SERVICES AND RELATIONSHIP MARKETING (SRM) KEYUR D VASAVA..

Module 1. Basics of Services Marketing

1.WHAT ARE SERVICES?

The term services cover a heterogeneous range of intangible products and activities that are difficult to encapsulate within a simple definition.

Services are also often difficult to separate from goods with which they may be associated in varying degrees.

"There is a group of industries, generally classified as service industries, that produce outputs that have many of the characteristics of goods, i.e., those concerned with the provision, storage, communication and dissemination of information, advice and entertainment in the broadest sense of those terms--the production of general or specialized information, news, consultancy reports, computer programs, movies, music, etc. The outputs of these industries, over which ownership rights may be established, are often stored on physical objects--paper, tapes, disks, etc.--that can be traded like ordinary goods. Whether characterized as goods or services, these products possess the essential characteristic that they can be produced by one unit and supplied to another, thus making possible division of labour and the emergence of markets."

Examples of service activities are wholesale, retail, certain kinds of repair, hotel, catering, transport, postal, telecommunication, financial, insurance, real estate, property rental, computer-related, research, professional, marketing and other business support, government, education, health, social, sanitation, community, audiovisual, recreational, cultural, personal, and domestic services.

Why Study Services?Good customer service is all about bringing customers back.

And about sending them away happy - happy enough to pass positive feedback about your business along to others, who may then try the product or service you offer for themselves and in their turn become repeat customers.

By maintaining good customer service, you will be keeping customers - which in the long run is quicker, easier and cheaper then finding new ones!

Good customer service is much cheaper and far more effective

A satisfied customer that has purchased a product from you, or used your service will tell friends and colleagues about their experience. Generally, happy customers will recommend your business to others.

Good customer service is important as it’s easier and cheaper to keep existing customers happy than to keep finding new ones.

every member of staff needs to take ownership of customer care and be proactive when dealing with customers so that problems do not arise.

Marketing brings a customer in, customer service keeps them coming back.

Good customer service can be the difference between being able to compete and survive and failing.

customer service that builds customer loyalty, gives positive word-of-mouth advertising, and increases sales – in short, the good, better or even superior customer service that consumers want.

Providing excellent customer service is one way a small business can distinguish itself from the competition.

The essence of good customer service is forming a relationship with customers – a relationship that that individual customer feels that he would like to pursue.

Flexibility

Reliability

2. ROLE OF SERVICES IN THE ECONOMY

Role of Services in an Economy

What is a service?

n An idea?

n A circumstance?

n A convenience?

n A physical thing?

Goods vs. Services

n Good: tangible physical object; created and transfered; existence over time

n Service: intangible and perishable; created and used simultaneously; only the effect has an existence over time

» Book, restaurant, TV

»

Challenge to managers

n Identify appropriate techniques developed in manufacturing that are applicable to service operations

n Initiate the innovative use of information systems

n Recognise the consumer as a productive resource

Service Definition

A Service is a Time-perishable, Intangible Experience Performed for a Customer Acting in the Role of a Coproducer.

-- James Fitzsimmons

Definition of Service Firms

Service Enterprises are Organizations that Facilitate the Production and Distribution of Goods, Support Other Firms in Meeting Their Goals, and Add Value to Our Personal Lives.

-- James Fitzsimmons

Taxonomy of services

n Domestic services

n Trade and Commerce

n Services that refine and extend human capacities

Role of Services in an Economy

GOVERNMENT SERVICES

· Military

· Education

· Judicial

· Police and fire protection

BUSINESS SERVICES

· Consulting

· Auditing

· Advertising

· Waste disposal

MANUFACTURING

Services inside company:

· Finance

· Accounting

· Legal

· R&D and design

DISTRIBUTION SERVICES

· Wholesaling

· Retailing

· Repairing

PERSONAL SERVICES

· Healthcare

· Restaurants

· Hotels

CONSUMER

(Self-service)

INFRASTRUCTURE SERVICE

· Communications

· Transportation

· Utilities

· Banking

FINANCIAL SERVICES

· Financing

· Leasing

· Insurance

Stages of Economic Development

Features

================================================================================================

Pre- Use of Standard

Dominant human Unit of of living

Society Game activity labor social life measure Structure Technology

=================================================================================================

Pre- Against Agriculture Raw Extended Sub- Routine Simple hand

Industrial Nature Mining muscle household sistence Traditional tools

Power Authoritative

===================================================================================================

Industrial Against Goods Machine Individual Quantity Bureaucratic Machines

fabricated production tending of goods Hierarchical

nature

===================================================================================================

Post- Among Services Artistic Community Quality of Inter- Information

Industrial Persons Creative life in terms dependent

Intellectual of health, Global

Education,

Recreation

The New Experience Economy The Four Realms of an ExperienceThe Four Realms of an ExperienceThe Four Realms of an Experience

Experience Design Principles

n Theme the Experience (Big Chefs)

n Harmonize Impressions with Positive Cues

n Eliminate Negative Cues(Cinemark talking trash containers)

n Mix in Memorabilia (Hard Rock T-shirts)

n Engage all Five Senses (Mist in Rainforest)

Source of Service Sector Growth

n Information Technology (e.g. Internet)

n Innovation Push theory (e.g. Post-it) Pull theory

Services derived from products

Exploiting information (e.g. Auto part sales)

Difficulty of testing service prototypes

n Changing Demographics Aging of the population Two-income families Urbanisation

Role of the Service Manager

n Entrepreneurial Innovation

n Capitalizing on Social Trends

n Management ChallengesEconomies of Scale (MRI scanner)Economies of Scope(Convenience store)Complexity (Yield Management)Boundary Crossing (Bank vs Brokerage)International Competitiveness( Cultural Diversity)

Services and Technology -

3.TECHNOLOGY IN SERVICE ENCOUNTER

Service encounters were viewed as person-to-person interactions. Now, in many contexts, technology is replacing human providers and either giving customers an option of, or requiring, the use of self-service technologies. Technology is also being deployed to enhance the performance of the front line employee in interacting with the customer. In still other cases, technology is allowing introduction of entirely new service innovations. Across all these situations, the infusion of technology is

dramatically altering the very essence of service encounters formerly anchored in a “low tech, high touch” paradigm.

The objective of this research is to explore the changing nature of service encounters emanating from the infusion of technology, with an emphasis on how service encounters can be improved through technology. We examine the influence of technology on the ability of firms to effectively:

(1) customize service offerings; (2) recover from service failure; and, (3) delight customers.

The role of technology infusion is examined as an enabler of both employees and customers in creating satisfying service encounters across all three of these categories. Examples are featured and managerial and research implications highlighted.

IMPLEMENTING SUCCESSFUL SELF-SERVICE TECHNOLOGIES

As companies race to introduce technology that enables customers to get service on their own, managers often find that it is more difficult than it looks to implement and manage effective self-service technologies (SSTs). In this research, we present findings from qualitative interviews and survey research investigating SSTs from the customer’s point of view. Based on this research and our work with companies, we present and develop insights around important lessons listed below to guide managers in developing successful SSTs.

Lesson 1: Be very clear on the strategic purpose of the SST. Lesson 2: Maintain a Customer Focus. Lesson 3: Actively promote the use of SSTs. Lesson 4: Prevent and Manage Failures. Lesson 5: Offer Choices. Lesson 6: Be prepared for constant updating and continuous improvement.

Descriptions of technologically based service encounters were collected from over 800 customers. Results indicate that the determinants of satisfaction or dissatisfaction with SSTs are quite different from factors that determine satisfaction or dissatisfaction in interpersonal encounters. Satisfactory encounters result primarily from the customer’s delight at being able to solve an immediate need, fascination with being able to conduct transactions electronically, or being able to do something more easily and conveniently. On the other hand, all dissatisfactory encounters resulted from some type of service failure, either with the technology itself, the design of the technology, the resulting service process, or occasionally from the customers’ own mistake.

As expected, satisfactory encounters lead to significantly greater occurrence of positive word of mouth and repeat purchases, and less complaining than dissatisfactory encounters. It was also determined that customers found certain types of failures (design of the technology or service process) to be more unforgivable than other more temporary failures such as an out of order SST.

This research examines the issue of employee behaviors and motivation with regard to recommending a new SST to end customers. Over 300 sales and service employees in dealerships of

a major manufacturer were surveyed to assess their motivation for recommending a new consumer SST that allows online scheduling of service appointments and tracking of service status by end customers. Conclusions from the study suggest that:

• Employees who have more positive beliefs & feelings about the new SST will be more likely to recommend it.

• Employees are more motivated when they feel they are competent to recommend the technology and when they feel free to decide to recommend it.

• Employee competence and freedom of choice, and thereby motivation and ultimate recommending behaviors, are increased through:

o Creating a sense of the importance of the strategic SST initiative and buy-in throughout the organization.

o Increasing management and co-worker support of the SST initiative. o Having managers clearly expect, or even require, that employees recommend the SST

to customers. o Training and re-training all managers and employees to use the SST themselves. o Promoting and advertising the SST internally to employees as well as externally to

customers.

An overall conclusion from the study is the need for organizations to implement an internal marketing and employee roll out plan for new SSTs in addition to the more common customer advertising and customer roll out plans.

OR

A service encounter may be described as the direct or indirect interaction between a service provider (i.e., a firm) and its customer.

The availability and use of appropriate technologies govern the success of a service encounter. An examination of the role of OT is therefore essential to the comprehensive understanding of the service encounter. Recent efforts (e.g., Mills and Moberg, 1990; Quinn and Paquette, 1990) have provided a first attempt at understanding the role of OT in service encounters. Findings suggest that the customer is often not just a passive recipient of the service, but an active participant in the service production process. In fact, in most service encounters (from a simple tax return preparation to something as complex as psychoanalytic therapy), the active participation of the customer is not just helpful, but rather an essential necessity. In general, as customer involvement increases, so does the complexity of a given service encounter.

The firm's inability to adequately control the extent of customer participation has prompted researchers to treat the customer as an uncertainty faced by a firm. Contemporary investigations have accepted the existence of this uncertainty and have focused on how firms can best manage and control the encounter

Others have suggested the use of appropriate governance structures that match the nature of the service (e.g., Jones, 1990). A common thread in these arguments is the need for the firm to focus on the

difficult task of managing the customer. The active role that the customer plays in service encounters makes this task even more critical for the firm. Therefore, any attempt at understanding OT in service encounters must account for the active and often unpredictable involvement of the customer during the encounter.

The article hopes to make several academic and managerial contributions. First, it extends the research on the co-alignment of customer and firm in service encounters. Next, it provides a framework for investigating technologies as they enter the service encounter. This is particularly relevant since the customer is a provider of technological inputs. Third, to understand the role of OT in service encounters researchers need to define the broad constructs at a lower level of abstraction than the words denoting the construct

The article is organized in three sections. The first section of the article sets the stage for framework development by describing the two primary constructs (i.e., service encounters, and OT). Next, the conceptual framework for viewing OT in service encounters is developed. The conclusions section of the article includes a discussion on the implications and usefulness of the proposed model.

PRIMARY CONSTRUCTS

Two streams of research have directly influenced the theory development process proposed in this article --research on service encounters and that on OT. These two areas offer rich sources of information for the necessary rationale and support of the framework developed in this paper. This section contains a brief discussion of the relevant research on service encounters and OT.

The Service Encounter

There is increasing agreement among researchers on the basic form and definition of a service. This consensus has stemmed from an agreement on the unique and distinctive characteristics of a service (e.g., Gronroos, 1983; Lovelock, 1981; Norman, 1984; Uhl and Upah, 1983; Zeithaml et al., 1985). The unique characteristics of a service dictate the structure and the conduct of the service encounter. A review of commonly accepted definitions suggests two unique characteristics of service encounters. First, both the customer and the firm have key roles to play in the service encounter. Scholars in management and marketing (e.g., Bowen, 1990;Jones, 1990; Gronroos, 1990) have noted that service encounters call for a high level of coordination between the customer and the firm. The interaction between the customer and the firm results in the sharing and/or use of resources held by the firm and by the customer. Since technology is a resource that the customer can contribute to the service encounter, researchers must study, (1) the complimentary roles of the firm and the customer as contributors of technology in a service encounter, and (2) the process of assembling appropriate technological resources.

The second characteristic noted in the literature is the dynamic interaction between the two key participants (the customer and the firm) in a service encounter. Researchers have consistently noted that the customer is not a passive participant in the resource transformation process. Bowen (1986) suggests that the customer should be considered an active participant in the resource transformation process. Mills, Chase and Margulies (1983) have suggested that the

customer's willingness to participate in the transaction depends on the expected value of that outcome. Similar sentiments are expressed by Czepiel (1990), and Larsson and Bowen (1989). Thus, understanding the role of both the customer and the firm in combining technologies during the transformation process is the second issue that must be explored when developing a framework for OT in service encounters.

OR

The value of technology in service encounters

To gain competitive advantage in the market, several retail banks have recently started to deploy biometric technologies in their service encounters. Biometrics is an emerging technology that authenticates individuals using their unique physical characteristics. While the application of biometrics is expected to increase security of a certain physical or logical area, this new technology seems to engender various consumer concerns.

This study aimed to understand consumers' value perception of using biometric technology, in particular fingerprint recognition technology at ATMs. Following the utilitarian approach to define consumers' value, perceived benefit and perceived risk were measured as a "get" component and a "give" component, respectively. The levels of trust in a bank and personal innovativeness were also measured as constructs that may influence individuals' value judgment of using the new technology.

The perceived benefit and the perceived risk were hypothesized as multi-dimensional constructs and measured by formative indicators. Specific dimensions of those two molar constructs were determined based on informal personal interviews as well as reviews of extant literature. To validate the research model of this study, an empirical study was conducted with an Internet survey. Customers' e-mail addresses were randomly selected from the database of the bank that deployed fingerprint recognition technology for its ATMs.

Understanding what attracts or inhibits consumers from using such a new technology-embedded service would enable businesses to evaluate the technology from their customers' perspectives and develop effective marketing strategies. This study concludes with discussion on the use of formative and reflective indicators, limitation, and direction for future research.

4.AUTOMATION IN SERVICES

Automation Service is the World's largest remanufacturer of process controls. Our major brands include: Rosemount, Fisher, Foxboro, Honeywell and Moore products

Automation Service is a leading remanufacturer of electronic transmitters, diaphragm seals and capillary systems, pneumatic transmitters, electronic controllers, recorders, indicators and auxiliary stations, butterfly valves, rotary valves, sliding stem valves, pneumatic controllers, recorders, indicators and auxiliary stations, valve positioners, transducers, and magnetic flow systems.  Primary industries served include pulp & paper, petro-chemical,  chemical, petroleum, utility and water & wastewater industries.  Automation Service also offers the most extensive process controls recycling program in the world. 

Automation Service remanufactures or reconditions equipment originally manufactured by Fisher Controls and Rosemount and is not a representative, distributor, agent, affiliate, or factory authorized repair center for Fisher Controls and Rosemount. Specifications and certification marks applied by the orignial manufacturer may no longer apply.

automation in services

Internet services

Internet Services is the embedded HTTP server application that is available on anetwork enabled Document Centre (DC 220/230/332/340). Internet Servicesenables you to access printing, faxing and scanning features of the DocumentCentre, as well as view device status, perform queue management and performdevice management, over the internet.

Using a browser application, such as Netscape Navigator or Microsoft InternetExplorer, you can access any Document Centre on a network using the TCP/IPprotocol. By entering the Document Centre’s IP address as the URL in thebrowser, you have access to the Document Centre 220/230/332/340 for scanning,printing, faxing, performing device management and many other functions youwould normally have to execute at the Document Centre control panel.

FEATURES

Internet Services gives users access to the Document Centre 220/230/332/340printing, faxing and scanning control panel features over the internet.Additionally, many system administration tasks can be performed without the useof native network utilities, allowing faster and easier set up of the DocumentCentre 220/230/332/340.

The features that are described in this section correspond to the tabs that areavailable within the Internet Services interface.

The following features are available with Internet Services:• Services• Queue• Status• Properties• Maintenance• Assistance

SERVICES FEATURES

There are three primary areas within Services that are available for general usersencompassing Job Submission and Stored Templates selections:

• Scanning offers the functionality of scanning a paper document into electronicformat. Scan options, such as scanning to a specified repository ormanipulating templates, allow customisation of scan jobs. Scanning withInternet Services is a component of other scanning capabilities provided withthe Document Centre 220/230/332/340 ST.

• Printing offers the high-speed, high-quality, laser printer functionality of theDocument Centre 220/230/332/340. Print ready files can be submitted forprinting from the Internet Services user interface. Print options, such asnumber of copies, collation and paper specifications, allow flexible choices forprint jobs.

• Faxing optionally offers the functionality of a fax machine. If faxing isconfigured and available on the Document Centre, files can be submitted forfaxing from a workstation. Fax options, such as delayed fax and recipientphone number list, provide preferences for fax jobs.

PROPERTIES FEATURES

Many system options can be set using Internet Services. The Properties featureincludes options for system administrators:

• Modify the system default template that defines how to file, fax, or distribute ascanned document.

• Select a Template Pool for scanning use.• Modify PCL (font information, form length) or PostScript (error sheet)emulation settings.

• Modify connectivity settings that are used by the Document Centre 220/230/332/340.

• Select public and private repositories for scanning.

• Define job defaults for print, fax, or scan jobs that do not requirecustomisation.

• Define attributes, such as filing policy and confirmation sheet, for storedtemplates.

• Obtain device information, such as device profile, fault history, supportcontacts and billing meters.

SETTING UP INTERNET SERVICES

GENERAL SETUP

General setup consists of configuring your Document Centre with TCP/IP,configuring your browser to use Internet Services and then accessing a DocumentCentre over the internet.

STEP 1. CONFIGURE THE DOCUMENT CENTRE

NOTE: For complete information on the installation and setup of Internet

Services and Scanning Services with the DC 220/230/332/340 ST, see the XeroxDocument Centre 220/230/332/340 ST or 230 LP System Administration Guide.

To setup a Document Centre for internet access:

1. Configure an IP address for the Document Centre on your network.2. Setup the embedded HTTP server.

STEP 2. SETTING UP THE INTERNET BROWSER

Internet Services can be used on any system that has an internet browser.Microsoft Internet Explorer 4.x or later, or Netscape Navigator 3.x or later arerecommended. Other browsers may work but could produce unexpected results.

Internet Browser Configuration

If any problems are encountered using Internet Services, check the followinginternet browser settings have been correctly configured.

1. The internet browser should be configured to run Java programs.2. The internet browser should also be configured with caching disabled.The procedures to configure these settings vary on different browsers - see theinternet browser on-line help or documentation for assistance.

STEP 3. ACCESS INTERNET SERVICES

To access the Document Centre using Internet Services:

• Type the Document Centre’s IP address in your browser’s URL location field.

TIP: Once you have accessed the embedded HTTP server, you can designate it asa bookmark in your browser, then directly access it simply by clicking this bookmark.

Scanning with Internet Services provides the following options:

• printing your electronic document using Print Service options• faxing your electronic document using Fax Service options• specifying a scanning template• scan to public or private repository

On the Services, Job Submission page, printing with Internet Services providesthe following output options:

• number of copies to print• collation• duplexing (2-sided)• stapling (if Document Centre has a Finisher configured)• input paper tray• output destination• paper size, type, color• file format

The table below lists the common buttons that are available on many of the pagesand frames. Some of them match the look of the actual button on the DocumentCentre control panel.

Button Action Internet Services ButtonsApply (new settings, settings) Apply changes.Cancel Exit the page without updating.Device Index Access Internet Services index for the Document Centre.Help Access Internet Services help system.Print/Fax Submission Submits a job for printing or faxing.Refresh (status, now, latest values, jobs) Update the page with the new information.Restore Settings Return the settings to their last saved values.Restore Default Values Return the settings to their default values.Browse Access network or local directory paths. Note that the Browse buttons do notappear if you are using Internet Explorer version 3.0 or less.Device Home Access the Document Centre home page.Queue Refresh job listing.

WHAT YOU CAN DO WITH INTERNET SERVICES

This section discusses the different tasks that users and system administrators canperform using Internet Services.

SUBMITTING A JOB

Print-ready (PCL, PostScript, or ASCII) files can be submitted for printing orfaxing directly from Internet Services to the Document Centre.

NOTE: Existing preformatted jobs do not take priority over options that are seton the Job Submission page.

To submit files for processing to the Document Centre:

1. Access the Document Centre embedded HTTP server.2. Click Services.3. Click the Job Submission radio button to display the Job Attributes. Performthe following if these options are not already set according to your jobrequirements:

• Type in the number of copies needed.

• Select other options, such as finishing options, for your job from the dropdown lists.

4. Type the path and file name or click Browse (if available) to locate the file to process.

5. When finished with your selections, click the submission button to process your job.

NOTE: It is recommended that print files should not be larger than 6 MB.

ORBasic network types

System area network (SAN)

• same room (meters)

• 300 MB/s Cray T3E

Local area network (LAN)

• same bldg or campus (kilometers)

• 10 Mb/sEthernet

• 100 Mb/s Fast Ethernet

• 100 Mb/s FDDI

• 150 Mb/s OC-3 ATM

• 622 Mb/s OC-12 ATM

Metropolitan area network (MAN)

• same city (10’s of kilometers)

• 800 Mb/s Gigabit Nectar

Wide area network (WAN)

• nationwide or worldwide (1000’s of kilometers)

• telephone system

• 1.544 Mb/s T1 carrier

• 44.736 Mb/s T3 carrier

• Global Internet

The internetworking idea (Kahn, 1972)

Build a single network (an interconnected set of networks, or internetwork, or internet) out of a large collection of separate networks.

• Each network must stand on its own, with no internal changes allowed to connect to the internet.

• Communications should be on a best-effort basis.

• “black boxes” (later called routers) should be used to connect the networks.

• No global control at the operations level.

Internetworking challenges

Challenges:

• heterogeneity

– lots of different kinds of networks (Ethernet, FDDI, ATM, wireless, point-to-point)

– how to unify this hodgepodge?

• scale

– how to provide uniques names for potentially billions of nodes? (naming)

– how to find all these nodes? (forwarding and routing)

Note: internet refers to a general idea, Internet refers to a particular implementation of that idea (The global IP Internet).

Internetworking with repeaters: Pros and cons

Pros

• Transparency

– LANS can be connected without any awareness from the hosts.

• Useful for serving multiple machines in an office from one ethernet outlet.

Cons

• Not scalable

– ethernet standard allows only 4 repeaters.

– more than 4 would introduce delays that would break contention detection.

• No heterogeneity

– Networks connected with repeaters must have identical electrical properties.

Internetworking with bridges: Pros and cons

Pros

• Transparency

– LANS can be connected without any awareness from the hosts

– popular solution for campus-size networks

Cons

• Transparency can be misleading

– looks like a single Ethernet segment, but really isn’t

– packets can be dropped, latencies vary

• Homogeneity

– can only support networks with identical frame headers (e.g., Ethernet/FDDI)

– however, can connect different speed Ethernets

• Scalability

– tens of networks only

» bridges forward all broadcast frames

» increased latency

Internetworking with routers

Def: An internetwork (internet for short) is an arbitrary collection of physical networks interconnected by routers to provide some sort of host-to-host packet delivery service.

Building an internet

We start with two separate, unconnected computer networks (subnets),

which are at different locations, and possibly built by different vendors.

Next we physically connect one of the computers, called a router

to each of the networks.

Finally, we run a software implementation of the Internet Protocol (IP)

on each host and router. IP provides a global name space for the hosts, routing messages between network1 and network 2 if necessary.

At this point we have an internet consisting of 6 computers built from

2 original networks. Each computer on our internet can communicate

with any other computer. IP provides the illusion that there is just

one network.

IP: Internetworking with routers

IP is the most successful protocol ever developed

Keys to success:

• simple enough to implement on top of any physical network

– e.g., two tin cans and a string.

• rich enough to serve as the base for implementations of more complicated protocols and applications.

– The IP designers never dreamed of something like the Web.

• “rough consensus and working code”

– resulted in solid implementable specs.

Basic Internet componentsAn Internet backbone is a collection of routers (nationwide or worldwide) connected by high-speed point-to-point networks.

A Network Access Point (NAP) is a router that connects multiple backbones (sometimes referred to as peers).

Regional networks are smaller backbones that cover smaller geographical areas (e.g., cities or states)

A point of presence (POP) is a machine that is connected to the Internet.

Internet Service Providers (ISPs) provide dial-up or direct access to POPs.

The Internet circa 1993

In 1993, the Internet consisted of one backbone (NSFNET) that connected 13 sites via 45 Mbs T3 links.

• Merit (Univ of Mich), NCSA (Illinois), Cornell Theory Center, Pittsburgh Supercomputing Center, San Diego Supercomputing Center, John von Neumann Center (Princeton), BARRNet (Palo Alto), MidNet (Lincoln, NE), WestNet (Salt Lake City), NorthwestNet (Seattle), SESQUINET (Rice), SURANET (Georgia Tech).

Connecting to the Internet involved connecting one of your routers to a router at a backbone site, or to a regional network that was already connected to the backbone.

5. DISTINCTIONS BETWEEN SERVICES AND GOODS One of the most basic ideas in economics is goods and services. More than anything else, money is spent on goods and services. It helps to know the difference between two.

A good is something that you can use or consume, like food or CDs or books or a car or clothes. You buy a good with the idea that you will use it, either just once or over and over again.

A service is something that someone does for you, like give you a haircut or fix you dinner or even teach you social studies. You don't really get something solid, like a book or a CD, but you do get something that you need.

The basic difference is that a good is something you can hold in your hand (unless it's something big, like a car or a house).

Now, a service can also contain a good. Someone who fixes you dinner gives you food, which was bought. In this example, the food is the good and the person's fixing it for you is the service.

In the same way, your teacher gives you a service by teaching you social studies. He or she also gives you a good by giving you a textbook.

Your teacher teaching you social studies is a good example of a service that you personally don't pay for. (Your family might pay for it, but you don't.)

And not all services are economic, either. A service can be as simple as reading a book to someone. This kind of activity doesn't cost anything, but it is something that one person did for another.

A good doesn't have to cost anything, either. If you give your friend a book or a CD, then you given that friend a good, since we have already defined books and CDs as goods. Your friend didn't give you any money for the good. But you didn't really do something for your friend, either; you just gave your friend something he or she could hold or touch.

Remember, the one thing that sets goods and services apart is the ability to touch them. You can touch a good, but you can't touch a service. You can touch the result of a service but not the service itself.

OR

1. Goods are tangible, and transferable while the services are intangible and non transferable. 2. Goods are separable, and non - perishable while services are inseparable. 3. Goods are homogeneous while services are heterogeneous

A good is a tangible object used either once or repeatedly. A service is intangible. The tangibility differentiator indicates the ability to touch, smell, taste and see which is absent in services. This can be a deterrent to the service receiver to gauge the quality and dependant on the service company reputation. In the case of goods the ownership of the product is transferable from sellers to buyers, whereas in services there is no ownership involved.

On the quality front, with goods it is homogeneous, once produced the quality is uniform across all line of products. They can be separated from the seller/ provider and not dependant on the source for its delivery to the purchaser. With regard to service it is inseparable from the service provider and heterogeneous, where each time the service is offered it may vary in quality, output, and delivery. It cannot be controlled and is dependant on the human effort in achieving that quality hence is variable from producer, customer and daily basis.

Another key distinction is perishability of services and the non perishability of goods. Goods will have a long storage life and are mostly non perishable. Whereas services are delivered at that moment and do

not have a long life or cannot be stored for repeat use. They do not bear the advantage of shelf life as in the case of goods like empty seats in airlines. With the production and consumption taking place simultaneously in services, it differs from goods on simultaneity and the provisions for quality control in the process.

6.SERVICES MARKETING MIX

Service marketing mix means…………

Seven P's: 4 P's of a tangible good (price, presentation, place, and Promotion) plus 3 P's of an intangible service participants, physical evidence, and process (of service assembly).

The service marketing mix comprises off the 7’p’s. These include:• Product • Price• Place• Promotion• People• Process• Physical evidence.

7 Ps of Services Marketing

Marketing services is different from marketing goods, and the marketing tools and practices developed for goods marketing are often not directly transferable to the marketing of services. There are several major differences, including:

The buyer purchases are intangible The service may be based on the reputation of a single person

It's more difficult to compare the quality of similar services

The buyer cannot return the service

4 P's product promoation placement and price

The differences have resulted in a divergence in the education of services marketing versus regular marketing. Apart from the traditional "4 P's," Product, Price, Place,

Promotion, there are three additional "P's" consisting of People, Physical evidence, and Process.

Product refers to the creation of a service concept that will offer value to target customers and satisfy their needs better than competing alternatives. This consists of a core product that responds to the customer primary need and an array of supplementary service elements that are mutually reinforcing value-added enhancements that help customers to use the core product more effectively.

Place and time may involve physical or electronic channels such as banks now offer customers a choice of distribution channels including visiting a branch, using a network of ATMS, doing business by phone or conducting them over the Internet.

Price and other user outlays are crucial as well. To determine if a particular service is “worth it”, customers go beyond monetary considerations and assess the outlays of their time and effort. Thus, service marketers must set prices that target customers are willing and able to pay and minimize other burdensome outlays that are incurred. These may include additional monetary expense in traveling, time expenditures, unwanted mental and physical effort and exposure to negative sensory experiences.

Promotion in services marketing is also educational in nature, especially for new customers. Suppliers need to teach these customers about the benefits of the service, where and when to obtain it, and how to participate in service processes to get the best results. This can be delivered via individuals such as salespeople, at websites, on display screens in self-service equipment and through a variety of advertising media.

The process of delivering the service is very often as important as the function of the service. Operational inputs and outputs can vary widely due to the lack of inventory and real time interaction involved. Nonetheless, variability can be reduced through careful design of the customer service process, adopting standardized procedures, implementing rigorous management of service quality, high standards of training, and automation. Furthermore, customers are often involved in co-production as partial employees through self-service, telecommunications and the Internet.

Physical environment includes the appearance of buildings, landscaping, vehicles, interior furnishing, equipment, uniforms, signs, printed materials and other visible cues that provide evidence of service quality, facility service delivery and guide customers through the service process. This can also be referred to as the “servicescape” which can have a profound impact on customer satisfaction and service productivity.

People refer to the human capital of the firm, i.e. the employees. These individuals should possess the required technical skills, good interpersonal skills and positive attitudes that can become a key competitive advantage for the firm.

CHARACTERISTICS OF A SERVICE

What exactly are the characteristics of a service? How are services different from a product? In fact many organisations do have service elements to the product they sell, for example McDonald’s sell physical products i.e. burgers but consumers are also concerned about the quality and speed of service, are staff cheerful and welcoming and do they serve with a smile on their face?

There are five characteristics to a service which will be discussed below.

1. Lack of ownership. You cannot own and store a service like you can a product. Services are used or hired for

a period of time. For example when buying a ticket to the USA the service lasts maybe 9 hours each way , but consumers want and expect excellent service for that time. Because you can measure the duration of the service consumers become more demanding of it.

2. Intangibility You cannot hold or touch a service unlike a product. In saying that although services are

intangible the experience consumers obtain from the service has an impact on how they will perceive it. What do consumers perceive from customer service? the location, and the inner presentation of where they are purchasing the service?.

3. Inseparability Services cannot be separated from the service providers. A product when produced can

be taken away from the producer. However a service is produced at or near the point of purchase. Take visiting a restaurant, you order your meal, the waiting and delivery of the

meal, the service provided by the waiter/ress is all apart of the service production process and is inseparable, the staff in a restaurant are as apart of the process as well as the quality of food provided.

4. Perishibility Services last a specific time and cannot be stored like a product for later use. If travelling

by train, coach or air the service will only last the duration of the journey. The service is developed and used almost simultaneously. Again because of this time constraint consumers demand more.

5. Heterogeneity It is very difficult to make each service experience identical. If travelling by plane the

service quality may differ from the first time you travelled by that airline to the second, because the airhostess is more or less experienced.A concert performed by a group on two nights may differ in slight ways because it is very difficult to standardise every dance move. Generally systems and procedures are put into place to make sure the service provided is consistent all the time, training in service organisations is essential for this, however in saying this there will always be subtle differences.

Services marketing is a form of marketing which focuses on selling services. Services can be tricky to sell and the marketing approach for them is much different than the approach for products. Some companies offer both products and services and must use a mixture of styles; for example, a store which sells computers also tends to offer services such as helping people select computers and providing computer repair. Such a store must market both its products and the supporting services it offers to appeal to customers.

6.CUSTOMER BEHAVIOUR IN SERVICE ENCOUNTER:

Four Categories of Services

1. Direct Caring for or providing for others face-to-face whoare different in age/experience.

Examples

• Tutoring children• Reading to the elderly• Serving as a mentor or buddy• Working with animals/shelters

Indirect Doing something to care for the community, a group or the environment as a whole; often done with a partner or group.

Examples

• River/roadside clean up• Donation programs for the homeless or poor• Stocking a food pantry

3.Advocacy Creating awareness or promoting action on an issue of public interest.

Examples

• Letter writing campaign• Sponsoring a public meeting on an issue• Public speaking• Performing a play on an issue

4. Research Finding, gathering, and reporting on information in the public interest.

Examples

• Conducting surveys on issues related to publicsafety, school, the environment, etc.

• Testing water or soil samples for pollution

Differences among Services Affect Customer Behavior

Consumers are rarely involved in the manufacture of goods butoften participate in service creation and delivery

Challenge for service marketers is to understand how customersinteract with service operations

Based on differences in nature of service act (tangible/intangible)and who or what is direct recipient of service(people/possessions), there are four categories of services:

People processing

Possession processing

Mental stimulus processing

Information processing

Who or What Is the Direct Recipient of the Service?

Nature of the Service Act People Possessions

Tangible Actions People processing

(services directed at people’s bodies): People processing

(services

Is the Direct Recipient of the Service?

Who or What Is the Direct Recipient of the Service?

Nature of the Service Act People Possessions ……………………………………………………………………………………………………………………………………………………….

Tangible Actions People processing Possession processing

………………………………………………………………………………………………………………………………………………………………………………….

(services directed at (services directed at

people’s bodies): physical possessions):

Barbers Refueling

Health care Disposal/recycle

………………………………………………………………………………………………………………………………………………………………….....................

Intangible Actions Mental stimulus Information processing

processing

(services directed at (services directed at

people’s minds): intangible assets):

Education Accounting

Advertising/PR Banking

……………………………………………………………………………………………………………………………………………………………………………………..

People Processing

Customers must:

Physically enter the service factory

Co-operate actively with the service operation

Managers should think about process and output from customer’s perspective

To identify benefits created and non-financial costs:

― Time, mental, physical effort

Possession Processing

Customers are less physically involved compared to people processing services

Involvement is limited

Production and consumption are separable

Mental Stimulus Processing

Ethical standards required when customers who depend on such services can potentially be manipulated by suppliers

Physical presence of recipients not required

Core content of services is information-based

Can be “inventoried”

Information Processing

Information is the most intangible form of service output

But may be transformed into enduring forms of service output

Line between information processing and mental stimulus processing may be blurred.

Customer Decision Making

Three-Stage Model of Service Consumption

The Purchase Process for Services

1. Prepurchase Stage

2. Service Encounter Stage

3. Post-Encounter Stage

Pre-purchase Stage

Customers seek solutions to aroused needs

Evaluating a service may be difficult

Uncertainty about outcomes increases perceived risk

What risk reduction strategies can service suppliers develop?

Understanding customers’ service expectations

Components of customer expectations

Making a service purchase decision

Customers Seek Solutions to Aroused Needs

People buy goods and services to meet specific needs/wants

External sources may stimulate the awareness of a need

Companies may seek opportunities by monitoring consumer attitudes and behavior

Evaluating a Service May Be Difficult

Search attributes help customers evaluate a product before purchase

Style, color, texture, taste, sound

Experience attributes cannot be evaluated before purchase—must “experience” product to know it

Vacations, sporting events, medical procedures

Credence attributes are product characteristics that customers find impossible to evaluate confidently even after purchase and consumption

Quality of repair and maintenance work

Perceived Risks in Purchasing and Using Services

Functional—unsatisfactory performance outcomes

Financial—monetary loss, unexpected extra costs

Temporal—wasted time, delays leading to problems

Physical—personal injury, damage to possessions

Psychological—fears and negative emotions

Social—how others may think and react

Sensory—unwanted impact on any of five senses

How Might Consumers Handle Perceived Risk?

Seeking information from respected personal sources

Relying on a firm that has a good reputation

Looking for guarantees and warranties

Visiting service facilities or trying aspects of service before purchasing

Asking knowledgeable employees about competing services

Examining tangible cues or other physical evidence

Using the Internet to compare service offerings and search for independent reviews and ratings

Strategic Responses to Managing Customer Perceptions of Risk

Offer performance warranties, guarantees to protect against fears of monetary loss

For products where customers worry about performance, sensory risks:

Offer previews, free trials (provides experience)

Advertising (helps to visualize)

For products where customers perceive physical or psychological risks:

Institute visible safety procedures

Deliver automated messages about anticipated problems

Websites offering FAQs and more detailed background

Train staff members to be respectful and empathetic

Understanding Customers’ Service Expectations

Customers evaluate service quality by comparing what they expect against what they perceive

Situational and personal factors also considered

Expectations of good service vary from one business to another, and among differently positioned service providers in the same industry

Expectations change over time

Example: Service Perspectives 2.1

Parents wish to participate in decisions relating to their children’s medical treatment for heart problems

Media coverage, education, the Internet has made this possible

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

Factors Influencing Customer Expectations of Service

Personal Needs Desired Service

Beliefs about what is possible Desired Service

Perceived Service alterations Adequate Service

Situational Factors Adequate Service

Service Encounter Stage

Service encounters range from high- to low-contact

Understanding the servuction system

Service marketing systems: high-contact and low-contact

Role and script theories

Theater as a metaphor for service delivery: An integrative perspective

Implications for customer participation in service creation and delivery

Distinctions between 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. the Web) help reduce contact level

Medium-Contact Services Lie in between These Two

The Servuction System: Service Production and Delivery

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 for a High-Contact Service

SERVICE MARKETING SYSTEM

Service Delivery System Other Contact Points

Service Operations System Other Customers Advertising

Sales Calls

Interior & Exterior Market Research Surveys

Technical Facilities The Customer =====Billing/Statements

Core Equipment Misc. Mail, Phone Calls

E-mails, Faxes, etc.

Service People Website

Random Exposure to

Facilities/Vehicles

Back Stage Front Stage Chance Encounters with

( Invisible ) ( Visible ) Other Customers Service Personnel

Word of Mouth

Theater as a Metaphor for Service Delivery

“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”

Theatrical Metaphor: 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 participants

An Integrative Perspective

Implications for customer participation in service creation and delivery

Greater need for information/training to help customers to perform well, get desired results

Customers should be given a realistic service preview in advance of service delivery, so they have a clear picture of their expected role

Post-Encounter Stage

Evaluation of service performance

Future intentions

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 three 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?

Strategic links exist between customer satisfaction and corporate performance.

Getting feedback during service delivery help to boost customer loyalty

Progressive Insurance seeks to delight customers through exceptional customer service (Best Practice in Action 2.1)

SUMMARY OF CHAPTER: CUSTOMER BEHAVIOR IN SERVICE ENCOUNTERS

Four broad categories of services

People processing, possession processing, mental stimulus processing, information processing

Based on differences in nature of service act (tangible or intangible), and who or what is direct recipient of service (people or possessions)

Each poses distinctive service management challenges

Three-Stage Model of service consumption helps us to understand and better manage customer behavior

Prepurchase stage

Customers seek solutions to aroused needs

Evaluation alternatives are more difficult when a service involves experience and credence attributes

Customers face a variety of perceived risks in selecting, purchasing and using services

Steps taken to reduce customers’ risk perceptions, include: (1) guarantees and warranties, (2) previews of service and visits to service facilities, (3) employee training, (4) instituting visible safety procedures, (5) easy access to information, and (6) advance notice of problems or delays

Customer expectations of service range from “desired” to “adequate” with a zone of tolerance in between; if actual service is perceived as less than adequate, customers will be dissatisfied

Service encounter stage

Service encounters range from high contact to low contact

Servuction system differs by level of contact:

High-contact services: Most parts of operations, service delivery, and marketing systems are exposed to customers

Low-contact services: Some parts of systems are invisible to customers

Role and script theories help us understand and manage customer behavior during encounters

Theatrical view of service delivery offers insights for design, stage-managing performances, and relationships with customer “audience”

Post-encounter stage

In evaluating service performance, customers can have expectations positively disconfirmed, confirmed, or negatively disconfirmed

Unexpectedly high levels of performance, arousal and positive affect are likely to lead to delight

CUSTOMER EXPECTATIONS AND PERCEPTIONS OF SERVICES- ZONE OF TOLERANCE

How Might Consumers Handle Perceived Risk?

Seeking information from respected personal sources

Relying on a firm that has a good reputation

Looking for guarantees and warranties

Visiting service facilities or trying aspects of service before purchasing

Asking knowledgeable employees about competing services

Examining tangible cues or other physical evidence

Using the Internet to compare service offerings and search for independent reviews and ratings

Strategic Responses to Managing Customer Perceptions of Risk

Offer performance warranties, guarantees to protect against fears of monetary loss

For products where customers worry about performance, sensory risks:

Offer previews, free trials (provides experience)

Advertising (helps to visualize)

For products where customers perceive physical or psychological risks:

Institute visible safety procedures

Deliver automated messages about anticipated problems

Websites offering FAQs and more detailed background

Train staff members to be respectful and empathetic

Understanding Customers’ Service Expectations

Customers evaluate service quality by comparing what they expect against what they perceive

Situational and personal factors also considered

Expectations of good service vary from one business to another, and among differently positioned service providers in the same industry

Expectations change over time

Example: Service Perspectives 2.1

Parents wish to participate in decisions relating to their children’s medical treatment for heart problems

Media coverage, education, the Internet has made this possible

Factors Influencing Customer Expectations of Service

Personal Needs Desired Service

Beliefs about what is possible Desired Service

Perceived Service alterations Adequate Service

Situational Factors Adequate Service

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

…………………………………………………………………………………………………………………………………………………………………………………………………

MODULE 2. SERVICES MARKETING MIX:

service marketing mix means…………

Seven P's: 4 P's of a tangible good (price, presentation, place, and Promotion) plus 3 P's of an intangible service participants, physical evidence, and process (of service assembly).

The service marketing mix comprises off the 7’p’s. These include:• Product • Price• Place• Promotion• People• Process• Physical evidence.

7 Ps of Services Marketing

Marketing services is different from marketing goods, and the marketing tools and practices developed for goods marketing are often not directly transferable to the marketing of services. There are several major differences, including:

The buyer purchases are intangible The service may be based on the reputation of a single person

It's more difficult to compare the quality of similar services

The buyer cannot return the service

4 P's product promoation placement and price

The differences have resulted in a divergence in the education of services marketing versus regular marketing. Apart from the traditional "4 P's," Product, Price, Place,

Promotion, there are three additional "P's" consisting of People, Physical evidence, and Process.

Product refers to the creation of a service concept that will offer value to target customers and satisfy their needs better than competing alternatives. This consists of a core product that responds to the customer primary need and an array of supplementary service elements that are mutually reinforcing value-added enhancements that help customers to use the core product more effectively.

Place and time may involve physical or electronic channels such as banks now offer customers a choice of distribution channels including visiting a branch, using a network of ATMS, doing business by phone or conducting them over the Internet.

Price and other user outlays are crucial as well. To determine if a particular service is “worth it”, customers go beyond monetary considerations and assess the outlays of their time and effort. Thus, service marketers must set prices that target customers are willing and able to pay and minimize other burdensome outlays that are incurred. These may include additional monetary expense in traveling, time expenditures, unwanted mental and physical effort and exposure to negative sensory experiences.

Promotion in services marketing is also educational in nature, especially for new customers. Suppliers need to teach these customers about the benefits of the service, where and when to obtain it, and how to participate in service processes to get the best results. This can be delivered via individuals such as salespeople, at websites, on display screens in self-service equipment and through a variety of advertising media.

The process of delivering the service is very often as important as the function of the service. Operational inputs and outputs can vary widely due to the lack of inventory and real time interaction involved. Nonetheless, variability can be reduced through careful design of the customer service process, adopting standardized procedures, implementing rigorous management of service quality, high standards of training, and automation. Furthermore, customers are often involved in co-production as partial employees through self-service, telecommunications and the Internet.

Physical environment includes the appearance of buildings, landscaping, vehicles, interior furnishing, equipment, uniforms, signs, printed materials and other visible cues that provide evidence of service quality, facility service delivery and guide customers through the service process. This can also be referred to as the “servicescape” which can have a profound impact on customer satisfaction and service productivity.

People refer to the human capital of the firm, i.e. the employees. These individuals should possess the required technical skills, good interpersonal skills and positive attitudes that can become a key competitive advantage for the firm.

Characteristics of a Service

What exactly are the characteristics of a service? How are services different from a product? In fact many organisations do have service elements to the product they sell, for example McDonald’s sell physical products i.e. burgers but consumers are also concerned about the quality and speed of service, are staff cheerful and welcoming and do they serve with a smile on their face?

There are five characteristics to a service which will be discussed below.

1. Lack of ownership.

You cannot own and store a service like you can a product. Services are used or hired for a period of time. For example when buying a ticket to the USA the service lasts maybe 9 hours each way , but consumers want and expect excellent service for that time. Because you can measure the duration of the service consumers become more demanding of it.

2. Intangibility

You cannot hold or touch a service unlike a product. In saying that although services are intangible the experience consumers obtain from the service has an impact on how they will perceive it. What do consumers perceive from customer service? the location, and the inner presentation of where they are purchasing the service?.

3. Inseparability

Services cannot be separated from the service providers. A product when produced can be taken away from the producer. However a service is produced at or near the point of purchase. Take visiting a restaurant, you order your meal, the waiting and delivery of the meal, the service provided by the waiter/ress is all apart of the service production process and is inseparable, the staff in a restaurant are as apart of the process as well as the quality of food provided.

4. Perishibility

Services last a specific time and cannot be stored like a product for later use. If travelling by train, coach or air the service will only last the duration of the journey. The service is developed and used almost simultaneously. Again because of this time constraint consumers demand more.

5. Heterogeneity

It is very difficult to make each service experience identical. If travelling by plane the service quality may differ from the first time you travelled by that airline to the second, because the airhostess is more or less experienced.A concert performed by a group on two nights may differ in slight ways because it is very difficult to standardise every dance move. Generally systems and procedures are put into place to make sure the service provided is consistent all the time, training in service organisations is essential for this, however in saying this there will always be subtle differences.

Services marketing is a form of marketing which focuses on selling services. Services can be tricky to sell and the marketing approach for them is much different than the approach for products. Some companies offer both products and services and must use a mixture of styles; for example, a store which sells computers also tends to offer services such as helping people select computers and providing computer repair. Such a store must market both its products and the supporting services it offers to appeal to customers.

Product – Core and Supplementary Elements

A service product consists of two components, the core product and supplementary services. The core product is based on the core set of benefits and solutions delivered to customers. Supplementary services are those elements that facilitate and enhance the use of the core product.Designing a service concept is a complicated task that requires an understanding of how the core and supplementary services should be combined, sequenced, delivered, and scheduled to create benefits that meet the needs of the target market segments.

Different types of core products often share similar supplementary elements. The Flower of Service concept categorizes supplementary services into eight groups (each represented as a petal surroundingthe core).

The eight groups can be categorized as

(1) facilitating and

(2) enhancing supplementary services.

Facilitating supplementary services are needed for service delivery or help in the use of the core product. They are:

o Informationo Order-takingo Billing, and

o Payment.

Enhancing supplementary services add extra value for the customer and include:

o Consultationo Hospitalityo Safekeepingo Dealing with exceptions.

The use of a flower helps us to understand that all the supplementary elements must be performed well. A weakness in one element will spoil theoverall impression.

OR

Core Product

Central component that supplies the principal, problem-solvingBenefits customers seek

Supplementary Services

Augment the core product, facilitating its use and enhancing itsValue and appeal

The Service Offering

In this chapter, we address the question, what should be the core and supplementary elements of our service product? The core addresses the customer’s need for a basic benefit – such as transportation to a desired location, resolution of a specific health problem, or repair of malfunctioning equipment.As an industry matures and competition increases, there’s a risk that prospective customers may view competing core products as commodities that are indistinguishable from each other.

The Augmented Product

Marketers use the term augmented product to describe the combination of a core product with a bundle of value-adding supplementary elements. Molecular model that can be applied to either goods or service. The model uses a chemical analogy to help marketers visualize and manage what she termed a “total market entity”.

At the center benefit that addresses the basic customer need, with links to a series of other service characteristics. Surrounding the molecules is a series of bands representing price, distribution, and market positioning (communication messages).The molecule model helps identify the tangible and intangible elements involved in service delivery.

Identifying and Classifying Supplementary Services

The more we examine different types of core services, the more we find that most of them have many supplementary series in common. There are dozens of different supplementary services, but almost all of them can be classified into one of the following eight clusters.

We have listed them as either facilitating supplementary services, which aid in the use of the core product or are required for service delivery.

o Informationo Order taking

o Billingo Payment

Enhancing supplementary services, which add extra value for customers.

o Consultationo Hospitalityo Safekeepingo ExceptionsThese eight clusters are displayed as petals surrounding the center of a flower, which we call the Flower of Service.

o A visual framework for understanding the supplementary service elements that surround and add value to the product core.

Information

To obtain full value from any service experience, customers need relevant information. New customers and prospects are especially information hungry. Customers needs may include directions to the physical location where the product is sold (or details of how to order it by telephone or Website), service hours, prices, and usage instructions. Some information is required by law like notifications of changes, reminders, warnings, and conditions of sale and use. Customers may want documentation of what has already taken place, such as confirmation of reservations, receipts and tickets, and monthly summaries of account activity.

Companies should make sure the information they provide is both timely and accurate; if it’s not, customers may be annoyed or inconvenienced.

Order Taking

Once customers are ready to buy, companies must have effective supplementary service processes in place to handle applications, orders, and reservations. The process of order taking should be polite, fast, and accurate so that customers do not waste time and endure unnecessary mental or physical effort.

Certain companies need to receive information about the potential clients, with that information they can decide to either provide services or not. I.G. would be universities, banks, insurance companies, and utilities, and other.

Ticketless systems, based upon telephone or online reservations, provide enormous cost savings for airlines. Eliminates the need to compensate agents.

Billing

Billing is common to almost all services (unless it is free). Inaccurate, illegible, or incomplete bills risk disappointing customers who may, up to that point, have been

quite satisfied with their experience. Such failures add insult to injury if the customer is already dissatisfied.

Customers usually expect bills to be clear and informative, and itemized in a way that makes it clear how the total was computed.

Marketing Research can help companies design user-friendly bills by identifying what information customers want and how they would like it to be organized.

Busy customers hate to be kept waiting for a bill. Some service providers offer express checkout options, taking customers’ credit card details in advance and documenting changes later by mail.Payment

A bill requires the customer to take action on payment. Bank statements are an exception, since they detail charges that have already been deducted from the customer’s account. Ease and convenience is what customers expect.

A variety of options exists to facilitate customer bill paying. Self-service payment systems. For instance, require customers to insert coins, banknotes, tokens, or cards in machines. Equipment breakdown destroy the whole purpose of having such a system.

To ensure that people actually pay what they owe, some services employ control systems, such as ticket collection before entering a movie theater or boarding a train. Those collecting those tickets must be trained to be polite and professional, so that the customer does not feel harassed.

Consultation

Consultation is an enhancing service that involves a dialog to identify customer requirements and develop a personalized solution.

Counseling represents a more subtle approach to consultation. It involves helping customers better understand their situations so that they can come up with their “own” solutions and action programs.

Hospitality

Hospitality-related services should ideally reflect pleasure at meeting new customers and greeting old ones when they return. Courtesy and consideration for customers’ needs apply to both face-to-face encounters and telephone.

The quality of a firm’s hospitality services can increase or decrease satisfaction with the core product.

Some air transportation companies differentiate themselves from their competitors with better meals and more attractive cabin crew.

Safekeeping

While visiting a service site, customers often want assistance with their personal possessions.

Additional safekeeping services are directed at physical products that customers buy or rent.

Exceptions

Exceptions involve supplementary services that fall outside the routine of normal service delivery. Astute businesses anticipate exceptions and develop contingency plans and guidelines in advance.

1. Special requests. There are many circumstances when a customer may request service that requires a departure from normal operating procedures.

2. Problem Solving. Situations arise when normal service delivery fails to run smoothly as a result of accidents, delays, equipment failures, or customer experiencing difficulty in using the product.

3. Handling of complaints/suggestions/compliments. This activity requires well-defined procedures. It should be easy for customers to express dissatisfaction, offer suggestions for improvement, or pass on compliments, and service providers should be able to make an appropriate response quickly.

4. Restitution. Many customers expect to be compensated for serious performance failures.

FACILITATING SUPPLEMENTARY SERVICES

Information

• Direction to service site• Schedules/service hours• Prices• Reminders• Warnings• Conditions of sale/service• Notification of changes• Documentation• Confirmations of reservations• Summaries of account activities• Receipts and tickets

Order-Taking

Applications

• Memberships in clubs/programs• Subscription services (e.g., utilities)• Prerequisite based services (e.g., financial credit, college enrolment)

Order Entry

• On-site order fulfillment• Mail/telephone/e-mail/web order

Reservations and Check-in

• Seats/tables/rooms• Vehicles or equipment rental• Professional appointments

Billing

• Periodic statements of account activity• Invoices for individual transactions• Verbal statements of amount due• Self-billing (computed by customer)• Machine display of amount due

Payment

Self-Service

• Insert card, cash or token into machine• Electronic funds transfer• Mail a check• Enter credit card number online

Direct to Payee or Intermediary

• Cash handling or change giving• Check handling• Credit/charge/debit card handling• Coupon redemption

Automatic Deduction from Financial Deposits

• Automated systems (e.g., machine-readable tickets that operate entry gate)• Human systems (e.g., toll collectors)

ENHANCING SUPPLEMENTARY SERVICES

Consultation

• Customized advice• Personal counseling• Tutoring/training in product use• Management or technical consulting

Hospitality

Greeting Food and beverages Toilets and washrooms Waiting facilities and amenities

• Lounges, waiting areas, seating• Weather protection• Magazines, entertainment, newspapersTransportSecurity

Safekeeping

Caring for Possessions Customer Bring with Them

• Child care, pet care• Parking for vehicles, valet parking• Coat rooms• Baggage handling

• Storage space• Safe deposit boxes• Security personnel

Caring for Goods Purchased (or Rented) by Customers

• Packaging• Pickup• Transportation and delivery• Installation• Inspection and diagnosis• Cleaning• Refueling• Preventive maintenance• Repair and renovation

Exceptions

Special Requests in Advance of Service Delivery

• Children’s needs• Dietary requirements• Medical or disability need• Religious observances

Handling Special Communications

• Complaints• Compliments• Suggestions

Problem Solving

• Warranties and guarantees• Resolving diffi culties that arise from using the product• Resolving diffi culties caused by accidents, service failures• Assisting customers who have suffered an accident or a medical emergency Restitution• Refunds and compensation• Free repair of defective goods

BRANDING SERVICE PRODUCTS AND EXPERIENCES

Many firms offer several service products with different performance attributes and brand each package with a distinctive name. They can use avariety of branding strategies such as branded house, sub-brands, endorsed brands, and house of brands. However, each of these different brands in the family should offer a meaningful benefi t or this strategy islikely to be ineffective against competition.

Six basic steps

To develop and deliver the Branded CustomerExperience:

1 Target profitable customers, employing behavior rather than demographic segmentation as behavior is a more accurate indicator of tastes and preferences.

2 Achieve a superior understanding about your targeted customers’ value.

3 Create a brand promise—an expression of what target customers can expect from their experience with your organization—which is of value to customers, addresses a need, can be implemented, can be incorporatedinto standards, and provides focus for the organization and its employees.

4 Apply that understanding to provide a truly different customer experience.

5 Give employees the skills, tools, and supporting processes needed to deliver the customer experience that has been defined.

6 Make everyone a brand manager who is behind the brand and supports the brand.

7 Make promises that your processes can exceed.

8 Measure and monitor. Consistency of delivery is paramount.

Product Lines and BrandsMost service firms offer a line of products rather than just a single product. As a result, they must choose among three broad alternatives: using a single brand to cover all products and services, a separate stand-alone brand for each offering, or some combination of these two extremes.

These alternatives are represented as a spectrum

. The term branded house is used to describe a company like the VirginGroup, which applies its brand name to multiple offerings in often unrelated fields.

Next on this spectrum are what they term sub-brands. A sub-brand is one wherethe master brand is the main reference point, but the product itself has a distinctive name too. Singapore Airlines Raffles Class, the company’s business class service, is an example. The next category of brands are endorsed brands, where the product brand is the main focus, but the corporate name is still featured (many hotel corporations use this approach). At the far end of the spectrum is the house of brands strategy. Yum!

Brands Inc. adopts the house of brands strategy, with more than 35,000 restaurants in 110 countries. While we may not have heard of Yum! Brands, many certainly are familiar with their restaurant brands—A & W, KFC, Pizza Hut, Taco Bell, and Long John’s Silver. Each of these brands is actively promoted under their own brand name.

“Branded House”e.g., Virgin Group

Subbrandse.g., Raffl es Class atSingapore Airlines

Endorsed Brandse.g., StarwoodHotels & Resorts

“House of Brands”e.g., Yum! Brands

Offering a Branded Experience

Branding can be used at both the company and product level by almost any service business. In a well-managed firm, the corporate brand is not only easily recognized, but it also has meaning for customers. The brand stands for a particular way of

doing business. Applying distinctive brand names to individual products helps marketers to establish a mental picture of the service in customers’ minds and to clarify the nature of the value proposition.

The Forum Corporation, a consulting firm, differentiates between(1) Experience with high variation from customer to customer, (2) A branded experience that is similar across different firms, differentiated only by the brand name (ATMs are a good example), and (3) A “Branded Customer Experience” in which the customer’s Experience is shaped in a specific and meaningful ways.

For Forum’s recommendations on how to achieve this.)Don Shultz emphasizes that “The brand promise or value proposition is not a tagline, an icon, or a color or a graphic element, although all of these may contribute. It is, instead, the heart and soul of the brand….” An important role for service marketers is to become brand champions, familiar with and responsible for shaping every aspect of the customer’s experience. We can relate the notion of a branded service experience to the Flower of Service metaphor by emphasizing the need for consistency in the color and texture of each petal. Unfortunately, many service experiences remain much disorganized and create the impression of a flower stitched

together with petals drawn from many diff erent plants!

2. PRICE – ROLE OF NON-MONETARY COSTS

NON-MONETARY PRICE

What it costs a customer (other than money) to buy aproduct, including the time spend on shopping and the risk taken in the assumption that the product will deliver expected or promised benefit.

Non-monetary costs refer to the time spent undertaking the journey. Time is converted to a money value using a value of time figure, which usually varies according to the traveller's income and the purpose of the trip.

Role of Non-monetary Costs

1. Improving service patronage, accessibility and sustainability

2. Maximising integration of public transport system

3. Setting clear boundaries for policy, ownership, regulation, service specification and operational delivery

4. Establishing effective levers to incentivise and influence performance and outcomes, focusing more closely on the needs of service users

5. Facilitating controlled private-sector involvement in the market where this is appropriate

3. PRICING STRATEGY

Price planning that takes into view factors sucha firm's overall  marketing objectives, consumer demand, product attributes , competitors' pricingand market and economic trends .

PREMIUM PRICING.

USE A HIGH PRICE WHERE THERE IS A UNIQUENESS ABOUT THE PRODUCT OR SERVICE.

THIS APPROACH IS USED WHERE A A SUBSTANTIAL COMPETITIVE ADVANTAGE EXISTS.

SUCH HIGH PRICES ARE CHARGE FOR LUXURIES SUCH AS CUNARD CRUISES, SAVOY

HOTEL ROOMS, AND CONCORDE FLIGHTS.

PENETRATION PRICING.

THE PRICE CHARGED FOR PRODUCTS AND SERVICES IS SET ARTIFICIALLY LOW IN ORDER

TO GAIN MARKET SHARE. ONCE THIS IS ACHIEVED, THE PRICE IS INCREASED. THIS

APPROACH WAS USED BY FRANCE TELECOM IN ORDER TO

ECONOMY PRICING.

THIS IS A NO FRILLS LOW PRICE. THE COST OF MARKETING AND MANUFACTURE ARE

KEPT AT A MINIMUM. SUPERMARKETS OFTEN HAVE ECONOMY BRANDS FOR SOUPS,

SPAGHETTI, ETC.

PRICE SKIMMING.

CHARGE A HIGH PRICE BECAUSE YOU HAVE A SUBSTANTIAL COMPETITIVE ADVANTAGE.

HOWEVER, THE ADVANTAGE IS NOT SUSTAINABLE. THE HIGH PRICE TENDS TO ATTRACT

NEW COMPETITORS INTO THE MARKET, AND THE PRICE INEVITABLY FALLS DUE TO

INCREASED SUPPLY. MANUFACTURERS OF DIGITAL WATCHES USED A SKIMMING

APPROACH IN THE 1970S. ONCE OTHER MANUFACTURERS WERE TEMPTED INTO THE

MARKET AND THE WATCHES WERE PRODUCED AT A LOWER UNIT COST, OTHER

MARKETING STRATEGIES AND PRICING APPROACHES ARE IMPLEMENTED.

PREMIUM PRICING, PENETRATION PRICING, ECONOMY PRICING, AND PRICE SKIMMING

ARE THE FOUR MAIN PRICING POLICIES/STRATEGIES.   THEY FORM THE BASES FOR THE

EXERCISE. HOWEVER THERE ARE OTHER IMPORTANT APPROACHES TO PRICING.

PSYCHOLOGICAL PRICING.

THIS APPROACH IS USED WHEN THE MARKETER WANTS THE CONSUMER TO RESPOND ON

AN EMOTIONAL, RATHER THAN RATIONAL BASIS. FOR EXAMPLE 'PRICE POINT

PERSPECTIVE' 99 CENTS NOT ONE DOLLAR.

PRODUCT LINE PRICING.

WHERE THERE IS A RANGE OF PRODUCT OR SERVICES THE PRICING REFLECT THE

BENEFITS OF PARTS OF THE RANGE. FOR EXAMPLE CAR WASHES. BASIC WASH COULD BE

$2, WASH AND WAX $4, AND THE WHOLE PACKAGE $6.

OPTIONAL PRODUCT PRICING.

COMPANIES WILL ATTEMPT TO INCREASE THE AMOUNT CUSTOMER SPEND ONCE THEY

START TO BUY. OPTIONAL 'EXTRAS' INCREASE THE OVERALL PRICE OF THE PRODUCT OR

SERVICE. FOR EXAMPLE AIRLINES WILL CHARGE FOR OPTIONAL EXTRAS SUCH AS

GUARANTEEING A WINDOW SEAT OR RESERVING A ROW OF SEATS NEXT TO EACH OTHER.

CAPTIVE PRODUCT PRICING

WHERE PRODUCTS HAVE COMPLEMENTS, COMPANIES WILL CHARGE A PREMIUM PRICE

WHERE THE CONSUMER IS CAPTURED. FOR EXAMPLE A RAZOR MANUFACTURER WILL

CHARGE A LOW PRICE AND RECOUP ITS MARGIN (AND MORE) FROM THE SALE OF THE

ONLY DESIGN OF BLADES WHICH FIT THE RAZOR.

PRODUCT BUNDLE PRICING.

HERE SELLERS COMBINE SEVERAL PRODUCTS IN THE SAME PACKAGE. THIS ALSO SERVES

TO MOVE OLD STOCK. VIDEOS AND CDS ARE OFTEN SOLD USING THE BUNDLE

APPROACH.

PROMOTIONAL PRICING.

PRICING TO PROMOTE A PRODUCT IS A VERY COMMON APPLICATION. THERE ARE MANY

EXAMPLES OF PROMOTIONAL PRICING INCLUDING APPROACHES SUCH AS BOGOF (BUY

ONE GET ONE FREE).

GEOGRAPHICAL PRICING.

GEOGRAPHICAL PRICING IS EVIDENT WHERE THERE ARE VARIATIONS IN PRICE IN

DIFFERENT PARTS OF THE WORLD. FOR EXAMPLE RARITY VALUE, OR WHERE SHIPPING

COSTS INCREASE PRICE.

VALUE PRICING.

THIS APPROACH IS USED WHERE EXTERNAL FACTORS SUCH AS RECESSION OR INCREASED

COMPETITION FORCE COMPANIES TO PROVIDE 'VALUE' PRODUCTS AND SERVICES TO

RETAIN SALES E.G. VALUE MEALS AT MCDONALDS.

Predatory pricing (also known as destroyer pricing) is the practice of a firm selling a product at very low price with the intent of driving competitors out of the market, or create a barrier to entry into the market for potential new competitors. If the other firms cannot sustain equal or lower prices without losing money, they go out of business. The predatory pricer then has fewer competitors or even a monopoly, allowing it to raise prices above what the market would otherwise bear.In many countries, including the United States, predatory pricing is considered anti-competitive and is illegal under antitrust laws. However, it is usually difficult to prove that a drop in prices is due to predatory pricing rather than normal competition, and predatory pricing claims are difficult to prove due to high legal hurdles designed to protect legitimate price competition.

Limit PricingA Limit Price is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon entering as long as the incumbent firm did not decrease output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. 

Loss LeaderIn marketing, a loss leader (also called a key value item in the United Kingdom) is a type of pricing strategy where an item is sold below cost in an effort to stimulate other, profitable sales. It is a kind of sales promotion.

OR

Pricing strategies for products or services include the following:

1   Competition-based pricing

2   Cost-plus pricing

3   Creaming or skimming

4   Limit pricing

5   Loss leader

6   Market-oriented pricing

7   Penetration pricing

8   Price discrimination

9   Premium pricing

10   Predatory pricing

11   Contribution margin-based pricing

12   Psychological pricing

13   Dynamic pricing

14   Price leadership

15   Target pricing

16   Absorption pricing

17   High-low pricing

18   Premium Decoy pricing

19   Marginal-cost pricing

20   Value Based pricing

21   Nine Laws of Price Sensitivity & Consumer Psychology

Pricing and Revenue Management

Introduction

Revenue management (also called yield management) involves managing a ¯rm'sdemand-side decisions (e.g. segmentation, pricing and availability) to maximize rev-enues. It has gained attention recently as one of the most impactful areas of operationsmanagement (OM) and operations research (OR). It has grown from its origins as arelatively obscure practice among a handful of major airlines in the post-deregulationera here in the U.S. (about 1978), to its status today as a mainstream business prac-tice, with its own supporting industry of established consulting ¯rms and range ofindustry users from Walt Disney Resorts to National Car Rental. Major airlinesincluding American, British Air, Continental, Lufthansa, Northwest and SAS havelarge sta®s of developers and OR analysts working on revenue management. Ma-jor consulting/software ¯rms such as PROS, Sabre and Tallus (now merged withManugistics) each have over 400 professionals devoted to their revenue managementpractices, working on a range of activities from business consulting to software devel-opment to OR methodology.

At the same time, research on the methodology behind revenue management hasbeen growing rapidly. In academic circles, the number of published papers on revenuemanagement has increased dramatically in the last ten years. INFORMS has starteda Revenue Management and Pricing Section, which will organize its 4th. AnnualMeeting in 2004. There are other important revenue management conferences eachyear: AGIFORS1 sponsors an annual revenue management conference that attracts

close to 200 professionals, and IATA2 hosts an annual revenue management conference that draws even more attendees (approximately 800). A new journal, The Journal of Pricing and Revenue Management, has recently been launched, etc.

Objectives

This course provides a comprehensive introduction to both the theory and the prac-tice of revenue management and pricing. Fundamentally, revenue management is anapplied discipline; its value derives from the business results it achieves. At the sametime, it has strong elements of an applied science and the technical elements of thesubject deserve rigorous treatment. The plan of this course is to cover both thesepractice and theory elements.

The Role of Revenue Management in the Supply Chain

u Revenue management is the use of pricing to increase the profit generated from a limited supply of supply chain assets

u Supply assets exist in two forms: capacity and inventory

u Revenue management may also be defined as the use of differential pricing based on customer segment, time of use, and product or capacity availability to increase supply chain profits

u Most common example is probably in airline pricing

Conditions Under Which Revenue Management Has the Greatest Effect

u The value of the product varies in different market segments (Example: airline seats)

u The product is highly perishable or product waste occurs (Example: fashion and seasonal apparel)

u Demand has seasonal and other peaks (Example: products ordered at Amazon.com)

u The product is sold both in bulk and on the spot market (Example: owner of warehouse who can decide whether to lease the entire warehouse through long-term contracts or save a portion of the warehouse for use in the spot market)

Revenue Management for Multiple Customer Segments

u If a supplier serves multiple customer segments with a fixed asset, the supplier can improve revenues by setting different prices for each segment

u Prices must be set with barriers such that the segment willing to pay more is not able to pay the lower price

u The amount of the asset reserved for the higher price segment is such that the expected marginal revenue from the higher priced segment equals the price of the lower price segment

u pL = the price charged to the lower price segment

u pH = the price charged to the higher price segment

u DH = mean demand for the higher price segment

u sH = standard deviation of demand for the higher price segment

u CH = capacity reserved for the higher price segment

u RH(CH) = expected marginal revenue from reserving more capacity

u = Probability(demand from higher price segment > CH) x pH

u RH(CH) = pL

u Probability(demand from higher price segment > CH) = pL / pH

u CH = F-1(1- pL/pH, DH,sH) = NORMINV(1- pL/pH, DH,sH)

Revenue Management for Perishable Assets

u Any asset that loses value over time is perishable

u Examples: high-tech products such as computers and cell phones, high fashion apparel, underutilized capacity, fruits and vegetables

u Two basic approaches:

– Vary price over time to maximize expected revenue

– Overbook sales of the asset to account for cancellations

u Overbooking or overselling of a supply chain asset is valuable if order cancellations occur and the asset is perishable

u The level of overbooking is based on the trade-off between the cost of wasting the asset if too many cancellations lead to unused assets and the cost of arranging a backup if too few cancellations lead to committed orders being larger than the available capacity

u p = price at which each unit of the asset is sold

u c = cost of using or producing each unit of the asset

u b = cost per unit at which a backup can be used in the case of asset shortage

u Cw = p – c = marginal cost of wasted capacity

u Cs = b – c = marginal cost of a capacity shortage

u O* = optimal overbooking level

u s* = Probability(cancellations < O*) = Cw / (Cw + Cs)

u If the distribution of cancellations is known to be normal with mean mc and standard deviation sc then

u O* = F-1(s*, mc, sc) = NORMINV(s*, mc, sc)

u If the distribution of cancellations is known only as a function of the booking level (capacity L + overbooking O) to have a

mean of m(L+O) and std deviation of s(L+O), the optimal overbooking level is the solution to the following equation:

u O = F-1(s*,m(L+O),s(L+O))

u = NORMINV(s*,m(L+O),s(L+O))

Revenue Management for Seasonal Demand

u Seasonal peaks of demand are common in many supply chains

u Examples: Most retailers achieve a large portion of total annual demand in December (Amazon.com)

u Off-peak discounting can shift demand from peak to non-peak periods

u Charge higher price during peak periods and a lower price during off-peak periods

Revenue Management for Bulk and Spot Customers

u Most consumers of production, warehousing, and transportation assets in a supply chain face the problem of constructing a portfolio of long-term bulk contracts and short-term spot market contracts

u The basic decision is the size of the bulk contract

u The fundamental trade-off is between wasting a portion of the low-cost bulk contract and paying more for the asset on the spot market

u Given that both the spot market price and the purchaser’s need for the asset are uncertain, a decision tree approach as discussed in Chapter 6 should be used to evaluate the amount of long-term bulk contract to sign

u For the simple case where the spot market price is known but demand is uncertain, a formula can be used

u cB = bulk rate

u cS = spot market price

u Q* = optimal amount of the asset to be purchased in bulk

u p* = probability that the demand for the asset does not exceed Q*

u Marginal cost of purchasing another unit in bulk is cB. The expected marginal cost of not purchasing another unit in bulk and then purchasing it in the spot market is (1-p*)cS.

u If the optimal amount of the asset is purchased in bulk, the marginal cost of the bulk purchase should equal the expected marginal cost of the spot market purchase, or cB = (1-p*)cS

u Solving for p* yields p* = (cS – cB) / cS

u If demand is normal with mean m and std deviation s, the optimal amount Q* to be purchased in bulk is

u Q* = F-1(p*,m,s) = NORMINV(p*,m,s)

Using Revenue Management in Practice

u Evaluate your market carefully

u Quantify the benefits of revenue management

u Implement a forecasting process

u Apply optimization to obtain the revenue management decision

u Involve both sales and operations

u Understand and inform the customer

u Integrate supply planning with revenue management

YIELD MANAGEMENT

Yield management is the process of understanding, anticipating and influencing consumer behavior in

order to maximize yield or profits from a fixed, perishable resource (such as airline seats or hotel room

reservations).

As a specific, inventory-focused branch of Revenue Management, Yield Management involves strategic

control of inventory to sell it to the right customer at the right time for the right price. This process can

result in price discrimination, where a firm charges customers consuming otherwise identical goods or

services a different price for doing so. Yield management is a large revenue generator for several major

industries; Robert Crandall, former Chairman and CEO of American Airlines, gave Yield Management its

name and has called it "the single most important technical development in transportation management

since we entered deregulation."

There are three essential conditions for yield management to be applicable:

That there is a fixed amount of resources available for sale.

That the resources sold are perishable (there is a time limit to selling the resources, after which

they cease to be of value).

That different customers are willing to pay a different price for using the same amount of

resources.

Where and Why Firms Practice Yield Management

Business environments with the following five characteristics are appropriate for thepractice of yield management (in parentheses we apply each characteristic to the Hyatt

hotel):

1. It is expensive or impossible to store excess resource (we cannot store tonight’s roomfor use by tomorrow night’s customer).

2. Commitments need to be made when future demand is uncertain (we must set asiderooms for business customers – “protect” them from low-priced leisure travelers -before we know how many business customers will arrive).

3. The firm can discriminate among customer segments, and each segment has differentdemand curves (purchase restrictions and refundability requirements help to segmentthe market between leisure and business customers. The latter are more indifferent tothe price.).

4. The same unit of capacity can be used to deliver many different products or services(rooms are essentially the same, whether used by business or leisure travelers).

5. Producers are profit-oriented and have broad freedom of action (in the hotel industry,withholding rooms from current customers for future profit is not illegal or morallyirresponsible. On the other hand, such practices would be questionable in emergency

wards or with organ transplants).

Complications and Extensions

There are a wide variety of complications we face when implementing a yield

management system. Here we discuss a few of the more significant challenges.

Demand Forecasting

In the examples above, we used historical demand to predict future demand. In an actualapplication, we may use more elaborate models to generate demand forecasts that takeinto account a variety of predictable events, such as the day of the week, seasonality, andspecial events such as holidays. In some industries, such as retail clothing, greater weight is given to the most recent demand patterns since customer preferences change rapidly.Another natural problem that arises during demand forecasting is censored data, i.e.,company often does not record demand from customers who were denied a reservation.In our example in Sections 3-5 used a discrete, empirical distribution to determine theprotection level. A statistical forecasting model would generate a continuous distribution,such as a Normal or t distribution. Given a theoretical distribution and its parameters,such as the mean and variance, we would again place the protection level where the distribution has a cumulative probability equal to the critical fractile.

Variation and Mobility of Capacity

Up to now, we have assumed that all units of capacity are the same; in our Hyatt examplewe assumed that all 210 hotel rooms were identical. However, rooms often vary in sizeand amenities. Airlines usually offer coach and first-classes. Car rental firms offersubcompact, compact, and luxury cars. In addition, car rental firms have the opportunityto move capacity among locations to accommodate surges in demand, particularly when acentral office manages the regional allocation of cars. The EMSR framework describedabove can sometimes be adapted for these cases, but the calculations are much morecomplex. Solving such problems is an area of active research in the operationscommunity.

Customers in a Fare Class Are Nor All Alike

While two leisure travelers may be willing to pay the same price for a particular night’sstay, one may be staying for just one day while the other may occupy the room for a week.A business traveler on an airplane flight may book a ticket on just one leg or may becontinuing on multiple legs. Not selling a ticket to the latter passenger means that revenuefrom all flight legs will be lost.

OR

Yield management is the umbrella term for a set of strategies that enable capacity-constrained service industries to realize optimum revenue from operations. The core concept of yield management is to provide the right service to the right customer at the right time for the right price. That concept involves careful definition of service, customer, time, and price. The service can be defined according to the dimensions of the service, how and when it is delivered, and how, when, and whether it is reserved. Timing involves both the timing of the service delivery and the timing of when the customer makes known the desire for the service, whether by reservation or by walking in to the business. Price can be set according to the timing of the service, the timing of the reservation, the type of service, or according to other rules that seem appropriate. Finally, the customer can be defined according to

demand characteristics relating to the service, the timing, and the price. The ideal outcome of a revenue management strategy is to match customers' time and service characteristics to their willingness to pay-ensuring that the customer acquires the desired service at the desired time at an acceptable price, while the organization gains the maximum revenue possible given the customer and business characteristics. 

The strategic levers of yield management can be summarized as four Cs: namely, calendar, clock, capacity, and cost. They are bound together by a fifth C: the customer. The strategic levers of yield management are geared to matching service timing and pricing to customers' willingness to pay for service in relation to its timing. Based on customers' demand levels and characteristics, management can shift the demand of those customers who are relatively price sensitive but time insensitive to off-peak times. Shifting that demand clears prime times for customers who are relatively time sensitive but price insentive.

2. PLACE – SERVICE DISTRIBUTION

DISTRIBUTION OF SERVICES

Direct Delivery of Service 

Channels for services are often direct- from creator of the service directly to the customer

Services cannot be owned, there are no titles or rights to most services that can passed along a delivery channel

Inventories cannot exist, making warehousing a dispensable function

Delivery of Service through Intermediaries

Intermediaries may co-produce service, fulfilling service principals’ promises to customers.

e.g.: Franchise Services

They make service locally available

Provide time and place convenience for the customers

Provide retailing function for customers because they represent multiple service principals.

e.g.: travel agents

Primary types of intermediaries – Franchisees, Agents & Brokers, Electronic Channel

COMMON ISSUES INVOLVING INTERMEDIARIES

Conflict over objectives and performance Conflict over costs and rewards Control of service quality Empowerment versus control Channel ambiguity – lack of role clarity

DIRECT/ COMPANY OWNED CHANNELS

Benefits

Company has control over the outlets thus owner can maintain consistency in service provision Control over hiring, firing, and motivating employees Allow expansion or contraction of sites without being bounded by contractual agreements Owns the customer relationship

Challenges

Company must bear all financial risk

Large companies are rarely experts in local market. When adjustments are needed in business formats for different markets, they may be unaware of what these adjustments should be Service partnerships – they are very much like company owned channels except that they have multiple owners. e.g.: Jet & Kingfisher

Benefit: risk, resources and effort are shared

Disadvantage: control and returns gets distributed

FRANCHISING

Benefits for Franchisor

 Leveraged business format for greater expansion and revenues- increased revenues, market share, brand name recognition and economies of scale for Franchisors

Can maintain consistency in outlets across cultures and countries

Company can obtain connection to the (knowledge about) local markets

Franchisees must contribute their own capital for equipment and personnel, thereby bearing part of the financial risk of doing business.

Franchisees obtain an en established business format

They receive benefit of national or regional brand marketing expertise as well as established reputation

Minimized risk of starting a business

Challenges for Franchisor

Difficulty in maintaining and motivating franchisees

Highly publicized disputes and conflict

Inconsistent quality that may undermine the company’s image, reputation and brand name

Customer relationships are controlled by the franchisee rather than the franchisor

Encroachment – the opening of new units near existing ones without compensation to the existing franchisee

Disappointing profits and revenues

Lack of perceived control over operations

High fees

AGENTS & BROKERS

Benefits

Reduced selling and distribution costs – e.g.: if an airline needs to contact every potential traveler to promote its offerings, cost would be exorbitant

Intermediaries possess special skills and knowledge in their areas – e.g.: Passport Agent

Wide representation – they act as company representative in different areas

Knowledge of local markets – knowing the culture and taboos of a country is critical for successful selling

Customer choice – agents provide retailing service (assorted services of multiple service providers) for customers 

Challenges

Loss of control over pricing and other aspects of marketing

Representation of multiple service principals

ELECTRONIC CHANNELS

Benefits 

Consistent delivery for standardized services Low cost Customer convenience Wide distribution Customer choice and ability to customize Quick customer feedback

Challenges

Customers are active, not passive Lack of control of electronic environment Price competition

Inability to customize with highly standardized services Lack of consistency with customer involvement Requires changes in consumer behavior Security concerns Competition from widening geographies

STRATEGIES FOR EFFECTIVE SERVICE DELIVERY THROUGH NTERMEDIARIES

Control Strategies

create standards both for revenues and service performance, measures results, and compensates or rewards on basis of performance level

Empowerment Strategies

Service principal allows greater flexibility to intermediaries Help intermediary develop customer oriented service processes Provide needed support systems Develop intermediaries to deliver service quality Change to a cooperative management structure

Partnering strategies 

Partnering with intermediaries to learn together about end customers, set specifications, improve delivery, and communicate honestly Alignment of company and intermediary’s goals Consultation & Cooperation

OR

Product distribution (or place) is one of the four elements of the marketing mix. An organization or set

of organizations (go-betweens) involved in the process of making a product or service available for use or

consumption by a consumer or business user.

The other three parts of the marketing mix are product, pricing, and promotion.

The distribution channel

Distribution is also a very important component of Logistics & Supply chain management. Distribution in

supply chain management refers to the distribution of a good from one business to another. It can be

factory to supplier, supplier to retailer, or retailer to end customer. It is defined as a chain of

intermediaries, each passing the product down the chain to the next organization, before it finally reaches

the consumer or end-user. This process is known as the 'distribution chain' or the 'channel.' Each of the

elements in these chains will have their own specific needs, which the producer must take into account,

along with those of the all-important end-user.

Channels

A number of alternate 'channels' of distribution may be available:

Distributor, who sells to retailers,

Retailer (also called dealer or reseller), who sells to end customers

Advertisement typically used for consumption goods

Distribution channels may not be restricted to physical products alice from producer to consumer in

certain sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their

services (typically rooms) directly or through travel agents, tour operators, airlines, tourist boards,

centralized reservation systems, etc. process of transfer the products or services from Producer to

Customer or end user.

There have also been some innovations in the distribution of services. For example, there has been an

increase in franchising and in rental services - the latter offering anything from televisions through tools.

There has also been some evidence of service integration, with services linking together, particularly in

the travel and tourism sectors. For example, links now exist between airlines, hotels and car rental

services. In addition, there has been a significant increase in retail outlets for the service sector. Outlets

such as estate agencies and building society offices are crowding out traditional grocers from major

shopping areas.

Channel decisions

Channel Sales is nothing but a chain for to market a product through different sources.

Channel strategy

Gravity & Gravity

Push and Pull strategy

Product (or service)

Cost

Consumer location

Type of marketing channel

1. Intensive distribution - Where the majority of resellers stock the 'product' (with convenience

products, for example, and particularly the brand leaders in consumer goods markets) price

competition may be evident.

2. Selective distribution - This is the normal pattern (in both consumer and industrial markets) where

'suitable' resellers stock the product.

3. Exclusive distribution - Only specially selected resellers or authorized dealers (typically only one

per geographical area) are allowed to sell the 'product'.

Channel motivation

It is difficult enough to motivate direct employees to provide the necessary sales and service support.

Motivating the owners and employees of the independent organizations in a distribution chain requires

even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is

`incentive': the supplier offers a better margin, to tempt the owners in the channel to push the product

rather than its competitors; or a compensation is offered to the distributors' sales personnel, so that they

are tempted to push the product. Julian Dent defines this incentive as a Channel Value Proposition or

business case, with which the supplier sells the channel member on the commercial merits of doing

business together. He describes this as selling business models not products.

Monitoring and managing channels

In much the same way that the organization's own sales and distribution activities need to be monitored

and managed, so will those of the distribution chain.

In practice, many organizations use a mix of different channels; in particular, they may complement a

direct salesforce, calling on the larger accounts, with agents, covering the smaller customers and

prospects. These channels show marketing strategies of an organization. Effective management of

distribution channel requires making and implementing decision in these areas.

ROLE OF CUSTOMERS IN SERVICE DELIVERY

Customers’ Roles in Service Delivery

Objectives

Illustrate the importance of customers in successful service delivery

Enumerate the variety of roles that service customers play

o Productive resources

o Contributors to quality and satisfaction

o Competitors

Explain strategies for involving service customers effectively to increase both quality and

productivity

IMPORTANCE OF OTHER CUSTOMERS IN SERVICE DELIVERY

Other customers can detract from satisfaction

disruptive behaviors

causing delay

excessive crowding

incompatible needs

Other customers can enhance satisfaction

mere presence

socialization/friendships

roles: assistants, teachers, supporters

How Customers Widen Gap

Lack of understanding of their roles

Not being willing or able to perform their roles

No rewards for “good performance”

Interfering with other customers

Incompatible market segments

Customer Roles in Service Delivery

(1) Productive Resources (2) Contributors to Quality and Satisfaction (3) Competitors

CUSTOMERS AS PRODUCTIVE RESOURCES “PARTIAL EMPLOYEES”

o contributing effort, time, or other resources to the production process

customer inputs can affect organization’s productivity

key issue:

o Should customers’ roles be expanded? Reduced?

CUSTOMERS AS CONTRIBUTORS TO SERVICE QUALITY AND SATISFACTION

Customers can contribute to

o their own satisfaction with the service

by performing their role effectively

by working with the service provider

o the quality of the service they receive

by asking questions

by taking responsibility for their own satisfaction

by complaining when there is a service failure

CUSTOMERS AS COMPETITORS customers may “compete” with the service provider

“ internal exchange” vs. “external exchange”

internal/external decision often based on:

o expertise

o resources

o time

o economic rewards

o psychic rewards

o trust

o control

Technology Spotlight

Services Production Continuum

1. Customer pumps gas and pays at the pump with automation

2. Customer pumps gas and goes inside to pay attendant

3. Customer pumps gas and attendant takes payment at the pump

4. Attendant pumps gas and customer pays at the pump with automation

5. Attendant pumps gas and customer goes inside to pay attendant

6. Attendant pumps gas and attendant takes payment at the pump Customer Production Joint Production Firm Production

Strategies for Enhancing Customer Participation

Define customers’ jobs - helping himself - helping others - promoting the company 2. Individual differences: not everyone wants to participate

Strategies for Recruiting, Educating and Rewarding Customers 

1. Recruit the right customers 2. Educate and train customers to perform effectively 3. Reward customers for their contribution 4. Avoid negative outcomes of inappropriate customer participation Manage the Customer Mix

Importance of Customers in Service Delivery

Co-production

Levels of customer participation:

o low -

o moderate -

inputs:

o high -

customer

SELF-SERVICE TECHNOLOGIES

Self-Service Technologies (SSTs) are technological interfaces allowing customers to produce services independent of involvement of direct service employee. Self-Service technologies are replacing many face-to-face service interactions with the intention to make service transactions more accurate, convenient and faster.

Examples of SSTs

Automatic Teller machines (ATMs), Self pumping at gas stations, Self-ticket purchasing on the Internet and Self-check-out at hotels

The maxim of automated, self-service technologies goes something like this: Help others, help thyself. Whether it's an airline kiosk, employee-benefits intranet or Web-based customer support site, when users solve their own problems, big cost savings and greater efficiency follows for forward-thinking companies.

End user expectations

But when it comes to considering self-service applications, beware of inflated expectations, as well as a track record of some bungled attempts. Who, for example, hasn't been stuck in computerized telephone-based Interactive Voice Response (IVR) hell, hoping to talk with a live agent?And a complicated Web site can frustrate consumers, leading them to a competitor. In another study of self-service applications, Jupiter Research in New York noted that a large percentage of online customers surveyed could be turned off by a bad experience, never to return. Sophisticated end users are accustomed to graphical user interfaces and demand 24/7 customer service, driving the investment toward self-service.Power to the people

The ability to access and control information raises customer satisfaction, whether it's conducting a banking transaction, checking cellular minutes, ordering an on-demand movie or requesting time off. "Self-service empowers people to do things on their own," said Elizabeth Harrell, an analyst at Cambridge, Mass.-based Forrester Research Inc.

Shifting data management to the customer also lowers a company's overhead costs by reducing the number of customer service agents needed and allowing existing personnel to focus on higher-value activities, such as targeted marketing.

Self-service tools of the trade

The tools of self-service -- Web browsing, broadband, email response management services, intelligent search engines, IVR and Short Message Service (SMS) -- are often incremental IT investments that can be added to existing platforms. "Take advantage of the plumbing that you have built up over the last decade," said Allen Bonde, senior vice president, strategy and marketing, at eVergance.

Multiple layers of security technologies and intelligence are mandatory parts of such additions, he added, to protect critical information from threats.Self-service applications abound. Internal corporate functions include automated interfaces for human resources, payroll business processes and call dispatch requests for mobile field service teams. But it's companies that conduct outward-facing customer interactions -- including the banking, travel and retail industries -- that have embraced self-service technologies with particular gusto. "Self-service is better for companies with high-volume, low-complexity products and services," said Ian Jacobs, an analyst at Frost & Sullivan Inc. in Palo Alto, Calif. The classic example of self-service, of course, is the automated teller machine, which provides convenience to customers while lowering the cost of transactions or interactions.

Tailor to your needs

Is self-service the heavenly solution it appears to be? Only if you ignore the hype and tailor self-service technologies to work for your customers and your company, said Esteban Kolsky, an analyst at Stamford-Conn.-based Gartner Inc. When evaluating self-service technologies, companies need to consider all costs related to implementation, not simply development and deployment. Count on a long-term commitment to maintenance, and create a feedback system that tracks the self-service products customers use to resolve their issues, Kolsky added.

4.PROMOTION

Promotion is one of the four elements of marketing mix (product, price, promotion, distribution). It is the

communication link between sellers and buyers for the purpose of influencing, informing, or persuading a

potential buyer's purchasing decision.

The following are two types of promotion:

1. Above the line promotion : Promotion in mass media (e.g. TV, radio, newspapers,internet, mobile

phones, and, historically, illustrated songs) in which the advertiser pays an advertising agency to

place the advertisement

2. Below the line promotion : All other promotion. Much of this is intended to be subtle enough for

the consumer to be unaware that promotion is taking place. E.g.sponsorship, product

placement, testimonials, sales promotion, merchandising, direct mail, personal selling, public

relations, trade shows

The specification of five elements creates a promotional mix or promotional plan. These elements are

personal selling, advertising, sales promotion, direct marketing, and publicity. A promotional mix specifies

how much attention to pay to each of the five subcategories, and how much money to budget for each. A

promotional plan can have a wide range of objectives, including: sales increases, new product

acceptance, creation of brand equity, positioning, competitive retaliations, or creation of a corporate

image. Fundamentally, however there are three basic objectives of promotion. These are:

1. To present information to consumers as well as others

2. To increase demand

3. To differentiate a product.

5.ROLE OF MARKETING COMMUNICATION

Marketing communications (marcomm) extends well beyond the common items of public relations and advertising. Marketing communications encompasses all of the information that is put forth about a product, sometimes including internal information. Price lists, catalogs, promotional pieces, collateral material and a host of other types of marketing literature are all part of marketing communications and represent one of the most important aspects of the marketing of a product or service. Marketing communications are an integral part of the marketing mix, and although marcomm is most closely associated with promotion, it is dependent on (and can greatly affect) other areas of the marketing mix. This research considers the role of marketing communications within the marketing mix, how effective marketing communications are developed, and considers a particularly effective use of marketing communications

Marketing is the process of strategizing and implementing the ideology, pricing, promotion and distribution of a product or service and even ideas in order to cater to the needs, wants and objectives of the customer as well as the enterprise to which the specific product, service or idea belongs.

Basically marketing has four aspects, the sound combination of which is termed as the marketing mix or more precisely the four elements of the marketing mix are called the 4 P's of marketing that

consist of product, pricing, place (channels of distribution) and promotion. The last element of the marketing mix that is promotion is also termed as marketing communications. It is the element that actually becomes the source of introducing the product to the final consumer that intrigues the consumer towards the product and motivates him to enquire furthermore about its price and other vital feature. The role of marketing communications is very important as it is the basic source that edifies the consumer about the existence of the product on a general basis

OR

MARKETING COMMUNICATION

marketing communication functions within a marketing framework. Traditionally known as the promotional element of the four Ps of marketing (product, place, price, and promotion), the primary goal of marketing communication is to reach a defined audience to affect its behavior by informing, persuading, and reminding. Marketing communication acquires new customers for brands by building awareness and encouraging trial. Marketing communication also maintains a brand's current customer base by reinforcing their purchase behavior by providing additional information about the brand's benefits. A secondary goal of marketing communication is building and reinforcing relationships with customers, prospects, retailers, and other important stakeholders.

Successful marketing communication relies on a combination of options called the promotional mix. These options include advertising, sales promotion, public relations, direct marketing, and personal selling. The Internet has also become a powerful tool for reaching certain important audiences. The role each element takes in a marketing communication program relies in part on whether a company employs a push strategy or a pull strategy. A pull strategy relies more on consumer demand than personal selling for the product to travel from the manufacturer to the end user. The demand generated by advertising, public relations, and sales promotion "pulls" the good or service through the channels of distribution. A push strategy, on the other hand, emphasizes personal selling to push the product through these channels.

The Role of Communication in the Marketing Process

Marketing communication is a strategic part of the marketing process and not merely a single part thereof. Communication is the message that is relayed to the customer rather than the nuts and bolts of the technology that delivers it. Communicating with your customers enables you to deliver your message to them so that they will react to it.Communications Reaches the ConsumerConsumers are affected by the communication a brand has with them. This communication as well as the experience they have adds to the brand's value in the mind of the consumer and builds on their cognitive and emotional ties to a brand.Think of it this way: communication is the message that is delivered to the client; marketing is the means of getting it there. Therefore, communication is not just a part of the marketing mix but also should be integrated into your customer service process -- from the accounts payable department all the way through to your sales staff and even the CEO of your company. It is your message to the customer. The message you wish to communicate with them, your ethos and way of thinking.Knowing that communication is part of the marketing mix but also your entire company message, you need to think about what that madjadajkhaessage will be and think about it seriously. As an organization you should all be delivering the same message and the same ethos. There is little point being customer friendly and bending over backwards for them on the advertising if the salesperson is harsh and unmovable. There is no point giving guarantees as a salesperson that your customer service team is unable to deliver on

Marketing Communication Mix

A marketing communications mix is the same as a promotion mix and is just another term for promotion mix. There are five marketing communications to put into the mix: Advertising, Sales Promotion, Public Relations, Personal Selling, and Direct Marketing. This basically all boils down to a mix of promotional efforts to bring in sales and increase brand equity.

The elements of the marketing communications mix

The Marketing Communications Mix is the specific mix of advertising, personal selling, sales promotion, public relations, and direct marketing a company uses to pursue its advertising and marketing objectives.

Definitions:

Advertising - Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor.

Personal selling - Personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships.

Sales promotion - Short-term incentives to encourage the purchase or sale of a product or service.

Public relations - Building good relationships with the company’s various publics by obtaining favorable publicity, building up a good "corporate image", and handling or heading off unfavorable rumors, stories, and events.

Direct marketing - Direct communications with carefully targeted individual consumers to obtain an immediate response and cultivate lasting customer relationships.

Setting the Promotion Mix

When deciding how to properly utilize the marketing communications mix to meet your marketing objectives, it is important to consider the relative strengths and weaknesses of each component of the mix. Further, you must always define your total budget first (generally defined in the Marketing and/or Business Plan) and then decide upon the best way to leverage the different elements of the mix to maximize the return on your investment. You will balance the various parts of the mix to not only create an integrated approach to your marketing communications but you must also devote enough resources for each component to be successful.

Here are some things to keep in mind:

 Reaches large, geographically dispersed audiences, often with high frequency; Low cost per exposure, though overall costs are high; Consumers perceive advertised goods as more legitimate; Dramatizes company/brand; Builds brand image; may stimulate short-term sales; Impersonal, one-way communication; Expensive

 Most effective tool for building buyers’ preferences, convictions, and actions; Personal interaction allows for feedback and adjustments; Relationship-oriented; Buyers are more attentive; Sales force represents a long-term commitment; Most expensive of the promotional tools

 May be targeted at the trade or ultimate consumer; Makes use of a variety of formats: premiums, coupons, contests, etc.; Attracts attention, offers strong purchase incentives, dramatizes offers, boosts sagging sales; Stimulates quick response; Short-lived; Not effective at building long-term brand preferences

 Highly credible; Very believable; Many forms: news stories, news features, events and sponsorships, etc.; Reaches many prospects missed via other forms of promotion; Dramatizes company or product; Often the most under used element in the promotional mix; Relatively inexpensive (certainly not 'free' as many people think--there are costs involved)

 Many forms: Telephone marketing, direct mail, online marketing, etc.; Four distinctive characteristics: Nonpublic, Immediate, Customized, Interactive; Well-suited to highly-targeted marketing efforts

When deciding upon your unique marketing communications mix, you should also consider the Product Life Cycle. Here are some general guideline as to how and when to emphasize different parts of the mix according to the stages of a typical product life cycle:

Product Life Cycle

Pre-Introduction: Light advertising, pre-introduction publicity

Introduction: Heavy use of advertising, public relations for awareness, sales promotion for trial

Growth: Advertising, public relations, branding and brand marketing, personal selling for distribution

Maturity: Advertising decreases, sales promotion, personal selling, reminder & persuasion

Decline: Advertising and public relations decrease, limited sales promotion, personal selling for distribution

Next let's briefly walk through each of the various parts of the marketing communications mix

THE MARKETING COMMUNICATIONS MIX.

Personal Selling.

Sales Promotion.

Public Relations (and publicity).

Direct Marketing.

Trade Fairs and Exhibitions.

Advertising (above and below the line).

Sponsorship.

Packaging.

Merchandising (and point-of-sale).

EMarketing (and Internet promotions).

Brands.

Integrated marketing communications see the elements of the communications mix 'integrated' into a coherent whole.

This is known as the marketing communications mix, and forms the basis of a marketing communications campaign.

INTEGRATED Services MARKETING COMMUNICATION

Components

The Foundation - corporate image and brand management; buyer behavior; promotions

opportunity analysis.

Advertising Tools - advertising management, advertising design: theoretical frameworks

and types of appeals; advertising design: message strategies and executional frameworks; advertising media selection. Advertising also reinforces brand and firm image.[3]

Promotional Tools - trade promotions; consumer promotions; personal selling, database

marketing, and customer relations management; public relations and sponsorship programs.

Integration Tools - Internet Marketing; IMC for small business and entrepreneurial

ventures; evaluating and integrated marketing program

IMPORTANCE OF IMC

Several shifts in the advertising and media industry have caused IMC to develop into a primary strategy for marketers:

1. From media advertising to multiple forms of communication.2. From mass media to more specialized (niche) media, which are centered on specific

target audiences?

3. From a manufacturer-dominated market to a retailer-dominated, consumer-controlled market.

4. From general-focus advertising and marketing to data-based marketing.

5. From low agency accountability to greater agency accountability, particularly in advertising.

6. From traditional compensation to performance-based compensation (increased sales or benefits to the company).

7. From limited Internet access to 24/7 Internet availability and access to goods and services.

OR

The evolution of this new perspective has two origins. Marketers began to

realize that advertising, public relations, and sales were often at odds

regarding responsibilities, budgets, management input and myriad other

decisions affecting the successful marketing of a brand. Executives in each

area competed with the others for resources and a voice in decision making.

The outcome was inconsistent promotional efforts, wasted money,

counterproductive management decisions, and, perhaps worst of all,

confusion among consumers.

Secondly, the marketing perspective itself began to shift from being market

oriented to market driven. Marketing communication was traditionally

viewed as an inside-out way of presenting the company's messages.

Advertising was the dominant element in the promotional mix because the

mass media could effectively deliver a sales message to a mass audience.

But then the mass market began to fragment. Consumers became better

educated and more skeptical about advertising. A variety of sources, both

controlled by the marketer and uncontrolled, became important to

consumers. News reports, word-of-mouth, experts' opinions, and financial

reports were just some of the "brand contacts" consumers began to use to

learn about and form attitudes and opinions about a brand or company, or

make purchase decisions. Advertising began to lose some of its luster in

terms of its ability to deliver huge homogeneous audiences. Companies

began to seek new ways to coordinate the multiplicity of product and

company messages being issued and used by consumers and others.

Thus, two ideas permeate integrated marketing communication:

relationship building and synergy. Rather than the traditional inside-out

view, IMC is seen as an outside-in perspective. Customers are viewed not as

targets but as partners in an ongoing relationship. Customers, prospects,

and others encounter the brand and company through a host of sources and

create from these various contacts ideas about the brand and company. By

knowing the media habits and lifestyles of important consumer segments,

marketers can tailor messages through media that are most likely to reach

these segments at times when these segments are most likely to be

receptive to these messages, thus optimizing the marketing communication

effort.

Ideally, IMC is implemented by developing comprehensive databases on

customers and prospects, segmenting these current and potential

customers into groups with certain common awareness levels,

predispositions, and behaviors, and developing messages and media

strategies that guide the communication tactics to meet marketing

objectives. In doing this, IMC builds and reinforces mutually profitable

relationships with customers and other important stakeholders and

generates synergy by coordinating all elements in the promotional mix into

a program that possesses clarity, consistency, and maximum impact.

Practitioners and academics alike, however, have noted the difficulty of

effectively implementing IMC. Defining exactly what IMC is has been

difficult. For example, merely coordinating messages so that speaking "with

one clear voice" in all promotional efforts does not fully capture the

meaning of IMC. Also, changing the organization to accommodate the

integrated approach has challenged the command and control structure of

many organizations. However, studies suggest that IMC is viewed by a vast

majority of marketing executives as having the greatest potential impact on

their company's marketing strategies, more so than the economy, pricing,

and globalization.

ADVERTISING

Advertising has four characteristics: it is persuasive in nature; it is non-

personal; it is paid for by an identified sponsor; and it is disseminated

through mass channels of communication. Advertising messages may

promote the adoption of goods, services, persons, or ideas. Because the

sales message is disseminated through the mass media—as opposed to

personal selling—it is viewed as a much cheaper way of reaching

consumers. However, its non-personal nature means it lacks the ability to

tailor the sales message to the message recipient and, more importantly,

actually get the sale. Therefore, advertising effects are best measured in

terms of increasing awareness and changing attitudes and opinions, not

creating sales. Advertising's contribution to sales is difficult to isolate

because many factors influence sales. The contribution advertising makes to

sales are best viewed over the long run. The exception to this thinking is

within the internet arena. While banner ads, pop-ups and interstitials should

still be viewed as brand promoting and not necessarily sales drivers,

technology provides the ability to track how many of a website's visitors

click the banner, investigate a product, request more information, and

ultimately make a purchase.

Through the use of symbols and images advertising can help differentiate

products and services that are otherwise similar. Advertising also helps

create and maintain brand equity. Brand equity is an intangible asset that

results from a favorable image, impressions of differentiation, or consumer

attachment to the company, brand, or trademark. This equity translates into

greater sales volume, and/or higher margins, thus greater competitive

advantage. Brand equity is established and maintained through advertising

that focuses on image, product attributes, service, or other features of the

company and its products or services.

Cost is the greatest disadvantage of advertising. The average cost for a 30-

second spot on network television increased fivefold between 1980 and

2005. Plus, the average cost of producing a 30-second ad for network

television is quite expensive. It is not uncommon for a national advertiser to

spend in the millions of dollars for one 30-second commercial to be

produced. Add more millions on top of that if celebrity talent is utilized.

Credibility and clutter are other disadvantages. Consumers have become

increasingly skeptical about advertising messages and tend to resent

advertisers' attempt to persuade. Advertising is everywhere, from network

television, to daily newspapers, to roadside billboards, to golf course signs,

to stickers on fruit in grocery stores. Clutter encourages consumers to

ignore many advertising messages. New media are emerging, such as DVRs

(digital video recorders) which allow consumers to record programs and

then skip commercials, and satellite radio which provides a majority of its

channels advertising free.

PUBLIC RELATIONS

Public relations is defined as a management function which identifies,

establishes, and maintains mutually beneficial relationships between an

organization and the publics upon which its success or failure depends.

Whereas advertising is a one-way communication from sender (the

marketer) to the receiver (the consumer or the retail trade), public relations

considers multiple audiences (consumers, employees, suppliers, vendors,

etc.) and uses two-way communication to monitor feedback and adjust both

its message and the organization's actions for maximum benefit. A primary

tool used by public relations practitioners is publicity. Publicity capitalizes

on the news value of a product, service, idea, person or event so that the

information can be disseminated through the news media. This third party

"endorsement" by the news media provides a vital boost to the marketing

communication message: credibility. Articles in the media are perceived as

being more objective than advertisements, and their messages are more

likely to be absorbed and believed. For example, after the CBS

newsmagazine 60 Minutes reported in the early 1990s that drinking

moderate amounts of red wine could prevent heart attacks by lowering

cholesterol, red wine sales in the United States increased 50 percent.

Another benefit publicity offers is that it is free, not considering the great

amount of effort it can require to get out-bound publicity noticed and picked

up by media sources.

Public relations' role in the promotional mix is becoming more important

because of what Philip Kotler describes as an "over communicated society."

Consumers develop "communication-avoidance routines" where they are

likely to tune out commercial messages. As advertising loses some of its

cost-effectiveness, marketers are turning to news coverage, events, and

community programs to help disseminate their product and company

messages. Some consumers may also base their purchase decisions on the

image of the company, for example, how environmentally responsible the

company is. In this regard, public relations plays an important role in

presenting, through news reports, sponsorships, "advertorials" (a form of

advertising that instead of selling a product or service promotes the

company's views regarding current issues), and other forms of

communication, what the company stands for.

DIRECT MARKETING AND  DATABASE MARKETING

DIRECT MARKETING.

Direct marketing, the oldest form of marketing, is the process of

communicating directly with target customers to encourage response by

telephone, mail, electronic means, or personal visit. Users of direct

marketing include retailers, wholesalers, manufacturers, and service

providers, and they use a variety of methods including direct mail,

telemarketing, direct-response advertising, and online computer shopping

services, cable shopping networks, and infomercials. Traditionally not

viewed as an element in the promotional mix, direct marketing represents

one of the most profound changes in marketing and promotion in the last 25

years. Aspects of direct marketing, which includes direct response

advertising and direct mail advertising as well as the various research and

support activities necessary for their implementation, have been adopted by

virtually all companies engaged in marketing products, services, ideas, or

persons.

Direct marketing has become an important part of many marketing

communication programs for three reasons. First, the number of two-

income households has increased dramatically. About six in every ten

women in the United States work outside the home. This has reduced the

amount of time families have for shopping trips. Secondly, more shoppers

than ever before rely on credit cards for payment of goods and services.

These cashless transactions make products easier and faster to purchase.

Finally, technological advances in telecommunications and computers allow

consumers to make purchases from their homes via telephone, television, or

computer with ease and safety. These three factors have dramatically

altered the purchasing habits of American consumers and made direct

marketing a growing field worldwide.

Direct marketing allows a company to target more precisely a segment of

customers and prospects with a sales message tailored to their specific

needs and characteristics. Unlike advertising and public relations, whose

connections to actual sales are tenuous or nebulous at best, direct

marketing offers accountability by providing tangible results. The

economics of direct marketing have also improved over the years as more

information is gathered about customers and prospects. By identifying those

consumers they can serve more effectively and profitably, companies may

be more efficient in their marketing efforts. Whereas network television in

the past offered opportunities to reach huge groups of consumers at a low

cost per thousand, direct marketing can reach individual consumers and

develop a relationship with each of them.

Research indicates that brands with strong brand equity are more

successful in direct marketing efforts than little-known brands. Direct

marketing, then, works best when other marketing communication such as

traditional media advertising supports the direct marketing effort.

Direct marketing has its drawbacks also. Just as consumers built resistance

to the persuasive nature of advertising, so have they with direct marketing

efforts. Direct marketers have responded by being less sales oriented and

more relationship oriented. Also, just as consumers grew weary of

advertising clutter, so have they with the direct marketing efforts.

Consumers are bombarded with mail, infomercials, and telemarketing

pitches daily. Some direct marketers have responded by regarding privacy

as a customer service benefit. Direct marketers must also overcome

consumer mistrust of direct marketing efforts due to incidents of illegal

behavior by companies and individuals using direct marketing. The U.S.

Postal Service, the Federal Trade Commission, and other federal and state

agencies may prosecute criminal acts. The industry then risks legislation

regulating the behavior of direct marketers if it is not successful in self-

regulation. The Direct Marketing Association, the leading trade

organization for direct marketing, works with companies and government

agencies to initiate self-regulation. In March of 2003 the National Do Not

Call Registry went into affect whereby consumers added their names to a

list that telemarketers had to eliminate from their out-bound call database.

DATABASE MARKETING.

Database marketing is a form of direct marketing that attempts to gain and

reinforce sales transactions while at the same time being customer driven.

Successful database marketing continually updates lists of prospects and

customers by identifying who they are, what they are like, and what they

are purchasing now or may be purchasing in the future. By using database

marketing, marketers can develop products and/or product packages to

meet their customers' needs or develop creative and media strategies that

match their tastes, values, and lifestyles. Like IMC, database marketing is

viewed by many marketers as supplanting traditional marketing strategies

and is a major component of most IMC programs.

At the core of database marketing is the idea that market segments are

constantly shifting and changing. People who may be considered current

customers, potential customers, and former customers and people who are

likely never to be customers are constantly changing. By identifying these

various segments and developing a working knowledge of their wants,

needs, and characteristics, marketers can reduce the cost of reaching non-

prospects and build customer loyalty. Perhaps the most important role of

database marketing is its ability to retain customers. The cumulative profit

for a five-year loyal customer is between seven and eight times the first-year

profit.

Since database marketing is expensive to develop and complex to

implement effectively, companies considering database marketing should

consider three important questions. First, do relatively frequent purchasers

or high dollar volume purchasers for the brand exist? Secondly, is the

market diverse enough so that segmenting into subgroups would be

beneficial? Finally, are there customers that represent opportunities for

higher volume purchases?

SALES PROMOTION/SPONSORSHIPS/ EXHIBITIONS

SALES PROMOTION.

Sales promotions are direct inducements that offer extra incentives to

enhance or accelerate the product's movement from producer to consumer.

Sales promotions may be directed at the consumer or the trade. Consumer

promotions such as coupons, sampling, premiums, sweepstakes, price packs

(packs that offer greater quantity or lower cost than normal), low-cost

financing deals, and rebates are purchase incentives in that they induce

product trial and encourage repurchase. Consumer promotions may also

include incentives to visit a retail establishment or request additional

information. Trade promotions include slotting allowances ("buying" shelf

space in retail stores), allowances for featuring the brand in retail

advertising, display and merchandising allowances, buying allowances

(volume discounts and other volume-oriented incentives), bill back

allowances (pay-for-performance incentives), incentives to salespeople, and

other tactics to encourage retailers to carry the item and to push the brand.

Two perspectives may be found among marketers regarding sales

promotion. First, sales promotion is supplemental to advertising in that it

binds the role of advertising with personal selling. This view regards sales

promotion as a minor player in the marketing communication program. A

second view regards sales promotion and advertising as distinct functions

with objectives and strategies very different from each other. Sales

promotion in this sense is equal to or even more important than advertising.

Some companies allocate as much as 75 percent of their

advertising/promotion dollars to sales promotion and just 25 percent to

advertising. Finding the right balance is often a difficult task. The main

purpose of sales promotion is to spur action. Advertising sets up the deal by

developing a brand reputation and building market value. Sales promotion

helps close the deal by providing incentives that build market volume.

Sales promotions can motivate customers to select a particular brand,

especially when brands appear to be equal, and they can produce more

immediate and measurable results than advertising. However, too heavy a

reliance on sales promotions results in "deal-prone" consumers with little

brand loyalty and too much price sensitivity. Sales promotions can also

force competitors to offer similar inducements, with sales and profits

suffering for everyone.

SPONSORSHIPS.

Sponsorships, or event marketing, combine advertising and sales

promotions with public relations. Sponsorships increase awareness of a

company or product, build loyalty with a specific target audience, help

differentiate a product from its competitors, provide merchandising

opportunities, demonstrate commitment to a community or ethnic group, or

impact the bottom line. Like advertising, sponsorships are initiated to build

long-term associations. Organizations sometimes compare sponsorships

with advertising by using gross impressions or cost-per-thousand

measurements. However, the value of sponsorships can be very difficult to

measure. Companies considering sponsorships should consider the short-

term public relations value of sponsorships and the long-term goals of the

organization. Sports sponsorships make up about two-thirds of all

sponsorships.

EXHIBITS.

Exhibits, or trade shows, are hybrid forms of promotion between business-

to-business advertising and personal selling. Trade shows provide

opportunities for face-to-face contact with prospects, enable new companies

to create a viable customer base in a short period of time, and allow small

and midsize companies that may not be visited on a regular basis by

salespeople to become familiar with suppliers and vendors. Because many

trade shows generate media attention, they have also become popular

venues for introducing new products and providing a stage for executives to

gain visibility.

PERSONAL SELLING

Personal selling includes all person-to-person contact with customers with

the purpose of introducing the product to the customer, convincing him or

her of the product's value, and closing the sale. The role of personal selling

varies from organization to organization, depending on the nature and size

of the company, the industry, and the products or services it is marketing.

Many marketing executives realize that both sales and non-sales employees

act as salespeople for their organization in one way or another. One study

that perhaps supports this contention found that marketing executives

predicted greater emphasis being placed on sales management and

personal selling in their organization than on any other promotional mix

element. These organizations have launched training sessions that show

employees how they act as salespeople for the organization and how they

can improve their interpersonal skills with clients, customers, and

prospects. Employee reward programs now reward employees for their

efforts in this regard.

Personal selling is the most effective way to make a sale because of the

interpersonal communication between the salesperson and the prospect.

Messages can be tailored to particular situations, immediate feedback can

be processed, and message strategies can be changed to accommodate the

feedback. However, personal selling is the most expensive way to make a

sale, with the average cost per sales call ranging from $235 to $332 and the

average number of sales calls needed to close a deal being between three

and six personal calls.

Sales and marketing management classifies salespersons into one of three

groups: creative selling, order taking, and missionary sales reps. Creative

selling jobs require the most skills and preparation. They are the "point

person" for the sales function. They prospect for customers, analyze

situations, determine how their company can satisfy wants and needs of

prospects, and, most importantly, get an order. Order takers take over after

the initial order is received. They handle repeat purchases (straight rebuys)

and modified rebuys. Missionary sales reps service accounts by introducing

new products, promotions, and other programs. Orders are taken by order

takers or by distributors.

INTERNET MARKETING

Just as direct marketing has become a prominent player in the promotional

mix, so too has the Internet. Virtually unheard of in the 1980s, the 1990s

saw this new medium explode onto the scene, being adopted by families,

businesses and other organizations more quickly than any other medium in

history. Web sites provide a new way of transmitting information,

entertainment, and advertising, and have generated a new dimension in

marketing: electronic commerce. E-commerce is the term used to describe

the act of selling goods and services over the Internet. In other words, the

Internet has become more that a communication channel; it is a marketing

channel itself with companies such as Amazon.com, CDNow, eBay, and

others selling goods via the Internet to individuals around the globe. In less

than 10 years advertising expenditures on the Internet will rival those for

radio and outdoor. Public relations practitioners realize the value that web

sites offer in establishing and maintaining relationships with important

publics. For example, company and product information can be posted on

the company's site for news reporters researching stories and for current

and potential customers seeking information. Political candidates have web

sites that provide information about their background and their political

experience.

The interactivity of the Internet is perhaps its greatest asset. By

communicating with customers, prospects, and others one-on-one, firms can

build databases that help them meet specific needs of individuals, thus

building a loyal customer base. Because the cost of entry is negligible, the

Internet is cluttered with web sites. However, this clutter does not present

the same kind of problem that advertising clutter does. Advertising and

most other forms of promotion assume a passive audience that will be

exposed to marketing communication messages via the mass media or mail

regardless of their receptivity. Web sites require audiences who are active

in the information-seeking process to purposely visit the site. Therefore, the

quality and freshness of content is vital for the success of the web site.

THE FUTURE OF MARKETING COMMUNICATION

Marketing communication has become an integral part of the social and

economic system in the United States. Consumers rely on the information

from marketing communication to make wise purchase decisions.

Businesses, ranging from multinational corporations to small retailers,

depend on marketing communication to sell their goods and services.

Marketing communication has also become an important player in the life of

a business. Marketing communication helps move products, services, and

ideas from manufacturers to end users and builds and maintains

relationships with customers, prospects, and other important stakeholders

in the company. Advertising and sales promotion will continue to play

important roles in marketing communication mix. However, marketing

strategies that stress relationship building in addition to producing sales

will force marketers to consider all the elements in the marketing

communication mix. In the future new information gathering techniques will

help marketers target more precisely customers and prospects using direct

marketing strategies. New media technologies will provide businesses and

consumers new ways to establish and reinforce relationships that are

important for the success of the firm and important for consumers as they

make purchase decisions. The Internet will become a major force in how

organizations communicate with a variety of constituents, customers,

clients, and other interested parties.

DEFINING INTEGRATED MARKETING COMMUNICATION

Integrated Marketing Communication means different things depending on who you ask. Marketing guru Philip Kotler defined IMC as, "the concept under which a company carefully integrates and coordinates its many communications channels to deliver a clear, consistent message".

This concept is expanded on in the 4Cs of IMC which define how various Marketing Communication Mix tools should be coordinated in the following ways:

Coherence

Do your various marketing communications make sense together as a whole? Each message within your Marketing Communication Mix should be part of the "bigger picture" in how it relates to other messages and your core sales and marketing theme.

Consistency

Are your various marketing communications saying the same thing? The messages your customers receive through your various promotional efforts should not be contradictory and should all repeat your core sales and marketing theme.

Continuity

How does your marketing message change over time? As well as coordinating communication tools and messages to be consistent, thought must be given to how the message you convey evolves through various stages in the sales cycle.

Complementary

How do the sum of the parts of your communication effort come together? The beauty of a well-managed Integrated Marketing Communication effort is when the complementary synergy you create overall exceeds any one effort.

OR Integrated Services Marketing Communications

One major reason that customers may perceive service poorly is the difference between what a firm promises and what it actually delivers.

Controllable factors such as company advertising, personal selling, and the promises made by service employees are important influences on customer expectations.

The Need for Coordination in Marketing Communication

The services marketing triangle emphasizes how the customer is the target of two types of communications:

1. External Marketing – Includes advertising, sales promotion and personal selling.

2. Interactive Marketing – Involves the messages that employees give to customers through channels such as personal selling, customer service interactions, service encounters and servicescapes.

Communications and the Services Marketing Triangle

Service firms must ensure that interactive messages are consistent among themselves, as well as with the messages sent through external marketing.

In order to ensure that these messages are consistent, internal marketing communications must be managed.

This involves ensuring that the information sent from the company to its employees is accurate, complete, and consistent with the messages presented to customers.

Recently, more and more companies are adopting what is known as integrated marketing communications (IMC).

IMC is accomplished by integrating and organizing all of a company’s external communications channels.

Where service firms are involved, both external communications and interactive communication channels must be integrated in order to create consistent service promises.

Approaches for Integrating Services Marketing Communication

1. Manage customer expectations

2. Improve customer education

3. Manage service promises

4. Manage internal marketing communication

Key Reasons for Service Communication Challenges

When differences exist between service delivery and external communications, consumer perceptions of service quality can be powerfully affected.

Four main factors that contribute to these communication problems include:

• 1. Inadequate management of service promises

• 2. Elevated customer expectations

• 3. Insufficient customer education

• 4. Inadequate internal communications

Inadequate Management of Service Promises

A discrepancy between service delivery and promises occurs when companies fail to manage service promises – the vows made by salespeople, advertising, and service personnel.

One main reason for this discrepancy is that the company lacks the integration needed to make promises that can be fulfilled.

For example, due to demand and supply fluctuations the service may be possible at one time, but cannot be completed at another time.

Inadequate Management of Customer Expectations

Appropriate and accurate communication about services is the responsibility of two functional departments: marketing and operations.

It is the responsibility of marketing to accurately reflect what happens in service encounters.

It is the responsibility of operations to deliver what is promised in communications.

• Problems arise if advertising, personal selling or other external communications set up unrealistic expectations – actual encounters are likely to disappoint customers.

Inadequate Customer Education

If customers are unclear or confused about how service will be provided, what their role in delivery of the service involves, and how to evaluate unfamiliar services, they will be disappointed.

When customers are disappointed, they will likely blame the service provider rather than themselves.

Inadequate Internal Marketing Communications It is important to coordinate multiple functions within the service organization, so that service

goals may be achieved.

Because service advertising and personal selling promises what people do, horizontal communication (communication across functions) is critical.

If internal communication is poor, customer perceptions of service quality may be affected.

For example, if advertising and other promises are developed without consulting operations, service employees may not be able to deliver service that matches the image portrayed in external communications.

Four Categories of Strategies to Match Service Promises with Delivery

showed four categories of strategies to match service delivery with promises:

1. Manage service promises

2. Manage customer expectations

3. Improve customer education

4. Manage internal marketing communication

Manage Service Promises

In services, sales and marketing departments make promises about what other employees in the organization will do.

Because what employees do cannot be standardized, it is important to coordinate and manage promises.

Figure 16.3 below shows several approaches for managing service promises

1. Approaches for Managing Service Promises

1. Create effective services communications

2. Coordinate external communication

3. Make realistic promises

4. Offer service guarantees

2. Approaches for Managing Customer Expectations

1. Offer Choices

2. Create Tiered-Value Offerings

3 Communicate Criteria for Service Effectiveness

4. Negotiate Unrealistic Expectations

3. Approaches for Improving Customer Education

1. Teach Customers to Avoid Peak Demand Periods and Seek Slow Periods

2. Clarify Expectations after the Sale

3. Confirm Performance to Standards

4. Prepare Customers for the Service Process

4. Approaches for Managing Internal Marketing Communications

1. Create Cross-Functional Teams2. Align Back Office Personnel w/ External Customers3. Create Effective Horizontal Communications4. Create Effective Vertical Communications

ORCommunications and the Services Marketing Triangle

Integrated Services Communications

Integrated Services Communications

a strategy that carefully integrates all external and internal communication channels to present a consistent message to customers

This means coordination across:

sales and service people

print

Internet

other forms of tangible communication including the servicescape

How is this done in services?

advertising

sales presentations

service encounters with employees

servicescape and other tangibles

Internet and web presence

public relations

pricing

service guarantees

customer education

Five Major Approaches to Overcome Service Communication Channels

Approaches for Addressing Service Intangibility

Use narrative to demonstrate the service experience

Present vivid information

Use interactive imagery

Focus on the tangibles

Use brand icons to make the service tangible

Use association, physical representation, documentation, and visualization

Feature service employees in communication

Use buzz or viral marketing

Leverage social media

Aim messages to influencers

Create advertising that generates talk because it is humorous, compelling, or unique

Feature satisfied customers in the communication

Generate word-of-mouth through employee relationships

Services Advertising Strategies Matched with Properties of Intangibility

Approaches for Managing Service Promises

Create a strong service brand

Coordinate external communication

Service Branding Model

Approaches for Managing Customer Expectations

Make realistic promises

Offer service guarantees

Offer choices

Create tiered-value service offerings

Communicate the criteria and levels of service effectiveness

Approaches for Managing Customer Education

Prepare customers for the service process

Confirm performance to standards and expectations

Clarify expectations after the sale

Teach customers to avoid peak demand periods and to seek slow demand periods

Approaches for Managing Internal Marketing Communication

Create effective vertical communications

Sell the brand inside the company

Create effective upward communication

Create effective horizontal communications

Align back-office and support personnel with external customers through interaction or measurement

Create cross-functional teams of sales, service, and operations people when developing new services or engaging in service improvements

Maintain a customer focus throughout all functions

……………………………………………………………………………………………………………………………………………………………….

MODULE 3. EXPANDED MARKETING MIX:

1. PEOPLE – EMPLOYEES’ ROLE IN SERVICE DELIVERY

 

The Critical Importance of Service Employees

Key focus on customer contact service employees because:

They are the service They are the organization in customer’s eye They are the brand They are the marketers

Their importance is evident in:

The Services Marketing Mix (People) The Service-Profit Chain The Services Triangle

The Service Triangle

External Marketing: includes anything or anyone that communicates to the

customer before service delivery

Interactive Marketing: it’s the real time marketing were promises are kept

Internal Marketing: management aids the providers in their ability to deliver the

service promise- recruiting, training, motivating, rewarding, and providing equipment & technology

Ways to Use the Services Marketing Triangle

Overall Strategic Assessment

How is the service organization doing on all three sides of the triangle? Where are the weaknesses? What are the strengths?

Specific Service Implementation

What is being promoted and by whom? How will it be delivered and by whom? Are the supporting systems in place to deliver the promised service?

Objectives This chapter’s objectives are to:

1. Show the importance of creating a service culture in which providing excellent service to all customers is paramount.

2. Illustrate the important role of service employees in creating customer satisfaction and service quality.

3. Identify challenges in boundary-spanning roles. 4. Provide examples of strategies for creating customer-oriented service delivery

through a variety of ways.

Service Culture It has been suggested that a customer-oriented, service-oriented organization will have at its

heart a service culture. A service culture exists when:

There is an appreciation for good service.

Good service is given to internal as well as external customers.

Good service comes naturally, and is an important norm of the organization.

The Critical Importance of Service Employees

Front-line employees and those supporting them are critical to the success of any service organization because:

They are the service.

In the customer’s eyes, they are the organization.

They are the brand.

They are marketers.

The Services Triangle

The triangle shows three interlinked groups that work together to develop, promote and deliver services. These key players are labelled on the points of the triangle:

The company (management)

The customers

The providers (employees, or those who actually deliver the service)

The sides of the services triangle are labelled:

External marketing – External marketing efforts set up its customers’ expectations prior to service delivery.

Interactive marketing – This is where promises are kept or broken by a firm’s employees or agents.

Internal marketing – Management engages in internal marketing activities to help providers deliver on the service promise. They accomplish this through recruiting, training, motivating, rewarding and providing equipment and technology.

Employee Satisfaction, Customer Satisfaction, and Profits

Satisfied employees can make for satisfied customers.

The service profit chain suggests that there are critical linkages among internal service quality; employee satisfaction/productivity; the value of services provided to the customer; and ultimately customer satisfaction, retention and profits

The Effect of Employee Behaviours on Service Quality Dimensions

Reliability – Delivering the service as promised is often totally within the control of front-line employees.

Responsiveness – Front-line employees directly influence customer perceptions of responsiveness through their willingness to help and promptness in serving customers.

Assurance – This is highly dependent on employees’ ability to communicate and inspire trust and confidence.

Empathy – Employees will pay attention, listen, adapt and be flexible in delivering what customers need.

Tangibles – Employee appearance and dress are important aspects of this dimension of service quality.

Boundary-Spanning Roles

Front-line service employees are referred to as “boundary-spanners” because they operate at the organization’s boundary.

They provide a link between the external customer and the internal operations of the organization.

Boundary-spanning positions require:

Emotional labour

Ability to handle interpersonal and inter-organizational conflict

Ability to make trade-offs between quality and productivity

Emotional Labour

Emotional labour refers to “the labour that goes beyond the physical or mental skills needed to deliver quality service.”

Friendliness, courtesy, empathy and responsiveness directed towards customers all require huge amount of emotional labour.

For example, a front-line service employee who is having a bad day is still expected to put on the face of the organization when dealing with customers.

Boundary-Spanning Workers Juggle Many Issues

Person versus role

Organization versus client

Client versus client

Sources of Conflict

Front-line employees are expected to deal with several types of conflicts.

Person/role conflicts arise when boundary-spanners feel conflicts between what they are asked to do and their own ideas or values.

Organization/client conflicts are between the organization and the individual customer.

• Employees may have to choose between following standard rules and procedures or satisfying the demands of the customer.

Inter-client conflict occurs when incompatible expectations or requirements arise from two or more customers.

• This situation occurs most often when customers are being served in turn.

Quality/Productivity Tradeoffs

Front-line service workers must be both effective and efficient – they are expected to deliver satisfying service to customers and at the same time be both cost-effective and productive.

This trade-offs between effectiveness and efficiency can put demands and pressures on service employees.

Finding a balance can be particularly difficult in the service industry – service employees are required to provide customized service offerings while still pursuing the goals of customer satisfaction and productivity.

Strategies for Delivering Service Quality Through People

The strategies for enabling service promises are referred to as internal marketing.

A combination of strategies is needed to ensure that service employees are willing and able to deliver quality services, and stay motivated to perform in customer-oriented ways.

Four basic themes exist for building a customer-oriented, service-minded workforce. An organization must:

• Hire the right people

• Develop people to deliver service quality

• Provide the necessary support systems

• Retain the best people

Hire the Right People

To effectively deliver service quality, firms should focus considerable attention on hiring and recruiting service personnel.

Traditional practices dictate that in many service industries, service personnel are lowest in the organizational hierarchy and work for minimum wage.

Now, many organizations are looking beyond the technical qualifications of applicants to assess their level of customer and service orientation.

Compete for the Best People

An organization must identify the right people and compete with other organizations to hire them.

When firms act as marketers in their pursuit of the best employees, they are better able to attract potential valuable, long-term employees.

Hire for Service Competencies and Service Inclination

Service employees must possess the following capacities:

Service competencies – the skills and knowledge necessary to do the job.

Service inclination – their interest in doing service related work, reflected in employees’ attitudes.

Be the Preferred Employer

One way to attract the best people is to be known as the preferred employer in a particular industry or location.

Some strategies that can support this goal include:

• Extensive training

• Career and advancement opportunities

• Excellent internal support

• Attractive incentives

• Quality goods and services that employees are proud to be associated with

Develop People to Deliver Service Quality

In order to grow and maintain a workforce that is customer-oriented and focused on delivering quality, an organization must develop its employees to deliver service quality.

Three strategies for training individuals to ensure service performance are:

1. Training for Technical and Interactive Skills

2. Empowering Employees

Promoting Teamwork

Train for Technical and Interactive Skills In order to provide quality service, employees need training in necessary technical skills as

well as in process or interactive skills.

Most service organizations are relatively effective at training employees in technical skills (Ex. McDonald’s). However, service employees also need training in interactive skills that allow them to provide courteous, caring, responsive and empathetic service.

Successful companies will invest heavily in training and ensure that training is congruent with the organization’s business goals and strategies.

Empower Employees

In order to truly be responsive to customer needs, front-line employees must be empowered to accommodate customer requests and recover on the spot when problems arise.

Empowerment means giving employees the desire, skills, tools and authority to serve the customer.

It is important to remember however, that authority alone is not enough. Employees need the knowledge and tools to be able to make decisions on the customer’s behalf, and they need incentives that encourage them to make the right decisions.

Potential Costs and Benefits of Empowerment

Benefits

Quicker responses to customer needs during service delivery.

Quicker responses to dissatisfied customers during service recovery.

Employees feel better about their jobs and themselves.

Employees will interact with customers with more warmth and enthusiasm.

Empowered employees are a source of service ideas.

Word-of-mouth advertising from customers.

Costs

Potentially greater dollar investment in selection and training.

Higher labour costs.

Potentially slower or inconsistent service delivery.

May violate customers’ perceptions of “fair play.”

Employees may “give away the store,” or make poor decisions.

Service Culture

Good service delivery begins with an appropriate service culture

A customer orientated and service orientated organization will have a good service culture

Strategies for Delivering Service Quality Through People

1. Hire the right people

2. Develop to deliver service quality

3. Provide needed support systems

4. Retain the best people

2. PROCESS – SERVICE BLUEPRINTING

Service blueprinting

A special kind of flow-chart is called service blueprint, which also includes the line of visibility, between customers and service provider. In other words, in service blueprinting, the line of visibility separates activities of the front office, where customers obtain tangible evidence of the service, from those of the back office, which is out of the customers’ view.

The high and low contact parts of the service delivery process are kept physically separate, but they remain linked by communications. This separation highlights the need to give special attention to operations above the line of visibility, where customer perceptions of the service’s effectiveness are formed. Designing an efficient process is the goal of the back office, but the back office operations have an indirect effect on the customer because of delays and errors. The blueprinting exercise also gives managers the opportunity to identify potential fail points and to design foolproof (Poka-Yoke is the term borrowed from Japan) procedures to avoid their occurrence, thus ensuring the delivery of high quality service (Fitzsimmons and Fitzsimmons, 1999).

A process chart gives a more detailed breakdown of the process into tasks, and it classifies each activity as being either a processing operation, a movement, an inspection, a delay, or a storage. All those charts can be based on an existing process for a redesign or a tentative design for a new process (Martinich, 1997). Service blueprinting is chosen as the most popular and useful tool for service operations analysis. This type of analysis not only can lead to the elimination of tasks, reduction movements, and simplification of work, but it can also help to identify opportunities to create work cells or to use more efficient flow processing for some set of activities. This tool also provides an excellent communication device for visualizing and understanding the service operation. Shostack (1984; 1987) was the one who first suggested service blue printing for service process analysis. He showed how the service process could be modified by using service blueprinting for a typical shoe repair service and a discount brokerage service. He proposed a four steps approach for designing a blueprint as:

(1) Identifying processes of service delivery and present them in a diagrammatic form. Thelevel of details will depend on the complexity and nature of the service.

(2) Identify the fail points. These are stages where things might go wrong. The actionsnecessary to correct these must be determined, and systems and procedures developed toreduce the likelihood of them occurring in the first instance.

(3) Establishing time frame. Set standards against which the performance of the varioussteps might be measured. Frequently, this is the time taken.

(4) Analyzing the profitability of the service delivered, in terms of the number of customersserved during a period of time.

list of benefits about using service blueprinting, while a more completedlist of benefits is given by Martinich (1997) as follows:

(1) The visual representation makes it easier to determine which activities are truly necessary,which can be deleted, and which can be modified.

(2) Customer contact points are clearly identified. This helps to point out activities that can be performed separately and where opportunities for co processing of activities exist.

(3) Likely service failure points are identified. This is helpful in developing plans tominimize the chance of a failure and in identifying possible corrective actions, if failure does occur.

(4) The service blueprint is an excellent tool for training workers. They can see whatactivities must be performed and how; where failures are most likely to occur and how toprevent and correct them.

(5) The blueprint is useful for identifying the equipment and materials needed and how the service facilities should be spatially arranged to facilitate the services.

(6) Service blueprints can be reconstructed regularly and used to evaluate and improve the service system over time, especially as new technologies become available and the services provided by the system change or expand.

Service blueprinting Service mapping(1) Primary an engineering paradigm(2) Organizational structure not specifically included(3) Physical products included in a limited sense

(4) Fail points are identified(5) Line of visibility identified(6) Line of interaction not shown(7) Line of implementation not shown(8) Time and cost partly referred to(9) Comments to each service element not systematically presented(10)Not related to quality dimensions

Service blueprinting shares similarities with other process modeling approaches in that it 1) is a visual notation for depicting business processes via symbols that represent actors andactivities,

2) can be used to represent high-level overviews of conceptual processes or detailsof particular support or subprocesses, and

3) will accommodate links to parallel and sub-process documents and diagrams via other more internally-focused process modeling tools and languages such as BPMN (Business Process Modeling Notation) and UML (Unified Modeling Language). However, service blueprinting is not as complex or as formal as some business process modeling tools such as UML (Siau and Loo, 2006).

SERVICE PROCESS REDESIGN

In today's booming service economy, providing customers with high-quality and quick services has been widely recognised as an essential means of achieving business excellence. To attain a higher quality level of service than the competitor in the market, Design for Six Sigma (DFSS) has been developed as a breakthrough strategy for service process design and/or redesign, which is fundamental to the delivery of service quality to the customer. Meanwhile, a faster time-to-market capability of service can be obtained through utilising the speed advantage of Lean. Therefore, it is the motivation of this paper for researching that DFSS when combined with Lean can be synergistic in the upfront design phases of the service development process

Dell Services’ Process Redesign Service provides value in the following ways:

• Identify process barriers and issues, areas of rework and risk in current environment, and opportunities for improvement

• Improve operational efficiencies through the redesign of patient care processes, patient care forms, and nursing documentation tools

• Integrate performance improvement principles with care process redesign activities

• Integrate patient care workflow into training strategy and approach

• Identify benefits with regards to patients, physicians, financials, labor, best practices, safety, and compliance

• Improve clinician satisfaction and adoption through process redesign that engages and involves the clinician

Service Process Redesign

The mission statement and agenda of the improvement project were revised after the as-is process had been evaluated. Although SCF had come to an agreement on what needed to be improved, thererealized.A number of procedures for the redesign of business processes have been proposed in the literature. Hammer and Champy recommended 17 generalprinciples for process reengineering in their BPR book Although these principles were thought provoking, they were not specified in much detail,much less empirically validated. Subsequently, a number of authors proposed transformation methods for BPR projects, e.g. To extend these efforts, Reijers et al. consolidated 28 best practices of business process design based on literature reviews and lessons learned from consulting projects .These best practices were packaged in reusable patterns andassigned to different application levels of process design (compare table 1).

In this project we focused our effort on task redesign, process routing, and resource allocation, which were comparable to the best practices in the task, routing, and allocation categories of Reijers’s framework. Figure 4 shows an excerpt of the to-be process model.

1.Task 2.Routing 3.Allocation 4.Resource 5.External Party 6Integral Best Process

1.Task.EliminationResequencing 3.Case Manager 4.NumericalInvolvement

5.Integration Case Type

TaskComposition

2.Knockout CaseCase AssignmentExtra Resource

Resource

Outsourcing Technology

Task Automation

Control RelocationCustomerAssignmentSpecialist-Generalist

Interfacing Exception

Parallelism FlexibleAssignmentEmpower

ContractReductionCase-basedWork

Triage Centralization

BufferingSplitResponsibility

TrustedParty

PHYSICAL EVIDENCE MARKETING MIX

Physical evidence as part of the marketing mixPhysical evidence is the material part of a service. Strictly speaking there are no physical attributes to a service, so

a consumer tends to rely on material cues.

There are many examples of physical evidence, including some of the following:

Packaging.

Internet/web pages.

Paperwork (such as invoices, tickets and dispatch notes).

Brochures.

Furnishings.

Signage (such as those on aircraft and vehicles).

Uniforms.

Business cards.

The building itself (such as prestigious offices or scenic headquarters).

Mailboxes and many others . . . . . .

The evidence that is presented during a trial usually plays a major role in the outcome. There are several types of evidence that can be used. One type, physical evidence, refers to items that can be brought into a courtroom for observation. Examples of physical evidence include a bloody shirt, the mold of a foot print, and a bullet casing.

In many instances, law officials are the first to discover and handle physical evidence. This is because such items are often obtained from crime scenes, meaning that suspects have not been named, and therefore no lawyers are involved at that point. The manner in which this type of evidence is collected and maintained is important because such items can be crucial in winning a case. If it is not obtained according to procedure or it is damaged, it may be deemed inadmissible or useless.

Physical evidence often supersedes other types of evidence because it is commonly less problematic. For example, testimonial evidence refers to things people say regarding some aspect of a court case. This type of evidence can be riddled with problems such as false statements, faulty memory, or hidden agendas.

The reliability of such evidence can, however, have drastically differing effects. In some instances, such items can be used to confirm what someone has asserted. In other instances, they can disprove or cast doubt upon the things that have been said or alleged. For example, a fingerprint lifted from the crime scene can prove that an individual has indeed visited a place that he has claimed he never visited. Likewise, a photo of the individual at a certain event can prove that at the time of a crime he was not at the crime scene.

Servicescape is a concept that was developed by Booms and Bitner to emphasize the impact of the

physical environment in which a service process takes place. If you were to try to describe the differences

a customer encountered when entering a branch of say like McDonald'scompared with a small family

restaurant, the concept of servicescapes may prove useful. Booms and Bitner defined a servicescape as

"the environment in which the service is assembled and in which the seller and customer interact,

combined with tangible commodities that facilitate performance or communication of the service" (Booms

and Bitner, 1981, p. 36).

Physical evidence may be likened to 'landscape'. It includes facilities exterior (landscape, exterior design,

signage, parking, surrounding environment) and facilities interior (interior design & decor, equipment,

signage, layout, air quality, temperature and ambiance). Servicescape along with other tangibles like

business cards, stationery, billing statements, reports, employee dress, uniforms, brochures, web pages

and virtual servicescape forms the 'Physical Evidence' in marketing of services.

Servicescape is not defined as above. The definition above is the definition for physical evidence.

Physical evidence consist of servicescape combined with the tangible elements, so servicescape is a part

of physical evidence.

Service Environments

With the rapid deployment of wireless LAN connectivity in the private and public sectors,opportunities for businesses to offer services to users moving within their physicalpremises with portable computers (including PDAs and smart phones) are increasing. Atthe same time, emerging sensing and semantic interpretation technologies enable theimplementation of presence, identity and localization services that are key enablers for thetypes of pervasive, context-aware services we envision. Also, a variety of low cost sensorscan easily be embedded in the environment and in user devices.

Possible service providers include companies owning (or operating their businesswithin) conference / training centers, shopping centers, airports or stations. In the publicsector, government agencies and hospitals provide additional examples of environmentsthat may provide contextualized services to visitors.

We refer to these kinds of space as ‘physical service environments1. Physical serviceenvironments provide services that are enhanced by knowledge of the physicalenvironment: for example, the distance between users and objects located in this space,position of users, and specific characteristics of environment and user. A physicalenvironment seamlessly integrates the services provided by the computing devices itcontains. These are likely to include sensors, embedded systems and portable devicesowned by mobile users as well as more traditional application servers running in a separatecomputer room, or remotely on a “grid”.

Service users operating in physical service environments may include, members of theorganization owning the environment, who can use the service infrastructure to performmanagement tasks, surveillance, and other activities, as well as visitors from outside.

The major classes of services that a physical service environment can deliver include:

• Information provisioning: delivery of personalized, context-dependent content

• Physical environment awareness and control: access to information collected fromsensors (e.g. video from cameras, events from presence sensors, smoke detectors) andcontrol of the physical environment (e.g. open/close doors)

• Remote work support: access to personal data stores and services for users visitingthe environment

• Collaborative work support: sharing information among users and servicecomponents present in the environment (e.g. by generating a context-based virtualshared data space)

• Sharing or leasing of networked devices and appliances, e.g. printers, fax machines,etc.

main characteristics of a Physical Service Environment.

Personal Device: The user is equipped with a portable personal device (e.g. PDA,smartphone, wearable computer, or - more generally - a set of interconnected wirelessdevices forming a Body Area Network). The device or devices adapt dynamically todifferent radio protocols.

Network Architecture: The user moves within a space where heterogeneous wirelesscommunications islands form an extension of the wired network. User devices interconnectusing ad hoc or infrastructure-based wireless networks. They may also connect to devices,sensors and services present in the environment.

Service Provisioning: In the envisioned service model, the user moves through‘environments’ within which she can use local services provided by the environment andby wireless connectivity resources. These services are delivered by devices embeddedwithin the environment and by application servers accessible over a network infrastructure.Another group of potential service providers are other mobile users with whom the usercomes into contact in the environments visited, either in ad hoc mode or via theenvironment’s network infrastructure. Applications and services may belong to a‘personal’ zone (e.g. sharing of data on one’s own PDA). More often they areenvironmental (e.g. local information services delivered by an environment). Theseservices may include both paying services and services that are available free of charge

Sensing Architecture: To support the delivery of these services, environments are‘augmented’ with heterogeneous sensors. These allow the extraction of contextinformation making interaction with the user and service delivery more efficient. The

sensors capture information continuously, taking into account users’ activities. They thencommunicate the information to an “ambient intelligence” module which processes contextinformation and distributes it to applications. Sensors may include both traditional sensingdevices (e.g temperature, pressure, light and humidity sensors), and more complex devicessuch as cameras connected to a wired network. Since users’ personal devices are often ableto capture data from the physical world (e.g. through GPS and other position sensors

Modes of Interaction between the User and the Services: The user interacts withservices through a multimodal user interface, which uses the personal device’s resources tocommunicate with the user. Alternatively the interface may use I/O devices embeddedwithin the environment. Communication between the user and services (or other users)may be mediated by a ‘Personal Agent’ belonging to the user. This is an application withreasoning capabilities. The task of the Personal Agent is to filter information and provideintelligent support for the management of interpersonal communications.

OR Service Blueprinting.A picture map that visually portrays the service system –

process of delivery

role of customers & employees,

visible elements of the service

Breaks down a service into logical components & easily definable tasks & steps

Blueprinting – Key components

Customer Action – Line of External Interaction

“Onstage” Contact Employee Action - Line of Visibility

“Backstage” Contact Employee Action Line of Internal Interaction

Support Processes

Process

1.Service Blueprint 2. Point of Contact

Evidence =

3. A tool for simultaneously depicting the service process, the points of customer contact, and the evidence of the service from the customers point of view

( Service blueprint )

Useful at design & redesign stages of service development

Different from other “product” blueprints because here it includes customers & their views of the service process

Application…..a few

1. Restaurant service

2. Hotel Stays

Check–in procedures

Room services

Housekeeping

Laundry

Express Mail delivery

Steps in Building a Blueprint

1. Identify the service process to be blueprinted

2. Map the service process from the customers point of view

3. Map Contact Employee Actions –

Onstage - Line of External Interaction

Backstage – Line of Visibility – what customers should see and which employees are in contact with the customers.

4. Map Internal Support activities

Line of Internal Interaction – clarify interfaces across departmental lines, their interdependencies

5. Add Evidence of Service at each Customer Action Step

Benefits of Blueprinting

Provides a customer orientation overview – employees can relate to –”what I do”in the process

Identifies Fail points- weak links in the chain of service activities

Basis for identifying costs, revenues, capital investment required

Facilitates top-down, bottom-up approach to quality improvements.

4. MANAGING CAPACITY AND DEMAND

Perishability – implications for demand and supplyPresent the implications of time, labor, equipment, and facilities constraints combined with variations in demand patterns.strategies for matching supply and demand through (a) shifting demand to match capacity or (b) adjusting capacity to meet demand.

Overview Demonstrate the benefits and risks of yield management strategies in forging a balance among

capacity utilization, pricing, market segmentation, and financial return. Provide strategies for managing waiting lines for times when

capacity and demand cannot be aligned.

Variations in Demand Relative to Capacity

Alternative supply and demand outcomes

Demand versus Supply

Understanding Capacity Constraints and Demand Patterns

1.Capacity Constraints Time, labor, equipment, and facilities Optimal versus maximum use of capacity

2. Demand Patterns

Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment

Strategies for Shifting Demand to Match Supply

(a)Demand Too High • Use signage to communicate busy days and times.• Offer incentives to customers for usage during nonpeak times.• Take care of loyal or “regular” customers first.• Advertise peak usage times and benefits of nonpeak use.• Charge full price for the service—no discounts.

-

(b)Demand Too Low

• Use sales and advertising to increase business from current market segments.

• Modify the service offering to appeal to new market segments.

• Offer discounts or price reductions.

• Modify hours of operation.

• Bring the service to the customer.

Adjusting demand to meet supply

Strategies for Adjusting Supply to Match Demand

Demand Too High

• Stretch time, labor, facilities and equipment.

• Cross-train employees.

• Hire part-time employees.

• Request overtime work from employees.

• Rent or share facilities.

• Rent or share equipment.

• Subcontract or outsource activities.

-- Adjust Capacity

Demand Too Low

• Perform maintenance, renovations.

• Schedule vacations.

• Schedule employee training.

• Lay off employees.

Adjusting supply to meet demand

……………………………………………………………………………………………………………………………………………………………

MODULE 4. SERVICE QUALITY AND RELATIONSHIP MANAGEMENT

Service QualityService quality involves a comparison of expectations with performance. According to Lewis and Booms (1983) service quality is a measure of how well a delivered service matches the customer’s expectations.

Generally the customer is requesting a service at the service interface where the service encounter is being realized, then the service is being provided by the provider and in the same time delivered to or consumed by the customer.

The main reason to focus on quality is to meet customer needs while remaining economically

competitive in the same time. This means satisfying customer needs is very important for the enterprises survive.

The outcome of using quality practices is

Understanding and improving of operational processes

Identifying problems quickly and systematically

Establishing valid and reliable service performance measures

Measuring customer satisfaction and other performance outcomes

Definition

Service quality is a business administration's term and describes the degree of achievement of an ordered service.

Objective service quality is the concrete measurable conformity of a working result with

the previous defined benefit; since the measurability is remarkable dependent on the

definition's accuracy, a measurable quality criterion easily can turn out as a subjective one.

Subjective service quality is the customers perceived conformity of the working result

with the expected benefit; this perception is overlayed with the customers original

imagination of the service and the service providers talent to present his performance as a

good one.

Criteria of service quality

Word-of-mouth, personal needs and past experience creates an expected service (Expectation of the service). The perceived service will be compared with the expected service by the customer. And leads to the perceived service quality as a result. Between the expected and the perceived service can appear a gap if the perceived service does not match with the expected service. Factors which influence the appearing of the gap were found by Parasuraman, Zeithaml and Berry in 1985.

Parasuraman, Zeithaml and Berry (1985) identified ten determinants of service quality that may

relate to any service:

Competence  (Possession of the required skills and knowledge to perform the service:

knowledge and skill of the contact personnel, knowledge and skill of the operational support

personnel, research capability of the organization)

Courtesy (Politeness, respect, consideration and friendliness of the contact personnel:

consideration for the customer's property, clean and neat appearance of public contact

personnel)

Credibility (Trustworthiness, believability and honesty. It involves having the customer's

best interest at heart: company name, company reputation, personal characteristics of the

contact personnel)

Security (Freedom from danger, risk or doubt: physical safety, financial security,

confidentiality)

Access (Approachability and ease of contact: Service is easily accessible, waiting time

to receive service is not extensive, convenient hours of operation, convenient location of

service facility)

Communication  (Informing the customers in a language they can understand and

listening to them. It may mean that the company has to adjust its language for different

consumers: explaining the service itself, explaining how much the service will cost,

explaining the tradeoffs between service and cost, assuring the consumer that the problem

will be handled)

Understanding / knowing the customer (Making the effort to understand the

customer's needs: understanding customer's specific needs, providing individualized

attention, recognizing the customer)

Tangibles (Physical evidence of the service: appearance of physical facilities, tools and

equipments used to provide the service, appearance of personnel and communication

materials, other customers in the service facility)

Reliability (The ability to perform the promised service dependably and accurately:

service is performed right at the first time, the company keeps its promises in accuracy in

billing, in keeping records correctly and in performing the services at the designated time)

Responsiveness (The willingness and/ or readiness of employees to help customers

and to provide prompt service, timeliness of service: mailing a transaction slip immediately,

setting up appointments quickly)

Later they were reduced to five by Parasuraman, Zeithaml and Berry (1988):

Tangibles (Physical evidence of the service: appearance of physical facilities, tools and

equipments used to provide the service, appearance of personnel and communication

materials)

Reliability (The ability to perform the promised service dependably and accurately:

consistency of performance and dependability, service is performed right at the first time,

the company keeps it's promises in accuracy in billing and keeping records correctly,

performing the services at the designated time)

Responsiveness (The willingness and/ or readiness of employees to help customers

and to provide prompt service, timeliness of service: mailing a transaction slip immediately,

setting up appointments quickly)

Assurance  (The knowledge and courtesy of employees and their ability to convey trust

and confidence: competence (possession of the required skills and knowledge to perform

the service), courtesy (consideration for the customer's property, clean and neat appearance

of public contact personnel), trustworthiness, security (safety and confidentiality))

Empathy (The provision of caring, individualized attention to customers: informing the

customers in a language they can understand, Understanding customer's specific needs,

Providing individualized attention)

MODELS OF SERVICE QUALITY

There are two main models:

Service Quality Model of Grönroos  Grönroos says that the expectations of the

customer depend on the 5 determinants market communication, image, word of mouth,

customer needs and customer learning. Experiences depends on the techniqal quality

(what/ outcome) and the functional quality (how/process), which are filtered through the

image (who). Both expectations and experiences can create a perception gap.

GAP Model of Parasuraman, Zeithaml and Berry  The model says that the expected

service is influenced by the word-of-mouth, the personal needs , past experience and also

by the external communication to customers. A perception gap can appear between the

expected service and the perceived service. This gap is called the GAP 5 (also called the

service quality gap), it occurs if the customer is not satisfied and depends on the other 4

gaps.

The perceived quality depends on the external communication to customers and the service delivery. The GAP 4 (also called the communication gap) is appearing between the external communication to customers and the service delivery. It appears when promises do not match the delivery.

The service delivery depends on the service quality specifications. If they are not match each other the GAP 3 (also called the service performance gap) appears.

The service quality specification depends on the management perceptions of customer expectations, where the management perceptions of customer expectations influence the external communication to customers. The GAP 2 (also called the standards gap) occurs between the management perceptions of customer expectations and the service quality specifications if the wrong quality standards were consulted.The biggest gap, the GAP 1 (also called the marketing information gap) occurs between the management perceptions of customer expectations and the expected service. It appears because the service provider does not know what the customer expects.

KEY FACTORS CONTRIBUTING TO THE GAPS  

GAP 1: Not knowing what customers expect:

Lack of marketing research orientation

Inadequate upward communication

Too many levels of management

GAP 2: The wrong service quality standards:

Inadequate management commitment to service quality

Perception of infeasibility

Inadequate task standardization

Absence of goal setting

GAP 3: Service performance gap:

Employee role ambiguity

Employee role conflict

Poor Employee job fit

Poor Technology job fit

Inappropriate evaluation and reward systems

Lack of empowered service employees

Lack of teamwork

GAP 4: When promises do not match delivery:

Inadequate horizontal communication

Tendency to overpromise

GAP 5: customer satisfaction:

depends on gap 1-5

The greater the gap the lower the customer satisfaction, because expectation and

perception do not match.

MEASURING AND IMPROVING SERVICE QUALITY

Quality measurement is separated in subjective and objective processes, at which mostly the

customers satisfaction is being measured. Measuring the customers satisfaction is an indirect

way to measure quality.

Objective processes are being subdivided into primary and secondary processes:

During primary processes, test buyings from silent shoppers are being made or normal

customers are being watched.

During secondary processes quantifiable enterprise numbers like amount of complaints

or the amount of given back goods are being analyzed, and with this information

conclusions to quality can be drawn.

Subjective processes are being subdivided into characteristic orientated, incident orientated and

problem orientated processes.

To the characteristic focused processes counts the SERVQUAL method

To the incident focused processes counts the Critical Incident Theory

To the problem focused processes counts the Frequenz Relevanz Analyse (german)

The most important and most used process to measure service quality is

the SERVQUAL method.

APPROACHES TO IMPROVE SERVICE QUALITY

Generally the service design or the service delivery can be improved to achieve a high quality

service.

The service design consists in:

Service product design

Service facility design

Service process designated

The service delivery consists in:

Service delivery process

Service encounter environment

Customer-Provider interaction

And the following approaches can be used for the improvement:

Quality function deployment  (QFD)

Failsafing

Moving the line of visibility and line of accessibility

Blueprinting

APPROACHES TO IMPROVE CONFORMANCE QUALITY

In order to ensure and increase the conformance quality of services, i.e. the service delivery

happens as designed, various methods are available. Some of these are listed below:

Guaranteeing

Mystery Shopping

Recovering

Setting standards and measuring

Statistical process control

Customer involvement

SERVICES QUALITY: GAPS MODEL

The GAP model

The figure below shows the "GAP" model of service quality from Parasuraman et al. (Zithaml & Bitner 1996). This model offers an integrated view of the consumer-company relationship. It is based on substantial research amongst a number of service providers. In common with the Grönroos model it shows the perception gap (Gap 5) and outlines contributory factors. In this case expected service is a function of word of mouth communication, personal need and past experience, and perceived service is a product of service delivery and external communications to consumers.

This model offers an integrated view of the consumer-company relationship. It is based on substantial research amongst a number of service providers.In this Gap model service is a function of word of mouth communication, personal need and past experience, and perceived service is a product of service delivery and external communications to consumers.

There is Different level in this model:-

Level 1:- Word of Mouth communications, Personal Needs, Past ExperienceLevel 2:- Expected ServiceLevel 3:- Perceived ServiceLevel4:- Service Delivery, External Communications to Customers.Level5:- Service StandardsLevel 6:- Management Perceptions of Consumer exceptions

However the GAP model goes further in its analysis of these key contributory factors. It not only provides a more rigorous description of the contributory Gaps, it lists key drivers for each gap and generic breakdown of each of these drivers. These are illustrated below in summary form below.

Gap 1

Inadequate market research orientation

Lack of upward communication

Insufficient relationship focus

Gap 2

Absence of customer driven standards

Inadequate service leadership

Poor service design

Gap 3

Deficiencies of human resource policies

Failure to match supply and demand

Customers not fulfilling roles

Gap 4

Ineffective management of customer expectations

Overpromising

Inadequate horizontal communications

Key factors in the GAP model (Zeithaml 1990)

Application:-

This level of detail allows powerful analysis of the contributory factors to a perception gap at a practical level. The model shows the importance of marketing, business leadership quality and HR systems in the management of the expectation gap.

 

MEASURING AND IMPROVING SERVICE QUALITY

What is the measurement of service quality?

• To recap, service quality focuses on the needs and expectations of customers to improve products and/or services.

• The measurement of service quality measures the gap between the customer’s level of expectation and how well they rated the service(s).

Measuring service quality in libraries can be both a specific project as well as a continual process to enhance and improve services.

Why measure service quality?

The benefits of measuring service quality include:

• You will be able to identify where services need improving in the view of your users.

• It will enable you to provide services that are more closely aligned with the expectations of your users.

It will allow you to compare your service quality with peer institutions in an effort to develop benchmarks (more on benchmarking on Days 13 and 14!) and understand best practice.

What should I measure?

• You first need to decide if you want to measure a specific aspect of your library and information service (e.g. the provision of information skills training) or the service as a whole?

• If you are measuring the whole service, you will need indicators from each aspect of the service: e.g. inter-library loans, literature searching, enquiry handling, training etc.

How do I measure it?

Generally organisations use a mixture of qualitative and quantitative methods:

• Qualitative Methods: interviews, focus groups, observation (including mystery shopping!).

• Quantitative Methods: surveys (questionnaires, customer comments cards), statistics (routine data collection).

• There are also specific tools that can be used to measure service quality in organisations. For example:

• ISO Standards

• SERVQUAL

• LibQUAL+ (specially for use in library and information services)

• RATER scale.

More on these tomorrow!

The Ten Determinants of Service Quality

1. Access - the ease and convenience of accessing the service(s).

2. Communication - keeping your users informed; listening to your users.

3. Competence - having the skills and knowledge to provide the service(s).

4. Courtesy - politeness, respect, consideration, and friendliness of staff at all levels.

5. Credibility - trustworthiness, reputation and image.

6. Reliability - providing consistent, accurate and dependable service(s); delivering the service that was promised.

7. Responsiveness - being willing and ready to provide service(s) when needed.

8. Security - physical safety; financial security; confidentiality.

9. Tangibles - the physical aspects of the service such as equipment, facilities, resources.

10. Understanding the customer - knowing individual customer needs.

Examples

1. Access - convenient opening times; alternative methods to accessing services: e.g. telephone and internet/email.

2. Communication - “plain English” signs & pamphlets/guides; suggestions and complaints procedures.

3. Competence - all staff knowing, and able to do, their job.

4. Courtesy - staff behaving politely and pleasantly.

5. Credibility - the reputation of the service in the wider community; staff generating a feeling of trust with users.

6. Reliability - standards defined in local service charters; accuracy of information provided; doing jobs right first time; keeping promises and deadlines.

7. Responsiveness - resolving problems quickly; allowing users to book an “appointment” for help (e.g. in literature searching, reference management etc.)

8. Security - ensuring service meets health and safety requirements, for staff and users.

9. Tangibles - up to date equipment and resources.

10. Understanding the customer - tailoring services where practical to meet individual needs.

SOFT MEASURES OF SERVICE QUALITY

Key customer-centric SQ measures include:

o Total market surveys, annual surveys, transactional surveys

o Service feedback cards

o Mystery shopping

o Analysis of unsolicited feedback — complaints and compliments, focus

group discussions, and service reviews

Ongoing surveys of account holders to determine satisfaction in terms of broader relationship issues

Customer advisory panels offer feedback/advice on performance

Employee surveys and panels to determine:

o Perceptions of the quality of service delivered to customers on specific

dimensions

o Barriers to better service

o Suggestions for improvement

Hard Measures of Service Quality

Control charts to monitor a single variable

o Offer a simple method of displaying performance over time against

specific quality standards

o Are only good if data on which they are based is accurate

o Enable easy identification of trends

RELATIONSHIP MANAGEMENT

Customer Relationships

Defination:-The ways in which your company communicates and deals with existing customers

When it comes in increasing profits, it's tempting to concentrate on making new sales or pursuing bigger accounts. But attention to your existing customers, no matter how small they are, is essential to keeping your business thriving. The secret to repeat business is following up in a way that has a positive effect on the customer.

Effective follow-up begins immediately after a sale, when you call the customer to say "Thank you" and find out if he or she is pleased with your product or service. Beyond this, there are several effective ways to follow up that ensure your business is always in the customer's mind.

Let customers know what you are doing for them. This can be in the form of a newsletter mailed to existing customers, or it can be more informal, such as a phone call. Whichever method you use, the key is to dramatically point out to customers what excellent service you're giving them. If you never mention all the things you're doing for them, customers may not notice. You're not being cocky when you talk to customers about all the work you've done to please them. Just make a phone call and let them know they don't have to worry because you handled the paperwork, called the attorney or double-checked on the shipment--one less thing they have to do.

Write old customers personal, handwritten notes frequently. "I was just sitting at my desk, and your name popped into my head. Are you still having a great time flying all over the country? Let me know if you need another set of luggage. I can stop by with our latest models anytime." Or, if you run into an old customer at an event, follow up with a note: "It was great seeing you at the CDC Christmas party. I'll call you early in the new year to schedule a lunch."

Keep it personal. Voice mail and e-mail make it easy to communicate, but the personal touch is lost. Don't count these as a legitimate follow-up. If you're having trouble getting through, leave a voice-mail message that you want to talk to the person directly or will stop by his or her office at a designated time.

Remember special occasions. Send regular customers birthday cards, anniversary cards, holiday cards...you name it. Gifts are excellent follow-up tools, too. You don't have to spend a fortune to show you care; use your creativity to come up with interesting gift ideas that tie into your business, the customer's business or his or her recent purchase.

Pass on information. If you read an article, see a new book or hear about an organization a customer might be interested in, drop a note or make a quick call to let them know.

Consider follow-up calls business development calls. When you talk to or visit old clients or customers, you'll often find they have referrals to give you, which can lead to new business.

With all that your existing customers can do for you, there's simply no reason not to stay in regular contact with them. Use your imagination, and you'll think of plenty of other ideas that can help you develop a lasting relationship.

OR

Customer relationships are at the heart of every business: how the people who keep your company afloat are treated. 

That's what customers do: they pay your wages. 

But too often we see customers as a nuisance, as difficult, even as incidental to the business. 

We all go back to the people and places who make an effort, extend themselves and create some kind of connection with us. 

When we have been well 'managed' we become good customers. 

Because loyalty and trust are built, dealing with those who treat us well is something we look forward to and appreciate. 

In turn, when you manage your customers well they will want to come back; they will want to deal with you or your company. 

They will know that if they present you with a difficulty they're not going to get a blank stare, you won't get defensive or respond with, "Well, it's not really my problem." 

Actually, we believe that if you create good, healthy customer relationships, people will even forgive you your mistakes (as long as mistakes aren't the norm!).

A couple of tips for building a good Customer Relationship

Tell customers what's going on. 

If you don't have an answer to a complaint, tell the customer you don't have one yet, but you'll get one. 

If you have to give bad news, just give it. 

You'd be surprised how reasonable people can be when they're are told straight out about something, instead of hedging around or implying something might happen that you know won't. 

Of course, there will always be unreasonable customers, but there's no point in assuming everyone's going to be difficult.

Find out what customers want.

This seems so obvious and simple that it gets overlooked surprisingly often. 

It's easy to assume what customers want without checking it out. 

To compound things, we often give people what we want to give them (or think they should want), rather than what they actually need. 

By finding out what it is that will support them, you are demonstrating concern and attentiveness. 

If you're able to give your customers what they want, all the better. 

When that isn't possible, it's still better to ask and make the try than to stick with your assumptions, which may or may not be accurate.

Give customers more than they expect

Not necessarily do more. 

But keeping your relationships with other people dynamic means noticing what's going on with them and offering insight, ideas and support (if needed). 

It means recognising and acknowledging their contributions. 

In other words, by adding something they aren't expecting, you create or reinforce a positive impact. 

You're looking here at the customer relationship equivalent of loyalty points! 

5 KEY WAYS TO BUILD CUSTOMER RELATIONSHIPS

1. Build your network--it's your sales lifeline. Your network includes business colleagues, professional acquaintances, prospective and existing customers, partners, suppliers, contractors and association members, as well as family, friends and people you meet at school, church and in your community.

Contacts are potential customers waiting for you to connect with their needs. How do you turn networks of contacts into customers? Not by hoping they'll remember meeting you six months ago at that networking event. Networking is a long-term investment. Do it right by adding value to the relationship, and that contact you just made can really pay off. Communicate like your business's life depends on it. (Hint: And it does! Read on.)

2. Communication is a contact sport, so do it early and often.Relationships have a short shelf life. No matter how charming, enthusiastic or persuasive you are, no one will likely remember you from a business card or a one-time meeting. One of the biggest mistakes people make is that they come home from networking events and fail to follow up. Make the connection immediately. Send a "nice to meet you" e-mail or let these new contacts know you've added them to your newsletter list and then send them the latest copy. Immediately reinforce who you are, what you do and the connection you've made.

You rarely meet people at the exact moment when they need what you offer. When they're ready, will they think of you? Only if you stay on their minds. It's easier to keep a connection warm than to warm it up again once the trail goes cold. So take the time to turn your network of connections into educated customers.

3. E-mail marketing keeps relationships strong on a shoestring budget. Build your reputation as an expert by giving away some free insight. You have interesting things to say! An easy way to communicate is with a brief e-mail newsletter that shows prospects why they should buy from you. For just pennies per customer, you can distribute an e-mail newsletter that includes tips, advice and short items that entice consumers and leave them wanting more. E-mail marketing is a cost-effective and easy way to stay on customers' minds, build their confidence in your expertise, and retain them. And it's viral: Contacts and customers who find what you do interesting or valuable will forward your e-mail message or newsletter to other people, just like word of mouth marketing.

4. Reward loyal customers, and they'll reward you. According to global management consulting firm Bain and Co., a 5 percent increase in retention yields profit increases of 25 to 100 percent. And on average, repeat customers spend 67 percent more than new customers. So your most profitable customers are repeat customers. Are you doing enough to encourage them to work with you again? Stay in touch, and give them something of value in exchange for their time, attention and business. It doesn't need to be too much; a coupon, notice of a special event, helpful insights and advice, or news they can use are all effective. Just remember: If you don't keep in touch with your customers, your competitors will.

5. Loyal customers are your best salespeople. So spend the time to build your network and do the follow-up. Today there are cost effective tools, like e-mail marketing, that make this easy. You can e-mail a simple newsletter, an offer or an update message of interest to your network (make sure it's of interest to them, not just to you). Then they'll remember you and what you do and deliver value back to you with referrals. They'll hear about opportunities you'll never hear about. The only way they can say, "Wow, I met somebody who's really good at XYZ. You should give her a call," is if they remember you. Then your customers become your sales force.

OR

With a recognition that existing customers are the source of most companies' profits,

there has been an explosion of interest in understanding customers from a long-term,

relationship view.

Frequently though this "relationship" view just means trying to sell more things to more

customers. If companies are really going to embrace the concept of relationships they

have to understand more about what their customers need and want to build a "shared

future" with their customers.

Relationship marketing and relationships in marketing are used to describe a variety of

different marketing approaches. CRM specialists use relationships when talking about

analyzing customer databases to uncover who the most valuable customers are.

Advertising people use brand to describe how brands bind consumers emotionally to

products as a statement of self-identity. Business-to-businessmarketeers use

relationships to describe the day-to-day interaction of account management and

choices about which accounts to develop and which to leave.

The dictionary definition of a relationship refers to "the state of having a connection or

correspondence or feeling that prevails between persons or things". But there is more to

a relationship than just a connection.

A genuine relationship is two-sided, takes place over a period of time and is strongly

reliant on trust. It has value to both parties, but it also brings with it costs in terms of

time and commitment.

When we describe customer relationships we have to reflect the fact that is is time

based. It has a past, a present and a future. And going forwards, customers rely on trust

based on past performance. We use the description "shared future" to describe these

type of long-term on-going relationships.

A shared future is a challenging concept since it means that both parties have to

understand how the other will help them get to where they want to go and what has

happened in the past. To commit to one supplier means a customer risks missing out on

a better deal or a better product elsewhere.

And relationships are not always wanted or desirable. In many situations purchasers

would choose to reduce the relationship-overhead to focus on pure cost and value.

Building customer knowledge to understand where and when a relationship approach

adds value is essential in defining the product/service mix. Removing relationship costs,

as discount stores and "DIY sheds" have found, may be more successful than layering

on marginally valued service.

EXTERNAL RELATIONSHIPS

WHY ARE EXTERNAL RELATIONSHIPS NEEDED?

Key external relationships exist with all three tiers of government, industry, clients, all participants in the education sector, both public and privateand the general community.

An external perspective is needed to:

Enrich and broaden the organization by keeping it ‘in touch’ with issues and needs in the broader community.

Source advice, information and resources from informed external resources.

effectively promote the organization in the market place, to the public and to specific, identified stakeholders.

Facilitate strategic alliances for mutual advantage both domestically and internationally.

Ensure the organization remains sensitive to the need for a culture that balances internal and external factors.

Mutual advantage: to conduct our business on a long-term and sustainable basis, founded on relationships that are mutually advantageous and capable of enduring beyond a single transaction.

Social impact: to respect the quality of life and the economic and social progress of the communities in which the group operates and, in the context of the board goals, to give support to their advancement.

Human rights: to support the Voluntary Principles on Security and Human Rights. Understanding that governments have the primary responsibility to promote and protect human rights, the group shares the common goal of promoting respect for human rights, particularly those set forth in the Universal Declaration of Human Rights.

Transparency: to deal openly and transparently with shareholders and third parties. The group will set appropriate external targets in line with its internal targets and report against them periodically. The group will also act in accordance with the principles of the Extractive Industries Transparency Initiative (EITI).

Government relations and influence: always to conduct business in a manner that does not abuse the influence that may exist (or be perceived to exist) by virtue of the scope and scale of the group. The group will engage honourably with all governments in whose jurisdictions it operates but will take no part in partisan politics.

INTERNAL RELATIONSHIP

There are several drivers for this increased emphasis on internal relationship management:

• Increased focus on external relationship management has demanded that all the efforts of the organisation are aligned to meeting the needs of customers in the most effective ways.

• Post merger/acquisition integration has led to more rigorous examination of support services.

• The trend towards outsourcing has prompted debate about the best ways of supporting the organisation.

• The growing emphasis on customer service and the “internal customer” has raised the stakes. As Jan Carlson, then the CEO of SAS put it: “If you’re not serving the customer, you better be serving someone who is”. The heightened expectation of customer service that we have all experienced as consumers has percolated through into corporate life.

Understanding their clients and their key issues

The best internal relationship managers will have invested time to really understand their clients. They will be able to provide heir own departments not only with accurate information but with useful insights that can confirm or challenge intended strategies. They will often hear the words “You seem to understand us better than we understand ourselves!” This understanding will be demonstrated on three levels: • The world in which the relationship operates - the big picture • The client as a business, its goals, its markets, its financial drivers, above all its critically important issues • The way it takes decisions - the people, the politics and the procedures

Our most important clients will expect us to invest time in understanding them - and this investment will produce a substantial return.

Understanding the internal client’s requirements and the ability of the department’s offer to meet these needs

Understanding the client’s key issues is only part of the challenge. This understanding needs to be translated into a grasp of how those issues correlate with one’s own department’s core competence and an analysis of its strengths and weaknesses. The relationship manager needs to lead a vigorous appraisal of how the current offering stacks up and how it could be improved or extended to ensure that the solutions remain effective.

Understanding the way the relationship is being managed today; the people, the processes

All too often the current way of working is unclear. One of the greatest challenges to relationship management is to make the whole approach transparent and accessible. This is why over half of our KAM Survey respondents felt the single biggest improvement they could make in relationship management would be in improved planning and the realisation of plans. This is mirrored in internal relationship management.

Creating motivating visions and achievable objectives for the relationship and forming an overall relationship strategy

It is in the nature of business relationships that they have unfulfilled potential for development. That potential can sometimes be substantial. This can be of benefit to both the department and its clients. Decisions can be made more quickly. Resources can be allocated appropriately. Above all individuals see the purpose and end result of their actions and motivation is significantly improved.

Planning ways to extend the existing services

By investing time talking and thinking about the services we offer, we can make a major contribution to the value we provide our internal customers. In particular service providers are often unaware of the peripheral aspects of their service that they take for granted but which are actually seen as hugely valuable by the “customer”. By the same token there may be small changes in the offering which can make a big difference to provider and customer alike.

Working with virtual or formal relationship teams

The relationship manager needs to exercise leadership but not in the same way as a line manager. Particularly when working with complex customers they will need to be a highly effective influencer, persuading those involved in the relationship to stick to the plan. They will also have to be an astute politician, arguing for resource, trading favours and convincing unit managers to behave in the interests of the client and the group. They may need to forge a group of individuals from different departments into a cohesive team with a common purpose and a consistent way of working. Again this means that the relationship manager needs to be flexible with strongly developed and transferable people skills.

Forming and implementing effective relationship plans

We have already noted that one of the areas providers highlight is the forming and implementing of relationship plans. Some of the first real relationship plans we saw in the late Eighties were so big and unwieldy they must have needed to be delivered to relationship meetings by truck! However relationship plans often are (at best) written on the back of an envelope and even more often held in the head of the relationship manager. While there will be some components common to every relationship plan (vision, objectives, contact matrix, some form of measurement), the plan should draw on a “box of tools” to create a plan that is appropriate for the business. These tools might include selection criteria, service analyses, team role descriptions, processes, relationship protocols and stability indicators, to name just a few)2. The challenge is to balance the creativity that each relationship manager will want to bring to their “unique” situation and to have a consistency that allows senior management to interpret a range of relationships efficiently and usefully.

Measuring the relationship

Finally, there is a compelling need to measure these key relationships better. It is crucial that we measure more and measure better. One member of Mercuri’s international relationship project team, Uffe Tollet, put it compellingly: “How many instruments do you have on a bike? Usually

none, perhaps a speedometer. How many on your car? Perhaps ten. How many on a passenger jet? Hundreds. Tollet goes on to argue the reasons for this: “The faster you go, the further you travel, the more people involved, the more complex the machinery, the greater the risk, then the more you need to have a clear picture. This is just as true of relationship management. We need to measure effectively and clearly, interpreting complex information and presenting in an understandable way.”

SUPPLIER RELATIONS;

SUPPLIER RELATIONS

Good purchasing practices are integral to small business

success, and few factors are as vital in ensuring sound

purchasing methodologies as the selection of quality

suppliers. Indeed, finding good suppliers and maintaining

solid relations with them can be an invaluable tool in the

quest for business success and expansion. As James Morgan

observed in Purchasing, "for a surprisingly large number of

procurement organizations, suppliers have become an

important factor in their planning. In fact, for many

procurement organizations, suppliers have become their

secret competitive weapon, their hidden resource, their

competitive edge." These competitive gains can manifest

themselves in a wide range of areas, from better prices and

delivery times to increased opportunities to consider and

implement innovative practices. But management consultant

Paul Inglis noted in Purchasing that such improvements will

not be realized without meaningful leadership from business

owners and executives. "Leading companies develop tailored

supply strategies that are directly linked to their corporate

strategies," he said. These leaders emphasize shareholder-

value creation, revenue growth, and cost competitiveness,

and establish specific programs with their key suppliers in

order to ensure that these priorities are addressed. Smart

business leaders, he added, "use suppliers to maximize their

own product competitiveness, going beyond the narrow focus

of cost reduction. Leaders exceed traditional sourcing

practices, adopt new models to fully leverage supplier

capabilities, and further their own position in the

marketplace."

SUPPLY CHAINS AND PARTNERSHIPS

In recent years, countless management experts and analysts have

touted the benefits that businesses of all sizes can realize by

establishing "partnerships" with their suppliers. Under such a plan,

which is also sometimes referred to as "supply chain management,"

distribution channels are set up across organizations so that all the

members of the channel, from suppliers to end users, coordinate

their business activities and processes to minimize their total costs

and maximize their effectiveness in the marketplace. But while this

trend has become more prevalent in today's business environment,

it is still practiced in only spotty fashion in many industries.

According to a 1997 A.T. Kearney survey of business executives,

common impediments to establishing true business partnerships

with suppliers include: attachment of greater importance to other

initiatives; comfortable relationships with existing suppliers; dearth

of cross-business unit cooperation; doubts about the benefits of

instituting such practices; lack of cross-functional cooperation;

poor monitoring and control systems; inexperience at managing

improvement programs; and distrust of suppliers. Companies that

feature many of these characteristics typically cling to old

competitive bidding practices that center on perfectly legitimate

concerns about price, but at the exclusion of all else.

As a result, these businesses miss out on the many benefits that can

accrue when effective partnering initiatives are established with

suppliers. As Morgan indicated, suppliers can be an important

source of information on ways in which both small and large

businesses can improve performance and productivity. After

studying a major mid-1990s buyer survey, he cited five general

categories in which supplier involvement can help buyers compete

in the marketplace:

1. Improvement of products through contributions to product

design, technology, or ideas for producing new products. In

most such instances, suppliers help buyers by pointing out

ways in which designs can be improved or more desirable

materials can be used.

2. Improvements in product quality. In addition to providing

design recommendations that result in improved products,

suppliers are often sources of suggestions that allow buyers to

hold consistent tolerances in production.

3. Improvements in "speed to market." "Some of the most

significant contributions in this area came from suppliers to

OEM [original equipment manufacturer] manufacturers," said

Morgan. "Typical is the instance of an equipment maker

whose supplier helped cut 30 months from the design to

market schedule."

4. Reductions in total product cost, either through streamlining

of work processes (inventory management, new product

design, scheduling, etc.) or replacement of costly components

with less expensive—but still effective—ones.

5. Improvements in customer satisfaction.

POTENTIAL DRAWBACKS OF SUPPLIER PARTNERSHIPS 

Establishing close relationships with suppliers, though, means that

buyers have to conduct the necessary research to make sure that

they select the right companies. "Purchasing needs to know a great

deal more about supplier capabilities than it did when everything

depended on a bid/buy relationship," confirmed Purchasing’s

Ernest L. Anderson. "Today's emphasis on partnership requires

suppliers who can become part of a whole supply system. In fact,

major suppliers need to be critically screened and evaluated before

they are brought into any new system." Thriving small- and mid-

sized businesses that are already well-established will be better

able to take on such tasks than will fledgling businesses, but even

start ups should take the time to learn more about their suppliers

than their prices.

Of course, desired supplier traits vary somewhat depending on who

is being surveyed. For example, design engineers tend to place the

most weight on product quality when analyzing suppliers, while

purchasing professionals place greater importance on cost

considerations in conjunction with product quality. Anderson noted

that criteria to be evaluated will also vary depending on product

category. "There's a difference, for instance, between how you

evaluate suppliers for MRO and how you evaluate raw materials

suppliers," he said. "Whether an item is proprietary or generic will

make a difference in what gets stressed in selection of significant

suppliers. Still, the objective of all evaluations is the same: To

compare all potential suppliers in a market segment to determine

the one best qualified to be your partner. It's important to evaluate

strengths and weaknesses of potential suppliers in terms of which

one can best help purchasing meet prime objectives. Typical

objectives include inventory reduction, quality improvement,

elimination of paperwork, and improved handling of incoming

goods."

Companies that do not do the necessary legwork, on the other

hand, may find themselves linked to a poor or untrustworthy

supplier that can erode a business's financial fortunes and

industry/community reputation in a remarkably short span of time.

"Poor supplier performance is not the only risk a purchaser faces"

in situations where it has linked with a bad supplier, noted The

Economist. "It must also worry about the possibility of a supplier

passing trade secrets to competitors, or, with its newfound abilities,

venturing out on its own. A company that abdicates too many

things [to suppliers] may 'hollow' itself out. All of these risks are

especially great in fast-moving, knowledge-intensive industries,

which are precisely those for which integrated supply chains

otherwise make the most sense." Given these potential pitfalls,

businesses seeking to establish partnerships with suppliers are

urged to proceed with caution.

EVALUATING SUPPLIERS

Whether searching out new suppliers or benchmarking the

performance of current suppliers, businesses are urged to consider

the following when evaluating their options:

Commitment to quality—Not surprisingly, product quality is

regarded as an essential factor in selecting a supplier.

Specifics in this realm include the suppliers' statistical process

control methods, its QS-9000 registration, its approaches to

problem solving and preventive maintenance, and its methods

of equipment calibration. "What gets looked at varies by

whether the supplier is a distributor or manufacturer,"

pointed out Anderson. "With a distributor, the team wants to

determine whether it carries mainly Grade A lines or B lines in

a particular group. With a manufacturer it's important to have

QC people on the team to realistically appraise the supplier's

control standards and methods of measuring quality."

Cost-competitive—Competitive pricing is another huge factor,

especially for businesses that are smaller or experiencing

financial difficulties.

Communication—Suppliers that do not maintain a policy of

open communication—or even worse, actively practice

deception—should be avoided at all costs. The frustrations of

dealing with such companies can sometimes assume

debilitating dimensions. Moreover, constant exposure to such

tactics can have a corrosive effect on internal staff.

Timely service—Businesses strategies are predicated on

schedules, which in turn are based on receiving shipments at

agreed-upon times. When those shipments slip, business

strategies suffer. The blow can be particularly severe if the

supplier is negligent or late in reporting the problem.

"Reliable delivery is first among the basics of what we expect

[from suppliers]," one executive told Industrial

Distribution. "It doesn't have to be instantaneous—it just

needs to get there when they promised it would."

Flexibility and special services—Many purchasers express

appreciation for suppliers that take extra measures to satisfy

their customers. These "perks" can range from after-hours

accessability to training or inventory support.

Market knowledge—Suppliers with extensive knowledge of

market conditions and mastery of contemporary issues

impacting your business can be immensely valuable in helping

small companies chart a course to sustained financial success.

Production capabilities—the supplier's capacity for program

management and production should be considered, including

its ability to integrate design and manufacturing functions, its

approach to design changes, and its program measurement

features.

Financial stability—Businesses that allocate large sums for

purchasing materials often prefer to make long-term deals

with suppliers that are financially stable. Such arrangements

not only convey security, but they allow companies to learn

about one another and gain a fuller understanding of each

business's needs, desires, operating practices, and future

objectives. Moreover, The Economist noted that "being in a

meaningful relationship instead of a one-part stand

encourages suppliers to make investments that are tailored to

the purchasing firm's needs—and to be more thrifty…. A

trusted supplieris more likely to think about the purchasing

firm's own customers."

Logistics/Location—Supplier capabilities in this area include

transportation capacity, sourcing capabilities, and 'just-in-

time' performance.

Inventory—According to Purchasing, evaluation of this

consideration is dependent somewhat on the supplier's

business. "If the supplier is a distributor, the emphasis will be

on how well his inventory is set up to avoid stock outs. With a

manufacturer, emphasis has to be on inventory accessibility. If

the supplier has a [just in time] program with 24-hour assured

delivery, it's in better condition than the manufacturer with a

lot of raw material inventory and an eight-week leadtime for

raw material."

Ability to provide technical assistance—Suppliers with top

research and development capacities can be quite valuable to

buyers, providing them with significant savings in both price

and quality.

OTHER KEYS TO SUCCESSFUL SUPPLIER

RELATIONSHIPS

A common lament of suppliers is that buyer organizations all too

often have unrealistic expectations about the supplier's ability to

anticipate buyer needs. As one purchasing executive admitted

to Purchasing, "In new technology areas we have great difficulty

getting the users in our own company to define what they want.

Most have an attitude of 'I'll know it when I see it.' And many of

these users keep changing their minds."

Honesty on both sides is another important quality in effective

buyer-supplier relations. Small business owners hate being misled

by their suppliers, yet they are often less than above-board in their

own communications with suppliers. This is most common when the

business is grappling with past-due payments, but entrepreneurs

should avoid subterfuge and be upfront with suppliers about their

situations. "Instead of lying and saying the check's in the mail, tell

suppliers what's happening and what you propose to do about it,"

one small business owner told Nation’s Business. "If you have a

note that's due, you call them, instead of waiting for them to call

you. They appreciate that. Business people are afraid to make that

phone call; they want to make it all sound rosy. But … if you owe

them, suppliers are eager to find a way to work with you."

View of Buyer-Supplier Relationship

total cost of ownership

end-customer driven

long-term

opportunity maximization

cross-functional teams and top management involvement

strategic

both supplier and buyer on both sides share short- and long-term plans

shared risk and opportunity

standardization

joint ventures

share data

Partner Selection

cost

safety

quality

delivery

environment

financial stability

management stability

continuing improvement

technological accomplishment

congruence of management values on issues like customer satisfaction

concern for quality

employee involvement

supplier relationships

personal compatibility between functional counterparts

Supplier Development

prospective supplier must be persuaded to accept an order

purchaser is aware of benefits to both parties that the supplier may not be aware

of

purchaser pre-determines prices, terms and conditions

purchaser must understand supplier’s capability to ensure win-win proposal

assures future sources of supply

MODULE 5. RELATIONSHIP MARKETING

1.CUSTOMER RETENTION

Why Focus on Customer Retention (CR)?

Service encounter failures

Inconvenience

Response to failed service

Pricing

Competition

Ethical concerns

Involuntary switching

Other factors

Philips Kotler on Customer Retention

The key to customer retention is customer satisfaction

Satisfied Customers

Stay loyal longer

Talk favorably about the organization

Pay less attention to the competition

Are less price sensitive

Offer service ideas to the organization

Cost less to serve than new customers

Customer Retention Tactics

Image/Promotion - community service, direct mail, educational offerings,

integrated marketing communications, newsletters, regular customer contact,

informational materials, website

Service Quality - continuous quality initiatives, convenience,customer service

training, demonstrate that customers are highly valued, mystery shopping, customer

representatives/ ombudsman, service failure training, smile, treat customers as family.

Research - analyze defection rates/reasons, classify customers by

usage/satisfaction/loyalty, develop targeted retention programs.

Internal Marketing - loyalty task force, prepare “solutions” to recurring problems,

share appropriate customer data with staff, reward and publicize customer care person

of the month.

* Customer-Centered - “dialogue” marketing, customer bill of rights, customer care

councils, understand customer expectations.

Sequences in Retention process

Exploring

Evaluating

Establishing Strategies

Examining feedback

Attrition: The Negative Signal to Retention

Increase in the number of complaint

Decrease in the frequency of contacts

Decrease in personal visits

Decrease in enquiries

Decrease in the volume of business

Decrease in the number of active buyers

Decrease in the extent of interaction

Decrease in the flow of communication.

Customer Retention Approaches

CR tactics are short term in nature while CR strategies create lasting value for

customers

CR efforts should begin once the firm wins a customer

These efforts should include

Learning as much as possible about customer needs

Responding promptly to any indications of disinterest

Making customers feel truly cared for

Resolving complaints quickly and efficiently

Be willing to negotiate with high-value customers who show signs of inactivity

Common/Effective Approaches for Enhancing Retention

Build a customer database/marketing information system

Design ongoing customer programs - continuity and loyalty-based initiatives

Offer long term services - membership/subscription programs

Custom promotion - use reminder advertising and press releases 

Focus on key accounts and heavy users

Use newsletters/informational materials to stay in touch with infrequent customers

Attend trade shows

Research customers needs and wants

Welcome suggestions and complaints

Other Customer Retention Tools

Customer relationship management ( CRM ), an expensive information technology,

is also frequently used by large companies for business usage analyses

The 80/20 principle was integral in determining the focus & location of Fast

Industries’ most important customers

SWOT analysis -- strengths, weaknesses, opportunities, and threats -- information

can be gathered from each strategic customer

7 Criteria for Selecting CR Approaches

■ Efficiency - low cost

■ Effectiveness - likelihood to succeed

■ Adaptability - strategic fit with the organizational culture

■ Consistency - works well with the current marketing plan

■ Competitive advantage

■ Ease of implementation

■ Projected profitability

5-Step Process for Designing a Customer Retention Program

Determine your current CR rate

Analyze the defection problem

Establish a new CR objective

Invest in a targeted CR plan to enhance customer loyalty

Evaluate the success of the CR program

Measuring Customer Retention

Annual and targeted customer retention rates

Weighted customer retention rates - accounts for usage differences

Segmented retention indicators - subgroup analysis based on geographic,

demographic, lifestyle, product preferences, etc.

Share-of-customer

Customer lifetime value ( CLTV )

Regency, frequency, and monetary value ( RFM )

Useful Metrics for CR Evaluation

Innovative customer value managers should consider the measures below to gain

additional insight on retention:

Expected future use

Anticipated regret

Intent to switch

Intent to remain loyal – likelihood to return to provider and to recommend provider

OR

Customer Retention is the activity that a selling organisation undertakes in order to reduce

customer defections. Successful customer retention starts with the first contact an organisation

has with a customer and continues throughout the entire lifetime of a relationship. A company’s

ability to attract and retain new customers, is not only related to its product or services, but

strongly related to the way it services its existing customers and the reputation it creates within

and across the marketplace.

Customer retention is more than giving the customer what they expect, it’s about exceeding

their expectations so that they become loyal advocates for your brand. Creating customer

loyalty puts ‘customer value rather than maximizing profits and shareholder value at the center

of business strategy’[1]. The key differentiator in a competitive environment is more often than

not the delivery of a consistently high standard of customer service.

Customer retention has a direct impact on profitability. Research by John Fleming and Jim

Asplund indicates that engaged customers generate 1.7 times more revenue than normal

customers, while having engaged employees and engaged customers returns a revenue gain of

3.4 times the norm.

repeat customers or people who buy from you again and again. remember: you can sell anybody anything once but can you do it again and again? make them happy and they will return. good luck.

The art of implementing business strategies to an effect that will make clients and customers keep on patronizing what you have to offer be it a product or your own services. 

On the other hand, to retain customers, you have to employ methods that were found to be an effective way to do just that for your business. One way of doing that as a tip is to use promotional items or corporate gifts and distribute them to all your clients on a level per level basis like from a regular customer to a a prospect customer. This way, your promotional item or corporate gift helps you retain customers and at the same time grow them for business profits and higher return on investment.

CUSTOMER RETENTION

Customer Retention marketing is a tactically-driven approach based on

customer behavior.  It's the core activity going on behind the scenes

in Relationship Marketing, Loyalty Marketing, Database

Marketing, Permission Marketing, and so forth.  Here’s the basic

philosophy of a retention-oriented marketer:

1.  Past and Current customer behavior is the best predictor of

Future customer behavior.  Think about it.  In general, it is more often

true than not true, and when it comes to action-oriented activities like

making purchases and visiting web sites, the concept really shines

through.

We are talking about actual behavior here, not implied behavior.  Being a

35-year-old woman is not a behavior; it’s a demographic characteristic. 

Take these two groups of potential buyers who surf the ‘Net:

People who are a perfect demographic match for your site, but have

never made a purchase online anywhere

People who are outside the core demographics for your site, but

have purchased repeatedly online at many different web sites

If you sent a 20% off promotion to each group, asking them to visit and

make a first purchase, response would be higher from the buyers (second

bullet above) than the demographically targeted group (first bullet

above).  This effect has been demonstrated for years with many types of

Direct Marketing.  It works because actual behavior is better at predicting

future behavior than demographic characteristics are.  You can tell

whether a customer is about to defect or not by watching their behavior;

once you can predict defection, you have a shot at retaining the customer

by taking action.

2.  Active customers are happy (retained) customers; and they

like to "win."  They like to feel they are in control and smart about

choices they make, and they like to feel good about their behavior. 

Marketers take advantage of this by offering promotions of various kinds

to get consumers to engage in a behavior and feel good about doing it.  

These promotions range from discounts and sweepstakes to loyalty

programs and higher concept approaches such as thank-you notes and

birthday cards.  Promotions encourage behavior.  If you want your

customers to do something, you have to do something for them, and if it’s

something that makes them feel good (like they are winning the

consumer game) then they’re more likely to do it.

Retaining customers means keeping them active with you.  If you don't,

they will slip away and eventually no longer be customers.  Promotions

encourage this interaction of customers with your company, even if you

are just sending out a newsletter or birthday card.

The truth is, almost all customers will leave you eventually.  The trick is to

keep them active and happy as long as possible, and to make money

doing it.

3.  Retention Marketing is all about:

Action – Reaction – Feedback – Repeat. 

Marketing is a conversation, as the ClueTrain Manifesto and Permission

Marketing have pointed out.  Marketing with customer data is a highly

evolved and valuable conversation, but it has to be back and forth

between the marketer and the customer, and you have to LISTEN to what

the customer is saying to you.

For example, let's say you look at some average customer behavior.  You

look at every customer who has made at least 2 purchases, and you

calculate the number of days between the first and second purchases. 

This number is called "latency" - the number of days between two

customer events.   Perhaps you find it to be 30 days.

Now, look at your One-Time buyers.  If a customer has not made a second

purchase by 30 days after the first purchase, the customer is not acting

like an "average" multi-purchase customer.  The customer data is telling

you something is wrong, and you should react to it with a promotion.  This

is an example of the data speaking for the customer; you have to learn

how to listen.  

This site and the Drilling Down book are all about how to discover,

manage, and listen to customer data.  The data is speaking for the

customer, telling you by its very existence (or non-existence) there has

been an action (or non-action) waiting for a reaction.

4.  Retention Marketing requires allocating marketing resources. 

You have to realize some marketing activities and customers will

generate higher profits than others.  You can keep your budget flat or

shrink it while increasing sales and profits if you continuously allocate

more of the budget to highly profitable activities and away from lower

profit activities.  This doesn't mean you should  "get rid" of some

customers or treat them poorly.  

2.CUSTOMER LOYALTY

What is Customer Loyalty?Customer loyalty is all about attracting the right customer, getting them to buy, buy often, buy in higher quantities and bring you even more customers. However, that focus is not how you build customer loyalty.

You build loyalty buy treating your team well so they treat your customers well. You build it by showing that you care and remembering what they like and don’t like. You build it by rewarding them for choosing you over your competitors. You build it by truly giving a damn about them and figuring out how to make them more success, happy and joyful.

Increased loyalty can bring cost savings to a company in at least six areas:

1. Reduced marketing costs (customer acquisition costs require more dollars)2. Lower transaction costs such as contract negotiation and order processing3. Reduced customer turnover expenses ( fewer lost customers to replace/no churning)4. Increased cross selling success leading to larger share of customer5. More positive word of mouth6. Reduced failure costs

Five reasons for making a first time customer a life time buyer:

1. Sales go up because the customer is buying more from you2. You strengthen your position in the marketplace when customers are buying from youinstead of your competition3. Marketing costs go down when you don’t have to spend money to attract a repeatcustomer, since you already have him. In addition, as a satisfied customer he tells hisfriends thereby decreasing your need to advertise.4. You are better insulated from price competition because a loyal customer is lesslikely to be lured away by a discount of a few dollars.

5. Finally, a happy customer s likely to sample your other product lines thus helping you

achieve a larger share of customer

LOYALTY AND PURCHASE CYCLE

Each time a customer buys, he progresses through a buying cycle. A first time buyergoes through five steps:

1. Becomes aware of the product2. Makes an initial investment3. Post purchase evaluation4. Decision to repurchase5. Repurchase

Growing a loyal customer

A customer is a person who becomes accustomed to buying from you. Without astrong track record of contact and repeat purchase, this person is NOT yourcustomer; he is a buyer. A true customer is grown over time.

A loyal customer is one who:

Makes regular purchasesPurchases across product and service linesRefers othersDemonstrates immunity to the pull of the competition. (Harley owners refuse to

Admit that another bike even exists)

People become loyal through stages.

Stage One: A suspect is anyone who might possibly buy your product or service. Wecall them suspects because we believe or suspect that they might buy from us – we don’tknow for sure.

Stage Two: A prospect is someone who has a need for your product or service and isable to buy. Although a prospect has not yet purchased from you, he may have heardabout you, read about you, or had someone recommend you to him.

Stage Three: Disqualified Prospect. These are those who don’t need, or do not have theability to buy your products

Stage Four: First time customer is one who has purchased from you one time. Thisperson can be a customer of yours and a customer of your competitor as well.

Stage Five: Repeat customers are people who have purchased from you two or moretimes.

Stage Six: A client buys everything you have to sell that he can possibly use. Thisperson purchases regularly. You have a strong, on going relationship that makes himimmune to the pull of the competition.

Stage Seven: Like a client, an Advocate encourages others to buy from you. He talksabout you and does marketing for you.

OR

The term customer loyalty is used to describe the behavior of repeat customers, as well as those that offer good ratings, reviews, or testimonials. Some customers do a particular company a great service by offering favorable word of mouth publicity regarding a product, telling friends and family, thus adding them to the number of loyal customers. However, customer includes much more. It is a process, a program, or a group of programs geared toward keeping a client happy so he or she will provide more business.

Customer loyalty can be achieved in some cases by offering a quality product with a firm guarantee. Customer loyalty is also achieved through free offers, coupons, low interest rates on financing, high value trade-ins, extended warranties, rebates, and other rewards and incentive programs. The ultimate goal of customer loyalty programs is happy customers who will return to purchase again and persuade others to use that company's products or services. This equates to profitability, as well as happy stakeholders.

Customer loyalty may be a one-time program or incentive, or an ongoing group of programs to entice consumers. Buy-one-get-one-free programs are very popular, as are purchases that come with rebates or free gifts. Another good incentive for achieving customer loyalty is offering

a risk free trial period for a product or service. Also known as brand name loyalty, these types of incentives are meant to ensure that customers will return, not only to buy the same product again and again, but also to try other products or services offered by the company.

Excellent customer service is another key element in gaining customer loyalty. If a client has a problem, the company should do whatever it takes to make things right. If a product is faulty, it should be replaced or the customer's money should be refunded. This should be standard procedure for any reputable business, but those who wish to develop customer loyalty on a large-scale basis may also go above and beyond the standard. They may offer even more by way of free gifts or discounts to appease the customer.

OR

Customer loyalty describes the tendency of a customer to choose one

business or product over another for a particular need.  In the packaged

goods industry, customers may be described as being "brand loyal"

because they tend to choose a certain brand of soap more often than

others.  Note the use of the word "choose" though; customer loyalty

becomes evident when choices are made and actions taken by

customers.  Customers may express high satisfaction levels with a

company in a survey, but satisfaction does not equal loyalty.  Loyalty is

demonstrated by the actions of the customer; customers can be very

satisfied and still not be loyal.

Customer Loyalty has become a catch-all term for the end result of many

marketing approaches where customer data is used.  You can

say Relationship Marketing or Database Marketing or Permission

Marketing or CRM, and what you are really talking about is trying to

increase customer loyalty - getting customers to choose to buy or visit

more.  Increased customer loyalty is the end result, the desired benefit of

these programs.  All of the above approaches have two elements in

common - they increase both customer retention and the LifeTime

Value of customers.

Customer loyalty is the result of well-managed customer

retention programs; customers who are targeted by a retention program

demonstrate higher loyalty to a business.  All customer retention

programs rely on communicating with customers, giving them

encouragement to remain active and choosing to do business with a

company.

You want customers to do something, to take action.  You want them to

visit your website, make a purchase, sign up for a newsletter.  And once

they do it for the first time, you want them to continue doing business

with you, especially since you probably paid big money to get them to do

business with you the first time.  You don’t want to pay big money the

second time.  You want to create a "loyal" customer who engages in

profitable behavior.

Customer data and models based on this data can tell you which

customers are most likely to respond and become loyal, no matter what

kind of front-end marketing program you are running or how you "wrap it

up" and present it to the customer.  The data will tell you who to  promote

to, and how to save precious marketing dollars in the process of creating

customers who are loyal to you longer.

For example, let's say you look at your most loyal customers and find on

average they buy or visit at least once every 30 days.  So you begin

tracking these customers, and discover 20% of them "skip" their 30 day

activity.  In addition, 90% of the 20% who skip never come back.  You

are watching the erosion of customer loyalty right before your eyes.

And it's too late to do anything about it, because they're already

gone.  You will waste a tremendous amount of money trying to get them

back.  You have to develop a way to identify high loyalty customers who

are at risk, and take action before they leave you.

This is accomplished by using the data customers create through their

interactions with you to build simple models or rules to follow.  These

models can be your early warning system, and will alert you to

situations like the "30 day skip" example abovein time for you to do

something before the customer defects.  Behavior models cause the data

to speak to you about the loyalty status of the customer before it's too

late.

Zone 1: Unstated/Expected...The Zone of Indifference

Literally, this includes all those customer needs and wants that are basic to fulfilling the contract between you and them. For example, customers expect to be treated with courtesy and respect, and would probably be puzzled (and maybe even insulted) if you asked them if this was a need. It of course is, and if you don't meet this need, you will cause DISSATISFACTION. If you meet this basic and obvious need, the best you can hope for is INDIFFERENCE.

Zone 2: Stated/Expected...The Zone of Satisfaction

This is where your customer actually TELLS you what is important to them. Listen carefully here, as this is a key stepping stone to customer loyalty. Meeting a customer's needs here will cause SATISFACTION, whereas not meeting them will cause DISSATISFACTION. For example, a customer might expect a volume discount on a purchase, but knows that they have to specifically ask (or negotiate) for it. It is an expectation, simply because other organizations that the customer deals with provide this benefit.

Zone 3: Stated/Unexpected...The Zone of Delight

This is where your customer HOPES for something, ASKS for it, but really does not expect you to provide it. This is your opportunity to provide something beyond their expectations and by so doing will create DELIGHT. For example, a customer might ask for something that is usually available only in a premium priced product. Not providing it will unlikely cause dissatisfaction. Therefore this is an area for particular attention in building a LOYAL customer base.

Zone 4: Unstated/Unexpected...The Zone of Loyalty

This is an area where your expertise in whatever product or service you provide and the customer's lack of expertise can really pay off! Providing benefits above and beyond what the customer is even aware of can create a LOYAL customer. This requires you to be really proactive in suggesting to customers new innovations that they can really benefit from. Many customers will be even willing to pay extra for this. For example, airbags in automobiles when first introduced were an innovation that saved lives, but customers had no way of asking for this innovation, or expecting it, before it became known to them.  

All Zones are equally important

To get to the Zone of Loyalty, you must first conquer the other zones...there are no short-cuts. If your organization is really good at innovations (the key factor in creating Loyalty), but struggles at reliability (the key factor in creating Satisfaction), then it will end up struggling in all four zones. 

Loyalty creating innovations are time limited

What was once an unstated/unexpected innovation will eventually become unstated/expected...would you now purchase a car without a CD player? Would you even ask the salesperson if it is installed? So maintaining a rate of innovation that matches or exceeds what the market demands is crucial to maintaining customer loyalty.

3.STRATEGIES FOR REDUCING CUSTOMER DEFECTIONS

REDUCING CUSTOMER DEFECTION

There are five main steps a company can take to reduce the defection rate.

First, the company must define and measure its retention rate. For a magazine, the renewal rate is a good measure of retention. For a college, it could be the first-to second –year retention rate, or the class graduation rate.

Second, the company must distinguish the causes of customer attrition and identify those that can be managed better. The Forum Corporation analyzed the customers lost by 14 major companies for reasons other than leaving the region or going out of business: 15 percent switched because they found better product; another 15 percent found a cheaper product; and 70 percent left because of poor or little attention from the supplier. Not much can be done about customers who leave the region or go out of business, but much can be done about those who leave because of poor service, shoddy products, or high prices.

Third, the company needs to estimate how much profit it loses when it loses

customers. In the case of an individual customer, the lost profit is equal to the

customer’s lifetime value—that is, the present value of the profit stream

that the company would have realized if the customer had not defected

prematurely—through some of the calculations outlined above.

Fourth, the company needs to figure out how much it would cost to reduce

the defection rate. As long as the cost is less than the lost profit, the company

should spend the money.

And fifth, nothing beats listening to customers. Some companies have

created an ongoing mechanism that keeps senior managers permanently

plugged in to front-line customer feedback. MBNA, the credit card giant, asks

every executive to listen in on telephone conversations in the customer

service area or customer recovery units. Deere & Company, which makes

John Deere tractors and has a superb record of customer loyalty—nearly 98

percent annual retention in some product areas –uses retired employees to

interview defectors and customers

OR

In today’s hyper competitive markets, companies are taking critical steps to reduce defection rates of

customers. First, the company needs to determine and measure its current retention rate, or the rate of

which customers remain as loyal customers. A good example of retention is the renewal of a club

membership at a wholesale store such as Sam’s or BJ’s.

However, companies must be careful in defining the retention rate. For example, measuring the number

of returning college students in their senior year may not be a good indication or accurate measurement

of retention. By the senior year, it is unlikely that a student will transfer schools and risk loosing hard

earnedcredits. Such a measurement may result in a skewed higher retention rate. A more accurate and

reflective retention measurement would be to capture the number of returning sophomores, who have

less to risk in transferring schools at an earlier stage in the educational process.

Accurately measuring retention rates will help evaluate customer satisfaction. If a company experiences

high retention rates, then it appears that they are performing well and have satisfied customers. As a

result, they can increase their focus on acquiring new customers for growth. However, if the retention rate

is low and the defection rate is high, the company should place their main focus on satisfying

customers. The main focus should be reverted to implementing changes to fix the problem in an effort to

satisfy customers through strong customerrelations   management .

Once you determine that your retention rate has decreased, the company must act to avoid further

customer defections. A company must, “distinguish the cause of customer attrition and identify those that

can be managed better.” (Kotler and Keller. 2009. pg. 137) A company must determine what they are

doing wrong to cause customers to defect. They must also determine how to make improvements to

avoid further defection and to retain customers on the verge of defection. It is important to realize that

defection isn’t always the result of poor service or inadequate quality. The competition may have

developed a new product or service that your company currently does not offer. If you do not fill this need,

the opportunity to defect will increase as the need and/or desire for this product or service grows in the

mind of the customer.

Whatever the case for defection, a company must act quickly and determine what factors need to be

changed, added, eliminated or adjusted to provide the best possible customer experience. “Listening to

customers is crucial to customer   relationship   management .” (Kotler and Keller. 2009. pg. 138) Find out

what they want and deliver.

Another important thing that companies must realize is that customer defection is not always a bad

situation. There is a cost associated with servicing customers. Depending on the amount of money spent

within a company, some customers can actually cost the company money to make a sale. Companies

view customers in relations to profitable stature based on purchasing history and the level of attention

required to service. Marketers understand that there are profitable customers and unprofitable

customers. This can be determined by the customers lifetime value (CLV). “In marketing, customer

lifetime value (CLV), a new concept of ‘customer life cycle management’ is the present value of the

future cash   flows  attributed to the customer   relationship . Use of customer lifetime value as a marketing

metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather

than on maximizing short-term sales.” 

Understanding the customer lifetime value can better explain why losing some customers is not the end of

the world. The key factor related to defection is to, “compare the lost profit equal to the customer’s lifetime

value from a lost customer to the costs to reduce the defection rate. As long as the cost to discourage

defection is lower than the lost profit, the company should spend the money to try to retain the

customer.” (Kotler and Keller. 2009. pg. 137) In the case where the cost to discourage defection is higher

than the lost profit, the company should accept and allow the loss of the customer.

A company should do everything possible to keep profitable customers. This goal should be expressed as

the key to sales since the cost of finding new customers is far more expensive than retaining current

ones. Progressive companies will adjust sales commissions to include compensation for both new sales

as well as customer retention rates achieved through strong customer relations management by the sales

person. If a company experiences high retention rates, they can adjust their focus on acquiring new

customers in an effort to increase profits and growth. In addition, companies should not overlook the

possibility of new profit growth potential within the current customers. It’s typically easier to cross sell

additional products and services to a current customer than to generate a new sale customer.

By measuring retention rates, making necessary adjustments and evaluating the cost of retention efforts

to profit, a company can increase its chances for profitable operations.

STRATEGIES FOR RETAINING CUSTOMERS

One basic customer retention strategy available to small

business owners involves focusing on employee retention and

satisfaction. A company with a high turnover rate may not be able

to maintain strong personal relationships with its customers. Even

if relationships are established, the customer may decide to take its

business to a new company when its contact person leaves. At the

very least, high turnover creates a negative environment and

reduces the quality of service provided to customers. In order to

reduce turnover, it is important to provide employees with career

development opportunities and high degrees of involvement in the

business.

Another possible strategy for retaining customers involves

institutionalizing customer relationships. Rather than just

providing contact with individual employees, a small business can

provide value to customers through the entire company. For

example, it could send newsletters or provide training programs in

order to become a source of information and education for

customers. It may also be possible to establish membership cards

or frequent-buyer programs as direct incentives for customer

retention.

Some companies may be able to use electronic links to

improve the service they provide to customers. For example, e-mail

connections could be used to provide updates on the status of

accounts, electronic order systems could be used to simplify

reordering and reduce costs, and online services could be used to

provide general information.

Sherden noted that customer retention programs are particularly

important in volatile industries—those characterized by fluctuating

prices and product values. In this situation, superior service may

discourage but not prevent customer defections. Some strategies

that may be useful to companies in volatile industries include

providing stable prices over the customer life cycle, basing prices

on the overall cost and profitability of the customer relationship,

and cross-selling additional products and services. All of these

strategies are intended to minimize the changes and problems

customers experience, thus making them want to maintain the

business relationship.

Strategies for customer retention

Positive customer retention strategies

In the following sections we look at a number of positive customer retention strategies, including creating customer delight, adding customer-perceived value, creating social and structural bonds and building customer engagement.

Customer delight

It is very difficult to build long-term relationships with customers if their needs and expectations are not understood and well met. It is a fundamental precept of modern customer management that companies should understand customers, and then acquire and deploy resources to ensure their satisfaction and retention. This is why CRM is grounded on detailed customer-related knowledge. Customers that you are not able to serve well may be better served by your competitors.

Delighting customers, or exceeding customer expectations, means going beyond what would normally satisfy the customer. This does not necessarily mean being world-class or best-in-class. It does mean being aware of what it usually takes to satisfy the customer and what it might take to delight or pleasantly surprise the customer. You cannot really strategize to delight the customer if you do not understand the customer's fundamental expectations. You may stumble onto attributes of your performance that do delight the customer, but you cannot consistently expect to do so unless you have deep customer insight. Consistent efforts to delight customers show your commitment to the relationship. Commitment builds trust. Trust begets relationship longevity.

Customer delight occurs when the customer's perception of their experience of doing business with you exceeds their expectation.

Add customer-perceived value

The second major positive customer retention strategy is to add customer-perceived value. Companies can explore ways to create additional value for customers. The ideal is to add value for customers without creating additional costs for the company. If costs are incurred then the value-adds may be expected to recover those costs. For example, a customer club may be expected to generate a revenue stream from its membership.

There are three common forms of value-adding programme: loyalty schemes, customer clubs and sales promotions.

Loyalty schemes

Loyalty schemes reward customers for their patronage. Loyalty schemes or programmes can be defined as follows:

A loyalty programme is a scheme that offers delayed or immediate incremental rewards to customers for their cumulative patronage. The more a customer spends, the higher the reward. Loyalty schemes have a long history. In 1844, in the UK, the Rochdale Pioneers developed a cooperative retailing operation that distributed surpluses back to members in the form of a dividend. The surpluses were proportionate to customer spend. S & H Pink Stamps and Green Shield stamps were collected in the 1950s and 1960s, and redeemed for gifts selected from catalogues. In the 1970s, Southwest Airlines ran a ' Sweetheart Stamps ' programme that enabled travellers to collect proofs of purchase and surrender them for a free fl ight for their partner.

Customer clubs

Customer clubs have been established by many organizations. A customer club can be defi ned as follows:

A customer club is a company-run membership organization that offers a range of value-adding benefits exclusively to members. The initial costs of establishing a club can be quite high, but thereafter most clubs are expected to cover their operating expenses and, preferably, return a profit. Research suggests that customer clubs are successful at promoting customer retention.

To become a member and obtain benefits, clubs require customers to register. With these personal details, the company is able to begin and services for them. Clubs can only succeed if members experience benefi ts they value. Club managers can assemble and offer a range of value-adding services and products that, given the availability of customer data, can be personalized to segment or individual level. Among the more common benefi ts of club membership are access to memberonly products and services, alerts about upcoming new and improved products, discounts, magazines and special offers.

Sales promotions

Whereas loyalty schemes and clubs are relatively durable, sales promotions offer only temporary enhancements to customer value. Sales promotions, as we saw in the last chapter can also be used for customer acquisition. Retention-oriented sales promotions encourage the customer to repeat purchase, so the form they take is different.

Bonding

The next positive customer retention strategy is customer bonding. B2B researchers have identified many different forms of bond between customers and suppliers. These include interpersonal bonds, technology bonds (as in EDI), legal bonds and process bonds. These different forms can be split into two major categories: social and structural.

Build customer engagement

The final positive strategy for building customer retention is to build customer engagement. Various studies have indicated that customer satisfaction is not enough to ensure customer longevity. For example, Reichheld reports that 65 to 85 percent of recently defected customers claimed to be satisfi ed with their previous suppliers. Another study reports that one in ten customers who said they were completely satisfied, scoring ten out of ten on a customer satisfaction scale, defected to a rival brand the following year. Having satisfi ed customers is, increasingly, no more than a basic requirement of being in the game.

4.CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

Customer relationship management (CRM) is a widely-implemented strategy for managing a company’s interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally salesactivities, but also those for marketing, customer service, and technical support. The overall goals are to find, attract, and win new clients, nurture and retain those the company already has, entice former clients back into the fold, and reduce the costs of marketing and client service.  Customer relationship management describes a company-wide business strategy including customer-interface departments as well as other departments

Benefits of CRM

The use of a CRM system will confer several advantages to a company:[citation needed]

Quality and efficiency

Decrease in overall costs

Decision support

Enterprise agility

Customer Attention

Challenges

Tools and workflows can be complex, especially for large businesses. Previously these tools

were generally limited to contact management: monitoring and recording interactions and

communications. Software solutions then expanded to embrace deal tracking, territories,

opportunities, and at the sales pipeline itself. Next came the advent of tools for other client-

interface business functions, as described below. These tools have been, and still are, offered

as on-premises software that companies purchase and run on their own IT infrastructure.

Often, implementations are fragmented—isolated initiatives by individual departments to

address their own needs. Systems that start disunited usually stay that way: siloed thinking and

decision processes frequently lead to separate and incompatible systems, and dysfunctional

processes.

Business reputation has become a growing challenge. The outcome of internal fragmentation

that is observed and commented upon by customers is now visible to the rest of the world in the

era of the social customer, where in the past, only employees or partners were aware of it.

Addressing the fragmentation requires a shift in philosophy and mindset within an organization

so that everyone considers the impact to the customer of policy, decisions and actions. Human

response at all levels of the organization can affect the customer experience for good or ill.

Even one unhappy customer can deliver a body blow to a business.

Types/variations

Sales force automation

Sales force automation (SFA) involves using software to streamline all phases of the sales

process, minimizing the time that sales representatives need to spend on each phase. This

allows sales representatives to pursue more clients in a shorter amount of time than would

otherwise be possible. At the heart of SFA is a contact management system for tracking and

recording every stage in the sales process for each prospective client, from initial contact to final

disposition. Many SFA applications also include insights into opportunities, territories, sales

forecasts and workflow automation, quote generation, and product knowledge. Modules for Web

2.0 e-commerce and pricing are new, emerging interests in SFA

Marketing

CRM systems for marketing help the enterprise identify and target potential clients and generate

leads for the sales team. A key marketing capability is tracking and measuring multichannel

campaigns, including email, search, social media, telephone and direct mail. Metrics monitored

include clicks, responses, leads, deals, and revenue. Alternatively, Prospect Relationship

Management (PRM) solutions offer to track customer behavior and nurture them from first

contact to sale, often cutting out the active sales process altogether.

In a web-focused marketing CRM solution, organizations create and track specific web activities

that help develop the client relationship. These activities may include such activities as free

downloads, online video content, and online web presentations.

Customer service and support

Recognizing that service is an important factor in attracting and retaining customers,

organizations are increasingly turning to technology to help them improve their clients’

experience while aiming to increase efficiency and minimize costs. Even so, a 2009 study

revealed that only 39% of corporate executives believe their employees have the right tools and

authority to solve client problems

Appointment

Creating and scheduling appointments with customers is a central activity of most customer

oriented businesses. Sales, customer support, and service personnel regularly spend a portion

of their time getting in touch with customers and prospects through a variety of means to agree

on a time and place for meeting for a sales conversation or to deliver customer service.

Appointment CRM is a relatively new CRM platform category in which an automated system is

used to offer a suite of suitable appointment times to a customer via e-mail or through a web

site. An automated process is used to schedule and confirm the appointment, and place it on

the appropriate person's calendar. Appointment CRM systems can be an origination point for a

sales lead and are generally integrated with sales and marketing CRM systems to capture and

store the interaction.

Integrated/Collaborative

Departments within enterprises — especially large enterprises — tend to function with little

collaboration. More recently, the development and adoption of these tools and services have

fostered greater fluidity and cooperation among sales, service, and marketing. This finds

expression in the concept of collaborative systems that use technology to build bridges between

departments. For example, feedback from a technical support center can enlighten marketers

about specific services and product features clients are asking for. Reps, in their turn, want to

be able to pursue these opportunities without the burden of re-entering records and contact data

into a separate SFA system.

Small business

For small business, basic client service can be accomplished by a contact manager system: an

integrated solution that lets organizations and individuals efficiently track and record

interactions, including emails, documents, jobs, faxes, scheduling, and more. These tools

usually focus on accounts rather than on individual contacts. They also generally include

opportunity insight for tracking sales pipelines plus added functionality for marketing and

service. As with larger enterprises, small businesses are finding value in online solutions,

especially for mobile and telecommuting workers,

Social media

Social media sites like Twitter, LinkedIn and Facebook are amplifying the voice of people in the

marketplace and are having profound and far-reaching effects on the ways in which people buy.

Customers can now research companies online and then ask for recommendations through

social media channels, making their buying decision without contacting the company.

People also use social media to share opinions and experiences on companies, products and

services. As social media is not as widely moderated or censored as mainstream media,

individuals can say anything they want about a company or brand, positive or negative.

Increasingly, companies are looking to gain access to these conversations and take part in the

dialogue. More than a few systems are now integrating to social networking sites. Social media

promoters cite a number of business advantages, such as using online communities as a

source of high-quality leads and a vehicle for crowd sourcing solutions to client-support

problems. Companies can also leverage client stated habits and preferences to "hyper-target"

their sales and marketing communications.

Some analysts take the view that business-to-business marketers should proceed cautiously

when weaving social media into their business processes. These observers recommend careful

market research to determine if and where the phenomenon can provide measurable benefits

for client interactions, sales and support. It is stated that people feel their interactions are peer-

to-peer between them and their contacts, and resent company involvement, sometimes

responding with negatives about that company.

Non-profit and membership-based

Systems for non-profit and membership-based organizations help track constituents and their

involvement in the organization. Capabilities typically include tracking the following: fund-raising,

demographics, membership levels, membership directories, volunteering and communications

with individuals.

Many include tools for identifying potential donors based on previous donations and

participation. In light of the growth of social networking tools, there may be some overlap

between social/community driven tools and non-profit/membership tools.

Customer Relationship Management

• “Process of creating and maintaining relationships with business customers or consumers”

• “A holistic process of identifying, attracting, differentiating, and retaining customers”

• “Integrating the firm’s value chain to create enhanced customer value at every step”

• “An integrated cross-functional focus on improving customer retention and profitability for the company.”

Bottom-line:

• The use of information-enabled systems for enhancing individual customer relationships to ensure long-term customer loyalty and retention

CRM Objectives• Lifetime Value (LTV)

– Refers to the net present value of the potential revenue stream for any particular customer over a # of years

– Starts with current purchase activity then extrapolates to include potential additions from cross-selling, upgrades, total ownership, etc.

• Customer Ownership

– Attempts to “own” the lion share of customer spending and/or “share of mind” in a particular product category

– Building brand equity, maintaining vigilant customer contact, keeping current with the market trends is critical

– 5% points increase in customer retention=20-125% increase in profit

Is CRM New?

No!

• Simply an extension of relationship marketing

• Builds on customer service and satisfaction concepts

• Just the latest buzzword for creating customer orientation

• Bottom-line is still the same

Yes!

• A shift in corporate philosophy concerning the approach to value delivery

• Customer-centric approach to value chain

• New and technology-enhanced processes

• Focus is not just on bottom-line, but on top-line

• Goal is to create satisfying experiences across all customer contact points

CRM Programs Can Potentially Improve

• Analytical CRM

– Customer Segmentation

– Trend Analysis

• Operational CRM

– Campaign Management

– Tele-Marketing/Tele-Sales

– Activity and Time Management

– Quotation and Order Processing

– Delivery and Order Fulfillment

– Customer Service and Support

– Remote Access

• Collaborative CRM

– Enterprise Portals

– Customer Access

– Supplier Access

– Personalization

Areas of CRM Activity

• Sales Force Automation (SFA)

• Customer Service and Support (CSS)

• Help Desk

• Field Service

• Marketing Automation

1. Sales Force Automation

• 35-40% of all CRM activity

• Manages lead generation, tracks movement of leads through the pipeline, allows better usage of customer data, integrates activities across sales channels, simplifies relationship management, forecasts for opportunities (SWOT)

• Goldmine and SalesLogix are examples of prepackaged SFA solutions.• Ex. Staples used SFA to integrate catalog, online, in-store sales efforts directed at its best

customers

2. Customer Service and Support (CSS)

• 20-25% of CRM• Assign, escalate, and track trouble tickets, inquiries, solution attempts through resolution• Provides information to support customer call center activity• Gleans customer data from those interactions and records it in SFA for later use• Remedy , Siebel, Vantive, and Clarify are major vendors• Ex., 3M Adhesive Products division

3. Help Desk

• 15-20% of all CRM• Allows individuals to access network database to solve their own problems or find information. • Can be internal or external• Offers many bottom-line savings• Human Click , Tivoli, LivePerson, are providers• Ex., Land’s End Live allows customers browse FAQ’s but also click a link to talk directly with live

representative.

4. Field Service CRM

• 3-5% of all CRM activity• Mobile service technicians can log information about work orders and service calls, as well as

access information from the remote site.• Can feed information from customer problems into SFA for salesperson leads.• Market information can be gathered and logged into central database.• Ensures appropriate resource allocation by matching available resources to job requirements• Major vendors are RTS, Metrix, eDispatch

5. Marketing Automation

• 3-5% of CRM, but growing 5X faster than all others• Interfaces with data warehouses and data mining activities to tailor page views, products, and

promotions, so that the right offer goes to the right person at the right time.• Can interact with SFA to support field sales efforts• Provides customized customer interactions critical to segment of one marketing, mass

customization, customerization, etc. • www.webgroove.com , Epiphany, Oracle, Siebel, and Personify are leaders

New Frontiers in CRM

• Commercial E-Communities

– What are people loyal to?

• Families

• Football teams

• Schools

• Clubs

• Cultures

• Countries

• I.E.: Communities not Corporations

New Frontiers in CRM

• Customerization

– Mass Customization – Using flexible processes and organizational structures to produce varied and individualized products and services at the price of standard mass-produced offerings.

– Personalization – Customization of some features of a product or services so that the customer enjoys more convenience, lower costs, or some other benefit.

– Segment-of-One Marketing – Based on the idea of the firm learning individual reactions to marketing strategies, then treating this customer differently than other customers.

– Customerization – Mass customization + personalization + segment-of-one, dependent on a web-based or electronic interaction

Mass Marketing

Customerization

Relationshipwith customers

Customer is passive participant in process

Customer is active co-producer,

Customer needs

Researched and articulated

May not be articulated

Product and service offering

Marketing and R&D drive offering

Customized based on customer interactions

Price Fixed prices with discounting

Value based pricing; customer

determined

Communication Advertising and PR

Integrated, interactive

Distribution Mix of direct and indirect

Direct (online)

Making CRM Happen

• Evaluate products and processes customers’ terms.

• Analyze the multiple channels through which the company interacts with customers.

• Examine how the company understands its customers. Does it keep good data? How does it get that data? Does information flow between functional areas?

• Provide fingertip access to all information.

• Analyze human resources and ensure that everyone has an understanding of philosophy of CRM

Customer Relationship Management enables real-time availability checks, contract management, billing management, fulfillment visibility, and order tracking, giving you the features and functions necessary for marketing planning, campaign management, telemarketing, lead generation, and customer segmentation. In addition, CRM allows you to offer ongoing customer care across all channels – with a customer-interaction center, Web-based customer self-service capabilities, service and claims management, field service and dispatch, and installed-base management. 

CRM helps your business:

Provide better customer service Make call centers more efficient

Cross-sell products more effectively

Have sales staff close deals faster

Simplify marketing and sales processes

Discover new customers

Increase customer revenues

Customer Relationship Management goes beyond sales, marketing and customer-service applications into business intelligence, analytics, hosted applications, mobile capabilities and much more! By thinking more insightfully about what your customers are worth, you can focus your resources on attracting and keeping the right type of customers. This focus, in turn, will make your CRM efforts more productive and position you better for innovation and growth. 

……………………………………………………………………THANK YOU ……………………………………………………………………….