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SERVICES MARKETING: INTEGRATING CUSTOMER FOCUS ACROSS THE FIRM, SEVENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by M

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Services Marketing Integrating Customer Focus Across the Firm Seventh Edition

Valarie A. Zeithaml University of North Carolina at Chapel Hill

Mary Jo Bitner Arizona State University

Dwayne D. Gremler Bowling Green State University

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SERVICES MARKETING: INTEGRATING CUSTOMER FOCUS ACROSS THE FIRM, SEVENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2013, 2009, and 2006. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

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ISBN 978-0-07-811210-2 MHID 0-07-811210-9

Chief Product Officer, SVP Products & Markets: G. Scott Virkler Vice President, General Manager, Products & Markets: Michael Ryan Vice President, Content Design & Delivery: Betsy Whalen Managing Director: Susan Gouijnstook Director, Product Development: Meghan Campbell Product Developer: Laura Hurst Spell Marketing Manager: Elizabeth Schonagen Director, Content Design & Delivery: Terri Schiesl Program Manager: Mary Conzachi Content Project Managers: Kelly Hart, Danielle Clement, Karen Jozefowicz Buyer: Susan K. Culbertson Cover Design: Studio Montage, St. Louis, MO Content Licensing Specialists: Melissa Homer, Melisa Seegmiller Cover Image: Peter Bernik/Shutterstock.com, Monkey Business Images Ltd/Getty Images Compositor: MPS Limited Printer: Quad/Graphics

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Zeithaml, Valarie A., author. | Bitner, Mary Jo, author. | Gremler, Dwayne D., author. Services marketing : integrating customer focus across the firm/Valarie A. Zeithaml,

Mary Jo Bitner, Dwayne D. Gremler. Seventh edition. | Dubuque : McGraw-Hill Education, 2017. | Revised edition of the authors’ Services marketing, c2013. LCCN 2016059704 | ISBN 9780078112102 (hardback) LCSH: Service industries—Marketing. | Customer services. | Marketing. | BISAC: BUSINESS & ECONOMICS/Marketing/Multilevel. LCC HD9980.5 .Z45 2017 | DDC 658.8—dc23 LC record available at https://lccn.loc.gov/2016059704

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

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Aan mijn alleriefste, Jan Benedict Steenkamp—soul mate, inspiration, and biggest supporter. And to the three sparkling lights in my life: Jaiman, Milan, and Leela.

—V.A.Z.S.

To my husband, Rich, for his unending love and support.

—M.J.B.

To my wife, Candy, and daughters, Samantha and Mallory, for their many years of love, support, and encouragement.

—D.D.G.

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iv

About the Authors

Valarie A. Zeithaml University of North Carolina–Chapel Hill VALARIE ZEITHAML is the David S. Van Pelt Family Professor of Marketing at the Kenan-Flagler Business School of the University of North Carolina at Chapel Hill. Since receiving her MBA and PhD in marketing from the Robert H. Smith School of Business at the University of Maryland, Dr. Zeithaml has devoted her career to research- ing and teaching the topics of service quality and services management. She is the co-author of Delivering Quality Service: Balancing Customer Perceptions and Expec- tations (The Free Press, 1990), now in its 20th printing, and Driving Customer Equity: How Customer Lifetime Value Is Reshaping Corporate Strategy (The Free Press, 2000). In 2002, Driving Customer Equity won the first Berry–American Marketing Associa- tion Book Prize for the best marketing book of the past three years. In 2014, she pub- lished Profiting from Services and Solutions: What Product Companies Need to Know with Mary Jo Bitner, Stephen Brown, and Jim Salas.

In 2008, Dr. Zeithaml won the Paul D. Converse Award from the American Marketing Association. The Converse Award, granted every four years to one or more persons, acknowledges enduring contributions to marketing through one or more journal articles, books, or a body of work. This work created the Gaps Model of Service Quality on which this textbook is based. In 2009, she received the American Marketing Association/Irwin/McGraw-Hill Distinguished Marketing Educator Award for lifetime leadership in marketing education and extensive contributions to the field of marketing. She won the 2012 Bullard Research Impact Award in recognition of the broad impact of research on the field, industry, and society, and was appointed an American Marketing Association Lifetime Fellow in 2015. The 2014 List of Thomson Reuters included her in the “2014 World’s Most Influential Scientific Minds,” reflecting citation data over the last 11 years that identified those scholars who published the highest impact work.

Dr. Zeithaml has won five teaching awards, including the Gerald Barrett Faculty Award from the University of North Carolina and the Fuqua School Outstanding MBA Teaching Award from Duke University. She is also the recipient of numerous research awards, including the Robert Ferber Consumer Research Award from the

Mary Jo Bitner (left), Dwayne Gremler, and Valarie Zeithaml

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Journal of Consumer Research; the Harold H. Maynard Award from the Journal of Marketing; the MSI Paul Root Award from the Journal of Marketing; the Jagdish Sheth Award from the Journal of the Academy of Marketing Science; and the William F. O’Dell Award from the Journal of Marketing Research. She has con- sulted with more than 60 service and product companies. Dr. Zeithaml served on the Board of Directors of the American Marketing Association from 2000 to 2003 and was an Academic Trustee of the Marketing Science Institute between 2000 and 2006. She is currently Chairperson of the Board of the American Marketing Association.

Mary Jo Bitner Arizona State University MARY JO BITNER is the co-executive director of the Center for Services Leader- ship, Edward M. Carson Chair in Service Marketing, and professor of marketing at the W. P. Carey School of Business, Arizona State University (ASU). In her career as a professor and researcher, Dr. Bitner has been recognized as one of the founders and pioneers in the field of service marketing and management worldwide. At ASU she was a founding faculty member of the Center for Services Leadership and has been a leader in its emergence as the premier university-based center for the study of services marketing and management. Her professional leadership in the disci- pline includes serving on the Board of the American Marketing Association from 2011–2014, and serving as Editor in Chief of the Journal of Service Research from 2013–2017.

Dr. Bitner led the development of the W. P. Carey MBA marketing and service lead- ership specialization, a unique full-year focus within the nationally ranked W. P. Carey MBA. The degree specialization has existed for nearly 20 years, and alumni now work in companies worldwide, leading the implementation of service and customer-focused strategies.

Dr. Bitner has received several teaching awards and research recognition for her contributions to the discipline. Dr. Bitner was awarded the Career Contributions to the Service Discipline Award presented by the American Marketing Association. She was also named an IBM Faculty Fellow and received the inaugural International Society for Service Industry Professionals (ISSIP) Fellow Award for Lifetime Achievement in Service Science in 2013, and the Marketing Innovator Award from the Marketing Management Association in 2014. At ASU, Dr. Bitner has received the W. P. Carey School of Business Graduate Teaching Excellence Award and the award for Outstanding Professor, PhD Programs. She served as a Distinguished Faculty member at Fudan University, Shanghai, China and taught for many years in ASU’s EMBA program in China.

Dr. Bitner has taught and consulted with numerous service and manufacturing busi- nesses who seek to excel and compete through service. Her current research is con- cerned with service infusion strategies in goods-dominant companies and the strategic roles of technology and contact employees in determining customer satisfaction with services. In 2014 Dr. Bitner published a trade-oriented book entitled Profiting from Services and Solutions: What Product Companies Need to Know, with co-authors Valarie Zeithaml, Stephen Brown, and Jim Salas. She has published articles relevant to service marketing and management in the Journal of Marketing, Journal of Service Research, Journal of Marketing Research, Journal of Retailing, Journal of Service Management, Journal of the Academy of Marketing Science, Sloan Management Review, the Academy of Management Executive, and others.

About the Authors v

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vi About the Authors

Dwayne D. Gremler Bowling Green State University DWAYNE D. GREMLER is professor of Marketing at Bowling Green State Univer- sity (BGSU). He received his MBA and PhD degrees from the W. P. Carey School of Business at Arizona State University. Throughout his academic career, Dr. Gremler has been a passionate advocate for the research and instruction of services market- ing issues. He has served as chair of the American Marketing Association’s Services Marketing Special Interest Group and has helped organize services marketing confer- ences in Australia, The Netherlands, France, Portugal, Finland, and the United States. Dr. Gremler has been invited to conduct seminars and present research on services marketing issues in several countries. Dr. Gremler’s research addresses customer loyalty in service businesses, customer–employee interactions in service delivery, service guarantees, and word-of-mouth communication.

Dr. Gremler has been invited to conduct seminars and present research on service marketing issues in more than a dozen countries. He has published over 40 peer- reviewed journal articles and book chapters. His articles have appeared in the Journal of Marketing, Journal of the Academy of Marketing Science, Journal of Service Research, Journal of Retailing, Journal of Business Research, Journal of Service Management, and Journal of Marketing Education. Seven of Dr. Gremler’s arti- cles have won awards, including the Best Service Research Paper published in 2011 (awarded by AMA’s SERVSIG) for an article published in the Journal of Marketing and Outstanding Research Paper Award for the best article published in the Journal of Service Research in 2002. In 2014 he received the Christopher Lovelock Career Contributions Award from the American Marketing Association’s SERVSIG. Dr.  Gremler is a former Fulbright Scholar, having received a grant from the U.S. government to teach service marketing courses at the University of Maastricht, Netherlands, in spring 2006. Dr. Gremler’s recent research has been concerned with customer-employee interactions in service delivery, service guarantees, servicescapes, word-of-mouth communication, and customer loyalty in service businesses.

Dr. Gremler has been teaching Service Marketing courses for 20 years, and has been identified as having taught more undergraduate classes on this subject during this time than anyone in the United States. He is the recipient of several teaching awards, including the Academy of Marketing Science Outstanding Marketing Teacher Award (2009), the Alumni Undergraduate Teaching Award from the College of Business at Bowling Green State University (2010), the Hormel Teaching Excellence Award from the Marketing Management Association (2011), and the College of Business Teaching Excellence Award from BGSU (2015). In 2015 Dr. Gremler was appointed Distinguished Teaching Professor by the Bowling Green State University Board of Trustees.

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vii

Preface This text is for students and businesspeople who recognize the vital role that services play in the economy and its future. The advanced economies of the world are now dominated by services, and virtually all companies view service as critical to retain- ing their customers today and in the future. Manufacturing and product-dominant companies that, in the past, have depended on their physical products for their live- lihood now recognize that service provides one of their few sustainable competitive advantages.

We wrote this book in recognition of the ever-growing importance of services and the unique challenges faced by service managers.

WHY A SERVICE MARKETING TEXT?

Since the beginning of our academic careers in marketing, we have devoted our re- search and teaching efforts to topics in service marketing. We strongly believe that service marketing is different from goods marketing in significant ways and that it requires strategies and tactics that traditional marketing texts do not fully reflect. This text is unique in both content and structure, and we hope that you will learn as much from it as we have in writing and revising it now for over 20 years. Over this time period we have incorporated major changes and developments in the field, keeping the book up to date with new knowledge, changes in management practice, and the global economic trend toward services.

Content Overview The foundation of the text is the recognition that services present special chal- lenges that must be identified and addressed. Issues commonly encountered in service organizations—the inability to inventory, difficulty in synchronizing de- mand and supply, challenges in controlling the performance quality of human interactions, and customer participation as cocreators of value—need to be artic- ulated and tackled by managers. Many of the strategies include information and approaches that are new to managers across industries. We wrote the text to help students and managers understand and address these special challenges of service marketing.

The development of strong customer relationships through quality service (and services) are at the heart of the book’s content. The topics covered are equally applicable to organizations whose core product is service (such as banks, trans- portation companies, hotels, hospitals, educational institutions, professional ser- vices, telecommunication) and to organizations that depend on service excellence for competitive advantage (high-technology manufacturers, automotive and in- dustrial products, information-intensive technology firms, and so on). The topics covered also apply equally to large, well-established companies, and to smaller entrepreneurial ventures. Rarely do we repeat material from marketing principles or marketing strategy texts. Instead, we adjust, when necessary, standard con- tent on topics such as distribution, pricing, and promotion to account for service characteristics.

The book’s content focuses on knowledge needed to implement service strate- gies for competitive advantage across industries. Included are frameworks for

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customer-focused management and strategies for increasing customer satisfaction and retention through service. In addition to standard marketing topics (such as pricing), this text introduces students to entirely new topics that include management and mea- surement of service quality, service recovery, the linking of customer measurement to performance measurement, service blueprinting, current ideas related to “value in use,” and the cocreation of value by customers. Each of these topics represents pivotal content for tomorrow’s businesses as they structure around process rather than task, engage in one-to-one marketing, mass customize their offerings, cocreate value with their customers, and attempt to build strong relationships with their cus- tomers. The cross-functional treatment of issues through integration of marketing with disciplines such as operations information systems, and human resources is a constant underlying theme.

New Features This seventh edition of the text includes the following new features:

1. New or updated chapter openers in all chapters. 2. New research references and examples in every chapter with greater coverage of

new business model examples such as Airbnb, Uber, OpenTable, Mint/Intuit, and others.

3. Greater emphasis on technology and how it is transforming service businesses; for example, the book includes examples from application services (“apps”), the “Gig” economy, the sharing economy, and the Internet of Things as a service.

4. Inclusion of current theories and best practices on customer satisfaction, loyalty, and the wallet allocation rule.

5. Increased coverage of the two current logics of marketing: service dominant logic and service logic, both of which focus on customers as creators and cocreators of value and value in use.

6. Focus on digital and social marketing in the communication chapter as well as greater coverage and examples of these topics throughout the book.

7. Increased coverage of Big Data as a source of customer information and data ana- lytics as a service.

8. More discussion and examples of strategic service initiatives and service business models in business-to-business firms, including the trend toward service infusion in goods-dominant companies.

9. New or improved global, technology, and strategic service features in nearly every chapter and updated data in key charts and examples throughout the text.

Distinguishing Structure and Content Features The text features a structure completely different from the standard 4P (marketing mix) structure of most marketing texts. The text is organized around the gaps model of service quality, which is described fully in Chapter 2. Beginning with Chapter 3, the text is organized into parts around the gaps model. For example, Chapters 3 and 4 each deal with an aspect of the customer gap—customer expectations and percep- tions, respectively—to form the focus for service marketing strategies. The manage- rial content in the rest of the chapters is framed by the gaps model using part openers that build the model gap by gap. Each part of the book includes multiple chapters

viii Preface

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with strategies for understanding and closing these critical gaps. Specific distinguish- ing content features of the book include:

1. The only services marketing textbook based on the Gaps Model of Service Quality framework, which departs significantly from other marketing and services market- ing textbooks.

2. Greater emphasis on the topic of service quality than existing marketing and service marketing texts.

3. Introduction of three service Ps to the traditional marketing mix and increased focus on customer relationships and relationship marketing strategies.

4. Significant focus on customer expectations and perceptions and what they imply for marketers.

5. A feature called “Strategy Insight” in each chapter—a feature that focuses on emerging or existing strategic initiatives involving services.

6. Increased coverage of business-to-business service applications. 7. Coverage of the increasing influence of technology in services, including a current

Technology Spotlight in every chapter. 8. A chapter on service recovery that includes a conceptual framework for under-

standing the topic. 9. A chapter on the financial and economic impact of service quality. 10. A chapter on customer-defined service standards. 11. Cross-functional treatment of issues through integration of marketing with other

disciplines such as operations and human resource management. 12. Consumer-based pricing and value pricing strategies. 13. Description of a set of tools that must be added to basic marketing techniques

when dealing with services rather than goods. 14. An entire chapter that recognizes human resource challenges and human resource

strategies for delivering customer-focused services. 15. A full chapter on service innovation and design with a detailed and complete intro-

duction to service blueprinting—a technique for describing, designing, and posi- tioning services.

16. An entire chapter on customers’ roles in service that recognizes the central role that customers play in creating and cocreating value.

17. A chapter on the role of physical evidence, particularly the physical environment, or “servicescape.”

18. “Global Feature” boxes in each chapter and expanded examples of global services marketing.

Conceptual and Research Foundations We synthesized research and conceptual material from many talented academ- ics and practitioners to create this text. We rely on the work of researchers and businesspeople from diverse disciplines such as marketing, human resources, op- erations, information systems, and management. Because the field of services mar- keting is international in its roots, we also have drawn from work originating around the globe. We have continued this strong conceptual grounding in the seventh edition by integrating new research into every chapter. The framework of the book is

Preface ix

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managerially focused, with every chapter presenting company examples and strate- gies for addressing issues in the chapter.

WHAT COURSES AND STUDENTS CAN USE THE TEXT?

In our years of experience teaching services marketing, we have found that a broad cross section of students is drawn to learning about services marketing. Students with career interests in service industries as well as goods industries with high service components (such as industrial products, high-tech products, and durable products) want and need to understand these topics. Students with an interest or background in software, technology-based businesses, online applications, and “data as a service” are also drawn to the course since each of these new business models is a form of ser- vice, demanding understanding of service concepts and tools. Students who wish to become consultants and entrepreneurs want to learn the strategic view of marketing, which involves not just physical goods but also the myriad services that envelop and add value to these goods. Virtually all students—even those who will work for pack- aged goods firms—will face employers needing to understand the basics of service marketing and management.

Although service marketing courses are usually designated as marketing elec- tives, a large number of enrollees in our classes have been finance students seeking to broaden their knowledge and career opportunities. Business students with human resource, information technology, accounting, and operations majors also enroll, as do nonbusiness students from such diverse disciplines as health administration, recre- ation and tourism, public and nonprofit administration, law, sports management, and library science.

Students need only a basic marketing course as a prerequisite for a service marketing course and this text. The primary target audience for the text is service marketing classes at the undergraduate (junior or senior elective courses), graduate (both masters and doctoral courses), and executive student levels. Other target au- diences are (1) service management classes at both the undergraduate and graduate levels and (2) marketing management classes at the graduate level in which a profes- sor wishes to provide more comprehensive teaching of services than is possible with a standard marketing management text. A subset of chapters would also provide a concise text for use in a quarter-length or mini-semester course. A further reduced set of chapters may be used to supplement undergraduate and graduate basic marketing courses to enhance the treatment of services.

HOW MANY PARTS AND CHAPTERS ARE INCLUDED IN THE BOOK, AND WHAT DO THEY COVER?

The text material includes 16 chapters divided into seven parts. Part 1 includes an introduction in Chapter 1 and an overview of the gaps model in Chapter 2. Part 2 considers the customer gap by examining customer expectations and perceptions. Part 3 focuses on listening to customer requirements, including chapters covering marketing research for services, building customer relationships, and service re- covery. Part 4 involves aligning service strategy through design and standards and includes chapters on service innovation and design, customer-defined service stan- dards, and physical evidence and the servicescape. Part 5 concerns the delivery and performance of service and has chapters on employees’ and customers’ roles

x Preface

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in service delivery, as well as managing demand and capacity. Part 6 focuses on managing services promises and includes chapters on integrated services marketing communications and pricing of services. Finally, Part 7 examines the financial and economic effect of service quality.

WHAT DO WE PROVIDE EDUCATORS WHO TEACH SERVICES MARKETING?

As a team, we have accumulated more than 80 years of experience teaching the subject of services marketing. We set out to create a text that represents the ap- proaches we have found most effective. We incorporated all that we have learned in our many years of teaching services marketing—teaching materials, student ex- ercises, case analyses, research, and PowerPoint slides, which you can find online at connect.mheducation.com, along with a comprehensive instructor’s manual and test bank.

McGraw-Hill Connect®: connect.mheducation.com

Continually evolving, McGraw-Hill Connect® has been redesigned to provide the only true adaptive learning experience delivered within a simple and easy-to-navigate environment, placing students at the very center.

• Performance Analytics – Now available for both instructors and students, easy-to- decipher data illuminates course performance. Students always know how they’re doing in class, while instructors can view student and section performance at a glance.

• Personalized Learning – Squeezing the most out of study time, the adaptive en- gine within Connect creates a highly personalized learning path for each student by identifying areas of weakness and providing learning resources to assist in the moment of need.

This seamless integration of reading, practice, and assessment ensures that the focus is on the most important content for that individual.

Instructor Library The Connect Management Instructor Library is your repository for additional re- sources to improve student engagement in and out of class. You can select and use any asset that enhances your lecture.

The Library for the seventh edition includes the following resources:

• Instructor’s Manual: The Instructor’s Manual includes sample syllabi, suggestions for in-class exercises and projects, teaching notes for each of the cases included in the text, and answers to end-of-chapter discussion questions and exercises. The Instructor’s Manual uses the “active learning” educational paradigm, which involves students in constructing their own learning experiences and exposes them to the collegial patterns present in work situations. Active learning offers an educational underpinning for the pivotal workforce skills required in business, among them oral and written communication skills, listening skills, and critical thinking and problem solving.

• PowerPoint: We have provided PowerPoint slides online for each chapter and case, including figures and tables from the text that are useful for instructors in class. The

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full-color PowerPoint slides were created to present a coordinated look for course presentation.

LearnSmart® The Seventh Edition of Services Marketing is available with LearnSmart, the most widely used adaptive learning resource, which is proven to improve grades. To im- prove your understanding of this subject and improve your grades, go to McGraw- Hill Connect® connect.mheducation.com, and find out more about LearnSmart. By helping students focus on the most important information they need to learn, LearnSmart personalizes the learning experience so they can study as efficiently as possible.

SmartBook® An extension of LearnSmart, SmartBook is an adaptive eBook that helps students focus their study time more effectively. As students read, SmartBook assesses com- prehension and dynamically highlights where they need to study more.

ACKNOWLEDGMENTS

We owe a great deal to the pioneering service researchers and scholars who de- veloped the field of services marketing. They include John Bateson, Leonard Berry, the late Bernard Booms, David Bowen, Stephen W. Brown, Larry Crosby, John Czepiel, Ray Fisk, William George, Christian Gronroos, Steve Grove, Evert Gummesson, Chuck Lamb, the late Christopher Lovelock, Parsu Parasuraman, Ben Schneider, Lynn Shostack, and Carol Surprenant. We also owe gratitude to the sec- ond generation of service researchers who broadened and enriched the services marketing field. When we attempted to compile a list of those researchers, we real- ized that it was too extensive to include here. The length of that list is testament to the influence of the early pioneers and to the importance that service marketing has achieved both in academia and in practice.

We remain indebted to Parsu Parasuraman and Len Berry, who have been research partners of Dr. Zeithaml’s since 1982. The gaps model around which the text is structured was developed in collaboration with them, as was the model of customer expectations used in Chapter 3. Much of the research and measurement content in this text was shaped by what the team found in a 15-year program of research on service quality.

Dr. Zeithaml is particularly indebted to her long-time colleague A. “Parsu” Parasuraman, who has been her continuing collaborator over the 30 years she has been in academia. An inspiring and creative talent, Parsu has always been will- ing to work with her—and many other colleagues—as a mentor and p

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