The Nature of Service Quality

1. Achieving Good Service From The Customer’s Point of ViewPERCEIVED SERVICE QUALITY, SATISFACTION & LOYALTY

2. The Nature of Service Quality • Quality is the relative goodness of something:“The word ‘quality’ itself has changed. It has come to mean more than the reliability and price / performance of a computer, however essential these requirements. Now it encompasses every aspect of customer satisfaction, including how fast a computer is delivered and installed, its usability, its networking capabilities, the availability of support, the efficiency of service, and even the simplicity of bills and prompt telephone response.” (J. Akers 1991) • However:“ Despite the appreciation of the importance of service quality in strategic planning and for corporate success, there are no clear cut definitions of quality or dimensions for setting quality standards and measuring subsequent quality delivered and received.”(B.Lewis 1991, p.48) • The same is still true today.

3. The Nature of Service Quality • Service Quality is the relative goodness of a service, both the overall service and its component parts. • The level of Service Quality defines how well something achieves its objectives relative to its alternatives. • Service quality may be defined by a service provider, a user of the service, a potential customer or anybody else who knows of the existence of the service.

4. Why is Service Quality So Important • Price is not the only determinant of customer behaviour - customers of most products or services usually expect more than just the lowest price in order to use those products or services. • Service Quality helps companies differentiate their service: Companies can advertise the fact that they provide better service quality to their customers than their competitors do, in order to get more customers. • Service Quality leads to good productivity due to few mistakes and therefore it leads to more profit for the company. According to Gummesson, 1991, p.6:“ Quality and productivity, and profits are triplets, separating one from the other creates an unhappy family”. • Service Quality can lead to greater customer loyalty: customers may feel that they owe something to the company, or that they do not want to harm the company, and therefore they may continue buying from that company. However, according to Fay 1994, p.47:“Loyalty’s a fickle thing.”

5. Why is Service Quality So Important • In some cases it is cheaper to keep customers by improving service than to just reduce the price. • It is sometimes more difficult and slower for a competitor to respond to another company’s service improvement than to respond to another company’s price change. • It is cheaper to keep customers you already have than to find new ones, so if poor service quality leads to lost customers then poor service quality must be avoided.- British Airways have found that it costs 5 times as much to gain a new customer as to to keep an existing customer. “Companies can boost profits by almost 100% by retaining just 5% more of their customers.”Reichheld and Sasser 1990, p.105 • Customers buy more from a company when their perceived quality of the company is good than when it is not, even though they may not stop buying from the company if the service is not good and vice versa.

6. Why is Service Quality So Important • Service Quality can lead to positive and negative word of mouth communications (from friends, independent media and other sources) between customers about the company. - Research by Marriot Hotels has suggested that every lost dissatisfied customer will tell 20 other potential customers of his / her experience. “Word of mouth research conducted in the US by Tarp has found that bad product or service experience is relayed to twice as many people as good”Williams 1993, p.23 • National measures of service quality further affect corporate image and therefore sales, and may even affect corporate share prices. • British Airways have also found that successful complaint handling can sometimes actually lead to more loyal customers than if the complaint never arose.“Customers who’ve had a bad travel experience will tell their story to ten different people, yet they’ll tell nine more about a good recovery.”Simpson 1969, p.69

7. Why is Service Quality So Important • Companies can learn from their mistakes. It is better to do things totally right the second time than to continue to do things wrong. • Customers often complain not because of a big failure by the company but because they want to complain to someone. These customers are not in danger of being lost if dealt with properly. • Good service quality helps those who want fast service and encourages those who want relaxed service environments. • Service Quality influences satisfaction and therefore consumer purchasing behaviour. • Service Quality includes relationship marketing which can lead to trapped customers: customers who maybe do not think the product or service is better than another (or even think it is worse) but would suffer if they purchased that other

8. The Gaps Model Parasuraman, Zeithaml and Berry (1985) identified 4 provider preventable gaps which need to be Understood and Managed in order to maximize service quality: Top Management’s Perceptions of What Customers Want What Customers Want Gap 1 Gap 2 Top Management’s Specifications for good Customer Service Gap 3 Delivered Service Promised Service Gap 4 • This research studied service companies and such as insurance companies and banks. • They argued that the above 4 gaps lead to a 5th gap: Satisfaction Failure, the inability • to match service delivery with customer requirements for the delivery of that service. • Supporting research includes Parasuraman Zeithaml and Berry (1988) and Boulding, Kalra, Staelin and Zeithaml 1993.

9. Perceived Service Quality (CSQE) • “It is important for marketing managers to understand how consumers evaluate service quality performance and what the role of expectations is in that evaluation process”Clow and Vorhies 1993, p.24 • In these notes ‘Perceived Service Quality’ will be referred to as ‘Customer Service Quality Evaluation’ (CSQE). This is because the use of the word ‘Perception’ in the Business Literature is not quite the same as the use of the ‘Perception’ in the Psychology Literature. Therefore, in order to avoid confusion we will refer to Perceived Service Quality in a more original and clear way. • CSQE is:“a global judgement, or attitude, relating to the superiority of the service.” Zeithaml and Berry 1988, p.16 “a global consumer judgement or attitude relating to service, and results from comparisons by consumers of expectations of service with their perceptions of actual service performance.” Berry et al. 1985,1988

10. Perceived Service Quality (CSQE) • The above statements indicate that CSQE is the outcome of a process:It is a customer’s comparison, summarised in an attitude, of the believed goodness or badness of all dimensions of a particular service experience or service provider, in relation to expectations, including other services or service providers within a market. • Such evaluations are believed to have an impact upon behavioural intentions and actual behaviour. (Engel, Kollat and Blackwell 1978)

11. Perceived Service Quality (CSQE) Customer’s evaluation of the superiority or inferiority of a service experience or service provider CSQE (all services) Customer’s Behavioural intentions and actual behaviour Dimensions of CSQ input Overall CSQ Input (all services)

12. The Psychological Process of CSQE C.Grönroos (1982-8) - Introduction of the concept of ‘Perceived Service Quality’ The Early Theories Traditional Marketing Activities (eg. Advertising) and the Needs of Customers Customer Expectations What customers believe will be provided by a service experience. Perceived Service Quality of a service experience. Gap Customer Perceptions The service experience from the customer’s point of view.

13. The Psychological Process of CSQE The Link between Expectations and Image The Early Theories • According to Grönroos (1990) Expectations and Image are separate. The evaluation of service quality, • together with other knowledge about the firm gained through the firm’s marketing, social influences, logic, • word of mouth, other external communications or other sources, are all used to form image regarding a • service provider. • This view, however, is contradicted by many, including Liljander and Strandvik (1993) who argue that • “image represents predictive expectations over time”. i.e. Image and the sum of predictions of service • over time are the same thing. • Perhaps the reality is a combination of both of the above explanations.ie. Perhaps image is an extensionof predictive expectations of service.

14. The Psychological Process of CSQE Parasuraman, Zeithaml and Berry (1985,1988) The Early Theories Various determinants Customer Expectations What customers believe should be provided by a service provider. Perceived Service Quality of a service PROVIDER Gap Customer Perceptions The service provider from the customer’s point of view.

15. The Psychological Process of CSQE Later Theories Zeithaml, Berry and Parasuraman (1991) They adjusted the definition of expectations. They suggested expectations are two tiered: Desired Service Expectation (Blend of what Can and Should be provided) • Varies according to the Individual, the Dimension of Service Quality and the Situation. • Desired Level fluctuates more slowly than adequate level. • Desired Level fluctuates by smaller amounts than adequate level. • Desired Level only moves up, adequate level moves both ways. • Determinants include Past Experience, Needs and Perceived Service alternatives. Zone of Tolerance Satisfaction Adequate Service Expectation (Adjustment of desired expectations to take account of the Situationin which the service takes place). Dissatisfaction

16. The Psychological Process of CSQE Later Theories Boulding, Kalra, Staelin and Zeithaml (1993) • “Individuals’ current perception of the service quality of a firm just after a service contact are a • blend of”: • PriorExpectations of what Will and what Should happen during contact. • The actual delivered service during the service encounter. • Liljander and Strandvik (1993) and Liljander (1995) suggested something very similar. • Comparisons • Prediction of what will happen (Will Expectations) compared with the service experience. i.e. surprise or disappointment. • ShouldExpectations - (minus) Experience

17. The Psychological Process of CSQE Later Theories Boulding, Kalra, Staelin and Zeithaml (1993) • This theory links, to some extent, all the previous theories together. • These researchers were not the first to suggest either or even the combination of the above two expectations, but they were the first to apparently empirically prove it (or at least support it) in a service quality setting.

18. The Psychological Process of CSQE Summary of Determinants of Customer’s Service Expectations and Perceptions • External communications • Direct past experience • Professionally stated definitions • The nature of the physical environment - user relationship • Recency of the experience • Word of mouth and media communication • Personal needs and wants and personal involvement • Demographic variables (including education and intelligence) • Services practices • Time • Inferential beliefs • Price Combines many researches by many researchers

19. The Psychological Process of CSQE Summary of Suggested Comparison Standards Used By Customers When Evaluating Service Quality • Predicted Service • Ideal Service • Excellent Service • Desired Service • Deserved Service • Needs and Values • Cultural Norms • Promises • Adequate / Minimum Deserved or Tolerable Service • Best Brand Norm • Brand Norm • Product Type Norm • Favourite Brand Model • Comparative Expectations (comparison with competitors) • Equity / Fairness Combines many researches by many researchers

20. The Psychological Process of CSQE Perception Equated with Normal Service Lewis 1996 Comparison Expectations Believed incidence of each level of service. Imagination & Motives Perception of Specific Service Experience Compare Source of Expe - - ctations & Expe - - rience Word of Mouth * Compare Advertising and PR Prediction Expectations Evaluation 56 / 100 Independant Media *Result of Comparison and Self Fulfilling Profecy Service Experiences

21. HOW THECUSTOMER EVALUATES A COMPANY’S SERVICE QUALITY Lewis, P.E. (1996) Perception of Company XEquated by Customer X withNORMAL SERVICE ie: Better than or equal to red bars Graph shows Customers’ Believed incidence of service providers at each level of service (the % of service providers which the customer thinks provide each level of service) . Customer X’s Perception of a Specific Service Provider Company X Compare Note: This is just an example case. Each customer perceives a different graph shape and may equate the given service provider with any one of the levels of service Customer X’s Evaluation of Company X: 56 / 100 See: Additional Benchmarking Slides……..

22. 30 25 20 15 10 5 0 Appalling Normal Below Normal Nearly Appalling Above Normal Outstanding Nearly Outstanding Psychological Benchmarking Satisfaction is determined more by perceived relativity against all other service providers than against competitors Perceived Service-Level Improvement requires a full-stage leap (no half-way house) We can identify the nature of the required leap and how to achieve it, BUT, it if the required leap is large it may only be worthwhile on the grounds of competitive position or exclusivity Company X

23. Psychological Benchmarking Remember, it is not the service that the customer gets that matters as much as what the customer perceives he/she is getting

24. Managing the 5 CSQ Gaps Key Management Requirements • Measure of CSQE Requirements and Provision. • Develop your own specific Service Philosophy. • Design Quality into the whole service provider. • Create Flexible customer service. • Benchmark your service. • Cost-Benefit Analyse all possible and your actual service quality actions. • Ensure Quality Leadership and employees. • Quality Output requires Quality Input. • Integrate Information Technology into the whole company (including service) structure. • Continuously increase Service Aspirations. • Marketing should be used as a Guidance Department. • Ensure good Service Recovery procedures and practice. • Manage Expectations – Occasionally exceed expectations • Build strong Relationships with customers.

25. Managing the 5 CSQ Gaps Service Measurement Methods • Quantitative and Qualitative Evaluation of Operational Performance. • Measurement of things such as response rates, task speeds, failure rates and attendance figures. • This may be backed up by prior qualitative or quantitative investigation of the relative importance, to customers, of different aspects of customer visible dimensions of operational performance dimensions such as service failure rates. • Example: Federal Express’ ‘Service Quality Indicator’ Previous qualitative and quantitative research to find out relatively how important each type of error is to customers. 1000 Delivery Centres Each error is weighted in terms of importance - Number of delivery errors per week. - Type of delivery errors (eg. Late delivery, lost packages). Weekly evaluation of each delivery centre Multiplied by Customer ranking of severity of each error. Minus Time taken to resolve the each error

26. Managing the 5 CSQ Gaps Service Measurement Methods • Benefits of Quantitative and Qualitative Evaluation of Operational Performance: • Enables a service provider to see how closely it is meeting its own requirements for the quality of the service delivery, in terms of dimensions which are visible to the service provider. In other words it measures the ‘inputs’ to service quality. • Limitations of Quantitative and Qualitative Evaluation of Operational Performance: • It is a measure of the inputs to the psychological process of CSQE. It is not a measure of the actual psychological process or the outcome of of it.

27. Managing the 5 CSQ Gaps Service Measurement Methods • Quantitative / Qualitative Evaluation of Customers’ Complaints, Observations and Suggestions. • Includes: • Counting the number of all and each type of complaint received during a given period and perhaps incorporating similar information to that used in the previous example of Federal Express. • Receiving and analysing suggestions and observations from customers. • Qualitative investigation techniques: • Informal manager telephone conversations with customers. • Customer focus groups. • ‘Experience Based Measure of Service Quality’ (Edvardsson and Mattson, 1993) • Limitations: Complaints, observations and suggestions provide limited information if there is: • Customer Inhibition. • Complaints procedures which deter customers from complaining. • Lack of complaint importance ratios. • Poor recording of complaint information.

28. Managing the 5 CSQ Gaps Service Measurement Methods • Quantitative / Qualitative Evaluation of Customers’ Complaints, Observations and Suggestions. • Other problems: • Övretveit, 1992 argues that service providers should be concerned more with making customers happy than avoiding unhappy ones.

29. Managing the 5 CSQ Gaps Service Measurement Methods • Measures of Customer Loyalty • Measure the length and structure of the customer - service provider relationship including: • Repurchase intention. • Price Tolerance (Pessemier 1959). • These measures look at the elasticity of customer purchasing intentions and actual behaviour, to factors such as price and service changes of the service provider and its competitors, and also factors such as changes in economic variables. • Measurement of Customer Loyalty requires relatively large and sophisticated customer information databases which can calculate the above mentioned. • This can be assisted by charge cards and by information derived from customer loyalty reward schemes. • But: Customer loyalty may also be due to Switching Barriers (Fornell 1992) and other factors which affect behaviour such as Social and Cultural factors and Opportunity. • Measures of customer loyalty therefore do not only indicate CSQE but also a whole host of other variables.

30. Managing the 5 CSQ Gaps Service Measurement Methods • Measures of Customer Loyalty • Another problem of these measures is that they do not measure the difference between fickle loyalty (staying a customer of a particular company because of the benefits to the customer) and genuine loyalty (staying a customer of a particular company because of a feeling of owing something to the company).

31. Managing the 5 CSQ Gaps Service Measurement Methods • Mystery Shopping • (See Later Notes on National Westminster Bank: Quality in Financial Services) • Measures the CSQE outcome as seen in the eyes of an artificial customer. • It is an objective measure of CSQE and general service performance (eg. Royal Mail sends a large number of test letters through its postal system at regular intervals in order to test the efficiency of the system in operation). • It enables any part of a service to be evaluated in the form of a service quality audit. • It can draw attention to service strengths and weaknesses. • It can identify the extent to which some official service procedures are being followed. • It can keep employees ‘on their toes’. • However, it is not a truly realistic measure of CSQE. • It is also limited because it can only measure a very small number of experiences and so these experiences may not be typical in any way of the service normally being provided by the company or service outlet. • Also, this kind of measure can lead to increased staff stress levels and internal political problems in a company if the information gathered is used to reward or punish employees.

32. Managing the 5 CSQ Gaps Service Measurement Methods • Quantitative Questionnaires • These ask questions about overall evaluated quality (for particular service experiences through the use of post-transaction follow-up surveys, and also for generic service provider quality), and the dimensions of of CSQE. • Large numbers of individuals can be measured in this way. • 1. SERVQUAL (Parasuraman, Berry and Zeithaml, 1991) • Measures the gap between customers’ expectations and perceptions. • Customers are asked to reply to 20 expectation statements and 20 perception statements, 4 for each of 5 dimensions of service quality: Tangibles, Reliability, Empathy, Responsiveness, Assurance. • Subjects reply using a 7 point scale positioned alongside each of the statements. At one end of the scale is “Strongly Agree” and at the other end is “Strongly Disagree”.Strongly Agree 1....2.....3......4......5......6......7 Strongly Disagree • Subjects are also given questions asking them to rate the relative importance of each of the dimensions. • By calculating the difference between the expectation and perception statements and by weighting the 5 dimensions according to the customers’ stated weightings and also regression weightings, a weighted value for CSQE can be obtained.

33. Managing the 5 CSQ Gaps Service Measurement Methods • 1. SERVQUAL (Parasuraman, Berry and Zeithaml, 1991) • See Handout for examples of the perception and expectation statements.Benefits of SERVQUAL: • Includes some of the theory of the psychological process of CSQE in an easy to use, practical and widely used method of measurement.Criticisms of SERVQUAL (there are many criticisms, these are just some of them): • When asking customers to give scores for perceived performance, subjects are being asked to give a relative evaluation of how good or bad a service experience was. This is very similar to the final CEQE evaluation resulting from Expectations - Perceptions. In other words customers are comparing something similar to CSQE with Expectations in order to get CSQE. This is not what the measurement method intends to get. This is supported by Cronin and Taylor (1992) who found that the perceptions component of SERVQUAL correlates more closely with CSQE than does SERVQUAL itself. • B.Lewis (1993) claims that subjects might find it hard to differentiate between the meaning of the expectation and perception statements (i.e. they may think they mean the same thing and therefore give a similar or the same answer to both types of statement).

34. Managing the 5 CSQ Gaps Service Measurement Methods • 1. SERVQUAL (Parasuraman, Berry and Zeithaml, 1991) • Criticisms of SERVQUAL (there are many criticisms, these are just some of them): • B. Lewis (1991) believes that because all the expectations questions are asked before all the perception questions, customers may forget their answers to the expectation questions before answering the perception questions and therefore they will not be comparing expectations directly relative to perceptions in the way in which the theory would suggest they do. In other words the questionnaire would not measure the CSQE process in a realistic way. • Smith (1992) argues that the lack of verbal labelling for scores of 2 to 6 on the measurement scales means that subjects are more likely to give extreme answers. • B. Lewis and Mitchell (1990) argue that 7 point likert scales do not give subjects the chance to express themselves fully. • Possibly the largest criticism of SERVQUAL is that it is based on an incomplete and apparently inaccurate theory of CSQE. The theory of CSQE has been developed since the time of SERVQUAL, and although SERVQUAL does not include the new theories companies still use it.

35. Managing the 5 CSQ Gaps Service Measurement Methods • 1. SERVQUAL (Parasuraman, Berry and Zeithaml, 1991) • Criticisms of SERVQUAL (there are many criticisms, these are just some of them): • Grönroos (1992) argues that, for the CSQE of a service experience, since SERVQUAL measures expectations after a service experience then it measures the comparison of perceptions with modified expectations, not the expectations which existed at the time of an evaluation. • SERVQUAL assumes 5 specific dimensions of CSQE, yet there is much dispute about the nature of the dimensions of service quality.

36. Managing the 5 CSQ Gaps Service Measurement Methods • 2. Customer Satisfaction Indices • (see notes on National Westminster Bank) • 3. Chronological Measurement of Service Experiences • British Telecommunications (BT) during 1993 and 1994 developed a method of CSQE measurement for hypothetical service encounters. It used an electronic diode input into a computer, coupled to a tape recorder, to chronologically analyse the CSQE for each of the SERVQUAL dimensions throughout a service encounter. • By listening to a tape recording of a discussion between an anonymous BT customer service employee and an anonymous customer, a subject customer could continuously rate CSQE throughout the recorded conversation by adjusting the diode, using a simple pointer switch on a continuous scale. • Main Benefits: • CSQE is apparently continuous and in real time.

37. Managing the 5 CSQ Gaps Service Measurement Methods • 3. Chronological Measurement of Service ExperiencesMain Problems: • This is a behaviouristic measure (ie. it measures what goes into and comes out of the psychological process of CSQE but it does not measure the process of CSQE itself. • Subjects have response times (ie. the diode is moved after the experience is felt, therefore there is a lag time). Therefore, the measurement is not quite real time and unless the lag time is known precisely then it is difficult to know what diode responses relate to within the service experience.

38. Managing the 5 CSQ Gaps Other Service Measurement Requirements • Measurement should be: • Precise and clear. • Regularly updated. • Measurement of the service requirements and delivery of individuals working within the process of service provision. • This requires good communication from customers to customer service providing staff and from customer service providing staff to those who provide service to them and so on to the top of the company. • Measurements of the service quality of companies supplying the company. • Backed by senior management and employee commitment and resources.

39. Managing the 5 CSQ Gaps Other Service Management Requirements • A Service Philosophy • Examples: • Disneyworld has the philosophy of creating a feeling of fantasy. • SAS has the philosophy of service excellence through service effectiveness not just service efficiency. • British Airways aim to: • “ make the journey from ground to air to ground as painless as possible.” • (Strong 1990 ) • Requirements: • Senior management and employee commitment. • Sufficient resources. • Short, sharp, clear Statement of Direction given to all employees. • Symbols of Intent such as high quality offices, examples being set by managers (eg. Richard Branson of Virgin). • Publicising and publicly rewarding staff who follow the philosophy. • Give job names which reflect the philosophy of the objective of the job (eg. ‘customer liaisons officer’ rather than ‘desk clerk’. • Evaluation of the companies understanding and achievement of the philosophy.

40. Managing the 5 CSQ Gaps Other Service Management Requirements • Flexible Customer Service • “If we are truly dedicated to orienting our company toward each customer’s individual needs, then we cannot rely on rule books and instructions from distant corporate offices, we have to place responsibility for ideas, decisions and actions with the people who are SAS during those 15 seconds.” • ( Carlson 1987 ) • “Total Quality replaces bureaucracy with initiative, it replaces top-down authority with peer pressure.” • ( Dodson 1991 ) • Key Requirements: • Good employee training. • Selection of employees with initiative and naturally good service abilities. • A company culture that accepts and rewards initiative. • Decentralisation of decisions. • Few layers of management. • Empowerment : official authority for employees to use their own initiative and to use company resources to implement it. • Clear guidance and rules for what is meant by, suggested for, and allowed as part of empowerment.

41. Managing the 5 CSQ Gaps Other Service Management Requirements • Benchmarking • Houlder (1994): 75% of UK’s top 1,000 companies use some kind of benchmarking. • Purpose: to increase profitability and or to improve service. • Benchmarking may take many forms, but Camp (1993) identifies 4 categories: • Internal Benchmarking: Comparing the performance of processes and services with targets set using information available within a service provider. • Functional Benchmarking: Comparing the performance of processes and services with their functional objectives. • Generic Benchmarking: Comparing non-market specific processes and services with service providers from different markets and industries, and official standards (eg. ISO 9002). • Competitive Benchmarking: Comparing the performance of processes and services against those of competitors (against all competitors or against the market / industry leader), and industry specific official standards. • There is also: • Psychological Benchmarking (eg. SERVQUAL). • CSI (Customer Satisfaction Index) Benchmarking.

42. Managing the 5 CSQ Gaps Other Service Management Requirements • Cost Benefit Analysis: • Can be defined as: • “the difference between the cost actually incurred in accomplishing a task, and the cost incurred if a ‘right first time’ approach is used.” • ( Boaden and Dale 1993) • However, CSQE benefits include far more than just mistake free service. Therefore, perhaps the definition should be: • The measurement of changes in customer behaviour in relation to changes in the • cost of customer service provision.

43. Managing the 5 CSQ Gaps Other Service Management Requirements • Teamwork • This requires many things, including: • Good managerial leadership • Empowerment • Team Rewards (make employees stakeholders) • Measurement of employee performance and rewards for high achievers. • Prevention of isolation of employees from top and middle management through for example breakfast and lunch communication sessions with employees. • Any other motivational and intra-group sociological and psychological tactics. • Good ‘bottom up’ and ‘top down’ communication throughout the company. • Clarification of employee roles. • Maximization of use and integration of information technology. • Sufficient staffing levels. • Horizontal Management (NOAC - Next Operation As Customer) as used by American Express TRS, Motorola, Met Life and many others. • Appropriate company culture. • “employee involvement teams improved customer service by streamlining terminal operations. Volume is up by 10%; so are profits and reputation.”(Dodson 1991, referring to British Airways)