Chapter 4

Product – a bundle of output

Creating Service Products

(1) core product, (2) supplementary services, and (3) delivery processes.

Core Product. The core product is "what" the customer is fundamentally

buying. is the central component that supplies the principal benefits,
solutions, or experience that the customer is seeking.

When buying a one-night stay in a hotel- accommodation and security

When paying to have a package delivered, the core service is the timely
delivery of the package in perfect condition at the correct address.

credit card and travel insurance products and the innovative design of
their features, benefits, and pricing

Supplementary Services. These augment the core product, both

facilitating its use and enhancing its value. To gain a competitive
advantage, firms often emphasize supplementary services, which can play
an important role in differentiating the core product from competing
services.

Delivery Processes. The third component in designing a service concept

concerns the processes used to deliver the core product and the
supplementary services. The design of the service offering must address
the following issues:

• How the different service components are delivered to the customer

o The nature of the customers' role in those processes

o The prescribed level and style of service to be offered

THE FLOWER OF SERVICES

Facilitating supplementary services

.Information company website, mobile apps, front-line employees, self-
service machines, signs, printed notices and brochures track the
movements of their packages, by a unique identification number
To obtain full value from goods or services, customers need relevant
information.
o Direction to service site
Schedules/service hours
Price information
Terms and conditions of sale/service
Advice on how to get maximum value from a service
 o Warnings and advice on how to avoid problems
Confirmation of reservations
Receipts and tickets
o Notification of changes
Summaries of account activities
Order Taking Once customers are ready to buy, a key supplementary
element comes into play—order taking.
Order entry
◦ On-site order entry
◦ Online/mobile app/telephone/e- mail order
Reservations or check-ins
◦ Seats/tables/rooms
◦ Vehicles or equipment rental
◦ Professional appointment (Figure 4.6
Applications
◦ Memberships in clubs/programs
◦ Subscription services (e.g., utilities)
Enrolment-based services (e.g., finance credit, college enrolment)

Billing(express checkout,
periodic statements of account activity
invoices for individual transactions verbal statements of amounts due.
online or machine display of amounts due for self-payment transactions.

Payments: wallets, credit card, debit card, cash

Enhancing Supplementary Services

Consultation
consultation consists of advice
 customized advice personal counseling
 tutoring/training in service use
 management or technical consulting

Counseling represents a more subtle approach to consultation because it

he customers understand their situations better and allows them to come
up "with their "own" solutions and action programs. (Health treatment, for
significant lifestyle changes and live healthy.
diet centers like Weight Watchers use counselling to help customers
change behaviours so that weight loss can be sustained after! initial diet
is completed.

Hospitality (face to face,for customer satisfaction)

 greeting
 food and beverages toilets and washrooms
 waiting facilities and amenities
(lounges, waiting areas, seating,weather protection , magazines,
entertainment, newspapers transport)

Safekeeping
When customers visit a service site, they often want assistance with their
personal possessions. In fact, unless certain safekeeping services are
provided, some customers may not visit at all. Safekeeping includes
• child care, pet care
 parking for vehicles, valet parking
 coat rooms
 baggage handling
 storage space
 safe deposit boxes
 security personnel
 online security eg wifi
 personal data

Exceptions (On the other hand, too many exceptions may compromise
safety, negatively impact other customers, and overburden employees.)
Special requests. Common requests relate to personal needs, including
care of children, dietary requirements, medical needs, religious
observance, and personal disabilities. Such requests are particularly
common in the travel and hospitality industries.
Problem-solving: problem Due to accidents, delay, equipment failure, or
difficulty facedby a customer while using a product.

Handling of complaints/suggestions/compliments.
It should be easy for customers to express dissatisfaction, offer
suggestions for improvement, or pass on compliments.
Restitution. Many customers expect to be compensated for serious
performance failures.
Compensation may take the form of repairs under warranty, legal
settlements, refunds, an offer of free service, or any other form of
payment-in-kind.

Service Branding
The brand is the visible face of the company to the customers, especially
so when the service is intangible.
Strong brands are
 Easily recognized
 Meaningful
 Distinctive
A brand is the public image of a company which projects the values and
nature of the company or service. The public image is created to
match the positioning strategy. This public image is sometimes
known as
'brand personality.'

Brand architecture options

Brand house- single brand to cover all its products.eg Virgin Group core
is travel, ent, and lifestyle but also offers financial, healthcare, media
telecommunication
Benefits: enhanced brand awareness, reduced marketing and
communications expenses, and potential positive spill-over effects
between products.
Danger: Overstretch and weakened brand, problem in one product can
spillover to the overall brand

Sub-brands. The corporate or the master brand is the main reference

point, but each product has a distinctive name as well. Eg fedex. FedEx
Freight, FedEx Custom, FedEx Trade Networks, FedEx supply chain

Endorsed Brands the product brand dominates but the corporate name
is still featured. Many hotel companies use this approach. Intercontinental
Hotel Group is in itself well known, its product brands are dominant. They
are Crowne Plaza Hotels & Resorts, Hotel Indigo, Holiday Inn, Holiday Inn
Club Vacations, Staybridge Suites, Candlewood Suites, Even Hotels, and
its loyalty program, IHG Rewards Club. The benefit: positive spill-over
from the corporate brand reduces risk perceptions and allows more
flexibility in positioning individual product brands. Also, negative spill-over
risks to the corporate brand are reduced.

House of Brands. separate stand-alone brands for its offerings. This

strategy is used when product brands target different segments and differ
in their positioning. example is Yum! Brands Inc.,—Taco Bell, KFC, Pizza
Hut, The Habit Burger Grill, and Wing Street. Each of these brands is
actively promoted under its own name

Brand Equity

Equity = value of your investments.

Brand Equity = the value of a brand in the minds of consumers.

When a company launches a new brand, it supports it with advertising

that seeks to create awareness of the brand name and create an image
for the brand by attaching certain values to it.
The combination of advertising and actual customer experience with the
brand will result in some degree of Brand Equity.

oCompany's presented brand--mainly through advertising, service

facilities, and personnel. focuses on the nature of the
product/service, the nature of the people who use your brand, or
both.( brand awareness)
o External brand communications--from word-of-mouth and
publicity. These are outside of the firm's control.
Customer experience with the company--what the customer
goes through which they patronize the company.( brand meaning)
o Brand awareness--the ability to recognize and recall a brand when
provided with a cue.
 o Brand meaning -what comes to the customer's mind when a brand
is mentioned. positive or negative.
o Brand equity- -the degree of marketing advantage that a brand
has over competitors. how much customers are willing to pay for a
branded service vs. a similar service that has no brand. It defines
the amount of marketing advantage a brand has over its
competition.

A Hierarchy of New Service Categories (7)

.
1. Style changes represent the simplest type of innovation, typically
involving, changes in either processes or performance.
Eg redesigning retail branches, websites, or uniforms for service
employee
2. Service improvements are the most common type of innovation.
They involve, small changes in the performance of current products,
including improvements to either the core product or to existing
supplementary services. For example, the Lydmar hotel in
Stockholm has a series of buttons where guests can choose the
music from a choice of garage, funk, and rhythm and blues. This is a
simple by unique improvement that can enhance a customer's
experience.
3. Supplementary service innovations adding new facilitating or
enhancing service elements to an existing core service. Low-tech
innovations for eg adding parking at a retail site or agreeing to
accept payment via smartphone.
4. Process line extensions new ways of delivering existing products
to attract new customers by offering a different and more
convenient experience for existing customers eg having online or
app-based self-service options.
5. Product line extensions are additions to a company's current
product lines. The first company in a market to offer such a product
may be seen as an innovator For example, a restaurant may extend
the product line to offer a menu for dogs so that both the owners
and their dogs can dine in the same restaurant
6. Major process innovations involve the use of new processes to
deliver existing core products with additional benefits For example,
fintech, robo-advisors and online courses are transforming their
respective industries by using cutting-edge technology,

7. Major service innovations are new core products for markets that
have not been previously defined. They usually include new service
characteristics as well as radical new processes that are often brought by
new, digital technologies, the development of entire service ecosystems.
Eg robotics,AI, Airbnb

Design Thinking in New Service Development

User-centred services should be viewed from the customer's
perspective and experience. Different customer segments and their needs
have to be considered.
Co-creative-All key stakeholders should be involved in the design
process, including customers, frontline employees and their leaders, IT,
finance and legal departments, and external parties (where applicable).
Sequential-A service is visualized as a sequence of interrelated steps,
activities and touchpoints (i.e., a customer's journey).
Evident-Intangible aspects of the service should be made tangible
through physical evidence, something customers can see and touch.
Holistic--The entire service experience along all live senses (l.e., what
the customer, sees, hears, feels, smells, and tastes) needs to be
considered.

Key tools used in service design thinking include service blueprinting,

customer, journey mapping, storytelling, the use of personas and
storyboards, and experience prototyping."

Achieving Success in New Service Development

Market synergy. The new service fits well with the existing image of the
firm, its expertise, and its resources. It is better than competing services
in terms of meeting customers' needs as the firm has a good
understanding of its customers. It also receives strong support from the
firm and its branches during and after the launch
Organizational factors. Strong inter-functional cooperation and
coordination; are needed.
Market research factors. Detailed and scientifically designed market
research,

Chapter 5
Key questions for designing an effective service
distribution strategy;
What: What flows through the channel?
• Information and promotion flow(e.g., promotional materials)
• Negotiation flow (e.g., make a reservation or sell a ticket)
• Product flow (including core and remaining supplementary services)*
How: "How should the service reach the customer?"
• Customers visit the service site
•Service providers go to their customers
• Transaction is conducted remotely (e.g., via mobile apps, the Internet,
telephone, mail, and email) complex and high perceived risk, social
motives services: personal channels.
• Channel integration is key (seamless and consistent service)
Important factors that attract customers to online services are
 convenience
  ease of search (obtaining information and searching for desired items or
services.
 a broader selection potential for better prices
 24/7 service with prompt delivery. This is particularly appealing to
customers, whose busy lives leave them short time.
Where: “Where should the service be delivered?"
• Strategic location considerations (including customer needs and type of
service) eg reserving seats in advance, delivering tkt through electronic
channel,extended hours opening,
• Tactical considerations (i.e., specific location characteristics)
 population size and characteristics, pedestrian and vehicular traffic and
its characteristic,
 convenience of access for customers (e.g., public transportation,
availability of parking)
 competitors in this area
 nature of nearby businesses and stores
 availability of labor
 availability of site locations, rental costs and contractual conditions
(e.g., length of lease, legal restrictions), and regulations (e.g., on
zoning and opening hours)• Location constraints (e.g., due to required
economies of scale)
When: When should the service be delivered?"( 40-50 hrs traitionally or 24/7)
• Customer needs
• Economics of incremental opening hours (fixed vs. variable costs)
•Availability of labour • Use of self-service facilities

Channel Preferences Vary among Customers

. Although electronic self-service. channels tend to be the most cost-effective,
but not all customers like to use them. This means that if we want to move
customers to new electronic channels, we require different strategies for
different segments

Factors That Encourage Extended Operating Hours

 Pressure from consumers.

 Changes in legislation
 Economic incentives to improve asset utilization.
 Availability of employees to work during "un-social" hours.
 Automated self-service facilities.

THE ROLE OF INTERMEDIARIES (Intermediaries are also frequently used to

add reach and generate business.)

These include providing information and advice, taking reservations,

accepting payment, and ticketing.

Benefits and Costs of Alternative Distribution Channels

the Flower of Service framework shows how the
 core product and certain supplementary elements such as information,
consultation, and exception are delivered by the original supplier.

The delivery of other supplementary services is delegated to an intermediary

to complete the offering as experienced by the customer.

Franchising
A franchise (or franchising) is a method of distributing products or services
involving a franchisor, who establishes the brand's trademark or trade name
and a business system, and a franchisee, who pays a royalty and often an
initial fee for the right to od business under the franchisor's name and
system."
Advantages
 the ability to achieve a larger size with a more recognizable brand
 name
 offering franchisees fewer supporting services but longer-term
 contracts
 having lower overhead per outlet
 providing accurate and realistic information about the expected
characteristics of franchise operations and the support given
 building a cooperative rather than controlling relationship
Long term commitment
Local market
low investment
Disadvantage
 some loss of control over the delivery system and, thereby, over how
customers experience the actual service.
 Ensuring that an intermediary adopts the same priorities and
procedures prescribed by the franchisor
 As franchises gain experience, they may start to resent the various
fees they pay the franchisor resulting in disputes often lead to legal
fights between the two parties.

• Popular way to expand without the company investing high levels of money.
• Franchisor provides processes, training, equipment and support marketing
activities.
• Franchisees invest time and finance, follow processes and media guidelines of
franchisor.
• Growth-oriented firms like franchising because franchisees are motivated to ensure
good customer service and high-quality service operations
• Study shows significant attrition rate among franchisors in the early years of a new
franchise system:
• One third of all systems fail within first four years
• Three fourths of all franchisors cease to exist after 12 years

Factors Favoring Adoption of Transnational Strategies

 Market Drivers.
 Competition Drivers.
 Technology Drivers
 CostDrivers.
  Government Drivers.

CHAPTER 6 IMPLIMENTING REVENUE

MANAGEMENT
Objectives of Service Pricing
• Gain profit and cover costs
• Build demand and develop a user base
• Support positioning strategy

EFFECTIVE PRICING

COST-BASED PRICING
Establishing the Costs of Providing Service.
fixed, semi-variable, and variable costs.
Service businesses with high fixed costs include those with expensive physical
facilities (such as hospitals or colleges), a fleet of vehicles (such as airlines or
trucking companies), or a network (such as railroads, telecommunications,

Cost of firm
competitor pricing
value to customer

Value-Based Pricing

Understanding Net Value.

Net value is the sum of al the perceived benefits (gross value) minus the sum
of al the perceived costs of the service.
The greater the positive difference between the two,
the greater the net value.

Reducing Related Monetary and Non-Monetary Costs

Related Monetary Costs. Includes hidden cost

Non-Monetary Costs.( can increase competitive advantage by minimizing non-

monetary cost)
time, is part of the service delivery.
Physical cost is like effort, fatigue, and discomfort)
may be part of the costs of obtaining services
psychological cost such as mental effort (e.g., filing in online account-opening
forms that request lots of detailed information), perceived risk and
anxiety ("Is this hte best treatment?
Sensory cost putting up with crowding, noise, unpleasant smels, drafts, excessive
heat or cold, uncomfortable seating, and visualy unappealing environments.
Understanding Costs, Contribution, and Break-Even Analysis
Fixed cost
Variable cost: economic cost serving another customer
Semi variable cost: fall between vc and fc
Contribution : is the difference between the variable
cost of selling an extra unit of service and the money received from the buyer of that
service

Determining and allocating economic costs: (1) the percentage of total flor space
ti occupies, (2) the percentage of employee hours or payroll it accounts for, or (3) the
percentage of total patient-contact hours involved.

Break-even analysis : alows managers ot know the sales volume at which aservice
wil become profitable.