service marketing chapter 14

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

1.Integrating service quality and productivity strategies

2.What is service quality?3.The Gaps Model 4.Measuring and improving service quality5.Defining and measuring productivity6.Improving service productivity


1. 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:o Keeps costs down to improve profits and/or reduce prices o Enables firms to spend more on improving customer serviceo Secures firm’s future through increased spending on R&Do May impact service experience—marketers must work to minimize

negative effects, promote positive effects


2. What Is Service Quality?


Components of Quality: Manufacturing-based View

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 View*

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 comparingo Their perceptions of service actually received o Their prior expectations of companies in a particular

industry*

• Poor qualityo Perceived performance ratings < expectations

• Good qualityo 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


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

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


3. The Gaps Model


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 expecto Understand customer expectations o Improve communication between frontline staff and

managemento Turn information and insights into action

– Standards gap: Specify SQ standards that reflect expectationso Set, communicate, and reinforce customer-oriented

service standards for all work unitso Measure performance and provide regular feedbacko Reward managers and employees



1. Delivery gap: Ensure service performance meets standardso Clarify employee roleso Train employees in priority setting and time managemento Eliminate role conflict among employeeso Develop good reward system

– Internal communications gap: Ensure that communications promises are realistico Seek comments from frontline employees and operations personnel

about proposed advertising campaignso Get sales staff to involve operations staff in meetings with customerso Ensure that communications sets realistic customer expectations



1. Perceptions gap: Educate customers to see reality of service quality delivered o Keep customers informed during service delivery and debrief after

delivery o Provide physical evidence

– Interpretation gap: Pretest communications to make sure message is clear and unambiguouso Present communication materials to a sample of customers in

advance of publication– Service gap: Close gaps 1 to 6 to meet customer

expectations consistently


4. Measuring and Improving Service Quality


Soft Measures of Service Quality

• Key customer-centric SQ measures include:o Total market surveys, annual surveys, transactional surveyso Service feedback cardso Mystery shoppingo Analysis of unsolicited feedback

• 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:

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

o Barriers to better serviceo Suggestions for improvement


Hard Measures of Service Quality

• Control charts to monitor a single variableo Offer a simple method of displaying performance over time against

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

• Service quality indexes*o 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 Within15 Minutes of Schedule


Tools to Analyze and Address Service Quality Problems

• Fishbone diagramo Cause-and-effect diagram to identify potential causes of problems

• Pareto Charto 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

o Visualization of service delivery, identifying points where failures are most likely to occur


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-StagePersonnel

Procedures

Materials,Supplies

Customers

Gate agents cannot process

fast enough

Late/unavailableairline crew

Arrive lateOversized bags

Weather Air traffic

Frontstage Personnel

Procedures

Materials, Supplies

BackstagePersonnel

Information

Customers

Other Causes

MechanicalFailures

Late pushback

Late baggage


Late passengers

Waiting for pushbackWaiting for fuelling

Late weight and balance sheetLate cabin cleaning/supplies

Other

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 (more in Ch. 8)

• 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 attentiono Important first step in preventing service quality

problems


Tools to Analyze and Address Service Quality Problems (Appendix)

• Total Quality Management (TQM)• ISO 9000

o 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 Serviceso To promote best practices in quality management, and recognizing,

and publicizing quality achievements among U.S. firms• Six Sigma

o Statistically, only 3.4 defects per million opportunities (1/294,000)o Has evolved from defect-reduction approach to an overall business-

improvement approach


Return On Quality (ROQ)

• Assess costs and benefits of quality initiatives o 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

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

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

• Determine optimal level of reliability o Diminishing returns set in as improvements require higher investments o 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%

Service Reliability

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.


5. 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 serviceso Difficult in most services because both input and output are hard

to define o 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)o Problem: Focus on inputs rather than outcomeso May ignore variations in service quality/value

• Productivity: Involves financial valuation of outputs to inputso Consistent delivery of outcomes desired by customers

should command higher prices• Effectiveness: Degree to which firm meets goals

o 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 serviceo Focus on outputs rather than outcomeso 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:o Profitability by customero Capital employed per customero Shareholder equity per customer


6. Improving Service Productivity


Questions When Developing Strategies to Improve Service Productivity

1. How to transform inputs into outputs efficiently?

2. Will improving productivity hurt quality?3. Will improving quality hurt productivity?4. Are employees or technology the key to

productivity?5. Can customers contribute to higher

productivity?


Generic Productivity Improvement Strategies

• Typical strategies to improve service productivity:o Careful control of costs at every step in processo Efforts to reduce wasteful use of materials or laboro Replacing workers by automated machineso 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 demando 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

o Get customers to self-serveo Encourage customers to obtain information and buy from firm’s

corporate websites • Ask customers to use third parties

o 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 customerso 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 serviceso Some improvements only require passive acceptance, while others

require customers to change behavioro Must consider impacts on customers and address customer

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

• See Service Perspectives 14.1: Managing Customers’ Reluctance to Change* (p. 439)


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:o Meeting customer needso Achieving management's productivity goals

• Better to search for service process redesign opportunities that lead too Improvements in productivityo Simultaneous improvement in service qualityo See Service Perspectives 14.2: Biometrics

service marketing chapter 14

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