Services Marketing

Study Material

1. Recognize the major changes occurring in the service sector and how they
impact competition.

The service sector is going through a period of almost revolutionary change and many service
businesses are struggling to cope with an increasingly competitive environment. The most
dramatic changes can be explained by the forces outlined in Fig. 1–3, including changing
patterns of government regulation; privatization of former state-owned corporations in many
countries; social changes, advances in IT; internationalization and globalization; and such
business trends as pressures to improve productivity; the service quality movement; expansion of
leasing and rental businesses; the growing role of manufacturers as service providers; the need
for public and nonprofit organizations to find new income; and innovative hiring practices.
Technology in all its forms is a key driver of service innovation.

Customer needs are evolving, markets and competition are changing rapidly, and effective
strategic leadership is vital to success. Students should recognize that understanding the threats
and opportunities posed by these challenges is a vital first step in developing effective strategies.
In particular, the increasingly competitive nature of many service industries places a premium on
effective marketing strategy.
2. Is it possible for an economy to be entirely based on services? Is it good for an economy to have a
large service sector? Discuss.

Yes it is, in theory, particularly if the population is educated and a good infrastructure exists. Some small
island nations (e.g., Bermuda, Cayman Islands) now base their economies around tourism and financial
services, plus retail, transportation, professional and personal services, health, education, and
government. Manufactured products, fuels, and foodstuffs can always be imported. A service sector that
accounts for a high proportion of GDP is a hallmark of many nations like the United States that have a
high standard of living. The U.S. economy has grown even as the manufacturing sector has shrunk. The
downside is that a country becomes less self-sufficient, which may constitute a threat to national
security. Moreover, if there are substantial imports of the food, fuels, and manufactured goods needed
to support both the local and visiting population and to enable the local service industries to function,
then there will be a serious balance of payments problem unless the country can generate sufficient
foreign earnings from tourism and export of services to other countries.

3. What are the main reasons for the growing share of the service sector in all major economies of
the world?

Increased productivity and automation in agriculture and industry, combined with growing
demand for both new and traditional services, have jointly resulted in a continuing increase over
time in the percentage of the labor force that is employed in services. Increased international

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trade and tourism drives demand for freight and passenger transportation, international finance,
communications, and hotel entertainment, and food services. Increased spending on services by
individuals is often associated with higher standards of living. People eat out more, take more
vacations, spend more on entertainment, and employ other people to undertake household chores
they used to undertake for themselves. Similarly, as companies become larger and more
sophisticated, they may choose to outsource so-called internal services such as recruitment, legal
and accounting services, payroll administration, office cleaning, landscape maintenance, supply-
chain management, advertising, etc. to specialist subcontractors. When such tasks are
outsourced, they become part of the competitive marketplace and are therefore more easily
identifiable as contributing to the services component of the economy. Technology has resulted
in the creation of entire new service industries.
4. Why is time so important in services?

Many services are delivered in real time, so they can’t be stocked for use at a later date. This means that
service managers must try to match service supply with service demand in order to make the best use of
their employees and facilities and to maximize profits. If customers have to be physically present to
receive services (like cinemas, amusement parks, restaurants, etc.), there are limits on how long they
will be willing to wait. Even if service delivery takes place without the customers’ presence, they have
expectations about how long a specific service should take to complete—whether it is repairing a
dysfunctional computer, changing the oil in a car, or preparing a legal document. Speed has become a
key aspect of both good service and competitive positioning, because today’s busy customers are
increasingly time sensitive. It’s useful to get students talking about their own priorities in terms of time
for different types of services as well as their views on how well or badly service firms understand
customer’s time budgets.
5. Why do marketing, operations, and human resources have to be more closely linked in services
than in manufacturing? Give examples.

Marketing is usually separated from the operations and human resources functions in a manufacturing
business, where goods are usually produced in a factory and then distributed and sold at a separate
location. In a service organization, customer involvement in the production process and the fact that
other customers and employees are often part of the product blur the lines between these functional
areas.

Customer satisfaction with many services often centers on the quality of the staff and whether the
processes in which they themselves are involved are user-friendly. Students will probably choose high-
contact services like hotels, education, restaurants, or airlines to illustrate these points, but the
instructor may wish to ask if the same observations applies to low-contact services like Internet
providers, telecommunications vendors, and express delivery services (like UPS or FedEx). The fewer the
person-to-person contacts (face-to-face or by phone) with customers, in fact, the more important it is
that such contacts be customer focused. To the extent that self-service systems require customers to do
some of the work for themselves, it’s important that the operation be designed in a user-friendly
manner.

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6. Make a list of at least 12 services that you have used during the past month.
a) Categorize them by type of process.
b) In which instances could you have avoided visiting the service factory and instead obtained
service at arm’s length? Comment.
c) How did other customers affect your own service experiences—either positively or
negatively?

Students should be able to come up with a reasonable number of services to analyze. Their lists are
likely to include a number of food, entertainment, and leisure services in addition to such activities as
using a telephone, mailing letters, riding public transportation, going to school, using library and athletic
services, visiting a bank or ATM, getting a haircut, taking clothes to the cleaners or to a self-service
laundromat, and so forth. There may also be use of professional services (e.g., lawyer, doctor,
counselor). Some students may be confused about the distinctions between the four processing
categories, so it’s worth spending some time reviewing their examples. The key, of course, is to focus on
the core service (Fig. 1–5). For instance, the core product of a movie theater is providing mental stimulus
even though the nature of this form of entertainment is that it requires customers to come to the
service factory in person for an experience that may also include eating popcorn, ice cream, or
beverages. Students may also identify several types of processes for the same service—visiting a retail
bank branch, using an ATM, making transactions by telephone, and doing home banking on the Internet.

7. Visit the facilities of two competing service firms in the same industry (e.g., two retailers,
restaurants, or hotels) that you believe have different approaches to service. Compare and
contrast, using one or more of the frameworks in this chapter.

Among the differences that students are likely to identify are greater or lesser degrees of self-service,
variations on any of the elements of the 7Ps, relative emphasis on tangibles versus intangible elements,
and use of the Internet as a communications tool. The discussion of retailers may also include rental
(non-ownership) vs. sale of certain items. It’s possible that a few students may address the issue of
corporate values and ethical treatment of customers.

8. What actions could a bank take to encourage more customers to bank by phone, mail, Internet, or
ATMs rather than visiting a branch?

Students may suggest additional fees or costs for visiting a teller in a branch. Alternatively, price and
promotional incentives could be provided to encourage customers to use more desirable service
delivery options (at least from the company’s viewpoint) like phone, mail, Internet or ATMs in non-
branch locations. The bank’s management could also educate consumers about how to use these
alternatives and ensure that the service processes are both convenient and user-friendly. Managers
should also consider conducting research to find out why customers resist use of new delivery methods
—there may be different reasons for different segments, requiring different responses. In class
discussion, try to get students to talk about why they don’t use certain delivery options and what would
be needed to make them change their behavior. For instance, the great majority of students will
probably be willing to use an ATM to withdraw money, but our experience suggests that only a small
minority will be willing to use an ATM to make deposits.

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9. What are the backstage elements of (a) a car repair facility, (b) an airline, (c) a university, and (d)
a consulting firm. Under what circumstances would it be appropriate to allow customers to see
some of these backstage elements and how would you do it?

Backstage operations involve the technical core of the total service system and are typically invisible to
customers. Thus students should identify elements of the services listed above that are not viewed by
customers, such as the following examples:

a) car repair—diagnosis and repair of vehicles.

b) airline—maintenance of aircraft, training of crews, preparation of meals, handling of
baggage between aircraft and terminal.
c) university—administration, staff meetings, behind the scenes maintenance, marking of
exams.
d) consulting firm—staff meetings to hire/fire/promote consultants, preparing proposals,
fieldwork other than at client site, analysis, report writing.

There are some situations where it might be appropriate to give customers a peek at backstage
activities. These activities can actually become part of the service performance if they are carefully
orchestrated (but they should then be treated more like front stage activities in terms of managing their
impact on customers.) Examples of this include: car repair facilities where the service operations are
fully visible through large plate glass windows and advertisements for consulting firms that describe
their approach to projects. Many of the backstage activities described above, however, would be boring,
incomprehensible, inappropriate or unpleasant for customers to experience.
10. How can positioning maps help managers better understand and respond to
competitive dynamics?

Simple graphic representations are often easier for managers to grasp than tables of data or paragraphs
of prose. The relative performance between competitors on a specific attribute is easy to identify. When
a chart uses two or more attributes simultaneously, it becomes clear which competitors are clustered
together (occupying a similar position in the market) and which occupy entirely different positions. It is
also easy to see which firms have a distinctive position. The question then becomes: how much demand
is there in that area of the market and can the firm in question defend its position against competitors?
Charts and maps can facilitate a “visual awakening” to threats and opportunities and suggest alternative
strategic directions. Managers who have an in-depth understanding of how their industry is evolving
(either locally or on a national/international basis may be able to make realistic predictions of how
competitive positions are likely to change in the light of future developments.
11. Choose an industry you are familiar with (like fast food restaurants or grocery

stores) and create a perceptual map, showing the competitive positions of different

companies in the industry.

There are two basic requirements for successful completion of this exercise. First, identifying one or
more major market segments for the industry in question; and second, clarifying what criteria

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(attributes) which are important to customers in this (these) segment(s). Tell students that they will
need to satisfy you that they can justify their stated customer choice criteria (this could be done by
citing published research or by documenting some original research—e.g., a survey of a sample of
customers in the segment under consideration). To keep the project in manageable bounds, suggest
that they select four criteria and create two, two-dimensional positioning maps. (A highly creative
student may want to try to attempt a four-dimensional map, using height for the third dimension and
color or thickness of the vertical poles for the fourth).

Students will find it useful to refer to the perceptual maps shown in Figs. 3-4 and 3-5 when undertaking
this assignment. As you check their work (or discuss it in class if you have students present their maps),
make sure that the perceptual maps contain the following things. First, both the horizontal and vertical
axes should be labeled with attributes that would be important to customers. Second, the set of
competitors should match what might realistically be included in a customer’s evoked set. For example,
if the businesses are all fast food restaurants, are they close enough to each other to be considered as
reasonable alternatives by a hungry customer?
12. Travel agencies are losing business to online bookings. Identify some possible
focus options for agencies wishing to develop new lines of business to
compensate for loss of airline ticket sales

Responses to this assignment need to be based around Fig. 3.1 (p. 58). Examples of possible approaches
include the following:

a) Service focused: Offer a narrow service directed at many market segments. Get out of scheduled
airline industry sales and be known as an expert on other types of travel. For instance, some
agencies focus on cruise ship sales and sell to a broad cross section of the population, promising
to match them to the cruise that will fit their budget and their preferences for style, locations
visited, social life on board, etc.

b) Market focused. Offer a wide array of travel services to a narrowly defined market. For instance,
create a new way of selling travel that appeals to people who prefer to visit travel agents in
person and dislike using the Internet or telephone to obtain information and make bookings.
One travel agent has created a very attractive travel superstore that is educational and
represents an entertaining place to visit.

c) Fully focused. Become a specialist in a specific type of travel for a specific type of customer. For
instance, one agency has become very successful by focusing on meeting the travel and
transportation needs of film production companies that need to move personnel and equipment
to particular locales.
13. How is branding used in services marketing? What is the distinction between a corporate brand
such as Marriott and the names given to its several hotel chains?

A brand is a name, phrase, design, symbol, or some combination of these that identifies a company or its
individual service offerings, servicing to distinguish these from the competition’s. Branding is used at

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both the corporate level (e.g., Marriott vs. Hilton; British Airways vs. United) and also at the product
level (e.g., branding the different levels of hotel offered by Marriott (p. 113) or the different types of
service offered by a specific airline such as BA (pp. 113–114,) or by a software support firm such as Sun
Microsystems (pp. 113–114). The corporate brand is often referred to as the umbrella brand because it
stands for a certain service style and set of corporate values, being held above all the product sub-
brands. Historically, service companies emphasized the corporate name but today, in an era of greater
competition and product proliferation, product brand names (sometimes referred to as sub-brands)
have been given greater prominence.

14. What does British Airways gain from using specific sub-brand names like Club World?

BA wants travelers to know that Club World—its intercontinental business class brand—offers a
different type of experience from that of other airlines and also from that of its European business class,
known as Club Europe. Ideally, every step of the process should represent a distinctive “branded-service
experience.” Branding is designed to create preference for a specific offering and to associate it with
greater value.

15. In what ways do the objectives of service communications differ substantially from those of goods
marketing?

Whereas product marketer’s objective is to add abstract ideas, service communication’s objective is to
add physical evidence and imagery to abstract offers. In services business, many communication
objectives are concerned with educating and training customers in new service features, their
importance and usage. The emphasis of services marketing is on, not only, improving external
communication, but also improving internal communication with in the organization, so as to motivate
employees to serve the customers well.

16. Consider each of the following scenarios and determine which elements of the
marketing communications mix you would employ and for what purposes:
a) A newly established hairdresser’s in a suburban shopping center.
b) An established restaurant facing declining patronage because of the arrival
of new competitors.

c) A large, single-office accounting firm doing business in a major city and serving primarily
business clients.

Each of these businesses requires different communications objectives to match its specific situation.
Students should start by developing objectives for each service. They can then determine which
marketing communications mix elements might be most appropriate for meeting these objectives. (The
marketing communications mix is discussed in detail on pp. 135–146).

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The hairdresser needs to build a clientele, none of whom will have previous experience with the salon.
Hence providing information and obtaining trial are key challenges. A geographically specific
communications campaign will therefore be appropriate. Local newspapers and radio might be
appropriate media. Perhaps the printed ads could include a coupon for a reduced price to encourage
trial. Advertising in the Yellow Pages should also be considered.

The restaurant needs to win back former customers and attract new ones. Advertising will have
something to talk about to this first group if there have been changes in the menu, décor, prices, or
hours of service. If the restaurant has a list of customer’s names, addresses, and phone numbers, it
might consider a direct mail campaign or even telemarketing. Otherwise, local media such as radio,
cable TV, and newspapers may be needed. New customers may be addressed in similar ways to the
hairdresser, above, plus listings in tourist brochures if this is a tourist area.

The fitness center may offer “Ask a fitness question” service to the clients. Interesting advice can
encourage potential customers to avail the expertise of center in keeping a good health. Through their
Web sites, they can showcase their equipments and publicize testimonials about their fitness program.

The accounting firm may choose to publicize client testimonials in local business newspapers and
magazines. Organizing seminars on accounting practices, new accounting developments and inviting
representatives from major business organizations would increase the awareness about the firm.
Advertising about the firm, using billboards, at the commercial centers of the city may attract attention
of a large segment of target audience.

17. Why is a word of mouth considered to be so important for the marketing of services? How can a
service firm that is quality leader in its industry induce and manage WOM?

WOM is the only promotional method that is of consumers, by consumers, and for consumers. People
always ask other—friends, relatives, and professionals for a recommendation for doctor, insurance
agent, and consultant. Because the recommender is assumed to be a neutral person, his advice carries
more weightage than firm initiated communications. In fact, greater the risk involved in the services, the
more effective is WOM communication.

There are various strategies to stimulate positive WOM communication. Involving customers in
delivering the service, creating exciting promotions that get people talking about the services,
developing referral incentive schemes, publicizing testimonials from satisfied customers, and faster
complaint handling are some of the ways to manage WOM properly.
18. What tangible cues could a driving school or dentist use for up-market positioning?

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 a) Driving School: use more expensive cars, have nice offices located in better parts of town,
require driving instructors to dress in business attire, feature upscale customers in their
advertising, emphasize expertise and successful results rather than low prices.

b) Dentist: have attractive office in an upscale part of town, be formal rather than casual in making
appointments, conversing with patients, offer upscale magazines and newspapers as reading
material in the waiting room, have all staff dress smartly and somewhat conservatively
19. From a customer perspective, what factors create value in the following services and how do they
affect pricing strategy?
a) nightclub
b) hairdressing salon
c) legal firm specializing in business and taxation law

Students should discuss the specific pricing strategies used by each of these services. They should also
describe both tangible and intangible factors that these firms use to create value for their customers.
These factors should vary significantly by service.

A nightclub provides entertainment and beverages, so it combines both mental stimulus processing and
people processing. The core benefits are relaxation and entertainment. Pricing sometimes involves a
substantial cover charge (similar to an admission fee). Also, customers usually expect to pay prices for
their drinks that are above what they might be charged in an ordinary bar. The better the entertainment
and the more dramatic or luxurious the servicescape, the higher the prices are likely to be. The longer
customers remain in the club, the more drinks they will consume and thus the more they will spend. The
staff sometimes pressure customers to keep ordering additional drinks.

A hairdressing salon creates value by giving a customer clean, trimmed, and more stylish hair
(sometimes involving tinting as well). Usually a pricing menu is displayed. Customers may pay a stated
price for each element of the service, e.g., so much for a wash, so much for a cut, so much for tinting,
perming, etc. Sometimes, there is an all-in price covering multiple elements. Customers can expect to
pay more for a well-known stylist, a prestigious salon, or a more luxurious servicescape, because all
imply higher quality.

A legal firm specializing in business and taxation law. Professional firms are usually concerned with the
billable hours of each professional staff member, a rate that is based upon salary plus a substantial
margin for overheads. The cost of providing legal service is thus a function of how many hours different
professionals at different billable rates devote to preparing and delivering that service, whether it
involves backroom research, courtroom appearances, or face-to-face consultation. In some instances,
however, where the specific advice given is known to have a particular value (e.g., how much tax will the
customer avoid having to pay), firms may relate the fee to some proportion of the value obtained by the
customer.
20. Understand the drivers of globalization of services and their distribution.

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Market drivers stimulating this trend toward transnational strategies include common customer
needs, customers who demand consistent service from suppliers across the world, and the
availability of international channels in the form of efficient physical supply chains or electronic
networks.
Competition drivers include competition from different countries, the interdependence of
countries and the transnational polices of competitors.
Technological advances in information technology and telecommunications (e.g., digital
capabilities and broadband) are drivers of the transnational strategy. These advances in
technologies lead to faster and cheaper transportation and help to shrink distance and bring
countries even closer together. Economies of scope can also be gained by centralizing
information hubs on a continent-wide or even global basis.
Cost drivers include the significant economies of scale that can be gained by an international
operation, the sourcing efficiencies achieved by favorable logistics, and lower cost of production
in certain countries. Cost drivers, however, may be less applicable to services that are people-
based or services where elements have to be replicated in multiple locations.
Government policies can encourage or discourage transnational strategies. Some drivers include:
favorable trade policies, compatible technical standards, and common marketing/ advertising
regulations. Government policies are expected to be more favorable toward people and
possession processing services as they can generate local employment.
The nature of the service process may make some types of services easier to internationalize than
others. The important variations in the impact of the drivers on the three categories of services
are illustrated in Table 7–2.
21. What risk and opportunities are entailed for a retail service firm in adding electronic channels of
delivery (a) paralleling a channel involving physical stores, (b) replacing the physical stores with
an all-Internet cum call center channel? Give examples.

Adaptive strategies employ the Internet to supplement other marketing arrangements—for instance,
setting up a Web site as another channel of communication or (in the case of information-based
services) as another delivery channel. In such situations, the company continues to function much as it
did previously, but now offers customers additional convenience. Risk may include brand dilution if
either channel cannot deliver the brand promise, (e.g., if the online store delivery time falls short of the
brand promise of “getting your goods by the next day”). Other risks may include the initial cost involved
in maintaining the Web site and the technology involved such as CRM and the forecasting applications.
Opportunities will include the possible growth of a new market and allow for greater market
segmentation of the market.

In a transformative application, the Internet becomes the major driver of the firm’s strategy. As a result,
the firm restructures its organization around the Internet, and other channels are used (if at all) to
supplement Internet-led transactions. The risk involves losing the customer base if the transition to the
online channel is not managed properly. A service that involves highly tangible products and/or service
levels such as tailored suits, or customer interaction such as a consultation firm may face greater
challenges moving to an online presence as this mode would possibly take away several of the firm’s
competencies. Opportunities include saving manpower and store overheads, there could also be greater
convenience for the customer.

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22. Why should service marketers be concerned with new developments in mobile communications?

Each new technological development has the potential to change marketplace dynamics. One aspect of
technology is to increase geographic reach—through enhancements in both physical transportation and
telecommunications links—which expands the market. Another is to increase the speed with which
services can be delivered, thus reducing the turnaround time between order and fulfillment. IT
developments combined with miniaturization allow services to be more mobile and transactions to be
conducted in cyberspace. Improvements in methods technology often result in higher productivity,
which can bring down costs, leading to reduced prices and perhaps an increase in demand. Increased
computer power, new ways of capturing consumer information, and powerful analytical software have
led to the development of massive data banks that can be “mined” for new insights and relationships
between variables. These data banks also contain information about individual customers and their
behavior that are valuable for tracking and managing relationships

The communication element of the marketing mix has been particularly affected by developments in
telecommunications and the Internet, providing new and more interactive ways to communicate with
customers. Service marketers should be concerned with new developments in mobile communications
as broadband telecommunications channels are capable of moving vast amounts of data at great speed
and this development, together with the growing accessibility to the Internet, could open up new
channels and markets across the world especially for information based services. Other developments in
mobile technology such as short message services (SMS), multimedia messaging (MMS) and third
generation technology (3G) are drastically changing the way by which services are being distributed,
e.g., SMS alerts are now being used to alert subscribers to plane departures or news updates, etc.
23. What are the key drivers for increasing globalization of services?

Key drivers include market forces, competition, advances in technology, cost, and government factors.
The nature of the service process may make some types of services easier to internationalize than
others. The important variations in the impact of the drivers on the three categories of services are
illustrated in Table 7–2.

24. Identify three situations in which you use self-delivery. What is the motivation for using this
approach to delivery, rather than having service personnel do it for you?

Make sure that students clarify their motivations—are they driven by a desire to save money, save time,
exercise control, benefit from greater convenience (e.g., obtain service that would otherwise be
unavailable in a particular location or at a particular time?) If several motivations are present, which is
the most important? In situations where they use self-service because there is no alternative, would
they prefer to have somebody else perform the service for them?

25. Think of three services that you mostly or exclusively buy from the Internet. What is the value
proposition of this channel over alternative channels (e.g., phone, mail, or branch network)?

Students should be encouraged to discuss the value proposition of Internet buying vis-à-vis the other
channels. Possible value propositions raised may include convenience of home shopping (e.g., Barnes &

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Noble gifts), discreet buying (e.g., Victoria’s Secrets), reputation of online firm (eBay, Amazon.com), etc.
Possible disadvantages of buying over the Internet include the uncertainty in the security of the online
transactions or the intangibility of the service.

26. Know under what circumstances customers should be viewed as “co-producers” of service, and
what the implications are.

In co-production customers work as partial employees whose performance will affect the productivity
and quality of output. Services such as a weight reduction program, marriage counseling, and
management consulting require highly customized service. Client’s ineffective participation will
jeopardize the quality of service outcome in such cases so customers should co-produce the outcome by
active participation. Service managers need to educate and train customers so they will have the skills
needed to perform their co-production tasks well.

27. Understand what factors lead customers to embrace or reject new self-service technologies.

People love self-service technologies (SSTs), when SST machines provide more convenience and quick
service, as they can operate 24/7 at more number of locations. ATM machines are a good example of
SSTs. Users get angry, however, when machines are out of service or when they are poorly designed and
make it difficult for customers to understand the process and use them properly. Companies must be
smart to enable customers to call the company when they need more information than the SSTs provide
or when SSTs are down. Poorly designed technology and improper training and are the main reasons for
customers to reject SSTs.
Jaycustomers. This chapter also exposes students to the concept of “jaycustomers” who behave badly,
raising the question of what management can and should do to (a) minimize the risk of such incidents
and (b) control and correct situations when they arise. Ask students to provide examples of
jaycustomers from their own experience, as well as to debate the implications of promoting
management philosophies that “the customer is always right” in service industries where employees
frequently encounter abusive customers. Students who have worked in frontline service jobs can be
invited to share their own experiences of abusive customers and how they (and the company) dealt with
such problems.
28. What are the various types of jaycustomers and how can a service firm deal with their behavior?

Jaycustomers can be categorized into six broad categories.

1) The Thief–First step should be to find out how, how people steal a service to prevent theft and
then catch them to prosecute appropriately. Provision, however, must be made for honest but
absent-minded customers who forget to pay.
2) The Rulebreaker—Educate customers about the rule and course of action needs to be laid down
explicitly to protect employees and punish wrongdoing by customers.
3) The Belligerent—Role-playing training exercises to help employees develop assertiveness to deal
with upset customers.
4) The Family Feuders—Need to analyze the situation on the spot.

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 5) The Vandal—Prevention through improved security, good lightning, printed warnings, and
security deposits.
6) The Deadbeat—Insist on prepayment and promptness in presenting the bill.

29. What is the role of blueprinting in designing, managing, and redesigning service processes?

Service design is a complex task, which can benefit from a more sophisticated version of flowcharting.
Blueprint distinguishes between customer experience at front stage and the support activities at
backstage. Because blue print clarifies the interaction between customer and employees so it is easier to
integrate activities across various departments, in the completion of a service. So blueprint help us to
think us from a service point of view. As a result of this perspective, we can redesign the processes
which are not so conducive in the completion of a service.
30. Explain how blueprinting helps to identify the relationship between core and supplementary
services?

Most of the services can be divided into acts. (1) Prologue and introductory scenes, (2) actual delivery of
the core product, and (3) subsequent activities after actual delivery. Blueprints prescribe the sequence
of actions over time so take into consideration all these three phases, for any service product. So it is
easy to evaluate the effect of first and last phases on the actual delivery of core product. The first and
the last phase represent the supplementary services and their relation with the core service in the
second phase.

31. What is emotional labor? Explain the ways in which it may cause stress for employees in specific
jobs. Illustrate with suitable examples.

Many service encounters involve more than just correct technical execution of a task. They also involve
human elements like personal demeanor, courtesy and empathy. Because these factors are a basic part
of the service from the customers’ point of view, employees must sometimes undergo emotional labor
to make sure that their behavior meets or exceeds company and customer expectations. Some service
jobs require workers to be friendly, others to act compassionate, sincere, or even self-effacing. Trying to
conform to customers’ (and employers’) expectations on these dimensions can be stressful for
employees, who may be required to act out emotions they don’t feel at times during the course of their
jobs. Special training on how to handle these emotions is often an important part of employee training
in service jobs like policing, fire fighting and emergency medical care. (Students may be able to offer
insights from their own working experience in front stage service jobs—you may want to encourage
this.)

32. Identify the factors needed to make service teams successful in (a) an airline, and (b) a restaurant.

Prof. M C. Rashid Khan, GSBA, Greater Noida, UP…

33. Crucial success factors needed for teams in an (a) airline include: (see also Best Practice in
Action 11–5)

a) Top management commitment to development of successful service delivery teams.

b) Minimizing team disruption and turnover thus allowing teams to build up team camaraderie,
e.g., keeping in-flight service crew similar for long haul trips.
c) Appointment of a team leader with experience and strong people skills, (e.g. an in- flight crew
captain, to ensure that the team progress is monitored).
d) Measurement systems and staff appraisals to monitor staff performance within the team>
e) Team rewards for excellent consistent and excellent teamwork

Crucial success factors needed for teams in a (b) restaurant include:

a) Top management commitment to development of successful restaurant teams>

b) Minimizing team disruption and turnover thus allowing teams to build up team camaraderie,
(e.g., keeping restaurant crew consistent).
c) Appointment of a team leader with experience and strong people skills, (e.g., a restaurant
captain, to ensure that the team progress is monitored).
d) Measurement systems and staff appraisals to monitor staff performance within the team.
e) Divide tips on a team basis.

34. How can a service firm build a strong service culture that emphasizes on service excellence and
productivity?

To do so, the top management must take the lead in embracing a service culture that is conducive to the
development of service excellence and productivity. Once the management has committed itself to
building this strong service culture, the next most important thing is to filter this message, in a
manageable and meaningful form, down to the service personnel. Employees gain their understanding
of the firm’s direction through daily interactions with the management. Management should spend time
with the service personnel, sharing and impressing onto them the importance of the frontline and how
they are a big source of the company’s competitive advantage.

A strong communications plan should also be in place to shape the culture and spread the message.
Examples include the Ritz-Carlton Gold Standards (see Best Practice in Action 11–6).

35. An airline runs a recruiting advertisement for cabin crew that shows a picture of a small boy
sitting in an airline seat and clutching a teddy bear. The headline reads: “His mom told him not to
talk to strangers. So what’s he having for lunch?” Describe the types of personalities that you
think would be (a) attracted to apply for the job by that ad and (b) discouraged from applying.

a) The situation calls for skills in gaining a reticent child’s confidence. The flight attendant (FA) must
persuade the boy that s/he is not a scary stranger but someone he can comfortably talk to. The

Prof. M C. Rashid Khan, GSBA, Greater Noida, UP…

 FA, however, must be able to build this confidence quickly—there are lots of other passengers
to serve—so a warm, disarming smile will probably help. Finally, the FA must help the child to
choose something he will like from the limited menu. This ad will appeal to people with warm,
friendly personalities who are good at establishing rapport with others, like children, can sum up
situations quickly, and are flexible enough to tailor their approach to different situations.

b) This ad will discourage individuals who see working as an FA as an occupation that brings them
into contact with glamorous people and takes them to exciting destinations. It will be a
particular turn off to those who dislike children, are inflexible in their dealings with others, and
have a manner that quickly turns brusque and impatient when a standardized greeting and
questioning procedure doesn’t work.
36. Understand the strategies associated with the concept of relationship marketing

Marketers are increasingly interested in developing long-term relationships with customers beyond the
single transaction (also transactional marketing). Relationship marketing includes three categories with
their own strategies (i.e. database, interaction, and network marketing).

1) Database marketing involves the use of technology in information exchange by maintaining a database and delivering differentiated
service levels to consumers with differing characteristics and preferences and subsequently tracking each relationship.
2) Interaction marketing is more commonly found in business-to-business services. In this case,
although the service remains important, people and the social process also add value that is
often mutually beneficial.
3) Network marketing also occurs in the business-to-business context where companies commit
resources to develop positions in a network of relationships with the stakeholders and relevant
agencies. This form of marketing is also relevant in the consumer marketing environments.

These four categories, including transactional marketing, are often not mutually exclusive and can be
applied together in total relationship marketing. Relationships with customers can also be cultivated for
both discrete and ongoing services (Table 12–1).

37. Why is targeting the “right customers” so important for successful customer relationship
management?

Attracting the right customers is important as they bring in long-term revenues, continued growth in
referrals etc. Emphasis must also be given to prevent attracting the wrong customers that typically
results in costly churn, a diminished company reputation and disillusioned employees. Targeting the
right customers also helps to ensure that customer acquisition is consistent with the firm’s goals and
capabilities.

38. What is tiering of services?

Use the Customer Pyramid (Fig. 12–5) as a reference in answering this question. Tiering of
services refers to the segmentation of the customer base around different levels of profit
contribution, needs (including sensitivities to variables such as price, comfort and speed), and
identifiable personal profiles such as demographics. Slicing the customer base per se allows the

Prof. M C. Rashid Khan, GSBA, Greater Noida, UP…

firm to see better where the profits and the loss making segments are and tailor their marketing
accordingly in response.
39. Identify some of the measures that can be used to create customer bonds and encourage long-
term relationships with customers.

Relationship marketing involves activities aimed at developing long-term, cost-effective links between
an organization and its customers for the mutual benefit of both parties. Service firms can use a variety
of strategies to maintain and enhance relationships, including treating customers fairly, offering service
augmentations, and treating each individual customer as if he or she was especially important. Frequent
user programs are also a widely used strategy for rewarding customer loyalty and building long-term
relationships. Tiering of service, loyalty bonds, and membership programs can all help in building
customer loyalty and encouraging long-term relationships.
40. What are the arguments for spending money to keep existing customers loyal?

Loyalty in a business setting describes a customer’s willingness to continue patronizing a firm over the
long term, purchasing and using its products on a repeated and hopefully exclusive basis, and voluntarily
recommending the firm to friends and acquaintances. Frederick Reichheld, author of The Loyalty Effect,
suggests that loyal customers should be thought of as annuities because they can be a constant source
of revenue for a firm over a long period of time. Customer loyalty, however, can’t be taken for granted.
It will only continue as long as customers feel they are getting better value from a service provider than
could be obtained by switching to another supplier. Thus companies need to nurture desirable
customers by treating them well and providing extra incentives when possible—even if these efforts do
require spending money. Another factor to consider is that it typically costs a firm less to retain an
existing customer than to acquire a new one.

41. What is the role of CRM in delivering a customer relationship strategy?

CRM is an enabler of loyalty marketing, capturing customer information (such as history of transactions,
customer preferences etc.), and delivering it to the various touch points thus offering a “united
customer interface” and a better service experience for the customer.
42. Explain why customers complain and what they expect from the firm.

There are two main reasons why customers complain. They may want compensation for a monetary loss
—either in the form of a refund and/or by having a service performed again. A second reason for
complaining is to rebuild self-esteem. When customers feel service employees have mistreated them,
their self-esteem, self-worth, or sense of fairness may be negatively affected. Before customers
complain, however, they will consider the costs of taking action. These can include monetary costs (like
postage or a long-distance phone call), costs in time and effort, or psychological costs associated with
having to complain in person to a service employee. Customers’ are more likely to complain about
service outcomes than service processes. Cultural and social norms may also affect complaining
behavior. In some countries (e.g., Japan), customers feel awkward or embarrassed about making a
complaint. Social norms also tend to discourage criticisms of professional service providers like doctors
or lawyers, because they are viewed as experts in the services they offer.
43. Why don’t unhappy customers complain? What do customers expect the firm to do once they filed
a complaint?

Prof. M C. Rashid Khan, GSBA, Greater Noida, UP…

Customers usually give the following three reasons for not complaining: (1) they don’t think it’s worth
their time and/or effort; (2) they don’t believe the service provider will be concerned about their
problem and/or resolve it; or (3) they don’t know where to go and what to do. Cultural and social norms
may also affect complaining behavior. In some European and Asian countries, customers feel awkward
or embarrassed about making a complaint. Social norms may discourage criticisms of professional
service providers, because they are viewed as experts in their fields

Once a complaint is made, customers expect to be adequately compensated in a fair manner. The firm is
expected to assume responsibility in having a convenient and responsive recovery process. Not only
must the employees of the firm be able to explain and resolve the failure, they have to come across as
genuine, honest, and polite throughout. Lastly, the compensation given has to cover the losses incurred
by the customer both in terms of actually monetary loss and other potential cost incurred as a result of
the failure (e.g., time, effort).

44. What is the service recovery paradox? Under what conditions is this paradox most likely to hold?
Why is it best to deliver the service as planned, even should the paradox hold in a specific context?

Its been observed that customers who experience service failure and then have it resolved to their full
satisfaction are more likely to make future purchase than customers who did not experience a problem
in the first place—this is essence is the service recovery paradox. This only holds true for the initial
service failure, however. Customers may not be as forgiving for subsequent failures as they may have
higher expectations from their previous experience. At the same time, the success of a service recovery
very much depends on severity and “recoverability” of the failure—some mistakes are simply not
recoverable to full satisfaction.

Thus, it is always best to do it right the first time. Even with the most well executed recoveries, failure
should not be tolerated. Empirical evidence has also shown that between 40 to 60% of customers are
not satisfied with their service recovery experience.

45. What would be an appropriate service recovery policy for a wrongly bounced check for (a) your
local savings bank, (b) a major national bank, or (c) a high-end private bank for high net-worth
individuals. Please explain your rationale, and also compute the economic costs of the alternative
service recovery policies.

o Local savings bank—Immediately clear the check. An apology from the staff handling
the case and the branch manager would probably be sufficient as it is likely that less is
expected from a local bank. The economic cost incurred is minimal.

o Major national bank—Immediately clear the check. Letter of apology from the
management would be ideal. At the same time, some form of complementary product
could be offered, for example a checkbook. This economic cost incurred is relatively low.

Prof. M C. Rashid Khan, GSBA, Greater Noida, UP…

 In this case, as a major national bank, customer expect more, at the same time, the
letter from management gives the recovery a personal touch. Together with the
complementary checkbook, it signals to the customers that the bank takes customer
service seriously.

o High-end private bank—Immediately clear the check. Reimburse any additional cost
results from the failed transaction. Senior management probably would have to pay a
visit to the client to apologize for the service failure. At the same time, a high value
complementary gift would be necessary, for example front-row concert tickets. The
economic cost incurred is much higher, however, given the amount of business the
customer gives to the bank, it is a relatively small amount. At the same time, given the
prestige of a high-end private bank, a personalized recovery is likely to be expected by
the customer.

Nevertheless, in all three cases, it is important that the service recovery must come across as genuine,
we can also analyze the situation along the three dimensions of fairness proposed by Tax and Brown
namely; Procedural, Interactional and Outcome justice.

46. Explain the relationship between service productivity and service quality.

Service productivity is concerned with how efficiently inputs are transformed into outputs and, thus,
with the operational and human elements of creating a service. Low productivity relative to competing
service providers means that a firm will have higher costs and thus find it difficult to compete on price
and still remain competitive.

Service quality is concerned with customer evaluations and perceptions of an array of service features
relating to both the delivery process and the outcome of using the service. Services that are perceived as
being of lower quality than competing alternatives in the same price range are less likely to attract
repeat purchases from loyal customers.
47. Why are both “soft” and “hard” measures of service quality needed?

Both measures measure significantly different areas of the key activities that have an impact on
customers and excellent service companies makes use of both soft and hard measures to improve
service quality. Soft measures of service quality (e.g., SERVQUAL) provide direction, guidance and
feedback to employees on ways to achieve customer satisfaction and can be quantified by measuring
customer perception and beliefs. This is then further complemented by hard measures that measure
operational processes and outcomes. It is only when both measures are taken into consideration that a
complete picture of service quality, from both the operational and the customer or marketing viewpoint
is attained.

48. How do concepts like TQM, ISO 9000, Malcolm-Baldrige Approach, and Six Sigma relate to
managing and improving productivity and service quality?

Prof. M C. Rashid Khan, GSBA, Greater Noida, UP…

TQM and Six Sigma are established quality and productivity initiatives with their respective set of tools
and methods for managing and improving service quality and productivity. Some of these tools are also
now increasingly used in companies that may not have embraced the entire TQM or Six Sigma concept.
The Fishbone diagram, Pareto Analysis, and control charts are examples of tools that originated from
TQM but have found their way to common use among companies interested in improving service
quality. The DMAIC model, a Six Sigma improvement model, is also commonly used for analyzing and
improving business processes.

The Malcolm-Baldrige Awards and the ISO 9000 certification comprises requirements, standards,
guidelines, definitions, and related standards that provide an independent assessment and certification
of whether companies are practicing best practices in quality management and are a benchmark of
quality achievements.

Companies, in managing and improving quality and productivity, should consider the approach that is
best aligned with the overall business strategy and adopt a mixture of tools from the above systemic
approaches depending on their own needs and desired level of sophistication. For example, TQM tools
can be used at any level of sophistication by any service firm, although the Six Sigma initiative requires
much more commitment and investments.

49. Describe the causes of tensions between the marketing, operations, and human resource
functions? Provide specific examples of how these tensions might vary from one service industry
to another.

Tension often reflects different perspectives and priorities. It may also derive from struggles to gain (or
protect power) and influence within the organization. Changes in procedures are a common cause of
tension, particularly if they threaten existing ways of working or require new organizational structures.
Common areas of disagreement concern the priority that should be given to increasing revenues vs.
decreasing costs, different time horizons, and a perceived poor fit between new service products and
the existing operation. Tensions may vary according to the extent to which an industry is high contact
vs. low contact, employs localized delivery in numerous small service “factories” vs. centralized delivery,
is already high tech vs. moving toward greater emphasis on technology, is a relatively new industry (e.g.
cable TV) vs. one with long-established traditions (e.g. railroads). Professional service firms that employ
independent-minded professionals—such as lawyers, doctors, or consultants—to deliver service in a
partnership organizational structure often run into difficulties when trying to develop new marketing
initiatives because the professionals don’t wish to give up any control.
50. Contrast the roles of marketing, operations, and human resources in (a) a gas station chain, (b) a
Web-based brokerage firm, and (c) an insurance company.

a) Gas stations are capital-intensive, possession-processing businesses, with a substantial

front-stage component to their operations. Depending on the degree of self-service facilities
provided, in general, numerous employees do come into contact with customers. The
marketing task emphasis more on tailoring its (i.e., its distribution network) locations to be
present at key locations, as well as pricing to reflect costs, competitive strategies and
consumer sensitivity to different price levels. For example, it has been noted that gas
stations along a certain stretch of road tend to price at similar if not the same prices, and

Prof. M C. Rashid Khan, GSBA, Greater Noida, UP…

 can get into price wars in order to attract customers. Apart from mechanics, the skill-level
required of staff is relatively low. Nevertheless given that attendants are usually the first
point of contact, attention to recruitment, training, and motivation of staff is important,
because the attitude and behavior of customer-contact personnel may be one of the few
characteristics differentiating one gas station from another.

b & c) Brokerage and insurance are information-processing services. The marketing task
emphasizes attraction of new accounts and retention of desirable existing customers. Most
transactions are done at arm’s length by mail or phone and there is growing potential for
self-service through the Web. Direct customer contact with the business is infrequent and
usually limited to a retail setting or a meeting in a home or independent office setting with a
salesperson or broker. The task of operations focuses primarily on backstage activities
centering on analysis and processing of information. In both types of businesses, the
handling and processing of paper is giving way to manipulation of electronic data, thus
placing a premium on effective management of information technology. Human resource
management emphasizes the performance of employees working in backstage activities.
Customer service activities are delivered primarily by telephone and sometimes this task is
subcontracted to personnel working in a call center owned and operated by a specialist
organization.

Prof. M C. Rashid Khan, GSBA, Greater Noida, UP…