Marketing Service Organisations

1. Marketing Service Organisations BM404 – 2006 Lecture 2

2. Overview • Defining services • Understanding the services economy • The service sector in Australia • Mega-trends and the service sector: • Professional services • Characteristics of services • Marketing implications

3. Defining services? • Any act, performance or experience that one party can offer another; one that is essentially intangible, and does not result in the ownership of anything. Its production may or may not be tied to a physical product Lovelock (2004)

4. Characteristics of ServicesCompared to Goods Intangibility Heterogeneity Simultaneous Production and Consumption Perishability

5. Challenges for Services • Defining and improving quality • Designing and testing new services • Communicating and maintaining a consistent image • Accommodating fluctuating demand • Ensuring the delivery of consistent quality

6. Challenges for Services (cont.) • Motivating and sustaining employee commitment • Coordinating marketing, operations, and human resource efforts • Setting prices • Finding a balance between standardization versus personalization

7. Further challenges for services managers • Differentiation and competitive advantage may be difficult to achieve • Marketing orientation is still relatively new to many managers • Operations management, rather than marketing, continues to dominate • Customer service management and marketing is often in the hands of lower paid subordinates, possibly in multiple locations • Limited data on competitive performance is available • Problems in determining costs for pricing purposes

8. An expanded marketing mix for services Product (Service) People Process customers Place, Cyber-space & Time Place & Time Customers Price Price Customers Promotion PhysicalEvidence

9. Organisation Internal marketing Traditional marketing Satisfaction; Quality; Brand Loyalty Relationship management Employees Customers A framework for analysing servicesmarketing

10. Operations Management Marketing Management Customers Human Resources Management Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR Functions (Fig. 1.14)

11. Gaps model of service quality Zeithaml, Bitner and Gremler (2006)

12. The Gaps model of service quality (Zeithaml, Parasuraman & Berry 1990)

13. The Customer GapDifference between customer expectations and perceptions Expected service Customer Gap Perceived service

14. Gaps Model of Service Quality • Provider Gap 1 (The Knowledge Gap): • not knowing what customers expect • Provider Gap 2 (The Service Design & Standards Gap): • not having the right service designs and standards • Provider Gap 3 (The Service Performance Gap): • not delivering to service standards • Provider Gap 4 (The Communication Gap): • not matching performance to promises

15. Customer Gap Key Factors Leadingto the Customer Gap Customer Expectations Customer Perceptions

16. Gap 1 Figure 2.2 Key Factors Leading to Provider Gap 1 Customer Expectations Company Perceptions of Customer Expectations

17. Gap 2 Figure 2.3Key Factors Leading to Provider Gap 2 Customer-Driven Service Designs and Standards Management Perceptions of Customer Expectations

18. Gap 3 Figure 2.4Key Factors Leading to Provider Gap 3 Customer-Driven Service Designs and Standards Service Delivery

19. Gap 4 Figure 2.5Key Factors Leading to Provider Gap 4 Service Delivery External Communications to Customers

20. Figure 2.6Gaps Model of Service Quality Expected Service CUSTOMER Customer Gap Perceived Service External Communications to Customers COMPANY Service Delivery Gap 4 Gap 3 Customer-Driven Service Designs and Standards Gap 1 Gap 2 Company Perceptions of Consumer Expectations

21. Consumer behaviour in services • Examine how consumers choose and evaluate services • Identify the elements of consumer behaviour that services marketers must understand: • Choice behaviour • Consumer experiences • Post-purchase evaluation

22. Consumer Evaluation Processes for Services • Search Qualities • attributes a consumer can determine prior to purchase of a product • Experience Qualities • attributes a consumer can determine after purchase (or during consumption) of a product • Credence Qualities • characteristics that may be impossible to evaluate even after purchase and consumption

23. Figure 3.2Continuum of Evaluation for Different Types of Products Clothing Jewelry Furniture Houses Automobiles Restaurant meals Vacations Haircuts Child care Television repair Legal services Root canals Auto repair Medical diagnosis Most Services Most Goods Easy to evaluate Difficult to evaluate High in search qualities High in experience qualities High in credence qualities

24. Figure 3.3Stages in Consumer Decision Making and Evaluation of Services

25. Issues to Consider in Examining the Consumer’s Service Experience • Services as processes • Service provision as drama • Service roles and scripts • The compatibility of service customers • Customer coproduction • Emotion and mood

26. Post purchase evaluation • Captured in measures of satisfaction, service quality, loyalty, emotional engagement: • Word of mouth communication • Attribution of dissatisfaction • Positive or negative bias • positivity bias for services • Brand loyalty

27. Customer expectations of service • Identify the different types of expectations customers hold for service performance • Sources of customer expectations

28. Figure 4.2Possible Levels of Customer Expectations

29. Figure 4.3Dual Customer Expectation Levels Desired Service Adequate Service

30. Figure 4.4The Zone of Tolerance Desired Service Zone of Tolerance Adequate Service

31. Zone of Tolerance Adequate Service Figure 4.5Zones of Tolerance for DifferentService Dimensions Desired Service Level of Expectation Desired Service Zone of Tolerance Adequate Service Reliability Tangibles Source: L. L. Berry, A. Parasuraman, and V. A. Zeithaml, “Ten Lessons for Improving Service Quality,” Marketing Science Institute, Report No. 93-104 (May 1993).

32. Figure 4.6Factors That Influence Desired Service Lasting Service Intensifiers Desired Service Personal Needs Zone of Tolerance Adequate Service

33. Figure 4.7Factors That Influence Adequate Service Temporary Service Intensifiers Desired Service Perceived Service Alternatives Zone of Tolerance Self-Perceived Service Role Predicted Service Adequate Service Situational Factors

34. Figure 4.8Factors That Influence Desired and Predicted Service Explicit Service Promises Implicit Service Promises Word-of-Mouth Desired Service Zone of Tolerance Past Experience Predicted Service Adequate Service

35. Frequently Asked QuestionsAbout Customer Expectations • What does a service marketer do if customer expectations are “unrealistic”? • Should a company try to delight the customer? • How does a company exceed customer service expectations? • Do customer service expectations continually escalate? • How does a service company stay ahead of competition in meeting customer expectations?

36. Customer perceptions • Identify the factors which influence consumers’ perceptions • Examine the factors which influence satisfaction • Develop an understanding of the dimensions of service quality • Examine the importance of service encounters

37. Customer Perceptions of Quality and Customer Satisfaction

38. Factors Influencing Customer Satisfaction • Product/service quality • Specific product or service features • Consumer emotions • Attributions for service success or failure

39. Factors Influencing Customer Satisfaction • Perceptions of equity or fairness • Other consumers, family members, and coworkers • Price • Personal factors • the customer’s mood or emotional state • situational factors

40. Outcomes of Customer Satisfaction • Increased customer retention • Positive word-of-mouth communications • Increased revenues

41. ASCI and Annual Percentage Growthin S&P 500 Earnings Source: C. Fornell “Customer Satisfaction and Corporate Earnings,“ commentary appearing on ACSI website, May 1, 2001, http://www.bus.umich.edu/research/nqre/Q1-01c.html.

42. Figure 5.4 Relationship between Customer Satisfaction and Loyalty in Competitive Industries Source: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p. 83.

43. Models of service quality

44. Service Quality • The customer’s judgment of overall excellence of the service provided in relation to the quality that was expected. • Service quality assessments are formed on judgments of: • outcome quality • interaction quality • physical environment quality

45. The evolution ofservice quality • Disconfirmation of expectations • The Nordic model • The three component model • The Gaps model of service quality & SERVQUAL

46. Disconfirmation of expectations (Oliver 1980)

47. The Nordic model (Gronroos 1990) • Represents the service experience on the basis of functional and technical elements • Technical quality refers to what the customer receives from the service • Functional quality refers to service delivery • Model emphasises companies must be careful what they promise

48. The three-component model Rust & Oliver (1994) Source: Rust & Oliver, 1994. p. 11

49. The SERVQUAL dimensions – Perceived Service Quality(Parasuraman, Zeithaml & Berry 1988) • Reliability (dependability, accurate performance) • Assurance (competence, courtesy, credibility & security) • Tangibles (appearance of physical elements) • Empathy (easy access, good communications & customer understanding) • Responsiveness (promptness & helpfulness)

50. SERVQUAL