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Marketing Mix Decision in Services

Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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The 7 Ps

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Creating the

Service Product

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Key Steps in Service Planning: Matching Opportunities to Resources

Must relate marketing opportunities to firms resources


Identify, evaluate firms marketing assets
(physical, financial, technological, human)
Customer portfolio/lifetime value (customer equity) Market knowledge Marketing implementation skill Product line Competitive positioning strategies Brand reputation (brand equity)

Identify, evaluate firms operating assets

Physical facilities, equipment Technology and systems (especially IT) Human resources (numbers, skills, productivity) Leverage through alliances and partnerships Potential for customer self service Cost structure

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Service Design Involves Matching Marketing Concept with Operations Concept (Fig. 4.1)
Corporate Objectives and Resources
Marketing Assets
(Customer Base, Mkt. Knowledge, Implementation Skills, Brand Reput.)

Operating Assets
(Facilities/Equipment, IT Systems, People, Op. Skills, Cost Structure)

Service Marketing Concept


Benefits to customer from core/ supplementary elements, style, service level, accessibility

Service Operations Concept


Nature of processes Geographic scope of ops Scheduling Facilities design/layout HR (numbers, skills) Leverage (partners, self-service) Task allocation: front/backstage staff; customers as co-producers

User costs/outlays incurred Price/other monetary costs Time Mental and physical effort Neg. sensory experiences

Service Delivery Process

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Understanding the Components of the Augmented Service Product

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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The Augmented Product

Most firms offer customers a package of benefits:


core product (a good or a service) supplementary services that add value to the cores

In mature industries, core products often become


commodities

Supplementary services help to differentiate core products


and create competitive advantage by:
facilitating use of the core service enhancing the value and appeal of the core

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Shostacks Molecular Model of a Total Market Entity - Passenger Airline Service (Fig. 4-2)
Distribution Price

Service
frequency

Vehicle

Transport

In-flight service

Pre- and post-flight service


KEY

Food and drink

Tangible elements Intangible elements


Marketing Positioning (Weighted toward evidence)
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

Source: Shostack
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What Should Be the Core and Supplementary Elements of Our Service Product?

How is our core product defined and what supplementary


elements currently augment this core?

What product benefits create the most value for customers? Is our service package differentiated from the competition in
ways that are meaningful to target customers?

What are current levels of service on the core product and


each of the supplementary elements?

Can we charge more for higher service levels on key


attributes (e.g., faster response, better physical amenities, easier access, more staff, superior caliber personnel)?

Alternatively, should we cut service levels and charge less?


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Defining The Nature of the service Offering: What Do We Offer and How Do We Create and Deliver It?
Reservation Use Phone

Parking

Delivery Processes for supplementary Services

Core Delivery Process


Scheduling

Process CheckIn / CheckOut

Core Room Service Service Level Customer Role

Porter In Room Movie


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

Meal
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Core and Supplementary Services in a Luxury Hotel (Offering Guests Much More than a Cheap Motel!)

Reservation Cashier Business Center A Bed for the Night in an Elegant Private Room with a Bathroom Valet Parking Reception Baggage Service

Room Service Wake-up Call T elephone

Cocktail Bar
Entertainment/ Sports / Exercise

Restaurant

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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What Happens, When, and in What Sequence? Documenting the Delivery Sequence Over Time

Reservation Parking Check in USE ROOM Get car Check out Phone USE GUESTROOM OVERNIGHT Porter Meal Pay TV Room service

Pre Visit

Time Frame of an Overnight Hotel Stay (real-time service use)


Services Marketing 5/E

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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The Flower of Service: Categorizing Supplementary Services (Fig. 4-5)

Information

Payment
Billing
Core

Consultation
Order-Taking

Exceptions
KEY:

Hospitality Safekeeping

Facilitating elements Enhancing elements


Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Branding Service Products

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Service Branding: Clarifying Distinctive Service Offerings

Marriott Hotel Brands


Marriott Hotels Marriott Resorts Courtyard by Marriott Fairfield Inns Residence Inns

British Airways Brands


Intercontinental First Club World World Traveller Plus World Traveller European Club Europe Euro-Traveller UK Domestic Shuttle
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SpringHill Suites
TownePlace Suites Marriott Vacation Clubs

International
Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Service Branding: Clarifying Distinctive Service Offerings

ITC- Welcome Group


The Welcomgroup

Luxury Collection (Starwood) Fortune Hotels (Resort Areas) ITC-Welcomgroup Hotels(Business Hotels) Welcomgroup Heritage Hotels (Heritage Mansions)
Slide 2004 by Christopher Lovelock and Jochen Wirtz

ITC Windsor- Banglore


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Services Marketing 5/E

Branding a High-Tech, B2B Product Line: A Family of Brands at Sun Microsystems

Corporate umbrella brand


Sun Microsystems

Product line brand (system support services)


Sun Spectrum Support

Sub-brands (4 levels of support service programs)


Platinum Gold Silver Bronze

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Sun Microsystems - Sun Spectrum Support

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Sun Spectrum Support: Sub-branding Highlights Four Service Levels


Sub-branding clarifies service levels offered at different fees
Platinum: Mission Critical

On-site service 24/7, two-hour response; telephone support 24/7, onsite parts replacement; additional services available
Gold: Business Critical

Onsite service Mon-Fri 8am-8pm, four-hour response; telephone support 24/7; onsite parts replacement
Silver: Basic Support

Onsite service Mon-Fri 8am-5pm, four-hour response; telephone support Mon-Fri 8am-8pm; onsite parts replacement
Bronze: Self Support

Phone support Mon-Fri 8am-5pm; parts replacement by courier


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Pricing and Revenue Management

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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What Makes Service Pricing Strategy Different (and Difficult)?

No ownership of services--hard for firms to calculate


financial costs of creating an intangible performance unit of service and establish basis for pricing? are they getting in return for their money? value to customers when delivered faster create differences in perceived value

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

Many services hard for customers to evaluate--what


Importance of time factor--same service may have more Delivery through physical or electronic channels--may

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Objectives of Pricing Strategies

Revenue and profit objectives


Seek profit Cover costs

Patronage and user base-related objectives


Build demand Build a user base

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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The Pricing Tripod (Fig. 6.1)

Pricing Strategy

Competition

Costs
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

Value to customer
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Three Main Approaches to Pricing

Cost-Based Pricing
Set prices relative to financial costs

(problem: defining costs)

Competition-Based Pricing
Monitor competitors pricing strategy

(especially if service lacks differentiation) Who is the price leader? (one firm sets the pace)

Value-Based
Relate price to value perceived by customer

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Activity-Based Costing: Relating Activities to the Resources They Consume

Managers need to see costs as an integral part of a firms


effort to create value for customers

When looking at prices, customers care about value to


themselves, not what production costs the firm

Traditional cost accounting emphasizes expense


categories, with arbitrary allocation of overheads

ABC management systems examine activities needed to


create and deliver service (do they add value?)

ABC analysis also helps in pinpointing differences in the


costs of serving different customers.

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Net Value = (Benefits Outlays)


(Fig. 6.3)

Effort Time

Perceived Benefits

Perceived Outlays

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Paying for Service: The Customers Perspective


Customerexpendituresonservicecompriseboth financial and non-financial outlays

Financial costs:
price of purchasing service expenses associated with search, purchase activity, usage

Time expenditures Physical effort (e.g., fatigue, discomfort) Psychological burdens (mental effort, negative feelings) Negative sensory burdens (unpleasant sensations affecting any
of the five senses)

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Determining the Total Costs of a Service to the Consumer (Fig. 6.4)


Search Costs Price Related Monetary Costs Time Costs Purchase and Use Costs Operating Costs

Incidental Expenses

Physical Costs
Psychological Costs Sensory Costs Necessary follow-up Problem solving

After Costs

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Trading off Monetary and Non- Monetary Costs


(Fig. 6.5)

Which clinic would you patronize if you needed a chest x-ray (assuming all three clinics offer good quality) ?
Clinic A
Price Rs 450 Located 1 hour away by car or transit Next available appointment is in 3 weeks Hours: Monday Friday, 9am 5pm Estimated wait at clinic is about 2 hours

Clinic B
Price Rs 850 Located 15 min away by car or transit Next available appointment is in 1 week Hours: Monday Friday, 8am 10pm Estimated wait at clinic is about 30 45 minutes

Clinic C
Price Rs1050 Located next to your office or college Next appointment is in 1 day Hours: Mo Sat, 8am 10pm By appointment estimated wait at clinic is about 0 to 15 minutes
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Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Increasing Net Value by Reducing Non-financial Costs of Service

Reduce time costs of service at each stage


Minimize unwanted psychological costs of service Eliminate unwanted physical costs of service Decrease unpleasant sensory costs of service

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Revenue Management: Maximizing Revenue from Available Capacity at a Given Time

Based on price customization - charging different customers


(value segments) different prices for same product

Useful in dynamic markets where demand can be divided


into different price buckets according to price sensitivity

Requires rate fences to prevent customers in one value


segment from purchasing more cheaply than willing to pay

RM uses mathematical models to examine historical data


and real time information to determine
what prices to charge within each price bucket how many service units) to allocate to each bucket

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Ethical Concerns in Pricing

Customers are vulnerable when service is hard to evaluate


or they dont observe work

Many services have complex pricing schedules

Unfairness and misrepresentation in price promotions


Too many rules and regulations
customers feel constrained, exploited customers unfairly penalized when plans change
misleading advertising hidden charges

hard to understand difficult to calculate full costs in advance of service

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Pricing Issues: Putting Strategy into Practice (Table 6.3)

How much to charge? What basis for pricing? Who should collect
payment?

Where should payment be


made?

When should payment be


made?

How should payment be


made?

How to communicate
prices?
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Distributing Services

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Applying the Flow Model of Distribution to Services


Distribution embraced three interrelated elements

Information and promotion flow Negotiation flow Product flow

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Information and Physical Processes of the Augmented Service Product (Fig. 7.1)
Information Processes

Information Consultation Payment


OrderTaking

Billing

Core

Exceptions
Safekeeping

Hospitality

Physical Processes
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Using Websites for Service Delivery


Information
Read brochure/FAQ; get schedules/ directions; check prices

Payment
Pay by bank card Direct debit

Consultation
Conduct e-mail dialog Use expert systems

Billing
Receive bill Make auction bid Check account status Core

Order-Taking
Make/confirm reservations Submit applications Order goods, check status

Exceptions
Make special requests Resolve problems

Hospitality
Record preferences

Safekeeping
Track package movements Check repair status

CORE: Use Web to deliver information-based core services


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Options for Service Delivery


There are 3 types of interactions between customers and service firms

Customer goes to the service provider (or intermediary) Service provider goes to the customer Interaction at arms length (via the Internet, telephone, fax,
mail, etc.)

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Method of Service Delivery (Table 7.1)


Availability of Service Outlets Nature of Interaction Single Site Multiple Sites between Customer and Service Organization
Customer goes to service organization
Service organization goes to customer Customer and service organization transact at arms length

Theater Barbershop House painting Mobile car wash Credit card company Local TV station

Bus service Fast-food chain Mail delivery Auto club road service Broadcast network Telephone company

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Place vs. Cyberspace

Place - customers and


suppliers meet in a physical environment

Required for people processing Offers live experiences, social More emphasis on eye-catching
servicescape, entertainment interaction, e.g., food services

services

Cyberspace - customers Ideal for info-based services


and suppliers do business electronically in virtual environment created by phone/internet linkages

Saves time Facilitates information gathering May use express logistics service
to deliver physical core products

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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24/7 - Factors Encouraging Extended Operating Hours (Mgt Memo 7.1)

Economic pressure from consumers


Changes in legislation Economic incentives to improve asset utilization Availability of employees to work nights, weekends Automated self-service
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Technology Revolutionizes Service Delivery: Some Examples

Smart mobile telephones to link users to Internet Voice recognition software Automated kiosks for self-service (e.g. bank ATMs) Web sites
provide information take orders and accept payment deliver information-based services

Smart cards that can act as electronic wallets

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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E-Commerce: Factors that Attract Customers to Virtual Stores

Convenience (24-hour availability, save time, effort)


Ease of obtaining information on-line and searching for
desired items

Better prices than in bricks-and-mortar stores Broad selection

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Splitting Responsibilities for Delivering Supplementary Services (Fig. 7.2)

As created by originating firm

As enhanced by distributor

As experienced by customer

Core

Core

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Franchising
Franchising is a fast growth strategy, when

Resources are limited

Long-term commitment of store managers is crucial


Local knowledge is important Fast growth is necessary to pre-empt competition

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Service Process and Market Entry

People Processing Services


Export the service concept Import customers Transport customers to new locations

Possession Processing Services


Most require an ongoing local presence, whether it is the

customers dropping off items or personnel visiting customer sites

Information Based Services


Export the service to a local service factory Import customers Export the information via telecommunications and transform it

locally
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Forces for Internationalization

Market drivers
Competition drivers Technology drivers

Cost drivers
Government drivers Impact will vary by service type (people, possessions, information)

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Modes of Internationalization

Export information-based services


transmit via electronic channels store in physical media, ship as merchandise

Use third parties to market/deliver service concept


licensing agents brokers franchising alliance partners minority joint ventures

Control service enterprise abroad


direct investment in new business buyout of existing business
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Conclusion

Where
Can the customer obtain the delivery?

When
Decisions on scheduling of service delivery?

How
Channels and procedures for delivering the core & Supplementary service
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Designing the Communications Mix / promotion for Services

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Setting Clear Objectives: Checklist for Marketing Communications Planning (5 Ws)

Who is our target audience? What do we need to communicate and achieve? How should we communicate this? Where should we communicate this? When do communications need to take place?

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Marketing Communications Mix for Services


(Fig. 10.4)

Personal Communications
Selling

Advertising
Broadcast

Sales Promotion
Sampling

Publicity & Public Relations


Press releases/kits Press conferences Special events Sponsorship

Instructional Materials
Web sites

Corporate Design
Signage

Customer service

Print

Coupons Sign-up rebates Gifts

Manuals

Interior decor

Training

Internet

Brochures Videoaudiocassettes Software CD-ROM

Vehicles

Telemarketing Word-of-mouth Word mouth (other of customers)

Outdoor

Equipment

Direct mail

Prize promotions

Trade Shows, Exhibitions

Stationery

Media-initiated coverage

Voice mail

Uniforms

Key: * Denotes communications originating from outside the organization

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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Originating Sources of Messages Received by a Target Audience (Fig. 5-5)


Messages originating within the organization
Front-line staff Service outlets

Advertising Sales promotions Direct marketing Personal selling Public relations

A U D I E N C E

Word of mouth

Messages originating outside the organization


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

Media editorial

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What is Brand Equity and Why Does It Matter? (FromBerry,CultivatingBrandEquity)


Definition: A set of assets and liabilities linked to a brands name and symbol that adds to (or subtracts from) the perceived value of the product Insights

Brand equity can be positive or negative Positive brand equity creates marketing advantage for
firm plus value for customer

Perceived value generates preference and loyalty Management of brand equity involves investment to
create and enhance assets, remove liabilities
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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A Service Branding Model: How Communications + Experience Create Brand Equity

Marketer-controlled communications

Firms Presented Brand (Sales, Advertising, PR)


Uncontrolled brand communications

Awareness of Firms Brand

What Media, Intermediaries, Word-of-Mouth Say re: Firm

Firms Brand Equity

Customers Experience with Firm

Meaning Attached To Firms Brand


Source: Adapted from L. L. Berry ( Fig. 1)

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

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