The primary value processes of a service provider are the provider’s activities that create a direct value. The ‘services are processes’ notion explained above accentu-ates that in services value is created by the ‘throughput’ of the customer or his objects in the service production process. This throughput creates a direct value for the customer as well as for the provider. During a hotel visit, stages of this throughput are the customer’s arrival and entrance into the hotel, checking-in and entrance into the hotel room, etc. By this, the customer’s need for a place to stay is satisfied and, thus, a value is created. The hotel is paid for letting the room to the customer, thereby also creating a value for the hotel.
A central characteristic of services is that the production of services is realised by means of interactions between the service provider and its customers, thus the customer participates in the service production. Consequently, in order to create value, the service interaction process (see Figure 1.4) starts by integrating the customer into the service production process, e.g. a patient visiting the doctor’s practice, a motorist taking their car to the garage. Therefore a primary value activity of the service provider is to render possible customer integration, i.e.
facilitate the customer’s integration into the service production process. Through this integration, the customer ‘meets’ the internal production factors of the serv-ice provider. The central function of this ‘meeting’ is the production of the service, i.e. service production is a second primary value activity of a service provider. Particularly in services, production failures are common. This is also caused by the process characteristics of services. Even though service employees are prepared to interact with the customer, failures can occur. While in industrial production these failures can be resolved without the customer’s perceiving the mistake, in services, the customer is directly affected by production failures.
When a hairdresser uses the wrong colouring, the customer’s hair ends up a dif-ferent colour from what the customer expected. In many cases a recovery of the service outcome can be achieved by improving the service or by offering compen-sation. As a consequence, the customer might be eventually satisfied. Often, customers are even more satisfied after a successful service recovery than with-out failures. Thus, service recovery is an important value driver and therefore the third primary value activity of a service provider.
These processes of value creation concern single service processes, i.e. a single flight, a single hotel or restaurant visit or a single attendance at a language course. However, in many services, value for the provider is not necessarily cre-ated only by a single interaction. For example, a single counselling interview between a bank employee and a customer is not the major value driver for the
Customer acquisition
Customer retention
Customer recovery Relationship process
Customer integration
Service encounter
Service recovery Interaction process
Value
FIGURE 1.4 Primary value processes
bank, it is rather the sum of the various services the customer uses that creates value for the bank. For the bank the fact that it has direct access to the customer means that it can create value by offering and selling various bank products to the customer. In the case of an airline, the airline creates a direct value by the cus-tomer’s purchase of a single flight. However, convincing the customer to come back and fly again with the airline is just as important as the purchase of the single flight in order to produce further revenues and ensure future value for the airline. This notion clarifies the differentiation of interactions and relationships.
While an interaction describes the throughput of a customer via an individual service process, the relationship concerns the customer’s throughput through a rela-tionship with the provider.
This throughput creates value for the customer (e.g. efficiency because of expe-rience with the provider’s processes). For some services, especially for so-called membership services (e.g. banks, telecommunications), a relationship is even a prerequisite for service delivery. As for the customer, there is value created for the service firm as well because the number of customer relationships generally cor-relates in a positive way with sales and profits. Furthermore, the longer relationships last, the more profitable they are in many service industries.27On the relationship level, the value chain is made up of three stages of the relationship process (see Figure 1.4). Each stage affects the value creation differently and is operationalised by various activities in the fields of service product, service pric-ing, service delivery and service communications. The value processes on the relational level are as follows:
• Customer acquisitionaims at recruiting new customers who have not yet used the services of the provider. In order to attract customers, service providers make use of communications (e.g. advertising, direct mail), the pricing system (e.g. first-user discount) or elements of the service and the service delivery system (e.g. physical appearance of the service location).
• Customer retentionaims at keeping the customer, i.e. convincing them to stay in the relationship for membership services or to come back on a regular basis for other services. The major objective of customer retention is to keep the cur-rent level of value that is generated by a customer relationship. For customer retention, service providers also use communications (e.g. a customer newslet-ter), the pricing system (e.g. contracts in the mobile telecommunications industry) or elements of the service and the service delivery system (e.g. per-sonal contact employee). The importance of customer retention is highlighted in the box Services marketing in action 1.2. Moreover, the customer retention process aims at a relationship enhancement, seeking to intensify the cus-tomer’s relationship, and thereby increasing the volume and frequency of the customer’s service usage as well as cross-selling. Service providers use com-munications (e.g. customer cards), the pricing system (e.g. volume discount) and service elements as well as the service delivery system (e.g. a special hot-line for an airhot-line’s top customers).
• Customer recovery aims at regaining lost customers in order to renew the value potential for the provider. Respective marketing measures are winback calls (communications), regain offers (pricing system) or offering more conven-ient service delivery solutions (service elements and delivery system).
See Services marketing in action 1.3 for an illustration and application of the Service Value Chain idea in a concrete business context.
SERVICES MARKETING IN ACTION 1.2:
Grocery market share through customer retention
For several years, new differentiators of customers’ buying behaviour have emerged in the UK grocery market. One of these differentiators is the use of customer loyalty cards as a tool to bond the customer to the firm. Figure 1.5 shows the results of a study regarding bonding/customer loyalty, to a grocery store and market share.
The results illustrate that the percentage of buyers who are bonded to a brand cor-relates with the market share of the grocery store. Tesco exhibits the highest bonding rate (37%) as well as the highest market share (26%), while the stores with low market shares (Aldi, Lidl, Budgens) have minimum bonding rates.
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Tesc o
Asda Sainsbury’
s Saf
eway
MorrisonsIceland
SomerfieldKwiksav e
Marks & Spenc er
Co-op Aldi Lidl Budgens
Brand’s share of market value % Category buyers bonded to brand Figure 1.5 Relationship of bonding and market share for UK grocery stores
Source: OgilvyOne and Millward Brown, cited in Stone et al. 2004.