Final answer:
Service companies often struggle to meet customer expectations due to a lack of understanding of customer needs, exacerbated by imperfect information within the market. To overcome this, they must deeply understand customers and offer high-quality services that are clearly communicated and justified in value.
Step-by-step explanation:
Service companies may experience difficulty in setting standards to match or exceed customer expectations particularly due to a lack of understanding of customer needs. This challenge is related to the presence of imperfect information within the market. Imperfect information can discourage market participation because buyers and sellers are less than 100% certain about the qualities of what they are buying or selling. More choice can sometimes make for difficult decisions, especially when it is not clear if the service provided is the best fit for the customer's situation. Companies must understand customer needs deeply to offer a service that effectively meets those expectations and rises above the competition.
Poor design decisions made early in the development of a service can make it impossible to meet those needs adequately. This is exacerbated when information on service quality is highly imperfect, making it challenging for a service company to establish and market its quality effectively to potential customers who cannot easily assess it. Furthermore, companies that are capable of offering high-quality services may find it difficult to prove this to customers and, hence, might struggle to justify a higher price point. Ultimately, a successful service company often relies on a well-respected brand name and a clear understanding of what customers value in their service experience.