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What are services?

Banking Education Transportation/ busses/ airlines Restaurants Beauty Parlours Cinemas Hotels

Why study Services Marketing?

Size of services is increasing globally
x Changes between agriculture, industry and services x Services increase with increase in per capita income x Companies like to outsource aspects that are not in the core business area

Services offer a competitive advantage

Historically
Economists focussed on creation and possession of wealth View was only what can be possessed can create wealth Adam Smith for the first time said that services were useful but perished at the time of production and so did not create wealth Today production and consumption are separable for many services

So services like ticketing, weather forecasting are separable in production and consumption Recording of games and music are services that are not perishable

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Services are desired experiences and solutions In a way rent of labour and expertise It is a way to enjoy or use things that we cannot justify or do not want to store after use
Access to and usage of systems and networks Access to shared physical environments Labour and expertise rentals Rented goods and services

Services are economic activities offered by one part to another party. In exchange of money, time and effort, service customers expect value from access to goods, labour, professional skills, facilities, networks and systems; but they do not normally take ownership of any of the physical elements involved.

Difference between Services and Customer Service

All companies have to provide service to customers Manufacturers also provide transport, finance, installation, after sales services What is the core product? Service or physical product

People processing
Services directed at peoples bodies
x Transportation x Hotels x Health/ beauty care

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People have to go to location to get service Have to actively co-operate with service provider Output can vary from minutes to months

Possession Processing
Services directed at physical possessions
x x x x x Repair and maintenance/ Pest control Dry cleaning House construction Transportation and storage of goods Wholesale and retail distribution

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Customers are less physically involved Production and consumption can be separate

Information Processing
Services directed at intangible assets revolutionized by IT
x x x x Accounting Banking Legal Services Market Research

Mental Stimulus Processing

Services directed at peoples mind
x Education/ professional advice x Entertainment /Advertising x Training

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People dependency on the service Dont necessarily have to be physically present

Transmission can be through other means like TV, Radio, Internet, CDs etc

These services and be created in one place and delivered in another place. Can be packages and sold as a physical commodity also

Services Marketing 4 Ps
Products Place/ Distribution Price Promotion

Service organisations have choices about product types and how to deliver them Service Product Value proposition must include
Core Product Supplementary Services Delivery Process

It is the central component that supplies the principal, problem-solving benefits that customers seek
Hotel room Transportation Repair service restore and repair a malfunctioning equipment

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Accompany delivery of core product which facilitate its use and add value and appeal to overall customer experience Are in response to customer needs Core products tend to become commodities over time and Supplementary Services add value Thus adding supplementary services should be such that add value to core products

Range of Supplementary Services FOS

Information Consultation Order taking Hospitality Safekeeping Exceptions Billing Payment

Supplementary Services
Facilitating required for the delivery of to help in use of core product Enhancing which add extra value for the customers

Information
Schedules Prices Information on use Conditions of service Reminders

Order taking
Application/ getting relevant information Order entry if basic criteria met Reservations for a specific service and monitoring inventory

Billing
Timely Accurate Clear informative

Payment
Ease Convenience

Consultation
Dialog with customer to create customized solution Customer records help in providing intimate advice and solutions Counseling interaction with customer to help him make up his won mind health, insurance, VLCC, etc

Hospitality
Pleasure in meeting new customers and greeting old customers Greeting, food, beverages, waiting facilities, transport, security, etc.

Safekeeping
Storage of valuables Child care Assemble installation of products

Exceptions
Special requests Problem solving Handling of complaints/ suggestions/ compliments Restitution

People process
Most demanding More need for supplementary services High need for hospitality

High contact services need more customer interaction Possession processing need
More safekeeping

Information processing
Safekeeping not required

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Important for delivery of core product and services Design of delivery must address
How different service components are delivered to customer Customers role in these processes How long delivery lasts Prescribed level and style of service

Distribution
What How Where When

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Experiences, performances, solutions cannot be stored or shipped Information is increasingly delivered via internet Distribution uses three interrelated flows
Information and promotion flow Negotiation flow Product Flow

Distinguishing between core and supplementary services is important

Many core services require a physical location Many supplementary services are information based and can be distributed widely in a cost effective manner by other means
x x x x Travel agent Face to face Email Online

Many physical location outfits are shifting delivery of supplementary services to internet - banks

Information process contains five services from the Flower of Service

Information Consultation Order taking Billing Payment

Physical process contains

Hospitality Safekeeping Exceptions

Type of contact
Customers visit the service site
x Car service, Doctor, Hospitals

Service providers go to their customers

x x x x Inspection and certification Machinery repair on site Pest control Corporate vs individual customers (volume vs margin)

Transaction is conducted remotely call center, mail or email, repair through shipping the product

Channel Preferences
Complex and high risk services personal channels People with higher confidence and knowledge impersonal or self service channels Customers seeking convenience impersonal and self service channels Convenience is the key driver for determining channel preference.
x Ease of use x Convenient time and place x Access to supplementary services

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When and Where? Delivery strategy for core and supplementary services may vary Delivery involves considering
Location of back end services
x Cost, productivity and cost of labour is important x Customer preference and convenience

Creation of mini stores

Create many small service factories to maximise geographic coverage ATM, restaurants without kitchens Create a small shop inside another service provider restaurant inside a Retail outlet, ATM inside a supermarket

Locating in multipurpose facilities

Many services under one roof in modern buildings like malls, airports, offices ATM, Restaurants, Doctors, Health club, etc.

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When Traditionally services were delivered in the same working hours as offices Today standard is 24x7 Use of Cyberspace more and more companies use this
Airlines, hotels, trains, holidays, It allows the use of
x Online communities to sell the service x To collect feedback from customers x Information on customer search behavoiur

Importance of Intermediaries
In the FOS some services are from the service provider and the rest by the intermediary Value added to the core service created by service provider Specialist skills available with the intermediary However the original service provider is responsible for the overall experience by the customer Franchising allow for the delivery of the core service also This helps in reducing need for capital needed for expansion and increase speed of penetration.

Distribution is driven by
Market customers expect global presence Competition competition opens new areas and forces company to move there Technology internet allows global distribution and cost arbitrage Cost economies of scale push towards adding markets Government countries joining WTO have to open markets to many service sectors

Price Objectives
Profit
x Largest contribution x Achieve target but not to maximise profit x Maximise revenue from a fixed capacity by varying prices and target segments

Cover Costs
x Cover cost and overhead x Cover cost without overhead x Cover incremental cost of one unit

Pricing objectives
Build Demand
x Maximise demand with minimum level of revenue x Achieve full capacity utilization

Build a user base

x Encourage trial and adoption of service
x Useful for a new service with high OH Membership type of services

x Build a large market share if economies of scale lead to a competitive cost

Pricing can be done in three ways

Cost based Value Based Competition based

Cost Based pricing

Traditional cost based costing Activity Based costing

Cost has nothing to do with value which depends on the customer perception Value Based Pricing
Customer definition of value is more personal in nature
x x x x Value is low price Value is whatever I want in the product Value is the quality I get for what I pay Value is what I get for what I give

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Managing Perception of Value Reduce monetary and non monetary costs

Monetary costs
x Customers costs in searching, purchasing and using service

Non Monetary Costs

x Effort x Time costs spent in getting service delivery slow internet x Physical costs fatigue, discomfort esp if customer has to go to service factory and wait x Psychological costs mental effort, perceived risk, x Sensory Costs unpleasant sensory feeling crowd, heat, cold, smell

So we have to consider
Search Costs Purchase and service encounter costs Post consumption costs

Customers are of two types

Spends time to save money Spends money to save time

Offering can be divided amongst the two

Competition based pricing

In an undifferentiated market the lowest price becomes price leader Price competition increases with
x x x x Increase in competitors Increase in substitution offers Wider distribution of competing offers Increasing or surplus capacity in industry

Price competition is countered by

Non price related costs of using competing product time Personal relationships Switching costs are high Time and location reduce choice

In services with
High fixed costs and relatively fixed capacity Variable and uncertain demand Varying customer price sensitivity

Objective must be to maximise Revenue

Vary prices depending on customer price sensitivity Especially reserve capacity for high price paying customers Measure price elasticity of demand

So for pricing we may use

Physical characteristics
x Basic product size , class, location x Amenities free breakfast, valet parking x Service level separate check in counter, dedicated team,

Non Physical Characteristics

x Time of booking discount for early purchase x Location of booking online booking lower than offline, passengers in different countries are charged different prices for the same flight, x Flexibility of usage cancellable, non-cancellable

Consumption characteristics
Time or duration of use off peak hours, happy hours, minimum purchase Location of consumption between cities,

Buyer characteristics
Volume or frequency of consumption frequent flyer, Group membership corporate rates, student, senior citizen, alumni Size of consumer group group discounts Geographic location -

Role of Marketing Communication

It is the most visible and audible part of the communication

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Blue Print Clarifies between

Customers experience front stage Support processes back stage

Clarifies interaction between customer and employee and how they are supported by back stage activities
Helps integrate marketing and operations

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It helps identify FAIL points spoils customer experience It helps identify WAIT points too much wait bad

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ACT 1 Customer reservation

Creates an impression by the nature, tone of interaction When customer arrives at Restaurant outside area, valet parking, wait before table is ready At each stage Customer interacts with service personnel who ensure
x Key actions and x Service delivery x That meets customer expectations and standards

Below line of visibility actions need to be taken to ensure that front stage activities go on smoothly

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ACT 2 Customers reach the table for delivery of Core Service

Get menu complete or not, explained or not Order food as per menu, any inadequacy Place order on kithen Serve food how quickly, quality

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ACT 3 Core service has been delivered but the service experience is not complete ACT 3 should be short
Billing clear and accurate Payment handling Valet bringing the car

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Need to identify FAIL points Those points that can result in customer not enjoying the service Failure Proof Design
Set Service Standards and target
x Poka Yokes or fail safe methods to prevent errors

Service process redesign

x Revitalizes processes that have become outdated
x Changes of technology x Customer needs x New features

Service process redesign should improve both quality and productivity

Reduce number of service failures Reduce cycle time from customer initiation to completion Enhanced productivity Increased customer satisfaction

It undertakes activities like

Eliminating non value added steps Shifting to self service Delivering direct service Bundling services Redesigning the physical aspects of the service process

Levels of Customer Participation

Low level of participation
x Employees and system does all the work x Customer is only needed to make payment x Cinema theatre, airline, cleaning

Moderate level
x Customer inputs are needed to creating and delivering the service hair cut, tax return

High Level
x Customers work actively with service provider to co-produce the service x Service cannot be created without customers participation health related services x Process will fail if customer does not actively participate