20140930061904_Topic 7 Service and the Bottom Line

7/23/2019 20140930061904_Topic 7 Service and the Bottom Line

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STUDY GUIDE BMSV5103 Service Marketing

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Topic 7: Service and the Bottom Line

Learning Outcomes

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

1. Examine the direct effects of service on profits;

2. Consider the effects of service in getting new customers;

3. Evaluate the role of service in keeping customers; and

4. Discuss what is known about key service drivers.

Topic Overview

This topic discusses one of the most important questions about service thatmanagers have been debating: Is excellent service profitable to anorganisation? Several important performance models are also discussed.

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.

7.1 Offensive Marketing Effects ofService

Chapter 16, pp 473-476.

7.2 Defensive Marketing Effects ofService

Chapter 16, pp 476-477.

7.3 Key Drivers of Service Quality,

Customer Retention and Profits

Chapter 16, pp 483.

7.4 Balanced Performance Scorecard Chapter 16, pp 484-491.




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Content Summary

7.1 Offensive Marketing Effects of Service

Service quality can help companies attract more and bettercustomers to the business through offensive marketing.

Offensive effects involve market share, reputation and pricepremiums.

When service is good, a company gains a positive reputation andthrough that reputation, a higher market share and the ability to

charge more than its competitors for services.

7.2 Defensive Marketing Effects of Service

Defensive marketing is an approach used to keep customers afirm already has.

Customer defection is costly to companies because newcustomers must replace lost customers, and replacement comesat a high cost.

In general, the longer a customer remains with a company, the

more profitable the relationship is for the organisation.

The money a company makes from retention comes from foursources: costs, volume of purchases, price premium and word-of-mouth communication.

7.3 Key Drivers of Service Quality, Customer Retention and Profits

Understanding the relationship between overall service qualityand profitability is important but it is perhaps more useful formanagers to identify specific drivers of service quality that most

relate to profitability.

Doing so will help firms understand what aspects of servicequality to change to influence the relationship and, therefore,where to invest resources.




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Most evidence for this issue has come from examining the effectsof specific aspects of service (e.g. responsiveness, reliability,assurance, tangibles, etc) on overall service quality, customersatisfaction and purchase intentions rather than on financialoutcomes such as retention or profitability.

7.4 Balanced Performance Scorecard

Today•s corporate strategies recognise the limitations ofevaluating corporate performance on financials alone, contendingthat these income-based financial figures measure yesterday•sdecisions rather than indicate future performance.

For this reason, companies began to recognise that balancedperformance scorecards ! strategic measurement systems thatcapture other areas of performance ! were needed.

The developers define it as "#a set of measures that gives topmanagers a fast but comprehensive view of the business#[that]complements the financial measures with operational measures ofcustomer satisfaction, internal processes and the organisation•sinnovation and improvement activities ! operational measures thatare the drivers of future financial performance$.

The balanced performance scorecard captures three perspectivesin addition to the financial perspective: customer, operational andlearning.

It brings together, in a single management report, many of thepreviously separated elements of a company•s competitiveagenda and forces senior managers to consider all the importantmeasures together.

It has been facilitated by developments in enterprise-widesoftware that allow companies to create, automate and integratemeasurement from all parts of the company.




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Study Questions

1. Today, many managers still see service and service quality as costsrather than as contributors to profits. Do you agree with them? Why?

2. Discuss different types of profits a service company is expected toreceive from loyal customers.

3. Service companies that embrace a defection management philosophyengage in customer retention tactics that should be routinelyimplemented on a per-customer basis. Elaborate three effective tacticsfor retaining customers.

4. In your opinion, what are the major mistakes made by companies whenmeasuring their performance using non-financial measures?

5. In addition to the financial perspective, the balanced performancescorecard also captures three types of measure. Discuss thesemeasures with examples.

6. Based on the following case study, answer the questions.

Case Study

Perodua MD to Previous and Existing Customers: Let•s Have Lunch

PETALING JAYA: Perodua managing director Datuk Aminar RashidSalleh wants to engage all of the carmaker's previous and existingcustomers over lunch. !We are embarking on a programme called ThePerodua Story, where we're reaching out to all our customers", hetold StarBiz . !We#ve sold more than two million vehicles since ourestablishment 19 years ago. Some of them (customers) we may have lost forwhatever reason, whether during sales or after sales. So we#re trying toreach out to them, and tell them please come back, and tell us your story." Aminar said he was even willing to meet these customers !over a meal", a

statement that was reiterated in an advert that Perodua had placed in a localdaily yesterday. !I look forward to what you have to share. More than that, Iwill try my very best to respond to you personally. We could do lunchsometime. Have a nice chat", Aminar said in the advertorial. At the interview, Aminar said the initiative was part of the company#s initiative to retain itscustomers and improve on its products. !I#m sure there are a lot of stories toshare with us, whether from a product point of view or if there werechallenging and difficult times. We want to hear it, so that we can improvefurther. We'll be reaching out through various mediums, such as throughsocial media. I'm committed to meet them all in person, if necessary. All this



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20140930061904_Topic 7 Service and the Bottom Line