Prof. Xiande Zhao

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DSE4190 Service Quality Management

• Prof. Xiande Zhao
• Department of Decision Sciences and Managerial
  Economics
• Tel. [phone]
• Email xiande_at_baf.msmail.cuhk.edu.hk
• Website http//ihome.cuhk.edu.hk/b103313/index.h
  tm

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Service Quality and Service Profit Chain

• Importance of customer satisfaction and loyalty
• Service Quality and Value
• Measurement of Service Quality
• Service quality GAP model
• Employee Satisfaction and Retention
• Internal service Quality
• Application of the service profit Chain

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• How do we make profits in a service business?
• What are some of the key drivers of profitability
  in service businesses?
• What are the most important factor that influence
  the profitability of a service business?

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What Drives Profitability?

• Customer
• Loyalty

Profitability
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What are the behaviors of a loyal customer?

• 3 Rs
• Customer retention
• Repeat/Related business
• Referral

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Why Loyal Customers Matter?

• Buy more
• Pay higher prices
• Cost less to serve
• Bring in new
• customers
• Are more satisfying
• to serve

leads to
Loyal, Satisfied Customers
often
Higher Profits
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What influences Customer Loyalty?
External Service Value
Customer Loyalty
Customer Satisfaction
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WHAT IS VALUE?

Value Benefits received by the customer /
Sufferings that the customer has to endure
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What is external service value?
Results produced for the Customer
Process Quality

Value
Costs of Acquiring the services
Price to the Customer

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• What is Service Quality?
• WHAT ARE THE MAJOR DIFFERENCES BETWEEN SERVICE
  QUALITY AND PRODUCT QUALITY?

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In-Class Exercise 2

• Recall a recent service situation in which you
  are very delighted with the services provided.
  Please do the following
• 1. Why you are delighted with the service?
• 2. What did the service personnel do to make you
  so happy?
• 3. What was your expectation for the service?
• 4. How can the service organization make this
  service a norm rather than an exception.?

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In-class Exercise 1

• Recall a recent service situation in which you
  are not satisfied with the services provided.
  Please do the following
• 1. Why you are not satisfied with the service?
• 2. What did the service personnel do to make you
  dissatisfied?
• 3. What was your expectation for the service?
• 4. What do you think are the major causes of the
  problem?
• 5. What can the organization do to prevent the
  problem from happening again in the future?

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The Role of Expectations in Service
Expected Service
Perceived Service Quality
Perceived Service
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Perceived Service Quality

Word of mouth
Personal needs
Past experience
Service Quality Dimensions Reliability Responsive
ness Assurance Empathy Tangibles
Service Quality Assessment 1. Expectations
exceeded ESltPS (Quality surprise) 2.
Expectations met ESPS (Satisfactory
quality) 3. Expectations not met ESgtPS
(Unacceptable quality)
Expected service
Perceived service
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WHAT ARE THE DIMENSIONS OF SERVICE QUALITY?

• Reliability
• The ability to perform the promised service
  dependably and accurately
• Assurance
• The knowledge and courtesy of employees and
  their ability to convey trust and confidence.
• Tangibles
• The appearance of physical facilities,
  equipment, personnel, and communication materials
• Empathy
• The provision of caring, individualized
  attention to customers.
• Responsiveness
• The willingness to help customers and to provide
  prompt services

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Garvins Product Quality Dimensions
Performance
Features
Durability
Reliability
Serviceability
Conformance
Aesthetics
Perceived Quality
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Garvins Product Quality Dimensions

• Performance
• Refers to the efficiency with which a product
  achieves its intended purpose.
• Features
• Attributes of a product that supplement a
  products basic performance.
• Reliability
• The propensity for a product to perform
  consistently over its useful design life.

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Garvins Product Quality Dimensions

• Conformance
• Numerical dimensions for a products performance,
  such as capacity, speed, size, durability, color,
  or the like.
• Durability
• Useful life time, The degree to which a product
  tolerates stress or trauma without failing.
• Serviceability
• Ease of repair, availability of support and after
  sale services.

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Garvins Product Quality Dimensions

• Aesthetics
• Subjective sensory characteristics such as taste,
  feel, sound, look, and smell.
• Perceived Quality
• Quality is as the customer perceives it. This is
  often influenced by the reputation of the firm,
  brand image and advertising etc.

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How to Measure SERVICE QUALITY?

• Measuring Service Quality Using SERVQUAL
• SERVQUAL is a multiple-item scale for
  measuring the five dimensions of service quality
  reliability, responsiveness, assurance, empathy,
  and tangibles
• A score for the quality of service is calculated
  by computing the difference between the ratings
  that customers assign to paired expectation and
  perception statements

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MEASURING SERVICE QUALITY

• THE SERVQUAL INSTRUMENTa
• DIRECTIONS This survey deals with your opinions
  of ??? services. Please show the extent to which
  you think firms offering ??? services should
  possess the features described by each statement.
  Do this by picking one of the seven numbers next
  to each statement. If you strongly agree that
  these firms should possess a feature, circle the
  number 7. If you strongly disagree that these
  firms should possess a feature, circle 1. If
  your feelings are not strong, circle one of the
  numbers in the middle. There are no right or
  wrong answers ? all we are interested in is a
  number that best shows your expectations about
  firms offering ??? services.

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MEASURING SERVICE QUALITY

• Tangibles
• E1. They should have up-to-date equipment.
• E2. Their physical facilities should be visually
  appealing.
• E3. Their employees should be well dressed and
  appear neat
• E4. The appearance of the physical facilities of
  these firms should be in keeping with the type
  of services provided..

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MEASURING SERVICE QUALITY

• Reliability
• E5. When these firms promise to do something by a
  certain time, they should do so.
• E6. When customers have problems, these firms
  should be sympathetic and reassuring.
• E7. These firms should be dependable.
• E8. They should provide their services at the
  time they promise to do so.
• E9. They should keep their records accurately.

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MEASURING SERVICE QUALITY

• Responsiveness
• E10. They shouldnt be expected to tell customers
  exactly when services will be performed. (?)b
• E11. It is not realistic for customers to expect
  prompt service from employees of these firms.
  (?)
• E12. Their employees dont always have to be
  willing to help customers. (?)
• E13. It is okay if they are too busy to respond
  to customer requests promptly. (?)

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MEASURING SERVICE QUALITY

• Assurance
• E14. Customers should be able to trust employees
  of these firms.
• E15. Customers should be able to feel safe in
  their transactions with these firms employees.
• E16. Their employees should be polite.
• E17. Their employees should get adequate support
  from these firms to do their jobs well.
• Empathy
• E18. These firms should not be expected to give
  customers individual attention. (?)
• E19. Employees of these firms cannot be expected
  to give customers personal attention. (?)
• E20. It is unrealistic to expect employees to
  know what the needs of their customers are. (?)
• E21. It is unrealistic to expect these firms to
  have their customers best interests at heart.
  (?)
• E22. They shouldnt be expected to have operating
  hours convenient to all their customers. (?)

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MEASURING SERVICE QUALITY

• DIRECTIONS The following set of statements
  relate to your feelings about XYZ. For each
  statement, please show the extent to which you
  believe XYZ has the feature described by the
  statement. Once again, circling a 7 means that
  you strongly agree that XYZ has that feature, and
  circling a 1 means that you strongly disagree.
  You may circle any of the numbers in the middle
  that show how strong your feelings are. There
  are no right or wrong answers ? all we are
  interested in is a number that best shows your
  perceptions about XYZ.
• P1. XYZ has up-to-date equipment.
• P2. XYZs physical facilities are visually
  appealing.
• P3. XYZs employees are well dressed and appear
  neat.
• P4. The appearance of the physical facilities of
  XYZ is in keeping with the type of services
  provided.

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MEASURING SERVICE QUALITY

• P5. When XYZ promises to do something by a
  certain time, it does so.
• P6. When you have problems XYZ is sympathetic and
  reassuring.
• P7. XYZ is dependable.
• P8. XYZ provides its services at the time it
  promises to do so.
• P9. XYZ keeps its records accurately.
• P10. XYZ does not tell customers exactly when
  services will be performed. (?)
• P11. You do not receive prompt service from XYZs
  employees. (?)
• P12. Employees of XYZ are not always willing to
  help customer requests promptly. (?)

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MEASURING SERVICE QUALITY

• P13. Employees of XYZ are too busy to respond to
  customer requests promptly. (?)
• P14. You can trust employees of XYZ.
• P15. You feel safe in your transactions with
  XYZs employees.
• P16. Employees of XYZ are polite.
• P17. Employees get adequate support from XYZ to
  do their jobs well.
• P18. XYZ does not give you individual attention.
  (?)
• P19. Employees of XYZ do not give you personal
  attention. (?)
• P20. Employees of XYZ do not know what your needs
  are. (?)
• P21. XYZ does not have your best interests at
  heart. (?)
• P22. XYZ does not have operating hours convenient
  to all their customers. (?)

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Applications of SERVQAL

• Identify areas for improvements
• Understand customer requirements or expectations
  what dimensions are important?
• Track longitudinal trends
• Benchmarking performance

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Problems or limitations of SERVQUAL

• Some items are vague and difficult to understand
• Are the five dimensions sufficient and accurate
• Questionnaire is too long
• not applicable to all industries
• consistency across industries
• is it necessary to measure both expectations and
  perception? SERVPERF

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• How to Improve Service Quality?

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Take Home Exercise (due Feb 14, 2007)

• Use your organization or other service
  organizations as examples to do the following
• 1. Identify some problems or aspects of services
  that customers are dissatisfied with and/or often
  complain about?
• 2.. Use the service quality gap model to
  identify the proper gaps that caused the problem.
• 3. What are the key factors that caused each of
  one the gaps that you have identified?
• 4. Suggest measures to reduce the gaps. How will
  these measures help to improve customer
  satisfaction and what are some of the
  difficulties associated with implementing these
  measures

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GAPs Model of Service Quality
CUSTOMER
Expected Service
GAP 5
Perceived Service
Service Delivery
External Communications to Customers
COMPANY
GAP 4
GAP 3
GAP 1
Customer-driven service designs and standards
GAP 2
Company perceptions of consumer expectations
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Key Factors Leading to the Customer Gap
Customer Expectations
Customer Perceptions
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Summary of the Key Gaps

• GAP1 the Knowledge GAP
• Not knowing what the customers expect
• GAP2 the Specification GAP
• Not selecting the right service design and
  standards
• GAP3 The Delivery GAP
• Not delivering services according to the standard
• GAP4 The Promise GAP
• Not matching performance to promise
• GAP5 The service GAP
• GAP between customers perception and expectations

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Key Factors Leading to Provider Gap 1
Customer Expectations
Company Perceptions of Customer Expectations
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Key Factors Leading to Provider Gap 2
Customer-Driven Service Designs and Standards
Management Perceptions of Customer Expectations
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Key Factors Leading to Provider GAP 2
GAP 2
Company Perceptions of Customer Expectations

• Key Factors Related to Leadership
• Inadequate service leadership
• Lack of recognition that quality service
• is a profit strategy
• Imbalanced performance scorecard

Customer-Driven Service Designs and Standards
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Service Quality Spells Profits
Costs
Margins
Defensive Marketing
Volume of Purchase
Price Premium
Service Quality
Profits
Customer Retention
Word of Mouth
Market Share
Sales
Offensive Marketing
Reputation
Price Premium
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Key Factors Leading to Provider GAP 3
Customer-Driven Service Designs and Standards
Service Delivery
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Strategies for Enhancing Customer Participation
Effective Customer Participation
Recruit, Educate, and Reward Customers
Define Customer Jobs
Manage the Customer Mix
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Three Roles Customers Can Play in Service Delivery
Service Delivery
Productive Resources
Contributors to Quality, Value, and Satisfaction
Competitors
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Key Factors Leading to Provider GAP 4
Service Delivery
External Communications to Customers
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Employee Satisfaction
What influence external service value?
Employee Retention
External Service Value
Employee Productivity
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What are some of the benefits of long term and
loyal employees

• Long-term employees are knowledgeable about our
  products, services, and policies and procedures.
  
• They have close relationship with customers
• They are familiar with our customers needs and
  problems.
• They can help us improve the quality of products
  or services or the way we serve customers.
• They are valuable resources for helping other
  workers do a good job of serving customers and
  can provide leadership on the front line.

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What are some of the dawbacks of long term
employees?

• They may have poor qualifications, knowledge and
  skills
• They may have a poor attitude towards serving
• They may not be innovative enough
• They are slow to learn new things
• They are afraid of changes
• Playing politics, bad habits etc

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Costs of High Turnover
Employee Dissatisfaction
High Turnover
High Costs
Visible Costs
Invisible Costs

• More recruiting
• More training
• Lower productivity
• of co-workers and
• management

• Internal
• Adverse effects on
• Employee quality
• Employee retention
• Wage levels
• Training efficiency

• External
• Adverse effects on
• Service quality
• Customer retention

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Costs of employee turn overs

• Rreplacing an employee with 5-8 years of
  experience with one with less than 1 year
  experience
• Automobile sales 36,000 in sales per month
• Broker at a security firm 2.5 Million in
  commission during the first 5 years.

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-Work place system design-Job
Design-Recruitment Selection-Training
Development-Opportunities for
advancement-learning opportunities-Employee
Reward Recognition-Empowerment tools for
serving customer
How to improve employee Satisfaction?
Internal Service Quality
Employee Satisfaction
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The Service Profit Chain (SPC)
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How to use the service profit chain?

• Measuring the relationships in the service profit
  chain across units
• Communicating results of the self-appraisal
  resulting from the measurement
• Developing a balanced score card of performance
  measures
• Designing efforts to help managers improve
  service profit chain performance
• Tying recognition and rewards to established
  measures
• Communicating results and encouraging best
  practices

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Reading Assignment

• Heskett J. L. Jones, T. O., Lovemen, G. W.,
  Sasser, W. E. Schlesinger, L. A. Putting the
  Service Profit Chain to Work, Harvard Business
  Review, March- April 1994, pp 164-174 .
• Berry, L. L, Zeithaml, V.A., Parasuraman, A.,
  Five Imperatives for Improving Service Quality,
  Sloan Management Review, Summer 1990, pp. 29-38
• .Parasuraman, A., Zeithaml, V.A., Berry, L.
  L., A Conceptual Model of Service Quality and
  Its implications for Future Research, Journal
  of Marketing, Vol. 49, Fall 1985, pp. 41-50

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Thinking Assignments

• How can a company use the service profit chain to
  help improve profit? Please list a few things
  that a company can do.