficiency operational approach will have a lower price than firms using the other approaches.
Firms using the customization approach will tend to have the highest prices.
Firms using service quality approach will tend

1
1
3 7) Marketing Mix
The marketing mix composition will haveanimpactontheprice.
1) If the firm is planning an
extensive advertising campaign toUnitstimulate- demand, the price is

If a service is going to use a multi distribution strategy with multiple outlets, normally the service will be priced lower.
The image consumers have of a service firm will impact on how much that firm can charge. Firms with better images can obtain higher prices
for their service than firms with poorer consumer images.
PricingModifications
Service firms have four variations of pricing which they can use to boost sales and profits.
i. Differential pricing ii. Yield management iii. Price bundling iv. Multiple-Use discounts
Unit-
i)Differential Pricing
The purpose of differential pricing is to either shift demand from high- demand periods to low- demand periods or to stimulate demand
during low- demand periods.
For differential pricing to be effective and
to increaseUnit-4 The traditional Services Marketing revenues Mixesit must meet the
followin five criteria.

g
Segments must value the service differently.

1
1 Segments must be large enough to be identifiable and profitable.
6
A mechanism must prohibit customers in the lower-paying segment from selling to higherpaying segments.
The cost of implementing the differential pricingUnit-4 The traditional Services Marketing Mixessystem must not exceed the
Differential Pricing Can Be Used In
One of The Following Four Ways:
1)The Time of Service Usage.
If a theater charges less for
anUnit-4 Tafternoonhe traditional Services Marketing Mixesshow than it
2)The Time of Reservation.
Airlines use this system.
The price charged is based on when the airline seat is reserved.
Passengers who reserve their seat 30 days in advance will pay less than passengers who reserve their seat 40 days in advance.
incrementa revenu generate .

l e d
21
3) Different Target Markets. For Example,
A cinema charges less for children under say 12 than it does for adults.
4) LocationUnit-4 The traditional Services Marketing Mixesof Consumption.
ii)Yield Management
YMGT-is a differential pricing methodology designed to produce the highest revenues based on a detailed analysis of the past purchase behavior of
each market segment served by a company.
The goal of yield management is balancing capacity utilization, pricing, market segmentation,
and financialUnit-4 The traditional Sreturnervices Marketing Mixes
The goal is to produce the best possible financial return from a limited available capacity.
Yield = Actual revenue
Potential revenue
Yield management is primarily used in the airline industry but has also been used in other service industries such as hotels, trucking, restaurants,
and banking.

is
iii)Price Bundling
Price bundling is offering consumers two or more goods or services in a single package for a
special price.
When a petrol station offers vehicle lubrication, oil change, and other fluid checks in one
packag , it using price bundling

.
e
1
1
Pure Vs. Mixed Bundling
a)Pure Bundling
Pure bundling is combining two or more goods or services not sold individually into a single package for the consumer.
Pure bundling is used when the combination of goods or services is more valuable to the consumer than any of them would be
independently.
b) Mixed bundling
MB- is combining two or more goods or services sold individually into a single package for a special price.
By combining all of these services into one package, greater revenue is generated than if each were sold individually.
by combining all of the services into one package, economies of scale and operating
Unit-4 The traditional Services Marketing Mixes efficiencies can be obtained.
Mixed bundling consists of two types:
 The typical fast lube service facility not only

117
Mixed Leader Pricing offers service B for a discount, if you purchase service A.
Mixed Joint is when two or more services or products are offered together at a fixed price.
The purpose of the mixed joint bundle is to increase total revenues.
Items are packaged together that are complements and that are often purchased together.
By pricing the package cheaper than the combination of items individually, consumers feel they are getting a bargain.

1
2
iv) Multiple-Use Pricing Discounts
Multiple-Use Pricing discounts are price reductions given to customers for repeat usage of a service.
The Multiple-Use Discount Can Be For:
A fixed number of uses or be unlimited.
A fixed duration of time or it can be for an unlimited amount of time.
Duration Usage Example – Movie Theatre Offering
Limited Limited “10 sessions during
January for $50.00”

101
Limited Unlimited “$30.00 for April, no limit to number of

sessions”
Unlimited Limited “10 sessions for
$50.00”
Unlimited Unlimited “10% discount to children”
Price Increases
Consumers react positively to price wars and price reductions, but negatively to price increases.
Price increases will not normally affect market share of a single vendor if all of the firms in an industry increase their prices.
If all firmsUnit-4 The traditional Services Marketing Mixesdo not raise their prices, price

a
1
2
Mostcompanieswilladoptoneofthefollowing strategieswhenitisbelievedthatpricesshouldbe increased.
A common strategy is to simply wait until someone else increases their prices, and then quickly follow.
A second strategy is to use a communications
program to explain to customers why the price
Another approach for instituting price increases is to do it in small increments over a period of time.
For Example,
A 10% increase in price may be done in three installments over four or five months.
Small price increases will be less noticed by consumers.
Value and Price
 A final strategy fir can use t increase

m o
1
2
5 When choosing a service, consumers tend to pick the brand that offers them the best value.
Value to consumers is the best combination of Price, Service Quality, and
Firm ImageUnit-4 The .traditional Services Marketing Mixes
The value will be based on past experience with the vendor.
If past experiences have been positive, the customer will tend to place a higher value on the service provider’s offering.
Value is also based on what other
Unit-4 The traditional Services Marketing Mixes firms offer.
Risk and Price
Consumers see price as a means of modifying risk.
Suppose a hotel manager wants to install a swimming pool with four bids for installing the pool were Birr 2,000,000Birr1,900,500,Birr
1,800,700andBirr1,600,600.
The low bid will be eliminated.

1
2
6 The manager views the low bid as too risky.
Consumers will shy away from purchasing from low- priced vendors because of
perceived risk.
High bids are not always viewed as
being less risky.
If a high bidder is substantially higher than
Level of Involvement and Price
Personal level of involvement in the purchase affects how consumers view the price of a service.
Forhigh-involvementservices,pricingtendsto bemoreinelasticthanforlow-involvement service.
If Bekele’s dentist increases the fee for dental
th competition, consumers normall fee

e y l
1
2
5 exams and treatments, Bekele will probably not
Level of Involvement and Price
Level of Customer Participation and Price
Final factor buyers consider when evaluating price is their level of participation in the service.
The more customers are involved in the production of the service, the less theyUnit-4 The traditional Services Marketing Mixesexpect to pay.
Distribution
Because of the inherent characteristics of services, distribution becomes challenging.
Since the channel tends to be shorter and often direct for services, distribution of service is not as easy as it is for good.
Distribution is the availability and accessibility of a service to consumers.
Availability means the service is available to the

1
2
Channel Structures
The channel length tends to be shorter for services than for goods.
Direct Channel - Many services are performed by a service provider for the consumer with no intermediaries using a distribution system
called a direct channel.
Indirect Channel - Other services use agents or intermediaries to perform one or more functions.
The service process rendered by service providers to customers can be divided into 4 components:
Information,
Reservation,
Payment, and
Consumption.
Service providers can use agents or third parties to perform any of the 4 functions.

1
0
Airlines use travel agents to perform the first three functions.
Travel agents provide information, make reservations, and collect payment.
The consumption phase is performed by the airlines.

distribution strateg costs
y
1
2
9
Channel Options
Exclusive Distribution - involves the use of a limited number of agents or outlets who sell only the one brand.
Selective Distribution - involves the use of a few intermediaries but not all who would like to carry the brand.
Intensive Distribution - involves placing the
service with as many different agents or third
Multichannel Systems
To increase market coverage, many service firms are using a multichannel approach.
Multichannel distribution involves the use of two or more channels to reach one or more market
segments.
In additionUnit-4 The traditional Services Marketing Mixesto increasing market coverage,
multichannel lowers
1
0
9 Distribution Growth Options
Multisite,
Multiservice,
Multisegment.
Multisite, multiservice
Multisite, multisegment
Multiservice, multisegment
Multisite, multiservice, multisegment
Unit-
A Multisite Distribution Strategy is expansion of a service to another location.
A Multiservice Distribution Strategy is the addition of a new service to a firm’s existing portfolio.
A MultisegmentUnit-4 The traditional Services Marketing MixesDistribution Strategy is

131
A Multisite, Multisegment Strategy involves serving different market segments with different site locations.
A Multiservice, Multisegment Strategy is an option allowing firms to expand their operation by offering new services to new
Unit-
market segments.
Growth Benefits Concerns
strategy
Multisite 1) 2)
rapid expansion 3)
sales growth 4)
good locations financial resources managing multiple
easiest to manage 5) outlets quality control too rapid growth

133
Multiservice 1) decline in efficiency financial resources managing

multiple service quality control
2)
serve current customers better
3)
can gain new customers
4)
sales growth
Multisegment better utilization of facility 1) locating a complementary segment customer

confusion quality of service
sales growth 2)
3)
Unit-
Multisite, multiservice 1) 2) overhead costs

sales growth one-stop shopping for
3)
1) 2) customers managing service structure quality of
3) services
serve current customers better

132
Multisite, multisegment sales growth 1)

1)
each site can specialize in a 2) overhead costs
2)
segment 3) managing service structure quality service
Multiservice, multisegment 1) sales growth 1)

quality of service managing service structure
2) serve current customers better gain 2)
customer confusion
3) new customers 3)
Multisite, multiservice, 1)
multisegment 1)
2)
2) sales growth one-stop shopping
3)
3) prevent competition from eroding Overhead costs. managing service structure
market share 4) quality of service financial resources
5) customer confusion
Unit-

134
Franchising
Franchising is a method of expanding rapidly with low capital investments.
Franchising is a multisite distribution growth strategy involving the selling of a service concept to a third party who
Benefits of Franchising
Franchising provides outside capital for growth.
Franchising provides additional management with prior experience for managing the business.
Franchising provides lower risk for a franchisee than building ones own business.
The franchise offers an established brand name and a business plan that has proven to be successful.
Most franchisors assist with advertising, promotions, and
operations management.
Expert help is available for franchise operators when problems
agrees to establish and operate a

Advantages to the Franchisor
1 Capital for growth

1
Faster growth
4
Additional management
Additional income
Disadvantages to the Franchisor
Lower Potential Profits Controlling Service Quality
Unit-Controlling Firm Image 4 The traditional Services Marketing Mixes

136
Advantages to the Franchisee
Lower risk
Established brand name
Successful business plan
Expert assistance
Disadvantages to the Franchisee
Franchise fees
Lack of freedom
Controlled by the franchisor
Branding
Many services have become commodities to consumers.
A commodity is an undifferentiated good or service.
To manyUnit-4 The traditional Services Marketing Mixesconsumers, air travel has
becom a commodity
.
e
116
For Service Firms
Branding provides value by enhancing the efficiency and effectiveness of the marketing programs.
BrandUnit-4 The traditional Services Marketing Mixesloyalty and repeat purchase
behavio ar increase .
r e d
138
To maximize the benefit of a brand, service providers should meet the following four characteristics:
The brand is distinctive
the brand is relevant
the brand has a tangible quality
the company’s most important services are branded and linked
Distribution
Manageme
ntUnit-
Using a centralized organizational structure is common with:
A multisite growth strategy because of the highly standardized, branded service offering.
Services using the cost efficiency or technical service quality approach.
It is more difficult to achieve when using a multiservice or a multisegment growth strategy.
A decentralized organizational structure seems to work better:
When multisite strategies are coupled with a multiservice or a multisegment strategy.

For firms using a functional service quality or a customization operational approach.
234

1
4
0
Customer- Focused Distribution
A customer-focused distribution strategy involves managing five components of distribution from the viewpoint of the customer.
Identification of market segments being served
Identification of benefits sought by customers
Matching customer needs to corporate channel and distribution growth strategies
Managing quality control
Managing corporate growth

1
4
4

1
4
3
Unit-6
Service Quality, Customer Expectations, and Perception
Unit-6 Service Qulity, Expectation, and Perception 01/03/2018
Customer Expectations of Service
Learning Objectives
After completing this chapter the student will be able to:
Recognize that customers hold different types of expectations for service performance
Discuss controllable and uncontrollable sources of customer expectations
Distinguish between customers’ global expectations of their relationships and their expectations of the service encounter
Acknowledge that expectations are similar for many different types of customers
DelineateUnit-6 Service Qulity, Expectation, and Perceptionthe most important 01/03/2018current issues surrounding customer expectations

1
4
4 Customers Expectations of Service
Expected Service: Two Levels of Expectations
1) Desired Service
The level of service the customer hopes to receive - the "wished for" level of performance.
Desired service is a blend of what the customer believes "can be" Expectations, and Perception
2) Adequate Service
The level of service the customer will accept.
Adequate service represents the "minimum tolerable expectation."
It Unitis-6 Service Qulity, Expectation, and Perceptionthe bottom 01/03/2018level of
Expectations, and Perception
The Zone of Tolerance
Services are heterogeneous.
The extent to which customers recognize and are willing to accept service variation is called the Zone of tolerance.

1
4
3 If service drops below adequate service,
customers will be frustrated and their satisfaction
Unit-6 Service Qulity, Expectation, and Perception 01/03/2018 with the company undermined.
If a service performance is outside the zone of tolerance at the top end where performance exceeds desired servicecustomers will be very
pleased and probably quite surprised as well.
Zone of Tolerance is the range or window in which customers do not particularly notice
serviceUnit-6 Service Qulity, Expectation, and Perceptionperformance. 01/03/2018

Dual Customer Expectation
Levels
Desired
Service
Zone of
Toleranc e
Adequate Service
Zones of Tolerance VARY for Different Service Dimensions
Source: Berry, Parasuraman, and Zeithaml (1993)
Zones of Tolerance VARY for
Desired Service
Level
of
Expectation Zone of Desired
Tolerance Desired Service
Service
Adequate Service
Zone
of
Tolerance
Adequate
Adequate Service
Service
Most Important Factors Least Important Factors

First-Time and Recovery Service
First-Time
ServiceOutcome
Process
Recovery Service
Outcome
Process
LOW HIGH Expectations
Source: Parasuraman, Berry and Zeithaml (1991)
Factors that Influence Desired Service
Desired Service
Enduring Service
Intensifiers
Zone
of
Tolerance
Personal Needs
Adequate Service
146
Factors That Influence Desired Service
1) Personal Needs
Those states or conditions essential to the physical or psychological well-being of the customer ,pivotal factors/critical factors that shape what
we desire in
servicesUnit-6 Service Qulity, Expectation, and Perception. 01/03/2018
For Example’
A fan who regularly goes to the baseball games right from work ,and is therefore thirsty and hungry ,hopes and desires that the food and drink
vendors will pass by his section frequently ,where as a fan who regularly has dinner elsewhere has a low or zero level of desired services from
the vendors.
A customer with high social and dependency needs may have a relatively high expectations for a hotel’s
ancillary services ,hoping that the hotel has a bar
.
1
4
9 A parent choosing a vacation for
the family,
A spouse selecting a home –
cleaning service ,
An employee choosing an office for the
firmUnit-6 Service Qulity, Expectation, and Perception 01/03/2018
2) Enduring
Service Intensifiers
 Individual
Factors that Influence Adequate Service
Transitory Service
Intensifiers Desired
Service
Perceived Service Zone of
Alternatives Tolerance
Adequate Service
Self-Perceived
Service Role
Situational
Factors
16
The five factors that influence adequate service:
1)Transitory Service Intensifiers
Consists of temporary, ,usually short term ,individual factors that make a customer more aware of the need for service.
Personal emergency situations in which the service is urgently needed such as accident and the need for automobile insurance or a breakdown in
office equipment.
17
2)Perceived Service Alternatives(PSAs)
PSAsareotherproviderstochoosefromwhom thecustomercanobtainservice.
Ifcustomershavemultipleserviceprovidersto choosefrom,oriftheycanprovidetheservice forthemselvessuchaslawncareorpersonal

grooming,theirlevelsofadequateserviceare
higherUnit-6 Service Qulity, Expectation, and Perceptionthanthoseofcustomers01/03/2018whobelieveitis notpossibletogetbetterserviceelsewhere.
18
3) Customer Self-Perceived Service Role
CustomerPerceptionisthedegreetowhichcustomersexertan influenceonthelevelofservicetheyreceive.
Inotherwords,customersexpectationsarepartlyshapedby howwelltheybelievetheyareperformingtheirownrolesin theservicedelivery.

on
e
Oneroleofthecustomerisspecifyingthelevelofservice expected.
Acustomerwhoisveryexplicitwithawaiterabouthowrare hewants hissteakcookedinarestaurantwillprobablybe moredissatisfied

ifthemeatcomestothetableovercooked than a customer who does not articulate the degree of donenessexpected.
19
4) Situational Factors
Situational factors are defined as the service performance conditions that customers view as beyond the control of the service provider.
 For Example,
Where personal emergencies serious automobile accidents would likely intensify customer service expectations of insurance companies,
CatastrophesUnit-6 Service Qulity, Expectation, and Perception that affect a large01/03/2018number of
Factors that Influence Desired and Predicted Service
people at time-Tornadoes or earthquake

s
Explicit Service
Promises
Implicit Service
Promises
Desired Word-of-Mouth
Service
Zone
Past Experience
of
Tolerance
Adequate Predicted
Service Service
Factors That Influence Customer Expectations of Service
21
1
5
6 Expectations, and Perception
Predicted Service
PredictedService is the level of service customers believe theyarelikelytoget.
Unit- 01/03/2018
23
1) Explicit Service Promises (ESP)
Are personal and non-personal statements about the service made by the organization
to customers.
The statements are personal when they are communicated by salespeople or
service or repair personnel;
 They are non-personal when they come from
6 Service Qulity, Expectation, and Perception
 Sources o the Desire and

f d
1
5
2 2) Implicit Service Promises (IPS)
ISP-are services –related cues other than explicit promises that lead to inferences about what the service
should and will be like.
Theses quality cues are dominated by price and the
tangibles associated with the service.
In general the higher the price and the more impressive the tangibles ,the more a customer will expect from the
service.

25
3)Word-of-Mouth Communications (WOMC)
Personal and non-personal statements made by parties other than the organization convey to customers what the service will be like and influence
both predicted and desired service.
Word of mouth communication carries particular weight as an information sources because it is perceived as unbiased.
Word of mouth tends to be more important in services that are difficult to evaluate before purchase and direct experience of them.
4)Past Experience(PE)
The customer’s previous exposure to service that is relevant to the focal service force in shaping predictions and desires.
The service relevant for prediction can be previous exposure to the focal firms service's experience.
For Example ,
You probably compare each day in a particular hotel is likely to be a very limited view of your past experience.
You may also compare each stay with your experiences in other hotels and hotel chains.
Customer Perceptions of Service
CustomerPerceptionsofService
Provide you with definitions and understanding of customer satisfaction and service quality
Show that service encounters or the “moments of truth” are the building blocks of customer perceptions

Highlight strategies for managing customer perceptions of service
Factors Influencing Customer Satisfaction

156
The factors Influencing Customer Satisfaction
Product/Service Quality
Product/service attributes or features
Consumer Emotions
Attributions for product/service success or failure
Equity or fairness evaluations

29
Managing Consumer
Expectations

 The higher th expectations the
e ,
Consumer buying decisions and patronage are based on consumer
expectations.
1
6 6 Service Qulity, Expectation, and Perception 01/03/2018
2
Outcomes of Customer Satisfaction
Increased customer retention
Positive word-of-mouth communications
Increased revenues
Unit-
Relationship between Customer Satisfaction and Loyalty in Competitive Industries
Loy
Satisfaction measure
Source: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p. 83.
Expectations
Service Marketers Dilemma
Promotinghighexpectationswillincreasepatronagebut also increase the chances of producing dissatisfied customers.
Promoting lower expectations will ensure satisfied customers,butthechancesofgettingcustomerstobuythe servicearegreatlyreduced.
Theidealgoalistopromotetheexactservicecustomers willreceiveandtoprovidetheexactservicecustomers expect

………..Iffirmscanmatchexpectationsandservice,customers aresatisfied
160
During the Pre-Purchase Phase
Learn what customers expect.
Tell customers what they can expect.
Consistently provide the service that customers expect.
Unit- 01/03/2018
During the Service Encounter
The goal during this phase is to ensure the service being provided matches the consumer’s expectations :
Service personnel must communicate with the customer during the service encounter.
The service providers should modify the service to meet the customer’s expectations.
During the Post-Purchase Phase
Managing consumer expectations does not stop after the service is performed.
Companies should communicate with customers immediately after the service is completed to see if expectations were met.

Forms can be used for a follow-up program, such as an evaluation survey sent to the customer through the mail or a phone call.
161
Companies should have a procedure for dealing with dissatisfiedUnit - customers that will assist01/03/2018in managing future expectations.

1
6
The Goal During This Phase Is Two Fold.
The Primary Goal is to communicate with customer to see if expectations
were met.
The Secondary Goal is to modify future expectations to increase the chances of
Unit-
repeat purchase.
Process Versus Technical Outcome Quality
1) Process of The Service/ Functional Quality
1) Outcome of The Service/ Technical Quality
SERVQUAL
Consumers evaluated service quality by comparing expectations with perceptions on ten dimensions (Parasuraman et al.,1985)
Tangibles
6 Service Qulity, Expectation, and Perception 01/03/2018

163
Reliability
Responsiveness

40
Communication
Credibility
Security
Competence
Courtesy
Understanding/knowing customers and
Access.
The five generic service-quality dimensions
1) Reliability - Ability to perform the
promisedUnit- service dependably01/03/2018 and
42
7 scale measures from SA to SDA
“Perception-minus-expectation” scores called gap
scores.
G=P-E
165
Reliability
Providing services as promised.
Dependability in handling customers’ service performed.
Performing the services right the first time.
Providing services at the promised time.
Maintaining error Unit-6 Service Qulity, Expectation, and Perception -free records. 01/03/2018
Responsiveness
Keeping customers informed about when services will be performed.
Prompt service to customers.
Willing to help customers.
Readiness to respond to customers’ requests.
Unit- 01/03/2018

44
Assurance
1) Employees who instill confidence in customers.
2) MakingUnit- customers 01/03/2018feel safe
Empathy
Givingcustomersindividualattention.
Employees who deal with customers in a caringfashion.
Havingthecustomer’sbestinterestatheart.
Employeeswhounderstandtheneedsoftheir
customersUnit-6 Service Qulity, Expectation, and Perception. 01/03/2018
46
Tangibles
Modern equipment.
Visually appealing facilities.
Employees who have a neat, professional appearance.

Convenientbusinesshour.
Visually appealing materials associated with the service.
Unit- 01/03/2018
1
1
Limitations of the SERVQUAL Model (Buttle and
Sureshchandar et al. )
Conceptualization
Conceptualization of service quality as a disconfirmation model of the gap between the
actual service experience and the expected service
level does not have a strong empirical grounds.

Dimensionality
1
7 Thefiveservicequalitydimensionscannothavea universal application as they can’t be used uniformlyacrossallcountriesandsectorsasthe:
2
Organizational,
Technological,
Economic,
Unit- 01/03/2018
Social, and
SERVQUAL vs. SERVPERF (Cronin and Taylor)
SERVQUAL is based on the “disconfirmation” perspectiveoftheservicequalityconstruct
SERVPERFisbasedonthe“performanceonly” perspectiveandoperationalizedservicequalityas customers’evaluationsoftheserviceencounter.
SERVPERFusesonlytheperformanceitemsoftheSERVQUALscale.
Satisfaction Versus
Service Quality
Perceived service quality is a component of

169
customersatisfaction.
Internal and External Customer Perceptions
Internal customers are employees within

174
What is customer Satisfaction?
Satisfaction is the consumer's fulfillment response.
It is a judgment that a product or service feature, or the product or service itself, provides a pleasurable level of consumption-related
fulfillment.
Satisfaction is the customers' evaluation of a product or service in terms of whether that
Customer satisfaction will be influenced by:
Productorservicefeatures
Customers'emotionalresponses
Customersattributions,and
Customers’perceptionsofequity
Building Blocks of Satisfaction and Service Quality
Service encounters or the "moment of truth" are the "building blocks of satisfaction and service quality.
The service encounter or the moment of truth is what is termed as interactive marketing in
the Unittriangle- .
1
7
5
6 Service Qulity, Expectation, and Perception 01/03/2018

172
Service encounter is a "real-time marketing" where promises are kept or broken.
It is from service encounters the customers build their perceptions.
Each encounter presents an opportunity to prove its potential as a quality service provider and to increase customer loyalty.
A Service Encounter Cascade for a Hotel

1
7
9
Checking
Bell person takes to

Room
Restaurant
Meal
Wake-Up Call
Checkout

1
8
0 A Service Encounter Cascade for Industrial Purchase
Sales Call
Delivery and
Installation
Servicing
Ordering of Supplies
Billing

1
7
Types of Service Encounters
Remote encounters
Phone encounters and
Face-to-face encounters.

the primary
1
8
2
i) Remote Encounters
Encounters can occur without any direct human contact (remote encounters)
Example:
The ATM
In remote encounters the tangible evidence of the
serviceUnit-6 Service Qulity, Expectation, and Perceptionand the quality of the technical01/03/2018 processes
Expectations, and Perception ii)Phone
Encounters
TheUnit- 01/03/2018most
iii) Face-To-Face Encounter
It occurs between an employee and a customer in direct contact (face-to-face encounters).
and system becom bases for

s e
1
8
3
Both verbal and nonverbal behaviors are important determinantsof quality, as are tangible cues such as employee dress and other symbols of
service (e.g. equipment, informational brochure, physical setting).
Inface-to-faceencountersthecustomeralso
Sources of Pleasure and Displeasure in
Service Encounters
1)Recovery
 Employee response to service delivery system failures.
2)Adaptability
Unit- Employee response to 01/03/2018customer needs
3)Spontaneity
Unprompted and unsolicited employee actions
and requests
.
1
8
2
Satisfying incidents in this group represent very pleasant surprises for the customer (special attention, being treated like royalty, receiving
something nice but not requested).
Dissatisfying incidents in this group represent negative and unacceptable employee
behaviors (rudeness, stealing, discrimination,

1
9
3
Satisfactory Dissatisfactory
 I had made an advance reservation at the hotel. We had made an advance reservation at the hotel.
 They lost my room reservation but the manager gave me the When we arrived we found we had no room-no explanation, no
suite room for the same price. apologies, and no assistance in finding another hotel. (external
customer)
(external customer)
01/03/2018
1
9
4
 A gentleman left his shoes outside his room door to be shined. One of my suitcases was all dented up and looked like it had been
When he went to retrieve them, they were gone, and could not dropped from 30,000 feet.

be found.
When I tried to make a claim for my damaged luggage, the employee
The hotel staff took responsibility and with in an hour a insinuated that I was lying and trying to rip them off.
representative had
(external customer)
arrived withUnit-six6 Service Qulity, Expectatiopairs of shoes
n, and Perception 01/03/2018
for the gentleman to choose
Examples of Recovery Incidents, both Good and Bad
01/03/2018
from. (employee
)
1
9
3
Examples of Adaptability Incidents, Both Good And Bad
atisfactory Dissatisfactory
01/03/2018
1
9
4
lthough it was not our regular order time, I needed some suppliers My young son, flying alone, was to be assisted by the stewardess from
hat we did not have in stock. start to finish.
called the supply office and the gentleman on the phone said, “No At the airport she left him alone in the airport with no one to escort him
roblem. to his connecting flight. (external customer)
received the supplies the next day. His word was as good as gold. n, and Perception 01/03/2018
nit-6 Service Qulity, Expectatio
nternal customer)
Examples of Spontaneity Incidents
01/03/2018
1
9
3
Satisfaction Dissatisfaction
The anesthesiologist took extra
time to explain exactly what I would be aware of and promised to take  I needed a few minutes to decide on a dinner. The
special care in making sure I did not wake up. waitress said, “If you would read the menu and

not the road map, you would know what you
It impressed me that the anesthesiologist came to settle
want to order.” (external
my nerves and explain the difference in the medicine I was getting because
of my cold. customer)
It was a nice bit of extra attention that he did not have to give.
(external customer)
Unit-6 Service Qulity, Expectation, and Perception 01/03/2018 Examples of Coping Incidents, Both Good and Bad
01/03/2018
1
9
4
atisfactory Dissatisfactory
person who became intoxicated on a flight started Anintoxicatedmanbeganpinchingthefemale flightattendants. Oneattendanttoldhimto

peaking loudly, annoying the other passengers. stopbuthecontinuedandthenhitanother passenger.
heflightattendantasked thepassengerifhewould Theco-pilotwascalledandaskedthemanto sitdownandleavetheothersalone,butthe

edrivingwhentheplane landed and offered him passengerrefused. Theco-pilotthen“decked" themanknockinghimintohisseat.(Employee)
offee.
Whileafamilyofthreewaswaitingtoorder dinner,thefatherbeganhittinghischild.
Heacceptedthecoffeeand became quieter and
Anothercustomercomplainedaboutthistothe manager who then, in a friendly and
riendlier(employee) sympatheticway,askedthefamilytoleave.
Thefatherknockedalloftheplatesandglasses offthetablebeforeleaving.(Employee)
01/03/2018
1
9
3
Strategies For Influencing Customer Perceptions
Measureandmanagecustomersatisfactionand servicequality
Aimforcustomerqualityandsatisfactioninevery serviceencounter
Planforeffectiverecovery
Facilitateadaptabilityandflexibility
Encouragespontaneity
Helpemployeescopewithproblemcustomers.
Manage the dimensions of quality at the
01/03/2018
1
9
4
01/03/2018
1
9
3
Unit-7
Service Recovery
Unit-7 Service Recovery Strategy
Service Recovery
Learning Outcome
After completing this unit the student will be able to:
Define Service Recovery
Complaint handling
Causes of service failure
Effects of poor service failure Effects of effective service recovery Why do/don’t people complain?
What do customers expect when they complain
Service Recovery
01/03/2018
1
9
4
Meaning of Service Recovery
Service recovery is the action taken by the organization in response to service failure.
In all service context service failure is inevitable.
01/03/2018
Service Recovery
Complaint Handling
6
5
4
Complaints are defined as any expression of dissatisfaction or concern made to the organization by, or on behalf of, an individual client,
group related to the organizations products or services.
Unit-
Service Recovery
The purpose of complaint handling policy:
To support the provision of the highest possible quality service to external clients;
To increase the level of client satisfaction with the delivery of the organization’s services and products; and
To enhance organizational relationships with external customers.
Possiblemanifestations or signs of an organization’s
Unit-7 Service Recovery Strategy 01/03/2018 commitment to effective systematic suggestion or

effective
Service Recovery
Requisites for Effective Systematic Suggestion or
Complaint Handling
Recognizing a client's right to make complaints, comments or suggestions about the level and quality of services and products provided;
7 Service Recovery Strategy 01/03/2018

Encouraging the submission of any complaints clients may haveUnit- with any of the01/03/2018services and
7 Service Recovery Strategy

Service Recovery
Ensuring that all complaints are heard and equitably resolved as soon as possible;
9
8
7
Monitoring complaints in an endeavor to improve the quality of services and Products;
Providing clients with information about the complaint handling process; and
Promoting aUnitpositive- attitude01/03/2018towards clients
Service Recovery
Principles of Effective Systematic Suggestion or
Complaints Handling
Fairness: Recognize the need to be fair and equitable to both the complainant and the employee and/or part of the organization against
whom the complaint is made.
Resources: Provide adequate resources with sufficient levels of delegated authority to ensure complaints received are addressed and
concluded in a timely
manner. Unit- 01/03/2018
Service Recovery
Access: Ensure the complaint process is available to all external clients of the organization.
Responsiveness: Deal with complaints quickly, treat complainants with courtesy and wherever possible resolve complaints at the first point
of contact.
or assistanc in completin complain documentatio

e g t n
Assistance: Provide assistance for complainants in the formulation and placement of complaints if
requested whichUnit-may7 Service Recovery Strategy include provision01/03/2018of a translator

th
e
Service Recovery
Charges: If a client has a complaint about a product or service, the complaints handling process shall be provided free of charge.
12
11
10
Remedies: The service provider will review the need to develop remedies that are fair and reasonable in the circumstances, to meet any legal
obligations and generally comply with good management principles and practice.
Data Collection: Collect and record data on complaints lodged or placed and outcomes to assist in the identification of systemic and recurring
problems and/or potential improvements
to service delivery Unitand-7 Service Recovery Strategy customer relations.01/03/2018
Service Recovery
Accountability: All employees shall take responsibility for effective complaints handling. Managers are responsible for implementing the
policy and the procedures outlined in this document in their respective Branches.
Reviews: Regularly review the complaints handling process to ensure it is efficiently delivering effective
outcomes. Unit-7 Service Recovery Strategy
Service Recovery
A fair complaint handling procedure provides complainants the right to:
be heard;
know whether the organization’s relevant service and products as well as procedures have been followed;
be provided with, and request all relevant material to
01/03/2018
 b informe of criteri and processe ;

e d a s
support the complaintUnit-7 Service Recovery Strategy 01/03/2018
Service Recovery
14
13
What makes a complaint handling system of a
service provider responsive?
Employee
For effective complaints handling, a service
provider employee has toUnit-7 Service Recovery Strategy :
Service Recovery
What must be done by managers to deal with complaints?
Managers Shall:
Appoint and empower employees in their organization with the authority to resolve complaints quickly and effectively;
Provide sufficient resources within their area of control to ensure the efficient and effective management of customer complaints;
Ensure appointed service providers are trained in general and specific complaint handling skills;
Ensure a no blame culture exists;
Ensure all complaints are dealt with in an acceptable and timely manner;
Unit-7 Service Recovery Strategy 01/03/2018
Monitor progress of their complaints handling process;

Service Recovery
A complaint is a Gift
16
15
17
A complaint is a gift because it provides an opportunity to:
Fix things
Make things right with the customer
Improve process, systems, and the quality of the service Unit. -
Service Recovery
….A complaint is a gift because it provides an opportunity to:
Identify repetitive complaints;
Evaluate the data and determine the causes of complaints and whether remedial action is required;
Develop and implement continuous improvements to services and products that are the cause of complaints
within their area Unitof-responsibility; and01/03/2018
Service Recovery
Causes of Service Failure
Late or slow delivery
Poor execution of the service
Poor interpersonal interaction

Repor i the annua repor an
t n l t y
Service Recovery
Effects of Poor Service Recovery
19
18
Customer defection
Negative public image
Legal liability
Lower employees morale
Customer terrorismUnit- 01/03/2018
Service Recovery
Effects of Proper Service Recovery
Customer satisfaction
Customer loyalty
Repurchase effect
Increased sales and bottom-line profit

Service Recovery
The Recovery Paradox
22
21
20
Customers who are dissatisfied but experience a high level of excellent service recovery may become more satisfied and more likely to
repurchase than those who were satisfied in the first place.
Even if do it right the first time is preferable, when a failure occurs everyUnit-7 Service Recovery Strategy effort should be01/03/2018made
for superior
Service Recovery
How Do Customers Respond to a Service Failure?
Take action (switch provider or stay with provider)
Complain to provider
Complain to friends
Complain to third party
Do not take action (switch provider or stay with provider)
Customer Response Following Service Failure

Service Recovery
Complainers can be classified in terms of their behavior whether they:
24
23
Take action or do not take action
Complain to the service provider
Complain to third parties and spread negative word of mouth
Switch patronage and alienated from the market place
Service Recovery
Types of Complainers
i)Passives
Do not take action
Believe that the consequences of complaining will not merit the time and effort they will expend.
Do not complain to the provider.
Do not complain to third parties
Are less alienatedUnit- from the market 01/03/2018place.

Service
Failure
Take 7 Service Recovery Strategy Do

Action Nothing
Switch Stay with
Providers Provider
Complain Complain Complain
toProvide
Service Recovery Family
to & Third
to
r Friends Party
ii) Voicers
25
26
Are the service providers best friend
Switch Stay with
Complain to the service provider
Providers Provider
Do not complain to third parties
Uni- 01/03/2018
Do not spread negative word of mouth t
Do not switch patronage
Believe that complaining has a social
Service Recovery
Irate
Are more angry with the service provider
May or may not complain to the provider
Engage in negative word of mouth
Switch patronage and feel alienated from the market place
Service Recovery
Activists
01/03/2018
benefi an positiv outcome .
t d e s
Complain to friends and relatives
Complain to a third party
28
27
Are alienated from the market place.
May become terrorists in extreme cases
Service Recovery
Why Do/Don’t People Complain?
People may or may not complain depending on:
The consequence
Sense of social obligation
Price, risk, and ego associated with the service
Know how to complain
Personality

Service Recovery
What Do Customers Expect When They
30
29
Complain
Steve Brown and Steve Tax has documented three specific types of justices that customers are looking for following their complaints:
outcome fairness, procedural fairness and interactional fairness
i) Outcome Fairness
The compensation should match the level of customers
dissatisfaction. i.e., customers expect equity in the
Service Recovery
ii)Procedural Fairness
Fair policies, rules, and timeliness of the complaint process
Fair procedures are characterized by:
Clarity
Speed
Absence of hassle
Unfair procedures are slow, prolonged, and

Unitinconvenient.
Service Recovery
31
iii)Interactional Fairness
Customers expect to be treated politely with care and honesty.
Training and empowerment are basis for interaction fairness.
This form of fairness can dominate the others if customers feel the company and its employees have uncaring attitudes and have done little
to try to resolve the problem.

Service Recovery
Service Recovery Strategies
32
Do it right the first time
Welcome and encourage complaints
Act quickly
Treat customers fairly
Learn from recovery experiences
Learn from lost customers
Service Recovery Strategies
8 Service Development and Design12/21/2015

33 Unit-7 Service Recovery Strategy
34

Unit-8
Services Development and Design
3
2
1
Unit-
Learning objective
Describe why do new services fail?
Identify challenges of service design
Examine types of new services
Explain stages in new service development
Assess service classification: a design issue
Equipment vs. people based classification
(ThomasUnit- )
Why Do New Services Fail?
Failure to understand customers expectations
Failure to match service standards & design with customers expectations.

No unique benefits offered
Insufficient demand
Unrealistic goals for the service
Poor fit within the organization portfolio
Poor location
Insufficient financial backingUnit-
Poor timing

4
How The Front And Back Office Should Be Organized And Coordinated.
The front office is that part of the system directly experienced and visible to the customer.
6
5
This is where the service is performed and is thereby open to customer scrutiny, e.g. the hotel dining room.
The back office is that part of the system from which the customer is (physically) excluded, e.g. the hotel kitchens.
It is often referred to as the manufacturing side of the service, not seen by the customer.
A framework has been suggested as to how the front and back office should be
organized and coordinated
The following concepts were viewed as
significant for determining the design
Unit-8 Service Development and Design 12/21/2015 options and conduct of service work
1) Input Uncertainty – refers to the service organization’s incomplete knowledge of what the customer is going to bring to the service and
how he or she is likely to behave.
 Input uncertainty will vary with the two
environmental variables:
Customer willingness to participate and

Diversity of demand.
How The Front and Back Office Should Be Organized and Coordinated.
8
7
Customer willingness to participate – refers to how far customers wish to play an active part in the service.
Customers’ capacity to become involved can be limited by lack of knowledge, skills and understanding of their role.
Diversity of demands – refers to the uniqueness of
customer demands.
Unit-8 Service Development and Design 12/21/2015
Are they to be met in a customized or standardized way?
2) Interdependencies – refers to different patterns with respect to division of service work (between front and back office and customer)
and customization versus standardization of standard actions and interdependencies.
Unit-8 Service Development and Design12/21/2015

A Typology of Service Interdependence Patterns Matching Input Uncertainty

A Typology of Service Interdependence
11
10
Patterns Matching Input Uncertainty
Where,
C = customers,
F = front-office employee(s);
B = back-office employee(s).
Hard box: = main locus of interdependence,
Broken Box:= supporting interdependencies
Source: Larsson and Bowen (1989)
The four service design options can be seen in Figure 8.3. A brief explanation of each follows.
Sequential standardized service design:
A customer-dominated design in which they serve themselves after service employees have provided the goods and facilities needed for
self-service.

It is a standardized service in which the front and back office can be decoupled to allow for efficient delivery of service.
14
13
12
Reciprocal Service Design:
Participation of the parties ‘in which the output of each becomes the input for the others’.
The service is produced largely on the basis of significant interactions between front-office employees and customers.
Sequential customized service design:
the bulk of the work here is performed by the service employees in a system of strong interdependence between back and front offices.
Service Design Options
Pooled Service Design:
 Most of the work done by an efficient back office, largely decoupled from front-office disturbances.
Customers do not interact extensively with service employees but engage in the sharing of resources that makes mass
service possible.

New Service Development Stages
I)Front End Planning
15
Business strategy review/development
New service strategy development
Idea generation
Concept development and evaluation
Business analysis II)Back End Implementation
Service development and testing
Market testing
Commercialization
Post introduction evaluation

New Service Development Process
Business Strategy Development or Review
New Service Strategy Development
Front End Idea Generation
Planning
Screen ideas against new service strategy
Concept Development and Evaluation
Test concept with customers and employees
Business Analysis
Test for profitability and feasibility
Service Development and Testing
Conduct service prototype test
ImplementationMarket Testing
Commercialization Test service and other marketing-mix elements
Post introduction Evaluation
16 Unit-8 Service Development and Design 12/21/2015

Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997.
18
17
I) Front End Planning
1) Business Strategy Development
Assuming that an organization will have an overall strategic vision and mission Review the vision and mission of the organization.
The new service strategy and specific
new service ideas must fit within the
2)New Service Strategy Development
Use the Ansoff matrix framework for
identifying growth strategies.
The framework allows an organization to identify possible directions for growth
and can Unitbe-8 Service Development and Designhelpful as a 12/21/2015catalyst for

226
New service Strategy Matrix for identifying Growth opportunities
Offerings Markets
Current Customers New customers
Existing Service Share Building Market development
New Services Service development Diversification
Unit-

227
3)Idea Generation
This phase is the formal solicitation of new ideas.
The idea should fit the basic business and new service strategies.
Sources of new service ideas
Contact personnel
Brainstorming session
Employees
CustomersUnitUser research
4) Service Concept Development and Evaluation
Once an idea surfaces that is regarded as a good fit with both the basic business and the new service strategies, it is ready for initial
development.
At this stage:
Define the concept of the new service


226
Describe the specific features & characteristics
Develop the service design document
Evaluate the response of customers and employees to the
Unitnew service concept.

5) Business Analysis
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Assuming the service concept is favorably evaluated by customers and employees at the concept development stage then one has to Determine the
feasibility of the service concept and its profit potential.
Demand analysis, revenue projections, cost analysis ,and operational feasibility are assessed at this stage.
The organization will pass the results of the business analysis through its profitabilityUnit-8 Service Development and Designand feasibility
screen12/21/2015to determine whether
II)Back End Implementation
Once the new service concept has passed all the front-end planning hurdles ,it is ready for the implementation stages of
the process
6)service Development and Testing Stage.
This is the service development and testing stage.
Develop a detailed service blue print
Translate the blue print into specific implementation plan.
This is a very difficult stage.
the ne servic ide meet the minimu requirement .

w e a s m s
8 Service Development and Design
Unit- 12/21/2015
This stage of service development should involve all who have a stake in the new service :
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Customers and contact employees as well as functional representatives from marketing, operations and human resources.
During this phase , the concept is refined to the point
Unit-8 Service Development and Design 12/21/2015 where a detailed service blueprint representing the
7)Market Testing
It is needed to determine:
Market place acceptance of the product
Acceptance of marketing mix variables: - pricing, promotion, and distribution systems.
There are alternative ways of testing the
8)Commercialization
Commercialization is the introduction stage of the service to the market place./the service goes to live.
Two Primary Objectives:
To build and maintain acceptance of the new service

To monitor all aspects of the service during introduction and through the complete service cycle.
Unit-8 Service Development and Design
Unit- 12/21/2015
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If the customer needs six months to experience the entire service ,then careful monitoring must be maintained through at least six months.
Every detail of the service should be assessed –phone calls, face-to-face transactions, billing,complaints,and delivery problems.
Offering efficiency and costs should be tracked.
9)Post Introduction Evaluation At this stage:
The information gathered during the commercialization of the service-will be reviewed
Changes will be made to the delivery process, staffing, or marketing mix variables based on the response of the market to the new service
offer.
No serviceUnit-8 Serwillvice Development and Designever stay the12/21/201sam5e ,whether
The Concept of Design
As service is a process where people interact with the production and delivery of an experience, service design should encapsulate all aspects
of that experience:
The role of the customer
The balance between front and back office
Unit- 12/21/2015
unplanned or deliberate, changes will alway

s
The impact of technology, e.g. the involvement of equipment
8 Service Development and Design 12/21/2015
The location of service consumption (e.g. a fixed
Unit-
Employee skills/behavior and degree of discretion
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The nature of the service process, e.g. standardized, customized
The significance of procedures
The nature and channels of communication
The contribution of the physical evidence to service satisfaction Unit-
Service Classification: A Design Issue
i) Equipment Vs. people based classification (Thomas)
a)Equipment-based
Automated (vending machine, car wash), monitored by relatively unskilled operators (taxis, dry cleaning),
Automated operated by skilled operators (airlines, computer timesharing).
b)People-based
Unskilled labor (janitorial services, guards)
Skilled labor (car repair, plumbing)
Professionals (lawyers, accountants) for service production

According to Thomas, placing a service on the spectrum necessitates answering two questions:
How is the service rendered?
34
What type of equipment or people render the service?
2 X 2 Matrix For Service Classification:
Maister and Lovelock, in 1982

iii)The Service Process Matrix (Schmenner)
35

iv) Haywood-Farmer- Three-Dimensional Model
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36
a)Degree of Contact : whether the customer has to be present, as is the case with a haircut;
B)Degree of Labor-intensity : whether it is possible to automate the service, as with
automatic teller machines; and
……Haywood-Farmer- Three-Dimensional Model
c)The Degree of Service Customization : how much
standardization is possible, e.g. can a standard programme be devised for all customers of a health club?
Where a service is low in all three dimensions (cell 1 e.g. the back office of a bank) it is like a factory, with emphasis on quality control and
focusing on physical facilities and procedures.
As one moves towards cells 5–8, two factors become prominent.
……..Haywood-Farmer- Three-Dimensional Model
1) Where the service is low in labor intensity, the customer’s impression of the physical facilities, processes and procedures is important and
care must be taken to make sure equipment is reliable, easy to use and user proof.
1) As high contact and interaction services increase in labor intensity, more attention must be paid to making sure staff behave appropriately.
….Haywood-Farmer- Three-Dimensional Model
As customization increases (moving towards cells 3, 4, 7 and 8) the service process and product must be designed to fit the customer.

In services high on all three dimensions, physical facilities, procedures, processes, personal behavior and professional judgment all become
important.
40
……..Haywood-Farmer- Three-Dimensional Model
Source: Haywood-Farmer (1988),
A three-dimensional classification scheme

Examples of Services In Each Octant:
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Utilities, transportation of goods
Lecture, teaching, postal services
Stock broking, courier services
Repair services, wholesaling, retailing
Computerized teaching, public transit
Fast food, live entertainment
Charter services, hospitalsUnit-8 Service Development and Design 12/21/2015
Service Blueprinting (SB)
SB is a picture or map that accurately portrays the service system so that different people can understand and deal with it regardless of their
roles.
It visually displays:
1. The process of the service deliveryUnit-8 Service Development and Design 12/21/2015
The Purpose of Service Blueprinting
8) Design services, advisory services, healing

To enable employees, customers, & managers know what the service is.
To make employees and customers see their roles in the service delivery.
43
To understand all of the steps and flows involved in the service process.

Blue Print Components
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44
Customer Action
Onstage Contact Employees Action 3) Backstage Contact Employees Action
4) Support Process.
Service Blueprint Components
1)Customer Actions
a)Line of Interaction
“Onstage” Contact Employee Actions
b) Line of Visibility
“Backstage” Contact Employee Actions
c) Line of Internal Interaction
Support Processes
1)The Customer Action

All the steps, choices, activities, and interactions that the customer performs in the process of purchasing, consuming, and evaluating the
service.
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46
Customers actions in legal service.
A decision to contact an attorney
A face-to-face meeting
Receipt of documents
Receipt of a bill
2)Onstage Contact Employee’s Action
All the steps and activities that the contact employee performs that are visible to the customer.
Onstage employee actions in a legal service
Initial interview
Intermediate meetings
Final delivery of legal documents.

3) Backstage Contact Employee Action
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Actions that occur behind the scenes to support the onstage activities.
Backstage contact employees actions in a legal service.
Preparation of the attorney for a
meetingUnit-8 Service Development and Design 12/21/2015
4)The Support Processes
Covers the internal services, steps, and interactions that take place to support the contact employees in delivering the service.
Support processes in a legal service.
Legal research by staff.
SecretarialUnit-8 Service Development and Designservice etc. 12/21/2015
The four action areas are separated by three horizontal lines:
a) The Line of Interaction
It represents direct interactions between the customer and the organization.
 Preparatio o th final documen .

n f e t
Anytime a vertical line crosses the horizontal line of interaction, a service encounter has occurred (a direct contact between the customer & the organization
has
51
taken place.)
b)The Line of Visibility
It separates what the contact employees do onstage from they do backstage.
This line separates all service activities that are visible to the customer from those that are not visible.
c) The Line of Internal Interaction
It separates contact employees activities from
those of other services support activities and
Building a Service Blueprint
Step 1 Step 2 Step 3 Step 4 Step 5 Step 6
Add evidence of servic
Identify the process Identify the customer or customer segment.o be blue-printed.Map the process from the customer’s point of view.Map contact
employee actions, onstage and backLink customer -sta
ver may
y
and contact person activities to needed su
52 Unit-8 Service Development and Design 12/21/2015
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Building a Blueprint
Step 1:Identify the process to be blueprinted
Blue prints can be developed at a variety of levels, and there needs to be agreement on the starting point.
Example:
Blue print for Express mail service or Blue print for overnight hotel stay Service
If the sort packages and loading elements of the process were found to be problem areas or bottlenecks that were slowingUnit-8 Service Development and
Designservice to customers , a detailed12/21/2015blueprint of the sub-processes at work in those two steps could be
Step 2: Identify The Customer Or Segment
A common rational for market segmentation is that each segments needs are different and therefore will require variations in the service or product features.
Blue prints need to be prepared for a particular customer or customer segment assuming that the
service processUnit-8 Service Development and Designvaries across segments12/21/2015.
At a abstrac leve it be possibl t combin

t l e o e
Overnight Hotel Stay
55
Bill
EVIDENCE
CUSTOMER PHYSICAL
Desk
Hotel Cart for Desk Elevators Cart for Room Menu Delivery Food Lobby
Exterior Bags Registration Hallways Bags Amenities Tray Hotel
Parking Papers Room Bath Food Exterior
Lobby Appearance Parking
Key
Arrive Give Bags Call Check out
Go to Receive Sleep Receive
at to Check in Room Eat and
Room Bags Shower Food
Hotel Bell person Service Leave
CONTACT PERSON
SUPPORT PROCESS(Back Stage) (On Stage)
Greet and
Process Deliver Deliver Process
Take
Registration Bags Food Check Out
Bags
Take
Take Bags Food
to Room Order
Registration Prepare Registration

Syste Food Syste
m m

Blueprint For A Corner Shoeshine
56
Source: Shostack
(1984)
A Process Flow Diagram For The Auto Repair Business
57
Source: Heskett et al. (1990)

Step 3 : Map The Process From Customers Point of View.
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This step involves charting the choices and actions that the customer performs or experiences in purchasing,consuming,and evaluating the
service .
Identifying the service from the customer’s point of view first will help avoid focusing on processes and steps that have no customer impact.
Often managers and others who are not on the front lines do not actually know what the customers are experiencing and what it all looks like
form theirUnit- points of view.
Step 4 :Map contact employees actions, onstage & backstage actions and or Technology Actions
For Existing: Services this will involve questioning front-line operations employees to learn what they do and which activities are performed in
full view of the customer versus which activities are carried out behind the scenes.
In the case of technology –delivered services or those that combine technology and human delivery , the required actions of the technology
interface will be mapped above the line of visibility as well.
If no employees are involved in the service at all ,then the area can be relabeled “on stage technology actions.”
If there are both human and technology interactions, those activities
Step 5 : Link customers and contact employees activities to support functions.

The line of internal interactions can then be drawn and linkages from contact activities to internal support functions can be identified.
It is in the process of internal actions on customers becomes apparent Internal service processes take on added importance when viewed in
60
connection with their link to the customer.
Certain steps in the process may be viewed as
unnecessary if there is no clear link to the customer’s

Step 6:Add evidence of service at each customer action step.
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Finally the evaluation of service can be added to the blueprint to illustrate what it is that the customer sees and receives as tangible evidence of
the service at each step in the customer experience.
The photograph blueprint including photos ,slides, or video of the process can be very useful at this stage as well as to aid in analyzing the
impact of tangible evidence and its consistency with the overall strategy andUnitservice-8 Service Development and Designpositioning.
The 3 Logics
To fully appreciate the workings of any service
system reference must bemade to what is
known as ‘the 3 logics’.
Logic is defined here as ‘a way of reasoning’ or
a ‘perspective’.
Underlining the significance of the 3 logics, Kingmann -
Brundidge stressesUnit-8 Service Development and Designthat they are ‘crucial12/21/2015to accurate
The 3 Logics
Customer Logic is the underlying rationale that drives customers’ behaviour, based on their needs and wants
12/21/2015
osis f ny ice ion’
It will be evident in what customers expect of the service and how it might compare with other services.
Technical Logic is seen as the ‘engine’ of the service operation.
63
It is essentially concerned with the way things are done dictated largely by organization policy, rules and regulations.
Employee Logic is the underlying rationale that drives employee behaviour.
It will be evident in employees’ perception of working conditions, working methods, organization of work and role clarity.

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5
8
Frequently asked questions about service blueprinting
What process should be mapped?
Can multiple market segments be included on one blue print?
Who should “draw” the blueprint?
Should the actual or desired service process be blueprinted?
Should exceptions or recovery processes be incorporated within the blueprint?
What is the appropriate level of detail?
What symbols should be used?
Should time or dollar costs be included on the blueprint ?
12/21/2015
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6
1

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2
1 Unit-9
Managing Capacity and Demand
Unit-9 Managing Demand & Capacity
Managing Capacity And Demand
Learning Objectives
The underlying issue in managing demand and capacity
Optimal versus maximum capacity
Capacity factors
Strategies for matching capacity and demand
Shifting demand to match capacityUnit-9 Managing Demand & Capacity
Flexing capacity to meet demand

2
6
1
The Underlying Issue: Lack of Inventory
Capability
The fundamental issues underlying supply and demand management in services:
lack of inventory capability due to:
the perishability of services
simultaneous production and consumption.
Services cannotUnit-9 Managing Demand & Capacitybe transported from one place to another or transferred from person to person.
Where service capacity is largely fixed and demand is subject to variation, organizations can experience any of the
following situations:
Excess demand – the level of demand exceeds maximum available capacity
Demand exceeds optimum capacity – the service is less than adequate
Demand and capacity are well balanced – this is the level of optimum capacity

2
6
2 Excess capacity – demand is below optimum
capacity. Unit-9 Managing Demand & Capacity

2
6
3
From Figure 9.1 it is evident that the level of capacity utilization will impact on the quality of service.
As the name implies, the optimum is the best level in most cases for all parties concerned – customers, employees and the organization.
Operating at maximum capacity, however, or even beyond as with some transportation services, is seen as a desired feature of some service
situations, namely nightclubs and bars.
(The trend is now for ‘vertical bars’, standing room only, where most of the tables and chairs are removed allowing a much higher number of
customers to enter.)
Otherwise services must aim to occupy that optimum capacity zone.
Unit-
There has been little comment as to where it lies.
For an airline it is said to range from 65 to 75% and for most services the optimal capacity appears to be between 70 and 90% of maximum
capacity.
See the figureUnit-9 Managing Demand & Capacityentitled as "The impact of capacity utilization in a restaurant”
The Impact of Capacity Utilization In A Restaurant
9 Managing Demand & Capacity

2
6
6
2
6
5 Unit-
Four different combinations of capacity and demand
1. Excess Demand.
The level of demand exceeds maximum capacity.
Some customers will be turned away, resulting in lost business opportunities.
Quality mayUnit-9 Managing Demand & Capacitynot match what was promised because of crowding or overtaxing of staff and
2. Demand Exceeds Optimum Capacity.
No one is being turned away, but the quality of service suffers because of;
Overuse,
Crowding, or
Staff being pushed beyond their
abilitiesUnit-

2
6
6 Managing Capacity and Demand
3. Demand and supply are balanced at the level of optimum capacity.
Staff and facilities are occupied at an ideal level.
No one is overworked,
Facilities can be maintained, and
Customers are receiving quality service
without undesirable delays.
4. Excess capacity - Demand is below optimum capacity.
Productive resources in the form of labor, equipment, and facilities are underutilized, resulting in lost productivity and lower profits.
Customers may receive excellent quality on an individual level because they have the full use of the facilities, Unit- no waiting, and complete
attention from the staff.

2
6
7 Managing Capacity and Demand
Capacity Constraints
Time – lawyers, consultants, hair dressers, etc
Labor– University professors, repair and
maintenance contractor, etc
Equipment – trucking or air freight delivery
service,
Facilities – Hotel rooms, no. of airplane seats, no. of class rooms in universities, etc
Service Capacity: Resources And Assets
Service organizations draw on the following resources and assets in varying degrees depending on the type of service :
Physical facilities designed to house customers, the obvious ones being hotels, hospitals, airplanes, schools.
Each facility will be defined in terms of number of rooms, beds, seats and classrooms.
Physical facilities designed for processing customers and their possessions,
Examples would include washing machines (launderette),Unit-9 Managing Demand & Capacitycomputer technology (banks), X-ray
equipment (hospitals), turnstiles (football stadium).
254
Service Capacity: Resources And Assets
Labor is a key element in the provision of service, e.g. waiters in a restaurant, cabin crew on an aero plane, tellers in a bank.
A umber of services rely heavily on labor where the service comes to the customer, as in breakdown services, cleaning, gardening, roof
repair, postal services
Time is a resource that serves as the basis upon which several services may be sold, e.g. a consultant, lawyer, plumber, car repair,
counselor.

Service demand
15
To anticipate and alleviate pressures on capacity, services need to have, as clearly as possible, an understanding of demand patterns.
Two questions come into play.
First, by how much does demand vary or fluctuate? There may be extreme variation to very little.
Secondly, is the variability able to be predicted? If
Unit-9 Managing Demand & Capacity a predictable cycle or pattern is detectable its
16
If a predictable cycle or pattern is detectable its duration may be as follows:
One day (varies by hour)
One week (varies by day)
One month (varies by day or week)
One year (varies by month or season).
17
The causes of these cyclical variations may be many and will vary by type of service.
Causal factors for a bus service are likely to be employment/school hours, shopping behaviour and entertainment.
Service demand
As there is a degree of stability to

Demand Patterns
18

19
Strategies For Matching Capacity and Demand
Two General Approaches
Shifting demand to match existing
supply
Adjust capacity to match fluctuations
in demandUnit-
20
1)Shifting Demand to Match Capacity
Vary the service offering
Communicate with customers
Modify timing and location of service delivery
Differentiate on price

Shift Demand To Match Capacity
Demand Too High Demand Too Low

259
Use signage to communicate busy days and times Use sales and advertising to increases business from current
market segments
Offer incentives to customers for usage during no peak Modify the service offering to appeal to new market segments.
times
Take care of loyal or "regular" customers first Offer discounts or price reductions
Advertise peak usage times and benefits of no peak use Modify hours of operation
Charge full price for the service - no discounts Bring the service to the customer
22
2)Flexing Capacity to Meet Demand a)Stretch Existing Capacity

1) Stretch Time 2) Stretch Labor
Stretch Facilities
Stretch Equipment
Aligning Demand and Capacity: The Options
Due to the relative inflexibility of service capacity coupled with the variability of service demand, aligning the two remains a challenge.
Relatively recent writing, incorporating the original thinking, suggests four options are available to service organizations in determining a
relationship between demand and capacity.
They are:
Provide – where sufficient capacity is available at all times to meet peak demand.
This may mean periods of excess capacity but that is to be preferred to a situation where business is lost due to insufficient capacity.

2
7
9 Aligning demand and capacity: the options
Match – where attempts are made to anticipate demand pattern so that capacity levels can be changed to accommodate.
It would involve careful scheduling of work as well as considering subcontracting or outsourcing.
Influence – where demand patterns are changed, if possible, to obtain effective utilization of capacity.
Responsibility for changing demand will lie with marketing deploying elements of the marketing mix as appropriate.
Control – where capacity remains fixed in service situations that are unique and high cost resources are needed to provide the level of service
expected.
Consequently, variation in demand needs to be kept to a minimum .
Each of these options in relation to an actual demand pattern is shown in Figure 9.3.

2
7
8 Aligning Demand and Capacity: The Options Demand management strategies – hypothetical Aligning Demand and Capacity: The Options
Actual demand in Figure 9.3 is presented as more of a random rather than regular fluctuation across the six time periods.
The basic question that arises is:

2
7
9 What level of capacity should be maintained to satisfy the demand?
Should a company provide excess capacity to improve customer service or minimize excess capacity to maximize resource utilization.
The following two options characterize the original thinking:
The ‘match’ option (managing the capacity) is shown as parallel to, but slightly higher than, the actual demand lines.
This option is more easily managed with employees than equipment and facilities.
The influence option attempts to smooth the actual and match capacity by shifting the peak demands to the low demand periods.
Variable capacity then becomes less of a problem.
It is slightly higher in low demand periods and slightly lower in high demand periods.
The more recent thinking embraces two further options:
The provide option shown as the straight horizontal line at the top of Figure 9.3 presupposes that enough capacity is available to meet even the
peak demands.
It could be thought of as a wasteful option as resources will inevitably be underutilized, particularly through periods 1, 4 and 6.
The control option is shown as the horizontal line in the middle.

2
7
8 It is designed to meet average demand, using waiting lines or some other means of accommodating excess demand until capacity is available.
Align Capacity with Demand Fluctuations
“Chase Demand" Strategy”.
Specific Actions:
Use part-time employees
Rent or share facilities or equipment
Schedule downtime during periods of low demand
Yield Management (Revenue Management)
Balancing capacity utilization, pricing, market segmentation, and financial return.
The goal is to produce the best possible financial return from a limited available capacity.
Yield = Actual revenue
Potential revenue
Yield Management ( Revenue Management)

2
7
9 Yield Management is It is defined as ‘provision of the right service to the right customer at the right time for the right price’.
Yield management is not (yet) suitable for all service organizations.
Application has been most successful in services that have the following characteristics:
Relative fixed capacity – e.g. once a hotel has rented out all its rooms further demand cannot be met without substantial capital investment.

2
8
0 Yield Management ( Revenue Management)
Perishable inventory – a major constraint for services is time or more specifically time during which a unit of capacity is available. If a hotel
room (unit of capacity) is not sold for a particular date the revenue that would have been gained is lost
Segmented Markets – where the market for a service can be segmented according to certain criteria, e.g. price sensitivity Unit.-
Fluctuating Demand – where the adoption of various pricing approaches enables the reduction of peaks and valleys in variable demand.
Success in this regard results in more effective utilization of capacity
Services that can be sold in advance through reservation systems – allows for better use of capacity.
Low variable to fixed cost ratio – in service pricing some contribution must be made towards fixed cost.
The low level of variable cost, e.g. cleaning a hotel room, coupled with discretion in pricing means that the revenue expected from selling it
is invariably greater than if it was not sold.
That is why yield management is usually regarded as a profit-enhancing strategy.
Users of yield management fall broadly into three categories:

2
8
1 1. Sophisticated – airlines and large hotel chains are regarded as the classic users employing complex information systems and computer
models for the purpose of analyzing and predicting consumer demand patterns.
1. Moderate – theatres, trains, hairdressers, small/medium hotels use less advanced systems and technologies in the deployment of classic
yield management techniques.
3. Potential – restaurants and golf courses are current and notable examples of services ready for yield management were it not for, in both
cases, variability and unpredictability over the duration of service.
For yield management to work there must be a fixed length of time within which the service is consumed.

Yield Measurement
38
The basic yield statistic is a straightforward measure.
It is expressed as follows:
Yield Measurement
Revenue potential is the revenue that could be secured if 100 per cent of capacity is sold at the maximum price possible.
In more detail, yield is a function of price efficiency and capacity used, namely:
Yield Measurement

Yield Measurement
269
Terminology can vary according to industry, e.g. hotel capacity is occupancy rate, transport capacity is load factor, hotel price is rate, and so on.)
 If we consider the hotel industry, yield would be

found from:
Yield Measurement

Yield Measurement
270
Yield Measurement
In reality a hotel’s capacity will be composed of a mix of rooms at varying prices.

Suppose, in the example above, that 95 rooms are priced at £200 (maximum rate) and the remaining 185 at £80 (maximum rate), the maximum yield
would be £33 800 (95 [] £200 185 [] £80).
271
The
percentage actual yield is 74.5% (£25 200 divided by £33
800).
Price efficiency is maximized at 1 or 100%.
On the other hand, average capacity utilization across the two categories of room is:

Yield Measurement
45
Yield Measurement
46
Revenue per available timebased inventory unit (REVPATI):

Airline: Revenue per available seat mile
Hotel: Revenue per available room night
Car rental: Revenue per available car pay
Restaurant: Revenue per available seat hour
Yield Measurement
47
An example from the airline industry18 illustrates the calculation of revenue per available seat mile with the additional consideration of cost.
To begin with, operational expenses are calculated for each flight and then divided by the number of available seats on that flight.
This means each seat has a fixed cost associated with it.
To make this figure even more meaningful the cost is then broken down to cost per kilometer.
Therefore, each flight has an available seat kilometer (ASK), which is computed by multiplying the number of seats on the aero plane by the distance
of the flight. For example:
Yield Measurement
48

Yield Measurement
49
To find out if the yield on revenue of the above flight is good, bad, or indifferent a further calculation is required.
The marketing team needs to know the revenue per passenger kilometer (RPK) of each flight.
Using the same flight and costs as above, theUnit- RPK would be worked out Yield Measurement

as follows
:
Waiting and Queuing
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51
Why Waiting Matters
‘Waiting is frustrating, demoralizing, agonizing, aggravating, annoying, time consuming and incredibly expensive.’
This view of waiting is offered in an advertisement for Fedex, an American parcels carrier.
Since one of the company’s selling propositions is that they can deliver goods to customers sooner
9 Managing Demand & Capacity than their competitors, it is not surprising that
Queues – Waiting Given Shape
There are three main causes of queues. They are:
1.The need to halt a flow of people or vehicles for a transaction.
Transaction processes include selling tickets, having documents checked, passing through security and immigration checks, and being sorted into
categories.

2
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5 Queues – Waiting Given Shape
2.The slowing of a flow because there is a physical constraint which slows things down.
This constraint is usually called a bottleneck, and if you up end a bottle of water you can see why.
Bottlenecks occur because several flows converge (as at road junctions or transport
Unit-9 Managing Demand & Capacity interchanges) or because of some infrastructure
Queues – Waiting Given Shape
3. Queues occur because people arrive before the service is open for business.
Such queues include those waiting for a bus driver to arrive and open the doors, those outside shops waiting for opening time, and people
waiting in areas of famine for food donations.
This last example gives the reason why many service opening time queues occur.
Aqueue ensures ‘first come first served’, which is particularly important if there is a belief that there will not be enough to serve everybody
who waits.
Queuing: A Behavioral Perspective
A number of behavioral principles or propositions governing queuing and
waiting have been

278
They can be summarized as follows:
Uncertainties – there is nothing worse from a customer’s point of view than not knowing how long you will have to wait.
People must be given an indication of how long they should expect to wait and it should err on the side of caution.
For example, it is obviously better to say ‘you will be seen in 20 minutes’ or ‘the takeoff will be delayedUnit-9 Managing Demand &
Capacityby 30 minutes’ where the wait is anticipated by the service provider to be less in

2
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6
The essential characteristic and apparent attractiveness of the appointment system are its complete lack of uncertainty.
Unless you arrive early, there is no waiting involved as people expect to be taken at their allotted time.
What is not always understood or tolerated is why a service does not adhere to the appointment schedule.
A hairdresser will usually keep to the schedule while
the localUnitGP-9 Managing Demand & Capacitymay not.
The explanation lies in the greater degree of
Explanation – the length of a delay can be given meaning if people are told the reason(s).
There are innumerable reasons for delay but the important point is that customers will make a judgment as to whether it is reasonable,
acceptable, or justifiable.
One might speculate that failure to inform customers is as much to do with avoiding unnecessary ridicule and censure.
Train companies revelations that a particular type of snow or leaves on the line, or excessive heat, can cause severe disruption are usually
met with incredulity and annoyance, particularly as there appears to be nothing that can be done about it.
There is nothing more frustrating from the customer’s viewpoint than serving points, e.g. in post offices, banks, supermarkets, suddenly
closingUnit-9 Managing Demand & Capacitywithout any explanation, or where service employees are seen to be ‘sitting idly by’ while the
queues get
longer
 .
280
Anxiety – this feeling can often be the consequence of uncertainty and no explanation.
It is the product of thinking ‘I’ll never be seen to’, which with the advent of appointments and take-anumber systems is less frequent.
However, it can be felt when standing far back in a very long queue entering a capacityconstrained facility, e.g. a pop concert, a football
match.
Organizers can eliminate it with the reassuranceUnit-that ‘everyone will get in’.

298
Boredom – waiting can be incredibly boring.
If organizations can offer some desirable distractions that take customers’ minds off the time the response might well be one of ‘how time
flies’.
There has not been a great deal of imagination generated in this area.
Successfully filling unoccupied time is a difficult exercise and an area where there is enormous scope for experimentation
Unit-
and development.
Pre-process versus in-process – this is partially related to the previous point in that although customers have to wait they want to feel as
soon as possible that progress is being made towards the service commencing.
The obvious example is being given a menu on sitting down for a restaurant meal.
The important point is that customers need to feel they are involved as quickly as possible.
Anything the provider can do to fill in the customers’ time before the core service begins will achieve that objective. Unit-
Value – in general people value their time, so what they are waiting for has to be worth it .
What customers define as ‘valued’ is as diverse as the reasons for delay mentioned earlier.
It is not simply a matter of what is valued being seen as something highly priced.

274
Long waits are endured to obtain an important prescription from a doctor.
People camp out overnight or wait many hours to obtain entry to various forms of entertainment.
The wait is very much seen in terms of ‘it’s worth it’.

300
Equity – people correctly feel aggrieved if the first come first served (FCFS) and first in first out (FIFO) systems are not observed.
The take-a-number procedure operated by many services is a good example of FIFO.
It works well when all customers’ transactions require about the same amount of time, but not where markedly different amounts of time are
in evidence.
There are instances where FIFO and FCFS would seem to be violated, e.g. an emergency arrival at a hospital, but this is an example where
customers accept non-observance of the rule.
Waiting Line Strategies
1)Employ Operational Logic
 Queuing system or waiting line configuration
Multiple-queue alternative
Single -queue alternative,
Take-a -number option
Establish a reservation process

Differentiate waiting customers
284 "Queue discipline" - management policies regarding who to select next for service.
First-come, first -served.
Importance of the customer.Unit-9 Managing Demand & Capacity
Urgency of the job.

Make Waiting Fun, Or At Least Tolerable

3
0 The Psychology of waiting Lines,” David Master’s principles regarding waiting.
2
Unoccupied time feels longer than occupied time
Preprocess waits feel longer than in-process
waits Unit-9 Managing Demand & Capacity
66
Unexplained waits are longer than equitable waits
Unfair waits are longer than equitable waits
The more valuable the service, the longer the customer will wait
Solo waits feel longer than group waits
Unit-
Applying Queuing Theory
Queuing theory is the application of the mathematics of probability to the likelihood of queues.
Those managing systems wish to ensure that the maximum duration of queues stays within given limits, because they do not wish to exceed the zone
of tolerance of the customers, who may renege if queues are too long.
staff (and their associated equipment) ar

e
The secondUnitdesire-9 Managing Demand & Capacityis to ensure that serving

3
0
4 Applying Queuing Theory
These models may become quite complex, but they all start with two basic sets of data:
the average arrival rate, denoted by (the Greek letter lambda) and the average service rate, denoted by (m).
From these two statistics a value for the traffic intensity, shown by , can be derived.
Traffic intensity can best be thought of as the average utilization of the service facility with the formula:
Unit-

288

3
0
5
Worked Example: Customers in a supermarket join a single queue at an average rate of 30 per hour and are served at an average rate of 35
per hour.
Find the average:
Number of customers waiting to be served (mq)
Number of customers in the system (ms)
Time spent queuing (wq)Unit-

71

72
73

Unit-10

Relationship Marketing
Unit-10 Relationships Marketing
Varying Definitions Of CRM
The lack of clarity about CRM is evident in CRM terminology.
Customer relationship management is often used interchangeably with the terms :
‘Relationship marketing’,
‘customer relationship marketing’,
‘enterprise relationship marketing’ (ERM),
‘technology enabledrelationship
Varying Definitions of CRM
‘Customer managed relationships’
(CMR) OR
‘Customer management’ (CM). Data warehouse Campaign management or Sales force automation.
(TERM),
CRM is a business strategy combined with technology to effectively manage the complete customer life-cycle.
CRM is a term for methodologies, technologies and ecommerce capabilities used by companies to manage customer relationships.
CRM is an e-commerce application.
CRM is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the
company and the customer8
CRM is about the development and maintenance of long-term mutually beneficial relationships with strategically significant customers.
CRM is concerned with numerous aspects, but the basic theme is for the company to become more customercentric… methods are primarily Web-
based tools an Internet presence…
CRM can be viewed as an application of one-to-one marketing and relationship marketing, responding to an individual customer based on what the
customer tells you and what else you know about that customer.
CRM is a management approach that enables organizations to identify, attract and increase retention of profitable customers by managing
relationships with them
CRM involves using existing customer information to improve company profitability and customer service.

CRM Seeks to provide a strategic bridge between information technology and marketing strategies aimed at building longterm relationships and
profitability. This

Meaning of Relationship Marketing
Relationship Marketing - a paradigm shift from an acquisitions/transaction focus ( the “first act”) toward a retention/relationship focus(the
“second act”).
8 Relationship Marketing
….Meaning of Relationship Marketing
Relationship marketing (or relationship management) is a philosophy of doing business, a strategic orientation that focuses on keeping and
improving current customers, rather than on acquiring new customers.
Relationship Marketing philosophy assumes that consumers prefer to have an ongoing relationship with one organization than to switch
continually among providers in their search for value.

The CRM continuum
Relationship Marketing, CRM and Customer Management – A
Hierarchy
or
Types of CRM
Analyst firms, including Meta Group, classify CRM into several types:
Together, these three components of CRM support and feed into each other.
Operational CRM
Analytical CRM
Collaborative CRM
Successful CRM, which results in a superior customer experience, requires integration of all three of these
Types of CRM
i)Operational CRM
This is the area that is concerned with the automation of business processes involving front-office customer
contact points.
These areas include sales automation, marketing automation and customer service automation.
Historically, Operational CRM has been a major area of enterprise expenditure as companies
develo call center adop sales force

p s t
Types of CRM
CRM Vendors focus on offering an increasingly wide range of operational CRM solutions.
Operational CRM facilitates the customer contacts with the organization and subsequent processing and fulfillment of their
requirements.
ii) Analytical CRM
This involves the capture, storage, organization, analysis, interpretation and use of data created from the operational side of the business.
Integration of analytical CRM solutions with operational CRM solutions is an important consideration.
Analytical CRM enables the right customers to be targeted with appropriate offers and permits personalization and one-to one-
iii) Collaborative CRM
This involves the use of collaborative services and infrastructure to make interaction between a company and its multiple channels possible.
This enables interaction between customers, the enterprise and its employees.
Collaborative CRM enables customers to contact the enterprise through a range of different channels and undergo a common experience
across these
Five Key Cross-functional CRM Processes
There are five key cross-functional CRM processes that need to be considered by most organizations .
These are:
the strategy development process
the value creation process
the multi-channel integration process
the information management process
CRM As A Cross-functional Activity

The Strategic Framework For CRM
Process 1: the strategy development process
Where are we and what do we want to achieve?
Who are the customers that we want and how should we segment them?
Process 2: the value creation process
How should we deliver value to our customers?
How should we maximize the lifetime value of the customers we want?
Process 3: the multi-channel integration process
What are the best ways for us to get to customers and for customers to get to us?
What does an outstanding customer experience, deliverable at an affordable cost, look like?
Process 4: the information management process
How should we organize information on customers?
How can we ‘replicate’ the mind of customers and use this to improve our
CRM activities?
Process 5: the performance assessment process
How can we create increased profits and shareholder value?
How should we set standards, develop metrics, measure our results and improve our performance?
Reasons For Creating Sustained Relationships
There are a number of factors that have impacted organizations 'ability to build more sustained relationships, especially for those businesses with a
large customer base.
The main ones include:
the increasing power of computers
the decreasing cost of computers, in real terms
the increased storage capacity of computers
the significant reduction in the cost of storage of a megabyte of data
the availability of increasingly sophisticated tools to undertake data analysis, data mining and data visualization
the rise of e-commerce and the ability to be able to target customers via the Internet at a
much lower cost
an increased recognition of the importance of customer retention and customer lifetime value, and
an increased sophistication in marketing approaches and the development of better ways of targeting customers, including: oneto-one marketing
permission marketing mass customization.
CRM, also more recently called ‘customer management’, is a business approach that seeks to create, develop and enhance relationships with
carefully targeted customers in order to improve customer value and corporate profitability and thereby maximize shareholder value.
CRM is often associated with utilizing information technology to implement relationship marketing strategies.
As such, CRM unites the potential of new technologies and new marketing thinking to deliver profitable, long-term relationships.
Relationship marketing described as :
A move from functionally based marketing to cross-functionally based marketing
An approach which addresses multiple ‘market domains’, or stakeholder groups – not just the traditional customer market
A shift from marketing activities which emphasize customer acquisition to marketing activities which emphasize customer retention
28
Relationship Marketing Values (Gummesson, 1999)
Collaboration for mutual value creation with win–win outcomes
All parties recognized as active where the relationship is co-managed.
a well a acquisition.
s s
Relational and service values – bureaucratic– legal values are discarded in favor of treating customers asUnitdiffering-10 Relationships Marketing.
The Transition To Relationship Marketing
Relationship marketing emphasizes two important issues.
First, you can only optimize relationships with customers if you understand and manage relationships with other relevant stakeholders.
Most businesses appreciate the critical role their employees play in delivering superior customer value, but other stakeholders may also play an
important part.
Second, the tools and techniques used in marketing to customers, such as marketing planning and market segmentation, can also be used equally as
effectively in managing non-customer relationships.
The Transition To Relationship Marketing (Fig

The Transition To Relationship Marketing
The figure above 10.1 suggests three distinguishing characteristics of relationship marketing.
The first is an emphasis on customer retention and extending the ‘lifetime value’ of customers through strategies that focus on retaining targeted
customers.
The second is a recognition that companies need to develop relationships with a number of stakeholders, or ‘market domains’, if they are to achieve
long-term success in the final marketplace.
The third feature of relationship marketing is that marketing is seen as a pan-company or cross-
10.1)
327
Relationship vs. Transaction Marketing
Traditional Transaction Oriented Marketing Relationship Marketing
Focus on a single sale Focus on customer orientation
Short term orientation Long term orientation
Sales to anonymous buyer Tracking of identifiable buyers
Figure- 10.1
Limited customer commitment High customer commitment
Quality is the responsibility of production Quality is the responsibility of all department
The Rise Of CRM
The emergence of CRM as a management approach is a consequence of a number of important trends. These include:
The shift in business focus from transactional marketing to relationship marketing;
the realization that customers are a business asset and not simply a commercial audience;
the transition in structuring organizations, on a strategic basis, from functions to processes ;
the recognition of the benefits of using information proactively rather than solely reactively ;

308
the greater utilization of technology in managing and maximizing the value of information ,
the acceptance of the need for trade-off between delivering and extracting customer value;
the development of one-to-one marketing approaches.
The theoretical origins of Relationship Marketing
Neo-classical Microeconomic Theory
Transaction Cost Theory
Social Exchange Theory
Equity Theory
Political Economy Theory
Resource Dependence Theory
Resource-Advantage Theory
Institutional Theory

35
1)Neo-Classical Microeconomic Theory
Emphasizes on profit maximization in competitive markets in explaining relative prices, market equilibrium, and income distribution.
Exchange parties are price takers seeking to maximize utility in price equilibrium markets.
Market transactions incur the costs associated with the price paid, searching costs, negotiating and contracting costs, and costs of monitoring
supplier performance.
10 Relationships Marketing
Limitations of The Microeconomic Approach
The assumption of rational behavior
Economists have generally viewed markets as social ‘vacuums’ in which buyers and sellers only know each other in their roles as dictated by the
market (i.e. as no more than buyer and seller).
2)Transaction Cost Theory (Williamson, 1975)
Every market transaction involves transaction costs that lead to inefficiencies for those engaged in exchanges.
Transaction costs include costs of information search, of reaching a satisfactory agreement, of relationship monitoring, of adapting agreements to
unanticipated contingencies, and of contract enforcement.
Transaction costs are minimized by selecting a mode of relationship10 Relationships Marketinggovernance that is
Unit-
‘optimal’
330
Major limitations Transaction cost theory
Transaction cost theory focuses on the single criterion of cost-efficiency for shaping
transactions.
The role and importance of people in the governance of exchanges is ignored.

311
3)Relational Contracting Theory (MacNeil (1980)
Rooted in contract law that applies to the legal rights of exchange parties and guides the planning and conduct of exchange.
40
Merits of Relational Contracting Theory (MacNeil (1980)
Deals with the criticisms that have been directed at transaction cost theory by including social dimensions of exchange, and by making clear that
hierarchical relationship governance mechanisms are not the only mechanisms
available
Limitations of Relational Contracting Theory (MacNeil (1980)
Criticized for failing to prescribe optimal types of governance to deal with specific characteristics of the exchange.
42
4)Social Exchange Theory (Gro¨nroos, 1994)
The basis of social exchange theory is derived from marital theory, bargaining theory, and power theory.

Marketing is seen as an interactive process occurring in a social context where relationship management is central (Gro¨nroos, 1994).
The interaction approach suggested six different types of bond:
Social,
Technological ,
Knowledge,
Planning,
Legal, and Economic.

333
5)Equity Theory
Equity theory postulates that parties in exchange relationships compare their ratios of exchange inputs to outcomes.
Inequity is said to exist when the perceived inputs and/or outcomes in an exchange relationship are psychologically inconsistent with the perceived
inputs and/or outcomes of the referent.
Equitable outcomes stimulate confidence that parties do not Unittake-10 Relationships Marketingadvantage of each other and that they are
concerned about each other’s
44
6)Political Economy Theory
The political economy paradigm integrates economic efficiency theories of organizations with behavioral power theories.
Economy refers to institutions that transform inputs into output and to the processes by which goods and services are allocated within and between
institutions.
Polity refers to the power and control systems that legitimize, facilitate, monitor, and regulate exchange transactions.
The economy and polity can be considered as allocation systems, allocating scarce economic resources and power.
7)Resource Dependence Theory(Hunt, 1997)

Resource dependence theory explicitly addresses issues on differences in negotiation power and the consequently unequal and unsatisfactory
nature of exchange transactions by examining sources of power and dependence in exchange relationships.

8)Resource-Advantage Theory (Hunt and Morgan, 1995)
Comparative advantage in resources allows the firm to occupy a position of competitive advantage in the marketplace.
Relationship Marketing is theoretically supported by the possibility that some kinds of co-operative relationships can enhance competition.
Hunt’s Resource-Advantage Theory; Hunt, 1997) allows resources to be: financial, physical, human, organizational, informational, and
relational.
Resources need not be owned by the firm, but must be available for the purpose of producing value for some segment(s).
Relationships are conceived of as organizational capital.
9)Institutional Theory
This is an alternative, multi-constituent, and dynamic view that sees social actors in support of the corporation when institutional norms are
upheld.
The corporation is seen as legitimate.
336
The “Bucket Theory of Marketing”
According to James L. Schorr marketing can be thought of as a big bucket with a hole in the bucket.
When the business is running well and the firm is delivering on its promises, the hole is small and few customers are leaving.
When customers are not satisfied they start failing out of the bucket.

50
Goals of Relationship Marketing
The primary goal of relationship marketing is to build and maintain a base of committed customers who are profitable for the organization.
A firm which holds the view of relationship marketing shall focus on the attraction, retention, and enhancement of customer relationships.
Market segmentation for building lasting customer relationships.
Customers’ retention through quality products and services and good value over time.
Loyal customers not only provide a solid base for the organization, they may represent growth potential
The Goals of Relationship Marketing Graphically
52

Enhancing
Retaining
Satisfying
Getting

53
Benefits of Customer/Firm Relationships
Benefits for Customers
1) Inherent benefits (the attributes of the core service)
Consumers are more likely to stay in a relationship when the gets (quality, satisfaction, specific benefits) exceed the gives (monetary and non
monetary costs.
The Goals of Relationship Marketing Graphically
2)Relational benefits
Confidence benefits - Feelings of trust or confidence in the provider, along with a sense of reduced anxiety. Social benefits and the personal banker
Special treatment benefits.
55
Benefits for the Organizations
The benefits to an organization of maintaining and developing a loyal customer base are numerous.
The major benefits include:
Increasing sales and profit
Lower costs
Free advertising through word of mouth
Employee retention
56
Life Time Value of a Customer
A concept or calculation that looks at customers from the point of view of their lifetime revenue and profitability contributions to a company.
Factors That Influence Lifetime Value
The lifetime value of a customer is influenced by:
The length of an average “lifetime,”
The average revenues generated per relevant time period over the lifetime,
Sales of additional products and services over time, and
57
Foundations for Relationship Strategies
1) Quality offered in the core service
Careful market segmentation and targeting
Continuous monitoring of relationships

58
Retention Strategies
1) Financial bonds
Volume and frequency rewards
Bundling and cross selling
Stable pricing 2) Social bonds
Continuous relationships
Personal relationships
59
3)Customization bonds
Anticipation/innovation
Mass customization
Customer intimacy 4)Structural bonds

Integrated information system
Joint investments
Shared processes and equipment
Checklist for CRM Leaders
CRM leaders should ask the following questions in considering the role of CRM in their organization :
How important are the following relationship issues for my organization?
the retention of profitable customers
developing a cross-functional approach to marketing
managing multiple markets in a more integrated manner

How important are the following trends in my organization?
the shift in focus from transactional to relationship marketing
the realization that customers are a business asset rather than a commercial audience
the transition from functions to processes
the use of information proactively rather than reactively
the greater utilization of technology in managing and maximizing the value of information
the need to balance delivery and extraction of customer value
the utilization of one-to-one marketing approaches
How is CRM considered in my organization?
Do we view CRM from a strategic perspective where it is concerned with how the organization can create increased shareholder value
through developing superior customer relationships?
Is CRM viewed in a consistent and uniform manner throughout the organization?
Are we clear on the distinction between operational CRM, analytical CRM and collaborative CRM?
Are we familiar with the CRM marketplace:
in terms of the key segments for CRM applications?

in terms of the CRM service providers and consultants?
5. Do we understand the rationale behind addressing CRM from the perspective of the following five processes?
the strategy development process
the value creation process
the multi-channel integration process
the information management process
the performance assessment process.
The Strategy Development Process

Checklist for CRM leaders-Strategy
Development
CRM leaders need to review the following issues about the Strategy Development Process.
Business strategy (including leadership and sponsorship)
Senior management in my organization has demonstrated strong leadership in introducing and supporting CRM initiatives
There is a strong and well-supported board level executive who is a committed sponsor of
Development
My organization has a vision, mission, purpose, or statement of direction that clarifies its commitment to quality and customer focus and
that is clearly understood by staff. My organization has a clear set of values that support the vision and these are shared by most of our
staff.
My organization develops and reviews strategic and annual business plans that incorporate an analysis of market trends, customer
characteristics, industry evolution, the competitive landscape and technology impacts
Checklist for CRM leaders-Strategy Development
6.My organization has a clear view on the value discipline on which it competes: customer intimacy, operational excellence or product
leadership
7.The future impacts of electronic commerce and shifts in role of channels and intermediaries are considered on a regular basis by senior
management
8.The overall strategic plan serves as the basis for the annual business plans of the organization and its functional departments
Development
9. Managers and supervisors understand their specific responsibilities in carrying out the actions in the strategic plan
the CRM initiatives

10.My organization comprehensively reviews and improves its management systems at least annually to an international, industry-specific
or internally developed standard.
Development
Customer Strategy
1. My organization has a clear view on which customers it wishes to serve and which ones it does not wish to serve
2.My organization considers not only its immediate customers but also its customer’s customer in making its marketing
decisions
3.My organization has done a thorough and
Development
4.My organization has selected the appropriate level of segmentation of its customer base, i.e. macro- segments, micro-segments or one-to-
one
5.We consider customer segments in terms of value preferences of benefits sought, in addition to more general customer
characteristics
Development
7.At least annually my organization seeks new customer opportunities beyond its existing offer to customers
8. Our business strategy and customer strategy are closely aligned

9.We have considered the appropriate degree of customer individualization given our
Development
Each issue should be considered in terms of:
Rating for our organization (5 applies fully; 0 does not apply at all)
Importance to our organization (5 very important; 0 no importance)
The Value Creation Process

Checklist for CRM leaders- the Value Creation Process.
CRM leaders need to review the following issues about the Value Creation Process.
The value the customer receives:

5. My organization recognizes the importance of maximizing the number of customer ‘advocates’ and taking action to minimize customer
‘terrorists’
6.My organization has developed a written value proposition identifying the value offered to customers
Our value proposition is tailored to different
My organization assesses customer value and end-user customer satisfaction and quantifies overall satisfaction with specific attributes
such as responsiveness, accuracy and timeliness
9.We set targets using comparative data drawn from highperforming organizations
10.We measure complaints and other key indicators of customer (end-user) dissatisfaction (e.g. returns, warranty claims), record these
indicators by cause and act on them.
The value the organization receives:
We utilize an appropriate level of segmentation based on satisfaction measures, sales, profits and other
relevant historical information
My organization has identified how acquisition costs and annual profit earned per customer vary at the segment level. We have identified
our most
We have identified the amounts we spend on both customer acquisition and customer retention at the aggregate and segment levels and
have confirmed these are well-balanced
profitable customer an calculate our

s d d
We have identified targets for customer retention improvement at the segment level and have developed plans to achieve them
The organization understands the value that each customer segment brings to the company in terms
Checklist for CRM leaders- the Value Creation Process
We use a comprehensive set of metrics to measure customer acquisition, retention, profitability and lifetime value at the segment level and
these are reported to senior management at least quarterly
We regularly review competitive activity
Checklist for CRM leaders- the Value Creation Process
The Multi-channel Integration Process

Checklist For CRM Leaders The Multi-channel Integration Process.
CRM leaders need to review the following issues about the Multi-Channel Integration Process.
Channel options and strategies:

Our senior management have considered the future role of both existing and potential channel participants in our industry
We have a clear view on the future impact of electronic channels in our industry
Checklist For CRM Leaders The Multi-channel Integration Process.
3.Possible structural changes in our industry (disintermediation or reintermediation) have been fully considered
4.We fully understand the advantages and disadvantages of the major channel categories (sales force, outlets, telephony, direct, e-
commerce, mobile, etc.) when developing our channel strategies
5.Our organization formally reviews the range of channel strategy options every year
Checklist For CRM Leaders The Multi-channel
Integration Process
My organization understands the channels our customers wish to use at different stages of their relationship with us, e.g. pre-sales, sales
and post sales
We know how customer channel preference varies at the segment level across different products or services sold
Checklist For CRM Leaders The Multi-channel Integration Process
Customer experience and multichannel integration
The organization has a strategy for integrated channel management
We monitor the customer experience within channel and across channels and compare our performance with that of our competitors
The organization has identified what
constitutes an outstanding (or ‘perfect’

)
Integration Process
6. The economics of different channels are thoroughly understood
7.The organization is effective in adding new channels to complement existing channels
8. New channels are integrated with existing channels so that an individual is
Integration Process
Checklist For CRM Leaders- The Information Management Process.
CRM leaders need to review the following issues about the Information Management Process.
The data repository and CRM architecture:
Where data on customers reside in different databases we know their location, accuracy and completeness
We have created a central data warehouse
recognized as the customer regardles of

s
Checklist For CRM Leaders- The Information Management
Process.
5.Our customer information links with the company’s existing systems such as fulfillment, service and finance
6.We have an appropriate strategy for our IT systems including hardware and software. We have taken account of the potential of
developments such as web services, business process outsourcing, and/or use of a business service provider, and/or use of an application
service provider
We effectively utilize general data mining tools for customer insight and task-specific analysis tools for market segmentation, customer
profiling, profitability analysis, predictive modeling, etc.
We have identified and utilized appropriate
Information and customer knowledge management:
My organization has introduced processes to provide relevant data and information for all appropriate staff
Our organization ensures the integrity of the data it collects in terms of relevancy,
My organization has implemented processes to prevent the unauthorized use or alteration of sensitive and proprietary data
We regularly consider opportunities to introduce new ecommerce applications to improve customer service or to reduce costs
There is an integrated plan agreed across all channels and functional departments for the collection and use of customer information
My customer information system allows information about individual customer to be recognized and used to produce summary
information about the customer for use in customer applications and campaign management
My company uses customer analysis Each issue should be considered in terms of:
accuracy, currency and objectivity

Checklist For CRM Leaders- The Information Management
Process
Importance to our organization (5 very important;
0 no importance)
The Performance Assessment Process
Checklist For CRM Leaders- The Performance Assessment Process.
CRM leaders need to review the following issues about the Performance Assessment Process.
Shareholder Results
1.Our top management recognize the importance of leadership in creating employee, customer and shareholder value
2.The key drivers of shareholder results – employee value, customer value, shareholder value and cost reduction – are fully understood
4.We rank ourselves highly in terms of recruiting, selecting, developing and empowering our employees
5.We place sufficient emphasis in our organization on customer value
6.We rank ourselves highly in terms of delivering superior customer value opportunities in every attractive
customer segment
7.We place sufficient emphasis in our organization on shareholder value
8.We rank ourselves highly in terms of creating shareholder value compared with our major competitors
9.We take full advantage of all opportunities for cost reduction. Cost reduction
Standards, metrics and key performance indicators
1.We have developed our own standards across all the areas of CRM that are
important to us
2.We have adopted standards developed by others (e.g.CMAT or COPC standards) and used these to benchmark our performance against relevant
external comparators

4.We have identified and put in place appropriate people and process metrics
5.We have identified and put in place appropriate strategic metrics
6.We have identified and put in place appropriate output and comparative metrics
A strategy map (or success map) has been developed that identifies the chain of ‘cause and effect’ logic that connects our company’s strategy with the
drivers that lead to commercial success
Our organization has identified the most important KPIs and these are reported to
104

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1

Consumer Behavior In Services

Services are intangible and non-standardized and

Consumer Behavior In Services

Purchase and consumption, and

2 Consumer Behaviour in Services

Consumption value includes:

2 Consumer Behaviour in Services

the functional benefits of cosmetics isto

Unit-2 Consumer Behaviour in Services

Mercedes Benz is perceived as a symbol of status

Unit-2 Consumer Behaviour in Services

Tattoos are as a means of self-expression iv)Epistemic value is the

Unit-2 Consumer Behaviour in Services

because of temporary situational factors that will

Unit-2 Consumer Behaviour in Services

Classification of Properties of Offerings

2.Experience Qualities : attributes a consumer can

3.Credence Qualities: characteristics that may be

Classification of Properties of Offerings

consumer may be unaware of or may lack

Differential Factors of Consumers Behavior in

Specific areas where characteristics of services

…..Differential Factors of Consumers Behavior in

Unit-2 Consumer Behaviour in Services

3.Purchase and Consumption 4. Post purchase Evaluation

Unit-2 Consumer Behaviour in Services

Unit-2 Consumer Behaviour in Services

Audience Response - to Communication

2 Consumer Behaviour in Services

 More risk is involved in the purchase of services

Types Of Risk In The Consumer Decision Making Process

Performance Risk - the chance that the service will

by the consumer as a resul of the failur

Time Loss UnitRisk -2 Consumer Behaviour in Services - the amount of

2 Consumer Behaviour in Services

Opportunity Risk - The risk involved when

wil mee the approval o others wh are

Risk Reduction Strategies Used by Consumers

opinio leaders, o experts in th field.

Risk Reduction Strategies Used by Service Firms

risk, service firms can offer money back

procedures to reduce physical risks.

If a service customer is in a "bad mood" service provision will likely be

receiving the service at the same time.

In what specific ways can mood affect the behavior of service

information abou service i absorbe an

Service Provision as Drama

provision Deciding which aspects of the service should be Onstage

and performed in the

drama presence of the customer

the back room and maintain a

Customer compatibility is a factor that influences custome r

Consumers may be disappointed with purchases

Consumers may attribute their dissatisfaction to a

Unit-2 Consumer Behaviour in Services

Because consumers participate to a greater extent

Unit-2 Consumer Behaviour in Services their dissatisfaction to their

The rate of diffusion of an innovation

Relative advantage, Unit-2 Consumer Behaviour in Services

o tested o a limite basis) diffuses

That is communicable; and

2 Consumer Behaviour in Services

Services are frequently more complex than goods