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Copyright © Houghton Mifflin Company. All rights reserved. 10 | 1

Chap 10 – Building Customer Loyalty Through Service Quality

Loyal customers bring increased profits because they can be cheaper to serve, are heavy users of the organization’s goods and services, and are likely to refer to clients to the organization.

If customer loyalty is driven by customer satisfaction, and satisfaction is driven by perceptions of quality of the service provided by the organization, then the key to customer loyalty lies in creating and delivering superior quality and customer experience.


What is Service Quality?

Service quality from the provider’s perspective is the degree to which the service’s features conform to the organization’s specifications and requirements.

From the customer’s perspective it means how well the service meets or exceeds expectations.


How Customers EvaluateService Quality

• Service quality is more difficult to evaluate than goods quality

• Service quality perceptions result from a comparison of consumer expectations with actual service performance

• Quality evaluations are not made solely on the outcome of a service; they also involve evaluations of the process of service delivery


Elements of Service Quality

Technical outcome quality – service results (car is fixed on time)

Interaction quality – courtesy, listening skills (greeting customers)

Physical environment quality – décor and surroundings



• SERVQUAL is a scale designed to measure customer perceptions of service quality along five key dimensions:

• Reliability • Assurance• Tangibles • Responsiveness• Empathy of the service provider


The Five Dimensions of Service Quality

Reliability: Delivering on PromisesProblem fixed the first time and ready when promised.

Responsiveness: Being willing to Help; Accessible; no waiting; responds to requests.

Assurance: Inspiring Trust and Confidence;Knowledgeable staff.


The Five Dimensions of Service Quality

Empathy: Treating Customers as IndividualsKnow you by name; remembers previous problems and preferences.

Tangibles: Representing the Service PhysicallyWaiting area; uniforms; equipment.


Experience and Credence Qualities

Greater risk in purchase:• Greater reliance on word-of-mouth• Greater reliance on price, personnel, and

physical cues• Loyal to service providers• High switching costs

Family physician, consultant, attorney, etc.



Customer Expectations and Perceptions – Gap

Gap 1 – Difference between what the customer expects and management’s perception of what the customer expects. Not knowing what customers expect


Gap 1

Causes of Gap 1: Not Knowing What Customers Expect

• Insufficient Marketing Research• Lack of interaction between management and

customers• Focus on new customers rather than

relationship customers


Gap 2

Gap 2 – Management fails to accurately translate its perceptions of customer expectations into the service design. Not selecting the right service designs and standards.

Causes: • Failure to develop tangibles in line with customer

expectations (inappropriate service setting).• Performance standard is vague.


Gap 3

Gap 3 – Difference between what the service organization is designed to deliver and the actual service provided to the customer. Not delivering to service standards.

Causes: • Inadequate selection, training, and motivation of

employees.• Customers who lack knowledge of their roles;

customers who negatively impact each other.• Failure to match supply and demand


Gap 4

Gap 4 – Difference between the service provided and the service portrayed in various forms of marketing communication (advertising). Not matching performance to promises.

Causes: • Overpromise and underdeliver


Gap 5

Gap 5 – Difference between the service expected and that actually received, which may result in delight, satisfaction, dissatisfaction, or disgust.

Causes: • Each of the first four gaps contributes to this

service quality gap.


Customer Expectations

Customer Expectations:Beliefs about service delivery that function as standards or reference points against which performance is judged

High vs. Low


Possible Levels of Customer Expectations


Zone of Tolerance

Zone of Tolerance is the range between desired service and adequate service; influenced by such factors as predicted service, service promises, word-of-mouth communications, past experiences, service alternatives, personal needs, and situational factors


Zone of Tolerance

Desired service: the level of service the customer hopes to receive - the “wished for” level of performance.

Adequate Service: the level of service customer will accept.

Zone of Tolerance: extent to which we accept variation in service

Desired Service

Zone of Tolerance

Adequate Service


Factors that Influence Desired Service: “wished for level of performance"

Personal Needs: physical, social, psychological, and functional:

Ex: health-related; disability


Factors that Influence Desired Service: Service Promises

Explicit service promises: personal and non-personal statements about the service made by the organization to customers.“Everything we sell is our own design and our own make and we guarantee it without reservation” (J Crew)

Implicit service promises: service related cues that lead to inferences about what the service should and will be like.


Factors that Influence Desired Service

Word of mouth communication: perceived as unbiased.other people, consumer reports, etc.

Past experience: customer’s previous exposure to service that is relevant to the focal service.


Factors that Influence Adequate Service

Service alternatives: other providers from whom the customer can obtain the same service.Ex: more perceived alternatives available, higher the levels of adequate service- No. of lawncare service in Conway


Factors that Influence Adequate Service

Situational Factors: service performance conditions that are viewed as beyond the control of service provider.Ex: Expectations of adequate service is lowered because of situational factorsGreater zone of tolerance


Implications for Customers

• Set realistic expectations – “expand” your zone of tolerance

• Understand your service provider

• Be knowledgeable


Frequently Asked QuestionsAbout Customer Expectations

• What does a service marketer do if customer expectations are “unrealistic”?

• Should a company try to delight the customer?

• How does a company exceed customer service expectations?

• How does a service company stay ahead of competition in meeting customer expectations?



• What does a service marketer do if customer expectations are “unrealistic”? AskAcknowledge; make “excuses”Inform: what is being done

• Should a company try to delight the customer? Staying power – difficult to satisfy customers in the future?Easily copied?



• How does a company exceed customer service expectations?customer relationshipsunderpromise and overdeliverunusual and unique

• How does a service company stay ahead of competition in meeting customer expectations?

perform above adequate service level consistently


Issues Involving Customer Service Expectations

• Let customers know the reasons desired service is not being provided at the present time and describe efforts planned to address them.

• Delighting customers may raise expectations and make it more difficult to satisfy customers in the future.

• Developing a customer relationship is one approach for exceeding customer expectations.

• Adequate service expectations rise as quickly as service delivery or promises rise.


Why and When toGuarantee a Service

A service guarantee is a promise to compensate customers if the service delivery fails to meet established standards


Power of Service Guarantees

• Force firms to understand why they fail and encourage them to identify and overcome potential fail points.

• Payouts to compensate customers for poor service cause managers to take guarantees seriously - financial costs of quality failures.

• Reduce the risk of purchase decision and helps build long-term loyalty.


Express Mail receipt – Jan. 2006

Express mail international mailings are not covered by this service agreement. Military shipments delayed due to customs inspections are also excluded. If the shipment is mailed at a designated USPS Express Mail facility on or before the specified deposit time for overnight delivery to the addressee, delivery to the addressee or agent will be attempted before the applicable guaranteed time. Signature of the addressee’s agent, or delivery employee is required upon delivery. If a delivery attempt is not made by the guaranteed time and the mailer files a claim for refund, the USPS will refund the postage unless the delay was caused by:


Express Mail receipt – Jan. 2006 (cont.)

proper retention for law enforcement purposes, strike or work stoppage; late deposit of shipment; forwarding, return, incorrect address, or incorrect ZIP code; delay or cancellation of flights; governmental action beyond the control of the Postal Service or air carriers; war, insurrection, or civil disturbance; breakdowns of a substantial portion of the USPS transportation network resulting from events or factors outside the control of the Postal Service or Acts of God.


What Makes an Extraordinary Service Guarantee?

Unconditional – The guarantee should make its promise unconditionally - no strings attached.

Easy to Understand and Communicate - Customers need to understand what to expect; employees need to understand what to do.

Meaningful - It should guarantee elements of the service that are important to the customer; The payout should cover fully the customer's dissatisfaction.

Easy to Invoke and Collect - There should not be a lot of hoops or red tape in the way of accessing or collecting on the guarantee.



Full-satisfaction Guarantee – all aspects of the service are covered by the guarantee. There are no exceptions.

Lands’ End: “If you are not completely satisfied with any item you buy from us, at any time during your use of it, return it and we will refund your full purchase price. We mean every word of it. Whatever. Whenever. Always. But to make sure this is perfectly clear, we’ve decided to simplify it further. GUARANTEED. Period.



Combined guarantee – all aspects of the service are covered by the full-satisfaction promise of the guarantee. Explicit minimum performance standards on important attributes are included in the guarantee to reduce uncertainty.

Datapro Information Services guarantees ‘to deliver the report on time, to high quality standards, and to the contents outlined in this proposal. Should we fail to deliver according to this guarantee, or should you be dissatisfied with any aspect of our work, you can deduct any amount from the final payment which is deemed as fair.”


When to (not use) Service Guarantee

• Existing service quality in the company is poor.

• Service quality is truly uncontrollable.• Costs of the guarantee outweigh the

benefits.• Customers perceive little risk in the

service.• Little perceived variability in service

quality among competitors.


ApplicationGuarantees and Customer Fraud: fake the

dissatisfaction, purposefully cause service failures to occur, or overstate losses resulting from genuine service failures.

Most organizations defend themselves against unscrupulous customers by treating the 98% of honest customers like crooks to catch the 2% who are crooks.


Guarantees and Customer Fraud• Monitor repeated service payouts to the same

customer.

• Amount of a guarantee payout had no impact on customer cheating.

• Repeat customers are unlikely to cheat on service guarantees.

• Customers are reluctant to cheat if service quality provided was truly high rather than satisfactory.


Application

A shopper at an upscale department store returns merchandise for a full refund. An analysis of the shopper’s buying habits at the store indicates that s/he would purchase suits/dresses regularly and always return them. Should the customer be “fired.” Why and how?

4362ch10 sp10

Business

service organization

service standards

service alternatives

service providershigh

predicted service

service provider6

service quality gap

level of service customer