Services Marketing

Services Marketing

M.K.Chakravorty

Basics Activities or benefit that one party can offer to another that are essentially intangible and do not result in ownership of anything, may or may not involving a physical product. - Service doesn’t grow at expense of others—it helps other sectors -Service is equally capital intensive -Productivity / ROCE etc. are equally important -Not always service after product—it happens simultaneously -With growing competition, intangibility is becoming the differentiator

Reason for growth & impetus -Affluence

-Leisure time

-Working wives

-Life expectancy

-Technology components of product

-Environmental complexity---tax / legal -Environmental & ecology awareness -New product development

Broad categories -Business Services

-Communications

-Construction & Engineering –Health care -Distribution

-Education

-Environment -Tourism -Recreation --Transportation

-Finance

Trends globally --In USA service contributed 54% 0f GDP in 1948, 80% in 2000,84% in2005 –74% of total employment --In India, -In 1960—agri(50%), service (17%) -In 2000---agri(24%), service (53%) -In 2005---agri(21%), service (57%) -more & more services are being taxed in last few budgets -As economy develops, role of agriculture in economy declines, that of service rises -Service today constitutes 20% global trade -Issues related to global trade of services—”No detailed international classification, no standardized method of valuing services’’

Where goods & services differ Goods 1. 2. 3. 4. 5. 6. 7. 8.

Tangible Homogeneous Production & Distribution separated from consumption A thing Core value produced in factory or filled Consumer don’t participate in production process Can be kept in stock Transfer of ownership

Services 1. 2. 3. 4. 5. 6. 7. 8.

Intangible Heterogeneous Production, distribution & consumption are simultaneous process An activity or process Core value produced in buyer seller interaction Consumer participate in production process Cannot be kept in stock No transfer of ownership

Characteristics of services Intangibility

Inseparability

Cant see/touch/feel

Production/distribution / consumption simultaneous

Heterogeneity

Perishability

variation in quality/ time

Cant be stored

consumed/extent of service

Therefore, challenges… .. Tangibilize the intangible .. Increase productivity of providers who are inseparable from products .. Standardize the quality .. Optimize demand movement & supply capacity

Intangibility Marketing Implications - No patent - No ready display - Communications problem - Pricing difficulty

Strategies -Tangible clues- place / people / equipment / symbols - Personal sources - Word of mouth - Image / branding

Inseparability Marketing implications -Consumer involved in production -No mass production -Supply demand matching

Strategies -Selection & training of persons -Consumer management -Multi-site location

Heterogeneity Marketing implications

Strategies

-Standardization difficult

-Industrialize

-Quality control difficult

-Customize

Perishability Marketing Implications

Strategies

-No inventory

-Demand forecasting

-No shelf life

-Differential pricingdemand side -HR flexibility-supply side

7P’s of service marketing -Package of service (prod.) Five product levels -Core product -Basic product -Expected product -Augmented product -Potential product -Pricing -Not always cost plus— demand driven—differential pricing

-Place -1 or 2 levels-agents /brokers – franchisee -Promotion -Direct / PR / branding / corporate advertising

-People -Internal marketing -Physical evidence -Tangible clues

-Process management -Analyze & optimize

Consumer Behaviour -Initiator -Person identifying a specific need and purpose to buy a particular service -Influencer -Person or group-advising -Gatekeeper -Person / organization / material—acting as a filter for decision choice net -Decider -Taking the buying decision—may or may not execute the purchase -Buyer -Makes actual purchase -User--------Person actually consuming

Consumer Decision Making Process Need recognition | Information search | Evaluation | Decision to buy Input to process is controlled by Commercial marketing, SocioCultural & W.O.M.

Output Service encounter | Usage evaluation | Repeat | Acts as W.O.M. to input to process

Influencing Factors Socio-cultural characters -Culture– Set of belief, values and customs that goes deep as a person grows -Reference groups -Family Situational characters -Time, -Stores’ atmosphere -Buyer’s perception of trust on service provider -Marketing stimuli

Psychological Characters -Perception—process by which an individual buyers , organize select & interpret information -Attitude—learned disposition to respond in a consistent manner to stimulus -Motivation—Driving force within one that compels him to action Personal Characters -Personality, life style, demographic

Consumer Evaluation of Services Qualities which influence consumers’ evaluation of services: -Consistency -Competence -Courtesy -Credibility

-Concern -Contact -Communications -Confidentiality

Quality is the foundation of consumer evaluation of services

Service Delivery Triangle COMPANY

COMPANY

Internal Marketing External Marketing Transactional

Moment of Truth

Marketing

EMPLOYEE CUSTOMER Personal need Personal need Life Path Image Image Word of mouth Role conflict & Ambiguity Previous experiences

Internal Marketing Engagement of every single individual in marketing a service -Recruitment -HR Policies -Compensation structure & incentives -Training -Product knowledge -Product Handling -Customer knowledge -Selling -Motivation -Empowerment -Matrix Responsibility Structure

External Marketing -Creation of promise, corresponding with personal need & aspirations of target customers: -Tangible concept of total promise -Creating expectations by promises -Value of the promise -Non-personal communications

Transactional Marketing -Management of customer contact-buyer-seller interaction –moment of truth -with support from --Managers --Supporting functions --Investment in technology --Operations --Admin. systems

--Elements of success -Contact Person -System & physical resources -Customers and fellow customers -Management support -Support personnel -Technology support -Price -Corporate & local image

External Marketing

- Giving promises -- A process of creating managed expectations from service provider

Internal & Transactional Marketing - Fulfilling Promises -- Ability and motivation to meet expectations of customers created by external marketing effort

Seven service quality gaps Customer needs & expectations 1. The knowledge gap MGM. definition of these needs 2. The standards gap

4. The Internal communication gap

Translation into design/delivery 3. The delivery gap Execution of design/delivery

4

5 . The perceptions gap

Customer perceptions of Product executions

Advertising and sales promises

6. The interpretation gap

Customer interpretation of communications 7. The service gap Customer experience Relative to expectations

Details of service delivery gaps 1.The knowledge gap is the difference between what service providers believe customers expect and customers actual’ need and expectations. 2. The standards gap is the difference between management’s perception of customer expectations and the quality standards established for service delivery. 3.The delivery gap is the difference between specified delivery standards and the service provider’s actual performance on these standards. 4. The internal communications gap is the difference between what the company’s advertising and sales personnel think are the product’s features, performance, and service quality level and what the company is actually able to deliver.

Details of service delivery gaps 5.The perceptions gap is the difference between what it is, in fact, delivered and what customers they have received ( because they are unable to accurately evaluate service quality). 6. The interpretation gap is the difference between what a service provider’s communication efforts( in advance of service delivery) promise and what a customer thinks was promised by these communications. 7. The service gap is the difference between what customers expect to receive and their perceptions of the service that is delivered. Gaps 1,5,6, and 7 represent external gaps between the customer and the organization. Gaps 2,3, and 4 are internal gaps occurring between different functions and departments within the organization.

Creating the Service Product Core Product a) What is the buyer really purchasing? b) What business are we in? Supplementary Services These service elements augment the core product, both facilitating its use and enhancing its value and appeal.

Core Product + Supplementary Product=Augmented Product

Depicting the service offering for an overnight hotel stay Reservation

Use phone

Room service

Parking Nature of Scheduling Process

core Service level

Pay TV

Check in/out

Customer role

Porter

Meal

Supplementary services

Facilitating & enhancing Supplementary services Information Consultation

Payment

Billing

Core

Exceptions

Order Taking

Hospitality Safe Keeping

Core Product vs. Supplementary Services Every core product may not have all the wings, but it helps to identify which supplementary services must be offered. Planning and Branding ex. Hotel, Airlines, Restaurant, etc. Level of new service categories 1. Major service innovation 2.Major process innovation 3. Product line extension 4. Process line extension 5. Supplementary service 6. Service improvements Innovations Success in new service development -Market synergy -Organizational factors -Market research factors

Communication Mix for Services External Communication Communication efforts serve to not only attract new users but also maintain contact with an organization’s existing customers and build relationship with them. e.g. Telephone, Fax, Website, Doctor’s check up reminders, Insurance reminders, Bank’s small letters etc. Internal communication Marketing communications can be used to communicate with service employees as well as with external customer. Internal communication from senior managers to their employees play a vital role in maintaining and nurturing a corporate culture founded on specific service values

Objective of service communication Mix Overcome Intangibility e.g. Airlines, Hotels, Restaurants , etc. Facilitate Customer Involvement say, Train the customer in new technology or service. Help customers to evaluate the service Possible solutions are providing tangible clues related service performance, highlighting the quality of equipment and facilities and emphasizing employee characteristic, such as their qualifications, experience, commitment, and professionalism. Stimulate or Dampen demand to match capacity Ex. Hotel discount at hill stations in winter, increase prices during festive season. Airline discount in off season.

Preparing for Service marketing Communication Who What How Where When

Target To communicate and achieve To communicate Should we communicate Communications need to take place

Target audiences Prospects Users Employees

Word of Mouth Recommendations from a user are more acceptable to buyer than company’s claims. Higher the perceived risk and lesser the knowledge of the customer, more important is WOM. Few methods of creating favorable WOM: --Reference list --Create promotions so others talk --Develop referral Incentive scheme --Trial use --Publicize testimonials for WOM --Brochures may contain positive comments from satisfied customers

The Marketing Communication Mix ---Personal communication ---Advertising ---Sales promotion ---Public relations ---Instructional materials ---Corporate design

Originating sources of messages for a target audience Frontline Staff Production channels

Msg.origin.within

Source

Service Outlets

Marketing channels

Advertising

*

Sales promotions

*

the org.

*

*

Msg.origin. outside the org.

*

Word of mouth Media editorial

Direct marketing Personal selling Public relations

Objectives of Pricing Services Marketing a) Revenue & Profit Seek Profit

Maximize Achieve target Utilize capacity

Cover Costs

Full Cost Cost less O.H. Marginal Cost

b) Patronage and User base Build Demand

c) Build a User Base

Maximize Demand (capacity available) Achieve Full Capacity Usage (cinema, hotel, air lines etc.) Build Market share (economies of scale, cost differentiation) Stimulate trial & adoption of service (New Services)

Cost of Service Usual product costing method may be used for service product, only when variable & semi variable costs component is very high. But many services have very high fixed cost. So now a days Activity Based Costing (ABC) is preferred. An activity is a set of tasks that combine to comprise the process needed to create and deliver the service. Draw a flow chart where each step constitutes an activity with which costs can be linked. Value of a service may be explained as customer’s perceived benefit against perceived cost. Value is highly personal and may be classified as: --Low price, --Whatever I want in a product, --A quality I get for the I pay, --What I get for what I give.

a) Say a customer pays—Rs100/- for the desired service b) He was willing to pay---Rs120/- for the desired service b—a= Rs20/- is consumer surplus (value) When b=a value is adequate. If b—a=--ve then consumer net value is negative. Service product will not sell.

Pricing Strategy Tripod Pricing Value to customers

Costs

Competition

Relationship Pricing Volume discount helps both buyer and seller. But competitor may lure the customer by offering more. Better way is to provide number of services for the same customer. This helps to understand the customer better and customize the services. Then it becomes costlier for customer to change supplier. Low cost leadership Target customer segment with tight financial budget. Use volume discount incentive. Managing Perception Value Customer should be persuaded to consider total cost of service not the time spent only (surgery, legal, T.V., repair etc. )

Total Users cost Search cost

Purchase & Use cost

Money Time Physical effort Psychological Sensory

Purchase Operating cost Incidental expense

Necessary follow up After cost Problem solving

Competition based pricing for competing -Non price related costs of using competing alternatives are high. (saving customer’s time & effort while availing the service ) -Personalization, customization, and switching costs matter. (preference for particular hair cutter, family doctor, etc. ) -Time and location specificity reduce choice. (Banks near residence / office, ATM, Flight time)

Revenue Management, how does it work? -Setting prices according to predicted demand levels among various market segments. -Least price sensitive segment gets first allocation of capacity at high price, followed by next segment at lower price and so on. With the help of technology a demand forecast of different price paying customers is feasible and accordingly capacities may be blocked. -When higher paying demand is high, capacity is taken away from lower paying sector and vice-versa. This method is most effective when the service sector has a relatively high fixed capacity /cost. (e.g. Airlines, hospitals, hotels, etc. )

Price Elasticity The concept of elasticity describes how sensitive is demand to changes in price and is computed as follows: % change in demand Price elasticity=-------------------------------% change in price When a small change in price has a big impact on sales, demand for that product is said to be Price Elastic. But when a change in price has little effect on sales, demand is described as Price Inelastic.

Rate Fences Price customization for same product means charging different customers different prices for what in effect is the same product. One has to ensure that the high value buyers do not the benefit of low prices by building rate fences. Physical /Tangible Fences (e.g. Airlines’ First class, Railway—1st A/C, Theatre front seat etc. ) Non Physical Fences for lower prices -Booking in advance -Cancellation charges -Penalty -Less no. of supplementary services

Designing Fairness into Pricing Strategy --Design price Schedules and Fences that are clear, logical, and fair. --Use high published prices and frame fences as discounts. --Communicate customer benefits of Revenue Management, say higher prices --Use bundling to hide discount. --Take care of loyal customers. --Use service recovery to compensate overbooking: --Compensate for inconvenience --Advance notice for customer to make alternative arrangement --Provide substitute service that delights customers

Issues in Service Pricing Economic cost -How much to charge

-Basis for pricing

-Price bundling Price unbundled

Market sensitivity Competition Per day, per hour Per Km. Per trip etc. Clear idea in advance Hide discount, guarantee Flexibility for customer

Issues in Service Pricing Discounting -Volume discount for big customers

-Cautious approach ---( Instead of weekend surcharge allow discount on week days)

Who should collect payment a) Well presented bill and customer’s convenience b) Where, How, When c) Travel / Ticketing agent d) Direct --Internet --Telephone --Fax --Credit card

Issues in Service Pricing When should payment be made

How to communicate pricing to target mkt. -Ethical, easy to understand

-Advance (e.g.transport sector) -After completion of service ( Restaurant/ Repair etc. ) -Credit

-Customers are able to compare -Price mentioned in Advertisement --Price in advertisement --P.O.P --Bundled / Unbundled --Refer to company staff

Distribution in Services Marketing Three interrelated elements 1. Information and Promotion flow---The objective is to get customer interested in buying the service. 2. Negotiation Flow---Thos focuses on reaching an argument on the services and terms of offer so that contract can be closed. 3. Product Flow--- Many services especially those involving people or processing requires physical facilities for delivery. Core/Supplementary Services Distribution can relate to the core/ supplementary services. The important distinction is, many core services require a physical location which severely restricts distribution. However many of the supplementary are informational in nature and can be distributed widely cost effectively via other means. e.g. Travel agent, internet ticket etc.

Service Delivery Strategy Where? When? How? Responses to these question form the foundation of service delivery strategy. The customer’s service experience is a function of both service performance and delivery characterestic.

Customer/ Service Interaction

Single Site

Multiple Sites

Customer goes to service organization

Theater, Barber shop

Bus Service, Fast food chain

Service organization comes to customer

House painting Mobile car wash

Post delivery Auto club road service

Customer and service Credit card company organization transact at Local T.V Station arm’s length

Broad cast network Telephone company

Decisions about place & time WHERE

Customer visiting the Service(ATM, Barber Shop etc)

Location Constraints (Airport, hotel, Hospital)

Ministore (Use other’s space)

Customer’s convenience/cost

Fast connecting train Pick up from airport Medical cluster

Bank outlet at retail stores Mobile phone bill drop At ATM

Multipurpose Facility

Truck stop with ATM, Fax, Toilets, Motels, Restaurants, etc

Decisions about place & time WHEN

5 days a week, 8 hours with lunch Break (or earlier)

24/7 and 365 days also “E” Commerce (now)

Role of Intermediaries Many service organizations find it cost-effective to delegate certain tasks, usually supplementary service elements. Generally core products and some supplementary services are delivered by originating source, and the rest of supplementary services are delivered through intermediaries. However the responsibility lies with the originator franchising. Even the delivery of the core product can be outsourced to an intermediarie. This is the essence of business format franchising. Franchising has become a popular way to expand delivery of an effective service concept embracing all 7 Ps to multiple sites without the level of investment capital that would be needed for rapid expansions of company owned and managed services. Franchisors control not only output specification, but also the appearances of the servicescape, employee performance and such elements as service timetables.

Trucking companies use licensing routes to have independent agents in different cities to deliver the whole service .Universities allow education institutions to deliver courses designed by them . Financial services- Banks acting for M.F.S Insurance companies (only selling)

Factors favoring adoption of Transnational Strategies Market Factors This includes common customer needs across many countries. Global customers demand consistent service from the supplier round the world and the availability of international channels in form of physical supply chains or electronic net work. e.g. Same auditor, Advertiser, DHL, etc. Competition Firms may be obliged to follow their competitor to new market in order to protect their positions elsewhere. Cost Drivers Economies of scale may be gained by operating internationally or globally. Improved telecommunication, transportation, lower operating costs in some countries facilitate the entry.

Technology Significant economies may be gained by centralizing “information hubs” on a certain wide or even global basis. Improvement in these technologies create cheaper transportation improved performance, physical design and shorten distances. Ex- Call center jobs, Back room jobs. Government Rules Govt policies can serve to encourage or discourage development of a transnationally integrated strategy. W.T.O has helped in this regard. But still many remain purely local . Ex- Plumbers, Electrician etc

How to start designing a Service Process? Best method is to draw up a chart of all key activities in creating and delivering the service in question and mark the linkages between them. Refer next chart showing activities & physical evidence of a service process e.g. Restaurant. Every physical evidence may be sub-divided into different activities. Each sub activities are equally important for the success of service process. Sub activities should be deliberated and carefully chosen so that no steps in service is missed.

Chart of key activities of a Restaurant Action 1.Make Reservation 2.Valet Parking 3. Coat room 4. Welcome Drink 5. Seating 6. Order Food 7. Food Service 8. Bill Payment 9. Rest Room 10. Retrieve Coat & Car

Physical Evidence 1.Sound & Tone of voice 2. Appearance of Employee & Building 3. Décor,Employee,other coat,etc. 4. Lounge Decor, Table sitting, & other customers 5. Room Décor, Staff behavior, Class of other guests 6. Menu Card, Employee 7.Preparation, Taste, quality 8.Transperent, Quick payment 9.Design, Cleanliness, Direction 10. Décor, Employee

Customers as co-producer of service

An important part of process design, is to define the roles of customers should play in the production of services. Their level of desired participation needs to be determined and customers need to be motivated and taught to play their part in service delivery.

Level of customer participation Low customer Presence

Moderate High customer customer inputs co-produces the rqrd for service service prod

(Consumer Services)

(Consumer Services)

(Consumer Services)

Bus travel, Motel stay, Movie theater

Hair cut, annual physical check up

Marriage counsel, personal Training, Weight reduction

(Business to business services)

(Business to business services)

(Business to business services)

Uniform cleaning service, ADV. Agency, Payroll Pest control

Management consultant, Seminar, Super market

The Problem of Customer Misbehavior Customers form an important element in many services’ encounters. Firms that fail to deal effectively with customer misbehaviors, risks damaging their relationships with all the other customers that they would like to keep. Following are the problems (P) & solutions (S) P—the thief ( Shop lifter, Towel, Linen theft, “E’ crime ) S---a) Find the route of theft and try to plug it, and if necessary prosecute. b) But take care that honest customers do not suffer. Genuine mistakes are to be ignored. c) be sensitive and handle carefully.

P)---the rule breaker ( Carrying gun in airlines, No shoe, No shirt in clubs etc. Jump the ‘Q” ) S)---Rules should be properly conveyed, may be on a billboard. ---Take help of other customers. ---Too many rules and control reduces the pleasure of service. ---The fewer the rules, the more explicit,the important ones can be. P)---the vandals ( Breaking of Nursing Homes,Burning of buses,etc.) S)---The best cure for vandalism is prevention. --- Improved security, better lighting, design with grills etc.

P)--- the dead beat (Those who fail to pay ) S)---Prevention is better than cure. ---Ask for credit card before order. ---Present the bill immediately after the service. ---Handle softly and tactfully.

Balancing Demand and Capacity 1.Demand > Capacity Loss of business, crowding, customer not satisfied. 2.Demand =Capacity Well balanced, customer satisfied. 3.Demand < Capacity Loss of capacity leads to loss of money. For most of service sector it is either ‘ feast or famine “. Hence one must try to balance capacity and demand.

Example of Capacity Stretching or Shrinking --Overtime by workers --No. of people standing in Buses / Metro --Use higher capacity Aircraft, Puja special trains --Add extra table in restaurant --Provide faster service, earlier opening & late closing Adjust capacity to match demand --Schedule down time during periods of low demand --Use part time employees --Rent or share extra facilities and equipment --Cross train employees

Alternative demand management strategies for various capacity situation Approach used to Insufficient capacity manage demand (excess demand)

Excess capacity (insufficient demand)

Take no action

Unorganized queuing results. (May irritate customers and discourage future use).

Capacity is wasted (customers may be disappointed e.g. Theater hall).

Reduce demand

Higher prices will increase Take no action profits; communication can encourage use in other time slots.

Increase Demand

Take no action unless opportunities exist to stimulate more profitable segments.

Lower prices selectively; use communications and variations in products and distribution. (cost and profit trade off)

Alternative demand management strategies for various capacity situation Approach used to manage demand

Insufficient capacity (excess demand)

Inventory demand by reservation system

Consider priority system for Clarify that space is most desirable segments; available and that no make other customers shift reservations are needed to off peak period or to future peak

Inventory demand by formalized queuing

Consider override for most desirable segments; try to keep waiting customers occupied and comfortable; try to predict wait period accurately

Excess capacity (insufficient demand)

Not applicable

Understanding Patterns of Demand Most periodic cycles of demand for a particular service in length generally varies from 1day to 12 months. e.g. Festive season, Winter and Summer sales etc. No strategy for smoothing demand is likely to succeed unless it is based on an understanding of why customers from specific segment choose to use the service when they do it. e.g. Business Travel---mostly not in weekends.

“Q” system for balancing Supply & Demand 1.Single line/ single server/ single stage 2. Single line/ single server at sequential stages 3. Parallel lines to multiple servers

4. Designated lines to designated servers

1.

x x x

O

2.

xx—xx—xx

O

3.

4.

x x x y x z m

x x x x x x y y x x z z m m

O O O * O + ++

5. Single line Multiple server (snake )

5. X X

X

O

X X

X

O

X X X

X

O

X

6. Take a number (single or multiple servers)

6.

22

18 19 20 15 16 21 17

11 10 14 13

O X + ++

Other methods of balancing Supply and Demand Price / Other Costs One of the direct way of reducing excess demand at peak periods is to charge customers more money to use services during these periods. Reverse is to reduce prices to increase demand. Change Product Elements / Time Educational Institution---Rent out during weekends/ holidays for program for adults, social functions, etc. Small Boats---Offer cruises in summer and dock side venue for private function in winter. Modify the Place & Time of Delivery Movie Theatre---Different rates for Morning / Evening shows Shops--- Open for longer period in festive time

Promotion & Educating the customer Airlines--- Buy early for cheap rates Post Office---Mail early the Christmas Cards Demand control through Reservation In business whose demand regularly exceeds supply, managers can often take steps to inventory demand. 1.First come first served 2.Advance Reservation

Planning the Service Environment The service environment plays a major part in shaping customers’ perception of a firm’s image and positioning. As service quality is often difficult to assess objectively, customers frequently use the service environment as an important quality signal. Dimensions of affect Environmental stimuli & cogntive process

Response Behavior Approach/Avoidance &Cognitive Process Pleasure & Arousal

The Mehrabian-Russell Stimulus Response Model

The Russell Model of Affect As shown below emotional responses to environments can be described along two main dimensions :Pleasure and Arousal. Pleasure is direct, subjective response to the environment, depending on how much the individual likes or dislikes it. Arousal refers to how stimulated the individual feels, ranging from deep sleep to the highest level of adrenaline in the blood stream.

Arousing Distressing Unpleasant Boring Sleepy

Exciting Pleasant Relaxing

The impact of Ambient Conditions Ambient conditions are those characteristics of the environment pertaining to our fine senses. Even when not consciously noted, they may still effect people’s emotional well being, perception and even attitudes and behaviors. Say Music People tend to adjust their pace, either voluntarily or involuntarily to match the music. A survey conducted in a restaurant reveals higher sale while playing music in slow beat, than fast beat. Scent An ambient smell is one that pervades an environment may or may not be consciously perceived and is not related to any particular product. In aroma therapy it is generally accepted that scent have distinct characteristics and solicit certain emotional, psychological,

and behavioral responses. Research has shown that scents can have significant impact on customers’ response. Colour Colour is stimulating, calming, expressive, disturbing, impress ional, cultural, exuberant, and symbolic. It pervades every aspect of our lives, shines the ordinary and gives beauty, drama to everyday objects. Research in service environment has shown despite differing colour preferences, people generally drawn to warm colour environment. Red though belongs to warm category is perceived to be negative. Warm--- Orange, Yellow, Red Cool----- Green, Blue, Indigo, Violet

Signs, Symbols, and Artifacts Many things in the service environment act as explicit or implicit signals to communicate the firm’s image, help customers to find their way, and convey rules of behavior. In particular the first time customers will automatically try to draw meaning from the signs and artifacts and will try to draw clues to help them form expectations about the level and type of service that is being offered. The challenge for services cape designers is to use signs, symbols, and artifacts to guide customers clearly through the process of service delivery.

People as part of Service Environment The appearance and behavior of service personnel and customers can reinforce or detract from the impression created by the service environment. Like wise marketing communication can also enhance or detract the impression of the service ambience. Design with a Holistic View The holistic characteristics of environment makes deigning service environment an art, so much so that specialist designers are required for different areas. e.g. Only hotel lobby, Restaurant bars, clubs etc.

Design from a Customer’s Perspective Many service environment are designed only on esthetic values and forget the customer’s convenience. But if you do not keep your customer in mind through out, you could end up with an investment that is not effective. e.g. Hotel---Absence of signs from Ball Room to Rest Room Airport-Luggage brushing against artifacts, glass panes etc.

Managing People for Service Advantage --Often, the service staff is the most visible element of the service, delivers the service and significantly determines service quality. --Frontline staff represent the service firm; from a customers’ perspective, the frontline staff is the firm. --Frontline staff and service are often a core part of the brand. It is the staff that determines whether the promised service gets delivered or not. A service firm’s differentiation rests on those few moments of interaction with frontline staff. Therefore the service delivered by the frontline, whether it is ear to ear, via email, or face to face, is still highly visible and important to the customer and therefore a critical component of the strategy and marketing mix of service firms.

Frontline work is Difficult and Stressful Frontline staff may perform triple roles: Producing service quality, productivity, and sales. The multiplicity of roles in service jobs often leads to conflict role stress among employees. Sources of Conflict 1. Person / Role conflict—service staff feels conflicts between what their jobs require and their own personalities, self perceptions and beliefs. e.g. The job may require staff to smile and be friendly even to rude customers. 2. Organization / Client conflict---should the staff follow the company rule or satisfy the customer?

Frontline work is Difficult and Stressful 3.Inter Client conflict It becomes the responsibility of the frontline staff. 4. Emotional labour –The term emotional labour means the emotion that arises from the discrepancy between the way frontline staff feel inside, and the emotions they are expected to portray in front of customers. Successful company in service firms have: Leadership that -Focuses the entire organization on the frontline to support the frontline -Fosters a strong service culture with passion for service and productivity -Drives values that inspire, energize, and guide service providers

Wheel of successful HR in Service firms 3.Motivate and Energize 1. Hire the right people your people Use the full range of Rewards Be the preferred employer and - Pay compete for talent market share - Bonus Intensify selection Service excellence -Job Content process to hire the -Feedback & recognition right people for the and productivity -Goal accomplishment organization and the given job 2. Enable your people Build high performance Service delivery teams: -Ideally cross functional, customercentric structure

- Empower the front line

-Develop team structures and skills that work

Extensive training on: - Organization culture, purpose, and strategy - Interpersonal & technical skills - Product/Service knowledge

Managing Relationships & Building Loyalty Why relationship & loyalty? How much is loyal customer worth in terms of profit? Research shows: a) Profit derived from increased purchases---over time business customers often grow larger and so purchases in greater quantities. b) Profit from reduced operating costs---as customers become more experienced they make fewer demands on the supplier and makes fewer operational mistakes.( less need for information and operational training ) c) Profits from referrals to other customers—positive word of mouth recommendations are like free sales and advertising. (firms save money in such activities )

Managing Relationships & Building Loyalty d) Profit from price premium -----new customers are lured by introductory discounts, where as normal customers are more likely to pay normal price.

Understanding the customer / firm Relationship 1.Transactional marketing –is exchange of values between two parties. Repeated transactions not necessarily creates relationship, may be it creates relationship between customer and intermediaries. 2. Data base marketing uses technology -to create data base for present and future customers -gives segment wise customer’s preferences and characteristics -track each relationship to monitor the cost of acquiring and / or maintaining the customer

Understanding the Customer / Firm Relationship 3. Interaction marketing –may include negotiations and sharing of insights in both directions. Good organizations effectively combine data base and interaction marketing. 4. Network marketing –this type of marketing occurs primarily in business to business context, where firms commit resources to develop relationships with customers, distributors, suppliers, media, Govt. agencies etc. 5. Creating “Memberships” Relationships – is a formalized relationship between the firm and an identifiable customer. Many elements are involved in gaining market share and profit. The process starts by identifying and targeting the right customers, and then learning about their needs and preferred service delivery. Translating this knowledge into service delivery, tiered service levels, and customer relationship strategies are the key steps toward achieving customer loyalty.

Tiering of Services Good Platinum relationship Gold Iron Poor relationship

Which segment sees high value in our offer, spends more with us over time, costs less to maintain and spreads positive word of mouth.

Lead

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 Wheel of Loyalty Build a Foundation for Loyalty --Segment the market to watch customer’s needs and firm capabilities. --Be selective: Acquire only customers who fit the core value proposition. --Manage the customer base via effective tiering of service. --Deliver quality service.

Enabled through --Frontline staff --Membership Program

--Account managers --CRM system

The Wheel of Loyalty Create Loyalty Bonds 1.Give loyalty rewards

2.Build higher level bonds

3.Deepen the relationship

-Financial -Non-financial -High tier service level -Recognition and appreciation

-Social -Customization

-Cross selling -Bundling

The Wheel of Loyalty Reduce Churn Drivers -Conduct churn analysis monitor declining / churning customers. -Address key churn factors -Proactive retention measures -Reactive retention measures -Put effective complaint handling and service recovery process in place. -Increase switching costs.

Customer feed back and Service Delivery Collecting customer feed back via complaints, suggestions and compliments provide a mean of customer satisfaction. It is an opportunity to get into the hearts and minds of customer. To get complaints you must make it easy for the customer.

Strategies to Reduce Complaint Barriers Barriers -Difficult to find right complaint procedures and effort, e.g. writing and mailing a letter

Ways to reduce Barriers -Make feed back easy and convenient -Print customer service hot line numbers on all customer communication material

Strategies to Reduce Complaint Barriers Doubtful Payoff -Uncertain whether the firm will take action or not.

Unpleasantness -For being treated rudely -For being hassled -Feeling embarrassed

-Reassure customers that

their feed back will payoff. -Feature service improvements that resulted from feed back. -Make providing feed back a positive experience. -Thank customers for their feed back, publicly. -Train the frontline not to hassle but make them comfortable -Allow for anonymous feed back.

Service Guarantees A growing number of companies offer customer a satisfaction guarantee promising that if service delivery fails to meet predefined standards, the customer is entitled to one or more forms of compensation, such as an easy to claim replacement, refund or credit. Some firms place conditions on these guarantees, others offer them unconditionally. e.g. – Pizza –1/2 hr. delivery -- 24 hr. delivery any where in U.S.A.

Learning from Customer Feedback -Assessment of Benchmarking of service quality and performance. e.g.- competitors versus your own branches. -Customer driven Learning & Improvements -Creating oriented service culture.

Few ways getting Feedback - Total market survey

-Service feed back cards

- Unsolicited customer feed back - Focus group discussions and service review

-Mystery shopping -Capturing unsolicited customer feedback

Service firms need to develop effective strategies to recover from service failures so that they can maintain customer goodwill. That is vital for the long term success of the company. Even the best recovery strategy is not as good as being treated right the first time. The ultimate objective of an effective customer feedback system is to institutionalize systematic and continuous customer-driven learning.

The Service Recovery Paradox The service recovery paradox refers to the sometimes observed effect that customers who experience a service failure and then have it resolved to their full satisfaction are more likely to make future purchases than are customers who have no problem in the first place. A study showed that the service recovery paradox held for the first service failure that was recovered to customer’s full satisfaction. However when a second service failure occurred, the paradox disappeared. It seems that customer can forgive a firm once, but gets disillusioned if failures recur. Further more the study showed that customers’ expectations were raised after they experienced a very good recovery; thus, excellent recovery becomes the standard they expect in dealing with future failures.

Organizing for service Leadership No organization can hope to achieve and maintain market leadership without human leaders who articulate and communicate a vision and are backed by individuals with the management skills to make it happen. Service leadership in an industry requires high performance across a number of dimensions that fall within the scope of marketing, operations and HRM functions. Within any given service organization marketing has to coexist with operation—traditionally the dominant function – whose concerns are centered on cost and efficiency rather than on customers. Marketing must also coexist with human resource management which usually recruits and trains service personnel, including those who have direct contact with customers.

Organizing for service Leadership An ongoing challenge is to balance the concerns of each function not only at the head office but also in the field. Ultimately a company’s ability to effectively integrate marketing, operations and human resource management, will determine whether it is classified as a service loser, a service nonentity, a service professional, or a service leader.