Why Study Services?

Examples of Service Industries

Health Care
hospital, medical practice, dentistry, eye care etc

Professional Services
accounting, legal, marketing research, management consulting ,architectural

Financial Services
banking, investment advising, insurance

Hospitality, travel and tourism

restaurant, hotel/motel, bed & breakfast ski resort, rafting airline, travel agency, theme park

Others
hair styling, pest control, plumbing, lawn maintenance, counseling services, health club, interior design

 Services Dominate Economy in Most Nations Why Study Services?

Most New Jobs are Generated by Services
Fastest Growth Expected in Knowledge-Based Industries Many New Jobs are Well-Paid Positions Requiring Good Educational Qualifications

Many manufacturing firms moved to marketing stand- alone services

Service as a business imperative in manufacturing and IT Deregulated industries and professional service needs Services marketing is different

Service equals profits

Percent of U.S. Gross Domestic Product by Industry

Percent of U.S. Labor Force by Industry

Contribution of Services Industries to Global GDP

Powerful Forces Are Transforming Service Markets

Forces Transforming the Service Economy (1)

Social Changes Government Policies Business Trends Advances in

IT
Globalization

liberalization de/regulations Privatization New rules to protect customers,

trade in services

employees, and the environment

Forces Transforming the Service Economy (2)

Social Changes Government Policies Business Trends Advances in

IT
Globalization

Rising consumer expectations Affluence Personal Outsourcing Increased desire for buying experiences vs.
things

Rising consumer ownership of high tech

equipment

Easier access to more information Immigration Growing young(BRIC) and aging

population(Advanced Nations)

Forces Transforming the Service Economy (3)

Social Changes Government Policies Business Trends Advances in

IT
Globalization

shareholder value productivity and cost savings Manufacturers add value through service and sell
services

strategic alliances Focus on quality and customer satisfaction

Forces Transforming the Service Economy (4)

Social Changes Government Policies Business Trends

Advances in IT Globalization

Internet Greater bandwidth Compact integrated mobile equipment Wireless networking Faster, more powerful software Digitization of text, graphics, audio, video

Forces Transforming the Service Economy (5)

Social Changes Government Policies Business Trends Advances in

IT
Globalization

More companies operating on transnational basis Increased international travel International mergers and alliances Offshoring of customer service Foreign competitors invade domestic markets

Forces Transforming the Service Economy

Social Changes Government Policies Business Trends

Advances in IT Globalization

New markets and product categories Increase in demand for services More intense competition

Innovation in service products & delivery systems, stimulated by better technology

Customers have more choices and exercise more power

Success hinges on: Understanding customers and competitors Viable business models Creation of value for customers and firm

What Are Services?

What is Service? The Old View

Service is a technical after-sale function that is provided by the service department.

Old view of service = Customer Service Center

Old: Service = wrench time

What is Service? The New View

Service includes every interaction between any customer and anyone representing the company, including:
Dealers Web site and any e-channel Interaction Billing and Accounting Personnel

Salespeople

Customer

Receptionists and Schedulers Management and Executives

Service Employees

What are Services? (1)

A service is a deed, performance, an effort(Rathmell 1966)

Services involve a form of rental, offering benefits without transfer of ownership

Include rental of goods Marketing tasks for services differ from those involved in selling goods and transferring ownership

What are Services? (2)

Five broad categories within non-ownership framework:

1. Rented goods services 2. Defined space and place rentals 3. Labor and expertise rentals 4. Access to shared physical environments 5. Systems and networks: access and usage

What are Services? (3)

Implications of Renting Versus Owning

Markets exist for renting durable goods rather than selling them

Renting portions of larger physical entity (e.g., office space, apartment) can form basis for service
Customers more closely engaged with service suppliers Time plays central role in most services Customer choice criteria may differ between rentals and outright purchases Services offer opportunities for resource sharing

Four Broad Categories of Services

Classification of services

 Health Care
hospital, medical practice, dentistry, eye care etc

Professional Services
accounting, legal, marketing research, management consulting ,architectural

Financial Services
banking, investment advising, insurance

Hospitality, travel and tourism

restaurant, hotel/motel, bed & breakfast ski resort, rafting airline, travel agency, theme park

Others
hair styling, pest control, plumbing, lawn maintenance, counseling services, health club, interior design

Four Broad Categories of Services

Based on differences in nature of service act (tangible/intangible) and who or what is direct recipient of service (people/possessions), there are four categories of services:
People processing Possession processing

Mental stimulus processing

Information processing

Four Categories Of Services

(Fig 1.10)

Four Categories Of Services

People Processing
a. b. c. d. Transported Lodged Restored to health Made more beautiful

Customers must:
physically enter the service factory co-operate actively with the service operation

Managers should think about process and output from customers perspective

Possession Processing
Possession Processing
a. b. c. d. Car repairing House cleaning Dry cleaning Sick pet treatment

Customers are less physically involved compared to people processing services Involvement is limited Production and consumption are separable

Mental Stimulus Processing

Mental Stimulus Processing :services directed at peoples minds i.

ii. Education Advertisement

iii.
iv.

Psychotherapy
Entertainment

Core content of services is information-based

Information Processing

Information Processing
a. b. c. d. Accounting Law Marketing research Management consulting

Information is the most intangible form of service output, But may be transformed into enduring forms of service output Line between information processing and mental stimulus processing may be blurred.

Defining Services

Services
Are economic activities offered by one party to another Most commonly employ time-based performances to bring about desired results in: - Recipients themselves - Objects or other assets for which purchasers have responsibility

In exchange for their money, time, and effort, service customers expect to obtain value from
Access to goods, labor, facilities, environments, professional skills, networks, and systems; But they do not normally take ownership of any of the physical elements involved.

Challenges Posed by Services

Value Added by Physical, Intangible Elements Helps Distinguish Goods and Services (Fig 1.16)

Continuum of Evaluation for Products

Services Pose Distinctive Marketing Challenges Marketing management tasks in the service sector differ from those in
the manufacturing sector. The eight common differences are:
Most service products cannot be inventoried Intangible elements usually dominate value creation

Services are often difficult to visualize and understand

Customers may be involved in co-production People may be part of the service experience

Operational inputs and outputs tend to vary more widely

The time factor often assumes great importance Distribution may take place through nonphysical channels

Differences, Implications, and Difference Implications Marketing-Related Tasks (1) (Table 1.1)
Most service products cannot be inventoried Intangible elements usually dominate value creation Services are often difficult to visualize & understand Customers may be involved in coProduction Customers may be turned away

Marketing-Related Tasks

Use pricing, promotion, reservations to smooth demand; work with ops to manage capacity Emphasize physical clues, employ metaphors and vivid images in advertising Educate customers on making good choices; offer guarantees Develop user-friendly equipment, facilities & systems; train customers, provide good support

Harder to evaluate service & distinguish from competitors Greater risk & uncertainty perceived

Interaction between customer & provider; but poor task execution could affect satisfaction

Differences, Implications, and Marketing-Related Tasks (2) (Table 1.1)

Difference
People may be part of service experience

Implications
Behavior of service personnel & customers can affect satisfaction Hard to maintain quality, consistency, reliability Difficult to shield customers from failures Time is money; customers want service at convenient times Electronic channels or voice telecommunications

Marketing-Related Tasks
Recruit, train employees to reinforce service concept Shape customer behavior Redesign for simplicity and failure proofing Institute good service recovery procedures

Operational inputs and outputs tend to vary more widely Time factor often assumes great importance

Find ways to compete on speed of delivery; offer extended hours

Create user-friendly, secure websites and free access by telephone

Distribution may take place through nonphysical channels

Expanded Marketing Mix for Services

Extended Mix for Managing the Customer Interface (1)

Process
Operational inputs and outputs vary more widely
- Quality and content varies among employees, between employees - Variations can be with different customers - Variations from time of the day

Variability can be reduced by:

- Standardized procedures - Implementing rigorous management of service quality - Training employees more carefully - Automating tasks - Train employees in service recovery procedures

Manage process design and flow of customers

Extended Mix for Managing the Customer Interface (2)

Physical environment
Design servicescape and provide tangible evidence of service performances

Create and maintain physical appearances

- Buildings/landscaping - Interior design/furnishings - Vehicles/equipment - Staff grooming/clothing - Sounds and smells - Other tangibles Manage physical cues carefully can have profound impact on customer impressions

Extended Mix for Managing the Customer Interface (3) People

Interactions between customers and contact personnel strongly influence customer perceptions of service quality Well-managed firms devote special care to selecting, training and motivating service employees Other customers can also affect ones satisfaction with a service

Root Cause of Customer Failure

Framework for Effective Service Marketing Strategies

Framework For Developing Effective Service Marketing Strategies - Overview

Understanding Service Products, Consumers & Markets Part I: Chapters 1 - 3

Applying the 4 Ps to Services Part II: Chapters 4 - 7

Managing the Customer Interface Part III: Chapters 8 - 11

Implementing Profitable Service Strategies Part IV: Chapters 12 - 15

Framework for Developing Effective Service Marketing Strategies- Part I

Framework for Developing Effective Service Marketing Strategies Part II

Framework for Developing Effective Service Marketing Strategies Part III

Framework for Developing Effective Service Marketing Strategies Part IV

Chapter 1 Summary: Introduction to Services Marketing (1) Reasons for studying services
Service sector dominates economy in most nations Most new jobs are generated by services Powerful forcesgovernment policies, social changes, business trends, IT advances, and globalizationare transforming service markets

The service concept and its definition:

Services offer benefits without transfer of ownership Four broad categories of services people processing, possession processing, mental stimulus processing and information processing Customers expect value from access to goods, facilities, labor, professional skills, environments, networks & systems in return for money, time, effort

Chapter 1 Summary: Introduction to Services Marketing (2) Services present distinctive marketing challenges relative to goods, requiring:
Expanded marketing mix comprising 7Ps instead of traditional 4Ps

Framework for developing effective services marketing strategies:

Understanding service products, consumers & markets
Applying the 4 Ps to services

Managing the customer interface

Implementing profitable service strategies

Service Blueprinting

A tool for simultaneously depicting the service process, the points of customer contact, and the evidence of service from the customers point of view.

Service Blueprint Components

Customer Actions line of interaction Visible Contact Employee Actions line of visibility Invisible Contact Employee Actions line of internal interaction Support Processes

Service Blueprint Components

Blueprint for Express Mail Delivery Service

Blueprint for Overnight Hotel Stay Service

Common Issues in Blueprinting

Clearly defining the process to be blueprinted Clearly defining the customer or customer segment that is the focus of the blueprint Who should draw the blueprint? Should the actual or desired service process be blueprinted? Should exceptions/recovery processes be incorporated? What is the appropriate level of detail?

Building a Service Blueprint

Application of Service Blueprints

New Service Development
concept development market testing

Supporting a Zero Defects Culture

managing reliability identifying empowerment issues

Service Recovery Strategies

identifying service problems conducting root cause analysis modifying processes

Blueprints Can Be Used By:

Service Marketers
creating realistic customer expectations:
service system design promotion

Human Resources Management

empowering the human element:
job descriptions selection criteria appraisal systems

Operations Management
rendering the service as promised:
managing fail points training systems quality control

System Technology
providing necessary tools:
system specifications

Benefits of Service Blueprinting

Provides a platform for innovation. Recognizes roles and interdependencies among functions, people, and organizations. Facilitates both strategic and tactical innovations. Transfers and stores innovation and service knowledge(Knowledge management).

Positioning of Services
Focused Strategies for Services

Standing Apart from the Competition

A business must set itself apart from its competition. To be successful it must identify and promote itself as the best provider of attributes that are important to target customers.

George S. Day, Market Driven Strategy , New York: The Free Press

Basic Focus Strategies for Services

Considerations for using Focused Strategies

Fully focused: Limited range of services to narrow and specific market e.g. Nike, Adidas, Ferrari, BMW,AUDI Opportunities
Developing recognized expertise in a well-defined niche may provide protection against wouldbe competitors Allows firms to charge premium prices

Risks
Market is too small to generate needed volume

Demand may be displaced by generic competition from alternative products

Purchasers in chosen segment may be susceptible to economic downturn

Considerations for using Focused Strategies Market focused

Narrow market segment with wide range of services Need to make sure firms have operational capability to do and deliver each of the different services selected Need to understand customer purchasing practices and preferences Example LG,SAMSUNG,HUL

Service focused
Narrow range of services to fairly broad market As new segments are added, firm needs to develop knowledge and skills in serving each segment Example: Starbucks Coffee Shop

Considerations for Using Focus Strategies

Unfocused
Broad markets with wide range of services Many service providers fall into this category Danger becoming a jack of all trades and master of none

Market Segmentation

Market Segmentation

Firms vary widely in their abilities to serve different types of customers A market segment is composed of a group of buyers sharing common characteristics, needs, purchasing behavior, and consumption patterns

Target segments should be selected with reference to

Firms ability to match or exceed competing offerings directed at the same segment Not just profit potential

Positioning Distinguishes a Brand from its Competitors

Four Principles of Positioning Strategy

Must establish position for firm or product in minds of customers Position should be distinctive, providing one simple, consistent message

Position must set firm/product apart from competitors

A company cannot be all things to all people must focus its efforts

Principles of Positioning
What is value proposition for our current service products, and market segments?

What customers do we serve now, and which ones would we like to target?

How does each of our service products differ from competitors?

How well do target customers perceive our service products as meeting their needs?

What does our firm stand for in the minds of current and potential customers?

Avoid trap of investing too heavily in points of differences that are easily copied!

What changes must we make to strengthen our competitive position?

Developing an Effective Positioning Strategy

Developing an Effective Positioning Strategy

Positioning links market analysis and competitive analysis to internal corporate analysis Market Analysis
Focus on overall level and trend of demand and geographic locations of demand Look into size and potential of different market segments Understand customer needs and preferences and how they perceive the competition

Developing an Effective Positioning Strategy

Internal Corporate Analysis
Identify organizations resources, limitations, goals, and values Select limited number of target segments to serve

Competitor Analysis
Understand competitors strengths and weaknesses
Anticipate responses to potential positioning strategies

Steps in Positional Strategy

Using Positioning Maps to Analyze Competitive Strategy

Using Positioning Maps to Plot Competitive Strategy

Great tool to visualize competitive positioning and map developments of time

Useful way to represent consumer perceptions of alternative products graphically

Typically confined to two attributes, but 3-D models can be used to portray positions on three attributes simultaneously Information about a product can be obtained from market data, derived from ratings by representative consumers, or both

Positioning of Hotels Price vs. Service Level

Expensive

Grand Regency PALACE Shangri-La

High Service
Sheraton

Atlantic

Moderate Service

Italia Castle

Alexander IV Airport Plaza

Less Expensive

Positioning of Hotels Location vs. Physical Luxury

High Luxury
Regency Shangri-La Sheraton PALACE Financial District Shopping District and Convention Center Castle Alexander IV Atlantic
Airport Plaza

Grand

Inner Suburbs Italia

Moderate Luxury

Positioning After New Construction: Price vs. Service Level

Mandarin New Grand Heritage Marriott Continental Expensive

Action?
Regency High Service PALACE Shangri-La No action? Moderate Service

Atlantic
Sheraton Italia Castle Alexander IV Airport Plaza

Less Expensive

Positioning After New Construction: Location vs. Physical Luxury

High Luxury Mandarin New Grand Continental Heritage Marriott Sheraton Shangri-La Regency

Action?
PALACE Financial District No action?

Shopping District and Convention Center

Inner Suburbs

Castle

Italia
Alexander IV Atlantic Airport Plaza

Moderate Luxury

Positioning Maps Help Managers to Visualize Strategy

Research provides input to development of positioning maps challenge is to ensure that
Attributes employed in maps are important to target segments Performance of individual firms on each attribute accurately reflects perceptions of customers in target segments

Predictions can be made of how positions may change in light of future developments
Charts and maps can facilitate visual awakening to threats and opportunities, suggest alternative strategic directions

RELATIONSHIP MARKETING
is a philosophy of doing business, a strategic orientation, that focuses on keeping current customers and improving relationships with them does not necessarily emphasize acquiring new customers

is usually cheaper (for the firm)

keeping a current customer costs less than attracting a new one

thus, the focus is less on attraction, and more on retention and enhancement of customer relationships

THE BUCKET THEORY OF MARKETING

CUSTOMER GOALS OF RELATIONSHIP MARKETING

BENEFITS OF RELATIONSHIP MARKETING

Benefits for Customers:

Receipt of greater value Confidence benefits:
trust confidence in provider reduced anxiety

Benefits for Firms:

Economic benefits:
increased revenues reduced marketing and administrative costs regular revenue stream

Customer behavior benefits:

strong word-of-mouth endorsements customer voluntary performance social benefits to other customers mentors to other customers

Social benefits:
familiarity social support personal relationships

Human resource management benefits:

easier jobs for employees social benefits for employees employee retention

Special treatment benefits:

special deals price breaks

PROFIT IMPACT OF 5 PERCENT INCREASE IN RETENTION RATE

Source: F. F. Reichheld, Loyalty and the Renaissance of Marketing, Marketing Management, vol. 2, no. 4 (1994), p. 15.

THE CUSTOMER PYRAMID

THE CUSTOMER PYRAMID

Platinum Tier Gold Tier Iron Tier Lead Tier

Companys most profitable customers, typically heavy users of the product, not overly price sensitive, willing to invest in and try new offerings, and committed customers of the firm Profitability levels are not as high, perhaps because customers want price discounts that limit margins or are simply not as loyal. May be heavy users who minimize risk by working with multiple vendors. Essential customers that provide the volume needed to utilize the firm' capacity but their spending levels, loyalty, and profitability are not substantial enough for special treatment Customers who are costing the firm money. They demand more attention than they are due given their spending and profitability and are sometimes problem customerscomplaining about the firm to others and tying up firm resources.

STRATEGIES FOR BUILDING RELATIONSHIPS

Core Service Provision: Switching Barriers:
customer inertia switching costs:
set up costs, search costs, learning costs, contractual costs

service foundations built upon delivery of excellent service:

satisfaction, perceived service quality, perceived value

Relationship Bonds:
financial bonds social bonds customization bonds structural bonds

Distribution in a Services Context

Distribution in a Services Context

In a services context, we often dont move physical products Experiences, performances, and solutions are not being physically shipped and stored More and more informational transactions are conducted through electronic and not physical channels

Applying the Flow Model of Distribution to Services

The three interrelated elements of distribution are: Information and promotion flow
To get customer interested in buying the service

Negotiation flow
To sell the right to use a service

Product flow
To develop a network of local sites

Using Websites for Service Delivery

Information
Read brochure/FAQ; get schedules/ directions; check prices

Payment
Pay by bank card Direct debit

Consultation
Conduct e-mail dialog Use expert systems

Billing
Receive bill Make auction bid Check account status

Order-Taking
Core
Make/confirm reservations Submit applications Order goods, check status

Exceptions
Make special requests Resolve problems

Hospitality
Record preferences

Safekeeping
Track package movements Check repair status
CORE: Use Web to deliver information-based core services

Options for Service Delivery

Distribution Options for Serving Customers

Customers visit service site
Convenience of service factory locations and operational schedules important when customer has to be physically present

Service providers go to customers

Unavoidable when object of service is immovable More expensive and time-consuming for service provider

Service transaction is conducted remotely

Achieved with help of logistics and telecommunications

Six Options For Service Delivery

Channel Preferences Vary Among Customers

For complex and high-perceived risk services, people tend to rely on personal channels Individuals with greater confidence and knowledge about a service/channel tend to use impersonal and self-service channels Customers with social motives tend to use personal channels Convenience is a key driver of channel choice

Place and Time Decisions

Place Decisions of Service Delivery

Cost, productivity, and access to labor are key determinants to locating a service facility Location constraints
Operational requirement (e.g., airports) Geographic factor (e.g., ski resorts gulmarg) Need for economies of scale (e.g., hospitals)

Time of Service Delivery

Traditionally, schedules were restricted

Service availability limited to daytime, 40-50 hours a week

Today
For flexible, responsive service operations: 24/7 service, 24 hours a day, 7 days a week, all around the world

Delivering Services in Cyberspace

Service Delivery Innovations Facilitated by Technology

Technological Innovations
Development of smart mobile telephones and PDAs, and presence of Wi-Fi Voice-recognition technology Websites

Smart cards
- Store detailed information about customer - Act as electronic purse containing digital money

Electronic channels can be offered together with physical channels, or replace physical channels

E-Commerce: Move to Cyberspace

What are the factors that encourage you to use virtual stores?
Convenience Ease of search Broader selection

Potential for better prices

24-hour service with prompt delivery

E-Commerce: Move to Cyberspace

Recent developments: websites, customer management (CRM) systems, and mobile telephony Integrating mobile devices into the service delivery infrastructure can be used as means to:
Access services Alert customers to opportunities/problems Update information in real time

What is a Service?
A service is any act of performance that one party can offer another that is essentially intangible and does not result in the ownership of anything; its production may or may not be tied to a physical product.

Service Distinctions

Equipment-based or people-based Service processes Clients presence required or not Personal needs or business needs

High touch / high-tech services

Discretely / continuously rendered services

What are Services? (2)

Five broad categories within non-ownership framework:

1. Rented goods services 2. Defined space and place rentals 3. Labor and expertise rentals 4. Access to shared physical environments 5. Systems and networks: access and usage

What are Services? (3)

Implications of Renting Versus Owning

Markets exist for renting durable goods rather than selling them

Renting portions of larger physical entity (e.g., office space, apartment) can form basis for service
Customers more closely engaged with service suppliers Time plays central role in most services Customer choice criteria may differ between rentals and outright purchases Services offer opportunities for resource sharing

Physical Evidence and Presentation

Place People Equipment Communication material

Symbols
Price

Increasing Quality Control

Root Causes of Customer Failure

Solutions to Customer Failures

Redesign processes and redefine customer roles to simplify service encounters

Incorporate the right technology to aid employees and customers

Create high-performance customers by enhancing their role clarity, motivation, and ability Encourage customer citizenship where customers help customers

Types of Marketing in Service Industries

Factors Leading to Customer Switching Behavior Pricing Inconvenience Core Service Failure Service Encounter Failures

Response to Service Failure

Competition

Ethical Problems
Involuntary Switching

10 key things companies can do to improve service quality

Listening Reliability Basic service Service design Recovery

Surprising customers Fair play Teamwork Employee research Servant leadership

Determinants of Service Quality

Reliability: the ability to perform service dependably and accurately

Responsiveness: the willingness to help customers and to provide prompt service.

Determinants of Service Quality

Assurance: the knowledge and courtesy of employees and their ability to convey trust and confidence.

Empathy: the provision of caring, individualized attention to customers.

Tangibles: the appearance of physical facilities equipment, personnel, and communication material.

The Gaps Model of Service Quality

Demonstrate that the gaps model is a useful framework for understanding service quality in an organization. Demonstrate that the most critical service quality gap to close is the customer gap, the difference between customer expectations and perceptions. Show that four gaps that occur in companies, which we call provider gaps, are responsible for the customer gap. Identify the factors responsible for each of the four provider gaps. Valarie A zeithaml, A.Parasuraman,And Leonard Berry,
Delivering quality Service: Balncing Customer Perceptions and expectations(New York: The Free Press,!900

Service-Quality Model

Gaps Model of Service Quality

The Gaps Model of Service Quality

The Customer Gap The Provider Gaps:
Gap 1 The Listening Gap
not knowing what customers expect

Gap 2 The Design and Standards Gap

not having the right service designs and standards

Gap 3 The Performance Gap

not delivering to service standards

Gap 4 The Communication Gap

not matching performance to promises

Putting It All Together: Closing the Gaps

The Service Quality Gaps Model

The Customer Gap

The Customer Gap

Key Factors Leading to the Customer Gap

Customer Gap Customer Expectations

Provider Gap 1: Not knowing what customers expect Provider Gap 2: Not selecting the right service designs and standards Provider Gap 3: Not delivering to service standards Provider Gap 4: Not matching performance to promises

Customer Perceptions

Gaps Model of Service Quality

Customer Gap:
difference between customer expectations and perceptions

Provider Gap 1 (Knowledge Gap):

not knowing what customers expect

Provider Gap 2 (Service Design & Standards Gap):

not having the right service designs and standards

Provider Gap 3 (Service Performance Gap):

not delivering to service standards

Provider Gap 4 (Communication Gap):

not matching performance to promises

Provider Gap 1
CUSTOMER Expected Service Perceived Service COMPANY Gap 1: The Listening Gap

Company Perceptions of Consumer Expectations

Key Factors Leading to Provider Gap 1

Provider Gap 2
CUSTOMER

COMPANY

Customer-Driven Service Designs and Standards Gap 2: The Design and Standards Gap Company Perceptions of Consumer Expectations

Key Factors Leading to Provider Gap 2

Provider Gap 3
CUSTOMER

COMPANY

Service Delivery Gap 3: The Performance Gap

Customer-Driven Service Designs and Standards

Key Factors Leading to Provider Gap 3

Provider Gap 4
CUSTOMER

COMPANY

Gap 4: The Communication Gap External Service Delivery Communications to Customers

Key Factors Leading to Provider Gap 4

Ways to Use Gap Analysis

Overall Strategic Assessment:
How are we doing overall in meeting or exceeding customer expectations?

How are we doing overall in closing the four company gaps? Which gaps represent our strengths and where are our weaknesses?

Ways to Use Gap Analysis

Specific Service Implementation
Who is the customer? What is the service? Are we consistently meeting/exceeding customer expectations with this service? If not, where are the gaps and what changes are needed? (Examine gaps 1-4 for this particular service.)

Defining Productive Capacity?

The term refers to the resourses or assets that a firm can employ to create goods or services Productive capacity can take several forms in services
Physical facilities designed to contain customers e.g. medical clinics, hotels, passenger aircraft and university classroom. Physical facilities designed for storing or processing goods e.g. warehouses, parking, transportation. Physical equipment used to process people, possessions, or information e.g. diagnostic equipment, ATM, Labor e.g. a lawyers time and expertise are his stock in trade Infrastructure

Financial success in capacity-constrained business is a function of managements ability to use productive capacity as efficiently and profitably as possible.

From Excess Demand to Excess Capacity

Excess demand Demand exceeds optimum capacity Optimum capacity
Too much demand relative to maximum capacity

Service quality is perceived to have deteriorated

Staff is not overworked and customers receive good service

Excess capacity

Too much capacity relative to demand

Variations in Demand Relative to Capacity

VOLUME DEMANDED
Demand exceeds Capacity (business is lost) CAPACITY UTILIZED

Maximum Available Capacity Optimum Capacity (Demand Supply)

Demand exceeds optimum capacity (quality declines)

Low Utilization (may send bad signals)

(wasted resources) TIME CYCLE 1

Excess capacity

TIME CYCLE 2

Addressing Problem of Fluctuating Demand

Two basic approaches of which most firms use a mix of: Adjust level of capacity to meet demand
Need to understand productive capacity and how it varies on an incremental basis

Manage level of demand

Use marketing strategies to smooth out peaks, fill in valleys Inventorying demand until capacity becomes available

Managing Capacity

Managing Capacity
Enables more people to be served at same level of capacity Stretch and shrink:
Offer inferior extra capacity at peaks (e.g., bus/train standees) Use facilities for longer/shorter periods Reduce amount of time spent in process by minimizing slack time

Adjusting capacity to match demand

Rest during low demand Ask customers to share

Cross-train employees
Use part-time employees Customers perform self-service

Create flexible capacity

Rent/share facilities and equipment