Service Innovation and DesignChallenges of Service Innovation and DesignNew Service Development ProcessesTypes of Service InnovationsStages in Service Innovation and DevelopmentService BlueprintingHigh-Performance Service InnovationsChapter9McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Risks of Relying on Words Alone to Describe ServicesOversimplificationIncompletenessSubjectivityBiased Interpretation

Types of Service Innovationsmajor or radical innovationsstart-up businessesnew services for the currently served marketservice line extensionsservice improvementsstyle changes

New Service Development Process Business strategy development or review New service strategy development Idea generationConcept development & evaluation Business analysis Service development & testing Market testing Commercialization

New Service Strategy Matrix for Identifying Growth Opportunities (Fig. 9-2)MarketsOfferings Current CustomersNew Customers

Existing ServicesShare BuildingMkt. Development

New ServicesService DevelopmentDiversification

Service Blueprinting

Service Blueprint ComponentsCustomer Actionsline of interactionVisible Contact Employee Actionsline of visibilityInvisible Contact Employee Actionsline of internal interactionSupport Processes

Building a Service Blueprint

Application of Service BlueprintsNew Service Developmentconcept developmentmarket testingSupporting a Zero Defects Culturemanaging reliabilityidentifying empowerment issuesService Recovery Strategiesidentifying service problemsconducting root cause analysismodifying processes

Uses of BlueprintsService Marketerscreating realistic customer expectations:service system designpromotion

Operations Managementrendering the service as promised:managing fail pointstraining systemsquality controlHuman Resources Managementempowering the human element:job descriptionsselection criteriaappraisal systems

System Technologyproviding necessary tools:system specificationspersonal preference databases

Benefits of Service BlueprintingProvides a platform for innovation.Recognizes roles and interdependencies among functions, people, and organizations.Facilitates both strategic and tactical innovations.Transfers and stores innovation and service knowledge.Designs moments of truth from the customers point of view.Suggests critical points for measurement and feedback in the service process.Clarifies competitive positioning.Provides understanding of the ideal customer experience.

Common Issues in Blueprinting(Exhibit 9.4)Clearly defining the process to be blueprintedClearly defining the customer or customer segment that is the focus of the blueprintWho should draw the blueprint?Should the actual or desired service process be blueprinted?Should exceptions/recovery processes be incorporated?What is the appropriate level of detail?Whether to include time & cost on the blueprint

Tangible Cues or Indicators of QualityExterior and Interior DesignPresentation of Food/DrinksAppearance of StaffCleanliness of Tables, UtensilsCleanliness of RestroomsLocation of RestaurantAppearance of Surrounding Customers

Possibility of StandardizationHostess GreetingPre-Prepared Sauces (Mild, Medium and Hot)Time StandardsFood and Drink Quality StandardsBill Standards

Potential Fail Points and FixabilityBartrain to make drinks; create ample seating space for wait area overflowFoodrevise food presentation; create quality control checks to ensure order is correct before delivering to customerStafftraining; set number of times to check-in on customers; behavioral and attitude guidelines; dress codeBillingstandards for when to bring bill, how to deliver, when to pick-up, how quickly to process transaction; ensure one fortune cookie per customerCleanlinessstandards for amount of time it takes to clear and clean tables; regular restroom checks

Customer-Defined ServiceStandardsFactors Necessary for Appropriate Service Standards

Types of Customer-Defined Service Standards

Development of Customer-Defined Service StandardsChapter10McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Standards are based on the most important customerexpectations and reflect the customers view of these expectations.Customer-Defined StandardsCompany-Defined StandardsSOURCESCustomer ExpectationsCustomer Process BlueprintCustomer Experience ObservationsSOURCESProductivity ImplicationsCost ImplicationsCompany Process BlueprintCompany View of QualityService Standards

Hard vs. Soft Standard

What Customers Expect: Getting to Actionable Steps

Process for Setting Customer-Defined Standards

Hard (Mostly) Service Standards at FordAppointment available within one day of customers requested service dayWrite-up begins within four minutesService needs are courteously identified, accurately recorded on repair order and verified with customerService status provided within one minute of inquiryVehicle serviced right on first visitVehicle ready at agreed-upon timeThorough explanation given of work done, coverage and charges

Physical Evidence and the ServicescapePhysical EvidenceTypes of ServicescapesStrategic Roles of the ServicescapeFramework for Understanding Servicescape Effects on BehaviorGuidelines for Physical Evidence Strategy

Chapter11McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Elements of Physical EvidenceFacility exterior: design, signage, parking, landscape

Facility interior: design, equipment, layout, atmospherics, ...

Other tangibles: business cards, stationery, billing statements, reports, web pages,

Roles of the ServicescapePackageconveys expectations influences perceptionsFacilitatorfacilitates the flow of the service delivery processprovides information (how am I to act?)facilitates the ordering process (how does this work?)facilitates service deliverySocializerfacilitates interaction between:customers and employeescustomers and fellow customersDifferentiatorsets provider apart from competition in the mind of the consumer

Guidelines for Physical Evidence StrategyRecognize the strategic impact of physical evidence.

Blueprint the physical evidence of service.

Clarify strategic roles of the servicescape.

Assess and identify physical evidence opportunities.

Be prepared to update and modernize the evidence.

Part 5DELIVERING AND PERFORMING SERVICE

Key Causes of Provider Gap 3

Employees Roles in ServiceDeliveryService CultureThe Critical Importance of Service EmployeesBoundary-Spanning RolesStrategies for Delivering Service Quality Through PeopleCustomer-Oriented Service DeliveryChapter12McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Service Culture A culture where an appreciation for good service exists, and where giving good service to internal as well as ultimate, external customers, is considered a natural way of life and one of the most important norms by everyone in the organization.- Christian Grnroos (1990)

The Critical Importance of Service EmployeesEvery encounter countsEmployees are the service.Every employee can make a differenceThey are the organization in the customers eyes.They are the brand.They are marketers.Through their actions, all employees shape the brand

Their importance is evident in:the services marketing mix (people)the service-profit chainthe services triangle

The Services Marketing Triangle

Aligning the TriangleOrganizations that seek to provide consistently high levels of service excellence will continuously work to align the three sides of the triangle.

Aligning the sides of the triangle is an ongoing process.

Making PromisesUnderstanding customer needsManaging expectationsTraditional marketing communicationsSales and promotionAdvertisingInternet and web site communication

Keeping PromisesService deliveryReliability, responsiveness, empathy, assurance, tangibles, recovery, flexibilityFace-to-face, telephone & online interactionsThe Customer ExperienceCustomer interactions with sub-contractors or business partnersThe moment of truth

Enabling Promise KeepingHiring the right peopleTraining and developing people to deliver serviceEmployee empowermentSupport systems Appropriate technology and equipmentRewards and incentives

Ways to Use the Services Marketing TriangleOverall Strategic AssessmentHow is the service organization doing on all three sides of the triangle?Where are the weaknesses?What are the strengths?

Specific Service ImplementationWhat is being promoted and by whom?How will it be delivered and by whom?Are the supporting systems in place to deliver the promised service?

Service EmployeesWho are they?boundary spannersWhat are these jobs like?emotional labormany sources of potential conflictperson/roleorganization/clientinterclientquality/productivity tradeoffsBoundary Spanners Interact with Both Internal and External Constituents

Human Resource Strategies for Delivering Service Quality through People

The grocery chain paid over $54 million for college scholarships for 17,500+ employees over the past 20 years. Wegmans did not hesitate to send cheese manager Terri Zodarecky on a ten-day sojourn to cheese makers in Europe. The firm gives employees flexibility to deliver great customer satisfaction.How can this be justified?How Employee Satisfaction Drives Productivity and Customer Satisfaction at Wegmans

How does this affect performance?Wegmans labor costs are 15-17% of sales, compared with 12% for industry. But annual turnover is just 6% (19% for similar grocery chains). 20% of employees have 10+ years of service. This in an industry where turnover costs can exceed annual profits by more than 40%. Wegmans operating margins are 7.5%, double what the big grocers earn. Sales per square foot are 50% higher than industry average.

EmpowermentBenefits:quicker responses to customer needs during service deliveryquicker responses to dissatisfied customers during service recovery employees feel better about their jobs and themselvesemployees tend to interact with warmth/enthusiasmempowered employees are a great source of ideasgreat word-of-mouth advertising from customersDrawbacks:potentially greater dollar investment in selection and traininghigher labor costspotentially slower or inconsistent service deliverymay violate customers perceptions of fair playemployees may give away the store or make bad decisions

Traditional Organizational ChartManagerSupervisorFront-line EmployeeCustomersFront-line EmployeeFront-line EmployeeFront-line EmployeeSupervisorFront-line EmployeeFront-line EmployeeFront-line EmployeeFront-line Employee

Customer-Focused Organizational Chart

Customers Roles in ServiceDeliveryThe Importance of Customers in Service Cocreation and Delivery

Customers Roles

Self-Service TechnologiesThe Ultimate in Customer Participation

Strategies for Enhancing Customer ParticipationChapter13McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

How Customers Widen the Service Performance GapLack of understanding of their roles

Not being willing or able to perform their roles

No rewards for good performance

Interfering with other customers

Incompatible market segments

Importance of Other (Fellow) Customersin Service DeliveryOther customers can detract from satisfaction:disruptive behaviorsoverly demanding behaviorsexcessive crowdingincompatible needsOther customers can enhance satisfaction:mere presencesocialization/friendshipsroles: assistants, teachers, supporters, mentors

Customer Roles in Service DeliveryProductive ResourcesContributors to Service Quality and SatisfactionCompetitors

Customers as Productive Resourcescustomers can be thought of as partial employeescontributing effort, time, or other resources to the production process

customer inputs can affect organizations productivity

key issue:should customers roles be expanded? reduced?

Customers as Contributors to Service Quality and SatisfactionCustomers can contribute to:their own satisfaction with the serviceby performing their role effectivelyby working with the service provider

the quality of the service they receiveby asking questionsby taking responsibility for their own satisfactionby complaining when there is a service failure

Customers as Competitorscustomers may compete with the service providerinternal exchange vs. external exchangeinternal/external decision often based on: expertise capacityresources capacitytime capacityeconomic rewardspsychic rewardstrustcontrol

Strategies for Enhancing customer ParticipationDefine customers jobshelping oneselfhelping otherspromoting the company

Recruit, educate, and reward customersrecruit the right customerseducate and train customers to perform effectivelyreward customers for their contributionsavoid negative outcomes of inappropriate customer participation

Manage the customer mix

Service DistributionDirect or Company-Owned ChannelsFranchisingAgents and BrokersElectronic ChannelsCommon Issues Involving IntermediariesStrategies for Effective Service Delivery Through IntermediariesChapter14Delivering Service ThroughIntermediaries & Electronic ChannelsMcGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Service Provider ParticipantsService principal (originator)creates the service concept(like a manufacturer)

Service deliverer (intermediary)entity that interacts with the customer in the execution of the service(like a distributor/wholesaler)

Services IntermediariesFranchiseesservice outlets licensed by a principal to deliver a unique service concept it has createde.g., Jiffy Lube, Blockbuster, Holiday Inns, McDonalds

Agents and Brokersrepresentatives who distribute and sell the services of one or more service supplierse.g., travel agents, independent insurance agents

Electronic Channelsall forms of service provision through electronic meanse.g., ATMs, university video courses, Tax Prep software

Benefits and Challenges for Franchisors of ServiceBenefitsLeveraged business format for greater expansion & revenuesConsistency in outletsKnowledge of local marketsShared financial risk & more working capitalChallengesDifficult to maintain & motivate franchiseesHighly publicized disputes & conflictsIntermediaries control customer relationship

Benefits and Challenges forFranchisees of ServiceBenefitsAn established business formatInternational, national, or regional brand marketingMinimized risk of starting a businessPoorly capitalized or managed franchisorChallengesEncroachment of other outlets into franchised territoriesDisappointing profits & revenuesLack of perceived control over operationsHigh fees

Benefits and Challenges in Distributing Services through Agents and BrokersBenefitsReduced selling & distribution costsIntermediarys possession of skills & knowledgeWide representationKnowledge of local marketsCustomer choiceChallengesLoss of control over pricingRepresentation of multiple service principals

Benefits and Challenges in Electronic Distribution of ServicesBenefitsConsistent delivery of standardized servicesCustomer convenienceWide distributionCustomer choice & ability to customizeQuick customer feedback

ChallengesPrice competitionInability to customizeLack of consistence due to customer involvementChanges in customer behaviorSecurity concernsCompetition from widening geographics

Common Issues Involving Intermediariesconflict over objectives and performancedifficulty controlling quality and consistency across outletstension between empowerment and controlchannel ambiguity

Strategies for Effective Service Delivery Through IntermediariesControl Strategies:MeasurementReview

Partnering Strategies:Alignment of goalsConsultation and cooperationEmpowerment Strategies:Help the intermediary develop customer-oriented service processesProvide needed support systemsDevelop intermediaries to deliver service qualityChange to a cooperative management structure

Managing Demand and CapacityChapter15McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Causes of Failure to Deliver ServiceInventory and demand dont matchCapacity is often fixedService characteristics: perishability, simultaneous production and consumptionDemand often cant be controlled or predictedResult: Lost business or wasted capacityCant ever be regained or resold

Results of MismatchDemand is either above or below capacityExcess demand turn customers awayDemand above optimal capacity - resources are stretched in the short termExcess capacity - resources underutilized, often sends the wrong message

Variations in Demand Relative to CapacitySource: C. Lovelock, Getting the Most Out of Your Productive Capacity, in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.

Understanding Capacity Constraintsand Demand PatternsCapacity ConstraintsTime (accounting, medical, consulting)Labor (law firm, post office)Equipment (telecom, utilities, delivery service)Facilities (hotels, hospitals, schools)Optimal versus maximum use of capacityDemand PatternsPredictable cyclesRandom demand fluctuationsDemand patterns by market segment

Demand versus SupplySource: C. H. Lovelock, Classifying Services to Gain Strategic Marketing Insights, Journal of Marketing 47, (Summer 1983): 17.

Strategies for Shifting Demand to Match CapacityUse signage to communicate busy days and times.Offer incentives to customers for usage during non-peak times.Take care of loyal or regular customers first.Advertise peak usage times and benefits of non-peak use.Charge full price -- no discounts.Use advertising to increase business from current market segments.Modify service offering to appeal to new market segments.Offer discounts or price reductions.Modify hours of operation.Bring the service to the customer.Demand Too HighDemand Too LowShift Demand

More Strategies for Adjusting Capacity to Match Demand

Challenges and Risks in UsingYield ManagementYield Management: Maximizing profit from available capacity by manipulating pricing to gain business at different times, and from differing market segments. Yield = Actual Revenue (capacity used x average price)/Potential Revenue (total capacity x maximum price)Revenue Management: Maximizing profits from the sale of all goods and services offered by the service firm

Problems: Customer alienationEmployee morale problemsIncompatible incentive and reward systemsLack of employee trainingInappropriate organization of the yield management function

Waiting Line StrategiesEmploy operational logicmodify operationsadjust queuing systemEstablish a reservation processDifferentiate waiting customersimportance of the customerurgency of the jobduration of the service transactionpayment of a premium priceMake waiting fun, or at least tolerable

The Psychology of Waiting LinesUnoccupied time feels longer than occupied time.Preprocess waits feel longer than in-process waits.Anxiety makes waits seem longer.Uncertain waits seem longer than known, finite waits.Unexplained waits seem longer than explained waits.Unfair waits feel longer than equitable waits.The more valuable the service, the longer the customer will wait.Solo waits feel longer than group waits.

Part 6MANAGING SERVICE PROMISES

Pricing of ServicesWays in which Service Prices are Different for Consumers

Approaches to Pricing Services

Pricing Strategies that Link to the Four Value DefinitionsChapter17McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Some Issues in Service PricesCustomers often lack reference prices for serviceService variability limits knowledgeProviders are unwilling to estimate pricesIndividual customer needs varyCollection of price information by customers is difficult Prices are not visible

The Role of Non-monetary PriceTime costsSearch costsConvenience costsPsychological costs

Three Basic Marketing Price Structures and Challenges for Services

Four Customer Definitions of Value

Pricing Strategies When the Customer Defines Value as Low Price

Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service

Pricing Strategies When the Customer Defines Value as Quality for the Price Paid

Pricing Strategies When the Customer Defines Value as All that Is Received for All that Is Given

MKT 356 Services Marketing

End of Slides, Spring 2010

* *NOTES: *Dental laser drill*They are the service. in many cases, the contact employee is the service- we often DO NOT DISTINGUISH between the person and the firm(haircutting, child care, counseling, legal services) in these cases, the offering is the employee - other examples?

They are the organization in the customers eyes. employees represent the firm to the client may be the ONLY contact they have with the firm e.g., Dixon Pest Control everything they say and do can influence perceptions of the organization even off-duty employees can influence perceptions

They are marketers. they are walking billboards they represent the company and influence customer satisfaction they are salespersons (waiters selling dessert; AT&T operators cross-selling)

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