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- 1. MKT 321 Aspects of Services Marketing What is service? Chapter 1 Service Marketing “A service is an intangible product involving a deed of performance, or an effort that cannot be Learning objectives: physically possessed. Services are usually provided 1. To understand the characteristics through the application of human and/or of services and its implication mechanical efforts directed at people or objects.” 2. The 8P’s in service marketing For example; education, hotel, ATM, car repair etc Characteristics of services 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. Marketing service products are not exactly 2. Heterogeneity: people based services are the same with marketing physical goods. susceptible to heterogeneity, or variation in To understand these differences, it is first quality. It is difficult to deliver service necessary to understand the distinguishing consistently. characteristics of services. 3. Perishability: unused service capacity of one Services have FOUR characteristics; time period cannot be stored for use in future time periods. 1. Intangibility 2. Inseparability 4. Inseparability: the production of a service cannot be separated from its consumption by 3. Perishability customers. Services are produced and consumed 4. Heterogeneity simultaneously. Key implication derive from the Key implication derive from the characteristics of service characteristics of service Service providers are critical. Training is Difficult for necessary to ensure Inseparability consumers to quality. (production and evaluate Customers behavior and consumption of competence can help or Difficult to service cannot hinder productivity. Intangibility advertise and be separated. Customer involvement in This mean the process of service display delivery. E.g. self-service customer must Prices are be physically Location and opening difficult to set hours must be convenient present) for customers. 1
- 2. Key implication derive from the characteristics of service Key implication derive from the characteristics of service Design of service factory must be appealing and Demand is very time Inseparability user-friendly. sensitive. (production and Behavior of other Very difficult to balance consumption of customers affect supply and demand. service cannot customer satisfaction. Perishability Solution be separated. Recognise that spending (services High price during peak This mean time is often seen by demand, low price cannot be during off peak customer must customer as a burden. inventoried) Increase manpower be physically To minimize waiting time present) and capacity – self service, expand Make use of technology service hours. to improve efficiency Example: Damai Lagoon Strategies to control the Price – increase price during peak season, reduce fluctuation of demand price during off peak 1. Price and other user costs (time and effort) Changing product element – offer water sports during peak. Organise more seminar, conference , 2. Changing product element workshop, etc during off peak. 3. Modifying the place and time of delivery Modifying place and time of delivery – extends • Varying the time when service is available to reflect operation hour during peak. Restaurant may offer customer preference by day or week, by season. catering service for local residents during off peak. • Offering the service to customers at a new location (I.e. operate the mobile unit that take the service to Promotion and education – use advertising, the customers) publicity to educate customers to visit the resort 4. Promotion and education during off peak season. Give better promotion packages during off peak (book one room and 5. Storing demand through queuing and second one half price) reservations. Design effective reservation system – telephone, For further reading, refer to “service marketing, Christopher online reservation. Lovelock”, p.402 Key implication derive from the 8P’s model of integrated service management characteristics of service Quality control – particularly consistency is more difficult to achieve Solution Heterogeneity Customized the service (variation in to the needs and quality) expectation of individual customers Replace employees with automation may reduced variability 2
- 3. 8P’s model of integrated service management Level of Product 1. Product Expected • Core service – satisfies the needs or solves the service problem. E.g. hairdressing Core service • 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 Augmented service therapy, etc 8P’s model of integrated service Product / Service design management Quality - “the overall characteristics of a product 2. Place, cyberspace and time that allow it to perform as expected in satisfying customer needs.” Decisions on when, where and how to deliver the service have an important Features - “specific design characteristics that impact on the nature of customers’ service allow a product to perform certain tasks.” experiences by determining the types of encounters (if any) with service personnel Additional customer service and benefits 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? 3
- 4. Where should services be delivered? Electronic Channels (Location) Benefits: 1. Consistent delivery for standardized • Locational constraint: e.g. airport services • Ministores: to maximise coverage. E.g. ATM 2. Low cost • Locating in multipurpose facilities 3. Customer choice and ability to where customer live or work customize 4. Quick customer feedback When should service be delivered? (Time) Service intermediaries Service intermediaries perform many 24 hours a day – hospital, police, radio, important functions for the service TV station. principal. Normal working hour (9am-5pm) – Coproduce the service, fulfilling service professional service and B2B market principals’ promises to customers and Extended operating hour (weekend and make service locally available, providing evening hours when customers are time and place convenience for the free) customer. 8P’s model of integrated service Key intermediaries management Franchising – service outlets licensed by a principal to deliver a unique service concept it 3. Promotion and education has created or popularised. E.g. McDonald’s, In launching a new service, promotional Blockbuster (video store), Holiday Inn. message will be designed to inform consumers that it exists. Educating consumers in how to Agents – act on behalf of a service principal and use the service and persuading them to try it. is authorised to make agreements between Once a service is established, promotional customers and the principal. Generally work for principals continuously rather than for a single messages will serve to increase awareness or deal. E.g. travel agent remind consumers about the services, and persuade new customers to purchase. Brokers – brokers bring buyer and seller together As service is intangible, advertiser will have to while assisting in negotiation. E.g. real estate sell promise, or use testimonial to proof its brokers. quality. 4
- 5. 8P’s model of integrated service management 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. Promotional mix for services 3) Training 2. Customer service • Many companies, especially those selling complex • Employees in customer service positions business-to-business services offer training courses usually creating and delivering the service in for their customers. The purpose is to familiarize the customer presence as well as providing users with the product’s potential and educate information, taking reservations and them on how to use the service to best advantage. receiving payment, and solving problems. • When a customer has the potential to buy 4) Word of mouth several different products from the same • The comments and recommendations that supplier, firm encourage their customer- customers make about their service experiences contact staff to cross sell additional services. can have a powerful influence on other people’s decisions. b) Advertising Advertising media: The role of advertising in service setting: To create awareness Broadcast (TV and radio) Stimulate interest Print (magazine and newspaper) Educate customer about service features and Outdoor (posters, billboard, electronic education message boards, exteriors of vehicles such as To establish and redefine competitive buses) position Direct marketing (direct mail, telemarketing, To help “tangibilise” the intangible fax or email) Internet Consumers may rely more on information provided by advertising for services because Retail display they find them more difficult to evaluate than goods 5
- 6. C. Publicity/Public relations Involves efforts to stimulate positive interest in D. Sales Promotion and organization and its products and services Sales promotion consists of a diverse by sending out collection of incentive tools, mostly short News releases term, designed to stimulate quicker or Holding press conferences greater purchase of particular products Special events and services by consumers or the trade. Sponsoring newsworthy activities put on by third parties Obtain testimonial from public figures Fundraising • Sales Promotion tools e) Instructional material Free samples/free trial Coupon – The role of instructional material is to educate straight price cut, customers the benefit of using the service a discount or fee waiver for one or more patrons and how to use the service. accompanying the original purchaser, a free or discounted enhancement of the basic Materials used such as; service (such as free waxing with each car Brochures washing) Short term discount – only available for a limited Video / CD-Rom time period especially slow periods. Website Gift premiums Patronage reward Sign up rebates – waive membership fees Contest, sweepstake, games 8P’s model of integrated service d) Corporate design management To create a unified and distinctive visual 4. Price appearance for all tangible elements that Key pricing concepts for services contribute to the corporate image. Skimming pricing – offer the new service at a high price on a low volume basis. Such as stationery and promotional literature, retail signage, uniforms, and color schemes Penetration pricing – price is set at low for painting vehicles, equipment, and building level to attract high volume sales interiors. These elements are created by using Cost – plus pricing; pricing is based on the costs of producing the good or providing distinctive colors, symbols, lettering, and the service and add some required mark up. layout to provide a unifying and recognizing theme linking all the firm’s operations in a branded service experience. 6
- 7. Variable pricing – more relevant in industrial and Promotional pricing business to business markets where individual contracts are priced according to specification or Discounts, special offer, vouchers, rebates, and even complexity of the work. buy now pay later schemes, interest free credit, and loss leaders Marginal pricing – based on the concept of marginal cost and anything over the marginal cost is Differential pricing – different prices are charged the contribution to the company’s profit. Some for the same service at different times or to different companies rather sell at discounted price at last customers. This tactics is used to attract more minute rather than empty seat. business in slack periods. The services marketing triangle 8P’s model of integrated service management Company 7. People Refers to the service providers – the Internal Marketing External Marketing employees of the firm. E.g. receptionist in Enabling promises Making promises hotel, hairstylist in hair saloon, nurse in hospital, etc. Many services depend on direct, personal interaction between customers and a Providers Customers firm’s employees, and these interactions Interactive Marketing strongly influence the customer’s Keeping promises perceptions of service quality. Employee satisfaction, customer satisfaction and profit 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. 7
- 8. Human resource strategies 1. 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 3. Provide needed support systems quality Train for technical and interactive skills Measure internal service quality technical skills and knowledge identify internal customers who need help, determine operational rules of the company their needs, measure how well they are doing, and Interactive skills that allow them to provide courteous, make improvements caring, responsive, and empathetic service. Empower employees Provide supportive technology and equipment 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 Develop service oriented internal processes things go wrong. To best support service personnel in their delivery of Promote teamwork quality service on the front line, an organisation’s internal processes should be designed with customer The nature of many service jobs suggests that customer value and customer satisfaction in mind. satisfaction will be enhanced when employees work as teams. 4. Retain the best people 8P’s model of integrated service Include employees in the company’s mission management When the vision and direction are clear and motivating, employees are more likely to remain with the company 8. Physical evidence and the servicescape through the inevitable rough spots along the path to the Visual or other tangible clues that provide vision. evidence of service quality. E.g. facility design, equipment, signage, employee Treat employees as customers appearance, printed materials. If employees feel valued and their needs are taken care As service is intangible, it is hard for of, they are more likely to stay with the organisation customers to judge the service quality before use it. Therefore, customers will Measure and reward strong service performers base on the tangible objects to evaluate If a company wants the strongest service performers to service quality. stay with the organisation, it must reward and promote Servicescape – describe the style and them. appearance of the physical environment where customers and service provider Further reading: Valerie A. Zeithaml and Mary Jo Bitner (2003, Ch.11 interact. employees’ role in service delivery) Services marketing: integrating customer focus across the firm. 3rd edition. Mc Graw-Hill 8
- 9. Elements of physical evidence Role of the servicescape Servicescape Other tangibles 1. Package – physical evidence of services Facility exterior Business card exterior design essentially “wrap” the service and convey an Stationery signage external image of what is “inside” to Billing statements parking consumers. Reports landscape Employee dress This packaging role is particularly important Surrounding environment Facility interior Uniforms in creating expectations for new customers interior design Brochures and for newly established service equipment Virtual servicescape organisation that are trying to build a signage particular image. layout air quality/temperature 2. Facilitator – how the setting is designed can enhance or inhibit the efficient flow of activities in 3. Socializer – the design of the servicescape the service setting,making it easier or harder for aids in the socialisation of both employees customers and employees to accomplish their and customers in the sense that it helps to goals. convey expected roles, behaviours, and relationships. 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 The design of the facility can also suggest employee’s. to customers what their role is relative to employees, what parts of the servicescape For example, an international air traveler who finds they are welcome in and which are for himself in a poorly designed airport with few signs, employees only, how they should behave poor ventilation, and a few places to sit or eat will find the experience quite dissatisfying, and while in the environment, and what types of employees who work there will probably be interactions are encouraged. unmotivated as well. 8P’s model of integrated service 4. Differentiator – the design of the physical management facility can differentiate a firm from its 5. Process competitors and signal the market segment the A particular method of operations or series of action, service is intended for. typically involving steps that need to occur in a defined sequence. I.e. flow of activities by which the service is delivered. Given its power as a differentiator, changes in the physical environment can be used to reposition a firm and/or to attract new market Customers are often involved in the service production. Badly designed processes are likely to segments. annoy customers when the latter experience slow, bureaucratic, and ineffective service delivery. Price differentiation is also often partially achieved through variations in physical setting. Similarly, poor processes make it difficult for frontline Larger seats with more leg room are more staff to do their jobs well, result in low productivity, and increase the likelihood of service failure. expensive on an airplane. 9
- 10. The purpose of setting down clear outlines or blueprints for service delivery is as follow; Example of a simple flowchart To ensure tat the service is carried out in the fastest, most efficient and cost effective manner possible Stay at motel: To enable service quality to be monitored and park car check in benchmarks to be put in place thus allowing accurate spend night in room check out 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 8P’s model of integrated service process management Customer participation in the process – level of involvement or participation of the customer in the service process (self service vs waitress service restaurant) 6. Productivity and quality Location of service delivery – at service providers’ premises Productivity measures the amount of output or at the customer’s home? produced by an organisation relative to the High-contact or low-contact services – the level of contact amount of inputs required. between the customer and the service provider’s personnel. Degree of standardization Quality- refers to the degree to which a service satisfies customers by meeting their Complexity of the service – this is measured by the number needs, wants, and expectations. of steps or activities which contribute toward the service delivery. What are the input in service context? Output? No of customers served Labor Customers’ satisfaction Materials, energy, and capital (consisting of land, buildings, equipment, information system, and financial assets) 10
- 11. How productivity improvement impacts quality and value? Reduced input could mean: Improvement in productivity means; Reduced number of staff 1. Reduced input but to produce same Recruit low cost staff amount of output. Reduced number of equipments used Etc Increased output 2. Maintain the input but increase the for example a hairdresser suppose to serve volume of output. 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 Strategies to improve productivity inappropriate cuts in service levels that are resented by customers. Improving the quality of the labor force Profitability - less mistakes, higher quality service Investment in more efficient technology and capital equipment (computer, ATM, automated baggage Productivity Quality system, scrubbing machine) Work faster and more Improve customer it reduces labor cost, increase efficiency, and efficiently to reduce cost satisfaction provide consistent level of service quality. •Hence, productivity and quality improvement strategies need to be considered jointly rather than in isolation from one another. Modify customer-service interaction Increasing self-service options Changing how customers and service providers interact Firms can improve productivity by shifting some of the can often enhance productivity. Most customers now service operation to customers. E.g. petrol station, ATM, conduct business over the telephone, by fax, or through self service restaurant. the internet rather than in person. Reduce staff and increase the number of customers per hour that could be served. Separate customer contact and support functions By physically separating the support and customer contact Using subcontracting or outsourcing components, the quality and efficiency of both can be A service consists of four primary components: improved. information, reservations, payments,and consumption. Outsourcing with third parties or subcontractors can be The support personnel can work more efficiently without used for any of these four components. interruptions from customers and can normally perform a better job. Freeing customer contact personnel from For example, airlines use travel agent to perform service performance can enhance the level of information, reservations and payments functions. Airlines communication with the customer and improve the quality can reduce labour force and productivity is improved of that interaction. because potential customers can deal with a travel agent in an area where they live. 11
- 12. 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 12