new perspectives on services marketing. overview of session why study services? what are services?...
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New Perspectives on Services Marketing
Overview of Session
Why Study Services?
What are Services?
The Marketing Challenges Posed by Services
The Expanded Marketing Mix Required for Services
Why Study Services?
Why Study Services? (1)
Services dominate economy in most nations
Understanding services offers you personal competitive advantages
Importance of service sector in economy is growing rapidly:
Services account for more than 60 percent of GDP worldwide Almost all economies have a substantial service sector Most new employment is provided by services Strongest growth area for marketing
Service Sector Contribution to Indian Economy
In the Year 2010 the contribution of different sectors was:
Services: 58.4%
Industry: 24.1%
Agriculture: 17.5%
NAICS: A New Way to Classify and Analyze the Service Economy
NAICS—North American Industry Classification System—now used to compile and record economic data by national statistical agencies of the U.S., Canada, Mexico
New classification system replaces old SIC (Standard Industrial Classification) codes in U.S.
Captures huge array of new service industries, each with its own NAICS code
NAPCS—North American Product Classification System—assigns codes to thousands of service products Particularly useful for looking at rented goods services
U.S. and Canadian data easily accessible on the Web; information includes number of establishments and employment
Some Newer Service Industries Profiled by NAICS Codes But Not SIC
Casino HotelsContinuing Care Retirement
CommunitiesDiagnostic Imaging CentersDiet and Weight Reducing
CentersEnvironmental ConsultingGolf Courses, Country ClubsHazardous Waste Collection
HMO Medical Centers
Industrial Design Services
Investment Banking and Securities Dealing
Management Consulting Services
Satellite Telecommunications
Telemarketing Bureaus
Temporary Help Services
Why Study Services? (2)
Most new jobs are generated by services
Fastest growth expected in knowledge-based industries
Significant training and educational qualifications required, but employees will be more highly compensated
Will service jobs lost to lower-cost countries? Yes, some service jobs can be exported
Changing Structure of Employment as Economic Development Evolves
Industry
Services
Agriculture
Time, per Capita Income
Share of Employment
Source: IMF, 1997
Why Study Services?
Powerful forces are transforming service markets
Government policies, social changes, business trends, advances in IT, internationalization
These forces are reshaping
Demand Supply The competitive landscape Customers’ choices, power, and decision making
Transformation of the Service Economy
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Innovation in service products & delivery systems, stimulated by better technology
Customers have more choices and exercise more power
Success hinges on: Understanding customers and competitors Viable business models Creation of value for customers and firm
New markets and product categories Increase in demand for services More intense competition
Factors Stimulating Transformation of the Service Economy (1)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Changes in regulations
Privatization
New rules to protect customers, employees, and the environment
New agreement on trade in services
Factors Stimulating Transformation of the Service Economy (2)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Rising consumer expectations
More affluence
More people short of time
Increased desire for buying experiences versus things
Rising consumer ownership of high tech equipment
Easier access to information
Immigration
Growing but aging population
Factors Stimulating Transformation of the Service Economy (3)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Push to increase shareholder value
Emphasis on productivity and cost savings
Manufacturers add value through service and sell services
More strategic alliances and outsourcing
Focus on quality and customer satisfaction
Growth of franchising
Marketing emphasis by nonprofits
Factors Stimulating Transformation of the Service Economy (4)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
Growth of the Internet
Greater bandwidth
Compact mobile equipment
Wireless networking
Faster, more powerful software
Digitization of text, graphics, audio, video
Factors Stimulating Transformation of the Service Economy (5)
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
More companies operating on transnational basis
Increased international travel
International mergers and alliances
“Offshoring” of customer service
Foreign competitors invade domestic markets
What Are Services?
What Are Services? (1)
The historical view Goes back over 200 years to Adam Smith and Jean-Baptiste
Say Different from goods because they are perishable (Smith 1776) Consumption cannot be separated from production, services
are intangible (Say 1803)
A fresh perspective: Services involve a form of rental, offering benefits without transfer of ownership Include rental of goods Marketing tasks for services differ from those involved in
selling goods and transferring ownership
What Are Services? (2)
Five broad categories within non-ownership framework:1. Rented goods services2. Defined space and place rentals3. Labor and expertise rentals4. Access to shared physical environments5. Systems and networks: access and usage
Implications of renting versus owning (Service Perspectives 1.1) Markets exist for renting durable goods rather than selling them Renting portions of larger physical entity (e.g., office space,
apartment) can form basis for service Customers more closely engaged with service suppliers Time plays central role in most services Customer choice criteria may differ between rentals and outright
purchases Services offer opportunities for resource sharing
Defining Services
Services
Are economic activities offered by one party to another Most commonly employ time-based performances to bring
about desired results in: ― recipients themselves― objects or other assets for which purchasers have
responsibility
In exchange for their money, time, and effort, service customers expect to obtain value from
Access to goods, labor, facilities, environments, professional skills, networks, and systems
But they do not normally take ownership of any of the physical elements involved
Service Products versus Customer Service and After-Sales Service
A firm’s market offerings are divided into core product elements and supplementary service elements
Is everyone in service? Need to distinguish between: Marketing of services Marketing goods through added-value service
Good service increases the value of a core physical good
After-sales service is as important as pre-sales service for many physical goods
Manufacturing firms are reformulating and enhancing existing added-value services to market them as stand-alone core products
Challenges Posed by Services
Services Pose Distinctive Marketing Challenges
Marketing management tasks in the service sector differ from those in the manufacturing sector
The eight common differences are:1. Most service products cannot be inventoried
2. Intangible elements usually dominate value creation
3. Services are often difficult to visualize and understand
4. Customers may be involved in co-production
5. People may be part of the service experience
6. Operational inputs and outputs tend to vary more widely
7. The time factor often assumes great importance
8. Distribution may take place through nonphysical channels
What are marketing implications?
Differences, Implications, and Marketing-Related Tasks
Difference
Most service products
cannot be inventoried
Intangible elementsusually dominatevalue creation
Services are oftendifficult to visualizeand understand
Customers may beinvolved in co-production
Implications
Customers may beturned away
Harder to evaluateservice and distinguishfrom competitors
Greater risk anduncertainty perceived
Interaction betweencustomer and provider; but poor task execution could affect satisfaction
Marketing-Related Tasks
Use pricing, promotion, and
reservations to smooth demand; work with ops to manage capacity
Emphasize physical clues, employ metaphors and vivid images in advertising
Educate customers onmaking good choices; offer guarantees
Develop user-friendlyequipment, facilities, and systems; train customers, provide good support
Implications
Behavior of servicepersonnel and customerscan affect satisfaction
Hard to maintain quality, consistency, reliability
Difficult to shield customers from failures
Time is money; customers want serviceat convenient times
Electronic channels or voice telecommunications
Difference
People may be part of
service experience
Operational inputs and
outputs tend to vary more widely
Time factor often assumes great importance
Distribution may take place through nonphysical channels
Marketing-Related Tasks
Recruit, train employees to
reinforce service conceptShape customer behavior
Redesign for simplicity andfailure proofing
Institute good service recovery procedures
Find ways to compete on speed of delivery; offer extended hours
Create user-friendly,secure websites and freeaccess by telephone
Differences, Implications, and Marketing-Related Tasks
Value Added by Physical, Intangible Elements Helps Distinguish Goods and Services
Physical Elements
High
Low Intangible Elements High
SaltDetergents
CD PlayerWine
Golf ClubsNew Car
Tailored clothingFast-Food Restaurant
Plumbing RepairHealth Club
Airline FlightLandscape Maintenance
ConsultingLife Insurance
Internet Banking
Source; Adapted from Lynn Shostack
Progressive and REI: Two Types of Website Reflecting Core Product
…REI’s camping gear must be delivered through physical channels to customers after they have used the website to make choices, order, and pay
Websites can deliver info-based services like Progressive’s car insurance but …
Expanded Marketing Mix for Services
Services Require An Expanded Marketing Mix
Marketing can be viewed as:
A strategic and competitive thrust pursued by top management
A set of functional activities performed by line managers A customer-driven orientation for the entire organization
Marketing is the only function to bring operating revenues into a business; all other functions are cost centers
The “8Ps” of services marketing are needed to create viable strategies for meeting customer needs profitably in a competitive marketplace
The 8Ps of Services Marketing
Product
Place and Time
Price and Other User Outlays
Promotion and Education
Process
Physical Environment
People
Productivity and QualityFig 1.9 Working in Unison: The 8Ps of Services Marketing
The 8Ps of Services Marketing: (1) Product Elements
Embrace all aspects of service performance that create value
Core product responds to customer’s primary need
Array of supplementary service elements
Help customer use core product effectively Add value through useful enhancements
Planning marketing mix begins with creating a service concept that:
Will offer value to target customers Satisfy their needs better than competing alternatives
The 8Ps of Services Marketing: (2) Place and Time
Delivery decisions: Where, When, How
Geographic locations served
Service schedules
Physical channels
Electronic channels
Customer control and convenience
Channel partners/intermediaries
The 8Ps of Services Marketing: (3) Price and Other User Outlays
Marketers must recognize that customer outlays involve more than price paid to seller
Traditional pricing tasks: Selling price, discounts, premiums Margins for intermediaries (if any) Credit terms
Identify and minimize other costs incurred by users: Additional monetary costs associated with service usage
(e.g., travel to service location, parking, phone, babysitting, etc.)
Time expenditures, especially waiting Unwanted mental and physical effort Negative sensory experiences
The 8Ps of Services Marketing: (4) Promotion and Education
Informing, educating, persuading, reminding customers
Marketing communication tools Media elements (print, broadcast, outdoor, retail, the Internet, etc.) Personal selling, customer service Sales promotion Publicity/PR
Imagery and recognition Branding Corporate design
Content Information, advice Persuasive messages Customer education/training
The 8Ps of Services Marketing: (5) Process
How firm does things may be as important as what it does
Customers often actively involved in processes, especially when acting as co-producers of service
Process involves choices of method and sequence in service creation and delivery Design of activity flows Number and sequence of actions for customers Nature of customer involvement Role of contact personnel Role of technology, degree of automation
Badly designed processes waste time, create poor experiences, and disappoint customers
The 8Ps of Services Marketing: (6) Physical Environment
Design servicescape and provide tangible evidence of service performances
Create and maintain physical appearances
Buildings/landscaping Interior design/furnishings Vehicles/equipment Staff grooming/clothing Sounds and smells Other tangibles
Manage physical cues carefully— can have profound impact on customer impressions
The 8Ps of Services Marketing: (7) People
Interactions between customers and contact personnel strongly influence customer perceptions of service quality
The right customer-contact employees performing tasks well Job design Recruiting Training Motivation
The right customers for firm’s mission Contribute positively to experience of
other customers Possess—or can be trained to have—
needed skills (co-production) Can shape customer roles and manage
customer behavior
The 8Ps of Services Marketing: (8) Productivity and Quality
Productivity and quality must work hand in hand
Improving productivity key to reducing costs
Improving and maintaining quality essential for building customer satisfaction and loyalty
Ideally, strategies should be sought to improve both productivity and quality simultaneously—technology often the key
Technology-based innovations have potential to create high payoffs
But, must be user friendly and deliver valued customer benefits
Marketing Must Be Integrated with
Other Management Functions
Three management functions play central and interrelated roles in meeting needs of service customers
Marketing Must Be Integrated with Other Management Functions
Customers
Operations Management
Marketing Management
Human Resources Management
A Framework for Developing Effective Service Marketing
Strategies
A Framework For Developing Effective Service Marketing Strategies: Overview
Understanding Customer Needs, Decision Making, and Behavior in Service Encounters
Building the Service Model
Managing the Customer Interface
Implementing Profitable Service Strategies
Framework for Developing EffectiveService Marketing Strategies: Part I
I: Understanding Customer Needs, Decision Making, and Behavior in Service Encounters
Differences among Services Affect Customer Behavior
Three-Stage Model of Service Consumption
Prepurchase Stage: Search, evaluation of alternatives, decision
Service Encounter Stage: Role in high-contact vs.
low-contact delivery
Post-Encounter Stage: Evaluation against
expectations, future intentions
Framework for Developing Effective Service Marketing Strategies: Part II
Building The Service Model
Part II: Chapters 3-7
Develop service concept: core & supplementary elements
Select physical & electronic channels for service delivery
Set prices with reference to costs, competition & value
Value Exchange
The Value Proposition
The Business Model
Educate customers & promote the value proposition
Position the value proposition against competing alternatives
Design and manage service processes
Balance demand against productivity capacity
Plan the service environment
Manage service employees for competitive advantage
Framework for Developing Effective Service Marketing Strategies: Part III
III: Managing the Customer Interface
Framework for Developing Effective Service Marketing Strategies: Part IV
IV: Implementing Profitable Service Strategies
Create customer relationship and build loyalty
Plan for service recovery and create customer feedback
systems
Continuously improve service quality and productivity
Organize for change management and service leadership
Improving Service Quality and Productivity
Overview of Session
Integrating service quality and productivity strategies
What is service quality?
The Gaps Model—a conceptual tool to identify and correct service quality problems
Measuring and improving service quality
Integrating Service Quality and Productivity Strategies
Integrating Service Quality and Productivity Strategies
Quality and productivity are twin paths to creating value for both customers and companies
Quality focuses on the benefits created for customers; productivity addresses financial costs incurred by firm
Importance of productivity:
Keeps costs down to improve profits and/or reduce prices Enables firms to spend more on improving customer service
and supplementary services Secures firm’s future through increased spending on R&D May impact service experience—marketers must work to
minimize negative effects, promote positive effects
What Is Service Quality?
Different Perspectives of Service Quality
Transcendent:
Product-based:
User-based:
Manufacturing-based:
Value-based:
Quality = Excellence. Recognized only through experience
Quality is precise and measurable
Quality lies in the eyes of the beholder
Quality is in conformance to the firm’s developed specifications
Quality is a trade-off between price and value
Components of Quality: Service-based (SERVQUAL)
Tangibles: Appearance of physical elements
Reliability: Dependable and accurate performance
Responsiveness: Promptness; helpfulness
Assurance: Competence, courtesy, credibility, security
Empathy: Easy access, good communication, understanding of customer
Capturing the Customer’s Perspective of Service Quality: SERVQUAL (1)
Survey research instrument based on premise that customers evaluate firm’s service quality by comparing Their perceptions of service actually received Their prior expectations of companies in a particular industry
Poor quality Perceived performance ratings < expectations
Good quality Perceived performance ratings > expectations
Capturing the Customer’s Perspective of Service Quality: SERVQUAL (2)
Developed primarily in context of face-to-face encounters
Scale contains 22 items reflecting five dimensions of service quality
Subsequent research has highlighted some limitations of SERVQUAL
See Research Insights 14.1: Measuring E-Service Quality
How Customers Might Evaluate Online Businesses: Seven Dimensions of E-S-QUAL
Accessibility : Is site easily found?
Navigation: How easy is it to move around the site?
Design and presentation: Image projected from site?
Content and purpose: Substance and richness of site
Currency and accuracy Responsiveness:Firm’s propensity to respond to
e-mails Interactivity, customization, and personalization Reputation and security
Source:Shohreh A. Kaynama (2000), “ A Conceptual Model to Measure Service Quality of Online Companies: E-qual, in Developments in Marketing Science,” Harlan E. Spotts and H. Lee Meadows, eds., Proceedings of the Academy of Marketing Science, Vol. 22, pp. 46–51. For more information pertaining to online service quality see A. Parasuraman, Vlerie A. Zeithaml, and Arvind Malhotra (2005), “E-S-QUAL: A Multiple-Item Scale for Assessing Electronic Service Quality.” Journal of Service Research, Vol. 7. issue 3. pp. 213–234.
Other Considerations in Service Quality Measurement
In uncompetitive markets or in situations where customers do not have a free choice, researchers should use needs or wants as comparison standards
Time constraints
Services high in credence characteristics may cause consumers to use process factors and tangible cues as proxies to evaluate quality—halo effect
Process factors: Customers’ feelings
The Gaps Model—A Conceptual Tool to Identify and Correct
Service Quality Problems
Seven Service Quality Gaps(Fig 14.3)
Customer experience relative to expectations
1. Knowledge Gap
2. Standards Gap
3. Delivery Gap
5. Perceptions Gap
7. Service Gap
Customer needs and expectations
6. Interpretation Gap
4. Internal Communications Gap
MANAGEMENT
CUSTOMER
4.
Customer perceptions of service execution
Management definition of these needs
Translation into design/delivery specs
Execution of design/delivery specs
Advertising and sales promises
Customer interpretation of communications
Prescriptions for Closing theSeven Service Quality Gaps (1) (Table 14.3)
1. Knowledge gap: Learn what customers expect
Understand customer expectations Improve communication between frontline staff and
management Turn information and insights into action
2. Standards gap: Specify SQ standards that reflect expectations
Set, communicate, and reinforce customer-oriented service standards for all work units
Measure performance and provide regular feedback Reward managers and employees
Prescriptions for Closing theSeven Service Quality Gaps (2) (Table 14.3)
3. Delivery gap: Ensure service performance meets standards
Clarify employee roles Train employees in priority setting and time management Eliminate role conflict among employees Develop good reward system
4. Internal communications gap: Ensure that communications promises are realistic
Seek comments from frontline employees and operations personnel about proposed advertising campaigns
Get sales staff to involve operations staff in meetings with customers
Ensure that communications sets realistic customer expectations
Prescriptions for Closing theSeven Service Quality Gaps (3) (Table 14.3)
5. Perceptions gap: Educate customers to see reality of service quality delivered
Keep customers informed during service delivery and debrief after delivery
Provide physical evidence
6. Interpretation gap: Pretest communications to make sure message is clear and unambiguous
Present communication materials to a sample of customers in advance of publication
7. Service gap: Close gaps 1 to 6 to meet customer expectations consistently
Measuring and Improving Service Quality
Soft and Hard Measures of Service Quality
Soft measures—not easily observed, must be collected by talking to customers, employees, or others
Provide direction, guidance, and feedback to employees on ways to achieve customer satisfaction
Can be quantified by measuring customer perceptions and beliefs
―For example: SERVQUAL, surveys, and customer advisory panels
Hard measures—can be counted, timed, or measured through audits
Typically operational processes or outcomes Standards often set with reference to percentage of occasions on
which a particular measure is achieved Control charts are useful for displaying performance over time
against specific quality standards
Soft Measures of Service Quality
Key customer-centric SQ measures include: Total market surveys, annual surveys, transactional surveys Service feedback cards Mystery shopping 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: Perceptions of the quality of service delivered to customers on
specific dimensions Barriers to better service Suggestions for improvement
Hard Measures of Service Quality
Control charts to monitor a single variable
Offer a simple method of displaying performance over time against specific quality standards
Are only good if data on which they are based is accurate Enable easy identification of trends
Service quality indexes
Embrace key activities that have an impact on customers
Composition of FedEx’s Service Quality Index—SQI (Table 14.4)
Late delivery—right day Late Delivery—wrong dayTracing request unanswered Complaints reopened Missing proofs of delivery Invoice adjustments Missed pickups Lost packages Damaged packages Aircraft delays (minutes) Overcharged (packages missing label) Abandoned calls
151511
101010551
Failure Type
Total Failure Points (SQI) =
Weighting Factor
XXX,XXX
Daily Points
XNumber of Incidents
=
Control Chart for Departure Delays(Fig 14.4)
J F M A M J J A S O N D
60%
70%
80%
90%
100%
Month
% Flights Departing Within 15 Minutes of Schedule
Tools to Analyze and Address Service Quality Problems
Fishbone diagram
Cause-and-effect diagram to identify potential causes of problems
Pareto Chart
Separating the trivial from the important. Often, a majority of problems is caused by a minority of causes (i.e. the 80/20 rule)
Blueprinting
Visualization of service delivery, identifying points where failures are most likely to occur
Tools to Analyze and Address Service Quality Problems (Appendix)
Total Quality Management (TQM)
ISO 9000 Comprises requirements, definitions, guidelines, and related
standards to provide an independent assessment and certification of a firm’s quality management system
Malcolm Baldrige Model Applied to Services
To promote best practices in quality management, and recognizing, and publicizing quality achievements among U.S. firms
Six Sigma
Statistically, only 3.4 defects per million opportunities (1/294,000)
Has evolved from defect-reduction approach to an overall business-improvement approach
Cause-and-Effect Chart for Flight Departure Delays (Fig 14.5)
Aircraft late to gate
Late food service
Late fuel
Late cabin cleaners
Poor announcement of departures
Weight and balance sheet late
Delayed Departures
Delayed check-in procedure
Acceptance of late passengers
Facilities, Equipment
Customers
Gate agents cannot process
fast enough
Late/unavailable airline crew
Arrive lateOversized bags
Weather Air traffic
Frontstage Personnel
Procedures
Materials, Supplies
BackstagePersonnel
Information
Customers
Other Causes
MechanicalFailures
Late pushback
Late baggage
Late passengers
Waiting for pushbackWaiting for fuelling
Late weight and balance sheetLate cabin cleaning/supplies
Other
NewYork
All stations, excludingChicago-Midway Hub
Washington Natl.
23.1%23.1%
23.1%15.3%
15.4%
53.3%
15%
11.3%
8.7%
11.7%
33.3%
33.3%19%
9.5%
4.9 %
Case: Analysis of Causes of Flight Departure Delays
Blueprinting
Depicts sequence of front-stage interactions experienced by customers plus supporting backstage activities
Used to identify potential fall points—where failures are most likely to appear
Shows how failures at one point may have a ripple effect later
Managers can identify points which need urgent attention
Important first step in preventing service quality problems
Six Sigma Methodology to Improve and Redesign Service Processes
Process Improvement
Process Design/Redesign
Define Identify the problem Define requirements Set goals
Identify specific or broad problems
Define goal/change vision Clarify scope and customer
requirements
Measure
Validate problem/process Refine problem/goal Measure key
steps/inputs
Measure performance to requirements
Gather process efficiency data
Analyze Develop causal hypothesis
Identify root causes Validate hypothesis
Identify best practices Assess process design Refine requirements
Improve
Develop ideas to measure root causes
Test solutions Measure results
Design new process Implement new process,
structures, and systems
Control Establish measures to maintain performance
Correct problems as needed
Establish measures and reviews to maintain performance
Correct problems as needed
TQM in a Service Context: Twelve Critical Dimensions for Implementation Top management commitment and visionary leadership
Human resource management
Technical system, including service process design and process management
Information and analysis system
Benchmarking
Continuous improvement
Customer focus
Employee satisfaction
Union intervention and employee relations
Social responsibility
Servicescapes
Service culture