According to Kotler, “ Any activity or benefit

that is essentially intangible & does not result in the ownership of anything. It’s production may or may not be tied to physical product”
Service clients are paying for expertise,

experience, advice, skills, knowledge & the benefits they bring. The benefits may last but service itself is of limited duration.

Core Product – Core Benefit of the Service

Insurance – piece of mind Hairdresser – look & feel good Football Team – emotions & enjoyment Car Mechanic – safe, reliable motoring
Transport (Rail, Road, Air, Water)

Communication (Telephone, Radio, TV) Public Utilities (Electricity, LPG, Sanitary) Finance, Insurance & Real Estate Hospitality, Tourism & Recreation Legal, Education & Health

4 Characteristics of Services
1. Intangibility - “u can’t touch this” 2. Production (or performing the service) and Consumption (using the service) - happens at the same time – Inseperability 3. Heterogeneity - services are not always
delivered the same way

4. Perishability - cannot be put in inventory or
stored for later use i.e. You can’t buy 2 haircuts

Characteristics of Services 1. Intangibility - “u can’t touch this”
• • Services cannot be stored Services cannot be protected through patents – therefore a really great travel package and service can be copied • Hard to explain and display Services if you can’t see them • Prices are difficult to set - depends on customers expectations

Characteristics of Services 1. Intangibility - “u can’t touch this”
Marketing Strategies • stress tangible cues, eg. Smiling face • use personal information, sources, references • use word-of-mouth • contact customers after they buy to stimulate continued enthusiasm and hope they “talk it up”

Characteristics of Services 2. Inseparability of Production (or performing the service) and Consumption (using the service) - happens at the same time
• Many people involved in delivering a service • mass production of services is hard to do

Characteristics of Services 2. Inseparability of Production (or performing the service) and Consumption (using the service) - happens at the same time
Marketing Strategies • Emphasize how much you train your people - so their ability to give you good service will be high • Have many locations so customers can get to you ie. Insurance sales come to your home

Characteristics of Services 3. Heterogeneity - services are not always
delivered the same way It is very difficult to standardize services eg. A machine can make ice cream cones a standard size 100% of the time A person filling an ice cream cone with a scoop cannot do it the same amount each time, unless you use a machine to dispense the ice cream

Characteristics of Services 3. Heterogeneity - services are not always
delivered the same way eg. A Taxi driver cannot drive you to the office in exactly the same time each day because the traffic patterns change eg. A travel agent can sell you a vacation package - but cannot guarantee you will like the trip exactly the same way another tourist did.

Characteristics of Services 4. Perishability - cannot be put in
inventory or stored for later use ie. You can’t buy 2 haircuts Demand fluctuates and changes, sometimes depending on the season, or weather eg. Taxi in the rain, vacation in summer

Distinguishing Characteristics of Services
Customers do not obtain ownership of services Service products are ephemeral and cannot be inventoried Intangible elements dominate value creation Greater involvement of customers in production process Other people may form part of product experience Greater variability in operational inputs and outputs Many services are difficult for customers to evaluate Time factor is more important--speed may be key Delivery systems include electronic and physical channels

Marketing Implications - 1 No ownership
 Customers obtain temporary rentals, hiring of personnel, or access to facilities and

 Pricing often based on time  Customer choice criteria may differ for renting vs. purchase--may include

convenience, quality of personnel
 Can’t own people (no slavery!) but can hire expertise and labor

Services cannot be inventoried after production
 Service performances are ephemeral—transitory, perishable

Exception: some information-based output can be recorded in electronic/printed form and re-used many times
 Balancing demand and supply may be vital marketing strategy  Key to profits: target right segments at right times at right price  Need to determine whether benefits are perishable or durable

Marketing be involved in production process Implications - 2 Customers may
 Customer involvement includes self-service and cooperation with service

personnel  Think of customers in these settings as “partial employees”  Customer behavior and competence can help or hinder productivity, so marketers need to educate/train customers  Changing the delivery process may affect role played by customers  Design service facilities, equipment, and systems with customers in mind: user-friendly, convenient locations/schedules

Intangible elements dominate value creation
 Understand value added by labor and expertise of personnel  Effective HR management is critical to achieve service quality  Make highly intangible services more “concrete” by creating and

communicating physical images or metaphors and tangible clues

Other people are often part of the service product
 Achieve competitive edge through perceived quality of employees  Ensure job specs and standards for frontline service personnel reflect both

Marketing Implications - 3

marketing and operational criteria  Recognize that appearance and behavior of other customers can influence service experience positively or negatively  Avoid inappropriate mix of customer segments at same time  Manage customer behavior (the customer is not always right!)

Greater variability in operational inputs and outputs
 Must work hard to control quality and achieve consistency  Seek to improve productivity through standardization, and by training both

employees and customers  Need to have effective service recovery policies in place because it is more difficult to shield customers from service failures

Marketing Implications - 4

Often difficult for customers to evaluate services
 Educate customers to help them make good choices, avoid risk  Tell customers what to expect, what to look for  Create trusted brand with reputation for considerate, ethical

behavior  Encourage positive word-of-mouth from satisfied customers

Time factor assumes great importance
 Offer convenience of extended service hours up to 24/7  Understand customers’ time constraints and priorities  Minimize waiting time  Look for ways to compete on speed

Distribution channels take different forms
 Tangible activities must be delivered through physical channels  Use electronic channels to deliver intangible, information-based

elements instantly and expand geographic reach


1. 2. 3.

Physical Goods Tangible Homogeneous Product and distribution separated from consumption

Services Intangible Heterogeneous Production, distribution and consumption re simultaneous process

4. 5. 6.

A thing An activity Core value produced in Core value produced in factory buyer-seller interaction Customers do not participate in the production process Can be kept in stock Transfer of ownership

Customers participate in production Cannot be kept in stock No transfer of ownership

7. 8.

What is the Nature of the Service Act?

Who or What is the Direct Recipient of the Service?

People Processing
e.g., airlines, hospitals, haircutting, restaurants hotels, fitness centers

Possession Processing
e.g., freight, repair, cleaning, landscaping, retailing, recycling


Mental Stimulus Processing
education, psychotherapy

Information Processing
insurance, legal, research

(directed at intangible e.g., broadcasting, consulting, e.g., accounting, banking, assets)

Elements of The Services Marketing Mix: “7Ps” vs. the Traditional “4Ps”
Rethinking the original 4Ps Product elements
Place and time Promotion and education Price and other user outlays

Adding Three New Elements Physical environment
Process People

The 7Ps: (1) Product Elements

All Aspects of Service Performance that Create Value Core product features—both tangible and intangible elements Bundle of supplementary service elements Performance levels relative to competition Benefits delivered to customers (customers don’t buy a hotel room, they buy a good night’s sleep) Guarantees

The 7Ps: (2) Place and Where, When, and How Delivery Decisions: Time
Geographic locations served Service schedules Physical channels Electronic channels Customer control and convenience Channel partners/intermediaries

The 7Ps: (3) Promotion and Education

Informing, Educating, Persuading, and Reminding Customers Marketing communication tools
 media elements (print, broadcast, outdoor, retail, Internet, etc.)  personal selling, customer service  sales promotion  publicity/PR

Imagery and recognition
 branding  corporate design

 information, advice  persuasive messages  customer education/training

The 7Ps: (4) Price and Otherthat Customer Outlays Involve Marketers Must Recognize User Outlays
More than the Price Paid to Seller
Traditional Pricing Tasks
 Selling price, discounts, premiums  Margins for intermediaries (if any)  Credit terms

Identify and Minimize Other Costs Incurred by Users
 Additional monetary costs associated with service usage (e.g., travel

to service location, parking, phone, babysitting,etc.)
 Time expenditures, especially waiting  Unwanted mental and physical effort  Negative sensory experiences

The 7Ps: (5) Physical Environment Designing the Service scape and providing tangible
evidence of service performances Create and maintaining physical appearances
 buildings/landscaping  interior design/furnishings  vehicles/equipment  staff grooming/clothing  sounds and smells  other tangibles

Select tangible metaphors for use in marketing


7Ps: (6) Process Method and Sequence in Service Creation and Delivery
Design of activity flows Number and sequence of actions for customers Providers of value chain components Nature of customer involvement Role of contact personnel Role of technology, degree of automation

The 7Ps: Managing the Human (7) People Side of the Enterprise
 The right customer-contact employees performing tasks well
 job design  recruiting/selection  training  motivation  evaluation/rewards  empowerment/teamwork

 The right customers for the firm’s mission
 fit well with product/processes/corporate goals  appreciate benefits and value offered  possess (or can be educated to have) needed skills (co-production)  firm is able to manage customer behavior

Company (Management)
Internal Marketing
enabling promises

External Marketing
setting promises


Interactive Marketing
keeping promises


Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler

Ways to Use the Services Marketing Triangle Specific Service Overall Strategic
How is the service


What is being promoted

organization doing on all three sides of the triangle? Where are the weaknesses? What are the strengths?

and by whom? How will it be delivered and by whom? Are the supporting systems in place to deliver the promised service?

Source: An exhibit from J. L. Heskett, T. O. Jones, W. E. Sasser, Jr., and L. A. Schlesinger, “Putting the Service-Profit Chain to Work,” Harvard Business Review, March-April 1994, p. 166.

Service Employees
They are the service - provider. They are the organization in the customer’s eyes. They are the brand. They are marketers. Their importance is evident in:
 The Services Marketing Mix (People)  The Service-Profit Chain  The Services Triangle

Frontline also drives customer loyalty, with employees playing

key role in anticipating customer needs, customizing service delivery and building personalized relationships

Service Employees
Who are they? “boundary spanners” – periphery, link the inside of the organization to the outside world. Emotional Labour - “The act of expressing socially desired emotions during service transactions”. Consider management expectations of restaurant servers:
deliver a highly satisfying dining experience to their

customers be fast and efficient at executing operational task of serving customers do selling and cross selling, e.g. “We have some nice desserts to follow your main course”

• Person vs. Role

Conflicts between what jobs require and employee’s own personality and beliefs

• Organization vs. Client

Dilemma whether to follow company rules or to satisfy customer demands

• Client vs. Client

Conflicts between customers that demand service staff intervention

• Quality vs. Productivity

Me as Re ure a w Str ard nd on S Pe ervi g rfo ce rm ers

r fo e t t pe es m B le Co the op Pe

Hire for Service Competencies and Service Inclination

B Pr e t Em efe he pl rred oy er

r fo and ain l Tr nica tive ch rac Te Inte kills S

Hire the Right People

Retain the Best People

CustomerOriented Service Delivery
Provide Needed Support Systems
Provide Supportive Technology and Equipment

Develop People to Deliver Service Quality

Empower Employees

Treat Employees as Customers

e lu d es in Inc ye plo e s Em th any’ mp n Co Visio

De Se v e l o or rvic p i e Int ente Pr ern d oc es al se s

e ur as nal Me ter e In rvic y Se alit Qu

P Te rom am ot wo e rk

Factors Favoring Employee Empowerment
Firm’s strategy is based on competitive differentiation

and on personalized, customized service
Emphasis on long-term relationships vs. one-time

Use of complex and non-routine technologies Environment is unpredictable, contains surprises Managers are comfortable letting employees work

independently for benefit of firm and customers
Employees seek to deepen skills, like working with

others, and are good at group processes

EmpowermentDrawbacks: Benefits:
 
quicker responses employees feel more greater investments in

responsible employees tend to interact with warmth/enthusiasm empowered employees are a great source of ideas positive word-of-mouth from customers

selection and training higher labor costs slower and/or inconsistent delivery may violate customer perceptions of fair play “giving away the store” (making bad decisions)

Service Culture
“A culture where an appreciation for good service exists, and where giving good service to internal as well as ultimate, external customers, is considered a natural way of life and one of the most important norms by everyone in the organization.”

Relationship Marketing
is a philosophy of doing business that focuses on

keeping current customers and improving relationships with them does not necessarily emphasize acquiring new customers is usually cheaper (for the firm)
keeping a current customer costs less than attracting a

new one

thus, the focus is less on attraction, and more on

retention and enhancement of customer relationships

Customer Satisfaction

Customer Retention & Increased Profits

Quality Service

Employee Loyalty

Benefits to the Organization of Customer Loyalty
loyal customers tend to spend more with the

organization over time on average costs of relationship maintenance are lower than new customer costs: less need for information and assistance & make fewer mistakes employee retention is more likely with a stable customer base Recommend new customers to firm (act as unpaid sales people) Trust leads to willingness to pay regular prices vs. shopping for discounts lifetime value of a customer can be very high

Confidence benefits

How Customers See Relational Benefits in Service Industries
less risk of something going wrong, less anxiety ability to trust provider know what to expect get firm’s best service level

Social benefits
mutual recognition, known by name friendship, enjoyment of social aspects

Special treatment benefits
better prices, discounts, special deals unavailable to others extra services higher priority with waits, faster service

“The Customer Isn’t Always Right”
Not all customers are good relationship

wrong segment not profitable in the long term difficult customers Avoid inappropriate mix of customer segments

at same time

Solution: Proper Segmenting OR Manage customer behavior

Measuring Customer Equity: Calculating Life Time Value of Each Customer
Value at Acquisition
 revenues (application fee + initial purchase)  Less costs (marketing +credit check + account set up)

Annual Value (project for each year of relationship)
 revenues (annual fee + sales + service fees + value of referrals)  Less costs (account management + cost of sales + write-offs)

Net Present Value
 Determine anticipated customer relationship lifetime  Select appropriate discount figure  Sum anticipated annual values (future profits) at chosen discount rate

Customer Equity is total sum of NPVs of all current customers

Strategies for Building Relationships
Excellent Quality/Value Careful Segmentation

Bonding Strategies: Financial Bonds Social & Psychological Bonds Structural Bonds Customization Bonds Relationship Strategies Wheel – slide 37

Volume and Frequency Rewards Integrated Information Systems

Stable Pricing

Bundling and Cross Selling Continuous Relationships

I. Financial Bonds Excellent Quality and Value

IV. Joint Structural Investments Bonds
Shared Processes and Equipment

II. Social Bonds

Personal Relationships

III. Customization Bonds

Social Bonds Among Customers

Anticipation/ Innovation

Mass Customization

Customer Intimacy

Service Quality
The customer’s judgment of overall

excellence of the service provided in relation to the quality that was expected. Service quality assessments are formed on judgments of:
Outcome quality eg: I’net connectivity Process quality eg: support eqpmts used Physical environment quality eg: infra


Ability to perform the promised service dependably and accurately. Knowledge and courtesy of Assurance employees and their ability to convey trust and confidence. Physical facilities, equipment, and Tangibles appearance of personnel. Caring, individualized attention the Empathy firm provides its customers. Responsiveness Willingness to help customers and provide prompt service.

s s s s s

Providing service as promised Dependability in handling customers’ service problems Performing services right the first time Providing services at the promised time Maintaining error-free records Keeping customers informed as to when services will be performed Prompt service to customers Willingness to help customers Readiness to respond to customers’ requests Employees who instill confidence in customers Making customers feel safe in their transactions Employees who are consistently courteous Employees who have the knowledge to answer customer questions

s s s s s

s s s s

Giving customers individual attention Employees who deal with customers in a caring fashion Having the customer’s best interest at heart Employees who understand the needs of their customers Convenient business hours Modern equipment Visually appealing facilities Employees who have a neat, professional appearance Visually appealing materials associated with the service

s s s

s s s s



Customer Gap

Expected Service

Perceived Service
Service Delivery External Communications GAP 4 to Customers


Customer-Driven Service Designs and Standards

Company Perceptions of Consumer Expectations

Customer GAP

Customer Expectations

 Provider Gap 1: Not knowing what customers expect  Provider Gap 2: 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 Perceptions

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 management

Insufficient Relationship Focus
Lack of market segmentation Focus on transactions rather than relationships Focus on new customers rather than relationship customers

Inadequate Service Recovery

Company Perceptions of Customer Expectations

Customer-Driven Service Designs and Standards


Poor Service Design Unsystematic new service development process Vague, undefined service designs Failure ot connect service design to service positioning Absence of Customer-Driven Standards Lack of customer-driven service standards Absence of process management to focus on customer requirements Absence of formal process for setting service quality goals Inappropriate Physical Evidence and Servicescape

Management Perceptions of Customer Expectations

Customer-Driven Service Designs and Standards


Deficiencies in Human Resource Policies
Ineffective recruitment Role ambiguity and role conflict Poor employee-technology job fit Inappropriate evaluation and compensation systems Lack of empowerment, perceived control and teamwork

Failure to Match Supply and Demand
Failure to smooth peaks and valleys 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 impact each other

Problems with Service Intermediaries
Channel conflict over objectives and performance Channel conflict over costs and rewards Difficulty controlling quality and consistency Tension between empowerment and control

Service Delivery

Service Delivery


Lack of Integrated Services Marketing Communications Tendency to view each external communication as independent Not including interactive marketing in communications plan Absence of strong internal marketing program Ineffective Management of Customer Expectations Not managing customer expectations through all forms of communication Not adequately educating customers Overpromising Overpromising in advertising Overpromising in personal selling Overpromising through physical evidence cues Inadequate Horizontal Communications Insufficient communication between sales and operations Insufficient communication between advertising and operations Differences in policies and procedures across branches or units

External Communications to www.a2zmba.comCustomers

The Service Encounter
is the “moment of truth” occurs any time the customer interacts with the firm can potentially be critical in determining customer

satisfaction and loyalty types of encounters:

remote encounters, phone encounters, face-to-face

is an opportunity to:
build trust reinforce quality build brand identity increase loyalty

Critical Service Encounters Research
GOAL - understanding actual events and

behaviors that cause customer dis/satisfaction in service encounters METHOD - Critical Incident Technique DATA - stories from customers and employees OUTPUT - identification of themes underlying satisfaction and dissatisfaction with service encounters

Employee Response to Service Delivery System Failure

Employee Response to Customer Needs and Requests

Employee Response to Problem Customers

Unprompted and Unsolicited Employee Actions and Attitudes

Listen Try to accommodate Explain Let go of the

Take customer’s


dissatisfaction personally Let customer’s dissatisfaction affect others

Recognize the

Promise, then fail to

seriousness of the need Acknowledge Anticipate Attempt to accommodate Explain rules/policies Take responsibility Exert effort to accommodate

follow through Ignore Show unwillingness to try Embarrass the customer Laugh at the customer Avoid responsibility


Ignore customer Blame customer Leave customer to

problem Explain causes Apologize Compensate/upgrade Lay out options Take responsibility

fend for him/herself Downgrade Act as if nothing is wrong

Take time Be attentive Anticipate needs Listen Provide information

Exhibit impatience Ignore Yell/laugh/swear Steal from or cheat

(even if not asked) Treat customers fairly Show empathy Acknowledge by name

a customer Discriminate Treat impersonally

The Purchase Process for Services
Prepurchase Stage Awareness of need Information search Evaluation of alternative service suppliers Service Encounter Stage Request service from chosen supplier Service delivery Postpurchase Stage Evaluation of service performance Future intentions

Components of Customer Expectations
Desired Service Level: wished-for level of

service quality that customer believes can and should be delivered Adequate Service Level: minimum acceptable level of service Predicted Service Level: service level that customer believes firm will actually deliver Zone of Tolerance: range within which customers are willing to accept variations in service delivery

• Desired Service: - Personal Needs & Philosophies - Enduring Service Intensifiers (Belief about what is possible & Derived) • Adequate Service: - Transitory Service Intensifiers (urgent need-ATM) - Perceived Service Alternative (multiple or self service) - Self Perceived Service Role (how well they are performing: How well they specify the level of service expected & Complain) - Situational Factors (not in control)

Predicted service


Explicit Service Promise Implicit Service Promise Word of Mouth Past Experiences

Service Encounter Expectation vs Overall

Service Expectation Encounter expectation are more specific

Control Problems Make Services Hard to Evaluate
Search attributes – Tangible characteristics that

allow customers to evaluate a product before purchase Experience attributes – Characteristics that can be experienced when actually using the service Credence attributes – Characteristics that are difficult to evaluate confidently even after consumption Goods tend to be higher in search attributes, services tend to be higher in experience and credence attributes Credence attributes force customers to trust that desired benefits have been delivered

Most Goods

Most Services

Restaurant meals


Computer repair

Legal services

High in search attributes

High in experience High in credence attributes attributes
Source: Adapted from Zeithaml

Complex surgery

Motor vehicle




Lawn fertilizer



Easy to evaluate

Difficult to evaluate

Customer Satisfaction is Central to the Marketing Concept
Satisfaction defined as attitude-like judgment following a

service purchase or series of service interactions Customers have expectations prior to consumption, observe service performance, compare it to expectations Satisfaction judgments are based on this comparison
 Positive disconfirmation if better than expected  Confirmation if same as expected  Negative disconfirmation if worse than expected

Satisfaction reflects perceived service quality, price/quality

tradeoffs, personal and situational factors Research shows links between customer satisfaction and a firm’s financial performance

Customer Delight: Going Beyond Satisfaction
Research shows that delight is a function of 3

components Unexpectedly high levels of performance Arousal (e.g., surprise, excitement) Positive affect (e.g., pleasure, joy, or happiness)

Is it possible for customers to be delighted by very

mundane services?

Progressive Insurance has found ways to positively

surprise customers with customer-friendly innovations and extraordinary customer service

Relationship Survey Questions about customer relationship with

the company including service, product and price. Helps a company diagnose its relationship strengths and weaknesses. Monitor & Track service performance. Benchmarking with best competitors. Performance Improvements. On the basis of SERVQUAL and provider Gaps. Trailer Calls

Courses of Action Open to a Dissatisfied Customer
Take some form Take some form of public action of public action Service Encounter Service Encounter is Dissatisfactory is Dissatisfactory Take some form Take some form of private action of private action Take no action Take no action Complain to aa Complain to third party third party

Complain to the Complain to the service firm service firm

Take legal action Take legal action to seek redress to seek redress Defect (switch Defect (switch provider) provider) Negative word-ofNegative word-ofmouth mouth

Any one or aacombination of Any one or combination of these responses is possible these responses is possible

Types of Complainers
Passive – no complain, stay or exit/switch Voicers – complain to provider, stay Activitist – complain to provider, negative

word of mouth, complaint to third party Irates – negative word of mouth, switch to other providers but don’t complaint to third parties

Complaint Barriers for Dissatisfied Customers
Inconvenience  Difficult to find the right complaint procedure.  Effort, e.g., writing a letter. Doubtful Pay Off  Uncertain whether any action, and what action will be taken by the firm to address the issue the customer is unhappy with. Unpleasantness  Complaining customers fear that they may be treated rudely,  may have to hassle, or  may feel embarrassed to complain.

il Fa

f Sa


e th

ce vi r Se

We En lcom co ura e an ge d Co m

pla i

n ts

Act Quickly

Service Recovery Strategies

Learn from ers Lost Custom

Le Re arn f co rom ve ry Ex pe ri e nc es

e Tr


t us C


s er

rl ai F


How to Enable Effective Service Recovery
 Be proactive—on the spot, before customers

 Plan recovery procedures  Teach recovery skills to relevant personnel  Empower personnel to use judgment and

skills to develop recovery solutions

Service Guarantees
guarantee = an assurance of the fulfillment

of a condition (Webster’s Dictionary)
for products, guarantee often done in the

form of a warranty
services are often not guaranteed cannot return the service service experience is intangible

(so what do you guarantee?)

Types of Service Guarantees
attribute is covered service attributes are covered

Single attribute-specific guarantee – one key service Multiattribute-specific guarantee – a few important Full-satisfaction guarantee – all service aspects covered

with no exceptions
Combined guarantee – like the full-satisfaction, adding

explicit minimum performance standards on important attributes

Characteristics of an Effective Service Guarantee

The guarantee should make its promise unconditionally - no strings attached.

It should guarantee elements of the service that are important to the customer.  The payout should cover fully the customer's dissatisfaction.

Easy to Understand and Communicate
For customers - they need to understand what to expect.  For employees - they need to understand what to do.

Easy to Invoke and Collect

There should not be a lot of hoops or red tape in the way of accessing or collecting on the guarantee.

Co m Ba peti se tio d n1. Small firms may charge too little to be viable 2. Heterogeneity of services limits comparability 3. Prices may not reflect customer value


st -B as ed
1. Costs difficult to trace 2. Labor more difficult to price than materials 3. Costs may not equal value

e d-Bas n Dema


1. Monetary price must be adjusted to reflect the value of non-monetary costs 2. Information on service costs less available to customers, hence price may not be a central factor

• Value is low price Primary concern: Price Example – “When I can use coupons, I feel that the service is a value” – “Value is when airline tickets are discounted “ • Value is whatever I want in a product or service Primary concern: Quality Example – “Value is the very best education I can get” – “Value is the best performance” • Value is the quality I get for the price I pay Primary concern: Price & Quality Trade-off between price and quality Example – “Value is price first and quality second” – “Value is the lowest price for a quality brand” • Value is what I get for what I give Primary concern – what I give: Price, Time, Effort – What I get: Quality, Quantity, Convenience Example – “Value is how many rooms I can get cleaned for what the price is” – “Value is getting a good educational experience in the shortest time possible”


Value is low price. • Discounting
• Odd pricing - Psycho • Synchro-pricing • Penetration Pricing

Value is everything I want in a service. • Prestige pricing –
Premium • Skimming pricing

Value is the quality I get for the price I pay.
• Value pricing • Market segmentation pricing • • • •

Value is all that I get for all that I give.
Price framing Price bundling Complementary pricing Results-based pricing

 Odd pricing- Strategy in which price is set just below the exact

rupee amount.  Synchro-pricing- Strategy in which price is differentiated based on Time, Place, Quantity, Incentive  Prestige pricing- Strategy in which service provider offer highquality services  Value pricing- “giving more for less”. Low cost for a bundle of desirable service attributes  Market segmentation pricing- Based on the different segments show different quality level. Market segmentation by client category (Ex.: night-worker, day-worker)  Price framing- Strategy in which the service could be framed in an appropriate price  Price bundling- Strategy in which interrelated services are packaged  Complementary pricing- Captive pricing, two-part pricing, loss leadership (Ex.: mobile-phone service, Internet service) Pricing the base good at a relatively low price to the complementary good - this approach allows easy entry by consumers (e.g. consumer printer vs ink jet cartridge) OR Pricing the base good at a relatively high price to the complementary good - this approach creates a barrier to entry and exit (e.g. golf club membership vs green fees)  Result-based pricing- Based on the result of the service (Contingency pricing, Money back guarantees, Commission)

Challenges in Service Marketing
Giving a feel for the “product” Managing Demand Fluctuations Maintaining Quality Cost Containment Attitudinal block in using proven

marketing principles in service marketing

Some Impacts of Technological Change
Radically alter ways in which service firms do business:
 with customers (new services, more convenience)  behind the scenes (reengineering, new value chains)

Create relational databases about customer needs and

behavior, mine databanks for insights
Leverage employee capabilities and enhance mobility Centralize customer service—faster and more responsive Develop national/global delivery systems Create new, Internet-based business models

Services Intermediaries
e.g., Jiffy Lube, H&R Block, McDonald’s

agents and brokers e.g., travel agents, independent insurance agents electronic channels e.g., ATMs, university video courses, TaxCut software

Leveraged business

• Difficulty in maintaining and motivating franchisees • Highly publicized disputes and conflict • Inconsistent quality • Control of customer relationship by intermediary

format for greater expansion and revenues Consistency in outlets Knowledge of local markets Shared financial risk and more working capital

An established

• Encroachment • Disappointing profits and revenues • Lack of perceived control over operations • High fees

business format National or regional brand marketing Minimized risk of starting a business

Reduced selling and

• Loss of control over pricing and other aspects of marketing • Representation of multiple service principals

distribution costs Intermediary’s possession of special skills and knowledge Wide representation Knowledge of local markets Customer choice

 Consistent delivery for

• Customers are active, not passive • Lack of control of electronic environment • Price competition • Inability to customize with highly standardized services • Lack of consistency with customer involvement • Requires changes in consumer behavior • Security concerns • Competition from widening geographies

standardized services  Low cost  Customer convenience  Wide distribution  Customer choice and ability to customize  Quick customer feedback

Control Strategies
Measurement Review

Empowerment Strategies
• Help the intermediary develop customeroriented service processes • Provide needed support systems • Develop intermediaries to deliver service quality • Change to a cooperative management structure

Partnering Strategies
• Alignment of goals • Consultation and cooperation

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