Afjal Hossain Assistant Professor Department of Marketing MKT 5207 Service Marketing Afjal Hossain Assistant Professor Department of Marketing

Chapter 18 The Financial and Economic Impact of Service

The Direct Relationship between Service and Profits ? Service Profits Figure 18.1

Offensive Marketing Effects of Service on Profits share Sales Reputation Price premium Figure 18.2

Defensive Marketing Effects of Service on Profit Lower costs Margins Volume of purchases Service Customer retention Price premium Profits Word of mouth Figure 18.3

Top Box Scores, Repurchase Intentions, and Referral Intentions Overall Satisfaction with XYZ (% of customers) Definitely Will Repurchase from XYZ Definitely Would Recommend XYZ TOP BOX Very Satisfied (64%) = 96% = 91% 44-point drop 55-point drop SECOND BOX Somewhat Satisfied (29%) All Customers = 52% = 36% BOTTOM 3 BOXES Neutral to Very Dissatisfied (7%) = 7% = 4% Source: Technical Assistance Research Bureau (TARP), 2007.

The Effects of Service Service Profits Margins Sales Customer Lower costs Margins Volume of purchases Customer Retention Service Behavioral Intentions Price premium Profits Word of mouth Sales Figure 18.4

The Key Drivers of Service Quality, Customer Retention, and Profits Service Attributes Service Encounters Service encounter Service encounter Service Quality Behavioral Intentions Customer Retention Profits Service encounter Service encounter Figure 18.6

Sample Measurements for the Balanced Scorecard Financial Measures Price Premium Volume increases Value of customer referrals Value of cross sales Long-term value of customer Customer Perspective Service perceptions Service expectations Perceived value Behavioral intentions: % Loyalty % Intent to Switch # Customer Referrals # Cross Sales # of Defections Operational Perspective Right first time (% hits) Right on time (% hits) Responsiveness (% on time) Transaction time (hours, days) Throughput time Reduction in waste Process quality Innovation and Learning Perspective Number of new products Return on innovation Employee skills Time to market Time spent talking to customers Figure 18.7 Source: Adapted from: R.S. Kaplan and D.P. Norton, “The Balanced Scorecard—Measures That Drive Performance,” Harvard Business Review 70 (January-February 1992), pp. 71-79.

Service Quality Spells Profits Lower costs Margins Defensive Marketing Volume of purchases Service Price premium Customer Retention Profits Word of mouth Market share Sales Offensive Marketing Reputation Price premium

The Measures That Matter Most: Fast Food Example Figure 18.8 Source: Christopher D. Ittner and David F. Larcker, “Coming Up Short on Nonfinancial Performance Measurement,” Harvard Business Review 81 (November 2003), pp. 88–95.