Service Marketing Part Two

Module 4 - Customer Behaviour in Services settings

4.1 Understanding customer needs and expectations When people feel a need they are motivated to take action and fulfil it Maslow’s five categories:

o Physiologicalo Safetyo Loveo Esteemo Self Actualisation

Prosperity means people are more focused on satisfying social and self actualising needs Customers expectations and needs are constantly changing

4.1.1 How are expectations formed? Perceived service quality results from customers comparing the service they perceive they

have received against that which they have received Peoples service expectation built on

o Prior experience with service provider or related serviceso Word of mouth comments, advertising & sales presentations

Norms as to what to expect start to become accepted Different norms based on:

o Industryo Demographic groupso Public vs. private service operatoro Country to country

4.1.2 German and American expectation of Banking services Testing of the different expectation based on consumer studies in two countries American had higher expectations, especially expecting more technology advancement e.g.

tele banking US ranked trust and friendliness as most important traits Germans ranked competent investment advice and timely service delivery

4.1.3 Components of customer expectations

Customer expectation involve several different elements

o Desired serviceo Predicted serviceo Zone of tolerance, which falls in between

Above diagram shows how expectations are formed

4.1.3.1 Desired and Adequate service levels Desired service is service customer hopes to receive Adequate services is minimum level of service customers will accept without being

dissatisfied Levels of both desired and adequate service expectations formed by

o Explicit and implicit promises made by service providero Past experienceo Word of mouth

Customers have different desired levels of expectations across sub categories of services in an industry:

o McDonalds customers want the food fasto Brasserie customers want atmosphere

4.1.3.2 Predicted serviceo Predicted service is that service that is actually anticipated during a service encountero Predicted service directly affects adequate service – if you set the bar pretty low in

expectations than you are more likely to have adequate service

4.1.3.3 Zone of Tolerance:o The amount of variation of service level that a customer is willing to accept is called the zone

of toleranceo Service below adequate level causes frustration and dissatisfactiono Service above desired level will cause customer delighto Zone of tolerance is where customer doesn’t pay particular attention to the service

performanceo Zone of tolerance can increase or decrease based on

o Competitiono Priceo Importance of specific service attributes

o These factors tend to affect adequate service levels , while desired ones change more slowly in response to accumulated customer experiences

4.2 How customers evaluate service performanceso Service performances can be very complicated for customers to evaluate – mainly due to

intangible natureo Consequences of making a mistake are more personally felt

o Possession processing services can be more readily recovered from (e.g. taking shirt back to laundry to wash again)

o People processing service less easy to reverse (e.g. surgery!)o Mental processing similar difficult to reverse (e.g. seeing a bad play)o Information based services can also present challenges e.g. switching car insurance

company means maybe losing no claims bonus

4.2.1 Continuum of Product Attributes

o All products can be placed on a continuum ranging from easy to evaluate to difficult to evaluate

o High search properties = easier to evaluateo Experience properties are difficult to evaluate before purchaseo Credence properties are ones that customers find impossible to evaluate confidently even

after purchase and consumption – requires faith that job was well doneo The intangibility and variability of inputs and outputs of service make them difficult to

evaluate (leads to quality control issues)o Marketers must reassure customers and reduce risk associated with buying a service whose

performance and value cannot easily be predicted

4.2.2 Strategic Responses to intangibility of service performanceso Marketer’s whose services are high in experience characteristics often try to provide more

search attributes for their customer’s e.g. o Free trialo Advertising - linking service to tangible benefits , like credit card service linked to

holidayso Design and Maintain facilities, like doctors waiting roomo Advertising professional services like lawyers

o Marketers of physical goods sometimes link their products to intangible benefits like Rolex linked to aspirational lifestyle

4.2.3 Variability and quality control problemso Quality for service that fall into experience and credence categories is more difficult to

control as customer is part of production processo Customers evaluation of such service is often linked to

o physical setting of business e.g. hairdresser’s interioro their employeeso even other customers

o Those services with lot of credence characteristics may find it difficult e.g. architect needs to communicate and interact with customer effectively to produce a good result

o Service providers must work hard to keep quality consistent over time

4.3 Purchase process for Services

4.3.1 Pre Purchase stageo In this stage decision is made to buy and use the service is madeo May be quick if its routine and low risko May involve (if more at stake or its first time to use this service)

o an information search o evaluation of alternate supplierso weight benefits o make decision

o Services that are high in credence or experience characteristics may have higher element of perceived risk

o Methods of reducing risk include:o Seeking information from personal sources – friends, mavenso Relying on reputation of firmo Looking for guaranties and warrantieso Trial periodso Asking employees about competitive serviceso Examining tangible clueso Use the internet

4.3.2 Service encounter stageo Service encounter often begins with submitting an application, reservation or placing an

ordero High contact services (e.g. restaurants) may experience a variety of service encounters during

service delivery o Service environments include all tangible characteristics of the environment where the

service delivery takes place – building, noise level etc.o Service personnel are most important factor in high contact services o Support services are the materials, equipment and backstage processeso Other customers are also important

4.3.3 Post Purchase Stageo During this stage customer continue evaluating service quality and their satisfaction with the

service experienceo The outcome will affect their future intentions: to remain loyal to service provide and/or pass

on recommendations to family and friendso They do this by comparing what was expected with what was perceived that they received

4.3.4 Pivotal role of satisfaction:o Customer satisfaction is a way of achieving a number of key business goals and a competitive

advantage – see below:

o Keeping customer is hard: it requireso Detailed research to determine what they wanto Creative thinking to identify the small but important things that delight themo Long term strategy to implement new customer satisfying strategies

4.4 The Service Offeringo It’s important to view the totality of the service being offered (the Service Package)

4.4.1 Core and Supplementary Product elementso Companies have to think in terms of performing well on all actions and reactions that

customers perceive they are purchasingo They need to understand which interaction is with the core product and which is with the

supplementary service elementso Core = fundamental nature of company’s business

o Supplementary service elements supply additional benefits and differentiate it from competitor’s offerings

o Core tends to be a commodity

4.4.2 Competing on supplementary service elementso Supplementary services offer the best opportunity for increasing customers perception of

value

4.4.3 Where’s the leverageo Performance on the core service is do or die

4.4.3.1 Hygiene Factors

o Hygiene factors can be seen as do or decline factorso Examples are:

o Firms need to provide needed informationo Websiteo Take orders promptly

o Firms must provide these elements at a certain threshold just to stay in business

4.4.3.2 Enhancing Factorso These are supplementary services that create satisfaction but whose absence will not

necessarily cause dissatisfactiono Enhancing factors divided into

o Parity – seek to just match competitiono Superiority – exceed competition

o Firms must , when targeting a specific market segment, researcho what elements of superior performance will yield a competitive edgeo which elements can be just set at the industry norm

o Important to understand how defensible the new enhancing factor is, can it be copied easily? Eg. Internet banking

4.5 Understanding different customer behaviour at different points in the service experienceo Service providers must have an idea of what customer actually experience during their

service encounters

o Flowchart shows steps that customers and employees must go through in a given service environment

o Flowcharts can highlight problems and opportunities in the service delivery process as it affects customers themselves – called front stage activities

4.5.1 Developing a flow charto Steps are:

o Define the purpose of the flowcharto Compile a list of activities that constitute the experience of relevant customers –

keep them high level initiallyo Chart each step in the customers experienceo For every front stage activity, chart the corresponding back stage activitieso Validate your description – get input from customers and employeeso Supplement the flowchart with a narrative describing activities and linkages. Identify

roles and responsibilities o Benefits of flow chart

o Flowcharting is useful way of distinguishing between core and supplementary services

o Streamline delivery process – weed out unnecessary steps

Module 5 – Positioning a Service in the market place 5.1 The Search for Competitive Advantage

5.1.1 Four Core Strategieso It’s not usually realistic for a company to appeal to all actual or potential buyers in the

market place becauseo Customers are too numerouso Too widely scatteredo Too varied in their needs, purchasing behaviour and consumption patterns

o Focus means providing a narrow product mix for a particular market segmento Successful firms identify strategically important elements of their service operations and

have concentrated resources on thoseo Market focus: extent to which a company serves a few or many marketso Service focus: extent to which a company offers a few or many services

o A fully focused firm provides a very limited range of services (perhaps just one single core product) to a narrow and specific market segment

o Market Segmentation: choosing those segments that a firm can serve besto Mass customisation: offering a standardised core product but tailoring

supplementary service elements to fit the requirements of individual buyers

5.1.2 Identifying and Selecting Target Segmentso Target Segment = one that a firm has chosen among those in the wider marketo Examples

o Geographico Demographico Attitudes & Behaviour

o Target segments should be selected on the firms ability to match or exceed competing offers, as well as the economic attractiveness of the segment

5.1.3 Developing a Service concept for customers in a Target Segmento Formal research is often needed into how service attributes are valued by current or

prospective customers within different segmentso The same individuals may set different priorities according to:

o Purpose of using the serviceo Who makes the decision

o The timing of use (weekday/weekend)o Whether the individual is using it as part of a group or aloneo Composition of that group

o Important to identify the decision makero Often research starts with focus groups and moves onto more structured quantative surveys

5.1.4 Importance vs. Determinanceo Consumers often makes choices between alternative service providers based on perceived

differences between themo Attributes that distinguish one provider from another not always the most important oneso Determinant attributes are those that actually determine buyers choices between providers o They are often way down the list of buyers priorities, but they are clear differences between

competing services and hence are basis for decisiono Some attributes are easily quantified while others are qualitative and highly subjective –

degree of luxury

5.2 Creating a Competitive Positiono Positioning is creating and maintaining a distinctive place in the market for a firm or its

products/offeringso Essence of positioning:

o Company must establish position in the minds of its targeted customerso Position should be singular – providing one consistent messageo Position should set a company apart from its competitorso Company cannot be all things to all people – it must have focus

5.2.1 Copy positioning vs. product positioningo Copy Positioning: positioning a brand through marketing communications

5.2.2 Positioning’s role in Marketing Strategyo Positioning plays a key role in marketing strategy because it links market and competitive

analysis with internal corporate analysiso This leads to a positioning statement:

o What is our producto What do we want to becomeo What actions are required to get there

5.3 Steps in Developing a Positioning Strategy

5.3.1 Anticipating Competitive Responseo Before pursuing an action plan, competitive response should be considered – e.g. will they go

after same market?o If a competitor has a superior service quality in a niche you want to move into, maybe

rethink your positioning

5.3.2 Evolutionary Positioningo Need to evolve your positioning as markets, technology and competitors changeo Can be done by adding or removing service e.g. petrol stations adding retail services

5.3.3 Developing positioning mapso This is a useful way of representing customers perceptions of products graphicallyo Usually has two attributes

5.4.2 Changing perceptions through advertisingo Improving product features and addressing weaknesses can be expensive o Advertising can focus customers attention on attribute that it is strong in – creating a halo

effect that masks other attributes that are weak

Module 6 – Targeting customers, managing relationships and building loyaltyo Key is to serve a mix of carefully chosen target segments and taking pains to build and

maintain loyalty

6.1 Searching for value, not just numberso Some firms focus on customer numbers, rather than customer value

6.1.2 Relationship marketingo Marketing has traditionally over emphasised the attraction of new customerso Five to six times more expensive to get new customer rather than retain an existing oneo Transaction marketing focus on the occasional dealo Relationship marketing aims at long term, interactive relationship between provider and

customer – its focused on one to one relationshipso Tools used

o Treating customers fairlyo Service augmentationso Each customer is a segment of one

o Some customers cost more than they are worth

6.2 Selecting the appropriate customer portfolio6.2.1 Creating a portfolio of market segments

o If managers know the annual value of each category of customer (revenues minus cost of serving them) as well as the proportion of each category , they can then calculate lifetime value of the category

6.2.2 Segmentation strategies for effective capacity utilisationo One reason to go after several segments is to ensure that capacity is full at all timeso But shouldn’t just fill capacity with anyone – mixing segments of people (especially with

people processing services like restaurants) is riskyo At offpeak period, managers may switch focus from their primary target segment to

secondary ones

6.2.3 Customers as part of the service experience When service users share a common facility other customers become part of the product Firm should attract and retain customers from the most appropriate market segments Two distinct market segments can be separated in place and time – e.g. business class in

aircraft

6.3 Abusive customers and how to deal with them Can effect quality and productivity of services

6.3.1 Addressing the challenge of Jaycustomers Jaycustomer = a customer acting in a thoughtless or abusive way Firm needs to balance the need to deal with these while not degrading service levels for the

rest of their clients

6.3.2 Five Types of Jaycustomer1. The Thief2. The Rulebreaker – e.g. queue skipping3. The Belligerent – e.g. angry customer4. The Vandal

5. The deadbeat – e.g. bad debtor

6.3.3 Can firms restrict to target customers only? Its best to educate customers about specific nature of the service – this increases the

chances of a good fit between customer and organisation

6.4 Creating and maintaining valued relationships A valued relationship is one in which the customer finds value because the benefits received

from service delivery significantly outweigh the costs in obtaining them

6.4.1 Relationships versus transactions A transaction is an event during which an exchange of value takes place between two parties A Transaction is not a relationship –

o there is no mutual recognition and knowledge between partieso its anonymouso no meaningful marketing relationship

Membership relationship = formal relationship between the firm & an identifiable customer o Information Useful for segmentation & direct marketingo Members offered special dealso Builds loyalty

6.4.2 Loyalty Effect Loyalty = customers willingness to continue patronising a firm over the long term, purchasing

and using its goods and services repeatedly and preferably on an exclusive basis Zero Defections = keeping every customer that the firm can profitably service Explicit link between customers satisfaction and employee satisfaction

6.4.3 Realising the full profit potential of a customer relationship Underlying profit growth are:

o Profit derived from increased purchases – as customer grows bigger and more affluent

o Profit from reduced operating costs – long term customers make fewer demands on supplier

o Profit from referral to other customers – Positive word of mouth becomes viralo Profit from price premium – long term customers don’t require promotions

The potential profitability of a customer should be a key driver in marketing strategy Need to analyse gaps between actual and potential performance

o What market share does company currently have and what is its potential market share? (if gap is big then design strategies to attract new customers)

o What is purchasing power of customers in each segment? What would it be if they: Bought all services offered by firm (cross sell) Using these to the exclusion of competitors Paid full price

o How long do customers remain with firm?

6.4.4 Reinforcing loyalty by rewarding repeat users Clubs (Superquinn, frequent flyer etc.) are popular methods of boosting loyalty

6.4.5 Rewarding value of use, not just frequency, at British Airways Offering different levels of service according to what tier they are on

Module 7 - Complaint handling and service recovery7.1 Consumer Complaint Behaviour

Most people do not complain, and when they do managers often do not hear about complaints made to customer contact personnel

7.1.1 Customer response to service failures

Four courses of actiono Do nothingo Complaino Take action through third partyo Abandon this supplier and discourage other people from using service

Defection goes way beyond loss of revenue stream – the web and word of mouth have a viral effect

7.1.2 The TARP study of consumer complain handlingo A minority of dissatisfied customers actually complaino Very few complain to head office or manufacturer, its where they bought the serviceo Higher income and younger customers more likely to complaino Three main reasons people don’t complain:

o Don’t think its worth the time or efforto Thought no-one would careo Didn’t know how to or where to complain

o When complaints are resolved, much better chance that customer will remain loyalo Customers of Industries like computers and government are more likely to be dissatisfied

than those of Utilities and Entertainment

7.1.4 Factors influencing complaining behaviouro Customers initially assess whats at stakeo Two main purposes of complaining

o To recover an economic losso Rebuild self esteem

o There are costs to complaining – time, effort, psychological o Customers that feel they have low power (vs. doctor, lawyer ) less likely to complain

7.1.5 Complaints as market research datao Complaints are a stream of information that help monitor productivity and quality and

highlight where improvements need to be madeo Complaints should be centrally collected and analysed – there are many entry points:

o Front line employeeso Intermediary organisation acting on behalf of original suppliero Backstage managers who have been contacted by customero Suggestion cardso Complaints to third parties

o Centralised complaint logso Provide a basis for follow up and tracking all complaints to ensure they have been

resolvedo Early warning indicator of deteriorating serviceo Indicate topics that require more detailed research

7.1.6 Making it easier for a customer to complain Free phone lines, comment cards Asking customer if they are satisfied

7.2 Impact of Service Recovery efforts on Customer Loyalty TARP argues that complaint handling is a profit centre – retaining customers vs. cost of

complaint handling unit

7.2.1 Service Recovery after customer complaints This is the systematic efforts to correct a problem following service failure and retain

customers goodwill Real time complaints enable firm to address issue, downside is that they may be determental

to morale, especially if they haven’t the authority to do anything Complaints after the fact limit the options for recovery

7.2.2 Principles of effective problem resolution Recovery from service problems requires commitment, planning and clear guidelines Guidelines for effective problem resolution

o Act fasto Admit mistakes but don’t be defensiveo Show that you understand the problem from each customers point of view

o Don’t argue with customerso Acknowledge your customers feelingso Give customers benefit of the doubto Clarify steps required to solve the problemo Keep customers informed of progresso Consider compensationo Persevering to regain customers goodwill

7.3 Service Guarantees These are powerful tools for both promoting and achieving service quality for the following

reasonso Forces firms to focus on what customer wants and expects with each element of the

serviceo Sets clear standards - telling customers and employees what company stands foro Requires development of systems for capturing customer feedback and acting on ito Force firms to understand why they fail o Gain competitive advantage by reducing risk of purchase

To work well, the guarantee should not have a lot of get out clauses

7.3.2 Designing the Guarantee First Step: Ask what would customer want in a guarantee

o What is their ideal customer interaction flowo What are the key moments of truth

Train and empower employees and managers Conduct pilot Produce reports on how many people abuse the guarantee Measure success

7.3.3 Learning from Promus experience Reasons for success:

o Careful planningo Listening to employee and manager concernso Emphasis on trainingo Willingness to delegate more authority to employeeso Careful tracking of all claims o Guarantees need to be clear