Services Management

Contents:

• Nature of services
• Market positioning
• Service delivery system
• New service development
• Services Marketing mix decisions
• Managing demand, capacity and service assets
• Service processes- managing service encounter
• Customer satisfaction and service quality
• Customer complaints and service recovery
• Managing service profit chain
• Managing customer relationships
• Managing people in service organizations
 Service

• A service is an act or performance offered by one party to the other.

Although the process may be tied to a physical product, the performance
is transitory, often intangible in nature and does not result in the
ownership of any of the factors of production.
• A service is an economic activity that creates value and provides benefits
for customers at specific times and places by bringing about a desired
change in, or on behalf of, the recipient of the service.
Lessons from Service Leaders
1. Service vision
2. High standards
3. In the field leadership styles
4. Integrity
5. Concern for customers
6. Use technology to promptly serve customer
7. Involve customers in organization growth
8. Flat organizations
9. Training of employees
 What is Service Quality

• Actual performance by the firm

• Customer satisfaction= ------------------------------------------
• Customers expectations
 The Customers view of service quality

• Customer perceptions of the firm and its offer are shaped by:

• a) Word of mouth publicity-like recommendations from friends, relatives,

neighbors and peer group at work place
• b) Personal experience on the part of the customer
• c) Personal needs of individual customers
• d) External communications like the publicity of the firm in the media and
its advertisements and other corporate communications
• a) The quality of service or customer satisfaction=service quality delivered
- service expected

• b) The value of a service to a customer= Service quality(both the results

realized and process by which they are achieved)+
• price and other customer costs of acquiring the service

• c) Potential profit ‘leverage’ in providing the service=value to the

customer-cost to the service provider

• d) The profitability of a service to its provider=marginrepeat

usageinvestment
• Service encounters or “moments of truth” are a dynamic force
• with a potential to fuel self-reinforcing relationships.
• -To create this self-reinforcing process, one has to understand the two
important players in corporate profitability-the customer and the firm
itself.

• Development of customer-oriented policies like guarantees, warranties,

replacements, refund and exchange policies.
 How is Service Quality Measured?

• SERVQUAL=(Perception of an ideal company as measured by the rating

given by the customer on the ten point scale for each variable -
( Expectation or actual service provided by the rating given by the ten
point scale for each variable or for the firm as a whole).
 Planning for Service

• Strategic Options
• a) Locating service points near the customer
• b) Making delivery points user friendly
• c) Reducing time gap between service sought and delivered
• d) Product design
• e) Unconditional guarantee
• f) Role clarity and empowering people
• g) Customer service and satisfaction is a result of team-work
• h) Performance measurement and reward systems
• i) Research
• k) Training of people
 Differences between Goods and Services

• Goods are tangible and services are Intangible. Services thus cannot be
inventoried or patented or readily displayed. Intangible elements
dominate value creation.
• Customers do not obtain the ownership of services. Customers may be
involved in the production process.
• Goods are normally standardized whereas services are heterogeneous.
Since services are provided by human beings no two services will be
precisely alike. The heterogeneity connected with services is largely the
result of human interaction between the service provider and the
customer. It becomes a bit difficult to quantitatively evaluate service.
• In case of goods, the production is separate from consumption whereas in
services the production and consumption is simultaneous. Customers also
participate and affect the transaction.
• Goods are non perishable whereas services are perishable. Mass
production of service is very difficult and services cannot be returned or
resold.
• Time factor assumes great significance and importance for service.
• With regards to goods and services, the distribution channel may assume
different forms
 Market positioning

• The importance for service firms to adopt focused strategies in their

choice of markets and products
• What is the distinction between important and determinant attributes in
consumer choice decisions?
• What are the key concepts underlying competitive positioning strategy in
services?
• When is it appropriate to reposition an existing service offering?
• How can positioning maps help service marketers to better understand
and respond to competitive dynamics?
• Identifying and selecting target segments
• Market and micro segmentation

• Positioning distinguishes a brand from its competitors:

• A company must establish a position in the minds of its targeted
customers
• The position must be singular, providing one simple and consistent
message.
• The position must set a company apart from its competitors
• A company cannot be all things to all people; it must focus its efforts
• Conduct periodic internal, market and competitor analysis.
 Service delivery system

• Identifying the primary channels through which services are delivered to

end customers: a) Direct delivery of service and b) Delivery of service
through intermediaries

• Direct or company owned channels

• Franchising: Advantages: a) A leveraged business format for greater
expansion and revenues. b) Consistency in outlets. C) Knowledge of local
markets d)Shared financial risk and more working capital. Disadvantages:
Difficulty in maintaining and motivating franchisees b) High dispute
between franchisees and franchisers c) customer relationships controlled
by franchisee rather than franchiser
• Agents and brokers
• Electronic channels: benefits: a) Consistent delivery for standardized
services b) Low cost c) Customer convenience d) wide distribution
e)customer choice and ability to customize f) Quick customer feedback.
Challenges and disadvantages: a) Price competition b) Inability to
customize with highly standardized services c) Lack of consistency due to
customer involvement d) changes in customer behavior e)competition
from widening geographies
 New Service Development

• When there is a new service development, it has to have the following

four basic characteristics: a) Must be objective and not subjective b)Must
be precise and not vague c)Must be fact driven and not opinion driven
d)Must be methodological and not philosophical.

• Types of new services:

• Major or radical innovations ( television or computer)
• Start up businesses consists of new services for a market that is already
served by existing products that meet the same generic needs ( on line
banking for financial transactions)
• New services for the currently served market represent attempts to offer
existing customers of the organization a service not previously available
from the company ( An airline offering fax or internet service during
flights)
• Service line extensions represent augmentations of the existing service
line ( An airline offering new routes)
• Service improvements represent perhaps the most common type of
service innovation. ( A hotel room having a WIFI zone)
• Style changes represent the most modest service innovations although
they are highly visible and can have significant effects on customer
perceptions ( revising the logo of a brand, changing the color scheme of a
retail chain etc)
 Stages in new service development

• Business strategy development or review

• New service strategy development
• Idea generation( screen the ideas against new service strategy)
• Concept development and evaluation ( test concept with customers and
employees)
• Business analysis ( test for profitability and feasibility)
• Service development and testing ( conduct service prototype and test)
• market testing ( test the service and other marketing mix elements)
• Commercialization
• Post introduction evaluation
 Services marketing mix decisions

• Product: Physical good features / quality level / accessories / packaging /

warranties / product lines / branding
• Place: channel type / exposure / intermediaries / outlet locations /
transportation / storage / managing channels
• Promotion: promotion blend / sales people and their selection, training
and incentives / advertising / media types / types of ads / sales promotion
/ publicity / internet / web strategy
• Price: flexibility / price level / terms / differentiation / discounts /
allowances
• Expanded mix: People / physical evidence / process
• People: employees and their recruiting, training, motivation, rewards and
team work / customers and their education and training. People can be
defined as all human actors who play a part in service delivery and thus
influence the buyers perceptions namely the firm’s personnel, the
customer & other customers in the service environment
• Physical evidence: facility design / equipment / signage / employee dress /
other tangibles like reports, business cards, statements etc. physical
evidence is the environment in which the service is delivered and where
the firm and customer interact and any intangible components that
facilitate performance or communication of the service.

• Process: flow of activities / standardized and customized / number of

steps- simple, complex, customer and involvement. Process refers to the
actual procedures, mechanisms and flow of activities by which the service
is delivered- the service delivery and operating systems
 Managing demand, capacity and service assets

• At any given point of time, a fixed capacity service may face one of the
four conditions:
• Excess demand: The level of demand exceeds maximum available
capacity, with the result that some customers are denied service and
business is lost.
• Demand exceeds optimum capacity: No one is turned away, but
conditions are crowded, and customers are likely to perceive a
deterioration in quality of service and to feel dissatisfied.
• Demand and supply are well balanced: This is the level of optimum
capacity. Staff and facilities are busy without being overworked, and
customers receive good service without delays.
• Excess capacity: Demand is below optimum capacity, and productive
resources are underutilized, resulting in low productivity. Low use also
poses a risk that customers may find the experience disappointing or have
doubts about the viability of the service
 Defining productive capacity

• The term productive capacity refers to the resources or assets that a firm
can use to create goods and services. In the service context, productive
capacity can take several forms:
• Physical facilities designed to contain customers and used for delivering
people processing services or mental stimulus processing services ( eg.
Hotels and clinics could have a constraint of beds)
• Physical facilities designed for storing or processing goods that either
belong to customers or are being offered to them for sale. (ware houses,
parking lots)
• Physical equipment used to process people, possessions or information
which may embrace a huge range of items and be very situation specific
( ATM centres, airport security detectors etc)
• Labor, a key element of productive capacity in all high contact services
and many low contact ones( hotel waiters, nurses, call center staff)
• Infrastructure: Many organizations depend on access to sufficient capacity
in the public or private infrastructure to be able to deliver quality service
to their own customers ( congested airways that lead to air traffic
restrictions on flights)
 Adjusting capacity to match demand

• Schedule down time during periods of low demand. Take care of repairs
and maintenance during this period. Employees could also go on holidays
during the period
• Use part time employees: ( extra staff during season and peak hours)
• Rent or share extra facilities or equipment
• Cross train employees to perform a varied range of functions
 Service processes- managing service encounter

• Definition of standards for each front stage activity.

• Physical and other evidence for front stage activities
• Principal customer actions
• Line of interaction
• Front stage action by customer contact personnel
• Line of visibility
• Backstage actions by customer contact personnel
• Support processes involving other service personnel
• Support processes involving information technology
 Customer satisfaction and service quality

• Why is customer loyalty important to a firm’s profitability?

• Profit derived from increased purchases
• Profit from reduced operating costs (as customers become more
experienced and used to the product, their demands on the supplier is
less)
• Profit from referrals to other customers
• Profit from price premium (new customers normally benefit from
introductory promotional discounts)
 Customer lifetime value and Customer equity

• Customer equity refers to the total sum of the discounted lifetime values
of all the firm’s current customers. In fast moving and dynamic industries
that involve customer relationships, products come and go, but customers
remain. In order to calculate customer equity, the discounted value of
each individual customer through out his or her expected life time as a
customer of the firm is determined through the customer lifetime value.
The sum of CLVs for all customers equates to the firm’s customer equity.
Calculating CLV requires an understanding of the costs and revenues
associated with the customer on a year by year basis. Undertaking these
calculations can be simplified by developing a segment by segment
assessment, instead of studying each customer individually
 Understanding the customer / Firm relationship

• Transactional marketing
• Database marketing
• Interaction marketing
• Network marketing
• Creating ‘Membership’ relations
• Searching for value and not just numbers
• Selecting an appropriate customer portfolio
• Tiering the customer base ( platinum/ gold/ silver)
• Retaining and upgrading customers
• Building the customer loyalty
 CRM-Customer Relationship Management

• CRM aims to retain each valued customer by developing a long term

relationship and providing an excellent customer service. It improves the
loyalty and ultimately, the co’s profitability. To achieve this, many cos are
investing in CRM systems which include software applications to
integrate: a) Sales b)Customer service and C)Marketing information
 CRM- Customer Relationship Management

• CRM is a comprehensive strategy and process of acquiring, retaining and

partnering with selective customers to create superior value for the
company and the customer.
• The purpose of CRM is to improve marketing productivity and enhance
mutual value for the parties involved in the relationship.CRM has the
potential to improve marketing productivity and create mutual values by
increasing the efficiencies and enhancing marketing effectiveness.
• By seeking and achieving operational goals, such as lower distribution
costs, streamlining order processing and inventory management, reducing
the burden of excessive customer acquisition costs, and thru customer
retention economics, firms could achieve greater marketing efficiencies.
 Customer Loyalty Programs

• Continuity marketing
• One-to-One marketing
• Partnering Programs
 Information requirements for an effective CRM Solution

• The employees of a firm employing CRM would require rich information

about their firm and customer base including the following
• Information about the market
• Information about the firm
• The current customer segment
• Demographic distribution
• The firm’s best customers and the segment they belong to
• Customers’ personal details such as name, address, family details etc
• History of past and present behaviour
• Habits and preferences of customers
• Events coming up in their lives
 CRM

• CRM in effect means building long term relationship with your customers
and understanding their needs and responding thru multiple products
and services thru multiple channels.
• CRM should finally enable a targeted mutually beneficial profitable
relationship with individuals and groups .
• A good CRM should allow for:
• Differentiate customers
• Differentiate offerings (be more customized)
• Keep existing customers
• Maximize life time value: exploit cross selling potentials
• Increase customer loyalties as loyal customers are more profitable
 CRM activities

• The CRM cycle can be briefly described as follows:

• Learning from customers and prospects
• Creating value for customers and prospects
• Creating loyalty
• Acquiring new customers
• Creating profits
 Impact of technology on CRM

• With technology touching the way we live our lives, expectations of

individuals are fast changing. The visible trends are:
• More individuals like to be treated as a single person rather than as one
among the masses
• People wish products and services round the clock
• With abundance of products and services, consumers’ loyalty can only be
commanded by providing better portfolio of services
• Speed of response and understanding each individual is one of the key
issues. CRM has thus become the central focus area around which the
entire gamut of organizational activities has to evolve around
 Emerging Impact of E-COM on CRM

• Speed
• Increase of Global market space
• Around the clock availability
• Expansion of partners
• Disappearance of time zones
 E-CRM

• E-CRM provides companies with a means to conduct interactive,

personalized and relevant communications with customers across both
electronic and traditional channels. It utilizes a complete view of the
customer to make decisions about channel delivery.
• Companies need to take firm decisions to employ E-CRM in order to:
• Optimize the value of interactive relationships
• Enable the business to extend its personalized reach
• Co-ordinate marketing activities across all customer channels
• Leverage customer information for more effective E-Marketing & E-
Business
• Focus the business on improving customer relationships and earning a
greater share of each customers’ business thru consistent measurement,
assessment and actionable customer strategies
 The six E’s of E-CRM

• Electronic channels
• Enterprise
• Empowerment
• Economics
• Evaluation
• External information
 Customer complaints and service recovery

• Why do customers complain?

• Obtain restitution or compensation
• Vent their anger
• Help to improve service
• For altruistic reasons ( some customers may want to spare other
customers from facing similar problems)
 Service recovery process

• Whenever there is a complaint, the first stage in the service recovery

process is:
• Procedural justice : this has to do with the policies and rules that any
customer will have to go through in order to seek fairness. Here,
customers expect the firm to assume responsibility, which is the key to
start of a fair procedure, followed by a convenient and responsive
recovery process. That includes flexibility of the system and consideration
of customer inputs in to the recovery process
• Interactional justice: It involves the firm’s employees who provide the
service recovery and their behavior toward the customer. Giving an
explanation for the failure and making an effort to resolve the problem
are very important. However, the recovery effort must be perceived as
genuine, honest and polite.
• Outcome justice: it pertains to the compensation that the customer
receives as a result of the losses and inconveniences incurred because of
the service failure. This includes compensation for not only the failure but
also the time, effort and energy spent during the process of service
recovery
 Handling customer complaints

• Act quickly
• Admit mistakes but don’t be defensive
• Show that you understand the problem from each customer’s point of
view
• Don’t argue with customers
• Acknowledge the customer’s feelings
• Give customers the benefit of doubt
• Clarify the steps needed to solve the problem
• Keep customers informed of progress
• Consider compensation
• Persevere to regain customer goodwill