Amity Business School

Amity Business School

MARKETING OF SERVICES
Module I: Understanding Services and Consumer Behavior

Course Code: MBA 479

Credit Units: 03 Rohit S. Tomar

Objectives of the Course

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The course has been designed to equip students to become more effective managers of any service organization by familiarizing them with the basic characteristics of services, their implications on design and delivery, and the ways to achieve sustainable competitive advantage by managing critical parameters.

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Objectives of the Session

To understand Factors influencing the growth of service sector Definition of service Tangibility spectrum Characteristics of services Generic differences between goods & services Classification of services Developing frameworks for analyzing services Myths about services

Factors Influencing the Growth of Service Sector

Government Policies Social Changes Business trends Technological Changes Globalization

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Government Policies
Changes in regulations Privatization New rules to protect customers, employees and the environment New agreements on trade in services

Social Changes

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Rising customer expectations More affluence More people short of time Increased desire for buying experiences Rising customer ownership of high tech equipments Easier access to more information Immigration Growing but aging population

Business trends

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Push to increase shareholder value Emphasis on productivity and cost savings Manufacturers add value through service and sell services More strategic alliances and out sourcing Focus on quality and customer satisfaction Growth on franchising Marketing emphasis on non profits

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Technological changes
Growth of internet greater bandwidth Mobile equipment Wireless networking Faster software Digitalization of text, graphics, audio and video

Globalization

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More companies operating on transnational basis Increase international travel Foreign competition International mergers and alliances Offshore customer services

Definition of Service

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Service is an activity that has an element of intangibility associated with it and which involves the service providers

interaction either with customers or with

the property belonging to the customer.

- Adrian Payne

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Characteristics of Services
Intangibility (hair style)
Heterogeneity (Quality varies over time) Inseparability (Cannot separate service from service provider) Perishability (Food items)

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The services marketing challenges and implications for marketers for each service characteristics

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Intangible elements
Implications
Customers cant smell, taste and touch these elements
Harder to evaluate service and distinguish from competitiors

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Marketing related tasks

Make services tangible through physical clues Use Metaphors and physical clues

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Tangibility Spectrum

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Services can be classified on the basis of tangibility like following

A pure tangible good A tangible good with accompanying services A major service accompanying minor goods and services A pure service

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Most services cant be inventoried

Implications

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Marketing tasks Smooth demand through promotions, dynamic pricing & reservations

Customer may turn away or have to wait

Work with operations to adjust capacity

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Services are difficult to visualize and understand

Implications

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Marketing Related Task

Educate customers to make good choices, explain what to look for, document performance, offer guarantees.

Customers perceive greater risk and uncertainty.

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People may be the part of the service experience

Implications
Appearance, attitude, and behaviour of service personnel and other customers can shape the experience and affect satisfaction.

Marketing-Related Tasks
Recruit, train, and reward employees to reinforce the planned service concept. Target the right customers at the right times, shape their behaviour.

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Operational inputs and outputs

Implications
Harder to maintain consistency, reliability, and service quality to lower cost through higher productivity. Difficult to protect customers from results of service failure.

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Marketing-Related Tasks
Set quality standards based on customer expectations; redesign product elements for simplicity and failureproofing. Institute good service recovery procedure. Automate customerprovider interactions; perform work while customer are absent

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The time factor often assumes great importance

Implications
Customer see time as a scare resources to be spent wisely; dislike wasting time waiting, want service at times that are convenient.

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Marketing-Related Task
Find ways to compete on speed of delivery, minimize burden of waiting, offer extended service hours.

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Distribution through non physical channel

Implications
Information based services can be delivered through electronic channels such as the internet or voice telecommunication, but core products involving physical activities or products cannot.

Marketing-Related Task
Seek to create user friendly, secure websites and free access by telephone. Ensure that all information based service elements can be downloaded from site.

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Service Marketing Triangle

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Aligning the Triangle

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Organizations that seek to provide consistently high levels of service excellence will continuously work to align the three sides of the triangle. Aligning the sides of the triangle is an ongoing process.

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Making Promises

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Understanding customer needs Managing expectations Traditional marketing communications Sales and promotion Advertising Internet and web site communication

Keeping Promises
Service delivery

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Reliability, responsiveness, empathy, assurance, tangibles, recovery, flexibility

Face-to-face, telephone & online interactions The Customer Experience Customer interactions with sub-contractors or business partners The moment of truth
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Enabling Promises

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Hiring the right people Training and developing people to deliver service Employee empowerment Support systems Appropriate technology and equipment Rewards and incentives

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Inverted Service marketing triangle

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Ways to Use the Services Marketing Triangle

Overall Strategic Assessment
How is the service organization doing on all three sides of the triangle? Where are the weaknesses? What are the strengths?

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Specific Service Implementation

What is being promoted and by whom? How will it be delivered and by whom? Are the supporting systems in place to deliver the promised service?

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Services Marketing Triangle Applications Exercise

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Focus on a service organization. In the context you are focusing on, who occupies each of the three points of the triangle?
How is each type of marketing being carried out currently? Are the three sides of the triangle well aligned? Are there specific challenges or barriers in any of the three areas?
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The Flower of Service (Fig 3.6)

Information Payment Billing
Core

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Consultation Order Taking

Exceptions Safekeeping
KEY:

Hospitality

Facilitating elements Enhancing elements

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How to Determine What Supplementary Services Should Be Offered

Not every core product is surrounded by supplementary elements from all eight clusters

Nature of product helps to determine:

Which supplementary services must be offered Which might usefully be added to enhance value and ease of doing business with the organization

People-processing and high-contact services tend to have more supplementary services

Market positioning strategy helps to determine which supplementary services should be included Firms that offer different levels of service often add extra supplementary services for each upgrade in service level

The Flower of Service: Facilitating ServicesInformation

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Customers often require information about how to obtain and use a product or service. Core Examples of elements: Directions to service site Schedule/service hours Prices Conditions of sale Usage instructions

The Flower of Service: Facilitating ServicesOrder Taking

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Core

Customers need to know what is available and may want to secure commitment to delivery. The process should be fast and smooth. Examples of elements: Applications Order entry Reservations and check-in

The Flower of Service: Facilitating ServicesBilling

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How much do I owe you? Bills should be clear, Accurate, and intelligible. Core Examples of elements: Periodic statements of account activity Machine display of amount due

The Flower of Service: Facilitating ServicesPayment

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Customers may pay faster and more cheerfully if you make transactions simple and convenient for them.
Core

Examples of elements:
Self service payment Direct to payee or intermediary Automatic deduction

The Flower of Service: Enhancing ServicesConsultation

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Core

Value can be added to goods and services by offering advice and consultation tailored to each customers needs and situation. Examples of elements: Customized advice Personal counseling Management consulting

The Flower of Service: Enhancing ServicesHospitality

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Customers who invest time and effort in visiting a business and using its services deserve to be treated as welcome guests after all, marketing invited them!

Core

Examples of elements: Greeting Waiting facilities and amenities Food and beverages Toilets and washrooms Security

The Flower of Service: Enhancing ServicesSafekeeping

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Customers prefer not to worry about looking after the personal possessions that they bring with them to a service site. Core Examples of elements: Looking after possessions customers bring with them Caring for goods purchased (or rented) by customers

The Flower of Service: Enhancing ServicesExceptions

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Core

Customers appreciate some flexibility when they make special requests and expect responsiveness when things dont go according to plan. Examples of elements: Special requests in advance Complaints or compliments Problem solving Restitution

Managerial Implications

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To develop product policy and pricing strategy, managers need to determine: Which supplementary services should be offered as a standard package accompanying the core Which supplementary elements could be offered as options for an extra charge In general, firms that compete on a low-cost, no-frills basis needs fewer supplementary elements than those marketing expensive, high-value-added services Each flower petal must receive consistent care and concern to remain fresh and appealing

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Important Differences Exist among Services

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Categorizing Service Processes

What is the Nature of the Service Act?
TANGIBLE ACTS

Who or What is the Direct Recipient of the Service?

DIRECTED AT PEOPLE DIRECTED AT POSSESSIONS

People Processing
e.g., airlines, hospitals, haircutting, restaurants hotels, fitness centers

Possession Processing
e.g., freight, repair, cleaning, landscaping, retailing, recycling

INTANGIBLE ACTS

Mental Stimulus Processing

e.g., broadcasting, consulting, education, psychotherapy

Information Processing
(directed at intangible assets)

e.g., accounting, banking, insurance, legal, research

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Implications of Service Processes (1) Seeking Efficiency May Lower Satisfaction

Processes determine how services are created/delivered process change may affect customer satisfaction Imposing new processes on customers, especially replacing people by machines, may cause dissatisfaction

New processes that improve efficiency by cutting costs may hurt service quality
Best new processes deliver benefits desired by customers Faster Simpler More conveniently Customers may need to be educated about new procedures and how to use them

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(2) Designing the Service Factory

People-processing services require customers to visit the service factory, so: Think of facility as a stage for service performance

Design process around customer

Choose convenient location Create pleasing appearance, avoid unwanted noises, smells Consider customer needs--info, parking, food, toilets, etc.

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(3) Evaluating Alternative Delivery Channels

For possession-processing, mental-stimulus processing, or information processing services, alternatives include: 1. Customers come to the service factory 2. Customers come to a retail office

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3. Service employees visit customers home or workplace

4. Business is conducted at arms length through - physical channels (e.g., mail, courier service) - electronic channels (e.g., phone, fax, email, Web site)

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(4) Balancing Demand and Capacity

When capacity to serve is limited and demand varies widely, problems arise because service output cant be stored: 1. If demand is high and exceeds supply, business may be lost 2. If demand is low, productive capacity is wasted Potential solutions: - Manage demand - Manage capacity

(5) Applying Information Technology

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All services can benefit from IT, but mental-stimulus processing and information-processing services have the most to gain:
Remote delivery of information-based services anywhere, anytime New service features through websites, email, and internet (e.g., information, reservations) More opportunities for self-service New types of services

(6) Including People as Part of the Product

Involvement in service delivery often entails contact with other people

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Managers should be concerned about employees appearance, social skills, technical skills Other customers may enhance or detract from service experience--need to manage customer behavior

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The Purchase Process for Services

Prepurchase Stage

Awareness of need Information search Evaluation of alternative service suppliers

Service Encounter Stage Request service from chosen supplier Service delivery Postpurchase Stage Evaluation of service performance Future intentions

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Intangible Attributes, Variability, and Quality Control Problems Make Services Hard to Evaluate
Search attributes Tangible characteristics that allow customers to evaluate a product before purchase Experience attributes Characteristics that can be experienced when actually using the service Credence attributes Characteristics that are difficult to evaluate confidently even after consumption Goods tend to be higher in search attributes, services tend to be higher in experience and credence attributes Credence attributes force customers to trust that desired benefits have been delivered

Perceived Risks in Purchasing and Using Services

Functional unsatisfactory performance outcomes
Financial monetary loss, unexpected extra costs Temporal wasted time, delays lead to problems Physical personal injury, damage to possessions Psychological fears and negative emotions Social how others may think and react Sensory unwanted impacts to any of five senses

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How you will handle perceived risk?

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What is the role of service provider in reducing the risk?

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Components of Customer Expectations

Desired Service Level: wished-for level of service quality that customer believes can and should be delivered Adequate Service Level: minimum acceptable level of service Predicted Service Level: service level that customer believes firm will actually deliver Zone of Tolerance: range within which customers are willing to accept variations in service delivery

Factors that Influence Customer Expectations of Services

Personal Needs Desired Service Beliefs about What Is Possible

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Explicit & Implicit Service Promises Word-of-Mouth Past Experience

ZONE OF TOLERANCE

Perceived Service Alterations Adequate Service Situational Factors Predicted Service

Source: Adapted from Zeithaml, Parasuraman & Berry

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How Product Attributes Affect Ease of Evaluation)

Most Goods Most Services

Restaurant meals

Computer repair

Complex surgery

Legal services

Motor vehicle

Entertainment

Lawn fertilizer

Clothing

Haircut

Chair

High in search attributes

Foods

Easy to evaluate

Difficult to evaluate

High in experience attributes

High in credence attributes

Source: Adapted from Zeithaml

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Consumer Behavior in Service Encounters

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Where Does the Customer Fit in a Service Organization?

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Consumers rarely involved in manufacture of goods but often participate in service creation and delivery Challenge for service marketers is to understand how customers interact with service operations Flowcharting clarifies how customer involvement in service encounters varies with type of process People processing (e.g., motel stay): customer is physically involved throughout entire process Possession processing (e.g., DVD repair): involvement may be limited to drop off of physical item/description of problem and subsequent pick up

Mental stimulus processing (e.g., weather forecast): involvement is mental, not physical; here customer simply receives output and acts on it
Information processing (e.g., health insurance): involvement is mental specify information upfront and later receive documentation of coverage

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High-Contact and Low-Contact Services

High Contact Services Customers visit service facility and remain throughout service delivery Active contact between customers and service personnel Includes most people-processing services Low Contact Services Little or no physical contact with service personnel Contact usually at arms length through electronic or physical distribution channels New technologies (e.g. Web) help reduce contact levels

Levels of Customer Contact with Service Organizations

High
N u r si n g H o m e

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Emphasizes encounters with service personnel

M a na g e m e n t Co n su l t i n g

H a i r Cu t
4 - Sta r H o t e l
G o o d Re sta u r a n t A i r l i n e Tr a ve l (Eco n .)

Te l e p h o n e Ba n k i n g

Re t a i l Ba n k i n g M o te l

Ca r Re p a i r I n su r a n ce

Dr y Cl ea n i n g
Fa st Fo o d Movie Theater
Ca b l e TV

Subway Internet Banking Mail Based Repairs

Emphasizes encounters with equipment

Internet-based Services

Low

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Managing Service Encounters--1

Service encounter: A period of time during which customers interact directly with a service Moments of truth: Defining points in service delivery where customers interact with employees or equipment Critical incidents: specific encounters that result in especially satisfying/dissatisfying outcomes for either customers or service employees

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Managing Service Encounters--2

Service success often rests on performance of junior contact personnel
Must train, coach, role model desired behavior

Thoughtless or badly behaved customers can cause problems for service personnel (and other customers)
Must educate customers, clarify what is expected, manage behavior

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A Service Business is a System Comprising Three Overlapping Subsystems

Service Operations (front stage and backstage) Where inputs are processed and service elements created. Includes facilities, equipment, and personnel

Service Delivery (front stage)

Where final assembly of service elements takes place and service is delivered to customers Includes customer interactions with operations and other customers

Service Marketing (front stage)

Includes service delivery (as above) and all other contacts between service firm and customers

Service Marketing System: (1) High Contact Service--e.g., Hotel

Service Delivery System Service Operations System
Interior & Exterior Facilities Other Customers

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Service Marketing System

Other Contact Points
Advertising Sales Calls Market Research Surveys Billing / Statements Miscellaneous Mail, Phone Calls, Faxes, etc. Random Exposure to Facilities / Vehicles

Technical Core

Equipment

The Customer

Service People

Backstage (invisible)

Front Stage (visible)

Other Customers

Chance Encounters with Service Personnel Word of Mouth

Service Marketing System: Amity Business School (2) Low Contact Service--e.g., Credit Card Service Marketing System
Service Delivery System Service Operations System Other Contact Points

Advertising Mail Technical Core Self Service Equipment Phone, Fax .

Backstage (invisible) Front( Stage visible)

The Customer

Market Research Surveys

Random Exposures Facilities, Personnel

Word of Mouth

 Service dramas unfold on a stage--settings may change as performance unfolds Many service dramas are tightly scripted, others improvised Front-stage personnel are like members of a cast

The Dramaturgy of Service Delivery

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Like actors, employees have roles, may wear special costumes, speak required lines, behave in specific ways
Support comes from a backstage production team Customers are the audiencedepending on type of performance, may be passive or active

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Role and Script Theories

Role: A set of behavior patterns learned through experience and communication
Role congruence: In service encounters, employees and customers must act out defined roles for good outcomes Script: A sequence of behavior to be followed by employees and customers during service delivery Some scripts (e.g. teeth cleaning) are routinized, others flexible Technology change may require a revised script Managers should reexamine existing scripts to find ways to improve delivery, increase productivity, enhance experiences

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Post encounter stage

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Customer Satisfaction is Central to the Marketing Concept

Satisfaction defined as attitude-like judgment following a service purchase or series of service interactions Customers have expectations prior to consumption, observe service performance, compare it to expectations Satisfaction judgments are based on this comparison Positive disconfirmation if better than expected Confirmation if same as expected Negative disconfirmation if worse than expected Satisfaction reflects perceived service quality, price/quality tradeoffs, personal and situational factors Research shows links between customer satisfaction and a firms financial performance

Customer Delight: Going Beyond Satisfaction

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Research shows that delight is a function of 3 components Unexpectedly high levels of performance Arousal (e.g., surprise, excitement) Positive affect (e.g., pleasure, joy, or happiness) Is it possible for customers to be delighted by very mundane services? Progressive Insurance has found ways to positively surprise customers with customer-friendly innovations and extraordinary customer service

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Elements of The Services Marketing Mix:

7Ps vs. the Traditional 4Ps
Rethinking the original 4Ps
Product elements Place and time

Promotion and education

Price and other user outlays

Adding Three New Elements

Physical environment
Process People

The 7Ps: (1) Product Elements

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All Aspects of Service Performance that Create Value Core product featuresboth tangible and intangible elements Bundle of supplementary service elements

Performance levels relative to competition

Benefits delivered to customers (customers dont buy a hotel

room, they buy a good nights sleep)

Guarantees

The 7Ps: (2) Place and Time

Delivery Decisions: Where, When, and How

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Geographic locations served

Service schedules

Physical channels
Electronic channels

Customer control and convenience

Channel partners/intermediaries

Amity Business School The 7Ps: (3) Promotion and Education

Informing, Educating, Persuading, and Reminding Customers Marketing communication tools

media elements (print, broadcast, outdoor, retail, Internet, etc.)

personal selling, customer service sales promotion publicity/PR Imagery and recognition branding corporate design

Content
information, advice persuasive messages customer education/training

Amity Business School The 7Ps: (4) Price and Other User Outlays

Marketers Must Recognize that Customer Outlays Involve More than the Price Paid to Seller Traditional Pricing Tasks Selling price, discounts, premiums Margins for intermediaries (if any)

Credit terms
Identify and Minimize Other Costs Incurred by Users Additional monetary costs associated with service usage (e.g., travel to service location, parking, phone, babysitting,etc.) Time expenditures, especially waiting Unwanted mental and physical effort Negative sensory experiences

The 7Ps: (5) Physical Environment

Designing the Servicescape and providing tangible evidence of service performances Create and maintaining physical appearances buildings/landscaping interior design/furnishings vehicles/equipment staff grooming/clothing sounds and smells other tangibles

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Select tangible metaphors for use in marketing communications

7Ps: (6) Process

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Method and Sequence in Service Creation and Delivery

Design of activity flows

Number and sequence of actions for customers Providers of value chain components Nature of customer involvement Role of contact personnel

Role of technology, degree of automation

The 7Ps: (7) People

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Managing the Human Side of the Enterprise The right customer-contact employees performing tasks well job design recruiting/selection training motivation evaluation/rewards empowerment/teamwork The right customers for the firms mission fit well with product/processes/corporate goals appreciate benefits and value offered possess (or can be educated to have) needed skills (co-production) firm is able to manage customer behavior

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Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR Functions

Operations Management

Marketing Management

Customers

Human Resources Management

Why Study services?

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Which is the worlds most service dominated economy? ------- Services dominated the economy in most nations. Understanding services offers you competitive advantages. Importance of service sector in economy is growing rapidly.
Services accounts for the 60% of the worlds GDP. All economies has substantial service sector. Most new employment is provided by the services. Strongest growth area for marketing.

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Estimated size of the service sector in some countries as a percentage of GDP

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India--------------48% of GDP China-------------33% of GDP

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