UNIT II: CONSUMER BEHAVIOR IN SERVICES

THE CUSTOMER GAP Expected Service

Customer Gap

Perceived Service The primary objectives of service producers and marketers are to develop and provide offerings that satisfy consumer needs and expectations which implies closing the Customer Gap. It is the basis for economical survival of service business. To achieve these objectives, service providers need to understand Consumer Behavior regarding services which includes: Consumer Decision Making Process Consumer Experience and Post Experience Evaluation Customer Expectations of Services Customer Perceptions of Services

CONSUMER DECISION MAKING PROCESS The fist important area of consumer behavior that marketers are concerned with is how customers choose and make decisions and the steps that lead to the purchase of a particular service. The consumer decision making process follows a logical sequence including following steps: Need Recogn ition Inform ation Search Evaluati on of Alternati ves Purcha se

1. Need Recognition The process of buying a service begins with the recognition that a need or want exists. Although there are many different ways to characterize needs, the most widely known is Maslow s Hierarchy of Needs, which specifies following five need categories arranged in sequence from basic lower-level needs to higher needs.

Self Actualization Needs

Ego Needs

Social Needs

Safety and Security Needs

Physiological Needs

Physiological Needs are biological needs such food, water, sleep, clothing etc. Eg. Restaurants, Coffee Shops, Hotels provide services to satisfy the basic physiological needs. Safety and Security Needs include shelter, protection and security . Consumers seek to provide for their own and their loved ones shelter, safety, and security through many types of services. For examples Parents are particularly focused on services that provide for their childrens security like quality child care, education, medical care, etc. Social Needs are for social values like affection, friendship, and acceptance. For example; many of the Internet Services that focus on social connections among people like Facebook, Twitter, Internet Dating Sites, etc to satisfy the basic human social needs.
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Services like sports clubs, bars, discos, restaurants also address the social needs of consumers, the need to be accepted and be in the in-group. Ego Needs are for prestige, success, accomplishment, status and self esteem . Food, safety and social belonging are not enough for many consumers, they seek to look good to others as well as feel good about themselves, which is attached to their success or accomplishments in life. Eg. Services like Professional training, education, health clubs etc help their customers to fulfill their Ego/ Self-esteem Needs. Self-actualization involves need for self-fulfillment and enriching experiences , quite different from basic needs of day-to-day living and other needs in Maslows hierarchy. For example, Consumers purchase experiences such as bungee jumping, sky-diving, paragliding, etc for the pure thrill of the experience. Some people self actualize through meditation centers, classes in abstract painting, poetry, drama, etc. Hierarchy of needs and level of satisfaction of needs derived from different services greatly depend upon the perception of consumers. For example a youngster passionate about cricket may derive self-actualization needs from a Cricket Coaching Program, whereas others less passionate may be limited to Ego Needs or Social Needs, etc. The hierarchical nature of Maslows need categorization, which assumes that consumers move to higher level needs only after fulfillment of lower needs, has been disputed or criticized. Evidences exist that people with unfulfilled basic needs can be motivated to self-actualize. Services can fill all these needs, and they have become increasingly important for higher-level social, ego and self actualization needs.
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2. Information Search Once they recognize a need, consumers obtain information about services that might satisfy the need. Seeking information may be an extensive, important to the consumer or represents a Legal Advice etc). In other cases information automatic in case of general services like saloon, beauty parlors, etc) formalized process if the service is major investment (E.g Honeymoon Trip, search may be quick and relatively restaurants for quick lunch, Hair cutting

Consumers use both personal sources (such as friends or experts) and non-personal sources (such as mass or selective media, websites, etc) to gain information about services. Especially in-case of services, consumers seek and rely more on personal sources rather than non-personal sources due to following reasons: Mass and Selective Media can convey information about search qualities but can communicate far less about experience qualities. Due to intangible, variable and perishable feature of services and the fact that consumers can assess only few attributes before purchase of service, the perceived risk is greater in selecting service than goods. Hence, consumers are likely to feel even greater risk to make service purchase decisions on the basis of non-personal sources only. Many types of non-personal sources of information are not readily available for services. Example, local restaurants, saloons, professional services rarely promote through mass media.
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In recent time, there has been a significant rise in use of internet by consumers to search information about services. Through the Internet, consumers are now able to seek non-personal information about services in the form of visuals, photographs, virtual tours, etc. Consumers can also seek the personal opinions of others via Web through online ratings, discussion blogs, social networking sites, etc. 3. Evaluations of Service Alternatives The evoked set of alternatives-that set of products that a consumer considers acceptable in a given product category- is likely to be smaller with services than with goods. Hence, service consumers are normally involved in lesser amount of evaluation due to following factors: Most of the goods are purchased through retail outlets where number of competing products/brands are readily available and displayed in close proximity to each-other (Eg Bhatbhateni Store). Whereas, in order to purchase service consumers need to visit an establishment (such as a bank, hotel, hospital etc) that mostly offers only a single brand for sale. Consumers are unlikely to find too many businesses providing the same services in a given geographic area , whereas they may find numerous retail stores carrying the identical products. Relative difficulty in obtaining adequate pre-purchase information about services.

Hence, faced with the complicated task of collecting and evaluating service experiences, consumers may simply select the first alternative rather than searching may alternatives. Further the evaluation of service alternatives by consumers also involves evaluating the option of doing the service by consumer themselves or purchasing it from another party. This implies greatly in-case of non professional services. For example working people may choose between cleaning their own homes or hiring housekeepers, between staying home to take care of their children or admitting the child in a daycare center. Self-service via technology is also a viable alternative for many services. Eg. Using Automatic Washing Machine instead of paying for laundry service, making barbeque at home with portable barbeque stoves instead of going to restaurants, etc. 4. Service Purchase Following consideration of alternatives (whether an extensive process or more automatic/casual) consumers make the decision to purchase a particular service or to do it themselves. Unlike Goods which are generally produced first and later purchased, most of the services are purchased, produced, experienced and evaluated almost simultaneously-as with a restaurant meal or live entertainment. In other cases consumers pay all or part of the purchase price up-front for a service they will not fully experience until it is fully produced for them much later . This situation arises with services such as vacation tours or house construction or ongoing services such as health club memberships or university education and in business to business service contracts.
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CONSUMER EXPERIENCE AND POST EXPERIENCE EVALUATION Services are high in experience and credence qualities relative to goods; thus, how consumers experience the service and how they evaluate the actual experience of the service is critical in their decision to repurchase later . Hence, creating and managing effective processes and experiences are essential management tasks for service organizations. Various elements of consumer experience may take following forms: Services as Processes Service Provision as Drama Service Roles and Scripts Compatibility of Service Customers Customer Co-production Customer Emotion and Mood Following the service experience, customers form an evaluation that determines to a large degree whether they will return/repurchase or not or even continue to be sincerely loyal to the service organization. Post-experience evaluation can have following impacts : Influences the Word-of Mouth Communication If customer is dissatisfied, then dissatisfaction is attributed to different attributes and sources of services.

 Customers remember negative events and occurrences more than positive ones and are more influenced by negative information than by positive information. Impressive Post-experience evaluation can lead to developing Brand Loyalty among consumers Consumer Experience and Post-Experience Evaluation is greatly influenced by the Culture, in which consumers have been brought up. CUSTOMER EXPECTATIONS OF SERVICES Expectations are reference points against which service delivery is compared. For example; you went to a normal local restaurant,( Momo Mantra, Quality Kitchen, Lumbini Tandoori House, etc) for which you held lower level of expectations, paid relatively lower level of money and were served immediately with good food. Next, suppose you went to a premium restaurant (Eg. TAMAS, Road-House Caf, Cafereena, etc), for which you held higher level of expectations, paid a lot of money, and were served fairly quickly with good (but not fantastic) food. Which experience is likely to be judged best? The answer is likely to be greatly influenced by the expectations or the reference points you brought to the experience. Hence, customers expectations create a benchmark/yardstick, on the basis of which quality of service delivery is judged. Levels of Customer Expectations Customers hold different types of expectations about services, which can be categorized to fall in the continuum/ range, between the highest level i.e. the Desired Service and the DesiredService Service minimum level i.e. The Adequate . Zone of Tolerance Adequate
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This figure presents the idea that customers assess service performance on the basis of two standard boundaries: what they desire and what they think is acceptable. Desired Service is the level of service the customer hopes to receive-the wished for level of performance. Desired Service is a blend of what the customer believes can be and should be. For example, consumers who sign up for an online dating service expect at best to find compatible, attractive, interesting people to date and perhaps even someone to marry. Adequate Service is the minimum level of service performance acceptable to the customer or minimum tolerable expectation, below which customer will be dissatisfied. For example in-case of online dating service, customers expect to at-least meet a dating partner and a decent one. If the service is not able to find them any partner, they will surely be dissatisfied. The extent to which customers recognize and are willing to accept the variation between Desired Service and Adequate Service is called the Zone of Tolerance. If service drops below Adequate Service the minimum level considered acceptable-customers will be frustrated and most likely be dissatisfied with the company. If service performance is above the Zone of Tolerance at the top end-where performance exceeds desired service10

customers will be very pleased and probably quite surprised as well. (For example Happy Birthday Wish from ATM) Further, it can be considered that the Zone of Tolerance is the range or window in which customers do not particularly notice service performance. When it falls outside the range (either very low or very high), the service gets the customers attention in either a positive or negative way. As an example, consider the service at a checkout line in Bhatbhateni Super Store. Most customers hold the range of acceptable times for this service encounter-probably somewhere between 5-10 minutes. If service consumes that period of time, customers do not pay much attention to the wait. If the counter assistant deals with people before that customer extremely fast and he is done with bill payment within 2-3 minutes, he/she may notice the service and judge it as excellent. On the other hand, if a customer has to wait in line for 15 minutes, he may begin to grumble and look at his watch. The longer the wait is below the Zone of Tolerance (10 mins in this example), the more frustrated the customer becomes. The zone of tolerance is not static; its dynamic and variable because: Different customers possess different zones of tolerance Example: An educated and well informed customer is likely to expect higher level of expert advice from his financial consultant i.e. have zone of tolerance at higher level and of limited range. Whereas an uneducated small business entrepreneur, is likely to be satisfied with relatively lower level of service from his financial consultant, i.e. have zone of tolerance at lower levels and of broad range. Zone of tolerance fluctuates with situational factors
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Example: A student running late for college is likely to narrow his/her zone of tolerance for public transport service ,more than as compared to the situation when he/she is not late for the college. A minutes delay for anything that occurs prior to reaching the college stop (like vehicle stoppage time at stations, running speed, traffic jam etc) seems much longer and his/her adequate service level increases. Zones of Tolerance vary for Service Dimension (Higher and Narrow for important dimensions, Lower and Broad for less important dimensions) Example: For example A customer in a restaurant will be less tolerable to unhealthy and low quality food, whereas he will be comparatively more tolerable to delay in service or unattractive interior decoration. Zones of Tolerance can also fluctuate with organization controlled factors like Service Price, Communication, etc Example: For premium restaurants having higher range of prices and high class image, customers are likely to have higher and narrow zones of tolerance. The fluctuation in the individual customers zone of tolerance is more a function of changes in the Adequate Service Level , which moves readily up and down because of situational circumstances, than in the Desired Service Level, which tends to move upward incrementally because of accumulated experiences. Desired service is relatively idiosyncratic (having distinctive features) and stable compared with adequate service, which moves up and down in response to competition and other factors. Hence, the marketer must understand not just the size and boundary levels for the zone of tolerance but also when and how the tolerance zone fluctuates for a given customer.
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FACTORS THAT INFLUENCE CUSTOMER EXPECTATIONS OF SERVICE As expectations play a critical role in customer evaluation of services, marketer need and want to understand the factors that shape them. However, many of the forces that influence customers expectations are beyond the control of marketers. 1. Sources of/ Factors Influencing Desired Service Expectations There are two major sources or influencers of Desired Service Expectations, namely: Personal Needs Lasting Service Intensifiers

Personal Needs Personal Needs are those states or conditions essential to the physical or psychological well-being of the customers and are the major factors that shape what customers desire in a service. Personal Needs can fall into many categories, including physical, social, psychological and functional. For example: A person, who is more romantic in nature but single, while going for a dance or yoga classes is likely to have higher level of social need and may desire the class to have beautiful girls or even the tutor to be a beautiful lady. Whereas, a person, who is not so romantic and in a relationship, is not likely to have such higher level of social need and hence not have such kind of desired expectations. Another example: A football fan going to watch a game after work, being hungry and thirsty, will expect the mobile vendors inside the stadium to visit his section more
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frequently, whereas another person, going to see the game after having huge lunch, is less likely to have such expectations. Hence personal needs can greatly influence the desired service expectations of customers.

Lasting Service Intensifiers Another major influence on desired service expectations are Lasting Service Intensifiersindividual, stable factors that increases the customers sensitivity towards service. Two major service intensifiers are: Derived Service Expectations Derived Service Expectations occur when customer expectations are driven by another person or group of people. For example; when a parent is choosing a family vacation destination, his/her service expectation is more of a Derived Expectation as it is greatly influenced by the desires/ expectations of all the family members. In such situation, customers individual expectations are intensified because they represent and must answer to other parties who will receive the service. In the context of business-to-business service, customers expectations are driven by the expectations of their own customers or expectations from their managers or superiors. Example: A premium class airlines like Kingfisher Airlines, Singapore Airlines, etc expect top class on-flight catering services from their catering service providers, because their target customers are mainly higher class people who expect higher level of catering service.
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Example: Purchasing staffs or agents in an organization may increase the demands for faster delivery at lower cost when company management is strictly emphasizing cost reduction in the company. Personal Service Philosophy Another lasting service intensifier is Personal Service Philosophy-the customers underlying generic attitude about the meaning of service and proper conduct of service providers. Different customers may have different personal perception or outlook towards the service and hence have different levels of desired expectations. In general, customers who are themselves in service businesses or have worked for them in the past seem to have especially strong service philosophies. For example, a customer, who has already worked in a bank and is knowledgeable about internal working process and standards, is likely to have strong and realistic service philosophy and be less tolerant to unnecessary delay or submission of unnecessary documents. However, such customer may also be compassionate towards the service employee and be more tolerant or lower their expectations. Hence, personal service philosophies and derived expectations can intensify the level of desired service.

2. Sources of/ Factors Influencing Adequate Service Expectations

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Set of factors that influence Adequate Service Expectations the level of service that the customer finds acceptable; are generally short-term in nature and tend to fluctuate more than the factors that influence desired service. Five of the major factors that influence Adequate Service Expectations are: Temporary Service Intensifiers Temporary Service Intensifiers refer to short-term, occasional individual factors that make a customer more aware of the need for service. Personal emergency situations in which service is urgently needed ( such as conducting Money Transfer transaction in a bank during quarter end closing or on the last date for loan settlement or meeting a deadline for payment etc), raise the level of adequate service expectations, particularly in terms of level of responsiveness required and considered acceptable. For example, A Cyber Caf tends to be more demanding of its internet service provider during peak periods of the week or day. Any system break-down or slow processing will be tolerated less during these intense periods than at other times. Another temporary service intensifier is the situation in which the initial service has resulted in failure and there is natural pressure for the service provider to make it right the second time and maintain its reliability. Customers will naturally have higher level of adequate service expectation and be less tolerable to failure, when they are seeking the service second time following a failure. Hence, in situations where temporary service intensifiers are present, the level of adequate service will increase and the zone of tolerance will narrow. Perceived Service Alternatives
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Perceived Service Alternatives are other providers from whom the customer can obtain service. If customers believe they have multiple service providers to choose from or if they can provide the service for themselves (such as washing, personal grooming, etc), then their levels of adequate service are higher than those of customers who believe it is not possible to get better service elsewhere. For example: People living in Jomsom are willing to take ride on a local Jeep or Bus through a dangerous rocky roads and have very low level of adequate service expectations in terms of comfort because it is the only alternative modern means of travel they have, except expensive airplane flights. Whereas people traveling from Pokhara to Kathmandu, will have higher adequate service expectations from local carriers as they have number of service alternatives in the form of micro-vans, local bus, tourist bus, etc providing different levels of service. Hence, the customers perception that service alternatives exist raises the level of adequate service and narrows the zone of tolerance. Customers Self Perceived Service Role Level of Adequate Service is also affected by the Customers perception of how well they have contributed or performed their role required in the service delivery. For example, one of the roles of the customer is to clearly specify the type or level of service expected. If a restaurant customer ordering a Biryani doesnt specify his preferred level of spiciness in the dish and later finds that the dish is too spicy for him, he will be fairly dissatisfied. However, if the customer specifies his preferred level of spiciness while making the order and still receives a very spicy Biryani, then he is likely to be even more dissatisfied because he assumes that the restaurant has failed in fulfilling its role, despite of him fulfilling his role.
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Customers zone of tolerance expand when they sense they are not fulfilling their roles. On the other hand, when customers believe they are doing their part in service delivery, their expectations of adequate service are heightened and zone of tolerance contracts.

Situational Factors Levels of adequate service are also influenced by situational factors, defined as service performance conditions that customers view as beyond the control of service provider. For example In Nepal, due to frequent strikes and Nepal Bandh, people have started to take it as granted that level of service of service organizations like schools, colleges, hospitals, banks etc will not be proper on such days. People consider that such political forces are beyond the control of service providers; hence they tend to lower the level of adequate service expectation and broaden their zone of tolerance. Predicted Service The final factor that influences adequate service is predicted service the level of service that customers believe/assume they are likely get for the upcoming service transaction. Predicted service is typically an estimate or calculation of the service that a customer will receive in an individual transaction rather than in the overall relationship with a service provider. For example: If you go to bank counter to cash a cheque and see very few customers are present, then you assume or predict that it will not take much time to be done with your job there. This automatically increases your expected level of adequate service in terms of speed of service delivery. And if it still takes more time than you have anticipated, you are likely to be annoyed.
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However, in another situation, if you see the bank counter crowded with customers, you assume its going to take relatively longer time and your expected level of adequate service decrease, as you will be willing to wait for a longer period. As predicted service refers to prediction about individual service encounters, they are likely to be more concrete and more specific than the types of expectations customer hold for adequate service or desired service. Hence, predicted service is viewed more as an influencer of adequate service.

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3. Sources of both Desired and Predicted Service Expectations There are following three external factors and one internal factor that influences both desired and predicted service expectations of customers: Explicit Service Promises Explicit Service Promises are personal and non-personal statements about the service made by the service organization to customers. The statements are personal when they are communicated by salespeople or service personnel; they are non-personal when they come from other promotional tools like advertisements, web pages, brochures, etc. Explicit service promises shape what customers desire in general as well as what they predict will happen in the next service encounter. For example, Dominos pizzas scheme of delivering pizza within 30 minutes of making order otherwise no charge for pizza, is an explicit service promise and it influence customers to desire and predict fast service. Explicit services are one of the few influences on expectations that are completely within the control of the service provider. However, the provider should be cautious about overpromising and make appropriate promises. Implicit Service Promises Implicit Service Promises are service related cues other than explicit promises that lead to customers inferences about the service should and will be like. These quality cues primarily refer to price and the tangibles associated with the service. In general, the higher the price and the more impressive the tangibles, the more a customer will expect from the
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service. For example, a customer who stays at a posh hotel is likely to desire and predict higher standard of service than from a hotel with less impressive facilities.

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Word-of Mouth Communication Word-of Mouth Communication is probably the most important influencer of service expectations. Personal and sometimes Non-personal statements made by parties other than the organization convey to the costumers what the service will be like and influence both predicted and desired service. Word-of-Mouth communication carries particular weight as an authentic information source because it is perceived as being unbiased by consumers. Besides friends and family, experts like Market Analysts, consumer reports, internet forums, etc also considerable sources of word-of- mouth communication. Past Experience Past Experience is the internal factor of consumers which influences service predictions and desires. For example a customer may compare each stay at a particular hotel with his previous stay in that hotel and assume the services to be at similar level as in previous stays. Customer may also compare each stay with their experiences in other hotels and develop their desired service expectations. Different sources of Customer Expectations vary in terms of their credibility/reliability as well as their potential to be influenced by marketers. Manager need to know the pertinent expectation sources and their relative importance for a customer population, a customer segment, and perhaps even a particular customer. For example they need to know the relative weight of word-of-mouth, explicit service promises and implicit service promises in shaping desired and predicted service. Some of these sources are more stable and permanent in their influence (such as lasting service intensifiers and personal needs) than the others, which fluctuate considerably over time (like perceived service alternatives, situational factors, etc).
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(Note: For possible strategies that marketers can use to manage the expectations influencing factors, refer to Strategy Insight on Page 95, of the course book, Service Marketing by Valarie, Mary, Dwayne and Ajay.)

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Personal Needs Lasting Service Intensifiers Temporary Service Intensifiers Perceived Service Alternative s SelfPerceived Service Roles Situational Factors Desired Service Zone of Tolerance Adequate Service Predicted Service

Explicit Service Promises Implicit Service Promises Word-ofMouth Communic ation Past Experience

Figure: Factors That Influence Customer Expectations of Services

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CUSTOMER PERCEPTIONS OF SERVICES Customer perception of services refers to how customers assess, evaluate or think about the service they have received. It is related to the Perceived Service box in the Gaps Model. Customer perceptions are generally developed in relation to customer expectations. As expectations are dynamic, perceptions may also change over time-from person to person and from culture to culture. What is perceived as quality service today may be perceived a moderate quality in future or a service from an organization may be considered of being top quality by one person whereas disliked by another person. However, in case of service marketing the customers perceptions of the service quality is more important than the true objective quality itself. In considering perceptions, it is also important to recognize that customers will have perceptions of single, transaction-specific encounters as well as overall perceptions of a company based on all their experience. For example, a customer goes to his bank and on that day, the front desk staff makes a rude comment, he is likely to have a negative perception about the bank that day. However, despite of this incident, the customer may have overall positive perception about the bank, which has been developed by the numerous positive interactions that the customer had with the bank over the years. Customer Perceptions primarily refers to customers perceptions about Satisfaction Level Service Quality
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 Service Encounters

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CUSTOMER SATISFACTION As per the definition offered by Richard Oliver, Satisfaction is the consumers fulfillment response. It is a judgment that a product or service feature, or product or service itself, provides a pleasurable level of consumption-related fulfillment. In less technical terms, Customer Satisfaction is the customers evaluation of a product or service in terms of whether that product or service has met the customers needs and expectations. Failure to meet needs and expectations is assumed to result in dissatisfaction with the product or service. In addition to a sense of fulfillment in the knowledge that ones needs have been met, satisfaction can also be related to other types of feelings depending upon particular context or type of service. Satisfaction can be viewed as: Contentment-more of a passive response that consumers may associate with the services that are more routine in nature and they do not think a lot about such services. (Eg. Delivery of daily newspapers, milk etc at home) Pleasure- for services that make the consumer feel good or are associated with a sense of happiness (Eg. Fun park, concerts, etc) Delight-for those services that really surprise the consumer in a positive way or exceed expectations (Eg. Bungee jumping in Last Resort) Relief- for situations in which the removal of a negative leads to satisfaction ( Eg. Hospitals, spa )
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 Ambivalence-for situations when there is a mix of positive and negative experience associated with the service (Eg. A restaurants staff is not friendly but the food is one of the best in town) Customer Satisfaction is also a dynamic concept, which develops over a period of time and influenced by variety of factors.

Factors Determining Customer Satisfaction Customer Satisfaction or the customers perception of their satisfaction level is influenced by following factors: Product/ Service Features and Quality Customer Satisfaction is greatly influenced by the customers evaluation of product/ service features and quality. If a customer perceives that the service offered by a particular company has all the required features with good quality then, he is likely to be satisfied with the service of that company. For example for a service such as resort hotel, important features might include the swimming pool area, restaurants, room comfort and privacy, courteous staffs, etc and a if a consumers perceive such features to be of good quality, then he is likely to perceive himself as being satisfied. Personal Factors

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Personal factors refer to customers own individual feelings, emotions and beliefs, which impact their derived level of satisfaction from a particular service. Some of the major personal factors are: Consumer Emotions Consumer Emotions like mood state, happiness, sorrow, compassion, anger etc affect consumers level of satisfaction. For example a customer in jolly mood is likely to ignore little delay or hassles in service and be still satisfied, whereas a customer in a bad mood may not tolerate even a little delay or single hassle and be utterly dissatisfied. Consumer belief about reasons for Service Success or Failure When consumers are surprised by an outcome, whether service success or failure, they tend to look for the reasons and their assessments of reasons can influence their satisfaction. A costumer is likely to be less dissatisfied with a service failure if he or she believes that the major reason for service failure is outside the service providers control or failure in their part to fulfill their role in service delivery. For example if a person himself doesnt go to gym regularly, and has not been able to lose weight even after 6 months of joining the gym, he will probably not be much dissatisfied with the services of the gym. Perception of Equity or Fairness Notion of fairness are central to customers perceptions of satisfaction with services. Customers are likely to be extremely dissatisfied if they perceive that they havent been treated fairly or equally by the service provider. For example, suppose a bank charges 12% interest rate for five year period auto loan to Customer A, whereas charges 11% to Customer B for the same loan. If customer A finds out about this difference in interest
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rates, he may perceive he has been exploited by the bank and is very likely to move to another bank. (In fact this is very common in Nepalese banking industry) Situational Factors Situational factors refer to other external factors beyond the control of customer as well as service provider. One of the major situational factors that influence consumers perception of satisfaction from service, is the reactions, emotions and opinions of other consumers, family members, friends, etc. For example you go for a game of Paintball with your friends, you didnt really enjoy the experience but your friends were thrilled and amazed by the experience and talked a lot about it. Then, you may also perceive that it was not that bad an experience as you have thought initially and your perception about your level of satisfaction from the game might change (normally happens in-case of movies as well) Other situational factors refers to weather conditions, incidents, etc which affect the service encounter. Price Another important factor that greatly influences the customers level of satisfaction is the price charged for the service. Even if the service provided great features with great quality, a customer tends to be dissatisfied if he perceives that he has paid excessive price for that service. Customer needs to perceive that the price he has paid for the service matches the value he has derived from the service.

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SERVICE QUALITY Service Quality is a critical element of customer perceptions. In order to judge the quality of service; costumers generally look at following three aspects of the service: Technical outcome provided The process by which that outcome was delivered The quality of physical surroundings where the service is delivered For example, a restaurant customer will judge the service on her perceptions of the meal (technical outcome quality), how the meal was served and how the employees interacted with her (interaction quality) and how dcor and surrounding of the restaurant. Service Quality Dimensions The underlying factors of the service that the customers refer to or rely on to form their perceptions of service quality are regarded as the dimensions of service quality. The presence of following five service quality dimensions in a service is likely to influence the customer to have positive perception about service quality: Reliability: Delivering on Promises Reliability is defined as the ability to perform the promised service dependably and accurately. A company is reliable means that it is able to deliver on its promises- promises about delivery, service provision, problem resolution, and pricing. Customers want to do business with companies that keep their promises.
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For example: CG Finco, the money remittance agent Western Union Money Transfer in Nepal, has its slogan as Inspiring Confidence (Bishwosniata ki Anubhuti ) as its slogan. In order to be reliable, CG Finco needs to keep this promise by transferring the remitted money on time, delivering it to the right person only, and should not have hidden charges. CG Finco excels in these aspects and has become the number one agent of Western Union in Nepal. Responsiveness: Being willing to help Responsiveness is the willingness to help customers and to provide prompt service. Responsiveness is communicated to customers by the length of time they have to wait for assistance, answers to questions, or attention to problems. To excel on the dimension of responsiveness, a company must view the process of service delivery and handling requests from the customers point of view rather from the companys point of view. Companies need to have well staffed customer service departments as well as responsive frontline people in all contact positions. For example: One of the reasons for Norvic Hospital to have better reputation in terms of service quality is that the nurses and other health staffs are strictly instructed and properly trained to be responsive to patients. Assurance: Inspiring Trust and Confidence Assurance is defined as employees knowledge and courtesy and the ability of the firm and its employees to inspire customer trust and confidence. This dimension is likely to be particularly important for services that customers perceive as high risk or which they feel uncertain about their ability to evaluate outcomes, for example banking, insurance, brokerage, medical and legal services. The recent incidents of financial frauds and collapse of few financial institutions in Nepal has made it difficult for the banks to assure customers
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about the safety of their deposits. Hence banks nowadays tend to focus more on assurance aspect while designing their promotional messages. Empathy: Treating Customers as Individuals Empathy is defined as the caring, individualized attention that firm provides to its customer. The essence of empathy is to conveying, through personalized or customized service, that customers are unique and special and their needs are understood. For example: Hair Cutting Saloons like Easy Cuts/ Niel David has focused on empathy aspects as they tend to advise customers on the type of hair styles or grooming techniques that suit individual customer. In business to business services, customers want supplier firms to understand their industries and its specific issues. Hence, many small technical consulting firms have been able to successfully compete with large vendors by positioning themselves as specialists in particular industries. Tangibles: Representing the Service Physically Tangibles are defined as the appearance of physical facilities, equipment, personnel, and communication materials, which provide cues for the customers to evaluate or develop their perception about service quality. Tangibles are particularly influential in case of new customers. Tangibles are often combined with other dimensions of service quality to more effective. For example, restaurants who promise of hygienic food menu also tend to make their kitchen area visible to the customers. Hence, the dimension of reliability is supported by tangibles as well.

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Customers may refer to all the five dimensions to make their judgment about quality or may refer to relevant or selected dimensions only. For example for assessing the service of an ATM, empathy may not be a relevant dimension to consider. But while assessing the service of the bank as a whole, all the dimensions of service quality are important. The importance the customers place on each of service quality dimensions depend upon the consumer personal factors, situational factors as well as cultural factors. (Note: For examples of How Customers Judge the Five Dimensions of Service Quality in different industries, refer to Table 5.2 on Page 122, of the course book, Service Marketing by Valarie, Mary, Dwayne and Ajay.)

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Customer Satisfaction versus Service Quality Customer satisfaction and service quality are inter-related but they imply different concepts. Although they have certain things in common, satisfaction in generally viewed as a broader concept, whereas service quality focuses specifically on dimensions of service. Based on this view, perceived service quality is component of or among the factors influencing customer satisfaction. Perception of Service Quality is a focused evaluation that reflects the customers perceptions of Reliability, Responsiveness, Assurance, Empathy, Tangibles in a Service. Whereas, perception of Satisfaction is more inclusive and it if influenced by perceptions of service/product features, price, as well as situational and personal factors. For example Service Quality of a health club is judged on attributes such as availability of required equipments, training and responsive of the staffs, facility maintenance, etc. Whereas, customer satisfaction with the health club is a broader concept that is certainly influenced by perceptions of service quality but also include perceptions of service features (facilities in the club), price of membership, personal factors such as the consumers emotional state, and even uncontrollable situational factors such as a weather conditions and incidents happening while driving to and from the health club.

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Dimensions: Reliability Responsiven ess Assurance Empathy Tangibles

Service Quality Product Quality

Situationa l Factors

Customer Satisfacti on

Customer Loyalty

Price Personal Factors

Figure: Customer Perceptions of Service Quality and Customer Satisfaction

The continuity of Customer Satisfaction developed by Service Quality, for a considerable period of time, leads to development of Customer Loyalty.

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SERVICE ENCOUNTERS Service Encounters or Moments of Truth are referred as the building blocks for customer perceptions as it is from service encounters that customers build their perceptions. Service encounters (sometimes referred as Real-time Marketing) are where promises are kept or broken. From the customers point of view, the most vivid impression of service occurs in the service encounter, when the customer interacts with the service firm. For example, among the service encounters that a hotel customer experience as checking into the hotel, being taken to a room by a bell person, eating a restaurant meal, requesting a wake-up call, and checking out. It is in these encounters that customers receive a snapshot of the organizations service quality, and each encounter contributes to the customers overall satisfaction and willingness to do business with the organization again. From the organizations point of view, each encounter thus presents an opportunity to prove its potential as a quality service provider and to increase customer loyalty. Importance of Encounters If a customer is interacting with a firm for the first time, the initial phone contact or face-toface experience with a representative of the firm can take on significant importance in the customers perceptions of quality. Mistakes or problems that occur in the early stages of the service delivery process create negative impression on customer which makes it more difficult for the service provider to achieve customer satisfaction. In case of multiple encounters, although early events in the encounter flow are likely to be especially important, each individual encounter is important in a creating a composite
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image of the firm in the customers memory. Many positive experiences add up to a composite image of high quality, whereas many negative interactions will have the opposite effect. On the other hand, a combination of positive and negative interactions will leave the customer feeling unsure of the firms quality, doubtful of its consistency in service delivery, and vulnerable to the appeals of competitors. Studies suggest that not all encounters are equally important in building customer relationships. For example, in a hospital context, a study of patients revealed that encounters with nursing staff were more important in predicting satisfaction than were encounters with meal service or patient discharge personnel. In addition to these key encounters, there are some momentous encounters (like the proverb one rotten apple spoils all the all in the basket) that drive the customer away no matter how many or what type of encounters have occurred in the past. For example, a sound system supplier provides sound system on lease for a huge musical concert and at the start of the concert the sound system breaks down, forcing the concert organizers to cancel the concert and pay compensation for audience tickets and sponsors as well. This kind of momentous failures can terminate the relationship of the sound system supplier with that concert organizer forever. However, on the other hand, momentous positive encounters can sometimes bind a customer to an organization for life. For example, if a bank provides loan to an organization during recession and saves it from going bankrupt, then that organization is likely to be loyal to that bank for a long time, unless neutralized by another momentous negative encounter. Types of Service Encounters
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Generally there are following three types service encounters; Remote Encounters Remote Encounters are those encounters occurring without any direct human contact. Example: Customers interaction with a bank through the ATM system, with a retailer through its Internet website, etc. In remote encounters, the tangible evidence of the service and the quality of the technical processes and system becomes the primary bases for judging quality. Phone Encounters Phone Encounters are the encounters occurring over the telephone and is the most frequent type of encounter between end customer and the firm. Tone of voice, employee knowledge, and effectiveness/efficiency in handling customer issues become important criteria for judging service quality.

Face-to-Face Encounters Face-to-Face Encounters refer to encounters that occur between an employee and a customer in direct contact. Determining and understanding service quality issues in faceto-face encounters is the most complex of all. Both verbal and non-verbal behaviors are important determinants of quality, as are tangible cues such as employee dress and others symbols of service (servicescape, information brochures, etc). Customers behavior while participating in the encounter also influences quality of service delivered. Sources of Pleasure and Displeasure in Service Encounters
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On the basis of study done on thousands of service encounter stories, following four common themes have been identified as the sources of customer satisfaction/ dissatisfaction in memorable service encounters. Recovery- Employee Response to Service Delivery System Failures The fist theme includes all incidents in which there has been a failure of the service delivery system and an employee is required to respond in some way to consumer complaints and disappointments. The failure may be, for example, a hotel room that is not available; an airplane is delayed for six hours. In such situation, customer satisfaction/ dissatisfaction results from the way employees respond to such failures. Adaptability-Employee Response to Customer Needs and Requests Another major determinant of Customer satisfaction or dissatisfaction is how adaptable the service delivery system is when the customer has special needs or requests that place demands on the process. For example: a customer asking for extra pillow in flights, an illiterate customer asking for the bank employee to fill up the form, etc. Customers judge service encounter quality in terms of the flexibility of the employees and the system.

Spontaneity- Unprompted and Unrequested Employee Actions Even when there is no system failure or no special request or need of the customer, service encounters can be very satisfying or very dissatisfying depending on the spontaneity/eagerness of the employees in providing regular service and sometimes
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unrequested service. Satisfying incidents in this theme represent very pleasant surprises for the customer (special attention, being treated like royalty, receiving something nice but not requested) whereas dissatisfying incidents in this group represent negative and unacceptable employee behaviors (rudeness, discrimination, ignoring the customers). Coping-Employee Response to Problem Customers Another different kind of source for Customer Satisfaction/ Dissatisfaction is the ability of the employees to Cope, which refers to the behavior generally required of employees to handle problem customer encounters. Problem customers refer to those customers who are basically unwilling to cooperate with the service provider, other customers, and industry regulations/laws. Rarely can problem customers be satisfied but through effective coping their dissatisfaction can be minimized. (Note; For Examples of Service Encounter Themes and Dos and Donts of Service Encounters, refer to Exhibit 5.2 and Table 5.3 in Page no 132 & 133 of the course book, Service Marketing by Valarie, Mary, Dwayne and Ajay.)

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Technology-Based Service Encounters Technology-Based Service Encounters refer encounters which involve customers interacting with Internet-based services, automated phone services, kiosk/ Machine services, services delivered via audio/video technology. Often these systems are referred as self-service technologies (SSTs) because the customer essentially provides his or her own service. Satisfying SST Solves an intensified need or helps a customer in desperate need Is better than the alternative Does its job without failure Dissatisfying SST Has frequent technology and system failures Has Poor and Complicated Design Difficult for customers to use the technology properly As companies progress further with SSTs and become better at delivering service this way, it is expected that growing numbers of businesses will be delivering there services in future via technology.

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Evidence of Service Encounters The additional tools in Extended Marketing Mix for Services-Process, People and Physical Evidence, can also be referred as the Evidence of Service Encounters as customers come to contact with these elements in their interaction with the service provider. The evaluation of these elements greatly determines the customer satisfaction and their perception about service quality. For example; when a patient has an appointment with a doctor in a health clinic, the first encounter of the visit is frequently with the receptionist in a clinic waiting area. The quality of that encounter will be judged by how the appointment registration process works, the actions and attitude of the receptionist (people) and the appearance of the waiting area (physical evidence). The three elements of the evidence may be differently important depending on the type of service encounter (remote, phone, face-toface). All three elements will be important in case of face-to-face, whereas physical evidence is particularly important in-case of remote but not important in-case of phone encounter. [END OF UNIT 2]

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