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Service Innovation and Design

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2 Service Innovation and Design
Chapter 9 Service Innovation and Design Challenges of Service Innovation and Design New Service Development Processes Types of Service Innovations Stages in Service Innovation and Development Service Blueprinting High-Performance Service Innovations McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

3 Risks of Relying on Words Alone to Describe Services
Oversimplification Incompleteness Subjectivity Biased Interpretation

4 Types of Service Innovations
major or radical innovations start-up businesses new services for the currently served market service line extensions service improvements style changes

5 New Service Development Process
Business strategy development or review New service strategy development Idea generation Concept development & evaluation Business analysis Service development & testing Market testing Commercialization

6 New Service Strategy Matrix for Identifying Growth Opportunities (Fig
Markets Offerings Current Customers New Customers Existing Services Share Building Mkt. Development New Services Service Development Diversification

7 Service Blueprinting

8 Service Blueprint Components
Customer Actions line of interaction Visible Contact Employee Actions line of visibility Invisible Contact Employee Actions line of internal interaction Support Processes

9 Building a Service Blueprint

10 Application of Service Blueprints
New Service Development concept development market testing Supporting a “Zero Defects” Culture managing reliability identifying empowerment issues Service Recovery Strategies identifying service problems conducting root cause analysis modifying processes

11 Uses of Blueprints Service Marketers Human Resources Management
creating realistic customer expectations: service system design promotion Operations Management rendering the service as promised: managing fail points training systems quality control Human Resources Management empowering the human element: job descriptions selection criteria appraisal systems System Technology providing necessary tools: system specifications personal preference databases

12 Benefits of Service Blueprinting
Provides a platform for innovation. Recognizes roles and interdependencies among functions, people, and organizations. Facilitates both strategic and tactical innovations. Transfers and stores innovation and service knowledge. Designs moments of truth from the customer’s point of view. Suggests critical points for measurement and feedback in the service process. Clarifies competitive positioning. Provides understanding of the ideal customer experience.

13 Common Issues in Blueprinting (Exhibit 9.4)
Clearly defining the process to be blueprinted Clearly defining the customer or customer segment that is the focus of the blueprint Who should “draw” the blueprint? Should the actual or desired service process be blueprinted? Should exceptions/recovery processes be incorporated? What is the appropriate level of detail? Whether to include time & cost on the blueprint NOTES:

14 Tangible Cues or Indicators of Quality
Exterior and Interior Design Presentation of Food/Drinks Appearance of Staff Cleanliness of Tables, Utensils Cleanliness of Restrooms Location of Restaurant Appearance of Surrounding Customers

15 Possibility of Standardization
Hostess Greeting Pre-Prepared Sauces (Mild, Medium and Hot) Time Standards Food and Drink Quality Standards Bill Standards

16 Potential Fail Points and Fixability
Bar train to make drinks; create ample seating space for wait area overflow Food revise food presentation; create quality control checks to ensure order is correct before delivering to customer Staff training; set number of times to check-in on customers; behavioral and attitude guidelines; dress code Billing standards for when to bring bill, how to deliver, when to pick-up, how quickly to process transaction; ensure one fortune cookie per customer Cleanliness standards for amount of time it takes to clear and clean tables; regular restroom checks

17 Customer-Defined Service Standards
Chapter 10 Customer-Defined Service Standards Factors Necessary for Appropriate Service Standards Types of Customer-Defined Service Standards Development of Customer-Defined Service Standards McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

18 Service Standards Customer-Defined Standards Company-Defined Standards
Standards are based on the most important customer expectations and reflect the customer’s view of these expectations. Customer-Defined Standards SOURCES Customer Expectations Customer Process Blueprint Customer Experience Observations SOURCES Productivity Implications Cost Implications Company Process Blueprint Company View of Quality Company-Defined Standards

Things that can be counted, timed, or observed through audits (time, numbers of events) SOFT STANDARDS AND MEASURES Opinion-based measures that cannot be observed and must be collected by talking to customers (perceptions, beliefs)

20 What Customers Expect: Getting to Actionable Steps

21 Process for Setting Customer-Defined Standards

22 Hard (Mostly) Service Standards at Ford
Appointment available within one day of customer’s requested service day Write-up begins within four minutes Service needs are courteously identified, accurately recorded on repair order and verified with customer Service status provided within one minute of inquiry Vehicle serviced right on first visit Vehicle ready at agreed-upon time Thorough explanation given of work done, coverage and charges

23 Physical Evidence and the Servicescape
Chapter 11 Physical Evidence and the Servicescape Physical Evidence Types of Servicescapes Strategic Roles of the Servicescape Framework for Understanding Servicescape Effects on Behavior Guidelines for Physical Evidence Strategy McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

24 Elements of Physical Evidence
Facility exterior: design, signage, parking, landscape … Facility interior: design, equipment, layout, atmospherics, ... Other tangibles: business cards, stationery, billing statements, reports, web pages, …

25 Roles of the Servicescape
Package conveys expectations influences perceptions Facilitator facilitates the flow of the service delivery process provides information (how am I to act?) facilitates the ordering process (how does this work?) facilitates service delivery Socializer facilitates interaction between: customers and employees customers and fellow customers Differentiator sets provider apart from competition in the mind of the consumer Dental laser “drill”

26 Guidelines for Physical Evidence Strategy
Recognize the strategic impact of physical evidence. Blueprint the physical evidence of service. Clarify strategic roles of the servicescape. Assess and identify physical evidence opportunities. Be prepared to update and modernize the evidence.


28 Key Causes of Provider Gap 3

29 Employees’ Roles in Service Delivery
Chapter 12 Employees’ Roles in Service Delivery Service Culture The Critical Importance of Service Employees Boundary-Spanning Roles Strategies for Delivering Service Quality Through People Customer-Oriented Service Delivery McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

30 Service Culture “A culture where an appreciation for good service exists, and where giving good service to internal as well as ultimate, external customers, is considered a natural way of life and one of the most important norms by everyone in the organization.” - Christian Grönroos (1990)

31 The Critical Importance of Service Employees
Every encounter counts Employees are the service. Every employee can make a difference They are the organization in the customer’s eyes. They are the brand. They are marketers. Through their actions, all employees shape the brand Their importance is evident in: the services marketing mix (people) the service-profit chain the services triangle They are the service. in many cases, the contact employee is the service - we often DO NOT DISTINGUISH between the person and the firm (haircutting, child care, counseling, legal services) in these cases, the offering is the employee - other examples? They are the organization in the customer’s eyes. employees represent the firm to the client may be the ONLY contact they have with the firm e.g., Dixon Pest Control everything they say and do can influence perceptions of the organization even “off-duty” employees can influence perceptions They are marketers. they are walking “billboards” they represent the company and influence customer satisfaction they are salespersons (waiters selling dessert; AT&T operators cross-selling)

32 The Services Marketing Triangle

33 Aligning the Triangle Organizations that seek to provide consistently high levels of service excellence will continuously work to align the three sides of the triangle. Aligning the sides of the triangle is an ongoing process.

34 Making Promises Understanding customer needs Managing expectations
Traditional marketing communications Sales and promotion Advertising Internet and web site communication

35 Keeping Promises Service delivery
Reliability, responsiveness, empathy, assurance, tangibles, recovery, flexibility Face-to-face, telephone & online interactions The Customer Experience Customer interactions with sub-contractors or business partners The “moment of truth”

36 Enabling Promise Keeping
Hiring the right people Training and developing people to deliver service Employee empowerment Support systems Appropriate technology and equipment Rewards and incentives

37 Ways to Use the Services Marketing Triangle
Overall Strategic Assessment How is the service organization doing on all three sides of the triangle? Where are the weaknesses? What are the strengths? Specific Service Implementation What is being promoted and by whom? How will it be delivered and by whom? Are the supporting systems in place to deliver the promised service?

38 Service Employees Who are they? What are these jobs like?
“boundary spanners” What are these jobs like? emotional labor many sources of potential conflict person/role organization/client interclient quality/productivity tradeoffs Boundary Spanners Interact with Both Internal and External Constituents

39 Human Resource Strategies for Delivering Service Quality through People

40 How can this be justified?
How Employee Satisfaction Drives Productivity and Customer Satisfaction at Wegmans The grocery chain paid over $54 million for college scholarships for 17,500+ employees over the past 20 years. Wegmans did not hesitate to send cheese manager Terri Zodarecky on a ten-day sojourn to cheese makers in Europe. The firm gives employees flexibility to deliver great customer satisfaction. How can this be justified? 1 40

41 How does this affect performance?
Wegmans’ labor costs are 15-17% of sales, compared with 12% for industry. But annual turnover is just 6% (19% for similar grocery chains). 20% of employees have 10+ years of service. This in an industry where turnover costs can exceed annual profits by more than 40%. Wegmans’ operating margins are 7.5%, double what the big grocers earn. Sales per square foot are 50% higher than industry average. 1 41

42 Empowerment Benefits: Drawbacks:
quicker responses to customer needs during service delivery quicker responses to dissatisfied customers during service recovery employees feel better about their jobs and themselves employees tend to interact with warmth/enthusiasm empowered employees are a great source of ideas great word-of-mouth advertising from customers Drawbacks: potentially greater dollar investment in selection and training higher labor costs potentially slower or inconsistent service delivery may violate customers’ perceptions of fair play employees may “give away the store” or make bad decisions

43 Traditional Organizational Chart
Manager Supervisor Supervisor Front-line Employee Front-line Employee Front-line Employee Front-line Employee Front-line Employee Front-line Employee Front-line Employee Front-line Employee Customers

44 Customer-Focused Organizational Chart

45 Customers’ Roles in Service Delivery
Chapter 13 Customers’ Roles in Service Delivery The Importance of Customers in Service Cocreation and Delivery Customers’ Roles Self-Service Technologies—The Ultimate in Customer Participation Strategies for Enhancing Customer Participation McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

46 How Customers Widen the Service Performance Gap
Lack of understanding of their roles Not being willing or able to perform their roles No rewards for “good performance” Interfering with other customers Incompatible market segments

47 Importance of Other (“Fellow”) Customers in Service Delivery
Other customers can detract from satisfaction: disruptive behaviors overly demanding behaviors excessive crowding incompatible needs Other customers can enhance satisfaction: mere presence socialization/friendships roles: assistants, teachers, supporters, mentors

48 Customer Roles in Service Delivery
Productive Resources Contributors to Service Quality and Satisfaction Competitors

49 Customers as Productive Resources
customers can be thought of as “partial employees” contributing effort, time, or other resources to the production process customer inputs can affect organization’s productivity key issue: should customers’ roles be expanded? reduced?

50 Customers as Contributors to Service Quality and Satisfaction
Customers can contribute to: their own satisfaction with the service by performing their role effectively by working with the service provider the quality of the service they receive by asking questions by taking responsibility for their own satisfaction by complaining when there is a service failure

51 Customers as Competitors
customers may “compete” with the service provider “internal exchange” vs. “external exchange” internal/external decision often based on: expertise capacity resources capacity time capacity economic rewards psychic rewards trust control

52 Strategies for Enhancing customer Participation
Define customers’ jobs helping oneself helping others promoting the company Recruit, educate, and reward customers recruit the right customers educate and train customers to perform effectively reward customers for their contributions avoid negative outcomes of inappropriate customer participation Manage the customer mix

53 Delivering Service Through Intermediaries & Electronic Channels
Chapter 14 Delivering Service Through Intermediaries & Electronic Channels Service Distribution Direct or Company-Owned Channels Franchising Agents and Brokers Electronic Channels Common Issues Involving Intermediaries Strategies for Effective Service Delivery Through Intermediaries McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

54 Service Provider Participants
Service principal (originator) creates the service concept (like a manufacturer) Service deliverer (intermediary) entity that interacts with the customer in the execution of the service (like a distributor/wholesaler)

55 Services Intermediaries
Franchisees service outlets licensed by a principal to deliver a unique service concept it has created e.g., Jiffy Lube, Blockbuster, Holiday Inns, McDonald’s Agents and Brokers representatives who distribute and sell the services of one or more service suppliers e.g., travel agents, independent insurance agents Electronic Channels all forms of service provision through electronic means e.g., ATMs, university video courses, Tax Prep software

56 Benefits and Challenges for Franchisors of Service
Leveraged business format for greater expansion & revenues Consistency in outlets Knowledge of local markets Shared financial risk & more working capital Challenges Difficult to maintain & motivate franchisees Highly publicized disputes & conflicts Intermediaries control customer relationship

57 Benefits and Challenges for Franchisees of Service
An established business format International, national, or regional brand marketing Minimized risk of starting a business Poorly capitalized or managed franchisor Challenges Encroachment of other outlets into franchised territories Disappointing profits & revenues Lack of perceived control over operations High fees

58 Benefits and Challenges in Distributing Services through Agents and Brokers
Reduced selling & distribution costs Intermediary’s possession of skills & knowledge Wide representation Knowledge of local markets Customer choice Challenges Loss of control over pricing Representation of multiple service principals

59 Benefits and Challenges in Electronic Distribution of Services
Consistent delivery of standardized services Customer convenience Wide distribution Customer choice & ability to customize Quick customer feedback Challenges Price competition Inability to customize Lack of consistence due to customer involvement Changes in customer behavior Security concerns Competition from widening geographics

60 Common Issues Involving Intermediaries
conflict over objectives and performance difficulty controlling quality and consistency across outlets tension between empowerment and control channel ambiguity

61 Strategies for Effective Service Delivery Through Intermediaries
Control Strategies: Measurement Review Partnering Strategies: Alignment of goals Consultation and cooperation Empowerment Strategies: Help the intermediary develop customer-oriented service processes Provide needed support systems Develop intermediaries to deliver service quality Change to a cooperative management structure

62 Managing Demand and Capacity
Chapter 15 Managing Demand and Capacity McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

63 Causes of Failure to Deliver Service
Inventory and demand don’t match Capacity is often fixed Service characteristics: perishability, simultaneous production and consumption Demand often can’t be controlled or predicted Result: Lost business or wasted capacity Can’t ever be regained or resold

64 Results of Mismatch Demand is either above or below capacity
Excess demand – turn customers away Demand above optimal capacity - resources are stretched in the short term Excess capacity - resources underutilized, often sends the wrong message

65 Variations in Demand Relative to Capacity
Source: C. Lovelock, “Getting the Most Out of Your Productive Capacity,” in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.

66 Understanding Capacity Constraints and Demand Patterns
Time (accounting, medical, consulting…) Labor (law firm, post office…) Equipment (telecom, utilities, delivery service…) Facilities (hotels, hospitals, schools…) Optimal versus maximum use of capacity Demand Patterns Predictable cycles Random demand fluctuations Demand patterns by market segment

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

68 Strategies for Shifting Demand to Match Capacity
Demand Too High Demand Too Low Shift Demand Use signage to communicate busy days and times. Offer incentives to customers for usage during non-peak times. Take care of loyal or “regular” customers first. Advertise peak usage times and benefits of non-peak use. Charge full price -- no discounts. Use advertising to increase business from current market segments. Modify service offering to appeal to new market segments. Offer discounts or price reductions. Modify hours of operation. Bring the service to the customer.

69 More Strategies for Adjusting Capacity to Match Demand

70 Challenges and Risks in Using Yield Management
Yield Management: Maximizing profit from available capacity by manipulating pricing to gain business at different times, and from differing market segments. Yield = Actual Revenue (capacity used x average price)/Potential Revenue (total capacity x maximum price) Revenue Management: Maximizing profits from the sale of all goods and services offered by the service firm Problems: Customer alienation Employee morale problems Incompatible incentive and reward systems Lack of employee training Inappropriate organization of the yield management function

71 Waiting Line Strategies
Employ operational logic modify operations adjust queuing system Establish a reservation process Differentiate waiting customers importance of the customer urgency of the job duration of the service transaction payment of a premium price Make waiting fun, or at least tolerable

72 The Psychology of Waiting Lines
Unoccupied time feels longer than occupied time. Preprocess waits feel longer than in-process waits. Anxiety makes waits seem longer. Uncertain waits seem longer than known, finite waits. Unexplained waits seem longer than explained waits. Unfair waits feel longer than equitable waits. The more valuable the service, the longer the customer will wait. Solo waits feel longer than group waits.


74 Pricing of Services Chapter 17 Ways in which Service Prices are Different for Consumers Approaches to Pricing Services Pricing Strategies that Link to the Four Value Definitions McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

75 Some Issues in Service Prices
Customers often lack reference prices for service Service variability limits knowledge Providers are unwilling to estimate prices Individual customer needs vary Collection of price information by customers is difficult Prices are not visible

76 The Role of Non-monetary Price
Time costs Search costs Convenience costs Psychological costs

77 Three Basic Marketing Price Structures and Challenges for Services

78 Four Customer Definitions of Value

79 Pricing Strategies When the Customer Defines Value as Low Price

80 Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service

81 Pricing Strategies When the Customer Defines Value as Quality for the Price Paid

82 Pricing Strategies When the Customer Defines Value as All that Is Received for All that Is Given

83 MKT 356 Services Marketing
End of Slides, Spring 2010

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