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Process checkpoints

(1) collect information, (2) diagnose problems, (3) recommend alternative solutions, (4) select alternatives, and (5) implement solutions. Next, it could agree with the client up-front that it will communicate at major process checkpoints—after diagnosing the problem, before selecting the alternative, and so on—to make certain that the job is progressing as planned.

Business Analysis *Front-End Planning

*Business Analysis Assuming that the service concept is favorably evaluated by customers and employees at the concept development stage, the next step is to estimate its economic feasibility and potential profit implications. Demand analysis, revenue projections, cost analyses,and operational feasibility are assessed at this stage. Because the development of service concepts is so closely tied to the operational system of the organization, this stage will involve preliminary assumptions about the costs of personnel hiring and training, delivery system enhancements, facility changes, and any other projected operations costs. .

Service garuntees -A guarantee is a particular type of recovery tool that can be used to both "fix the customer" and "fix the problem." In a business context, a guarantee is a pledge or assurance that a product offered by a firm will perform as promised, and if not then some form of reparation will be undertaken by the firm. *Types of Service Guarantees Service guarantees can be unconditional satisfaction guarantees or service attribute guarantees. For unconditional satisfaction guarantees, any aspect of the service, whether related to the outcome or the delivery process, should be to the customer's liking there are no limits or conditions.

*Characteristics of Effective Guarantees +Unconditional - Effective guarantees should be unconditional no strings attached. The Hampton Inn Hotels guarantee does not impose any conditions. Some guarantees can appear as if they were written by the legal department (and often are), with all kinds of restrictions, proof required, and limitations. Guarantees with such restrictions are generally not effective. *Meaningful -An effective guarantee should be meaningful. Guaranteeing what is obvious or expected is not meaningful to customers. For example, a water delivery company offered a guarantee to deliver water on the day promised or a free jug of water would be provided next time. In that industry, delivery on the day scheduled was an expectation nearly always met by every competitor—thus, the guarantee was not meaningful to the customer. *Easy to Understand -A firm's guarantee should also be easy to understand and communicate to both customers and employees. Sometimes the wording is confusing, the guarantee language is verbose, or the guarantee contains so many restrictions and conditions that neither customers nor employees are certain what is being guaranteed. *Easy to Invoke -Similarly, an effective guarantee should be easy to invoke. British Airways offered a guarantee, presented on page 203, to exceed the expectations of its business class customers. To invoke the guarantee, customers merely had to complete an online form and explain why the service at British Airways did not meet or exceed their expectations. Requiring customers to write a detailed letter and/or provide documented proof of service failure are common pitfalls that make invoking a guarantee time-consuming and not worth it to the customer, particularly if the dollar value of the service is relatively low.

Commercialization

*Commercialization-During the commercialization stage, the service goes live and is introduced to the marketplace. This stage has two primary objectives. The first is to build and maintain acceptance of the new service among large numbers of the service delivery personnel who will be responsible day-to-day for service quality. The second objective is to monitor all aspects of the service during introduction and through the complete service cycle. If the customer needs six months to experience the entire service, then careful monitoring must be maintained through at least six months. Every detail of the service should be assessed—phone calls, face-to-face transactions, billing, complaints, and delivery problems. Operating efficiency and costs should also be tracked.

RELATIONSHIP DEVELOPMENT STRATEGIES Customer Inertia One reason that customers commit to developing relationships with firms is that a certain amount of effort may be required to change firms. Sometimes consumers simplistically state that "it's just not worth it" to switch providers. Inertia may even explain why some dissatisfied customers stay with a provider. In discussing why people remain in relationships (in general) that they no longer find satisfying, scholars suggest that people may stay because breaking the relationship would require them to restructure their life—to develop new habits of living, to refashion old friendships, and to find new ones. 40 All would require effort and a change in behavior—and people do not like to change their behavior. To retain customers, firms might consider increasing the perceived effort required on the part of the customer to switch service providers.

*Core Service Provision -Retention strategies will have little long-term success unless the firm has a solid base of service quality and customer satisfaction on which to build. A firm needs to begin the relationship development process by providing a good core service delivery that, at a minimum, meets customer expectations and provides customers with perceived value. It does no good to design relationship strategies for inferior services. Intuit and USAA, provide convincing support for the argument that excellence in the core service or product offered is essential to a successful relationship strategy. *Switching Costs -In many instances, customers develop loyalty to an organization in part because of costs involved in changing to and purchasing from a different firm. These costs, both real and perceived, monetary and nonmonetary, are termed switching costs. Switching costs include investments of time, money, or effort—such as setup costs, learning costs, and contractual costs—that make it challenging for the customer to move to another provider. +Learning costs are those costs associated with learning the idiosyncrasies of how to use a product or service; in many situations, a customer who wishes to switch firms may need to accumulate new user skills or customer know-how. +Contractual costs arise when the customer is required to pay a penalty to switch providers (e.g., prepayment charges for customer-initiated switching of mortgage companies or mobile telephone services), making it financially difficult, if not impossible, for the customer to initiate an early termination of the relationship. To retain customers, firms might consider increasing their switching costs to make it difficult for customers to exit the relationship +Customer Inertia -Customers commit to developing relationships with firms because a certain amount of effort may be required to change firms. Consumers state that "it's just not worth it" to switch providers. Inertia may even explain why some dissatisfied customers stay with a provider. Breaking the relationship would require them to estructure their lifeto develop new habits of living, to refashion old friendships, and to find new ones. -To retain customers, firms might consider increasing the perceived effort required on the part of the customer to switch service providers.

Upward communication research

*Executive Visits to Customers This approach is frequently used in business-to-business service marketing. *Executive or Management Listening to Customers Direct interaction with customers adds clarity and depth to managers' understanding of customer expectations and needs. Many companies require executives to perform entry-level jobs to promote understanding of their customers. *Research on Intermediate Customers Intermediate customers (such as contact employees, dealers, distributors, agents, and brokers) are people the company serves who serve the end-customer. Researching the needs and expectations of these customers in serving the end-customer can be a usefuland efficient way to both improve service to and obtain information about end-users. Provides opportunities for understanding end-customers' expectations and problems. It can also help the company learn about and satisfy the service expectations of intermediate customers. *Research on Internal Customers Employees who perform services are themselves customers of internal services on which they depend heavily to do their jobs well. there is link between the quality of internal service that employees receive and the quality of the service they provide their own customers. For this reason, it is important to conduct employee research that focuses on the service that internal customers give and receive. *Executive or Management Listening Approaches to Employees.Employees who actually perform the service have the best possible vantage point for observing the service and identifying impediments to its quality. Customer contact personnel are in regular contact with customers and thereby come to understand a great deal about customer expectations and perceptions. If the information they know can be passed on to top management, top managers' understanding of the customer may improve. *Employee Suggestions Most companies have some form of employee suggestion program whereby contact personnel can communicate to management their ideas for improving work.

TYPES OF CUSTOMER-DEFINED SERVICE STANDARDS customers. Unlike the hard service standards described earlier, such soft standards are not easily quantifiable, but a firm's performance on these standards can be assessed via surveys and other means that capture customer perceptions of how the firm is doing on the standards.

*Hard Customer-Defined Standards-things that can be counted, timed, or observed through audits. *Soft Customer-Defined Standards - Not all customer priorities can be counted, timed, or observed through audits. Example, "understanding and knowing the customer"is a customer priority that cannot be adequately captured by a standard that counts, times, or observes employees. In contrast to hard measures, soft measures must be documented using perceptual data. We call the second category of customer-defined standards soft standards and measures because they are opinion-based measures nd cannot be directly observed. They must be collected by talking to customers,employees, or others. Soft standards provide direction, guidance, and feedback to employees in ways to achieve customer satisfaction and can be examined by measuring customer perceptions and beliefs.

Idea generation *Front-End Planning

*Idea Generation The next step in the process is the generation of new ideas that can be passed through the new service strategy screen described in the preceding step. Formal brainstorming, solicitation of ideas from employees and customers, lead user research, and learning about competitors' offerings are some of the most common approaches. Some companies work with outsiders ( competitors, vendors, alliance partners) in an effort to exploit all possible sources of new ideas. Observing customers and how they use the firm's products and services can also generate creative ideas for new innovations. Effective in situations in which customers may not be able to recognize or verbalize their needs.

Implementation

*Implementation-Once the new service concept has passed all the front-end planning hurdles, it is ready for the implementation stages of the process. Service Prototype Development and Testing In the development of new tangible products, the development and testing stage involves the construction of product prototypes and testing for consumer acceptance.Again, because services are intangible and simultaneously produced, consumed, and frequently cocreated, this step presents unique challenges. To address these challenges, this stage of service development should involve all who have a stake in the new service. During this phase, the concept is refined to the point at which a detailed service blueprintillustrating the customer experience and the implementation plan for the service can be produced. The blueprint is likely to evolve over a series of iteractions on the basis of input from all involved parties.

Blueprint Components The conventions for drawing service blueprints are not rigidly defined, and thus the particular symbols used, the number of horizontal lines in the blueprint, and the labels for each part of the blueprint may vary somewhat depending on the complexity of the blueprint being described. Flexibility compared with other process mapping approaches is one of service blueprinting's major strengths.

*Key components: 1.Customer actions, 2.Onstage/visible contact employee actions, 3.Backstage/invisible contact employee actions, 4.Support processes. 1.The customer actions area encompasses the steps, choices, activities, and interactions that the customer performs in the process of purchasing, experiencing, and evaluating the service. 2.The activities that the contact employee performs that are visible to the customer are the onstage/visible contact employee actions. In the legal services setting, the actions of the attorney (the contact employee) visible to the client. -Example, the initial interview, intermediate meetings, and final face-to-face delivery of legal documents. 3.Those contact employee actions that occur behind the scenes to support the onstage activities are the backstage/invisible contact employee actions. In the example, anything the attorney does behind the scenes to prepare for the meetings or to prepare the final documents will appear in this section of the blueprint, The four key action areas are separated by three horizontal lines. 1 First is the line of interaction, representing direct interactions between the customer and the organization. Anytime a vertical line crosses the horizontal line of interaction, a direct contact between the customer and the organization, or a service encounter has occurred. 2.The next horizontal line is the critically important line of visibility. This line separates all service activities visible to the customer from those not visible. In reading blueprints, it is immediately obvious whether the consumer is provided with much visible evidence of the service simply by analyzing how much of the service occurs above the line of visibility versus the activities carried out below the line. This line also separates what the contact employees do onstage from what they do backstage. 3.The third line is the line of internal interaction, which separates customer-contact employee activities from those of other service support activities and people. Vertical lines cutting across the line of internal interaction represent internal service encounters.

New Service Strategy Development *Front-End Planning

*New Service Strategy Development Research suggests that a product portfolio strategy and a defined organizational structure for new product or service development are critical and are the foundations for success. The types of new services that will be appropriate depend on the organization's goals, vision, capabilities, and growth plans. By defining a new service innovation strategy (possibly in terms of markets, types of services, time horizon for development, profit criteria, or other relevant factors), the organization will be in a better position to begin generating specific ideas.

Postintroduction Evaluation

*Postintroduction Evaluation-At this point, the information gathered during commercialization of the service can be reviewed and changes made to the delivery process, staffing, or marketing mix variables on the basis of actual market response to the offering. No service will ever stay the same. Whether deliberate or unplanned, changes will always occur. changes are critical to the customer

SERVICE RECOVERY STRATEGIES: FIXING THE CUSTOMER customers are looking for following their complaints: outcome fairness, procedural fairness, and interactional fairness. Respond quickly Provide appropriate communication Supply adequate explanations treat customers fairly Cultivate Relationships with Customers Encourage and Track Complaints Learn from Recovery Experiences Learn from Lost Customers

*Respond Quickly- Complaining customers want quick responses. Thus, when the company has service failures or receives complaints from customers, it must be prepared to act on them quickly. *Provide Appropriate Communication Display Understanding Accountability -In many service failure situations, customers are not looking for extreme actions from the firm; however, they are looking to understand what happened and for firms to be accountable for their actions (or inactions). Research by the Customer Care Alliance has identified the eight most common "remedies" that customers seek when they experience a serious problem. *Supply Adequate Explanations-In many service failures, customers try to understand why the failure occurred. Explanations can help to diffuse negative reactions and convey respect for the customer. *Treat customers fairly-customers are looking for following their complaints: outcome fairness, procedural fairness, and interactional fairness. +Outcome Fairness -In their service recovery efforts firms should provide customers with outcomes, or compensation, that match the level of their dissatisfaction. This compensation can take the form of actual monetary compensation, an apology, future free service, reduced charges, repairs, and/or replacements. +Procedural Fairness -In addition to fair compensation, firms should treat customers fairly in terms of policies, rules, and timeliness of the complaint process. Customers want easy access to the complaint process, and they want things handled quickly, preferably by the first person they contact. They appreciate companies that can be adaptable in their procedures, Fair procedures are characterized by clarity, speed, and absence of hassles. Unfair procedures are those that customers perceive as slow, prolonged, illogical, and inconvenient. +Interactional Fairness -Above and beyond providing fair compensation and hassle-free, quick procedures, firms need to treat customers politely, with care and honesty, during the service recovery process. *Encourage and track complaints -Even if an organization aims for 100 percent service quality, failures occur. A critical component of a service recovery strategy is thus to encourage and track complaints. *Learn from Recovery Experiences-Recovery. At RitzCarlton Hotels, all employees carry service recovery forms called "instant action forms" with them at all times, so that they can immediately record service failures and suggest actions to address them. *Learn from lost customers -Another key component of an effective service recovery strategy is to learn from the customers who defect or decide to leave. Formal marketing research to discover the reasons customers have left can assist in preventing failures in the future. This type of research is difficult, even painful for companies, however. No one really likes to examine their failures. Yet such examination is essential for preventing the same mistakes and losing more customers in the future. *Make the Service Fail-Safe—Do It Right the First Time! The first rule of service quality, and arguably the best service recovery strategy, is to do it right the first time. In this way recovery is unnecessary, customers get what they expect, and the costs of redoing the service and compensating for errors can be avoided. As you have already learned, reliability, or doing it right the first time, is the most important dimension of service quality across industry contexts.Poka yokes are automatic warnings or controls in place to ensure that mistakes are not made; essentially, they are quality control mechanisms, typically used on assembly lines.

Relationship challenges-The Customer Is Not Always Right The assumption that all customers are good customers is very compatible with the belief that "the customer is always right," this statement is not always true, and in some cases it may be preferable for the firm to not continue its relationship with a customer.

*The Wrong Segment A company cannot target its services to all customers; some segments are more appropriate than others. It would not be beneficial to either the company or the customer for a company to establish a relationship with a customer whose needs the company cannot meet. -For example, a school offering a lock-step, daytime MBA program would not encourage full-time working people to apply for its program, nor would a law firm specializing in government issues want to establish a relationship with individuals seeking advice on trusts and estates. *Not Profitable in the Long Term -In the absence of ethical or legal mandates, organizations will prefer not to have long term relationships with unprofitable customers. Some segments of customers will not be profitable for the company even if their needs can be met by the services offered. -EX-When there are not enough customers in the segment to make it profitable to serve, when the segment cannot afford to pay the cost of the service, and when the projected revenue flows from the segment would not cover the costs incurred to originate and maintain their business. Retailers, banks, mortgage companies, and credit card companies routinely refuse to do business with individuals whose credit histories are unreliable. Although the short-term sale may be beneficial, the long-term risk of nonpayment makes the relationship unwise from the company's point of view. Similarly, some car rental companies check into the driving records of customers and reject bad-risk drivers. *Difficult Customers -Managers have repeated the phrase "the customer is always right" The customer is not always right. In many situations, firms have service encounters that fail because of dysfunctional customers. Dysfunctional customer behavior consists of the actions by customers who intentionally, or perhaps unintentionally, act in a manner that in some way disrupts otherwise functional service encounters. Such behavior is considered dysfunctional from the perspective of the service provider and perhaps fellow customers. Dysfunctional customer behavior can affect employees, other customers, and the organization. Research suggests that exposure to dysfunctional customer behavior can have psychological, emotional, behavioral, and physical effects on employees. Can create both direct costs and indirect costs for the organization. Direct costs of such behavior can include the expense of restoring damaged property, increased insurance premiums, property loss by theft, costs incurred in compensating customers affected by the dysfunctional behavior of others, and costs incurred through illegitimate claims by dysfunctional customers. Indirect costs might include increased workloads for staff required to deal with dysfunctional behavior as well as increased costs for attracting and retaining appropriate personnel and, perhaps, for absenteeism payments.

CHALLENGES OF SERVICE INNOVATION AND DESIGN 1.Oversimplification 2.incompletness 3.Biased interpritation

*The first risk is oversimplification. " Saying that 'portfolio management' means 'buying and selling stocks' is like describing the space shuttle as 'something that flies.' Some people will picture a bird, some a helicopter, and some an angel." *The second risk of using words alone is incompleteness. In describing services, people (employees, managers, customers) tend to omit details or elements of the service with which they are not familiar. A person might do a fairly credible job of describing how a discount stock brokerage service takes orders from customers. But would that person be able to describe fully how the monthly statements are created, how the interactive computer system works, and how these two elements of the service are integrated into the order-taking process? -biased by personal experiences and degree of exposure to the service. There is a natural tendency to assume that, because all people have gone to a fast-food restaurant, they all understand what that service is. Persons working in different functional areas of the same service organization (a marketing person, an operations person, a finance person) are likely to describe the service very differently as well, biased by their own functional blinders. *Final risk of describing services using words alone is biased interpretation. No two people will define "responsive," "quick," or "flexible" in exactly the same way. For example, a supervisor or manager may suggest to a frontline service employee that the employee should try to be more flexible or responsive in providing service to the customer. Unless the term "flexibility" is further defined, the employee is likely to interpret the word differently than the manager.

Benefits of Service Guarantees Service organizations are now recognizing that guarantees can serve not only as a marketing tool but also as a means for defining, cultivating, and maintaining quality throughout an organization. The benefits to the company of an effective service guarantee are numerous. The bottom line for the company is that an effective guarantee can affect profitability through building customer awareness and loyalty, through positive word-of-mouth communication, and through reduction in costs as service improvements are made and service recovery expenses are reduced. Indirectly, the guarantee can reduce costs of employee turnover through creating a more positive service culture.

-A good guarantee forces the company to focus on its customers. To develop a meaningful guarantee, the company must know what is important to its customers—what they expect and value. In many cases "satisfaction" is guaranteed, but for the guarantee to work effectively, the company must clearly understand what satisfaction means for its customers (what they value and expect). -An effective guarantee sets clear standards for the organization. It prompts the company to clearly define what it expects of its employees and to communicate that expectation to them. The guarantee gives employees service-oriented goals that can quickly align employee behaviors with customer strategies. For example, Pizza Hut's guarantee "If you're not satisfied with your pizza, let our restaurant know. We'll make it right or give you your money back" lets employees know exactly what they should do if a customer complains. It is also clear to employees that making it right for the customer is an important company goal. -A good guarantee generates immediate and relevant feedback from customers. Having a guarantee can provide an incentive for customers to complain and thereby provides more representative feedback to the company than simply relying on a relatively small number of customers to voice their concerns. The guarantee communicates to customers that they have the right to complain. -When the guarantee is invoked there is an instant opportunity to recover. Dissatisfaction can perhaps be controlled, or at least not allowed to grow, if the customer is exposed to instant recovery. A quick recovery can go a long way toward satisfying the customer and helping retain loyalty. -Information generated through the guarantee can be tracked and integrated into continuous improvement efforts. Guarantees can provide a somewhat structured mechanism for listening to the cusomter, thus helping to close the listening gap. A feedback link between customers and service operations decisions can be strengthened through the guarantee. -For customers, the guarantee reduces their sense of risk and builds confidence in the organization. Because services are intangible and often highly personal or ego-involving, customers seek information and cues that will help reduce their sense of uncertainty. Guarantees have been shown to reduce risk and increase positive evaluation of the service prior to purchase.

Requirements research

-Requirements research involves identifying the benefits and attributes that customers expect in a service. -This type of research is very basic and essential because it determines the type of questions that will be asked in surveys and ultimately the improvements that will be attempted by the firm. -Qualitative techniques are appropriate to begin them. Quantitative techniques may follow, usually during a pretest stage of survey development.

When to Use (or Not Use) a Guarantee

-Service guarantees are not appropriate for every company and certainly not in every service situation. Before putting a guarantee strategy in place, a firm needs to address a number of important questions . A guarantee is probably not the right strategy when *Existing service quality in the company is poor. Before instituting a guarantee, the company should fix any significant quality problems. A guarantee will certainly draw attention to failures and to poor service quality, so the costs of implementing the guarantee could easily outweigh any benefits. These costs include actual monetary payouts to customers for poor service as well as costs associated with customer goodwill. *A guarantee does not fit the company's image. If the company already has a reputation for very high quality, and in fact implicitly guarantees its service, then a formal guarantee is most likely unnecessary. For example, if the Four Seasons Hotel were to offer an explicit guarantee, it could confuse customers who already expect the highest of quality, implicitly guaranteed, from this high-end hotel chain. *Service quality is truly uncontrollable. Service providers can encounter situations in which service quality is truly uncontrollable. To illustrate, it would not be a good practice for a university to guarantee that all MBA students will get the job they want immediately upon graduation—it cannot control what jobs are available in the marketplace. *Potential exists for customer abuse of the guarantee. Fear of opportunistic customer behavior, including customer cheating or fraudulent invocation of service guarantees, is a common reason that firms hesitate to offer guarantees. Abused by non repeat customers *Costs of the guarantee outweigh the benefits. As it would with any quality investment, the company will want to carefully calculate expected costs (payouts for failures and costs of making improvements) against anticipated benefits (customer loyalty, quality improvements, attraction of new customers, word-of-mouth advertising). *Customers perceive little risk in the service. Guarantees are usually most effective when customers are uncertain about the company and/or the quality of its services. The guarantee can allay uncertainties and help reduce risk. If customers perceive little risk, if the service is relatively inexpensive with many potential alternative providers, and if quality is relatively invariable, then a guarantee will likely produce little effectiveness for the company other than perhaps some promotional value.

SWITCHING VERSUS STAYING FOLLOWING SERVICE RECOVERY

-Ultimately, how a service failure is handled and the customer's reaction to the recovery effort can influence future decisions to remain loyal to the service provider or to switch to another provider. -The nature of the customer's relationship with the firm may also influence whether the customer stays or switches providers. Research suggests that customers who have "true relationships" with their service providers are more forgiving of poorly handled service failures and are less likely to switch than are those who have a "pseudorelationship" or a "first-time encounter" type of relationship. -Other research reveals that a customer's attitude toward switching strongly influences whether he or she ultimately stays with the provider and that this attitude will be even more influential than basic satisfaction with the service. -Finally, the decision to switch to a different service provider may not occur immediately following service failure or poor service recovery but may follow an accumulation of events. That is, service switching can be viewed as a process resulting from a series of decisions and critical service encounters over time rather than one specific moment in time when a decision is made. -Although customers decide to switch service providers for a variety of reasons, service failure and poor service recovery are often a cause of such behavior. A study of approximately 500 service-switching incidents identified eight broad themes underlying the decision to defect. These themes (pricing, inconvenience, core service failure, service encounter failure, response to service failure, competition, ethical problems, and involuntary switching)

RELATIONSHIP VALUE OF THE CUSTOMER

A concept or calculation from the point of view of their lifetime revenue and/or profitability contributions to a company. This type of calculation is needed when companies start thinking of building long-term relationships with their customers. Just what is the potential financial value of those long-term relationships? Or, to put it another way, what are the financial implications of losing a customer? The lifetime or relationship value of a customer is influenced by the length of an average "lifetime," the average revenues generated per relevant time period over the lifetime, sales of additional products and services over time, referrals generated by the customer over time, and costs associated with serving the customer.

Should Firms Fire Their Customers?

A logical conclusion to be drawn from the discussion of the challenges firms face in customer relationships is that perhaps firms should seek to get rid of those customers who are not right for the company. Companies make these types of decisions based on the belief that troublesome customers are usually less profitable and less loyal and that it may be counterproductive to retain their business. Another reason for "firing" a customer is the negative effect that these customers can have on employee quality of life and morale. Although it may sound like a good idea, firing customers is not that simple and needs to be done in a way that avoids negative publicity or negative word of mouth. Sometimes raising prices or charging for services that previously had been given away for free can move unprofitable customers out of the company. Helping a client find a new provider who can better meet its needs is another way to gracefully exit a nonproductive relationship. If the customer has become too demanding, the relationship may be salvaged by negotiating expectations or finding more efficient ways to serve the client. If not, both parties may need to find an agreeable way to end the relationship.

What Is a Service Blueprint?

A service blueprint is a picture or map that portrays the customer experience and the service system, so that the different people involved in providing the service can understand it objectively, regardless of their roles or their individual points of view. Blueprints are particularly useful at the design stage of service development. A service blueprint visually displays the service by simultaneously depicting the process of service delivery, the points of customer contact, the roles of customers and employees, and the visible elements of the service Provides a way to break a service down into its logical components and to depict the steps or tasks in the process, the means by which the tasks are executed, and the evidence of service as the customer experiences it. .Because services are "experiences" rather than objects or technologies, blueprinting is a particularly useful technique for describing them.

Service failure

A service failure is generally described as service performance that falls below a customer's expectations in such a way that leads to customer dissatisfaction.

Recovery paradox The logical, but not very rational, conclusion is that companies should plan to disappoint customers, so they can recover well and (hopefully) gain even greater loyalty from them!

An initially disappointed customer who has experienced good service recovery might be even more satisfied and loyal as a result—has been labeled the recovery paradox.

Partnerships

As a customer continues to interact with a firm, the level of trust often deepens and the customer may receive more customized product offerings and interactions. The trust developed in the friendship stage is a necessary but not sufficient condition for a customer-firm partnership to develop. At the partnership stage, the firm is concerned with enhancing the relationship. Customers are more likely to stay in the relationship if they feel that the company understands their changing needs and is willing to invest in the relationship by constantly improving and evolving its product and service mix.

Benefits for costumers

Assuming they have a choice, customers will remain loyal to a firm when they receive greater value relative to what they expect from competing firms. Value represents a trade-off for the consumer between the "give" and the "get" components. Consumers are more likely to stay in a relationship when the GETS (quality, satisfaction, specific benefits) exceed the gives (monetary and nonmonetary costs). When firms can consistently deliver value from the customer's point of view, clearly the customer benefits and has an incentive to stay in the relationship.

IMPORTANT CONSIDERATIONS FOR SERVICE INNOVATION Involve Customers and Employees Employ Service Design Thinking and Techniques

Because services are produced, consumed, and cocreated in real time and often involve interaction between and among employees and customers, it is critical that innovation and new service development processes involve both employees and customers. One of the challenges of service innovation and design is that services are processes and they are experiential, taking place over time. In some cases, the time required to deliver the service may translate into just a few minutes, but other times the service experience can encompass hours, days, weeks, and even years, as in the case of a university degree program or a service outsourcing contract. User-centered: Services should be experienced and designed through the customer's eyes. Cocreative: All stakeholders should be included in the service design process. Sequencing: A service should be visualized as a sequence of interrelated actions. Evidencing: Intangible services should be visualized in terms of physical artifacts. Holistic: The entire environment of a service should be considered.

Reading and Using Service Blueprints 1.If the purpose is to understand contact employees' roles or the integration of onstage technology with contact employee activities, the blueprint can also be read horizontally but this time focusing on the activities directly above and below the line of visibility. Questions that might be asked include these: How rational, efficient, and effective is the process? Who interacts with customers, when, and how often? 2.If the purpose is to understand the integration of the various elements of the service process, or to identify where particular employees fit into the bigger picture, the blueprint can be analyzed vertically. In this analysis, it becomes clear what tasks and which employees are essential in the delivery of service to the customer. Questions that might be asked include these: What actions are being performed backstage to support critical customer interaction points? What are the associated support actions? How are handoffs from one employee to another taking place? 3.If the purpose is service redesign, the blueprint can be looked at as a whole to assess the complexity of the process, how it might be changed, and how changes from the customer's point of view would affect the contact employee and other internal processes, and vice versa. Blueprints can also be used to assess the overall efficiency and productivity of the service system and to evaluate how potential changes will affect the system. The blueprint can also be analyzed to determine likely failure points or bottlenecks in the process, as well as customer pain points.

Blueprinting applications in a variety of contexts have demonstrated benefits and uses, including the following: • Providing a platform for innovation. • Recognizing roles and interdependencies among functions, people, and organizations. • Facilitating both strategic and tactical innovations. • Transferring and storing innovation and service knowledge. • Designing moments of truth from the customer's point of view. • Suggesting critical points for measurement and feedback in the service process. • Clarifying competitive positioning. • Understanding the ideal customer experience.

Business Strategy Development or Review *Front-End Planning

Business Strategy Development or Review One of the first steps in new service development is to review the organization's mission and vision. The new service strategy and specific new service ideas must fit within the larger strategic mission and vision of the organization. For example, PetSmart, the company has as its mission to serve "pet parents" through the "lifetime care of pets." This mission has led to the development of a host of new services, such as training, grooming, overnight care, and day care, in addition to traditional food, toys, and accessories offered in its stores.

CHAPTER 6 Relationships with quality, service, and innovation.

CHAPTER 6-Relationship marketing essentially represents a shift within marketing—away from an acquisitions/transaction focus toward a retention/ relationship focus. Relationship marketing (or relationship management) is a philosophy of doing business, a strategic orientation, that focuses on keeping and improving relationships with current customers rather than on acquiring new customers.

Mystery shopping

Companies hire outside research organizations to send people into service establishments and experience the service as if they were customers. Mystery shoppers are trained in the criteria important to customers of the establishment. Assessments about service performance by completing questionnaires about service standards or, in other cases, open-ended questions that have a qualitative feel to them.

Complaint solicitation

Complaint solicitation is a way of communicating about what can be done to improve The resort hires researchers to ride the lifts with skiers and ask and record into handheld computer devices customers' responses to questions about their perceptions of the resorts. Then the researchers ski down the mountain and ride up again with other customers. At the end of the day, the researchers download the results into a computer at the base.

Confidence benifits

Confidence Benefits Confidence benefits comprise feelings of trust or confidence in the provider along with a sense of reduced anxiety and comfort in knowing what to expect. "There is a comfort [in having] a certain level of experience [with the service provider]. In other words, I know that I am going to be treated right because they know me . . . I don't have any anxiety that I will have a less-than-acceptable experience . . . You know it's going to be good in advance, or if something is wrong it will be taken care of."

Critical incident technique (CIT)

Critical incident technique (CIT), is a qualitative interview procedure in which customers are asked to provide stories about satisfying and dissatisfying service encounters they have experienced.

Friends

Customer continues to make purchases from a firm and to receive value in the exchange relationship, the firm begins to acquire specific knowledge of the customer's needs, allowing it to create an offering that directly addresses the customer's situation. A primary goal for firms at the friendship stage of the relationship is customer retention. A firm's potential to develop sustainable competitive advantage through friends should be higher than for acquaintances because the offering is more unique (and more difficult for competition to imitate) and the customer comes to trust that uniqueness.

Customer panels

Customer panels are groups of customers assembled to provide attitudes and perceptions about a service over time. Regular and timely customer information—virtually a pulse on the market. Represent large segments of end-customers.

Social benefits

Customers develop a sense of familiarity and even a social relationship with their service providers. These ties make it less likely that they will switch, even if they learn about a competitor that might have better quality or a lower price. It's more fun to deal with somebody that you're used to. You enjoy doing business with them. In some long-term customer-firm relationships, a service provider may actually become part of the consumer's social support system. Hairdressers, as in the example

Quantitative research

Designed to describe the nature, attitudes, or behaviors of customers and to test specific hypotheses that a service marketer wants to examine. These studies are key for quantifying the customers' satisfaction, the importance of service attributes,

Ending business relationships

Firms may identify some customers who are not in their targeted segment, who are not profitable in the long run, or who are difficult to work with or dysfunctional. A company may not want to continue in a relationship with every customer. For the effective management of service relationships, managers should not only know how to establish a relationship but also how to end one. However, gracefully exiting a relationship may not be easy. Customers may end up feeling disappointed, confused, or hurt if a firm attempts to terminate the relationship. Relationship Endings In some relationships are established for a certain purpose and/or time period and then dissolves when it has served its purpose or the time frame has elapsed. Example-, *House painting service *Piano lesson -Both parties understand that the end of the relationship is predetermined—the end occurs when the house has been painted and the customer has paid for the service or the service is no longer needed *Forces the relationship to end *A provider relocates *Customer is not fulfilling obligations. -Firms should clearly communicate their reasons for wanting (or needing) to terminate it, so that customers understand what is occurring and why.

Special benefits

Getting the benefit of the doubt, being given a special deal or price, and getting preferential treatment as exemplified by the following quotes from the research:

Blueprints for Technology-Delivered Self-Service

If no employees are involved in the service (except when there is a problem or the service does not function as planned), The contact person areas of the blueprint are not needed. Instead, the area above the line of visibility can be used to illustrate the interface between the customer and the website or the physical interaction with the kiosk. This area can be relabeled onstage/visible technology. The backstage contact person actions area are irrelevant in this case.

Criteria for an Effective Service Research Program

Includes Qualitative and Quantitative Research Includes Both Perceptions and Expectations of Customers Balances the Cost of the Research and the Value of the Information Includes Statistical Validity When Necessary Measures Priorities or Importance Occurs with Appropriate Frequency Includes Measures of Loyalty, Behavioral Intentions, or Behavior

Future expectations research

Involves environmental scanning and querying of customers about desirable features of possible services. Uses customers who are opinion leaders/innovators and asks them what requirements are not currently being met by existing products or services. Designers and developers claim that consumers do not know what they might want, especially in industries or services that are new and rapidly changing.

Relationship Bonds-Four types of retention strategies. The most successful retention strategies are built on foundations of core service excellence.

Level 1—Financial Bonds The customer is tied to the firm primarily through financial incentives—lower prices for greater volume purchases or lower prices for customers who have been with the firm a long time. Financial incentive programs flourish because they are not difficult to initiate and frequently result in at least short-term profit gains.financial incentives do not generally provide long-term advantages to a firm they do not differentiate the firm in the long run because they are generally not difficult for competitors to imitate. Other types of retention strategies that depend primarily on financial rewards are focused on bundling and cross-selling of services. Many airlines link their reward programs with hotel chains, auto rental, and in some cases credit card usage. By linking airline mileage points earned to usage of other firms' services, customers can enjoy even greater financial benefits in exchange for their loyalty. -Easily imitated. Increased usage or loyalty from customers may be shortlived. And, these strategies are not likely to be successful unless they are structured to truly lead to repeat or increased usage rather than serving as means to attract new customers and potentially causing endless switching among competitors. Level 2—Social Bonds Bind customers to the firm through more than financial incentives. Level 2 strategies seek to build long-term relationships through social and interpersonal as well as financial bonds.Customers are viewed as "clients," not nameless faces, and become individuals whose needs and wants the firm seeks to understand. -Social, interpersonal bonds are common among professional service providers (lawyers, accountants, teachers) and their clients as well as among personal care providers (hairdressers, counselors, health care providers) and their clients. In combination with financial incentives, social bonding strategies may be very effective. Level 3 strategies involve more than social ties and financial incentives, although there are common elements of level 1 and 2 strategies encompassed within a customization strategy and vice versa. A customization approach suggests customer loyalty can be encouraged through intimate knowledge of individual customers—often referred to as customer intimacy—and through the development of one-to-one solutions that fit the individual customer's needs. Pandora —an Internet-based music discovery service that helps its customers find and enjoy music that they like it customizes its service offering to play music for customers that has the same characteristics of songs or artists they like. A customer can create up to 100 unique "stations" by identifying favorite songs or artists, and then Pandora's expert system analyzes what they like and provides suggestions based on this analysis. To do this Pandora analyzes each song using up to 400 distinct musical characteristics, or "genes," by a trained music analyst. Taken together these genes capture the unique and musical identity of a song to customize the listeners experience Level 4—Structural Bonds Level 4 strategies are the most difficult to imitate; they involve structural as well as financial, social, and customization bonds between the customer and the firm. Structural bonds are created by providing services to the client that are designed right into the service delivery system. Often, structural bonds are created by providing customized services to the client that are technology based and make the customer more productive. EXAMPLE Sophisticated technology and tracking systems monitor inventory, allows Cardinal Health to deliver ready-to-use quantities of supplies as needed often several times a day directly to the floors and departments where they are being used. By linking the hospital through its ValueLink service into a database ordering system and by providing enhanced value in the actual delivery,

Human Resource Management Benefits

Loyal customers provide a firm with human resource management benefits. Their experience with and knowledge of the provider, be able to contribute to the coproduction of the service by assisting in service delivery; often the more experienced customers can make the service employees' job easier. For example, a regular patient of a medical service provider is likely to know how the system works; she would know to bring her medication with her on a visit, to plan on paying by debit card (having previously learned that the office cannot process personal checks), and to schedule an annual mammogram without waiting for her doctor to prompt her.

Innovation through Service Solutions

Many organizations realize that customers are not looking for one stand-alone product or service but, rather, innovative solutions to their problems. Traditional thinking has viewed solutions as "bundles of goods and services" that companies offer to customers. (1) customer requirements definition, (2) customization and integration of goods and/or services, (3) deployment of these integrated solutions (4) postdeployment customer support.

Market testing

Market testing stage of the development process, a tangible product might be test marketed in a limited number of trading areas to determine marketplace acceptance of the product as well as other marketing mix variables such as promotion, pricing, and distribution systems. Because new service offerings are often intertwined with the delivery system for existing services, it is difficult to test new services in isolation. And in some cases, it may not be possible to introduce the service to an isolated market area because the organization has only one point of delivery.

Acquaintances

Once customer awareness and familiarity is established the customer and the firm become acquaintances, creating the basis for an exchange relationship. A primary goal for the firm at this stage of the relationship is satisfying the customer. Firms are generally concerned about providing a value proposition to customers comparable with that of competitors.

Formal Service Targets and Goals

One type of formal goal setting that is relevant in service businesses involves specific targets for individual behaviors or actions. As an example, consider the behavior "calls the customer back quickly," an action that signals responsiveness in contact employees. If the service goal for employee behavior is stated in such a general term as "call the customer back quickly," the standard provides little direction for service employees. Different employees will interpret this vague objective in their own ways, leading to inconsistent service: some may call the customer back in 10 minutes, whereas others may wait two to four days. And the firm itself will not be able to determine when or if individual employees meet the goal because its expression is not measurable Another type of formal goal setting involves the overall department or company target, most frequently expressed as a percentage, across all executions of the behavior or action. A department might set as its overall goal "to call the customer back within four hours 97 percent of the time" and collect data over a month's or year's time to evaluate the extent to which it meets the target.

Service blueprint-Service blueprinting A technique for simultaneously depicting the service process, the points of customer contact, and the evidence of service from the customer's point of view.

Process Points of contact evidence

Profitability Tiers—the Customer Pyramid

Profitability Tiers—the Customer Pyramid Labels are especially valuable if they help the company keep track of which customers are profitable. Virtually all firms are aware at some level that their customers differ in profitability and that a minority of their customers account for the highest proportion of sales or profit. 1. The platinum tier describes the company's most profitable customers, typically those who are heavy users of the product, are not overly price sensitive, are willing to invest in and try new offerings, and are committed customers of the firm. 2. The gold tier differs from the platinum tier in that profitability levels are not as high, perhaps because these customers are not as loyal or they want price discounts that limit margins. They may be heavy users who minimize risk by working with multiple providers rather than just the focal company. 3. The iron tier contains essential customers who provide the volume needed to utilize the firm's capacity, but their spending levels, loyalty, and profitability are not substantial enough for special treatment. 4. The lead tier consists of customers who are costing the company money. They demand more attention than they are due given their spending and profitability and are sometimes problem customers—complaining about the firm to others and tying up the firm's resources.

Relationship surveys

Relationship surveys pose questions about all elements in the customer's relationship with the company (including service, product, and price). USES: Relationship strengths and weaknesses. Assess satisfaction, identify reasons for dissatisfaction, and monitor satisfaction over time.

types of complainers

Research suggests that people can be grouped into four categories based on how they respond to failures: passives, voicers, irates, and activists. *Passives -This group of customers is least likely to take any action. They are unlikely to say anything to the provider, less likely than others to spread negative word of mouth, and unlikely to complain to a third party. They often doubt the effectiveness of complaining, thinking that the consequences will not merit the time and effort they will expend. Sometimes their personal values or norms argue against complaining. *Voicers- These customers actively complain to the service provider, but they are less likely to spread negative word of mouth, switch patronage, or go to third parties with their complaints. These customers should be viewed as the service provider's best friends. They actively complain and thus give the company a second chance. They tend to believe complaining has social benefits and therefore do not hesitate to voice their opinions. They believe that the consequences of complaining to the provider can be very positive, and they believe less in other types of complaining such as spreading negative word of mouth or talking to third parties. Their personal norms are consistent with complaining. *Irates -These customers are more likely than others to engage in negative word-of-mouth communication with friends and relatives and to switch providers. They are about average in their propensity to complain to the provider and are unlikely to complain to third parties. As their label suggests, they are more angry with the provider, although they do believe that complaining to the provider can have social benefits. They are less likely to give the service provider a second chance and instead will switch to a competitor, spreading the word to friends and relatives along the way. Such customers are more likely than the other types to go to the trouble of creating blogs on the Internet to share their frustrations with others. *Activists -These customers are characterized by above-average propensity to complain on all dimensions: they will complain to the provider, they will tell others, and they are more likely than any other group to complain to third parties. Complaining fits with their personal norms. They have a very optimistic sense of the potential positive consequences of all types of complaining. .

Service Concept Development and Evaluation *Front-End Planning

Service Concept Development and Evaluation Once an idea surfaces that is regarded as a good fit is ready for initial development. The characteristics of services place complex demands on this phase of the process.Drawing pictures ,Describing an intangible service in concrete terms, (Difficult, particularly when the service is not standardized)therefore it is important that agreement be reached at this stage on exactly what the concept is and what customer need it is filling.

Service recovery

Service recovery refers to the actions taken by an organization in response to a service failure. Failures occur for all kinds of reasons—the service may be unavailable when promised, it may be delivered late or too slowly, the outcome may be incorrect or poorly executed,

Lost customer research

Similar to exit interviews with employees in that it asks open-ended, in-depth questions to expose the reasons for defection and the particular events that led to dissatisfaction. The survey also sought specific reasons for customers' defections and asked customers to describe problems that triggered their decreases in purchases.

UPWARD COMMUNICATION

Small and localized firms, owners or managers may be in constant contact with customers, thereby gaining firsthand knowledge of customer expectations and perceptions. Larger a company is, the more difficult it is for managers to interact directly with the customer and the less firsthand information they have about customer expectations. Even when they read and digest research reports, managers can lose the reality of the customer if they never get the opportunity to experience delivery of the actual service.

Importance/performance matrix

Some companies define the horizontal axis as the gap between expectations and perceptions, or as performance relative to competition.

stages in research process

Stages in the Research Process Stage 1: Define Problem Stage 2: Develop Measurement Strategy Stage 3: Implement Research Program Stage 4: Collect and Tabulate Data Stage 5: Interpret and Analyze Findings Stage 6: Report Findings

FACTORS NECESSARY FOR APPROPRIATE SERVICE STANDARDS

Standardization of Service Behaviors and Actions Standardization of service can take three forms: (1) substitution of technology for personal contact and human effort, (2) improvement in work methods, (3) combinations of these two methods. Examples of technology substitution include automatic teller machines, automatic car washes, and airport X-ray machines

Building a service blueprint

Step 1 Identify the process to be blueprinted Step 2 Identify the customer or customer segment Step 3 Map the process from the customer's point of view Step 4 Map contact employee actions and/or technology actions Step 5 Link contact activities to needed support functions Step 6 Add evidence of service at each customer action step

Building a blueprint

Step 1: Identify the Service Process to Be Blueprinted Blueprints can be developed at a variety of levels, and there needs to be agreement on the starting point. on market segment or specific services are not shown. Specific blueprints could be developed for two-day express mail, large accounts, Internet-facilitated services, and/or storefront drop-off centers. Each of these blueprints would share some features with the concept blueprint but would also include unique features. Or if the "sort packages" and "loading" elements of the process were found to be problem areas or bottlenecks, a detailed blueprint of the subprocesses at work in those two steps could be developed. Step 2: Identify the Customer or Customer Segment Experiencing the Service A common rationale for market segmentation is that each segment's needs are different and therefore will require variations in the service or product features. Thus, blueprints are most useful when developed for a particular customer or customer segment, assuming that the service process varies across segments. At a very abstract or conceptual level it may be possible to combine customer segments on one blueprint. However, once almost any level of detail is reached, separate blueprints should be developed to avoid confusion and maximize their usefulness. Step 3: Map the Service Process from the Customer's Point of View Step 3 involves charting the choices and actions that the customer performs or experiences in purchasing, consuming, and evaluating the service. Identifying the service from the customer's point of view first will help avoid focusing on processes and steps that have no customer impact. This step forces agreement on who the customer is (sometimes no small task) and may involve considerable research and observation to determine exactly how the customer experiences the service. Step 4 Map Contact Employee Actions and/or Technology ActionsFor existing services, this step involves questioning or observing frontline operation employees to learn what they do and which activities are performed in full view of the customer versus which activities are carried out behind the scenes. For technology-delivered services or those that combine technology and human delivery, the required actions of the technology interface are mapped above the line of visibility as well. If no employees are involved in the service, the area can be relabeled "onstage technology actions." If both human and technology interactions are involved, an additional horizontal line can separate "visible contact employee actions" from "visible technology actions." Step 5: Link Contact Activities to Needed Support Functions The line of internal interaction can then be drawn and linkages from contact activities to internal support functions can be identified. In this process, the direct and indirect impact of internal actions on customers becomes apparent. Internal service processes take on added importance when viewed in connection with their link to the customer. Alternatively, certain steps in the process may be viewed as unnecessary if there is no clear link to the customer's experience or to an essential internal support service. Step 6: Add Evidence of Service at Each Customer Action Step Finally, the evidence of service can be added to the blueprint to illustrate what the customer sees and experiences as tangible evidence of the service at each step in the

Strangers

Strangers are those customers who have not yet had any transactions (interactions) with a firm and may not even be aware of the firm. At the industry level, strangers may be thought of as customers who have not yet entered the market; at the firm level, they may include customers of competitors.

Market-oriented ethnography.

Structured questionnaires, make key assumptions about what people are conscious of or can recall about their behavior and what they are willing to explain to researchers about their opinions. To fully understand how customers assess and use services, it may be necessary and effective to use other approaches, such as market-oriented ethno graphy. Allows researchers to observe consumption behavior in natural settings. The goal is to enter the consumer's world as much as possible—observing how and when a service is used in an actual home environment or consumption environment, such as watching consumers eat in restaurants or attend concerts.

Firm beneifits

The benefits to organizations of maintaining and developing a loyal customer base are numerous. In addition to the economic benefits that a firm receives from cultivating close relationships with its customers, a variety of customer behavior benefits and human resource management benefits are also often received. *Economic Benefits Increased purchases over time, As customers get to know a firm and are satisfied with the quality of its services relative to that of its competitors, they tend to give more of their business to the firm. Research also suggests that highly satisfied customers are willing to pay more for a provider's services. +Lower costs. Some estimates suggest that repeat purchases by established customers require as much as 90 percent less marketing expenditure.

Customer Behavior Benefits

The contribution that loyal customers make to a service business can go well beyond their direct financial impact on the firm. Customers provide free advertising provided through word-of-mouth communication.This form of advertising can be more effective than any paid advertising that the firm might use, and it has the added benefit of reducing the costs of attracting new customers.

Service Expectation Meetings and Reviews

The format, when appropriate, consists of (1) asking clients what they expect in terms of 8 to 10 basic requirements determined from focus group research, (2) inquiring what particular aspects of these requirements the account team performed well in the past as well as what aspects need improvement, (3) requesting that the client rank the relative importance of the requirements. After getting the input, senior account members go back to their teams and plan their goals for the year around client requirements. The next step is verifying with the client that the account plan will satisfy requirements or, when it will not,

Understanding customer expectations

The misuse of research data can lead to a large gap in understanding customer expectations. When managers do not read research reports because they are too busy dealing with the day-to-day challenges of the business, companies fail to use the resources available to them. And when customers participate in research studies but never see changes in the way the company does business, they feel frustrated and annoyed with the company.

Goal of relationship marketing

The primary goal of relationship marketing is to build and maintain a base of committed customers who are profitable for the organization.

Trailer Calls or Posttransaction Surveys

The purpose of transaction surveys is to capture information about key service encounters with the customer. In this method, customers are asked a short list of questions immediately after a particular transaction (hence the name trailer calls) about their satisfaction with the transaction and contact personnel with whom they interacted.they are more effective than complaint solicitation (where the information comes only from dissatisfied customers).

DEVELOPMENT OF CUSTOMER-DEFINED SERVICE STANDARDS 1. The standards are based on behaviors and actions that are very important to customers. 2. The standards cover performance that needs to be improved or maintained. 3. The standards cover behaviors and actions employees have control over and can improve. 4. The standards are understood and accepted by employees. 5. The standards are predictive rather than reactive—based on current and future customer expectations rather than past complaints. 6. The standards are challenging but realistic outcome of following the process for developing customer-defined standards is a service performance index. Service performance indexes are comprehensive composites of the most critical performance standards. Development of an index begins by identifying the set of customer-defined standards that the company will use to drive behavior. Not all service performance indexes contain customer-defined standards, but the best ones, like FedEx's SQI, Ritz-Carlton's SQI, and Singapore Airline's SPI, are based on them. Most companies build these indexes by understanding the most important requirements of the customer, linking these requirements to tangible and measurable aspects of service provision, and using the feedback from these indexes to identify and improve service problems. The most progressive companies also use the feedback for reward and recognition systems within the company.

Turning Customer Requirements into Specific Behaviors and Actions Step 1: Identify Existing or Desired Service Encounter Sequence A customer's overall service quality evaluation is the accumulation of evaluations of multiple service experiences. Service encounters are the component pieces needed to establish service standards in a company. In establishing standards firms are concerned with service encounter quality and thus want to understand the specific requirements and priorities of the customer for each service encounter. Step 2: Translate Customer Expectations into Specific Behaviors and Actions Setting a standard in broad conceptual terms, such as "improve skills in the company," is ineffective because the standard is difficult to interpret, measure, and achieve. When a company collects data, it often captures customer requirements in very abstract terms. In general, contact or field people often find such data are not diagnostic but rather too broad and general. Such research neither tells them specifically what is wrong and right in their customer relationships nor helps them understand what activities can be eliminated, so that the most important actions can be accomplished. Step 3: Determine Appropriate Standards The next step involves determining whether hard or soft standards should be used to capture a given behavior and action. Recall that hard standards consist of quantifiable measures of employee behaviors and actions; soft standards are often concerned with more abstract requirements or issues, are not as easily quantifiable, and are often much more subjective. One of the biggest mistakes companies make in this step is to hastily choose a hard standard.easily quantifiable) measures and often have a bias toward them. However, unless the hard standard adequately captures the expected behavior and action, it is not customer defined. The best way to decide whether a hard standard is appropriate is to first establish a soft standard by means of trailer calls and then determine over time which operational aspect most correlates to this soft measure Step 4: Develop Measurements for Standards Once companies have determined whether hard or soft standards are appropriate and which specific standards best capture customer requirements, they must develop feedback measures that adequately capture the standards. Two types of measures are hard measurements and soft measurements. Hard measurements typically involve mechanical counts or technology-enabled measurement of time or errors. What distinguishes these measurements from soft measurements is that they can be measured continuously and operationally without asking the customer's opinion of them. Step 5: Establish Target Levels for the Standards The next step requires that companies establish target levels for the standards. Without this step the company lacks a way to quantify whether the standards are being met. Step 6: Track Measures against Standards " Successful service businesses, such as FedEx and Disney, have careful and comprehensive fact-based systems that provide information about their operations—allowing them to continually examine how the company is performing in comparison to its service standards. Step 7: Provide Feedback about Performance to Employees Once companies have determined appropriate standards, developed specific measures that best capture customer requirements, and set appropriate target levels for the standards, they must develop mechanisms to provide feedback on employee actions and behaviors. One example of such feedback is employee monitoring—in firms with customer service departments, this involves the practice of supervisors listening in on employee telephone interactions with customers. Step 8: Periodically Update Target Levels and Measures The final step involves revising the target levels, measures, and even customer requirements regularly enough to keep up with customer expectations.

Customer -, Not Company -, Defined Standards a company must set customer-defined standards: operational standards based on pivotal customer requirements identified by customers.

Virtually all companies possess service standards and measures that are company defined they are established to reach internal company goals for productivity, efficiency, cost, or technical quality. One company-defined standard that often does not meet customer expectations is the common practice of voice-activated telephone support systems that do not allow customers to speak to humans. Because these systems save companies money (and actually provide faster service to some customers), many organizations have switched from the labor-intensive practice of having customer representatives to using these "automated" systems. However, to close gap 2, standards set by companies must be based on customer requirements and expectations rather than just on internal company goals.

Making business decisions with profitability tiers

What a customer spends today, or has spent in the past, may not necessarily be reflective of what he or she will do (or be worth) in the future. Banks serving college students know this well—a typical college student generally has minimal financial service needs (i.e., a checking account and a debit card) and tends to not have a high level of deposits. However, within a few years that student may embark on a professional career, start a family, and/or purchase a house, and thus require several financial services and become a potentially very profitable customer to the bank.

One time fixes

When customer research is undertaken to find out what aspects of service need to be changed, requirements can sometimes be met using one-time fixes. One-time fixes are technology, policy, or procedure changes that, when instituted, address customer requirements. We further define one-time fixes as company standards that can be met by an outlet (franchisee) making a one-time change that does not involve employees and therefore does not require motivation and monitoring to ensure compliance. One-time fixes are often accomplished by technology. Technology can simplify and improve customer service, particularly when it frees company personnel by handling routine, repetitious tasks and transactions. Customer service employees can then spend more time on the personal and possibly more essential portions of the job. In recent years some hospital emergency rooms have added check-in kiosks so that patients who are not experiencing a true "emergency" can enter personal information, thus reducing time spent waiting in line to register and explain symptoms.

Customers view of profitability tiers it is important that firms communicate with customers so they understand the level of service they can expect and what they would need to do or pay to receive faster or more personalized service. The ability to segment customers narrowly based on profitability implications also raises questions of privacy for customers. To know who is profitable and who is not, companies must collect large amounts of individualized behavioral and personal data on consumers.

Whereas profitability tiers make sense from the company's point of view, customers are not always understanding, nor do they appreciate being categorized into a less desirable segment. *For example, at some companies (e.g., eTrade), The top clients have their own individual account representative, whom they can contact personally. The next tier of clients may be handled by representatives who each have a limited number (e.g., 100) of clients. Meanwhile, most clients are served by a website, an 800-number, or an automated voice response system. Customers are often aware of this unequal treatment, and many resist and resent it.

Generic behavioral intentions

generic behavioral intentions are willingness to recommend the service to others and repurchase intent.

Qualitative research

is exploratory and preliminary conducted to clarify problem definition, prepare for more formal research, or gain insight when more formal research is not necessary.

Innovating around Customer Roles

suggesting that innovation occurs when a service offering is altered or expanded in some way either radically on one extreme or stylistically at the other extreme. It is also possible that service innovations may come about when the customer's usage or cocreation role is redefined.. Example, assuming the customer plays the role of user, buyer, or payer in a service context, new services can result when the previous role is redefined.

TYPES OF SERVICE INNOVATION Service offering innovation

• Major or radical innovations are new services for markets as yet undefined. Past examples include the first broadcast television services and Federal Express's introduction of nationwide, overnight small-package delivery. Many innovations now and in the future will evolve from information, computer, and Internet-based technologies. Often these major innovations create brand-new markets. • Start-up businesses consist of new services for a market already served by existing products that meet the same generic needs. Service examples include the creation of health maintenance organizations to provide an alternative form of health care delivery, online banking for financial transactions, and door-to-door airport shuttle services that compete with traditional taxi and limousine services. Many new mobile phone applications fit in this category. • New services for the currently served market represent attempts to offer existing customers of the organization a service not previously available from the company (although it may be available from other companies). Examples include retailers adding a coffee bar or children's play area, a health club offering nutrition classes, and airlines offering phone and Internet services during flights. Sometimes they represent only modest enhancement services, as in these examples. Other times the offering may represent a radically new stand-alone service such as PetSmart's PetsHotels, described in the chapter opener. • Service-line extensions represent augmentations of the existing service line, such as a restaurant adding new menu items, an airline offering new routes, a law firm offering additional legal services, and a university adding new courses or degrees. • Service improvements represent perhaps the most common type of service innovation. Changes in features of services already offered might involve faster execution of an existing service process, extended hours of service, or augmentations such as added amenities in a hotel room (e.g., the addition of wireless Internet connections). • Style changes represent the most modest service innovations, although they are often highly visible and can have significant effects on customer perceptions, emotions, and attitudes. Changing the color scheme of a restaurant, revising the logo for an organization, redesigning a website, or painting aircraft a different color all represent style changes. These innovations do not fundamentally change the service, only its appearance, similar to how packaging changes are used for consumer products.

SERVQUAL Scale A survey containing 21 service attributes, grouped into the five service quality dimensions reliability, responsiveness, assurance, empathy, tangibles.

• To determine the average gap score (between customers' perceptions and expectations) for each service attribute. • To assess a company's service quality along each of the five SERVQUAL dimensions. • To track customers' expectations and perceptions (on individual service attributes and/or on the SERVQUAL dimensions) over time. • To compare a company's SERVQUAL scores against those of competitors. • To identify and examine customer segments that differ significantly in their assessments of a company's service performance. • To assess internal service quality (that is, the quality of service rendered by one department or division of a company to others within the same company).

Research Objectives This is where the service marketer poses the questions to be answered or problems to be solved with research. Does the company want to know how customers view the service? What customer requirements are. How customers will respond to a new service introduction, or what customers will want from the company five years from now?

• To discover customer requirements or expectations for service • To monitor and track service performance • To assess overall company performance compared with that of competition • To assess gaps between customer expectations and perceptions • To identify dissatisfied customers, so that service recovery can be attempted • To gauge the effectiveness of changes in service delivery • To appraise the service performance of individuals and teams for evaluation, recognition, and rewards • To determine customer expectations for a new service • To monitor changing customer expectations in an industry • To forecast future expectations of customers