S.W.S.A. (Surinde) Warning
Student number 10152105
MSc. in Business Studies
Professor Ed Peelen
Service Quality Delivery & the
Experience Cycle during the End
of Lease
Service Quality Delivery & the Experience Cycle during
the End of Lease
Surinde W.S.A. Warning
Student number: 10152105 Master Thesis MSc. in Business Studies University of Amsterdam Amsterdam School of Business Thesis Supervisor: Professor Ed Peelen Second Examiner: Dr. Mark van der Veen Final version 26 February 2014 AmsterdamAcknowledgements
With the submission of this thesis I am concluding a memorable period of three years as a master student at the University of Amsterdam. During this period, I have not only learnt more about the scientific part of business, I have also learnt more about myself. First of all, I would like to express my gratitude to the participants from the leasing organization and its customer organizations for their contribution. Without their input, it was not possible to conduct the case study in its current form. I would also like to thank my supervisor, Professor Ed Peelen. His cheerful style of supervising, but equally critical opinion on my work resulted in the thesis that I am now presenting. Equally do I want to thank my employer and managers, giving me the support and space to finalize this study. And last, but not least, do I want to thank my husband, for his patience and support, and my family and friends for their kind words and continuous belief. Surinde Warning Amsterdam, February 2014Content Acknowledgements _______________________________________________________________________________________ 2 Management Summary ____________________________________________________________________________________ 4 Figures and tables overview _________________________________________________________________________________ 5 1 Introduction _______________________________________________________________________________ 6 2. Literature review ___________________________________________________________________________ 9 2.1 Service Relationships ____________________________________________________________________________ 9 2.2 Relationship Marketing __________________________________________________________________________ 11 2.3 Relationship Retention __________________________________________________________________________ 13 3. Theoretical Framework _____________________________________________________________________ 16 3.1 Customer Satisfaction and Profitability _____________________________________________________________ 16 3.2 Customer Expectations of Service and their Antecedents _______________________________________________ 18 3.3 Service Quality Delivery and Evaluation _____________________________________________________________ 20 3.4 Service Recovery _______________________________________________________________________________ 24 3.5 The Customer Experience Cycle ___________________________________________________________________ 24 4. Research Design __________________________________________________________________________ 27 4.1 Method ________________________________________________________________________________________ 27 4.2 Research setting: The leasing organization ____________________________________________________________ 28 4.3 Empirical Research Question _______________________________________________________________________ 30 4.4 Data Gathering Technique _________________________________________________________________________ 32 4.4 The Sample _____________________________________________________________________________________ 32 4.5 The Questionnaire________________________________________________________________________________ 33 4.6 Analysis ________________________________________________________________________________________ 34 5. Results __________________________________________________________________________________ 36 5.1 Service Delivery: The Fair Wear & Tear Process _________________________________________________________ 36 5.2 The Experience Cycle _____________________________________________________________________________ 40 5.3 Expected Service & External communications: Expectation Management ____________________________________ 41 5.4 Perceived Service: Customer Satisfaction _____________________________________________________________ 42 5.5 Management’s perceptions of customer’s expectations __________________________________________________ 43 5.6 Translation of perceptions into Service Quality specifications _____________________________________________ 45 5.7 Word‐of‐mouth / Personal needs / Past experience _____________________________________________________ 46 5.8 Closing the gap: Advocacy _________________________________________________________________________ 47 6. Conclusion _______________________________________________________________________________ 48 7. Management implications & Discussion ________________________________________________________ 55 8. References _______________________________________________________________________________ 58 Appendix A: Interview Questions Leasing Organization ______________________________________________________ 64 Appendix B: Interview Questions Client Organization _______________________________________________________ 65 Appendix C: Coding Scheme Completed __________________________________________________________________ 66
Management Summary
Managing service quality in customer relationships is crucial to a firm’s competitive advantage (Storbacka et al., 1994). By conducting a case study in an international leasing organization, affected by low levels of satisfaction in relation to its end‐of‐lease process, this case study researches the final phase of the cyclical leasing relationship and investigates if there is a gap between what is requested and what is delivered and how satisfaction drives retention and advocacy. By conducting semi‐structured interviews with a sample of 12 participants (N=12), we successfully applied, re‐examined, and combined, the Service Quality Model (Parasuraman et al., 1985) and the Experience Cycle (Dubberly and Evenson, 2008) in light of the end‐of‐lease process. We were able to analyze the challenges faced by service organizations, in relation to expectations, perceptions, service delivery and the experience cycle. Following our research findings, we highlight the importance of offering alternatives in relation to the end‐of‐lease invoice and the impact of timing the initiation of the end‐of‐ lease process. With our case study we have addressed current gaps in the services literature regarding the adoption of service marketing concepts and models (Grönroos, 2011) and the need to break down a customer relationship, within a business‐to‐business setting, into different phases and examining the perceptions of service quality and relationship satisfaction (Chumpitaz Caceres and Paparoidamis, 2007). We offer direction for further research in the area of cyclical‐contract relationships, such as in the electricity and water services. Equally, do we urge for more research in relation to cumulative satisfaction and advocacy.Figures and tables overview
Figure overview Figure 1: Nature and Determinants of Customer Expectations (Zeithaml et al., 1993) Figure 2: Service Quality Model (Parasuraman et al., 1985) Figure 3: The Experience‐Cycle Model (Dubberly and Evenson, 2008) Figure 4: The Fair Wear & Tear Process (The Leasing Organization, 2013) Figure 5: Service Quality Model & Experience Cycle (derived from Parasuraman et al., 1985; Dubberly and Evenson, 2008) Table overview Table 1: The Fair Wear & Tear Process (The Leasing Organization, 2013) Table 2: Coding Scheme Table 3: Fair Wear & Tear Process descriptions1
Introduction
Having a good understanding of how to manage the quality of services in customer relationships is crucial to a firm’s competitive advantage (Storbacka et al., 1994). Since the acknowledgement of services as a specific customer proposition (Rathmell, 1966), a lot has been researched about service relationships between businesses and their customers. A different setting is created when the customers are not individual consumers, but equally corporate institutions (Patterson and Spreng, 1997). By conducting a case study in an international leasing organization, we shall address current gaps in the services literature in the business‐to‐business context. Grönroos (2011) identified a gap regarding the adoption of service marketing concepts and models, examining the variations in perceptions of service quality and relationship satisfaction, and their effect on retention and advocacy by the customers. Our research is focused on the end phase of the cyclical leasing relationship, and as such will our research equally address a gap in the services literature, identified by Chumpitaz Caceres and Paparoidamis (2007). This gap identifies the need to break down a customer relationship, within a business‐to‐business setting, into different phases and examining the perceptions of service quality and relationship satisfaction. The leasing organization struggles with low levels of satisfaction in relation to its end‐of‐ lease process, the so‐called fair wear & tear process, and to this end, will we review the current service marketing concepts supporting this process. This study will investigate if there is a gap between what is requested and what is delivered during the final phase of the cyclical leasing relationship. Furthermore, shall we review the different elements within the fair wear & tear process that drive relationship satisfaction and results in customers becoming advocates and introduce others to the leasing organization. We aim to do this byre‐examining and combining the Service Quality Model (Parasuraman et al., 1985) and the Experience Cycle (Dubberly and Evenson, 2008) in light of the fair wear & tear process. The research question to be answered is formulated as follows: Which gap exists in the Fair Wear & Tear process between requested and experienced service quality delivery (the experience cycle) and what is its impact on satisfaction and advocacy? Managerial questions to be answered are: where is there a mismatch between what the leasing organization delivers in terms of service quality and what is requested and expected by their customers? In what way can the service quality delivery be improved, in order to satisfy the needs of the customers? And, what is the effect of the fair wear & tear process on the level of satisfaction with the overall relationship and getting the customers to turn into advocates? Questions in relation to theory to be answered are: how can the supplier ensure service quality is delivered in line with expectations? Equally important for the supplier is to ensure that the customer will continue the relationship with him, not change suppliers when an initial contract term is over, and ideally, become an advocate towards others (Bitner, 1995; Bolton, 1998; Boulding et al., 1993; Dubberly and Evenson, 2008; Parasuraman et al., 1985; Rust and Zahorik, 1993 via Lemon et al., 2002). Will a duplication of existing models designed for a business‐to‐consumer context suffice in the business‐to‐business environment? What makes a business‐to‐business setting different? And how can the nature of the interactions on different levels, within both supplier and customer organizations, lead to satisfaction? (Parasuraman, 1998; Grönroos, 2011).
By providing more insight into how customers experience and evaluate the business‐to‐ business relationship, a service provider can design service quality delivery in a way that leads to satisfaction and advocacy, and as such, contribute to the strategic efforts of the organization.
2. Literature review
In the following section the subject ‘service relationships’ shall be introduced by discussing the main insights of existing literature on the topic. The review will start by providing a definition of “services” and will further discus the emergence of service marketing in the 1980’s and its connection to the concept of relationship marketing. It will continue by describing the development of relationship marketing and shall outline the key elements of a service relationship.2.1 Service Relationships
Services are increasingly important for the advance and prosperity of the world’s economies. Firms providing service offerings seek to attain sustainable competitive advantage over their competitors and to gain market share, even during turbulent times. As the relevance of services continues to grow, research in service marketing becomes increasingly critical (Ostrom et al., 2010). The early history of the services literature focused on the distinguishing elements differentiating between services and goods. Rathmell (1966) proposed in his paper “What is meant by Services?” a distinction between (1) rented‐goods services; (2) owned‐goods services; and (3) non‐goods services. Those days most services were viewed as requiring supporting goods to be useful. Berry (1980) described a service as a “deed, act or performance”. At the start of the 1980’s, there was consensus reached within the literature on the delineation of service characteristics (Fisk et al., 1993). The four characteristics of services ‐ intangibility, heterogeneity, inseparability and perishability ‐ clearly demonstrated that services are distinctly different from goods. A direct consequence of this acknowledgement was the cry for a service marketing approach. The recognition ofthe marketing differences required by services in comparison with goods in the late 1970’s and early 1980’s, introduced service marketing as an interesting field of research. A goods logic means that the firm makes resources available to its customers in the form of goods, thus the customer himself can manage the process of value creation. Therefore, goods marketing is to make customers buy goods as resources to be used in their value creating processes. Services, in contrast, are processes where a set of company resources interact with the customer so that value is created in the customers’ processes. Unlike goods, which are value‐supporting resources, services are value supporting processes. Hence, service marketing is all about inviting customers to use a firm’s service processes by making promises about value that can be expected to be captured from the service, and to implement these processes in a way that allows customers to perceive that value is created in their processes (Grönroos, 2006). A stream of development of service‐oriented concepts was triggered by researchers such as Shostack (1977) and Lovelock (1983). Shostack introduced the “molecular” model, which offers the visualization that a market entity can be partly tangible and partly intangible. She proposed the principle of “market positioning emphasis” for services, where the level of tangibility and the position on the market is interconnected to the level of intangible image and tangible evidence related to the service. Lovelock (1983) argued for a focus on specific categories of services. He found that the nature of the service act, room for customization, nature of demand and supply, service delivery and the type of relationship the service organization has with its customers affects the way marketing strategies should be developed and implemented. In this services categorization proposed by Lovelock, the importance of the relationship the firm has with its customers repeatedly is highlighted. He describes ongoing relationships between both
households, but equally institutional purchasers, and service suppliers, wherein the services are delivered on an ongoing basis. He describes the nature of the service relation as having implications for pricing and profitability. Where an organization succeeds in generating long term relationships with ongoing service delivery and payment, this directly affects the revenue of the firm.
2.2 Relationship Marketing
The importance of the relationship between suppliers and customers within the field of service marketing resulted in the identification of relationship marketing. Relationship marketing was placed on the map by Leonard Berry in 1983 with the presentation of his paper, simply named “Relationship Marketing”, at the American Marketing Association’s Services Marketing Conference that year. According to Berry, relationship marketing is all about attracting, maintaining and, in multi‐service organizations, enhancing customer relationships. When Berry revisited his paper in 2000, he proposed that core service, service quality and trust should be placed at the center of relationship marketing. Mary Jo Bitner (1995) puts forward three essential activities critical for maintaining service relationships: making realistic promises in the first place and keeping those promises during service delivery by enabling employees and service systems to deliver promises made. Kotler (2001) termed these essential marketing activities, external marketing, interactive marketing, and internal marketing. Through external marketing, an organization shares the promises it makes to its public regarding what it can expect and how it will be delivered. Setting realistic and consistent expectations is essential for a service relationship. Internal marketing takes place by enabling promises. Employees and service systems must possessskills, abilities, tools and motivation to deliver. Promises are easy to make, but without the proper employees, training and tools, the promises may not be kept. Keeping promises is the most critical marketing activity from the customer’s perspective. It is marketing that occurs in the moment of truth when the customer interacts with the organization and the service is produced and consumed. It is in these moments of interaction that service relationships are built (Bitner, 1995). The majority of research is focused on the encounters that constitute the relationship, where a lot of emphasis lies on the importance of the first impression. This has resulted in outings such as the “First Ten” of the Marriott Hotels, where this hotel chain learned that events occurring early in a service experience contribute to most customer loyalty (Knight and Amsler, 1998). When a relationship has been entered into, each encounter can still influence the continuation through its contribution to the overall image the customer has of the organization. The key to keeping services promises lies in the carefully organized efforts of employees, processes and customers. The customer as well has a very important role to play in the ability of the organization to keep its promises. Customers play an active role in the service delivery, since it is all about the processes that occur between the customer and the service provider. It is these processes, which support the value creation to the customer. Because of this prominent role played by the customers, they themselves contribute to the productivity and the quality of service delivered by the firm. When customers perform their roles successfully, service delivery is facilitated and promises are easier to keep (Bitner, 1995).
2.3
Relationship Retention
In a consumer‐firm relationship, a lot of emphasis has been placed on the individual service encounters. Service encounters have been defined by Surprenant and Solomon (1987) as “the dyadic interaction between a customer and a service provider”. Each unique event influences the quality perception of the services from the customer’s point of view (Bitner et al., 1990). Next to building customer relationships, marketers have found retention of existing ones increasingly interesting (Lemon et al., 2002). Research has been done on the determinants in customers’ decisions to keep or discontinue a given product or service relationship. Many theoretical and practical models of customer retention have explored satisfaction as a key determinant (Bolton, 1998; Boulding et al., 1993; Rust and Zahorik, 1993 in Lemon et al., 2002). The addition of future‐focused considerations by Lemon et al. (2002) was an enrichment to these models, as it demonstrated that more determinants than satisfaction play a role in the decision‐making process to continue with a service relation or not. His paper correctly noticed that more work was required on this topic in the area customer data and industry data. Grönroos addressed in 2011 the service perspective on business relationships. He stated that in on‐going business relationships a multitude of more or less interactive contacts between a supplier and a business customer take place. He sharply highlighted the fact that value for a business customer does not simply emerge from one resource – the core product or service‐ only, but comes from the whole spectrum of supplier‐customer interactions that support the successful use of this core resource. Value resulting from such a relation for customers in a business‐to‐business context was identified as being the (1) effect on the customer’s growth and revenue generating capacity, (2) effects on the customer’s cost level, and (3) effects on perceptions, such as trust, commitment andcomfort in the supplier interactions. Grönroos proposes that value creation and marketing are intertwined and offer unique opportunities for suppliers to extend their marketing activities into the customer’s sphere. However, before a firm has reached such a lucrative position it needs to ensure that the relationship with its customers enables these opportunities. As Grönroos indicated, marketing mainly is a promise keeping process aimed at loyalty creation and as such, enabling these lucrative opportunities. He also found that more research needs to be done on the adoption of service marketing concepts and models in business relationships. Similarly, Ostrom et al. (2010) found a requirement for a deeper understanding within the marketing discipline on how variations in service design affect customer outcomes as well as the trade‐offs between customer and organizational objectives, with a specific focus on a business‐to‐business context. In 2007, Chumpitaz Caceres and Paparoidamis addressed a gap in the literature on breaking down a customer relationship within a business‐to‐business setting, into different phases and examining the perceptions of service quality and relationship satisfaction. We shall address this gap by re‐ examining two conceptual models, the Service Quality Model (Parasuraman et al., 1985) and the Experience Cycle (Dubberly and Evenson, 2008) in a case study research within an international leasing organization. We will identify the gaps associated with service quality delivery and will focus on the final stage of the experience cycle. We begin by defining and discussing the links between customer satisfaction, profitability and customer expectations. Next, the conceptual models regarding service quality delivery and the experience cycle shall be introduced. Then, the method, research setting, data gathering and analytical approach are discussed. Finally, we present the findings and how
they will be able to optimize the conceptual models and we will discuss their managerial and theoretical implications.
Conclusion
In this chapter we have introduced the concept of services and described its emergence into the research literature. By linking services to relationship marketing and relationship retention we put forward the essential background of the topic of our empirical research question; service quality delivery. We have identified that the key to relationship marketing is the ability to keep the promises made customers. The service organization should ensure that its employees and service systems are enabled to deliver what has been promised. Value for customers in the form of revenue and growth capacity, cost reductions and perception, such as trust and commitment, have been identified as the drivers of relationship retention. This feeds into the importance of answering our research question.3. Theoretical Framework
In this part we will explain the importance of customer satisfaction as part of the service relationship in relation to profit and how customer expectations and quality delivery are vital in building and maintaining the customer relationship and managing the customer experience. Further shall we introduce the conceptual models to be applied in as part of our case study and explain how they lead to satisfaction, retention and advocacy.3.1
Customer Satisfaction and Profitability
How does customer satisfaction affect profitability? We will start with making clear what is meant with ‘customer satisfaction’ in the context of this study. There are two common conceptualizations of customer satisfaction: transaction‐specific and cumulative (Boulding et al., 1993 in Anderson et al., 1994). From a transaction‐specific perspective, customer satisfaction is viewed as a post‐choice evaluative judgment of a specific purchase occasion (Hunt, 1977 and Oliver, 1977 in Anderson et al., 1994). Cumulative customer satisfaction is an overall evaluation based on the complete purchase and consumption experience with a good or service over time (Fornell, 1992). Transaction‐specific satisfaction only provides explicit diagnostic information about a particular service encounter. Cumulative satisfaction is seen as an indicator of a firm’s past, current and future performance, and as such, the basis for making a forecast of the firm’s performance. We shall treat customer satisfaction as cumulative, and this supports the approach of this part of the theoretical framework, where we focus on the relationship between customer satisfaction and profit. The assumption of customer satisfaction driving profitability (Grönroos, 1990) is one of an intuitive kind. The idea is that by increasing the quality of the provider's service, customers’ satisfaction is
improved. A satisfied customer leads to a strong relationship with the provider and this leads to customer loyalty and retention. Customer retention again generates stable revenues and by adding the revenues over time, profitability is improved (Storbacka et al., 1994). There are different key benefits for a firm resulting from high customer satisfaction. Fornell (1992) states that, generally, high customer satisfaction leads to increased loyalty for current customers, reduced price elasticity, insulation of current customers from competitive efforts, lower costs of future transactions, reduced failure costs, lower costs of attracting new customers, and an enhanced reputation of the firm. The intuitive relationship between customer satisfaction and economic returns has been proven by Anderson et al. (1994); firms that actually achieve high customer satisfaction also enjoy superior profits. An annual one‐point increase in customer satisfaction has a net present value of $7.48 million over five years for a typical firm in Sweden. Their findings also indicate that economic returns from improving customer satisfaction are not immediately realized. This results from the fact that efforts to increase current customers’ satisfaction are demonstrated in future purchasing behavior. It must be noted that not only customer satisfaction is driving the profitability of a service relationship. Strong relationships can equally be dependent of contextual bonds, such as legal, economic, technological, geographical and time bonds. They can be seen as contextual factors that cannot easily be changed by the customer, but are dependent on the provider. Perceptual bonds are knowledge, social, cultural, ideological and psychological factors. These factors are difficult to manage by the provider. For example the cultural, ideological and psychological factors are directly connected to the customer’s values and preferences. The consequence of bonds is that customers sometimes accept lower levels of quality from
one provider than they do from others (Liljander and Strandvik, 1995 in Storbacka et al., 1994).
3.2
Customer Expectations of Service and their Antecedents
What kind of expectations do the customers actually have, and how do these expectations affect their satisfaction? Customer expectations are pre‐trial beliefs about a product or service that serve as standards or reference points against which the product or service performance is judged (Zeithaml et al., 1993). In their 1993 paper, Zeithaml, Berry and Parasuraman propose a model which specifies three levels of customer expectations and their potential antecedents. These different levels are: (1) desired service, which reflects what customers want; (2) adequate service, the standard that customers are willing to accept; and (3) predicted service, the level of service customers believe is likely to occur. Figure 1: Nature and Determinants of Customer Expectations Source: Zeithaml et al., 1993Desired and predicted services are generally explained by similar factors. These factors are made up of external and internal search (Beales et al., 1981 in Zeithaml et al., 1982). The expectation affecting factors coming from external search are: (1) explicit service promises by providers, such as statements made to customers by the provider. (2) Implicit service promises, which are service related cues that lead to inferences of what the services should and will be like. A good example is the price to be paid for the service. (3) And, word‐of‐ mouth communication. Those are statements coming from others than the provider. The expectation affecting factor coming from an internal search is past experience, as that is the customer’s previous exposure to a service similar to the focal service and as such shapes predictions and desires (Scott and Yalch, 1980; Smith and Swinyard, 1983 in Zeithaml et al., 1993). Zeithaml et al., (1993) propose that adequate service is influenced by five factors: (1) transitory service intensifiers, temporary individual factors that lead the customer to a heightened sensitivity to the service; (2) perceived service alternatives, the perception of the customer about alternatives with other providers or themselves; (3) customer self‐perceived service roles, the perception of the customer of the degree to which they themselves can influence the level of service; (4) situational factors, specific situations either created by the customer or environmental factors, and (5) predicted service, the level of service customers believe they are likely to get. These different levels of expectations and the expectations construct have been viewed as playing a key role in how customers evaluate the quality of a service (Grönroos, 1982 in Zeithaml et al., 1993).
3.3
Service Quality Delivery and Evaluation
The research on service quality emerged in the 1980s by researchers such as Grönroos (1982), Lehtinen and Lehtinen (1982) and Lewis and Booms (1983). The literature suggested three main themes (Parasuraman et al. 1985): Service quality is more difficult to evaluate than goods quality Service quality perceptions result from a comparison of expectations with actual service performance Quality evaluations are not made solely on the outcome of the service: they also include evaluations of the process of service delivery. The main difference between purchasing goods and purchasing a service are the tangible cues to judge the quality delivery. These tangible cues could be color, size, package, fit etc. When purchasing goods, the tangible evidence can easily be evaluated, but when purchasing a service, fewer cues exist, and these are mostly limited to the service provider’s physical facilities, equipment and personnel. Because of this intangibility, a firm might find it more difficult to understand how its customers perceive the services and the service quality. As stated above, researchers of the topic service quality concur that service quality perceptions result from a comparison of expectations with performance. According to Lewis and Boom (1983 in Parasuraman et al., 1985), service quality is a measure of how well the service level delivered matches the customers’ expectations. Delivering service quality means confirming to the customers’ expectations on a consistent basis. The desired result of quality delivery is reaching a level of satisfaction with the customers, as satisfaction is related to confirmation or disconfirmation of expectations (Smith and Houston, 1982).A consistent theme discussed by the different researchers is the fact that service evaluation is not only based on the service outcome, or the level of quality delivered, but also involves the manner in which the service is delivered. Grönroos (1982, in Parasuraman et al. 1985) proposed two types of service quality; technical quality, which describes what the customer actually is receiving during the process of service delivery, and functional quality, which involves the manner in which the service is delivered. Lehtinen and Lehtinen (1982, in Parasuraman et al., 1985) also differentiate between the quality associated with the process of service delivery and the quality associated with the outcome of the service. The service quality model was introduced by Parasuraman, Zeithaml and Berry 1985. This model indicates that consumer’s quality perceptions are influenced by four distinct gaps occurring in service organizations. These gaps that can hamper the delivery of services, which are perceived to be of high quality, are: Gap 1: Difference between consumer expectations and management’s perceptions of consumer expectations. Gap 2: Difference between management’s perceptions of consumer expectations and service quality specifications. Gap 3: Difference between service quality specifications and the service quality delivered. Gap 4: Difference between service delivery and what is communicated about the service to consumers.
The difference between perceived service and the service expectations of the consumer has been titled Gap 5. Gap 5 depends on the size and the direction of the four gaps associated with the delivery of service quality. Figure 2: Service Quality Model Source: Parasuraman et al., 1985 In 1988, Zeithaml et al., propose corrective measures to be taken to minimize gaps 1 through 4, and as such, ensure the delivery of high quality service. These corrective actions are found in the areas of marketing research and upward communication (Gap 1), goal‐setting and task standardization (Gap 2), increasing the level of team‐work and the level of perceived control by the employees (Gap 3) and by ensuring horizontal communication and limiting overpromising to customers (Gap 4).
Parasuraman presented an adapted version of the service quality model in his paper in 1998, which was to facilitate the discussion of key customer service issues in business‐to‐business markets. He renamed the gaps Market information gap (Gap 1), Service standards gap (Gap 2), Service performance gap (Gap 3) and Internal communication gap (Gap 4). However, the content of the gaps remained remarkably similar. Parasuraman, Zeithaml and Berry introduced SERVQUAL (1988), which is a multiple‐item scale with good reliability and validity that can be used to better understand the service expectations and perceptions of consumers and, as a result improve service. Although introduced in 1988, SERVQUAL prevails as one of the most widely used models to measure perceived service quality (Kumar et al., 2009). The scale has been designed to be applicable across a broad spectrum of services, and provides a basic skeleton of formats, measuring expectations and perceptions regarding service delivery in five service‐quality dimensions, being tangibles, reliability, responsiveness, assurance and empathy. The instrument is flexible enough to be adapted or supplemented to fit the characteristics or particular needs of a specific organization. A good example of such a modification is the research conducted by Kumar et al. (2009), where the researchers had added ‘convenience’ as a sixth dimension, as this was perceived to be highly important in the banking sector, where their research on service quality delivery took place. As previously mentioned, the service literature has its roots in the business‐to‐consumer market, but there are applications of the different models found in a business‐to‐business setting. In his agenda for research, Parasuraman (1998) describes different applications of SERVQUAL in a business‐to‐business context, such as the motor‐carrier industry (Brensinger and Lambert, 1990 in Parasuraman, 1998) and the business‐computer servicing industry
(Parasuraman et al., 1994 in Parasuraman, 1998). He correctly notices the paucity of published research concerning service‐quality assessment in a business‐to‐business setting, and rightly placed it on his agenda.
3.4
Service Recovery
In their efforts to deliver service quality, service companies are continuously striving to “do the right thing” and many have adopted the manufacturing’s philosophy of “zero defects”, no company is able to prevent all problems. A useful skill in such situations is the art of service recovery. An incomplete service experience, delivered by a firm possessing those service recovery capabilities, is the type of experience that is most remembered and appreciated. Key elements of effective recovery of service problems are measuring the costs of service recovery, getting customers to speak about their dissatisfaction, listen closely for complaints, anticipate needs for recovery and act fast in situations of incomplete service delivery. Employee knowledge of the complete service process and empowering them with decision making authority results in solving issues on the spot. Equally important, but often forgotten, is closing the customer feedback loop by responding to the customer complaint and informing them with the taken measures (Hart, Heskett and Sasser Jr., 1990).3.5
The Customer Experience Cycle
Since the beginning of the 21st century there was a clear shift from a delivery/transaction focus in quality delivery to a more interactive view of the relationship between organizations and its customers, guided by the different touch points constituting the relationship (Dhebar, 2013). The experience cycle is a model that frames the producer‐customer relationship from the customer’s point of view. It aims to move beyond a single transaction,but aims to establish a relationship between producer and customer and nurture an ongoing cycle (Dubberly and Evenson, 2008). Customers interact with service firms through “touch points”. Customer touch points are points of human, product, service, communication, and electronic interaction collectively constituting the interface between a firm and its customers over the course of the customers experience cycle. The peculiar characteristic of the customer touch point experience is the fact that the overall experience of all different occurrences might be profoundly different than the sum of the different parts (Dhebar, 2013). This means that the individual ratings of any customer touch points will not be the same as the overall evaluation. The touch point experiences together are captured in the experience‐cycle model as proposed by Dubberly and Evenson (2008). This model describes the steps people go through in building a relationship with a product or a service: 1. Connecting (first impression) 2. Becoming oriented (understanding what is possible) 3. Interacting with the product (direct experience) 4. Extending perception or skill and use (mastery) 5. Telling others (teaching or spreading activation) The importance of service recovery has not been identified in this model, but the explicit focus of the experience cycle proposed is the process by which customers become advocates and introduce other to the product, beginning the cycle anew (Dubberly and Evenson, 2008).
Figure 3: The experience‐cycle model Source: Dubberly and Evenson, 2008
Conclusion
In this chapter we have sketched the perspective of the affected elements of service quality delivery. We have put forward the importance of customer satisfaction on profitability and how customer satisfaction realizes economic returns over time, which contributes to the strategic efforts of an organization. Furthermore have identified how expectations play an important role in how customers evaluate the quality of a service, and how by knowing and understanding these expectations, service quality delivery will lead to satisfaction. Additionally, have we introduced the conceptual models to be re‐examined as part of our case study, the Service Quality Model (Parasuraman et al., 1985) and the Experience Cycle (Dubberly and Evenson, 2008). We have explained their constructs and how they can support service quality delivery and lead to retention and advocacy.4. Research Design
This chapter describes the structure and setting of our research. It will explain the selected method of research and will describe the research setting in detail. It will describe the analytical approach and conclude with the coding scheme derived from the gathered data.4.1 Method
In this research we strive to apply and refine existing theories concerning service quality delivery in a business‐to‐business setting. The qualitative research method applied is the ‘case study’. We find that this is the most suitable method, as this is a research strategy that uses a case, or multiple, to create theoretical constructs, and/or midrange theory from cased based, empirical evidence (Eisenhardt, 1989b). There are many definitions found for the concept ‘case study’, but one definition that describes it well is the one provided by Thomas (2011). Thomas offers the following definition of case study:“Case studies are analyses of persons, events, decisions, periods, projects, policies,
institutions, or other systems that are studied holistically by one or more methods. The case that is the subject of the inquiry will be an instance of a class of phenomena that provides an analytical frame – an object- within which the study is conducted and which the case
illuminates and explicates.” In the area of service relationships, research in a business‐to‐business setting is much less common compared to a business‐to‐consumer setting. By applying a case study as a research strategy, rich, empirical descriptions of particular instances of a phenomenon are the input for the study (Yin, 1994 in Eisenhardt and Graebner, 2007). A case study is a very suitable approach for researching service relationships as it will lead to the development of
emergent theories by recognizing patterns of relationships among constructs within and across cases and their underlying logical arguments (Eisenhardt and Graebner, 2007). This will be the case when researching the relationship dynamics between a business organization and its customers. This research has the characteristics of both deductive and inductive research, as it will test existing theory and has the aim to gather new information and enrich current theory.
4.2 Research setting: The leasing organization
The subject matter of this case study is the international operations department of a globally present vehicle leasing organization. This organization was founded more than half a century ago in Western Europe and currently has affiliates in more than 30 countries, employing approximately 6000 employees worldwide. The organization leases automobiles to a variety of business organizations, and has segmented its customers into fleet‐size groups. The different segments are labeled “business” (fleet of 25‐100 vehicles), “large” (fleet of 100‐ 1000 vehicles), and “strategic” (fleet with more than 1000 vehicles). When a vehicle comes at the end of its leasing term, it is sold on the secondhand vehicle market. The international operations department is globally responsible for the processes that take place at the end of the leasing term and the processes that prepare the ex‐lease vehicles for the actual sale. These processes together are referred to as the Fair Wear & Tear process (FWT) and are highlighted below. For the purpose of this research the Dutch affiliate and its local processes are analyzed.Table 1: The Fair Wear & Tear Process 1. Booking the vehicle out Prior to returning the vehicle, the driver receives a letter informing him about the return process what he should do to correctly follow this process. When the driver1 is ready to return the vehicle he, or the fleet manager2 of his firm, can online, book the vehicle out. The data required for this, is the license plate number, the desired drop‐off location and the actual mileage. Any damages existing on the vehicle can be registered during the book out. 2. Returning the vehicle:
The vehicle can be returned at a variety of drop‐off locations. This can be one of the two occasion centers of the leasing organization, any of the 43 certified drop‐off locations, or at the dealer, in case a new vehicle will be delivered. Against an additional fee, the vehicle can be returned at a location of choice of the driver, where the leasing organization shall come to the driver.
3. End‐of‐ Lease Inspection: When a vehicle is returned to the leasing organization, an independent inspection organization conducts an end‐of‐lease inspection. During such inspection, damages found on the vehicle are registered and as such, the lesser value of the vehicle, due to these damages, is determined. This end‐of‐lease inspection is concluded with a condition reporting, summarizing these damages and their estimated repair costs. It is important to note, that not all type of damages are taken into account during this inspection. Damages to a certain extent are considered fair, and as such, will not be recharged to the customer. The exact guidelines and methodology behind them are found in the Fair Wear & Tear guidelines of the leasing organization. 4. Settlement of the invoice:
After finalizing the previous three steps of the FWT process, the vehicle is ready to be sold. The damages found on the vehicle during the end‐of‐ lease inspection shall be recharged to the customers, taken into account the insurance agreements made between both parties. In case the vehicle is insured via the leasing organization, the unfair damage shall be claimed on the insurance, and only the policy‐excess, per damage item, will be recharged to the customer. In situations the vehicle is not insured via the leasing organization, the external insurance company will determine if the damage can still be claimed. If this is not the case, the total damage amount will be charged to the customer.
1 Drivers: being the “users” of the vehicles. 2 Fleet Managers: are in most cases the main contact person for the leasing organization and they also play an essential role in the Decision Making Unit (DMU) at the client side.
Figure 4: The Fair Wear & Tear Process Source: Inname & Verkoop – Leasing Organization, 2012.
4.3 Empirical Research Question
Although the individual steps of the FWT process are clearly defined, this process remains a point of attention within the leasing organization. Satisfaction on this topic was rated below average during the annual satisfaction survey (Client Loyalty Survey 2012). The surveyed elements in relation to the FWT process are: Management of the process when returning the vehicle at the end of the contract Clarity of the process for returning a vehicle at the end of its contract Fairness of the evaluation of the state of the vehicle at the end of its contract The ratings received on these elements were respectively, “average”, “average”, “far below average”. This indicates the urge for improvement in the way the FWT process is embedded in the relationship between the leasing organization and its customers. In the literature we have found a gap indicating a lack of research in relation to the adoption of service marketing concepts and models in business relationships (Grönroos, 2011).1. Book
the vehicle
out
2. Return
the vehicle
3. EOL
Concepts such as SERVQAL (Parasuraman et al., 1988), which has the aim to get a better understanding of the service expectations and perceptions of consumers and, as a result improve service, have been limited applied in a business‐to‐business context. Following the low level of satisfaction connected to the FWT process, we will review the service marketing concept currently supporting the process. Equally, did Chumpitaz Caceres and Paparoidamis (2007) address a gap in the literature on breaking down a customer relationship within a business‐to‐business setting into different phases and examining the perceptions of service quality and relationship satisfaction. To the best of our knowledge, did we not find a study examining the experience cycle (Dubberly and Evenson, 2008), with a specific focus on the end phase of a relationship. The FWT process relates to this gap, as this process is exclusively occurring during the final stage of the cyclical leasing contracts. Guided by Gap 5 of the Service Quality Model, the perceived quality gap, (Parasuraman et al., 1985) and the Experience‐Cycle model (Dubberly and Evenson, 2008), we shall research where in the FWT process there is a deviation between service quality expectations and perceptions. We shall do this by investigating if there is a gap between what is requested and what is delivered in relation to the FWT process. Furthermore, shall we review the different moments of truth within the FWT process that drive relationship continuation and results in customers becoming advocates and introduce others to the leasing organization. Given the background of the subject matter, the empirical research is formulated as follows: Which gap exists in the Fair Wear & Tear process between requested and experienced service quality delivery (the experience cycle) and what is its impact on satisfaction and advocacy?
4.4 Data Gathering Technique
The data gathering technique used during our research is “the interview”. An interview is a discussion, in our case, between two persons, and is used to receive valid and reliable data, relevant to our research question (Saunders, 2009). Interviews make it possible to receive detailed and qualitative data from participants (Saunders and Lewis, 2012). We have conducted in‐depth interviews, and the interviews are considered semi‐structured. Semi‐ structured interviews are very suitable for this type of research, as there is a fixed question list, designed by considering the elements included in the theoretical framework (Chapter 3), but by following the answers of the participants the exact order or content could change. Current topics might be addressed in a different order, topics might be skipped and new topics could be triggered (Saunders & Lewis, 2012). With the insights gathered from the interviews, we aim to verify the contents of the conceptual models proposed. This approached is derived from the methodology applied by Parasuraman, Zeithaml and Berry (1985), and such method is consistent with procedures recommended for marketing theory development by several scholars, such as Deshpande (1983), Peter and Olson (1983), and Zaltman, LeMasters, and Heffring (1982).4.4 The Sample
We have conducted a total of 12 semi‐structured interviews with responsible managers playing a role in the service relationship (N=12). Eight (8) managers are part of the leasing organization and four (4) managers are working for customer organizations. The responsibilities of the participants from the leasing organization are spread over a variety of areas such as, operations, sales, account management and car remarketing. From thecustomer’s side, the roles of the participants vary between procurement and fleet management, but all having an end‐responsibility in relation to the fleet operations. The customer organizations also reside in very different industries, varying from automotive services, IT services, semiconductor industry and professional services. We have aimed to cover all facets of the conceptual models during the data gathering process, by selecting a sample of participants with responsibilities affecting all areas of the FWT process. The interviews took place at the offices of the participants, in a separate space, like an individual office or meeting room. If it was not possible to meet in person, the interview took place by telephone.
4.5 The Questionnaire
The interviews were conducted by following a questionnaire, which contained 11 questions. There was a questionnaire drafted for participants part of the leasing organization (Appendix A), and a separate questionnaire for the participants working for a client organizations (Appendix B). The topics covered by the questionnaire resulted from the theoretical framework of this research. The questionnaire covered customer satisfaction, profitability, customer expectations, service quality delivery, service recovery and the customer experience cycle. There was a deviation between the two questionnaires in relation to profitability and advocacy, where the first was explicitly part of the questionnaire of the leasing organization and the latter was part of the client organization questionnaire. A single interview had a duration of approximately 30 minutes and all interviews have been recorded, after receiving permission from the participant. In case the participant was not a Dutch native speaker, the interview was conducted in English.4.6 Analysis
All interviews have been qualitatively analyzed. By doing so, we had the goal to collect new information and derive theory from the material gathered (Saunders, 2009). We have followed a structured procedure of open, axial and selective coding. Open coding refers to the analytical process through which concepts are identified and their properties and dimensions are discovered (Strauss and Corbin, 1990, in Mortelmans, 2007). Axial coding is the process of relating categories to their subcategories, termed “axial”, because coding occurs around the axis of a category, linking categories at the level of properties and dimensions (Strauss and Corbin, 1990, in Mortelmans, 2007). Selective coding is the process of integration and refining the theory (Strauss and Corbin, 1990, in Mortelmans, 2007). All three forms of coding have been applied during this case study. We started with the core concepts of the theoretical framework; customer satisfaction, profitability, customer expectations of service, service quality delivery and the customer experience cycle. By analyzing and categorizing the answers of the participants we discovered repetition and specification and as such created subcategories. By refining the subcategories and linking them where appropriate in relation to the theory, we produced the preliminary results. Table 2 is the coding scheme derived from the data and includes the categories and subcategories discovered during the data analysis. The coding activities were conducted in the language in which the interview was held. Appendix 3 contains the full coding scheme, including the responses from the participants.Table 2 – Coding Scheme
Category
Sub‐category
Customer Satisfaction Complaints Customer knowledge General feelings Key elements Losses Negative customer satisfaction Positive customer satisfaction Profitability Process Client role Damage compensation Second hand vehicle sale Customers’ expectations of service Account management Best solution Management of expectations Sales manager Service Quality delivery Guiding customers Quality delivery Customer preference Responsibility of customer Customer experience cycle Advocacy Negative customer experience cycle Positive customer experience cycle Service recovery Wrong service recovery resolution Fair Wear & Tear Process Process Explanation by the leasing organization Internal knowledge Challenge areas Opinion5. Results
This chapter will summarize the different results found during the data gathering process. The results shall be mirrored to the conceptual models regarding service quality delivery (figure 2) and the experience cycle (figure 3) as described in the theoretical framework (Chapter 3). Specific quotes from the participants have been used to support our findings. For the purpose of this chapter abbreviations for the leasing organization (LO) and customer organization (CO) shall be used.5.1 Service Delivery: The Fair Wear & Tear Process
At the center of this case study we find the FWT process. Question 3, in both questionnaires, asked the participant to describe the FWT process in his or hers own words. Table 3 demonstrates the different descriptions given by the participants. The insights coming from this question are very remarkably. None of the participants, neither from the leasing organization (LO) nor from the customer organizations (CO), described all four steps of the FWT process as documented by the leasing organization (figure 4). The initial steps of the FWT process, booking the vehicle out and returning the vehicle, were most often mentioned by the participants from the LO. LO 2 mentioned “the driver needs to return the vehicle to assigned locations or sometimes there is a pick‐up service in place” and LO 4 explained: “You can either return the vehicle at a drop‐off location or at a dealer.”None of the CO participants described step 1 and step 2 during the interviews. The emphasis found in the responses from the participants from the CO was on the actual end‐of‐lease inspection. CO 9 explained “When a car is returned it is assessed for damages; a certain level is regarded as fair, and is ignored for compensation” and CO 10 described “Certain damages are normal, and as such, are accepted at the return of the vehicle”. The FWT process lies at the core of the service delivery, taking place in the final phase of the cyclical leasing contract. Conclusion 1: None of the participants explained the four steps in the Fair Wear & Tear process steps in line with the official documentation, and as such will this negatively affect the expectations and evaluation by the customers regarding the service delivery. This gap between service delivery and external communications is labeled as gap 4 in the Service Quality Model (Parasuraman et al., 1985).
38
Table 3 – Fair Wear & Tear Process descriptions
Booking the vehicle
out
Returning the vehicle End‐of‐Lease Inspection Settlement of the
invoice LO 1 Operations Director Vehicles must be in the condition as mentioned in guidelines. Every returned piece must be inspected for damage. To keep the process fair and transparent an independent inspector and manufacturer pricing are used. The ability to recharge the loss in value suffered by the leasing organization. LO 2 International Account Manager When you come to the end of the contract the driver needs to return the vehicle to assigned locations or sometimes there is a pick‐up service in place. A cursory assessment is made, a quick check. Although you may sign it off and think there is no damage, you could still after several days get a report from the contracted inspection company saying that certain damage was outside the guidelines of FWT. During the end‐of‐lease inspection the report is being made, dents and damages are being photographed and it is being put in a package and send to the contact, which is usually a fleet manager. The reports are not always shared with the drivers. LO 3 Account Manager Strategic The process is certified. We use independent inspectors, make pictures and use proper lighting. LO 4 Sales Executive Business The vehicle needs to be booked out of the system. The driver can do this online. You can either return the vehicle at a drop‐off location or at a dealer. This difference is that you will not receive a disclaimer for any damage which might occur after the drop‐off at the dealer. Against an additional fee, the vehicle can be picked up at the driver. In all cases must the driver sign for the state of the vehicle when returning it. LO 5 Sales Manager Strategic Where? Should the vehicle be inspected? By who? Then the actual inspection.
39 Account Manager Large out of the system. the damages. LO 7 International Account Associate The vehicle needs to be returned in a good shape; the key needs to be returned, winter tires, documents. An appointment needs to be made to return the vehicle. It is key for the driver to assess what the status is of the vehicle. So both the client and the driver have evidence of the status of the vehicle. The inspector shall conduct an inspection. Deviation between two inspections can exists. In such cases we refer to the guidelines. LO 8 Senior Vice President Goods need to be returned in a certain condition. These conditions are upfront agreed with the customer. It is easy to understand what is accepted and what is unaccepted. CO 9 Finance Director (Business) When a car is returned it is assessed for damages; a certain level is regarded as fair, and is ignored for compensation. The cost of the lease is not only on the residual value and mileage; The wear & tear is depreciated over the value of the residual, based between the original price of the car and the residual value. CO 10 Fleet manager (Strategic) Certain damages are normal, and as such, are accepted at the return of the vehicle. Damages outside the “normal” range are charged to the customer. CO 12 Mobility Manager (Strategic) When a vehicle is returned, the inspection takes place in line with some fixed guidelines, which are communicated to the drivers. The vehicle is assessed, and then it is determined if a damage is accepted as being usage damage.
