Service Marketing - Lecture Slides

Introduction to Services
Services are everywhere-

• Visit to a Doctor
• Visit to a mosque / church / temple etc.
• Trip to a restaurant
• A day at school
• Trip in an airline or bus or train
If one studies world economy, it can be easily observed that

service sector is dominating almost all economies that indicate
global service economy is booming. Service industries vary
greatly. Government offers services through various
Department, such as courts, hospitals, schools, police, fire
service, postal service, etc. Private non-profit organizations
offer services through museums, charities, churches, colleges,
hospitals, etc. Business organizations offer services such as
airlines, banks, hotels, insurance firms, consulting firms,
medical & law practices, advertising & research agencies, etc.
Introduction to Services
The growth of service sector does not lie within-
Traditional service industries, that is-
• Health case
• Financial services
• Insurance etc.
But traditional goods producers such as-
• Automotive
• Computer, and
• Numerous other manufacturers
Are now turning to service aspects to their operations
such as customer care point, financial assistance,
training, etc.
Definition of Service and Service marketing
Goods versus Service
• A pure goods, or (goods need service)
• A pure service (services need goods)
Difference is not clear?
Goods: Goods can be defined as objects, devices or things that
posses certain utility to the customers.
Service: Services can be defined as any activity or benefit that one
party can offer to another that is essentially intangible and does not
result in the ownership of anything. Services may be deeds,
efforts or performances.
Services are intangible things and that cannot be touched, seen or felt.
Product: Product may be either goods or services.
Service marketing includes all those activities relating to the delivery
of services from service provider to service receiver.
The Scale of Market Entities
The scale that displays a range of products along a continuum based
on their tangibility. This is also called Tangibility Spectrum
Soft Drink
Automobiles
Detergent
Salt
Cosmetics
Fast food
outlets
Fast food
Huatmlut mgt.
Advertise
outlets
agency
Airlines
Consulting
Teaching
Figure: Scale of Market
The Scale of Market Entities
Pure goods are tangible dominant whereas, pure
services are intangible dominant.
Tangible dominant: Products that possess physical properties
that can be felt , tasted and seen prior to the consumer’s
purchase decision.
Intangible dominant: Products that lack the physical properties
propertie
that can be sensed by consumer’s prior to the purchase
decision.
According to the scale of market entities, goods are tangible
dominant. In contrast to goods, service lack the physical
properties. As a result, a number of marketing challenges become
evident. For example, 1) Advertising a service that no one can see
2) Price of service that has no cost of goods sold, 3) Inventory a
service that cannot be stored, 4) Mass-merchandise a service that
needs to be performed by an individual (e.g., Dentist, Lawyer,
Why study Service Marketing?
1. A service based economy: Service marketing concept has
developed in relation to service industries.
In US economy, service sectors contributed 78% of GDP in 1999. In
present time service sectors contribute a lot for both employment
and GDP of almost every economy. Below indicates the role of
service sectors of a highly developed and extreme developing
country’s picture in 2007
United States Bangladesh
GDP Employment GDP Employment
Agriculture – 00.9 00.6 19.0 63
Industry - 20.5 20.6 28.7 11
Service - 78.5 78.8 52.3 26
100 100 100 100
Service sector boomed up globally. It contributes much into the country
economy as compared to other sectors with comparatively lower
rate of labor engaged.
2. A tremendous growth in service sector
employment -
See the information/picture given under the
point (1) in this text.
3. Service as a business imperative in
manufacturing & IT –
Traditional – Banking, Health care.
Introduction of technology recognized the
necessity of service sides like, automobile &
IT and other manufacturing goods.
4. The impact of deregulation– During 1980 deregulation
forced many American service industries, such as– Airline,
Telecommunication.
Because of deregulation, many service industries are counting
to compete. The open up of many economies develops a
tremendous increase in service sectors around the globe.
5. The services revolution change in perspective
Many feel that the management model currently in place, the
Industrial Management Model (IMM) needs to be replaced by
a Market-focused Management Model (MMM) if service
companies are to service. Knowledgeable marketing
professionals need to make necessary changes.
a. IMM– An approach to organizing a firm that focuses on
revenues and operating cost and ignores the personnel who play
roles in generating customer satisfaction and sustainable profit.
b. MMM – An approach that focuses on the components of the firm
that facilitates the firm’s service delivery system.
The Molecular Model
A conceptual model of the relationship between tangible and intangible components of a firms operations. This model reinforces our understanding that virtually all products have both tangible and intangible elements.
One of the primary benefits of this model is that it is a management tool that offers the opportunity to visualize a firm’s entire market entity.
entity . The figures provide examples of 2 such entities: Airlines and Automobiles that differ from each other physically.
In the 1st case, consumers purchase the benefit of transportation and all the corresponding tangible (see solid circles) and intangible elements (see dashes circles) that are associated with flying.
In contrast, a consumer who purchases an automobile primarily benefits by ownership of the physical possession that render a service transportation.
The Molecular Model
Airlines Automobiles
Distribution Distribution
Price Price
Vehicle options
Service
frequency
In flight
Transport Vehicle
service
Pre-&
post Flight
Service Food & Transport
Drinks
Tangible elements
Market positioning Market positioning
Figure: The Molecular Model Intangible elements

The Molecular Model
• Airlines Automobiles
Distribution Distribution
Price Price
Vehicle options
Service
frequency
In flight
Transport Vehicle
service
Pre-&
post Flight
Service Food & Transport
Drinks
Market Tangible elements Market positioning

positioning
Figure: The Molecular Model Intangible elements
The Molecular Model
This diagrams are oversimplifications of the mix of elements that ultimately
comprise the airline experience and car ownership. From a managerial
view, an elaboration of this models would identify the tangible and
intangible components that need to be effectively managed. For example,
a successful airline experience is not just determine the safe arrival of
passengers. The airline molecular model could easily be expanded to
include: - ling-term and
short-term parking (intangible element) - shuttle
services (intangible element) - rental
car available (intangible element) - flight
attendants (tangible element) - gate
attendants (tangible element) -
baggage handlers (tangible element)
Similarly, the automobile model could be expanded to include:
- salespersons on the showroom floor (tangible element) -
financial arrangements (intangible element) -
finance manager (tangible element) -
mechanics and service representatives (tangible element)
The Molecular Model
The point of developing molecular models is to develop an
appreciation for the intangible and tangible elements that
comprise market entities.
The molecular model also demonstrates that consumers’
service knowledge and goods knowledge are not obtained in
the same manner. With tangible dominant products, goods
knowledge is obtained by focusing on physical aspects of
the products. Whereas consumers evaluate intangible
dominant products based on experience that surround the
core benefit (see figure) of the product.
The Servuction Model
Forming the Service experience: The Servuction Model
A model used to illustrate the factors that influence the service
experience, including those that are visible to the consumer
and those are not.
There are 2 parts in servuction model such as 1.
Visible part- Visible to the customers. 2.
Invisible part- Invisible to the customers.
Visible part consists of three parts-
a. The inanimate environment
b. Contact personnel / Service provider.
c. Other customers.
Invisible part includes-
a. Organization b.
System.
.
Inanimate Customer
environment
Invisible A
organizatio Contract
n and personnel/
system service Customer
provider
B
Invisibl Visible
e
Bundle of service
benefits received
by Customer A
Figure: The Servuction Model

Inanimate Customer
environment
Invisible A
organizatio Contract
n and personnel/
system service Customer
provider
B
Invisibl Visible
e
Bundle of service
benefits received
by Customer A
Figure: The Servuction Model

1.a) The inanimate Environment.
All the non-living features that are present during the
service encounter.
Example: Furniture, flooring, lighting, music, odors,
wall hangings, countertops etc. of a professor's room.
1.b) Contact personnel's / Service provider:
Employees who interact with the customer.
Contact personnel's
Parking attendants
Receptionists
Host / Hostess
Service Provider
Waiter / Waitress
Dentist, Physicians
College Instructor
1.c) Other Customers – Have impact on customers.
Customer A: The recipient of the bundle of benefits that is created
through the service experience
Customer B: Other customers who are part of (share) customer
A’s experience
Example: Sharing doctor’s advice for similar disease.
2. The invisible part: organization and system
It is that part of a firm that reflects the rules, regulation and
process on which the organization is based. Although they are
invisible to the customer, they have a profound effect on the
consumer’s service experience. This part determines factors such
as information, number of employees, policies of organization.
Finally servuction system is what creates the experience for the
consumer, and it is the experience that creates bundle of benefits
for the consumer. Perhaps the most profound implication of the
model is that it demonstrates that consumers are an integral part
of the service process.
Key Characteristics of Services
1. Intangibility: The intangibility makes services unable to be
touched or sensed.
2. Inseparability: The inseparability of services reflects the
interconnection among the service provider, the customer
involved in receiving the service, and other customers
sharing the service experience.
3. Heterogeneity: The heterogeneity nature of services reflects
the variation in consistency from one service transaction to
the next.
4. Perish ability: A distinguishing feature of services is that
they cannot be saved, their unused capacity cannot be
reserved, and they cannot be inventoried.
Fundamental Difference between
Goods & Services
Difference I/Intangible
Goods Services
Tangible Intangible
The most basic and universally cited difference between
goods and services is intangibility.
Service are performance or actions rather than objects,
they cannot be seen, felt, tested or touched in the
same manner that we can sense tangible goods.
Example – A Surgeon, A Dentist, A Barber (They just
perform services).
Marketing problems caused by Intangibility
1. Lack of ability to be stored: Due to their
intangibility services cannot be inventoried. As a
result, the unused portion of services cannot be
stored. For example, Bus seats that are not sold for
the morning shift cannot be added to the night
shift.
2. Lack of protection by patents: Because of the
property of intangibility, service are not
patentable. Human labor and effort are not
protected. The tangible machinery involved in the
process is protected, not the process itself. Lack of
patent protection is that new or existing services
may be easily copied.
Marketing problems caused by Intangibility
3. Service cannot be readily displayed or
communicated: The promotion of services is a
challenge for its marketers.
For example: Insurance policy
4. Difficulty in pricing: In case of pricing the goods, a

cost-plus pricing approach is considered. However,
the challenge involved in the pricing of services is
that there is no cost of goods sold. The primary cost
of producing a service is labor.
Possible solutions to Intangibility problems
1. The use of tangible clues: The absence of tangible properties,
services are evaluated differently from goods. Consumers usually
look at the physical evidence or tangible clue in service. Tangible
clues may include such evidence as the quality of furniture in a
lawyer's office, the quality of decoration in a bank office, etc.
Advertising of tangible clues may solve the intangibility
problem.
2. The use of personal sources of information: A customer
usually evaluate services based on the subjective
evaluations relayed by friends, family, and a variety of
their opinion leaders. This process consists “word-of-
mouth advertising”. Example: When one seeks for a
family doctor, ask information from any friend or relative.
So stimulate the present customer to recommend family &
friends.
Possible solutions to Intangibility problems
3. Creation of strong organizational image: As
services are intangible, the perceived risk
associated with service purchases is generally
greater than their goods counterparts.
Service firm can spend a great deal of effort,
money and time in developing a nationally known
organizational image.
Difference II/Inseparability
Goods Services
Separability Inseparability
A distinguishing characteristics of services

that reflects the interconnection among the
service provider, the customer involved in
receiving the service and other customer
sharing the service experience.
Marketing problems caused by Inseparability
1. Physical connection of the service provider to the
service: The service provider must be physically present
to deliver the service. Because of the intangibility of
services, the service provider becomes a tangible clue on
which at least part of the customer’s evaluated of the
service experience becomes based. As tangible clues,
service providers are particularly evaluated based on their
use of language, clothing, personal hygiene, and
interpersonal communication skills. For the production of
many services to occur, the service provider must be
physically present to deliver the service.
Example: Dental service requires physician.
: Medical surgery requires sergeant
2. Involvement of customer in production process:
Services are produced and sold simultaneously. In
fact, services are sold first then produced . Therefore,
customers involvement in production process is
essential which describes the inseparability nature of
services. The customer’s involvement in the production
process creates uncertainties-
i) Scheduling of production
ii) The length of service delivery process sometimes
depends on customers desires.
iii) Cycle demand
Example: McDonald's breakfast lunch dinner.
3. Involvement of other customer in the production
process: The presence of other customers during the
service encounter is the third defining characteristic of
inseparability. Because production and consumption
occurs simultaneously. Several customers often share a
common service experience. This shared experience can
be negative or positive (It usually creates negative impact
on service production see services in action).
4. Special challenges in Mass production of services: One
vital obstacle presented by inseparability is how to
successfully mass produce services. Example: A physician
can do treatment a patient (once at a time).
Secondly, customers interested in particular provider’s
service would have to travel to the provider’s location
(wherever (s)he is serving creates inseparability problem).
Possible solutions to inseparability problems
i) Emphasis on selecting & training public contact personnel: Hire
employees who are properly equipped to handle customers
and their needs. Unhappy
employees can affect both customers & other employees.
Bright highly motivated employee can create a more
pleasant service experience.
ii) Consumer management:
Service personnel can implement the strategy as separating
smokers from non-smokers, Family – Non family etc. in a
restaurant.
iii) Use of multi-site locations:
Multiple locations to limit the distance the customers have to
travel & staffing each location differently to serve a local market.
Difference III/Heterogeneity
Goods Services
Homogeneity Heterogeneity
A distinguishing characteristic of services

that reflects the variation in consistency from
one service transaction to the next.
Homogeneity – The quality of services being
alike.
Marketing problems caused by Heterogeneity
In case of service production, standardization and
quality cannot or difficult to achieve. As an
individual each employee has a different
personality and interests with customers
differently. In addition, each employee may act
differently from one day to the next as a result of
mood changes as well as numerous other factors.
Possible solutions to Heterogeneity problems
i. Customization:
Taking advantage of variation in each service encounter by
developing variety in services that meet each customer’s
exact specifications. This will meet customers’ exact needs.
The downside of providing customized services is
threefold. First, customers may not be willing to pay the
higher prices associated with customized service.
Second, the speed of service delivery may be an
issue. Finally, customers may not be willing to face
the uncertainty associated with customize services
ii. Standardization:
Reducing variability in service production through intensive
training of providers and/or replacing human labor with
machines.
Difference IV/Perishability
Goods Services
Perishability/ Perishability
Not perishability
A distinguishing characteristics of services is that they cannot
be saved, their unused capacity cannot be reserved and
they cannot be inventoried because it has no physical
existence.
Some service firms find it possible to inventory part of their
service process, however the entire service experience
cannot be inventoried. Example, McDonald’s food.
Marketing problems caused by Perishability
1. Higher demand than maximum available service:
- Long waiting period, - Customers become unhappy
2. Higher demand than optimal supply level:
In many instances, the consequences associated with demand
exceeding optimal supply level (OSL) may be worse when
demand exceeds maximum available capacity.
When demand exceeds OSLs, the temptation is to accept the
additional business.
3. Lower demand than optimal supply level:
- Resources are unutilized, - Operating costs are needlessly increased
4. Demand and Supply at Optimal Level: Difficulty
in making demand and supply at optimal level. This scenario
describes the situation in which customers do not wait in the
long lines and in which employees (are not machines and cannot
produce limitless supply) are utilized to their optimum capacity.
Possible Solutions to Perishability Problems
i. Demand strategy: Creative pricing
Fixing different pricing to shift demand from peak to non peak periods.
Example: High price for holidays to visit a tourist spot.
ii. Demand strategy: Reservation systems
Make arrangement for reservation a portion of the firms
services for a particular time slot.
iii. Demand strategy: Development of Complementary Services
Additional services provided for consumers to minimize their
waiting time, such as reading materials in doctors rooms
iv. Demand Strategy: Development of Non-peak Demand

Service providers use their downtime by marketing to a
different segment that has a different demand pattern than
the firms traditional market segment
v. Supply Strategy: Past time employee utilization
Utilize those employees who typically assist during peak
period to make additional supply available in times of
needs.
vi. Supply Strategy: Capacity sharing
Strategy to increase the supply of service by forming co-op
among service providers.
vii. Supply Strategy: Advancing preparation for expansion
Preparation for future expansion in advance and taking a
long-term orientation to physical facility and growth.
viii. Supply Strategy: Utilization of third parties A
service firm can use outside party (Subcontract) to service
customers and thereby save on costs , personnel, etc.
ix. Supply Strategy: Increased in customer participation
Having the customer perform part of the service, such as
self catering system.
Consumer Decision Process: An Overview
Every customer must be using a process or model to make
his / her decision.
A variety of models have been developed & are
discussed but no model is wholly accurate. The customers
mind is still closed to us; it is a “black box” that remains
sealed.
The 3-step process consumers use to make purchase
decisions; includes-
i. The purchase stage.
ii. The consumption stage.
iii. Post-purchase (evaluation) stage.
Customer Decision Process Model
Post
Purchase
Pre-Purchase state purchase
stage
stage
Evaluation Post-
Problem Information
Stimulus of Choice purchase
awareness search
alternatives evaluation
· Company · Internal · Buying
cue · Using
· Physical · External · Disposin
cue g
· Social · Multiattri
cue bute
Model
· Shortage · Evaluatio
· Unfulfilled n of
desire satisfacti
on
1. The pre purchase stage
All consumer activities occurring before the
acquisition of service.
a. The stimulus:
The thought, action or motivation that incites
(stimulate) a person to consider a purchase.
i. Commercial cues: It refers the promotional part /
efforts or the part on the company that provide stimulus to
the consumer.
ii. Social cues: Events or motivations that provide
stimulus to the consumer, obtained from peer group or
relatives, friends, etc
iii. Physical cues: Motivations, such as thirst,
hunger or another biological cue that provide stimulus to
the consumer
b) Problem awareness:
Once the consumer has received the stimulus, the next phase
of the process is problem awareness. In this phase, the
consumer examines whether a need or want truly exists
for the product. The need may be based on-a shortage
(need) or
- an unfulfilled desire (want)
Shortage: The need for a product or service that
results consumer is not having it.
Unfulfilled desire: The need for a product or
service that results dissatisfaction with a current
product or service
c) Information search:
From which the consumer collects information on possible
alternatives. It performs in following ways-
i. Evoked set Model: It refers the limited set of brands that
comes to the consumer’s mind when thinking about
particular product or service category to buy.
ii. Internal search: A passive approach for gathering
product or service information from consumers own
memory.
iii. External search: A proactive approach to gathering
information in which consumer collects new Information
from sources outside the consumer’s own experience.
d) Evaluation of Alternatives:
Consumer places a value or rank on each alternative. It
includes the following-
i. Nonsystematic Evaluation: Choosing among alternatives
in a random fashion.
ii. Systematic Evaluation: Choosing among alternatives by
using a set of formalized steps to arrive at a decision.
Example: Teacher student ratio of a university.
2. Consumption Stage
In this stage, consumer purchases and uses the
product.
a. Store Choice: The decision to purchase from a
particular outlet or store.
b. Non store Choice: The decision to purchase from
a catalog, the internet or through mail order.
3. The post purchase Evaluation Stage
Here the consumer determines whether the correct purchase
decision was made.
Cognitive Dissonance: The doubt in the consumer mind
regarding the correctness of purchase decision.
How to minimize the Cognitive dissonance?
Reassuring customer that the correct decision has been made.
i. After sales contract
ii. Providing a reassuring letter in the packing
iii. warranties or guarantees
iv. Reinforcing through Advertising.
Example: Private Universities accredited or not.
So advertising and saying UGC approved
What is Ethics?
A branch of Philosophy dealing with what is good
and bad and with moral duty and obligations; the
principles of moral conduct governing an individual or
group.
Business Ethics:
The principles moral conduct that guide behavior
in the business world.
The opportunity for Ethical Misconduct
1. Few search attributes:
Search attributes include- Touch, Smell,
Visual, Cues & Taste.
Because of intangibility of services
consumers lack of opportunity to physically
examine a service before purchasing it.
2. Technical & specialized service:
Many services are not easily understood.
So, valuating the performance of professional
service providers is really difficult.
Example: How do you know whether your doctor,
lawyer, broker, priest or minister is competent at
his or her job?
Our evaluation of these people are based on their

clothing, furniture, pleasant social skill.
Evaluation surrounds of the service as opposed to

core service.
3. Time lapse between performance &
evaluation:
The final evaluation of some services such as
insurance and financial planning is often
conducted only at a time in the distance future.
Example: Retirement policy, Death Insurance.
4. Service sold without Guarantees &

warranties:
Example: Bad hair cut.
5. Service performed by Boundary Sparring
Personnel:
Personnel who provide services outside the
firm’s physical facilities.
Because of physical distance from the main
office, Direct supervision is not possible.
Inconsistent with organizational objectives.
6. Accepted variability in performance:
As heterogeneity standardization & quality
control is not possible.
Example: Auto mechanics.
7. Consumer Participation in production:
Fear, Avoid of conflict by the consumers.
Factors that influence Ethical Decision
Making
1. Cognitive moral development:
• Stage 1. Right is based on rules & authority.
• Stage 2. Right is based on one’s own needs or
another’s interns of what is fare.
• Stage 3. The individual focuses none or others
than personal.
• Stage 4. The individual focuses on individual’s
duty to society.
• Stage 5. The individual focuses on basic rights,
values or legal contracts.
• Stage 6. The individual focuses on universal ethical
principal that everyone should allow.
2. Personal values:
A man as a person, the same man as a professional.
The students of Evening MBA.
3. Corporate culture:
The general philosophy of a firm.
Decisions, actions & policies.
4. Cultural difference:
Bribe / nonbribe countries.
5. Organizational structure:
Centralized or Decentralized.
Centralized are more ethical.
6. Reward system:
Rewarded or not punished on the basis of
result not how to achieve performance based
reward vs. behavior utilization.
7. Significant others:
Supervisors, peers, subordinates etc.
8. Competitive Environment:
Controlling Ethical Decision Making
1. Employee Socialization:
An individual adapts the values, norms &
required behavior of the company.
2. Standards of conduct:
Formal standards of conduct.
An overview of the most Dynamic
Service Industries
1. Business service:
a. Advertising.
b. Credit reporting & collections.
c. Building maintenance.
d. Equipment rental.
e. Temporary help services.
f. Detective agencies.
g. Security guards.
2. Health care:
Services such as hospitals, physicians, group
practices & home health care that provide
physical care to consumers.
a. Physicians.
b. Dentists.
c. Hospitals.
d. Medical laboratories.
e. Home health services.
f. Kidney dialysis centers.
g. Outpatient clinics.
3. Professional services:
Services such as accounting, engineering, research
& management consulting provided by firms
traditionally classified as ‘professional’.
4. Hospitality Industry:
a. The food service industry. (1/3 meals are taken)
b. The lodging industry.
c. The travel & tourism industry.
d. Meeting and convention planning.
Types of Service Expectations
1. Predicted service:
The level of service quality a consumer
believes is likely to occur.
2. Desired service:
The level of service quality a customer
actually wants from a service encounter.
3. Adequate service:
The level of service quality a customer is
willing to accept.
Expected
Zone of Tolerance: Service
Level of quality ranging
from high to low & Desired
Service
reflecting the difference
between desired service & Zone of
Tolerance
adequate service.
Adequate
Service
Factors Influencing Service
Expectations: Desired Service
1. Enduring service industries-
Personal factors that are stable overtime and
increase a customer's sensitivity to how a
service should be best provided.
a. Derived expectations.
b. Personal service philosophies.
2. Personal needs:
A customer’s physical, social and
psychological needs.
Factors Influencing Service Expectations:
Desired & Predicted Service
1. Explicit service promises:
Obligations to which the firm commits itself
via its advertising, personal selling, contracts
and other forms of communication.
2. Implicit services promises:
Obligations to which the firm commits itself
via tangible & surrounding. The service and
the price of the service.
3. Word of mouth communication:
Unbiased information from someone who
has been through the service experience,
such as family, friends and consultants.
4. Past experience:
The previous service encounter a consumer
he had with a service provided.
Customer Expectations
Meaning: Customer expectations are beliefs about service delivery
that function as standards or reference points against which
performance is judged.
Types of Customer Expectations
There are at least 3 different types of expectations posse by customers.
1. Predicted service
Versus as Probability expectation:
Predicted service indicates the level of service quality a consumer believes
is likely to occur. A customer expectation based on the customer’s opinion
of what will be most likely when dealing with service personnel. Exam.
Banking service will be in customer’s location.
2. Desired service as Ideal expectation:
Desired service includes the level of service quality a customer actually
wants from a service encounter. A customer’s expectation of what a
“perfect” service encounter would be. Exam. Employee will greet customer
3. Adequate service as minimum
tolerable expectation: The
level of service quality a customer is willing to accept. A customer
expectation based on the absolute minimum acceptable outcome.
Levels of expectations
Ideal
expectations or High
desire
Normative or
sound
expectations
Experience
based
norms
Acceptable
expectations
Minimum
tolerance
expectations LOW
Factors that influence customer expectations
Sources of desired service expectations/Factors
a. Enduring service intensifiers: are personal factors that are stable
over time that increase a customer’s sensitivity about service. It
includes two things
(i) Customer’s derived expectation: Expectation
appropriated from and based on the expectations of others.
(ii) personal
service philosophies: A customer’s own internal views on the
meaning of service and the manner in which service providers
should conduct themselves.
b. Customer’s own personal needs: It includes a customer’s
physical, social, and psychological needs.
Desired service and predicted service/Factors
The other four factors that influence service expectations also
influence predicted service expectations and include:
a. Explicit service promises: obligations to which the firms
commits itself via its advertising, personal selling, contracts, and
other forms of communication.
Factors that influence customer expectations
b. Implicit service promises: Obligations to which the firm commits itself via
tangibles surrounding the service and the price of the service.
c. Word-of-mouth communications:
Unbiased information from someone who has been through the service
experience, such as friends, family, or consultants.
d. Past experience: The previous service
encounters a consumer ha had with a service provider.
Adequate service\Factors Adequate
service reflects the level of service the consumer is willing to accept and is
influenced by five factors: a.
Transitory service intensifiers: personal, short-term factors that heighten a
customer’s sensitivity to service. b.
Perceived service alternatives: Comparable services customers believe they can
obtain elsewhere and/or produce themselves. Their levels of adequate service are
higher than those customers who don’t find better service elsewhere
c. Self perceived service role: The input a
customer believes he is required to present in order to produce a satisfactory
service encounter. d. Situational factors: Circumstances that
lower the service quality but that are beyond the control of the service provider.
e. Predicted service: Based on the firm’s explicit & implicit service promises, word-of-mouth and
customer’s own past experiences, customers form judgment regarding predicted service.
Customer Satisfaction/Dissatisfaction
Customer satisfaction or dissatisfaction is that it is a
comparison of customer expectations with
perceptions regarding the actual service encounter.
Comparing customer expectations with their
perceptions is based on what marketers refer to as the
Expectancy Disconfirmation Model. Simply stated,
Confirmed expectation is when customer perceptions
meet expectations and then the customer is satisfied,
and the vice versa.
Expectancy Disconfirmation Model
Model proposing that comparing customer
expectations with their perceptions leads customers to
have their expectations confirmed or disconfirmed.
Expectancy Disconfirmation Model
Confirmed Expectations
Customer expectations that match customer
perceptions. Customers become satisfied at this point.
Disconfirmed Expectations
Customer expectations that do not match customer
perceptions. Customers become dissatisfied at this
point.
Negative Disconfirmation: Customer perceptions are lower than
customer expectations. This situation results in customers
dissatisfaction and may lead to negative word-of-mouth publicity and
defection.
Positive Disconfirmation: Customer perceptions exceed customer
expectations. This situation results in customer satisfaction, positive
word-of-mouth publicity and customer retention.
Benefits of customer satisfaction
Actually customer satisfaction is not impossible. However
service providers are putting their efforts in this regards.
Meeting & exceeding customer expectations may reap
several valuable benefits for the firm. These are as such-
1. Positive word of mouth publicity is generated from the
existing customers.
2. Satisfied customers purchase more products in the
regular basis.
3. Customers are willing to pay more for company’s
products and stay with a firm for long time that meets
their needs.
4. Firm can ensure better organization environment.
Measuring customer satisfaction
Measures of customer satisfaction are derived via
indirect and direct measure.
Indirect Measures
Indirect measures of customer satisfaction includes
tracking and monitoring sales records, profits and
dealing with customer complaints.
Direct Measures
The proactive collection of customer satisfaction
data through customer satisfaction surveys. This can
be done in the following three approaches-
Measuring customer satisfaction
1.The Scale of 100 Approach In this case the scales are used to
collect data vary. This include.s 5-point to 100-point
scales or the other ways.
2. The ‘Very Satisfies’/very Dissatisfied Approach It may be
other forms where data are collected with a 5-point or 7-point scale
such as very dissatisfied-somewhat dissatisfied- neutral- somewhat
satisfied-very satisfied
3. The Combined Approach The combined approach uses the
quantitative scores obtained by the “very satisfies’/very
dissatisfied” approach and adds a qualitative analysis of feedback
obtained from respondents who indicated that they were less than
“very satisfied”. This approach gives two valuable information for
firm- (i) which future satisfaction surveys should be performed, and
(i) comparing firm’s performance against the competitors.
Factors Influencing Customer Satisfaction Rating
Customers are genuinely satisfied- Customers are satisfied with the
goods and services they typically purchase and consume.
Response bias- When responses being received from only a limited
group among the total survey participants.
Data collection method- The method used to collect information
such as questionnaires, surveys, and personal interviews.
Question form- The way of question is phrased i.e., positively or
negatively. How satisfied are you? Positive How dissatisfied are you? Neg.
Context of
question- The placement and tone of a question relative to the other
questions asked. Timing of the
question- The length of time after the date of purchase that questions
are asked. Immediate is good to having accurate answer
Social desirability bias- It
describes a respondent’s tendency to provide information that the
respondents believes is socially appropriate.
Mood- The influential factor on customer satisfaction ratings is the
mood of the customer while completing the survey.
Creating the service Product:
Planning and creating Services
What do we mean by a service product?
A service product typically consists of a core product bundled with
variety of supplementary service elements.
A service is a performance rather than a thing. When one purchases
manufactured goods, (s)he takes title of physical objects. But service
performances being intangible and short-lived, are experienced rather than own.
Key steps in service planning
Figure in the following slide outlines the key steps involved in
planning and creating services, emphasizing the needs for managers to
relate marketing opportunities to deployment of the firms resources:
physical, technological and human.
The task begins at the corporate level with a statement of
objectives, This statement leads into a detailed market and competitive
analysis. Paralleling this step is a resource allocation analysis defining
firm’s resources and how they are being allocated as well as
identifying additional resources that might reasonably be obtained.
Corporate Objectives
Market and
and Resources Resource
Competitive Allocation
Analysis Analysis
Marketing Assets Statement Operating Assets Statement
•Customer portfolio •Physical facilities
•Market knowledge •Equipment
•Marketing implementation skills •Information technology
•Product line •Human resource (Nos and skills)
•Positioning strategy(ies) •Alliances and partnerships
•Reputation of brand(s) •Cost structure
Service Marketing Concept Service Operations Concept
•Benefits to customer Nature of processes
People processing
Core product Possession processing
Supplementary services Mental stimulus processing
Information processing
Service levels and style •Geographic scope of operations
Accessibility (where and when) Area(s)
Single site versus multisite
•User costs Facilities location
Price and other monetary costs Telecommunications linkages
•Scheduling
Time Hours/Days/Seasons of service
Mental effort Physical effort Continuous versus intermittent
Negative sensory experiences •Facilities design and layout
•Human resources (Nos and Skills)
•Leverage through partnerships and
self service
•Specific tasks assigned to front-stage
and backstage operation
Service Delivery Process
Defining the Nature of Service Offering
The designing task of a service must address and integrate three key
components: the core product, supplementary services, and delivery processes
Core product: The core product supplies the central problem-solving
benefits that customers seek. This central component addresses two
questions- i) What is the buyer really purchasing? ii) what business are
we in? Example: Transport solves the need to move a person or things.
Supplementary services: The supplementary services augment the core
product, both facilitating its use and enhancing its value and appeal. The
extent of these services often play a role in differentiating and
positioning the core product.
Delivery process: The third components deals with the procedures used to
deliver both the core product and each of the supplementary services. In
this case, the design of the service offering must address (i) how the
various services components are delivered to the customers, (ii) the
nature of the customer’s role in those processes, (iii) how long delivery
lasts, and (iv) the prescribe level and style of service to be offered.
Reservatio
n
+
Use phone Parkin
+ +
g
Nature of
Schedulin process Check in/
g +
Core Check out
Room service +
Service Customer
role
level
Supplementary services +
+ Porter
Pay TV
+
Meal
Delivery Processes
for Supplementary Services
Figure: Depicting the service offering for an overnight hotel stay
The integration of these three components is captured in the
above figure which illustrate the service offering for an
overnight stay at a hotel.
The core product overnight rental of a bedroom is
dimensioned by service level.
Scheduling (how long the room may be used before another
payment become due).
The nature of the process (in this instance, people processing),
and
The role of customer in terms of what they are expected to do
for themselves and what the hotel will do for them such as
making the bed, supplying the towels, and cleaning the
room.
Levels of components of Services
1. The core benefit: Fundamental service or benefit that the
customer is really purchasing. A hotel, or A resort for Rest / Sleep.
2. The basic product: To offer core benefit the marketer must
render.
3. Expected Product: The benefit what customer expect from
purchasing certain service such as clean room, noise free, keys etc.
4. The Augmented Product: When the marketers offer that sort of
products or services which exceed the expectation of the customers
are considered as augmented product. Such as more comfortable seat,
water bottle for traveling
5. The potential Product: Products which encompasses all

those augmentation might under go in this category
New Service Development: A hierarchy of
new service categories
Followings are the categories of new services-
1. Major Service Innovations: Major service innovations are those
new services for markets that have not been previously defined.
Example: Dental service
2. Major Process Innovations: Major process innovations consist
of using new processes to deliver existing core products in new ways
with additional benefits. Example: Delivering lectures with multimedia
3. Product-line Extensions: product-line extensions are addition by
existing firms to their current service line(s) such as new menu item,
new routes, new courses.
4. Process-line extensions: In most cases, process-line extensions involve
adding a lower-contact distribution channel to an existing high-contact
channel, such as creating telephone or internet based banking.
A hierarchy of new service categories
5. Supplementary service innovations: These take the form
of adding new facilitating or enhancing service elements to an
existing core service or of significantly improving an existing
supplementary service. It is the modest innovations of visible
changes that have an impact on customer perceptions, emotions
and attitudes.
6. Service improvements: Service improvements are the most
common type of innovation. They involve modest changes in
the performance of current products including improvements to
either core product or supplementary services.
7. Style changes: Style changes represent the simplest type of
innovation, typically involving no changes in either processes or
performance. However, they are often highly visible , create
excitement and motivate the employees. Example: a new bank
check design, new uniform.
Stages in New Service Development Process
1. New Service Strategy Development: What will be appropriate
service depends on the organization’s goals, vision, capabilities &
growth plan. By defining a new service strategy possibility in terms of
markets, types of services time horizon for development.
2. Idea Generation: Several ideas come from brain storming,
employees, customers, competitors, observers etc.
3. Service Concept Development: Make a clear definition of the
service concept such as drawing pictures and describing an intangible
service.
4. Business Analysis: In this stage, analyze the feasibility and
potential profit implications. Demand analysis, revenue projections,
cost analysis and operational feasibility are also assessed at this stage.
5. Service Development and testing: In this stage design new
service.
6. Market Testing: Service might be offered to employees of the
organization and their families or even limited customer group.
Service Redesigning
Redesigning the existing services is another viable approach to service
development & growth.
1. Self service: One approach to redesign is to move the customer into
a production mode rather than a passive, receiving mode.
Benefits of customers for redesigning- a. Personal control b.
Accessibility. c. Timing.
Example: Companies offer their services via the internet ad in the case
of internet banking.
2. Direct Service: Direct services means bringing the service to the

customer rather than asking the customer to come to the provider.
This might mean delivering the service to the customer in his or her
home or work place.
Example: Restaurant food and dry cleaning delivery to the office /
home.
Service Redesigning
3. Pre-service: This types of redesigning involves streamlining or
improving the activation of the service, focusing on front end process.
Example: Express check in at a hotel or car rental, pre admission
processing at a hospital.
4. Bundled Service: Grouping or bundling multiple services together is
another way to redesign current offerings. The benefits to customers is
in receiving greater value, combined with convenience than they might
have received by purchasing each service independently.
Example: A package tour program.
5. Physical Service: Physical redesign involves changing the customers
experience through tangibles associated with the service or the physical
surroundings of the service.
Example: Changing the interior of a flight that is two- by-two seating
cloth napkins instead of tissue etc.
Service Delivery Process
Without a successful operation, the firm is out of business because it
will have nothing to offer to the customers. Strategically, the service
firms can choose to use its operations as the key component.The
manner in which “operational competitiveness” is embraced by
various service firms can be described by following four stages.
• Stage 1: Available for Service
To ensure the availability of service firms should care
about the followings-
a. Operation with the level of competitiveness.
b. Deliver the service as specified by the customers.
c. Operation departments should attempt to avoid mistakes.
d. Minimizing back office support to keep costs down.
e. Minimizing technological investment also.
• Stage 2: Journeyman
a. The firms now seek feedback from its customers
regarding costs and quality.
b. Operation department becomes outward looking and
interested in benchmarking to cut costs and maintaining
quality
c. Technology to be justified based on the cost savings
possible.
d. Back office is now seen as an internal service function.
e. The emphasize shifts from controlling workers to
managing processes.
f. Employees are given procedures to follow and
management consists of ensuring that these procedures
are followed.
• Stage 3: Distinctive Competence Achieved
a. Operations have reached a point where they continually
excel, reinforced by the personnel management function
and systems that support the customer focus.
b. In this way, firm has mastered the core service and
understands the complexity of changing such operations.
c. The back office is to be seen as valuable as front office.
• Stage 4: World Class Service Delivery.

a. Operations not only have to continually excel but also
become a fast learner and innovator by the help of well
trained workforce.
b. Back office should be proactive and generate opportunities.
c. Technology is seen as a way to break the paradigm
(example) – to do things competitors cannot do.
How can we develop suitable service operation?
Following steps should follow to develop well reputed services for the
customers-
1. Isolating the technical core: it argues for minimizing the amount of
customer contact with the system. Actually clients pose problems for
organizations by (disrupting their routines, ignoring their offers, failing
to comply with their procedures, and so forth)
2. Minimizing the servuction system
3. Production-lining the whole system (including servuction system):
The production line approach involves the application of hard and soft
technologies to both the front and back of the service operation.
(a) Hard Technologies: Hardware that facilitates the production of a standardized
product
(b) Soft technologies: Rules, regulations, and procedures that facilitate the production
of a standardized product
4. Creating flexible capacity: Using part time employees, sharing other’s
capacity, etc
The Pricing of Service
Price: The amount of money charged for a product or service or the sum of the values
that consumers exchange for the benefits of having or using the product or service.
Buyer’s Perceptions of Value
Product Value
Service Value Total
Customer
Personnel Value Value
Image Value Buyer’s
Perception of
Monetary Cost Value
Time Cost Total

Customer
Energy Cost Cost
Psychic Cost
• Product Value: The worth assigned to the product by the
customer.
• Service Value: The worth assigned to the service by the
customer.
• Personnel Value: The worth assigned to the service-
providing personnel by the customer.
• Image Value: The worth assigned to the image of the
service or service provider by the customer.
• Monetary Price: The actual currency price paid by the
customer for a product.
• Time Costs: The time the customer has to spend to
acquire the service.
• Psychic Cost: The mental energy spent by the customer
to acquire the service.
If cost is > value = Negative Demand
When price is an indicator of benefit or value.
Special Considerations of Service Pricing
The following decisions are to be considered while pricing certain services:
1. Demand Considerations:
D1. The demand for services tends to be more inelastic than the
demand for goods.
D2. Cross price elasticity considerations need to be examined (which
derive from bundle of customers).
D3. Price discrimination is a valuable proactive to manage demand and
supply challenges.
2. Cost Considerations:
D4. With many professional services the consumer may not know the
actual price they will pay for service until the service is completed.
D5. Cost oriented pricing is more difficult for services.
D6. Services tend to be characterized by a high fixed cost to variable
cost ratio.
D7. Economies of scale tend to be limited.
4. Customer Consideration: If other information is
available the price info value decrease.
D8. Price tends to be one of the few cues to consumers during pre-
purchase.
D9. Service consumers are more likely to use price as a cue to
quality.
D10. Service consumers tend to be less certain about reservation
prices (the maximum amount the consumer is willing to pay).
5. Competitive Considerations:
D11. Comparing prices of competitors is more difficult for service
consumers.
D12. Self-service is a viable competitive alternative.
• Profit Consideration:
D13. Price bundling makes determination of individual prices in the
bundle of services more complicated.
D14. Price bundling is more effective in a service context.
6. Product Considerations:
D15. Compared with the goods sector, there tend to be
many different names for price in the service sector.
Example: Airfare, Rent, Room rate.
D16. Consumers are less able to stockpile (store) services
by taking advantage of discount prices.
D17. Product-line pricing tends to be more complicated.
7. Legal Consideration:
D18. The opportunity for illegal pricing practices to go
undetected is greater for services than goods.
Emerging Service Pricing Strategies
1. Satisfaction based pricing:
Pricing strategies that are designed to reduce the amount of
perceived risk associated with a purchase. It includes-
a. Service guarantee pricing: This pricing assures customers that if they are
less than satisfied with their purchase they can invoke (raise) their guarantee,
and a partial or full refund will occur.
b. Benefit driven pricing: A pricing strategy that charges customers for
services actually used as opposed to overall “membership” fees. This focuses
on the aspects of the service that customers actually use.
c. Flat-rate pricing: In this pricing, the customers pays a fixed price and the
provider assumes the risk of price increases and cost overruns. The primary
focus is to decrease consumer uncertainty about the final price.
2. Relationship pricing:
Pricing that encourage the customer to expand his or her dealings
with the service provider. The primary objective is is to enhance the
firm’s relationship with the targeted customers. It includes-
a. Long-term contracts: It offers perspective customers price and nonprice
incentives for dealing with the same provider over a number of years.
b. Price bundling: The practice of marketing two or more products and/or
services in a single package at a single price.
c. Mixed bundling: Price-bundling technique that allows consumers to either
buy Service A and Service B together or purchase one service separately.
3. Efficiency Pricing:
Pricing strategies that appeal to economically minded consumers by delivering the
best and most cost-effective service for the price. The primary goal of efficiency
pricing is to appeal to economically minded consumers, who are looking for best
price.
The Summary
Satisfaction-based, Relationship, and Efficiency Pricing Strategies
Pricing Strategy Provides Value by.. Implemented
as…
Satisfaction-based Recognizing and reducing customers’ perception Service guarantees
Pricing of uncertainty , which the tangible nature of Benefit-driven
service magnifies pricing Flat-rate
pricing
Relationship Encouraging long-term relationships with the Long-term
Pricing company that customers view as beneficial contracts Price
bundling
Pricing Guidelines:
1. Easy for the customers to understand.
2. Should represent value to the customer.
3. Encourage customer retention and facilitate
customers’ relationship with providing firms.
4. Should reinforce customer trust.
5. Should reduce customer uncertainty.
Pricing Approaches:
1. Cost based pricing: Price
= Total Cost + Profit Margin. (T.C = fixed cost + variable cost).
2. Competition based pricing: This
approach focuses on the prices charged by other firms in the same
industry or market. Using others’ price as an
anchor for the firm’s price.
3. Demand based pricing: This approach
focuses on the price charged base on demand of service of certain firm.
Synchronic (skimming) pricing: Manage demand for a service by
using customer sensitivity to prices.
Place differential Time differential
Quantity differential Differentials as incentive
Lower prices for new or existing clients in the hope of encouraging them
to regular or more frequent users.
Penetration Pricing: Pricing the service based on degree of market penetration.
Value is low price Value is everything I want
•Discounting. in a service
•Odd pricing. •Prestige pricing.
•Synchronic pricing. •Skimming pricing.
•Penetration pricing.
Value is quality I get for Value is all that I get for

the price I pay all that I give
•Value pricing. •Price bundling.
•Market segmentation •Price farming.
pricing. •Complementary
pricing.
•Result based pricing.
Service Intermediaries:
Key Intermediaries
1. Franchising: It’s a relationship or partnership in which the
service provider– the franchiser develops optimizes a service
format. That it licenses for delivery by other parties– the
franchisees.
It works well with service that can be standardized
and duplicated through the delivery process, service
policies, warranties, guarantees, promotion and
branding.
2. Agents and brokers: An agent is an intermediary who
acts on behalf a service principal and is authorized to
make agreement between customers and the principal.
Example: Agents of sports people, Actors.
Broker: Brokers bring buyer and seller together while
assisting in negotiation
Agent & Brokers do not take title of services but instead
deliver the rights to them.
3. Electronic channels: Electronic channels are the only
service distributors that do not require direct human
interaction. What they do require is some pre designed
service and an electronic vehicle to deliver it.
Information, Education or Entertainment.
Strategies for Effective Service
Delivery through Intermediaries
1. Control Strategies:
– Measurement.
– Review: Non renewals, termination, quotas etc.
2. Employment Strategies:
– Provide needed support systems.
– Develop intermediaries to deliver service quality.
– Cooperative management.
3. Pastering Strategies:
– Alignment of goals.
– Consultation and cooperation.
Managing Service Customers
Managing Customer Participation
Customer Participation is the mental and physical involvement of
the customer into the service production process.
As customer participation increases, the efficiency of operation
decreases. Customer participation creates uncertainties in the
production scheduling of service. For example, customer has
direct impact on the type of service desires, length of service
delivery process and cycle of service demand. However,
customer participation in service delivery process has become
a popular strategy to increase the supply of service available
to firms. By allowing customer to co-produce, contact
personnel are freed to perform other duties, i.e., serving other
customers or engages in non-customer related activities.
Co-produce: When service is produced via a cooperative effort
between customers and service providers.
Following are the techniques of managing service customer:
1. Develop customer trust: Firms should provide information to the
customers that explains why self-service opportunities are being
provided and the potential customer benefits.
2. Promote the benefits and stimulate trial: The typical benefits
associated with self-service are convenience, cost savings, and
customization to customer. Example: Gas station for cost saving,
Coffee for customization, ATM for convenience.
3. Understand customer habit: When transferring from full service
to the self-service is that we tend to forget why customer might
prefer using full-service options in the first place
4. Pretest new procedures: All new self-service options should be
thoroughly protested, not only by the firm’s employees but
particularly by customers who do not have the advantage of full
information. Protesting helps in identifying and correcting potential
problems before new procedures are fully introduced.
5. Understand the determinants of consumer: When
considering consumer benefits of self-service alternatives,
firms should understand the determinants of consumer
behavior from variety of needs perspectives.
6. Teach consumers how to use service innovations: Many
of today’s self-service options are technology driven, and in
many cases customers are felt to fend for themselves in
attempt to use these new alternatives .
7. Monitor and evaluate performance: If a firm’s self
service option enjoys an initial success, it should be
continuously monitor and evaluated throughout the year.
Example: Does demand fluctuate? What are the possible
cases?
Managing Consumer Waits
Since service production and consumption occur
simultaneously, service managers often are faced
with managing other customer related challenges.
Demand often outpaces supply and queues develop
that must be effectively manage to minimize
customer dissatisfaction.
Effectively managing consumer waits is particularly crucial of
the importance of first impression on consumer
perceptions of the service experience. There are eight
principles of waiting have developed to help service firms
for effectively manage consumer waits. These are
discussed bellow:
Managing Customer Waits
1. Unoccupied waits feel longer than occupied waits:
Waiting around with nothing to do makes every minute seem so
much longer. Hence service firm can manage waits offering
additional things. Example, Newspapers in doctor’s chamber
2. Preprocess waits feel longer than in-process waits-
postprocess waits feel longest of all:
The waiting period before the services starts feels longer to
customers than waiting while the service is in process.Exam,
doctor calls 5 patients inside the room making them sense that
they are under process.
Postprocess waits feel the longest when service is delivered and
consumers are waiting for the receipt.
3. Anxiety makes the wait seem longer:
Waiting in a traffic signal informing delayed airline passengers
that connecting flights are being held for them.
Managing Customer Waits
4. Uncertain waits are longer than known finite waits:
When waiting in a doctor’s office the wait before the stated
appointment time passes much more faster than the time spent
waiting beyond the appointment time.
5. Unexplained waits are longer than explained waits: It
is human nature to want an explanation. Customers want to
know why they have to wait, and the earlier the information is
provided, the more understanding the consumer becomes.
6. Unfair waits are longer than equitable waits.
Bypassing all the other customer who have been patiently
waiting for their turn means unfair.
7. The more valuable the service, the longer the customer
will wait.
8. Solo waits are longer than group waits.
Developing the Service Communication
Mix
Introduction: The primary roles of a service firm’s communication
strategy is to-
• Inform
• Persuade
• Remind
• Action / Purchase
Through
Non personal source: Communication channels that are
considered impersonal, such as TV advertising or printed
information.
Personal source: Communication channels that are considered
personal, such as a face-to-face encounter.
Developing Communication Strategy
1. Selecting the target market:
Firms follow the same communication strategy for both goods
and services. Firms in this case, first identify the needs of
consumers and then segment them with similar needs. Each
segment is further evaluated based on profit and growth potential
and the compatibility with firm’s resources and objectives.
Target markets is therefore, the segments of
potential customers that become the focus of a firm’s marketing
efforts.
2. Developing the firm’s positioning strategy:
Once the target market is selected, successful service firms
establish a positioning strategy
Positioning strategy is the plan for differentiating the firm from its
competitors in consumer’s eyes. Example: Teacher may use
multimedia to differentiate his/her lectures from others.
• Differentiation approaches for effective positioning
a. Product differentiation b. Personnel
i. Features differentiation
ii. Performance i.
iii. Durability Competence
iv. Reliability ii. Courtesy
v. Repairability
iii. Credibility
vi. Style
vii. Design (integrates the above) iv. Reliability
v.
Responsiveness vi.
Communication
c. Image differentiation d. Service differentiation
i. Delivery (spend,
i. Symbols accuracy)
ii. Written, audio/visual ii. Installation
iii. Customer training
3. Developing the communication budget and mix
Communication mix is the arrangement of communication tools
available to marketers. It includes (a) Personal selling (b) Media
advertising, (c) Publicity and Public relations and (d) Sales promotion.
Personal selling is the two-way element of the communications mix in
which the service provider influences a consumer via direct interaction
Media advertising is a one-way communications tool that utilizes such

media as television and radio to reach a broadly defined audience.
Publicity and public relations is a kind of communication tool between
an organization and its customers, vendors, news media, employees,
stockholders, the government, and the general public.
Sales promotion is a one-way communications tool that utilizes
promotional or informational activities at the point of sales.
Communication Budget is vital to set communication strategy for the service
firms. It includes many techniques such as percentage-of-sales, the all-
you-can-afford approach, competitive parity, etc. After establishing
budget it is divided among the communication mix.
Communication Content of Objective
Communication content and objectives
The objectives of the firm’s communication mix often relate
directly to the service offering’s stage within the product life cycle
Product(PLC).
life cycle stage Communication content Communication objectives
Introduce the service offering
Introduction Information Create brand awareness
Prepare the way for personal selling efforts
Encourage trial
Create a positive attitude relative to
competitive
Growth and Information and
offerings Provoke an
maturity persuasive immediate buying action Enhance
the firm’s image
Encourage repeat purchases
Maturity and Persuasive and Provide ongoing contact
Express gratitude to existing
decline reminder
customer base
Special Problems of the Service Communication
1. Mistargeted communications: The communications methods that
affect an inappropriate segment of the market. As we know, firm’s
segmentation strategy affect the marketing efficiency of firm the target
segment should properly select.
2. Managing expectations: The service firms can play a key role in
formulating customer expectations about its services.
Expectations can be set by something as explicit as promise (your food
will be ready by five minutes) or as implicit as a behavioral pattern.
Perceive service also has many service sources. Technical service quality
(TSQ) is one of such sources. TSQ is an objective, measurable level of
performance produced by the operating system of firm. Service firms
should match between perception and expectation.
3. Advertising to employees: The staff of service firms frequently forms
a secondary audience for any firm’s advertising campaign
Problem: Communications developed
without a clear understanding the operational problem; it can imply
service performance level unrealistically high.
Special Problems of the Service
Communication
Double effects on the staffs: It affects service staffs in two ways-
(a) It shows that people who developed the communications did not
understand the business. (b) It raises the prospect that customer will
actually expect the service to operate that way, and the staff will
have to tell them that the reality differs from the level of service
portrayed (rendered) in the firms’ communications.
4. Selling/operation conflicts: Another consideration unique to the
service sector is that the individuals who sell the service are often
the same people who provide the service. In some cases providers
become so involved in the communication aspects that they no
longer actively participate in the service operation.
The Conflict: The conflicts associated here are two
folds: (a) economic considerations- The conflict consists with the
aspects that the service providers are paid for providing services
and are not paid for time spent on communication activities. (b)
Role related consideration- Many professional service providers
believe that communication activities are not within the expertise.
Consequently, they feel uncomfortable with communication
General Guidelines for Developing Service
Communications
Many guidelines have developed because of distinct service characteristics
1. Develop a word-of-mouth communications network: Service consumers
rely more on personal sources of information to reduce risk associated
with a purchase. This nonpersonal source encourages current buyers
to recruit their friends (professional group, etc) in the active purchase.
2. Promise what is Possible: Customer satisfaction is developed by
customer’s comparing their expectations with their perception of
actual service delivery process. Making promises increase customers
expectation and lower satisfaction arises as those promises are not
met. A good advise is Don’t over Promise. It creates two problems-
(a) Disappointed and (b) Loss of trust between firm and customers.
3. Tangibilize the intangible: Add tangible properties of the market entities.
Example: perfume (smell) in a bottle.
4. Feature the working relationship between customer & provider: It is
appropriate with firm's advertising to feature a company representative
and a customer working together to achieve a desire outcome.
5. Reduce customer fear about variations in performance: The firm’s
advertising can also minimize the pitfalls of heterogeneity in the
customer’s mind. To enhance the perception of consistent quality the
firm’s advertising should provide some form of documentation.
6. Determine and focus on relevant service quality dimensions: There are
five dimensions customers follow to choose competing services- (a)
Reliability, (b) Responsiveness, (c) Assurance (d) Empathy and
(e) The quality of tangibles associated with services.
7. Make the service more easily understood: Services can be more fully
explained to potential customers via the communications mix by
presenting the service as a series of events. Break down the service
experience into a series of sequential activities. Example: A hotel
customer may view the hotel building, parking facilities, landscaping,
and cleanliness before booking the room.
Managing Service Employees:
1. Boundary Spanning Role:
The various parts of played by content
personnel, who perform duel functions of
interacting with the firm’s external event and
internal organization.
Purpose of BSR (Boundary Spanning Role):
a. Information transfer.
b. Representation.
Sources of conflict in BSR:
a. Person / Role conflict:
A bad fit between an individuals
self perception and the specific role the person
must play in an organization.
b. Organization / Client conflict:
Disagreements that arise when a
customer requests services the violate the rules
of the organization.
Contact Personnel
Contact Personnel
Customer Organization
c. Inter Client Conflict:

Disagreements between clients that arise became of the
number of clients who influence each other’s experience.
Reducing the Role with Marketing:
a. Reducing personal / Role conflict: Promotional
gsimmic.
b. Promotions.
c. Segmentation.
Empowerment:
Giving discretion to front line personnel
to meet the needs of consumers creatively.
Service Quality:
Service quality is an attitude formed by a long
term, overall evaluation of a performance.
Customer satisfaction is a sort term,
transaction / specific measure.
Diagnosing Failure Gaps in Service
Quality:
Knowledge Customer
Gap Expectation
Management
Performance of
Customers
Expectations
Standard
Gap
Standards Retail
Specifying Service
Communication
Service to be Gap
About Service
Delivered
Delivery
Gap
Communication
Actual Service Gap
Delivered
Customer
Perception of
Service
Service Gap:
The distance between a customer’s
expectation of a service and perception of the
service actually delivered.
Knowledge Gap:
The difference between what consumers
expects of a service of a service and what
management perceives the consumers to expect.
Obvious gap difference between what
customers want and w hat mangers think about
customer’s want.
Example 01: A hotel may feel that its
customers prefer comfortable rooms but actual
more interested in onsite cure sites.
When Knowledge Gap Occurs:
1. The wrong facility may be provided.
2. The wrong staff may be hired.
3. The wrong training may be undertaken.
4. Service may be provided that customers
have no use for, where as the service they
do not desires are not offered.
Marketing Task:
Closing these gap requires detailed knowledge
of what customers desire and building a
response into the service operation system.
Factors Influencing Knowledge Gap:
Research orientation: A firm’s attitude toward
conducting consumer research.
Update Communication: The flow of
information.
Levels of Management: The complexity of the
organization hierarchy and the number of levels
to management and customers.
The Standard Gap:
The difference between what
management perceives consumers to expect
and the quality specifications set for service
delivery.
Example: order processing speed. The way
cloth napkins are folded or the way customers
are to be greeted.
1. Factors Influencing the Standard Gaps:
2. Management’s belief-
Example: In many cases, management deos
not belive it can or shoud meet customer
requirements for service.
Example: over night delivery of mail
3. Management Commitment to the Service
Delivery: Sometimes management has no
commitment to the delivery of service quality.
Corporate leadership may set other priorities.
4. Culture of Service Quality:
5. Insufficient Methods of Measuring Quality:
6. Insufficient Methods of Converting:
7. Measurements into Standards:
The Delivery Gap:
The difference between the quality
standards set for service delivery and the
actual quality of service delivery.
Example:
Do employees wear name tags?
Do employees establish eye contact?
Do employees thank customers?
Factors Influencing the Delivery Gap:
1. Willingness to perform: An employee’s desire to
perform his/ her full potential in a service encounter.
2. Employee – job fit: The degree to which employees
are able to perform a service to specification.
3. Role Conflict: An inconsistency in service providers
minds between what the service managers expects
than to provide and the service they think their
customers actually want.
4. Dispersion of Control:
5. Learned Helplessness:
6. Inadequate Support:
Communication Gap:
The difference between the actual quality of

service delivered and the quality of service
described in the firm’s external communications.
Difference between advertise and reality.
Factors:
1. Over Promise:
2. Horizontal communication.
Service failure:
Breakdowns in the delivery of service; Service
that doesn’t meet customer expectation.
Critical Incidents:
The moments of actual interaction between the
customer and the firms.
Example: Poor food preparation, mishandled
language, overworked flight attendants, out - of
- stock auditions, slow service, poorly managed
physical facilities, etc.
Types of service failure:
1. System failures: Failure in the core service
offering of the firm.
3 types:
a. Unavailable service: Service normally available
that are lacking or absent.
b. Unreasonably slow service: Service of
employees that customers perceive as being
extraordinarily slow in fulfilling their function.
c. Other core service failure: All remaining core
service breakdown or actions that do not live
up to the customer expectations.
2. Customer needs and requests: The individual needs
and special requested of the customers.
a. Implicit needs: needs that are not requested but that should be
obvious to service providers.
Example: Become sick at journey period.
b. Sap licitly Request: Customer needs that are overtly request.
c. Special needs: Requests based on a customers; Special
medical, psychological, Language, or sociological difficulties.
d. Customer preferences: The needs of a customer that are not
due to medical, dietary, psychological, Language or
sociological difficulties.
Example: Substitution is the restaurant etc.
e. Customer error: Service failures caused by admitted customer
mistakes. Example: Lost tickets, lost keys etc. Forgot to tell.
f. Disruptive others: Customers who negatively influence the
service experience of other customers. Some times employees
require settling despules between Customers.
3. Unprompted and unsolicited Actions: Events
and employee behaviors, both good and bad,
totally unexpected by the customer.
a. Level of Attention: Positive and or negative given a
customer by an employee.
Negative - Poor attitude, employee who
ignore a customer.
Positive - Employees who usable to
anticipate customer need.
Customer Complaining
Behavior:
What is complaining?
Complaining is defines as ‘expressing
discontent, dissatisfaction, protest, resentment
or regret’.
Types of Complain:
1. Instrumental complaints: Complaints expressed
for the purpose of altering an undesirable state of
affairs.
Example: Complaining to a waiter about and under
looked steak.
2. Non Instrumental Complaints: Complaints
expressed without expectation that an undesirable
state will be altered.
Example: Complaints about the weather.
3. Ostensive Complaints: Complaints dissected at
someone or something outside the realm of the
complainer.
Why do Customer Complain?
1. It provides an emotional release from
the frustration.
2. Desire to regain some measure of
control.
3. To solicit sympathy and test for
consensus of the complaint.
4. To create an impression.
Why do Not Customer
Complain?
1. Complainers don’t know what to do.
Because of intangibility.
2. Customer may feel uncomfortable to
complain face to face. Because of
inseparability.
3. Customer may not feel adequately qualified
to voice a complaint.
Complaining Outcomes:
1. Voice: A complaining outcome in which the
consumer verbally communicates dissatisfaction
with the store or the product.
2. Exit: A complaining outcome in which the
consumer stop patronizing the store or the product.
3. Retaliation: A complain outcome in which the
consumer takes action deliberately designed to
damage the physical operation or hurt future
business.
The Art of Service Recovery:
Service recovery: A firm’s reaction to a complaint
that results in customer satisfaction and goodwill.
1. Measure the cost.
2. Actively Encourage.
3. Anticipate needs for recovery.
4. Respond quickly.
5. Train employees.
6. Empower the front line.
7. Close the loop.
– New Service Development Strategy.
– Skimming Vs. Penetration Pricing.
Customer Retention:
Focusing the firm’s marketing efforts
toward the existing customer base.
Refers to satisfy existing customers with
the intent of developing long term relationship
between the firm and its current customers.
The Benefits of Customer Retention:
1. Profit Derived from Sales: On of the way benefits
of customer retention is repeat sales.
Profit derived from –
Repeat sales increase purchase frequency.
Existing customer are willing to pay more.
2. Profits from Reduced Operation costs: Overall,
long term customers tend to have lower
maintenance costs. Existing customers become
accustomed to the company, employees and
procedures; therefore, they ask fewer questions and
have fewer problems and require less attention.
3. Profit from referrals: Another benefit of
customer retention is the positive word of
mouth advertising generated by satisfied
customers.
Satisfied customers often refer
businesses to their friends and family, which
in term, reinforce their own decision.
Personal sources of information are
particularly important to services, customers
become of intangibility.
Customer Retention Tactics:
1. Maintain the proper perspective: Maintaining the
proper perspective involves a customer oriented
frame of mind and an attitude for service. Employees
need to remember that every customer has his own
personal set of needs and that the customers, not the
employees, expectations define performance.
2. Remember customers between calls: Sending
birthday, Get well, Anniversary cards, Congratulate
on personal success.
3. Build Trusting Relationship: Trust is defined as a
firm belief or confidence in the honesty, integrity,
and reliability of another person.
Major Component of Trust:
a. Service providers’ expertise.
b. Service providers’ reliability.
c. Service providers’ concern for the customer.
Strategies for Building Trust:
i. Protect confidential information.
ii. Disparaging remarks about other customers and
competitors.
iii. Telling the customer truth, even it hurts.
iv. Providing the customer with full information – the
products and the customers.
v. Being dependable, courteous and couriderate with
customers.
vi. Becoming actively involved in community affairs.
4. Monitor the Service Delivery Process:
Because of the inseparability of services. The
customer is involved in the delivery process.
5. Relationship Marketing: Marketing
technique based on developing long term
relationship with customers.
6. After Marketing: Marketing technique that
emphasizes marketing after the initial sale
has been made –
• Customer database.
• Creating A / M culture.
• Formal communication.
Service Guarantees:
Types of Guarantees:
i. The Implicit Guarantee: An unwritten,
unspoken guarantee that establishes an
understanding between the firm and its
customers.
ii. Specific result Guarantee: A guarantee that
applies only to specific steps or outputs in the
service delivery process.
iii. Unconditional Guarantee: A guarantee that the
promises complete customer satisfaction and at a
minimum, a full refund or complete, no cost
problem solution.
Home Assignment:
‘Complaining customers are assets’- Justify this
statement with an example happened in your
real life.
Emmy’s and Maddy’s
• Date: August 16th, 1995(5.25 am)
• EDD: November 16th (3 weeks early)
The Emergency Department:
First encounter - Security guard
• Casual conversation with another gentleman.
• The car should not be left in its current position.
• The guard pointed out where the wheelchairs are
available.
• The security guard continued casual conversation.
• Wife’s encounter with the triage nurse: Good
• Orderly: She asked the patient where there she is
excited or not? The patient informed that she was
scared to death. Babies will not survive.
• The service encounters with both the guard and the
orderly were assss poor and much more opportunity
to improve.
The Maternity Ward
• The father was greeted by several smiling
nurses.
• The nurse admitted the orderly’s attitude.
• The resident was so nervous that he introduced
himself as doctor Barkev’s assistant.
Service Failure - Mislintroduction
The Junior
Two things:
Baby’s Condition
Service Recovery:
Doctor Barkev Apologize.
Encounter with Doctor:
Arthum:
• Talking together.
• 90% survives and developed normally.
The Delivery Room
• Overwhelmed by the number of people (12).
• The junior was assisting the Dr. Johnson. The
husband lied.
• A station was set in that room.
Recovery Room
• Fulltime nurse.
• Taking pictures of the basic.
The 4th Floor
1. Dirty, small and dingy.
2. Staffs were not prepared to deal with.
3. Nurses were good.
4. Nurses were inattentive, slow to respond.
5. Quick service recovery.
The Neonatal Intensive Care Unit (NICU):
Care for premature babies.
1. The staff makes every effort to explain the purpose
of every piece of machinery and every tube.
2. 2. Allowed to ask questions repeatedly.
3. Service exceptional.
4. Staffs were excellent.
5. Good in dealing.
6. Personal touches.
a. Daily pictures.
b. Homemade birthday cards.
c. Baby sticker on this incubator.
7. Parent involvement.
The Grower Room
Full time observation for feeding and diaper
changing, medication and statistics growth.
Bad side:
1. Nurses uncomfortable.
2. Friction between NICU.
3. The parent asked for supplies.
4. Lack of budget.
5. Good people but far lower than NICU.
Nesting
Wonderful discharge nurse.
Positioning Services in Competitive Markets
In a competitive environment, there’s a risk that customers will perceive
little real difference between competing alternatives and so make their
choices based on price. Positioning strategy is concerned with creating
and maintaining distinctive differences that will be notived and valued
by those customers with whom the firm would most like to develop a
long-term relationship. Successful positioning requires managers to
understand both their target customers’ preference and the
characteristics of their competitors’ offerings.
Focus underlies the search for competitive advantage
As competition intensifies in the service sector, it’s becoming ever
more important for service organizations to differentiate their products
in ways that are meaningful to the customers.
Managers need to think systematically about all facets of the service
package and to emphasize competitive advantage on those attributes
that will be valued by customers in the target segment(s).
Because of varied customers needs, a company needs to focus it
efforts on those customers it can serve best rather than attempting to
compete in an entire market.
Focus underlies the search for competitive
advantage
Focus- In marketing terms, focus means providing a relatively narrow
product mix for a particular market segment- a group of buyers who share
common characteristics, needs, purchasing habits or consumption pattern.
The extent of a company’s focus can be described on two dimensions:
market focus and service focus. Market focus is the
extent to which a firm serves few or many markets, whereas Service focus
describes the extent to which a firm offers few or many services.
NarrowBreadth of serviceWide
offerings
A fully focused Unfocused
organization
provides (Everything for
Service focused
a very limited range of Many Everyone
Number of
services to a narrow and markets Fully focused
specific segment. A market served
(Service and Market focused
focused company concentrates on Few market focused)
a narrow market segment but has a wide range of services. Service focused firms
offer a narrow rang of services to a fairly broad market. Finally many service
providers fall into the unfocused category because they try to serve broad
markets and provide a wide range of services.
Market Segmentation Forms the Basis for Focused
Strategy
• Different service firms vary widely in their abilities to serve different
types of customers. Hence, rather than trying to compete in an entire
market, perhaps against superior competitors, each firm should adopt a
strategy of market segmentation, identifying those parts, or segments
of the market that it can serve best. The followings are to be
considered: 1. Market and Microsegmentation: Traditionally, firms
have sought to achieve economies of scale by marketing to all
customers within a specific market segment and serving each in a
similar fashion. A strategy of mass customization-offering a service
with some individualized product elements to a large number of
customers at a relatively low price- may be achieved by offering a
standardized core product but tailoring supplementary service elements
to fit the requirements of individual buyers.
The creation of customer databases and
sophisticated analytical software makes it possible for firms to adopt
microsegmentation strategies targeted at small groups of customers
that share certain relevant characteristics at a specific point of time.
Strategy
2. Identifying and selecting target segments: A market segment is
composed of a group of buyers who share common characteristics ,
needs, purchasing behavior, or consumption patterns.
A target segment is one that a firm has selected from among
those in the broader market and may be defined on the basis of several
variables. Service firms that are developing strategies based on use of
technology recognize that customers can also be segmented according
to their degree of competence and comfort in using technology-based
delivery. An important marketing issue for any business is to accept
that some market segments offer better opportunities than do others.
Target segment should be selected not only on the basis of their sales
and profit potential but also with reference to the firm’s ability to
match or exceed competing offerings directed at the same segment.
In many emerging market economies, huge
numbers of consumers have incomes too small to attract the interest
of service businesses that are accustomed to focusing the the need
more affluent customers. Collectively, however, low wage-earners
represent a very big market and may offer even greater potential for
the future as many of them move upward toward middle-class status.
Strategy
3. Using research to develop service concept for a specific segment: How
can a firm develop the right service concept for a particular target
segment? Formal research is often needed to identify what attributes of a
given service are important to specific market segments and how well
prospective customers perceive- (a) The timing of use (time of
day/week/season) (b) Whether the individual is using the service alone or
with a group, and (c) The composition of that group
4. Important versus determinant attributes: Consumers usually make their

choices from alternative service offerings on the basis of perceive
differences among them. But the attribute that distinguish competing
services from one another are not always the most important ones.
Determinant attributes, or those determine buyers’ choices among
competing alternatives, are often some way down the list of service
characteristics that are important to purchasers, but they are the attributes
on which customers see significant differences among alternatives. The
market researchers’ task,of course, is to survey customers in the target
segment, identify the relative importance of various attributes, and then
ask which ones have been determinant during recent decision involving a
choice of service suppliers.
Positioning distinguishes a brand from its competitors
Competitive positioning strategy is based on establishing and maintaining
a distinctive place in the market for an organization and/or its
individual product offerings. Jack Trout has distilled the essence of
positioning into the following four principles:
1. A company must establish a position in its target
customers minds. 2. The position should be singular, providing one
simple and consistent message 3. The position must set a company apart
from its competitors. 4. A company cannot be al things to all
people; it must focus its efforts. These principles apply to any type of
organization that competes for customers. Understanding the
principles of positioning is the key developing an effective competitive
posture. One of the challenges in developing
a viable positiong strategy is to avoid the trap of investing to heavy in
points of difference that can easily be copied. As researcher Kevin
Keller, Sternthal and Alice Tybout note: “Positioning needs to keep
competitors out, not draw them in.” The followings are
demanded to be discussed here:
1. Copy positioning versus product positioning: Customers’ brand choices
reflect which brands they know and remember and how each of these
brands is positioned within each customer's mind. These positions are
perceptual. We need to remember that people make their decisions
based on their perceptions of reality rather than on an expert’s definition
of that reality.
Positioning strategy is becoming more sophisticated as growing
numbers of firms engage in co-branding.
2. Positioning’s role in marketing strategy:
Positioning plays a pivotal role in marketing strategy because it links (a)
market analysis and (b) competitive analysis to (c) internal corporate
analysis. From these three, a position statement can be developed that
enables the service organization to answer the following questions: (a)
what is our product (or service concept)? (b) what do we want it to
become? (c) what actions must we take to get there?
Because of the intangible,
experiential nature of many services, an explicit positioning strategy is
valuable in helping prospective customers to get a mental “fix” on a
product that would otherwise be rather amorphous.
Failure to select a desired position in the market place- and to develop a
marketing action plan designed to achieve and hold this position- may
result in one of several possible outcomes, all undesirable:
The organization( one of its products) is pushed
into a position where it faces head-on-competition from stronger
competitors. The
organization (product) is pushed into a position that nobody else
wants, because there is little customer demand.
The organization’s (product’s) position
is so blurred that nobody knows what its distinctive competence is.
The organization (product) has no
position at all in the market place because nobody has ever heard of it.
Competitive positioning can be changed
Sometimes firms have to make a significant change in an existing position.
Such a strategy, known as repositioning, could mean revising service
characteristics or redefining target market segment. At the firm level,
repositioning may entail abandoning certain products and withdrawing
completely from some market segments. For an example of a need to
reposition because of legal and ethical considerations. The followings
need to discussed-
1. Changing perceptions through advertising: Improving
negative brand perceptions may require extensive redesign of the core
product and/or supplementary services. However, weaknesses are
sometimes perceptual rather than real.
2. Innovating in positioning: Most companies
focus on matching and beating their rivals, with the result that their
strategies tend to emphasize the same basic dimensions of competition.
However, one way to compete is to introduce new dimensions into the
positioning equation that other firms cannot immediately match. James
Heskett frames the issue nicely: The most successful service firms separate
themselves from “the peak” to achieve a distinctive position in relation to their competition. They
differentiate themselves…..by altering typical characteristics of their respective industries on
their competitive advantage.
Managing Relationships and Building Loyalty
Targeting, acquiring, and retaining the "right" customers is at the core of
many successful service firms. In this chapter, we emphasize the
importance of carefully choosing target segments and taking pains to
build and maintain their loyalty through well-conceived relationship
marketing strategies. Once a firm has won customers it sees as desirable,
the challenge shifts to building relationships and turning them into loyal
customers who will generate a growing revenue stream for the firm in future.
Building relationships is
a challenge, especially when a firm has many, often million, of customers
who interact with the firm in many ways.
The Search for Customer Loyalty
Loyalty is an old-fashioned word that has traditionally been used to
describe fidelity and enthusiastic devotion to a county, cause, or
individual. More recently, it has been used in a business contest to
describe a customer's willingness to continue patronizing a firm over the
long term, purchasing and using its goods and services on a repeated and
preferably exclusive basis, and recommending the firms' products to
friends and associates. However, brand loyalty extends beyond behavior
to include preference, liking, and future intentions.
Richard Oliver has argued that consumers first become loyal in a cognitive
sense, perceiving from brand attribute information that one brand is
preferable to its alternatives. At the second stage is affective loyalty,
whereby a consumer develops a liking for the brand, based on
cumulatively satisfying usage occasions. Such attitudes are not easily
dislodged by counterarguments from competitors. At the third stage is
conative loyalty, whereby the consumer is committed to rebuying the
save brand. This should lead to the fourth stage, which is action loyalty,
whereby the consumer exhibits consistent repurchases behavior.
Why is Customer Loyalty Important to a Firm's Profitability?
How much is a loyal customer worth in terms of profits? In a classic
study, Reichheld and Sasser analyzed the profit per customer in various
service businesses, categorized by the number of years that a customer
had been with the firm. The researchers found that the longer customers
remained with a firm in each of these industries, the more profitable
they became to serve.
Underlying this profit growth, say Reichheld and Sasser, are four
factors working to the supplier's advantage to create incremental profits.
In order of magnitude at the end of seven years, these factors are-
1. 1. Profit derived from increased purchases (or, in a credit card or
banking environment, higher account balances). Over time, business
customers often grow larger and so need to purchase in greater
quantities. Individuals may also purchase more as their families grow
or as they become more affluent.
2. Profit from reduced operating costs. As customers become more
experienced, they make fewer demands on the supplier (for instance,
less need for information and assistance). They may also make fewer
mistakes in operational processes, thus contributing to greater
productivity.
3. Profit from referrals to other customers. Positive word-of-mouth
recommendations are like free sales and advertising, saving the firms
from having to invest as much money in these activities.
4. Profit from price premium. New customers often benefit from
introductory promotional discounts, whereas long-term customers
are more likely to pay regular prices. Moreover, when customers
trust a supplier, they may be more willing to pay higher prices at peak
periods or for express work.
Customer Lifetime Value and Customer Equity
Once we recognize that relationships with loyal
customers have the potential to generate an ongoing stream of profits, it
becomes clear that those customers are an important financial asset for
the firm. As such, they increase the value of the firm in the event of a
sale. Viewed from this financial perspective, marketing programs
designed to attract new customers, build relationships, increase sales
from existing customers and maintain relationships into the future should
rightly be seen as investments rather than just operating expenses.
Customer equity management is a new approach to
marketing and corporate strategy that finally puts customers, and
important, strategies designed to grow the value of each customer, at the
heart of the organization. Customer equity refers to the total sum of the
discounted lifetime values of all the firm's current customers.
So, how can a firm calculate its customer equity? The task
requires a procedure for calculating the discounted value of each
individual customer throughout his or her expected lifetime as a customer
of the firm to determine the customer lifetime value (CLV). The sum of
the CLVs for all customers equates to the firm's customer equity.
Targeting the Right Customers
Many elements are involved in creating long-term customer relationships
and loyalty. The process starts by identifying and targeting the right
customers. Whom should we be serving? is a question that every service
business needs to raise periodically. Customers often differ widely in
terms of needs and the value they can contribute to a company. Not all
customers offer a good fit with the organization's capabilities, delivery
technologies, and strategic direction
Good Relationships Start with a Good Fit: If company wants to build
successful customer relationships, it needs to be selective about their
targeted segments. In this part, we emphasize the importance of choosing
to serve a portfolio of several carefully chosen target segments and taking
pains to build and maintain their loyalty.
Matching customers to the firm's capabilities is
vital. Managers must think carefully about how customer needs relate to
such operational elements as speed and quality, the times when service is
available, the firm's capacity to serve many customers simultaneously,
and the physical features and appearance of service facilities.
The result of carefully targeting customers by matching the
company's capabilities and strengths with customer needs should be a superior service
offering in the eyes of those customers who value what the firm has to offer.
Searching for Value, Not Just Numbers: Too many service firms still
focus on the number of customers they serve - an important issue for
operations and human resource planning - without giving sufficient
attention to the value of each customer. Generally speaking, heavy users
buy more frequently and in larger volumes and more profitable than are
occasional users. The
revenue stream from your purchases, and those of others like you, may
amount to quite a considerable sum over the course of the year.
Sometimes, your value as a frequent user is openly recognized and
appreciated. You sense that the business is tailoring its service features,
including service hours and prices, to attract people like you and doing its
best to make you loyal.
Acquiring the right customers can bring in long-term revenues, continued growth
from referrals, and enhanced satisfaction from employees whose daily job are
improved when they can deal with appreciative customers.
Marketer shouldn't assume that the "right customers" are always
high spenders. Depending on the service business model, the right customers can
come from a large group of people that no other supplier is doing a good job of
serving. Many firms have successfully built strategies serving customer segments
that were neglected by established payers that didn't perceive them as sufficiently
"valuable".
Selecting an Appropriate Customer Portfolio: Artists and writers often
prepare portfolios of their work to show to prospective purchasers or
employers. The term portfolio also describes the collection of financial
instruments held by an investor or the array of loans advanced by a
bank. In financial services, the goal of portfolio analysis is to determine
the mix of investments (or loans) that is appropriate to one's needs,
resources, and risk preference. We can apply the concept of portfolio
to service businesses with an established base of customers. Different
segments offer different value for a service firm. Like investments,
some types of customers may be more profitable than others in the short
term, but others may have greater potential for long-term growth.
Similarly, the spending patterns of some customers may be stable over
time, whereas others may be more volatile.
As David Maister emphasizes, marketing is about
getting better business, not simply more business. The caliber of a
professional firm is measured by the type of clients it serves and the
nature of the tasks on which it works.
Analyzing and Managing the Customer Base
• Marketers should adopt a strategic approach to retaining, upgrading,
and even terminating customers. Customer retention involves
developing long-term, cost-effective links with customers for the
mutual benefit of both parties, but these efforts need not necessarily
target all the firm’s customers with the same level of intensity. Recent
research has confirmed that most firms have several tiers of customers
in terms of profitability and that these tiers often have quite different
service expectations and needs.
Tiering the customer base: Customer tiers can be developed
around various levels of profit contribution, different needs and
identifiable personal profiles such as demographics. Zeithaml, Rust,
and Lemon illustrated this principle through a four-level pyramid (see
next). Platinum– These customers, who constitute a very small
percentage of a firm’s customer base, are heavy users and contribute a
large share of the profit generated. Typically this segment is less price
sensitive but expects highest service levels in return and is likely to be
willing to invest in and try new service.
Gold- The gold tier forms a large percentage of customers than the
platinum, but individual customers contribute less profit than do
platinum customers. They tend to be slightly more price sensitive and
less committed to the firm.
Good-relationship
Customers
Poor-relationship
Customers
Iron- The customers provide the bulk of customer base. Because their
numbers give the firm economies of scale, they often important so that
a firm can build and maintain a certain capacity level and infrastructure,
which is often needed for serving gold and platinum customers. They
are however, often only marginal profitable.
Lead- Lead-tier customers tend to generate low revenues for a firm
but often still require the same level of service as iron customers, which
turns them into a loss-making segment from the firm’s perspective.
Retaining, upgrading, and terminating customers: Generally, customer
tiers tend are based on not only profitability but also identifiable
characteristics common among these different segments. Instead of
providing the same level of service to all customers, each segment
receives as customized service level, based on its requirements and
value to the firm.
Marketing efforts can be used to encourage an increased volume of
purchases, upgrading the type of service used, cross-selling additional
services to any of the four tiers.
Terminating customers come as a logical consequence of the
realization that not all existing customer relationships are worth
keeping. Many relationships are no longer profitable for the firm, as
they may cost more to maintain than the revenues they generate.
Some customers no longer fit the firm’s strategy, either because it has
changed or because the customers behaviors and needs have changed.

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Introduction to Services

Services are everywhere-

If one studies world economy, it can be easily observed that

Figure: The Molecular Model Intangible elements

Market Tangible elements Market positioning

Figure: The Servuction Model

Figure: The Servuction Model

4. Difficulty in pricing: In case of pricing the goods, a

A distinguishing characteristics of services

A distinguishing characteristic of services

iv. Demand Strategy: Development of Non-peak Demand

Our evaluation of these people are based on their

Evaluation surrounds of the service as opposed to

4. Service sold without Guarantees &

5. The potential Product: Products which encompasses all

2. Direct Service: Direct services means bringing the service to the

• Stage 4: World Class Service Delivery.

Time Cost Total

Value is quality I get for Value is all that I get for

Media advertising is a one-way communications tool that utilizes such

c. Inter Client Conflict:

The difference between the actual quality of

4. Important versus determinant attributes: Consumers usually make their

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