Financial and behavioral impacts Chapter 2

© Hudson & Hudson. Customer Service for Hospitality & Tourism

‘At Your Service’ Spotlight: Scott Dunn Travel

‘If you’re part of the DNA of the company, you understand the importance of the guest,’ Andrew Dunn.o British luxury travel company established a benchmark for

Alpine chalet holidays

o 70% repeat business through loyalty and referral • Differentiated on opulence and personal, high quality

service• Unexpected acts of kindness (U.A.K.s)• Undersells, over-delivers 

Service quality

….customers’ perceptions of the service component of a product, and these perceptions are said to be based on five dimensions: reliability, assurance, empathy, responsiveness, and tangibles

o Evaluation of purchase, determine satisfaction and likelihood of repurchase 

o Key factor in differentiating service products and building competitive advantage

o Impacts profits and other financial outcomes of the organization

  

Relative importance of the service economy

 o Shift from manufacturing to a focus on customer service

• Quality service increasingly critical to success  o Services sector employment

• 45 % of the world’s total labor force• 7 out of 10 people in global service industries

 o Share in total economic activity increasing over time

• Western countries, accounts for over ¾ of GDP  o Rising trend expected to continue

• Reflects higher consumer and business demand, • Outsourcing of service-related activities • Information technology

Market share

o Service quality key factor crucial• Differentiate service products • Win and retain customers• Build a competitive advantage

o Customer satisfaction and loyalty • keys to long-term profitability, • ‘Satisfying’ customers not enough • Delight customers to ensure long-term loyalty

Satisfaction measure Figure 2.1 The relationship between customer satisfaction and loyalty

Loy

alty

(ret

entio

n) (%

)

100

80

60

40

20

1 2 3 4 5

Very dissatisfied Dissatisfied Neither satisfied nor dissatisfied

Satisfied Very Satisfied

Satisfaction measure

Only when customers are very satisfied can you guarantee loyalty

Prices and profit

o Retaining 5 % of customers o Increase profits by 25% - 85 %

o Higher-than-normal market share growth

o Premium prices • ~8 % higher price than competitors (Gale, 1992)

o Customer satisfaction at macro levels• Predictive of consumer spending • GDP

Value of great serviceFigure 2.2

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Snapshot: Jonathan Tisch, Loews Hotels &

Resorts‘The Power of We’ - success cannot be achieved individually

o Professional philosophy• Building relationships with colleagues• Empowering employees• Collaborating with competitors

 o Customer outreach

• Beyond advertising campaigns • “Buzz” and word-of-mouth marketing• Creates customer experiences

 o Good Neighbor Policy

• Comprehensive outreach program • Links business with communities • Advocates social responsibility  

The behavioral consequences of customer service

o Positive behavioral intention indicators• Saying positive things • Recommending company or service • Paying a premium • Demonstrating loyalty

o Negative behavioral intention • Complaining • Spending less money • Signaling poised to leave the company

Behavioral and financial consequences of service

qualityFigure 2.3

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The Apostle ModelFigure 2.4

High Hostages Loyalists

Ritz Carlton Four Seasons Hotels Holiday Inn Express Comfort Suites Renaissance Hotels

& Resorts

Baymont Inn & Suites Fairmont Hotels

& Resorts

Red Roof Inns Days Inn

Defectors Mercenaries Low

Low High Satisfaction

Loy

alty

The service profit chain o Employee satisfaction, loyalty

• Internal service quality • Employee productivity

 o Customer satisfaction, loyalty

• Value of services provided to the customer• Customer retention

 o Lifetime value of a customer

• Financial value of long-term relationships • Potential lifetime revenue

₋ Average lifespan₋ Sales of additional products and services ₋ Referrals

The service profit chain

Figure 2.5

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Offensive and defensive marketing

o Offensive marketing • Attract more, better customers • Improve reputation

₋ Higher market share ₋ Price premiums

o Defensive marketing• Retain existing customers• Longtime customer more profitable • Lower costs • Attracting a new customer five times more costly

Offensive and defensive marketing effects of service

Figure 2.6

Service

Defensive Marketing

Lower Costs

Volume of Purchases

Price Premium

Word of Mouth

Customer Retention

Offensive Marketing

Market Share

Reputation

Price Premium

Margins

Sales

Profits

Financial implications of poor customer service

o Consumer spending trends correspond with customer satisfaction• Unhappy customers spend less

o Frustrated customers may share unfavorable opinions • Social media, customer service terrorists

o Business spending to replace customers• 81 % of American, refuse to do business after poor

service

Resolving customer complaints

o Associated cost• 52 % expect compensation, even if the problem is

resolved • 70 % seek apology, reimbursement

o Consumers more forgiving if a company has earned trust over time• 9/10 consumers willing to give a company a second

chance • If they have experienced great customer service in the

past o Reducing customer defections by 5 % can double profits

Case Study: Profiting from fun in the Canadian Rockies

CMH (Canadian Mountain Holidays) is just a bunch of mountain guides taking people into the mountains to have fun.

o Unique marketing strategies• ‘Word of mouth’• Search engine optimization, social media •  ‘An Evening with CMH’ •  CMH European agents  •  ‘Adventure Collection’