Services Marketing

MBA, V Trimester, GSIB

Course Instructor
Dr. Subrahmanyam A

UNIT- II
Service Strategy, Segmentation, Demand
Management and GAPs Model
 Service Strategy
Strategy: Introduction
A strategy consists of a combination of competitive moves and
business approaches that managers employ to please
customers, compete successfully and achieve organisational
objectives.
 Service Strategy
Strategic planning process:
There are at least eleven questions that need to be answered accurately to formulate
strategies. These are:
(I) What should be our business.
(II) What is our business
(III) How should the business be developed
(IV) How should the customers be satisfied
(V) How should competition be dealt with
(VI) What should be the response to ever changing market conditions
(VII) How should strategic and financial results be achieved
(VIII) How should the functional units in the organization be managed and
coordinated
(IX) How should the relationship with customer suppliers and other influencers be
managed
(X) How can stakeholders be satisfied
(XI) What is value to customer
 Service Strategy

Steps in strategic planning process

1. Business mission
2. SWOT analysis
3. Strategy formulation
4. Strategy implementation
5. Strategy evaluation and control
 Service Strategy
1. Business mission
It is a value statement around which the entire corporate strategy revolves.
Peter F. Drucker said that defining the purpose and mission of business is difficult,
painful and risky.
But this alone enables a business to set objectives, develop strategies,
concentrate its resources and go to work.

A mission statement:
(I) Should define What the organization is and what it aspires to be
(II) Should be limited to exclude some ventures and broad enough to allow for
creative growth
(III) Should distinguish a given organization from all others
(IV) Should serve as framework for evaluating both current and prospective
activities
(V) Should be stated in terms sufficiently clear to be widely understood
throughout the future.
 Service Strategy

2. SWOT ANALYSIS
Under SWOT analysis strengths are matched with opportunities
and weaknesses are matched with threats and then measures
are taken to overcome those threats.
 Service Strategy formulation
3. Strategy formulation
In formulation of strategy it is necessary to take into consideration the full set
of commitments, decisions and actions required for a firm to achieve
strategic competitiveness.
The SWOT analysis provides necessary strategic inputs for effective strategy
formulation and implementation.
In the words of Michael porter, competitive strategy is about being different.
Porter suggested four distinct competitive strategies which will benefit
service organisations.
(I) Low cost provider strategy
(II) Differentiation strategy
(III) Focused strategy (niche market) based on lower cost
(IV) Focused strategy (niche market) based on differentiation
 Service Strategy formulation
Market oriented service strategy
In designing strategy, service firms need to differentiate themselves from
manufacturing organisations.
They have to take market sensitivities in relation to service characteristic into
consideration in deciding the strategic approach to achieve organisational
goals.
The conventional market thinking provides three thumb rules for
strengthening the competitive edge of a firm.
These three rules are
(I) Decrease in cost of production
(II) Enhancement of promotional budget
(III) Development of new products.
 Service Strategy formulation
Strategic management trap
Financial
problems or
increasing
competition
Decision
Deteriorating concerning
corporate image internal efficiency

Unsatisfied Deteriorating
customer service quality

More traditional Unsatisfied

marketing efforts customer

Deteriorating
internal
atmosphere
 Service Strategy formulation
Competition /Financial Problem
Service oriented approach
• Service organisations should Improving buyer
develop a service-oriented seller interaction
strategic approach to tackle
problems in marketing.
Improved
Increasing sales
• The result of a service oriented volume
perceived
service quality
strategic approach to handle the
same problem will be different.

Improving
corporate More satisfied
customer
image

improving
internal
atmosphere
Service Strategy formulation
Services Marketing Triangle

Christian Gronross (2000)

 Service Strategy formulation
Services Marketing Triangle
One of the most popular strategic models for service marketing was developed by
Christian Gronross.

The model is called service triangle. He has identified three different groups that play
important role in successfully accomplishing organisational goals.

They are company, employees and customers.

1. The model calls for a special marketing program between the company and its
employees which is termed as internal marketing.

2. The second marketing program is between the company and its customers and is
termed external marketing.

3. The third marketing program is between employees and customers and is termed
interactive marketing.
 The Service-Profit Chain

Reprinted by permission of Harvard Business Review: Heskett, JL., Jones, T.O., Loveman, G.W., Sasser Jr., W.E., and
Schlesinger, L.A. (March–April 1994), “Putting the Service–Profit Chain to Work,” Harvard Business Review, p.166. Copyright ©
1994 by the Harvard Business School Publishing Corporation; all rights reserved.
13
Service Strategy formulation

Service Oriented Organization Structure

OLD NEW

Top Front Line

Management

Middle Support
Management Personnel

Bottom Line Top

Management
 Strategy formulation and implementation
Strategy evaluation and control
Strategy formulation and implementation

• Strategy formulation requires good conceptual, integrative and analytical skills but
strategy implementation requires special skills in motivating and managing others.

• Strategy formulation occurs at the corporate level of organisation, while strategy

implementation permeates all hierarchical levels.

• Strategy formulation requires coordination among few individuals but strategy

implementation require coordination among many.

Strategy evaluation and control

To have an effective control following things has to be designed:

(I) Establishment of evaluation criteria and standards

(II) Measuring and comparing performance

(III) Identification and analysis of performance gaps

(IV) Initiating corrective measures

Developing Effective Service Marketing Strategies

16
 Market Segmentation
• Market segmentation is defined as the process of dividing the market into
distinct groups that share common characteristics, needs, purchasing
behaviour, or consumption patterns.

• Market segmentation is a strategy that recognises the need of ‘specialisation’

to suit the needs of a segment of the market rather then trying to be ‘all
things to all people’.

• Segmenting, targeting and positioning are strategic fundamentals of

marketing used to generate competitive advantage, which can be translated
into business opportunities that form the success story of organization.

• Defining a market is the basis of segmentation.

• Service firms vary widely in their abilities to serve different types of customers

• It would then, not be wise to compete in an entire market.

• Instead, organisations should focus on the set of customers they can serve
best.
 Why market segmentation is important ?
• It leads to efficient and effective utilization of resources.

• Improves manageability of the market by dividing the markets into smaller

parts.

• Helps to improve the company’s ability to satisfy customers.

Objectives of segmentation
• Identify the similarity of needs of potential buyers within a segment and
peruse them with tailored products.

• Identify the difference between needs of buyers among segments and try to
cater to these different needs.

• To focus in its efforts and there is a potential for increased return on

investment.

• It is cost effective for the marketers to assign the buyers to different segment
on the basis of a number of parameters.
 MARKET SEGMENTATION
•
 Market Segmentation
• For a service organisation, the company’s focus can be described on
two dimensions-
• the service focus and the market focus.
• Taking the two variables of service offered and the market served,
organisation can be grouped into four types:-
1. Unfocused
2. Service focused
3. Market focused
4. Fully focused
 Targeting
• Targeting is the choice of a single segment or group of segments that the
organisation wishes to select.
Companies can evaluate and select market segment on the basis of:-
• Segment size and growth
• Segment structural attractiveness
• Company objective and resources

Once the segments have been evaluated the market to be

targeted can be selected on the basis of-
 Market coverage Strategy
• The target market selection involves the dynamic process of matching the
changing variety of products and services with the changing variety of
customer wants.

• Companies need to consider several factors while choosing a market

coverage strategy. Some of them are as follows:-

• Company’s resources

• Degree of product homogeneity

• Product life cycle stages

• Market homogeneity

• Competitor’s marketing strategies

Example :
• Opened in 2002
• Mexico’s first new bank in nearly a decade
• Brainchild of “Ricardo Salinas Pliego”
• Head of retail-media-telecommunications empire that includes Grupo Elektra,
Mexico’s largest appliance retailer.
• The strategy was to build new markets by creating new buying power among
classes of people largely ignored by most other major Mexican businesses.

Targeted
• 16 million households in the nation
• Who earned the $250-$1300 a month
• Working as taxi drivers, factory workers and Teachers among others

Opportunity
• Target customers are little interest to most banks
• Banks considered small accounts a nuisance
• Only one in 12 of these households had a saving account
Example :
Strategy
• Invested heavily in Information Technology (High tech fingerprint readers)
• 300 strong force of loan agents on motorcycle
• Personal loans, used car loans, low income mortgages and debit cards
• In 2003, Group Elektra purchased a private insurance company and named as
Seguros Azteca.
• Targeted Population segment that has historically ignored by the Mexican
insurance industry.
• Policies distributed through Banco Azteca’s branch network
• The following year, the bank expanded its activities to finance individuals who
wished to start or expand small business
Managing Demand and Capacity
 Managing Demand and Capacity
• Perishability – implications for demand and supply
• Time, labor, equipment, and facilities constraints together bring
variations in demand patterns.

Strategies for matching supply and demand through

(a) shifting demand to match capacity or

(b) adjusting capacity to meet demand.

Demonstrate the benefits and risks of yield management strategies in forging a

balance among capacity utilization, pricing, market segmentation, and financial
return.

Provide strategies for managing waiting lines for times when capacity and demand
cannot be aligned.
 Variations in Demand Relative to Capacity

Source: C. Lovelock, “Getting the Most Out of Your Productive Capacity,” in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.
 Understanding
Capacity Constraints and Demand Patterns

Capacity Constraints Demand Patterns

• Charting demand patterns
• Time, labor, equipment,
and facilities • Predictable cycles
• Random demand
• Optimal versus maximum
fluctuations
use of capacity
• Demand patterns by market
segment
 Constraints on Capacity
Nature of the Constraint Type of Service
Time Legal
Consulting
Accounting
Medical

Labor Law firm

Accounting firm
Consulting firm
Health clinic

Equipment Delivery services

Telecommunication
Network services
Utilities
Health club

Facilities Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches
Adjusting supply to meet demand
 Strategies for Shifting Supply to Match Demand
Shift Demand

Demand Too High Demand Too Low

• Stretch time, labor, facilities
and equipment. • Perform maintenance,
renovations.
• Cross-train employees.
• Schedule vacations.
• Hire part-time employees. • Schedule employee training.
• Request overtime work from • Lay off employees.
employees.
• Rent or share facilities.
• Rent or share equipment.
• Subcontract or outsource
activities.
 Strategies for Shifting Demand to Match Supply
Shift Demand
Demand Too High Demand Too Low
• Use signage to communicate • Use sales and advertising to
busy days and times. increase business from current
market segments.
• Offer incentives to customers
for usage during nonpeak times. • Modify the service offering to
appeal to new market segments.
• Take care of loyal or “regular”
customers first. • Offer discounts or price reductions.
• Advertise peak usage times and • Modify hours of operation.
benefits of nonpeak use.
• Bring the service to the customer.
• Charge full price for the
service—no discounts.
• Use reservation systems
 Managing Demand and Capacity

Managing Demand Managing Capacity

• Reservation system. • Part-time employees.
• Differential pricing. • Employees work overtime.
• Communication
• Peak-time operating procedures.
• Cross-training of employees.
• Increase customer participation.
• Shared facilities.
• Outsourcing.
Service Quality
SERVQUAL
Different Perspectives of Service Quality

Transcendent: Quality = Excellence. Recognized only through experience

Product-based: Quality is precise and measurable

User-based: Quality lies in the eyes of the beholder

Manufacturing- Quality is in conformance to the firm’s developed

based: specifications

Value-based: Quality is a trade-off between price and value

 Improving Service Quality

• Listening • Surprising customers

• Reliability • Fair play
• Basic service • Teamwork
• Service design • Employee research
• Recovery
Components of Quality: Service-based

Tangibles: Appearance of physical elements

Reliability: Dependable and accurate performance

Responsiveness: Promptness; helpfulness

Assurance: Competence, courtesy, credibility, security

Empathy: Easy access, good communication,

understanding of customer
 Capturing the Customer’s Perception of Service Quality:
SERVQUAL

• Survey research instrument based on evidence that customers

evaluate firm’s service quality by comparing
– Their perceptions of service actually received
• Poor quality : Perceived performance ratings < expectations (P < E)
• Good quality: Perceived performance ratings > expectations (P > E)

• Developed primarily in context of face-to-face encounters

• Scale contains 22 items reflecting five dimensions of service quality

• Subsequent research has highlighted some limitations of SERVQUAL

 Key Factors Leading to the Customer Gap
Customer
Expectations

Gap 1: The Listening Gap :

Not knowing what customers expect
Provider Gaps

Gap 2: The Service Design and Standards Gap:

Not selecting the right service designs and standards
Customer
Gap
Gap 3: The Service Performance Gap
Not delivering to service standards

Gap 4: The Communication Gap

Not matching performance to promises

Customer
Perceptions
Putting It All Together: Closing the Gaps
 The Gaps Model of Service Quality

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

 Provider Gap 1
The Listening Gap

CUSTOMER
Customer
expectations

Perceived
Service

COMPANY

Company
perceptions of
customer
expectations
Key Factors Leading to Provider Gap 1

CUSTOMER
 Provider Gap 2
CUSTOMER

COMPANY
Customer-driven
service designs and
standards Gap 2: The Service Design
and Standards Gap

Company
perceptions of
customer
expectations
Key Factors Leading to Provider Gap 2
 Provider Gap 3
CUSTOMER

COMPANY Service delivery

Gap 3: The Service
Performance Gap
Customer-driven
service designs and
standards
Key Factors Leading to Provider Gap 3
 Provider Gap 4
CUSTOMER

Gap 4: The Communication Gap

External
COMPANY Service delivery
communications to
customers
Key Factors Leading to Provider Gap 4
 Ways to Use Gap Analysis
• Overall Strategic Assessment:
– How are we doing overall in meeting or exceeding customer
expectations?

– How are we doing overall in closing the four company gaps?

– Which gaps represent our strengths and where are our

weaknesses?

• Specific Service Implementation

– Who is the customer? What is the service?

– Are we consistently meeting/exceeding customer expectations

with this service?

– If not, where are the gaps and what changes are needed?
Integrating Service Quality and Productivity Strategies

• Quality and productivity are twin paths to creating value for both
customers and companies

• Quality focuses on the benefits created for customers; productivity

addresses financial costs incurred by firm

• Importance of productivity:
– Keeps costs down to improve profits and/or reduce prices

– Enables firms to spend more on improving customer service and

supplementary services

– Secures firm’s future through increased spending on R&D

– May impact service experience—marketers must work to minimize negative

effects, promote positive effects
 Tools to Analyze and Address Service Quality Problems
• Fishbone diagram
• Pareto Chart
• Blueprinting

• Fishbone diagram
– Cause-and-effect diagram to identify potential causes of problems
 (Fishbone Diagram)
Root Causes of Customer Failure

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

 Cause-and-Effect Chart for Flight Departure Delays

Facilities, Frontstage Procedures

Front-Stage Procedures
Equipment Personnel
Personnel

Aircraft late to Gate agents Delayed check-in

Arrive late gate cannot process procedure
Oversized bags Mechanical fast enough Acceptance of late
Customers Failures
Customers Late/unavailable passengers
Late pushback airline crew
Delayed
Departures
Late food Late cabin
service cleaners
Other Causes Poor announcement of
Weather Late baggage departures
Air traffic
Late fuel Weight and balance sheet
late

Materials,
Materials, Backstage Information
Supplies
Supplies Personnel
 Analysis of Causes of Flight Departure Delays

4.9
All stations, excluding
15.3% 23.1% %
Chicago-Midway Hub
19%
33.3%
15.4% 11.7%
9.5%
23.1% 8.7%
33.3%
23.1%
11.3% 53.3%

Newark 15% Washington Natl.

Late passengers Late weight and balance sheet

Waiting for pushback Late cabin cleaning/supplies
Waiting for fuelling Other
 Pareto Chart

Pareto Chart
• Separating the unimportant from the important. Often, a majority of
problems is caused by a minority of causes (i.e. the 80/20 rule)
• This pattern is also called the ‘80/20 rule’ and shows itself in many ways.
For example:
• 80% of sales are generated by 20% of customers.
• 80% of Quality costs are caused by 20% of the problems.

Blueprinting
Visualization of service delivery, identifying points where failures are
most likely to occur
 Solutions to Customer Failures

• Redesign processes and redefine customer roles to simplify

service encounters

• Incorporate the right technology to aid employees and

customers

• Create high-performance customers by enhancing their role

clarity, motivation, and ability

• Encourage customer citizenship where customers help

customers
Good service is good business

End of UNIT II