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Services Marketing

2nd Edition

Essentials of

Service from the heart

Jochen Wirtz Patricia Chew Christopher Lovelock

Published in 2012 by Pearson Education South Asia Pte Ltd 23/25 First Lok Yang Road, Jurong Singapore 629733

Publishing Director: Mark Cohen Project Editor: Chelsea Cheh Prepress Executive: Kimberly Yap

Pearson Asia Pacific offices: Bangkok, Beijing, Ho Chi Minh City, Hong Kong, Jakarta, Kuala Lumpur, Manila, Seoul, Singapore, Taipei, Tokyo

Printed in Singapore

4 3 2 1 15 14 13 12

ISBN

978-981-06-8618-5

The authors, editor, and publisher gratefully acknowledged the permissions granted to reproduce the copyright materials in this book. Every effort has been made to trace copyright holders and to obtain their permissions for the use of copyright materials. The publisher apologizes for any errors or omissions in the credit list and would be grateful if notified of any corrections that should be incorporated in future reprints or editions of this book.

Copyright Pearson Education South Asia Pte Ltd 2013. All rights reserved. This publication is protected by Copyright and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. For information regarding permission(s), write to: Rights and Permissions Department.

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Brief Contents
Dedication About the Authors About the Contributors of the Cases Preface Acknowledgments v vii xi xxiii xxxv

Part I:
Chapter 1 Chapter 2 Chapter 3

Understanding Service Products, Consumers, and Markets


Introduction to Services Marketing Consumer Behavior in a Services Context Positioning Services in Competitive Markets

4 34 66

Part II:
Chapter 4 Chapter 5 Chapter 6 Chapter 7

Developing Service Products: Core and Supplementary Elements Distributing Services through Physical and Electronic Channels Setting Prices and Implementing Revenue Management Promoting Services and Educating Customers

Applying the 4 Ps of Marketing to Services

94

96 122 150 188

Part III:
Chapter 8 Chapter 9 Chapter 10 Chapter 11

Designing and Managing Service Processes Balancing Demand and Capacity Crafting the Service Environment Managing People for Service Advantage

Designing and Managing the Customer Interface

224

226 264 296 322

Part IV:
Chapter 12 Chapter 13

Managing Relationships and Building Loyalty Complaint Handling and Service Recovery

Developing Customer Relationships Striving for Service Excellence Cases

356 428 502

358 394

Part V:

Chapter 14 Chapter 15

Improving Service Quality and Productivity Organizing for Service Leadership

430 476

Part VI:
Glossary Credits Name Index Subject Index

649 657 661 671

Contents
Preface Acknowledgments xxiii xxxv

Part I: Understanding Service Products, Consumers, and Markets


1. Introduction to Services Marketing
Why Study Services?
Services Dominate the Economy in Most Nations Most New Jobs Are Generated by Services

2
4
6
6 7

Powerful Forces Are Transforming Service Markets What Are Services?


Benefits without Ownership Defining Services People Processing Possession Processing Mental Stimulus Processing Information Processing

9 13
13 15

Four Broad Categories of ServicesA Process Perspective

15
16 16 17 18

Services Pose Distinct Marketing Challenges The 7 Ps of Services Marketing


The Traditional Marketing Mix Applied to Services The Extended Services Marketing Mix for Managing the Customer Interface Understanding Service Products, Consumers, and Markets Applying the 4 Ps of Marketing to Services Designing and Managing the Customer Interface Developing Customer Relationships Striving for Service Excellence

18 20
20 23

A Framework for Developing Effective Services Marketing Strategies

24
26 26 26 27 27

2.

Consumer Behavior in a Services Context


The Three-Stage Model of Service Consumption Pre-purchase Stage
Need Awareness Information Search Evaluation of Alternative Services Purchase Decision

34
36 37
37 38 38 49

Service Encounter Stage


Service Encounters Are Moments of Truth Service Encounters Range from High Contact to Low Contact The Servuction System Theater as a Metaphor for Service Delivery: An Integrative Perspective

49
50 50 52 53

Post-Purchase Stage

56

3.

Positioning Services in Competitive Markets


Customer-Driven Services Marketing Strategy
Customer, Competitor, and Company Analysis (3 Cs) Segmentation, Targeting, and Positioning (STP) Important versus Determinant Service Attributes Segmenting Based on Service Levels Achieve Competitive Advantage through Focus Developing an Effective Positioning Strategy An Example of Applying Positioning Maps to the Hotel Industry Mapping Future Scenarios to Identify Potential Competitive Responses Positioning Charts Help Executives to Visualize a Strategy

66
68
68 70

Segmenting Service Markets Targeting Service Markets Positioning Services Using Positioning Maps to Plot a Competitive Strategy

72
74 74

76
76

79
82

82
83 86 88

Part II: Applying the 4 Ps of Marketing to Services


4.

94
96
98 99
99 100 101 101

Developing Service Products: Core and Supplementary Elements


The Flower of Service Facilitating Supplementary Services
Information Order Taking Billing Payment Consultation Hospitality Safekeeping Exceptions Managerial Implications Branding Strategies for Services Tiering Service Products with Branding Building Brand Equity and Developing a Branded Experience

Enhancing Supplementary Services

102
102 103 104 105 105

Branding Service Products and Experiences

106
107 108 110

New Service Development


A Hierarchy of New Service Categories Achieving Success in New Service Development

113
113 115

5.

Distributing Services through Physical and Electronic Channels


Distribution in a Services Context
What Is Distributed?

122
124
124

Distribution Options for Serving Customers: Determining the Type of Contact


Customers Visit the Service Site Service Providers Go to Their Customers The Service Transaction Is Conducted Remotely Channel Preferences Vary among Consumers Where Should Service Be Delivered in a Brick-and-Mortar Context? When Should Service Be Delivered? Service Delivery Innovations Facilitated by Technology E-Commerce: the Move to Cyberspace Franchising How to Enter International Markets

124
125 125 127 128

Place and Time Decisions Delivering Services in Cyberspace The Role of Intermediaries Distributing Services Internationally

129
129 132

133
135 137

139
140

142
142

6.

Setting Prices and Implementing Revenue Management


Effective Pricing Is Central to Financial Success
Objectives for Establishing Prices Cost-Based Pricing Value-Based Pricing Reducing Related Monetary and Non-monetary Costs Competition-Based Pricing Reserving Capacity for High-Yield Customers How Does Competitors Pricing Affect Revenue Management? Price Elasticity Designing Rate Fences Service Pricing Is Complex Piling on the Fees Designing Fairness into Revenue Management

150
152
152

Pricing Strategy Stands on Three Foundations

153
153 154 157 159

Revenue Management: What It Is and How It Works

160
162 162 162 163

Ethical Concerns in Service Pricing

166
166 167 168

Putting Service Pricing into Practice


How Much to Charge? What Should Be the Specified Basis for Pricing? Who Should Collect Payment? Where Should Payment Be Made? When Should Payment Be Made? How Should Payment Be Made? How Should Prices Be Communicated to the Target Markets?

171
171 174 175 175 176 176 177

7.

Promoting Services and Educating Customers


The Role of Marketing Communications
Position and Differentiate the Service Promote the Contribution of Service Personnel and Backstage Operations Add Value through Communication Content Facilitate Customer Involvement in Service Production Stimulate or Dampen Demand to Match Capacity Problems of Intangibility Overcoming the Problems of Intangibility Defining the Target Audience Specifying Communication Objectives Communications Originate from Different Sources Messages Transmitted through Traditional Marketing Channels Messages Transmitted through the Internet Messages Transmitted through Service Delivery Channels Messages Originating from Outside the Organization Ethical and Consumer Privacy Issues in Communication

188
190
190 191 191 192 192

Challenges of Services Communications Marketing Communications Planning The Marketing Communications Mix

192
192 193

195
195 196

197
198 198 202 208 209 213

The Role of Corporate Design

213

Part III: Designing and Managing the Customer Interface


8.

224
226
228
228 231

Designing and Managing Service Processes


Flowcharting Customer Service Processes
Flowcharting Is a Simple Tool to Document Service Processes Insights from Flowcharting Developing a Blueprint Blueprinting the Restaurant Experience: A Three-Act Performance

Use Blueprinting to Document and Manage Service Processes

231
232 233

Identifying Fail Points Fail-Proofing to Design Fail Points out of Service Processes Setting Service Standards and Targets Consumer Perceptions and Emotions in Service Processes Service Process Redesign to Improve Both Quality and Productivity Levels of Customer Participation Customers as Service Co-Creators Reducing Service Failures Caused by Customers Psychological Factors in Customer Self-Service What Aspects of SSTs Please or Annoy Customers? Managing Customers Reluctance to Change

240 240 242 243

Service Process Redesign The Customer as Co-Creators

243
245

247
247 248 248

Self-Service Technologies

250
251 252 253

9.

Balancing Demand and Capacity


Fluctuations in Demand Threaten Profitability
From Excess Demand to Excess Capacity Building Blocks of Managing Capacity and Demand

264
266
266 267

Defining Productive Service Capacity Managing Capacity


Stretching Capacity Levels Adjusting Capacity to Match Demand

268 270
270 270

Understanding Patterns of Demand Managing Demand


Marketing Mix Elements Can Be Used to Shape Demand Patterns Waiting Occurs Everywhere Managing Waiting Lines Different Queue Configurations Virtual Waits Queuing Systems Can Be Tailored to Market Segments The Psychology of Waiting Time Reservation Strategies Should Focus on Yield

272 274
274

Inventory Demand through Waiting Lines and Queuing Systems

277
278 279 281 283 284

Customer Perceptions of Waiting Time Inventory Demand through Reservation Systems

284
284

286
287

10.

Crafting the Service Environment


What Is the Purpose of Service Environments?
Shape Customers Experiences and Behavior For Image, Positioning, and Differentiation Part of the Value Proposition Facilitate the Service Encounter and Enhance Productivity

296
298
298 299 300 301

The Theory Behind Consumer Responses to Service Environments


Feelings Are a Key Driver of Customer Responses to Service Environments The Servicescape ModelAn Integrative Framework The Effect of Ambient Conditions Spatial Layout and Functionality Signs, Symbols, and Artifacts People Are Part of the Service Environment, Too Design with a Holistic View Design from a Customers Perspective Tools to Guide Servicescape Design

302
302 304

Dimensions of the Service Environment

306
307 311 312 312

Putting It All Together

314
314 314 315

11.

Managing People for Service Advantage


Service Employees Are Extremely Important
The Frontline in Low-Contact Services Boundary Spanning Sources of Role Conflict Emotional Labor The Cycle of Failure The Cycle of Mediocrity The Cycle of Success Hire the Right People Tools to Identify the Best Candidates Train Service Employees Actively Empower the Front Line Build High-Performance Service-Delivery Teams Motivate and Energize People

322
324
324

Frontline Work Is Difficult and Stressful

325
325 325 327

Cycles of Failure, Mediocrity, and Success

328
328 329 332

Human Resource ManagementHow to Get It Right?

333
334 336 337 339 342 344

Service Leadership and Culture

345

Part IV: Developing Customer Relationships


12.

356
358
360
360 361 364

Managing Relationships and Building Loyalty


The Search for Customer Loyalty
Why Is Customer Loyalty so Important to a Firms Profitability? Assessing the Value of a Loyal Customer Why Are Customers Loyal?

The Wheel of Loyalty Building a Foundation for Loyalty


Targeting the Right Customers Searching for Value, Not Just Volume Managing the Customer Base through Effective Tiering of Service Customer Satisfaction and Service Quality Are Prerequisites for Loyalty Deepening the Relationship Encouraging Loyalty through Financial and Non-financial Rewards Building Higher-Level Bonds Analyze Customer Defections and Monitor Declining Accounts Address Key Churn Drivers Implement Effective Complaint Handling and Service Recovery Procedures Increase Switching Costs Common Objectives of CRM Systems Common Failures in CRM Implementation How to Get CRM Implementation Right

365 366
366 366 368 370

Strategies for Developing Loyalty Bonds with Customers

372
372 372 376

Strategies for Reducing Customer Defections

377
377 378 378 379

CRM: Customer Relationship Management What Does a Comprehensive CRM Strategy Include?

380
380

381
383 384

13.

Complaint Handling and Service Recovery


Customer Complaining Behavior
Customer Response Options to Service Failure Understanding Customer Complaining Behavior What Do Customers Expect Once They Have Made a Complaint? Impact of Effective Service Recovery on Customer Loyalty The Service Recovery Paradox Make It Easy for Customers to Give Feedback Enable Effective Service Recovery How Generous Should Compensation Be? Dealing with Complaining Customers The Power of Service Guarantees How to Design Service Guarantees Is Full Satisfaction the Best You Can Guarantee? Is It Always Beneficial to Introduce a Service Guarantee? Seven Types of Jaycustomers Dealing with Consumer Fraud

394
396
396 397 399

Customer Responses to Effective Service Recovery Principles of Effective Service Recovery Systems

400
400 400

401
401 403 405 405

Service Guarantees

407
407 408 409 410

Discouraging Abuse and Opportunistic Customer Behavior

411
411 415

Part V: Striving for Service Excellence


14.

428
430
432 432
432

Improving Service Quality and Productivity


Integrating Service Quality and Productivity Strategies What Is Service Quality?
Dimensions of Service Quality The Gaps Model in Service Design and Delivery Key Ways to Close the Gaps in Service Quality Soft and Hard Service Quality Measures Key Objectives of Effective Customer Feedback Systems Use a Mix of Customer Feedback Collection Tools Analysis, Reporting, and Dissemination of Customer Feedback

Identifying and Correcting Service Quality Problems Measuring and Improving Service Quality Learning from Customer Feedback

434
434 435

438
438

438
439 440 444

Hard Measures of Service Quality Tools to Analyze and Address Service Quality Problems
Root Cause Analysis: The Fishbone Diagram Pareto Analysis BlueprintingA Powerful Tool for Identifying Fail Points Assess Costs and Benefits of Quality Initiatives Determine the Optimal Level of Reliability Defining Productivity in a Service Context Measuring Productivity Service Productivity, Efficiency, and Effectiveness General Productivity Improvement Strategies Customer-Driven Approaches to Improve Productivity How Productivity Improvements Impact Quality and Value

445 447
447 448 449

Return on Quality

450
450 450

Defining and Measuring Productivity

452
452 453 453

Improving Service Productivity

454
454 455 456

15.

Organizing for Service Leadership


The Service Profit Chain
Important Links in the Service Profit Chain Getting the Service Profit Chain Right Creates Shareholder Value How Are Marketing, Operations, and Human Resources Linked? Do We Need Additional Skill Sets besides Marketing, Operations, and Human Resources?

476
478
478 480

Integrating Marketing, Operations, and Human Resources

480
481 482

Creating a Leading Service Organization


From Losers to Leaders: Four Levels of Service Performance Moving to a Higher Level of Performance Leading Change toward a Higher Performance Level

483
483 488 489

Leadership, Organizational Culture, and Climate Leadership in the Future

490 493

Part VI: Cases


Case 1 Case 2 Case 3 Case 4 Case 5 Case 6 Case 7 Case 8 Case 9 Case 10 Case 11 Case 12 Case 13 Case 14 Case 15 Case 16 Case 17 Case 18 Case 19 Case 20 Case 21 Sullivan Ford Auto World Dr. Becketts Dental Office Bouleau & Huntley: Cross-Selling Professional Services Banyan Tree: Branding the Intangible Giordano: Positioning for International Expansion Kiwi Experience Distribution at American Airlines Managing Word-of-Mouth: The Referral Incentive Program That Backfired The Accra Beach Hotel: Block Booking of Capacity during a Peak Period Revenue Management of Gondolas: Maintaining the Balance between Tradition and Revenue Aussie Pooch Mobile: Expansion by Franchising Shouldice Hospital Limited (Abridged) Red Lobster Singapore Airlines: Managing Human Resources for Cost-effective Service Excellence Customer Asset Management at DHL in Asia Dr. Mahalee Goes to London: Global Client Management Hilton HHonors Worldwide: Loyalty Wars The Royal Dining Membership Program Dilemma The Complaint Letter The Broadstripe Service Guarantee Starbucks: Delivering Customer Service

502
504 510 514 519 528 538 547 555 559 564 568 578 588 590 599 603 605 617 624 627 634

The following cases are available for free download and class distribution on the Instructors Resource Website for courses that adopt Essentials of Services. Case 22 Case 23 Case 24 Case 25 Case 26 Case 27 Case 28 Case 29 Case 30 Case 31 Case 32 Case 33 Case 34 Susan Munro, Service Consumer Four Customers in Search of SolutionsCases A, B & C Jollibee Foods Corporation Hotel Imperial Primula Parkroyal Hotel: Marketing a Business and Resort Hotel in Malaysia Ginger: Smart Basics Using Technology to Revolutionalize the Library Experience of Singaporean Readers TLContact: Care Pages Service (A + B) Revenue Management at Prego Italian Restaurant Massachusetts Audubon Society Menton Bank Bossard Asia Pacific: Can It Make Its CRM Strategy Work? Accellion Service Guarantee

Glossary Credits Name Index Subject Index

649 657 661 671

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