Services Marketing Slides

Services Marketing

Department of Management Studies

MIC College of TechnologyMBA II Year (2010-2011)

Services Marketing

• Unit 1: Understanding Services Marketing• Unit 2: Customer Relationship Marketing• Unit 3: Services Market Segmentations• Unit 4: Creating Value in a Competitive

Market• Unit 5: Pricing Strategies for Services• Unit 6: Service Promotion• Unit 7: Planning and Managing Service

Delivery• Unit 8: Case Study

Services Marketing – Unit 1

• Understanding Services Marketing- Introduction- Services in the Modern Economy- Classification of Services- Marketing Services v/s Physical Goods- Services as a System

Unit I - Introduction

• A ‘Service’ is an activity; act; deed; effort or performance offered with sale of goods

• Types of Economic Activities:- Primary (Agriculture, Mining, Fisheries)- Secondary (Manufacturing, Processing)- Tertiary (Restaurants, Saloons, Dryclean)- Quaternary (Transportation, Retailing)- Quinary (Education, Research, Health)

Unit I – Services in Modern Economy

• Factors affecting growth of services:- Increasing levels of income- Urbanisation- Women in work-place- Demographic shifts- Concern for environment- Government Policies- Industrialisation- Competitive Pressures

Unit I – Services in Modern Economy

• Types of Services:- Tourism and Travel- Financial Services- Telecommunications- Health Services- Information Technology- Transportation and Logistics- Media Services- Professional Services- Education and Training

Unit I – Classification of Services

• Pure Goods: Salt; Book; Sugar• Goods Major and Service Minor: Cars, TVs• Tangible & Intangible Equal: Fast Food Outlets• Major Service & Minor Goods: Airlines;

Education• Pure Services: Baby Sitting; Legal Services

Unit I – Classification of Services

• Classification of services can be done in many ways:- The degree of tangibility of service delivery- Level of customisation v/s standardisation- Formal or informal relationship with customers- Extent to which demand and supply fluctuate- Interaction with people or inanimate objects

Unit I – Marketing Services v/s Physical Goods

• Services are “activities of more or less intangible nature that normally take place in interactions between the customer and service employees of the service provider as a solution to customer problems”

• Services are intangible• They do not result in ownership of anything• Customer interaction is integral to creation

and consumption• Services are actions bought for their ability

to create satisfaction


• Characteristics of Services:- Intangibility (I)- Heterogeneity (H) or Variability- Inseparability (I)- Perishability (P)

Also called as IHIP Characteristics of Services



• Challenges of Service Characteristics:- Marketing problems of intangibilitya) Lack of service inventoriesb) Lack of patent protectionc) Difficulty in communicating servicesd) Difficulty in pricing the services

- Marketing problems of inseparabilitya) Physical connection of service provider to the serviceb) Involvement of customers in production processc) Involvement of other customers in production d) Special challenges in mass production of services


• Challenges of Service Characteristics:- Marketing problems of heterogeneitya) Service standardization is difficultb) Quality control uniformity is difficult to get

- Marketing problems of perishabilitya) Higher demand than maximum available supplyb) Higher demand than optimum supplyc) Lower demand than optimal supply level

Unit I – Services as a System

• The types of encounters that take place during service delivery depend on the level of contact that customers have with service provider

• A service business can be viewed as a system made up of 3 overlapping elements:- Service Operations- Service Delivery- Service Marketing


Service Operations:- Inputs are processed and the elements of the service product are created

Service Delivery:- Final “assembly” of the elements takes place and the product is delivered to the customer

Service Marketing:- It embraces all points of contact with customers

Unit I – Services as a System Service Operations:

- Visible and Invisible parts of the operation

Service Delivery:- It is concerned with where, when, and how the service product is delivered to the customer- This element not only embraces the visible elements but may also involve exposure to other customers

Services Marketing:- Communications; Telephone calls and letters; Bills; News stories in the mass media; word of mouth and marketing research


Front Office / Customer Contact Area:- The area where customer action takes place; customer actions and employee actions happen here

Back Office: - The area that lies beyond customer’s visibility

Operations System:- The part that has direct control and responsibility of the service processes: a) People Processing b) Possession Processing c) Mental stimulus Processing d) Information Processing

Functional Conflicts between Operations; Marketing and HR


• Services Marketing Segmentation- The process of market segmentation- Selecting the appropriate customer portfolio- Creating and maintaining value relations- Customer Loyalty

Services Market Segmentation

• A single strategy cannot serve all customers in a broad market

• Diversity of customers and hence their demands is triggering abandonment of mass marketing in favour of segmentation

• Broadly, a marketer can choose from the following approaches:a) Mass Marketing b) Product Variety Marketing c) Segmented Marketingd) Customised Marketing


• Mass Marketing or Market Aggregation:- It signifies large-scale production, distribution and promotion- The firm chooses to offer one standardised product or service to the entire market- It is driven by the logic that large scale production leads to lower costs and higher margins for the marketers and lower prices for the customer- Making of one product in large quantity makes the operations simple and easy


• Product Variety Marketing:- It signifies dilution of mass marketing- The assumption is that customers differ in their tastes and seek variety- Variations are introduced in the products or services


• Segmentation Marketing:- It is recognition of differences among customers forming the mass market- This involves dividing the mass market into homogenous groups on some relevant basis- From these segments, a firm can choose any one or more of the groups for its marketing


• Niche Marketing:- A niche is a small sub-group of customers within a segment- A segment is made up of smaller sub-segments of customers


• Customised Marketing:- This approach does not aggregate customers around a single offer- The products and services are customised according to individual needs of a customer- Each customer is considered a segment of one- Marketing effectiveness is the maximum in this approach


• Need for Segmentation:- Increasing consumer affluence- Advances in manufacturing technology- Information technology permits building of customer data bases about preferences, buying patterns and response patterns- It is the necessary step first step in the formulation of a competitive differentiation building strategy


• Identification of segments:- Demographic segmentation- Psychographic segmentation- Geographical segmentation- Behavioral segmentation


• Selecting the segment:a) Segment size and growthb) Structural Attractivenessc) Company Objectives and Resources

• Targeting of Segments:a) Undifferentiated Marketingb) Differentiated Marketingc) Concentrated Marketing


• Selecting the segment:a) Segment size and growthb) Structural Attractivenessc) Company Objectives and Resources

• Targeting of Segments:a) Undifferentiated Marketingb) Differentiated Marketingc) Concentrated Marketing


• Selecting the appropriate customer portfolio:- The firm must understand what customers in the chosen market look for?- What are the points of references that are used by customers in evaluating and selecting alternatives?- A close examination of what lies behind the behavior throws interesting insight into the motivating influences


• An example of MBA Aspirant Segments- Quality seekers: They want first class education at an accredited programme; this group typically is made up of part-time students pursuing MBA programme several years after their graduation- Knowledge seekers: They believe in the power of knowledge. They see MBA as knowledge enhancement opportunity. They believe this degree will be an asset in their social, corporate and political lives- Status seekers: MBA for this group is a means to earn more prestige and income- Degree seekers: These students find their bachelor degree to be insufficient in achieving job competitiveness. They feel MBA as necessary to brighten job prospects. This group consists of highest number of full-time students- Professional advancers: This group strives to go up the corporate ladder with MBA; students in this group want twin benefits of higher income and upward mobility


• An example of MBA Aspirant Segments- Career changers: This group looks for mobility in their career; they believe MBA will provide them with opportunities for career advancement and flexibility- Specialty seekers: They pursue MBA to seek specialised knowledge in a chosen field to become experts- Avoiders: They seek low cost and low quality programme; they want their programme to require minimum work- Convenience seekers: They are driven by location closeness to their home or job; they prefer simple registration procedures- Non-matriculators: They seek business schools that allow these students to pursue MBA without going through established procedure of passing exams completing formal applications

Targeting the Right Customers

• Many elements are involved in creating long-term customer relationships and loyalty

• The process starts by identifying and targeting the right customers

• Customers often differ widely in terms of needs and the value the can contribute to a company

• Not all customers offer a good fit with the organisation’s capabilities, delivery technologies and strategic direction

Targeting the Right Customers

• Good relationships start with a good fit• “the result should be a win-win situation

where profits are earned through the success and satisfaction of the customers and not at their expense” – Frederic Reichheld

• Too many service firms still focus on “number” of customers they serve without emphasis on “value” of each customer

• Evaluate Cost of Acquisition v/s Cost of Retention

Selecting an Appropriate Customer Portfolio

• The goal of portfolio analysis is to determine the mix of products that is appropriate to one’s needs, resources and risk preference

• Concept of portfolio to service businesses with an established base of customers can be done

• Some type of customers can be profitable in short term and may or may not have potential for long term growth

Selecting an Appropriate Customer Portfolio

Poor-RelationshipCustomers

Good-RelationshipCustomers

Which segment sees high value in our offer,spends more with us overtime,

costs less to maintain and spreadspositive word of mouth

Which segment costs us in time and effort and money but does not

provide the returns we want? what segment is difficult to do

business with?

“The Customer Pyramid: Creating and Servicing Profitable Customers” California Management Review, 2001

Creating and Maintaining Valued Relations

• For the service provider, a valued relationship is one that is financially profitable in the long run

• In addition, the benefits of serving a customer may extend beyond revenues to include such intangibles as the knowledge and pleasure obtained from working with that customer over time

Building Customer Loyalty

• Loyalty: A customer's voluntary decision to continue patronizing a specific firm over an extended period of time

• Customers’ view of relational benefits• Foundations of customer loyalty –

customer satisfaction• Zones of Defection – Zone of

Indifference – Zone of Affection


• Creating bonds with customers- Deepening the relationship (cross/up selling)- Reward-based bonds- Social bonds- Customisation bonds- Structural bonds- Customer bonds through membership

relationships and loyalty programs


• Why is customer loyalty important?- Profit derived from increased purchases- Profit from reduced operating costs- Profit from referrals to other customers- Profit from price premium


• Customer Lifetime Value (CLV):- Value of each individual customer throughout his expected lifetime as a customer to the firm- The sum of all CLVs for all customers is called as “Customer Equity”- Calculating CLV requires a thorough understanding of the costs and revenues associated with a customer on a year-by-year basis

The Wheel of Loyalty

Enabled through

1.Frontline Staff2.Account Managers3.Membership Programs4.CRM Systems


• Creating Value in a Competitive Market- Positioning a service in the market- Value addition for the service product- Planning and branding service products- New service development

Creating Value in a Competitive Market

• How can we differentiate our service product from the competition?

• How should we go about designing new services?

• Focus• Market Focus• Service Focus


• Focus: providing a relatively narrow product mix for a particular market segment—a group of customers who share common characteristics, needs, purchasing behavior, or consumption patterns

• Market focus is the extent to which a firm serves few or many markets

• Service focus describes the extent to which a firm offers few or many services


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

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

• Service-focused firms offer a narrow range of services to a fairly broad market

• Finally, many service providers fall into the unfocused category because they try to serve broad markets and provide a wide range of services


Nu

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of

Mark

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Serv

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Breadth of Service Offerings

Narrow Wide

Few

Many


Service Positioning• A company must establish a position in

the minds of its targeted customers.• The position should be singular,

providing one simple and consistent message.

• The position must set a company apart from its competitors.

• A company cannot be all things to all people—it must focus its efforts.


1. Product attributes – “Easy to use”2. Price - Quality relationship –

“Reasonable”3. Reference to competitors – “Hertz and

Avis”4. Usage occasions – “Different skiing

services in summer and winter”5. User characteristics – “Online ticketing”

Value Addition for the Service Product

• What should be the core and supplementary elements of the service product?

• The core addresses the customer's need for a basic benefit—such as transportation to a desired location, resolution of a specific health problem, or repair of malfunctioning equipment

• Supplementary services facilitate and enhance use of the core service; they range from information, advice, and documentation to problem solving and acts of hospitality

• Augmented Product: - The core product (a

good or a service) plus all supplementary elements that add value for customers


Shostack's Molecular Model: Passenger Airline Service


The Flower of Service: Core Product Surrounded by Clusters of Supplementary Services

• Facilitating supplementary services: Supplementary services that aid in the use of the core product or are required for service delivery

• Enhancing supplementary services: Supplementary services that may add extra value for customers


Facilitating Services Enhancing Services

- Information - Consultation- Order Taking - Hospitality- Billing - Safekeeping- Payment - Exceptions


1. Information• Customer needs may include directions to the

physical location where the product is sold (or details of how to order it by telephone or Web site), service hours, prices, and usage instructions. Further information, sometimes required by law, could include conditions of sale and use, warnings, reminders, and notification of changes.

• Customers may want documentation of what has already taken place, such as confirmation of reservations, receipts and tickets, and monthly summaries of account activity


2. Order Taking

• Applications• Membership in clubs or programs• Subscription services (e.g., utilities)• Prerequisite-based services (e.g., financial credit, college enrollment)

• Order Entry• On-site order fulfillment• Mail/telephone order placement• E-mail/Web site order placementReservations and Check-in• Seats• Tables• Rooms• Vehicles or equipment rental• Professional appointments• Admission to restricted facilities (e.g., museums, aquariums)


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


4. Payment• self-service

- Exact change in machine- Cash in machine with change returned Elements- Insert credit/charge/debit card- Electronic funds transfer- Mail a check- Enter credit card number online

• Direct to payee or intermediary- Cash handling and change giving- Check handling- Credit/charge/debit card handling- Coupon redemption- Tokens, vouchers, etc.


5.Consultation

• Advice• Auditing• Personal counseling• Tutoring/training in product usage• Management or technical consulting


6.Hospitality• Greeting• Food and beverages• Toilets and washrooms• Waiting facilities and amenities• Lounges, waiting areas, seating• Weather protection• Magazines, entertainment, newspapers• Transport• Security


7. Safe Keeping Caring for possessions customers bring with them

• Childcare• Pet care• Parking facilities for vehicles• Valet parking• Luggage handling• Storage space• Safe deposit boxes• Security personnel

Caring for goods purchased (or rented) by customers• Packaging• Pick-up• Transportation• Delivery• Installation• Inspection and diagnosis• Cleaning• Refueling• Repairs and renovation


8. Exceptions • Special requests: There are many circumstances when a customer may

request service that requires a departure from normal operating procedures. Advance requests often relate to personal needs, including childcare, dietary requirements, medical needs, religious observances, and personal disabilities. Such special requests are common in the travel and hospitality industries.

• Problem solving: Situations arise when normal service delivery (or product performance) fails to run smoothly as a result of accidents, delays, equipment failures, or customers experiencing difficulty in using the product.

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

• Restitution: Many customers expect to be compensated for serious performance failures. Compensation may take the form of repairs under warranty, legal settlements, refunds, an offer of free service, or other forms of payment-in-kind.


8. Examples of Exceptions • Special requests in advance of service delivery

• Children's needs• Dietary requirements• Medical or disability needs• Religious observances• Deviations from standard operating procedures

• Handling special communications• Complaints• Compliments• Suggestions

• Problem solving• Warranties and guarantees against product malfunction• Resolving difficulties that arise from using the product• Resolving difficulties caused by accidents, service failures, and problems with staff or other customers• Assisting customers who have suffered an accident or medical emergency

• Restitution• Refunds• Compensation in kind for unsatisfactory goods and services• Free repair of defective goods



New Service Development - Hierarchy of Service Innovation

1. Major service innovations: new core products for markets that have not been previously defined - Fedex

2. Major process innovations: using new processes to deliver existing core products in new ways with additional benefits – University of Phoenix

3. Product line extensions: additions to current product lines by existing firms – Starbucks

4. Process line extensions: distinctive new ways of delivering existing products – Barnes and Noble


Hierarchy of Service Innovation5. Supplementary service innovations: adding new

facilitating or enhancing service elements to an existing core service – adding parking at a retail site or agreeing to accept credit cards for payment

6. Service improvements: most common type of innovation; they involve modest changes in the performance of current products, including improvements to either the core product or to existing supplementary services - movie theater might renovate its interior, adding ergonomically designed seats with built-in cup holders

7. Style changes: the simplest type of innovation; typically involving no changes in either processes or performance - repainting retail branches; outfitting service employees in new uniforms


• Service companies must find ways to create meaningful competitive advantages for their products by responding to specific customer needs and developing a distinctive service strategy that responds to those needs better than any competing product

• Successful positioning strategies are based on relating the opportunities (and threats) uncovered by market and competitive analysis to the firm's own strengths and weaknesses.


• Pricing Strategies for Services- Service Pricing- Establishing Monetary Pricing Objectives- Foundations of Pricing Objectives- Pricing and Demand- Putting Service Pricing Strategies into Practice

Buyer’s Perception of Value

Source: Philip Kotler, Marketing Management, 9th ed. (Englewood Cliffs, NJ: Prentice-Hall), 1997, p. 37.

Product value

Service value

Personnel value

Image Value

Monetary cost

Time cost

Energy cost

Psychic cost

Buyer’s perception

of value

Totalcustom

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Totalcustom

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Totalcustomer

cost

Objectives and Foundations for Setting Prices

• Marketing is the only function that brings revenues to the organisation

• Pricing is the mechanism by which sales are transformed into revenues

• In many service industries, pricing was traditionally driven by financial and accounting perspective, which was often cost-plus pricing

Objectives and Foundations for Setting

Prices• Pricing decisions are also controlled by

government policies• Pricing is more complex in services than in

manufacturing• No ownership of services hence more

difficult for managers to determine the financial costs of creating a process or performance for a customer than to identify the costs associated with creating and distributing a physical good


Prices• The inability to inventory services

places a premium on bringing demand and supply into balance, a task in which pricing has key role to play

• The importance of time factor in service delivery means that speed of delivery and avoidance of waiting time often increase value hence to customer is willing to pay a higher price


Prices• Revenue and Profit Objectives:

- Seek profit- Cover costs

• Patronage and User-Base Related Objectives:- Build demand- Build a user base

• The Pricing Tripod – Cost, Value and Competition


Prices• Cost Based Pricing Approach

- Establish cost of service using fixed, semi variable and variable costs

• Value Based Pricing Approach- Understanding net value of monetary and non monetary value of services

• Competition Based Pricing Approach- Pricing competition increases with increasing number of competitors, increasing number of substitutes, wider distribution of competitor/substitution offers and increasing surplus capacity in the industry


Prices

Parameter Clinic A Clinic B Clinic C

Price Rs. 450 Rs. 850 Rs. 1050

Location 1 hour 15 minutes Next building

Next Available Appointment

3 weeks 1 week 1 day

Hours: M-F: 9:00 am – 5:00 pm

M-F: 8:00 am – 10:00 pm

M-S: 8:00 am – 10 pm

Estimated wait at clinic

2 hours 30-45 minutes 0-15 minutes

Trading off Monetary and Non-Monetary Costs

Assumption: All 3 clinics offer good technical quality

• What Makes Service Pricing Different?- No Ownership of Services- Higher Ratio of Fixed Costs to Variable Costs- Variability of Both Inputs and Outputs- Many Services Are Hard to Evaluate

Pricing and Demand

- Price Elasticity- Yield Management- Fencing Mechanisms- Customer-Led Pricing: Auctions and Bids

Putting Pricing Strategies Into Practice

• 1. How much should be charged for this service?

a. What costs is the organization attempting to recover? Is the organization trying to achieve a specific profit margin or return on investment by selling this service?

b. How sensitive are customers to different prices?

c. What prices are charged by competitors?d. What discount(s) should be offered from basic

prices?e. Are psychological pricing points (e.g.,

Rs.299.95 versus Rs 300.00) customarily used?


2. What should be the basis of pricing?a. Execution of a specific taskb. Admission to a service facilityc. Units of time (hour, week, month, year)d. Percentage commission on the value of the

transactione. Physical resources consumedf. Geographic distance coveredg. Weight or size of object servicedh. Should each service element be billed

independently?i. Should a single price be charged for a bundled

package?


3. Who should collect payment?a. The organization that provides the serviceb. A specialist intermediary (travel or ticket

agent, bank, retailer, etc.)c. How should the intermediary be

compensated for this work—flat fee or percentage commission?

4. Where should payment be made?a. The location at which the service is deliveredb. A convenient retail outlet or financial

intermediary (e.g., bank)c. The purchaser's home (by mail or phone)


5. When should payment be made?a. Before or after delivery of the serviceb. At which times of dayc. On which days of the week6. How should payment be made?a. Cash (exact change or not?)b. Token (where can these be purchased?)c. Stored value cardd. Check (how to verify?)e. Electronic funds transferf. Charge card (credit or debit)g. Credit account with service providerh. Vouchersi. Third-party payment (e.g., insurance company or government

agency)?


Basis for Pricing

• Price Bundling: The practice of charging a base price for a core service plus additional fees for optional supplementary elements.

• Discounting!: A strategy of reducing the price of an item below the normal level.

• Customers pay more to use a service than just the purchase price specified by the supplier

• Customers are often willing to pay a higher price when the nonfinancial outlays are minimized, since the value of a service reflects the benefits that it delivers to the customer minus all the associated costs


• Pricing strategy must address the central issue of what price to charge for a given unit of service at a particular point in time, no matter how that unit may be defined. It's essential that the monetary price charged should reflect knowledge of the service provider's fixed and variable costs, competitor's pricing policies, and the value of the service to the customer

Factors Influencing Consumer Price

Sensitivity• Perceived-

substitutes• Unique value• Switching costs• Comparison

effect• Price-quality

effect

• Expenditure effect• End-benefit effect• Shared-cost effect• Fairness effect• Inventory effect

Factors Influencing Consumer Price Sensitivity

• Perceived Substitute Effect– few search attributes– providers often lack resources and

marketing expertise– limited product mix


• Unique Value Effect– conveying “uniqueness” is difficult– provider may need to educate the

market– uniqueness is often short-lived


• Switching Costs– higher levels of perceived risk– uncertainty involved in changing

providers– consequences associated with a bad

outcome


• Difficult Comparison Effect– high number of experience attributes– inherent heterogeneity


• Price-Quality Effect– price acts as a quality indicator when

consumers:• believe that quality differs among providers• believe that low quality imposes greater

consequences• lack other sources of objective information


• Expenditure Effect– amount of expenditure relative to

consumer household income.


• End-benefit Effect– the more price sensitive consumers are

to the cost of the end-benefit, the more sensitive they will be to purchases that contribute to the end-benefit.• Price bundling adds value to the consumer’s

end-benefit.


• Shared-cost Effect– consumer price sensitivity decreases as

the shared-costs with third parties increase.


• Fairness Effect– fairness is typically assessed by

comparing the price to:• previous prices paid for similar services• prices paid for similar services under

similar circumstances• the benefit gained

– assessing “service” fairness is difficult


• Inventory Effect– consumers are able to protect

themselves from future price increases by building inventories.


Sensitivity• Consumers of professional services

tend to be less price sensitive.• Need to identify perceptions of key

sensitivity factors across service industries

• Key factors may be useful for differentiation purposes

• Providers may reinforce or alter beliefs pertaining to key factors.


Sensitivity

• Price discrimination is a viable alternative


Sensitivity• Different groups of consumers must

have different responses to price.

• Different segments must be identifiable, and a mechanism must exist to price them differently.

• Individuals in one segment who have paid a low price should not be able to pass those savings on to other segments.


Sensitivity• The segment should be large

enough to make it worthwhile.

• Costs should not exceed the incremental revenues obtained.

• Customers should not be confused.


Sensitivity• Price is sometimes not know until after

the service has been produced• Cost-oriented pricing is more difficult– activity-based costing breaks down the

organization into a set of activities, and activities into tasks, which convert materials, labor, and technology into outputs.

• High fixed cost to variable cost ratio• Economies of scale tend to be limited


Sensitivity

• Price tends to be one of the few search clues available.

• More likely to use price as a quality cue– The relationship between price and

information may be U-shaped.• Consumers are less certain about

reservation prices


Sensitivity

• Comparing prices is more difficult• Self-service is a viable alternative


Sensitivity

• Many different names for price• Consumers are less able to stockpile

by taking advantage of discount prices• Product-line pricing is more difficult• Less likely to use odd-pricing• Price discounting tends to be less

common


Sensitivity

• Opportunity exists to engage in ethical misconduct and excessively charge consumers for services.


Sensitivity• Satisfaction-based pricing– primary goal is to reduce the amount

of perceived risk.– benefit-driven pricing--charges

customers for services actually used as opposed to overall membership fees.

– flat-rate pricing--customer pays a fixed price and the provider assumes the risk of price increases and overruns.


Sensitivity• Relationship Pricing– primary objective is to enhance the

firm’s relationship with its targeted consumers.• long-term contracts--offers price and non

price incentives for dealing with the same provider over a number of years.

• pricing bundling--marketing two or more services as a single package for a single price.


Sensitivity• Efficiency Pricing– primary objective is to appeal to

economically-minded consumers by delivering the best and most cost-effective service for the price.• Cost-leader pricing


Sensitivity• The price should: – Be easy for customers to understand– Represent value to the customer– Encourage customer retention and

facilitate the customer’s relationship with the providing firm

– Reinforce customer trust– Reduce customer uncertainty

Service Promotion – Unit VI

• The role of marketing communication• Implication for communication

strategies• Setting communication objectives• Marketing communication mix

Role of Marketing Communication

• Marketing communications, in one form or another, are essential to a company's success

• Scope of marketing communication: Some people still define it narrowly as the use of paid media advertising, public relations and professional sales people


• But this view doesn't recognize the many other ways that a firm can communicate with its customers

• The location and atmosphere of a service delivery facility, corporate design features like the consistent use of colors and graphic elements, the appearance and behavior of employees, Web site design—all of these factors contribute to an impression in the customer's mind


• Communication efforts serve not only to attract new users but also to maintain contact with an organization's existing customers and build relationships with them

• Nurturing customer relationships depends on a comprehensive and up-to-date customer database, and the ability to make use of this in a personalized way


• Marketing communications can be used to communicate with service employees as well as with external customers

• Internal communications from senior managers to their employees play a vital role in maintaining and nurturing a corporate culture founded on specific service values


• Well-planned internal marketing efforts are especially necessary in large service businesses that operate in widely dispersed sites, sometimes around the world

• Even when employees are working far from the head office in the home country, they still need to be kept informed of new policies, changes in service features, and new quality initiatives


• Effective internal communications can help ensure efficient and satisfactory service delivery, achieve productive and harmonious working relationships, and build employee trust, respect, and loyalty

• Commonly used media include internal newsletters and magazines, videotapes, Intranets (private networks of Web sites and e-mail that are inaccessible to the general public), face-to-face briefings, and promotional campaigns using displays, prizes, and recognition programs

Communication Strategies for Services

• Intangible Nature of Service Performances: Since services are performances rather than objects, their benefits can be difficult to communicate to customers

• Service providers should use tangible cues whenever possible in their advertising campaigns, especially for low-contact services that involve few tangible elements


• It is also helpful to include "vivid information" that will produce a strong, clear impression on the senses, especially for services that are complex and highly intangible

• MasterCard television and print advertisements emphasize the tangible things that can be purchased with its credit card—complete with a listing of the price of each item. In each ad, all of the items purchased with the card lead to a priceless experience (a clever and memorable reference to the concept of intangibility)


• At a very basic level, some companies have succeeded in creating tangible, recognizable symbols to associate with their corporate brand names

• Easily recognizable corporate symbols are especially important for international companies when services are offered in markets where the local language is not written in Roman script or where a significant proportion of the population is functionally illiterate


• Customer Involvement in Production: In high-contact services, customers are often concerned about the risks associated with service delivery and consumption

• The providers of such services have both a legal and a moral responsibility to educate their clients

• When customers are actively involved in service production, they need training to help them perform well—-just as employees do


• One approach recommended by advertising experts is to show service delivery in action

• Some dentists show their patients videos of surgical procedures before the surgery takes place. This educational technique helps patients prepare mentally for the experience and shows them what role they should play during service delivery


• Evaluating Service Offerings: Even if you understand what a service is supposed to do, you may have difficulty distinguishing one firm from another and knowing what level of performance to expect from a particular supplier

• What can a service business do to attract your attention and your patronage? Possible solutions include: providing tangible clues related to service performance; highlighting the quality of equipment and facilities; and emphasizing employee characteristics such as their qualifications, experience, commitment, and professionalism.


• Some performance attributes lend themselves better to advertising than others.

• When an airline wants to boast about its punctuality, reporting favorable statistics collected by a government agency offers credible support for this claim.


• However, airlines don't like to talk overtly about safety, because even the admission that things might go wrong makes many passengers nervous.

• Instead, they approach this ongoing customer concern indirectly, advertising the expertise of their pilots, the newness of their aircraft, and the skills and training of their mechanics


• In low-contact services "where much of the firm's expertise is hidden, firms may need to illustrate equipment, procedures, and employee activities that are taking place backstage

• Supply-and-Demand Management: Many live services are time-specific and can't be stored for resale at a later date

• Advertising and sales promotions can help to change the timing of customer use and thus help to match demand with the capacity available at a given time


• Demand management strategies include reducing usage during peak demand periods and stimulating it during off-peak periods

• Low demand outside peak periods poses a serious problem for service industries with high fixed costs, like hotels

• Importance of Contact Personnel: In high-contact services, service personnel are central to service delivery. Their presence makes the service more tangible and, in many cases, more personalized


• Reduced Role for Intermediaries: Intermediaries like retailers often play a key role in promoting products and teaching customers about their characteristics

• Services are less likely than goods to be sold through channel intermediaries


• Firms in the travel and insurance industries, which make extensive use of independent agents and brokers, must compete with other brands not only for physical display space but also for "top-of-mind" recall if they are to obtain adequate push from intermediaries in the distribution channels

• Internal communication, personal selling, motivational promotions, and effective public relations can be critical in maintaining successful working relationships between intermediaries and service firms

Setting Communication Objectives

• Create memorable images of specific companies and their brands

• Build awareness of and interest in an unfamiliar service or brand

• Build preference by communicating the strengths and benefits of a specific brand\

• Compare a service with competitors' offerings and counter competitive claims

• Reposition a service relative to competing offerings

• Stimulate demand in low-demand periods and discourage demand during peak periods


• Encourage trial by offering promotional incentives• Reduce uncertainty and perceived risk by

providing useful information and advice• Provide reassurance (e.g., by promoting service

guarantees)• Familiarize customers with service processes in

advance of use• Teach customers how to use a service to their own

best advantage• Recognize and reward valued customers and

employees


• When planning a campaign, marketers need to formulate specific communications objectives and select the most appropriate messages and tools to achieve them

• Let's assume that a rental car agency has defined the need to increase repeat purchase rates among business travelers as one of its key strategic objectives.


• In pursuit of this objective, the firm decides to implement an automatic upgrade program and an express delivery and drop-off system.

• For this plan to succeed, customers must be informed about these new features and educated on how to take advantage of them.


• A specific set of communications objectives might be:

(1) to create awareness of the new offering among

all existing customers; (2) to attract the attention of prospective

customers in the business traveler segment, inform them of the new features, and teach them how to use the new procedures effectively;

(3)to stimulate inquiries and increase pre-bookings; and

(4)to generate an increase in repeat patronage of 20 percent after six months


• Planning a marketing communications campaign should reflect a good understanding of the service product and the ability of prospective buyers to evaluate its characteristics in advance of purchase.

• It's also essential to understand target market segments and their exposure to different media, as well as consumer awareness of the product and attitudes toward it.


• Decisions include determining the content, structure, and style of the message to be communicated, its manner of presentation, and the media most suited to reaching the intended audience

• Additional considerations include: the budget available for execution; time frames (as defined by such factors as seasonality, market opportunities, and anticipated competitive activities); and methods of measuring and evaluating performance.


• Marketing communications mix: The full set of communication tools (both paid and unpaid) available to marketers

• Retail Displays: Presentations in store windows and other locations of merchandise, service experiences, and benefits.


• Personal communications: Direct communications between marketers and individual customers that involve two way dialog (including face-to-face conversations, phone calls, and e-mail)

• Impersonal communications: one-way communications directed at target audiences who are not in personal contact with the message source (including advertising, promotions, and public relations)

The Marketing Communications Mix for Services


• Personal Communications- Personal Selling: two-way communications between service employees and customers designed to directly influence the purchase process- Telemarketing: personal selling to prospective customers through the medium of the telephone.

The Marketing Communications Mix for

Services

• Personal Communications- Customer Service: the provision of supplementary service elements by employees who are not specifically engaged in selling activities.

- Customer Training: formal training courses offered by service firms to teach customers about complex service products

The Marketing Communications Mix for

Services

• Personal Communications- Word of Mouth: positive or negative comments about a service made by one individual (usually a current or former customer) to another

• Non Personal Communications- Advertising: any form of non-personal communication by a marketer to inform, educate, or persuade members of target audiences


• Non Personal Communications- Sales Promotion: a short-term incentive offered to customers and intermediaries to stimulate product purchase

• Public Relations: efforts to stimulate positive interest in a company and its products by sending out news releases, holding press conferences, staging special events, and sponsoring newsworthy activities put on by third parties.


• Instructional Materials:

- Promotion and education often go hand in hand- There's little point in promoting a new service (or service feature) if people are unsure of the benefits or don't know how to proceed


• Corporate Design and Physical Evidence: - Corporate Design: the consistent application of distinctive colors, symbols, and lettering to give a firm an easily recognizable identity


• Servicescape: the design of any physical location where customers come to place orders and obtain service delivery.


1. With which rental car companies are the colors yellow, red, and green associated?

2. Which international airline has a flying kangaroo for its symbol? Which one uses a maple leaf?

3. Which stockbroker displays a ram's head as its corporate symbol?

4. How many companies can you name that use a globe like symbol?

5. Which international financial services company uses a symbol of three crossed keys?


Documents

Services Marketing Slides