Services marketing

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 1
Introduction to
Services Marketing

How Important is the Service Sector in
Our Economy?
 In most countries, services add more economic value than
agriculture, raw materials and manufacturing combined
 In developed economies, employment is dominated by
service jobs and most new job growth comes from
services
 Jobs range from high-paid professionals and technicians
to minimum-wage positions
 Service organizations can be any size—from huge global
corporations to local small businesses
 Most activities by government agencies and nonprofit
organizations involve services

Internal Services
 Service elements within an organization that facilitate
creation of--or add value to--its final output
 Includes:
accounting and payroll administration
recruitment and training
legal services
transportation
catering and food services
cleaning and landscaping
 Increasingly, these services are being outsourced

Major Trends in Service Sector
 Government Policies (e.g.., regulations, trade
agreements)
 Social Changes (e.g.., affluence, lack of time, desire for
experiences)
 Business Trends
 Manufacturers offer service
 Growth of chains and franchising
 Pressures to improve productivity and quality
 More strategic alliances
 Marketing emphasis by nonprofits
 Innovative hiring practices
 Advances in IT (e.g.., speed, digitization, wireless,
Internet)
 Internationalization (travel, transnational companies)

Some Impacts of Technological Change
 Radically alter ways in which service firms do business:
 with customers (new services, more convenience)
 behind the scenes (reengineering, new value chains)
 Create relational databases about customer needs and
behavior, mine databanks for insights
 Leverage employee capabilities and enhance mobility
 Centralize customer service—faster and more responsive
 Develop national/global delivery systems
 Create new, Internet-based business models

Marketing Relevant
Differences Between
Goods and Services

Defining the Essence of a Service
 An act or performance offered by one party to another
 An economic activity that does not result in ownership
 A process that creates benefits by facilitating a desired
change in:
 customers themselves
 physical possessions
 intangible assets

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

Marketing Implications - 1
 No ownership
 Customers obtain temporary rentals, hiring of personnel, or access
to facilities and systems
 Pricing often based on time
 Customer choice criteria may differ for renting vs. purchase--may
include convenience, quality of personnel
 Can’t own people (no slavery!) but can hire expertise and labor
 Services cannot be inventoried after production
 Service performances are ephemeral—transitory, perishable
Exception: some information-based output can be recorded
in electronic/printed form and re-used many times
 Balancing demand and supply may be vital marketing strategy
 Key to profits: target right segments at right times at right price
 Need to determine whether benefits are perishable or durable

 Customers may be involved in production process
 Customer involvement includes self-service and cooperation with
service personnel
 Think of customers in these settings as “partial employees”
 Customer behavior and competence can help or hinder productivity,
so marketers need to educate/train customers
 Changing the delivery process may affect role played by customers
 Design service facilities, equipment, and systems with customers in
mind: user-friendly, convenient locations/schedules
 Intangible elements dominate value creation
 Understand value added by labor and expertise of personnel
 Effective HR management is critical to achieve service quality
 Make highly intangible services more “concrete” by creating and
communicating physical images or metaphors and tangible clues

Value Added by Tangible vs Intangible
Elements in Goods and Services
Fast food restaurant
Plumbing repair
Office cleaning
Health club
Airline flight
Retail banking
Insurance
Weather forecast
Salt
Soft drinks
CD Player
Golf clubs
New car
Tailored clothing
Furniture rental
Lo Hi
Hi
TangibleElements
Intangible Elements

 Other people are often part of the service product
 Achieve competitive edge through perceived quality of employees
 Ensure job specs and standards for frontline service personnel reflect
both marketing and operational criteria
 Recognize that appearance and behavior of other customers can
influence service experience positively or negatively
 Avoid inappropriate mix of customer segments at same time
 Manage customer behavior (the customer is not always right!)
 Greater variability in operational inputs and outputs
 Must work hard to control quality and achieve consistency
 Seek to improve productivity through standardization, and by training
both employees and customers
 Need to have effective service recovery policies in place because it is
more difficult to shield customers from service failures

 Often difficult for customers to evaluate services
 Educate customers to help them make good choices, avoid risk
 Tell customers what to expect, what to look for
 Create trusted brand with reputation for considerate, ethical behavior
 Encourage positive word-of-mouth from satisfied customers
 Time factor assumes great importance
 Offer convenience of extended service hours up to 24/7
 Understand customers’ time constraints and priorities
 Minimize waiting time
 Look for ways to compete on speed
 Distribution channels take different forms
 Tangible activities must be delivered through physical channels
 Use electronic channels to deliver intangible, information-based
elements instantly and expand geographic reach

Important Differences
Exist among Services

Four Categories of Services
Employing Different Underlying Processes
People Processing Possession Processing
Mental Stimulus
Processing
Information Processing
(directed at intangible assets)
e.g.., airlines, hospitals,
haircutting, restaurants
hotels, fitness centers
e.g.., freight, repair,
cleaning, landscaping,
retailing, recycling
e.g.., broadcasting,
consulting,
education, psychotherapy
e.g.., accounting, banking,
insurance, legal, research
TANGIBLE
ACTS
INTANGIBLE
ACTS
DIRECTED AT
PEOPLE
DIRECTED AT
POSSESSIONS
What is the
Nature of the
Service Act?
Who or What is the Direct Recipient of the Service?

Implications of Service Processes
(1) Seeking Efficiency May Lower Satisfaction
Processes determine how services are created/delivered—
process change may affect customer satisfaction
 Imposing new processes on customers, especially
replacing people by machines, may cause dissatisfaction
 New processes that improve efficiency by cutting costs
may hurt service quality
 Best new processes deliver benefits desired by customers
 Faster
 Simpler
 More conveniently
 Customers may need to be educated about new
procedures and how to use them

Implications of Service Processes:
(2) Designing the Service Factory
People-processing services
require customers to visit the
“service factory,” so:
 Think of facility as a “stage” for service
performance
 Design process around customer
 Choose convenient location
 Create pleasing appearance, avoid
unwanted noises, smells
 Consider customer needs--info,
parking, food, toilets, etc.

(3) Evaluating Alternative Delivery Channels
For possession-processing, mental-stimulus processing, or
information processing services, alternatives include:
1. Customers come to the service factory
2. Customers come to a retail office
3. Service employees visit customer’s home or workplace
4. Business is conducted at arm’s length through
- physical channels (e.g.., mail, courier service)
- electronic channels (e.g.., phone, fax, email, Web site)

(4) Balancing Demand and Capacity
When capacity to serve is
limited and demand varies
widely, problems arise because
service output can’t be stored:
1. If demand is high and exceeds
supply, business may be lost
2. If demand is low, productive
capacity is wasted
Potential solutions:
- Manage demand
- Manage capacity

(5) Applying Information Technology
All services can benefit from IT,
but mental-stimulus processing
and information-processing
services have the most to gain:
 Remote delivery of information-
based services “anywhere,
anytime”
 New service features through
websites, email, and internet
(e.g.., information, reservations)
 More opportunities for self-service
 New types of services

(6) Including People as Part of the Product
Involvement in service
delivery often entails
contact with other people
 Managers should be
concerned about employees’
appearance, social skills,
technical skills
 Other customers may enhance
or detract from service
experience--need to manage
customer behavior

The Services
Marketing Mix

Elements of The Services Marketing Mix:
“7Ps” vs. the Traditional “4Ps”
Rethinking the original 4Ps
 Product elements
 Place and time
 Promotion and education
 Price and other user outlays
Adding Three New Elements
 Physical environment
 Process
 People

The 7Ps:
(1) Product Elements
All Aspects of Service Performance that Create Value
 Core product features—both tangible and intangible
elements
 Bundle of supplementary service elements
 Performance levels relative to competition
 Benefits delivered to customers (customers don’t buy a
hotel room, they buy a good night’s sleep)
 Guarantees

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

The 7Ps:
(3) Promotion and Education
Informing, Educating, Persuading, and Reminding Customers
 Marketing communication tools
 media elements (print, broadcast, outdoor, retail, Internet, etc.)
 personal selling, customer service
 sales promotion
 publicity/PR
 Imagery and recognition
 branding
 corporate design
 Content
 information, advice
 persuasive messages
 customer education/training

The 7Ps:
(4) Price and Other User Outlays
Marketers Must Recognize that Customer Outlays Involve
More than the Price Paid to Seller
Traditional Pricing Tasks
 Selling price, discounts, premiums
 Margins for intermediaries (if any)
 Credit terms
Identify and Minimize Other Costs Incurred by Users
 Additional monetary costs associated with service usage (e.g.., travel to
service location, parking, phone, babysitting,etc.)
 Time expenditures, especially waiting
 Unwanted mental and physical effort
 Negative sensory experiences

The 7Ps:
(5) Physical Environment
Designing the Servicescape and providing tangible
evidence of service performances
 Create and maintaining physical appearances
 buildings/landscaping
 interior design/furnishings
 vehicles/equipment
 staff grooming/clothing
 sounds and smells
 other tangibles
 Select tangible metaphors for use in marketing
communications

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

The 7Ps:
(7) People
Managing the Human Side of the Enterprise
 The right customer-contact employees performing tasks
well
 job design
 recruiting/selection
 training
 motivation
 evaluation/rewards
 empowerment/teamwork
 The right customers for the firm’s mission
 fit well with product/processes/corporate goals
 appreciate benefits and value offered
 possess (or can be educated to have) needed skills (co-production)
 firm is able to manage customer behavior

Managing the 7Ps Requires Collaboration between
Marketing, Operations, and HR Functions
Customers
Operations
Management
Marketing
Management
Human Resources
Management

Chapter 2
Consumer Behavior in
Service Encounters

Where Does the Customer Fit in a
Service Organization?
 Consumers rarely involved in manufacture of goods but
often participate in service creation and delivery
 Challenge for service marketers is to understand how
customers interact with service operations
 Flowcharting clarifies how customer involvement in service
encounters varies with type of process -
 People processing (e.g.., motel stay): customer is physically involved
throughout entire process
 Possession processing (e.g.., DVD repair): involvement may be limited to
drop off of physical item/description of problem and subsequent pick up
 Mental stimulus processing (e.g.., weather forecast): involvement is
mental, not physical; here customer simply receives output and acts on it
 Information processing (e.g.., health insurance): involvement is mental -
specify information upfront and later receive documentation of coverage

High-Contact and Low-Contact Services
High Contact Services
 Customers visit service facility and remain throughout
service delivery
 Active contact between customers and service personnel
 Includes most people-processing services
Low Contact Services
 Little or no physical contact with service personnel
 Contact usually at arm’s length through electronic or
physical distribution channels
 New technologies (e.g.. Web) help reduce contact levels

Levels of Customer Contact with Service
Organizations
Emphasizes encounters
with service personnel
Emphasizes encounters
with equipment
High
Low
Management Consulting
Car Repair
InsuranceMotel
Fast Food
Nursing Home
Airline Travel (Econ.)
Cable TV
Telephone Banking
HairCut
Good Restaurant
4- Star Hotel
Dry Cleaning
Retail Banking
Mail Based Repairs
Internet-based
Services
Movie Theater
• Internet Banking
Subway

Managing Service Encounters--1
 Service encounter: A period of time during which customers
interact directly with a service
 Moments of truth: Defining points in service delivery where
customers interact with employees or equipment
 Critical incidents: specific encounters that result in
especially satisfying/dissatisfying outcomes for either
customers or service employees

Managing Service Encounters--2
 Service success often rests on performance of junior
contact personnel
 Must train, coach, role model desired behavior
 Thoughtless or badly behaved customers can cause
problems for service personnel (and other customers)
 Must educate customers, clarify what is expected, manage
behavior

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

Perceived Risks in
Purchasing and Using Services
 Functional – unsatisfactory performance outcomes
 Financial – monetary loss, unexpected extra costs
 Temporal – wasted time, delays lead to problems
 Physical – personal injury, damage to possessions
 Psychological – fears and negative emotions
 Social – how others may think and react
 Sensory – unwanted impacts to any of five senses

Factors that Influence
Customer Expectations of Services
Predicted Service
Explicit & Implicit
Service Promises
Word-of-Mouth
Past ExperienceDesired Service
ZONE
OF
TOLERANCE
Adequate Service
Personal Needs
Beliefs about
What Is Possible
Perceived Service
Alterations
Situational Factors
Source: Adapted from Zeithaml, Parasuraman & Berry

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

Intangible Attributes, Variability, and Quality
Control Problems Make Services Hard to Evaluate
 Search attributes – Tangible characteristics that allow
customers to evaluate a product before purchase
 Experience attributes – Characteristics that can be
experienced when actually using the service
 Credence attributes – Characteristics that are difficult to
evaluate confidently even after consumption
 Goods tend to be higher in search attributes, services tend
to be higher in experience and credence attributes
 Credence attributes force customers to trust that desired
benefits have been delivered

How Product Attributes Affect
Ease of Evaluation
Source: Adapted from Zeithaml
Most Goods
High in search
attributes
High in experience
attributes
High in credence
attributes
Difficult
to evaluate
Easy
to evaluate
Most Services
Clothing
Chair
Motorvehicle
Foods
Restaurantmeals
Lawnfertilizer
Haircut
Entertainment
Computerrepair
Legalservices
Complexsurgery
Education

Customer Satisfaction is Central to the
Marketing Concept
 Satisfaction defined as attitude-like judgment following a
service purchase or series of service interactions
 Customers have expectations prior to consumption, observe
service performance, compare it to expectations
 Satisfaction judgments are based on this comparison
 Positive disconfirmation if better than expected
 Confirmation if same as expected
 Negative disconfirmation if worse than expected
 Satisfaction reflects perceived service quality, price/quality
tradeoffs, personal and situational factors
 Research shows links between customer satisfaction and a
firm’s financial performance

Customer Delight:
Going Beyond Satisfaction
 Research shows that delight is a function of 3 components
Unexpectedly high levels of performance
Arousal (e.g.., surprise, excitement)
Positive affect (e.g.., pleasure, joy, or happiness)
 Is it possible for customers to be delighted by very
mundane services?
 Progressive Insurance has found ways to positively surprise
customers with customer-friendly innovations and
extraordinary customer service

A Service Business is a System Comprising
Three Overlapping Subsystems
Service Operations (front stage and backstage)
 Where inputs are processed and service elements created.
 Includes facilities, equipment, and personnel
Service Delivery (front stage)
 Where “final assembly” of service elements takes place
and service is delivered to customers
 Includes customer interactions with operations and other
customers
Service Marketing (front stage)
 Includes service delivery (as above) and all other contacts
between service firm and customers

Service Marketing System:
(1) High Contact Service--e.g.., Hotel
The
Customer
Technical
Core
Interior & Exterior
Facilities
Equipment
Service People
Other
Customers
Other
Customers
Advertising
Sales Calls
Market Research
Surveys
Billing / Statements
Miscellaneous Mail,
Phone Calls, Faxes, etc.
Random Exposure to
Facilities / Vehicles
Chance Encounters
with Service Personnel
Word of Mouth
Service Operations System
Backstage
(invisible)
Front Stage
(visible)
Service Delivery System Other Contact Points
Service Marketing System

Service Marketing System:
(2) Low Contact Service--e.g.., Credit Card
Technical
Core
Mail
Self Service
Equipment
Phone, Fax,
Web site etc.
The
Customer
Service Operations System
Service Delivery System Other Contact Points
Backstage
(invisible)
Front Stage
(visible)
Advertising
Market Research
Surveys
Random Exposures
Facilities, Personnel
Word of Mouth
Service Marketing System

Service as Theater
“ All the world’s a stage and all
the men and women merely
players. They have their exits
and their entrances and each
man in his time plays many
parts”
William Shakespeare
As You Like It

The Dramaturgy of Service Delivery
 Service dramas unfold on a “stage”--settings may change as
performance unfolds
 Many service dramas are tightly scripted, others improvised
 Front-stage personnel are like members of a cast
 Like actors, employees have roles, may wear special
costumes, speak required lines, behave in specific ways
 Support comes from a backstage production team
 Customers are the audience—depending on type of
performance, may be passive or active

Role and Script Theories
 Role: A set of behavior patterns learned through
experience and communication
 Role congruence: In service encounters, employees and
customers must act out defined roles for good outcomes
 Script: A sequence of behavior to be followed by employees
and customers during service delivery
 Some scripts (e.g.. teeth cleaning) are routinized, others flexible
 Technology change may require a revised script
 Managers should reexamine existing scripts to find ways to improve
delivery, increase productivity, enhance experiences

Chapter 3
Positioning Services in
Competitive Markets

Search for Competitive Advantage in Services
Requires Differentiation and Focus
 Intensifying competition in service sector threatens firms
with no distinctive competence and undifferentiated
offerings
 Slowing market growth in mature service industries means
that only way for a firm to grow is to take share from
competitors
 Rather than attempting to compete in an entire market, firm
must focus efforts on those customers it can serve best
 Must decide how many service offerings with what
distinctive (and desired) characteristics

Standing Apart from the Competition
A business must set itself apart from its competition.
To be successful it must identify and promote itself
as the best provider of attributes that are
important to target customers
GEORGE S. DAY

Basic Focus Strategies for Services
BREADTH OF SERVICE OFFERINGS
NUMBER
OF MARKETS
SERVED
Narrow
Many
Few
Wide
Service
Focused
Unfocused
(Everything
for everyone)
Market
Focused
Fully Focused
(Service and
market focused)
Source: Robert Johnston

Four Principles of Positioning Strategy
1. Must establish position for firm or product in minds of
customers
2. Position should be distinctive, providing one simple,
consistent message
3. Position must set firm/product apart from competitors
4. Firm cannot be all things to all people--must focus
Jack Trout

Uses of Positioning in
Marketing Management
 Understand relationships between products and markets
 compare to competition on specific attributes
 evaluate product’s ability to meet consumer needs/expectations
 predict demand at specific prices/performance levels
 Identify market opportunities
 introduce new products
 redesign existing products
 eliminate non-performing products
 Make marketing mix decisions, respond to competition
 distribution/service delivery
 pricing
 communication

Possible Dimensions for Developing Positioning
Strategies
 Product attributes
 Price/quality relationships
 Reference to competitors (usually shortcomings)
 Usage occasions
 User characteristics
 Product class

Developing a
Market Positioning Strategy
- Size
- Composition
- Location
- Trends
Marketing
Action
Plan
MARKET
ANALYSIS
INTERNAL
ANALYSIS
- Resources
- Reputation
- Constraints
- Values
COMPETITIVE
ANALYSIS
- Strengths
- Weaknesses
- Current
Positioning
Define, Analyze
Market Segments
Select
Target Segments
To Serve
Articulate
Desired Position
in Market
Select Benefits
to Emphasize
to Customers
Analyze
Possibilities for
Differentiation
Source: Adapted from Michael R. Pearce

Positioning of Hotels in Belleville:
Price vs. Service Level
Expensive
Shangri-La
High
Service
Moderate
Service
Grand
Regency
Sheraton
Italia
Castle
AlexanderIV
Airport Plaza
PALACE
Atlantic
Less Expensive

Positioning of Hotels in Belleville:
Location vs. Physical Luxury
High Luxury
Shopping District
and Convention Centre
Shangri-La
Moderate Luxury
Financial
District
Inner
Suburbs
Grand
Regency
Sheraton
ItaliaCastle
AlexanderIV
Airport Plaza
PALACE
Atlantic

Positioning after New Hotel Construction:
Price vs. Service Level
Expensive
Shangri-La
High
Service
Moderate
Service
Heritage
Mandarin
New Grand
Marriott
Continental
Regency
Sheraton
Italia
AlexanderIV
Airport Plaza
PALACE
Atlantic
No actio n?
Actio n?
Less Expensive
Castle

Positioning after New Hotel Construction:
Location vs. Physical Luxury
High Luxury
Shangri-La
Financial
District
Inner
Suburbs
Heritage
Mandarin
New Grand
Marriott
Continental
Regency
Sheraton
Italia
AlexanderIV
Airport Plaza
PALACE
Atlantic
Noaction?
Action?
Moderate Luxury
Castle
Shopping District
and Convention Centre

Positioning Maps Help Managers to
Visualize Strategy
 Positioning maps display relative performance of competing
firms on key attributes
 Research provides inputs to development of positioning maps
 Challenge is to ensure that
 attributes employed in maps are important to target segments
 performance of individual firms on each attribute accurately
reflects perceptions of customers in target segments
 Predictions can be made of how positions may change in the
light of new developments in the future
 Simple graphic representations are often easier for managers to
grasp than tables of data or paragraphs of prose
 Charts and maps can facilitate a “visual awakening” to threats
and opportunities and suggest alternative strategic directions

Chapter 4
Creating the
Service Product

Key Steps in Service Planning:
Matching Opportunities to Resources
 Must relate marketing opportunities to firm’s resources
(physical, financial, technological, human)
 Identify, evaluate firm’s marketing assets
 Customer portfolio/lifetime value (customer equity)
 Market knowledge
 Marketing implementation skill
 Product line
 Competitive positioning strategies
 Brand reputation (brand equity)
 Identify, evaluate firm’s operating assets
 Physical facilities, equipment
 Technology and systems (especially IT)
 Human resources (numbers, skills, productivity)
 Leverage through alliances and partnerships
 Potential for customer self service
 Cost structure

Operating Assets
(Facilities/Equipment, IT Systems,
People, Op. Skills, Cost Structure)
Service Design Involves Matching Marketing
Concept with Operations Concept
Corporate Objectives
and Resources
Service Delivery
Process
Marketing Assets
(Customer Base, Mkt. Knowledge,
Implementation Skills, Brand Reput.)
Service Marketing Concept
•Benefits to customer from core/
supplementary elements, style,
service level, accessibility
•User costs/outlays incurred
•Price/other monetary costs
•Time
•Mental and physical effort
•Neg. sensory experiences
Service Operations Concept
•Nature of processes
•Geographic scope of ops
•Scheduling
•Facilities design/layout
•HR (numbers, skills)
•Leverage (partners, self-service)
•Task allocation: front/backstage
staff; customers as co-producers

Understanding the
Components of the
Augmented Service Product

Shostack’s Molecular Model of a Total Market
Entity - Passenger Airline Service
Distribution
Price
Marketing Positioning
(Weighted toward evidence) Source: Shostack
KEY
Tangible elements
Intangible elements
Service
frequency
Vehicle
Transport
Pre- and
post-flight
service
Food
and
drink
In-flight
service

Core Products and Supplementary Services
 Most firms offer customers a package of benefits:
core product (a good or a service)
supplementary services that add value to the core
 In mature industries, core products often become
commodities
 Supplementary services help to differentiate core products
and create competitive advantage by:
facilitating use of the core service
enhancing the value and appeal of the core

Core and Supplementary Product Design:
What Do We Offer and How Do We Create and Deliver
It?
Core
Scheduling Process
Service
Level
Customer
Role
Supplementary
services offered
and how created
and delivered
Delivery Concept
For Core Product

What Should Be the Core and Supplementary
Elements of Our Service Product?
 How is our core product defined and what supplementary
elements currently augment this core?
 What product benefits create the most value for customers?
 Is our service package differentiated from the competition in
ways that are meaningful to target customers?
 What are current levels of service on the core product and
each of the supplementary elements?
 Can we charge more for higher service levels on key
attributes (e.g.., faster response, better physical amenities,
easier access, more staff, superior caliber personnel)?
 Alternatively, should we cut service levels and charge less?

Core and Supplementary Services in a Luxury Hotel
(Offering Guests Much More than a Cheap Motel!)
R e s e r v a t i o n
V a l e t
P a r k i n g
R e c e p t i o n
B a g g a g e
S e r v i c e
C o c k t a i l
B a r
R e s t a u r a n t
E n t e r t a i n m e n t /
S p o r t s / E x e r c i s e
Te l e p h o n e
W a k e - u p
C a l l
R o o m
S e r v i c e
B u s i n e s s
C e n t e r
C a s h i e r
A B e d f o r t h e
N i g h t i n a n
E l e g a n t P r i v a t e
R o o m w i t h a
B a t h r o o m

What Happens, When, and in What Sequence?
The Time Dimension in the Augmented Service Product
Pre
Visit
Reservation
USE GUESTROOM OVERNIGHT
Parking Get car
Check in
Porter
USE ROOM
Meal
Pay TV Room service
Phone
Check out
Time Frame of an Overnight Hotel Stay
(real-time service use)

The Flower of Service:
Categorizing Supplementary Services
Core
Information
Consultation
Order-Taking
Hospitality
Payment
Billing
Exceptions
SafekeepingFacilitating elements
Enhancing elements
KEY:

Facilitating Services - Information
Core
Customers often require
information about how to
obtain and use a product or
service. They may also
need reminders and
documentation

Facilitating Services - Order-Taking
Many goods and services
must be ordered or reserved
in advance. Customers need
to know what is available and
may want to secure
commitment to delivery
Core

Facilitating Services - Billing
“How much do I owe you?”
Customers deserve clear,
accurate and intelligible
bills and statements
Core

Facilitating Services - Payment
Customers may pay faster
and more cheerfully if you
make transactions simple
and convenient for them
Core

Enhancing Services - Consultation
Value can be added to
goods and services by
offering advice and
consultation tailored to
each customer’s
needs and situation
Core

Enhancing Services - Hospitality
Customers who invest time
and effort in visiting a
business and using its
services deserve to be
treated as welcome guests
(after all, marketing invited
them there!)
Core

Enhancing Services - Safekeeping
Customers prefer not to
worry about looking after
the personal possessions
that they bring with them
to a service site.
They may also want delivery
and after-sales services for
goods that they purchase
or rent
Core

Enhancing Services - Exceptions
Customers appreciate some
flexibility in a business
when they make special
requests. They expect it
when not everything goes
according to plan
Core

Branding
Service Products

Service Branding:
Clarifying Distinctive Service Offerings
Marriott Hotel Brands
Marriott Hotels
Marriott Resorts
Courtyard by Marriott
Fairfield Inns
Residence Inns
SpringHill Suites
TownePlace Suites
Marriott Vacation Clubs
International
British Airways Brands
Intercontinental
First
Club World
World Traveller Plus
World Traveller
European
Club Europe
Euro-Traveller
UK Domestic
Shuttle

Branding a High-Tech, B2B Product Line:
A Family of Brands at Sun Microsystems
 Corporate umbrella brand
 Sun Microsystems
 Product line brand (system support services)
 Sun Spectrum Support
 Sub-brands (4 levels of support service programs)
» Platinum
» Gold
» Silver
» Bronze

Sun Spectrum Support:
Sub-branding Highlights Four Service Levels
Sub-branding clarifies service levels offered at different fees
 Platinum: “Mission Critical”
On-site service 24/7, two-hour response;
telephone support 24/7, onsite parts replacement;
additional services available
 Gold: “Business Critical”
Onsite service Mon-Fri 8am-8pm, four-hour response;
telephone support 24/7; onsite parts replacement
 Silver: “Basic Support”
Onsite service Mon-Fri 8am-5pm, four-hour response;
telephone support Mon-Fri 8am-8pm; onsite parts replacement
 Bronze: “Self Support”
Phone support Mon-Fri 8am-5pm; parts replacement by courier

New Service
Development

New Service Development:
A Hierarchy of New Service Categories
 Major service innovations--new core products for previously
undefined markets
 Major process innovations--using new processes to
deliver existing products and offer extra benefits
 Product line extensions--additions to current product lines
 Process line extensions--alternative delivery procedures
 Supplementary service innovations--adding new or
improved facilitating or enhancing elements
 Style changes--visible changes in service design or scripts

New Service Development:
Physical Goods as Source of Service Ideas
 Customers can rent goods—use and return for a fee—
instead of purchasing them
 Customers can hire personnel to operate their own or
rented equipment
 Any new durable product may create need for after-sales
services (possession processing)
 Shipping
 Installation
 Problem-solving and consulting advice
 Cleaning
 Maintenance
 Repair
 Upgrading
 Disposal

Creating Services as Substitutes for
Owning and/or Using Goods
Perform the
Work Oneself
Hire Someone
to Do the Work
Own a Physical Good Rent the Use
of a Physical Good
•• Hire a taxi or limousine
•• Send work to secretarial service
• Rent car and drive it
• Rent word processor and type
• Hire chauffeur to drive car
• Hire typist to use word processor
• Drive own car
• Type on own word processor

Service Development through Delivery Options:
Alternative Meal Service Formats
Home
Delivery
Order food,
give address
Driver rings
doorbell
Pay driver,
take food Eat
Telephone
Restaurant
Drive-In
Restaurant
(Take Out)
See sign Order via
microphone
Get meal at
pickup, pay
Drive away,
eat later
Stop car at
order point
Fast-Food
Restaurant
(Eat In)
See sign Park and
enter
Order meal,
and pay
Pick up
meal
Find table
and eat
Clear table
and leave
Home
Catering
Arrange to
meet caterer
Plan meal,
pay deposit
Food and
staff arrive
Meal is
prepared
and served
Eat
Staff cleans
up; pay

Elements of a Hotel Offering:
Trading off Room Price vs. Features/Services
 External building design
and features
 Room features
 Food-related services
 Lounge facilities
 Services (e.g.., reception)
 Leisure facilities
 Security—people/systems

Success Factors in New Service Development
 Market synergy
 Good fit between new product and firm’s image/resources
 Advantage vs. competition in meeting customers’ needs
 Strong support from firm during/after launch
 Firm understands customer purchase decision behavior
 Organizational factors
 Strong interfunctional cooperation and coordination
 Internal marketing to educate staff on new product and its
competition
 Employees understand importance of new services to firm
 Market research factors
 Scientific studies conducted early in development process
 Product concept well defined before undertaking field studies

Chapter 5
Designing the
Communications Mix
for Services

Advertising Implications for
Overcoming Intangibility
Problem Advertising Strategy
 Generality
- objective claims Document physical system capacity
Cite past performance statistics
- subjective claims Present actual service delivery incident
 Nonsearchability Present customer testimonials
Cite independently audited performance
 Abstractness Display typical customers benefiting
 Impalpability Documentary of step-by-step process,
Case history of what firm did for customer
Narration of customer’s subjective experience
Source: Mittal and Baker

Other Communications Challenges
in Services Marketing
 Facilitate customer involvement in production
 prepare customers for service experience and demonstrate roles
 teach customers about new technologies, new features
 Help customers to evaluate service offerings
 provide tangible or statistical clues to service performance
 highlight quality of equipment and facilities
 emphasize employee qualifications, experience, professionalism
 Simulate or dampen demand to match capacity
 provide information about timing of peak, off-peak periods
 offer promotions to stimulate off-peak demand
 Promote contribution of service personnel
 help customers understand service encounter
 highlight expertise and commitment of backstage personnel

Setting Clear Objectives: Checklist for
Marketing Communications Planning (“5 Ws”)
 Who is our target audience?
 What do we need to communicate and achieve?
 How should we communicate this?
 Where should we communicate this?
 When do communications need to take place?

Common Educational and Promotional
Objectives in Service Settings
 Create memorable images of specific companies and
their brands
 Build awareness/interest for unfamiliar service/brand
 Build preference by communicating brand strengths and
benefits
 Compare service with competitors’ offerings and counter
their claims
 Reposition service relative to competition
 Stimulate demand in off-peak and discourage during peak

Educational and Promotional Objectives (cont.)
 Encourage trial by offering promotional incentives
 Reduce uncertainty/perceived risk by providing useful info
and advice
 Provide reassurance (e.g.., promote service guarantees)
 Familiarize customers with service processes before use
 Teach customers how to use a service to best advantage
 Recognize and reward valued customers and employees

Word-of-mouth
(othercustomers)
Marketing Communications Mix for Services
Personal
Communications
Selling
Customer
service
Training
Advertising
Broadcast
Print
Internet
Outdoor
Direct mail
Sales Promotion
Sampling
Coupons
Sign-up
rebates
Gifts
Prize
promotions
Publicity &
Public Relations
Press
releases/kits
Press
conferences
Special
events
Sponsorship
Instructional
Materials
Web sites
Manuals
Brochures
Video-
audiocassettes
Software
CD-ROM
Voice mail
Signage
Interior decor
Vehicles
Equipment
Stationery
Uniforms
Corporate
Design
Telemarketing
Word of mouth
Trade Shows,
Exhibitions
Media-initiated
coverage
*
Key: * Denotes communications originating fromoutside the organization

Originating Sources of Messages Received by a
Target Audience
Messages originating
within the organization
Messages originating
outside the organization
Production
Channels
MarketingChannels
Front-line staff
Service outlets
Advertising
Sales promotions
Direct marketing
Personal selling
Public relations
Word of mouth
Media editorial
A
U
D
I
E
N
C
E

What is Brand Equity and Why Does It Matter?
(From Berry, “Cultivating Brand Equity”)
Definition: A set of assets and liabilities linked to a brand’s
name and symbol that adds to (or subtracts from) the
perceived value of the product
Insights
 Brand equity can be positive or negative
 Positive brand equity creates marketing advantage for
firm plus value for customer
 Perceived value generates preference and loyalty
 Management of brand equity involves investment to
create and enhance assets, remove liabilities

A Service Branding Model:
How Communications + Experience Create Brand Equity
Firm’s Presented Brand
(Sales, Advertising, PR)
What Media, Intermediaries,
Word-of-Mouth Say re: Firm
Customer’s Experience
with Firm
Awareness of
Firm’s Brand
Meaning Attached
To Firm’s Brand
Firm’s
Brand Equity
Source: Adapted from L. L. Berry ( Fig. 1)
Marketer-controlled communications
Uncontrolled brand communications

Marketing Communication and the Internet (1)
 International in Scope
 Accessible from almost anywhere in the world
 Simplest form of international market entry
 Internet Applications
 Promote consumer awareness and interest
 Provide information and consultation
 Facilitate 2-way communications through e-mail and chat rooms
 Stimulate product trial
 Enable customers to place orders
 Measure effectiveness of specific advertising/promotional
campaigns

Marketing Communications and the Internet (2)
 Web Site design considerations
 Memorable address that is actively promoted
 Relevant, up-to-date content (text, graphics, photos)
 Contain information that target users will perceive as
useful/interesting
 Easy navigation
 Fast download
 Internet advertising
 Banners and buttons on portals and other websites seek to draw
online traffic to own site
 Limits to effectiveness—exposure (“eyeballs”) may not lead to
increases in awareness/preference/sales
 Hence, advertising contracts may tie fees to marketing relevant
behavior (e.g.., giving personal info or making purchase)

Chapter 6
Pricing and Revenue
Management

What Makes Service Pricing Strategy Different
(and Difficult)?
 No ownership of services--hard for firms to calculate
financial costs of creating an intangible performance
 Variability of inputs and outputs--how can firms define a
“unit of service” and establish basis for pricing?
 Many services hard for customers to evaluate--what
are they getting in return for their money?
 Importance of time factor--same service may have more
value to customers when delivered faster
 Delivery through physical or electronic channels--may
create differences in perceived value

Objectives of Pricing Strategies
 Revenue and profit objectives
 Seek profit
 Cover costs
 Patronage and user base-related objectives
 Build demand
 Build a user base

The Pricing Tripod
Pricing Strategy
Costs
Competition
Value to customer

Three Main Approaches to Pricing
 Cost-Based Pricing
Set prices relative to financial costs
(problem: defining costs)
 Competition-Based Pricing
Monitor competitors’ pricing strategy
(especially if service lacks differentiation)
Who is the price leader? (one firm sets the pace)
 Value-Based
Relate price to value perceived by customer

Activity-Based Costing: Relating Activities to
the Resources They Consume
 Managers need to see costs as an integral part of a firm’s
effort to create value for customers
 When looking at prices, customers care about value to
themselves, not what production costs the firm
 Traditional cost accounting emphasizes expense
categories, with arbitrary allocation of overheads
 ABC management systems examine activities needed to
create and deliver service (do they add value?)
 Must link resource expenses to:
variety of products produced
complexity of products
demands made by individual customers

Perceived
Benefits
Time
e
Effort
Net Value = (Benefits – Outlays)
Perceived
Outlays

Enhancing Gross Value
 Pricing Strategies to Reduce Uncertainty
 service guarantees
 benefit-driven (pricing that aspect of service that creates value)
 flat rate (quoting a fixed price in advance)
 Relationship Pricing
 non-price incentives
 discounts for volume purchases
 discounts for purchasing multiple services
 Low-cost Leadership
 Convince customers not to equate price with quality
 Must keep economic costs low to ensure profitability at low price

Paying for Service:
The Customer’s Perspective
Customer “expenditures” on service comprise both
financial and non-financial outlays
 Financial costs:
 price of purchasing service
 expenses associated with search, purchase activity, usage
 Time expenditures
 Physical effort (e.g.., fatigue, discomfort)
 Psychological burdens (mental effort, negative feelings)
 Negative sensory burdens (unpleasant sensations affecting any
of the five senses)

Determining the Total Costs of a Service
to the Consumer
Price
Related Monetary
Costs
Time Costs
Physical Costs
Psychological
Costs
Sensory Costs
Necessary
follow-up
Problem
solving
Operating Costs
Incidental
Expenses
Purchase and
Use Costs
Search Costs
After Costs

Trading off Monetary and Non- Monetary Costs
Which clinic would you patronize if you needed a chest
x-ray (assuming all three clinics offer good quality) ?
 Price $85
 Located 15 min
away by car or
transit
 Next available
appointment is in 1
week
 Hours: Monday –
Friday, 8am – 10pm
 Estimated wait at
clinic is about 30 -
45 minutes
 Price $85
 Located 15 min
away by car or
transit
 Next available
appointment is in 1
week
Friday, 8am – 10pm
clinic is about 30 -
45 minutes
Clinic BClinic B
 Price $125
 Located next to
your office or
college
 Next appointment
is in 1 day
 Hours: Mo –Sat,
8am – 10pm
 By appointment -
estimated wait at
clinic is about 0 to
15 minutes
 Price $125
 Located next to
your office or
college
 Next appointment
is in 1 day
 Hours: Mo –Sat,
8am – 10pm
 By appointment -
estimated wait at
clinic is about 0 to
15 minutes
Clinic CClinic CClinic AClinic A
 Price $45
 Located 1 hour away
by car or transit
 Next available
appointment is in 3
weeks
Friday, 9am – 5pm
clinic is about 2
hours
 Price $45
 Located 1 hour away
by car or transit
 Next available
appointment is in 3
weeks
Friday, 9am – 5pm
clinic is about 2
hours

Increasing Net Value by Reducing
Non-financial Costs of Service
 Reduce time costs of service at each stage
 Minimize unwanted psychological costs of service
 Eliminate unwanted physical costs of service
 Decrease unpleasant sensory costs of service

Revenue Management: Maximizing Revenue
from Available Capacity at a Given Time
 Based on price customization - charging different customers
(value segments) different prices for same product
 Useful in dynamic markets where demand can be divided
into different price buckets according to price sensitivity
 Requires rate fences to prevent customers in one value
segment from purchasing more cheaply than willing to pay
 RM uses mathematical models to examine historical data
and real time information to determine
what prices to charge within each price bucket
how many service units) to allocate to each bucket

The Strategic Levers of
Revenue (Yield) Management
Quadrant 4:
Continuing Care
Hospitals
Quadrant 3:
Restaurants
Golf Courses
Unpredictable
Quadrant 2:
Hotel Rooms
Airline Seats
Rental Cars
Cruise Lines
Quadrant 1:
Movies
Stadiums/Arenas
Function Space
Predictable
Duration
VariableFixed
Price

Dealing with Common Customer Conflicts
Arising from Revenue Management
 Perceived Unfairness & Perceived
Financial Risk Associated with
Multi-Tier Pricing and Selective
Inventory Availability
Customer conflict can arise from: Marketing tools to reduce
customer conflicts:
 Unfulfilled Inventory Commitment
 Unfulfilled Demand of Regular
Customers
 Unfulfilled Price Expectation of
Group Customers
 Change in the Nature of the
Service
 Fenced Pricing
 Bundling
 Categorising
 High Published Price
 Well designed Customer Recovery
Programme for Over sale
 Preferred Availability Policies
 Offer Lower Displacement Cost
Alternatives
 Physical Segregation & Perceptible
Extra Service
 Set Optimal Capacity Utilisation Level

Price Elasticity
De
De
Di
Di
Price per
unit of
service
Quantity of Units Demanded
De : Demand is price elastic. Small changes in price lead to big changes in demand.
Di : Demand for service is price inelastic. Big changes have little impact on demand.

Key Categories of Rate Fences
Rate Fences Examples
Physical (Product-related) Fences
Basic Product Class of travel (Business/Economy class)
Size and furnishing of a hotel room
Seat location in a theatre
Amenities Free breakfast at a hotel, airport pick up etc.
Free golf cart at a golf course
Service Level Priority wait listing
Increase in baggage allowances
Dedicated service hotlines
Dedicated account management team

Non Physical Fences
Transaction Characteristics
Time of booking or
reservation
Requirements for advance purchase
Must pay full fare two weeks before departure
Location of booking or
reservation
Passengers booking air tickets for an
identical route in different countries are
charged different prices
Flexibility of ticket
usage
Fees/penalties for canceling or changing a
reservation (up to loss of entire ticket price)
Non refundable reservation fees

Non Physical Fences (cont’d)
Consumption Characteristics
Time or duration of
use
Early bird special in restaurant before 6pm
Must stay over on Sat for airline, hotel
Must stay at least five days
Location of
consumption
Price depends on departure location, esp. in
international travel
Prices vary by location (between cities, city
center versus edges of city)

Non Physical Fences (cont’d)
Buyer Characteristics
Frequency or volume
of consumption
Member of certain loyalty-tier with the firm get
priority pricing, discounts or loyalty benefits
Group membership Child, student, senior citizen discounts
Affiliation with certain groups (e.g.. Alumni)
Size of customer
group
Group discounts based on size of group

Relating Price Buckets and Fences to the
Demand Curve
First Class
Full Fare Economy (No Restrictions)
One-Week Advance Purchase
One-Week Advance Purchase, Saturday Night Stayover
3-Week Advance Purchase, Saturday Night Stayover
3-Wk Adv. Prchs, Sat. Night Stay, No changes/refunds
3-Week Adv. Prchs, Sat. Night Stay., $100 for Changes
Late Sales through Consolidators/
Internet, no refunds
Capacity
of Aircraft
No. of Seats Demanded
Capacity
of 1st
-class
Cabin
Price per
Seat

Ethical Concerns in Pricing
 Customers are vulnerable when service is hard to evaluate
or they don’t observe work
 Many services have complex pricing schedules
 hard to understand
 difficult to calculate full costs in advance of service
 Unfairness and misrepresentation in price promotions
 misleading advertising
 hidden charges
 Too many rules and regulations
 customers feel constrained, exploited
 customers unfairly penalized when plans change

Pricing Issues:
Putting Strategy into Practice
 How much to charge?
 What basis for pricing?
 Who should collect
payment?
 Where should payment be
made?
 When should payment be
made?
 How should payment be
made?
 How to communicate prices?

Consumption follows the Timing of PaymentsFrequencyof
HealthClubVisits
Annual Payment Plan
Semiannual Payment Plan
Frequencyof
HealthClubVisits
Time Line
Quarterly Payment Plan
Time Line
Monthly Payment Plan
Source: John Gourville and Dilip Soman, “Pricing and the Psychology of Consumption,”
Harvard Business Review, September 2002, 90-96.

Chapter 7
Distributing Services

Applying the Flow Model of Distribution to
Services
 Information and promotion flow
 Negotiation flow
 Product flow
Distribution embraced three interrelated elements

Information and Physical Processes of the
Augmented Service Product
Exceptions
Billing
Payment
Information
Processes
Information
Consultation
Safekeeping
Physical
Processes
Order-
Taking
Core
Hospitality

Using Websites for Service Delivery
Safekeeping
Track package movements
Check repair status
CORE: Use Web to deliver information-based core services
Core
Consultation
Conduct e-mail dialog
Use expert systems
Order-Taking
Make/confirm reservations
Submit applications
Order goods, check status
Hospitality
Record preferences
Billing
Receive bill
Make auction bid
Check account status
Exceptions
Make special requests
Resolve problems
Payment
Pay by bank card
Direct debit
Information
Read brochure/FAQ; get schedules/
directions; check prices

Options for Service Delivery
 Customer goes to the service provider (or intermediary)
 Service provider goes to the customer
 Interaction at arm’s length (via the Internet, telephone, fax,
mail, etc.)
There are 3 types of interactions between customers and
service firms

Method of Service Delivery
Availability of Service Outlets
Nature of Interaction
between Customer
and Service
Organization
Single Site Multiple Sites
Customer goes to service
organization
Theater
Barbershop
Bus service
Fast-food chain
Service organization goes
to customer
House painting
Mobile car wash
Mail delivery
Auto club road service
Customer and service
organization transact at
arm’s length
Credit card company
Local TV station
Broadcast network
Telephone company

Place vs. Cyberspace
 Place - customers and
suppliers meet in a physical
environment
 Cyberspace - customers
and suppliers do business
electronically in virtual
environment created by
phone/internet linkages
 Required for people processing
services
 Offers live experiences, social
interaction, e.g.., food services
 More emphasis on eye-catching
servicescape, entertainment
 Ideal for info-based services
 Saves time
 Facilitates information gathering
 May use express logistics service
to deliver physical core
products

“24/7” - Factors Encouraging
Extended Operating Hours
Economic pressure from
consumers
Changes in legislation
Economic incentives to
improve asset utilization
Availability of employees
to work nights, weekends
Automated self-service

Technology Revolutionizes Service Delivery:
Some Examples
 Smart mobile telephones to link users to Internet
 Voice recognition software
 Automated kiosks for self-service (e.g.. bank ATMs)
 Web sites
provide information
take orders and accept payment
deliver information-based services
 Smart cards that can act as “electronic wallets”

E-Commerce:
Factors that Attract Customers to Virtual Stores
 Convenience (24-hour availability, save time, effort)
 Ease of obtaining information on-line and searching for
desired items
 Better prices than in bricks-and-mortar stores
 Broad selection

Splitting Responsibilities for Delivering
Supplementary Services
As created by
originating firm
As enhanced
by distributor
As experienced
by customer
+Core = Core

Franchising
 Resources are limited
 Long-term commitment of store managers is crucial
 Local knowledge is important
 Fast growth is necessary to pre-empt competition
Franchising is a fast growth strategy, when

Service Process and Market Entry
People Processing Services
 Export the service concept
 Import customers
 Transport customers to new locations
Possession Processing Services
 Most require an ongoing local presence, whether it is the
customers dropping off items or personnel visiting customer sites
Information Based Services
 Export the service to a local service factory
 Import customers
 Export the information via telecommunications and transform it
locally

Barriers to International Trade in Services
 Operating successfully in international markets remains
difficult for certain services despite efforts of the WTO and
control relaxations
 Barriers include
Refusal by immigration offices to issue work permits
Heavy taxes on foreign firms
Domestic preference policies
Legal restrictions
Lack of broadly-agreed accounting standards
Cultural differences (esp. for entertainment industry)

Forces for Internationalization
Market drivers
Competition drivers
Technology drivers
Cost drivers
Government drivers
Impact will vary by service
type (people, possessions,
information)

Modes of Internationalization
 Export information-based services
 transmit via electronic channels
 store in physical media, ship as merchandise
 Use third parties to market/deliver service concept
 licensing agents
 brokers
 franchising
 alliance partners
 minority joint ventures
 Control service enterprise abroad
 direct investment in new business
 buyout of existing business

Impact of Globalization Drivers on Different
Service Categories
Globalization
Drivers
People
Processing
Possession
Processing
Information
Based
Competition Simultaneity of
production and
consumption limits
leverage of foreign
competitive advantage,
but management
systems can be
globalized
Technology drives
globalization of
competitors with
technical edge.
Highly vulnerable to
global dominance by
competitors with
monopoly or
competitive
advantage in
information.
Market People differ
economically and
culturally, so needs for
service and ability to
pay may vary.
Level of economic
developments
impacts demand for
services to
individually owned
goods
Demand for many
services is derived to
a significant degree
from economic and
educational levels.

Impact of Globalization Drivers on Different
Service Categories
Globalization
Drivers
People
Processing
Possession
Processing
Information
Based
Technology Use of IT for delivery of
supplementary services
may be a function of
ownership and familiarity
with technology.
Need for technology-
based service delivery
systems depends on
possessions requiring
service and the cost
trade-offs in labor
substitution
Ability to deliver
core services
through remote
terminals may be a
function of
investment in
computerization etc.
Cost Variable labor rates may
impact on pricing in
labor-sensitive services.
Variable labor rates
may favor low-cost
locations.
Major cost elements
can be centralized &
minor cost elements
localized.
Government Social policies (e.g..,
health) vary widely and
may affect labor cost etc.
Policies may
decrease/increase
cost &
encourage/discourage
certain activities
Policies may impact
demand and supply
and distort pricing

Chapter 8
Designing and Managing
Service Processes

Developing a Blueprint – Some Basic Advice
 Identify key activities in creating and
delivering the service
 Distinguish between front stage (what
customers experience) and back stage
 Chart activities in sequence
 Show how interactions between customers
and employees are supported by backstage
activities and systems
 Establish service standards for each step
 Identify potential fail points
 Focus initially on “big picture” (later, can drill
down for more detail in specific areas)

Service Blueprinting: Key Components
1. Define standards for frontstage activities
2. Specify physical evidence
3. Identify principal customer actions
4. ------------line of interaction (customers and front stage personnel)--------
5. Front stage actions by customer-contact personnel
6. ------------line of visibility (between front stage and backstage)--------------
7. Backstage actions by customer contact personnel
8. Support processes involving other service personnel
9. Support processes involving IT
Where appropriate, show fail points and risk of excessive waits

Simplified Example: Blueprinting a Hotel Visit
(extract only)
Physical
Evidence
Customer
Actions
Employee
Actions
Face-to-face
FrontStage
Phone
Contact
Backstage
Make
reservation
Rep.
records,
confirms
Arrive,
valet park
Check-in
at reception
Doorman
greets, valet
takes car
Enter
data
Valet
Parks Car
Make up
Room
Register
guest data
Receptionist
verifies, gives
key to room
Go to
room
Hotel exterior, lobby,
employees, key
Elevator, corridor,
room, bellhop
Line of
Interaction
Line of
Visibility

Improving Reliability of Processes
by Failure Proofing
 Analysis of reasons for failure often reveals opportunities
for failure proofing to reduce/eliminate risk of errors
 Errors include:
 treatment errors—human failures during contact with customers
 tangible errors—failures in physical elements of service
 Fail-safe procedures include measures to prevent omission
of tasks or performance of tasks
 incorrectly
 in wrong order
 too slowly
 not needed or specified
 Need fail-safe methods for both employees and customers

Process Redesign: Principal Approaches
 Eliminating non-value-adding steps
 Shifting to self-service
 Delivering direct service
 Bundling services
 Redesigning physical aspects of service processes

Customers as Co-Producers:
Levels of Participation in Service Production
 Low – Employees and systems do all the work
 Medium – Customer inputs required to assist provider
 Provide needed information, instructions
 Make personal effort
 May share physical possessions
 High – Customer works actively with provider to
co-produce the service

Self Service Technologies (SSTs)
 Self-service is ultimate form of customer involvement in
service production
 Customers undertake specific activities using facilities or systems
provided by service supplier
 Customer’s time and effort replace those of employees
 Concept is not new—self-serve supermarkets date from
1930s, ATMs and self-serve gas pumps from 1970s
 Today, customers face wide array of SSTs to deliver
information-based services, both core and supplementary
 Many companies seek to divert customers from employee
contact to Internet-based self-service

Service Firms as Teachers:
Well-trained Customers Perform Better
 Firms must teach customers roles
as co-producers of service
 Customers need to know how to
achieve best results
 Education can be provided through:
 Brochures
 Advertising
 Posted instructions
 Machine-based instructions
 Websites, including FAQs
 Service providers
 Fellow customers
 Employees must be well-trained to
help advise, assist customers

Managing Customers as Partial Employees
to Increase Productivity and Quality
1. Analyze customers’ present roles in the business and
compare to management’s ideal
2. Determine if customers know how to perform and have
necessary skills
3. Motivate customers by ensuring that will be rewarded for
performing well
4. Regularly appraise customers’ performance; if
unsatisfactory, consider changing roles or termination

The Problem of Customer Misbehavior –
Identifying and Managing “Jaycustomers”
What is a jaycustomer?
A customer who behaves in a thoughtless or abusive
fashion, causing problems for the firm itself, employees,
other customers
Why do jaycustomers matter?
 Can disrupt processes
 Affect service quality
 May spoil experience of other customers
What should a firm do about them?
 Try to avoid attracting potential jaycustomers
 Institute preventive measures
 Control abusive behavior quickly
 Take legal action against abusers
 BUT firm must act in ways that don’t alienate other
customers

Six Types of “Jaycustomer”
 Thief – seeks to avoid paying for service
 Rule breaker – ignores rules of social behavior and/or procedures for
safe, efficient use of service
 Belligerent – angrily abuses service personnel (and sometimes other
customers) physically and/or emotionally
 Family Feuders – fight with other customers in their party
 Vandal – deliberately damages physical facilities, furnishings, and
equipment
 Deadbeat – fails to pay bills on time
Can you think of others?
How should firms deal with each of these problems?

Chapter 9
Balancing Demand
and Capacity

Relating Demand to Capacity:
Four Key Concepts
 Excess demand: too much demand relative to capacity at a
given time
 Excess capacity: too much capacity relative to demand at a
given time
 Maximum capacity: upper limit to a firm’s ability to meet
demand at a given time
 Optimum capacity: point beyond which service quality
declines as more customers are serviced

Variations in Demand Relative to Capacity
(Fig. 9-1)
VOLUME DEMANDED
TIME CYCLE 1 TIME CYCLE 2
Maximum Available
Capacity
Optimum Capacity
(Demand and Supply
Well Balanced
Low Utilization
(May Send Bad Signals)
Demand exceeds capacity
(business is lost)
Demand exceeds
optimum capacity
(quality declines)
Excess capacity
(wasted resources)
CAPACITY UTILIZED

Defining Productive Capacity
in Services
 Physical facilities to contain customers
 Physical facilities to store or process goods
 Physical equipment to process people, possessions, or
information
 Labor used for physical or mental work
 Public/private infrastructure—e.g., highways, airports,
electricity

Alternative Capacity Management Strategies
 Level capacity (fixed level at all times)
 Stretch and shrink
 offer inferior extra capacity at peaks (e.g.. bus/metro standees)
 vary seated space per customer (e.g.. elbow room, leg room)
 extend/cut hours of service
 Chase demand (adjust capacity to match demand)
 schedule downtime in low demand periods
 use part-time employees
 rent or share extra facilities and equipment
 cross-train employees
 Flexible Capacity (vary mix by segment)

Predictable Demand Patterns and
Their Underlying Causes
Predictable Cycles
of Demand Levels
day
week
month
year
other
Underlying Causes of
Cyclical Variations
employment
billing or tax
payments/refunds
pay days
school hours/holidays
seasonal climate changes
public/religious holidays
natural cycles
(e.g.. coastal tides)

Causes of Seemingly Random Changes in
Demand Levels
 Weather
 Health problems
 Accidents, Fires, Crime
 Natural disasters
Question: which of these
events can be predicted?

Alternative Demand Management Strategies
 Take no action
 let customers sort it out
 Reduce demand
 higher prices
 communication promoting alternative times
 Increase demand
 lower prices
 communication, including promotional incentives
 vary product features to increase desirability
 more convenient delivery times and places
 Inventory demand by reservation system
 Inventory demand by formalized queueing

Hotel Room Demand Curves by Segment
and by Season
Bh = business travelers in high season
Bl = business travelers in low season
Th = tourist in high season
Tl = tourist in low season
Bh
Bh
Bl
Bl
Th
Th
Tl
Tl
Price per
Room Night
Quantity of Rooms Demanded at Each Price
by Travelers in Each Segment in Each Season Note: hypothetical example

Avoiding Burdensome Waits for Customers
 Add extra capacity so that demand can be met at most
times (problem: may add too many costs)
 Rethink design of queuing system to give priority to certain
customers or transactions
 Redesign processes to shorten transaction time
 Manage customer behavior and perceptions of wait
 Install a reservations system

Alternative Queuing Configurations
Single line, single server, single stage
Single line, single servers at sequential stages
Parallel lines to multiple servers
Designated lines to designated servers
Single line to multiple servers (“snake”)
“Take a number” (single or multiple servers)
28
29
21
20
24
23
30 25
31
26
27
32

Tailoring Queuing Systems to Market Segments:
Criteria for Allocation to Designated Lines
 Urgency of job
 emergencies vs. non-emergencies
 Duration of service transaction
 number of items to transact
 complexity of task
 Payment of premium price
 First class vs. economy
 Importance of customer
 frequent users/loyal customers vs. others

Ten Propositions on the Psychology of Waiting
Lines
1. Unoccupied time feels longer
2. Preprocess/postprocess waiting feel longer than in-
process
3. Anxiety makes waiting seem longer
4. Uncertain waiting is longer than known, finite waiting
5. Unexplained waiting seems longer
6. Unfair waiting is longer than equitable waiting
7. People will wait longer for more valuable services
8. Waiting alone feels longer than in groups
9. Physically uncomfortable waiting feels longer
10. Waiting seems longer to new or occasional users
Sources: Maister; Davis & Heineke; Jones & Peppiatt

Benefits of Effective Reservations Systems
 Controls and smoothes demand
 Pre-sells service
 Informs and educates customers in advance of arrival
 Customers avoid waiting in line for service (if service times
are honored)
 Data capture helps organizations prepare financial
projections

Characteristics of Well-designed
Reservations Systems
 Fast and user friendly for customers and staff
 Can answer customer questions
 Offers options for self service (e.g.. Web)
 Accommodates preferences (e.g.., room with view)
 Deflects demand from unavailable first choices to
alternative times and locations
 Includes strategies for no-shows and overbooking
 requiring deposits to discourage no-shows
 canceling unpaid bookings after designated time
 compensating victims of over-booking

Setting Capacity Allocation Sales Targets for a
Hotel by Segment and Time Period
Out of commission for renovation
Executive service
guests
Transient guests
Weekend
package
Groups and conventions
Airline contracts
100%
50%
Week 7
(Low Season)
MNights: Tu
Time
W Th F S Sn
Executive service guests
Transient guests
W/E
package
Groups (no conventions)
Airline contracts
Week 36
(High Season)
M Tu W Th F S Sn
Capacity (% rooms)

Information Needed for Demand and
Capacity Management Strategies
 Historical data on demand level and composition, noting
responses to marketing variables
 Demand forecasts by segment under specified conditions
 Fixed and variable cost data, profitability of incremental
sales
 Site-by-site demand variations
 Customer attitudes towards queuing
 Customer evaluations of quality at different levels of
capacity utilization

Chapter 10
Planning the
Service Environment

The Purpose of Service Environments
The service environment influences buyer behaviour in 3 ways
 Message-creating Medium: symbolic cues to communicate the
distinctive nature and quality of the service experience.
 Attention-creating Medium: to make the servicescape stand out
from other competing establishments, and to attract customers
from target segments.
 Effect-creating Medium: colors, textures, sounds, scents and
spatial design to enhance the desired service experience,
and/or to heighten an appetite for certain goods, services or
experiences
Helps the firm to create a distinctive image & positioning that
is unique.

Comparison of Hotel Lobbies
Four Seasons Hotel, New York
Orbit Hotel and Hostel, Los Angeles
The servicescape is part of the value proposition!

The Mehrabian-Russell Stimulus-Response
Model
Response
Behaviors:
Approach/
Avoidance &
Cognitive
Processes
Environmental
Stimuli &
Cognitive
Processes
Dimensions of
Affect:
Pleasure and
Arousal

The Mehrabian-Russell Stimulus-Response
Model
 Simple and fundamental model of how people respond to
environments
 Peoples’ conscious and unconscious perceptions and
interpretation of the environment influence how they feel in
that environment
 Feelings, rather than perceptions or thoughts drive behavior
 Typical outcome variable is ‘approach’ or ‘avoidance’ of an
environment, but other possible outcomes can be added to
the model as well

The Russell Model of Affect
Arousing
Pleasant
Sleepy
Unpleasant
Exciting
RelaxingBoring
Distressing

The Russell Model of Affect
 Emotional responses to environments can be described
along two main dimensions, pleasure and arousal.
 Pleasure is subjective depending on how much the
individual likes or dislikes the environment
 Arousal quality of an environment is dependent on its
“information load”, i.e., its degree of
 Novelty (unexpected, surprising, new, familiar) and
 Complexity (number of elements, extent of motion or change)

Drivers of Affect
 Affect can be caused by perceptions and cognitive
processes of any degree of complexity.
 Simple Cognitive Processes, Perception of Stimuli
tangible cues (of service quality)
consumer satisfaction
 Complex Cognitive Processes
affective charged schemata processing
attribution processes
The more complex a cognitive process becomes, the more
powerful its potential impact on affect.However, most service
encounters are routine. Simple processes can determine affect.

Behavioral Consequence of Affect
 Basically, pleasant environments result in approach, and
unpleasant environments result in avoidance
 Arousal acts as an amplifier of the basic effect of pleasure
on behaviour
 If the environment is pleasant, increasing arousal can lead
to excitement and stronger positive consumer response. If
the environment is unpleasant, increasing arousal level will
move consumers into the Distressing region
 Feelings during the service encounter is also an important
driver of customer loyalty

An Integrated Framework – Bitner’s
ServiceScape Model
Environmental
Dimensions
Perceived
ServiceScape
Ambient
Conditions
Space/
Function
Signs,
Symbols &
Artefacts
Cognitive
Emotional
Psychological
Customer
Response
Moderator
Employee
Responses
Approach
or
Avoid
Approach
or
Avoid
Social Interaction
Between
Customers &
Employees
Holistic
Environ-
ment
Moderators Internal Responses Behaviour
Customer
Responses
Employee
Response
Moderator
Cognitive
Emotional
Psychological

An Integrated Framework – Bitner’s
ServiceScape Model(cont.)
 Identifies the main dimensions in a service environment
and views them holistically
 Customer and employee responses classified under,
cognitive, emotional and psychological which would in turn
lead to overt behavior towards the environment
 Key to effective design is how well each individual
dimension fits together with everything else

Dimensions of the Service Environment
 Ambient Conditions
 Music (e.g., fast tempo and high volume increase arousal
levels)
 Scent (strong impact on mood, affect and evaluative
responses, purchase intention and in-store behavior)
 Color (e.g., warm colors associated with elated mood states
and arousal but also increase anxiety, cool colors reduce
arousal but can elicit peacefulness and calm)
Service environments are complex and have many design
elements. The main dimensions in the servicescape model
includes:

Dimensions of the Service Environment (cont.)
 Spatial Layout and Functionality
 Layout refers to size and shape of furnishings and the ways it
is arranged
 Functionality is the ability of those items to facilitate
performance
 Signs, Symbols and Artifact
 Explicit or implicit signals to communicate the firm’s image,
help consumers find their way and to convey the rules of
behavior

Impact of Music on Restaurant Diners
Restaurant
Patron
Behavior
Fast-beat
Music
Environment
Slow-beat
Music
Environment
Difference between
Slow and Fast-beat
Environments
Absolute
Difference
%
Difference
Consumer time
spent at table
45min 56min +11min +24%
Spending on
food
$55.12 $55.81 +$0.69 +1%
Spending on
beverages
$21.62 $30.47 +$8.85 +41%
Total spending $76.74 $86.28 +$9.54 +12%
Estimated
gross margin
$48.62 $55.82 +$7.20 +15%

The Effects of Scents on the Perceptions of
Store Environments
Evaluation Unscented
Environment
Mean Ratings
Scented
Environment
Mean Ratings
Difference
Store Evaluation
Negative/positive 4.65 5.24 +0.59
Outdated/modern 3.76 4.72 +0.96
Store Environment
Unattractive/attracti
ve
4.12 4.98 +0.86
Drab/colorful 3.63 4.72 +1.09
Boring/Stimulating 3.75 4.40 +0.65

The Effects of Scents on the Perceptions of
Store Environments
Evaluation Unscented
Environment
Mean Ratings
Scented
Environment
Mean Ratings
Difference
Merchandise
Outdated/up- to-date
style
4.71 5.43 +0.72
Inadequate/adequate 3.80 4.65 +0.85
Low/high quality 4.81 5.48 +0.67
Low/high price 5.20 4.93 -0.27

Aromatherapy: The Effects of Fragrance on
People
Fragrance Aromath
erapy
Aromather
apy Class
Tradition
al Use
Potential Psychological
Impact on People
Orange Citrus Calming Soothing
agent,
astringen
t
Calming and relaxing
effect esp. for nervous
people
Lavender Herbaceo
us
Calming,
balancing,
soothing
Muscle
relaxant,
soothing
agent
Relaxing and calming,
helps create a homey and
comfortable feel
Jasmine Floral Uplifting,
balancing
Emollient
soothing
agent
Helps makes people feel
refreshed, joyful,
comfortable
Peppermint Minty Energizing,
stimulating
Skin
cleanser
Increase attention level
and boosts energy

Common Associations and Human Responses
to Colors
Color Degree of
Warmth
Nature
Symbol
Common Association and
Human Responses to Color
Red Warm Earth High energy and passion; can
excite, stimulate, and increase
arousal and blood pressures
Orange Warmest Sunset Emotions, expressions, and
warmth
Green Cool Grass
and
Trees
Nurturing, healing and
unconditional love
Blue Coolest Sky and
Ocean
Relaxation, serenity and loyalty

Selection of Environmental Design Elements
 There is a multitude of research on the perception and
impact of environmental stimuli on behaviour, including:
People density, crowding
Lighting
Sound/noise
Scents and odours
Queues
 No standard formula to designing the perfect combination of
these elements.
Design from the customer’s perspective
Design with a holistic view!

Tools to Guide in Servicescape Design
 Keen Observation of Customers’ Behavior and Responses
to the service environment by management, supervisors,
branch managers, and frontline staff
 Feedback and Ideas from Frontline Staff and Customers
using a broad array of research tools ranging from
suggestion boxes to focus groups and surveys.
 Field Experiments can be used to manipulate specific
dimensions in an environment and the effects observed.
 Blueprinting or Service Mapping - extended to include the
physical evidence in the environment.

Chapter 11
Managing People
for Service Advantage

Services marketing

Recomendados

Recomendados

Más contenido relacionado

La actualidad más candente

La actualidad más candente (20)

Destacado

Destacado (20)

Similar a Services marketing

Similar a Services marketing (20)

Más de Jags Jagdish

Más de Jags Jagdish (20)

Último

Último (20)

Services marketing