Unit 2: Managing service relationships and design
Services Marketing notes · PTU syllabus (MBA 922-18)
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Unit summary
Keeping customers is cheaper than winning new ones, and well-designed services fail less often. This unit covers building customer loyalty, complaint handling and service recovery, service design challenges and the new service development process, service blueprinting, and physical evidence and servicescapes.
After this unit you can
- Explain strategies for building customer loyalty
- Explain complaint handling and service recovery
- Explain service design challenges and new service development
- Apply service blueprinting and servicescape design
PTU syllabus topics
- Building customer loyalty
- complaint handling and service recovery
- service design challenges and new service development process
- service blueprinting
- physical evidence and servicescapes
- 1
Customer complains
- 2
Listen and apologise
- 3
Fix it fast
- 4
Compensate fairly
- 5
Follow up
- 6
Learn and fix the root cause
Topic 1
Building customer loyalty
- 1. Build a foundation: Target the right customers, manage the customer base, deliver quality
- 2. Create loyalty bonds: Financial, social, customisation and structural bonds
- 3. Reduce churn: Analyse drivers of defection, address them, raise switching costs
- Relationship marketing: focus on retaining and growing relationships rather than single transactions; customer lifetime value guides investment.
Financial
Discounts, loyalty points, frequent-flyer miles
Social
Personal relationships with staff
Customisation
Tailored service based on knowledge of the customer
Structural
Shared systems that make switching costly
Example
HDFC Bank's relationship managers, Tata Neu's points and airline status tiers combine financial, social and structural bonds.
Topic 2
Complaint handling and service recovery
- Complaint behaviour: most dissatisfied customers do not complain — they switch or spread negative word of mouth; firms should make complaining easy.
- Service recovery: actions taken by a firm in response to a service failure.
- 1Encourage and track complaints
- 2Act quickly
Apologise, take responsibility
- 3Treat customers fairly
Outcome, procedural and interactional justice
- 4Learn from recovery experiences
- 5Learn from lost customers
- Service recovery paradox: a customer whose problem is resolved excellently may become more loyal than one who never had a problem.
- Service guarantees: unconditional, easy to understand, meaningful, easy to invoke and collect — they signal quality and force improvement.
Topic 3
Service design challenges
- Intangibility: a service cannot be fully described in words or a drawing; each person imagines it differently.
- Oversimplification: describing a complex process ("we give fast loans") hides dozens of steps.
- Incompleteness: details that matter to customers get left out.
- Subjectivity: each employee interprets the service through their own experience.
- Biased interpretation: words like "responsive" or "friendly" mean different things to different people.
Exam tip
The solution to these challenges is service blueprinting — mention it at the end of any answer on design challenges.
Topic 4
Types of new services
- Major or radical innovation
New services for undefined markets (first online banking)
- Start-up business
New service in an existing market (a new cab aggregator)
- New services for the current market
Offered to existing customers (bank adds insurance)
- Service line extension
Augment the existing line (new menu items)
- Service improvement
Change features of an existing service (faster check-in)
- Style change
Visible but modest change (new uniforms, décor)
Topic 5
The new service development process
- 1
Business strategy
Vision and objectives
- 2
New service strategy
Which markets and types of service
- 3
Idea generation
Customers, employees, competitors
- 4
Concept development and evaluation
Describe and test the concept
- 5
Business analysis
Demand, costs, profitability
- 6
Service development and testing
Blueprint, prototype, train staff
- 7
Market testing
Pilot in a few branches
- 8
Commercialisation
Full launch
- 9
Post-introduction evaluation
Review and refine
The first five stages are front-end planning; the last four are implementation.
Topic 6
Service blueprinting
A service blueprint is a picture or map that portrays the service system so that everyone involved can understand it objectively (Shostack). It shows the process both from the customer's and the firm's side.
- 1
Physical evidence
- 2
Customer actions
- 3
Line of interaction
- 4
Onstage contact employee actions
- 5
Line of visibility
- 6
Backstage contact employee actions
- 7
Line of internal interaction
- 8
Support processes
- Line of interaction: direct customer–firm contact.
- Line of visibility: separates what the customer sees from what they do not.
- Line of internal interaction: separates contact staff from support functions (IT, kitchen, accounts).
- Fail points (where things may go wrong) and wait points are marked.
Example
Overnight hotel stay: customer arrives → check-in (onstage: front desk) → luggage to room (bellboy) → room service (backstage: kitchen prepares) → checkout (billing system supports).
Uses: identifies fail points, trains employees, shows the customer's view, aids redesign and cost control.
Topic 7
Physical evidence and servicescapes
Physical evidence = the environment in which the service is delivered + any tangible commodities that facilitate performance or communication. The servicescape (Bitner, 1992) is the built environment.
Package
Wraps the service and conveys an image
Facilitator
Helps customers and staff perform (clear signage)
Socialiser
Shapes interaction among customers and staff
Differentiator
Sets the firm apart from competitors
Dimensions of the servicescape
- Ambient conditions: temperature, lighting, music, scent, noise.
- Spatial layout and functionality: arrangement of furniture and equipment.
- Signs, symbols and artefacts: signage, décor, certificates on the wall.
Types: self-service (ATM, website), interpersonal (hotel, hospital), remote (call centre, telecom).
Key terms
- Structural bond
- Link that makes switching costly through shared systems
- Service recovery
- Response to a service failure
- Recovery paradox
- Higher satisfaction after a well-handled failure
- Service blueprint
- Map of the service process and its visible and invisible parts
- Servicescape
- Physical environment in which a service is delivered
Quick revision
- Wheel of loyalty; financial, social, customisation, structural bonds; CLV.
- Complaints; recovery process; justice; recovery paradox; guarantees.
- Design challenges; types of new services; NSD stages.
- Blueprint components: customer actions, onstage, backstage, support; lines of interaction and visibility.
- Servicescape roles: package, facilitator, socialiser, differentiator.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Name four types of loyalty bonds.
- Q2.What is the service recovery paradox?
- Q3.State the features of a good service guarantee.
- Q4.What is the line of visibility?
- Q5.Name two types of new services.
- Q6.What roles does a servicescape play?
Long-answer questions
- Q1.Explain strategies for building customer loyalty.
- Q2.Discuss complaint handling and service recovery strategies.
- Q3.Explain the new service development process and service blueprinting.
- Q4.Explain the role of physical evidence and servicescapes.
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