External and Internal Customers ’ Roles in Service Delivery

1. External and Internal Customers’ Roles in Service Delivery Customer Co-creation and Relationships Dr. Michael Merz

2. What is Marketing? What is Services Marketing? Four Service Characteristics The Services Marketing Triangle Understand the Critical Role of a Service Culture Understand the Critical Roles of Service Employees Understand the Critical Roles of Customers Customers as co-creators of value Customers as relationship partners Roadmap for Today’s Class

3. What Is Marketing? • Simple Definition: • Marketing is managing profitable customer relationships. • How? By accomplishing the following: • Attracting NEW customers by promising superior value. • KEEPING and GROWING current customers by delivering satisfaction.

4. What Is Marketing?Marketing Defined A social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others. Old View:“Telling and Selling” New View:Satisfying Needs

5. What Is Marketing?The Four “Ps” of the Marketing Mix

6. What Is Services Marketing?

7. Four Service Characteristics

8. The Services Marketing Triangle Adapted from Bitner (1995), “Building Service Relationships: It’s all about Promises,” Journal of the Academy of Marketing Science, 23, 246-251.

9. Company (Management)

10. Corporate Culture and Service Culture Corporate Culture Service Culture The patterns of shared values and beliefs that give the members of an organization meaning, and provide them with the roles for behaviors in the organization A culture where giving good service to internal as well as external customers is considered a natural way of life and one of the most important norms by everyone

11. Developing a Service Culture A service culture cannot be developed overnight. Successful companies such as IBM Global Services have found that it takes years of consistent, concerted effort to build a service culture.

12. Service Providers = Employees/Internal Customers

13. Critical Roles of Service Employees • Frontline employees and those supporting them from behind the scenes are critical to the success of any service organization. • They are the service. • They are the organization in the customer’s eye. • They are the brand. • They are marketers. • They influence the buyer’s perception of the service. • There exist other critical roles for Service Employees.

14. Why are the Service Employees’ Roles important?The Service Profit Chain Satisfied employees make for satisfied customers. Source: Heskett et al. (1994), “Putting the Service-Profit Chain to Work,” Harvard Business Review, 72, 164-174.

15. Customers =External Customers

16. General Roles of (Internal AND External) Customers* • Customers are always co-creators of value (FP6 of the S-D Logic*) • Customers accept/reject a firm’s value proposition and offer their value proposition (FP7 of the S-D Logic) • Customers are relationship partners (FP8 of the S-D Logic) • Customers are resource integrators (FP9 of the S-D Logic) • Customers determine the value of a service/service delivery (FP10 of the S-D Logic) *Vargo, S. L. & Lusch, R. F. (2004). Evolving to New Dominant Logic for Marketing, Journal of Marketing, 68, 1-17.

17. General Roles of (Internal AND External) Customers* Our focus will be on: • Customers are always co-creators of value (FP6 of the S-D Logic) • Customers are relationship partners (FP8 of the S-D Logic) *Vargo, S. L. & Lusch, R. F. (2004). Evolving to New Dominant Logic for Marketing, Journal of Marketing, 68, 1-17.

18. What do the shown service examples have in common? • All three services ask for customer participation. • Customers are co-creators of value. • The service-dominant logic of marketing* promotes the idea that customers are always co-creators of value. * Vargo, S. L. & Lusch, R. F. (2004). Evolving to New Dominant Logic for Marketing, Journal of Marketing, 68, 1-17.

19. Levels of Customer Participation Low: Consumer Presence Required during Service Delivery Moderate: Consumer Inputs Required for Service Creation High: Customer Co-creates the Service Examples: Airline travel Motel stay Fast-food restaurant Examples: Haircut Annual physical exam Full-service restaurant Examples: Marriage counseling Personal training Weight reduction program Major illness or surgery

20. Customers are participants in service creation & delivery • Customers can potentially widen the service performance gap (negatively affect service delivery/fulfillment) when… • they do not understand their roles and exactly what they can or should do in a given situation. • they are unwilling or unable to perform their roles. • Other customers show disruptive behaviors, cause delays, fail to follow the rules etc.

21. Customers’ Roles 1:Productive Resources • In a business-to-business context, the contributions of the client can enhance the overall productivity of the firm in both quality and quantity of service. • In a business-to-consumer context, Swedish furniture retailer IKEA depends on customers to perform many critical roles for themselves (e.g., measuring, locating, transporting, assembling their own furniture). Thus, customers act as productive co-creators of value.

22. Customers’ Roles 2:Contributors to Service Quality and Satisfaction • Customers can take on the role of contributors to their own satisfaction and the ultimate quality of the service. • Services such as health care, education, personal fitness, and weight loss are highly dependent on customer participation. The extent to which a customer contributes to such services will directly affect his/her satisfaction with the service. • Unless the customers perform their roles effectively, the desired service outcomes are not possible.

23. Customers’ Roles 3:Competitors • Customers can (partially) perform the service for themselves and do not need the provider at all. • Customers have a choice between doing a service on their own (called internal exchange) or having someone else do it for them (called external exchange) (e.g., child care, home maintenance, car repair). • Customers are competitors of the companies that supply the service.

24. Fellow Customers • Often, fellow customers are present in the service environment. • Fellow customers can affect the nature of the service outcome or process. • Fellow customers can enhance or detract from customer satisfaction and perceptions of quality.

25. Home Depot’s “Do-It-Yourself” Concept

26. Self-Service Technologies (SSTs) • ATMs • Airline check-in • Hotel check-in & checkout • Various vending services • Tax preparation software • Self-scanning at retail stores • Internet banking • Vehicle registration online • Online auctions • Insurance online • Package tracking • Internet shopping • Internet information search • Distance education

27. Customer Readiness in Adopting SSTs • Role Clarity (Do I understand what I am supposed to do?) • Ability (Do I have the ability to use this SST?) • Motivation (What is in it for me?)

28. Strategies for Enhancing Customer Participation Source: Meuter and Bitner (1998), “Self Service Technologies: Extending Service Frameworks and Identifying Issues for Research,” Marketing Theory and Applications, 12-19.

29. Compatibility Management A process of first attracting homogeneous customers to the service environment, then actively managing both the physical environment and customer-to-customer encounters in such a way as to enhance satisfying encounters and minimize dissatisfying encounters.

30. General Roles of (Internal AND External) Customers* Our focus will be on: • Customers are always co-creators of value (FP6 of the S-D Logic) • Customers are relationship partners (FP8 of the S-D Logic) *Vargo, S. L. & Lusch, R. F. (2004). Evolving to New Dominant Logic for Marketing, Journal of Marketing, 68, 1-17.

31. Customer Relationships & Relationship Marketing • Building Customer Relationships • Understanding customers over time and building long-term relationships. • Relationship Marketing • A philosophy of doing business, a strategic orientation, which focuses on keeping and improving relationships with current customers rather than on acquiring new customers.

32. The “Bucket Theory of Marketing” Why does Relationship Development matter?

33. Developing Relationship Over Time Strangers Acquaintances Friends Partners

34. Developing Relationship Over TimeUnderstanding Customers • Customer as Strangers • customers who have not yet entered the market; customers of competitors 2. Customers as Acquaintances • the firm creates the basis for an exchange relationship • the firm tries to provide value proposition to customers comparable with that of competitors • Customers as Friends • customers not only become familiar with the company but also begin to trust that it provides superior value • Customers as Partners • customers who develop commitment; this reduces the customer’s need to solve problems by finding better alternative

35. The Goal of Relationship Marketing • To build and maintain a base of committed customers who are profitable for the organization • To “move them up the ladder: acquire customers, satisfy customers, retain customers, and enhance customers. acquire satisfy retain enhance Strangers Acquaintances Friends Partners

36. Benefits for Customers“The main benefit is Receiving Great Value” • Confidence Benefits: Feelings of trust or confidence in the provider along with a sense of reduced anxiety and comfort in knowing what to expect • Social Benefits: Sense of familiarity and social relationship with service providers 3. Special Treatment Benefits: Getting the benefit of the doubt, being given a special deal or price, or getting preferential treatment

37. Benefits for Firms • Economic Benefits: Increased revenue over time from the customer, reduced marketing and administrative costs, and the ability to maintain margins without reducing prices • Customer Behavior Benefits: Strong word-of-mouth endorsements, customer voluntary performance (e.g., customers busing their own tables, reporting messy restrooms to an employee, picking up trash in the parking lot), social benefits to other customers, mentors to other customers • Human Resource Management Benefits: Easier jobs for employee due to customers’ coproduction and assistance in service delivery, social benefits for employees, employee retention

38. Profit Generated by a Customer Over Time Reichheld and Sasser (1990), “ Zero Defection: Quality Comes to Services”, Harvard Business Review, 68.

39. Relationship Value of Customers • A concept or calculation that looks at customers from the point of view of their lifetime valueand/or profitability contributions to a company

40. Calculating the Relationship Value of a Quicken Customer *Based on 2007 prices

41. Relationship Challenges“The Customer Is NOT Always Right” • Not all customers are good relationship customers: • wrong segment • not profitable in the long term • difficult customers

42. Any Questions?