Service Marketing Essay

CHAPTER nine Services Marketing “Okay, everyone knows that the Net is changing everything . . . that’s old news. The savvy companies are already asking themselves: what comes next? Chapter Two of the Internet will be about the mass proliferation of e-services. ” K. Douglas Hoffman, Colorado State University Dr. Hoffman earned his master’s and doctorate degrees from the University of Kentucky and his bachelor’s degree from The Ohio State University. He has been formally recognized for teaching excellence and has served as past education coordinator for the Services Marketing Special Interest Group of the American Marketing Association.

Dr. Hoffman currently is a professor of marketing and has taught such courses as Principles of Marketing, Services Marketing, E-Marketing, Retail Management, and Marketing Management. His primary teaching and research passion is services marketing. He launched the ? rst services marketing classes at Mississippi State University, the University of North Carolina at Wilmington, and Colorado State University. Prior to his academic career, Dr. Hoffman was actively involved in his familyowned golf course business, served as a distribution analyst for Volkswagen of America, and worked as a research analyst for the Parker Hanni? Corp. His current research and consulting activities are primarily in the areas of customer service/satisfaction and services marketing education. Dr. Hoffman has coauthored two other South-Western/Thomson Learning texts: Essentials of Services Marketing and Managing Services Marketing, both with John E. G. Bateson. One of the most profound changes driving the growth of the service econ- 278 Th om so n • • • • • • • • • • • • omy has been the phenomenal advance in technology and in particular— the Internet. Let’s recap the growth of the Internet in a nutshell.

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Sometime around 1996, the obsession with the Internet began. Thousands of businesses, customers, employees, and partners got wired to one another and began conducting business processes online (a. k. a. , e-business). Eventually, more and more customers (businesses and ? nal consumers) became wired and formed a critical mass. Through repeated usage, customer trust dramatically increased, and the Net became a viable means for revenue production and economic growth (a. k. a. , e-commerce). Hewlett-Packard (http://www. hp. com) refers to this period as “Chapter One of the Internet. It was during Chapter One that the foundation of the Internet was laid, providing the infrastructure that enabled the evolution of the Net to follow. Chapter One required users to: do it yourself at your desk on a PC tapping into Web storefronts using monolithic applications where IT (Internet technology) is viewed as an asset Chapter One is old news. According to the experts, Chapter Two will be about the mass proliferation of e-services. In comparison to Chapter One, which required users to work the Web, Chapter Two is about the Internet working for the user.

Now the Internet helps users to: do it for me while I am living my life on PCs, devices, and things through the use of automated e-services using modular e-services where IT is viewed as a service Chapter Two will require companies to rethink their Web site strategy. In an e-service world, driving thousands of users to your Web site is no longer the Le ar ni ng ™ —The Hewlett-Packard Company LEARNING OBJECTIVES There’s nothing like leaving on a business trip the day before Thanksgiving. The hapless executive heads for the airport.

While she’s en route, all hell breaks loose in Salt Lake City. A blizzard grounds her connecting ? ight to LaGuardia. All other ? ights to New York City are overbooked. And by the way, NYC’s taxi drivers have just gone on strike. Not to worry, by the time the executive gets to the airport, several different e-services have gone to work, turning a near disaster into a minor delay. Th om so n • First, the airline’s ? ight information service noti? es the executive’s travel service that her ? ight has been canceled. • Next, the executive’s travel service sends out a request for bids to ? e other airline ? ight information services. • Since the executive is holding a full-fare ticket and her frequent ? yer status is higher than other people’s, the executive is awarded the best available seat on the next plane going to the nearest airport—Newark. • The travel service automatically checks with ground transportation services and learns of the taxi strike. • As a result, the travel service contacts a rental car service, books a rental car at Newark Airport, and requests directions, provided by the car’s GPS system, to the hotel in New York City. Noting the executive will arrive later than anticipated, the travel service noti? es the hotel’s reservation service of the delay and guarantees payment. • All of this information is transmitted to the executive through her pager or PDA (e. g. , Palm Pilot) as she walks through the terminal. All in all, it’s an exciting time to live as new technological developments and e-services become the next big thing on the Net. 1 Le ar ni ng ™ best Internet strategy. E-service users will access the Internet using a multitude of appliances, including mobile phones, watches, VCRs, heart monitors, and automobiles.

Users will no longer need traditional Web sites because these appliances will connect them directly to Internet-based e-services to solve problems, perform speci? c tasks, or complete transactions. Hewlett-Packard’s Web site provides several intriguing scenarios of how e-services will reshape our daily activities. In one such scenario titled “Anticipating the Unforeseeable,” a traveler experiences dif? culty as she drives to the airport. After you have completed this chapter, you should be able to: 1. Understand the fundamental differences between the marketing of goods and services. . Appreciate the bene? ts of customer satisfaction and evaluate the pros and cons of various customer relationship management practices. 3. Understand the managerial signi? cance of the gap model of service quality. 4. Discuss why customer retention is so important and identify tactics that help ? rms retain customers. 279 280 PART THREE Product LEARNING OBJECTIVE 1 THE FUNDAMENTALS OF SERVICES MARKETING Figure 9. 1 Service Is Expanding Beyond These Traditional Customer Services 280 Th om so n Le ar ni ng ™

Services are everywhere we turn, whether we are visiting the doctor, responding to e-mail messages, eating at a favorite restaurant, or studying at school. Simply put, the global service economy is booming. More and more, the so-called industrialized countries are discovering that their service sector is generating the majority of their gross national product. However, the growth of the service sector does not just arise within traditional service industries such as business services, the hospitality industry, health care, and other professional services.

Traditional goods producers such as automotive, computer, and numerous other manufacturers are now turning to the service aspects of their operations to establish a competitive advantage in the marketplace. These previously unexplored service aspects also generate additional sources of revenue for their ? rms. In essence, these companies, which used to compete by marketing “boxes” (tangible goods), have now switched their competitive focus to providing unmatched, unparalleled customer services (Figure 9. 1). Hewlett-Packard has embodied this idea through an ad saying “A Box without Service Is Just a Box. ”

CHAPTER NINE Services Marketing 281 Turning to Services As a Competitive Advantage Figure 9. 2 Th om so n What Is a Service? Ample evidence documents this transition from selling boxes to service competition. 2 For example, the traditional goods-producing automotive industry now emphasizes the service aspects of its businesses: low APR ? nancing, attractive lease arrangements, bumper-to-bumper factory warranties, low maintenance guarantees, and free shuttle services for customers (Figure 9. 2). Simultaneously, automotive ? rms are saying less about the tangible aspects of vehicles such as gas mileage, acceleration, nd leather seats in their marketing communications. Similarly, the personal computer industry promotes inhome repairs, 24-hour customer service, and leasing arrangements, and the satellite television industry now touts the bene? ts of digital service, pay-per-view alternatives, and security options to prevent children from viewing certain programming. The service boom looks set to continue into the near future. It seems likely that no business will succeed unless it makes service the foundation of its competitive strategy. The growing importance of services is also re? cted in the changing role of the service department within organizations. In the not-so-distant past, the service department tended to be viewed as a necessary evil—it was the place that ? xed the box and made good on failed production promises. As service has evolved to become a primary source of competitive advantage, the service department has grown in importance as well. Services include a vast array of businesses ranging from pro? t to nonpro? t services, private to government services, and unskilled to professional services (Table 9. ). However, the distinction between goods and services is not always perfectly clear. In fact, providing Le ar ni ng ™ 282 PART THREE Product Table 9. 1 Government Services Police and ? re protection IRS Social Security Social services Public transportation U. S. Postal Service Department of Motor Vehicles Nonpro? t Services Community hospitals United Way American Red Cross Credit unions Civic organizations Humane societies Types of Services Goods Services are objects, devices, or things. are deeds, efforts, or performances. Intangibility s a distinguishing characteristic of services that makes them unable to be touched or sensed in the same manner as physical goods. Scale of market entities displays a range of products along a continuum based on their tangibility. Search attributes are physical properties that customers can evaluate prior to their purchase decisions. Th om so n an example of a pure good or a pure service is very dif? cult in today’s market economies. A pure good implies that any bene? ts received by the consumer contain no elements supplied by service. Similarly, a pure service would contain no bene? s provide by tangible elements. In reality, many services contain at least some “goods,” or tangible elements, such as the menu selections at an Outback Steakhouse, a MasterCard statement from MBNA, or the written life insurance policy that State Farm Insurance issues. Also, most goods at least offer “services,” or intangible elements. For example, table salt is delivered to the grocery store, but a company such as Morton Salt that sells it to thousands of retailers may offer innovative invoicing services that further differentiate it from competitors.

The distinction between goods and services is blurred even further because a number of ? rms conduct business on both sides of the goods/services fence. For example, General Motors, the goods manufacturing giant, generates 20 percent of its revenue from its ? nancial and insurance businesses, and the car maker’s biggest supplier is Blue Cross and Blue Shield, not a parts supplier of steel, tires, or glass as most people would have thought. 3 Despite the confusion, the following de? nitions should provide a sound starting point in developing an understanding of the differences between goods and services.

In general, goods are objects, devices, or things, whereas services are deeds, efforts, or performances. 4 Ultimately, the primary difference between goods and services is the property of intangibility—lacking physical substance. Because of intangibility, a host of marketing problems for services arise that are not always adequately solved by traditional goods-related marketing solutions. For example, how would you (1) advertise a service that no one can see; (2) price a service that has no cost of goods sold; (3) inventory a service that cannot be stored; or (4) mass-produce a service that needs to be performed by an individual (e. . , dentist, lawyer, physician)? Clearly, managing a service operation seems much more complicated than managing a ? rm that primarily produces and markets goods. The Scale of Market Entities One helpful approach to looking at the differences between goods and services is provided by the scale of market entities. 5 This scale, presented in Figure 9. 3, displays a range of products based on their tangibility and illustrates that there is really no such thing as a pure good or a pure service. All products have some tangible and some intangible aspects. Goods are tangible dominant.

As such, goods possess physical properties called search attributes that customers can feel, taste, and see prior to their purchase decisions. For example, when purchasing a car, the consumer can kick the tires, look at the engine, listen to the stereo, smell that “new-car smell,” and take the car for a test drive before making the actual purchase. In contrast, services are intangible dominant. Le ar ni ng ™ Car rental Movie theater Car wash Dry cleaning Landscaping Taxi service Airlines Salon Legal Medical Insurance Financial Architectural Accounting Consulting For-Pro? t Services

Professional Services CHAPTER NINE Services Marketing 283 Careers in Marketing On the Road Again with Shomotion One of the great pleasures in teaching a Principles of Marketing class is that it offers students from a variety of majors insights into the business world that may profoundly affect them the rest of their lives. Such was the case for Michael Scherkenbach, a Natural Resource and Tourism major at Colorado State University. Upon graduation from CSU, Michael left the friendly scenic con? nes of Fort Collins, Colorado, to work for a family-owned company in Chicago, Illinois.

Although the overall experience was great, Michael found it dif? cult to work with family members on a dayto-day basis. Within a year, Michael set out on his own and created Shomotion—a service-based transportation company specializing in mobile marketing campaigns and entertainment transportation. With a lot of hard work and some incredible luck, Shomotion has assisted in the transportation service needs of the Dave Matthews Band (2000 and 2001 tours), Blink 182, Destiny’s Child, and various other national touring acts.

Shomotion was selected as the exclusive transporter for the fall 2001 Discover Card/ESPN Tailgate Tour and was contracted to handle several similar marketing tours for Lucky Magazine and Jolly Rancher in 2002. Shomotion provides users with a number of unique services. Ultimately, the company specializes in the transportation and repositioning of mobile marketing campaigns and entertainment transportation. This is accomplished through a wide variety of transportation and driver services. Shomotion’s competitive edge is its abil- Th om so n

Salt Soft Drinks Detergents Automobiles Cosmetics Fast-Food Outlets Tangible Dominant Fast-Food Outlets Advertising Agencies Scale of Market Entities Source: Adapted from G. Lynn Shostack, “Breaking Free from Product Marketing,” Journal of Marketing (April 1997): 77. Le ar ni ng ™ Figure 9. 3 Intangible Dominant Airlines Investment Management Consulting Teaching ity to provide customized solutions to meet the needs of individual customers. For instance, customers can personally select drivers from a pool of over 100 professionals and Shomotion’s entire ? et of vehicles is equipped with state-of-the-art Qualcom satellite tracking and communications. All trailers feature air-ride suspension to ensure the safe transport of sensitive cargo and are out? tted with E-track load-securing systems. Shomotion can handle human cargo in style as well. Shomotion’s full-service coach leasing company offers services such as state-of-the-art entertainment systems, “In-Motion” satellite TV and Internet access, sleeping quarters from 6 to 12 bunks, ? ber-optic interior lighting, full-size refrigerators, exterior perimeter lighting, granite ? oors, and marble countertops.

Shomotion reports that many of its clients have found coach leasing to be a cost-effective substitute for rising hotel rates. In addition to its transportation services, Shomotion offers a network of warehouses and storage facilities that greatly enhance the company’s ability to accommodate sudden changes in tour schedules and down periods during mobile marketing campaigns. Michael notes, “When the Backstreet Boys had to suddenly postpone the remaining half of their 2001 summer tour, Shomotion was able to provide secure storage for 22 equipment trailers until the tour resumed. As a result, Shomotion has been able to position itself as the company to call when customers ? nd themselves in a logistical jam. Source: Interview with Michael Scherkenbach, November 2001, and http:// www. shomotion. com. 284 PART THREE Product Experience attributes can be evaluated only during and after consumption. Credence attributes cannot be evaluated con? dently even immediately after consumption. Marketing myopia is too narrowly de? ning one’s business. Th om so n As such, services are primarily characterized by experience attributes and credence attributes.

Experience attributes can be evaluated only during and after consumption, such as a meal at a restaurant or the quality of a haircut. Credence attributes cannot be evaluated with certainty even after consumption of the product, such as a minister’s counseling or a ? nancial advisor’s retirement investment advice. Finally, businesses such as fast-food restaurants, whose products contain both a goods and services component, fall in the middle of the continuum and are characterized by a combination of search, experience, and credence attributes. The scale of market entities af? ms that companies that manufacture tangible goods and ignore, or at least forget about, the intangible service elements of their business may be overlooking a vital differential advantage in the marketplace. By de? ning their businesses too narrowly, these ? rms have developed classic cases of marketing myopia. For example, the typical family pizza parlor may myopically view itself as being solely in the pizza business. However, a broader view recognizes that the business provides consumers with a convenient, reasonably priced food product in a unique atmosphere that the ? rm has created for its customers. Interestingly, adding ervice aspects to a product often transforms the product from a commodity into a compelling experience, and by doing so dramatically increases the revenue-producing opportunities of the product. For example, Build-a-Bear Workshops offer an experience-based business model where customers and their children or grandchildren can build and accessorize their own teddy bears. Given the option of going to a store to purchase a bear for a child versus taking the child to a Build-a-Bear Workshop where they can be personally involved in producing the bear, many customers are enthusiastically opting for the latter choice.

Unique Differences between Goods and Services Initially, the ? eld of services marketing was slow to develop within the academic community. Many marketing educators felt the marketing of services did not differ signi? cantly from the marketing of goods. It was still necessary to segment markets, identify target markets, and develop marketing mixes that cater to the needs of a ? rm’s intended target market. However, since those early days, a great deal has been written regarding the speci? c differences between goods and services and their corresponding marketing implications.

The majority of these differences are attributed to four unique characteristics—intangibility, inseparability, heterogeneity, and perishability. 6 Le ar ni ng ™ CHAPTER NINE Services Marketing 285 Inseparability One of the most intriguing characteristics of the service experience involves the concept of inseparability. Inseparability refers to (1) the service provider’s physical connection to the service being provided; (2) the customer’s involvement in the service production process; and (3) the involvement of other customers in the service production process.

Th om so n Le ar ni ng ™ Inseparability Intangibility Of the four unique characteristics that distinguish goods from services, intangibility is the primary source from which the other three characteristics emerge. As a result of their intangibility, services cannot be seen, felt, tasted, or touched in the same manner that goods can be sensed. For example, compare the differences between purchasing a movie ticket and a pair of shoes. The shoes are tangible goods, so the shoes can be objectively evaluated prior to purchase.

The customer can pick up the shoes, feel the quality of materials from which they are constructed, view their speci? c style and color, and actually sample the shoe for comfort and ? t. After purchasing the shoes, the customer takes them, claiming physical possession and ownership of a tangible product. In comparison, the purchase of a movie ticket buys the customer an experience. Since the movie experience is intangible, the movie is subjectively evaluated. For example, the customer must rely on the judgments of others (e. g. , friends, movie critics, etc. who have previously experienced the service for prepurchase information. Because the information provided by others is based on their own sets of expectations and perceptions, opinions will differ regarding the value of the experience. After the movie is over, the customer returns home with a memory of the experience, retaining physical ownership of only a ticket stub. In addition, the customer’s evaluation of the movie will extend beyond what was seen on the screen to include the treatment by theater employees, the behavior of other customers, and the condition of the theater’s physical environment. s a distinguishing characteristic of services that re? ects the interconnection among the service provider, the customer receiving the service, and other customers sharing the service experience. 286 PART THREE Product Marketing Technologies In an attempt to expand sales, many traditional PC manufacturers are looking for new product development ideas that involve mobile methods of using the Internet. For example, Motorola has recognized that many consumers are away from their computer when they would most like to use it.

Motorola’s response to this consumer need is Mya, a mobile platform that integrates voice and data. According to Motorola, Mya is essentially a voiceenabled browser that eliminates the middleman—the computer. Mya has been designed speci? cally to act as a sort of digital secretary. Subscribers to Mya’s services are given an 800 number and PIN that provides 24-hour access to the Net, 7 days a week. Theoretically, a subscriber can call Mya and ask for a list of Italian restaurants within a speci? ed location. If a restaurant’s Web site has been designed to take reservations, Mya can Th om so n

Unlike the manufacturer, who may seldom see an actual customer while producing goods in a factory, service providers are often in constant contact with their customers and must construct their service operations with the customer’s physical presence in mind. Service Provider Involvement. For many services to occur, the provider must be physically present to deliver the service. For example, dental services require the physical presence of a dentist or hygienist, medical surgery requires a surgeon, and in-home services such as carpet cleaning require an actual individual to complete the work.

Because of the intangibility of services, the service provider becomes part of the physical evidence upon which the customer’s evaluation of the service experience is at least partly based. Face-to-face interactions with customers make employee satisfaction crucial. Without a doubt, employee satisfaction and customer satisfaction are directly related. The interaction of dissatis? ed employees with customers will lower consumers’ perceptions of the ? rm’s performance. The importance of employee satisfaction within service ? rms cannot be overemphasized. Customers will never be the number one priority in a company where employees are treated oorly. In fact, employees should be viewed and treated as “internal customers” of the ? rm. Customer Involvement. Unlike goods, which are produced, sold, and then consumed, services are ? rst sold and then produced and consumed simultaneously. For example, a box of breakfast cereal is produced in a factory, shipped to a store where it is sold, and then consumed by customers at a place and time of the customer’s choosing. In contrast, services are produced and consumed simultaneously (e. g. , surgery, a haircut, an amusement park ride, etc. ), so consumption takes place inside the service factory. As a result, service ? ms must design their operations to accommodate the customer’s presence. Inseparability makes the service factory another piece of physical evidence that consumers consider when making service quality evaluations. Interestingly, as customer contact increases, the ef? ciency of an operation may decrease. This happens because the customers’ involvement in the production process creates uncertainties in the scheduling of production and directly impacts the type of service desired, the length of the service delivery process, and the cycle of service demand. The attempt to balance consumer needs with ef? cient operating procedures is a

Le ar ni ng ™ Meet Mya—The Virtual Service Provider book the reservation. The limitation is that Mya can only access what is on the Internet. So, if a restaurant does not have a Web site, Mya has no way of knowing that it exists. Other services that Mya can provide include checking subscribers’ e-mail and reminding them of upcoming appointments, birthdays, and anniversaries. Although Mya is virtual, she has been given a human voice and physical appearance in order to assist in Motorola’s marketing efforts. Mya’s voice is that of Gabrielle Carteras, an actress who played Andrea on Fox television’s Beverly Hills 90210.

Mya’s physical appearance is digitally animated—she is a tall, thin blonde with spiked hair, wearing a silver pantsuit. She was created by the same ? rm that generated the special effects for Terminator 2 and Titanic. Mya’s services are currently available to BellSouth subscribers. Other networks have yet to be ? nalized. Source: Tobey Grumet, “Mya Desires Your Attention,” Revolution 1, no. 5, (2000): 25. CHAPTER NINE Services Marketing 287 delicate art. For example, imagine attempting to staff the emergency department of a hospital with exactly the right number of personnel, who have exactly the right quali? ations, on any given night. Other Customer Involvement. The presence of other customers during the service encounter is the third de? ning aspect of inseparability. Because production and consumption occur simultaneously, several customers often share a common service experience. For example, other students share your learning experience in the classroom, and other customers share your entertainment experience at a Six Flags Theme Park (Figure 9. 4). The marketing challenges presented by having other customers involved in the production process generally re? ect the negative aspects of their involvement.

For example, the popular press has been full of stories about incidents of “air rage” or “passenger-induced turbulence. ” Factors known to contribute to this disruptive behavior include alcohol abuse, sexual misconduct, smoking in nonsmoking areas, failure to follow boarding instructions, violating carry-on baggage restrictions, and a variety of other conditions that arise from lapses in creature comforts, crew training, and food quality. In fact, the number of incidents involving passengers interfering with ? ight crews has more than tripled over the last 10 years. The policing of customer misconduct aboard planes is a tricky issue.

According to one ? ight attendant, “At 37,000 feet, you don’t have the option of throwing people out like you can in a cocktail lounge. ”7 The impact of other customers is not always negative. On the positive side, audience reaction in the form of laughter or screams of terror often enhances the moviegoer’s experience. Similarly, a crowded pub may facilitate social interaction, and a happy crowd may make a concert an even more pleasurable event. As social creatures, humans tend to frequent places of business, and feel more comfortable in those places, that have other customers in them.

In fact, the lack of other customers can act as a tangible clue that the impending service experience may be less than satisfactory. For example, would you eat at an unfamiliar restaurant that had no cars in the parking lot, or would you choose to eat at the restaurant down the street with a full parking lot? In the absence of other information, at which restaurant would potential customers expect to receive the better dining experience? Th om so n The In? uence of “Other Customers” on the Service Experience Le ar ni ng ™ Figure 9. 4 288 PART THREE Product Heterogeneity s a distinguishing characteristic of services that re? ects the variation in consistency from one service transaction to the next. http://www. enterprise. com Perishability is a distinguishing characteristic of services in that they cannot be saved, their unused capacity cannot be reserved, and they cannot be inventoried. Perishability Perishability also distinguishes goods from services. It refers to the fact that services cannot be inventoried in the traditional sense. Unlike goods that can be stored and sold at a later date, services that are not sold when they become available cease to exist.

For example, hotel rooms that go unoccupied for the evening cannot be stored; airline seats that are not sold cannot be inventoried and added to another aircraft during the holiday season when airline seats are scarce; and service providers such as dentists, lawyers, and hairstylists cannot regain the time lost from an empty appointment book. The inability to inventory creates profound dif? culties for marketing services. In a manufacturing setting, the ability to create an inventory of goods means that their production and consumption can be separated by time and space.

In other words, a good can be produced in one location and transported for sale in another, or a good can be produced in January and not released into the channels of distribution until June. Most services, however, are consumed at the point of production. The existence of inventory also facilitates statistical quality control in goodsproducing organizations. A representative sample of the inventory can be easily inspected for variations in quality. In contrast, when you spend the night at a hotel, you are likely to experience a wide range of factors that in? ence your good night’s sleep. Finally, having inventory enables a business to separate the production and marketing departments. In service ? rms, however, marketing and operations constantly interact with each other and must be in synch to deliver services effectively. Because of the effects of intangibility, inseparability, heterogeneity, and perishability, marketing plays a very different role in service-oriented organizations than it does in pure goods organizations. Clearly, the different components of the service organization are closely interwoven.

The invisible and visible parts of the organization, the contact personnel and the environment in which the service is provided, the organization and its customers, and, indeed, the customers themselves are all bound together by a complex network of relationships. Consequently, the marketing department must maintain a much closer relationship with the rest of the service organization than is customary in many goods-producing businesses. The concept of operations being responsible for producing the product and marketing being responsible for selling the product cannot work in a service ? m. Th om so n Le ar ni ng ™ Heterogeneity One of the most frequently stressed differences between goods and services is the lack of ability to control service quality before it reaches the consumer. Service encounters occur in real time, and consumers are often physically present, so if something goes wrong during the service process, it is too late to institute quality-control measures before the service reaches the customer. Indeed, the customer (and other customers who share the service experience) may be part of the quality problem.

If something goes wrong during a meal in a restaurant, the service experience for a customer is bound to be affected; the manager cannot logically ask the customer to leave the restaurant, reenter, and start the meal again. Heterogeneity, almost by de? nition, makes it impossible for a service operation to achieve 100 percent perfect quality on an ongoing basis. Manufacturing operations may also have problems achieving this sort of target, but they can isolate mistakes and correct them over time because mistakes tend to reoccur at the same points in the process.

In contrast, many errors in service operations are one-time events; the waiter who drops a plate of food in a customer’s lap creates a service failure that can be neither foreseen nor corrected ahead of time. Another challenge heterogeneity presents is that not only does the consistency of service vary from ? rm to ? rm and among personnel within a single ? rm, it also varies when interacting with the same service provider on a daily basis. For example, one Enterprise rental car franchise can have helpful and pleasant employees, while another franchise might employ individuals who conduct their daily interactions with customers like robots.

Not only can this be true among different franchises, the same can be true within a single franchise on a day-to-day basis because of the mood swings of employees. CHAPTER NINE Services Marketing 289 Understanding the Service Experience • • • • Servicescape (visible) Service providers (visible) Other customers (visible) Organizations and systems (invisible) Th om so n Other Customers The Servicescape The term servicescape refers to the use of physical evidence to design service environments (Table 9. 2). 9 Due to the intangibility of services, customers often have trouble evaluating the quality of service objectively.

As a result, consumers rely on the physical evidence that surrounds the service to help them form their evaluations (Figure 9. 6). Factors In? uencing the Service Experience Customer Invisible Organization and Systems Le ar ni ng ™ Servicescapes All products, be they goods or services, deliver a bundle of bene? ts to the consumer. 8 The bene? t concept is the encapsulation of these bene? ts in the consumer’s mind. For a tangible-dominant product such as Tide laundry detergent, the bene? t concept for some consumers might simply be clean clothes. However, for other consumers the bene? concept might also include attributes ascribed to the product that go beyond the mere powder or liquid, such as cleanliness, whiteness, and/or being a good parent. In contrast to goods, services deliver a bundle of bene? ts through the experience that is created for the consumer. For example, most Tide customers will never see the inside of the manufacturing plant where Tide is produced; they will most likely never interact with the factory workers who produce the detergent or with the management staff who direct the workers; and they will also generally not use Tide in the presence of other customers.

In comparison, Taco Bell’s dine-in customers are physically present in the “factory” where the food is produced, and these customers do interact with the workers who prepare and serve the food as well as with the management staff who run the restaurant. Moreover, Taco Bell customers consume the service in the presence of other customers who may in? uence one another’s service experience. Figure 9. 5 illustrates the key factors that create the service experience for the consumer. The service experience itself creates the bene? t concept for the consumer.

The most profound implication of the service experience is this: It demonstrates that consumers are an integral part of the service process. Their participation may be active or passive, but consumers are always involved in the service delivery process. Factors that in? uence the customer’s service experience include dimensions that are visible and invisible to the customer: Bene? t concept is the encapsulation of the bene? ts of a product in the customer’s mind. refers to the use of physical evidence to design service environments. Figure 9. 5 Servicescape Service Providers 90 PART THREE Product Table 9. 2 Servicescape Dimensions Ambient Conditions Temperature Air Quality Noise Level Music Odors Figure 9. 6 Physical Evidence Is Often Used to Market Travel Destinations Th om so n Le ar ni ng ™ Space/Function Layout Equipment Furnishings Signs, Symbols, and Artifacts Signage Personal Artifacts Decor Uniforms Award Plaques CHAPTER NINE Services Marketing 291 • • • • packaging the service facilitating the service delivery process socializing customers and employees differentiating the ? rm from its competitors10 Packaging the Service. A ? m’s physical evidence plays a major role in packaging its service. The service itself is intangible and therefore does not require a package for purely functional reasons. However, the ? rm’s physical evidence does send quality cues to consumers and adds value to the service when it helps customers develop positive images of the service. The ? rm’s exterior and interior elements and other tangibles create the package that surrounds the service. The ? rm’s physical environment forms the customer’s initial impression of the type and quality of the service provided.

For example, Mexican and Chinese restaurants often utilize speci? c architectural designs that communicate to customers about their ? rms’ offerings. Physical evidence also conveys expectations to consumers. Consumers will have one set of expectations for a restaurant with dimly lit dining rooms, soft music, and linen tablecloths and napkins; they will form quite a different set of expectations for a restaurant that has picnic tables and peanut shells covering the ? oor. Facilitating the Service Process. Another use of a ? rm’s physical evidence is to facilitate the ? w of activities that produce the service. Physical evidence can provide information to customers on how the service production process works. Examples include signage that speci? cally instructs customers; menus and brochures that explain the ? rm’s offerings and facilitate the ordering process for consumers and providers; physical structures that direct the ? ow of consumers while waiting; and barriers, such as counters at a dry cleaners, that separate the technical core of the business from the customer contact areas where customers are actively involved in the production process.

Socializing Employees and Customers. Organizational socialization is the process by which an individual adapts to and comes to appreciate the values, norms, and required behavior patterns of an organization. 11 The ? rm’s physical evidence plays an important part in this socialization process by conveying expected roles, behaviors, and relationships among employees and between employees and customers. Physical evidence, such as the use of uniforms, helps to socialize employees toward accepting organizational goals and affects consumer perceptions of the caliber of service provided.

Studies have shown that the use of uniforms: aids in identifying the ? rm’s personnel presents a physical symbol that embodies the group’s ideals and attributes implies a coherent group structure facilitates the perceived consistency of performance provides a tangible symbol of an employee’s change in status (e. g. , military uniforms change as personnel move through the ranks) • assists in controlling the behavior of errant employees • • • • • Th om so n One classic example of how tangible evidence affects the socialization process of employees involves women in the military.

Pregnant military personnel were originally permitted to wear civilian clothing in lieu of their traditional military uniforms. However, the military soon noticed discipline and morale problems among these servicewomen as they began to lose their identi? cation with their roles as soldiers. “Maternity uniforms are now standard issue in the Air Force, Army, and Navy, as well as at US Air, Hertz, Safeway, McDonald’s, and the National Park Service. ”12 Le ar ni ng ™ Organizational socialization is the process by which an individual adapts to and comes to appreciate the values, norms, and required behavior patterns of an organization.

Hence, the servicescape consists of ambient conditions such as room temperature and music; inanimate objects that assist the ? rm in completing its tasks, such as furnishings and business equipment; and other physical evidence such as signs, symbols, and personal artifacts such as family pictures and personal collections. The extensive use of physical evidence varies by the type of service ? rm. Service ? rms such as hospitals, resorts, and child-care centers often use physical evidence extensively as they design facilities and other tangibles associated with the service. In contrast, service ? ms such as insurance agencies and express mail drop-off locations use limited physical evidence. Regardless of the variation in usage, all service ? rms need to recognize the importance of managing their physical evidence because of its role in: 292 PART THREE Product Figure 9. 7 The Servicescape Can Provide an Effective Means of Differentiation Th om so n Le ar ni ng ™ A Means of Differentiation. The effective management of the servicescape can also be a source of differentiation. For example, several airlines such as American Airlines, United Airlines, and British Airways are now expanding the amount of leg room available for passengers.

British Airways differentiates itself further by featuring the ? rst fully ? at bed for passengers traveling business class (Figure 9. 7). 13 In addition, the appearance of personnel and facilities often directly impact how consumers perceive the way that the ? rm will handle the service aspects of its business. Numerous studies have shown that well-dressed individuals are perceived as more intelligent, better workers, and more pleasant to engage in interactions. 14 Similarly, well-designed facilities are going to be perceived as better than their poorly designed counterparts.

Differentiation can also be achieved by utilizing physical evidence to reposition a service ? rm in the eyes of its customers. Upgrading the ? rm’s facilities often upgrades the CHAPTER NINE Services Marketing 293 Service Providers The second component of the service experience involves the personnel who provide the service. Simply stated, the public face of a service ? rm is its service providers. 15 Unlike the consumption of goods, the consumption of services often takes place where the service is produced (e. g. , hair salon, dentist of? ce, restaurant).

Even when the service is provided at the consumer’s residence or workplace (e. g. , lawn care, housekeeping, professional massage), interactions between consumers and service providers are commonplace. As a result, service providers have a dramatic impact on the service experience. For example, when asked what irritated them most about service providers, customers have noted seven categories of complaints: • Apathy: What comedian George Carlin refers to as DILLIGAD—Do I look like I give a damn? • Brush-off: Attempts to get rid of the customer by dismissing the customer completely . . the “I want you to go away” syndrome • Coldness: Indifferent service providers who could not care less what the customer really wants • Condescension: The “you are the client/patient, so you must be stupid” approach • Robotism: When the customers are treated simply as inputs into a system that must be processed • Rulebook: Providers who live by the rules of the organization even when those rules do not make good sense • Runaround: Passing the customer off to another provider, who will simply pass them off to yet another provider16 Th om so n

Service personnel perform the dual functions of interacting with customers and reporting back to the internal organization. Strategically, service personnel are an important source of product differentiation. It is often challenging for a service organization to differentiate itself from other similar organizations in terms of the bene? t bundle it offers or its delivery system. For example, many airlines offer similar bundles of bene? ts and ? y the same types of aircraft from the same airports to the same destinations. Therefore, their only hope of a competitive advantage is from the service level—the way things are done.

Hence, the factor that often distinguishes one airline from another is the poise and attitude of its service providers. Singapore Airlines, for example, enjoys an excellent reputation due in large part to the beauty and grace of its ? ight attendants. Other ? rms that hold a differential advantage over competitors based on personnel include the Ritz Carlton, IBM, and Disney Enterprises. 17 Other Customers Ultimately, the success of many service encounters depends on how effectively the service ? rm manages its clientele. A wide range of service establishments such as restaurants, hotels, airlines, and physicians’ of? es serve multiple customers simultaneously. Hence, other customers can have a profound impact on an individual’s service experience. Research has shown that the presence of other customers can enhance or detract from an individual’s service experience. 18 The in? uence of other customers can be active or passive. For instance, examples of other customers actively detracting from one’s service experience include unruly customers in a restaurant or a night club, children crying during a church service, or theatergoers carrying on a conversation during a play.

Some passive examples include customers who show up late for appointments, thereby delaying each subsequent appointment; an exceptionally tall individual who sits directly in front of another customer at a movie theater; or the impact of being part of a crowd, which increases the waiting time for everyone in the group. Though many customer actions that enhance or detract from the service experience are dif? cult to predict, service organizations can attempt to manage the behavior of customers so that they coexist peacefully. For example, ? rms can manage waiting times so Le ar ni ng ™ ttp://www. singaporeair. com http://www. ritzcarlton. com http://www. ibm. com image of the ? rm in the minds of consumers and may lead to attracting more desirable market segments, which further aids in differentiating the ? rm from its competitors. On the other hand, note that elaborate facility upgrades may alienate some customers who believe that the ? rm will pass on the costs of the upgrade to consumers through higher prices. This is precisely why many of? ces are decorated professionally, but not lavishly. 294 PART THREE Product that customers who arrive earlier than others get ? st priority, clearly target speci? c age segments to minimize potential con? icts between younger and older customers, and provide separate dining facilities for smokers and customers with children. http://www. llbean. com http://www. chrysler. com Organization and Systems The invisible component of the service experience, the organization and its systems, can also profoundly affect the consumer’s service experience. For example, throughout the last two decades, the distribution center of L. L. Bean has been a required stop for companies engaging in benchmarking exercises. 9 Many companies, including Nike, Disney, Gillette, and DaimlerChrysler, have come to see how L. L. Bean ? lls orders so effectively. In fact, the center they visited is no more; it has been replaced by a completely new approach—one driven by an ever-expanding volume of orders, an increasingly global market, and a growing variety of customized products. L. L. Bean’s old system built orders from the telephone operations, issuing them every 12 hours to pickers. The pickers assembled the orders from around the center and then delivered them to packers, who prepared the orders for shipment.

The new system, referred to as Wave Pick Technology, operates differently. Orders come directly from the telephone operators and are immediately allocated to pickers based on available capacity. Moreover, the orders are broken down by item and assigned to different pickers, who are themselves assigned to different parts of the warehouse. Order items are placed on a conveyor belt and bar-coded. Scanners then automatically assemble the orders for packing. As a result, 100 percent of orders can be serviced within 24 hours; from order to delivery to the on-site Federal Express depot only takes 2 hours. A ? m’s organization and systems also involve a human component. The behindthe-scenes activities of hiring, training, and rewarding employees are directly related to how well customers are served. The United Parcel Service (UPS) believes in building trust and teamwork and making employees loyal to the company’s mission. 20 UPS spends over $300 million a year on training, it pays full-time drivers more than $50,000 a year on average, and it surveys its employees for suggestions. The company is virtually 100 percent employee-owned. http://www. hardrock. com http://www. buildabear. com http://www. caesarspalace. com Th om so n

Creating Compelling Experiences Service ? rms that are able to effectively mold the customer’s experience via the effective management of the servicescape, service providers, other customers, and the invisible organization and system have the means to develop compelling experiences. 21 The development of compelling experiences is the latest competitive weapon in the war against service commodi? cation. For example, when priced as a commodity, coffee is worth little more than $1 per pound. When processed, packaged, and sold in the grocery store as a good, the price of coffee jumps to between 5 and 25 cents a cup.

When that same cup is sold in a local restaurant, the coffee takes on more service aspects and sells for 50 cents to $1 per cup. However, in the ultimate act of added value, when that same cup of coffee is sold within the compelling experience of a ? ve-star restaurant or the unique environment of a Starbucks, the customer gladly pays $2 to $5 per cup. In this instance, the whole process of ordering, creating, and consuming becomes a pleasurable, even theatrical, experience. Economic value, like the coffee bean, progresses from commodities to goods to services to experiences.

In this example, coffee was transformed from a raw commodity valued at approximately $1 per pound to $2 to $5 per cup—a markup of as much as 5,000 percent. Creating compelling experiences for customers is not a new idea. The entertainment industry and venues such as those operated by Disney have been doing it for years. Other types of businesses have picked up on the idea and introduced “experience” concepts, including the Hard Rock Cafe, Build-a-Bear Workshops, and a variety of theme hotels located in Las Vegas such as New York–New York, the Venetian, and Caesars Palace.

The question facing many other service providers is how to transform their own operations into memorable experiences for the customer. One unique example involves a computer repair ? rm based in Minneapolis, Minnesota. This company’s team of crack technicians, formally called the “Geek Squad,” intentionally dress in white shirts and sport thin black ties, pocket protectors, and badges. This ? rm has successfully transformed a mundane service into a memorable event that’s fun for the customer. Le ar ni ng ™ CHAPTER NINE Services Marketing 295 THE QUEST FOR CUSTOMER SATISFACTION

To market services effectively, marketing managers need to understand customers’ thought processes as they assess their satisfaction with services provided (see Figure 9. 8). Customer satisfaction is one of the most studied areas in marketing. 22 Over the past 20 years, more than 15,000 academic and trade articles have been published on the topic. Tracking customer satisfaction in the United States is a highly complex task that is currently undertaken through the joint efforts of the American Society for Quality and the University of Michigan’s business school.

The two groups have developed the American Customer Satisfaction Index (ACSI), which is based on 3,900 products representing more than two dozen manufacturing and service industries. Companies included in the study are selected based on size and U. S. market share, and together represent about 40 percent of the U. S. gross domestic product (GDP). Government services are also included in the index. An overview of the best and worst companies included in the ACSI and their satisfaction ratings is presented in Table 9. 3.

DaimlerChrysler earned top honors, while the Internal Revenue Service (IRS) brought up the bottom (although its performance is improving). Unicom and McDonald’s are the IRS’s closest competitors, with several U. S. airlines not far behind. Perhaps the most disturbing ? nding of the ACSI results is that the 10 companies at the top of the list produce goods, while the 10 at the bottom, ? rms such as the Wells Fargo & Company, Kentucky Fried Chicken, Taco Bell, and the police, are service organizations. From a historical perspective, a great deal of the work in the customer satisfaction area began in the 1970s, when consumerism was on the rise.

The rise of the consumer movement was directly related to the decline in service felt by many consumers. The decline in customer service and resulting customer dissatisfaction can be attributed to a number of sources. First, skyrocketing in? ation during this period forced many ? rms to slash service in an effort to keep prices down. In some industries, deregulation led to ? erce competition among ? rms that had never had to compete before. Price competition quickly became the main means of differentiation, and price wars quickly broke out. Here again, ? rms slashed costs associated with customer service to cut operating expenses.

As time went on, labor shortages also contributed to the decline in customer service. Motivated service workers were dif? cult to ? nd, and who could blame them? The typical service job meant low pay, no career path, no sense of pride, and no training in customer relations. Automation also contributed to the problem. Replacing human labor with machines indeed increased the ef? ciency of many operating systems, but often at the expense of distancing consumers from the ? rm and leaving customers to fend for themselves. Finally, over the years, customers have become tougher to please.

They are more informed than ever, their expectations have increased, and they are more particular about where they spend their discretionary dollars. LEARNING OBJECTIVE 2 Th om so n Is It Always Worthwhile to Keep a Customer? Although saving every customer at any cost is a controversial topic and opinions are divided, some experts believe that the customer is no longer worth saving under the following conditions: • • • • The account is no longer pro? table. Conditions speci? ed in the sales contract are no longer being met. Customers are abusive to the point that it lowers employee morale. Customer demands are beyond reasonable, and ful? ling those demands would result in poor service for the remaining customer base. • The customer’s reputation is so poor that associating with the customer tarnishes the image and reputation of the selling ? rm. Le ar ni ng ™ Figure 9. 8 http://www. asq. org 296 PART THREE Product Table 9. 3 Customer Satisfaction Ratings Top Companies Company DaimlerChrysler Maytag Colgate-Palmolive GM-Buick GM-Cadillac Hershey Foods Corporation Whirlpool Corporation Cadbury Schweppes Ford-Lincoln-Mercury H. J. Heinz Company Kenmore Source: http://www. theacsi. org, accessed 10 March 2001. Customer satisfaction is a short-term, transaction-speci? measure of whether customer perceptions meet or exceed customer expectations. Th om so n What Is Customer Satisfaction? Ultimately ? rms achieve customer satisfaction through the effective management of customer perceptions and expectations. If the perceived service is better than or equal to the expected service, then customers are satis? ed. Because of this, ? rms can increase customer satisfaction by either lowering expectations or by enhancing perceptions. Note that this entire process of comparing expectations to perceptions takes place in the minds of customers. Hence, it is the perceived service that matters, not the actual service.

One of the best examples to illustrate this concept involves a high-rise hotel. The hotel was receiving numerous complaints concerning the time guests had to wait for elevator service in the lobby. Realizing that from an operational viewpoint, the speed of the elevators could not be increased, and that attempting to schedule the guest’s elevator usage was futile, the hotel’s management installed mirrors in the lobby next to the elevator bays. Guest complaints were reduced immediately—the mirrors provided a means for guests to occupy their waiting time. Guests were observed using the mirrors to observe their own appearance and that of thers around them. In reality, the speed of the elevators had not changed; however, the customer’s perception of time had changed. Companies can also manage expectations in order to produce customer satisfaction, without in any way altering the quality of the actual service delivered. For example, Motel 6 downplayed its service in a clever advertising campaign to increase consumer satisfaction by lowering customer expectations prior to purchase. The ? rm’s advertising informs consumers of both what to expect and what not to expect: “A good clean room for $39. 99 . . . a little more in some places . . . a little less in some others . . and remember . . . we’ll leave the light on for you. ” Many customers simply do not use services such as swimming pools, health clubs, and full-service restaurants that are associated with higher-priced hotels. Economy-minded hotels, such as Motel 6, are carving out a niche in the market by providing the basics. The result is that customers know exactly what they will get ahead of time and are happy not only with the quality of the service received but also with the cost savings. Le ar ni ng ™ Bottom Companies Score 87 87 86 86 86 86 86 86 85 85 85 Company Wells Fargo & Company KFC Police service (metro) Taco Bell US West Inc.

American Airlines Continental Airlines Northwest Airlines United Airlines USAirways Group, Inc. McDonald’s Unicom Internal Revenue Service The American Customer Satisfaction Index (ACSI), which measures customer satisfaction across a variety of sectors, demonstrates the added complexity of managing a service ? rm. All of the Top Companies are traditional goods manufacturers. In contrast, those scoring lowest on the ACSI are service ? rms. Scores are out of a possible 100. Score 65 64 64 64 64 63 62 62 62 62 61 59 51 CHAPTER NINE Services Marketing 297 The Importance of Customer Satisfaction The average business does not hear from 96 percent of its unhappy customers. • For every complaint received, 26 other customers actually have the same problem. • The average person with a problem tells 9 or 10 people. Thirteen percent of dissatis? ed customers tell more than 20 people. • Customers who have their complaints satisfactorily resolved tell an average of ? ve people about the treatment they received. • Complainers are more likely to do business with you again than noncomplainers: 54 to 70 percent if their problem was resolved at all, and 95 percent if it was handled quickly. Th om so n The Bene? s of Customer Satisfaction The TARP ? gures demonstrate that customers do not actively complain to the source of the failure. Instead, consumers voice their dissatisfaction with their feet, by defecting to competitors, and with their mouths, by telling existing and potential customers exactly how they were mistreated by the offending ? rm. The impact of dissatis? ed customers on future business operations is astounding. Based on the ? gures, a ? rm that serves 100 customers per week, and boasts a 90 percent customer satisfaction rating, will be the object of thousands of negative stories by the end of the year.

For example, if 10 dissatis? ed customers per week tell 10 friends about the poor service they received, by the end of the year (52 weeks), 5,200 negative word-of-mouth communications have been generated. The TARP ? gures are not all bad news, however. Firms that effectively respond to customer complaints are the objects of positive word-of-mouth communications. Although positive news travels at half the rate of negative news, the positive stories can ultimately translate into customer loyalty and new customers. Businesses should also learn from the TARP ? ures that complainers are a ? rm’s friends. Complainers are a free source of market information, and the complaints themselves should be viewed as opportunities for the ? rm to improve its delivery systems, not as a source of irritation. As evidence, the International Customer Service Association found that of customers who had experienced a problem and complained, 54 percent continued to do business with the ? rm on a long-term basis. In comparison, only 9 percent of customers who experienced problems and did not complain continued to do business with the offending ? rm. 4 Remember, too, that less than 5 percent of consumers with problems actually complain to companies. Although some may argue that customers are unreasonable at times, little evidence can be found of extravagant consumer expectations. 25 Consequently, satisfying consumers is not an impossible task. In fact, meeting and exceeding customer expectations creates several valuable bene? ts for service ? rms. Positive word-of-mouth from existing customers often translates into new customers. In addition, satis? ed customers purchase products more frequently and are less likely to be lost to competitors than are dissatis? d customers. Companies who command high customer satisfaction ratings also seem to be able to insulate themselves from competitive pressures—particularly price competition. Customers are often willing to pay more and stay with a ? rm that meets their needs than to risk moving to a lower-priced service. Finally, ? rms that pride themselves on their customer satisfaction efforts generally provide better environments in which to work, and therefore have increased their chances to attract and retain the best and brightest employees. These positive work environments produce organizational cultures that challenge

Le ar ni ng ™ The importance of customer satisfaction cannot be overstated. Without customers, the service ? rm has no reason to exist. Every service business needs to proactively de? ne and measure customer satisfaction. Waiting for customers to complain in order to identify problems in the service delivery system, or gauging the ? rm’s progress in achieving customer satisfaction based on the number of complaints received, is naive. Consider the following ? ndings gathered by the Technical Assistance Research Program (TARP):23 298 PART THREE Product http://www. microsoft. com Figure 9. 9

Awards Enhance a Firm’s Advertising Effects Th om so n Le ar ni ng ™ employees to perform and reward them for their efforts. Some companies even use their positive work environments to encourage employee applications. Microsoft, for example, is known for providing a remarkably challenging atmosphere for the “brainy. ” “Everybody gets stock options, and most professionals hired before 1992 have thus become millionaires; six became billionaires. ”26 In and of themselves, customer


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