SM UNIT-IIIMBAVTri

Services Marketing
MBA, V Trimester, GSIB
Course Instructor
Dr. Subrahmanyam A
UNIT- III
Developing Service Products,
Designing Service Processes and
Distribution channel in services
Copyright © 2018 Pearson India Education Services Pvt. Ltd

Developing Service Products
2
Creating Service Products
• A product implies a defined and consistent “bundle of

output” as well as the ability to differentiate one bundle of
output from another.
• A service product comprises all of the elements of the

service performance, both physical and intangible that
create for customers
• Service firms differentiate their products using the various

“models” offered by manufacturers
3
Designing the Service Concept:
The Components of a Service Product
The value proposition must address and integrate three components :
1. Core Product
– ‘What’ the customer is fundamentally buying
– The core product is the main component that supplies the desired experience
2. Supplementary Services
– The core product is usually accompanied by a variety of other service-related
activities referred as supplementary services
– Supplementary services augment the core product, both facilitating its use and
enhancing its value
3. Delivery Processes
– The processes used to deliver both the core product and each of the
supplementary services
4
Service offering for an overnight hotel stay
Temporal dimension to augmented hotel product
5
The Flower Of Service
The Flower of Service: Core Product Surrounded by Clusters of Supplementary Services
6
Branding Service Firms, Products and Experiences
• A product implies a defined and consistent “bundle of output” as well

as the ability to differentiate one bundle of output from another.
• Service firms differentiate their products using the various “models”

offered by manufacturers
• Branding helps marketers to establish a mental picture of the service in

customers’ minds and to clarify the nature of the value proposition.
• Distinctive brand names of individual service products enables the firm

to communicate the distinctive experiences and benefits associated
with a specific service concept to the target market
• Branding can be employed at both the corporate and product levels by

almost any service business.
7
Branding Alternatives
Branding Strategies For Services
Tiering Service Products With Branding
• In a number of service industries, branding is not only used to differentiate

core services, but also to clearly differentiate service levels. This is known as
service tiering.
• It is common in industries such as hotels, airlines, car rentals, and computer

hardware and software support.
• Other examples of tiering include lodging, airlines, healthcare insurance,

cable television, and credit cards.
8
A Service-branding Model
Brand equity is the value premium that comes with a brand - what
customers are willing to pay for the service, beyond what they are willing to
pay for a similar service that has no brand.
9
Delivering Branded Service Experiences
• Aligning the service product and brand with its delivery process,
servicescape and people with the brand proposition.
• Having processes in place
• Creating the emotional experience can be done effectively through the

servicescape
• Building of interpersonal relationships, where trust is established between

the consumers and the firm’s employees
• Investing in employees for they will be the ones who can deliver the brand
experience that creates customer loyalty
10
New Service Development
A Hierarchy of New Service Categories
– Style changes
– Service improvements
– Supplementary service innovations
– Process line extensions
– Product line extensions
– Major process innovations
– Major service innovations
11
Achieving Success In New Service Development
• Reasons for failure include not meeting a consumer need,

inability to cover costs from revenues, and poor execution
• Three factors contribute most to success:
o Market synergy
o Organizational factors
o Market research factors
12
Designing Service Processes
13
What is a Service Process?
• Processes the architecture of services.
• Processes describing the method and sequence in which service operating

systems work.
• Poor processes make it difficult for front-line employees to do their jobs

well, thus, resulting in low productivity, and increasing the risk of service
failures.
• Designing and Documenting Service Processes :
 Flowcharting
 Blueprinting
14
Stages In Service Processes
Most service processes can be divided into 3 main steps

1. Pre-process stage - the preliminaries occur
• E.g. making a reservation, parking the car, getting seated, and being presented with the menu
2. In-process stage - main purpose of service encounter is accomplished

• E.g. enjoying the food and drinks in a restaurant
3. Post-process stage - activities necessary for closing of encounter happens

• E.g. getting the check and paying for dinner
Example of The Restaurant Drama, divided into three “acts”:

• Act I – Prologue and Introductory Scenes
• Act II – Delivery of the Core Product
• Act III – The Drama Concludes
15
Designing and Documenting Service Processes –
Flowcharting and Blueprinting
Flowcharting : A technique for displaying nature and sequence of different
steps involved when a customer “flows” through the service process.
Simple flowcharts for delivery of motel service
Blueprinting:
• Map customer, employee and service system interactions
• Show full customer journey
• Show key customer actions
• Help bring together marketing, operations and HRM within a firm
• develop better service processes, designing fail points
16
Developing A Service Blueprint
1. Identify all key activities involved in creating and delivering service
2. Specify linkages between activities
3. First, develop a simple flowchart documenting process from customer’s

perspective
4. Next, add more details (design characteristics of a service blueprint)
17
Design Characteristics Of
A Service Blueprint
• Front-stage activities map overall customer experience

• Physical evidence of front-stage activities involves what customer can see and use to
assess service quality
• Line of visibility distinguishes between what customers experience (front-stage) and
activities of employees and support processes (back-stage)
• Backstage activities that must be performed to support a particular front-stage activity
• Support processes and supplies
• Potential fail points are instances where there is a risk of things going wrong, resulting
in diminished service quality
• Identifying customer waits
• Service standards and targets should be established for each activity to reflect
customer expectations
18
Blueprinting “The Restaurant Drama”
19
Blueprinting “The Restaurant Drama”
20
Key Components of Blueprint
1. Definition of standards for each front-stage activity

2. Principal customer actions
3. Physical and other evidence for front-stage activities
4. Line of interaction
5. Front-stage actions by customer-contact personnel
6. Line of visibility
7. Back-stage processes by customer-contact personnel
8. Support processes involving other service personnel
9. Support processes involving IT
21
Fail-proofing
Tools commonly used for fail-proofing:

1. Total Quality Management (TQM) methods in manufacturing is the
application of poka-yokes or fail-safe methods to prevent errors in the
manufacturing processes.
2. Designing poka-yokes is partly art and partly a science venture
3. A three-step approach for effectively using poka-yokes includes

– systematically collecting data on problem occurrence
– analyzing the root causes, and
– establishing preventive solutions
22
Setting Service Standards And Targets
• Customers’ expectations range across a spectrum — referred to as the zone

of tolerance
• Service providers should design standards for each step sufficiently high to
satisfy and delight customers
• Process performance to be monitored against standards, and compliance

targets to be determined; achieved by using service process indicators
• Service firms to draw a distinction between standards and performance

targets
• Set the right standards and be flexible on negotiating performance targets

that reflect operational reality
23
Setting Service Standards And Targets
24
Service Process Redesign
Need for Service Process Redesign:

• Service processes become outdated overtime
• A natural weakening of internal processes
Symptoms that Reflect Need for Process Redesigning

• A lot of information exchange is needed as the data available is not useful.
• A high ratio of checking or control activities to value-adding activities.
• Increased processing of exceptions.
• Growing number of customer complaints about ineffective procedures.
25
Service Process Redesign –
Improving Quality And Productivity
Redesign efforts focus on achieving the following four key objectives:

• Reduced number of service failures.
• Reduced cycle time from customer initiation of a service process to its completion.
• Enhanced productivity.
• Increased customer satisfaction.
Steps In Service Process Redesign

• Examining the service blueprint with key stakeholders
• Eliminating non-value adding steps
• Addressing bottlenecks in the process
• Shifting to self-service
26
Customer Participation In Service Processes
• Customer participation refers to the actions and resources supplied by

customers during service production, including mental, physical, and even
emotional inputs
• Levels of customer participation

– Low Participation Level – employees and systems do all the work. Ex:
visiting a movie theater, taking a bus etc.
– Moderate Participation Level – customers’ inputs are required to

assist the firm. Ex: visiting a stylist, filing tax returns etc.
– High Participation Level – customers work actively with the provider

to co-produce the service. Ex: marriage counseling, educational
services etc.
27
Customers As Service Co-creators
• Value is created when the customer and service providers interact during
production, consumption and delivery of the service.
• Service firms need to look at how customers themselves can contribute

effectively to value creation.
• Firms need to educate and train customers.
• Firms should focus on preventing customer failures.
28
Self-Service Technologies (SSTs)
• Ultimate form of involvement in service production – customers undertake an act on

their own, using facilities/systems provided by service supplier
• SSTs allow customers to produce a service without direct employee involvement
• Examples include automated banking terminals, self-checkout terminals at
supermarkets, as well as information-based services such as banking, research, even
education
• Companies can divert customers from using more expensive alternatives such as
face-to-face contact with employees
Assessing And Improving SSTs

Mary Jo Bitner suggests managers to test their SSTs by asking the following:
• Does the SST work reliably?
o SSTs must work as promised and design is user-friendly
• Is the SST better than the interpersonal alternative?

o SSTs must save time, provide ease of access, cost savings or some other benefit
• If the SST fails, are systems in place to recover the same service?
29
Blueprint Of A Self-Service Internet-delivered Banking Process
30
Managing Customers’ Reluctance To Change Service
Shifting the process entirely to self-service requires the firm to change

customer behavior. This is a difficult task as customers resent being forced to
use SST.
Marketing communications can help prepare customers for this change.
Six Steps Towards Change:
• Develop customer trust
• Understand customers' habits and expectations
• Pre-test new procedures and equipment
• Publicize the benefits
• Teach customers to use innovations and promote trial methods
• Monitor performance and continue to seek improvements
31
Service Distribution Network
32
Distribution In A Services Context
Figure 5.2 The Flow Model of Service Distribution

33
What Is Being Distributed?
• Information and promotion flow — distribution of information and promotion
materials relating to the service offer.
• Negotiation flow — reaching an agreement on the service features and

configuration, and the terms of the offer
• Product flow — people processing or possession processing - physical facilities for

delivery and development of a network of local sites.
• Information-processing services - electronic channels, employing one or more

centralized sites.
34
How Should A Service Be Distributed?
Six options for service delivery
The Service Transaction Is Conducted Remotely

• A customer may never see the service facilities or meet service personnel face-to-face
when dealing with a service firm through remote transactions.
• Logistics providers offer service firms integrated, reliable and cost-effective solutions
• Examples:
– Repair services
– Information-based product
– Web and app-delivered services
35
Where Should A Service Facility Be Located?
Strategic Location Considerations
– Understanding customer needs and expectations, competitive activity, and the
nature of the service operation.
– Firms should make it easy for people to access frequently purchased services,
especially those that face active competition
– Markets can be segmented by accessibility preferences and price sensitivity.
Tactical Location Considerations Locational Constraints

Key Factors:
• Population size and characteristics. The need for economies of scale and
• Pedestrian and vehicular traffic and its
operational requirements may restrict
choice of locations.
characteristics.
• Convenience of access for customers.
• Competitors in this area.
• Nature of nearby businesses and stores.
• Availability of labor.
• Availability of site locations, rental costs, and
contractual conditions and regulations.
36
When Should Service Be Delivered?
• 24/7 service — 24 hours a day, 7 days a week, around the

world.
• Factors determining the opening hours - customer needs and
wants and the economics of opening hours
• Extended Operating Hours - Pressure from consumers,
Changes in legislation, Economic incentives to improve asset
utilization, Availability of employees to work during "unsocial"
hours, Automated self-service facilities
37
The Role Of Intermediaries
• Many service organizations find it cost-effective to outsource certain

aspects of distribution.
• This delegation predominantly concerns supplementary service elements.
• Analysis of benefits and costs of alternative distribution channels.
• Many service firms have achieved brand equity by migrating their

customers and sales to lower cost channels to remove intermediaries, a
process also called disintermediation.
38
Analysis Of Benefits And Costs Of Alternative Distribution
Channels
39
Franchising
Definition:
A franchise is the agreement or license between two legally independent
parties which gives:
(a) a person or group of people (franchisee) the right to market a product or

service using the trademark or trade name of another business
(franchisor);
(b) the franchisee the right to market a product or service using the
operating methods of the franchisor;
(c) the franchisee the obligation to pay the franchisor fees for these rights,
and
(d) the franchisor the obligation to provide rights and support to franchisees.
40
Franchising
• Franchising has become a popular way to expand delivery of an effective

service concept, embracing all of the 7 ‘P’s to multiple sites.
• A franchisor recruits entrepreneurs, who invest time and effort into the
business
• Local marketing activities are typically paid for by the franchisee
Disadvantages Of Franchising
• Loss Of Control
• Priorities And Procedures May Be Different
• Legal Disputes
41
What Makes Franchising Attractive?
• Investment
• Long Term Commitment
• Local Knowledge
• Franchisor Success Factors include:
– The ability to achieve a larger size with a more recognizable brand
name.
– Offering franchisees fewer supporting services but longer-term
contracts.
– Having lower overhead per outlet.
– Providing accurate and realistic information about expected
characteristics of franchise operations, and support given.
– Building a cooperative rather than controlling relationship.
42
The Top 10 Franchises in the US in 2015 and Their Start-Up
Costs
43
The Challenge Of Distribution In Large Domestic Markets
• Physical logistics
• Multiculturalism
• Laws and tax rates
44
Good service is good business
End of UNIT III

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Services Marketing

MBA, V Trimester, GSIB

Copyright © 2018 Pearson India Education Services Pvt. Ltd

• A product implies a defined and consistent “bundle of

• A service product comprises all of the elements of the

• Service firms differentiate their products using the various

Temporal dimension to augmented hotel product

The Flower of Service: Core Product Surrounded by Clusters of Supplementary Services

• A product implies a defined and consistent “bundle of output” as well

• Service firms differentiate their products using the various “models”

• Branding helps marketers to establish a mental picture of the service in

• Distinctive brand names of individual service products enables the firm

• Branding can be employed at both the corporate and product levels by

Tiering Service Products With Branding

• In a number of service industries, branding is not only used to differentiate

• It is common in industries such as hotels, airlines, car rentals, and computer

• Other examples of tiering include lodging, airlines, healthcare insurance,

• Having processes in place

• Creating the emotional experience can be done effectively through the

• Building of interpersonal relationships, where trust is established between

– Supplementary service innovations

– Process line extensions

– Product line extensions

– Major process innovations

– Major service innovations

• Reasons for failure include not meeting a consumer need,

o Market research factors

• Processes describing the method and sequence in which service operating

• Poor processes make it difficult for front-line employees to do their jobs

• Designing and Documenting Service Processes :

Most service processes can be divided into 3 main steps

2. In-process stage - main purpose of service encounter is accomplished

3. Post-process stage - activities necessary for closing of encounter happens

Example of The Restaurant Drama, divided into three “acts”:

1. Identify all key activities involved in creating and delivering service

2. Specify linkages between activities

3. First, develop a simple flowchart documenting process from customer’s

4. Next, add more details (design characteristics of a service blueprint)

• Front-stage activities map overall customer experience

1. Definition of standards for each front-stage activity

Tools commonly used for fail-proofing:

2. Designing poka-yokes is partly art and partly a science venture

3. A three-step approach for effectively using poka-yokes includes

– analyzing the root causes, and

– establishing preventive solutions

• Customers’ expectations range across a spectrum — referred to as the zone

• Process performance to be monitored against standards, and compliance

• Service firms to draw a distinction between standards and performance

• Set the right standards and be flexible on negotiating performance targets

Need for Service Process Redesign:

Symptoms that Reflect Need for Process Redesigning

Redesign efforts focus on achieving the following four key objectives:

Steps In Service Process Redesign

• Customer participation refers to the actions and resources supplied by

• Levels of customer participation

– Moderate Participation Level – customers’ inputs are required to

– High Participation Level – customers work actively with the provider

• Service firms need to look at how customers themselves can contribute

• Firms need to educate and train customers.

• Firms should focus on preventing customer failures.

• Ultimate form of involvement in service production – customers undertake an act on

Assessing And Improving SSTs

• Is the SST better than the interpersonal alternative?