Chapter 2 Quality as competitive advantage [autosaved]

CHAPTER OUTLINES
• Relating Quality to Relationship Marketing
• Distinctions between Products and Services
• Service Quality Dimensions
• Monitoring and Managing Service Quality
 Quality Gaps and Managing Gaps
 Service Quality Benchmarking: Benefits and Process
 Service Delivery System (Flowcharting : Benefits and
Process

What The Customer Buys
The Offer
When customer buys they expect the benefits
and values from the total offering.
Levitt has suggested the offer can viewed at
several levels:
 Core or generic
 Expected
 Augmented
 Potential

TOTAL PRODUCT MARKET
PRODUCT
LEVEL
CUSTOMERS
VIEW
MARKETERS
VIEW
EXAMPLE
Core
Product
Customer’s generic
needs which must be
met
Basic benefits which
make product of
interest
Expected
Product
Customers minimal set
of expectations
Marketers product
decision on tangible
and intangible
components.
Augmented
Product
Sellers offering over
and above what
customer expect or is
accustomed to.
Marketers offer mix
decisions on price,
distribution and
promotion.
Potential
Product
Everything that is
potentially can be
done with the product
that is of utility to the
customer.
Marketers action to
attract and hold
customers regarding
changed conditions
or new applications.

TOTAL PRODUCT
CONCEPT
Core product Expected product
Basic physical product
Generic product together with
the minimal purchase condition
which need to be met
Augmented product Potential product
One offer to be differentiated
from other
Potential added features and
benefits that are or may be utility
to some buyers

The Core / Generic Product
Basic benefits
Transportation
Carrying cargo
Pulling capacity
Excitement
Image enhancement

Expected / Actual Product
 Features
 Package
 Brand
 Quality
 Appearance
 Engine size
 Color
 Interior & exterior design
 Options available

Augmented Product
Warranty
Maintenance/service contract
Delivery
Credit/Financing
Dealer parts & labor department
Free lubrication & oil change

Potential Product
Consist of possibilities that could become
part of expected or augmented product.
Potential feature/ benefit that company
can offer to customer.
Improving “service” after sales activities.
Eg, expanded warranties, upgrading the
engine/ features of lorry

Differentiation And The Value Of Brand Names
 The value of brand image also becomes an
important element of augmented offer.
 Brand are a major determining element in the
repeat purchase of consumer products, industrial
products and services.
 Able to identify our products and to differentiate it
from competitors.

The Product Surround Concept
b
BASIC FEATURES
(30% of the impact but
70% of the costs)
b
ADDED VALUE
(70% of the impact but
only 30% of the costs)

 A firm should be able to develop one aspects of
its quality management system which is
delivering quality products and services
which provides the necessary value needed
by the customers.
 Quality can be seen from two perspectives:
 Internal quality – based on conformance to
specifications.
 External quality – based on relative
customer perceive quality.
 Quality must be seen from the customer’s
viewpoint, not the company’s.
The Strategic Dimensions Of Quality
And Retention

Rely on managerial opinions of customer
perceptions - why unsafe?
Reasons:
Management may not know what specific
purchase criteria users consider important.
Management may misjudge how users perceive
the performance of competitive products.
Management may fail to recognize that users
needs have evolved in response to competitive
product developments, technological advances, or
other market environmental influences.

Customer expectations:
The “desires or wants of consumers”- i.e. what they feel a
service provider should offer rather than would offer.
Monitoring service quality performance:
Service quality is measured in terms of the extent to which the
performance as perceived by the customer meets or exceeds
agreed levels of service.
To bring perceived performance and
customer expectations into line
through competitive benchmarking.
SERVICE QUALITY
The customer’s perception of
performance that count rather than the
reality of performance.
MARKETING
STRATEGY

Service Quality = perceived performance x 100
desired expectation
Under this formulation, anything less than 100 per
cent is to be construed as service failure.

Customer expectations
Perceived performance
Two possible responses by the oranization:
 Because actual performance was low or perception have
been influenced by negative experiences
 Because an overzealous salesperson make a promise say
on delivery, to help close the sale, but the promise is
beyond the company’s ability to keep.
A Performance / Expectation Mismatch
100
0

Dimensions of Quality
Performance - main characteristics of the
product/service
Aesthetics - appearance, feel, smell, taste
Special Features - extra characteristics
Conformance - how well product/service conforms
to customer’s expectations
Reliability - consistency of performance

Durability - useful life of the product/service
Perceived Quality - indirect evaluation of
quality (e.g. reputation)
Serviceability - service after sale
Dimensions of Quality

SERVICE QUALITY
DIMENSIONS
THE KEY QUALITY DIMENSIONS AS
IDENTIFIES BY PARASURAMAN
EmpathyAssurance
Reliability
Responsiveness
Tangibles

RELIABILITY
Ability to perform the promised service dependably, accurately and
consistently, this means doing it right over a period of time.
RESPONSIVENESS
Prompt service and willingness to help customers. Speed and
flexibility are important.
EMPATHY
Caring, individualized attention to customers.
ASSURANCE
Knowledge and courtesy of staff and their ability to inspire trust and
confidence.
TANGIBLES
Physical facilities, equipment, staff appearance, and the physical
evidence of the service which conveys both functional and symbolic
meaning.

Reliability
Pizza Hut provide services at the
time that they promise.
Responsiveness
MAS give a customers the services
of exchange a flight ticket on the
same date.
Assurance
Maybank encourage friendliness and
the ability of their staff to answer any
questions by customers.
Empathy
7 Eleven have a convenient operating
hours.(24 hours / day)
- Understand the needs of customers.
Tangibles
Modern looking equipment and well
groomed staffs.
Dimensions Examples

DEFINITION OF QUALITY
Quality in a product or service is not what
the suppliers puts in, it is what the
customer gets out and is willing to pay for.
DRUCKER
Quality is both the act of making the offer
different and its evaluation by customers.
MARTIN CHRISTOPHER

Competitive Strategy:
An understanding of what customer value or
might value and at what price.
Relationship marketing and quality:
To create enough value in the sale to bring
customer back for more.
Quality:
Emphasize that quality should at the right
price; quality in the sense of customer
perceived value

The Malcom Baldridge Award - The Malcolm Baldrige National Quality
Award is the centerpiece of the Baldrige National Quality Program. This
award, which since 1988 has been presented annually by the President
to recognize performance excellence, focuses on an organization's
overall performance management system. It does not certify product
or service quality.
Quality Awards

The Deming Prize - The Union of Japanese Scientists and Engineers
(JUSE) invited Dr. Deming to Japan in July 1950. He held a series of lectures
and seminars during which he taught the basic principles of statistical quality
control to executives, managers and engineers of Japanese industries. His
teachings made a deep impression on the participants' minds and provided great
impetus in implementing quality control in Japan.
In appreciation, JUSE created a prize to commemorate Dr. Deming's
contribution and friendship and to promote the continued development of quality
control in Japan. The prize was established in 1950 and annual awards are still
given each year.
Quality Awards

You Know It When You See It
“quality is not something you inspect into a product/service,
it is the result of the mental attitude of the person who is
producing or delivering a product/service, either you have
the mental attitude or you do not … if you do not, you can be
trained to have it … some people choose to …some do not
… at any rate, in your business careers it will be easy to
spot those who have it and those who do not … you will
know it when you see it”
Hodges, 1998

Price-quality strategies
Premium
Strategy
Good-value
strategy
Overcharging
strategy
Economy
strategy
Higher
Lower
Higher Lower
Price
Quality
1) Premium pricing- quality (Rolex, Tag Heur)
2) Economy pricing- quality (XX watch)
3) Good value pricing- quality (Swatch, Esprit)
4) Overcharging pricing- quality

Perception on Quality
Every industry is potentially a service industry.
(a firm producing toothpaste have a toll free # on its package for
its customers to call in case enquires regarding its products).
Consider what customer expect + what they experience =
perceived quality. Any mismatch between these two = quality
gap.

Two operational problem areas:
1.Expectation - must be understood to mean
what the customer thinks “should happen”
not what customer expect will happen.
1.The quality concept is not a single variable
in itself but a function of both customer
perception and the firm’s resources and
activities

Basic concept : Any mismatch
between what customers expect
and what they experience.
QUALITY GAPS
QUALITY
GAPS
What customer expect SAME with
what customer experience is
“Perceived Quality” and
what customer expect NOT SAME
with what customer experience is
“Quality Gaps”
There are 4 types of quality gap and
the 5th
gap is the aggregate of all
the gaps.

The Gap analysis Model
-The marketing research team of Parasuraman,
Zeithamel, and Berry created this service quality
measuring tool in 1988
-Has been used in a wide range of studies
including fields such as health care, banking,
appliance repair, and many other professions.

GAP 1 Difference between consumer expectations and
management perceptions of consumer
expectations.
GAP 2 Difference between management perceptions of
consumer expectations and service quality
specifications.
GAP 3 Difference between service quality specifications
and the service actually delivered.
GAP 4 Difference between service delivery and what is
communicated about the service to consumers.
GAP 5 Influenced by the four preceding gaps

5 Types of Quality Gaps
-Five Gaps include:
Gap 1:Customer expectations vs. managerial perceptions
Gap 2:Manager’s expectations of quality vs. quality specs
Gap 3:Communication with customer at point of service or
sale
Gap 4:Service delivery vs. communication
Gap 5:Perceived services vs. expected services

GAP Analysis ModelGAP Analysis Model

Quality Gaps
Gap 1
The difference between actual customer
expectations and management’s idea or perception
of customer expectations
M a n a g e m e n t
P e r c e p t i o n s
o f C u s t o m e r
E x p e c t a t i o n s
E x p e c t e d
S e r v i c e

Explaination
• This gap arises when the management does
not correctly perceive what the customers
want.
• For instance – hospital administrators may
think patients want better food , but
patients may be more concerned with the
responsiveness of the nurse.

Quality Gaps
Gap 2
Mismatch between manager’s expectations of service quality and service
quality specifications
S e r v i c e
Q u a li t y
S p e c i f i c a t io n s
M a n a g e m e n t
P e r c e p t i o n s
o f C u s t o m e r
E x p e c t a t i o n s
8

Explaination
-Here the management might correctly perceive
what the customer wants ,but may not set a
performance standard.
-An example - hospital administrators may tell the
nurse to respond to a request ‘fast’ , but may not
specify ‘how fast’.
-To implement a system to improve this gap,
management must first understand exactly what the
customer wants.
-If this understanding is not present, it will be
impossible for management to know whether their
expectations are aligned with customer
specifications.

Quality Gaps
Gap 3
Poor delivery of service quality
S e r v i c e
D e l i v e r y
S e r v i c e
Q u a l i t y
S p e c i f ic a t i o n s
9

Explaination
• Quality of delivery must be perfected during the
interaction with the customer.
• This gap may arise owing to the service personnel.
• The reasons being poor training, incapability or
unwillingness to meet the set service standard,
poor communication, and preparation.

Quality Gaps
Gap 4
Differences between service delivery and external
communication with customer
S e r v i c e
D e l i v e r y
E x t e r n a l
C o m m u n i c a t i o n s
t o C u s t o m e r s
10

Explaination
-Consumer expectations are highly influenced by statements made by
company representatives and advertisements.
-The gap arises when these assumed expectations are not fulfilled at the
time of delivery of the service.
-For example – The hospital printed on the brochure may have clean and
furnished rooms , but in reality it may be poorly maintained – in this case
the patient’s expectations are not met.

Quality Gaps
Gap 5
Differences between Expected and
Perceived Quality
E x p e c t e d
S e r v i c e
P e r c e i v e d
S e r v i c e
11

Explaination
-Customers expect certain things from certain companies.
-This gap arises when the consumer misinterprets the
service quality.
-Example - The doctor may keep visiting the patient to show
and ensure care, but the patient may interpret this as an
indication that something is really wrong.
-Example - When someone goes into a McDonalds to order
their favorite meal – a Big Mac, they are expecting exactly
what they are comfortable to getting (a quick, no hassle,
tasty big burger with all the works). If it takes 15 minutes
to get a Big Mac that doesn’t even have the famous special
sauce on it the customer’s perceived service of McDonalds is
going to plummet.
-The way to make sure these gaps are closed is through
thorough systems design, precise communication with
customers, and a well-trained workforce.

 Gap1: Customers’ expectations versus management perceptions: as a
result of the lack of a marketing research orientation, inadequate
upward communication and too many layers of management.
 Gap2: Management perceptions versus service specifications: as a
result of inadequate commitment to service quality, a perception of
unfeasibility, inadequate task standardization and an absence of goal
setting.
 Gap3: Service specifications versus service delivery: as a result of
role ambiguity and conflict, poor employee-job fit and poor
technology-job fit, inappropriate supervisory control systems, lack of
perceived control and lack of teamwork.
 Gap4: Service delivery versus external communication: as a result of
inadequate horizontal communications and propensity to over-
promise.
 Gap5: The discrepancy between customer expectations and their
perceptions of the service delivered: as a result of the influences
exerted from the customer side and the shortfalls (gaps) on the part
of the service provider. In this case, customer expectations are
influenced by the extent of personal needs, word of mouth
recommendation and past service experiences.

The five gaps that organizations should
measure, manage and minimize:
•Gap 1 - Clearly survey research is a key way to narrow this
gap.
•Gap 2 - Managers need to make sure the organization is
defining the level of service they believe is needed.
•Gap 3 - Managers need to audit the customer experience that
their organization currently delivers in order to make sure it
lives up to the specification.
•Gap 4 - All too often organizations overstate what will be
provided to customers, or discuss the best case rather than the
likely case, raising customer expectations and harming
customer perceptions.
•Gap 5 - Customers' expectations have been shaped by word
of mouth, their personal needs and their own past experiences.
Routine transactional surveys after delivering the customer
experience are important for an organization to measure
customer perceptions of service.

DEFINITIONDEFINITION • Benchmarking is a process of comparing
results, outputs, methods, processes, or
practices in a systematic way and of improving
the organization’s own performance.
• It is also a means by which targets, priorities
and operations can be established that will lead
to competitive advantage.
• It may include scrutiny of marketing, sales,
design, production, operations, costs,
distribution and others.
• It is proven, quality improvement process in
which organization better their products and
services by comparing their performance
against the best in class.

 Perceptions of service performance should be assessed
relative to some appropriate benchmark.
 Competitive benchmarking is defined as the continuous
measurement of the company’s products, services and
practices against the standard of the best competitors
and the companies who are identified as industry leaders,
resulting in continuous improvement in products and
process.
 Benchmark could be the performance of competitors or
even non competitors.
 The idea of benchmarking is accurately summarized by the
Japanese term “Dantotsu” which mean the attempts to
become the “best of the best”.

 Purpose: To measure your
organization’s performance against
both competitors and non competitors
 Purpose against competitors: To
seek out opportunities for gaining
competitive advantage through
service leadership
 Purpose against non competitors:
To identify the opportunities for
adopting leading-edge service
strategies from outside the immediate
industry or market in which you
compete.

 Advertising – expenditure, themes.
 Sales – terms, sales force, sales literature,
proposal, accountability, cross selling.
 R&D – patents, staff, government contracts.
 Marketing – products/brand strategy, market share,
pricing.
 Financials/costs – profitability, overhead.
 Plant/facility – quality control, capital investments.
 Organization – structure, values, expected growth
 Strategic Plans – short term, long term, acquisition

THE BENEFITS OF BENCHMARKINGTHE BENEFITS OF BENCHMARKING
 It enables the best practices from any industry to
be creatively incorporated into the process
benchmarked function.
 It provides stimulation and motivation to those
whose creativity is required to perform and
implement the findings.
 It breaks down ingrained reluctance of
operations to change.
 It identifies a technological breakthrough that
would not have been recognized.

THE FIVE STEPS APPROACH TO
SERVICE QUALITY BENCHMARKING
STEP 1: Define the competitive arena, that is with whom are we
compared by customers and with whom do we want to be
compare.
STEP 1: Define the competitive arena, that is with whom are we
compared by customers and with whom do we want to be
compare.
STEP 2: Identify the components of customer service as seen by the
customers themselves.
STEP 2: Identify the components of customer service as seen by the
customers themselves.
STEP 3: Establish the relative importance of those services
components to customers.
STEP 3: Establish the relative importance of those services
components to customers.
STEP 4: Identify company position on the key service components
relative to competition.
STEP 4: Identify company position on the key service components
relative to competition.
STEP 5: Analyze the data to see if service performance matches
customer’s service needs.
STEP 5: Analyze the data to see if service performance matches
customer’s service needs.

STEP 1:DEFINE THE COMPETITIVE ARENA
 Identify with whom we are being compared by
customers and with whom do we want to be
compared.
 Use focus group discussions / individual depth
interview with customers to provide some
insight into the extent of the real competitive
arena.
 E.g: MAS customers may compare them to
SIA and MAS may compare themselves to
British Airways.

STEP 2:IDENTIFYING THE KEY COMPONENTS
OF CUSTOMER SERVICE
• Understand factors that influence buyer
behavior and identify which elements are
seen by the customer to be the most
important.
• Identify the relative source and influence
on the purchase decision.
• E.g: Key components areas for MAS would
be cabin service, baggage handling,
ticketing, ground handling service and food
service.

STEP 3:ESTABLISHING THE RELATIVE IMPORTANCE OF
CUSTOMER SERVICE COMPONENTS
• Establish the relative importance of those service
components to customer.
• Ask a sample of customers to rank order the
customer service elements from the most
important to the least important.
• Benefits by using this type of information:
 Provide objectives measures
 Identify preferred service combinations
 Enables to distinguish the responses between types of
customers.
 Identify groups of customers sharing common service
preferences.

STEP 4:IDENTIFYING COMPANY POSITION ON KEY
COMPONENTS OF SERVICE RELATIVE TO COMPETITION
• Use postal questionnaires to present the
components of service and ask respondents to rate
them.
• To analyze the data, use statistical tests- to
identify if different scores on any dimensions have
significance.
• Good data-carry out the survey anonymously/ third
party.
• The findings of the survey provide a clear guide for
action.
• E.g: if customer identified cabin service as the # 1
service component, MAS needs to compare its cabin
service with Singapore Airlines cabin service.

STEP 5:COMPARING SERVICE PERFORMANCE WITH
CUSTOMER’S SERVICE PRIORITIES
• Once the procedures for the service quality
benchmarking is completed, a firm would be able to see
its position against the competitors.
• 2 findings from the customer service audit:
 The important dimension of service
 How well the company perceived to perform on those key
dimensions
o The finding can be measured from the service
performance matrix.
o Service over kill/over performing: service dimension is
seen to be less important to the customer than high
performance on that dimension.
o Under performing: service dimension is seen to be more
important than low performance on that dimension.

“telecommunication industry”
STEP 1:DEFINE THE COMPETITIVE ARENA
 Identify with whom we are being compared by
customers and with whom do we want to be
compared.
 Use focus group discussions / individual depth
interview with customers to provide some insight into
the extent of the real competitive arena.
 E.g: Digi’s customers may compare them to
Maxis and Digi may compare themselves to
CELCOM.

STEP 2:IDENTIFYING THE KEY COMPONENTS OF
CUSTOMER SERVICE
• Factors that influence buyer behavior & identify the
key components of customer service.
• Use focus group (8 to 12 persons) to discuss the
customer service’s components.
• E.g: Key components areas for Digi would be:-
1) Data plan
2) SMS or call charge
3) Network coverage
4) IDD / international call or roaming
5) Customer service
6) Mobile internet

STEP 3:ESTABLISHING THE RELATIVE IMPORTANCE OF
CUSTOMER SERVICE COMPONENTS
 Establish the relative importance of those service
components to customer.
 Ask a sample of customers to rank order the customer
service elements from the most important to the least
important (by using weight method from 1 to 10)
 How? By using postal questionnaire or relevant methods.
 Digi customer service’s components from most
importance to less importance:-
1) Mobile internet
3) Network coverage
4) Data plan
5) Customer service

STEP 4:IDENTIFYING COMPANY POSITION ON KEY
COMPONENTS OF SERVICE RELATIVE TO COMPETITION
 How do my customers rate me on these components
compared to the competition?
 Use postal questionnaires to present the components of
service and ask respondents to rate them (from step 3).
 To analyze the data, use statistical tests- to identify if
different scores on any dimensions have significance.
 Good data-carry out the survey anonymously/ third
party.
 The findings of the survey provide a clear guide for
action.
 E.g: if customer identified Mobile internet as the # 1
service component, Digi needs to compare its Mobile
internet with Maxis.

STEP 5:COMPARING SERVICE PERFORMANCE WITH
CUSTOMER’S SERVICE PRIORITIES
• Once the procedures for the service quality benchmarking
is completed, a firm would be able to see its position
against the competitors.
• 2 findings from the customer service audit:
 The important dimension of service
 How well the company perceived to perform on those key
dimensions
o The finding can be measured from the service
performance matrix.
o Service over kill/over performing: service dimension is
seen to be less important to the customer than high
performance on that dimension.
o Under performing: service dimension is seen to be more
important than low performance on that dimension.

Major weakness Minor strengh
Minor weakness Major strengh
Competitive
disadvanteges Competitive parity
Competitive
advanteges
0.2 0.5 1.5 5.0
Importance
1
5
5
1) Mobile internet
3) Network coverage
4) Data plan
5) Customer service
In conclusion, Digi would be able to position itself on
the matrix and able to idetify in which components
area it has competitive disadvantage, competitive
parity and competitive advantage over its
4
1
2
3
After rank by
customers
Relative
performance
6

• Service Delivery System concerned
about logistics of service. Logistics is
a movement of physical products, in
reality it is equally valid as an
approach to the management of
service system.
• The objective of service delivery is to
achieve cost effective and consistent
output.
• Need to managed as a system and
not separately to ensure a consistent
quality output.

Service Quality Performance
Measures1. Benchmark research and diagnosis
Identifying critical service issues and conducting customer service
research and the use of inter-departmental teams to unveil major
quality problems and dignose solutions for continuous
improvement.
2. Staff climate monitoring
Continuously taking into consideration opinion from the staff as
part of feedback to the customer service research.
3. ‘Risk points’ feedback system
Developing and introducing areas of importance in customer
service processes and delivery and identifying reasons for
customer complaints and account closures.
4. Measure quality performance
To measure service performance against preset desired levels so
as not to deviate from the planned service performance.

FLOWCHARTING
Flowcharting is a diagram which
shows a series of events that occur
in a process from beginning to end,
made up of symbols that help
identify what type of action at each
step in the process.
Flowcharting is a diagram which
shows a series of events that occur
in a process from beginning to end,
made up of symbols that help
identify what type of action at each
step in the process.
A basic starting point in the process
is what has come to be known as
service ‘blue-print’.
A basic starting point in the process
is what has come to be known as
service ‘blue-print’.
Objective is to break the flow of
activities within a defined process
down into logical steps and
sequences.
Objective is to break the flow of
activities within a defined process
down into logical steps and
sequences.

A set of useful standard Flowchart symbols
 Oval. Ovals indicate both the starting point and the ending
point of the process steps.
 Box. A box represents an individual step or activity in the
process.
 Diamond. A diamond shows a decision point, such as yes/no
or go/no-go. Each path emerging from the diamond must be
labeled with one of the possible answers.
 Circle. A circle indicates that a particular step is connected to
another page or part of the Flowchart. A letter placed in the
circle clarifies the continuation.
 Triangle. A triangle shows where an in-process
measurement occurs.

1. Diagram all components of a service so that the
service can be clearly and objectively seen.
2. The identification of fail points – the areas most likely
to cause execution or consistency problems.
3. Setting execution standards represent the main
quality targets for the service. Execution standards not
only define the costs of a service, they also define the
performance criteria and tolerances for the completion of
each service step.
4. Manager identify all of the evidence of the service
that is available to the customer. Each item that is
visible to the customer represents an encounter point,
during which interaction with the service will occur.

FISHBONE DIAGRAM
• One diagnostic tools to explore improvement
opportunities is the Ishikawa diagram (fishbone/
cause-effect diagram).
• It is a way of structuring a particular work process by
representing all the probable cause and effect
relationship in a simple diagram.

ISHIKAWA /FISHBONE / CAUSE -
EFFECT DIAGRAM

Rajah ishikawa
BAHANKAEDAH
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Chapter 2 Quality as competitive advantage [autosaved]

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Chapter 2 Quality as competitive advantage [autosaved]

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