Marketing of Services UNIT 1

Prepared by Trilok Pratap Singh

The service sector

The services sector has been growing at a rate of 8% per annum in recent years More than half of our GDP is accounted for from the services sector This sector dominates with the best jobs, best talent and best incomes

Goods - things you can touch tangible

Services - things you cant touch but you can see their effect intangible
services are not physical, they are intangible

Defining Services

Activities, benefits or satisfactions which are offered for sale or provided in connection with the sale of goods.- AMA (1960)
Any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product. Philip Kotler (1984)

Deeds, processes and performances.- Zeithmal & Bitner (1996)

Deeds are acts/actions of service provider, processes are the steps in the provision of service and performance/experience is the customers understanding of how the service has been delivered.

Service is anything intangible that can be offered to someone to satisfy a need or a want.

There are no such thing as service industries.There are only industries whose service components are greater or less than those of other industries. Everybody is in service.

-Theodore Levitt

Reasons for growth of Service Sector in India

Government policies:
Liberalisation Privatisation Globalisation Social changes: Increase in affluence

increased desire for buying experiences vs. things Time constraint lifestyle Increase in Awareness & Exposure Rising Customer Expectations
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Reasons for growth of Service Sector in India

Advances in IT:
Convergence of computers & telecom Faster, more powerful software Wireless networking Growth of internet

Service vs Customer service

Customer service - is the service provided in support of a companys core product (Supplementary services) may include aftersales service, consultation, finance, shipping, installation, maintenance, upgradesetc Marketing of services - where a service itself is the core product

Differences between Goods & Services

Goods
1.

Services
1.

2.
3.

4.

5.

Tangible Homogeneous Production & Distribution separated from consumption A thing Core value produced in factory or filled Consumer dont participate in production process Can be kept in stock Transfer of ownership

2.
3.

4.
5.

6.

6. 7. 8.

7. 8.

Intangible Heterogeneous Production, distribution & consumption are simultaneous process An activity or process Core value produced in buyer seller interaction Consumer participate in production process Cannot be kept in stock No transfer of ownership

Intangibility

Characteristics of Services

You cannot hold or touch a service unlike a product. However, the experience consumers obtain from the service has an impact on how they will perceive it.

Implications of Intangibility
Creates feeling of uncertainty/ suspicion Services cannot be inventoried Services cannot be easily patented Hard to explain and display Services Pricing is difficult

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Strategy
Manage evidence so that it gives a cue about quality- location, ambience, communication, documentation Make Intangible, tangible to the extent possible Promote word-off-mouth communication Use Relationship marketing- use personal information, sources, references contact customers after they buy to stimulate continued enthusiasm and hope they talk it up
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Inseparability
A product when produced can be taken away from the producer. But Services cannot be separated from the service providers. For instance, the service provided by a waiter in a restaurant is all a part of the service production process and is inseparable.

Implications of Inseparability
Mass production not possible
Customer has to wait Employees affect the service outcome Decentralization may be essential

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Strategy
Minimize wait time & make wait pleasant. Use agents/ brokers to promote & expand market. Manage and shape customer behavior. Emphasize how much you train your people so their ability to give good service will be high. Have many locations so customers can get to you.
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Perishibility
Services last a specific time and cannot be stored like a product for later use.

If travelling by train or air the service will only last the duration of the journey. The service is developed and used almost simultaneously.

Implications of Perishability
It is difficult to synchronize supply and demand with services

Services cannot be stored, returned or resold

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Strategy

Peak period

Demand-Capacity Management

Slack Periods

Hire part-time employees Cross-train employees Request overtime Rent/ share facilities Subcontract/ outsource activities Perform maintenance & renovations Schedule vacations Schedule employee training Lay-off
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Heterogeneity
It is very difficult to make each service experience identical. If travelling by plane the service quality may differ from the first time you travelled by that airline to the second. A concert performed by a group on two nights may differ in some ways as it is very difficult to standardize every dance move. Training in service organizations is thus essential However there will always be subtle differences.

Implications of Heterogeneity
Service delivery and customer satisfaction depend on employee and customer actions. There is no sure knowledge that the service delivered matches what was planned and promoted

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Strategy
Focus on standardization Maintain high level of quality controls Use of machines in place of humans where ever possible Train & educate customer to ensure his efficient & effective participation

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Classification of Services
Based on Degree Of Customer Involvement ( Lovelock)

1. 2. 3. 4.

People Processing Possession Processing Mental Stimulus Processing Information Processing

Four Categories of Services Based on the Process Used

People Processing Tangible Acts Directed Toward People e.g. airlines, hospitals, hair stylists, fitness centers Possession Processing Tangible Acts Directed Toward Possessions e.g. repair services, landscaping, house cleaning services

Mental Stimulus Processing Intangible Acts Directed Toward People e.g. consulting, education, psychotherapy, broadcasting Information Processing Intangible Acts Directed Toward Intangible Assets e.g. accounting, banking, financial services

Industry-wise classification of services

Entertainment Industry Movie & TV programmes Amusement & Recreation services Theme parks Hospitality Industry Hotels & Lodging facilities Restaurants & Cafes Food catering and event organization ski resort, rafting

Finance and Insurance

Loans and advances Credit cards Banking Insurance Investment, brokerage and advice Real estate

Trading Wholesale trade Retail trade Online trade

Professional Services Accounting Legal Architectural Interior designing Education School, colleges, etc. Training and consultancy

Transportation Air, sea, road, and train travel Travel agency Car hire, charter, and leasing Goods transport by all means Pipeline Mail and courier services Government services Defence Police and protection Health and education Foreign relations

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Contd.
Health Care

Hospitals and medical practice Gymnasium and spa Dentistry & eye care Weight reduction and recuperation programmes De-addiction programmes Telephone, fax, e-mail Data transfer Mobile telephone Video conferencing ISPs - internet service providers Cable services
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Telecommunications

Paradigms in Services marketing: Keys to Success

Do it right the first time Speed! Speed!! Speed!!!

Keeping customers perspective always- Understanding and offering what target customers perceive to be superior value.
Understanding that service is a time bound performance comprising core products and supplementary services. Recognising the importance of understanding and managing the operational processes.

Understanding the customers role in the service transaction.

Seeking distinctive market positions for competitive strength.

SERVICE QUALITY

Service quality is a measure of how well the service level delivered matches customer expectations Delivering quality service means conforming to customer expectations on a consistent basis.
Generally a set of discrepancies or gap exists regarding organization perceptions of service quality and the tasks associated with service quality to consumers.

Managerial imperative
1970s 1980s Early 21st century
- Productivity i.e. working faster & more efficiently in order to reduce cost - Improving Quality i.e. creating better service processes & outcomes to improve customer satisfaction - Value i.e. quality offered at the right price

SERVQUAL
Determinants of service quality
Parasuraman, Ziethmal & Berry (1988)

Reliability

Assurance
Tangibles Empathy Responsiveness

SERVQUAL Attributes
RELIABILITY
n n n n n

EMPATHY
n n n n n

RESPONSIVENESS
n n n n

Providing service as promised Dependability in handling customers service problems Performing services right the first time Providing services at the promised time Maintaining error-free records Keeping customers informed as to when services will be performed Prompt service to customers Willingness to help customers Readiness to respond to customers requests

Giving customers individual attention Employees who deal with customers in a caring fashion Having the customers best interest at heart Employees who understand the needs of their customers Convenient business hours

ASSURANCE
n n n n

TANGIBLES
n n n n

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

Employees who instill confidence in customers Making customers feel safe in their transactions Employees who are consistently courteous Employees who have the knowledge to answer customer questions

Expected service
Customer Gap

Customer

Perceived service

Gap 1 Gap 3

Service delivery
Customer driven service design & standards

Gap 4

External communications to customers

Gap 2
Company perceptions of customer expectations

Service provider

The Gaps Model of Service Quality

1. 2.

The Customer Gap: The Provider Gaps:

Gap 1 not knowing what customers expect Gap 2 not having the right service designs and standards Gap 3 not delivering to service standards Gap 4 not matching performance to promises

Putting It All Together: Closing the Gaps

The Customer Gap

Customer Gap: difference between perceptions customer expectations and

Expected service
Customer Gap

Perceived service

Key Factors Leading to the Customer Gap

Customer Expectations

Customer Gap

Provider Gap 1: Not knowing what customers expect Provider Gap 2: Not selecting the right service designs and standards Provider Gap 3: Not delivering to service standards Provider Gap 4: Not matching performance to promises

Customer Perceptions

Gaps Model of Service Quality

Provider Gap 1 (The Knowledge Gap):

not knowing what customers expect

Provider Gap 2 (The Service Design & Standards Gap):

not having the right service designs and standards

Provider Gap 3 (The Service Performance/delivery Gap): not delivering to service standards

Provider Gap 4 (The Communication Gap):

not matching performance to promises

Key Factors Leading to Provider Gap 1

(The Knowledge Gap)
Customer Expectations
Inadequate marketing research orientation Insufficient marketing research Research not focused on service quality Inadequate use of market research Lack of upward communication Lack of interaction between management and customers Insufficient communication between contact employees and managers Too many layers between contact personnel and top management Insufficient relationship focus Lack of market segmentation Focus on transactions rather than relationships Focus on new customers rather than relationship customers Inadequate service recovery Lack of encouragement to listen to customer complaints Failure to make amends when things go wrong No appropriate recovery mechanisms in place for service failures

Gap 1

Company Perceptions of Customer Expectations

Key Factors Leading to Provider Gap 2 (The Service Design & Standards Gap)
Company Perceptions of Customer Expectations
Poor service design Unsystematic new service development process Vague, undefined service designs Failure to connect service design to service positioning

Gap 2

Absence of customer-driven standards Lack of customer-driven service standards Absence of process management to focus on customer requirements Absence of formal process for setting service quality goals Inappropriate physical evidence and servicescape Failure to develop tangibles in line with customer expectations Servicescape design that does not meet customer and employee needs Inadequate maintenance and updating of the servicescape

Customer-Driven Service Designs and Standards

Key Factors Leading to Provider Gap 3

Customer-Driven Service Designs and Standards
Deficiencies in human resource policies Ineffective recruitment Role ambiguity and role conflict Poor employee-technology job fit Inappropriate evaluation and compensation systems Lack of empowerment, perceived control, and teamwork Customer who do not fulfill roles customer who lack knowledge of their roles and responsibilities customer who negatively impact each other Problems with service intermediaries Channel conflict over objectives and performance Difficulty controlling quality and consistency Tension between empowerment and control Failure to match supply and demand Failure to smooth peaks and valleys of demand Inappropriate customer mix Overreliance on price to smooth demand

Gap 3

Service Delivery

Key Factors Leading to Provider Gap 4

Service Delivery
Lack of integrated service marketing communication Tendency to view each external communication as independent Absence of strong internal marketing program Ineffective management of customer expectation Absence of customer expectation management through all forms of communication Lack of adequate education for customer Overpromising Overpromising is advertising Overpromising is personal selling Inadequate horizontal communication Insufficient communication between sales and operations Insufficient communication between advertising and operations Difference in policies and procedures across branches or units

Gap 4

External Communications to Customers

CUSTOMER EXPECTATIONS OF SERVICE

Customer expectations are beliefs about service delivery that serve as standards or reference points against which performance is judged. Implications of CUSTOMER EXPECTATIONS: Knowing what the customer expects is the first and possibly most critical step in delivering quality service.

Being wrong about what customers want can mean losing a customers business when another company hits the target exactly. Being wrong can also mean expending money, time, and other resources on things that dont count to the customer. Also it mean not surviving in a fiercely competitive market.

Types of Expectations:

Desired Service the level of service the customer hopes to receive-the wished for level of performance. Desired service is a blend of what the customer believes can be and should be delivered. Adequate Service The level of service the customer will accept. It is the threshold level that customer will accept.

Expected Service: Two levels of Expectations

Desired Service

Zone of Tolerance

Adequate Service

DUAL CUSTOMER EXPECTATION LEVELS

ZONE OF TOLERANCE
The extent to which customers recognize and are willing to accept this variation in service performance.

ZONE OF TOLERANCE

Different customers possess different Zones of Tolerance

Ex. Very busy customers smaller zone of tolerance

Zones of Tolerance Vary for Service Dimensions

Customers zone of tolerance also vary for different service attributes or dimensions. The more important the factor, the narrower the zone of tolerance Ex. Customers are less tolerant about unreliable service (broken promises, service errors) than other deficiencies, which means that they have higher expectations for this factor.

Zones of Tolerance Vary for Service Dimensions

Desired Service Zone of Tolerance Level

Adequate Service

Desired Service

of
Expec tation s Zone of Tolerance

Adequate Service Reliability Tangibles

Most imp. factors

Least imp. factors

Factors that influence Desired Service

Personal Needs: Those States or conditions essential to the physical or psychological well being of the customer physical, social, psychological and functional

Ex. Thirsty & hungry cricket fan look for food vendors to come frequently, other one may not expect to come High social and dependent customer expects lot from brokers

Factors that influence Desired Service

Lasting Service Intensifiers: Individual, stable factors that lead the customer to a heightened sensitivity to service
Customer expectations are driven from another person or group Ex. Selecting a office space, selecting a holiday tour, arrangement for 15th August Celebrations etc. The customers underlying generic attitude about the meaning of service and proper conduct of service providers Ex: An automobile insurance customer. He expect to be treated the way he treat other people.

These are of two type: Derived service expectation:

Personal service philosophy

Both elevates the level of desired service.

Factors that influence Adequate Service

Are short-term in nature and fluctuate more than the factors that influence desired expectation 1. Temporary service intensifiers

Short term, individual factors that makes consumer more aware of the need of service

Ex: personal emergency situations, raise the level of adequate service

Factors that influence Adequate Service

2. Perceived service alternatives

Other providers from whom the customer can obtain service As the number of alternatives increases, the level of adequate service increases and zone of tolerance decreases

3. Customer self-perceived role

Shaped by the believe that how well they perform their own duties

Factors that influence Adequate Service

4. Situational factors

Situation beyond control of service provider, lowers adequate service level Emergency, accident, earthquake,etc

5. Predicted service

Predictions made by customers about what they are likely to get.

Factors that influence Desired and Adequate Service

Explicit Service Promises

statement from organizations, advertising, personal selling, usually increase desired level and narrow zone Service related ones like:

Implicit Server Promises

Tangibles Price Distribution multiple outlets Service personnel, firm image, pre-service waiting

Factors that influence Desired and Adequate Service

Word of Mouth Past Experience

Particular service Within the same industry Related service

More experience, the narrower the zone of tolerance

Lasting Service Intensifiers

Explicit Service Promises

Personal Needs

Implicit Server Promises

Temporary service intensifiers

Desired Service

Word of Mouth

Perceived service alternatives Customer selfperceived role Situational factors

Zone Of Tolerance

Past Experience

Adequate service

Perceived Service

Managing Consumer Expectations

Customers expectations must be managed During pre purchase phase

Learn what customer expect Tell customers what to expect Consistently provide the services customer expect

Managing Consumer Expectations

During service encounters

Communicate with customers during the service If possible, modify the service to meet customer expectation Explain why service cannot be modified

During Post purchase phase

Communicate expectations were met? Develop follow up program Develop a procedure for dealing with dissatisfied customers

Generically, there are three approaches to marketing :

Undifferentiated strategy

In the undifferentiated strategy, all consumers are treated as the same, with firms not making any specific efforts to satisfy particular groups. This may work when the product is a standard one where one competitor really cant offer much that another one cant. Usually, this is the case only for commodities.

Concentrated strategy

In the concentrated strategy, one firm chooses to focus on one of several segments that exist while leaving other segments to competitors. For example, Southwest Airlines focuses on price sensitive consumers who will forego meals and assigned seating for low prices.

Differentiated strategy:

In contrast, most airlines follow the differentiated strategy: They offer high priced tickets to those who are inflexible and can afford. The same airlines then sell some of the remaining seats to more price sensitive customers.

Segmentation, targeting, and positioning together comprise a three stage process.

We first : (1) Determine which kinds of customers exist, then (2) Select which ones we are best off trying to serve and, finally, (3) Implement our segmentation by optimizing our products/services for that segment and communicating that we have made the choice to distinguish ourselves that way.

Market Segmentation
It is the process of dividing a heterogeneous market in to homogeneous sub units. The division is based on the premise that different people have different preferences.

Guides to Effective Segmentation

Measurable Accessible Differentiable Substantial

Bases of Segmentation

Geographic Segmentation
Region City size Density of area Climate Age Gender Marital status Income Education Occupation

Demographic Segmentation

Bases of Segmentation

Psychological Segmentation
Need motivation Personality Perception Involvement Attitudes
Culture Region Subculture Social class Family life cycle

Socio-cultural Segmentation

Bases of Segmentation

Use-Related Segmentation
Usage rate Awareness status Brand loyalty

Use-Situation Segmentation
Time Objective Location Person

Hybrid Segmentation

Hybrid segmentation is a creative process, marketers normally segment markets by combining several segmentation variables rather than relaying on a single segmentation base.

Targeting
Segmentation is the process of identifying and establishing alternative market segments. At the next step, targeting involves evaluating the segments and selecting how many and which ones to be target.

Targeting
1.

Evaluation of Segments

Profitability Attractiveness Growth rate Company Objectives Limitations

2. 3. 4.

Selection of Segments Coverage of segments Choosing a coverage strategy

Positioning

Positioning is the act of finding a place in the minds of consumers and locating the brand therein.

Identifying the Positioning Concept

A marketer can position his product/Service in various ways to develop or enhance its value to the consumer. He can do it according to:

Product characteristics/consumer benefits Price-quality Use/application Product user Product class Cultural symbols Competitors

Process of Positioning
Select the concept Develop the concept Communicate the concept

Offer product/Service

Post-sales feedback

After sales service

Perceptual Mapping/Positioning Map In helping you develop a market positioning strategy for your product or service, perceptual maps or positioning maps as they are sometimes referred to, are often used to help the organisation identify a positioning strategy.

Customer Relationship Marketing

CRM is a philosophy of doing business, a strategic orientation, that focuses on keeping current customers and improving relationships with them CRM does not necessarily emphasize acquiring new customers CRM is usually cheaper approx 5 times (for the firm)
keeping a current customer costs less than attracting a new one

thus, the focus is less on attraction, and more on retention and enhancement of customer relationships. i.e. Creation of true customers customers who are glad they selected a firm, are receiving value and feel valued, who are unlikely to defect to a competitor.
Leonard L Berry & A Parasuraman

Underlying Logic of Customer Retention Benefits to the Organization

Customer Satisfaction

Customer Retention & Increased Profits

Quality Service

Employee Loyalty

Benefits of Relationship Marketing

Benefits for Customers:

Benefits for Firms:

Receipt of greater value Confidence benefits:

Economic benefits:

trust confidence in provider reduced anxiety familiarity social support personal relationships

Customer behavior benefits:

increased revenues reduced marketing and administrative costs regular revenue stream strong word-of-mouth endorsements customer voluntary performance social benefits to other customers mentors to other customers easier jobs for employees social benefits for employees employee retention

Social benefits:

Special treatment benefits:

Human resource management benefits:

special deals price breaks

CRM Objectives:
Assessment of customers value and value to a customer.
Turning Prospects into Advocates Minimizing defections

Having a large proportion of loyal advocates

The Customer Pyramid

Most profitable customers
Platinum What segment spends more with us over time, costs less to maintain, spreads positive word-of-mouth?

Gold

Iron
What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with?

Lead

Least profitable customers

Wheel of Loyalty

Reduce Churn Drivers

Custome r Loyalty

Build a foundation for loyalty

Create Loyalty Bonds

Implementing CRM
Empowerment of employees.

Customer-oriented approach with clearly defined objectives.

Communicate with Customers and make them a part of team. Regular service/product innovation to keep it in tune with

expectations.
Tangible benefits to reward loyal customers. eg. Frequent flier programmers of airlines, second pizza at half price.