Service Quality : Crossing Boundaries 9781845445607, 9780861768110

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Managing Service Quality Volume 13, Number 2, 2003

ISSN 0960-4529

Service quality: crossing boundaries Guest Editor: Steve Tax

Contents 90 Access this journal online 91 Abstracts & keywords 93 Guest editorial

Guru’s view 94 Digitizing the customer: the digital moat Karl Albrecht 97 Emotional intelligence: fundamental competencies for enhanced service provision Philip Bardzil and Mark Slaski

134 Understanding the service profit chain in Latin America: managerial perspective from Mexico Daniel Maranto and Javier Reynoso 148 Quality in the work environment: a prerequisite for success in new service development Bo Edvardsson and BengtOve Gustavsson 164 Creating strategies for managing evolving customer service Colin Armistead and Julia Kiely 171 Call for papers

105 Communicating a quality position in service delivery: an application in higher education Jonathan Gutman and George Miaoulis 112 To fade or not to fade? That is the question in customer relationships, too Pekka Tuominen and Ulla Kettunen 124 Calculating the value of customers’ referrals Sabrina Helm

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emerge. It is argued that measurement of EQ should form part of the selection process, for management and customer-facing staff, and that development of emotional intelligence should be incorporated into staff training programs.

Abstracts & keywords

Communicating a quality position in service delivery: an application in higher education Jonathan Gutman and George Miaoulis Keywords Service delivery system, Service quality, Positioning, Higher education Digitizing the customer: the digital moat

This paper describes a method uniquely suited to the problem of coordinating quality service delivery with service quality positioning. The means-end chain model is used to develop a marketing communications strategy for a university. In this study, first-year students were asked about their goals in attending college as well as what attributes a college would have to have in order to be able to satisfy their goals. Because the means-end chain approach provides information about the linkage between attributes, benefits, and personal goals, it is well suited to the needs of service developers as well as those charged with the responsibility for designing the marketing communications that position those services.

Karl Albrecht Keywords Cellular communications, Customer satisfaction, Customer service, Psychology Argues that many organizations, particularly large ones, such as banks, insurance companies, telephone companies, and local utilities, are making a mistake in their application of digital technology, namely the electronic customer interface. Describes the trend toward using information technology to depopulate the customer interface and reduce the costs of managing customer relations, with many companies building a ‘‘digital moat’’ around their organizations. Warns of the psychological and cultural downside – the more ‘‘wired’’ human beings become, the more isolated they will feel. A severing of personal connections to real communities will cause psychological stress and a sense of ‘‘connected anonymity’’. Argues that the ‘‘digital society’’ is a concept embraced and promoted mostly by people with a particular psychosocial orientation, i.e. the ‘‘loner’’ personality, and that to counter this the majority of people will very likely opt for ‘‘enclaves of humanity’’, i.e. places and cirmcumstances to which they can turn for a genuine sense of contact and community.

To fade or not to fade? That is the question in customer relationships, too Pekka Tuominen and Ulla Kettunen Keywords Relationship marketing, Customer loyalty, Customer satisfaction, Service industries, Service quality In the services literature, there is a significant lack of studies that focus on the phase preceding the ending of a relationship – that is, the phase during which there is a weakening of a customer relationship. The purpose of this study is to describe and analyse the fading process of customer relationships in the service industry. First, it aims to discover empirical triggers for the fading of customer relationships. Second, it aims to identify dimensions of fading in customer relationships and to reveal underlying elements in these dimensions. Third, it aims to disclose the main critical risk elements of fading in customer relationships in specific fading groups. A mail survey is conducted in one case company in the service industry. The data are reduced by means of factor, discriminant, and classification analysis. Dimensions of fading in customer relationships include alliance partners, personal telephone services, technical support services, and award points.

Emotional intelligence: fundamental competencies for enhanced service provision Philip Bardzil and Mark Slaski Keywords Service quality, Intelligence, Labour This article focuses on the role of emotions within organizations, with particular regard to the climate for services. The concept of emotional intelligence (EQ) is considered as encapsulating many of the key competences involved in creating and maintaining a positive climate for services. The conceptual basis of EQ is examined in some detail, in addition to its practical measurement. Research is reviewed which suggests that EQ can be developed, and which provides support for the argument that higher levels of EQ within organizations will facilitate the appropriate conditions for a positive climate for services to

Calculating the value of customers’ referrals Sabrina Helm Keywords Customer satisfaction, Recommendations, Service quality Word-of-mouth is a rarely quantified phenomenon, in spite of its importance for service firms. Therefore, referrals remain a neglected

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determinant of customer lifetime valuation, although some authors claim them to be the astronomical part of customer equity. The paper discusses different approaches to the calculation of positive word-of-mouth, leading to a monetary referral value of a company’s customers.

of the service offering. Not much attention has been paid to work environment conditions forming the basis for service oriented and effective employees. Addresses this issue by focusing on work environment requirements in NSD. Regards employee work environment requirements as a key factor for success when designing and implementing new services. After studying work environment requirements in the working life science literature indentifies five general requirements. These have been used when analyzing data from an empirical study on work environment conditions and requirements in service organizations. The analysis and interpretation shows that many requirements are the same in service organizations as in manufacturing companies but also that there are distinct differences. Based on the analysis, presents a sixth requirement. Examples of requirements are: the ability to control the work situation and to be involved in the decision-making processes, a safe physical work environment and the ability to develop social relationships through the work.

Understanding the service profit chain in Latin America: managerial perspective from Mexico Daniel Maranto and Javier Reynoso Keywords Mexico, Latin America, Hotels, Supermarkets, Operations management, Competition This paper reports on the initial results of an ongoing research conducted in Mexican service industries aimed at understanding how value is delivered, measured and continuously improved in the studied firms. Using the service profit chain model data were collected from a sample of 28 supermarkets and 29 hotels in Mexican cities. Results show that both industries are similarly characterized by the service profit chain model (SPCM) tool, thus providing some opportunity for cross-learning between industries; and some significant differences exist between domestic and foreign firms in both industries, thus providing some benchmark opportunities for industries based on origin of capital. For the sampled firms, categories of the SPCM were grouped into three statistically different ranges (high, medium and low), thus providing additional knowledge as to what strengths and areas of opportunity for improving performance of the studied industries there are.

Creating strategies for managing evolving customer service Colin Armistead and Julia Kiely Keywords Customer service, Managers, Employees, Strategic planning This paper reports research that investigates the perceptions of service managers on the future of customer service. It provides insight into the evolving managerial issues through detailed interviews with senior customer-service directors and managers in different service sectors. Service organisations that will be successful in the future will focus the roles and capabilities of their customer-service staff on customer needs, and support them through active service leadership. A six-stage approach to developing the necessary strategies for managing customer service in this environment is deduced.

Quality in the work environment: a prerequisite for success in new service development Bo Edvardsson and BengtOve Gustavsson Keywords Working conditions, Service quality, Participation, Job satisfaction In research on new service development (NSD), the interest has mainly been on structural aspects

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The 8th Quality in Services Conference (QUIS 8) hosted by the Faculty of Business at the University of Victoria had as its core theme Service Quality: Crossing Boundaries. This theme was chosen for the following reasons: . This edition of the conference reflected for the first time in QUIS’s rich history that the conference was held outside of its US and Swedish roots. This recognized the emerging worldwide research in service management. The University of Victoria with its MBA concentration in service management and hiring of a team of faculty with research programs in service management issues is indicative of this trend. . The authors of the papers reside in 21 countries across six continents. Many of the papers are co-authored by faculty based in different countries. This is a solid indication of the importance of collaboration that spans borders. . The papers are cross disciplinary covering a broad array of management fields including, marketing, human resources, operations, strategy, finance and information systems. This is consistent with the leadership role that the services field has taken in breaking free from disciplinary based research. . Once again the conference committee has acted on the premise that good theory and practice go hand in hand. Plenary speakers included both leading academics as well as thoughtful practitioners coming together to advance our understanding of service management. In addition to our academic colleagues, over 50 practicing managers attended portions of the conference.

Guest editorial Guest Editor Steve Tax

The Guest Editor Steve Tax completed his PhD at Arizona State University and is currently Associate Professor of Service Management at the University of Victoria. His research interests focus on interdisciplinary issues in service management, notably service recovery, service design and customer participation in service delivery. His co-authored article (with Steve Brown and Murali Chadrashekaran) ‘‘Customer evaluations of service complaint experiences: implications for relationship marketing’’, published in the Journal of Marketing, won the 1999 AMA SER VSIG Award for the best paper published in services marketing. The article ‘‘Recovering and learning from service failure’’ (with Steve Brown) won the 2000 Richard Beckhard Prize from Sloan Management Review for outstanding paper in the field of planned change and organizational development. Steve serves on the editorial board of the Journal of Marketing and the Journal of the Academy of Marketing Science. He has been actively involved in SERVSJG, the American Marketing Association services special interest group, since its inception.

The papers were selected for this special issue by the QUIS 8 Conference Committee: Steve Brown (Arizona State University), Bo Edvardsson (Karlstad University), Bob Johnston (University of Warwick) and Ian Stuart and Steve Tax (University of Victoria). We are indebted to the authors of the papers and thank them for accepting our offer of developing them further for this publication.

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Introduction

Emotional intelligence: fundamental competencies for enhanced service provision

Previous research indicates that one feature common to successful organizations is their ability to create a climate for service (Schneider and Bowen, 1993; Schneider et al., 1998). This refers to the sense developed among employees about what is important to the organization in this respect, according to their accrued experiences of the policies and practices that are expected and rewarded (Schneider et al., 2000), and is reflected in staff attitude and levels of loyalty. It is assumed that employee behaviours focused on the fulfillment of customers’ needs and desires, when mediated by a positive climate for services within the organization, will lead to increases in customer satisfaction levels and, subsequently, to increases in profitability (Keiningham and Vavra, 2001; Oliver, 1996). This may be through raised levels of customer loyalty, leading to repeat business (Reicheld, 1996), or through positive ‘‘word of mouth’’ responses – leading to the accrual of new customers (Heskett et al., 1997). Evidence has demonstrated significant relationships between employee assessments of the climate for services within their organizations and associated customer assessments of service quality and satisfaction (Heskett et al., 1997; Schneider et al., 2000). In this paper we propose that development of emotional intelligence, or EQ (Goleman, 1998; Mayer and Salovey, 1997; Salovey and Mayer, 1990), within organizations can help to enhance the quality of the customer’s service experience – through its contribution to a positive climate for services.

Philip Bardzil and Mark Slaski

The authors Philip Bardzil is a Project Manager at the Centre for Organizational Psychology at the Manchester School of Management, UMIST, Manchester, UK. Mark Slaski is in the Department of Psychology at the University of Hertfordshire, Hatfield, UK. Keywords Service quality, Intelligence, Labour Abstract This article focuses on the role of emotions within organizations, with particular regard to the climate for services. The concept of emotional intelligence (EQ) is considered as encapsulating many of the key competences involved in creating and maintaining a positive climate for services. The conceptual basis of EQ is examined in some detail, in addition to its practical measurement. Research is reviewed which suggests that EQ can be developed, and which provides support for the argument that higher levels of EQ within organizations will facilitate the appropriate conditions for a positive climate for services to emerge. It is argued that measurement of EQ should form part of the selection process, for management and customer-facing staff, and that development of emotional intelligence should be incorporated into staff training programs.

Climate for services At the level of the individual employee the climate for services becomes manifest through expressions of concern for customers, and demonstrations of awareness – both of customer needs and of the practices and behaviours that are expected by management. In effect, these qualities may be expressed as broad interpersonal competencies, for example: communication skills (Ostell, 1996), empathy (Zeithaml et al., 1990), and emotional labour (Hochschild, 1993; Morris and Feldman, 1996). At the organizational level, a positive climate for service requires reinforcement through the implementation

Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0960-4529.htm Managing Service Quality Volume 13 . Number 2 . 2003 . pp. 97-104 # MCB UP Limited . ISSN 0960-4529 DOI 10.1108/09604520310466789

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and support of appropriate employee behaviours, based on clear ‘‘service quality specifications’’ – such as those suggested in the SERVQUAL model (Parasuraman et al., 1988). This also involves genuine concern for employees as ‘‘internal customers’’ (Johnson, 1996; Schneider et al., 1998), and is facilitated by an appropriate leadership style. It is further encouraged by empowerment of the employee, which is largely achieved through removal of obstacles and ‘‘inhibitors’’ – such as inappropriate HR policies, restrictive management style (Schneider and Bowen, 1993), high levels of employee stress (Slaski and Cartwright, 2002a), and so on. Many of the behavioural aspects of a positive climate for services, mentioned above, have a clear emotional content – such as empathy, concern, and the emotional self-regulation required of customer-facing positions. ‘‘Emotional labour’’ is core to the work role of employees in the delivery of services (Zeithaml and Bitner, 2000), and refers to the requirement to display organizationally desired emotions, which the individual may not inwardly feel (Hochschild, 1983; Morris and Feldman, 1996; Zapf et al., 1999). These would include such behaviours as smiling despite possible irritation, refraining from making a ‘‘smart’’ reply to an unreasonable request, etc. Most research into emotional labour has focused on the employee (Abraham, 1998; Morris and Feldman, 1996), rather than the customer, and findings indicate that such ‘‘emotional dissonance’’ (i.e. displaying emotions that are not in line with inner feelings) induces strain amongst employees, and has a detrimental effect on job performance (Spector et al., 1988). In the case of services provision this is likely to be reflected in customer satisfaction levels. There has been little research into the degree to which employees may be required to manage the emotions of others (Thoits, 1996), either within service encounters or within work encounters in general – where relationships involving interactions have become increasingly prevalent (Bulan et al., 1997). In many organizations, it is required that employees in different departments are treated as ‘‘internal clients’’, thus increasing levels of emotional labour amongst staff. This can create problems around power and status – as in some cases the ‘‘service provider’’ may be higher up the corporate hierarchy, though

placed within a psychologically subordinate position. However, studies of power usage within organizations tend to focus on the more functional aspects of its dissemination, without attending to its emotional content and consequences (Ashforth and Humphrey, 1995) – issues of importance with regard to the development of a positive climate for services.

Emotional intelligence In this article we propose that the relatively new concept of emotional intelligence, or ‘‘EQ’’ (Goleman, 1998; Mayer and Salovey, 1997; Salovey and Mayer, 1990), captures many of the key competencies involved in creating and maintaining an appropriate climate for service, and that development of EQ may also serve to reduce some of the emotional problems inherent in high levels of interpersonal interaction. This approach suggests that individuals vary in their capacity to process, regulate and manage information of an emotional nature. Goleman uses the term in reference to: . . . the capacity for recognizing our own feelings and those of others, for motivating ourselves, and for managing emotions well in ourselves and in our relationships (Goleman, 1998, p. 317).

This describes abilities, which complement cognitive processes (i.e. general intelligence as measured by IQ), but remain distinct from them. This view holds that there are two kinds of ‘‘intelligence’’, cognitive and emotional, with functional processing located in separate parts of the brain. Some support for this is provided by recent evidence, which demonstrates specific areas in the brain where emotional processing takes place (LeDoux, 1998). Emotional experiences are largely and intricately related to the maintenance of social self-images and psychological aspects of the self – such as values, beliefs, needs, goals and expectations. However, ‘‘emotional intelligence’’ does not just relate to emotional experience, but is more concerned with the relationship between emotions (feelings), thoughts, and subsequent behaviours. It may be seen as a measure of the degree to which individuals vary in their ability to perceive, understand and regulate their own emotions and those of others, and in their ability to integrate these with their own thoughts and 98

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actions (Mayer and Salovey, 1997). Therefore, individuals with higher than average EQ display strong self-awareness and high levels of interpersonal skill. They are empathic, adaptable, able to cope with pressure and generally experience less stress and better health and well being than low scorers. There is evidence to suggest that EQ is a better predictor of management and leadership success than IQ, given the high levels of emotion involved in people management (Goleman, 1998; Slaski and Cartwright, 2002a). Clearly, these attributes are also highly desirable for customer-facing positions.

be applied to ‘‘emotional intelligence’’, with the exception that the ‘‘environments’’ of relevance will be those with an emotional content (such as where high levels of inter-personal interaction take place, for example) – and the ‘‘practical definition’’ will be an individual’s EQ score. With regard to our interest in the maintenance of a positive climate for services, the issues of importance here are: . the degree to which emotions may mediate the organizational service climate; and . the degree to which any given measure of EQ addresses competencies relevant to the development of such a climate. There are various measures of EQ available, such as the Bar-On EQ-i (Bar-On, 1997) and the EIQ (Dulewicz and Higgs, 1999), in addition to offerings by test publishers providing ‘‘EQ derivatives’’ from existing measures of personality or inter-personal competencies. The Bar-On EQ-i is regarded as the most valid and reliable measure of EQ currently available (Slaski and Cartwright, 2002b). The model upon which this is based conceives EQ as a collection of interrelated emotional, personal and social abilities that determine our facility to cope with environmental pressures and demands. It measures behavioural outcomes with regard to how people perceive themselves in relation to real-life situations and experiences. Table I shows the principle dimensions and subscales of the EQ-i, many of which can be seen

Emotional intelligence and interpersonal competencies There has been research associating EQ with key skills among nursing staff (Cadman and Brewer, 2001), with interpersonal skills among managers (Morland, 2001), and with customer service in general (Cook and McCaulay, 2002). Higher levels of emotional intelligence within organizations are also likely to enhance the type of transformational management style required to create, and maintain, a positive service climate (Barling et al., 2000) and some components of EQ have been found to be strongly associated with transformational leadership behaviours (Beadle, 2000). There has been some controversy surrounding the concept of emotional intelligence, however, and arguments have been put forward that it is little more than an umbrella term – for a collection of well-established interpersonal skills, which have essentially been ‘‘repackaged’’ (Woodruffe, 2001). In a sense, similar arguments could be made about ‘‘cognitive intelligence’’, which defies straightforward definition but is essentially also an umbrella term – for intellectual abilities and competencies, such as reasoning, judging, learning, etc. However, although a conceptual definition of ‘‘intelligence’’ may be seen as an individual’s ability to profit from experience and to engage in appropriate adaptive functioning within given environments, the pragmatic interpretation is generally: ‘‘that which the intelligence tests measure’’ (Reber, 1985, p. 365) – namely ‘‘IQ’’. Essentially, the same conceptual and practical definitions can

Table I Dimensions and sub-scales of EQ-i measure EQ-i scales

Sub-scales

Intra-personal

Self-regard Emotional self-awareness Assertiveness Independence Self-actualisation Empathy Social responsibility Interpersonal relationships Reality testing Flexibility Problem solving Stress tolerance Impulse control Optimism Happiness

Inter-personal

Adaptability

Stress management General mood Source: Bar-On (1997)

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to be highly relevant to the maintenance of a positive climate for services. The EIQ measure (Dulewicz and Higgs, 1999) covers similar abilities, though within a somewhat different structure, and addresses additional attributes of: . emotional resilience; . motivation; . decisiveness; . conscientiousness; and . integrity. Although some provision is made within the EQ-i, as shown above, for what may be seen as primarily emotional states (e.g. mood), it can be seen that both measures encapsulate the influences of cognition, behaviour and personality in addition to emotions. There is evidence to indicate an inherent dispositional propensity for service provision among successful service employees. A personality construct, termed ‘‘service orientation’’, has been proposed (described as the disposition to be helpful, thoughtful, considerate and cooperative) and this has been shown to have substantial correlations with overall job performance – among a number of different classifications of personnel (Hogan et al., 1984). More recently, others have reported strong relationships between scores on customer service measures and established personality dimensions from the ‘‘five factor model’’ (Costa and McCrae, 1985; 1989; McCrae and John, 1992). These include: . extraversion, neuroticism (negative) and conscientiousness; . agreeableness, emotional stability (negative neuroticism) and conscientiousness (Frei and McDaniel, 1998); and . extraversion and agreeableness (Hurley, 1998b). It is likely that the effects of the personality of the service provider, on the customer’s service experience, will vary to some extent – depending on such things as: given characteristics of the service in question, customer expectations, switching costs, etc. (Hurley, 1998a,b). However, associations between stable traits and the ability to provide high quality services, among employees, suggest that ‘‘service orientation’’ may be an innate characteristic. It has been suggested that, even with training, employees with low service orientation may not be able to sustain improvements in performance and attitude

over the longer term (Cran, 1994). It may be that such individuals are able to process the ‘‘identification’’, and even ‘‘compliance’’ levels of attitude change (Kelman, 1958), leading to short-term improvements in performance, but fail to achieve the critical ‘‘internalization’’ level – which is required to sustain longer-term behaviour change. However, there is evidence that emotional intelligence (which shares some characteristics of service orientation) can be developed (Goleman, 2000), and that such development may endure over the longer term (Slaski and Cartwright, 2002b). The key to successful development of emotional intelligence lies in an emphasis on self-awareness (Slaski and Cartwright, 2002b). We argue that this is an essential precurser for attitude and behaviour change, and that attempts to enhance social skills without the development of self-awareness are fruitless. In a sense, effective behaviour is the authentic expression of ‘‘who we are’’, thus high levels of self-awareness, among organizational employees, are seen as fundamental to the creation of an enhanced climate for service. Given that we have identified cognitive and dispositional processes, in addition to behavioural outcomes, within the ‘‘cumulative construct’’ known as EQ, the term ‘‘emotional intelligence’’ appears to be a misnomer and, consequently, is somewhat misleading. ‘‘EQ’’, as described in the literature (and measured by the EQ-i), appears to be more to do with awareness and integration, of internal and external processes – these being of a cognitive and behavioural nature, in addition to those of emotional origin and expression. Thus, the term ‘‘integrational ability’’ may be a more appropriate descriptor of the facility under consideration.

A model of service quality competencies In a model of service quality competences under development this concept of integration is developed further (Bardzil et al., 2000; 2002). Here the optimal service experience is seen as resulting from the successful integration of a comprehensive range of service competencies – either at the level of the individual service employee, or through strategic deployment of appropriate

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skills at the level of the organization. These competencies are construed across three principal dimensions, established through factor analysis of customer perceptions of service quality (overall n = 1,101) across a number of research studies (Bardzil et al., 2000): (1) Emotional orientation, or ‘‘individual customer focus’’, refers to employee ability to relate to, and have a positive effect upon, the customer’s ‘‘feelings’’. This facility for affiliation includes: . emotional sensitivity; . empathy; . respect; and . cooperation, etc. (2) Cognitive orientation, or ‘‘service delivery focus’’ refers to the mental abilities required to ensure an adequate service is delivered. This includes awareness of requirements and procedures and knowledge of the product and processes, and is manifested through displays of: . dependability; . responsibility; . reliability; and . problem solving ability, etc. (3) Behavioural orientation, or ‘‘tangible content of service’’, refers to the pro-activity level of employees – with regard to achieving the highest tangible manifestations of service. This is reflected in their observable physical behaviours and displays of initiative (in terms of willingness to act, rather than levels of ‘‘cognitive intelligence’’), motivation, effort, appearance and so on. Within this approach, optimal service quality is seen as resulting from the maximum integration of all the three elements of the model, resulting in a ‘‘meta-quality’’ – somewhat in the nature of a ‘‘gestalt’’. From this perspective, the ‘‘integrational ability’’ afforded by high levels of ‘‘emotional intelligence’’ may be interpreted as the ultimate mediator of appropriate service behaviours, and is thus central to the delivery of ‘‘seamless service’’ (at the level of the individual) and the development of a climate for services (at the level of the organization). As stated above, high levels of self-awareness are seen as fundamental to such integrational ability, and to the development of the levels of self-control, the awareness of others, and the facility to influence others required to allow

such integration to take place – namely the components of the cumulative construct we are referring to as ‘‘emotional intelligence’’. In ‘‘real-life’’ service delivery situations, these principal factors are integrated to a greater or lesser degree – their relative importance varying according to the type of service in question. For example, integration between the emotional and cognitive elements of the model is manifested through competencies concerned with effective communication and includes: . interaction; . responsiveness; . relationship management; and . personalization – based on knowledge of individual needs and organizational constraints. Integration between the emotional and behavioural elements of the model relates to competences involved in the effective customization of the tangible service, and adaptation of physical behaviour (according to individual customer requirements and convenience) and includes: flexibility, innovation and emotional labour on the part of the employee. These integrations show clear overlap with aspects of emotional intelligence as outlined earlier. Integration between the cognitive and behavioural elements of the model is less clearly associated with particular sub-scales of EQ, but implies self-awareness in activity in a broad sense. This area relates to the ‘‘hard’’ task-focused skills involved in service delivery and is manifested through effective organizational ability – including: . planning; . monitoring; . detail consciousness; and . conscientiousness (a sub-scale of EIQ), etc.

Development of emotional intelligence There is evidence in the literature to support the view that EQ can be developed. In a study designed to test the central role of self-awareness, as a precursor of integrational ability, 60 managers from a large retail chain were invited to attend an EQ development programme (Slaski and Cartwright, 2002a, b). For one day per week, over a four-week period, trainees were encouraged to develop

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awareness of aspects of themselves, and their relationships with others, through an examination of their emotional experiences. Participants completed research questionnaires designed to measure: . EQ (EQi – Bar-On, 1997); . health (GHQ28 – Goldberg, 1978); . stress morale and quality of working life (QPASS – Hart et al., 1996). These were administered both prior to the programme and six months following. In addition, participants’ line-managers rated management performance both before and after the program using the organization’s own ‘‘critical success factor’’ model. A further 60 managers acted as a control-group, completing the questionnaires but not participating in the EQ development programme. Results showed that after six months, participants in the programme not only showed increases in levels of EQ, but also demonstrated statistically significant improvements on all the research variables in comparison with the control-group. A follow-up survey up to 18 months later involved interviewing managers to ascertain the impact of EQ development on their behaviour and positive benefits appeared to have been sustained amongst those interviewed – through increased awareness of emotional processes. For example: A whole new world has emerged – ‘‘other people’s feelings’’. At work I have had the most productive six months I have ever had, I’ve handled pressure and disappointments in very positive ways (DB). I was previously not aware of the impact of emotions; consequently I have become more emotionally observant which has helped me with relationships both at work and in my private life (JB).

Conclusion We have cited evidence to suggest that EQ is a better predictor of management and leadership success than IQ (Goleman, 1998), and that it may be associated with improved service provision (Cook and McCaulay, 2002). Therefore, it seems appropriate to incorporate this concept into staff selection, performance management, and training policies (Cadman and Brewer, 2001; Cook and McCaulay, 2002; Morland, 2001). organizations that are successful in today’s

dynamic business world are likely to be those that take a more proactive approach to the development of a positive service climate. It follows that excellent service, with positive emotional content, is most likely to be facilitated by employees who are emotionally self-aware and who understand others on a more emotional level. This ability has been described as emotional intelligence. Research findings presented here suggest that it is possible to develop emotional intelligence (Goleman, 2000; Slaski and Cartwright, 2002b) and that increased levels help to reduce some of the negative aspects of work life that are likely to inhibit a positive climate for services (e.g. stress, distress, low morale, poor mental health, etc. (Slaski and Cartwright, 2002b)). In purposefully developing emotional intelligence, managers have been able to acquire greater self-understanding, have demonstrated better health, morale and quality of work life, and have been able to foster and build closer working relationships. We argue that it is crucial for organizational leaders to recognize the importance of emotionally intelligent behaviour, and to reward it actively. It is highly likely that positive reinforcement of an emotionally intelligent environment will enable the development of a service-orientated climate, which is authentic in nature, and therefore more effective. However, further research is required. For example, at the level of the environment, it would be useful to establish the degree to which higher levels of EQ, at senior management level, may influence the overall culture within the organization. There is little point in developing emotionally intelligent individuals in order to return them to an environment that fails to support their new positive attitudes and behaviours. Better measures of emotionally intelligent outcomes are also required. Management performance measures may not include ‘‘soft skills’’ and will therefore not reflect any positive results of EQ development, that may be occurring within the organization. Research into performance evaluation in work settings recognizes that job performance is more than mere ‘‘execution of tasks’’ (Arvey and Murphy, 1998), and it would be useful to establish the utility of increased levels of EQ within organizations generally – as well as with regard to enhanced climate for services.

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Finally, there are emotional elements to be found underlying the dynamics of many aspects of modern organizations cited in the literature, in addition to customer focus, such as: . change management; . empowerment; . team-working; . creativity; . climates of trust and respect; . shared learning and values; and . open communications, etc. In view of this, it seems appropriate that the role of emotional intelligence is taken into consideration when devising organizational policies, processes and procedures generally. The findings presented here suggest that managers who wish to improve the climate for services within their organizations should be aiming to create and support more positive emotional experiences, and to reduce and minimize the negative ones – for staff as well as customers.

References Abraham, R. (1998), ‘‘Emotional dissonance in organizations: antecedents, consequences and moderators’’, Genetic, Social and General Psychology Monographs, Vol. 124, pp. 229-46. Arvey, R.D. and Murphy, K.R. (1998), ‘‘Performance evaluation in work settings’’, Annual Review of Psychology, Vol. 49, pp. 141-68. Ashforth, B.E. and Humphrey, R.H. (1995), ‘‘Emotions in the workplace: a reappraisal’’, Human Relations, Vol. 48, pp. 97-125. Bardzil, P.J., Lewis, B.R. and Robertson, I.T. (2000), ‘‘Understanding customer service: modeling the determinants of the service experience’’, Quality in Services (QUIS 7) – Service Quality in the New Economy: Interdisciplinary and International Dimensions, Karlstaad, pp. 33-43. Bardzil, P.J., Lewis, B.R. and Robertson, I.T. (2002), ‘‘Modeling and measuring key determinants of the customer’s service experience’’, QUIS 8. Quality in Service: Crossing Borders, University of Victoria, pp. 163-6. Barling, J., Slater, F. and Kelloway, K. (2000), ‘‘Transformational leadership and EQ’’, Leadership & Organizational Development Journal, Vol. 20 No. 4. Bar-On, R. (1997), Bar-On Emotional Quotient Inventory: A Measure of Emotional Intelligence, Technical Manual, Multi-Health Systems, Toronto. Beadle, D. (2000), ‘‘Leadership development: transformational leadership and emotional intelligence’’, MSc dissertation, University of Manchester Institute of Science and Technology, Manchester.

Bulan, H.F., Erickson, R.J. and Wharton, A.S. (1997), ‘‘Doing for others on the job: the affective requirements of service work, gender and emotional well-being’’, Social Problems, Vol. 44, pp. 235-56. Cadman, C. and Brewer, J. (2001), ‘‘Emotional intelligence: a vital prerequisite for recruitment in nursing’’, Journal of Nursing Management, Vol. 9, pp. 321-4. Cook, S. and McCaulay, S. (2002), ‘‘How to use emotional intelligence to serve the customer’’, Customer Management, July-August. Costa, P. and McCrae, R. (1985), The NEO Personality Inventory Manual, Psychological Assessment Resources, Odessa. Costa, P. and McCrae, R. (1989), The NEO-FFI Manual Supplement, Psychological Assessment Resources, Odessa. Cran, D.J. (1994), ‘‘Towards validation of the service orientation construct’’, The Service Industries Journal, Vol. 14 No. 1, pp. 34-44. Dulewicz, V. and Higgs, M. (1999), Emotional Intelligence Questionnaire: User Guide, NFER-Nelson, Windsor. Frei, R.L. and McDaniel, M.A. (1998), ‘‘Validity of customer service measures in personnel selection: a review of criterion and construct evidence’’, Human Performance, Vol. 11 No. 1, pp. 1-27. Goldberg, D. (1978), Manual of the General Health Questionnaire, NFER-Nelson, Windsor. Goleman, D. (1998), Working with Emotional Intelligence, Bloomsbury, London. Goleman, D. (2000), ‘‘Leadership that gets results’’, Harvard Business Review, March-April, pp. 79-90. Hart, P., Griffin, M., Wearing, A. and Cooper, C. (1996), The Queensland Public Agency Staff Survey (QPASS), Psychology Department, University of Queensland, St Lucia. Heskett, J., Sasser, W. and Schlesinger, L. (1997), The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction and Value, Free Press, New York, NY. Hochschild, A. (1983), The Managed Heart, University of California Press, Berkeley, CA. Hogan, R., Hogan, J. and Busche, C.M. (1984), ‘‘How to measure service orientation’’, Journal of Applied Psychology, Vol. 69, pp. 157-63. Hurley, R.F. (1998a), ‘‘Service disposition and personality: a review and a classification scheme for understanding where service disposition has an effect on customers’’, in Swartz, T.A., Bowen, D.E. and Brown, S.W. (Eds), Advances in Services Marketing and Management: Research and Practice, JAI Press, Greenwich, CT. Hurley, R.F. (1998b), ‘‘Customer service behaviour in retail settings: a study of the effect of service provider personality’’, Journal of the Academy of Marketing Science, Vol. 26 No. 2, pp. 115-27. Johnson, J. (1996), ‘‘Linking employee perceptions of service quality to customer satisfaction’’, Personnel Psychology, Vol. 49, pp. 831-51. Keiningham, T. and Vavra, T. (2001), The Customer Delight Principle: Exceeding Customers’ Expectations for Bottom-line Success, McGraw-Hill, New York, NY. Kelman, H.C. (1958), ‘‘Compliance, identification and internalization: three processes of attitude change’’, Journal of Conflict Resolution, Vol. 2, pp. 51-60.

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LeDoux, J. (1998), The Emotional Brain, Weidenfeld and Nicholson, London. Mayer, J.D. and Salovey, P. (1997), ‘‘What is emotional intelligence?’’, in Salovey, P. and Sluyter, D. (Eds), Emotional Development and Emotional Intelligence, Basic Books, New York, NY. McCrae, R.R. and John, O. (1992), ‘‘An introduction to the five-factor model and its applications’’, Journal of Personality, Vol. 60, pp. 175-215. Morland, D.A. (2001), ‘‘The emotional intelligence of managers: assessing the construct validity of a non-verbal measure of ‘people skills’’’, Journal of Business and Psychology, Vol. 16 No. 1, pp. 21-33. Morris, J. and Feldman, D. (1996), ‘‘The dimensions, antecedents, and consequences of emotional labour’’, Academy of Management Journal, Vol. 21, pp. 989-1010. Oliver, R.S. (1996), Satisfaction: A Behavioral Perspective on the Consumer, McGraw-Hill, Boston, MA. Ostell, A. (1996), ‘‘Managing dysfunctional emotions in organizations’’, Journal of Management Studies, Vol. 33, pp. 525-57. Parasuraman, A., Zeithaml, A. and Berry, L.L. (1988), ‘‘SERVQUAL: a multiple-item scale for measuring consumer perceptions of service quality’’, Journal of Retailing, Vol. 64, pp. 12-40. Reber, A.S. (1985), Dictionary of Psychology, Penguin Books Ltd, London. Reicheld, F.R. (1996), The Loyalty Effect, Harvard Business School Press, Boston, MA. Salovey, P. and Mayer, J.D. (1990), ‘‘Emotional intelligence’’, Imagination, Cognition and Personality, Vol. 3 No. 3, pp. 185-211. Schneider, B. and Bowen, A. (1993), ‘‘The service organization: human resources management is crucial’’, Organizational Dynamics, Vol. 21 No. 4, pp. 39-52.

Schneider, B., Bowen, D.E., Ehrhart, M.G. and Holcombe, K.M. (2000), ‘‘The climate for service: evolution of a construct’’, in Ashkanasy, C.P., Wilderom, C.P. and Petercon, M.F. (Eds), Handbook of Organizational Culture and Climate, Sage, Thousand Oaks, CA, pp. 21-36. Schneider, B., White, S. and Paul, M. (1998), ‘‘Linking service climate and customer perceptions of service quality: test of a causal model’’, Journal of Applied Psychology, Vol. 83. Slaski, M. and Cartwright, S. (2002a), ‘‘Health, performance and emotional intelligence: an exploratory study of retail managers’’, Stress and Health, Vol. 18 No. 2, pp. 63-8. Slaski, M. and Cartwright, S. (2002b), ‘‘What is emotional intelligence? Can it be developed in managers? If so, what are the effects on stress, health, well-being and performance?" (in preparation). Spector, P.E., Dwyer, D.J. and Jex, S.M. (1988), ‘‘Relation of job stressors of affective, health and performance outcomes: a comparison of multiple data sources’’, Journal of Applied Psychology, Vol. 73, pp. 11-18. Thoits, P.A. (1996), ‘‘Managing the emotions of others’’, Symbolic Interaction, Vol. 19, pp. 85-109. Woodruffe, C. (2001), ‘‘Promotional intelligence’’, People Management, Vol. 7 No. 1. Zapf, D., Vogt, C., Seifert, C., Mertini, H. and Isic, A. (1999), ‘‘Emotion work as a source of stress. The concept and development of an instrument’’, European Journal of Work and Organizational Psychology, Vol. 8, pp. 371-400. Zeithaml, V.A. and Bitner, M.J. (2000), Service Marketing: Integrating Customer Focus Across the Firm, McGraw-Hill, Boston, MA. Zeithaml, V., Parasuraman, A. and Berry, L.L. (1990), Delivering Service Quality: Balancing Customer Perceptions and Expectations, Free Press, New York, NY.

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Introduction

Communicating a quality position in service delivery: an application in higher education Jonathan Gutman and George Miaoulis

The authors Jonathan Gutman is Professor of Marketing and Chair at the Whittemore School of Business and Economics, University of New Hampshire, Durham, New Hampshire, USA. George Miaoulis, Jr is Professor of Marketing and Director of the Health Services Management Program at Robert Morris University, Pittsburgh, Pennsylvania, USA. Keywords Service delivery system, Service quality, Positioning, Higher education Abstract This paper describes a method uniquely suited to the problem of coordinating quality service delivery with service quality positioning. The means-end chain model is used to develop a marketing communications strategy for a university. In this study, first-year students were asked about their goals in attending college as well as what attributes a college would have to have in order to be able to satisfy their goals. Because the means-end chain approach provides information about the linkage between attributes, benefits, and personal goals, it is well suited to the needs of service developers as well as those charged with the responsibility for designing the marketing communications that position those services. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0960-4529.htm Managing Service Quality Volume 13 . Number 2 . 2003 . pp. 105-111 # MCB UP Limited . ISSN 0960-4529 DOI 10.1108/09604520310466798

‘‘We teach success’’ is the not so subtle headline message that dominates Hofstra University’s full-page, inside back cover advertisement in the 18 December 2000 issue of New Yorker magazine. At $65,000 a page, Hofstra (located in Hempstead, New York) is no doubt counting on communicating its core message to its target audiences – parents, alumni, donors, trustees, and students. But, what does success mean, and why do students want it? And, what particular aspects of their program are essential to enable them to deliver on this promise. In an era in which adequate funding for higher education is difficult to come by, the marketing communications component of enrollment management has become increasingly important. Sophisticated marketing communications techniques are being used, including advertising, promotional literature, direct marketing techniques such as telemarketing, direct mail, videotapes (Wascoe, Jr, 1992; Wojtas, 1991), and most recently, the Internet. Today, the college or university Web site is often the first place a prospective student or parent looks for information. The day of having and sending only a college catalog is long gone. A problem that arises too often is that marketing communications promise benefits that the institutions are unable to deliver. It is important in developing communications programs to link the benefits promised firmly to the attributes, characteristics, or operational capabilities of the institution needed to deliver these benefits. In short, service delivery has to live up to service promises, especially if the service provider is ‘‘claiming’’ the quality service position.

Establishing a brand image At the heart of any effective marketing communications effort is a theme that resonates with, and is hopefully remembered by, the target audience. An effective theme, consistent with the image the institution is trying to project, ultimately allows for the creation and management of ‘‘brand image’’. A positive brand image can be a powerful influence in the decision to attend a college or university. Some notable themes or 105

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positioning statements from colleges and universities include: . ‘‘a major research university set in a tropical garden’’ – University of Miami; . ‘‘as the smallest of the big ten public universities, Iowa offers the best of both worlds: a large variety of resources in a comfortable, close-knit community’’ – University of Iowa; . ‘‘the finest liberal arts college in the west’’ – Pomona College; and . ‘‘named the best value in private education’’ – Rice University. Branding involves creating a unique identity for a product and as such is far greater than the product the brand represents. A brand image is a cluster of attributes and associations that consumers connect to a brand name (Biel, 1992). These associations come from the consumer’s experience with the brand and from the marketer’s efforts to manage brand image. Marketers can focus on three aspects in creating brand images: (1) the image of the provider of the product or service (corporate image); (2) the image of the user; and (3) the image of the product or service itself (Biel, 1992). When we are talking about a college or university, one way to explore brand image is simply to ask consumers (students, parents, alumni, and other potential influencers) ‘‘What comes to mind when they think of the name of your institution?’’ This approach is consistent with the associational nature of brand image in that it focuses on ‘‘what people think of when they think of your institution’’ rather than ‘‘what people think of your institution’’. The difference refers to thinking of brand image as a network of linkages between all the cognitive and emotional elements evoked by the name of your institution (Reynolds and Gutman, 1984). Some of these elements may be related to the physical aspects of the institution (its buildings and environment); other elements may be related to organizations and people at the institution (sports teams, professors, students, administration, clubs, etc.); still other elements may relate to feelings associated with any of these elements or with special events. The goal of image management is to increase the probability that the same image is

activated regardless of which elements trigger the activation. Marketers strive to achieve this goal by ‘‘positioning’’ the institution in the mind of its target audiences in a way that is best at evoking the desired brand image by triggering the salient aspects of the network of meanings (linkages) associated with the institution. Krishnan (1996) discusses the implications of association patterns for managing brand equity. To assist enrollment management professionals with the task of developing appropriate, meaningful, and memorable marketing communications strategies we will describe and illustrate a relatively easy to use research method uniquely suited to this problem, the means-end chain and its interviewing method, laddering.

Means-end chains (MEC) for service attributes, benefits, and values The means-end chain model focuses on consequences accruing to consumers from their behavior (Gutman, 1982). Expectancy-value theory (Rosenberg, 1956) posits that consumer actions produce consequences and that consumers learn to associate particular consequences with particular aspects of a product. Therefore, the ‘‘means’’ in the means-end chain model can be thought of as products or services and the ‘‘ends’’ as values that underlie consumer needs. The ‘‘means-end chain’’ seeks to explain how consumers’ selection of products or services enables them to achieve their desired end states. In the traditional means-end chain model, the elements consist of attributes, benefits, and values organized hierarchically according to the levels of abstraction concept (Olson and Reynolds, 1983). In the case of higher education, the ‘‘means’’ in the means-end chain model can be thought of as the institution of higher learning and the ‘‘ends’’ as personal values that underlie important goals of students or parents (or other stakeholders). Olson and Reynolds (1983) have suggested a scheme for categorizing the contents of consumers’ knowledge structures in terms of the levels of abstraction concept (see Table I). Attributes are divided into concrete and abstract levels. Concrete attributes are defined as being physical characteristics of a product that can be directly perceived. Their

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Table I Levels of abstraction Abstract level

Concrete level

Terminal values Instrumental values Psychosocial consequences Functional consequences Abstract attributes Concrete attributes

tangibility allows them to be measured in physical units, such as size of student body or number of faculty. Abstract attributes are more subjective in nature, like good academic record or party school. These are more in the way of perceptions that exist only in the minds of those who perceive the institution. At the consequence level, a distinction is made between functional and psychosocial consequences. Functional consequences accrue directly to the consumer from attending the institution (becoming a better public speaker, learning to write well, or developing social skills). Such consequences are instrumental to consumers achieving psychosocial consequences, such as having more friends, making a better impression on others, or having more self-confidence. And at the values level, instrumental values, defined as preferred modes of behavior (i.e. ambitious, polite) are distinguished from terminal values, preferred end states of being (i.e. security, self-esteem). The elements in a MEC – attributes, consequences, and values – can be considered to be elements in a goal hierarchy (Gutman, 1997). A goal hierarchy is the way a consumer breaks up a complex or longer range problem into a series of smaller, shorter range problems that can be managed better over an extended period of time (Bettman, 1979). When the final goal is at the values level, relevant attributes and desired consequences are the goal hierarchy’s sub-goals. Thus, a MEC can be conceptualized as a goal hierarchy with product goals at lower levels linked to important personal goals at higher levels. This perspective is certainly relevant to a high school senior’s decision about which college to attend. Zirkel and Cantor (1990) used the concept of ‘‘life tasks’’ to investigate how college students’ long-term goals affected the academic activities in which they chose to engage. MECs are very important for marketing communications development as well as for service delivery as they represent ways in

which the product (characteristics of the institution) is connected to the person (student’s or parent’s end goals). A good communication strategy needs to address the issue of how the choice of a particular brand is instrumental to goal achievement. Positioning is where the marketer boils down what the institution is to its essence and explains how it connects to relevant personal goals.

Laddering: an interviewing approach for eliciting MECs Laddering is an easy to use, individually focused qualitative interviewing approach for eliciting means-end chains. Laddering’s inherent advantage is that it retains the respondent’s own words to describe the college decision process in the analysis and reporting process. This is particularly important as the language used by each new freshman class is changing more rapidly than did a decade ago. In laddering, the respondent replies to a series of ‘‘why?’’ probes, typically starting with the attributes that distinguish more desired from less desired alternatives. Inherent in the answer to why a consumer wants a particular attribute or consequence is that it causes, leads to, facilitates, or is a necessary precondition to achieving the benefit at the next higher level of abstraction. This series of successive elicitations creates a chain of elements with each element being directly linked to the elements adjacent to it. Reynolds and Olson (2001) have published a compilation of articles about the means-end approach that contains numerous examples of the laddering approach.

Purpose In this paper we are applying the means-end chain and its associated methodology, laddering, to the way students think about a college education when they are in the process of considering which schools to apply to and attend. Once the method has been illustrated and the results have been discussed, the ways in which these data might be made use of in developing a quality service positioning strategy using a marketing communications program and its implication for service delivery will be discussed.

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Methodology All interviewing was conducted as part of a class project in an upper-level undergraduate consumer behavior class at the University of New Hampshire. Each student completed two interviews after conducting at least one training interview. The results of the students’ training laddering interviews were discussed in class to help ensure that they were conducting the interviews in an appropriate manner. All respondents were first year college students (evenly divided between men and women). As interviews were conducted before the midpoint of their first semester in college, their college decision processes were still fresh in their minds. Additionally, their minimal college experiences should not have had too much effect upon their opinions. Respondents were interviewed individually, each interview taking approximately 15 to 20 minutes. Consistent with the goals’ orientation described above as the basis for implementing this MEC study, all interviews started with a mid-level goals question (for beginning the probing process with mid-level goals, see Vallacher and Wegner, 1987). For each answer provided, interviewers were instructed to probe upward for higher-level goals and downward to perceptions and attributes of colleges. Upward probing occurred first to provide a more complete context for probing goals at the perceptual and attribute levels. Because of the use of student interviewers, more structure was provided to them by way of specific probing questions than is usual in laddering interviews (Reynolds and Gutman, 1988). This gave them a level of comfort as not only did they have to use newly acquired probing skills, but also use them within the context of the means-end chain model and the laddering interviewing methodology. This added degree of structure also served the purpose of making the resulting ladders more structurally consistent across respondents. Table II shows the questions by level in the goals hierarchy.

Results A total of 203 ladders were obtained from the 86 respondents, with some respondents providing only one ladder and others as many

as five ladders. Most ladders contained five elements (the minimum length given the way the laddering interview was conducted), with the longest ladder containing eight elements (see Figure 1 for exemplar ladders). The first task in analyzing the data was to code the contents of the ladders (associating numerical values with qualitative responses). The coding of the ladder elements proceeded by first separating them into categories corresponding to the levels indicated in Table I. Next, those elements that expressed similar meanings were combined, resulting in a set of codes that represented the meanings expressed in the individual ladders. This resulted in 48 separate elements. The 203 ladders were input into a computer program that yielded a 48  48 matrix of frequencies of linkages among all elements (this matrix is too large to reproduce in this article, but is available upon request). A linkage occurs when an element precedes another element in the same ladder. Some linkages are direct (for adjacent elements); others are indirect (for non-adjacent elements). These linkages are summed across all ladders and form the basis for constructing the map shown in Figure 2. The basic process in constructing a map is to start with a row-column cell in this matrix that meets or exceeds the chosen cut-off level (seven, in this study). The column element then becomes the row and the next row-column cell is found. The result of this process is a series of chains of elements that are used in constructing the map (see Reynolds and Gutman, 1988, for more detail on map construction). Figure 2 shows those relationships between elements that occur at least seven times, an arbitrary cut-off level that yielded a map of sufficient complexity without an excessive number of insignificant relationships (see Reynolds and Gutman, 1988, for a discussion of cut-off criteria). The goal in constructing a map is to represent as many relationships above the cut-off level as possible while avoiding too many crossed lines that make a map difficult to interpret. Elements at the same level in the goal hierarchy are mapped at the same horizontal level in the map. Elements relating to particular attributes of colleges appear at the bottom of the map and elements relating to important personal goals appear at the top of the map. At the map’s mid-level, immediate

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Table II Questions used in eliciting means-end chains Level

Question

End goals Intermediate goals

What long-term personal goals or values are related to this (lower-level) goal? What feelings do you desire to have about yourself upon graduation that are related to this (lower) goal? Immediate goals At the time you were a high school senior and were involved in the college (starting question for laddering interviews) decision process, what did you want to get out of your college education? Perceptual goals What would a college have to be like to help you achieve these (higher-level) goals? Attribute goals What specific features or attributes would a college have to have in order to be (like your perceptual goal)? Figure 1 Exemplar individual ladders

Figure 2 Hierarchical goals map for choosing a college to attend

goals level (What do you want from your college education?), ‘‘good education’’, ‘‘gain knowledge’’, ‘‘develop career skills and job opportunities’’, and ‘‘meet new people’’ are plotted from left to right across the map. Aside from this horizontal view, there is another fundamentally different way to draw inferences from the map. This involves

looking at the map in terms of pathways or perceptual orientations (Reynolds and Gutman, 1988) leading from the bottom to the top of the map – from lower-level goals to higher-level goals. For example, one could trace a pathway up the left side of the map representing education for its own sake, whereas elements

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leading through the center of the map pertain to more career oriented skills. And, on the right side of the map are the social aspects of attending college. Note that a pathway could be traced from the lower right (social) to the upper left-center (connecting social skills to material goals). These pathways or ‘‘prototypical respondents’’ (Reynolds and Gutman, 1988) could be converted into descriptions for segmentation purposes (respondents could select the description that best fits them). Respondents could then be asked to rate various colleges on the elements at various levels in the goal hierarchy of the prototypical chain they select. Another way to view the map is in terms of elements that occupy a central position on the map, with many elements leading into and out of them. ‘‘Able to compete’’ is interesting in this respect because it flows from ‘‘social environment’’ via ‘‘career skills’’, or from ‘‘wide exposure to ideas’’. From this perspective, any element can be better understood by noting what elements lead into it and which elements it leads to. Similarly, ‘‘good reputation’’ is an example of an element that has many elements leading into and out of it. These perspectives contribute to the development of items for use with alternative research approaches (attitude models, opinion survey item construction). A hierarchical goal structure map could also act as the basis for focus groups to probe nodes and connections between nodes to give added depth to relationships depicted in the map.

Developing and communicating service positioning strategies The following communications thought process is useful in translating these findings into marketing communications/positioning strategy elements: . driving force (the end-goal to be focused on); . consumer benefit (major positive consumer consequences – student in this case); and . message elements (specific attributes or features to be communicated). Given the above relationship map, a college or university could determine along which dimensions its strengths lie so that it could actually deliver on its communication’s

promises (positioning statement) at each level of abstraction. Thus, communication and brand image are consistent. Or, a college may decide in what way it has to change to deliver on the promises its positioning statement makes to prospective students (the desired position). Thus, altering image, communications, or both based on the relationship map. In this example, the three obvious positioning opportunities revolve around: (1) finding a meaningful and fulfilling career; (2) material success; and (3) forming long lasting personal relationships. A close examination of elements across the levels of abstraction associated with each top-level element would be valuable in developing marketing strategy to direct the search for an effective positioning statement. In some instances a unifying perspective (an umbrella positioning statement) that can serve to evoke all aspects of this network of meanings can be found. One possibility is to use the term ‘‘opportunities’’. The word suggests that a university provides opportunities in that it makes available a plethora of ways for students to develop career skills and hence, an ability to compete on the one hand, and on the other hand, personal growth and unlocking of personal potential. The important aspect of ‘‘opportunities’’ is that it takes active involvement on the part of the student to translate opportunities into realized outcomes. Thus, one meaning inherent in the message should be that there is a form of partnership between the student and the institution that can only be realized if both parties live up to their side of the bargain.

Conclusion Laddering interviews and the building of maps of relationships can be valuable aids to marketing communications for quality service strategy development and service delivery in that they stimulate the kind of lateral thinking that leads to positioning statements that can meaningfully differentiate a college and university from its competitors. Additionally, by including attributes of the institution and the services it provides, the communications strategy statement can help the institution to

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not only develop a unique position in the minds of its prospects, but also prepare itself to deliver what it has promised. To take this research approach further and make it more actionable to management decision-making it would be necessary to probe more deeply into the attributes and perceptions from which inferences such as ‘‘helpful, nurturing school’’, ‘‘a school with a good reputation’’, and ‘‘a school with a good social environment’’ are made. Similarly at the highest levels, what are the meanings associated with ‘‘unlocking potential’’, ‘‘a meaningful, enjoyable career’’, and ‘‘forming long-lasting relationships’’? Self-administered laddering interviews have limitations in that they do not provide for probing opportunities. Using interviewers trained in the laddering technique is one way to solve this problem. Another approach is to use hierarchical maps as the basis for further qualitative research to get at these deeper meanings. Discovering the essence of an institution and the real meanings associated with the benefits and values of those who choose to pursue their educations there are the keys to effective communications and service delivery.

References Bettman, J.R. (1979), An Information Processing Theory of Consumer Choice, Addison-Wesley, Reading, MA. Biel, A.L. (1992), ‘‘How brand image drives brand equity’’, Journal of Advertising, Vol. 32 No. 6, pp. 6-12.

Gutman, J. (1982), ‘‘A means-end chain model based on consumer categorization processes’’, Journal of Marketing, Vol. 46, Spring, pp. 60-72. Gutman, J. (1997), ‘‘Means-end chains as goal hierarchies’’, Psychology and Marketing, Vol. 14 No. 6, pp. 545-60. Krishnan, H.S. (1996), ‘‘Characteristics of memory associations: a consumer-based, brand equity perspective’’, International Journal of Research in Marketing, Vol. 13 No. 4, pp. 389-405. Olson, J.C. and Reynolds, T.J. (1983), ‘‘Understanding consumers’ cognitive structures: implications for advertising strategy’’, in Percy, L. and Woodside, A. (Eds), Advertising and Consumer Psychology, Vol. 1, Lexington Books, Lexington, MA. Reynolds, T.J. and Gutman, J. (1984), ‘‘Advertising is image management’’, Journal of Advertising Research, Vol. 24 No. 1, pp. 27-36. Reynolds, T.J. and Gutman, J. (1988), ‘‘Laddering theory, method, analysis, and interpretation’’, Journal of Advertising Research, Vol. 28, February/March, pp. 11-34. Reynolds, T.J. and Olson, J.C. (Eds) (2001), Understanding Consumer Decision Making: The Means-End Approach to Marketing and Advertising Strategy, Lawrence Erlbaum Associates, Mahwah, NJ. Rosenberg, M.J. (1956), ‘‘Cognitive structure and attitudinal affect’’, Journal of Abnormal and Social Psychology, November, pp. 367-72. Vallacher, R.R. and Wegner, D.M. (1987), ‘‘What do people think they’re doing? Action identification and human behavior’’, Psychological Review, Vol. 94 No. 1, pp. 3-15. Wascoe, D. Jr (1992), ‘‘Marketing colleges: schools are trying new tactics in bid to recruit students from shrinking pool’’, Star Tribune, 20 February, p. 1D. Wojtas, G.W. (1991), ‘‘School daze’’, Direct Marketing, 28-31 September, p. 48. Zirkel, S. and Cantor, N. (1990), ‘‘Personal construal of life tasks: those who struggle for independence’’, Journal of Personality and Social Psychology, Vol. 58 No. 1, pp. 172-85.

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To fade or not to fade? That is the question in customer relationships, too Pekka Tuominen and Ulla Kettunen

The authors Pekka Tuominen and Ulla Kettunen are based at Turku School of Economics and Business Administration, Turku, Finland. Keywords Relationship marketing, Customer loyalty, Customer satisfaction, Service industries, Service quality Abstract In the services literature, there is a significant lack of studies that focus on the phase preceding the ending of a relationship – that is, the phase during which there is a weakening of a customer relationship. The purpose of this study is to describe and analyse the fading process of customer relationships in the service industry. First, it aims to discover empirical triggers for the fading of customer relationships. Second, it aims to identify dimensions of fading in customer relationships and to reveal underlying elements in these dimensions. Third, it aims to disclose the main critical risk elements of fading in customer relationships in specific fading groups. A mail survey is conducted in one case company in the service industry. The data are reduced by means of factor, discriminant, and classification analysis. Dimensions of fading in customer relationships include alliance partners, personal telephone services, technical support services, and award points. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0960-4529.htm Managing Service Quality Volume 13 . Number 2 . 2003 . pp. 112-123 # MCB UP Limited . ISSN 0960-4529 DOI 10.1108/09604520310466806

Introduction To be, or not to be: that is the question: Whether ’tis nobler in the mind to suffer The slings and arrows of outrageous fortune, Or to take arms against a sea of troubles, And by opposing end them? (William Shakespeare, Hamlet, III, i, 56)

One of the key issues in the study of customer or business relationships has been the way in which these relationships develop, and various models of the process have been proposed. However, most of these models give only slight attention to the ending of these relationships (Alajoutsija¨rvi et al., 2000; Gro¨nroos, 2000). Halinen and Ta¨htinen (2000) have made an intensive study in which they reviewed and assessed previous research concerning the ending of both customerbusiness and business-business relationships. One of the findings of their study was that many diverse terms are currently being used – often without clear meaning, and often interchangeably. Based on their literature review, Halinen and Ta¨htinen (2000) proposed that the general term ‘‘ending’’ could be used when referring, in general, to the breaking of a relationship – whatever the type of relationship, how it ends, and why it ends. The term ‘‘termination’’ could refer to the deliberate ending of a relationship by one of the parties, or by an outside actor. The term ‘‘dissolution’’ could describe a natural ending of a relationship, without any deliberate decision to do so. The term ‘‘switching’’ could refer to the ending of a relationship in which another service provider is substituted for the original provider. In ‘‘switching’’, therefore, the emphasis is on the decisions and actions of one actor in ending the relationship and on the formation and strengthening of another relationship (Halinen and Ta¨htinen, 2000; Ta¨htinen and Halinen, 2002). The purpose of the present study is to describe and analyse the fading process of customer relationships in the service industry. First, we aim to discover empirical triggers for the fading of customer relationships. Second, we aim to identify dimensions of fading in customer relationships and to reveal underlying elements in these dimensions. Third, we aim to disclose the main critical risk elements of fading in customer relationships in specific fading groups.

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The concept of relationship ending Halinen and Ta¨htinen (1999, pp. 12-13) have proposed that relationships can be categorised into three types: (1) continuous; (2) terminal; and (3) episodic. Based on this classification, these authors have identified five different types of relationship endings: (1) chosen; (2) forced; (3) natural; (4) desired; and (5) predetermined. Different types of relationships and potential relationship ending are depicted in Table I. In continuous relationships, the actors are with each other for the time being, and the relationship ending comes suddenly from the perspective of the parties involved. This relationship ending can be characterised as chosen, forced, or natural (Halinen and Ta¨htinen, 1999, pp. 12-13). In a chosen ending, one or both actors make a decision to end the relationship. The reason for ending might be one actor’s dissatisfaction with the relationship and desire to exit from it (Ta¨htinen, 2001, p. 48). This sort of ending occurs if a dissatisfied customer decides that the service or price of a provider is unsatisfactory, and that a change in provider is timely. For example, a patient might choose to change from one doctor to another for reasons of unsatisfactory service or price. Continuous relationships can also end without any purposeful decision by the parties. This is the case in a forced ending – a change or an event outside the immediate relationship, occurring in the broader network in which the relationship is embedded, might force the actors to end their relationship

(Halinen and Ta¨htinen, 2002, pp. 167-8). For example, a small publishing company might be taken over by a larger firm. Even if the small publishing house has had long-standing satisfactory relationships with its various outsourced service providers (such as editors, designers, and printing firms), these relationships might be forced to an end if the larger corporation, having taken over, insists on its own pre-existing arrangements with its preferred editors, designers, and printers. Finally, in a natural ending, a relationship might have gradually become ‘‘dated’’ as the need for this particular business interaction has decreased (Halinen and Ta¨htinen, 2002, pp. 167-8). Gradual business and technological developments might mean that a firm no longer needs the services of a particular provider, and both parties might be quite accepting of this natural development. For example, a company might reluctantly decide that changes in its industry necessitate a change in its advertising strategy from printed material to electronic media, thus ending a long-standing advertising relationship with a newspaper publisher. The relationship has come to a natural ending despite a mutually satisfactory relationship over many years. Terminal relationships are unwilling relationships. Although the relationship is in existence, both actors would like to function independently, or with someone else. They are, however, unable to do so. In such a relationship, the parties expect the relationship to continue, but would prefer to end it. They thus wish a desired ending, to be realised as soon as circumstances permit (Halinen and Ta¨htinen, 1999, p. 13). Such relationships are often seen in ‘‘niche’’ businesses when there is a limited number of providers and customers. For example, in a relatively isolated community, there might be a limited number of firms engaging in the

Table I Different types of relationships and potential relationship endings The present nature of the relationship

Type of ending

Continuous relationships

Chosen Forced Natural Desired

Terminal relationships Episodic relationships

Examples

Unhappy patient changes doctor Takeover of publishing firm ends previous relationships with printers, editors, designers, and so on New advertising strategy requires a change in provider Supplier and customer of specialised ‘‘niche’’ legal advice wish to end unsatisfactory relationship but cannot yet achieve it Predetermined Music festival organiser contracts for services (music, food, security) for a short, predetermined time

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business of merchant shipping, and only one provider of legal advice in the specialised field of maritime law. The provider of legal advice might not be able to find other customers, and the existing customers might have little or no choice of legal provider. Even if both parties to such a relationship are unhappy, they might have no choice but to continue in a terminal, at least for the time being, until a desired ending can be achieved. An episodic relationship is established for a certain purpose and/or for a certain time. Such a relationship ends when it has served its purpose or when the time period has elapsed. The ending of an episodic relationship is thus predetermined, although the relationship might end before the predetermined point of ending has been reached (Halinen and Ta¨htinen, 2002, pp. 167-8). For example, an organiser of a music festival might form an episodic relationship with certain service providers – musicians, food services, or security services. In such relationships, both parties know that the relationship is episodic and that ending is predetermined.

The ending and fading of customer relationships The ending of a customer relationship can proceed in various ways. A customer might partially switch to another service provider, or might end the whole relationship at once. It is typical of most service industries that customers have simultaneous relationships with a number of service providers. Consequently, it is possible for a customer relationship to weaken without a total ending of the relationship. In Table II, the outcomes of a customer-relationship ending process are classified according to:

. .

the length of the ending process; and the strength of the reaction to the outcome.

The length of the ending process is categorised as a short process or a long process. The strength of reaction refers to customers’ attitudes towards a possible return after a relationship ending (Roos and Strandvik, 1996, p. 15). A customer who reacts strongly (Types 1 and 2) has a clear intention of not continuing the relationship. This kind of customer is, potentially, a source of negative word-of-mouth communication. In contrast, a customer with a weak reaction (Types 3 and 4) might reconsider his or her decision to end the relationship; the customer’s attitude to the service provider is often neutral, and such a customer therefore seldom spreads negative comments about the service provider (Roos and Strandvik, 1996, p. 15). In Type 1, a customer ends a relationship quickly and entirely. In Type 2, the customer also ends the relationship completely, but the decision to end is a result of longer-term considerations. A Type 1 ending might occur as a result of a significant failure to deliver a vital service when it was urgently required. For example, a patient might feel that a doctor’s diagnostic error is simply unacceptable, and the patient might therefore put a sudden and permanent end to the relationship, even though the patient has never previously considered ending the relationship. The ending is sudden, but irrevocable. In Type 2, the decision to end the doctor-patient relationship might come about as a culmination of a series of incidents. Each of these incidents, in isolation, might not be enough to end the relationship, but the cumulative effect eventually causes a considered irrevocable decision to end the relationship permanently. The time involved in Type 1 and Type 2 differs. However, in both cases, the reaction is strong, complete, and irrevocable.

Table II Different types of customer-relationship ending processes and their outcomes Strength of reaction Strong

Weak

Short

The length of customer-relationship ending process Long

Type 1 Customer-relationship ending is fast and complete

Type 2 Customer-relationship ending is long and complete. The customer has no intention of returning Type 3 Type 4 Customer-relationship ending is fast but incomplete Customer-relationship ending takes place gradually. A return to the relationship is possible

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Types 3 and 4 differ from Types 1 and 2 in the strength of the reaction – which is not irrevocable in Types 3 and 4. The latter types share the characteristic of a weak reaction, but differ from one another in the time taken. A Type 3 customer typically has a distant relationship with the service provider, and the reason for the decision to end the relationship might not necessarily be found in the relationship itself. It might, for example, be simply due to the customer’s desire for variety, and the ending of the arrangement is quick and of no great significance – at least not in terms of the quality of the relationship which was never close anyway. The decision to leave is made quickly, but might be just as quickly resumed. This is seen, for example, in the case of ‘‘browsing’’ for services among various offerings with no definite commitment ever having been formed along the way. In Type 4, the customer relationship is of longer duration, albeit often not strong, and the ending takes place gradually. But the customer might still return to this relationship later. The reaction is weak and slow, and might again be a result of a customer’s search for variety (Roos and Strandvik, 1996, pp. 17-18). But in this last case, a customer who is looking for something better, but does not feel very strongly about the matter can liken the search for variety to a restless search for variety. There is a significant lack of studies that focus on the phase preceding the ending of the relationship – that is, the phase during which there is a weakening or fading of a customer relationship (Helm, 2002, pp. 174-5; Michalski, 2002, p. 234; Nordman ˚ kerlund, 2002, p. 282; A ˚ kerlund, 2000, and A p. 57). Gro¨nhaug et al. (1999) have studied the fading of business relationships, but there are very few studies of fading customer relationships (Strandvik and Holmlund, ˚ kerlund, 2000; 2002). Focusing on 2000; A the fading of customer relationships represents a fresh approach to understanding the phenomena connected with the ending of customer relationships. Fading in customer relationship represents the phase of a customer relationship in which the relationship seems to be declining. Based ˚ kerlund on the ideas of Nordman and A (2002, p. 284) we define fading as a customer relationship in which the strength of the relationship is in an ongoing phase of decline, but in which the outcome of the process is not

yet known. This decline might be due to elements within the relationship itself or to elements in the context in which it functions. With respect to elements within the relationship, the fading can be said to be active or passive. The fading is active, if the customer is looking for a relationship decline. The fading can be considered passive if the fading takes place with no deliberate actions on the part of the customer.

Commitment and the fading of customer relationships There are two alternative outcomes from a fading process in a customer relationship – a customer either ends the relationship with the service provider, or he or she continues the relationship. This decision ultimately depends on the essential nature of the relationship, and on its evolution over time. Despite evidence of a fading process, a customer might decide to stay in a relationship because it improves, or because of underlying relationships bonds. Commitment represents the most developed bond in a relationship. The bond ‘‘commitment’’ refers to an implicit or explicit pledge of relational continuity between exchange partners. Although committed customers are aware of alternative service providers, they do not actively test them. They retain a sense of commitment to their relationship provider on an ongoing basis (Dwyer et al., 1987, p. 19; Halinen, 1997, pp. 258-9). Additional investment in the relationship increases the sense of commitment, and more heavily committed customers might be willing to sacrifice some short-term rewards because of expectations of long-term benefits from the relationship (Halinen, 1994, pp. 79-80). The level of commitment reflects and determines the underlying strength of the relationship, and the level of commitment consequently affects the evolving intention of the parties to remain in an otherwise fading relationship. The stronger the level of commitment to a relationship between customer and provider, the less likely it is that either partner in the relationship will voluntarily end that relationship (Hocutt, 1998, p. 189). Enduring relationships are built on a foundation of mutual commitment. Not unexpectedly, the level of commitment

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level has been found to be one of the strongest predictors of a voluntary decision to remain in a relationship (Berry and Parasuraman, 1991, p. 139; Morgan and Hunt, 1994, p. 31). Consequently, rigorous attempts to categorise and understand levels of commitment are therefore central to any assessment of the fate of fading relationships. In the broadest terms, the level of commitment can be assessed as falling into one of three categories – a customer can be positively committed, indifferent, or negatively committed towards a service provider (Liljander and Strandvik, 1995, p. 156). In the case of positive commitment, the relationship is strong – at least from the customer’s point of view – and the customer is willing to keep the relationship functioning. If the customer is indifferent towards the service provider, he or she is likely to use the services of this provider out of habit. Negative commitment refers to a situation in which a customer is willing to exit the relationship but, for some reason, is unable to do this. The reason can be, for example, a barrier created by bonds or by a lack of alternatives (Liljander and Strandvik, 1995, pp. 156-7). If a customer is negatively committed to a firm, that customer is ready to end the relationship when the bonds that tie him or her to the relationship are removed, or when an alternative service provider becomes available (Roos and Strandvik, 1996, p. 3). The previous and broad classification of ‘‘commitment’’, although useful, is insufficient for a detailed analysis of fading relationships. A finer distinction can also be made between two different types of commitment, depending on the underlying motivation for the commitment – affective commitment and calculative commitment. The distinction is based on the mental process involved – affective commitment having a predominantly emotional basis, whereas calculative commitment has a predominantly cognitive basis (Edvardsson et al., 2002, pp. 263-4; Samuelsen and Sandvik, 1997, pp. 1128-31). The loyalty of a customer with affective commitment is due to positive feelings towards the service provider. This kind of commitment is non-instrumental and is not so much concerned with cognitive evaluations of costs and benefits. Affectively committed customers are loyal because they want to be. They enjoy the relationship with the service provider. They

are not tempted to switch to another service provider merely by being exposed to an equally satisfying offering. To them, the relationship has its own value – a value that cannot easily be copied or replaced by a competing offering. In contrast, a calculative commitment is purely instrumental. The customer is loyal because he or she has to be – even though the customer might not wish to be committed. The calculatively committed customer is loyal as long as the cost/benefit ratio does not provide an incentive to end the relationship. The importance of the cost/benefit ratio in these relationships means that the customer is loyal only for as long as it is instrumentally rewarding to be so (Samuelsen and Sandvik, 1997, pp. 1128-31). Calculative commitment can be sub-divided into calculative commitment due to lack of alternatives and calculative commitment due to potentially significant personal monetary sacrifice if the relationship is ended. Customers who are ‘‘calculatively committed’’ are especially important in fading relationships. The fact that some customers are committed because they have to be, not because they want to be, makes calculative committed customers more likely to switch to other service providers if available and if financially acceptable. Calculative commitment can be associated with: . a reduced desire to continue the relationship and diminished intentions to stay; . an increased tendency to search for other alternatives; and . a reduced willingness to make future investments in the relationship. All of this is to be contrasted with affective commitment, which is likely to be associated with: . positive desires and intensions to stay; . significant reluctance to seek alternatives; and . a positive willingness to make future investments in the relationship (Samuelsen and Sandvik, 1997, pp. 1131–2).

Triggers of fading in customer relationships Triggers refer to elements that can initiate ‘‘an ending process’’ to a customer relationship. A

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trigger can lead directly to an ending of the relationship. Alternatively, it can initiate the fading of a relationship towards an ending process – without, in itself, directly causing the ending of the relationship. A trigger can be considered as an ‘‘alarm clock’’ that wakes up the customer (Roos and Strandvik, 1996, p. 34). In studying the trigger effect on customers, Edvardsson et al. (2002, p. 257) have identified three groups of triggers: (1) situational triggers; (2) influential triggers; and (3) reactional triggers. A situational trigger can stem from entities outside the borders of an ordinary customer-service provider relationship. A change in the customer’s financial situation or a demographical change might be such a trigger. An influential trigger can have its origins in a change in a competitor’s offerings – such as an aggressive advertising campaign or the launching of a new club-membership card. A reactional trigger is produced by a change in the service quality perceived by the customer, with deterioration in the core service offering placing the relationship on a fading path (Edvardsson et al., 2002, p. 257). In studying relationship ending, another categorisation of triggers has been proposed by Halinen and Ta¨htinen (2002, pp. 169-71). They defined triggers in terms of: . predisposing elements; . precipitating events; and . attenuating elements (Halinen and Ta¨htinen, 2002, pp. 169-71). This classification is based on the role of these issues in the ending process, particularly on the direction of their influence. Predisposing elements and precipitating events promote the ending of relationships, whereas attenuating elements hinder such a process. Figure 1 illustrates these three groups of triggers. Predisposing elements already exist when the parties enter into a relationship. These pre-existing elements make the relationship vulnerable to ending. Predisposing elements are fairly static and inherent to the relationship (Halinen and Ta¨htinen, 1999, pp. 14-17; Ta¨htinen, 1999). This could be as simple as the fact that two people have never liked one another, or have always had doubts about the abilities of one another. Circumstances might have forced them into a

Figure 1 Triggers of fading in customer relationships

reluctant relationship, and the predisposing elements remain. Precipitating events bring change to the existing relationship, and function as impulses for the parties to take action to end their relationship. These events might be sudden and dramatic, or might be part of a series of events that create increasing pressure for a change in the relationship (Halinen and Ta¨htinen, 2002, pp. 169-71; Ta¨htinen, 2001). Such events might include a sudden change in available technology that renders the existing service provider’s offering obsolete, or a gradual change in the demographics of the market that induce a rethinking of strategy and a reconsideration of whether an existing service relationship is providing relevant service in light of the changed circumstances. Attenuating elements moderate the effect of predisposing elements and precipitating events. Consequently, the term ‘‘exit barrier’’ can also be used to describe these elements. If the perceived importance of attenuating elements is high, the customer is likely to continue (rather than end) the relationship (Halinen and Ta¨htinen, 1999, pp. 14-17; 2002, pp. 169-71). Examples of attenuating elements might be the unavailability of an alternative provider, or the high capital costs of making a change in arrangements. The consideration of predisposing elements, precipitating events, and attenuating elements is useful in that it places the discussion of fading relationships in a wider context. By considering a service relationship between a company and its customer as an entire process, instead of concentrating on individual service events, it is possible to offer a classification of triggers that classifies them into four categories according to changes in the overall

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relationship. Based on the ideas of Roos and Strandvik (1996, p. 4) these might be: . changes in the interactive relationship between the company and its customer, for example, a personal dispute between a service provider and a customer; . changes in the characteristics of the company or the customer, for example, a takeover of the service provider or changed financial circumstances of the customer; . changes in competitors, for example, new pricing offers or advertising campaigns; or . changes in the business environment, for example, national macro-economic events that impinge on the relationship. These same four categories of change can be used as a basis for describing the nature of the customer relationship fading process, and as a basis for describing its outcomes. Figure 2 depicts the locus of triggers for the ending process of relationships (Roos and Strandvik, 1996, p. 4) A ‘‘trigger’’ of a fading process in a customer relationship is taken to be any element that affects the present status of the relationship in such a way as to initiate the process leading to an ending of the customer relationship. A trigger is thus taken to be an issue that starts the process – but it is not necessarily the element that finally leads to the ultimate ending of the relationship. A trigger might have been present for a long time before a relationship finally comes to an end. If a company is able to identify the triggers it can also affect the processes of fading in customer relationships (cf. Roos and Strandvik, 1996, p. 3). All relationships are bilateral. However, while considering both sides of the Figure 2 Locus of triggers for the ending process of relationships

relationship, the present study does tend to focus on the fading role of customers to a greater extent than that of provider. In the present research, the term ‘‘fading’’ is used to refer to a fall from the highest level in a customer-loyalty programme – even if the customer relationship still continued at the lowest and basic level of the programme.

Empirical research design and quantitative data analysis The purpose of the present study is to describe and analyse the fading process of customer relationships in the service industry. First, we aim to discover empirical triggers for the fading of customer relationships. Second, we aim to identify dimensions of fading in customer relationships and to reveal underlying elements in these dimensions. Third, we aim to disclose the main critical risk elements of fading in customer relationships in specific fading groups. Empirical study was conducted in one anonymous airline company called ‘‘Alpha’’. Customers who were previously at the highest level of Alpha’s customer-loyalty programme formed the population studied in this research. A non-probability sample of the 96 customers of the loyalty programme of Alpha was formed. This sample included customers who had fallen from the highest level of the loyalty programme (‘‘gold level’’) to the lowest basic level of the programme during the one-year period from 1 April 1998 to 31 March 1999. Empirical research was conducted in the form of a mail survey. A questionnaire and a letter of introduction were sent to 96 former ‘‘gold-level’’ customers of the case company Alpha. The response rate (after one reminder) reached 37 per cent. After preliminary analysis – in which frequencies, percentages, means, and standard deviations were calculated – the empirical data with Likert-scale variables were reduced by the means of factor and discriminant analysis. Finally, classification analysis was employed to study the success of discriminant analysis.

Empirical triggers for fading in customer relationships Successful management of customer relationships requires that companies be 118

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aware of the reasons that can lead to the fading and ending of a relationship. This makes it possible to map potential sources of problems. In the present research, the fading of customer relationship refers to a fall from the highest level in the customer-loyalty programme to the lowest level in the programme. Table III depicts a classification of main triggers for fading in customer relationships. Empirical triggers for a relationship fading (that is, a fall from the highest level of a loyalty programme to a lowest one) can be roughly divided into two groups. Thus, 80 per cent of the triggers related to the occupations of customers – that is, changes in tasks or duties, a change of profession, or retirement. The remaining 20 per cent related to the service providers – including the use of service providers other than the case company alpha, the loyalty programme itself, or a shift to a competitor’s loyalty programme. Consequently, we can conclude that predisposing elements were mainly represented by the characteristics of customers in the form of potential changes in tasks, duties, or profession. Similarly, we can conclude that precipitating events were mainly related to the focal service provider, or to other relevant features in competing service providers. The services provided by the case company Alpha or its alliance partners were still used monthly by nearly half of the downgraded customers after they had fallen from the highest ‘‘gold level’’. Only 6 per cent of the downgraded customers utilised the services of the case company Alpha less frequently than a couple of times a year. A majority (90 per cent) of the downgraded customers used their bonus cards always or most of the times when they used the services of the case company Alpha or its alliance partners. Only 6 per cent

of the downgraded customers used their bonus cards less frequently than this. Thus, most of the downgraded customers could still be regarded as quite active and loyal card members, although their relationships with the service provider had undoubtedly been fading after their fall from the highest ‘‘gold level’’. Our empirical findings – based on cross-tabulations – indicate clearly that, among such downgraded customers, those who were still using the services of Alpha most frequently were also those who were more critical in their evaluations.

Dimensions of fading in customer relationships To obtain a deeper understanding of the fading of customer relationships, our empirical analysis was carried further using factor analysis. Our aim was to identify specific dimensions of fading in customer relationships and to reveal underlying elements in these dimensions. The factors were extracted with principal component analysis, in which linear combinations of the observed Likert-scale variables were formed. To decide the number of factors, Kraiser’s eigenvalue criterion was used. The analysis isolated four factors based on eigenvalues over 1.00. The factor matrix was rotated with the orthogonal method of varimax-rotation because this method spreads variance evenly among factors (Green et al., 1998; Malhotra and Birks, 2000). Communalities (h2 ) were quite high, and the total percentage of variance (explained with four factors) was 71.3 per cent – as can be seen in Table IV. Dimensions of fading in customer relationships were named and interpreted based on the highest factor loadings. The first

Table III Empirical triggers for fading in customer relationships

Changes in tasks or duties Change of profession Retirement Use of service providers other than alpha Alpha’s loyalty programme Change to competitor’s loyalty programme Total Non-responses Total

119

Frequency

%

Valid %

19 3 2 2 3 1 30 5 35

54.3 8.6 5.7 5.7 8.6 2.9 85.6 14.4 100

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Table IV Dimensions of fading

Alliance partners Collaborating service providers Collaborating service networks Collaborating hotels Collaborating car rentals Personal telephone services Service encounters on the phone Professionalism on the phone Technical support services Automatic telephone services Internet services Award points Crediting of the points Charging of the points Eigenvalue Variance explained (%)

Dimension of fading 1

Dimension of fading 2

Dimension of fading 3

Dimension of fading 4

h2

0.76 0.75 0.61 0.56

–0.06 0.08 –0.19 –0.08

–0.20 –0.33 0.09 0.21

0.12 –0.04 0.14 –0.62

0.64 0.68 0.43 0.75

0.19 0.00

0.87 0.95

0.08 0.13

0.24 –0.02

0.86 0.92

0.18 0.13

0.07 0.15

0.69 0.84

0.37 –0.03

0.64 0.75

0.29 0.14 2.76 27.6

0.15 0.04 1.91 19.1

0.13 0.51 1.43 14.3

0.77 0.69 1.03 10.3

0.71 0.76 7.13 71.3

dimension, alliance partners, included collaborating service providers, collaborating service networks of alliance partners, and hotel and car-rental partners. The second dimension, personal telephone services, related to service encounters and professionalism on the phone. The third dimension, technical support services, covered Internet services and automatic telephone services. The fourth dimension, award points, included prompt crediting of the award points to an account and proper charging of the award points.

Critical risk elements of fading in customer relationships The analysis was taken further with discriminant analysis to disclose the underlying critical risk elements of fading in customer relationships in two different fading groups. These two specific groups of fading include medium and light users. Discriminant analysis makes it possible to determine to what extent, and with respect to which variables, the separate fading groups differ from each another (Aaker and Day, 1998; McDaniel and Gates, 1996). The respondents were divided into two different groups of fading. The first group was comprised of respondents who utilised the case company Alpha or its alliance partners 15 times a month (49 per cent of the respondents). The members of this first group

of fading were labelled as ‘‘medium users’’. The remaining members were included in the second group (51 per cent of the respondents). The members of this second group of fading were labelled as ‘‘light users’’. The discriminant analysis involved these two groups of fading. Table V presents the results of our discriminant analysis. Table V presents the means and standard deviations of the two fading groups for each discriminant variable. In the case of five variables, the means of light users were higher than those of medium users. For two variables, the means of both groups were the same. In the case of four variables, the means of light users were lower than the means of medium users. The most significant differences between the two groups appeared for the variables ‘‘service encounters on the phone’’ and ‘‘Internet services’’. Our results indicated that customers who used the services of the case company Alpha more frequently were, for the most part, more critical in their evaluations. Discriminant function coefficients indicate the relative importance of different variables in the discriminant function. The bigger the absolute value of the coefficient, the greater its importance in the function (Green et al., 1998; Malhotra and Birks, 2000). According to our analysis, critical risk elements that divide the fading groups best from each other included ‘‘charging of the award points’’, ‘‘Internet services’’, and ‘‘service encounters on the phone’’. Critical risk elements that

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Table V Critical risk elements of fading in customer relationships in two fading groups Medium users Standard Mean deviation Service encounters on the phone Professionalism on the phone Automatic telephone services Internet services Crediting of the award points to an account Charging of the award points Collaborating service providers Collaborating service networks Collaborating hotels Collaborating car rentals

3.4 3.8 3.2 3.0 4.0 3.0 3.8 4.0 3.6 3.6

imply moderate differences between the two groups included ‘‘collaborating service networks’’, and ‘‘automatic telephone services’’. The weakest differences between the groups were found for the critical risk elements of ‘‘crediting the award points to an account’’ and ‘‘professionalism on the phone’’. Finally, classification analysis was employed to define whether cases had been classified correctly. Discriminant analysis worked better for the light users than for the medium users. According to the classification analysis, of the cases classified in the light users, 72 per cent had been grouped correctly. Of the cases classified in the medium users, 53 per cent had been classified correctly. The total percentage of correctly grouped cases was 63 per cent.

Conclusions The ability to create and manage customer relationships, with a view to customer retention, is a core competency for service companies. To be able to manage customer relationships, companies have to take into account the possible fading of these relationships, and reasons for this occurring. After the identification of these reasons, it is possible to pay attention to the critical risk elements of fading, which indicate a fading customer relationship, and to try to influence them in a positive way. There is a significant lack of studies that focus on the phase preceding the ending of a relationship – that is, the phase during which there is a weakening or fading of a customer relationship. Focusing on customer-relationship fading represents a

0.9 0.4 0.8 0.7 0.7 1.2 0.4 0.7 0.5 0.9

Mean 4.4 4.6 3.4 4.0 4.0 3.8 3.6 3.6 3.4 3.6

Light users Standard Discriminant deviation function 0.5 0.5 0.5 1.0 1.2 0.8 0.5 0.5 0.5 0.9

–4.9 –1.2 3.0 –5.3 1.7 7.9 –4.0 3.9 0.0 0.0

fresh approach to understanding the phenomena connected with the ending of customer relationships. Fading in customer relationship represents the phase of a customer relationship where the relationship seems to be declining. Fading can be defined as a customer relationship where the relationship strength, due to passive or active contextual or relational reasons, is in an ongoing fading phase, where the outcome of the process is not yet known. Several reasons for fading can be found both in the relationship itself as well as in the context surrounding it. The nature of fading can be active, when the customer is looking for a relationship decline, or passive, when the fading takes place with no active or deliberate actions. A fading process in a customer relationship can result in one of two alternative outcomes – a customer either ends the relationship with the service provider, or he or she continues the relationship. A number of reasons for staying in a relationship may occur because of improvements in the relationship or because of relationship bonds. A trigger of a fading process in a customer relationship is taken to be any element that affects the present status of the relationship in such a way as to initiate the process leading to an ending of the customer relationship. A trigger is an issue that starts the process – but it is not necessarily the element that ultimately leads to the ending of the relationship. A trigger might have been present for a long time before a relationship finally comes to an end. If a company is able to identify the triggers it can also affect the processes of fading in customer relationships. Empirical triggers for a relationship fading can be roughly divided into two groups. Thus,

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80 per cent of the triggers relate to the occupations of customers – that is, changes in tasks or duties, a change of profession, or retirement. The remaining 20 per cent relate to the service providers – including the use of service providers other than the case company Alpha, the loyalty programme itself, or a shift to a competitor’s loyalty programme. Consequently, we can conclude that predisposing elements are mainly represented by the characteristics of customers in the form of potential changes in tasks, duties, or profession. Similarly, we can conclude that precipitating events are mainly related to the focal service provider, or to other relevant features in competing service providers. We could identify specific dimensions of fading in customer relationships and reveal underlying elements in these dimensions. The first dimension, alliance partners, included collaborating service providers, collaborating service networks of alliance partners, and hotel and car-rental partners. The second dimension, personal telephone services, related to service encounters and professionalism on the phone. The third dimension, technical support services, covered Internet services and automatic telephone services. The fourth dimension, award points, included prompt crediting of the award points to an account and proper charging of the award points. We can conclude that those critical risk elements of fading that divide the fading groups best from each other include ‘‘charging of the award points’’, ‘‘Internet services’’, and ‘‘service encounters on the phone’’. Critical risk elements that imply moderate differences between the two groups include ‘‘collaborating service networks’’ and ‘‘automatic telephone services’’. The weakest differences between the groups were found for the critical risk elements of ‘‘crediting the award points to an account’’ and ‘‘professionalism on the phone’’. Our results indicate that customers who are using the services of the case company Alpha more frequently are, for the most part, more critical in their evaluations.

References Aaker, D. and Day, G. (1998), Marketing Research, Wiley & Sons, New York, NY.

A˚kerlund, H. (2000), ‘‘Analysing the nature of fading relationships’’, in Edvardsson, B., Brown, S., Johnston, R. and Scheuing, E. (Eds), Service Quality in the New Economy: Interdisciplinary and International Dimensions, ISQA, New York, NY, pp. 57-66. A˚kerlund, H. (2002), Negative Critical Incident Mapping – Suitable as a Tool for Understanding Fading Customer Relationships, paper presented at the 2nd Nordic Conference on Relationship Dissolution, 20-22 September, Visby. Alajoutsija¨rvi, K., Mo¨ller, K. and Ta¨htinen, J. (2000), ‘‘Beautiful exit: how to leave your business partner’’, European Journal of Marketing, Vol. 34 No. 11-12, pp. 1270-89. Berry, L. and Parasuraman, A. (1991), Marketing Services. Competing through Quality, Free Press, New York, NY. Dwyer, R., Schurr, P. and Oh, S. (1987), ‘‘Developing buyer-seller relationships’’, Journal of Marketing, Vol. 51, April, pp. 11-27. Edvardsson, B., Gustafsson, A. and Roos, I. (2002), ‘‘Understanding the trigger effect on customers’ maturity processes in telecommunication’’, in Tax, S., Stuart, I., Brown, S., Edvardsson, B., Johnston, R. and Scheuing, E. (Eds), Quality in Service: Crossing Boundaries, University of Victoria, Victoria, pp. 256-65. Green, P., Tull, D. and Albaum, G. (1998), Research for Marketing Decisions, Prentice Hall, Englewood Cliffs, NJ. Gro¨nhaug, K., Hejnesand, I. and Koveland, A. (1999), ‘‘Fading relationships in business markets: an exploratory study’’, Journal of Strategic Marketing, Vol. 7 No. 3, pp. 175-90. Gro¨nroos, C. (2000), Service Management and Marketing. A Customer Relationship Management Approach, Wiley & Sons, Chichester. Halinen, A. (1994), Exchange Relationships in Professional Services – A Study of Relationship Development in the Advertising Sector, Series A-6, Turku School of Economics and Business Administration, Turku. Halinen, A. (1997), Relationship Marketing in Professional Services. A Study of Agency-Client Dynamics in the Advertising Sector, Routledge, London. Halinen, A. and Ta¨htinen, J. (1999), Towards a Process Theory of Relationship Dissolution, Discussion and Working Papers No. 9, Turku School of Economics and Business Administration, Turku. Halinen, A. and Ta¨htinen, J. (2000), ‘‘Ending exchange relationships: what do we know about them?’’, CD-Proceedings of the 16th IMP Annual Conference, Bath, jointly hosted by the University of Bath and University of Birmingham. Halinen, A. and Ta¨htinen, J. (2002), ‘‘A process theory of relationship ending’’, International Journal of Service Industry Management, Vol. 13 No. 2, pp. 163-80. Helm, S. (2002), ‘‘Customer valuation-based dissolution of relationships’’, in Bliemel, F., Eggert, A. and Fassott, G. (Eds), Proceedings of the 10th International Colloquium in Relationship Marketing, Vol. 1, Kaiserslautern, pp. 169-87. Hocutt, M. (1998), ‘‘Relationship dissolution model: antecedents of relationship commitment and the likelihood of dissolving a relationship’’, International

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Journal of Service Industry Management, Vol. 9 No. 2, pp. 189-200. Liljander, V. and Strandvik, T. (1995), ‘‘The nature of customer relationships in services’’, in Swartz, T., Bowen, D. and Brown, S. (Eds), Advances in Services Marketing and Management, Vol. 4, JAI Press, Greenwich, CT, pp. 141-67. Malhotra, N. and Birks, D. (2000), Marketing Research, Prentice Hall, London. McDaniel, C. and Gates, R. (1996), Contemporary Marketing Research, West Publishing Company, St Paul, MN. Michalski, S. (2002), ‘‘Relationship dissolution’’, in Bliemel, F., Eggert, A. and Fassott, G. (Eds), Proceedings of the 10th International Colloquium in Relationship Marketing, Vol. 1, Kaiserslautern, pp. 233-46. Morgan, R. and Hunt, S. (1994), ‘‘The commitment-trust theory of relationship marketing’’, Journal of Marketing, Vol. 58, July, pp. 20-38. Nordman, C. and A˚kerlund, H. (2002), ‘‘Learning from customer relationships at risk: a proactive approach to maintaining customer loyalty’’, in Tax, S., Stuart, I., Brown, S., Edvardsson, B., Johnston, R. and Scheuing, E. (Eds), Quality in Service: Crossing Boundaries, University of Victoria, Victoria, pp. 279-88.

Roos, I. and Strandvik, T. (1996), Diagnosing the Termination of Customer Relationships, Working Papers 335, Swedish School of Economics and Business Administration, Helsinki. Samuelsen, B. and Sandvik, K. (1997), ‘‘The concept of customer loyalty’’, in Arnott, D. and Bridgewater, S. (Eds), 26th EMAC Conference Proceedings. Marketing: Progress, Prospects and Perspectives, Vol. 3, Warwick Business School, University of Warwick, Coventry, pp. 1122-40. Strandvik, T. and Holmlund, M. (2000), Customer Relationship Dissolution – What Do We Know and What Do We Need to Know?, Working Papers 434, Swedish School of Economics and Business Administration, Helsinki. Ta¨htinen, J. (1999), The Existence and the Dissolution of a Business Relationship in Tailored Software Business. A Theoretical Framework, Research Reports No. 39, Department of Economics, University of Oulu, Oulu. Ta¨htinen, J. (2001), The Dissolution Process of a Business Relationship. A Case Study from Tailored Software Business, Acta Universitatis Ouluensis G10, Oulu. Ta¨htinen, J. and Halinen, A. (2002), ‘‘Research on ending exchange relationships: a categorisation, an assessment and an outlook’’, Marketing Theory, Vol. 2 No. 2, pp. 165-88.

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Calculating the value of customers’ referrals Sabrina Helm

The author Sabrina Helm is based at Heinrich-Heine-Universitaet, Duesseldorf, Germany. Keywords Customer satisfaction, Recommendations, Service quality Abstract Word-of-mouth is a rarely quantified phenomenon, in spite of its importance for service firms. Therefore, referrals remain a neglected determinant of customer lifetime valuation, although some authors claim them to be the astronomical part of customer equity. The paper discusses different approaches to the calculation of positive word-of-mouth, leading to a monetary referral value of a company’s customers. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0960-4529.htm

Introduction The ‘‘power of word-of-mouth’’ (Arndt, 1967a) is one of the great myths of marketing. It seems to be an unmanageable marketing phenomenon. Word-of-mouth (WOM) has rarely been measured or monitored. Recently though, researchers have deemed the quantification of WOM an interesting research area (Zeithaml, 2000; Harrison-Walker, 2001). The reasons for this interest are manifold. Relying on customer lifetime valuation as a strategic marketing tool (Blattberg et al., 2001) calls for the consideration of all components of a customer’s value for a service provider. Moreover, referrals have been detected as the most important sources of gaining new customers (Murray, 1991; Tax and Chandrashekaran, 1992; Mangold et al., 1999; Harrison-Walker, 2001), making them an attractive marketing tool. And finally, a general demand for quantifying and monetizing constructs, which primarily are qualitative, can be observed. For example, MSI’s research priorities name customer valuation, metrics for customer loyalty and their link to marketing performance among the most important topics for researchers (MSI, 2002). The central issue of this paper is to discuss three different approaches to calculate the monetary referral value of customers. It shall be argued that these models offer important insights into the determinants and effects of WOM, though they represent only vague approaches to a valid measurement of referral value. Nevertheless, this should not deter managers from encouraging positive WOM activities of customers, as this will lead to better business results in the sense of a high return on referral management. Word-of-mouth can be defined as: . . . informal communication, both positive and negative, between consumers about characteristics of a business and/or its goods and services (Tax et al., 1993, p. 74).

Focusing on favorable WOM, this may include: . . . relating pleasant, vivid, or novel experiences; recommendations to others; and even conspicuous display (Anderson, 1998, p. 6). Managing Service Quality Volume 13 . Number 2 . 2003 . pp. 124-133 # MCB UP Limited . ISSN 0960-4529 DOI 10.1108/09604520310466815

A referral or a recommendation represents one form of favorable WOM that is passed on by a customer about a certain product or service (Wheiler, 1987). The pivotal role of 124

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WOM in the services sector is due to high uncertainty associated with the purchase situation and outcome (Zeithaml and Bitner, 2002; Wheiler, 1987). The decision to choose a certain service provider is strongly influenced by personal communication and the exchange of experiences with other customers (Engel et al., 1995). Some authors deem referrals of satisfied customers to be one of a firm’s greatest marketing assets (Engel et al., 1995). They claim the use of customers’ referrals to be the most effective marketing tool (e.g. Wilson, 1994). The development of valid measures of the effects of WOM and referrals might therefore prove to be a rewarding endeavor. WOM has different possible effects that can be investigated and measured. First, an effect on the recipient has to be noted. This may result in a motivation to buy a service, to talk about it to others, etc. (Herr et al., 1991; Bone, 1995). Second, there is a (feedback) effect on the referrer. His WOM influences his own behavior as he knows there will be feedback from the receiver of the referral. Therefore, giving referrals serves as an enforcement to remain loyal to a service provider. This can be explained by self perception theory for instance (Tax and Chandrashekaran, 1992). Last, the referral’s effect on the service firm is to be mentioned, e.g. winning new customers (Wheiler, 1987; Wilson, 1994), which Wangenheim and Bayo´n (2002a) call the ‘‘corporate view’’ of word-of-mouth. In this paper, only the corporate effect of referrals, which is reflected in customer lifetime value, will be dealt with. According to Rust et al. (2000), this WOM effect is significantly large, but notoriously hard to measure. In spite of its significance (Heskett et al., 1994; Herrmann and Fuerderer, 1997), the customer’s referral value is hardly taken into account in comprehensive models of customer lifetime value (CLV) (Dwyer, 1989). The paper first discusses the concept of referral value. It then introduces three models measuring the monetary worth of a customer’s referral in order to focus on some of their strong and weak points. The integration of referral values in customer lifetime valuation will be outlined. The discussion of the models further leads to a number of implications.

Customers’ referral value From a service provider’s point of view, the value of an individual customer represents a specific measure for the future economic worth of the relationship. It needs to comprise all direct and indirect contributions of the customer that enable the service provider to reach his goals (Cornelsen and Diller, 1998; Herrmann and Fuerderer, 1997). These contributions include monetary and non-monetary elements. Referrals are to be classified as a non-monetary, indirect customer contribution. Positive WOM represents an important asset of a service provider, which can be attributed to a single customer. It seems desirable to consider his or her referral value as a part of a customer valuation scheme. Referral value can be defined as the individual customer’s contribution to the service provider’s goals due to his or her referral behavior. It is reflected in the number and quality of potential customers the user of a certain service can reach and influence with positive, negative, or neutral information within a certain period of time (Herrmann and Fuerderer, 1997). The costs the service provider faces due to the customer’s referral behavior, plus customer-specific costs associated with the service provider’s referral management, should also be considered. From the perspective of the service company, WOM referrals do not represent a value themselves. They only become of worth if they lead to other positive effects. In the context of this paper, new customer acquisition seems to be the most important of these effects. The ‘‘quality’’ of the new customers is therefore a crucial element to be considered in the valuation scheme (Herrmann and Fuerderer, 1997). As Wangenheim and Bayo´n (2002a) note, most of the existing CLV calculation models are restricted to measure a customer’s own transactions with a firm. But in order to calculate the referral value of a given customer A as the communicator of a referral, the value of the recipients (i.e. the new customers N that A has won for the service firm) has to be included in the calculation. This shall be indicated as the transfer aspect of referral valuation in the remainder of the paper.

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Models of monetized referral value Herrmann and Fuerderer (1997) present a model to calculate the long term referral value for automobile customers (for details, see Herrmann and Fuerderer, 1997). It is based on three dimensions: (1) the number of recipients of a referral; (2) the intensity of the referral; and (3) the ‘‘quality’’ of the recipient. Based on a dynamic investment calculation, they interpret the referral value to be the sum of cash value of all payments attributable to the referrer. The formula is shown in Figure 1. The referral value (RV) of a given customer A is determined by the acquisition costs (Io ) for the new customer n acquired through A’s referral and his discounted customer lifetime values; n’s customer lifetime value includes the following factors: . rebuying behavior; . reduced price sensitivity; . cross buying potentials; and . referral behavior. The combination of these factors determines the customer’s overall contribution margin (Herrmann and Fuerderer, 1997). According Figure 1 Discounted long-term referral value

to the authors, the data in the model should stem from forecasts of customer behavior, not individual customer questionnaires. Owing to the high uncertainty of such forecasts, the validity of the measures might be open to question. A number of problems are involved with this approach. The authors themselves point out a traceability problem, as the purchase of a product or service can hardly be attributed to a certain referral alone (see also, Wangenheim and Bayo´n, 2002b). Also, the variable Rt represents a continuous loop. To be able to quantify the referral value, limit values need to be used (as the continuous time series aims for an equilibrium value), or previously specified time periods reflecting the average lifetime of a customer relationship (such as t = 4). The authors do not specify how the variables appearing in the model should be put into concrete terms. Furthermore, they do not test the model empirically, so its practical implications are rather limited. Based on research in consumer behavior, the referral value model presented by Cornelsen and Diller (1998) and Cornelsen (2000) includes a number of determinants of referral effectiveness. In the model, two main elements of referral value can be distinguished: (1) an industry-specific average referral volume on the one hand; and (2) the individual customer’s referral potential on the other (see Figure 2). The average referral volume quantifies the average purchase volume of an industry that is Figure 2 The determinant model of referral value

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due to WOM. In order to specify the average referral volume, first the annual purchase volume of an industry has to be measured per customer. In his study in the automobile sector, Cornelsen (2000) claims this purchase volume to amount to 13,200 Deutschmarks (DM) (cost price: 66,000 DM, useful life: five years) for German cars in the upper price segment. In a second step, the average share of referrals as a determinant in the purchase decision (referral rate) (Cornelsen and Diller, 1998) has to be calculated. This will require a separate customer survey that focuses on the different information sources and their impact on the buying decision of an individual customer. This way, an average percentage of the purchase decision outcome can be attributed to referrals (among all other determinants) (Cornelsen and Diller, 1998). For German automobile customers, Cornelsen found out an average referral rate of 18 percent. This means that referrals explain 18 percent of a purchase decision. All other information sources account for the residual 82 percent. Furthermore, the number of people a customer talks to about the product is important when calculating the referral rate. This average number of contacts concerning automobiles is 14. If each customer talks to 14 other people on average, a net referral rate of 1.29 per cent results (0.18 : 14 = 0.0129) (Cornelsen and Diller, 1998). Following this reasoning, a single referral influences 1.29 per cent of the decision to buy a new car. The referral rate is a market-specific variable, the referral potential is customerspecific. It includes all potential customers of a firm that a given customer A could contact with positive, negative, or neutral WOM within his or her social network. It is mainly determined by three factors. First, the number of people within the social network (‘‘quantity’’). This possible spread of a referral depends on the number of product-related conversations a customer has with colleagues, family, friends, etc. (Cornelsen and Diller, 1998). This again depends on the number of persons in the individual’s network and the frequency of product-related conversations. Second, customer A’s satisfaction with the service company’s offerings determines whether he spreads favorable or negative WOM (‘‘valence’’) (Cermak et al., 1991; Anderson, 1998). Also, the degree of customer

satisfaction often acts as the initial trigger of WOM. Moreover, Cornelsen (2000) suggests that the impact of an individual customer’s referral on another person’s purchasing behavior will be closely related to his or her degree of opinion leadership. This leads to a certain ‘‘intensity’’ of the referral. Important factors influencing opinion leadership are a person’s expertise concerning a certain market and product or service, and his/her specific personality (extroversion, dominance, social centrality, etc.). The different elements described above are integrated into the formula shown in Figure 3. Cornelsen has conducted an empirical study in order to test his model. The study measured individual referral values of automobile customers via a written questionnaire (for details, see Cornelsen, 2000). The short term referral value results from multiplying referral potential and average referral volume as stated in Figure 4. The three main determinants of the referral potential have to be operationalized. To measure opinion leadership (OL), an index has been used that was built upon the participants’ answers to six statements in the written questionnaire, relying on the items used by Rogers and Cartano (1962), and King and Summers (1970). The score achieved was classified for strong, medium and weak opinion leadership with a maximum of 23 points. For instance, a score of 14 points results in an OL-index value of 0.61 (= medium opinion leadership; 14 : 23 = 0.61). The variable ‘‘social network’’ includes the number of referral communications of a customer plus the intensity of communications. Customers do Figure 3 Referral value formula by Cornelsen

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Figure 4 Exemplary calculation of the short term referral value of customer A

not talk to everyone about products and services they buy; they match the topics they talk about with the kind of communication partner they face. Cornelsen (2000) argues that the members of a social network have to be classified. For instance, a customer might talk to his friends rather often about the strong points of his new car but might not communicate about that at all with his colleagues. In the model, three classes of social spheres are taken into account: (1) family members and relatives; (2) friends; and (3) work colleagues/fellow club members. The frequency of communications with members of each social sphere is then classified on a five-point scale and leads to weighting factors (‘‘very often’’ = weighting factor 1; ‘‘never’’ = weighting factor 0). For instance, if a customer talks to four family members or relatives about cars and does so ‘‘rarely’’ (weighting factor 0.25), and if he talks to 20 colleagues from work ‘‘sometimes’’ (weighting factor 0.50), the variable ‘‘social network’’ will be 11 index points P ( ðPj
WjÞ ¼ ½4
0:25 þ 20
0:50 ¼ 11; for details see Cornelsen, 2000). The degree of customer satisfaction is measured on a four-point scale (1 = ‘‘very satisfied’’ with weighting factor + 2; 4 = ‘‘very dissatisfied’’ with weighting factor – 2). In the exemplary calculation shown in Figure 4, the degree

‘‘satisfied’’ will be weighted with the index facor + 1. If all values are integrated into the formula, individual customers’ referral values can be calculated. A certain customer A, who bought a Mercedes E-Type, stands, for instance, for a referral value of 1,136 DM ( 508 US$), as shown in Figure 4. The overall value of that customer as calculated by Cornelsen (2000) is 14,343 DM ( 6,900 US$) per year. The referral value represents about 8 percent of this customer’s total annual value. In order to explain the construct, it is important to analyze diverse psychological and sociological components and their impact on referral value. This is a major strong point of the model. Its main problem concerns its aim: to assign a monetary value to the referrals of an individual customer. The precise value derived from the application of the model is fictitious, as it is based on weighting factors that are chosen arbitrarily. If one used an altered weighting scale for the ‘‘social network’’ (e.g. ‘‘very often’’ = weighting factor 2; ‘‘never’’ = weighting factor 0), the example shown above would lead to 22 ‘‘index points’’’ in the model P ð ðPj
WjÞ ¼ ½4
0:25 þ 20
1 ¼ 22). Ceteris paribus, this more than doubles the referral value of the same customer A as it now amounts to 2,285 DM. As satisfaction is the most heavily weighted variable in the formula, it should be considered very carefully. A four-point scale for the measurement of satisfaction might not be appropriate. Maybe dissatisfaction should be weighted more intense than satisfaction, leading to asymmetric weighting factors. By changing weighting factors and/or scales, referral value outcomes can easily be manipulated. Further challenges include the question of the validity of the measures applied for the single determinants such as opinion leadership, etc. The same can be said for the impact of single information sources on a purchase decision (referral rate). Restricting the number of behavioral determinants included in the model also leads to the question of why others (such as involvement or perceived risk) have been ignored. Also, the combination of average referral volume and referral potential by simple multiplication is open to criticism. Besides, data gathering for this model calls for very comprehensive

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and complicated surveys to be conducted beforehand. A third model presented here has been developed by Wangenheim and Bayo´n (2002a, b). The model is more complex than the other ones described here concerning its mathematical foundation; it can only be outlined. The model’s aim is to estimate the referral value VWOM of a given customer A in period t by finding out the number of new customers he/she acquired within this period. As depicted in formula (1) below, first yA;t (the number of referrals A is going to make during period t) needs to be known. Furthermore, the so-called conversion rate Prob (Purchase) has to be estimated, which means the percentage of A’s referrals that will lead to the acquisition of new customers for the service provider during that period (Wangenheim and Bayo´n, 2002a, b). Customers won by the referral articulated in period t, who join the customer base at a later point in time, are not integrated in the value calculation: VWOMðA;tÞ ¼ yA;t : Prob ðPurchaseÞ:

ð1Þ

For the prediction of the number of WOM referrals, which is a discrete count variable, Wangenheim and Bayo´n (2000a) suggest a zero-inflated Poisson-model. The model consists of the Poisson-distribution as the basic model type for count data, and a binary model that is Logit- or Probit-distributed. The latter determines whether a referral is made or not. The standard Poisson-model then predicts the number of referrals made. The variables introduced for predicting WOM include: . customer satisfaction; . situational involvement, and product involvement/purchase importance; . marketplace involvement; and . a customer’s innovativeness. In order to predict the conversion rate of referrals, a model that predicts the marginal contribution of a referral to the acquisition of a new customer n is to be considered (Wangenheim and Bayo´n, 2002a). Therefore, Wangenheim and Bayo´n (2002a) deem choice models to be suitable. They have formulated a binominal model, in which a number of independent variables are used to predict whether a referral is effective (i.e. leads to new customer acquisition) or not. They claim that either Logit- or Probitformulas are applicable. After empirically testing the model, they opted for the Logit-

model. Among the variables influencing the effectiveness of a referral, they integrated two characteristics of the referrer: (1) sender expertise; and (2) similarity as perceived by the recipient. For measuring the latent variables that determine the number of referrals and the conversion rate, Wangenheim and Bayo´n (2000b) have used multi-item scales that were developed and tested in previous studies. They were also pre-tested by the authors in a small sample study. Most determinants have been measured on six-point rating scales. The model has been tested in the German utilities market. Based on a survey design, the referral values of consumers and business-to-business customers have been evaluated. For the consumer sample, a customer scoring averagely on the variables depicted above (satisfaction, involvement, etc.) can be expected to give 1.33 referrals per year. The conversion rate comes up to 4.7 percent, leading to an expected number of 0.063 new customers acquired by the referring customer. A highly satisfied and involved consumer might even be expected to articulate three referrals, which leads to an expected number of 0.14 new customers. For the industrial sample, substantially higher acquisition rates could be estimated. Therefore, Wangenheim and Bayo´n (2002b) suggest that due to the typically higher transaction value of a customer in business-to-business markets, referral values of customers can be enormously high. Also, it might be added that using the model in other (service) settings – such as financial and medical services – might lead to more referrals and a higher conversion rate than could be observed in the recently privatized German utilities sector. A monetary referral value for a customer A is computed for period t as the direct cash contribution of a new customer n over his/her lifetime value (periods of retention). The referral value RVðA;tÞ of customer A then can be calculated by multiplying the number of customers acquired by the referral VWOMðA;tÞ , and the estimated direct cash contribution C of those newly acquired customers N (see formula (2) below). The variable C therefore accounts for the transfer aspect of referral valuation: RVðA;tÞ ¼ VWOMðA;tÞ CðNÞ :

ð2Þ

Besides the mathematical complexity of the model, the data gathering might pose

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considerable problems. In spite of being theoretically sound, the determinants explaining referral probability and conversion rate are arbitrary. As has also been discussed concerning the model proposed by Cornelsen (2000), other variables might influence referral behavior and subsequent receiver behavior, such as perceived risk, prior attitudes toward the service provider, etc. This means that the independent variables in the zero-inflated Poisson-model only vaguely represent the actual set of referral decision determinants in a real communication setting. A monetary referral value derived from this model is, at best, approximate. Also, data gathering for measuring these latent variables is neither easier nor more valid, than directly measuring the number of referrals and the conversion rate. Furthermore, the authors point out that the amount of referrals and the conversion rate for the same individual could not be predicted due to the empirical design of the study, which was restricted to a survey of customers in the role of referrer. As a consequence, the estimated referral values are no solid foundation for selecting or prioritizing individual customers. As these tasks might well be considered major aims of customer valuation, this is a promising direction for further improving the model. An important observation by Wangenheim and Bayo´n (2002b) should be mentioned. They find that newly acquired customers are especially valuable for a service provider when looking at their referral activity. They are more inclined to talk about the service than customers in long established relationships. This contradicts prior research concluding that profits from referrals are expected to increase over the duration of the relationship. It also challenges the common assumption that it is more expensive (i.e. less advantageous) to gain a new customer than to retain an old one.

Discussion and implications From a scientific point of view, it seems meritorious to develop a quantitative model to capture a marketing phenomenon that most researchers and managers shrink back from addressing at all. It seems most intriguing to put a monetary value to customers’ referrals, as this would finally bring out into the open one of marketing’s hidden treasures. Marketing managers could

invest in referral management strategies, such as referral campaigns, with more peace of mind (and less criticism by their accounting colleagues), if the return on investment could be measured. But virtue and sin can lie close at times, so a closer look at the models and their validity is certainly appropriate. Some critical aspects concerning the individual approaches have already been mentioned. Here, a more general stance is taken to discuss the implications of calculating referral values. The three models differ vastly in their mathematical foundation and empirical testing. Whereas the model by Herrmann and Fuerderer (1997) has not been empirically tested at all, the two other ones have been used in practice at least once, the model introduced by Wangenheim and Bayo´n (2002b) even in a consumer and a business-to-business service setting. As especially illustrated in the case of Cornelsen (2000), who comes up with an (allegedly) precise sum for the referral value of individual customers, the possibly dangerous facet of these approaches cannot be withheld. As has been shown, the modeling of referral values suffers from some serious methodological and practical shortcomings. It represents a most interesting, but nevertheless vague approach to assess the economic value of WOM referrals. Basing (costly) marketing strategies on such models calls for more insight and adaptations than the ready cash value calculated for a specific customer suggests at first sight. Obviously, pros and cons of calculating referral values are based on the same fact. The models do enable a more or less simple calculation of a monetary value for referrals. However, any value could be attributed to the referral by altering the variables in the calculation. Therefore, applying the models for a firm’s customer base will deliver insights on the relative structure of the customers concerning their (referral) value, and may be used as a ratio. It cannot lead to an absolute figure, although this seems implied by the use of currency units to depict that value in the models described above. Consequently, it can be argued that common scoring models serve the same aims. If a ‘‘true’’ referral value were to be measured, models would need to be even more complicated. A long term view of the referral value would have to consider the

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snowball effect of referrals, or ‘‘spin-off referrals’’ (referrals addressed to persons, who do not consider buying a product themselves, but refer it to others) (Wilson, 1994; Misner, 1994; Cornelsen, 2000). The effectiveness of referrals depends on a multitude of determinants (Arndt, 1967b; Sundaram et al., 1998). On the one hand, to integrate all determinants would, of course, be unfeasible. But on the other hand, the arbitrary and subjective selection of some determinants by a researcher might not reflect the necessities of a service provider. A serious validity problem arises in as far as the methods used for measuring referral value and its determinants are not a true and comprehensive reflection of the underlying phenomenon (Churchill, 2000). From a methodological perspective, it should be considered that a valid measure of referral value cannot rely on interviewing an existing customer A as a single informant. Wangenheim and Bayo´n (2002b) explain that the effectiveness of a referral can only be discerned by a dyadic approach that considers both referrer and recipient. Also, one should reconsider the methods used for directly measuring WOM. Usually, WOM is reported by respondents in terms of the number of persons spoken to about recent experiences. A more elaborate multi-item scale to measure WOM has been proposed by Harrsion-Walker (2001). Using measures of observed WOM, rather than the self-reported approach, might be another alternative (Anderson, 1998). Furthermore, information is needed about the value of A’s recipients as measured by the service company in order to cover the transfer aspect of referrals. This fact has not been addressed in Cornelsen’s (2000) model, but in both of the others. It means a probabilistic approach, because only estimates of that future worth can be defined in the phase of new customer acquisition. The integration of the (monetary) referral value into the more comprehensive structure of a customer lifetime value calculation has been shown for all three models. General restrictions of dynamic cash value calculation should be observed (Brealey and Myers, 2001). The lifetime value derives from the revenue from customers who stay in a business relationship, minus fulfillment costs and direct costs associated with maintaining this relationship (Dwyer, 1989). Herrmann and Fuerderer (1997), Cornelsen (2000), as well as

Wangenheim and Bayo´n (2002a, b) add up the different components of customer lifetime value (namely customer profitability or sales, referral value, cross selling potential, and information potential). Following the exemplary suggestion of Wangenheim and Bayo´n (2002b), the referral value can be combined with other value components C to represent the entire monetary customer lifetime value (CLV) for customer A by applying the following formula 3: r X RVðAÞ ð3Þ CLVðAÞ ¼ CðAÞ þ t¼1

Here, CðAÞ stands for the net present value of the direct cash contributions of customer A, generated over the r retention periods. Usually, the sum of the individual subtotals of a customer’s lifetime value is then multiplied with a discount factor (Brealey and Myers, 2001). None of the three approaches hints at the interest rate to be applied. Moreover, it can be noted that the authors hardly mention the costs associated with referral behavior and management. Except for Herrmann and Fuerderer (1997), cost data are not explicitly integrated in the models. Herrmann and Fuerderer (1997) point out that alternate weighting factors could be assigned to the different customer contributions or value factors. These correspond to the probability that the contributions occur in a customer relationship. The models are compensatory, so a high score in referral value can, for instance, compensate for a low score in sales to the customer. Wangenheim and Bayo´n (2002b) also argue that a customer’s relative referral value might not coincide with his other value components. A single look at direct cash contributions such as sales might lead to a resource allocation on behalf of the service provider that does not take into account the ‘‘real’’ worth of the customer. Therefore, it is not only the quantity, but also the structure of a customer’s value contributions that is of importance to the service provider. On an aggregate level, customer valuation leads to a service provider’s customer equity as the total of the discounted lifetime values of all of the firm’s customers (Blattberg et al., 2001; Rust et al., 2000). Here, another problem of referral valuation becomes evident. Considering the ‘‘transfer aspect’’, measuring a referral value for the old

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customer A needs to integrate the newly won customer n’s sales, cross selling potential, etc. But these variables are also included in the customer lifetime valuation for n himself. This accounts for a misleading double impact of referrals on customer equity. Summarizing, two main conclusions can be drawn from the discussion of referral valuation. Since many services are referral-driven, WOM needs to be focused on more closely. An effective referral management offers considerable chances to boost a service company’s success, but has until now lacked measures to identify the effects of referrals. A determinant model of WOM as discussed by Wangenheim and Bayo´n (2002a, b), as well as Cornelsen (2000), offers insights into the levers of referral management. This is important for researchers and managers alike. The former will for instance find starting points to develop models that also consider other determinants than the ones discussed in the models. The latter are offered insights into how WOM can be used as a marketing tool. As ‘‘only what gets measured gets done’’, models of referral value could lead to an efficient referral management. Measuring a phenomenon does not necessarily mean that it has to be monetized, though. The cost of monetizing referral value will probably outweigh the positive potential of such measures in a lot of cases, misleading ever-scarce resources. It is a common feature of marketing that a multitude of its phenomena remain outside the domain of pure metrics. Some contributions of a customer – such as sales and some cost figures – can be put into a formula of customer lifetime value. Others, like referral behavior or information potential of a customer, need an ‘‘educated guess’’ provided by methods such as scoring models. Combining both will lead to a clearer picture of the value of a customer.

References Anderson, E.W. (1998), ‘‘Customer satisfaction and word-of-mouth’’, Journal of Service Research, Vol. 1 No. 1, pp. 5-17. Arndt, J. (1967a), ‘‘Perceived risk, sociometric integration, and word of mouth in the adoption of a new food product’’, in Cox, D. (Ed.), Risk Taking and Information Handling in Consumer Behavior, Harvard University Press, Boston, MA, pp. 289-316.

Arndt, J. (1967b), Word of Mouth Advertising: A Review of the Literature, Advertising Research Foundation, New York, NY. Blattberg, R.C., Getz, G. and Thomas, J.S. (2001), Customer Equity, Harvard Business School Press, Boston, MA. Bone, P.F. (1995), ‘‘Word-of-mouth effects on short-term and long-term product judgments’’, Journal of Business Research, Vol. 32 No. 3, pp. 213-23. Brealey, R. and Myers, S. (2001), Principles of Corporate Finance, 6th ed., McGraw-Hill, New York, NY. Cermak, D.S., File, K.M. and Prince, R.A. (1991), ‘‘Complaining and praising in non-profit exchanges: when satisfaction matters less’’, Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior, Vol. 4, pp. 180-7. Churchill, G.A. (2000), Basic Marketing Research, 4th ed., Harcourt Brace, Fort Worth, TX. Cornelsen, J. (2000), Kundenwertanalysen im Beziehungsmarketing, GIM-Gesellschaft fu¨r Innovatives Marketing eV, Nuremberg. Cornelsen, J. and Diller, H. (1998), ‘‘References within the context of customer valuation’’, in Halinen-Kaila, A. and Nummela, N. (Eds), Interaction, Relationships and Networks: Visions for the Future, Proceedings of the 14th IMP Conference, Turku, pp. 203-22. Dwyer, F.R. (1989), ‘‘Customer lifetime valuation to support marketing decision making’’, Journal of Direct Marketing, Vol. 3 No. 4, pp. 8-15. Engel, J., Blackwell, R. and Miniard, P. (1995), Consumer Behavior, 8th ed., The Dryden Press, Chicago, IL. Harrison-Walker, L.J. (2001), ‘‘The measurement of word-of-mouth communication and an investigation of service quality and customer commitment as potential antecedents’’, Journal of Service Research, Vol. 4 No. 1, pp. 60-75. Herr, P., Kardes, F.R. and Kim, J. (1991), ‘‘Effects of word-of-mouth and product-attribute information on persuasion: an accessibility-diagnosticity perspective’’, Journal of Consumer Research, Vol. 17 No. 3, pp. 454-62. Herrmann, A. and Fuerderer, R. (1997), ‘‘The value of passenger car customers’’, in Johnson, M.D., Herrmann, A., Huber, F. and Gustafsson, A. (Eds), Customer Retention in the Automotive Industry, Gabler, Wiesbaden, pp. 349-72. Heskett, J.L., Jones, T.O., Loveman, G.W., Sasser, W.E. and Schlesinger, L.A. (1994), ‘‘Putting the service-profit chain to work’’, Harvard Business Review, Vol. 72 No. 2, pp. 164-74. King, C.W. and Summers, J.O. (1970), ‘‘Overlap of opinion leadership across consumer product categories’’, Journal of Marketing Research, Vol. 7 No. 1, pp. 43-50. Mangold, W.G., Miller, F. and Brockway, G.R. (1999), ‘‘Word-of-mouth communication in the service marketplace’’, The Journal of Services Marketing, Vol. 13 No. 1, pp. 73-889. Misner, I.R. (1994), The World’s Best Known Marketing Secret, Bard & Stephen, Austin, TX. MSI (2002), Research Priorities 2002-2004, A Guide to MSI Research Programs and Procedures, Marketing Science Institute, Cambridge, MA. Murray, K.B. (1991), ‘‘A test of services marketing theory: consumer information acquisition activities’’, Journal of Marketing, Vol. 55 No. 1, pp. 10-25.

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Rogers, E.M. and Cartano, D.G. (1962), ‘‘Methods for measuring opinion leadership’’, Public Opinion Quarterly, Vol. 26 No. 3, pp. 435-41. Rust, R.T., Zeithaml, V.A. and Lemon, K.N. (2000), Driving Customer Equity, Free Press, New York, NY. Sundaram, D.S., Mitra, K. and Webster, C. (1998), ‘‘Word-of-mouth communications: a motivational analysis’’, Advances in Consumer Research, Vol. 25, pp. 527-31. Tax, S.S. and Chandrashekaran, M. (1992), ‘‘Consumer decision making following a failed service encounter: a pilot study’’, Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior, Vol. 5, pp. 55-68. Tax, S.S., Chandrashekaran, M. and Christiansen, T. (1993), ‘‘Word-of-mouth in consumer decision-making: an agenda for research’’, Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior, Vol. 6, pp. 75-80.

Wangenheim, F. von and Bayo´n, T. (2002a), ‘‘Towards a model for estimating the economic value of word-of-mouth’’, Proceedings of the 31st EMAC Conference, University of Minho, Braga, pp. 1-6. Wangenheim, F. von and Bayo´n, T. (2002b), ‘‘The economic value of customer word-of-mouth referrals: conceptualization and empirical results’’, unpublished working paper, International University in Germany, Bruchsal. Wheiler, K. (1987), ‘‘Referrals between professional service providers’’, Industrial Marketing Management, Vol. 16, pp. 191-200. Wilson, A. (1994), ‘‘Stimulating referrals’’, Management Decision, Vol. 32 No. 7, pp. 13-15. Zeithaml, V.A. (2000), ‘‘Service quality, profitability, and the economic worth of customers: what we know and what we need to learn’’, Journal of the Academy of Marketing Science, Vol. 28 No. 1, pp. 67-85. Zeithaml, V.A. and Bitner, M.J. (2002), Services Marketing, 3rd ed., MacGraw-Hill, New York, NY.

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Understanding the service profit chain in Latin America: managerial perspective from Mexico Daniel Maranto and Javier Reynoso The authors Daniel Maranto is Associate Professor of Strategy and Javier Reynoso is Professor of Services Management, both at the Graduate School of Business Administration and Leadership (EGADE), Tecnolo´gico de Monterrey at Monterrey, Mexico. Keywords Mexico, Latin America, Hotels, Supermarkets, Operations management, Competition Abstract This paper reports on the initial results of an ongoing research conducted in Mexican service industries aimed at understanding how value is delivered, measured and continuously improved in the studied firms. Using the service profit chain model data were collected from a sample of 28 supermarkets and 29 hotels in Mexican cities. Results show that both industries are similarly characterized by the service profit chain model (SPCM) tool, thus providing some opportunity for cross-learning between industries; and some significant differences exist between domestic and foreign firms in both industries, thus providing some benchmark opportunities for industries based on origin of capital. For the sampled firms, categories of the SPCM were grouped into three statistically different ranges (high, medium and low), thus providing additional knowledge as to what strengths and areas of opportunity for improving performance of the studied industries there are. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0960-4529.htm Managing Service Quality Volume 13 . Number 2 . 2003 . pp. 134-147 # MCB UP Limited . ISSN 0960-4529 DOI 10.1108/09604520310466833

Introduction Mexico, as most emergent economies, has been moving into service economies. The services sector in Mexico currently accounts for about 68 per cent of the country’s GDP. This trend poses important challenges for both managers and academicians. For the former group, managing services implies much more than trendy notions such as attitude or attention to customer. There is a need to take informed decisions as to what and how value is added as perceived by customers. For academicians, services management is a challenging field of study. For example, understanding what drives value to the customer and how to align structure, systems and processes to support the service strategy is a field of study that deserves close attention; also innovation and diffusion processes as a means to provide high valueadded to customers is also a challenging area of study. The exploratory research reported here, part of an ongoing research agenda is intended to contribute to fill the gap between the need to make service industries more competitive and our current knowledge of how to manage them. Services management in the Latin American context raises questions that are worth investigating. This paper specifically addresses the following issues in the context of hotel and supermarket industries: . How could the service profit chain model help us to better understand the management of service industries in the Latin American context? . What are the items of the service profit chain model that require special attention in terms of areas of improvement in delivering service to customers? . In which of the items did sampled firms score the highest? . What does this mean for managerial purposes? The first section of this report presents relevant literature that serves as the fundamental theoretical background of this study. The second part focuses on the methodology used to collect and process data. Results and analysis are presented in the third The authors would like to thank the collaboration of senior research assistant Angel Apunte Aguirre, in the preparation of this article.

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part of the study. Finally, implications and guidelines for future research are provided.

Theoretical background Most Latin American countries have been transforming rapidly into service societies. Increasing needs and demands of a greater variety and complexity of services have produced a growing trend towards service economies in the region. Furthermore, foreign direct investment and privatization programs have changed this sector significantly. Service competition has increased dramatically over the last decade. Despite these realities, knowledge and understanding of service still is very limited about this region. The notion of service is strongly associated with ideas like attention to the customer, service quality and customer satisfaction (Reynoso, 1999; 2000). In Latin America, service still is considered more an attitude than a business. Too much time has been dedicated to develop strategies and operations around those concepts in service companies, and little knowledge has been gained to really understand how service businesses are managed in Latin American countries. Initial efforts on service research however, have started to emerge in this direction (e.g. Paulin et al., 1999; Batiz-Lazo and Wood, 1999; Morales, 1999; Brady and Robertson, 1999; De Carvalho and Faria, 1999). Over the years, a great number of authors within the services management literature have focused on research issues linked to specific functional processes of the service firm (e.g. services marketing, service operations, human resources in services). More recently, some authors have started to explore the management of service organizations, their practices and performance using a more integrated approach. The international service study (ISS), for instance, is a research project across different service activities and countries aimed at understanding, analyzing and benchmarking the management practices of service companies. A number of publications illustrate the methodology and results of this integrative approach (e.g. Voss et al., 1997). Other authors have contributed to such integrative attempts to study service organizations. An analysis of the forces behind growth, profits and value is provided

by Reichheld (1996). More recently, an integrated measurement and management system for improving customer satisfaction, loyalty and profit is presented by Johnson and Gustafsson (2000). In particular, Heskett and his colleagues at the Harvard Business School developed the well-known model named the service profit chain (Heskett et al., 1994; 1997). This model is the result of studying the linkages of management practices with performance of a number of service companies. Following the impact of this contribution to the services management field, it could be argued that most of research reports on this topic relate to those attempts to empirically measure and demonstrate specific links of the service profit chain model (e.g. Anderson et al., 1994; Heinhuis et al., 1998). The research project reported here, aims to increase our understanding of service management in Mexico, one of the largest service economies in Latin America. Earlier efforts in this direction have been reported elsewhere. For example Reynoso and Sanchez (1999) investigated the impact of operation management and technology in service organizations. The authors reported that internal efficiency and technology play a central role in service organizations in Mexico, however, it is reported also that there are key areas of opportunity in terms of employee empowerment and training, thus making the decision-making process very hierarchical and slow compared with the flexibility imposed by changing competitive environments. Interestingly, their research also reports that sampled firms are making strong progress in becoming technology oriented as a means to obtain differentiation and efficiency in service delivery. Reynoso and Corrales (1999) investigated the interaction between people and technology. The authors report that senior management plays a critical role in leading a service-oriented strategy in the firm both in creating a service culture and implementing systems and processes to deploy the strategy; employees require both the attitude and the skills to deliver service to customers and; technology is a tool to gain competitive advantage as long as it provides value to customers. Research discussed so far, aims to advance our understanding of services management in Latin American firms; however, the need to

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know and understand what specific managerial practices in a comprehensive and measurable form add value to customers is still present. The research reported here intends to make a contribution to fill this gap.

Research methods This research used an adaptation of the 44-item questionnaire suggested by Heskett and his colleagues (Heskett et al., 1997). This modified version included only the third statement of each item of the original questionnaire. Based on this statement the respondent answered each of the 44 items on a one- (strongly disagree) to six- (strongly agree) point Likert scale (see Appendix 1). This modified version kept the original meaning of each item and provided the advantage of being more suitable in terms of language and interpretation for interviewed managers. The 44 items of the questionnaire were grouped into 11 categories, each one integrated by four items (see Appendix 2). Sample The initial results reported in this piece of research were obtained from a sample of two service industries: (1) 29 hotels (18 domestic and 11 foreign investments); and (2) 28 supermarkets (18 domestic and ten foreign investments). These two industries are worth studying given their contribution to the economic activity of the country. Tourism in Mexico, where hotels are included, represents the second largest foreign currency generator. Retailing industry, where supermarkets take an important part, has been changing since the country became more active in international contexts. Recently, a number of foreign firms in this sector have been established in the country, either as 100 per cent foreign capital or through joint ventures. Trade (supermarkets included in this branch), restaurants and hotels account for 21 per cent of the GDP of Mexico. Other relevant industries such as financial and entertainment services are included in this research agenda. The instrument was applied in firms located in those cities where students who participated in this research lived. Although such a sample may not be considered

completely random, it provided a good picture of many of the main cities of the country and allowed for some comparisons and contrasts of data. The questionnaire was applied to the managerial team of each hotel and supermarket, those persons responsible for the main functional areas of the business (i.e. human resources, marketing, finance, etc.). A total of 127 usable questionnaires out of 145 (87.5 per cent) were obtained from the hotel industry in the Mexican cities of Saltillo, Culiaca´n, San Luis Potosı´, Veracruz, Guadalajara, Quere´taro, Monterrey, Hermosillo, and Obrego´n. Similarly, information from 136 executives was obtained from supermarkets. The response rate was also high (97.1 per cent), given that the questionnaire was intended to reach 140 respondents. Sampled supermarkets were located in Mazatla´n, Saltillo, San Isidro, Colima, Guadalajara, Ciudad Jua´rez, Monterrey and Quere´taro. Information was collected by groups of trained service management undergraduate students under the supervision of one of the authors.

Results and analysis Hotels and supermarkets The mean value of each of 44 items of the questionnaire for both industries was plotted in a radar-type chart (see Figure 1). Figure 1 Service profit chain in Mexico-hotels and supermarkets

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Shapiro-Wilk W and Kolmogorov-Smirnov tests were used to analyze normal distribution of data. Somehow expectedly, managers’ responses were not normally distributed. It can be argued that perhaps, the normative nature of the statements may have contributed in some cases to this result. After a closer look at the variance of each of the items’ responses, it was decided, however, to use t-test statistics, given the exploratory nature of this research and assuming that with a larger sample, data would tend to distribute normally, as indicated by the central limit theorem. Interestingly, a very similar pattern emerged between sampled hotels and supermarkets. In order to know if differences in mean values between industries were significant, t-test analysis was conducted. As expected, differences in mean values for most items were not statistically significant (see Appendix 2). Only 11 out of 44 items were statistically significant. This finding suggests a relatively consistent managerial perspective between studied industries. One interpretation of this result is that firms, at least in this sample, seem to show similar strengths and areas of improvement in managing the service-profit chain process. In order to increase our understanding of those significant differences obtained in hotels and supermarkets, it was decided to see how these industries scored in each item for which a significant difference was obtained. Hotels scored higher on items named ‘‘focus in operations’’ and ‘‘eliciting customer feedback’’. These significantly higher mean values could be associated with the processes of focusing on specific target customers as part of developing a strategic service vision, as well as encouraging customers to provide feedback using a variety of channels as a way to achieve customer satisfaction. Supermarkets, on the other hand, scored higher than hotels on items called: . ‘‘business definition’’; . ‘‘establishing appropriate levels of frontline capability’’; . ‘‘getting ‘buy-in’’’; . ‘‘measuring of profit chain components’’; . ‘‘determination of component relationships’’; . ‘‘establishing the need for change’’; . ‘‘leadership for change’’; . ‘‘selection of the ‘vehicle’ for change’’; and . ‘‘identifying and communicating core values’’.

This set of results was revealing. Supermarkets scored higher in items that basically relate to improving processes, measuring value to customers and, promoting and leading change. Thus, a possible interpretation could be that management in supermarkets is making efforts to identify what drives service to customers and how to align structure and processes towards that end. Thus, it can be proposed that supermarket management is in the process of becoming more customer-driven and interested in how to deliver value to customers in a more systematic way. In continuing to explore those mean value differences of the service-profit chain questionnaire items, a range analysis exercise was conducted. Three groups were formed consisting of those 11 questionnaire categories with high, medium and low range in mean values (see Table I). Although this initial grouping was based on the difference between highest and lowest scores of the questionnaire categories defining three ranges a priori, significant differences were indeed found when those groups were compared within and between each industry studied. It is interesting to report, for instance, that the group with highest mean value scores for each industry was formed exactly by the same four categories, namely: (1) ‘‘managing by the cycle of customer satisfaction’’; (2) ‘‘improving processes’’; (3) ‘‘achieving total customer satisfaction’’; and (4) ‘‘leading service profit chain management’’. This is an interesting finding that suggests that studied firms are making progress in achieving customer satisfaction supported by improving process and managerial practices – not only with good attitudes and intentions. T-test was also calculated between top-tiers of studied industries. Even though a significant difference existed between both industries in the mean value of this top-tier group (t-test = 1.96; p = 0.000), no plausible explanation for this difference could be provided at this point. Comparative results of the other two defined groups are not conclusive at this point. Although categories grouped very similarly, groups were not the same as in the case of the reported top-tier group. It is interesting to note though, the fact that ‘‘developing a

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Table I Comparison within industries by categories Hotels

Supermarkets

4.63-4.95 Achieving total customer satisfaction Leading service profit chain management Improving processes Managing the cycle of customer satisfaction t = 10.347, p = 0.000 4.31-4.62 Practicing potential-based marketing Managing by the value equation Managing multisite networks Builsind frontline capacbility t = 18.604, p = o.ooo 3.99-4.31 Measuring service profit chain progress Re-engineering the organization Developing a strategic service vision t = 9.151, p = 0.000

4.66-5.05 Leading service profit chain management Improving processes Achieving total customer satisfaction 4.25-4.66 Building frontline capability Practicing potential-based marketing Measuring service profit chain progress Managing multisite networks Managing by the value equation Re-engineering the organization t = 10.692, p = 0.000 3.85-4.25 Developing a strategic service vision t = 12.747, p = 0.000

strategic service vision’’ and ‘‘reengineering the organization’’ were the two lowest scored categories of all, both in hotels and supermarkets. Although preliminary at this point, the fact that both industries scored the lowest in items related to developing a strategy vision and redefining key systems and processes – the what and how in the leading of a business – should encourage both practitioners and academicians to identify value drivers to customers within the context of a known and shared purpose of the firm. In summarizing results from the industries under study, it is important to note that both studied industries present areas of improvement in defining and focusing on a target customer (see Figure 1, item 4, for example) in order to direct and adapt their service strategies to the customers that represent business to the firm. It is also worth emphasizing that managers of both industries are taking steps to achieve customer satisfaction supported by improvement of processes and procedures (see Table I). These results could be interpreted under the context of a relatively new but increasing competition in these industries in Mexico and from a more knowledgeable customer with more options to decide. In a broader perspective, firms are in the process of becoming more efficient and more ‘‘customer-oriented’’, provided that the customer has more options to choose from relative to some years ago when the Mexican economy was more steady and protected.

Domestic and foreign hotels With the purpose of gaining knowledge as to the extent in which domestic and foreign hotels differ in their service profit chain management process, t-test analysis was also conducted (see Figure 2). Statistically significant differences show that domestic hotels scored higher than their foreign counterparts in the ‘‘extent and scope of effort’’ item. Based on the description of this item (see Appendix 2) it could be argued that domestic hotels seem to be in the process Figure 2 National vs international hotels

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of learning what drives value to customers and how to deliver it efficiently. Similarly, as in the supermarket industry, this finding could be understood under the context of increasing competition both from local and international competitors. Also, foreign hotels scored higher on items named ‘‘customer segmentation’’, ‘‘objectives of the effort’’, ‘‘international networks’’, ‘‘franchising’’, ‘‘guarantees’’, ‘‘measuring of profit chain components’’, ‘‘determinant of component relationships’’, ‘‘use of measures’’ and ‘‘use of balance scorecard’’. This provides a potential indication that foreign hotels have developed more expertise in global competition than domestic ones, making them more effective at providing value to customer and evaluating the cost/benefit relationship of providing the service. However, additional research is needed to obtain stronger support for these arguments. As explained in the previous section, the 11 categories of the questionnaire were grouped into high (means value between 4.63 and 4.95), medium (means value between 4.32 and 4.62) and low (means value between 3.99 and 4.31) range values. In the case of the hotel industry analysis, it was interesting to find that significant differences (t-test = 10.347, 18.604, 9.151 respectively and p = 0.000 in all three cases) indeed existed among these three groups. Categories named ‘‘achieving total customer satisfaction’’, ‘‘leading service profit chain management’’, ‘‘improving processes’’ and, ‘‘managing the cycle of customer satisfaction’’ (see Table I) integrated the toptier group. Scores from this first set had significantly different results from those of the second-tier group integrated by categories named ‘‘practicing potential-based marketing’’, ‘‘managing by the value equation’’, ‘‘managing multisite networks’’ and ‘‘building frontline capability’’. Also, these first two groups were significantly different from a third-tier group formed by categories related to ‘‘measuring service profit chain progress’’, ‘‘reengineering the organization’’ and ‘‘developing a strategic service vision’’. One interesting interpretation is that heavy emphasis is currently being placed on improving processes and focusing on customer satisfaction, but firms still need to define what their target market is, and develop systems and indicators that measure how each element of the service profit chain

contributes to create value for target customer and profits for the firm. Similarly as reported above, range analysis was conducted also for each of the two sub-samples of domestic and foreign hotels. As explained in the above section, the 11 categories of the questionnaire were grouped in high, medium and low range in mean values for both domestic and foreign investments (see Table II). As in previous analysis, statistically significant differences were found among the three groups for both domestic (t-test = 8.625, 5.985, 16.150, respectively and p = 0.000) and foreign (t-test = 5.948, 8.025, 10.986, respectively and p = 0.000) investments. Relevant insights were obtained by comparing and contrasting groups within each of the two sub-samples. For example in the case of domestic hotels it can be suggested that an effort is being made to obtain first-hand information from customers, to provide employees with the knowledge and tools that allow them to make decisions that benefit both the firm and the customer, and to create a community of shared values that differentiate the business from competitors. However, this contrasts with the lowest range value that includes categories associated with measuring profit chain components, processes redesign and, developing a strategic vision. Even though this issue may deserve further research, there is some evidence to suggest that at least sampled domestic hotels are involved in a learning process aimed to improve the management of the business from sharing a service vision to identifying value-adders within the service profit chain model (SPCM). Similar results can be observed for foreign hotels. A comparison between the top-tier and low-tier groups seems to indicate that foreign hotels are in the process of developing practices that focus on customer satisfaction, but they need to identify key processes that add value to target customers. Domestic and foreign supermarkets The same analysis was conducted for the supermarket industry. T-test was obtained with the purpose of learning whether significant differences existed in the means values of domestic and foreign businesses and where these differences laid (see Figure 3). It was found that foreign supermarkets scored higher in items named ‘‘operating strategy’’, ‘‘focus in operations’’ and ‘‘service delivery

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Table II Comparison within hotels by origin of investment by categories Domestic

Foreign

4.54-4.83 Achieving total customer satisfaction Leading service profit chain management Improving processes Managing the cycle of customer satisfaction t = 8.625, p = 0.000 4.26-4.54 Managing the value equation Practicing potential-based marketing Building frontline capability t = 5.984, p 0.000 3.97-4.26 Managing multisite networks Measuring service profit cahin progress Developing a strategic service vision Re-engineering the organization t = 16.501, p = 0.000

4.74-5.118 Achieving total customer satisfaction Leading service profit chain management Improving processes Managing multisite networks t = 5.948, p = 0.000 4.35-4.74 Practicing potential-based marketing Building frontline capability Managing by the value equation Measuring service profit chain progress t = 8.025, p = 0.000 3.971-4.354 Re-engineering the organization Developing a strategic service vision t = 10.986, p = 0.000

system review’’; while domestic supermarkets scored higher in items ‘‘determination of component relationships’’, ‘‘measuring of profit chain components’’, ‘‘establishing the need for change’’, ‘‘leadership for change’’ and ‘‘selection of the ‘vehicle’ for change’’. Some revealing insights can be learned from these results. It seems that foreign supermarkets perform better at developing a strategic service vision, and monitoring service delivery. Correspondingly, it seems that they have better defined their strategy and aligned value-added activities to that

strategy. It was also encouraging to find that domestic supermarkets are making progress to become better managed. Domestic supermarkets are in the process of making and leading changes that contribute to improving their competitiveness measured by the value drivers included in Heskett’s methodology, while their foreign counterparts are more oriented to maintain the focus of their operations and service delivery. These preliminary suggestions need further exploration to gain empirical support. Based on the same rationale as in the hotel industry, the 11 categories of the questionnaire were grouped into three sections. The highest range value (means values between 4.66 and 5.05) was integrated by categories named ‘‘leading service-profit chain management’’, ‘‘improving processes’’, ‘‘achieving total customer satisfaction’’ and ‘‘managing the cycle of customer satisfaction’’ (see Table I). Categories identified as ‘‘building frontline capability’’, ‘‘practicing potential-based marketing’’, ‘‘measuring service profit chain progress’’, ‘‘managing multisite networks’’, ‘‘managing by the value equation’’ and ‘‘reengineering the organization’’ were grouped with the medium range value (means values between 4.25 and 4.66). Only one category integrated the low range value, namely ‘‘developing the strategic service vision’’ (mean values between 3.85 and 4.25). T-test analysis was conducted to learn whether there were in fact significant differences among these hypothesized groups. Results

Figure 3 National vs international supermarkets

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indicated that significant differences indeed existed (t-test = 10.055, 10.692, 12.747 respectively and p = 0.000) among the top, medium and low tiers. As in the case of hotels, supermarkets seem to be more oriented towards fulfilling customer satisfaction, whereas the processes of defining a service vision, aligning activities to that vision and measuring value creation to the customer still are areas of opportunity in the studied firms. These results are consistent with what has been discussed so far in this report: supermarkets appear to be in a learning process that better positions them to compete in more dynamic environments and more educated and selective customers. As for the case of hotels, range analysis was conducted for the two sub-samples represented by national and international supermarkets (see Table III). Statistically significant differences were found among the three groups for both domestic supermarkets (t-test = 8.560, 9.034, 13.151 respectively and p = 0.000) and foreign supermarkets (t-test = 6.905, 5.764, 9.678, respectively and p = 0.000). The top-tier for domestic supermarkets was integrated by categories that suggest an effort and commitment to improve service management practices in the domestic supermarket industry. However, this issue contrasts with the low-tier section whose only category indicates a need to develop a strategic vision. Range analysis was then conducted for foreign supermarkets. The top-tier (means

values between 4.83 and 5.2) includes the categories that indicate that sampled firms are in the process of identifying value-drivers to customers. However, when compared with the lowest-tier (means values between 4.09 and 4.46) it is likely that an area of opportunity exists in developing and implementing key processes and systems that support the effort of achieving total customer satisfaction within the context of a service vision. Even thought preliminary at this point and in need of further evidence, it may seem that the development of a strategic vision is an initial step that still requires to be integrated in the management of the supermarket industry. This issue is relevant: business definition and focus on target customers are the milestones from which processes, systems and measurement indicators derive. These last elements make no sense without the context of the first ones. Sampled firms seem to be in the process of incorporating this paradigm.

Final discussion Services in Latin American countries are increasingly becoming a more important economic activity as measured by their contribution to the GDP composition. Mexico is by no means an exemption. This issue deserves special attention in the context of increased multinational competition in

Table III Comparison within supermarkets by origin of investment by categories Domestic

Foreign

4.56-4.98 4.138-4.56 Leading service profit chain management Improving processes Achieving total customer satisfaction Managing the cycle of customer satisfaction Measuring service profit chain progress Managing by the value equation Practical potential-based marketing Re-engineering the organization t = 8.560, p = 0.000 3.72-4.138 Building frontline capability Managing multisite networks t = 9.034, p = 0.000 Developing a strategic service vision t = 13.151, p = 0.000

4.83-5.2 Leading service profit chain management Achieving total customer satisfaction Managing the cycle of customer satisfaction Improving processes t = 6.905, p = 0.000 4.46-4.83 Building frontline capability Managing multisite networks Practical potential-based marketing Measuring service profit chain progress t = 5.764, p = 0.000 4.09-4.46 Managing by the value equation Re-engineering the organization Developing a strategic service vision t = 9.678, p = 0.000

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which customers are exposed to more buying options and investors can somehow easily select one country over another to invest. As a contribution to our knowledge of how to improve service management, this research has provided some initial insights on the elements that deliver service value to customers. The first issue that is important to mention is that the questionnaire used in this research was useful in understanding how the SPCM is applied in Mexico and how this model can assist managers and researchers to better identify value-drivers to customers from a comprehensive perspective. Based on this tool, it is possible to distinguish which processes represent strengths to the firm and which ones provide areas of improvement. It was revealing that the two sampled firms (both in domestic and foreign investments) scored the lowest in the category related to strategic service vision. Is it that business managers still need to think in terms of long term vision? Do Mexican service industries have to get used to increased competition in which focusing on target markets and supporting strategies with systems, processes and performance indicators are new rules in services management? Although, exploratory in nature, this study reveals a need to learn how to compete in complex, sophisticated markets in which customers make informed decisions based on different available options. It was very encouraging to understand that studied firms scored the highest in categories related to improving processes and achieving customer satisfaction. From a learning perspective, this result seems to indicate that an on-going process is taking part in service industries to become more focused on what drives value to customers and how that service represents business to the firm. It was also useful to learn that some similarities and differences exist in studied firms based on the origin of their investment. In the case of the hotel industry, foreign hotels seem to be more advanced in terms of identifying and measuring value drivers, while domestic hotels are taking initiatives to improve value to customers (see Table IV). In the same vein, foreign and domestic supermarkets also present similarities and differences. It is worth emphasizing that domestic supermarkets are taking steps to recognize and implement change, while foreign retailers are focusing on differentiating

operations that provide value for targeted customers. These findings seem to be in accordance with the relatively new competitive context in Mexico in which more foreign firms are establishing operations in the country, thus increasing competition for both local and foreign firms already operating Mexico. From a broader perspective, this research highlights the need to shape the future of services in Latin America. One issue to be emphasized is that services management requires a different business logic – long term vision, a process-oriented structuring in which value-drivers can be identified and measured, and trained personnel capable of making decisions within their scope of responsibility. Differentiation based on research and development will also contribute to shaping a better future for services in Latin America. A duality takes place here, on the one hand process improvement contributes to gain competitiveness; on the other hand, disruptive innovations in services contribute in creating new markets in which a firm can be a first-mover. All in all, analysis and conclusions discussed in this report, not exempt from some methodological limitations, contribute to increase our understanding of how service businesses deliver value to customers and how they are managing the service profit-chain process in the Latin American business environment. It allows those interested in managing and studying service firms to move from the notion of service as merely attitude towards a more sustained and integrated view of the service business.

Directions and future research Additional studies will continue from this exploratory stage and will certainly contribute to increase our knowledge regarding the service-profit chain management process. First, replication studies in other Mexican services activities need to be conducted. Entertainment and financial services are already on the make. Second, the design of structures, systems and processes that support the service-driven strategy is also worth investigating in the Mexican context. Third, innovation creation and diffusion in services industries in Mexico is also a research stream worth exploring. The speed of change in

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Table IV Hotel and supermarkets: qualitative comparisons Hotels

Supermarkets

Foreign Compete in global contexts Service as business Domestic Process of moving from service as attitude to service as business

Focused on operations that provide value for customers and to the firm

Process of creating the need for change Leading change

services is accelerating, so firms in this area should benefit from research that allows them to understand how to create competitive advantages through innovation. Services are very broad in scope, however, only high-value added services provide the highest returns. For Latin American countries, a research agenda should address the question of which service sectors are key engines of economic development in a given country. Research is needed regarding how to link services in Latin America to other geo-economies of the world, how and where to get complementarities, differentiations? A number of questions are still waiting to be addressed in the field of managing services in Mexico and Latin America. This paper was prepared to make some contributions to fill the gap.

References Anderson, E.W., Fornell, C. and Lehmann, D.R. (1994), ‘‘Customer satisfaction, market share and profitability: findings from Sweden’’, Journal of Marketing, Vol. 58, July. Batiz-Lazo, B. and Wood, D. (1999), ‘‘Management of core capabilities in Mexican and European banks’’, International Journal of Service Industry Management, Vol. 10 No. 5, pp. 430-48. Brady, M. and Robertson, C. (1999), ‘‘An exploratory study of service value in the USA and Ecuador’’, International Journal of Service Industry Management, Vol. 10 No. 5, pp. 469-86. De Carvalho, F. and Faria, V. (1999), ‘‘Attribute importance in service quality: an empirical test of the PBZ conjecture in Brazil’’, International Journal of Service Industry Management, Vol. 10 No. 5, pp. 487-504. Heinhuis, E., Van Tuuren, M., Zwaal, W. and Swint, F. (1998), ‘‘Service profit chain in the hospitality industry: a pilot study in six companies’’, Conference

Proceedings of Quality Management in Services, VIII, Ingolstadt, pp. 503-11. Heskett, J., Jones, T.O., Loveman, G.W., Sasser, W.E. and Schlesinger, L.A. (1994), ‘‘Putting the service-profit chain to work’’, Harvard Business Review, March-April, pp. 164-74. Heskett, J.L., Sasser, W.E. and Schlesinger, L.A. (1997), The Service Profit Chain, Free Press, New York, NY. Johnson, M. and Gustafsson, A. (2000), Improving Customer Satisfaction, Loyalty and Profit, Jossey-Bass, San Francisco, CA. Morales, M. (1999), ‘‘Assessing the cross-cultural applicability of a service quality measure: a comparative study between Quebec and Peru’’, International Journal of Service Industry Management, Vol. 10 No. 5, pp. 449-68. Paulin, M., Ferguson, R.J. and Alvarez, A.M. (1999), ‘‘External effectiveness of service management: a study of business-to-business relationships in Mexico, Canada and the USA’’, International Journal of Service Industry Management, Vol. 10 No. 5, pp. 409-29. Reichheld, F. (1996), The Loyalty Effect, Harvard Business School Press, Boston, MA. Reynoso, J. (1999), ‘‘Progress and prospects of services management in Latin America’’, International Journal of Service Industry Management, Vol. 10 No. 5, pp. 401-8. Reynoso, J. (2000), ‘‘The evolution of services management in developing countries: insights from Latin America’’, in Lovelock, C. (Ed.), Services Marketing, 4th ed., Prentice-Hall, Englewood Cliffs, NJ, pp. 585-92. Reynoso, J. and Corrales, M. (1999), ‘‘Exploring service operations in Mexico: understanding technology and people’’, Conference Proceedings of the 1st International Conference Service Operations Management Association, Boston, MA, pp. 35-9. Reynoso, J. and Sanchez, J.M. (1999), ‘‘Exploring the profile of service organizations in Mexico: understanding operations and technology’’, Conference Proceedings of Decision Sciences Institute 5th International Conference, Athens, Vol. 2, pp. 1504-6. Voss, C.A., Blackmon, K., Chase, R., Rose, E.L. and Roth, A.V. (1997), ‘‘Service competitiveness – an Anglo-US study’’, Business Strategy Review, Vol. 8 No. 1, pp. 7-22.

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10

8 9

1 2 3 4 5 6 7

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Building frontline capability

20

19

14 15 16 17 18

Description

Most managers can describe targeted customers in the same psychographic and demographic terms Most managers describe the business in terms of results produced for customers, employees, investors, and other important constituents Only those initiatives that leverage results for customers over costs are approved Potential customers not fitting the target profile are discouraged from using the service/product package Needs and behaviors of customer segments are identified and analyzed in terms of value equation components All aspects of the operating strategy and service delivery system are designed with the value equation in mind Changing customer needs are tracked in terms of elements of the value equation, with service changes implemented on the basis of results Value enhancement All value enhancements are weighed in terms of the degree to which enhancements are leveraged over cost Lifetime customer value The lifetime value of customers has been calculated in terms of purchases over the length of a customer’s relationship with the company plus the value of referrals made by loyal customers to non-users Effort to attract/retain customers Substantial portions of the marketing budget (40 per cent or more) are devoted to both attracting new customers and retaining existing ones Use of listening posts Data from sales reps, customer service, complaint letters, and other sources is organized into information about loyal customers Proportion of customer potential realized Efforts are made to increase the share of potential customer purchases by increasing transaction frequency, size, and profitability as well as the length of a relationship with a customer Primary goal The primary ‘‘external goal’’ of the organization is maximizing customer satisfaction in ways that favorably influence future customer loyalty Definition and goals Customer satisfaction and loyalty have been defined, and clear goals exist for both Measurement Both customer satisfaction and loyalty are measured, and linkages between them have established Rewards and recognition Only employees achieving perfect or ‘‘top box’’ customer satisfaction are regularly recognized and rewarded Management communication and action Management emphasizes the importance of customer service and is attempting to build the capability to deliver it Establishing appropriate levels of Frontline capability, including latitude, limits, supporting technology, training, and recognition, has been calibrated with the strategy, frontline capability communicated clearly to employees, and implemented Frontline employee selection Frontline employees are selected primarily on the basis of their attitudes; a large proportion (more than 20 per cent) ‘‘select themselves’’ into the organization based on recommendations from employees Frontline employee support Frontline employees are given wide latitude to deliver results for customers; support is broadly defined to include technology, training, and pay for performance; employees review and help design the support program (continued)

Targeting customers Business definition Operating strategy Focus in operations Customer segmentation Service design Service improvement

Item

Daniel Maranto and Javier Reynoso

11 Managing the cycle of 12 customer satisfaction 13

Practicing potentialbased marketing

Managing by the value equation

Developing a strategic service vision

Category

Table AI Service profit chain management audit (based on Heskett et al., 1997)

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33 Measuring of profit chain components All profit chain components are tracked regularly and used for management purposes 34 Determination of component relationships Relationships have been established between all or most service profit chain components and the results are used regularly by managers 35 Use of balance scorecard A balanced scoreboard, comprising measures of financial performance, customer satisfaction, employee satisfaction, and other relevant non-financial measures are used to measure performance 36 Use of measures Financial as well as customer and employee satisfaction and loyalty measures are used as the basis for compensating managers (continued)

32 Guarantees

31 Service recovery

30 Latitude to respond

29 Eliciting customer feedback

28 Franchising

27 International networks

26 Standardization in multisite networks

25 Service delivery system

24 Objectives of the effort

23 Getting ‘‘buy-in’’

The scope of quality improvement initiatives reflects the goal of enhancing value for customer; this includes results delivered, customer access to the service, cost, and ultimately price Process and quality improvement has become a part of daily life in this organization; managers constantly urge that it be a consideration in every important decision Every effort was made to obtain ‘‘buy-in’’ from frontline employees and middle managers; assurances were given that no one would lose his or her job because of process quality improvement Quality process improvement initiatives are intended to change the very culture of our organization, including a greater sensitivity to best practice anywhere Service delivery systems are monitored constantly for ways in which to make service providers more effective and satisfied in their jobs Core elements of the service have been identified and are required in every operating unit; beyond them, employees or franchisees are free to innovate and are rewarded for doing so The degree of standardization being achieved in international operating sites reflects the cultural sensitivities of the service being delivered Franchising agreements clearly establish expectations and are backed up with a stream of franchiser services designed to remind franchisees of the value of their network relationships Every effort has been made to encourage customers to provide feedback; such information from all sources is consolidated, analyzed, and fed to managers who can act on it Frontline employees are provided with training, information, and other support designed to allow them to use their best judgment in responding to customer complaints Responses to customer complaints are made as fast as possible and give more emphasis to personal and customized content than to format or appearance Unconditional guarantees accompany all of our services, whether they are implicit or explicit; the customer decides whether service or product performance is satisfactory

Description Daniel Maranto and Javier Reynoso

Measuring service profit progress

Achieving total customer satisfaction

Managing multisite networks

21 Extent and scope of effort

Improving processes

22 Leadership and sustained effort

Item

Category

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37 Establishing the need for change 38 Leadership for change 39 Selection of the ‘‘vehicle’’ for change

Re-engineering the organizations

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Core values are stated in a way that stresses the need to listen and respond to the needs of important constituencies as a means to foster an adaptative culture Core values are used regularly in making strategic decisions The leadership of the organization maintains regular contact with the frontline and uses it as an opportunity to listen, learn, and teach the use of core values to employees

There is a strong sense of the need for reengineering the organization, based on measures of customer and employee satisfaction All levels of management are convinced of the need for organization reengineering A vehicle, such as continuous quality improvement, has been selected and is in use as a method for achieving organization reengineering One or more layers of management have been eliminated, and frontline jobs and compensation have been altered significantly to reflect increased latitude and decision-making responsibility Core values of the organization have been established and are communicated regularly by the leadership of the organization

Description

Daniel Maranto and Javier Reynoso

43 Use of core values 44 Leadership behavior

Leading service profit 41 Identifying and communicating core chain management values 42 Nature of core (shared) values

40 Implementing change

Item

Category

Table AI

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Appendix 2

Table AII Service profit chain categories and items – t-tests for hotels and supermarkets Category/items

Developing a strategic service vision 1 Targeting customers 2 Business definition 3 Operating strategy 4 Focus in operations Managing by the value equation 5 Customer segmentation 6 Service design 7 Service improvement 8 Value enhancement Practicing potential-based marketing 9 Lifetime customer value 10 Effort to attract/retain customers 11 Use of listening posts 12 Proportion of customer potential realized Managing the cycle of customer satisfaction 13 Primary goal 14 Definition and goals 15 Measurement 16 Rewards and recognition Building frontline capability 17 Management communication and action 18 Establishing appropriate levels of frontline capability 19 Frontline employee selection 20 Frontline employee support Improving processes 21 Extent and scope of effort 22 Leadership and sustained effort 23 Getting ‘‘buy-in’’ 24 Objectives of the effort Managing multisite networks 25 Service delivery system 26 Standardization in multisite networks 27 International networks 28 Franchising Achieving total customer satisfaction 29 Eliciting customer feedback 30 Latitude to respond 31 Service recovery 32 Guarantees Measuring service profit progress 33 Measuring of profit chain components 34 Determination of component relationships 35 Use of balance scorecard 36 Use of measures Re-engineering the organizations 37 Establishing the need for change 38 Leadership for change 39 Selection of the ‘‘vehicle’’ for change 40 Implementing change Leading service profit chain management 41 Identifying and communicating core values 42 Nature of core (shared) values 43 Use of core values 44 Leadership behavior Note: * p = 0.05; ** p = 0.01; *** p = 0.001

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t-test

Sig.

0.425 – 1.948 1.222 2.922

0.671 0.053** 0.223 0.004**

– 3.78 0.362 – .026 0.576

0.706 0.718 0.980 0.563

0.119 – 1.273 1.274 – 1.802

0.905 0.204 0.204 0.073

0.520 – 1.111 0.602 1.439

0.604 0.268 0.548 0.151

– 1.405 – 2.566 – .116 – .162

0.161 0.011* 0.907 0.871

1.068 0.457 – 2.410 – 1.418

0.288 0.648 0.017* 0.157

0.433 – 1.040 – 1.049 1.053

0.665 0.299 0.295 0.294

3.681 0.328 0.028 – .802

0.000*** 0.743 0.978 0.423

– 2.702 – 2.478 – 1.481 – 1.124

0.007** 0.014* 0.140 0.262

– 2.508 – 3.707 – 3.479 0.040

0.013* 0.000* 0.001** 0.968

– 2.105 – 1.909 – 1.194 – 1.445

0.036* 0.057 0.234 0.150

Introduction

Quality in the work environment: a prerequisite for success in new service development Bo Edvardsson and BengtOve Gustavsson The authors Bo Edvardsson is Professor and Director and BengtOve Gustavsson is Professor and Researcher, both at the Service Research Center, Karlstad University, Sweden. Keywords Working conditions, Service quality, Participation, Job satisfaction Abstract In research on new service development (NSD), the interest has mainly been on structural aspects of the service offering. Not much attention has been paid to work environment conditions forming the basis for service oriented and effective employees. Addresses this issue by focusing on work environment requirements in NSD. Regards employee work environment requirements as a key factor for success when designing and implementing new services. After studying work environment requirements in the working life science literature indentifies five general requirements. These have been used when analyzing data from an empirical study on work environment conditions and requirements in service organizations. The analysis and interpretation shows that many requirements are the same in service organizations as in manufacturing companies but also that there are distinct differences. Based on the analysis presents a sixth requirement. Examples of requirements are: the ability to control the work situation and to be involved in the decision-making processes, a safe physical work environment and the ability to develop social relationships through the work. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 13 . Number 2 . 2003 . pp. 148-163 # MCB UP Limited . ISSN 0960-4529 DOI 10.1108/09604520310466851

In the research on new service development (NSD), the interest has been mainly on structural and design aspects of the service offering, on the service process with supporting resources, and on organizational issues including tools and methods for idea evaluation and customer need analysis (Johne and Storey, 1998; Edvardsson et al., 2000). One example of a focused area is the role of technology in services and of technology readiness aspects (Parasuraman and Colby, 2001). However, not much attention has been paid to the work environment conditions that are necessary for service oriented and satisfied employees. In this article, we will address this important issue by focusing on work environment requirements in NSD. The customer perspective has dominated in service quality and NSD research. The focus has been on drivers of customer satisfaction and customer perceived quality at the expense of the work satisfaction of the employees and quality factors in the work environment. An important question in service research has been: ‘‘What is needed in order to create value and high quality in the eyes of the customer?’’ Not much has been said in the literature about the employees and what is required to meet their needs and expectations. Instead, the discussion has been on the characteristics of the employees, such as attitude, competence and behavior, but very little empirical research is available on work environment requirements. Schlesinger and Heskett (1991a, p. 149) argue that ‘‘customer satisfaction is rooted in employee satisfaction’’ and they have developed the service profit chain model, where internal service quality drives employee satisfaction, employee retention, and external service quality. External service quality drives customer satisfaction, customer retention, and profit. They also argue that increased external service quality, customer satisfaction and profitability will have a positive effect on employee satisfaction. Furthermore, increased employee satisfaction will result in improved internal service quality. Schlesinger and Heskett (1991b) have developed two models: the cycle of success and the cycle of failure where the ‘‘customer cycle’’ and the ‘‘employee cycle’’ are interdependent. In the cycle of success, the critical role of the employees, their satisfaction, extensive

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training, broadened job designs, above average wages, and positive service attitudes are focused on. The employees are viewed as an essential resource without discussing in depth and without empirical research, what is necessary for ‘‘resource efficiency’’ and good work environment conditions. The main question has been ‘‘What is required of the employees?’’ not ‘‘What is required of the work environment?’’ In NSD research, much effort has been devoted to determine what constitutes good service but not very much on how to obtain this in an organization. In this article we view the requirements for employee work environment as a key factor for success when designing and implementing new services. We have studied work environment requirements in the working life science literature and identified five general requirements. These have been used in an empirical study on work environment conditions and requirements in service organizations. The analysis and interpretation show that many requirements are the same in service organizations as in manufacturing companies, but also that there are distinct differences. Based on the analysis we have added a sixth requirement, namely the possibility for the service employees to sometimes distance themselves from the work environment. Our aim is to address what demands should be put on the work environment in order for the employee to experience high work satisfaction; this in turn is considered a prerequisite for the service encounter to be positive also for the customer. These demands are then linked to current theories and views regarding the new service development process. To address the stated objective, we begin with an overview of research on work satisfaction and turn to the working life science discourse. Our focus is on work environment requirements with an emphasis on what is specific for service producing organizations. We then present the results from an empirical study on work environment demands in services and list the six characteristics or requirements. These requirements are related to the new service development process (NSD), and we discuss its implications for NSD. We argue that work environment requirements should be integrated in the different phases of NSD and propose how this integration can be managed.

We conclude with a discussion on research contributions, managerial implications, and suggestions for future research.

Theoretical points of departure First, we present an overview of the research on work environment. Then we proceed with a more specific discussion on the differences between work environment requirements in service organizations versus work environment requirements in manufacturing. Work environment requirements One question that has been in focus in a number of studies during almost a century of research on working life science is: ‘‘What is required for people to experience high work satisfaction?’’ Today most researchers agree on which main factors and conditions are central for the constitution of ‘‘the good work’’ (Stenbeck and Gustavsson, 1980; Ja¨rvholm, 1996). Eriksson (1996) claims that three main categories are of interest. The first is the content and character of the work. The second deals with the organization of the work and the employee’s possibilities for self-control, and the third concerns the social relations in the work, especially social support. To these three main categories shall be added those that have to do with the physical health. According to Baron (1995) there is now a tendency to take for granted that the organization should offer a safe, healthy and comfortable physical work environment for the personnel. The physical work environment is not given any consideration unless it deviates from acceptable conditions and values. This does not mean, however, that it is unimportant. In certain contexts, health and stress appears in a main category of its own. This is of course not true, if the main categories are seen as prerequisites or possibilities for individuals to experience work satisfaction. In this perspective, health/stress is rather a consequence of other conditions. Despite this, there is perhaps a reason to see it as a category of its own that deserves special notice. Earlier research has shown that employment should give the individual an opportunity to:

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exercise influence and control over one’s work situation; experience security and meaning; develop social relations at and through work; maintain good health and avoid negative stress; and work in safe physical surroundings.

The statements regarding ‘‘the good work’’ are based mainly on studies of work environments typical for manufacturing companies. The research tradition that has produced these results has emerged from the industrial society’s need to examine and handle critically the negative effects of the way to organize its production. The question is whether the results from such research are valid also for the service sector. Is the content in service jobs, which are characterized by intense customer contacts, so different from jobs without such contacts to warrant research on work in the service sector? We will revert to this question later on. What distinguishes service jobs from manufacturing jobs? The word services is often used as a composite for a number of activities whose only common character is that they are abstract or intangible unlike goods, which are physical products (Edvardsson et al., 2000). The basic criterion for singling out and defining the service sector is to distinguish that the object is people and not machines and products. The service is an activity or a process where production and consumption coincide. A service cannot be demonstrated, stored, or moved, and the customer’s involvement is often a condition for a service to materialize (Packendorff, 1994). Macdonald and Sirianni (1996) claim that there used to be a clear distinction between career and job. To make a career, a common integration of the personal identity in the work (or rather the opposite) was required. Only a physical activation and a limited part of the individual’s intellect and feelings were required for ‘‘regular jobs’’. The worker could be physically present but emotionally absent without appreciably affecting the work performance negatively. The authors argue that a worker at an assembly line could express his/her displeasure over the job, dislike both the supervisor and the work mates, but as long as he/she carried out the

required tasks, it was his/her own problem. In a society where working life to a large extent consists of services, there are demands on the individual similar to those that earlier applied to career seekers. In service jobs, the employees are expected to use both body and mind, have an interest in the work, and really care about the people to be served. Relations with the customers A considerable difference between working in the industry respectively in the service sector is the relations with the customers. Owing to the interaction between producer and consumer, service producing jobs put different demands on the employees from manufacturing jobs. The employees are part of the service, and their knowledge and competence is often the service company’s absolutely most important resource. It is essential that the employees in a service company have social competence, i.e. understand and find it easy to get along with the customers. Sparks et al. (1997) maintain that a company can give the front-line employee one of three different kinds of empowerment for customer service: total, limited, or none at all. With empowerment they mean freedom and flexibility to decide, take responsibility and solve problems in interaction with customers. Whether the interaction is successful or not also depends on the employee’s way of communicating, which can be ‘‘appropriate’’ or ‘‘not appropriate’’. A customer is most satisfied in an interaction with an employee who has complete empowerment and uses an appropriate way of communication. Least satisfactory is limited empowerment in combination with an inappropriate communication style. Limited empowerment is perceived by the customer as bureaucratic and impersonal, and the inappropriate communication style is not appreciated because the employee shows little interest in the customer’s wishes. Bettencourt and Gwinner (1996) claim that there are relatively few studies focusing on the actual encounter despite the increased interest in interaction between personnel and customers in the service sector. They have studied this from the employees’ perspective, i.e. how does he/she treat and perceive the customer. They mean that the employee alternates between various ‘‘styles’’ to meet

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different customer needs. For instance, they use a variety of gestures and choice of words based on perception/notion of the specific customer or customer category. Each ‘‘customer style’’ requires its ‘‘employee style’’, i.e. the employee adapts the style or conduct according to the situation. According to Bettencourt and Gwinner (1996), personnel in the service sector, particularly those with daily customer contacts, run a high risk of being subjected to role conflict and burnout as a result of demands from both the company management and the customers. This has been called ‘‘the two bosses dilemma’’ and describes the conflict that can arise when the employee feels forced to satisfy two opposite demands at the same time. Leidner (1996) is on the same track when he points out that the blue-collar worker ‘‘only’’ has to follow the supervisors’ regulations, while the employee in a customer interactive service job, literally speaking, has to take orders from anybody. The blue-collar worker usually has only his ‘‘physical’’ task to consider while the service provider’s mood, facial expressions and choice of words are under constant observation. It is less suitable to monitor and control employees in a traditional way in the service sector than in manufacturing companies, the reason being that the discontent it causes among the personnel can have a direct influence on the relation between the company and the customers. Some companies use ‘‘management by customers’’ to solve the dilemma with control over the employees. This is built on feedback from the customer, who therefore indirectly becomes the supervisor. Thus, the personnel is deprived of the real control over the work at the same time as a perception of freedom is created (Fuller and Smith, 1996). Abiala and Ahrne (1995, p. 210) write: A certain freedom is needed for decision making for the service providing employee to produce his/her best. But the employer has to supervise the employees in order to command and plan the activities.

A rather simple state of opposition has existed historically between employer and employee in the industrial society. This is more complicated in the service sector, since customers are involved as a third party. It is in the interest of the management, the employees and the customers to exert control

in different respects, and this leads to different alliances between the three parties. Alliances are formed and dissolved in various concrete situations. Decisive questions regarding which combinations are formed (as well as dissolved) are for instance to whose advantage it is that the job is organized in a certain way, and who should be considered responsible for having caused various types of dissatisfaction. In jobs with a high tempo and with time pressure, employees often become irritated with ‘‘slow’’ and/or ‘‘difficult’’ customers and not with the management. Instead of putting demands on the management to slow down the tempo and lower the time pressure, they want the customers to speed up (Leidner, 1996). There is no real consensus whether customer contacts generally speaking affect jobs positively or negatively. Schou (1991) claims that it is an important variable in explaining work motivation. He means that a high degree of customer contact makes it easier to see the results of one’s work. Front-line employees with daily customer contacts experience greater variations and self-determination, have a better overall view, see their tasks as more important, and see the results of the job more clearly than people who have less frequent contacts with customers. However, Macdonald and Sirianni (1996) question whether we can serve and still be considered on equal terms. In many service professions the concept of ‘‘master and servant’’ still dominates. This implies that the customer is ranked higher than the employee and thereby has a certain right to behave disrespectfully and put various (unreasonable) demands on the subject. There is an asymmetry regarding respect for the other person that is built into the very service structure. For instance, Leidner (1996) has pointed out that employees at McDonald’s are not allowed to answer rude customers in kind under any circumstances. The service encounter A service encounter between customer and company often takes on a personal touch. However, it is an illusion to believe that it entails a personal relationship rather than an organized social encounter. In many service jobs there is a practiced interaction, i.e. there are routines and rules for how the employee is expected to treat the customer (Abiala and

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Ahrne, 1995). With the routines the management tries to influence the employee’s actions based on a conception of how customers want to be treated in order to experience the organization and its services positively. This routine must be concealed since each customer wants to feel unique. If it is evident that the action/treatment is a learnt behavior, the customer can react negatively, which ultimately can lead to a broken relationship. Leidner (1993) states that people with a service job must follow the employer’s stipulations, meet the customer’s demands and minimize his/her own annoyance, all at the same time. The organizational regulations often mean that the service personnel cannot meet the customer’s wishes, because the regulations do not allow the desired flexibility. This, in turn, can cause the customer to see the employee as a robot, unreasonable and stupid. But rules are not altogether bad. They can give the employee ‘‘protection’’ against attacks on his/her person. People in jobs where they are often exposed to insolence and insults can use the rules as a defense; they only follow the existing rules, thus not experiencing the insults as personal. This indicates that there is a need to be able to distance oneself socially from the customer and the implications of customer contacts one way or another. It is almost inevitable that this type of job causes the employees to develop an instrumental attitude to their own identity and to relations with other people. Abiala and Ahrne (1995) are also interested in what it means to have a service job, i.e. how it affects people. They propose that there is a risk that the norms that guide the interactions between customer and employee also carry over to the private sphere. Service jobs often require that employees are flexible and given the freedom to make decisions in order to meet customer requests. For obvious reasons, routines are less suitable in such cases. To have a service job, whether routinized or not, seems to entail a risk for a personality change. Abiala and Ahrne (1995) state that an employee can be affected in such a way as to treat personal friends in the same manner as customers since the job role has been integrated in the personality. It is also common that they withdraw from other people in their spare time since the need for

peace and quiet is bigger than the need for social contact. Emotional labor Hochschild (1983) has focused on this in a study on the working conditions for the flight personnel in the USA. She means that in addition to tasks that require muscle strength, ‘‘physical labor’’, work entailing interaction can be called ‘‘emotional labor’’. With this she proposes (1983, p. 7) that the work: . . . requires one to induce or suppress feelings in order to sustain the outward countenance that produces the proper state of mind in others – in this case, the sense of being cared for in a convivial and safe place. This kind of labor calls for a coordination of mind and feeling, and it sometimes draws on a source of self that we honor as deep and integral to our individuality.

She points to an increased degree of instrumental approach to the question of feelings when they – instead of being genuine and spontaneous – constitute a link in the service organization’s sale of services. In this ‘‘emotional labor’’ it is the employee that controls the feelings, and he/she is often expected to act as though it were a question of personal relationships. According to Hochschild it is a matter of a transformation of the norms for feelings in the private life since our feelings often are controlled by the organization’s commercial motives. She poses the question whether these commercial relations will color also the general interaction between people. A concept that was coined at the beginning of the 1970s and often used in this connection is burnout. Maslach (1982) defined burnout as a syndrome of emotional fatigue, depersonalization and reduced personal performance. Burnout has partly the same consequences as stress in general, but its uniqueness is that it originates in the occupational social interaction, which often is intense and emotional. According to Maslach, the risk for burnout is greater when the individual feels restricted by other people’s demands, of demands by the organization and by those she is put to serve and assist. Stymne (1991) has also shown in a summary of different studies that people in occupations characterized by intense contacts between employee and customer are more exposed to physical on-the-job injuries than others. At first this phenomenon was believed to affect people in nursing and health care jobs and in

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the social service field such as medical personnel and social workers. Nowadays the concept is used in almost all professions and branches, and no occupational category is immune to burnout (Henderson, 1996). Thus, the work in contact intensive service occupations (high touch services) differs decisively from the traditional industrial job. The interaction with the customer is the main factor, which means that this type of job now must be considered much more in terms of a social relation. We will therefore discuss what demands employees should put on the organization to enhance the chances of developing the relation in a positive way. This is particularly important in the development and implementation of new services.

Results from an empirical study What demands can be put on the job design in the service sector in order to be labeled ‘‘the good job’’? Following is an attempt to sum this up, partly based on earlier research, partly based on results from our own extensive empirical study of the specific and basic characteristics in the working conditions in different service organizations, where the job is based on close interaction with customers. Over a period of years, a project was carried out at the Service Research Center, Karlstad University entitled ‘‘From production to interaction – a study on the prerequisites for work satisfaction in customer-intensive service jobs’’ (Gustavsson, 1997). In this project, the specific and basic characteristics of the work conditions in a number of different service organizations, where the employees’ work situation was marked by interaction with customers, were studied. If or how these characteristics influence the employees’ work satisfaction was also considered. After a literature search, the results from the study were compared with existing theories on work satisfaction and discussed as to their relevance regarding customer intensive service work. The main part in this project was an empirical study of a number of individuals working in direct customer contacts in a variety of service companies/organizations. The aim was to gather and analyze material of great variety to get as conclusive results as possible, even if it is not possible to reflect the

heterogeneity of the whole service sector. Based on this reasoning, nine service organizations within three areas were selected for the analysis: (1) Public sector without considerable degree of self-control: . library (librarians); . primary care (nursing personnel excluding doctors); and . university (university teachers). (2) Public sector with certain exercise of authority: . social insurance agency (agency personnel); . social welfare agency (social workers); and . police force (policemen with field duty). (3) Private sector: . travel agency (sales personnel); . law office (lawyers); and . restaurant (waiters and waitresses). Data were collected through interviews with a selection of employees in the chosen service organizations; in all cases, people who have direct contact with customers/users, altogether 45 people, i.e. five within each organization. The selection was made to reach diversity and a variation range rather than statistical representativeness. This is why it was natural to carry out fewer but in-depth interviews. The intention was that the group of respondents would be characterized by mutual differences in the various respects mentioned above. The interviews were done with the help of a specific interview guide designed around a number of main variables crystallized from the previous literature study. Each interview lasted approximately two hours, was tape recorded, typed out, and used as a basis for analysis. The interviews and the data analyses were done with an attempt that can be said to be shaped by the principles for ‘‘grounded theory’’ in the sense that the empirical material by their expressions, which are linked to the aim, forms categories. These were systematized during the course of the work and finally formed into core categories. After the analysis of the empirical material and the shaping of the core categories, the results were compared with existing theories on work satisfaction. This comparison was done based on the categorization in main variables that the previous literature study had resulted in.

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The result from this study stresses that ‘‘the good work’’ should give the individual an ooportunity to: exercise influence and control over one’s own work situation; develop security and meaning; develop social relations at and through the job; keep a social distance to the job; maintain good health and avoid negative stress; and work in safe physical surroundings. These are detailed below. Opportunity to exercise and control over one’s own work situation Here we can distinguish two aspects: the right to exercise self-control and co-determination. By self-control we mean the individual’s scope to exercise control over the organization of one’s own work, for instance, office space, methods, planning and development and to be allowed to set one’s own work hours. Co-determination means the individual’s scope to exercise influence over matters not only related to one’s specific job and work environment but also pertaining to the company as a whole. Thus, we mean influence on factors in the development of the entire organization that indirectly can affect one’s own work environment. This type of influence often comes in some form of representative system, for instance the union. Another common way of expressing this is to refer to control in work, respectively control over work. The conditions for influence and control or perceived control in and over one’s work differ considerably between service jobs. The degree of influence seems to depend partly on employment, what degree of control the users and the surrounding systems exercise (such as telephone times/computers schedules, etc.), partly on what type of service relation it is and to what extent one is dependent on the special professional competence that the service producer can offer. Individuals in professions claiming to have a good control content-wise in what they do, most often also have a greater autonomy. This is true even if they are controlled by the users’ needs and by various ‘‘systems’’ simultaneously. The relationship with the users to a very high degree affects how one perceives the chances for influence and control. The conditions differ concerning professional content and the degree of free will in the contacts. Professions that exercise authority in combination with a ‘‘service function’’ often have a certain distance towards the user,

which does not mean, however, a higher degree of self-control. On the contrary, for example in certain cases where the management by regulations in combination with required dependence on technology, limits the control for the employee as well as the user. The job design and the introduction of information technology such as computerized switchboards, both decrease and increase the possibilities for control by the personnel. Here we have an interaction between customer and employee with the help of information technology, the effect of which is very difficult to see. Many feel stressed by telephone calls and e-mails. One respondent said: The telephone controls everything . . . I am on call from first thing in the morning, and if I am busy writing the minutes after a meeting, I must count on interruptions . . . one has to be prepared to alternate between jobs; I can’t control the phone.

At the same time, an increased use of computers can offer opportunities to control customer flows, provided the technology is used in the right way. In many respects there are close similarities in influence and control in service jobs and in goods producing jobs. Nevertheless, there is always a certain ‘‘competitive relationship’’ between a customer and an employee. Thus, a legitimate claim for a good work environment for the employee in the service sector is that the customer’s claim on influence can be balanced against that of the employee’s. There is no absolute contrast in this but a balanced proportion should be possible to achieve. Opportunity to develop security and meaning The individual’s basic security needs must be fulfilled with regards to physical, material and emotional aspects. In order for the individual to keep the basic security developed during childhood and adolescence years, the adult’s physical-material and emotional needs must be met. At work one needs security in life and health, a steady income, positive relationships with other people, and to be able to feel that the work is important and serves a purpose. In this dimension we place – above all – the work content and extent but also opportunities for continuous development as well as material benefits. It also is important to see the relevance and positioning of one’s

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tasks in a larger context. It can be a question of the degree to which the job is split up or, if one has responsibility for the entire service, whether one can see the results of the work. In the customer intensive service job it is necessary to interact with the customer, who thereby becomes a part of the total work environment. In order to perceive meaning in the work situation, it is also necessary for the customer interaction to be meaningful. One respondent says: A good job is when the person you work for or with is satisfied; to help someone feels good.

It concerns also qualification requirements, competence and learning, i.e. what demands are put on the individual’s skills, whether the job utilizes all the resources or is limited to certain capacities such as perseverance or physical strength. Yet another aspect is whether the job offers the individual opportunities for progress either through development of the job or through education. Here we count the individual’s rights to change assignments, to be promoted to another position or given a chance to develop the job in the present position qualitatively. In this aspect too, there is a strong link to the customer as a base for interactive learning. Another respondent expressed this: I learn something all the time . . . each client gives me something new if I listen . . .

Meaningfulness also entails respect, professional pride, and a good social reputation within and outside the organization. Even in this aspect the customer’s role as participant – and in this case as ‘‘giver of identity’’ – is central. To be able to carry out a service together with the customer with professional competence and with high quality, makes professional pride possible. In other cases where the relation with the customer is less intense, a prerequisite for professional pride is that one can master the ‘‘techniques’’ that are needed for producing high quality services. Finally, there is the question of material job rewards in the form of salary, sideline income, free time, etc. Even such special fringe benefits as attractive business trips are important. Opportunity to develop social relations at and through the job In all research on factors in the work environment that affect the perception of the job, the presence of and opportunities for

social contacts are highly important. The need for social contacts are considered one of the basic elements in man’s nature, but the concept of social contacts and social support is often used to emphasize the supporting functions that such contacts in the work environment can have. Time and again support from colleagues, managers or relatives has been a buffer between stress and health. The feeling of affinity as an aspect of social support is also discussed in many contexts. It concerns to what degree and in what way the job affords prospects to meet and feel kinship with colleagues and customers, and to what degree the work offers social contacts that can be supportive in the profession. The contact with the customers is something that distinguishes service jobs from manufacturing jobs. One respondent expresses this: I experience the contact with the customers as very positive; fun to talk to people; great to be able to help . . .

The opportunity to develop social relations also concerns the effect that the work has on the individual’s other social relationships among family and friends. The prospects of social contacts at work concern the extent of closeness to other people in the workplace but also what type of social relations are developed. The social encounter with the customer is characterized by the situation and the focus in that particular situation. It is of great importance that there is a close emotionally stipulated and committed contact with the customer. Opportunity to keep a social distance to the job A very important factor in customer intensive service jobs is the aim by the employee to disassociate from the social contacts at the end of the day. One respondent says it like this: You more or less live with your job . . . but with time you learn to minimize this feeling. In the beginning you bring all the problems home and become much too much engaged.

It is necessary that the work environment be designed to allow for social distance. It is also important to design and provide concrete ‘‘techniques’’ to maintain such disengagement. This issue has not attracted much attention and should be focused on in continued research as well as with concrete measures to increase the prospect of a positive

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work satisfaction in customer intensive service jobs. It is also a question of designing the job so that it can be combined with leisure time and family, and that the social contacts at work do not negatively affect one’s desire to associate with others. Opportunity to maintain good health and avoid negative stress In many studies health and stress is treated as a separate type of variable affecting work satisfaction. Of course, this is incorrect if the different variables are viewed as prerequisites or possibilities that affect the individual’s feelings about the job. In this perspective health and stress becomes rather a consequence of how other conditions are designed. Despite this, perhaps there is reason to see it as a group of variables on its own that deserves special attention. By health and stress is meant the individual’s subjective perception of how the job affects the wellbeing. Stress can be seen as a collective word for a number of different phenomena where inner and outer demands are greater than what the individual is able to handle. It is especially important to avoid the situation where a lack of time affects tasks that involve customer relations. Particularly sensitive situations are: . constriction to certain ‘‘exposed’’ positions such as ‘‘service desks’’; . a high degree of complexity making it impossible to produce the service as quickly as the customer is expecting; . limitation of resources to do the job; or . exposure to violence or threat of violence. Opportunity to work in safe physical surroundings According to studies referred to earlier, there is now a tendency to take for granted that the organization shall offer a safe, wholesome and comfortable physical work environment for personnel. Unless it deviates from acceptable norms it does not get much attention. This does not mean, however, that it is unimportant. The same is true also for service jobs, and in this respect service jobs do not differ from manufacturing jobs. The work organization shall offer a safe, wholesome and comfortable physical work environment for the employees. Since the customer is a part of the physical environment in service organizations, ‘‘a protection against

and for the customer’’ is necessary. This concerns the physical risks as well as the capacity of the physical environment to safeguard ‘‘the content’’ in the customer relationship, for instance sensitive information. Differences in application between service and manufacturing jobs Many of the factors that emerged in our study are similar to those earlier expressed as important in industrial jobs. At the same time it is essential to stress that the content in the various factors/work demands are dissimilar in service and industrial jobs. The fundamental difference is the role that customers play in relation to the employee. The customer provides a chance to develop a meaningful social teamwork: the customer is a co-producer in all the sensemaking processes that are valuable for the employee’s feeling of job pride and social contexts. There is also another and more overlooked aspect of the customer’s co-production, namely the risk that the employee’s engagement in and for the customer becomes so great that it affects him/her negatively. Therefore, there is a need to create a social distance in the relationship with the customer. We have in our study offered concrete techniques to achieve such distance, for instance through ‘‘debriefing’’, as in the police force.

Discussion on quality of the work environment: implications for NSD As mentioned in the introduction, the aim of this article is to contribute to knowledge on how work environment conditions affect work satisfaction and thus customer perceived service quality. We begin this section with a short discussion on the service logic and the importance of the service encounter for customers’ perceptions of quality of services and the role of front-line employee interaction with customers. Service characteristics and the service encounter In the literature, the following four service characteristics are presented most often: (1) immateriality; (2) production/delivery/consumption; (3) customer as a co-producer; and

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(4) heterogeneity (see e.g. Edvardsson et al., 2000, p. 33). Services are usually more or less abstract or immaterial, which makes them difficult to inspect and assess before buying them. Services do not have a lifetime, they only exist under a short period and they usually cannot be stored or saved. Services are usually partly produced, delivered, consumed and marketed simultaneously. This has the effect that quality must be built in as the service is developed. Quality is not engineered-in at the manufacturing plant, then delivered intact to the customer. In labor-intensive services . . . quality occurs during service delivery (Parasuraman et al., 1985, p. 42).

Services usually involve the customer and employees in the role of co-producers by way of supplying information and other inputs to the process, performing one or several activities in the service process, or marketing the service through talking to others about impressions and perceptions. These characteristics are known as the service logic: Service encounters, in particular those involving organizations’ employees, typically have a high ‘‘impact’’ on consumers, and the quality of the service encounters is thus an essential ingredient in the overall quality of the service experienced and perceived by the customer (Lewis and Entwistle, 1990, p. 43).

Many services come about in the interaction between the service provider and the customer. The customer’s experience or perception of the service encounter is in many ways the service from his/her perspective and is the basis of its quality perception. Some service encounters are people-intensive, while others are technology-based. Often it is a combination with emphasis on either one, such as an interaction between bus driver and passenger or an appliance-based withdrawal from a cash dispenser. For most, or at least certain services the human-based encounter is the very essence of the service. In spite of this, relatively little is known about the dynamics of the service encounter. Research into the factors leading to customer satisfaction and dissatisfaction show the key role of the employees and their competence and service orientation (Johnston, 1995). Also research in business-to-business contexts shows the key role of the employees’ interaction with customers for high service quality (Gidhagen,

2002). Every time a customer gets in contact with an element of the service process, he or she judges the service producer. This means that service providers must: . . . develop not only the precise form of the service, but also the appropriate nature of interaction with customers. Most often, this makes a new service far more complex, conceptually, than the development of a new tangible product (Johne and Storey, 1998, p. 186).

The criticality of the service encounter is also the very essence of a metaphor often used to describe the service encounters. Perhaps the best known metaphor is the ‘‘moment of truth’’ (Normann, 1984), which emphasizes the uniqueness and importance of every interaction between customer and service provider. The new service development process The NSD process may be described in many different ways depending on the aim of the description, the context, and the researchers’ ‘‘world-view’’ to mention a few. Our point of departure is a simple model based on four generic phases: (1) service idea generation; (2) service strategy and culture gate; (3) service design; and (4) service policy deployment and implementation (Edvardsson et al., 2000). The first phase, service idea generation, includes issues such as idea generation and idea evaluation in terms of sources and techniques and idea screening. In the second phase, the service strategy and culture gate, it is determined whether the idea is in line with the company’s strategy and culture. If that is the case, the necessary resources to start a project and to develop the idea into a service are provided. The actual development is done in phase three, service design. This phase is often undertaken in a number of parallel and sequential sub-processes. The fourth and final phase, service policy deployment and implementation, includes implementing the service process in the service system, marketing, training and other preparations before and during the actual launch. We will now discuss how the six work environment requirements may be integrated in the phases of the NSD process. We have simplified the above-referred model into the following three phases:

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(1) the idea and project formation phase; (2) the design phase; and (3) the implementation and integration phase. The idea and project formation phase Service ideas can be generated in many different ways, and there are many methods for evaluating new ideas. The employees and experts on work environment conditions may contribute with significant ideas for new services. But more important, they should be involved in the project team evaluating the ideas and when the design issues are discussed. When the decision is made to develop a service idea into a service, the time has come to formalize the process and initiate a project. This will include the allocation of resources, project formation, project composition, and the implementation of common values in the project organization. These stage gates serve several functions. They act as the quality control mechanism in the process. Before a project is allowed to proceed to the next stage, essential tasks and deliverables must be completed. Stage gates also serve as bail out points where weak projects are stopped and resources reallocated to the more valuable ones. The project team has the operating responsibility in the design and implementation phase. The constellation of a project organization is an important strategic issue, and work environment experts should be involved here. Edvardsson et al. (2000) argue that in order to achieve designed-in quality, people must agree on the service concept and share the same values. One important step in achieving this is the creation of a mental model that is common throughout the entire project organization. It must be shared by everybody in the project team who has a key role in a service culture. The new service development process is multifunctional. It requires inputs from and active participation of people from many different functions in an organization, including front-line employees, marketing, and management. A key actor is the project manager who has the primary responsibility and authority for the project. He or she must have the ability to maintain and balance the customer-centric service culture with the employee-centric culture focusing on work environment requirements and have the skill

to lead, coach, motivate as well as develop team members. The work environment condition – the opportunities for the employees to exercise influence and control over one’s situation – should be considered by the project leader during this first phase of the development process. The right to self-control and co-determination were identified as key issues and may be seen as part of an employeecentric culture. The conditions for influence and control in and over one’s work differ considerably between service jobs, why the employees should be involved and contribute with their views early in the development process. As mentioned earlier, it seems that the degree of influence depends partly on what degree of control the users and the surrounding systems exercise (such as telephone times/computers schedules, etc.), partly on what type of service relation there is, and to what extent one is dependent on the special professional competence that the service producer can offer. Professions claiming to have a good control content-wise in what they do also have, as a rule, a greater autonomy. This is true even if they are controlled by the users’ needs and by various ‘‘systems’’ simultaneously. In this section, we have argued that the first of the six work environment requirements – the right to exercise self-control and co-determination – should be focused on from the beginning of the NSD process and include employees and perhaps also work environment experts. Control over and in work is important to design-in when new services are being developed and specific tasks are planned. To have influence in and over the idea and project formation phase is also of great value in itself. That is a way of creating a feeling of participation and ‘‘co-ownership’’ among the employees regarding the new service. This in turn is a prerequisite for a successful development of the following phases in the service development process. The design phase We use three concepts to describe the designing of a service: (1) the service concept; (2) the service system; and (3) the service process (Edvardsson et al., 2000).

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The service concept is the overall description, from the company’s perspective, of both what customers get during the service process and how they get it. It refers to the benefits that the service is expected to provide. Bowen (1986) argues that the first step in this phase is to conduct a needs analysis and to specify the service content. Here, it is important to involve the employees that have customer contact and information about customer preferences and how the services should be delivered. The service system includes the company’s organization, the service culture and employees, customers and the physical and technical resources. These resources must form a whole and work together if the company is to be able to offer services with high quality. Once the service concept is determined, the actual design work begins as the company builds up the needed resources and structures. At the same time, the service process is developed. The development of the needed resources and the service process must be integrated and done in parallel since it is the resources that realize the service process. During this process, the service concept might be revised if the needed resources are impossible to obtain. Within the organization, employee responsibility needs to be determined, jobs designed or re-designed, administrative systems developed, and the guiding principles made explicit. The job design and the introduction of information technology such as computerized switchboards, customer databases and other ICT-based support systems decrease as well as increase the possibilities for control by the employees. Often we have an interaction between customer and employee with the help of information technology, the effect of which is very difficult to see. Many feel stressed by telephone calls and information from different databases. At the same time, an increased use of ICT may offer opportunities to control customer flows provided the technology is used in the right way. Training and informing the employees is an important process in the design phase. While developing the service process, the activities that will generate the service are specified, and the role, competence, and responsibility of employees and customers respectively must be clarified and tested.

In this phase of the NSD process, all six work environment requirements should be taken into consideration: (1) influence and control in and over the work situation; (2) security and meaning; (3) development of social relations in and through the job; (4) social distance to the job; (5) health requirements; and (6) a safe physical work environment. We want to stress particularly the need to create a distance between the customers and the employees as an exceptionally important factor in order to avoid stressful situations and the possible risks for health problems that are associated with this type of work situation. Especially important in the design of the new service is not to underestimate the need for ample time for the service production. We can illustrate this with some examples from our empirical material. Many of the interviewed travel agency employees emphasized that the lack of time in relation to the tasks to be carried out often generates a feeling of stress. At the same time they underlined that it is not the contact as such with customers that is stressful. One person explained it like this: I wouldn’t be working in sales if I didn’t find it stimulating to deal with people; instead it has to do with the work conditions (Gustavsson, 1997, p. 89).

Many respondents in ‘‘front-line positions’’ expressed similar views. The implementation and integration phase Implementation and integration issues include service training, launch, and internal as well as external marketing. In this phase, the focus is on how the new service should be integrated in the current service system. Seen from an organizational perspective, any change to the service system that requires new or different competence from the existing operation can be considered a new service. Tax and Stuart (1997) have developed a framework that deals with these issues. The first step is to audit the current service system, which includes an evaluation of the existing buyers and benefits. Central issues to assess include the role and characteristics of current customers, the processes used to deliver the service, the benefits provided to customers, the skills, capabilities and personality traits of the participants, and the physical facilities.

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The next step is to assess the new service concept. A number of questions must be asked and answered. What combinations of features should be offered? What price should be charged? Is the offering going to appeal to new or existing customers? Steps three, four and five assess the new service design from the perspective of processes, participants and physical facilities. The aim is to identify the differences between existing and new service systems and determine how to deliver the customer-driven features developed in the second step. One method used to examine the critical elements in the new service processes is service blueprinting. To estimate aspects of service process performance, simulations prove quite useful. Overall, an extensive evaluation of the new service processes provides input into system requirements and potential conflicts. Service blueprints can also help to appraise the participant requirements of the new service as well as work environment requirements. This is the fourth step and includes the preparation of job descriptions, selection criteria, appraisal systems, training programs and compensation schemes. During this step, work environment conditions are key issues. In addition to blueprinting, the physical facility aspect of the service system can be examined using the ‘‘servicescape’’ approach developed by Bitner (1992). The framework considers how three physical environment areas (including atmosphere or conditions, space/function and signs, symbols and artifacts) provide a means of understanding environment-participant relationships in service systems. This is the fifth step in the process. The sixth step is to assess the impact of integrating the new service system with the original. The final step is to assess the capability of the organization to manage the change and identify strategic options available for service implementation. The risk arising from service system integration may require organizations to reconsider their strategic options. Once the integration of the new service is done internally, it is time to educate both the employees and the customer on how to use the service. This might be seen as a controversial statement, yet studies in the telecom industry reveal that as much as 70 per cent of customer complaints are due to customers committing errors. Other studies

show that customers fail to realize and use the whole potential service. Therefore, there is a need to make customer training a strategic priority. The final steps of the implementation phase include marketing and launch. And once the service has been launched externally as well as internally, the work of administrating the service starts. This often includes further service development. A modified service offer, new resources or changes in the service process are all possible. When this occurs the service goes through a new, but less extensive, development process from idea to implementation.

Research contribution and managerial implications In previous service research, employee characteristics have been discussed and related to customer perceived quality, service recovery, customer loyalty and profitability. The employees’ service attitude and behavior in interaction with customers have been discussed and in ‘‘the service profit chain’’ and ‘‘cycle of success’’ models, employee satisfaction is viewed as a prerequisite for external and customer perceived service quality. However, the effects of work environment conditions on employee satisfaction, commitment and high performing front-line employees in peopleintensive services have so far not been studied empirically and discussed in detail within service research. This article contributes with an overview of the literature on work environment and an empirical study focusing on people-intensive services, both within the public and private sector. Previous research on work environment conditions suggests that employers should give the individual an opportunity to: . exercise influence and control over one’s situation; . experience security and meaning; . develop social relations at and through work; . maintain good health and avoid negative stress; and . work in safe physical surroundings. Our empirical study, focusing on peopleintensive services, shows that these characteristics are important also in service

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organizations but that we have to add one factor: opportunity to keep a social distance to the job. The need for social contacts are considered one of the basic elements in man’s nature, but the concept of social contacts and social support is often used to emphasize the supporting functions that such contacts in the work environment can have. Time and again support from colleagues and managers should be a buffer between stress and health. Managers should assess in what way the job affords prospects to meet and feel kinship with colleagues and customers, and to what degree the work offers social contacts that can be supportive in the profession. The prospects of social contacts at work concern the extent of closeness to other people in work and also what type of social relations are developed. The social encounter with the customer is characterized by the situation and the focus in that particular situation. It is of great importance that there is a close emotionally stipulated and committed contact with the customer. The analysis and discussion above shows that work environment requirements may be and should be part of the NSD process and thus designed-in, not only for customers but also for the employees. The conclusion is that the work environment characteristics should be integrated into the NSD process. However, in most service companies work environment requirements seem to be neglected or viewed as something separate from the service and not included in the new service development models and projects. Service organizations in general and high touch interactive services in particular would benefit from paying more attention to work environment conditions when developing new services as well as in the improvement of existing services. This study suggests that managers should be focused on the degree of self-control and co-determination, as perceived by the employees in and at work. Furthermore, both the positive and the negative influence of customer interactions and stress must be observed and assessed in a systematic way and in a long-term perspective. The effects of ‘‘burnout’’ can be very costly for the organization. Also aspects of the work environment linked to the opportunities for developing social relations at work, security, safe and a meaningful

work-contact are important prerequisites for high quality services. To arrive at favorable work environment conditions, employees should be involved in the NSD process. Furthermore, we suggest that the NSD process includes the development of a systematic follow-up and assessment of the work environment conditions. Service failures, internal complaints, and negative stress resulting in sick-leaves should be monitored in the light of work environment conditions.

Suggestions for future research This article contributes with some new knowledge on work environment requirements for or associated with high quality services. However, we need much more in-depth, empirical research in this area based on different empirical contexts. We suggest studies focusing on more open and professional services such as health care and consulting services, more closed and standardized services such as fast food or cleaning services. It would also be fruitful to cover continuous services such as public transportation services and compare with data from discrete services in restaurant and hotel services. In addition to this, we suggest research on business-to-business services be compared with data from business-to-consumer services. Data from different service contexts would most likely reveal that a number of work environment requirements in services are generic, while some are context specific, and both categories must be considered in successful NSD. We also suggest a theoretical project aiming at developing a conceptual frame of reference for high quality work environment in service organizations. The points of departure should be on the one hand the research on work environment requirements and work satisfaction in general and on the other hand the service research focusing on the logic of services as well as the empirical studies on service quality, which may provide some fruitful inputs, as a basis for this theory development. Furthermore, we suggest a case study focusing on the importance of ‘‘social distance’’ in service jobs. This was the one work environment requirement that emerged as specific for services in the empirical study

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reported on in this article. What is meant by and what is needed for social distance in different service contexts and for different professional groups? What are the implications for job design? What are the short term and long term effects of not meeting the employees’ needs with regard to social distance? Finally we suggest a project where a number of successful new services are compared with a number of service failures focusing on factors explaining success and failure where one area would be work environment conditions and work satisfaction. There are studies within new product development with similar research designs. These studies may serve as a guide for the design of the project as well as technique for data collection and analysis.

References Abiala, K. and Ahrne, G. (1995), ‘‘Privata tja¨nster och privata ka¨nslor’’, in Svensson, L.G. and Orban, P. (Eds), Ma¨nniskan i tja¨nstesamha¨llet, Studentlitteratur, Lund (in Swedish). Baron, R.A. (1995), ‘‘How environmental variables influence behaviour at work’’, in Collett, P. and Furnham, A. (Eds), Social Psychology at Work, Routledge, London. Bettencourt, L.A. and Gwinner, K. (1996), ‘‘Customization of the service experience: the role of the frontline employee’’, International Journal of Service Industry Management, Vol. 7 No. 2. Bitner, M.J. (1992), ‘‘Servicescapes: the impact of physical surroundings on customers and employees’’, Journal of Marketing, Vol. 55, January, pp. 10-25. Bowen, D.E. (1986), ‘‘Managing customers as human resources in service organizations’’, Human Resource Management, Vol. 25 No. 3, Fall, pp. 371-83. Edvardsson, B., Gustafsson, A., Johnson, M.D. and Sande´n, B. (2000), New Service Development and Innovation in the New Economy, Studentlitteratur, Lund. Eriksson, N. (1996), The Psychosocial Work Environment and Illness among Office Workers, Department of Sociology, Umea˚ University, Umea˚. Fuller, L. and Smith, V. (1996), ‘‘Consumers’ reports: management by customers in a changing economy’’, in Macdonald, C.L. and Sirianni, C. (Eds), Working in the Service Society, Temple University Press, Philidelphia, PA. Gidhagen, M. (2002), Critical Business Episodes: The Criticality of Damage Adjustment Processes in Insurance Relationships, Department of Business Studies, University of Uppsala, Uppsala. Gustavsson, B.O. (1997), ‘‘Det goda tja¨nstearbetet’’, Forskningsrapport 97:15, Centrum fo¨r tja¨nsteforskning, Ho¨gskolan i Karlstad (in Swedish). Henderson, G. (1996), Human Relations Issues in the Management, Quorum Books, London.

Hochschild, A. (1983), The Managed Heart. Commercialization of Human Feeling, University of California Press, Berkeley, CA. Ja¨rvholm, B. (Ed.) (1996), Arbetsliv och ha¨lsa – en kartla¨ggning, Arbetsskyddsstyrelsen, Arbetslivsinstitutet, Ra˚det fo¨r arbetslivsforskning, Stockholm (in Swedish). Johne, A. and Storey, C. (1998), ‘‘New service development: a review of the literature and annotated bibliography’’, European Journal of Marketing, Vol. 32 Nos 3-4, pp. 184-251. Johnston, R. (1995), ‘‘The determinants of service quality: satisfiers and dissatisfiers’’, International Journal of Service Industry Management, Vol. 6 No. 5. Leidner, R. (1993), Fast Food, Fast Talk. Service Work and Routinization of Everyday Life, University of California Press, Berkeley, CA. Leidner, R. (1996), ‘‘Rethinking questions of control: lessons from McDonald’s’’, in Macdonald, C.L. and Sirianni, C. (Eds), Working in the Service Society, Temple University Press, Philidelphia, PA. Lewis, B.R. and Entwistle, T.W. (1990), ‘‘Managing the service encounter: a focus on the employees’’, International Journal of Service Industry Management, Vol. 2 No. 3, pp. 41-52. Macdonald, C.L. and Sirianni, C. (1996), Working in the Service Society, Temple University Press, Philadelphia, PA. Maslach, C. (1982), Burnout – The Cost of Caring, Prentice-Hall, New York, NY. Normann, R. (1984), Service Management: Strategy and Leadership in Service Business, Wiley, New York, NY. Packendorff, J. (Ed.) (1994), Tja¨nstesektorn som arbetsplats, Handelsho¨gskolan i Umea˚ (in Swedish). Parasuraman, A. and Colby, C.L. (2001), Technology Marketing – How and Why Your Customers Adopt Technology, Free Press, New York, NY. Parasuraman, A., Zeithaml, V.A. and Berry, L.L. (1985), ‘‘A conceptual model of service quality and its implications for furure research’’, Journal of Marketing, Vol. 49, Fall, pp. 41-50. Schlesinger, L.A. and Heskett, J.L. (1991a), ‘‘How does service drive the service company?’’, Harvard Business Review, November-December, pp. 146-50. Schlesinger, L.A. and Heskett, J.L. (1991b), ‘‘Breaking the cycle of failure in services’’, Sloan Management Review, Spring, pp. 18-28. Schou, P. (1991), Arbetsmotivation, Handelsho¨gskolan i Stockholm (in Swedish). Sparks, B.A., Bradley, G.L. and Callen, V.J. (1997), ‘‘The impact of staff empowerment and communication style on customer evaluations: the special case of service failure’’, Psychology & Marketing, Vol. 14 No. 5. Stenbeck, M. and Gustavsson, B.O. (1980), Fo¨rra˚dsarbetares arbetsmiljo¨. Del 1. Teoretisk referensram, FOA, Stockholm (in Swedish). Stymne, I. (1991), ‘‘Klientrelaterat arbete’’, in Lennerlo¨f, L. (Ed.), Ma¨nniskan i arbetslivet: Beteendevetenskaplig arbetsmiljo¨forskning, Allma¨nna fo¨rlaget, Stockholm (in Swedish). Tax, S.S. and Stuart, I. (1997), ‘‘Designing and implementing new services: the challenges of integrating service systems’’, Journal of Retailing, Vol. 73 No. 1, pp. 105-34.

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Further reading Bitner, M.J. (1990), ‘‘Evaluating service encounters: the effects of physical surroundings and employee responses’’, Journal of Marketing, Vol. 54, pp. 69-82. Bitner, M.J., Brown, S.W. and Meuter, M.L. (2000), ‘‘Technology infusion in service encounters’’, Journal of the Academy of Marketing Science, Vol. 28 No. 1, pp. 138-49. Bitner, M.J., Meuter, M.L., Ostrom, A.L. and Roundtree, R.I. (1998), ‘‘Self-service technologies: a critical incident investigation of technologicallybased service encounters’’, Arizona State University, Tempe, AZ (unpublished). Edvardsson, B. (1997), ‘‘Quality in new service development: key concepts and a frame of reference’’, International Journal of Production Economics, Vol. 52, pp. 31-46. Edvardsson, B. and Magnusson, L. (1988), Tja¨nstesverige, Studentlitteratur, Lund (in Swedish).

Eriksson, B. (1993), ‘‘Vad ha¨nder med arbetet?’’, Forskningsrapport 93:2, Arbetsvetenskap, Ho¨gskolan i Karlstad och Sociologiska Institutionen, Go¨teborgs Universitet (in Swedish). Johnson, M.D. and Gustafsson, A. (2000), Improving Customer Satisfaction, Loyalty and Profit: An Integrated Measurement and Management System, Jossey-Bass, San Francisco, CA. Kelly, D. and Storey, C. (2000), ‘‘New service development: initiation strategies’’, International Journal of Service Industry Management, Vol. 11 No. 1, pp. 45-62. Lash, S. and Urry, J. (1988), The End of Organized Capitalism, Polity Press, Cambridge. Schneider, B. and Brown, D.E. (1984), ‘‘New service design, development, and implementation and the employee’’, in George, W.R. and Marshal, C.E. (Eds), Developing New Services, American Marketing Association, Chicago, IL.

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Introduction

Creating strategies for managing evolving customer service Colin Armistead and Julia Kiely

The authors Colin Armistead is Professor of Operations Management and Director of the Centre for Organizational Effectiveness and Julia Kiely is based at the Business School, both at Bournemouth University, Bournemouth, UK. Keywords Customer service, Managers, Employees, Strategic planning Abstract This paper reports research that investigates the perceptions of service managers on the future of customer service. It provides insight into the evolving managerial issues through detailed interviews with senior customerservice directors and managers in different service sectors. Service organisations that will be successful in the future will focus the roles and capabilities of their customer-service staff on customer needs, and support them through active service leadership. A six-stage approach to developing the necessary strategies for managing customer service in this environment is deduced. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 13 . Number 2 . 2003 . pp. 164-170 # MCB UP Limited . ISSN 0960-4529 DOI 10.1108/09604520310466860

Approaches to the delivery of services are being affected by changes in the business and social environments. These relate especially to advances in communications and information technology (CIT) and changing customer needs (OECD, 2000; Molitor, 1999). The changing demographics and lifestyles in western countries are also major contributing factors. The UK shows typical projected changes in the percentage of older and younger people, as life expectancy rises and the birth rate drops. At the same time, the way in which people live – with more people living alone – is tending to reduce the effect of the conventional family. Within this context, attitudes to time and money are important indicators of the behaviours of customers. A convenient contrast is to classify customers into broad categories of being ‘‘poor’’ or ‘‘rich’’ in terms of time and cash (Scase, 1999). For example, affluent retirees are cash and time ‘‘rich’’. Higher-paid workers are cash ‘‘rich’’ but time ‘‘poor’’. Lower-paid workers are time and cash ‘‘poor’’. The unemployed and those without adequate pensions are cash ‘‘poor’’ but time ‘‘rich’’. We might expect that richer customers will be prepared to pay for what they perceive to be good services, that those with little time will make their choices on the basis of services that support them in their busy lifestyles, and that those with more time and money will exploit choice. Poorer customers, although wishing for the best, might be content with either better self-service provision or effective limited service. The precise impact of advances in technology, and the rate of change it produces, are not easy to forecast. However the increasing use of Web-based technology is altering the expectation of customers on the availability of services and the nature of the services provided (Walsh and Godfrey, 2000; Voss, 2000). Parasuraman (2000) has also shown that customers vary in their attitudes to service within a concept of technology readiness. We might expect this to interact with the ‘‘rich’’/‘‘poor’’ attributes to shape customers’ behaviour. This changing context for service demand is matched by a change in the delivery of The authors acknowledge the contribution of Dr Neal Beamish and the support of the Institute of Customer Service in this work.

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services by service organisations under the influence of technology. Technologies widen the richness and reach of service provision and also offer a ‘‘smartness’’ in devices that will work intelligently, automatically, and remotely to free customers from tiresome tasks. The same technology also offers efficiencies to service providers. For instance, the cost of Web-based transactions represents a quantum reduction compared with telephones. In assessing changes in their service strategies, service organisations will need to consider the significance of these changes for their service products and service processes (Walsh and Godfrey, 2000; Voss, 2000; Parasuraman, 2000). However, it remains to be seen whether there will be a significant change in the general principles of service, as has been suggested by a number of authors (for example, Heskett et al., 1994; Berry, 1999).

Research design Senior executives and decision-makers in service organisations are aware of the rapid changes and challenges faced by their sectors in the next few years. Intuitively, they know that the role of service agents will be a key element in ensuring that service organisations maintain competitive success. We approached 14 major service organisations to see if they were willing to participate in our research. The service organisations were deliberately chosen to cover a wide spectrum of the service sector. They included: . financial services; . telecommunications; . retail; . software technology; . healthcare insurance; . public utilities; . airlines; and . charity. All delivered some of their services remotely through technology and, to a greater or lesser extent, employed advanced technology. Representatives from each organisation met with each other, and with us, to discuss their shared interest in, and commitment to, the research. All agreed to participate fully, and all were keen to share and discuss views with each other. At that meeting, the research aim and objectives outlined previously were

drafted and later refined. In each of the organisations, we were able to interview senior executives responsible for customer services. In addition, internal reports were made available to us. The focus of the interviews was on perceptions of customer service in two to five years, and how changes were likely to impact on the use of technology and the capabilities of agents. Interviews lasted approximately two hours and each was taped and transcribed. Two researchers were present at each of the interviews. In some companies we interviewed two or more senior managers. In all, 28 managers particpated. Each transcribed interview was analysed to code and elicit themes from the data. In some instances the data were supplemented by internal information provided by the participants. Part of the way through the research, representatives from some of the companies met together with us to share their visions and issues for the future, and to discuss some preliminary findings. For the most part, those attending this meeting included the senior executive interviewed and/or colleagues. Included in the analyses were data drawn from the interviews and company documents set against secondary data analyses of advances in CIT, technology, and changing demographics.

Findings From the interviews and other documents, numerous themes emerged regarding the nature of services. Most of the managers talked about the impact of technology on their ability to gain efficiencies. They also spoke of the changes in the nature of the role of customer-service agents, and the capabilities that they would need. It emerged that a number of the identified roles related to technology, the technical aspect of services, and the emotional needs of customers. Customer service in the future will require an increasing degree of professionalism, from both managers and customer-service staff. This article develops some of the findings from a larger research project on the skills for customer service needed to respond to changes in the future environment. Details of the project’s aims and objectives and of other findings can be obtained from one of the authors. Some organisations are already

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making dramatic changes as technology alters the nature of their service-delivery processes. For these findings, it was possible to establish a taxonomy of service-delivery processes characterised as: . personal service; . self-service; and . automated service.

We might expect that during the service encounter the customer must experience a culture that matches the promises of the service provider. There are contrasting approaches to achieving this goal:

Two strong themes about their ability to deliver effective service also emerged in the form of: (1) service culture; and (2) service leadership.

This comment implies a fairly structured approach to the style of service that is expected. In contrast, other service managers believe that the goal can be achieved only through some shared understanding of the nature of the service:

Service culture Managers often talked about the culture of the organisation in relation to service and how it should affect everyone within an organisation and everyone who has dealings with it: I did a lot of work with the culture of our service organisation. My guess was completely right, because they chose to ignore all the recommendations we made on the cultural aspects, which is part of what we said they’d do because of the way their culture was. One of the major things in the culture was the very functional view of life, so if you were managing a call centre, your view of life is that you have to make this the most efficient call centre that you possibly can. If you manage the field engineers, then your focus is purely on field engineering (telecommunications company).

The internally based culture described here misses the focus on the customer. It reveals a failure to appreciate the interconnected nature of call centres or to question the various interpretations of the idea of ‘‘efficiency’’. Moreover, the existence of a variety of cultures in different parts of an organisation potentially leads to differences in customer experience that can destroy consistency of service. If the culture in an organisation has been authoritarian it can be difficult for management and customer-service agents to change. In the example below, the context of financial services and the attendant obligations to fulfil statutory requirements enhance the wish to control: It’s a world where for them to want to work in a processing centre it’s an extremely controlled environment and always has been. The high style of the organisation is top-down management and actually telling people that it’s OK to use their intelligence when talking to a customer is quite hard (financial services).

We have a corporate template and a corporate style which they are required to adopt (Internet investment service company).

The main training I’m interested in is the actual [Y company] ethos itself. It’s not just the physical ‘‘sitting down with the keyboard’’ – it’s how the whole essence of what [Y company] is. We are not just concerned with customer care, we call it internally ‘‘customer delighting’’ . . . we go beyond what you get everywhere else (online retailer).

The expression of service culture extends to attitudes to technology and the increasing variety of modes of customer contact. At one extreme this might be used to remove a human interface: We will try to provide electronic analysis . . . perform automatically, with no human interaction all (technology company).

Alternatively, in other companies, the intention is to enable service staff to gain a variety of skills and capabilities with evolving technologies: We expect service staff to be comfortable with lots of different methods of communication, such as email and telephone, helping [customers] all the time (mail order retailer).

The picture of service culture that emerges is complex. Technological advances are influencing both the capabilities of customer-service agents and the expectations of customers. Against this backdrop, the work undertaken and the way in which work has traditionally been managed, provides a strong restraining force on change. Service leadership Not surprisingly, discussion of service culture was linked to aspects of managerial leadership:

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We’ve just been doing work around service leadership and what managers need to have in terms of their capability (airline).

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It seemed that there was an association between leadership culture and the expectations that management placed on staff. The expression of capabilities required for effective service leadership resonated with the five components of emotional intelligence in leadership, as identified by Goleman (1998). The illustrative quotations come from companies in the study: . self awareness – ‘‘the analytical understanding of how that process needs to managed better’’; . self regulation – ‘‘to take that breadth of view, more of an overview on the connectivity’’; . motivation – ‘‘encourages managers to tap into the positive’’; . empathy – ‘‘do all of the sort of service behaviours to us’’ (that is, staff), i.e. treat staff as they would customers; and . social skill – ‘‘managers to be human beings’’. All of the service organisations appreciated the importance of service leadership and indicated an association with service performance as previously identified by other research (Church, 1995). The need to be inspired by a manager was paramount in their thoughts. Some of the language used to express this was interesting. Terms such as ‘‘making things fun’’ highlighted an awareness of the need to be able to engage, motivate, and retain service agents. Other phrases, as used in particular by the airline, such as ‘‘believe in me and inspire confidence and trust’’ showed that service leadership is a vital ingredient of service culture. Some of the concepts and actions discussed are generic in application to most leadership roles. Included here are ideas such as ‘‘providing opportunities’’, and ‘‘setting consistent and clear standards and driving you towards them’’. Others, such as ‘‘coaching’’, indicate that those in managerial leadership do possess the skills and capabilities they seek to engender in staff. They can lead by example, and many have, themselves, experienced the work tasks they manage. Maintaining appropriate personal credibility is extremely important for effective service leadership. Given the importance of communication in customer service, it is not surprising that service leadership calls for an ability to communicate effectively, and thus influence service delivery. In doing so they are more

likley to engender in service agents the ability to lead by doing – the notion of servant leadership (Lytle et al., 1998) It is of interest that the question of risk-taking in leadership arose on several occasions. ‘‘The manager was brave and felt able to take risk’’ was a phrase used by the airline. Encouraging risk-taking was seen as desirable, and reflected an appreciation that service agents will feel free to act in this way only if the culture is appropriate. If mistakes are penalised and a blame culture exists, initiative will be stifled. Given the rapid technological advances in service delivery coupled with changing demographics and lifestyles in western countries, it is not surprising that strategic vision is called for. Ideas of approachability were subsumed in the general belief that being able to obtain and use feedback was important. Service leadership was also intertwined with the demonstration of ‘‘visionary connectivity’’ as suggested in the excellence model of European foundation for quality management (EFQM, 2002). Lack of connectivity, as highlighted in the quotation pertaining to service culture, can lead to differences in customer experiences that can destroy service consistency. It is possible to conceptualise managerial leadership in the service sector as creating the service environment, aiding staff in creating opportunities and channelling their intellectual energy, and guaranteeing continuity of the business. Creating strategies Most commercial service businesses accept that there is a relationship between customer satisfaction and profitability with customer satisfaction influencing loyalty which in turn effects profitability (Heskett et al., 1994). Customer satisfaction is itself influenced by the capabilities of customer-service staff and the way in which they are led (Bowen and Lawler, 1992; Berry, 1999; McColgan, 1997). The cost of developing service staff should, therefore, be compensated by increased profitability. Moreover, the research we have undertaken has demonstrated that service agents themselves are anxious to develop skills and capabilities to do their job well and help customers. They want to be coached and want to have opportunities to enhance their range of skills. The development of staff might be expected

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to increase both profitability and the retention of contented high-performing service agents. In not-for-profit organisations, including the public sector, customer satisfaction is a critical component in the achievement of best value initiatives (a concept for service excellence in the UK public sector) – and the roles played by service agents have a profound impact on all such activities. The question thrown up by the managers in the study is how to develop strategies to develop service staff and accommodate changes in service processes with the introduction of new technology. Managers cannot absolve themselves of responsibility for these activities: This all starts at the top – it is linked to the strategy of the company and everything blows out of that (airline).

However, the results of this study suggest an approach that might enable managers to gain a clearer understanding of their present situation and future needs. This approach can be summarised as follows. Understand your changing customers This study has shown just how important it is for managers to understand why and how customers use their services and how these are changing. Customer groups stated categorically: We are fed up with service failure and we expect technology to be used appropriately.

There are of course many ways in which managers can gain an understanding of their customers’ wishes including postal and telephones surveys, focus groups, and feedback form frontline staff. Such data tend to express views on present services rather than expectations for the future. Projections from secondary data, particularly those relating to technology and socio-demographics can be illuminating. When this knowledge is being used to plan future strategies managers can also make use of customer-service scenarios (Kiely et al., 2005) to increase their understanding of how different customer segments might react in typical service situations. Scenarios allow customers’ perceptions to be shared and their effect on the design of service delivery processes considered. A point especially relevant when service technology is being introduced and questions of technology readiness are to be addressed.

Consider your balance of technology and customer-service staff Service organisations are increasingly using a combination of technology and service staff in their customer-service processes. At an early stage, managers should carefully consider an appropriate balance between the two. When and where is it appropriate to use technology within the service encounter? While technology may reduce the unit costs of service it will also affect the level of customer satisfaction. The impact on customer service does not have to be negative. Used intelligently, technology may enhance the service experience. Managers must bear in mind the nature of the service, the willingness and ability of customers to pay for personalised service and customers’ attitudes to the use of technology. It is in areas such as this that the importance of fully understanding the current and future customer base becomes vital. Once a view is taken of the appropriate balance between the use of technology and customer service staff, a decision can be made regarding choice of service process. These range from encounters mainly designed around the use of service staff in person-to-person encounters albeit supported by technology through customer self-service using technology to a fully automated service process where the customer would not be directly involved. Establish your key customer service staff roles The roles of service staff in person-to-person contact are driven to a large degree by a combination of emotional capacity and technical interaction. Emotional capacity ensures that customer service staff use their emotional intelligence to identify and understand their own and their customers’ emotional reactions and to be aware of service issues and the opportunities for interventions. Technical interactions within the service encounter demand a competence in the technical and procedural aspects of the service process. In the wider study we arrived at four key roles depending on the dominance of the two factors. The roles are referred to as: (1) executor; (2) technician (strong in technical capacity); (3) therapist (strong in emotional capacity); and (4) advocate (requiring strengths in both domains).

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Each role is integral to effective service delivery and we envisage that the capability for one person to develop a comprehensive and complex set of service requirements will grow in response to increased expectations and managers’ attempts to differentiate their service through personalisation. Plan to achieve customer-service staff capabilities A wider study identified eight capabilities associated with evolving customer-service staff roles. These include capabilities to: . interpret service issues and be proactive in service enhancement; . technical capabilities in service communications technology which encompasses email; . the ability to educate and train customers in the service; . knowledge behaviours for a member of a virtual team; . the ability to understand the business/organisational perspective of a service process or sub process. Individual service processes require specific capabilities that are needed for effective customer service. This might be accomplished by linking customer service capabilities directly to customer needs. This suggests a two-stage approach: (1) link capabilities to customer needs and customer-service staff roles; and (2) identify skills, attitudes and behaviours associated with these capabilities. The degree of detail required in this analysis should not be underestimated because it requires an examination of the requirements of each service encounter within a service process. It is envisaged that service organisations will take two broad approaches to achieving the skills, attitudes, and behaviours associated with the capabilities they want for their service staff. The first is to recruit people who already demonstrate the capabilities required. Means of assessing such capabilities could include greater use of assessment centres. Recruitment employing such approaches may be expensive but effective in terms of matching the psychological expectations of staff, organisation and customer. The second is through training to develop the capabilities. While it is commonly accepted that technological capabilities can be enhanced

through training there is debate about the extent to which training and development can address the emotional dimension of service delivery. What does seem to be agreed is that staff who genuinely ‘‘give from the heart’’ and derive personal satisfaction from meeting the needs of others are well received and appreciated by customers. Consequently a number of factors are considered essential when customer-service roles require strengths in emotional capability, and recruitment may be initially favoured to ensure aptitude in customer-service staff. Managers will need to assess where their current recruitment processes fail to address the emotional and technical aspects that are required. Ensure service leadership Good intentions in developing a service strategy will be lost if the fundamentals of an effective service organisation are not present. It is recognised that there is no single generic service culture that is always successful, but all effective cultures place a strong emphasis on the crucial and developing roles of customer-service staff. Attributes that contribute to service leadership include: . professionalism within customer service (both among customer-service staff and in customer-service support roles) builds trust through dependability, respect, empathy, and diplomacy; . inclusiveness in service processes encourages co-operative teamwork and mutual support and understanding; . communication allows expression for the individual and empowerment in the customer-service staff role; . knowledge is shared at all levels and learning encouraged; and . technology is incorporated confidently and appropriately into the service processes. These attributes should ensure that the service organisation is responsive, proactive, adaptable to customer needs, and opportunistic.

Summary Customer service in the future will require an increasing degree of professionalism from both managers and customer-service staff. Some organisations are already making

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dramatic changes as technology alters the nature of their service-delivery processes. However, service organisations that will be successful in the future will focus the roles and capabilities of their service staff on customer needs, and support their staff through active service leadership.

References Berry, L.L. (1999), Discovering the Soul of Service, Free Press, New York, NY. Bowen, D.E. and Lawler, E.E. (1992), ‘‘The empowerment of service workers: what, why, how and when’’, Sloan Management Review, Spring, pp. 31-9. Church, A.H. (1995), ‘‘Linking leadership behaviours to service performance: do managers make a difference’’, Managing Service Quality, Vol. 5 No. 6, pp. 26-31. EFQM (2002), Excellence Model, available at: www.efqm.org Goleman, D. (1998), ‘‘What makes a leader?’’, Harvard Business Review, November-December, pp. 93-102. Heskett, J.L., Jones, T.O., Loveman, G.W., Sasser, E.W. and Schlesinger, L.A. (1994), ‘‘Putting the service profit chain to work’’, Harvard Business Review, March-April, pp. 164-74.

Kiely, J., Armistead, C.G. and Beamish, N. (2005), ‘‘Scenarios for future service encounters’’, Service Industries Journal, Vol. 25 No. 2 (forthcoming). Lytle, R.S., Hom, P.W. and Mokwa, M.P. (1998), ‘‘SERV*OR: a managerial measure of organizational service-orientation’’, Journal of Retailing, Vol. 74 No. 4 pp. 455-89. McColgan, E.A. (1997), ‘‘How fidelity invests in service professionals’’, Harvard Business Review, January-February, pp. 137-43. Molitor, G.T. (1999), ‘‘Impact of the information economy and beyond’’, Vital Speeches of the Day, Vol. 66 No. 5, pp. 148-58. OECD (2000), OECD Information Technology Outlook – ICT’s, e-Commerce and the Information Economy, Organisation for Economic Co-operation and Development, Paris. Parasuraman, A. (2000), ‘‘Technology readiness index – a multiple-item scale to measure readiness to embrace new technologies’’, Journal of Service Research, Vol. 2 No. 4, pp. 307-20. Scase, R. (1999), Britain Towards 2010: The Changing Business Environment, Department of Trade and Industry, London. Voss, C. (2000), ‘‘Developing an e-service strategy’’, Business Strategy, Vol. 11 No. 1, pp. 21-33. Walsh, J. and Godfrey, S. (2000), ‘‘The Internet: a new era in customer service’’, European Management Journal, Vol. 18 No. 1, pp. 85-92.

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Call for papers

QUIS 9 The 9th International Research Symposium on Service Management, 15-18 June 2004 Organized by Professor Bo Edvardsson at the Service Research Center – CTF, Karlstad University, Sweden, In cooperation with Professor Stephen W. Brown, Center for Services Leadership, Arizona State University, Tempe, Arizona, USA, and Professor Robert Johnston at the Warwick Business School, University of Warwick, Coventry, England. We are now pleased to announce the CALL FOR PAPERS for the 9th QUIS symposium! QUIS 9 will be held at Karlstad University, Karlstad, Sweden, 15-18 June, 2004. The symposium brings together the best interdisciplinary academic research and management practice in a forum to advance the study of service management, service leadership, customer management, technology in services and delivery of service quality. The symposium will open with a reception Tuesday evening, 15 June. Sessions and social programs will be held Wednesday through Friday lunch, 16-18 June. A maximum of 200 people will convene in Karlstad for the symposium. The symposium takes a broad interdisciplinary and international view of service excellence and management. The following topics are representative, but not exclusive, themes for this symposium: . technology in services; . service leadership; . the experience economy and services; service recovery and complaints management; human resource and relationships; . competing for customer loyalty; . customer relationships and customer care; . .

service design and new service development; service quality put into action; . service infusion in manufacturing. . .

Abstracts of one page should be sent by 15 November 2003 to QUIS 9 co-ordinator Ingrid Hansson. Each abstract should clearly identify the primary speaker’s e-mail address, mailing address, telephone number, and fax number. Notification of acceptance will be sent out by 15 December 2003. Authors of accepted abstracts will have the option of publishing either an extended abstract (1,000 words) or a complete paper (maximum length 10 pages) by 31 March 2004. The proceedings will be available at the symposium. A special issue with selected papers from QUIS 9 will also be publised in the International Journal of Service Industry Management (IJSIM) and in Managing Service Quality (MSQ). To submit an abstract or to obtain further information, please contact the symposium co-ordinator: Ingrid Hansson Service Research Center Karlstad University SE-651 88 Karlstad Sweden Phone: +46 54 700 10 31 Fax: +46 54 83 65 52 www.ctf.kau.se E-mail: [email protected] www.quis9.com