Crafting the Service Environment

Overview of the session What Is the Purpose of Service Environments? Understanding Consumer Responses to Service Environments Dimensions of the Service Environment Putting It All Together

What Is the Purpose of Service Environments?

Purpose of Service Environments Helps firm to create distinctive image and unique positioning Service environment affects buyer behavior in three ways: Message-creating medium: Symbolic cues to communicate the distinctive nature and quality of the service experience Attention-creating medium: Make servicescape stand out from competition and attract customers from target segments Effect-creating medium: Use colors, textures, sounds, scents and spatial design to enhance desired service experience

Comparison of Hotel Lobbies Each servicescape clearly communicates and reinforces its hotel’s respective positioning and sets service expectations as guests arrive Orbit Hotel and Hostel, Los Angeles Four Seasons Hotel, New York

Servicescape as Part of Value Proposition Physical surroundings help shape appropriate feelings and reactions in customers and employees For example: Disneyland Servicescapes form a core part of the value proposition For example: Las Vegas, Florida-based Muvico Las Vegas: Repositioned itself to a somewhat more wholesome fun resort, visually striking entertainment center Florida-based Muvico: Builds extravagant movie theatres and offers plush amenities. “What sets you apart is how you package it..” (Muvico’s CEO, Hamid Hashemi) The power of servicescapes is being discovered

Understanding Consumer Responses to Service Environments

The Mehrabian-Russell Stimulus-Response Model Feelings Are a Key Driver of Customer Responses to Service Environments Dimensions of Affect: Pleasure and Arousal Response/ Behavior: Approach Avoidance and Cognitive Processes Environmental Stimuli and Cognitive Processes

Insights from Mehrabian-Russell Stimulus-Response Model Simple yet fundamental model of how people respond to environments The environment, its conscious and unconscious perceptions, and interpretation influence how people feel in that environment Feelings, rather than perceptions/thoughts drive behavior Typical outcome variable is “approach” or “avoidance” of an environment, but other possible outcomes can be added to model

The Russell Model of Affect Arousing Pleasant Sleepy Unpleasant Exciting Relaxing Boring Distressing

Insights from Russell Model of Affect Emotional responses to environments can be described along two main dimensions: Pleasure: Direct, subjective, depending on how much individual likes or dislikes environment Arousal: How stimulated individual feels, depends largely on information rate or load of an environment Russell separated cognitive part of emotions from these two emotional dimensions Advantage: simplicity, allows a direct assessment of how customers feel Firms can set targets for affective states

Drivers of Affect Affect can be caused by perceptions and cognitive processes of any degree of complexity It’s the simple cognitive processes that determine how people feel in a service setting If higher levels of cognitive processes are triggered, the interpretation of this process determines people’s feelings The more complex a cognitive process becomes, the more powerful its potential impact on affect. However, most service encounters are routine and simple processes can determine affect.

Behavioral Consequence of Affect Pleasant environments result in approach, whereas unpleasant ones result in avoidance Arousal amplifies the basic effect of pleasure on behavior If environment is pleasant, increasing arousal can generate excitement, leading to a stronger positive consumer response If environment is unpleasant, increasing arousal level will move customers into the “distressed” region Feelings during service encounters are an important driver of customer loyalty

An Integrative Framework: Bitner’s Servicescape Model ENVIRONMENTAL DIMENSIONS MODERATORS INTERNAL RESPONSES BEHAVIOR Approach Affiliation Exploration Stay longer Satisfaction Avoid (opposite of approach) HOLISTIC ENVIRONMENT Cognitive Emotional Psychological Ambient Conditions Space/ Function Signs, Symbols, and Artifacts Employee Response Moderator Employee Responses Social Interaction Between Customers and Employees Perceived Servicescape Customer Responses Customer Response Moderator Approach Attraction Stay/Explore Spend More $$$ Satisfaction Avoid (opposite of approach) Cognitive Emotional Psychological Source: Mary J. Bitner, “Servicescapes: The Impact of Physical Surroundings on Customers and Employees,” Journal of Marketing 56 (April 1992), pp. 57-71.

An Integrative Framework: Bitner’s Servicescape Model (2) Identifies the main dimensions in a service environment and views them holistically Internal customer and employee responses can be categorized into cognitive, emotional, and psychological responses, which lead to overt behavioral responses towards the environment Key to effective design is how well each individual dimension fits together with everything else

Dimensions of the Service Environment

Main Dimensions in Servicescape Model Ambient Conditions Characteristics of environment pertaining to our five senses Spatial Layout and Functionality Spatial layout: Floorplan Size and shape of furnishings, counters, machinery,equipment, and how they are arranged Functionality: Ability of those items to facilitate performance Signs, Symbols, and Artifacts Explicit or implicit signals to: Communicate firm’s image Help consumers find their way Convey rules of behavior

Impact of Ambient Conditions Ambient environment is composed of hundreds of design elements and details that must work together to create desired service environment Ambient conditions are perceived both separately and holistically, and include: Lighting and color schemes Size and shape perceptions Sounds such as noise and music Temperature Scents Clever design of these conditions can elicit desired behavioral responses among consumers

Impact of Music In service settings, music can have a powerful effect on perceptions and behaviors, even if played at barely audible levels Structural characteristics of music―such as tempo, volume, and harmony―are perceived holistically Fast tempo music and high volume music increase arousal levels People tend to adjust their pace, either voluntarily or involuntarily, to match tempo of music Careful selection of music can deter wrong type of customers

Impact of Music on Restaurant Diners Restaurant Patron Behavior Fast-beat Music Environment Slow-beat Music Environment   Difference between Slow- and Fast-beat Environments Absolute Difference % Difference Consumer time spent at table 45min 56min +11min +24% Spending on food $55.12 $55.81 +$0.69 +1% Spending on beverages $21.62 $30.47 +$8.85 +41% Total spending $76.74 $86.28 +$9.54 +12% Estimated gross margin $48.62 $55.82 +$7.20 +15% Source: Ronald E. Milliman (1982), “Using Background Music to Affect the Behavior of Supermarket Shoppers,” Journal Of Marketing, 56 (3): pp. 86–91

Impact of Scent An ambient smell is one that pervades an environment May or may not be consciously perceived by customers Not related to any particular product Scents have distinct characteristics and can be used to solicit emotional, physiological, and behavioral responses In service settings, research has shown that scents can have significant effect on customer perceptions, attitudes, and behaviors

Effects of Scents on Perceptions of Store Environments (1) Evaluation Unscented Environment Mean Ratings Scented Environment Mean Ratings Difference Store Evaluation Negative/positive 4.65 5.24 +0.59 Outdated/modern 3.76 4.72 +0.96 Store Environment Unattractive/ attractive 4.12 4.98 +0.86 Drab/colorful 3.63 +1.09 Boring/Stimulating 3.75 4.40 +0.65 Source: Eric R. Spangenberg, Ayn E. Crowley, and Pamela W. Hendersen (1996), “Improving the Store Environment: Do Olfactory Cues Affect Evaluations and Behaviors?,” Journal Of Marketing, (April): pp. 67–80.  

Effects of Scents on Perceptions of Store Environments (2) Evaluation Unscented Environment Mean Ratings Scented Environment Mean Ratings Difference Merchandise Outdated/up-to-date style 4.71 5.43 +0.72 Inadequate/adequate 3.80 4.65 +0.85 Low/high quality 4.81 5.48 +0.67 Low/high price 5.20 4.93 -0.27 Source: Eric R. Spangenberg, Ayn E. Crowley, and Pamela W. Hendersen (1996), “Improving the Store Environment: Do Olfactory Cues Affect Evaluations and Behaviors?,” Journal Of Marketing, (April): pp. 67–80

Aromatherapy: Effects of Selected Fragrances on People (Table 10.2) Aroma Type Aroma- Therapy Class Traditional Use Potential Psychological Effect on People Eucalyptus Camphor- aceous Toning, stimulating Deodorant, antiseptic, soothing agent Stimulating and energizing Lavender Herbaceous Calming, balancing, soothing Muscle relaxant, soothing agent, astringent Relaxing and calming Lemon Citrus Energizing, uplifting Antiseptic, soothing agent Soothing energy levels Black pepper Spicy Balancing, soothing Muscle relaxant, aphrodisiac Balancing people’s emotions

Impact of Color Colors can be stimulating, calming, expressive, disturbing, impressional, cultural, exuberant, symbolic Color pervades every aspect of our lives, embellishes the ordinary, gives beauty and drama to everyday objects Colors have a strong impact on people’s feelings Colors can be defined into three dimensions: Hue is the pigment of the color Value is the degree of lightness or darkness of the color Chroma refers to hue-intensity, saturation, or brilliance

Common Associations and Human Responses to Colors (Table 10.3) Degree of Warmth Nature Symbol Common Association and Human Responses to Color Red Warm Earth High energy and passion; can excite and stimulate Orange Warmest Sunset Emotions, expressions, warmth Yellow Sun Optimism, clarity, intellect, mood- enhancing Green Cool Growth, grass, and trees Nurturing, healing, unconditional love Blue Coolest Sky and ocean Relaxation, serenity, loyalty Indigo Mediation and spirituality Violet Violet flower Spirituality, reduces stress, can create an inner feeling of calm

Impact of Signs, Symbols, and Artifacts Guide customers clearly through process of service delivery Customers will automatically try to draw meaning from the signs, symbols, and artifacts Unclear signals from a servicescape can result in anxiety and uncertainty about how to proceed and obtain the desired service For instance, signs can be used to reinforce behavioral rules (see picture on next slide)

Signs Teach and Reinforce Behavioral Rules in Service Settings

People Are Part of the Service Environment Distinctive Servicescapes Create Customer Expectations

Putting It All Together

Selection of Environmental Design Elements Consumers perceive service environments holistically Design with a holistic view Servicescapes have to be seen holistically: No dimension of design can be optimized in isolation, because everything depends on everything else Holistic characteristic of environments makes designing service environment an art Must design from a customer’s perspective

Tools to Guide Servicescape Design Keen observation of customers’ behavior and responses to the service environment by management, supervisors, branch managers, and frontline staff Feedback and ideas from frontline staff and customers, using a broad array of research tools from suggestion boxes to focus groups and surveys. Field experiments can be used to manipulate specific dimensions in an environment and the effects observed. Blueprinting or service mapping—extended to include physical evidence in the environment.

Managing People for Service Advantage

Overview of Session Service Employees Are Crucially Important Frontline Work Is Difficult and Stressful Cycles of Failure, Mediocrity, and Success Human Resources Management: How to Get It Right? Service Leadership and Culture

Service Employees Are Crucially Important

Service Personnel: Source of Customer Loyalty and Competitive Advantage Customer’s perspective: Encounter with service staff is most important aspect of a service Firm’s perspective: Frontline is an important source of differentiation and competitive advantage. It is: A core part of the product the service firm The brand Frontline is an important driver of customer loyalty Anticipating customer needs Customizing service delivery Building personalized relationships

Frontline in Low-Contact Services Many routine transactions are now conducted without involving frontline staff, e.g., ATMs (Automated Teller Machines) IVR (Interactive Voice Response) systems Websites for reservations/ordering, payment, etc. Though technology and self-service interface is becoming a key engine for service delivery, frontline employees remain crucially important “Moments of truth” drive customer’s perception of the service firm

Frontline Work Is Difficult and Stressful

Boundary Spanning Roles Boundary spanners link inside of organization to outside world Multiplicity of roles often results in service staff having to pursue both operational and marketing goals Consider management expectations of service staff: Delight customers Be fast and efficient in executing operational tasks Do selling, cross selling, and up-selling Enforce pricing schedules and rate integrity

Role Stress in Frontline Employees Three main causes of role stress: Person versus Role: Conflicts between what jobs require and employee’s own personality and beliefs Organizations must instill “professionalism” in frontline staff Organization versus Client: Dilemma whether to follow company rules or to satisfy customer demands This conflict is especially acute in organizations that are not customer oriented Client versus Client: Conflicts between customers that demand service staff intervention

Emotional Labor “The act of expressing socially desired emotions during service transactions” (Hochschild, The Managed Heart) Three approaches used by employees: Surface acting—simulate emotions they don’t actually feel Deep acting—psych themselves into experiencing desired emotion, perhaps by imagining how customer is feeling Spontaneous response Performing emotional labor in response to society’s or management’s display rules can be stressful Good HR practices emphasize selective recruitment, training, counseling, and strategies to alleviate stress

Cycles of Failure, Mediocrity, and Success

Source: Schlesinger and Heskett Cycle of Failure (1) Customer turnover Repeat emphasis on attracting new customers Failure to develop customer loyalty Low profit margins Narrow design of jobs to accommodate low skill level High employee turnover; poor service quality Use of technology No continuity in Emphasis on relationship for to control quality rules rather customer Employee dissatisfaction; than service poor service attitude Payment of low wages Employee Cycle Employees Minimization of become bored Customer selection effort dissatisfaction Minimization of training Employees can’t respond to customer Customer Cycle problems Source: Schlesinger and Heskett

Cycle of Failure (2) The employee cycle of failure Narrow job design for low skill levels Emphasis on rules rather than service Use of technology to control quality The customer cycle of failure Managers’ short-sighted assumptions about financial implications of low pay, high turnover human resource strategies

Cycle of Failure (3) Costs of short-sighted policies are ignored Loss of expertise among departing employees Disruption to service from unfilled jobs Constant expense of recruiting, hiring, training Lower productivity of inexperienced new workers Loss of revenue stream from dissatisfied customers who go elsewhere Loss of potential customers who are turned off by negative word-of-mouth Higher costs of winning new customers to replace those lost—more need for advertising and promotional discounts

Service Sabotage (Fig 11a) “Openness” of Service Sabotage Behaviors “Normality” of Service Sabotage Behaviors Intermittent Customary-Private Service Sabotage Sporadic-Private Service Sabotage Customer-Public Service Sporadic-Public Service e.g. Waiters serving smaller servings, bad beer or sour wine e.g. Talking to guests like young kids and putting them down e.g. Chef occasionally purposefully slowing down orders e.g. Waiters spilling soup onto laps, gravy onto sleeves, or hot plates into someone’s hands Routinized Covert Overt

Cycle Of Mediocrity (1) (Fig 11.5) Good wages/benefits high job security Other suppliers (if any) seen as equally poor Customers trade horror stories Service not focused on customers’ needs Employees spend working life in environment of mediocrity Narrow design of jobs Success = not making mistakes Complaints met by indifference or hostility Employee dissatisfaction (but can’t easily quit) Emphasis on rules vs. pleasing customers Promotion and pay increases based on longevity, lack of mistakes Initiative is discouraged Jobs are boring and repetitive; employees unresponsive Resentment at inflexibility and lack of employee initiative; complaints to employees No incentive for cooperative relationship to obtain better service Training emphasizes learning rules Customer dissatisfaction Cycle Customer Source: Heskett and Schlesinger

Cycle Of Mediocrity (2) Most commonly found in large, bureaucratic organizations Service delivery is oriented toward Standardized service Operational efficiencies Prevention of employee fraud and favoritism toward specific customers

Cycle of Mediocrity (3) Job responsibilities narrowly and unimaginatively defined Successful performance measured by absence of mistakes Training focuses on learning rules and technical aspects of job—not on improving interactions with customers and co-workers

Cycle of Success (1) Low customer turnover Repeat emphasis on customer loyalty and retention Customer loyalty Higher profit margins Broadened Lowered turnover, job designs high service quality Continuity in relationship with Train, empower frontline personnel to control quality customer Employee satisfaction, positive service attitude Employee Cycle Above average Extensive wages training High customer Intensified satisfaction selection effort Customer Cycle Source: Heskett and Schlesinger

Cycle of Success (2) Longer-term view of financial performance; firm seeks to prosper by investing in people Attractive compensation packages attract better job applicants More focused recruitment, intensive training, and higher wages make it more likely that employees are: Happier in their work Provide higher quality, customer-pleasing service

Cycle of Success (3) Broadened job descriptions with empowerment practices enable frontline staff to control quality and facilitate service recovery Regular customers more likely to remain loyal because: Appreciate continuity in service relationships Have higher satisfaction due to higher quality

Human Resources Management— How to Get It Right?

How to Manage People for Service Advantage? Staff performance involves both ability and motivation How can we get able service employees who are motivated to productively deliver service excellence? Hire the right people Enable these people Motivate and energize your people

The Wheel of Successful HR in Service Firms (Fig 11.7) Leadership that: 1. Hire the Right People Focuses the entire organization on supporting the frontline 3. Motivate and Energize Your People Be the preferred employer & compete for talent market share Fosters a strong service culture with passion for service and productivity Utilize the full range of rewards Service Excellence & Productivity Intensify the selection process Drives values that inspires, energizes and guides service providers 2. Enable Your People Empower frontline Build high performance service delivery teams Extensive training

Hire the Right People “The old saying ‘People are your most important asset’ is wrong. The RIGHT people are your most important asset.” Jim Collins

Recruitment The right people are a firm’s most important asset: Take a focused, marketing-like approach to recruitment Clarify what must be hired versus what can be taught Clarify nature of the working environment, corporate values and style, in addition to job specs Ensure candidates have/can obtain needed qualifications Evaluate candidate’s fit with firm’s culture and values Match personalities, styles, energies to appropriate jobs

Select and Hire the Right People: (1) Be the Preferred Employer Create a large pool: “Compete for Talent Market Share” What determines a firm’s applicant pool? Positive image in the community as place to work Quality of its services The firm’s perceived status There is no perfect employee Different jobs are best filled by people with different skills, styles, or personalities Hire candidates that fit firm’s core values and culture Focus on recruiting naturally warm personalities for customer-contact jobs

Select and Hire the Right People: (2) How to Identify Best Candidates Observe behavior Hire based on observed behavior, not words you hear Best predictor of future behavior is past behavior Consider group hiring sessions where candidates are given group tasks Conduct personality tests Willingness to treat co-workers and customers with courtesy, consideration, and tact Perceptiveness regarding customer needs Ability to communicate accurately and pleasantly

Select and Hire the Right People: (3) Identifying Best Candidates Employ multiple, structured interviews Use structured interviews built around job requirements Use more than one interviewer to reduce “similar to me” biases Give applicants a realistic preview of the job Chance for candidates to “try on the job” Assess how candidates respond to job realities Allow candidates to self select themselves out of the job Manage new employees’ expectation of job

Train Service Employees Service employees need to learn: Organizational culture, purpose, and strategy Promote core values, get emotional commitment to strategy Get managers to teach “why,” “what,” and “how” of job Interpersonal and technical skills Both are necessary but neither alone is sufficient for optimal job performance Product/service knowledge Staff’s product knowledge is a key aspect of service quality Staff must explain product features and position products correctly

Is Empowerment Always Appropriate? Empowerment is most appropriate when: Firm’s business strategy is based on competitive differentiation and on personalized, customized service Emphasis on extended relationships versus short-term transactions Use of complex and nonroutine technologies Business environment is unpredictable, consisting of surprises Managers are comfortable letting employees work independently for benefit of firm and customers Employees seek to deepen skills, like working with others, and are good at group processes

Control versus Involvement Model of Management Control concentrates four key features at top organization, involvement pushes them down Power to influence work procedures and organizational direction (e.g., quality circles, self-managing teams) Information about operating results and measures of competitive performance Rewards based on organizational performance (e.g., bonuses, profit sharing, stock ownership) Knowledge/skills that enable employees to understand and contribute to organizational performance

Levels of Employee Involvement Suggestion involvement Employee make recommendation through formalized programs Job involvement Jobs redesigned Employees retrained, supervisors reoriented to facilitate performance High involvement Information is shared Employees skilled in teamwork, problem solving etc. Participate in management decisions Profit sharing and stock ownership

Build High-Performance Service Delivery Teams The Power of Teamwork in Services Facilitate communication among team members and knowledge sharing Higher performance targets Pressure to perform is high Creating Successful Service Delivery Teams Emphasis on cooperation, listening, coaching and encouraging one another Understand how to air differences, tell hard truths, ask tough questions Management needs to set up a structure to steer teams toward success

Motivate and Energize the Frontline Use full range of available rewards effectively, including: Job content People are motivated and satisfied knowing they are doing a good job Feedback and recognition People derive a sense of identity and belonging to an organization from feedback and recognition Goal accomplishment Specific, difficult but attainable and accepted goals are strong motivators

Role of Labor Unions Challenge is to work jointly with unions, reduce conflicts, and create a service climate Labor unions and service excellence are sometimes seen as incompatible Yet many of the world’s most successful service businesses are highly unionized (e.g., Southwest Airlines) Management consultation and negotiation with union representatives are essential if employees are to accept new ideas

Service Leadership and Culture

Service Leadership and Culture Service culture can be defined as: Shared perceptions of what is important Shared values and beliefs of why they are important Charismatic/transformational leadership: Change frontline’s values, goals to be consistent with firm Motivate staff to perform their best Internal Marketing: Play a vital role in maintaining and nurturing a corporate culture Help ensure service delivery, working relationships, employee trust, respect, and loyalty

The Inverted Organizational Pyramid Customer Base Top Mgmt Frontline Staff Middle Mgmt Middle Mgmt And Top Mgmt Support Frontline Frontline Staff Traditional Organizational Pyramid Inverted Pyramid with a Customer and Frontline Focus Legend: = Service encounters, or “Moments of Truth”