Understanding

Consumer Behaviour
and Service Design

By [Link]
Gaur
 Topics included in Unit 2
• Consumer Behaviour in Services

• Customer Expectations and Perceptions of Services – Evaluation of services

• Risk perception and types of risks in services

• Service Development Design & Standards: New Service Development

Process – Basic service to potential service

• Customer-Defined Service Standards

 Consumer Behaviour in Services
• Consumer behavior in services refers to the study of how
individuals and groups make decisions and engage in activities
when seeking, evaluating, purchasing, and using services.

• Understanding consumer behavior is crucial for service providers as

it helps them develop effective marketing strategies and deliver a
superior customer experience.
• All of us buy different services for various reasons. One person may prefer to go to a
restaurant for good food while the other may opt for an exclusive restaurant, for status.

• One person may prefer to read ‘The Times of India’ early in the morning, while the
other may prefer to read the same newspaper after coming back from the office.

• There are women who don’t go to beauty parlors at all, whereas there are others who
go regularly.

• Similarly, there are many such examples telling us that people show different behavior
in buying and using different products and services.

• The discipline of marketing which helps in developing a deeper insight in these

behavioral differences is called “Buyer Behaviour”.
In the purchase of any particular service six distinct roles are played. These are:
• Initiator: The person who has a specific need and proposes to buy a particular service.

• Influencer: The person or the group of people who the decision maker refers to or who
advise. These could be reference groups, both primary and secondary. It could be even
secondary reference group like word of mouth or media, which can influence the
decision maker.

• Gatekeepers: The person or organization or promotional material that acts as a filter on

the range of services that enter the decision choice set.

• Decider: The person who makes the buying decision, irrespective of whether executes
the purchase himself or not. It has been observed at times, more typically in household or
family or individual-related services, one member of the family may dominate in the
purchase decision.
• Buyer: The person who makes the actual purchase or makes bookings
for a service like travel, hotel room, hospital, diagnostic lab, etc

• User: The person who actually uses or consumes the product. It can be
other than the buyer. In a number of services, it has been observed that
users are also the influencers.
 Components that influence consumer
behavior in services
Perceived Service
Intangibility Service
Quality Encounter Recovery

Pricing and Convenience

Social Value Trust and and
Influence Perception Reputation Accessibility
• Intangibility: Services are intangible, meaning they cannot be seen, touched,
or felt before consumption. This creates uncertainty for consumers, and they
rely heavily on points such as reputation, word-of-mouth, and branding to
assess the quality of service.
• Perceived Quality: Consumers evaluate the quality of a service based on their
perceptions, which are shaped by various factors like past experiences,
promotion, and advertising. Service providers need to manage customer
expectations and consistently deliver high-quality experiences to build trust
and loyalty.
• Service Encounter: The interaction between the consumer and service
provider during the service delivery process is crucial. Factors such as the
behavior of service personnel, service speed, responsiveness, and
personalization significantly impact consumer satisfaction and future
behavior.
• Service Recovery: Service failures can occur, and how service providers handle them
plays a vital role in consumer behavior. Effective service recovery efforts, such as
prompt resolution, compensation, and apology, can restore customer satisfaction
and loyalty.

• Social Influence: Consumers are influenced by social factors such as family, friends,
colleagues, and opinion leaders when making decisions about services. Positive
reviews, recommendations, Limited-Time Offers, Loyalty Programs, Referral Programs,
Community Building can significantly impact consumer choices.

• Pricing and Value Perception: Consumers assess the value they receive from a
service in relation to its price. Price fairness, value for money, and pricing strategies
(e.g., offers, and discount influence consumer behavior and purchase decisions. Cost-
Plus Pricing, Competitive Pricing, Value-Based Pricing, Dynamic Pricing
• Trust and Reputation: Trust is essential in services, as consumers often rely on
the reputation and credibility of service providers. Positive experiences,
testimonials, certifications, and online reviews contribute to building trust
and influence consumer choices.

• Convenience and Accessibility: Consumers seek services that are convenient

and easily accessible. Factors such as location, availability, ease of use, and
accessibility through digital platforms can impact consumer behavior.

Understanding these factors and their influence on consumer

behavior in services can help service providers tailor their marketing
strategies, improve service delivery, retain consumers, and build long-
term customer relationships.
 Class Activity 1
You are the sales manager for credit cards in your
bank and you have learned that a company is
setting up a branch office in your city. You are
planning to make a visit for institutional sales.
Identify the people you would come across and also
the roles they are likely to play.
 Customer Expectations and Perceptions
of Services
• Expectations are a combination of beliefs and assumptions about what is likely
to happen in the future.

• According to the latest research by Salesforce, a leading customer relationship

management system, today’s customers expect mobile experiences, convenience,
24-hour access, quick response, authenticity, and personalization.

• Perceptions are very subjective and based on personal interpretations of

information collected during the experience. They are developed almost instantly.
Perceptions change based on each shopping experience and include current mood
and emotions.
 Customer Expectations
• It is belief about the service delivery that functions as the
standard or reference point against which performance is
judged.
• Ideal expectation
• Normative Expectation
• Experience Expectation
• Acceptable Expectation
• Minimum Tolerance Expectation
• Between each customer’s expectations and perceptions are gaps. The
larger the gap, the more likely to create unsatisfied customers. If customers
have low expectations of a brand, product, or service it will impact brand
image.

• If the customer’s expectations are high and the organization doesn’t meet
or exceed them, they may go elsewhere.

• If the organization exceeds customer’s expectations, and customers are

happy, but they may spread the word and become a free marketing
resource.
 What is the difference between Customer
Expectation and Customer Perception?
• Definition:
• Customer Expectation: Customer expectation can be defined as the customer’s
assumption of his / her experience in fulfillment of a need with the available
resources at his / her disposal.
• Customer Perception: Customer perception is an individual customer’s mental
interpretation of collected information and consumption of a product or service.
• Pre-purchase or Post-purchase:
• Customer Expectation: Customer expectation is an assumption in deciding the
purchase. (Pre-purchase stage).
• Customer Perception: Customer perception is an interpretation of collective
information after purchase (Post-purchase stage).
• Timeline:
• Customer Expectation: Customer expectation is the anticipation of experience. It’s a
future-oriented concept
• Customer Perception: Customer perception is a review of the experience. It’s a past
oriented concept.
• For example, Zappos — an online shoe and clothing shop that has set the
standard for customer experience and service.
• Customer expectations and perceptions of services play a crucial role in the evaluation of services.
• Customer Expectations: Customer expectations refer to what customers anticipate and hope to receive from a
service. Expectations can be shaped by various factors, including personal needs, past experiences, word-of-
mouth, marketing communications, and the service provider's reputation. There are three types of customer
expectations:

a. Desired Expectations: These are the minimum requirements or attributes that customers expect from a service.
Failing to meet these basic expectations can lead to customer dissatisfaction.

b. Normative Expectations: Normative expectations represent what customers believe should be offered by a
service provider based on industry standards, competitors' offerings, and societal norms.

c. Digital expectations
These are the expectations your customers have when they interact with you online, whether it's through your
website, mobile app, interactive quiz, interactive pdf documents or social media channels. Therefore, it's
important that these channels are easy to navigate and provide helpful information about your brand and its
products or services.

For example, if you're running a restaurant, the digital expectations of your customer would be being able to
navigate your site easily, see the menu and make a reservation quickly…
• Customer Perceptions: Customer perceptions are formed when customers compare
their actual service experience with their initial expectations. It involves the subjective
assessment of the service quality and value received. Perceptions can be influenced by
factors such as service encounters, service delivery processes, service personnel
behavior, and the service environment. Customer perceptions can be categorized as
follows:

a. Perceived Service Quality: Perceived service quality is the overall assessment of how
well a service meets or exceeds customer expectations. It is influenced by factors such as
reliability, responsiveness, assurance, empathy, and tangibles.

b. Perceived Value: Perceived value refers to the customer's assessment of the benefits
received relative to the costs incurred. Customers evaluate whether the service justifies
the price paid and if it meets their needs and expectations.

Customer Satisfaction: Customer satisfaction is the result of the customer's evaluation of

their service experience. It is influenced by the perceived quality of the service, the extent
to which expectations are met or exceeded, and the overall value received.
• Evaluation of Services: The evaluation of services involves customers assessing their experiences and
forming opinions about the service quality and value. This evaluation process is essential for customers to
make future decisions, including repeat purchases, recommendations, or switching to competitors. Key
points of service evaluation include:

a. Post-Purchase Evaluation: After using a service, customers evaluate their satisfaction and compare it with
their initial expectations. Positive evaluations can lead to customer loyalty, while negative evaluations can
result in dissatisfaction and negative word-of-mouth.
b. Service Recovery Evaluation: When a service failure occurs, customers assess how the service provider
handles the situation. The effectiveness of service recovery efforts can influence the customer's evaluation and
future behavior.
c. Perceived Quality and Value Assessment: Customers assess the overall quality and value received from the
service. This evaluation considers factors such as reliability, responsiveness, tangibles, perceived expertise,
customization, and price fairness.
d. Comparative Evaluation: Customers may compare the service they received with alternatives available in the
market. This evaluation helps customers make choices and decide whether to continue using the same service
provider or switch to a competitor.
What are the various
Strategies to Manage
Customer
Expectations?????
• 1. Be Transparent and Honest
• 2. Collect Customer Feedback
• 3. Follow Up
• 4. Prioritize Customer Service
• 5. Cultivate Customer Loyalty
 Conclusion:-
Understanding customer expectations and perceptions of
services is crucial for service providers. By aligning their service
offerings with customer expectations, delivering high-quality
experiences, and continuously monitoring customer
perceptions, service providers can improve customer
satisfaction, and loyalty, and differentiate themselves in the
market.
 Risk perception in services
• Risk perception is the subjective assessment or evaluation of
potential risks associated with a service.

• Customers evaluate the level of risk they perceive before

engaging in a service and factor it into their decision-making
process.
 Types of risks in services
• Financial Risk: Financial risk relates to the potential monetary loss or
cost associated with a service. Customers may perceive financial risk
when a service is expensive, requires a long-term commitment, or
involves uncertain outcomes in terms of value for money.

• Performance Risk: Performance risk refers to the uncertainty

regarding the ability of a service to meet the customer's desired
outcomes or performance expectations. Customers may perceive
performance risk when there is a lack of information about the
service's quality, reliability, or effectiveness.
• Physical Risk: Physical risk pertains to the potential harm or danger to the
customer's physical well-being that may arise from engaging in a service.
This risk is more prevalent in services such as adventure tourism, extreme
sports, or medical procedures.

• Psychological Risk: Psychological risk relates to the potential negative impact

on the customer's mental or emotional well-being resulting from service.
Customers may perceive psychological risk when a service involves sensitive
personal information, unsafe situations, or potential embarrassment.

• Time Risk: Time risk refers to the potential loss of time or delays associated
with a service. Customers may perceive time risk when a service is time-
consuming, requires a significant investment of time, or when there is
uncertainty regarding service delivery or wait times.
• Social Risk: Social risk involves the potential negative impact on the customer's
social standing or relationships resulting from engaging in a service. Customers
may perceive social risk when trying a new or unfamiliar service that may be
viewed negatively by others or when there is a fear of judgment or criticism.

• Informational Risk: Informational risk pertains to the potential lack of

information or knowledge about a service, its features, or its outcomes.
Customers may perceive informational risk when there is limited or conflicting
information available, making it challenging to make an informed decision.

• Privacy and Security Risk: Privacy and security risk involve concerns regarding
the protection of personal information or data when engaging in service.
Customers may perceive privacy and security risks when sharing personal
information online, conducting financial transactions, or using digital services.
 Conclusion

• It's important to note that the perception of risks can vary among
individuals based on their personal characteristics, past experiences, and
cultural backgrounds. Service providers should understand and address
these perceived risks by providing clear and transparent information,
offering guarantees or warranties, ensuring safety measures, and
building trust with customers to minimize their concerns and increase
their confidence in using the services.
 New Service Development Process
The process of developing a new service, starting from a basic service
idea to a potential service, involves several stages and activities.

New Service Characteristics:

Since services are intangible, it has to have 4 basic characteristics:

1. It must be objective, not subjective

2. It must be precise, not vague.

3. It must be fact-driven, not opinion-driven.

4. It must be methodological, not philosophical.

New Service Development Process
 Service Design Testing and
Idea
and Validation &
Generation
Development Service Launch

Business Monitoring
Idea Screening
Planning and Evaluation

Concept Feasibility Continuous

Development Analysis Improvement
 General outline of the new service development
process:
• Idea Generation: The first stage is to generate ideas for new services. This can be done
through brainstorming sessions, market research, customer feedback, or by identifying
emerging trends and needs. The goal is to generate a pool of potential service ideas.

• Idea Screening: In this stage, the generated service ideas are evaluated and screened
based on their alignment with the organization's goals, feasibility, market potential, and
strategic fit. This helps narrow down the ideas to those that have the highest potential
for further development.

• Concept Development: Once a promising service idea is identified, it is further

developed into a service concept. This involves defining the target market,
understanding customer needs, determining the unique value proposition, and
outlining the key features and benefits of the potential service.
• Feasibility Analysis: A feasibility analysis is conducted to assess the technical,
operational, financial, and resource feasibility of the potential service. This
analysis helps determine if the service can be developed and delivered
effectively within the organization's capabilities.

• Business Planning: In this stage, a comprehensive business plan is developed

for the potential service. This includes conducting a market analysis, defining
the target market segments, assessing the competitive landscape, developing
pricing strategies, and outlining the marketing and promotion plans.

• Service Design and Development: Once the business plan is in place, the
service design and development process begins. This involves defining the
service specifications, designing the service processes, creating service
blueprints, and prototyping the service to visualize and refine its elements.
• Testing and Validation: The potential service is tested and validated
through pilot programs or beta testing with a select group of customers.
This allows for gathering feedback, identifying potential issues or
improvements, and making necessary adjustments before full-scale
implementation.

• Service Launch: After successful testing and validation, the potential

service is ready for launch. This involves executing the marketing and
promotion plans, training service personnel, setting up operational
processes, and officially introducing the new service to the target
market.
• Monitoring and Evaluation: Once the service is launched, it is crucial to
monitor its performance, gather customer feedback, and evaluate its success.
This ongoing monitoring helps identify areas for improvement, address
customer concerns, and ensure the service continues to meet customer
expectations.

• Continuous Improvement: Based on feedback and evaluation, continuous

improvement efforts are implemented to refine the service, optimize
processes, and enhance the customer experience. This ensures that the
service remains competitive and evolves to meet changing customer needs
and market dynamics.
 Conclusion:

It's important to note that the new service development

process may vary depending on the industry, organization,
and specific circumstances. Customizing the process to suit
the unique requirements of the potential service is
essential for successful implementation and market
acceptance.
 Service Standards
• Service Standards mean quality.
• A service standard helps to define what a customer can expect from a
service and how it should be delivered by the service provider, e.g. in
terms of timeliness, accuracy, and suitability.

• A service standard specifies requirements that should be fulfilled by a

service to establish its fitness for purpose.

• The standard may provide indicators of service quality and their levels, or
specify a time period for delivery, such as the standard on handling customer
complaints.
 Customer-Defined Service Standards
• Customer-defined service standards refer to the performance criteria and
expectations set by customers for the quality and delivery of a service.
Rather than being solely determined by the service provider, customer-defined
service standards reflect the specific requirements, preferences, and needs of
the target customers.

• Customer-defined service standards are a set of policies and expectations

that have been created and adopted by a company.
• Least acceptable level of service quality by the customer.

• They help to define what a customer can expect and to remind management
and employees of the challenges and obligations that they face.
 Simple Example of service standards
• Answer the phone within 3 rings.
• Greet each customer by their first name.
• Respond to every customer inquiry within 60
minutes.
• Open a new queue if more than 3 customers are
waiting.
• Resolve a client problem within 4 hours.
• Follow up each complaint resolution within 24
hours.
• Ask each client to complete feedback survey before
they leave.
Customer-Defined Service Standards-Types

HARD STANDARD

SOFT STANDARD
• HARD STANDARD: Things that can be counted, timed, or
observed through audits are known as hard standards this
includes

(DELIVERY TIME AND RESPONSE TIME)

• SOFT STANDARD: It means that must be documented using

perceptual measures is known as a soft standard this includes

(COURTEOUS, TRUSTWORTHY, COMMUNICATION SKILLS)

 How customer-defined service standards can be established:
• Customer Feedback and Research: Gathering customer feedback and
conducting market research are essential to understanding customer
expectations. This can be done through surveys, focus groups, interviews, or
online reviews. By analyzing customer feedback and studying their
preferences, service providers can identify the key dimensions and attributes
that matter most to customers.

• Voice of the Customer: The voice of the customer (VOC) refers to capturing
and translating customer feedback into actionable insights. This involves
systematically collecting and analyzing customer data to identify patterns,
trends, and common themes regarding their expectations and desired
service standards.
• Service Quality Dimensions: Based on the customer feedback and VOC
analysis, service providers can identify the key dimensions of service quality
that are most relevant to customers. These dimensions may vary depending
on the industry and specific service, but common dimensions include
reliability, responsiveness, assurance, empathy, tangibles, and convenience.

• Establishing Performance Metrics: Once the key dimensions of service

quality are identified, service providers can establish specific performance
metrics or indicators for each dimension. For example, in the dimension of
responsiveness, a performance metric could be the average response time to
customer inquiries or complaints.
• Setting Service Standards: Using the established performance
metrics, service providers can set specific service standards that align
with customer expectations. Service standards should be measurable,
realistic, and achievable. For instance, a service standard for
responsiveness could be responding to customer inquiries within 24
hours.

• Continuous Improvement: Customer-defined service standards

should be regularly monitored, evaluated, and improved upon. By
tracking customer satisfaction, conducting service audits, and
soliciting ongoing customer feedback, service providers can identify
areas where the service standards need adjustment or enhancement.
 Conclusion:
By incorporating customer-defined service
standards into their operations, service providers
can align their service delivery with customer
expectations, enhance customer satisfaction, and
build long-term relationships with their
customers.
Why Ola's business model is
failing?