Managing Services and Non-Profits

services

involve a deed, a performance, or an effort that can’t be physically possessed

—difference from products:

1. intangible

2. variable (lack of consistency in performance because of human component)

3. produce and consumed simulataneouly

4. perishable (can’t be stored up; if you don’t use it, you lose it)

evaluating services

you can tell a lot about a service just by watching and observing

—search quality: find info on service ahead of time

—experience quality: can’t evaluate ahead of time, have to go through service first (WOM is key)

—credence quality: can’t evaluate before or after; based on trust (ex: surgery, oil change)

services are directed towards

—people processing: haircut, nails

—possession processing: cut grass, paint house

—mental stimulus processing: education, entertainment, sports

—information processing: banks, insurance agencies

services are like a theater

what the customer receives is essentially a performance; script is the same, consistent

—how the service is delivered is just as important as what is performed

—if the experience is unique, you’ll be fine with variability (people will tolerate less than ideal service); if not, you’ll need to focus more on the how

four elements of the theater

1. actors—service personnel

2. audience—customers

3. setting—venue

4. performance—actions that shape the experience

front stage vs. back stage

front stage is being influenced by the back stage

—customers don’t see the back stage and place all failures on the front stage; it’s all we evaluate

actors

appearance (people make snap judgement; vernacular included), skill level, and dedication are crucial to forming the right impression

—competence, courtesy, knowledge, reliability, and communication abilities

—goal is to make the appearance as consistent as possible

audience

sometimes you’ll have to educate the audience on what is/isn’t appropriate in a service aspect

—ex: “No shoes, no shirt, no service”

—segregate/segment: better tables/seats pay more and lesser tables/seats pay less

setting

—tangible cues shape a customer’s reality

—impede or enhance performance

—differentiation

—relates to phone and internet too (ex: landing page of website)

performance

if the previous elements work together there is a seamless flow, if not it’s an uneven performance

—all performances need to adapt to audience; listen to audience cues

—ex: seeing if customers want to interact with you a lot; getting the check faster for a family with small children

customer must believe performance

canned performances/scripts—treats every customer the same without considering their difference and reading cues

—should be a starting point until you get comfortable/used to interacting with customers

—ex: “My pleasure” at Chick-Fil-A; “How are you today” from checkout employees (can do more damage than good; false fronts)

servicescape

the built environment surrounding a service

—used to evaluate services that you can’t ahead of time

—roles: package, facilitator, socializer, differentiator (sometimes has a quality inference)

—responses: cognitive, emotional, physiological (comfort)

—effects of the environment: music, scent, lighting, furnishings, employee visibility, temperature

package role

evaluate what’s inside based on package

—especially a professional establishment

—ex: a dentist/doctor’s office

facilitator role

makes the service better/easier or harder if not done well

—design of the service contributes to efficiency/inefficiency

—services blue printing: examines flow of customers in and out

socializer role

encouraging or discouraging

—ex: well vs. sick waiting room at doctor’s office

cognitive response

seeing a nice restaurant and thinking you should’ve worn nicer clothes

emotional response

having a soothing/relaxing ambience

music effect

pace, volume, selection

scent effect

can help, but also hurt if really strong

—don’t want too many smells

—ex: overwhelming smell of Bath & Body Works

lighting effect

dim in nicer restaurants/at dinner time; bright in fast food joints/at lunch time

furnishing effect

nice chair near dressing room

employee visibility effect

able to be flagged easily if customer needs

—ex: harder to get Walmart employees since they do online orders now

temperature effect

if you are going to miss, miss cold

—hot is likely to make customers more irritated and angry

distribution concerns

—convenience: ease to go to service; goes hand in hand with scheduling and number of outlets (ex: dentist having one day where it’s 12-8 instead of 8-5; restaurants open past 10)

—number of outlets/stores

—direct vs. indirect: will the service come to me? (ex: traveling masseuse)

—location: safety also involved (ex: Walmart, gas stations)

—scheduling

service promotions

—stress tangible cues (servicescape)

—use personal information sources (WOM)

—create a strong organizational image (who the company is; lot of services based around trust)

—engage in post-purchase communication (feedback)

consumer to consumer marketing

be interesting or be ignored; it has to be interesting

—advertising is the price of being boring

—we live in the most cluttered marketplace in history; consumers are now exceptional at ignoring you

—reviews take a heavier weight than advertising on a consumers decision (WOM)

—think about a product you love, you’re more than willing to tell others

—organic WOM is best; try to avoid mixing love and money (paid WOM)

pricing objective in services

revenue-oriented pricing, operations-oriented pricing, patronage-oriented pricing

revenue-oriented pricing

focuses on maximizing the surplus of income over costs

—ex: construction

operations-oriented pricing

seeks to match supply and demand by varying prices

—ex: hotels, airlines

patronage-oriented pricing

tries to maximize the number of customers using the service

—ex: oil change places

self-service

customer takes on a partial employee role

—it addresses perishability and heterogeneity/variability

—cheaper in long-term perspective; expensive up front

—solution to the constant hiring and firing woes

—replace a service context in which the employee adds little value to the process

—ex: ATMs, movie ticket dispenser, self-checkout

benefits of self-service

—convenience: location, time

—utilitarian benefits: speed, ease of use, perceived control

—hedonic benefits: avoid personnel

reasons to hate self-service

—technical failures

—process failures (ex: receipt inside at gas station)

—technical anxiety: zero instructions on how to use it

—social anxiety: pressure from people waiting; holding people up

failures in self-service

these failures have a ripple effect

—becomes slower, everyone in line now has the same failure

—customer induced failures are still “your fault” and blames the establishment

service profit chain

1. internal service quality (backstage staff)

2. external service quality

3. satisfaction or delight

4. loyalty or relationship

5. profits

external service quality

all of the things customers can observe and evaluate for quality; these create satisfaction/delight if done well

—tangibles

—assurance (skills, good at what you do)

—reliability

—empathy (from servers to customers)

delight

profoundly positive emotional state generally resulting from having one’s expectations exceeded to a surprising degree

—emotional reaction correlated to WOM

—extremely burdensome on the employees to achieve this for every customer

—satisfaction won’t be enough after this is achieved

—emotional contagion from consumer to employee

—look for opportunities to find a small number of customers to delight each day

—strong mover of loyalty, relationship building

relationships

a customer and a provider expect to have repeated contact in the future

—shadow of the future

—it drives profits

—starting to measure customer lifetime value (part of Big Data)

—sophisticated database systems (part of Big Data)

—loyalty equals increased profits (part of Big Data)

—increasingly competitive nature of services (part of Big Data)

—like assets, they can appreciate and depreciate, so you need to manage them

—only beneficial if it’s a win-win situation

flipping the funnel

spend a chunk of money in a certain number of outlets to get a small group of people and convert them to loyal customers that give lots of WOM

—strangers → customers → sales people

three retention strategies

1. price (band aid)

2. price and social bonds

3. price, social bonds, and structural

price retention strategy

—financial incentive

—captive customer: quasi-contact to stay for certain time

—gives you time to form a genuine relationship

—just a band-aid, not a permanent strategy

price and social bond retention strategy

—staying in touch

—personal communication/connection

—information sharing

—rapport

price, social bonds, and structural retention strategy

—providing highly customized services (ex: having a dedicated team just for one client)

—special treatment

—dedicated service (ex: phone lines with Airline clients to help desks)

service recovery

it costs about 5 times more to recruit new customers than to retain old customers

—5% decrease in customer attrition can increase profits 25-75%

—a recent study found that the majority of customers felt worse about the firm after going through the complaint handling process

when recovery went well

the employee was:

—concerned about the problem

—eager to help

—happy the complaint was resolved to the customer’s satisfaction

when recovery went poorly

the employee was:

—rude and defensive

—indifferent to providing assistance

—angry as the dispute progressed

three stages of service recovery

1. interactive—how do you react to a dispute/complaint; can you determine what the distributive aspect is

2. procedural—what are the policies/procedures I can use when something takes place

3. distributive—what do I get in return for the failure; most times we just want an “I’m sorry”

service recovery paradox

went so well, you’re happier than if nothing went wrong at all

customer wait

one of the worst failures in a service

—two types

1. preprocess waiting

2. in-process waiting

preprocess waiting

—preschedule: arrive early

—post-schedule: start time postponed (customers tolerate this the least)

—queue waits: first come, first serve

in-process waiting

waiting while in the service

—ex: being taken back to an exam room, but not being seen for another 10 minutes

key variables in waiting experience

—time perception of wait

—affect: emotion and understanding of the why (uncertainty drives anger)

—service evaluation (impacted by time perception and affect

waits vs. expectations

—anger usually results when psychological contract with the customers is broken

—uncertainty

—attribution (assigning blame)

—wait duration is increased during empty time, solo waits

10/1 ratio

for every good experience, you’ll tell 1 person, for every bad experience you’ll tell 10 people

—also known as cognitive dissonance

—you want apostles, not terrorists

trust

needed with services that are hard to evaluate (credence)

—trust-risk relationship

—problems of agency

trust-risk relationship

more trust, more risk; less trust, less risk

cognitive trust

based on consumers’ knowledge of the employee’s character

affective trust

based on consumers’ emotions toward the employee

behavioral trust

consumers take actions that display trust in employees

climate

the summary sense employees have about what is important in an organization

—the immediately tangible layer on top of the organization’s underlying culture

—if you don’t manage it, it’ll manage you

four Cs of services

1. conversations (not monologues, listen)

2. customization (feelings, not necessarily reality)

3. collaboration (even participation)

4. clairvoyance (anticipate needs)

creating T shaped employees

employees that have depth of knowledge in one area, and breadth of knowledge in all areas

marketing and managing services

it’s harder than consumer packaged goods because it’s not a static thing that can be stored and contains a major human component

nonprofit organization

an organization that exists to achieve some goal other than the usual business goals of profit, market share, or return on investment

—there are over 1.5 million in the U.S. and you could care less about the majority of them

—getting people emotionally invested in the charity is difficult and you have to form a connection

nonprofit organization marketing activities

—identify desired customers

—specify objectives

—develop, manage and eliminate programs

—set prices

—schedule events

—communicate through advertising and PR

three challenges with selecting a target market

1. apathetic or strongly opposed targets (ex: drug addicts having to go through rehab)

2. pressure to adopt undifferentiated segmentation strategies (usually due to lack of funding)

3. take a complementary position to competitors (ex: libraries competing in the same town)

product decisions

distinctions between nonprofit and business organizations:

1. benefit complexity

2. benefit strength

3. involvement

benefit complexity

sometimes muted or not seen until years later

—short term is seen negatively, long term is positive

—ex: a smoker quitting cold turkey not having short term benefits, mostly long term

benefit strength

don’t see the strength because it goes to faceless entity with no follow-up

—ex: bone marrow/blood donation

involvement

changing consumer behavior and getting people to care about the involvement

typical nonprofit message

we need money → send us money → have you heard we need money

effective nonprofit message

here is the story of what we do → how what we do affects you → send us money → here are the results of how your money helped

promotion decisions

many nonprofit organizations (such as federal organizations) are prohibited from advertising, or do not have the resources to retain marketing expertise; however, the promotion resources include:

1. professional volunteers, such as donation of advertising agency time

2. sales promotion activities that make use of existing services to draw attention to the offerings of nonprofit organizations

3. public service advertising that is donated by a medium

pricing decision

at a minimum, trying to defray costs

—five key characteristics distinguish the pricing decisions of nonprofit organizations from those of the profit sector:

1. pricing objective

2. non-financial prices

3. indirect payment (taxes from the city, restaurants)

4. separation between payers and users (purchasing something you personally won’t ever use)

5. below-cost pricing

pricing objectives

the main objective is to defray all or partial costs rather than achieve a profit

non-financial prices

in many nonprofit situations, consumers must absorb nonmonetary costs, such as opportunity cost of time, embarrassment costs, and effort costs

below-cost pricing

covering the cost in other ways with external sources to give a lower price

—ex: tuition is less because of federal, state, and alumni funding