Service Innovation and Design

• Challenges of Service Innovation and Design

• New Service Development Processes

• Types of Service Innovations

• Stages in Service Innovation and Development

• Service Blueprinting

• High-Performance Service Innovations

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Risks of Relying on Words Alone to Describe Services

Oversimplification

Incompleteness

Subjectivity

Biased Interpretation

Types of Service Innovations

• major or radical innovations• start-up businesses• new services for the currently served market• service line extensions• service improvements• style changes

New Service Development Process

- Business strategy development or review

- New service strategy development- Idea generation-Concept development & evaluation- Business analysis- Service development & testing- Market testing- Commercialization

New Service Strategy Matrix for Identifying Growth Opportunities (Fig. 9-2)

Markets

Offerings Current Customers New Customers

Existing Services Share Building Mkt. Development

New Services Service Development Diversification

Service Blueprinting

Service Blueprint Components

Customer Actions

line of interaction

Visible Contact Employee Actions

line of visibility

Invisible Contact Employee Actions

line of internal interaction

Support Processes

Building a Service Blueprint

Application of Service Blueprints

• New Service Development– concept development– market testing

• Supporting a “Zero Defects” Culture– managing reliability– identifying empowerment issues

• Service Recovery Strategies– identifying service problems– conducting root cause analysis– modifying processes

Uses of Blueprints

• Service Marketers– creating realistic

customer expectations:• service system design• promotion

• Operations Management– rendering the service as

promised:• managing fail points• training systems• quality control

• Human Resources Management– empowering the human

element:• job descriptions

• selection criteria

• appraisal systems

• System Technology– providing necessary tools:

• system specifications

• personal preference databases

Benefits of Service Blueprinting• Provides 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 customer’s 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 blueprinted• Clearly defining the customer or customer

segment that is the focus of the blueprint• Who 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 Quality

• Exterior and Interior Design

• Presentation of Food/Drinks

• Appearance of Staff

• Cleanliness of Tables, Utensils

• Cleanliness of Restrooms

• Location of Restaurant

• Appearance of Surrounding Customers

Possibility of Standardization

• Hostess Greeting

• Pre-Prepared Sauces (Mild, Medium and Hot)

• Time Standards

• Food and Drink Quality Standards

• Bill Standards

Potential Fail Points and Fixability

• Bar– train to make drinks; create ample seating space for wait area overflow

• Food– revise food presentation; create quality control checks to ensure order is

correct before delivering to customer• Staff

– training; set number of times to check-in on customers; behavioral and attitude guidelines; dress code

• Billing– standards for when to bring bill, how to deliver, when to pick-up, how

quickly to process transaction; ensure one fortune cookie per customer• Cleanliness

– standards for amount of time it takes to clear and clean tables; regular restroom checks

Customer-Defined ServiceStandards

• Factors Necessary for Appropriate Service Standards

• Types of Customer-Defined Service Standards

• Development of Customer-Defined Service Standards

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Standards are based on the most important customerexpectations and reflect the customer’s view of these expectations.

Customer-Defined

Standards

Customer-Defined

Standards

Company-Defined

Standards

Company-Defined

Standards

SOURCESCustomer ExpectationsCustomer Process BlueprintCustomer Experience Observations

SOURCESProductivity ImplicationsCost ImplicationsCompany Process BlueprintCompany View of Quality

Service Standards

SOFT STANDARDS AND MEASURESOpinion-based measures that cannot be observed and must be collected bytalking to customers (perceptions, beliefs)

HARD STANDARDS AND MEASURESThings that can be counted, timed,or observed through audits (time,numbers of events)

Hard vs. Soft Standard

What Customers Expect: Getting to Actionable Steps

Process for Setting Customer-Defined Standards

Hard (Mostly) Service Standards at Ford

• Appointment available within one day of customer’s requested service day

• Write-up begins within four minutes• Service needs are courteously identified,

accurately recorded on repair order and verified with customer

• Service status provided within one minute of inquiry

• Vehicle serviced right on first visit• Vehicle ready at agreed-upon time• Thorough explanation given of work done,

coverage and charges

Physical Evidence and the Servicescape

• Physical Evidence

• Types of Servicescapes

• Strategic Roles of the Servicescape

• Framework for Understanding Servicescape Effects on Behavior

• Guidelines for Physical Evidence Strategy

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Elements of Physical Evidence

Facility exterior: design, signage, parking, landscape …

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

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

Roles of the Servicescape• Package

– conveys expectations – influences perceptions

• Facilitator– facilitates the flow of the service delivery process

• provides information (how am I to act?)• facilitates the ordering process (how does this work?)• facilitates service delivery

• Socializer– facilitates interaction between:

• customers and employees• customers and fellow customers

• Differentiator– sets provider apart from competition in the mind of the consumer

Guidelines for Physical Evidence Strategy

• Recognize 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 5

DELIVERING AND PERFORMING SERVICE

DELIVERING AND PERFORMING SERVICE

Key Causes of Provider Gap 3

Employees’ Roles in ServiceDelivery

• Service Culture

• The Critical Importance of Service Employees

• Boundary-Spanning Roles

• Strategies for Delivering Service Quality Through People

• Customer-Oriented Service Delivery

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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 Grönroos (1990)

The Critical Importance of Service Employees

• Every encounter counts• Employees are the service.• Every employee can make a difference• They are the organization in the customer’s 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 chain– the services triangle

The Services Marketing Triangle

Aligning the Triangle

• Organizations 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 Promises

• Understanding customer needs

• Managing expectations

• Traditional marketing communications

• Sales and promotion

• Advertising

• Internet and web site communication

Keeping Promises

• Service delivery– Reliability, responsiveness, empathy, assurance,

tangibles, recovery, flexibility

• Face-to-face, telephone & online interactions

• The Customer Experience

• Customer interactions with sub-contractors or business partners

• The “moment of truth”

Enabling Promise Keeping

• Hiring the right people

• Training and developing people to deliver service

• Employee empowerment

• Support systems

• Appropriate technology and equipment

• Rewards and incentives

Ways to Use the Services Marketing Triangle

• Overall Strategic Assessment

– How is the service organization doing on all three sides of the triangle?

– Where are the weaknesses?

– What are the strengths?

• Specific Service Implementation

– What 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 Employees• Who are they?

– “boundary spanners”

• What are these jobs like?– emotional labor– many sources of potential conflict

• person/role• organization/client• interclient

– quality/productivity tradeoffs

Boundary 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.

Empowerment• Benefits:

– quicker responses to customer needs during service delivery

– quicker responses to dissatisfied customers during service recovery

– employees feel better about their jobs and themselves

– employees tend to interact with warmth/enthusiasm

– empowered employees are a great source of ideas

– great word-of-mouth advertising from customers

• Drawbacks:– potentially greater dollar

investment in selection and training

– higher labor costs

– potentially slower or inconsistent service delivery

– may violate customers’ perceptions of fair play

– employees may “give away the store” or make bad decisions

Traditional Organizational Chart

Manager

Supervisor

Front-lineEmployee

Customers

Front-lineEmployee

Front-lineEmployee

Front-lineEmployee

Supervisor

Front-lineEmployee

Front-lineEmployee

Front-lineEmployee

Front-lineEmployee

Customer-Focused Organizational Chart

Customers’ Roles in ServiceDelivery

• The Importance of Customers in Service Cocreation and Delivery

• Customers’ Roles

• Self-Service Technologies—The Ultimate in Customer Participation

• Strategies for Enhancing Customer Participation

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How Customers Widen the Service Performance Gap

• Lack 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 Delivery

• Other customers can detract from satisfaction:– disruptive behaviors– overly demanding behaviors– excessive crowding– incompatible needs

• Other customers can enhance satisfaction:– mere presence– socialization/friendships– roles: assistants, teachers, supporters, mentors

Customer Roles in Service Delivery

Productive Resources

Contributors to Service Quality and Satisfaction

Competitors

Customers as Productive Resources

• customers can be thought of as “partial employees”– contributing effort, time, or other resources to the

production process

• customer inputs can affect organization’s productivity

• key issue:– should customers’ roles be expanded? reduced?

Customers as Contributors to Service Quality and Satisfaction

• Customers can contribute to:– their own satisfaction with the service

• by performing their role effectively• by working with the service provider

– the quality of the service they receive• by asking questions• by taking responsibility for their own satisfaction• by complaining when there is a service failure

Customers as Competitors

• customers may “compete” with the service provider

• “internal exchange” vs. “external exchange”• internal/external decision often based on:

– expertise capacity– resources capacity– time capacity– economic rewards– psychic rewards– trust– control

Strategies for Enhancing customer Participation

• Define customers’ jobs– helping oneself– helping others– promoting the company

• Recruit, educate, and reward customers– recruit the right customers– educate and train customers to perform effectively– reward customers for their contributions– avoid negative outcomes of inappropriate customer

participation

• Manage the customer mix

• Service Distribution

• Direct or Company-Owned Channels

• Franchising

• Agents and Brokers

• Electronic Channels

• Common Issues Involving Intermediaries

• Strategies for Effective Service Delivery Through Intermediaries

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Service Provider Participants

• Service 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 Intermediaries• Franchisees

– service outlets licensed by a principal to deliver a unique service concept it has created

• e.g., Jiffy Lube, Blockbuster, Holiday Inns, McDonald’s

• Agents and Brokers– representatives who distribute and sell the services of

one or more service suppliers• e.g., travel agents, independent insurance agents

• Electronic Channels– all forms of service provision through electronic

means• e.g., ATMs, university video courses, Tax Prep software

Benefits and Challenges for Franchisors of Service

Benefits• Leveraged business

format for greater expansion & revenues

• Consistency in outlets• Knowledge of local

markets• Shared financial risk &

more working capital

Challenges• Difficult to maintain &

motivate franchisees• Highly publicized

disputes & conflicts• Intermediaries control

customer relationship

Benefits and Challenges forFranchisees of Service

Benefits• An established business

format• International, national, or

regional brand marketing• Minimized risk of starting

a business• Poorly capitalized or

managed franchisor

Challenges• Encroachment of other

outlets into franchised territories

• Disappointing profits & revenues

• Lack of perceived control over operations

• High fees

Benefits and Challenges in Distributing Services through Agents and Brokers

Benefits• Reduced selling &

distribution costs• Intermediary’s

possession of skills & knowledge

• Wide representation• Knowledge of local

markets• Customer choice

Challenges• Loss of control over

pricing• Representation of

multiple service principals

Benefits and Challenges in Electronic Distribution of Services

Benefits• Consistent delivery of

standardized services• Customer convenience• Wide distribution• Customer choice & ability

to customize• Quick customer feedback

Challenges• Price competition• Inability to customize• Lack of consistence due

to customer involvement• Changes in customer

behavior• Security concerns• Competition from

widening geographics

Common Issues Involving Intermediaries

• conflict over objectives and performance

• difficulty controlling quality and consistency across outlets

• tension between empowerment and control

• channel ambiguity

Strategies for Effective Service Delivery Through Intermediaries

• Control Strategies:– Measurement– Review

• Partnering Strategies:– Alignment of goals– Consultation and

cooperation

• Empowerment Strategies:– Help the intermediary

develop customer-oriented service processes

– Provide needed support systems

– Develop intermediaries to deliver service quality

– Change to a cooperative management structure

Managing Demand and Capacity

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Causes of Failure to Deliver Service

• Inventory and demand don’t match

• Capacity is often fixed• Service characteristics: perishability,

simultaneous production and consumption

• Demand often can’t be controlled or predicted

• Result: Lost business or wasted capacity

• Can’t ever be regained or resold

Results of Mismatch

• Demand is either above or below capacity

• Excess demand – turn customers away

• Demand above optimal capacity - resources are stretched in the short term

• Excess capacity - resources underutilized, often sends the wrong message

Variations in Demand Relative to Capacity

Source: 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 Patterns

Capacity Constraints– Time (accounting, medical,

consulting…)

– Labor (law firm, post office…)

– Equipment (telecom, utilities, delivery service…)

– Facilities (hotels, hospitals, schools…)

– Optimal versus maximum use of capacity

Demand Patterns– Predictable cycles– Random demand

fluctuations– Demand patterns by

market segment

Demand versus Supply

Source: C. H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing 47, (Summer 1983): 17.

Strategies for Shifting Demand to Match Capacity

• Use 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 High Demand Too LowShift Demand

More Strategies for Adjusting Capacity to Match Demand

Challenges and Risks in UsingYield Management

Yield 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 alienation• Employee morale problems• Incompatible incentive and reward systems• Lack of employee training• Inappropriate organization of the yield management function

Waiting Line Strategies

• Employ operational logic– modify operations– adjust queuing system

• Establish a reservation process• Differentiate waiting customers

– importance of the customer– urgency of the job– duration of the service transaction– payment of a premium price

• Make waiting fun, or at least tolerable

The Psychology of Waiting Lines• Unoccupied 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 6

MANAGING SERVICE PROMISES

MANAGING SERVICE PROMISES

Pricing of Services

• Ways in which Service Prices are Different for Consumers

• Approaches to Pricing Services

• Pricing Strategies that Link to the Four Value Definitions

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Some Issues in Service Prices

• Customers often lack reference prices for service

• Service variability limits knowledge

• Providers are unwilling to estimate prices

• Individual customer needs vary

• Collection of price information by customers is difficult

• Prices are not visible

The Role of Non-monetary Price

• Time costs• Search costs• Convenience costs• Psychological 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