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SERVICES MARKETING

STUDY MANUAL OVERVIEW This study manual is based on the recommended text used for the Services Marketing course - Services Marketing – People, Technology, Strategy by Christopher Lovelock and Jochen Wirtz [6th ed], you’ll find the following teaching material for each of the 15 chapters:

Learning objectives [“LO’s”] Brief answers to the end-of-chapter review questions and

comments on what to expect of students from each of the application exercises. Note that review questions can either form the basis for in-class discussions or be assigned as written work.

Please note that depending on which edition of the book you have, the numbering of the figures and tables may be slightly different but the general content contained therein is p r e t t y m uch c o n s i s t e n t .

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CHAPTER 1

INTRODUCTION TO SERVICES MARKETING

LEARNING OBJECTIVES

By the end of this chapter, students should be able to

(L01) Understand how services contribute to a country’s economy

(L02) Identify the powerful forces that are transforming service markets

(L03) Define services using the non-ownership service framework

(L04) Identify the four broad “processing” categories of services (L05) Be familiar with the characteristics of services and the

distinctive marketing challenges they pose (L06) Understand the components of the traditional marketing

mix applied to services (L07) Understand the components of the expanded services

marketing mix

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CHAPTER OUTLINE

(L01) Understand how services contribute to a country’s economy

Services dominate almost all types of economies today. The service sector accounts for a majority of the gross domestic product in all industrialized countries and provides most of the new jobs in many developing and highly developed nations worldwide.

(L02) Identify the powerful forces that are transforming service markets

Changes in government policies Social changes Business trends like productivity and cost savings,

franchising etc. Advances in information technology Internationalization and globalization

Customer needs are evolving, markets and competition are changing rapidly, and effective strategic leadership is vital to success. Students should recognize that understanding the threats and opportunities posed by these challenges is a vital first

Service Insights 1.1: Rolls—Royce Sells Power by the hour: How manufacturing firms can differentiate by creating value from

services Rolls Royce bundles its world-class aircraft engines with services

that keeps those engines running smoothly

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step in developing effective strategies. In particular, the increasingly competitive nature of many service industries places a premium on effective marketing strategy.

(L03) Define services using the non-ownership of service framework

Services are distinguished as benefits without ownership. 5 broad categories within the non-ownership framework

o Rented goods services – provides customers with temporary right to exclusive use of physical good

o Defined space and place rentals – obtain a defined portion of a larger space and sharing its use with other customers, under varying degrees of privacy

o Labor and expertise rentals – hire others to work that they either choose not to do, or lack the necessary expertise and tools to do

o Access to shared physical environments – may be located indoors or outdoors or a combination

o Systems and networks: access and usage – rent the right to participate in specified networks like telecommunications, utilities etc.

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(L04) Identify the four broad “processing” categories of services

The four broad categories of services are:

1) people processing 2) possession processing 3) mental stimulus processing 4) information processing

(L05) Be familiar with the characteristics of services and the distinctive marketing challenges they pose

The Table below lists eight common differences between goods and services:

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1) Most goods cannot be inventoried. 2) Intangible elements 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.

Students should be reminded that these generalizations, although useful at a macro level, do not apply equally to all services. Service businesses range widely in size and scope, from huge international corporations to locally owned and operated businesses. They may serve individual consumers, business -to-business customers, or both. Delivery systems range from highly tangible facilities where customers are actively involved (like hotels, restaurants, and health clubs) to intangible, Internet-based services.

(L06) Understand the components of the traditional marketing mix applied to services

Strategies to market manufactured goods usually address the traditional four elements of the marketing mix—product, price, place, and promotion. These four Ps, when applied to services, have additional considerations:

1) Product elements: All components of the service performance

that create value for customers.

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2) Place and time: When, where, and how to deliver services to customers.

3) Price and other user outlays: All the outlays incurred by customers in obtaining benefits from the service product costs of service, including money, time expenditures, physical and mental effort, and exposure to negative sensory experiences.

4) Promotion and education: All communications activities and incentives designed to inform and educate customers, build preference for a particular service, and encourage them to take action.

(L07) Describe the components of the extended marketing mix for managing the customer interface

In addition to the traditional four Ps, services have three additional Ps necessary for managing the customer interface. They are:

5) Process: Design of the method and sequence of actions in service creation and delivery. In addition to process management, productivity helps to reduce costs and quality is essential for differentiation and building customer satisfaction and loyalty.

6) Physical environment: The appearance of buildings, equipment, interiors, personnel, and other clues that provide evidence of service quality.

7) People: Interactions with employees involved in service production and with other customers encountered during service delivery.

QUESTIONS AND EXERCISES

Review Questions

1. What are the main reasons for the growing share of the

service sector in the major economies of the world?

2. What are the five powerful forces transforming the service

landscape and what impact do they have on the service

economy?

3. “A service is rented rather than owned”. Explain what the statement means and use examples to support your

explanation.

4. Describe the four broad “processing” categories of services,

and provide examples for each of them.

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5. Legal and accounting firms now advertise their services in many countries. Search for a few advertisements and

review the following: What do these firms do to cope with the intangibility of their services? What could they do better?

How do they deal with consumer quality and risk

perceptions, and how could they improve that aspect of their marketing?

6. Give examples of how Internet and telecommunications technologies (e.g., Interactive Voice Response Systems [IVRs] and mobile commerce [M-commerce]) have changed some of the services that you use.

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CHAPTER 2

CONSUMER BEHAVIOR IN A SERVICES CONTEXT

This chapter emphasizes the point made in Chapter 1 that

service success requires a focus on both customers and competitive markets. Accordingly, Chapter 2 establishes a theme

that runs throughout the book: the need for service firms to be customer focused, to understand customer concerns and

expectations, and to recognize the customer’s often dynamic role in service operations.

LEARNING OBJECTIVES

By the end of this chapter, students should be able to:

(L01) Understand the three-stage model of service consumption.

(L02) Use the multi-attribute model to understand how

consumers evaluate and choose among alternative service offerings.

(L03) Learn why consumers often have difficulties evaluating

services, especially those with many experience and credence

attributes.

(L04) Know the perceived risks that customers face in purchasing services and the strategies firms can use to reduce these perceived risks.

(L05) Understand how customers form expectations and the components of these expectations.

(L06) Contrast how customers experience and evaluate high- versus low-contact services.

(L07) Be familiar with the servuction model and understand the interactions that together create the service experience .

(L08) Obtain insights from viewing the service encounter as a form of theater

(L09) Know how role and script theories contribute to a better

understanding of service encounters.

(L010) Describe how customers evaluate services and what

determines their satisfaction

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CHAPTER OUTLINE

(L01) Understand the three-stage model of service decision

The three stages are:

Pre-purchase stage Service encounter stage Post-purchase stage

During the pre-purchase stage, issues to note include:

Understanding that customers seek solutions to aroused needs Evaluating a service may be done using the multi-attribute

model, and service attributes Uncertainty about service outcomes increase perceived risk Understanding customers’ service expectations

(L02) Use the multi-attribute model to understand how consumers evaluate and choose among alternative service offerings

Students need to understand that with the multi-attribute model, a consumer is very likely to arrive at a different decision depending on whether they are using the simple linear compensatory rule or the conjunctive rule.

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(L03) Learn why consumers often have difficulties evaluating services, especially those with many experience and credence attributes.

Students need to grasp the distinction between search, experience, and credence attributes. Product attributes include all features (both tangible and intangible) of a good or service that can be evaluated by

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customers. Most goods are high in search attributes, which makes it easier for customers to evaluate their quality. Many services are high in experience and/or credence attributes, reflecting two of the basic differences between goods and services discussed in Chapter 1: the dominance of intangible elements and the variability of operational inputs and outputs, leading to quality control problems. As a result, service marketers need to find ways to reduce the perceived uncertainty and risk of purchasing services, especially for a first time customer.

(L04) Know the perceived risks that customers face in purchasing services and the strategies firms can use to reduce consumer risk perceptions

Students should understand the concept of perceived risk during the pre-purchase stage (and also be able to extend this to the service encounter stage). They should be able to enumerate the seven different types of perceived risks (functional, financial, temporal, physical, psychological, social, and sensory). Examples are provided for each. A variety of risk reduction strategies are discussed and it students can be assigned to discuss which strategies listed might be appropriate for the different kinds of perceived risks.

(L05) Understand how customers form expectations and the

components of these expectations

Understanding customer expectations plays a central role not only in satisfaction research but also, more practically, in service design, and quality control. Students should be thoroughly familiar with the factors influencing customer expectations of services, as shown in Fig. 2.15 and be able to define each of the components of customer expectations.

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It’s particularly important to distinguish between the desired (wished for) service level, adequate (minimum acceptable) level, predicted services level (anticipated level of service) and zone of tolerance (accepted variation in service). Students should be able to explain the zone of tolerance that lies between the three levels.

(L06) Contrast how customers experience and evaluate high- versus low-contact services

The level of customer contact is the extent to which customers interact directly with service personnel, physical service elements, or both. Services range from high-contact to low-contact.

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High-contact services tend to be those where the customer visits the service facility and is actively with service personnel and the organization’s physical facilities throughout service delivery. All people-processing services are defined as high contact. As contact is reduced, customer interactions with service providers are often limited to: establishing a relationship and defining a service need; dropping off and picking up a physical possession that is being serviced; or trying to resolve a problem.

Low-contact services typically require minimal direct contact

between customers and service providers. Contact occurs at arm’s length through electronic or physical distribution channels.

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Many mental stimulus- and information-processing services are delivered this way. Possession processing can also be a low- contact service if the possession to be serviced can be shipped to the service provider’s location or processing can occur electronically to customers’ premises.

(L07) Be familiar with the servuction model and understand the interactions that together create service experience

The servuction system has two elements:

Technical core (invisible to the customer) Service delivery system (where final assembly takes place)

(L08) Obtain insights from viewing service delivery as a form of theater

The theater is a good metaphor for services because service delivery consists as a series of processes that customers experience as a performance. It is a particularly useful framework for examining high- contact services in which customers come to a physical facility (the stage), encounter a variety of service personnel (actors), are part of a broader group of customers (the audience), and are exposed to a tightly scripted and choreographed service delivery process. The role and script theories are apt in describing how consumers should behave and what steps are needed in order for them to obtain maximum satisfaction from a service encounter.

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(L09) Know how role and script theories contribute to a better understanding of service encounters

The actors in a theater need to know what roles they are playing and need to be familiar with the script. Similarly, in service encounters, knowledge of role and script theories can help organizations to understand, design and manage both employee and customer behaviors during service encounters.

(L010) Describe how customers evaluate services and what determines their satisfaction

When customer expectations are positively disconfirmed, customers are satisfied. High levels of positive disconfirmation lead to customer delight. For negative disconfirmation of expectations, the reverse is true. Students should note that there are strategic links between customer satisfaction and a firm’s performance.

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QUESTIONS AND EXERCISES

Review Questions

1. Explain the three-stage model of service consumption.

2. How can consumer choice between services in their

consideration set be modeled?

3. What is the difference between the linear compensatory rule and the conjunctive rule?

4. Describe search, experience, and credence attributes and give examples of each.

5. Explain why services tend to be harder for customers to

evaluate than goods.

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CHAPTER 3

POSITIONING SERVICES IN COMPETITIVE MARKETS

Chapter 3 establishes a theme that runs throughout the book: the need for a service firm to be oriented toward competitors as well as toward customers; to select a position in the marketplace that plays to its strengths; and to develop a service offering that is differentiated in meaningful ways from the competition and will appeal to customers in chosen market segments.

LEARNING OBJECTIVES

By the end of this chapter, students should be able to:

(LO1) Understand how the customer, competitor and company

analysis (i.e., the 3Cs) helps to develop a customer-driven services marketing strategy

(LO2) Know the key elements of s positioning strategy (i.e.,

STP) and explain why these elements are so crucial for service firms to apply

(LO3) Segment customers by needs first before using other common bases to further identify and profile the segments.

(LO4) Distinguish between important and determinant attributes

for segmenting services (LO5) Use different service levels for segmenting services

(LO6) Target service customers using the four focus strategies for competitive advantage

(LO7) Position a service to distinguish it from its competitors (LO8) Demonstrate an effective positioning strategy

(LO9) Demonstrate how positioning maps help to analyze competitive positioning

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CHAPTER OUTLINE

(LO1) Understand how the customer, competitor and company analysis (i.e., the 3 Cs) helps to develop a customer-driven services marketing strategy

Customer analysis contributes to helping to design and analyze the

market segments and their needs. Competitor and company analysis

contributes to understanding which customers to select as target

segments to serve.

PLEASE REFER TO HANDOUT NO.6 ON THE PORTAL FOR THE

SWOT ANALYSIS TEMPLATE

(LO2) Know the key elements of a positioning strategy (i.e., STP), and explain why these elements are so crucial for service firms to apply

Segmentation, targeting and positioning are basic steps in identifying

Service Insights 3.1 Banco Azteca in Mexico opened in 2002. It seeks to differentiate itself from competitors by selecting and targeting customers that other banks consider small accounts, and a nuisance to serve.

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a suitable market position and developing a strategy for the firm, such

that it has competitive advantage over its competitors. These are key

concept of a services positioning strategy.

(LO3) Segment customers by needs first before using other common bases to further identify and profile the segments

Traditionally, demographic segmentation is a popular way to segment customers. However, that is not useful in differentiating customers with different needs. Hence, it is more useful to segment customers by needs first, before using common bases for segmentation.

(L04) Distinguish between important and determinant attributes for segmenting services

Students need to recognize that the attributes that distinguish competing services from one another are not always the most important ones. If competing services, however, are perceived as well matched on the important attributes, then decisions may be made on the basis of less important (but still valued) attributes where differences between alternatives are evident. Determinant attributes are those that actually influence consumer’s choices.

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(L05) Understand how to use service levels for positioning services

Service levels – level of performance you plan to offer on each attribute Service tiers – positioning strategy based on offering several

price-based classes of service concept, each based on packaging a distinctive level of service performance across many attributes

(LO6) Target service customers using the four focus strategies

to achieve competitive advantage

When market growth slows, the only way for a firm to grow is to take share from the competition. To stand out from its competitors, a firm needs to differentiate itself in ways that are meaningful for consumers. Failure to do so will result in a commodity environment in which competition becomes price based and the winner is the player with the lowest costs.

Four basic focus strategies (Figure 3.5) are available to firms, reflecting the number of markets served and the breadth of services offered:

Service Insights 3.2 What started out as a hotel accommodation solution for space and land-constraint Japan, has evolved to a successful business plan for Yotel and Qbic Hotels with their capsule hotels in London and Amsterdam respectively. These hotels position its size, or the lack thereof, for budget travelers and those who want to experience capsule hospitality. Here, being small is certainly big business for these hoteliers.

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Unfocused. Unfocused service providers try to be all things to all customers by trying to serve broad markets with a wide variety of services.

Market-focused. A market-focused company concentrates on a narrow market segment but has a wide range of services.

Service-focused. Service-focused organizations offer a narrow range of services to a fairly broad market.

Fully-focused. A fully-focused firm provides a very limited range Of services to a narrow and specific market segment.

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(LO7) Position a service to distinguish it from its competitors

Positioning involves establishing a distinctive place in the minds of competitors relative to competing products. The essence of positioning can be distilled into these four principles:

1) A company must establish a position in the minds of its targeted customers.

2) The position should be singular, providing one simple and consistent message.

3) The position must set a company apart from its competitors. 4) A company cannot be all things to all people—it must focus its

efforts.

Once a service provider has positioned itself in the marketplace, it must constantly monitor this position. Competitive activity, new technologies, and market changes all may make repositioning necessary. Repositioning involves changing the position the firm holds in a consumer’s mind relative to competing services and can include adding or deleting service offering or withdrawing from some markets completely.

The concept of positioning forces service managers to analyze their firm’s existing offerings and provide specific answers to the following

six questions for developing an effective positioning strategy:

Service Insights 3.3 Rentokil Initial is one of the largest business support services companies in the areas of pest control and extermination services. The company positions itself as providing superior standards of customer care and using the most technically advanced services and products.

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(LO8) Develop an effective positioning strategy

To develop an effective positioning strategy, the company needs to have a position statement that shows their service concept, their customers, what they want to become, and the actions to take to get there. There are four basic elements to writing a good positioning statement:

1. Target audience 2. Frame of reference

3. Point of difference 10.Reason to believe

(LO9) Demonstrate how positioning maps help to analyze and develop a competitive positioning

Many companies use positioning maps (also known as perceptual maps) to help them develop competitive positioning—or repositioning—strategies. Positioning maps help managers identify the most critical attributes of competing services from a customer’s perspective. They also provide a visual picture of a firm’s unique characteristics, identifying the nature of competitive threats and opportunities and highlighting gaps between customer and management perceptions about competing services. Any two attributes that are important to customers can be placed on the vertical and horizontal axes of a two-dimensional perceptual map (three- dimensional maps can handle three attributes). For multiple attributes, several maps may be needed. Commonly used attributes include price, quality, type or frequency of use, and service characteristics that offer a unique benefit. (Figures 3.14 and 3.15 provide a description of how a large hotel used perceptual mapping to develop a better understanding of potential threats to their established markets.)

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QUESTIONS AND EXERCISES

Review Questions

1. What are the elements of a customer-driven services marketing strategy?

2. In segmentation, what are the most common bases to use? Provide examples for each of these bases.

3. What is the difference between important and determinant attributes in consumer choice decisions?

4. How are service levels of determinant attributes related to positioning services?

5. Why should service firms focus their efforts? Describe the

basic focus options, and give examples of how these work.

6. What are the six questions for developing an effective

positioning strategy?

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CHAPTER 4

DEVELOPING SERVICE CONCEPTS: CORE AND SUPPLEMENTARY ELEMENTS

In order to understand how to plan and market service products, students need to understand exactly what a service product is. Accordingly, a central theme in this chapter is the notion of the augmented service product, composed of a core service offering plus both facilitating and enhancing supplementary services.

LEARNING OBJECTIVES

By the end of this chapter, students should be able to:

(L01) Describe the two components of the Flower of Service

(L02) Know how facilitating supplementary services relate to the core product

(L03) Know how enhancing supplementary services relate to the core product

(L04) Examine how service firms use different branding strategies

(L05) Understand how branding can be used to tier service products

(L06) Discuss how firms can build brand equity and offer a branded experience

(L07) List the categories of new service development, ranging

from simple style changes to major innovations

(L06) Describe how firms can achieve success in new service

development

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CHAPTER OUTLINE

(L01) Describe the two components of the Flower of Service

They are the: Facilitating services – information, order taking, billing and payment. Enhancing services – consultation, hospitality, safekeeping, and exceptions.

(L02) Know how facilitating supplementary services relate to the core product

Students will learn that supplementary services can be divided into two broad groups, facilitating and enhancing, each of which can subsequently be divided into four clusters (for a total of eight), based on their more specific functions. Facilitating supplementary services are those that are required in service production, although enhancing supplementary services add extra value to the product core.

Facilitating Services

Information: supplementary services that facilitate purchase and use by telling customers about service features and performance before, during and after service delivery.

Order-taking: supplementary services that facilitate purchase by establishing fast, accurate and responsive procedures for taking applications, placing orders, or making reservations.

Billing: supplementary services that facilitate purchase by providing clear, timely, accurate and relevant documentation of what customers owe, plus information about how to pay.

Payment: supplementary services that facilitate purchase by

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offering a choice of easy procedures for making prompt payments.

(L03) Know how enhancing supplementary services relate to

the core product

Enhancing Services

Consultation: supplementary services that add value by providing responses to customers who require advice, counseling, or training to help them obtain maximum benefit from the service experience.

Hospitality: supplementary services that add value by treating customers like guests and providing amenities that anticipate their needs during interactions with the service provider.

Safekeeping: supplementary services that add value by assisting customers with personal possessions that they have brought with them to a service delivery facility site or purchased there.

Exceptions: supplementary services that add value by responding to special requests, resolving problems, handling complaints and suggestions, and providing compensation for service failures.

(L04) Explain how service firms use different branding

strategies

Branding is used at the product level (as opposed to the corporate level) to transform a series of service elements and processes into a consistent and recognizable service experience, offering a definable and predictable output. Branding strategies include Branded House, Subbrands, Endorsed brands and House of Brands.

(L05) Understand how branding can be used to tier service products

Within a company, branding of products can serve to differentiate one

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service package from another—as exemplified by the array of hotel brands offered by the Intercontinental Hotel Group, and the support levels available from Sun Microsystems (pp. 108 – 109). In the competitive arena, branding serves to differentiate one firm’s offering from another’s. The marketer’s objective is to become a “brand champion”, create preference for a specific brand and build loyalty.

(L06) Discuss how firms can build brand equity and offer a branded experience

Four key ways to build strong brands are:

1) Dare to be different 2) Determine your own fame 3) Make an emotional connection 4) Internalize the brand

Brand equity is based on brand awareness and brand meaning. Brand meaning has a stronger impact on brand equity, compared to brand awareness. To build brand meaning, customer experience with a company is very important.

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(L07) List the categories of new service development, ranging from simple style changes to major innovations

There are seven categories of new service, ranging from major innovations to simple style changes.

(L08) Describe how firms can achieve success in new service

development

Market synergy Organizational factors

Market research factors

QUESTIONS AND EXERCISES

Review Questions

1. Explain what is meant by core product and supplementary

services.

2. Explain the “flower of service” concept and identify each of its petals. What insights does this concept provide for service marketers?

3. What is the difference between enhancing and facilitating supplementary services? Give several examples of each relative to services you have used recently.

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4. How is branding used in services marketing? What is the distinction between a corporate brand such as Marriott and the names of its various inn and hotel chains?

5. How can service firms build brand equity?

6. What are the approaches the firms can take to create new services?

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CHAPTER 5

DISTRIBUTING SERVICES THROUGH PHYSICAL AND ELECTRONIC CHANNELS

This chapter highlights some of the key distinctions between

distributing a service and distributing a physical good, emphasizing the role of time as well as place and the

opportunity to distribute information-based services in cyberspace through electronic rather than physical channels.

Significant coverage is given to international distribution of services.

LEARNING OBJECTIVES

By the end of this chapter, students should be able to:

(LO1) Know the four key questions that form the foundation of

any service distribution strategy: What? How? Where? and When? (LO2) Describe the three interrelated flows that show what is

being distributed.

(LO3) Illustrate how services can be distributed using the three

main options (LO4) Explain what determines customers’ channel preferences

(LO5) Describe the where (place) and when (time) decisions of physical channels

(LO6) Discuss the factors that have fueled the growth of service

delivery via cyberspace.

(LO7) Understand the part played by intermediaries in

distributing services

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CHAPTER OUTLINE (L01) Know the four key questions that form the foundation of any service distribution strategy: What? How? Where? and When?

Developing responses to these questions is key to any service distribution strategy.

(L02) Describe the three interrelated flows that show what is being distributed

1) Information and promotion flow 2) Negotiation flow 3) Product flow

(L03) Illustrate how services can be distributed using the three main options

The nature of interaction between the customer and service

organization determine the available options for service delivery. The various modes of delivery are as follows:

a) Customers visit the service site. b) Service providers go to their customers. c) Service transactions conducted remotely (at arm’s length).

The use of different channels to deliver the same service has not just

cost implications but also significantly alters the nature of the service experience for the customer. Consumers now have more options to

choose from to obtain the same service. The motivations behind the choice of each channel differ. Convenience is a key driver of channel

choice, often favoring at arm’s length channels. Conversely,

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consumers rely more on personnel channels when the perceived risk is

higher, when there are social motives behind the transaction, and when the consumer does not have high confidence or knowledge about

the product. Firms often use different channels to serve the different needs of their various customer segments

(LO4) Explain what determines customers’ channel preferences

1) Complexity and perceived risk of the service 2) Individual confidence and knowledge 3) Choice of functional or social motives 4) Convenience

(LO5) Describe the where (place) and when (time) decisions of physical channels

The place and time decisions must reflect customer needs and

expectations, competitive activity and the nature of the service

operation. The strategies employed may also differ between those

used to deliver the supplementary elements and the core product. For physical distribution, constraints include

o Customer convenience

o Operational aspects (e.g., noise and environmental factors associated with the building of a new airport near a residential estate)

o Geographical factors (e.g., beach resorts have to be on beaches, while ski resorts have to be in the mountains)

o Cost economies involved with performing varied services in a single facility (e.g., major hospitals).

Service Insights 5.1 Nothing is too difficult for the company, Aggreko which rents out mobile electricity generators and temperature control devices to clients located all over the world. The company emphasizes on solving customer problems rather than just renting equipment. And that has been the cornerstone of Aggreko’s success. Students can use this to discuss what other services are amenable to

this mode of distribution.

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Service Insights 5.2 As the world becomes a more competitive place to do business in, companies are forced to extend operating hours 24/7 in order to stay ahead. There are five possible factors:

- Economic pressure from consumers - Change in laws - Economic incentives to improve the use of assets - Availability of employees to work during “unsocial” hours - Automated self-service facilities

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(LO6) Discuss the factors that have fueled the growth of service delivery via cyberspace

New innovations by service firms include mini-stores, sharing retail space with complementary providers, and design of multi-purpose

facilities (e.g., malls in airports).

Electronic channels such as virtual stores (e.g., Amazon.com)

and online banking offer an alternative to traditional physical channels for delivering information-based services. Adding an Internet channel to a physical channel requires high capital cost and it is not a given that the investment will lead to long term profits and high growth potential. A recent development is infrastructure that links CRM systems, mobile telephones, and Web sites to provide an unified and integrated customer interface.

Services are also increasingly being distributed 24/7 or 24 hours a day, 7 days a week in contrast to the traditional and rather restricted schedule previously, in industrialized countries that limits service availability to about 40–50 hours a week.

Service Insights 5.3 Nowadays, bank customers can open and close

accounts, transfer funds, make bill payments, make investments,

borrow loans without physically having to step into a bank. As people become busier in their daily lives, they would rather engage in internet banking rather than waste precious time queuing at the bank.

Service Insights 5.4 Online shopping can be faster than shopping at

the mall, but the choice of gift may not necessarily be what was tasked to be bought.

Service Insights 5.5 Banking can be done via mobile phones for

small amounts, and this is used to reach the unbanked of South Africa, not targeted by larger banks.

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(LO7) Understand the part played by intermediaries in distributing services

Service organizations may find it cost effective to outsource certain

tasks, for instance supplementary service elements. In these instances, the challenge is for the original supplier to work in

partnership and to be the guardian of the overall process to ensure that each element provided by the intermediaries fits the overall

service concept to create a consistent and seamless branded service experience.

Franchising can be used to outsource the core service offering.

Franchising has been applied to a wide array of businesses and it is an attractive strategy for growth oriented service firms. Furthermore,

franchisees are highly motivated to ensure customer orientation and high quality service operations. The franchisor recruits entrepreneurs

willing to invest in the business and provides training to operate and run the business, sells them the supplies, and provides promotional

support at a national level that augments the local marketing activities. Disadvantages of franchising include the loss of control over

the delivery system and how the customers experience the actual service. Hence, franchisors often have strict contracts exercising

control over all aspects of the service performance.

Licensing another supplier to act on the original supplier’s behalf to

deliver the core product is another way by which intermediaries can play a part in distributing the service, e.g., universities licensing

another educational institution to deliver courses designed by the former.

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QUESTIONS AND EXERCISES

Review Questions

1. What is meant by “distributing services”? How can an experience or something intangible be distributed?

2. What are the different options for service delivery? For each of the options, what factors do service firms need to take

into account when using that option? 3. What are the key factors driving place and time decisions of

service distribution?

4. What risks and opportunities are entailed for a retail service

firm in adding electronic channels of delivery by (a) paralleling an existing channel involving physical stores, or (b) replacing the physical stores with a combined Internet and call center channel? Give examples.

5. Why should service marketers be concerned with new developments in mobile communications?

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