Services MK Ting

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Services Marketing
Prepared for The Chartered Institute of Marketing by Steering Group: Laurie Young, PricewaterhouseCoopers (Chair) David Ryan, Student Assistant Raoul Pinnell, Shell International Sara Sheppard, Microsoft Adrian Hosford, BT Nigel Cryer, NatWest/RBS Nicola Murphy, River Publishing Janine Chung, PricewaterhouseCoopers
January 2002
The Chartered Institute of Marketing
Everything you need to know about e -marketing
Executive Summary
INTRODUCTION
The growing importance of the role that services play in both the economy as a whole and organisations in particular cannot be over-estimated. This encompasses not only pure service industries as such, but companies which market physical goods where the element of service in their offering is increasingly one of the few sources of competitive differentiation. And while a focus on the customer underpins the marketing of both physical goods and services, its critical to understand the limitations of traditional marketing when it comes to developing the most effective tools and techniques for services marketing. This Canon of Knowledge, a comprehensive examination of every aspect of services marketing, tells you what you need to know. And, to show the practice behind the theory, there are over a dozen up-to-date case studies on how companies like PricewaterhouseCoopers, Microsoft, NatWest, Hyatt Hotels, Centrica, BT and Sun Microsystems approach the marketing of services.
Executive Summary / 1
Contents
Page INTRODUCTION SECTION 1. DRIVING FORCES AND STRATEGIC OVERVIEW A. B. C. D. Introduction Strategic Aspects and Implications of Customer Care Service Categorisation Common Elements and Differences between Services and Physical Goods 1 3 3 4 9 17 26 26 27 31 35
SECTION 2. SERVICE MARKETING AT THE STRATEGIC LEVEL A. B. C. D. Introduction Possible Customer Segmentation Variables Brand Strategy Crystallising the Service Direction and Developing Service Strategies
SECTION 3. UNDERSTANDING CUSTOMERS SERVICE REQUIREMENTS 41 A. B. C. Introduction The Gap Model Perceived Control 41 42 46 50 50 51 55 62 62 63 68 73 73 74 78 82
SECTION 4. THE SEVEN PS OF SERVICE MARKETS A. B. C. Introduction Marketing Mix for Services: Seven Ps, Not Four Proposition Designing, Researching and Developing Services
SECTION 5. MARKETING MANAGEMENT PROCESS FOR SERVICE ORGANISATIONS A. B. C. Introduction Marketing Planning Process for Services Creating a New Service Development Process
SECTION 6. SERVICE OPERATIONS A. B. C. D. Introduction Operational Challenges of Different Service Types Service Recovery Application of Processes to Quality Service
SECTION 1.
DRIVING FORCES AND STRATEGIC OVERVIEW
A. Introduction
Services have become increasingly important in the economic structure of many countries with growing contribution to employment and GDP levels. Domestic service organisations are also facing increasing competition from international service providers while, on the other hand, there are significant opportunities for the marketing of services across national borders. However, many marketing concepts and tools currently applied to services marketing have been simply transferred over from the manufacturing sector. While there are common elements between services and physical goods with an overriding need to recognise and respond to customer requirements, there is a need for services-specific marketing tools and concepts. As a result, services marketing is an important area of independent knowledge for marketers.
B.
Strategic Aspects and Implications of Customer Care

1. Key Considerations 1.1 Customer care is all about putting the customer first, anticipating the customers needs and problems, establishing relationships and tailoring services to meet specific needs. Good customer care leads to customer retention. This is of strategic importance for organisations as there is a high correlation between customer retention and profitability. Retained/repeat customers usually cost less to service, they no longer require up-front marketing costs, they often provide positive referrals and over time they can increase their expenditure and even be willing to pay a price premium. They represent a significant profit improvement opportunity. However, the disciplines of strategic marketing need to be applied to customer care, satisfaction research and service development. Otherwise, damage can be done to the company. For instance, it is also dangerous to assume that all customers should be given best service. Service organisations must identify and focus on their most profitable customers from a lifetime value perspective and be prepared to lose those customers who are expected to cost more to service than the income they are likely to generate.
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Practical Guidance 2.1 Customer care programmes require a number of stages, typically: Applying research to identify and measure the importance of customer needs and expectations. Translating customer needs into service specifications. Setting measurable standards and systems for service delivery. Managing employees (recruitment, selection, rewards etc.). Managing the delivery process to include appropriate complaints handling and service recovery systems. Monitoring the customer care programme, to evaluate customer (dis)satisfaction and employee performance. Reviewing organisation structures and customer care objectives.
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Caring for and retaining customers is a marketing goal because the profitability of retained customers is high, with little marketing effort required to encourage extra sales. Coupled with this is a growing need for focus on long term relationships as growth in services means that more transactions involve long term relationships with increased interest in customer service as a means of differentiation. Long term customers also tend to have lower maintenance costs as they become accustomed to the company, its procedures and employees. Therefore, they ask fewer questions and tend to have fewer problems. Any customer lost through dissatisfaction becomes a customer gained by the competition. Consequently, retaining customers becomes a strategic commercial issue for service organisations. Effective customer retention also acts as an additional benefit for employees, providing them with motivation and increasing their willingness to perform excellent customer service. Although customer retention programmes can be expensive, segmenting customers into different levels of profitability can be effective, by focusing efforts on the most profitable, therefore most valuable, customers.
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Models, Tools and Concepts 3.1 Customer care or retention is recognised by many service organisations as of vital strategic importance and retention programmes are widely used. There is an urgent need to move from a short term transaction-based focus to longer term customer relationship management. Customer care, after-care service and relationship management should be positioned as the marketers domain. An integrated set of tools needs to be developed to make this concept of practical use for marketers. These should be included in marketing text books.
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Authoritative Sources 4.1 Anderson, E. W. and Fornell, C. (1993) A Customer Satisfaction Research Prospectus in Rust, Roland T. and Oliver, R. L. (eds) Service Quality: New Directions in Theory and Practice. California, Thousand Oaks, SAGE Publications. Bateson, J. E. G. and Hoffman, D. K. (1999) Managing Services Marketing. 4th Edition, Fort Worth, Dryden Press.
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Lewis, B. R. (1995) Customer Care in Services in Glynn, W. J. and Barnes, J. G. (eds) Understanding Services Management. Chichester, John Wiley & Sons. Payne, A. (1993) The Essence of Services Marketing. London, Prentice-Hall.
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Case Study NatWest (Link to second NatWest case in Section 5, sub section C) Key points: Customers often have lifetime relationships with their banks. These relationships can be complex as they change over time so it is essential to have a carefully-crafted strategy toward them. A balance has to be struck between customer retention and acquisition.
NatWests retail bank offers a range of personal and business banking services to almost 8 million personal customers and 850,000 small business accounts. Since March 2000 it has been part of the Royal Bank of Scotland, the sixth largest bank in the world. Financial services in general and banking in particular have changed radically in the last decade or so. Whereas in the past the four High Street banks, including NatWest, operated in a relatively stable market where there was little differentiation and little competition, a combination of factors such as the Internet, the arrival of competitors both virtually and from other sectors like supermarkets, and a shift in consumer power have all contributed to the need for banks to rethink how they go to market. Relationship of a Lifetime To understand how an organisation like NatWest approaches the marketing of its services, its important firstly to understand how that service operates. As Michael Sadler, head of customer marketing and the customer marketing segments team explains, most people have a relationship with their bank throughout their lifetime. So banking is neither about a single purchase nor a transactional relationship. When someone buys a holiday, for example, its a one-off and comes to an end. But thats not the same when people are saving for the future or planning investments.
Executive Summary / 6 The Chartered Institute of Marketing
Because its also a business where good ideas can be copied instantly, differentiation has to come from the brand, the service and the delivery. Products arent immaterial but enter the word mortgage into a search engine on the Internet and in less than a second it produces over five million results. Your entire focus has to be on the continuation of the experience so that every time you touch a customer you are either enhancing or diminishing the brand, Sadler says. And this has to be a two stage process, as Nigel Cryer, Senior Manager, marketing excellence, adds: Selling the product is just the beginning because then its how much they use it how much they deposit or use their credit card, for example which determines our profitability. So you not only have the challenge of selling products up-front but you also have to continue to market to those customers to try and increase usage. Layers of Complexity Sadler uses the framework of Maslows hierarchy of needs to describe the complex layers of the relationship most people have with their banks. Maslow put basic physiological needs at the lowest level of the triangle, followed in ascending order by safety needs, belonging needs, esteem needs and at the top, selfactualisation. So base one for banking is the physiological need of being able to get at your money, he says: If you cant deliver the ability for someone to access their cash and run their daily life successfully you can forget everything else. Thats followed by the need to feel that the bank is secure and the money will be safe. Once those more basic needs are satisfied, the relationship starts becoming less straightforward, with more intangible factors like branding playing a more influential role, says Sadler. Customers on that level look at whether the brand resonates with them. Achieving the pinnacle of self-actualisation is a much bigger and more involving task and as yet only really applicable to premium customers because its here that the bank becomes a financial facilitator. This isnt about interference but working in the background to help customers manage their finances in such a way that it releases what was dead time back to them and lets them get on with their lives.
Finding New Customers Historically, recruitment of new customers has been focused on seed corn or targeting young adults, students and children because its a well-accepted fact that the majority of people stay with their first bank for the rest of their lives. Even though for the first five years or so there would be little profit and probably mainly costs to the bank from these relationships, that would be recompensed by having a 40-50 year relationship from then on. But as the industrys cost structure came under increasing scrutiny because of market changes over the last few years, banks did their net present value sums on these young customers and, according to Sadler, some US banks decided to ignore students because they were so unprofitable. It didnt last, however: Three years later they raced back to them because where else are you going to find your customers for the longer term? The new entrants like virtual e-banks and supermarkets face a different challenge in terms of acquisition. Because they usually dont have the resources to wait five years for customers to become profitable, they have been pouring their marketing efforts into getting customers of the High Street banks to switch. Switching, in fact, is becoming more of a prominent issue since the government push to make it easier and quicker for people to move bank accounts. The question is, notes Sadler, do all banks now have to look again at their strategies and see if acquisition of switchers is becoming a more important factor? The jury is still out. What we have seen is more of a focus on it. And some banks have been very successful. But he wonders if its the fact that the cake has become bigger or that some of these new banks are managing to get a bigger slice? At the moment it seems to be the latter but theres no room for complacency, he warns. Inertia is no longer good enough on its own. Nor is simply telling customers they should switch because they can. Banks will have to offer a compelling reason for someone to switch.
C.
Service Categorisation
1. Key Considerations 1.1 Service businesses have similarities which enable common marketing strategies and approaches to be made. Services can be categorised in various ways. Examples include: industry sector, type of seller or purchaser, demand characteristics, degree of intangibility, extent of customer contact etc. Services might also be classified with regard to similarity of marketing requirements or benefits to customers. Service categorisation by sector: Markets and specific industries can be used to classify services in an attempt to identify common buying criteria. This can help to demarcate the service organisations playing field and to define the organisations mission and goals. For classification by industry, international Standard Industrial Classification (SIC) codes are used. These codes label each industry with a unique code. These codes can be used to describe the characteristics of an industry, although they do not identify the benefits which services can provide in each industry.
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Service categorisation volume-based. Services can be defined in terms of their volume-variety characteristics: Professional services involve considerable time spent with the client, thereby reducing the volume of transactions, with a significant degree of variety/ customisation in line with each customers specific needs, e.g. management consultancies. Mass services involve many customer transactions with very little customisation, e.g. supermarkets. Service shops lie between professional and mass services with some degree of customisation, e.g. car rental companies.
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Service categorisation: needs-based: Services can be grouped together based on the underlying customer need to be met. For example, fast food restaurants may meet customer needs for a lunchtime snack or quick rendezvous, while an elegant restaurant with full waiter service could be perceived as meeting the customers need to be spoilt and to be respected by his or her dinner guests.
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Service categorisation by nature of service act: Services can be defined as tangible acts directed at peoples bodies, for example beauty salons, or directed at goods and other physical possessions, for example janitorial services. They can also be defined as intangible acts directed at peoples minds, for example education, or directed at intangible assets, for example insurance.
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Service categorisation by duration of service contract: Services can be categorised by the extent of the ongoing relationship and service provision between the service organisation and customer (i.e. annuity versus jobbing services). For example, there could be a membership relationship as in membership of the AA, or there could be no formal relationship as in listening to a radio station. At the same time, there could be a continuous level of service delivery such as insurance cover and maintenance, or there could be one-off transactions such as occasional car rental.
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Service categorisation by customisation and judgement: As services are produced as they are consumed, often with the consumer present, there is far greater scope for tailoring the service to meet specific customer needs than with consumer products. Customisation can take place along two dimensions. There is the degree to which services lend themselves to customisation. For example, legal services are highly customisable, while public transport is not easy to customise. There is also the degree to which service employees can exercise judgement in meeting individual customer needs. For example, a language tutor can tailor classes to meet the students level of understanding while, on the other hand, it is not easy for a retail banker to change terms and conditions on a standard mortgage.
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Service categorisation by nature of demand and supply: Service organisations often face demand fluctuations over time. These could be wide, such as demand for a hospitals maternity services, or they could be narrow, such as dry cleaning. At the same time, supply is constrained to various degrees. For example, a telephone company is often able to meet peak demand without major delay, while theatres often face a situation where peak demand exceeds capacity.
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Service categorisation by service delivery: Some services can be made available through single sites (for example, a theatre) or through multiple sites (for example, AA emergency repairs). Customers can either visit the service organisation (for example, visits to a fast food outlet) or the service provider can visit the customer (for example, a gardening service). There can also be an arms length relationship between the customer and service organisation (for example, a television station).
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Practical Guidance 2.1 While various studies have come up with different classification methods, many of these classifications do not help in the development of marketing strategies. More effective classification schemes would allow managers in service organisations to compare their organisation with other service providers sharing the same characteristics, so that managers can cross industry boundaries and gain experience from other service providers with similar problems and characteristics. One suggested framework for the classification of services asks the following five questions: What is the nature of the service act? What style of relationship does the service organisation have with its customers? How much room is there for customisation and judgement? What is the nature of demand and supply for the service? How is the service delivered?
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By classifying together like services, valuable lessons can be learnt and shared. Service categorisation by sector: If sector comparisons result in identifying common buying criteria, marketing programmes to different groups can be developed.
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Service categorisation volume-based: The degree of volume/variety affects both the process implied in service delivery as well as the potential size of the market and the marketing techniques involved.
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Service categorisation needs-based: In both the case of the fast food outlet and the elegant restaurant, the product aspect of the service delivery remains the same, i.e. food. However, service organisations must also identify the basic need being met beyond the mere product aspect and must design the process and service surround (or physical evidence) to meet that need.
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Service categorisation by nature of service act: Categorisation in terms of the nature of the service act helps to answer the following questions: Does the customer need to be physically present during the service delivery, at the commencement or termination of the service, or not at all? Does the customer need to be mentally present during service delivery? How is the target of the service act modified by receiving the service and how does the customer benefit from these modifications?
Understanding of the nature of the service can help in the development of more convenient forms of delivery.
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Service categorisation by duration of service contract: These different types of engagement create different perceptions of value and price. When service is offered on an ongoing basis, a single periodic charge is often convenient and simple. On the other hand, membership relationships can offer a full range of free services, or a basic level of free services and separate charges for use of additional services. However, customers get used to levels of service over time so there is ongoing pressure to either reduce prices or add value to the offer. Annuity services or membership transactions usually offer the advantage of customer loyalty and allow for the collection of data which can be managed for customer segmentation purposes. Consequently, it is often in the best interest of a service organisation to develop ongoing relationships to ensure repeat business and continuous financial support. Random transactions with no formal relationship include services such as transport or restaurants. In such cases, the service organisation usually has less knowledge of its customers. Price is based on the perceived value of the transaction.
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Service categorisation by customisation and judgement: There is often a conflict between the search for cost reduction through standardisation and the desire to meet customer needs through customisation. Nevertheless, mass production of a service can generate customer satisfaction by producing consistency, speed and low prices. With regard to judgement on the part of the service employee to produce a customised solution, it is important to first diagnose the customer need and then to outline the solution to give the customer an idea of the final output so as to reduce uncertainty.
2.10 Service categorisation by nature of demand and supply: Different demand types require different marketing communication techniques to manage expectation. To smooth out variations in demand, customers could be encouraged to change their behaviour through pricing reductions, or to ration demand through reservation or queuing systems. To generate demand in periods of excess capacity, new customers with countercyclical demands could be sought.
However, it is very important to have appropriate forecasting and demand management processes in the business. Even though services cannot be stored, it may still be possible to manage capacity, such as hiring part-time employees or renting extra facilities for peak periods.
2.11 Service categorisation by service delivery: Offering service through multiple sites can increase customer convenience, but may raise costs and incur problems related with consistency and quality control. Instances where the service provider visits the customer are expensive and, as a result, there has been a move away from this approach. For some service industries, such as retail banking, the cost of service delivery is a major strategic issue. It has caused new forms of delivery such as ATMs and telephone banking to evolve. Some parts of a service can be separated from the core product. For example, a customer must visit the theatre to attend a play, but reservations can be made over the telephone or Internet. Some parts of a service can also be made through an intermediary or broker. For example, an airline can sell tickets through a network of travel agents with greater geographical reach.
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Models, Tools and Concepts 3.1 While the various classification methods proposed are of some benefit, marketing practitioners should ideally look to businesses with similar marketing requirements for practical learning purposes. Service categorisation is a concept which underpins understanding of services marketing and application of tools. It also underpins the whole approach in different service organisations. By making this explicit marketing can make the approach to the market more effective and efficient. Concepts of service categorisation need to be integrated into general services marketing training.
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Authoritative Sources 4.1 Lovelock, C. (1983) Classifying Services to Gain Strategic Marketing Insights. Journal of Marketing, Vol. 47 (3), pp. 9-30. Also published in: Gabbott, M. and Hogg, G. (eds) (1997) Contemporary Services Marketing Management: A Reader. London, Dryden Press. Palmer, A. (2001) Principles of Services Marketing. 3rd Edition, Maidenhead, McGraw-Hill. Kasper, H., van Helsdingen, P. and de Vries, W. Jr. (1999) Services Marketing Management: An International Perspective. Chichester, John Wiley & Sons. Slack, N., Chambers, S. and Johnston, R. (2001) Operations Management. 3rd Revised Edition, Harlow, Pearson Education. Lovelock, C. (1983) Classifying Services to Gain Strategic Marketing Insights. Journal of Marketing, Vol. 47 (3), pp. 9-30. Also published in: Gabbott, M. and Hogg, G. (eds) (1997) Contemporary Services Marketing Management: A Reader. London, Dryden Press.
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Case Study PricewaterhouseCoopers (PwC) (Link to second PwC case in Section 2., sub section C) Key points: Understanding the dynamics of the professional services business is essential as a basis for marketing. Embedding marketing thinking is done through persuasion and best practice.
Introduction PricewaterhouseCoopers is the worlds largest professional services organisation, with revenues of around $20 billion. Organised as a partnership, it is comprised of roughly 9,000 partners with 150,000 staff altogether, and has a presence in 150 countries. Its current incarnation stems from a merger with Coopers & Lybrand in 1998.
Pioneering Marketing It has four main divisions: audit, tax, consultancy and corporate finance. L. Young has been the global head of marketing for the latter, called Corporate Finance and Recovery for the last two years. This covers activities such as international reorganisations, mergers and acquisitions, group rationalisations, turnarounds, bankruptcy and other formal insolvency procedures. His division is now two-thirds of the way through a three-year programme to determine how it should best apply the principles of marketing. The first year was spent defining just how professional services should be marketed. That has led to the setup of about half a dozen pilot programmes which, if successful, could be spread to offices around the world. Understanding Market Dynamics The starting point in developing the proper services marketing techniques is to understand the dynamics of the business. In an organisation like PwC the key dynamic is the quality of its people and the good work they do for their clients. That builds up the firms reputation through client referral which in turn helps build up the brand as a whole. But its a complex process based on the intermingling of the reputation of both the firm itself and the individual partners. To deepen the understanding of market perception Young and his team have instituted a new tracking survey of all PwCs corporate finance partners across Europe. It is based on interviews with senior executives after the completion of a deal, and benchmarked against competitors. Its a virtuous circle because having such precise data becomes directional in terms of helping individuals understand their market better and hence where to direct their efforts more precisely. Embedding Marketing Encouraging more marketing-led processes in a fluid organisation like PwC which consists of very smart, independent senior people is not straightforward. But its very organic structure is also its strength in that it is flexible, diverse and entrepreneurial. As Young puts it, excellence emerges from what might seem in a more hierarchical company like chaos. It is more about persuasion than imposition, which is why there isnt a big central marketing department. Instead, the local practices are encouraged to employ professional marketers to look at the way they go to market and to devise programmes appropriate to their markets. This building of a professional marketing cadre will help embed the spirit of marketing throughout the division.
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Common Elements and Differences between Services and Physical Goods

1. Key Considerations 1.1 Goods tend to be physical objects whereas services are intangible, an action or a deed. A physical good provides benefits because of its physical characteristics, while the benefits of a service lie in the nature of the action or deed. As services are actions rather than physical objects, they cannot be seen, felt, tasted or touched. For example, a patient undergoing surgery receives a service, in this case an operation, but cannot actually touch the result, e.g. improved health. The patient can, however, touch and feel the operating theatre, equipment etc. but not the skill and expertise of the surgeon and other operating theatre staff members. Inseparability means that the person delivering the service is intimately involved in the service itself and becomes part of the service. Unlike physical goods which can be produced and sold/used at a later stage, most services are produced and consumed at the same time. This means that consumers will often interact with each other and can negatively or positively influence the experience, e.g. loud diners at a nearby table in a restaurant. Users will talk about the service experience and a negative or positive reputation will result. It also means that service providers play a role as part of the service experience itself. For example, the attitude of a waiter can make the difference between a memorable and an unpleasant dining experience. Because services represent the performance of an action, no two services are ever alike. For example, a haircut given to one customer by one hairdresser will not be the same as that given by another hairdresser to another customer. Also, customer demands are different and will relate to service providers in different ways. For example, one student will require constant assistance from his or her teacher or professor, while another will require no contact. Perishability means that services cannot be stored, saved or returned. They cannot easily be changed. They must be used by the customer at the time that they are delivered by the service provider. For example, an empty seat on a particular flight from London to Paris cannot be sold to a passenger leaving on a later flight to Paris.
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When a customer pays for a physical product, the customer owns the product and has it in his or her possession. Payment for services, on the other hand, implies the temporary hiring or use of a particular service, e.g. a seat at a concert, a hotel room. Pricing in the service sector is less influenced by cost than it is by customers perceptions of value or worth. It is important to understand that price and quality are linked together, indicating the value of the service to the customer. The location of the service encounter depends to a great extent on the customer. Unlike physical goods, most services have to be brought to the customer, thereby making accessibility an important distinguishing factor.
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1.10 Given the intangible nature of services, branding becomes important in portraying quality, distinguishing one service from another, and achieving differentiation. 2. Practical Guidance 2.1 The essential differences between physical goods and services demand different marketing techniques. These need to be understood and used appropriately. In reality, there are very few pure goods or pure services. When a good is purchased, it usually involves some supporting service component. In the same way, services often involve some physical component, e.g. cooking and service at a restaurant involves the actual delivery and consumption of food, while repairs to a car often involve the addition of new parts. Items purchased are often physical goods, whereas services tend to be rented, leased or merely used for a short period of time such as the 30 minutes spent in a dentists chair. Physical goods are usually easier for the consumer to search for, i.e. they possess physical qualities and attributes which can be easily discerned, e.g. style, colour, size etc. Services are usually high in credence qualities, i.e. characteristics which the consumer may find difficult or impossible to evaluate even after the service is performed for example, the effects of a dental appointment. Intangibility is a concept which affects marketing and the delivery of all services: For instance, small- and medium-sized businesses need to use physical tools to turn intangibilities into tangible benefits for customers.
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Intangible services cannot be stored, therefore avoiding problems associated with storage, obsolescence etc. However, because they cannot be stored, services cannot be carried over from a low-demand period to a period of high demand. Services can also not be patented, thereby making it difficult to protect service concepts from competitors. However, good service can often rely on intangible concepts such as friendly service something which cannot necessarily be imitated.
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Inseparability: Service organisations need to recognise the importance of their employees, particularly those in the front line who interact with customers and form their impressions of the service. It is important for organisations to understand the processes involved in their service delivery and the key players involved. Mapping out levels of customer contact can help show up deficiencies and make appropriate improvements.
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Simultaneous production and consumption: The quality of the service encounter will be highly dependent on what happens in real time, therefore making it difficult to achieve consistency and control. Marketers must therefore become actively involved in directing the design of the service experience to match expectation. The simultaneous production and consumption of services makes mass consumption difficult, if not impossible. Usually service operations must be decentralised so that the service can be delivered to customers in convenient locations.
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Heterogeneity: Because a particular service can be delivered in a variety of ways, achieving consistency is difficult for a number of reasons such as the level of demand at any one time, staff training, and the ability of customers to state what they actually want. Some organisations also outsource some of their services, e.g. call centres, thereby making it difficult to control consistency. However, on the other hand, the ability to deliver a service in a non-uniform manner allows the organisation to retain flexibility and to meet specific customer needs.
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Perishability: Perishability makes it important to be able to forecast demand and capacity. It also makes it important to be able to recover the customers goodwill if a service goes bad.
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Ownership: As ownership does not transfer, client perceptions of value are hard to manage. The client does not have permanent possession of the service, so it is important for any service provider to devise strategies to encourage the client to return for the next time he or she requires the service; e.g. an airline might introduce a loyalty programme for frequent flyers.
2.10 Developing and managing value perception: Marketing strategy must identify and capture what gives the service value to customers.
2.11 Channels to market: Channel decisions for services take on a whole new meaning as services can often not be separated from the person performing the service. They are also perishable and inventory is generally not carried. Consequently, direct sale is often the most common form of distribution in services with short channels, although many service channels also contain one or more intermediaries. Service organisations must ensure that their operation is widespread enough to cover those areas where service is demanded and to meet different customer demands. As well, as production and consumption tend to be simultaneous, each location has to be its own factory or production unit. Any change in channel requires a change in consumer behaviour. For example, the move to shift bank customers from making their transactions at a branch to doing their business over the Internet or at an ATM requires customer acceptance and education. The service environment also takes on importance with customers judging the quality of the service on the physical appearance of facilities and employees.
2.12 Branding and reassurance techniques: The practitioners who compiled this canon of knowledge consider that academics have not given sufficient weight to the issue of brand to services. The intangibility of services and the effect of the service process cause customers to seek emotional reassurance from brand consistency. In a service business the corporate brand seems to be the most important reference for clients. Whereas the marketing of physical products relies in part on the physical attributes of a product, this is not possible with services. Brands in services are built not only on design but also on the dynamic aspects of the service experience, i.e. how customers are served, employees, total customer experience. These must embody the brand values. Consequently, strong brands will enable service organisations to provide some sense of tangibility to intangible services. A strong brand gives a service its own properties and can provide a competitive edge.
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Models, Tools and Concepts 3.1 Common elements and differences between services and physical goods is a concept which underpins understanding of services marketing and application of tools. This needs to be integrated into general services marketing training. Intangibility is a concept which underpins understanding of services marketing and application of tools, and in particular brand strategy and physical evidence to tangibilise the intangible. The concept of inseparability is particularly relevant to appropriate people management. The concept of perishability is particularly relevant to demand management. Many service organisations invest heavily in the development of their brand as a form of competitive differentiation. Current understanding of this concept is based on experience obtained from marketing practice. This concept requires further academic research.
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Authoritative Sources 4.1 4.2 Palmer, A. (2001) Principles of Services Marketing. 3rd Edition, Maidenhead, McGraw-Hill. Rathmell, J. M. (1996) What is Meant by Services? Journal of Marketing, Vol. 30 (4), pp.32-36. Also published in: Gabbott, M. and Hoggs, G. (eds) (1997) Contemporary Services Marketing Management: A Reader. London, Dryden Press. Zeithaml, V. A. (1984) How Consumer Evaluation Processes Differ between Goods and Services in Lovelock, C. (ed) Services Marketing. London, Prentice-Hall. Also published in: Donnelly, J. H. and George, W. R. (1981) Marketing of Services. Chicago, American Marketing Association. Zeithaml, V. A. and Bitner, M. J. (2000) Services Marketing: Integrating Customer Focus Across the Firm. 2nd Edition, Boston, McGraw-Hill. Cowell, D. (1984) The Marketing of Services. Oxford, Butterworth-Heinemann. Shostack, G. L. (1977) Breaking Free from Product Marketing. Journal of Marketing, Vol. 41 (2), pp. 73-80. Bateson, J. E. G. and Hoffman, D. K. (1999) Managing Services Marketing. 4th Edition, Fort Worth, Dryden Press. Kasper, H., van Helsdingen, P. and de Vries, W. Jr. (1999) Services Marketing Management: An International Perspective. Chichester, John Wiley & Sons. Levitt, T. (1972) Production-line Approaches to Service. Harvard Business Review, Vol. 50 (5), pp. 41-52.
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Case Study Hyatt International Key points: Customer interaction is what differentiates physical goods from services like the hotel industry. This means that every employee has to be an embodiment of the brand promise. Using data to drive deeper customer understanding is critical.
Introduction The Chicago-based Hyatt Corporation is the largest private hotel group in the world. It operates through two separate arms: Hyatt International and Hyatt Corporation. The domestic division manages 123 hotels in the US, Canada and the Caribbean while Hyatt International currently manages 79 hotels in 36 countries. The Differences with Services John Wallis, senior vice president for marketing at Hyatt International, and who has been with the company for 20 years, is quite clear about the difference between marketing a service and marketing a physical good: One word the customer. When you are in services you are interacting with the customer and have to make sure you are delivering what your message has promised. Which, of course, is much harder in an industry like the hotel business since you are as strong as your weakest link. Every single person has to be the embodiment of the brand or the relationship can be damaged. Your brand is managed by the last contact anybody has with the customer, whether its a bell boy, a housemaid, or at the check-in, he points out. You can send whatever marketing message you want but if the customer doesnt see the perceived value and receive the services we are marketing, you can have a negative reaction to a positive statement. Making a Positive from a Negative If that does happen, there is a process in place to try and turn what Wallis calls a negative brand contact into a more positive one. For example, if a complaint gets as high as Wallis himself, he simply picks up the phone to the customer to discuss how the problem can be solved. Often he will find that just the fact of his phoning will do the trick. And when complaints do arrive on his desk, its usually because there has been a lack of personal interaction with the customer at lower levels. So hotel general managers are encouraged to get on the phone to see if they can find a solution to a customers complaint.
Getting the Right Processes in Place Another critical aspect of the business is finding the right balance between customer acquisition and retention. The problem with sales people in general, Wallis believes, is that they tend to be much more comfortable talking to customers they know than meeting rejection from those they dont. So what Hyatt has done is devise an individual sales plan for each sales person in which they write down what customers they plan to retain, what customers they will grow and who the potential customers are they are going to acquire over the coming year. Bonuses are based on achieving all three goals. This is all part of a systematic approach which Wallis feels is essential to progress, particularly in light of the fact that channels to market are getting so much more complicated. Hyatt is taking a long, hard and thoughtful look at the impact of the Internet on the pricing structure in what is already a fiercely competitive sector. There has to be a sensitive trade-off between the price the market will accept, and protecting the investment the company has made in building the values of the brand, according to Wallis: One thing I have always found in my career is that when you drop your prices, especially in resorts, you get a different class of customers and create a downward spiral. Exploiting the Data One of the more positive characteristics of the hotel industry is the amount of data it collects, making customer segmentation far more detailed although it has to be done within the framework of data privacy regulations. At Hyatt, it has been the basis of a brand strategy which has created three distinct sub brands to reflect that segmentation: Park Hyatt, which is about sophistication and intimacy, Grand Hyatt, located in premier cities and the workhorse brand, Regency Hyatt. As Wallis explains, Because we have been collecting data for six years, we have been able to understand that we have a different type of customer going to our different brands. Unless you understand your customer and what we call purpose of visit, you can make some big mistakes in how you target your marketing dollars.
Motivating Employees Training is a core part of the companys operations and has continued as budgeted despite the downturn caused by the events of 11th September. But, as Wallis explains, if the occupancy rates fall, then the company has to make sure it takes care of those who do stay in the hotels that much better. In addition, he believes that Hyatt has the opportunity through its concentration on training to differentiate itself even further when the market does come back. This is part of an overall culture where people are encouraged to take risks: I think we encourage people not only to come up with good ideas but then to have a go at them. They might make mistakes, but we have to allow people the freedom to think and then to act. A person is ten times more motivated if given an opportunity to do something. New ideas are tested through small pilot projects so it if fails, little harm is done. If it succeeds, then the message spreads to hotels around the world through what Wallis describes as the coconut radio by whomever has had good results from a new initiative. Ultimately, success comes from remembering just who owns the brand: What we keep stressing throughout the company is that its the customer that owns the brand. We just own the logo.
SECTION 2.
SERVICE MARKETING AT THE STRATEGIC LEVEL
A. Introduction
As is the case with the marketing of physical goods, organisations wishing to enter the services market must select and develop the appropriate market positioning and the strategies to achieve this desired position. They also require the appropriate internal competences and must develop an organisational culture which encourages a service orientation. However, there are a number of strategic issues which have unique dimensions when tackled by service organisations. For example, it is possible, due to the existence of a service process, to segment using nave and experienced customers. This section aims to summarise those issues. For instance, with regard to their external image and in response to the heterogeneity of services, service organisations need to develop strong brands to deliver a message of consistency and quality. However, immense effort is required to maintain brand integrity or consistency through the service experience.
B.
Possible Customer Segmentation Variables

1. Key Considerations 1.1 Segmentation of customers to gain competitive advantage is a well-established concept. There are, however, unique segmentation methods open to service marketers. For instance, customers become familiar with a service providers delivery process. It is therefore possible to create different offers for new and experienced users. People also have different emotional reactions to services, creating another potential basis for segmentation.
1.2
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Practical Guidance 2.1 The unique dynamics of services marketing provide an opportunity to segment producing different service offers and communication techniques.
3.
Models, Tools and Concepts 3.1 Despite the takeover of NatWest by the Royal Bank of Scotland, the two brands were retained, catering for the emotional needs of different customers preferring to deal with an English or Scottish service organisation. Customer segmentation on functional and emotive values is not usually practiced. Rather, more traditional customer segmentation techniques are used based on factors such as income, age, specific need etc. Current understanding of this concept is based on experience obtained from marketing practice. This concept requires further academic research.
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3.3
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Case Study Laing Homes Key points: The marketing of new houses is becoming far more sophisticated and based on an increased understanding of customer segmentation. This contributes to increased customer satisfaction from the home building through to after-sales service.
Introduction The marketing of new homes used to be relatively straightforward. It revolved mainly around the selling of bricks and mortar, with a one size fits all mentality as the prevailing ethos. Nor was this surprising. As Steven Lidgate of Laing Homes explains, in the 1970s house builders were rushing to catch up with the latent demand of the post-war baby boomers to own their first homes. The architecture was all about one colour, no individuality, and housing was seen as utilitarian and about getting a roof over your head. And everybody who had a threebedroom house was thought to be identical. Taking a New Approach The recession of the early 1990s and the resulting appearance of the concept of negative equity, where the value of houses could drop below their purchase price, had a profound effect on the market. For Laing in particular, it meant a fundamental rethink about its strategy which began with the hiring of Lidgate in 1992. He had been in the business since the early 1970s, and could see that what the sector needed was a much more marketing-led approach where the focus on branding and service played a critical role. The first phase of his refashioning of Laing Homes, which is part of the John Laing group, was to push more responsibility down to the local managers with the aim of making them more entrepreneurial and thus attuned to local needs. In other words, they would no longer have to follow a fixed template in house design, but could tailor according to the area they operated in. Becoming a Premium Brand Once the right people and the right environment were in place, Lidgate embarked on the next stage of moving the brand image more upmarket. Key to that was emphasising the location as much as the house design: What we have been saying to the people in our area offices is that if you want to build houses in Putney or St. Albans I want to be in the best or, at the most, second best location. It doesnt matter whether you are building a large, six bedroom detached home or a one bedroom flat. Be in the best area.
Accompanying that was a change of logo to a pineapple, the symbol of wealth and prosperity often seen on the gates of stately homes, to underline the change of style and direction. The target was now those customers who could pay anywhere from 200,000 to well over the million mark. But going after a more discerning customer has meant that the company has had to look carefully at the whole process and make sure the focus on customer satisfaction is a continual thread, from building and selling a home through to the after-sales service. A Role for Rigorous Research To make sure it was going in the right direction, Laing felt it first had to get to grips with just who their customers were. So Laing has been undertaking extensive research into its market so that it could not only begin to get closer to its customers by understanding the customer base, but ultimately to use it as a basis for product innovation, marketing and customer service. The first stage of the research to identify and understand the current and potential new home buyer was completed in summer 2000 by the Henley Centre. First findings showed that the reality did not always meet perceptions. For example, customers were more varied and less traditional than previously thought, were younger than estimated (in the 25-44 age bracket), skewed towards the AB socioeconomic group and comprised more couples and singles than households with children. The research also found different segments based on what customers want from sales/after-service, which tend to range from those more rationally motivated toward the purchase at one end of the spectrum to those more emotionally involved: Convenience converts are those who might like older homes but dont want to have to do a lot of work on them. They require a streamlined approach from Laing Homes and dont want to be bothered with details. Dream homers are at the opposite end of the spectrum and are more likely to want to be deeply involved in the buying process, including the interior design. Evangelists sit in the middle. The feel strongly that new homes are better than old ones for both rational and emotional reasons. Sales service should be flexible and customised exactly to match their demands.
What Customers Really Want The second stage of the research went into more depth to explore attitudes towards privacy, home working, storage, customer service and indulgence as a basis for new offers. Key findings included: Dislike of noise pollution and a demand for privacy in the sense of being able to do things like wander down to the kitchen in the morning without being overseen, and garden privacy. Overall, there is a tension between wanting more private space but also wanting versatility in the use of that space. Storage demands depend on the segment. Dream homers, for example, want to see that their home matches up to the show home while convenience converts are more realistic about the reality of showrooms. Home working demands versatility in the use of any office space. Customer service/indulgence: the little things are important to make buyers feel special and indulged throughout the purchasing process. Also, peoples expectations of service are increasingly much higher.
Developing a Lifelong Relationship The research has already played a role in new initiatives such as Project Champion, the aim of which is to develop a lifelong customer care package which is aimed at reducing defects, implementing rigorous quality assurance, providing better communications with the customer and including all staff in many aspects of customer service. Other initiatives include a new sales information systems, and a customer-focused web site. Laing Homes is also looking at ways to address customer demands about privacy, noise pollution and storage. And this customer-centric strategy seems to be paying off: turnover has doubled during the last five years, from 275.8 million to 573.7 million. Operating profit for the year 2000 was 64.3 million up 38% from 1999. The average selling price has also risen sharply in the last five years from 89,000 to 236,000. Margins have also improved significantly, rising from 13.6% in 1999 to 16.7% in 2000.
C.
Brand Strategy
1. Key Considerations 1.1 Unlike products, services are non-standardised. Delivery and customer perceptions are influenced by the actions of frontline employees and the inconsistency of service quality. However, customers can reduce risks associated with services by going straight to a well-known brand or the positive image of a respected service organisation. Consequently, a direct link is established between expectation, the service provided and a specific need. Familiarity with a brand and its dependability will reduce the risk of negative service outcomes, thereby enhancing brand loyalty. In services, it can be difficult to attach a brand to intangible items such as electricity or marital advice. Consequently, the brand name used to promote services is often the same as the company or corporate name and usually indicates the industry in which the service organisation operates, e.g. British Airways, Royal Bank of Scotland. Consequently, it is the organisation from which the customer buys a service, rather than a specific brand based around a specific service proposition. Therefore, the company brand name, or master brand, takes on significant importance. Brands are successful because they deliver a promise to customers consistently. The integrity of the brand is founded on this ability to deliver to a set of expectations. In a product this is the experience of using the product; in a service offer, brand integrity is derived from the customers experience of the service. All aspects of service delivery (people, prices and environment) must embody the brand.
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Practical Guidance 2.1 It is essential that service marketers develop a brand strategy which sets expectation in the minds of customers and becomes a basis for differentiation. This is likely to be a strategy to develop a corporate brand. Branding aims to give service organisations a marketing edge by reinforcing the organisations services in a way that is differentiated from its competitors. Branding is also important when an organisation wants to extend its service offering into a new area, when it changes its marketing strategy, or when customers have little or no experience with competing organisations and respond to the strongest presented brand.
2.2
2.3
Brand meaning is a function of brand presentation through marketing communications and service concept, quality and value. However, it is also the customers impression of the service. Customers experience-based beliefs are more powerful than the effects of company communications which may contradict experience. Consequently, it is important to reinforce brand marketing by delivering a service which reinforces the intended brand image. An excellent branding strategy can make an already strong service stronger but it cannot rescue a weak service. Service marketers must influence service delivery and service design strategies so that they meet expectations set by the corporate brand. Failure to enforce the appropriate organisational processes and capabilities can cause brand dilution.
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Models, Tools and Concepts 3.1 3.2 Brand strategies are used successfully as a major tool by many service organisations. Concepts of brand strategy need to be integrated into general services marketing training.
4.
Authoritative Sources 4.1 Blankson, C. and Kalafatis, S. P. (1999) Issues and Challenges in the Positioning of Service Brands: A Review Journal of Product and Brand Management, Vol. 8 (2), pp. 106-118. Kasper, H., van Helsdingen, P. and de Vries, W. Jr. (1999) Services Marketing Management: An International Perspective. Chichester, John Wiley & Sons. Berry, L. L. and Parasuraman, A. (1991) Marketing Services: Competing through Quality. New York, The Free Press. Mudie, P. and Cottam, A. (1999) The Management and Marketing of Services. 2nd Edition, London, Butterworth-Heinemann.
4.2
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Case Study PricewaterhouseCoopers (PwC) (Link to other PwC case in Section 1., sub section C) Key points: Taking a well-researched and consistent approach to rebranding can produce impressive results. Regular tracking of brand perception serves to bolster the brand.
Introduction PricewaterhouseCoopers is the worlds largest professional services firm. It employees 150,000 people, of which 9,000 are at partner level, and has offices in 150 countries. It was created by a 1998 worldwide merger between Price Waterhouse and Coopers & Lybrand. It has six areas of service, including auditing, business process outsourcing, global HR solutions, consultancy, tax expertise and corporate finance and recovery. Cutting across those are specialists in a wide range of industries, from automotive and aviation to retailing, technology and utilities. Creating a New Brand In a partnership like PwC, composed of intelligent and independent individuals, change cant be pushed through from the top but has to be done through persuasion and encouragement. The brand redesign since the merger illustrates how this can be done, and how a more consistent approach can achieve impressive results. The process began with a central marketing and communications team defining the new brand values based on the theme of people, knowledge, worlds. Once the core values were decided on, there was a comprehensive redesign that included new logo and identity guidelines for all visual aspects of the firm, from advertising and business cards through to the buildings themselves. A key aspect of the project, and one which is still ongoing, has been the commissioning of leading photographers to take photos of PwC staff from a range of positions around the world. They are included in the extensive online catalogue which staff can access and from which they can download whatever they need for a presentation, say which will ensure that the images, colours, logos, photos etc. are in keeping with the brand values.
PwC has also created a more physical representation of the brand in the form of a vessel in the warm earth colours that characterise the brand. The vessels are created in each country and have faces on opposite sides in keeping with the local culture and to emphasise PwCs strengths in terms of both its people and its market understanding. A Cultural Shift The feeling is that this initiative has brought consistency and discipline to the brand. And while at first people didnt like having it imposed on them, the brand is now becoming part of the firms DNA. To continue to bolster the brand the firm carries out a brand tracking survey every year. Based on interviews with senior people across the world, the data can be cut so that its relevant for each particular division. The survey tracks measures like loyalty, awareness and familiarity with the brand compared to competitors. In the last two years awareness of the PwC brand has risen by 70%.
D.
Crystallising the Service Direction and Developing Service Strategies

1. Key Considerations 1.1 Marketing strategy, properly developed, is closely related to business strategy. In fact, in a market-led business, the two should be indistinguishable. Marketing strategies and market perspective should therefore give direction to the strategies of a service business, from service design through to after-care policy. A service strategy within an organisation requires the definition of service concepts related to the organisations mission and strategy. The service concept states what should be done, to whom, how, with which resources, and what benefits should be offered to customers. There are various definitions for services, although most authors define a service as an activity or benefit which is essentially intangible and does not result in ownership of the service provided. Service organisations seeking sustainable competitive advantage have two alternatives. They can either compete on price or add perceived use value or both at the same time. Perceived use value represents the benefits obtained by the customer from the transaction while perceived price is the cost incurred by the customer. The Strategy Compass is a tool to help identify the optimum direction. Shiv Mathur and Alfred Kenyon propose that the focus of competition is not between companies but between service offerings. Competitive strategies must be devised to differentiate each individual offering as the customers, who decide whether a service offering is successful, differ for each service offering. These are Differentiation Matrices.
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Practical Guidance 2.1 The strategic requirements to deliver good quality to customers imply the development of a service strategy. This means that all aspects of organisational design must be geared to providing service which meets market expectation. If the service organisation lacks a clearly defined service concept, the service organisation will not have a stable foundation on which to discuss goals, resources to be used, and performance standards.
2.2
2.3
Clear definition of the service concept is required so that service employees understand what they are supposed to do. As well, if the service concept is not understood at the middle management level, supervisory duties may be difficult. An exact definition of services is not required to understand the marketing issues involved. What is important to achieve in the case of both physical goods and services is identification of customer needs and the delivery of benefits to customers. It is also important to understand that customers are more involved in the service process than is the case with physical goods. Consequently, the service delivery process itself takes on greater importance. Using the Strategy Compass, different services can be plotted on a matrix showing how customers perceive a services price and its perceived use value. The position of an organisations service(s) on the matrix can identify future strategies or moves up or down or to one or other side on the strategy compass. Differentiation Matrices: services which are undifferentiated in terms of design/features or support become mere commodities. They are likely to face fierce competition in the open market and are unlikely to command premium prices. On the other hand, differentiated services are likely to be able to sustain their price position. The product component of the service itself can be differentiated with respect to content and image, making it exclusive as opposed to standard. Similarly, a supporting service can also be differentiated with respect to personalisation and the expertise providing the service. For example, specific investment advice provided by a qualified financial adviser becomes a service provided by a consultant, whereas a standard bus ticket issued by a relatively untrained ticket issuer becomes a service provided by a trader.
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Models, Tools and Concepts 3.1 Some services organisations invest heavily in the development of an organisational service orientation with efforts directed at cultural change. Others ignore the concept and suffer the consequences. The development of a service orientation within organisations wishing to compete in the area of services is of major importance and one which is often ignored. This concept needs to be integrated into general services marketing training.
3.2
3.3 3.4
Clear definition and application of the service concept varies among service organisations. The Strategy Compass is a very illustrative and effective tool and needs to be made known on wider level to marketing practitioners. While service organisations may not use the strategy compass as their main tool, they do face the clear choice of modifying price and/or the value inherent in their service. The Shiv Mathur matrices are a very illustrative and effective tool and need to be made known on wider level to marketing practitioners. While they may not use the Shiv Mathur matrices as a tool in its pure form, most service organisations face the need to decide whether they will compete by providing a standardised or more differentiated product.
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Authoritative Sources 4.1 Grnroos, C. (2000) Service Management and Marketing: A Customer Relationship Management Approach. 2nd Edition, Chichester, John Wiley & Sons. Hoffman, D. K. and Bateson, J. E. G. (1997) Essentials of Services Marketing. Fort Worth, Dryden Press. Eiglier, P. and Langeard, E. (1977) Marketing Consumer Services: New Insights. MSI Report, Cambridge, Mass. Shostack, G. L. (1977) Breaking Free from Product Marketing. Journal of Marketing, Vol. 41 (2), pp. 73-80. Bateson, J. E. G. and Hoffman, D. K. (1999) Managing Services Marketing. 4th Edition, Fort Worth, Dryden Press. Cowell, D. (1984) The Marketing of Services. Oxford, Butterworth-Heinemann. Bowman, C. and Faulkner, D. (1997) Competitive and Corporate Strategy. London, Richard D. Irwin Inc. Adapted from Bowman, C. (1998) Strategy in Practice. London, Prentice-Hall. Mathur, S. and Kenyon, A. (1997) Creating Value: Shaping Tomorrows Business. Oxford, Butterworth-Heinemann.
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Case Study Centrica (Link to second case stud y in Section 6., sub section C) Key points: Centrica has developed a clear company vision with regard to its services strategy. Despite the huge customer base, the market is based not just on price but perceived benefits. Front line staff are key brand ambassadors.
Introduction Centrica is a provider of energy and other essential services in the home and on the road. Formed in 1997 with the demerger of British Gas, the 9.9 billion company now encompasses a range of brands. There is the British Gas brand, which is the umbrella for not just gas, electricity and telecommunications services, but also home services like security, maintenance schemes, and appliance repair. The other brands include the Automobile Association (AA), financial services brand Goldfish, One.Tel, which offers fixed and mobile telecoms, plus two energy subsidiaries, Direct Energy in Canada and Energy America in the US. A Clear Company Vision Peter Woolston is Centricas strategic marketing manager, with a broad remit across the group in terms of providing marketing expertise and consistency. He sees Centricas vision as both very clear and consistent in the way the company has positioned itself: We have a desire to own the space around the home and car so our business is about providing essential services and products customers need around the home. We are really about selling consumer benefits which is a servicetype orientation he continues. The philosophy of the business is to give you something essential we think you will find of value. And the financial services division, Goldfish, fits into the full services brief since it supports customers in acquiring relevant purchases.
Woolston calculates that the company services 20 million households in the UK in some way, out of a total of 22/23 million. That includes 15 million gas customers, 5 million electricity customers although there is some overlap and roughly 10 million AA members. Despite the size of the market, its critical to differentiate the business through the quality of the service offering and experience the customer receives, which means that its not a commoditised market in the usual sense. Customers decide not just on price but they have to feel they are getting some other benefit as well, he believes. The Personal Touch Probably our major brand benefit is the amount of contact we have through our service engineers and patrols. They are the really key brand ambassadors. And they are usually arriving when theres a crisis to resolve so they tend to be well-received, he explains. The company invests a lot of money to ensure the quality of the front line staff, including the provision of training and equipment support: service engineers, for example, have state-of-the-art laptops for diagnostics or to order spare parts so the speed of service for customers is as quick as possible. And the response time of AA patrols is considered well up to industry standard if not better. And while customising service can be a big challenge in such a mass market, to some extent the relationship customers have with service engineers can bring a more personal touch, particularly if the same engineer covers a particular area. Also, customers can to some extent select packages of services like gas, electricity and telecoms and be offered special rates. But making the satisfaction of customer requirements a core competence on such a scale is a big logistics issue, agrees Woolston. Of the 35,000 employee base there are some 6,000 service engineers, 4,000 patrols and around 10,000 call centre staff who have to deal with up to 1.4 million calls a week.
Understanding Perceptions of Value Defining and managing customers perceptions of value on such a scale is difficult but Centrica pours a lot of effort into research to enhance understanding of its customers, so it can create new products tailored to demand. This is being underpinned by big investments in the infrastructure so that in time information about individual customers will all be in one place. This will not only arm the front line with more comprehensive, up-to-date information about individual customers, but make customer segmentation far more accurate. Proliferation of Channels A few years ago the company was a one-product, one-country business. Now there are 50 different product sets and growing, and up to 30-40 ways of reaching the market, from traditional marketing techniques like advertising and direct marketing, to new technologies like the web, to marketing affinities and the bill itself. One recent innovation in channel development has been the launch of a newly-revamped British Gas site on the Internet called www.house.co.uk. It displays the wide range of services on offer, as well as allowing customers to carry out various transactions like paying bills. Future Ambitions Woolston believes that this site will help support and stretch the British Gas brand, which he feels has come a long way in the last few years in terms of customer satisfaction. But it wants to go further and bring its services up to world class standard. This is in line with its international ambitions: it has a goal of gaining 10 million customers over the next five years mainly in North America and western Europe. This process has already begun with the purchase of two energy companies as North America begins to deregulate its energy industry, with smaller ventures on the Continent, including the luminus joint venture in Belgium. And Centrica,with its four to five year head start in the market, is in pole position in terms of its experience and expertise to capitalise on these new opportunities, believes Woolston.
SECTION 3.
UNDERSTANDING CUSTOMERS SERVICE REQUIREMENTS
A. Introduction
Service organisations cannot operate in a vacuum. They must be customerfocused and, therefore, must get to know and understand the needs of their existing and potential customers. Information can be collected using a variety of research methodologies. Once customers desired service requirements are known, the service organisation must then identify the tasks which it must undertake to produce the desired customer result. There are a number of unique issues involved in understanding the requirements from service offers. They are explored in this section.
B.
The Gap Model

1. Key Considerations 1.1 The gap model is a robust conceptual model to diagnose and resolve service performance issues. It begins with the customer and determines the organisations tasks around what needs to be done to close the gap between customer expectations and perceptions. Firms need to close the gap between what customers expect and receive to satisfy customers and to build long term relationships with them.
1.2
2.
Practical Guidance 2.1 The gap model can provide managers with priorities to improve service quality and services marketing. It is a practical tool by which service marketers can direct improvement in service operations.
The Gap Model of Service Quality
GAP 1 CONSUMER Expected Service
Perceived Service
GAP 4 External Communications to Consumers Service Delivery (incl. pre and post contacts) GAP 3 Translation of Perceptions into Service Quality Specs GAP 2 Management Perceptions of Consumer Expectations MARKETER
Source: L. Berry
3.
Models, Tools and Concepts 3.1 3.2 Service organisations often use the gap model or variants to identify areas for improvement and development. The gap model is a useful tool and needs to be made known on wider level to marketing practitioners.
4.
Authoritative Sources 4.1 Parasuraman, A., Zeithaml, V. A. and Berry, L. L. (1985) A Conceptual Model of Service Quality and its Implications for Future Research. Journal of Marketing, 49, (4) pp. 41-50. Zeithaml, V. A. and Bitner, M. J. (2000) Services Marketing: Integrating Customer Focus Across the Firm. 2nd Edition, Boston, McGraw-Hill.
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Case Study BT Retail Key points: The starting point is to design services customers want and then keep evolving them to improve any gaps between performance and satisfaction. This is carried out in a comprehensive framework designed to emphasise the link between employee satisfaction, customer satisfaction and shareholder value.
Introduction BT Retail, part of the BT Group, one of the worlds largest providers of telecommunications services, is responsible for the companys business and residential customers. As of June 2001 that encompassed 29 million customer lines, of which about nine million were business lines and lines for other service providers. Perceptions of Value While there are obviously physical aspects to telecoms, it is the services element that dominates the marketing approach the company takes, according to Adrian Hosford, director of BT Group Social Policy: When you think about services, you have to think about the systems and processes in total, which includes a lot of people components. And you need to manage that as a whole. This is because what counts is not the products themselves but customers perceptions of the services, whether its making a phone call or filling some other need. While some of that perception will be associated with the hardware, more is associated with all the bits that go into making the service work. And to try and ensure those services are the ones customers want. BT is listening to its customers to understand their needs in order to be able to pull the most appropriate services together from the network, products and people.
Keeping Customers Given that the business is essentially about communications and connection, retention in particular is critical because its the usage that drives profitability. And we dont drive usage from just providing the enabling mechanisms but from people and their applications, he explains. The starting point is to try to design services that customers need and want, and then evolve the service to make sure the gap between performance and satisfaction is continually improving. Handling the causes of a breakdown in customer relationships is also critical: We try to make sure the complaints are handled to increase retention rather than push them over the edge, notes Hosford. A lot of resources are being put into designing processes and systems that underpin this focus on retention. This includes not only extensive training, but also encouraging employees to be empowered and as individual as possible within defined parameters. The brand isnt a have a nice day type of commoditised service. We encourage people to be themselves and to take ownership of the customer needs, he says. Links between Employee and Customer Satisfaction This is all being done in the context of a comprehensive framework designed to emphasise the link between employee satisfaction, customer satisfaction and, ultimately, shareholder value. Its main tenets have been outlined in a White Paper published in October 2001 by BT Retail chief executive officer, Pierre Danon, and called Enlightened Values (www.BT.com/betterworld). In it he underlines just what impact a demotivated customerfacing employee can have on customer retention and hence profits. Based on research on the number of very dissatisfied customers who said they would leave, along with some rough assumptions on things like average size of bill, the number of customers a customer adviser might deal with in a year and net margin, the company estimates that a single call centre employee with poor customer handling skills could reduce company profits by 300,000.
Digging Deeply into the Data Extensive qualitative and quantitative research has been carried out to understand what really drives customer satisfaction. This has become the basis for: Modelling and weighting the real drivers of customer satisfaction. Targeting those drivers and monitoring continuous improvement. Totally aligning the voice of the customer with internal measures and targets.
Qualitative research, for example, has shown the importance of more tangible factors like price and value, products and services, and customer contacts and experience. But intangible factors like image and reputation are just as important. Getting the Right Measures The company has gone even further to develop more precise measures by disentangling the masses of data it has from sources like surveys, media coverage and reputation rankings to understand the real linkages between cause and effect in mathematical terms. So, for example, under the headings of products and services, contacts and experience, price and vision, and image and reputation, it has developed detailed measures to see how movement in any one of them affects changes in satisfaction. What the company has also found from this work is just how central BTs overall image and reputation is in determining customer satisfaction. Nor is this a process with an endpoint, stresses Hosford: Because customer expectations are rising all the time our services have to evolve quickly. Its a moving target.
C.
Perceived Control
1. Key Considerations 1.1 The amount of control that customers perceive they have in a service encounter is a crucial determinant of the quality of the interactions. Feelings of control such as providing choice where an outcome is the result of a consumers own decision are important to allow consumers to feel satisfaction. When customers first experience a service process they feel out of control and need reassurance. As they re-use the process, they become familiar with it and try to find ways to regain control. Service for the experienced customer is often about self-service.
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Practical Guidance 2.1 This underlying emotion is very powerful and has massive implications to segmentation, service design and communications. Variation in a consumers perceived control can have a considerable effect on creating a more pleasant service experience. One way to giving consumers control is to provide choice. This is considered to be a crucial benefit of service customisation, a common competitive strategy employed by service organisations.
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Models, Tools and Concepts 3.1 Many service organisations are giving customers increased choice, spurred on to some extent by the emergence of new technologies. However, this is not necessarily driven by a fundamental understanding of the concept of perceived control. The concept of perceived control needs to be integrated into general services marketing training.
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Authoritative Sources 4.1 4.2 Bateson, J. E. G. and Hoffman, D. K. (1999) Managing Services Marketing. 4th Edition, Fort Worth, Dryden Press. Hoffman, D. K. and Bateson, J. E. G. (1997) Essentials of Services Marketing. Fort Worth, Dryden Press.
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Hui, M. K. and Bateson, J. E. G. (1991) Perceived Control and the Effects of Crowding and Consumer Choice on the Service Experience. Journal of Consumer Research, Vol. 18 (2), pp. 174-184. Also published in: Gabbott, M. and Hogg, G. (eds) (1997) Contemporary Services Marketing Management: A Reader. London, Dryden Press.
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Case Study Xscape Key points Building a new leisure brand has to be based on a clear understanding of customers and their expectations. Joint venture partners have to be persuaded to live the brand values as well because one bad experience will damage consumer perception of the brand as a whole.
Introduction When PY Gerbeau first took on the poisoned chalice that was the Millennium Dome in early 2000, he knew that he had only a very limited time to improve what had been so far a commercial and PR disaster. He realised that he could instantly improve the operation with some good marketing, merchandising and catering. But what really impressed him was the enthusiasm and commitment of the front line staff. And understanding the critical role the front line employees play in a service business has been the guiding principle of his career, from his eight years with Disneyland Paris, through his short but highly publicised tenure at the Dome and now, with his latest venture, Xscape. The Birth of a Brand Xscape is a relatively new brand developed under the auspices of the specialist property company, Capital & Regional, which has an extensive portfolio of retail and leisure properties. The first of many destinations of this style, Xscape opened in Milton Keynes. It is a 550,000 sq. ft. enclosed entertainment centre which contains a real snow ski centre, 16-screen multiplex cinema, fitness centre, a climbing wall, bowling alley, and numerous restaurants and bars, among other attractions.
Capital & Regional approached Gerbeau in the summer of 2000 to get his advice on how to take the brand forward and develop it into what could become a global brand. Soon after he was offered the job of chief executive as the property company realised that in Gerbeau they had someone with a proven track record in building leisure brands. And Gerbeau could see that Xscape was a brand with much potential: it has already had 4.2 million customers in the first year. The Destination of the Future Gerbeau officially launched the brand in November 2001 using the strapline the destination of the future. This encompasses his belief that Xscape is and should be something new and different to attract todays more sophisticated and demanding customers. He has already begun the process of improvement by investing in the visual identity inside the centre to, in his words, bring some spirit and soul to the place. Another initiative he has set in motion is the creation of a series of big shows based on seasonal events. The entertainment mounted during Halloween, for example, multiplied the length of time visitors stayed at the venue. Because thats the objective: get more people to visit and to stay longer. Understanding the customer segmentation is also critical in order to make sure that each segment has something to draw them in. For example, Gerbeau wants to encourage more people to come during the day and at weekends to see the shows, go to the cinema or bowling or whatever. He also wants to target corporate hospitality, saying: Not only is this a money maker but it brings in opinion formers. And that will bring families in too. We did that with Disney and it worked very well. Then there are the customers who come at night and who mainly consist of the 15-34 year olds who come for an evening out. To encourage them even further a huge night club which will hold 2,200 people is planned for February. Living the Brand Getting the intangibles right in a services business like this will be crucial, he believes: If you get the recipe right its easier to sell because you can catch the imagination of customers much better than if it was a physical product. Because it comes down to one thing people who live the brand, who walk the talk. You have to make sure everyone understands the concept of the brand.
And that will be his challenge because his company owns only the ski slope with its 100-150 staff. The rest of the 800 workforce work for the companies that have taken up sites in the venue. So he cant demand employees behave a certain way or tell other companies how to train their staff. Its a more delicate approach and one where partnership is the presiding theme: Its about reinventing the art of business to business. We say to them that yes, you are a powerful brand, but now you are under this umbrella, and we would love you to do things this way. Why? Because we want to bring more footfall and more consistency to the offer so customers will have a great time everywhere. He knows from long experience that one bad customer contact can damage the perception of the brand. So he and his team are trying to make all the brands see themselves as partners, not tenants only concerned about paying their rent. They have to be persuaded that its important to contribute to the brand promise. Expand and Adapt He will have much more control over this aspect of the business with the new sites. One is opening near Leeds in January and future centres are planned for Glasgow and Germany. Nor will it be one size fits all: the contents of each Xscape will be tailored to the particular market. And Xscape will maintain control over the entertainment and hence opening hours. The brands that partner with Xscape as it expands will be those that match the brand values. We expect that our brand will become so big and attractive that whoever does business with us in the future will have to understand that we control the opening hours and the staff needs to have proper training and behave properly. And well have a quality charter before we open the next ones. Today it has to be about good will and influence. But he is pleased with the progress he has made so far in Milton Keynes: Its always the same story. You have to start by finding heroes.
SECTION 4.
THE SEVEN PS OF SERVICE MARKETS
A. Introduction
There are many common marketing elements and practices between services and physical products. However, certain characteristics of services mean that the marketing mix must be adapted to take account of challenges posed by services marketing. In particular, while traditional marketing theory has focused on Four Ps price, promotion, product, and place (distribution) there are another Three Ps which take on increasing importance in the case of services. These are: People management in light of the importance of the role of service employees in service delivery. Processes in ensuring that the service organisation can effectively deliver services. Physical evidence or the environment in which the service is provided.
B.
Marketing Mix for Services: Seven Ps, Not Four

1. Key Considerations 1.1 Services marketing follows the same logic as that for product marketing: effective marketing programmes are based on a careful mix of key elements. Careful management of the place, product, promotion and price are still important. However, as services are usually produced and consumed simultaneously and the customer plays a greater role in the service delivery, there is a need to consider additional factors in communicating with and satisfying customers. This is the extended marketing mix where people, physical evidence and process become important.
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Practical Guidance 2.1 The challenges posed by consideration of three new Ps include the following: People: Employees are an increasingly important part of service delivery as they are involved in the interaction with the customer. Service oriented employees can provide a competitive advantage. Marketers must create programmes aimed at ensuring that employee behaviour embodies the brand promise. Processes: Well developed procedures and mechanisms are important to support the service delivery to customers. Failure of processes can damage customer relationships. Physical evidence: techniques to make the intangible real for customers.
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Models, Tools and Concepts 3.1 The move beyond just Four Ps is a significant and important concept which underpins understanding of services marketing and application of tools. However, it is rarely appreciated by many service organisations. The role of the Seven Ps needs to be integrated into general services marketing training.
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Authoritative Sources 4.1 Booms, B. H. and Bitner, M. J. (1981) Marketing Strategies and Organization Structures for Services Firms in Donnelly, J. and George, W. R. (eds) Marketing of Services. Chicago, American Marketing Association. Zeithaml, V. A. and Bitner, M. J. (2000) Services Marketing: Integrating Customer Focus Across the Firm. 2nd Edition, Boston, McGraw-Hill.
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Case Study Sun Microsystems Key points: Customer-facing intelligence has to be at the heart of strategy. Having to deal with a multi-layered relationship model calls for a more complex process than the traditional Four Ps. In a business to business environment forming personal relationships with customers is critical.
Sun Microsystems is a leading provider of hardware, software and services to companies and has a presence in over 170 countries around the world. With revenues approaching $20 billion, and 40,000 employees, its technology has been integral to the advancement of the Internet. Betting on the Future Since its founding in 1982, Sun has been noted for its technological advances and its vision. For example, its tagline of the network is the computer was in place from the start, long before this concept became fashionable. And over time it has consistently made a number of visionary big bets. In October 1995, for example, it bravely bet the company on the belief that the Internet would become pervasive, that bandwidth would increase dramatically in communications, and that Java, its write once run anywhere programming language, would become dominant and a key enabling technology for the Internet. By 2000 all this had come to fruition. So now it has made three new bets. The first is that technology platform infrastructures will have to be able to cope with massive (and unpredictable) scaleability, second that services will be delivered over the Internet and will be always on, and finally that technology components will have to be fully integrable.
The Growth of Professional Services Professional Services, which is six years old, is part of Suns Enterprise Services organisation. Professional Services oversees all the consulting, bespoke projects, project management, platform integration and operations management across all the disciplines and technology. Support Services handles the maintenance business and Educational Services focuses on customer training and knowledge transfer. Paul Gostick is the marketing manager for Professional Services in the UK, while he has also been working on secondment for the last 15 months developing a global strategy and field programmes for Professional Services. Services are a growing proportion of revenues, with Professional Services having enjoyed growth of between 70-100% a year, according to Gostick. The fundamental focus of Professional Services is to help companies solve a business problem and/or improve their business by implementing an IT platform based on Suns technological offerings. Professional Services will analyse how best to develop a solution for customers, implement it and help them to derive benefits from it. That means that the Sun team not only has to focus on the customer but the customers customers as well. Learning about Customers This is why Sun is emphasising the need to bring customer-facing intelligence into the heart of strategy: What you need to do is make sure the people who actually touch the customers act as antennae and bring back intelligence about the customers thoughts, perceptions, what they need, where they are trying to go, and what we need to develop, Gostick explains. Carrying out a lot of research into customer needs in order to satisfy them is not quite as straightforward in this sector as it might be in consumer goods, however. Because Sun works at the forefront of leading edge technology, its often looking at how to do things differently creating possibilities its almost like anticipating and meeting customer (future) needs before they know they have them. And Sun has to be able to show the real benefits they will derive from the technology, says Gostick: So part of the strategy is to try and understand customer needs, part is to evangelise and show the possibilities, and part is to make sure we can deploy the technology in a real situation. What we are doing is to take the theory and turn it into actual practice.
A Complex Marketing Model Sun goes to market through a variety of third party providers, from those who resell technology, to those who deliver on Suns behalf and those who provide Sun with services and technology. Partnering is considered to be one of our core competencies and is a critical part of the business model. What makes the customer engagement model even more complex is the fact that purchasing decisions of this size and which can involve quite mission-critical infrastructure projects will usually be taken by a decision unit of many people. There are also external parties who can have a direct impact on decisions. For example, a company about to embark on a new e-business strategy could possibly have already had a discussion with a consultancy at a business process/business strategy level who would then influence the choice of supplier. Again the ability to partner and develop the engagement model is critical. As Gostick says, this is very different from traditional marketing techniques and its emphasis of the Four Ps: They dont translate neatly into business to business because of all the external influencers. You cant just decide who the end user is and market to them. You have to know who they are, their supply chain, and their model of engagement in terms of who the influencers are and their spheres of influence. Creating the Right Relationships Sun is in the midst of developing a key account management process for its major customers to deepen customer relationships and do one-to-one marketing. The account manager will be the face of the company, acting as a conductor by assembling whatever specialists are required. This will help to prevent what Gostick feels is often the biggest mistake companies can make: exposing the internal nuances of the organisation to customers. A business to business environment is all about people, notes Gostick: When you get those relationships right, if something does go wrong it can be kept in perspective. Its when customers dont really know you that small problems can create significant customer dissatisfaction. Suns goal is to make services such a seamless part of its offer that it comes to be seen as its customers trusted adviser who can fairly and truthfully advise them how to improve their businesses, through the use of technology.
C.
Proposition Designing, Researching and Developing Services

1. Key Considerations 1.1 There are four steps that the service organisation needs to manage in providing a service offer: Developing the service concept: the service organisations basic concept or intentions. Developing a basic service package the core service, facilitating services and goods, and supporting services and goods. Developing an augmented service offering the service process and interactions between the service provider and customers, including the service delivery process. Managing image and communication the interface between the promotion and product marketing mix elements.
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Innovation or creativity is required to assist service organisations to create new directions and to achieve competitive advantage by applying new processes and technology to the service organisations infrastructure. Innovation is also needed in bringing new products to market and, in fact, the ability to innovate new services may be a critical success factor in rapidly changing markets. With tangible products, features represent specific components which can be added or removed without changing the essential characteristics of the product. In the same way, features can be differentiated in the case of most services to appeal to a variety of different market segments, each with the same core needs but with marginally different requirements to satisfy slightly differing secondary needs. One important aspect of the marketing function is managing the mechanism by which new propositions are created for customers. Few service organisations make the effort to produce new service ideas. However, those organisations which are successful in new idea generation do tend to establish systems and procedures to stimulate idea generation on a long term basis. Unlike physical products, because of their intangibility, services are not able to be protected by patent. Consequently, it is easy for new and existing services to be imitated, thereby providing competitive pressures.
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Practical Guidance 2.1 It is possible to proactively design services in the same fashion as companies create new products but different techniques need to be applied. Innovation and creativity can be managed by keeping the service organisation small and by focusing the management team on new opportunities. Other organisations may manage innovation by using external agencies, or new product development companies. These agencies receive briefs from the service organisation to produce new services offering customer benefits. Using their specialist skills, the agencies research the target market and return to the service organisation with a researched concept. The components of a service can be planned and designed in detail. While most manufacturing organisations have clear, rational processes managed by product managers to identify new products and to bring them to market, such mechanisms are rarely developed in service organisations. Consequently, the process of generating competitive advantage from services is generally opportunistic and erratic and is usually not a rational or managed process. Employees could be an important source of new service ideas, although in fact they are the source of few new ideas; possibly because of a lack of formal service development processes or because employees perceive new services as creating extra workloads. Imitation of competitors can be an easy means of generating new ideas, although this tends to be merely reactive and defensive in nature. It is now more common to use customers as a source of new ideas. Some organisations use lead users whose needs go beyond those of current users and who often think of and prototype new ideas. Idea generation should not be seen as an isolated function. Rather, it should be seen as part of a continuous development process with techniques designed to change normal patterns of thinking. Intangibility can be overcome by providing tangible clues to differentiate one service with regard to others. These can be in the form of symbols and brands which are able to be protected by trademark and other legal means.
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2.10 A service organisations intellectual capacity can also be represented in the form of its employees which play an important role in the service delivery process. Intellectual capacity is diminished when an individual leaves the service organisation. Consequently, employee retention plays an important role. 3. Tools, Models and Concepts 3.1 There are various ways in which service organisations come up with new service propositions. Some follow logical steps while others respond spontaneously to market opportunities. Tools useful in designing, researching and developing services need to be integrated into general services marketing training. The area of innovation is poorly researched with much of the theoretical research adopted from manufacturing models and frameworks. However, these do not consider the important aspects of services such as intangibility, customer heterogeneity, simultaneous production and consumption, and the inability to store services. Consequently, further research and validation are required. New service idea generation is often not a priority for service organisations who are frequently more focused on short term survival. Consequently, few have well developed systems for the generation, evaluation and implementation of new service ideas. There are, however, some organisations which do place greater emphasis on innovation and the continual search for new service ideas. The need for ongoing new service idea generation needs to be emphasised to marketers and at all levels of service organisations as a necessary condition for long term organisational survival. Tools useful in designing, researching and developing services need to be integrated into general services marketing training. Many service organisations overcome the lack of protection for intangible intellectual property by investing heavily in branding and developing strong market positioning. However, not all service organisations are good people managers and/or recognise the importance of retaining key employees. Further research and validation are required to provide an understanding of ways in which service organisations can protect their intellectual property.
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Authoritative Sources 4.1 4.2 Grnroos, C. (1990) Service Management and Marketing. Lexington, Massachusetts, Lexington Books. Edvardsson, B., Gustafsson, A., Johnson, M. D. and Sandn, B. (2000) New Service Development and Innovation in the New Economy. Lund, Sweden, Studentlitteratur. Young, L. (1996) Making Profits from New Service Development. London, Pitman Publishing. Cowell, D. (1988) New Service Development. Journal of Marketing Management, No. 3 (3), pp. 296-312. Easingwood, C. J. (1986) New Product Development for Service Companies. Journal of Product Innovation Management, No. 4 (3), pp. 264-275. Edvardsson, B., Gustafsson, A., Johnson, M. D. and Sandn, B. (2000) New Service Development and Innovation in the New Economy. Lund, Sweden, Studentlitteratur. Grnroos, C. (2000) Service Management and Marketing: A Customer Relationship Management Approach. 2nd Edition, Chichester, John Wiley & Sons. Hoffman, D. K. and Bateson, J. E. G. (1997) Essentials of Services Marketing. Fort Worth, Dryden Press.
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Case Study HHCL and Partners Key points: The evolution of what was an advertising agency into a total communications company enables HHCL to offer different solutions to different client needs. Companies like this have to balance creative excellence with business acumen. The culture plays a crucial role in success.
Introduction HHCL and Partners was set up as an advertising agency in 1989 by five partners, Rupert Howell, Steve Henry, Axel Chaldecott, Adam Lury and Robin Price. From the start its founders were determined to differentiate it from its counterparts both in the way it approached the creative aspect of advertising and the way it did business. So, for example, from the start it bucked the trend of agencies being paid by commission and worked on the basis of fees. In terms of its creative work, its ads immediately stood out in terms of their fresh thinking and at times bizarre sense of humour to the point that in 2000 the UK trade magazine Campaign named it the Agency of the Decade. Perhaps the most often cited campaign is that for Britvics soft drink Tango, but it has also done ground-breaking work for clients such as Go, the budget airline and the online financial services company Egg. Taking a Holistic Approach By 1995 the agency had relaunched itself as a total marketing communications company. According to marketing director Minnie Moll, the partners could see that that the market was shifting towards one where advertising wasnt always the only answer to client needs. That meant getting rid of what was seen as an increasingly outdated notion of a line, where advertising is above the line and activities like direct marketing and sales promotion are below the line. There was a very strong belief that we should look at marketing holistically without prejudice in terms of what tools to use, she explains. So very senior people who were specialists in areas such as direct marketing, sales promotion and public relations were hired to offer what she calls 3-D marketing. In this new approach, the answer for the client might be advertising but equally it might be new product development, repositioning, a promotion, or consultancy. And its consultancy of a particular type, Moll points out: What management consultants are very good at is looking at and sorting out supply. Because we come in with the consumer headset on, we are really good at creating demand. We can see how a clients strategy should be implemented in terms of the communications.
Cross fertilisation across borders and marketing disciplines has also been enhanced since 1997, when HHCL was bought by Chime Communications plc, itself part-owned by the international marketing services group WPP. Putting Emphasis on the Corporate Brand What helps differentiate the brand, however, remains the advertising, says Moll: When we do fantastic ads thats above the watermark, if you like. And that pours back into our reputation, which brings in more consultancy-type work. Its a virtuous circle. HHCL, unlike others in the field, puts a lot of emphasis on its brand in terms of every touch point with its customers. Whats intriguing about the industry is that there is very little differentiation, even though the industry is there to help clients differentiate their brands notes Moll. Its very much physician heal thyself. So we are not afraid to polarise opinion by taking the stance of professional radicals. Some people might think we are a bit too rich for their blood but we really enjoy the fact that lots of clients are aware of us and have a fairly good sense of what we are about. Measures of Success Client retention is a top priority in an industry where client acquisition can too often take attention away from servicing existing ones. In fact, in 1995 HHCL took the quite radical step of closing down for new business because it was growing so fast it didnt want the distraction of time-consuming pitches. Even now HHCL tries to do no more than two pitches at any one time. Along with retention, HHCL uses two other key measures: the Balanced Scorecard, which monitors both financial and customer satisfaction measures, and an annual health check which involves face to face meetings with clients to gauge how the relationship is working. Relationships Count Moll says that she senses the industry overall is getting back to realising that if its about anything, its about people and relationships. This could be in reaction to the trend of the last few years for big multinationals to consolidate all their communications around the world into a few big agencies and impose them on the local markets.
For a long time that has been the way its going, she says. But now that companies like Procter & Gamble, Unilever and Mars are starting to think more carefully about their local markets there is a bit more of a sense of choice and hiring the best in that market. And it might be a clich, but when I debrief pitches I find that one of the things clients are looking for is people they like and can work with. Creating the Right Culture HHCL has a very distinctive culture, so hiring the right people, offering them extensive and ongoing training and focusing on staff retention is central to maintaining it. It looks for people who get excited about innovation and challenging the status quo, and who can deal with what Moll describes as what-if? type of questions. This is encouraged, as well, by techniques such as the Mindgym to keep thinking flexible and sharp. The physical environment plays a big part in this. When the company moved to its present building in central London it hired architects to design the premises to encourage collaboration and interaction. So not only are there no fixed desks, but there are defined areas for being busy and lively or for quiet work. As Moll explains, The point is that when you have a fixed desk you just get to know the people around you. You arent doing much walking and talking and you stay in a fixed space which is either busy or quiet. This way you can choose your space.
SECTION 5.
MARKETING MANAGEMENT PROCESS FOR SERVICE ORGANISATIONS
A. Introduction
Marketing cannot and should not be seen as a separate function within the service organisation. In effectively meeting customer needs, the service organisation must have the appropriate competences, marketing planning, measurement functions and processes in place to deliver the service. Without these, the service organisations internal operations will not allow it to deliver on its service promises.
B.
Marketing Planning Process for Services

1. Key Considerations 1.1 The marketing planning process is a series of activities tackled in a logical sequence to lead to the setting of marketing objectives and the development of programmes to meet the objectives. The marketing plan, therefore, becomes a framework for identifying where and why marketing resources will be allocated, when they are to be used and how they are to be integrated to make maximum impact. Customers have certain expectations about the performance which they wish to achieve in service delivery. Measurement of a service organisations ability to meet these expectations will provide valuable information for the development of quality improvement programmes. As the service process depends to such a large extent on the person actually delivering the service, it is important that service operations are managed in such a way that services are delivered in as consistent a manner as possible to protect the brand and to ensure consistent levels of customer satisfaction. Measurement of satisfaction using a satisfaction information system is an ongoing research process to provide managers with timely information for decision making purposes. Measurement of customer satisfaction, combined with other measures, would allow the organisation to assess its overall performance.
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Practical Guidance 2.1 Marketing planning will bring about a better co-ordination of activities and individuals (often of importance at times of economic downturn). Among other results, it will also prepare the organisation to meet change, reduce conflicts, force management to think systematically, and balance corporate resources more effectively against market opportunities. However, in their marketing planning, service organisations can also face problems. For example, it may be hard to achieve consensus and co-operation, the company may simply not be market oriented, or plans may not be taken seriously enough. Services can be measured against customer expectations of the best-in-category service, competitor services, or pre-use expectations of the particular service in question.
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A common form of measurement in services marketing is the performance of employees, as their action is intertwined in the service delivery process and is important for consistency management. Some companies use mystery shoppers sent in to purchase a service and then to provide feedback on the experience. Managers need to collect information on performance against expectations to identify areas for improvement for inclusion in quality programmes. Consistency management shifts focus away from the external market towards the service organisations internal operations. Procedures and practices must be in place to ensure that the operations aspect of service organisations are consistently managed and to provide guidelines to service employees.
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Models, Tools and Concepts 3.1 Many service organisations believe that markets change so quickly that plans soon become redundant. Consequently, many service organisations do not adopt formal marketing planning processes. However, even where there are no formal strategies in place, planning often emerges from the many decisions made on a daily basis. Marketers are encouraged to have the appropriate formal marketing planning steps in mind but to choose the style of planning which suits the service organisation. Methods for the measurement of expectations need to be integrated into general services marketing training. Many organisations, such as fast food operations, have developed their own manuals or training centres (for example, the McDonalds hamburger restaurant) to inject consistency in service operations. Current understanding of this concept is based on experience obtained from marketing practice. This concept requires further academic research.
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Authoritative Sources 4.1 4.2 4.3 McDonald, M. and Payne, A. (1996) Marketing Planning for Services. Oxford, Butterworth-Heinemann. Grnroos, C. (2000) Service Management and Marketing. 2nd Edition, Chichester, John Wiley & Sons. Bateson, J. E. G. and Hoffman, D. K. (1999) Managing Services Marketing. 4th Edition, Fort Worth, Dryden Press.
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Case Study Microsoft Key points: Microsoft has been re-evaluating its approach to marketing services by defining what services mean. This has had implications in terms of creating processes for delivery.
Introduction Microsoft is one of the best known brands in the world, with revenues in excess of $25 billion for the year ended June 2001. It has four main divisions in the UK: The desktop business, with productivity software such as the latest incarnation, the Windows XP operating system. The consumer and device division with the launch in 2002 of the companys new game, Xbox. The embryonic.Net which embraces the companys vision of web services. Enterprise server software.
The enterprise server software market is aimed at helping organisations run their infrastructure, as they begin to embrace the Internet to enhance their relationships with customers, partners and suppliers. The company sees this business as an attractive source of future revenues. Defining Services Its entrance into this market has also made the company rethink how it approaches the marketing of its services. And that has meant defining just what services means to a company like Microsoft. Whats important to understand, says Sara Sheppard, group marketing manager for Enterprise Services Marketing, is that the company is very much a product organisation that offers services to sell products: We arent in the business of selling services for services sake. Think of services, she says, as a wrapper that is essential in selling the products.
That doesnt lessen their critical role, of course. Getting the services element right is critical, particularly when dealing with big enterprises which demand high availability for their missioncritical systems: When you are selling in that environment you have to sell a business solution so we have to show that whether it comes from us or a partner, the customer can feel confident that we can deliver what we promise, she explains. This is a different challenge from marketing consumer products. Its not so much one of increasing brand awareness since most people have some form of Microsoft: The challenge in the enterprise space is that while most people will have us on the desktop the server market is not only very competitive but its one where the service relationship is very important. A Web of Relationships What adds complexity to the relationship is that Microsoft operates through a very partner-centric model, which means that many of the services accompanying the core product of enterprise server software are provided by partners rather than directly. Microsoft thus runs an extensive certification programme for its 35,000 plus partners. It is also increasingly working with fewer partners in a deeper fashion to allow for greater business integration and skills transfer. For example, Microsoft has set up a joint venture consultancy business with Accenture, called Avanade which specialises in Microsoft based solutions. Changing the Operating Model Another sign of the increasing realisation of the importance of services is that in the last few years the enterprise services section has been shifting to a profit-centred model rather than one based on cost recovery or breakeven. This is to underline to enterprise customers the companys commitment to services by having a more profit-based culture that encourages investment. It has changed the mentality hugely and made us more effective in what we offer, Sheppard believes. Whereas before, for instance, the offering veered more to one size fits all, now, in line with customer expectations, Microsoft is increasingly focusing on flexibility and offering more custom-built services. It has also introduced new rigour in terms of customer satisfaction. Now that the division has a sharper focus on the bottom line, getting the balance right between what customers are offered and the business case has become far more prominent.
And that has to be done in the context of the classic characteristic of services: every time you exceed expectation, the goalposts are moved and customers expect even more. Getting the Right Skills Pushing into this market has had a number of implications in terms of creating processes for delivery. For instance, it means, among other things, making sure that the system is robust enough to deal with 24 hour service delivery, that the system can switch into different languages, and that any legal aspects are clearly understood. Getting sales skills up to speed is also essential, she says: In the past we have sold service as a package. So our knowledge of selling services has had to improve, because you have to know if we can do this shape can we make this square into a rectangle, or a circle, or a diamond? Otherwise theres a danger of selling something that doesnt fit.
C.
Creating a New Service Development Process

1. Key Considerations 1.1 1.2 New services can affect customer relationships and may affect internal service delivery processes. However, many services are not tested before market introduction. Consequently, the failure rate for new services is high with significant impacts on the existing service system, quality, customer relationships and profitability. A suggested new service development process can be summarised as follows: 2. Idea generation. Service strategy and culture gate. Service design. Service policy deployment and implementation.
1.3
Practical Guidance 2.1 A systematic process of development helps to develop an early market lead and to reduce the risk of failure when new products are launched. In the first phase in the process, idea generation includes generation and evaluation of ideas in terms of sources and techniques and idea screening. In the second phase, it is then determined whether the new service idea is in line with the companys strategy and culture. The resources to start the project and to develop the idea are then provided. Service design is carried out in the third phase, often in a number of parallel and sequential sub-processes. The final stage involves implementing the service process, marketing, training and other preparations before launch.
2.2
2.3
2.4 2.5
3.
Models, Tools and Concepts 3.1 Many service organisations adopt new service development processes as their survival often depends on the development and delivery of new services in competitive markets.
4.
Authoritative Sources 4.1 Edvardsson, B., Gustafsson, A., Johnson, M. D. and Sandn, B. (2000) New Service Development and Innovation in the New Economy. Lund, Sweden, Studentlitteratur. Palmer, A. (1994) Principles of Services Marketing. London, McGraw-Hill. Young, L. (1996) Making Profits from New Service Development. London, Pitman Publishing. Zeithaml, V. A. and Bitner, M. J. (2000) Services Marketing: Integrating Customer Focus Across the Firm. 2nd Edition, Boston, McGraw-Hill.
4.2 4.3 4.4
5.
Case Study Nat West (Link to second NatWest case in Section 1., sub section B) Key points: Quality and consistency of service, branding, innovation and delivery is becoming an important source of differentiation. Customers want to use the channels they feel are right for them at any particular time. Employees take ownership of complaints as far as possible.
NatWests retail bank offers a range of personal and business banking services to almost 8 million personal customers and 850,000 small business accounts. Since March 2000 it has been part of the Royal Bank of Scotland, the sixth largest bank in the world. The environment in which financial services firms like NatWest has changed dramatically. In the past the four High Street banks had the luxury of operating in markets that were stable and where customers were more likely to get divorced than change banks. Now the growing impact of consumer power and choice has meant that banks have to be far more customer-centric and find sources of differentiation from the quality and consistency of their service, branding, innovation and delivery.
Back to Branches Take service first. A lot of controversy was created over the last few years as banks sought to close branches to cut costs. Since the takeover, NatWest has reversed that strategy over the last year in line with its decision that it is in the business of being a High Street bank, according to Michael Sadler, head of customer marketing and of the customer marketing segments team. Not only has the branch closure programme been abolished, but other customer-friendly actions like getting rid of ATM fees have also been put into place. Its recognised that branches not only do promote brand recognition, but also provide the opportunity to really engage with customers. As Sadler points out, it is not very surprising that the branches with the highest levels of customer satisfaction also have the highest level of sales. That doesnt eliminate the need to operate in an increasingly multi-channel world, however. While some customers still feel most comfortable dealing face to face, others would rather use the telephone or the Internet to bank. Although it needs to be kept in perspective, says Sadler: Everyone talks about the Silver surfers, the older Internet users and how fast this group is growing. Yes its almost doubled in terms of online banking use in a year, but this is from c.3% to 6%. So what about the other 94% we need to serve? This acts as a reality check against the hype. Even amongst high Internet users the online channel doesnt seem to be the death knell for branches everyone claimed. Customers seem to feel banks are forcing them on to the web for their own corporate reasons to save money rather than improve service and access. Excelling at Service NatWest has launched the concept of top box into the branches. This is based on the fact that customers will recommend a brand only if they are in the top quartile of being very satisfied. And recommendation is a proven and valuable method of attracting new business: its estimated (by Pepper & Rogers) that customers who come through recommendation deliver 250% more value. As part of that initiative customer service reviews have been introduced, where any customer can come in and talk through their financial affairs in what amounts to a personal audit. Depending on front line staff to deliver consistently high levels of homogenous service is a challenge. So there are detailed processes in place to help staff in their customer dealings. In addition, the bank carries out very detailed customer satisfaction surveys which, along with retention, are part of the rewards system.
Staff are encouraged to act as individuals but within certain parameters. Sadler describes it as more about engagement than a process. Also, employees are expected to take ownership of any complaints and make sure they are resolved to the best of their ability. Finding Segments Reaching those levels of satisfaction is not just about excellent service, however. It is crucial to get the right marketing mix for differing customer groups. Thats where customer segmentation comes in. One of the problems Sadler sees with so many segmentation models is that they might be theoretically attractive but they just dont work in reality. He believes that you dont create segments, you find them. And segments have to meet five criteria: they have to be actionable, identifiable from the companys systems, profitable, contactable and, more importantly, are common sense. NatWest began its segmentation process two years ago. What we have been trying to do is de-aggregate the customer base so we can find the differences but not to the point of the more segments, the better, because then you cant see the wood for the trees. We want no more than five to seven based on key differences. This also makes an understanding of the segments easier to embed throughout the company. A surprising finding was that at a time when its generally assumed that people are becoming more financially literate and confident, the opposite is true. People might be more sophisticated than their grandparents were, but there are a large number who need help as the level of knowledge required is increasing at a faster rate: Time and again the time pressures and uncertainty of modern life seem to be causing concern. Products are seen as too complex and confusing. That made us re-look and say lets not get too sexy but be simple because more people out there need our help, says Sadler. Lets not go faster than we should. And its better for the staff too because if they cant understand what we are offering, how on earth will customers? Sparking Bright Ideas The work on segmentation has been done in parallel with an extensive idea generation process for both the NatWest and RBS brands. It has included collecting external data and forecasts, plus an intensive internal examination of customers, their current needs and projections over the next five to ten years. We started from the basis of looking at needs that arent being filled at the moment or needs not existing as yet but which were likely to materialise in the near future, says Sadler.
Managers of segments were encouraged to describe the propositions that would meet their customers needs, and show where the gaps were. Marketing-wide discussions were held to come up with solutions, which could be anything from IT to branding, to a product, service or channel. We have about 20-odd at the moment and we are narrowing them down, says Sadler. An innovation programme manager has been put in place to co-ordinate the activity and track progress. And it will be an ongoing process to make sure the bank isnt getting ahead of customers: The technology might be racing forward but is the customers attitude going to change in two years time? Is innovation something people are going toward or moving away from? We might not get the equivalent of the Sony Walkman out of it but what we are trying to do is to say we are doing this because we should, not because we can.
SECTION 6.
SERVICE OPERATIONS
A. Introduction
Processes and technology are important in service delivery as the actual delivery process affects the customers perception of service quality. Service organisations must develop the internal processes to allow them to effectively and efficiently deliver their service and, more importantly, to correct any faults which may arise during the service delivery process.
B.
Operational Challenges of Different Service Types

1. Key Considerations 1.1 Services can be defined in terms of their volume-variety characteristics: Professional services are defined as high-contact organisations where customers spend a considerable amount of time in the service process with emphasis placed on process or how the service is delivered as opposed to what is actually delivered, e.g. management consultants. Mass services involve many customer transactions and limited contact time with most value added in the backoffice operation while low levels of judgement are applied by front-line staff members, e.g. supermarkets.
1.2
Service shops lie between professional and mass services with a fairly standardised service but some degree of customisation in the sale process, in so far as customer needs are diagnosed and met from the organisations service range (e.g. car rental companies).
Choice of Process and Natural Fit
Volume Variety None Professional Service More process flexibility than is needed so high cost Service Operations Process Types
Less process flexibility than is needed so high cost
Service Shop
None
Mass Service
The natural line of fit of process to volume/variety characteristics
Hayes, R. H. and Wheelwright, S. C. (1984) Restoring Our Competitive Edge. John Wiley & Sons. This material is used by permission of John Wiley & Sons, Inc.
2.
Practical Guidance 2.1 Depending on the service classification, organisations have a choice of process with regard to the degree of process flexibility. There is a natural line of fit, or natural lowest cost position for an operation depending on where they fit between professional and mass services. Consequently, organisations must ensure that they have achieved the right balance. For example, organisations may offer low-variety, high-volume services but may have too much flexibility built into their processes. This implies that they may be incurring unnecessary costs and need to standardise their processes.
2.2
2.3
3.
Models, Tools and Concepts 3.1 The different levels of volume and variety of services have various implications. However, in effectively meeting customer requirements, it is of major importance that the service organisation adopt the most appropriate delivery process. The various issues relating to the choice and design of operational types needs to be integrated into general services marketing training.
3.2
4.
Authoritative Sources 4.1 4.2 Lovelock, C., Vandermerwe, S. and Lewis, B. (1999) Services Marketing: A European Perspective. London, Prentice-Hall. Slack, N., Chambers, S. and Johnston, R. (2001) Operations Management. 3rd Revised Edition, Harlow, Pearson Education.
5.
Case Study River Group Key points: Its critical in a service-based business like the River Group to get the intangibles right and in line with brand values. Defining what will best meet client need is the start of the relationship process. There are well-defined processes in place to ensure consistency of quality.
Introduction The River Group is an agency with four key business units operating within the company brand: River Publishing, which concentrates on publishing customer magazines for clients. Deep Consulting, a strategic marketing consultancy. Rivernet, which produces online content. Catfish, a specialist in catalogue and brochure publishing.
The company was founded seven years ago by managing director Nicola Murphy and editorial director Jane Wynn. They wanted to set up a customer magazine publishing business which combined top quality editorial content and design with equally professional publishing and advertising sales skills. They had seen a niche for what Murphy calls a cradle-to-grave approach which took a concept for a client through to the finished product. Until then, the market had mainly consisted of very large contract publishers who combined all the operations in-house, and smaller players who used outside agencies to do the ad sales. Managing the Intangibles The company now works for blue-chip clients such as Orange, Virgin Atlantic, Holland & Barrett, Superdrug and BMW(GB). According to Murphy, We are a service-based business in that a lot of what we sell is intangible. Which means, of course, its critical to get those intangibles right and in line with what she wants the brand to stand for: innovation, quality and results. So not only does the company have to be client focused, but it has to understand the clients customers as well: If, for example, we produce a CRM programme it has to work for the customers end users or we have no business. We not only have to provide a good service, but evidence of how it works for the end customers as well. That involves carrying out a lot of research to gather as much end customer information as possible because the point of customer magazines is to increase loyalty and hence retention. But this approach can also help with acquisition, according to Murphy. She points to a publication done for BMW(GB) that was inserted into a national broad sheet and generated $8-9 worth of sales.
A magazine isnt always the answer, however, says Murphy: We begin with a definition of the client's business problem and see what opportunities that might present. We dont just start with the fact that our core competence is magazines. Balancing Acquisition and Retention On its part, River is structured to keep get the best balance in terms of its own client acquisition and retention. There is a commercial director in charge of current business, plus a number of account directors/publishers. Recently the company has appointed an e-CRM and client servicing director formerly a senior marketer with the remit of casting a close and sceptical eye over how well River is meeting client needs. There are currently 20-odd clients across the four divisions. Relationships can be with one arm of the company or cut across divisions. The company is always keen to develop the relationship in more depth, with regular surveys carried out to gauge customer satisfaction levels. A business development director oversees a team focused on new business. Techniques include direct mail and advertising, although referrals and attendance at conferences like the Marketing Forum are proving to be good sources for new clients. In addition, the company has launched a series of marketing breakfasts for clients held every two months and where senior marketers can come and listen to talks from well-known names in the industry. Processes and People Murphy describes River as being processed to the nth degree, with well-defined processes in place for all aspects of the groups business, from magazine publishing to research. Magazine production, for example, starts with agreeing what the clients commercial and marketing objectives are, followed by commissioning editorial and design, sub-editing, client comment and for financial magazines, the extra check of compliance to client sign-off, mailing, fulfilment and research. Hiring the right people is also a way to ensure that the company maintains consistency of quality. We hire for attitude, not ability, says Murphy. Most of the people who work here are a certain type. Its interesting. We had a client meeting recently and the client said that what he liked and disliked about us in equal measure is that if you cut us in half we are River people. And I think we are. We have a very strong ethic. We are not necessarily similar in terms of personality but we are very similar in terms of purpose.
C.
Service Recovery
1. Key Considerations 1.1 As service organisations will inevitably fail at some point, they must have in place strategies to recover from failure. An organisations ability to turn a negative incident into a positive outcome may create a closer bond with its customers than if the incident hadnt happened.
2.
Practical Guidance 2.1 Organisations should think about service recovery during the production process and must, therefore, retain flexibility and the ability to turn a negative incident into a positive outcome. For example, an airline should aim to have procedures in place to transport passengers to their final destination by bus or some other means should an aircraft fail. It is important for organisations to be able to identify when service has not met customers expectations. Dissatisfied customers may never come back for reasons unknown to the organisation and may tell others about their negative experience. Therefore, organisations need to deliver effective feedback methods. Front-line personnel must also be empowered to take action to correct failure on the spot without having to follow standard procedures or to seek authority.
2.2
2.3
3.
Models, Tools and Concepts 3.1 Some service organisations merely pay lip service to service recovery, whilst others excel at it and indeed build their reputation and loyalty based on their ability to recover customer goodwill from service failures. Those organisations which fail to pay appropriate attention to this concept often find that negative word of mouth and negative media coverage can severely damage carefully laid marketing plans. Service recovery tools and techniques need to be incorporated into general services marketing training.
3.2
3.3
4.
Authoritative Sources 4.1 Armistead, C. and Clark, G. (1994) Service Quality and Service Recovery: The Role of Capacity Management in Armistead, C. (ed) The Future of Services Management. Cranfield School of Management, Kogan Page. Berry, L. L. and Parasuraman, A. (1991) Marketing Services: Competing through Quality. New York, The Free Press. Hoffman, D. K. and Bateson, J. E. G. (1997) Essentials of Services Marketing. Fort Worth, Dryden Press. Palmer, A. (2001) Principles of Services Marketing. 3rd Edition, Maidenhead, McGraw-Hill. Zeithaml, V. A. and Bitner, M. J. (2000) Services Marketing: Integrating Customer Focus Across the Firm. 2nd Edition, Boston, McGraw-Hill.
4.2 4.3 4.4 4.5
5.
Case Study Centrica (Link to Centrica case in Section 2., sub section D) Key points: Centrica is investing in a major CRM initiative to make sure front line staff have enough of the correct customer information. There is a formal complaints process to manage complaints effectively and turn a possible negative contact into a positive one. Having an attractive working environment not only in the call centres but throughout the company is a priority.
Introduction Centrica is a 9.9 billion provider of energy and other essential services in the home and on the road. Formed in 1997 with the demerger of British Gas, it now encompasses a range of brands. The British Gas brand is the umbrella for not just gas, electricity and telecommunications services, but also home services like security, maintenance schemes, and appliance repair. The other brands include the Automobile Association (AA), financial services brand Goldfish, One.Tel, which offers fixed and mobile telecoms, plus two energy subsidiaries, Direct Energy in Canada and Energy America in the US.
Consistent Service According to strategic marketing manager Peter Woolston, the secret of offering world class service is to do it consistently and deliberately. This is a challenge when there are 35,000 employees, of which call centre staff are about 10,000, 4,000 patrols and 6,000 service engineers. There are some huge process issues in terms of IT investment to ensure there is consistent delivery of information to staff, he points out. Thats the reason Centrica is making a major investment in a CRM initiative: to improve that information and make it more relevant so that both the service engineers and the call centre operatives can provide more of a personal service to each customer. Getting Call Centres Right The call centre plays a crucial role in how services are delivered, so for Centrica the challenge is to find the right sort of people to work in them, make sure they have sufficient training and manage them effectively. To Woolston, who has managed call centres earlier in his career, the environment can indeed be quite pressurised and intensive, but it can also be satisfying in terms of solving customer problems. The issue is to try and make that job more interesting and give people more breadth, he believes. So Centrica has tested a number of different approaches to give staff more flexibility to make decisions, and more information so when they try and offer a customer a new product it is timely and relevant for that customer. These staff make can make the difference, he believes: We have to get the processes and brands right, but its the people who deliver who are crucial to the way the business develops. Turning a Negative into a Positive Complaints are taken very seriously with a formal complaints process in place. We are very keen on managing complaints effectively and we have a team who handle high level complaints in a very consistent way, he explains. And the numbers of energy related complaints have come down radically, to fewer than 4,000 a month. This might seem high but not when put into the context of a company that carries out over seven million jobs in customers homes a year, and sends out over 70 million bills. But any complaint is taken seriously and thoroughly investigated.
A lot of ownership for resolution is left at the local level, with local managers judged on how well complaints are handled. Field managers are given very clear targets of what the company expects both from a financial viewpoint but also levels of customer satisfaction. According to Woolston, What matters is how we put something right and turn that customer around and gain an even more loyal customer. A complaint is very personal and demands a personal response. You cant mass produce an answer. Improving the Environment The company has also invested a lot into its property portfolio to improve the working environment not only in call centres but throughout the company. For example, a new headquarters has brought together previously disparate parts of the organisation and where dialogue and team working is encouraged through open planning and hot desking. This philosophy is part of the overall cultural change that has occurred at the company since its pre-deregulation British Gas days, says Woolston, with its much more open management style, commercial and customer focus, recognition of the value of its employees, an emphasis on innovation and willingness to take risks.
D.
Application of Processes to Quality Service

1. Key Considerations 1.1 Quality can be defined, from the customers perspective, as occurring where an organisation supplies services to a specification which meets the customers needs. Customer assessment of quality is made during the service delivery process itself by comparing perceptions of the service received with expectations of service desired. Consequently, quality begins with the design of the service delivery system.
1.2
2.
Practical Guidance 2.1 An effective, quality process means ensuring that the sequence of events in the service process is appropriate. It is important to maintain a logical sequence of activities and a well co-ordinated use of service resources.
3.
Models, Tools and Concepts 3.1 3.2 Service organisations apply the tools of process design to varying extents. Tools and techniques relating to the application of processes to quality service need to be incorporated into general services marketing training.
4.
Authoritative Sources 4.1 Fitzsimmons, J. A. and Fitzsimmons M. J. (1994) Service Management for Competitive Advantage, Singapore, McGraw-Hill. Palmer, A. (1994) Principles of Services Marketing, 3rd Edition, Maidenhead, McGraw-Hill.
4.2
5.
Case Study Sun Microsystems (Link to other Sun case in Section 4., sub section B) Key points: Its crucial to have a customers eye view of the organisation to ensure the company meets customer needs. Total quality management has to be embedded in the organisation. Combining a process orientation with an entrepreneurial culture enables staff to be both empowered as individuals but also team players.
Sun Microsystems is a leading provider of hardware, software and services to companies and operates in over 170 countries around the world. With revenues approaching $20 billion, and 40,000 employees, its technology has been integral to the advancement of the Internet. There are two main organisational streams, products and services. Professional Services is part of Suns Enterprise Services organisation and oversees all the consulting, bespoke projects, project management, platform integration and operations management across all the disciplines and technology. Support Services handles the maintenance business and Educational Services focuses on customer training and knowledge transfer. The business is now six years old and of growing importance to the company, according to Paul Gostick, the marketing manager for Professional Services in the UK. There are different routes it has to market. A key account management model is being developed to deal with the largest customers, while in the broader market a combination of direct and indirect sales is done through a strong partner and reseller community. Monitoring Customer Satisfaction Because for Sun customer satisfaction is absolutely paramount, says Gostick, there are a number of processes his division uses to ensure measurement has both breadth and depth. First, there are customer audits, where an external company is given the list of the past months customer engagements, chooses a random selection and gets the customers perspective on what went well and what could have been improved. There are also internal project reviews. All of Suns staff are trained in a well-recognised project management methodology, Prince2, which helps promote consistency of quality and enables customers to know what to expect in terms of how Sun operates. It means the teams working on a project can assess how well it was delivered and where it might have been done better. Another audit exercise is a random internal project review which involves bringing in yet another external company to review all project documents from start to finish to make sure the methodology was followed. This serves as an internal metric to gauge how well Sun staff are delivering against standards.
Then there is a customer satisfaction survey carried out every month across the company worldwide which involves taking a random selection and measuring satisfaction with the product, product quality, service and service quality, delivery, phone handling and the quality of the paperwork. The results are compared to the industry average. As Gostick explains, This all gives you a customers eye view of the organisation, and where the cracks might be. Its a superb source of data to help improve operations and also understand what customers want and how they perceive you. An Emphasis on Total Quality Other initiatives which underline the companys commitment to quality include the implementation of a total quality management process, SunSigma, based on the process first pioneered by GE in the US, Six Sigma, and a new knowledge database which will be at the heart of Professional Services. While there is a strong emphasis on process orientation, the culture is what Gostick describes as very entrepreneurial and creative. It is based on three main values: customers first, integrity and trust in everything we do, and teamwork. Its a culture that encourages people to be empowered individuals but also team players. People are expected to identify anything thats not working well and go and fix it, says Gostick. We have this concept called Sun Teams where, if anyone sees something that could be improved, or has a great idea for developing the business, they are encouraged to take responsibility for it. So people can come together in virtual, dynamic teams to address problems, fix issues, improve processes and create market opportunities. But this self healing has to be done within certain parameters: We employ intelligent business-oriented people and we are all expected to assess situations and take appropriate action to drive the business forward, he concludes.
07/03/02
This report is one in a series commissioned by CIM to contribute to the E-knowledge Centre, part of the ConnectedInMarketing initiative.
The Chartered Institute of Marketing Moor Hall Cookham Maidenhead Berkshire, SL6 9QH, UK Telephone: 01628 427500 Facsimile: 01628 427499 Web Site: www.cim.co.uk ISBN: 0902130706
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The Chartered Institute of Marketing

Everything you need to know about e -marketing

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Strategic Aspects and Implications of Customer Care

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Common Elements and Differences between Services and Physical Goods

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3.3 3.4 3.5

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4.5 4.6 4.7 4.8

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Possible Customer Segmentation Variables

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Crystallising the Service Direction and Developing Service Strategies

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The Gap Model

GAP 1 CONSUMER Expected Service

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Marketing Mix for Services: Seven Ps, Not Four

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Proposition Designing, Researching and Developing Services

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4.3 4.4 4.5