MKT 363 - Summary Services Marketing PDF

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SU 1 Features of Services Intangible Perishable Inseparable Heterogeneous Four Broad Categories of Service People Processing (barber, health care etc) Tangible effect on physical aspects of people Mental Stimulus (education, counselling, advertising) Intangible effect that deals with psyche, mind Po...

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SU 1 Features of Services - Intangible - Perishable - Inseparable - Heterogeneous Four Broad Categories of Service - People Processing (barber, health care etc) Tangible effect on physical aspects of people - Mental Stimulus (education, counselling, advertising) Intangible effect that deals with psyche, mind - Possession Processing (directed at physical property, e.g refuelling, recycling) - Information Processing (directed at intangible property e.g banking, accounting, insurance) Differences between goods and services - Most services cannot be inventoried - Intangible elements dominate value creation - Services often difficult to visualise and understand - Customers may be involved in co-production - People may be part of service experience - Operational inputs and outputs tend to vary widely - Time factor often assumes great importance - Distribution may take place through non-physical channels 7Ps of services marketing Original 4 Ps - Price (Various costs of carrying out this service) - Place (place and time this is being carried out) - Promotion (how to educate and promote product to customers) - Product (Characteristics of service that help create value) Additional 3 Ps of service - People (Interactions with employees etc during service delivery) (*high contact service, customer is actively involved) - Processes (Entire method and sequence of service) - Physical Environment (appearance that provides evidence of service quality e.g uniforms, interior of shop) Service Profit Chain - Operating strategy and service delivery system (internal factor, focusing on employees) - Service concept (service value creation)

- Target market (external factor, focusing on customers) Three Stage Model of Service Consumption 1. Pre-Purchase Stage (information search, evaluation of alternatives & Purchase Decision) 2. Service Encounter Stage (moments of truth that define customer perception and experience) 3. Post-Purchase Stage (evaluation if needs have been met) 7 Types of perceived risk - Temporal (Time – wasted time or delay) - Physical (Risk of physical injury to self or possessions) - Functional (Unsatisfactory performance/outcome – doesn’t fulfil function) - Financial (Risk of monetary loss or unexpected costs) - Psychological (Risk of psychological fears or emotions) - Social (Risk of how others think or react) - Sensory (Risk of unwanted effects on any of the 5 senses) Servuction System (Service + Production) 1. Technical core (service that is invisible to customer) 2. Service delivery system (where final production assembly takes place) Service Quality Dimensions 1. Tangibles (physical element appearance) 2. Reliability (dependable and accurate performance) 3. Responsiveness (promptness and helpfulness) 4. Assurance (credibility, security, competence and courtesy) 5. Empathy (easy access, good communications and understanding of customer)

SU 2 Service Product Components: 1. Core Product (main essence of what customer is buying) 2. Supplementary Service (add-on service-related activities accompanying product) 3. Delivery processes (process used to deliver core product and supplementary services) *includes scheduling (how long delivery lasts), nature of process (service category it belongs to and how different service components are delivered), customer role (customer expectation and participation)and service level (prescribed level and style of service)* Supplementary services consist of facilitating and enhancing: Facilitating supplementary services are those that are required in service production, while enhancing supplementary services add extra value to the product core Facilitating Services

1. Information – facilitate purchase and use by telling customers about service features and performance before, during, and after service delivery 2. Order Taking - establishing fast, accurate and responsive procedures for taking applications, placing orders, or making reservations 3. Billing - providing clear, timely, accurate and relevant documentation of what customers owe, plus information about how to pay 4. Payment -offering a choice of easy procedures for making prompt payments” Enhancing Services 1. Consultation - providing responses to customers who require advice, counselling, or training to help them obtain maximum benefit from the service experience 2. Hospitality - treating customers like guests and providing amenities that anticipate their needs during interactions with the service provider 3. Safekeeping - assisting customers with personal possessions that they have brought with them to a service delivery facility site or purchased there 4. Exceptions - responding to special requests, resolving problems, handling complaints and suggestions, and providing compensation for service failures e.g service recovery, dietary restrictions, birthdays etc Four key ways to build strong brand 1. Dare to be different 2. Determine your own fame 3. Make an emotional connection 4. Internalise the brand Seven categories of new services 1. Style changes o Visible changes in service design or script e.g change in logo or brand colour 2. Service improvements o Modest changes in performance of current product 3. Supplementary service innovations o Addition of new or improved facilitating or enhancing elements e.g bigger venue 4. Process-line extensions o Alternative delivery procedures e.g adding epayment like FavePay, gift cards 5. Product-line extensions o Additions to current product lines e.g Starbucks offering packaged drinks, cake pops 6. Major process innovations o Using new processes to deliver existing products with added benefits e.g automated machines so can deliver quicker etc 7. Major service innovations o New core products for previously undefined markets e.g Muji hotel, Starbucks capsule coffee How Firms can Achieve Success in New Service Development - Market Synergy (good fit between new product and firm’s image)

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Organisational Factors (strong interfunctional cooperation and coordination, educate internal staff on competition and new product) Market Research Factors (scientific studies conducted during development process, product concept well defined before undergoing field studies) Involvement of Customers early in process, ideally during idea generation

Failure may be due to: inability to cover costs from revenue, poor execution, inability to meet consumer need Distribution of services - Customers visit service site - Service providers go to customers - Service transactions conducted remotely (has cost implications and impacts the nature of service experience for customer) To determine where and when of physical channels - Strategic location: consider convenience and cost of providing that convenience - Tactical location: consider population size, foot and vehicular traffic, nature of nearby businesses, convenience for customer access, competition in area, labour availability, length of lease and legal restrictions/regulations - For when: Customer needs and wants, & economics of chosen opening hours Customer Channel Preferences are influenced by: - Complexity and perceived risk of service - Individual confidence and knowledge - Choice of functional and social motives - Convenience 5 Industrial Drivers that impact Company’s globalisation - Market Drivers: global customers tend to demand consistent service from suppliers around the world - Competition Drivers: follow the competitors to new markets in order to protect the market positions - Technology Drivers: especially for information-based services, the availability of new technology makes it possible to move huge amount of data and open up new markets - Cost Drivers: Economies of scale may help if company is taken global - Government Drivers: government policies may play either a positive or a negative role  

If control of intellectual property and sources of value creation are high, customer interaction low = exporting directly to be the mode of entry If low need to control intellectual property and sources of value creation, customer interaction high = entry through direct foreign investment

SU 3

Pricing Tripod 1. Cost based (Company needs to recover costs paid to Provider, hence there is a minimum price) - Companies have fixed (rent, salary, taxes etc, meaning even if no services are sold, this costs will still be incurred), variable (costs that come with each additional customer) and semi-variable costs (costs that rise or fall as volume of business increases or decreases e.g hiring extra workers during peak periods). More companies using ABC (activity based costing) instead of traditional cost accounting, as cost cutting certain activities may lose customers.  Pros: simplifies decision process, minimise price competition, gives customers sense of fairness  Cons: ignores consumers’ reactions and customers’ actions 2. Competition (Competition pricing determines the point between price floor and ceiling that their price should be set) - services tend to be location and time specific, and each competitor’s service can have its own set of related monetary and non-monetary costs, such that actual prices charged may become secondary for competitive price comparisons 3. Value to Customer (Customer perceived value sets the price ceiling) - A marketer can increase CPV of a service by adding benefits to the core product, and reducing monetary (financial and opportunity costs) and nonmonetary costs (time cost, physical cost, psychological and sensory costs) Revenue Management: Maximise revenue by offering least price-sensitive segment capacity first, at the highest price etc etc. Can achieve this by analysing two segments that show the price elasticity. Rate fences: Enables customers to segment themselves based on their needs, services provided and willingness to pay -

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Physical Fences: basic product, the amenities and the service level that are related to the different prices e.g business vs economy class, buffet breakfast at hotels Non-Physical Fences: consumption, transaction or buyer characteristics (e.g., minimum stay in hotels, advance bookings and priority pricing for loyalty scheme members) 4 Ws 1 H of Integrated Service Communications Model Who (Target Audience) What (Communication Objective) Where (Media Decisions i.e platform of choice) When (Timing decisions) How (Message Decisions i.e How to say what you want to say)

Challenges of Service Communication - Intangibility such as abstractness, generality, non-searchability and mental impalpability

MarComm Mix 1. Personal Communications (two way communications such as selling, customer service, word of mouth) 2. Impersonal Communications (one way communications directed at TA not in direct contact with message source i.e., advertising, sales promotion, publicity/public relations, instructional material and corporate design)

SU 4 Service Blueprint 1. Definition of standards for each front-stage activity 2. Main consumer actions 3. Physical and other evidence for front stage activities 4. Line of interaction 5. Front-stage actions by customer-contact personnel 6. Line of visibility 7. Backstage actions by customer-contact personnel 8. Support processes involving other service personnel 9. Support processes involving information technology

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Blueprint helps define key actions that impact the creation and delivery of service. Helps identify possible flaws so there can be back up plans or preventive measures taken

Redesign efforts of service process want to achieve - Reduced number of service failures - Reduced cycle time - Enhanced productivity - Increased customer satisfaction To achieve this, actions taken include - Examining service blueprint with key stakeholders - Eliminating non-value-adding steps - Addressing bottlenecks in service - Shifting to self service Advantages of SST (self-service technology) - Greater convenience - Greater control over service delivery - Lower prices and fees 6 Steps to smooth transition to SST 1. Develop customer trust 2. Understand customers’ habits and expectations 3. Pre-test new procedures and equipment 4. Publicise benefits 5. Teach customers to use the innovations and promote trial 6. Monitor performance and continue to seek improvement Demand-Supply Situations that Fixed Capacity Firms face - Demand exceeding optimum capacity - Excess demand exceeding maximum available capacity - Excess Capacity - Demand and supply well-balanced at level of optimum capacity Can either: manage demand, or adjust capacity to meet demand Productive Capacity refers to: - Physical facilities to contain consumers (for people processing or mental stimulus processing) - Physical facilities designed for storing or processing customer goods, or items on sale to customers - Physical equipment that are used to process people, possessions, or information (including equipment such as machinery, ovens, cooking and cash registers)

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Labour that is used for both physical and mental work (this is a key element in all high-contact services and many low-contact ones) Infrastructure (either public or private) in sufficient capacity to allow an organisation to deliver quality service to its own customers

Capacity Management Strategies 1. Level Capacity: make no changes to level of capacity despite demand changes 2. Stretch Capacity: squeeze more people into existing facility/push service personnel to work faster for brief periods of peak demand/reduce in-process time 3. Chase demand by varying capacity to match anticipated demand: schedule downtime (maintenance, staff leave)during lull periods/use part time employees/rent extra facilities and equipment/ask customers to share/invite customers to perform self service/cross train employees so they can do different tasks and can help with bottlenecks Five Ways to Manage Demand 1. Take no action (can result in disorganised queueing or wasted capacity) 2. Reduce demand (increase price, or encourage usage in other time slots) 3. Increase demand (lower price, promote and enhance service features) 4. Inventory demand through reservations 5. Inventory demand through formalised queueing Using Marketing Elements (4 Ps) to smooth out demand fluctuations Price: Using increased/decreased prices at specific timings to smooth out demand (eatigo) Product: Features can be varied according to time or season to attract different market segments Place: Reflect changing market needs over product demand cycle Promotion: use promo and education to inform customers of peak and non-peak periods and why non-peak is better Servicescape: - Shapes customers’ experiences and behaviour: o Message-creating medium: symbolic cues to communicate the distinctive nature and quality of the service experience o Attention-creating medium: make servicescape stand out from competition and attract customers from target segments o Effect-creating medium: use colors, textures, sounds, scents and spatial design to enhance desired service experience - Shows brand quality and position, helps differentiate and strengthen

- Core component of the value proposition (direct benefits of reaching desired goal) - Facilitate encounter and enhance productivity Key Dimensions of service environment 1. Ambient conditions (environment according to our 5 senses that help create a particular vibe or mood interpreted by customer e.g scented candles, lighting etc) 2. Space and functionality (Spatial layout and functionality e.g floorplan and arrangement, which will influence buying behaviour and customer satisfaction) 3. Signs, symbols and artefacts (Communicates brand image, help customers find their way, helps first time customers draw meaning from them to gain direction) 4. People are also part of service environment (both employees and customers affect the impression of the brand – employees are face of brand. New customers judge the current customer base before deciding whether to patronise the brand) Tools to guide servicescape design: - Keen observation of customers’ behavior and responses to the service environment by management, supervisors, branch managers, and frontline staff. - Feedback and Ideas from frontline staff and customers, using a broad array of research tools from suggestion boxes to focus groups and surveys. - Photo audit: ask customers to take photographs of their experience and these are used as basis for further interviews or included as part of survey of experience. - Field experiments can be used to manipulate specific dimensions in an environment and the effects observed. - Blueprinting: extended to include physical evidence in the environment.

SU5 Service Employees help maintain brand positioning as they are: 1. core part of product 2. the service firm 3. the brand 4. they affect sales 5. determine productivity Three Types of Conflict faced by Service Staff - Organisation/Client (difference in organisations rules and customer demands, staff is conflicted over which to adhere to) - Role/Person (Role in company and job requirements are inconsistent with selfbeliefs/perception) - Inter-client conflict (customer fights that staff have to resolve) Three Different Cycles 1. Cycle of Failure - employee cycle of failure due to narrow job design, low wages, minimal training and overemphasis on rules. This failure results in customer cycle of failure, which emphasises on attracting new customers, as the old customers are dissatisfied due to poor employee performance

2. Cycle of Mediocrity - adequate pay and job security and but little scope for personal initiative. There is little incentive for the customers to cooperate with the organisation to achieve better service 3. Cycle of Success - integrative employment cycle that managers should work towards, invests in employees through training and empowerment, results in happy employees and hence happy staff. Employee training should focus on: 1. Organisational culture, purpose and strategy 2. Interpersonal and technical skills 3. Product/Service Knowledge Customer loyalty results in greater profitability through: 1. Increased usage over time 2. Reduced operating costs as loyal customers are easier/more efficiently served, fewer demands 3. Profits from referral 4. Customer faith in brand makes them willing to pay premiums on occasion Wheel of loyalty stages: - Building foundation of loyalty o through targeting right customers o managing customers through effective tiers of service - Creating loyalty bonds o Deepening the relationship via bundling or cross-selling o Providing tangible and intangible rewards (financial and non financial) o Building social bonds based on personal relationships o Building customisation bonds where services to individual is heavily customised o Forming structural bonds through joint investment in projects - Reducing churn drivers o Through service recovery (addressing problem) o Value proposition o Service switching (increase switching cost) Satisfaction-Loyalty relationship 1. Zone of defection 2. Zone of indifference 3. Zone of affection CRM Strategies 1. Strategy development 2. Value creation 3. Multi-channel integration 4. Information management 5. Performance assessment

Common CRM Failures - Viewing CRM as a technology Initiative - Lack of customer focus - Not enough understanding of customer lifetime value (CLV) - Inadequate support from top management - Failure to reengineer business processes - Underestimating the challenges in data integration

SU 6 Customer response to service failures 1. Take public action (complaining to firm/third party, or legal action) 2. Take private action (stop patronising company/spread negative word of mouth) 3. Take no action When customers complain they expect: - Procedural justice: Customers expect a convenient, responsive, and flexible service recovery process - Interactional justice: The recovery effort must be seen as genuine, honest, and polite - Outcome justice: The restitution has to reflect the customer loss and inconveniences suffered Ideal Service Guarantee 1. Unconditional 2. Easy to understand and communicate 3. Meaningful to customers 4. Easy to invoke 5. Easy to collect on 6. Credible GAP Model 1. Knowledge Gap – refers ...