Unit 10 Marketing Mix Design for Services

7/29/2019 Unit 10 Marketing Mix Design for Services

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Technology Education Section, Curriculum Development Institute

Education Bureau, HKSARG

August 2008

Unit 10 : Marketing Mix Design for Services

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Learning Obj ect ives

On completion of the unit, participants shouldbe able to: understand the basic characteristics for services and

its impact on marketing mix design; elaborate on the unique marketing mix for services;

People

Physical evidence

Process

define services quality by SERVQUAL Instrument;and

explore the possibilities of providing services on theinternet.


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Unit Out line

Definitions of Services

Characteristics of ServicesIntangibility

Inseparability

Heterogeneity

Perishability

Services Marketing Mix5th P: People

Types of person/role conflict

Reducing person/role conflictEmpower and Enfranchise

6th P: PhysicalLocation Selection

Designing a good layout

7th P: ProcessCapacity Utilization Measures

Framing Service ExperienceThe Servuction ModelService Package

Supporting Facility

Facilitating Goods

Information

Explicit Services

Implicit Services

Services QualitySERVQUAL Instrument

Services on the Internet

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Def in it ions of Services (1)

Services are relatively intangible, produced andconsumed simultaneously and often lessstandardised than goods.

These unique characteristics of services presentspecial challenges and marketing opportunitiesto the services marketer.

(Christopher Lovelock and Jochen Wirtz, 2004)

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Philip Kotler (2002) explains, A service is anyactivity that one party can offer to another thatis essentially intangible and does not result inthe ownership of anything. Its production mayor may not be tied to a physical product.

Def in it ions of Services (2)

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Serv ices Charact erist ics andMarketing St rategy (1)

Intangibility Inseparability

Perishability

Characteristicsof Services

Heterogeneity

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Inseparability

Perishability


Heterogeneity

Intangibilityz Services cannot be seen,

tasted, felt, heard, or

smelled before they arebought.

z Marketing strategy:making the serviceoffering more tangible by

drawing the buyersattention to tangiblefeatures, e.g. place,

people, price, equipment,etc.

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Tangible productsTangible products

ProductionProduction SaleSale ConsumptionConsumption

TimeTime

SaleSale

ConsumptionConsumption

Intangible productsIntangible products


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ProductionProduction


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Intangibility

Perishability


Heterogeneity

Inseparability

Inseparability

z Simultaneousproduction and

consumptionz Marketing strategy:

increase production bytraining serviceproviders to work faster

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Intangibility Inseparability

Perishability


Heterogeneity

Serv ices Characterist ics andMarketing St rategy (5)

Heterogeneity

z Standardization is difficult- greatly depending on

who provides servicesand when, where and how

z HR strategy: select best

fit persons and train them

accordingly

z monitor customersatisfaction

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5 t h P: People (1)

Employees in boundary-spanning roles are named asboundary spanners.

The Boundary-Spanning Role is defined as one thatlinks an organization with the outside world (i.e. byinteracting with non members of the organization).

Two roles of boundary spanners:

Information transfer collect information and

feedback to the service company Representation as the organizations personalrepresentatives

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5 t h P: People (2)

Cashier, Sales Representatives, etc.Retail Shop

Receptionist, Beauty Consultant, etc.Beauty Consultancy Shop

Cashier, Waiter, Cleaner, etc.Fast Food Shop or restaurant

Teller, Customer Services Officers, etc.Bank

Examples of boundary spanners:Name of Services Organization

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People Person/ role confl ict (1)

Person/role conflicts is defined as a bad fitbetween an individuals self perception and thespecific role the person must play in anorganization.

Since boundary spanners keep close contactwith customers (or other non members of the

organization), they may face Person/roleconflicts in their daily works.

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Challenging Corner 1

David has been working as a waiter (that iscalled as taking the boundary spanner role) ina Chinese restaurant for over 10 years. Hisusual duties include adding water to empty teapots and taking dishes order for thecustomers. During the peak period (lunchhours), there are lot of customers in therestaurant raising their hands for adding water

services

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Some customers are anxious to finish theirquick lunch. They then would go to thepantry area and try to add water bythemselves instead of waiting for Davidsservices.

How would he reduce the person/roleconflict?

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Challenging Corner 1 (solution) ( 1)

Davids own personal space is the pantryarea where he can defend against customersand other boundary spanners. Whencustomers trespass on this space, it can lead toreactions that conflict with his own role (as awaiter).

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David would build up his protection wall topile up some table cloths surrounding the

pantry area so that the customers could noteasily trespass on his personal space.

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Reducing person/ role conf lict (1)

Implication to services managers = they needto be sensitive and actively seek input fromboundary spanners about the issue.

To improve the quality of service, it isimportant to ensure that boundary spannersare well trained in managing the ad hocissues by:

Empowerment, and/or

Enfranchisement

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Reducing person/ role conf lict (2)

Empowerment = giving discretion to boundaryspanners (i.e. front line personnel) to meet theneeds of consumers creatively

Enfranchisement = empowerment coupled witha performance based compensation method forboundary spanners who could meet the

services marketing objectives of theorganization

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When to empow er and enfranchise?

There is no single solution to the problemsencountered in managing contact personnel.

It depends on the personal judgment of theboundary spanners.

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Location and site selection is a strategicdecision. Why?

Because it will have long-term effects oncosts, demand, and profitability.

6 t h P: Physical Evidence (1)

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Particularly important to service organizations.Why?

Because most services are produced andconsumed simultaneously

Also most services require a customerspresence

Some services make their facilitiesaccessible to as large a customer group as

possible

6 t h P: Physical Evidence (2)

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6 t h P: Physical Evidence Locat ion Select ion (Quant it ative Method)

Factor weighting has 6 steps:-

1. Develop a list of relevant factors2. Assign a weight to each factor

3. Develop a scale for each factor

4. Have management score at each location

5. Multiple the score times the weight

6. Consider the maximum point score

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Doras Cake Shop Locat ion Select ion (1)

Apply Factor weighting method to select asuitable location for Doras cake shop between:

Central, Mongkok, and

Shatin

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Step 1: Develop a list of relevant factors: Size of nearest market

how many customers are close to the location underconsideration?

Transportation facilities Is the transportation facilities to the location under

consideration well arranged?

Could customers go to the cake shop by public transportation?

Rental cost of the shop Are the monthly rental charges of the location low?

Number and size of competitors Are there lots of large competitors around?

Communication facilities Are the communication facilities of the location well developed?

(in terms of fax, telephone lines, e-mail, etc.)

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Step 2: Assign a weight to each factor:

Size of nearest market 7

Transportation facilities 5

Rental cost of the shop3

Number and size of competitors 4

Communication facilities 6

The higher weighted score indicates a higher importance ofthat factor. In this illustration, for example, size of nearestmarket is the most important factors whereas rental cost of

the shop is the least important.

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Step 3: Develop a scale for each factor:

Size of nearest market ranging from 1, 2, 3, 4 & 5

Transportation facilities ranging from 1, 2, 3, 4 & 5

Rental cost of the shop ranging from 1, 2, 3, 4 & 5

Number and size of competitors ranging from 1, 2, 3, 4 & 5

Communication facilities ranging from 1, 2, 3, 4 & 5

The scale for each factor should be consistent. In thisillustration, it ranges from 1, 2, 3, 4 and 5.

If the location shows a preferable indicator towards the factor,a higher score (5, or 4) will be assigned. On the other hand,if the location represents a non preferable indicator towardsthe factor, a lower score (1, or 2) will be assigned. The score3 stands for mild preference.

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Step 4: Have management score at each location:

Size of nearest market - a high score for larger customer base

Transportation facilities a high score for a more convenient

mode of transportation available

Rental cost of the shop a high score for a place charged forlower rent

Number and size of competitors - a high score for a place withfewer competitors

Communication facilities - a high score for a place with better

communication facilities where customers could order cakesthrough faxes, and internet, etc.

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Step 5: Multiple the score times the weight:

For Size of the nearest market,

Important weight = 7

Location score for Central = 5

Weighted score for Central = 7 times 5 = 35

Apply the similar calculation steps for Mongkok and Shatinaccordingly.

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Step 6: Consider the maximum point score:

From the next page of computation table:

The summation weighted score for

Central = 114

Mongkok = 97

Shatin = 89

Centrals score (of 114) out-wins that of Mongkok (97) andShatin (89).

Thus, Central will be a suitable place to locate Doras cake

shop.


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8997114TOTAL

2424304456Communicationfacilities

128203254Number and sizeof competitors

121294433Rental cost ofthe shop

2025204545Transportationfacilities

2128353457Size of nearestmarket

ShatinMongkokCentralShatinMongkokCentralImportant

Weight

Factor

Weighted ScoresLocation Scores


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6 t h P: Physical Evidence Designing a good layout

Another factor to consider is good layout whichsatisfies the following objectives:

1. Movement of people, materials and paper workmust be kept at the minimum distance possible

2. High utilization of the space

3. Flexibility of rearrangement, services and growth

4. Satisfactory physical environment

5. Convenience for customers during the service6. Attractive appearance

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Doras Cake Shop - Layout Design (1)

How to design the layout for Doras cake shop?

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Doras Cake Shop - Layout Design (2)

Western caf appeal of home feel Big sofa + armchairs + round table + TV + broadcast of

soft music,

Feasible to rearrange the furniture and other decorationsafter a few months

Portrait of being natural mood Feel liked home

Be yourself and relaxed

A place to meet friends + enjoy cake & coffee

May bring pets as pets may be viewed as one of the family members of

the customers

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7 t h P: Process

Process is the 7th P because one unique characteristicof services is inseparability.

Services are all about the interaction between theservice providers and the customers.

Throughout the process, customers satisfaction ordissatisfaction will be formed based on the quality ofservices delivered (as compared with theexpectations of the customers).

It is necessary to manage the capacity of the serviceproviders well to satisfy customer demands.

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7 t h P: Process Capacit y Ut ili zat ion Measures (1)

Three measures of capacity utilization are needed:

percentage of total time that facilities andequipment are in operation

percentage of the physical space (e.g., seats)actually utilised

intensity of usage of labor time

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7 t h P: Process Capacit y Ut ili zat ion Measures (2)

In a well managed service operation, all three areasstated above should be in balance. Similarly,

sequential operations will be designed to minimisethe risk of bottlenecks at any point in the process.

However, this ideal may prove difficult to achieve.Not only does the demand vary over time but thetime and effort required to possess each customeralso varies.

Also service tasks are not homogeneous (i.e.heterogeneity) so the serving times vary accordingto the nature of the customers' problems.

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7 t h P: Process Framing Service Exper ience

Happy employees will bring in happy customers.

Besides boundary spanners personal feeling,customers service experience in the process could

not be overlooked to ensure the future businesssuccess of running a service organization.

The Servuct ion Model - is a simple but powerfulmodel that illustrates factors influencing the serviceexperience of a customer when enjoying a service.

(K. Douglas Hoffman and John E. G. Bateson, 2002)

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Framing Service Experience:The Servuction Model (1)

The model is constructed by two parts whichare visible or invisible to the consumer:

The visible part of the model consists of three parts:the inanimate environment, contact personnel orservice providers, and other customers (denoted as CustomerB in the following figure on slide number 42).

The invisible component of the model consists ofthe invisible organization and systems.

(K. Douglas Hoffman and John E. G. Bateson, 2002)

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Framing Service Experience:The Servuction Model (2)

Invisible Visible

InanimateEnvironment

ContactPersonnel

OrServiceProvider

Invisibleorganizationand systems

Customer A

Customer B

Bundle of servicebenefits receivedby Customer A

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Servuct ion Model :I nanimate Environment (1)

Includes all nonliving features that are presentduring the service encounter.

Because services are intangible, they cannot beobjectively evaluated like products. Hence, in theabsence of tangible product, consumers look fortangible cues that surround the service on which tobase their service performance evaluation.

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Servuct ion Model :I nanimate Environment (2)

The inanimate environment is full of tangible cuessuch as furniture, flooring, lighting, music, wallhangings and an array of other inanimate objects

that vary according to the service being provided. This relates to the importance of the physical

evidence in consumer perceptions of serviceperformance.

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Servuct ion Model :Cont act personnel

Contact personnel are the employees other thanprimary service provider who briefly interact with

customers. Example: parking attendants, receptionists, and

hosts and hostesses.

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Servuct ion Model :Serv ice Provider

Service provider are the primary providers of a coreservice.

Example: dentists, physicians, school teachers.

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Servuct ion Model :Service Provider - I mplicat ions (1)

Unlike consumption of physical products, theconsumption of services often takes place where the

service is produced (i.e. Doras Cake Shop) or wherethe service is provided at the consumers residenceor workplace (i.e. venue being specified by thecorporations).

Regardless of the service delivery location,interactions between consumers and contact

personnel or service providers are commonplace.

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Servuct ion Model :Service Provider - I mplicat ions (2)

Thus, the impact of contact personnel and serviceproviders on the service experience can be profound.

Because of the important role of service providers

and other contact personnel within the serviceencounter, the management issues of People(hiring, training and empowering issues) could not beoverlooked.

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Servuct ion Model :Customer A

Customer A is the recipient of the bundle of benefitsthat is created through the service experience.

Customer A is the one who actually purchases theservice.

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Servuct ion Model :Customer B

Customers B represents all other customers who arepart of customer As experience

Consumption of services as shared experience

because it often occurs in the presence of othercustomers. Examples include eating at a cake shop,seeing a show at a movie theatre, attending class ina classroom, etc.

As in the case with the other visible components ofthe servuction model, other customers can impact

Customer As service experience.

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Servuct ion Model :Customers - I mplicat ions (1)

One day, customer A (i.e. David and his wife) wentinto Doras cake shop and ordered cakes and

coffees,

Customer B (i.e. another customer who was also inthe cake shop) suddenly screamed and vomited aftereating a small slice of cake.

Upon seeing this unappetising news, David and hiswife stared at one another so as not to look in the

direction of Customer Bs problem while deciding ontheir next course of action.

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Servuct ion Model :Customers - I mplicat ions (2)

In this case, Customer B had indeed made asignificant impact on all the cake shops customers.

In fact, Customer Bs actions practically cleared the

entire cake shop in under 60 seconds.

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The Service Package (1)

A bundle of goods and services that is provided in

some environment (Roger W Schmenner, 1986)

Consisted of 5 features which are experienced bycustomers and form the basis of his or herperception of the service:

Supporting Facility

Facilitating Goods

Information

Explicit Services

Implicit Services

Key Success Factor: service manager offers a totalexperience for customer that is consistent with the

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Service Package:Support ing Facili t y

Supporting Facility: The physical resources thatmust be in place before a service can be sold.

Example: golf course, hospital, school campus,airplane.

= Doras Cake Shop

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Service Package:Facili t at ing Goods

Facilitating Goods: The material consumed bythe buyer or items provided by the consumer.

Example: food items, legal documents, golf clubmembership, medical history.

= Cake and coffee consumed by the customersat Doras cake shop

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Service Package:Informat ion

Informat ion: Operations data or information thatis provided by the customer to enable efficient andcustomised service.

Example: patient medical records, seats available ona flight, customer preferences, location of customerto dispatch a taxi.

= Customers preferences on taste of cakes andcoffee being served at Doras cake shop

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Service Package:Expl icit Services

Expl icit Services: Benefits readily observable bythe senses and that consist of the essential orintrinsic features of the services.

Example: quality of meal, attitude of the waiter, on-time departure.

= The quality of cakes and coffee provided byDoras cake shop, attitude of Doras staff on serving

the customers, on-time delivery of cakes to thecorporate customers (located in the Central)

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Service Package:I mplicit Services

I mplicit Services: Psychological benefits orextrinsic features which the consumer may senseonly vaguely.

Example: privacy of loan office, security of a welllighted parking lot, worry free auto repair, etc.

= Feel of comfort or Home feel at Dorascake shop

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Def in ing Services Quali t y (1)

Assessment of quality is made during the servicedelivery process.

Each customer contact is referred to as amoment of truth, an opportunity to satisfy ordissatisfy the customer.

Customer satisfaction is defined by comparingperceptions of service received with expectations

of service desired. Expectations are based on: (1) word of mouth,

(2) personal needs, and (3) past experience.

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Def in ing Services Quali t y (2)

Service Quality Dimensions

Reliability

Responsiveness

Assurance

Empathy

Tangibles

Word of mouth Personal needs Past experience

Expected service

Perceived service

Service Quality Assessment

1. Expectations exceeded

ES < PS (Quality surprise)

2. Expectations met

ES = PS (Satisfactory quality)

3. Expectation not met

EX > PS (Unacceptable quality)

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SERVQUAL I nst rument (1)

Measuring service quality is a challenge becausecustomer satisfaction is determined by many

intangible factors. Unlike a product with physicalfeatures that can be objectively measured,service quality contains many psychologicalfeatures.

In addition, service quality often extends beyondimmediate encounter because it has an impact ona persons future quality of life.

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The multiple dimensions of service quality arecaptured in the SERVQUAL instrument which is aneffective tool for surveying customer satisfaction.

By SERVQUAL, it could be understood as acombination of SERVice and QUALity.

Most of the best services award would be basedon the following five dimensions to evaluate theoverall service quality of a service provider.

(James A Fitzsimmons and Mona J Fitzsimmons, 2006)

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5 dimensions of service quality:

Reliability: Perform promised service dependablyand accurately

Responsiveness: Willingness to help customerspromptly

Assurance: Ability to convey trust and confidence

Empathy: Ability to be approachable

Tangibles: Physical facilities and facilitating goods

(James A Fitzsimmons and Mona J Fitzsimmons, 2006)

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This two-part instrument has an initial section torecord customer expectations for a class ofservice (e.g. catering services) , followed by a

second section to record a customers perceptionsfor a particular service firm (e.g. Doras cakeshop).

The statements in the survey describe aspects ofthe five dimensions of service quality: Reliability,Responsiveness, Assurance, Empathy andTangibles.

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A score for the quality of service is calculated bycomputing the differences between the ratings

that customers assign to paired expectation andperception statements.

A seven-point scale ranging from StronglyAgree (7) to Strongly Disagree (1), with nolabels for the intermediate scale points (i.e. 2through 6), accompanied each statement.

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Check customers expectation: Statements may include:

Doras cake shop should have up-to-dateequipment.

Her physical facilities should be visuallyappealing.

Her employees should be well dressed andappear neat.

She shouldnt be expected to have operatinghours convenient to all their customers.

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Check customers perception: Statements may include:

Doras cake shop has up-to-dateequipment.

Her physical facilities are visually appealing.

Her employees are well dressed and appearneat.

She does not have operating hoursconvenient to all their customers.

etc.

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Services on t he I nternet :Mult iple applicat ions for w ebsit es (1)

As a Channel to sell a Product or Service

As a Supplemental Channel of Conventional

Businesses to extend their market To Process Transaction, such as transfer from

clients one account to another

To Convey Information about the organization(including names of officers, addresses, phonenumbers, and types of services)

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Services on t he I nternet :Mult iple applications for w ebsit es (2)

As a Promotion Channel - More advertisers arenow using the medium of internet to advertise

and promote their businesses or products for thespecifically targeted groups of audience

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Design the services marketing mix for Dorascake shop in terms of the 5th, 6th and 7th P:

5th

P: People 6th P: Physical evidence

7th P: Process

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7th P - Process: When customers pop in Doras cake shop, Dora

and her team (as boundary spanners) will warmwelcome them, calling their names (if theirmemory are good and assuming that this is notthe first time visit from the customers), directingthem to a place where they like to settle down.

Customers sit comfortably at the sofa, listening to

the soft music, thinking of what kind of cake andcoffee to order. The moment of truth is somemorable.

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7th P - Process (cont.): If there are not many customers in the cake shop,

Dora will actively introduce her new flavour cake

to the loyal customers and invite them to try aslice of the cake (on complimentary basis).

Customers feedbacks are collected informally toimprove the products sold.

New customers also feel the warm atmospherein the cake shop and will consider visiting it again.

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Summary

ServicesProcess

People

Cake & Drink

Physical evidence 4P (Unit 9)

Tangibleelements

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References

James A Fitzsimmons and Mona J Fitzsimmons, Service Management: Operations,Strategy, Information Technology, 5th edition, McGraw Hill, 2006.

Christopher Lovelock and Jochen Wirtz, Services Marketing: People, Technology,Strategy, 5th edition, Prentice Hall, 2004.

K. Douglas Hoffman and John E. G. Bateson, Essentials of Services Marketing:Concepts, Strategies and Cases, 2nd edition, Harcourt, 2002.


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Fur ther Readings

, (1998), ,

(2003), ,

(1999), ,

(2004), ,

(1982), ,

End of t he Unit

EndEnd--ofof--unit Assessmentunit AssessmentThis is the end of Unit 10.

Please go to the UnitAssessment before attempting

the next unit.

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Unit 10 Marketing Mix Design for Services