SERVICES MARKETING : CHAPTER – 2

Consumer Behaviour in Services Marketing

INTRODUCTION :

In this chapter we’ll study Consumer Behaviour (CB). This is defined as the actions & beliefs that guide a person to purchase a particular product or service. The emphasis on services by companies across the worlds has lead to a growth in the expectations of customers today. The customer seeks customised services at his doorstep & is himself involved in defining the kind of service he expects. The purchase decisions of customers are not made in isolation, but rather they are influenced by environmental factors such as culture, social class, family & other institutional factors. The study of CB requires inputs from various disciplines, such as sociology, psychology & economy. CB deals with the study of the factors that influence a customer in purchasing a product, service and the process that he goes thro’, to evaluate the product/service prior to & even after its purchase & use.

Difference between Characteristics of Goods & Services :

There are three basic attributes on the basis of which the differentiation of evaluation of goods & services take place. They are Search, Experience & Credence (SEC). As explained below :

1. Search qualities : This is a characteristic that can estimated before the purchase or consumption of a product. This is the quality on the basis of which some goods/services can be searched. Goods have a higher degree of this search qualities as compared to services.

a. For goods it can be all physical attributes like, price, colour, design, looks, style, shape, size, etc. So they are easy to search.

b. For services this can be price, convenience, presentation, promptness of service, courtesy, mannerism, ambience, etc. Here these are not easy to search, so other factors like tangibility are used for help in searching.

2. Experience qualities : This quality of goods & services are those which can only be assessed after purchase, utilisation, use or consumption, i.e., after the experience. Services have higher experience attributes than goods.

3. Credence qualities : There are certain attribute of any goods or services that can’t be assessed even after use/utilisation/consumption. Because the customers lack certain ability to analyse or estimate them, like the effect of some nutritious food or vitamin. Some health service provider may claim that the food contains organically produced fertilisers – but there is no way to ascertain it. But, however, when services are offered by experts, professionals, specialists, it creates credence for services.

Search Qualities

Experience Qualities Credence Qualities

Tangibility Access, Courtesy, Reliability, Responsiveness

Competence

Credibility Understanding the Consumer, Communications

Security

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THE CONSUMER BUYING PROCESS :

Marketing scholars have developed a five stage model of the buying decision process. It’s not necessary that all the stages are involved in all decision processes. Depending on the level & views of the decision any stage can be skipped or changed in order of implementation. They are :

1. Problem / Need Recognition – when the buyer recognises a problem or a need – may be triggered by an internal or external stimuli. Marketer are good in arousing these stimuli by understanding circumstances which trigger them.

2. Information Seeking (Pre-purchase Search) – when an aroused consumer seeks more & detailed information. Two states of arousal are available :

a. Heightened attention – is a milder arousal state where the consumer is receptive to more info about a product.

b. Active Information Search – searching for all possible sources of info like reading materials, phoning a friend, visiting stores, websites, etc. Marketers must understand the major sources of info & their relative type & nature of influence on the final purchase decision. These sources fall into four major groups :

i. Personal sources – family, friends, neighbours, acquaintances,

ii. Commercial sources – advertising, sales persons, dealers, packaging, displays,

iii. Public sources – mass media, consumer rating organisations,

iv. Experiential sources – handling, examining, using the products.

c. Decision process involves –

i. Total set – all brands available in a category of products,

ii. Awareness set – the consumer comes to know only a subset of these brands,

iii. Consideration set – the consumer’s initial buying criteria match these brands and he gathers more info,

iv. Choice set – finally a few will remain which may be all acceptable as a buy,

v. Final Decision – this brand is finally decided to be purchased.

3. Evaluation of Application / Alternatives – this involves selection of a few best choices available by a systematic, conscious & rational basis. For this four basic concepts are considered :

a. The consumer tries to satisfy a need,

b. The consumer is looking for certain benefits from the product solution,

c. The consumer is also looking for certain additional attributes with varying degrees for delivering these benefits to satisfy these needs.

d. The need being the same, consumers vary with respect to the other two requirements which reflect the different decisions.

4. Purchase Decision / Behaviour – the consumer forms an intention to buy the most preferred brand in a given category of products. Often two factors can intervene between buying intention & buying decision.

a. Attitudes of others –

i. The intensity of the other person’s influencing attitude –

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ii. The consumer’s inclination / motivation to comply the other person’s wishes.

b. Unanticipated situational factors – these are unexpected incidents that affect the buying decision drastically.

c. Perceived risk – influences heavily the consumer to modify, postpone, or even avoid a purchase decision.

d. In executing a purchase decision the consumer may make up to 5 sub decisions :

i. Brand decision - which company & brand,

ii. Vendor decision - which shop & place,

iii. Quantity decision – what quantity,

iv. Timing decision – when to buy,

v. Payment decision – cash, credit, instalment, credit/debit card.

5. Post Purchase Behaviour / Evaluation – After purchasing the product the consumer will experience some level of satisfaction / dissatisfaction. A marketer’s job is to carefully monitor the following :

a. Post purchase satisfaction – the buyer’s satisfaction is a function of closeness between its expectation & the product’s perceived performance. The expectations are formed on the basis of messages / information / communications receives from all sources.

i. If performance falls short of expectation, then the customer is disappointed,

ii. If performance meets the expectation, then the customer is satisfied,

iii. If performance exceeds the expectation, then the customer is delighted.

b. Post purchase actions – the level of satisfaction / dissatisfaction with the product shall decide the consumer’s subsequent behaviour :

i. Satisfied consumers may repeat the purchase, may recommend to others to buy

ii. Dissatisfied consumer may abandon or return or exchange the product. They may even take public action or legal action. They may stop buying the product (exit option) or warn others not to buy (voice option).

c. Post purchase use & disposal – marketers must be aware of the disposal behaviour of the consumers so that they may improve the situation. The buyer may resell it, stock it, throw it or even find a new use of the product. These actions may affect the marketer & environment.

Consumer Decision Making Process :

The buying process starts when a need arises, and follows thro the five steps, which are applicable to both goods & services, however, the order may change.

1. Need Perception : Buyers want to satisfy there need, and when the need arises they look for ways & means to satisfy them. Or technically speaking, when there is a difference between the actual state and the desired state, the need arises. This can be triggered by some stimuli – internal, external, or social/environmental. There can be several others depending the situation.

2. Search for information & perceived risk : Once the need is experienced, the consumer starts searching for the products / services, and their source. Services, once experienced, can’t be returned even if it doesn’t meet the expectations.

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Moreover, services have more experience quality than search qualities and information pertaining to the services is not readily available.

a. Perceived Risk : Perceived risk are the consumer’s perceptions of the uncertainty & adverse consequences of buying product or service. The risk element as perceived by the consumers, can be of following types :

i. Social Risk : The fear of disapproval by the consumers’ family, friends, etc. is significant – e.g. a dress which the family will disapprove of.

ii. Quality Risk or Functional Risk : The fear of non-performance of the product – e.g. a weak chair which may break if the load is too much.

iii. Psychological Risk : The fear that the product will degrade one’s self image – e.g. a highly image conscious teenager may not like to opt for simple glasses.

iv. Physical Risk : The fear of physical harm caused by the product – e.g. the possible harm caused by microwaves when using a microwave oven.

v. Time & Effort Risk : The fear that too much time & effort needs to be invested in under-standing & using the product – e.g. the time & effort the buyer will have to put in to learn to work on a computer.

vi. Financial Risk : The fear that product will cause a huge financial burden in case of non-performance or will harm the buyer financially – e.g. an expensive tight-fitting designer dress which might become uncomfortable to wear sometimes later.

3. Evaluation of alternatives :

4. Purchase behaviour, and

5. Post-purchase evaluation.

External Factors Influencing Consumer Behaviour :

Many factors have an influence on consumer behaviour, which are described below :

1. Culture : Culture consists of values, norms, roles & customs shared by members of a society. It differs from place to place. The culture of a place plays a vital role in determining the value & attitude of the people of that place, and in turn their purchase behaviour So the marketers should have an understanding of the culture of different places, in which they like to market services.

2. Sub-Cultures : Sub-Cultures are smaller divisions in a society with similar norms, values, behaviour patterns, which make them distinct from the main culture. As lifestyle, geography, ethnicity, race & religion form the basis for the sub-culture.

3. Social Class : People having similar lifestyles, interest, values, behaviours, & norms are grouped under a social class. Their similarity in beliefs forms the basis for market segmentation, and effects their shopping patterns or the kind of products / services they purchase. Thus, marketers offer products & services aimed at the social class of people.

4. Reference groups : An individual uses the perspectives of a reference group as the basis for his actions, judgement & opinion. Marketers make use of reference group influences to develop ads by associating products/services or some behaviours with some types of reference groups.

5. Family : Purchases are often not made by individuals alone, but a whole lot of other people too have a say in the purchase decision. Marketers need to recognise the role

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played by these various individuals in the purchase decision, in order to target their marketing message at them.

BUYING DECISION PROCESS :

Marketers are interested in understanding how consumers make buying decision, especially – who makes the decision, type of buying decision & the steps involved in the buying process. Often it is found that it’s a complex process with several influencing factors controlling it. The following are the five distinguishable roles people play :

1. Initiator – the person who first suggests the idea of buying the product or service.

2. Influencer – the person whose view, opinion or advice influences the decision.

3. Decider – the person who decides on any component of a buying decision – whether to buy, what to buy, how to buy, when to buy or how much to buy.

4. Buyer – the person who makes the actual purchase.

5. User – the person who finally uses or consumes the product or services.

Implication for Service Provider :

Knowledge of the factors influencing CB has several implications for service providers, as follows :

1. Customers gather & rely on information obtained from personal sources when making service purchase decisions. Marketers should be careful in satisfying customers by meeting or exceeding their expectations. Otherwise, customers might spread negative word-of-mouth publicity.

2. Services are intangible in nature. Customers require the assistance of the service provider to assess the value of a service with high credence quality. This provides an opportunity for service providers to market services having high credence qualities & add value to the service delivery process by assisting customers to assess the intangible features of a service.

3. In marketing of services, the customer becomes a part of the service delivery process. This, termed as customer co-production, has become the key-word for service marketers as it helps them reduce their fixed costs in delivering the service. Customer co-production refers to the involvement of customers in the production & delivery process of a service. The service is co-produced and costs much less than the traditional over the counter service provided by the marketers.

4. Time being a crucial factor in gaining ahead of the competitors, customers in the new millennium are willing to trade off money against time. Service providers, thus compete on the basis of time taken to deliver the service. Transportations & logistic services that are time bound provide new opportunities for service providers to differentiate themselves from their competitors.

5. The intangibility characteristics of service provides a good opportunity and can be well exploited by service providers to provide services on line. Unlike in physical goods, services can be offered electronically.

6. Customers in the new millennium demand both quality & customisation simultaneously. This possesses a challenge for service providers as both these aspects have different requirements. Quality requires standardisation while customisation requires variability. However, marketers can meet this challenge by being a little creative.

CUSTOMER EXPECTATIONS & PERCEPTIONS5

Philip Kotler’s definition of Satisfaction : It’s the level of a customer’s felt state resulting from comparing a product’s or service’s perceived performance standard against the customer’s expectations.

Understanding Customer Requirements :

Simply stated we have three things :

1. Perception : What the customer knows about a product / service,

2. Expectation : What the customer expects from the product / service when he buys,

3. Satisfaction : What the customer gets after using it both mentally & physically as compared to what he has expected in a positive way. Or it is the difference between what he gets & what he expects. The bigger the difference, the higher the satisfaction, and if expectation falls below delivery then dissatisfaction / disappointment occurs.

Customer Expectations :

The buyers form their expectations from past buying experience, friends’ and associates’ advice, marketers’ & competitors’ information & promises. If the marketers raise the expectations too high, the buyer is likely to be disappointed. If the expectations are set too low then the company won’t attract many buyers, although it will satisfy all those who buy. Today’s successful companies raise the expectations & delivering performance to match. Customers understand that all their expectations can’t be fulfilled, but they expect at least those promised must be fulfilled. They just want a fair deal for the price they pay for the services. The service expectations of customers can be measured along the five dimensions as :

1. Assurance : The ability of the service providers to instil trust & confidence in the minds of the customers,

2. Empathy : The ability of the service providers to show concern for, and offer individual attention to the customers,

3. Reliability : The ability of the service providers to keep promises regarding service quality, delivery, efficiency, customer complaint, pricing etc.,

4. Responsiveness : The ability and willingness of the service provider to provide prompt service and assistance to the customers,

5. Tangibles : The ability of the service providers to throw in some degree of “tangibility” to the services to have some physical facilities, goods, etc.

Types of Services & Expectations :

1. Adequate Services : This is the minimum level of service that the customers are willing to accept from a service provider, and is based on customers’ perception of what level of service is available to them. Customers are heavily dissatisfied or disappointed if the level of service is below the adequate level of expectations. And if this is met then satisfaction occurs. This level sometimes may change due to specific situations & the customers’ perception of available alternatives.

2. Desired Services : This level is above the minimum level of service and is the level of expectation which the customers desire or hope. This level is a function of the customers’ exposure of better services, knowledge & information about services. If this level is met or exceeded then the customer is delighted. This level may change depending on situation and from customer to customer. This also depends on the

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service expectation of an associated party which is the ultimate consumer, where the buyer is not the consumer.

3. Predicted services : This level is somewhere in between the adequate & desired levels of services and are decided by several external factors, like situation, time, place, past experience, etc. And this in turn affects the level of adequate service.

4. Zone of Tolerance : The difference or the gap between the adequate & desired levels of services is the Zone of Tolerance and just plain satisfaction occurs here. Of course, this depends on person, time, place, situation, and measurable dimensions.

Factors that Influence customers’ expectations of service :

Marketers try to understand these levels as well as the factors that influence these levels directly, as :

1. Customers’ Expectation of Desired services : The following are the individual factors :

a. Customer Needs : Needs are represented by the Maslow’s Need Hierarchy – Physiological needs, Safety or Security needs, Social needs, Egoistic needs & self actualisation. Needs may vary and so do the expectations.

b. Enduring Service Intensifiers : These are two types :

i. Derived Service Expectations of a customer are influenced by the expectations of those who are dependent on the customer to provide them with a good service experience.

ii. Customers’ Philosophy regarding service is dependent on the customer’s attitude & the service provider’s conduct. A customer’s philosophy regarding the service tends to be stronger if he is in some way associated with the services industry.

2. Customers’ Expectation of Adequate services : The following are the individual factors :

a. Transitory Service Intensifiers are the factors which intensifies or raises the level of adequate service expectation of customers. These factors include personal emergencies or the failure of a service provider to offer quality service the first time or factors that push customers to take the help of a service.

b. Perceived Service Alternatives include customer perceptions of available alternatives that offers similar service. The adequate service expectations of customers increase when they think that there are alternatives available to fulfil the needs.

c. A Customer’s Self-Perceived Service Role also effects his adequate service level expectations. The self-perceived service role of a customer is the extent to which the customer perceives he is capable of shaping the service encounter and influencing the level of service he receives from a service provider. A customer is likely to have high expectations of adequate service if he plays an active role in making the service provider aware of his service expectation. Further, the customers’ expectations of adequate services are likely to be high if he perceives that the service provider is wholly responsible for providing a good service encounter and the customer has no role to play in it.

d. Situational Factors are the factors, which make a customer compromise on his adequate service expectations on learning that the conditions of service delivery are nor under the control of the service provider.

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e. Predicted Service Expectations of a customer can be defined as the level of service a customer believes he’ll receive from a service provider.

3. Both desired & predicted Service expectations, The following are some factors which influence both the desired & the predicted service expectations of a customer :

a. Explicit Service Promises : These are the promises made by a service provider in which he explicitly (clear cut) declares to provide certain level of service thro’ ads, communications, brochures, personal/direct selling, etc. This heightens or elevates the desired & predicted service expectations of a customer.

b. Implicit Service Promises : These are the promises which are not openly or clearly spelt out. One has to understand them by some hint & clues, like the general or uniform policy of some service provider.

c. Word-of-Mouth Publicity : as the term states these are the opinions of the people who have already availed the particular service. This may be positive or negative depending on the individual reaction of the customer.

d. Past Experience : Past experience of a customer plays a vital role here. This influences the predicted & desired level of expectations. Ex. If somebody has visited McDonald’s in USA or UK, he may expect the same in New Delhi or Mumbai.

4. Criteria to evaluate a service based on customers’ service expectation : The service expectation of a customer is a complex function of his opinion, experience, impressions, intentions, mood at the time of the service encounter. Even at times it is controlled by some thoughts which he himself is unaware of. Mostly, the customers evaluate their service experience on the basis of these factors :

a. Speed : Often service is evaluated on the basis of speed, which includes not only the time spent by a customer in defining, selecting, ordering, & purchasing the desired service but also the time taken by the service provider in delivering the service to the customer.

b. Certainty : Customers unconsciously estimate the reliability of a service provider, his service, & the quality of information provided by him about the service. To evaluate a service, it is important for a customer to have good knowledge & understanding about the service rather than having to rely on the information provided by the service provider.

c. Ease : Customers also assess the service experience based on the ease involved in experiencing the service. Thus, they evaluate the service based on the ease with which the service transaction is carried out.

d. Personal Recognition : Every human being likes to be recognised as a unique individual. Customers like a service provider who delivers his service keeping in mind a customer’s unique needs & wants. Such gestures by the service provider guarantee customer delight and make them evaluate the service in a positive light.

Managing Customer Service Expectations :

Service firms need to learn how to manage customer expectations to gain a competitive advantage. The following measures can help :

1. Managing promises : The first thing is to manage the customer expectation. If the marketers raise the expectations too high, the buyer is likely to be disappointed. If the expectations are set too low then the company won’t attract many buyers,

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although it will satisfy all those who buy. Today’s successful companies raise the expectations & delivering performance to match.

2. Reliability – “Getting it right for the first time” : Reliability is another critical factor which customer give much importance. First impression is also the long lasting impression. So it has become doubly important to get the things right for the first time. Communications & promises must be reliable & delivered positively. Hence the service firms should practice delivering what they promise, the first time & every time – this is reliability, credibility & accountability.

3. Effective communication : Effective communication is another important tool, thro’ which service providers can manage the expectations of the customers. Communications can be both ways – firms to customers or customers to firms. Not only the firms initiate communication from their side, they also should encourage the reverse communication from them. This will give the customers timely, updated & useful information.

Exceeding Customer Service Expectations :

The first thing the firms need to define is the customers’ adequate expectation level. The next is to determine the desired expectation level. Of course, this is not easy, and the customers vary widely on this. Customer satisfaction or dissatisfaction depends on the content & delivery of the service. This in turn will decide the firm’s edge over the competitors’ service, i.e., the out put dimensions of services, particularly reliability of service delivery. Next, the should try to pleasantly surprise the customers by still raising the level of delivery thro’ other dimensions like assurance, empathy, responsiveness & tangibles.

Customer Perceptions :

The mind of humans “perceive” the whole picture of certain thing, idea, or situation by a set of stimuli thro’ all our sensory organs, and kept in the memory in a systematic way. Sometimes, even if the perceiver is not aware or interested, these are preserved in the sub-conscious memory and later can be used. In our context of services marketing, perception can be defined as a customer’s judgement about the service experience and pertains to the aspects of value of service delivery, service quality & customer satisfaction. Perceptions change over time, differ person to person, and from one culture to another.

Factors that influence Customer Perceptions :

The above mentioned perceptions are influenced by several factors, like the following :

1. Service Encounter : This is the most important factor – named as “moments of truth” where the interaction between the customer & the service personnel takes place. This is the weakest link in the chain & most perceptions are built around this experience.

a. Types of Service Encounters :

i. Remote Encounters – are where there is no human contact or interaction. It’s normally thro’ some machines or a third object, like ATMs, Tele-banking, internet order, etc.

ii. Phone Encounters – are thro’ phones or telecommunications where contact with the persons can be made.

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iii. Face-to-Face Encounters – are the direct contact between the customer & the service personnel in person. Exchange of verbal communication, interaction of ideas, take place.

b. Factors leading to satisfaction or dissatisfaction :

i. Recovery : Employee Response to Service Delivery System Failures – How nicely the service staff handles the negative situation, and helps the customer to find an alternative facility.

ii. Adaptability : Employee Response to Customer Needs & Requests – How adaptable the service personnel is to the special / additional request / need of the customers.

iii. Spontaneity : Unprompted & Unsolicited Employee Action – How willingly the service personnel provide the service with a smile, agility, with interest, or a positive attitude.

iv. Coping : Employee Response to Problem Customers – How the service people handle what is known as problem customers. Some customers make unreasonable request or they don’t cooperate with the system, statutory rules, regulation, law etc. It’s the most difficult part and requires a lot of understanding, patience, tactics, etc.

2. Service Evidence :

a. Service Personnel :

i. Contact Employees

ii. Customer himself

iii. Other Customers

b. Process of Service Delivery :

i. Operational Flow of Activities

ii. Steps in Process

iii. Flexibility versus Standard

iv. Technology versus Human

c. Physical Environment :

i. Tangible Communication

ii. Servicescape

iii. Guarantees, and/or Warranties

iv. Technology

v. Websites

d. Shaping the first impression of the customer

e. Managing the trust of the customer

f. Facilitating Quality Service

g. Providing s sensory stimulation to customers

h. Changing the image of service organisations

i. Instilling the service philosophy in the employees of the Firm

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3. Image : This is the image, reputation, or the standing of an organisation in the local level or corporate level, which has a substantial influence in a customer’s perception.

4. Price : Because of the intangible nature of the services, the price is the only benchmark for judging the value, quality & satisfaction it delivers. Low price my induce doubt in the mind of a customer, and high price will create a high expectation, which needs to be catered to.

Strategies for influencing Customer Perceptions. :

We have just seen the factors responsible for influencing the perception of customers. Now we will see the strategies that need to be developed, with the help of the above factors by managing them :

1. Enhance Customer Satisfaction thro’ Service Encounters : The service Firms should train & educate their service personnel for positive service encounters, with respect to :

a. Recovery – by planning for effective recovery,

b. Adoptability – by facilitating adaptability and flexibility,

c. Spontaneity – by encouraging spontaneity,

d. Coping – by helping employees cope with problem customers,

e. The five dimensions of service quality – by managing the dimensions of quality at the encounter level and relating every encounter to one of the dimensions.

2. Reflect Evidence of Service : The evidence of service – people, process, physical evidence – discussed earlier provides a framework for planning the marketing strategies that address the expanded marketing mix elements (4Ps to 7Ps). These new elements or a subset of them cover essentially tangibilise the service for the customer and thus represent important means for creating positive perceptions. Because of their importance the new elements need to be treated as strategic marketing variables, as are the product, price, place, promotions, the traditional mix elements.

3. Communicate & create a Realistic Image : Not only promises be made, they must be kept, there by enhancing the image, reputation of a service organisation. By this a positive word-of-mouth can be created and spread.

4. Enhance Customer Perception of Quality & Value thro’ Pricing : Similarly the pricing is also very critical & customers must feel that the service is worth the price they pay for. Service marketers should adopt a pricing strategy that can give a hint about the true value & quality of service.

© Himansu S M / Written Sep-2006, Published Feb-2010

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