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Designing and Managing Services

After reading this chapter, students should:
4) Know how services are defined and classified, and how do they differ from goods
5) Know how services are marketed
6) Know how service quality can be improved
7) Know how service marketers create strong brands
8) Know how goods-producing companies can improve customer support services

As product companies find it harder and harder to differentiate their physical products, they turn to service differentiation. Many find significant profitability in delivering superior service, whether that means on-time delivery, better and faster answering of inquiries, or quicker resolution of complaints. Service providers know these advantages well.

5) The Bureau of Labor Statistics reports that the service-producing sector will continue to be the dominant employment generator in the economy, adding 20.5 million jobs by 2010.

6) Service Industries Are Everywhere

3) Government sector
4) Private nonprofit sector
5) Business sector
6) Manufacturing sector
7) Retail sector
We define service as any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or not be tied to a physical product.
A) Manufacturers, distributors, and retailers can provide value-added services or simply excellent customer service to differentiate themselves.
B) Many pure service firms are now using the Internet to reach customers.
Categories of Service Mix

The service component can be a minor or major part of the total offering. We distinguish five categories of service offerings:

E) Pure tangible goods
F) Tangible goods with accompanying services
G) Hybrid
H) Major service with accompanying minor goods and services
I) Pure service
J) Because of this varying goods-to-services mix it is difficult to generalize about services with further distinctions:
1) Services vary as to whether they are:
a. Equipment-based
b. People-based
4) Service companies can choose among different processes to deliver their service.
5) Some services require the client’s presence and some do not.
6) Services differ as to whether they meet a personal need or a business need. Service providers typically develop different marketing programs for personal and business markets.
7) Service providers differ in their objectives (profit and nonprofit) and ownership (private or public).
h. The nature of the service mix also has implications for how consumers evaluate quality.
i. Customers cannot judge the technical quality of some services even after they have received them.
x. Goods high in search qualities—characteristics the buyer can evaluate before purchase.
xi. In the middle are goods and services high in experience qualities—characteristics they buyer can evaluate after purchase
xii. Goods and services high in credence qualities—characteristics the buyer normally finds hard to evaluate even after consumption and that comprise most services.
I) Because services are generally high in experience and credence qualities, there is more risk in purchase. This has several consequences:
D) Service consumers generally rely on word of mouth rather than advertising.
E) Service consumers rely heavily on price, personnel, and physical cues to judge quality.
F) Service consumers are highly loyal to service provides that satisfy them.
G) Because of the switching costs involved, much consumer inertia can exist. It can be challenging to entice a customer away from a competitor.
C) Distinctive Characteristics of Services
Services have four distinctive characteristics that greatly affect the design of marketing programs: intangibility, inseparability, variability, and perishability.


(iii) Unlike physical products, services cannot be seen, tasted, felt, heard, or smelled before they are bought.
(iv) To reduce uncertainty, buyers will look for evidence of quality. They will draw inferences about quality from the place, people, equipment, communication material, symbols, and price that they see.
1) Therefore, the service provider’s task is to “manage the evidence,” to “tangibilize the intangible.”
C) Service companies can try to demonstrate their service quality through physical evidence and presentation.
D) Service marketers must be able to transform intangible services into concrete benefits.
6) Services are typically produced and consumed simultaneously.
7) Because the client is also present as the service is produced, provider-client interaction is a special feature of service marketing.
8) Several strategies exist for getting around this limitation:
C) Work with larger groups
D) Work faster
E) Train more service providers
f. Because they depend on who provides them and when and where they are provided, services are highly variable.
g. To reassure customers, some firms offer service guarantees that may reduce consumer perception of risk.
h. There are three steps service firms can take to increase quality control:
ix. Invest in good hiring and training procedures.
x. Standardize the service-performance process throughout the organization.
a. Prepare a service blueprint that depicts events and processes in a flowchart, with the objective of recognizing potential fail points.
3) Monitor customer satisfaction.
E) Perishability
B) Services cannot be stored.
C) Perishability is not a problem when demand is steady.
D) When demand fluctuates service firms have problems.
E) Several strategies can produce a better match between supply and demand. On the demand side:
B) Differential pricing
C) Non-peak demand
D) Complementary services
E) Reservation systems
E) On the supply side:
5) Part-time employees
6) Increased consumer participation
7) Shared services
8) Facilities for future expansion
At one time, service firms lagged behind manufacturing firms in their use of marketing because they were small or professional businesses that did not use marketing, or faced large demand or little competition. This has changed.

Shifting Customer Relationship

Not all companies, however, have invested in providing superior service, at least not to all customers.

Profit Tiers
A) Firms have decided to raise fees and lower service to those customers who barely pay their way
B) Firms coddle big spenders to retain their patronage
C) Companies that provide differentiated levels of service must be careful about claiming superior service.
D) Delivering services that maximize customer satisfaction and company profits is challenging.
Customer Empowerment
There are also shifts that favor the customer in the client relationship.
D) Companies are becoming more sophisticated about buying product support services.
E) Companies are pressing for “services unbundling.”
C) The Internet has empowered customers by letting them vent their rage around the world with a mouse click.
I) Coproduction
The reality is that customers do not merely purchase and use services; they play an active role in the delivery of that service every step of the way.

Preventing service failures from ever happening to begin with is crucial, as service recovery is always challenging.

One of the biggest problems is attribution

The solutions to prevent service failures are:

Redesign processes and redefine customer roles to simplify service encounters

Incorporate the right technology to aid employees and customers

Create high performance customers by enhancing their role clarity, motivation, and ability

Encourage “customer citizenship” where customers help customers.

K) Holistic Marketing for Services
The service outcome, and whether or not people will remain loyal to a service provider, is influenced by a host of variables.

g. Holistic marketing for services requires external, internal, and interactive marketing.
h. External marketing describes the normal work of preparing, pricing, distributing, and promoting the service to customers.
C) Internal marketing describes training and motivating employees to serve customers well.
D) Interactive marketing describes the employees’ skills in serving the client.
1) Clients judge service by its
)A Technical quality
)B Functional quality.
E) Companies must avoid pushing productivity so hard, that they reduce perceived quality.


The service quality of a firm is tested at each service encounter

M) Customer Expectations
A) Customers form service expectations from many sources:
Past experiences
B) In general, customers compare the perceived service with the expected service.
5) If the perceived service falls below the expected service customers are disappointed.
6) If the perceived service meets or exceeds their expectations they are apt to use the provider again.
C) Successful companies add benefits to their offering that not only satisfy customers but also surprise and delight them.
D) Delighting customers is a matter of exceeding expectations.
E) Parasuraman, Zeithaml, and Berry formulated a service-quality model that highlights the main requirements for delivering high service quality that identifies five gaps that cause unsuccessful delivery:
3) Gap between consumer expectations and management perception.
4) Gap between management perception and service-quality specification.
5) Gap between service-quality specifications and service delivery.
6) Gap between service delivery and external communications.
7) Gap between perceived service and expected service.
F) Based upon this service-quality model, these researchers identified the following five determinants of service quality, in order of importance:
G) Based on these five factors, the researchers developed the 21-item SERVQUAL scale
They also note that there is a zone of tolerance or range where consumer perceptions on service dimensions would be deemed satisfactory, anchored by the minimum level consumers would be willing to accept and the level that customer believe can and should be delivered.
Best Practices of Service Quality Management

Various studies have shown that well-managed service companies share the following common practices: a strategic concept, a history of top-management commitment to quality, high standards, self-service technologies, systems for monitoring service performance and customer complaints, and an emphasis on employee satisfaction.

Strategic Concept

Top service companies are “customer obsessed.” There is a clear sense of target customers and their needs.

Top-Management Commitment

Companies such as Marriott, Disney, and USAA have a thorough commitment to service quality.

High Standards

The best service providers set high service-quality standards.

D) The standards must be set appropriately high.
E) A service company can differentiate itself by designing a better and faster delivery system.
F) There are three levels of differentiation:
g. Reliability
h. Resilience
i. Innovativeness
Self-Service Technologies (SSTs)

As with products, consumers value convenience in services.

Many person-to-person interactions are being replaced by self-service technologies.
Not all SSTs improve service quality, but they have the potential of making service transactions more accurate, convenient, and faster for the consumer.
While initiating self-service technologies, some companies have found that the biggest obstacle is not the technology itself, but convincing customers to use it.

Monitoring Systems

Top firms audit service performance, both its own and competitors, on a regular basis.
13. It collects voice of the customer (VOC) measurements to probe customer satisfiers and dissatisfiers.
B) They also use:
3) Comparison shopping
4) Ghost shopping
5) Customer surveys
4) Suggestion and complaint forms
5) Service-audit teams
6) Letters to the president
C) Services can be judged on:
Customer importance and company performance
Importance-performance analysis is used to rate the various elements of the service bundle and identify what actions are required.
3) The ratings of the 14 elements are divided into four sections
6) Quadrant A shows important service elements that are not being performed at the desired levels.
7) Quadrant B shows important service elements that are being performed well.
8) Quadrant C shows minor service elements that are being delivered in a mediocre way but do not need any attention.
9) Quadrant D shows that a minor service element is being performed in an excellent manner.
Satisfying Customer Complaints

Every complaint is a gift if handled well. Companies that encourage disappointed customer to complain and also empower employees to remedy the situation on the spot have been shown to achieve higher revenues and greater profits.

iii. Extra-role behaviors for front-line employees can be a critical asset in handling complaints
iv. Companies also are increasing the quality of:
4) Call centers
5) Customer service representatives (CSRs)

Satisfying Employees as Well as Customers
Excellent service companies know that positive employee attitudes will promote stronger customer loyalty. The product-line manager must review how the line is positioned against competitors’ lines.
D) Give the importance of positive employee attitudes, service companies must attract the best employees they can find. The need is to market a career rather than a job.
E) It is important to audit employee job satisfaction regularly.

Some of the world’s strongest brands are services. As with any brands, service brands must be skillful at differentiating themselves and developing appropriate brand strategies.

Differentiating Services
Service marketers frequently complain about the difficulty of differentiating their services. To the extent that customers view a service as fairly homogeneous, they care less about the provider than the price.
B) Service offerings, however, can be differentiated in many ways. The offering can include innovative features.
C) What the customer expects is called the primary service package.
D) The provider can add secondary service features to the package.
E) Service providers can add a human element to their operations.
F) Sometimes the company achieves differentiation through the sheer range of its service offering and the success of its cross-selling efforts.
g. The major challenge is that most service offerings and innovations are easily copied.
h. Still, the company that regularly introduces innovations will gain a succession of temporary advantages over competitors.
B) Developing Brand Strategies for Services
Developing brand strategies for a service brand requires special attention to choosing brand elements, establishing image dimensions, and devising the branding strategy.
E) Choosing Brand Elements
The intangibility of services has implications for the choice of brand elements. Because service decisions and arrangements are often made away from the actual service location itself, brand recall becomes critically important.

A) Other brand elements—logos, symbols, characters, and slogans—can also “pick up the slack” and complement the brand name to build awareness and brand image.
1) These other brand elements often attempt to make the service and some of its key benefits more tangible, concrete, and real.
B) Because a physical product does not exist, the physical facilities of the service provider, its primary and secondary signage, environmental design, reception area, and so on, are especially important.
C) All aspects of the service delivery process can be branded.

Establishing Image Dimensions

Organizational associations—such as perceptions about the people who make up the organization and who provides the service are likely to be particularly important brand associations that may affect evaluations of service quality directly or indirectly.

A) One particularly important association is company credibility and perceived:
)E Service firms must therefore design marketing communication and information programs so that consumers can learn more about the brand than the information it gets from service encounters alone.
)F These programs may involve marketing communications that may be particularly effective at helping the firm to develop the proper brand personality.
F) Devising Branding Strategy
Finally, services also must consider developing a brand hierarchy and brand portfolio that permits positioning and targeting of different market segments.

Classes of service can be branded vertically on the basis of price and quality.
Vertical extensions often require sub-branding strategies where the corporate name is combined with an individual brand name or modifier.

No less important are product-based industries that must provide a service bundle.

Manufacturers of equipment all have to provide product support services.
Product support service is becoming a major battleground for competitive advantage.
In the global marketplace, companies that make a good product but provide poor local service support are serious disadvantages.
Firms that provide high-quality service outperform less service-orientated competitors.
D) Identifying and Satisfying Customer Needs
The company must define customer needs carefully in designing a service support program.

A) Customers have three specific worries:
C) They worry about reliability and failure frequency.
D) They worry about downtime.
E) They worry about out-of-pocket costs.
1) A buyer considers all these factors in choosing a vendor.
2) The buyer tries to estimate the life-cycle cost that is the product’s purchase cost plus the discounted cost of maintenance and repair less the discounted salvage value.
3) Where reliability is important, manufacturers or service providers can offer guarantees to promote sales.
4) To provide the best support, a manufacturer must identify the services customers value most and their relative importance.
5) A manufacturer can offer and charge for product support services in different ways.
3. It can provide a standard offering plus a basic level of services.
4. If the customer wants additional services, it can pay extra or increase its annual purchases to a higher level, in which case the additional services would be at extra costs called value-augmenting services that extend beyond the functioning and performance of the product itself.
5. Many service companies offer service contracts (also called extended warranties).
6. Companies need to plan product design and service-mix decisions in tandem.
F) Postsale Service Strategy
The quality of customer service departments varies greatly. In providing service, most companies progress through a series of stages from simply transferring customer calls to the appropriate department for action to those companies eager to receive customer requests and handle them expeditiously.

Customer Service Evolution

Manufacturer’s start off running their own parts-and-service departments, but over time, manufacturers switch more maintenance and repair service to authorized distributors and dealers.
The Customer Service Imperative
Customer service choices are increasing rapidly and manufacturers have to figure out how to make money on their equipment, independent of service contracts.