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1a. Point out the distinctive characteristics of services with examples. Answer: Stanton points out that the special nature of services stems form several distinctive characteristics and he singles out four for particular comment. They 1. Intangibility 2. Inseparability 3. Heterogeneity (Kotler terms this as variability), and 4. Perishability and fluctuating demand. These four have been identified by Kotler also as the major characteristics greatly affecting the design of marketing programmers for services. 1. Intangibility Services are essentially intangible. Because services are performances or actions rather than objects, they cannot be seen, felt, tasted, or touched in the same manner that we can sense tangible goods. For example, health-care services are actions e.g. surgery, diagnosis, examination, treatment performed on the patient, although the patient may be able to see and touch certain tangible components of the service e.g. equipment, hospital room. In fact, many services such as health care are difficult for the consumer to grasp even mentally. Even after a diagnosis or surgery has been completed, the patient may not fully comprehend the service performed. Marketing Implications Intangibility presents several marketing challenges. Services cannot be inventories, and therefore fluctuations in demand are often difficult to manage. For example, there is tremendous demand for resort accommodations in Simla/Ooty in May, but little demand in December. Yet resort owners have the same number of rooms to sell year-round. Services cannot be patented legally, and new MK0006 – Services Marketing and Customer Relationship Management -1-
service concepts can therefore be communicated to competitors. Services cannot be readily displayed or easily communicated to customers, so quality may be difficult for consumers to assess. Decisions about what to include in advertising and other promotional materials are challenging, as is pricing. The actual cost of a “unit of service” is hard to determine and the price/ quality relationship is complex. 2. Inseparability Services are created and consumed simultaneously and generally they cannot be separated from the provider of the service. The service provider customer interaction is a speciality of service marketing. Unlike the tangible goods, service cannot be distributed using conventional channels. Inseparability makes direct sales as the only possible channel of distribution and thus delimits the markets for the seller’s services. This characteristic also limits the scale of operation of the service provider. For example, a doctor can give treatment to limited number of patients only in a day. This characteristic also emphasizes the importance of the quality provided to clients in services. This poses another management challenge to the service marketer. For example, an airline company may provide excellent fight service, but a discourteous onboard staff may keep the customer permanently off that company. There are exemptions also to the inseparability characteristic. A television coverage, travel agency or stock broker may represent and help marketing the service provided by another service firm. Marketing Implications Because services often are produced and consumed at the same time, mass production is difficult if not impossible. The quality of service and customer satisfaction will be highly dependent on what happens in “real time”, including actions of employees and the interactions between employees and customers. 3. Heterogeneity This characteristic is referred to as variability by Kotler. We have already seen that services cannot be standardized. They are highly variable depending upon the provider, the time and place where they are provided. A service provided on a particular occasion is somewhat different from the same service provided on other occasions. Also the standard of quality perceived by different consumers may differ accordingly. For example, the treatments MK0006 – Services Marketing and Customer Relationship Management -2-
given in a hospital to different persons on different occasions cannot similar. Consumers of services are aware of this variability and by their interaction with other consumers they also get influenced or influence others in the selection of service provider.
Marketing Implications The services are heterogeneous across time, organizations, and people ensuring consistent service is fully controlled by the service supplier; such as the ability of the consumer to articulate his or her needs, the ability and willingness of personnel to satisfy those needs, the presence (or absence) of other customers, and the level of demand for the services. 4. Perishability and Fluctuating Demand Perishability refers to the fact that a seat in an airplane or in a restaurant, an hour of a lawyer’s time, or telephone line capacity not used cannot be reclaimed and used or resold at a later time. This is in contrast to goods that can be in inventory or resold another day, or even returned if the consumer is unhappy. Marketing Implications A primary issue that marketers face in relation to service perishability is the inability to inventory. Demand forecasting and creative planning for capacity utilization is therefore important in challenging the decision areas. The fact that services cannot typically be returned or resold also implies a need for strong recovery strategies when things do go wrong. For example, while a bad haircut cannot be returned, the hairdresser can and should have strategies for recovering the customer’s goodwill if and when such a problem occurs. 1b. Discuss briefly the significance of process and physical evidence in services marketing. Answer: Process The process by which the service is created and delivered to the customer is critical to the service operations as customer often perceive the service delivery system as part of the service itself. Process means all work activities. Process involve the procedures, tasks schedules, mechanisms, activities and routines by which a product or service is delivered to the customer. It involves policy decisions about customer involvement and employee discretion. MK0006 – Services Marketing and Customer Relationship Management -3-
Identification of process management as a separate activity is a must for service quality improvement. Its importance in service businesses is evident because of the inseparability of production and consumption. The customer not only thinks about the service product alone but also attaches importance to the manner in which it is delivered. Under these circumstances, a poorly designed service process leads to poor service quality. Banks provide a good example of this. By reconfiguring the way they deliver service through the introduction of automatic teller machines (ATMs) banks have been able to free staff to handle more complex customer needs by diverting cash only customers to the ATMs. Processes are seen as structural elements that can be engineered to help deliver a desired strategic positioning. They can be analyzed according to the complexity and divergence. Processes can be changed to reinforce the positioning. A clear understanding of the configuration processes in terms of this complexity and divergence, on a balance of marketing and operations activities are important factors for improving service systems. Processes are thus a marketing mix element which can have a substantial role in reinforcing positioning and in product development. Physical Evidence The environment in which the service is delivered and where the firm and customer interact, and any tangible components that facilitate performance or communication of the service is known as physical evidence in service. The physical evidence of service includes all of the tangible representations of the service such as brochures, letterhead, business cards, report formats, signage, and equipment. In some cases, it includes the physical facility. Physical evidence cues provide excellent opportunities for the firm to send consistent and strong messages regarding the organization’s purpose, the intended market segments and the nature of the service. 2. Briefly explain the gaps model in service marketing. Answer: A model has been developed by Parasuraman and his colleagues which helps to identify the gaps between the perceived service qualities that customers receive and what they expect. The model identifies five gaps: 1. Consumer expectation – management perception gap. 2. Management perception – service quality expectation gap. 3. Service quality specifications – service delivery gap. MK0006 – Services Marketing and Customer Relationship Management -4-
4. Service delivery – external communications to consumer’s gap. 5. Expected service – perceived service gap. Gap – 5 is the service quality shortfall as seen by the customers, and gaps 1-4 are shortfalls within the service organization. Thus gaps 1-4 contribute to gap – 5. These gaps are given in the following figure:
The first gap is the difference between consumer expectations and management perceptions of consumer expectations. Research shows that financial service organizations often treat issues of privacy as relatively unimportant, whilst consumers consider them very important. The second gap is the difference between the management perceptions of consumer expectations and service quality specifications. Managers will set specifications for service quality based on what they believe the consumer requires. However, this is not necessarily accurate. Hence many service companies have put much emphasis on technical quality, when in fact the quality issues MK0006 – Services Marketing and Customer Relationship Management -5-
associated with service delivery are perceived by clients as more important. The third gap is the difference between service quality specification and the service actually delivered. This is of great importance to service where the delivery system relies heavily on people. It is extremely hard to ensure that quality specifications are when a service involves immediate performance and delivery in the presence of the client. This is the case in many service industries: for example, a medical practice is depending on all the administrative, clerical and medical staff performing their tasks according to certain standards. The fourth gap is the difference between service delivery intention and what is communicated about the service to customers. These established expectations within the customer may not be met. Often this is the result of inadequate communication by the service provider. The fifth gap represents the difference between the actual performance and the customer perception of the service. Subjective judgement of service quality will be affected by many factors, all of which may change the perception of the service which has been delivered. Thus a guest in a hotel may receive excellent service throughout his stay, apart from poor checking out facilities. But this last experience may damage his entire perception of the service, changing his overall estimation of the quality of the total service provided from good to poor. The gap model outlined above provides a framework for developing a deeper understanding of the causes of service quality problems, identifying shortfalls in service and determining the appropriate means to close the gaps. 3. What are the bases for segmenting in services marketing? Explain with examples. Answer Bases for Segmentation Market segments are formed by grouping customers who share common characteristics that are in some way meaningful to the design, delivery, promotion, or pricing of the service. Common segmentation bases for customer markets are demographic segmentation, geographic segmentation, psychographic segmentation and behavioural segmentation. Segments may be identified on the basis of one of these characteristics or a combination.
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Demographics and Socio-economic Segmentation Demographic segmentation includes a number of factors including sex, age, family size etc. Socio-economic variables may also be considered here including income, education, social class and ethnic origins. Many retail stores target different customer groups. An interesting example of market segmentation is seen in the banking patterns of consumers based on the lifecycle of the household. Whilst other factors such as socio-economic level are also important, the age and family composition of the lifecycle concept are particularly valuable predictors of a household’s propensity to either save or borrow. An analysis of the stages within the customer lifecycle determines what kinds of banking relationship are needed to meet the demands of the household. These needs change significantly from a bachelor who wants easy credit facilities and convenient transactions, young married requiring higher levels of credit facilities, through to older families at the peak of their earning and spending potential, and then older families at the peak of their earning and spending potential, and then older people without children at home who have a higher propensity to save. A financial institution can therefore, direct various service offerings to individuals based on their stage within the lifecycle model. Psychographic Segmentation This form of segmentation cannot be explained in clearly defined quantitative measures. It is concerned with people’s behaviour and ways of living. Psychographic segmentation is concerned with analyzing lifestyle characteristics, attitudes and personality. Often these elements are examined in conjunction with demographic variables. Service companies are increasingly starting to look at Psychographic segmentation.
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Geographic Segmentation Geographic segmentation divides customers according to where they live or work and correlates this with other variables. This is appropriate where customers’ needs vary in different areas, or where local and regional trends favour particular types of services offerings. As geographic analysis is a relatively simple means of segmenting a market, it is frequently one of the first segmentation variables to be considered by a service firm. Geographic segmentation dimensions are typically grouped into market scope factors and geographic market measures. 1. Market Scope Factors: include a consideration of where the markets to be served are located: this maybe local, national, regional or global. To be a major player in some service businesses requires a regional or global presence for example, airlines wishing to be significant players are recognizing this. Many airlines are seeking increased scale of operations through mergers and strategic alliances. 2. Geographic Market Measures: include examination of population density, climate-related factors, and standardized market areas. Geographic measures are especially important in the selection of specialized mass communications media. Most mass circulation media profile geographic coverage of standardized market areas in detail as well as providing media circulation by type of reader and other variables. Geographic market measures are used to determine relative sales potential in different geographic areas. Benefit Segmentation The segmentation variables listed above focus on the personal attribute of the customer. Segmentation can also be carried out on the basis of the customer’s response. Benefit segmentation assumes that the benefit that people are seeking from a given product or service is the basic reasons why they buy the product. This differs from psychographic segmentation which focuses on who will buy product. Identifying segments seeking a common benefit permits the service provider to develop a relevant offering. For example, various benefits are sought within offer of a full range of service for varying needs. Another segment looks for advantageous loans that can be borrowed easily at low interest. A third segment may seek high savings interest with quick service and a personal banking relationship. A fourth segment might seek a one-stop bank with a wide variety of service, convenient MK0006 – Services Marketing and Customer Relationship Management -8-
hours and quick service. A bank can direct its service to satisfying one or more of these segments and gain a reputation for offering a distinct package. Benefit segmentation is applicable to almost all services as it focuses on the underlying reasons for purchasing them. For example, within the education market, consumers can be analyzed based on the primary benefits they seek from the education experience. An example of benefit segments used for categorizing prospective MBAs can be identified from a survey of candidates. Usage Segmentation Usage segmentation focuses on the type and usage patterns. Consumers are typically divided into heavy users, medium users, occasional users or non-users of the service being considered. Many services marketers are concerned with focusing on the heavy user segment, who may consume many times more of the service than occasional user. This is the basis of many fast food restaurants which cater for high volume usage by providing speedy, low-cost food. Banks and building societies are concerned with heavy, medium, light and non-users of their services. They wish to understand the nature, behaviour and identity of heavy users and attract them to their bank. Promotional Response Segmentation Promotional response segmentation considers how customers respond to a particular form of promotional activity. This may include response to advertising, sales promotions, in-store displays and exhibitions. Users of mail order catalogues tend to be good users of credit cards and will have a higher response rate to other direct mail offerings. This information can be used by service companies to ensure that this segment receives frequent communication by direct mail, thus building a relationship with the customer as well as obtaining a high response rate to promotions. With loyalty segmentation, customers are categorized according to the extent of the loyalty they exhibit to the particular product or service being offered. Customers can be characterized according to their degree of loyalty in the channels of distribution or outlets. Some customers are very loyal to the services organization. They are currently with the service provider even if they are not happy with the service they are receiving. Customers are sometimes divided into four categories according to consumer MK0006 – Services Marketing and Customer Relationship Management -9-
loyalty patterns, ‘hard-core loyals’ (consumers who buy their brand all the time); ‘soft-core loyals’ (who are loyal to two or three brands); ‘shifting loyals’ (who shift from favouring one brand to another); and ‘switchers’ (who show little sustainable loyalty to one brand). The underlying reasons for these different behaviour patterns need further analysis. Segmentation by Service One area which has received relatively little attention is the consideration of how customers respond to varying service offerings. This may be considered a subset of benefit segmentation, but it is of sufficient importance to be addressed separately. The various elements of customer service that can be offered, and possible differentiation in terms of service levels within these elements, represent a considerable opportunity to design service packages appropriate to different market segments.
Segmenting markets by service involves addressing the following issues: • • • Can groupings of customers be identified with similar service requirements? Can we differentiate our service offering? Do all our products require the same level of service?
The types of segmentation outlined above are illustrative of the main forms of segmentation used by services companies. They are, however, by no means exhaustive. To a large extent the identification of segmentation bases involves the element of creativity and those marketing services should constantly be considering alternative ways of segmenting the market and seeking ways in which they can alternative advantage over their competitors. This stage of the segmentation process should result in the selection of the best bases(s) for segmentation. The segmentation process should result in one of the four basis decisions being reached: 1. The service firm may decide to target one segment of the market. 2. The service firm may decide to target several segments and so will develop different marketing mix plans for each segment. MK0006 – Services Marketing and Customer Relationship Management - 10 -
3. Management may decide not to segment the market but to offer the service to the mass market. This may be appropriate if the market is very small and single portion would not be profitable. 4. Analysis may show that there is no viable market niche for the service offering. The relevance of market segmentation is now being increasingly recognized in the service sector. A number of studies have pointed to the importance of market segmentation. One study ranked ‘problems in recognizing, defining, understanding and segmenting markets’ as the most important problem facing the senior executives surveyed. Another survey ranked the segmentation as the third most important marketing tool. However, despite the recognition of the importance of market segmentation methodology, some service firms are still basing their marketing strategies methodology, some service firms are still basing their marketing strategies and tactics on either aboard approach to the market, or a relatively unsophisticated approach to segmentation. Many service firms need to be more disciplined in their focus on their marketplace. Segmentation is at the heart of marketing strategy and is concerned with the development of a market position that minimizes competitor’s strengths and maximizes the strength of the service provide. Segmentation and the associated steps of positioning provide the opportunity to tailor the service offered to better meet the needs of specific segments.
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MK0006 – Services Marketing and Customer Relationship Management Assignment Set- 2
1a. Explain briefly the six categories of service innovation. Answer: Christopher Lovelock has suggested six categories of service innovation including the following. 1. Major Innovations: These innovations represent major new marketing Examples: Cellular telephones and Open University (Distance education). The risk and reward profile of such major innovations is typically large. 2. Startup Businesses: There are new and innovative ways of addressing current needs of customers and increasing the range of choices available to them. Examples: Video Cassette hires. Some innovations could fit into either of the above two categories. 3. New Products for the Market Currently Served: This allows the service provider to use the customer base to the best advantage and cross-sell other products. For example, the Automobile Association established a core range of products related to car breakdown services. The customer base is now offered to a range of other car-related services, including car insurance, travel insurance and map books. The technological change has increased the range of opportunities for innovation and creativity, and is also responsible for creating a market for products and service which consumers may not have considered that they require. For example, automated teller machines, electronic mail and desk-top publishing have each resulted from technological development and crated consumer demands which previously did not exist. 4. Product Line Extensions: These offer customers greater variety of choices within existing service lines. This is typical of a business in maturity, which already has a core market segment which the service provider seeks to maintain. 5. Product Improvements: This usually consists of altering or improving the features of existing service products. 6. Style Changes: These involve cosmetic alternations or enhancement of tangible elements of the service product. The development of a new corporate image or the introduction of uniforms for bank counter staffs is examples of style changes. MK0006 – Services Marketing and Customer Relationship Management - 12 -
1b. What is relationship marketing? Answer: Relationship marketing (or relationship management) is philosophy of doing business, a strategic orientation that focuses on keeping and improving current customers rather than on acquiring new customers. This philosophy assumes that consumers prefer to have an ongoing relationship with one organization than to switch continually among providers in their search for value. Building on this assumption and the fact that it is usually much cheaper to keep a current customer than to attract a new one, successful marketers are working on effective strategies for retaining customers. 2. Give a detail note on customer relationship marketing. Answer: CRM (Customer relationship management) which means “The relationship management of a customer by an organization” CRM means “The Goal of keeping the customers for the long term benefit of an organization” CRM means “Acquiring, Developing and retaining satisfied royal customer, achieving profitable growth and creating economic value in company’s brand”. Finally CRM means “the establishing, the developing, the strengthening, and the trusting of good values among the customer for company’s brand. CRM is not a new concept but an age old practice, which is on the rise because of the benefits it offers, especially in the present market scenario. So, CRM today is a discipline as well as set of discreet software and technologies which focuses on automating and improving business process associated with managing Customer Relationship in the areas of sales, marketing, customer service and support. It helps the companies understand, establish and nurture long term relationships with clients as well as help in retaining current customers. The most important step that an organization has to take in the direction of CRM is to create an interdisciplinary team to review how the organization interacts with each customer and determines how to extend and improve the relationship. Emerging concepts in CRM • Increase in customer partnering
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• • • • • • •
Expansion of customer base Reduction expenses in advertisement and other sales promotion
Generation of more and more loyal customers Easy introduction of new products Reduction in customer recruitment cost Increase in customer partnering Increase in the number of profitable customer
Another emerging concept in CRM is maintaining and creating a relationship with the existing customers and new customers. Customer problems solving and timely attention of their grievances and the politeness for the acceptance of the mistakes are caused by the company. Many managers believe that customers are the key to profitability considering the traditional organization. Moreover the customer’s timely help in their problems and product based descriptions will be present trend in the customers. The customers are the main focal point for the organizations to sort out the problems of the products, its growth, and its competition and so on. Hence the customer is the deciders of the growth of the company. Benefits of CRM to firm and customer Benefits to firm 1. The firm takes a chance of retaining the value for the products 2. They do get a chance of retaining the value among the customers. 3. Firm plays role on the development of themselves 4. Firm takes an opportunity to bring the best products and competitiveness among them. 5. Firm stands as whole maintained well. when the customer values are
6. Firm provides a wide scope for the customers in this regard. Benefits to Customers
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1. Customers have variety of choices of the company based on the best play made by a firm regard to CRM. 2. Customers have a lot of companies to choose among themselves. 3. Customer get a large amount of products list from the renowned firms 4. Firms are very much keen on customers, so customers are highly valued. 5. Companies have choices of products to be displayed for the customer’s knowledge, so customers have own preferences. 6. Products shall be negotiated at the large price deductions on the products. 3. Advise a newly started tourism agency to expand its business at the same time develop its service marketing expertise. Answer: Whenever a newly started tourism agency wants to grow, there are a lot of things to consider which are all as listed below: The following points emerge regarding tourism marketing: • • Tourism marketing is a process of creating a product or providing a service. Tourism marketing comprises fact finding, data gathering, analyzing (marketing research), communication to inform and promote (promotion), ensuring and facilitating sales, selection of marketing planning ( distribution), coordination, control and evaluation (marketing planning and auditing), developing professionally sound personnel (people). Tourism marketing is an integral effort to satisfy tourist and more so, it is a device to transform the potential tourists into the actual tourists. Tourism marketing is the safest way to generate demand, expand market and increase the market share. Tourism marketing is a managerial process to promote business.
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Through market planning, segmentation and marketing research, a tourism marketing mix can be developed to achieve the tourism origination goals through strategic marketing. This apart a tourism agency also has to take care of the price mix, promotion mix. In the promotion mix, one can bring the attention of the customers by means of advertisements and by improving public relations. Sales promotions through brochures, point of sale displays and videos play an important role. In a tourism industry one can offer their clients some compliments in the form of bags, and others that will surely increase the public interest in our agency. The hotels offer a number of facilities like shoe shine clothes, aid sewing kits and shampoo, further, the clients also get fruits flowers in their rooms. There is no double that almost all promotional measures generates goodwill and add value to product. first and the the
Personal selling: The travel and hotel business depend considerably on the personal selling. The developing of travel and tourism has been possible due to well educated and trained sales personnel. People: The tourism industry depends substantially on the management of human resources. The travel agents and travel guides plays an important role and therefore the management of people helps in developing their credentials to deliver goods to the tourist organizations. Tactical pricing is found instrumental in promoting the hotel business. There are number of ways for practicing this tool: i) Seasonal discounts: to charge lower prices, especially during off season. ii) Trade discounts: This is offered to tour operators and travel agents. iii) Special discounts: special function room rates for overnight conventions. This apart there are lots of other strategies one can use to develop a tourism company.
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