Service Gaps Model and Service Profit Chain - Essay Example

? Service Gaps Model and Service Profit Chain The Concept of Service The concept of service marketing is relatively new in contrast to concept of product marketing (Ladhari, 2009). There are four distinctive features of services such as intangibility, heterogeneity, perishability and inseparability and these four factors distinguish service marketing from product marketing (Parasuraman et al, 1985 and 1988). According to Khan (2003), it is difficult to measure performance of service before the sales cycle gets completed hence service quality is intangible in nature. Markovic (2006) has stated that customers are involved as co-producer in the service delivery process hence service provider cannot control the consistency of service experience, so the service quality is heterogeneous in nature. Services are perishable because it is difficult to store service quality in precise manner. Services are also inseparable in nature because in many cases production and consumption of services take place simultaneously. In such backdrop, eminent Finnish marketing scholar Gronroos has defined perceived service quality as; The consumer compares his expectations with the service he perceives he has received, i.e. he puts the perceived service against the expected service. The result of this process will be the perceived quality of service. - (Gronroos, 1984, p. 37) According to Zeithaml (1988), perceived service quality is objective assessment of service on the basis of verifiable and measurable predetermined standards. Service Gaps Model Over the last three decades, research scholars from different geographic locations have put their effort in order to define various aspects of service marketing and service quality. According to Kang and James (2004), service quality is one of the critical success factor or CSF for any service marketer. Research work by these scholar duo has shown that maintaining good service quality can help a firm to decrease churn rate, attract new customers, spread positive word of mouth, improve brand image and conjoint effort of these factors ultimately lead to enhancement in profitability. The concept of service quality gap was originally by eminent research scholars such as Parasuraman et al (1985 and 1988). There is no doubt that, majority of research scholars including Parasuraman et al (1985 and 1988) have devoted their time in order to develop a replicable but reliable instrument with witch service quality gap can be measured. Fortunately, Parasuraman et al (1991, 1994) were successful in developing “SERVQUAL” scale which is one of the most commonly used scales for measuring the gap in the service quality. In the proposed SERVQUAL scale by Parasuraman et al (1985 and 1988), twenty two items have been incorporated in order to measure service gap in five service settings such as maintenance and repair of electrical appliances, telephone services (long distance), brokerage services, credit card services and retail banking services. However, modern marketers apply the SERVQUAL model to measure service quality gap in almost every service sector. Although the concept of service quality gap is widely accepted but there are research scholars such as Jabnoun and Khalifa (2005) and Landrum et al (2007) who have raised question over the validity service quality gap in service sectors which are categorized by involvement of high degree of psychometric properties. Managerial Implication In modern world, marketing managers of a service firm repeatedly use marketing jargons like customer driven service offering, continuous performance improvement and others, but interesting fact is that only few of them understand the practical implication of service quality gap Landrum et al (2007). Challenge for the marketing managers is to identify the gap in the service delivery and then allocate both financial & non-financial resources to reduce the gap. Any gap in the service delivery should be identified in terms of customer’s perspective by the managers. It is critical for marketing managers of a service firm to identify the most cost effective way to close the service quality gaps. Service Quality Discussion on service quality gap will be incomplete without shedding light on concepts like service quality. Wisniewski (2001) has pointed out that service quality is a relative term in context to industrial and organizational dimensions, for example, service quality indicators for a hospital cannot be equivalent with service quality indicators for a bank; hence one universally accepted definition of service quality is not possible. In such context, it can be said that although it is difficult to define service quality but the problem can be solved by identifying the gap in the service quality. According to Parasuraman et al (1985), service quality is the ability of the service firm to provide service according to expectation of customers; service quality gap is the difference between expected service quality by customers and perceived service. If perceived service quality is lower than the expected service quality, then customers get dissatisfied. Elements of Service Gap Model Parasuraman et al (1985) have given the following model in order to define ethos and elements service quality gaps. Figure 1: Model of Service Quality Gaps (Source: Parasuraman et al, 1985) According to the gap model, there are seven gaps in the concept of service quality. Luk and Layton (2002) have pointed out that Gap 1, Gap 5 and Gap 6 are more associated with external customers in comparison to other gaps. Detailed explanation of the gaps with practical examples is given in the following section. Type of the Gap Characteristics of the Gap Reasons for the Gap Example of the Gap Gap 1 Existing gap between the expected service quality by customers and perception of the management regarding the service quality. In those cases, companies fail to understand the need of customers and deliver services which are not relevant in accordance with the expectation of customers. Inadequate market research regarding the preference of customers, lack of scope for two way communication between customers and the service firm. Administrators of a hotel might think patrons want quality foods or infrastructure but patrons may be concerned with the responsiveness of staff who is serving the food. In such cases, the hotel, which is characterized by slow service responsiveness, would not stop the attrition of its patron base despite serving quality foods. Gap 2 Existing gap between perception of the management regarding service quality and specification for maintaining the service quality. In such cases, service provider or management might successfully identify the expectation of customers but fail to establish performance standard for individuals who are responsible for service delivery. Absence of measurable goal and insufficient task standardization for individuals who are responsible for service delivery. A hospital has identified that patients expect fast responses from doctors and nurses and given instruction to doctors and nurses to response ‘quickly’ but not specified ‘how quickly’. In such cases, nurses of doctors will be failed to provide quick services to all patients in standardized manner. Gap 3 Existing gap between service quality specification and service delivery process. In such cases, service providers successfully identify the expectation of customers and create specific performance standard to improve the service quality but fail to provide training to service personnel to meet the service standard. Lack of supervisory control systems for service personnel. Management of a hospital has set a very specific standard for nurses regarding maintenance of hygiene but gave insufficient training to nurses to meet the specified standard. Gap 4 Existing gap between expected service quality of customers which is influenced through external communications such as advertisement or statement by company representatives and perceived service quality. The gap arises when the expected service quality doesn’t meet the actual services, which is delivered by the service provider. Over promising by the service provider beyond their resource capabilities or inadequate horizontal communications between management and external stakeholders. A bank has advertised that it provides 24*7 banking services but in reality, it does not have resources to deliver banking services in 24*7 manners. In such cases, customers who are influenced by the advertisement will find the actual service of the bank as dissatisfactory. Gap 5 Existing gap between expected service quality and experienced service quality by customers. Such gap arises, when customers misinterpret the service quality delivered by the service provider. This is a customer side of quality gap, lack of ability of the service provider to provide quality services in the past time which can diminish the scope of misinterpretation of service quality by customers. A doctor may visit the patient regularly in order to show care but the patient might misinterpret the intention of the doctor in wrong manner. Gap 6 Existing gap between perception of the front-line service providers regarding the service quality and expected service quality by customers. Lack of enthusiasm from the employees to understand the actual need of customers. A hospital has created service quality standard according to the expectation of patients but staff of the hospital do not care about following the quality standard for providing expected service quality to patient. Gap 7 Existing gap between employee’s perceptions and management’s perception regarding the expected service quality of customers. Lack communication between management and employees. Teachers in a school might believe that decreasing holidays will help students to concentrate on studies, whereas management authority of the school might believe that decreasing holidays will increase stress on students. (Source: Parasuraman et al, 1985) Careful analysis of all the five gaps reveals that, Gap 5 is influenced by other four gaps. Gap 1 to Gap 4 can be identified and control by service organizations, hence closing first four gaps will automatically eliminate the Gap 5. According to Parasuraman et al (1985), gap analysis is useful for understanding the discrepancies between perception of service quality by the service provider and perception of service quality by customers. According to Engelland et al (2000), Gap 6 and Gap 7 involve high degree of psychological variables; hence these gaps can be omitted when deciding the SERVQUAL instrument for measuring service quality. Parasuraman et al (1985) have conducted focus group interview with customers and found that measuring Gap 5 will address all other gaps. According to Parasuraman et al (1985), customers compare perceived service quality with expected service quality on the basis of 10 dimensions, reliability, tangibles, responsiveness, security, communication, competence, credibility, knowing customers, courtesy and access. These ten dimensions are further re-adjusted following five service quality dimensions. Tangibles Using physical facilities, infrastructure, equipments and human touch points by the service provider in order to increase tangibility of the service delivery. Reliable Delivering the promised service levels in continuous, accurate and sustainable manner. Responsiveness Delivering prompt services to customers. Assurance Increasing knowledge of employees regarding expected service quality of customers showing courtesy while delivering the service in order to build trust among customers. Empathy Showing care and attention to individual customers. Such five assumptions are building block for the SERVQUAL model, each of the five assumptions are measured by using the following questions, What is the general expectation of customers regarding the service quality of the service firm? What is the perception of customers regarding the actual service delivered by the service firm? For each question, customers need to give responses in 7 point likert scale, where 7 is indicating strongly agree and 1 is indicating strongly disagree. The gap score (G) will be calculated on the basis of difference between performance score (P) and expectation score (E). The equation becomes, Service quality gap can be measured from the G- value, when G value reaches to zero, it means that there is negligible service quality gap exist for the service firm. Previous research in the field of service quality gap has been given in the appendices section. Service Profit Chain The concept of service profit chain has been postulated by Heskett et al (1997). According to them, service profit chain is the performance relationship between virtuous cycle of different elements of internal service quality such as, service capability, productivity & output quality, employee satisfaction (ES), service value (SV), customer satisfaction (CS) and increased revenue growth & profitability for the service firm. Modern service marketing research scholars have underpinned the term “satisfaction mirror”, which assumes that, employee satisfaction (ES) and loyalty can be translated into customer satisfaction (CS), which will consequently increase revenue and profit for service marketers. Research work of Reichheld (2001) has clearly established link between all the elements of service profit chain. The service profit chain model can be depicted in the following manner. Figure 2: Service Profit Matrix (Source: Pritchard and Silvestro, 2005) It is evident from the above model that, conjoint impact of internal service quality, service capability, and employee satisfaction and employee loyalty can improve value of external service delivery, which in turn will enhance customer satisfaction and loyalty. General assumption is that, satisfied and loyal customers will repeatedly avail offered services of the firm and consequently revenue and profit of the firm will increase. Identifying intra-level relationship between each verticals of service profit chain is required in order to understand conceptual framework of service profit chain in comprehensive manner. Internal Service Quality According to Conduit and Mavondo (2001), service organizations need to improve its internal service quality in order to improve value of its external service delivery. Research scholars have defined internal services as the services provided by particular department or strategic block to other employees or departments within the organization. According to Kang et al (2002), relationship between individuals such as customer care executive and managers, customer care executive and back office executive etc decides the dynamics of internal service quality. Organizations need to provide quality service to its front-line employees in order to motivate them to deliver quality services to external customers (Voss et al, 2005). However research scholars have clearly proved the role of employee performance and external service quality but very few researchers have succeeded in explaining the role of internal service quality in increasing profit for organizations. Voss et al (2005) have indicated that employee commitment, employee satisfaction and employee satisfaction can improve internal service quality. In other words, it can be said that organizational climate decides internal service quality. Abbott (2003) has tried to justify the service profit chain in the following manner; “Satisfied employees have such positive energy and such willingness to give good service that the customers get at the least a perceived better product or service, so that they in turn become much more satisfied and loyal to the company” (Abbott, 2003, p. 334). Employee Satisfaction & Loyalty According to Heskett et al (1997), satisfied employees can help the organization to deliver quality services to external customers. In such cases organizations need to develop reward program in order to keep its employees satisfied. Sempane et al (2002) have found that, monetary rewards can satisfy employees in for a short term period but cannot bring loyalty among them for longer period of time. It is evident from the research work of service marketing scholars that employee satisfaction is antecedent of employee loyalty. Various factors can improve satisfaction and loyalty among employees. Nature of the Work Oosthuizen (2001) has revealed the fact that, lack or perceived value or challenge in the work can de-motivate employees and subsequently decrease their satisfaction and commitment level. For example, an employee might feel de-motivated if he/she is asked by the management to do the same kind of job in repetitive manner for long duration. Rewards & Recognition In a contradictory study, Lam et al (2001) have found that, loyalty of employees can be influenced positively by giving financial and non-final rewards. For example, a restaurant can provide monetary incentives to its staff in order to motivate them to work for extra working hours. In some cases, gradual promotion of employees also makes them loyal to an organization. Employee Satisfaction and Customer Satisfaction and Profit Although the concept of service profit chain is one of the celebrated management topic but still there is very insignificant amount of evidences are available which can validate the model. A simple version of service profit chain can be underpinned in the following manner; Figure 3: Service Profit Chain (Source: Heskett et al, 1997) The model emphasizes on previously mentioned “satisfaction mirror effect”, where it has been assumed that satisfied employees can deliver high quality services to customers, which will motivate customers to remain loyal to the service firm and profitability of the firm will increase through repetitive purchase action of customers. In the service profit chain, there are three verticals such as Employee Satisfaction (ES), Customer Satisfaction and Financial Performance of the service firm (FP). Supporters of service profit chain such as Bernhardt et al (2000) have commented on the failure of fellow researchers to link all the verticals of service profit chain that, involvement of latitudinal and psychological sequences such as FP and service improvement, FP and Employee Commitment (EC), FP and Employee Motivation (EM) etc has increased the complexity in computing the exact outcome of service profit chain. Detailed examination of all the variables can prove the validity of service profit chain, For example, Kamakura et al. (2002) did structural-equation modelling of service profit chain of Brazilian national banks and they have found that, revenue of the bank increased when it had the lowest attrition rate. Heskett et al (1997) have given the following assumption for linking the customer satisfaction with their loyalty. Figure 4: Customer Satisfaction & Loyalty (Source: Heskett et al, 1997) Theoretical validity of service profit chain has been strengthened by the research work of Kamakura et al. (2002) and other research scholars. In such context, the study will end this discussion by citing practical example of UK retail giant John Lewis which banks extensively on its satisfied employee pool in order to increase its profitability. Conclusion John Lewis is a renowned departmental store located in UK; employees are the owners of the departmental store. Employees are known as partner for the store and they have stake in annual profit of the departmental store. Satisfied employees has not only helped John Lewis to become one of the most customer friendly stores in UK but also helped them to achieve revenue and profit in successive manner. It is evident from the above discussion related to service quality gap, service profit chain and other pertinent issues of service delivery process that, service marketers need to maintain both internal and external service quality in order to achieve sustainable competitive advantage. Reference Abbott, J., 2003. Does employee satisfaction matter? A study to determine whether low employee morale affects customer satisfaction and profits in the business-to-business sector. Journal of Communication Management, 7, pp. 333-9. Bernhardt, K. L., Donthu, N. and Kennett, P. A., 2000. A longitudinal analysis of satisfaction and profitability. Journal of Business Research, 47, pp. 161-71. Conduit, J. and Mavondo, F. T., 2001. How critical is internal customer orientation to market orientation? Journal of Business Research, 51, January, pp. 11-24. Engelland, B. T., Workman, L. and Singh, M., 2000. Ensuring service quality for campus career services centers: A modified SERVQUAL scale. 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Appendices Appendix 1: Existing Research Works on Service Quality Gap (Source: Ladhari, 2009) Appendix 2: Triangular Model for Service Profit Chain (Source: Heskett et al., 1997) Read More