Deck 16: The Financial and Economic Impact of Service

Question 1

Select a service industry (such as fast food) or a company (such as McDonald's) that you are familiar with, either as a customer or an employee, and create a balanced scorecard. Describe the operational, customer, financial, and learning measures that could be used to capture performance.

Answer 1

Balance Performance scorecard is a system to measure the firm's financial and operational measures including customer satisfaction, operational processes and improvement activities.
Balance scorecard can be helpful for a firm in the following ways:
• Develop, implement and monitor the objectives and strategies of a firm.
• Measure the growth of a firm in terms of revenue generation, service quality, customer satisfaction, innovations and improvements.
• Analyze the scope of improvements required by a firm.
• Achieve the objectives, mission and vision of a firm.
Balance scorecard is a proactive approach adopted by the business firms. It helps in establishing relationship between the quality and revenue generated, on the basis of given perspectives:
• Measures the economic growth of the company in terms of investment and returns.
o Price premium
o Volume increases
o Value of cross sales
o Long-term value of customer
• Analyze the impact of customer satisfaction measures taken by the company.
o Service perceptions
o Service expectations
o Perceived value
o Behavioral intentions
• Establish quality standards to satisfy the customers and monitor the achieved performance on the basis of these standards.
o Right on time
o Responsiveness
o Transaction time
o Reduction in waste
o Process quality
• Identify the scope of improvement required by a business firm.
o Number of new products
o Return on innovation
o Employee skills
o Time of market
o Time spent talking to customers
• Understand the requirement of non-financial measures.
Thus, balance scorecard is helpful in measurement of all the financial and non-financial activities of a firm.

Question 2

What is the difference between offensive and defensive marketing? How does service affect each of these?

Answer 2

Defensive Marketing:
In this the company does not work actively to generate customer interest in the products. It develops a good reputation for the business. The company also introduces new products in the market using defensive marketing. It helps the company to combat competition in market.
Offensive Marketing:
This strategy takes advantage of company's strengths and target the weakness of competitors. Thus, maintaining the market share and reputation.

Question 3

What are the main sources of profit in defensive marketing?

Answer 3

Defensive marketing is a strategy adopted by a marketer to retain the existing customers of a firm.
The main sources of revenue generation in this strategy are given below:
• Lower costs offered by a firm: It works on the assumption that attracting a new customer is more costly than retaining an existing one. Therefore, the companies try to retain their existing customer by lowering service charges. Sometimes, they also offer discount deals and coupons to retain them.
• Charging higher prices from a customer: Pricing of the services charges higher than the competitors also leads to increase the revenue of a firm. But, for this purpose the firm has to offer superior quality service to its customers.
• Increase in the purchase volume: Satisfied customers of a firm go for repurchasing and bulk purchasing , which helps in generating more income for a service firm.
• Word-of-Mouth Communication by the existing customers: The Word-of-Mouth communication is a positive communication by the firm's existing customers, to the potential customers.
It helps in development of positive brand image of the firm and attraction of new customers. Moreover, it is an inexpensive mode of promotion of a service firm. Thus, it could be an effective source of earning.
Thus, it can be concluded that a firm must try to retain its existing customers, apart from attracting the new ones.

Question 4

What are the main sources of profit in offensive marketing?

Question 5

How would the balanced performance scorecard help us understand and document the information presented in this chapter? Which of the five sections that discuss different aspects of the relationship between service quality and profits can it illuminate?

Question 6

Why has it been difficult for executives to understand the relationship between service improvements and profitability in their companies?

Question 7

Using the Internet, find the official site for the Net Promoter Score. Use the links in the site to locate other researchers' opinions of the measure, and make a list of the benefits and disadvantages discussed in those articles. If you were a CEO, would you use this measure as the "only number you need" to predict growth? Why or why not?

Question 8

What is the ROSQ model, and what is its significance to corporate America?

Question 9

Interview a local firm and see what it knows about its key drivers of financial performance. What are the key service drivers of the firm? Does the company know whether these service rivers relate to profit?

Question 10

To this day, many companies believe that service is a cost rather than a revenue producer. Why might they hold this view? How would you argue the opposite view?