Services are performances, not manufactured products

Services are performances, not manufactured products

Dr A ParasuramanManoj Khatri: What are the special challenges of marketing and managing services in today’s technology-driven environment?
Dr. Parasuraman:
The proliferation of technology-based systems offers tremendous opportunities for companies to communicate with and serve their customers.   At the same time, technology-based systems are not a panacea.   There is a real danger of companies going overboard in this regard.   For instance, all too often companies are overeager to migrate all customers to self-service systems because of the potential for reducing costs.   A case in point is banks – several of the larger U.S. banks started forcing customers to complete their banking transactions via ATMs, telephone-banking systems, or online banking; customers preferring to interact with human tellers had to pay a fee!   While this strategy appealed to techno-savvy customers who preferred to deal with technology rather than with tellers, it enraged others who did not take too kindly to being charged for personal service.   Capitalizing on growing customer frustration, smaller banks started emphasizing personal service and boosting their market shares.   Reacting to this backlash the larger banks are now increasing – at no small expense – the number of bank branches and branch-based personal services.  Companies would do well to recognize that not all people – both customers and employees – might be equally enthusiastic about technology-based systems.   Findings from some of my recent research strongly suggest that there are distinct segments of people with differing levels of "technology readiness" [TR], which refers to an overall mental inclination to embrace and use technology-based systems.   TR is not synonymous with technical competence – there are a lot of technically competent people who may still resist technology due to psychological or personal reasons.   An important challenge and priority for companies is to understand the TR profiles of their constituencies and to take a measured approach to migrating from traditional to technology-based service systems.

Mk: How can service quality be defined and improved when the product is intangible and non-standardised? How can the organisation ensure the delivery of consistent quality service when both the organisation’s employees and the customers themselves can affect the service outcome?
Dr Parasuraman:
Services are indeed performances rather than manufactured products.   As such, in contrast to product quality – which is typically verified in the factory by examining whether the final product conforms to design specifications – the only meaningful way to judge service quality is to examine the extent to which the delivered performance meets the customers’ expectations.   In other words, the performance that customers believe an excellent service organization can and should deliver is the true standard for assessing service quality.   Therefore, gaining a good understanding of customers’ service expectations, as well as variations in those expectations across different customer segments, is essential for improving service quality.   Consistently delivering superior service quality is much more a matter of meeting and exceeding customers’ expectations rather than simply conforming to company-defined specifications.   One of the biggest shortcomings of service companies is a failure to understand accurately what’s important to customers.   Service companies are often quick to institute so-called service improvements based on assumptions about what’s important to customers.   To illustrate, a well-known four-star hotel in Spain in which I was a guest some time back offered a choice of ten different pillows to customers!   This unusual service might have really "wowed" me except that this same hotel failed to meet some of my basic service expectations (e.g., it neglected to give me a wake-up at the time I had requested one).   So, instead of pleasing me, the choice of a wide variety of pillows – a nonexistent expectation in my case and, I suspect, in the case of most hotel guests – actually magnified my frustration with the hotel’s failure to meet my basic expectations!   Another imperative for improving service quality is to "manage" customers’ expectations by making realistic rather than exaggerated promises, and by proactively educating customers about the their roles and responsibilities in obtaining service.

MK: How can new services be designed and tested effectively when the service is essentially an intangible process?
Dr Parasuraman:
Although services are intangible, principles and approaches that are analogous to those pertaining to new-product development can be used to design and test new services.   For instance, a technique called "service blueprinting" can be used to diagram an existing service process – by essentially mapping the various service steps and their inter-relationships – and to identify opportunities for streamlining and/or creating new versions of the current service process.   In addition, service companies can develop and systematically evaluate prototypes of new ways of delivering their services.   For instance, Bank of America has an "Innovation & Development" team that is charged with developing and testing different bank-branch formats consisting of various combinations of technology- and human-based processes.   New bank-branch prototypes are first evaluated, and if necessary refined, by bank employees; they are then subjected to "live" tests with actual customers in several locations in the Atlanta, Georgia. The new formats are rigorously evaluated in terms of customer reactions as well as financial metrics, and the most promising ones are identified for a market-wide roll out.   Citibank, which pioneered the introduction of automated teller machines, is another example of a service company that uses systematic and rigorous consumer research to evaluate new service-delivery systems.

MK: Pricing a service product is tricky because it is difficult to determine the actual costs of production. In such a scenario, what factors should be considered while determining a pricing strategy of a service product?
Dr Parasuraman: Pricing issues are indeed more complicated in the case of services because the "raw materials" – employees’ time and effort – are more difficult to track down on a transaction-by-transaction basis.   However, this does not necessarily mean that such tracking is impossible.   For instance, call centres can – and many do – keep track of the average time for, and hence cost of, handling different types of inquiries.   Through the systematic use of activity-based cost-accounting principles one can get at least a rough estimate of whether the price per transaction or customer covers the cost of delivering the service.   A more critical issue in the context of pricing services is whether or not a service company has an overall pricing strategy.   Because customers cannot examine a service prior to purchasing and experiencing it, the service’s price – along with its brand name – is a strong, and at times only, clue to first-time customers about what the service will be like.   The potential role of price as a quality signal is an important, but frequently overlooked, strategic consideration in setting prices.   Another obvious factor to consider is competitors’ prices for similar services. However, relying solely on and blindly matching competitors’ prices can be detrimental because it increases consumers’ price sensitivity, making it increasingly difficult to compete on anything other than price and to recover the cost of providing the service. Unless a company has a substantial cost-advantage over its competitors, competing solely o
n a low-price basis can suicidal. A more balanced pricing strategy that carefully considers cost of service provision, along with the implicit signals the company wishes to convey to its intended consumer targets, will be a much more appropriate and sustainable.
 
MK: Because most services are delivered in real time, service employees are a critical part of the product itself. How should a firm select, train and motivate the right employees so that the service level delivered is the same as the service level conceived by the management?
Dr Parasuraman:
Since a service is a performance, delivering excellent service can be considered as being similar to producing a play that captivates the audience. As such, consistent delivery of superior service requires that the actors (employees) are carefully cast (recruitment and selection), well choreographed (training), fully cognizant of how their roles interrelate (teamwork), and provided with the necessary behind-the-scenes support (incentives/rewards).   Thus, just as producing a successful play calls for considerable effort and hard work up front by the production company, consistently delivering quality service calls for true commitment on the part of the management.   Moreover, the service level and attributes specified by management must be aligned with customers’ expectations. Understanding what is truly important to customers in terms of employee-delivered service, translating that understanding into concrete service specifications, and then sparing no expense in ensuring that employees are able to meet those specifications are the hallmarks of true commitment to customer service.   A company that epitomizes such unwavering commitment is Southwest Airlines, the most consistently profitable air carrier in the U.S.   They have a distinct customer-oriented, fun-loving service culture, which they preserve with a passion because it is a key ingredient of their competitive advantage.   To continue to nurture this culture the company use a rigorous, multi-stage employee-selection process that includes such novel steps as including loyal customers as interviewers in order to ensure that those who are hired will fit into and foster the firm’s corporate culture.

MK: How does the firm communicate quality and value to customers when the offering is intangible and cannot be readily tried or displayed?
Dr Parasuraman:
In the case of services, "the proof of the pudding is really in the eating."   All marketing communications, regardless of how creative and clever they are, can at best only make promises to consumers about how good the service will be.   Making good on those promises heavily hinges on excellent execution, which, in turn, depends on the quality of the customer-facing employees, regardless of whether they are in marketing or some other functional area.   The best opportunity to truly "market" a service by demonstrating its quality and value is during its actual delivery rather than prior to purchase.   Moreover, excelling in service delivery is critical for another important reason – namely, current customers who are highly pleased with the service may be the best "marketers" of the service by virtue of their potential for generating positive word-of-mouth communication, which is a powerful promotional tool for recruiting new customers, perhaps even more powerful than company-generated promotional communications.
 
MK: In the Indian context, where price plays a major role in purchase decision, do you think companies can effectively compete on service? Why?
Dr Parasuraman:
I do believe that Indian companies can effectively compete on service; and they should strive to do so.   Competing on service doesn’t necessarily have to be expensive. Some aspects of providing good service (e.g., treating customers with respect) cost little, if anything.   Moreover, some forms of poor service (e.g., being rude to customers) may actually increase costs (e.g., the time and effort needed to handle complaints from irate customers). Ensuring superior service quality has much more to do with consistently meeting customers’ service expectations than with delivering the most expensive or luxurious service levels.   A case in point is Southwest Airlines, a company I have already mentioned.   They are a low-priced, "no frills" airline (e.g., they don’t offer pre-reserved seats and have limited, if any, food and beverage service on their flights); but they consistently deliver the level of service promised to and expected by their target segments (e.g., friendly treatment by employees and a "fun" experience during the flights).   Southwest Airlines have also done a good job of educating their target segments about what they can and cannot expect.   Such proactive and honest communications help "manage" customers’ expectations by keeping them at a reasonable level; this, in turn, paves the way for meeting and exceeding those expectations.   In short, low prices and good service are not incompatible; companies competing on low prices just have to do a good job of managing their customers’ service expectations and then capitalizing on every opportunity to exceed those expectations.

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