What academic research tell us about service Essay Example

What academic research tell us about service Essay Example What academic research tell us about service Essay What academic research tell us about service Essay IT not only lowers the cost of service, it creates avenues o enhance revenue through service. Gone are the days of standardization, mass production, and mass marketing. Academic research has revealed that the service sector is now dominant in every developed economy. The goods sector is shrinking as a proportion of the overall economy; and as goods increasingly become commodities, service is becoming the key differentiator even in the goods sector. Thus, to compete effectively, all companies must become service companies. For over a century, technological development has driven an economic shift from a focus on goods to a focus on service. The rise of service in the economy has been reflected by an explosion of academic research on service. This research has tended to emphasize different themes over time (see Table 1 for a summary). In the sass the emphasis was on the differences between goods and services, recognizing that services had characteristics that made for new aspects to consider. Research then the sass resulted in service research of a different flavor?emphasizing service quality measurement, customer satisfaction measurement, and complaint management systems. This evolved in the sass into models for making service financially accountable. At the same time, the advances in IT in the sass resulted in academic research paying increased attention to direct contact with individual customers, storing and analyzing individual customer data, and then using that information to serve individual customers better. Since 2000, academic research has moved to using customer relationships as a foundation for a new approach to strategy, based on customer equity (the discounted cash flows expected from the current and future customer base). This requires managing the customer lifetime values of individual customers, a topic that has received considerable research attention in cent years. The explosion of service research has been facilitated by the introduction of several influential academic centers for service research. Notable centers currently include the Center for Excellence in Service at the University of Maryland, the Center for Services Leadership at Arizona State University (see the article by Bitter and Brown in this section), the Service Research Center at the University of Carlsbad (Sweden), the Masochist Academic Center for Research in Services (Netherlands), and the Center for Relationship Marketing and Service Management at the Swedish School of Economics (Finland). The progress of the service research field has been accelerated by international con- preferences?most notably the annual AMA Frontiers in Service Conference (which this year features speakers from 29 different countries) and the biennial Quality in Service (QUIZ) conference. The most prominent academic Journal in the service research field is the Journal of Service Research. More than many academic fields in business, service research is often influential in leading business thought and changing business practice. The breakthroughs in service research have typically resulted from considering the advances in technology, ND carefully studying their implications. Technological development has created many new services?especially information services?and has also made it possible to make physical goods more service intensive. Aside from individual products, technology has also made it much easier to track customer relationships over time, and to therefore link goods and services to serve the customer effectively over an extended period of time. With these trends, service research clearly implies that every business must become a service business, or it will fail to be competitive against competition that does. Successful businesses like MM, GE, and Struck all embrace The economic shift toward service has been ongoing as new products and technologies become available and others become cheaper to produce and transport. However, the information revolution has provided a particularly strong force. IT has advanced service, as previous technological contributions have aided mass production. Assembly line mass production lowered the cost of producing goods. IT likewise decreases the cost of providing and improving service. Thus, we witness the rise of mass service, driven by improved coordination and a greater availability of information. Whereas mass production focused on the product, the new philosophy is customer-centric. Since interacting with customers is now less expensive, it is easier to tailor communications to provide distinct information and service to distinct customers. Using IT, businesses have expensive to satisfy an existing customer than to invest improved communications both internally and with in advertising to attract new customers. Therefore, the customers. Different departments within the same road to profitability is to work hard to keep current accompany can easily share information electronically, tamers. Employee policies have an important impact on Susann businesses and customers can now contact each other via email. Firms now have the ability to collect tome satisfaction [70]. Businesses need to give the corona analyze information on customers entire purr- erect incentives to their service personnel to place emphasis on long-term profitability as well as immediacies and contact histories. Ate sales. By designing compensation schemes decreased the cost of culls sass Service is different from goods that reward employees atomization, marketing to Measuring customer service and service quality SASS not only for immediate smaller segments has become Complaint management sales, but also for service economically feasible. As Making service improvements financially accountable SASS laity, companies can technology continues to Direct marketing and CRM improve customer staircases the cost of consummating customer lifetime value and customer equity sass Profitable long-term relationships with customers faction and long-term atomization, the logical end is Basing corporate strategy on service profitability. One-to-one marketing, with Customer delight has businesses targeting each succubus suggested as an tome separately and providing individually customized Table 1 . Academic research in alternative focus to smartening. Over time, firms can build relationships service over time. Emmer satisfaction. Switch customers by inferring their needs and providing tome delight, a more extreme form of satisfaction, service to meet those needs. Information also gives the consumer power. Rust table 1 (7/06)level of surprise, and may not be possible Con- requires some summer can receive information about a broader range in contexts where there is little room for the customers of businesses, as well as perform their own searches to expectations to be exceeded [72]. Even when customer find the product that best suits their needs. Cones- delight is possible, however, it may not always be innocently, businesses are faced with greater competition sequential for future patronage, if customers suspect the and greater need to differentiate. Firms must provide level of service will not be duplicated in the future. The best value for better- informed consumers or fail to When feasible, however, the strategy of customer delight can lead to exceptional results. Attract them. Wrought improved service a more attractive strategy for success in the marketplace. SERVING THE CUSTOMER As technology has given consumers access to more information and choices, service has become increasingly important. Customer satisfaction is paramount, because customer perception is reality when it comes to buying decisions. In this viewpoint there is no such thing as actual quality except as perceived by the customer, and thus serving the customer better depends upon understandi ng how to increase quality perceptions and customer satisfaction. Expectations play a significant role in customer satisfaction. Customer behavior is affected by satisfaction relative to expectations [71 , 114]. Research indicates that when a customer perceives service quality to be below the desired level, increasing customer satisfaction Wrought improved service has a large positive effect on DESIGNING AND IMPROVING SERVICE The delivery of service is fundamentally different from the concept and design of the service. Delivery is an aspect of implementation, not of design. The service product is planning your work, while service delivery is working your plan. Whereas engineering focuses primarily on the product, service concerns itself primarily with delivery, largely because of the inherent variability of service delivery. Because product development deals only with the quality of the product, firms must measure and manage service livery to ensure the quality of the entire experience. To measure service, metrics on customer perceptions, attitudes, and behavior are essential. Businesses should understand what customers do and why they do it. Customer behavior may simply be observed, such as 51 when a customer repurchases the product or files a research had found that companies attempting to complaint, but customer perceptions and attitudes are achieve a dual emphasis of cost reduction and revenue enhancement simultaneously did not perform as well not as readily revealed. For a complete understanding of customers, firms as companies that focused solely n a revenue emphasis combine computer databases of customer behave- sis strategy, Metal [56] reached the conclusion that a ROR with survey data of customer perceptions and ATT- dual emphasis can be profitable in the long-run for the à ©tudes. Achieved it. However, but are still useful for a number of purposes. For exam- attempting to achieve such a dual emphasis usually plea, they have been useful in studying the profit-Max- doesnt work. Mining balance between customer acquisition and customer rotten- THEN NOW Zion efforts [82]. Although such Standardization Customization findings have significant manager- Transactions Relationships al implications, they do not Focus on goods Focus on service Revenue expansion through service explain the motivation behind Cost reduction through manufacturing efficiency Marketing to individual customers customer behavior. The complex- Mass marketing Improved ability to communicate, store, and momentary use of databases and sure- Limited ability to communicate, process information eves is necessary to get a complete store, and process information understanding. Table 2. Moving to a The manufacturing mind-set is also problematic in service paradigm. Pricing perishable services. It is useful to separate burglarproofing THE MANUFACTURING chase from consumption [96]. For example, rather MIND-SET Rust table 2 (7/06) To succeed in todays marketplace, firms must ban- than selling travel or event tickets at a single price, firms don the manufacturing mind-set and attach highest can take advantage of buyers uncertainty about the priority to customers rather than products. The man- future by offering different advance and spot prices. Factoring mind-set leads businesses toward standard- Advance sales can often more than offset a lower price action. Goods are easier to produce in higher quality and give firms the ability to price discriminate. IT has facilitated the automation and mechanized quantity when production is standardized. Thus, manufacturing is built around assembly lines and Zion of service. Traditional e-commerce focused on mass productio n, and success is defined as producing reducing service costs and increasing efficiency by take same good at a lower cost. As manufacturing Effie- inning advantage of the opportunities to automate service science nears its maximum, there is little room for offered by the Internet. However, this approach suffers businesses to differentiate themselves, making it dif- some of the same pitfalls as the manufacturing mindful to profit or find niches in the market. In contrast, set. Selling commodities online at low prices results in better service demands customization, rather than low profit margins due to competition because there is standardization. Each customer should be treated little room for differentiation from competitors. Expectations by many, this e-comply line. Customers varying needs and desires are not mercer strategy has largely failed (recall such losing all satisfied by precisely the same service product or efforts as pets. Com). Instead, a paradigm of e-service is becoming prevalent. Companies such as Dell and service delivery. Productivity and satisfaction are not always mute- Amazon that have succeeded in e- commerce have done ally compatible goals, especially in service firms [5]. O because they have taken advantage of IT to increase Businesses must often choose between the two, at least revenue through improved service rather than simply in terms of primary emphasis. Academic research to reduce costs. Clearly suggests that more attention must be focused on revenue expansion through service, rather than Just on USING SERVICE TO MAKE MONEY productivity and cost reduction. Cutting costs may Service was once thou ght of as an add-on to physical improve short-run profitability at the expense of service goods, an extra that could be used to enhance the and long-run profitability. For example, downsizing value of the product. Today, most of the economy may reduce costs but have a detrimental effect on cuss- consists of services, rather than physical goods. To a tome service, as remaining employees are spread too large extent, physical goods are now seen as part of the thin. Thus, while costs may be reduced, decreased cuss- overall service. Table 2 shows some of the elements of tome distraction may impose long-run losses in cuss- the paradigm shift from transactional to relationship tome loyalty and future patronage. Whereas previous marketing. The emphasis is now on the value off 52 continuing customer relationship, rather than the value of any individual sale. The inherently high variability in service presents an opportunity even in the goods sector. Although the goods themselves are increasingly commoditized, service levels can vary greatly. Instead of struggling to achieve profit through cost savings in the production process, goods companies can use service to set themselves apart from competition hat is virtually indistinguishable from a manufacturing standpoint. IT decreases the cost of service. This naturally presents an opportunity to profit from cost savings, but it also offers the chance to expand revenues by providing better service to customers at the individual level. Although service improvements bear short-run costs, they allow firms to attract and retain customers and build long-term relationships. Customer loyalty lit- completed because a dissatisfied customer represents a potential loss of future business. Firms can also use IT to identify valuable but potentially threatened customer TRANSFORMING COMPANIES The service revolution is changing the way companies do business. As physical goods increasingly become commodities, goods companies find it increasingly difficult to stay profitable. Service allows companies to escape the commodity trap by providing a means for businesses to differentiate themselves from the competition. Instead of relying on profits from individual transactions, service allows companies to build relationships with customers, using these relationships to enhance long-term revenue. Stead of relying on profits from individual transactions, service allows companies to lid relationships with customers, using these relationships to enhance long-term revenue. Mutely leads to a lifetime of sales from which a company can profit. Service also opens the door to improvements in customer satisfaction. Companies should focus on meeting the varied needs and expectations of individual customers, keeping in mind the caveat that some customers may not be profi table to serve. Higher levels of customer satisfaction can be achieved with customization, increasing customer lifetime value through greater willingness to pay, frequency of purchase, and probability of repurchase. Customer equity, the discounted future cash flow that will be obtained from the firms customers [89], is a very good proxy for the total market capitalization of the firm. Viewing the health of the business in terms of customer equity makes it possible for the firms strategic decisions to have greater financial accountability [88]. Research has taught us that companies should care more about their lifetime relationship with customers rather than standalone transactions. Thus, companies are concerned not only with the loss of a single transaction with a given customer, but with the loss of al potential future transactions with that customer. Service improvements can be justified by increased customer equity, driven by an increased ability to attract and retain customers. Companies have a compelling reason to fix problems even after a transaction has been To survive and thrive, every business must become a service business. Research shows the focus on goods, tangible resources, and transactions has been replaced by an emphasis on service, intangible resources, and relationships [108]. In this new dominant logic, service, not goods, has become the fundamental economic exchange. Consequently, focus has also shifted from the reducer to the consumer, who is now endowed with more power than ever before. Despite the need, it can be difficult to convert locked into the manufacturing mind-set, still focusing on cost reduction through efficiency improvement rather than revenue expansion through improved service and customer relationships. However, businesses embracing the service revolution are finding success and profitability where others are failing. Companies that fail to invest in service run the risk of falling prey to competition. THE FUTURE OF SERVICE Computing and IT provide a particularly strong support for a shift toward service by applying information and tools to facilitate communication and build customer relationships [90]. As the capacity to gather and process information grows, companies can use their new knowledge to offer customized service. 3 Thus, with more information available to improve service, information-driven service becomes necessary for customer satisfaction and profitability. Many businesses have focused on cost reductions made possible by technology, but concentrating only on cost savings is an outmoded vestige of the production mind-set, from which companies must escape to succeed. Academic research indicates that tunnel vision n productivity and efficiency can drive unintended servic e quality erosion, which may hurt revenues and profits despite cost savings. Instead, companies should utilize IT to expand revenues through better service as well as to cut costs via automation. Real-time communication with customers is becoming easier and more affordable. Companies can quickly identify customers desires, guide them to products that meet their needs, and provide the necessary level of service. Additionally, firms can promptly detect and fix customer problems, again increasing customer satisfaction and building long-term relationships. Companies are learning from relationships with their customers. Using computer databases in conjunction with information collected through surveys, businesses can better understand customer attitudes, perceptions, and behavior. Armed with this new knowledge, businesses can design and improve service to ensure long-term profitability. Finally, service gives firms a new tool for financial accountability. Customer equity is a measure of future return on investment for service improvements or any other business improvement. In addition, customer equity enables companies to compare prospective returns on investment from competing service strategies. A complete bibliography of the literature used in the course of preparing the articles for this special section on services science is available on page 33. Roland T. Rust ([emailprotected] Mud. Du) holds the David Bruce Smith Chair in Marketing and is executive director of the Center for Excellence in Service and Chair of the Department of Marketing, at the University of Maryland, College Park, MD. Carol MIM ([emailprotected] Mud. Du) is a doctoral student at Robert H. Smith School of Business, University of Maryland, College Park, MD.