Objectives of Service Marketing Lecture

1. Objectives of Service Marketing Lecture • Service Definitions & Classifications • How Services Differ From Goods • Improving Service Differentiation, Quality, & Productivity • Improving Customer Support Services

2. The four Ps of services marketing: people, people, people, people. Richard Dow We need to look at our business as more than simply the building and selling of personal computers. Our business is the delivery of information and the lifelike interactive experiences. Intel Chairman Andrew Grove. Service Marketing • Role of Service Marketing in Society • Service Sector represented 79% of the gross domestic product of the United States. • In 1997 there was an $85 billion trade surplus in services. • Services will provide 90 percent of all new jobs in the next ten years. • Services account for 47 cents of every dollar that consumers spend. II. Service Marketing: Definitions: Services are deeds, processes, and performances. Include all economic activities whose output is not a physical product or construction.

3. Pure Tangible Good Pure Service Categories of Service Mix Tangible Good w/ Services Hybrid Major Service w/ Goods

4. Why is Top Management Always the Last to Know? Iceberg of Ignorance • Top Management knows about 4% (Shooting the Messenger) • Local Supervisors know about 74% • Front-line Employees know about 100% Customers bring only a fraction of the problems (4%) to the organization….and only a fraction of these (.16%) ever reaches top management

5. 80% 90 70 55% 45% 50 20% 25% 30 10 Days Minutes Hours Weeks Months 84% of customers leave due to service related complaints* Percent of Customers That Will Not Buy Again Time Taken to Successfully Resolve a Customer’s Problem *Source: Forum Corporation

6. Why So Many Customers Know about the Company? When a customers has a minor service problem (transactions worth less than $100), he or she will tell 9 to 10 people. In transactions over $100.00, he or she will tell 16 people. Your Dissatisfied Customers (10%) 25,000 Tell this many people (ten people) 250,000 And do not act as PR person for 100,000 Total potential loss of customers 350,000 Assumption: < $100.00 transaction and 200,000 Customers using TARP statistics.

7. Distinctions Economic Offering Commodities Goods Services Experiences Economy Agrarian Industrial ServiceExperience Economic Function Extract Make DeliverStage Nature of Offering Fungible Tangible Intangible Memorable Key Attribute Natural Standardized CustomizedPersonal Method of Stored in bulk Inventoried after Delivered onRevealed over Supply production demanda duration Seller Trader Manufacturer ProviderStager Buyer Market User ClientGuest Factors of Demand Characteristics Features BenefitsSensations Source: Welcome to the Experience Economy by Pine and Gilmore, Harvard Business Review July--August 1998)

8. The Progression of Economic Value Stage Experiences Differentiated Deliver Services Competitive Position Make Goods Extract Commodities Undifferentiated Market Premium Pricing Services are experienced while they are produced. Source: Welcome to the Experience Economy by Pine and Gilmore, Harvard Business Review July--August 1998)

9. Companies should think about what they would do differently if they charged admission! • Consumers Evaluate the Quality of the Service by: • How the service is delivered as well as by • What the service provides

10. Four Service Characteristics Intangibility Services cannot be seen, tasted, felt, heard, or smelled before purchase Inseparability Services cannot be separated from their providers Perishability Services cannot be stored for later sale or use Variability Quality of services depends on who provides them and when, where, and how Services

11. Overcoming Service Challenges Intangibility Use cues to make it tangible Inseparability Increase productivity of providers Perishability Match supply and demand Variability Standardize service production & delivery Services

12. III. Four Major Characteristics of Services A. Services are intangible Services cannot be inventoried—fluctuation in demand must be managed. Services cannot be patented legally—thus easily copied. Services cannot be easily communicated to customers—quality is hard to assess. Marketing managers must tangibilize the intangible. •Impalpable: marketing strategy should seek to develop a tangible representation of the service whenever possible (e.g., credit cards, service packages). •Mentally: Marketing strategy should seek to associate the intangible service with a tangible object more easily perceived by the customer. e.g., "I've got a piece of the rock, "You're in good hands with ALLSTATE", "Merrill Lynch Bull" B. Services are inseparable from their providers. Services are typically produced and consumed at the same time—simultaneous production and consumption. --To increase production, service providers may work with larger groups, work faster, and train more service providers.

13. C. Services are highly variable Heterogeneity, no two services will be precisely alike. 1. Services are performances--Invest in good personal selection and training 2. Standardizing the service-performance process throughout the organization 3. Monitoring employee and customer satisfaction through complaint systems, customer surveys. D. Services are perishable--cannot be stored, saved, or resold Strategies for producing a better match between demand and supply in a service business: On the Demand Side: 1. Differential Pricing--early-evening movie prices 2. Nonpeak Demand can be Cultivated--breakfast at McDonalds 3. Complementary Services--cocktail lounges to sit in while waiting for a table 4. Reservation Systems--a way to manage demand level On the supply side: 1.Part-Time Employees--used to serve peak demand. 2. Peak-time Efficiency Routines--essential tasks during peak periods. 3. Increased Consumer Participation--consumers can fill out their own medical records 4.Shared Services--several hospitals share medical equipment

14. E. Managing Differentiation The success of Charles Schwab in the discount brokerage service showed that many customers had little loyalty to other services when they could save money. How to effectively differentiate your services? Service companies can differentiate their offers by: 1. offering innovative features 2. offering primary and secondary service features Service companies can differentiate their image specifically through symbols and branding. Service companies can differentiate its service delivery in three ways: 1. Through people 2. Through physical environment 3. Through process--through superior delivery process.

15. Three Types of Marketingin Service Industries Company Internal marketing External marketing Cleaning/ maintenance services Financial/ banking services Restaurant industry Employees Customers Interactive marketing

16. Augmented Tangible Core Developing a Service Strategy 1. Determine the most important core emotions for consumers to feel during the service experience. What does your love group expect to feel---what makes you distinct from competitors. 2. Develop the tactics that highlight the core. What are the critical incidences (behaviors) that highlight the core. 3. Implement the high impact low cost tactics that highlights the core emotions and need states of consumers and a strategy that exploits competitor vulnerabilities. There are three levels of a product/Service

17. Major Determinants of Service Quality 1. Access: service is easy to obtain in convenient locations at convenient times with little waiting. 2. Communications: service is described accurately 3. Competence: employees possess the required skills and knowledge 4. Courtesy: employees are friendly, respectful and considerate 5. Credibility: company and employees are trustworthy 6. Reliability: service is performed with consistency 7. Security: service is free from danger, risk or doubt 8. Responsiveness: employees respond quickly and creatively 9. Tangibles: service tangibles correctly project service quality 10. Understanding the customer: know the needs of customers. Well managed Service Companies 1. Have top-management commitment to quality 2. Set high service quality standards 3. Have systems for monitoring service performance 4. Satisfy employees as well as customers *High-service businesses managed to charge more, grow faster, and make more profits on the strength of their superior service quality.

18. Extremely important A. Concentrate here B. Keep up the good work 1 2 3 4 5 6 7 8 9 10 Fair performance Excellent performance 11 12 13 C. Low priority D. Possible overkill # = Attributes Slightly important Importance-Performance Analysis 14

19. D. Managing Service Quality Customers compare the perceived service(PS) with the expected service(ES). If PS < ES customers lose interest in the provider. Dimensions of Service Quality: Wordof Mouth Personal Needs Past Experiences External Communi- cations Tangibles Reliability Responsiveness Competence Courtesy Credibility Security Access Communication Understanding the Customer Expected Service Perceived Service Quality Perceived Service

20. Word-of-mouth communications Personal needs Past experiences Expected Service Consumer’s expected service-perceived service gap Perceived Service Consumer External communications to consumers Marketer Service delivery Gap 4 Gap 1 Gap 3 Translation of perceptions into serive quality specifications Using Gap Analysis To Evaluate Service Quality Journal of Marketing, 1985, A. Parasuraman, Zeithaml, and Berry Management perceptions of consumer expectations Gap 2

21. You Must link Customer Satisfaction and Service Quality to Profitability and Market Share or No One Will Believe You that Quality and Service Pays Improvement Effort Changes in Services and Operations Survey Customers and Employees Perceived Service Quality and Customer Satisfaction Cost Reductions Word-of-Mouth Customer Retention Loyalty Attraction of New Customers Revenues and Market Share Profitability

22. Internal Service Quality The Service-Profit Chain Satisfied and Productive Service Employees Healthy Service Profits and Growth Greater Service Value Satisfied and Loyal Customers

23. ServiceExcellence • Strategic Concept • Top-Management Commitment • High Standards • Monitoring Systems • Satisfying Customer Complaints • Satisfying Both Employees & Customers • Managing Productivity

24. 10 Great Management Lies 1. Employees are our most valuable asset 2. I have an open-door policy 3. You could earn more money under the new plan 4. We’re reorganizing to better serve our customers 5. The future is bright 6. We reward risk takers 7. Performance will be rewarded 8. We don’t shoot the messenger 9. Training is a high priority 10. I haven’t heard any rumors 11. We’ll review your performance in six months 12. Our people are the best 13. Your input is important to us Scott Adams, author of Dilbert’s Management Handbook