MARKETING MIX IN SERVICEMBA ITB 2015

Services Pose Distinctive Marketing Challenges Marketing management tasks in the service sector differ from those in the manufacturing sectorThe eight common differences are:Most service products cannot be inventoriedIntangible elements usually dominate value creationServices are often difficult to visualize and understandCustomers may be involved in co-productionPeople may be part of the service experienceOperational inputs and outputs tend to vary more widelyThe time factor often assumes great importanceDistribution may take place through nonphysical channelsWhat are marketing implications?

Differences, Implications, and Marketing-Related Tasks (1) Difference

Most service productscannot be inventoried

Intangible elementsusually dominatevalue creation

Services are oftendifficult to visualizeand understand

Customers may beinvolved in co-production

Implications

Customers may beturned away

Harder to evaluateservice and distinguishfrom competitors

Greater risk anduncertainty perceived

Interaction betweencustomer and provider; but poor task execution could affect satisfactionMarketing-Related Tasks

Use pricing, promotion, andreservations to smooth demand; work with ops to manage capacity

Emphasize physical clues, employ metaphors and vivid images in advertising

Educate customers onmaking good choices; offer guarantees

Develop user-friendlyequipment, facilities, and systems; train customers, provide good support

Implications

Behavior of servicepersonnel and customerscan affect satisfaction

Hard to maintain quality, consistency, reliability Difficult to shield customers from failures

Time is money; customers want serviceat convenient times

Electronic channels or voice telecommunications

Difference

People may be part of service experience

Operational inputs andoutputs tend to vary more widely

Time factor often assumes great importance

Distribution may take place through nonphysical channels

Marketing-Related Tasks

Recruit, train employees to reinforce service conceptShape customer behavior

Redesign for simplicity andfailure proofingInstitute good service recovery procedures

Find ways to compete on speed of delivery; offer extended hours

Create user-friendly,secure websites and freeaccess by telephoneDifferences, Implications, and Marketing-Related Tasks (2)

Value Added by Physical, Intangible Elements Helps Distinguish Goods and Services Physical Elements HighLowIntangible ElementsHighSaltDetergentsCD PlayerWineGolf ClubsNew CarTailored clothingFast-Food RestaurantPlumbing RepairHealth ClubAirline FlightLandscape MaintenanceConsultingLife InsuranceInternet BankingSource; Adapted from Lynn Shostack

Services Require An Expanded Marketing Mix The 7Ps of Services MarketingProduct Place and TimePrice Promotion and EducationProcessPhysical EnvironmentPeople

Working in Unison:

(5) Process in Augmented Product Before VisitReservationinternetParking Get carCheck inPorterUse roomMealPay TVRoom serviceInternetCheck outTime Frame of An Overnight Hotel Stay(Real-time service use)

USE GUESTROOM OVERNIGHTInternet

Simple Flowchart for Delivery of a People-Processing Service People Processing Stay at Motel

(6) Physical EnvironmentDesign servicescape and provide tangible evidence of service performancesCreate and maintain physical appearancesBuildings/landscapingInterior design/furnishingsVehicles/equipmentStaff grooming/clothingSounds and smellsOther tangibles Manage physical cues carefully can have profound impact on customer impressions

(7) PeopleInteractions between customers and contact personnel strongly influence customer perceptions of service quality The right customer-contact employees performing tasks wellJob designRecruitingTrainingMotivationThe right customers for firms missionContribute positively to experience of other customersPossessor can be trained to have needed skills (co-production)Can shape customer roles and manage customer behavior

How Product Attributes Affect Ease of Evaluation

Service Encounters Range from High-Contact to Low-Contact

Levels of Customer Contact with Service Organizations

Theatrical Metaphor: An Integrative PerspectiveService dramas unfold on a stagesettings may change as performance unfolds Many service dramas are tightly scripted, others improvisedFront-stage personnel are like members of a castLike actors, employees have roles, may wear special costumes, speak required lines, behave in specific waysSupport comes from a backstage production teamCustomers are the audiencedepending on type of performance, may be passive or active participants

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 3Service Employees Are Crucially Important

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 4Service Personnel: Source of Customer Loyalty and Competitive AdvantageCustomers perspective: Encounter with service staff is most important aspect of a serviceMoments of truth drive customers perception of the service firmFirms perspective: Frontline is an important source of differentiation and competitive advantage. It is: A core part of the product the service firm The brand Frontline is an important driver of customer loyaltyAnticipating customer needsCustomizing service deliveryBuilding personalized relationships

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 6Frontline Work Is Difficult and Stressful

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 8Role Stress in Frontline EmployeesThree main causes of role stress:Person versus Role: Conflicts between what jobs require and employees own personality and beliefs Organizations must instill professionalism in frontline staffOrganization versus Client: Dilemma whether to follow company rules or to satisfy customer demands This conflict is especially acute in organizations that are not customer orientedClient versus Client: Conflicts between customers that demand service staff intervention. Ex.: Smoking in non smoking areas. Ex : Inconvenience caused by other passengers in train journey

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 10Cycles of Success

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 18Cycle of Success

Low customer turnoverCustomer loyaltyContinuity in relationship with customerHigh customer satisfactionExtensive trainingEmployee satisfaction, positive service attitudeRepeat emphasis on customer loyalty and retentionHigher profit marginsBroadened job designsLowered turnover, high service qualityAbove average wagesIntensified selection effortTrain, empower frontlinepersonnel to control qualitySource: Heskett and Schlesinger

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 23The Wheel of Successful HR in Service Firms Leadership that: Focuses the entire organization on supporting the frontlineFosters a strong service culture with passion for service and productivity Drives values that inspires, energizes and guides service providers 1. Hire theRight People

3. Motivate and Energize Your People

2. Enable Your PeopleBe the preferred employer & compete for talent market share Intensify the selection processEmpower frontlineBuild high performance service delivery teams Extensive training

Utilize the full range of rewardsService Excellence& Productivity

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 24Hire the Right PeopleThe old saying People are your most important asset is wrong.The RIGHT people are your most important asset.

Jim Collins

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 38Customer BaseMiddle Mgmt And Top MgmtSupport Frontline

The Inverted Organizational Pyramid

Frontline StaffTop MgmtMiddle Mgmt Legend: = Service encounters, or Moments of TruthTraditional Organizational Pyramid Inverted Pyramid with a Customer and Frontline Focus Frontline Staff

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 5Customer Response Categories to Service Failures Service Encounter is DissatisfactoryTake some form of Public ActionTake some form of Private ActionTake No ActionComplain to the service firmComplain to a third partyTake legal action to seek redressDefect (switch provider)Negative word-of-mouthAny one or a combination of these responses is possible

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 6Understanding Customer Responses to Service FailureWhy do customers complain?Obtain compensation for economic lossVent their angerHelp improve the service . Ex Alumni AssociationFor altruistic reasons Want to save prevent other customers from undergoing the trauma of poor service What proportion of unhappy customers complain? 5-10%Why dont unhappy customers complain? time cost, uncertain outcome, complaint process is not known, fear of confrontation etc.Who is most likely to complain? people in Higher socioeconomic circumstancesWhere do customers complain? To the service rep in immediate contact only. Rarely to the HQ or through email. Customer service centers are also called up.What do customers expect once they have made a complaint?

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 10How Complaint Resolution AffectsCustomer Retention Rates9%37%19%46%54%70%82%95%0102030405060708090100Customer did notcomplainComplaint wasnot resolvedComplaintwas resolvedComplaint wasresolved quicklyProblem cost > $100 Problem cost $1$5Percent of UnhappyCustomers Retained Source: Claes Fornell, Birger Wernerfelt, A Model for Customer Complaint Management, Marketing Science, Vol. 7, No. 3 (Summer, 1988), pp. 287298

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 12The Service Recovery ParadoxCustomers who experience a service failure that is satisfactorily resolved may be more likely to make future purchases than customers without problems

If second service failure occurs, the paradox disappearscustomers expectations have been raised and they become disillusioned

Severity and recoverability of failure (e.g., spoiled wedding photos) may limit firms ability to delight customer with recovery efforts

Best strategy: Do it right the first time

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 13Principles of Effective Service Recovery Systems

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 14Components of an Effective Service Recovery SystemDo the job right the first timeEffective Complaint HandlingIdentify Service ComplaintsResolve Complaints EffectivelyLearn from the Recovery ExperienceIncreased Satisfaction and LoyaltyConduct researchMonitor complaintsDevelop Complaints as opportunity culture

Develop effective system and training in complaints handling Conduct root cause analysis=+Close the loop via feedback

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 3Fluctuations in Demand Threaten Service Productivity

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 6Variations in Demand Relative to CapacityVOLUME DEMANDEDTIME CYCLE 1TIME CYCLE 2Maximum Available CapacityOptimum 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

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 4From Excess Demand to Excess Capacity Four conditions potentially faced by fixed-capacity services:Excess demandToo much demand relative to capacity at a given time => customer is denied service => biz lostDemand exceeds optimum capacityUpper limit to a firms ability to meet demand at a given time => no one turned away, but conditions are deterioratingOptimum capacityDemand =Supply ; Staff not over worked and Customers face no delayExcess capacity Supply > Demand

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 16Demand Levels Can Be Managed

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 17Alternative Demand Management Strategies

Take no actionLet customers sort it out. They learn from WOM when is the slack and peak time, where to stand and what is the possible waiting time Reduce demand Higher pricesCommunication : promoting usage of time slots. Evening Colleges Increase demandLower pricesCommunication, including promotional incentivesMore convenient delivery times and placesInventory demand by reservation system : Provide priority to special customers, others attended later.Inventory demand by formalized queuing :Special line for VIPs.

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 18Marketing Strategies CanReshape Some Demand PatternsUse price and other costs( time, psychological cost)to manage demandChange product elements. Price discounting will not boost sales in off peak seasons. Ex Hotels offer various menus during different time of the day to cater to different customer needsModify place and time of deliveryNo change Vary times when service is available during summer caf remain open till late night. Shops extend working hours during Diwali and dusseraOffer service to customers at a new location Free dental check up in mobile dental vans. Promotion and education customers about peak period and slack period

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 20Inventory Demand through Waiting Lines and Reservations

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 21Waiting Is a Universal Phenomenon!An average person may spend up to 30 minutes/day waiting in lineequivalent to over a week per year!Almost nobody likes to waitIt's boring, time-wasting, and sometimes physically uncomfortable

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 23Saving Customers from Burdensome WaitsAdd extra capacity so that demand can be met at most times (problem: may increase costs too much)Rethink design of queuing system to give priority to certain customers or transactions Redesign processes to shorten transaction time. Use of internetManage customer behavior and perceptions of waitInstall a reservations system Ex Web check in

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 24Alternative Queuing Configurations

Single line, single server, single stage Ex : Small railway reservation stationsSingle line, single servers, sequential stagesGovt officesParallel lines to multiple servers Large railway reservation centersDesignated lines to designated servers Ladies Q, Credit card booking, Group booking QSingle line to multiple servers (snake)-Ex Airport Check in One entrance and diff check in for diff flights Take a number (single or multiple servers)Ex Banks282921202423302531262732

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 26Minimize Perceptions of Waiting Time

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 27Ten Propositions on Psychology of Waiting Lines (1) Unoccupied time feels longer than occupied time Place TV

Pre- and post-process waits feel longer than in-process waits Ex Movie: Wait 1 Buying Ticket, Wait 2 : Maneuvering vehicle from parking lot

Anxiety makes waits seem longer

Uncertain waits are longer than known, finite waits Inform customer the approx wait time

Unexplained waits are longer than explained waits- Inform customer reason for delay and possible time for recoverySources: Maister; Davis & Heineke; Jones & Peppiatt

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 28Unfair waits are longer than equitable waiting : People jumping QPeople will wait longer for more valuable servicesWaiting alone feels longer than waiting in groupsPhysically uncomfortable waits feel longerWaits seem longer to new or occasional users Place a lobby manager to take care of this

Ten Propositions on Psychology of Waiting Lines (2) Sources: Maister; Davis & Heineke; Jones & Peppiatt

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 29Create An Effective Reservation System

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 30Benefits of ReservationsControls and smoothes demandPre-sells serviceInforms and educates customers in advance of arrivalSaves customers from having to wait in line for service (if reservation times are honored)Data captured helps organizations Prepare financial projectionsPlan operations and staffing levels

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 31Characteristics of Well-Designed Reservations SystemFast and user-friendly for customers and staffAnswers customer questionsOffers options for self service (e.g., the Web)Accommodates preferences (e.g., room with view)Deflects demand from unavailable first choices to alternative times and locationsIncludes strategies for no-showsRequiring deposits to discourage no-showsCanceling unpaid bookings after designated time

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 32Setting Hotel Room Sales Targets by Segment and Time PeriodOut of commission for renovationLoyalty Program MembersTransient guestsWeekend packageGroups and conventionsAirline contracts100%50% Week 7 (Low Season)MNights:TuTimeWThFSSuLoyalty Program MembersTransient guestsW/EpackageGroups (no conventions)Airline contractsWeek 36 (High Season)MTuWThFSSuCapacity (% rooms)

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