8/3/2019 Financial and Econimic Impact of Services

1/11

McGraw-Hill 2000 The McGraw-Hill Companies

1

SM

SM

McGraw-Hill 2000 The McGraw-Hill Companies

Chapter 17

THE FINANCIAL ANDECONOMIC IMPACT OF

SERVICE QUALITY

8/3/2019 Financial and Econimic Impact of Services

2/11

McGraw-Hill 2000 The McGraw-Hill Companies

2

SM

Objectives for Chapter 17:The Financial and Economic

Impact of Service

Examine the direct effects of service on profits

Consider the impact of service on getting newcustomers

Evaluate the role of service in keeping customers Examine the link between perceptions of service and

purchase intentions

Emphasize the importance of selecting profitablecustomers

Discuss what is know about the key service drivers ofoverall service quality, customer retention andprofitability

Discuss the balanced performance scorecard to focus

on strategic measurement other than financials

8/3/2019 Financial and Econimic Impact of Services

3/11

McGraw-Hill 2000 The McGraw-Hill Companies

3

SM

Figure 17-1

The Direct Relationship betweenService and Profits

Profits?ServiceQuality

8/3/2019 Financial and Econimic Impact of Services

4/11

McGraw-Hill 2000 The McGraw-Hill Companies

4

SM

Figure 17-2

Offensive Marketing Effects ofService on Profits

ProfitsMarketShare

Reputation Sales

PricePremium

ServiceQuality

8/3/2019 Financial and Econimic Impact of Services

5/11

McGraw-Hill 2000 The McGraw-Hill Companies

5

SM

Figure 17-3

Defensive Marketing Effects ofService on Profit

Margins

Profits

CustomerRetention

Costs

PricePremium

Word ofMouth

Volume ofPurchasesService

Quality

8/3/2019 Financial and Econimic Impact of Services

6/11

McGraw-Hill 2000 The McGraw-Hill Companies

6

SM

Figure 17-5

Perceptions of Service,Behavioral

Intentions and Profits

CustomerRetention

Costs

PricePremium

Word of

Mouth

Margins

Profits

Volume ofPurchases

Service BehavioralIntentions

Sales

8/3/2019 Financial and Econimic Impact of Services

7/11McGraw-Hill 2000 The McGraw-Hill Companies

7

SM

Figure 17-6

The 80/20 Customer Pyramid

Most Profitable

Customers

Least Profitable

Customers

What segment spends more withus over time, costs less to maintain,

spreads positive word of mouth?

What segment costs us intime, effort and money yet

does not provide the returnwe want? What segment is

difficult to do business with?

Other

Customers

BestCustomers

8/3/2019 Financial and Econimic Impact of Services

8/11McGraw-Hill 2000 The McGraw-Hill Companies

8

SM

Figure 17-7

The Expanded Customer Pyramid

Most Profitable

Customers

Least Profitable

Customers

What segment spends more withus over time, costs less to maintain,

spreads positive word of mouth?

What segment costs us intime, effort and money yet

does not provide the returnwe want? What segment is

difficult to do business with?

Gold

Iron

Lead

Platinum

8/3/2019 Financial and Econimic Impact of Services

9/11McGraw-Hill 2000 The McGraw-Hill Companies

9

SM

Figure 17-8

The Key Drivers of Service Quality,Customer Retention, and Profits

Key Drivers

ServiceQuality

ServiceEncounter

ServiceEncounter

ServiceEncounter

CustomerRetention

BehavioralIntentions Profits

ServiceEncounter

Service Encounters

8/3/2019 Financial and Econimic Impact of Services

10/11McGraw-Hill 2000 The McGraw-Hill Companies

10

SM

Figure 17-9

Sample Measurements for theBalanced Scorecard

Adapted from Kaplan and Norton

Innovation andLearning Perspective

Customer

Perspective

Service Perceptions

Service Expectations

Perceived Value

Behavioral Intentions:

OperationalPerspective:

Right first time (% hits)Right on time (% hits)Responsiveness (% on

time)Transaction time (hours,

days)Throughput timeReduction in wasteProcess quality

Financial Measures

Price Premium

Volume Increases

Value of Customer

Referrals

Value of Cross Sales

Long-term Value of

Customer

% Loyalty

% Intent to Switch# Customer

Referrals# Cross Sales# of Defections

Number of new productsReturn on innovationEmployee skillsTime to marketTime spent talking tocustomers

8/3/2019 Financial and Econimic Impact of Services

11/11McGraw-Hill 2000 The McGraw-Hill Companies

11

SM

Figure 17-10

Service Quality Spells Profits

ServiceQuality

CustomerRetention

Costs

PricePremium

Word ofMouth

Margins

Profits

DefensiveMarketing

Volume ofPurchases

Market

Share

Reputation

Sales

Price

Premium

OffensiveMarketing