2/3/2024

Chapter 4

Developing Service Offerings and Service

quality

Nguyen Thu Lan, Marketing Department, NEU.

Chapter contents
• The concept of the P – Product in services
marketing
• New service development
• Service quality

1
 2/3/2024

Understanding the
Components of the Augmented
Service Product

Products Are “Bundles” of

Goods and Services

100%
hotels

consulting

Services
% goods
retail
groceries

% services
autos

100%
Goods

2
 2/3/2024

Molecular model
Product-Service Bundle

Repair Consulting
Service Service

Core
Product

Other
Training
Services

Shostack’s Molecular Model of a Total

Market Entity
- Use chemical analogy to visualize and manage the
“Total market entity”
- A change in one element may alter the nature of the
entity
- It helps identifying the tangible and intangible
elements involved in service delivery.
→ The more intangible elements, the more clues to
provide

3
 2/3/2024

Molecular model

Shostack’s Molecular Model of a Total Market Entity

Eg: Passenger Airline Service
Distribution
Price

Vehicle
Service
frequency

Transport In-flight
service
Pre- and
post-flight Food
service and
drink
KEY
Tangible elements
Intangible elements
Marketing Positioning
(Weighted toward evidence) Source: Shostack

4
 2/3/2024

Eiglier and Langeard’s model: Core and Supplementary Product Design

What Do We Offer and How Do We Create and Deliver It?

Supplementary Delivery Concept

services offered For Core Product
and how created Scheduling Process
and delivered
Core

Service Customer
Level Role

Eiglier and Langeard’s model: Core

and Supplementary Product Design
- The core product: what the buyer really purchasing? What
business are we in?
- Supplementary services: help to differentiate core products and
create competitive advantage by:
facilitating use of the core service
enhancing the value and appeal of the core
-Delivery process:
•how the different service components are delivered
•the nature of customer’s role in the process
•how long delivery lasts
•the prescribed level and style of service to be offered.

10

5
 2/3/2024

Core and Supplementary Services in a Luxury Hotel

(Offering Guests Much More than a Cheap Motel!)

Reservation
Cashier Valet
Parking
Business
Center Reception

A Bed for the

Room Night in an Baggage
Service Elegant Private Service
Room with a
Bathroom
Wake-up Cocktail
Call Bar

Telephone Restaurant
Entertainment/
Sports / Exercise

11

DOCUMENTING THE DELIVERY SEQUENCE OVER TIME

What Happens, When, and in What Sequence?
The Time Dimension in the Augmented Service Product

Reservation
Parking Get car

Check in Check out

USE ROOM Phone

USE GUESTROOM OVERNIGHT

Porter

Pay TV Room service

Meal

Pre Time Frame of an Overnight Hotel Stay

Visit (real-time service use)

12

6
 2/3/2024

What Should Be the Core and Supplementary

Elements of Our Service Product?
• How is our core product defined and what supplementary
elements currently augment this core?
• What product benefits create the most value for customers?
• Is our service package differentiated from the competition
in ways that are meaningful to target customers?
• What are current levels of service on the core product and
each of the supplementary elements?
• Can we charge more for higher service levels on key
attributes (e.g., faster response, better physical feature,
easier access, more staff, superior caliber personnel)?
• Alternatively, should we cut service levels and charge less?

13

IDENTIFYING AND CLASSIFYING

SUPPLEMENTARY SERVICES
The Flower of Service: Lovelock
Categorizing Supplementary Services
Information

Payment Consultation

Billing Core Order-Taking

Exceptions Hospitality
KEY:
Facilitating elements Safekeeping
Enhancing elements

14

7
 2/3/2024

Facilitating Services - Information

•Directions to service site

• Schedules/ service hours
• Prices
Core • Instructions on using core
product/ supplementary services
• Reminders/ Warnings
• Conditions of sale/ service
• Notification of changes
• Documentation
Customers often require • Confirmation of reservations
information about how to • Summaries of account activity
obtain and use a product or
service. They may also • Receipts and tickets
need reminders and
documentation

15

Facilitating Services - Order-Taking

Applications
• Membership in clubs or program
• Subscription services (eg: utilities)
Core • Prerequisite-based services (eg:
financial credit, college enrollment)
Order-entry
• On-site order fulfillment
• Mail/ telephone order placement
Many goods and services
must be ordered or reserved • Email/ website order placement
in advance. Customers need Reservations and check-in
to know what is available • Seats/ Tables/ Rooms
and may want to secure • Vehicles or equipment rental
commitment to delivery • Professional appointments
• Admission to restricted facilities

16

8
 2/3/2024

Facilitating Services - Billing

• Periodic statements of account

activity
• Invoices for individual
transactions
• Verbal statements of amount due
• Machine display of amount due
Core • Self-billing (computed by
customer)

“How much do I owe you?”

Customers deserve clear,
accurate and intelligible
bills and statements
17

Facilitating Services - Payment

Self services
• Exact change in machine
• Cash in machine with change
returned
Core • Insert prepayment card
• Insert credit/debit/ charge card
• Insert token
• Electronic funds transfer
• Mail a check
Customers may pay faster • Enter credit card number online
and more cheerfully if you
make transactions simple
and convenient for them
18

9
 2/3/2024

Facilitating Services - Payment

Direct to payee or intermediary

• Cash handling and change giving
• Check handling
• Credit/charge/debit card handling
• Coupon redemption
• Token, voucher, etc.
Core Automatic deduction from financial
deposits (eg: bank charges)
Control and verification
• Automated systems
• Human systems (toll collectors, ticket
inspectors)

19

Enhancing Services - Consultation

Value can be added to

goods and services by
offering advice and
consultation tailored to
each customer’s
needs and situation
Core

• Advice
• Auditing
• Personal counseling
• Tutoring/ training in product use
• Management or technical
consulting

20

10
 2/3/2024

Enhancing Services – Hospitality

Core

Greeting
Food and beverages
Customers who invest time Toilets and washrooms
and effort in visiting a Waiting facilities and amenities
business and using its • Lounges, waiting areas, seating
services deserve to be • Weather protection
treated as welcome guests • Magazines, entertainment,
(after all, marketing invited newspapers
them there!) Transport
Security

21

Enhancing Services - Safekeeping

Core
Caring for possessions
customer bring with them
• Child care
Customers prefer not to • Pet care
worry about looking after • Valet parking (Parking
the personal possessions facilities for vehicles)
that they bring with them • Coatrooms
to a service site. • Luggage-handling
They may also want delivery • Storage space
and after-sales services for • Safe deposit boxes
goods that they purchase • Security personnel
or rent
22

11
 2/3/2024

Enhancing Services - Safekeeping

Caring for goods purchased (or

rented) by customers
•Packaging
•Pickup

•Transportation
Core
•Delivery

•Installation
•Inspection and dianosis

•Cleaning
•Refueling
•Preventive maintenance

•Repairs and renovation, upgrade

23

Enhancing Services - Exceptions

Customers appreciate some

flexibility in a business
when they make special
Core requests. They expect it
when not everything goes
according to plan

24

12
 2/3/2024

Enhancing Services- Exceptions

Special requests in advance of service

delivery
•Children’s needs
•Dietary requirements
•Medical or disability needs

•Religious observances

•Deviations from standard operating

Core procedures
Handling special communications:
complaints, suggestions…
Problem solving
Restitution
•Refunds
•Compensation in kind of unsatisfactory
services
•Free repair of defective goods

25

Managerial Implications
• Not every core product will be surrounded by a
large number of supplementary services →
decide what type of SS to offer
• Do it yourself or outsource?
• Can supplementary services become core
service?

26

13
 2/3/2024

New Service
Development

27

New Service Development:

A Hierarchy of New Service Categories
• Major service innovations--new core products for
previously undefined markets
• Major process innovations--using new processes to
deliver existing products and offer extra benefits
• Product line extensions--additions to current product lines
• Process line extensions--alternative delivery procedures
• Supplementary service innovations--adding new or
improved facilitating or enhancing elements
• Service improvement—most common type of innovation:
modest changes in either processes or performance
• Style changes--visible changes in service design or scripts

28

14
 2/3/2024

New Service Development:

Physical Goods as Source of Service Ideas
• Customers can rent goods—use and return for a fee— instead
of purchasing them
• Customers can hire personnel to operate their own or rented
equipment
• Any new durable product may create need for after-sales
services (possession processing)
– Shipping
– Installation
– Problem-solving and consulting advice
– Cleaning
– Maintenance
– Repair
– Upgrading
– Disposal

29

Creating Services as Substitutes for

Owning and/or Using Goods

Own a Physical Good Rent the Use

of a Physical Good

• Drive own car • Rent car and drive it

Perform the
• Type on own word processor • Rent word processor and type
Work Oneself

Hire Someone • Hire chauffeur to drive car •• Hire a taxi or limousine

to Do the Work • Hire typist to use word processor •• Send work to secretarial service

30

15
 2/3/2024

Service Development through Delivery Options:

Alternative Meal Service Formats

Fast-Food
Restaurant See sign Park and Order meal, Pick up Find table Clear table
(Eat In) enter and pay meal and eat and leave

Drive-In See sign Stop car at Order via Get meal at Drive away,
Restaurant order point microphone pickup, pay eat later
(Take Out)

Home Telephone Order food, Driver rings Pay driver,

Delivery take food Eat
Restaurant give address doorbell

Home Arrange to Plan meal, Food and Meal is Staff cleans

Catering meet caterer pay deposit staff arrive prepared Eat up; pay
and served

31

Success Factors in New Service

Development
• Market synergy
– Good fit between new product and firm’s image/resources
– Advantage vs. competition in meeting customers’ needs
– Strong support from firm during/after launch
– Firm understands customer purchase decision behavior
• Organizational factors
– Strong interfunctional cooperation and coordination
– Internal marketing to educate staff on new product and its
competition
– Employees understand importance of new services to firm
• Market research factors
– Scientific studies conducted early in development process
– Product concept well defined before undertaking field studies

32

16
 2/3/2024

Service Quality

33

WHAT IS QUALITY?
• Quality: A subjective term for which each
person or sector has its own definition. In
technical usage, quality can have two
meanings: 1. the characteristics of a
product or service that bear on its ability to
satisfy stated or implied needs; 2. a product
or service free of deficiencies - ASQ

34

17
 2/3/2024

WHAT IS QUALITY?

• "The totality of features and characteristics

of a product or service that bear on its
ability to satisfy stated or implied needs". In
simpler words, one can say that a product
has good quality when it "complies with the
requirements specified by the client” – ISO

35

Perspectives on Service Quality –

David Garvin
Transcendental: Quality = excellence. Often cannot be precisely
defined but recognized only through experience

Product-Based: Quality is a precise and measurable variable

User-Based: Quality lies in the eyes of the beholder

Manufacturing- Quality is conformance to the firm’s internally

developed specifications
Based:

Value-Based: Quality is a trade-off between price and value

36

18
 2/3/2024

5 Approaches to Defining Quality

• The Transcendent Approach: Quality = excellence. Quality cannot be

defined precisely, we learn to recognize it only through experience
- Do not take into account the search and belief attributes
- Often applied to performing and visual arts

37

5 Approaches to Defining Quality

• The Product-based Approach: quality is precise and
measurable variable,
• Differences in quality reflect differences in the amount of
ingredient or attribute of the product - products can be
ranked – quality products have more attributes (computer
with more memory)
- Fails to account for differences in tastes, needs and
preferences of customer

38

19
 2/3/2024

5 Approaches to Defining Quality

The Manufacturing-based Approach : Quality is conformance

to the firm’s internally developed specifications
• Manufacturing and engineering practise - Quality is
measured by the manufacturer’s ability to target the
requirements consistently with little variability
• Driven by productivity and cost-containment goals

Services Marketing - Thanhpham.neu@gmail.com 4 - 39

39

5 Approaches to Defining Quality

• The User-based Approach : quality of a product is

determined by the consumer. There are widely
varying individual preferences.

40

20
 2/3/2024

5 Approaches to Defining Quality

• The Value-based Approach

: quality is defined in costs
and prices. How much is
the benefit of the good or
service outweigh the cost?
• Did the costumer get his or
her money’s worth?
• Quality is defined as
“affordable excellence”

41

NECESSITY FOR EVALUATING SERVICE QUALITY

• The characteristics of service product

• More demanding customers
• If you can't measure it, you can't improve it. -
Peter Drucker
• Increasing competition

42

21
 2/3/2024

DIMENSIONS AND MEASURING MODELS FOR

SERVICE QUALITY

43

PERCEIVED SERVICE QUALITY MODEL

(Gronroos, 1984)

can be viewed as a
filter in terms of a
consumer’s
perception of
quality
Customer
perceives
how the
process itself
functions
customers perceive
what s/he receives
as the outcome of
the process in
which the
resources are used

44

22
 2/3/2024

- Professionalism and skills;

PERCEIVED SERVICE QUALITY MODEL - Behavior and attitudes,
interest in giving a solution
(Gronroos, 1990) to customer‘s problems;
- Accessibility and
flexibility;
- Reliability and
trustworthiness;
- Recovery or the
organization‘s capacity of
taking corrective actions
when something goes
wrong;
- Reputation and credibility.

accessibility,
consumer
Subdividing into:
contacts,
knowledge,
attitudes,
technical solutions, internal
machines, relations,
computerized behavior,
systems, service
employees‘ mindedness
technical skills and appearance
45

SERVICE QUALITY MEASURING MODEL – A

GAP MODEL
V. A. Zeithaml, A. Parasuraman & L. L. Berry, 1985

▪ Is strongly user oriented

▪ From focus group research, Zeithaml, Berry and
Parasuraman identified 10 criteria used by customers in
evaluating service quality

46

23
 2/3/2024

Generic dimensions customers use to evaluate SQ

Dimension Definition Examples of customers’ questions

Credibility Trustworthiness, Does the hospital have a good

believability, honesty of reputation?
the service provider Does my stockbroker refrain from
pressuring me to buy?
Does the repair firm guarantee its
work?
Security Freedom form danger, Is it safe for me to use the bank’s
risk, or doubt ATMs at night?
Is my credit card protected against
unauthorized use?
Can I be sure that my insurance policy
provides complete coverage?
Access Approachability and How easy is it for me to talk to a
ease of contact supervisor when I have a problem?
Does the airline have a 24h toll-free
phone number?
Is the hotel conveniently located?

47

Generic dimensions customers use to evaluate SQ

Dimension Definition Examples of customers’ questions

Communication Listening to When I have a complaint, is the

customers and manager willing to listen to me?
keeping them Does my doctor avoid using technical
informed in language jargon?
they can understand Does the electrician call when unable to
keep a scheduled appointment?
Understanding Making the effort to Does someone in the hotel recognize
the customer know customers and me as a regular customer?
their needs Does my stockbroker try to determine
my specific financial objectives?
Is the moving company willing to
accommodate my schedule?
Tangibles Appearance of Are the hotels facilities attractive?
physical facilities, Is my accountant dressed
equipment, personnel appropriately?
and communication I my bank statement easy to
materials understand?

48

24
 2/3/2024

Generic dimensions customers use to evaluate SQ

Reliability Ability to perform the Does my lawyer call me back when
promised service promised?
dependably and Is my telephone bill free of errors?
accurately Is my television repaired right the first
time?
Responsiveness Willingness to help When there’s a problem, does the firm
customers and provide resolve it quickly?
prompt service Is my stockbroker willing to answer my
questions?
Is the cable TV Co. willing to give me a
specific time when the installer will show
up?
Competence Possession of the Can the bank teller process my
skills and knowledge transaction without fumbling around?
required to perform the Is my travel agent able to obtain the
service information I need when I call?
Courtesy Politeness, respect, Does the flight attendant have a pleasant
consideration, and demeanor?
friendliness of contact Are the telephone operators consistently
personnel polite when answering my calls?
49

SERVICE-BASED COMPONENTS OF QUALITY

Dimensions of Service Quality
consolidated into five broad dimensions:

▪ Tangibles
▪ Reliability
▪ Responsiveness
▪ Assurance
➢ competence,
➢ courtesy
➢ credibility
➢ security
▪ Empathy
➢ access
➢ communication
➢ understanding of customer

50

25
 2/3/2024

SERVQUAL MODEL
V. A. Zeithaml, A. Parasuraman & L. L. Berry, 1988

51

52

26
 2/3/2024

SERVQUAL MODEL
V. A. Zeithaml, A. Parasuraman & L. L. Berry, 1988

SQi=∑(Pij - Eij)
j=1
where: SQ= service quality; k= number of attributes or
service dimensions; Pij= perception of individual, “i”
regarding the performance of attribute “j”;
Eij= expectations of individual, “i” regarding the
qualities of attribute “j”

53

SERVPERF
Cronin & Taylor, 1992

SQi=∑Pij
j=1
where: SQ= service quality; k= number of attributes or
service dimensions; Pij= perception of individual, “i”
regarding the performance of attribute “j”;

54

27
 2/3/2024

SERVICE QUALITY MEASURING MODEL – A GAP MODEL

V. A. Zeithaml, A. Parasuraman & L. L. Berry, 1985

55

5 different types of gaps that may happen during

service delivery:
•Gap 1 – the difference between customer
expectations and the managerial perception of them;
•Gap 2 – the difference between customer's
expectations as seen by the management and service
quality standards;
•Gap 3 – the difference between quality standards
and actual service delivery;
•Gap 4 – the difference between service delivery and
external communications
•Gap 5 – the difference between the expected service
and the experienced one, this last difference being
the sum of all four previous gaps.

56

28
 2/3/2024

5 GAP MODEL
• The model allows managers to identify
differences between expectations and
perceptions of service quality by analyzing
various elements pertaining to the service offer.
• The model in focused externally giving managers
the opportunity to identify relevant quality
factors from the point of view of the customer. Its
limits are the fact that it is an exploratory study
and there are no procedures for measuring the
different gaps that may occur.

57

58

29
 2/3/2024

59

60

30
 2/3/2024

Seven Service Quality Gaps

(Parasuraman, 1988)
Customer needs CUSTOMER
and expectations

1. Knowledge Gap
Management definition
of these needs
MANAGEMENT
2. Standards Gap
Translation into
design/delivery specs
3. Delivery Gap
Execution of 4. I.C.Gap Advertising and
design/delivery specs sales promises

5. Perceptions Gap 6. Interpretation Gap

Customer perceptions Customer interpretation
of product execution of communications

7. Service Gap
Customer experience
relative to expectations

61

Prescriptions for Closing Service

Quality Gaps
• Knowledge: Learn what customers expect--conduct research,
dialogue, feedback
• Standards: Specify SQ standards that reflect expectations
• Delivery: Ensure service performance matches specs--consider roles
of employees, equipment, customers
• Internal communications: Ensure performance levels match
marketing promises
• Perceptions: Educate customers to see reality of service delivery
• Interpretation: Pretest communications to make sure message is
clear and unambiguous.
• Service gap: the difference between what customers expect to
receive and their perceptions of the service that is actually delivered

62

31
 2/3/2024

PERCEIVED SERVICE QUALITY MODEL

(Gronroos, 1990)

63

Hard and Soft Measures of Service

Quality
• Soft measures refer to standards and measures that
cannot easily be observed and must be collected by
talking to customers, employees or others
– e.g. SERVQUAL, surveys, and customer advisory panels.
• Hard measures refer to standards and measures
that can be counted, timed or measured through
audits
– typically operational processes or outcomes
– e.g. how many trains arrived late?

64

32
 2/3/2024

Hard Measures of Service Quality

• Control charts to
monitor a single
variable
• Service quality indexes
• Root cause analysis
(fishbone charts)
• Pareto analysis

Services Marketing - Thanhpham.neu@gmail.com 4 - 65

65

Control Chart: Percent of Flights

Leaving within 15 Minutes of Schedule
(Fig. 14.2)

100%

90%

80%

70%

60%

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

Month

66

33
 2/3/2024

Composition of FedEx’s
Service Quality Index (SQI)
Weighting No of Daily
Failure Type Factor
X =
Incidents Points
Late Delivery – Right Day 1
Late Delivery – Wrong Day 5
Tracing request unanswered 1
Complaints reopened 5
Missing proofs of delivery 1
Invoice adjustments 1
Missed pickups 10
Lost packages 10
Damaged packages 10
Aircraft Delays (minutes) 5
Overcharged (packages missing label) 5
Abandoned calls 1

Total Failure Points (SQI) = XXX,XXX

67

Tools to Address Service Quality Problems

• Fishbone diagrams: A cause-and-effect diagram to

identify potential causes of problems.

• Pareto charts: 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: A visualization of service delivery. It

allows one to identify fail points in both the
frontstage and backstage.

68

34
 2/3/2024

Root cause analysis: Fishbone diagram –

Kaoru Ishikawa-5F
A cause-and-effect diagram to identify potential causes of problems.

69

Cause and Effect Chart for

Airline Departure Delays
Facilities, Frontstage
Front-Stage
Procedure
Procedures
Equipment Personnel
Personnel

Aircraft late to Gate agents Delayed check-in

Arrive late gate cannot process fast procedure
Oversized bags Mechanical enough
Acceptance of late
Customers Failures passengers
Customers Late/unavailable
Late pushback airline crew
Delayed
Departures
Late food Late cabin
service cleaners
Other Causes Poor announcement of
Weather departures
Late baggage
Air traffic Weight and balance
Late fuel
sheet late

Materials,
Materials,
Supplies
Backstage Information
Supplies Personnel

70

35
 2/3/2024

Pareto analysis

71

Blueprinting: identify fall points

72

36
 2/3/2024

73

Six Sigma Methodology to Improve and

Redesign Customer Service Processes
Process Improvement Process Design/Redesign
Define ▪Identify the problem ▪Identify specific or broad problems
▪Define requirements ▪Define goal/change vision
▪Set goals ▪Clarify scope & customer requirements
Measure ▪Validate problem/process ▪Measure performance to requirements
▪Refine problem/goal ▪Gather process efficiency data
▪Measure key steps/inputs
Analyze ▪Develop causal hypothesis ▪Identify best practices
▪Identify root causes ▪Assess process design
▪Validate hypothesis ▪Refine requirements
Improve ▪Develop ideas to measure ▪Design new process
root causes ▪Implement new process, structures and
▪Test solutions systems
▪Measure results
Control ▪Establish measures to ▪Establish measures & reviews to
maintain performance maintain performance
▪Correct problems if needed ▪Correct problems if needed

74

37
 2/3/2024

Return on Quality (ROQ)

• ROQ approach is based on four assumptions:
– Quality is an investment
– Quality efforts must be financially accountable
– It’s possible to spend too much on quality
– Not all quality expenditures are equally valid

• Implication: Quality improvement efforts may benefit from

being related to productivity improvement programs
→ Access costs and benefits of quality initiatives
→ Determine the optimal level of reliabiltiy

75

When Does Improving Service

Reliability Become Uneconomical?
Satisfy Target
100% Customers Through
Service Recovery
Service Reliability

Optimal Point of
Reliability: Cost of
Failure = Service
Recovery

Satisfy Target
Customers Through
Service Delivery as
A B C D Planned

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

76

38