chapter 14: improving service quality and productivity

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 14 - 1

Chapter 14: Improving Service Quality and Productivity


Overview of Chapter 14

Integrating service quality and productivity strategies

What is service quality?

The Gaps Model—a conceptual tool to identify and correct service quality problems

Measuring and improving service quality

Defining and measuring productivity

Improving service productivity


Integrating Service Quality and Productivity Strategies


Integrating Service Quality and Productivity Strategies Quality and productivity are twin paths to

creating value for both customers and companies

Quality focuses on the benefits created for customers; productivity addresses financial costs incurred by firm

Importance of productivity: Keeps costs down to improve profits and/or reduce prices Enables firms to spend more on improving customer service

and supplementary services Secures firm’s future through increased spending on R&D May impact service experience—marketers must work to

minimize negative effects, promote positive effects


What Is Service Quality?


Different Perspectives of Service Quality

Transcendent:

Product-based:

User-based:

Manufacturing-based:

Value-based:

Quality = Excellence. Recognized only through experience

Quality is precise and measurable

Quality lies in the eyes of the beholder

Quality is in conformance to the firm’s developed specifications

Quality is a trade-off between price and value


Components of Quality: Manufacturing-based

Performance: Primary operating characteristics

Features: Bells and whistles

Reliability: Probability of malfunction or failure

Conformance: Ability to meet specifications

Durability: How long product continues to provide value to customer

Serviceability: Speed, courtesy, competence

Esthetics: How product appeals to users

Perceived Quality: Associations such as brand name


Components of Quality: Service-based

Tangibles: Appearance of physical elements

Reliability: Dependable and accurate performance

Responsiveness: Promptness; helpfulness

Assurance: Competence, courtesy, credibility, security

Empathy: Easy access, good communication, understanding of customer


Capturing the Customer’s Perspective of Service Quality: SERVQUAL (1) Survey research instrument based on premise

that customers evaluate firm’s service quality by comparing Their perceptions of service actually received Their prior expectations of companies in a particular industry

Poor quality Perceived performance ratings < expectations

Good quality Perceived performance ratings > expectations


Capturing the Customer’s Perspective of Service Quality: SERVQUAL (2) Developed primarily in context of face-to-face

encounters Scale contains 22 items reflecting five

dimensions of service quality Subsequent research has highlighted some

limitations of SERVQUAL See Research Insights 14.1: Measuring E-

Service Quality


How Customers Might Evaluate Online Businesses: Seven Dimensions of E-S-QUAL Accessibility : Is site easily found? Navigation: How easy is it to move around the

site? Design and presentation: Image projected from

site? Content and purpose: Substance and richness of

site Currency and accuracy Responsiveness:Firm’s propensity to respond to

e-mails Interactivity, customization, and personalization Reputation and security

Source:Shohreh A. Kaynama (2000), “ A Conceptual Model to Measure Service Quality of Online Companies: E-qual, in Developments in Marketing Science,” Harlan E. Spotts and H. Lee Meadows, eds., Proceedings of the Academy of Marketing Science, Vol. 22, pp. 46–51. For more information pertaining to online service quality see A. Parasuraman, Vlerie A. Zeithaml, and Arvind Malhotra (2005), “E-S-QUAL: A Multiple-Item Scale for Assessing Electronic Service Quality.” Journal of Service Research, Vol. 7. issue 3. pp. 213–234.


Other Considerations in Service Quality Measurement In uncompetitive markets or in situations

where customers do not have a free choice, researchers should use needs or wants as comparison standards Time constraints

Services high in credence characteristics may cause consumers to use process factors and tangible cues as proxies to evaluate quality—halo effect Process factors: Customers’ feelings


The Gaps Model—A Conceptual Tool to Identify and Correct

Service Quality Problems


Seven Service Quality Gaps(Fig 14.3)

Customer experience relative to expectations

1. Knowledge Gap

2. Standards Gap

3. Delivery Gap

5. Perceptions Gap

7. Service Gap

Customer needs and expectations

6. Interpretation Gap

4. Internal Communications Gap

MANAGEMENT

CUSTOMER

4.

Customer perceptions of service execution

Management definition of these needs

Translation into design/delivery specs

Execution of design/delivery specs

Advertising and sales promises

Customer interpretation of communications


Prescriptions for Closing theSeven Service Quality Gaps (1) (Table 14.3)

1. Knowledge gap: Learn what customers expect Understand customer expectations Improve communication between frontline staff and

management Turn information and insights into action

2. Standards gap: Specify SQ standards that reflect expectations Set, communicate, and reinforce customer-oriented service

standards for all work units Measure performance and provide regular feedback Reward managers and employees



3. Delivery gap: Ensure service performance meets standards Clarify employee roles Train employees in priority setting and time management Eliminate role conflict among employees Develop good reward system

4. Internal communications gap: Ensure that communications promises are realistic Seek comments from frontline employees and operations

personnel about proposed advertising campaigns Get sales staff to involve operations staff in meetings with

customers Ensure that communications sets realistic customer expectations



5. Perceptions gap: Educate customers to see reality of service quality delivered Keep customers informed during service delivery and

debrief after delivery Provide physical evidence

6. Interpretation gap: Pretest communications to make sure message is clear and unambiguous Present communication materials to a sample of customers

in advance of publication

7. Service gap: Close gaps 1 to 6 to meet customer expectations consistently


Measuring and Improving Service Quality


Soft and Hard Measures of Service Quality Soft measures—not easily observed, must be

collected by talking to customers, employees, or others Provide direction, guidance, and feedback to employees on ways

to achieve customer satisfaction Can be quantified by measuring customer perceptions and

beliefs ― For example: SERVQUAL, surveys, and customer advisory

panels

Hard measures—can be counted, timed, or measured through audits Typically operational processes or outcomes Standards often set with reference to percentage of occasions on

which a particular measure is achieved Control charts are useful for displaying performance over time

against specific quality standards


Soft Measures of Service Quality

Key customer-centric SQ measures include: Total market surveys, annual surveys, transactional surveys Service feedback cards Mystery shopping Analysis of unsolicited feedback—complaints and compliments,

focus group discussions, and service reviews Ongoing surveys of account holders to determine

satisfaction in terms of broader relationship issues Customer advisory panels offer feedback/advice on

performance Employee surveys and panels to determine:

Perceptions of the quality of service delivered to customers on specific dimensions

Barriers to better service Suggestions for improvement


Hard Measures of Service Quality

Control charts to monitor a single variable Offer a simple method of displaying performance over time

against specific quality standards Are only good if data on which they are based is accurate Enable easy identification of trends

Service quality indexes Embrace key activities that have an impact on

customers


Composition of FedEx’s Service Quality Index—SQI (Table 14.4)

Late delivery—right day Late Delivery—wrong dayTracing request unanswered Complaints reopened Missing proofs of delivery Invoice adjustments Missed pickups Lost packages Damaged packages Aircraft delays (minutes) Overcharged (packages missing label) Abandoned calls

151511

101010551

Failure Type

Total Failure Points (SQI) =

Weighting Factor

XXX,XXX

Daily PointsX Number of

Incidents =


Control Chart for Departure Delays(Fig 14.4)

J F M A M J J A S O N D

60%

70%

80%

90%

100%

Month

% Flights Departing Within 15 Minutes of Schedule


Tools to Analyze and Address Service Quality Problems

Fishbone diagram Cause-and-effect diagram to identify potential causes of

problems

Pareto Chart Separating the trivial from the important. Often, a majority of

problems is caused by a minority of causes (i.e. the 80/20 rule)

Blueprinting Visualization of service delivery, identifying points where

failures are most likely to occur


Tools to Analyze and Address Service Quality Problems (Appendix)

Total Quality Management (TQM) ISO 9000

Comprises requirements, definitions, guidelines, and related standards to provide an independent assessment and certification of a firm’s quality management system

Malcolm Baldrige Model Applied to Services To promote best practices in quality management, and

recognizing, and publicizing quality achievements among U.S. firms

Six Sigma Statistically, only 3.4 defects per million opportunities

(1/294,000) Has evolved from defect-reduction approach to an overall

business-improvement approach


Cause-and-Effect Chart for Flight Departure Delays (Fig 14.5)

Aircraft late to gate

Late food service

Late fuel

Late cabin cleaners Poor announcement of

departures

Weight and balance sheet late

Delayed Departures

Delayed check-in procedure

Acceptance of late passengers

Facilities, Equipment Front-Stage

PersonnelProcedures

Materials,Supplies

Customers

Gate agents cannot process

fast enough

Late/unavailable airline crew

Arrive lateOversized bags

Weather Air traffic

Frontstage Personnel

Procedures

Materials, Supplies

BackstagePersonnel

Information

Customers

Other Causes

MechanicalFailures

Late pushback

Late baggage


Late passengersWaiting for pushbackWaiting for fuelling

Late weight and balance sheetLate cabin cleaning/suppliesOther

Newark

All stations, excludingChicago-Midway Hub

Washington Natl.

23.1%23.1%

23.1%15.3%

15.4%

53.3%

15%

11.3%

8.7%

11.7%

33.3%

33.3%19%

9.5%

4.9 %

Case: Analysis of Causes of Flight Departure Delays


Blueprinting

Depicts sequence of front-stage interactions experienced by customers plus supporting backstage activities

Used to identify potential fall points—where failures are most likely to appear

Shows how failures at one point may have a ripple effect later

Managers can identify points which need urgent attention Important first step in preventing service quality problems


Six Sigma Methodology to Improve and Redesign Service Processes

Process Improvement

Process Design/Redesign Define Identify the problem

Define requirements Set goals

Identify specific or broad problems

Define goal/change vision Clarify scope and customer

requirementsMeasure

Validate problem/process Refine problem/goal Measure key

steps/inputs

Measure performance to requirements

Gather process efficiency data

Analyze Develop causal hypothesis

Identify root causes Validate hypothesis

Identify best practices Assess process design Refine requirements

Improve

Develop ideas to measure root causes

Test solutions Measure results

Design new process Implement new process,

structures, and systems

Control Establish measures to maintain performance

Correct problems as needed

Establish measures and reviews to maintain performance

Correct problems as needed


TQM in a Service Context: Twelve Critical Dimensions for Implementation Top management commitment and visionary leadership Human resource management Technical system, including service process design and

process management Information and analysis system Benchmarking Continuous improvement Customer focus Employee satisfaction Union intervention and employee relations Social responsibility Servicescapes Service culture


Return On Quality (ROQ)

Assess costs and benefits of quality initiatives ROQ approach is based on four assumptions:

– Quality is an investment– Quality efforts must be financially accountable– It’s possible to spend too much on quality – Not all quality expenditures are equally valid

Implication: Quality improvement efforts may benefit from being related to productivity improvement programs

To determine feasibility of new quality improvement efforts, determine costs and then relate to anticipated customer response

Determine optimal level of reliability Diminishing returns set in as improvements require higher

investments Know when improving service reliability becomes uneconomical


When Does Improving Service Reliability Become Uneconomical? (Fig 14.7)

Satisfy Target Customers through Service Recovery

Optimal Point of Reliability: Cost of Failure = Service

Recovery

Satisfy Target Customers through Service Delivery as

Planned

100%

Serv

ice

Rel

iabi

lity

InvestmentSmall Cost,

Large ImprovementLarge Cost,

Small Improvement

A B C D

Assumption: Customers are equally (or even more) satisfied with the service recovery provided than with a service that is delivered as planned.


Defining and Measuring Productivity


Productivity in a Service Context

Productivity measures amount of output produced relative to the amount of inputs.

Improvement in productivity means an improvement in the ratio of outputs to inputs.

Intangible nature of many service elements makes it hard to measure productivity of service firms, especially for information-based services Difficult in most services because both input and

output are hard to define Relatively simpler in possession-processing services, as

compared to information- and people-processing services


Service Efficiency, Productivity, and Effectiveness

Efficiency: Involves comparison to a standard, usually time-based (for example: how long employee takes to perform specific task) Problem: Focus on inputs rather than

outcomes May ignore variations in service quality/value

Productivity: Involves financial valuation of outputs to inputs Consistent delivery of outcomes desired by

customers should command higher prices Effectiveness: Degree to which firm meets

goals Cannot divorce productivity from quality and

customer satisfaction


Measuring Service Productivity:Variability Is a Major Problem

Traditional measures of service output tend to ignore variations in quality or value of service Focus on outputs rather than outcomes Stress efficiency but not effectiveness

Firms that consistently deliver outcomes desired by customers can command higher prices; loyal customers are more profitable

Measures with customers as denominator include: Profitability by customer Capital employed per customer Shareholder equity per customer


Improving Service Productivity


Questions When Developing Strategies to Improve Service Productivity

How to transform inputs into outputs efficiently? Will improving productivity hurt quality? Will improving quality hurt productivity? Are employees or technology the key to productivity? Can customers contribute to higher productivity?


Generic Productivity Improvement Strategies Typical strategies to improve service

productivity: Careful control of costs at every step in process Efforts to reduce wasteful use of materials or labor Replacing workers by automated machines Installing expert systems that allow paraprofessionals to

take on work previously performed by professionals who earn higher salaries

Although improving productivity can be approached incrementally, major gains often require redesigning entire processes

? ? ?


Long Waiting Times May Indicate Need for Service Process Redesign (Fig 14.8)


Improving Service Productivity:(1) Operations-driven Strategies

Control costs, reduce waste

Set productive capacity to match average demand

Automate labor tasks

Upgrade equipment and systems

Train employees

Broadening array of tasks that a service worker can perform

Leverage less-skilled employees through expert systems

Service process redesign


Improving Service Productivity:(2) Customer-driven Strategies Change timing of customer demand

By shifting demand away from peaks, managers can make better use of firm’s productive assets and provide better service

Involve customers more in production Get customers to self-serve Encourage customers to obtain information and buy from

firm’s corporate websites

Ask customers to use third parties Delegate delivery of supplementary service elements to

intermediary organizations


Backstage and Front-stage Productivity Changes: Implications for Customers Backstage improvements can ripple to front and affect

customers Keep abreast of proposed backstage changes, not only to

identify such ripples but also to prepare customers for them ― For example: New printing peripherals may affect appearance of

bank statements

Front-stage productivity enhancements are especially visible in high contact services Some improvements only require passive acceptance, while

others require customers to change behavior Must consider impacts on customers and address customer

resistance to changes Better to conduct market research first if changes are

substantial See Service Perspectives 14.1: Managing Customers’

Reluctance to Change


A Caution on Cost Reduction Strategies In absence of new technology, most

attempts to improve service productivity seek to eliminate waste and reduce labor costs

Workers who try to do several things at once may perform each task poorly

Excessive pressure breeds discontent and frustration among customer contact personnel, who are caught between: Meeting customer needs Achieving management's productivity goals

Better to search for service process redesign opportunities that lead to Improvements in productivity Simultaneous improvement in service quality See Service Perspectives 14.2: Biometrics


Summary of Chapter 14: Improving Service Quality and Productivity (1) Quality and productivity need to be considered

jointly in marketing services Service quality is a combination of manufacturing-

based components of quality and service-based components

SERVQUAL is used to measure customer perceptions of service quality and the dimensions are: Credibility Security Access Communication Understanding the customer Tangibles Reliability Responsiveness Competence Courtesy


Summary of Chapter 14: Improving Service Quality and Productivity (2)

Research consolidated service quality dimensions into five Tangibles Reliability Responsiveness Competence Courtesy

The GAPS model is a tool to diagnose problems in service design and delivery. Service gap is the most critical and can only be closed if the other six gaps are closed

Both soft and hard measures used to measure service quality



Tools used to analyze and address service quality problems: Fishbone diagram Pareto chart Blueprinting TQM ISO9000 Malcolm-Baldrige Model Six sigma

Measuring productivity in services is difficult—there is a need to determine when service reliability becomes uneconomical

Efficiency, productivity, and effectiveness need to be distinguished when measuring service quality



To improve service productivity, there are generic improvement strategies and customer-driven approaches

Customer-driven approaches to improving productivity include: Changing timing of customer demand Involving customers more in production Asking customers to use third parties

Backstage and front-stage productivity changes both affect customers

Cost-reduction strategies should be used with caution as this may impact service quality negatively. A better way may be to look for service process redesign opportunities

chapter 14: improving service quality and productivity

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