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MARKETING MIX IN SERVICE

MBA ITB 2015

Services Pose Distinctive Marketing


Challenges
Marketing management tasks in the service sector
differ from those in the manufacturing sector
The eight common differences are:
1. Most service products cannot be inventoried
2. Intangible elements usually dominate value creation
3. Services are often difficult to visualize and understand
4. Customers may be involved in co-production
5. People may be part of the service experience
6. Operational inputs and outputs tend to vary more widely
7. The time factor often assumes great importance
8. Distribution may take place through nonphysical channels

What are marketing implications?

Differences, Implications, and


Marketing-Related Tasks (1)
Difference

Most service
products
cannot be inventoried
Intangible elements
usually dominate
value creation
Services are often
difficult to visualize
and understand
Customers may be
involved in coproduction

Implications
Customers may be
turned away
Harder to evaluate
service and distinguish
from competitors
Greater risk and
uncertainty perceived
Interaction between
customer and provider;
but poor task execution
could affect satisfaction

Marketing-Related Tasks

Use pricing, promotion,


and
reservations to smooth
demand; work with ops to
manage capacity
Emphasize physical clues,
employ metaphors and vivid
images in advertising
Educate customers on
making good choices; offer
guarantees
Develop user-friendly
equipment, facilities, and
systems; train customers,
provide good support

Differences, Implications, and


Marketing-Related Tasks (2)
Difference

Implications

Marketing-Related Tasks

People may be part of


service experience

Behavior of service
personnel and customers
can affect satisfaction

Recruit, train employees to


reinforce service concept
Shape customer behavior

Operational inputs
and
outputs tend to vary
more widely
Time factor often
assumes great
importance
Distribution may take
place through
nonphysical channels

Hard to maintain quality, Redesign for simplicity


and
consistency, reliability
failure proofing
Difficult to shield
Institute good service
customers from failures
recovery procedures
Time is money;
Find ways to compete on
customers want service
speed of delivery; offer
at convenient times
extended hours
Electronic channels or
Create user-friendly,
voice telecommunications
secure websites and free
access by telephone

Value Added by Physical, Intangible Elements


Helps Distinguish Goods and Services
Physical
Elements
High
Salt
Detergents
CD Player
Wine
Golf Clubs
New Car
Tailored clothing
Fast-Food Restaurant

Low

Source; Adapted from Lynn Shostack

Plumbing Repair
Health Club
Airline Flight
Landscape Maintenance
Consulting
Life Insurance
Internet Banking

Intangible Elements

High

Services Require
An Expanded Marketing Mix The 7Ps of
Services Marketing

Product
Place and Time
Price
Promotion and Education
Process
Physical Environment
People

Working in Unison:

(5) Process in Augmented Product

Reservation
Parking

Use
room

Get car

USE GUESTROOM OVERNIGHT

internet

Porter
Meal

Before
Visit

Check out
Internet

Check in
Internet

Pay TV
Room service

Time Frame of An Overnight Hotel Stay


(Real-time service use)

Simple Flowchart for Delivery


of a People-Processing Service
People Processing Stay at Motel
Park Car

Check In

Maid Makes
up Room

Spend
Night in
Room

Breakfast

Breakfast
Prepared

Check Out

(6) Physical Environment


Design servicescape and provide
tangible evidence of service
performances
Create and maintain physical
appearances
o Buildings/landscaping
o Interior design/furnishings
o Vehicles/equipment
o Staff grooming/clothing
o Sounds and smells
o Other tangibles
Manage physical cues carefully
can have profound impact on
customer impressions

(7) People
Interactions between customers and contact
personnel strongly influence customer
perceptions of service quality
The right customer-contact employees
performing tasks well
o Job design
o Recruiting
o Training
o Motivation
The right customers for firms mission
o Contribute positively to experience of other
customers
o Possessor can be trained to have
needed skills (co-production)
o Can shape customer roles and manage
customer behavior

How Product Attributes Affect


Ease of Evaluation
Most Goods Most Services

Difficult
to evaluate*

Easy
to evaluate
Clothing
Chair
Motor vehicle
Foods

Restaurant meals
Haircut
Entertainment

High in search High in experience


attributes
attributes
*NOTE: Difficulty of evaluation tends to decrease with broad exposure
to a service category and frequency of use of a specific supplier

Computer repair
Education
Legal services
Complex surgery

High in credence
attributes
Source:
Adapted from Zeithaml

Service Encounters Range from


High-Contact to Low-Contact

Levels of Customer Contact with


Service Organizations

Theatrical Metaphor:
An Integrative Perspective
Service dramas unfold on a stagesettings may
change as performance unfolds
Many service dramas are tightly scripted, others
improvised
Front-stage personnel are like members of a cast
Like actors, employees have roles, may wear special
costumes, speak required lines, behave in specific ways
Support comes from a backstage production team
Customers are the audiencedepending on type of
performance, may be passive or active participants

Service Employees Are Crucially


Important

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 3

Service Personnel: Source of Customer


Loyalty and Competitive Advantage
Customers perspective: Encounter with service staff
is most important aspect of a service
Moments of truth drive customers perception of
the service firm
Firms perspective: Frontline is an important source
of differentiation and competitive advantage. It is:
o
o
o

A core part of the product


the service firm
The brand

Frontline is an important driver of customer loyalty


o
o
o

Anticipating customer needs


Customizing service delivery
Building personalized relationships

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 4

Frontline Work Is
Difficult and Stressful

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 6

Role Stress in Frontline Employees


Three main causes of role stress:
Person versus Role: Conflicts between what jobs
require and employees own personality and beliefs
o

Organizations must instill professionalism in frontline staff

Organization versus Client: Dilemma whether to follow


company rules or to satisfy customer demands
o

This conflict is especially acute in organizations that are not


customer oriented

Client versus Client: Conflicts between customers that


demand service staff intervention.
Ex.: Smoking in non smoking areas. Ex : Inconvenience caused
by other passengers in train journey

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 8

Cycles of Success

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 10

Cycle of Success
Low
customer
turnover

Customer
loyalty

Higher
profit
margins

Lowered turnover,
high service quality
Continuity in
relationship with
customer Employee satisfaction,
positive service attitude

High customer
satisfaction

Repeat emphasis on
customer loyalty and
retention

Extensive
training

Broadened
job designs

Train, empower frontline


personnel to control quality

Above average
wages
Intensified
selection effort

Source: Heskett and Schlesinger

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 18

The Wheel of Successful HR in


Service Firms

Leadership that:

1. Hire the
Right People

Focuses the entire


organization on
supporting the
frontline

Fosters a strong
service culture with
passion for service
and productivity

Drives values
that inspires,
energizes and
guides service
providers

3. Motivate and
Energize Your People

Be the preferred
employer & compete
for talent market
Utilize the full
share
range of rewards
Service Excellence Intensify the
selection
& Productivity
process

2. Enable Your People

Empower frontline
Build high performance
service delivery teams
Extensive training

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 23

Hire the Right People

The old saying People are your


most important asset is wrong.
The RIGHT people are your
most important asset.
Jim Collins

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 24

The Inverted Organizational Pyramid

Customer Base

Top
Mgmt
Middle
Mgmt

Frontline Staff

Frontline
Staff

Middle Mgmt
And Top Mgmt
Support Frontline

Traditional Organizational
Pyramid

Inverted Pyramid with a


Customer and Frontline Focus

Legend: = Service encounters, or Moments of Truth


Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 38

Customer Response Categories to


Service Failures
Complain to the
service firm
Take some form
of Public Action
Service Encounter
is Dissatisfactory

Take some form


of Private Action
Take No Action

Complain to a third
party
Take legal action
to seek redress
Defect (switch
provider)
Negative word-ofmouth

Any one or a combination of


these responses is possible
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 5

Understanding Customer Responses to


Service Failure
Why do customers complain?

Obtain compensation for economic loss


Vent their anger
Help improve the service . Ex Alumni Association
For altruistic reasons Want to save prevent other customers from
undergoing the trauma of poor service

What proportion of unhappy customers complain? 5-10%


Why dont unhappy customers complain? time cost, uncertain outcome,
complaint process is not known, fear of confrontation etc.
Who is most likely to complain? people in Higher socioeconomic
circumstances
Where do customers complain? To the service rep in immediate contact
only. Rarely to the HQ or through email. Customer service centers are also called
up.

What do customers expect once they have made a complaint?

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 6

How Complaint Resolution Affects


Customer Retention Rates
Percent of Unhappy
Customers Retained

100
90
80
70
60
50
40
30
20
10
0

95%
82%
70%
46%

54%

37%
19%
9%
Customer did not
complain

Complaint was
not resolved

Problem cost > $100

Complaint
was resolved

Complaint was
resolved quickly

Problem cost $1$5

Source: Claes Fornell, Birger Wernerfelt, A Model for Customer Complaint Management, Marketing
Science, Vol. 7, No. 3 (Summer, 1988), pp. 287298
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 10

The Service Recovery Paradox


Customers who experience a service failure that is
satisfactorily resolved may be more likely to make future
purchases than customers without problems
If second service failure occurs, the paradox disappears
customers expectations have been raised and they
become disillusioned
Severity and recoverability of failure (e.g., spoiled
wedding photos) may limit firms ability to delight
customer with recovery efforts
Best strategy: Do it right the first time
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 12

Principles of Effective Service


Recovery Systems

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 13

Components of an Effective
Service Recovery System
Do the job right the
first time

Effective Complaint
Handling

Identify Service
Complaints

Resolve Complaints
Effectively

Learn from the


Recovery Experience

Increased
Satisfaction and
Loyalty

Conduct research
Monitor complaints
Develop Complaints as
opportunity culture

Develop effective system


and training in
complaints handling
Conduct root cause analysis

Close the loop via feedback


Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 14

Fluctuations in Demand Threaten


Service Productivity

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 3

Variations in Demand Relative to


Capacity
VOLUME DEMANDED
Demand exceeds capacity
(business is lost)
CAPACITY UTILIZED
Maximum Available
Capacity
Optimum Capacity
(Demand and Supply
Well Balanced)

Low Utilization
(May Send Bad Signals)

Demand exceeds
optimum capacity
(quality declines)

Excess capacity

(wasted resources)
TIME CYCLE 1

TIME CYCLE 2

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 6

From Excess Demand to


Excess Capacity
Four conditions potentially faced by fixed-capacity services:
Excess demand
o

Too much demand relative to capacity at a given time => customer is


denied service => biz lost

Demand exceeds optimum capacity


o

Upper limit to a firms ability to meet demand at a given time => no one
turned away, but conditions are deteriorating

Optimum capacity
o

Demand =Supply ; Staff not over worked and Customers face no delay

Excess capacity
o

Supply > Demand

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 4

Demand Levels Can Be Managed

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 16

Alternative Demand Management Strategies


Take no action
o

Let customers sort it out. They learn from WOM when is the slack
and peak time, where to stand and what is the possible waiting time

Reduce demand
o
o

Higher prices
Communication : promoting usage of time slots. Evening Colleges

Increase demand
o
o
o

Lower prices
Communication, including promotional incentives
More convenient delivery times and places

Inventory demand by reservation system :

Provide priority to special customers, others attended later.

Inventory demand by formalized queuing :


Special line for VIPs.

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 17

Marketing Strategies Can


Reshape Some Demand Patterns
Use price and other costs( time, psychological cost)
to manage demand
Change product elements. Price discounting will not
boost sales in off peak seasons. Ex Hotels offer various
menus during different time of the day to cater to
different customer needs
Modify place and time of delivery
No change
Vary times when service is available during summer caf remain
open till late night. Shops extend working hours during Diwali and
dussera
o Offer service to customers at a new location Free dental check up in
mobile dental vans.
o
o

Promotion and education customers about peak period


and slack period
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 18

Inventory Demand through Waiting


Lines and Reservations

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 20

Waiting Is a Universal Phenomenon!

An average person may spend up to 30 minutes/day


waiting in lineequivalent to over a week per year!
Almost nobody likes to wait
It's boring, time-wasting, and sometimes physically
uncomfortable

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 21

Saving Customers from


Burdensome Waits

Add extra capacity so that demand can be met


at most times (problem: may increase costs
too much)
Rethink design of queuing system to give
priority to certain customers or transactions
Redesign processes to shorten transaction
time. Use of internet
Manage customer behavior and perceptions of
wait
Install a reservations system Ex Web check
in
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 23

Alternative Queuing Configurations


Single line, single server, single stage
Ex : Small railway reservation stations

Single line, single servers, sequential stages


Govt offices

Parallel lines to multiple servers


Large railway reservation centers

Designated lines to designated servers


Ladies Q, Credit card booking, Group booking Q

Single line to multiple servers (snake)-Ex


Airport Check in One entrance and diff check in for diff
flights

Take a number (single or multiple servers)


Ex Banks

28
26
32

21
20

25

30
31

29

27

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 24

24
23

Minimize Perceptions of Waiting Time

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 26

Ten Propositions on Psychology of


Waiting Lines (1)
Unoccupied time feels longer than occupied time Place
TV
Pre- and post-process waits feel longer than in-process
waits Ex Movie: Wait 1 Buying Ticket, Wait 2 : Maneuvering vehicle
from parking lot

Anxiety makes waits seem longer


Uncertain waits are longer than known, finite waits
Inform customer the approx wait time
Unexplained waits are longer than explained waits- Inform
customer reason for delay and possible time for recovery
Sources: Maister; Davis & Heineke; Jones & Peppiatt

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 27

Ten Propositions on Psychology of


Waiting Lines (2)
Unfair waits are longer than equitable waiting : People
jumping Q
People will wait longer for more valuable services
Waiting alone feels longer than waiting in groups
Physically uncomfortable waits feel longer
Waits seem longer to new or occasional users Place a
lobby manager to take care of this

Sources: Maister; Davis & Heineke; Jones & Peppiatt

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 28

Create An Effective Reservation


System

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 29

Benefits of Reservations

Controls and smoothes demand


Pre-sells service
Informs and educates customers in advance of arrival
Saves customers from having to wait in line for service
(if reservation times are honored)
Data captured helps organizations
o
o

Prepare financial projections


Plan operations and staffing levels

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 30

Characteristics of Well-Designed
Reservations System

Fast and user-friendly for customers and staff


Answers customer questions
Offers options for self service (e.g., the Web)
Accommodates preferences (e.g., room with view)
Deflects demand from unavailable first choices to
alternative times and locations
Includes strategies for no-shows
o
o

Requiring deposits to discourage no-shows


Canceling unpaid bookings after designated time

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 31

Setting Hotel Room Sales Targets by


Segment and Time Period
Week 36

Week 7
100%

(High Season)

(Low Season)

Out of commission for renovation

Loyalty Program Members

Loyalty Program
Members

Capacity
(% rooms) Transient guests
50%

Weekend
package
W/E
package

Transient guests
Groups and conventions

Groups (no conventions)


Airline contracts
M

Tu W Th
Time Nights:

Airline contracts
F

Su

Tu

Th

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 32

Su