Marketing management Chapter 13 pps

CHAPTER 13 DESIGNING AND MANAGING SERVICES As companies find it harder and harder to differentiate their cal products, they turn to service differentiation.. In fact, manufacturing's s

IN THIS CHAPTER, WE WILL

ADDRESS THE FOLLOWING QUESTIONS:

1 How are services defined and

classified, and how do they differ from goods?

2 How are services marketed?

3 How can service quality be improved?

4 How do services marketers create strong brands?

5 How can goods-producing companies improve customer support services?

CHAPTER 13 DESIGNING AND

MANAGING SERVICES

As companies find it harder and harder to differentiate their cal products, they turn to service differentiation Many books point out the significant profitability of companies that manage to deliver superior service 1 Companies seek t o develop a reputation for superior performance in on-time delivery, better and faster answer- ing of inquiries, and quicker resolution of complaints Service becomes the mantra Perhaps the most dramatic example of how the growth of services has changed the face of business is what has happened to one of the world's most successful companies, IBM

physi-A print ad from IBM's "On Demand" campaign, which focuses on

customizing hardware, software, and systems to help other

companies harness the power of technology with IBM products and

services

401

amous for its accomplishments in computer hardware and

soft-ware, IBM has undergone a massive transformation Currently,

almost half of its $81 billion in annual revenues comes from global

services Companies such as American Express are signing up for consulting

engagements that involve customized software, hardware, and systems

solu-tions worth literally billions of dollars to IBM IBM's "e-business on demand"

Initiative is a company-wide effort to help other companies harness the

lower of technology through IBM products and services To fulfill its service

iromises, IBM has had to develop new skills and become more customer

: ocused The $3.5 billion acquisition of PriceWaterhouseCoopers Consulting

n October 2002 has provided valuable strategic expertise To help improve

?&D designs and service implementation, Big Blue is now sending hundreds

402 PART 5 SHAPING THE MARKET OFFERINGS

of its brightest researchers to visit customers to better understand how they ally use information technology "The aim is to create a very deep connection between IBM and its customers ," said David B Yoffie, a Harvard Business School Professor, "But it's making IBM more like a service business with technol- ogy thrown in than a technology business "2

actu-Service businesses increasingly fuel the world economy Because it is critical to

understand the special nature of services and what that means to marketers, in

this chapter w e systematically analyze services and how t o market them most

effectively

Ill The Nature of Services

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 Employment in the service-producing sector is expected to increase by 19 percent over the 2000-2010 period, whereas manufacturing employment is expected to increase by only 3 percent In fact, manufacturing's share of total jobs is expected to decline from 13 percent in

2000 to 11 percent in 2010.3 These numbers and others have led to a growing interest in the special problems of marketing services.4

Service Industries A r e E v e r y w h e r e

The government sector, with its courts, employment services, hospitals, loan agencies,

mili-tary services, police and fire departments, postal service, regulatory agencies, and schools, is

in the service business The private nonprofit sector, with its museums, charities, churches, colleges, foundations, and hospitals, is in the service business A good part of the business

sector, with its airlines, banks, hotels, insurance companies, law firms, management

con-sulting firms, medical practices, motion picture companies, plumbing repair companies,

and real estate firms, is in the service business Many workers in the manufacturing sector,

such as computer operators, accountants, and legal staff, are really service providers In fact, they make up a "service factory" providing services to the "goods factory." And those in the

retail sector, such as cashiers, clerks, salespeople, and customer service representatives, are

also providing a service

We define a service as follows: A service is 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 may not be tied to a physical product

Manufacturers, distributors, and retailers can provide value-added services or simply excellent customer service to differentiate themselves

O N S T A R

General Motors has gone a step further with its OnStar service, which helps customers with related tasks ing emergency services dispatch, stolen vehicle location, roadside assistance, remote diagnostics, and route support Every month OnStar unlocks about 28,000 car doors, dispatches 13,000 roadside assistance vehicles, and locates 700 lost vehicles While the first year of OnStar is free to GM car owners, it now claims renewal rates

includ-as high includ-as 80% at annual subscription fees ranging from $200 to more than $800 By 2005, OnStar is projected

to bring in more than $2 billion for GM.5

DESIGNING AND MANAGING SERVICES CHAPTER 13 403

The home page from eDiets.com 's award-winning site is easy to look at and easy to customize, making it one of the most popular diet sites on the Web

Many pure service firms are now using the Internet to reach customers A little surfing on

the Web will turn up a large number of virtual service providers Here's what the judges of the

2003 Webby Business awards said about one of their winners:

- e D I E T S C O M

A Google search under "diet" generates a staggering 8,530,000 responses, suggesting that America's fixation

on its collective girth has become decidedly more high-tech Of the many diet sites, eDiets has done the best job

of compiling information and cementing partnerships (with weight-loss specialists like Atkins and

healthy-eating magazines like Cooking Light) most desired by dieters Add in exercise guides as well as sections that

account for a host of medical conditions (diabetes, high cholesterol, lactose intolerance), and eDiets is by far the

i most customizable—and cleanly designed—dieting resource on the web.6

Categories of Service M i x

A company's offerings often include some services The service component can be a minor

or a major part of the total offering Five categories of offerings can be distinguished:

1 Pure tangible good - T h e offering consists primarily of a tangible good such as soap,

toothpaste, or salt No services accompany the product

2 Tangible good with accompanying services - The offering consists of a tangible good

accompanied by one or more services Levitt observes that "the more technologically

sophisticated the generic product (e.g., cars and computers), the more dependent are

its sales on the quality and availability of its accompanying customer services (e.g.,

display rooms, delivery, repairs and maintenance, application aids, operator training,

installation advice, warranty fulfillment) In this sense, General Motors is probably

more service intensive than manufacturing intensive Without its services, its sales

would shrivel."7

3 Hybrid -The offering consists of equal parts of goods and services For example, people

patronize restaurants for both food and service

4 Major service with accompanying minor goods and services - The offering consists of a

major service along with additional services or supporting goods For example, airline

passengers buy transportation The trip includes some tangibles, such as food and

404 PART 5 SHAPING THE MARKET OFFERINGS

drinks, a ticket stub, and an airline magazine The service requires a capital-intensive good—an airplane—for its realization, but the primary item is a service

5 Pure service -The offering consists primarily of a service Examples include baby-sitting,

psychotherapy, and massage

Because of this varying goods-to-service mix, it is difficult to generalize about services without further distinctions Here are some additional distinctions that can be helpful:

• Services vary as to whether they are equipment-based (automated car washes, vending

machines) or people-based (window washing, accounting services) People-based services

vary by whether they are provided by unskilled, skilled, or professional workers

• Service companies can choose among different processes to deliver their service Restaurants have developed such different formats as cafeteria-style, fast-food, buffet, and candlelight service

m Some services require the client's presence and some do not Brain surgery involves the

client's presence, a car repair does not If the client must be present, the service provider has

to be considerate of his or her needs Thus beauty salon operators will invest in decor, play background music, and engage in light conversation with the client

• Services differ as to whether they meet a personal need (personal services) or a business

need (business services) Service providers typically develop different marketing programs

for personal and business markets

s Service providers differ in their objectives (profit or nonprofit) and ownership (private or

public) These two characteristics, when crossed, produce four quite different types of nizations The marketing programs of a private investor hospital will differ from those of a private charity hospital or a Veterans' Administration hospital.8

orga-The nature of the service mix also has implications for how consumers evaluate quality For some services, customers cannot judge the technical quality even after they have received the service Figure 13.1 shows various products and services according to difficulty

of evaluation.9 At the left are goods high in search qualities—that is, characteristics the buyer can evaluate before purchase In the middle are goods and services high in experience qual-

ities—characteristics the buyer can evaluate after purchase At the right are goods and

ser-vices high in credence qualities—characteristics the buyer normally finds hard to evaluate

even after consumption.10 Because services are generally high in experience and credence qualities, there is more risk in purchase This has several consequences First, service consumers generally rely on word of mouth rather than advertising Second, they rely heavily on price, personnel, and physical cues to judge quality Third, they are highly loyal to service providers who satisfy

FIG 1 3 1 J

Continuum of Evaluation for Different

Types of Products

Sowce: Valarie A Zeithaml "How Consumer

Evaluation Processes Differ between Goods

and Services," in Marketing of Services

edited by James H Donnelly and William R

George Reprinted with permission of the

American Marketing Association (Chicago:

American Marketing Association, 1981)

Easy to Evaluate

Difficult

to Evaluate

High in Search Qualities

High in Experience Qualities

High in Credence Qualities

DESIGNING AND MANAGING SERVICES CHAPTER 13 405

them Fourth, because of the switching costs involved, much consumer inertia can exist It

can be challenging to entice a customer away from a competitor Wachovia Bank's slogan,

"Let's Get Started," was a call to action to new and existing customers alike

Services have four distinctive characteristics that greatly affect the design of marketing

pro-grams: intangibility, inseparability, variability, and perishability

INTANGIBILITY Unlike physical products, services cannot be seen, tasted, felt, heard, or

smelled before they are bought The person getting a face-lift cannot see the results before

the purchase, and the patient in the psychiatrist's office cannot know the exact outcome

To reduce uncertainty, buyers will look for evidence of quality They will draw

infer-ences about quality from the place, people, equipment, communication material,

sym-bols, and price that they see Therefore, the service provider's task is to "manage the

evi-dence," to "tangibilize the intangible."11 Whereas product marketers are challenged to

add abstract ideas, service marketers are challenged to add physical evidence and

imagery to abstract offers

Service companies can try to demonstrate their service quality through physical evidence

and presentation 12 A hotel will develop a look and a style of dealing with customers that

realizes its intended customer value proposition, whether it is cleanliness, speed, or some

other benefit Suppose a bank wants to position itself as the "fast" bank It could make this

positioning strategy tangible through a number of marketing tools:

1 Place - The exterior and interior should have clean lines The layout of the desks and the

traffic flow should be planned carefully Waiting lines should not get overly long

2 People- Personnel should be busy There should be a sufficient number of employees to

manage the workload

3 Equipment- Computers, copying machines, desks should be and look "state of the art."

4 Communication material - Printed materials—text and photos—should suggest

effi-ciency and speed

5 Symbols - The name and symbol should suggest fast service

6 Price - The bank could advertise that it will deposit $5 in the account of any customer

who waits in line for more than five minutes

Service marketers must be able to transform intangible services into concrete benefits

To aid in "tangibilizing the intangible," Carbone and Haeckel propose a set of concepts

called customer experience engineering 13 Companies must first develop a clear picture of

what they want the customer's perception of an experience to be and then design a

con-sistent set of performance and context clues to support that experience In the case of a

bank, whether the teller dispensed the right amount of cash is a performance clue; a

con-text clue is whether the teller was properly dressed The concon-text clues in a bank are

deliv-ered by people (humanics) and things (mechanics) The company assembles the clues in

an experience blueprint, a pictorial representation of the various clues To the extent

pos-sible, the clues should address all five senses The Disney Company is a master at

devel-oping experience blueprints in its theme parks; so are companies such as Jamba Juice and

Barnes & Noble in their respective retail stores.14 The Mayo Clinic has set new standards in

the health care industry

The Mayo Clinic carefully manages a set of visual and experiential clues to tell a consistent and compelling

story about its service Mayo's credo is "the patient comes first." From public exam rooms to laboratories,

Mayo facilities have been designed so that, in the words of the architect who designed one of the buildings,

"patients feel a little better before they see their doctors." The 20-story Gonda Building in Rochester,

Minnesota, has spectacular wide-open spaces, and the lobby of the Mayo Clinic hospital in Scottsdale,

Arizona, has an indoor waterfall and a wall of windows overlooking mountains Hospital rooms feature

microwave ovens and chairs that really do convert to beds because, as one staff member explained, "People

don't come to the hospital alone." In pediatric exam rooms, resuscitation equipment is hidden behind a large

• cheery picture.15

406 PART 5 SHAPING THE MARKET OFFERINGS <

INSEPARABILITY Services are typically produced and consumed simultaneously This is not true of physical goods, which are manufactured, put into inventory, distributed through multiple resellers, and consumed later If a person renders the service, then the provider is part of the service Because the client is also present as the service is produced, provider-client interaction is a special feature of services marketing

In the case of entertainment and professional services, buyers are very interested in the specific provider It is not the same concert if Madonna is indisposed and replaced by Shania Twain, or if a legal defense will be supplied by John Nobody because antitrust expert David Boies is unavailable When clients have strong provider preferences, price is raised to ration the preferred provider's limited time

Several strategies exist for getting around this limitation The service provider can learn to work with larger groups Psychotherapists have moved from one-on-one therapy to small-group therapy to groups of over 300 people in a large hotel ballroom The service provider can learn to work faster—the psychotherapist can spend 30 more-efficient minutes with each patient instead of 50 less-structured minutes and can see more patients The service organization can train more service providers and build up client confidence, as H&R Block has done with its national network of trained tax consultants Creative artists have also developed techniques to overcome the limits of inseparability

B L U E M A N G R O U P

The Blue Man Group got its start in 1988 when the three original members—Matt Goldman, Phil Stanton, and Chris Wink—began performing on the streets of New York City The company eventually moved into a theater, and the three performed every show for three straight years without the help of understudies When the group opened a second show in Boston, the founders decided to add more Blue Men to help carry the weight Today

33 different performers, including one woman, enable the Blue Man Group to take on various projects, such as performing in Las Vegas, recording a Grammy-nominated album, and starring in a series of commercials for Intel's Pentium processors.16

The Blue Man Group, with three of its thirty-three performers

VARIABILITY Because services depend on who provides them and when and where they are provided, they are highly variable Some doctors have an excellent bedside manner; others are less patient with their patients Some surgeons are very successful in perform-ing a certain operation; others are not Service buyers are aware of this variability and often talk to others before selecting a service provider Here are three steps service firms can take to increase quality control

1 Invest in good hiring and training procedures Recruiting the

right employees and providing them with excellent training is crucial, regardless of whether employees are highly skilled pro-fessionals or low-skilled workers Ideally, employees should exhibit competence, a caring attitude, responsiveness, initiative, problem-solving ability, and goodwill Service companies such as FedEx and Marriott empower their front-line personnel to spend

up to Si00 to resolve a customer problem

2 Standardize the service-performance process throughout the organization This is done by preparing a service blueprint that

depicts events and processes in a flowchart, with the objective

of recognizing potential fail points Figure 13.2 shows a service blueprint for a nationwide floral-delivery organization.17 The customer's experience is limited to dialing the phone, making choices, and placing an order Behind the scenes, the floral organization gathers the flowers, places them in a vase, delivers them, and collects payment Any one of these activities can be done well or poorly

3 Monitor customer satisfaction Employ suggestion and

com-plaint systems, customer surveys, and comparison shopping General Electric sends out 700,000 response cards a year asking households to rate its service people's performance Citibank

FIG 1 3 2

A Service-Performance-Process Map: Nationwide Floral Delivery

Source: Adapted trom G Lynn Shostack,

"Service Positioning Through Structural

Change," Journal of Marketing (January

1987): 39 Reprinted with permission of the American Marketing Association

Inventory Inventory

Facilitating goods and services

checks continuously on measures of ART (accuracy, responsiveness, and timeliness)

Firms can also develop customer information databases and systems to permit more

personalized, customized service.18

PERISHABILITY Services cannot be stored Perishability is not a problem when demand is

steady When demand fluctuates, service firms have problems For example, public

trans-portation companies have to own much more equipment because of rush-hour demand

than if demand were even throughout the day Some doctors charge patients for missed

appointments because the service value exists only at that point

Several strategies can produce a better match between demand and supply in a service

business.19 On the demand side:

s Differential pricing will shift some demand from peak to off-peak periods Examples

include low early evening movie prices and weekend discount prices for car rentals

a Nonpeak demand can be cultivated McDonald's pushes breakfast service, and hotels

promote mini-vacation weekends

m Complementary services can be developed to provide alternatives to waiting customers,

such as cocktail lounges in restaurants and automatic teller machines in banks

H Reservation systenis are a way to manage the demand level Airlines, hotels, and

physi-cians employ them extensively

On the supply side:

s Part-time employees can be hired to serve peak demand Colleges add part-time

teach-ers when enrollment goes up, and restaurants call in part-time servteach-ers when needed

a Peak-time efficiency routines can be introduced Employees perform only essential tasks

during peak periods Paramedics assist physicians during busy periods

n Increased consumer participation can be encouraged Consumers fill out their own

medical records or bag their own groceries

n Shared services can be developed Several hospitals can share medical-equipment

purchases

n Facilities for future expansion can be developed An amusement park buys surrounding

land for later development

Many airlines, hotels, and resorts have e-mail alerts to self-selected segments of their

customer base that offer special short-term discounts and promotions Club Med uses

early to midweek e-mails to people in its database to pitch unsold weekend packages,

typically 30 to 40 percent off the standard package price.20 After 40 years of making

peo-ple stand in line at its theme parks, Disney instituted Fastpass, which allows visitors to

reserve a spot in line and eliminate the wait When polled, it turns out that 95 percent of

visitors like the change Disney's vice president, Dale Stafford, told a reporter, "We have

408 PART 5 SHAPING THE MARKET OFFERINGS

been teaching people how to stand in line since 1955, and now we are telling them they don't have to Of all the things we can do and all the marvels we can create with the attractions, this is some-thing that will have a profound effect on the entire industry."21

Marketing Strategies for Service Firms

A shopper uses the automatic express checkout to pay for and bag

purchases herself These computerized checkout systems allow the

shopper to pay with a credit card, a debit card, or cash

At one time, service firms lagged behind manufacturing firms

in their use of marketing because they were small, or they were professional businesses that did not use marketing, or they faced large demand or little competition This has certainly changed "Marketing Memo: A Service Marketing Checklist" out-lines the questions top service marketing organizations should

be asking

A Shifting C u s t o m e r Relationship

Not all companies, however, have invested in providing superior

service, at least not to all customers BusinessWeek, in its October

23, 2000, issue, carried a cover story called "Why Service Stinks," based in part on the fact that from 1994 to 2000, customer satis-faction in the United States dropped 12.5 percent for airlines, 8.1 percent for banks, 6.5 percent for stores, and 4 percent for hotels.22 Customers complained about inaccurate information; unresponsive, rude, or poorly trained personnel; and long wait times And the picture doesn't look any rosier now Customer ser-vice complaints are on the rise, even though many complaints never actually reach a live human being Here are some statistics that should give service companies and customer service depart-ments pause:,.23 2

• On the phone Some 80 percent of the nation's companies haven't

figured out how to get customers the assistance they need

• Online Forrester Research estimates that 35 percent of all e-mail

inquiries to companies don't get a response within 7 days and about

25 percent don't get a response at all

E Interactive Voice Response While many of America's largest companies have installed

call routing software called Interactive Voice Response Systems, more than 90 percent of financial services consumers say they don't like them

In former times, service companies held out a welcoming hand to all customers, but these companies now have so much data on individuals that they are able to classify their customers into profit tiers So service is not uniformly bad for all customers Airlines, hotels, and banks all pamper good customers Big spenders get special dis-counts, promotional offers, and lots of special service The rest of their customers get higher fees, stripped-down service, and at best a voice message to answer inquiries Financial services giants have installed special software that tells them—in an instant— when a lucrative customer is on the phone Such systems immediately send the call ahead of dozens—even hundreds—of other callers who must wait while the big spender gets special attention.24 Charles Schwab's best customers get their calls answered in 15 seconds; other customers can wait 10 minutes or more Sears sends a repairperson to its best customers within two hours; other customers wait four hours

This shift from a customer service democracy to a meritocracy is also a response to lower profit margins resulting from customers becoming more price-driven and less loyal Companies are now driven to seek ways to squeeze more profit out of the differ-ent customer tiers Firms have decided to raise fees and lower service to customers who barely pay their way, and to coddle big spenders to retain their patronage as long as possible

DESIGNING AND MANAGING SERVICES CHAPTER 13 409

Customers' expectations are the true standards for judging service

quality Berry and Parasuraman propose that marketing managers

ask the following questions as they seek to manage and exceed

expectations:

1 Do we strive to present a realistic picture of our service to

customers? Do we always check the accuracy of our

promo-tional messages? Is there regular communication between

employees who serve customers and those who make promises

to customers? Do we assess the impact of cues such as price

on customer expectations?

2 Is performing the service right the first time a top priority?

Are our employees trained and rewarded for delivering error-free

service? Do we regularly evaluate our service designs to identify

and correct potential flaws?

3 Do we communicate effectively with customers? Do we

periodically contact customers to ascertain their needs and let

them know we appreciate their business? Do we train and require employees to demonstrate to customers that we care about and value them?

4 Do we surprise customers during the service process? Are

our employees aware that the service delivery process is our prime opportunity to exceed customers' expectations? Do we take specific steps to encourage excellence?

5 Do our employees regard service problems as ties to impress customers? Do we prepare and encourage

opportuni-employees to excel in the service recovery process? Do we reward them for providing exceptional recovery service?

6 Do we continuously evaluate and improve our performance against customers' expectations? Do we perform consistently

above the adequate service level? Do we capitalize on nities to exceed the desired service level?

opportu-Sources: Excerpted from Leonard L Berry and A Parasuraman, Marketing Services: Competing Through Quality (New York: The Free Press, 1991),

pp 72-73 Also see Leonard L Berry, On Great Service: A Framework for Action (New York: The Free Press, 1995); and his Discovering the Soul of Service

(New York: The Free Press, 1999)

Companies that provide differentiated levels of service, however, must be careful about

claiming superior service—the customers who receive poor treatment will bad-mouth the

company and injure its reputation Delivering services that maximize both customer

satis-faction and company profitability can be challenging Upstart airline JetBlue is a recent

suc-cess story

J E T B L U E

While other airlines have lost millions of dollars and even declared bankruptcy, JetBlue has managed to head

in a different direction It has attempted to create a more contemporary alternative to Southwest Airlines Like

Southwest, it uses a single type of airplane, avoids "hub" cities to fly "point-to-point," and keeps turnaround

time to a bare minimum Unlike Southwest, however, JetBlue uses larger Airbus A320 planes, which permit

longer-haul flights; adorns planes with cushy leather seats and seat-back TVs; and permits seat reservations

Slick advertising, nattily attired flight attendants, and a state-of-art Web site help to produce a very

consumer-friendly, up-market image JetBlue did share one other thing with Southwest Airlines—they were the only

air-lines to turn a profit in 2002.25 JetBlue also recorded a profit in 2003 before encountering some financial

tur-bulence in 2004

There are also shifts that favor the customer in the client relationship Customers are

becoming more sophisticated about buying product support services and are pressing for

"services unbundling." They want separate prices for each service element and the right to

select the elements they want Customers also increasingly dislike having to deal with a

mul-titude of service providers handling different types of equipment Some third-party service

organizations now service a greater range of equipment.26

Most important, the Internet has empowered customers by letting them vent their

rage about bad service—or reward good service—and have their comments beamed

around the world with a mouse click See "Marketing Insight: Voice Mail Hell" for a look

at some ways in which the scales are tipping in the customer's favor and why service

industries should take heed

410 PART 5 SHAPING THE MARKET OFFERINGS

Holistic M a r k e t i n g f o r Services

Because service encounters are complex interactions affected by multiple elements, adopting a holistic marketing perspective is especially important The service outcome, and whether or not people will remain loyal to a service provider, is influenced by a host

of variables Keaveney identified more than 800 critical behaviors that cause customers

to switch services.2/ These behaviors can be placed into one of eight categories (see Table 13.1)

Holistic marketing for services requires external, internal, and interactive marketing (see Figure 13.3).28 External marketing describes the normal work of preparing, pricing, distrib-

uting, and promoting the service to customers Internal marketing describes training and

motivating employees to serve customers well Berry has argued that the most important contribution the marketing department can make is to be "exceptionally clever in getting everyone else in the organization to practice marketing."29

S I N G A P O R E A I R L I N E S ( S I A )

Singapore Airlines is consistently recognized as the world's "best" airline in large part due to its stellar efforts at internal marketing SIA strives to create a "wow effect" and regularly surprise its customers It does this by listening intensely and constantly identifying opportunities generated by customer feedback

As anyone who has ever spent 15 minutes in Interactive Voice Mail

"hell" knows, customer rage is a fact of twenty-first-century life

While we have ever more products that are supposed to make our

lives more convenient, there are ever more companies we need to

deal with to install and set up those products or fix a problem when

they fail In the past, we used to interact with a human being; now we

are more likely to interact with a prerecorded voice message or a

remote "online technical help" center The result: more customer rage

than ever In fact, Virginia-based Customer Care Alliance, in a survey

of 1,094 households, has concluded that U.S companies are driving

their customers crazy

Of the 45 percent of households that reported at least one

"seri-ous problem" with a product or service in the past year, more than

two-thirds of those customers experienced "rage" over the way the

incident was handled Sixteen percent of respondents said they

wanted "revenge" on the company, and 3 percent took legal action

Rising frustration levels come at a price for companies Angry

customers can damage a brand or company with bad word of mouth

Ninety percent of angry customers reported that they shared their

story with a friend Now, they can share their stories with strangers

via the Internet "The Internet is word of mouth on steroids," Pete

Blackshaw likes to say, and he should know Blackshaw is chief

mar-keting and customer satisfaction officer for Intelliseek, a company

that has made a profit by allowing consumers to rant—or rave—on

its Planetfeedback.com site With a few clicks on the Planetfeedback

site, shoppers can send an e-mail, complaint, compliment, tion, or question directly to a company with the option to post com- ments publicly at the site as well

sugges-That's what Beth Heckel, a Colorado preschool aide did, after she received a series of threatening letters from CD club, Columbia House,

a full six years after her daughter's membership expired Heckel n't get a response from the company by phone or mail and was on the verge of sending in the disputed $40 just to salvage her credit rating When Heckel sent her complaint to Columbia House via Planetfeedback.com , she got an e-mail conceding the company's error and the letters stopped The likelihood of finally getting some action—or just the satisfaction of venting publicly—is why consumers sent 67,000 e-mails to 15,000 companies via Planetfeedback last year alone Sue MacDonald, an Intelliseek spokesperson, said: "About 80 percent of the companies respond to the complaints, some within an hour."

could-More important than simply responding to a disgruntled tomer, however, is preventing dissatisfaction from occurring in the future Ironically, Blackshaw says, "a company will spend hundreds of dollars per customer to attract people to its business, but far less to keep that customer once he or she has been acquired." That may mean simply taking the time to nurture customer relationships and give customers attention from an actual living, breathing human being Columbia Records claims it is now spending $10 million to improve its call center and customers who phone the company can now "opt out" to reach an operator at any point in their calls

cus-Sources: Jane Spencer, "Cases of Customer Rage Mount as Bad Service Prompts Venting," Wall Street Journal, September 17,2003, p D4; Judi Ketteler,

"Grumbling Groundswell," Cincinnati Business Courier, September 8, 2003; Richard Halicks, "You Can Count on Customer Disservice," Atlanta Journal

Constitution, June 29, 2003, p D4; Michelle Slatella, "Toll-Free Apology Soothes Savage Beast," New York Times, February 12, 2004, p G4; Bruce

Horovitz, "Whatever Happened to Customer Service?" USA Today, September 26,2003, p A1

DESIGNING AND MANAGING SERVICES CHAPTER 13 4 1 1

• Wait for Service B Hardsell

• Service Catastrophe u Customer Moved

Service Encounter Failures B Provider Closed

Some examples of this are SIA's new lighter, more nutritious fare and its in-flight e-mail service SIA places

a high emphasis on training Its latest initiative, called "Transforming Customer Service (TCS)," involves staff

in five key operational areas: cabin crew, engineering, ground services, flight operations, and sales support

The TCS culture is embedded in all management training, company-wide TCS also uses a 40-30-30 rule in

its holistic approach to people, processes and products: 40 percent of resources go to training and

invigo-rating staff, 30 percent is spent on reviewing process and procedures, and the last 30 percent on creating

new product and service ideas.30

Interactive marketing describes the employees' skill in serving the client Clients judge

service not only by its technical quality (e.g., Was the surgery successful?), but also by its

functional quality (e.g., Did the surgeon show concern and inspire confidence?).31

Technology has great power to make service workers more productive.32 Respiratory

thera-pists at the University of California at San Diego Medical Center now carry miniature

com-puters in their coat pockets so that they can call up patient records on handheld comcom-puters

and therefore spend more time working directly with patients

Companies must avoid pushing productivity so hard, however, that they reduce

per-ceived quality Some methods lead to too much standardization Service providers must

deliver "high-touch" as well as "high-tech."33 Consider Schwab

S C H W A B C O M

Charles Schwab, the nation's largest discount brokerage house, uses the Web to create an innovative

combina-tion of high-tech and high-touch services One of the first major brokerage houses to provide online trading,

Schwab today services 8 million accounts It has avoided competing on price with low-priced competitors (e.g.,

Ameritrade.com ) and instead has assembled the most comprehensive financial and company information

412 PART 5 SHAPING THE MARKET OFFERINGS

M a n a g i n g Service Quality

The service quality of a firm is tested at each service encounter If retail clerks are bored, not answer simple questions, or are visiting with each other while customers are waiting, customers will think twice about doing business again with that seller

can-C u s t o m e r Expectations

Customers form service expectations from many sources, such as past experiences, word of

mouth, and advertising In general, customers compare the perceived service with the expected

service 35 If the perceived service falls below the expected service, customers are disappointed

If the perceived service meets or exceeds their expectations, they are apt to use the provider

again Successful companies add benefits to their offering that not only satisfy customers but surprise and delightThem Delighting customers is a matter of exceeding expectations

R I T Z - C A R L T O N H O T E L S

Ritz-Carlton Hotels legendary service starts with 100 hours of training annually for every employee The pany empowers employees to make decisions and spend money to solve customer service issues Guestrooms are exhaustively reviewed every 90 days and guaranteed to be defect free, check-in time has been cut in half, and special programs created for family travelers and weddings It's perhaps no surprise that Ritz-Carlton was the first two-time winner of the Malcolm Baldridge National Quality Award.36

com-Parasuraman, Zeithaml, and Berry formulated a service-quality model that highlights the main requirements for delivering high service quality.37 The model, shown in Figure 13.4, identifies five gaps that cause unsuccessful delivery:

1 Gap between consumer expectation and management perception -Management does

not always correctly perceive what customers want Hospital administrators may think that patients want better food, but patients may be more concerned with nurse responsiveness

DESIGNING AND MANAGING SERVICES CHAPTER 13 413

2 Gap between management perception and service-quality specification - Management

might correctly perceive customers' wants but not set a performance standard

Hospital administrators may tell the nurses to give "fast" service without specifying it in

minutes

3 Gap between service-quality specifications and service delivery - Personnel might

be poorly trained, or incapable of or unwilling to meet the standard; or they may be

held to conflicting standards, such as taking time to listen to customers and serving

t h e m fast

4 Gap between service delivery and external communications - Consumer expectations

are affected by s t a t e m e n t s m a d e by c o m p a n y representatives and ads If a hospital

brochure shows a beautiful room, but the patient arrives and finds the room to be

cheap and tacky looking, external c o m m u n i c a t i o n s have distorted the customer's

expectations

5 Gap between perceived service and expected service - This gap occurs when the

con-sumer misperceives the service quality The physician may keep visiting the patient to

show care, but the patient may interpret this as an indication that something really is

wrong

Based on this service-quality model, these researchers identified the following five

deter-minants of service quality, in order of importance 3 8

1 Reliability - T h e ability to perform the promised service dependably and accurately

2 Responsiveness -The willingness to help customers and to provide prompt service

3 Assurance - T h e knowledge and courtesy of employees and their ability to convey trust

and confidence

4 Empathy - T h e provision of caring, individualized attention to customers

F I G 1 3 4

Service-Quality Model

Sources: A Parasuraman, Valarie A Zeithaml,

and Leonard L Berry, "A Conceptual Model of Service Quality and its implications for Future

Research," Journal of Marketing (Fall 1985):

44 Reprinted with permission of the American Marketing Association The model is more fully discussed or elaborated in Valarie A Zeithaml

and Mary Jo Bitner, Services Marketing (New

York: McGraw-Hill, 1996), ch 2

414 PART 5 SHAPING THE MARKET OFFERINGS

5 Tangibles -The appearance of physical facilities, equipment, personnel, and

Various studies have shown that well-managed service companies share the following mon 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 "Marketing Memo: Recommendations for Improving Service Quality" also offers a comprehensive set of guide-lines for service marketers Rackspace, a San Antonio-based Web-hosting company, embod-ies many of these practices

com-r— R A C K S P A C E

In 1999, the Rackspace tech support team was lax about delivering great service and, indeed, was often hostile to

customers Its turnaround began with a new company mantra—to provide fanatical support This concept was

backed by a few simple rules: Criticizing a customer is a firing offense Be reliable No news is not good news In other words, you must communicate frequently with customers Remove all obstacles that make it hard for customers to

do business with you Rackspace also broke down departmental silos and created eight "pods." These clusters include a team leader, two or three account managers, billing personnel, and several tech-support specialists Each pod serves a group of customers sorted by size and complexity With this setup, every Rackspace customer calls the

T A B L E 1 3 2

0 Providing service as promised

s Dependability in handling customers' service problems

• Performing services right the first time

• Providing services at the promised time

• Maintaining error-free records

Responsiveness

m Keeping customer informed as to when services will be performed

• Prompt service to customers

• Willingness to help customers

• Readiness to respond to customers' requests

Assurance

S3 Employees who instill confidence in customers

• Making customers feel safe in their transactions

• Employees who are consistently courteous

• Employees who have the knowledge to answer customer questions

Empathy

• Giving customers individual attention

• Employees who deal with customers in a caring fashion

• Having the customer's best interests at heart

• Employees who understand the needs of their customers

• Convenient business hours

Tangibles

a Modern equipment

• Visually appealing facilities

• Employees who have a neat, professional appearance

• Visually appealing materials associated with the service