Today’s Class Mini Research Update Data Collection Update

Gap 3: The Service Performance Gap service designs and standards Provider Gap 3 CUSTOMER Service delivery COMPANY Gap 3: The Service Performance Gap Customer-driven service designs and standards 11-2

Key Factors Leading to Provider Gap 3 11-3

Closing Performance Gaps Employee Customers Intermediaries and Technologies Balancing Capacity and Demand

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 11-5

The Critical Importance of Service Employees They are the service. They are the organization in the customer’s eyes. They are the brand. They are marketers. 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) 11-6

The Service Marketing Triangle 11-7

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. 11-8

Services Marketing Triangle Applications 11-9

Making Promises Understanding customer needs Managing expectations Traditional marketing communications Sales and promotion Advertising Internet and web site communication 11-10

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” 11-11

Enabling Promises Hiring the right people Training and developing people to deliver service Employee empowerment Support systems Appropriate technology and equipment Rewards and incentives 11-12

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? 11-13

The Service Profit Chain 11-14

Boundary Spanners Interact with Both Internal and External Constituents 11-15

Boundary-spanning Roles Boundary spanners: Provide a critical link between the external customer environment and the internal operations of the organization Serve a critical function in understanding, filtering, interpreting information and resources to and from the organization and its external constituencies High stress!!! 11-16

Boundary-spanning Roles What are these jobs like? Emotional labor The labor that goes beyond the physical or mental skills needed to deliver quality service. Often requires suppression of true feelings Many sources of potential conflict person/role organization/client interclient Quality/productivity tradeoffs 11-17

What can be Strategies for Delivering Service Quality through People?

Strategies for Delivering Service Quality through People 11-19

Is employee empowerment good or bad?

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 11-21

Customer-Focused Organizational Chart 11-22

Inverted Services Marketing Triangle 11-23

Delivering Happiness – Creating A Company with the best Customer Service What did Tony Hsieh did to create the best customer service company – think in terms of employees, customers and technology!!!

Customer’s role in service delivery

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 12-26

How Customers Widen the Service Performance Gap You as Customer of KUSOM 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 12-27

Customer Participation across Different Services 12-28

Customer Roles in Service Delivery Productive Resources Contributors to Service Quality and Satisfaction Competitors 12-29

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? 12-30

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 12-31

Customers as Competitors Customers may “compete” with the service provider “Internal exchange” vs. “external exchange” Internal/external decision often based on: Expertise capacity Resource capacity Time capacity Economic rewards Psychic rewards Trust Control 12-32

A Proliferation of Self-Service Technologies ATMs Pay at the pump Airline check-in Hotel check-in, out Automated car rental Blood pressure machines Tax prep software Self-checkout Online banking Online vehicle registration Online auctions Home and car buying online Package tracking Internet shopping IVR phone systems Distance education 12-33

What can be Strategies for Enhancing Customer Participation?

Strategies for Enhancing Customer Participation 12-35

Strategies for Enhancing Customer Participation What can KUSOM do? 12-36

Strategies for Enhancing Customer Participation Define customers’ roles 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 12-37

Compatibility Management “a process of first attracting homogeneous consumers to the service environment, then actively managing both the physical environment and customer-to-customer encounters in such a way as to enhance satisfying encounters and minimize dissatisfying encounters” (Martin and Pranter 1989) 12-38

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 12-39

Characteristics of Service that Increase the Importance of Compatible Segments 12-40

Delivering Service Through Intermediaries & Electronic Channels

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

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)

Services Intermediaries Franchisees service outlets licensed by a principal to deliver a unique service concept it has created e.g., Jiffy Lube, Blockbuster, 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, TaxCut software

Benefits and Challenges for Franchisers of Service

Benefits and Challenges for Franchisees of Service

Benefits and Challenges in Distributing Services through Agents and Brokers

Benefits and Challenges in Electronic Distribution of Services

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

So what shall we do with the intermediaries So what shall we do with the intermediaries? What should be our strategy?

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

Managing Capacity and Demand

Variations in Demand Relative to Capacity 13-53

Variations in Demand Relative to Capacity Excess demand: the level of demand exceeds max capacity. Some customers will be turned away. For customers who do receive service, quality may be lacking because of crowding or overtaxing of staff and facilities Demand exceeds optimum capacity. No one is turned away, but quality may still suffer. 13-54

Variations in Demand Relative to Capacity Demand and supply are balanced at optimum capacity. Staff and facilities are occupied at ideal level. No one is overworked, facilities can be maintained, customers are receiving quality. Excess capacity: demand is below optimum. Resources are underutilized resulting in lower profits. Some customers may receive high quality service, but if quality depends on the presence of other customers, customers may be disappointed. 13-55

Demand and Capacity for Service Providers 13-56

Understanding Capacity Constraints and Demand Patterns Time, labor, equipment, and facilities Optimal versus maximum use of capacity Demand Patterns Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment 13-57

Constraints on Capacity 13-58

Strategies for Shifting Demand to Match Capacity 13-59

Strategies for Adjusting Capacity to Match Demand 13-60

Yield Management YIELD = Definition “The process of allocating the right type of capacity to the right kind of customer at the right price so as to maximize revenue or yield.” Actual revenue Potential revenue Where Actual revenue = actual capacity x average actual price Potential revenue = total capacity x maximum price Most effective when: 1) different segments make reservations at different times and 2) customers who arrive/reserve early are more price sensitive than those who arrive/reserve late. YIELD = 13-61

Yield Management Example 200-room Hotel Max room rate = $100/night Potential Revenue = 200 x $100 = $20,000 All rooms sold at discounted rate ($50/night) Yield = 200 x $50 /$20,000 = $10,000 = 50% Full rate charged, but only 80 rooms sold Yield = 80 x $100/$20,000 = $8,000 = 40% Full rate charged for 80 rooms, discount for remaining 120 rooms Yield = [(80 x $100) + (120 x $50)]/$20,000 = $14,000= 70% 13-62

Challenges and Risks in Using Yield Management Loss of competitive focus Customer alienation Overbooking Incompatible incentive and reward systems Inappropriate organization of the yield management function 13-63

Waiting Line Strategies Employ operational logic to reduce wait How to configure the queue? Multiple Queue Single Queue Take a Number 13-64

Waiting Line Configurations 13-65

Waiting Line Strategies 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 more pleasurable 13-66

Issues to Consider in Making Waiting More Pleasurable 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. 13-67

Thank you!