UCSI UNIVERSITY

MARKETING PROCESSES 8

DESIGNIING AND MANAGING SERVICES

 The nature of services

There has been a phenomenal growth in the service sector in many Asian markets. The
driving forces include rising income and education levels, aging populations and more
women in the labour force. There are special challenges to services marketing in Asia.

1. Service Industries Are Everywhere

Government sector, Private non-profit sector, Business sector, Manufacturing sector,

Retail sector. We define service as any act or performance that one party can offer to
another that is essentially intangible and does not result in the ownership of anything.

Its production may or not be tied to a physical product. Manufacturers, distributors, and
retailers can provide value-added services or simply excellent customer service to
differentiate them. Many pure service firms are now using the Internet to reach customers.

2. Categories of Service Mix

Five categories of offerings can be distinguished:

a. Pure tangible goods. The offering consists primarily of a tangible good such as soap,
toothpaste, or salt. No services accompany the product.
b. Tangible goods with accompanying services. The offering consists of a tangible good
accompanied by one or more services.
c. Hybrid. The offering consists of equal parts of goods and services. For example,
people patronise restaurants for both food and service.
d. Major service with accompanying minor goods and services. The offering consists of
a major service along with additional services or supporting goods.
e. Pure service. The offering consists primarily of a service. Examples include baby-
sitting, physiotherapy, and massages.

Because of this varying goods-to-services mix it is difficult to generalize about services with
further distinctions:

a. Services vary as to whether they are equipment-based or people-based.

b. Service companies can choose among different processes to deliver their service.
c. Some services require the client’s presence, and some do not.
d. Services differ as to whether they meet a personal need or a business need. Service
providers typically develop different marketing programs for personal and business
markets.
e. Service providers differ in their objectives (profit or non-profit) and ownership
(private or public). These two characteristics, when crossed, produce four quite
different types of organisations.

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The nature of the service mix also has implications for how consumers evaluate quality. For
some services, customers cannot judge the technical quality even after they have received the
service.

Figure 13.1 shows various products and services according to difficulty of evaluation. At the
left are goods high in search qualities—characteristics the buyer can evaluate before
purchase. In the middle are goods and services high in experience qualities—characteristics
the buyer can evaluate after purchase.

At the right are goods and services high in credence qualities—characteristics the buyer
normally finds hard to evaluate even after consumption. Because services are generally high
in experience and credence qualities, there is more risk in purchase.

This has several consequences: Service consumers generally rely on word of mouth rather
than advertising, Service consumers rely heavily on price, personnel, and physical cues to
judge quality, Service consumers are highly loyal to service provides that satisfy them.

Because of the switching costs involved, much consumer inertia can exist. It can be
challenging to entice a customer away from a competitor.

3. Distinctive Characteristics of Services

Services have four distinctive characteristics that greatly affect the design of marketing
programs: intangibility, inseparability, variability, and perishability.

 Intangibility

Unlike physical products, services cannot be seen, tasted, felt, heard, or smelled before they
are bought. To reduce uncertainty, buyers will look for evidence of quality. They will draw
inferences about quality from the place, people, equipment, communication material,
symbols, and price that they see.

Therefore, the service provider’s task is to “manage the evidence,” to “tangibilize the
intangible.” Service companies can try to demonstrate their service quality through physical
evidence and presentation. Service marketers must be able to transform intangible services
into concrete benefits.

 Inseparability

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Services are typically produced and consumed simultaneously. Because the client is also
present as the service is produced, provider-client interaction is a special feature of service
marketing. Several strategies exist for getting around this limitation: Work with larger
groups, work faster, Train more service providers.

 Variability

Because they depend on who provides them and when and where they are provided, services
are highly variable. There are three steps service firms can take to increase quality control:

a. Invest in good hiring and training procedures. Recruiting the right employees and
providing them with excellent training is crucial, regardless of whether employees are
highly skilled professionals or low-skilled workers.
b. Standardize the service-performance process throughout the organization. This is
done by preparing a service blueprint that depicts events and processes in a flowchart,
with the objective of recognising potential fail points.

c. Monitor customer satisfaction. Employ suggestion and complaint systems, customer

surveys, and comparison-shopping.

 Perishability

Services cannot be stored. Perishability is not a problem when demand is steady.

When demand fluctuates service firms have problems. Several strategies can produce a better
match between supply and demand. On the demand side:

a. Differential pricing will shift some demand from peak to off-peak periods.
b. Non-peak demand can be cultivated.
c. Complementary services can be developed to provide alternatives to waiting
customers, like cocktail lounges in restaurants and automatic teller machines in bank.
d. Reservation systems are a way to manage the demand level.

On the supply side:

a. Part-time employees can be hired to serve peak demand.

b. Peak-time efficiency routines can be introduced.
c. Increased consumer participation can be encouraged.
d. Shared services can be developed.
e. Facilities for future expansion can be developed.

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  The New Service Realities

At one time, service firms lagged manufacturing firms in their use of marketing because they
were small or professional businesses that did not use marketing or faced large demand or
little competition. This has changed.

1. A Shifting Customer Relationship

Not all companies, however, have invested in providing superior service, at least not to all
customers. Standards and guidelines are religiously followed for a consistent service delivery.
However, such strict adherence to guidelines is also their shortcoming, resulting in the loss of
initiative from frontline staff and the reluctance of managers to empower the front-line for
fear of lowering standards.

Technology has also impacted the nature of the customer relationship. However, with much
more data on individuals, companies can classify their customers into profit tiers. Big
spenders get special discounts, promotional offers, and lots of special service. Other
customers get higher fees and stripped-down service.

This shift from a customer service democracy to meritocracy is a response to lower profit
margins resulting from customers becoming more price-driven and less loyal.

 Customer empowerment

Customers are becoming more sophisticated about buying product-support services and are
pressing for “services unbundling.” Most important, the Internet has empowered customers
by letting them vent their rage about bad service – or reward good service – and have their
comments beamed around the world with a mouse click.

 Customer co-production

The reality is that customers do not merely purchase and use services they play an active role
in the delivery of that service every step of the way. Preventing service failures from ever
happening to begin with is crucial, as service recovery is always challenging. Solutions come
in all forms, as illustrated by some of the following examples:

a. Redesign processes and redefine customer roles to simplify service encounters.

b. Incorporate the right technology to aid employees and customers.
c. Create high-performance customers by enhancing their role clarity, motivation,
and ability.
d. Encourage “customer citizenship” where customers help customers.

 Satisfying Employees as well as Customers

Employees thrive in customer-contact positions when they have an internal drive to (1)
pamper customers, (2) accurately read customer needs, (3) develop a personal relationship
with customers, and (4) deliver quality service to solve customers’ problems.

 Achieving Excellence in Services Marketing

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Because service encounters are complex interactions affected by multiple elements, adopting
a marketing excellence is especially important.

1. Marketing Excellence

Marketing excellence for services requires external, internal, and interactive marketing.
Figure 13.3 shows three types of marketing in service industries.

a. External marketing describes the normal work of preparing, pricing, distributing,

and promoting the service to customers.
b. Internal marketing describes training and motivating employees to serve customers
well.
c. Interactive marketing describes the employees’ skills in serving the client. Clients
judge service by its technical quality and functional quality. Companies must avoid
pushing productivity so hard, that they reduce perceived quality.

2. Best Practices of Top Service Companies

In achieving marketing excellence with their customers, well-managed service companies

share:

 Strategic Concept

They have a clear sense of their target customers and their needs. They have developed a
distinctive strategy for satisfying these needs.

 Top Management Commitment

Companies have a thorough commitment to service quality. Their management look not only
at financial performance monthly, but also at service performance.

 High Standards

The best service providers set high service-quality standards. The standards must be set
appropriately high.

 Profit tiers

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Customers in high-profit tiers get special discounts, promotional offers, and lots of special
services; customers in lower-profit tiers may get more fees, stripped-down service, and voice
messages to process their inquiries. Delivering services that maximizes both customer
satisfaction and company profitability can be challenging.

 Monitoring systems

They collect voice of the customer (VOC) measurements to probe customer satisfiers and
dissatisfiers. They use comparison shopping, ghost shopping, customer surveys, suggestion
and complaint forms, service audit teams, and letters to the president.

Service can be judged on customer importance and company performance. Importance-

performance analysis is used to rate the various elements of the service bundle and identify
what actions are required.

 Satisfying Customer Complaints

Getting frontline employees to adopt extra-role behaviours and to advocate the interests and
image of the firm to consumers, as well as take initiative and engage in conscientious
behaviour in dealing with customers, can be a critical asset in handling complaints.
Companies also are increasing the quality of their call centres and their customer-service
representatives.

3. Differentiating Services

Marketing excellence requires service marketers to continually differentiate their brands, so

they are not seen as a commodity.

 Primary and Secondary Service Options

Marketers can differentiate their service offerings in many ways, through people and
processes that add value. What the customer expects is called the primary service package.
The provider can add secondary service features to the package.

 Innovation with Services

Innovation is as vital to services as in any industry. On the other hand, consider relatively
new service categories that have emerged and offer creative solutions. Lately, many
companies are using the Web to offer primary and secondary service features that were never
possible before.

 Managing product-support services

In the global marketplace, companies that make a good product but provide poor local service
support are seriously disadvantaged. Firms that provide high-quality service outperform their
less service-oriented competitors.

1. Identifying and satisfying customer needs

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The company must define customer needs carefully in designing a service support program.
Customers have three specific worries:

 They worry about reliability and failure frequency. A farmer may tolerate a
combine that will break down once a year, but not two or three times a year.
 They worry about downtime. The longer the downtime, the higher the cost.
 They worry about out-of-pocket costs. How much does the customer have to spend
on regular maintenance and repair costs?

A buyer takes all these factors into consideration in choosing a vendor. The buyer tries to
estimate the life-cycle cost, which is the product’s purchase cost plus the discounted cost of
maintenance and repair less the discounted salvage value.

For expensive equipment, manufacturers offer facilitating services such as installation, staff
training, maintenance and repair services, and financing. They may also add value-
augmenting services, which include warranties, guarantees, and trade-in allowances.

As another alternative, many companies offer service contracts (also called extended
warranties), in which sellers agree to provide free maintenance and repair services for a
specified period at a specified contract price.

2. Post-sale service strategy

The quality of customer service departments varies greatly. At one extreme are departments
that simply transfer customer calls to the appropriate person or department for action, with
little follow-up. At the other extreme are departments eager to receive customer requests,
suggestions, and even complaints and handle them expeditiously.

 Customer-Service Evolution

Manufacturers usually start out by running their own parts-and-service departments. They
want to stay close to the equipment and know its problems. Over time, manufacturers switch
more maintenance and repair service to authorised distributors and dealers. Manufacturers
still make a profit on the parts but leave the servicing profit to intermediaries.

 The customer service imperative

Customer service choices are increasing rapidly, holding down prices and profits on service.
Equipment manufacturers increasingly must figure out how to make money on their
equipment, independent of service contracts.

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