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Chapter 1 Service Marketing

Learning objectives:

1. To understand the characteristics of services and its implication

2. The 8P’s in service marketing

MKT 321 Aspects of Services Marketing

What is service?

“A service is an intangible product involving a deed of performance, or an effort that cannot be physically possessed. Services are usually provided through the application of human and/or

mechanical efforts directed at people or objects.”

For example; education, hotel, ATM, car repair etc

Characteristics of services

� Marketing service products are not exactly the same with marketing physical goods. To understand these differences, it is first necessary to understand the distinguishing characteristics of services.

� Services have FOUR characteristics;

1. Intangibility

2. Inseparability

3. Perishability

4. Heterogeneity

Characteristics of services

1. Intangibility : it is impossible for the service users to taste, feel, see, smell or possess a service before they buy it.

2. Heterogeneity: people based services are susceptible to heterogeneity, or variation in quality. It is difficult to deliver service consistently.

3. Perishability: unused service capacity of one time period cannot be stored for use in future time periods.

4. Inseparability: the production of a service cannot be separated from its consumption by customers. Services are produced and consumed simultaneously.

Key implication derive from the characteristics of service

� Intangibility

� Difficult for consumers to evaluate

� Difficult to advertise and display

� Prices are difficult to set


� Inseparability

(production and consumption of service cannot be separated. This mean customer must be physically present)

� Service providers are

critical. Training is

necessary to ensure quality.

� Customers behavior and

competence can help or hinder productivity.

� Customer involvement in

the process of service delivery. E.g. self-service

� Location and opening

hours must be convenient for customers.

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� Inseparability

(production and consumption of service cannot be separated. This mean customer must be physically present)

� Design of service factory must be appealing and user-friendly.

� Behavior of other customers affect customer satisfaction.

� Recognise that spending time is often seen by customer as a burden.

� To minimize waiting time – self service, expand service hours.


� Perishability

(services cannot be inventoried)

� Demand is very time sensitive.

� Very difficult to balance supply and demand.

Solution

� High price during peak demand, low price during off peak

� Increase manpower and capacity

� Make use of technology to improve efficiency

Strategies to control the fluctuation of demand

1. Price and other user costs (time and effort)

2. Changing product element

3. Modifying the place and time of delivery• Varying the time when service is available to reflect

customer preference by day or week, by season.

• Offering the service to customers at a new location (I.e. operate the mobile unit that take the service to the customers)

4. Promotion and education

5. Storing demand through queuing and reservations.

For further reading, refer to “service marketing, Christopher Lovelock”, p.402

Example: Damai Lagoon

Price – increase price during peak season, reduce price during off peak

Changing product element – offer water sports during peak. Organise more seminar, conference , workshop, etc during off peak.

Modifying place and time of delivery – extends operation hour during peak. Restaurant may offer catering service for local residents during off peak.

Promotion and education – use advertising, publicity to educate customers to visit the resort during off peak season. Give better promotion packages during off peak (book one room and second one half price)

Design effective reservation system – telephone, online reservation.


� Heterogeneity

(variation in quality)

� Quality control –particularly consistency is more difficult to achieve

Solution

� Customized the service to the needs and expectation of individual customers

� Replace employees with automation may reduced variability

8P’s model of integrated service management

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1. Product

Core service

Expected service

Augmented service

• Core service– satisfies the needs or solves the problem. E.g. hairdressing

• Expected service– reflect standards required or expected by customers to satisfy their needs. E.g. qualified stylists, range of treatment

• Augmented service (supplementary service)–fine tune the marketing mix to differentiate from competitors. E.g. refreshment, beauty therapy, etc

Level of Product

Quality - “ the overall characteristics of a product that allow it to perform as expected in satisfying customer needs.”

Features - “specific design characteristics that allow a product to perform certain tasks.”

Additional customer service and benefits

Product / Service design

2. Place, cyberspace and time

� Decisions on when, where and how to deliver the service have an important impact on the nature of customers’ service experiences by determining the types of encounters (if any) with service personnel and the price and other costs incurred to obtain service.


Two main factors serve to shape the delivery strategy.

1. Does the nature of the service or the firm’s positioning strategy require customers to be in direct physical contact with its personnel, equipment, and facilities?

2. Should it maintain just a single outlet or offer to serve customers through multiple outlets at different locations?

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Where should services be delivered?

(Location)

• Locational constraint: e.g. airport

• Ministores: to maximise coverage. E.g. ATM

• Locating in multipurpose facilities where customer live or work

Electronic Channels

Benefits:

1. Consistent delivery for standardized services

2. Low cost

3. Customer choice and ability to customize

4. Quick customer feedback

When should service be delivered?(Time)

24 hours a day – hospital, police, radio, TV station.

Normal working hour (9am-5pm) –professional service and B2B market

Extended operating hour (weekend and evening hours when customers are free)

Service intermediaries

Service intermediaries perform many important functions for the service principal.

Coproduce the service, fulfilling service principals’ promises to customers and make service locally available, providing time and place convenience for the customer.

Key intermediariesFranchising – service outlets licensed by a principal to deliver a unique service concept it has created or popularised. E.g. McDonald’s, Blockbuster (video store), Holiday Inn.

Agents – act on behalf of a service principal and is authorised to make agreements between customers and the principal. Generally work for principals continuously rather than for a single deal. E.g. travel agent

Brokers – brokers bring buyer and seller together while assisting in negotiation. E.g. real estate brokers.

3. Promotion and education

� In launching a new service, promotional message will be designed to inform consumers that it exists. Educating consumers in how to use the service and persuading them to try it.

� Once a service is established, promotional messages will serve to increase awareness or remind consumers about the services, and persuade new customers to purchase.

� As service is intangible, advertiser will have to sell promise, or use testimonial to proof its quality.


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Promotional mix for services

� Promotional mix for services

a) Personal communications

1. Personal selling� Personal selling involves two way,

personal communication between salespeople and individual customers whether face to face, by telephone, through video or web conferencing, or by other means.


2. Customer service• Employees in customer service positions

usually creating and delivering the service in the customer presence as well as providing information, taking reservations and receiving payment, and solving problems.

• When a customer has the potential to buy several different products from the same supplier, firm encourage their customer-contact staff to cross sell additional services.

3) Training• Many companies, especially those selling complex

business-to-business services offer training courses for their customers. The purpose is to familiarize users with the product’s potential and educate them on how to use the service to best advantage.

4) Word of mouth • The comments and recommendations that

customers make about their service experiences can have a powerful influence on other people’s decisions.

b) Advertising

The role of advertising in service setting:

� To create awareness

� Stimulate interest

� Educate customer about service features and education

� To establish and redefine competitive position

� To help “tangibilise” the intangible

Consumers may rely more on information provided by advertising for services because they find them more difficult to evaluate than goods

Advertising media:

� Broadcast (TV and radio)

� Print (magazine and newspaper)

� Outdoor (posters, billboard, electronic message boards, exteriors of vehicles such as buses)

� Direct marketing (direct mail, telemarketing, fax or email)

� Internet

� Retail display

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C. Publicity/Public relations

Involves efforts to stimulate positive interest in and organization and its products and services by sending out

� News releases

� Holding press conferences

� Special events

� Sponsoring newsworthy activities put on by third parties

� Obtain testimonial from public figures

� Fundraising

D. Sales Promotion

� Sales promotion consists of a diverse collection of incentive tools, mostly short term, designed to stimulate quicker or greater purchase of particular products and services by consumers or the trade.

• Sales Promotion toolsFree samples/free trialCoupon –� straight price cut, � a discount or fee waiver for one or more patrons

accompanying the original purchaser, � a free or discounted enhancement of the basic

service (such as free waxing with each car washing)

Short term discount – only available for a limited time period especially slow periods.Gift premiumsPatronage rewardSign up rebates – waive membership feesContest, sweepstake, games

e) Instructional material

The role of instructional material is to educate customers the benefit of using the service and how to use the service.

Materials used such as;

� Brochures

� Video / CD-Rom

� Website

d) Corporate design

To create a unified and distinctive visual appearance for all tangible elements that contribute to the corporate image.

Such as stationery and promotional literature, retail signage, uniforms, and color schemes for painting vehicles, equipment, and building interiors.

These elements are created by using distinctive colors, symbols, lettering, and layout to provide a unifying and recognizing theme linking all the firm’s operations in a branded service experience.

4. Price

� Key pricing concepts for services

� Skimming pricing – offer the new service at a high price on a low volume basis.

� Penetration pricing – price is set at low level to attract high volume sales

� Cost – plus pricing; pricing is based on the costs of producing the good or providing the service and add some required mark up.


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� Variable pricing – more relevant in industrial and business to business markets where individual contracts are priced according to specification or complexity of the work.

� Marginal pricing – based on the concept of marginal cost and anything over the marginal cost is the contribution to the company’s profit. Some companies rather sell at discounted price at last minute rather than empty seat.

� Promotional pricing

� Discounts, special offer, vouchers, rebates, and even buy now pay later schemes, interest free credit, and loss leaders

� Differential pricing – different prices are charged for the same service at different times or to different customers. This tactics is used to attract more business in slack periods.

7. People

� Refers to the service providers – the employees of the firm. E.g. receptionist in hotel, hairstylist in hair saloon, nurse in hospital, etc.

� Many services depend on direct, personal interaction between customers and a firm’s employees, and these interactions strongly influence the customer’s perceptions of service quality.

8P’s model of integrated service management Company

Providers Customers

External Marketing

Making promises

Internal Marketing

Enabling promises

Interactive Marketing

Keeping promises

The services marketing triangle

External marketing

efforts that the firm set up its customers’ expectations and make promises to customers regarding what is to be delivered.

Interactive marketing

where the promises are kept or broken by the firm’s employees. People are critical at this juncture. If customers are not kept, customers become dissatisfied and eventually leave.

Internal marketing

these are the activities that management engages in to aid the providers in their ability to deliver on the service promise: recruiting, training, motivating,

rewarding, and providing equipment and technology.

Employee satisfaction, customer satisfaction and profit

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Human resource strategies1. Hire the right people

Compete for the best people

thinking of the recruiting as a marketing activity results in addressing issues of market (employee) segmentation, product (job) design and promotion of job availability in ways that attract potential long term employees

Hire for service competencies and service inclination

Requirements for the job: Qualifications/technical knowledge, ability, skills, experience, personality, physical characteristics

Be the preferred employer

Provide extensive training, career and advancement opportunities, excellent internal support, and attractive incentives, etc.

2. Develop people to deliver service qualityTrain for technical and interactive skills

technical skills and knowledge

operational rules of the company

Interactive skills that allow them to provide courteous, caring, responsive, and empathetic service.

Empower employees

to be truly responsive to customer needs, front-line providers need to be empowered to accommodate customer requests and to recover on the spot when things go wrong.

Promote teamwork

The nature of many service jobs suggests that customer satisfaction will be enhanced when employees work as teams.

3. Provide needed support systems

Measure internal service quality

identify internal customers who need help, determine their needs, measure how well they are doing, and make improvements

Provide supportive technology and equipment

Develop service oriented internal processes

To best support service personnel in their delivery of quality service on the front line, an organisation’s internal processes should be designed with customer value and customer satisfaction in mind.

4. Retain the best peopleInclude employees in the company’s mission

When the vision and direction are clear and motivating, employees are more likely to remain with the company through the inevitable rough spots along the path to the vision.

Treat employees as customers

If employees feel valued and their needs are taken care of, they are more likely to stay with the organisation

Measure and reward strong service performers

If a company wants the strongest service performers to stay with the organisation, it must reward and promote them.

Further reading: Valerie A. Zeithaml and Mary Jo Bitner (2003, Ch.11 employees’ role in service delivery) Services marketing: integrating customer focus across the firm. 3rd edition. Mc Graw-Hill

8. Physical evidence and the servicescape

� Visual or other tangible clues that provide evidence of service quality. E.g. facility design, equipment, signage, employee appearance, printed materials.

� As service is intangible, it is hard for customers to judge the service quality before use it. Therefore, customers will base on the tangible objects to evaluate service quality.

� Servicescape – describe the style and appearance of the physical environment where customers and service provider interact.


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Elements of physical evidence

Servicescape

Facility exterior

exterior design

signage

parking

landscape

Surrounding environment

Facility interior

interior design

equipment

signage

layout

air quality/temperature

Other tangibles

Business card

Stationery

Billing statements

Reports

Employee dress

Uniforms

Brochures

Virtual servicescape

Role of the servicescape

1. Package – physical evidence of services essentially “wrap” the service and convey an external image of what is “inside” to consumers.

This packaging role is particularly important in creating expectations for new customers and for newly established service organisation that are trying to build a particular image.

2. Facilitator – how the setting is designed can enhance or inhibit the efficient flow of activities in the service setting,making it easier or harder for customers and employees to accomplish their goals.

A well-designed, functional facility can make the service a pleasure to ecperienc from the customer’s point of view and a pleasure to perform from the employee’s.

For example, an international air traveler who finds himself in a poorly designed airport with few signs, poor ventilation, and a few places to sit or eat will find the experience quite dissatisfying, and employees who work there will probably be unmotivated as well.

3. Socializer – the design of the servicescape aids in the socialisation of both employees and customers in the sense that it helps to convey expected roles, behaviours, and relationships.

The design of the facility can also suggest to customers what their role is relative to employees, what parts of the servicescape they are welcome in and which are for employees only, how they should behave while in the environment, and what types of interactions are encouraged.

4. Differentiator – the design of the physical facility can differentiate a firm from its competitors and signal the market segment the service is intended for.

Given its power as a differentiator, changes in the physical environment can be used to reposition a firm and/or to attract new market segments.

Price differentiation is also often partially achieved through variations in physical setting. Larger seats with more leg room are more expensive on an airplane.

5. Process

� A particular method of operations or series of action, typically involving steps that need to occur in a defined sequence. I.e. flow of activities by which the service is delivered.

� Customers are often involved in the service production. Badly designed processes are likely to annoy customers when the latter experience slow, bureaucratic, and ineffective service delivery.

� Similarly, poor processes make it difficult for frontline staff to do their jobs well, result in low productivity, and increase the likelihood of service failure.


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Example of a simple flowchart

Stay at motel:

park car check inspend night in room check out

The purpose of setting down clear outlines or blueprints for service delivery is as follow;

To ensure tat the service is carried out in the fastest, most efficient and cost effective manner possible

To enable service quality to be monitored and benchmarks to be put in place thus allowing accurate measurement of both quality and productivity

To facilitate staff training and enable individuals to carry responsibility for individual stages of the service transaction and delivery

To reduce the amount of divergence thus enabling accurate budgeting and manpower planning etc. to take place.

Issues to consider in designing service delivery process

Customer participation in the process – level of involvement or participation of the customer in the service process (self service vs waitress service restaurant)

Location of service delivery – at service providers’ premises or at the customer’s home?

High-contact or low-contact services – the level of contact between the customer and the service provider’s personnel.

Degree of standardization

Complexity of the service – this is measured by the number of steps or activities which contribute toward the service delivery.


6. Productivity and quality

Productivity measures the amount of output produced by an organisation relative to the amount of inputs required.

Quality- refers to the degree to which a service satisfies customers by meeting their needs, wants, and expectations.

What are the input in service context?

Labor

Materials, energy, and capital (consisting of land, buildings, equipment, information system, and financial assets)

Output?

No of customers served

Customers’ satisfaction

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Improvement in productivity means;

1. Reduced input but to produce same amount of output.

2. Maintain the input but increase the volume of output.

How productivity improvement impacts quality and value?

Reduced input could mean:

Reduced number of staff

Recruit low cost staff

Reduced number of equipments used

Etc

Increased output

for example a hairdresser suppose to serve 3 customers in one hour but increase her output to 4 customers. Customers will feel rushed and unwanted.

But these could cause decline in service quality

• Improving productivity is essential to keep costs under control, but managers must beware of making inappropriate cuts in service levels that are resented by customers.

Profitability

Productivity

Work faster and more efficiently to reduce cost

Quality

Improve customer satisfaction

•Hence, productivity and quality improvement strategies need to be considered jointly rather than in isolation from one another.

Strategies to improve productivity

Improving the quality of the labor force

- less mistakes, higher quality service

Investment in more efficient technology and capital equipment (computer, ATM, automated baggage system, scrubbing machine)

it reduces labor cost, increase efficiency, and provide consistent level of service quality.

Modify customer-service interaction

Changing how customers and service providers interact can often enhance productivity. Most customers now conduct business over the telephone, by fax, or through the internet rather than in person.

Separate customer contact and support functions

By physically separating the support and customer contact components, the quality and efficiency of both can be improved.

The support personnel can work more efficiently without interruptions from customers and can normally perform a better job. Freeing customer contact personnel from service performance can enhance the level of communication with the customer and improve the quality of that interaction.

Increasing self-service options

Firms can improve productivity by shifting some of the service operation to customers. E.g. petrol station, ATM, self service restaurant.

Reduce staff and increase the number of customers per hour that could be served.

Using subcontracting or outsourcing

A service consists of four primary components: information, reservations, payments,and consumption. Outsourcing with third parties or subcontractors can be used for any of these four components.

For example, airlines use travel agent to perform information, reservations and payments functions. Airlines can reduce labour force and productivity is improved because potential customers can deal with a travel agent in an area where they live.

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Further reading;1. Christopher Lovelock, Services Marketing. 4th

edition.

- Chapter 1, distinctive aspects of service management

- Ch 10, customer education and service promotion pg.296-306

- Ch 11, creating delivery system in place, cyberspace, and time

2. David L.K/Kenneth E.C (1998), Services Marketing.

- Ch.11 Pg.363-369 “enhancing productivity”

3. Valerie A. Zeithaml and Mary Jo Bitner (2003), Services marketing: integrating customer focus

across the firm. 3rd edition.

- Ch.11 employees’ role in service delivery , pg.325-337

- Ch.10 physical evidence and the servicescape, pg.287-289

4. Helen Woodruffe (1995), Services Marketing.

- Ch.12 Pricing the service, pg.138

doc chapter1 075853 (1)

Education

service marketinga service

service necessary

service users

marketing service products

unused service capacity

characteristics time

aspects of services

peak customer