UNIVERSITY OF FINANCE AND MARKETING

TOPIC 3
CUSTOMER SERVICE
 • What is customer service?
Product

marketing
Price Promotion

Place/customer service
Logistics

levels

Transportation
Inventory carrying costs
costs

Lot quantity costs Warehousing

costs

Order processing and

information costs
 CUSTOMER SERVICE
• Customer service is “the ability of
logistics management to satisfy users in
terms of time, dependability,
communication , and convenience.”
Source: Roger A. Kerwin, Steve W. Hartley, and William Rudelius, Marketing, 9th
ed. (Boston, MA: McGraw-Hill/Irwin, 2009), Chapter 16.

• Customer service is much more difficult

for competitors to imitate than other
marketing mix variables such as price
and promotion
 Elements of Customer service

Pre transaction Transaction Post transaction

Elements Elements Elements
v Written
statement of v Stock out level v Installation,
policy v Order information warranty,
v Customer v Elements of order alterations,
receipt of cycle repairs, parts
policy v Expedited v Product tracing
statement shipments v Customer claims,
v Organization v Transshipment complaints,
structure v System accuracy returns
v System v Order convenience v Temporary
flexibility v Product replacement of
v Management substitution products
services
 PRE TRANSACTION ELEMENTS
Base on customer needs, define service standard,
1. Written determine who reports the performance measurements to
statement of whom and with what frequency, be operational or
policy capable of being implemented

To provide a level of service designed to improve

2. Customer market penetration and then fail to inform the
receipt of customer of what is being provided
policy statement To reduce the likelihood that they will have
unrealistic expectations of performance

No structure is best suited to successful

3.Organization implementation of all customer
structure Structure should facilitate communication and
cooperation among those functions involved in
implementing the customer service policy
4. System To effectively respond to unplanned events such as
flexibility snowstorms, shortage of raw materials or energy and
strike
5. Management Such as training manuals and seminars designed to help
the customer improve inventory management, ordering or
services
merchandising.
 Transaction Elements
1.Stock out level
Is measurement of product
2.Order availability
Is the ability to provide the customer with fast and
information accurate information about inventory status, order
status, expected shipping and delivery dates, back order
status
Is the total time that elapses from customer initiation
3.Elements of of the order until delivery to the customer. Order Cycle
order cycle time include order communication, order entry, order
processing, order picking and packing and delivery.
4.Expedited Are those that receive special handling in order to reduce
shipments the normal order cycle time

5.Transshipment Is the transporting of product between field location to

avoid stock out
6.System accuracy The accuracy of quantities ordered, products ordered and
billing
Refers to the degree of difficulty that a customer
7.Order experiences when placing order. Problem result from
convenience confusing order form or nonstandard terminology can lead
to poor customer
Substitution relations
ocurs when the product a customer ordered is
8.Product
substitution placed by the same item different size or by another
product that will perform as well as better.
 POST TRANSACTION ELEMENTS
Installation, Customer claims, Temporary
Product
warranty, alterations, complaints, replacement
tracing
repairs, parts returns of products

•These elements of •To avoid •A corporate •Customer

customer service can be litigation policy should waiting for
significant factor in the , firm specify how to receipt of a
decision to purchase. must be handle claims, purchased
•To perform these able to complaints and item or
functions the firm needs recall returns. The waiting for a
: potentiall company should previously
•assistance in seeing y maintain data on purchase
that product is dangerous claims, complaints product to be
functioning as expected products and returns in repaired.
when the consumer from the order to provide
begins using it marketplac valuable consumer
e as soon information to
•availability of parts
as product
and repair personnel
problems development,
•documentation support are marketing,
for the field force identified logistics and
•an administrative other functions
function that validate
warranties
 CUSTOMER SERVICE
• Four dimensions of customer service
include:
• Time
§ Refers to the period between successive events
(example - order cycle)
• Dependability
§ refers to the reliability of the service encounter
§ consists of three elements: consistent order cycles,
safe delivery, and complete delivery
• Communication
• Convenience
 CUSTOMER SERVICE
• Four dimensions of customer service
include:
• Communication
§ If effective should be a two-way exchange
between seller and customer
§ Goal is to keep both parties informed
§ Requires correct parties to be involved in the
process
• Convenience
§ Focuses on the ease of doing business with a
seller
MANAGING CUSTOMER SERVICE

• Four specific customer service

considerations include:
• Establishing customer service objectives
• Measuring customer service
• Customer profitability analysis (CPA)
• Service failure and recovery
MANAGING CUSTOMER SERVICE

• Objectives for establishing customer

service
• Specific
• Measurable
• Achievable
• Cost-effective
MANAGING CUSTOMER SERVICE
• Measuring Customer Service
• “you can’t manage what you can’t measure”
• Key issues include:
§ Determining data sources to be used
§ Determining what factors to measure
§ Organizations must resist excessive measurement
MANAGING CUSTOMER SERVICE
MANAGING CUSTOMER SERVICE
MANAGING CUSTOMER SERVICE
MANAGING CUSTOMER SERVICE
MANAGING CUSTOMER SERVICE

• Customer Profitability Analysis (CPA) is

the allocation of revenues and costs to
customer segments or individual customers
to calculate the profitability of the
segments or customers
Impact of incremental customer service levels on
revenues, logistics costs and profit
PARETO ANALYSIS 
Value
Group A

Group B

Group C

Q
MANAGING CUSTOMER SERVICE

• Customer Profitability Analysis (CPA)

• Suggests that different customers consume
differing amounts and types of resources
• Recognizes that all customers are not the same
and some customers are more valuable than others
to an organization
• Can help to identify when an organization should
pursue different logistical approaches for
different customer groups
• Has been facilitated by the acceptance of
activity-based costing
MANAGING CUSTOMER SERVICE

• Service Failure and Service Recovery

• Situations will occur where actual performance
does not meet the customer’s expected
performance (i.e. service failure)
• Service failure is relevant to the order cycle
• Examples of order-related service failures
include:
• Lost delivery
• Late delivery
• Early delivery
• Damaged delivery
• Incorrect delivery quantity
MANAGING CUSTOMER SERVICE

• Service Failure and Service Recovery

• Examples of order-related service failures
include:
• Lost delivery
• Late delivery
• Early delivery
• Damaged delivery
• Incorrect delivery quantity
MANAGING CUSTOMER SERVICE

• Service Failure and Recovery

• Service recovery
§ Process for returning a customer to a state of
satisfaction after a service or product has
failed to live up to expectations
§ Is often costly
§ May lead to increases customer loyalty
§ Can result in better performing organization by
learning from failure and implementing processes
and policies to prevent reoccurrence
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