Explain the flower of service concept

Service Marketing

World Scientific Publishing Co. Inc. 27 Warren Street, Suite 401-402, Hackensack, NJ 07601, USA Head office: 5 Toh Tuck Link, Singapore 596224 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE For orders of individual copies, course adoptions, bulk purchases: sales@wspc.com For orders for individual chapters, customized course packs: sales@wspc.com For adaptions or translation rights, permissions to reprint: rights@wspc.com Library of Congress Cataloging-in-Publication Data Names: Lovelock, Christopher H., author. | Wirtz, Jochen, author. Title: Services marketing : people, technology, strategy / Jochen Wirtz, Christopher Lovelock. Description: Eighth edition. | New Jersey : World Scientific, [2016] | Includes index. Identifiers: LCCN 2016003724| ISBN 9781944659004 (hardcover) | ISBN 9781944659011 (pbk.) Subjects: LCSH: Marketing--Management. | Professions--Marketing. | Service industries--Marketing. | Customer

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Services Marketing: People, Technology, Strategy

Brief Contents

About the Authors About the Contributors of the Case Studies Preface Acknowledgements

PART I: UNDERSTANDING SERVICE PRODUCTS, CONSUMERS, AND MARKETS 1. Creating Value in the Service Economy 2. Understanding Service Consumers 3. Positioning Services in Competitive Markets

PART II: APPLYING THE 4 PS OF MARKETING TO SERVICES 4. Developing Service Products and Brands 5. Distributing Services Through Physical and Electronic Channels 6. Service Pricing and Revenue Management 7. Service Marketing Communications

PART III: MANAGING THE CUSTOMER INTERFACE 8. Designing Service Processes 9. Balancing Demand and Capacity 10. Crafting the Service Environment

11. Managing People for Service Advantage

PART IV: DEVELOPING CUSTOMER RELATIONSHIPS 12. Managing Relationships and Building Loyalty 13. Complaint Handling and Service Recovery

PART V: STRIVING FOR SERVICE EXCELLENCE 14. Improving Service Quality and Productivity 15. Building a World-Class Service Organization

PART VI: CASE STUDIES

Glossary Name Index Subject Index

Contents

About the Authors About the Contributors of the Case Studies Preface Acknowledgements

PART I: UNDERSTANDING SERVICE PRODUCTS, CONSUMERS, AND MARKETS

1. Creating Value in the Service Economy Why Study Services • Services Dominate the Global Economy • Most New Jobs are Generated by Services • Understanding Services Offers Personal Competitive Advantage What Are the Principal Industries of the Service Sector? • Contribution to Gross Domestic Product Powerful Forces are Transforming the Service Markets B2B Services as a Core Engine of Economic Development Outsourcing and Offshoring Often Work in Tandem What Are Services • The Historical View Benefits Without Ownership • Defining Services • Service Products versus Customer Service and After-Sales Service Four Broad Categories of Services – A Process Perspective • People Processing • Possession Processing • Mental Stimulus Processing • Information Processing Services Pose Distinct Marketing Challenges The 7Ps of Marketing

The Traditional Marketing Mix Applied to Services • Product Elements • Place and Time • Price and Other User Outlays • Promotion and Education The Extended Services Marketing Mix for Managing the Customer Interface • Process • Physical Environment • People Marketing Must be Integrated with Other Management Functions The Service–Profit Chain A Framework for Developing Effective Service Marketing Strategies • Understanding Service Products, Consumers and Markets • Applying the 4 Ps of Marketing to Services • Managing the Customer Interface • Developing Customer Relationships • Striving for Service Excellence

2. Understanding Service Consumers The Three-Stage Model of Service Consumption Pre-purchase Stage • Need Awareness • Information Search • Evaluation of Alternative Services • Purchase Decision Service Encounter Stage • Service Encounters are “Moments of Truth” • Service Encounters Range from High Contact to Low Contact • The Servuction System • Theater as Metaphor for Service Delivery: An Integrative Perspective • Role and Script Theories • Perceived Control Theory Post-Encounter Stage • Customer Satisfaction • Service Quality • Customer Loyalty

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

PART II: APPLYING THE 4 PS OF MARKETING TO SERVICES

4. Developing Service Products and Brands Creating Service Products • What are the Components of a Service Product? The Flower of Service • Facilitating Supplementary Services • Enhancing Supplementary Services • Managerial Implications Branding Service Firms, Products and Experiences • Branding Strategies for Services Tiering Service Products with Branding Building Brand Equity Delivering Branded Service Experiences New Service Development • A Hierarchy of New Service Categories Achieving Success in New Service Development

5. Distributing Services Through Physical and Electronic Channels

Distribution In a Services Context

What Is Being Distributed? How Should A Service Be Distributed? • Customers Visit the Service Site • Service Providers Go to their Customers • The Service Transaction is Conducted Remotely • Channel Preferences Vary among Customers • Channel Integration is Key Where Should a Service Facility be Located? • Strategic Location Considerations • Tactical Location Considerations • Locational Constraints • Innovative Location Strategies When Should Service be Delivered? The Role of Intermediaries • Benefits and Costs of Alternative Distribution Channels Franchising The Challenge of Distribution in Large Domestic Markets Distributing Services Internationally • Factors Favoring Adoption of Transnational Strategies • How does the Nature of a Service Affect International Distribution? • Barriers to International Trade in Services • How to Enter International Markets?

6. Service Pricing and Revenue Management Effective Pricing is Central to Financial Success • Objectives for Establishing Prices Pricing Strategy Stands on Three Foundations • Cost-based Pricing • Value-based Pricing • Reducing Related Monetary and Non-monetary Costs • Competition-based Pricing Revenue Management: What It Is and How It Works • Reserving Capacity for High-yield Customers • How can we Measure the Effectiveness of a Firm’s Revenue Management? • How does Competitor’s Pricing Affect Revenue Management? • Price Elasticity • Designing Rate Fences

Fairness and Ethical Concerns in Service Pricing • Service Pricing is Complex • Piling on the Fees • Designing Fairness into Revenue Management Putting Service Pricing Into Practice • How Much to Charge? • What Should be the Specified Basis for Pricing? • Who Should Collect Payment and Where Should Payment be Made? • When Should Payment be Made? • How Should Payment be Made? • How Should Prices be Communicated to the Target Markets?

7. Service Marketing Communications Integrated Service Marketing Communications Defining the Target Audience Specifying Service Communication Objectives • Strategic Service Communications Objectives Tactical Service Communications Objectives • Promote Tangible Cues to Communicate Quality Crafting Effective Service Communication Messages • Problems of Intangibility • Overcoming the Problems of Intangibility The Services Marketing Communication Mix • Communications Originate from Different Sources • Messages Transmitted through Traditional Marketing Sources • Messages Transmitted Online • Messages Transmitted through Service Delivery Channels • Messages Originating from Outside the Organization Timing Decisions of Services Marketing Communication Budget Decisions and Program Evaluation Ethical and Consumer Privacy Issues in Communications The Role of Corporate Design Integrated Marketing Communications

PART III: MANAGING THE CUSTOMER INTERFACE

8. Designing Service Processes What is a Service Process?

Designing and Documenting Service Processes Developing a Service Blueprint • Blueprinting the Restaurant Experience: a Three-Act Performance • Identifying Fail Points • Fail-Proofing to Design Fail Points out of Service Processes • Setting Service Standards and Targets • Consumer Perceptions and Emotions in Service Process Design Service Process Redesign • Service Process Redesign Should Improve Both Quality and Productivity Customer Participation in Service Processes • Levels of Customer Participation • Customer as Co-creators • Reducing Service Failures Caused by Customers Self-Service Technologies • Customer Benefits and Adoption of Self-Service Technology • Customer Disadvantages and Barriers of Adoption of Self-Service Technology • Assessing and Improving SSTs • Managing Customer’s Reluctance to Change

9. Balancing Demand and Capacity Fluctuations in Demand Threaten Profitability • From Excess Demand to Excess Capacity • Building Blocks of Managing Capacity and Demand Defining Productive Service Capacity Managing Capacity • Stretching Capacity Levels • Adjusting Capacity to Match Demand Understanding Patterns of Demand Managing Demand • Marketing Mix Elements Can be used to Shape Demand Patterns Inventory Demand Through Waiting Lines and Queuing Systems • Waiting is a Universal Phenomenon • Managing Waiting Lines • Different Queue Configurations • Virtual Waits • Queuing Systems can be Tailored to Market Segments Customer Perceptions of Waiting Time

• The Psychology of Waiting Time Inventory Demand Through Reservation Systems • Reservation Strategies Should Focus on Yield Create Alternative Use for Otherwise Wasted Capacity

10. Crafting the Service Environment Service Environments – An Important Element of The Service Marketing Mix What is the Purpose of Service Environments? • Shape Customer’s Service Experience and Behaviors • Signal Quality and Position, Differentiate and Strengthen the Brand • Core Component of The Value Proposition • Facilitate the Service Encounter and Enhance Productivity The Theory Behind Consumer Responses to Service Environments • Feelings are a Key Driver of Customer Responses to Service Environments • The Servicescape Model – An Integrative Framework Dimensions of the Service Environment • The Effect of Ambient Condition • Spatial Layout and Functionality • Signs, Symbols and Artifacts • People are Part of the Service Environment too Putting It All Together • Design with a Holistic View • Design from a Customer’s Perspective

11. Managing People for Service Advantage Service Employees are Extremely Important • Service Personnel as a Source of Customer Loyalty and Competitive Advantage • The Frontline in Low-Contact Services Frontline Work is Difficult and Stressful • Service Jobs are Boundary Spanning Positions • Sources of Role Conflict • Emotional Labor • Service Sweatshops? Cycles of Failure, Mediocrity and Success • The Cycle of Failure • The Cycle of Mediocrity • The Cycle of Success

Human Resource Management – How to Get it Right • Hire the Right People • Tools to Identify the Best Candidates • Train Service Employees Actively • Internal Communications to Shape the Service Culture and Behaviors • Empower the Frontline • When are High Levels of Empowerment Appropriate? • Build High-Performance Service-Delivery Teams • Integrate Teams Across Departments and Functional Areas • Motivate and Energize People • The Role of Labor Unions Service Culture, Climate and Leadership • Building a Service-Oriented Culture • A Climate for Service • Qualities of Effective Leaders in Service Organizations • Leadership Styles, Focus on the Basics, and Role Modelling • Focusing the Entire Organization on the Frontline

PART IV: DEVELOPING CUSTOMER RELATIONSHIPS

12. Managing Relationships and Building Loyalty The Search for Customer Loyalty • Why Is Customer Loyalty So Important to a Firm’s Profitability? • Assessing the Value of a Loyal Customer • Worksheet for Calculating Customer Lifetime Value • The Gap between Actual and Potential Customer Value • Why Are Customers Loyal? The Wheel of Loyalty Building A Foundation For Loyalty • Target the Right Customers • Search for Value, Not Just Volume • Manage the Customer Base through Effective Tiering of Service • Customer Satisfaction and Service Quality Are Prerequisites for Loyalty Strategies for Developing Loyalty Bonds with Customers • Deepen the Relationship • Encourage Loyalty through Financial and Non-financial Rewards • Build Higher-Level Bonds Strategies for Reducing Customer Defections

• Analyze Customer Defections and Monitor Declining Accounts • Address Key Churn Drivers • Implement Effective Complaint Handling and Service Recovery Procedures • Increase Switching Costs Enablers of Customer Loyalty Strategies • Customer Loyalty in a Transactional Marketing Context • Relationship Marketing • Creating “Membership-Type” Relationships as Enablers for Loyalty Strategies CRM: Customer Relationship Management • Common Objectives of CRM Systems • What Does a Comprehensive CRM Strategy Include? • Common Failures in CRM Implementation • How to Get CRM Implementation Right

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? Customer Responses to Effective Service Recovery • Impact of Effective Service Recovery on Customer Loyalty • The Service Recovery Paradox Principles of Effective Service Recovery Systems • Make It Easy for Customer to Give Feedback • Enable Effective Service Recovery • How Generous Should Compensation Be? • Dealing with Complaining Customers Service Guarantees • 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? Discouraging Abuse and Opportunistic Customer Behavior • Seven Types of Jaycustomers • Consequences of Dysfunctional Customer Behavior • Dealing with Consumer Fraud

PART V: STRIVING FOR SERVICE EXCELLENCE

14. Improving Service Quality and Productivity Integrating Service Quality and Productivity Strategies • Service Quality, Productivity, and Profitability What is Service Quality? Identifying and Correcting Service Quality Problems • The Gaps Model in Service Design and Delivery • Key Ways to Close the Gaps in Service Quality Measuring Service Quality • Soft and Hard Service Quality Measures Learning from Customer Feedback • Key Objectives of Effective Customer Feedback Systems • Use a Mix of Customer Feedback Collection Tools • Analysis, Reporting, and Dissemination of Customer Feedback Hard Measures of Service Quality Tools to Analyze and Address Service Quality Problems • Root Cause Analysis: The Fishbone Diagram • Pareto Analysis • Blueprinting — A Powerful Tool for Identifying Fail Points Return on Quality • Assess Costs and Benefits of Quality Initiatives • Determine the Optimal Level of Reliability Defining and Measuring Productivity • Defining Productivity in a Service Context • Measuring Productivity • Service Productivity, Efficiency, and Effectiveness Improving Service Productivity • Generic Productivity Improvement Strategies • Customer-Driven Approaches to Improve Productivity • How Productivity Improvements Impact Quality and Value Integration and Systemic Approaches to Improving Service Quality and Productivity • Total Quality Management • ISO 9000 Certification • Six Sigma • Malcolm-Baldrige and EFQM Approaches • Which Approach Should a Firm Adopt?

15. Building a World Class Service Organization Creating a World-Class Service Organization • From Losers to Leaders: Four Levels of Service Performance • Moving to a Higher Level of Performance Customer Satisfaction and Corporate Performance

PART VI: CASE STUDIES Case 1 Sullivan Ford Auto World Case 2 Dr. Beckett’s Dental Office Case 3 Bouleau & Huntley: Crossselling Professional Services Case 4 Uber: Competing as Market Leader in the US versus Being a Distant Second in China Case 5 Banyan Tree: Designing and Delivering a Branded Service Experience Case 6 Kiwi Experience Case 7 The Accra Beach Hotel: Block Booking of Capacity during a Peak Period Case 8 Aussie Pooch Mobile Case 9 Shouldice Hospital Limited (Abridged) Case 10 Delwarca Software Remote Support Unit Case 11 Red Lobster Case 12 Raleigh & Rosse: Measure to Motivate Exceptional Service Case 13 Singapore Airlines: Managing Human Resources for Cost-effective Service Excellence Case 14 Dr. Mahalee Goes to London: Global Client Management Case 15 Royal Dining Membership Program Dilemma Case 16 Starbucks: Delivering Customer Service Case 17 LUX*: Staging a Service Revolution in a Resort Chain Case 18 KidZania: Shaping a Strategic Service Vision for the Future Case 19-32 Additional Cases Available for Educators

Glossary Name Index Subject Index

About the Authors

As a team, Christopher Lovelock and Jochen Wirtz provide a blend of skills and experience ideally suited to writing an authoritative and engaging services marketing text. Since first meeting in 1992, they’ve worked together on a variety of projects, including cases, articles, conference papers, and two books — Services Marketing: People, Technology, Strategy and Essentials of Services Marketing.

Jochen Wirtz is Professor of Marketing at the National University of Singapore (NUS), an international fellow of the Service Research Center at Karlstad University, Sweden, and academic scholar at the Cornell Institute for Healthy Futures (CIHF) at Cornell University, USA.

Professor Wirtz was the founding director of the dual degree UCLA–NUS Executive MBA Program (ranked fourth globally in the Financial Times 2015 EMBA rankings, and third in the EIU 2015 rankings) from 2002 to 2014, an Associate Fellow at the Saïd Business School, University of Oxford from 2008 to 2013, and a founding member of the NUS Teaching Academy (the NUS think-tank on education matters) from 2009 to 2015.

Professor Wirtz’s research focuses on service marketing and has been published in over 200 academic articles, book chapters, and industry reports. He is author or co-author of more than 10 books, including Services Marketing — People, Technology, Strategy (World Scientific, 8th edition, 2016), co-authored with Professor Lovelock, which has become one of the world’s leading services marketing textbook, translated and adapted for more than 26 countries and regions, and with sales of some 800,000 copies. His other books include Flying High in a Competitive Industry: Secrets of the World’s Leading Airline (McGraw Hill, 2009), Essentials of Services Marketing (Prentice Hall, 3rd edition, 2016), and Winning in Service Markets: Success Through People, Technology and Strategy (World Scientific, 2016).

In recognition of his excellence in teaching and research, Professor Wirtz has received

more than 40 awards, including the prestigious Academy of Marketing Science (AMS) 2012 Outstanding Marketing Teacher Award (the highest recognition of teaching excellence of AMS globally), and the top university-level Outstanding Educator Award at NUS. He was also the winner of the inaugural Outstanding Service Researcher Award 2010, and the Best Practical Implications Award 2009, both by Emerald Group Publications. He serves on the editorial review boards of more than 10 academic journals, including the Journal of Service Management, Journal of Service Research, Journal of Service Science, and Cornell Hospitality Quarterly and is also an ad hoc reviewer for the Journal of Consumer Research and Journal of Marketing. Professor Wirtz chaired the American Marketing Association’s biennial Service Research Conference in 2005 when it was held for the first time in Asia.

Professor Wirtz was a banker and took the banking exam at Chamber of Commerce and Industry in Munich. He has since been an active management consultant, working with international consulting firms, including Accenture, Arthur D. Little and KPMG, and major service firms in the areas of strategy, business development, and customer feedback systems.

Originally from Germany, Professor Wirtz spent seven years in London before moving to Asia. Today, he shuttles between Asia, the United States, and Europe. For further information, see www.JochenWirtz.com.

The late Christopher Lovelock was one of the pioneers of services marketing. He consulted and conducted seminars and workshops for managers all around the world, with a particular focus on strategic planning in services and managing the customer experience. From 2001 to 2008, he had been an adjunct professor at the Yale School of Management, where he taught services marketing in the MBA program.

After obtaining a B Com and an MA in economics from the University of Edinburgh, he worked in advertising with the London office of J. Walter Thompson Co., and then in corporate planning with Canadian Industries Ltd. in Montreal. Later, he earned an MBA from Harvard and a PhD from Stanford, where he was also a postdoctoral fellow.

Professor Lovelock’s distinguished academic career included 11 years on the faculty of the Harvard Business School and two years as a visiting professor at IMD in Switzerland. He has also held faculty appointments at Berkeley, Stanford, and the Sloan School at MIT, as well as visiting professorships at INSEAD in France and the University of Queensland in Australia.

http://www.JochenWirtz.com
Author or co-author of more than 60 articles, 100 teaching cases, and 27 books, Professor Lovelock saw his work translated into 16 languages. He served on the editorial review boards of the Journal of Service Management, Journal of Service Research, Service Industries Journal, Cornell Hospitality Quarterly, and Marketing Management, and was also an ad hoc reviewer for the Journal of Marketing.

Widely acknowledged as a thought leader in services, Professor Lovelock has been honored by the American Marketing Association’s prestigious Award for Career Contributions in the Services Discipline. This award has been renamed the SERVSIG Christopher Lovelock Career Contribution Award in his honor. His article with Evert Gummesson “Whither Services Marketing? In Search of a New Paradigm and Fresh Perspectives” won the AMA’s Best Services Article Award in 2005. Earlier, he received a best article award from the Journal of Marketing. Recognized many times for excellence in case writing, he has twice won top honors in the Business Week’s “European Case of the Year” Award.

About the Contributors of the Case Studies

Karla Cabrera is a senior researcher at the Service Management Research & Education Group at EGADE Business School, Tecnologico de Monterrey, Mexico.

Mark Colgate is a professor at University of Victoria, Canada.

Lorelle Frazer is a professor at Griffith University, Australia.

Roger Hallowell is affiliated professor of strategy at HEC Paris and former professor at Harvard Business School, US.

Christopher W. Hart is a former professor at Harvard Business School, US.

Loizos Heracleous is a professor at Warwick Business School, UK.

James L. Heskett is an Emeritus Professor at Harvard Business School, US.

Ron Kaufman is founder and chairman of UP! Your Service Pte. Ltd.

Sheryl E. Kimes is a professor at the School of Hotel Management, Cornell University, US.

Suzanne Lowe is President, Expertise Marketing LLC, US.

Michael Mahoney is a former writer at Harvard Business School, US.

Youngme Moon is Donald K. David Professor of Business Administration at Harvard Business School, US.

Paul E. Morrison is a professor at Boston University, US.

John A. Quelch is Senior Associate Dean and Lincoln Filene Professor of Business Administration at Harvard Business School, US.

Javier Renoso is the Chair of the Service Management Research & Education Group at EGADE Business School, Tecnologico de Monterrey, Mexico.

Roy D. Shapiro is a professor at Harvard Business School, US.

Robert Simons is a professor at Harvard Business School, US.

Christopher Tang is a UCLA Distinguished Professor and the Edward W. Carter Chair in Business Administration at the Anderson School of Management, UCLA, US.

Rohit Verma is a professor at School of Hotel Management, Cornell University, US.

Lauren K. Wright is a professor of marketing, California State College, Chico, US.

Preface

Services dominate the expanding world economy like never before, and technology continues to evolve in dramatic ways. Established industries and their often famous and old companies decline, and may even disappear, as new business models and industries emerge. Competitive activity is fierce, with firms often using new strategies and technologies to respond to changing customer needs, expectations, and behaviors. This book has been written in response to the global transformation of our economies to services. Clearly, the skills in marketing and managing services have never been more important!

Creating and marketing value in today’s increasingly service and knowledge-intensive economy requires an understanding of the powerful design and packaging of “intangible” benefits and products, high-quality service operations, and customer information management processes, a pool of motivated and competent frontline employees, building and maintaining a loyal and profitable customer base, and the development and implementation of a coherent service strategy to transform these assets into improved business performance. This textbook provides this knowledge. Specifically, its main objectives are to: