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Amity Business School
MARKETING OF SERVICES
Module I: Understanding Services and Consumer Behavior
Course Code: MBA 479
Credit Units: 03
Rohit S. Tomar
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Amity Business SchoolObjectives of the Course
The course has been designed to equip students to become
more effective managers of any service organization byfamiliarizing them with the basic characteristics of services,
their implications on design and delivery, and the ways to
achieve sustainable competitive advantage by managing
critical parameters.
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Objectives of the Session
To understand -
Factors influencing the growth of service sector
Definition of service
Tangibility spectrum Characteristics of services
Generic differences between goods & services
Classification of services
Developing frameworks for analyzing services
Myths about services
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Factors Influencing the Growth of
Service Sector
Government Policies
Social Changes Business trends
Technological Changes
Globalization
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Government Policies Changes in regulations
Privatization New rules to protect customers,
employees and the environment
New agreements on trade in services
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Social Changes
Rising customer expectations
More affluence
More people short of time
Increased desire for buying experiences Rising customer ownership of high tech equipments
Easier access to more information
Immigration
Growing but aging population
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Business trends
Push to increase shareholder value
Emphasis on productivity and cost savings
Manufacturers add value through service and sellservices
More strategic alliances and out sourcing
Focus on quality and customer satisfaction
Growth on franchising Marketing emphasis on non profits
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Technological changes Growth of internet greater bandwidth
Mobile equipment Wireless networking
Faster software
Digitalization of text, graphics, audio andvideo
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Globalization
More companies operating on
transnational basis
Increase international travel
Foreign competition
International mergers and alliances
Offshore customer services
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Definition of Service
Service is an activity that has an
element of intangibility associated with it
and which involves the service providers
interaction either with customers or with
the property belonging to the customer.
- Adrian Payne
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Characteristics of Services
Intangibility (hair style)
Heterogeneity (Quality varies over time)
Inseparability (Cannot separate servicefrom service provider)
Perishability (Food items)
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The services marketing challenges and
implications for marketers for each service
characteristics
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Intangible elements
Implications
Customers cant smell,
taste and touch these
elements
Harder to evaluate
service and distinguish
from competitiors
Marketing related
tasks
Make services tangible
through physical clues
Use Metaphors and
physical clues
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Tangibility Spectrum
Services can be classified on the basis of
tangibility like following
A pure tangible good
A tangible good with accompanying services
A major service accompanying minor goods and
services
A pure service
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Most services cant be
inventoried Implications
Customer may turn
away or have to wait
Marketing tasks
Smooth demand
through promotions,dynamic pricing &
reservations
Work with operations
to adjust capacity
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understand
Implications
Customers perceive greater
risk and uncertainty.
MarketingRelated
Task
Educate customers to makegood choices, explain what
to look for, document
performance, offer
guarantees.
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People may be the part of the service experience
Implications
Appearance, attitude, and
behaviour of servicepersonnel and other
customers can shape the
experience and affect
satisfaction.
Marketing-Related
Tasks
Recruit, train, and reward
employees to reinforce theplanned service concept.
Target the right customers at
the right times, shape their
behaviour.
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Operational inputs and outputs
Implications
Harder to maintain
consistency, reliability, and
service quality to lower cost
through higher productivity.
Difficult to protect
customers from results of
service failure.
Marketing-Related
Tasks
Set quality standards based
on customer expectations;redesign product elements
for simplicity and failure-
proofing.
Institute good service
recovery procedure.
Automate customer-
provider interactions;
perform work while
customer are absent18
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Amity Business SchoolThe time factor often assumes great
importance
Implications
Customer see time as a scare
resources to be spent wisely;dislike wasting time
waiting, want service at
times that are convenient.
Marketing-Related
Task
Find ways to compete on
speed of delivery, minimizeburden of waiting, offer
extended service hours.
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Distribution through non physical channel
Implications
Information based services
can be delivered throughelectronic channels such as
the internet or voice
telecommunication, but core
products involving physical
activities or products
cannot.
Marketing-Related
Task
Seek to create user friendly,
secure websites and freeaccess by telephone.
Ensure that all information
based service elements can
be downloaded from site.
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Service Marketing Triangle
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Aligning the Triangle
Organizations that seek to provide consistently
high levels of service excellence will
continuously work to align the three sides of
the triangle.
Aligning the sides of the triangle is an ongoing
process.
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Making Promises
Understanding customer needs
Managing expectations Traditional marketing communications
Sales and promotion
Advertising Internet and web site communication
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Keeping Promises
Service delivery
Reliability, responsiveness, empathy, assurance,
tangibles, recovery, flexibility
Face-to-face, telephone & online interactions
The Customer Experience
Customer interactions with sub-contractors or
business partners
The moment oftruth
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Enabling Promises
Hiring the right people
Training and developing people to deliver
service
Employee empowerment
Support systems
Appropriate technology and equipment Rewards and incentives
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Inverted Service marketing
triangle
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Ways to Use the
Services Marketing Triangle Overall Strategic
Assessment
How is the service
organization doing onall three sides of the
triangle?
Where are the
weaknesses?
What are the
strengths?
Specific Service
Implementation
What is being
promoted and bywhom?
How will it be delivered
and by whom?
Are the supportingsystems in place to
deliver the promised
service?
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Services Marketing Triangle
Applications Exercise
Focus on a service organization. In the context you are
focusing on, who occupies each of the three points of the
triangle?
How is each type of marketing being carried out currently?
Are the three sides of the triangle well aligned?
Are there specific challenges or barriers in any of the three
areas?
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The Flower of Service (Fig 3.6)
Core
Information
Consultation
Order Taking
Hospitality
Payment
Billing
Exceptions
Safekeeping
Facilitating elements
Enhancing elements
KEY:
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How to Determine What Supplementary Services
Should Be Offered
Not every core product is surrounded by supplementary elements fromall eight clusters
Nature of product helps to determine:
Which supplementary services must be offered Which might usefully be added to enhance value and ease of doingbusiness with the organization
People-processing and high-contact services tend to have moresupplementary services
Market positioning strategy helps to determine which supplementaryservices should be included
Firms that offer different levels of service often add extra supplementaryservices for each upgrade in service level
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Amity Business SchoolThe Flower of Service:
Facilitating ServicesInformation
Core
Customers often require
information about how to obtain
and use a product or service.
Examples of elements:
Directions to service site
Schedule/service hours
Prices
Conditions of sale
Usage instructions
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Amity Business SchoolThe Flower of Service:
Facilitating ServicesOrder Taking
Core
Customers need to know what
is available and may want to
secure commitment to
delivery. The process should
be fast and smooth.
Examples of elements:
Applications
Order entry
Reservations and check-in
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Amity Business SchoolThe Flower of Service:
Facilitating ServicesBilling
Core
How much do I owe you?
Bills should be clear,
Accurate, and intelligible.
Examples of elements:
Periodic statements ofaccount activity
Machine display of amount
due
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Amity Business SchoolThe Flower of Service:
Facilitating ServicesPayment
Core
Customers may pay faster
and more cheerfully if you
make transactions simple
and convenient for them.
Examples of elements:
Self service payment
Direct to payee or intermediary
Automatic deduction
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Core
The Flower of Service:
Enhancing ServicesConsultation
Value can be added to goods
and services by offering advice
and consultation tailored to
each customers needs and
situation.
Examples of elements:
Customized advice
Personal counseling Management consulting
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Amity Business SchoolThe Flower of Service:
Enhancing ServicesHospitality
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!
Examples of elements:
Greeting
Waiting facilities and amenities
Food and beverages
Toilets and washrooms Security
Core
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Core
The Flower of Service:
Enhancing ServicesSafekeeping
Customers prefer not to worry
about looking after the personal
possessions that they bring
with them to a service site.
Examples of elements:
Looking after possessions
customers bring with them
Caring for goods purchased
(or rented) by customers
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Core
The Flower of Service:
Enhancing ServicesExceptions
Customers appreciate some
flexibility when they make
special requests and expect
responsiveness when things
dont go according to plan.
Examples of elements:
Special requests in advance Complaints or compliments
Problem solving Restitution
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Managerial Implications
To develop product policy and pricing strategy, managers need todetermine:
Which supplementary services should be offered as a standard
package accompanying the core
Which supplementary elements could be offered as options foran extra charge
In general, firms that compete on a low-cost, no-frills basis needs
fewer supplementary elements than those marketing expensive,
high-value-added services Each flower petal must receive consistent care and concern to
remain fresh and appealing
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Important Differences Existamong Services
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Categorizing Service 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?
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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
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(2) Designing the Service Factory
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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.
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(3) Evaluating Alternative Delivery
ChannelsFor possession-processing, mental-stimulus processing, orinformation processing services, alternatives include:
1. Customers come to the service factory
2. Customers come to a retail office
3. Service employees visit customers home or workplace
4. Business is conducted at arms length through
- physical channels (e.g., mail, courier service)- electronic channels (e.g., phone, fax, email, Web site)
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(4) Balancing Demand and Capacity
When capacity to serve is limited and demand varieswidely, problems arise because service outputcantbe
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
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(5) Applying Information
Technology
All services can benefit from IT, but mental-stimulusprocessing and information-processing services have the mostto 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
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(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
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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
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Intangible Attributes, Variability, and Quality
Control Problems Make Services Hard toEvaluate
Search attr ibutesTangible characteristics that allow customersto evaluate a product before purchase
Exper ience attr ibutesCharacteristics that can be experiencedwhen actually using the service
Credence attr ibutesCharacteristics 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 benefitshave been delivered
A i B i S h lPerceived Risks in
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Amity Business SchoolPerceived Risks in
Purchasing and Using Services
Functionalunsatisfactory performance outcomes
Financialmonetary loss, unexpected extra costs
Temporalwasted time, delays lead to problems
Physicalpersonal injury, damage to possessions
Psychologicalfears and negative emotions
Socialhow others may think and react
Sensoryunwanted impacts to any of five senses
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How you will handle perceived
risk?
A i B i S h l
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What is the role of service
provider in reducing the risk?
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A i B i S h l
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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
A it B i S h lF t th t I fl
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Amity Business SchoolFactors that Influence
Customer Expectations of Services
Predicted Service
Explicit & ImplicitService Promises
Word-of-Mouth
Past ExperienceDesired Service
ZONEOF
TOLERANCE
Adequate Service
Personal Needs
Beliefs about
What Is Possible
Perceived ServiceAlterations
Situational Factors
Source: Adapted from Zeithaml, Parasuraman & Berry
Amit B in S h l
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How Product Attributes Affect
Ease of Evaluation)
Source: Adapted from Zeithaml
Most Goods
High in searchattributes
High in experienceattributes
High in credenceattributes
Difficultto evaluate
Easyto evaluate
Most Services
Clothing
Chair
Motorvehicle
Foods
Restaurantmeals
Lawnfertilizer
Haircut
Entertainment
Computerrepair
Legalservices
Complexsurgery
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Consumer Behavior in ServiceEncounters
Amity Business SchoolWh D th C t Fit i
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Amity Business SchoolWhere Does the Customer Fit in a
Service Organization?
Consumers rarely involved in manufacture of goods but often participate inservice 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
I nformation processing (e.g., health insurance):involvement is mental -
specify information upfront and later receive documentation of coverage
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High-Contact and Low-Contact
ServicesHigh 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 arms length through electronic or physical distribution
channels
New technologies (e.g. Web) help reduce contact levels
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L l f C C i h
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Levels of Customer Contact with
Service Organizations
Emphasizes encounters
with service personnel
Emphasizes encounters
with equipment
High
Low
ManagementConsulting
CarRepair
InsuranceMotel
FastFood
NursingHome
AirlineTravel(Econ.)
CableTV
Te l e p ho n e Ba n k i ng
HairCut
GoodRestaurant
4-StarHotel
DryCleaning
Re ta i l Ban k i n g
Mail Based Repairs
Internet-basedServices
Movie Theater
Internet Banking
Subway
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Managing Service Encounters--1
Service encounter:A period of time during which
customers interact directly with a service
Moments of truth:Definingpoints in service deliverywhere customers interact with employees or equipment
Critical incidents: specific encounters that result in
especially satisfying/dissatisfying outcomes for either
customers or service employees
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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
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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 customersService Marketing (front stage)
Includes service delivery (as above) and all other contacts between service
firm and customers
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Service Marketing System:
(1) High Contact Service--e.g., Hotel
TheCustomer
TechnicalCore
Interior & Exterior
Facilities
Equipment
Service People
Other
Customers
Other
Customers
Advertising
Sales Calls
Market ResearchSurveys
Billing / Statements
Miscellaneous Mail,
Phone Calls, Faxes, etc.
Random Exposure to
Facilities / VehiclesChance Encounters
with Service Personnel
Word of Mouth
Service Operations System
Backstage(invisible)
Front Stage(visible)
Service Delivery System Other Contact PointsService Marketing System
Amity Business SchoolService Marketing System:
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Amity Business SchoolService Marketing System:
(2) Low Contact Service--e.g., Credit Card
TechnicalCore
Mail
Self Service
Equipment
Phone, Fax
.
The
Customer
Service Operations System
Service Delivery System Other Contact Points
Backstage(invisible)
Front Stage(visible)
Advertising
Market ResearchSurveys
Random ExposuresFacilities, Personnel
Word of Mouth
Service Marketing System
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Th D t f S i
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y us ess c oo
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 audiencedepending on type of performance,
may be passive or active
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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
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Post encounter stage
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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 firms financial
performance
Amity Business SchoolCustomer Delight:
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yCustomer Delight:
Going Beyond Satisfaction
Research shows that delightis 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
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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
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The 7Ps:
(1) Product Elements
All Aspects of Service Performance that Create Value
Core product featuresboth tangible and intangible elements
Bundle of supplementary service elements
Performance levels relative to competition
Benefits delivered to customers (customers dont buy a hotel
room, they buy a good nights sleep)
Guarantees
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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
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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
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The 7Ps:
(4) Price and Other User Outlays
Marketers Must Recognize that Customer Outlays InvolveMore than the Price Paid to Seller
Traditional Pricing Tasks
Selling price, discounts, premiums
Margins for intermediaries (if any)
Credit terms
I denti fy and M in imize Other Costs I ncurred 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
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The 7Ps:
(5) Physical Environment
Designing the Servicescape and providing tangibleevidence 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
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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
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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 firms 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
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Managing the 7Ps Requires Collaboration between Marketing,
Operations, and HR Functions
Customers
Operations
ManagementMarketing
Management
Human Resources
Management
Amity Business SchoolWhy Study services?
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Why Study services?
Which is the worlds most service dominated
economy? --------
Services dominated the economy in most nations.
Understanding services offers you competitive advantages.
Importance of service sector in economy is growing rapidly.
Services accounts for the 60% of the worlds GDP.
All economies has substantial service sector.
Most new employment is provided by the services.
Strongest growth area for marketing.
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Estimated size of the service sector in some
countries as a percentage of GDP
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India--------------48% of GDP
China-------------33% of GDP
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