Service Profit Chain

Service intangibility

A major characteristic of services—they cannot be seen, tasted, felt, heard, or smelled before they are bought.

Service inseparability

A major characteristic of services—they are produced and consumed at the same time and cannot be separated from their providers.

Service variability

A major characteristic of services—their quality may vary greatly, depending on who provides them and when, where, and how.

Service intangibility means that services cannot be seen, tasted, felt, heard, or smelled before they are bought. For example, people undergoing cosmetic surgery cannot see the result before the purchase. Airline passengers have nothing but a ticket and the promise that they and their luggage will arrive safely at the intended destination, hopefully at the same time. To reduce uncertainty, buyers look for "signals" of service quality. They draw conclusions about quality from the place, people, price, equipment, and communications that they can see.

Therefore, the service provider's task is to make the service tangible in one or more ways and to send the right signals about quality. One analyst calls this evidence management, in which the service organization presents its customers with organized, honest evidence of its capabilities. The Mayo Clinic, located in the United States, practices good evidence management:38

When it comes to hospitals, it's very hard for the average patient to judge the quality of the "product." You can't try it on, you can't return it if you don't like it, and you need an advanced degree to understand it. And so, when we're considering a medical facility, most of us unconsciously turn detective, looking for evidence of competence, caring, and integrity. The Mayo Clinic doesn't leave that evidence to chance. By carefully managing a set of visual and experiential clues, Mayo offers patients and their families concrete evidence of its strengths and values. For example, staff people at the clinic are trained to act in a way that clearly signals its patient-first focus. "My doctor calls me at home to check on how I am doing," marvels one patient. "She wants to work with what is best for my schedule." Mayo's physical facilities also send the right signals. They've been carefully designed to relieve stress, offer a place of refuge, create positive distractions, convey caring and respect, signal competence, accommodate families, and make it easy to find your way around. The result? Exceptionally positive word of mouth and abiding customer loyalty have allowed Mayo Clinic to build what is arguably the most powerful brand in health care with very little advertising. Ninety-five percent of Mayo Clinic patients report that they voluntarily praise the clinic to others.

Physical goods are produced, then stored, later sold, and still later consumed. In contrast, services are first sold, then produced and consumed at the same time. In services marketing, the service provider is the product. Service inseparability means that services cannot be separated from their providers, whether the providers are people or machines. If a service employee provides the service, then the employee becomes a part of the service. Because the customer is also present as the service is produced, provider-customer interaction is a special feature of services marketing. Both the provider and the customer affect the service outcome.

Service variability means that the quality of services depends on who provides them as well as when, where, and how they are provided. For example, some hotels—say, Bilderberg—have reputations for providing better service than others. Still, within a given Bilderberg hotel, one registration-counter employee may be cheerful and efficient, whereas another standing just a few feet away may be unpleasant and slow. Even the quality of a single Bilderberg employee's service varies according to his or her energy and frame of mind at the time of each customer encounter.

Service perishability Service perishability means that services cannot be stored for later sale or use. Some

A major characteristic of services—they doctors charge patients for missed appointments because the service value existed only at cannot be stored for later sale or use. p^t and disappeared when the patient did not show up. The perishability of services is not a problem when demand is steady. However, when demand fluctuates, service firms often have difficult problems. For example, because of rush-hour demand, public transportation companies have to own much more equipment than they would if demand were even throughout the day. Thus, service firms often design strategies for producing a better match between demand and supply. Hotels and resorts charge lower prices in the off-season to attract more guests. And restaurants hire part-time employees to serve during peak periods.

Marketing Strategies for Service Firms

Just like manufacturing businesses, good service firms use marketing to position themselves strongly in chosen target markets. BMW promises "The ultimate driving machine"; Jaguar says "The art of performance." At Hampton Inn, "We love having you here. A great stay. A great Value. That's 100% Hampton." And St. Jude Children's Hospital is "Finding cures. Saving children." These and other service firms establish their positions through traditional marketing mix activities. However, because services differ from tangible products, they often require additional marketing approaches.

The Service-Profit Chain

In a service business, the customer and front-line service employee interact to create the service. Effective interaction, in turn, depends on the skills of front-line service employees and on the support processes backing these employees. Thus, successful service companies focus their attention on both their customers and their employees. They understand the service-profit chain, which links service firm profits with employee and customer satisfaction. This chain consists of five links:39

• Internal service quality: superior employee selection and training, a quality work environment, and strong support for those dealing with customers, which results in . . .

• Satisfied and productive service employees: more satisfied, loyal, and hardworking employees, which results in . . .

• Greater service value: more effective and efficient customer value creation and service delivery, which results in . . .

• Satisfied and loyal customers: satisfied customers who remain loyal, repeat purchase, and refer other customers, which results in ...

• Healthy service profits and growth: superior service firm performance

Therefore, reaching service profits and growth goals begins with taking care of those who take care of customers. In fact, legendary founder and former CEO of Southwest Airlines Herb Kelleher always put employees first, not customers. His reasons? "If they're happy, satisfied, dedicated, and energetic, they'll take good care of customers," he says. "When the customers are happy, they come back, and that makes shareholders happy."40 Consider AFour Seasons Hotels and Resorts, a chain legendary for outstanding service:41

At Four Seasons, every guest is a somebody. Other exclusive resorts pamper their guests, but Four Seasons offers a subtler brand of doting: helpful rather than subservient; instinctive rather than programmed. So it's easy to understand why Four Seasons has a cult-like clientele. As one Four Seasons Maui guest recently told a manager, "If there's a heaven, I hope it's run by Four Seasons." What makes the Four Seasons so special? It's the staff. The chain knows that happy, satisfied employees make for happy, satisfied customers. "Personal service is not something you can dictate as a policy," says the company's founder and CEO. "It comes from the culture. How you treat your employees is how you expect them to treat the customer."

Service-profit chain

The chain that links service firm profits with employee and customer satisfaction.

Service Profit Chain

The service-profit chain: Happy employees make for happy customers. At Four Seasons, employees feel as important and pampered as the guests

And Four Seasons treats its employees well. Compared with the competition, Four Seasons salaries are in the 75th to 90th percentile, with generous retirement and profit sharing plans. All employees—seamstresses, valets, the ski concierge, the general manager—eat together regularly, free, in the hotel cafeteria. Another great perk: free rooms. After six months, any staffer can stay three nights free per year at any Four Seasons hotel or resort. That number increases to six nights after a year and steadily thereafter. The room stays make employees feel as important and pampered as the guests. Says a Four Seasons Maui pool attendant about his free stays, "You walk in and you say, Yeah, I'm somebody.'" Says another Maui employee, "You come back from those trips on fire. You want to do so much for the guest." As a result, the Four Seasons staff loves the hotel just as much as customers do. Although guests can check out anytime they like, employees never want to leave. The yearly turnover for full-time employees is around 18 percent, half the industry average. And that's the biggest secret to Four Seasons' success.

Internal marketing

Orienting and motivating customer-contact employees and supporting service people to work as a team to provide customer satisfaction.

Interactive marketing

Training service employees in the fine art of interacting with customers to satisfy their needs.

Thus, service marketing requires more than just traditional external marketing using the Four Ps. ^Figure 8.6 shows that service marketing also requires internal marketing and interactive marketing. Internal marketing means that the service firm must orient and motivate its customer-contact employees and supporting service people to work as a team to provide customer satisfaction. Marketers must get everyone in the organization to be customer centered. In fact, internal marketing must precede external marketing.

For example, Four Seasons hires the right people, orients them carefully, instills in them a sense of pride, and motivates them by recognizing and rewarding outstanding service deeds. Says one analysts, "Every job applicant, whether hoping to fold laundry or teach yoga, goes through at least four interviews. "We look for people who say 'I'd be proud to be a doorman,'" says the CEO. Once hired, the training never stops. The most important guideline, contends the CEO, is "the golden rule: Do unto others That's not a gimmick," he says. "In the hiring process, we're looking for people who are very comfortable with this idea."42 As a result, Four Seasons employees know what good service is and are highly motivated to give it.

Interactive marketing means that service quality depends heavily on the quality of the buyer-seller interaction during the service encounter. In product marketing, product quality often depends little on how the product is obtained. But in services marketing, service quality depends on both the service deliverer and the quality of the delivery. Service marketers, therefore, have to master interactive marketing skills. Thus, Four Seasons selects only people


External marketing

Internal marketing


Four Seasons Golden Rule

Service firms must sell the importance of delighting customers to customer-contact employees. At Four Seasons Hotels and Resorts, the most Important guideline Is the golden rule: Do unto others

Internal marketing


Then, service firms must help employees to master the art ot interacting with customers. At Four Seasons, employees quickly learn that guests paying $1,000 a night "expect to have their minds read."

Customers marketing figure i 8.6 Three Types of Service Marketing


External marketing with an innate "passion to serve" and instructs them carefully in the fine art of interacting with customers to satisfy their every need. Employees learn quickly that guests paying $1,000 a night "expect to have their [minds] read." All new hires complete a three-month training regimen that includes improvisation exercises to help them anticipate guest behavior.

In today's marketplace, companies must know how to deliver interactions that are not only "high-touch" but also "high-tech." For example, customers can log onto the Charles Schwab Web site and access financial account information, investment research, real-time quotes, after-hours trading, and the Schwab learning center. They can also participate in live online events and chat online with customer-service representatives. Customers seeking more-personal interactions can contact service representatives by phone or visit a local Schwab branch office to "talk with Chuck." Thus, Schwab has mastered interactive marketing at all three levels—calls, clicks, and personal visits.

Today, as competition and costs increase, and as productivity and quality decrease, more service marketing sophistication is needed. Service companies face three major marketing tasks: They want to increase their service differentiation, service quality, and service productivity.

Service Quality
Service differentiation: At British Airways, says this ad, "Our goal is simple: to deliver the best service you can ask for, without you having to ask."

Managing Service Differentiation

In these days of intense price competition, service marketers often complain about the difficulty of differentiating their services from those of competitors. To the extent that customers view the services of different providers as similar, they care less about the provider than the price.

The solution to price competition is to develop a differentiated offer, delivery, and image. The offer can include innovative features that set one company's offer apart from competitors' offers. Some hotels offer car-rental, banking, and business-center services in their lobbies and free high-speed Internet connections in their rooms. Airlines differentiate their offers though frequent-flyer award programs and special services. For example, ABritish Airways offers spa services at its Arrivals Lounge at Heathrow airport and softer in-flight beds, plumper pillows, and cozier blankets. Says one ad: "Our simple goal is to deliver the best service you could ask for, without you having to ask."

Service companies can differentiate their service delivery by having more able and reliable customer-contact people, by developing a superior physical environment in which the service product is delivered, or by designing a superior delivery process. For example, many grocery chains now offer online shopping and home delivery as a better way to shop than having to drive, park, wait in line, and tote groceries home.

Finally, service companies also can work on differentiating their images through symbols and branding. The insurer Aflac adopted the duck as its symbol in its advertising, and even as stuffed animals, golf club covers, and free ring tones and screensavers. The well-known Aflac duck, with the familiar voice of comedian Gilbert Gottfried, helped make the big but previously unknown insurance company memorable and approachable. Other well-known service symbols include the entertainment company, MGM's lion, McDonald's golden arches, the insurer Allstate's "good hands," and The Travelers red umbrella.

Managing Service Quality

A service firm can differentiate itself by delivering consistently higher quality than its competitors provide. Like manufacturers before them, most service industries have now joined the customer-driven quality movement (see Real Marketing 8.2). And like product marketers, service providers need to identify what target customers expect in regards to service quality.

Unfortunately, service quality is harder to define and judge than product quality. For instance, it is harder to agree on the quality of a haircut than on the quality of a hair dryer. Customer retention is perhaps the best measure of quality—a service firm's ability to hang onto its customers depends on how consistently it delivers value to them.

Top service companies set high service-quality standards. They watch service performance closely, both their own and that of competitors. They do not settle for merely good service; they aim for 100 percent defect-free service. A 98 percent performance standard may sound good, but using this standard, TNT would lose or misdirect thousands of packages each day and U.K. pharmacists would misfill close to 1.4 million prescriptions each week.43

Unlike product manufacturers who can adjust their machinery and inputs until everything is perfect, service quality will always vary, depending on the interactions between employees and customers. As hard as they try, even the best companies will have an occasional late delivery, burned steak, or grumpy employee. However, good service recovery can turn angry customers into loyal ones. In fact, good recovery can win more customer purchasing and loyalty than if things had gone well in the first place. Therefore, companies should take steps not only to provide good service every time but also to recover from service mistakes when they do occur.

The first step is to empower front-line service employees—to give them the authority, responsibility, and incentives they need to recognize, care about, and tend to customer needs. For example, Nordstrom, the department store chain long known for extraordinary service, gives its employees the autonomy they need to create outstanding customer-service experiences. Here's an example:44

In Portland, [in the U.S. state of] Oregon, a man walked into Nordstrom asking for an Armani tuxedo to wear to his daughter's wedding. The sales representative took his measurements but said she'd need time to work on his request. She called later to say that the tuxedo would be ready the next day. As it turned out, Nordstrom did not carry Armani tuxedos at the time. The sales representative had found the tux through a distributor in New York, then had it rushed to Portland and altered to fit the customer in time for the wedding. At Nordstrom, such employee empowerment is built into the process. "It is not a thing of the day," says a Nordstrom store manager, "it is part of our culture."

Managing Service Productivity

With their costs rising rapidly, service firms are under great pressure to increase service productivity. They can do so in several ways. They can train current employees better or hire new ones who will work harder or more skillfully. Or they can increase the quantity of their service by giving up some quality. The provider can "industrialize the service" by adding equipment and standardizing production, as in McDonald's assembly-line approach to fast-food retailing. Finally, the service provider can harness the power of technology. Although we often think of technology's power to save time and costs in manufacturing companies, it also has great—and often untapped—potential to make service workers more productive.

However, companies must avoid pushing productivity so hard that doing so reduces quality. Attempts to industrialize a service or to cut costs can make a service company more efficient in the short run. But they can also reduce its longer-run ability to innovate, maintain service quality, or respond to consumer needs and desires. Many airlines are learning this lesson the hard way as they attempt to streamline and economize in the face of rising costs.

Over the past year, Northwest Airlines has stopped offering free magazines, pillows, movies, and even minibags of pretzels on its domestic flights. Passengers can still get an in-flight snack of raisins and nuts, but it costs $1. The airline is also charging a $15 fee for a roomier seat on the aisle or in an exit row. Combine that with higher fares and a sharply curtailed schedule, and it's little wonder that flyers rate Northwest dead last among the nation's major airlines. "If at all possible, I don't fly Northwest," says one veteran traveler. "I have found a lack of interest in the customer." A services marketing expert agrees: "The upshot is that some companies, in their passion to drive down costs, have mangled their relationships with customers."45

Thus, in attempting to improve service productivity, companies must be mindful of how they create and deliver customer value. In short, they should be careful not to take the

"service" out of service.

Top-flight customer service: Singapore Airlines' customer-satisfaction success is based on employee training, development, communication, investment, and professionalism.

International Olympic Committee and sponsors. This was in stark contrast the Sydney Olympics in 2000 where some 40 percent of the tickets remained unsold.

Heterogeneity is another feature of services; it is the notion of making each service experience identical. Ideally, a business would want the customer to experience the same level of customer service in all of the outlets, aircraft or other customer service environments. The problem with heterogeneity is that it is very difficult to exactly replicate the experience of each and every customer. On an airlines flight, the stewardess may be new and not used to the demands of the customers.

Customer service training is therefore key to ensuring that service expectations are met and that employees are aware of the requirements of both the organization and the customers. A prime example is an initiative launched in 2008 by Birmingham City Council in the United Kingdom. They decided to give more than 8,000 of its employees the opportunity to receive ICS (Institute of Consumer Service) accreditation for their work. In the first three years some 2,000 in customer service roles would be targeted in the Initiative. The project would then be rolled out the

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  • antero
    Why is service profit chain important in customer relationship?
    7 years ago
  • robert
    What is seasons 52 inseparability?
    6 years ago

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