The Objective of this Lesson is to have an insight into · Origin of service marketing · Marketing Organisations · Marketing environment · Marketing today Lets look at the origin of service marketing


Prior to the time of the Industrial Revolution, virtually all trade and exchange processes involved some personal contact between suppliers and their custom-ers. This meant that individual producers could cater to the needs of their customers, and most trade was very local in nature. The increase in overseas trading and the advent of the industrial revolution heralded the start of new types of trading practice, and the introduction of some of the processes which are part of marketing today. Initially, producers and manufacturers were concerned mainly with logistical issues - transporting and selling goods to widespread markets, often located far away from the point of production. The focus here was on production, with consumption and consumers being seen as the end result of a production and distribution chain. For as long as demand outstripped supply, which was gener-ally the case as western countries started to go through periods of dramatic growth in economic activity and technological change, producers could all exist profitably simply by producing more efficiently and cutting costs. Little attention was given to the role of the consumer in exchange processes. In the early twentieth century the realization that marketing was, in itself, an important part of the business process led to the founding of the American Marketing Association and the development of the earliest aspects of marketing theory and practice. It was much later, however, that the need for a marketing orientation was recognized, with a clear focus on the needs of the consumer. This chapter charts the progress of key developments in marketing from these early stages to the present, providing the basis for understanding marketing within a services context. Developments in Marketing Theory The greatly increased production of goods which arose out of mechanization following the industrial revolution was matched by increased levels of demand in the mass market. The problem for producers lay in getting their products to the market. Manufacturers were investing heavily in premises and machinery in pursuit of better and cheaper production. They did not want to be involved in the distribution of the product. A distribution trade grew up to serve every industry.

First Generation Marketing: Wholesalers opened warehouses in major cities and bought products in bulk from the manufac turers. They stored the products and organised their distribution to retailers and other smaller organizations throughout markets. This was the development of channels of distribution, still crucial to successful marketing today, and is recognized as first generation market-ing. At this stage the main concern was getting the product to market - selling all that was produced. Second Generation Marketing: It was only during the second half of the twen-tieth century that the focus began to shift towards the notion that producers should look at what consumers actually wanted - produce what can be sold to the market, rather than try to sell what is produced. This was the start of second generation marketing. The early stages of the second generation saw the develop-ment of the idea that firms should take on a marketing orientation - marketing should become the integrated focus of their business policy. Firms should seek to satisfy their profit needs by identifying And satisfying consumer needs. New ideas in the 1960s also pressed the need for a broader orientation with a focus on consumer needs and criticized .firms which were still too product orientated. By defining their business in terms of their products, firms could constrict their own growth and development - even survival- as consumer needs and technologies were changing rapidly. The essential task for firms was to analyze their business from the consumer s perspective - to look at their market offerings in terms of the needs satisfied, rather than the products offered. Thus the Hollywood film industry, for example, needed to focus on its business as entertainment rather than making movies if it was to enjoy continued profitability and success in the face of increasing competition from television. Third Generation Marketing: From the mid-1960s onwards, marketing thought grew and matured. There was increasing awareness of the role that marketing played, not only in business but through its influence and impact on consumers and society as a whole. Marketing began to be seen as something which was not only relevant to commercial organizations, actively seeking profits at the end of the day. Marketing could be equally important for organizations and services which were not necessarily traditional, profit-led businesses. Schools, health programmes, charities and other types of not-for-profit organization could bene-fit from a marketing orientation. Even political parties could employ marketing programmes to win voters. Marketing was viewed as being applicable across a very broad spectrum of commercial and social activity. From this realization came the emergence of fired generation marketing. This hinged on the idea of a broader application of marketing within society, across all types of organization, and for greater benefit to society. Society s needs should be considered in line with those of consumers, and profits should not be

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sought at an unacceptable cost to society. This has led to a call for firms to engage in ethical marketing practices and, increasingly, to adopt environmentally sound, green policies. In moving towards the development of a body of marketing theory, much has been drawn from other academic disciplines. This is especially true of the behavioral sciences, economics and management science. A debate exists as to how much actual marketing theory has been established to date. What is generally accepted, however, is that marketing is evolving as a discipline with a wide base of knowledge, concepts and techniques and areas of theory, which may ultimately crone together to provide an integrated base of marketing theory. One of the main reasons for this is the entrance into the marketing arena of a vast number of academics from other disciplines. Social psychologists, econo-mists and statisticians, for example, have all entered the field, together with practicing marketers from a vyl10le range of specialists such as advertising, distribution and product management. Marketing is, in itself, a complex subject covering a very wide area, rich in its diversity. This book looks at the develop-ment of marketing in relation to services and offers the reader insights from the extensive range of concepts and techniques available. Tutorials In light of above, Give the comparative analysis of phase of development of Aggarwal Sweets vis-à-vis Mc. Donald s Marketing Organisations What is meant by a marketing organisation? A marketing organisation has marketing as its key focus. It is organised around marketing and is customer-led or market-led. It anticipates and responds to the needs of the market in designing its current and future strategy. The idea of a marketing orientated organisation can be made clearer by comparing it with other organizational philosophies which have been identified. Firms which are production orientated focus on production as the key to success. In their view, the ~market will always seek products which are both cheaper and widely available. The organization s main task, therefore, is contin-ually to improve and refine production efficiency, thereby producing greater numbers of goods at lower prices This approach does hold some credibility, especially in situations where demand is relatively high, and could increase with lower prices. This is the case in areas such as home electronics where colour televisions and CD players, for examp1e, have become far more popular as supply increased and prices fell!. In the extreme, however, it ignores the customer viewpoint and will not succeed once markets have become saturated. Some companies are product orientated, believing that consumers will seek products which are innovative or technologically superior in the marketplace. They constantly strive to develop new products which stand out. This is a high risk approach with significant chances of failure, as seen by the number of

flops in the market, such as Sinclair s electric C5 personal transportation vehicle. This ap-proach can work successfully but needs to take into account consumer tastes and wants. Without doing this, firms can fall into the trap of becoming too narrowly constrained, by viewing their business is terms of products rather than in terms of customer need satisfactions. Both Q. production and a product orientation could equally apply to service providers, where there is too much attention focused on the service and the service provision, rather than on the customers. A selling orientation is where the focus of the firm s attention is on the hard sell ; heavy promotion, advertising and sales tactics to get rid of whatever is produced. This technique is evident today, particularly in the area of unsought goods - goods which do not full specific consumer needs, but which are heavily promoted, frequently with. deferred payment terms and pressurized sales tactics. A good example of this approach is in the selling of timeshare holidays which usually employs all the tactics outlined above - and often leads to unhappy consumers who claim they were pressurized or misled into signing a sales agreement. This approach can be lucrative in the short-term, but is unlikely to succeed in the long-term. An organisation which is marketing orientated, as indicated previously, aims to achieve its organizational objectives by anticipating and satisfying the needs and wants of its consumers. Long-term customer satisfaction is a key goal, and the organisation is committed to attracting arise retaining customers. The business is defined in terms of need satisfaction rather than specific service or product areas, and as those needs change, this should be reflected in the organization s activities. Additionally, organisations may adhere to a societal marketing orientation, where attention is given to the long-term good of society, as well as consumers. This is becoming more and more evident in today s environmentally conscious marketplace. Marketing Today The previous sections have outlined the developments within marketing which have led to what we know as marketing today. Arguably, however, it is external factors in the political, social and business world which have shaped the role and development of marketing. Some of the types of influences which have an impact on the development of marketing are as follows: Political/legal Changes in government policy towards business enterprise. The growth of global trade and the impact of trade barriers and currency agreements, for example. Privatization (of major importance in the UK). De-regulation of advertising for the professions. Legislation on environmental issues. Consumerism, and the power of consumer pressure groups.

Economic MARKETING OF SERVICES © Copy Right: Rai University 2 11.313

World economic trends. Levels of consumer affluence, spending power. The imposition or relaxation of price controls. Inflation levels. Attitudes to, and increases in, consumer borrowing: The importance of the service economy. The opening of the single European market. Socio-cultural Increased numbers of women in the workplace. Cross cultural issues in international marketing. -. Increased leisure tile, and the wide scale pursuit of leisure interests. Higher levels of education, and increased participation. Growth in consumer travel and tourism. Technological The impact of technology on business processes; the use of scanning systems (EPOS) in retailing and the use of automatic cash dispensers (A TMs) in banking, for example. Technological developments in consumer products. Telecommunications impacts on business and society through developments such as telesales, telemarketing, teleworking. Awareness and use of technology in the home. The above lists are examples of the factors which have impacted on the develop-ment of marketing today. New modes of marketing have come about because of social and technological changes, such as the dramatic growth of direct market-ing which can be very finely tuned to customer wants through the use of sophisticated databases. Tele shopping via dedicated satellite TV channels is another new concept. Marketing education is increasing, and the recognition of marketing as a profession is growing, underpinned by the award of Chartered status to the Institute of Marketing, for example. The role and influence of marketing in almost every sphere of society today should not be underestimated. The final section of this chapter looks at one key development which perhaps typifies the way in which marketing responds to changes in society - green marketing. Green Marketing The advent of so-called green , or environmentally conscious, marketing is almost wholly due to pressure from consumers. Although some organisations, particularly in manufacturing, may have started to clean up their act because of legislation against pollution, for example, it is consumers who have made the greatest impact through their demand for greener products. Retailers and fast-moving consumer goods producers were, not surprisingly, the first to respond to these demands. Continued

Compliance Audits Undertaken to ensure that companies meet legal requirements in all areas from pollution to packaging and labelling. enhancing the hospital s image and potentially saving money for re-investment into the service. Looked at in this light. and promote projects to protect . at least. and to indicate whether towels need to be laun-dered or may be used again. Perhaps the most obvious developments have taken place in the household goods area. some appropriate to a particular industry or sector. A green audit can be undertaken which should cover several aspects. detergents and washing powders without harmful chemicals and recyclable packaging for many items. for example. however.efficient and of reducing waste. Although it can be more difficult to envisage appropriate green marketing strategies within a service organisation. These aspects seem most relevant to services marketing. there are steps firms can take to ensure that their operations. and organize collection of waste paper for recycling where appropriate. and which may impact on marketing programmes. hotels ask their clients not to waste energy. are environmentally friendly. Service providers have also entered this race to satisfy the new green consumer by a number of tactics. investing their clients funds only in businesses which are themselves run on environmentally sound lines. as opposed to retailing or manufactur-ing. especially activities which may impact on many areas of business. under-taking activity and site audits may find many ways of becoming more energy. Banks and insurance offices can encourage the introduction of the paper-free office through the use of electronic mail and telecommunications. If this were achieved. A busy hospital. toilet tissue made from recycled paper. has meant that firms throughout the supply chain have also had to develop green marketing practices. including: Activity Audits These involve a study of activities undertaken. for example. it could feature in publicity and other material presented to patients and the public. it is fairly easy to see how many service organisations can develop business strategies which are based on green thinking. Supermarkets now stock a whole range of environmentally friendly products ranging from pump action sprays for anything from hairspray to air fresheners. urging them to switch unnecessary lights off. Fast food restaurants have promoted recycled and recyclable packaging. Leisure providers in the public sector can focus on conservation and nature in parks. such as storage and distribution. They can undertake ethical investment.pressure. road transport providers ensure that vehicle emissions are monitored as part of regular maintenance. although there are many more ways in which organisations can undertake an environmental audit.

Tutorials Discuss the origin of marketing of services Now at this point. and environmental performance may become an important measure of an organization s success and standing in the future.313 3 . it is clear that green marketing is here to stay. Service organisations need to think green in all areas of activity .especially in services marketing.try to discuss the significance of Marketing organizations. Discuss Service Marketing Mix Case Study on Marketing Environment MARKETING OF SERVICES © Copy Right: Rai University 11. with your understanding . Marketing of services in today s environment . However it is undertaken.the environment in green belt areas and land reclamation schemes.

Mc.Donald s faces unprecedented challenges in its environmental policy. original game. With reference to the above context. In addition. The integration of environmental concerns with operations strategy is also addressed.McDonald s has over many years built an operating strategy based on consistency and quality through a limited product range.Competitive forces have drawn the company into a much wider variety of foods and services in order to maintain growth. MARKETING OF SERVICES © Copy Right: Rai University 4 11. interpret the micro environmental and macro environmental factors. Now. and the identification of capabilities that support different types of competitors threatens to beat Mc.313 .Donald s at its own. The case teaches approaches and dangers arising from flexibility.

it is often difficult for the consumer to measure service value and quality. then stored for later distribution. To overcome this. and this can be an advantage for services marketers. or the cashier in the bank. and because individual people make up part of the service offering.they cannot be seen or tasted. This can give rise to concern about service quality and uniformity issues. or from the qualifications and professional standing of the consultant. This means that the service provider becomes an integral part of the service itself. for example in the decor and surroundings of the beauty salon. it only exists once. Personnel training and careful monitoring of customer satisfaction and . . is an inseparable part of the service offering. unlike goods which may be manufactured. and can affect the outcome of the service. Inseparability Services are produced and consumed at the same time. The waitress in the restaurant. Heterogeneity Invariability Because a service is produced and consumed simultaneously. These are: Intangibility Inseparability Heterogeneity variability Perish ability (simultaneous production/consumption) It is helpful to consider each of these characteristics briefly: Intangibility Services are said to be intangible . it can be argued that a service is always unique. This can cause lack of confidence on the part of the consumer As was apparent earlier. The client also participates to some extent in the service.LESSON 2: SPECIAL CHARACTERISTICS OF SERVICES The Objective of this Lesson is to have an insight into · Special characteristics of service marketing · Service Marketing Mix · Service Marketing triangle Lets understand the special characteristics of services Special Characteristics of Services Services are said to have four key characteristics which impact on marketing programmes. for example. and is never exactly repeated. consumers tend to look for evidence of quality and other attributes. in considering pricing and services marketing. People can be part of the service itself.

which are offered on a personal basis. Perishability does not pose too much of a problem when demand for a service is steady. some services such as industry-specific consultancy services or marine salvage operate in quite closely defined market sectors. they cannot be stored. and which contribute in some way to the service offering. but in times of unusually high or low demand service organisations can have severe difficulties. is a lost opportunity forever. Therefore an empty seat on a plane. Examples of equipment-based services would include: Vending machines Car and tool hire Airlines People-based services would include: Nursery infant care Architects Legal services Yet another distinction can be made between consumed can help to maintain high standards. and business-tobusiness or industrial services. In the main. Perishability Services are perishable. this assumption should be queried on a number of grounds. generalizations concerning services marketing do not always represent the full picture. However. Some service providers may operate in both these market sectors: Franchised child care services may offer local services to parents. Another way of classifying services is to consider the distinction between equipment-based services and people-based services. The Nature of the Service Product . charges may be made for missed appointments at the dental clinic. Like all sweeping generalizations. On the other hand. Private health care programmes generally offer personal and corporate rates. Consider the question of tangibility. and operate in-company schemes. The above characteristics are generally referred to in many texts as being what makes services marketing so different. for example. This gives rise to questions about the degree to which services can be classed as intangible. services can be broken down into three main classifications: Rented goods services Consumer-owned goods services Non-goods services Some of these categories involve goods which are physical. Hotels may cater for the tourist and the business or conference market. Restaurants are now charging for reservations which are not kept.

power. water Transport and communications Recreation and leisure Insurance.313 5 .both goods and services are products or offerings. and whether or not there is agreement that the unique characteristics of services really represent unique distinctions.Whichever means of classifying services is used. ultimately both physical goods and services provide benefits and satisfactions . Consider the following breakdown of service offerings: Utilities: gas. banking and finance MARKETING OF SERVICES © Copy Right: Rai University 11.

Another important area which is receiving increasing attention from market-ers is the not-for-profit service sector. not only through superior competitive now a key factor in long-term success. This has implications for services marketing management.313 . the services marketing manager needs to look closely at marketing strategy. package holidays and so on. The size of these organisations ranges from very small. Rapid developments in technology which mean that firms can no longer sustain a leading edge position in the marketplace by technological superiority alone has led to the development of service as a marketing tool for competitive advantage.the characteristics which help distinguish a product from its competitors . heating and light. insurance policies.MARKETING OF SERVICES Business. but many service divisions now represent profit centres in their own right. local concerns to large. © Copy Right: Rai University 6 11. including such aspects as: The service element of the augmented product . multi-national operations. As in traditional marketing concerned with. educational and political interests to social and leisure activities. Not-forprofit organisations engage in a broad sphere of activity ranging from cultural. professional and scientific For most of these categories it is easy to think of products associated with them.tangible products. The impact on profitability can be two-fold: profitability can increase.

because services are intangi-ble customers will often be 100kiIlg for any tangible cue to help them understand the nature of the service experience. service delivery people (such as clerks. place (distribution). Pricing also becomes very complex in services where unit costs needed to calculate prices may be difficult to determine. In services. in the hotel industry . For example. Key strategy decision areas for each of the four P s are captured in the first four columns-in Table 1-3. ad-vertising. These facts have led services marketers to con-clude that they can use additional variables to communicate with and satisfy their cus-tomers. interact directly with the firm s personnel. and promotion. customers are often present in the firm s factory. but because services .MARKETING OF SERVICES The Services Marketing Mix Another way to begin addressing the challenges of services marketing is to think cre-atively about the marketing mixthrough an expanded marketing mix for services. these factors arc also important. the marketing mix philosophy implies that there is an optimal mix of the four factors for a given market segment at a given point in time. Promotion and price will clearly also be essential to the successful marketing of services. traditionally promotion is thought of as involving decisions related to sales. © Copy Right: Rai University 11.313 7 . price. Expanded Mix for Services Because services are usually produced an consumed simultaneously. However. The notion of a mix implies that all of the variables are interrelated and depend on each other to some extent. Further. The traditional marketing mix is composed of the four P s: product. place. Traditional Marketing Mix One of the most basic concepts in marketing is the marketing mix. and are actually part of the service production process. the strategies for the four P s require some modifications when applied to services. nurses. and publicity. and where the customer frequently uses price as a cue to quality. For ex-ample.are produced and consumed simultaneously. Also. Careful management of project. 16 These elements appear as core decision vari-ables in any marketing text or marketing plan. defined as the ele-ments an organization controls that can be used to satisfy or communicate with cus-tomers. sales promotions. ticket-takers. phone personnel) are involved in real-time promotion of the service even if their jobs are typically defined in terms of the operational function they perform.

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and interactive marketing. But for services. and pricing facilitate this type of marketing. Traditional marketing ac-tivities such as advertising. Interactive marketing occurs in the moment of truth when the customer interacts with the organization and the service is produced and consumed. Service guar-antees and two-way communication (especially in situations where promises can be negotiated and expectations can be managed on an individual basis) are additional ways of communicating service promises. Internal Marketing :Enabling Promises A third form of marketing. if there-is a tendency to over promise. Each is now discussed in more detail. takes place through the enabling of promises. In . other factors also communicate the promise to cus-tomers. Service promises are most often kept or broken by the employees of the firm or by third-party providers. there are three types of marketing that must be successfully carried out for a service to succeed: external. In order for providers and service systems to deliver on the promises made. they must have the skills. the design and decor of the facility. Sometimes service promises are even delivered through technology. all three types of marketing activities are essen-tial for building and maintaining relationships with customers. sales. Unless consistent and realistic promises are set via all of these external communication vehicles. and the providers (whoever it is that actually deliver the service to cus-tomers). promises are kept or broken and the relia-bility of service is tested every time the customer interacts with the organization. and motivation to deliver. internal marketing. abilities. Between these three points on the triangle. tools. the customers.12 All these activities revolve around making and keeping promise s to customers. Interestingly. and the service. is the second type of marketing activity captured by the triangle-and is the most critical from the customer s point of view. a customer relationship will be off to a shaky beginning. and deliver services. as discussed a bit later. a company makes promises to its customers regarding what they can expect and how it will be delivered. For services. Further. most often in real time. the relation-ship may also be off to a weak beginning. Keeping promises. External Marketing: Making Promises Through its external marketing efforts.process itself also communicate and help to set customer expectations. The service employees. These key players are labeled on the points of the triangle: the company (or SBU or department or management ). internal. Interactive Marketing: Keeping Promises External marketing is just the beginning for services marketers: Promises made must be kept. promote. special promotions. or interactive marketing.MARKETING OF SERVICES The Services Marketing Triangle The services marketing triangle (Figure 1-5) shows the three interlinked groups that work together to develop.

they must be enabled. trained. Internal marketing also hinges on the assump-tion that © Copy Right: Rai University 11. the promises may not be kept. Promises are easy to make.other words.313 9 . but unless providers are recruited. and rewarded for good service. provided with tools and appropriate internal systems. These essential services marketing activity has become known as internal marketing.

without one of the sides -in place. FedEx Corporation is an example of a company that has all sides of the triangle well aligned. Promises are communicated effectively to the marketplace through await-winning advertising messages and consistent statements by their people.400 customer survey s per quarter).14 The pyramid sug-gests that interactive marketing can be the result of customers.employee satisfaction and customer satisfaction are inextricably linked. states that Each cus-tomer contact is a moment of truth that conveys an image of Federal Express. Finally. The book-length Manager s Guide. providers. the pyramid suggests that customers will. but also the delivery through technology. cannot be optimally supported. and tech-nology (or some subset of the three) interacting in real time to produce the service. support systems. FedEx is a master. rewards. Aligning the Sides of the Triangle In a triangle. It also suggests that management has the responsibility to facilitate not only the delivery of service through human providers. FedEx also knows that 100 percent success is not possible unless all of these providers are enabled to provide quality service through technology. given to every FedEx manager. Technology and the Services Marketing Triangle With the impact of technology on all dimensions of service and service delivery. Interactive marketing-keeping promises-is at the heart of FedEx s strategy. They understand their customers. it has been suggested that the services triangle be expanded to explicitly include-technol-ogy-turning the triangle into a pyramid. are critical to success. As a result of its support and fair treatment of employees. front-line telephone people. employee loyalty at FedEx is very high. Each side represents significant challenges. and empowerment. business logistics consultants) all know -that 100 percent success in interactive marketing is the goal. as shown in Figure 1-6. all three sides are essential to complete the whole. measure customer satisfaction daily (through their service quality indicator. do extensive market research (2. or SQI). represented by the sides of the triangle. A shared goal within the company is that every one of these service encounters be flaw-less from the customer s point of view. and as we proceed through the text we will find approaches and strategies for dealing with all three. or the total marketing effort. Open communication with employees is another key to successfully rallying them around new initiatives and opportunities aimed at building business. The folks that deliver FedEx s premises di-rectly (drivers. interact only with technology and Technology . and promises to customers can be kept. For services all three marketing activities. the triangle. at times. 13 With respect to external marketing. and listen to customers.

abilities. FedEx is working with its customers to provide them access to FedEx order-taking. package-tracking. In this way. and motivation to receive services in that manner. FedEx customers receive quality service. and are able to customize the service on their Providers customers Figures 1-6 The services triangle and technology. Issues of customer satisfaction with technology-delivered services are also implied.313 . Returning to our FedEx example. therefore will need skills. and billing systems. The goal is to have all customers online by the year 2000. informationstoring. IS Via its POWERS HIP soft-ware and Internet access. when they want it. FedEx sees limitless possibilities for improving customer service and providing new services to customers via technology. MARKETING OF SERVICES © Copy Right: Rai University 10 11. we see further clues to FedEx s success through their integration of technology into the services triangle.

Tutorials Discuss the special characteristics of Service marketing.313 11 . What do you mean by Service triangle. Discuss the difference between the Traditional and expanded marketing mix. Discuss. Notes MARKETING OF SERVICES © Copy Right: Rai University 11.

there are a number of ways of activity. . legal services. hairdressing. printing. consultancy. This section outlines of classification commonly used. Highly intangible: psychotherapy. This can also be represented by the degree of contact: suggested. . personal finance. Business to business: advertising agencies. consultancy. vending machines. telecommunications.LESSON 3: CLASSIFICATION OF SERVICES The Objective of this Lesson is to have an insight into Classification of services Development of service marketing Examples of service sectors Importance of service sectors Factors contributing to growth Challenges faced by service sectors Difference between goods and services. package holidays. car service. Classification of Services As has already been classifying service overlap between the some of the methods End-user Services can be classified into the following categories: Consumer: leisure. project management. installation. work wear and hygiene. and there is inevitably some degree of methods available. Service Tangibility The degree of tangibility of a service can be used to classify services: Highly tangible: car rental. accountancy. Industrial: plant maintenance and repair. People-based Services Services can be broken down into labour-intensive (peoplebased) and equipment-based services. Service linked to tangible goods: domestic appliance repair.

launderette. casual labour. In the past. Profit Orientation The overall business orientation is a recognized means of classification: Not-for-profit: The Scouts Association. tour operators.Equipment-based -low contact automatic car wash. airlines. charities.high contact: education. care taking.People-based services . dental care. medical services. vending machine. . accountancy. cinema. Many of the developments in services marketing are fairly recent. restaurants. lawyers and accountants are representative of the traditional service provider. Non-professional: babysitting. Marketing specialists were not employed due to the size of the operations. and due to limited competition. which may have been sole trader or partnership based. legal services. . The Development of Services Marketing Firms which produce and manufacture physical goods were involved in market-ing long before service providers embraced marketing and developed specific marketing activities. Expertise The expertise and skills of the service provider can be broken down into the following categories: Professional: medical services. tutoring. they catered exclusively for the existing local demand. especially on a local scale. public sector leisure facilities. hotel and catering services. There are a number of factors affecting developments within services marketing: Organisation size and structure Regulatory bodies Growth in service industries Characteristics of services Customer/employee interaction Service quality Specific service sectors Organisation Size and Structure Many service providers are typically small and specialized plumbers. Commercial: banks.

growth in major services industries such as banking. or offering.Regulatory Bodies Regulatory bodies have also restricted the activities of many service providers. Services marketing ideas and techniques have grown alongside the growth of the service economy. The design of the service product. particularly in the medical and legal fields (although these have been relaxed in the UK and the USA). hotel and catering and tourism services has been accompanied by new developments in marketing. Public sector services and charities are also frequently constrained in their business activities by various forms of legislation and regulations.313 . Restrictions still exist today on the amount and type of advertising which can be undertaken by certain professional services. has shifted from a product-based focus to a customer focus .the organisation provides what the MARKETING OF SERVICES © Copy Right: Rai University 12 11. Growth in Service Industries However. Marketing has contributed to the growth and success of service industries in a number of ways.

Technological advances in home equipment has led to a demand for new services. especially not-for -profit organisations and professional services. The adoption of marketing by these organisations.marlset needs! not what the organisation thinks the market wants. Service Quality Services marketing also places a clear focus on service quality and programmes for implementing service quality. and the growth or marketing expertise in the area. Characteristics of Services The characteristics of services intangibility. Technological Developments in Services Marketing Perhaps the biggest impact of new technology in services marketing is the move away from traditionally people-based service to a higher degree of automation. Specific Service Sectors Specific areas of services marketing have attractedihterest. The development of a clearer understanding of perceived service quality and the customer s perception of quality based on the total service experience has addressed specific quality issues in services marketing. is leading to a greater marketing orientation. These are now finding increas-ing acceptance in mainstream marketing and are being applied to areas outside service. inseparability. heterogeneity and Perishability . Consequently. Relatively new concepts have emerged to support services marketing such as internal marketing and relationship marketing. Marketers in these organisations are faced with ethical considerations and other constraints.the banks hole-in-the-wall cash dispensers .mean that there are new considerations facing services marketers. even remote banking services where all transactions are done by telephone are all gaining wide acceptance amongst consumers. Customer/employee Interaction The customer/employee interaction takes on a far more significant role in services marketing than in the marketing of physical goods.are a familiar sight on high streets everywhere. Automatic car washes. services marketing attaches more emphasis to training and better communica-tions. The widespread ownership pf VCRs (video cassette recorders) has led to flourishing video film rental . Even one-to-one training programmes can now be delivered via interactive video technology. Certain public sector services are similarly constrained. computerized self-serve ticket reservation machines. Automated teller machines . These differences led to the development of the expanded marketing mix to focus on issues perceived by customers to be important in services marketing.

Advertising agencies are an example of a service industry becom-ing internationalized in response to changes in the world market situation. which. leads to greater demand for training. Production and consumption are inseparable. electronic funds transfer and the use of databases have revolutionized services marketing management. Invisible exports have traditionally included shipping. Remote diag-nostics using the telephone modem facility allow computer service technicians to carry out software adjustments and upgrades from base. establish a base in the target export market. Cable TV network and satellite TV receivers are growing in popularity. is relatively high. Today s motor cars. with on board computers . Exporting is considered to be a higher risk venture for service organisations than for firms producing physical products. but are increasingly becoming international. Service organisations are not only involved in the business of exporting. and the service provider must. or even a hand-held key pad. opening up new areas of business for installation contractors. insurance and investment but now cover a far wider range services. Information technology. with trained service personnel. Many new technological developments have been developed specifically around services as discussed previously. therefore. Libraries and universities can utilize computer databases from anywhere in the world via computer modem links. in turn. most marketing-linked technological developments have a role to play in ser-vices marketing management. It is not only consumer services which have been revolutionized by new technology. Market entry methods closely mirror those for international . and relayed directly to the kitchen while the bill is being produced. even for a very small overseas operation. need greater technical expertise for maintenance. London is still one of the major bases for financial services including commodities brokerage and insurance.businesses. This means that the level of initial investment. City financial services and expertise are invisible exports when the customer is from outside the UK. it can be seen that new technology increases the demand for services overall. This creates opportunities for marketers in service organisations. Technological developments have also had an impact on the services market-ing management task. even if the customer is located overseas. Many restaurants and fast food outlets use computerized till systems. In fact. such as cash dispensers. International Services Marketing The UK economy depends on invisible exports for a substantial proportion of revenue. Industrial services are also utilizing new technology. where the order is keyed in to the till. In general. The main reason for this is that services tend to be far more people based. It is not possible to export a batch of the product to be sold through distributors or agents as it is with physical goods.

Color Me MARKETING OF SERVICES © Copy Right: Rai University 11. with the service provider forming a partnership with an organisation in the target country to develop business. member of staff to another country to carry out contract design work.313 13 . Direct export is possible. as evidenced by the worldwide growth of McDonalds fast food restaurants. Joint ventures may be undertaken. as when a firm of consulting engineers sends of goods. Agents who act as employees of the service provider can be appointed in export markets. Franchising is also undertaken. McDonalds use a combination of franchising and setting up wholly owned subsidiaries on various locations.

a personal image consultancy service. One of the main difficulties associated with international services marketing is the question of cultural differences.313 . and perceived service quality criteria examined from the perspective of the target customers in different markets.MARKETING OF SERVICES Beautiful . © Copy Right: Rai University 14 11. has consultants in many countries. Cultural differences take on far greater significance in the highcontact service encounter situation. Service delivery may have to be adapted.

care. theater. Auto repair. day care. movie movies. Explain the factors contributing to the growth of service sectors Challenges faced by Service sector are many. MARKETING OF SERVICES © Copy Right: Rai University 11. steel.313 15 . bookstores. Restaurants. Rental Medical computers. groceries. software. Discuss. consulting. Notes ~Pure Services Immediate consumption ~Pure Goods Physical product 50/50 Equal mix Services w/ Goods Knowledge based Goods w/ Services Product w/ service Gasoline.Tutorials Discuss examples of service sectors.

In purchase of services. 1. 5. · Customer and service quality. By asking friends or experts about services. Information Search Use of Personal Sources Consumers obtain information about products and services from personal sources (e. these categories do not occur in a lin-ear sequence the way they most often do in the purchase of goods. 3.convey infor-mation about search qualities. As you will see in this chapter. however. When purchasing goods.LESSON 4: CONSUMER BEHAVIOUR The Objective of this Lesson is to have an insight into · Consumer buying decision-making process.. Purchase The customer chooses a particular brand and then buys it. 2. we have organized this chapter into four main categories: (1) information search. Information search the customer seeks out infor-mation to help satisfy the need. we will show how these stages in services depart from evalu-ation of goods. while our categorization here follows the sequence consumer s use with goods. Evaluation of alternatives The customer selects a subset of the alternatives and evaluates them. consumers seek and rely to a greater extent on personal sources for several reasons. First. (3) purchase and consumption. Consumer Behaviour Consumers go through a decision-making process that can include up to five steps. consumers make generous use of both personal and non personal sources because both effectively . We will use an adapted version of these steps to organize the information in this chapter.g. 4. When purchasing services. Purchase outcomes The customer evaluates the choice made and decides whether it lives up to expecta-tions. and (4) post purchase evaluation (Figure 2-2). mass and selective media can con-vey information about search qualities but can communicate little about experience qualities. mass or selective media). · Customer evaluation of services. on the other hand. Therefore. Services: Categories in the Decisionmaking Process and Framework of the Chapter Using an adaptation of the basic consumer decision-making process shown in Exhibit 2-1. friends or experts) and from no personal sources (e. Need recognition the customer has a need to fulfill or a problem to solve..g. the consumers can obtain information vicariously . once of the major differences between goods and services is that a greater portion of the evaluation of services succeeds purchase and consumption than is the case with goods. (2) evaluationof alternatives.

7 Most managers in service industries recognize the strong influence of word of mouth in services (Figure.2:3) Next. the intangible nature of services and their high level of experience qualities imply that services generally must be selected on the basis of less pre purchase infor-mation than is the case for products. (b) co-operative advertising. where consumers seek information and eval-uate products before purchase. Third. and usually sold without guarantees or warranties. Personal influence becomes pivotal as product complexity increases and when ob-jective standards by which to evaluate a product decrease (i. 3. The dissatisfied service purchaser can rarely return a service.e. First. they may feel greater risk in selecting a little-known alternative. he or she has already consumed it by the time he or she realizes his or her dissatisfaction. services are not accompanied by warranties or guarantees. 2. because consumers can discover few attributes before purchase of a service. independent merchants with neither the experience nor the funds for advertising. medical diagnosis. Second. is used in frequently with services because most local providers are both producer and retailer of the service and (c) professional associations banned advertising for so many years that both professionals and consumers tend to resist its use even though it is now permitted. One model of audience response to communication describes the situation that occurs -frequently when consumers select services: 1. with services most evaluation follows purchase. because services are non standardized..about experience qualities. pest MARKETING OF SERVICES © Copy Right: Rai University . After the development of an attitude.. Through experience the consumer develops an attitude toward the service. more risk would appear to be involved in the purchase of services than in the purchase of goods because services are intangible. many services (e. non standard-ized. In contrast to the conventional view of audience response to communication. or advertising funded jointly by the retailer and the manufac-turer. consumers may find post purchase information seeking more essential with services than with goods because services possess experience qualities that cannot be adequately assessed before purchase. Third.g. Finally. Perceived Risk While some degree of perceived risk probably accompanies all purchase transactions. there will always be uncertainty about the outcome and consequences each time a service is purchased. non personal sources of information may not be available because (d) many service providers are local. The consumer selects from among virtually indistinguishable alternatives. when experience qualities are high). Second.. service purchases may involve more perceived risk than product purchases because. the consumer learns more about the service by paying attention to messages supporting his or her choice. with few exceptions.

16 11.313 .

services. between altering their families cloth s or taking them to a tailor. and preparing meals. personal attention from the service provider. even between staying home to take care of their children-or engaging a day care center to provide child care. service providers should emphasize employee training and other procedures to standardize their offerings. consumers decisions often entail the choice between performing the services for themselves or hiring someone to perform them. Nonprofessional service providers. a dry cleaner. Working people may choose between cleaning their own homes or hiring housekeepers. clearly demonetizing the possible alterna-tives. Consumers may consider themselves as sources of supply for many. One reason involves differences in retailing between goods and services. A third reason for a smaller evoked set is the difficulty of ob-taining adequate pre purchase information about services. Faced with the task of collecting and evaluating experience qualities.evoked frequently includes selfprovision of the service. This means that the customer s. so that consumers learn to expect a given level of quality and satisfaction. the consumer s evoked set of alternatives is smaller with services than with goods. To purchase services. Consumers know what they expect from providers of housecleaning or lawn care or day care because they know what they are accustomed to providing for themselves. The evoked set. consumers may simply select the first acceptable alternative rather than searching many alterna-tives. In consumer behavior terms. of alternatives-that group of products a consumer considers acceptable options in given product category-is likely to be smaller with services than with goods. tax preparation. guarantees of satisfaction may be offered. The alert . Evaluation of Service Alternatives Evoked Set. a bank. on the other hand. the consumer visits an establishment (e.g. even after they have consumed the service. The Internet has the potential to widen the set of alter-natives (see Technology Spotlight). The increase in perceived risk involved in purchasing services suggests the use of strategies to reduce risk. To the extent possible. For nonprofessional services. Where appropriate. which may imply more exacting standards from the consumer and may require more individualized. or a hair salon) that almost always offers only a single brand for sale. must recognize that they often replace or compete with the consumer. inducing lawn care. To purchase goods. consumer generally shop in retail stores that display competing products in close proximity..control) are so tech-nical or specialized that consumers possess neither the knowledge nor the experience to evaluate whether they are satisfied. A second reason for the smaller evoked set is that consumers are un-likely to find more than one or two businesses providing the same services in a given geographic area whereas they may find number Us retail stores carrying the identical manufacturer s product.

12 A customer in a good emotional state is probably more willing to follow an exercise regimen prescribed by a physical ther-apist. positive moods can make customers more obliging and willing to participate in be-haviors that help service encounters succeed. A second way that moods and emotions influence service customers is to bias the way they judge service encounters arid providers. If a service customer is in a bad mood when he enters a service establishment. Similarly. when another customer in a service establishment is cranky or fast rated. 13 After losing a big account. the service customer. bus his own dishes at a fast-food restaurant. and overlook delays in service. not every consumer is convinced that the cyber mall will replace the local mall.will heighten the experience. leading to pos-itive . need to reveal personal information (13 percent) poorly designed site (8 percent) companies reputations (6 percent) and fear of money or merchandise getting lost (6 percent) Emotion and Mood Emotion and mood are feeling states that influence people s (and therefore customers ) perceptions and evaluations of their experiences. positive mood. moods and emotions.moods refer t6 transient feeling states that occur at specific times and in specific situations. and pervasive. any service characterized by human interaction is strongly dependent on the moods and emotions of the service provider. So far. taking frequent aerobic classes from a health club. his or her mood affects the provision of service for all customers who sense the negative mood. A customer in a negative mood may be less likely to engage in behaviors essential to the effectiveness of the service but that seem difficult or overwhelming: abstaining from chocolates when on a diet program with Weight Watchers. whereas emotions are more intense. World Research found that consumers who do not buy online have these reasons for continuing to buy the traditional way: fear of hackers (21 percent). lack of products (16 percent). stable. the positive mood of a services customer at a dance or restaurant. if a service provider is irritable or sullen her interaction with customers will likely be colored by that mood. In what specific ways can mood affect the behavior of service customers? First. or completing homework assigned in a class. Furthermore.. Conversely. In sum.. a sales-woman catching an airline flight will be more incensed with delays and crowding than she might be on a day when business went well. Moods -are distinguished from emotions in that . and other customers receiving the service at the same time. making them either more positive or more negative than they might seem in the absence of the moods and emotions. Mood and emotions enhance and am-plify experiences. service provision will likely be interpreted more negatively than if he were in a buoyant. inability to see the products (15 percent). Because services are experiences. whether from problems with the service or from existing emo-tions unrelated to the service.service marketer will be certain to research consumers expectations and demands in such situations. are critical factors that shape the perceived effectiveness of service encounters.

positive or negative) of the mood or emotion. MARKETING OF SERVICES © Copy Right: Rai University 11. service establishment.evaluations of the. The direction of the bias in evaluation is consistent with the polarity (that is.313 17 .

even using show-business terms such as cast member. and the setting s design and cleanliness The setting increases in importance when the nature of a service is dis-tinguished by its environment. the use of space. the negative feelings may be encoded and retrieved every time he thinks of the health club or. AS memories about a service are encoded by a consumer. delight. Among a setting s features that may influence that character of a service are the colors or brightness of the service s surroundings. if a customer first realizes his level of fitness is poor when on a guest pass in a health club.18 In essence. While service actors are present in most service performances. the volume and pitch of sounds in the setting. and writer) to be sure the performances of the actors are pleasing to the audience. service customers are the audience. medical services. . when the services involve repeat contact. . the smells.describe the operations at Disneyland and Walt Disney World. The skill of the service actors in performing their routines. and their commitment to the show we all pivotal to service delivery. moods and emotions affect the way information about service-is absorbed anti retrieved. or restaurant). freshness. the style arid comfort of the furnishings. the delivery of service can be con-ceived as drama. any health club. the feelings associated with the encounter become an inseparable part of the memory. If travelers fall in love during a vacation in the Bahamas.Finally. The physical setting of the service can be likened to the staging of a theatrical production including scenery. Researchers and managers of service businesses have compared service provision with drama. they may hold favorable assessments of the destination due more to their emotional state than to the destination itself.14 In fact. and temperature of the air. props. their importance increases when the degree of direct personal contact increases (such as in a hospital. movement. Con-versely. and contentment and discourage negative emotions such as distress. and other physical cues to create desired impres-sions. and both recognize that the way to accomplish this is by carefully managing the actors and the physical setting of their behavior. the service marketer must play many drama-related roles (includ-ing director. and when the contact personnel as actors have discretion in determining the nature of the service and how it is delivered (as in education. The Walt Disney Company explicitly considers its service provision a performance. for that matter. They need to cultivate positive moods and emotions such as joy. observing that both aim to create and Maintain a desirable impression before an audience. and show to . choreographer. Service Provision as Drama. onstage. and disgust. and legal services). where service personnel are the actors. as is the case with Steak and Ale and Ponderosa Steak-houses or a downtown law firm. frustration. Service marketers need to be aware of the moods and emotions of customers and of service employees and should attempt to influence those moods and emotions in positive ways.the way they appear. anger. resort. physical evidence of the service is the setting. and the process of service assembly is the performance.

familiar. Experiencing a script that is incongruent with this expected pattern leads to confusion and dissatisfaction.20 Service Roles and Scripts: If we think of service performances as drama. (3) see the professor in the front of the room. (2) see other students in the room who are taking the class. Suppose the college class we just discussed . (5) get a syllabus of the class. if they do not. we can view each player as having a role to perform. and satisfied with the service encounter. the service performance is -likely to be successful.21 The success of any service performance depends in patron how well the role set or players-both service employees and customersact out their roles. training of personnel (rehearsing).. clearly defining the role (scripting the performance). if he or she is reading from the same script). If customers are informed and educated about the expectations and requirements of the service (i. the cus-tomer may be frustrated and disappointed. negative de-partures from the customer s expected script will detract from service performance. and deciding which aspects of the service should be performed in the presence of the customer (onstage) and which should be performed in the back roomJback-stagey. Among the actions you expect are the following: (1) enter the classroom. and (6) leave class early and start the actual education on the second class day. actors.The drama metaphor offers a useful way to conceive of service performances. 23 Service scripts consist of a set of ordered ac-tions. (4) listen to the professor describe the course.e. Consider the script that you hold for the first day of class in a college course.. the customer s role must also be performed well. and objects that. define what the customer expects. One of the factors that most influences the effectiveness of role performance is a script-a. What if you showed up and there were no other students in the class with you the first day? What if the pro-fessor sent a graduate student instead of coming herself? Suppose the professor told you she hadn t had time to write a syllabus? In these and other situations. you feel comfortable. Roles have been defined as combinations of social cues that guide and direct behavior in a given setting. if the customer plays the proper role) and if the customer cooperates with the service provider to deliver the best possible service (i. creation of the service environment (setting the stage). through repeated involvement.e. coherent sequence of events expected by the individual. while deviations from the script lead to confusion and dissatisfaction. Among the aspects of a service that can be considered in this way are selection of per-sonnel (auditioning the actors).22 Service employees need to perform their roles according to expectations of the customer.24 Conformance to scripts is satisfying to the customer. involving her ei-ther as a participant or as an observer. Positive discrepancies from the script are not as easy to specifythey may also de-tract or could surprise and add -to the service encounter. As we discussed earlier in this chapter. If a pro-fessor performs in accordance with the script you hold.

313 . Would you interpret that as positive (a sure sign that the class was popular) or negative (a signal that personal at-tention from the professor may be reduced)? What if the professor was unusually friendly and so engaged students that they stayed to the end of the period on the first day of class? While some students might be delighted MARKETING OF SERVICES © Copy Right: Rai University 18 11.was filled to capacity on the first day.

We now want to focus on the role of other customers receiving service at the same time. having counted on more free time between classes. clubs. In summary. appear rice. Consider how central the mere presence of other customers is in churches . receiving the cut she desires depends in part upon her clear spec-ifications of her needs to the stylist. education. and social organizations also exerts a major influence on a customer s experience. departures from the customer s expected script includ-ing provision. abilities to pay. the retailers. values. acknowledge.27 In general. which increases the cost to the customer of switching service providers. if the number of customers becomes so dense that crowding occurs. Customers can be incompatible for many reasons-differences in beliefs. Because consumers participate to a greater extent in the definition and production of services. restaurants. or were not worth their price-they may attribute their dissatisfaction to a number of different sources among them the producers. others might be disgruntled. and health. Still others may be suspicious. age. consider a female consumer purchasing a haircut. to name just a few. or themselves. The service marketer must anticipate. behavior. The Compatibility of Service Customers: We have just discussed the roles of employees and customers receiving service. bars. and spectator sports: If no one else shows up. As an example. particularly in high-contact services. may detract from or add to the service experience. and deal with heterogeneous consumers who have the potential to be incompatible.26 The way other customers behave with many services such as airlines. However. Post Purchase Evaluation Attribution of Dissatisfaction: When consumers are disappointed with pur-chases-because the products did not fulfill the intended needs. one of the primary expectations in these types of services. More personalization or attention is not always better. ex-periences. and similarity of other customers receiving services has a strong impact on the satisfaction and dissatisfaction of any given customer. the presence. customers may also be dissatisfied. dances. customers will not get to socialize with others.because the friendliness of the professor exceeded expectations. did not perform satis-factorily. she may blame either the stylist (for lack of skill) or herself (for choosing the wrong stylist or for not communicating her own needs clearly). The service marketer can also bring homoge-neous customers together and solidify relationships between them. they may feel more responsible for their dissatisfaction when they purchase services than when they purchase goods. If disappointed. Of more of an attribute than expected. lounges. not trusting the friendliness because it doesn t follow the expected pattern.29 Customer compatibility is a fac-tor that influences customer satisfaction. The quality of many services depends on the information the customer brings to the service encounter: A doctor s accurate diagnosis requires a conscientious case history and a clear .

that is. The awareness interest evaluation stages of the adoption process . and that is divisible (i. With services. but she holds the producer responsible for product performance. and a tax prepare satisfactory per-formance relies on the receipts saved by the consumer. their features cannot be displayed. Goods usually carry warranties or guarantees with purchase emphasizing that the producer believes that if something goes wrong. espe-cially if consumers are accustomed to providing the service for them selves. illustrated.g. and15enaviors. .g. Marketers may need to concentrate on incentives to trial when introducing new services.articulation of symptoms. compatibility. Innovation Diffusion: The rate of diffusion of an innovation depends on con-sumers perceptions of the innovation with regard to five characteristics: relative ad-vantage. or compared) and because they are often unique to each buyer (as in a medical diagnosis or dental care). services may be incompatible with existing values and behaviors. less divisible.. more com-plex. values. Services are less divisible because they are usually impossible to sample or test on a limited basis (e. in behavior. consider a novel day care center that cooks breakfast for children so that parents can arrive at work early. Finally. and probably less compatible than goods. and complexity. a consumer s main form of participation is the act of purchase. diffuses more slowly -than others. difficult to understand or use. The consumer may attribute failure to receive satisfaction to her own decision-making error... even in values.3O An offering that has a relative advantage over existing or competing products. With products. Consumers adopt innovations in services more slowly than they adopt innovations in goods. Considered as a group. Services are frequently more complex than goods because they are composed of a bundle of different attributes. An offering that is complex. because the consumer must adequately perform his or her part in the production process also. As an il-lustration. that is compatible with existing norms. Mothers accustomed to performing this service for their children may resist adopting the innovation because it requires a change in habit.may best be bypassed because of the difficulty and inefficiency of communicating information . divisibility. communicability. how does one sample a medical diagnosis? a lawyer s services in settling a divorce? even a haircut?). not all of which will be offered to every buyer on each purchase. a dry cleaner s success in removing a spot de-pends on the consumer s knowledge of its cause. on the other hand. services are less communicable. consumers attribute some of their dissatisfaction to their own inability to specify or perform their part of the service. They also may complain less frequently about services than about goods because of their belief that they themselves are partly responsible for their dissatisfaction. that can be tried or tested on a Limited basis):diffuses more quickly than others.e. it is not the fault of the consumer. They are less communicable because they are intangible (e. that is communicable. Failure to obtain satisfaction with any of these services may not be blamed completely on the retailer or producer.

Brand Loyalty: The degree . Offering free visits.313 19 .to which consumers are committed to particular brands of goods or services depends on a number of factors: the cost of changing brands (switching cost). and samples may be ap-propriate strategies to speed diffusion of innovations in services. the availability of substitutes the perceived risk associated MARKETING OF SERVICES © Copy Right: Rai University 11. dollars-off coupons.about intangibles.

and the degree to which they have obtained satisfaction in the past. consumers are more likely to remain customers of particu-lar companies with services than with goods. a consumer may exhibit brand loyalty to cultivate a satisfying relationship with the seller. because they may have more difficulty being aware of the availability of substitutes. and health clubs frequently charge membership fees at the outset to obtain long-term commitments from customers. AT&T promised MCI customers that it would handle the transfer from MCI to AT&T and also guaranteed it would pay to allow the customer to switch back if necessary. A final reason consumers may be more -brand loyal with services is the recognition of the need for repeated patronage in order-to obtain optimum satisfaction from the seller Becoming a regular customer allows the seller to gain knowledge of the cust-omer s tastes and preferences. The fact that the customers of the provider s competition are difficult capture. or may be uncertain about the ability of alternatives to increase satisfac-tion . they probably depend on brand loyalty to a greater extent than when they purchase prod-ucts. Brand loyalty. and because higher risks may accompany services. creates special challenges. Culture is important in services marketing because of its effects on the ways customers evaluate and use services. Brand loyalty has two sides. The marketer may need to direct communications and strategy to the customers of competitors. Because it may be more costly to change brands of services. and transmitted from one generation to the next. emphasizing at-tributes and strengths that he or she possesses and the competitor lacks. Thus. Greater search costs and monetary costs may be involved in changing brands of services than in changing brands of goods. It also influences the way companies and their service employees interact with customers. however. Marketers can also facilitate switching from competitors services by reducing switching costs. In the consumer satisfaction. Monetary fees may accompany brand switching in many services: Physicians often require complete physicals on the initial visit. shared. consumers may be unaware of alternatives or substitutes for their brands. Culture is important when we con-sider international services marketing taking the services from one country and of-fering them in . functions as a device for reducing the risks of consumer decisions. Because of the difficulty of obtaining in-formation about services. as is hypothesized here. ensures better treatment. and is mul-tidimensional. The Role of Cultures in Services Culture is learned. making it virtually costless for customers to switch long-distance carriers. The fact that a service provider s own customers are brand loyal is not a problem. dentists sometimes demand new X rays.with the purchase. and encourages more interest. described as a means of economizing decision effort by substituting habit for repeated. deliberate decision.over present brands. If consumers perceive greater risks with services.

are covered next. there is no normal position in cultural matters.S. Manners and Customs Manners and customs represent a culture s views of appropriate ways of behaving. It is important to monitor differences in manners and customs. Values and Attitudes Differ across Cultures Values and attitudes help to determine what members of a culture think is right. (2) values and attitudes. Unfortunately. The Mexican news media alerted con-sumers to shoddy foreign goods and some WalMart customers turned to a spirit of nationalism. because they can have a direct effect on .S. U. 32 Another. but a simple list of the major areas would include (1) language (both verbal and nonverbal).S. (3) manners and customs. and (6) education and social institu-tions. flow from values and attitudes. purchase. Wal-Mart found that the cachet of U. The Korean ban on Japa-nese movies and the French phobia about Euro Disney are good examples of the latter. as they affect consumer behavior. Language is discussed in a later chap-ter. More and more individual countries are becoming multicultural. (5) aesthetics. Definitions of the elements of culture vary. services marketers who want their services adopted across. and use of services critical. cultures must understand these differences While American brands often have an exotic appeal to other cultures. program that was successful in the United States. observed that in the United States people tend to view foreigners as underdeveloped Ameri-cans. is normal. including consumer behaviors. Edward T. and everybody prefers to act as if people from other countries have something special about them (a na-tional character) but home. In the late 1990s. Unfortunately. (4) material culture. brands was falling in Mexico. These cultural universals are manifestations of the way of life of any group of people. Because culture is im-portant in every stage of the decision-making process for services-and is likely to be-come more so in the future-we place it at the center of this chapter s framework (see Figure 2-4). im-portant. and/or desirable. firms should not count on this as a long-term strategy.others-but it is also critical within countries.3l One expert on culture. In some situations it is more than a case of nationalism: Brand attitudes are negatively influ-enced by specific prejudices toward dominating cultures. The retailer responded with an Hecho en Mexico program similar to the Made in the U. Services marketers must be particularly sensitive to culture because of cus-tomer contact and interaction with employees. making the need to understand how this factor affects evaluation. Geert Hofstede. but the other elements of culture. sums up the message of one of his books as follows: Everybody looks at the world from behind the windows of a cultural-home. human nature dictates that we tend to view other cultures through the often cluttered lens of our own.A. Because behaviors. Hall.

Central and Eastern Europeans are perplexed by Western expectations that unhappy workers put on a happy face when dealing with customers. The fast-food giant has learned to encourage managers in Poland to probe employee problems and to assign troubled workers to the kitchen rather to the food counter. MARKETING OF SERVICES © Copy Right: Rai University 20 11.the service encounter. Such a requirement strikes many employees as artificial and insincere. McDonald s requires Polish employees to smile whenever they interact with customers.313 . As an example.

limiting retail s geographic reach. the small cages seem appropriate. and even gambling . and London in 10 days is representative. houses. Mexicans make frequent smaller trips. Paris. TV. and when they do they like to spend 7" to 10 days. The majority of Mexicans do not own cars. Virgin Atlantic Airways and other long-haul carriers . The travel industry has been responsive to the special preferences of these big-spending Japanese tourists. whereas to the American eye the small cages may be perceived as mistreatment. The Four Seasons Hotel chain provides special pillows. and teas for Japanese guests.if regulators approve. Instead of the once-perweek shopping trip typical in the United States. or as comedian George Carlin puts it. etc. MARKETING OF SERVICES ääSearch QualitiesSearch Qualities ääFound mostly in goodsFound mostly in goods ääAssist in judgementAssist in judgement ääExperience QualitiesExperience Qualities ääFound in combined categoriesFound in combined categories ääRequire use to assess qualityRequire use to assess quality ääCredence QualitiesCredence Qualities ääFound in servicesFound in services ääNearly impossible to assessNearly impossible to assess Customer Evaluation of ServicesCustomer Evaluation of Services Goods & ServicesGoods & Services © Copy Right: Rai University 11. clothes. Any American visiting the Tokyo Zoo is impressed by two things: the fine collection of an-imals and the small cages in which the animals are kept. as explained in the Global Feature. Further. Differences across cultures influence how consumers evaluate service. and furniture are ex-amples of material culture.) movies. the stuff we own. most Mexicans own small refrigerators and have limited incomes that restrict the amount of groceries they can purchase at one time. Geneva.Habits are similar to customs. Material Culture Material culture consists of the tangible products of culture. Their vacations are unusually crammed with activities-Rome. kimonos. Own-ership of televisions and radios affects the ability of services marketers to reach target audiences.313 21 . Japanese take very few vacations. French. Pro-motional programs in Mexico are also constrained by the availability of media. allow-ing viewing of Japanese (or American. and these tend to vary by culture. To the Japanese who live in one of the most crowded countries in the world and own relatively small houses. slippers. What people own and how they use and display ma-terial possessions varies around the world. Cars. Zoos as entertainment represent an interesting reflection of culture s influence.have interactive screens available for each passenger.

Explain. External commu Expected service Perceived service Perceived Service quality Consumer Buying Behavior of ServicesConsumer Buying Behavior of Services ääPersonal sources of information Personal sources of informationPersonal sources of information ääPostpurchase evaluation Postpurchase evaluationPostpurchase evaluation ääSurrogate (substitute) judgment cues Surrogate (substitute) judgment cuesSurrogate (substitute) judgment cues © Copy Right: Rai University 22 11. · Explain the factors involved in customer service evaluation.Tutorials · Discuss the consumer buying behavior of services. Notes MARKETING OF SERVICES Quality Perception Consumer Factors Dimensions of Service Quality Tangibles Reliability Responsiveness Assurance Empathy W-O-M Personal needs Past exp. Customers & Service Quality Customers & Service QualityCustomers & Service Quality · Goods and services are different.313 ääFewer acceptable brands or suppliersFewer acceptable brands or suppliers and strong brand loyaltyand strong brand loyalty ääSlow adoptionSlow adoption ääCustomer as competitorCustomer as competitor .

they became less willing to accept poor quality goods and a supporting but relatively minor function in the overall structure of the organisation. organisations started to realise that by offering guarantees and service warranties they could enhance their competitive position. . it will usually be the manufacturer who provides the case of industrial products. Consumer/Industrial Markets Introduction Historically. Impact of service problems on buyer behavior Customer satisfaction and its role in buying process Service values and its market share Customer care programs The Importance of After-sales Service. This applies not only to providers of actual goods but to service providers as well. As consumers grew more sophisticated. but. after-sales service was regarded in most manufacturing companies as a necessary evil . the role and function of service was generally viewed purely as a cost centre. dealer or agent. This also applies in some degree to the channels . If a tour operator promises trouble-free travel and then problems arise (even if they are the fault of an airline or hotel). the tour operator must take steps to rectify the problems immediately. at the same time. whilst for many consumer and other types of goods it is the responsibility of the retailer.LESSON 5: IMPORTANCE OF SERVICES IN CUSTOMER SATISFACTION The Objective of this Lesson is to have an insight into Importance of after sales service :Consumer and industrial markets Product concept and after sales service After sales service and brand corporate image. Changes came about as a result of increasing consumer pressure and more intense competition. If insurance organisati0ns failed to deal with queries and claims promptly their customers might switch insurers. Consumer protection legisla-tion forced firms to take responsibility for after-sales service. It may well have been the last area for development and investment in many organisations. Bad publicity resulting from poor aftersales service can be the fastest way of losing custom. While it was realised that it was important to provide a reasonable level of after-sales service.

size. product describes the actual shape. or any other major purchase without some form of guarantee that long-term service will be available promptly. After-sales service has been part of the augmented product for so long now that it is no longer a special feature .A Service-orientated Approach Some companies anticipated this. colour options. Level 1: The core product The core product relates to the product s function in terms of the consumer need which it will satisfy. or aid family hygiene. directly and indirectly. The Product Concept and After-sales Service The product concept describes all products as being made up in more than one stage. The physical. ease of use and so on. If it was perceived as an extra by the potential customer it could help to differentiate . In the last few years there has been increasing corporate awareness of the strategic importance and value of service both as a profit centre and as a marketing tool. Marks and Spencer. there has been a considerable increase in the resources being made available to maximise its value to the overall profitability. Xerox. and invested in after-sales service consistently. or level: Level 3: The augmented product Level 2: The physical. In the market for photocopying equipment. they are never more than three hours away from a service engineer. or expected. In the case of washing machines an automatic drain feature might have been part of the augmented product twenty years ago. the leading high street retailer in the UK. which is notorious for breaking down. which providers of goods and services endeavor to incorporate into their products to make Them standout from the competition. It would be hard to imagine buying a car.consumers demand it. of the company. The augmented product relates to the (often intangible) features. was providing instant money-back guarantees long before its competitors followed suit. a leading manufacturer. In considering washing machines. attention would be paid to such aspects as variety of washing cycles available. As this awareness has become established. a washing machine. A washing machine will provide clean clothes. product. throughout the whole of the USA. or expected. advertises the fact that wherever their customers are located. They were able to establish a leading competitive position based on their repu-tation for fair and unparalleled service. form and fea-tures provided by the product.

which are now taken for granted. and has become part of the physical product. Similarly. Brand image is one of the most important MARKETING OF SERVICES © Copy Right: Rai University 11. strength and durability. The consumer expects and demands it as a feature. Company name and image plays a more important role as mass advertising can be used to reinforce images of quality. One year guarantees have been superseded by three and five year guarantees.313 23 . firms have built intangible qualities into the augmented product. Of course automatic draining is taken for granted now.the firm s offering from the competition.

If the complaint is rectified quickly and professionally then 95% win do business again with that vendor. It is. Of those who register a complaint. it was not solely their brand image which helped them to rebuild their market share very quickly. It is even suggested that the contamination crisis actually improved the firm s stand-ing in the consumers eyes. The brand lived up to its image as the leader on quality and satisfaction. opportunities to demonstrate what a good company the vendor really is The average customer who has had a problem with an organisation will tell another 9 or 10. Bad news travels wide. in this context. over half will do business again with the organisation to whom they are complaining if the complaint is recti-fied. For every complaint received. easy to see that customer satisfaction in the . the leading brand of bottled mineral water.intangible features which can influence consumer buying decisions. 6 of which are defined as serious by the client. The sort of findings which are beginning to emerge illustrate clearly the importance of post-purchase customer satisfaction levels. far and quickly. The Impact of Service Problems on Buyer Behaviour With growing interest in the area of quality and customer satisfaction. recalling the product and arranging instant refunds. even though actual sources differ and have been generalised here Reports reveal evidence that the following factors and influences need to be considered: The average business never hears from the vast majority of its dissatisfied customers. responsible and anxious to rectify the situation. After-sales Service and Brand Corporate Image After-sales service plays a crucial role in ensuring the long-term credibility of company and brand image. When Perrier. The figures given show the range of information coming from various sources and illustrate the extent of the problem. therefore. it was the superbly efficient way in which they handled the incident. the average company has up to 26 custom-ers with problems. there has been an increase in research into the impact of service problems on buyer behaviour. In this event problems are. and 130/0 of people with problems will tell over 20 others about it. People who have complained and have had their complaint resolved quickly and professionally will tell 5 others on average. Their aftersales service in the face of an extreme crisis (and in a potentially health-damaging situation) was seen to be concerned. suffered a contamination scare.

The actual cost of the equipment was given an importance rating of only 6.4. Customers perceptions of a company s image may owe more to the efficiency (or otherwise) of the service department than to the quality of the actual product.product and in the service represents a critical factor in the purchase decision. In a study of over 3. This implies that the service arm of any manufacturer can play an important role in the future marketing success of not only its own operations but those of all its channels of distribution. on a scale of 1-9 (with 9 being most important). as to the factors utilized to influence the buy decision. speed of parts delivery) were weighted between 7 and 8. models of the buying decision process show that the typical purchaser will screen out all non-responsive suppliers (i.g. Customer Satisfaction and its Role in The. as well as the reliability and availability of the equipment itself. In . and this is borne out in surveys made both in the United States and in the United Kingdom.essence. This is equally important in business-to-business and industrial markets as it is in consumer markets. in making the decision to purchase from one supplier versus another. it was found that issues of service are significantly more important than the product price and product features in the final purchase decision. The remaining acceptable suppliers are then usually chosen on the basis of service responsiveness and quality. The results can be briefly summarised as follows: The highest rating factor was reliability of the equipment followed by service response time and capability of service organisation.000 users of data processing. those whose price and features/ capabilities do not meet needs). Buying Process Manufacturers. slightly higher than the cost of service at 6. all weighed higher than 8. retailers and all types of marketing organisations are now in-volved in massive campaigns to improve their quality of service and its profit-ability by ensuring customer satisfaction. the key importance of service and service-related issues in the decision to buy was measured. A large number of independent market studies have clearly shown that customers place considerable value on the quality and responsiveness of the service organisation.e. In this particular study of the information technology market. users were asked to place a weighting. In over 50 separate product studies carried out by just one research group in a wide variety of markets.5. office automation and telecommunications equipment. Looking after the customer is at least as important as looking after his equipment. . Four further factors relating to service (e.

and consumer credit is far more widely available. even though equipment prices have dropped dramatically in real terms. domestic appliances and home electronics are good examples. the greater the importance attached to after-sales service.telecommunications and computer equip-ment . The more technical a product in the consumer s perception. Clearly. MARKETING OF SERVICES © Copy Right: Rai University 24 11.the results are perhaps not too surprising.Only delivery times and instruction/training were weighted lower than this. However. as this study related to the type of products where technical service support would be seen as essential . for many consumer purchase decisions these factors rate highly in importance in exactly the same way.313 . Cars. It may be the level of service provided which has helped to maintain the strength of the television and VCR rental market in the UK.

but they are also able to charge a premium price for the products being sold. for example. indicates quite clearly that the market will actually pay a premium price of up to 20% over its competitors in order to deal with a supplier with a high service image of quality and responsiveness. medical electronics. and goods and services for industrial and consumer markets place great emphasis on the quality. They actively highlight service performance and responsive-ness in sales. image and responsiveness of the service organisation supporting the manufacturer or supplier of goods and services can significantly influence the decision to buy and thus gain market share. Thus. This has come about as a result of a high degree of emphasis on service as a strategy aimed at both market perception and actual service delivery. Experience in a nun1ber of markets. performance and responsiveness of their service operations. Superficial attempts to develop customer care levels will undoubtedly lead to failure.Service Value and Market Share In substance. cars.frequently. in manufacturing. . smaller companies demonstrate a more conscientious approach to individual customers. The size of the organisation is no guarantee of customer care quality . however. the primary value of service with respect to influencing market share lies in its vital importance to the customer in the supplier selection decision. including data processing. Customer Care Programmes Service organisations are particularly dependent on levels of customer care. In many cases. For customer care programmes to be successful they need to span the entire organisation. office automa-tion. Increasingly the only differentiation between suppliers relates to the quality of service provided and the standard of customer care. as the people element in the marketing mix reflects. not only are such organisations able to gain and control market share. the quality. and health care. Training will not work if it is carried out on a piecemeal basis and should be supported all the way from top management. organizations face increasing competitive pressure in what is often a buyer s market. and the customer s willingness to pay a premium price even though product features of a variety of suppliers are essentially the same. production and other organisations providing goods and services. Standardized products and services combine with aggressive advertising and pricing to reduce the opportunities available for differentiation in the marketplace. In reversionary times. advertising and marketing efforts. telecommunications. Customer care can play an equally important role. Many major suppliers of computers. Research among customers of computing and database services high-lighted that only three of the top six suppliers scored consistently high marks across a range of service criteria even though all six claimed to have carried out customer care training.

the establishment of incentive schemes and new ways of conducting staff appraisals. More tangible evidenceof the value of customer care pro-grammes may be seen in the balance sheet. Promote the programme both internally and externally. in terms of their overall value to the company or their impact on profitability. Customer care programmes will typically be comprised of six main stages. for example Rank Xerox has introduced a scheme whereby future pay rises for managers throughout Europe will be based on the results of a survey of customers. The campaign itself was a substantial investment. seminars. then in light of above . evaluate the training methods. British Airways went from a loss-making situation to turn In a healthy profit following its putting people first campaign. Develop in-ternal marketing programmes. which involved training over 36.500 personnel at a reported cost of over £23 million. Tutorials If you are u buyer of banking service. Other activities are likely to arise as a direct result of customer care programmes such as the publication of internal newsletters. as further investment is required to update and maintain the initiative in the future. Improve and update the programme on a continuous basis. Evaluating customer care programmes can be extremely difficult. Methods include using customer and employee satisfaction surveys and monitoring cus-tomer complaints. Monitoring: Test results through customer and employee surveys. keeping in mind the following: · After sales service and brand · Impact of service problems on · Customer satisfaction and its · Service values and its market · Customer care programs Notes corporate image.Customer care training may initially be a very lengthy process as the ball starts rolling through all sectors of the organisation and costs will grow too. buyer behavior role in buying process share . as follows: Objectives setting: define the programme objectives Current situation analysis: Conduct a customer service audit internally and externally Strategy development: Develop a strategy for raising levels of customer service from the current to the desired standard Functional planning: Define training needs and other requirements (problem-solving sessions or teambuilding for example) to execute the strategy Implementation: Implement training and other initiatives through workshops. compare the after sales service of ICICI and PNB.

MARKETING OF SERVICES © Copy Right: Rai University 11.313 25 .

are also reviewed. such as food in a restaurant. Ways of classifying services are considered. Packaging usually refers to the actual external packaging of a product and it plays a key part in. Service Attributes In attempting to develop an understanding of the service concept. and explores these issues together with an overview of product manage-ment in services. will perform a vital selling and promotional role. the way the service is packaged and presented to the market is the key issue. service development and positioning . This is true in services marketing. when . and the service offering: Special Characteristics of Services Services share several distinguishing characteristics. In its broadest sense this may be anything from the physical. most products are made up of a combination of physical elements and services. it is worth drawing on issues addressed in earlier chapters to focus on the special nature of services.a tin of baked beans or a television set . and an understand-ing of the service concept is developed. however. as well as protecting the contents. This chapter looks at packaging the service product in its widest possible sense. presenting the product and company image to potential customers. packaging is how the final product is put together and presented to the market. or be a pure service. The same issues are vitally important for services marketing. intangible in nature. Designing and developing the ideal service is not the full story. for example fast-moving consumer goods marketing. developing the right elements within the abstract-an idea or a moral issue. adding tangible features . Branding the service. Traditional product management tasks .UNIT II MARKETING MIXUNIT II MARKETING MIX LESSON 6: MARKETING MIX The Objective of the Lesson is · First P-Product · Life cycle · Services concept · Service Mix Product Introduction The term product is widely used to refer to a market offering of any kind.all these are critical tasks for services marketing management. The packaging. in this sense. where the service offering can include tangible features. and what actually constitutes a service. Generally.

Classification of Services There are a number of ways of classifying service activity.) Having looked at some of the specific aspects relat4tg to the service product.can be -explored. The following are some of the most commonly used classification methods: End-user: Services can be classified into the following categories: Consumer Business-to-business Industrial Service tangibility: The degree of tangibility of a service can be used in classification: Highly tangible Service linked to tangible goods Highly intangible People-based services: Services can be broken down into labour-intensive (people-based) and equipment-based services: People-based services (high contact) Equipment-based (low contact) Expertise: The expertise and skills of the service provider can be broken down into the following categories: Professional Non-professional Profit orientation The overall business orientation is a recog nized means of classification: Not-for-profit Commercial (A more detailed discussion of the above examples can be found in Chapter 3. These are: Intangibility Inseparability Heterogeneity Perishability Each of these will influence decisions in developing and packaging the service product. and there will always be some degree of overlap between the various methods used.what actually constitutes the service product .compared to physical products. the service concept . Need Satisfaction In many ways it is hard to equate the properties of physical .

they may be sold according to weight. They are looking for something which will provide the right kind of benefits to satisfy their need. but their underlying motivation for making a purchase is to satisfy a need. Consumers may have preference for certain types of physical characteristic when they are choosing a product. These characteristics are only features of physical products.goods with those of services. Physical goods have shape and form.313 . they can be tasted or felt. however. size or colour. MARKETING OF SERVICES © Copy Right: Rai University 26 11.

Product-led companies (discussed in Chapter 1) focus on adding more and more features to products in order to attract customers. and a perception of quality.This is equally true of services. The customer may be feeling that they don t look their best. can be added to make the service more attractive to prospective consumers. Someone visiting a hairdresser will have an idea of the range of facilities and treatments which should . The augmenting service Augmenting the service offering. or making it better in some way. customers receive benefits to which they attribute value.a range of items on the menu. or · The core benefit satisfies the need/solves the problem. free refreshments and a certain image. The idea that customers are looking for benefits rather than features is at the heart of a marketing orientation. Often innovation is the key. places the focus firmly on the customers needs and wants and aims to provide want satisfactions. The notion of the service concept is based in the idea that actual service offerings (or physical products. The expected service reflects standards required or expected by customers to satisfy their needs. or may feel customer might be a and advertising. Typically. Restaurants may work at creating a special ambience. Extra features. Similarly. clean and pleasant surroundings and prompt attention from staff. or benefits. over and above the expected service. benefits and features. or a snack bar may offer customized sandwiches and video games. The hungry customer may decide to visit a snack bar or restaurant in order to satisfy their need for food. They will expect a certain level of service to be offered . is the means by which service providers differentiate their offering in an attempt to influence consumer choice. Marketing. The expected service: this relates to customers expectations of what kind of services are available to satisfy their need. Professional service organisations might seek to augment their service . however. perhaps through decor and music. The business needing help with promotion experiencing financial problems. expertise and practical help from an advertising agency or financial consultant. for example. three levels are identified: The The The The core benefit/service expected service augmented service core benefit/service The core benefit ~ought relates customers available. the business customer will expect professional advice. Even in relation to the most intangible service. as well as features and specific attributes associated with those benefits. in fact) can be broken down into a number of levels relating to customer need-satisfactions. The Service Concept Physical goods and services can be looked at in terms of benefits offered. specifically to the hungry. A hairdressing salon might offer additional beauty therapy.

The following table illustrates the service concept further: Core Service Expected Augmented Food provision Service Clean facilities Choice available Prompt service Take away Service Up market décor Exotic menu Silver service Free delivery Fine wines Hairdressing Well appointed salon Qualified stylists Range of treatments Live music Luxury salon Famous stylists Specialist treatments Refreshments Beauty therapy Sunbeds ProfessionalBusiness-toqualifications Business Expert advice Reliable service Range of services Affiliated to professional body Specialist areas Overseas branches In marketing mix terms. The inseparable nature of services. who are expert in specific industry areas. or they may focus on a more caring. means that service quality is often closely linked to the people element of the mix. for example.offering with a range of specialists.and the promptness of the service . it is often the special aspect s of the service mix which can contribute to the augmented service. for example. The augmented service is the way# in which service providers fine-tune the marketing mix to differentiate their service and make it stand out from the competition. The following ideas suggest ways in which marketing mix variables can be adjusted to help differentia tion: Product (service) Price Promotion Place . personal service for their clients.the process. Perceptions of service quality often depend also on consumers judgments about the surroundings in which the service is offered .the physical evidence .

sponsorship Extensive availability More outlets than competitors Innovative methods. automated MARKETING OF SERVICES © Copy Right: Rai University 11. frequent flyer offers Special offers Direct mail PR.313 27 . e. telephone banking Careful selection of quality channels Highly trained staff Better customer care Greater efficiency Personal attention Specialist skills Advances in technology.g.People Superior quality Well known/trusted brand image Unusual or additional features Extended guarantees The 'unique sales proposition' Tangibilisation 'Value added' Special discounts Preferential credit terms Innovative advertising campaigns Loyalty promotions! e.g.g. e.

service organisations need continuously to review and develop their service offering.g.the service portfolio .MARKETING OF SERVICES Traditional Services Expanded Concept Forces CreatingForces Creating GrowthGrowth ServiceService CharacteristicsCharacteristics Service MixService Mix DevelopmentDevelopment Traditional Services Expanded Concept Forces CreatingForces Creating GrowthGrowth ServiceService CharacteristicsCharacteristics Service MixService Mix DevelopmentDevelopment Process Physical evidence Advances in technology. e. or to cope with new situations. recognizable corporate image staff uniforms. means far more than developing a marketing mix for a differentiated service offering.should always be monitored and new services introduced or existing ones withdrawn at the right time. cash dispensers Fast response times Comfortable surroundings Superior decor Qualifications Evidence of professional standing membership of professional bodies Strong. To keep up with changes in consumer trends and new technologies. however. house style Supporting literature. Services ConceptServices Concept Tutorials . documentation High quality 'tangibles' Service MixService Mix Augmented ServiceAugmented Service BrandedBranded ServiceService CoreCore serviceservice Long-term success and survival. automated queue Systems. The range of services offered .

In light of above. of a normal hair dresser vis. Habibs © Copy Right: Rai University 28 11.a vis. Compare the service mix .313 .

and create interest. or withdrawal of a service which has become outdated. This can be useful in manag-ing the organisation s range of products or services. and may need to be boosted if the service fails to meet initial targets. Growth As uptake of the service starts to grow. common to all products or services. It will be aimed at getting users to try the service. Introduction At the introduction stage the product or service is very new. The product life cycle is frequently illustrated comprised of four stages: Launch. The longer-term success of the service can be more easily assessed at this stage as market penetration increases. if the product appears to be doing well. it is likely at this stage that competitors will bring out rival offerings. revenues will increase and profitability may be even achieved. growth. and monitored over a period. more or less. Plotting the level of sales over a period will result in a life cycle curve which may look like this: Sales Launch Growth Maturity Time Decline Sales. can be helpful in determining the appropriate marketing action.The Life Cycle Concept Products is based maturity as being and services are often said to have life cycles . This idea on an analogy with natural life cycles: birth. and so on. The product life cycle concept holds that the different stages of the product life cycle have certain characteristics which are. when the market reaches near saturation they will have moved from the growth phase into the mature phase. Promotion will be intense and costly. This is the case with mobile telephones. or introduction Growth Maturity Decline The product life cycle is typically represented graphically in terms of sales over time. Close monitoring is required. and in making decisions about promotion. Promotion may . of a service can be plotted in the same way as sales of physical products. and the costs of pre-launch development may be very high. because the service will not yet have proved that it will be successful. for instance. Understanding and analysing the various stapes. This is a high risk stage. Television shopping is an example of a new service recently launched in the UK. therefore. However. or even usage rates.

or possibly to cut the risk of it being a drain on resources.again need to be boosted to maintain the speed of growth and will focus on attracting more new ~users. and insurance services sold directly by telephone have started to replace the need for individual brokers on the high street. Scope of the Life Cycle Concept These illustrate the basic ideas behind the life cycle concept. This may be due to a number of reasons. and to consider stages in the life cycle as part of that analysis. for example. mostly relating to the vast difference in the type of curves that can be seen (fads. Facsimile machines have more or less replaced telex communication services. and developing . as when services have been superseded by new technologies or when consumer tastes have changed. and deletion would enhance their chances of success. The important thing is to monitor progress of all the organisation s offerings. There are many criticisms of the concept. and so have telegrams. Credit cards are an example of a mature service offering. and repeat purchase. New entrants may still be entering the market. The demand for information has never been higher. Levels of sales will fall off. but not to rely on the life cycle concept in isolation as a predictive or prescriptive management tool. which continues over time. but. the overall volume of sales may reach a fairly steady plateau. as mentioned previously. and promotion efforts reflect the battles between leading brands. and profitability diminishes. There can also be ambiguity in what should be measured. Further investment may be required. the popularity of a product or service will begin to die. The main decision for management is whether to continue to produce and sell the product or service if it is still creating profits. Cinema attendance in the UK all but died off altogether in the 1970s. and never become mature). as is the case with building societies offering their own cards. while fax and telephone usage have increased dramatically. perhaps because the organisation has launched newer services to replace it. Marketing effort is aimed at keeping the level of sales high. but then drop off altogether. resulting in the closure of many cinemas. but cinema has been successfully re launched in a new format with the opening of hugely successful multi-screen cinema complexes. Maturity As growth slows down. the means of transmitting informa-tion has changed. and its use as a management tool. Competition will probably be well estab-lished. Decline At some stage. so telex machines have died. for example. may grow sharply. for example. or to delete it altogether. thus ensuring continued profitability. industry cycles may differ for specific products. New Service Development Managing the organisation s service portfolio.

The costs associated with the development and launch of a completely MARKETING OF SERVICES © Copy Right: Rai University 11. as carried out by manufacturing companies.and positioning new services. The main reason for this is that it is both essential for longterm success. The new product development process. has been the focus of a significant amount of marketing literature for many years. are functions critica 1 to the organisation s success. high risk process. and a very costly.313 29 .

but would certainly be too risky for any lesser brand to try). at first sight. Unfortunately. Persil washing powder also had to re-introduce its original product after the new improved version was alleged to have caused allergic reactions in some cases.313 . which organizations adopt to screen new service ideas and maximize their chances of success in the market. Comprising of following stages: · Generation of ideas · Screening · Testing the concept · Business analysis · Practical development · Market testing · Launch Tutorials In light of above . Even highly intangible new services such as insurance will cost a great deal to launch in terms of staff retraining. MARKETING OF SERVICES © Copy Right: Rai University 30 11. is a total flop . vis a vis Amity. the literature is full of classic tales of such misadventure as the Ford Edsel car and the Sinclair CS. which may be true. and estimates of the failure rate of new products range from fifty per cent to nearer ninety per cent of all new products launched. to say the least. Even relatively minor developments to new products can be a high risk undertaking. Although the risks associated with failure may. even worse. Identify and Compare at which stage of PLC does Rai university stands . appear less for service providers than manufacturers (no expensive production facility to set up. New Service Development Process: is a systematic staged process. classic version (although some suggest it was actually a clever tactic to reinforce the brand.or. production of sales literature and documentation and expensive television advertising campaigns. in the professional education service sector. The costs of building a world class hotel are substantial. as was the case when Coca-cola launched its new version and quickly had to bring back the old.then the company may not product can be phenomenal and if the product fails to meet target sales figures . and if that hotel remains half empty it is a failure. To ensure the optimum chance of success. for example) this is not necessarily the case.

advertising agencies such as Ogilvy and Mather developed image advertising as a means of differentiation. which identified a unique product feature that was then emphasized to customers in the promotional campaign worked well where it was unique. the concept of identifying improved ways of creating product appeal and the unique selling proposition . This idea. Other writers have referred to related ideas including product differentiation. However.LESSON 7: POSITIONING AND DIFFERENTIATION OF SERVICES The Objective of this Lesson is to have an insight into · The evolution of positioning · Competitive differentiation of services · Positioning and services Positioning and Differentiation of Services The Evolution of Positioning During the 1980s the strategic relevance of positioning started to become recognized amongst leading service organizations. distinctive business proposition and market position analysis. Positioning is of particular significance in the services sector as it places an intangible service within a more tangible frame of reference. which has existed in writings on marketing since at least the 1940s. David Ogilvy of advertising agency Ogilvy and Mather epitomized the image era . The notion of a unique selling proposition. Thus the concept of positioning stems from a consideration of how a company wishes its target customer to view its products and services in relationship to those of its competitors and their actual. was developed further with. Unfortunately technological advances often made so-called unique features short lived since they could be easily copied. or perceived. needs. Service companies are now identifying their key market segments and then determining how they wish consumers to perceive both their company and its products and services. His belief that every advertisement is a long-term investment in the image of a brand and his famous and highly successful campaigns for a wide range of manufactured products including Hathaway shirts. Schweppes soft drinks and Rolls Royce motor cars drew attention to the value ofbfand image. In the first book to be published on positioning Ries and . The idea of positioning can be traced to the idea of identifying needs and then fulfilling them. To many. In response to competitive imitation. the enorm-ous increase in advertising in the 1960s led to considerable duplication of messages and as a result it became increasingly difficult for a company to distinguish its image from that of others. The concept of positioning also has origins in the increased recogni-tion of the importance of corporate image in the 1960s.

We term this formal of positioning communications positioning. Their concept of positioning is that it is not what you do to a product. Service processes can be particularly relevant to positioning. people. distribution. development and communication of differentiated advantage. to a market segment. processes. Positioning is what you do to the mind of the prospect. people. involves a consideration of these other elements of the marketing mix. however. It sees changes in name. customer service. The specific characteristics of services and how they impact on positioning are then examined. it is an important part. etc. of strategic positioning. We define positioning as follows: Positioning is concerned with the identification. Much of the discussion about positioning in companies. This perspective of positioning suggests that positioning is largely a communications issue dealing with the psychology of posi-tioning an existing product in the consumer s mind. be affected by all the elements of the services marketing mix.Trout describe how marketing thought evolved from the product era of the 1950s to the image era of the 1960s and the positioning era of the 1970s. Positioning can. pricing or packaging as cosmetic changes aimed at securing this position in the consumer s mind. As Lynn Shostack has pointed out. then. you position the product in the mind of the prospect. processes have characteristics which affect positioning and which can also be deliberately. but only a part. in addition to promotion. MARKETING OF SERVICES © Copy Right: Rai University .1 They are credited with having developed the idea of position-ing through a series of articles they wrote in 1972. The strategic positioning of services. Alternative strategies in positioning are then con-sidered. It focuses on achieving a desirable position in the mind of the consumer and has little to do with the product. or objective criteria which involve differentiation in terms of other elements of the marketing mix including product. advertising agencies and in journal articles uses positioning in this restricted sense. We can differentiate on the basis of subjective criteria which involve image and communication.and strategically managed for positioning purposes. Positioning is thus concerned with differentiation and using it to advantageously fit the organization and its products or services. Ries and Trout argue that we live in an overcommunicated society where huge sums are spent on advertising but only a tiny fraction of it gains our attention. In this chapter we begin with a consideration of the means of competitive differentiation. customer service and the product or service itself can all affect a firm s positioning. We then provide an overview of the process of positioning including the development of positioning maps. Thus price. processes. That is. which makes the organization s products and services perceived as superior and distinctive to those of its competitors in the mind of its target customers.

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and psychic costs. menu for Taste of steak. coupons. taste. Superior delivered value can be thought of in terms of the total value offered to a customer less the total cost to the customer. and image value. cheque Selection. coupons Salad bar. value-added and quality components for selected services Service Cost components Value-added components Quality components Service charges. valueadded components and quality components. home Hot product. value and quality.1. The value chain represents a means of identifying ways to create differentiation through value enhancement. time cost. easy toFinancial stability. atmosphere house children Specials.1 Some cost. It has been suggested that these elements have the following components: Total customer value: services value. Value chain activities are Table 5. The value chain developed by Michael Porter is shown in Figure 5. people value.superior delivered value is the value Chain.Competitive Differentiation of Services Positioning is heavily dependent on a firm s capability to effectively differentiate itself from its competitors by providing superior delivered value to its customers. Pizza Fast service. pleasant atmosphere Family steak Low prices. Customers make buying decisions on services based on superior delivered value in terms of an acceptable balance between cost. Customers who are purchasing services buy what they need based on cost components. product value.1. Variety of services.4 Once technique for considering . Total customer cost: monetary price. well-known store price cashing brands. personal Bank interest rates understand services interest in customers Discount Sales/clearances. low Easy return. Some illustrations are shown in Table 5. energy cost. .

in the management consulting sector the primary activities comprise the following: Decisions on service configuration. selection.promotions. which include advertising. It may also be useful to further subdivide specific primary activities within the value chain. Experienced physicians. sales force operations. tune-up specials fast service qualified mechanics clinics Well stocked. . marketing and sales. humanresource management.1 was derived largely from a consideration of manufacturing companies. Marketing and sales. Although it has broad applicability to services it is more useful to develop value chains which specifically reflect the tasks within a particular service sector. Car ready when promised Fixed right the first time. For example. the marketing and sales activity can be expanded further into the constituent activities of marketing management. cheque Clean. etc. low restaurant delivery take out. secretarial Reasonable cost follow up understands what we need service categorized into two types: primary activities (in-bound logistics. Low-cost treatment hospital visitor accommodations innovative treatment Specialty Reasonable cost. For example. Competence of temps. The generic value chain outlined in Figure 5. sales force administration. and service) and support activities (infrastructure. promotion.5 These support activities are integrating functions that cut across the various primary activities within the firm. specialty Supermarket Low prices cashing departments Temporary Performance guarantee. tech-nology development. out-bound logistics. operations. and procurement). variety consistent product prices Psychiatric Comfortable rooms.

Data collection. Interpretation and recommendations. the primary activities in the value chain include: Funding. improved product design may reduce the need for MARKETING OF SERVICES . Interpretation. its value chain s primary activities as: Product creation Planning Marketing Selling Single target selling · After sales service. · Marketing. such as a building society. The generic value chain. Funds administration. Reporting and communication. which firms organize and perform these discrete activities within the value chain. The process activities within a value chain should not be considered in isolation. Development of a specific value chain which identifies these activities for a specific service company is of much greater use than relying on. Management consulting firm s value chain Delivery channels. Superior delivered value grows out of the way in. To gain advantage over its rivals a firm must promote this value to its customers through performing activities more efficiently than its competitors (lower cost advantage) or by performing activities in a unique way that creates greater buyer value (differentia-tion advantage). It is essential to consider the linkages where the perform-ance of one activity has an impact on the cost or effectiveness of other activities. In a manufacturing company. Customer administration. Data analysis. Servicing A bank operating in the corporate market defined. service and evaluation For a retail financial service organization. product innovation and design.

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If the customer is a typical manufacturing company its value chain will be similar to that of the generic value chain described above. and effective co-ordination and integration of them becomes more essential than with manufactured goods. however. It can use it to understand where it fits in the value chain of its customer. activities such as marketing. relatively little attention is given in the literature to an individual s value chains and more emphasis is usually placed on needs analysis. The value chain concept may be used in several ways by a service firm as follows: 1. benchmarking of compet-itors value chains and their performance is essential. In services. operations and human resources cannot really be con-sidered independently. Each service company and its goods and services has a position or image in the consumer s mind and this influences purchase decisions. Positioning and Services Positioning offers the opportunity to differentiate any service. a personal value chain could also be considered. Appropriate cross-functional coordination of linked activities can re-duce the time needed to perform them. Positions can be implicit and unplanned and evolve over a period of time or can be planned as part of the marketing strategy and then communicated to the target market. Each element of the value chain represents an area which should be investigated thoroughly to identify existing or potential means by which the firm can achieve cost advantage or differentiation advantage. To ensure differentiation is achieved. 2. To identify how competitors create value and how their activities compare to yours (competitive benchmarking). This differentiation then needs to be communicated to its customers through positioning. 4. of a service firm boundaries be-tween activities are often less clear. However. The purpose of planned positioning is to create a differentiation in the customer s mind which distinguishes the com-pany s services from other competitive services. For indi-vidual customers (as opposed to companies). A critical role in a service organization is the examination of costs and performance in each value-creating activity within the value chain.inspection and result in significantly reduced after-sales service costs. It is important to . The firm can use it to gain a clear understanding of its own value chain and where it seeks to gain sources of differentiation or cost advantage to achieve superior delivered value to its customers. reordering. However. It can be used to understand where it fits in the value chain of its suppliers and distributors. Reconfiguration of the value chain by relocating. 3. if the customer is a service business the firm will benefit from considering how the value chain for this service company differs from the generic value chain. The ultimate purpose of value chain analysis is to systematically identify appropriate means of differentiation for a firm so that it can provide superior delivered value to its customers. The objective of this examination is to identify improvement opportunities. regrouping or even carefully eliminat-ing activities may represent an opportunity for major improvement in delivered value.

It is therefore important to select distin-guishing characteristics which satisfy the following criteria: Importance -the difference is highly valued to a sufficiently large market. Communicability -it is possible to communicate the difference in a simple and strong way. Distinctiveness the difference is distinctly superior to other offerings which are available. to ensure that the perceived position of the service is strongly reinforced.establish a position of value for the product or service in the minds of the target market. Some of these attributes will be real. it must be distinguishable by an attribute. Any additional cost of the distinguishing characteristic(s) will be perceived as sufficiently valuable to com-pensate for any additional cost. These attributes should be factors which are critical in the customer s purchase decision. Profitability -the company will achieve additional profits as a result of introducing the difference. Buyers have different needs and are therefore attracted to different offers. Denying or fighting customers perceptions of different offerings in the market is unlikely to be successful. Some marketers advocate promoting one benefit and establishing recognition as being the leader for that particular attribute. Services have a number of distinguishing characteristics which have special implications for the positioning and selection of which attri-butes to emphasize. Others suggest that promoting more than one benefit will help in carving out a special niche. A successful positioning strategy takes into account customers existing perceptions of market offerings. Each product or service has a set of attributes. which are important to the customer. Three of the key characteristics of services. discussed in Chapter 1. The selection of the differentiating attri-bute(s) is most successful if it confirms facts. There is therefore no such thing as a commodity or standard service. Superiority -the difference is not easily copied by competitors. or attributes. which are already in the mind of the target market.e. which can be compared to competitive offerings. make positioning strategies of particular importance in marketing a service. It determines needs which customers value and which are not being met by competitors services. The positioning strategy seeks to integrate all elements of the service. which is less easily contested by competitors. others will be perceived as real. It identifies which unsatisfied needs could be satisfied. A company wishing to position itself should determine how many attributes and differences to promote to target customers. These are the . Every service offered has the potential to be perceived as different by a customer. i. Affordability -the target customers will be able and willing to pay for the difference.

2). some of which are outlined below.intangibility. Easing wood and Mahajan have illustrated a range of positions that can be adopted based on these services characteristics (see Table 5. the degree of variability or heterogeneity in quality of a given service.the fact that the performance of a service will often occur in the presence of a customer.313 33 . and inseparability . MARKETING OF SERVICES © Copy Right: Rai University 11.

It is thus not easy to compare the physical attributes of competing services. by offering tangible evidence .The intangibility of services makes the marketing task for a service different from that for a product which can be physically identified touched and compared.For example. A service often cannot be marketed by features.g. with financial or legal advice choosing between alternative sources is difficult when the benefits are intangible (e. the quality of advice). Positioning can permit an intangible service benefit to be represented tangibly. It can help the customer see an intangible benefit.2 Some alternative positioning based on service characteristics Response to special service characteristics Intangibility q Offer a tangible representation q Offer an augmented service Heterogeneity q Superior selection. For example. which the consumer can readily identify. customers to a hotel expect an Table 5. it may therefore be hard to evaluate. training and monitoring of contact personnel q Package the service q Industrialize the service production process Inseparability q Use multi-site locations q Customize the service q Offer a complete product line Basis of position The reputation and special capabilities of the organization itself q . and compare.

may greatly affect the perceived quality of the overall experience of staying in it. in a restaurant the waiter is the main point of contact with the customer and his service performance will be a major factor in the way the establishment will be judged. faster. For example. The customer s perception of the quality of the . the quality of a small element of the total service offering may affect the perceived quality of the service as a whole. the quality of the delivered service can vary widely.Expertise position q Reliability position q Innovativeness position q Performance position Augmentation of product offering q Product augmentation q Extra service People advantage More attractive packaged offering A superior product through technology (i. Further. and this view can be reinforced by plastic covered glasses in rooms and a paper cover over the lid of a lavatory stating sanitized for your protection . a positioning strategy for an insurance product which aims to be distinctive by its ease of take up for the customer. Developing a positioning strategy may also assist identification of other tangible features which can be added to the service. more reliable.e. reinforcing the position that the hotel wishes to portray. His performance will vary at different times. and there will also be variance between his service and that of another waiter or waitress in the restaurant.cleanliness.:. Courts Bank positions itself as a bank for the wealthy upper class. may include a step-by-step guide for prospective policy holders with sample forms which can be easily copied. better value for money) Accessibility Extra attention given to individual requirements Satisfaction of more user needs within the sector Intangible benefit . a poor checkout procedure from a hotel. Services are also highly variable and rely to a great extent on input from company employees for their production. This helps the customer to associate cleanliness with the service offering. For example. The augmented service offer will be more easily distin-guished from other service offerings. Service companies often promote their reputations in an attempt to add tangibility. As a result. For instance. they promote their reputation for expertise with a particular sector. For example.

a service frequently does not have these opportunities. in contrast to the red tape of other airlines. Staff can decide. We ve examined five alternative models for classifying services. For example. on upgrading passengers. Manufacturers are able to reject products which do not meet consistency and quality standards. Often a service will require customer presence both when the service is initially being delivered and then on an on-going basis. Having outlined opportunities to use the distinctive characteristic of services to position the offerings of a company. There are many examples of passengers who have been pleasantly surprised by the decision-making ability and empowerment of SAS staff. in that the modification process is often largely left to the front-line service provider. we will now turn our attention to the levels of positioning and how the positioning process can be formally addressed. McDonalds recognized this advantage and established McDonald s Hamburger University where employees are trained to render a high quality standardized service and to limit the amount of variation in customer experience. A manufactured product is usually produced within a controlled environment. They positioned themselves as an airline that cares for its passengers and is responsive to their needs. SAS recognized this in empowering their employees and allowing them to make their own decisions during service delivery. if customer needs can be closely matched customer satisfaction will be greater. This may have a danger. there is the opportunity of customizing the service to meet the exact needs of the customer. However. resolving beggaring problems and special travel problems. A service may require the customer to be present during most of the delivery process. The distinctive features of the services outlined above provides the basis for competitive positioning strategy. An advantage can be gained by providing better-trained and more highly responsive people. without reference to superiors.313 . There are may dimensions on which services can be differentiated. However. A positioning strategy may therefore include the distinctive characteristic of employing better people . giving a service which matches the customer s perception. and there is an opportunity to control the quality and ensure compliance with customer expectations. as in the case of a patron in a restaurant or a passenger on an airline or train. MARKETING OF SERVICES © Copy Right: Rai University 34 11. Each of these represents an opportunity for creating differentiation of a service in some way. Services tend to be inseparable and are characterized by the fact that they are performed in the presence of the customer.service is therefore greatly affected by the quality of the staff who are responsible for delivery.

A frequent means of positioning used within public. Product sector positioning -the positioning of a range or family of related products and services being offered by the organization. such as a car rental company or a restaurant. This provides useful context for the consideration of the organizational and product posi-tioning.Its frame work such as that shown can also be used for a company and its competitors.LESSON 8: POSITIONING PROCESS The Objective of this Lesson is to The levels of positioning Process of positioning Evaluating positioning options Implementing Positioning and marketing mix The Levels of Positioning We are primarily concerned in this chapter with the positioning of goods and services delivered by service organizations. Regular monitoring can identify shifts in both the company and its competitors positions. We will use the term positioning or product positioning to reflect this emphasis. Companies need not be concerned with all the levels listed above. Organizational positioning -the positioning of the organization as a whole. the positioning decision for the organization and the services provided may be very similar. We can consider positioning at several levels: Industry positioning -the positioning of the service industry as a whole. For some organizations. At the corporate level a credibility/visibility or favourability/ familiar.-relations agencies is to identify the relative favourability and familiarity of different organizations. Individual product or service positioning -the positioning of specific products. However. provides details of selected service industries based on research by MORI. Whilst most of the emphasis is placed on positioning from this perspective it should be recognized that the principles of positioning apply at other levels. This can also be applied to industries. In addressing their companies position. for larger . service organizations may wish to consider where their industry is positioned.

Identification of key attributes of importance to selected segments. The level or levels of positioning to be undertaken are usually fairly clear cut. all these levels may need to be con-sidered. Evaluating positioning options. As explained in the previous chapter the process of product position-ing has close linkages with market segmentation and developing a marketing mix. It was positioned to appeal to very high net worth individuals. one of its hotel groups. The Process of Positioning Product positioning involves a number of steps including the fol-lowing: Determining levels of positioning. Secondly. This was a controversial move when it . involves a consideration of segmentation. Location of attributes on a positioning map. Determine Levels of Positioning We have already described how positioning can be directed at the product or service level. rather than product positioning. About the same time they repositioned Forte Post-houses with a new lower room rate for the midmarket. Thus positioning for Forte is focusing on the product sector. When we are concerned with positioning at the corporate level this usually. some British clearing banks are currently reemphasizing corporate positioning.multi-business service organizations such as banks. Firstly. Some examples will illustrate the choices that are made by some service organizations. that decisions relating to positioning of the organization and individual products should be clearly related and have some logic between them. · Implementing positioning. The first step in positioning is to determine which level(s) are to receive explicit positioning attention. those brands can be created at either the product sector level or at the individual product level. although some organizations have placed different emphasis on these levels at different points in time. investment products). Each step is now examined. as the definitive hotel for business . and the positioning of individual products and services within that sector. For example. When we consider positioning of the product level we are usually concerned with the specific positioning for a target market segment. at product sector levels. Two observations are worth making here. or at the corporate level. but not always. The Forte Group has recently decided to reposition Forte Crest. American Express introduced its platinum card in the USA in 1984 at a product level.

313 35 . Companies such as Club Med effectively position their organization as a whole on the basis of the Club Med experience . and optima products with in the cards product sector of American Express.was introduced. separate positioning undertaken for the green card. Although they offer ~ a product range in their winter and MARKETING OF SERVICES © Copy Right: Rai University 11. The 100 000 people signing up showed this was a viable position. Industry experts queried the positioning of a new card that cost US$250 for the privilege of carrying around a new color of plastic. gold card.

For example. First. What is important here is the customer s perception of the benefits that are delivered by these relevant attributes. These may not be the most important attributes of the service. A number of approaches can be used to identify salient attributes which can then be used to develop a positioning map. These include perceptual mapping. These tools are in the province of the market researcher. But many airlines have similar standards of safety. The reality is that other service providers in the express parcel industry may provide a faster service but may be perceived as being slower. e. the decision may also be affected by whether a group or an individual will use the service. the way in which purchasing decisions are made should be considered. factor analysis. most of them computer based.summer brochures. Customers make choices between alternative services based on perceived differences between them. rather than the marketing manager. Individuals use different criteria for making a purchase decision of a service. An example of this is the fact that passengers using airlines rank safety as the most important feature. Location of Attributes on Positioning Map . In particular. This will form the basis of the positioning. discriminate function analysis.g. The timing of the use of the service will also affect the choice of service (e. Identification of Attributes Once the level of positioning has been determined it is necessary to identify the specific attributes that are important to the chosen market segments. emphasis is very much on an organizational positioning basis. the choice of a restaurant will be different for an individual if it is for a weekday lunch or a Saturday night dinner). the amenities of a hotel may be more important for a family than for an individual. so passengers choice of airline will actually be based on other characteristics such as comfort. and trade off and conjoint analysis. convenience of flight times and standards of food and beverage. The purpose for using the service may change the set of criteria. e. A range of analytical research techniques. business insurance or personal insurance. with a different ranking of attributes being used in the selection process. A hospital may be selected by either a patient or a doctor. However. An express parcel service scoring high on the speed dimension is one that is perceived as fast.g. research needs to be undertaken to identify the salient attributes and specific benefits required by the target market segment. Thus research needs to identify the salient attributes which determine the selection of a service.g. so will not be discussed further here. the reader interested in a technical discussion can refer to articles by Keon and Wind which discuss their relative merits. can be used to identify the salient attributes. A consideration of the decision-making unit is also relevant. multiple correlation and regression analysis.

The positioning map can be used to identify potential gaps in the market including where there is a demand but little competition (if such a position exists).. on a positioning map. the analysis showed that two factors accounted for 86 per cent of the discrimination amongst 14 political figures. Products or services are typically plotted on a two dimensional positioning map such as shown below: ATTRIBUTE 1 § ServiceA § Service B § Service C 1.The positioning process involves the identification of the most import-ant attributes and location of various companies services. The analysis can be further developed by drawing separate positioning maps for each market segment. Usually two dimensions are used on position-ing maps and these often account for a large proportion of the explanation of the customer s preferences. in determining what characteristics they use to evaluate the services offered. factors. For example. Techniques such as multi-dimensional scaling can then be used to produce a positioning map that reflects the perceived extent of psychological distance between them This technique does not explicitly identify the axes used and these need to be inferred. Where a range of attributes are identified. With some positioning techniques respondents are requested to evaluate the relative similarity of different competitors services. for these attributes. or derived from further research. etc. and different maps will show these different positions. Positioning maps can be based on either objective attributes or subjective attributes. statistical procedures exist for combining these attributes into aggregate dimensions. The respondents are not told on which attributes to assess the similarity. in a political marketing study. ServiceD § ServiceE § Service F Illustrative Positioning Map The positioning map can be used to identify the position of competitors services in relation to the selected attributes. multi-dimensional scales. Custom-ers in each market segment may perceive the service and its benefits differently. It should be noted that the existence of a vacant space in a positioning map does not necessarily infer a viable positioning. The positioning map used in a study of UK national newspapers used objective variables of average age . depending upon how the data were elicited and which statistical procedures were used. to avoid possible bias. Often a second group of respondents is used. Such dimensions are referred to by various names such as principal components.

MARKETING OF SERVICES © Copy Right: Rai University 36 11.313 .

based on an example from Cambell Pretty Associates. In some cases there is a clear area of core demand such as shown in Figure 5. The positioning task. so why go with us? We try harder! By acknowledging that Hertz was the largest company in the car rental business A vis presented a believable positioning proposition (we try harder). a bank used a positioning which positioned three banks on an objective dimension of best interest rates on loans and a subjective attribute friendly/courteous service . and also capitalized on people s natural sympathies for the underdog. the politician. particularly where there are different groups with different prefer-ences.and average social class. Figure 5. Kennedy and Johnson could have increased their acceptability to these segments by repositioning themselves by shifting perceptions of themselves upwards and to the right. positioned itself as the fast moving bank . A technique known as cluster analysis was used to identify groups with similar interests. was to create a communications and advertising campaign to reposition it in the area of core demand. Maps can also use a combination of objective and subjective attributes. was positioned as an occupation of fairly high interest. The research showed that the client. the Australian Army Reserve. Avis created a classic positioning with its campaign A vis is only No 2 in rent-a-cars. For example. i. Humphrey. is probably unchanged but the perception of the product could be significantly altered by these politicians endorsing issues associated with conservatism and reduced government involvement. In addition to identifying where different companies products are positioned on the map we are also concerned with where are the areas of core demand. The analysis identified eight clusters (or market segments) plus a student group. This figure.7 shows a positioning study undertaken prior to the 1966 US presidential election and referred to above. a small bank in New Jersey. modifying their position. In other cases areas of core demand may not be so obvious.e. In .6. In this example the area of core demand is clear . Thus they used their number two position as an asset. A positioning study for. shows positions of various occupations in the workforce based on two key attributes: level of esteem associated with the occupation. and level of interest associated with the occupa-tion. Evaluating Positioning Options Ries and Trout have suggested three broad positioning options: Strengthening current position against competitors: This often involves avoiding head-on attack. Note that in this case the product . Identifying an unoccupied market position: This strategy consists of identifying a gap in the market that was not filled by a competitor. United Jersey Bank. In this example political which are relatively interesting and which have relatively high levels of esteem associated with them. but low esteem. then.

The positioning must be unique: Many companies in the computer industry claim they are unique by their leadership in technology. Once a company had identified where it is positioned at present.compared to specialists like McKinsey & Company. Companies need to find a positioning where they can consistently outpace the competitors in serving a given market. The positioning must be believable: Many companies claim to be all things to all people. full range of -services. who had become firmly entrenched in Long Island following a new law which permitted unrestricted branch banking throughout New York State. For example. which for many years has focused mainly on one specific area . Bain & BCG . quality of service and large capital base. Market research on six attributes showed that Long island Trust was last on a list of six banks in terms of perception of number-of branches. Following the campaign Long Island Trust was ranked first on the number of branches and large capital base.attributes.a commuter area fo~ New York City. most of the Big Eight (now the Big Six) accounting firms claim to be able to undertake any management consulting project. More recently Apple has focused marketing communication on the theme of problem solving for its customers. Can they do an exceptional job on strategy consulting . Kosnik suggests that the following questions are relevant for considering which of these positioning alternatives is appropriate (they apply at either . The bank faced increased competition from large New York City banks such as Citibank.3. it then needs to determine how to enhance or sustain its position rela8-ive to its competitors.information systems. and fourth on full range of services and quality of service. Chemical Bank and Chase.and human resources . twelve of which are shown in Table 5. By repositioning Long Island as the Long Island Bank for Long Island residents the bank improved its ranking on all . This represented a significantly improved positioning for the bank. but has no relevance in the conservative corporate market. A wide range of approaches to differentiation are possible.competing against giant banks like Citibank and Chase Manhattan it attacked their weak point of being slower (or at least perceived to be slower) in arranging loans and dealing with their customers. This is seldom the case for anyone of the computer companies. free spirited Silicon Valley company out to change the world worked well in the home and education markets. Repositioning the competition: The Long Island Trust Company was a small bank operating in Long Island .compared to specialists like Hay Associates? Interestingly the largest and most successful accounting firm to enter consulting has been Arthur Andersen. Thomas Kosnik provides the following examples of these key characteristics of successful positioning: The positioning should be meaningful: Apple Computers image of a young.

the corporate or the business level): Which one of these positions most differentiates our company or business unit? Which position is held by each of our major competitors? Which positions are of most value to each of our target market segments? MARKETING OF SERVICES © Copy Right: Rai University 11.313 37 .

Market share leader The biggest 2. A range of other perspectives on positioning should . Technology leader problems The first to develop new 5.3 Alternative corporate positioning strategies 1. Quality leader The best/most reliable products and services 3. Knowledge leader success 10. industry or technical 12. Flexibility The most creative in applying it 7. Bargain leader The best functional. Prestige leader The most committed to the customer's 9.Competitors Competitors Which positions are cluttered with lots of competitors claiming to hold the title? Table 5. Relationship leader The most adaptable 8. Service leader The most responsive when customers have 4. Value leader expertise The best positioned to service world markets The lowest price The best price performance Which are relatively free of competition? Which corporate or business unit positions provide the best fit with our company s product and product line positioning strategies? Review Alternative Perspectives of Positioning The preceding discussion has focused on positioning of services from the perspective of how the customer perceives the company. Innovation leader technology 6. Global leader The most exclusive 11.

be taken into account inducing the following: The company s perception of itself.8. Competitors Competitors The customers Competitors The customers perception of the company. A company s position is influenced by a group of competing com-panies and their customers. These networks of perception can profoundly influence how com-panies develop their marketing strategies. The customers perception of the company. The network of perceptions between the company. and how their competitors see them. The company s perception of competitors. Table 5. Company perception of itself Company Competitor s perception of company Company s perception of competitors Competitor s perception of company Company s perception of customers Customers perception of competitors Competitors perception of customers Customers Competitor s Customers perception of themselves perception of themselves Figure 5. The company s perception of its customers. Companies . perception of customers. its competitors and its customers is shown in Figure 5.4 provides an illustration of the Big Eight chartered accounting firms in the late 1970s from the perspective of both how they see themselves. perception of competitors. perception of themselves. perception of themselves.8 Networks of perceptions It should be noted that companies often do not see themselves as their customers or competitors see them.

Most Coopers & Tough. Positioning at the corporate level is concerned with managing and communicating a differentiated position to enhance the visibility and credibility of the company. and the positions of the chartered accounting firms have changed following a number of recent mergers. Price cutter. Aggressive but not in an Trying to recover from past Mitchell & Co. Very have the best people. Biggest weakness: too Expanding scope of practice decentralized Has changed a lot. Our real cutter strength is in the management team . need to reflect a similar image which together conveys the Table 5. Implementing Positioning and the Marketing Mix How a company and service is positioned needs to be communicated throughout all of its implicit and explicit interactions with customers.positioning changes over time. We problems with SEC. We work harder. Price of feeling. Companies must continually engage in a dialogue with their customers to support and enhance their position in the market. policies and image. This suggests that all elements of the company. aggressive of the eight in Lybrand We've got a winner's kind hustling business.4 Competition and self-perception of the Big Eight accounting firms Firm How they see themselves How competitors see them Peat. aggressive. unprofessional way. Marwick. its staff.

We individual thought Andersen & speak with one voice Not very aggressive.Not very aggressive. everywhere. accounting what sterling Aggressive. We are to up after losing some clients Co. Getting known outside the US their act together. No room for Arthur Tough. Not as aggressive as other Deloitte Technical leader in the Big Eight firms. Likes publicity. The auditor's respected. Not well in scope of services. Our clients are First firm to emphasize the cream growth. Super auditor professional . Widely Haskins & Sells profession. Stuffy. Narrow Co. Price The premier accounting Arrogant. Aggressive. Getting steamed Waterhouse & firm. is to silver. Strong Not as aggressive as most auditors of the Big Eight.

service. than others. We do not want Not on the competitive to be the biggest edge.Arthur Young Tend to be less aggressive & Co. Loosest organization A practical firm. Not growing fast emphasis on client except in certain industries. Heavy Sleepy. We put strong MARKETING OF SERVICES © Copy Right: Rai University 38 11. overseas Ernst & Ernst Pragmatic.313 .

The company had to discon-tinue its advertising message we care for you . British Airways promoted itself as a caring airline. Co.Ernst & Ernst Pragmatic. Weak overseas Touche Ross & We want to be the best. relevant to the target market segment. which is followed through in all of its tactical marketing and sales activities. The marketing mix elements represent almost unlimited . This means that the positioning strategy should be examined from time to time to ensure that it does not become outdated and that it is still. the airline itself had to demon-strate a caring attitude to its employees. but we are price competitors desired position to the marketplace. and make major changes within the company. Enamored of size. before the Lord King and Sir Colin Marshall era. This means that a company must establish a strategic positioning direction. A successful positioning strategy should make the service clearly distinguishable by features which are desirable and important to the target customer segment. We're not as big as we want to be. clients Price cutter. The successful repositioning of British Airways and its campaign Putting the Customer First was dependent on a coordinated and integrated internal and external marketing strategy. Staff had to actually care about the customer. A significant failure of a positioning strategy occurs when target customer segments do not recall a service offering and the service does not stand out from those of its competitors. and there is often a conflict between a desired position and that which is actually being conveyed. whose positions should be assessed to discover their vulnerability. We put strong emphasis on quality Very aggressive in hustling service to our existing business. This is not always the case. We're not price cutters. This included a major refocus on how the passenger was perceived by employees. The design of the marketing mix to implement the positioning must be based on the key salient attributes relevant to the target segment. For example. To support this. The marketing mix is the key to implementing a positioning strategy. However. These attributes should be identified in the context of analysis of competitors. customers experience did not match this position.

or was supporting someone who was serving the customer. cash withdrawal. The service product: The product itself offers considerable oppor-tunity to deliver the positioning. the listening bank . Federal Express. no amount of communication or well-inten-tioned people will overcome the breakdown. and associated quality. reliable service. British Airways spent several years on Putting the Customer First. Processes -are also fundamental to repositioning. in positioning. Simsbury. fast. British Rail. Barclays Connect card helps position the bank as innovative. Processes: Processes are essential to delivering the position. the world s favorite airline . before it attempted to communicate the positioning as shown in the recent customer care TV commercials. and a deposit card. to mention a few. If large queues develop in a bank or supermarket. and related initiatives aimed at training and improving-people perform-ance. Price: Retailers and hotel chains are examples of organizations with a good understanding of the role of price. The card fulfils a wide number of roles: cheque guarantee. This is achieved by use of technology . as well as improved banking hours. Positioning themes or signatures such as the following can help reinforce the desired positioning: Morgan Guaranty. The recent repositioning of the various Forte Group hotel brands into different price and quality offers is an example of this. IBM. Service: availability and location (place). or an ATM network ceases to function. Repositioning can be achieved through . everyday. we built an airline for the professional traveler Midland Bank.making A TMs widely available. we re getting there . good food costs less at Simsbury s People: People are essential to delivery of positioning. As the next chapter is concerned with the market mix we shall present here only a brief example of how each element can support the positioning of a service firm. absolutely. Visa usage debited directly to the current cheque account. the big bank of big business . positively overnight delivery British Airways. every time American Airlines. Some banks are position-ing themselves to be more accessible to the customer. For example. For Avis to deliver the we try harder positioning they had to ensure that every employee was actually trying harder to serve the customer. Promotion: Promotion and positioning are inextricably bound together as it is the advertising and promotional programmes which communicate positioning.opportun-ities for positioning. every customer.

The Importance of Positioning Positioning involves both launching new brands into the marketplace (new brand positioning). complexity and divergence of the service offer.structural change in processes. and repositioning old brands. The marketing mix can be used to develop a coherent totality that creates the positioning in the customer s mind. All the elements of the marketing mix can be utilized to influence the customer s perception and hence the positioning of the product or organization concerned. Customer service: Customer service influences customers percep-tions greatly. This represents an important mean of creating differentiation in the company s positioning strategy. It can thus be used as a weapon to create competitive advantage that is not easily copied. involved changing (either increasing or decreasing).313 39 . It is concerned with the differentiation of products and services and ensuring that they do not degenerate into a MARKETING OF SERVICES © Copy Right: Rai University 11. Positioning thus guides the development of the marketing mix.

commodity. in Airline industry. Tutorials In light of above.313 . As a result of competitive pressure the consumer is becoming increasingly confused by the huge offering of services within each market sector. Positioning is a strategic marketing tool which allows managers to determine what their position is now. what they wish it to be and what actions are needed to attain it. Successful positioning makes it easier for the customer to see a company services as being different from others and exactly what is wanted. Positioning involves giving the target market segment the reason for buying your services and thus underpins the whole marketing strategy. The concept is often considered at the product level although it is also relevant at the product sector and organizational level. To maximize its potential a company should position itself in its core market segments. It also offers guidelines for development of a marketing mix with each element of the mix being consistent with the positioning. It therefore helps influence both product development and the redesign of existing products. where it is objectively or subjectively differentiated in a positive way over compet-ing offerings. which are not met by competitors products. These offerings are communicated by a vast number of advertising messages promoting different features of the services. Positioning is particularly important for services in the market of the 1990s. Because of intangibility and other features associated with services. The key to a successful positioning strategy is to promote the feature which the company is best at and which exactly matches the needs of the customer. Explain the difference in positioning of Indian airlines vis-à-vis Jet Airways MARKETING OF SERVICES © Copy Right: Rai University 40 11. by considering positions. compare the competitive differentiation of services. It also allows consideration of competitors possible moves and responses so that appropriate action can be taken. consumers find that differentiation of services can be more difficult and complex. It permits market opportunities to be identified.

if the price is too low. customers who will not buy it will see it as poor value for money. If the service provider wants to position itself as offering a value-for-money. The price of the service is the value attached to it by the service provider and it must correspond with the customer s perception of value.LESSON 10: PRICING THE SERVICE The Objective of this Lesson is to have an insight into · Key pricing concepts · Pricing issues for services · Organization s objective and pricing · Framework for pricing decisions Introduction The price is a key element of the marketing mix. as the elements are always linked interdependently. the life cycle stage of the service and prices charged by the competition may all have an impact on pricing decisions. Many factors influence the price which is ultimately charged. Both airlines and theatres also offer different prices to customers buying the service at certain times. have constraints imposed over the prices they can charge to customers. Many service providers offer a range of services at various price levels to meet the needs of different target segments who may have different levels of spending power. the service may be perceived as shoddy or inferior in quality. will impact on . As with all aspects of marketing concepts and tools. The type of organisation. and theatres offer seat~ ate different prices according to the layout of the theatre. certain of these have more relevance for service organisations than others. Rather like the promotional tools which go to make up the promotional mix. the view accorded by the seats and their relative proximity to the performance. for example. Key Pricing Concepts There are many alternative pricing concepts and techniques available to market-ing organisations. This has an impact on other aspects of the marketing mix. many of these tools and concepts may be combined to create an overall pricing strategy which is most effective for the organisation over time. off-peak periods. These aspects of pricing the service are explored in this chapter. Sometimes service providers. the structure of the market. Organizational objectives are also part of the pricing equation. such as organizational objectives. If the service is priced at too high a level. Other issues. the menu prices will be quite different from those of an exclusive gourmet establishment. such as those in the public sector. with lower prices being charged in the less busy. it must be acceptable to target customers and it must reflect the other components of the mix accurately. Airlines offer business class and economy class travel. family restaurant. for example. On the other hand.

The total costs are computed then the price determined by adding on some required margin or mark up . thus penetrating the market and gaining substantial market share. especially if the product or service is innovative. begin with a price skimming policy then reduce the price as competitors enter the market to defend the organisation s position and attract new customers. bringing the mobile phone within reach of ordinary consumers. Variable Pricing This is particularly relevant in industrial and business-tobusiness . New entrants would be unlikely to succeed by charging high prices. Initially. innovative goods. such as the fast food restaurant business in the UK. Penetration Pricing In this case the price is set at a low level in order to attract high volume sales. Mobile telephones are an example of this. Mixed Pricing This is based on the above two pricing strategies. The example given previously of mobile communications typifies this approach. however. the price reduces after a period as the products become more popular and sales volume increases. The price skimming approach can help speed up the payback period. the actual product (the telephone) has reduced in price over time since initial introduction to the market and the service (mobile communications) charges have also reduced. or international airlines. This is particularly appropriate for new products in new market situations where a proportion of consumers are always prepared to pay more for new. pricing would have to be attractive in comparison with the competition to penetrate the market. Frequently. Prices may be set too high against those of competitors to attract customers or may not be set high enough to exploit demand. or distinctive in some way from competitive offerings.the choices and decisions made with regard to pricing policy and are covered later in this chapter. Cost-plus Pricing Here pricing is based on the costs of producing the good or providing the service. new. it is useful to consider the various approaches to pricing policy and examples of the way in which pricing is used as a marketing mix tool. The strategy is especially suitable for use when entering highly competitive markets. For new products and services the payback period is lengthy but with the advantage of establishing a strong market position. Some of the most commonly used pricing concepts can be described as follows: Price Skimming Here the supplier skims the cream off the market by offering a product or service at a high price on a low volume basis. This approach has a number of weaknesses in that it considers neither the competitive situation nor the market potential.

313 .markets where individual contracts are priced according MARKETING OF SERVICES © Copy Right: Rai University 42 11.

The overall effect of a price war between suppliers competing with one another can be to de-value the market. This tactic is used to attract more business in slack periods or to attract particular groups of customers to make up demand at particular times. Differential pricing may be seasonal. and holiday makers prepared to make a last minute reservation can book package tours at heavily discounted prices. thereby reducing any surplus. Promotional Pricing Sales promotion techniques often use tactical pricing reductions as a means of increasing sales over a short period. a unit of output for an airline could be defined as a fare paying passenger so the marginal cost of the last unit of output one extra passenger on a plane will be very low in comparison with the overall costs of fuel.anything over the marginal cost is a contribution to the company s profits. . Travellers arriving late at night can often negotiate reduced room rates in hotels. rebates and even buy now pay later schemes and interest-free credit are all examples of promotional pricing. are extremely valuable. For specification. staffing costs and so on.This is the principle behind standby airfares where seats are offered at the last minute for a fraction of the normal fare . so any tactics (using promotional tools as well as reduced prices) which can help to maximise take-up of the service. Service provid-ers such as architects and consultants quote a price according to the needs of the project. Tendering is a situation which generally reflects this approach. It is useful to aid penetration or as a seasonal tool (hence the end-of-season sales ) but should be treated as a short-term tactic. vouchers. The marginal cost is the cost of the last unit of output and may be very low. A staple product is offered at a lossmaking price to attract customers to the store where they will (hopefully) spend money on other products. but even these may be variable in line with the complexity of the work. Therefore. when there is spare capacity on a passenger airline. maintenance. for example. Discounts. Marginal Pricing Marginal pricing is based on the concept of marginal cost and is particularly relevant for service industries. special offers. Some-times variable prices include some fixed element. Loss leaders are another example of promotional pricing used in retailing especially. Such surplus items cannot be set aside for an end-of-season salt7. empty seats which can be filled by passengers paying vastly reduced ticket prices are preferable to empty seats. The perishable nature of services means that empty seats on a plane or vacant bedrooms in a hotel represent a business opportunity which is lost. Differential Pricing Another form of promotional pricing of particular concern to service marketers is differential pricing. not a long-term measure. such as hourly labour charges. where different prices are charged for the same service at different times or to different customers. It is probably equal to the cost of the meal and drinks served on board.

nevertheless. as with student fees which are standardized to a large extent at UK universities. Other services are constrained in their pricing policy because fees or prices are standardized at national level. school meals and janitorial services are now open to tender and public sector service providers are forced to compete for business against commercial service providers from the private sector.and high-season or by time period. The costs of providing the service need to be analysed and prices set at competitive rates if the local authority is to continue to supply the service. such as museums. in the case of not-for-profit organisations. In these circumstances. hence the price of rail fares in peak periods compared with off-peak periods. for example. It could be argued that there are exceptions. services which are heavily subsidized. but even subsidized services will generally seek to maximise possible sources of revenue and operate in a cost effective manner. analysis of what the service costs to produce and deliver and other cost factors is an important task. State schools and National Health Service Hospitals are examples of these. Hairdressers or theatres might offer reduced prices to senior citizens or students on certain days or for certain shows. when demand is likely to be low. subject to pricing mechanisms within local and national govern-ment. demonstrating again how more than one approach may be combined in creating the ideal pricing strategy for an organisation. mid. The factors affecting pricing policy include the following: Costs of producing the service and breakeven analysis Competitor pricing Demand levels and elasticity Regulatory factors Marketing mix Positioning Basic financial considerations need to underpin pricing decisions if a service provider is to operate profitably or survive in the competitive environment. Some services which do not charge prices to the end consumer as a rule are. Many public sector services traditionally supplied by local authorities such as refuse collection. In all the examples given.reflecting the different prices charged for the same holidays in low-. . Pricing Issues for Services The overall pricing strategy will be influenced by the organisations objectives but certain factors will impact on actual pricing decisions and the selection of appropriate pricing policies. the differential price charged may be based on marginal pricing. covering costs and possibly raising funds. Most service organisations are concerned with making a profit or. however. charities or services in the public sector.

the costs for each individual service must be assessed. it is necessary for service organisations to analyse all costs accurately.Costs of Producing the Service and Breakeven Analysis In order to use costs as the basis for any formal pricing decisions. There are three main components which make up the costs of providing a service: variable costs. overheads.313 43 . Where organisations offer a range of services. MARKETING OF SERVICES © Copy Right: Rai University 11. fixed costs.

Overheads are the costs attributable to management and administration within the organisation. staffing costs and other areas of expenditure such as advertising. words. for example. Cost curves are plotted on a chart. variable costs within service organisations do not necessarily increase proportionately with levels of output and fixed costs /do not remain completely constant irrespective of levels of output. to break even. depreciation of vehicles and machinery. Breakeven analysis is a basic tool which can be used to calculate the minimum quantity of a service which must be sold in order to cover the costs of producing and delivering that service. rates and local taxes. then a revenue curve can be superimposed over them. Fixed costs are those costs which do not generally alter in line with the volume of output. The costs of premises and vehicles are examples of costs which are likely to be shared but staffing costs may also be shared across a range of services unless service personnel are only involved in the production and delivery of individual service lines. They include the costs of materials and provisions.g. thus creating a graph which depicts the profit/loss picture for several possible cost-revenue situations at different levels of service sales volume. Some costs may be shared costs which are allocated across the whole range of services. It is important to understand the concept. Breakeven analysis is of limited value in determining pricing policy as it is based on very simplistic assumptions about the relationship between costs. It is true to say that fixed costs may. change over time with increased levels of service output (e. price and demand: No account is taken of price elasticity of demand in relation to actual revenue. and its value as a simple method of evaluating different pricing . in fact. The breakeven point is derived from a calculation rather than from a forecast of the actual sales volume required to reach certain levels of profitability. if another branch of a restaurant is opened) but they do not fluctuate in the way that variable costs do. however. managers should not rely on the breakeven concept in isolation in making pricing decisions.Variable costs fluctuate in relation to the level of service output. The diagram illustrates breakeven analysis. As with many marketing concepts and tools. They include the costs associated with buildings. in other. In reality.

Bank charges tend to be set at more or less the same level between the main banks and major airlines set their fares at compet-itive levels to survive in the market. however. Demand Levels and Elasticity The level of demand for a particular service offering will be a key influence on pricing decisions. nor to undercut competitors prices even. The effect of price cutting as anything ether than a short-term. especially where forms of cost-based pricing are involved. It should always be used in conjunction with other approaches which take into account the structure of the market. and price determination will take into account many factors besides competitor pricing. This does not necessarily mean that organisations are going to set prices at the same level. It can also be difficult to determine who competitors are. all marketing mix elements are interdependently linked. Competitor Pricing Organisations need information about competitors prices in order to make pricing decisions. . or provides additional benefits. The key issue. if indirect competi-tion is included as well as direct competitors. A restaurant may compare its prices with those of other restaurants and eating establishments in the locality but in reality there are other choices available to prospective customers in terms of how they spend their leisure time and money. promotional tactic designed to gain short-term competitive advantage can be to de-value a market with the result that all competing organisations lose revenue eventually. is to analyse competitor pricing relative to the organisation s own pricing strategy and that of other competitors. As stated previously. Demand levels may vary for a number of reasons: economic conditions and trends in consumer spending .peak periods level of marketing and promotional effort degree of Substitutability of the product or service. There may even be very valid reasons for choosing to set a price considerably higher than the main competitors if the service offered is of a much higher quality. It may be necessary to consider how the price of a meal at the restaurant compares with the price of an evening at the bowling alley or a trip to the local cinema or leisure centre. although tactical pricing battles are often seen between rival organisations or brands. Organisations operating competition orientated pricing strategies will tend to attempt to influence consumer preference through other elements of the marketing mix such as service quality. the potential demand for the service and the competitive situation. Competition-orientated pricing (or me too pricing as it is sometimes known) occurs frequently in markets which are very price sensitive and where the core benefits sought are largely similar. the stage in the life cycle of a service seasonal variations busier times of day .options.

such as OFTEL which monitors the telecommunications suppliers. petrol. In the services sector. electricity and basic foodstuffs tend to have low elasticity while luxury or non-essential goods and services will tend to be more price sensitive. the price charged.313 . Price elasticity of demand represents a measure of how sensitive demand is in relation to changes in price. MARKETING OF SERVICES © Copy Right: Rai University 44 11.The key task is to forecast levels of demand and potential demand. Regulatory Factors Regulatory measures imposed by government and other bodies on many kinds of organisations affect pricing decisions and. Cigarettes. UK public utilities prices are monitored by consumer watchdog bodies set up by national government. ultimately. The demand for some goods and services will go up ~d down in line with price increases and decreases. taking price into account. These watchdog bodies bring pressure to bear on the service providers to supply at fair prices and to restrict price increases. whereas the demand for other types of goods and services will remain more or less constant.

Other formal regulatory factors influencing prices in the UK include legisla-tion such as the Trade Descriptions Act and the Consumer Protection Act. Whether price is specifically referred to in the promotional message or not. Frequently such services are subsidized to some degree so they are able to afford to operate at a level which might technically be loss-making. People: Service quality should. Price reductions and offers used in sales promotion represent a key part of the promotional mix. Location can also be closely linked to price. Public sector services such as leisure centres and school meals services are also similarly constrained in their pricing decisions. organisations offering promotional pricing such as special discounts or vouchers will include this in promotion. Place: Expensive products and services which can command premium prices will be distributed through selected channels which should reflect the quality and status of the offering. exclusive professional services such as law firms and stockbrokers are likely to be located in up market city centre offices. or set down by the board of trustees or other governing body regarding what they can charge for their services. ideally. Price sensitive goods and services often rely on attracting customers on the basis of price and will wish to communicate this to all potential customers. it should accurately reflect the service quality and value to match customers expectations. at prices to reflect the different quality levels. Many organisations offer a range of offerings at varying price levels in order to suit as many potential customers as possible. Collusion between companies in price setting is not allowed and the Monopolies and Mergers Commission is established to prevent the creation of monopolies. never be compromised . Consumers expect to pay more for these services than they would for a similar service from a provincial practitioner. Promotion: Price mayor may not be a feature of promotion. the elements of the marketing mix are interdependently linked. Offerings may vary in quality from the basic budget range to a luxury range. Some possible influences of the price on the other elements of the mix are as follows: Product/service offering: The price must reflect the value of the product accu-rately. Hotels frequently offer varying standards of accommodation across ~ wide price scale. Determining what value is associated with particular products or services is highly complex as perceived value is extremely subjective. Marketing Mix As stated previously. What represents good value to one customer may not do so to the next. Each element must sit congruently with the others to make the whole marketing mix offering credible and attractive. Similarly. however. Other services may be offered at a discount for quantity or regular purchase.Charities and not-for-profit organisations are frequently subject to constraints laid down within the constitution of the organisation. More expensive.

Consumers will perceive certain brands as being higher or lower in quality. For these reasons. it relates to the away in which consumers rank the features and attributes of a service against those of competing services. More expensive services will often require higher levels of staff training and more specialist knowledge on the part of individual members of staff. Differ-ences in the level of service offered are. there may be other organizational objectives which are not so directly linked to price. well trained staff in smart uniforms and pleasant. or of being more OF less expensive than other brands. Facilities.where prices are sometimes set as low as possible . High street travel Agents offer a combina-tion of characteristics in respect of these marketing mix elements to attract customers. bright offices together with the latest in computer technology for on-line booking and information systems. price will have to be set relatively low to maximise revenue. However. A .by price. Process and physical evidence: Physical evidence is important in determining what constitutes value for money in the services sector. Organisational Objectives and Pricing Policy Many organizational objectives can be closely linked to specific pricing strategies and will play a large part in determining those strategies. Positioning The idea of positioning relates to the way consumers perceive and evaluate products and services. penetration pricing . To achieve maximum growth in sales. They will also differ in terms of how important price is with regard to a particular product or service. however. Different target groups and segments will have different perceptions of price and some will be more sensitive than others. for example. often clearly reflected in the price charged. it is critical for marketing managers to understand different customer attitudes towards price and their perceptions of quality in determining price levels. Examples include: Maximise current profit Maximise current revenue Maintain price leadership Survival Maximise growth In price sensitive markets.will be used. decor and the physical environment in which the service exchange takes place (or is initiated) should reflect the price of the service. Consumers often rely heavily on price to make judgments about the quality of goods and services when they have little other information. Specifically.

Enhancing the image of the organisation. the task of balancing decisions about pricing and overall objectives is highly complex and may be subject to all kinds of non-business constraints. It is important for organisations to make decisions about prices which are compatible with the organisation s overall objectives. especially in the charity. discouraging new competitors from entering markets and building brand loyalty are all examples of organizational objectives which are in this category. MARKETING OF SERVICES © Copy Right: Rai University 11. many organisations.313 45 .museum might have maximizing the number of visitors as its primary objective. not-for-profit and public sectors. In services marketing.

Monitor market response to prices set and identify problems. Determine demand levels and customer characteristics. There are a number of key stages in price decision making which can be identified as follows: Analyse organizational objectives in terms of pricing. These can then be analysed in the light of possible pricing problems and decisions made accordingly. however.g. Examine competitor pricing and positioning. Organisations should always be ready to adapt pricing to variable conditions in the market. cost-plus. Analyze the pricing differentiation of Cellular services. Tutorials In light of above.a key element within the marketing mix. MARKETING OF SERVICES © Copy Right: Rai University 46 11. e. is to be very clear and explicit in specifying corporate objec-tives. It is important to recognize problems which can arise from the failure or inadequacy of some pricing programmes so that steps can be taken to rectify the situation. Explain the Organisation objectives . Price should be used fully as a marketing tool. always open to refinement and adjustment when the need arises. As with all aspects of marketing planning.313 . Set prices utilizing pricing concepts. developing pricing policy should be a continuous process. Analyse costs. A Framework for Pricing Decisions Prices are not set once only.The import-ant task.pricing concepts and issues of Airtel vis-à-vis Reliance. pricing should be monitored continuously and corrective action implemented quickly.

government bodies. or how to make reservations for a restaurant or a seat at the theatre. in theory. However. The highly compet-itive marketplace for both commercial services and. This role is even more important in services where there is a high degree of intangibility so there is no physical product or packaging to attract potential customers attention. shareholders. services in the not-for-profit and charitable sectors has led to advertising playing a major role in services marketing today. increasingly. community and pressure . Internal/External Communications All organisations need to communicate with their customers (both internal and external) at various times and for a variety of reasons. There is an element of truth in this. communications are also directed towards other groups such as the organisation s publics -local authorities. educating. Often. only one aspect of the promotion and communications process which is explored in this chapter.offering the right service at the right price in the right locations to meet target customers needs and wants . The result of this. Additionally. however. effective communications are needed to inform customers about their role in the service delivery process. as the purpose of developing a finely tuned marketing mix is to match offerings and benefits very closely to the needs of identified target groups of customers. in practice. persuading and reminding customers. for example. is that custom-ers will favour one particular organisation over competitors and will actively seek their service offerings. This is.should not require extensive promotional activity as the products or services will sell themselves . even if this is simply by word of mouth.LESSON 11: PROMOTION AND COMMUNICATIONS IN SERVICES MARKETING The Objective of this Lesson is to have an insight into · Introduction to promotion · Communication Process · Promotional Message · Campaigns in service marketing · Promotional mix · Media Choice · Managing Promotional Effort · Monitoring and Evaluation Introduction Promotion is used to communicate information about goods and services to target market audiences thereby facilitating the exchange process. Promotion plays an important role ht informing. They need to know where automatic cash dispensers are located and how they work. It is sometimes argued that effective marketing . it is difficult to imagine a situation where some element of promotion is not required to inform the customer of the organisation s exis-tence or about the offering itself.

groups. for example. therefore. Different forms of communication will be used to meet the different information needs of organisations and to find the most appropriate means of transmitting the information effectively. for example about environmental issues to make public announcements. any communications situation. facetoface communications it can be difficult to convey precise factual messages accurately. The Communications Process Central to good communications is the need to be able to transmit messages accurately. Even in per-sonal. It can be imagined. that the difficulties involved in communicating a publicize incentive schemes and other events to inform and educate employees about new products and services to disseminate marketing intelligence within the organisation The above lists illustrate a variety of reasons why organisations need to commu-nicate both internally and externally. Service organisations may need to communicate information for various purposes: Externally To inform the target markets about current and new service offerings and benefits to educate customers to persuade existing and potential customers to buy to remind customers about the service and where it is available to publicize policy decisions. There is so much room for misinterpretation or misunderstanding to occur in. but it is necessary at this stage to understand the communications process. Communications can be viewed as the transmission of information. Internally To inform employees about changes in the organisation t9 communicate plans and programmes effectively to keep all employees informed about company performance . This is not an easy task. unambiguous promotional message in a thirty second television advertising slot are immense. persuasive. The communications processes is typically illustrated as consisting of four main elements: The source (the sender): encoding The message (which is subject to noise) The media selected to transmit the message The recipient: decoding The Source . Different forms of communication and promotional methods will be reviewed later in this chapter.

the person or organisation sending the message. The source must have a very clear idea of the objective of the communication. what is the desired outcome of sending this message.e.313 47 . If this is not clear at the MARKETING OF SERVICES © Copy Right: Rai University 11. i.The starting point is the source .

some form of media must be selected. noise arises from exciting editorials. The Media Selected to Transmit the Message Unless the message is going to be transmitted directly to the recipient. either face-to-face or by personal letter. then this will dictate the choice of media. Noise occurs in many ways. means anything which can detract from the message in any way by distracting the recipient. for example. the right words have to be chosen carefully to avoid any misunderstanding. In the case of television advertisements. Similarly. if the intended audience is more likely to read a popular tabloid newspaper than the Financial Times. for example. it is essential to make the message as interesting or eye-catching as possible. in order to overcome such distractions. Noise. The most appropriate medium for getting this message across to the target audience will depend on several factors. family conversations. in using different media. The choice of medium itself can affect the way the message is received and interpreted. interesting photographs. The sheer volume of direct mail now received by many consumers is in itself a form of noise. For this reason. Noise The whole communications process is affected by noise. other advertising offers or sports reports which compete for the reader s attention. The Message The message has now been encoded and may be in the form of a letter. supported by images and pictures which will enhance the effectiveness of the message. for example. The reader may be introducing noise by listening to the radio as well as reading the paper. the encoding process translates the thought and objectives of the sender into a message which will make sense to the intended recipient or audience. noise can occur in the form of other advertisements.advertising. Even simple direct communications go through this process of encoding. in this context.outset then the communications process is already in danger of breaking down. Essentially. most of which are beyond the control of the sender. and so on. distracting the recipient from the intended message. In reviewing the message. the sender must be certain that it accurately conveys what they originally intended. in newspaper . Encoding The source encodes the message by putting it into words. An announcement about company policy may carry more weight if it is published in the Financial Times rather than the News of the World. . On the other hand. Direct mail is increasingly used as a more direct medium of communica-tion for organisations to use in contacting their target customers to avoid the noise associated with other media forms. a spoken announcement or a television or radio advertisement. the option of reading a book or a newspaper instead of watching television.

Decoding Decoding is the act of interpreting the message and forming an impression of what it is intended to convey in the light of the recipient s own understanding. Noise .can have an effect on the message as not all the intended audience will pay full attention to the message, and of those who do, each will place their own interpretation on its meaning. The more complex the message, the more likely it is that distortion will occur. The Recipient The receiver of the message can themselves affect the accuracy of the message. Their personal beliefs, attitudes and preconceptions will influence how they interpret the message. The anti-nuclear campaigner is unlikely to be anything but sceptical of messages sent out by the nuclear industry to raise its public image. Other recipients may find such messages reassuring, however. Previous experience of the organisation will colour the recipient s interpreta-tion of the message, as may cultural influences. Some famous advertising mis-takes have been in the international arena, where the use of particular colours or symbols has led to rejection of the advertising (and the relevant products) because the connotations attached to those colours and symbols have been unpleasant or made the advertisement socially unacceptable. The communications process ends with some form of feedback. Sometimes this is direct feedback, as in a personal sales negotiation, for example, while at other times it may be harder and take longer to measure the effectiveness of the communication, by monitoring increases in sales, for instance, or responses to sales promotions. One-way communications are the most difficult to monitor, especially as marketing communications compete with so many other messages and distractions in the crowded marketplace and there may be no direct form of feedback. Ensuring the most effective communications for marketing and promotion is a complex task. External communications form a key part of the promotional mix, and internal communications are vital for effective marketing management. Internal marketing programmes encourage good communications within organisations, and these are explored in Chapter 8, while this chapter explores communications within the promotional mix. The Promotional Message The promotional message may be designed with one or more aims in mind: to inform to entertain to educate

to persuade to remind The promotional objectives will dictate, to a nature and form the promotional message takes of appeal used to get the message across. The objectives will themselves be determined by a the competitive situation the positioning of the brand or service the life cycle stage of the service offering organizational and marketing objectives In launching a new service, the initial objective will be to create general awareness of the service, and the promotional message will be designed to inform consumers that it exists. Educating MARKETING OF SERVICES © Copy Right: Rai University 48 11.313 large extent, the and the type promotional variety of factors:

consumers in how to use the service and persuading them to try it, or participate in it, will follow. Once a service is established, promotional messages will serve to increase awareness or remind consumers about the service, and persuade new customers to purchase. A variety of different appeals will be used to present the promotional message. The type of message and the media choice available will influence the nature of the appeal. The types of appeal under consideration include: rational appeals emotional appeals fear appeals humour appeals The appeal used is designed to evoke some kind of reaction, in line with the promotional objectives. A mixture of more than one appeal may be used. Rational Appeals Some messages need to be long and detailed and will contain a quantity of information to inform and educate customers about the service offered. The content will be presented factually and logically and will often rely on explana-tions and comparisons. Rational appeals are founded on the notion that, pre-sented with all the facts about a superior service offering, consumers will make a rational decision to buy. They depend on fairly detailed information and are therefore more suited to newspaper and magazine advertising, although this type of appeal is also used in other media promotions. Industrial and business--to-business services often use this format in the trade and other press, as do certain financial and other consumer services. Emotional Appeals By using emotional appeals, advertisers attempt to provoke a response via emotions and feelings. Evidence suggests that emotional appeals enhance mes-sages because they make consumers feel more involved with the advertisement. Emotional appeals using animals, children and families have been used to sell everything from toilet rolls (the famous Andrex puppy) to life insurance and airlines. In a highly competitive marketplace, it may be difficult to differentiate a service using rational appeals and so emotional appeals are used in campaigns. British Airways efforts to differentiate itself on service and friendliness and a promotional campaign positioning BA as the world s favorites airline have paid off, largely due to the success of its promotional campaign internationally. Fear Appeals Messages containing fear appeals are used by marketers to encourage customers to act in a particular way. The Automobile Association has used the portrayal of dreaded situations breaking down in the rush hour, or the lone female motorist being stranded in a remote area at night - to encourage people

to become a member of its repair and rescue services. Fear appeals must not be too threatening and tend to work best when they present a solution to the problem within the message as in the Automobile Association campaigns mentioned. American Express use a similar format to promote their MARKETING OF SERVICES traveller s cheque, emphasizing their quick replacement service in the event of cheque being lost or stolen - the tourist s nightmare. Humour Appeals Humorous messages are used successfully in many advertising campaigns. They attract the audience s interest and attention more effectively than serious mes-sages and can also have a mood-enhancing effect, which makes the recipient more responsive to the message. Humour should not undermine the product or service s image, or detract from the actual message Humour has also been used successfully by the Automobile Association in some of their campaigns and this may help to alleviate the perceptions of anxiety associated with their service by customers, providing a balance between a service offering which is perceived as unwanted but a necessary evil, to be used in situations of dire necessity, and a service provider which is caring and friendly. Campaigns in Services Marketing Promotional messages of all types have been used successfully in services marketing, with campaigns often using a combination of appeals to get the message across. When First Direct launched their revolutionary direct banking service, the first promotional messages were designed to create awareness of the new service. The first of its kind, a bank with no branches where all transactions and services were accessible by telephone, twenty-four hours a day, it used a provocative message - banking without branches. it s extraordinary. - with a telephone number and pictures of household objects unrelated to banking. The message had a humorous quirky appeal which served to arouse consumers curiosity; the message in-formed them that there was a radically new service being launched, but it did not attempt to explain the concept or educate the consumer about it in the advertisement because research had shown that it was simply too different for consumers to grasp quickly. Customers responding to the advertisement by telephone were then sold the new concept and its benefits in a personal, one-toone situation. In the services sector, promotional campaigns are undertaken by commercial organisations such as British Telecom s campaign it s good to talk - designed to remind consumers about the service and prompt increased usage. A celebrity delivering the message in a confidential, personal manner developed an emotional aspect to the appeal, while information on the low cost of calls at particular times presented a rational message. McDonalds we ve got time for you mes-sage emphasized their customer service through warmth and a strong emotional

appeal, using young children and family images to attract customers. Commercial organisations use virtually all media to get their message across. Increasingly, promotion and advertising playa key role in the marketing strategy- of not-for-profit and charitable service organisations. The National Canine Defence League s m essage, a dog is for life, not just for Christmas has been well known since it was first used in the early 1980s, and is another example of an emotional appeal. © Copy Right: Rai University 11.313 49

Public sector organisations use promotion to keep important issues in the -public mind. The Health Education Authority s long-running AIDS awareness campaign has been the recipient of an award from the Institute of Practitioners in Advertising (IPA), as has the Health Education Board for Scotland s Smoke line campaign, designed to help people give up smoking with the line You can do it. We can help. Both of these have used a mix of appeals, including fear (showing- the harrowing effects of AIDS or smoking-related illness) and rational appeals within informative and educational messages. Government campaigns based on similar mix of appeals are widespread and serve to inform and educate the public about road safety, fire prevention and against drink-driving, for example. The Promotional Mix The basic elements which serve to achieve organizational communications ob-jectives form the promotional mix. This essentially brings together the various promotional tools used in the marketing programme in a coordinated and. controlled way. The elements which make up the promotional mix are: Advertising Personal selling Publicity/PR Sales promotion The promotional mix will be adjusted according to the organisation s promo-tional objectives and its marketing situation. Generally, however, in consumer services marketing, advertising will be by far the main component (and the most expensive) while in industrial and business-to-business sectors greater reliance is placed on personal selling, trade fairs and other promotional tools. Advertising Advertising is paid-for publicity, transmitted through a wide variety of media. The media space and time must be bought (although this is sometimes provided by the media for certain charitable or public information announcements) with the target audience in mind. In this way, advertising is distinctive in that the advertiser has control over what is to be said and when and how it is to be transmitted, by which means. This is in contrast to PR, for example, which aims to attract favorable publicity or editorial comment, for example, neither of which can be guaranteed. All advertising is however subject to fairly strict controls and even govern-ment legislation, especially television advertising. Legal, decent, honest, truthful is the slogan of the advertising industry s watchdog, the Advertising Standards Authority. Consumers are invited to write in if any adverts do not stand up to this code, or are offensive or misleading. Advertisements may have to be withdrawn or modified if the Authority finds that complaints are justified or rules are being breached. The

Independent Broadcasting Authority also monitors advertising very dosely and regulates what can be presented and at what time of day. There are a number of advantages to using advertising over other forms of media: Control (as discussed earlier) Mass communication Cost-effective Supports other elements of the marketing mix Can be highly effective in creating strong brand image and appeal Advertising is non-personal and involves mass media communication of mes-sages to large numbers of people at the same time. Although company advertis-ing expenditures can be very high, especially in the case of consumer goods and services, the cost of reaching vast numbers of people is often far cheaper than other promotional means. Where there is little tangible difference between service providers and service offerings within a particular market sector, adver-tising can playa fundamental role in differentiation and positioning. Advertising is an extremely powerful tool for developing a strong brand or organizational image. It can be used to create awareness, and stimulate demand, and can successfully underpin the other marketing mix elements. There are some disadvantages associated with advertising, however: High development costs Rising costs of media space and airtime Lack of immediate feedback Problems concerned with credibility Low attention focus of audience The costs of developing and producing an effective advertise ment can be very high, especially for television advertising. Advertisers are also dependent on the availability of suitable media and have to meet increasing prices for the best media. The majority of advertisements do not attract direct feedback so there are difficulties in monitoring the effectiveness of a poster. campaign, television commercial or newspaper advertisement. Advertising may also lack credibility with consumers who do not perceive it as genuine and are skeptical about claims made. Additionally, consumers fre-quently pay little attention to advertising, screening out those in which they have no special interest. Information overload arises when consumers are bom-barded by too much information from advertisers and other sources and they tend to switch off and quickly become unreceptive. This reinforces the import-ance of getting the right message across, in a way which will be well received and which is

usually. Personal Selling Personal selling takes many forms but consists of the seller engaging in some kind of personal contact with the customer or potential customer in order to persuade them to make a purchase (or become a member of a club. for example). or to enroll at a college or become a regular donor to a charity. MARKETING OF SERVICES © Copy Right: Rai University 50 11. either face-to-face or by tele-phone. There is an inbuilt element of flexibility in personal selling because the salesperson can judge the customer s responses to the message as the contact takes place and modify it accordingly.not at risk of being misinterpreted or misunderstood. It differs from advertising in that there is this personal contact.313 .

which is not paid for or sponsored by the organisation in question. products or services.Personal selling can be used to get far more information across than an advertisement can do. There is a very high cost per contact (when compared with advertising and other .with the result that consumers tend to regard all salespeople with suspicion and distrust. This impartiality also leads to a major disadvantage. however. and is used very widely in industrial selling where complex specifications and technical details need to be discussed. These include: Publicity through the media Involvement in social and community initiatives Sponsorship of events Public announcements and special publications Corporate brochures and other publicity material One of the main advantages afforded by publicity as opposed to paid-for advertising is enhanced credibility with audiences. become widespread and. Organisations will then attempt to restore good public relations through the use and application of PR tools. Often it takes the form of news reports and announcements.techniques . Editorial features attract more attention generally than advertisements and are perceived as being more genuine and impartial. as have some areas of the financial services sector . Whenever there are health or safety scares over a particular type of product. as organisations find to their cost sometimes. it is basis and is seen as irritating and . Not all publicity is good publicity.timeshare holiday companies have attracted masses of criticism in recent years. by responding to often done on a cold call intrusive by the consumer. while it has when the consumer has already shown an advertisement for example. There are some disadvantages associated with personal selling. Telephone selling has also a very useful role to play interest. A company whose latest technological advance is fea-tured on the famous Tomorrow/s World television series benefits from the kind of attention which would be both costly and difficult to achieve through advertising alone. It is also widely used in the financial services sector for similar reasons. Publicity IPR Publicity refers to communications about organisations. Personal selling has other advantages in that it can be aimed at specific target markets and prospects and also provides more direct feedback than other promotional methods.promotional methods) and setting up and training a sales force represents a significant investment for the organisation. dramatic media coverage will ensure that consumers find out about it. in that both the customer and seller need to ask many questions and provide substantial amounts of information for the right service offering to be specified. Some organisations have developed a very negative image with the public for unethical practices using high-pressure sales .

The choice of media available for transmitting the message to the target audience is immense . underpinning activities such as advertising and sales promotion. PR has traditionally been viewed as playing a supporting role in the promotional mix. Media Choice and Selection One of the key tasks facing promotional management is the selection of appro-priate media for advertising and other forms of communication. like the Ideal Home Exhibition. PR managers will plan and distribute information on a systematic basis to try to ensure that the organisation is presented in the best possible light. They should not be used to replace other elements of the promotional mix as their effects are temporary nature and will not have longer-term impact on the consumer.which is lack of control over what is said. gift items and even weekend breaks to customers who take out life insurance and savings plans. Sales promotion activities can be aimed at the end consumer or at intermediaries in the channel. for example. Competitions Point-of-sale displays Free gifts and other incentives Sales promotions playa useful role in helping to stimulate trial of new products. Sales promotion tools include: Free samples Money-off coupons and special offers. Sales promotions should be regarded as tactical methods of stimulating sales over a period whilst a particular promotion is running. Many financial service providers offer free gifts of small electrical appliances.the free prize draw for big money prizes being a popular approach. but it is gaining wider attention and recognition as a communications tool in its own right. Sales Promotion Sales promotion consists of all those activities which can help to stimulate purchase of goods and services. Competitions are used by many types of organisation to attract new customers and keep existing ones . Trade fairs and exhibitions can be viewed as a form of sales promotion when they are used. how it is presented and at what time. sometimes referred to as out of the pipeline and into the pipeline promotions the UK alone there are hundreds of regional newspapers and consumer magazines and some sixty Independent Local Radio stations to . Trade fairs can also be treated as publicity for organisations in situations where appearances at trade exhibitions are seen as a tool for corporate image building rather than as a selling toot as is often the case in industrial market sectors. to introduce products and services to consumers and stimulate demand. and maintaining interest in established brands.

313 51 . The choice of media will be determined by a number of factors including: The available budget Target audience factors Level of coverage required Exposure and frequency Cost effectiveness Desired impact MARKETING OF SERVICES © Copy Right: Rai University 11.choose from apart from the national daily papers and regional and national television stations.

The available media will include: Television Newspapers Magazines Cinema Radio . Audiences need to be exposed to an advertising message several times for that message to be remembered. advertisers calculate the average CPT ( cost per thousand ) to estimate the relative cost-effectiveness of different media. It is unlikely. This level of frequency .is another factor which governs the choice of appropriate media.detailed information about the number of readers frequently incorporating geo-demographic and other data about the profile of the readers. will reach all members of the organisation s target market. The desired level of impact must also be considered. and the costs of using each media vary dramatically. The CPT of outdoor poster advertising is only a tiny fraction of the CPT of cinema advertising. This information is a crucial selling tool for publishers trying to sell advertising space and is also very helpful to advertisers wishing to buy space in the most appropriate publication to reach their target audience. The number of people the message reaches will differ according to which medium is used. The level of coverage required to communicate the message to as many customers and potential customers will also be a key factor in media selection. For this reason. the actual number of times it must be transmitted will be far greater to allow for different viewing habits among the target audience and to ensure everyone has at least six OTS ( opportunities to see ). but the impact of transmitting an advertisement to an attentive audience sitting comfortably in a cinema is far higher than the impact of poster advertising to passengers and drivers in rush hour traffic. The target audience profile may also rule out certain types of media or indicate clearly which might be most appropriate. Advertising media will also be looked at in terms of costeffectiveness before a decision is made. The success of the advertising campaign will depend on the selection of the right combination of media to maximise coverage and frequency cost effectively and within the required budget. Several different media will probably be used in order to maximise the level of coverage in communicating with the whole of the target audience. If individuals ideally need to see a television advertisement six times for it to be effective. however.the possible number of times any individual is exposed to the communications message .The amount of money available to finance a campaign may rule out the use of certain expensive media forms such as television and national press. Magazines use independent market research organisations to provide readership audits . such as a magazine. The choice of available media will always be governed by budgetary considerations. that one particular communications vehicle.

in many organisations. Controlling the promotional programme and evaluating its overall effectiveness are also key parts of the promotional manager s task. Many factors will influence the design of the promotional mix: The nature of the organisation The service offering Service life cycle stage Type of markets the organisation is operating in . advertising campaigns. publicity and PR.Outdoor Each medium has distinct advantages and disadvantages. integrated within organizational marketing programmes. usually because the level of funding available never seems enough. for example. Media planning and buying has become a specialized management function and media planners are also responsible for scheduling the timing of the campaign. Interestingly. manage-ment of the sales force is treated quite separately from promotional management. therefore. promotional management must include detailed castings of each proposed part of the promo-tional plan. Managing the Promotional Effort The development of an effective promotional campaign involves combining the promotional mix elements in the most appropriate way to meet the organisation s communications objectives. sales promotion and personal selling must be combated to create a compre-hensive promotional programme. Organisations which seek a marketing orientation should ensure that promotional elements are treated as a cohesive whole. The task of allocating the promotional budget most effectively can also be difficult. to ensure that plans stay within budget and that the budget is allocated for maximum effectiveness. Its success depends on a mix of creativity and careful planning and scheduling in order to communicate the right message via the most effective media. Promotional management is con-cerned with this task of coordinating and implementing promotional programmes. and the management roles and tasks structured accordingly. In designing the most appropriate promotional mix. There are essentially three stages in promotional management: Developing the promotional mix Assigning the promotional budget Monitoring and evaluation In developing the promotional mix. and the promotional mix is not fully integrated. Advertising is the element of the promotional mix most likely to be passed to outside experts advertising agencies and media buying services.

313 . the MARKETING OF SERVICES © Copy Right: Rai University 52 11.Customer characteristics . They are likely to choose mass advertising via television. Buyer behaviour and decision processes Channels of distribution The main differences often lie between consumer markets and industrial mar-kets. radio and the national press as their primary means of communicating with large numbers of customers. Organisations such as banks and package tour operators seek to attract as many customers as possible from a broad spectrum of the population. In consumer goods marketing.

supported by limited advertising in specialist journals and trade publications. Monitoring and Evaluation The final stage in the promotional management process is that of monitoring and evaluating the programme. Organisations can develop quite distinctive promotional strategies which become part of that organisation s differentiation in the marketplace. not the general public. It may also be used to generate awareness of the organisation and its services and stimulate sales enquiries. Adver-tising is likely to be used to promote the organisation and build a strong corporate image. Successful promotional programmes. controls must be built into the plan to enable its effectiveness to be measured. Prompting trial purchase of a new product or buying a product to enjoy the opportunity to participate in a competition are examples of this. Communi-cations programmes are clearly identifiable with a particular organisation s image. This control stage is an essential part of all planning. however. will only be developed as a result of an integrated marketing programme and clearly defined marketing and communications objectives. In order to do this effectively. Industrial organisations tend to deal with far fewer customers as they are dealing with other companies. Evaluation methods include: Marketing research .awareness testing: This is typically carried out before and after the campaign to assess whether awareness of the organisation or service has increased following the promotion. With expensive goods and services. It serves a number of purposes in relation to the promotional plan and helps to determine the following: Are communications objectives being met? Has the target audience received the message? Have they received the right message? Are budgets being adhered to? There are several ways of evaluating the results of communications but there are many difficulties associated with measuring effectiveness . furni-ture. how-ever. the role of the salesperson at the point of sale is also crucial. or certain types of products. . holidays and insurance.sales force Often plays a key role in selling to the channel intermediaries. such as cars. and are obviously easier to measure in terms of sales volume and level of demand. Some communications are designed to elicit some action might be impossi-ble to say how much an organisation s image has been enhanced in .one individual s perception as a result of a particular advertising or PR campaign because perception is highly subjective. They will select personal selling and sales promotion through trade fairs and exhibitions. Personal selling is most suitable for industrial products and services where the supplier often acts as consultant and has extensive contact with the client over long periods.

for example.313 53 . The central focus of evaluation methods must be the promotional objectives. MARKETING OF SERVICES © Copy Right: Rai University 11. such as a special McDonalds meal offer. Explain the concepts w. discuss the Promotional mix and Media Choice for insurance sector. How well has the campaign met these objectives? How can the campaign s success be quantified? Weaknesses and failings of the campaign must also be clearly identified and tackled. response can therefore be measured by the number of responses received and orders placed.t ICICI vis-à-vis LIC.r. Point-of-sale monitoring: Developments such as EPOS (electronic point of sale) have made it possible to monitor the success of in-store promotions. The monitoring and evaluation system must feed results and information back into the planning cycle to help decisionmaking later. is another important way of measuring results and also illustrates the way that promotional methods are often combined. Measuring sales response to special offers which have been advertised. withdrawing the promotion if necessary. while they are actually taking place.Direct response: Many advertisements. Tutorials In light of above. sales promotions and exhibitions are designed to elicit orders and.

com. Canada and the The Connect music store is accessible via Connect. making this one of the largest music promotions of its kind. It is expected to roll out to additional McDonald s countries throughout the year as plans are finalized. Sony Europe and McDonald s will launch the promotion in France. McDonald s . During the initial launch. said Larry Light. Puerto Rico. Customers will redeem their free access code for a song of their choice at the Connect music store. in North America and by Sony Europe in Germany. In Germany. big. offered by Sony Connect Inc. customers will receive a card with the access code with the purchase of a Big Mac Value Meal or Big Mac Maxi Value Meal.connect. Our partnership with Sony Connect on this very exciting and relevant music event continues our commitment to surprising and delighting customers with fun and unique restaurant experiences. www..LESSON 12: CASE STUDY ON PROMOTIONS-IN SERVICE INDUSTRY McDonald s marks another milestone in its leadership marketing efforts today with the announcement of a new marketing relationship with Sony Connect to launch an unprecedented multi-national restaurant promotion for customers. Puerto Rico and Canada. McDonald s France will run a sweepstakes for Big Mac customers with music downloads as prizes. Germany and the United Kingdom in early July. it is the first time that a music program of this scale is being offered to consumers in multiple countries around the world. Big Mac Meal Tracks is not only McDonald s first multinational music promotion. As the first to take a program like this across borders to six countries. In the U. fashion. McDonald s Big Mac Meal Tracks promotion will run between six and ten weeks in the six participating countries. best in music. Connect. entertainment and sports. McDonald s anticipates providing millions of customer downloads. In compliance with French law. McDonald s Executive Vice President and Global Chief Marketing Officer. areas of high interest to our customers. McDonald s Big Mac Meal Tracks offers purchases a Big Mac Extra Value Meal® McDonald s restaurants an access code download at the Connect music store. France and the UK. we are achieving our goal of creating ideas that are first. taking place in all McDonald s countries in June and July. every customer who at participating worth one free song which is accessible via McDonald s Big Mac Meal Tracks promotion launches June 8 in the United or Connect-Europe. customers purchasing a Big Mac Extra Value Meal® during this time period will receive a unique access code printed on the Big Mac sandwich carton. The Big Mac Meal Tracks program is part of McDonald s worldwide Big Mac celebration. said Dean Music continues to be at the forefront of our leadership marketing strategy.

which features their favorite artists and music. This campaign by McDonald s will promote legal downloads. It will air in the U. Connect Europe is based in Berlin and operated by Sony Network Services Europe. added Light. and Sony Connect. Sony Connect currently offers consumers hundreds of thousands of music tracks from major label and independent artists. McDonald s will aggressively support the Big Mac Meal Tracks program. Global Brand Business. with our unequaled restaurant presence in 119 countries. With reference to the above.Senior Vice President. Sony Connect Inc. Explain the significance of Promotions in service industry MARKETING OF SERVICES © Copy Right: Rai University 54 11.313 . McDonald s is the world s leading food service retailer with more than 30.000 local McDonald s restaurants serving 47 million customers each day in more than 100 countries. which is beneficial both to the entertainment industry and music fans around the world. California. The service will be launched later this month and will offer consumers hundreds of thousands of music tracks from major label and independent artists. and we look forward to exploring more opportunities in other areas in the future. We are delighted to be partnering with McDonald s on this innovative promotion. This includes a new global television commercial by Leo Burnett featuring high-tech special effects and a cameo appearance by superstar Justin Timberlake. which will introduce millions of McDonald s consumers throughout North America and Europe to Sony s new Connect music store. a division of Sony UK Ltd. in-store merchandising and special Big Mac packaging will further promote the program. More than 70 percent of McDonald s restaurants around the world are owned and operated by independent. with other countries to follow. with its technical knowledge and expertise. General Manager. is a subsidiary of Sony Corporation of America... as well as the ability to enjoy that content on a wide range of digital music devices that are priced to suit any lifestyle. Only McDonald s. said Jay Samit. local businessmen and women. Radio advertising. McDonald s and Sony are both strong consumer brands globally.S. could make this happen. Sony Connect Inc. based in Santa Monica. Puerto Rico and Canada beginning June 7. as well as the ability to enjoy that content on a wide range of digital music devices that are priced to suit any lifestyle.

perishable nature of services means it is essential for the service to be available to customers . They can make choices about where to produce the goods. based on lower labour costs and other considerations. together with channel management issues. the . the methods used will influence the outcome of the exchange and customer satisfaction levels. of the marketing mix is concerned chiefly with two main issues: accessibility and availability. together with decisions about which markets to sell the goods in and how to get the goods to the the right place at the right time. . it must be available for consumption at the point of production. The service cannot be stored until a later date. The inseparable nature of services means that such a range of choice is not open to service providers. the insep-arable nature of services means that services must be accessible to customers and potential customers in order for exchanges to take place. As shown above. Accessibility and Availability Services must be both accessible and available to customers and potential cus-tomers in order for an exchange to take place and for the value of the service to be realized: Accessibility: refers to the ease and convenience with which a service can be purchased. Consumers of services actually participate in the service delivery process and the method chosen by the service provider for service delivery will form part of the service itself. Distribution. Whether the exchange is based on hi-tech automatic means or traditional personal service. In many instances. The role of channel intermediaries is also discussed.MARKETING OF SERVICESUNIT III DESIGNING SERVICES LESSON 13: SERVICES DISTRIBUTION PLANNING The Objective of this Lesson is to have an insight into · Importance of Service distribution planning · Key factors in Decision of Service Location · Key factors in Decision of Direct distribution · Channel Functions · Channel selection Introduction Most producers of physical goods do not sell directly to their end consumers in today s market. Accessibility must be a component of the actual service offering for it to have value-: Additionally. the quality and value associated with a service are dependent on the interaction between the service provider and the consumer at the point of exchange. or the place element. used or received. This chapter reviews the factors which service marketers need to take into account in determining a distribution strategy.

Sometimes they simply did. which some people thought was in fact a loan service rather than a benefit payment. This needs to be considered before any decisions regarding the use and selection of channels of distribution (reviewed in the next section) can be made. significant adverse publicity resulted from dissatisfied would-be entrants and custom was lost. This can be illustrated by the following examples: The UK National Lottery. Despite the very high entry numbers recorded in the first week.accessibility and availability . in theory. launched in 1994. Entry forms were simple to complete and could be bought via a network of retail outlets such as grocery stores and newsagents. Both criteria must be met in order to achieve successful services marketing. Location These criteria . many of the chosen outlets either had not got the correct computer network installed or it failed to work correctly. In this section the idea of place will be considered in terms of the location and time of the service delivery. People were put off by the lengthy processes involved and their fear of having to deal with complex form filling. However.must be given priority in all decisions about services distribution. Many Government benefits which were. the service was inaccessible for them. accessible and available to all eligible claimants were not being taken up by all potential payees. In effect. In urban areas it was not too difficult for customers to find alternative outlets but some rural areas with just one designated lottery ticket seller were left with no means of entering.Availability: refers to the extent to which a service is obtainable or capable of being purchased. was designed to be easily acces-sible to all eligible players throughout the UK. This led to the simplification of many of the procedures and the re-organization of the various departments responsible for dealing with claims to make the whole process much more accessible. There are several key factors to be considered in decisions about service location: Service inseparability Perish ability The role of the consumer as co-producer of the service Customer needs and wants Importance of geographical location as part of the service Target markets Service Inseparability . used or received. rendering the service unavailable.not know what kinds of benefits they were entitled to because of confusion over the different names given such as Family Credit. when the lottery was actually launched.

© Copy Right: Rai University 11. a hairdresser has to perform a service on a person-to-person basis with clients whereas credit card customers are happy to be able to use the credit card for cash or payments at vast numbers of locations without direct contact with the credit card company on each occasion.313 55 .Some services are more inseparable than others.

Theatrical perfor-mances given in the mornings might be highly accomplished but would be of little value if there were nobody watching. for example. Customer needs must therefore be given priority when making decisions about when and where the service will be available.The degree of direct access to the central service provider required will influence channel decisions.the role of the consumer. the audience must go to the facilitating the service exchange and often form part of the service production and delivery process. the benefits to the consumer are frequently greater: The convenience and ease with which credit cards can be used at locations worldwide without direct contact with the card provider. Services cannot be stored in this way. Many services are now provided using telephone contact and other forms of telecommunications and direct marketing: First Direct provide a complete telephone banking service as Direct Line does for insurance. Some of these developments reflect moves on the part of service providers to reduce the degree of service inseparability thereby increasing flexibility and reducing costs of providing the service.stocks of physical goods held in ware houses for onward transportation to markets or. Direct mail is used to promote the services offered by many service or-ganisations and service exchanges can frequently be carried out by mail. so intermediary s playa different role . The advantages of dealing with a bank which is open outside normal trading hours and which is accessible from any telephone. in the case of retailing. . all contact is remote. NWS Bank offers loan services by post or telephone with loan cheques being delivered direct to customers homes by courier service within hours of the loan being approved. A key function traditionally performed by channel members is to hold inventory . stocks on the shelves for local customers to buy. The Role of the Consumer as Co-producer of the Service The role of intermediaries in the production and delivery of a service has already been noted but there is another vital issue to be considered . such as applying for a loan or responding to a charity appeal. Many services require extensive interaction on the part of the con-sumer in order for the service to have any value. Perishability This is another area where service marketing differs quite distinctly from the marketing of physical goods. Neither operation has actual branch offices on the high street. the customer must study the menu and place an order to eat at a restaurant. Additionally.

. service providers frequently have very different criteria to consider here from those affecting manufacturers of physical goods. Examples include: Tourist destinations Health spas (when located at real sources of spa water) Historic or geographic attractions such as Buckingham Palace or the Grand Canyon.Customer Needs and Wants As stated. many services are dependent on geographical location as part of the service. These are likely to differ between various customer segments using the same services and between different types of service offering: Some customers may be willing to collect their own take-away meals while others will always choose an outlet which offers delivery. The latter group will be prepared to travel and put more effort into their participation in the service delivery by. customer needs are a key factor influencing decisions about services distribution. being prepared to queue to get into the best nightclub or to make a reservation weeks or months in advance for seats at the opera or a table at a gourmet restaurant. The importance of geographical location as part of the service Again. discussed previously. Manufacturers may choose to produce the goods at a location convenient for cheap labour or natural resources and then ship the products to the target markets for consumption: Apart from the inseparable nature of services making this largely infeasible as. Buyer behaviour and the factors influencing service choice between different target segments are essential considerations in location decisions. Some consun1ers may rate convenience as the key benefit sought in selecting a service whereas others may seek exclusivity. Elderly or housebound persons may require home visits from doctors or chiropodists and will be the main consumers of specific home-based services such as meals on wheels and home helps. pensions or mortgages. for example. Bank customers may be willing to visit their local branch to conduct day-to-day transactions but may prefer a bank representative to visit them at home to discuss life insurance.

Electrical appliance repairs. Some service providers need to travel to their customers.In these cases. The same applies to services such as specialist medical treatment or education and training where the patient or student may travel long distances to consume the service. however. The importance of geographical location must be looked at in the light of the needs and wants of different customer segments. as discussed in the preceding section. decorating. the idea of place is largely pre-determined and the key task for marketing managers is to manage the other elements of the mix in such a way as to get the maximum number-of visitors/customers to travel to the service. Other services need to be available locally as customers will not be willing to travel long distances for them. such as those examples given above.313 . plumbing and maintenance services frequently have to be carried out at the customer s home or business premises. Some services. especially if there is strong competition MARKETING OF SERVICES © Copy Right: Rai University 56 11. do attract customers who are prepared to travel for the service.

however. hairdressers and take-away food outlets are all typical examples. in all cases except those where to service is location specific (tourist destinations and historic site for example). banks. staffed by highly trained customer service personnel. For direct distribution to be a feasible option. this type of distribution strategy relies on widespread promotion to attract and inform potential customers. Target Markets Location decisions are influenced by all the factors outlined above. Quality standards may be difficult to maintain through a third party and the spirit or ethos of the service provider can be lost so that the customer does not benefit fully from the service exchange. The inseparable nature of services and the role of the service provider in the service delivery process make this a desirable option for the sake of quality and cust9mer care. is to make the service accessible and available to all target market segments. The key criteria. Direct Distribution For reasons already highlighted. Factors influencing such decisions include: Market size and structure by geographical region Location of potentially attractive consumer segments Organisational objectives Level of market coverage desired Number and type of competitors in region Local infrastructure.nearby. In order to make the service accessible. certain considerations must be taken into account. good road access. public transport network Distribution method The distribution methods selected will have an impact on location decisions: First Direct offers an innovative telephone banking service to all its consumers throughout the UK with no branch offices and all transactions conducted by telephone. however. The practical issues influencing decisions to undertake direct distribution include the following factors: Company resources/company objectives . rather than local branches. facilities. many service organisations choose direct dis-tribution methods which do not use outside agents or intermediaries. Tyre repairs and garage services. Service providers can choose where to locate their service outlets. or where to provide their service in order to maximise their market opportunities. The service is made available to customers via a twenty-four-hour telephone line.

Type of service Geographic spread of the market Legal and political restrictions on foreign operations Levels of technical expertise or skill required to deliver the service satisfactorily Customer preferences Company resources: The structure and size of the service organisation will influence the choice of distribution strategy. Type of service: Perhaps the most relevant distinction here is that of people -based services and equipment-based services. Again the type of service and the organisation s objectives and resources will also be key factors. Coverage of a wider market area will require further investment in setting up branches or the development of a network of intermediaries. and this may change over time. The only alternative may be to operate through local channels. Or which require very close contact with customers. Legal and political restrictions on foreign operations: In some foreign markets. restrictions apply to local investment and the setting up of overseas branches. Further discussion of these issues can be found in Chapter 23. even overseas. People-based services. such as travel agents or insurance . If the main objective is fast growth. Geographic spread of the market: Locally-based service organisations operat-ing in a limited area will probably be well placed to serve all their customers directly. in some cases actually prohibiting such activity. however. they may choose to continue to serve each of their custom-ers directly and invest in additional personnel and premises accordingly. In some situations. especially in sectors traditionally served by agents or intermediaries. are better suited to direct distribution. and frequently are. Such services may be well suited to being operated through a network of agents. making direct distribution impossible. The costs of training channel members and monitoring quality need to be assessed against the cost of setting up branches to serve target markets. The organisation s objectives will also influence the distribution method selected. however. Equipment-based services such as car rental. Levels of technical skill or expertise required to deliver the service satisfacto-rily: People-based services. which involve high levels of personal expertise or understanding. vending machines and dry cleaning do not involve such a high degree of personal involvement in the delivery of the service. then establishing a network of intermediaries may be the preferred alternative. Expertise-based services such as architects and consultants frequently operate in this way. or other services which require a relatively high degree of technical skill or expertise for satisfactory delivery. tend to be much more suited to direct distribution. Some service intermediaries do provide personnel with the right skills and knowledge. As organisations expand. it is appropriate for the service provider to travel to the customer s location.

customers who are loyal to a particular bank or building society may be happy to consult them about all their financial service require-ments. Other customers may prefer to shop around and look for a better deal by contacting independent financial advisors who act as agents or brokers for a number of financial service providers. which may influence their choice of service provider. For example. Customer preferences: The needs and wants of the customers must be considered in planning a distribution strategy.313 57 . These include: Greater control MARKETING OF SERVICES © Copy Right: Rai University 11. There are advantages for the service organization operating direct distribution methods. for example. Different customer segments will exhibit varying buying habits.brokers.

some flexibility in deciding what to charge and whether to offer discounts. as with travel agents and insurance brokers (which will be incorporated into the price paid by end consumers) . Agents may make a charge for providing the service. In services marketing. usually.Customer service and satisfaction levels can be more easily monitored. Channel Functions The role and functions of channel intermediaries in services marketing varies somewhat from that of the marketing of physical goods. Breaking bulk: This again relates to taking quantities of physical goods so does not apply. as is the case with banks cashing travelers cheques. channels tend to be much shorter with either direct distribution or the use of one level of intermediaries being common. Price setting In the sale of physical goods. or theatre booking agencies. Alternatively. Delivery/transport: Intermediaries would undoubtedly playa role in the service delivery process but not in the context of delivering physical goods from stock After-sales service: This is frequently linked to the marketing of physical goods although is also applicable to services. It is not so important for fast food restaurants or bus service operators to have such detailed information. the agent may be paid a commission by the service or-ganisation. for example. each channel member will have applied some mark up to the price of the goods and has. in fact. Some of these advantages are far more important to certain types of service organisations than others. whenever dissatisfaction occurs. do need detailed knowledge of their customers and have to maintain confidentiality. Banks and accountants. Some comparisons can be drawn by looking at the functions traditionally associated with channel members: Storage and warehousing: This is obviously not applicable due to the perishable nature of services. as can service quality Management has direct control over all aspects of operations Internal and external communications can be handled more effectively Closer involvement with customers Direct contact with customers can allow databases to be established and used for target marketing Greater confidentiality can be maintained Commission costs and other fees are avoided.

for example).but will not them-selves have any control over price setting. Promotion: Here the role-played by local agents and distributors will be similar in both services marketing and the marketing of physical goods. The degree to which intermediaries are involved in price setting will depend on the nature of the service and the distribution method (agent or franchisee. especially in international market ing. such as wholesalers and retailers. Channel Selection Whilst it has been established that services organisations will not necessarily use channels in the same way as manufacturers of physical products. various types of intermediaries are used in many service situations. The ability of an intermediary s personnel to interact satisfactorily with customers in facilitating the service exchange is a key consideration in selecting and managing channels. their image. while others. The special characteristics of services have led to certain types of channel being commonly used. are not applicable in most circumstances. Visa sign Personal selling: This is likely to be of greater importance in services marketing because of the key role played by the service provider (whether that be the actual organisation or an agent acting on its behalf) in the service delivery process. This promotion may be as simple as displaying a for information to planning complex campaigns. Their direct contact with the ultimate user of the service means that they can influence levels of quality and customer satisfaction. Care must be taken when selecting intermediaries or channel members. This is a more complex issue in services marketing because of the role of the service provider in the service delivery process and is the main concern of channel management in services marketing. personnel and location. Prices published in travel brochures and charged for insurance premiums will tend to be set by the central service provider. Intermediaries will generally have less control over setting prices than is the case with physical goods. They need to have the appropriate facilities. There are two main groups of channel intermediaries. which may be selected: Agents and brokers Franchise operators Agents and Brokers Many services are offered via networks of agents or brokers. resources and personnel to be able to deliver the service effectively. Factors which influence the selection of channel members include the stand-ing of prospective intermediaries. Channel members should be of sound financial standing and reflect the quality and image of the service offered. The agents often provide a chain of offices throughout various .

The franchiser can benefit from this approach in several ways: Low cost expansion: Expansion. as opposed to more complex services such as financial advice.313 . MARKETING OF SERVICES © Copy Right: Rai University 58 11. Basic service transactions such as encashment of travelers cheques may be all that is required. often on a wide scale. Franchise Operators Franchising involves the sale of a successful business formula to an external buyer or franchisee who runs the operation in a specified location.locations and provide relevant facilities and expertise. Developments in technology mean that it is very easy for service organisations to maintain very close contact with agents via online computer systems as well as telephone contact. The level of service they provide varies according to the nature of the service offered. Agents may have specialist local knowledge which can enhance the performance of the service in a particular market. can be undertaken with little capital investment as the required investment comes from the franchisees when they buy in to the operation.

Some may even have been the victims of the kind of unscrupulous trading practices which have been exposed from time to time. well-run franchises. Franchising is not without its drawbacks. A poor operation run by a franchisee will carry the organisation s name and reputation down with it.Rapid growth: Franchising offers a means of establishing outlets in many locations quickly. The franchisers do not need to increase staff numbers in order to gain widespread expansion as local staff will be employed by the franchisee as part of the business. Some controls have to be built in to ensure franchisees do work to pre-determined quality standards and follow organisational policy. This can have the effect of creating a negative image of franchise operations which can deter would-be investors from buying genuine. Tutorials 1. the franchisee benefits from the arrangement in several ways: Reduced risk Buying into an established business fonnula with a well recognised organisation and brand name is less risky than starting up from scratch. Rentokil pest control and Prontaprint business printing and reprographic services are successful and well known examples. Local management expertise/personnel: As individual business entrepreneurs in their own right. Franchisees can find that the promised profits do not materialise and become demotivated and let the business slide. What criteria must be met with regard to distribution? Why . Similarly. providing the franchise is successful and attracts investors. however. This is a vital factor in a competitive marketplace. The success of franchising has been outstanding. Dyno-rod drain cleaning services.franchisor makes less profit through this system of distribution than they would make through direct expan-sion but this potential loss can be outweighed by the benefits of franchise growth. with many household names in service industries being run on this basis. however. Why is the distribution method particularly important in services marketing? 2. for example. technical and legal support and ongoing development. . The . Business support The franchisee will benefit from services offered by the franchisor in staff training. franchisees can provide excellent management coverage without massive central training and recruitment costs. and the provision of business materials.

4. Why is direct distribution frequently the most logical choice for services marketing? 6. 5. Which two main types of intermediary tend to be most commonly selected in services marketing? Discussion 1. What market trends are likely to affect place decisions for services marketers in the future? 2. MARKETING OF SERVICES © Copy Right: Rai University 11. A number of organisations have opted for direct distribution methods in fields where this has been a complete break with tradition (e. 7. Could this be an appropriate route for other types of service? Suggest other innovative approaches suitable for consideration in relation to this so? 3. Give examples of services which are wholly dependent upon geographical location together with examples of some which are not.313 59 . Outline the main factors which must be considered when making decisions about location. First Direct banking services).g. Describe the traditional functions of channel intermediaries and comment on their applicability to services marketing.

India s largest mutual fund . automated manner. Content Center (a browser based application that enables users to create. 72.698 crores under 88 schemes and over 45 million unit holding accounts. The Wipro team recommended the Divine content management solution (earlier called Open Market) since UTI s content management and personalization requirements warranted the development of customized tools and interfaces with legacy systems. was in the integration of the portal with UTI s generic software system.LESSON 14: CASE STUDY ON SERVICE DISTRIBUTION PLANNING Unit Trust of India: Strengthening Investor Relations through a Webenabled Portal The Customer UTI . 88 schemes and 45 million unit holding accounts create gargantuan customer relationship issues for this government-held mutual fund and asset management trust. The content management utilizes Divine s Content Server (on which other modules are built). UTI partnered with Wipro Infotech to achieve this complex task of building a customer-facing Internet portal.UTI today has to contend with a number of fleet-footed. In the past five years. The challengeOver 20 million investors. UTI had fallen way behind in terms of absolute service rendered to customers. with these global. where Wipro played a crucial role. Another integral component of the solution. UTI has evolved and grown into a leading financial institution with invested funds of Rs. The Benefits Users within UTI as well as the investing public have already started experiencing the difference. In its efforts to present a new face to investors. Over the past 35 years. manage. built on Tuxedo middleware. and produced a timely flow of information between investors .Wipro also helped put together the production and staging environments for the Internet portal. The new system has lowered overheads. Typical investor queries that used to bog down the UTI staff. agile mutual fund companies that have entered the field following the opening up of the financial services market in the country. UTI discovered that the fastest route to reaching out to the scattered. The connectivity to the Tuxedo based back-end application was essential to ensure seamless and updated information availability and this integration required Enterprise Application Integration skills on Tuxedo. manipulate and deliver content) and Personalization Center (that enables UTI to implement sophisticated personalization).stresses on launching innovative schemes to encompass all sections of society and cater to its various needs. are today handled in a routine. 20 million-strong investor base was to leverage the web. private sector companies as a benchmark.The solutionThe challenge was to build a unified solution that could handle the complexity of all the schemes and disseminate information seamlessly. UTI identified the need to improve its brand image and streamline its investor relations function.

Explain the significance of service distribution planning through web. This seamless flow of information has helped improve UTI s customer responsiveness and the increased user friendliness of the site which has seen an increase in the number of hits from 30. in service industry.000 a day. The end-to-end integration and automation of routine operations and query handling brings great relief to the front-office staff.000 a month to 35.313 . MARKETING OF SERVICES © Copy Right: Rai University 60 11.000-40.and UTI.The customer-facing portal is all set to boost UTI s image and launch it into the world of agile financial services companies that have been discerning enough to leverage process automation and the Internet to enhance business efficiency With reference to the above.000 -40.

People as the fifth element in the services marketing mix applies not only to service personnel. and human resources management provides the programmes and strategies to ensure the highest standards of customer care. The level of contact can be determined by classifying the service according to whether it is a labour-intensive (people-based) service or an equipment-based service. Frequently this depends on the degree of tangibility of a service. as in education. benefit . Quality is judged by standards of service and the role of the employee in service organisations is critical in maintaining quality standards.transportation . Management of people within the organisation is a key task. Employees need to understand their role in the service exchange. In some situations it is the service package. Sometimes the role of the customer is an important part of the service itself. Central to successful service delivery is management of the customer/provider interface.LESSON 15: PEOPLE .play in service delivery. and human resources management is the professional approach to finding and developing the right people.the customers . for example. participation of some kind is essential to derive the service benefits. but also recognizes the role that other people . The inseparable nature of services means that the human element forms an intrinsic part of the service package. In many services like this. organisations in all industries have been forced to realise the importance of customer care and its key role in strategy.can only be achieved through the customer s driving. as follows: . Consumers are becoming increasingly sophisticated in terms of their expectations and make far higher demands of those organisations who serve them. where the students must follow the learning programme or in car hire where the. The organisation s staff are its prime resource.THE FIFTH P The Objective of this Lesson is to have an insight into · Importance of Employees in service marketing · Role of employees in service marketing · Staff selection and recruitment · Training and Development · HRM Issues Introduction In today s competitive environment. The Role of the Employee in Services Marketing The role of the employee in services marketing varies according to the situation and the level of interaction. while sometimes it accompanies the more tangible elements which comprise the service offering. Nowhere is this more vital than in services marketing.

dental and medical care.g. and between service personnel. For every employee in a bank who has personal contact with customers. Levels of satisfaction or dissatisfaction can be governed by the way in which personnel deal with the specific needs and requests of customers. dentists. the overall service offering will be made up of a combination of the roles described. people-based services can be further broken down in terms of the expertise and skills of the service provider: Professional Medical and legal services. The important issue is that customer care is everyone s concern throughout the organisation. travel agents. Frequently. e. casual labour This illustrates the variety which exists in the roles of people in service provision. care taking. vending machine. e. there may be a number of administrative staff behind the scenes. Facilitating -where employees facilitate the service transaction and participate in it. by the steps taken by service personnel in the event that some aspect of the service goes wrong. These different roles may be grouped into the following broad categories: Primary -where the service is actually carried out by the service provider. accountancy.g. equipment hire. between the provider and the customer. usually by the personal actions of an individual employee. hairdressers. The restaurant staffs are dependent on the chefs and kitchen staff. hotel porters. if they are to be able to perform the service. launderette. e. insurance brokers. and by service which goes beyond the customer s expectations.g. but a receptionist may arrange appointments and send out reminders. Successful service provision is dependent on interpersonal ex-changes.High Contact People-based services: Education. Ancillary -where the employee helps to create the service exchange but then is not part of it. waiters. tutoring Non-professional Babysitting. Customer perceptions of quality are frequently influenced directly by the actions of service personnel. . The dentist will perform the actual primary service. bank counter staff. restaurants LOW Contact Equipment-based services: Automatic car wash. cinema Additionally.

such as volunteers or members) is critical to long-term success.This important role played by employees in service organisations (or other people working for services. The MARKETING OF SERVICES © Copy Right: Rai University 11.313 61 .

Organisations seeking to attract excellent service personnel can consider using the same tools and techniques that they use to attract customers. The human resources management function can support advise and guide line management in this area. Programmes designed to generate interest in the organisation. Consider internal sources Consider using specialist recruitment agency Advertise . Recruitment should not be left solely to the human resources management function but should be seen as a powerful tool in itself for enhancing and maintaining the organisation s standing and image. through sponsorship and PR. presentations Conducting interviews Testing . as described in Chapter 8. Internal marketing. for example. Develop job profile . timing. date Determine process for selection. recognises that employees and potential employees are customers of the organisation s internal market and their needs and wants should be considered in the same light as those of external clients. The person specification can be adapted to place emphasis on customer and service job description and person specification. formal/informal interviews use of pre-selection test. Marketing activities should be aimed at these internal markets in the same way as when marketing to external clients.internally and externally Process applications Screen applications for shortlist Selection stage Arranging interviews. the basic steps are as follows: Preliminary stage Identification of vacancy (may be a new post or replacement0. For this reason staff selection and training take high priority in service management. a desirable or even essential quality for all jobs. While many sources of information exist detailing approaches and techniques for recruitment. venue. careful recruitment of the right kind of personnel is an important step. Staff Selection and Recruitment As the value of staff rates so highly in service organisations.image of a service organisation is often indistinguishable from that of its employees. can also be used to attract the people who share the organisation s ideals and standards.

may need careful handling. such as teachers and lawyers. Coping skills. in. The so-called caring professions are an example. charities have to offer competitive salaries. The degree of specialization required will govern the potential marketplace for recruits. First Direct telephone banking. look for empathy and ability to listen and communicate in their prospective employees. not just banking experience.Offer / Acceptance Formal appointment Follow-up stage Induction Training Ongoing staff development and appraisal. say. Many caring services operate in traditionally low-paid sectors so a sense of vocation and commitment may be desirable personal attributes. Some services obviously require staff with certain qualifications. which may impact on recruitment. which sometimes occurs. for example. or in highly specialized areas. Basic requirements should be identified as a starting point and may include: Qualifications / technical knowledge Ability. such . Charities have sometimes experienced difficulties in attracting experienced managerial staff as applicants are sensitive to the moral issues involved in receiving high salaries from charitable bodies. accountancy and marketing management. Conflicting demands from customers and management over time spent on personal service versus efficiency and productivity. as well as their technical skills and qualifications. In a situation where demand for certain skills outstrips supply. To recruit appropriately qualified personnel. manner and demeanor will all be key factors in a candidate s ability to do the job. for example. however. a different approach to recruitment may need to be found. Requirements for the Job Service employees frequently have significant personal contact with customers and responsibility for satisfactory service delivery lies on the individual s shoul-ders. specialist skills and aptitude Experience Personality and personal attributes Physical characteristics Recruitment issues in the service sector Certain services have special aspects.

for example. at its basic level it may be needed to impart knowledge about a particular aspect of the organisation or job. Training and Development Training is needed on more than one level. not just in terms of maintaining their services against competing private service prov1 ders. to bring them to the required standard. it gives focus and MARKETING OF SERVICES © Copy Right: Rai University 62 11. privatisation and the introduction of a quality culture geared to customer care has led to different personnel requirements. affecting organisations in the public sector brought about by compulsory competitive tendering. Such organisations are having to compete more and more in the external marketplace. at a broader level. The rate of legislative changes. but also in recruitment. They are often hampered or constrained in their strategy by existing practices which may be outdated or inappropriate and other influences including: Traditional low rates of Pay Cutbacks Tightly structured pay scales Conditions of in-service training for potential applicants.313 .

Evaluation of training effectiveness: Measure outcomes. This is a key area.adjust and refine future training accordingly. If a new initiative is< launched. while workshops are more appropriate for situations where participants are encouraged to discuss issues and make suggestions. together with work shadowing. Induction training is designed to help new employees understand the or-ganisation and their role within it. a formal presentation followed by handson practical exercises might be most useful for the introduction of a computer software package. develop measures for evaluating training and decide on content/ scope. Staff development takes training a stage further. technical skills Personal development: assertiveness training. corporate mission awareness Appraisal systems: incorporating both employee and employer feedback Training can be carried out in any number of ways. Implementation of training programmes: Design training methods. It may be implemented in stages over a period. These are: Identification of training needs: Define training objectives. These programmes introduce new employees to the culture of the organisation. The task of designing and implementing training and development programmes lies with Human Resources Management even . or take place as an intensive programme over one or more days. incorporating areas such as the following: Functional training: specific job skills. materials and facilities. Essentially there are three stages in managing the training of the human resources . such as Total Quality Management (TQM). it can help create personal job satisfaction and can overcome difficulties associated with change. job exchange schemes and project management. The training opportunities offered by an organisation may be influential in attracting and retaining person-nel. customer care programmes. emphasise the standards required and highlight company values at an early stage. training will be an essential part of communicating the new policy to all employ-ees. for example when introducing new technol-ogies. Workshops. especially in service organisations where a customer orientation is essential. Different modes of training are more suited to different training and development needs. It should be ongoing. coordinate training programme and trainees. Additionally. team briefings. and form an integral part of the employee s progress.direction for the future to employees and also plays a communications role within the organisation.of the organisation. study for formal qualifications Organisational development (cross-functional): quality initiatives. compare performance . formal presentations and structured programmes are commonly used.the staff .

then the task of looking after those people is equally important as financial. insurance) Appraisal schemes Pay structures Staff development and support Trade Union liaison Conditions of service Discipline and grievance procedures Termination issues (redundancy. e. there are a number of ways in which these wide-ranging aspects of human resources management can be translated into effective strategies for service organisations. In practical terms. managers and employees throughout the organization Clear identification with organizational goals and objectives Understanding of the needs and wants of external customers Close co-operation with other functional managers. An action plan can be designed along the following lines: Organisational Objectives . with customer care heading the agenda. industrial relations. If the human resource task is to be handled effectively. An audit of human resources management activity can be undertaken and continuously updated to ensure programmes and procedures are implemented in line with organisational and employee needs. managers need: A thorough understanding of the needs of the directors. human resources management plays a very central role within an organisation. Typically. quality circles Management of change Team briefings. ill-health) Capability Additionally. operations or marketing management. The managers who look after the people within an organisation may be grouped under the headings: personnel. They are all concerned with human resources management.though the commit-ment and initiation of such programmes must be led by top management and involve all line management and employees.g. the responsibilities of human resources managers include the following: Recruitment and selection Training and development Setting up new modes of operation. communications strategies Staff suggestion schemes Internal communications Administration (pensions. or training and development. Human Resources Management Issues When the people in an organisation represent its most valuable asset. A customer orientation must be at the forefront of all policies.

Building and promoting the organisation s image.313 63 . Recruitment Developing programmes for successful recruitment. Conducting recruitment in a fair and professional way. and their role in achieving success. for example. in line with the guidelines contained in the code of conduct of the Institute of Personnel Development. Providing opportunities for en1ployees to participate in developing organizational objectives. MARKETING OF SERVICES © Copy Right: Rai University 11.Effective transmission of organisational objectives to all employees/members of the organisa tion. Ensuring that all employees understand how performance against objectives is measured.

Integration between training and other functions. Providing appraisal training for all line managers and others required to undertake performance review activities. pensions. Reward systems for competence/ qualifications/performance. Management development programmes. Induction Establishment of effective induction programmes Managing ongoing induction with feedback Appraisal and Review Clearly defined job descriptions and person specifications and objectives. Development of competency profiles for specific jobs. Quality Liaison with functional managers on quality initiatives. Communications Internal marketing.Efficient response and follow-up procedures. Transmission of new ideas and initiatives. . Support for individual staff development. allowing for feedback fron1 staff. Development and implementation of training programmes. Evaluation. Ensuring that staff are always kept informed and in touch. Ensuring employees and managers share common understanding of the appraisal process. Pay Structure and Benefits Establishment of salary structure and reviews. Training and Development Identification of training needs. Publication of staff magazine and other internal communications. Provision and communication of benefits packages.

training. Communicating to employees the nature of responsibility for quality. Illustrated briefly here: Preliminary stage . to subcontractors for instance. The work has largely been carried out by independent subcontractors but the negative image has been associated with the Nynex name. industrial relations and other . the cable communications multinational. the actual task will differ between organisations. Suggested elements for a customer service audit include evaluation and review of personnel issues and performance mea-sures. offer / acceptance. extending customer care awareness and training programmes to sub-contractors or agents. however.arranging interviews. Sometimes training and information programmes may need to be extended beyond the organisation s employees. together with personal and job goal specification . Service organizations need to invest in human resources management to look after their most import-ant investment . Training is needed to impart knowledge and build expertise and also to give focus and direction for the future direction of the organisation and its employees. has suffered adverse publicity in the UK when installation work has damaged gas mains or created excessive disruption to homeowners in areas where installations have been carried out.induction. formal appointment Follow-up stage . training. Human resources managers work alongside managers in other functional areas (including marketing) to look after the people in an organisation. Their responsibilities cover a wide area with regard to selection. Nynex. The broad nature of the function is clear. where agents acting on behalf of a service provider need to be included in training and communications. and its close relationship wi th customer service can be seen. The basic steps in recruitment can be broken down into several key stages. processing applications Selection stage . The same may also be true in terms of channel management. ongoing development.identification of vacancy and requirements. may be worthwhile. instilling ownership for quality issues. In this situation.all areas where integra-tion with human resources management is appropriate.Involvement in implementing programmes for quality. Staff development incorporates training but goes a step further in designing strategies for an holistic approach to getting the most out of people and helping them maximise their potential. if feasible. The above list contains suggestions for human resources management.the people examined.

Why is the people element of the marketing mix so important in services marketing? 2. They also playa central role in the organisation in terms of enabling organisational objectives to be met successfully through the efforts and understanding of all the people in the organisation. List the typical responsibilities of the human resources manager.related issues. MARKETING OF SERVICES © Copy Right: Rai University 64 11. Suggest some of the influences which can hamper effective recruitment and human resources management in the public sector and similar areas. What is meant by the terms primary . Tutorials 1. 6. How can internal marketing techniques help in recruiting the right personnel? 5. Outline the stages in the recruitment and selection process. What areas should be incorporated into effective staff development programmes? 8. 7.313 . In what ways can the actions of service personnel influence customer perceptions of quality? 4. facilitating and ancillary in relation to the roles of people in service provision? 3.

a feeling of satisfaction after a good meal. Corporate Image The image which organisations present to the world at large is made up of many different elements. Some services are product based and service pro-viders will focus on ensuring that any facilitating goods which form part of the service are of an appropriate quality and standard. In the absence of actual goods or products about which the consumer can make judgments relating to quality and value. Corporate image and corporate identity play a key role in consumer perception. the consumer will look for other ways of evaluating the service.the way in which the service is created and delivered . These special aspects of services marketing are so fundamental to success that they represent two components of the marketing mix: process and physical an integral part of the service offering and the ultimate consumer benefits. decor and comfort. The consumer receives benefits deriving from the service . however. such as consultancy and financial advice are more difficult for the consumer to assess. A service is performed rather than handed over. Process is concerned with the functional aspects of service delivery such as queuing systems.LESSON 16: PROCESS AND PHYSICAL EVIDENCE The Objective of this Lesson is to have an insight into Importance of Process and Physical evidence Physical Evidence Influence of Physical evidence on corporate image and customer perception Process Keys Factors affecting Process Introduction The intangible nature of services mean that they are not bought and owned by consumers in the same way that physical goods are. Intangibility is also the reason for the importance of physical evidence in the services marketing mix. As discussed in previous sections. for example. some services are more intangible than others. cars for rental should be well maintained and in a presentable condition. This means that the performance process . The food in a restaurant must be of an acceptable standard and the surroundings clean. Its reputation as an . pleasure and entertainment from a visit to the theatre perhaps or a car in good working order after repairs have been carried out. timeliness and quality of delivery. Physical evidence includes facilitating goods. Services which are highly intangible.

childrens' amusements. layout. brand loyalty. geographical location toilets. payphones personal appearance. The number of factors which can contribute to a customer s perception can be vast and can range from fairly small details to more obvious influences. lighting. Using a fast food restaurant as an example. environmentally-friendly. availability hygiene. smell. presentation. convenience comfort. location of entrances/ exits. wheelchair access. manner. This is the evidence on which consumers base their opinions and it emerges from every interaction between the customer and the organisation at every level. friendly. attractiveness (inside and outside). the individual's knowledge of the organisation and its activities prompt. dress code. efficiency attitude towards the company image. Some of these influences make up the physical evidence component of the marketing mix. cold Controlling so many variables is the key management task in developing a favourable image amongst customers and . slipshod. slow. temperature style. well maintained car parking. logo. efficient welcoming. physical evidence could include The food itself Its packaging Seating Overall appearance Of the restaurant Accessibility Facilities Staff Corporate image Service delivery Atmosphere taste. decor. advertising.employer and its approach to social organisation are also strongly influenced by visual and other sensory signals as well as their experiences of a particular service or organisation. colour. cleanliness. customer information.

Many organisations use corporate identity as a unique selling proposition in promotional strategy. signals and impressions which customers receive isthe establishment of a strong and positive corporate identity. Managing these elements correctly is of crucial importance. Corporate Identity One way in which organisations attempt to reinforce all the messages.potential customers. especially in relation to the service product and the role of people in the service delivery process. as has been discussed in earlier chapters. staff uniforms house-styles and consistent standards.313 65 . This can be a powerful MARKETING OF SERVICES © Copy Right: Rai University 11. Corporate identity tangibilises corporate image by linking the values. logos. Corporate identity goes beyond corporate image in that it builds a distinctive and recognisable physical identity for the organisation. benefits and qualities of the organisation s image with identifiable physical attributes such as brand names. The importance of other elements of the marketing. Clearly it is more than a case of developing effective corporate relations and communications packages. mix can be seen.

particularly responsibility issues are examples of the factors which influence consumers subjective and objective judgments about an organisation. difficult to define as it is based on an individual s percep-tion of the message and signals reaching them concerning a particular product. however. organisation or public figure. However. which incorporate public relations. information and signals which they send out are consistent with the organisation s objectives and are positive and constructive at all times to protect the integrity of brand and corporate image. charities or parent teacher associations) Donors Employees From this list. Strategic programmes can be used to communicate effectively with target audiences which may include: Customers Potential customers Consumer groups The media Local groups or campaigns Special interest groups Volunteers (e. The strategy to achieve these objectives can then be designed using a combination of communications methods and tactics. In order to do this. Comprehensive corporate relations programmes. all the elements which make up the organisation s image should be managed as effectively as possible. This is also vital in terms of the association between corporate image and the concept of corporate identity. intermediaries and other bodies Improved understanding of the organisation and its activities internally and externally. or probably a combination of a number of these. managing the information and messages sent out by the organisation is not the only route to improved corporate image. value for money. Customers perceptions of an when brand and/or . These factors are often of equal importance in forming consumer attitudes and judgments as more obvious ones such as service quality. The objectives may revolve around increasing awareness and ensuring that the organisation is regarded favorably by target audiences or promoting certain aspects of the organisation s service which are innovative or which differentiate it from the competition.The key to successful corporate relations strategy lies in setting clear objec-tives. guarantees and luxury decor. The benefits which can arise from a well planned corporate relations program can include: Enhanced market reputation Increased market share Greater employee satisfaction/loyalty Better links with suppliers.tool for differentiation. It is therefore of vital importance that organizations ensure that the messages. Image is.g. it can be seen that effective corporate relations is a logical extension of relationship marketing. can playa key role in determining how the organisation is perceived.

airlines and security services. . Corporate apparel . house styles. in effect. Staff uniforms or work wear represent only one physical manifestation of corporate identity. Marriott hotels advertise the uniform appeal and quality of their hotels with the slogan: Always in the right place at the right time. but it is. Others include the visual images mentioned earlier such as logos. to name but a few. in-house magazines such as those offered by airlines anything. Customer Perceptions and Physical Evidence The examples of physical evidence described in the previous sections can be broken down into two main types. The traditionally austere and imposing banking halls of the past have been refurbished in more attractive styles and made more welcoming. An increasing number of organisations are paying particular attention to corpo-rate identity to reinforce their image.have now been joined by banks. pub restaurant chains and retail travel agents. Henley Management College ran advertisements -featuring the date of incorpo-ration (1945) and the award of a Royal Charter (1991). entertainment and high level of personal service. for example . in itself. stating established in some twenty countries across five continents under the copy Where in the world but Henley? clearly establishing firm credentials as a leading business school. in hotels. reasonably furnished and so on. The purchaser may become the owner of the item.corporate identity recognition is very strong. corporate gifts bearing the organisation s logo. architectural design of outlets which are instantly recognis-able and extend to monogrammed bathrobes. is a booming business as the sectors which traditionally presented a strong identity through the attire of their personnel . worthless unless the airline does offer the flight required or the insurance company actually exists and has sufficient funds available to cover a claim and the hotel room is warm. the term given to staff work wear and uniforms. which can be used to strengthen the customer s awareness and favorable perception of the organisation. building societies. as the following examples illustrate: Canard advertises The one and only QE2 in a promotional campaign for the ocean liner of that name stressing its legendary elegance. ITT Sheraton focus on their corporate branding in advertisements which an-nounce that each of their 400-plus hotels is different and unique but based on Sheraton s extensive experience with travelers around the world. described by the following terms: Peripheral evidence This type of evidence can actually change hands during the service transaction as in the purchase of an airline ticket or the issuing of motor insurance cover note or a hotel room key.

Examples MARKETING OF SERVICES © Copy Right: Rai University 66 11.Peripheral evidence includes those items which confirm the service. as in the examples mentioned but also includes items which are complementary to the service itself.313 . This means that the service can be performed without these items but they enhance the organisation s identity and can help make the customer s experience more enjoyable or positive.

is a glossy. newspapers and magazines for airline passengers. Their impression of qual-ity will always be subjective and based on their individual perception of the physical evidence and other elements of the service offering. for example. The monthly viewing guide. A number of key criteria are used to make this judgement and the following list of examples shows clearly the importance of physical evidence and the service delivery process itself: People: credibility. especially promotion and people. Essential evidence. as is their distinctive livery on patrol cars and vans. will help the potential customer or user to evaluate the service offering. Essential evidence is integral to the service offering and includes. courtesy. names and so on. This will reinforce the service image of quality when they are used on a daily basis in customers homes. physical reminders of the organisation s services.will also be closely regulated by the organisation. This leads to an important idea in assessing quality from a services marketing perspective: Perceived Service Quality Perceived. the facilities offered by a leisure centre or the items on display in an exhibition or museum which make a visit worthwhile. free house wine with a meal. The technical standard of the mechanics and the quantity of spare parts carried are examples of the essential physical evidence. the quality and standard of the essential evidence will be a major influence in the customer s purchase decision. while the essential evidence the quality of transmission . professionalism. Both these types of evidence combine with the organisation s other marketing mix elements. In all cases. except on a temporary basis as in the case of car or equipment hire. toiletries and chocolate in hotel bedrooms. in that it can be associated with clear mental images. Physical evidence. in its many forms. compared with the customer s own expectations and desired benefits. in the mind of the consumer. which forms part of the service.include books of matches. service quality represents the customer s judgment of an organisation s service based on their overall experience of the service encounter. They also help to make the service more tangible. Sky TV Guide mailed to satellite television subscribers. service quality is not easy to measure in a precise manner. The customer s overall judgment of service quality can be an evaluation to both the process and the outcome. As discussed in Chapter 10. to create an impression on customers and potential customers. colours. efficiency. This type of evidence will not normally be owned by or passed on to the customer. high quality magazine with articles and features as well as programme listings. as the following examples illustrate: The Automobile Association s handbook and membership card are perma-nent. or linen rental in catering. .

efficiency. These include: Customer participation in the process: The level of involvement or participa-tion of the customer in the service process in a self-service restaurant. for example. im-plemented and monitored are really no different from those mentioned relating to the fields of manufacturing. The principles by which service delivery processes can be designed. engineering and computer programming. In other cases. It is only more re-cently. computing and so it process dependent (usually the case with highly intangible services such as legal . in industry and in the services sector. The following section looks at the process element of the services marketing mix and some of the technological developments. trusted performance levels. Indeed it has given rise to such revolutionary developments as just-in-time and lean production in manufacturing and production operations. Travel arrangements can be made without visiting a travel agent and services as diverse as hair dressing. as opposed to waitress service. smartness The relative importance of the customer s perception of both essential and peripheral evidence in evaluating service quality has been highlighted but the impact of the service delivery process should also be considered. take-away food and financial consultancy can all be delivered to the customer at home if required. physical surroundings. accessibility. appearance.they co-produce the service so this must be taken into account in planning and management. Process The study of process . Develop-ments in technology have also helped revolutionize many processes in the home. Physical evidence: appearance of tangible aspects of the service. The service itself: The service itself . promptness.the way things are actually done and the steps taken to achieve desired results . without the need for any branches on the high street. dependability. Location of service delivery: Should the process be carried out at the service provider s premises or at the customer s home? For some services. that the importance of the actual process in service delivery has been recognized and developed as a tool for competitive advantage.approachability.has been given considerable attention over the years in the areas of manufacturing. Customers are frequently active participants in the service process . traditional practices may no longer be applicable as telephone banking and insurance services have shown. which have revolutionized service delivery in many fields. this seems a simple decision plumbing or carpet cleaning should be carried out in situ at the customer s home while dry cleaning or a theatrical performance will be carried out at a specialist outlet or venue. communications skills Process: timekeeping. There are certain specific characteristics of service process design and implementation however which should be considered. however.

High-contact or low-contact services: The level of contact between the customer and the service provider s personnel. vending machines or ticket booking machines of various kinds) to very high contact as in medical or professional services where the client or patient is being looked after by the organisation s personnel for varying periods of time.this can range from nil (as in the use of automatic cash dispensers.representation) or equipment based (such as vending machines or dry cleaning). MARKETING OF SERVICES © Copy Right: Rai University 11.313 67 .

to take place. and in particular. alternatives and actions required for a computer programmes to work successfully and carry out the tasks they are used for. In many cases. the personal element of the service which caters to customers different needs is a key factor in differentiating a service from its competitors. The purpose of setting down clear outlines or blueprints for service delivery processes and transactions is as follows: To ensure that the service is carried out in the fastest. Burger King have pioneered customer choice in allowing consumers to specify how they want their burger cooked and their own choice of sauces and . however. Complexity of the service: This is measured by the number of steps or activities which contribute toward the service delivery. Both these examples will be governed by standard procedures and guidelines which will be implemented with little divergence. it should be noted that complete standardisation of the service delivery process is not the most desirable option either for the service provider or the consumer. Chapter 10 which looks at service quality contains some useful information about dev-eloping quality practices and processes for services. or a motor garage perform-ing a routine car service. hotel operational management.a bank cashier accepting a deposit and updating the balance in a pass book for example. all these issues should be taken into account. The extent to which the service can be altered from the standard to meet the needs of different consumers or users may be termed divergence. In designing the service delivery process. about benchmarking for services and implementing the process. the McDonalds fast food experience) or whether some customization is catered for (as in professional services. where each client s needs will be slightly different and will be serviced accordingly). The steps required to deliver the service and provide the appropriate benefit satisfactions to the consumer can be mapped or blueprinted in the same way that flowcharts are used to denote all the decision. Sometimes. Less intricate processes will include far fewer steps and sequences of actions to deliver the service . Ensuring that tourists have an enjoyable holiday will include many different steps incorporating travel arrange-ments. high levels of customer contact and service and so on.Degree of standardisation: The degree to which the service is delivered in a very standard format (for example. most efficient and cost-effective manner possible To enable service quality to be monitored and benchmarks to be put in place thus allowing accurate measurement of both quality and productivity To facilitate staff training and enable individuals to carry responsibility for individual stages of the service transaction and delivery To reduce the amount of divergence thus enabling accurate budgeting and Manpower planning etc.

empowering them to use their own judgment to make decisions which will enhance the service delivery process. They call it empowerment. The account then relates how the traveler was very relieved to find out that the concierge had spotted his briefcase and sent it after him. The grateful traveler then goes on to say: His initiative saved the day. Automatic teller machines (A TM) are often cited as revolutionary technolog-ical developments in the services sector. I understand that this kind of conscientiousness on behalf of their guests is typical of all Marriott staff. it managed to arrive without me. McDonalds. Traditionally this has been the prerogative of the senior manager who has been allowed to negotiate a waiver of bank charges. on-line information for electronic funds trans-fer at point of sale (EFTPOS) can all be accessed instantaneously. whose range has been generally all offered as standard. Recently. Some organisations choose to let their personnel have a certain amount of discretion to make decisions and take alternative actions to improve customer satisfaction. It is even used in promotional material as a unique selling point as the following Marriott Hotels advertisement shows: I arrived at Hong Kong airport without my case. A level of built-in flexibility in process design can help achieve greater customer satisfaction and a higher quality service overall. however. however. 9 and 15) and is said to lead to better staff and customer relations and higher levels of service quality through employee pride in the job and the individual ownership of problems and short-falls.accompaniments under the at BK you got it slogan. I call it remarkable. Computer networks and the use of modems mean that realtime information about bank accounts. This empowerment of staff is very much in line with much of what has been said about people in earlier chapters (see Chapters 8. These cash dispensing machines are a familiar sight throughout the UK on the high street. leading to obvious advantages for service providers as well as customers or users of the service. This shows how some degree of customization can be introduced into very simple service delivery processes and is in direct contrast with their arch rivals. Changing attitudes towards staff empowerment and the increasing sophistication of the consumer and their demands are not the only factors to have impacted on service delivery processes. for example. the trend has been to allow greater flexibility to all staff. Technological Developments The pace of technological developments in recent years has had a major impact on service delivery processes and practices. at supermarkets. Thanks to the foresight of the Marriott concierge. . airline seat availability and theatre bookings. shopping centres. or upgrade an airline seat or a hotel room to make up for some inconvenience caused to the customer by the service provider.

313 . instant statements and bill payments. The services provided by these machines.motorway services and airports. are constantly being upgraded. MARKETING OF SERVICES © Copy Right: Rai University 68 11. where the user can specify a preferred language. It would be virtually unthinkable to consider using a banking service which did not provide this facility. Innova-tions include multi-lingual options. however. which is one of the reasons why their use has spread throughout all leading banks. finance houses and credit card issuers. while their numbers continue to grow.

Automated queuing systems in banks and post office$ are another familiar innovation which have reduced customer frustration and improved service generally. The use of information technology and advanced telecommunications has led to tremendous advances in all aspects of the process. Advances in technology have impacted on the process element in the marketing mix in many different ways as the above examples suggest. one of the most advanced postal groups in the world. hotels and many other possibilities. can plan for and provide an atmosphere within stores designed to be conducive to customer spending. Remote diagnostic tools can now be used to provide repair and mainte-nance services for computer equipment without the need for the engineer to leave base and spend time traveling to the client s premises. The Meteorological Office provides weather and climatic information on a worldwide scale for both public sector use and as a commercial service to industry. The Royal Mail. which have arisen directly from new technologies such as mobile telecommunications. laser treatments and keyhole surgery made possible by the use of fiber-optics. Atmospherics Another area which should be considered in reviewing the service process is that of atmospherics. which delivers continuously updated data from the Meteorological Office s central computer directly to users terminals. reliable service but has also managed to keep the price down thanks to advances in automated sorting and the use of barcodes. offers a fast. travel agencies. Weather fax is another innovation in delivery which can provide hourly updated information on users terminals. This is a relatively new area of study and has been limited to retailing by and large. hair and beauty salons and extends to include restaurants. MIST is another innovation. .Many organisations have used technology to improve service efficiency and profitability or to improve the service to their customers. but has obvious applications for services marketing wherever the service exchange takes place at the service provider s premises. to suggest just a few examples. Telecommunications facilities playa key role in ensuring that obser-vational data from all over the world are available promptly and reliably and then in delivering forecast products to consumers. notably in retailing. medical procedures such as scanning. The service is entirely dependent on up-to-the-minute data of the most perishable kind and rapid transmission and processing of information are essential to the process. satellite television. This is the term given to the way in which marketers. and especially in services retailing operations such as banks. This is in addition to the number of new services.

or to attract teenagers to a busy fast food outlet. for example. music and toys in an attempt to help patients relax and take a more favorable view of the experience. The combined effects of atmospherics within the service environment and the role of the people participating in the service delivery process call affect the customer s mood and subsequent purchase decisions. thereby inducing moods which will lead the consumer to act in a certain way with regard to purchase -linger in a restaurant and spend more on drinks. can have a variety of effects on humans. heavily scented. Some colours are known to stimulate while others represent comfort. Tutorials In light of above. Most of the research into the area has grown from retailing and developments in retail store and shopping mall design which can have a great deal of relevance for service marketers both now and in the future. Atmospherics is a developing area of study which is bound to be of potential interest to service marketers in all fields. be possible for the services marketing managers to control all of these influences. appetite stimulant Touch . Compare Apollo Hospital with Moolchand Hospital MARKETING OF SERVICES © Copy Right: Rai University 11.313 69 . layout. comfort. Hospitals could aim for a brighter atmosphere to aid recovery. lighting. actually make a holiday reservation while in the travel agency rather than simply picking up can be used to create an image in the customer s mind based on the following types of sensory stimuli: Sight . for example.temperature. Explain the physical evidence and process involved in a hospital.) The importance of creating a pleasant or enjoyable atmosphere has been well recognised but what is now emerging seems to be that consumers will respond to different atmospheres with different types of buying behaviour. pitch. austere surgeries to more attractive decor. background noise. colleges could use colours and decor designed to stimulate concentration.size.fresh. Dentists have moved away from very stark. Colour. colour Sound . Many steps have already been taken in this direction. tempo Smell . soft/hard (seating etc. volume. It can. theoretically. for example. warmth or security. Different combinations of colours and music could be used to create a soothing warm atmosphere in a restaurant. Music has also been recognised as a mood influencer.

largely. Yet the functional service required in each instance may be identical. The heterogeneous nature of service means that a service is never exactly repeated and will always be variable to some extent. . Inseparability of the service itself from the service provider highlights the role of people in the service transaction. a Ford Escort is regarded by many owners as a quality family car. consumer needs and expectations may differ. quality of supplied materials. from the same cashier. quality implies luxury or excellence. and their influence on quality levels. Service quality is not easy to measure in a precise manner. The nature and characteristics of services can have an impact on quality issues: The intangibility of many services means that it can be very difficult for service quality to be measured and assessed. An elderly customer in a bank might appreciate a cashier who takes time to chat and who addresses the customer in a familiar way. rather than poor quality being filtered out at the finished goods stage. which can be gauged precisely and measured in terms of conformance to specification. and. a Rolls Royce rather than a Ford. quality of production processes and quality assurance procedures mean that quality is built-in. and in many senses quality is subjective. This built-in quality is still measured in terms of conformance to what are. Quality control was applied at the end of the manufacturing process when units were checked for quality and defective units rejected. quality is seen as an element.LESSON 17: SERVICE QUALITY The Objective of this Lesson is to have an insight into · Importance of Service Quality · Developing service quality · Features of service quality · Service Quality standards · Links between service quality and marketing · Monitoring service quality Service Quality There are many definitions of quality. However. In seeking quality service. To many people. while McDonalds provide a quality fast food service. quality can also be measured in terms of fitness for purpose. internally developed specifications which can themselves be constrained by cost and productivity considerations. while a business customer might expect to be spoken to in a professional manner and the transaction to be completed as efficiently and quickly as possible. In manufacturing. This has changed now to the extent that the emphasis is in building quality into the manufacturing process. cordon bleu instead of fast food.

Developing Service Quality The reasons why developing and delivering a quality service is . This leads to an important idea in assessing quality from a services marketing perspective: perceived service quality. They can be broadly categorized as follows: People Credibility. how they decide whether or not they are satisfied with a particular service . however. The next section explores this further within the context of developing service quality.that is to say. good communications. very important for services marketing management. compared with the customer s own expecta-tions and desired benefits. for example). dependability. The customer s overall judgment of service quality can be an evaluation of both the process and the outcome. In measuring quality in this way. These key factors relate to areas covered by the extended services marketing mix: people. Research has indicated that consumers make these decisions using a number of key criteria to judge the service. This user-based approach equates quality with maximum levels or satisfaction. thus impacting on the quality of the service delivery process. The idea that quality is subjective and will be strongly linked to the individual s needs and expectations recognizes that consumers have different criteria for judging service quality. Perceived service quality represents the customer s judgment of an organization s service based on their overall experience of the service encounter. Understanding how customers arrive at this judgment . process and physical evidence. The customer may be involved in the service production. The most relevant approach in defining and measuring service is the user-based approach. accessibility. smartness This list illustrates some of the criteria used by customers in judging quality. efficiency Physical evidence Appearance of tangible aspects of the service. or benefit. trusted performance levels promptness. The actual output of the service may be judged by the customer in terms of their expectations of the outcome or benefit. identifying and understanding customers needs Process Timekeeping. Understanding the concept of perceived service quality is important for services marketing management. physical surroundings.The perishable nature of services can lead to customer dissatisfaction if demand cannot be met (if a hotel room or air ticket is not available at the time a customer demands it. courtesy approachability. a distinction needs to be drawn between quality of service delivery and the service output. professionalism.

so important can be broken down into three main areas: MARKETING OF SERVICES © Copy Right: Rai University 70 11.313 .

people require appropriate frameworks and systems. which can be investigated and developed to meet specified standards. education and medical services ~ill all be judged on vastly different grounds. are a constituent part of the service quality. However. they are equally applicable to organizations operating in the not-for-profit sector. Each of the above reasons for putting quality first can have a direct impact on profitability. However. ranging from the highly tangible to the highly intangible. but in order to operate effectively. Leisure services. Consumers are pre-pared to pay a higher price for services that fulfill all their expectation criteria. Services cover such a broad spectrum of activities. that universal regulation of quality standards is impractical. it is important to note the features which all services share: Customer participation: Customers are frequently active participants in the service process . The Total Quality Management philosophy has for its main focus the interaction between people and systems.that is to say getting it right first time costs far less than providing remedies when services fail to meet the customer s required standard. . Intangibility: Highly intangible services may be based on philosophical or conceptual elements. perhaps most importantly. and it is the sum of these. People are the critical ingredient in total quality. This abstract nature of some services makes them difficult for the service provider to describe. for example. a process and it is this element. Inseparability: Many specialized services are inseparable . is that quality is based on the customer s perception. which the customer will use to form judgments. whatever the service. With this in mind. The service encounter: Services are often comprised of a number of component parts. Better quality services can attract premium prices. in terms of image and customer to user satisfaction.they co-produce the service. financial services.Organizations with a reputation for consistently high quality can sustain an enviable competitive advantage in the service marketplace. and differences between service organizations mean that there is no single set of factors which can be classified to produce recognizable standards. Service is.the characteristics of the service provider in terms of expert knowledge or skill. and for the customer to evaluate. Assessing Service Quality Determining what makes a quality service is not easy. the common element in service quality. or the overall experience of the service encounter. Quality is free .

specific. The British Standards Institute (BSI) spent many years developing the standard. Quality is situation.Service Quality Standards Quality standards were originally developed within the context of production and manufacturing. discussed in other chapters. Setting Standards The true definition of quality will be unique to every organization as no two organizations will operate identical services marketing. focus clearly on the commit-ment and involvement of everyone in the organization in implementing success-ful marketing plans and programmers. not some specified quality manager. There is. despite the fact that service may be said internally to have quality. Concepts such as internal marketing and relationship marketing. whilst appearing quite complex. and numer-ous steering committees took several years to generate the standards by which service could be measured. Both have a customer needs based philosophy. The approved standards are identified as follows: National: BS (British Standard) 5750 European: EN 29000 International: ISO 9000 BS 5750 was generally the first standard of its kind in the world. However. and should reflect the overall business (or business-like) activities of the organization. Marketing relates closely to this idea. The BSI proposed that quality is a team concept. and many organizational issues are common to both. can be broken down into more simplified areas. not restrictive. There are now both national and international quality performance standards which show that organizations are implementing quality operations. These must attain certain quantifiable standards in order to gain approval. Quality systems need to be set up in line with the BSI recommendations which. the main concern was product quality and conformance. and the parameters of . in fact. BSI literature at the time discusses the problems posed by the task. not just production and operations. Quality should be functional. raising such questions as How do we put quality and its measurements in place for a service organization? Is quality important to the customer or the vendor? They suggest that it is important that quality is really that perceived by the customer. Finance. a very strong link existing between marketing and Total Quality Management. Quality systems designed to reinforce performance in these areas focus on procedures and processes. the development of systems to ensure performance quality now covers all functions. The most important aspect for success is. Marketing can playa significant role in quality. administration and marketing all have an impact on the organization s performance and customer satisfaction levels. the commitment of everyone in the organization.

Shortfalls in service quality can also arise when the performance of service delivery personnel fails to meet expectations. This market research should be undertaken in both the internal and external markets. Quality gaps occur when a shortfall arises between the customer~ expectations and the service actually delivered. as when managers do not fully understand what customers expect. Market research needs to be undertaken to pinpoint exactly what makes a quality service experience .perceived service quality. or when they are not fully committed to tailoring the service to meet these expectations. MARKETING OF SERVICES © Copy Right: Rai University 11.313 71 .what constitutes high quality can change over time. This is most important as it can reveal quality gaps. Quality gaps can be generated internally.

The audit should cover all functions and departments. Besides service delivery personnel there are many other actors within a service organization who facilitate the service delivery. A dry cleaning company offering a two-hour service may create customer dissatisfaction if the time taken is three hours when. the whole company and all the processes which go to make up the service offering must be investi-gated and analyzed. in reality. A checklist for the types of issues which need to be raised in internal market research includes the following: Internal Service Delivery This recognizes the fact that there are many parts which make up a service. These employees.delivering the right service fit through matching the service offering to the customers expectations. It is probably best if these are held away from the normal working area and are conducted by interview or discussants who are not line manage-ment personnel.A further cause of inadequate service quality can be when advertising or other external communications lead customers to expect a higher standard of service than that which is actually delivered. and effective service delivery can depend on all of those parts combining together precisely. This should engender an atmosphere where participants feel able to discuss quality issues frankly and without inhibition. and how can you overcome them? What do you think the role of marketing should be? . The service delivery must match the expectations of the customer at that point in time. The Quality Audit A good starting point for internal market research is the quality audit. not merely frontline personnel. Internal market research can be carried out through focus groups or discus-sion sessions. a same-day service may be perfectly acceptable to that particular customer. The quality audit provides an assessment of what is currently happening within the organization. all need to consider the following questions: Who is your internet customer? How many internal customers/ suppliers do you have? What are their needs? How does your interaction with internal customers in the organization impact on the service quality perceived by the ultimate (external) customer? What problems exist. in conjunction with front-line personnel. and in relation to that particular transaction. In the same way as a marketing or environmental audit is carried out. market research should now be used to analyze how near (or far) the organization is to getting it right .

how often? If not. which has a negative effect on the quality of service delivery? Does anyone else in the organization? Who is your favorite customer.Do you think that we deliver exactly what we have promised to the customer? If so. how? Do you think that we should measure performance and/ or quality? If so. and why? How often do you have interaction with a customer? The results of this type of internal market research can only be utilized effectively if there is accurate information available on the needs and expectations of the external market. and how often? Internal Service Quality The employees own perceptions of the organization s service quality must be examined in order to assess where potential quality gaps may arise. The following questions need to be addressed: How do you measure service quality? What are your /the organization s (internal) standards for: excellent quality satisfactory quality poor quality? How do you know when you are achieving or failing to meet these standards? What processes for monitoring service quality exist? Service Delivery Quality Frontline personnel who are actually involved with customers in the service delivery process should consider issues relating to their understanding of service quality: What do you understand to be the customer s expectations from this service encounter? What can you do to ensure that customer expectations are met fully? Are you doing anything. why not? Do you think that improvements could be made in your area? In other areas? If so. how should this be done. Market .

but will depend on getting close to the customer and building an understanding of their perception of service quality.research to assess and measure customer expectations thoroughly is essential. in the customer s view. can the quality of service we provide be improved? Market research of this nature should be ongoing to reflect changing needs and expectations.313 . As consumer sophistication increases and new services become available in the marketplace the criteria by which customers judge service quality will change. MARKETING OF SERVICES © Copy Right: Rai University 72 11. Research must be designed to address the following Issues: How do our customers judge the quality of service we provide? What is their judgment criteria? How do they compare the quality of our service with that of our competitors? What are the key differences that make our service quality better (or poorer) than our competitors? How. Market research techniques for assessing service quality expecta tions vary. hotels and other service providers routinely offer their customers the opportunity to give feedback on the service they have received by providing customer satisfaction questionnaires for the customer to complete each time the service is used. Many restaurants.

where services are far less tangible and customers are unhappy about the service they have received they may be unwilling to complain for a number of reasons: Embarrassment.swapping service providers when a service is not of satisfactory quality can result from any of the issues outlined above.if there are many service providers offering a particular service. for example. Quality gaps . a hairdresser or restaurant. In summery. If one of the key factors in long-term success is customer retention. but do not feel qualified themselves to take the service practitioner to task. may feel that the service they have received is not up to their expectations. however. will be inclined to complain until they receive satisfaction.where the employees understanding of what constitutes quality falls short of customer expectations -can be investigated and training or better communications implemented internally. High street shoppers will not hesitate to return goods which are unsatisfactory in any way. and customers are given the opportunity to discuss their service experiences. On the other hand. Many people do not want to make a fuss if they receive poor service from. the organization s approach to developing service quality standards and implementing quality practice can be represented by a seven point plan: Internal and external research what do customers really want and value? Listening to what customers and employees feel about performance against these factors Evaluation Action Monitoring . say. then a customer who is not satisfied may find it simpler to change service providers than to complain. for example. but in situations where the service is highly intangible it can be much more difficult to monitor customer satisfaction levels. then it is vital that customer satisfac-tion be maintained. Lack of specialist knowledge . Research along the lines discussed will enable the service provider to establish what makes up service quality in their business.customers buying the services of a lawyer.customers may feel embarrassed about complaining for a service which they feel dissatisfied with. research has shown that customers who do complain and then receive a positive response from the service provider which leads to customer satisfaction will be more inclined to use that service provider in the future. and customers who have received poor service from domestic trades people. In cases. an accountant or a hypnotherapies. Substitution . Level of substitutability .Shops and retailers have customer service counters to deal with complaints.

which is a common scoring or weighting system which takes into account the different characteristics of the subject for measurement. . In order to do this. This should take into account the standards against which competitors will operate and should reflect optimum quality standards within the competitive environment. for example. may be able to find solutions and new ideas from each others viewpoints which they could not find in their own experience or within their own organization. man-agement from very different types of organizations. This will enable service providers to measure performance and quality between different sized branches or based on newness of service activity in a particular market sector. Collaboration with non-competing firms based on sharing expertise in areas in which the organizations excel can lead to mutual benefits. This section looks at how this can be achieved through benchmarking. Knowledge and experience regarding best practice can be shared. for example. possibly in completely different industries. standard measures need to be determined. but also by considering the services offered by the railways and other alternative forms of travel and comparisons with their service quality. The establishment of a baseline figure and a common index is an essential part of measuring performance. This would mean. Studying best practice amongst organizations which are noncompeting (either directly or indirectly) can also help in achieving the objective of being the best . and this is likely to be more reliable and open than information sought concerning the competitions best practice. This may also mean taking into account the standards set by indirect competitors as well as organizations offering the same services. An index.outperforming other organizations in the marketplace.Improving and building Motivating Benchmarking The organization which has fully researched quality issues in both its internal and external markets should now be in a position to set quality standards which can be regulated and monitored and which meet customer requirements. that airlines would not only gauge their benchmark standards by looking at other airlines quality standards. This can be termed a benchmark . The benchmark standards will be adjusted overtime to reflect the achieve-ment of increasingly higher standards through enhanced process quality and in response to new customer expectation levels. The baseline is the target operating norm of the organization.a standard against which performance can be measured. The idea of synergy can operate here as well. both externally and internally. should also be developed.

the service delivery process and all the activities which go into it will be examined and broken down into component parts for which measurable targets.313 73 . Examples of standards or benchmarks based on response time variables include the following: MARKETING OF SERVICES © Copy Right: Rai University 11. or benchmarks. They will be developed as a result of the research carried out by a particular organization. Response time is one factor which impacts on service quality. The key focus will be the same in any situation.The actual values assigned to benchmarks will be situationspecific. This may translate quite simply into measures derived from variables which impact on the service encounter. however. and which is controllable by the service provider. can be set.

too. premises utilization staff development.Time taken to answer telephone s enquiries . Administration: Response times to written/ telephone enquiries. Resources: Implementation and management of systems. and the criteria used by customers in their own judgment of service quality.benchmarks . Service -quality is contingent on a highly developed customer orientation. Quality in service organizations is largely inseparable from the service delivery. and that calls are then managed efficiently. quality of ma-terials and literature used. Finance: Profitability levels. Specific variables can be defined follow-ing analysis of the competitive arena. and on meeting or exceeding the customer s expectations. Queuing systems designed to ensure that all customers are served within an acceptable time. It has already been shown that market research must be carried out both inter-nally and externally in order to establish service quality standards . from top management down. Some examples of the areas within an organization for which benchmarks can be established are as follows: Sales force: Call-to-order ratios. Response time to assist motorists in difficulty . so the key focus in service quality is on people. Implementing Quality Service Marketing management can playa key role in achieving quality service through-out the organization. and to fine-tune its market offering so that all customer quality standards are met or exceeded.Automatic Call Distribution systems can ensure that all calls are answered within a certain number of rings. size. customer retention. costs reduction. in practice. which the organization can measure and assess its performance. Benchmarks can be created for all the component parts of an organization s operations.the National Breakdown organization guarantees that assistance will arrive within one hour of the problem being reported. Quality results from a team effort.response times. Internal marketing has a key role to play. a customer-consciousness which permeates through all levels of the organization. This list is not comprehensive and it will. expertise on both company and range of services. return on investment. training. Internal marketing is concerned with people in organizations and effective internal marketing programmes address the issues which impact on quality. Benchmarking in this way will enable the organization to build in service quality. be made up of areas identified as being of the greatest importance in enabling the organization to out-perform others in the marketplace. The examples discussed above relate to just one area . .

drives from the values associated with both technical and functional service quality. Management should end self that every employee knows what the organization s objectives are. This training might include customer care programmes. Technical quality and functional quality levels will depend on the implementation of service quality throughout the organization. Developments in internal marketing and relationship marketing combine to provide an approach which fosters integration and commitment to quality throughout the organization. enabling employees to be responsive to their internal customers and suppliers. Managing service quality as outlined throughout this chapter combines the aims of marketing -meeting customer needs and expectations . and specific technical training to develop expertise in advising customers about the services offered. and their relative importance. Training for personal development is also important. Internal communications can also be a useful tool in engendering a team spirit and in motivating personnel.and training of staff are critical factors in ensuring that quality performance standards are met.Two of the most important components of internal marketing which are critical for any organization seeking to implement quality service are: Communication Training Perceived service quality. as motivation and job satisfaction are key elements in the provision and maintenance of quality service. Both share a customer-directed philosophy. what desired quality goals have been set and what their individual role is in achieving these targets. Communications should be designed to foster coordination and integration. The Links Between Service Quality and Marketing Total Quality Management and marketing have very strong links within the organization. the customer s individual evaluation of their service experience with an organization.both inter-nal and external. This can be very important in the drive for service quality. Training Training needs to be undertaken to develop employees understanding of how they can deliver service quality. The extent to which the organization is doing it right should . Communication Communication internally may need to be improved to ensure that there are no breakdowns in communication between the elements within the organization which make up a particular service. and both focus on teamwork and commitment from all levels of the organization.with a framework for implementing quality which has similarities with Total Quality Management. Good communication .

These frameworks should be rigorously defined so that the chance of anything going wrong in the service delivery process is miniMARKETING OF SERVICES © Copy Right: Rai University 74 11. then this will set clear pointers for liras where quality improvement programmes need to be implemented. If a quality gap is uncovered. Information of this nature can be used in quality programme definition. With the emphasis on the people and process elements of the services marketing mix.313 . Other measures of the degree to which quality improvements are needed will arise from the analysis of the competitive arena and from customer satisfaction and retention demonstrated by the findings of the internal and external research carried out. This will be an important factor in planning future programmes. frameworks can be developed to ensure quality service implementation.

Research the competitive arena. they should allow for flexibility and scope for the personal approach where appropriate. These fall largely into three main categories: Internal Performance Analysis Customer satisfaction analysis Specialist Market Research . Develop-ing service quality strategies and programmes should be a cyclical process so that standards are updated and changed whenever needed to continue to maintain competitive advantage. Develop organizational quality standards . This should include both internal and external marketing programmes. the programme must then be monitored and evaluated and it should be continu-ously performancetested. Carry out market research. Implementing the service quality programme is really only a starting point. Develop a QUALITY Strategy to close quality gaps and build existing quality standards.Benchmarking. To summaries. The use of benchmarks makes this possible. This idea brings service quality back to the marketing concept and the mar-keting mix. Monitoring Service Quality There are a number of techniques which can be employed to monitor service quality.mized. Design programmes for implementation: procedures/ frameworks training communications Implement service quality programme. the quality process for service organizations can be outlined as follows: Define and understand quality within the organizational context. Identify where quality standards are being met/exceeded/not met. organizations build in service quality to their marketing programmes. By fine-tuning all the elements of the marketing mix to the customer s needs and wants and ensuring that the customer receives the benefits and quality which they are seeking. both internally and externally. On the other hand. Monitor and evaluate the programme and fine tune where necessary.

should also be referred to in monitoring service quality. British Telecom telephones new subscribers after they have had a telephone installed to ask how they would rate the service received. Internal market research should also con-tinue to ensure that no further quality gaps arise. while other figures can also represent trends which reflect quality issues. Internal Performance Analysis Internal performance analysis will be undertaken by all organizations to measure the success of their planning. but simply switch to another service provider. Customer complaints should be monitored closely to see whether any trends are emerging. This is critical. Focus group discussions and other market research techniques can be utilized to ask customers directly about their satisfaction with service quality. Staff at all levels should be involved in the monitoring process and should be encouraged to be proactive in identify-ing and resolving quality problems. Systems should be established therefore to carry out customer . The questionnaire invites the customer to comment on the service delivery. this involves carrying out some sort of follow-up survey amongst customers who have used a service recently. and steps must be taken to rectify the problems notified. especially when the vast majority of customers who have experienced dissatisfaction may not complain. and other internal reporting data which is not directly quality -based. Many hotel chains leave guest questionnaires in rooms. it is important to monitor customer complaints. and that staff are satisfied that all areas are working together for optimum service quality. in practice a service organization would develop monitoring and evaluation schemes based on a combination of these methods. Typically. In particular. Sales figures. Customer reten-tion levels are a key indicator to quality performance. National Breakdown. not necessarily relating solely to quality. Steps should be taken very quickly to rectify any shortfall in service quality and internal monitoring should be continuous. and the nature of the complaints. sends its members a satisfaction questionnaire after every breakdown. such as the response time and the action taken. and to assess specific features. but another very import-ant element in quality analysis is monitoring the times when the customer addresses the organization directly. Quality benchmarks will be used in the internal performance analysis to measure the quality standards being achieved in practice. or present them at the time of checkout.These areas will be discussed individually in this section. for guests to comment on service quality. All these methods address the customer about satisfaction levels. Customer Satisfaction Analysis Organizations can use a number of methods to monitor customer satisfaction. The number of com-plaints received may be much smaller than the total number of dissatisfied customers. a motoring assistance organization.

MARKETING OF SERVICES © Copy Right: Rai University 11. follow-up questionnaires and courtesy calls should be implemented. Market research. They may also observe the cleanliness of the premises.will visit the branches of the service provider and pose as an ordinary customer. courtesy and response times and will report back their findings.a trained market researcher . They will assess such aspects as the expertise of the staff. so that future decisions and actions can be taken on an informed basis. A mystery shopper . Specialist Market Research This type of research can involve a number of techniques. and any underlying problems ironed out.satisfaction analysis on a continuous basis.313 75 . and a proper system for handling com-plaints set in place. but perhaps the most common is the mystery shopper technique. A complaints handling system should not only ensure that complaints are dealt with speedily and positively. but also that the information regarding the complaint is fed back through the correct channels within the organization.

the overall appearance of the staff and the customer environment. The purpose is to monitor overall standards and impressions of quality, not to single out individual members of staff. Mystery shoppers are widely used by banks, building societies and other service outlets. Mystery diners !lave long been the basis of some of the best known restaurant guides, and mystery guests are used to judge hotel standards. Observation techniques can also be used in assessing quality standards. The layout of waiting rooms and other facilities, in, say, hospitals, can be improve by observing the behavior of visitors. Signposts and directions can be made clearer if necessary, and vehicle access improved if observation suggests that these cause difficulty for users of the service. All of these considerations contrib-ute to the customer s perceived service quality, and improvements should be made where necessary. The purpose of monitoring and evaluation in all of these methods is to ensure that plans and programmes are working effectively, and that desired standards are being achieved. There must be systems to feed back the findings of monitor-ing processes into the - service quality programmes so that continual improvement can result. The quest for high quality service delivery never ends; in fact, the quality goalposts keep changing as consumer tastes and developing technology bring about higher standards. Summary Organizations are becoming increasingly aware of the importance of quality in gaining and maintaining competitive advantage. Service quality can only be measured against the needs and expectations of consumers. The special characteristics of services make it difficult to define quality in traditional ways. A user-based approach can be used which equates quality with the maximum levels of satisfaction; this is the idea of perceived service quality. Because all services are essentially different, it is not possible to develop a single set of standards or criteria against which quality levels can be measured. Specific common features which are likely to impact on service levels in all service organizations include the following: Customer participation Intangibility The service encounter Inseparability A starting point for assessing quality within the organization is by means of a quality audit which examines the whole company and all the processes which together comprise the service offering. Checklists can be raised to address specific issues concerning each of these areas:

Internal service delivery Internal service quality Service delivery quality Benchmarking is an important step in measuring and monitoring service quality. A benchmark is a standard against which performance can be measured. It should take into account the standard at which competitors operate and should reflect optimum quality within the competitive environment. Implementing quality service requires far more than the setting of benchmarks however; a highly developed customer orientation is vital if the organization is to meet and even exceed customer expectations continually. A detailed process for im-plementing service quality involves the development of a quality strategy, programmes for implementation and monitoring and evaluation procedures. Service quality can be monitored through various techniques based around the following: Internal performance analysis Customer satisfaction analysis Specialist market research Tutorials In light of above, Compare the Service quality standards of Haldiram s versus Mc.Donalds. MARKETING OF SERVICES © Copy Right: Rai University 76 11.313

LESSON 18: SERVICE STANDARDS The Objective of this Lesson is to have an insight into · Factors necessary for appropriate service standards Factors Necessary for Appropriate Service Standards Standardization of Service Behaviors and Actions The translation of customer expectations into specific service quality standards de-pends on the degree to which tasks and behaviors to be performed can be standardized or reutilized (Figure 9-1). Some executives and managers believe that services cannot be standardized-that customization is essential for providing high-quality service. In certain expert services such as accounting, consulting, engineering, and dentistry, for example, professionals provide customized and individualized services; standard-izing of the tasks is perceived as being impersonal, inadequate, and not in the cus-tomer s best interests. Managers also may feel that standardizing tasks is inconsistent with employee empowerment-that employees will feel controlled by the company if tasks are standardized. Further, they feel that services are too intangible to be measured. This view leads to vague and loose standard setting with little or no measurement or feedback. In reality, many service tasks are routine (such as those needed for opening check-ing accounts or spraying lawns for pests), and for these, specific rules and standards can be fairly easily established and effectively executed. Employees may welcome knowing how to perform actions most efficiently, for it frees them to use their inge-nuity in the more personal and individual aspects of their jobs. If services are cus-tomized for individual customers (e.g., investment portfolio management or estate planning), specific standards (such as those relating to time spent with the customer) may not be appropriate. Even in highly customized services, however, many aspects of service provision can be reutilized. Physicians and dentists, for example, can and do standardize recurring and non technical aspects of the service such as checking pa-tients in, weighing patients, billing patients, collecting payment, and taking routine measurements. In delegating these routine tasks to assistants, physicians and dentists can spend more of their time on the more expert services of diagnosis or patient care. According to one long term observer of services industries, standardization of service can take three forms: (1) substitution of technology for personal contact and human effort, (2) improvement in work methods, and (3) combinations of these two methods.4 Examples of technology substitution include automatic teller machines, au-tomatic car washes; and airport Xray machines. Improvements in work methods are illustrated by restaurant salad bars and reutilized tax and accounting services devel-oped by firms such as H&R Block and Comprehensive Accounting-Corporation.

Technology and work improvement methods facilitate the standardization of service necessary to provide consistent delivery to customers. By breaking tasks down and providing them efficiently, technology also allows the firm to calibrate service standards such as the length of time a transaction takes, the accuracy with which op-erations are performed, and the number of problems that occur. In developing work improvements, the firm comes to understand completely the process by which the service is delivered. With this understanding, the firm more easily establishes appro-priate service standards. How does a company change the way work is done to make the process of deliver-ing service match what customers expect? The concept of reengineering of company processes plays a major role. Reengineering involves rethinking the way the company is organized to perform its work. Often it involves creating completely new processes and approaches and ignoring the way work has been accomplished in the past. We will discuss reengineering and process management in other chapters, but these go hand in hand with the standards material we describe in this chapter. Standardization, whether accomplished by technology or by improvements in work processes, reduces gap 2. Both technology and improved work processes structure im-portant elements of service provision and also facilitate goal setting. It is important to recognize that standardization does not mean that service is performed in a rigid, me-chanical way. Customerdefined standardization ensures that the most critical elements of a service are performed as expected by customers, not that every action in a service is executed in a uniform manner. Using customer-defined standardization can, in fact, allow for and be compatible with employee. Empowerment. One example of this compatibility involves the time limits many companies establish for customer service calls. If their customers highest priorities involve feeling good about the call or resolving problems, then setting a limit for calls would be decidedly company de-fined arid not in customers best interests. In other words, this would be standardiza-tion that both constrains employees and works against customer priorities. Companies such as American Express and L. L. Bean, in using customer priorities rather than company priorities, have no set standard for the amount of time an employee spends on the telephone with a customer. Instead, they have standards that focus on making the customer satisfied and comfortable, allowing telephone representatives to use their own judgment about the time limits. Formal Service Targets and Goals Companies that have been successful in delivering consistently high service quality are noted for establishing formal standards to guide employees in providing service. These companies have an accurate sense of how well they are performing service that is critical to their customers-how long it takes to conduct transacMARKETING OF SERVICES © Copy Right: Rai University

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tions, how fre-quently service fails, now quickly they settle customer complaints-and strive to im-prove by defining goals that lead them to meet or exceed customer expectations. Several types of formal goal setting are relevant in service businesses. First, there are specific targets for individual behaviors or actions. As an ex-ample, consider the be-havior calls the customer back quickly, an action that signals responsiveness in con-tact employees. If the service goal for employee behavior is stated in such a general term as call the customer back quickly, the standard provides little direction for service employees. Different employees will interpret this vague objective in their own Ways, leading to inconsistent service: Some may call the customer back in 10 minutes whereas others may wait two to four days. And the firm itself will not be able to de-termine-when or if individual employees meet the goal because its- expression is not measurable-one could justify virtually any amount of time as quickly. On the other hand, if the individual employee s service goal is to call each customer back within four hours, employees have a specific and unambiguous guideline about how quickly they should execute the action (four hours). Whether the goal is met is also unequivocal: If it occurs within four hours it meets the goal, otherwise it does not. Another type of formal goal setting involves the overall department or company tar-get, most frequently expressed as a percentage, across all executions of the behavior or action. For example, a department might set as its overall goal to call the customer back within four hours 97 percent of the time and collect data over a month s or year s time to evaluate the extent to which it meets the target. Service firms that produce consistently excellent service-firms such as Walt Disney, Federal Express, and Merrill Lynch-have very specific, quantified, measur-able service goals. Walt Disney calibrates employee performance on myriad behaviors and actions that contribute to guest perceptions of high service quality. Whether-they are set and monitored using audits (such as timed actions or customer perceptions (such as opinions about courtesy), service standards provide a means for formal goal setting. Customer not Company-Defined Standards Virtually all companies possess service standards and measures .that are company de-fined they are established to reach internal company goals for productivity, efficiency, cost, or technical quality. To close gap 2, standards set by companies must be based on customer requirements and expectations rather than just on internal company goals. In this chapter we make the case that company-defined standards are not typically suc-cessful in driving behaviors that close provider gap 2. Instead a company must set customer-defined standards operational standards based on pivotal customer require-ments that are visible to and measured by customers. These standards are deliberately chosen to match customer expectations and to be calibrated the way the customer views and expresses them. Because these are the goals that are essential to the provision of excellent service the rest of

this chapter focuses on customer-defined standards. Knowing customer requirements, priorities, and expectation levels can be both ef-fective and efficient. Anchoring service standards on customers can save money by identifying what the-Customer values, thus eliminating activities and features that the customer either does not notice or will not pay for. Through precise measurement of expectations, the company often discovers that it has been over delivering to many customer needs: On the other hand, many firms create standards and policies to suit their own needs that are so counter to the wishes. of customers that the companies endanger their cus-tomer relationships. In late 1998, when the hotel industry was booming, many hotels initiated policies penalizing late arrivals and early departures as well as imposing minimum-stay requirements. The Hilton San Francisco and Towers Hotel began to charge guests $50 when they stayed fewer days than agreed to at check-in. The Peabody Orlando Kept guests onenight deposits unless they canceled at least three days prior to arrival. And a Chicago hotel required a business customer to buy four nights lodging when all she needed was three, putting the-customer out an extra cost of $2,700!6 Hotels defend these policies on the basis of self-protection, but they are clearly not customer oriented. While customer-defined standards need not conflict with productivity and effi-ciency, they do not originate with these company concerns. Rather they are anchored in and steered by customer perceptual measures of service quality or satisfaction. The service standards that evolve from a customer perspective are likely to be different from company-defined service standards. Virtually all organizations have lists of things they measure regularly, most of which fall into the category of companydefined standards. Often these standards deal with activities or actions that reflect the history of the business rather than the reality of today s competitive marketplace or the needs of current customers. Customer-defined Service Standards The types of standards that close provider gap 2 are customerdefined standards, oper-ational goals and measures based on pivotal customer requirements that are visible to and measured by customers. They are operations standards set to correspond to cus-tomer expectations and priorities rather than to company concerns such as productiv-ity or efficiency. Take a typical Operations standard such as inventory control. Most firms measure inventory control from the company s point of view. However, the highly successful office supply retailer Office Depot captures every single service measurement related to inventory control from the customer s point of view. The company began with the question, What does the customer see? and answered, The av-erage number of stock outs per week. Office Depot then designed a customer-focused measurement system based on measures such as the number of complaints

and com-pliments it received about inventory as well as a transaction-based survey with the cus-tomer about its performance in this area. MARKETING OF SERVICES © Copy Right: Rai University 78 11.313 . These and other customer-defined standards allow for the translation of customer requirements into goals and guidelines for em-ployee performance.

They feel rushed. handle complaints (by sundown each day). and without our asking for it. Responsiveness perceptions diminish when customers wait to get . if we do not receive it shortly after the last course. which means that the service is performed at the scheduled time. Little management consulting firm found that the most frequently cited customer complaint was late product and service delivery (44 percent). right first time would likely mean that the equipment was installed correctly and was able to be-used immediately by the customer. companies can institute a do. service pro-viders need to recognize that customerdefined service standards often need to be adapted. Many of Federal Express s standards relate to on-time delivery and not making mistakes. requested or not) is an activity that restaurants need to incorporate as a customer-defined service standard. In the United States we expect waiters to bring the check promptly. The company representative arrives when promised or the delivery is made at the time the customer expects it. In Spain. When it comes to providing service across cultures and continents. A series of 35 studies across numerous industries from the Arthur D. it right the first time and an honor your promises value system by establishing reliability standards . however customers can side it rude far the waiter to bring the check to the table without being asked to. companies must have well-staffed customer service depart-ments. While bringing the check to the table (whether sooner or later. which means that the service performed is done correctly the first time according to the customer s assessment. customer expectations of reliability-fulfillment of service promises-are high. answer questions (within two hours). followed by product and service quality mistakes (31 percent). and for good reason. we evaluate the service as slaw and non responsive. and arrive far repair calls (within 30 minutes of estimated time).An example of a generic reliability standard that would be relevant to virtually any service company is right first time. right an time would likely mean that the service was completed by the promised date. In more complex services. Hard service standards far responsiveness are set to ensure the speed or promptness with which companies deliver products (within two working days). timed. or observed through au-dits. If the service involves installation of equipment. In fact. Another example of reliability standard is right an time. such as disaster recovery or systems integration in computer service.? To address the need far reliability. a state they dislike during meals. As we stressed earlier in this text.Hard Customer-Defined Standards Two major types of customer-defined service standards can be distinguished. All of the Federal Express standards that comprise the SQI fall into the category of hard standards and measures:-things that can be counted. do so. If the service involves delivery of products right first time to the customer might mean that the shipment is accurate-that it contains all that the customer ordered and nothing that the customer did not order. In addition to standard setting that speci-fies levels or response. the parameters of the standard must be adapted to the culture.

order correct Southern Pacific Operational measures to On-time delivery correspond with the 19 key Federal Express attributes . timed. counts. Far example. or observed through audits.entered same day and Building delivery. understanding and knowing the customer is not a customer priority far. Federal Express has a relatively simple and standard set of services. This list is a small subset of all of these standards because we in-clude only those that customer defined-based an customers requirements and perspectives. Table 9-1 Examples Of Hard Customer-defined Standards Honeywell (Home Fast response. In contrast to hard measures. order accuracy received. Nat everything that counts can be counted. times. guidance. however. Table 9-1 shows a sampling of the hard standards that have been established by service companies. are put on hold. Because. or others. or observes employee s can adequately capture. on-time Orders. Soft standards provide direction. are as easily quantifiable as these at FedEx. which a standard that counts. it can translate mast of its customers requirements into hard standards and measures. As Al-bert Einstein once said. Nat all standards. employees. soft measures are those that must be documented using perceptual measures. orders delivered Division) 19 key attributes when promised. We call the second category of customers-defined standards soft standards and measures because they are opinion-based measures that cannot be observed and must be collected by talking to customers.through to the company by telephone. and not every-thing that can be counted. or are dumped into a phrase mail system. Soft Customer Defined Standards All customer priorities cannot be counted.

Rapid response to Number of missed pickups University technical problems 36-hour response time Microfilms (previous standard: 7 days) Accessibility Theses processed in 60 days Great Plains (previous average. Information Number of packages wrong Services Fast processing of theses day late. 150 days) Software Fast response.Fast turnaround on Number of packages right day Dun and Bradstreet company investigations late. regular Response time guaranteed at 1 contact with customer s or 3 hours (or get $25 coupon) Canadian Imperial 5-minute early opening and Bank of Commerce Getting the concrete .

more On-time delivery personal contact Glasses in 1 hour Texas Instruments On-time delivery. Granite Rock proactive service calls 3 times Lens crafters Compliance with per year (optical retailer) commitments. 2-hour glasses response time for requests.S. answering. Electronics Group) number of customer visits Company Customer priorities Customer-defined standards back to employees in ways to achieve customer satisfaction and can be quantified by measuring customer preconceptions and .late closing when the crew is ready 20-second average call Aetna/U. 95% same day Healthcare Quick turnaround on problem resolution. product (Defense Systems compliance to requirements.

Table 9-2 shows examples of soft customer-defined standards.beliefs. These are especially important for person-to-person interactions such as the selling process and the delivery process for professional services. a firm that franchises home and office janitorial services.313 79 . The company sends out crews of four who perform these 22 tasks in an average time of 55 minutes for a MARKETING OF SERVICES © Copy Right: Rai University 11. Mini Maid Services. suc-cessfully built a business by developing a repertoire of 22 customer defined soft stan-dards for daily cleaning chores.

fee ranging from approximately $45 to $55. L. One-time fixes are technology. Summarizing actions Closing understanding the customer's question or request Ritz-Carlton Treat me with respect "Gold Standards" Uniforms are to be immaculate Wear proper and safe footwear Wear name tag Adhere to grooming standards Nationwide Responsiveness Notify supervisor immediately Insurance Calming human of hazards Use proper telephone L. policy. when instituted. address customer requirements (see Exhibit 9-2). uses a set of.Time Fixes When customer research is undertaken to find out what aspects of service need to be changed. The differences between hard and soft standards are illustrated in Exhibit 9-1 using the customer care standards developed at Ford Motor Company. One. "May I place Telephone you on hold?" . or procedure changes that. The Ritz-Carlton. following through with Tone of voice Problem solving promises made. Gold Standards to drive the service performance it wants. inner of a Malcolm Baldrige Award. Performance standards do not typically need to be developed for these dissatisfies because the one-time change in technology. etiquette. Table 9-2 Examples Of Soft Customer-defined Standards Company Customer priorities Customer-defined standards General Electric Interpersonal skills of operators: Taking ownership of the call. being courteous and knowledgeable. policy. requirements can sometimes be met using one-time fixes. Bean voice. minimize customer anxiety. or procedures accomplishes the desired change. Follow-up trailer calls survey customer perceptions of the effectiveness of these soft standards. Ask the caller. The soft standards established are in-cluded in Table 9-2.

Hertz and other rental car companies express check-in. address card member by name. the hospital was reorganized around 14 ambulatory centers such as rehabilitation services and a family care center that combined obstetrics. had customers who desired 24-hour availability of ground rock . plans were announced to convert it to a patientfocused hospital. GM Saturn s one-price policy for automobiles. a Malcolm Baldrige National Quality Award winner with a commodity product. and gynecology. caring and concern Resolve problem at first contact (no transfers. pediatrics.Do not screen calls BellSouth responsiveness Eliminate call transfers where possible American Resolution of Human voice on the line when customers report problems Express problems Tone of voice. take all the time necessary. 'be appropriately reassuring (open and honest) Put card member at ease_ be patient in explaining billing process. display sincere interest in helping card member. despite the fact that 90 per-cent of the hospital s patients were outpatients. ability to answer questions. And Granite Rock. from the architectural design of the buildings to staff processes and activities. communicate arid give adequate instructions. and Granite Rock s 24-hour express service. Examples of successful one-time fixes include Marriott Hotel s express checkout and-cheek-in. centered on the inpatient aspects of the business. customer had expressed a desire to be served in ways different from the past. When the hospital became a self governing trust under the British government s National Health Service reforms. Marriott s customers had clearly Ti1dicatecf thelr frustration at waiting in long checkout lines. courteous and professional. At one time almost everything about Central Middlesex. thank card member at end of call To illustrate policy and procedure changes in an international context. In each of these examples. With the recogni-tion for this change. Saturn customers disliked haggling over car prices in dealer showrooms. or multiple contacts). The most important one-time fix was to reverse the emphasis from inpatients to outpatients. other tasks not done (arranging gift boxes) Treatment while on the telephone with customers Courtesy of representative Customers not put on hold or transferred. other calls. consider London s Central Middlesex Hospital. listen attentively. Listen. do everything possible to help.

313 . the fol-lowing seven specific service standards were established as most critical to customers: 1. there are two types of customerdefined service standards.400 customers asked them about spe-cific expectations for automobile sales and service. Service needs are courteously identified. Vehicle ready at agreed-upon time. 2. Exhibit 9-1 Hard and Soft Standards at Ford Motor Company As we discuss in this chapter. are option based measures that cannot be obtained by counting or timing but instead must be asked of the customer. 5.from its quarry. Appointment available within one day of customer s requested service day. The other category. accurately recorded on repair order. A real example of the difference between. 3. 6. Marketing research involving 2. Vehicle serviced right on the first visit. Thorough explanation given of work done. 7. coverage. MARKETING OF SERVICES © Copy Right: Rai University 80 11. Write-up begins within four minutes or less. or observed through audits. Service statuses provided within one minute of inquiry. We use Ford Motor Company s Customer Care standards for service at their dealerships. 4. Soft standards. Hard standards and measures are operational measures that can be counted. and charges. and verified with customer. timed. hard and soft standards might help distinguish between them.

and feed-back to employees in ways to achieve customer satisfac-tion and can be quantified by measuring customer percep-tions and beliefs. It is not that soft standards cannot be measured. Standards 2 and 5. a . and Granite Rock each re-sponded with one-time fixes that virtually revolutionized the service quality delivered by their companies. and 6. Saturn countered industry tradition and offered cus-tomers a one-price policy that eliminated the haggling characteristics of automobile dealerships: And Granite Rock created an ATM like system for 24-hourcustomer access to rock ground to the 14 most popular consistencies. timed. Where most companies in their industries decided for various reasons not to ad-dress 1hese customer requirements. The company created its own Granite Express. And the number of vehicles ready at the agreed-upon time could be tallied as customers come in to pick up their cars. The number of repeat visits could be counted to measure standard 4. These are especially important for person-to-person interactions such as the selling process and the delivery process for professional services. such as standards 1. guidance. and receive their supplies at any time of the day or night. Other standards could be counted or audited. could be timed by an employee in the service establishment. Consider standards 3 and 7 and note how they dif-fer from the ones we have just discussed. instead. for example. and any of us measure the responsiveness and service of an organization by how long it takes us to get to the teller or the counter or our table in. select. Standard 7 requires a different type of measure-the customer s perception or opinion about whether this behavior was performed appropriately. Marriott. and not everything that can be counted. The service clerk who answers the telephone could record the number of times that appoint-ments were available within one day of the customer re-quest. Not everything that counts can be counted.Hard Standards and Measures Several of these standards fall into the category of hard standards-. Saturn. Exhibit 9-2 One-time Fixes and Waiting in Line Few customers like to wait in line. The company also pioneered a similar one-time fix for hotel Express Check-In. These represent desired behaviors that are soft and therefore cannot be counted or timed.-they can be. Card that allowed customers to enter. The hard measure could be either (1) the frequency or percentage of times that the standard s time periods are met or (2) the av-erage times themselves (e.. they must be measured in different ways. average time that write-ups begin).g. or observed through audits.! a one-time fix that also resulted in productivity improvements and cost reductions.4. Soft standards provide direction. Soft Standards and Measures As Albert Einstein once said. again in response to customers expressed desires . counts. Marriott used technology to create Express Checkout.

Others are removing lines altogether. you keep glancing from side to side to see-if others are gaining on you. banks. McDonald s re-search was conducted because the company was not cer-tain that customers were served best by a single line. In the late 1990s.S. Finally. Because [the] velvet ropes corral customers like cattle. First. Digital signs in the lobby of First Chicago NED Corporation tell customers the anticipated length of their wait. Postal Service. Experts claim that most customers prefer the single line over the multiple lines. an up-to-date electronic version of the signs at Walt Disney theme parks that let little customers know how many minutes until they ride Space Mountain. people who jump from line to line jostle one another. size up how fast the various lines are moving. . giving them something to watch or read or otherwise focus on to get their minds off the waits. The Single Line Is Better Fairness speed. a perception that is incorrect based on actual time measurements but is nevertheless sufficient to drive cus-tomers away in search of an establishment with a shorter appearing wait. researchers favor a single line. Because customers so often wait so long it may surprise your to rise you to know that the Subject is a source of constant study and one-time fixes in service companies! Take McDonald s. Inevitably. many of them are difficult to use by the disabled. Both Wendy s and Burger King already use the single-line system. When you pick a line. Let s visit the single-versus-multiple-line question to see which creates the better standard for customer service. and lack of stress and frustration top the reason many companies and behavioral. 10 Second one line can appear to/be much longer than several short ones. many ho-tels. for example. an experiment conducted in 70 McDonald s restau-rants in California tested whether it should change its age. Multiple lines have been found to create tremendous stress on customers because they require effort to be sure the right line is chosen. and even the the wait is. as do airlines. but innovative and customer -focused firms are going further than just making that deci-sion. some critics claim they are dehumanizing. These queue hoppers also sometimes-arrive at the register clueless about what they want to order. Some are managing customer perceptions in lines. trying to avoid any mega orders in the works. How many times have you been frustrated in lines and wondered how it is that you always choose the slow cashier/ teller/order-taker? Multiple Lines Are Better Those who oppose a single line do so on three counts. Consider the following scenario: You fling open the door to a McDonald s.old process of multiple waiting lines into a serpentine -style single line. as is the case with restaurants (and some doctor s offices) that give customers pagers so that they can shop or go elsewhere until it is time for them to be served. Still others are letting customers know how long.

particularly when it frees company personnel by handling routine. Hard technology can simplify and improve customer service.One-time fixes are often accomplished by hard technology. repetitious tasks and transactions. allows the company to standardize the essential elements of service MARKETING OF SERVICES © Copy Right: Rai University 11.313 81 . Customer service employees can then spend more time on the personal and possibly more essential portions of the job. in particular computer databases that contain information on individual needs and interests of customers. Some hard technology.

One-time fixes also deal with the aspects of service that are affected by things other than human performance: rules and policies. Basic delivery standards can then be established and measured. Because of these differences. and delivery all in the same location. Op-erators in a customer service center (not a bakery) take requests for pizza. Consider Figure9-2. because we want to understand for each service encounter the specific requirements and priorities. When we know these priorities we can focus . An example of a one-time fix involving a policy change is that of allowing front-line employees to refund money to dissatisfied customers. and price. which decomposes the relationship between the customer and AT&T across the entire the company de-veloped a system that works more effectively for both the company and the customer. Drivers aim to complete their deliveries within a half hour of a customer s call. and usually succeed. automated transactions. operating hours. and billing. Rather than having the separate tasks of order taking. therefore. Operators then route the orders to the closest bake shops. and scheduling and delivery systems. internal measurements chosen to drive behavior differ across the pro-cesses arid correspond to customers/ priorities in each individual encounter. Performance requirements are rarely the same across all parts of a company. a representation of AT&T General BusinessSyst6ms customer contact focuses. are the building blocks for service quality and the component piece needed to establish service standards in a company. instead they are associated with particular service processes and encounters. In establishing standards we are concerned with service encounter quality. baking. each of the business process branches represents a company process during which customers and the firm interact. Cooks in the satellite bake shops prepare pizzas on instructions sent to bake shop printers from order-takers computers. Service encounters. Ef-fective use of information databases is illustrated in this example from Pizza Hut: Pizza Hut centralized and computerized its home delivery operations. An example of operating hour changes is one allowing retail establishments to be open on Sundays. product quality. Working from a database that shows past orders. repair. Building blocks: The Service Encounter Sequence Customer-defined standards are established to define processes or human performance operationally to meet the expectations of customers . which are strategically located throughout cities to ensure fast de-liveries. Except for the top branch. Some types of hard technology useful in standard setting include information databases. AT&T recognized that its cus-tomers requirements and priorities differed across these processes. labeled Product (which reflects the tangible equipment the company sells). The first customer-firm interaction point is sale followed by installation. A customer s overall service quality evaluation is the accumulation of evaluations of multiple service experiences. of the customer. trained operators take an average of 17 seconds to verify di-rections to a caller s home and enter his or her request.

can be used to identify the sequence by noting all of the customers activities across the top of the. Identifying the sequence can be done by listing the sequential steps and activities that the customer experiences in receiving the service. Global Feature Should Service Standards be Universal? As service companies expand their offerings to interna-tional stages. is ineffective because the standard is difficult to interpret. these standards are set and measured in terms of specific responses of human behaviors and actions.on them the aspects of service encounters for which standards should be established. or do cultural influences lead to different service delivery expectations? Second. measure. When a company collects data. one of the first steps In establishing customer-defined standards is to delineate the service encounter sequence. In general contact or field people often find that data are not diagnostic-they are too broad and general. In most cases. as illustrated by the following quote from an American Airlines executive: We have standards for almost every area of the operation. Standards that meet customer expectations can then be established. service blueprints. are customer expectations of service de-livery uniform across international locations. Alternatively. we discuss the . Effective service standards are defined in very specific ways that enable employees to understand what they are being asked to deliver. or process a customer in a ticket line. At best. it often captures customer requirements in very abstract terms. do per-sonnel and infrastructure constraints exist in other countries that prevent meeting service performance expecta-tions? While all of these questions are important. and we check them on a regular ba-sis We are constantly measuring how long it takes us to answer a reservations call. or open the door of the airplane once it reaches its destination or get food on or get trash Off. and achieve. or get a plane-load of passengers on board the aircraft. There-fore. Research neither tells the in specifically what is wrong and right in their customer relationships Q-or helps them understand what activities can be eliminated so that the most important actions can be accomplished. blueprint Vertical lines from customer activities into the lower levels of the blueprint signal the points at which-service encounters Jake place. such as improve skil1s in the company. Addressing Customer Requirements as Specific Behaviors and Actions Setting a standard in broad conceptual terms. field people need help translating the data into specific actions to deliver better customer service. First. they face a critical question about service de-livery: Do we provide the same level of service in other countries as we do in our home country? The answer to this question depends on the answers to several other questions. what is the performance of competing firms in the countries where expansion is to take place? Third.

it strongly influences the other two questions. As we discussed in this chapter Spanish.answer to the first most fully because .313 . and American customers have different expectations of the speed with which a check MARKETING OF SERVICES © Copy Right: Rai University 82 11. Responsiveness Varies by Cultures It has been shown that customers from 9ifferent cultures have different tolerances for service responsiveness and timeliness.

Larry Crosby. around 65 percent devalued the performance to fair or poor based on one mistake! In this particular entertainment service. more than 90 percent consider that level of responsiveness to be fair or poor. As you can see. how ever in many other services Europeans are more forgiving than Asians of reliability problems. one for mail delivery (A) and one for a sup-plier s follow-through on requests (B).is brought to the table following a meal. or excellent. Two of the exhibits. the ratings of Italians were similar to the ratings of the Japanese. Asians are more sensitive to reliabil-ity than many other cultural groups. MARKETING OF SERVICES © Copy Right: Rai University 11. While 45 percent of Americans and 40 percent of Canadians still consider the performance to be good. and Japan. In contrast. he developed the ac-companying exhibit. Italy. provide evidence of how differently customers view levels of responsiveness. in the United Kingdom or the Netherlands. or excellent.313 83 . Italians consider 75 percent followthrough on requests to be quite good (nearly 50 per-cent rating that level good. which are helpful and revealing. Spanish customers are in-sulted-believing that the service establishment is rushing them out the door. Reliability Varies by Cultures Other cultural expectation differences discussed in earlier chapters have a major effect on the service standards set in different countries. As business-to-business customers of suppliers (B). very good. very good. In his work on customer expectations of service perceptions across countries. a renowned marketing researcher who has focused on international customer expectations. very good. The ratings of a concert pianist who makes one noticeable mistake in a one-hour solo perfor-mance are shown for people from the United State. In Italy. more than 70 percent of customer rate receiving a letter mail in their country within three days good. while al-most 60 percent of Australians consider that same service level to be fair or poor. or excellent). While Americans consider bringing the check to the table quickly to be good service. there is a great dif-ference in tolerances for responsiveness across countries. only 30 percent of the Japanese rated it that highly in fact. Canada. making it important that service standards focus on this area and ensure that performance is as promised. This sensitivity is demon-strated in Exhibit C. has pro-vided research evidence of differences in international customer expectation that lead directly to implications for service standards.

specify the primary need you think they have to which you can con-tribute. particu-lar staff people. Source: Reprinted from Karl Albrecht. Define Service Quality 4. Talk to your internal customers about what problems they are trying to solve and think about how you can help. For example. What are the critical moments of truth that really de-fine the department-internal customer interface from your customer s point of view? Map the process. Set up a process and timetable for following through. or the board of directors. placing the people or departments that rely on you the most at the top. the CEO. Talk to your customers. Prioritize the names on the list. not what you do.lines. For each of these customers. Be certain to frame it in terms of the value you contribute. Develop a Mission Statement Based on What You Contribute 8. and list the moments of truth. The criteria might include such dimensions as time. how you saw their needs and the criteria they used in assessing your performance. This dialogue itself can go a long way toward building internal service teamwork. At America s Service 5. 2. See how you score. Allow them to revise. meaningful service missions statement for your operation. Identify Your Contribution 3. Measure Service Quality 7. and cost. This may include specific departments.LESSON 19: INTERNAL SERVICE AUDIT The Objective of this Lesson is to · Internal service audit Steps in Conducting an Internal Customer Service Audit Define Your Customer 1. Consider drafting a brief. as seen through the eyes of that customer. List all the people or departments in the organization who need help from you or your department in any way. the mission of the HR department should not be to deliver training (the action). Validate Your Criteria 6. Evaluate your service (using internal measures and/or customer surveys) against the quality criteria you es-tablished in talking to your customers. as nec-essary. For each major internal customer design a customer report card (based on customer input) and a set of evaluation criteria for your department s service package. reliability. certain executives. Identify opportunities for improvement. it would be to create competent .

Provide Supportive Technology and Equipment: When employees don t have the right equipment. An office environment was designed with open spaces. This efficient system came about as a result of a decision to cut costs and simultaneously improve customer service. and profitable growth (revenue doubled in the five-year period following the changes) In many companies internal processes are driven by bureaucratic rules. nine forms. To do their jobs effectively and efficiently. retailbanking support systems allow tellers to service customers effectively and quickly. cost efficiencies. to encourage frequent inter-actions. While developing serviceoriented internal processes through reengineering sounds MARKETING OF SERVICES © Copy Right: Rai University . and 14 accounts. they can be easily frustrated in their desire to deliver quality service. The teller handles a check only twice. etc. and internal windows in offices. To illustrate. payments. greater customer satisfaction. To achieve these goals. Develop Service-Oriented Internal Processes To best support service personnel should be designed with customer value and customer satisfaction in mind. reduced costs. or the needs of internal employees. In this way the workspace facilitated the internal service orientation. Then each type of transaction was redesigned to make it more customer-service oriented and to eliminate unnecessary steps that created no value for the customer.and customer. For example. among them teamwork and open and frequent com-munication among managers. Providing service. The-result for Bal has been increased efficiency. similar to the changes implemented by BAI. while at the same time pro-viding them with detailed information for cross-selling. For example. the checking deposit transaction previously required 64 ac-tivities. in designing their corporate head-quarters offices. all retail banking transactions were broken down into 10 families (e. Scandinavian Airline Systems identified particular serviceoriented goals that it wished to achieve. and because of technological support requires no human back-office assistance.g. deposits. with-drawals. internal procedures must support quality service performance.oriented internal processes can therefore imply a need for total redesign of systems.). to encourage meetings. In other words. tradition. service employees need the right equipment and technology. Our Technology Spotlight in this chapter highlights the role of front-office automation in providing technology support for employees Having the right technology and equipment can extend into strategies regarding workplace and workstation design. After redesign it needed 25 activities.. or their equipment fails them. at Banca di America e di Italia in Italy. two forms. and two accounts. This kind of wholesale redesign of sys-tems and processes has become known as process reengineering.people (the contribution).

84 11.313 .

CEO of Rosebush Travel: As I watched people. Howard Schultz of Star bucks. causing these good employees to search for job alternatives. can be very detrimental to customer satisfaction employee morale. frustration. I suddenly realized that it was my responsibility to make their lives more pleasant.sensible. they need to share an understanding of the organization s vision. Many companies have adopted the idea that employees are also customers of the organization. Of course. and provides the needed support must also work to retain the best-ones. It meant eliminating fear. that meant giving people the right working environment. Include *Employees in the Company s Vision: For employees to remain moti-vated and interested in sticking with the organization and supporting its goals. Respected CEOs such as Herb Kelle-her of Southwest Airlines. and that basic marketing strategic can be directed at them. When the vision and direction are clear and motivating. especially in organizations that are steeped in tradition. \the right tools. but the best employees will be attracted away to other op-portunities if they aren t committed to the vision of the organization. bureaucracy. Retain the Best People An organization that hires the right people trains and develops them to deliver service quality. They will be motivated to some extent by their pay-checks and other benefits. Fred Smith of FedEx. The prod-uct that the organization . and that it is com-municated by top managers. just as they do with customers some firms spend: a lot of time attracting employees but then tend to take them for granted (or even worse). and politics. they are more likely to stay with the organization. and the right leadership. here we will focus on some strategies that are particularly aimed at this goal. Where as all of the strategies noted in the in-ternal marketing wheel (Figure 11-5) will support the retention of the best employees. . and overall service quality. Treat Employees as Customers: If employees feel valued and their needs are taken care of. and Michael Armstrong of AT&T are known for communicating their visions clearly and often to employees. People who deliver service day in and day out need to understand how their work fits into the big picture of the organization and its goals. often by the CEO. employees are more likely to remain with the company through the inevitable rough spots along the path to the vision. An extreme example of this view is provided by this quotation from Hal Rosebush. What this means in practice is that the vision is communicated to employees frequently. for Rosebush Travel. And. Em-ployees over especially when the best service employees are the-ones leaving. And they can t be committed to the vision if that vision is kept secret from them. Bill Marriott of Marriott International. knocking themselves meant decent compensation and bonuses when the company did well but it also meant helping people develop as human beings. In simple terms. it is proba-bly one of the most difficult strategies to implement.

family sick days. sales. family leave. organizations can apply other marketing strategies to the it management of employees. flex place. a number of initiatives to benefit employees were launched. These surveys are combined with company wide internal work force profiles and work and family surveys to assess employee needs. and processes. sabbaticals improved part time employee benefits. and flextime scheduling. organizations conduct periodic internal marketing research to assess employees satisfaction and needs: For example. and family needs.scheduling. Advertising and other forms of communication directed at employees can also serve to increase their sense of value and enhance their commit-ment to theorganization. TCG developed an integrated employee survey program that included assessment of employee satisfaction. Measuring employee satisfaction and trying to continuously improve the work place environment · Benchmarking and incorporating best practices. health care and de-pendent care reimbursement plans. within American Express Travel Related Services. employees will have different insurance. and retention they are getting more and more involved in the private lives and family support of their workers. or some other dimension that can . adoption assistance. an evaluation of how well them organization was doing in living up to its basic values. and an assessment from the viewpoint of its employees on how well the company was doing in progressing toward its quality goals.51 Measure and Reward Strong Service Performers If a company wants the strongest service performers to stay with the organization. it must reward and promote them. productivity. programs. and workplace flexibility initiatives including job-sharing.creased employee loyalty. This may seem obvious. Reward systems may value productivity. What American Express and many other companies are finding is that to ensure employee satisfaction. flexible benefits. and quality of work life. In addition to basic internal research. Because not all employees are homogeneous and their needs will change over time. flexible returns. Organizations that are set up to meet the needs of spe-cific segments and to adjust as people proceed through their lives will benefit from in. the Travelers Check Group (TCG) had a goal of Becoming the Best Place to Work of by doing the following: Treating employees as customers. work. Using employee input and a fact-based approach for decision making in the de-sign and implementation of human resources policies. On the basis of all of the research. To determine whether the job and work-life needs of em-ployees are being met.has to offer its employees is a job (with assorted benefits). quantity. For example. including an expanded employee assistance program child care resource and referral service. but often the reward systems in organizations are not set up to reward service excellence. segmentation of the em-ployee population is apparent in many of the flexible benefit plans and career path choices now available to employees.

potentially work against good service. Alternatively. they may stop providing high levels of service and simply sink to meet the service performance of the lowest common de-nominator. Even those service workers who are intrinsically motivated to deliver high service quality will become discouraged at some point and start looking elsewhere if their efforts are not recognized and rewarded. MARKETING OF SERVICES © Copy Right: Rai University 11.313 85 .

Such measurement systems are challenging to effectively implement. Change is difficult both. In fact. 50 to 60 percent of whose pay is based on customer retention levels. whereby customers are called and asked to assess the level of service they received from. Reward systems are usually well entrenched. sales continue to grow. for many years.) Another 28 percent of CSR pay is based on direct customer satisfaction input obtained in face-to-face interviews conducted by a five-person team. organizations have turned to a variety of types of rewards. to adjust the criteria by which employee performance is judged. the managers who may have created and still may believe in the old systems and for employees who are not sure what they need to do to succeed under the new rules. (Situations not within the control of the CSR include a business closing. Reductions in pay are made for every customer that is lost for controllable reasons. In developing new systems and structures to recognize customer focus and cus-tomer satisfaction. if customer retention is viewed as a critical outcome. for. These measure-ments (multiple customers for each employee each quarter) are then integrated into the employee s performance evaluation and rewarded. with employee involvement. and the employees must buy in to the validity of the re-sults. a uniform rental company. or nonpayment cancel-lation. and employees have learned over time how they need to perform within the old structures. For instance. Tradi-tional approaches such as higher pay. and many find it the most difficult of all. In determining whether this large investment in employee rewards is worthwhile. Frequently these new reward structures are very difficult for managers to accept be-cause they may not be linked to hard data and thus may appear more subjective. In some cases this means shifting from a total emphasis on productivity data and hard numbers to other means of assessment. At AT&T s customer sales and service centers.Reward systems need to be linked to the organization s vision and to outcomes that are truly important. the company can point to the following statistics: Turnover among employees is close to 0 percent customer retention (excluding customers who leave for uncontrollable reasons) is close to 99 percent. This is the case at Toronto-based Cadet Uniform Services. promotions and one-time monetary awards . Cadet employs 35 delivery route drivers (called customer service representatives. many companies are still struggling with this piece of the internal marketing puzzle. there is often a need. and for the past 18 years average compounded growth for the company has been 22 to 23 percent an-nually In companies where customer satisfaction in every service encounter is a goal. AT&T has been perfecting its process. or CSRs). The measures must be appropriate. the sampling of customers performed fairly. bankruptcy. part of the reward system for individual associates is based on customer satisfaction measured at the level of the employee. service behaviors that increase retention need to be recognized and rewarded. the particular employee they interacted with over the phone. Ninety-five per-cent of Cadet s drivers are college graduates. Ongoing true moments surveys are used. and their annual pay far exceeds indus-try averages.

and where giving good service to internal as will-as well as ultimate. Culture has been defined more informally as what we do around here. how-ever. or central themes. A second important point in. think of different places you ve worked or organizations you have been member of such as churches fraternities. so recognition of the small wins: is also im-portant. and provide them with the rules for behavior in the organization. serviceoriented organization will have at its heart a service culture defined as a culture where dh.53 They want to provided good. but that in that underneath sort of way people know that good service is appreciated and valued. schools. this definition is that good service is given to internal as well as external customers. Looking at the bigger picture. and when they are rewarded for doing so it employees are happy. In too many organizations. It is not enough . it is apparent that the behavior of employees in an organization will bi heavily influenced by the culture of the organization or the pervasive norms and values that shape individual and group behavior. This doesn t mean that the company has an advertising campaign that stresses the importance of service. Even when you first interview for a new job. reward and incentives systems are still not matched with customer satisfaction and loyalty goals Service Culture: Most of this chapter Has focused on strategies for enabling customer -oriented service delivery. Appreciation for good service exists. Corporate culture has been defined as the pattern of shared values and beliefs that given the members of an organization meaning. a service culture exists if there is an appreciation for good service. First. Experts have suggested that a customer-oriented. or associations. norms and culture of the organization. In some organizations employees are encouraged to recognize each other by personally giving a peer award to an employee they believe has excelled in providing service to the front line the employees exercise less role stress and are more satisfied in their jobs. Research suggests that when rewards are perceived as consistent with provid-ing service and quality to customers. Other type of rewards include special organizational and team celebrations for achieving improved customer satisfaction or for attaining customer retention goals. Once on the job your formal training as well as informal observation of behavior will work together to give you a better picture of the organization culture. 56 This is a very rich definition with many implications for employee behaviors. Piglet in Winnie the Pooh might refer to culture as one of those things we sense in an underneath sort: of way to understand at a personal level what cooperate culture. Your behavior and the behav-iors of others were no doubt influenced by the underlying values. In most service organizations it is not only the major accomplishments but the daily perseverance and attention to de-tail that moves the organization forward. beyond the specifies strategies. extremely customers is considered a natural way of life and one of the most important norms by everyorze.or prizes can be linked to service performance. or organizational glue. service. you cart begin to get a sense of the culture through talking to a number of employees and 6bserving be-havior.

to promise excellent service to final customers. all people within the organization deserve the same kind of service.313 . Finally. in a MARKETING OF SERVICES © Copy Right: Rai University 86 11.

and other areas of cultural differences are then allowed (see the Global Feature in Chapter 10 for some specific example UPS s Experience UPS has a strong culture built on employee productivity. Global Feature How well does a Company Service Culture Travel? While there are tremendous opportunities for growth in international markets. and dismay in Spain. when it was found the brown UPS trucks resembled the local hearses. Differences in values. McDonald s Approach McDonald s has been very successful in its international expansion. the company is sensitive to cultural differences as well. many companies find significant chal-lenges when they attempt to transport their services other countries. menu. which is required train-ing for all McDonald s. Disney in Europe .000 employees from nearly 100 countries enroll and attend the Advanced Operations Course at HU. and even the definition of service become evident quickly and have implications for training. curriculum is 80 percent. are often delivered by people. protests in Britain. UPS was surprised by some of the challenges of managing a global workforce. One way that McDonald s maintains its standards is through its Hamburger University. Some . services depend on people. language.human resources and operating philosophies remain fairly stable from oper-ation to operation. The. highly standardized service delivery processes.service culture good service is a way of life and it comes naturally because it is an important norm of the organization. when drivers dogs were banned from delivery trucks.ketchup in their veins. A few examples illustrate different approaches. and incentives that can ultimately affect the success of the international expansion: Companies with strong service cultures are faced with the question of whether to try to replicate their culture and values in other countries or to adapt signifi-cantly. The result is that all managers in all countries have the same. devoted to communications and human-relations skills. located in Oak Brook. when drivers were told they couldn t have wine with lunch. Each year approximately 3. Illinois. Their brown trucks and uniforms are in-stantly .of the surprises they ran into: indignation in France. hiring. and involve the interaction between employees and cus-tomers. and the restaurant s basic. As you have learned in this chapter. In Some ways it has remained very American in everything it does-people around the world want an American experience when they go to McDonald s. and struc-tured training. How-ever. Recognizable in the United States As they ex-panded into countries-across Europe. norms of behavior.-employees worldwide before they can become managers. Certain adaptations in decor. This subtle blending of the McDonald s way with adoptions to cultural nuances has resulted in great suc-cess.

Gotshal says that its London operation broke even in 1998. In attempt-ing to transport the Disney culture and experience to Eu-rope. and should produce a profit in 1999. Law Firm Goes to the United Kingdom The professions such. in the United States.500 hour a year while in Lon-don a partner would bill a respectable 1.000 for Americans. a New York firm. the smiling.S. IBM Global Services. and Xerox. Yellow Freight Sys-tems.different. Hundreds of little (but significant) things. for example.OOO on average for London partners: $900.500 hours. Pay rates. its sec-ond year of operations. the company was confronted . families will spend lots of money at Disneyland on food. no single strategy will change it overnight. law and medicine have well. however an organization has-a culture that is rooted in government regulation-. One . For example. Some European cultures view this behavior as highly indulgent. Pay dif-ferences were also obvious$ 650.established and quite unique practices across cultures. sometimes resulted from the deeply rooted cultural differences. always -customer-focused behaviors of Disney s U. rather than synergy. workforce did not suit the expe-rience and values of young French employees. Customers also needed to be trained in the Disney way-not all cultures are comfortable with wait-ing in long lines. Goshal and Manages. scripted. Weil. are required to build and sustain a service culture. A U. Gotshal and -Manges tend to be worka-holics-commonly billing 2. In particular. so families will visit the park without buying much be-yond the ticket for admission. toys.U. Developing a Service Culture The last point just made suggests why a service culture cannot be developed quickly and why there is no magic easy answer for how to sustain a service culture The hu-man resource and internal marketing practices illustrated by the strategies wheel in Figure 11-5 will support the development of a service culture over time.with clashing values and norms of behavior in the workplace that made the expansion difficult. And not all cultures treat their children in the same ways. work styles. and business models can be quite .S. Conflict. and customer oriented approach that Disney used in the United States was not easily duplicated with European employees. and other things that their children must have. to name just a few examples. opened its offices in London by hiring primarily British solicitors Who wouldfunction as a firm with in a firm. The highly structured. 57 Successful companies such as AT&T. Weil. First. the lawyers at Weil. friendly. they also faced challenges and sur-prises. So what happens when a-law firm seeks to ex-pand its services to another country? Unlike many. have all found that it takes years of consistent.of the biggest challenges they faced was how to blend the very different American and British legal cultures. or operationsoriented traditions. If. not just one or two big things.When Disney first expanded into Europe by opening Eu-ro Disney near Paris.S law firms that tend to populate their international offices with American lawyers. Despite the challenges. concerted effort .

sustaining their established service cultures .313 87 . MARKETING OF SERVICES © Copy Right: Rai University 11. Even for companies such as FedEx. and the Ritz-Carlton that started out with a strong service and customer focus. Charles build a service culture and to shift the organization from its old patterns to new ways of doing business. Disney.still takes constant attention to hundreds to details.

cultural. there are many legal. and language barriers that become particularly evident for services that depend on human interaction.g.313 .g. closing the service performance gap is heavily dependent on human resource strategies. Our Global Feature highlights some of the issues and experiences of several companies as they attempt to transport their service cultures. Sometimes service employees are personally uncomfortable with the roles they are asked to play. assurance. You learned that front-line service jobs demand significant investments of emo-tional labor and that employees confront a variety of onthe-job conflicts. It is essential to match what the customer wants and needs with service employees abilities to deliver. They affect service quality perceptions to a large degree through their influence on the five dimensions of service quality: reliability. Summary Because many services are delivered by people to people in real time. tremendous opportunities in the global marketplace. a college classroom).Supporting a Service Culture As you might imagine. At other times a front-line employee may be faced with a decision regarding satisfying a cus-tomer versus meeting productivity targets (e.. an HMO physician who is required to see a certain number of patients in a defined period of time). Often service employees are the service. transporting a service culture through international business expansion is also very challenging. Tutorials In light of above. other times the requirements of the organization may conflict with client expectations and employees must resolve the dilemma on the spot. Perform an internal service audit of any hospital. In this chapter we focused on service employees to provide understanding of the critical nature of their roles and appreciation of the inherent stresses and conflicts they face. a bank teller line). Sometimes there are conflicting needs among customers who are being served in turn (e. While there are..g. or among customers being served simultaneously (e.. MARKETING OF SERVICES © Copy Right: Rai University 88 11. responsiveness. Compare the customer defined standards of Moolchand hospital vis-à-vis Apollo hospital. and in all cases they represent the organizations in customers eyes. and tangibles. empa-thy.

Marketing information may come from both internal and external sources. The marketing information system brings together information from many sources. The main approaches and methods will be looked at in this chapter. its size and structure. current and future demand and the major competitors. New organisations. however. will not provide an effective solution to marketing management problems unless it is timely. will need to establish information about the market. This close knowl-edge of customers can only be found through marketing research. The requirements for successful marketing information systems are also explored in this chapter. and can be a valuable decision making tool for managers. Marketing Research Applications for Services Marketing Marketing research is used in all kinds of marketing situations. in its various forms. Systematic handling of information within organisations can ensure that this is the case. who they are. Information. collecting and analyzing information to meet those needs utilizing the most appropriate methods. A basic definition of marketing research can be set down as: A systematic approach to identifying information needs. accurate and available. the organization s own records and external and new sources of data.MARKETING OF SERVICESUNIT IV ORGANISING SERVICES MARKETING LESSON 20: MARKET RESEARCH PROCESS The Objective of this Lesson is to have an insight into · Market research applications for service marketing · Market research process · Gathering and storing information · Marketing information system Introduction At the core of the marketing concept is the need for organisations to be able to understand and anticipate their customers needs and wants. or organisations seeking to enter new markets. There are many tools which can be used in marketing research to enable service providers to get closer to their customers and to understand the markets in which they seek to operate. . Many valuable sources of information are frequently to be found within organisations. where they come from. both internal and exter-nal. organisations should endeavour to keep track of its existing customers. their buying patterns and so on. It formalises information-gathering processes and brings together information and intelli-gence from employees. At the simplest level. Marketing information systems can be implemented within organisations to ensure that information is handled systematically.

As can be seen. conducted extensive research to establish what customers expected from the service and which customers to target. First Direct.Although there are an infinite number of reasons for using marketing research. Other special techniques. with user profiling and satisfaction monitoring playing a key part. to ensure quality standards are met. such as the use of mystery shoppers . It established that its unwritten policies of ethical trading and investment were core principles that customers valued. The Marketing Research Process The marketing research process can be broken down into the following stages: Problem definition/establishment of research objectives Secondary data examination (internal and external) Collection of primary data Data analysis Recommendations Implementation of findings . The Co-operative Bank used research to monitor the soundness of its strategy when it ventured to re-position its image not through innovative new services but by reinforcing its ethical stance. in many cases the bank s ethical positioning was given as the main reason for opening an account. prior to its launch and as ongoing research. the reasons for using marketing research vary as information needs vary from organisation to organisation. In most cases. Britain s new high-speed London-Paris channel tunnel train service. as the following examples show: The management of Eurostar. it can be described as having two fundamental aims: To minimize risk (when plans are being made) To monitor performance (after implementation) The research process and the methods of conducting research are the same for service providers and manufacturers and retailers of physical products. however. Subsequent research was undertaken among new customers who responded to the adver-tising which reinforced the strategy. the Midland Bank s telephone banking offshoot. Research will be ongoing. Exam-ples of service industries using marketing research are widespread. the marketing research process will be similar. undertook research into the brand. and a wide variety of research methods. its image and what values it should represent to its target market. and designed new advertising programmes to reflect this. will also figure in future research.

Before discussing each of these stages in more detail.313 89 . there are some points worth noting regarding the different types of research (and data produced) and the associated terminology: Primary or secondary data Secondary data is data already published in some form. © Copy Right: Rai University 11.

selected usually depending on the degree of accuracy required. Customized research is designed and carried out in response to the needs of a particular organisation (or possibly more than one) which commissions the research. Careful research design and selection of the most relevant types of information and sources underpins useful. Population or sample The population or universe is the entire group which is to be studied. Statistical methods are used to analyze results. There are various methods of selecting samples. It may be the whole population of a country or region but may also be a specific population relating to the business area.g. cost-effective . e. It is concerned with answering questions such as why do they buy? Qualitative research may be undertaken to provide the basis for designing quantitative research. In house or buy in Marketing research may be undertaken by the organisation itself. Quantitative research is concerned with how much and how many. The sample is taken from the population to represent it as a whole. it is likely that decisions will have to be made about each of the aspects described above. such as the fieldwork. Qualitative or quantitative data Data may be qualitative or quantitative. feelings and attitudes. Typically it involves larger scale research than qualitative research.g. Qualitative data explores ideas. all rail users or all existing customers of an organisation. all higher education students in the UK. then offered as a fairly standard package to any interested organisations. or all employed males under fifty. or relating to a particular market segment. parts of the research. Off the peg research is designed by the research organisation to cover areas likely to be useful for businesses in particular sectors. e. Customized or off the peg Specialist marketing research organisations generally offer two types of research.Primary data is new data collected first hand in response to a particular problem or information need. may be done by outside specialists and the rest carried out in house. Alternatively. At each stage in the research process. or bought in as a specialist service from outside.

via sales report forms and other means to ensure it is readily available. People are also very important sources of internal information. The issue needs to be set out quite clearly for the research objectives to be established. A great deal of market intelligence is often stored in the minds of sales personnel. but aims to illustrate good practice and draw attention to important issues. Examples of the problems faced by marketing managers might be as follows: What is the potential market for this new service? Why are sales of a particular service declining? How successful is our latest advertising campaign? How do our customers rate us against our main competitors? When the problem has been identified clear research objectives should be drawn research programmes. one of the main reasons for research not being carried out in the most cost-effective manner is because the brief is too broad. so any possibility of acquiring data from already published sources should not be ruled out. The following discussion of the stages in the research process will not always mirror exactly how service or-ganisations design and conduct marketing research. for example. Secondary Data Examination (Internal and External) Examination of all relevant sources of secondary data must be undertaken before deciding to collect primary data for two reasons: Duplication: The information may already be available. Internal sources of data include: Company accounts Sales reports Customer database and prospect files Previously conducted marketing research reports Competitor information held by the organisation Trade journals and other publications subscribed to. It is usual to start by looking at internal sources of secondary data as these are likely to be most readily accessible. Problem Definition/establishment of Research Objectives Defining the research problem or information need is sometimes a relatively simple task or may be highly complex. so primary research may not be necessary Cost: The cost of generating primary-data is very high. These should be quantifiable in some way and lay down the parameters of the research task. but should be examined thoroughly to . The marketing information system should be a means of ensuring that all information is fed back into the system. Internal sources of data will probably not solve the information problem.

for example. Market information produced by specialist organisations: Organisations such as Mintel and Key Note produce and sell regular reports of a general nature covering different consumer and business-to-business market sectors. MARKETING OF SERVICES © Copy Right: Rai University 90 11. printed circuits and tourism in the UK . Sources of secondary data include the following types: Government statistics: There is a vast array of governmentproduced data available in the UK covering economic. but is specially designed and collected so is more detailed than other secondary sources. business and social trends. These are examples of off the peg research which is designed to be of interest to many organisations. They pro-vide an overview of the latest trends in the market and its size and structure. Panels of consumers are monitored over periods and their buying and consumption of certain types of goods (e. so is general in nature.g. They also produce panel data and audits. External sources of data range from free or very cheap information to expen-sive research reports and publications.establish how much relevant information there is before looking to outside sources. The official census is a prime example of the sort of research published.313 . and cover topics such as breakfast cereals alcoholic drinks .

more than one type of approach is needed in order to . Again. Kompass (trade directories) and McCarthy Information (clippings). with the results being made available for sale. Audits are similar but are generally based on retail sales records such as supermarkets. BRAD (British Rates and Data) lists all advertising media and their costs. Information about advertising and media: Specialized information for adver-tisers is available from many sources. or made available by professional bodies to their members. Information on companies: Specialist organisations compile data about or-ganisations in the form of directories. for example. product by product. Other secondary sources: Trade publications publish their own surveys from time to time. these can be bought or subscribed to on a regular basis. mechanical Experimentation Often.personal products or consumer durables) recorded and analyzed. any remaining information needs will need to be met through the generation of primary data. Examples of these include Dunn and Bradstreet (financial data). financial guides and clippings services. Infor-mation about these sources is likely to be found in the trade press. with detailed compar-ison of advertising agencies and Benn s Media Directory which also covers adver-tising media and services. which are then broken down. The primary data collection needs to be carefully planned and the following questions addressed: What data is needed? Qualitative or quantitative? Is it exploratory in nature or does it need to be conclusive? How will it be generated? What techniques are to be used? Who will collect/analyze the data? Internal personnel or specialist research company? Who is to be studied? (population or sample?) When is the data required by? How much will the study cost? Are the costs of undertaking the study justifiable in terms of the costs associated with the potential risk of going ahead without this research? The main methods of gathering primary data appropriate for services marketing are as follows: Survey: personal. postal. telephone Observation: human. the Advertisers Annual. as do other organisations and scientific or academic bodies. Collection of Primary Data When secondary sources of data have been exhaustively searched.

Survey: The survey is one of the most commonly used methods in marketing research. The following outlines the approaches to the various methods. personal in-depth interviews may be used in the preliminary stages to identify the key themes or issues which need to be ad-dressed in a large-scale postal survey. A combination of experimen-tation and observation could be used. Often they are don t with a group of respondents (a focus group) and the interviewer s role is really that of facilitator . From these discussions. For example. Preliminary research As a preliminary stage in designing a largescale survey. It is especially useful where large-scale studies are to be carried out. and may be used to obtain both qualitative and quantitative data. Unstructured interviews or depth discussions may also be done in person or by telephone. Questionnaire . focus group discus-sions were held. for example.may be closed or open . The same approach can be used by all types of service organisations. which was then circulated to all staff. Focus groups using unstructured interview methods are exploratory in nature and may be used in a number of situation to generate qualitative data: Concept testing In concept testing. to introduce a new product or service concept to potential customers to obtain their ideas and reaction. where the underlying feelings and attitudes are the focus of attention. There are various tools for collecting survey data: Interview .satisfy the data requirements. a university was about to upgrade its teaching accommodation and wanted to solicit input from all teaching staff. then using the results to formulate a wider survey. Interviews Interviews may be conducted in person or by telephone.the participants views are noted and form the basis of the allow the discussion to flow in an unstructured free way. Sometimes facilitators may be psychologists with ability to draw participants . Attitude research In attitude research. but remaining close to the topic under inves-tigation. initially discussing the ideas with a number of customers or members. detailed lists of equipment and other priorities were drawn up for inclusion in the questionnaire. Structured interviews will generally involve the use of a questionnaire so that specific items of information are gathered. To establish what were the most important features and facilities from the staff point of view. For example. addressing set topics.may be unstructured or structured. Unstructured interviews are often useful when the organisation really does not know what sort of information it is looking for.

They can be done by telephone.and encourage them to open up.313 91 . on a oneto-one basis may also be used for this purpose. but will usually be done in person as they can take a long time and depend on a relaxed. They are difficult to administer for two reasons: Low response rates Difficult and time-consuming analysis MARKETING OF SERVICES © Copy Right: Rai University 11. Depth inter-views. Questionnaires There are two main types of questionnaires: Open questionnaires Closed questionnaires Open questionnaires Open questionnaires can also be used to elicit qualitative data. These are questionnaires where the questions do not have fixed answers but space is left for respondents to write their own ideas. confidential atmosphere.

Mail questionnaires. who all had e-mail addresses.They suffer from a very low response rate due to the time and effort involved on the part of the respondent in completing the questionnaire. It is suitable for very wide scale surveys. as is more likely.e. which route cus-tomers take through the sales floor and so on. usually in the form of alternative choices to be ticked off or indicated in some way. One or two open questions are often used alongside closed questions. both in the business and domestic environment. Advances in technology mean that responses can be input directly into a computer. thus enabling new survey methods to be introduced. they offer set responses.. They may be carried out by human observers in the store. Observation: Observation techniques may be used in a number of ways to show how people behave in particular circumstances. must be clear and easy to follow. how-ever. A university information technology service wished to survey all its users. They are also ex-tremely difficult to analyse as it can be horrendously difficult. this type of direct contact with respondents may increase. This is the most widely used form of questionnaire and it can be administered in person. i. for exam-ple. to attract some comment and ideas. often at the end. to be completed by the respondent themselves. either at the interviewer s desk. As new developments in communications technology continue to spread. the questionnaire will be designed so that information can be easily analyzed and collated. This might be along the lines of please use the space below of give any comments or suggestions you may have as to how our service can be improved. provided the respondent is willing to spend the time. The design of the questionnaire will also have to take into account the way in which it is to be administered. Interviews to be conducted in the respondent s home or place of work can be much lengthier and more detailed. Administering the questionnaire Whichever method is used. A questionnaire was transmitted via the network and responses sent straight back. by analyzing video recordings from cameras placed at strategic points. Closed questionnaires Closed questionnaires are those where the questions are closed. if all the respon-dents use the same electronic mail (e-mail) network. Retail traffic studies. or by means of a hand-held scanner by a field worker.. Questionnaires can even be administered by electronic mail. The researchers (or field workers) seen with c1ipQQards in the street or going from house to house are usually carrying out questionnaire-type surveys. Telephone surveys and street interviews will need to be fairly short. to attempt to categories the responses. by telephone or by mail. . and are helpful in planning store layout and sitting special displays for maximum sales impact. not to say time-consuming. or. if conducting telephone surveys. They can be used to monitor which displays attract customers attention. Similar techniques are useful in service retail outlets such as banks and restaurants. are set up to observe the flow of customers around the establishment.

Data Analysis Good research design is the key to facilitating data analysis. Watching how people serve themselves in self-service restau-rants or how they use vending machines. The results of the tests can be examined and adjustments made before going on to a wider test or a full launch. In test markets.the control group . Many techniques are used and developments in computer technology have meant that it is now far easier to handle great . prior to national launch. Measuring the difference in sales can indicate how successful the new campaign has been. Other types of observation by mechanical means have been developed to monitor human reactions to various stimuli. Other applications are equally appropriate for services marketing. and its potential for more widespread use. such as video. such as food items. can be measured by showing the images to potential cus-tomers and using technological methods to measure the amount by which their pupils dilate. the mystery shopper. however. where respondents take part in taste given standard treatment without the new drug. This was extremely helpful in determining the correct marketing n1ix. Experimentation: Experimentation takes various forms and can be a useful tool for predicting purchase behavior. It is based on traditional scientific experimen-tation methods where an experiment is conducted to test something against other factors.Observation may be useful in situations where a questionnaire might be inappropriate such as monitoring very young children s responses to toys or cats tastes in pet food. The results of the experiment can be found by comparing the results of the two groups. Launching it in one region then comparing the results against another region where standard promotional activities have been taking place can test a new promotion. The attraction of images used in advertise-ments. Once the primary data has been collected the data must be analyzed. Observation tends to be a very objective method of carrying out research but it has limitations in that it may show how people do things but not why they are motivated to act in that way. who observes the quality of the service) or by mechanical means. for example.g. When a new cleaning product was launched. experimentation is frequently used to test new products. Observation can be carried out by humans (e. In marketing. can be helpful in improving the design or efficiency. experimentation can be used where a new product or service is tested with a particular marketing mix in a market area and a slightly different marketing mix in another area. Sales of the lower priced product were fifty per cent higher than sales levels at the higher price. in the test in one area the product was priced just two pence lower than in the other test region. In clinical testing a group of patients may try a new drug while another group .

for example. The analysis may be undertaken by the organisation itself or by outside specialists such as marketing research firms or statisticians. Explanation of actual methods of statistical analysis is beyond the scope of this chapter but it is important MARKETING OF SERVICES © Copy Right: Rai University 92 11. Statistical techniques may be used to analyse quantitative data.volumes of data than ever before. Qualitative data may need very subtle analysis.313 . Recorded discus-sions from focus groups or depth interviews may be analysed by psychologists.

To do this. it is necessary to go back to the research appreciate that the analysis stage is as important as generating the data . will not help marketing managers to make decisions. Typically marketing management will need information on the following: Level of sales Sales trends Market . Organisations need to identify what their ongoing information needs are and how they can be met. A feedback loop needs to be built in to the process to meet the new information needs which will arise out of the implementation of current findings. Gathering and Storing Marketing Information There are many ways of gathering marketing information. It may be used in all kind of . The research does not stop there.size Market growth rates Pricing trends Competitor activity Promotion effectiveness Profitability by service division/product line Advertising effectiveness Technological developments in the field The range of information needed is unlimited and will depend on the organization s activities. Recommendations and Implementation of Findings It may be possible to draw conclusions from the results of the research and even to establish sound forecasts and predictions. to use the information effectively. continuous monitoring programmes start. Marketing research should be ongoing in many ways and when specific research projects end. The following questions must be addressed: What was the specific purpose of this research? Are the results sufficient to meet our information needs? Can the problem be solved? Is more research required? Can plans be made with confidence? (risk reduction) Are existing plans on course and meeting targets? (monitoring) When these questions have been answered implementation of the research findings can take place. however. as the preceding section illustrates.raw data. however much of it there is. however. It is up to the expertise of marketing management.

be in a position to manage proactively and make sound forecasts and decisions. Organisations need to ensure that it is handled systematically in order to ensure that it is continuously updated and available. its success is dependent on the input of all parts of the organisation . It should also incorporate informa-tion . as with marketing itself. This definition highlights the key aspects of the MIS . for example. Medium to long term forecasting Identification and profiling of target segments Factors influencing performance and success Calculating market share Assessing customer satisfaction levels The sources of such information will be varied and come from both within the organisation and from external sources.a managerial process which works towards corporate objectives. as must take place within the organisation. This is where the marketing information system comes in. The sources of information may vary. Essentially information must be: Timely Accurate Accessible Available Information must satisfy all these requirements if the marketing manager is to remain well informed.situations. The Marketing Information System The marketing information system (MIS) can be defined as follows: A marketing information system is designed to meet the information needs of marketing management for effective decision making by developing proce-dures for people and computer systems which ensure such information is available at the right time and in the right format. including the following: Market measurement and analysis. External data may be obtained by subscribing to specialist journals and market reports. The MIS cannot exist within a vacuum. The amount and type of data required will be as variable as the possible range of sources of such data. Company reports. involving all those people and departments which will ulti-mately have something to contribute to marketing decisions and outcomes. and competitor activity might be monitored by members of the marketing department. accounting records and customer databases are useful records as are customer complaint records and sales figures.

the organisation in its quest to satisfy these objectives. production reports and customer records will all be contained in this part of the system.313 93 . It is essentially infor-mation about the organisation itself. Financial records. These components will cover the various sources of information needed. the internal information will come from reports and records within the company. They can be broken down as follows: Internal information: As discussed in earlier sections. External information: External information is all the information concerning the macro-environment and particularly MARKETING OF SERVICES © Copy Right: Rai University 11. or help. or should be accessible to it. Existing customer databases should be contained within this system.from outside the organisation. when the information will affect. The MIS is made up of a number of components which feed in together to build up a bank of information which should be continuously updated. Sometimes various functional or departmental reports are produced and handled as separate items within the various divisions of the organisation the task of this component of the MIS is to set down procedures and methods whereby such information can be assimilated to provide a cohesive overall picture.

To counteract this. Often based on sophisticated computer modeling techniques these systems can use data to prepare projections and forecasts. much of this sort of market intelligence is obtained through sales staff and other front-line personnel who have contact with customers and other suppliers. . designed. which is properly understood and implemented by management and personnel in all areas. Marketing research All marketing research carried out by an organisation. They are traditionally large and very expensive and therefore mainly suited to larger organisations although new personal computer technology has meant that smaller. market research reports bought from specialist organisations and other sources of information about the industry sector. A properly coordinated system can yield the following benefits: A fast response to changes or problems within the marketing environment. Increased accuracy (in forecasting. the information entered into it must itself be: timely accurate cost effective easy to analyse easy to assimilate This can be achieved by ensuring that there is a standardized reporting system within the organisation. What is the likely impact on sales of a ten per cent price reduction? What is likely to happen to our market share if competitor A enters this market sector?). it is important that all new and ongoing research also feeds into the MIS for it to be available quickly and effectively. cheaper systems are now available on a more widespread basis. Marketing decision support systems These systems are generally called mar-keting decision support systems (MOSS) and can be bought as computing packages or custom. Sometimes this information can be generated inter-nally. new systems have been developed to manage data more effectively. contributes to its information needs and should be looked at in relation to the other information about the organisation and its markets. and help managers decision making by producing what if? scenarios (e. Much of it will be obtained from outside sources such as trade journals. For this reason. and largely due to the introduction of powerful computer systems on a wide-spread basis. The role of the MIS in this area is to ensure that specific mechanisms and procedures are put in place to harness all such information and feed it into the system.g. To enable the MIS to operate correctly. for whatever purpose. it can be difficult for managers to extract specific information variables required for decision making. Other components or aspects of the system Frequently organisations are liter-ally swamped with information of the kind described above and although the MIS might be working reasonably well.the competitive environment. indeed.). targeting etc.

Computerization has had a massive impact on the volume and type of data stored by organisations. The basic design of the MIS which allows for smooth interchanges of infor-mation within the organisation coupled with responsive and responsible inter-action between functional managers and all staff is more important than expenditure on advanced computer systems. and dependency on such systems has increased dramatically. nor the speed by which the computer can process it which counts. Summary Successful marketing is dependent on knowing the consumer and understanding the market. This is equally true for commercial organisations and not-for-profit organisations who need to know and understand their users. the system will only be as good as the manager who feeds information into it.More timely and effective reports. The MOSS cannot act on its own initiative. Integration of marketing into the organisation. Marketing research is used in all kinds of marketing situations and has two main purposes: To minimize risk when plans are being made To monitor performance (after implementation) The marketing research process can be broken down into a number of stages: Problem definition/establishment of research objectives Secondary data examination (internal and external) Collection of primary data Data analysis . it is the utilization of information and the processes which ensure it is fed into the MIS which are key factors for success. and interprets decision-model processes and results. Prevention of information being suppressed by individuals within the organisation. However. nor provide a substitute for real management thinking processes. It has also revolutionized marketing information systems. is critical. A tightly run formal system which has marketing as its focus. However it should be remembered that it is not the volume of information processed. donors. sponsors or voters. Computerization has also led to the development of analytical systems of higher levels of sophistication than ever before. but which involves the whole organisation.

Information should always be: timely accurate accessible available MARKETING OF SERVICES © Copy Right: Rai University 94 11. marketing management need to ensure that it can be accessed and utilized for marketing decision making.313 .Recommendations Implementation of findings Once information has been gathered and analysed.

313 95 . Discuss the Market research Process which ICICI bank must have taken . while entering into banking sector.Tutorials In light of above. MARKETING OF SERVICES © Copy Right: Rai University 11.

the marketing audit should be carried out periodi-cally to check on current practice and evaluate systems and procedures. rather than create purely short-term measures. The market-ing audit is also covered in some detail as a practical management tool for evaluating marketing practice within the organisation as a precursor to actual planning activity. perhaps the most likely being management weakness in the area of planning coupled with a lack of line management support and inadequate organisation structures.various stages involved in implementing and monitoring successful programmes. strategies and activities. strategies and structures is what may actually be required in order to do planning properly. and is of increasing importance in non-traditional marketing organisations such as charities and public bodies. problems and opportunities and make . The Marketing Audit Rather like financial audits. comprehensive evaluation of the organization s marketing environment. such as those in the public and not-for-profit sectors. carried out systematically in order to pinpoint difficulties. A marketing audit can be defined as follows: A marketing audit is an independent. Managers undertake an annual planning exercise for marketing but con-strain their activities to reactive programmes which are economically viable in response to market changes. This seems to be due to a number of causes. This is equally true for both service organisations and companies in other sectors.LESSON 21: MARKETING PLANNING FOR SERVICES The Objective of this Lesson is to have an insight into · Importance of Marketing planning for services · Marketing audit · Marketing planning process · Roles and responsibilities Introduction Whilst there appears to be general agreement amongst both marketing academics and practitioners that marketing planning is critical to the long-term success of the organisation. Sometimes marketing planning is carried out. objectives. This can be particularly helpful for organisations new to marketing. but on a piecemeal short-term basis. The preceding chapter discussed strategic planning and the marketing man-agement process. research has consistently revealed that the vast majority of organisations do not have established systems in place for marketing planning and programme implementation. This chapter builds on this with a practical review of marketing planning and the. from the corporate mission and environmental analysis through objectives setting and marketing management tasks. An in-depth look at the organization s marketing policies.

and definitions and descriptions of the audit process may vary. Objectivity: It should be conducted by someone who is independent of the organisation under scrutiny. not carried out urgently in response to a crisis or sudden downturn in the company s fortunes. Regular: The audit needs to be undertaken periodically. The information should be presented in stages as the audit takes place. it is important that the organisation has decided on a plan of action for following up the findings and handling any problems or weaknesses uncovered.recommendations for improved performance. The audit is generally performed in three stages: the scope and approach are. The analysis stage is likely to be the most time-consuming as there will be a great deal of information to be gathered and scrutinized. for reasons of objectivity. for service or-ganisations generally. Many marketing textbooks explore the marketing audit in some depth. centred around the following main components: Marketing environment Marketing strategy Marketing organisation Marketing systems Marketing productivity Marketing function Some or all of these components may be investigated within the marketing audit (together with additional components relevant to a particular organisation or its Marketing Productivity A complete marketing audit will include a comprehensive examination of finan-cial information to determine levels of profitability and costs. the analysis is carried out and the resulting information reported back to management. As the report is finally completed. so the preliminary findings and issues emerging can be given prompt attention. Marketing pro-grammes need to be costeffective and measures should be established as far as possible to identify how marketing costs break down and which expenditure brings the highest returns. Systematic: It should be carried out systematically in an ordered and precise way. The marketing audit has the following distinctive characteristics: Breadth of focus: The marketing audit is broad in nature. The marketing audit usually consists of several audits in fact. and this can only be carried out effectively with the cooperation of all involved parties. however. agreed. reflecting the broad role of marketing within the organisation. The following con-siderations and practical guidelines are useful. This is not always .

MARKETING OF SERVICES © Copy Right: Rai University 96 11.313 .

for example~ In organisations where there has previously been no formal marketing activity a marketing audit can be used to highlight what activity should be undertaken and to what extent a marketing orientation exists. Competitor analysis . In the service sector. how many areas to audit in this way. Marketing Effectiveness The marketing audit can perform more than one function. for example) and it is not easy to say what the real impact on sales and profit is. Efforts should be made. It can also have an educational role. however. structure. creating greater awareness of what constitutes effective marketing among managers throughout the organisation. or there may be weaknesses within the sales force which need investigation. to ensure that marketing costs analysis is undertaken accurately and routinely within marketing programmes. The following checklist gives suggestions for formulating approaches to the audit: Macro-environmental Issues Is government activity likely to affect the organisation through new-legislation. The audit may have revealed potential problems in one or more functional areas within marketing and a decision can be made whether to undertake functional audits and. positioning.who are the main competitors? How do they operate? . tax regulations? . What legal requirements is the service subject to? What effects are inflation/recession/interest rates/trends in consumer spending likely to have on the organization s activities? Are demographic trends likely to affect served markets? Are consumer pressure groups influential in this-sector? What is the position regarding international activity? Micro-environmental Issues Market analysis . especially in the not-for-profit and public sectors. many organisations are becoming more marketing driven. market share. Its key aim is to analyse the organization s overa1l9marketing effectiveness. may be set up in a very loosely controlled way. The Marketing Function In this stage of the audit.size. growth. segmen tation.possible with some marketing activities where the results can be quite intangible (advertising designed to boost the organization s image. Advertising programmes. attention is turned to specific functional areas of marketing. for example. if so.

segments. service types and channel? .Who is the customer? How do they buy? What are their needs and wants? What benefits do they rate most highly? How are channels selected and managed? SWOT analysis.and inter-departmental communications effective? Is further training/investment in personnel needed to achieve marketing objectives? Marketing Systems Issues Is there a marketing information system? Is it effective. weaknesses and competitive environment? Are corporate and marketing objectives clearly understood? Is the strategy sound and well supported with adequate marketing resources and expertise? Are marketing efforts being channeled in the right directions for optimum success? Is there a formalises planning system? What control systems exist for monitoring once plans have been implemented? Marketing Organisation Issues Does marketing management have the required expertise and knowl-edge? Do they receive full support from marketing staff and at corporate management level? To what extent does marketing play an integrative role with other departments? Are intra. How does the organisation structure affect marketing? Who are the key stakeholders in the organisation? Marketing Strategy Issues How do the marketing objectives measure up to the organisations strengths. accurate and up to date? Are there formal reporting procedures set down? What other formal and informal control systems exist? How is new service development carried Out? Marketing Productivity Issues Are marketing costs regularly monitored and analysed against performance? Is profitability analysed and measured in terms of markets.

The Marketing Planning Process Marketing planning is one stage in the marketing management process. Marketing plans focus on specific.Are any marketing activities unnecessary? Marketing Function Issues How effective are service design and delivery systems? What controls exist to monitor marketing mix activities? Are marketing functions (e. detailed marketing strategies and programmes. These are then translated into functional MARKETING OF SERVICES © Copy Right: Rai University 11.g promotional programmes) efficiently and with optimal use of resources? The marketing audit forms a basis for the marketing planning process.) Marketing planning is a sub-set of corporate strategic planning. Designing marketing strategies. organizational objectives and strategies are established. designed to help the organisation achieve its marketing objectives within its chosen markets. Designing and implementing detailed marketing plans. The marketing plan coordinates and manages the marketing effort. Marketing research and selection of target markets. Marketing management is responsible for: Analyzing marketing opportunities. Effective monitoring and control.313 97 . At the corpo-rate level. (Aspects of services marketing management are discussed in more detail in Chapter 6.

The outcome of the current situa-tion analysis and the SWOT analysis in particular provides a foundation for the next stage in the process. It addresses the questions: Where are we now? (analysis stage). Where do we want to be? (planning stage). production and other functional areas will engage in planning to meet their own objectives. finance and accounting. or percentage increase over the last three years. the organization s existing products/services situation. Planning Stage Defining the requirements of the plan: objectives setting strategic outline At this stage. the competitive situation and the SWOT analysis. it encompasses decisions and procedures necessary for effective plans to be drawn up and for their successful execution. . It includes detailed analyses of the current market situation. Marketing is only one of these functions. The marketing planning process actually goes beyond designing effective marketing plans and programmes. for example).objectives and strategies. They should be measurable (by sales volume. They should be consistent with the organization s objectives and resources. How do we get there? (implementation stage) How successful are we? (monitoring stage) The stages in the marketing planning process can be viewed as follows: Analysis Stage Current marketing situation analysis: the marketing audit the environmental analysis SWOT analysis This stage covers the relevant background information necessary for plans to be formulated and decisions to be made. They should be set down in order of priority. Marketing objectives should meet certain criteria: They should be stated clearly and unambiguously. marketing managers are fully aware of the factors in the organization s current situation which will influence its marketing activity so will look at corporate objectives in the light of this information to develop marketing objectives and evaluate strategic alternatives.

Each objective should be viewed very closely and strategic alternatives drawn up. benefits Pricing policy Promotional programmes Distribution . by greater market penetration.making the service accessible People aspects of successful service delivery Process design Physical evidence Each element of the marketing mix activities proposed must be carefully costed and analysed for optimal use of organizational resources and to ensure the most suitable approaches are used so that marketing objectives can be met. The strategy defines the broad areas of marketing activity which must be undertaken to enable the organisation to meet its marketing objectives. or in military strategy. a desired increase in sales revenue from a particular service could be achieved in a number of different ways. These must be translated into programmes of action to be carried out by the various functions within marketing. the key questions to be addressed are: What needs to be done? (defining appropriate action) When will it be done? (scheduling and timing) Who will do it? (designating clear areas of responsibility) How much will it cost? (budget planning) The marketing plan will focus on the various marketing mix activities which make up the organization s service offering within its chosen market(s): The service package -features. For example. The next step is therefore to establish plans of action for each selected strategy. or by enhancing the service offering and charging a higher price. Strategic options should be carefully evaluated for each objective and the best possible course(s) of action selected in each case.Strategy is based on the idea of a game plan. marketing strategy sets down the game plan by which the objectives are to be achieved. Implementation stage Putting plans into operation: designing action programmes assigning responsibility for their execution costing the programmes This stage is concerned with the operationalization of marketing strategy. for example. Thus. Measurable targets should be built into the plan to allow for effective monitoring . as in chess. At the implementation stage.

Monitoring stage Controlling the plan: establishing required performance targets monitoring performance against targets designing corrective courses of action where required contingency planning The last stage in the marketing planning process sets in place control techniques for monitoring the plan s performance. The review must be carried out regularly to ensure prompt attention and action in areas when the results lag behind targets set.313 . usually on a monthly or quarterly basis. Usually this entails a systematic review of all aspects of the plan against targets set. Clear areas of responsibility for carrying out designated tasks must be set down and understood by all concerned for successful implementation. Managers and others responsible for implementation of all elements of the action programme should be involved in the MARKETING OF SERVICES © Copy Right: Rai University 98

for example. market penetration. productivity of sales or marketing personnel. Monitoring performance against targets Measures for evaluating perfor-mance against targets need to be established. Control mechanisms should be in place based on the components identified above: Establishing required performance targets: Targets are derived from the marketing objectives set down in response to corporate objectives. will not represent success if the number of complaints increases . Adequate levels of performance against all targets is necessary for the longer term implementation of successful marketing programmes. Individual targets for all func-tional areas within marketing should have appropriate criteria set down for performance to be measured against. The main criteria for determining the level of success against targets will be based on: Market analysis: market share. satisfaction surveys. Financial analysis: sales volume. In some areas. Functional effectiveness: specific measures of advertising effectiveness. response speed. and this should be clearly communicated to the individuals concerned at the time the targets are set. performance against targets will be relatively easy to assess. Delineate clearly between areas of individual responsibility for which individuals have control and uncontrollable factors which should be excluded from that individual s required targets. results of promotional call1paigns. Efficiency measures: improved processes.monitoring process. They should: Indicate clearly required levels of individual performance. Customer satisfaction: complaints monitoring. contribution. profitability. Vastly increased sales volume. Be prioritized and ensure they are feasible and compatible. Allocate responsibility for individual achievement to the appropriate persons. Have some built-in flexibility in order to respond proactively to changes in the organization s environment. while at other times the reasons for failure to meet targets may not be immediately obvious.

its structure and marketing orientation and the performance of individuals within it. If advertising is not achieving the required results. This can be achieved through the following: Internal marketing Motivation and leadership Effective communications Co-ordination of the marketing task Internal Marketing . It contributes to the overall organizational objectives by setting down action programmes to meet agreed marketing objectives. Designing corrective courses of action where required: The purpose of an effective monitoring system is to identify areas of shortfall between actual performance and targets quickly and deal with problem areas promptly. Contingency plans should be drawn up as part of the overall plan. and it is dependent on an accurate and timely monitoring system. then perhaps the budget needs to be increased. They should be designed into the monitoring programme so that they can be implemented readily if required.dramatically and customers are not retained. or parts of it. accurate monitoring and implementation of corrective action or contingency plans where appropriate. The marketing planning process provides the necessary structure and direction for marketing activities to bring about desired changes and results but the key task for managers is finding means to ensure plans are effectively carried out. Successful marketing planning and implementation also depends on the organisation itself. Contingency planning: This is designed to focus management thinking on alternative courses of action which can be taken when unexpected situations arise which make the designated action programme. The marketing planning process coordinates and directs the organisation s mar-keting effort. Its successful implementation depends on careful analysis and evaluation of strategic alterna-tives. Fine-tuning of all elements of the marketing plan is the key task here. or the effort may be best diverted into another activity such as sales promotion. Roles and Responsibilities Effective implementation of marketing programmes requires co-ordinating the efforts of all employees. development of programmes which will operationally the strategy and meet objectives. Their co-operation is essential in realizing strategies designed to increase productivity and customer service to gain and maintain competitive advantage. unworkable. and reviewed as part of the monitoring process.

313 99 . Internal marketing is the focus of the next chapter. Internal marketing programmes consist of training and staff development. the aims of internal marketing are to ensure that all personnel: are committed to the goal of guaranteeing the best possible treatment of customers are themselves motivated see themselves participating actively in achieving the organisation s goals. Motivation and Leadership Internal marketing can playa key role in motivating employees throughout the organisation and is especially important in motivating marketing personnel whose task it is to implement marketing plans. Motivational programmes can be developed by management and geared towards the ultimate attainment of MARKETING OF SERVICES © Copy Right: Rai University 11. Briefly.and the external market through proactive programmes and planning to bring about desired organizational objectives by delivering both employee and customer satisfactions. effec-tive internal communications and integration schemes.This is a means of involving staff at all levels in effective marketing programmes by enabling them to understand more clearly their role within the marketing process. Internal marketing can be defined as follows: Treating with equal importance the needs of the internal market -the employees -:. designed to enhance knowledge and understanding of the overall marketing orientation within the organisation.

employee commitment and job satisfaction is also closely linked to their understanding of their own role in the organisation. Marketing managers must have close links with top management. therefore.corporate goals. This clearly underlines again the central. and integration with other functional areas of management is important. Such programmes may incorporate tangible rewards schemes: Performance-related pay Staff incentive schemes However. Human resources management should work with marketing managers to help in motivating staff. Systematic reporting procedures and a structured flow of information both upwards and downwards within the . Internal marketing programmes incorporate communications as their main component and other management tools such as the marketing information system are useful. integrative role of marketing. so that a dialogue is achieved between: Marketing managers and marketing personnel The marketing function and other functions and staff throughout the organisation Marketing management and corporate-level top management. They should also commu-nicate closely with marketing and other personnel to help them to get the job done and they should lead by example. They need to communicate with marketing and other staff to ensure that activities and responsibilities are clearly understood and operationalised effectively. Effective Communications Good communications can also playa key role in ensuring that plans are implemented effectively and motivating personnel. Marketing management have a dual role within the organisation: to develop strategic marketing plans and action programmes to mobilize marketing personnel and resources within the organisation to meet organizational objectives by serving customer needs and wants most effectively to help instill a marketing and customer orientation amongst all management and employees. The role of management in motivating employees is crucial. Communications should be established as a two-way process. but must focus on the needs of the employees. Marketing managers need to communicate with top management to ensure that plans and programmes always match organizational objectives accurately. to ensure that marketing receives full support and the resources necessary for successful implementation of marketing programmes. and the recognition of their individual contribution.

Management tasks include: Scheduling and synchronizing individual activities Designing reporting and control procedures for all separate task areas Liaison with other functional management Integration with other internal Junctions Integration and co-ordination with external players.organisation all contribute to effective communications. Summary The marketing audit represents the first stage in the marketing planning process. Each individual both within the organisation and outside it who has an input into the marketing process needs to understand precisely their own role and responsibilities. Co-ordination of the Marketing Task The marketing function involves many different specialisms and task areas. which must be managed as a cohesive whole for effective implementation. once completed. advertising agencies and other suppliers. The audit is used to review and evaluate the current position of the organisation s marketing activities and to analyse the organisation s overall effectiveness. Pulling together the marketing effort underpins successful implementation of the. marketing programme. Effective control can be established using the following key steps: Establishing required performance targets Monitoring performance against targets Designing corrective courses of action where required . marketing channels and agents. forms a base for marketing plans to be designed and implemented. The marketing audit. Internal marketing and effective communications programmes will help in the task of co-ordinating the marketing effort. Marketing planning is essentially a process comprised of four main stages: Analysis stage Planning stage Implementation stage Monitoring stage Monitoring is critical to the successful implementation of any plan and control mechanisms should be built into the plan to ensure prompt attenti9n and action if the plan lags behind targets set.

Suggest the Marketing planning process for RAI University MARKETING OF SERVICES © Copy Right: Rai University 100 11.313 . A systematic and thorough approach to marketing analysis. on a piecemeal short-term basis. Tutorials In light of above. as is frequently the case. however. planning.Contingency planning In order for marketing plans to be successfully executed. implementation and monitoring is critical to the successful achievement of organizational objectives. Effective implementation can be aided by: Internal marketing Motivation and leadership Effective communications Co-ordination of the marketing task The marketing planning process provides structure and direction for marketing activities and should be undertaken as a medium to long-term commitment not. the efforts of all employees need to be co-ordinated.

whose participation and role is recognized as being critical to levels of service quality and delivery. They represent the fifth P in the services marketing mix.LESSON 22: INTERNAL MARKETING The Objective of this Lesson is to have an insight into · Significance of internal marketing · Marketing concept and internal marketing · Role of internal marketing · Components of internal marketing · Management approach to successful internal marketing · Internal marketing planning · Developing internal marketing planning · Implementing the internal marketing plan Introduction The concept of internal marketing has its origins in conventional marketing theory and the marketing concept itself. This chapter reviews the internal marketing concept but also focuses closely on implementation issues. Internal marketing programmes consist of training and staff development. The employees are in many senses an important part of the service product as has been stated in previous chapters. de-signed to enhance knowledge and understanding of the overall marketing orientation within the organisation. and the lack of planning tools available to managers wishing to do so. where it has long been recognized that high levels of customer service depend heavily on the personnel who interact with customers. effective internal communications and integration schemes.the internal market within an organisation . However. internal marketing is now being seen as more and more essential for all organisations in striving for marketing success. The Marketing Concept and Internal Marketing In order to understand internal marketing it is useful to review the idea of the marketing concept and to examine some of the fundamental ideas put forward. It is interesting to note that the internal marketing concept has been developed largely within the context of services marketing. Whilst the importance of internal marketing is widely recognized. criticism has arisen due to the difficulties in implementing internal marketing. Internal marketing is a means of involving staff at all levels in effective marketing programmes by enabling them to understand their role within the marketing process. The marketing concept can be generally defined as a human . A framework for implementing internal marketing is proposed and some practical issues are addressed. Internal marketing addresses employees .

market through proactive programmes and planning to bring about desired organizational objectives by delivering both employee and customer satisfactions. The under-lying theory is that optimum levels of customer satisfaction will be gained when employees themselves are satisfied. for example. . then the potential for long-term success is evident. promotion and distribution. Internal marketing should also cover issues which are traditionally linked with other areas in organisations. . The Role of Internal Marketing If it is possible to ensure that the staff of a firm: are committed to the goal of guaranteeing the best possible treatment of customers are motivated see themselves participating actively in achieving the organisation s goals and if internal marketing is the key to this. with the same level of importance as external customers. which lead to some form of satisfaction . therefore. and organisations should pay as much attention to their internal marketing programmes as to their external marketing plans and concerned with more than treating the employee as a customer.for the customer. Pride in the firm itself. such as human resources management.activity directed at satisfying needs and wants through exchange processes. focus on the key element of exchange processes. and individual jobs. that internal means that the organisation should constantly endeavour to develop programmes and strategies for enhancing employee satisfaction in much the same way as external marketing plans which are continuously updated and improved to meet external customer demands. however. Definition of Internal Marketing Internal marketing can be defined as follows: Treating with equal importance the needs of the internal market the employees . Specific marketing skills. and the implementation of training programmes designed to enhance: Knowledge of the firm s product/service mix. Awareness of opportunities for new service and business development. pricing. Internal marketing takes the marketing concept as it is applied to external customers and applies it internally. even society as a whole. the organisation. and also consider issues such as firms serving customer groups more effectively than the competition. This is highlighted by training needs which should be thoroughly examined. Other definitions include planning. Almost all descriptions of the marketing concept. It gives employees the status of internal customers.and the external. It is clear.

Customer service is the critical element which internal marketing influences.313 101 . whatever business or industry the organisation MARKETING OF SERVICES © Copy Right: Rai University 11.

operates in. where internal marketing s role is to create awareness and appreciation of the company s aims and strengths . Building corporate image. and customer service is one of the most crucial aspects of an organisation s competitive advantage. The most advanced systems for developing marketing plans and strategies are worthless if the plan fails at the implementation stage.forced? To formulate any programme an analysis of the critical components must be undertaken. Components of Internal Marketing Programmes How is internal marketing to be implemented? It is essential to explore what are seen to be the fundamental criteria for a successful internal marketing programme. but what steps can be taken to ensure these areas are rein. management action needs to cover: . This may involve information gathering to assess Employee knowledge Attitudes Behaviour. Internal marketing is attracting increasing attention and growing recognition as an implementation tool for adoption by all organisations. and to identify the components of programme formulation. where internal marketing may be used to place. Once this has been done. and other changes. The four most important areas within the organisation s internal environment which are essential to an internal marketing programme can be described as: Motivation Co-ordination Information Education This set of ideas clearly interlinks with the perspectives of internal marketing discussed earlier. There are a number of areas where internal marketing can playa key role: Management of all employees are potential company ambassadors. Strategic internal marketing which aims at reducing interdepartmental and inter-functional conflict and developing the co-operation and commitment needed to make external marketing strategies work. and gain acceptance of new systems such as the introduction of information technology and new working practices.

both in action and word. providing overall guidance and sup-port for the internal marketing programme. whether in the internal or external marketplace. In this way. and the marketing concept. Equally important is a clear and visible long-run programme which really does put the customer first. in all dealings with internal and external customers is the foundation for marketing success. for example. . it is argued that internal marketing planning is therefore made simple. internal marketing moves towards an alternative idea -developing human potential so that organizational goals can be achieved through the satisfaction of individual goals. there would be a corresponding internal marketing mix decision. Communication should reach all employees and include all messages about information and action in order to achieve increased motivation and effectiveness. However. It has been stated earlier that internal marketing is closely related to the area of human resource management within the organisation. which the company took for its external marketing strategy. There should be no difficulty in taking conventional marketing planning tools and developing internal marketing programmes along the same lines. whereas a traditional view of human resource management may be seen as getting things done through people . managers can help employees to make a more effective contribution to the organisation s marketing objectives.Selection Training Motivation Direction. in turn. Employee commitment and loyalty cannot necessarily be bought on an eco-nomic basis alone. This would. Consistency on the part of management. affect the outcome of the external marketing 8trategy which may lead to new marketing mix decisions being implemented both internally and externally. not by simply dictating rules or making unreasonable demands on employees. and set high standards of customer relations and job effectiveness by their own good practice. Managers should lead by example. Management Approaches to Successful Internal Marketing It is important that management embrace the underlying philosophy of internal marketing if they are to develop and direct successful programmes. Adopting this method would mean that for every marketing mix decision. Internal Marketing Planning As internal marketing has been developed directly from conventional marketing theory.

But this is not likely to be the case.The main criticism of this approach might be that it seems to assume that. whilst the internal market n1ay be changing either more slowly or at greater speed. which are continuously being monitored and fine-tuned to changing market conditions. regard-less of what product or service they provide.313 . Even segments within the same market can have individual and distinctive characteristics. Internal market characteristics: Organizational behaviour theory and research may suggest that internal markets in firms of similar size and structure. the internal and external markets (or customers) will behave in a similar fashion and can therefore be treated in an almost identical manner. and these markets can be very different indeed. for the following reasons: Changing external markets Internal market characteristics Changing external markets: Many firms operate in more than one market. for any organisation. may be more closely aligned in terms of MARKETING OF SERVICES © Copy Right: Rai University 102 11. This means that most firms will have external marketing plans.

than the internal markets of all firms operating in one particular external-marketplace. total quality. To achieve this. and internal marketing programmes will reflect this without necessarily matching closely the external plans and activities. Each player is participating in. An action plan for implementing internal marketing encompasses the following stages: Market definition Market research Market segmentation Marketing action Marketing communication Marketing orientation The successful implementation of internal marketing within the organisation hinges on integration.their behaviour and needs. The answer could be to focus on the overall external strategy (sustained growth. which may be widely differing in all aspects. and serving. the internal market should be researched and approached as a special and unique entity.). and then find a way of devel-oping the internal market so that it will provide optimum levels of support and commitment to the success of the strategy. both among academics and practi-tioners. co-ordination and cooperation within the internal market. a clearly defined market. In order to do this well. Developing Internal MarketingProgrammes Internal marketing has an important role to play in the acceptance and subse-quent implementation of marketing~ plans. etc. A number of key components of internal marketing programme formulation have been discussed. Accordingly. or reflect . the action plan starts at that point: Market Definition The internal market should be clearly defined to ensure that providers and receivers of internal services can identify with the concept of internal customers. There is no single methodology to meet all internal marketing needs but it is possible to develop a planning framework of internal marketing at this stage. and this whole area has been the focus of a great deal of interest recently. whose needs require satisfaction. market development. it is essential to study and fully understand the characteristics of the organisation s internal markets. Bur what is the process for the implementation of internal marketing? Should service organisations look beyond traditional planning concepts for internal markets? Recommended internal marketing methods and planning tools to assist man-agers in their course of action are vitally important. This may be across the whole organisation.

and intra-departmental relationships and activities. Marketing Action This involves the selection and implementation of appropriate marketing activities to achieve optimum internal marketing success. Bases for segmentation may be determined as a result of the market research but may include. Practical initiatives to achieve these aims need to be worked out and assigned to individuals and management teams. accurate and appropriate targeting of internal marketing efforts. The structure of the market is important. Subjects for research may include: Employee attitudes towards the organisation and its mission Levels of job satisfaction Assessing skill and knowledge needs Needs and wants of employees Market Segmentation This is necessary to ensure most effective. The best route for segmenting the internal market may not be by existing department/line management divisions as this can lead to a less unified ap-proach. This contributes to the identifica tion of opportunities both inter-nally and externally. regular team briefings and encouragement of better two-way communications are the sorts of approaches which are helpful.inter. This process should be targeted to encourage participation in achievement of personal and organizational goals. for example. The internal market should itself be researched to explore issues which are likely to affect the successful implementation of internal marketing programmes and individual roles and responsibilities. . level in organisation. with attention being paid to both formal and informal lines of communication and power. Customer care programmes and staff training and development are some of the methods available. In-house magazines. It must be both compatible with external research activities and contribute in the same manner to decision-making. Market Research Information should be continuously collected and analysed at all levels in the organisation. Internal marketing should be viewed as a means of reducing potential communication problems or friction between different functional areas. both internally and externally. teamwork and employee empowerment are some of the aims of internal marketing. Better internal communica-tions. Marketing Communication Accurate and timely spreading of marketing information should be undertaken.

Marketing Orientation The overall aim should be to create an internal environment which is flexible and responsive, and which nurtures common values and behaviour which reflect the organisation s goals. The organisation s marketing objectives and mission must be made clear to all employees, and clearly defined individual goals set down to enable personnel to see their own contribution to achieving the organisation s objectives. Implementing the Plan Implementing internal marketing programmes can be achieved through co-operation between top management within the organisation and functional managers. It requires a flexible approach which will lead to an internal environ-ment which is both committed to organizational goals and responsive to chang-ing organizational needs. The changing needs of employees must also be taken into account. MARKETING OF SERVICES © Copy Right: Rai University 11.313 103

Marketing management should work with human resources management to develop a plan for action, as they will have the specialized knowledge and insight necessary to operationalised the stages outlined above. It should be emphasized, however, that responsibility for implementing the plan lies with all managers and employees throughout the organisation. Taking a marketing planning framework, the internal marketing plan can be viewed as follows: Marketing audit: Carry out a marketing audit of the internal market, paying particular attention to the areas highlighted previously. Marketing analysis: Conduct an analysis of the internal market in terms of its Strengths, weaknesses, opportunities and threats. Objectives setting: Review the organisation s objectives in the light of internal marketing and develop internal objectives Strategy development: Strategic options relating to the internal market need to be examined. Enhanced customer service may be attainable through better training or greater staff empowerment, for example. Designing action programmes: This can be undertaken by managers to deter-mine the most appropriate courses of action and the likely costs and resources required. PR managers may assist in developing a staff magazine, for example, while human resources management can develop training programmes. Assigning responsibility for their execution: This is the area which needs to be looked at from a company-wide perspective, and action plans should be broken down into their core components for implementation by the most appropriate individuals. Monitoring and controlling the plan: Some measures need to be determined to establish the success levels of internal marketing programmes. These must be established alongside the programme objectives. Some aspects may be incorpo-rated into staff performance evaluation and appraisal schemes, for example, while others may be monitored according to -reduced levels of customer complaints or better quality levels. The planning framework illustrated should represent a dynamic flow process: as situations arise within the internal market place, and changes take place within the internal environment,

management will respond and the plan may be fine-tuned as it evolves. The internal environment should foster an atmosphere which is both flexible and responsive; this is most important. Within today s ever- changing external environment it becomes even more so. The Institute of Man-agement in the/UK undertook a major research initiative to look at the future for business organisations through the 1990s, and concluded in its published report that In today s demanding business environment an organisation needs to be responsive-and flexible if it is to survive. It must continually adapt to changing situations and requirements. In order to meet these demands (and this does not only apply to British or-ganisations), a service organisation depends more and more upon its people. If all personnel are: actively partici pating in the firm s overall strategy given every opportunity to develop their full potential keen to understand and believe in the firm s goals the chances of success must be high. They will be prepared and equipped to be flexible and responsive. The costs of implementing internal marketing pro-grammes throughout the organisation can be high. This should not prevent internal marketing from being given high priority. The potential costs of failed external marketing strategies are far higher. Summary Internal marketing is based on the notion of communicating with internal markets as well as external markets - treating employees like customers. It affords recognition to the vital role of people within the service organization and represents a means of involving staff at all levels in effective marketing through the application of the marketing concept internally. Internal marketing encompasses a number of elements, all of which help contribute towards enhanced customer service and a greater degree of marketing orientation within the organisation. These elements include: Training programmes Internal communications Motivational programmes For internal marketing to be successful it requires careful attention and planning. An action plan for implementing internal marketing encompasses the following stages: Market definition Market research Market segmentation

Marketing action Marketing communication Marketing orientation A marketing planning framework can be developed for internal marketing which needs co-operation from top management and employees throughout the organisation; it should not be the sole responsibility of marketing management. Tutorials In light of above, Discuss the action plan for implementing internal marketing in Airline industry. Narrate with the help of Jet Airways MARKETING OF SERVICES © Copy Right: Rai University 104 11.313

LESSON 23: RELATIONSHIP MARKETING The Objective of this Lesson is to have an insight into · Significance of relationship marketing · Building Relationships · Quality and relationship marketing · Customer Retention Introduction Marketing is continually evolving in response to the changing environment. New strategies, techniques and tools for marketing managers are constantly being developed. This book has demonstrated how many areas which were not tradi-tionally associated with marketing, such as the not-for-profit sector, have increasingly become the focus of marketing attention. Marketing has also moved away from the original idea of bringing about mutually satisfying benefits or exchanges. Societal marketing, for instance, ad-dresses a wider need - in societal marketing, the exchange should result in benefits to society as well as the organisation and its customers. Green marketing, following the trend towards environmentalism which is growing through concern for the world s resources, suggests that no marketing decision should be undertaken without regard to the possible long-term effects. Product design, packaging, manufacturing process and distribution decisions are examples of the issues influenced by green thinking. Consumers have responded the these changes and have become more sophis-ticated in their demands and expectations. They are prepared to seek out prod-ucts which are more environmentally friendly, for example, and will think twice before investing money in a bank which invests in countries or industries which are politically and environmentally unsound, in societal terms. Services marketing is also a growing specialty, and concepts such as internal marketing have been developed within the services sector, but are now widely recognized to be highly relevant to all organisations. Internal marketing calls upon the organisation to have equal regard for its internal customers - the employees - as for its external markets. Internal marketing programmes can enhance employee and customer satisfaction through increased involvement between all members of the organisation in its marketing efforts. Relationship marketing goes a step further. Organisations are urged to focus not only on their relationship with customers external and internal- but with other elements within industry and society which can impact on the organisation s long-term success. The emphasis too is not on bringing about exchange processes, but on building relationships. Quality service is the key to customer retention through customer satisfaction. Customers who keep coming back for more is the goal; zero

defections rather than zero defects. Building Relationships The key focus of marketing has always been the market customer needs and wants. However, there are many other influences on an organisation s marketing activity. In conducting a SWOT (strengths, weaknesses, opportunities and threats) analysis, an organisation must consider these micro-environmental fac-tors. As well as the organisation itself, and its internal and external markets, its publics must be considered. An organisation s publics include: Suppliers Intermediaries and other channel members The government and its agencies Shareholders Community groups Affiliated trade and professional associations Trade unions Banks and finance houses Consumer groups The aim in relationship marketing is to build and maintain relationships with all the organisation s publics. The list given is not comprehensive, and some publics will obviously have more influence over a particular firm s activities than others. The task is to identify those groups which are the main influencers and to design marketing programmes and strategies which take the influencers into account. Relationships with Channel Members Out of all the influencers discussed above, a particular group merits special attention when it comes to building relationships. This set of publics interact directly with the organisation at the input and output stages. They are cooperators in the business activity. They are all channel members and they represent both the supply side and the distribution side. Some sources focus solely on supplier markets but channel members such as intermediaries and agents in the distribution market can have an equal impact on an organisation. If fully integrated channels are the most efficient {where a single organisation operates at every channel level}, then it is obvious that, where full integration is not possible, relationships must be developed within the channel. Even in services marketing, where channels may not exist to the same degree, this is vital. Package tour operators must have positive relationships with their suppliers (hotels and airlines, for example) and with their distributors (travel agents). Financial organisations must have confidence in brokers who trade in their services. Restaurants,

hairdressers, auto-service stations and hotels must be on good terms with their suppliers to be able to operate effectively. The objective of relationship building wit~ these groups is to develop co-operation and co-ordination between all the parties MARKETING OF SERVICES © Copy Right: Rai University 11.313 105

as in industrial markets where specifies (who may be from outside the client organisation) playa major part in buying decisions. rather than simply trying to attract new ones. rather than creating exchange processes. Relationships with Customers Relationship marketing is also about building relationships with customers. In consumer markets. This telephone contact is used to check that the customer is still satisfied with the service they are receiving.but often they are more formal. Referral Markets Another important influence on an organisation s performance is the level of business (or activity) arising from referrals. and the focus is on retaining customers.are often cast in the role of specifies when they advise their client where to source materials and services. The first-time buyer in the housing market may well take their estate agent s advice on which mortgage company to approach. and which solicitor to use. for example . Frequently. This is especially important in services marketing where word of mouth recommendation can be a key factor in the consumer decision call on all his customers every week to collect payment. Personal contact is still of critical importance in this market. free of charge. and suppliers and channel members playa major role in service quality. Architects or consultants .the representative . It was not unusual for the Insurance Man to become a family friend. A freefone number is given to customers who can use it to call any time. referrals are informal. Quality of service delivery is paramount. and are contacted periodically by dealers anxious to maintain a front of mind relationship. North West Securities.used . Insurance agents put forward the best policies for their clients. They aim to maintain a high customer retention rate.who can impact on the overall satisfaction of the ultimate consumer. . and he was guaranteed all the family s insurance business. Customer contact should be maintained after the sale has been completed. Existing customers are invited to social events when new models are launched. and to update them with details of new services available. Manufacturers actually employ sales and marketing professionals to develop innovative after-sales strategies to increase customer retention. telephones everyone of its credit customers three or four times a year. Insurance companies developed this kind of relationship in the days when the Insurance Man . Travel agencies recommend which holiday tour operator will meet a customer s requirements. from life and savings policies through to pensions and funeral policies.through family or friends. a financial services company specializing in consumer credit. formal referrals exist in many forms. Car manufacturers and dealers have long recognized the value of this type of after-sales marketing.

Organisations need therefore to communicate with prospective employees -the employee market. the existing member receives some incentive. For this reason. Service organisations. Evidence also suggests that prospective employees. a socially responsible image and greed policies were the most important factors. The British Benefit Society (a Friendly Society specializing in savings and loans) offers small cash gifts to members who recruit further members. such as free sunbed sessions.towards the members of the referral market . where insurance agents and travel agents receive commission and. This is already done in many formal referral situations. can help to ensure the future well-being of the organisation. in particular. Service quality depends to a very great extent on people. A 1990 survey of marketing. provided that they are themselves experiencing high levels of satisfaction with the service they have received. for example. The pharmaceutical industry spends massive amounts on promoting their products to doctors who act as specifiers. especially under the current demographic changes being experi-enced in the UK (and other areas) today.Most organisations will find that a proportion of their customers come to them via a referral of some kind. relationship marketing is concerned with building . it is important to direct some marketing activity . train and motivate internal market members are very important if the relationship is to be a positive one. have to pay special attention to recruit-ment of quality personnel. however. Relationship marketing places the emphasis on building and maintaining a good workforce. In summary. Where referrals are largely informal. it can still be possible to use innovative methods to develop this area. If the friend takes out a subscription. Recent forecasts show that by the end of the 1990s the demand for graduates will far outstrip the supply. Internal Markets Relationship marketing may go further than internal marketing but it still retains a very clear focus on the needs and wants of the internal market. are becom-ing more sophisticated in their demands. other incentives to ensure their support. Building relationships with the employee market. Health clubs invite members to intro-duce their friends for a trial session. Recruiting the individuals of the right caliber is not always easy. Existing customers can be the best source of referrals there is.the specifies wherever possible. administra-tion and personnel professionals showed that in choosing a firm to work for. like consumers. and developing long-term relationships with internal customers is just as important as building relationships with external ones. Specially formulated internal marketing programmes to communicate. espe-cially through long-term positive visibility on the graduate recruitment scene. This demonstrates again the potential power of relationship marketing.

but it identifies a number of markets which the organisation needs to understand and relate to. The markets which need to be addressed are as follows: Customer .313 .existing and potential Internal markets Influencers MARKETING OF SERVICES © Copy Right: Rai University 106 11. It is customer and market orientated. The organisation must design and implement strategies and programmes for successful relationship marketing.long-term relationships rather than bringing about exchange processes.

relationship marketing just goes a step further. Customer service should playa key role in the organisation s mission state-ment. as stated earlier. but will look in greater depth . An organisation which is committed to relationship marketing will develop a mission which reflects this through a focus on shared values and people-based goals. The mission statement should be accessible to everyone in the company. because relationships cannot be sustained if there are any problems with and distribution Potential employees Relationship Marketing Management Relationship marketing strategy development is really no different to marketing strategy generally except that there should be a clear directional focus on rela-tionship building throughout the formulation of strategic plans. SWOT Analysis The next step in the strategic planning process is the SWOT analysis. This section provides an overview of strategic planning in relationship marketing: Objectives setting The mission SWOT analysis Market analysis and segmentation Strategy formulation Developing the relationship marketing mix The major objective in relationship marketing is quality. It is very easy to relate these ideas to services marketing. where delivery of quality service is most important. This can help the mission to become something that is owned by every-body in the organisation because it reflects the role that all employees can play in customer service. are some of the key ideas which the mission statement should include in relationship marketing. This is particularly applicable to services marketing. and this pro-vides a centralized strategic focus for the organisation. and.Referral markets Channel markets . A strategic focus is important for any successful marketing organisation. The Mission The starting point in strategic planning is the mission statement. even specific statements about customer confidence in making recommendations. Customer and em-ployee loyalty.and micro-environments. This will cover the broad areas of the company s macro.

In services marketing. The objective of this analysis is to identify opportunities and threats. as far as possible. The competitive environment must be thoroug11ly examined. Researching the internal market will help in determining the best way to segment it. The internal market analysis will also contribute to this. and the relationship with competitors. assess strengths and weaknesses. and other major competitive factors such as the degree of rivalry and barriers to entry. These groups might then be segmented so that the organisation can focus on means of tailoring the relationship to the specific needs of different groups. this will focus on the seven P s: Product Price Promotion Place People Process Physical evidence internal review have next step. Not all of the market groups will be addressed by formal marketing programmes some segments may require more informal communication to build and maintain the relationship.into the six market areas identified previously. Internal markets should be analysed and segmented as part of this process. An in-depth internal examination of the organisation should be undertaken to. Management which will provide the the organisation s goals. should focus on co-operation and avoid devaluing the industry or service market sector. Market Analysis and Segmentation The next state in the strategic process is market analysis and segmentation. objective setting is the then need to select the strategic options greatest chance of successfully achieving Developing the Relationship Marketing Mix It is in the marketing programme formulation that relationship marketing can be seen to be put into effect. and this should be the aim. There are a number of ways of segmenting internal markets. and these tend to be organisation-specific. Strategy Formulation Once the macro-environmental analysis and been com-pleted. this should include. . Strategies relating to competitors. Competitors can work co-operatively to develop markets. This will tend to follow the industry structure. In relationship marketing. while not actually relationship building in the same sense as relationship marketing. analysis of the six market groups identified earlier.

Quality service. By improving and developing relation-ships with the six key markets through the design and implementation of formal organizational plans and systems (rather than leaving the relationship aspects to chance) quality becomes integral to the organisation s activities. stemming from consistent and supportive relationships can be a very useful tool for positioning. although the various elements of the mix will be used to a lesser or greater degree in the different cases.The marketing mix must be tailored to each of the six markets previously identified. will be present mainly in the customer market.313 107 . The promotional mix is the one most likely to be targeted to each market segment. Quality and Relationship Marketing Throughout this chapter it must be clear that relationship marketing has as its central strategic focus the role of quality. MARKETING OF SERVICES © Copy Right: Rai University 11. in particular. This enables the organisation to undertake product (or service) positioning. Relationship marketing can be used to differentiate the product or service in the perception of the consumer. The product. or service offering. except when it is also used in or offered to the referral market.

Customer Retention As well as quality. cases can drag on for years. An example of this is database marketing where customer-buying histories and other information can be listed on a database. can help raise perceptions of service. Relationship marketing should allow for more customer contact (and on a more regular basis) between the customer and the organisation on many levels. together with brief but courteous notes if the service delivery is to be delayed at all. Increased customer contact . There are a number of ways in which systematic relationship building can help increase service quality levels. Acknowledgement of orders and should not only be the job of field service staff to visit customers. Relationship marketing goes beyond internal marketing in this context. sales promotion and other means. This would solve two of the major complaints from consumers: that they are left in the dark while waiting for the outcome of their case. Enhanced customer service -increased (but not necessarily more expensive) communications with customer groups can enhance customer service. In relationship marketing. for example. the client would be regularly updated on any news (and also if there was no news which can be as important). Compared with the cost of attracting new customers through advertising. and that the final bill is always too high. Loyal customers who keep on repurchasing are extremely valuable. developing relationships through people helps build quality into the service.In services marketing where the service delivery is the fundamental measure of quality. and end up being very expensive so there is an enormous bill to settle at the end. and where people are the service providers. the other key aspect of relationship marketing is customer retention. and it also builds on other advancements in quality such as Total Quality Manage-ment (TQM). customer conferences and focus groups can present an excellent forum for feedback and new ideas. progress reports and newsletters can be amongst the simplest and most effective forms of communication. A number of tools can assist in the process. Another important aspect of the task of analyzing how to retain customers is to carry out market research amongst customers who have defected. In legal practices. and the bill could be negotiated and spread over the duration of the case. and then referenced and cross-referenced in the future to target new products or promotions accurately. Why did they go to a competitor? Why have they stopped using your service? The answers to these questions can hold vital information for services marketing . Regular updates. The relationship can be helped enormously be allowing no frontline staff to mix with their opposite number. any effective method of retaining existing custom-ers who will continue to spend money with the organisation must be important. for example on the customer organisation staff.

It is useful to understand the components identified above. . The audit can now focus on the corporate mission and objectives and consider the organization s marketing objectives in the light of existing opportunities and strengths. opportunities and threats) analysis. It includes economic and political factors and socio-cultural trends. Marketing Organisation The role of marketing in the service organisation is a critical one. A more detailed description of the marketing environment can be found in Chapter 6.managers. Training and human resources issues should also be considered as a particularly important issue for labour-intensive service industries where people playa key role in all aspects of marketing. The macro -environment represents all the outside influences which will impact on an organization s marketing or business activity. The current marketing strategy should be examined to ensure that it represents the most appropriate course of action for the successful achieve-ment of organizational goals.they simply stop using the service. The external environmental influ-ences will affect all organisations within a sector to a greater or lesser degree. until. Research is important to establish why customers defect. The strategy should fulfil the organization s mar-keting objectives in a way which Makes optimum use of resources while taking account of strengths and weaknesses. as studies have shown that a large proportion of dissatisfied customers never complain . finally. for example. specific problem areas or difficulties can be probed more closely if required. and possible problemareas. The audit then gradually narrows its focus from the general aspects of the organization s marketing activity to the more specific.problem occurring again but the starting point is usually to examine the external environment and the changes taking place within it. By the same token. and the way in which companies organize themselves for marketing can be crucial for success. as discussed Integration between management functions. The Marketing Environment The marketing environment is made up of two parts: the macro-environment (or external environment) and the micro( internal) environment. internal communications and established links between different functional areas should all be looked at within the marketing organisation audit. The internal environment relates to a particular organisation and its publics. customer complaints handling procedures should be properly carried out to ensure that the complaint is rectified and the customer is satisfied the necessary action is taken to prevent that . It should also be assessed for its suitability with regard to opportunities and threats facing the company. Marketing Strategy The environmental analysis can be used as a basis for SWOT (strengths. and the main questions which should be addressed in the audit. weaknesses.

marketing re-search and MARKETING OF SERVICES © Copy Right: Rai University 108 11. New product or service development processes.Marketing Systems This examines the systems used by marketing management to gather informa-tion. The focus Jon the actual modes of Implementation and monitoring rather than the marketing strategy itself. implement plans and monitor their effec-tiveness.313 . Processes and procedures set down for marketing activity of all kinds need to be included. budgeting and reporting procedures. design plans and programmes.

marketing information systems are all examples of the areas to be investigated by the auditors at this stage. Compare Hutch vis-vis Airtel MARKETING OF SERVICES © Copy Right: Rai University 11. Compare the relationship marketing management in telecom sector.313 109 . Tutorials In light of above.

Aside from the time taken to deliver the messages themselves. while still managing to strengthen the brand and deliver a personal message? Relationship marketing is based on a sustained and two way communications process. Clickatell Communicator. since SMS has an extremely low cost associated with it. Also.LESSON 24: A CASE STUDY ON RELATIONSHIP MARKETING THROUGH SMS The Brief A relationship marketing company in Cape Town. Some of the features that have helped jSRM are: . yet important requirement for their clients. and not from an unknown telephone number. With Clickatell s SMS delivery service. the message comes from a company that they have a growing relationship with. The Solution Using SMS was the obvious answer to their requirement for a fast and cost effective medium. and incorporates the creation and management of client databases. has been successfully using SMS to solve a simple. and cost effectively. From the recipients point of view. jSRM. By it s very nature. SMS is extremely useful for delivering short messages which need to be delivered in a short space of time. Application Clickatell Communicator has been designed to make SMS messaging simple and seamless. Since the message is short and text based. quickly. as SMS is database driven. It involves the management of communications strategy and implementation. And. jSRM and their clients are able to use it more frequently than standard media. or Sender ID s. All these factors help jSRM to facilitate the relationships between their clients and customers. some of the message headers. jSRM has been assisted in achieving this goal. This feature is only available on some of the networks that jSRM delivers to. the preparation time is reduced dramatically. South Africa. SMS allows marketing communications to be prepared and delivered faster than any other traditional media. All this without the recipient even knowing that jSRM is involved. or even an email. can also be branded. How does one communicate with customers efficiently. which jSRM can attach to each outgoing message. it allows the marketer to target and profile the audience according to the strategy or the specific message content. would take considerable time in order to be properly prepared. A standard mail. This adds an extra level of credibility. Using one of Clickatell s products.

) . Explain significance of relationship marketing in service industry. which. including: Event reminders (sent before an event to reaffirm attendance) Calls to action (such as Birthday wishes Thank you notes (for attendance etc. similar to a mail merge. can personalise each outgoing message with up to 5 variables (such as name.. easy to use. etc.An intuitive. With reference to the above context. account details. A database uploading facility (where recipient databases may be uploaded for easy messaging). messaging interface.) A message delivery reporting tool And jSRM have successfully used SMS for a wide variety of different message types. A group management system (for creating groups of recipients) A message personalization tool.) Any many more .. MARKETING OF SERVICES © Copy Right: Rai University 110 11. birth ate etc.313 Collect your tickets at .

Customers of . In addition to extensive customer education through detailed . and commer-cial printing environment that the industry has ever seen. One company. Although iPrint notifies customers via e-mail when the order is placed and when it has been printed. in just over two years. and shipping process. continually accessible way to independently create and under customized print jobs. quickly. bills itself as the most complete. Although creating graphic designs is a highly complex process with hundreds of variable to consider. Customers adapt existing designs to meet their specifications and then view the finished product. various gift items. which provides customers an easy. Designs are also automatically saved for two years to allow for easy re-ordering. iPrint offers business cards. iPrint is changing the way business customers interact with commercial printers. customers can actu-ally produce services for themselves with little or no interpersonal interaction with the provider. selfservice online creation. Completed designs can be purchased over the Internet and are typically received in a few days. ordering. size. fully automated. iPrint created a simple step-by-step process to create personal-ized products. iPrint. stationery.iPrint create their own value through participation in the production of customized printing services. and from the convenience of their own home or office. and promotional products.MARKETING OF SERVICESUNIT V DELIVERING SERVICES IN REAL TIME LESSON 25: CUSTOMERS ROLES IN SERVICE DELIVERY The Objectives of this Lesson are to · Role of customers in successful service delivery · Importance of customers in successful service delivery · Level of customer participation Customers Roles in Service Delivery In the current environment of online and Internet-based services. Much of the relatively new company s success can be attributed to its business model. and color (1S well as clip art or business logos. create their own design on a wide range of products. font. iPrint had had more than 2. sometimes at half of the cost of traditional commercial printers. a Web-based custom printing service. selecting from a wide range of options such as paper. By 1999. many at the request of loyal customers. Customers with little or no knowledge of graphic de-sign can easily. New products such as photo calendars and additional business forms are continually being added. notepads. iPrint opened its storefront on the Internet in January 1997 and has seen orders grow 20 percent per month.5 million visitors to its Web site. customers are also able to actively participate after the or-der has been placed by tracking the order throughout the processing printing.

in a classroom or training situation.step-by-step instruc-tions. iPrint provides easy access to frequently asked questions. Service customers are often present in the factory (the place the service is produced and/or consumed). customers themselves can influ-ence whether the delivered service meets customer-defined specifications. interacting with employees and with other customers. rarely does the production facility contend with customer presence on the factory floor. and contact with service providers is available through e-mail. However. or fax if necessary. Everyone wins. These roles are unique to service situations. service customers can actually produce the service themselves and to some extent are thus responsible for their own satisfaction. There are segments of customers who will always want personal advice and the direct involvement of professional designers. Because they are present during service production customers can con-tribute to or detract from the successful delivery of the service and to their own satis-faction. Customers participating in the design of their own products are rewarded with prices significantly lower than what they would normally pay. creating value and satisfaction for themselves. In a manufacturing context. That is. Because-customers are participants in service production and delivery. Sometimes customers contribute to gap 3 because they lack understanding of their roles and exactly what they should do in . We examine the unique roles played by customers in service delivery situations. which allows the company to charge lower prices. manual service business into an electronically automated. iPrint has successfully transformed a people-intensive. customers create value for them. students (the customers) are sitting in the factory interacting with the instructor and other students as they consume the educa-tional services. what this does say is that there are segments of cus-tomers in the marketplace who will respond to new choices and who are willing to co produce services. So does that mean traditional providers of commercial printing services will be driven out of business by companies like iPrint? Probably not. nor does it rely on the customer s immediate real-time input to manufacture the product. they can po-tentially contribute to the widening-of gap 3. enhancing iPrint s pro-ductivity. Using imprint s online services. Because they do so much of the work.selves and in the process also reduce the prices they pay for printing services. self-service function where customers are empow-ered to create their own value and satisfaction. phone. For example. customers essentially become co producers of the service. As the example in the opening paragraphs of the chapter illustrates.

For example. but simple. customers using the services of imprint for the first time need detailed.313 111 . instructions to help them understand how to use the service effectively and get the greatest value. © Copy Right: Rai University 11. This is particularly true in cases where the customer may be confronting a service concept for the first time.a given situation.

The actors (ship s per-sonnel) provide the service through interactions with their audience (the passengers) and among each .g.. Consider the services provided by a cruise ship company. In a different situation..3 Service performance results from actions and interactions among individuals in both groups.e. In many sit-uations employees. gap 3 may be widened not through actions or inactions on the part of the customer.. The importance of customers in successful service delivery is obvious if one thinks of service performances as a form of drama: The drama metaphor for services . When service cus-tomers are enticed through price reductions. or. Disneyland customers waiting for one of the rides) can influ-ence whether the service is effectively and efficiently delivered. the service will not be successful because of customer inaction. fragile processes that can be influenced by behaviors of customers as well as by employees. and customers (audience) in creating the service experience. The Lmportance of Customers in Service Delivery Customer participation at some level is inevitable in service delivery.suggests the reciprocal. Through this metaphor. as in the case of our opening vignette about iprint. bank cus-tomers waiting in line. and customer satisfaction.e. customers may choose not to perform the roles defined for them be-cause they are not rewarded in any way for contributing their effort. passengers on an air-plane flight) or waiting their turn to receive the service sequentially (i. Finally. The service actors and audience are surrounded by the service setting or the service escape . In a health club context. Other customers who are in the service factory either receiving the service simultaneously (i. If work schedule demands or illness keep the member from living up to his part of the guidelines. typically produced and consumed simultaneously.some other tan-gible benefit.The drama metaphor argues that the development and maintenance of an in-teraction (e. interactive roles of employees (actors). and even others in the service environment interact to produce the ultimate service outcome. qual-ity. greater convenience. a service experience) relies on the audience s input as well as the ac-tors presentation.At other times customers may understand their roles but be unwilling or unable to perform for some reason. Services are ac-tions or performances. service performances or service delivery situations are viewed as tenuous. but because of what other customers do. they are more likely to perform theirroles willingly. Because they participate. customers are indis-pensable to the production process of service organizations and they can actually con-trol or contribute to their own satisfaction. customers. This chapter focuses on the roles of customers in service delivery and strategies to effectively manage customers in the production process to enhance productivity. a member may understand that to get into good physical shape he must follow the workout guidelines set up by the trainer.

and physical possessions such as receipts and past tax returns. or physical possessions. People: all h£(. Table 12-1 provides several examples of each level of participation for both consumer and business-to-business actors who playa part in service delivery and thus influence the buyer s perceptions. For these services customers have mandatory production roles that. or go to another room or even out to their cars to get them. effort in putting the information together in a useful fashion.g. and other customers in the service environment. other customers and calls are left unattended. Symphony-goers must be present to receive the entertainment service. the service provider cannot effectively deliver the service outcome. causing longer wait times and potential dissatisfaction. Customer Receiving the Service Because the customer receiving the service participates in the delivery process. medium high-varies across services. Meanwhile. exer-cises. Even in a relatively simple service such as retail mail order. effective or in-effective. All three of these are required for a CPA to prepare a client s tax return effectively: information in the form of tax history. with the employees of the firm doing all of the service production work. cus-tomers can actually be involved in co creating the service (high level of participation). studies. the service audience. Similarly. training. shoppers who are not prepared with their credit-card numbers can put the represen-tative on hold while they search for their cards. productive or unproductive behaviors. all that is required is the customer s physical presence (low level of participation). as in the case of a symphony concert. The level of customer participation-low. In this chapter we focus on the customer receiving the service. she can contribute to gap 3 through her own appropriate or inappropriate. In other cases. All forms of education. Inputs can include information effort. will affect the nature of the service outcome. that is. The effectiveness of customer involve-ment at all of .4 Customers who are unprepared in terms of what they want to order can soak up the customer service representative s time as they seek advice. marital status. And. if not fulfilled. consumer inputs are required to aid the service organization in creating the service (moderate level of participation). the customer. both actors and audience are elaborate setting (the cruise ship itself) of the service other audience surrounded by an that provides it context to facilitate the service performance. The drama metaphor provides a compelling frame of reference for recognizing the interdependent roles of actors and audience in service delivery. but little else is required once they are seated. and other cus-tomers in the service environment. and number of dependents.other. customers actions and preparation can have an effect on service delivery. as shown in Table 12-1. In some situations. Unless-the customer does . In some cases. eats the right foods). The audience also produces elements through in-teractions with the actors and members. the firm s personnel.something (e. namely. and health maintenance it this profile. Recognition of the role of customers is also reflected in the definition of the people element of the services marketing mix given earlier..

the levels will impact organizational productivity and ultimately. MARKETING OF SERVICES © Copy Right: Rai University 112 11. qual-ity and customer satisfaction.313 .

Table 12-1 Levels Of Customer Participation Across Different Services Low: Consumer presence Moderate: Consumer inputs High: Customer co creates required during service required for service creation the service product delivery Products are standardized Client inputs customize a Active client participation standard service guides the customized Service is provided Provision of service requires service regardless or--any customer purchase individual purchase Service cannot be createdCustomer inputs (information. apart from the customer's Payment may be the only materials) are necessary for an purchase and active required customer input adequate outcome. but the participation service firm provides the service Examples: Haircut Customer inputs are End consumer Annual physical exam mandatory and co create the Airline travel .

crying babies. The customer is disappointed through no direct fault of the provider. Other customers can enhance customer satisfaction and perceptions of quality. In both cases.Full-service restaurant outcome Motel stay Fast -food restaurant Agency -created advertising Marriage counseling Business-to-business Campaign Personal training customer Payroll service Weight-reduction program Uniform cleaning service Freight transportation Pest control Management consulting Interior greenery Executive managementmaintenance service seminar Install computer network Other Customers In many service contexts. and manifesting incompatible needs. and loud. This is a common occurrence in banks. excessively crowding. In restaurants. Excessive crowding or overuse of a service can also affect the nature of the cus-tomer experience. overly demanding customers (even customers with le-gitimate problems) can cause a delay for others while their needs are met. causing delays. unruly groups can be disruptive and detract from the experiences of their fellow customers. the quality of telecommunication services can suffer on special holidays such as Christmas . Similarly. hotels. smoking patrons. and customer service counters in retail stores. other customers are present in the service environment and can affect the nature of the service outcome or process. Some of the ways other customers can negatively affect the service experience are by exhibiting disruptive behaviors. customers receive the service simultaneously with other cus-tomers or must wait their turn while other customers are being served. Visiting Sea World in San Piego on the Fourth of July is a very different experience from visiting the same park mid-week in February. airplanes. In other cases. and other envi-rOpP1ents where customers are cheek to jowl as they receive the service. overusing. or they can detract from satisfaction and quality. post offices.

researchers found that customers negatively affected each other when they failed to follow either explicit or implicit rules of conduct. Sometimes the mere pres-ence of other customers enhances the experience. other customers provide opportunities to socialize and build friendships as suggested in Figure 12-1. they should be considered as part of the organization. shoving. In some situations. college class-rooms. or even spiteful. for example. Just the presence of other happy customers cre-ated a fun atmosphere that enhanced enjoyment of the attraction. There are just as many examples of other customers enhancing satisfaction and quality for their fellow customers as detracting from them. if customers con-tribute effort. hospitals. or other resources to the service production process. customers as contributors to quality and satisfaction. such as educational classrooms. time. other customers provide a positive social dimension to the service experience. drinking alcohol. customers as competitors Customers as Productive Resources Service customers have been referred to as partial employees of the organization human resources who contribute to the organization s productive capacity. in movie theaters. In a study of critical service encounters occurring in tourist attractions across central Florida. churches. Finally. and re-sorts such as Club Med. In other words. assisting with children. group counseling. being verbally abusive. Other times. Long-time. and in other-entertainment venues. This can occur in restaurants. and returning dropped or lost items. depends significantly on the camaraderie and support that group members provide each other during the weight-loss process. unfriendly. This is true at sporting events. smoking. rude. At health clubs. and weight-loss programs. customers may actually help each other to achieve service goals and outcomes. taking photos. The presence of other patrons is es-sential for true enjoyment of the experience: In other cases.and Mother s Day when large numbers of customers all try to use the service at once. Customers re-ported such negative behaviors as pushing. The success of the Weight Watchers organization. Customer Roles The following sections examine in more detail three major roles played by customers in service delivery: customers as predictive resources. Some management experts have suggested that the organization s boundaries be expanded to consider the customer as part of the service system. it was found that customers increased the satisfaction of others by hav-ing friendly conversations while waiting in line. and any service establishment where multiple segments are served simultaneously. In the study of central Florida tourist attractions men-tioned earlier. or cutting in line. established customers may also socialize new customers by teaching them about the service and how to use it effec-tively. . customers who are being served simultaneously but who have incompati-ble needs can negatively affect each other. dissatisfaction resulted when other customers were impersonal.

clients of a CPA firm are part of the service production process. Southwest Airlines depends on customers to per-form critical service roles for themselves. thus allowing him to produce more returns in a given time. The contributions of the client thus enhance the overall productivity of the firm in both quality and quantity of service. The quality of the in-formation they provide ultimately affects the quality of the tax return. And. if they pro-vide information in a useful form. the accountant will spend less time preparing the return. Passengers are asked to carry their own bags when MARKETING OF SERVICES © Copy Right: Rai University 11. in contributing information and effort in the preparation of their tax returns.Customer inputs can affect the organization s productivity through both the quality of what they contribute and the resulting quality and quantity of output generated. thus increasing the overall productivity of the airline.313 113 . In a different context. For example.

This option is popular with customers because it gets them out of the station quickly and also enhances productivity for the company by reducing reliance on cashiers. This increases organiza-tional productivity by using the customer as a resource. fewer em-ployees were needed and the overall productivity of gas stations improved. because of the resulting shorter lines at the cashier. customers were asked to pump their own gas. For example. resulting in greater efficien-cies and reduced costs. and the uncontrollability of their attitudes and actions. The logical con-clusion is that any service activities that do not require customer contact or involve-ment should be performed away from customers-the less direct contact there is be-tween the customer and the service production system. The logic in this case is that organizational productivity can be increased if customers learn to perform service -related activities they currently are not doing or are educated to perform more effec-tively the tasks they are already doing. some experts believe the delivery system should be isolated as much as possible from customer inputs in order to reduce the uncertainty they can bring into the production process. customers can scan their own groceries using a handheld scanner and then take the bill to a cashier s station to pay. some gas stations have also found that their sales of beer. Customers may care little that they have . Other experts believe that services can be delivered most efficiently if customers are truly viewed as partial employees and their participative roles are designed to maxi-mize their contributions to the service creation process. Because customers can influence both the quality and quantity of production. This view sees customers as a major source of uncertainty-the timing of their demands. and other store items have actually increased. Interestingly. the greater the potential for the system to operate at peak efficiency. The introduction of ATM machines and auto-mated customer service telephone lines in the banking industry are both examples of ways to reduce direct customer contact in that industry. Other routine banking tasks that employees used to perform in full view of customers have also been removed to back-office locations. With this approach. soda. By having customers perform this task. punching a few buttons. and seat themselves. Automated checkout counters and selfscanning of items are innovations evolving within the grocery in-dustry.transferring to other air-lines. snacks. Customer participation in service production raises a number of issues for organi-zations. when self-service gasoline stations first came into being. Customers as Contributors to Service Quality and Satisfaction Another role customers can play in services delivery is that of contributor to their own satisfaction and the ultimate quality of the services they receive. out of sight of customers. and leaving the sta-tion without dealing directly with a cashier. Now many gas stations offer customers the option of paying for their gas at the pump by popping their credit cards into a slot on the pump. get their own food.

bank customers were asked to rate themselves (on a scale from strongly agree to strongly disagree ) on questions related to their contributions to service delivery as follows: What they did-technical Quality of Customer Inputs I clearly explained what I wanted the bank employee to do. Consider the service . I tried to cooperate with the bank employee. Ef-fective customer participation can increase the likelihood that. Customers contribute to quality service delivery when they ask questions. I gave the bank employee proper information. unless the customer per-forms her role effectively. and weight loss. I understand the procedures associated with this service. the customers con-tribute directly to . where patient compliance in terms of taking prescribed medica-tions or changing diet or other habits can be critical to whether the patient regains her health (the desired service outcome). the desired service outcome is not possible. Research has shown that in education.13 The same is true inhea1th care. needs are met and that the benefits the customer seeks are actually attained. where the service outcome is highly dependent on customer participation In these cases. active participation by students-as opposed to passive lis-tening-increases learning (the desired service outcome) significantly. personal fitness. those customers who responded more positively to the questions were also more satisfied with the bank.That is. take re-sponsibility for their own satisfaction and complain. I was courteous to the bank employee. Receiving this service was a pleasant experience. but they likely care a great deal about whether their needs are fulfilled. Think about services such as health care. How they did it Functional Quality of Customer Inputs I was friendly to the bank employee. In a study done in the banking industry. When there is a service failure. Yellow Freight Systems and others in the in-dustry have found that in many situations customers cause their own dissatisfaction with the service by failing to pack shipments appropriately resulting in breakage or delays when things need to be repacked. education. Results of the study indicated that the customers perceptions of both what they did and how they did it were significantly related to customers satisfaction with the service they received from the bank. In both of these examples.increased the productivity of the organization through their par-ticipation.the quality of the outcome and to their own satisfaction with the service: In a business-to-business context. Research suggests that customers who believe they have done their part to be ef-fective in service interactions are more satisfied with the service. I have a good relationship with the bank employee.

Customers who take responsibility. and providers who encourage their customers to become their partners in identifying and satisfying their own needs. The four scenarios illustrate the-wide variations in customer participation that cash result in equally wide variations in service quality and customer satisfaction. Our Glohai Feature shows how Sweden s IKEA. will together produce bigger levels of service quality.scenarios shown . the world s largest retailer of home furnishings. has creatively Engaged its customers in a new role: MARKETING OF SERVICES © Copy Right: Rai University 114 11.313 .

IKEA wants. complains about the magazine selection and the meal. Client B has a box full of pa-pers and receipts. These customers find the act of participating to be intrinsically attractive. and customers in order to lay the groundwork for a major remodeling job that will affect everyone who works in the building as well as customers. In addition to contributing to their own satisfaction by improving the quality of service delivered to them. becomes annoyed when the crew runs out of blankets. . many of which are not relevant to her taxes but which she brought along just in case. Later they brought him a fruit plate to make up for the inconvenience. or they may like to do all of their banking via ATMs and automated phone systems. staff. Guest B did not communicate to man-agement until checkout time that his TV did not work and he could not read in his bed. Exhibit 12-1 Which Customer (A Or B) will be Most Satisfied? For each scenario. The hotel staff exchanged his TV for one that worked and fixed the light bulb. Client B has invited architects in following a decision the week previously to remodel the building. His complaints were over-heard by guests checking in who wondered whether they had chosen the right place to stay. Passenger B. who arrives empty-handed. the design committee is two man-agers who are preoccupied with other more immediate tasks and have little idea what they need or what customers and staff would prefer in terms of a redesign of the office space. or to pump their own gas. The company relies on its customers to be IKEA s partners in creating value for themselves. both problems were fixed immediately. some customers simply enjoy participating in service de-livery. Often . The committee has already formulated initial ideas and Surveyed staff and customers for input. passenger A also called ahead to order a special meal. ask Which customer (A or B) will be most satisfied and receive the greatest quality and value. They enjoy using the Internet to attain airline tickets. It cus-tomers to understand that their role is not to consume value but to create it. Scenario 2: Office of a professional tax prepare: Client A has organized into categories the information necessary to do her taxes arid has provided all documents requested by the accountant. Scenario A: Architectural consultation for remodel-ing an office building: Client A has invited the architects to meet with its remodeling and design committee made up of managers. and starts fidgeting after the movie. Scenario 3: An airline flight from London to New York: Passenger A arrives for the flight with a portable tape player and reading material and wearing warm clothes. and why? Scenario 1: A major international hotel: Guest A called the desk right. after check-in to report that his TV was not working and that the-light over the bed was burned out.

. -purchasing travelers checks through an (ATM). and pleasant experience for customers.g. In 1999 their 100 stores in 28 countries around the world were visited by close to 200 million people. and the first in Moscow opened in 1999. charging 25 to 50 percent Iess than its competitors. pumping their own gas) are predisposed to serving themselves in other settings as well (e. Free strollers and supervised childcare are provided as well as wheel-chairs for those who need them. A key to IKEAs successful global expansion has been the company s policy of allowing each of its stores to tailor its mix according to local market needs and budgets.people After payment. because service customers must participate in service-deliver. IKEA has made being part of the value creation process an easy. customers take . When customers enter the store they are given catalogs. they may be less dissatisfied with the service provider than when they believe the provider is responsible and could have avoided the problem. but other times customers are motivated by convenience.cus-tomers who like self-service in one setting (e. allowing the customer to perform functions commonly done by sales. Another fascinating key to. Global Feature At Sweden s IKEA Customer Create Value for Themselves IKEN of Sweden has managed to transform itself from a small J11ail-orderfurniture company in the 1950s into the world largest retailer of home furnishings. The company sells simple Scandinavian design furnishings. IKEA s spectacular success is the company s relationship with its customers. carrying their own bags onto the aircraft. Approximately 84 percent of sales come from Europe. tape measures. they frequently blame themselves (at least partially) when things go wrong. pens.g.. In some cases there is a-price discount advantage for self-service.and service. fun. generating more than $6 billion in revenues. Why did it take so long to reach an accurate diagnosis of my health problem? Why was the service contract for our company s cafeteria food service full of errors? Why was the room we reserved for our meeting unavailable when we arrived? If customers believe they are partially (or totally) to blame for the failure. The company s stores -are a pleasure to shop in. lower prices. IKEA has drawn the customer into its production system: If cus-tomers agree to take on certain key tasks traditi9nally done by manufacturers and retailers-the assembly of products and their delivery to customers homes-then IKEA promises to deliver welldesigned products at substantially. Interestingly. and 3 percent from Africa. The first IKEA store in Mainland China opened in1998. In effect IKEA s customers become essential contributors -to valuethey create value for themselves through participating in the manufacturing and delivery process. using the self-service vending machines as opposed to room service. and a sense-of greater control over the service outcome and timing of delivery. percent from North America. and notepaper to use as they shop.

IKEA prints more than 45 million catalogs per year in 38 editions and 17 MARKETING OF SERVICES © Copy Right: Rai University 11. and direct instructions. Thus.313 115 . simple.their purchases to their cars on carts. if necessary they can rent or buy a roof rack to carry larger purchases. the IKEA customer then takes on the role of manufactured in assembling the new furnishings following carefully written. customers also pro-vide furniture loading and delivery services for themselves. At home.

self-service customers could in some cases partially perform the service or perform the en-tire service for themselves and not need the provider at all.To decide to produce a service internally. . Alternatively.The likelihood of producing the service internally is increased if the household or firm possesses the specific skills and knowledge needed to produce it Having the expertise will not necessary result in internal service production how ever because other factors (e. Time capacity-Time is a critical factor in internal/external exchange decisions. or as partial employees. the household or firm must have the needed resources including people.different languages. and time) will also influence the decision. Households and firms with adequate time capacity are more likely to produce services internally than are groups with time constraints. and materials-If the resources are not available internally. Through the process. accounting. Firms frequently choose to outsource service activities such as payroll. for example. data process-ing. performing roles they have never performed before. Whether to produce a ser-vice for themselves (internal exchange). maintenance. someone else can do it better.. car repair. Similar internal versus external exchange decisions are made by organizations. or have someone else provide the service for them (external exchange). Whether a house hold or a firm chooses to produce a particular service for itself or contract externally far the service depends on a variety of factors. external exchange is more likely.) Resource capacity. available resource. making its products and in-structions for their use accessible worldwide. IKEA s success is attributable in part to recognizing that customers can be part of the business system. Customers thus in a sense are competitors of the companies that supply the service. A proposed model of internal/external exchange suggests that such decisions depend on the following Expertise capacity . child care. The company s implementation of this idea through clearly defining cus-tomers new roles and making it fun to perform these roles is the genius of their a common dilemma for consumers. (Far firms. space. making the decision to outsource is often based on recognizing that although they may have the expertise. home maintenance. Customers as Competitors A final role played by service customers is that of potential competitor. customer create and contribute to their own satisfaction. and facilities management. If self-service customers can be viewed as resources of the firm. a firm may decide to stop pur-chasing services externally and bring the service production process in-house. money. research.g. They find that it is advantage to focus an their care businesses and leave these essential support services to others with greater expertise.

The actual monetary costs of the two options will be factors that sway the decision. Psychic rewards-Rewards of a non-economic nature have a potentially strong in-fluence on exchange decisions. organizations also need to recognize the customer s role as a potential competitor. Entities that desire and can implement a high degree of control aver the tasks are more likely to Engage in in. Psychic rewards include the degree of satisfaction. The decision will depend self-trust versus trust of others the degree of confidence or has in the various exchange to same ex-tent the level of in the particular context.313 . and gratification. or happiness that is associated with the external or internal ex-change. Control The house hold or firm s desire far control aver the process and outcome of the exchange will also influence the internal/external choice . en-joyment.external exchange.Economic rewards-The economic advantages or disadvantages of a particular ex-change decision will be influential in choosing between internal and external options. Trust-In this context trust means certainty the house.hold or firm options. Thus in addition to recognizing that customers can be productive resources and co creators of quality and value. The important thing to remember from this section is that in many service scenario customers can and do choose to fully or partially produce the service themselves. Notes MARKETING OF SERVICES © Copy Right: Rai University 116 11.

LESSON 26: STRATEGIES FOR ENHANCING CUSTOMER PARTICIPATION The Objective of this Lesson is to Strategies for enhancing Customer participation Strategies for Enhancing Customer Participation From the preceding discussion it is clear that the level and nature of customer participation in the service process are strategic decisions that can impact an organization s productivity. and customers can supplement for the labor and information provided by employees. The ultimate form of customer participation IS self-service. its service quality. Customers roles may be partially predeter-mined by the nature of the service. consulting). or it may require moderate levels of input from the customer in the form of effort. For example Charles Schwab has always positioned itself as a company whose customers are highly involved in their personal investment decisions. In health care.. as suggested earlier in Table 12-1.g. tax preparation). The organization may decide that it is satisfied with the existing level of participa-tion it requites from customers but wants to make the participation more effective. In the following sections we ll examine the strategies captured in Figure 12-3 far involving customers effectively in the service delivery process. and its cus-tomers satisfaction. haircut. the organization first determines what type of participation it wants from customers. the organization may choose to increase the level of customer partic-ipation. researchers and providers are working on ways to . Identifying the current level of customer par-ticipation can serve as a starting point.g. fitness training.g. as featured in the Technology spotlight . The overall goals of a customer participation strategy will typically be to increase produc-tivity and customer satisfaction while simultaneously decreasing uncertainty due to unpredictable customer actions. thus beginning to define the customer s job. marketing benefits (cross-selling. building loyalty) can be enhanced by on-site contact with the customer.Alternatively. airline travel). which may reposition the service in the customer s eyes Experts have sug-gested that higher levels of customer participation are strategically advisable when service production and delivery are inseparable.. often facilitated by technology Fine Customer Jobs In developing strategies for addressing customer involvement in service delivery. its position relative to competitors. Over time this position has been implemented in different ways. It may be that the service requires only the customer s presence (e.. Advances in technology have allowed Charles Schwab to solidify its position as the investment company for independent investors. or it may require the customer to actually core ate the service outcome (e. a concert. or infor-mation (e.

some important questions to ask are: What is our strategy? What do we hope to achieve through the SSTs (e. a health maintenance organization in Washington state. The video made patients more aware of alternative treatments. the organization may decide it wants to reduce customer . competitive advantage)? What are the benefits to customers of producing the service on their own through the SST? Do they know and understand these benefit ? How can customers be motivated to try the SST? Do they understand their role? Do they have the capability to perform this role? How technology ready are our customer? Are there segments of customers who are more ready to use the technology than others? How can customers be involved in the design of the service technology system and processes so that they will be move likely to adopt and use the SST? What form of customer education will be needed to encourage adopting? Will other incentives be needed? Adopting SSTs requires a behavior change for customers moving from a nonexistent or partial co production role to the role of sole producer. Research suggest that as firms move into SSTs as a mode of delivery. revenue growth. videos and other similar practices could have a profound effect on the industry? At Kaiser Permanente Medical Group in Denver. customer understand their roles. By actively involving patients in treatment decisions and other issues relevant to their own health. candid patient interviews. cost saving. Technology Spotlight User friendly and reliable. and they have the capability to use the technology. At Group Health of Puget Sound. the ultimate in customer participation.gain more active customer participation in treatment decisions. a particular health care organization (or perhaps eventually the whole industry) might reposition itself and in effect democra-tize the doctor-patient relationship. and the pros and cons of surgery. patients can be better educated and able to participate in their own treatment decisions. Finally. surgery rates dropped 60 percent after patients viewed the prostate disease video. In addition to causing a shift in the roles of pa-tients and providers. By viewing videotapes that combine scientific data..g. and descriptions of the risks and benefits of different treatment options. the rate of prostate surgery among its members plunged 44 percent in the first year after doctors began showing patients a video on benign prostate disease.

Customers are in contact with the MARKETING OF SERVICES © Copy Right: Rai University 11.participation.313 117 . due to all the uncertainties it causes In such situations the strategy may be to isolate all but-the essential tasks keeping customers away from the service facility and employees much as possible Mail order is an extreme example of this form of service.

As you know from previous chapters. and satisfaction for the customer. Many universities have established men to ring programs. quantity. the organization can define more specifically what the customer s job entails The customer s job description will vary with the type of service and the organization s desired position within its industry. customers are again performing productive functions for the organization.g. increasing customer satisfaction and retention. or even an acquaintance can pave the way for a positive service experience. Kaiser Permanente. although often informally. Long-time residents of retirement commu-nities often assume comparable roles to welcome new residents. never see the organization s facility. social organizations) also rely heavily.organization via telephone or the Internet. performing aspects of the service heretofore per-formed by employees or others. A positive recommendation from a friend. The Customer s Job: Promoting the Company In some cases the customer s job may include a sales or promotional element. IKEA of Sweden.g. Acting as a mentor or facilitator can have very positive effects on the person performing the role and is likely to increase his or her loyalty as well. Many of the examples presented in this chapter are il-lustrations of customers helping themselves (e. They are more comfortable getting a recommendation from someone who has actually experienced the service than from advertising alone. churches. The Customer s Job: Helping Himself In many cases the organization may decide to increase the level of customer involvement in service delivery through active participation. Charles Schwab. colleague. 011 current members to help orient new members and make them feel welcome. Many service organizations have been very imaginative in getting their current customers to work as promoters or salespeople. and have limited employee interactions. relative. In performing these types of roles. service customers rely heavily on word-of-mouth endorsements in deciding which providers to try. the customer has particular tasks that must be performed to fulfill his or her role. as shown in Exhibit 12-2. particularly for students from minority groups. A child at a day care center might be appointed buddy of the day to help a new child acclimate into the environment. The result may be increased productivity for the firm and/or increased value. in which experienced students with similar backgrounds help newcomers adjust and learn the system. . In such situations the customer becomes a productive resource. In each of these cases. The customers role is thus extremely limited and can interfere very little with the service delivery process.. Once the desired level of participation is clear. Group Health of Puget Sound). health clubs. The Customer s Job: Helping Others Sometimes the customer may be called on to help others who are experiencing the service. Many membership organizations (e.

This effectively creates a word-of -mouth champion who brings new people into the estab-lishment. one customer may prefer that a human teller complete all of her transactions. Here we share a variety of examples from different indus-try contexts: A dental practice encourages referrals by sending flow-ers. Because of these differences in preferences. high-contact service delivery rather than self-service. want to participate by designing its services to require. whereas another much prefers the ATM and automated banking via touch tone phone. there are still large numbers of customers who prefer human. Other companies: want to hand over the entire training design and delivery to the consulting organization staying at arms length with little of their own time and energy invested in the service. The person whose name is drawn is given a party at the bowling alley to which he or she can invite friends for free bowling. Despite all of the customer service and purchase options now available via the Internet. Banks typically do this by offering both automated self-service options and high touch. . it is dear that some patients want lots of infor-mation and want the doctor to tell them what in their own diagnosis and treatment decisions. as in the case of Charles Schwab or IKEA (see Global Feature). In banking. Companies that provide education and training services to organizations know that there are some customers who want to be involved in desigI1ing the training and perhaps in delivering it to their employ-ees. In health care. most companies find they need to provide service delivery choices for different market segments. A chiropractor gives a free next exam to people who re-fer new patients. Exhibit 12-2 Customers as Service Promoters Organizations often encourage their customers to help promote the organization s services through word of mouth. or tickets to a local sports event to its patients whose names appear frequently in their who referred you? database. candy.Individual Differences: Not Everyone Wants to Participate In defining customers jobs it is important to remember that not everyone will want to Participate Some customer segments enjoy self-service: whereas others prefer to have the service performed entirely for them. Oth-ers simply want the doctor to tell them what to do. the organization can effectively position itself to specifi-cally serve only segments of customers who. Patients who make referrals have their names listed on a board in the office waiting area. human delivery options. At other times. Often an organizational can customize its services to fit the needs of these different segments-those who want to participate and those who prefer little involvement. customer independence and involvement. A bowling alley holds a drawing for one of it regular patrons.

To increase membership. MARKETING OF SERVICES © Copy Right: Rai University 118 11.000 free miles to those who can solicit a new credit -card customer.313 . A nightclub holds regular drawings (using business cards left by its patrons). a credit union published a member referral coupon in its newsletter those who re-ferred new members: were then given $5. offers 10. Those whose names are drawn -get a free party (no entry charge) for as many of their friends as they want to invite. A credit card that gives customers frequent flyer points every time they use their credit card.

Through these means. For each friend who buys. it should clearly communicate the expected roles and responsibilities in advertising. and (3) there are valued rewards for performing as expected.An express contact Lens Company asks patrons to list friends names on a card. and other company messages. customer behavior in a service production and delivery situation will be ciliated when (l) customers understand their roles and how they are expected to per-form. In a sense this is similar to a manufacturing firm exercising control over the quality of inputs into the production process. the organization will also reduce the inherent uncertainty associated will the unpredictable quality and timing of cus-tomer participation. and acquire the skills and . To do this. per-sonal selling. the organization can think in terms of fa-cilitating that role. Self-selection should result in enhanced perceptions of service quality from the customer s point of view and reduced uncertainty for the Organization To illustrate. this level of participation will not be possible or desirable.and Reward Custome. the original patron gets $15 or a free pair of disposable con-tacts. For some families. The organization should seek to attract customers who will be comfortable with the roles. General models of employee behavior suggest that behavior is determined. Customers to Perform Effectively Customers need to be educated. the expected level of participation needs to be communicated clearly in order to attract customers who are ready and willing to perform their roles. Another center could choose to have a variety of options available for families ranging from no on-site par-ticipation to daily participation. (2) customers are able to perform as expected. customers can self-select into (or out of) the re-lationship. understand what is expected of them. a child care center that requires parent participation on the site at least one-half day per week needs to communicate that expectation before it enrolls any child in its program. it must attract the right customers to fill those roles. it is possible for service cus-tomers to gain an appreciation of specific organizational values. By previewing their roles and what is required of them in the service process. Educate. Educate and Train. Recruit the Right Customers Before the company begins the process of educating and socializing customers for their roles. develop the abilities necessary to function within a specific context. Through the socialization process. thus precluding them from enrolling in the center. In a sense. ability to perform and motivation to perform. Similarly. or In essence socialized so that they can perform their roles effectively. the customer becomes a partial employee of the or-ganization at some level. by role dairy. Whatever the case. and strategies for managing customer behavior in service production and delivery can mimic to some degree the efforts aimed at service em-ployees discussed in Chapter 11. Recruit.Rs Once the customer s roles clearly defined.

Nutritional Content of the Food Plan. When customers begin the Weight Watchers program their first group meeting includes a thorough orientation to the program and their re-sponsibilities. Maintenance Plan.3l Customer education programs can take the form of formal orientation pro-grams. Activity Plan. Sim-ilarly. Exhibit 12 Weight Watchers Educates and Orients New Members When new members first join Weight Watchers. New members are also given a booklet entitled Welcome to Weight Watchers that covers topics such as welcome to weight watches. what should I Know Before I Begin the Program? Important Health No-tices. they are thoroughly educated re-garding the program and their responsibilities. the booklet. when a new member attends her first meeting at a local chapter of Weight Watchers of Arizona. and expectations of students. university procedures. health clubs use formal training programs to educate customers on how to use the facilities and equipment. to preview the culture. This form is used by the member to record daily food selections and physical activity. and learning from employees and other customers. handbooks that describe customers roles and responsibilities. she watches a video that tells about the program and reviews how the food plan works. Uni-versities offer orientation programs for new students. directional cues and signage in the service environment. For example. as described in Exhibit 12-3. Weight loss consumer bill of rights here are the facts. very similar in appearance to employee handbooks. and a discussion of all topics led by the group leader. and policies regarding visiting hours and billing procedures. a mammography screen context.knowledge to interact with employees and othercus-tomers. the new member also receives a Program Planner and Tracker. Behavioral Support. How Do I Qualify for Weight Watchers Membership? What Can I Expect from the Weight Watchers Pro-gram?. written literature provided to customers. Weight Watchers knows that its business cat} succeed only if . one of the largest and most successful commercial weight-loss organizations in the world. what will happen when he or she arrives. Many hospitals have developed patient handbooks. In. In addition to the video. research has found that orientation and formal education of customers can relieve customer fears and perceptions of risk and ulti-mately increase customer satisfaction (see Exhibit 12-4). to describe what the patient should do in preparation for arrival at the hospital. Each of these forms of education are discussed further in the following paragraphs. Many services offer customer orientation programs to assist customers in under-standing their roles and what to expect from the process before experiencing it. The handbook may even describe the roles and responsibilities of family members. and others. Customer education can also be partially accomplished through written literature and customer. and often for their parents as well.

the booklets. Through the orientation.members do their part in following the weight-loss plan.313 119 . the organization clearly defines the member s responsibilities and makes the plan as easy as possible to follow. and the food and activity forms. Exhibit 12-4. Realistic Service Previews Reduce Customer Anxiety and ImproveSatisfaction Research in a mammography screening context found that if potential patients are oriented through a realistic preview of the MARKETING OF SERVICES © Copy Right: Rai University 11.

and some common misconcep-tions. service experience. for appropriate dress (restaurants. The realistic preview also included a seven-minute videotape illustrating the entire procedure.of mammography.process. instructions to follow before mammography. the women responded to questions regarding their satis-faction with the mammography screening process. Orientation aids can also take the form of rules that define customer behav-ior for safety (airlines. women in the exper-iment answered questions that assessed the accuracy of their expectations. theaters). women who received the preview were more satisfied with the actual service experience. The preview consisted of written information about mammography including sections on: what is a mammogram. their sense of control. Before showing a movie. other strategies can be employed for continuing the customer socialization process during the experience itself. no talking. or . Finally. another version included several blunders on the part of the fictitious provider. patient anxiety is-reduced and ultimate sat-isfaction increased. as well as their satisfaction with the service. many theaters now flash a sign on the screen that says Please. The women then read one of three versions of an actual mammography experience and were asked to imagine themselves as the woman in the story. and function orientation (how does this organization work? and what am 1 supposed to do?) Signage. no preview. and their level of anxiety relative to mammography. While formal training and written information are usually provided in advance of the. One version of the story followed the realistic preview exactly. customers require two kinds of orientation: place orientation (where am I? and how do 1 get from here to there?). the layout of the service facility. entertainment venues). what happens during mammography. after the examination. classrooms. and noise levels (hotels. An experiment was conducted that in-volved 134 women who had never experienced a mammo-gram and who had little knowledge about the procedure. health clubs). across all of the different scenarios. allowing them to perform their roles more ef-fectively. After reading the story. and imagining that the events had actually happened to them. On site. and other orientation aids can help customers to answer these questions. making it even better than the realistic preview. The written ma-terials and the videotape both helped to dispel overly pes-simistic expectations as well as to guard against overly pos-itive ideas the potential patients may have had. and the final version enhanced the service experience. the role . the women who saw the preview reported signifi-cantly less anxiety and significantly greater perceptions of control over the process than did women who had no pre-view. how the pro-cedure works. Half of the women were given a realistic preview of the process. After the preview (or no preview). while the others received no preview. Results of the study showed that those women who had been oriented through the realistic preview did indeed have more realistic and accurate expectations for the mammog-raphy experience than did those who had. Sec-ond. The realistic preview thus af-fected potential mammography patients preserves feelings (anxiety and control).

not all customers are motivated by the same types of rewards. negatively affecting both productivity and quality of service. the organization needs to clarify the performance-contingent benefits that can accrue to customers just as it defines these types of benefits to employees. both in terms of locations and times. by observing the customers McDonald s had hired to demonstrate appropriate busing behavior. Those clients who choose not to perform the requested role will pay a higher price for the service. In. Rewards are likely to come in the form of increased control over thedelivery process. monetary savings. and the pick-up and drop-off procedures can slow the flow for em-ployees and other customers.crying babies. 2. Customers may not realize the benefits or rewards of effective participation unless the organization makes the benefits apparent to them. it may not be possible for employees to provide the levels of technical . through greater access to their bank. insurance cov-erage issues. customers who do not under-stand the reservation process the information needed from them. the British customers were not accustomed to busing their own trays. may slowdown the service process and negatively affect their own as well as other customers outcomes. patients who perform their roles effectively are likely to be rewarded with better health or quicker recovery. Others may value the monetary savings. The organization also should recog-nize that. Still others may be looking for greater personal control over the service outcome. or to participate actively. It has been said that when McDon-ald s first went to England. If customers don t perform their roles effectively. the CPA will have less work to do and the client will be rewarded with fewer billable hours. In a rental car context. Reward Customers for Their Contributions Customers are more likely to perform their roles effectively. If the forms are completed. Some may value the increased access and timesavings they can gain by performing their service roles effectively. Avoid Negative Outcomes of Inappropriate Customer Participation If customers are not effectively socialized. other words. if they are rewarded for doing so. Customers who do not understand the service system or the process of . and psychological or physical benefits. In health care contexts. ATM customers who perform banking services for themselves are also rewarded. They quickly learned. Customer are also socialized to their expected roles though information provided by employees and by observing other customers. however. some CPA firms provide clients with extensive forms to complete before they meet with their accountant. For instance. the organization runs the risk that in appropriate customer behaviors will result in negative outcomes 1. These customers were hired to sit in the restaurants and at predictable intervals to carry a dirty tray over to the trash can and dispose of it.

clients who do not provide the level of information and cooperation needed by the consultants will likely receive inferior service MARKETING OF SERVICES © Copy Right: Rai University 120 11.313 . For example. in a management consulting practice.and process quality promised by the or-ganization.

. 3. health clubs. then actively managing both the physi-cal environment and customer-to-customer encounters in such a way as to enhance satisfying encounters and minimize dissatisfying encounters. The process of managing multiple and sometimes conflicting segments is known as compatibility management. broadly defined as a process of first attracting homoge-neous consumers to the service environment. the foods they want to eat. and their perceptions of appropriate behaviors. single college students who want to party and families with small children who want quiet-it may find that the two groups do not merge well. public transportation. If a restau-rant chooses to serve two segments during the dinner hour that are incompatible with each other for example.. This negative impact on in-dividual employees can take its toll on the organization in the form of turnover and decreased motivation to serve. they are likely to take out their frustrations on front-line employees. Table 12-2 lists seven interrelated characteristics of service businesses that will increase the importance of com-patibility management. another important strategic objective is the effective manage-ment of the mix of customers who simultaneously experience the service. if customers routinely enter the service delivery process with little knowledge of how the system works and their role in it. Major tourism at-tractions around the world are faced with the challenge of accommodating visitor segments who differ in the languages they speak. their values. Sometimes these visitors call clash when they do not understand and appreciate each other. hospitals) and less important for others. Smokers and nonsmokers are c6ften incompatible segments that a service firm must manage if it wants to serve both segments well. Of course it is possible to manage these segments so that they do not interact with each other by seating them in separate sections or by attracting the two segments at differ-ent lines of day.g.both in terms of the usefulness of the management report and the timeliness of the delivery. Compatibility man-agement will be critically important for some businesses (e. If customers are frustrated because of their own inadequacies and in competencies employees are likely to suffer emotionally and be less able to deliver qual-ity service For example. Manage the Customer Mix Because customers frequently interact with each other in the process of service deliv-ery and consumption. Table 12-2 Characteristics Of Service That Increase The Importance Of Compatible Segments Characteristic Customers are in close physical proximity to each other There is verbal interaction among customers.

or service utensils with each other. Full-service restaurants Cocktail lounges Conversation (or lack thereof) Educational settings can be a component of Both satisfying and dissatisfying encounters with fellow patrons Libraries Health clubs When a service facility Resort hotels supports varied activities all going on at the same time. the activities themselves may be compatible. space. The need to share space. Many service environments. The core service is compatibility. The core service is to arrange and nurture compatible relationships between customers. Waiting in line for service can be monotonous or anxiety producing. flights notice each other and be Entertainment events influenced by each other's Sports events behavior when they are enclose physical proximity.Customers are engaged in numerous and varied activities. Explanation Example Customers will more often Airplane. Customers are expected to share time. will attract a variety of customer segments. time . particularly those open to the public. The boredom or stress can be magnified or lessened by other customers depending on their compatibility. The service environment' attracts a heterogeneous customer mix. Customers must occasionally wait for the service.

train-ing employees to observe customer-to-customer interactions and to be sensitive to po-tential conflicts is another strategy for increasing compatibility among segments. and customers self-select into the hotel. organizations rely on a variety of strategies. This is the strategy used by the Ritz-Carlton Hotel Company. Other strategies for enhancing customer compatibility include customer codes of conduct such as the regulation of smoking behavior and dress codes. sleeping rooms can be assigned on the same basis. Clearly such codes of conduct may vary from one service establishment to another. for which upscale travelers are the primary target segment. but may become a problem if segments are not comfortable with sharing or with each other or when the need to share is intensified due to capacity constraints. for example when the hotel is simultaneously hosting a large business convention and serving individual business travelers. Employees can also be trained to recognize opportunities to foster positive encounters among customers in certain types of service environments.and other service factors is common in many services. Finally. role of customers in service . Summary This chapter focused on the. even in that context there are potential conflicts. The RitzCarlton is positioned to communicate that message to the marketplace. The Ritz-Carlton keeps meetings and large group events separated from the areas of the hotel used by individual businesspeople. Compatible customers are grouped together physically so that the segments are less likely to interact directly with each other. However. Attracting maximally homogeneous groups of customers through careful positioning and segmentation strategies is one approach. Public parks Public transportation Open-enrollment colleges Big Brothers/Big Sisters Weight-loss group programs Mental health support groups Medical clinics Tourist attractions Restaurants Golf courses Hospitals Retirement communities Airplanes To manage multiple (and sometimes conflicting) segments. As much as possible. A second strategy is often used in such cases.

A num-ber of reasons why customers may cause a widening of the service delivery gap were suggested: Customer lack understanding of their roles customers are unwilling or unable to perform their roles customers are not rewarded for good performance other customers interfere market segments are 121 . The customer re-ceiving the service and the other customers in the service environment can all poten-tially cause a widening of gap 3 if they fail to perform their roles effectively . While manufacturers are not MARKETING OF SERVICES © Copy Right: Rai University 11. The challenge of managing customers in the process of service delivery is unique to service firms.

because their customers are often present and active partners in service production. Who are the biggest consumers of distance learning? High-tech companies use more distance learning than any other industry because of the fast pace of product change. Also. By implementing these strategies. organizations should see a reduction in gap 3 due to ef-fective and efficient customer contributions to service delivery. distanced from the educational process. Strategies discussed in the text in-clude defining the customers roles and jobs. A researcher analyzed studies from 248 separate sources on the effective-ness of online degree programs and concluded that people learn just as well with a personal computer as they do by spending hours sitting in lecture halls. it s a process. customers can perform three primary roles. or as in the word. How effective is distance learning in other cultures and countries? Thomas Cooper.000 offer distance education courses. Only time will tell how far the distance learning revolution will . Much re-mains to be learned about the effectiveness of distance learning as a whole as well as the types of distance learning that are most successful. trivialized. service managers are constantly faced with this issue. The United States is one of the few cultures in which technologies such as bank teller machines are trusted by most consumers. Higher education statistics show that 90 percent of all higher education institutions with more than 10. rewarding customers for their contributions and managing the customer mix to enhance the experiences of all segments.000 to 10. there are some cultures that accept distance learning but still feel reduced. As participants in service production and delivery. an expert on mass communication. Through understanding the importance of customers in service delivery and identi-fying the roles being played by the customer in a particular context. managers can de-velop strategies to enhance customer participation. For videoconferencing to be introduced in cultures where surrogate or substitute people are either offensive or not acceptable-the technology seems to be culturally insensitive if not inappropriate for many people. claims Vicky Phillips. discussed and illustrated in the chapter: productive resources for the organiza-tion contributors to service quality and satisfaction. How effective is distance learning? Some skeptics overlook the fact that learning is not a place. but one study supports her point. some-thing that is not achieved with technology. The Best Dis-tance Learning Graduate Schools. Current research is sketchy. emphasizes that trust is a critical component of communication. muzzled. author of the book. recruiting customers who match the customer profile in terms of desired level of participation educating customers so they are able to perform their roles effectively.c0ncemed with customer participation in the manufacturing process.000 students and 85 percent of those with enrollments of 1. and competitors in performing the service for themselves. Trust in many cultures involves either touch or direct vision.

key making. and dry cleaning are pro-duced by the intermediary (the franchisee) using process developed by the service principal. Two services marketers are involved in delivering service through intermediaries: the service principal. on the production line. In contrast to channels for products. Except for situations such as distance learning. First. Franchise services such as haircutting. we examine the issues surrounding distribution of services from both perspectives. Service intermediaries perform many important functions for the service principal. And in many financial or professional services. but most service (and many manufacturing) companies face an even more formidable task: attaining service excellence and consistency when intermediaries represent them to customers. fulfilling service principals promises to cus-tomers. A decade from now. in people s offices. Involving others can be problematic. wherever it is needed. and the service deliverer is the entity that interacts with the custom in the actual execution of the service (whose counterpart is the dis-tributor or wholesaler of physical goods). According to one expert: Education will change from a place-centered enterprise to education where you need it. The service principal is the entity that creates the service concept (whose counterpart is the manufacturer of physical goods). gathering together in one place a va-riety of choices. providers and consumers come into direct contact in service pro-vision. they often co produce the service. (hence the phrase co producer). because quality in-service occurs in the service encounter between company and customer. channels for services are . the value of the offering decreases and the reputation of the original service may be damaged. intermediary s func-tion as the glue between the brand or company name and the customer by building the trusting relationship required in these complex and expert offerings. it wouldn t surprise me if the majority of education took place in people s homes. and the service deliverer. This chapter discusses both the challenges of delivering service through intermediaries and approaches that engender alignment with the goals of the service provider. Chapter 11 pointed out the challenges of con-trolling encounters within service organizations themselves. or intermediary. such intermediaries as travel and insurance agents provide a retailing function for customers. Because they represent multiple service principals. Because of the inseparability of production and consumption in service. Because both the service supplier and the service deliverer are potential roles that you may play in your career. where electronic channels can be used to distribute services.go. providing time and place convenience for the customer. providers must either be present themselves when customers receive service or find ways to involve others in distribution. or originator. Unless the service distributor is willing and able to perform in the service encounter as the service principal would. but many prog-nosticators expect it to completely alter the way learning is achieved. Service intermediaries also make services locally available.

making warehousing a dispensable function. In general. Because services cannot be owned.313 . because services MARKETING OF SERVICES © Copy Right: Rai University 122 11. inven-tories cannot exist. Because services are intangible and perishable. there are no titles or rights to most services that can be passed along a delivery channel. if not to the customer then to the intermediary that sells to the customer.almost always direct.

This chapter describes the types and roles of service intermediaries Tutorials In light of above. and ensure their products-all presale services. They also need retailers to return. film-processing kiosks. Retailers that sell only services (movie theaters. For example. it reflects on all others and on the Holiday Inn brand itself. a firm-must develop ways to either control of motivate these inter-mediaries to meet company goals and standards. Many of the primary functions distribution channels serve-inventorying. and weakness as franchises. and motives are consistent with their own. When a McDonald s franchisee cooks the McNuggets too short a time. making them in-termediaries for goods if not services. contributors to quality and satisfaction. incentives. It is in the execution by the intermediary that the customer evaluates the qual-ity of the company. competitors. The options for doing so are limited to franchisees. When one Holiday Inn franchisee has unsanitary conditions. are service organizations themselves. and service products-all post scale services. Unless service providers en-sure that the intermediary s goals.can t be produced. by the way. A retailer that leads the customer to the wrong product choice or that inadequately instructs on how to use it creates service problems that strongly influence the manufacturer s reputation. We do not include retailers in our short list of service intermediaries because most retailers from department stores to discount stores-are channels for delivering physical goods rather than services. and then retailed as goods can. The focus in service distribution is on identify-ing ways to bring the customer and principal or its representative together. the customer s perception of the companyand of other McDonald s fran-chisees-is tarnished. Service principals depend on their intermediaries to deliver service to their specifi-cations. warehoused. many channels available to goods producers are not feasible for service firms. promote. agents brokers. and electronic channels. they lose control over the service encounters between the customer and the in-termediary. explain. MARKETING OF SERVICES . These roles are increasingly critical as products become more complex. gas stations) can also be described as dealers or franchises. camera and computer firms rely on retailer carry-ing their products to understand and communicate highly technical information so that customers choose products that fit their needs. strengths. tech-nical and expensive. For our purposes in-this chapter they are grouped into-the franchise category because they possess the same characteristics. Goods retailers. Manufacturing companies depend on retailers to represent. Enumerate the variety of roles that service customers play: productive resources for the organization. securing. When someone other than the service principal is critical to the fulfillment of quality service. exchange. and taking title to goodshave no meaning in services. support. restaurants) or retail services that support physical products (automobile dealers.

313 123 .© Copy Right: Rai University 11.

the popular chain of coffee shops.S. and hair stylists-whose area of distribution is limited. One of the most critical implications of this type of Control is that . Its 2. consistency. arid maintenance of image. is an example of a service provider with all company-owned outlets. dry cleaners. Using company-owned channels allows the company to expand of contract sites without being bound by contractual agreements with other entities. Starbucks. and motivating employees is also a benefit of company-owned channels. because the company itself is able to monitor and reward proper execution of the service. With company-owned channels. Standards can be established. one of the keys to Star-bucks success is hiring the right baristas or coffee makers.owned outlets: control. Perhaps the major benefit of distributing the way Starbucks does through company. As demonstrated in Exhibit 13-1.owned channels is that the company has complete control over the outlets.000 U. Exhibit 13 1 which describes some of the reasons for the success of the chain. A final benefit is that the company owns the customer relationship. Therefore. for example. firing. Some of these are local services doctors. In service industries where skilled or professional workers have individual rela-tionships with customers. It is well known.the owner can maintain con-sistency in service provision.t9 customer.LESSON 27: DELIVERING THROUGH INTERMEDIARY CHANNELS Objectives of this Lesson are to Direct or company owned channels Key problems involving intermediaries Key intermediaries involved in service delivery Direct or Company-owned Channels Although we call this chapter Delivering Service through Intermediaries and Elec-tronic Channels. it is important to acknowledge that many services are distributed di-rectly from provider .-based coffee shops are completely run and managed by the company. Others are national chains with multiple outlets but are considered direct channels because the provider owns all the outlets. the company owns both the store and the em-ployee and therefore has complete control over the customer relationship. Control over hiring. a major concern involves whether the loyalty the customer feels is for the company or for the individual service employee. Technology Spotlight . that-most people are loyal to individual hair stylists and will follow them from one place of business to another. something the company is far more likely to do than a franchisee. illustrates the general benefits of company. one of the important issues in service delivery is who owns the customer relationship-the store or the provider. and will be carried out as planned.

These technologies have proliferated as companies se the potential cost savings and efficiencies that can be achieved.Self-service technologies-the ultimate in customer participation Self-service technologies are services produced entirely by the customer without any direct involvement or interaction with the firm s employees. have allowed the introduction of a wide range of self-service technologies that occupy the far left end of the customer participation continuum. Attendant pumps gas and customer goes inside to pay attendant 6. Here is a partial list of some of the types of self-service technologies (SSTs) available to consumers: ATMs Pay at the pump Automated airline check-in Automated hotel check-in/out Automated car rental Automated filling of legal claims Automated drivers license testing . and in between are various forms and levels of customer participation. At the far end of the continuum. particularly the internet. On the other end of the spectrum. This continuum is depicted in the accompanying figure. Customer pumps gas and attendant takes payment at the pump 4. As such they represent the ultimate form of customer participation along a continuum from services that are produced entirely by the firm to those that are produced entirely by the customer. increased customer satisfaction. and competitive advantage. using the examples of retail gasoline service to illustrate the various ways the same service could be delivered along all points on the continuum. Attendant pumps gas and customer pays at the pump with automation 5. Customer pumps gas and pays at the pump with automation 2. the customer does everything. Services Production Continuum Customer Production Joint Production Firm Production 1 2 345 Gas Station Illustration 1. potential sales growth. Customer pumps gas and goes inside to pay attendant 3. Attendant pumps gas and takes payment from customer at the pump Advances in technology. the gas station attendant does everything from pumping the gas to taking payment.

etc) Tax preparation software MARKETING OF SERVICES © Copy Right: Rai University 124 11. drink. cameras.Automated betting machines Electronic blood pressure machines Various vending services (food.313 .

Other times customers see no value in using the technology when compared with the alternative interpersonal mode of delivery. accessibility.. Internet information search-have been very successful. Exhibit 13-1.S. its owner began to think of coffee not as something to retail in a store but instead as something to experience in a coffeehouse.) Internet information search Various IVR phone systems (phone banking. Benefits to firms in terms of cost savings and/or revenue growth can also result for those that succeed. the benefits are well understood and appreciated compared with alternative delivery modes the technology. the Starbucks that successfully replicates a perfectly creamy cafe latte in stores from Seattle to St.-based outlets and expanded internationally. prescription ordering.. Paul. etc. pay-at-the-ump gas.000 U. At that point.Self-scanning at retail stores Internet banking MVD auto registration online Online auctions Home and car buying online Automated investment transactions Insurance online Package tracking Internet shopping (amazon. etc. although it has been in business for almost 25 years. they may not know how to use the technology. Con-sistency of service and product are two of the most impor-tant reasons that Starbucks has grown to more than 2. Or. Throughout the text we highlight some of the most successful self-service technologies in the marketplace today. in some cases. embraced by customers for the benefits they provide in terms of convenience. Ten years ago.have been less successful and ease of use. it maintains control over . and that it annually reports profit growth of more than 50 percent a year. Failure is often attributable to customers not having the ability or motivation to use the technology. Starbucks Shows Success of Company-owned Service Channels One of the biggest marketing success stories of the last decade is Starbucks Coffee Company. Others-airline ticketing kiosks online hotel bookings.) Some of these SSTs-ATMs. (Even a world-class service provider such as Starbucks can have a bad day as we saw in Chapter 7!) Be-cause Starbucks owns every domestic outlet. They have been successful because they offer clear benefits to customers. E-stamps. Gap. he created the Starbucks that we know today.

and stock options. taught coffee knowledge so that among other things they know how everything tastes and customer service so that they can explain the Italian drink names to customers. make drinks. brewing the perfect cup at home. and (3) ask for help. Star Skills To hire. clean espresso machines. And no one goes home at night unless everything-everything-is completed. check out Star-bucks at airports or on the turnpike. a Magazine What other coffee shop do you know that is large and influential enough to join forces with Time Inc. Baristas are . all of this to ensure that the coffee drinks taste just right. open a giant bag of beans. keep. and here are some of the efforts it undertakes to ensure that the Starbucks ex-perience is always the same. As many as 400 to 500 em-ployees per month nationally are carefully trained to call ( triple-tall nonfat mocha ). Life Is Interesting. and Canadian stores. Discuss. and deliver quality customer service. Subtitled. lowers barista turnover to 60 percent compared with 140 percent for hourly workers in the fast-food business in general. the Italian name for one who prepares and serves coffee. and those that prepare coffee are called baristas.S. the magazine was designed to replicate the ideas and conversations that occur in a cof-feehouse. Joe. If you have any doubt about whether all these steps pay off in terms of quality product and service. Starbucks has three guidelines for on-the-job interpersonal relations: (1) maintain and enhance self-esteem. helps baristas teach customers how to use the espresso machines and coffee they buy at Starbucks to replicate the product they get in the coffeehouse. a cultural review that will be sold in U. Ensuring Product Quality Retail skills is another portion of the training. and motivate the very best employees. to publish a magazine? Starbucks has created Joe. Another part. always positive. While the . Employee Training: Learning to Be a Barista All employees are called partners. health insurance. which teaches such specifics as how to wipe oil from the coffee bin. including higher-than-average pay. Service Standards No pot of Starbucks coffee sits on a burner for more than 20 minutes.all that takes place in them. and pol-ished according to the service standards in the manual. An espresso machine with unused coffee must be purged regularly. Us-ing such standards ensures that both service and quality are maintained. These and other human resource practices. cleaned. You ll notice a differ-ence. and clean the milk wand on the espresso machine. (2) listen and acknowledge.

No highly trained baristas work at these outlets.313 125 . large companies are rarely experts in local markets they know their businesses but not all consumer MARKETING OF SERVICES © Copy Right: Rai University 11. And. if you need further evidence. less pleasant. Probably the largest impediment to most service chains. but a harried flight attendant with 65 passen-gers needing meals and drinks just can t provide the same consistency and attention to every cup. The result is a hiss consistent. It s the same coffee. and less flavorful experience. and no service quality standards can be enforcing in them. it does license sites to companies with contracts from public agencies to run those facilities. sometimes using it for store proliferation rather than for other uses (such as advertising. Second. the firm must find all the capital. the company must bear all the financial risk. or new-service development) that would be more profitable. When expanding. service quality. compare a coffee shop cup of Starbucks coffee to one offered on any United Airlines doesn t franchise domestically.

The conflict most often centers on the parties having different goals. Delta pioneered a $50-or-Iess fee per ticket. These operate very much like company-owned channels except that they involve multiple owners. and entrepreneurial services. and channel ambiguity. Channel Conflict over Objectives and Performance The parties involved in delivering services are not always in agreement about the way the channel should operate. The benefits are that risk and effort are shared. when a service principal has its own outlets as well as franchised outlets). difficulty controlling quality and consistency across outlets. When adjustments are needed in business formats for different markets. When two or more service companies want to offer a service and neither has the full financial capability or expertise.g. unilaterally and dramatically al-tering the compensation arrangement. but the disadvantages are that control and returns are also distributed among the partners. This is especially true when companies expand into other cultures and other countries. conflict over costs and rewards. Channel conflict can occur between the service provider and the service intermediary. buy cheap tickets without staying over a Saturday night.. discount carriers. high-technology services. The manner in which the airlines made the change so infuriated travel agencies that they struck back against the airlines through such strategies as teaching consumers how to. Sometimes the conflict occurs because the service principal and its intermediaries are too dependent on each other. and between different types of channels used by a service provider (e. Another area in which service partnerships proliferate is when companies expand beyond their country boundaries -typically one partner provides the business format and the other provides the knowl-edge of the local market. Internet-based services. Nowhere was this type of conflict better demon-strated than when major airlines surprised their major distribution channel (travel agencies) with caps on fees. Key Problems Involving Intermediaries Key problems with intermediaries include conflict over objectives and themselves. competing roles and rights. and recommending small. Difficulty Controlling Quality and Consistency across . Instead of the traditional 10 percent commission on total airfare. purchasing wholesale tickets. and conflicting views of the way the channel is performing. Partnering or using joint ventures is almost always preferred to company-owned channels in these situations. Channel Conflict over Costs and Rewards The monetary arrangement between those who create the service and those who de-liver it is a pivotal issue of contention. they may be unaware of what these adjustments should be. they often undertake service partnerships. Several of the areas in which partnerships are common are in telecommunications. among intermediaries in a given area. tension between empowerment and control.

Channel Ambiguity When empowerment is the chosen strategy. Key Intermediaries for Service Delivery One way to organize the discussion of delivering service through intermediaries is to describe the primary channels of service distribution.Outlets One of the biggest difficulties for both principals and their intermediaries involves the inconsistency and lack of uniform quality that result when multiple outlets deliver services. Who will undertake market research to identify customer requirements. for example. the franchiser or the franchisee? Who should train a dealer s customer-service representatives. because unless an in-termediary delivers service exactly the same way the successful company outlets pro-vide it. Services can be distributed to the end customer through franchisees. In these situations they often feel like automatons with less freedom than they had in corporate jobs. the company or an intermediary? Who owns the results and in what way are they to be used? Who determines the standards for service delivery. and other inter-mediaries endure negative attributions to their outlets. making careful control a necessity. Many service franchisees. the roles of the principal and its intermediaries are unclear. The problem is particularly acute in highly specialized services such as management consulting or architecture. for example. never flip. is famous for its demanding and rigid service standards (such as turn. can have negative ramifications within intermediaries. however. doubt exists about the roles of the com-pany and the intermediary. even at a single outlet. Fran-chisees are service outlets licensed by a principal . and electronic channels. brokers. From the principal s point of view. Tension between Empowerment and Control McDonald s and other successful service businesses were founded on the principle of performance consistency. the service princi-pal suffers because the entire brand and reputation are jeopardized. their independent ideas must be integrated into and often subsumed by the practices and policies of the service principal. When shoddy performance occurs. Both they and their intermediaries . the service may not be as desirable to customers. where execution of the complex offering may be difficult to deliver to the standards of the principal. hamburgers on the grill ). Control. McDonald s. its name and reputation are on the line in each outlet. leading to confusion and conflict. agents. carefully specified sup-plies. the company or the dealer? In these and other situations. The strategy makes sense. If they are to deliver according to consistent standards. and performance monitoring.attained profits and longevity by the company s controlling virtually every aspect of their intermediaries businesses. are entrepreneurial by nature and select service fran-chising because they can own and operate their own businesses.

and travel services (American Express).to deliver a unique service concept it has created or popularized. telephone. video stores (Blockbuster s). EleCtronic cAannels include all forms of service provi-sion through television. and ho-tels (Holiday Inn). Examples include fast-food chains (McDonald s. interactive multimedia. MARKETING OF SERVICES © Copy Right: Rai University 126 11.are representatives who distribute and sell the . and of one or more service suppliers. automobile repair services (Jiffy Lube). Examples include insurance (Paul Revere Insurance Company). Burger King). financial services (Oppenheimer mutual funds).313 . Agents and brokers .

Many fi-nancial and information services are currently distributed through electronic media: ban19ng. Decreasing the cost of delivering products and services to customers: Because the channel allows specialization. we list and briefly summa-rize below the basics about distribution. learning about customers and about what sellers have to offer them. mail order. Wholesalers: Organizations that buy from producers and sell to retailers and organizational customers. Matching buyers and sellers: Intermediaries spend time in the market. 3. Provide customer service and support: Intermedi-aries provide various services including technical support. Standardizing transactions: Intermediaries deliver products or services in consistent form. Selective distribution: Use of more than one but less than all intermediaries who are willing. and education. 5. allocating. thereby lowering cost. transportation. and as-sorting products and services. Types of Intermediaries Retailers: Intermediaries who sell directly to end cus-tomers. accumulating. all parties can concentrate on what they do best. bill paying. Exhibit 13-2 reviews basic principles about distribution. Number of Intermediaries Three strategies are available for distribution of products and services: Intensive distribution: Locating the offering in numer-ous outlets. activities: Intermediaries are charged with sorting out. 2. even vending machines. Exclusive distribution: Limiting the number of inter-mediaries to one per given area. delivery. Basic Channel Functions 1. Criteria for Evaluating the Channel Alternatives . Knowing these basics allows you to step right into our chapter s discus-sion of service intermediaries. Regrouping. door-to--door. Exhibit 13-2 Reviewing the Basics About Distribution from Marketing Principles Rather than reiterate topics covered in your marketing principles course and textbook. 4. They may be retail stores. based on the needs of the buyer and the supply of the seller. education. for your information.

Push versus Pull Strategies Push strategy involves companies aggressively pro-moting their products to intermediaries through personal selling. creating a desire for the manufacturer s brand which is then pulled through the channel pf distribution.customers through direct advertising and branding.313 127 . Adaptive criteria: The extent to which the type of chan-nel is able to change and be flexible when desired by the service provider. and trade incentives. Control criteria: The degree to which the service provider can expect to have its policies and procedures ad-hered to in the relationship.. Pull strategy consists of building a reputation with . .Economic criteria: The sales expected and costs asso-ciated with the channel. Notes MARKETING OF SERVICES © Copy Right: Rai University 11. trade advertising.

LESSON 28: BASIC CHANNEL FUNCTIONS The Objective of the Lesson is to Basic channel functions Key Benefits and challenges faced by the intermediaries Strategy for effective service delivery through intermediaries. Franchising Franchising is the most common type of distribution in services and accounts for most retail sales. The length of the agreement (usually 5 to 10 years with options to renew). The administrative and technical support provided by the franchiser. The promise that the franchisee will not act as an intermediary for any other service firm in the same industry (which is what technically distinguishes franchisees from dealers and agents).1O The practice is . The promotional support to be given to the franchisee to improve the value of the franchised brands. but franchising has benefits and challenges for all parties involved. The principal appears to have the upper hand be-cause it is the entity drawing up the contracts and selecting franchisees. as well as tension between control and empow-erment. Elements of a Franchise Agreement Agreements and contracts are essential in franchising. How much of the revenue generated by the franchisee must be paid to the franchiser. The way that the franchise agreement can be termi-nated. The up-front fee for the franchise. As you may have guessed. Service companies have found that a franchise agreement should describe virtually all of the following aspects of the partnership: The nature of the service to be supplied by the fran-chisee. reliability of service. these are the issues that cre-ate misunderstanding and conflict between franchisees and franchisers-the reasons for channel conflict and channel ambiguity. . ad-vertising) . The instructions by which the franchisee agrees to operate and deliver service (price. The geographic territory in which the franchisee can offer the service.

Both parties agree on how profits and risks will be de-termined (see Exhibit 13-3). with unique store environments. with established formats for marketing to cus-tomers and pricing as well as hiring and motivating employees. hotels. and the reasons they are desirable to fran-chisees. Jiffy Lube. promotion. founded on national names and reputations. and computer systems. and rental cars. and branding. Benefits and challenges for the franchiser are dis-cussed below and summarized in Exhibit 13-4. Exhibit 13-4 Summary of Benefits and Challenges for Franchisers of Service Benefits Leverages the business format to gain expansion and revenues Maintains consistency in outlets Gains knowledge of local markets Shares financial risk and frees up capital Challenges Difficulty in maintaining and motivating franchisees . service policies.500 U.S. Franchising works well with services that can be standardized and virtually dupli-cated. business processes or formats. franchising refers to a relationship or partnership in which the service provides -the franchiserdevelops and optimizes a service format that it licenses for delivery by other parties-:-the franchisees. guarantees. At its best. we discuss only those retailers that distribute services. dry cleaners. with unique cooking or delivery processes and brand names. Highly . such as film-processing companies. the less likely it is that services will be duplicated exactly the way the franchiser desires. The more complex and professional the service. services. fran-chisers license their brand names. include (1) fast foods. most are operated as fran-chises and are subject to the same advantages and challenges. The Franchiser (Service Principal) Perspective More than 2. When we narrow the list of retailers to services. Retailers are outlets authorized to dis-tribute products and services to end customers. such as with internal medicine or business consulting. Examples of industries where franchising is prevalent.large and growing rapidly. and distributors of movies. warranties. (3) motels. (4) travel agencies. unique products. restaurants. typically through the delivery process. and (4) video stores. (2) health and fitness centers. purchasing. In this chapter we use the broadest possible definition of franchising and incorporate two other types of inter-mediaries in the category: retailers and dealers. with tick-eting and distribution processes. or reputations in return for fees and royalties from franchisees. Because this chapter is about distributing services rather than products. and Red Roof Inns are examples of companies that are ideal for franchise operations. H&R Block tax services.

Virtually all companies that seek to franchise their business concepts do so because they want wider distribution than they can support in company outlets.313 . The reasons they desire wider distribution are to increase MARKETING OF SERVICES © Copy Right: Rai University 128 11.publicized disputes and conflict Possibility of inconsistent quality that can undermine the company name Control of customer relationship by intermediary Benefits of Franchising for the Franchiser Leverages the business format to gain expansion and revenues.

Shares financial risk and frees up capital: Franchisees must contribute their own capital for equipment and personnel. When business is down. and hire according to standards the principal establishes is a difficult job. the principal may find that the company s reputation is being damaged by lowperforming franchisees. With franchising. Many states and even the federal government have implemented legislation boosting franchisees rights. obtain greater brand name recognition. But motivating independent operators to price. the company obtains personnel knowledgeable and connected in the local markets.bearing part of the risk of doing business. The franchiser can stipulate virtually all aspects. gain larger market share. rather than between the customer and the service principal. Even when franchis-ers can finance additional company-owned outlets. When franchisees are involved. especially the right to re-new and to transfer the franchise when desired. they can require franchisees to deliver services according to their specifications. Highly publicized disputes between franchisees and franchisers. from hiring and training practices to prices to store design. franchisees are organizing.revenues. Maintains consistency in outlets: When franchisers have strong contracts and unique business formats. In instances where quality varies. The ability to motivate internal employees is difficult enough. a relationship forms between the customer and the franchise. they may choose to minimize their investment and financial risks by sharing them with franchisees. Rather than investing the bulk of money in distribution. are gaining more economic clout. . The closer a service company is to the customer. thereby . Because they. then hiring lobby-ists and lawyers to press their cause. promote. after which the franchisee can renew. Inconsistent quality that can undermine the company name. or gain additional economies of scale. Customer relationships controlled by the intermediary rather than the service principal. the better able it is to listen to that customer s concerns and ideas. Most franchising contracts are for 5 to 10 years. franchisees may be hard to maintain. Challenges of Franchising for the Franchiser Difficulty in maintaining and motivating franchisees. having franchisees _ allows service principals to invest in core service production facilities. deliver. Gains knowledge of local markets: National chains are unlikely to understand local markets as well as the businesspeople who live in the markets. This chapter s Global Feature illustrates the way Starbucks Coffee attempts to maintain consistency across cultures and countries thfQugh franchising.

). This approach would allow Starbucks to understand the individual markets better and would limit the capital investment necessary to expand. the Japanese will be ready. like others. purchase history. Challenges abounded. the company decided to open franchise outlets there in 1998. man-agement realized that its best route was not to own but in-stead to franchise or form other types of alliances with or-ganizations within each country.the United States. Rather than entering qui-etly and gaining a toehold before having to compete. Possibly the most compelling result of the an-nouncement of the entry of Starbucks was the intense fear on the part of existing coffeebar owners in Japan. the challenge of persuading members of a tea-drinking nation to switch to java. with 2. Global Feature Starbucks goes Global Earlier in this chapter. the company began its expansion in Asia. A manager of Doutor Coffee Company. China After selling Starbucks coffee to Beijing hotels for four years. Starbucks opened more than a dozen stores in Japan beginning in 1997. They re a big threat and could take customers away from us. the ability to [package] the store: [mesh] such ele-ments as store design.Seiji Honna president of Pronto Corporation (94 stores). we talked about Starbucks coffee-houses as an example of a very successful company. What all of this means is that as Starbucks opens more stores (it plans 100 openings in the next five years). Japan s number one coffee-bar chain (453 shops) exclaimed. Japan Joining with Sazaby.. a Japanese retailer and restaura-teur. worried that the Japanese outlets I lacked the sophistication of Star-bucks. distributed its service in the United States that the Japanese were afraid of their ability to compete.All customer information. Exec. rather than in Europe. Starbucks had so successfully created and.000 outlets in . the owners of the mega-chains were filled with anxiety. Many coffee bars imitated Starbucks in design and started offering Seattle coffee. Even though Starbucks was introducing a mere dozen outlets.1 million bags per year compared with 18. traveled to the United States to gather intelligence from more than 20 Starbucks locations on the West. package design and other merchan-dising techniques into a compelling entity. When the company chose to go international. The company chose Japan as its first ex-pansion outside North America because it is the third largest coffeeconsuming country in the world (6. Coast He. The company now has more than 250 out-lets abroad in places as close as Canada and as far as China.!1tivessU9h as . Inc. Star-bucks had been targeted before it entered with its first store. it met with different scenarios and challenges as are illustrated by its experiences in Japan and China. . and preferences are in the hands of the intermediary rather than the principal. There was of course. In an unusual twist. including identifying demographics. In each country.owned service organization.1 million bags in the United States.

The problem was hiring. motivating.313 129 .But more immediate has been the chal-lenge of establishing local managers to run shops that can convey the spirit of Seattle in Beijing. and training both baristas who could de-liver the consistent service and coffee drinks that made the chain so successful in the United States and managers who would uphold the high standards of the company. The company approached the hiring problem for MARKETING OF SERVICES © Copy Right: Rai University 11.

The U. franchising also offers an alternative way of raising capi-tal that speeds growth. It has partnered with Chapters.. Small Business Administration claims that whereas 63' percent of new businesses fail within six years. Inc. helped motivate and keep employees. Others are less certain. as it turns out. The Franchisee s View: Generalizing about franchising can be difficult because more than 65 types of businesses exist. that already have strong images and track records. Receiving national or regional brand marketing: One of the biggest advan-tages comes from the brand name and marketing the franchisee obtains. Franchisees sign on because the franchisers have created businesses that work. a Toronto books retailer with sites throughout Canada and is now evaluating European and Latin American markets. a super-efficient distributor of services and goods through a decentralized web. only 5 percent of new franchises fail. The company isn t stopping in Asia. such as soda bottlers and beer distributors (although these forms are largely unavailable to new franchisees because they have reached capacity).S. which generate more than $800 billion in sales each year.Hard Rock Cafe. Benefits of Franchising for Franchisees Obtaining an established business format on which to base a business: This is One of the primary benefits to the franchisee. . So do the infor-mality and culture of listening at Starbucks which seem to inculcate trust in employees and thereby generate loyalty. Minimizing the risks of starting a business: One of the biggest selling points of franchising is the claim of diminished risk of purchasing a franchise over initiating one s own business. Franchisees expect-and usually receive-advertising and other marketing expertise as well as a reputation that they do not peed to build themselves. Many are transient operations that are underfinanced and inadequately supported and can disappoint the independent operators who pur-chase them. and that have been tested for effectiveness.managers by targeting young people who had experience running suc-cessful American-style restaurants such as the. One expert has defined franchising as an entrepreneur in a prepackaged box. be-cause they felt confident in the company. Some franchises are highly desirable and lucrative. 12 Some of the most successful franchises in the world are profiled in Exhibit 13-5. including convenience marts and auto-service shops. Starbucks dealt with the motivation issue by sending the best manager recruits to Seattle for three months to absorb the culture and lifestyle of Starbucks and the West Coast The structured training. For smallbusiness owners. They recruited baristas through job fairs and ads and focused on aspects such as career and personal develop-ment as well as the cool factor of being associated with the popculture scene in Seattle.

work damn hard. When encroachment oc-curs. What Makes a Franchise or Retail Store a Star? A Wall Street Journal reporter answered this question by locating the biggest U. Others dispute this figure. Here are several of me star franchisees that won. and service determine the winners. . believing that the competition between franchisees will increase revenues. He concluded that location.S. among them many service businesses. outlet for 20 big brands. Another showed that both small busi-nesses and franchises have roughly equal and high failure rates. Several new academic studies poke giant holes in the fran-chise association s claims. complaints fil1d against parent companies with the Federal Trade Commission have been growing at a greater than 50-percent annual rate. . maintaining that it is based on old studies. previous few systems are minting money for franchisees today. Most people think of franchising as some kind of bonanza. One i1-dicator of the perceived lack of control is that since 1990. These are people who once exerted a great deal of control over their Jobs. luck. Biggest Outlet: Los Angeles International Airport Size Indicator: Most rentals a day Explanation: Nine counters in seven terminals serve customers round-the -clock at the West . that s good. franchisee. and expenses are rising. One study found that almost 35 percent of franchises failed versus 28 percent for other small businesses. and if you re making $40. Hertz Rent a Car Parent Company: Hertz Corp. of large companies. potential revenues are diminished. Lack of perceived control: About one-third of new franchisees are ex-employees. and franchisers often will not offer the en-croaching franchise to the franchisee in the local area. Most markets are crowded. the reality is if you get a solid operation. something that changes quickly when a franchise operation is purchased. High failure rates and unfair terminations: Earlier in this chapter we stated that the International Franchise Association claims that less than 5 percent of fran-chises are terminated on an annual basis. Encroachment and franchise saturation: Most lawsuits by franchisees involve encroachment of existing stores-the opening of new units within three miles of ex-isting ones without compensation to the existing franchisee.Challenges of Franchising for the Franchisee Disappointing profits and revenues: A recent report on franchising suggests: For all their past successes. 13 Nearly 9 of 10 franchis-ers are cutting up only about a quarter of every dollar of sales.000 a year after four years.

says Charles Shafer. maintenance facilities and offices cover 36 acres. such as a flight delaying fog. -Hertz s staff at the airport numbers 300. Seventeen buses shuttle customers to and from vehicles. division vice president. Most. Hertz parking lots. The operation pumps more than one million gallons of gasoline a year.000. Daily rentals average 2. The size of the operation multiplies problems. popular car: Ford Taurus.Coast s busiest airport. In the first half of 1992. MARKETING OF SERVICES © Copy Right: Rai University 130 11. the facility grossed $37 million. If we make a mistake we can upset several hundred customers at a time. Five percent of airport rentals are convertibles.313 .

a 12foot fry grill. this round-the-clock McDonald s serves nearly three million travelers a year.100 FTD orders a week. another operates a yogurt bar. many of which it landscaped. the florist typically fills 1.Ftd Floral Delivery Parent Company: Florists Transworld Delivery Association Biggest Outlet: McShan Florist Inc.000 meals daily.M. Proximity to Penn Station is a traffic booster. Dallas literally grew up to McShan s door. . Once surrounded by cotton fields.000-square-foot store and 50 delivery trucks. Employees work in teams. but no greenhouse. between 38th and 39th streets. says manager Valerie Blanchard. which is open until 9:30 P. Everything about the store is mammoth. McShan employs 150. One directs traffic. We don t sell flowers. This is the busiest of Federal Express s 434 U.. On average. The business hasn t branched out because. the heart of New York City s Garment Center. Obituary-page ads read. says president Bruce McShan. weekdays and 7 P. The center also handles a heavy volume of tickets for travel agents.000 items is three times the average.S. the franchise sells 8. including portables for overflow crowds.. Seven full-time employees staff the facility.S. we sell love. the store now is ringed by homes. on Saturdays. Biggest Outlet: On turnpike near Darien. service centers. Explanation: Serving Dallas but not neighboring Fort Worth. We prefer to have one big headache instead of a lot of little ones. Many parcels are boxes you couldn t carry home. Federal Express Parent Company: Federal Biggest Outlet:. most packages and documents daily.M. at 525 Seventh Ave. Center Size Indicator: Handles Explanation: Located in Express Corp. Explanation: Near the New York -Connecticut border on Interstate 95. Neiman Marcus is a major local customer. its daily volume of 1 . Conn. New York Cit> . 32 telephones. Major customers include dressmakers and fashion-design houses as well as neighborhood department stores. Retirees pass out maps in a tourist center equipped with an automatic teller machine. a 27. Size Indicator: Most McDonald s customers served in U. has more than two dozen phone lines. 19 cash registers. Owner-operator George Michell says the busiest days of the year are Thanksgiving weekend. Mcdonald s Parent Company: McDonald s Corp. Dallas Size Indicator: Most flowers-by-wire orders in U. an arrangement averages $38.S.

With single rooms priced at under $50. Located at one of the busiest Strip intersections. Biggest Outlet: Downtown Stamford. built by gangster Bugsy Siegel in the 1940s. the American Association of Franchisees and Dealers.000 returns last year -almost twice the next-busiest office. the hotel is staffed by nearly 4. 15 Franchisees of one com-pany. 55 elevators. say they are forced to buy ingredients and paper from a company-owned distributor. Size Indicator: Most clients served Explanation: The office handled more than 8.000 and $35. A $100 million expansion will add a tower and waterfalls. On top of these fixed charges. Hilton Hotels Parent Company: Hilton Hotels Corp.16 A lawyer for the trade group of franchisees. Inc. even without advertising fees. Its 27 stories include a casino. They have fewer rights than employees. pay for training. Most [franchisers] treat franchisees like inden-tured servants. Another area in which expectations are unrealistic involves the time commitment .530_room hotel. More than one service principal has been found guilty of overpromising. and its clientele is described as a typical mixture of commercial and individual taxpayers. claims that. Little Caesars Enterprises. Unrealistic expectations: Some of what creates problems for franchisees in-volves approaching the agreement with expectations about revenues and profits that are unrealistic.000 employees.. The downtown office doesn t offer unusual services. the Flamingo averages a 90% occupancy rate and is Hilton s most profitable. and secure a mortgage or lease. two grand ballrooms. says vice president Marc Grossman. three lounges. the nearby 3.H&R Block Parent Company: H&R Block Inc. parking for 230 and a furrier. Biggest Outlet: Flamingo Hotel. The volume was so large that two more Stamford outlets recently opened. Franchisers are partly responsible for the elevated expectations be-cause they attract and sign new franchisees with promises that they can achieve the performance of their star franchises. monthly royalties are 2 to 8 percent of gross sales.200room Las Vegas Hilton caters to high rollers and conventioneers. Las Vegas Size Indicator: Most rooms Explanation: This 3. eight restaurants. Why? It s a mystery to me. Conn. High fees: Franchisees typically pay between $5.000 in up-front fees to acquire a franchise: They are also required to buy equipment. says district manager Jack Marvill. The facility has 19 tax-preparation stations and employs about 50. paying up to 15 percent more than rivals for iden-tical items. is popular with tourists.

the franchisee must make to achieve success. Selling agents have contractual authority to sell a service principal s output (which can be anything from an athlete s time to travel. insurance. Types of Agents: generally work for principles continuously. an agent is an intermediary who acts on behalf of a service principal (such as a brokerage firm or a popular sports figure) and is authorized to make agreements between customers and those principals.313 131 . Agents and brokers do not take title to services but instead deliver the rights to them. rather than for a single deal. or financial services). They have legal authority to market services as well . usu-ally because the MARKETING OF SERVICES © Copy Right: Rai University 11. The two forms of intermediaries perform many of the same functions but are distinct from each other in some to perform other marketing functions on behalf of pro-ducers. Agents and Brokers In common terminology.

retail travel agents. antiques. they know the market better than the service principal.principal is not interested. and are not long-term representatives of buyers or sellers. so she hired Pro-Serve to represent her and handle all business as-pects for her. We will illustrate some of the benefits and challenges of agents and brokers using this industry. Exhibit 13-6 Summary of Benefits and Challenges in Distributing Services Thrqugh Agents and Brokers Benefits · Reduced selling and distribution costs · Intermediary s possession of special skills and knowledge · Wide representation · Knowledge of local markets · Customer choice Challenges · Loss of control over pricing and other aspects of mar-keting · Representation of multiple service principals Reduced Selling and Distribution Costs: If an airline or resort hotel needed to contact every potential traveler to . Purchasing agents are frequently hired by companies and individuals to find art. Purchasing agents also have long-term relationships with buyers. meeting and convention planners. or transportation. risk taking. evaluating and making purchases for them. they are typically entrusted with influence over prices. and conditions of sale. rarely become involved in financ-ing or assuming risk. Nancy Kerrigan needed to focus on her skating and knew little about negotia-tion and contracts. terms. Industry convention terms the travel companies as brokers and the individuals who work for them as travel agents or sales associates. and security brokers. insurance brokers. They are knowledgeable and provide helpful market in-formation clients as well as obtaining the best services and prices available. feels unqualified. and specialty channelers (including incentive travel firms. Types of Brokers: Brokers bring buyers and sellers together while assisting in ne-gotiation. Benefits of Agents and Brokers: The travel industry provides. and rare jewelry. Selling agents act as a sales force with a difference: Because. They are paid by the party who hired them. Facilitating agents help with the marketing process by adding ex-pertise or support such as financial services. The most familiar examples are real estate brokers. and corporate travel offices). association executives. the selling agent normally has no territorial limits but represents the service principal in all areas. You are likely to be most familiar with retail travel agents. hotel representatives. or lacks the resources to do so. an example of both agents and brokers. Benefits and challenges in using agents and brokers are summarized in Exhibit 13-6. Three main categories of travel intermediaries exist: tour packagers. Unlike a sales force.

others are business meeting and convention planners who act almost as tour packagers for whole companies or associations. Challenges of Delivering Service through Agents and Brokers Loss of Control over Pricing and Other Aspects of Marketing As Representatives of service principals and experts on customer markets. Thus. imagine the effort a customer would need to make to plan a trip! Independent in-surance agents have the right to sell a wide variety of insurance. Knowing the culture and taboos of a country is critical for successful selling.promote its offerings. Most companies find that obtaining local representation by experts with this knowledge is necessary. companies have representatives in many places. each of which carried the services of a single sup-plier. and otherwise alter the . then offer these bundles either to travelers themselves or to retail travel agents. Knowledge of Local Markets: Another key benefit of agents and brokers is that they become experts in the markets they serve. They know or learn the unique needs of different markets. equipment. Customer choice: Travel and insurance agents provide a retailing service for customers-they represent the services of multiple suppliers. If a traveler needed to visit six or eight different travel agencies. promote. costs would be exorbitant Be-cause most travel services are transactional rather than long term in nature. Wide Representation: Because agents and brokers are paid by commission rather than by salary. Tour packagers have a more specialized role-they assemble. These types of agents also are able to compare prices across suppliers and get the best prices for their clients. Specialty channelers (which we could put in the category of facilitating agents) have even more specialized roles: Some work in corporate travel offices to lend their skills to an entire corporation. which allows them to offer customers a choice. including international markets. agents and brokers are typically empowered to negotiate price. This benefit is particularly needed and appreciated when clients are dispersed internationally. and some are incentive travel firms that focus on travel recognition programs in corporations or associations. there is little risk or disadvantage in extending the service offerings to a wide geography. and salaries were required. travelers would need to expend tremendous effort to find services that meet their needs. configure services. They understand what their clients preferences are and how to adapt the principal s services to match the needs of clients. and price bundles of travel services from travel suppli-ers. Travel agents and brokers accomplish the intermediary role by assembling information from travel suppliers and offering it to travelers. Possession of Special Skills and Knowledge: Each of the three intermediaries have special knowledge and skills in their areas. often through reference materials and online services. Retail travel agents know the indus-try well and know how to access the information they do not possess. far more places than the company would place them if fixed costs such as buildings.

If the price can be changed. This issue could be particularly important-and possibly detri-mental-when a service provider depends on a particular (high) price to convey a level of service quality. the agent has the flexibility to give different prices to different customers. As long as the customers are geographically dispersed.313 . In addition. this will MARKETING OF SERVICES © Copy Right: Rai University 132 of a principal s service. it might drop to a level that undermines the quality image.

education. using electronic channels overcomes some of the problems associated with service inseparability and allows a form-of standardization not previously possible in most services. The Inter-net is the foundation for a new industrial order. when independent agents represent multiple suppliers they offer customer choice. and interactive. Notes . the less the service is characterized by inseparability and nonstandardization. When they find a customer who needs insurance. From the perspective of the service principal. however. Electronic Channels Electronic channels are the only service distributors that do not require direct human interaction. What they do require is some predesigned service (almost always infor-mation. Think about this: Already 16 percent of car buyers shop online before showing up at a dealership. however. mul-timedia libraries and databases. interactive news and music. banking and financial services. it s not just another advertising medium.not create a problem for the service principal. In a service context. made possible through these vehicles include movies on demand. The Internet is not just another marketing channel. remote health services. serving as a surrogate service retail store for customers. and they aren t comparing paint jobs-they re arming them-selves with information on dealer costs. they may perceive the service principal as unfair or unethical. customer choice means that the agent represents and in many cases advocates a competitive service offering. We are all familiar with telephone in a television channels and the Internet and Web and may be aware of the other electronic vehicles that are currently under development. These agents carry a range of insurance products from different companies. desktop video conferencing. This is the same challenge a manufacturer confronts when distributing products in a retail store. The Web and e-commerce alone will revolutionize the way services are delivered to customers and change the traditional relationship between the customer and the company: The Internet will change the relationship between consumers and producers in ways more profound than you can yet imagine. they sell from their portfolio the offerings that best match customers requirements. consider the use of independent insurance agents. The more a service relies on technology and/or equipment for service production and the less it relies on face-to-face contact with service providers. it s not just a way to speed up transactions. or entertainment) and an electronic vehicle to deliver it. distance learning. Representation of Multiple Service Principals: As we already discussed. The Internet will empower consumers like nothing else ever has. The con-sumer and business services that will be. if buyers compare prices and realize they are being given different prices. network-based games. As you will see in the fol-lowing section (and in Exhibit 13-7). Only in rare cases are its products the only ones in a given category on the retail floor.

313 133 .MARKETING OF SERVICES © Copy Right: Rai University 11.

we draw all of that material to gather in one place. Gaps Model of Service Quality Expected services Perceived Company Customer driven service designs and standards Service delivery . Gap 3: Not delivering to service standards. are the underlying causes behind the customer gap: Gap 1: Not knowing what customers expect. The gaps model positions the key concepts.LESSON 29: THE INTEGRATED GAP MODEL OF SERVICE QUALITY The Objective of this Lesson is to have an insight into · Significance of GAP Model · GAP Model of service quality As you have observed through out this text. Relationships with them. and decisions in services. Executives of services organi-zations have long been confused about how to approach this complicated topic in an organized manner. effective services marketing is a complex undertaking involving many different skills and tasks. Gap 2: Not selecting the right service designs and standards. The following four provider gaps. Gap 4: Not matching performance to promises. reinforcing the general ideas and structure of the gaps model and thereby summarizing the text and course. is shown in Figure 18-1 The central focus of the gaps model is the customer gap. which was first overviewed in the Part One opener. Each of the first five part openers in the text focused on specific aspects of the model that were covered in the chapters following it In this chapter . Firms need to close this gap-between what customers expect and receive in order to satisfy their customers and build longterm. This text was structured around-one approach to view services in a structured and integrated way called the gaps model of service quality. the model suggests that four other gaps-the provider gaps-need to be closed. the difference between customer expectations and perceptions. To close this all-important customer gap. strategies. marketing in a manner that begins with the customer and builds the organization s tasks around what are needed to close the gap between customer expectations and per-ceptions. The integrated gaps model of service quality. shown below the horizontal line in Figure 18-1.

be un-willing to ask about expectations. . or be unprepared to address.them. a customer gap typically exists. In this horizontal line in Figure 18-1 are the two boxes that correspond to customer expectations and customer perceptions. or reference points for.and we de-voted virtually the entire text to describing strategies and practices designed to close this customer gap.External communications to customers Company perceptions of consumer expectations Gap 3 Gap 4 Customer Gap 2 Gap 1 Figure 18 1 Closing the Customer Gap Above the. In practice. Many reasons exist for managers not being aware-of what customers expect: They may not interact directly with customers.313 . inseparability of production and consumption. heterogeneity. Provider Gap 1: Not Knowing What Customers Expect Provider gap 1 is the difference between customer expectations of service and com-pany understanding of those expectations. The sources of customer expectations consist of marketer-controlled fac-tors. we attempted to show that the unique characteristics of services dis-cussed as.assessing goods. such as innate personal needs. When people with the authority and responsiMARKETING OF SERVICES © Copy Right: Rai University 134 11. initial chapters and strategies used to address them were offered in those same chapters. intangibility. as well as factors that the marketer has limited ability to af-fect. expectations and perceptions are identical: Customers perceive that they get what they think they will and should. such as advertising. While customer perceptions are sub-jective assessments of actual service experiences. and perish ability-necessitated different consumer evaluation processes from those used when . customer expectations are the stan-dards of. performance against which service experiences are compared. Services marketing -bridges this distance. The key factors leading to the customer gap are shown in Figure 18-2. Each of these factors was discussed in. Ideally.

bility for setting priorities do not fully understand cus-tomers service expectations. Formal and informal methods to capture information about customer expectations must be developed through market research. Techniques involving a variety of traditional research approaches must be used to stay close to the customer. Gap 1 Customer Expectations Inadequate marketing research orientation Insufficient marketing research Research not focused on service quality Inadequate use of market research Lack of upward communication Lack of interaction between management and customers Insufficient communication between contact employees and managers Too many layers between contact personnel and top . When management or em-powered employees do not acquire accurate information about customers expectations. provider gap 1 is large. among them customer visits survey research. An inadequate marketing research orientation is one of the critical factors. they may trigger a chain of bad decisions and sub optimal resource allocations that result in perceptions of-poor service quality. Figure 18-3 shows the key factors responsible for provider gap 1. More innovative techniques-such as quality function deployment. and cus-tomer panels. structured brainstorming. Customer gap Customer expectations Provider gap 1: Not knowing what customer expect Provider gap 2. and service quality gap analysis are Often needed. complaint systems. In this text. not selecting the right service designs and standards Provider gap 3: Not delivering to service standards Provider gap 4: not matching performance to promises Customer Figures 18-2 key factors leading to the customer gap. In today s changing organizations. Figures 18-3 key factors leading to provider gap 1. we broadened the responsibility for the first provider gap from managers alone to any employee in the organization with the authority to change or influence service policies and procedures. the authority to make adjustments in service delivery is delegated to empowered teams and front-line people.

expectations of their current customers. this text covered topics that included how to understand customers through multiple research strategies (Chapter 5).management Insufficient relationship focus Lack of market segmentation Focus on transactions rather than relationship Focus on new customers rather than relationship customers Inadequate service recovery Company perceptions of customer expectations Another key factor that is related to provider gap 1 is lack of upward communica-tion. an approach called relationship marketing. and how to develop effective service recovery strategies for dealing with inevitable service failures. how to build strong relationships and -understand customer needs over time (Chapter 6). Front-line employees often know a great deal about customers. if management is not in contact with front-line employees and does not understand what they know. other times it involves a-service guarantee or ways to compensate the customer for the unfulfilled promise. the gap widens. what they expect when they complain. It is critical for an organization to understand the importance of service recovery-why people complain. The final key factor associated with provider gap 1 is lack of service recovery. (Chapter 7) Through these strategies. When companies focus too much on attracting new customers. Another key factor related to provider gap 1 involves the lack of company strate-gies to retain customers and strengthen relationships with them. provider gap 1 is less likely to factors that is leveraged in relationship marketing. Relationship marketing is distinct from transactional marketing. When organizations have strong relationships with existing: cus-tomers. car -rental companies. Even the best companies. . One of the major. in real time to fix the failure. is service Technology affords companies the ability to acquire and integrate vast quan-tities of data on customers that can be used to build relationships. and hotels are among the most familiar programs of this type. This might involve a well-defined complaint-handling proce-dure and empowering employees to react on the spot. provider gap 1 the customer expectations gap can be minimized. Frequent flyer travel programs conducted by airlines. they may fail to understand the changing needs and. and how to implement recovery strategies when things go wrong. particularly in manufacturing companies. To address the factors in provider gap 1. the term used to describe the more conventional emphasis on acquiring new customers rather than on retaining them. with the best of intentions and clear understanding of their cus-tomers expectations sometimes fail.

313 135 .MARKETING OF SERVICES © Copy Right: Rai University 11.

typically management. when there are standards reflecting what customers expect.right Service Quality Designs and-standards A recurring theme in service companies is the difficulty experienced in translating cus-tomers expectations into service-quality specifications. the quality of service they re-ceive is likely to be enhanced. undefined service designs Failure to connect service design to service positioning · Absence of customer defined standards Lack of customer defined service standards Absence of process management to focus on customer requirements Absence of formal process for setting service quality goals · Inappropriate physical evidence and services cape Management perceptions of customer expectations Figures 18-4 key factors leading to provider gap 2. the quality of service delivered by customer contact personnel is critically influenced by the standards against which Gap 2 Customer driven service design and standards · Poor service design Unsystematic new service development process Vague.Provider Gap 2: Not Havingthe. the difference between company understanding of customer expectations and development of customer-driven service designs and standards. Those re-sponsible for setting standards. Figure 18-4 shows the key factors leading to this gap. However. Customer-driven standards are differ-ent from the conventional performance standards that most services companies establish in that they are based on pivotal customer requirements that are visible to and measured by customers. Standards signal to contact personnel what man-agement priorities are and which types of performance really count. They are operations standards set to correspond to customer expectations and priorities rather than to company concerns such as productivity or ef-ficiency. These problems are reflected in provider gap 2. In contrast. They are evaluated and compensated. Customer Driven Service Design and Standards Provider gap 2 exists in service organizations for a variety of reasons. sometimes believe that cus-tomer expectations are unreasonable or unrealistic. quality of service as perceived by customers is likely to suffer. When service standards are absent or when the standards in place do not reflect customers expecta-tions. Therefore closing provider gap 2-by setting customer defined performance standards-has a powerful . They may also believe that the de-gree of variability inherent in service defies standardization and therefore that setting standards will not achieve the desired goal.

front-line employees. or a school. based on customer needs and expectations. the physical setting where the service is delivered. a hospital. systems. Through these strategies. if the company fails to provide support for them-if it does not facilitate. Internet presence. are intangible. Research and company experience has identified many of the critical -inhibitors to closing gap 3 (see Figure 18-5). tools are needed to ensure that new an existing services are developed and improved in . or bias. Provider Gap 3: Not Delivering to Service Standards Provider gap 3 is the discrepancy between development of customer-driven service standards and actual service performance by company employees. Even when guide-lines exist for performing services well and treating customers correctly. signage. the variety of roles it plays and strategies for effectively designing physical evidence and the services cape to meet customer expectations. it falls short of what cus-tomers expect as well. encourage. Service organizations must explore the importance of physical evidence. Think of a restaurant. By physical evidence we mean. In this text. These . they are difficult to describe and communicate. and to effectively design physical evidence and the services cape to meet customer expecta-tions (Chapter 10). Thus. When the level of service-delivery performance falls short of the standards. must be appropriate. incompleteness. The services cape. even when standards accurately reflect customers ex-pectations. Narrowing gap 3-by ensuring that all the resources needed to achieve the standards are in place-reduces the customer gap. a theme park. One of the most important ways to avoid gap 2 is to clearly design services without over careful a manner as possible. and technology) and also must be enforced to be effective that is. Another factor involved in provider gap 2 is physical evidencethe tangibles sur-rounding the service. subjectivity. equipment. Standards must be backed by appropriate resources (people. health club. a hotel. everything from business cards to reports. and facilities used to deliver the service. any attempt to improve it will also suf-fer unless everyone has the same vision of the service and associated issues. and behind the scenes support staff) /be working with the same concepts of the new service.on closing the customer gap. to develop customer defined (as opposed to company-defined) service standards t chapter 9).positive effect. highquality service. employees must be measured and compensated on the basis of performance along those standards. and require their achievement-standards do no good. To do this. you learned to develop effective strategies for new services and to use service blueprinting as an implementation tool (Chapter 8). The services cape-the physical facility-is critical in these industries in terms of communicating about the service and making the entire experience pleasurable. Performance is not a: certainty. For a service that already exists. provider gap 2 the service design and standards gap can be minimized. Because services. This is particularly true when new services are being developed It is critical that all people involved (managers.

313 . employees who see conflict between MARKETING OF SERVICES © Copy Right: Rai University 136 11.include employees who do not clearly under-stand the roles they are to play in the company.

feedback job design. Be-cause quality in service occurs in the human interaction between customers and service providers. To deliver better service performance. Most service (and many manufacturing) companies face an even more formidable task: attaining service excellence an<1 consistency in .of empowerment and team-work. involving in-ternal-practices such as recruitment. these issues must be . perceived control and team work · Failure to match supply and demand Failure to smooth peaks and valley of demand Inappropriate customer mix Over reliance on price to smooth demand · Customers not fulfilling roles Customers lack knowledge of their roles and responsibilities Customers negatively affect each other · Problems with service intermediaries Channel conflict over objectives and performance Channels conflict over cost rewards Difficulty controlling quality and consistency · Tension between empowerment and control Customer Driven service designs and standards organizational structure. agents. and brokers. the wrong employees.. Service Delivery Deficiencies in Human Resource policies Gap Ineffective recruitment 3 Role ambiguity and role conflict Poor employee technology job it Inappropriate evaluation and compensation system Lack of empowerment . with both marketing and human resources) if they are to be effective. These factors all relate to the company s human resource function. inappropriate compensation and recognition. franchisees. yet it rarely is fully possible.-1raining. and Figures 18-5 key reasons leading to provider gap 3. One of thy difficulties associated with gap 3 involves the challenge in delivering service through such intermediaries as retailers. and lack . motivation. control over the-service encounter by the company is crucial.customers and company management.addressed across functions (e.g. inadequate technology.

companies is limited. Promises made by a service company through its media advertising sales force. For this reason. Provider Gap 4: When Promises do not Match Performance Provider gap.the pres-ence of intermediaries who represent them. they fail to provide all the information necessary to the service provider or neglect-to read. The use of marketing strategies in many. 4 illustrate the difference between service delivery and the service provider s external communications. The discrepancy between actual and promised service therefore has an adverse effect. on the customer gap. Another issue in gap 3 is the -need in service firms to synchronize demand and capacity. The other impor-tant variable is the customer. a firm must develop ways to either control.intermediaries to meet company goals.other than the producer is critically important to the fulfillment of quality service.With franchises and other types: of intermediates mediaries. service companies frequently face situations of over or under demand. Evaluate the service quality of the company. Lacking inventories to-handle overhead companies lose sales when capacity is inadequate to handle customer needs on the other hand.intermediaries are 100 percent consistent in their service delivery (an unlikely but highly-desirable state!). Figure 18-6 shows the key factors that lead to provider gap 4. Marketing strategies for managing demand such as price changes. most companies rely on operation strategies . Even if contact employees and . promotion. the uncontrollable-variable of the customer can introduce heterogeneity it service deliv-ery. And it is in the execution: by the franchisee that the customer. As we have just discussed. Among the intermediaries that playa central role in service delivery are retailers. Franchisers of services depend on their franchisees to execute service delivery as they have specified it. someone. inadequate coordination between op-erations and marketing. The service delivery process is complicated by outside parties who are likely to embrace goals and values that do not directly align with those of the service organization.or motivate these. interact with their customers. and yet are not under their direct control. and differences in policies and procedures across service out-lets. capacity is frequently underutilized in slow periods. for example. part of the variability in provider gap 3 comes from em-ployees and intermediaries who are involved with service delivery. .such as cross -training or varying the size of the employee pool to synchronize supply and demand. advertising. and other communications may potentially raise customer expectations that serve as the standard against which customers assess service quality. Broken promises can occur for many reasons: Over promising in advertising or personal selling. Because services are perishable cannot be inventoried. franchisees and dealers. If customer do not perform their roles appropriately-if.and-follow instruction quality is jeopardized. and alternative service offerings-can supplement approaches for managing supply.

less obvious ways in which external communications influence customers service quality assessments. Service companies frequently fail to capitalize on oppor-tunities to educate customers to use services appropriately. They also frequently fail to manage customer expectations of what they will receive in service transactions and relationships.In addition to unduly elevating expectations through exaggerated claims.313 137 . MARKETING OF SERVICES © Copy Right: Rai University 11. there are other.

When employees who promote the service do not fully understand the reality of service delivery. In pack-aged goods (and even in durable goods). many customers possess enough price knowledge before purchase to be able to judge whether a price is fair or in line with competition. Effectively coordinating ac-tual service delivery with external communications. customers often have no internal reference point for prices before purchase and consumption. they are likely to make exaggerated promises or fail to communicate to customers aspects of the service intended to serve them well. The result is poor service quality perceptions. This is what we called interactive marketing-the marketing between contact people and cus-tomers and it must be coordinated with the conventional types of external marketing used in product and . narrows provider gap 4 and favorably affects the customer gap as well. therefore. With services.One of the major difficulties associated with provider gap is that communications to consumers involve issues that crossdisciplinary boundaries. everyday Figure 18-6 key reasons for provider gap 4. Pricing strategies such as discounting. Another issue related to gap 4 is ass9ciated with the pricing of services.service firms. Gap 4 Service delivery Lack of integrated services marketing communications Tendency to view each external communication as independent Not including interactive marketing inn communications plan Absence of strong internal marketing program Ineffective management of customer expectations Not managing customer expectations through all forms of communication Not adequately education customer Over Over Over Over promising promising in advertising promising in personal selling promising though physical evidence cues Inadequate horizontal communications . and because what people do cannot be controlled in the way that machines that produce physical goods can be controlled. this type of communication involves functions other than the marketing department. Because service ad-vertising promises what people do.

Given the strong focus on the customer and the need to use knowledge about the customer to drive busi-ness strategy. and . To the extent that one or more of provider gaps 1 through 4 exist. Techniques for developing prices for services are more complicated than those for pricing of tangible goods. The entire text was organized around this model of service quality.attempting to . Provider gap 3: Not delivering to service standards. pivotal gaps in delivering and marketing services: The customer gap: Difference between customer expectations and perceptions. external communications-whether from. which focuses on five. Putting it all Together: Closing the Gaps The full conceptual model shown in Figure 18-1 conveys a clear message to managers wishing to improve the quality of service: The key to closing the customer gap is to close provider gaps 1 through 4 and keep them closed. The gaps model positions the key concepts.improve quality service and services marketing. The model. serves as a framework for service or-ganizations . Provider gap 1: Not knowing what customers expect. and couponing obviously need to be different with services in cases where the customer has no sense of the price to start with. In addition to improving service delivery. called the gaps model of service quality. Provider gap 4: Not matching performance to promises. we believe this foundation of emphasis is warranted. Provider gap 2: Not selecting the right service designs and standards. This model begins where the process of improving service quality begins: by gain-ing an understanding of the nature and extent of the customer gap. Summary The chapter presented the integrated gaps model of service quality (shown in Figure 18-1) a framework for understanding and improving service delivery. marketing communications or pricing-can create a larger customer gap by raising expectations about service de-livery. In summary. companies must also manage all communications to customers so that inflated promises do not lead to higher expecta-tions. strategies.Insufficient communication between sales and operations Insufficient communication between advertising and operations Differences in policies and procedure across branches or units prices. Chapters 15 (which discussed integrated services n1arketing communications) and 16 (which covered pricing) of this text described methods to accomplish these objectives. customers perceive service quality shortfalls.

If you were the manager of a service organization and wanted to apply the gaps model to im-prove service/ which gap would you start with? Why? In what order would you proceed to close the gaps? 2 Can provider gap 4 be closed prior to closing any of the other three provider gaps? How? MARKETING OF SERVICES © Copy Right: Rai University 138 11.313 External communications to customers . Tutorials 1.decisions in services mar-keting in a manner that begins with the custOf11er and builds the organization s tasks around what is needed to close the gap between customer expectations and perception.

Which of the four provider gaps do you believe is hardest to close? Why? MARKETING OF SERVICES © Copy Right: Rai University 11.313 139 .3.

000 others get two reps to serve their needs. most consumers feel they're getting squeezed by Corporate America's push for profits and productivity. y No one is ignored. zStudies vividly detail what consumers already know: Good service is increasingly rare. service gap is growing wider. z From passengers languishing in airport queues to bank clients caught in voice-mail hell. but our biggest customers certainly get more attention than the rest. zThe result is more efficiencies for companies--and more frustration for their less valuable customers.LESSON 30:Tutorial MARKETING OF SERVICES Why Service Stinks and Some Solutions CHALLENGES IN SERVICE MARKETING An Example zAt an electric utility yThe top 350 business clients are served by six people.'' © Copy Right: Rai University 140 11.313 . y30. z''Time saved for them is not time saved for us. they would rather lose you than take the time to fix your problem Students Taking This Class Know Why zAs time goes on. yThe next tier of 700 are handled by six more.'' OBJECTIVE OF THIS LESSON IS TO: zCompanies know just how good a customer you are--and unless you're a high roller.000 residential customers at the lowest end are left with an 800 number. the 300. yMeanwhile.

Maybe he just reached the wrong guy. and your negotiating clout vanishes LODGING yAnother day. customerservice manager for Ikea North America. upgrades to the presidential suite. a Chicago Internet executive and road warrior is a ''platinum'' customer of Starwood Hotels & Resorts Worldwide. When he wanted to propose to his girlfriend. Starwood also threw in a horse-drawn carriage. another upgrade for frequent guests. The Manhattan artist recently hauled a table home from an Ikea store in New Jersey only to discover that all the screws and brackets were missing. Your room is up three flights and to the left RETAILING yWelcome to an after-hours preview for key customers where great sales abound and staff await your every need. promotional offers.handed a ticket for the next flight. and driven to the first-class lounge. even though he doesn't own a car. Roy Sharda. flowers. you're whisked past the queue. BILLING yBig spenders can expect special discounts. and a machine to answer their questions BANKING yThere's nothing like a big bank account to get those complaints answered and service charges waived every time. and other goodies when they open their bills. With top status. Get pegged as a money-loser. a personalized meal. Sip champagne before the chef prepares your meal. says Tom Cox.'' How You Can Get Stiffed FLYING yCanceled flight? No problem. NO ELEPHANT? zLife isn't so tough for everyone. and a cheering reception line led by the general manager. When he called to complain.strippeddown service. noting that the usual procedure is to mail small items out within a couple of days. First-time guest? So sorry. it's back to selfservice The dark side of the technology boom . the giant furniture retailer refused to send out the missing items and insisted he come back to pick them up himself. Out in the aisles. The rest might get higher fees. Starwood's Sheraton Agra in India arranged entry to the Taj Mahal after hours so he could pop the question in private.MARKETING OF SERVICES The New Consumer Apartheid zAndrew Chan's experience with Ikea is typical. It's no wonder Sharda feels he was ''treated like true royalty. though.

zConsumers have become commodities to pamper, squeeze, or toss away, according to Leonard L. Berry, marketing professor at Texas A&M University. He sees ''a decline in the level of respect given to customers and their experiences.'' © Copy Right: Rai University 11.313 141

Technology is creating a radical new business model Stratification zCompanies can measure exactly what service costs on an individual level and assess the return on each dollar. zThey can know yexactly how much business someone generates, ywhat he is likely to buy, yand how much it costs to answer the phone. zThe top tier may enjoy an unprecedented level of personal attention. But those who fall below a certain level of profitability for too long may find themselves bounced from the customer rolls altogether or facing fees that all but usher them out the door. The Expanded 80/20 Pyramid zDeliver a level of service based on each person's potential to produce a profit--and not a single phone call more. zOne estimate is that the top 20% of customers at a typical commercial bank generate up to six times as much revenue as they cost, while the bottom fifth cost three to four times more than they make for the company. An Alternative---Create Tiers With Fees zCompanies may offer to move people to the front of the line for a fee. z''There has been a fundamental shift in how companies assess customer value and apply their resources,'' zManagers increasingly treat top clients with kid gloves and cast the masses ''into a labyrinth of low-cost customer service where, if they complain, you just live with it.'' MARKETING OF SERVICES © Copy Right: Rai University 142 11.313

MARKETING OF SERVICES Two Trends: Across Businesses and the Web Three Company Issues zIt has become much easier to track and measure individual transactions across businesses. zSecond, the Web has also opened up options. zPeople can now serve themselves at their convenience at a negligible cost, but they have to accept little or no human contact in return. zSuch huge savings in service costs have proven irresistible to marketers, who are doing everything possible to push their customers--especially lowmargin ones--toward self-service. zCustomers don't like to know they're being treated differently. zTaking service away from the low spenders doesn't generate much positive press for companies. zMost programs fail to measure the potential value of a customer. zYour mission or vision may conflict. Almost everyone is doing it. zCharles Schwab Corp.'s top-rated Signature clients--who start with at least $100,000 in assets or trade 12 times a year-never wait longer than 15 seconds to get a call answered, while other customers can wait 10 minutes or more. zAt Sears, Roebuck & Co., big spenders on the company's credit card get to choose a preferred two-hour time slot for repair calls while regular patrons are given a four-hour slot. zMaytag Corp. provides premium service to people who buy pricey products such as its front-loading Neptune washing machines, which sell for about $1,000, twice the cost of a top-loading washer. This group gets a dedicated staff of ''product experts,'' an exclusive toll-free number, and speedy service on repairs. When people are paying this much, ''they not only want more service; they deserve it,'' says Dale Reeder, Maytag's general manager of customer service. Is this service divide fair? zcompanies insist they simply can't afford to spend big bucks giving every customer the hands-on service of yesteryear. zIn many cases, the trade-off in service means lower prices. zConsumers themselves have cast a vote against high-quality service by increasingly choosing price, choice, and convenience over all else yHowever, while many consumers refuse to pay more for service, they're clearly dismayed when service is taken away. © Copy Right: Rai University 11.313 143

MARKETING OF SERVICES zConsumers are much more demanding about getting zConsumers are much more demand ing about getting Sense of Entitlement? An Example what they want. zReasons: yOne reason is the explosion of choices, xwith everything from hundreds of cable channels to new players emerging from deregulated industries like airlines and telecom companies. yRewards programs xfrequent-flier miles: Those who know their worth expect special privileges that reflect it. Says Bonnie S. Reitz, senior vice-president for marketing, sales, and distribution at Continental Airlines Inc.: ''We've got a hugely educated, informed, and more experienced consumer out there now.'' Steve Reed, a West Coast sales executive, was shocked when a United Airlines Inc. ticketing agent told him: ''Wow, somebody doesn't like you.'' Not only did she have access to his Premier Executive account information but there was a nasty note about an argument he had had with a gate agent in San Francisco several months earlier. In retrospect, he feels that explained why staff seemed less accommodating following the incident. Now, Reed refuses to give more than his name for fear ''of being coded and marked for repercussions.'' Ethics and Privacy zBased on a wealth of personal information zIt threatens to become an intensely personal form of ''redlining''--the controversial practice of identifying and avoiding unprofitable neighborhoods or types of people. zNew tiers are not only highly individualized but they are often invisible. yYou don't know when you're being directed to a different telephone queue or sales promotion. You don't hear about the benefits you're missing. You don't realize your power to negotiate with everyone from gate agents to bank employees is predetermined by the code that pops up next to your name on a computer screen. PIGEONHOLING . The Consumers Union points out that it's unnecessary to fill out surveys with warranty cards. Just send in a proof of purchase with your name and address. ''Protecting your privacy is a significant tool to prevent yourself from being pigeonholed as undesirable,'' says Gene Kimmelman, Washington co-director for the CU. It's equally important to recognize what kind of information companies are looking for. If you don't live in an upmarket Zip Code, consider using your work address for correspondence. Be optimistic when estimating your income or spending: The better the numbers look, the better you'll be treated. © Copy Right: Rai University 144 11.313

Your Actual Payment Record Check for mistakes: pull your credit history at least once a year to check if there are any liens or mistakes. ''You may discover that you're listed as having missed a payment that you thought you made on time,'' The three main reporting bureaus--Experian, Trans Union, and Equifax--charge a small fee for a copy of your credit history. If, however you have recently been denied credit, employment, or insurance, such a report is free from all three companies. Calling A Service Center? zPros disagree on tactics for bypassing the service maze. One customer representative argues that when calling a service center it's better to punch in no account number if you're a low-value customer. The reason? Without proper identification, he says, a live person has to get on the line. ''Pretend you're calling from a rotary phone,'' he advises. But another tactic may be to punch zero or choose an option that's likely to get immediate attention. Credit Cards zMultiple credit cards can be a mistake, especially if they're the no-frills variety that are frequently offered to less desirable candidates. Not only can they drain the credit you might need for other activities, but they're also unlikely to propel you into a higher category. Using a spouse's card or account is also to be avoided, because it robs you of a chance to build your own credit history. If a mistake is made on your account, fight it. Perception is Everything! zIn the end, resistance may be futile, and the best strategy for beating the system may be to join it. Shop around for the best company, and try to consolidate your business there. These days, the best way to ensure good service is to make yourself look like a high-value, freespending customer. MARKETING OF SERVICES © Copy Right: Rai University 11.313 145

How It Works! MARKETING OF SERVICES Segmentation Pays zContinental Airlines Inc. has started rolling out a Customer Information System where every one of its 43,000 gate, reservation, and service agents will immediately know the history and value of each customer. A so-called intelligent engine not only mines data on status but also suggests remedies and perks, from automatic coupons for service delays to priority for upgrades, giving the carrier more consistency in staff behavior and service delivery. The technology will even allow Continental staff to note details about the preferences of top customers so the airline can offer them extra services. As Vice-President Reitz puts it: ''We even know if they put their eyeshades on and go to sleep.'' Such tiering pays off. Thanks to its heavy emphasis on top-tier clients, about 47% of Continental's customers now pay higher -cost, unrestricted fares, up from 38% in 1995. 'We're Sorry, All of Our Agents Are Busy with More Valuable Customers' zCODING Some companies grade customers based on how profitable their business is. They give each account a code with instructions to service staff on how to handle eac h category. zROUTING Based on the customer's code, call centers route customers to different queues. Big spenders are whisked to high-level problem solvers. Others may never speak to a live person at all. zTARGETING Choice customers have fees waived and get other hidden discounts based on the value of their business. Less valuable customers may never even know the promotions exist. zSHARING Companies sell data about your transaction history to outsiders.You can be slott ed before you even walk in the door, since your buying potential has already been measured. Making the Grade:How to get better service zCONSOLIDATE YOUR ACTIVITIES in one place. Be on the lookout for packages or programsFew things elevate statu s and trim costs like spending big that reward loyal behavior. zPROTECT YOUR PRIVACY Avoid surveys and be frugal with releasing credit-card or Social Security information. The less companies know, theless they can slot you. zJUMP THE PHONE QUEUE If you want to reach a live human, don't admit to having atouch-tone phone at th e prompt. Or listen for options that are less likely to be handled automatically. zFIGHT BACK If you feel badly treated, complain. Make suremanagement knows just how much bus

yGreen means the person is a profitable customer and should be granted waivers or otherwise given white-glove treatment.'' explains First Union spokeswoman Mary Eshet. meanwhile. The rest never see it. codes its credit-card customers with tiny colored squares that flash when service reps call up an account on their computer screens. At All First Bank in Baltimore. © Copy Right: Rai University 146 11.iness you represent and that you're willing to take it elsewhere. yReds are the money losers who have almost no negotiating power. ''The information helps our people make decisions on fees and rates. only those slotted as top customers get the option to click on a Web icon that directs them to a live service agent for a phone conversation. First Union. and yellow is a more discretionary category in between.313 .

Cleanliness.Fees A Solution---? MARKETING OF SERVICES What Will Future Hold? What Are Some Solutions? zDeliver a level of service based on each person's potential to produce a profit zExplain the different levels of service and fees costs associated with them (education) yMake the invisible visible zWhat the customer gets as well as how they get it are important zTwo types of quality yregular and handling of problems zThink potential and long-term In Conclusion zThe customer is the ultimate boss. © Copy Right: Rai University 11. of Falls Church. The Final Solution zAlthough the level and type of service may vary. Courtesy. offering more than 6.. ''We look at every single customer contact as an opportunity to make an unprofitable customer profitable or make a profitable customer more profitable.313 147 . just by spending his or her money elsewhere. from phone cards to insurance. senior vicepresident for domestic card operations. and Appreciation for Business are always expected. Capital One Financial Corp. quality of service should always be uncompromising--zPromptness. yWhat do I expect if I buy a $1500 suit at Bijan s on Hollywood s Rodeo Drive? yWhat do I expect if I buy a $150 suit off the rack at a discount store? yNote: I don t expect worse service at the discount store ---I expect less of it. He can fire everyone on down.000 credit cards and up to 20.'' says Marge Connelly. zInnovative players are striving to use their treasure trove of information to move customers up the value chain instead of letting them walk out the door. That range lets the company match clients with someone who has appropriate expertise. Va.000 permutations of other products. is an acknowledged master of tiering.

A yes may permit them to sell data that you don't want distributed.313 .How to Improve Your Profile Information can be used for or against you. Be wary when a company asks if it can alert you to other products and services. sweepstakes forms. MARKETING OF SERVICES © Copy Right: Rai University 148 11. or applications if you're not comfortable with how the information might be used. Be stingy with the information you give out-especially if it's unlikely to help your status. Don't fill out surveys.

Virgin Records was one of the top six record companies in the world. Janet Jackson. Peter Gabriel. he founded the Virgin mail order record company and shortly afterwards opened a shop on Oxford Street.In 1972 a studio was built in Oxfordshire. Richard never stops (which can be exhausting for the people around him!) and sets himself just as steep challenges in his personal life as in his business life. What was it they said about him being crazy?So what next? Well there s plenty planned.In December 1999. in 1984. sweater-wearing entrepreneur and head of the successful Virgin Group.225bn. Simple Minds and The Human League .he was crazy!But.By the early 1980s. of course. celebrities and the media set off for Newark. the very one that Mike Oldfield recorded his five millions selling album Tubular Bells . on 22 June 1984 an aircraft packed with friends. New Jersey .the deal valuing Virgin Atlantic at a minimum of £1.started a student advisory service. staff were hired. Richard announced to the world that Virgin Atlantic Airways would begin operating within three months! At which point a lot of other people agreed .from Shanghai to the Caribbean and. Virgin Atlantic has become the second largest long-haul international airline operating services out of London s Heathrow and Gatwick Airports to 22 destinations all over the world . an aircraft was found. Just for fun. probably best known for Virgin Records.In 1992 Richard sold Virgin Music for $1bn to Thorn EMI and ploughed the profits back into Virgin Atlantic. Then. improving an already great service even further. when Virgin Atlantic was created.the famous English public school . Richard liked the idea. he has been involved in round the world balloon attempts as well as rekindling the spirit of the Blue Riband when he crossed the Atlantic in his Virgin Atlantic Challenger II boat in the fastest ever recorded time.As you might imagine. This was to provide the catalyst for Virgin Records that went on to sign major names such as The Rolling Stones.LESSON 9: CASE STUDY ON POSITIONING AND DIFFERENTIATION Back in the early 80s.and a phenomenon was born!Since then. At the same time the combined sales of the different Virgin holding companies was around £3bn. London s main shopping thoroughfare. Richard Branson was a go-getting. book and software publishing. Culture Club. much to the horror of his fellow directors who thought him crazy. However. not least the introduction of the six A380 aircraft we have ordered which are due to arrive in 2006!Oh. film and video editing and hotels. Richard got a phone call out of the blue suggesting a jumbo jet passenger service between London and New York. Undeterred. thanks in no small part to Richard s infectious enthusiasm. he still has a big role in the entertainment industry through the international Megastores. the US. licences granted and. and there s somewhere Richard hasn t .Richard was born in 1950 and at age 17.It turned out that 1999 was an eventful year for Richard and was topped off by being awarded a knighthood for his services to entrepreneurship. Richard signed an agreement to sell a 49% stake of Virgin Atlantic to Singapore Airlines to form a unique global partnership . Three years later. while at Stowe .all contributing to the continued success story. the V2 record label and interests in night-clubs.

interpret the Positioning and differentiation of Virgin Atlantic airlines vis-à-vis other airlines.313 41 .he has apparently been heard to wonder whether it would be feasible to increase our long-haul capacity.ventured yet . and just how do you build a hotel in space???? With reference to the above context. MARKETING OF SERVICES © Copy Right: Rai University 11.