© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Part 7 SERVICE AND THE BOTTOM LINE

18 Chapter The Financial and Economic Impact of Service  Service and Profitability: The Direct Relationship  Offensive Marketing Effects of Service: Attracting More and Better Customers  Defensive Marketing Effects of Service: Customer Retention  Customer Perceptions of Service and Purchase Intentions  The Key Drivers of Service Quality, Customer Retention, and Profits  Company Performance Measurement: The Balanced Performance Scorecard

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Objectives for Chapter 18: The Financial and Economic Impact of Service  Examine the direct effects of service on profits.  Consider the effect of service on getting new customers.  Evaluate the role of service in keeping customers.  Discuss what is known about the key service drivers of overall service quality, customer retention, and profitability.  Discuss the balanced performance scorecard that allows for strategic focus on measurements other than financials.  Describe the role of strategy maps in implementing the balanced performance scorecard.

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 18.1 The Direct Relationship between Service and Profits Profits ? Service

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 18.2 Offensive Marketing Effects of Service on Profits Profits Market share Reputation Sales Price premium Service

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 18.3 Defensive Marketing Effects of Service on Profit Margins Profits Customer retention Lower costs Price premium Word of mouth Volume of purchases Service

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 18.4 Perceptions of Service, Behavioral Intentions, and Profits Customer Retention Lower costs Price premium Word of mouth Margins Profits Volume of purchases Behavioral Intentions Sales Service

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 18.5 The Key Drivers of Service Quality, Customer Retention, and Profits Service Attributes Service encounter Service encounter Service encounter Customer Retention Behavioral Intentions Service encounter Service Encounters Service Quality Profits

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Innovation and Learning Perspective Customer Perspective Service perceptions Service expectations Perceived value Behavioral intentions: Operational Perspective Right first time (% hits) Right on time (% hits) Responsiveness (% on time) Transaction time (hours, days) Throughput time Reduction in waste Process quality Financial Measures Price Premium Volume increases Value of customer referrals Value of cross sales Long-term value of customer % Loyalty % Intent to Switch # Customer Referrals # Cross Sales # of Defections Number of new products Return on innovation Employee skills Time to market Time spent talking to customers Figure 18.6 Sample Measurements for the Balanced Scorecard Source: Adapted from: R.S. Kaplan and D.P. Norton, “The Balanced Scorecard—Measures That Drive Performance,” Harvard Business Review, January-February 1992.

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Customer Retention Lower costs Price premium Word of mouth Margins Profits Defensive Marketing Volume of purchases Market share Reputation Sales Price premium Offensive Marketing Service Quality Spells Profits Service

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 18.7 A Strategy Map Helps Companies Align Strategy with Performance Source: Adapted from Harvard Business Review an excerpt from “Having Trouble with Your Strategy? Then Map It-Tool Kit,” Harvard Business Review, September–October 2000.

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 18.8 The Measures that Matter Most Source: Christopher D. Ittner and David F. Larcker, “Coming Up Short on Nonfinancial Performance Measurement,” Harvard Business Review, November 2003, pp. 88–95.