20140930061659_Topic 3 Understanding Customer Requirements

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STUDY GUIDE BMSV5103 Service Marketing

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Topic 3: Understanding Customer Requirements

Learning Outcomes

By the end of this topic, you should be able to:

1. Present the types, guidelines and elements for marketing researchprogramme;

2. Analyse and interpret marketing research findings;

3. Use marketing research information;

4. Explain relationship marketing, its goals and benefits;

5. Understand the relationship value of customers;

6. Introduce the concept of customer profitability;

7. Present relationship development strategies;

8. Illustrate the importance of recovery from service failure and servicerecovery strategies; and

9. Discuss service guarantees and the benefits of guarantees.

Topic Overview

This topic discusses in detail three ways to close provider gap 1, namely,ways that companies listen to customers through research, relationshipmarketing approach and service discover strategy.




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Focus Areas and Assigned Readings

Focus Areas Assigned Readings

Zeithaml, V. A., Bitner, M. J., & Gremler,D. D. (2013). Services marketing:Integrating customer focus across thefirm (6th ed). Singapore: McGraw-Hill.

3.1 Using Marketing Research toUnderstand CustomerExpectations

Chapter 5, pp 115-121.

3.2 Elements in Effective ServiceMarketing Research Programmes


3.3 Analysing and InterpretingMarketing Research Findings


3.4 Using Marketing ResearchInformation


3.5 Relationship Marketing: Its Goalsand Benefits


3.6 Relationship Value of Customers Chapter 6, pp 156-157.

3.7 Customer Profitability Segments Chapter 6, pp 157-160.

3.8 Relationship DevelopmentStrategies


3.9 The Impact of Service Failure andRecovery


3.10 How Customers Respond toService Failure


3.11 Service Recovery Strategies Chapter 7, pp 188-201.

3.12 Service Guarantees Chapter 7, pp 201-206.




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Content Summary

3.1 Using Marketing Research to Understand Customer Expectations

Marketing research is a key vehicle for understanding customerexpectations and perceptions of services.

Marketing research must focus on service issues such as whatfeatures are most important to customers, what levels of thesefeatures customers expect and what customers think thecompany can and should do when problems occur in servicedelivery.

The first step in designing service marketing research is to definethe problem and research objectives.

Once objectives have been identified, service marketers will pointthe way to decisions about the most appropriate type of research,methods of data collection and ways to use the information.

Criteria for an effective service research programme:

(a) It includes both qualitative and quantitative research;

(b) It includes both expectations and perceptions of customers;

(c) It balances the cost of the research and the value of theinformation;

(d) It includes statistical validity when necessary;

(e) It measures priorities or importance of attributes;

(f) It occurs with appropriate frequency; and

(g) It includes measurement of loyalty, behavioural intentions oractual behaviour.




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3.2 Elements in Effective Service Marketing Research Programmes

A good service marketing research programme includes multipletypes of research studies.

The composition of studies and types of research will differ bycompany because of the range of uses for service qualityresearch.

The types of research study a company does will match thecompany's resources and address the key areas needed tounderstand its customers.

The elements in an effective service marketing researchprogrammes include type of research, primary researchobjectives and costs of information.

3.3 Analysing and Interpreting Marketing Research Findings

One of the biggest challenges facing a marketing researcher isconverting a complex set of data into a form that can be read andunderstood quickly by executives, managers and otheremployees who will make decisions based on the research.

Depicting marketing research findings graphically (e.g. tracking ofperformance, gap scores and competition, zones of tolerancecharts, importance/performance matrices) is a powerful way tocommunicate research information.

3.4 Using Marketing Research Information

Conducting research about customer expectations is only the firstpart of understanding the customer, even if the research isappropriately designed, executed and presented.

A service firm must use the research findings in a meaningful way ! to drive change or improvement in the way service is delivered.

When managers do not read research reports because they aretoo busy dealing with the day-to-day challenges of the business,companies fail to use the resources available to them.

When customers participate in marketing research studies butnever see changes in the way the company does business, theyfeel frustrated and annoyed with the company.




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The objectives of gaining firsthand knowledge about customers,improving internal service quality, gaining firsthand knowledge ofemployees and obtaining ideas for service improvement can bemet by two types of interactive activities in the organisation:

(a) One designed to improve the type and effectiveness ofcommunication from customers to management; and

(b) The other designed to improve communications betweenemployees and management.

3.5 Relationship Marketing: Its Goals and Benefits

Relationship marketing essentially represents a paradigm shiftwithin marketing ! away from an acquisitions/transaction focustowards a retention/relationship focus.

Relationship marketing is a philosophy of doing business strategicorientation that focuses on keeping and improving relationshipswith current customers rather than on acquiring new customers.

The primary goal of relationship marketing is to build and maintaina base of committed customers who are profitable for theorganisation.

The overriding goal is to move customers from the point at whichthey are strangers who need to be attracted through to the pointat which they are highly valued, long-term customers whoserelationship with the firm has been enhanced.

Both parties in the customer-firm relationship can benefit fromcustomer retention.

Specific types of relational benefits that customers experience inlong-term service relationships include confidence, social andspecial treatment benefits.

In addition to the economic benefits that a firm receives fromcultivating close relationships with its customers, a variety ofcustomer behaviour benefits and human resource managementbenefits are also often received.




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3.6 Relationship Value of Customers

Relationship value of a customer concept or calculation looks atcustomers from the point of view of their lifetime revenue and/orprofitability contributions to a company.

The lifetime or relationship value of a customer is influenced bythe length of an average lifetime, the average revenuesgenerated per relevant time period over the lifetime, sales ofadditional products and services over time, referrals generated bythe customer over time and costs associated with serving thecustomer.

To the extent that the customer base forms a large part of acompany!s overall value, such a calculation can provide anestimate of a firm!s value.

3.7 Customer Profitability Segments

Rather than treating all its customers the same, the companypays particular attention to enhancing relationships with the good,moving the bad to the good and discouraging the ugly.

Other companies also try to identify segments " or, more

appropriately, tiers of customers " that differ in current and/orfuture profitability to a firm.

After identifying profitability bands, the firm offers services andservice levels in line with the identified segments.

3.8 Relationship Development Strategies

A variety of factors influence the development of a strongcustomer relationship, including the customer!s overall evaluationof a firm!s offering (core service provision), bond created with

customers by the firm (relationship bond) and barriers that thecustomer faces in leaving a relationship (switching barriers).

These factors provide the rationale for specific strategies thatfirms often use to keep their customers.




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3.9 The Impact of Service Failure and Recovery

Failures occur for all kinds of reasons ! the service may beunavailable when promised, it may be delivered late or too slowly,the outcome may be incorrect or poorly executed or employeesmay be rude or uncaring.

All these types of failure bring about negative feelings andresponses from customers.

Service recovery refers to the actions taken by an organisation inresponse to a service failure.

Research found that customers who experience service failuresbut who are ultimately satisfied based on recovery efforts by thefirm will be more loyal than those whose problems are notresolved.

An effective service recovery strategy has multiple potentialimpacts. It can increase customer satisfaction and loyalty andgenerate positive word-of-mouth communication.

A well-designed, well-documented service recovery strategy alsoprovides information that can be used to improve service as part

of a continuous improvement effort.

3.10 How Customers Respond to Service Failure

Research suggests that a variety of negative emotions can occurfollowing a service failure, including feelings such as anger,discontent, disappointment, self-pity and anxiety.

Whether the customers take action or not, at some point they willdecide whether to stay with the provider or switch to a competitor.

Customers who are likely to complain believe that positiveconsequences may occur and that there are social benefits ofcomplaints.

Customers who usually do not complain are least likely to return.

For companies, customers who are passive in the face ofdissatisfaction is a threat to future success.




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Research suggests that people can be grouped into fourcategories based on how they respond to failures: passive,voices, irate and activists.

3.11 Service Recovery Strategies

When they take the time and effort to complain, customersgenerally have high expectations.

They expect the firm to be accountable, to be helped quickly, tobe compensated for their grief and the hassle of beinginconvenienced and to be treated nicely in the process.

Many companies have learned the importance of providingexcellent recovery for disappointed customers.

Excellent service recovery is a combination of a variety ofstrategies, namely, to make the service fail-safe, encourage andtrack complaints, act quickly, provide adequate explanations, treatcustomers fairly, cultivate relationships with customers, learn fromrecovery experiences and learn from loss of customers.

Generally, service recovery strategies fall into two types.

One type includes the actions taken by the firm to restore therelationship with the customer ! that is, to "fix the customer#.

The second type is the actions taken to correct the problem andideally, to prevent it from recurring ! that is, to "to fix the problem#.

Both types of actions are important but in many situations, fixingthe customer needs to be done before fixing the problem.

3.12 Service Guarantees

A guarantee is not only a particular type of recovery but a meansfor defining, cultivating and maintaining quality throughout anorganisation.

The benefits to the company of an effective service guarantee arenumerous:

(a) A good guarantee forces the company to focus on itscustomers;




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(b) An effective guarantee sets clear standards for anorganisation;

(c) A good guarantee generates immediate and relevantfeedback from customers;

(d) When the guarantee is invoked there is an instantopportunity to recover;

(e) Studies of the impact of service guarantees suggest thatemployee morale and loyalty can be enhanced as a result;and

(f) For customers, the guarantee reduces their sense of risk.

There are a few types of service guarantees. They can beunconditional satisfaction guarantees or service attributeguarantees, external versus internal guarantees and characteristicsof effective guarantees.

However, a guarantee is probably not the right strategy when:

(a) Existing service quality in the company is poor;

(b) A guarantee does not fit the company!s image;

(c) Service quality is truly uncontrollable;

(d) Potential exists for customer abuse of the guarantee;

(e) Costs of the guarantee outweigh the benefits;

(f) Customers perceive little risk in the service; and

(g) Customers perceive little variability in service quality amongcompetitors.




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Study Questions

1. Marketing research studies must be initiated with adequate attention toobjectives. Identify 10 most common research objectives in services.

2. According to Gremler and Brown (1999), the contribution that loyalcustomers make to a service business can go well beyond their directfinancial impact on the firm. Do you agree with their statement? Why?

3. The assumption that all customers are good customers is verycompatible with the belief that •the customer is always right, an almostsacrosanct tenet of business. However, this belief is not always true

because in some cases, the relationship may not be beneficial andcustomers are not right all the time. With appropriate examples,discuss three situations where it may be preferable for the firm to notcontinue the relationship.

4. Explain how an effective service recovery strategy can have multiplepotential impacts.

5. A customers reaction to the recovery effort and how a service failure ishandled can influence future decisions to remain loyal to the serviceprovider or to switch to another provider. Identify factors that determinewhether customers will switch to a new provider following service

failure.

6. Based on this case study, answer the questions that follow.

Case Study

MRSM: Address Youth Market Challenges

KUALA LUMPUR: While the youth market is a lucrative one for marketers, italso has challenges which need to be addressed to enhance the penetrationof products and services in this fast rising segment. Marketing Research

Society of Malaysia (MRSM) president Barry Ooi said the youth market in Asia was generally a key demographic group and an important target groupfor marketers and other businesses.

!There are three main hurdles in the youth market which marketers need tounderstand and remove to effectively sell their products and services to thisgroup", he told StarBiz on the sidelines of the inaugural MRSM congress2012, entitled Researching On and Marketing to the Youth. Ooi added thethree were, firstly, understanding their mindset; secondly, understandingtheir language and lastly understanding their values. By understanding and




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having a better picture of these key hurdles, he said marketers could bettercommunicate with this group, especially through the digital medium like theInternet and mobile as it had the ability to reach the various sub-segments ofthe youth market. Vice president Rozina Mat Rawi said youths were acomplex group of people and not an easy one to comprehend. She said theywere easily influenced by friends, society and external surroundings, addingthat it was a task for them to strike a balance between trying to be seen asan individual and complying to societal norms. Therefore, it was not a director a straightforward approach when coming to penetrate this segment of themarket, she added. Meanwhile, TNS International Malaysia chairman JohnSmurthwaite said marketers needed to adopt global best practices in order toensure strong growth in their businesses. Currently, at the global level,

marketers are looking at a 7% to 10% growth but in reality are only able toachieve between 2% and 5%.

Source:http://biz.thestar.com.my/news/story.asp?file=/2012/4/25/business/11166191&sec=business

(a) The youth market has challenges which need to be addressed toenhance the penetration of products and services in this fast risingsegment. Do Malaysian marketers face tremendous challenges topenetrate this segment? Why?

(b) TNS International Malaysia chairman, John Smurthwaite, saidmarketers needed to adopt global best practices in order to ensurestrong growth in their businesses. Explain how global best practicescan be adopted by marketers.

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20140930061659_Topic 3 Understanding Customer Requirements