SQ Lecture One : Introduction

Lecture One

Course overview

Introduction to Services

Marketing (Ch 1 )

Service Quality MKTG 1268

1

JAN 2013 Semester

GEOFFREY DA SILVA

Course objectives

1. Recognize the customer’s and the service

provider’s (e.g. marketer’s) perspective

and roles in service exchanges.

2. Implement marketing plans.

3. Recognize and adapt to changing

environments.

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Learning outcomes

1. Describe the unique characteristics of services and

their implications on marketing strategies.

2. Describe the major differences between marketing

products and services in relation to the expanded

marketing mix of product, price, promotion, place &

time (e.g. service logistics), people, processes and

physical evidence and the different nature of

consumer behaviour.

3. Describe the links between Marketing, Operations

and Human Resource Management in service

organizations.

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Learning outcomes (cont’d)

4. Articulate key concepts in services marketing

including: service encounters, service blueprinting,

relationship marketing, service scripts, service

guarantees and service logistics.

5. Conceptualize and articulate service quality and

describe how it can be defined, measured and

improved.

6. Expound the concepts involved in implementing

service quality such as setting service standards,

customer focus, organisational change, leadership,

quality tools, quality awards and processes.

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Coverage of topics (RMIT syllabus)

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Class 1: Course overview; Introduction to Services Marketing (Ch 1 ) Class 2: Customer Behaviour in the Services Context (Ch 2), Introduction to ’Service Quality’ (Ch 14) Class 3: Positioning Services in Competitive Markets; Developing Service Products (Ch 3 and 4) Class 4: Distributing Services Through Physical and Electronic Channels; Setting Prices and Implementing Revenue Management (Ch 5 and 6) Class 5: Promoting Services and Educating Customers; Designing and Managing Service Processes(Ch 7 and 8) Class 6: Crafting the Service Environment (Ch 10) Class 7: Managing People for Service Advantage (Ch 11) Class 8: Balancing Demand Against Productive Capacity (Ch 9) Class 9: Managing Relationships and Building Loyalty, Complaint Handling and Service Recovery (Ch 12 and 13) Class 10: Improving Service Quality and Productivity (Ch 14) Class 11: Organising for Change Management and Service Leadership (Ch 15) Class 12: Revision and exam discussion / hints

Compulsory textbook

Lovelock, C., Wirtz, J. and Chew, P. (2013), Essentials of Services Marketing, 2ND Edition Pearson Education, Singapore.

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Before we start…

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This is not a foundation course but rather an applied course

You are assumed to have understood all the earlier topics and concepts that you have learnt in previous Marketing courses such as Principles of Marketing, Consumer Behavior and Marketing Research

Many of the topics we will cover in Services Quality/Marketing course will draw upon these concepts

What concepts?

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What is the marketing concept?

Understanding the marketing environment

Understanding consumer buying behavior- this is challenging in SM since the product is intangible and the customer does not buy the product per se but rather experiences a service.

Segmentation, Targeting and Positioning- the foundation for Marketing Strategy

The Marketing Mix- now we don’t have 4 but rather 7 Ps

Overview of Chapter 1

Why study services? Powerful forces that are transforming service markets What are services? Four broad categories of services Challenges posed by services Expanded marketing mix for services Framework for effective services marketing strategies

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Services Marketing (education – your most

important service product purchase in your life?) 10

Why Study Services?

Services Dominate Economy in Most Nations

Most New Jobs are Generated by Services Fastest Growth Expected in Knowledge-Based

Industries

Many New Jobs are Well-Paid Positions Requiring Good Educational Qualifications

Many manufacturing firms moved to marketing stand- alone services

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Contribution of Services Industries to

Global GDP 12

Estimated Size of Service Sector in

Selected Countries 13

Contribution of Services to Singapore economy

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See Department of Statistics for details

Web Link

http://www.singstat.gov.sg/stats/themes/economy/services.ht

ml

http://www.singstat.gov.sg/stats/themes/economy/services.html




There is also a national index for SQ in Singapore

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Customer Satisfaction Index of Singapore

Undertaken by the Institute of Service Excellence at

the Singapore Management University

Website: http://www.smu.edu.sg/centres/ises/

2011 report:

http://www.smu.edu.sg/centres%5Cises%5Cdownloads

%5Ccsisg2011q1_executivesummary.pdf

http://www.smu.edu.sg/centres/ises/

http://www.smu.edu.sg/centres/ises/

http://www.smu.edu.sg/centres/ises/downloads/csisg2011q1_executivesummary.pdf



Powerful forces that are transforming service markets

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1. Social changes

2. Business trends like productivity and

cost savings, franchising etc.

3. Advances in information technology

4. Internationalization and globalization

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

Forces Transforming the Service Economy

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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

Forces Transforming the Service Economy (1)

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Government

Policies

Business

Trends

Social

Changes

Advances in

IT

Globalization

● Rising consumer expectations

●More affluence

● Personal Outsourcing

● Increased desire for buying experiences vs. things

● Rising consumer ownership of high tech equipment

● Easier access to more information

● Immigration

●Growing but aging population


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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

● Focus on quality and customer satisfaction

●Growth of franchising

●Marketing emphasis by nonprofits


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Government

Policies

Business

Trends

Social

Changes

Advances in

IT

Globalization

●Growth of Internet

●Greater bandwidth

● Compact mobile equipment

●Wireless networking

● Faster, more powerful software

● Digitization of text, graphics, audio, video


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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


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The combined

model (figure 1.6)

What are Services? (1)

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

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© Pearson Education South Asia Pte Ltd 2013. All rights reserved 28

Rented goods services

Defined space and place rentals

Labor and expertise rentals

Access to shared physical

environments

Access to and usage of systems

and networks

Five broad categories within non-ownership

framework of which two or more may be combined

Explanation of the 5 broad categories:

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Rented goods services—provides customers with temporary right to

exclusive use of physical good

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

Labor and expertise rentals—hire others to work that they either

choose not to do, or lack the necessary expertise and tools to do

Access to shared physical environments—may be located indoors or

outdoors or a combination

Systems and networks: access and usage—rent the right to

participate in specified networks like telecommunications, utilities etc.

Four Broad Categories of Services

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

People processing

Possession processing

Mental stimulus processing

Information processing

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Four Categories Of Services

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1.4 Four broad categories of services

People Processing

Customers must:

physically enter the service factory

co-operate actively with the service operation

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

to identify benefits created and non-financial costs: Time, mental, physical effort

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1.4 Four broad categories of services Possession Processing

Possession Processing

Customers are less involved compared to people processing services

Involvement may be limited to just dropping off the possession

Production and consumption are separable

People processing

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Possession processing

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1.4 Four broad categories of services Mental Stimulus Processing

● Mental Stimulus Processing

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

● Physical presence of recipients not required

● Core content of services is information-based

Can be ‘inventoried’’

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1.4 Four broad categories of services Information Processing

Information Processing

Information is the most intangible form of service output

May be transformed into enduring forms of service output

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

Mental Stimulus Processing

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Information Processing

Think about your project – the nature of the service

product: 38

Given the nature of your service product, which cell

would it be put under?

How would this classification affect your positioning

of your service offer?

You need to use the service classification matrix to

determine this.

What marketing challenges would your service

product face?

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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:

– Most service products cannot be inventoried

– Intangible elements usually dominate value creation

– Services are often difficult to visualize and understand

– Customers may be involved in co-production

– People may be part of the service experience

– Operational inputs and outputs tend to vary more widely

– The time factor often assumes great importance

– Distribution may take place through nonphysical channels

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Challenges posed by services Differences, Implications, and Marketing-Related Tasks (1) (Table 1.2)

Difference

Most service products cannot be inventoried

Intangible elements usually dominate value creation

Services are often difficult to visualize & understand

Customers may be involved in co- Production

Implications

Customers may be turned away

Harder to evaluate service & distinguish from competitors

Greater risk & uncertainty perceived

Interaction between customer & provider; but poor task

execution could affect

satisfaction

Marketing-Related Tasks

Use pricing, promotion, reservations to smooth demand; work with ops to manage capacity

Emphasize physical clues, employ metaphors and vivid images in advertising

Educate customers on making good choices; offer guarantees

Develop user-friendly equipment, facilities & systems; train customers, provide good support

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Challenges posed by services Differences, Implications, and Marketing-Related Tasks (2) (Table 1.2)

Implications

Behavior of service personnel & customers can affect satisfaction

Hard to maintain quality,

consistency, reliability

Difficult to shield

customers from failures

Time is money;

customers want service at 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 concept

Shape customer behavior

Redesign for simplicity and failure proofing

Institute good service recovery procedures

Find ways to compete on speed of delivery; offer extended hours

Create user-friendly, secure websites and free access by telephone

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Challenges posed by services Added by Physical, Intangible Elements Helps Distinguish Goods and Services (Fig 1.14)

EXPANDED MARKETING MIX FOR

SERVICES

The 7 Ps

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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 only function to bring operating revenues into a business; all other functions are cost centers.

● The “7 Ps” of services marketing are needed to create viable strategies for meeting customer needs profitably in a competitive marketplace

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The 7 Ps of Services Marketing

● Product elements (Chapter 4)

● Place and time (Chapter 5)

● Price and other user outlays (Chapter 6)

● Promotion and education (Chapter 7)

● Process (Chapter 8)

● Physical environment (Chapter 10)

● People (Chapter 11)

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Product elements

Service products are at the heart of services marketing strategy

Marketing mix begins with creating service concept that offers value

Service product consists of core and supplementary elements:

Core products meet primary needs

Supplementary elements are value-added enhancements

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The 7 Ps of services marketing

Applying the 4 Ps of Marketing to Services (1)

Services are not just products- they are experiences

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Place and time Service distribution can take place through physical and

non-physical channels

Some firms can use electronic channels to deliver all (or at least some) of their service elements

Information-based services can be delivered almost instantaneously electronically

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Applying the 4 Ps of Marketing to Services (2a)

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Place and time

Delivery Decisions: Where, When, How

Time is of great importance as customers are physically

present

Convenience of place and time become important

determinants of effective service delivery


Applying the 4 Ps of Marketing to Services (2b)

• Price and other user outlays

From the firm’s perspective, pricing generates

income and creates profits

From the customer’s perspective, pricing is key part

of costs to obtained wanted benefits

Marketers must recognize that customer costs involve

more than price paid to seller



Applying the 4 Ps of Marketing to Services (3a)



Applying the 4 Ps of Marketing to Services (3b)

• Price and other user outlays

Identify and minimize non-monetary 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 Revenue management is an important part of pricing



Applying the 4 Ps of Marketing to Services (4)

• Promotion and Education

Plays three vital roles:

Provide information and advice

Persuades the target customers of merit of service product or brand

Encourages customer to take action at specific time

Customers may be involved in co-production so:

Teach customer how to move effectively through the service process

Shape customers’ roles and manage their behavior

Promotion of Services (advertising)

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The 7 Ps of services marketing Extended Mix for Managing the Customer Interface (1)

• 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

Operational inputs and outputs vary more widely

Customers are often involved in co-production

Demand and capacity need to be balanced



Extended Mix for Managing the Customer Interface (2a)

• Physical environment

Design servicescape and provide tangible evidence

of service performances

Manage physical cues carefully— can have

profound impact on customer impressions



Extended Mix for Managing the Customer Interface (2a)

• Physical environment

Create and maintain physical appearances

Buildings/landscaping

Interior design/furnishings

Vehicles/equipment

Staff grooming/clothing

Sounds and smells

Other tangibles



Extended Mix for Managing the Customer Interface (3)

• People

Interactions between customers and contact personnel strongly influence customer perceptions of service quality

Well-managed firms devote special care to selecting, training and motivating service employees

Other customers can also affect one’s satisfaction with a service

People factor in services marketing

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Recognize why service businesses need to integrate the

marketing, operations, and human resource functions

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The 7Ps model demonstrates that marketing can’t operate separately from other functional areas in a successful service organization.

Marketing, operations, and human resources all play central and interrelated roles in meeting customer needs

Marketing links the firm to its external environment and acts as a customer champion; operations is concerned with service design and delivery, often involving customers in operational processes; and human resources helps to recruit, train, and motivate employees whose jobs bring them into direct contact with customers.

LETS RECAP: So now you should be clear that

services have FOUR important characteristics

Intangibility Heterogeneity

Simultaneous Production

and Consumption

Perishability

Important points to note:

- These characteristics are actually CHALLENGES or problems faced by the service

marketer

- The service marketer needs to use the right tools – marketing mix elements to

overcome these challenges

Additional Slides on the Four Characteristics of Services

• Source: Philip Kotler and Kevin Lane Keller

• Marketing Management (an Asian Perspective)

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Intangibility

• Unlike physical products, services cannot be seen, tasted, felt, heard, or smelled before they are bought.

• To reduce uncertainty, buyers will look for evidence of quality.

• They will draw inferences about quality from the place, people, equipment, communication material, symbols, and price that they see.

• Therefore, the service provider’s task is to “manage the evidence,” to “tangibilize the intangible.”Whereas product marketers are challenged to add abstract ideas, service marketers are challenged to add physical evidence and imagery to abstract offers

• Service companies can try to demonstrate their service quality through physical evidence and presentation.

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Suppose a bank wants to position itself as a “fast” bank. It could make this positioning strategy tangible through a number of marketing tools:

• Place — The exterior and interior should have clean lines. The layout of the desks and the traffic flow should be planned carefully. Waiting lines should not get overly long.

• People — Personnel should be busy. There should be a sufficient number of employees to manage the workload.

• Equipment — Computers, copying machines, and desks should be and look “state of the art.”

• Communication material — Printed materials — text and photos — should suggest efficiency and speed.

• Symbols — The name and symbol should suggest fast service.

• Price — The bank could advertise that it will deposit $5 in the account of any customer who waits in line for more than five minutes

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Managing the Physical Evidence : DBS Bank

• This DBS branch in Singapore looks very modern and is equipped with gadgets to appeal to the more tech-savvy market.

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Intangibility

• Service marketers must be able to transform intangible services into concrete benefits.

• Because there is no physical product, the service provider’s facilities—its primary and secondary signage, environmental design and reception area, employee apparel, collateral material, and so on—are especially important.

• All aspects of the service delivery process can be branded.

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Intangibility

• Service providers such as medical doctors will use brand elements such as where they received their medical education from to make their service and benefits more tangible.

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Inseparability

• Services are typically produced and consumed simultaneously.

• Because the client is also present as the service is produced, provider-client interaction is a special feature of service marketing.

• Several strategies exist for getting around this limitation: i. Work with larger groups ii. Work faster iii. Train more service providers

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Variability

• Because they depend on who provides them and when and where they are provided, services are highly variable.

• This is a challenge of ensuring high and consistent standards of service quality.

• To reassure customers, some firms offer service guarantees that may reduce consumer perception of risk.

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There are three steps service firms can take to increase quality control:

1. Invest in good hiring and training procedures.

2. Standardize the service-performance process throughout the organization.

– Prepare a service blueprint that depicts events and processes in a flowchart, with the objective of recognizing potential fail points.

– Monitor customer satisfaction; take action to overcome service gaps

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Blueprint for Overnight Hotel Stay

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Process (P) in the Services Marketing Mix

Perishability

• Services cannot be stored.

• Perishability is not a problem when demand is steady.

• When demand fluctuates service firms have problems.

• Several strategies can produce a better match between supply and demand

–Pricing and promotions are often used to influence demand and supply

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How would you LINK the 4 characteristics of

services to the 7 Ps? 72

Intangibility Perishability Heterogeneity Inseparability

PRODUCT X X

PRICE X

PROMOTION X X

PLACE X

PEOPLE X X

PHYSICAL EV X

PROCESS X X

This is just an illustration to show how the different elements of the marketing mix can

address the challenges of the services characteristics; the links are not necessarily

definitive but rather indicative. What do you think?

© Geoffrey da Silva


Framework for effective services marketing strategies

Overview

Reasons for studying services

Service sector dominates economy in most nations

Most new jobs are generated by services

Powerful forces—government policies, social changes, business trends, IT advances, and globalization—are transforming service markets

The service concept and its definition:

Services offer benefits without transfer of ownership

Four broad categories of services – people processing, possession processing, mental stimulus processing and information processing

Customers expect value from access to goods, facilities, labor, professional skills, environments, networks & systems in return for money, time, effort

Chapter 1 Summary: Introduction to Services

Marketing (1) 74

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Services present distinctive marketing challenges relative to goods, requiring:

Expanded marketing mix comprising 7Ps instead of traditional 4Ps

Framework for developing effective services marketing strategies:

Understanding service products, consumers & markets

Applying the 4 Ps to services

Managing the customer interface

Implementing profitable service strategies

Chapter 1 Summary: Introduction to Services

Marketing (2) 75

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Sample Practice Exam Essay Questions

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1. The marketing of services is different to the

marketing of tangible goods‖. Provide support for

this statement by:

(a.) Identifying and explaining the unique

characteristics of services.

(b.) Describing the expanded marketing mix for

services, highlighting how it may be different to the

―traditional marketing mix of 4Ps‖.

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2. List and describe each of the expanded marketing

mix elements and contrast the expanded marketing

mix for services to the traditional marketing mix for

tangible goods

3. List and discuss each of the four broad categories of

services.

Demonstrate your understanding of these four

categories of services by giving at least three

examples of each and highlighting the implications

of such services



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List and explain why the unique characteristics of

services (that makes them different to tangible

goods).

Classify the following two services into

people/possession/mental-stimulus/information-

processing services and explain your selection:

Funeral service

Online dating service


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The marketing mix for services is different to that of

tangible goods. Explain the marketing mix elements

applicable to service contexts, and highlight its

differences to the marketing mix elements of

tangible goods. Select a service that you are

familiar with, and describe its marketing mix

elements.


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Demonstrate your understanding of the unique

characteristics of services by listing the eight (8)

common differences between services and tangible

goods, and relating each to the example of

education (and other services e.g. library,

administrative and IT support) provided by a

university.

Documents

SQ Lecture One : Introduction