Dr' Xiande Zhao

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Building Customer Loyalty

• Dr. Xiande Zhao
• Department of Decision Sciences and Managerial
  Economics
• Tel. [phone]
• Email xiande_at_baf.msmail.cuhk.edu.hk

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STEPS TO BUILDING CUSTOMER LOYALTY
Define Customer Needs
Design Products and Services
Target Customers
Responsibilities of a Frontline Manager
Listen to Customer
Customer Satisfaction and Loyalty
Recover from Mistakes
Deliver
Give Feedback for Redesign
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Designing the service and Service Delivery
Process

• Design of the service package
• Eight service design elements
• Service Blueprinting

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Service Design Elements

• Structural Elements
• Delivery System
• Front Office, Back Office, Automation, Customer
  Participation
• Facility Design
• Size, Aesthetics, Layout
• Location
• Customer demographics, single and multiple
  sites, competition, site characteristics
• Capacity Planning
• Managing queues, number of servers,
  accommodating average demand or peak demand

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Service Design Elements

• Managerial Elements
• Service Encounter
• Service culture, motivation, selection and
  training, empowerment
• Quality
• Measurement, monitoring, methods, expectations
  vs. perceptions, service guarantee
• Managing Capacity and Demand
• Strategies for altering demand and controlling
  supply, queue management
• Information
• Competitive resources, data collection

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Service Blueprinting

• A tool for simultaneously depicting the service
  process, the points of customer contact, and the
  evidence of service from the customers point of
  view.

Process
Service blueprinting
Points of Contact
Evidence
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Service Blueprint Components
CUSTOMER ACTIONS
line of interaction
ONSTAGE CONTACT EMPLOYEE ACTIONS
line of visibility
BACKSTAGE CONTACT EMPLOYEE ACTIONS
line of internal interaction
SUPPORT PROCESSES
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Service Blueprint Components
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Express Mail Delivery Service
Truck Packaging Forms Hand-held Computer Uniform
Truck Packaging Forms Hand-held Computer Uniform
PHYSICAL EVIDENCE
Customer Calls
Customer Gives Package
Receive Package
CUSTOMER
Driver Picks Up Pkg.
(On Stage)
Deliver Package
CONTACT PERSON
(Back Stage)
Customer Service Order
Airport Receives Loads
Fly to Sort Center
Load On Truck
Dispatch Driver
download Sort
Fly to Destination
SUPPORT PROCESS
Load on Airplane
Sort Packages
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Overnight Hotel Stay
Bill Desk Lobby Hotel Exterior Parking
Hotel Exterior Parking
Cart for Bags
Desk Registration Papers Lobby Key
Elevators Hallways Room
Cart for Bags
Room Amenities Bath
Menu
Delivery Tray Food Appearance
Food
PHYSICAL EVIDENCE
Arrive at Hotel
Give Bags to Bellperson
Call Room Service
Check out and Leave
Receive Bags
Sleep Shower
Go to Room
Receive Food
CUSTOMER
Eat
Check in
Greet and Take Bags
Deliver Bags
Deliver Food
(On Stage)
Process Registration
Process Check Out
CONTACT PERSON
Take Food Order
(Back Stage)
Take Bags to Room
Registration System
Registration System
Prepare Food
SUPPORT PROCESS
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Building a Service Blueprint
Step 4 Map contact employee actions, onstage and
back-stage.
Step 6 Add evidence of service at each customer
action step.
Step 3 Map the process from the customers point
of view.
Step 1 Identify the process to be blue-printed.
Step 2 Identify the customer or customer segment.
Step 5 Link customer and contact person
activities to needed support functions.
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Application of Service Blueprints

• New Service Development
• concept development
• market testing
• Supporting a Zero Defects Culture
• managing reliability
• identifying empowerment issues
• Service Recovery Strategies
• identifying service problems
• conducting root cause analysis
• modifying processes

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On the Job Application Sharpening Your Hiring
Criteria

• Select a customer-contact position in your
  organization and write a brief description of the
  ideal employee you would like to fill that
  position. Include the characteristics that are
  crucial to outstanding customer service. Two
  types of characteristics
• personality traits that cannot be imparted easily
  through training- such as friendly and responsive
  manner with people
• skills that can be affected by training- such as
  knowledge of specific computer programs or
  procedures.

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On the Job Application Sharpening Your Hiring
Criteria

• Use the table below, list your ideal employees
  characteristics, distinguishing the personality
  traits and skills. Prioritize them according to
  their importance to the delivery of outstanding
  customer services in your business. Use the
  prioritized list as a guide for interviewing
  frontline job candidates and making hiring
  decisions.
• Personality Traits Skills

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• Establishing standard and systems foroutstanding
  services

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The Ritz-Carlton Hotel Company (Three Steps of
Service)
1. Warm welcome
Break away to achieve instant pacification
Break away to achieve instant pacification
Dissatisfied
Complaint or dissatisfaction
Verify guest satisfaction by guest reaction
2. Anticipation and compliance
Fulfill need or wish
Fulfill need or wish
Identify need or wish
Routine
nonroutine service
Satisfied
Snap back to routine duties
Snap back to routine duties
Break away to respond
3. Fond farewell
Complete incident form and/or guest preference
pad when appropriate for each guest
Daily quality report analysis
Enter guest preferences or complaint into
guest history profile
Complete incident form and/or guest preference
pad when appropriate for each guest
Daily quality report analysis
Enter guest preferences or complaint into
guest history profile
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On-the-job Application Traditional Supervisor
versus Coach-Counselor
The Impact of Supervisory Latitude

• Using the form below, evaluate yourself as a
  supervisor.
• Do you manage as a traditional supervisor or are
  you, with the support of your organization,
  changing your role to that of a coach-counselor?
  
• The higher your score on the assessment, the
  closer your performance is to that of managers in
  breakthrough firms. Low scores signal
  opportunities for improvement.

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On-the-job Application Traditional Supervisor
versus Coach-Counselor
The Impact of Supervisory Latitude

• After you have completed the assessment, ask your
  employees to anonymously assess your performance
  as well.
• For each characteristic listed below, add the
  employee responses and calculate an average.
  Compare the figure with your own assessments. Is
  there a gap?
• Informally poll your employees on what you might
  do to improve.
• .

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ON-THE-JOB APPLICATION ROLE-PLAYING

• Using actual customer interactions as source
  material, create customer service situations for
  your frontline employees to roleplay. They can
  test ways to deal with customers, including
  trying out your ideas or experimenting with
  approaches they have developed on their own. Also
  involve your employees in thinking of problem
  situations they are an excellent source of
  experience, and asking them to help you will
  heighten their involvement.
• To evaluate roleplay performances, use the
  customer satisfaction goals you developed in the
  previous On-the-Job Application. If, in the
  course of roleplaying, you identify new goals,
  add them to your list.

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Tips for Effective Role-playing

• Conduct role-playing frequently. The more
  frequent the practice, the more effective the
  experience.
• Schedule sessions separate from any other
  meeting.
• Encourage experimental behavior but never
  theatrical extremes.
• Focus attention on content and process, not on
  the players.
• Give each player a goal and a motive.
• Assign realistic time limits to each role-play to
  focus the participants on reaching their goals.
• Dont worry if the role-play situation is not
  resolved be concerned only that critical moments
  are experienced.
• Remember, creating a constructive, low-risk
  environment for the exercise is a key to its
  success.

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ON-THE-JOB APPLICATION DEVELOPING LISTENING POSTS

• Listening posts exist in every service
  organization. The difference between average and
  breakthrough organizations is how effectively
  management listens, communicates the information
  internally, and acts on it. Take a moment to
  study the customer feedback pathway shown in the
  diagram. The solid lines show the desired flow of
  feedback. The dotted lines indicate how feedback
  can be lost. The steps that follow the diagram
  will help you develop your own listening posts.

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Customer Feedback Pathway
Confirm Use
Discarded
Not Used
Listening Post
Customer Feedback
Internal Customer
Product, Procedure Improvement
Wrong Destination
External Customer
Desired flow
Lost feedback
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Four Steps for Developing Effective Listening
Posts

• Select a point in your organization where you
  receive customer feedback -- for example,
  telephone representatives, customer service
  representatives, or servers. Interview these
  employees to determine the feedback they receive
  based on the interviews and your own experience,
  categorize the significant types of feedback as
  shown below

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Categorization of feedbacks
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Four Steps for Developing Effective Listening
Posts

•  Chart where this information goes. In the
  diagram of the customer feedback pathway, the
  internal customer is the person or group that
  can make the best use of the feedback. If the
  information goes nowhere or is misdirected,
  decide where it should go and take action to
  correct the situation.
• Find out whether and how the information is being
  used. If it isnt, take action yourself or enlist
  your boss to help you.

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Four Steps for Developing Effective Listening
Posts

• Go back to your listening posts and share with
  the employees the categories of significant
  feedback, their desired destinations, and the end
  uses of the information. Commit to keeping them
  informed about changes that the feedback has
  triggered 

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On the Job Application Improving Service
Recovery

• Every organization makes mistakes, but
  breakthrough service companies recover from them
  quickly and decisively. To understand whats at
  stake in service recovery responses, look at the
  graph, The Customer Impact of Service Recovery.
  It shows that recovery from mistakes has a large
  impact on customer loyalty.
• To help you evaluate the efficiency and
  effectiveness of your service recovery responses.
  Generally, your cost and your risk of alienating
  the customer increase with the number of people
  involved and the time it takes to respond.

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The Customer Impact of Service Recovery
Dissatisfied but Dont Complain
9
37
Complaints Not Resovled
19
46
Complaints Resolved
54
70
Complaints Resolved Quickly
82
95
Minor Complaints (1 - 5 losses)
Major Complaints (over 100 losses)
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Assessing Your Service Recovery Procedures

• Meet with the people in your unit who deal
  regularly with service recovery. Select two or
  three important service recovery problems that
  occur frequently and have a major effect on
  customer satisfaction and loyalty. Include at
  least one problem that is customer induced, for
  example, a customer who has given the wrong order
  or has used your product incorrectly.
• Determine the lifetime value of your customer. To
  manage the cost and time tradeoffs of service
  recovery, you need to know the long-term value
  that each customer represents for your business.
• Track each problem youve selected step by step
  from its initiation by customer to resolution as
  shown in the Sample Service Recovery Map. The
  vertical dimension of the map should list the
  people involved in the recovery, beginning with
  the customer. The horizontal dimension should
  represent the time it takes to complete the
  recovery. On the map each significant step should
  be represented by a box with a brief description.

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Assessing Your Service Recovery Procedures
(continued)

• With your team, evaluate each recovery youve
  mapped. Keeping in mind the lifetime value of
  your customer and the cost and customer
  satisfaction effects of the recovery procedure,
  discuss how each procedure can be improved.
• If you decide changes are worthwhile, take the
  necessary steps to change them. Then, with your
  team draw a revised map of the procedure. Share
  the old and new map with the people affected by
  the changes.

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Sample Service Recovery Map
Part II The Economics of Customer Loyalty
Higher Cost
General manager
9
Area manager
8
10
Frontline manager
11
5
7

• People

Shift supervisor
4
Employee
12
2
3
6
Customer
1
13
Higher Customer Satisfaction
Lower Customer Satisfaction
Lower Cost
Time
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Sample Service Recovery Map
Part II The Economics of Customer Loyalty

• Sequence of Events
• 1. Make Complaint
• 2. Give Initial Response
• 3. Consults Policy Manual
• 4. Considers Complaint
• 5. Considers Complaints
• 6. Queries Employees
• 7. Decides to Consult Boss
• 8. Consults Boss
• 9. Makes Decision
• 10. Conveys decisions
• 11. Conveys Decisions
• 12. Informs Customers
• 13 Complaint Resolved

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Assignment Questions for Rapid Rewards at
Southwest Airlines (Due March 7)

• Should Southwest save a few low-numbered boarding
  cards for its most frequent fliers? What is the
  key motivation for your opinion? What are the
  tradeoffs that Southwest must consider in making
  this decision?
• Should Southwest allow its most frequent fliers
  that have missed their flight to take the next
  available flight with an empty seat or should
  these customers have to wait for the next
  available flight with an empty seat within the
  same fare class? What drives your decision?
• What is Southwest Airline's value proposition?
  What are its sources of competitive advantage?
  How important are these advantages economically?
• Consider the economics of the airline industry.
  How important are frequent fliers to financial
  performance?

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Service Recovery Strategies
RIGHT

• Do it the first time!
• recovery is unnecessary
• reliability
• Welcome and encourage complaints
• complainers are viewed as friends
• Act quickly
• take care of the problems on the front line
• allow customers to solve their own problems

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Service Recovery Strategies

• Treat customers fairly
• in outcome,procedure and interactions
• Learn from recovery experiences
• source of diagnostic, prescriptive information
• Learn from lost customers
• in depth interviews by skilled interviewers
• Learn why we have lost this customer
• Prevent future loss of customers

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Service Recovery Strategies
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Service Gurantees
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Service Guarantees

• What is service guarantee?
• An assurance of the quality of service offered
• A particular type of recovery tool

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Types of Service Guarantees?

• Unconditional satisfaction guarantees
• HAMPTON INNs100 satisfaction Guarantee
• We guarantee high quality accommodations,
  friendly and efficient services and clean,
  comfortable surroundings
• If you are not completely satisfied, we dont
  expect you to pay.
• Service attribute guarantees
• Fed Ex Absolutely, positively overnight
• A bank guarantees that customers will not wait
  for more than five minutes in a line, otherwise
  you get 5
• Dominos pizza guarantees that the pizza will be
  delivered in 30 minutes, otherwise the pizza is
  for free

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Types of Service Guarantees?

• Combined guarantees
• wide scope of total satisfaction guarantee and
• Specific service performance standards
• Example DataPro Singapore in IT consulting
• Guarantees to deliver the report on time, to high
  quality standards, and to the contents outlines
  in the proposal
• Should we fail to deliver according to this
  guarantee or should you be dissatisfied with any
  aspect of our work, you can deduct any amount
  from the final payment which deems as fair,
  subject to a maximum of 30

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Types of Service Guarantees

• External versus Internal Guarantee
• External
• Guarantees to external customers
• Internal
• one part of organization guaranteeing its
  services to others
• E.g. house keeping supplies department guarantees
  the house keeping staff that they can get
  supplies on the same day, otherwise the supply
  department will pay 5 to the house keeping staff.

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What are the benefits of service guarantees?

• Force the company to focus on its customers
• Set clear standard for the organization
• Generate immediate and relevant feedback
• Have opportunity to recover if guarantee is
  invoked
• Information generated can be tracked integrated
  to continuous improvement efforts
• Enhance employee morale and loyalty
• Reduces customers sense of risk and builds the
  confidence in the organization

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How does a service guarantee influence the bottom
line?

• Effective service guarantee can affect
  profitability through through building customer
  awareness and loyalty, and trough positive word
  of mouth, and through reduction in costs as
  service improvements are made and service
  expenses are reduced.
• The guarantee can reduce costs of employee
  turnover through creating a more positive service
  culture

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Characteristics of Effective Guarantees

• Unconditional
• Makes its promise unconditionally-no strings
  attached
• Meaningful
• Guarantee elements should
• be important to customers
• The payout should cover fully the customers
  dissatisfaction

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Characteristics of Effective Guarantees

• Easy to understand and communicate
• Customers know what to expect
• Employees know what to do
• Easy to invoke and collect
• Guarantees can be accessed
• and collected easily
• Not a lot of hoops or red tape in the way of
  accessing or collecting on the guarantee

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Should Every Service Organization Have Guarantee?

• Answer No !!!!

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Questions to be asked in deciding whether it is
appropriate in offering service guarantee

• How high is service quality of services provided
  by the company?
• Does the guarantee fit the companys image?
• Is the service quality truly uncontrollable?

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Should Every Service Organization Have Guarantee?

• Are customers perceiving little risk in the
  service?
• How high is the perceived variability in service
  quality among competitors?
• Are competitors offering a guarantee?
• Do the benefits outweigh the cost of guarantees?

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Reading Assignment

• .Read Chapter 7 and 8 of RB2
• Zeithaml, V. A. and Bitner, M. J. (2003), Service
  Marketing Integrating Customer Focus Across the
  Firm, McGraw-Hill Book Company, 3rd Edition
• Read Reference Article 6, 7,and 8
• 6.Hart, C. W. L., Heskett, and Sasser, W. E.,
  Jr., The Profitable Art of Service Recovery,
  Harvard Business Review, July-August 1990, pp
  148-156
• 7.      Boshoff, C. "An Experimental Study of
  Service Recovery Options" International Journal
  of service industry Management, Vol. 8, No. 2,
  1997, pp. 110-130
• 8 Hart, C. W. L., Schlesinger, L. A. and Maher,
  D., Guarantees Come to Professional Service
  Firms, Sloan Management Review, Spring 1992

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Short Case Assignment

• Please read the Damaged Luggage case and answer
  the two assignment questions (due on March 21)