Services Marketing

MBA, V Trimester, GSIB

Course Instructor
Dr. Subrahmanyam A

UNIT- IV
External Marketing, Service quality
management- SERVQUAL & Pricing in services.
 External Marketing

• External marketing is the action or business of promoting and

selling services or products, including market research and
advertising to clients and potential clients.
• External marketing communication is the process of
delivering targeted marketing messages to customers,
prospects and business partners, such as distributors or
retailers.
• An effective external marketing communication program can
generate greater demand for your products or services and
increase revenue and profits.
External Vs Internal Marketing
External Vs Internal Marketing
Specific Roles of Marketing Communications
• Position and differentiate service
• Help customer evaluate offerings and highlight differences
that matter
• Promote contribution of personnel and backstage operations
• Add value through communication content
• Facilitate customer involvement in production
• Stimulate or reduce demand to match capacity
 Overcoming Problems of Intangibility
• May be difficult to communicate service benefits to customers, especially
when intangible
• Intangibility creates 4 problems:
– Generality
• Items that comprise a class of objects, persons, or events
– Non - searchability
• Cannot be searched or inspected before purchase
– Abstractness
• No one-to-one correspondence with physical objects
– Mental impalpability
• Customers find it hard to grasp benefits of complex, multidimensional
new offerings
• To overcome intangibility
– Use tangible cues in advertising
– Use metaphors to communicate benefits of service offerings
Checklist for Marketing Communications Planning:
The “5 Ws” Model
• Who is our target audience?

• What do we need to communicate and achieve?

• How should we communicate this?

• Where should we communicate this?

• When do communications need to take place?

 Target Audience: 3 Broad Categories
• Prospects
– Employ traditional communication mix because prospects are not
known in advance

• Users
– More cost effective channels

• Employees
– Secondary audience for communication campaigns through public
media

– Shape employee behavior

– Part of internal marketing campaign using company-specific channels

Common Educational and Promotional Objectives in Service
Settings
• Create memorable images of specific companies and their brands
• Build awareness/interest for unfamiliar service/brand
• Compare service favorably with competitors’ offerings
• Build preference by communicating brand strengths and benefits
• Reposition service relative to competition
• Reduce uncertainty/perceived risk by providing useful info and advice
• Provide reassurance (e.g., promote service guarantees)
• Encourage trial by offering promotional incentives
• Familiarize customers with service processes before use
• Teach customers how to use a service to best advantage
• Stimulate demand in off-peak, discourage during peak
• Recognize and reward valued customers and employees
Marketing Communications Mix for Services
Sources of Messages Received by
Target Audience
Moving from Impersonal to Personal Communications

• There used to be a difference between personal and

impersonal communication
• Technology has created a gray area between the two
• Direct mail and email can be personalized
• Electronic recommendation agents can also personalize
communications
• With advances of on-demand technologies, consumer are
increasingly empowered to decide how and when they like to
be reached
 Messages through Service Delivery Channels

Customer service employees

• Communication from frontline staff can be for the core

service or supplementary elements

• New customers in particular need help from service personnel

Service outlets

• Can be through banners, posters, signage, brochures, video

screens, audio etc.

Self-service delivery points

• ATMs, vending machines and websites are examples

 Messages Originating from Outside the Organization
• Word of Mouth (WOM)
– Recommendations from other customers viewed as more credible
– Strategies to stimulate positive WOM

• Blogs – A new type of online WOM

– Becoming increasingly popular
– Communications about customer experiences influence opinions of brands
and products
– Some firm have started to monitor blogs as form of market research and
feedback

• Media Coverage
– Compares, contrasts service offerings from competing organizations
– Advice on “best buys”
 Ethical Issues in Communication
• Advertising, selling, and sales promotion all lend themselves easily to
misuse
• Communication messages often include promises about benefits and
quality of service delivery. Customers are sometimes disappointed
• Why were their expectations not met?
– Poor internal communications between operations and marketing personnel
concerning level of service performance
– Over promise to get sales
– Deceptive promotions
• Unwanted intrusion by aggressive marketers into people’s personal lives
 Summary of Promotion
• Online promotion is continuing to grow in importance and gaining an
increasing share of marketers’ budgets and

• efforts – whether a text message that changes behaviour immediately or

key words that attract more enquiries or contextual banner ads that
changes attitudes, or viral marketing that makes people talk about a
brand.

• Online channels can do things that offline communications simply cannot,

e.g. some web sites can promote, communicate and create a brand
experience which is unique to the online users.
 Summary of Promotion Cont..
• The complete promotional mix or communications mix
• the ten communications tools can be used to communicate or
promote in the online or offline world. They can all be extended
online in new and dynamic ways. The tools are:
1 Advertising :Interactive ads, pay per click keyword advertising
2 Selling :Virtual sales staff, affiliate marketing, web rings, links
3 Sales promotion :Incentives, rewards, online loyalty schemes
4 PR :Online editorial, e-zines, newsletters, discussion groups, virals
5 Sponsorship ;Sponsoring an online event, site or service
6 Direct mail :Opt-in e-mail and web response
7 Exhibitions :Virtual exhibitions
8 Merchandising :Shopping malls, e-tailing, the interface
9 Packaging :Real packaging is displayed online
10 Word-of-mouth :Viral, affiliate marketing, e-mail a friend, web rings, links
 Summary of Promotion Cont..
Guidelines for effective Promotions
• The online promotional challenges marketers need to respond to
can be summarized by the six key issues of mix, integration,
creativity, interaction, globalization and resourcing.

Summary
• All ten communications tools should be reviewed for how they can
be extended and enriched online.
• Online communications challenges include: mix, integration,
creativity, globalization and resourcing.
• Take advantage of the characteristics of the new media through
promotion that is: dynamic, carefully targeted, highly relevant and
helps build and ongoing relationships based on the permission and
trust of the customer
Pricing Strategy
 What Makes Service Pricing Strategy Different (and
Difficult)?
• No ownership of services--hard for firms to calculate financial
costs of creating an intangible performance

• Variability of inputs and outputs--how can firms define a

“unit of service” and establish basis for pricing?

• Many services hard for customers to evaluate--what are they

getting in return for their money?

• Importance of time factor--same service may have more

value to customers when delivered faster

• Delivery through physical or electronic channels--may create

differences in perceived value
 Effective Pricing Is Central To Financial Success
Characteristics of Service Pricing

• Pricing of services is complicated

• Service organizations use different terms to describe the prices they set –
Fee, Interest, Charges, Commission, Tolls, Tariffs etc.

• Consumers find service pricing difficult to understand, risky, and

sometimes even unethical

• Firms have to consider:

• (1) search costs,

• (2) purchase and service encounter costs, and

• (3) post-purchase or after costs, while pricing services.

 Objectives of Pricing Strategies

• Revenue and profit objectives

– Seek profit
– Cover costs
• Patronage and user base-related objectives
– Build demand
– Build a user base

• Strategy-related Objectives
– Positioning / Competitive Strategy
Objectives of Pricing Strategies
Pricing Strategy Stands On Three Foundations

Outline the foundations of

a pricing strategy as
represented by the pricing
tripod.
 Cost-based Pricing
• Establishing the Costs of Providing Service
– Fixed, semi-variable, and variable costs, contribution and break-even analysis

• Activity-based Costing
– Indirect costs are linked to the variety and complexity of services produced
and not just on physical volume

• Pricing Implications of Cost Analysis

– A firm must set its price high enough to recover the full costs of producing and
marketing the service and add a sufficient margin to yield the desired profit.
– Some firms promote loss leaders, which are services sold at less than full cost
to attract customers

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 Value-based Pricing
• Understanding Net Value
– Net value equals perceived benefits minus perceived costs.

Valarie Zeithaml proposes four broad expressions of value:

– Value is a low price.
– Value is whatever I want in a product.
– Value is the quality I get for the price I pay.
– Value is what I get for what I give.

• Managing the Perception of Value

– Effective communications and personal explanations are needed to help
customers understand the value they receive.

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 Related Monetary and Non-Monetary Costs

Related Monetary Costs

– Customers incur significant financial costs in searching for,
purchasing, and using the service, over and above the purchase
price paid to the supplier.

Non-monetary Costs
– Reflect the time, effort, and discomfort associated with the search,
purchase, and use of a service
– Time Costs
– Physical Costs
– Psychological costs
– Sensory costs

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Reducing the Related Monetary and Non-Monetary Costs

• Working with operations experts to reduce the time required

to complete service purchase.
• Minimizing unwanted psychological costs of service.
• Eliminating or minimizing unwanted physical effort.
• Decreasing unpleasant sensory costs of service.
• Suggesting ways in which customers can reduce associated
monetary costs.

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Defining Total User Costs

Service users can incur costs during any of the three

stages of the Service Consumption Model.
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 Competition-based Pricing
• Price Competition Intensifiers
– Increasing number of competitors.
– Increasing number of substituting offers.
– Wider distribution of competitor and/or substitution offers.
– An increasing surplus capacity in the industry.

• Price Competition Inhibitors

– Non-price related costs of using competing alternatives are high
– Personal relationships
– Switching costs are high
– Services are often time and location specific

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 Revenue Management:
What It Is And How It Works
• Revenue management is important in value creation.
• Ensures better capacity utilization and reserves capacity for
higher-paying segments.
• A sophisticated approach to managing supply and demand
under varying degrees of constraint.
• Also known as yield management.

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Setting Capacity Allocation Targets By Segment For A Hotel

The figure above is an illustration of the capacity allocation in a

hotel setting, where demand from different types of customers
varies not only by day of the week but also by season.
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 Measuring The Effectiveness Of A Firm’s Revenue
Management Strategy

• Maximizing the revenue per available capacity for a given

space and time unit (RevPAST)
• Success in revenue management means increasing RevPAST
• Competitors’ Pricing Affect Revenue Management
• Price Elasticity

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Illustration Of Price Elasticity

This figure shows the price elasticity

for two segments, one with a highly
elastic demand and the other with a
highly inelastic demand.

To allocate and price capacity

effectively, the revenue manager
needs to find out how sensitive
demand is to price and what net
revenues will be generated at
different price points for each target
segment.

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 Designing Rate Fences

• Price customization — charging different customers

different prices for the same product
• Rate Fences can be either physical or non-physical.
– physical fences refer to tangible product differences
related to the different prices
– non-physical fences refer to differences in
consumption, transaction, or buyer characteristics,
but the service is basically the same

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Key Categories of Rate Fences

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Key Categories of Rate Fences

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Relating Price Buckets To The Demand Curve

A good understanding of the demand curve is needed so

that “buckets” of inventory can be assigned to the various
products and price categories.
An example from the airline industry is shown below.

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 Fairness And Ethical Concerns In Service Pricing

Factors contributing to unethical pricing behavior

• Service Pricing is Complex
– Quoted prices used by consumers for price comparisons may be only
the first of several charges that can be billed
– Pricing is mostly based on usage-related factors
– Consumers find it difficult to forecast their own usage

• Piling on the Fees

– “Hidden extras”
– Adding (or increasing) fines and penalties

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 Designing Fairness Into Revenue Management

• Designing price schedules and fences that are clear, logical,

and fair
• Using high published prices and frame fences as discounts
• Communicating consumer benefits of revenue management
• “Hiding” discounts through bundling, product design and
targeting
• Taking care of loyal customers
• Using service recovery to compensate for overbooking

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 Putting Service Pricing Into Practice

• How much to charge

• What should be the specified basis for pricing
– Price bundling
– Discounting
– Freemium
• Who should collect payment and where should payment be made
• When should payment be made
• How should payment be made
• How should prices be communicated to the target markets

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Service Quality Management
SERVQUAL

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 What Is Service Quality?

• The nature of services require a distinctive approach in

defining and measuring service quality
• The intangible, multifaceted nature of many services makes it
harder to evaluate quality of a service compared to a good
• When customers are involved in service production, a
distinction needs to be drawn between the process of service
delivery (functional quality) and the actual output (outcome)
of the service (technical quality)
• Service quality from user’s perspective can be defined as a
high standard of performance that consistently meets or
exceeds customer expectations
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Integrating Service Quality And Productivity Strategies

Figure 14.2 The Service Quality–Productivity–Profit Triangle

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 The Gaps Model
In Service Design And Delivery
• Gaps at any point in service design and delivery can damage relationships
with customers

• Improving service quality requires identifying specific causes of each gap

and developing strategies to close them

• Valarie Zeithaml, A. Parasuraman, and Leonard Berry identified four

potential gaps that may lead to the fifth and most serious final gap — the
difference between what customers expected and what they perceived
was delivered

• The Gaps Model offers generic insights and solutions applicable across
industries

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The Gaps Model

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 The Gaps Model

• Gap 1: Knowledge gap: difference between what senior management believes

customers expect and what customers actually need and expect

• Gap 2: Policy gap: difference between management’s understanding of

customers’ expectations and service standards they set for service delivery.

• Gap 3: Delivery gap: difference between specified service standards and service
delivery teams’ actual performance on these standards.

• Gap 4: Communications gap: difference between what company communicates,

and what customer understands and subsequently experiences.

• Gap 5: Perceptions gap: difference between what is actually delivered and what
customers feel they received

• Gap 6: Service quality gap: difference between what customers expect to receive
and their perception of service that is actually delivered.

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 Suggestions For Closing Service Quality Gaps
Gap 1: The Knowledge Gap
– Educate management about what customers expect

Gap 2: The Policy Gap

– Establish the right service products, processes, and standards that are
based on customer needs and expectations
Gap 3: The Delivery Gap
– Ensure that performance meets standards

Gap 4: The Communications Gap

– Close internal and external communications gaps by ensuring
communication promises are realistic and correctly understood by
customers
Gap 5: The Perceptions Gap
– Tangibilize and communicate service quality delivered

Gap 6: The Service Gap

– Close gaps 1 to 5 to consistently meet customer expectations

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 Measuring Service Quality

Soft and hard service quality measures

• Customer-defined standards and measures of service quality can be
grouped into two broad categories: “soft” and “hard”

• Organizations known for service excellence make use of both soft

and hard measures

• Soft standards and their measures cannot be easily observed and

are typically gathered by talking to customers.

– E.g. SERVQUAL is a sophisticated soft measurement system

• Hard standards and measures are typically process activities and

outcomes that can be counted, timed or measured.

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 Measuring Service Quality

Soft and hard service quality measures

• Customer-defined standards and measures of service quality can be
grouped into two broad categories: “soft” and “hard”

• Organizations known for service excellence make use of both soft

and hard measures

• Soft standards and their measures cannot be easily observed and

are typically gathered by talking to customers.

– E.g. SERVQUAL is a sophisticated soft measurement system

• Hard standards and measures are typically process activities and

outcomes that can be counted, timed or measured.

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 Measuring Service Quality

Soft Service Quality Measures

Learning From Customer Feedback:
Key Objectives of Effective Customer Feedback Systems

1. Assessment and Benchmarking of Service Quality and Performance

– Learn how well a firm performed in comparison to its main competitor(s), in
comparison to the previous year (or quarter or month)
2. Customer-Driven Learning and Improvements
– Answer the questions: “What makes our customers happy or unhappy?” and
“What are the strengths we want to cement, and what are the weaknesses we
need to improve on?”
3. Creating a Customer-Oriented Service Culture
– Concerned with bringing the “voice of the customer” into the organization,
focusing on customer needs and customer satisfaction, and rallying the entire
organization towards a service quality culture

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 Customer Feedback Collection Tools

Strengths and
weaknesses of
key customer
feedback
collection tools

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 Measuring Service Quality

Soft Service Quality Measures Cont..

Learning From Customer Feedback:
Key Objectives of Effective Customer Feedback Systems

1. Assessment and Benchmarking of Service Quality and Performance

– Learn how well a firm performed in comparison to its main competitor(s), in
comparison to the previous year (or quarter or month)
2. Customer-Driven Learning and Improvements
– Answer the questions: “What makes our customers happy or unhappy?” and
“What are the strengths we want to cement, and what are the weaknesses we
need to improve on?”
3. Creating a Customer-Oriented Service Culture
– Concerned with bringing the “voice of the customer” into the organization,
focusing on customer needs and customer satisfaction, and rallying the entire
organization towards a service quality culture

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 Measuring Service Quality

Soft Service Quality Measures Cont..

1. Total Market, Annual And Transactional Surveys
• Total market surveys and annual surveys — measure satisfaction with all
major customer service processes and products. The level of
measurement is usually high.

• Transactional surveys (intercept surveys) — conducted after customers

have completed a specific transaction. Many market research agencies
offer cost-effective email, SMS, electronic terminals, and app-based
transactional survey tools.

• Point-of-transaction surveys on touchscreen terminals allow

measurement of customer satisfaction on key attributes immediately after
a transaction has taken place.

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 Measuring Service Quality

Soft Service Quality Measures Cont..

2. Service Feedback Cards, Online And Mobile Messages
• These powerful and inexpensive tools involve providing customers the
opportunity to use feedback cards, online forms, e-mail, text messaging or
apps
• Are a good indicator of process quality and yield specific feedback on what
works well and what does not

3. Mystery Shopping
• Service businesses often use “mystery shoppers” to determine
whether frontline staff display desired behaviors
• Actions such as the correct positioning of various products, up-selling
and cross-selling and closing deals are measured using mystery
shoppers
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 Measuring Service Quality

Soft Service Quality Measures Cont..

4. Unsolicited Customer Feedback
• Complaints and compliments are rich sources of detailed feedback on
what makes customers unhappy and what delights them
• Detailed customer complaint and compliment letters, recorded telephone
conversations, and direct feedback from employees are also excellent
tools for communicating internally what customers want
• For complaints, suggestions and inquiries to be useful as research input,
they have to be funneled into a central collection point, logged,
categorized and analyzed

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 Measuring Service Quality

Soft Service Quality Measures Cont..

5. Focus Group Discussions And Service Reviews
• Focus groups organized by key customer segments or user groups drill
down on needs of users

• Service reviews are in-depth, one-on-one interviews usually conducted

once a year with a firm’s most valuable customers

• Typically, a senior executive of the firm visits the customer and discusses
issues such as how well the firm performed the previous year and what
should be maintained or changed

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 Measuring Service Quality

Soft Service Quality Measures Cont..

6. Online Reviews And Discussions
• User-generated content and data increasingly provide rich insights into
quality perceptions of a firm and its competitors
• Sentiment analysis of postings and automated text processing allows real
time insights into changes in consumer perceptions
• Online monitoring tools combined with big data analytics allow real time
sensing of information

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 Measuring Service Quality

Soft Service Quality Measures Cont..

Analysis, Reporting And Dissemination Of Customer Feedback
Three types of service performance reports:
1. A monthly Service Performance Update provides process owners with
timely feedback on customer comments and operational process
performance.
2. A quarterly Service Performance Review provides process owners and
branch or department managers with trends in process performance and
service quality.
3. An annual Service Performance Report gives top management a
representative assessment of the status and long-term trends relating to
customer satisfaction.

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 Measuring Service Quality
Hard Measures Of Service Quality
• Hard measures refer to operational processes, or outcomes and include
data such as uptime, service response times and failure rates.

• Control charts are a simple method of displaying performance over time

against specific quality standards.

• The Fishbone Diagram: Managers and staff brainstorm all possible

reasons that might cause a specific problem

– Reasons then grouped into one of five groupings; i.e., Equipment,

Manpower (or People), Material, Procedures, and Other on a cause-
and-effect chart (fishbone diagram)

– This technique was initially used in manufacturing but is now widely

used for services

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 Measuring Service Quality
Hard Measures Of Service Quality
Analyze And Address Service Quality Problems:
• The Fishbone Diagram: Managers and staff brainstorm all possible
reasons that might cause a specific problem

– Reasons then grouped into one of five groupings; i.e., Equipment,

Manpower (or People), Material, Procedures, and Other on a cause-
and-effect chart (fishbone diagram)

– This technique was initially used in manufacturing but is now widely

used for services

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 The Fishbone Diagram

Example of
a cause-
and-effect
chart for
flight
departure
delays

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 Measuring Service Quality
Hard Measures Of Service Quality
• Analyze And Address Service Quality Problems:
Pareto Analysis
• Identifies the main causes of observed outcomes, by
separating important causes from the trivial; allows
services firms to focus improvement efforts
• 80/20 rule — 80% of the value of one variable (number of
service failures) is caused by only 20% of causal variables
(number of possible causes as identified by the fishbone
diagram)

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 Pareto Analysis

Example of
a pareto
analysis of
the causes
of flight
departure
delays

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 Measuring Service Quality
Hard Measures Of Service Quality
• Analyze And Address Service Quality Problems:
Blueprinting
• A powerful tool for identifying fail points
• Allow us to drill down further to identify where exactly in a
service process the problem was caused
• Help to visualize the process of service delivery by showing
the sequence of front-stage interactions that customers
experience, and supporting back-stage activities
• Refer to Unit-3

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Good service is good business

End of UNIT IV