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Service Marketing Study Notes: Chapter One: 1. And 2. Why Study Services? How important is the service sector in our economy, and what are its principle industries?  Service sector is increasing around the world with both developed and emerging economies  Total for services reaches almost 71% of the value of GDP in Canada  Most new jobs are created by services in Canada

Service Markets are shaped by: 1. Government policies:  Changes in regulations  Privatization  New rules protecting customers, employees and the environment  New agreements on trade and services 2. Social Changes:  Rising consumer expectations  More affluence  Consumers short on time  Increased desire for experiences vs. things  Rising consumer ownership of technology ie. Computers, smartphones  Easier access to information  Immigration  Growing but aging population 3. Business Trends:  Push to increase shareholder value  Emphasis on productivity and cost savings  Manufacturers add value through service and sell services  More strategic alliances and outsourcing  Focus on quality and customer satisfaction  Growth of franchising  Marketing emphasis on non-profits

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4. Advances on Information Technology:  Growth of the internet  Greater bandwidth  Compact mobile equipment  Wireless networking  Faster more powerful software  Digitization of graphics, text, audio and video 5. Globalization:  More companies operating on a transnational basis  Increased international travel  International mergers and alliances  ―Offshoring‖ of customer service  Foreign competitors invade domestic markets Success hinges on: 1. Understanding customers and competitors 2. Viable business models 3. Creation of value for both customers and the firm

3. what exactly is a service, and how should it be conceptualized and defined? Five categories within the non-ownership framework: 1. Rented-goods services: enable customers to obtain temporary rights to exclusive use of a physical good that they prefer not to own eg. Boats 2. Defined space and place rentals: customers obtain use of a defined portion of a larger space in a building, vehicle, or other area, sharing its use with other customers under varying levels of privacy eg. Hotel room, seat in an airplane 3. Labour and expertise rentals: customers hire other people to perform the work that they either choose not to do for themselves or are unable to do because they lack the necessary expertise, tools or skills. Eg. Plumber 4. Access to shared physical environments: may be located indoors, outdoors or both eg. Theme parks, zoos, museums 5. Systems and networks: access and usage: customers rent the right to participate in a specified network such as telecommunications, utilities and banking.  In many instances two or more of these categories can be combined. When you take a taxi you are hiring both the driver and a vehicle. Service product: refers to the core output (intangible) Services (historical definition): Adam Smith distinguished between what he termed ―unproductive‖ and ―productive‖ labour in his book The Wealth of Nations in 1776. He determined that productive labour produced goods that could be stored after production and exchanged for money or other items of value. Unproductive labour however ―honorable, useful, or necessary‖ created services that perished at the time of production and therefore did not contribute to wealth.

Intangible elements usually dominate the value creation – harder to evaluate and distinguish from competitors 3. In exchange for their money. Most service products cannot be inventoried . networks. professional skills.3 Services (current definition): economic activities offered by one party to another. People may be part of the service experience – appearance. most commonly employing time-based performances to bring about desired results in recipients themselves or in objects or other assets for which purchasers have responsibility. Services are often difficult to visualize and understand – customers perceive greater risk and uncertainty 4. facilities and systems 5. Operational inputs and outputs tend to vary more widely – harder to maintain consistency. want service at times that are convenient 8. facilities. and systems but they do not normally take ownership of any of the physical elements involved.perishability 2. Customers may be involved in co-production – customers interact with provider’s equipment. Why do services need an expanded marketing mix. time. attitude and behavior of service personnel and other customers can shape the experience and affect satisfaction 6. 4. Distribution may take place through nonphysical channels – information based services can be delivered through electronic channels such as internet or voice telecommunications 5. and effort. What distinctive marketing challenges do services present relative to goods? EIGHT COMMON DIFFERENCES BETWEEN SERVICES AND GOODS: 1. and service quality or to lower costs through higher productivity 7. Product elements  Embrace all aspects of service performance that create value. The time factor often assumes great importance – customers dislike wasting time waiting. labour. comprising of 8P’s rather than 4 P’s? THE 8 P’S OF SERVICE MARKETING 1. service customers expect to obtain value from access to goods. Core product responds to customer’s primary need  Help customers use core product through array of supplementary service elements  Creates a service concept that offers value to customers and satisfies better than competitors .

Physical Environment  Design servicescape and provide tangible evidence of service performances  Create and maintain physical appearances o Buildings/landscaping o Interior design/furnishings . especially waiting o Unwanted mental and physical effort o Negative sensory experiences 4. Customer control and convenience. outdoor. premiums o Margins for intermediaries (if any) o Credit terms  Service marketers must recognize that customer outlays involve more than price paid to seller  Identify and minimize other costs incurred by users: o Costs associated with service usage (e. educating. broadcast. Place and time  Delivery decisions: Where. retail. Physical channels. etc. reminding customers  Marketing communication tools  Media elements (print. When. babysitting. customer service  Sales promotion  Publicity/PR  Imagery and recognition  Branding  Corporate design  Content  Information. parking. persuading. phone. the Internet.)  Personal selling. etc.4 2. Service schedules. Electronic channels. especially when acting as co-producers of service Process involves choices of method and sequence in service creation and delivery o Design of activity flows o Number and sequence of actions for customers o Nature of customer involvement o Role of contact personnel o Role of technology. travel to service location. and disappoint customers 6.    Processes How firm does things may be as important as what it does Customers often involved in processes.) o Time expenditures. Channel partners / intermediaries 3. discounts.g. How  Geographic locations served. degree of automation  Badly designed processes waste time. Price and other user outlays  Traditional pricing tasks: o Selling price. advice  Persuasive messages  Customer education/training 5. create poor experiences. Promotion and education  Informing..

    Productivity Productivity and quality must work hand in hand Improving productivity key to reducing costs Improving and maintaining quality essential for building customer satisfaction and loyalty Ideally. how they behave in specific environments. Building the service model: create a value proposition utilizing the developed service concept and select physical and electronic channels for the service delivery. balance demand against productive capacity. continuously improve service quality and productivity. Implement profitable service strategies: create customer relationships and build loyalty. Manage the customer interface: Design and manage service processes. performing tasks well o Job design o Recruiting o Training o Motivation  Need the right customers for firm’s mission o Contribute positively to experience of other customers o Possess—or can be trained to have— needed skills (co-production) o Can shape customer roles and manage customer behaviour 8. organize for change management and service leadership . plan for service recovery and create customer feedback systems. plan the service environment and manage service employees for competitive advantage 4. People  Interactions between customers and employees influence perceptions of service quality  Need the right customer-contact employees. Understanding the customer: how they search for information. Educate consumers and position your service against competitors 3. strategies should be sought to improve both productivity and quality simultaneously—technology often the key o Technology-based innovations have potential to create high payoffs o But. must be user friendly and deliver valued customer benefits The framework for developing a services marketing strategy: 1. how they choose their supplier 2. Develop a business model and set prices allowing for your target profit margin.5 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.

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Ie. Has been revolutionized by computers. Health care. What are the four broad categories of services? And why does each pose such distinctive service-management challenges? FOUR BROAD CATEGORIES OF SERVICES (PROCESSING): 1. tangible forms such as letters. Possession Processing: services directed at physical possessions. In such instances production and consumption can be seen as separable. Tangible actions. Intangible actions. Ie. cds. 3. explaining the service requirements. The customer must be prepared to co-operate actively with the service operation. Due to customers position of dependency and potential manipulation strong ethical standards and oversight must be present. Accounting. it is the most intangible form of service output but it may be transformed into more enduring. Information Processing: services directed at intangible assets. Laundry and dry cleaning. and later returning to pick the item up and pay the bill. Education 4. Requires investment of time and some degree of mental effort on the customer’s part. The customers involvement is usually limited to dropping off the item that needs processing. beauty salons 2. Intangible actions. . The output should be a satisfactory solution to the customer’s problem. requesting the service. People processing: services directed at peoples bodies. Ie. Ie. books or reports. They need only be mentally in communication with the information that is being presented.7 CHAPTER TWO: 1. Tangible actions. Mental Stimulus Processing: services directed at people’s minds. Managers need to pay attention not only to the service output but also to the service process from the standpoint of the customer.

ease of use. websites)  Review information from third parties (published reviews. What is the three-stage model of service consumption? And which perspectives help us to understand and better manage consumer behavior at each stage? THE THREE-MODEL STAGE OF SERVICE CONSUMPTION: 1. blogs. How well did the dental hygienist clean your teeth? iii. SERVICE ENCOUNTER STAGE (1) Request service from chosen supplier or initiate self-service (payment may be upfront or billed later) (2) Service delivery by personnel or self-service  Service encounters range from high.8 2. seek solution (2) Information search  Clarify needs. Ie. internet banking)  Understanding the servuction system  Service marketing systems: high-contact and low-contact  Role and script theories  Theatre as a metaphor for service delivery: An integrative perspective  Implications for customer participation in service creation and delivery 3. compare it to expectations o Positive disconfirmation if better than expected o Confirmation if same as expected o Negative disconfirmation if worse than expected  Research shows links between customer satisfaction and a firm’s financial performance Evaluation in advance of purchase is a result of attributes: i. POST-ENCOUNTER STAGE (1) Evaluation of service performance (2) Future intentions  Customers have expectations prior to consumption.to low-contact (high contact include airline. observe service performance. satisfaction ratings)  Discuss options with service personnel  Get advice and feedback from third party advisors. brochures. menu Experience attributes: such as reliability. . Search attributes: tangible characteristics that customers can evaluate prior to purchase ie. GOOD restaurant. THE PREPURCHASE STAGE: (1) Awareness of a need – need arousal. nursing home) (LOW include cable tv. and customer support that inexperienced users can only discern during delivery and consumption ie. ii. Atmosphere in a restaurant Credence attributes: characteristics that some customers find hard to evaluate even after the consumption – often related to the benefits delivered. parking.  Explore solutions  Identify alternative service products and suppliers (3) Evaluation of alternatives (solutions and suppliers)  Review supplier information (advertising. Price. other customers  Make decision on service purchase 2.

consequences of delays 4. Rely on a firm with a good reputation 3. What perceived risk do customers face in selecting. Offer performance warrantees 2. Seek info form personal sources (family. Use the web to compare service offerings/ independent reviews How can service suppliers reduce perceived risk? 1. purchasing. and using services? And how can firms reduce consumer risk perceptions? TYPES OF PERCIEVED RISK IN PURCHASING AND USING SERVICES: 1. Have an automated message about anticipated problems 8. Financial risk: monetary loss. Look for guarantees or warrantees 4. Sensory: unwanted effects on the five senses How might an individual handle perceived risk? 1. Physical risk: personal injury or damage to possessions 5.9 3. Visit service facilities. Examine tangible clues or other physical evidence 6. Give customers access to online info about the status of an order . Institute visible safety procedures 6. Temporal risk: wasting time. Encourage prospective customers to visit the facility before purchasing 5. unexpected costs 3. website and videos 4. Train staff to be empathetic to customers 7. friends) 2. Encourage prospective customers to view brochures. Psychological risk: personal fears and emotions 6. try aspects before purchase 5. Functional risk: unsatisfactory performance outcomes 2. Money-back guarantees 3. Social risk: how others will think and react 7.

Zone of tolerance: a range of service within which customers don’t pay explicit attention to service performance. other customers and – very importantly the customer in person. service delivery and other contact points. Predicted service: the level of service that customers actually anticipate receiving.  Service operations: where inputs are processed and the elements of the service product are created  Service delivery: where final assembly of these elements take place and the product is delivered to the customer. price. A wished for level – a combination of what customers believe can and should be delivered in the context of their personal needs. billing. He expanded this framework to embrace three overlapping elements: service operations. Desired service: the type of service customers hopes to receive. and market research. each of which can influence the level of adequate service levels. or importance of specific service attributes. contact personnel. often in the presence of other customers  Other contact points: which embraces all points of contact with customers including advertising.10 4. The size of the zone of tolerance can increase or decrease for individual customers depending on such factors as competition. . Service encounter is the moment of truth Servuction system: (combines the terms service and production) Christopher Lovelock describes the part of the service organization’s physical environment that is visible to customers. How do customers from expectations of service? Customers evaluate service quality by comparing what they expected with what they perceive they received from a particular supplier.

happiness) . both employees and customers act out their parts in the performance according to predetermined roles. some are tightly scripted (passport officials) and some are more improvisational (teaching university).11 Service marketing system: the visible part of service operations. Employees must perform their roles with reference to customer expectations or risk dissatisfying or losing customers altogether. Front stage personnel are members of the cast (actors) and supported by the back stage production team. Some stages have minimal props others are more elaborate. Arousal (excitement. How do role theory and script theory help understand consumer behavior during the service encounter? Role theories: if viewed from a theatrical perspective. Costumes are uniforms. Service facilities contain a stage on which the drama unfolds. Unexpectedly high levels of performance 2. 5. education and communication with others. Which can be defined as “a set of behavior patterns learned through experience and communication. Scripts are sequences of behavior that both employees and customers are expected to learn and follow during service delivery. to be performed by an individual in a certain social interaction in order to attain maximum effectiveness in goal accomplishment”. This represents all the many different ways the customer may learn about and encounter the organization in question. its employees and even other customers. surprise) and 3. and other contact points. Theatre as a metaphor: service delivery consist of a series of events that customers experience as performance. Delight: is a function of three components: 1. Customers must play by the rules or risk causing problems for the firm. Script theories: a service script specifies the actions that customers and employees are expected to perform. service delivery. Positive affect (pleasure. joy. Customers learn scripts through experience.

Enhancing supplementary services add extra value for customers. Even though there are physical elements. both facilitating its use and enhancing its value and appeal The flower of service: supplementary services play one of two roles. a commodity such as diesel or an agricultural product such as a bag of potatoes. Facilitating Services: 1. Consultation 6.12 CHAPTER THREE: What do we mean by a service product? When customers purchase a manufactured good such as a camera. Exceptions Product: implies a defined and consistent “bundle of output” and also the ability to differentiate one bundle of output from another. there is a big portion of the price but the value added by services (labour and special equipment used). Payment Enhancing Services: 5. problem-solving benefits that customers seek. Billing 4. Core product: the component that supplies the central. Information 2. A service product comprises all elements of the service performance. both physical and intangible that creates value for customers. Safekeeping 8. Hospitality 7. Supplementary services: these elements augment the core product. . they take a title to physical objects. Facilitating supplementary services are either required for service delivery or aid in the use of the core product. Order-taking 3.

13 2. What insights can we obtain from flowcharting service usage?   Helps management visualize the customer’s total service experience Useful for distinguishing between core product itself and service elements that supplement core  Restaurants: Food and beverage (core)  Reservations (supplementary services) Nature of customer involvement with service organizations varies by type of service:  People processing  Possession processing  Mental Stimulus processing  Information processing  .

How should we categorize supplementary services that surround core products. and intelligible. Oder Taking: Customers need to know what is available and may want to secure commitment to delivery. Order entry. Examples of elements: Self service payment. Examples of elements: Applications. and how do they add value for customers?      Not every core product is surrounded by all eight supplementary elements Nature of product helps to determine:  Which supplementary services must be offered  Which might usefully be added to enhance value and ease of use People-processing and high-contact services have more supplementary services Market positioning strategy determines which supplementary services should be included Firms with different levels of service often add extra supplementary services for each upgrade in service level Customers often require information about how to obtain and use a product or service. Accurate.14 3. Schedule/service hours. Prices. Examples of elements: Directions to service site. The process should be fast and smooth. Direct to payee or intermediary Automatic deduction . Conditions of sale Usage instructions. Reservations and check-in Billing: “How much do I owe you?” Bills should be clear. Examples of elements: Periodic statements of account activity Machine display of amount due PAYMENT: Customers may pay faster and more cheerfully if you make transactions simple and convenient for them.

Branded house – corporate branding: applies its name to multiple offerings often in unrelated fields ie. Complaints or compliments. Eg. either with the intent of offering more convenience and a different experience for existing customers. Examples of elements: Looking after possessions customers bring with them Caring for goods purchased (or rented) by customers Exceptions: Customers appreciate some flexibility when they make special requests and expect responsiveness when things don’t go according to plan. Athabasca University competes with other Canadian universities by delivering undergraduate and graduate programs in a non-traditional way. Marie 4. “House of brands” – individual product branding: ie. Proctor and Gamble. marketing invited them! Examples of elements: Greeting. Process-line extensions: are less innovative than process innovations. Waiting facilities and amenities Food and beverages. 3. with additional benefits eg. Management consulting Hospitality: Customers who invest time and effort in visiting a business and using its services deserve to be treated as welcome guests— after all. Delta Sault Ste. Examples of elements: Customized advice. Virgin group 2. Restitution 4. or of attracting new customers who find the traditional . Product-line extensions: are additions to current product lines by existing firms. they have over 80 packaged goods promoted under their own branded name A HIERARCHY OF NEW SERVICE CATEGORIES: 1. but often represent distinctive new ways of delivering existing products. Air Canada Jazz 3. Major process innovations: consist of using new processes to deliver existing core products in new ways. Why should firms create separate brand names for their different products? The spectrum of branding alternatives: 1. Endorsed brands: where the product brand dominates but the corporate name is still featured ie. Toilets and washrooms. Major service innovations: new products for markets that have not been previously defined eg. Security Safekeeping: Customers prefer not to worry about looking after the personal possessions that they bring with them to a service site. Personal counseling.15 Consultation: Value can be added to goods and services by offering advice and consultation tailored to each customer’s needs and situation. Examples of elements: Special requests in advance. FedEx new overnight delivery system 2. Sub-brands: the master brand is the primary frame of reference but the product itself has a distinctive name too ie. Problem solving. Air Canada launched a new separate low cost division called Zip in 2002 in Calgary 4.

ca in 2001 to further expand the business from bricks and mortar stores. Reengineering: involves analyzing and redesigning processes to achieve faster and better performance.16 approach unappealing eg. Many service alternatives can be built around owning a good and doing to work oneself. agreeing to take credit cards 6. analysts must identify each step. Canadian tire launched Canadiantire. provided an advantage over competing products in terms of meeting customer need and received strong support during and after the launch from the firm and its branches. 5. To reduce overall process time. . Market research factors: detailed and scientifically designed market research studies were conducted early in the development process with a clear idea of the type of information to be obtained. Organizational factors: there was a strong inter-functional co-operation and co-ordination. Market synergy: the new product fit well with the existing image of the firm. Repainting retail branches. Adding a parking lot. TD trust staying open on Saturday 7. Eg. a good definition of the product concept was developed before undertaking field surveys. change in uniforms.  Goods and services may become a competitive substitute when they offer the same key benefits. look for opportunities to speed it up (or even eliminate it all together) and cut out dead time. Eg. The firm had a good understanding of its customers’ purchasing decision behavior 2.What are the main approaches to designing new services? THREE FACTORS CONTRIBUTING MOST TO SUCCESS IN NEW SERVICE DEVELOPMENT: 1. See 3. Service improvements: involve modest changes in the performance of current products including improvements to either the core product or to existing supplementary services. development personnel were fully aware of why they were involved and of the importance of new products to the company. typically involving no changes in either processes or performance. Style changes: represent the simplest type of innovation. measure how long it takes. 3. Each alternative is based on choosing between ownership and rental of the necessary physical goods and between performing the self-service or hiring another person to perform the necessary tasks. Supplementary service innovations: take the form of adding new facilitating or enhancing service elements to an existing core service or of significantly improving an existing supplementary service eg.12 on page 97 5.

barbershop Service providers go to their customers:  Multiple sites: mail delivery. The objective is to sell the right to use a service. For information-processing services (internet banding. Information and promotion flow: distribution of information and promotion materials relating to the service offer. use expert systems Order taking – make/confirm reservations Hospitality – record preferences Physical processes of the supplementary services flower: 5. INFORMATION AND PHYSICAL PROCESSES OF THE AUGMENTED SERVICE PRODUCT Information processes of the supplementary services flower: 1.conduct email dialog. 8. employing one or more centralized sites.17 CHAPTER FOUR: 1. Safekeeping – track package movements Exceptions – make special requests. auto club service  Single site: house painting. Here. check account status Payment – pay by bank card. How can services be distributed? What are the main modes of distribution? IN SERVICES DISTRIBUTION EMBRACES THREE INTERRELATED ELEMENTS: 1. 7. directions. The objective is to get the customer interested in buying the service. 4. prices Consultation -. mobile car wash Customer and service organization transact remotely (at arm’s length):  Multiple sites: broadcast network. Product Flow: Many services especially those involving a people or physical possession processing. 3. Negotiation flow: reaching an agreement on the service features and configuration. 3. 2. make auction bid. direct debit Distribution options for customers: Customers visit the site:  Multiple sites: bus service. online learning) the product flow can be undertaken via electronic channels. Information – website. 6. fast food chain  Single site: theatre. schedules. telephone company . 2. distribution strategy requires development of a network of local sites. solve problems Billing – receive bill. require physical facilities for delivery. brochure. and the terms of the offer so that a purchase contract can be closed.

Prefer face to face interaction when obtaining a mortgage 2. Customers who look for instrumental aspects of a transaction prefer more convenience and this often means the use of self-service channels 5. Locational constraints:  Geographical and climate constraints: need to locate a ski hill where there’s mountains  Operational requirements (noise. A customers search for convenience is not just confined to the purchase of core products but also extends to convenient times and places. take orders. and even serve as a delivery channel for information based services . Ie. Quick restaurant. Service convenience means saving time and effort rather than saving money. environmental): airports  Economies of scale: hospitals  Use of ministores has increased this involves creating numerous small service factories to maximize geographical coverage. For complex and high-perceived risk services. Individuals with higher confidence and knowledge about a service and/or the channel are more likely to use impersonal and self-service channels 3. and PDAs and Wi-Fi high speed internet technology that can link users to the internet wirelessly 2. Creation of websites that provide information. Convenience is a key driver of channel choice to the majority of consumers. local TV station DRIVERS OF CHANNELS TO PROVIDE SERVICE TO CONSUMERS: 1. people tend to rely on personal channels eg. What are the implications for a firm delivering through both physical and electronic channels? HOW TO LOCATE YOUR SERVICE:  Service should be delivered in a bricks and mortar context convenience is key to customers.18  Single site: credit card company. 3. Consumers with a high need for personal interaction are less likely to be motivated to try out self-service channels 4. Firms should make it easier for people to access frequently purchased services facing active competition ie. Atms  Locating in multi purpose facilities – convenient for customer as it is close to where they work or live When should the service be delivered: this depends on what your service offering includes perhaps 24/7 or mall hours. Use of voice recognition technology that allows customers to give information and request simply by speaking into a microphone 3. Development of smart cellphones. SERVICE DELIVERY INNOVATIONS FACILITATED BY TECHNOLOGY: 1.

thereby. 3. Banks selling insurance products   . over how customers experience actual service o ØEffective quality control is important yet difficult o ØConflict between franchisees may arise especially as they gain experience §Alternative: license another supplier to act on the original supplier’s behalf to deliver core product. What roles should intermediaries play in distributing services?    §Popular way to expand delivery of effective service concept §Franchising is a fast growth strategy. 5. 2. when o ØResources are limited o ØLong-term commitment of store managers is crucial o ØLocal knowledge is important o ØFast growth is necessary to pre-empt competition §Study shows significant attrition rate among franchisors in the early years of a new franchise system o ØOne-third of all systems fail within first 4 years o ØThree-fourths of all franchisors cease to exist after 12 years §Disadvantages of franchising o ØSome loss of control over delivery system and. Information Negotiation Service Transactions Promotion 4. 4. The Internet facilitates five categories of flow: 1. Commercialization of smart cards containing a microchip that can store detailed information about the customer and act as an electronic purse containing digital money. for example: o ØTrucking companies.19 4.

Transport customers to new locations: in the case of passenger transportation. What are the drivers of globalization services and what are there distribution? Integrating mobile phones into the service delivery can be used as a means to: 1.20 5. Languages: ie. The objective may be to reach out to new customers or follow existing corporate or individual customers to new locations. Import customers: customers may travel abroad to visit a specialist facility in which case the service takes on the characteristics of people processing service 3. Canada has two official languages English and French – effects hiring policies. Export the information via telecommunications and transform it locally: rather than ship object based services from their country of origin. Import customers: customers form other countries are invited to come to a service factory with distinctive appeal or competences in the firms home country 3. They can be distributed internationally in one of three ways: 1. . 2. Physical logistics due to distances involved and multiple time zones 2. 2. Export the service concept: acting alone or in partnership with local suppliers establishes a service factory in another country. the data can be downloaded from that country for physical production in local markets. Export the service to a local service factory: the service can be made available in a local facility that customers visit. marketing efforts 3. Growth in proportion of immigrants who speak neither English or French How service processes affect international market entry: People-processing services: require direct contact with the customer 1. Access services 2. embarking on international service takes the form of opening to routes to desired destinations Possession-processing services: require an ongoing local presence regardless of whether customers drop off items at the service facility or personnel visit the customer’s site Information-based services: includes mental-processing services and informationprocessing services. Update information in real time to ensure that it is continuously accurate and relevant Challenges to distribution in large and diverse domestic markets: 1. Alert customers to opportunities or problems by delivering the right information or interaction at the right time 3.

Many countries require bilateral agreements on establishing new routes (flights) 2. Legal restrictions on operational and marketing procedures 7. Lack of broadly agreed upon accounting standards for services . Refusal of immigration offices to provide work permits 4. Heavy taxes on foreign firms 5.21 BARRIERS TO INTERNATIONAL TRADE IN SERVICES:  Are slowly diminishing 1. Domestic-preference policies designed to protect local suppliers 6. Administrative delays 3.

Cover costs:  Cover fully allocated costs including institutional overhead  Cover costs of providing one particular service excluding overhead  Cover incremental costs of selling one extra unit to one extra customer Patronage and User-Base objectives: 3. . Seek profit:  Make the largest possible contribution or profit  Achieve a specific target level but do not seek to maximize profits  Maximize revenue from a fixed capacity by varying prices and target segments over time 2. What are the three main foundations to pricing a service? Cost Based PricingAlternative objectives to pricing: Revenue and profit objectives: 1. especially when high capacity utilization adds to the value created for all customers (ie. This is especially important to new services with high infrastructure costs and for membership-type services that generate significant revenues from their continued use after adoption  Build market share and or a large user base. Build demand:  Maximize demand (when capacity is not a constraint) subject to achieving a minimum level of revenues  Achieve full capacity utilization.22 CHAPTER FIVE: 1. Build a user base:  Simulate trial and error adoption of a service. Especially if there are significant economies of scale that can lead to a competitive cost advantage. Full house at a basketball game) 4.

with costs to the provider. Relationship pricing: give customer both price and non-price incentives to consolidate their business with a single supplier. competition and value to the customer as the three legs Activity based costing (ABC): recognize that virtually all activities that take place within a firm directly or indirectly support the production. WestJet . ABC systems link resource expenses to the variety and complexity of goods and services produced not just to their physical volume. 3. 2. Cost leadership: the balancing of cost with value ie. You can reduce uncertainty in the customer by including benefit driven pricing and flat rate pricing.Service industries are not competitive when one or more of the following circumstances are present: 1. Non-price related costs of using competing alternatives is high (we save you time and effort) 2. You can enhance gross value by adding benefits to the core product and by enhancing supplementary services. Price competition intensifies with: 1. performing activities in different locations or serving specific customers Loss leaders: services sold at less than full cost to attract customers who will then be tempted to buy profitable service offerings from the same organization in the future. Time and location specificity reduce choice Value pricing: no customer will pay more for a service than he or she thinks its worth. marketing and delivery of goods and services. If implemented well ABC yields reasonably accurate cost information about service business activities and processes – and about the costs of creating specific types of services. Increasing number of competitors Increasing number of substituting offers Wider distribution of competitor and or substitution offers Increasing surplus capacity in the industry Competition-based Pricing. Switching costs are high (cellphone providers) 4. Discounts on large purchases.23  The foundations to pricing can be described as a tripod. you share with the customer the economies of scale. Ie. Determine the value customers place on your service and price accordingly. 4. Personal relationships matter (hair styling. dentist) 3.

Physical costs: fatigue. discomfort etc. How to customers perceive the non-monetary costs of obtaining service. and what might service providers do to reduce them? Managing the perception of value included reducing related monetary and nonmonetary costs. 3. cognitive dissonance. feelings of inadequacy and fear 4. Time costs: time spend on one activity represents and opportunity cost because it might have been spend more profitably elsewhere 2. Sensory costs: relate to unpleasant sensations relating to any of the five senses . perceived risk.24 3. Psychological costs: such as mental discomfort. Non-monetary costs that can be managed include: 1.

or varying customer price sensitivity. logical and fair 2. paying the highest price.      §RM charges more for customers booking service closer to time of consumption instead of on a first come first served basis o ØCharge different value segments different prices for same product §Predicts how many customers will use a given service at a specific time at each of several different price levels and then allocates capacity at each level or price bucket §If booking pace for a higher-paying segment is stronger than expected. Plane tickets . Design price schedules and fences that are clear. other segments follow at progressively lower prices. Pricing schedules are too complex (why is my phone bill so high) 2. Companies pile on fees (cell phone providers – system access. If a small change in price has a big impact on sales the product is said to be price elastic. Use bundling to “hide” discounts ie.paying segment §Rate fences allow customers to self segment on the basis of service characteristics and willingness to pay. a high fixed-cost structure. The least sensitive segment is the first to be allocated capacity. variable and uncertain demand. Price elasticity: how sensitive demand is to changes in price is computed by percentage of change in demand divided by percentage of change in price.25 4. This practice has been most effective when applied to operations characterized by one or more of the following: relatively fixed capacity.) How to design fairness into revenue management: 1. How does revenue management improve profitability? Revenue management: aka yield management involves setting prices according to predicted demand levels among different market segments. §This helps companies restrict lower prices to customers willing to accept certain restrictions 5. What are some key ethical concerns today about service pricing strategies? Price customization: that is charging different customers different prices for what is in effect the same product. Communicate consumer benefits of revenue management 4. 911 etc. additional capacity is allocated to this segment and taken away from the lowest.  Rate fences can be physical (different seat in a theatre) or non-physical (weekday afternoon golf rates) ETHICAL CONCERNS IN SERVICE PRICING: 1. If a change in price has little effect on sales the product is said to be price inelastic. perishable inventory. Use high published prices and frame fences as discounts 3.

§How much to charge? Industry average. Take care of loyal customers 6. §Where should payment be made? Location where delivered. purchasers home. commission. salesppl. time. §How should payment be made? Cash. What are the seven questions marketers need to answer before designing an effective pricing schedule? 1. §How to communicate prices? Advertising. §Who should collect payment? ORG. 3. logical. outlet. each one different?. etc. costs 2. §What basis for pricing? Weight. . certain days of week. signs. 5. cheque. and fair price schedules and fences o §Use high published prices and present fences as opportunities for discounts rather than quoting lower prices and using fence as basis to impose surcharges o §Communicate consumer benefits of revenue management o §Use bundling to “hide” discounts o §Take care of loyal customers o §Use service recovery to compensate for overbooking 6. vouchers. before getting it.26 5. resources consumed. Use service recovery to compensate for overbooking (give people 300 bucks instead of taking the flight) o §Design clear. credit card. 6. §When should payment be made? Delivery. 4. token. 7. intermediary. display.

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