AMB340 - Services Marketing PDF

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These are the notes I used to study for the mid sem exam...

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AMB340 SERVICES MARKETING Week 1: Introduction to Services Marketing What is Marketing?  Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. (American Marketing Association, 2007) What is a service?  A deed, a performance, an effort that is exchanged for some other unit of value between two or more parties. 

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(Fisk et al., 2007) “Activities, benefits and satisfactions, which are offered for sale or are provided in connection with the sale of goods” (American Marketing Association) “Services are economic activities offered by one party to another” (Wirtz et al., 2012) o

Bring out desired results to participants

o Can involve physical objects Services create value “(Service is) the application of knowledge and skills to resources to support someone’s value creation” (Gronroos & Gummerus, 2014:213) “Service is support by an organisation to a customer's (or any other beneficiary's) everyday practices with an aim to facilitate value creation (value formation, value emergence) in this customer's life or business” (Gronroos, 2015) Services involve a form of rental Five broad categories of services within non-ownership framework: 1. Rented goods services 2. Defined space and place rentals 3. Labour and expertise rentals 4. Access to shared physical environments 5. Systems and networks: access and usage Why study services? 

Services dominate economy in most developed nations

Characteristics of Services 4 Characteristics of Services Intangibility

8 Common Differences between Services and Goods  Intangible elements usually dominate value creation  Services are often difficult to visualise and understand  Distribution kay take place through non-physical channels

Perishability

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Most service products cannot be inventoried The time factor often assumes great importance

Simultaneity/Inseparability

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Customers may be involved in co-production People may be part of the service experience

Heterogeneity

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Operational inputs and outputs tend to vary more widely

Intangibility Problems  Cannot be stored; demand difficult to manage  Not protected by patents; easy for competitors to copy (e.g. Samsung vs. Apple / Suncorp vs. ANZ)  Not easy to display or communicate; quality difficult to assess Solutions  Tangible cues; physical evidence  

Personal sources of information (e.g. testimonials)

Create a strong organisational image / reputation

Perishability Problems  Services cannot be inventoried  Managing supply and demand is a challenge 

Service recovery is more difficult than with physical goods

Solutions  Keeping customers ‘in stock’ (e.g. airplane overbooking, restaurant waiting area)  Development of service recovery strategies 

Creative management of supply and demand  Level demand (e.g. pricing, create off-peak demand)

 Manage capacity (e.g. casual staff, increasing customer participation) Simultaneity/Inseparability Problems  Mass production of services is difficult, if possible at all  

Service provider is involved in the production process Customers are involved in the production process

 

Other customers may be involved in the production process Service quality depends on what happens in real time

Solutions

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Careful selection and rigorous training of service personnel Strategies to manage consumers

Heterogeneity Problems  Difficulty in measuring and controlling service quality  People do not operate like machines… Solutions  Customisation… can lead to increased profits  

Standardisation… faster, cheaper, more consistent Staff need to be trained in service recovery

Intangibility

LIMITATIONS Most scholars focus on pre-purchase phase, ignoring:  Customer experience in-process (often tangible)  Repeated use of the service nullifies the effect of intangibility  Nature of output (often an observable physical change

Heterogeneity

What about self-service technology? (e.g. ATMs, Internet)

Inseparability

In practice, there are many separable services (e.g. repair, maintenance, cleaning, insurance) where production precedes consumption.

Perishability

Important exception: Many information-based services can be recorded, stored in electronic media, and reproduced on demand.

How can services be classified? 1. 2. 3. 4. 5. 6. 7.

Degree of tangibility/intangibility of service processes Who or what is the direct recipient of service processes The place of service delivery Customisation versus standardisation Relationship with customers Discrete versus continuous services High contact versus low contact

Four Categories of Service Lovelock’s Four Categories of Service Provision

People Processing 

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Customers must:  Physically enter the service factory  Co-operate actively with service operation Managers should think about process and output from customer’s perspective  To identify benefit created and non-financial costs. (time, mental, physical effort)

Possession Processing   

Customers are less physically involved compared to people processing services Involvement is limited Production and consumption are separable

Mental Stimulus Processing   

Ethical standards required when customers who depend on such services can potentially be manipulated by suppliers Physical presence of recipients not required Core content of services is information-based  Can be ‘inventoried’

Information Processing   

Information is the most intangible form of service output But may be transformed into enduring forms of service output Line between information processing and mental stimulus processing may be blurred

7Ps of Services Marketing The 7Ps of services marketing are needed to create viable strategies for meeting customer needs profitably in a competitive marketplace.

KEY POINTS   



Services are acts, performances, processes and experiences Services are different to goods o Intangible, simultaneously produced and consumed, heterogenous (variable), and perishable Services can be classified according to the underlying process: o Intangible acts on people – mental processing o Tangible acts on people – people processing o Tangible acts on things – possession processing o Intangible acts on things – information processing The Services Marketing Mix has 3 extra Ps: o People o Physical evidence o Process

Fundamentals of AMB340: Unit Map Assessment 1: Pitch Due:

Week 5 – 12

Duration:

4 minutes max

Group/Individual:

Individual

Description: Students will identify a real service organisation that has a problem with one of the 7Ps or its evaluation, and then pitch a solution to that problem. Assessment 2: Mid-semester exam

Due:

Week 7

Duration:

1.5 hours (plus 10 mins)

Group/Individual:

Individual

Description: The mid-semester examination will be held in the lecture during Week 7 of the teaching semester and will consist of short answer questions based on the material covered in Weeks 1 – 6 inclusive. Assessment 3: Service audit Due:

Friday 25th October by 11.59pm through Blackboard

Length:

2000 words

Group/Individual:

Group

Description: Students are required to audit a service. Guidelines for the analysis and assessment criteria will be provided on Blackboard.

Week 2: Consumer Behaviour in Services Marketing

Pre-Purchase Decision-Making Step 1: Need Recognition   

People’s unconscious minds Physical conditions External sources

Step 2: Information Search   

Non-personal sources Personal sources Evoked set vs. consideration set

Step 3: Evaluation of Service Alternatives Multi-attribute Model  

Consumers use product attributes that are important to them to compare alternate offerings in the consideration set Each attribute has an importance weight

Decision Rules 1. Linear compensatory rule 2. Conjunctive rule Search Qualities: Attributes a consumer can determine prior to purchase of a product Experience Qualities: Attributes a consumer can determine after purchase (or during consumption) of a product Credence Qualities: Characteristics that may be impossible to evaluate even after purchase and consumption

Reducing Perceived Risk What can customers do?   

Word of mouth and extensive information search Internet comparisons Ask knowledgeable employees

What can marketers do?     

Service guarantees / warranties Service process involvement Image and reputation Price as an indicator of quality Trials

Step 4: Purchase Decision With many services, at the point of purchase, customers often know very little about the service they are buying. Physical goods are produced prior to purchase; services are often produced as they are being consumed Risk reduction is therefore even more important Brand Loyalty in Services    

Service consumers are likely to be more brand loyal Lowers perceived risk Fewer choices are available Switching costs are higher: o Search, learning o Loyal consumer discounts, habit o Emotional and cognitive costs

Consumer Experience  

Comprises critical incidents, termed ‘moments of truth’ Can take different forms differing in duration and complexity

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Service encounters differ for every consumer

Consumer Needs in a Service Setting Security includes serious physiological issues as well as safety needs such as our need for protection and stability. Security needs may include avoidance of physical and/or financial risks. Respect a fundamental, higher-level human need Esteem the individual’s self concept, or self identity Is the service level provided congruent with the consumer’s respect and esteem needs? Control Theory   

The notion of control is important in understanding customer reactions to the social interaction during service encounters Behavioural Control Perception of control in a situation due to your own actions Cognitive Control Perception of control in a situation due to knowledge, perception and beliefs

What do consumers see during the experience?

Types of Service Encounters High-contact Services  

Customers visit service facility and remain throughout service delivery Active contact between customers and service personnel

Low-contact Services 

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Little or no physical contact with service personnel Contact usually at arm’s length through electronic or physical distribution channels

Medium-contact Services 

Lie in between these two

Servuction System

Services Theatre Framework   

Actors (service workers) are those who work together to produce the service for an audience (customers) Setting (service environment/facilities) is the stage where the action or service performance unfolds Performance is the dynamic result of the interaction of the actors, audience and setting

Role Theory “…a set of behaviour patterns learned through experience and communication, to be performed by an individual in a certain social interaction in order to attain a maximum effectiveness in goal accomplishment.” (Thompson, 2003) In a service encounter both customers and service employees have roles that must be enacted in order to complete a certain mutual goal e.g. you know you must complete your reading assignment for each lecture, arrive on time, listen carefully, and participate in group discussions in tutorials Script Theory “…a learned sequence of buyer and seller behaviours that are expected for that service encounter.” (White, 2003) When the service conforms to the script, the customer has a feeling of confirmed expectations and satisfaction Service scripts can be applied to a wide range of service situations Service scripts are often used when service providers wish to standardise their service Emotions and Mood 

Affect: boredom, aggression, joy, disgust, interest, happiness

Critical Incidents Unsatisfactory encounters are likely to be more influential on the customer’s future behaviour than satisfactory ones Critical incidents can occur pre-consumption and post-consumption, as well as during service delivery. Critical Incident Categories:

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Employee response to service delivery system failures Employee response to customer needs and requests Unprompted and unsolicited employee actions

Post-Experience Evaluation Consumers evaluate the service performance they experienced and compare it with their prior expectations Performance is entirely in the mind of the consumer  perceived, not actual, service Service expectations and performance are weighed to establish satisfaction Evaluations drive post-purchase behaviour such as repeat purchase and word-of-mouth

Week 3: Evaluation of Services Customer Satisfaction 

Psychological outcome that occurs when consumers evaluate the perceived performance of the service experienced based on what they expected prior to purchase o How well did the encounter fulfil needs, wants and expectations?

Service Quality  

‘A high standard of performance that consistently meets or exceeds customer expectations’ (Wirtz, Chew & Lovelock, 2012, p. 432) Quality relates to managerial delivery of the service, while satisfaction reflects customers’ experiences with that service (Palmer, 1998; Iacobucci, Ostrom and Grayson, 1995)

Benefits of Service Quality and Customer Satisfaction An Experience to Profits Model

Post-Experience Evaluation: Disconfirmation of Expectations Model Confirmation 

Perceptions = Expectations

Negative Disconfirmation 

Perceptions < Expectations

Positive Disconfirmation 

Determinants of Customer Expectations

Perceptions > Expectations

Measuring Customer Satisfaction      

Qualitative Research: focus groups, one-on-one interviews, critical incident technique, laddering technique Understand key drivers / determinants: identify the key attributes and influences on satisfaction and dissatisfaction Questionnaire design: use logical structures and appropriate wording Data analysis: two key result areas are overall satisfaction and attribute performance Service performance index (SPI): helps to make comparisons between regions, branches, individuals Importance - performance analysis: a useful management which may help to direct resources

Defining Service Quality ‘A high standard of performance that consistently meets or exceeds customer expectations’ (Wirtz, Chew & Lovelock, 2012, p. 432) Three perspectives on quality: 1. Transcendent view of quality 2. Product-based perspective 3. User-based perspective

Five Dimensions of Service Quality Reliability – Ability to perform the promised service dependably and accurately Assurance - Employees’ competency, courtesy, and ability to inspire trust and confidence Tangibles – Appearance of physical elements (e.g., facilities, equipment, personnel, written materials) Empathy - Employees’ easy access, good communications, and customer understanding Responsiveness – Willingness to help customers and provide prompt service Identifying Service Quality Problems

Closing Gap 1: The Knowledge Gap (Not knowing what customers expect)   

Facilitate upward communication between frontline employees and management Implement effective customer feedback systems Undertake rigorous market research

Closing Gap 2: The Policy Gap (Specifying the wrong service standard)    

Redesign the customer service process Standardise processes for reliability and consistency Consider tiered service products Redesign service environment if necessary

Closing Gap 3: The Delivery Gap (Delivering a service that doesn’t match the standards)   

Ensure that frontline staff can meet the service standards Assess existing equipment, support processes (e.g., intermediaries) and capacity with a view to alterations Manage customers

Closing Gap 4: The Communications Gap (Not delivering the service promised by marketing communications)   

Align internal and external communications (integration!) Ensure that communications set realistic consumer expectations: don’t overpromise Manage consumers

Closing Gap 5: The Perceptions Gap (Not appearing to deliver the promised service)   

Provide physical evidence of service Use tangible cues Keep consumers informed of process

Closing Gap 6: The Service Quality Gap (Gap between expectations and performance) 

Close Gaps 1 to 5!

Measuring Service Quality Hard Measures

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Can be counted, timed or measured through audits Typically operational processes or outcomes Standard often set with reference to percentages of occasions on which a measure is achieved

Soft Measures   

Not easily observed, so often collected by talking to customer or employees Provide direction, guidance and feedback to employees Can be quantified by measuring customers perceptions and beliefs

Metrics: A Hard Measure of Service Quality Control charts to monitor a single variable (e.g., service response times, failure rates, delivery costs)   

Offer a simple method of displaying performance over time against specific quality standards Enable easy identification of trends Are only good if data on which based are accurate

SERVQUAL: A Soft Measure of Service Quality Reliability  Providing service as promised 

Dependability in handling customers’ service problems

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Performing services right the first time

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Providing services at the promised time

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Maintaining error-free records

Assurance  Employees who instill confidence in customers 

Making customers feel safe in their transactions

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Employees who are consistently courteous

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Employees who have the knowledge to answer customer questions

Tangibles  Modern equipment  Visually appealing facilities  Employees who have a neat, professional appearance  Visually appealing materials associated with the service

Customer Feedback: A Soft Measure of Service Quality

Empathy  Giving customers individual attention  Employees who deal with customers in a caring fashion  Having the customer’s best interest at heart  Employees who understand the needs of their customers  Convenient business hours Responsiveness  Keeping customers informed as to when services will be performed  Prompt service to customers  Willingness to help customers  Readiness to respond to customers’ requests

Tools to Analyse Service Quality: Fishbone Diagram

Tools to Analyse Service Quality: Pareto Analysis 88% of late departing flights were caused by only 4 factors (15% of all possible factors) More than half caused by single factor: acceptance of late passengers

The Service...