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As you walk along the street, the aroma drifts through the air and attracts you. It is drawing you toward the store with the green sign that has now become a common sight. You enter Starbucks, the place where you can sit down and enjoy a great cup of coffee in a comfortable settee or on a chair. You can also surf the Internet on the free wireless broadband service that is available in many of the Starbucks outlets around the world. Starbucks is a place that you would associate with coffee, before anything else.

OPENING VIGNETTE1

LEARNING OBJECTIVESBy the end of this chapter, students should be able:

LO 1

LO 2

LO 3

LO 4

LO 5

LO 6

Define what a service product is.

Know how to design a service concept.

Describe the flower of service and know how the facilitating and enhancing supplementary services relate to the core product.

Know how service firms use different branding strategies for their product lines.

List the categories of new service development, ranging from simple style changes to major innovations.

Be familiar with the factors needed to achieve success in developing new services.

84 Chapter 4 • Developing Service Products: Core and Supplementary Elements

developing service products:

CORE and SUPPLEMENTARY ELEMENTS

Figure 4.1 Starbucks is a familiar brand that even has traditional tea consumers drinking out of its cups.

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As a service innovation, Starbucks has been transforming itself into a place for entertainment. It wants to extend the pop culture. It does that through Hear Music Starbucks. Customers can buy from an extensive selection of hand-selected and compiled physical CDs in the Starbucks Hear Music Coffeehouses. Alternatively, they can burn personalized CDs from a digital inventory of more than a million sound tracks, including new recordings that can only be found in some Starbucks outlets. Debut albums of some new musicians are actually launched and available only exclusively at Starbucks outlets. Starbucks also sells movie DVDs and books from emerging as well as established authors. It has tied up with Apple’s iTunes Wi-Fi Music Store to allow music playing at selected Starbucks cafes, up to the last ten songs played, to be browsed, bought and downloaded wirelessly onto the iPhone or iPod. This music will sync back to the Mac or PC the next time it is connected. Soon, we will no longer associate Starbucks with just mocha. Rather, we will see it as a place to relax and feel at home. Starbucks is a company that has developed new service innovations with great success. However, it cannot rest on its laurels as competition is intense. It has to continue to reinvent itself to maintain its edge in the industry.

Applying the 4Ps to Services 85

developing service products:

CORE and SUPPLEMENTARY ELEMENTS PA

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...One of the trendsetters of

lifestyle services, Starbucks has

popularized the coff eehouse as contemporary

and chic...


SERVICE PRODUCT

W hat do we mean by a service “product”? A service product consists of two components, the core product and supplementary services. The core product

is based on the core set of benefits and solutions delivered to customers. These are usually defined with reference to a particular industry like healthcare or transportation. For example, in healthcare, the core product may be the restoration of the body back to an optimum condition. Surrounding the core product is a variety of service-related activities called supplementary services. Supplementary services augment the core product by facilitating its use and enhancing its value and appeal. The supplementary services often play an important role in differentiating and positioning the core product against competing services.

DESIGNING A SERVICE PRODUCT

H ow should one go about designing a service concept? Experienced marketers know that they need to look at the entire service performance in a holistic

manner. The firm needs to determine specific aspects that it plans to compete on. In order to do that, the value proposition needs to combine three components: (1) core product, (2) supplementary services, and (3) delivery processes. The delivery processes are those that are used to deliver both the core product and supplementary services. The design of the service offering must address the following issues:

How the different service components are delivered to the customer.

The nature of the customer’s role in those processes.

How long delivery lasts.

The recommended level and style of service to be offered.

There are four categories of services introduced in Chapter 1—people processing, possessing processing, mental stimulus processing, and information processing. Each of these has a different impact on operational procedures, the degree of customer contact with service personnel and facilities, and requirements for supplementary services. People processing services usually have more supplementary elements. This is because the customer must go to the service factory and spend time there during service delivery (Figure 4.2).

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Figure 4.2 Dental patients need to go to the clinic to receive treatment.

Define what a service product is.

LO 1

Know how to design a service concept.

LO 2


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Th e integration of the core product, supplementary services, and delivery processes is captured in Figure 4.3. Th e fi gure shows the components of the service off ering for an overnight stay at a luxury hotel. Th e core product is an overnight rental of a bedroom. Th e delivery processes surrounding this core product are:

Nature of the process—people processing in this instance.

Customer’s role—what customers are expected to do for themselves; what the hotel will do for them, such as making the bed, supplying bathroom towels, and cleaning the room.

Scheduling—how long the room may be used before another payment becomes due.

Service level—what level and style of service.

Surrounding the core product is a variety of supplementary services. Th ese range from reservations to meals and in-room service elements. Delivery processes must be specifi ed for each of these elements. Th e more expensive the hotel is, the higher the level of service is required of each element. For example, very important guests might be received at the airport and transported to the hotel in a limousine. Check-in arrangements can be done on the way to the hotel. By the time the guests arrive at the hotel, they are ready to be escorted to their rooms, where a butler is on hand to serve them. Specifi c design in terms of customer service processes, which is called service blueprinting, is discussed in Chapter 8, Designing and Managing Service Processes.

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Figure 4.3 Depicting the service offering for an overnight hotel stay.

DELIVERING CONCEPT FOR CORE PRODUCTSUPPLEMENTARY SERVICES

OFFERED AND HOW THEY ARE CREATED AND DELIVERED

SchedulingNature of Process

Service Level

Customer role


CORE

Information

ConsultationPayment

Billing Order Taking

Exceptions Hospitality

SafekeepingKEY:Facilitating elementsEnhancing elements

THE FLOWER OF SERVICE2

There are two kinds of supplementary services. Facilitating supplementary services are either needed for service delivery, or help in the use of the core product.

Enhancing supplementary services add extra value for the customer. These different supplementary services can be classified into one of the following eight clusters.

In Figure 4.4, the eight clusters are displayed as petals surrounding the center of a flower, hence we call it the Flower of Service. The petals are arranged in a clockwise sequence depending on how they are likely to be encountered by customers. However, the sequence may sometimes vary. For instance, payment may have to be made

before service is delivered rather than afterwards. In a well-designed and well-managed service organization, the petals and core are

fresh and well-formed. A service that is badly designed or poorly delivered is a like a flower with missing or dried

petals. Even if the core is perfect, the flower looks unattractive. Think about one of your negative

experiences as a service customer. When you were dissatisfied with a particular purchase, was it the core that was at fault, or was it a problem with one or more of the petals?

A company’s market positioning strategy helps to decide which supplementary services should

be included (see Chapter 3). If a company’s strategy is to add benefits to increase customers’ perceptions of

quality, then more supplementary services are required. For example, airlines such as Emirates, the award-winning Dubai-

based airline, may offer supplementary service like goodie bags to soothe hyperactive children. There is also in-flight entertainment such as cartoons and games that can keep the children occupied for hours. This will help to reduce the stress faced by parents traveling with young children. If the strategy is to compete on low prices, then fewer supplementary services are required.

Figure 4.4 The Flower of Service: Core product surrounded by cluster of supplementary services.

Facilitating Services Enhancing Services

o Informationo Order-takingo Billingo Payment

o Consultationo Hospitalityo Safekeepingo Exceptions

Information

Payment Consultation

Billing OrderTaking

HospitalityExceptions

SafekeepingFacilitating elementsEnhancing elements

LO 3 Describe the flower of service and know how the facilitating and enhancing supplementary services relate to the core product.


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FACILITATING SUPPLEMENTARY SERVICES

InformationTo obtain full value from any good or service, customers need relevant information (Figure 4.5). New customers and prospects are especially hungry for information. Information may sometimes be required by law. Th ese include conditions of sale and use, warnings, reminders, and notifi cation of changes. Customers also appreciate advice on how to get the most value from a service and how to avoid problems. Companies should make sure that the information they provide is both timely and accurate. If not, it is likely to make customers feel irritated or cause them inconvenience.

Traditional ways of providing information to customers include using front-line employees, printed notices, brochures, and instruction books. Information can also be provided through videos or software-driven tutorials, touch-screen video displays, or through company web sites. Th e types of information range from train and airline schedules, to assistance in locating specifi c retail outlets, to information on the services of professional fi rms. Many business logistics companies off er shippers the opportunity to track the movements of their packages, which have been assigned a unique identifi cation number (Figure 4.6). For example, Amazon.com provides online customers with a reference number and they can track the goods that they have bought, and know when to expect the goods.

Figure 4.5 Examples of information.

Figure 4.6 Shipments can be tracked around the world with their identity code.

CORE

• Direction to service site• Schedules/service hours• Prices• Reminders• Warnings• Conditions of sale/service• Notifi cation of changes• Documentation• Comfi rmation of reservations• Summaries of account activities• Receipts and tickets


Order-TakingOnce customers are ready to buy, the company accepts applications, orders, and reservations (Figure 4.7). Th e process of order-taking should be polite, fast, and accurate so that customers do not waste time and endure unnecessary mental or physical eff ort. Technology can be used to make order-taking easier and faster for both customers and suppliers.

Order-taking includes applications, order entry, and reservations or check-ins. Banks, insurance companies, utilities, and universities usually require potential customers to go through an application process. Order entry can be received through a variety of sources such as through sales personnel, phone, and e-mail or online (Figure 4.8). Airlines now make use of ticketless systems, based on telephone or web site reservations. Customers receive a confi rmation number when they make reservations and need to only show identifi cation at the airport to claim their seats and receive a boarding pass. Northwest Airlines promotes order-taking online.

BillingBilling is common to almost all services (unless the service is provided free of charge). Customers usually expect bills to be clear. Inaccurate, illegible, or incomplete bills risk disappointing customers who may, up to that point, have

been quite satisfied with their experience. If customers are already dissatisfied, the billing mistake may make them even angrier. Billing should also be timely, because it encourages people to make payment faster. Procedures range from verbal statements to a machine-displayed price, and from handwritten invoices to elaborate monthly statements of account activity and fees (Figure 4.9). Perhaps the simplest approach is self-billing. This is when the customer adds up

Figure 4.8 OpenTable takes dining reservations to a whole new level by allowing diners to bypass the traditional call-and-hope reservation experience with a mere click.

Figure 4.7 Examples of order-taking elements.

CORE

Applications• Memberships in clubs/programs• Subscription services (e.g., utilities)• Prerequisite based services (e.g., fi nancial credit, college enrolment)

Order Entry• On-site order fulfi llment• Mail/telephone/e-mail/web order

Reservations and Check-in• Seats/tables/rooms• Vehicles or equipment rental• Professional appointments


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the amount of an order and authorizes a card payment or writes a check. In such instances, billing and payment are combined into a single act, although the seller may still need to check for accuracy.

Busy customers dislike being kept waiting for a bill to be prepared. Th ere are diff erent ways in which bills can be presented to customers in a faster way. Hotels and rental car fi rms now have express check-outs. Many hotels may push bills under guestroom doors on the morning of departure showing charges to date. Others off er customers the choice of seeing their bills beforehand on the TV monitors in their rooms. Some car rental companies have an express check-out procedure. An agent meets customers as they return their cars. After they have checked the mileage and fuel gauge readings, the bill is printed on the spot using a portable wireless terminal.

PaymentIn most cases, a bill requires the customer to take action on payment. One exception is the bank statement which shows details of charges that have already been deducted from the customer’s account. Increasingly, customers expect it to be easy and convenient to make payment, including using credit, when they make purchases in their own countries, and while traveling abroad.

A variety of options exist for customers to make payment (Figure 4.10). For self-service payment systems, one may make payment by inserting coins, banknotes, tokens or cards into machines. Good maintenance of the equipment is important.

Figure 4.9 Examples of billing elements.

Figure 4.10 Examples of payment elements.

CORE

Self-Service• Insert card, cash or token into machine• Electronic funds transfer• Mail a check• Enter credit card number online

Direct to Payee or Intermediary• Cash handling or change giving• Check handling• Credit/charge/debit card handling• Coupon redemption

Automatic Deduction from Financial Deposits• Automated systems (e.g., machine-readable tickets that operate entry gate)• Human systems (e.g., toll collectors)

CORE

• Periodic statements of account activity• Invoices for individual transactions• Verbal statements of amount due• Self-billing (computed by customer)• Machine display of amount due


Figure 4.12 An auditor provides a human touch during the process of consultation.

Figure 4.11 Examples of consultation elements.

If the equipment breaks down, it can destroy the purpose of such a system. Most payment still takes the form of cash or credit cards. However, more and more shopping is being done online. PayPal offers a fuss-free and secure way to make payments for goods bought over the Internet. Online shoppers must first register with PayPal and have a credit card to use the service. Customers can make their payments via PayPal who will process the payment to the seller. PayPal will then charge the amount owed to the registered buyer’s account.

ENHANCING SUPPLEMENTARY SERVICES

ConsultationNow we move to enhancing supplementary services, led by consultation. Consultation involves a dialog to probe customer requirements and then develop a solution that is suited to the needs of the customer. Figure 4.11 provides examples of several supplementary services in the consultation category.

At its simplest level, consultation consists of immediate advice from a knowledgeable service person in response to the request, “What do you suggest?” (For example, you might ask the person who cuts your hair for advice on different hairstyles and products). Finally, management and technical consulting for corporate customers include the “solution selling” associated with expensive industrial equipment and services. Effective consultation requires an understanding of each customer’s current

situation, before suggesting a suitable course of action. Good customer records can be a great help in this respect, particularly if relevant data

can be retrieved easily from a remote terminal.

In an Internet environment, which encourages customers to engage in self-service applications and be more self-reliant, companies should not forget the personal touch of a “live” human being during

the process of consultation (Figure 4.12). The human touch of a friendly customer-service officer will certainly be valued and remembered, and will go a long way for customers.

CORE

• Customized advice• Personal counseling• Tutoring/training in product use• Management or technical consulting


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Counseling is another type of consultation that is less direct than consultation. It involves helping customers understand their situations better, so that they can come up with their “own” solutions and action programs. For example, diet centers such as Weight Watchers use counseling to help customers change behaviors so that weight loss can be sustained after the diet program has ended. Finally, advice, another form of consultation, can also be off ered through tutorials, group training programs, and public demonstrations.

HospitalityHospitality-related services should, ideally, refl ect pleasure at meeting new customers and greeting old ones when they return. Well-managed businesses try, at least in small ways, to ensure that their employees treat customers as guests. Courtesy and consideration for customers’ needs apply to both face-to-face encounters and telephone interactions (Figure 4.13). Hospitality is an element that can be more clearly displayed in face-to-face encounters. In some cases, it starts (and ends) with an off er of transport to and from the service site on courtesy shuttle buses. If customers must wait outdoors before the service can be delivered, then a thoughtful service provider will off er weather protection. If customers have to wait indoors, then there can be a waiting area with seating and even entertainment (TV, newspapers or magazines) to pass the time. Recruiting employees who are naturally warm, welcoming, and considerate helps to create a hospitable atmosphere. Shoppers at Giordano, an international clothing retailer with markets in the Asia Pacifi c and the Middle East, are given a cheerful “Hello” and “Th ank you” when they enter and leave the store, even if they did not buy anything.

Th e quality of the hospitality services off ered by a fi rm can increase or decrease satisfaction with the core product. Th is is especially true for people-processing services where customers cannot easily leave the service facility. Private hospitals often seek to enhance their appeals by providing the level of room service that might be expected in a good hotel. Th is includes the provision of quality meals. Some airlines seek to diff erentiate themselves from their competitors with better meals and more attentive cabin crew and Singapore Airlines is well-recognized in both areas.3

Figure 4.13 Examples of hospitality elements.

CORE

GreetingFood and beveragesToilets and washroomsWaiting facilities and amenities• Lounges, waiting areas, seating• Weather protection• Magazines, entertainment, newspapersTransportSecurity


SERVICE INSIGHTS 4.1

Cosmetic Surgeons’ Offi ces Turn Off Patients

It appears that plastic surgeons could use some service marketing training along with their other courses in medical school. Two experts, Kate Altork and Douglas Dedo, who did a study of patients’ reactions to doctors’ offi ces found that many patients will cancel a surgery, change doctors, or refuse to consider future elective surgery if they feel uneasy in the doctor’s offi ce. Th e study results suggested that patients do not usually “doctor-jump” because they do not like the doctor, but because they do not like the environment in which the service occurred. Th e list of common patient dislikes includes: graphic posters of moles and skin cancers decorating offi ce walls; uncomfortable plastic identifi cation bracelets for patients; examining rooms with no windows or current reading material; bathrooms that are not clearly marked; and not enough wastebaskets and water coolers in the waiting room.

What do patients want? Most requests are surprisingly simple and involve simple comforts such as tissues, water coolers, telephones, plants,

bowls of candy in the waiting room, and live fl ower arrangements in the lobby. Patients also want windows in the examining rooms and gowns that wrap around the entire body. Th ey would like to sit on a real chair when they talk to a doctor instead of sitting on a stool or examining table. Finally, patients who have not yet gone for surgery prefer to be separated from patients who have had surgery because they feel uneasy sitting next to someone in the waiting room whose head is enclosed in bandages.

Th ese study results suggest that cosmetic surgery patients would rather visit an offi ce that looks more like a health spa than a hospital ward. By thinking like service marketers, savvy surgeons could use this information to create patient-friendly environments that will go well with, rather than go against, their technical expertise.

Bannon, L. (1997). Plastic surgeons are told to pay more attention to appearances. Wall Street Journal, March 15, p. B1.

Source


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Figure 4.15 Examples of exception elements.

Failures in hospitality can extend to the physical design of the areas where customers wait prior to receiving service. A survey found that unappealing offi ces and lack of comfort can drive away patients of cosmetic surgeons (Service Insights 4.1).

SafekeepingWhile visiting a service site, customers often want their personal possessions to be “looked after.” In fact, some customers may choose not to go to certain places that do not have safekeeping services like a safe and convenient car park. On-site safekeeping services includes coatrooms; baggage transport, handling and storage; safekeeping of valuables; and even child care and pet care (Figure 4.14).

ExceptionsExceptions involve supplementary services that fall outside the normal service delivery. Exceptions include special requests, and problem solving (Figure 4.15).

CORE

Caring for Possessions Customer Bring with Them• Child care, pet care• Parking for vehicles, valet parking• Coat rooms• Baggage handling• Storage space• Safe deposit boxes• Security personnel

Caring for Goods Purchased (or Rented) by Customers• Packaging• Pickup• Tranportation and delivery• Installation• Inspection and diagnosis• Cleaning• Refueling• Preventive maintenance• Repair and renovation

CORE

Special Requests in Advance of Service Delivery• Children’s needs• Dietary requirements• Medical or disability need• Religious observances

Handling Special Communications• Complaints• Compliments• Suggestions

Problem Solving• Warranties and guarantees• Resolving diffi culties that arise from using the product• Resolving diffi culties caused by accidents, service failures• Assisting customers who have suffered an accident or a medical emergency

Restitution• Refunds and compensation• Free repair of defective goods

Figure 4.14 Examples of safekeeping elements.


Companies should anticipate exceptions and develop back-up plans and guidelines in advance. Th at way, employees will not appear helpless and surprised when customers ask for special assistance. Well-defi ned procedures make it easier for employees to respond promptly and eff ectively (Figure 4.16).

Managers need to keep an eye on the level of exception requests. Too many requests may indicate that standard procedures need to be changed. For example, if a dentist keeps receiving requests for more information about a particular dental procedure, then this may indicate that it is time to perhaps print some brochures that educate customers. A fl exible approach to exceptions is generally a good idea, because it refl ects responsiveness to customer needs. On the other hand, too many exceptions may have a negative impact on other customers, and overburden employees.

Managerial ImplicationsTh e eight categories of supplementary services forming the Flower of Service collectively provide many choices for enhancing core products. As noted earlier, some are facilitating services that enable customers to use the core product more eff ectively. Others are “extras” that enhance the core or even reduce its non-fi nancial costs. Any badly handled element may negatively aff ect customers’ perceptions of service quality.

Not every core product is surrounded by a large number of supplementary services from all eight petals. People-processing services tend to have more supplementary elements, especially hospitality, since they involve close (and often extended) interactions with customers. When customers do not visit the service factory, the need for hospitality may be limited to just letters and telecommunications. Possession-processing services sometimes place heavy burdens on safekeeping elements. However, there may be no need for this particular petal when providing information-processing services, whereby customers and suppliers interact at arm’s length. Financial services that are provided electronically are an exception to this however. Companies must ensure that their customers’ intangible fi nancial assets and their privacy are carefully safeguarded in transactions that take place through the telephone or the web. (Figure 4.17).

A study of Japanese, American, and European fi rms serving business-to-business markets found that most companies simply added layer upon layer of services to their core off erings without knowing what customers really valued.4 Managers surveyed in the study indicated that they did not understand which services should be off ered to customers as a standard package accompanying the core, and which could be off ered as options for an extra charge. Th ere are no simple rules governing decisions for core products and supplementary services. However, managers should continually review their own policies and those of competitors to make sure they are in line with what the market practices, and customer needs.

Figure 4.16 McDonald’s well-established procedures lets employees respond smartly to customers’ requests.

Figure 4.17 Security features ensure that online transactions are safe.



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CORPORATE BRANDING

INDIVIDUAL PRODUCT BRANDING

“Branded House”e.g., Virgin Group

Endorsed Brandse.g., Starwood

Hotels & Resorts

“House of Brands”e.g., Yum! Brands

Subbrandse.g., Raffl es Class atSingapore Airlines

BRANDING SERVICE PRODUCTS AND EXPERIENCES

In recent years, more and more service fi rms have started talking about their products. What is the diff erence between a service and a product? A product

is a defi ned and consistent “bundle of output.” One bundle of output can be diff erentiated from another bundle of output. Service providers can usually off er a “menu” of products, representing an assembly of carefully prescribed elements built around the core product. Th ey may also bundle in certain value-added supplementary services. Let us look at some examples from hotels, a computer support service, and an international airline.

Product Lines and Brands Most service fi rms off er a line of products rather than just a single product. As a result, they must choose among three broad alternatives: using a single brand to cover all products and services, a separate stand-alone brand for each off ering, or some combination of these two extremes.5 Th ese alternatives are represented as a spectrum in Figure 4.18. Th e term branded house is used to describe a company like the Virgin Group, which applies its brand name to multiple off erings in often unrelated fi elds.6 Next on this spectrum are what they term sub-brands. A sub-brand is one where the master brand is the main reference point, but the product itself has a distinctive name too. Singapore Airlines Raffl es Class, the company’s business class service, is an example. Th e next category of brands are endorsed brands, where the product brand is the main focus, but the corporate name is still featured (many hotel corporations

Figure 4.18 The spectrum of branding alternatives.

LO 4 Know how service fi rms use different branding strategies for their product lines.


use this approach). At the far end of the spectrum is the house of brands strategy. Yum! Brands Inc. adopts the house of brands strategy, with more than 35,000 restaurants in 110 countries. While we may not have heard of Yum! Brands, many certainly are familiar with their restaurant brands—A & W, KFC, Pizza Hut, Taco Bell, and Long John’s Silver. Each of these brands is actively promoted under their own brand name (Figure 4.19).

Hotel BrandingTh ere are many hotel chains that have a global presence. Many of these chains off er a family of sub-brands/endorsed brands. For instance, Hilton Hotels Corporation has ten sub-brands, and the Accor Group has ten sub-brands. Marriott International has 15 brands including the wholly owned Ritz-Carlton chain. However, to protect its exclusive image, Ritz-Carlton is not normally identifi ed for marketing purposes as part of the Marriott Group.

For a multibrand strategy to succeed, each brand must promise a diff erent set of benefi ts targeted at a diff erent customer segment. In some instances, segmentation is situation-based. Th e same individual may have diff erent needs and willingness to pay under diff ering circumstances, like when traveling with family or traveling on business. A strategy of brand extension is aimed at encouraging customers to continue staying within the brand family and this may be encouraged through loyalty programs. A study of the brand-switching behavior of some 5,400 hotel customers found that brand extensions do seem to encourage customers to stay within the brand. However, brand extensions may be less eff ective in discouraging switching when the number of brands reaches four or more.7

Sun Microsystems Hardware and Software SupportSun Microsystems is an example of branding a high-tech, business-to-business product line. Th e company off ers a full range of hardware and software support in a program branded as “SunSpectrum Support.”8 Four diff erent levels of support are available, sub-branded from platinum to bronze. Th e objective is to allow the buyers to choose a level of support that meets the needs of their own organizations as well as the willingness to pay. Th ese are categorized as below:

Platinum: Mission-critical support with on-site service 24/7 and a two-hour response time.

Gold: Business critical support with on-site service from Monday to Friday, 8am to 8pm, telephone service 24/7 and a four-hour response time.

Silver: Basic support with on-site service from Monday to Friday, 8am to 5pm, telephone service from Monday to Friday, 8am to 8pm, and a four-hour response time.

Bronze: Self-support with phone service 8am to 5pm.

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Figure 4.19 KFC and Pizza Hut are just some of the few popular fast food brands fronting Yum! Brands.


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British Airways Sub-brandsBritish Airways (BA) is a good example of strong sub-branding in the airline industry. BA off ers seven distinct air travel products. Th ey are:

First—deluxe service,

Club World—intercontinental business class,

World Traveller Plus—intercontinental premium economy class,

World Traveller—intercontinental economy class,

Club Europe—intra-European business class,

Euro-Traveller—intra-European economy class, and

UK Domestic—economy-class service between London and major British cities.

Each BA sub-brand represents a specifi c service concept and a set of clearly stated product specifi cations for pre-fl ight, in-fl ight, and on-arrival service elements.

Offering a Branded ExperienceBranding can be used at both the company and product level by almost any service business. In a well-managed fi rm, the corporate brand is not only easily recognized, but it also has meaning for customers. Th e brand stands for a particular way of doing business. Applying distinctive brand names to individual products helps marketers to establish a mental picture of the service in customers’ minds and to clarify the nature of the value proposition.

Th e Forum Corporation, a consulting fi rm, diff erentiates between (1) experience with high variation from customer to customer, (2) a branded experience that is similar across diff erent fi rms, diff erentiated only by the brand name (ATMs are a good example), and (3) a “Branded Customer Experience” in which the customer’s experience is shaped in a specifi c and meaningful ways.9 (See Service Insights 4.2 for Forum’s recommendations on how to achieve this.)

Don Shultz emphasizes that “Th e brand promise or value proposition is not a tag line, an icon, or a color or a graphic element, although all of these may contribute. It is, instead, the heart and soul of the brand….”10 An important role for service marketers is to become brand champions, familiar with and responsible for shaping every aspect of the customer’s experience. We can relate the notion of a branded service experience to the Flower of Service metaphor by emphasizing the need for consistency in the color and texture of each petal. Unfortunately, many service experiences remain much disorganized and create the impression of a fl ower stitched together with petals drawn from many diff erent plants!

We will return to a discussion of branding in the context of marketing communications strategy in Chapter 7.

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NEW SERVICE DEVELOPMENT

Intense competition and rising customer expectations are having an impact on nearly all service industries. Th us, success lies not only in providing existing

services well. Companies also need to create new approaches to services.

A Hierarchy of New Service Development Categories Following are seven categories of new services that we can identify, ranging from simple style changes to major innovations. Th ey are in increasing complexity:

Style changes

Service improvements

Supplementary service innovations

Process line extensions

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SERVICE INSIGHTS 4.2

Moving Toward The Branded Customer Experience

Forum Corporation identifi es six basic steps to develop and deliver the Branded Customer Experience:

1 Target profi table customers, employing behavior rather than demographic segmentation as behavior is a more accurate indicator of tastes and preferences.

2 Achieve a superior understanding about your targeted customers’ value.

3 Create a brand promise—an expression of what target customers can expect from their experience with your organization—which is of value to customers, addresses a need, can be implemented, can be incorporated into standards, and provides focus for the organization and its employees.

4 Apply that understanding to provide a truly diff erent customer experience.

5 Give employees the skills, tools, and supporting processes needed to deliver the customer experience that has been defi ned.

6 Make everyone a brand manager who is behind the brand and supports the brand.

7 Make promises that your processes can exceed.

8 Measure and monitor. Consistency of delivery is paramount.

“Forum Issues #17” Boston: The Forum Corporation, 1997; Wheeler, J., & Smith, S. (2003). “Loyalty by Design” Forum Corporation, 2003. Available: www.forum.com/publications, accessed March 2008.

Source

LO 5 List the categories of new service development, ranging from simple style changes to major innovations.


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Product line extensions

Major process innovations

Major service innovations

1. Style changes are the simplest type of innovation, usually involving no changes in either processes or performance. However they are often highly visible, create excitement, and may serve to motivate employees. Examples include repainting retail branches and vehicles in new color schemes, designing new uniforms for service employees, introducing a new bank check design, or minor changes in service scripts for employees.

2. Service improvements are the most common type of innovation. Th ey involve small changes in the performance of current products, including improvements to either the core product or to existing supplementary services. For example, students need to be physically present to attend lectures. Now, colleges have moved to taping lectures and these can now be viewed online, when the students are free. Hence, students now have a choice as to whether to attend lectures or not.

3. Supplementary service innovations take the form of adding new facilitating or enhancing service elements to an existing core service, or of signifi cantly improving an existing supplementary service. Low-tech innovations for an existing service can be as simple as adding parking at a retail site, or agreeing to accept credit cards for payment. To enhance the existing core service, Th e Snap Printing group that operates in Australia, New Zealand, Ireland, and China, now provides a complete web-based service that allows customers to get advice, as well as customized printing requirements direct and online. Multiple improvements may have the eff ect of creating what customers perceive as an altogether new experience, even though it is built around the same core. Th eme restaurants like the Rainforest Café enhance the core food service with new experiences (Figure 4.20). Th e cafés are designed to keep customers entertained with aquariums, live parrots, waterfalls, fi berglass monkeys, talking trees that spout environment-related information, and regularly timed thunderstorms, complete with lightning.11

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Figure 4.20 Rainforest Café makes a supplementary service innovation by enhancing the core food service with the experience of being in a jungle.


4. Process line extensions are less innovative than process innovations. However, they often represent new ways of delivering existing products. Th e intention is either to off er more convenience and a diff erent experience for existing customers, or to attract new customers who fi nd the traditional approach unappealing. Most commonly, they involve adding a lower contact distribution channel to an existing high-contact channel, such as creating telephone-based or Internet-based banking service. Barnes and Noble, the leading bookstore chain in the United States, added a new Internet subsidiary, BarnesandNoble.com to help it compete against Amazon.com (Figure 4.21). Such dual-track approaches are sometimes referred to as “Clicks and Mortar.” Creating self-service options to complement delivery by service employees is another form of process line extension.

Figure 4.21 Barnes and Noble extends their process line by offering an Internet-distribution channel, entering the age of the “Clicks and Mortar.”


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5. Product line extensions are additions to current product lines by existing fi rms. Th e fi rst company in a market to off er such a product may be seen as an innovator. Th e others are merely followers, often acting to defend themselves. Th ese new services may be targeted at existing customers to serve a broader variety of needs, or designed to attract new customers with diff erent needs (or both). For example, many banks now sell insurance products in the hope of increasing the number of profi table relationships with existing customers.

6. Major process innovations consist of using new processes to deliver existing core products in new ways with additional benefi ts. For example, the University of Phoenix competes with other universities by delivering undergraduate and graduate degree programs in a non-traditional way. It has no permanent campus, but off ers courses either online or at night in rented facilities. Its students get most of the benefi ts of a college degree in half the time and at a much lower price than other universities.12 In recent years, the growth of the Internet has led to the creation of many service process innovations that exclude the use of traditional stores and save customers time and travel. Often, these models add new, timely, information-based benefi ts such as the opportunity to visit chat-rooms with fellow customers, and suggestions for additional products that match well with what has already been bought.

7. Major service innovations are new core products for markets that have not been previously defi ned. Th ey usually include both new service characteristics and radical new processes. Examples include relatively recent web-based television services, and YouTube’s video sharing web services (Figure 4.22).

Figure 4.22 YouTube allows users to easily embed any hosted videos on web pages or blogs, an innovation which found favor among social-networking websites.

As the above typology suggests, service innovation can occur at many diff erent levels. However, not every type of service innovation has an impact on the features of the service product, and not all are experienced by the customers.

Achieving Success in Developing New Services For a new product to be successful, the sound core product is necessary but not sufficient. It is the quality of the total service offering, and also the marketing support that goes with it that is important for success. Chris Storey and Christopher Easingwood emphasize that success is based on market knowledge: “Without an understanding of the marketplace, knowledge about customers, and knowledge about competitors, it is very unlikely that a new product will be a success.”13

A study by Scott Edgett and Steven Parkinson focused on discriminating between successful and unsuccessful new financial services.14 They found that the three factors contributing most to success were, in order of importance:

1. Market synergy—the new product fit well with the existing image of the firm, was better than competitors at meeting customers’ known needs, and received strong support during and after the launch from the firm and its branches. In addition, the firm had a good understanding of its customers’ purchase decision behavior.

2. Organizational factors—there was strong interfunctional cooperation and coordination. Development personnel were fully aware of why they were involved and of the importance of new products of the company.

3. Market research factors—detailed and properly designed market research studies were conducted early in the development process. There was a clear idea of the type of information to be obtained. A good definition of the product concept was developed before undertaking field surveys.

Another survey of financial service firms to determine what distinguished successful from unsuccessful products yielded similar findings.15 In this instance, the key factors for success were synergy (the fit between the product and the firm in terms of needed expertise and resources being present) and internal marketing (the support given to staff before its launch to help them understand the new product and its underlying systems, plus details about direct competitors, and support). Yet another study found similar factors, that marketing synergy and human resource issues like meeting customer needs, and having a human resource strategy that links to the development of service processes are keys to success (Figure 4.23).16

Figure 4.23 When sound human resource strategy is wedded to vibrant marketing synergy, a successful product is born.

LO 6 Be familiar with the factors needed to achieve success in developing new services.


CHAPTER SUMMARY

A service product consists of two components, the core product and supplementary services. The core product is based on the core set of benefi ts and solutions delivered to customers. Supplementary services are those elements that facilitate and enhance the use of the core product.

Designing a service concept is a complicated task that requires an understanding of how the core and supplementary services should be combined, sequenced, delivered, and scheduled to create benefi ts that meet the needs of the target market segments.

Different types of core products often share similar supplementary elements. The Flower of Service concept categorizes supplementary services into eight groups (each represented as a petal surrounding the core). The eight groups can be categorized as (1) facilitating and (2) enhancing supplementary services.

Facilitating supplementary services are needed for service delivery or help in the use of the core product. They are:

o Information

o Order-taking

o Billing, and

o Payment.

Enhancing supplementary services add extra value for the customer and include:

o Consultation

o Hospitality

o Safekeeping

o Dealing with exceptions.

The use of a fl ower helps us to understand that all the supplementary elements must be performed well. A weakness in one element will spoil the overall impression.

Many fi rms offer several service products with different performance attributes and brand each package with a distinctive name. They can use a variety of branding strategies such as branded house, sub-brands, endorsed brands, and house of brands. However, each of these different brands in the family should offer a meaningful benefi t or this strategy is likely to be ineffective against competition.

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When competition is intense, fi rms can create new approaches to services in order to maintain a competitive edge. There is a hierarchy of new service development that has seven categories ranging from simple changes to major innovations. They are:

o Style changes

o Service improvements

o Supplementary service innovations

o Process line extensions

o Product line extensions

o Major process innovations, and

o Major service innovations.

Major service innovations are relatively rare. More common is the use of new technologies, such as the Internet, to deliver existing services in new ways. In mature industries, where the core service can become a commodity, the search for competitive advantage often depends on creating new supplementary services or greatly improving performance on existing ones.

The chances of success for a new service concept increase when it:

o Fits well with the fi rm’s expertise, resources and existing image,

o Provides a superior advantage over competing services in terms of meeting customers’ needs, and is

o Well-supported by coordinated efforts between the different functional areas in a fi rm.

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LO 1

LO 2

LO 3

LO 4

LO 6

LO 5

UNLOCK YOUR LEARNING


1. Core product

2. Service product

3. Supplementary services

4. Delivery processes

5. People processing

6. Service concept

7. Biling

8. Consultation

9. Enhancing supplementary services

10. Exceptions

11. Facilitating supplementary services

12. Flower of Service

13. Hospitality

14. Information

15. Order-taking

16. Payment

17. Safekeeping

18. Branded house

19. Sub-brands

20. Endorsed brands

21. House of brands

22. Multi-brand strategy

23. Branding

24. Branded customer experience

25. Categories of new services

26. Major process innovations

27. Major service innovations

28. Process line extensions

29. Product line extensions

30. Style changes

31. Service improvements

32. Supplementary service innovations

33. Internal marketing

34. Market synergy

These keywords are found within the sections of each Learning Objective (LO). They are integral in understanding the services marketing concepts taught in each section. Having a fi rm grasp of these keywords and how they are used is essential in helping you do well for your course, and in the real and very competitive marketing scene out there.

SCORE0 – 5 Services Marketing is done a great disservice. 6 – 11 The midnight oil needs to be lit, pronto.12 – 18 I know what you didn’t do all semester.19 – 24 A close shave with success.25 – 29 Now, go forth and market.30 – 34 There should be a marketing concept named after you.

How well do you know

the language of services

marketing? Quiz yourself!

Not for the academically faint-of-heart

For each keyword you are able to recall without referring to earlier pages, give yourself a point (and a pat on the back). Tally your score at the end and see if you earned the right to be called—a services marketeer.

LO 1

LO 2

LO 3 LO 4

LO 5

LO 6


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1. Defi ne what is meant by core product and supplementary services. Can they be applied to goods as well as services? Explain your answer.

2. Explain the fl ower of service concept. What insights does this concept provide for service marketers?

3. Explain the distinction between enhancing and facilitating supplementary services. Give several examples of each, relative to services that you have used recently.

1. Select a service that you are familiar with and identify the core product and supplementary services. Identify a competitor’s service and show how the competitor’s core product and supplementary services differ from the one you had originally identifi ed.

2. Select some branding examples from fi nancial services such as specifi c types of retail bank accounts or insurance policies and

Review Questions

Application Exercises

KNOW YOUR ESM

WORK YOUR ESM

4. How is branding used in services marketing? What is the distinction between a corporate brand like Marriott and the names of its different inns and hotel chains?

5. What are the approaches that fi rms can take to create new services?

6. Why do new services often fail? What factors are associated with successful development of new services?

defi ne their characteristics. How meaningful are these brands likely to be to customers?

3. Using a fi rm that you are familiar with, analyze what opportunities it might have, to create line extensions for its current and/or new markets. What impact might these extensions have on its present services?

How well do you know

the language of services

marketing? Quiz yourself!

ENDNOTES

1 Horovitz, B. (2006). Starbucks aims beyond lattes to extend brand. USA Today, 18 May 2006. www.starbucks.com and www.hearmusic.com. Accessed March 2008.

2 Lovelock, C. H. (1992). Cultivating the Flower of Service: New ways of looking at core and supplementary services. In P. Eiglier, & E.�Langeard (Eds.), Marketing, Operations, and Human Resources: Insights into Services, (pp. 296–316). Aix-en-Provence, France: IAE, Université d’Aix-Marseille III.

3 Heracleous, L., Wirtz, J., & Pangarkar, N. (2006). Flying High: Cost Effective Service Excellence – Lessons from Singapore Airlines. Singapore: McGraw Hill.

4 Anderson J. C., & Narus, J. A. (1995). Capturing the value of supplementary services. Harvard Business Review, 73(January–February), pp. 75–83.

5 Devlin, J. (2003). Brand architecture in services: The example of retail financial services. Journal of Marketing Management, 19, pp. 1043–1065.

6 Aaker D., & Joachimsthaler, E. (2000). The brand relationship spectrum: The key to the brand challenge, California Management Review, 42(4), pp. 8–23.

7 Jiang, W., Dev, C. S., & Rao, V. R. (2002). Brand extension and customer loyalty: Evidence from the lodging industry. Cornell Hotel and Restaurant Administration Quarterly, (August), pp. 5–16.

8 www.sun.com/service/support/sunspectrum, Accessed 2 February 2008.

9 Wheeler J., & Smith, S. (2003). Managing the Customer Experience. Upper Saddle River, NJ: Prentice Hall.

10 Shultz, D. E. (2001). Getting to the heart of the brand. Marketing Management, (Sep.– Oct.), pp. 8–9.

11 Rubel, C. New menu for restaurants: Talking trees and blackjack. Marketing News, (July), p.1. Available: http://www.rainforestcafe.com/, Accessed March 2008.

12 Traub, S. T.,& Drive-Thru U. (1997). The New Yorker, (October);. Macht, J. (1998). Virtual You. Inc. Magazine, (January), pp. 84–87. Available: http://www.phoenix.edu/about_us/about_us.aspx, Accessed March 2008.

13 Storey C. D., & Easingwood, C. J. (1998). The augmented service offering: A conceptualization and study of its impact on new service success. Journal of Product Innovation Management, 15, pp. 335–351.

14 Edgett S., & Parkinson, S. (1994). The development of new financial services: Identifying determinants of success and failure. International Journal of Service Industry Management, 5(4), pp. 24–38.

15 Storey C., & Easingwood, C. (1993). The impact of the new product development project on the success of financial services. Service Industries Journal, 13(3), pp. 40–54.

16 Ottenbacher, M., Gnoth, J., Jones, P. (2006). Identifying determinants of success in development of new high-contact services. International Journal of Service Industry Management, 17(4), pp. 344–363


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