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Services Marketing

M.K.Chakravorty
Basics
Activities or benefit that one party can offer to another
that are essentially intangible and do not result in
ownership of anything, may or may not involving a
physical product.
- Service doesn’t grow at expense of others—it helps other
sectors
-Service is equally capital intensive
-Productivity / ROCE etc. are equally important
-Not always service after product—it happens simultaneously
-With growing competition, intangibility is becoming the
differentiator
Reason for growth & impetus
-Affluence -Leisure time -Life expectancy

-Working wives -Technology components of product

-Environmental complexity---tax / legal

-Environmental & ecology awareness

-New product development


Broad categories
-Business Services -Communications

-Construction & Engineering –Health care

-Distribution -Education

-Environment -Finance

-Tourism -Recreation
--Transportation
Trends globally
--In USA service contributed 54% 0f GDP in 1948, 80% in 2000,84%
in2005 –74% of total employment
--In India,
-In 1960—agri(50%), service (17%)
-In 2000---agri(24%), service (53%)
-In 2005---agri(21%), service (57%)
-more & more services are being taxed in last few budgets
-As economy develops, role of agriculture in economy declines, that of
service rises
-Service today constitutes 20% global trade
-Issues related to global trade of services—”No detailed international
classification, no standardized method of valuing services’’
Where goods & services differ
Goods Services
1. Tangible 1. Intangible
2. Homogeneous 2. Heterogeneous
3. Production & Distribution 3. Production, distribution &
separated from consumption consumption are simultaneous
process
4. A thing 4. An activity or process
5. Core value produced in factory 5. Core value produced in buyer
or filled seller interaction
6. Consumer don’t participate in 6. Consumer participate in
production process production process
7. Can be kept in stock 7. Cannot be kept in stock
8. Transfer of ownership 8. No transfer of ownership
Characteristics of services
Intangibility Inseparability
Cant see/touch/feel Production/distribution /
consumption simultaneous

Heterogeneity Perishability
variation in quality/ time Cant be stored
consumed/extent of service
Therefore, challenges…

.. Tangibilize the intangible


.. Increase productivity of providers who are
inseparable from products
.. Standardize the quality
.. Optimize demand movement & supply capacity
Intangibility
Marketing Implications Strategies

- No patent -Tangible clues- place /


- No ready display people / equipment /
symbols
- Communications
problem - Personal sources
- Pricing difficulty - Word of mouth
- Image / branding
Inseparability
Marketing implications Strategies

-Consumer involved in -Selection & training of


production persons
-No mass production -Consumer management
-Supply demand -Multi-site location
matching
Heterogeneity
Marketing implications Strategies

-Standardization difficult -Industrialize

-Quality control difficult -Customize


Perishability
Marketing Implications Strategies

-No inventory -Demand forecasting

-Differential pricing-
-No shelf life demand side

-HR flexibility-supply
side
7P’s of service marketing
-Package of service (prod.) -Place
Five product levels -1 or 2 levels-agents /brokers –
-Core product franchisee
-Basic product -Promotion
-Expected product -Direct / PR / branding / corporate
-Augmented product advertising
-Potential product -People
-Internal marketing
-Pricing -Physical evidence
-Not always cost plus— -Tangible clues
demand driven—differential
pricing -Process management
-Analyze & optimize
Consumer Behaviour
-Initiator
-Person identifying a specific need and purpose to buy a particular
service
-Influencer
-Person or group-advising
-Gatekeeper
-Person / organization / material—acting as a filter for decision choice
net
-Decider
-Taking the buying decision—may or may not execute the purchase
-Buyer
-Makes actual purchase
-User--------Person actually consuming
Consumer Decision Making
Process Output
Need recognition Service encounter
| |
Information search Usage evaluation
| |
Evaluation Repeat
| |
Decision to buy Acts as W.O.M. to input to
process
Input to process is controlled by
Commercial marketing, Socio-
Cultural & W.O.M.
Influencing Factors
Socio-cultural characters Psychological Characters
-Culture– Set of belief, values -Perception—process by which
and customs that goes deep an individual buyers , organize
as a person grows select & interpret information
-Reference groups -Attitude—learned disposition
-Family to respond in a consistent
manner to stimulus
Situational characters
-Motivation—Driving force
-Time, -Stores’ atmosphere within one that compels him to
-Buyer’s perception of trust on action
service provider Personal Characters
-Marketing stimuli -Personality, life style,
demographic
Consumer Evaluation of Services

Qualities which influence consumers’ evaluation of services:


-Consistency -Concern
-Competence -Contact
-Courtesy -Communications
-Credibility -Confidentiality

Quality is the foundation of consumer evaluation of services


Service Delivery Triangle
COMPANY COMPANY
Internal Marketing External Marketing

Transactional Moment of Truth Marketing

EMPLOYEE CUSTOMER
Personal need Personal need Life Path
Image
Image Word of mouth
Role conflict & Ambiguity Previous experiences
Internal Marketing
Engagement of every single individual in marketing a service
-Recruitment
-HR Policies
-Compensation structure & incentives
-Training
-Product knowledge -Product Handling
-Customer knowledge -Selling
-Motivation

-Empowerment
-Matrix Responsibility Structure
External Marketing

-Creation of promise, corresponding with personal need &


aspirations of target customers:

-Tangible concept of total promise


-Creating expectations by promises
-Value of the promise
-Non-personal communications
Transactional Marketing
-Management of customer --Elements of success
contact-buyer-seller interaction
–moment of truth -Contact Person
-with support from -System & physical resources
-Customers and fellow
--Managers
--Supporting functions customers
--Investment in -Management support
technology -Support personnel
--Operations -Technology support
--Admin. systems -Price
-Corporate & local image
External Marketing Internal & Transactional
Marketing

- Giving promises - Fulfilling Promises


-- A process of creating -- Ability and motivation to
managed expectations meet expectations of
from service provider customers created by
external marketing effort
Seven service quality gaps
Customer needs & expectations
1. The knowledge gap
MGM. definition of these needs
2. The standards gap 4. The Internal communication
gap
Translation into design/delivery
3. The delivery gap
Execution of design/delivery
4 Advertising and sales
promises
5 . The perceptions gap 6. The interpretation gap

Customer perceptions of Customer interpretation


Product executions of communications
7. The service gap
Customer experience
Relative to expectations
Details of service delivery gaps
1.The knowledge gap is the difference between what service
providers believe customers expect and customers actual’ need and
expectations.
2. The standards gap is the difference between management’s
perception of customer expectations and the quality standards
established for service delivery.
3.The delivery gap is the difference between specified delivery
standards and the service provider’s actual performance on these
standards.
4. The internal communications gap is the difference between
what the company’s advertising and sales personnel think are the
product’s features, performance, and service quality level and what
the company is actually able to deliver.
Details of service delivery gaps

5.The perceptions gap is the difference between what it is, in fact,


delivered and what customers they have received ( because they are
unable to accurately evaluate service quality).
6. The interpretation gap is the difference between what a service
provider’s communication efforts( in advance of service delivery) promise
and what a customer thinks was promised by these communications.
7. The service gap is the difference between what customers expect
to receive and their perceptions of the service that is delivered.
Gaps 1,5,6, and 7 represent external gaps between the
customer and the organization. Gaps 2,3, and 4 are internal gaps occurring
between different functions and departments within the organization.
Creating the Service Product

Core Product
a) What is the buyer really purchasing?
b) What business are we in?

Supplementary Services
These service elements augment the core product, both
facilitating its use and enhancing its value and appeal.

Core Product + Supplementary Product=Augmented Product


Depicting the service offering for
an overnight hotel stay
Reservation

Use phone Parking


Nature of
Scheduling Process
Room service core Check in/out
Service Customer
level role

Pay TV Porter

Supplementary services
Meal
Facilitating & enhancing
Supplementary services
Information

Payment Consultation

Order
Billing Core
Taking

Exceptions Hospitality

Safe Keeping
Core Product vs. Supplementary
Services
Every core product may not have all the wings, but it helps to
identify which supplementary services must be offered.
Planning and Branding
ex. Hotel, Airlines, Restaurant, etc.
Level of new service categories
1. Major service innovation 2.Major process innovation
3. Product line extension 4. Process line extension
5. Supplementary service 6. Service improvements
Innovations
Success in new service development
-Market synergy -Organizational factors -Market research factors
Communication Mix for Services
External Communication
Communication efforts serve to not only attract new users but also
maintain contact with an organization’s existing customers and build
relationship with them.
e.g. Telephone, Fax, Website, Doctor’s check up reminders,
Insurance reminders, Bank’s small letters etc.
Internal communication

Marketing communications can be used to communicate with


service employees as well as with external customer. Internal
communication from senior managers to their employees play a vital
role in maintaining and nurturing a corporate culture founded on
specific service values
Objective of service communication
Mix
Overcome Intangibility
e.g. Airlines, Hotels, Restaurants , etc.
Facilitate Customer Involvement
say, Train the customer in new technology or service.
Help customers to evaluate the service
Possible solutions are providing tangible clues related service
performance, highlighting the quality of equipment and facilities and
emphasizing employee characteristic, such as their qualifications,
experience, commitment, and professionalism.
Stimulate or Dampen demand to match capacity
Ex. Hotel discount at hill stations in winter, increase prices
during festive season. Airline discount in off season.
Preparing for Service marketing
Communication
Who Target
What To communicate and achieve
How To communicate
Where Should we communicate
When Communications need to take place

Target audiences

Prospects
Users
Employees
Word of Mouth
Recommendations from a user are more acceptable to buyer than
company’s claims. Higher the perceived risk and lesser the
knowledge of the customer, more important is WOM. Few methods
of creating favorable WOM:
--Reference list
--Create promotions so others talk
--Develop referral Incentive scheme
--Trial use
--Publicize testimonials for WOM
--Brochures may contain positive comments from
satisfied customers
The Marketing Communication Mix

---Personal communication
---Advertising
---Sales promotion
---Public relations
---Instructional materials
---Corporate design
Originating sources of messages
for a target audience
Frontline Staff

Production channels * Service Outlets

Marketing channels Advertising

Msg.origin.within * Sales promotions

the org. * Direct marketing

* Msg.origin. outside the org. Personal selling

Source * Word of mouth Public relations


Media editorial
Objectives of Pricing Services
Marketing
a) Revenue & Profit
Maximize
Seek Profit Achieve target
Utilize capacity

Full Cost
Cover Costs Cost less O.H.
Marginal Cost
b) Patronage and User base
Build Demand Maximize Demand (capacity
available)
Achieve Full Capacity Usage
(cinema, hotel, air lines etc.)

c) Build a User Base Build Market share


(economies of scale, cost
differentiation)
Stimulate trial & adoption of
service (New Services)
Cost of Service
Usual product costing method may be used for service product,
only when variable & semi variable costs component is very high.
But many services have very high fixed cost.
So now a days Activity Based Costing (ABC) is
preferred. An activity is a set of tasks that combine to comprise the
process needed to create and deliver the service. Draw a flow chart
where each step constitutes an activity with which costs can be
linked.
Value of a service may be explained as customer’s
perceived benefit against perceived cost. Value is highly personal
and may be classified as:
--Low price, --Whatever I want in a product, --A quality I get for the I
pay, --What I get for what I give.
a) Say a customer pays—Rs100/- for the desired service
b) He was willing to pay---Rs120/- for the desired service
b—a= Rs20/- is consumer surplus (value)

When b=a value is adequate.

If b—a=--ve then consumer net value is negative. Service


product will not sell.
Pricing Strategy Tripod

Pricing

Value to customers Costs Competition


Relationship Pricing
Volume discount helps both buyer and seller. But competitor may
lure the customer by offering more. Better way is to provide number
of services for the same customer. This helps to understand the
customer better and customize the services. Then it becomes
costlier for customer to change supplier.

Low cost leadership


Target customer segment with tight financial budget. Use
volume discount incentive.
Managing Perception Value
Customer should be persuaded to consider total cost of service
not the time spent only (surgery, legal, T.V., repair etc. )
Total Users cost
Search cost
Purchase
Money Operating cost
Time Incidental expense
Physical effort
Purchase & Psychological
Use cost Sensory

Necessary follow up
After cost
Problem solving
Competition based pricing for
competing

-Non price related costs of using competing alternatives are high.


(saving customer’s time & effort while availing the service )

-Personalization, customization, and switching costs matter.


(preference for particular hair cutter, family doctor, etc. )

-Time and location specificity reduce choice.


(Banks near residence / office, ATM, Flight time)
Revenue Management, how does it
work?

-Setting prices according to predicted demand levels among


various market segments.
-Least price sensitive segment gets first allocation of capacity at
high price, followed by next segment at lower price and so on. With
the help of technology a demand forecast of different price paying
customers is feasible and accordingly capacities may be blocked.
-When higher paying demand is high, capacity is taken away
from lower paying sector and vice-versa. This method is most
effective when the service sector has a relatively high fixed
capacity /cost.
(e.g. Airlines, hospitals, hotels, etc. )
Price Elasticity

The concept of elasticity describes how sensitive is demand to


changes in price and is computed as follows:
% change in demand
Price elasticity=--------------------------------
% change in price
When a small change in price has a big impact on sales, demand
for that product is said to be Price Elastic. But when a change in
price has little effect on sales, demand is described as Price
Inelastic.
Rate Fences
Price customization for same product means charging different
customers different prices for what in effect is the same product.
One has to ensure that the high value buyers do not the benefit of
low prices by building rate fences.
Physical /Tangible Fences
(e.g. Airlines’ First class, Railway—1st A/C, Theatre front seat etc. )
Non Physical Fences for lower prices
-Booking in advance
-Cancellation charges
-Penalty
-Less no. of supplementary services
Designing Fairness into Pricing
Strategy
--Design price Schedules and Fences that are clear, logical, and fair.
--Use high published prices and frame fences as discounts.
--Communicate customer benefits of Revenue Management, say higher
prices
--Use bundling to hide discount.
--Take care of loyal customers.
--Use service recovery to compensate overbooking:
--Compensate for inconvenience
--Advance notice for customer to make alternative arrangement
--Provide substitute service that delights customers
Issues in Service Pricing
Economic cost

-How much to charge Market sensitivity


Competition
Per day, per hour
-Basis for pricing Per Km.
Per trip etc.
Clear idea in advance
-Price bundling Hide discount,
guarantee
Price unbundled Flexibility for customer
Issues in Service Pricing
Discounting Who should collect
payment
-Volume discount for big a) Well presented bill and
customers customer’s convenience
b) Where, How, When
c) Travel / Ticketing agent
-Cautious approach d) Direct
---( Instead of weekend --Internet
surcharge allow discount on --Telephone
week days) --Fax
--Credit card
Issues in Service Pricing
When should How to communicate
payment be made pricing to target mkt.
-Ethical, easy to understand
-Customers are able to
-Advance (e.g.transport sector)
compare
-After completion of service
-Price mentioned in
( Restaurant/ Repair etc. ) Advertisement
-Credit --Price in advertisement
--P.O.P
--Bundled / Unbundled
--Refer to company staff
Distribution in Services Marketing

Three interrelated elements


1. Information and Promotion flow---The objective is to get
customer interested in buying the service.
2. Negotiation Flow---Thos focuses on reaching an argument
on the services and terms of offer so that contract can be closed.
3. Product Flow--- Many services especially those involving
people or processing requires physical facilities for delivery.
Core/Supplementary Services
Distribution can relate to the core/ supplementary services. The
important distinction is, many core services require a physical
location which severely restricts distribution. However many of the
supplementary are informational in nature and can be distributed
widely cost effectively via other means. e.g. Travel agent, internet
ticket etc.
Service Delivery Strategy
Where? When? How?

Responses to these question form the


foundation of service delivery strategy. The customer’s
service experience is a function of both service
performance and delivery characterestic.
Customer/ Single Site Multiple Sites
Service
Interaction
Customer goes to Theater, Barber shop Bus Service, Fast food
service organization chain

Service organization House painting Post delivery


comes to customer Mobile car wash Auto club road service

Customer and service Credit card company Broad cast network


organization transact at Local T.V Station Telephone company
arm’s length
Decisions about place & time

WHERE

Customer visiting the Location Constraints


Ministore Multipurpose Facility
Service(ATM, Barber (Airport, hotel,
(Use other’s space)
Shop etc) Hospital)

Bank outlet at
Fast connecting train Truck stop with ATM,
Customer’s retail stores
Pick up from airport Fax, Toilets, Motels,
convenience/cost Mobile phone bill drop
Medical cluster Restaurants, etc
At ATM
Decisions about place & time

WHEN

5 days a week, 8 hours with lunch 24/7 and 365 days also “E”
Break (or earlier) Commerce (now)
Role of Intermediaries
Many service organizations find it cost-effective to delegate certain
tasks, usually supplementary service elements.
Generally core products and some supplementary services are
delivered by originating source, and the rest of supplementary
services are delivered through intermediaries. However the
responsibility lies with the originator franchising.
Even the delivery of the core product can be outsourced to an
intermediarie. This is the essence of business format franchising.
Franchising has become a popular way to expand delivery of an
effective service concept embracing all 7 Ps to multiple sites without
the level of investment capital that would be needed for rapid
expansions of company owned and managed services. Franchisors
control not only output specification, but also the appearances of the
servicescape, employee performance and such elements as service
timetables.
Trucking companies use licensing routes to have
independent agents in different cities to deliver the whole
service .Universities allow education institutions to
deliver courses designed by them .
Financial services- Banks acting for M.F.S
Insurance companies (only selling)
Factors favoring adoption of
Transnational Strategies
Market Factors
This includes common customer needs across many countries.
Global customers demand consistent service from the supplier
round the world and the availability of international channels in form
of physical supply chains or electronic net work.
e.g. Same auditor, Advertiser, DHL, etc.
Competition
Firms may be obliged to follow their competitor to new market
in order to protect their positions elsewhere.
Cost Drivers
Economies of scale may be gained by operating internationally
or globally. Improved telecommunication, transportation, lower
operating costs in some countries facilitate the entry.
Technology
Significant economies may be gained by centralizing “information
hubs” on a certain wide or even global basis. Improvement in these
technologies create cheaper transportation improved performance, physical
design and shorten distances.
Ex- Call center jobs, Back room jobs.

Government Rules
Govt policies can serve to encourage or discourage development of a
transnationally integrated strategy. W.T.O has helped in this regard. But still
many remain purely local .
Ex- Plumbers, Electrician etc
How to start designing a Service
Process?
Best method is to draw up a chart of all key activities in creating and
delivering the service in question and mark the linkages between
them.

Refer next chart showing activities & physical evidence of


a service process e.g. Restaurant.

Every physical evidence may be sub-divided into different activities.


Each sub activities are equally important for the success of service
process. Sub activities should be deliberated and carefully chosen
so that no steps in service is missed.
Chart of key activities of a
Restaurant
Action Physical Evidence
1.Sound & Tone of voice
1.Make Reservation
2. Appearance of Employee & Building
2.Valet Parking
3. Décor,Employee,other coat,etc.
3. Coat room
4. Lounge Decor, Table sitting, & other
4. Welcome Drink customers
5. Seating 5. Room Décor, Staff behavior, Class of
other guests
6. Order Food 6. Menu Card, Employee
7. Food Service 7.Preparation, Taste, quality
8. Bill Payment 8.Transperent, Quick payment
9. Rest Room 9.Design, Cleanliness, Direction
10. Retrieve Coat & Car 10. Décor, Employee
Customers as co-producer of
service

An important part of process design, is to define the


roles of customers should play in the production of
services. Their level of desired participation needs to be
determined and customers need to be motivated and
taught to play their part in service delivery.
Level of customer participation
Low customer Moderate High customer
Presence customer inputs co-produces the
rqrd for service service prod
(Consumer Services) (Consumer Services) (Consumer Services)

Bus travel, Motel stay, Hair cut, annual physical Marriage counsel,
Movie theater check up personal Training, Weight
reduction
(Business to business (Business to business (Business to business
services) services) services)

Uniform cleaning service, ADV. Agency, Payroll Management consultant,


Pest control Seminar, Super market
The Problem of Customer
Misbehavior
Customers form an important element in many services’ encounters.
Firms that fail to deal effectively with customer misbehaviors, risks
damaging their relationships with all the other customers that they
would like to keep. Following are the problems (P) & solutions (S)

P—the thief ( Shop lifter, Towel, Linen theft, “E’ crime )


S---a) Find the route of theft and try to plug it, and if necessary
prosecute.
b) But take care that honest customers do not suffer.
Genuine mistakes are to be ignored.
c) be sensitive and handle carefully.
P)---the rule breaker ( Carrying gun in airlines, No shoe, No shirt in
clubs etc. Jump the ‘Q” )
S)---Rules should be properly conveyed, may be on a billboard.
---Take help of other customers.
---Too many rules and control reduces the pleasure of service.
---The fewer the rules, the more explicit,the important ones can be.

P)---the vandals ( Breaking of Nursing Homes,Burning of buses,etc.)

S)---The best cure for vandalism is prevention.


--- Improved security, better lighting, design with grills etc.
P)--- the dead beat (Those who fail to pay )

S)---Prevention is better than cure.


---Ask for credit card before order.
---Present the bill immediately after the service.
---Handle softly and tactfully.
Balancing Demand and Capacity
1.Demand > Capacity
Loss of business, crowding, customer not satisfied.
2.Demand =Capacity
Well balanced, customer satisfied.
3.Demand < Capacity
Loss of capacity leads to loss of money.

For most of service sector it is either ‘ feast or famine “.


Hence one must try to balance capacity and demand.
Example of Capacity Stretching or
Shrinking
--Overtime by workers
--No. of people standing in Buses / Metro
--Use higher capacity Aircraft, Puja special trains
--Add extra table in restaurant
--Provide faster service, earlier opening & late closing

Adjust capacity to match demand


--Schedule down time during periods of low demand
--Use part time employees
--Rent or share extra facilities and equipment
--Cross train employees
Alternative demand management
strategies for various capacity situation
Approach used to Insufficient capacity Excess capacity
manage demand (excess demand) (insufficient demand)

Take no action Unorganized queuing Capacity is wasted


results. (May irritate (customers may be
customers and discourage disappointed e.g. Theater
future use). hall).
Reduce demand Higher prices will increase Take no action
profits; communication can
encourage use in other time
slots.
Increase Demand Take no action unless Lower prices selectively; use
opportunities exist to communications and
stimulate more profitable variations in products and
segments. distribution. (cost and profit
trade off)
Alternative demand management
strategies for various capacity situation
Approach used to Insufficient capacity Excess capacity
manage demand (excess demand) (insufficient demand)

Inventory demand by Consider priority system for Clarify that space is


reservation system most desirable segments; available and that no
make other customers shift reservations are needed
to off peak period or to future
peak

Inventory demand by Consider override for most Not applicable


formalized queuing desirable segments; try to
keep waiting customers
occupied and comfortable;
try to predict wait period
accurately
Understanding Patterns of Demand

Most periodic cycles of demand for a particular service in length


generally varies from 1day to 12 months.
e.g. Festive season, Winter and Summer sales etc.
No strategy for smoothing demand is likely to succeed unless it is
based on an understanding of why customers from specific segment
choose to use the service when they do it.
e.g. Business Travel---mostly not in weekends.
“Q” system for balancing Supply &
Demand
1.Single line/ single server/ 1. x x x O
single stage
2. Single line/ single server at 2. xx—xx—xx O
sequential stages
3. Parallel lines to multiple x x x O
servers 3. x x x O
x x x O
y y y *
4. Designated lines to 4. x x x O
designated servers z z z +
m m m ++
5. Single line Multiple server 5.
(snake )
X X X O

X X X X O

X X X X O

6. Take a number (single or 6. 22 18 19 11 O


multiple servers) 20 15 10 X
16 14 +
21 17 13 ++
Other methods of balancing Supply
and Demand
Price / Other Costs
One of the direct way of reducing excess demand at peak
periods is to charge customers more money to use services during
these periods. Reverse is to reduce prices to increase demand.
Change Product Elements / Time
Educational Institution---Rent out during weekends/ holidays
for program for adults, social functions, etc.
Small Boats---Offer cruises in summer and dock side venue
for private function in winter.
Modify the Place & Time of Delivery
Movie Theatre---Different rates for Morning / Evening shows
Shops--- Open for longer period in festive time
Promotion & Educating the customer
Airlines--- Buy early for cheap rates
Post Office---Mail early the Christmas Cards

Demand control through Reservation


In business whose demand regularly exceeds supply,
managers can often take steps to inventory demand.
1.First come first served
2.Advance Reservation
Planning the Service Environment
The service environment plays a major part in shaping customers’
perception of a firm’s image and positioning. As service quality is
often difficult to assess objectively, customers frequently use the
service environment as an important quality signal.

Dimensions of affect
Environmental Response Behavior
stimuli & cogn- Approach/Avoidance
tive process &Cognitive Process
Pleasure & Arousal

The Mehrabian-Russell Stimulus Response Model


The Russell Model of Affect
As shown below emotional responses to environments can be described along two
main dimensions :Pleasure and Arousal. Pleasure is direct, subjective response to
the environment, depending on how much the individual likes or dislikes it. Arousal
refers to how stimulated the individual feels, ranging from deep sleep to the highest
level of adrenaline in the blood stream.

Arousing
Distressing Exciting

Unpleasant Pleasant

Boring Relaxing
Sleepy
The impact of Ambient Conditions
Ambient conditions are those characteristics of the environment
pertaining to our fine senses. Even when not consciously noted, they
may still effect people’s emotional well being, perception and even
attitudes and behaviors. Say
Music
People tend to adjust their pace, either voluntarily or involuntarily to
match the music. A survey conducted in a restaurant reveals higher sale
while playing music in slow beat, than fast beat.
Scent
An ambient smell is one that pervades an environment may or may not
be consciously perceived and is not related to any particular product. In
aroma therapy it is generally accepted that scent have distinct
characteristics and solicit certain emotional, psychological,
and behavioral responses. Research has shown that scents can
have significant impact on customers’ response.
Colour
Colour is stimulating, calming, expressive, disturbing, impress
ional, cultural, exuberant, and symbolic. It pervades every aspect of
our lives, shines the ordinary and gives beauty, drama to everyday
objects. Research in service environment has shown despite
differing colour preferences, people generally drawn to warm colour
environment. Red though belongs to warm category is perceived to
be negative.
Warm--- Orange, Yellow, Red
Cool----- Green, Blue, Indigo, Violet
Signs, Symbols, and Artifacts

Many things in the service environment act as explicit or implicit


signals to communicate the firm’s image, help customers to find
their way, and convey rules of behavior. In particular the first time
customers will automatically try to draw meaning from the signs and
artifacts and will try to draw clues to help them form expectations
about the level and type of service that is being offered.

The challenge for services cape designers is to use signs,


symbols, and artifacts to guide customers clearly through the
process of service delivery.
People as part of Service Environment
The appearance and behavior of service personnel and
customers can reinforce or detract from the impression created by
the service environment. Like wise marketing communication can
also enhance or detract the impression of the service ambience.
Design with a Holistic View
The holistic characteristics of environment makes deigning
service environment an art, so much so that specialist designers are
required for different areas.
e.g. Only hotel lobby, Restaurant bars, clubs etc.
Design from a Customer’s Perspective
Many service environment are designed only on esthetic
values and forget the customer’s convenience. But if you do not
keep your customer in mind through out, you could end up with an
investment that is not effective. e.g.

Hotel---Absence of signs from Ball Room to Rest Room


Airport-Luggage brushing against artifacts, glass panes
etc.
Managing People for Service
Advantage
--Often, the service staff is the most visible element of the service,
delivers the service and significantly determines service quality.
--Frontline staff represent the service firm; from a customers’
perspective, the frontline staff is the firm.
--Frontline staff and service are often a core part of the brand. It is
the staff that determines whether the promised service gets
delivered or not.
A service firm’s differentiation rests on those few
moments of interaction with frontline staff. Therefore the service
delivered by the frontline, whether it is ear to ear, via email, or face
to face, is still highly visible and important to the customer and
therefore a critical component of the strategy and marketing mix of
service firms.
Frontline work is Difficult and
Stressful
Frontline staff may perform triple roles: Producing service quality,
productivity, and sales. The multiplicity of roles in service jobs
often leads to conflict role stress among employees.
Sources of Conflict
1. Person / Role conflict—service staff feels conflicts between
what their jobs require and their own personalities, self perceptions
and beliefs.
e.g. The job may require staff to smile and be friendly even to
rude customers.
2. Organization / Client conflict---should the staff follow the
company rule or satisfy the customer?
Frontline work is Difficult and
Stressful
3.Inter Client conflict
It becomes the responsibility of the frontline staff.
4. Emotional labour –The term emotional labour means the
emotion that arises from the discrepancy between the way frontline
staff feel inside, and the emotions they are expected to portray in
front of customers.
Successful company in service firms have: Leadership that
-Focuses the entire organization on the frontline to support the
frontline
-Fosters a strong service culture with passion for service and
productivity
-Drives values that inspire, energize, and guide service providers
Wheel of successful HR in Service
firms
3.Motivate and Energize 1. Hire the right people
your people
Use the full range of Rewards Be the preferred employer and
- Pay compete for talent market share
- Bonus Intensify selection
-Job Content Service excellence process to hire the
-Feedback & recognition and productivity right people for the
-Goal accomplishment organization and the
given job
2. Enable your people

Build high performance Extensive training on:


Service delivery teams: - Empower the front line - Organization culture,
-Ideally cross functional, purpose, and strategy
customercentric structure - Interpersonal & technical
skills
-Develop team structures and - Product/Service knowledge
skills that work
Managing Relationships & Building
Loyalty
Why relationship & loyalty?
How much is loyal customer worth in terms of profit?
Research shows:
a) Profit derived from increased purchases---over time
business customers often grow larger and so purchases in greater
quantities.
b) Profit from reduced operating costs---as customers
become more experienced they make fewer demands on the
supplier and makes fewer operational mistakes.( less need for
information and operational training )
c) Profits from referrals to other customers—positive word
of mouth recommendations are like free sales and advertising.
(firms save money in such activities )
Managing Relationships & Building
Loyalty
d) Profit from price premium -----new customers are lured by
introductory discounts, where as normal customers are more likely
to pay normal price.
Understanding the customer / firm Relationship
1.Transactional marketing –is exchange of values between two
parties. Repeated transactions not necessarily creates relationship,
may be it creates relationship between customer and intermediaries.
2. Data base marketing uses technology
-to create data base for present and future customers
-gives segment wise customer’s preferences and
characteristics
-track each relationship to monitor the cost of acquiring
and / or maintaining the customer
Understanding the Customer / Firm
Relationship
3. Interaction marketing –may include negotiations and sharing
of insights in both directions. Good organizations effectively
combine data base and interaction marketing.
4. Network marketing –this type of marketing occurs primarily
in business to business context, where firms commit resources to
develop relationships with customers, distributors, suppliers, media,
Govt. agencies etc.
5. Creating “Memberships” Relationships – is a formalized
relationship between the firm and an identifiable customer.
Many elements are involved in gaining market share and
profit. The process starts by identifying and targeting the right
customers, and then learning about their needs and preferred
service delivery. Translating this knowledge into service delivery,
tiered service levels, and customer relationship strategies are the
key steps toward achieving customer loyalty.
Tiering of Services

Good Platinum Which segment sees high


relationship value in our offer, spends
Gold more with us over time,
costs less to maintain
Iron and spreads positive
word of mouth.
Poor relationship Lead

Which segment costs us in time and effort and money


but does not provide the returns we want? What
segment is difficult to do business with.
The Wheel of Loyalty
Build a Foundation for Loyalty
--Segment the market to watch customer’s needs and
firm capabilities.
--Be selective: Acquire only customers who fit the core
value proposition.
--Manage the customer base via effective tiering of
service.
--Deliver quality service.
Enabled through
--Frontline staff --Account managers
--Membership Program --CRM system
The Wheel of Loyalty
Create Loyalty Bonds
1.Give loyalty 2.Build higher 3.Deepen the
rewards level bonds relationship

-Financial -Social -Cross selling


-Non-financial -Customization -Bundling
-High tier service
level
-Recognition and
appreciation
The Wheel of Loyalty
Reduce Churn Drivers
-Conduct churn analysis monitor declining / churning
customers.
-Address key churn factors
-Proactive retention measures
-Reactive retention measures
-Put effective complaint handling and service
recovery process in place.
-Increase switching costs.
Customer feed back and Service
Delivery
Collecting customer feed back via complaints, suggestions and
compliments provide a mean of customer satisfaction. It is an
opportunity to get into the hearts and minds of customer. To get
complaints you must make it easy for the customer.
Strategies to Reduce Complaint Barriers
Barriers Ways to reduce Barriers
-Difficult to find right -Make feed back easy and
complaint procedures and convenient
effort, e.g. writing and -Print customer service hot
mailing a letter line numbers on all
customer communication
material
Strategies to Reduce Complaint Barriers

Doubtful Payoff -Reassure customers that


-Uncertain whether the firm will their feed back will payoff.
take action or not. -Feature service improvements
that resulted from feed back.

Unpleasantness -Make providing feed back a


positive experience.
-For being treated rudely -Thank customers for their
feed back, publicly.
-Train the frontline not to
-For being hassled hassle but make them
comfortable
-Feeling embarrassed -Allow for anonymous feed
back.
Service Guarantees
A growing number of companies offer customer a satisfaction
guarantee promising that if service delivery fails to meet predefined
standards, the customer is entitled to one or more forms of
compensation, such as an easy to claim replacement, refund or
credit. Some firms place conditions on these guarantees, others
offer them unconditionally.
e.g. – Pizza –1/2 hr. delivery
-- 24 hr. delivery any where in U.S.A.
Learning from Customer Feedback
-Assessment of Benchmarking of service quality and performance.
e.g.- competitors versus your own branches.
-Customer driven Learning & Improvements
-Creating oriented service culture.
Few ways getting Feedback
- Total market survey -Service feed back cards
- Unsolicited customer feed back -Mystery shopping
- Focus group discussions and -Capturing unsolicited
service review customer feedback

Service firms need to develop effective strategies to recover from


service failures so that they can maintain customer goodwill. That is
vital for the long term success of the company. Even the best
recovery strategy is not as good as being treated right the first time.
The ultimate objective of an effective customer
feedback system is to institutionalize systematic and continuous
customer-driven learning.
The Service Recovery Paradox
The service recovery paradox refers to the sometimes observed
effect that customers who experience a service failure and then
have it resolved to their full satisfaction are more likely to make
future purchases than are customers who have no problem in the
first place.
A study showed that the service recovery paradox held for the first
service failure that was recovered to customer’s full satisfaction.
However when a second service failure occurred, the paradox
disappeared. It seems that customer can forgive a firm once, but
gets disillusioned if failures recur. Further more the study showed
that customers’ expectations were raised after they experienced a
very good recovery; thus, excellent recovery becomes the standard
they expect in dealing with future failures.
Organizing for service Leadership
No organization can hope to achieve and maintain market
leadership without human leaders who articulate and communicate
a vision and are backed by individuals with the management skills to
make it happen. Service leadership in an industry requires high
performance across a number of dimensions that fall within the
scope of marketing, operations and HRM functions.
Within any given service organization marketing has
to coexist with operation—traditionally the dominant function –
whose concerns are centered on cost and efficiency rather than on
customers. Marketing must also coexist with human resource
management which usually recruits and trains service personnel,
including those who have direct contact with customers.
Organizing for service Leadership

An ongoing challenge is to balance the concerns of each function


not only at the head office but also in the field. Ultimately a
company’s ability to effectively integrate marketing, operations and
human resource management, will determine whether it is classified
as a service loser, a service nonentity, a service professional, or a
service leader.

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