services marketing notes.pdf

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UNIT IINTRODUCTION TO

MARKETING OF SERVICESLESSON 1:

INTRODUCTION TO MARKETING

The Objective of this Lesson is to havean insight into• Origin of service marketing• Marketing Organisations• Marketing environment• Marketing todayLets look at the origin of service marketing…….Prior to the time of the Industrial Revolution, virtually all tradeand exchange processes involved some personal contactbetween suppliers and their custom-ers. This meant thatindividual producers could cater to the needs of their custom-ers, and most trade was very local in nature. The increase inoverseas trading and the advent of the industrial revolutionheralded the start of new types of trading practice, and theintroduction of some of the processes which are part ofmarketing today.Initially, producers and manufacturers were concerned mainlywith logistical issues - transporting and selling goods towidespread markets, often located far away from the point ofproduction. The focus here was on production, with consump-tion and consumers being seen as the end result of aproduction and distribution chain. For as long as demandoutstripped supply, which was gener-ally the case as westerncountries started to go through periods of dramatic growth ineconomic activity and technological change, producers could allexist profitably simply by producing more efficiently and cuttingcosts. Little attention was given to the role of the consumer inexchange processes.In the early twentieth century the realization that marketing was,in itself, an important part of the business process led to thefounding of the American Marketing Association and thedevelopment of the earliest aspects of marketing theory andpractice. It was much later, however, that the need for amarketing orientation was recognized, with a clear focus on theneeds of the consumer. This chapter charts the progress of keydevelopments in marketing from these early stages to thepresent, providing the basis for understanding marketingwithin a services context.

Developments in Marketing TheoryThe greatly increased production of goods which arose out ofmechanization following the industrial revolution was matchedby increased levels of demand in the mass market. The problemfor producers lay in getting their products to the market.Manufacturers were investing heavily in premises and machineryin pursuit of better and cheaper production. They did not wantto be involved in the distribution of the product. A distribu-tion trade grew up to serve every industry.First Generation Marketing: Wholesalers opened warehousesin major cities and bought products in bulk from the manufac-

turers. They stored the products and organised their distribu-tion to retailers and other smaller organizations throughoutmarkets. This was the development of channels of distribu-tion, still crucial to successful marketing today, and is recognizedas first generation market-ing. At this stage the main concernwas getting the product to market - selling all that was pro-duced.Second Generation Marketing: It was only during the secondhalf of the twen-tieth century that the focus began to shifttowards the notion that producers should look at whatconsumers actually wanted - produce what can be sold to themarket, rather than try to sell what is produced. This was thestart of second generation marketing. The early stages of thesecond generation saw the develop-ment of the idea that firmsshould take on a marketing orientation - marketing shouldbecome the integrated focus of their business policy. Firmsshould seek to satisfy their profit needs by identifying Andsatisfying consumer needs.New ideas in the 1960s also pressed the need for a broaderorientation with a focus on consumer needs and criticized .firmswhich were still too product orientated. By defining theirbusiness in terms of their products, firms could constrict theirown growth and development - even survival- as consumerneeds and technologies were changing rapidly. The essential taskfor firms was to analyze their business from the consumer’sperspective - to look at their market offerings in terms of theneeds satisfied, rather than the products offered. Thus theHollywood film industry, for example, needed to focus on itsbusiness as ‘entertainment’ rather than ‘making movies’ if itwas to enjoy continued profitability and success in the face ofincreasing competition from television.Third Generation Marketing: From the mid-1960s onwards,marketing thought grew and matured. There was increasingawareness of the role that marketing played, not only inbusiness but through its influence and impact on consumersand society as a whole. Marketing began to be seen as some-thing which was not only relevant to commercial organizations,actively seeking profits at the end of the day. Marketing could beequally important for organizations and services which were notnecessarily traditional, profit-led businesses. Schools,’ healthprogrammes, charities and other types of not-for-profitorganization could bene-fit from a marketing orientation. Evenpolitical parties could employ marketing programmes to winvoters. Marketing was viewed as being applicable across a verybroad spectrum of commercial and social activity.From this realization came the emergence of fired generationmarketing. This hinged on the idea of a broader application ofmarketing within society, across all types of organization, andfor greater benefit to society. Society’s needs should be consid-ered in line with those of consumers, and profits should not be

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sought at an unacceptable cost to society. This has led to a callfor firms to engage in ethical marketing practices and, increas-ingly, to adopt environmentally sound, ‘green’ policies.In moving towards the development of a body of marketingtheory, much has been drawn from other academic disciplines.This is especially true of the behavioral sciences, economics andmanagement science. A debate exists as to how much actualmarketing theory has been established to date. What is gener-ally accepted, however, is that marketing is evolving as adiscipline with a wide base of knowledge, concepts andtechniques and areas of theory, which may ultimately cronetogether to provide an integrated base of marketing theory.One of the main reasons for this is the entrance into themarketing arena of a vast number of academics from otherdisciplines. Social psychologists, econo-mists and statisticians,for example, have all entered the field, together with practicingmarketers from a vyl10le range of specialists such as advertising,distribution and product management. Marketing is, in itself, acomplex subject covering a very wide area, rich in its diversity.This book looks at the develop-ment of marketing in relationto services and offers the reader insights from the extensiverange of concepts and techniques available.

TutorialsIn light of above, Give the comparative analysis of phase ofdevelopment of Aggarwal Sweets vis-à-vis Mc. Donald’s

Marketing OrganisationsWhat is meant by a marketing organisation? A marketingorganisation has marketing as its key focus. It is organisedaround marketing and is customer-led or market-led. Itanticipates and responds to the needs of the market in design-ing its current and future strategy. The idea of a marketingorientated organisation can be made clearer by comparing it withother organizational philosophies which have been identified.Firms which are production orientated focus on production asthe key to success. In their view, the ~market will always seekproducts which are both cheaper and widely available. Theorganization’s main task, therefore, is contin-ually to improveand refine production efficiency, thereby producing greaternumbers of goods at lower prices”‘ This approach does holdsome credibility, especially in situations where demand isrelatively high, and could increase with lower prices. This is thecase in areas such as home electronics where colour televisionsand CD players, for examp1e, have become far more popular assupply increased and prices fell!. In the extreme, however, itignores the customer viewpoint and will not succeed oncemarkets have become saturated.

Some companies are product orientated, believing that consum-ers will seek products which are innovative or technologicallysuperior in the marketplace. They constantly strive to developnew products which stand out. This is a high risk approachwith significant chances of failure, as seen by the number of’flops’ in the market, such as Sinclair’s electric C5 personaltransportation vehicle. This ap-proach can work successfully butneeds to take into account consumer tastes and wants. Withoutdoing this, firms can fall into the trap of becoming toonarrowly constrained, by viewing their business is terms of‘products’ rather than in terms of customer need satisfactions.Both Q. production and a product orientation could equallyapply to service providers, where there is too much attentionfocused on the service and the service provision, rather than onthe customers.A selling orientation is where the focus of the firm’s attention ison the ‘hard sell’; heavy promotion, advertising and sales tacticsto get rid of whatever is produced. This technique is evidenttoday, particularly in the area of unsought goods - goods whichdo not full specific consumer needs, but which are heavilypromoted, frequently with. deferred payment terms andpressurized sales tactics. A good example of this approach is inthe selling of timeshare holidays which usually employs all thetactics outlined above - and often leads to unhappy consumerswho claim they were pressurized or misled into signing a salesagreement. This approach can be lucrative in the short-term, butis unlikely to succeed in the long-term.An organisation which is marketing orientated, as indicatedpreviously, aims to achieve its organizational objectives byanticipating and satisfying the needs and wants of its consum-ers. Long-term customer satisfaction is a key goal, and theorganisation is committed to attracting arise retaining custom-ers. The business is defined in terms of need satisfaction ratherthan specific service or product areas, and as those needs change,this should be reflected in the organization’s activities. Addi-tionally, organisations may adhere to a societal marketingorientation, where attention is given to the long-term good ofsociety, as well as consumers. This is becoming more and moreevident in today’s environmentally conscious marketplace.

Marketing TodayThe previous sections have outlined the developments withinmarketing which have led to what we know as marketing today.Arguably, however, it is external factors in the political, socialand business world which have shaped the role and develop-ment of marketing. Some of the types of influences which havean impact on the development of marketing are as follows:

Political/legalChanges in government policy towards business enterprise.The growth of global trade and the impact of trade barriers andcurrency agreements, for example.Privatization (of major importance in the UK).De-regulation of advertising for the professions.Legislation on environmental issues.Consumerism, and the power of consumer pressure groups.

Economic


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World economic trends.Levels of consumer affluence, spending power. The impositionor relaxation of price controls. Inflation levels.Attitudes to, and increases in, consumer borrowing: Theimportance of the service economy.The opening of the single European market.

Socio-culturalIncreased numbers of women in the workplace.Cross cultural issues in international marketing. -.Increased leisure tile, and the wide scale pursuit of leisureinterests. Higher levels of education, and increased participation.Growth in consumer travel and tourism.

TechnologicalThe impact of technology on business processes; the use ofscanning systems (EPOS) in retailing and the use of automaticcash dispensers (A TMs) in banking, for example.Technological developments in consumer products.Telecommunications impacts on business and society throughdevelopments such as telesales, telemarketing, teleworking.Awareness and use of technology in the home.The above lists are examples of the factors which have impactedon the develop-ment of marketing today. New modes ofmarketing have come about because of social and technologicalchanges, such as the dramatic growth of direct market-ing whichcan be very finely tuned to customer wants through the use ofsophisticated databases. Tele shopping via dedicated satellite TVchannels is another new concept. Marketing education isincreasing, and the recognition of marketing as a profession isgrowing, underpinned by the award of Chartered status to theInstitute of Marketing, for example. The role and influence ofmarketing in almost every sphere of society today should notbe underestimated. The final section of this chapter looks atone key development which perhaps typifies the way in whichmarketing responds to changes in society - green marketing.

Green MarketingThe advent of so-called ‘green’, or environmentally conscious,marketing is almost wholly due to pressure from consumers.Although some organisations, particularly in manufacturing,may have started to clean up their act because of legislationagainst pollution, for example, it is consumers who have madethe greatest impact through their demand for greener products.Retailers and fast-moving consumer goods producers were, notsurprisingly, the first to respond to these demands. Continuedpressure, however, has meant that firms throughout the supplychain have also had to develop green marketing practices.Perhaps the most obvious developments have taken place inthe household goods area. Supermarkets now stock a wholerange of’ environmentally friendly’ products ranging frompump action sprays for anything from hairspray to air freshen-ers, toilet tissue made from recycled paper, detergents andwashing powders without harmful chemicals and recyclablepackaging for many items. Service providers have also entered”this race to satisfy the new green consumer by a number oftactics. Fast food restaurants have promoted recycled and

recyclable packaging; hotels ask their clients not to waste energy,urging them to switch unnecessary lights off, and to indicatewhether towels need to be laun-dered or may be used again;road transport providers ensure that vehicle emissions aremonitored as part of regular maintenance.Although it can be more difficult to envisage appropriate greenmarketing strategies within a service organisation, as opposedto retailing or manufactur-ing, there are steps firms can take toensure that their operations, at least, are environmentallyfriendly. A green audit can be undertaken which should coverseveral aspects, including:

Activity AuditsThese involve a study of activities undertaken, especiallyactivities which may impact on many areas of business, such asstorage and distribution.

Compliance AuditsUndertaken to ensure that companies meet legal requirementsin all areas from pollution to packaging and labelling.These aspects seem most relevant to services marketing,although there are many more ways in which organisations canundertake an environmental audit, some appropriate to aparticular industry or sector.Looked at in this light, it is fairly easy to see how many serviceorganisations can develop business strategies which are basedon green thinking, and which may impact on marketingprogrammes. A busy hospital, for example, under-takingactivity and site audits may find many ways of becoming moreenergy- efficient and of reducing waste. If this were achieved, itcould feature in publicity and other material presented topatients and the public, enhancing the hospital’s image andpotentially saving money for re-investment into the service.Banks and insurance offices can encourage the introduction ofthe paper-free office through the use of electronic mail andtelecommunications, and organize collection of waste paper forrecycling where appropriate. They can undertake ethical invest-ment, investing their clients’ funds only in businesses which arethemselves run on environmentally sound lines. Leisureproviders in the public sector can focus on conservation andnature in parks, for example, and promote projects to protectthe environment in green belt areas and land reclamationschemes.However it is undertaken, it is clear that green marketing is hereto stay, and environmental performance may become animportant measure of an organization’s success and standing inthe future. Service organisations need to think ‘green’ in all areasof activity - especially in services marketing.

Tutorials• Discuss the origin of marketing of services• Now at this point, with your understanding ,try to discuss

the significance of Marketing organizations.• “Marketing of services in today’s environment”. Discuss• Service Marketing Mix

Case Study on Marketing Environment


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McDonald’s has over many years built an operating strategybased on consistency and quality through a limited productrange.Competitive forces have drawn the company into a muchwider variety of foods and services in order to maintain growth.Now,new competitors threatens to beat Mc.Donald’s at its own,original game. In addition,Mc.Donald’s faces unprecedentedchallenges in its environmental policy.The case teaches approaches and dangers arising from flexibility,and the identification of capabilities that support differenttypes of flexibility. The integration of environmental concernswith operations strategy is also addressed.With reference to the above context, interpret the microenvironmental and macro environmental factors.


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LESSON 2:SPECIAL CHARACTERISTICS OF SERVICES

The Objective of this Lesson is to havean insight into• Special characteristics of service marketing• Service Marketing Mix• Service Marketing triangleLets understand the special characteristics of services ….

Special Characteristics of ServicesServices are said to have four key characteristics which impact onmarketing programmes. These are:IntangibilityInseparabilityHeterogeneity variabilityPerish ability (simultaneous production/consumption)It is helpful to consider each of these characteristics briefly:

IntangibilityServices are said to be intangible - they cannot be seen or tasted,for example. This can cause lack of confidence on the part ofthe consumer As was apparent earlier, in considering pricing andservices marketing, it is often difficult for the consumer tomeasure service value and quality. To overcome this, consumerstend to look for evidence of quality and other attributes, forexample in the decor and surroundings of the beauty salon, orfrom the qualifications and professional standing of theconsultant.

InseparabilityServices are produced and consumed at the same time, unlikegoods which may be manufactured, then stored for laterdistribution. This means that the service provider becomes anintegral part of the service itself. The waitress in the restaurant,or the cashier in the bank, is an inseparable part of the serviceoffering. The client also participates to some extent in theservice, and can affect the outcome of the service. People can bepart of the service itself, and this can be an advantage forservices marketers.

Heterogeneity InvariabilityBecause a service is produced and consumed simultaneously,and because individual people make up part of the serviceoffering, it can be argued that a service is always unique; it onlyexists once, and is never exactly repeated. This can give rise toconcern about service quality and uniformity issues. Personneltraining and careful monitoring of customer satisfaction andfeedback can help to maintain high standards.

PerishabilityServices are perishable; they cannot be stored. Therefore anempty seat on a plane, for example, is a lost opportunityforever. Restaurants are now charging for reservations which arenot kept, charges may be made for missed appointments at the

dental clinic. Perishability does not pose too much of aproblem when demand for a service is steady, but in times ofunusually high or low demand service organisations can havesevere difficulties.The above characteristics are generally referred to in many textsas being what makes services marketing so different. However,this assumption should be queried on a number of grounds.Like all sweeping generalizations, generalizations concerningservices marketing do not always represent the full picture.Consider the question of tangibility. In the main, services canbe broken down into three main classifications:Rented goods servicesConsumer-owned goods servicesNon-goods servicesSome of these categories involve goods which are physical, andwhich contribute in some way to the service offering. This givesrise to questions about the degree to which services can beclassed as intangible.Another way of classifying services is to consider the distinctionbetween equipment-based services and people-based services.Examples of equipment-based services would include:Vending machines Car and tool hire AirlinesPeople-based services would include:Nursery infant careArchitects Legal servicesYet another distinction can be made between consumedservices, which are offered on a personal basis, and business-to-business or industrial services. Some service providers mayoperate in both these market sectors:Franchised child care services may offer local services to parents,and operate in-company schemes. Hotels may cater for thetourist and the business or conference market. Private healthcare programmes generally offer personal and corporate rates.On the other hand, some services such as industry-specificconsultancy services or marine salvage operate in quite closelydefined market sectors.

The Nature of the Service ProductWhichever means of classifying services is used, and whether ornot there is agreement that the unique characteristics of servicesreally represent unique distinctions, ultimately both physicalgoods and services provide benefits and satisfactions - bothgoods and services are ‘products’ or offerings. Consider thefollowing breakdown of service offerings:Utilities: gas, power, waterTransport and communicationsRecreation and leisureInsurance, banking and finance


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Business, professional and scientificFor most of these categories it is easy to think of ‘products’associated with them; insurance policies, heating and light,package holidays and so on. This has implications for servicesmarketing management.As in traditional marketing concerned with-’tangible products,the services marketing manager needs to look closely atmarketing strategy, including such aspects as:The service element of the augmented product - the characteris-tics which help distinguish a product from its competitors - isnow a key factor in long-term success. Rapid developments intechnology which mean that firms can no longer sustain aleading edge position in the marketplace by technologicalsuperiority alone has led to the development of service as amarketing tool for competitive advantage. The impact onprofitability can be two-fold: profitability can increase. not onlythrough superior competitive positioning, but many servicedivisions now represent profit centres in their own right.Another important area which is receiving increasing attentionfrom market-ers is the not-for-profit service “sector. Not-for-profit organisations engage in a broad sphere of activity rangingfrom cultural, educational and political interests to social andleisure activities. The size of these organisations ranges fromvery small, local concerns to large, multi-national operations.


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The Services Marketing MixAnother way to begin addressing the challenges of servicesmarketing is to think cre-atively about the marketing mix-through an expanded marketing mix for services.

Traditional Marketing MixOne of the most basic concepts in marketing is the marketingmix, defined as the ele-ments an organization controls that canbe used to satisfy or communicate with cus-tomers. Thetraditional marketing mix is composed of the four P’s: product,price, place (distribution), and promotion. 16 These elementsappear as core decision vari-ables in any marketing text ormarketing plan. The notion of a mix implies that all of thevariables are interrelated and depend on each other to someextent. Further, the marketing mix philosophy implies thatthere is an optimal mix of the four factors for a given marketsegment at a given point in time.Key strategy decision areas for each of the four P’s are capturedin the first four columns-in Table 1-3. Careful management ofproject, place, Promotion and price will clearly also be essentialto the successful marketing of services. However, the strategiesfor the four P’s require some modifications when applied toservices. For ex-ample, traditionally promotion is thought of asinvolving decisions related to sales, ad-vertising, sales promo-tions, and publicity. In services, these factors arc also important,but because services - are produced and consumed simulta-neously, service delivery people (such as clerks, ticket-takers,nurses, phone personnel) are involved in “real-time” promo-tion of the service “even if their jobs are typically defined interms of the operational function they perform. Pricing alsobecomes very complex in services where “unit costs” needed tocalculate prices may be difficult to determine, and where thecustomer frequently uses price as a cue to quality.

Expanded Mix for ServicesBecause services are usually produced an consumed simulta-neously, customers are often present in the firm’s factory,interact directly with the firm’s personnel, and are actually partof the service production process. Also, because services areintangi-ble customers will often be 100kiIlg for any tangible cueto help them understand the nature of the service experience.These facts have led services marketers to con-clude that they canuse additional variables to communicate with and satisfy theircus-tomers. For example, in the hotel industry .


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The Services Marketing TriangleThe services marketing triangle (Figure 1-5) shows the threeinterlinked groups that work together to develop, promote, anddeliver services. These key players are labeled on the points ofthe triangle: the company (or SBU or department or “manage-ment”), the customers, and the providers (whoever it is thatactually deliver the service to cus-tomers). Between these threepoints on the triangle, there are three types of marketing thatmust be successfully carried out for a service to succeed: external,internal, and interactive marketing.12 All these activities revolvearound making and keeping promise’s to customers. Forservices, all three types of marketing activities are essen-tial forbuilding and maintaining relationships with customers. Each isnow discussed in more detail.

External Marketing: Making PromisesThrough its external marketing efforts, a company makespromises to its customers regarding what they can expect andhow it will be delivered. Traditional marketing ac-tivities such asadvertising, sales; special promotions, and pricing facilitate thistype of marketing. But for services, other factors also communi-cate the promise to cus-tomers. The service employees, thedesign and decor of the facility, and the service- process itselfalso communicate and help to set customer expectations.Service guar-antees and two-way communication (especially insituations where promises can be negotiated and expectationscan be managed on an individual basis) are additional ways ofcommunicating service promises. Unless consistent and realisticpromises are set via all of these external communicationvehicles, a customer relationship will be off to a shaky begin-ning. Further, if there-is a tendency to over promise, therelation-ship may also be off to a weak beginning.

Interactive Marketing: Keeping PromisesExternal marketing is just the beginning for services marketers:Promises made must be kept. Keeping promises, or interactivemarketing, is the second type of marketing activity captured bythe triangle-and is the most critical from the customer’s pointof view. Service promises are most often kept or broken by theemployees of the firm or by third-party providers, most oftenin real time. Sometimes service promises are even deliveredthrough technology, as discussed a bit later. Interactive market-ing occurs in the moment of truth when the customer interactswith the organization and the service is produced and con-sumed. Interestingly, promises are kept or broken and therelia-bility of service is tested every time the customer interactswith the organization.

Internal Marketing :Enabling PromisesA third form of marketing, internal marketing, takes placethrough the enabling of promises. In order for providers andservice systems to deliver on the promises made, they musthave the skills, abilities, tools, and motivation to deliver. Inother words, they must be enabled. These essential servicesmarketing activity has become known as internal marketing.Promises are easy to make, but unless providers are recruited,trained, provided with tools and appropriate internal systems,and rewarded for good service, the promises may not be kept.Internal marketing also hinges on the assump-tion that


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employee satisfaction and customer satisfaction are inextricablylinked.

Aligning the Sides of the TriangleIn a triangle, all three sides are essential to complete the whole.For services all three marketing activities, represented by thesides of the triangle, are critical to success; without one of thesides’-in place, the triangle, or the total marketing effort, cannotbe optimally supported. Each side represents significantchallenges, and as we proceed through the text we will findapproaches and strategies for dealing with all three.FedEx Corporation is an example of a company that has allsides of the triangle well aligned. 13 With respect to externalmarketing, FedEx is a master. They understand their customers,do extensive market research (2,400 customer survey’s perquarter), measure customer satisfaction daily (through theirservice quality indicator, or SQI), and listen to customers.Promises are communicated effectively to the marketplacethrough await-winning advertising messages and consistentstatements by their people.Interactive marketing-keeping promises-is at the heart ofFedEx’s strategy. The book-length “Manager’s Guide,” given toevery FedEx manager, states that “Each cus-tomer contact is amoment of truth that conveys an image of Federal Express.” Ashared goal within the company is that every one of theseservice encounters be flaw-less from the customer’s point ofview. The folks that deliver FedEx’s premises di-rectly (drivers,front-line telephone people, business logistics consultants) allknow -that 100 percent success in interactive marketing is thegoal.FedEx also knows that 100 percent success is not possibleunless all of these providers are enabled to provide qualityservice through technology, rewards, support systems, andempowerment. Open communication with employees isanother key to successfully rallying them around new initiativesand opportunities aimed at building business. As a result of itssupport and fair treatment of employees, employee loyalty atFedEx is very high, and promises to customers can be kept.

Technology and the Services Marketing TriangleWith the impact of technology on all dimensions of serviceand service delivery, it has been suggested that the servicestriangle be expanded to explicitly include-technol-ogy-turningthe triangle into a pyramid, as shown in Figure 1-6.14 Thepyramid sug-gests that interactive marketing can be the result ofcustomers, providers, and tech-nology (or some subset of thethree) interacting in real time to produce the service. It alsosuggests that management has the responsibility to facilitatenot only the delivery of service through human providers, butalso the delivery through technology. Finally, the pyramidsuggests that customers will, at times, interact only withtechnology and

Technology

company

Providers customers

Figures 1-6 The services triangle and technology.therefore will need skills, abilities, and motivation to receiveservices in that manner. Issues of customer satisfaction withtechnology-delivered services are also implied.Returning to our FedEx example, we see further clues toFedEx’s success through their integration of technology intothe services triangle. IS Via its POWERS HIP soft-ware andInternet access, FedEx is working with its customers to providethem access to FedEx order-taking, package-tracking, informa-tion-storing, and billing systems. The goal is to have allcustomers online by the year 2000. In this way, FedEx custom-ers receive quality service, when they want it, and are able tocustomize the service on their own. FedEx sees limitlesspossibilities for improving customer service and providing newservices to customers via technology.


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Tutorials• Discuss the special characteristics of Service marketing.• What do you mean by Service triangle. Discuss.• Discuss the difference between the Traditional and expanded

marketing mix.

Notes


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LESSON 3:CLASSIFICATION OF SERVICES

The Objective of this Lesson is to havean insight into• Classification of services• Development of service marketing• Examples of service sectors• Importance of service sectors• Factors contributing to growth• Challenges faced by service sectors• Difference between goods and services.

Classification of ServicesAs has already been suggested, there are a number of ways ofclassifying service activity, and there is inevitably some degree ofoverlap between the methods available. This section outlinessome of the methods of classification commonly used.

End-userServices can be classified into the following categories:• Consumer: leisure, hairdressing, personal finance, package

holidays.• Business to business: advertising agencies, printing,

accountancy, consultancy. .• Industrial: plant maintenance and repair, work wear and

hygiene, installation, project management.

Service TangibilityThe degree of tangibility of a service can be used to classifyservices:• Highly tangible: car rental, vending machines,

telecommunications.• Service linked to tangible goods: domestic appliance repair,

car service.• Highly intangible: psychotherapy, consultancy, legal services.

People-based ServicesServices can be broken down into labour-intensive (people-based) and equipment-based services. This can also berepresented by the degree of contact:• People-based services - high contact: education, dental care,

restaurants, medical services.• .Equipment-based -low contact automatic car wash,

launderette, vending machine, cinema.

ExpertiseThe expertise and skills of the service provider can be brokendown into the following categories:• Professional: medical services, legal services, accountancy,

tutoring.• Non-professional: babysitting, care taking, casual labour.

Profit OrientationThe overall business orientation is a recognized means ofclassification:• Not-for-profit: The Scouts Association, charities, public

sector leisure facilities.• Commercial: banks, airlines, tour operators, hotel and

catering services.

The Development of Services MarketingFirms which produce and manufacture physical goods wereinvolved in market-ing long before service providers embracedmarketing and developed specific marketing activities. Many ofthe developments in services marketing are fairly recent. Thereare a number of factors affecting developments within servicesmarketing:Organisation size and structureRegulatory bodiesGrowth in service industriesCharacteristics of servicesCustomer/employee interactionService qualitySpecific service sectors

Organisation Size and StructureMany service providers are typically small and specialized -plumbers, lawyers and accountants are representative of thetraditional service provider. In the past, they catered exclusivelyfor the existing local demand. Marketing specialists were notemployed due to the size of the operations, which may havebeen sole trader or partnership based, and due to limitedcompetition, especially on a local scale.

Regulatory BodiesRegulatory bodies have also restricted the activities of manyservice providers. Restrictions still exist today on the amountand type of advertising which can be undertaken by certainprofessional services, particularly in the medical and legal fields(although these have been relaxed in the UK and the USA).Public sector services and charities are also frequently constrainedin their ‘business’ activities by various forms of legislation andregulations.

Growth in Service IndustriesHowever, growth in major services industries such as banking,hotel and catering and tourism services has been accompaniedby new developments in marketing. Services marketing ideasand techniques have grown alongside the growth of the serviceeconomy. Marketing has contributed to the growth and successof service industries in a number of ways. The design of theservice product, or offering, has shifted from a product-basedfocus to a customer focus - the organisation provides what the


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marlset needs! not what the organisation thinks the marketwants.

Characteristics of ServicesThe characteristics of services “‘intangibility, inseparability,heterogeneity and Perishability - mean that there are newconsiderations facing services marketers. These differences led tothe development of the expanded marketing mix to focus onissues perceived by customers to be important in servicesmarketing.

Customer/employee InteractionThe customer/employee interaction takes on a far moresignificant role in services marketing than in the marketing ofphysical goods. Consequently, services marketing attaches moreemphasis to training and better communica-tions. Relativelynew concepts have emerged to support services marketing suchas internal marketing and relationship’ marketing. These arenow finding increas-ing acceptance in mainstream marketingand are being applied to areas outside service.

Service QualityServices marketing also places a clear focus on service quality andprogrammes for implementing service quality. The develop-ment of a clearer understanding of perceived service quality andthe customer’s perception of quality based on the total serviceexperience has addressed specific quality issues in servicesmarketing.

Specific Service SectorsSpecific areas of services marketing have attractedihterest,especially not-for -profit organisations and professional services.Marketers in these organisations are faced with ethical consider-ations and other constraints. Certain public sector services aresimilarly constrained. The adoption of marketing by these or-ganisations, and the growth or marketing expertise in the area,is leading to a greater marketing orientation.

Technological Developments in ServicesMarketingPerhaps the biggest impact of new technology in servicesmarketing is the move away from traditionally people-basedservice to a higher degree of automation. Automated tellermachines - the banks’ hole-in-the-wall cash dispensers - are afamiliar sight on high streets everywhere. Automatic car washes,computerized self-serve ticket reservation machines, evenremote banking services where all transactions are done bytelephone are all gaining wide acceptance amongst consumers.Even one-to-one training programmes can now be delivered viainteractive video technology.Technological advances in home equipment has led to ademand for new services. The widespread ownership pf VCRs(video cassette recorders) has led to flourishing video film rentalbusinesses. Cable TV network and satellite TV receivers aregrowing in popularity, opening up new areas of business forinstallation contractors. Today’s motor cars, with ‘on boardcomputers’, need greater technical expertise for maintenance,which, in turn, leads to greater demand for training.Technological developments have also had an impact on theservices market-ing management task. Information technology,

electronic funds transfer and the use of databases have revolu-tionized services marketing management. In fact, mostmarketing-linked technological developments have a role to playin ser-vices marketing management. Many new technologicaldevelopments have been developed specifically around servicesas discussed previously, such as cash dispensers. Many restau-rants and fast food outlets use computerized till systems, wherethe order is keyed in to the till, or even a hand-held key pad, andrelayed directly to the kitchen while the bill is being produced.It is not only consumer services which have been revolutionizedby new technology. Industrial services are also utilizing newtechnology. Remote diag-nostics using the telephone modemfacility allow computer service technicians to carry out softwareadjustments and upgrades from base, even if the customer islocated overseas. Libraries and universities can utilize computerdatabases from anywhere in the world via computer modemlinks.In general, it can be seen that new technology increases thedemand for services overall. This creates opportunities formarketers in service organisations.

International Services MarketingThe UK economy depends on invisible exports for a substan-tial proportion of revenue. Invisible exports have traditionallyincluded shipping, insurance and investment but now cover afar wider range services. Service organisations are not onlyinvolved in the business of exporting, but are increasinglybecoming international. Advertising agencies are an example ofa service industry becom-ing internationalized in response tochanges in the world market situation.London is still one of the major bases for financial servicesincluding commodities brokerage and insurance. City financialservices and expertise are invisible exports when the customer isfrom outside the UK.Exporting is considered to be a higher risk venture for serviceorganisations than for firms producing physical products. Themain reason for this is that services tend to be far more peoplebased. Production and consumption are inseparable, and theservice provider must, therefore, establish a base in the targetexport market, with trained service personnel. It is not possibleto export a batch of the ‘product’ to be sold through distribu-tors or agents as it is with physical goods. This means that thelevel of initial investment, even for a very small overseasoperation, is relatively high.Market entry methods closely mirror those for internationalmarketing of goods. Direct export is possible, as when a firmof consulting engineers sends a.member of staff to another country to carry out contract designwork. Joint ventures may be undertaken, with the serviceprovider forming a partnership with an organisation in thetarget country to develop business. Franchising is also under-taken, as evidenced by the worldwide growth of McDonaldsfast food restaurants. McDonalds use a combination offranchising and setting up wholly owned subsidiaries onvarious locations. Agents who act as employees of the serviceprovider can be appointed in export markets. ‘Color Me


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Beautiful’, a personal image consultancy service, has consultantsin many countries.One of the main difficulties associated with internationalservices marketing is the question of cultural differences.Cultural differences take on far greater significance in the high-contact service encounter situation. Service delivery may have tobe adapted, and perceived service quality criteria examined fromthe perspective of the target customers in different markets.


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Good-Service ContinuumGood-Service Continuum

~PureServices

Immediateconsumption

~PureGoods

Physicalproduct

50/50

Equalmix

Servicesw/ Goods

Know-ledgebased

Goods w/Services

Product w/service

Gasoline, steel, groceries.

Auto repair, computers.

Restaurants, movie theater, bookstores.

Rental movies, software.

Medical care, consulting, day care.

Tutorials• Discuss examples of service sectors.• Explain the factors contributing to the growth of service

sectors• Challenges faced by Service sector are many. Discuss.

Notes


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LESSON 4:CONSUMER BEHAVIOUR

The Objective of this Lesson is to havean insight into• Consumer buying decision-making process.• Customer evaluation of services.• Customer and service quality.

Consumer BehaviourConsumers go through a decision-making process that caninclude up to five steps. We will use an adapted version of thesesteps to organize the information in this chapter.1. Need recognition the customer has a need to fulfill or a

problem to solve.2. Information search the customer seeks out infor-mation to

help satisfy the need.3. Evaluation of alternatives The customer selects a subset of

the alternatives and “evaluates them.4. Purchase The customer chooses a particular brand and then

buys it.5. Purchase outcomes The customer evaluates the choice made

and “decides whether it lives up to expecta-tions.

Services: Categories in the Decision-making Process and Framework of theChapter“ Using an adaptation of the basic consumer decision-makingprocess shown in Exhibit 2-1, we have organized this chapterinto four main categories: (1) information search, “ (2) evalua-tion- of alternatives, (3) purchase and—consumption, and (4)post purchase evaluation (Figure 2-2). In purchase of services,these categories do not occur in a lin-ear sequence the way theymost often do in the purchase of goods. As you will see in thischapter, once of the major differences between goods andservices is that a greater portion of the evaluation of servicessucceeds purchase and consumption than is the case withgoods. Therefore, while our categorization here follows thesequence consumer’s use with goods, we will show how thesestages in services depart from evalu-ation of goods.

Information SearchUse of Personal Sources Consumers obtain information aboutproducts and services from personal sources (e.g., friends orexperts) and from no personal sources (e.g., mass or selectivemedia). When purchasing goods, consumers make generoususe of both personal and non personal sources because botheffectively - convey infor-mation about search qualities.When purchasing services, on the other hand, consumers seekand rely to a greater extent on personal sources for severalreasons. First, mass and selective media can con-vey informationabout search qualities but can communicate little aboutexperience qualities. By asking friends or experts about services,however, the consumers can obtain information vicariously

about experience qualities. Second, non personal sources ofinformation may not be available because (d) many serviceproviders are local, independent merchants with neither theexperience nor the funds for advertising;’ (b) “co-operative”advertising, or advertising funded jointly by the retailer and themanufac-turer, is used in frequently with services because mostlocal providers are both producer and retailer of the service and(c) professional associations banned advertising for so manyyears that both professionals and consumers tend to resist itsuse even though it is now permitted. Third, because consumerscan discover few attributes before purchase of a service, theymay feel greater risk in selecting a little-known alternative.Personal influence becomes pivotal as product complexityincreases and when ob-jective standards by which to evaluate aproduct decrease (i.e., when experience qualities are high). 7Most managers in service industries recognize the stronginfluence of word of mouth in services (Figure.2:3)Next, consumers may find post purchase information seekingmore essential with services than with goods because servicespossess experience qualities that cannot be adequately assessedbefore purchase. One model of audience response to commu-nication describes the situation that occurs -frequently whenconsumers select services:1. The consumer selects from among virtually indistinguishable

alternatives.2. Through experience the consumer develops an attitude

toward the service.3. After the development of an attitude, the consumer learns

more about the service by paying attention to messagessupporting his or her choice. In contrast to the conventionalview of audience response to communication, whereconsumers seek information and eval-uate products beforepurchase, with services most evaluation follows purchase.

Perceived Risk While some degree of perceived risk probablyaccompanies all purchase transactions, more risk would appearto be involved in the purchase of ‘services than in the purchaseof goods ‘because services are intangible;, non standard-ized,and usually sold without guarantees or warranties.First, the intangible nature of services and their high level ofexperience qualities imply that services generally must be selectedon the basis of less pre purchase infor-mation than is the casefor products. Second, because services are non standardized,there will always be uncertainty about the outcome andconsequences each time a service is purchased. Third, servicepurchases may involve more perceived risk than productpurchases because, with few exceptions, services are notaccompanied by warranties or guarantees. The dissatisfiedservice purchaser can rarely “return” a service; he or she hasalready consumed it by the time he or she realizes his or her dis-satisfaction. Finally, many services (e.g., medical diagnosis, pest


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control) are so tech-nical or specialized that consumers possessneither the knowledge nor the experience to evaluate whetherthey are satisfied, even after they have consumed the service.The increase in perceived risk involved in purchasing servicessuggests the use of strategies to reduce risk. Where appropriate,guarantees of satisfaction may be offered. To the extentpossible, service providers should emphasize employee trainingand other procedures to standardize their offerings, so thatconsumers learn to expect a given level of quality and satisfac-tion.

Evaluation of Service AlternativesEvoked Set. The evoked set. of “alternatives-that group ofproducts a consumer considers acceptable options in givenproduct category-is likely to be smaller with services than withgoods. One reason involves differences in retailing betweengoods and services. To purchase goods, consumer generallyshop in retail stores that display competing products in closeproximity, clearly demonetizing the possible alterna-tives. Topurchase services, on the other hand, the consumer visits anestablishment (e.g., a bank, a dry cleaner, or a hair salon) thatalmost always offers only a single “brand” for sale. A secondreason for the smaller evoked set is that consumers are un-likelyto find more than one or two businesses providing the sameservices in a given geographic area whereas they may findnumber Us retail stores carrying the identical manufacturer’sproduct. A third reason for a smaller evoked set is the difficultyof ob-taining adequate’ pre purchase information aboutservices.Faced with the task of collecting and ‘evaluating experiencequalities, consumers may simply select the first acceptablealternative rather than searching many alterna-tives. In consumerbehavior terms, the consumer’s evoked set of alternatives issmaller with services than with goods. The Internet has thepotential to widen the set of alter-natives (see TechnologySpotlight).For nonprofessional services, consumers’ decisions often entailthe choice between performing the services for themselves orhiring someone to perform them. Working people may choosebetween cleaning their own homes or hiring housekeepers, be-tween altering their families’ cloth’s or taking them to a tailor,even between staying home to take care of their children-orengaging a day care center to provide child care. Consumers mayconsider themselves as sources of supply for many. services,inducing lawn care, tax preparation, and preparing meals. Thismeans that the customer’s- evoked frequently includes self-provision of the service.Nonprofessional service providers, must recognize that theyoften replace or compete with the consumer, which may implymore exacting standards from the consumer and may requiremore individualized, personal attention from the serviceprovider. Consumers know what they expect from providers ofhousecleaning or lawn care or day care because they know whatthey are accustomed to providing for themselves. The alertservice marketer will be certain to research consumers’ expecta-tions and demands in such situations.

So far, not every consumer is convinced that the cyber mall willreplace the local mall. World Research found that consumerswho do not buy online have these reasons for continuing tobuy the traditional way: fear of hackers (21 percent), lack ofproducts (16 percent), inability to see the products (15 percent),need to reveal personal information (13 percent) poorlydesigned site (8 percent) companies’ reputations (6 percent) andfear of money or merchandise getting lost (6 percent)Emotion and Mood Emotion and mood are feeling states thatinfluence people’s (and therefore customers’) perceptions andevaluations of their experiences. Moods -are distinguished fromemotions in that - moods refer t6 transient feeling states thatoccur at specific times and in specific situations, whereasemotions are more intense, stable, and pervasive.Because services are experiences, moods and emotions, arecritical factors that shape the perceived effectiveness of serviceencounters. If a service customer is in a “bad mood” when heenters a service establishment, service provision will likely beinterpreted more negatively than if he were in a buoyant,positive mood. Similarly, if a service provider is irritable orsullen her interaction with customers will likely be colored bythat mood. Furthermore, when another customer in a serviceestablishment is cranky or fast rated, whether from problemswith the service or from existing emo-tions unrelated to theservice, his or her mood affects the provision of service for allcustomers who sense the negative mood. In sum, any servicecharacterized by human interaction is strongly dependent on themoods and emotions of the service provider, the servicecustomer, and other customers receiving the service at the sametime.In what specific ways can mood affect the behavior of servicecustomers? First, positive moods can make customers moreobliging and willing to participate in be-haviors that help serviceencounters succeed. 12 A customer in a good emotional state isprobably more willing to follow an exercise regimen prescribedby a physical ther-apist, bus his own dishes at a fast-foodrestaurant, and overlook delays in service. A customer in anegative mood may be less likely to engage in behaviorsessential to the effectiveness of the service but that seemdifficult or overwhelming: abstaining from chocolates when ona diet program with Weight Watchers, taking frequent aerobicclasses from a health club, or completing homework assigned ina class.A second way that moods and emotions influence servicecustomers’ is to bias the way they judge service encounters aridproviders. Mood and emotions enhance and am-plify experi-ences, making them either more positive or more negative thanthey might seem in the absence of the moods and emotions.13 After losing a big account, a sales-woman catching an airlineflight will be more incensed with delays and crowding than shemight be on a day when business went well. Conversely, thepositive mood of a services customer at a dance orrestaurant...will heighten the experience, leading to pos-itiveevaluations of the, service establishment. The direction of thebias in evaluation is consistent with the polarity (that is, positiveor negative) of the mood ‘or emotion.


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Finally, moods and emotions affect the way information aboutservice-is absorbed anti retrieved. AS memories about a serviceare encoded by a consumer, the feelings associated with theencounter become an inseparable part of the memory. Iftravelers fall in love during a vacation in the Bahamas, they mayhold favorable assessments of the destination due more totheir emotional state than to the destination itself. Con-versely,if a customer first realizes his level of fitness is poor when ‘on aguest pass in a health club, the negative feelings may be encodedand retrieved every time he thinks of the health club or, for thatmatter, any health club.Service marketers need to be aware of the moods and emotionsof customers and of service employees and should attempt toinfluence those moods and emotions in positive ways. Theyneed to cultivate positive moods and emotions such as joy,’ de-light, and contentment and discourage negative emotions suchas distress, frustration, anger, and disgust.Service Provision as Drama. Researchers and managers ofservice businesses have compared service provision with drama,observing that both aim to create and Maintain a desirableimpression before an audience, and both recognize that the wayto accomplish this is by carefully managing the actors and thephysical setting of their behavior.14 In fact, the service marketermust play many drama-related roles (includ-ing director,choreographer, and writer) to be sure the performances of theactors are pleasing to the audience. The Walt Disney Companyexplicitly considers its service provision a “performance,” evenusing show-business terms such as “cast member,” “onstage,”and “show” to - describe the operations at Disneyland and WaltDisney World.The skill of the service “actors” in performing their routines,.the way they appear, and their commitment to the “show” weall pivotal to service delivery. While service actors are present inmost service performances, their importance increases when thedegree of direct personal contact increases (such as in a hospital,resort, or restaurant), when the services involve repeat contact,and when the contact personnel as actors have discretion indetermining the nature of the service and how it is delivered (asin education, medical services, and legal services).The physical setting of the service can be likened to the stagingof a theatrical production including scenery, props, and otherphysical cues’ to create desired impres-sions. Among a setting’sfeatures that may influence that character of a service are thecolors or brightness of the service’s surroundings; the volumeand pitch of sounds in the setting; the smells, movement,freshness, and temperature of the air; the use of space; the stylearid comfort of the furnishings; and the setting’s design andcleanliness The setting increases in importance when the natureof a service is dis-tinguished by its environment, as is the casewith Steak and Ale and Ponderosa Steak-houses or a “down-town” law firm.18 In essence, the delivery of service can ‘becon-ceived as drama, where service personnel are the “actors,”service customers are the “audience,” physical evidence of theservice is the “setting,” and the process of service assembly isthe “performance. -The drama metaphor offers a useful way to conceive of serviceperformances. Among the aspects of a service that can be

considered in this way are selection of per-sonnel (auditioningthe actors),’training of personnel (rehearsing), clearly definingthe role (scripting the performance), creation of the serviceenvironment (setting the stage), and deciding which aspects ofthe service should be performed in the presence of the cus-tomer (onstage) and which should be performed in theback”roomJback-stagey.20Service Roles and Scripts: If we think of service perfor-mances as drama, we can view each player as having a role toperform. Roles have been defined as combinations of socialcues that guide and direct behavior in a given setting.21 Thesuccess of any service performance depends in patron how wellthe “role set” or players-both service employees and customers-act out their roles.22 Service employees need to perform theirroles according to expectations of the customer; if they do not,the cus-tomer may be frustrated and disappointed. As wediscussed earlier in this chapter, the customer’s role must also beperformed well. If customers are informed and educated aboutthe expectations and requirements of the service (i.e., if thecustomer plays the proper role) and if the customer cooperateswith the service provider to deliver the best possible service (i.e.,if he or she is reading from the same script), the service per-formance is -likely to be successful.One of the factors that most influences the effectiveness of roleperformance is a script-a, “coherent sequence of events expectedby the individual, involving her ei-ther as a participant or as anobserver.”23 Service scripts consist of a set of ordered ac-tions,actors, and objects that, through repeated involvement, definewhat the customer expects.24 Conformance to scripts issatisfying to the customer, while deviations from the script leadto confusion and dissatisfaction.Consider the script that you hold for the first day of class in acollege course. Among the actions you expect are the following:(1) enter the classroom; (2) see other students in the room whoare taking the class; (3) see the professor in the front of theroom; (4) listen to the professor describe the course; (5) get asyllabus of the class; and (6) leave class early and start the actualeducation on the second class day. If a pro-fessor performs inaccordance with the script you hold, you feel comfortable, famil-iar, and satisfied with the service encounter. Experiencing ascript that is incongruent with this expected pattern leads toconfusion and dissatisfaction. What if you showed up andthere were no other students in the class with you the first day?What if the pro-fessor sent a graduate student instead ofcoming herself? Suppose the professor told you she hadn’t hadtime to write a syllabus? In these and other situations, negativede-partures from the customer’s expected script will detractfrom service performance.Positive discrepancies from the script are not as easy to specify-they may also de-tract or could “surprise” and add -to theservice encounter. Suppose the college class we just discussedwas filled to capacity on the first day. Would you interpret thatas positive (a sure sign that the class was popular) or negative (asignal that personal at-tention from the professor may bereduced)? What if the professor was unusually friendly and soengaged students that they stayed to the end of the period onthe first day of class? While some students might be delighted


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because the friendliness of the professor exceeded expectations,others might be disgruntled, having counted on more free timebetween classes. Still others may be suspicious, not trusting thefriendliness because it doesn’t follow the expected pattern. Morepersonalization or attention is not always better. In summary,departures from the customer’s expected script includ-ingprovision. Of more of an attribute than expected, may detractfrom or add to the service experience.The Compatibility of Service Customers: We have justdiscussed the roles of employees and customers receivingservice. We now want to focus on the role of other customersreceiving service at the same time. Consider how central themere presence of other customers is in churches , restaurants,dances, bars, lounges, and spectator sports: If no one elseshows up, customers will not get to socialize with others, oneof the primary expectations in these types of services. However,if the number of customers becomes so dense that crowdingoccurs, customers may also be dissatisfied.26 The way othercustomers behave with many services such as airlines, education,clubs, and social organizations also exerts a major influence on acustomer’s experience.27 In general, the presence, behavior, andsimilarity of other customers receiving services has a strongimpact on the satisfaction and dissatisfaction of any givencustomer.Customers can be incompatible for many reasons-differences inbeliefs, values, ex-periences, abilities to pay, appear rice, age, andhealth, to name just a few. The service marketer must anticipate,acknowledge, and deal with heterogeneous consumers whohave the potential to be incompatible. The service marketer canalso bring homoge-neous customers together and solidifyrelationships between them, which increases the cost to thecustomer of switching service providers.29 Customer compat-ibility is a fac-tor that influences customer satisfaction,particularly in high-contact services.

Post Purchase EvaluationAttribution of Dissatisfaction: When consumers are disap-pointed with pur-chases-because the products did not fulfill theintended needs, did not perform satis-factorily, or were notworth their price-they may attribute their dissatisfaction to anumber of different sources among them the producers, theretailers, or themselves.Because consumers participate to a greater extent in the defini-tion and production of services, they may feel more responsiblefor their dissatisfaction when they purchase services than whenthey purchase goods. As an example, consider a female con-sumer purchasing a haircut; receiving the cut she desiresdepends in part upon her clear spec-ifications of her needs tothe stylist. If disappointed, she may blame either the stylist (forlack of skill) or herself (for choosing the wrong stylist or fornot communicating her own needs clearly).The quality of many services depends on the information thecustomer brings to the service encounter: A doctor’s accuratediagnosis requires a conscientious” case history and a cleararticulation of symptoms; a dry cleaner’s success in removing aspot de-pends on the consumer’s knowledge of its cause; and atax prepare satisfactory per-formance relies on the receipts savedby the consumer. Failure to obtain satisfaction with any of

these services may not be blamed completely on the retailer orproducer, because the consumer must adequately perform his orher part in the production process also.With products, on the other hand, a consumer’s main form ofparticipation is the act of purchase. The consumer may attributefailure to receive satisfaction to her own decision-making error,but she holds the producer responsible for product perfor-mance. Goods usually carry warranties or guarantees withpurchase emphasizing that the producer believes that ifsomething goes wrong, it is not the fault of the consumer.With services, consumers attribute some of their dissatisfactionto their own inability to specify or perform their part of theservice. They also may complain less frequently about servicesthan about goods because of their belief that they themselvesare partly responsible for their dissatisfaction..Innovation Diffusion: The rate of diffusion of an innovationdepends on con-sumers’ perceptions’ of the innovation withregard to five characteristics: relative ad-vantage, compatibility,communicability; divisibility, and complexity.3O An offeringthat has a relative advantage ‘over existing or competingproducts; that is compatible with existing norms, values,and15enaviors; that is communicable; and that is divisible (i.e. ,that can be tried or tested on a Limited basis):diffuses morequickly than others. An offering that is complex, that is, difficultto understand or use, diffuses more slowly -than others.Considered as a group, services are less communicable, lessdivisible, more com-plex, and probably less compatible thangoods. They are less communicable because they are intangible(e.g., their features cannot be displayed, illustrated, or compared)and because they are often unique to each buyer (as in a medicaldiagnosis or dental care). Services are less divisible because theyare usually impossible to sample or test on a limited basis (e.g.,how does one “sample” a medical diagnosis? a lawyer’s servicesin settling a divorce? even a haircut?). Services are frequentlymore complex than goods because they are composed of abundle of different attributes, not all of which will be offeredto every buyer on each purchase.Finally, services may be incompatible with existing values andbehaviors, espe-cially if consumers are accustomed to providingthe service for them selves. As an il-lustration, consider a novelday care center that cooks breakfast for children so that parentscan arrive at work early. Mothers accustomed to performing thisservice for their children may resist adopting the innovationbecause it requires a change in habit; in behavior, even in values.Consumers adopt innovations in services more slowly thanthey adopt innovations in goods.Marketers may need to concentrate on incentives to trial whenintroducing new services. The awareness interest evaluationstages of the adoption process ,may best be bypassed becauseof the difficulty and inefficiency of communicating informationabout intangibles. Offering free visits, dollars-off coupons, andsamples may be ap-propriate strategies to speed diffusion ofinnovations in services.Brand Loyalty: The degree - to which consumers are commit-ted to particular brands of goods or services depends on anumber of factors: the cost of changing brands (switchingcost), the availability of substitutes the perceived risk associated


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with the purchase, and the degree to which they have obtainedsatisfaction in the past. Because it may be more costly to changebrands of services, because they may have more difficulty beingaware of the availability of substitutes, and because higher risksmay accompany services, consumers are more likely to remaincustomers of particu-lar companies with services than withgoods.Greater search costs and monetary costs may be involved inchanging brands of services than in changing brands of goods.Because of the difficulty of obtaining in-formation aboutservices, consumers may be unaware of alternatives or substi-tutes for their brands, or may be uncertain about the ability ofalternatives to increase satisfac-tion - over present brands.Monetary fees may accompany brand switching in manyservices: Physicians often require complete physicals on theinitial visit; dentists sometimes demand new X rays; and healthclubs frequently charge “membership fees” at the outset toobtain long-term commitments from customers.If consumers perceive greater risks with services, as is hypoth-esized here, they probably depend on brand loyalty to a greaterextent than when they purchase prod-ucts. Brand loyalty,described as a “means of economizing decision effort by substi-tuting habit for repeated, deliberate decision,” functions as adevice for reducing the risks of consumer decisions.A final reason consumers may be more -brand loyal withservices is the recognition of the need for repeated patronage inorder-to obtain optimum satisfaction from the seller Becominga “regular customer” allows the seller to gain knowledge of thecust-omer’s tastes and preferences, ensures better treatment, andencourages more interest. In the consumer satisfaction. Thus, aconsumer may exhibit brand loyalty to cultivate a satisfyingrelationship with the seller.Brand loyalty has two sides. The fact that a service provider’sown customers are brand loyal is not a problem. The fact thatthe customers of the provider’s competition are difficultcapture, however, creates special challenges. The marketer mayneed to direct communications and strategy to the customers ofcompetitors, emphasizing at-tributes and strengths that he orshe possesses and the competitor lacks. Marketers can alsofacilitate switching from competitors’ services by reducingswitching costs. AT&T promised MCI customers that it wouldhandle the transfer from MCI to AT&T and also guaranteed itwould pay to allow the customer to switch back if necessary,making it virtually costless for customers to switch long-distancecarriers.

The Role of Cultures in ServicesCulture is learned, shared, and transmitted from one generationto the next, and is mul-tidimensional. Culture is important inservices marketing because of its effects on the ways customersevaluate and use services. It also influences the way companiesand their service employees interact with customers. Culture isimportant when we con-sider international services marketingtaking the services from one country and of-fering them inothers-but it is also critical within countries. More and moreindividual countries are becoming multicultural, making theneed to understand how this factor affects evaluation, purchase,and use of services critical. Because culture is im-portant in every

stage of the decision-making process for services-and is likely tobe-come more so in the future-we place it at the center of thischapter’s framework (see Figure 2-4).Unfortunately, human nature” dictates that we tend to viewother cultures through the often cluttered lens of our”own.3lOne expert on culture, Edward T. Hall, observed that in theUnited States people tend to view foreigners as underdevelopedAmeri-cans.”32 Another, Geert Hofstede, sums up the messageof one of his books as follows:Everybody looks at the world from behind the windows of acultural-home, and everybody prefers to act as if people fromother countries have something special about them (a na-tionalcharacter) but home, is normal. Unfortunately, there is nonormal position in cultural matters.Definitions of the elements “of culture vary, but a simple listof the major areas would include (1) language (both verbal andnonverbal), (2) values and attitudes, (3) manners and customs,(4) material culture, (5) aesthetics, and (6) education and socialinstitu-tions. These cultural universals are manifestations of theway of life of any group of people. Services marketers must beparticularly sensitive to culture because of cus-tomer contact andinteraction with employees. Language is discussed in a laterchap-ter, but the other elements of culture, as they affectconsumer behavior, are covered next.

Values and Attitudes Differ across CulturesValues and attitudes help to determine what members of aculture think is right, im-portant, and/or desirable. Becausebehaviors, including consumer behaviors, flow from values andattitudes, services marketers who want their services adoptedacross, cultures must understand these differencesWhile American brands often have an “exotic” appeal to othercultures, U.S. firms should not count on this as a long-termstrategy. In the late 1990s, Wal-Mart found that the cachet ofU.S. brands was falling in Mexico. The Mexican news mediaalerted con-sumers to shoddy foreign goods and some Wal-Mart customers turned to a spirit of nationalism. The retailerresponded with an “Hecho en Mexico” program similar to the“Made in the U.S.A.” program that was successful in the UnitedStates. In some situations it is more than a case of nationalism:Brand attitudes are negatively influ-enced by specific prejudicestoward “dominating” cultures. The Korean ban on Japa-nesemovies and the French phobia about Euro Disney are goodexamples of the latter.

Manners and CustomsManners and customs represent a culture’s views of appropriateways of behaving. It is important to monitor differences inmanners and customs, because they can have a direct effect onthe service encounter. Central and Eastern Europeans areperplexed by Western expectations that unhappy workers puton a “happy face” when dealing with customers. As an example,McDonald’s requires Polish employees to smile whenever theyinteract with customers. Such a requirement strikes manyemployees as artificial and insincere. The fast-food giant haslearned to encourage managers in Poland to probe employeeproblems and to assign troubled workers to the kitchen ratherto the food counter.


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Habits are similar to customs, and these tend to vary by culture.Japanese take very few vacations, and when they do they like tospend 7" to 10 days. Their vacations are unusually crammedwith activities-Rome, Geneva, Paris, and London in 10 days isrepresentative. The travel industry has been responsive to thespecial preferences of these big-spending Japanese tourists. TheFour Seasons Hotel chain provides special pillows, kimonos,slippers, and teas for Japanese guests. Virgin Atlantic Airwaysand other long-haul carriers ,have interactive screens available foreach passenger, allow-ing viewing of Japanese (or American,French, etc.) movies, TV, and even gambling ,if regulatorsapprove. Differences across cultures influence how consumersevaluate service, as explained in the Global Feature.

Material CultureMaterial culture consists of the tangible products of culture, oras comedian George Carlin puts it, “the stuff we own.” Whatpeople own and how they use and display ma-terial possessionsvaries around the world. Cars, houses, clothes, and furniture areex-amples of material culture.The majority of Mexicans do not own cars, limiting retail’s’geographic reach. Further, most Mexicans own small refrigera-tors and have limited incomes that restrict the amount ofgroceries they can purchase at one time. Instead of the once-per-week shopping trip typical in the United States, Mexicans makefrequent smaller trips. Pro-motional programs in Mexico arealso constrained by the availability of media. Own-ership oftelevisions and radios affects the ability of services marketers toreach target audiences.Zoos as entertainment represent an interesting reflection ofculture’s influence. Any American visiting the Tokyo Zoo isimpressed by two things: the fine collection of an-imals and thesmall cages in which the animals are kept. To the Japanese wholive in one of the most crowded countries in the world andown relatively small houses, the small cages seem appropriate,whereas to the American eye the small cages may be perceived asmistreatment.

Customer Evaluation of ServicesCustomer Evaluation of Services

ää Search QualitiesSearch Qualitiesää Found mostly in goodsFound mostly in goodsää Assist in judgementAssist in judgement

ää Experience QualitiesExperience Qualitiesää Found in combined categoriesFound in combined categoriesää Require use to assess qualityRequire use to assess quality

ää Credence QualitiesCredence Qualitiesää Found in servicesFound in servicesää Nearly impossible to assessNearly impossible to assess

Goods & ServicesGoods & Services


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QualityPerception

Consumer Factors

Customers & Service QualityCustomers & Service Quality

Dimensions ofService Quality

•Tangibles•Reliability•Responsiveness•Assurance•Empathy

W-O-M Personalneeds

Pastexp.

Externalcommu

Expectedservice

Perceivedservice

PerceivedService quality

Consumer Buying Behavior of ServicesConsumer Buying Behavior of Services

ääPersonal sources of informationPersonal sources of informationääPostpurchase evaluationPostpurchase evaluationääSurrogate (substitute) judgment cuesSurrogate (substitute) judgment cuesääFewer acceptable brands or suppliers Fewer acceptable brands or suppliers

and strong brand loyaltyand strong brand loyaltyääSlow adoptionSlow adoptionääCustomer as competitorCustomer as competitor

Tutorials• Discuss the consumer buying behavior of services.• Goods and services are different. Explain.• Explain the factors involved in customer service evaluation.

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LESSON 5:IMPORTANCE OF SERVICES IN CUSTOMER SATISFACTION

The Objective of this Lesson is to havean insight into• Importance of after sales service :Consumer and industrial

markets• Product concept and after sales service• After sales service and brand corporate image.• Impact of service problems on buyer behavior• Customer satisfaction and its role in buying process• Service values and its market share• Customer care programs

The Importance of After-sales Service;Consumer/Industrial MarketsIntroductionHistorically, after-sales service was regarded in most manufactur-ing companies as a necessary evil - as a supporting but relativelyminor function in the overall structure of the organisation. Thisalso applies in some degree to the channels - in the case ofindustrial products, it will usually be the manufacturer whoprovides service, whilst for many consumer and other types ofgoods it is the responsibility of the retailer, dealer or agent.While it was realised that it was important to provide a‘reasonable’ level of after-sales service, the role and function ofservice was generally viewed purely as a cost centre. It may wellhave been the last area for development and investment inmany organisations.Changes came about as a result of increasing consumer pressureand more intense competition. As consumers grew moresophisticated, they became less willing to accept poor qualitygoods and services. Consumer protection legisla-tion forcedfirms to take responsibility for after-sales service, but, at thesame time, organisations started to realise that by offeringguarantees and service warranties they could enhance theircompetitive position.This applies not only to providers of actual’ goods’ but toservice providers as well. If insurance organisati0ns failed todeal with queries and claims promptly their customers mightswitch insurers. If a tour operator promises trouble-free traveland then problems arise (even if they are the fault of an airlineor hotel), the tour operator must take steps to rectify theproblems immediately. Bad publicity resulting from poor after-sales service can be the fastest way of losing custom.

A Service-orientated ApproachSome companies anticipated this, and invested in after-salesservice consistently. They were able to establish a leadingcompetitive position based on their repu-tation for fair andunparalleled service.Marks and Spencer, the leading high street retailer in the UK,was providing instant money-back guarantees long before itscompetitors followed suit.

In the market for photocopying equipment, which is notoriousfor breaking down, Xerox, a leading manufacturer, advertisesthe fact that wherever their customers are located, throughoutthe whole of the USA, they are never more than three hoursaway from a service engineer.In the last few years there has been increasing corporateawareness of the strategic importance and value of service bothas a profit centre and as a marketing tool. As this awareness hasbecome established, there has been a considerable increase in theresources being made available to maximise its value to theoverall profitability, directly and indirectly, of the company.It would be hard to imagine buying a car, a washing machine, orany other major purchase without some form of guarantee thatlong-term service will be available promptly. After-sales servicehas been part of the augmented product for so long now that itis no longer a special feature - consumers demand it.

The Product Concept and After-sales ServiceThe product concept describes all products as being made up inmore than one stage, or level:Level 3: The augmented productLevel 2: The physical, or expected, product.Level 1: The core productThe core product relates to the product’s function in terms ofthe consumer need which it will satisfy. A washing machine willprovide clean clothes, or aid family hygiene.The physical, or expected, product describes the actual shape,form and fea-tures provided by the product. In consideringwashing machines, attention would be paid to such aspects asvariety of washing cycles available, colour options, size, ease ofuse and so on.The augmented product relates to the (often intangible)features, which providers of goods and services endeavor toincorporate into their products to makeThem standout from the competition. In the case of washingmachines an automatic drain feature might have been part ofthe augmented product twenty years ago. If it was perceived asan extra by the potential customer it could help to differentiatethe firm’s offering from the competition.Of course automatic draining is taken for granted now, and hasbecome part of the physical product. The consumer expects anddemands it as a feature.Similarly, firms have built intangible qualities into the aug-mented product, which are now taken for granted. One yearguarantees have been superseded by three and five year guaran-tees.Company name and image plays a more important role as massadvertising can be used to reinforce images of quality, strengthand durability. Brand image is one of the most important


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intangible features which can influence consumer buyingdecisions.

After-sales Service and Brand Corporate ImageAfter-sales service plays a crucial role in ensuring the long-termcredibility of company and brand image. When Perrier, theleading brand of bottled mineral water, suffered a contamina-tion scare, it was not solely their brand image which helpedthem to rebuild their market share very quickly, it was thesuperbly efficient way in which they handled the incident,recalling the product and arranging instant refunds. Their after-sales service in the face of an extreme crisis (and in a potentiallyhealth-damaging situation) was seen to be concerned, respon-sible and anxious to rectify the situation.The brand lived up to its image as the leader on quality andsatisfaction. It is even suggested that the contamination crisisactually improved the firm’s stand-ing in the consumers’ eyes.

The Impact of Service Problems on Buyer BehaviourWith growing interest in the area of quality and customersatisfaction, there has been an increase in research into theimpact of service problems on buyer behaviour. The sort offindings which are beginning to emerge illustrate clearly theimportance of post-purchase customer satisfaction levels. Thefigures given show the range of information coming fromvarious sources and illustrate the extent of the problem, eventhough actual sources differ and have been generalised hereReports reveal evidence that the following factors ‘and influ-ences need to be considered:• The average business never hears from the vast majority of

its dissatisfied customers.• For every complaint received, the average company has up to

26 custom-ers with problems, 6 of which are defined asserious by the client.

• Of those who register a complaint, over half will dobusiness again with the organisation to whom they arecomplaining if the complaint is recti-fied.

• If the complaint is rectified quickly and professionally then95% win do business again with that vendor. In this eventproblems are, in this context, opportunities to demonstratewhat a good company the vendor really is

• The average customer who has had a problem with anorganisation will tell another 9 or 10, and 130/0 of peoplewith problems will tell over 20 others about it. Bad newstravels wide, far and quickly.

• People who have complained and have had their complaintresolved quickly and professionally will tell 5 others onaverage.

It is, therefore, easy to see that customer satisfaction in theproduct and in the service represents a critical factor in thepurchase decision. This implies that the service arm of anymanufacturer can play an important role in the future marketingsuccess of not only its own operations but those of all itschannels of distribution.Customers’ perceptions of a company’s image may owe moreto the efficiency (or otherwise) of the service department thanto the quality of the actual product.

Customer Satisfaction and its Role in The. BuyingProcessManufacturers, retailers and all types of marketing organisationsare now in-volved in massive campaigns to improve theirquality of service and its profit-ability by ensuring customersatisfaction. Looking after the customer is at least as importantas looking after his equipment, and this is borne out in surveysmade both in the United States and in the United Kingdom.This is equally important in business-to-business and industrialmarkets as it is in consumer markets.A large number of independent market studies have clearlyshown that customers place considerable value on the qualityand responsiveness of the service organisation, as well as thereliability and availability of the equipment itself, in making thedecision to purchase from one supplier versus another. In over50 separate product studies carried out by just one researchgroup in a wide variety of markets, it was found that issues ofservice are significantly more important than the product priceand product features in the final purchase decision.In - essence, models of the buying decision process show thatthe typical purchaser will screen out all non-responsive suppliers(i.e. those whose price and features/ capabilities do not meetneeds). The remaining acceptable suppliers are then usuallychosen on the basis of service responsiveness and quality. In astudy of over 3,000 users of data processing, office automationand telecommunications equipment, the key importance ofservice and service-related issues in the decision to buy wasmeasured. In this particular study of the information technol-ogy market, users were asked to place a weighting, on a scale of1-9 (with 9 being most important), as to the factors utilized toinfluence the buy decision.The results can be briefly summarised as follows:• The highest rating factor was reliability of the equipment

followed by service response time and capability of serviceorganisation, all weighed higher than 8.

• Four further factors relating to service (e.g. speed of partsdelivery) were weighted between 7 and 8.

• The actual cost of the equipment was given an importancerating of only 6.5, slightly higher than the cost of service at6.4.

• Only delivery times and instruction/training were weightedlower than this.

Clearly, as this study related to the type of products wheretechnical service support would be seen as essential - telecom-munications and computer equip-ment - the results are perhapsnot too surprising. However, for many consumer purchasedecisions these factors rate highly in importance in exactly thesame way.Cars, domestic appliances and home electronics are goodexamples. The more ‘technical’ a product in the consumer’sperception, the greater the importance attached to after-salesservice. It may be the level of service provided which has helpedto maintain the strength of the television and VCR rentalmarket in the UK, even though equipment prices have droppeddramatically in real terms, and consumer credit is far morewidely available.


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Service Value and Market ShareIn substance, the quality, image and responsiveness of theservice organisation supporting the manufacturer or supplier ofgoods and services can significantly influence the decision to buyand thus gain market share. Many major suppliers of comput-ers, cars, and goods and services for industrial and consumermarkets place great emphasis on the quality, performance andresponsiveness of their service operations. They activelyhighlight service performance and responsive-ness in sales,advertising and marketing efforts.In many cases, not only are such organisations able to gain andcontrol market share, but they are also able to charge a premiumprice for the products being sold. This has come about as aresult of a high degree of emphasis on service as a strategyaimed at both market perception and actual service delivery.Experience in a nun1ber of markets, including data processing,office automa-tion, telecommunications, medical electronics,and health care, for example, indicates quite clearly that themarket will actually pay a premium price of up to 20% over itscompetitors in order to deal with a supplier with a high serviceimage of quality and responsiveness. Thus, the primary valueof service with respect to influencing market share lies in its vitalimportance to the customer in the supplier selection decision,and the customer’s willingness to pay a premium price eventhough product features of a variety of suppliers are essentiallythe same.In reversionary times, organizations face increasing competitivepressure in what is often a buyer’s market. Standardizedproducts and services combine with aggressive advertising andpricing to reduce the opportunities available for differentiationin the marketplace. Increasingly the only differentiation betweensuppliers relates to the quality of service provided and thestandard of customer care.

Customer Care ProgrammesService organisations are particularly dependent on levels ofcustomer care, as the ‘people’ element in the marketing mixreflects. Customer care can play an equally important role,however, in manufacturing, production and other or-ganisations providing goods and services. For customer careprogrammes to be successful they need to span the entireorganisation. Training will not work if it is carried out on apiecemeal basis and should be supported all the way from topmanagement.Superficial attempts to develop customer care levels willundoubtedly lead to failure. Research among customers ofcomputing and database services high-lighted that only three ofthe top six suppliers scored consistently high marks across arange of service criteria even though all six claimed to havecarried out customer care training. The size of the organisationis no guarantee of customer care quality - frequently, smallercompanies demonstrate a more conscientious approach toindividual customers.Customer care training may initially be a very lengthy process asthe ball starts rolling through all sectors of the organisation andcosts will grow too, as further investment is required to updateand maintain the initiative in the future. Other activities are

likely to arise as a direct result of customer care programmessuch as the publication of internal newsletters, the establish-ment of incentive schemes and new ways of conducting staffappraisals; for example Rank Xerox has introduced a schemewhereby future pay rises for managers throughout Europe willbe based on the results of a survey of customers.Customer care programmes will typically be comprised of sixmain stages, as follows:Objectives setting: define the programme objectivesCurrent situation analysis: Conduct a customer service audit -internally and externallyStrategy development: Develop a strategy for raising levels ofcustomer service from the current to the desired standardFunctional planning: Define training needs and otherrequirements (problem-solving sessions or teambuilding forexample) to execute the strategyImplementation: Implement training and other initiativesthrough workshops, seminars. Promote the programme bothinternally and externally. Develop in-ternal marketingprogrammes.Monitoring: Test results through customer and employeesurveys, evaluate the training methods. Improve and updatethe programme on a continuous basis.Evaluating customer care programmes can be extremelydifficult, in terms of their overall value to the company or theirimpact on profitability. Methods include using customer andemployee satisfaction surveys and monitoring cus-tomercomplaints. More tangible evidenceof the value of customercare pro-grammes may be seen in the balance sheet; British -Airways went from a loss-making situation to turn In a healthyprofit following its putting people first’ campaign. Thecampaign itself was a substantial investment, which involvedtraining over 36,500 personnel at a reported cost of over £23million.

TutorialsIf you are u buyer of banking service, then in light of above ,compare the after sales service of ICICI and PNB, keeping inmind the following:• After sales service and brand corporate image.• Impact of service problems on buyer behavior• Customer satisfaction and its role in buying process• Service values and its market share• Customer care programs

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LESSON 6:MARKETING MIX

The Objective of the Lesson is• First P-Product• Life cycle• Services concept• Service Mix

ProductIntroductionThe term ‘product’ is widely used to refer to a market offeringof any kind. In its broadest sense this may be anything fromthe physical- a tin of baked beans or a television set - to theabstract-an idea or a moral issue. Generally, however, mostproducts are made up of a combination of physical elementsand services. This is true in services marketing, where the serviceoffering can include tangible features, such as food in a restau-rant, or be a ‘pure’ service, intangible in nature.Packaging usually refers to the actual external packaging of aproduct and it plays a key part in, for example fast-movingconsumer goods marketing. The packaging, as well as protectingthe contents, will perform a vital selling and promotional role,presenting the product and company image to potential cus-tomers. Essentially, in this sense, packaging is how the finalproduct is put together and presented to the market.The same issues are vitally important for services marketing.Designing and developing the ideal service is not the full story;the way the service is ‘packaged’ and presented to the market isthe key issue. Branding the service, developing the rightelements within it, adding tangible features - all these are criticaltasks for services marketing management.This chapter looks at packaging the service product in its widestpossible sense, and explores these issues together with anoverview of product manage-ment in services. Ways ofclassifying services are considered, and an understand-ing of theservice concept is developed. Traditional product managementtasks - new service development and positioning - are alsoreviewed.

Service AttributesIn attempting to develop an understanding of the serviceconcept, and what actually constitutes a service, it is worthdrawing on issues addressed in earlier chapters to focus on thespecial nature of services, and the service offering:

Special Characteristics of ServicesServices share several distinguishing characteristics, whencompared to physical products. These are:IntangibilityInseparabilityHeterogeneityPerishability

Each of these will influence decisions in developing andpackaging the service product.

Classification of ServicesThere are a number of ways of classifying service activity, andthere will always be some degree of overlap between the variousmethods used. The following are some of the most commonlyused classification methods:End-user: Services can be classified into the following catego-ries:ConsumerBusiness-to-businessIndustrialService tangibility: The degree of tangibility of a service canbe used in classification:Highly tangibleService linked to tangible goodsHighly intangiblePeople-based services: Services can be broken down intolabour-intensive (people-based) and equipment-based services:People-based services (high contact)Equipment-based (low contact)Expertise: The expertise and skills of the service provider canbe broken down into the following categories:ProfessionalNon-professionalProfit orientation The overall business orientation is a recog-nized means of classification:Not-for-profitCommercial(A more detailed discussion of the above examples can befound in Chapter 3.)Having looked at some of the specific aspects relat4tg to theservice product, the service concept - what actually constitutesthe service product - can be -explored.

Need SatisfactionIn many ways it is hard to equate the properties of physicalgoods with those of services. Physical goods have shape andform, they may be sold according to weight, size or colour; theycan be tasted or felt. These characteristics are only features ofphysical products, however. Consumers may have preference forcertain types of physical characteristic when they are choosing aproduct, but their underlying motivation for making a purchaseis to satisfy a need. They are looking for something which willprovide the right kind of benefits to satisfy their need.

UNIT IIMARKETING MIX


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This is equally true of services. Even in relation to the mostintangible service, customers receive benefits to which theyattribute value, and a perception of quality.The idea that customers are looking for benefits rather thanfeatures is at the heart of a marketing orientation. Product-ledcompanies (discussed in Chapter 1) focus on adding more andmore features to products in order to attract customers.Marketing, however, places the focus firmly on the customers’needs and wants and aims to provide want satisfactions, orbenefits.

The Service ConceptPhysical goods and services can be looked at in terms ofbenefits offered, as well as features and specific attributesassociated with those benefits. The notion of the serviceconcept is based in the idea that actual service offerings (orphysical products, in fact) can be broken down into a numberof levels relating to customer need-satisfactions, benefits andfeatures. Typically, three levels are identified:The core benefit/serviceThe expected serviceThe augmented serviceThe core benefit/service The core benefit ~ought relatesspecifically to the customers’ need. The customer may be feelinghungry, or may feel that they don’t look their best. Thecustomer might be a business needing help with promotionand advertising, or experiencing financial problems.• The core benefit satisfies the need/solves the problem.The expected service: this relates to customers’ expectationsof what kind of services are available to satisfy their need. Thehungry customer may decide to visit a snack bar or restaurant inorder to satisfy their need for food. They will expect a certainlevel of service to be offered - a range of items on the menu,for example, clean and pleasant surroundings and promptattention from staff. Someone visiting a hairdresser will have anidea of the range of facilities and treatments which should .beavailable. Similarly, the business customer will ‘expect profes-sional advice, expertise and practical help from an advertisingagency or financial consultant.• The expected service reflects standards required or expected

by customers to satisfy their needs.The augmenting service Augmenting the service offering, ormaking it better in some way, is the means by which serviceproviders differentiate their offering in an attempt to influenceconsumer choice. Extra features, over and above the expectedservice, can be added to make the service more attractive toprospective consumers. Often innovation is the key. Restaurantsmay work at creating a special ambience, perhaps through decorand music, or a snack bar may offer customized sandwiches andvideo games. A hairdressing salon might offer additional beautytherapy, free refreshments and a certain image. Professionalservice organisations might seek to augment their serviceoffering with a range of specialists, for example, who are expertin specific industry areas, or they may focus on a more caring,personal service for their clients.

• The augmented service is the way# in which serviceproviders fine-tune the marketing mix to differentiate theirservice and make it stand out from the competition.

The following table illustrates the service concept further:

In marketing mix terms, it is often the special aspect’s of theservice mix which can contribute to the augmented service. Theinseparable nature of services, for example, means that servicequality is often closely linked to the people element of the mix.Perceptions of service quality often depend also on consumers’judgments about the surroundings in which the service isoffered - the physical evidence - and the promptness of theservice - the process. The following ideas suggest ways in whichmarketing mix variables can be adjusted to help differentia tion:

Core Service Food provision Hairdressing Business-to-Business

Expected Service Clean facilities Choice available Prompt service Take’ away Well appointed salon Qualified stylists Range of treatments Expert advice Reliable service Range of services

Augmented Service Up market décor Exotic menu Silver service Free delivery Fine wines Live music Luxury salon Famous stylists Specialist treatments Refreshments Beauty therapy Sunbeds Professional qualifications Affiliated to professional body Specialist areas Overseas branches

Product (service) Price Promotion Place People

Superior quality Well known/trusted brand image Unusual or additional features Extended guarantees The 'unique sales proposition' Tangibilisation 'Value added' Special discounts Preferential credit terms Innovative advertising campaigns Loyalty promotions! e.g. frequent flyer offers Special offers Direct mail PR, sponsorship Extensive availability More outlets than competitors Innovative methods, e.g. telephone banking Careful selection of quality channels Highly trained staff Better customer care Greater efficiency Personal attention Specialist skills Advances in technology, e.g. automated


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Process Physical evidence

Advances in technology, e.g. automated queue Systems, cash dispensers Fast response times Comfortable surroundings Superior decor Qualifications Evidence of professional standing membership of professional bodies Strong, recognizable corporate image staff uniforms, house style Supporting literature, documentation High quality 'tangibles'

Long-term success and survival, however, means far more thandeveloping a marketing mix for a differentiated service offering.To keep up with changes in consumer trends and new technolo-gies, or to cope with new situations, service organisations needcontinuously to review and develop their service offering. Therange of services offered - the service portfolio - should alwaysbe monitored and new services introduced or existing oneswithdrawn at the right time.

Services ConceptServices Concept

TraditionalServices

ExpandedConcept

Forces CreatingForces CreatingGrowthGrowth

ServiceServiceCharacteristicsCharacteristics

Service MixService MixDevelopmentDevelopment

Service MixService Mix

Augmented ServiceAugmented Service

BrandedBrandedServiceService

CoreCoreserviceservice

TutorialsIn light of above, Compare the service mix , of a normal hairdresser vis- a –vis, ‘Habibs’


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The Life Cycle ConceptProducts and services are often said to have ‘life cycles’. This ideais based on an analogy with natural life cycles: birth, growth,maturity and so on. The product life cycle is frequently illus-trated as being comprised of four stages:Launch, or introductionGrowthMaturityDeclineThe product life cycle is typically represented graphically in termsof sales over time. Plotting the level of sales over a period willresult in a life cycle curve which may look like this:

Sales, or even usage rates, of a service can be plotted in the sameway as sales of physical products, and monitored over a period.This can be useful in manag-ing the organisation’s range ofproducts or services, and in making decisions about promo-tion, for instance, or withdrawal of a service which has becomeoutdated. The product life cycle concept holds that the differentstages of the product life cycle have certain characteristics whichare, more or less, common to all products or services.Understanding and analysing the various stapes, therefore, canbe helpful in determining the appropriate marketing action.

IntroductionAt the introduction stage the product or service is very new.Promotion will be intense and costly, and may need to beboosted if the service fails to meet initial targets. It will beaimed at getting users to try the service, and create interest.Television shopping is an example of a new service recentlylaunched in the UK. This is a high risk stage, because the servicewill not yet have proved that it will be successful, and the costsof pre-launch development may be very high. Close monitoringis required.

GrowthAs uptake of the service starts to grow, revenues will increaseand profitability may be even achieved. The longer-term successof the service can be more easily assessed at this stage as marketpenetration increases. However, if the product appears to bedoing well, it is likely at this stage that competitors will bringout rival offerings. This is the case with mobile telephones;when the market reaches near saturation they will have movedfrom the growth phase into the mature phase. Promotion mayagain need to be boosted to maintain the speed of growth and

Sales

Launch MaturityGrowthTime

Decline

will focus on attracting more new ~users, and repeat purchase.Further investment may be required.

MaturityAs growth slows down, the overall volume of sales may reach afairly steady plateau, which continues over time. Competitionwill probably be well estab-lished, and promotion efforts reflectthe battles between leading brands. Credit cards are an exampleof a mature service offering. New entrants may still be enteringthe market, as is the case with building societies offering theirown cards. Marketing effort is aimed at keeping the level ofsales high, thus ensuring continued profitability.

DeclineAt some stage, the popularity of a product or service will beginto die. Levels of sales will fall off, and profitability diminishes.This may be due to a number of reasons, as when services havebeen superseded by new technologies or when consumer tasteshave changed. Facsimile machines have more or less replacedtelex communication services, for example, and insuranceservices sold directly by telephone have started to replace theneed for individual brokers on the high street. The maindecision for management is whether to continue to produceand sell the product or service if it is still creating profits, or todelete it altogether, perhaps because the organisation haslaunched newer services to replace it, and deletion wouldenhance their chances of success, or possibly to cut the risk of itbeing a drain on resources.

Scope of the Life Cycle ConceptThese illustrate the basic ideas behind the life cycle concept, andits use as a management tool. There are many criticisms of theconcept, mostly relating to the vast difference in the type ofcurves that can be seen (fads, for example, may grow sharply,but then drop off altogether, and never become mature).Cinema attendance in the UK all but died off altogether in the1970s, resulting in the closure of many cinemas, but cinema hasbeen successfully re launched in a new format with the openingof hugely successful multi-screen cinema complexes.There can also be ambiguity in what should be measured;industry cycles may differ for specific products, for example. Thedemand for information has never been higher, but, asmentioned previously, the means of transmitting informa-tionhas changed, so telex machines have died, and so have tele-grams, while fax and telephone usage have increaseddramatically. The important thing is to monitor progress of allthe organisation’s offerings, and to consider stages in the lifecycle as part of that analysis, but not to rely on the life cycleconcept in isolation as a predictive or prescriptive managementtool.

New Service DevelopmentManaging the organisation’s service portfolio, and developingand positioning new services, are functions critica 1 to theorganisation’s success. The new product development process,as carried out by manufacturing companies, has been the focusof a significant amount of marketing literature for many years.The main reason for this is that it is both essential for long-term success, and a very costly, high risk process. The costsassociated with the development and launch of a completely


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new product can be phenomenal and if the product fails tomeet target sales figures - or, even worse, is a total flop - thenthe company may not survive.Unfortunately, the literature is full of classic tales of suchmisadventure as the Ford Edsel car and the Sinclair CS, andestimates of the failure rate of new products range from fiftyper cent to nearer ninety per cent of all new products launched.Even relatively minor developments to new products can be ahigh risk undertaking, as was the case when Coca-cola launchedits new version and quickly had to bring back the old, ‘classic’version (although some suggest it was actually a clever tactic toreinforce the brand, which may be true, but would certainly betoo risky for any lesser brand to try). Persil washing powder alsohad to re-introduce its original product after the new ‘improved’version was alleged to have caused allergic reactions in somecases.’Although the risks associated with failure may, at first sight,appear less for service providers than manufacturers (noexpensive production facility to set up, for example) this is notnecessarily the case. The costs of building a world class hotel aresubstantial, to say the least, and if that hotel remains halfempty it is a failure. Even highly intangible new services such asinsurance will cost a great deal to launch in terms of staff re-training, production of sales literature and documentation andexpensive television advertising campaigns. To ensure theoptimum chance of success.New Service Development Process: is a systematic stagedprocess, which organizations adopt to screen new service ideasand maximize their chances of success in the market. Compris-ing of following stages:• Generation of ideas• Screening• Testing the concept• Business analysis• Practical development• Market testing• Launch

TutorialsIn light of above , Identify and Compare at which stage of PLCdoes Rai university stands , vis a vis Amity, in the professionaleducation service sector.


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LESSON 7:POSITIONING AND DIFFERENTIATION OF SERVICES

The Objective of this Lesson is to havean insight into• The evolution of positioning• Competitive differentiation of services• Positioning and services

Positioning and Differentiation ofServices

The Evolution of PositioningDuring the 1980s the strategic relevance of positioning startedto become recognized amongst leading service organizations.Service companies are now identifying their key market seg-ments and then determining how they wish consumers toperceive both their company and its products and services.Positioning is of particular significance in the services sector as itplaces an intangible service within a more tangible frame ofreference. Thus the concept of positioning stems from aconsideration of how a company wishes its target customer toview its products and services in relationship to those of itscompetitors and their actual, or perceived, needs.The idea of positioning can be traced to the idea of identifyingneeds and then fulfilling them. This idea, which has existed inwritings on marketing since at least the 1940s, was developedfurther with, the concept of identifying improved ways ofcreating product appeal and the ‘unique selling proposition’.Other writers have referred to related ideas including productdifferentiation, distinctive business proposition and marketposition analysis.The concept of positioning also has origins in the increasedrecogni-tion of the importance of corporate image in the 1960s.To many, David Ogilvy of advertising agency Ogilvy and Matherepitomized the ‘image era’. His belief that every advertisementis a long-term investment in the image of a brand and hisfamous and highly successful campaigns for a wide range ofmanufactured products including Hathaway shirts, Schweppessoft drinks and Rolls Royce motor cars drew attention to thevalue ofbfand image.The notion of a unique selling proposition, which identified aunique product feature that was then emphasized to customersin the promotional campaign worked well where it was unique.Unfortunately technological advances often made so-calledunique features short lived since they could be easily copied. Inresponse to competitive imitation, advertising agencies such asOgilvy and Mather developed image advertising as a means ofdifferentiation. However, the enorm-ous increase in advertisingin the 1960s led to considerable duplication of messages and asa result it became increasingly difficult for a company todistinguish its image from that of others.In the first book to be published on positioning Ries andTrout describe how marketing thought evolved from the

product era of the 1950s to the image era of the 1960s and thepositioning era of the 1970s.1 They are credited with havingdeveloped the idea of position-ing through a series of articlesthey wrote in 1972. Ries and Trout argue that we live in an over-communicated’ society where huge sums are spent onadvertising but only a tiny fraction of it gains our attention.Their concept of positioning is that it is not what you do to aproduct. Positioning is what you do to the mind of theprospect. That is, you position the product in the mind of theprospect.’Much of the discussion about positioning in companies,advertising agencies and in journal articles uses ‘positioning’ inthis restricted sense. This perspective of positioning suggeststhat positioning is largely a communications issue dealing withthe psychology of posi-tioning an existing product in theconsumer’s mind. It focuses on achieving a desirable position inthe mind of the consumer and has little to do with theproduct. It sees changes in name, pricing or packaging ascosmetic changes aimed at securing this position in theconsumer’s mind.We term this formal of positioning ‘communications position-ing; it is an important part, but only a part, of strategicpositioning. Positioning can, however, be affected by all theelements of the services marketing mix, in addition to promo-tion. Thus price, distribution, people, processes, customerservice and the product or service itself can all affect a firm’spositioning. Service processes can be particularly relevant topositioning. As Lynn Shostack has pointed out, processes havecharacteristics which affect positioning and which can also bedeliberately- and strategically managed for positioning purposes.The strategic positioning of services, then, involves a consider-ation of these other elements of the marketing mix. We definepositioning as follows:Positioning is concerned with the identification, developmentand communication of differentiated advantage, which makesthe organization’s products and services perceived as superiorand distinctive to those of its competitors in the mind of itstarget customers. Positioning is thus concerned with differentia-tion and using it to advantageously fit the organization and itsproducts or services, to a market segment. We can differentiateon the basis of subjective criteria which involve image andcommunication, or objective criteria which involve differentia-tion in terms of other elements of the marketing mix includingproduct, processes, people, customer service, etc.In this chapter we begin with a consideration of the means ofcompetitive differentiation. The specific characteristics ofservices and how they impact on positioning are then exam-ined. We then provide an overview of the process ofpositioning including the development of positioning maps.Alternative strategies in positioning are then con-sidered.


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Competitive Differentiation of ServicesPositioning is heavily dependent on a firm’s capability toeffectively differentiate itself from its competitors by providingsuperior delivered value to its customers. Superior deliveredvalue can be thought of in terms of the total value offered to acustomer less the total cost to the customer. It has beensuggested that these elements have the following components:• Total customer value:

services value;product value;people value; andimage value.

• Total customer cost:monetary price;time cost;energy cost; andpsychic costs.

Customers make buying decisions on services based onsuperior delivered value in terms of an acceptable balancebetween cost, value and quality. Customers who are purchasingservices buy what they need based on cost components, value-added components and quality components. Some illustrationsare shown in Table 5.1.4Once technique for considering ,superior delivered value is thevalueChain. The value chain represents a means of identifying waysto create differentiation through value enhancement. The valuechain developed by Michael Porter is shown in Figure 5.1. Valuechain activities are

categorized into two types: primary activities (in-boundlogistics, operations, out-bound logistics, marketing and sales,and service) and support activities (infrastructure, human-resource management, tech-nology development, andprocurement).5 These support activities are integrating func-tions that cut across the various primary activities within thefirm. It may also be useful to further subdivide specific primaryactivities within the value chain. For example, the marketing and

Table 5.1 Some cost, value-added and quality components for selected services

Service Cost components Value-added components Quality components

Bank Service charges; interest rates

Variety of services; easy to understand services

Financial stability; personal interest in customers

Discount store

Sales/clearances; low price

Easy return; cheque cashing

Selection; well-known brands; pleasant atmosphere

Family steak house Low prices; coupons Salad bar; menu for

children Taste of steak; atmosphere

Pizza restaurant

Specials; coupons; promotions; low prices

Fast service; home delivery take out; variety

Hot product; taste; consistent product

Psychiatric hospital Low-cost treatment Comfortable rooms;

visitor accommodations Experienced physicians; innovative treatment

Specialty tune-up clinics

Reasonable cost; specials

Car ready when promised fast service

Fixed right the first time; qualified mechanics

Supermarket Low prices Well stocked; cheque cashing

Clean; selection; specialty departments

Temporary secretarial service

Reasonable cost Performance guarantee; follow up

Competence of temps; understands what we need

sales activity can be expanded further into the constituentactivities of marketing management, which include advertising,sales force administration, sales force operations, promotion,etc.The generic value chain outlined in Figure 5.1 was derived largelyfrom a consideration of manufacturing companies. Although ithas broad applicability to services it is more useful to developvalue chains which specifically reflect the tasks within a particularservice sector. For example, in the management consultingsector the primary activities comprise the following:• Decisions on service configuration.• Marketing and sales.• Data collection.• Data analysis.• Interpretation and recommendations.• Reporting and communication.• Interpretation, service and evaluationFor a retail financial service organization, such as a buildingsociety, the primary activities in the value chain include:• Funding.• product innovation and design.• Funds administration,• Customer administration.• Marketing.Management consulting firm’s value chain• Delivery channels.• ServicingA bank operating in the corporate market defined. its valuechain’s primary activities as:• Product creation• Planning• Marketing• Selling• Single target selling• After sales service.Superior delivered value grows out of the way in. which firmsorganize and perform these discrete activities within the valuechain.Development of a specific value chain which identifies theseactivities for a specific service company is of much greater usethan relying on. The generic value chain. To gain advantage overits rivals a firm must promote this value to its customersthrough performing activities more efficiently than its competi-tors (lower cost advantage) or by performing activities in aunique way that creates greater buyer value (differentia-tionadvantage).The process activities within a value chain should not beconsidered in isolation. It is essential to consider the linkageswhere the perform-ance of one activity has an impact on thecost or effectiveness of other activities. In a manufacturingcompany, improved product design may reduce the need for


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inspection and result in significantly reduced after-sales servicecosts. However, of a service firm boundaries be-tween activitiesare often less clear. In services, activities such as marketing,operations and human resources cannot really be con-sideredindependently, and’ effective co-ordination and integration ofthem becomes more essential than with manufactured goods.Appropriate cross-functional coordination of linked activitiescan re-duce the time needed to perform them. Reconfigurationof the value chain by relocating, reordering, regrouping or evencarefully eliminat-ing activities may represent an opportunity formajor improvement in delivered value.A critical role in a service organization is the examination ofcosts and performance in each value-creating activity within thevalue chain. Each element of the value chain represents an areawhich should be investigated thoroughly to identify existing orpotential means by which the firm can achieve cost advantage ordifferentiation advantage. The objective of this examination isto identify improvement opportunities. To ensure differentia-tion is achieved, benchmarking of compet-itors’ value chainsand their performance is essential. The value chain concept maybe used in several ways by a service firm as follows:1. The firm can use it to gain a clear understanding of its own

value chain and where it seeks to gain sources ofdifferentiation or cost advantage to achieve superior deliveredvalue to its customers.

2. It can use it to understand where it fits in the value chain ofits customer. If the customer is a typical manufacturingcompany its value chain will be similar to that of the genericvalue chain described above. However, if the customer is aservice business the firm will benefit from considering howthe value chain for this service company differs from thegeneric value chain. For indi-vidual customers (as opposed tocompanies), a personal value chain could also be considered;however, relatively little attention is given in the literature toan individual’s value chains and more emphasis is usuallyplaced on needs analysis.

3. It can be used to understand where it fits in the value chainof its suppliers and distributors.

4. To identify how competitors create value and how theiractivities compare to yours (competitive benchmarking).

The ultimate purpose of value chain analysis is to systematicallyidentify appropriate means of differentiation for a firm so thatit can provide superior delivered value to its customers. Thisdifferentiation then needs to be communicated to its customersthrough positioning.

Positioning and ServicesPositioning offers the opportunity to differentiate any service.Each service company and its goods and services has a positionor image in the consumer’s mind and this influences purchasedecisions. Positions can be implicit and unplanned and evolveover a period of time or can be planned as part of the market-ing strategy and then communicated to the target market. Thepurpose of planned positioning is to create a differentiation inthe customer’s mind which distinguishes the com-pany’sservices from other competitive services. It is important toestablish a position of value for the product or service in the

minds of the target market, i.e. it must be distinguishable by anattribute, or attributes, which are important to the customer.These attributes should be factors which are critical in thecustomer’s purchase decision.There is therefore no such thing as a commodity or ‘standard’service. Every service offered has the potential to be perceived asdifferent by a customer. Buyers have different needs and aretherefore attracted to different offers. It is therefore importantto select distin-guishing characteristics which satisfy thefollowing criteria:• Importance - the difference is highly valued to a sufficiently

large market.• Distinctiveness — the difference is distinctly superior to

other offerings which are available.• Communicability - it is possible to communicate the

difference in a simple and strong way.• Superiority - the difference is not easily copied by

competitors.• Affordability - the target customers will be able and willing

to pay for the difference. Any additional cost of thedistinguishing characteristic(s) will be perceived as sufficientlyvaluable to com-pensate for any additional cost.

• Profitability - the company will achieve additional profits asa result of introducing the difference.

Each product or service has a set of attributes, which can becompared to competitive offerings. Some of these attributeswill be real, others will be perceived as real. A company wishingto position itself should determine how many attributes anddifferences to promote to target customers. Some marketersadvocate promoting one benefit and establishing recognition asbeing the leader for that particular attribute. Others suggest thatpromoting more than one benefit will help in carving out aspecial niche, which is less easily contested by competitors. Theselection of the differentiating attri-bute(s) is most successful ifit confirms facts, which are already in the mind of the targetmarket. Denying or fighting customers’ perceptions of differentofferings in the market is unlikely to be successful. A successfulpositioning strategy takes into account customers’ existingperceptions of market offerings. It determines needs whichcustomers value and which are not being met by competitors’services. It identifies which unsatisfied needs could be satisfied.The positioning strategy seeks to integrate all elements of theservice, to ensure that the perceived position of the service isstrongly reinforced.Services have a number of distinguishing characteristics whichhave special implications for the positioning and selection ofwhich attri-butes to emphasize. Three of the key characteristicsof services, discussed in Chapter 1, make positioning strategiesof particular importance in marketing a service. These are theintangibility, the degree of variability or heterogeneity in qualityof a given service, and inseparability - the fact that the perfor-mance of a service will often occur in the presence of acustomer. Easing wood and Mahajan have illustrated a range ofpositions that can be adopted based on these services character-istics (see Table 5.2), some of which are outlined below.


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The intangibility of services makes the marketing task for aservice different from that for a product which can be physicallyidentified touched and compared. A service often cannot bemarketed by features, which the consumer can readily identify,and compare, it may therefore be hard to evaluate. For example,with financial or legal advice choosing between alternativesources is difficult when the benefits are intangible (e.g. thequality of advice). It is thus not easy to compare the physicalattributes of competing services.Positioning can permit an intangible service benefit to berepresented tangibly. It can help the customer see an intangiblebenefit, by offering tangible evidence .For example, customersto a hotel expect anTable 5.2 Some alternative positioning based on servicecharacteristics

Intangible benefit .:- cleanliness; and this view can be reinforcedby plastic covered glasses in rooms and a paper cover over thelid of a lavatory stating ‘sanitized for your protection’. Thishelps the customer to associate cleanliness with the serviceoffering, reinforcing the position that the hotel wishes toportray. Service companies often promote their reputations inan attempt to add tangibility. For example, they promote theirreputation for expertise with a particular sector; Courts Bankpositions itself as a bank for the wealthy upper class.Developing’ a positioning strategy may also assist identificationof other tangible features which can be added to the service.The augmented service offer will’ be more easily distin-guishedfrom other service offerings. For example, a positioning strategyfor an insurance product which aims to be distinctive by its easeof take up for the customer, may include a step-by-step guidefor prospective policy holders with sample forms which can beeasily copied.Services are also highly variable and rely to a great extent oninput from company employees for their production. Forexample, in a restaurant the waiter is the main point of contactwith the customer and his service performance will be a majorfactor in the way the establishment will be judged. His perfor-mance will vary at different times, and there will also be variancebetween his service and that of another waiter or waitress in the

Response to special service characteristics

Basis of position

Intangibility q Offer a tangible

representation q Offer an augmented

service Heterogeneity

q Superior selection, training and monitoring of contact personnel

q Package the service q Industrialize the service

production process Inseparability

q Use multi-site locations q Customize the service q Offer a complete

product line

The reputation and special capabilities of the organization itself

q Expertise position q Reliability position q Innovativeness position q Performance position

Augmentation of product offering q Product augmentation q Extra service

People advantage More attractive packaged offering A superior product through technology (i.e. faster, more reliable, better value for money) Accessibility Extra attention given to individual requirements Satisfaction of more user needs within the sector

restaurant. As a result, the quality of the delivered service canvary widely.Further, the quality of a small element of the total serviceoffering may affect the perceived quality of the service as awhole. For instance, a poor checkout procedure from a hotel,may greatly affect the perceived quality of the overall experienceof staying in it. The customer’s perception of the quality of theservice is therefore greatly affected by the quality of the staffwho are responsible for delivery. An advantage can be gained byproviding better-trained and more highly responsive people. Apositioning strategy may therefore include the distinctivecharacteristic of employing ‘better people’. McDonalds recog-nized this advantage and established McDonald’s HamburgerUniversity where employees are trained to render a high qualitystandardized service and to limit the amount of variation incustomer experience, giving a service which matches thecustomer’s perception.Services tend to be inseparable and are characterized by the factthat they are performed in the presence of the customer. Amanufactured product is usually produced within a controlledenvironment, and there is an opportunity to control the qualityand ensure compliance with customer expectations. Manufactur-ers are able to reject products which do not meet consistencyand quality standards. However, aservice frequently does not have these opportunities. Often aservice will require customer presence both when the service isinitially being delivered and then on an on-going basis. Aservice may require the customer to be present during most ofthe delivery process, as in the case of a patron in a restaurant ora passenger on an airline or train.The distinctive features of the services outlined above providesthe basis for competitive positioning strategy. There are maydimensions on which services can be differentiated. We’veexamined five alternative models for classifying services. Eachof these represents an opportunity for creating differentiationof a service in some way. For example, there is the opportunityof customizing the service to meet the exact needs of thecustomer. This may have a danger, in that the modificationprocess is often largely left to the front-line service provider.However, if customer needs can be closely matched customersatisfaction will be greater. SAS recognized this in empoweringtheir employees and allowing them to make their own decisionsduring service delivery. They positioned themselves as an airlinethat cares for its passengers and is responsive to their needs.There are many examples of passengers who have beenpleasantly surprised by the decision-making ability and empow-erment of SAS staff, in contrast to the red tape of other airlines.Staff can decide, without reference to superiors, on upgradingpassengers, resolving beggaring problems and special travelproblems.Having outlined opportunities to use the distinctive characteris-tic of services to position the offerings of a company, we willnow turn our attention to the levels of positioning and howthe positioning process can be formally addressed.


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LESSON 8:POSITIONING PROCESS

The Objective of this Lesson is to• The levels of positioning• Process of positioning• Evaluating positioning options• Implementing Positioning and marketing mix

The Levels of PositioningWe are primarily concerned in this chapter with the positioningof goods and services delivered by service organizations. Wewill use the term ‘positioning’ or ‘product positioning’ to reflectthis emphasis. Whilst most of the emphasis is placed onpositioning from this perspective it should be recognized thatthe principles of positioning apply at other levels.We can consider positioning at several levels:• Industry positioning - the positioning of the service

industry as a whole.• Organizational positioning - the positioning of the

organization as a whole.• Product sector positioning - the positioning of a range or

family of related products and services being offered by theorganization.

• Individual product or service positioning - thepositioning of specific products.

In addressing their companies position, service organizationsmay wish to consider where their industry is positioned. Afrequent means of positioning used within public- -relationsagencies is to identify the relative favourability and familiarity ofdifferent organizations. This can also be applied to industries.provides details of selected service industries based on researchby MORI. This provides useful context for the consideration ofthe organizational and product posi-tioning.At the corporate level a credibility/visibility or favourability/familiar- Its frame work such as that shown can also be usedfor a company and its competitors. Regular monitoring canidentify shifts in both the company and its competitors’positions.Companies need not be concerned with all the levels listedabove.For some organizations, such as a car rental company or arestaurant, the positioning decision for the organization and theservices provided may be very similar. However, for largermulti-business service organizations such as banks, all theselevels may need to be con-sidered.investment products), and the positioning of individualproducts and services within that sector. Two observations areworth making here. Firstly, that decisions relating to positioningof the organization and individual products should be clearlyrelated and have some logic between them. Secondly, those

brands can be created at either the product sector level or at theindividual product level.When we consider positioning of the product level we areusually concerned with the specific positioning for a targetmarket segment. When we are concerned with positioning atthe corporate level this usually, but not always, involves aconsideration of segmentation.

The Process of PositioningProduct positioning involves a number of steps including thefol-lowing:• Determining levels of positioning.• Identification of key attributes of importance to selected

segments.• Location of attributes on a positioning map.• Evaluating positioning options.• Implementing positioning.As explained in the previous chapter the process of productposition-ing has close linkages with market segmentation anddeveloping a marketing mix. Each step is now examined.

Determine Levels of PositioningWe have already described how positioning can be directed atthe product or service level, at ‘product sector’ levels, or at thecorporate level. The first step in positioning is to determinewhich level(s) are to receive explicit positioning attention. Someexamples will illustrate the choices that are made by someservice organizations. The level or levels of positioning to beundertaken are usually fairly clear cut, although some organiza-tions have placed different emphasis on these levels at differentpoints in time. For example, some British clearing banks arecurrently reemphasizing corporate positioning, rather thanproduct positioning. The Forte Group has recently decided toreposition Forte Crest, one of its hotel groups, as ‘the definitivehotel for business’. About the same time they repositionedForte Post-houses with a new lower room rate for the mid-market. Thus positioning for Forte is focusing on the productsector.American Express introduced its platinum card in the USA in1984 at a product level. It was positioned to appeal to very highnet worth individuals. This was a controversial move when itwas introduced. Industry experts queried the positioning of anew card that cost US$250 for the privilege of carrying around anew color of plastic. The 100 000 people signing up showedthis was a viable position. separate positioning undertaken forthe green card, gold card, and optima products with in the cardsproduct sector of American Express.Companies such as Club Med effectively position their organi-zation as a whole on the basis of ‘the Club Med experience’.Although they offer ~ a ‘product range in their winter and


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summer brochures, emphasis is very much on an organizationalpositioning basis.

Identification of AttributesOnce the level of positioning has been determined it isnecessary to identify the specific attributes that are important tothe chosen market segments. In particular, the way in whichpurchasing decisions are made should be considered. Individu-als use different criteria for making a purchase decision of aservice. The purpose for using the service may change the set ofcriteria, e.g. business insurance or personal insurance. Thetiming of the use of the service will also affect the choice ofservice (e.g. the choice of a restaurant will be different for anindividual if it is for a weekday lunch or a Saturday nightdinner).A consideration of the decision-making unit is also relevant.For example, the decision may also be affected by whether agroup or an individual will use the service, e.g. the amenities ofa hotel may be more important for a family than for anindividual. A hospital may be selected by either a patient or adoctor, with a different ranking of attributes being used in theselection process.Customers make choices between alternative services based onperceived differences between them. These may not be the mostimportant attributes of the service. An example of this is thefact that passengers using airlines rank ‘safety’ as the mostimportant feature. But many airlines have similar standards ofsafety, so passengers’ choice of airline will actually be based onother characteristics such as comfort, convenience of flight timesand standards of food and beverage. Thus research needs toidentify the salient attributes which determine the selection of aservice. This will form the basis of the positioning.First, research needs to be undertaken to identify the salientattributes and specific benefits required by the target marketsegment. A number of approaches can be used to identifysalient attributes which can then be used to develop a position-ing map. What is important here is the customer’s perceptionof the benefits that are delivered by these relevant attributes. Anexpress parcel service scoring high on the speed dimension isone that is perceived as fast. The reality is that other serviceproviders in the express parcel industry may provide a fasterservice but may be perceived as being slower.A range of analytical research techniques, most of themcomputer based, can be used to identify the salient attributes.These include perceptual mapping, factor analysis, discriminatefunction analysis, multiple correlation and regression analysis,and trade off and conjoint analysis. These tools are in theprovince of the market researcher, rather than the marketingmanager, so will not be discussed further here. However, thereader interested in a technical discussion can refer to articles byKeon and Wind which discuss their relative merits.

Location of Attributes on Positioning MapThe positioning process involves the identification of the mostimport-ant attributes and location of various companies’services, for these attributes, on a positioning map. Where arange of attributes are identified, statistical procedures exist forcombining these attributes into aggregate dimensions. Such

dimensions are referred to by various names such as principalcomponents, multi-dimensional scales, factors, etc., dependingupon how the data were elicited and which statistical procedureswere used. Usually two dimensions are used on position-ingmaps and these often account for a large proportion of the‘explanation’ of the customer’s preferences. For example, in apolitical marketing study, the analysis showed that two factorsaccounted for 86 per cent of the discrimination amongst 14political figures.Products or services are typically plotted on a two dimensionalpositioning map such as shown below:

Illustrative Positioning MapThe positioning map can be used to identify the position ofcompetitors’ services in relation to the selected attributes. Theanalysis can be further developed by drawing separate position-ing maps for each market segment. Custom-ers in each marketsegment may perceive the service and its benefits differently, anddifferent maps will show these different positions.With some positioning techniques respondents are requested toevaluate the relative similarity of different competitors’ services.The respondents are not told on which attributes to assess thesimilarity. Techniques such as multi-dimensional scaling canthen be used to produce a positioning map that reflects theperceived extent of psychological distance between them Thistechnique does not explicitly identify the axes used and theseneed to be inferred, or derived from further research. Often asecond group of respondents is used, to avoid possible bias, indetermining what characteristics they use to evaluate the servicesoffered. The positioning map can be used to identify potentialgaps in the market including where there is a demand but littlecompetition (if such a position exists). It should be noted thatthe existence of a vacant space in a positioning map does notnecessarily infer a viable positioning.Positioning maps can be based on either objective attributes orsubjective attributes. The positioning map used in a study ofUK national newspapers used objective variables of average age

ATTRIBUTE 1

§ ServiceA

§ Service B

§ Service C

1. ServiceD

§ ServiceE

§ Service F


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and average social class. Maps can also use a combination ofobjective and subjective attributes. A positioning study for; abank used a positioning which positioned three banks on anobjective dimension of ‘best interest rates on loans’ and asubjective attribute ‘friendly/courteous service’ .In addition to identifying where different companies’ productsare positioned on the map we are also concerned with where arethe areas of core demand. In some cases there is a clear area ofcore demand such as shown in Figure 5.6. This figure, based onan example from Cambell Pretty Associates, shows positionsof various occupations in the workforce based on two keyattributes: level of esteem associated with the occupation, andlevel of interest associated with the occupa-tion. In this examplethe area of core demand is clear - jobs which are relativelyinteresting and which have relatively high levels of esteemassociated with them. The research showed that the client, theAustralian Army Reserve, was positioned as an occupation offairly high interest, but low esteem. The positioning task, then,was to create a communications and advertising campaign toreposition it in the area of core demand.In other cases areas of core demand may not’ be so obvious,particularly where there are different groups with differentprefer-ences. Figure 5.7 shows a positioning study undertakenprior to the 1966 US presidential election and referred to above.A technique known as cluster analysis was used to identifygroups with similar interests. The analysis identified eightclusters (or market segments) plus a student group. In thisexample political candidates, Humphrey, Kennedy and Johnsoncould have increased their acceptability to these segments byrepositioning themselves by shifting perceptions of themselvesupwards and to the right, modifying their position. Note thatin this case ‘the product’, i.e. the politician, is probably un-changed but the perception of ‘the product’ could besignificantly altered by these politicians endorsing issuesassociated with’ conservatism’ and ‘reduced governmentinvolvement.

Evaluating Positioning OptionsRies and Trout have suggested three broad positioningoptions:• Strengthening current position against competitors: This

often involves avoiding head-on attack. For example, Aviscreated a classic positioning with its campaign’ A vis is onlyNo 2 in rent-a-cars, so why go with us? We try harder!’ Byacknowledging that Hertz was the largest company in the carrental business A vis presented a believable positioningproposition (we try harder), and also capitalized on people’snatural sympathies for the underdog. Thus they used theirnumber two position as an asset.

• Identifying an unoccupied market position: This strategyconsists of identifying a gap in the market that was not filledby a competitor. United Jersey Bank, a small bank in NewJersey, positioned itself as ‘the fast moving bank’. Incompeting against giant banks like Citibank and ChaseManhattan it attacked their weak point of being slower (or atleast perceived to be slower) in arranging loans and dealingwith their customers.

• Repositioning the competition: The Long Island TrustCompany was a small bank operating in Long Island - acommuter area fo~ New York City. The bank faced increasedcompetition from large New York City banks such asCitibank, Chemical Bank and Chase, who had become firmlyentrenched in Long Island following a new law whichpermitted unrestricted branch banking throughout NewYork State. Market research on six attributes showed thatLong island Trust was last on a list of six banks in terms ofperception of number-of branches, full range of -services,quality of service and large capital base. By repositioningLong Island as the ‘Long Island Bank for Long Islandresidents’ the bank improved its ranking on all .attributes.Following the campaign Long Island Trust was ranked firston the number of branches and large capital base, and fourthon full range of services and quality of service. Thisrepresented a significantly improved positioning for thebank.

Once a company had identified where it is positioned at present,it then needs to determine how to enhance or sustain itsposition rela8-ive to its competitors. Thomas Kosnik providesthe following examples of these key characteristics of successfulpositioning:• The positioning should be meaningful: Apple

Computers’ image of a young, free spirited Silicon Valleycompany out to change the world worked well in the homeand education markets, but has no relevance in theconservative corporate’ market. More recently Apple hasfocused marketing communication on the theme ofproblem solving for its customers.

• The positioning must be believable: Many companiesclaim to be all things to all people. For example, most of theBig Eight (now the Big Six) accounting firms claim to be ableto undertake any management consulting project. Can theydo an exceptional job on strategy consulting - compared tospecialists like McKinsey & Company, Bain & BCG - andhuman resources - compared to specialists like HayAssociates? Interestingly the largest and most successfulaccounting firm to enter consulting has been ArthurAndersen, which for many years has focused mainly on onespecific area - information systems.

• The positioning must be unique: Many companies in thecomputer industry claim they are unique by their leadershipin technology. This is seldom the case for anyone of thecomputer companies. Companies need to find a positioningwhere they can consistently outpace the competitors inserving a given market.

A wide range of approaches to differentiation are possible,twelve of which are shown in Table 5.3. Kosnik suggests thatthe following questions are relevant for considering which ofthese positioning alternatives is appropriate (they apply at eitherthe corporate or the business level):Which one of these positions most differentiates our companyor business unit?• Which position is held by each of our major competitors?• Which positions are of most value to each of our target

market segments?


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• Which positions are cluttered with lots of competitorsclaiming to hold the title?

Table 5.3 Alternative corporate positioning strategies

• Which are relatively free of competition?• Which corporate or business unit positions provide the best

fit with our company’s product and product line positioningstrategies?

Review Alternative Perspectives of PositioningThe preceding discussion has focused on positioning ofservices from the perspective of how the customer perceives thecompany. A range of other perspectives on positioning shouldbe taken into account inducing the following:• The company’s perception of itself.• The company’s perception of competitors.• Competitors’ perception of the company.• Competitors’ perception of themselves.• The customers’ perception of competitors.• Competitors’ perception of customers.• The customers’ perception of themselves.• The company’s perception of its customers.• The customers’ perception of the company.A company’s position is influenced by a group of competingcom-panies and their customers. The network of perceptionsbetween the company, its competitors and its customers isshown in Figure 5.8. These networks of perception canprofoundly influence how com-panies develop their marketingstrategies.

1. Market share leader 2. Quality leader 3. Service leader 4. Technology leader 5. Innovation leader 6. Flexibility 7. Relationship leader 8. Prestige leader 9. Knowledge leader 10. Global leader 11. Bargain leader 12. Value leader

The biggest The best/most reliable products and services The most responsive when customers have problems The first to develop new technology The most creative in applying it The most adaptable The most committed to the customer's success The most exclusive The best functional, industry or technical expertise The best positioned to service world markets The lowest price The best price performance

Company’ perception of itself

Competitor’s perception of

company Company’s perception of competitors Competitor’s

perception of company

Company

Company’s perception of customers

Customers’ perception of competitors Competitors’ perception of customers

Competitor’s Customers’ perception of themselves perception of themselves

Competitors Customers

Figure 5.8 Networks of perceptionsIt should be noted that companies often do not see themselvesas their customers or competitors see them. Table 5.4 providesan illustration of the Big Eight chartered accounting firms inthe late 1970s from the perspective of both how they seethemselves, and how their competitors see them. Companies’positioning changes over time, and the positions of thechartered accounting firms have changed following a number ofrecent mergers.Positioning at the corporate level is concerned with managingand communicating a differentiated position to enhance thevisibility and credibility of the company. Companies mustcontinually engage in a dialogue with their customers tosupport and enhance their position in the market.

Implementing Positioning and the Marketing MixHow a company and service is positioned needs to be commu-nicated throughout all of its implicit and explicit interactionswith customers. This suggests that all elements of the com-pany, its staff, policies and image, need to reflect a similar imagewhich together conveys theTable 5.4 Competition and self-perception of the Big Eightaccounting firms

Firm How they see themselves How competitors see them Peat, Marwick, Mitchell & Co. Coopers & Lybrand Price Waterhouse & Co. Arthur Andersen & Co. Deloitte Haskins & Sells Arthur Young & Co. Ernst & Ernst

Aggressive but not in an unprofessional way. We have the best people. Biggest weakness: too decentralized Tough. We work harder. We've got a winner's kind of feeling. Our real strength is in the management team The premier accounting firm. We are to accounting what sterling is to silver. Our clients are the cream Tough. Aggressive. We speak with one voice everywhere. Not well known outside the US Not as aggressive as most of the Big Eight. Technical leader in the profession. The auditor's auditor Tend to be less aggressive than others. Heavy emphasis on client service. We do not want to be the biggest A practical firm. Pragmatic. We put strong

Trying to recover from past problems with SEC. Very aggressive. Price cutter. Expanding scope of practice Has changed a lot. Most aggressive of the eight in hustling business. Price cutter Not very aggressive. Stuffy. Arrogant. Getting steamed up after losing some clients Aggressive. Likes publicity. First firm to emphasize growth. No room for individual thought Not very aggressive. Narrow in scope of services. Getting their act together. Strong auditors Not as aggressive as other Big Eight firms. Widely respected. Super professional Sleepy. Not growing fast except in certain industries. Not on the competitive edge. Loosest organization overseas


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Ernst & Ernst Touche Ross & Co.

Pragmatic. We put strong emphasis on quality service to our existing clients We want to be the best. We're not as big as we want to be. We're not price cutters, but we are price competitors

Very aggressive in hustling business. Enamored of size. Price cutter. Weak overseas

desired position to the marketplace. This means that a companymust establish a strategic positioning direction, which isfollowed through in all of its tactical marketing and salesactivities.This is not always the case, and there is often a conflict betweena desired position and that which is actually being conveyed.’For example, before the Lord King and Sir Colin Marshall era,British Airways promoted itself as a caring airline. However,customers experience did not match this position. The com-pany had to discon-tinue its advertising message ‘we care foryou’, and make major changes within the company. Thisincluded a major refocus on how the passenger was perceived byemployees. Staff had to actually care about the customer. Tosupport this, the airline itself had to demon-strate a caringattitude to its employees. The successful repositioning ofBritish Airways and its campaign Putting the Customer Firstwas dependent on a coordinated and integrated internal andexternal marketing strategy.A significant failure of a positioning strategy occurs when targetcustomer segments do not recall a service offering and theservice does not stand out from those of its competitors. Asuccessful positioning strategy should make the service clearlydistinguishable by features which are desirable and important tothe target customer segment. This means that the positioningstrategy should be examined from time to time to ensure that itdoes not become outdated and that it is still. relevant to thetarget market segment.The marketing mix is the key to implementing a positioningstrategy. The design of the marketing mix to implement thepositioning must be based on the key salient attributes relevantto the target segment. These attributes should be identified inthe context of analysis of competitors, whose positions shouldbe assessed to discover their vulnerability.The marketing mix elements represent almost unlimitedopportun-ities for positioning. As the next chapter is concernedwith the market mix we shall present here only a brief exampleof how each element can support the positioning of a servicefirm.• The service product: The product itself offers considerable

oppor-tunity to deliver the positioning. For example,Barclays’ Connect card helps position the bank as innovative.The card fulfils a wide number of roles: cheque guarantee,cash withdrawal, Visa usage debited directly to the currentcheque account, and a deposit card, to mention a few.

• Price: Retailers and hotel chains are examples oforganizations with a good understanding of the role ofprice, and associated quality, in positioning. The recent

repositioning of the various Forte Group hotel brands intodifferent price and quality offers is an example of this.

• Service: availability and location (place). Some banks areposition-ing themselves to be more accessible to thecustomer. This is achieved by use of technology - making ATMs widely available, as well as improved banking hours.

• Promotion: Promotion and positioning are inextricablybound together as it is the advertising and promotionalprogrammes which communicate positioning. Positioningthemes or ‘signatures’ such as the following can helpreinforce the desired positioning:

Morgan Guaranty, ‘the big bank of big business’;IBM, ‘fast, reliable service, every customer, everyday, every time’American Airlines, ‘we built an airline for the professionaltraveler’Midland Bank, ‘the listening bank’;British Rail, ‘we’re getting there’;Federal Express, ‘absolutely, positively overnight delivery’British Airways, ‘the world’s favorite airline’;Simsbury, ‘good food costs less at Simsbury’s• People: People are essential to delivery of positioning. For

Avis to deliver the ‘we try harder’ positioning they had toensure that every employee was actually trying harder to servethe customer, or was supporting someone who was servingthe customer. British Airways spent several years on Puttingthe Customer First, and related initiatives aimed at trainingand improving-people perform-ance, before it attempted tocommunicate the positioning as shown in the recentcustomer care TV commercials.

• Processes: Processes are essential to delivering the position.If large queues develop in a bank or supermarket, or anATM network ceases to function, no amount ofcommunication or well-inten-tioned people will overcomethe breakdown. Processes -are also fundamental torepositioning. Repositioning can be achieved throughstructural change in processes, involved changing (eitherincreasing or decreasing), complexity and divergence of theservice offer.

• Customer service: Customer service influences customers’percep-tions greatly. It can thus be used as a weapon to createcompetitive advantage that is not easily copied. Thisrepresents an important mean of creating differentiation inthe company’s positioning strategy.

Positioning thus guides the development of the marketingmix. All the elements of the marketing mix can be utilized toinfluence the customer’s perception and hence the positioningof the product or organization concerned. The marketing mixcan be used to develop a coherent totality that creates thepositioning in the customer’s mind.

The Importance of PositioningPositioning involves both launching new brands into themarketplace (new brand positioning), and repositioning oldbrands. It is concerned with the differentiation of products andservices and ensuring that they do not degenerate into a


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commodity. To maximize its potential a company shouldposition itself in its core market segments, where it is objec-tively or subjectively differentiated in a positive way overcompet-ing offerings.Positioning is particularly important for services in the marketof the 1990s. As a result of competitive pressure the consumeris becoming increasingly confused by the huge offering ofservices within each market sector. These offerings are commu-nicated by a vast number of advertising messages promotingdifferent features of the services. The key to a successfulpositioning strategy is to promote the feature which thecompany is best at and which exactly matches the needs of thecustomer.Because of intangibility and other features associated withservices, consumers find that differentiation of services can bemore difficult and complex. Successful positioning makes iteasier for the customer to see a company services as beingdifferent from others and exactly what is wanted.Positioning is a strategic marketing tool which allows managersto determine what their position is now, what they wish it to beand what actions are needed to attain it. It permits marketopportunities to be identified, by considering positions, whichare not met by competitors’ products. It therefore helpsinfluence both product development and the redesign ofexisting products. It also allows consideration of competitors’possible moves and responses so that appropriate action can betaken. The concept is often considered at the product levelalthough it is also relevant at the product sector and organiza-tional level. Positioning involves giving the target marketsegment the reason for buying your services and thus under-pins the whole marketing strategy. It also offers guidelines fordevelopment of a marketing mix with each element of the mixbeing consistent with the positioning.

TutorialsIn light of above, compare the competitive differentiation ofservices, in Airline industry. Explain the difference in position-ing of Indian airlines vis-à-vis Jet Airways


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LESSON 10:PRICING THE SERVICE

The Objective of this Lesson is to havean insight into• Key pricing concepts• Pricing issues for services• Organization’s objective and pricing• Framework for pricing decisions

IntroductionThe price is a key element of the marketing mix; it must beacceptable to target customers and it must reflect the othercomponents of the mix accurately. The price of the service is thevalue attached to it by the service provider and it must corre-spond with the customer’s perception of value. If the service ispriced at too high a level, customers who will not buy it will seeit as poor value for money. On the other hand, if the price istoo low, the service may be perceived as shoddy or inferior inquality.Many service providers offer a range of services at various pricelevels to meet the needs of different target segments who mayhave different levels of spending power. Airlines offer businessclass and economy class travel, for example, and theatres offerseat~ ate different prices according to the layout of the theatre,the view accorded by the seats and their relative proximity to theperformance. Both airlines and theatres also offer differentprices to customers buying the service at certain times, withlower prices being charged in the less busy, ‘off-peak’ periods.Many factors influence the price which is ultimately charged. Thetype of organisation, the structure of the market, the life cyclestage of the service and prices charged by the competition mayall have an impact on pricing decisions. Organizational objec-tives are also part of the pricing equation. If the service providerwants to position itself as offering a value-for-money, familyrestaurant, for example, the menu prices will be quite differentfrom those of an exclusive gourmet establishment. Sometimesservice providers, such as those in the public sector, haveconstraints imposed over the prices they can charge to custom-ers. This has an impact on other aspects of the marketing mix,as the elements are always linked interdependently. Theseaspects of pricing the service are explored in this chapter.

Key Pricing ConceptsThere are many alternative pricing concepts and techniquesavailable to market-ing organisations. As with all aspects ofmarketing concepts and tools, certain of these have morerelevance for service organisations than others. Rather like thepromotional tools which go to make up the promotional mix,many of these tools and concepts may be combined to create anoverall pricing strategy which is most effective for theorganisation over time.Other issues, such as organizational objectives, will impact onthe choices and decisions made with regard to pricing policy and

are covered later in this chapter. Initially, however, it is useful toconsider the various approaches to pricing policy and examplesof the way in which pricing is used as a marketing mix tool.Some of the most commonly used pricing concepts can bedescribed as follows:

Price SkimmingHere the supplier ‘skims the cream’ off the market by offering aproduct or service at a high price on a low volume basis. This isparticularly appropriate for new products in new marketsituations where a proportion of consumers are alwaysprepared to pay more for new, innovative goods. The priceskimming approach can help speed up the payback period.Frequently, the price reduces after a period as the productsbecome more popular and sales volume increases. Mobiletelephones are an example of this; the actual product (thetelephone) has reduced in price over time since initial introduc-tion to the market and the service (mobile communications)charges have also reduced, bringing the mobile phone withinreach of ordinary consumers.

Penetration PricingIn this case the price is set at a low level in order to attract highvolume sales, thus penetrating the market and gaining substan-tial market share. For new products and services the paybackperiod is lengthy but with the advantage of establishing astrong market position. The strategy is especially suitable for usewhen entering highly competitive markets, such as the fast foodrestaurant business in the UK, or international airlines. Newentrants would be unlikely to succeed by charging high prices;pricing would have to be attractive in comparison with thecompetition to penetrate the market.

Mixed PricingThis is based on the above two pricing strategies; begin with aprice skimming policy then reduce the price as competitors enterthe market to defend the organisation’s position and attract newcustomers. The example given previously of mobile communi-cations typifies this approach.

Cost-plus PricingHere pricing is based on the costs of producing the good orproviding the service. The total costs are computed then theprice determined by adding on some required margin or ‘markup’. This approach has a number of weaknesses in that itconsiders neither the competitive situation nor the marketpotential. Prices may be set too high against those of competi-tors to attract customers or may not be set high enough toexploit demand, especially if the product or service is innova-tive, new, or distinctive in some way from competitive offerings.

Variable PricingThis is particularly relevant in industrial and business-to-business markets where individual contracts are priced according


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to specification. Service provid-ers such as architects andconsultants quote a price according to the needs of the project.Tendering is a situation which generally reflects this approach.Some-times variable prices include some fixed element, such ashourly labour charges, but even these may be variable in linewith the complexity of the work.

Marginal PricingMarginal pricing is based on the concept of marginal cost and isparticularly relevant for service industries. The marginal cost is‘the cost of the last unit of output’ and may be very low. Forexample, a unit of output for an airline could be defined as afare paying passenger so the marginal cost of the last unit ofoutput one extra passenger on a plane will be very low incomparison with the overall costs of fuel, maintenance, staffingcosts and so on. It is probably equal to the cost of the meal anddrinks served on board. Therefore, when there is spare capacityon a passenger airline, empty seats which can be filled bypassengers paying vastly reduced ticket prices are preferable toempty seats.This is the principle behind ‘standby’ airfares whereseats are offered at the last minute for a fraction of the normalfare - anything over the marginal cost is a contribution to thecompany’s profits. Travellers arriving late at night can oftennegotiate reduced room rates in hotels, and holiday makersprepared to make a last minute reservation can book packagetours at heavily discounted prices. The perishable nature ofservices means that empty seats on a plane or vacant bedroomsin a hotel represent a business opportunity which is lost. Suchsurplus items cannot be set aside for an end-of-season salt7, forexample, so any tactics (using promotional tools as well asreduced prices) which can help to maximise take-up of theservice, thereby reducing any surplus, are extremely valuable.

Promotional PricingSales promotion techniques often use tactical pricing reductionsas a means of increasing sales over a short period. Discounts,special offers, vouchers, rebates and even ‘buy now pay later’schemes and interest-free credit are all examples of promotionalpricing. It is useful to aid penetration or as a seasonal tool(hence the end-of-season ‘sales’) but should be treated as ashort-term tactic, not a long-term measure. The overall effect ofa price war between suppliers competing with one another canbe to de-value the market.‘Loss leaders’ are another example of promotional pricing usedin retailing especially. A staple product is offered at a loss-making price to attract customers to the store where they will(hopefully) spend money on other products.

Differential PricingAnother form of promotional pricing of particular concern toservice marketers is differential pricing, where different prices arecharged for the same service at different times or to differentcustomers. This tactic is used to attract more business in slackperiods or to attract particular groups of customers to make updemand at particular times. Differential pricing may be seasonal,reflecting the different prices charged for the same holidays inlow-, mid- and high-season or by time period, hence the priceof rail fares in peak periods compared with off-peak periods.

Hairdressers or theatres might offer reduced prices to seniorcitizens or students on certain days or for certain shows, whendemand is likely to be low. In these circumstances, the differen-tial price charged may be based on marginal pricing,demonstrating again how more than one approach may becombined in creating the ideal pricing strategy for anorganisation.

Pricing Issues for ServicesThe overall pricing strategy will be influenced by theorganisations’ objectives but certain factors will impact on actualpricing decisions and the selection of appropriate pricingpolicies. The factors affecting pricing policy include the follow-ing:Costs of producing the service and breakeven analysis Competi-tor pricingDemand levels and elasticityRegulatory factorsMarketing mixPositioningBasic financial considerations need to underpin pricing decisionsif a service provider is to operate profitably or survive in thecompetitive environment. Most service organisations areconcerned with making a profit or, in the case of not-for-profitorganisations, charities or services in the public sector, coveringcosts and possibly raising funds. It could be argued that thereare exceptions; services which are heavily subsidized, such asmuseums, for example, but even subsidized services willgenerally seek to maximise possible sources of revenue andoperate in a cost effective manner.Some services which do not charge prices to the end consumeras a rule are, nevertheless, subject to pricing mechanisms withinlocal and national govern-ment. State schools and NationalHealth Service Hospitals are examples of these. Other servicesare constrained in their pricing policy because fees or prices arestandardized at national level, as with student fees which arestandardized to a large extent at UK universities.Many public sector services traditionally supplied by localauthorities such as refuse collection, school meals and janitorialservices are now open to tender and public sector serviceproviders are forced to compete for business against com-mercial service providers from the private sector. The costs ofproviding the service need to be analysed and prices set atcompetitive rates if the local authority is to continue to supplythe service. “In all the examples given, however, analysis ofwhat the service costs to produce and deliver and other costfactors is an important task.

Costs of Producing the Service and BreakevenAnalysisIn order to use costs as the basis for any formal pricingdecisions, it is necessary for service organisations to analyse allcosts accurately. Where organisations offer a range of services,the costs for each individual service must be assessed. There arethree main components which make up the costs of ‘providinga service: variable costs, fixed costs, overheads.


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Variable costs fluctuate in relation to the level of service output.They include the costs of materials and provisions, staffingcosts and other areas of expenditure such as advertising. Fixedcosts are those costs which do not generally alter in line with thevolume of output. They include the costs associated withbuildings, depreciation of vehicles and machinery, rates and localtaxes, for example. It is true to say that fixed costs may, in fact,change over time with increased levels of service output (e.g. ifanother branch of a restaurant is opened) but they do notfluctuate in the way that variable costs do. Overheads are thecosts attributable to management and administration withinthe organisation.Some costs may be shared costs which are allocated across thewhole range of services. The costs of premises and vehicles areexamples of costs which are likely to be shared but staffingcosts may also be shared across a range of services unless servicepersonnel are only involved in the production and delivery ofindividual service lines.Breakeven analysis is a basic tool which can be used to calculatethe minimum quantity of a service which must be sold in orderto cover the costs of producing and delivering that service; inother, words, to break even. Cost curves are plotted on a chart,then a revenue curve can be superimposed over them, thuscreating a graph which depicts the profit/loss picture for severalpossible cost-revenue situations at different levels of servicesales volume. The diagram illustratesbreakeven analysis.Breakeven analysis is of limited value in determining pricingpolicy as it is based on very simplistic assumptions about therelationship between costs, price and demand:No account is taken of price elasticity of demand in relation toactual revenue.The breakeven point is derived from a calculation rather thanfrom a forecast of the actual sales volume required to reachcertain levels of profitability.In reality, variable costs within service organisations do notnecessarily increase proportionately with levels of output andfixed costs /do not remain completely constant irrespective oflevels of output.As with many marketing concepts and tools, managers shouldnot rely on the breakeven concept in isolation in making pricingdecisions. It is important to understand the concept, however,and its value as a simple method of evaluating different pricingoptions, especially where forms of cost-based pricing are in-volved. It should always be used in conjunction with otherapproaches which take into account the structure of the market,the potential demand for the service and the competitivesituation.

Competitor PricingOrganisations need information about competitors’ prices inorder to make pricing decisions. This does not necessarily meanthat organisations are going to set prices at the same level, norto undercut competitors’ prices even, although tactical pricingbattles are often seen between rival organisations or brands. Theeffect of price cutting as anything ether than a short-term,promotional tactic designed to gain short-term competitive

advantage can be to de-value a market with the result that allcompeting organisations lose revenue eventually.Competition-orientated pricing (or ‘me too’ pricing as it issometimes known) occurs frequently in markets which are veryprice sensitive and where the core benefits sought are largelysimilar. Bank charges tend to be set at more or less the samelevel between the main banks and major airlines set their fares atcompet-itive levels to survive in the market. Organisationsoperating competition orientated pricing strategies will tend toattempt to influence consumer preference through otherelements of the marketing mix such as service quality.There may even be very valid reasons for choosing to set a priceconsiderably higher than the main competitors if the serviceoffered is of a much higher quality, or provides additionalbenefits. As stated previously, all marketing mix elements areinterdependently linked, and price determination will take intoaccount many factors besides competitor pricing. The key issue,however, is to analyse competitor pricing relative to theorganisation’s own pricing strategy and that of other competi-tors.It can also be difficult to determine who competitors are, ifindirect competi-tion is included as well as direct competitors. Arestaurant may compare its prices with those of other restau-rants and eating establishments in the locality but in reality thereare other choices available to prospective customers in terms ofhow they spend their leisure time and money. It may benecessary to consider how the price of a meal at the restaurantcompares with the price of an evening at the bowling alley or atrip to the local cinema or leisure centre.

Demand Levels and ElasticityThe level of demand for a particular service offering will be a keyinfluence on pricing decisions. Demand levels may vary for anumber of reasons: economic conditions and trends inconsumer spending . the stage in the life cycle of a serviceseasonal variations busier times of day - peak periods level ofmarketing and promotional effort degree of Substitutability ofthe product or service.The key task is to forecast levels of demand and potentialdemand, taking price into account. The demand for somegoods and services will go up ~d down in line with priceincreases and decreases, whereas the demand for other types ofgoods and services will remain more or less constant. Priceelasticity of demand represents a measure of how sensitivedemand is in relation to changes in price. Cigarettes, petrol,electricity and basic foodstuffs tend to have low elasticity whileluxury or non-essential goods and services will tend to be moreprice sensitive.

Regulatory FactorsRegulatory measures imposed by government and other bodieson many kinds of organisations affect pricing decisions and,ultimately, the price charged. In the services sector, UK publicutilities prices are monitored by consumer ‘watchdog’ bodies setup by national government, such as OFTEL which monitorsthe telecommunications suppliers. These watchdog bodiesbring pressure to bear on the service providers to supply at fairprices and to restrict price increases.


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Charities and not-for-profit organisations are frequently subjectto constraints laid down within the constitution of theorganisation, or set down by the board of trustees or othergoverning body regarding what they can charge for their services.Public sector services such as leisure centres and school mealsservices are also similarly constrained in their pricing decisions.Frequently such services are subsidized to some degree so theyare able to afford to operate at a level which might technically beloss-making.Other formal regulatory factors influencing prices in the UKinclude legisla-tion such as the Trade Descriptions Act and theConsumer Protection Act. Collusion between companies inprice setting is not allowed and the Monopolies and MergersCommission is established to prevent the creation of monopo-lies.

Marketing MixAs stated previously, the elements of the marketing mix areinterdependently linked. Each element must sit congruentlywith the others to make the whole marketing mix offeringcredible and attractive. Some possible influences of the price onthe other elements of the mix are as follows:Product/service offering: The price must reflect the value ofthe product accu-rately. Determining what value is associatedwith particular products or services is highly complex asperceived value is extremely subjective. What represents goodvalue to one customer may not do so to the next. Manyorganisations offer a range of offerings at varying price levels inorder to suit as many potential customers as possible. Offeringsmay vary in quality from the basic ‘budget’ range to a luxuryrange, at prices to reflect the different quality levels. Hotelsfrequently offer varying standards of accommodation across ~wide price scale. Other services may be offered at a discount forquantity or regular purchase.Promotion: Price mayor may not be a feature of promotion.Price sensitive goods and services often rely on attractingcustomers on the basis of price and will wish to communicatethis to all potential customers. Similarly, organisations offeringpromotional pricing such as special discounts or vouchers willinclude this in promotion. Whether price is specifically referredto in the promotional message or not, however, it shouldaccurately reflect the service quality and value to match custom-ers’ expectations. Price reductions and offers used in salespromotion represent a key part of the promotional mix.Place: Expensive products and services which can commandpremium prices will be distributed through selected channelswhich should reflect the quality and status of the offering.Location can also be closely linked to price. More expensive,exclusive professional services such as law firms and stockbro-kers are likely to be located in up market city centre offices.Consumers expect to pay more for these services than theywould for a similar service from a provincial practitioner.People: Service quality should, ideally, never be compromisedby price. Differ-ences in the level of service offered are, however,often clearly reflected in the price charged. More expensiveservices will often require higher levels of staff training and

more specialist knowledge on the part of individual membersof staff.Process and physical evidence: Physical evidence is importantin determining what constitutes ‘value for money’ in theservices sector. Facilities, decor and the physical environment inwhich the service exchange takes place (or is initiated) shouldreflect the price of the service. High street travel Agents offer acombina-tion of characteristics in respect of these marketingmix elements to attract customers; well trained staff in smartuniforms and pleasant, bright offices together with the latest incomputer technology for on-line booking and informationsystems.

PositioningThe idea of positioning relates to the way consumers perceiveand evaluate products and services. Specifically, it relates to theaway in which consumers rank the features and attributes of aservice against those of competing services. Consumers willperceive certain brands as being higher or lower in quality, forexample, or of being more OF less expensive than otherbrands.They will also differ in terms of how important price is withregard to a particular product or service. Different target groupsand segments will have different perceptions of price and somewill be more sensitive than others. Consumers often rely heavilyon price to make judgments about the quality of goods andservices when they have little other information. For thesereasons, it is critical for marketing managers to understanddifferent customer attitudes towards price and their perceptionsof quality in determining price levels.

Organisational Objectives and PricingPolicyMany organizational objectives can be closely linked to specificpricing strategies and will play a large part in determining thosestrategies. Examples include:Maximise current profitMaximise current revenueMaintain price leadershipSurvivalMaximise growthIn price sensitive markets, price will have to be set relatively lowto maximise revenue. To achieve maximum growth in sales,penetration pricing - where prices are sometimes set as low aspossible - will be used. However, there may be other organiza-tional objectives which are not so directly linked to price. Amuseum might have maximizing the number of visitors as itsprimary objective. Enhancing the image of the organisation,discouraging new competitors from entering markets andbuilding brand loyalty are all examples of organizationalobjectives which are in this category.It is important for organisations to make decisions about priceswhich are compatible with the organisation’s overall objectives.In services marketing, many organisations, especially in thecharity, not-for-profit and public sectors, the task of balancingdecisions about pricing and overall objectives is highly complexand may be subject to all kinds of non-business constraints.


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The import-ant task, however, is to be very clear and explicit inspecifying corporate objec-tives. These can then be analysed inthe light of possible pricing problems and decisions madeaccordingly.

A Framework for Pricing DecisionsPrices are not set once only; developing pricing policy should bea continuous process, always open to refinement and adjust-ment when the need arises. It is important to recognizeproblems which can arise from the failure or inadequacy ofsome pricing programmes so that steps can be taken to rectifythe situation. As with all aspects of marketing planning, pricingshould be monitored continuously and corrective actionimplemented quickly.There are a number of key stages in price decision making whichcan be identified as follows:Analyse organizational objectives in terms of pricing.Determine demand levels and customer characteristics.Analyse costs.Examine competitor pricing and positioning.Set prices utilizing pricing concepts, e.g. cost-plus.Monitor market response to prices set and identify problems.Organisations should always be ready to adapt pricing tovariable conditions in the market. Price should be used fully as amarketing tool- a key element within the marketing mix.

TutorialsIn light of above, Analyze the pricing differentiation of Cellularservices. Explain the Organisation’objectives ,pricing conceptsand issues of Airtel vis-à-vis Reliance.


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LESSON 11:PROMOTION AND COMMUNICATIONS IN SERVICES MARKETING

The Objective of this Lesson is to havean insight into• Introduction to promotion• Communication Process• Promotional Message• Campaigns in service marketing• Promotional mix• Media Choice• Managing Promotional Effort• Monitoring and Evaluation

IntroductionPromotion is used to communicate information about goodsand services to target market audiences thereby facilitating theexchange process. It is sometimes argued that effective market-ing - offering the right service at the right price in the rightlocations to meet target customers needs and wants - shouldnot require extensive promotional activity as the products orservices will ‘sell themselves’. There is an element of truth inthis, as the purpose of developing a finely tuned marketing mixis to match offerings and benefits very closely to the needs ofidentified target groups of customers. The result of this, intheory, is that custom-ers will favour one particular organisationover competitors and will actively seek their service offerings.However, in practice, it is difficult to imagine a situation wheresome element of promotion is not required to inform thecustomer of the organisation’s exis-tence or about the offeringitself, even if this is simply by word of mouth. Promotionplays an important role ht informing, educating, persuadingand reminding customers. This role is even more important inservices where there is a high degree of intangibility so there isno physical product or packaging to attract potential customers’attention.Additionally, effective communications are needed to informcustomers about their role in the service delivery process. Theyneed to know where automatic cash dispensers are located andhow they work, for example, or how to make reservations for arestaurant or a seat at the theatre. The highly compet-itivemarketplace for both commercial services and, increasingly,services in the not-for-profit and charitable sectors has led toadvertising playing a major role in services marketing today.This is, however, only one aspect of the promotion andcommunications process which is explored in this chapter.

Internal/External CommunicationsAll organisations need to communicate with their customers(both internal and external) at various times and for a variety ofreasons. Often, communications are also directed towards othergroups such as the organisation’s publics -local authorities,government bodies, shareholders, community and pressure

groups, for example. Communications can be viewed as thetransmission of information. Service organisations may need tocommunicate information for various purposes:

ExternallyTo inform the target markets about current and new serviceofferings and benefits to educate customers to persuade existingand potential customers to buy to remind customers about theservice and where it is available to publicize policy decisions, forexample about environmental issues to make public announce-ments.

InternallyTo inform employees about changes in the organisationt9 communicate plans and programmes effectivelyto keep all employees informed about company performance.to publicize incentive schemes and other eventsto inform and educate employees about new products andservices to disseminate marketing intelligence within theorganisationThe above lists illustrate a variety of reasons why organisationsneed to commu-nicate both internally and externally. Differentforms of communication will be used to meet the differentinformation needs of organisations and to find the mostappropriate means of transmitting the information effectively.Different forms of communication and promotional methodswill be reviewed later in this chapter, but it is necessary at thisstage to understand the communications process.

The Communications ProcessCentral to good communications is the need to be able totransmit messages accurately. This is not an easy task. There isso much room for misinterpretation or misunderstanding tooccur in. any communications situation. Even in per-sonal, face-to-face communications it can be difficult to convey precisefactual messages accurately. It can be imagined, therefore, thatthe difficulties involved in communicating a convincing,persuasive, unambiguous promotional message in a thirtysecond television advertising slot are immense.The communications processes is typically illustrated asconsisting of four main elements:The source (the sender): encodingThe message (which is subject to noise)The media selected to transmit the messageThe recipient: decoding

The SourceThe starting point is the source - the person or organisationsending the message. The source must have a very clear idea ofthe objective of the communication, i.e. what is the desiredoutcome of sending this message. If this is not clear at the


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outset then the communications process is already in danger ofbreaking down.

EncodingThe source encodes the message by putting it into words,supported by images and pictures which will enhance theeffectiveness of the message. Even simple direct communica-tions go through this process of encoding; the right wordshave to be chosen carefully to avoid any misunderstanding.Essentially, the encoding process translates the thought andobjectives of the sender into a message which will make senseto the intended recipient or audience.

The MessageThe message has now been encoded and may be in the form ofa letter, a spoken announcement or a television or radioadvertisement, for example. In reviewing the message, thesender must be certain that it accurately conveys what theyoriginally intended.

The Media Selected to Transmit the MessageUnless the message is going to be transmitted directly to therecipient, either face-to-face or by personal letter, for example,some form of media must be selected. The most appropriatemedium for getting this message across to the target audiencewill depend on several factors. The choice of medium itself canaffect the way the message is received and interpreted. Anannouncement about company policy may carry more weight ifit is published in the Financial Times rather than the News ofthe World. On the other hand, if the intended audience is morelikely to read a popular tabloid newspaper than the FinancialTimes, then this will dictate the choice of media.Noise The whole communications process is affected by noise.Noise, in this context, means anything which can detract fromthe message in any way by distracting the recipient. In the caseof television advertisements, for example, noise can occur in theform of other advertisements, family conversations, the optionof reading a book or a newspaper instead of watching televi-sion, and so on. Similarly, in newspaper .advertising, noisearises from exciting editorials, interesting photographs, otheradvertising offers or sports reports which compete for thereader’s attention. The reader may be introducing noise bylistening to the radio as well as reading the paper.Noise occurs in many ways, most of which are beyond thecontrol of the sender. Direct mail is increasingly used as a moredirect medium of communica-tion for organisations to use incontacting their target customers to avoid the noise associatedwith other media forms. The sheer volume of direct mail nowreceived by many consumers is in itself a form of noise,distracting the recipient from the intended message. For thisreason, in using different media, it is essential to make themessage as interesting or eye-catching as possible, in order toovercome such distractions.

DecodingDecoding is the act of interpreting the message and forming animpression of what it is intended to convey in the light of therecipient’s own understanding. Noise .can have an effect on themessage as not all the intended audience will pay full attentionto the message, and of those who do, each will place” their own

interpretation on its meaning. The more complex the message,the more likely it is that distortion will occur.

The RecipientThe receiver of the message can themselves affect the accuracy ofthe message. Their personal beliefs, attitudes and preconcep-tions will influence how they interpret the message. Theanti-nuclear campaigner is unlikely to be anything but scepticalof messages sent out by the nuclear industry to raise its publicimage. Other recipients may find such messages reassuring,however.Previous experience of the organisation will colour therecipient’s interpreta-tion of the message, as may culturalinfluences. Some famous advertising mis-takes have been in theinternational arena, where the use of particular colours orsymbols has led to rejection of the advertising (and the relevantproducts) because the connotations attached to those coloursand symbols have been unpleasant or made the advertisementsocially unacceptable.The communications process ends with some form offeedback. Sometimes this is direct feedback, as in a personalsales negotiation, for example, while at other times it may beharder and take longer to measure the effectiveness of thecommunication, by monitoring increases in sales, for instance,or responses to sales promotions. One-way communicationsare the most difficult to monitor, especially as marketingcommunications compete with so many other messages anddistractions in the crowded marketplace and there may be nodirect form of feedback.Ensuring the most effective communications for marketing andpromotion is a complex task. External communications form akey part of the promotional mix, and internal communicationsare vital for effective marketing management. Internal marketingprogrammes encourage good communications withinorganisations, and these are explored in Chapter 8, while thischapter explores communications within the promotional mix.

The Promotional MessageThe promotional message may be designed with one or moreaims in mind:to informto entertain to educateto persuadeto remindThe promotional objectives will dictate, to a large extent, thenature and form the promotional message takes and the typeof appeal used to get the message across. The promotionalobjectives will themselves be determined by a variety of factors:the competitive situationthe positioning of the brand or servicethe life cycle stage of the service offeringorganizational and marketing objectivesIn launching a new service, the initial objective will be to creategeneral awareness of the service, and the promotional messagewill be designed to inform consumers that it exists. Educating


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consumers in how to use the service and persuading them totry it, or participate in it, will follow. Once a service is estab-lished, promotional messages will serve to increase awareness orremind consumers about the service, and persuade newcustomers to purchase.A variety of different appeals will be used to present thepromotional message. The type of message and the mediachoice available will influence the nature of the appeal. The typesof appeal under consideration include:rational appealsemotional appealsfear appealshumour appealsThe appeal used is designed to evoke some kind of reaction, inline with the promotional objectives. A mixture of more thanone appeal may be used.

Rational AppealsSome messages need to be long and detailed and will contain aquantity of information to inform and educate customersabout the service offered. The content will be presented factuallyand logically and will often rely on explana-tions and compari-sons. Rational appeals are founded on the notion that,pre-sented with all the facts about a superior service offering,consumers will make a rational decision to buy. They depend onfairly detailed information and are therefore more suited tonewspaper and magazine advertising, although this type ofappeal is also used in other media promotions. Industrial andbusiness--to-business services often use this format in the tradeand other press, as do certain financial and other consumerservices.

Emotional AppealsBy using emotional appeals, advertisers attempt to provoke aresponse via emotions and feelings. Evidence suggests thatemotional appeals enhance mes-sages because they makeconsumers feel more involved with the advertisement. Emo-tional appeals using animals, children and families have beenused to sell everything from toilet rolls (the famous’ Andrex’puppy) to life insurance and airlines. In a highly competitivemarketplace, it may be difficult to differentiate a service usingrational appeals and so emotional appeals are used in cam-paigns. British Airways’ efforts to differentiate itself on serviceand friendliness and a promotional campaign positioning BAas ‘the world’s favorites airline’ have paid off, largely due to thesuccess of its promotional campaign internationally.

Fear AppealsMessages containing fear appeals are used by marketers toencourage customers to act in a particular way. The AutomobileAssociation has used the portrayal of dreaded situations -breaking down in the rush hour, or the lone female motoristbeing stranded in a remote area at night - to encourage peopleto become a member of its repair and rescue services. Fearappeals must not be too threatening and tend to work bestwhen they present a solution to the problem within themessage as in the Automobile Association campaigns men-tioned. American Express use a similar format to promote their

traveller’s cheque, emphasizing their quick replacement service inthe event of cheque being lost or stolen - the tourist’s night-mare.

Humour AppealsHumorous messages are used successfully in many advertisingcampaigns. They attract the audience’s interest and attentionmore effectively than serious mes-sages and can also have amood-enhancing effect, which makes the recipient moreresponsive to the message. Humour should not undermine theproduct or service’s image, or detract from the actual messageHumour has also been used successfully by the AutomobileAssociation in some of their campaigns and this may help toalleviate the perceptions of anxiety associated with their” serviceby customers, providing a balance between a service offeringwhich is perceived as unwanted but a necessary evil, to be usedin situations of dire necessity, and a service provider which iscaring and friendly.

Campaigns in Services MarketingPromotional messages of all types have been used successfullyin services marketing, with campaigns often using a combina-tion of appeals to get the message across.When First Direct launched their revolutionary direct bankingservice, the first promotional messages were designed to createawareness of the new service. The first of its kind, a bank withno branches where all transactions and services were accessibleby telephone, twenty-four hours a day, it used a provocativemessage - ‘banking without branches. it’s extraordinary.’ - with atelephone number and pictures of household objects unrelatedto banking. The message had a humorous quirky appeal whichserved to arouse consumers’ curiosity; the message in-formedthem that there was a radically new service being launched, but itdid not attempt to explain the concept or educate the consumerabout it in the advertisement because research had shown that itwas simply too different for consumers to grasp quickly.Customers responding to the advertisement by telephone werethen sold the new concept and its benefits in a personal, one-to-one situation.In the services sector, promotional campaigns are undertaken bycommercial organisations such as British Telecom’s campaign -‘it’s good to talk’ - designed to remind consumers about theservice and prompt increased usage. A celebrity delivering themessage in a confidential, personal manner developed an emo-tional aspect to the appeal, while information on the low costof calls at particular times presented a rational message.McDonalds’ ‘we’ve got time for you’ mes-sage emphasizedtheir customer service through warmth and a strong emotionalappeal, using young children and family images to attractcustomers. Commercial organisations use virtually all media toget their message across.Increasingly, promotion and advertising playa key role in themarketing strategy- of not-for-profit and charitable serviceorganisations. The National Canine Defence League’s message, Ia dog is for life, not just for Christmas’ has been well knownsince it was first used in the early 1980s, and is another exampleof an emotional appeal.


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Public sector organisations use promotion to keep importantissues in the -public mind. The Health Education Authority’slong-running AIDS awareness campaign has been the recipientof an award from the Institute of Practitioners in Advertising(IPA), as has the Health Education Board for Scotland’s ‘Smokeline’ campaign, designed to help people give up smoking withthe line ‘You can do it. We can help.’ Both of these have used amix of appeals, including fear (showing- the harrowing effectsof AIDS or smoking-related illness) and rational appeals withininformative and educational messages. Government campaignsbased on similar mix of appeals are widespread and serve toinform and educate the public about road safety, fire preventionand against drink-driving, for example.

The Promotional MixThe basic elements which serve to achieve organizationalcommunications ob-jectives form the promotional mix. Thisessentially brings together the various promotional tools usedin the marketing programme in a coordinated and. controlledway. The elements which make up the promotional mix are:AdvertisingPersonal sellingPublicity/PRSales promotionThe promotional mix will be adjusted according to theorganisation’s promo-tional objectives and its marketingsituation. Generally, however, in consumer services marketing,advertising will be by far the main component (and the mostexpensive) while in industrial and business-to-business sectorsgreater reliance is placed on personal selling, trade fairs and otherpromotional tools.

AdvertisingAdvertising is paid-for publicity, transmitted through a widevariety of media. The media space and time must be bought(although this is sometimes provided by the media for certaincharitable or public information announcements) with thetarget audience in mind. In this way, advertising is distinctive inthat the advertiser has control over what is to be said and whenand how it is to be transmitted, by which means. This is incontrast to PR, for example, which aims to attract favorablepublicity or editorial comment, for example, neither of whichcan be guaranteed.All advertising is however subject to fairly strict controls andeven govern-ment legislation, especially television advertising.‘Legal, decent, honest, truthful’ is the slogan of the advertisingindustry’s watchdog, the Advertising Standards Authority.Consumers are invited to write in if any adverts do not standup to this code, or are offensive or misleading. Advertisementsmay have to be withdrawn or modified if the Authority findsthat complaints are justified or rules are being breached. TheIndependent Broadcasting Authority also monitors advertisingvery dosely and regulates what can be presented and at whattime of day.There are a number of advantages to using advertising overother forms of media:Control (as discussed earlier)

Mass communicationCost-effectiveSupports other elements of the marketing mixCan be highly effective in creating strong brand image andappealAdvertising is non-personal and involves mass media commu-nication of mes-sages to large numbers of people at the sametime. Although company advertis-ing expenditures can be veryhigh, especially in the case of consumer goods and services, thecost of reaching vast numbers of people is often far cheaperthan other promotional means. Where there is little tangibledifference between service providers and service offerings withina particular market sector, adver-tising can playa fundamentalrole in differentiation and positioning. Advertising is anextremely powerful tool for developing a strong brand ororganizational image. It can be used to create awareness, andstimulate demand, and can successfully underpin the othermarketing mix elements.There are some disadvantages associated with advertising,however:High development costsRising costs of media space and airtimeLack of immediate feedbackProblems concerned with credibilityLow attention focus of audienceThe costs of developing and producing an effective advertise-ment can be very high, especially for television advertising.Advertisers are also dependent on the availability of suitablemedia and have to meet increasing prices for the best media.The majority of advertisements do not attract direct feedback sothere are difficulties in monitoring the effectiveness of a poster.campaign, television commercial or newspaper advertisement.Advertising may also lack credibility with consumers who donot perceive it as genuine and are skeptical about claims made.Additionally, consumers fre-quently pay little attention toadvertising, screening out those in which they have no specialinterest. ‘Information overload’ arises when consumers arebom-barded by too much information from advertisers andother sources and they tend to switch off and quickly becomeunreceptive. This reinforces the import-ance of getting the rightmessage across, in a way which will be well received and which isnot at risk of being misinterpreted or misunderstood.

Personal SellingPersonal selling takes many forms but consists of the sellerengaging in some kind of personal contact with the customeror potential customer in order to persuade them to make apurchase (or become a member of a club, or to enroll at acollege or become a regular donor to a charity, for example). Itdiffers from advertising in that there is this personal contact,either face-to-face or by tele-phone, usually. There is an inbuiltelement of flexibility in personal selling because the salespersoncan judge the customer’s responses to the message as thecontact takes place and modify it accordingly.


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Personal selling can be used to get far more information acrossthan an advertisement can do, and is used very widely inindustrial selling where complex specifications and technicaldetails need to be discussed. It is also widely used in thefinancial services sector for similar reasons, in that both thecustomer and seller need to ask many questions and providesubstantial amounts of information for the right serviceoffering to be specified. Personal selling has other advantages inthat it can be aimed at specific target markets and prospects andalso provides more direct feedback than other promotionalmethods.There are some disadvantages associated with personal selling.There is a very high cost per contact (when compared withadvertising and other ,promotional methods) and setting upand training a sales force represents a significant investment forthe organisation. Some organisations have developed a verynegative image with the public for unethical practices usinghigh-pressure sales - techniques - timeshare holiday companieshave attracted masses of criticism in recent years, as have someareas of the financial services sector - with the result thatconsumers tend to regard all salespeople with suspicion anddistrust.Telephone selling has also become widespread and, while it hasa very useful role to play when the consumer has already showninterest, by responding to an advertisement for example, it isoften done on a ‘cold call’ basis and is seen as irritating andintrusive by the consumer.

Publicity IPRPublicity refers to communications about organisations,products or services, which is not paid for or sponsored by theorganisation in question. Often it takes the form of newsreports and announcements. Not all publicity is good publicity,as organisations find to their cost sometimes. Whenever thereare health or safety scares over a particular type of product,dramatic media coverage will ensure that consumers find outabout it. Organisations will then attempt to restore good publicrelations through the use and application of PR tools. Theseinclude:Publicity through the mediaInvolvement in social and community initiativesSponsorship of eventsPublic announcements and special publicationsCorporate brochures and other publicity materialOne of the main advantages afforded by publicity as opposedto paid-for advertising is enhanced credibility with audiences.Editorial features attract more attention generally than advertise-ments and are perceived as being more genuine and impartial. Acompany whose latest technological advance is fea-tured on thefamous ‘Tomorrow/s World’ television series benefits from thekind of attention which would be both costly and difficult toachieve through advertising alone.This impartiality also leads to a major disadvantage, however,which is lack of control over what is said, how it is presentedand at what time, for example. PR managers will plan anddistribute information on a systematic basis to try to ensure

that the organisation is presented in the best possible light. PRhas traditionally been viewed as playing a supporting role in thepromotional mix, underpinning activities such as advertisingand sales promotion, but it is gaining wider attention andrecognition as a communications tool in its own right.

Sales PromotionSales promotion consists of all those activities which can helpto stimulate purchase of goods and services. Sales promotionactivities can be aimed at the end consumer or at intermediariesin the channel, sometimes referred to as ‘out of the pipeline’and ‘into the pipeline’ promotions respectively. Sales promo-tion tools include:Free samplesMoney-off coupons and special offers.CompetitionsPoint-of-sale displays‘Free’ gifts and other incentivesSales promotions playa useful role in helping to stimulate trialof new products, and maintaining interest in establishedbrands. Many financial service providers offer free gifts of smallelectrical appliances, gift items and even weekend breaks tocustomers who take out life insurance and savings plans.Competitions are used by many types of organisation to attractnew customers and keep existing ones - the free prize draw forbig money prizes being a popular approach.Sales promotions should be regarded as tactical methods ofstimulating sales over a period whilst a particular promotion isrunning. They should not be used to replace other elements ofthe promotional mix as their effects are temporary nature andwill not have longer-term impact on the consumer.Trade fairs and exhibitions can be viewed as a form of salespromotion when they are used, like the Ideal Home Exhibi-tion, to introduce products and services to consumers andstimulate demand. Trade fairs can also be treated as publicity fororganisations in situations where appearances at trade exhibi-tions are seen as a tool for corporate image building rather thanas a selling toot as is often the case in industrial market sectors.

Media Choice and SelectionOne of the key tasks facing promotional management is theselection of appro-priate media for advertising and other formsof communication. The choice of media available for transmit-ting the message to the target audience is immense - in the UKalone there are hundreds of regional newspapers and consumermagazines and some sixty Independent Local Radio stations tochoose from apart from the national daily papers and regionaland national television stations. The choice of media will bedetermined by a number of factors including:The available budgetTarget audience factorsLevel of coverage requiredExposure and frequencyCost effectivenessDesired impact


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The amount of money available to finance a campaign may ruleout the use of certain expensive media forms such as televisionand national press. The choice of available media will always begoverned by budgetary considerations. The target audienceprofile may also rule out certain types of media or indicateclearly which might be most appropriate. Magazines useindependent market research organisations to provide reader-ship audits”- detailed information about the number of readersfrequently incorporating geo-demographic and other data aboutthe profile of the readers. This information is a crucial sellingtool for publishers trying to sell advertising space and is alsovery helpful to advertisers wishing to buy space in the mostappropriate publication to reach their target audience.It is unlikely, however, that one particular communicationsvehicle, such as a magazine, will reach all members of theorganisation’s target market. The level of coverage required tocommunicate the message to as many customers and potentialcustomers will also be a key factor in media selection. Severaldifferent media will probably be used in order to maximise thelevel of coverage in communicating with the whole of the targetaudience.Audiences need to be exposed to an advertising message severaltimes for that message to be remembered. This level offrequency - the possible number of times any individual isexposed to the communications message - is another factorwhich governs the choice of appropriate media. If individualsideally need to see a television advertisement six times for it tobe effective, the actual number of times it must be transmittedwill be far greater to allow for different viewing habits amongthe target audience and to ensure everyone has at least six OTS(‘opportunities to see’).Advertising media will also be looked at in terms of cost-effectiveness before a decision is made. The number of peoplethe message reaches will differ according to which medium isused, and the costs of using each media vary dramatically. Forthis reason, advertisers calculate the average CPT (‘cost perthousand’) to estimate the relative cost-effectiveness of differentmedia.The desired level of impact must also be considered. The CPTof outdoor poster advertising is only a tiny fraction of the CPTof cinema advertising, but the impact of transmitting anadvertisement to an attentive audience sitting comfortably in acinema is far higher than the impact of poster advertising topassengers and drivers in rush hour traffic.The success of the advertising campaign will depend on theselection of the right combination of media to maximisecoverage and frequency cost effectively and within the requiredbudget. The available media will include:TelevisionNewspapersMagazinesCinemaRadioOutdoor

Each medium has distinct advantages and disadvantages. Mediaplanning and buying has become a specialized managementfunction and media planners are also responsible for schedulingthe timing of the campaign. Advertising is the element of thepromotional mix most likely to be passed to outside experts -advertising agencies and media buying services, for example. Itssuccess depends on a mix of creativity and careful planning andscheduling in order to communicate the right message via themost effective media.

Managing the Promotional EffortThe development of an effective promotional campaigninvolves combining the promotional mix elements in the mostappropriate way to meet the organisation’s communicationsobjectives. Promotional management is con-cerned with thistask of coordinating and implementing promotional pro-grammes, integrated within organizational marketingprogrammes. Controlling the promotional programme andevaluating its overall effectiveness are also key parts of thepromotional manager’s task.There are essentially three stages in promotional management:Developing the promotional mixAssigning the promotional budgetMonitoring and evaluationIn developing the promotional mix, advertising campaigns,publicity and PR, sales promotion and personal selling must becombated to create a compre-hensive promotional programme.Interestingly, in many organisations, manage-ment of the salesforce is treated quite separately from promotional management,and the promotional mix is not fully integrated. Organisationswhich seek a marketing orientation should ensure that promo-tional elements are treated as a cohesive whole, and themanagement roles and tasks structured accordingly.The task of allocating the promotional budget most effectivelycan also be difficult, usually because the level of fundingavailable never seems enough. In designing the most appropri-ate promotional mix, therefore, promotional managementmust include detailed castings of each proposed part of thepromo-tional plan, to ensure that plans stay within budget andthat the budget is allocated for maximum effectiveness.Many factors will influence the design of the promotional mix:The nature of the organisationThe service offeringService life cycle stageType of markets the organisation is operating inCustomer characteristics .Buyer behaviour and decision processesChannels of distributionThe main differences often lie between consumer markets andindustrial mar-kets. Organisations such as banks and packagetour operators seek to attract as many customers as possiblefrom a broad spectrum of the population. They are likely tochoose mass advertising via television, radio and the nationalpress as their primary means of communicating with largenumbers of customers. In consumer goods marketing; the


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sales force Often plays a key role in selling to the channelintermediaries. With expensive goods and services, such as cars,furni-ture, holidays and insurance, the role of the salesperson atthe point of sale is also crucial.Industrial organisations tend to deal with far fewer customersas they are dealing with other companies, not the general public.They will select personal selling and sales promotion throughtrade fairs and exhibitions, supported by limited advertising inspecialist journals and trade publications. Personal selling ismost suitable for industrial products and services where thesupplier often acts as consultant and has extensive contact withthe client over long periods. Adver-tising is likely to be used topromote the organisation and build a strong corporate image.It may also be used to generate awareness of the organisationand its services and stimulate sales enquiries.Organisations can develop quite distinctive promotionalstrategies which become part of that organisation’s differentia-tion in the marketplace. Communi-cations programmes areclearly identifiable with a particular organisation’s image, orcertain types of products. Successful promotional programmes,how-ever, will only be developed as a result of an integratedmarketing programme and clearly defined marketing andcommunications objectives.

Monitoring and EvaluationThe final stage in the promotional management process is thatof monitoring and evaluating the programme. In order to dothis effectively, controls must be built into the plan to enable itseffectiveness to be measured. This control stage is an essentialpart of all planning. It serves a number of purposes in relationto the promotional plan and helps to determine the following:Are communications objectives being met?Has the target audience received the message?Have they received the right message?Are budgets being adhered to?There are several ways of evaluating the results of communica-tions but there are many difficulties associated with measuringeffectiveness - it might be impossi-ble to say how much anorganisation’s image has been enhanced in .one individual’sperception as a result of a particular advertising or PR campaignbecause perception is highly subjective. Some communicationsare designed to elicit some action response, however. Prompt-ing trial purchase of a new product or buying a product to enjoythe opportunity to participate in a competition are examples ofthis, and are obviously easier to measure in terms of salesvolume and level of demand. Evaluation methods include:Marketing research - awareness testing: This is typicallycarried out before and after the campaign to assess whetherawareness of the organisation or service has increased followingthe promotion.Direct response: Many advertisements, sales promotions andexhibitions are designed to elicit orders and. response cantherefore be measured by the number of responses received andorders placed.Point-of-sale monitoring: Developments such as EPOS(electronic point of sale) have made it possible to monitor the

success of in-store promotions, for example, while they areactually taking place. Measuring sales response to special offerswhich have been advertised, such as a special McDonalds mealoffer, is another important way of measuring results and alsoillustrates the way that promotional methods are oftencombined.The central focus of evaluation methods must be the promo-tional objectives. How well has the campaign met theseobjectives? How can the campaign’s success be quantified?Weaknesses and failings of the campaign must also be clearlyidentified and tackled, withdrawing the promotion if necessary.The monitoring and evaluation system must feed results andinformation back into the planning cycle to help decision-making later.

TutorialsIn light of above, discuss the Promotional mix and MediaChoice for insurance sector.Explain the concepts w.r.t ICICI vis-à-vis LIC.


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LESSON 12:CASE STUDY ON PROMOTIONS-IN SERVICE INDUSTRY

McDonald’s marks another milestone in its leadership market-ing efforts today with the announcement of a new marketingrelationship with Sony Connect to launch an unprecedentedmulti-national restaurant promotion for customers.McDonald’s Big Mac Meal Tracks offers every customer whopurchases a Big Mac Extra Value Meal® at participatingMcDonald’s restaurants an access code worth one free songdownload at the Connect™ music store, which is accessible viawww.connect.com.McDonald’s Big Mac Meal Tracks promotion launches June 8 inthe United States, Puerto Rico and Canada. Sony Europe andMcDonald’s will launch the promotion in France, Germany andthe United Kingdom in early July. It is expected to roll out toadditional McDonald’s countries throughout the year as plansare finalized. During the initial launch, McDonald’s anticipatesproviding millions of customer downloads, making this oneof the largest music promotions of its kind.”Our partnership with Sony Connect on this very exciting andrelevant music event continues our commitment to surprisingand delighting customers with fun and unique restaurantexperiences,” said Larry Light, McDonald’s Executive VicePresident and Global Chief Marketing Officer. “Music contin-ues to be at the forefront of our leadership marketing strategy.As the first to take a program like this across borders to sixcountries, we are achieving our goal of creating ideas that are‘first, big, best’ in music, fashion, entertainment and sports,areas of high interest to our customers.”McDonald’s Big Mac Meal Tracks promotion will run betweensix and ten weeks in the six participating countries. In the U.S.,Puerto Rico, Canada and the UK, customers purchasing a BigMac Extra Value Meal® during this time period will receive aunique access code printed on the Big Mac sandwich carton.Customers will redeem their free access code for a song of theirchoice at the Connect music store, offered by Sony Connect Inc.in North America and by Sony Europe in Germany, France andthe UK. The Connect music store is accessible via Connect.com,Connect.com/canada or Connect-Europe.com. In Germany,customers will receive a card with the access code with thepurchase of a Big Mac Value Meal or Big Mac Maxi Value Meal.In compliance with French law, McDonald’s France will run asweepstakes for Big Mac customers with music downloads asprizes.The Big Mac Meal Tracks program is part of McDonald’sworldwide Big Mac celebration, taking place in all McDonald’scountries in June and July.”Big Mac Meal Tracks is not only McDonald’s first multi-national music promotion, it is the first time that a musicprogram of this scale is being offered to consumers in multiplecountries around the world,” said Dean Barrett, McDonald’sSenior Vice President, Global Brand Business. “Only

McDonald’s, with our unequaled restaurant presence in 119countries, and Sony Connect, with its technical knowledge andexpertise, could make this happen.”McDonald’s will aggressively support the Big Mac Meal Tracksprogram. This includes a new global television commercial byLeo Burnett featuring high-tech special effects and a cameoappearance by superstar Justin Timberlake. It will air in the U.S.,Puerto Rico and Canada beginning June 7, with other countriesto follow. Radio advertising, in-store merchandising and specialBig Mac packaging will further promote the program.”We are delighted to be partnering with McDonald’s on thisinnovative promotion, which will introduce millions ofMcDonald’s consumers throughout North America andEurope to Sony’s new Connect music store, which features theirfavorite artists and music,” said Jay Samit, General Manager,Sony Connect Inc. “This campaign by McDonald’s will promotelegal downloads, which is beneficial both to the entertainmentindustry and music fans around the world.””McDonald’s and Sony are both strong consumer brandsglobally, and we look forward to exploring more opportunitiesin other areas in the future,” added Light.Sony Connect Inc., based in Santa Monica, California, is asubsidiary of Sony Corporation of America. Sony Connectcurrently offers consumers hundreds of thousands of musictracks from major label and independent artists, as well as theability to enjoy that content on a wide range of digital musicdevices that are priced to suit any lifestyle.Connect Europe is based in Berlin and operated by SonyNetwork Services Europe, a division of Sony UK Ltd. Theservice will be launched later this month and will offer consum-ers hundreds of thousands of music tracks from major labeland independent artists, as well as the ability to enjoy thatcontent on a wide range of digital music devices that are pricedto suit any lifestyle.McDonald’s is the world’s leading food service retailer withmore than 30,000 local McDonald’s restaurants serving 47million customers each day in more than 100 countries. Morethan 70 percent of McDonald’s restaurants around the worldare owned and operated by independent, local businessmen andwomen.With reference to the above, Explain the significance ofPromotions in service industry


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LESSON 13:SERVICES DISTRIBUTION PLANNING

The Objective of this Lesson is to havean insight into• Importance of Service distribution planning• Key factors in Decision of Service Location• Key factors in Decision of Direct distribution• Channel Functions• Channel selection

IntroductionMost producers of physical goods do not sell directly to theirend consumers in today’s market. They can make choices aboutwhere to produce the goods, based on lower labour costs andother considerations, together with decisions about whichmarkets to sell the goods in and how to get the goods to theconsumers. The inseparable nature of services means that sucha range of choice is not open to service providers. In manyinstances, the quality and value associated with a service aredependent on the interaction between the service provider andthe consumer at the point of exchange.Consumers of services actually participate in the service deliveryprocess and the method chosen by the service provider forservice delivery will form part of the service itself. Whether theexchange is based on hi-tech automatic means or traditionalpersonal service, the methods used will influence the outcomeof the exchange and customer satisfaction levels.Distribution, or the ‘place’ element, of the marketing mix isconcerned chiefly with two main issues: accessibility andavailability. As shown above, the insep-arable nature of servicesmeans that services must be accessible to customers andpotential customers in order for exchanges to take place.Accessibility must be a component of the actual service offeringfor it to have value-: Additionally, the - perishable nature ofservices means it is essential for the service to be available tocustomers - in the right place at the right time. The servicecannot be stored until a later date; it must be available forconsumption at the point of production. This chapter reviewsthe factors which service marketers need to take into account indetermining a distribution strategy. The role of channelintermediaries is also discussed, together with channel manage-ment issues.

Accessibility and AvailabilityServices must be both accessible and available to customers andpotential cus-tomers in order for an exchange to take place andfor the value of the service to be realized:Accessibility: refers to the ease and convenience with which aservice can be purchased, used or received. -Availability: refers to the extent to which a service is obtainableor capable of being purchased, used or received.Both criteria must be met in order to achieve successful servicesmarketing. This can be illustrated by the following examples:

The UK National Lottery, launched in 1994, was designed to beeasily acces-sible to all eligible players throughout the UK. Entryforms were simple to complete and could be bought via anetwork of retail outlets such as grocery stores and newsagents.However, when the lottery was actually launched, many of thechosen outlets either had not got the correct computer networkinstalled or it failed to work correctly, rendering the serviceunavailable. In urban areas it was not too difficult for customersto find alternative outlets but some rural areas with just onedesignated lottery ticket seller were left with no means ofentering. Despite the very high entry numbers recorded in thefirst week, significant adverse publicity resulted from dissatisfiedwould-be entrants and custom was lost.Many Government benefits which were, in theory; accessibleand available to all eligible claimants were not being taken up byall potential payees. People were put off by the lengthy pro-cesses involved and their fear of having to deal with complexform filling. Sometimes they simply didnot know what kindsof benefits they were entitled to because of confusion over thedifferent names given such as Family Credit, which some peoplethought was in fact a loan service rather than a benefit payment.In effect, the service was inaccessible for them. This led to thesimplification of many of the procedures and the re-organiza-tion of the various departments responsible for dealing withclaims to make the whole process much more accessible.

LocationThese criteria - accessibility and availability - must be givenpriority in all decisions about services distribution. In thissection the idea of ‘place’ will be considered in terms of thelocation and time of the service delivery. This needs to beconsidered before any decisions regarding the use and selectionof channels of distribution (reviewed in the next section) can bemade.There are several key factors to be considered in decisions aboutservice location:Service inseparabilityPerish abilityThe role of the consumer as co-producer of the serviceCustomer needs and wantsImportance of geographical location as part of the serviceTarget markets

Service InseparabilitySome services are more inseparable than others; a hairdresserhas to perform a service on a person-to-person basis withclients whereas credit card customers are happy to be able to usethe credit card for cash or payments at vast numbers oflocations without direct contact with the credit card company oneach occasion.

UNIT IIIDESIGNING SERVICES


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The degree of direct access to the central service providerrequired will influence channel decisions. Many services are nowprovided using telephone contact and other forms of telecom-munications and direct marketing:First Direct provide a complete telephone banking service as”Direct Line does for insurance. Neither operation has actualbranch offices on the high street; all contact is remote.Direct mail is used to promote the services offered by manyservice or-ganisations and service exchanges can frequently becarried out by mail, such as applying for a loan or responding toa charity appeal.NWS Bank offers loan services by post or telephone with loancheques being delivered direct to customers’ homes by courierservice within hours of the loan being approved.Some of these developments reflect moves on the part ofservice providers to reduce the degree of service inseparabilitythereby increasing flexibility and reducing costs of providing theservice. Additionally, the benefits to the consumer are frequentlygreater:The convenience and ease with which credit cards can be used atlocations worldwide without direct contact with the cardprovider,The advantages of dealing with a bank which is open outsidenormal trading hours and which is accessible from any tele-phone.

PerishabilityThis is another area where service marketing differs quitedistinctly from the marketing of physical goods. A key functiontraditionally performed by channel members is to holdinventory - stocks o f physical goods held in ware houses foronward transportation to markets or, in the case of retailing, forexample, stocks on the shelves for local customers to buy.Services cannot be stored in this way, so intermediary’s playadifferent role .in facilitating the service exchange and often formpart of the service production and delivery process.

The Role of the Consumer as Co-producer of theServiceThe role of intermediaries in the production and delivery of aservice has already been noted but there is another vital issue tobe considered - the role of the consumer. Many services requireextensive interaction on the part of the con-sumer in order forthe service to have any value; the audience must go to thetheatre, the customer must study the menu and place an orderto eat at a restaurant. Customer needs must therefore be givenpriority when making decisions about when and where theservice will be available. Theatrical perfor-mances given in themornings might be highly accomplished but would be of littlevalue if there were nobody watching.

Customer Needs and WantsAs stated, customer needs are a key factor influencing decisionsabout services distribution. These are likely to differ betweenvarious customer segments using the same services andbetween different types of service offering:

Some customers may be willing to collect their own take-awaymeals while others will always choose an outlet which offersdelivery.Elderly or housebound persons may require home visits fromdoctors or chiropodists and will be the main consumers ofspecific home-based services such as ‘meals on wheels’ andhome helps.Some consun1ers may rate ‘convenience’ as the key benefitsought in selecting a service whereas others may seek exclusivity.The latter group will be prepared to travel and put more effortinto their participation in the service delivery by, for example,being prepared to queue to get into the best nightclub or tomake a reservation weeks or months in advance for seats at theopera or a table at a gourmet restaurant.Bank customers may be willing to visit their local branch toconduct day-to-day transactions but may prefer a bank represen-tative to visit them at home to discuss life insurance, pensionsor mortgages.Buyer behaviour and the factors influencing service choicebetween different target segments are essential considerations inlocation decisions.The importance of geographical location as part of the serviceAgain, service providers frequently have very different criteria toconsider here from those affecting manufacturers of physicalgoods. Manufacturers may choose to produce the goods at alocation convenient for cheap labour or natural resources andthen ship the products to the target markets for consumption:Apart from the inseparable nature of services making thislargely infeasible as, discussed previously, many services aredependent on geographical location as part of the service.Examples include:Tourist destinationsHealth spas (when located at real sources of spa water)Historic or geographic attractions such as Buckingham Palace orthe Grand Canyon.In these cases, the idea of ‘place’ is largely pre-determined andthe key task for marketing managers is to manage the otherelements of the mix in such a way asto get the maximum number-of visitors/customers to travel tothe service.Some services, such as those examples given above, do attractcustomers who are prepared to travel for the service. The sameapplies to services such as specialist medical treatment oreducation and training where the patient or student may travellong distances to consume the service. The importance ofgeographical location must be looked at in the light of theneeds and wants of different customer segments, as discussedin the preceding section.Some service providers need to travel to their customers,however. Electrical appliance repairs, decorating, plumbing andmaintenance services frequently have to be carried out at thecustomer’s home or business premises. Other services need tobe available locally as customers will not be willing to travel longdistances for them, especially if there is strong competition


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nearby. Tyre repairs and garage services, banks, hairdressers andtake-away food outlets are all typical examples.

Target MarketsLocation decisions are influenced by all the factors outlinedabove. The key criteria, however, is to make the service accessibleand available to all target market segments. Service providers canchoose where to locate their service outlets, or where to providetheir service in order to maximise their market opportunities, inall cases except those where to service is location specific (touristdestinations and historic site for example). Factors influencingsuch decisions include:Market size and structure by geographical regionLocation of potentially attractive consumer segmentsOrganisational objectivesLevel of market coverage desiredNumber and type of competitors in regionLocal infrastructure; good road access, facilities, public transportnetworkDistribution methodThe distribution methods selected will have an impact onlocation decisions:First Direct offers an innovative telephone banking service to allits consumers throughout the UK with no branch offices andall transactions conducted by telephone. The service is madeavailable to customers via a twenty-four-hour telephone line,staffed by highly trained customer service personnel. In order tomake the service accessible, however, this type of distributionstrategy relies on widespread promotion to attract and informpotential customers, rather than local branches.

Direct DistributionFor reasons already highlighted, many service organisationschoose direct dis-tribution methods which do not use outsideagents or intermediaries. The inseparable nature of services andthe role of the service provider in the service delivery processmake this a desirable option for the sake of quality andcust9mer care. Quality standards may be difficult to maintainthrough a third party and the spirit or ethos of the serviceprovider can be lost so that the customer does not benefit fullyfrom the service exchange.For direct distribution to be a feasible option, certain consider-ations must be taken into account. The practical issuesinfluencing decisions to undertake direct distribution includethe following factors:Company resources/company objectivesType of serviceGeographic spread of the marketLegal and political restrictions on foreign operationsLevels of technical expertise or skill required to deliver theservice satisfactorily Customer preferencesCompany resources: The structure and size of the serviceorganisation will influence the choice of distribution strategy,and this may change over time. As organisations expand, theymay choose to continue to serve each of their custom-ers

directly and invest in additional personnel and premisesaccordingly. The organisation’s objectives will also influence thedistribution method selected. If the main objective is fastgrowth, then establishing a network of intermediaries may bethe preferred alternative.Type of service: Perhaps the most relevant distinction here isthat of people -based services and equipment-based services.Equipment-based services such as car rental, vending machinesand dry cleaning do not involve such a high degree of personalinvolvement in the delivery of the service. Such services may bewell suited to being operated through a network of agents, andfrequently are. People-based services, however, which involvehigh levels of personal expertise or understanding, Or whichrequire very close contact with customers, tend to be much moresuited to direct distribution.Geographic spread of the market: Locally-based serviceorganisations operat-ing in a limited area will probably be wellplaced to serve all their customers directly. Coverage of a widermarket area will require further investment in setting upbranches or the development of a network of intermediaries.Again the type of service and the organisation’s objectives andresources will also be key factors. In some situations, it isappropriate for the service provider to travel to the customer’slocation, even overseas. Expertise-based services such asarchitects and consultants frequently operate in this way.Legal and political restrictions on foreign operations: Insome foreign markets, restrictions apply to local investment andthe setting up of overseas branches, in some cases actuallyprohibiting such activity. The only alternative may be to operatethrough local channels, making direct distribution impossible.Further discussion of these issues can be found in Chapter 23.Levels of technical skill or expertise required to deliverthe service satisfacto-rily: People-based services, or otherservices which require a relatively high degree of technical skill orexpertise for satisfactory delivery, are better suited to directdistribution. The costs of training channel members andmonitoring quality need to be assessed against the cost ofsetting up branches to serve target markets. Some serviceintermediaries do provide personnel with the right skills andknowledge, however, especially in sectors traditionally served byagents or intermediaries; such as travel agents or insurancebrokers.Customer preferences: The needs and wants of the customersmust be considered in planning a distribution strategy. Differ-ent customer segments will exhibit varying buying habits, forexample, which may influence their choice of service provider.For example, customers who are loyal to a particular bank orbuilding society may be happy to consult them about all theirfinancial service require-ments. Other customers may prefer toshop around and look for a better deal by contacting indepen-dent financial advisors who act as agents or brokers for anumber of financial service providers.There are advantages for the service organization operatingdirect distribution methods. These include:Greater control


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Customer service and satisfaction levels can be more easilymonitored, as can service qualityManagement has direct control over all aspects of operationsInternal and external communications can be handled moreeffectivelyCloser involvement with customersDirect contact with customers can allow databases to beestablished and used for target marketingGreater confidentiality can be maintainedCommission costs and other fees are avoided.Some of these advantages are far more important to certaintypes of service organisations than others. Banks and accoun-tants, for example, do need detailed knowledge of theircustomers and have to maintain confidentiality. It is not soimportant for fast food restaurants or bus service operators tohave such detailed information.

Channel FunctionsThe role and functions of channel intermediaries in servicesmarketing varies somewhat from that of the marketing ofphysical goods. Some comparisons can be drawn by looking atthe functions traditionally associated with channel members:Storage and warehousing: This is obviously not applicabledue to the perishable nature of services.Breaking bulk: This again relates to taking quantities ofphysical goods so does not apply.Delivery/transport: Intermediaries would undoubtedly playarole in the service delivery process but not in the context ofdelivering physical goods from stockAfter-sales service: This is frequently linked to the marketingof physical goods although is also applicable to services;whenever dissatisfaction occurs, in fact. Price settingIn the sale of physical goods, each channel member will haveapplied some ‘mark up’ to the price of the goods and has,usually, some flexibility in deciding what to charge and whetherto offer discounts. In services marketing, channels tend to bemuch shorter with either direct distribution or the use of onelevel of intermediaries being common.Agents may make a charge for providing the service, as is thecase with banks cashing travelers cheques, or theatre bookingagencies.Alternatively, the agent may be paid a commission by the serviceor-ganisation, as with travel agents and insurance brokers(which will be incorporated into the price paid by end consum-ers) but will not them-selves have any control over price setting.Prices published in travel brochures and charged for insurancepremiums will tend to be set by the central service provider.The degree to which intermediaries are involved in price settingwill depend on the nature of the service and the distributionmethod (agent or franchisee, for example). Intermediaries willgenerally have less control over setting prices than is the casewith physical goods.Promotion: Here the role-played by local agents and distribu-tors will be similar in both services marketing and themarketing of physical goods, especially in international market-

ing. This promotion may be as simple as displaying a ‘Visa’ signfor information to planning complex campaigns.Personal selling: This is likely to be of greater importance inservices marketing because of the key role played by the serviceprovider (whether that be the actual organisation or an agentacting on its behalf) in the service delivery process. The ability ofan intermediary’s personnel to interact satisfactorily withcustomers in facilitating the service exchange is a key consider-ation in selecting and managing channels.

Channel SelectionWhilst it has been established that services organisations willnot necessarily use channels in the same way as manufacturersof physical products, various types of intermediaries are used inmany service situations. Care must be taken when selectingintermediaries or channel members. Their direct contact with theultimate user of the service means that they can influence levelsof quality and customer satisfaction. This is a more complexissue in services marketing because of the role of the serviceprovider in the service delivery process and is the main concernof channel management in services marketing.Factors which influence the selection of channel membersinclude the stand-ing of prospective intermediaries, their image,personnel and location. Channel members should be of soundfinancial standing and reflect the quality and image of the serviceoffered. They need to have the appropriate facilities, resourcesand personnel to be able to deliver the service effectively. Thespecial characteristics of services have led to certain types ofchannel being commonly used, while others, such as wholesal-ers and retailers, are not applicable in most circumstances.There are two main groups of channel intermediaries, whichmay be selected:Agents and brokersFranchise operators

Agents and BrokersMany services are offered via networks of agents or brokers.The agents often provide a chain of offices throughout variouslocations and provide relevant facilities and expertise. Develop-ments in technology mean that it is very easy for serviceorganisations to maintain very close contact with agents via on-line computer systems as well as telephone contact. Agents mayhave specialist local knowledge which can enhance the perfor-mance of the service in a particular market. The level of servicethey provide varies according to the nature of the serviceoffered. Basic service transactions such as encashment oftravelers’ cheques may be all that is required, as opposed tomore complex services such as financial advice.

Franchise OperatorsFranchising involves the sale of a ‘successful business formulato an external buyer or franchisee who runs the operation in aspecified location. The franchiser can benefit from this approachin several ways:Low cost expansion: Expansion, often on a wide scale, can beundertaken with little capital investment as the requiredinvestment comes from the franchisees when they buy in to theoperation.


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Rapid growth: Franchising offers a means of establishingoutlets’ in many locations quickly, providing the franchise issuccessful and attracts investors. This is a vital factor in acompetitive marketplace.Local management expertise/personnel: As individualbusiness entrepreneurs in their own right, franchisees canprovide excellent management coverage without massive centraltraining and recruitment costs. The franchisers do not need toincrease staff numbers in order to gain widespread expansion aslocal staff will be employed by the franchisee as part of thebusiness.Similarly, the franchisee benefits from the arrangement in severalways:Reduced risk Buying into an established business fonnula witha well recognised organisation and brand name is less risky thanstarting up from scratch. .Business support The franchisee will benefit from servicesoffered by the franchisor in staff training, for example, and theprovision of business materials, technical and legal support andongoing development.Franchising is not without its drawbacks, however. A pooroperation run by a franchisee will carry the organisation’s nameand reputation down with it. Some controls have to be built into ensure franchisees do work to pre-determined qualitystandards and follow organisational policy. The .franchisormakes less profit through this system of distribution than theywould make through direct expan-sion but this potential losscan be outweighed by the benefits of franchise growth.Franchisees can find that the promised profits do notmaterialise and become demotivated and let the business slide.Some may even have been the victims of the kind of unscrupu-lous trading practices which have been exposed from time totime. This can have the effect of creating a negative image offranchise operations which can deter would-be investors frombuying genuine, well-run franchises. The success of franchisinghas been outstanding, however, with many household namesin service industries being run on this basis. Dyno-rod draincleaning services, Rentokil pest control and Prontaprintbusiness printing and reprographic services are successful andwell known examples.

Tutorials1. Why is the distribution method particularly important in

services marketing?2. What criteria must be met with regard to distribution? Why

is this so?3. Outline the main factors which must be considered when

making decisions about location.4. Give examples of services which are wholly dependent upon

geographical location together with examples of some whichare not.

5. Why is direct distribution frequently the most logical choicefor services marketing?

6. Describe the traditional functions of channel intermediaries’and comment on their applicability to services marketing.

7. Which two main types of intermediary tend to be mostcommonly selected in services marketing?

Discussion1. What market trends are likely to affect ‘place’ decisions for

services marketers in the future?2. A number of organisations have opted for direct

distribution methods in fields where this has been acomplete break with tradition (e.g. First Direct bankingservices). Could this be an appropriate route for other typesof service? Suggest other innovative approaches suitable forconsideration in relation to services.


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LESSON 14:CASE STUDY ON SERVICE DISTRIBUTION PLANNING

Unit Trust of India: StrengtheningInvestor Relations through a Web-enabled Portal

The CustomerUTI - India’s largest mutual fund - stresses on launchinginnovative schemes to encompass all sections of society andcater to its various needs. Over the past 35 years, UTI hasevolved and grown into a leading financial institution withinvested funds of Rs. 72,698 crores under 88 schemes and over45 million unit holding accounts. The challengeOver 20 millioninvestors, 88 schemes and 45 million unit holding accountscreate gargantuan customer relationship issues for this govern-ment-held mutual fund and asset management trust.UTI todayhas to contend with a number of fleet-footed, agile mutualfund companies that have entered the field following theopening up of the financial services market in the country. Inthe past five years, with these global, private sector companies asa benchmark, UTI had fallen way behind in terms of absoluteservice rendered to customers. In its efforts to present a newface to investors, UTI identified the need to improve its brandimage and streamline its investor relations function. UTIdiscovered that the fastest route to reaching out to the scattered,20 million-strong investor base was to leverage the web. UTIpartnered with Wipro Infotech to achieve this complex task ofbuilding a customer-facing Internet portal.The solutionThechallenge was to build a unified solution that could handle thecomplexity of all the schemes and disseminate informationseamlessly. The Wipro team recommended the Divine contentmanagement solution (earlier called Open Market) since UTI’scontent management and personalization requirementswarranted the development of customized tools and interfaceswith legacy systems. The content management utilizes Divine’sContent Server (on which other modules are built), ContentCenter (a browser based application that enables users to create,manage, manipulate and deliver content) and PersonalizationCenter (that enables UTI to implement sophisticatedpersonalization).Wipro also helped put together the productionand staging environments for the Internet portal. Anotherintegral component of the solution, where Wipro played acrucial role, was in the integration of the portal with UTI’sgeneric software system, built on Tuxedo middleware. Theconnectivity to the Tuxedo based back-end application wasessential to ensure seamless and updated information availabil-ity and this integration required Enterprise ApplicationIntegration skills on Tuxedo.

The BenefitsUsers within UTI as well as the investing public have alreadystarted experiencing the difference. Typical investor queries thatused to bog down the UTI staff, are today handled in a routine,automated manner. The new system has lowered overheads,and produced a timely flow of information between investors

and UTI. The end-to-end integration and automation ofroutine operations and query handling brings great relief to thefront-office staff. This seamless flow of information has helpedimprove UTI’s customer responsiveness and the increased userfriendliness of the site which has seen an increase in the numberof hits from 30,000 -40,000 a month to 35,000-40,000 aday.The customer-facing portal is all set to boost UTI’s imageand launch it into the world of agile financial services compa-nies that have been discerning enough to leverage processautomation and the Internet to enhance business efficiencyWith reference to the above, Explain the significance of servicedistribution planning through web, in service industry.


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LESSON 15:PEOPLE - THE FIFTH ‘P’

The Objective of this Lesson is to havean insight into• Importance of Employees in service marketing• Role of employees in service marketing• Staff selection and recruitment• Training and Development• HRM Issues

IntroductionIn today’s competitive environment, organisations in allindustries have been forced to realise the importance ofcustomer care and its key role in strategy. Nowhere is this morevital than in services marketing. Consumers are becomingincreasingly sophisticated in terms of their expectations andmake far higher demands of those organisations who servethem. Quality is judged by standards of service and the role ofthe employee in service organisations is critical in maintainingquality standards.The inseparable nature of services means that the humanelement forms an intrinsic part of the service package. In somesituations it is the service package, while sometimes it accompa-nies the more tangible elements which comprise the serviceoffering.‘People’ as the fifth element in the services marketing mixapplies not only to service personnel, but also recognizes therole that other people - the customers - play in service delivery.Sometimes the role of the customer is an important part of theservice itself, as in education, for example, where the studentsmust follow the learning programme or in car hire where the,benefit - transportation - can only be achieved through thecustomer’s driving. In many services like this, participation ofsome kind is essential to derive the service benefits.Management of people within the organisation is a key task.The organisation’s staff are its prime resource, and humanresources management is the professional approach to findingand developing the right people. Central to successful servicedelivery is management of the customer/provider interface.Employees need to understand their role in the service ex-change, and human resources management provides theprogrammes and strategies to ensure the highest standards ofcustomer care.

The Role of the Employee in ServicesMarketingThe role of the employee in services marketing varies accordingto the situation and the level of interaction. Frequently thisdepends on the degree of tangibility of a service. The level ofcontact can be determined by classifying the service according towhether it is a labour-intensive (people-based) service or anequipment-based service, as follows:

High ContactPeople-based services:Education, dental and medical care, restaurantsLOW ContactEquipment-based services:Automatic car wash, launderette, vending machine, cinemaAdditionally, people-based services can be further brokendown in terms of the expertise and skills of the serviceprovider:ProfessionalMedical and legal services, accountancy, tutoringNon-professionalBabysitting, care taking, casual labourThis illustrates the variety which exists in the roles of people inservice provision. These different roles may be grouped into thefollowing broad categories:Primary - where the service is actually carried out by the serviceprovider, e.g. dentists, hairdressers.Facilitating - where employees facilitate the service transactionand participate in it, e.g. bank counter staff, waiters, hotelporters.Ancillary - where the employee helps to create the serviceexchange but then is not part of it, e.g. travel agents, insurancebrokers, equipment hire.Frequently, the overall service offering will be made up of acombination of the roles described. The dentist will performthe actual primary service, but a receptionist may arrangeappointments and send out reminders. The restaurant staffs aredependent on the chefs and kitchen staff, if they are to be ableto perform the service. For every employee in a bank who haspersonal contact with customers, there may be a number ofadministrative staff behind the scenes. The important issue isthat customer care is everyone’s concern throughout theorganisation. Successful service provision is dependent oninterpersonal ex-changes, between the provider and thecustomer, and between service personnel.Customer perceptions of quality are frequently influenceddirectly by the actions of service personnel. Levels of satisfac-tion or dissatisfaction can be governed by the way in whichpersonnel deal with the specific needs and requests of custom-ers; by the steps taken by service personnel in the event thatsome aspect of the service goes wrong; and by service whichgoes beyond the customer’s expectations, usually by thepersonal actions of an individual employee.This important role played by employees in serviceorganisations (or other people working for services, such asvolunteers or members) is critical to long-term success. The


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image of a service organisation is often indistinguishable fromthat of its employees. For this reason staff selection andtraining take high priority in service management.

Staff Selection and RecruitmentAs the value of staff rates so highly in service organisations,careful recruitment of the right kind of personnel is animportant step. Internal marketing, as described in Chapter 8,recognises that employees and potential employees are custom-ers of the organisation’s internal market and their needs andwants should be considered in the same light as those ofexternal clients. Marketing activities should be aimed at theseinternal markets in the same way as when marketing to externalclients.Organisations seeking to attract excellent service personnel canconsider using the same tools and techniques that they use toattract customers. Recruitment should not be left solely to thehuman resources management function but should be seen as apowerful tool in itself for enhancing and maintaining theorganisation’s standing and image. The human resourcesmanagement function can support advise and guide linemanagement in this area. Programmes designed to generateinterest in the organisation, through sponsorship and PR, forexample, can also be used to attract the people who share theorganisation’s ideals and standards. While many sources ofinformation exist detailing approaches and techniques forrecruitment, the basic steps are as follows:Preliminary stageIdentification of vacancy (may be a new post or replacement0.Develop job profile - review job description and personspecification. The person specification can be adapted to placeemphasis on customer and service orientation, a desirable oreven essential quality for all jobs.Consider internal sourcesConsider using specialist recruitment agencyAdvertise - internally and externallyProcess applicationsScreen applications for shortlistSelection stageArranging interviews; venue, timing, dateDetermine process for selection; formal/informal interviewsuse of pre-selection test, presentationsConducting interviewsTestingOffer / AcceptanceFormal appointmentFollow-up stageInductionTrainingOngoing staff development and appraisal.Requirements for the JobService employees frequently have significant personal contactwith customers and responsibility for satisfactory service

delivery lies on the individual’s shoul-ders. Conflicting demandsfrom customers and management over time spent on personalservice versus efficiency and productivity, for example, may needcareful handling. Coping skills, manner and demeanor will all bekey factors in a candidate’s ability to do the job, as well as theirtechnical skills and qualifications. First Direct telephone banking,for example, look for empathy and ability to listen and commu-nicate in their prospective employees, not just bankingexperience.Basic requirements should be identified as a starting point andmay include:Qualifications / technical knowledgeAbility, specialist skills and aptitudeExperiencePersonality and personal attributesPhysical characteristicsRecruitment issues in the service sectorCertain services have special aspects, which may impact onrecruitment. The so-called ‘caring professions’ are an example.Many caring services operate in traditionally low-paid sectors soa sense of vocation and commitment may be desirable personalattributes. Charities have sometimes experienced difficulties inattracting experienced managerial staff as applicants are sensitiveto the moral issues involved in receiving high salaries fromcharitable bodies. To recruit appropriately qualified personnel,however, in, say, accountancy and marketing management,charities have to offer competitive salaries.Some services obviously require staff with certain qualifications,such as teachers and lawyers. The degree of specializationrequired will govern the potential marketplace for recruits. In asituation where demand for certain skills outstrips supply,which sometimes occurs, or in highly specialized areas, adifferent approach to recruitment may need to be found, suchas in-service training for potential applicants, to bring them tothe required standard.The rate of legislative changes, for example, affectingorganisations in the public sector brought about by compulsorycompetitive tendering, privatisation and the introduction of aquality culture geared to customer care has led to differentpersonnel requirements. Such organisations are having tocompete more and more in the external marketplace, not just interms of maintaining their services against competing privateservice prov1’ders, but also in recruitment. They are oftenhampered or constrained in their strategy by existing practiceswhich may be outdated or inappropriate and other influencesincluding:Traditional low rates of PayCutbacksTightly structured pay scalesConditions of service.

Training and DevelopmentTraining is needed on more than one level; at its basic level itmay be needed to impart knowledge about a particular aspect ofthe organisation or job; at a broader level, it gives focus and


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direction for the future to employees and also plays a communi-cations role within the organisation. The training opportunitiesoffered by an organisation may be influential in attracting andretaining person-nel. Additionally, it can help create personal jobsatisfaction and can overcome difficulties associated with change,for example when introducing new technol-ogies. Essentiallythere are three stages in managing the training of the humanresources - the staff - of the organisation. These are:Identification of training needs: Define training objectives,develop measures for evaluating training and decide oncontent/ scope.Implementation of training programmes: Design trainingmethods, materials and facilities, coordinate trainingprogramme and trainees.Evaluation of training effectiveness: Measure outcomes,compare performance - adjust and refine future trainingaccordingly.Staff development takes training a stage further. It should beongoing, and form an integral part of the employee’s progress,incorporating areas such as the following:Functional training: specific job skills, technical skillsPersonal development: assertiveness training, study for formalqualifications Organisational development (cross-func-tional): quality initiatives, customer care programmes, corporatemission awarenessAppraisal systems: incorporating both employee and employerfeedbackTraining can be carried out in any number of ways. Workshops,team briefings, formal presentations and structuredprogrammes are commonly used, together with work shadow-ing, job exchange schemes and project management. Differentmodes of training are more suited to different training anddevelopment needs; a formal presentation followed by hands-on practical exercises might be most useful for the introductionof a computer software package, while workshops are moreappropriate for situations where participants are encouraged todiscuss issues and make suggestions. Induction training isdesigned to help new employees understand the or-ganisationand their role within it. This is a key area, especially in serviceorganisations where a customer orientation is essential. ‘Theseprogrammes introduce new employees to the culture of theorganisation, emphasise the standards required and highlightcompany values at an early stage. It may be implemented instages over a period, or take place as an intensive programmeover one or more days.If a new initiative is< launched, such as Total Quality Manage-ment (TQM), training will be an essential part ofcommunicating the new policy to all employ-ees. The task ofdesigning and implementing training and developmentprogrammes lies with Human Resources Management eventhough the commit-ment and initiation of such programmesmust be led by top management and involve all line manage-ment and employees.

Human Resources Management IssuesWhen the people in an organisation represent its most valuableasset, then the task of looking after those people is equally

important as financial, operations or marketing management.The managers who look after the people within an organisationmay be grouped under the headings: personnel, industrialrelations, or training and development. They are all concernedwith human resources management. Typically, the responsibili-ties of human resources managers include the following:Recruitment and selectionTraining and developmentSetting up new modes of operation, e.g. quality circlesManagement of changeTeam briefings, communications strategiesStaff suggestion schemesInternal communicationsAdministration (pensions, insurance)Appraisal schemesPay structuresStaff development and supportTrade Union liaisonConditions of serviceDiscipline and grievance proceduresTermination issues (redundancy, ill-health) CapabilityAdditionally, human resources management plays a very centralrole within an organisation. If the human resource task is to behandled effectively, managers need:A thorough understanding of the needs of the directors,managers and employees throughout the organizationClear identification with organizational goals and objectivesUnderstanding of the needs and wants of external customersClose co-operation with other functional managers.In practical terms, there are a number of ways in which thesewide-ranging aspects of human resources management can betranslated into effective strategies for service organisations. Acustomer orientation must be at the forefront of all policies,with customer care heading the agenda. An audit of humanresources management activity can be undertaken and continu-ously updated to ensure programmes and procedures areimplemented in line with organisational and employee needs.An action plan can be designed along the following lines:

Organisational ObjectivesEffective transmission of organisational objectives to allemployees/members of the organisa tion.Providing opportunities for en1ployees to participate indeveloping organizational objectives.Ensuring that all employees understand how performanceagainst objectives is measured, and their role in achievingsuccess.

RecruitmentDeveloping programmes for successful recruitment.Building and promoting the organisation’s image.Conducting recruitment in a fair and professional way, in linewith the guidelines contained in the code of conduct of theInstitute of Personnel Development, for example.


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Efficient response and follow-up procedures.

InductionEstablishment of effective induction programmesManaging ongoing induction with feedback

Appraisal and ReviewClearly defined job descriptions and person specifications andobjectives. Development of competency profiles for specificjobs.Ensuring employees and managers share common understand-ing of the appraisal process.Providing appraisal training for all line managers and othersrequired to undertake performance review activities.

Training and DevelopmentIdentification of training needs.Development and implementation of training programmes.Integration between training and other functions.Support for individual staff development.Management development programmes.Evaluation.

Pay Structure and BenefitsEstablishment of salary structure and reviews.Reward systems for competence/ qualifications/performance.Provision and communication of benefits packages, pensions.CommunicationsInternal marketing.Publication of staff magazine and other internal communica-tions.Ensuring that staff are always kept informed and in touch,allowing for feedback fron1 staff.Transmission of new ideas and initiatives.

QualityLiaison with functional managers on quality initiatives.Involvement in implementing programmes for quality.Communicating to employees the nature of responsibility forquality; instilling ownership for quality issues.The above list contains suggestions for human resourcesmanagement; the actual task will differ between organisations.Sometimes training and information programmes may need tobe extended beyond the organisation’s employees, to sub-contractors for instance. Nynex, the cable communicationsmultinational, has suffered adverse publicity in the UK wheninstallation work has damaged gas mains or created excessivedisruption to homeowners in areas where installations havebeen carried out.The work has largely been carried out by independent sub-contractors but the negative image has been associated with theNynex name. In this situation, extending customer careawareness and training programmes to sub-contractors oragents, if feasible, may be worthwhile. The same may also betrue in terms of channel management, where agents acting onbehalf of a service provider need to be included in training andcommunications.

The broad nature of the function is clear, however, and its closerelationship wi th customer service can be seen. Suggestedelements for a customer service audit include evaluation andreview of personnel issues and performance mea-sures,together with personal and job goal specification - all areaswhere integra-tion with human resources management isappropriate. Service organizations need to invest in humanresources management to look after their most import-antinvestment - the people examined.The basic steps in recruitment can be broken down into severalkey stages, Illustrated briefly here:Preliminary stage - identification of vacancy and requirements,processing applications Selection stage - arranging interviews,offer / acceptance, formal appointmentFollow-up stage - induction, training, ongoing development.Training is needed to impart knowledge and build expertise andalso to give focus and direction for the future direction of theorganisation and its employees. Staff development incorporatestraining but goes a step further in designing strategies for anholistic approach to getting the most out of people and helpingthem maximise their potential.Human resources managers work alongside managers in otherfunctional areas (including marketing) to look after the peoplein an organisation. Their responsibilities cover a wide area withregard to selection, training, industrial relations and otherrelated issues. They also playa central role in the organisation interms of enabling organisational objectives to be met success-fully through the efforts and understanding of all the people inthe organisation.

Tutorials1. Why is the ‘people’ element of the marketing mix so

important in services marketing?2. What is meant by the terms ‘primary’, ‘facilitating’ and

‘ancillary’ in relation to the roles of people in serviceprovision?

3. In what ways can the actions of service personnel influencecustomer perceptions of quality?

4. How can internal marketing techniques help in recruiting theright personnel?

5. Outline the stages in the recruitment and selection process.6. Suggest some of the influences which can hamper effective

recruitment and human resources management in the publicsector and similar areas.

7. What areas should be incorporated into effective staffdevelopment programmes?

8. List the typical responsibilities of the human resourcesmanager.


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LESSON 16:PROCESS AND PHYSICAL EVIDENCE

The Objective of this Lesson is to havean insight into• Importance of Process and Physical evidence• Physical Evidence• Influence of Physical evidence on corporate image and

customer perception• Process• Keys Factors affecting Process

IntroductionThe intangible nature of services mean that they are not boughtand owned by consumers in the same way that physical goodsare. A service is performed rather than handed over. Theconsumer receives benefits deriving from the service - a feelingof satisfaction after a good meal, pleasure and entertainmentfrom a visit to the theatre perhaps or a car in good workingorder after repairs have been carried out. This means that theperformance process - the way in which the service is created anddelivered - is an integral part of the service offering and theultimate consumer benefits.Intangibility is also the reason for the importance of physicalevidence in the services marketing mix. As discussed in previoussections, some services are more intangible than others. Someservices are product based and service pro-viders will focus onensuring that any facilitating goods which form part of theservice are of an appropriate quality and standard. The food in arestaurant must be of an acceptable standard and the surround-ings clean, cars for rental should be well maintained and in apresentable condition. Services which are highly intangible,however, such as consultancy and financial advice are moredifficult for the consumer to assess. In the absence of actualgoods or products about which the consumer can makejudgments relating to quality and value, for example, theconsumer will look for other ways of evaluating the service.Corporate image and corporate identity play a key role inconsumer perception.These special aspects of services marketing are so fundamentalto success that they represent two components of the market-ing mix: process and physical evidence. Process is concernedwith the functional aspects of service delivery such as queuingsystems, timeliness and quality of delivery. Physical evidenceincludes facilitating goods, decor and comfort.

Corporate ImageThe image which organisations present to the world at large ismade up of many different elements. Its reputation as anemployer and its approach to social organisation are alsostrongly influenced by visual and other sensory signals as well astheir experiences of a particular service or organisation. Some ofthese influences make up the ‘physical evidence’ component ofthe marketing mix. This is the evidence on which consumers

base their opinions and it emerges from every interactionbetween the customer and the organisation at every level. Thenumber of factors which can contribute to a customer’sperception can be vast and can range from fairly small details tomore obvious influences.Using a fast food restaurant as an example, physical evidencecould include

Controlling so many variables is the key management task indeveloping a favourable image amongst customers andpotential customers. Clearly it is more than a case of developingeffective corporate relations and communications packages. Theimportance of other elements of the marketing. mix can beseen, especially in relation to the service product and the role ofpeople in the service delivery process. Managing these elementscorrectly is of crucial importance, as has been discussed in earlierchapters.

Corporate IdentityOne way in which organisations attempt to reinforce all themessages, signals and impressions which customers receive is-the establishment of a strong and positive corporate identity.Corporate identity goes beyond corporate image in that it buildsa distinctive and recognisable physical identity for theorganisation. Corporate identity tangibilises corporate image bylinking the values, benefits and qualities of the organisation’simage with identifiable physical attributes such as brand names,logos, staff uniforms house-styles and consistent standards.Many organisations use corporate identity as a unique sellingproposition in promotional strategy. This can be a powerful

The food itself – Its packaging – Seating – Overall appearance Of the restaurant – Accessibility – Facilities – Staff – Corporate image – Service delivery – Atmosphere -

taste, smell, presentation, temperature style, colour, environmentally-friendly, convenience comfort, layout, availability hygiene, cleanliness, lighting, decor, attractiveness (inside and outside), well maintained car parking, location of entrances/ exits, wheelchair access, geographical location toilets, childrens' amusements, customer information, payphones personal appearance, dress code, manner, efficiency attitude towards the company image, logo, advertising, brand loyalty, the individual's knowledge of the organisation and its activities prompt, slow, slipshod, efficient welcoming, friendly, cold


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tool for differentiation; particularly responsibility issues areexamples of the factors which influence consumers’ subjectiveand objective judgments about an organisation. These factorsare often of equal importance in forming consumer attitudesand judgments as more obvious ones such as service quality,value for money, guarantees and luxury decor.Image is, however, difficult to define as it is based on anindividual’s percep-tion of the message and signals reachingthem concerning a particular product, organisation or publicfigure. It is therefore of vital importance that organizationsensure that the messages, information and signals which theysend out are consistent with the organisation’s objectives andare positive and constructive at all times to protect the integrityof brand and corporate image. In order to do this, all theelements which make up the organisation’s image should bemanaged as effectively as possible. This is also vital in terms ofthe association between corporate image and the concept ofcorporate identity.Comprehensive corporate relations programmes, whichincorporate public relations, can playa key role in determininghow the organisation is perceived. Strategic programmes can beused to communicate effectively with target audiences whichmay include:CustomersPotential customersConsumer groupsThe mediaLocal groups or campaignsSpecial interest groupsVolunteers (e.g. charities or parent teacher associations)DonorsEmployeesFrom this list, it can be seen that effective corporate relations is alogical extension of relationship marketing.The key to successfulcorporate relations strategy lies in setting clear objec-tives. Thestrategy to achieve these objectives can then be designed using acombination of communications methods and tactics. Theobjectives may revolve around increasing awareness andensuring that the organisation is regarded favorably by targetaudiences or promoting certain aspects of the organisation’sservice which are innovative or which differentiate it from thecompetition, or probably a combination of a number of these.The benefits which can arise from a well planned corporaterelations program can include:Enhanced market reputationIncreased market shareGreater employee satisfaction/loyaltyBetter links with suppliers, intermediaries and other bodiesImproved understanding of the organisation and its activities –internally and externally.However, managing the information and messages sent out bythe organisation is not the only route to improved corporateimage. Customers’ perceptions of an when brand and/or

corporate identity recognition is very strong, as the followingexamples illustrate:Canard advertises ‘The one and only QE2’ in a promotionalcampaign for the ocean liner of that name stressing its ‘legend-ary’ elegance, entertainment and high level of personal service.Marriott hotels advertise the uniform appeal and quality oftheir hotels with the slogan: ‘Always in the right place at theright time.ITT Sheraton focus on their corporate branding in advertise-ments which an-nounce that each of their 400-plus hotels isdifferent and unique but based on Sheraton’s extensiveexperience with travelers around the world.Henley Management College ran advertisements -featuringthe date of incorpo-ration (1945) and the ‘award of a RoyalCharter (1991), stating ‘established in some twenty countriesacross five continents’ under the copy ‘Where in the world butHenley?’ clearly establishing firm credentials as a leadingbusiness school.An increasing number of organisations are paying particularattention to corpo-rate identity to reinforce their image. Thetraditionally austere and imposing banking halls of the pasthave been refurbished in more attractive styles and made morewelcoming. ‘Corporate apparel’, the term given to staff workwear and uniforms, is a booming business as the sectors whichtraditionally presented a strong identity through the attire oftheir personnel - airlines and security services, for example - havenow been joined by banks, building societies, pub restaurantchains and retail travel agents, to name but a few.Staff uniforms or work wear represent only one physicalmanifestation of corporate identity. Others include the visualimages mentioned earlier such as logos, house styles, architec-tural design of outlets which are instantly recognis-able andextend to monogrammed bathrobes, in hotels, corporate giftsbearing the organisation’s logo, in-house magazines such asthose offered by airlines anything, in effect, which can be used tostrengthen the customer’s awareness and favorable perceptionof the organisation.

Customer Perceptions and PhysicalEvidenceThe examples of physical evidence described in the previoussections can be broken down into two main types, described bythe following terms:Peripheral evidence This type of evidence can actually changehands during the service transaction as in the purchase of anairline ticket or the issuing of motor insurance cover note or ahotel room key. The purchaser may become the owner of theitem, but it is, in itself, worthless unless the airline does offerthe flight required or the insurance company actually exists andhas sufficient funds available to cover a claim and the hotelroom is warm, reasonably furnished and so on.Peripheral evidence includes those items which confirm theservice, as in the examples mentioned but also includes itemswhich are complementary to the service itself. This means thatthe service can be performed without these items but theyenhance the organisation’s identity and can help make thecustomer’s experience more enjoyable or positive. Examples


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include books of matches, free house wine with a meal,toiletries and chocolate in hotel bedrooms, newspapers andmagazines for airline passengers.Essential evidence. Essential evidence is integral to the serviceoffering and includes, for example, the facilities offered by aleisure centre or the items on display in an exhibition ormuseum which make a visit worthwhile. This type of evidencewill not normally be owned by or passed on to the customer,except on a temporary basis as in the case of car or equipmenthire, or linen rental in catering. In all cases, the quality andstandard of the essential evidence will be a major influence inthe customer’s purchase decision.Both these types of evidence combine with the organisation’sother marketing mix elements, especially promotion andpeople, to create an impression on customers and potentialcustomers. They also help to make the service more tangible, inthat it can be associated with clear mental images, colours,names and so on, in the mind of the consumer, as thefollowing examples illustrate:The Automobile Association’s handbook and membership cardare perma-nent, physical reminders of the organisation’sservices, as is their distinctive livery on patrol cars and vans. Thetechnical standard of the mechanics and the quantity of spareparts carried are examples of the essential physical evidence,which forms part of the service.The monthly viewing guide, ‘Sky TV Guide’ mailed to satellitetelevision subscribers, is a glossy, high quality magazine witharticles and features as well as programme listings. This willreinforce the service image of quality when they are used on adaily basis in customers’ homes, while the essential evidence -the quality of transmission - will also be closely regulated by theorganisation.Physical evidence, in its many forms, will help the potentialcustomer or user to evaluate the service offering. As discussed inChapter 10, service quality is not easy to measure in a precisemanner. The customer’s overall judgment of service quality canbe an evaluation to both the process and the outcome, com-pared with the customer’s own expectations and desiredbenefits. Their impression of qual-ity will always be subjectiveand based on their individual perception of the physicalevidence and other elements of the service offering. This leadsto an important idea in assessing quality from a servicesmarketing perspective:

Perceived Service QualityPerceived. service quality represents the customer’s judgment ofan organisation’s service based on their overall experience of theservice encounter. A number of key criteria are used to makethis judgement and the following list of examples shows clearlythe importance of physical evidence and the service deliveryprocess itself:People: credibility, professionalism, efficiency, courtesy,approachability, accessibility, appearance, communications skillsProcess: timekeeping, dependability, trusted performancelevels, promptness, efficiency.Physical evidence: appearance of tangible aspects of theservice, physical surroundings, smartness

The relative importance of the customer’s perception of bothessential and peripheral evidence in evaluating service quality hasbeen highlighted but the impact of the service delivery processshould also be considered. Customers are frequently activeparticipants in the service process - they co-produce the service -so this must be taken into account in planning and manage-ment. The following section looks at the process element of theservices marketing mix and some of the technological develop-ments, which have revolutionized service delivery in manyfields.

ProcessThe study of process - the way things are actually done and thesteps taken to achieve desired results - has been given consider-able attention over the years in the areas of manufacturing,engineering and computer programming. Indeed it has givenrise to such revolutionary developments as ‘just-in-time’ and‘lean production’ in manufacturing and production operations.It is only more re-cently, however, that the importance of theactual process in service delivery has been recognized anddeveloped as a tool for competitive advantage. Develop-mentsin technology have also helped revolutionize many processes inthe home, in industry and in the services sector.The principles by which service delivery processes can bedesigned, im-plemented and monitored are really no differentfrom those mentioned relating to the fields of manufacturing,computing and so on. There are certain specific characteristics ofservice process design and implementation however whichshould be considered. These include:Customer participation in the process: The level of involve-ment or participa-tion of the customer in the service process -in a self-service restaurant, for example, as opposed to waitressservice.Location of service delivery: Should the process be carriedout at the service provider’s premises or at the customer’shome? For some services, this seems a simple decision -plumbing or carpet cleaning should be carried out ‘in situ’ at thecustomer’s home while dry cleaning or a theatrical performancewill be carried out at a specialist outlet or venue. In other cases,traditional practices may no longer be applicable as telephonebanking and insurance services have shown, without the needfor any branches on the high street. Travel arrangements can bemade without visiting a travel agent and services as diverse ashair dressing, take-away food and financial consultancy can all bedelivered to the customer at home if required.The service itself: The service itself - is it process dependent(usually the case with highly intangible services such as legalrepresentation) or equipment based (such as vending machinesor dry cleaning).High-contact or low-contact services: The level of contactbetween the customer and the service provider’s personnel- thiscan range from nil (as in the use of automatic cash dispensers,vending machines or ticket booking machines of various kinds)to very high contact as in medical or professional services wherethe client or patient is being looked after by the organisation’spersonnel for varying periods of time.


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Degree of standardisation: The degree to which the service isdelivered in a very standard format (for example, theMcDonalds fast food experience) or whether somecustomization is catered for (as in professional services, whereeach client’s needs will be slightly different and will be servicedaccordingly). The extent to which the service can be altered fromthe standard to meet the needs of different consumers or usersmay be termed divergence.Complexity of the service: This is measured by the numberof steps or activities which contribute toward the servicedelivery. Ensuring that tourists have an enjoyable holiday willinclude many different steps incorporating travel arrange-ments,hotel operational management, high levels of customer contactand service and so on. Less intricate processes will include farfewer steps and sequences of actions to deliver the service - abank cashier accepting a deposit and updating the balance in apass book for example, or a motor garage perform-ing a routinecar service. Both these examples will be governed by standardprocedures and guidelines which will be implemented with littledivergence.In designing the service delivery process, all these issues shouldbe taken into account. The steps required to deliver the serviceand provide the appropriate benefit satisfactions to theconsumer can be ‘mapped’ or ‘blueprinted’ in the same way thatflowcharts are used to denote all the decision, alternatives andactions required for a computer programmes to work success-fully and carry out the tasks they are used for. Chapter 10 whichlooks at service quality contains some useful information aboutdev-eloping quality practices and processes for services, and inparticular, about benchmarking for services and implementingthe process.The purpose of setting down clear outlines or blueprints forservice delivery processes and transactions is as follows:To ensure that the service is carried out in the fastest, mostefficient and cost-effective manner possibleTo enable service quality to be monitored and benchmarks to beput in place thus allowing accurate measurement of both qualityand productivityTo facilitate staff training and enable individuals to carryresponsibility for individual stages of the service transactionand deliveryTo reduce the amount of divergence thus enabling accuratebudgeting and Manpower planning etc. to take place.Sometimes, however, it should be noted that completestandardisation of the service delivery process is not the mostdesirable option either for the service provider or the consumer.In many cases, the personal element of the service which catersto customers’ different needs is a key factor in differentiating aservice from its competitors. Burger King have pioneeredcustomer choice in allowing consumers to specify how theywant their burger cooked and their own choice of sauces andaccompaniments under the’ at BK you got it’ slogan. Thisshows how some degree of customization can be introducedinto very simple service delivery processes and is in directcontrast with their arch rivals, McDonalds, whose range hasbeen generally all offered as standard.

Some organisations choose to let their personnel have a certainamount of discretion to make decisions and take alternativeactions to improve customer satisfaction. Traditionally this hasbeen the prerogative of the senior manager who has beenallowed to negotiate a waiver of bank charges, for example, orupgrade an airline seat or a hotel room to make up for someinconvenience caused to the customer by the service provider.Recently, however; the trend has been to allow greater flexibilityto all staff, empowering them to use their own judgment tomake decisions which will enhance the service delivery process.This ‘empowerment’ of staff is very much in line with muchof what has been said about people in earlier chapters (seeChapters 8, 9 and 15) and is said to lead to better staff andcustomer relations and higher levels of service quality throughemployee pride in the job and the individual ownership ofproblems and short-falls. It is even used in promotionalmaterial as a unique selling point as the following MarriottHotels advertisement shows:“I arrived at Hong Kong airport without my case. Thanks tothe foresight of the Marriott concierge, it managed to arrivewithout me.”The account then relates how the traveler was very relieved tofind out that the concierge had spotted his briefcase and sent itafter him. The grateful traveler then goes on to say:“His initiative saved the day. I understand that this kind ofconscientiousness on behalf of their guests is typical of allMarriott staff. They call it empowerment. I call it remarkable.”A level of built-in flexibility in process design can help achievegreater customer satisfaction and a higher quality service overall.Changing attitudes towards staff empowerment and theincreasing sophistication of the consumer and their demandsare not the only factors to have impacted on service deliveryprocesses, however.

Technological DevelopmentsThe pace of technological developments in recent years has hada major impact on service delivery processes and practices.Computer networks and the use of modems mean that real-time information about bank accounts, airline seat availabilityand theatre bookings, on-line information for electronic fundstrans-fer at point of sale (EFTPOS) can all be accessed instanta-neously, leading to obvious advantages for service providers aswell as customers or users of the service.Automatic teller machines (A TM) are often cited as revolution-ary technolog-ical developments in the services sector. Thesecash dispensing machines are a familiar sight throughout theUK on the high street, at supermarkets, shopping centres,motorway services and airports, while their numbers continueto grow. It would be virtually unthinkable to consider using abanking service which did not provide this facility, which is oneof the reasons why their use has spread throughout all leadingbanks, finance houses and credit card issuers. The servicesprovided by these machines, however, are constantly beingupgraded. Innova-tions include multi-lingual options, wherethe user can specify a preferred language, instant statements andbill payments.


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Many organisations have used technology to improve serviceefficiency and profitability or to improve the service to theircustomers.The Royal Mail, one of the most advanced postal groups in theworld, offers a fast, reliable service but has also managed tokeep the price down thanks to advances in automated sortingand the use of barcodes.The Meteorological Office provides ‘weather and climaticinformation on a worldwide scale for both public sector use andas a commercial service to industry. The service is entirelydependent on up-to-the-minute data of the most perishablekind and rapid transmission and processing of information areessential to the process. The use of information technology andadvanced telecommunications has led to tremendous advancesin all aspects of the process.Telecommunications facilities playa key role in ensuring thatobser-vational data from all over the world are availablepromptly and reliably and then in delivering forecast productsto consumers. ‘Weather fax’ is another innovation in deliverywhich can provide hourly updated information on users’terminals. ‘MIST’ is another innovation, which deliverscontinuously updated data from the Meteorological Office’scentral computer directly to users terminals.Automated queuing systems in banks and post office$ areanother familiar innovation which have reduced customerfrustration and improved service generally.Remote diagnostic tools can now be used to provide repair andmainte-nance services for computer equipment without theneed for the engineer to leave base and spend time traveling tothe client’s premises.Advances in technology have impacted on the ‘process’ elementin the marketing mix in many different ways as the aboveexamples suggest. This is in addition to the number of newservices, which have arisen directly from new technologies suchas mobile telecommunications, satellite television, medicalprocedures such as scanning, laser treatments and keyholesurgery made possible by the use of fiber-optics, to suggest justa few’ examples.

AtmosphericsAnother area which should be considered in reviewing theservice process is that of atmospherics. This is the term given tothe way in which marketers, notably in retailing, can plan for andprovide an atmosphere within stores designed to be conduciveto customer spending. This is a relatively new area of study andhas been limited to retailing by and large, but has obviousapplications for services marketing wherever the serviceexchange takes place at the service provider’s premises, andespecially in services retailing operations such as banks, travelagencies, hair and beauty salons and extends to include restau-rants, hotels and many other possibilities.Atmosphere can be used to create an image in the customer’smind based on the following types of sensory stimuli:Sight - size, layout, lighting, colourSound - music, background noise, volume, pitch, tempoSmell - fresh, heavily scented, appetite stimulant

Touch - temperature, comfort, soft/hard (seating etc.)The importance of creating a pleasant or enjoyable atmospherehas been well recognised but what is now emerging seems to bethat consumers will respond to different atmospheres withdifferent types ‘of buying behaviour. Colour, for example, canhave a variety of effects on humans. Some colours are known tostimulate while others represent comfort, warmth or security.Music has also been recognised as a mood influencer. Differentcombinations of colours and music could be used to create asoothing warm atmosphere in a restaurant, or to attractteenagers to a busy fast food outlet.The combined effects of atmospherics within the serviceenvironment and the role of the people participating in theservice delivery process call affect the customer’s mood andsubsequent purchase decisions. It can, theoretically, be possiblefor the services marketing” managers to control all of theseinfluences, thereby inducing moods which will lead theconsumer to act in a certain way with regard to purchase -lingerin a restaurant and spend more on drinks, actually make aholiday reservation while in the travel agency rather than simplypicking up brochures, for example.Atmospherics is a developing area of study which is bound tobe of potential interest to service marketers in all fields.Hospitals could aim for a brighter atmosphere to aid recovery,colleges could use colours and decor designed to stimulateconcentration. Many steps have already been taken in thisdirection. Dentists have moved away from very stark, austeresurgeries to more attractive decor, “music and toys in anattempt to help patients relax and take a more favorable view ofthe experience, for example. Most of the research into the areahas grown from retailing and developments in retail store andshopping mall design which can have a great deal of relevancefor service marketers both now and in the future.

TutorialsIn light of above, Explain the physical evidence and processinvolved in a hospital.Compare Apollo Hospital with Moolchand Hospital


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LESSON 17:SERVICE QUALITY

The Objective of this Lesson is to havean insight into• Importance of Service Quality• Developing service quality• Features of service quality• Service Quality standards• Links between service quality and marketing• Monitoring service quality

Service QualityThere are many definitions of quality, and in many sensesquality is subjective. To many people, quality implies luxury orexcellence; a Rolls Royce rather than a Ford; cordon bleu insteadof fast food. However, quality can also be measured in terms offitness for purpose, and. a Ford Escort is regarded by manyowners as a quality family car, while McDonalds provide aquality fast food service.In seeking quality service, consumer needs and expectations maydiffer. An elderly customer in a bank might appreciate a cashierwho takes time to chat and who addresses the customer in afamiliar way, while a business customer might expect to bespoken to in a professional manner and the transaction to becompleted as efficiently and quickly as possible. Yet the func-tional service required in each instance may be identical, from thesame cashier.In manufacturing, quality is seen as an element, which can begauged precisely and measured in terms of conformance tospecification. Quality control was applied at the end of themanufacturing process when units were checked for quality anddefective units rejected. This has changed now to the extent thatthe emphasis is in building quality into the manufacturingprocess; quality of supplied materials, quality of productionprocesses and quality assurance procedures mean that quality isbuilt-in, rather than poor quality being filtered out at thefinished goods stage. This built-in quality is still measured interms of conformance to what are, largely, internally developedspecifications which can themselves be constrained by cost andproductivity considerations.Service quality is not easy to measure in a precise manner. Thenature and characteristics of services can have an impact onquality issues:The intangibility of many services means that it can be verydifficult for service quality to be measured and assessed.Inseparability of the service itself from the service providerhighlights the role of people in the service transaction, and theirinfluence on quality levels.The heterogeneous nature of service means that a service isnever exactly repeated and will always be variable to some extent.

The perishable nature of services can lead to customer dissatis-faction if demand cannot be met (if a hotel room or air ticket isnot available at the time a customer demands it, for example).The most relevant approach in defining and measuring serviceis the user-based approach. The idea that quality is subjectiveand will be strongly linked to the individual’s needs andexpectations recognizes that consumers have different criteria forjudging service quality. This user-based approach equates qualitywith maximum levels or satisfaction.In measuring quality in this way, however, a “distinction needsto be drawn between quality of service delivery and the serviceoutput, or benefit. The customer may be involved in the serviceproduction, thus impacting on the quality of the service deliveryprocess. The actual output of the service may be judged by thecustomer in terms of their expectations of the outcome orbenefit.The customer’s overall judgment of service quality can be anevaluation of both the process and the outcome, comparedwith the customer’s own expecta-tions and desired benefits.This leads to an important idea in assessing quality from aservices marketing perspective: perceived service quality.Perceived service quality represents the customer’s judgment ofan organization’s service based on their overall experience of theservice encounter. Understanding how customers arrive at thisjudgment - that is to say, how they decide whether or not theyare satisfied with a particular service - is very important forservices marketing management.Research has indicated that consumers make these decisionsusing a number of key criteria to judge the service. These keyfactors relate to areas covered by the extended services marketingmix: people, process and physical evidence. They can be broadlycategorized as follows:

PeopleCredibility, professionalism, efficiency, courtesy approachability,accessibility, good communications, identifying and understand-ing customers needs ProcessTimekeeping, dependability, trusted performance levelspromptness, efficiency Physical evidenceAppearance of tangible aspects of the service, physical sur-roundings, smartnessThis list illustrates some of the criteria used by customers injudging quality. Understanding the concept of perceived servicequality is important for services marketing management. Thenext section explores this further within the context ofdeveloping service quality.

Developing Service QualityThe reasons why developing and delivering a quality service isso important can be broken down into three main areas:


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Organizations with a reputation for consistently high quality cansustain an enviable competitive advantage in the servicemarketplace.Quality is ‘free’ - that is to say getting it right first time costs farless than providing remedies when services fail to meet thecustomer’s required standard.Better quality services can attract premium prices. Consumers arepre-pared to pay a higher price for services that fulfill all theirexpectation criteria.Each of the above reasons for putting quality first can have adirect impact on profitability. However, in terms of image andcustomer to user satisfaction, they are equally applicable toorganizations operating in the not-for-profit sector.

Assessing Service QualityDetermining what makes a quality service is not easy, anddifferences between service organizations mean that there is nosingle set of factors which can be classified to produce recogniz-able standards. Leisure services, financial services, education andmedical services ~ill all be judged on vastly different grounds.Services cover such a broad spectrum of activities, ranging fromthe highly tangible to the highly intangible, “that universalregulation of quality standards is impractical.However, the common element in service quality, whatever theservice, is that quality is based on the customer’s perception.With this in mind, it is important to note the features which allservices share:Customer participation: Customers are frequently activeparticipants in the service process - they co-produce the service.Intangibility: Highly intangible services may be based onphilosophical or conceptual elements. This abstract nature ofsome services makes them difficult for the service provider todescribe, and for the customer to evaluate.The service encounter: Services are often comprised of anumber of component parts, and it is the sum of these, or theoverall experience of the service encounter, which the customerwill use to form judgments.Inseparability: Many specialized services are inseparable - thecharacteristics of the service provider in terms of expertknowledge or skill, for example, are a constituent part of theservice quality.Service is, perhaps most importantly, a process and it is thiselement, which can be investigated and developed to meetspecified standards. The Total Quality Management philosophyhas for its main focus the interaction between people andsystems. People are the critical ingredient in total quality, but inorder to operate effectively, people require appropriate frame-works and systems.

Service Quality StandardsQuality standards were originally developed within the contextof production and manufacturing; the main concern wasproduct quality and conformance. However, the developmentof systems to ensure performance quality now covers allfunctions, not just production and operations. Finance,administration and marketing all have an impact on theorganization’s performance and customer satisfaction levels.

Quality systems designed to reinforce performance in these areasfocus on procedures and processes. These must attain certainquantifiable standards in order to gain approval.There are now both national and international quality perfor-mance standards which show that organizations areimplementing quality operations. The approved standards areidentified as follows:National: BS (British Standard) 5750European: EN 29000International: ISO 9000BS 5750 was generally the first standard of its kind in the world.The British Standards Institute (BSI) spent many yearsdeveloping the standard, and numer-ous steering committeestook several years to generate the standards by which servicecould be measured. BSI literature at the time discusses theproblems posed by the task, raising such questions as How dowe put quality and its measurements in place for a serviceorganization? Is quality important to the customer or thevendor?They suggest that it is important that quality is really thatperceived by the customer, despite the fact that service may besaid internally to have quality. Quality systems need to be set upin line with the BSI recommendations which, whilst appearingquite complex, can be broken down into more simplified areas.Quality should be functional, not restrictive, and should reflectthe overall business (or business-like) activities of the organiza-tion. The most important aspect for success is, thecommitment of everyone in the organization, not somespecified quality manager. The BSI proposed that quality is ateam concept.Marketing relates closely to this idea. Concepts such as internalmarketing and relationship marketing, discussed in otherchapters, focus clearly on the commit-ment and involvement ofeveryone in the organization in implementing success-fulmarketing plans and programmers. There is, in fact, a verystrong link existing between marketing and Total QualityManagement. Both have a customer needs based philosophy,and many organizational issues are common to both. Market-ing can playa significant role in quality.

Setting StandardsThe true definition of quality will be unique to every organiza-tion as no two organizations will operate identical servicesmarketing. Quality is situation- specific, and the parameters ofwhat constitutes high quality can change over time. Marketresearch needs to be undertaken to pinpoint exactly what makesa quality service experience - perceived service quality.This market research should be undertaken in both the internaland external markets. This is most important as it can revealquality gaps. Quality gaps occur when a shortfall arises betweenthe customer~ expectations and the service actually delivered.Quality gaps can be generated internally, as when managers donot fully understand what customers expect, or when they arenot fully committed to tailoring the service to meet theseexpectations. Shortfalls in service quality can also arise when theperformance of service delivery personnel fails to meet expecta-tions.


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A further cause of inadequate service quality can be whenadvertising or other external communications lead customers toexpect a higher standard of service than that which is actuallydelivered. A dry cleaning company offering a two-hour servicemay create customer dissatisfaction if the time taken is threehours when, in reality, a same-day service may be perfectlyacceptable to that particular customer. The service delivery mustmatch the expectations of the customer at that point in time,and in relation to that particular transaction.

The Quality AuditA good starting point for internal market research is the qualityaudit. In the same way as a marketing or environmental audit iscarried out, the whole company and all the processes which goto make up the service offering must be investi-gated andanalyzed. The audit should cover all functions and departments,not merely frontline personnel.The quality audit provides an assessment of what is currentlyhappening within the organization; market research shouldnow be used to analyze how near (or far) the organization is togetting it right - delivering the right service ‘fit’ throughmatching the service offering to the customers’ expectations.Internal market research can be carried out through focusgroups or discus-sion sessions. It is probably best if these areheld away from the normal working area and are conducted byinterview or discussants who are not line manage-mentpersonnel. This should engender an atmosphere whereparticipants feel able to discuss quality issues frankly andwithout inhibition.A checklist for the types of issues which need to be raised ininternal market research includes the following:

Internal Service DeliveryThis recognizes the fact that there are many parts which makeup a service, and effective service delivery can depend on all ofthose parts combining together precisely. Besides service deliverypersonnel there are many other actors within a service organiza-tion who facilitate the service delivery. These employees, inconjunction with front-line personnel, all need to consider thefollowing questions:Who is your internet customer? How many internal customers/suppliers do you have?What are their needs?How does your interaction with internal customers in theorganization impact on the service quality perceived by theultimate (external) customer?What problems exist, and how can you overcome them?What do you think the role of marketing should be?Do you think that we deliver exactly what we have promised tothe customer? If so, how often? If not, why not?Do you think that improvements could be made in your area?In other areas? If so, how?Do you think that we should measure performance and/ orquality? If so, how should this be done, and how often?

Internal Service QualityThe employees’ own perceptions of the organization’s servicequality must be examined in order to assess where potentialquality gaps may arise. The following questions need to beaddressed:How do you measure service quality?What are your /the organization’s (internal) standards for:excellent qualitysatisfactory qualitypoor quality?How do you know when you are achieving or failing to meetthese standards? What processes for monitoring service qualityexist?

Service Delivery QualityFrontline personnel who are actually involved with customers inthe service delivery process should consider issues relating totheir understanding of service quality:What do you understand to be the customer’s expectationsfrom this service encounter?What can you do to ensure that customer expectations are metfully?Are you doing anything, which has a negative effect on thequality of service delivery? Does anyone else in the organiza-tion?Who is your favorite customer, and why?How often do you have interaction with a customer?The results of this type of internal market research can only beutilized effectively if there is accurate information available onthe needs and expectations of the external market. Marketresearch to assess and measure customer expectations thor-oughly is essential. Research must be designed to address thefollowing Issues:How do our customers judge the quality of service we provide?What is their judgment criteria?How do they compare the quality of our service with that ofour competitors?What are the key differences that make our service quality better(or poorer) than our competitors?How, in the customer’s view, can the quality of service weprovide be improved?Market research of this nature should be ongoing to reflectchanging needs and expectations. As consumer sophisticationincreases and new services become available in the marketplacethe criteria by which customers judge service quality will change.Market research techniques for assessing service quality expecta-tions vary, but will depend on getting close to the customer andbuilding an understanding of their perception of service quality.Many restaurants, hotels and other service providers routinelyoffer their customers the opportunity to give feedback on theservice they have received by providing customer satisfactionquestionnaires for the customer to complete each time theservice is used.


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Shops and retailers have customer service counters to deal withcomplaints, but in situations where the service is highlyintangible it can be much more difficult to monitor customersatisfaction levels. High street shoppers will not hesitate toreturn goods which are unsatisfactory in any way, and customerswho have received poor service from domestic trades people,for example, will be inclined to complain until they receivesatisfaction. In cases, however, where services are far lesstangible and customers are unhappy about the service they havereceived they may be unwilling to complain for a number ofreasons:Embarrassment- customers may feel embarrassed aboutcomplaining for a service which they feel dissatisfied with. Manypeople do not want to ‘make a fuss’ if they receive poor servicefrom, say, a hairdresser or restaurant.Lack of specialist knowledge - customers buying the services ofa lawyer, an accountant or a hypnotherapies, for example, mayfeel that the service they have received is not up to theirexpectations, but do not feel qualified themselves to take theservice practitioner to task.Level of substitutability - if there are many service providersoffering a particular service, then a customer who is not satisfiedmay find it simpler to change service providers than to com-plain.Substitution - swapping service providers when a service is notof satisfactory quality can result from any of the issues outlinedabove. On the other hand, research has shown that customerswho do complain and then receive a positive response from theservice provider which leads to customer satisfaction will bemore inclined to use that service provider in the future. If oneof the key factors in long-term success is customer retention,then it is vital that customer satisfac-tion be maintained, andcustomers are given the opportunity to discuss their serviceexperiences.Research along the lines discussed will enable the serviceprovider to establish what makes up service quality in theirbusiness. Quality gaps - where the employees’ understandingof what constitutes quality falls short of customer expectationscan be investigated and training or better communications im-plemented internally. In summery, the organization’s approachto developing service quality standards and implementingquality practice can be represented by a seven point plan:Internal and external research what do customers really wantand value?Listening to what customers and employees feel about perfor-mance against these factorsEvaluationActionMonitoringImproving and buildingMotivating

BenchmarkingThe organization which has fully researched quality issues inboth its internal and external markets should now be in aposition to set quality standards which can be regulated and

monitored and which meet customer requirements. In order todo this, standard measures need to be determined. This sectionlooks at how this can be achieved through benchmarking.The establishment of a baseline figure and a common index isan essential part of measuring performance, both externally andinternally. The baseline is the target operating norm of theorganization. This can be termed a benchmark - a standardagainst which performance can be measured.This should take into account the standards against whichcompetitors will operate and should reflect optimum qualitystandards within the competitive environment. This may alsomean taking into account the standards set by indirect competi-tors as well as organizations offering the same services.This would mean, for example, that airlines would not onlygauge their benchmark standards by looking at other airlines’quality standards, but also by considering the services offered bythe railways and other alternative forms of travel and compari-sons with their service quality.Studying best practice amongst organizations which are non-competing (either directly or indirectly) can also help in achievingthe objective of being the best - outperforming other organiza-tions in the marketplace. Collaboration with non-competingfirms based on sharing expertise in areas in which the organiza-tions excel can lead to mutual benefits.Knowledge and experience regarding best practice can be shared,and this is likely to be more reliable and open than informationsought concerning the competitions’ best practice. The idea ofsynergy can operate here as well; man-agement from verydifferent types of organizations, possibly in completelydifferent industries, may be able to find solutions and newideas from each others’ viewpoints which they could not find intheir own experience or within their own organization.The benchmark standards will be adjusted overtime to reflectthe achieve-ment of increasingly higher standards throughenhanced process quality and in response to new customerexpectation levels. An index, which is a commonscoring or weighting system which takes into account thedifferent characteristics of the subject for measurement, shouldalso be developed. This will enable service providers to measureperformance and quality between different sized branches orbased on newness of service activity in a particular marketsector, for example.The actual values assigned to benchmarks will be situation-specific. They will be developed as a result of the research carriedout by a particular organization. The key focus will be the samein any situation, however; the service delivery process and all theactivities which go into it will be examined and broken downinto component parts for which measurable targets, or bench-marks, can be set.This may translate quite simply into measures derived fromvariables which impact on the service encounter. Response timeis one factor which impacts on service quality, and which iscontrollable by the service provider. Examples of standards orbenchmarks based on response time variables include thefollowing:


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Time taken to answer telephone’s enquiries - Automatic CallDistribution systems can ensure that all calls are answeredwithin a certain number of rings, and that calls are thenmanaged efficiently.Queuing systems designed to ensure that all customers areserved within an ‘acceptable’ time.Response time to assist motorists in difficulty - the NationalBreakdown organization guarantees that assistance will arrivewithin one hour of the problem being reported.Benchmarks can be created for all the component parts of anorganization’s operations. The examples discussed above relateto just one area - response times. Some examples of the areaswithin an organization for which benchmarks can be establishedare as follows:Sales force: Call-to-order ratios, training, size, customerretention. Administration: Response times to written/telephone enquiries, quality of ma-terials and literature used,training, expertise on both company and range of services.Resources: Implementation and management of systems,premises utilization staff development.Finance: Profitability levels, return on investment, costsreduction.This list is not comprehensive and it will, in practice, be madeup of areas identified as being of the greatest importance inenabling the organization to out-perform others in themarketplace. Specific variables can be defined follow-ing analysisof the competitive arena, and the criteria used by customers intheir own judgment of service quality. Benchmarking in thisway will enable the organization to build in service quality, andto fine-tune its market offering so that all customer qualitystandards are met or exceeded.

Implementing Quality ServiceMarketing management can playa key role in achieving qualityservice through-out the organization. Service -quality iscontingent on a highly developed customer orientation, and onmeeting or exceeding the customer’s expectations. It has alreadybeen shown that market research must be carried out bothinter-nally and externally in order to establish service qualitystandards - benchmarks - by which the organization canmeasure and assess its performance.Internal marketing has a key role to play, too. Quality in serviceorganizations is largely inseparable from the service delivery, sothe key focus in service quality is on people. Quality results froma team effort; a customer-consciousness which permeatesthrough all levels of the organization, from top managementdown. Internal marketing is concerned with people in organiza-tions and effective internal marketing programmes address theissues which impact on quality.Two of the most important components’ of internal market-ing which are critical for any organization seeking to implementquality service are:

CommunicationTraining

Perceived service quality, the customer’s individual evaluation oftheir service experience with an organization, drives from the

values associated with both technical and functional servicequality, and their relative importance. Technical quality andfunctional quality levels will depend on the implementation ofservice quality throughout the organization. Good communica-tion - both inter-nal and external- and training of staff arecritical factors in ensuring that quality performance standards aremet.

CommunicationCommunication internally may need to be improved to ensurethat there are no breakdowns in communication between theelements within the organization which make up a particularservice. Communications should be designed to foster co-ordination and integration, enabling employees to beresponsive to their internal customers and suppliers.Internal communications can also be a useful tool in engender-ing a team spirit and in motivating personnel. This can be veryimportant in the drive for service quality. Management shouldend self that every employee knows what the organization’sobjectives are, what desired quality goals have been set and whattheir individual role is in achieving these targets.

TrainingTraining needs to be undertaken to develop employees’understanding of how they can deliver service quality. Thistraining might include customer care programmes, and specifictechnical training to develop expertise in advising customersabout the services offered. Training for personal development isalso important, as motivation and job satisfaction are keyelements in the provision and maintenance of quality service.

The Links Between Service Quality and MarketingTotal Quality Management and marketing have very strong linkswithin the organization. Both share a customer-directedphilosophy, and both focus on teamwork and commitmentfrom all levels of the organization. Managing service quality asoutlined throughout this chapter combines the aims ofmarketing -meeting customer needs and expectations - with aframework for implementing quality which has similarities withTotal Quality Management. Developments in internal market-ing and relationship marketing combine to provide an approachwhich fosters integration and commitment to quality through-out the organization.The extent to which the organization is’ doing it right’ shouldbe demonstrated by the findings of the internal and externalresearch carried out. This will be an important factor in planningfuture programmes. If a quality gap is uncovered, then this willset clear pointers for liras where quality improvement pro-grammes need to be implemented. Other measures of thedegree to which quality improvements are needed will arisefrom the analysis of the competitive arena and from customersatisfaction and retention studies.Information of this nature can be used in quality programmedefinition. With the emphasis on the people and processelements of the services marketing mix, frameworks can bedeveloped to ensure quality service implementation. Theseframeworks should be rigorously defined so that the chance ofanything going wrong in the service delivery process is mini-


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mized. On the other hand, they should allow for flexibility andscope for the personal approach where appropriate.This idea brings service quality back to the marketing conceptand the mar-keting mix. By fine-tuning all the elements of themarketing mix to the customer’s needs and wants and ensuringthat the customer receives the benefits and quality which they areseeking, organizations build in service quality to their marketingprogrammes. This should include both internal and externalmarketing programmes.To summaries, the quality process for service organizations canbe outlined as follows:Define and understand quality within the organizationalcontext.Carry out market research, both internally and externally.Research the ‘competitive arena.Develop organizational quality standards - Benchmarking.Identify where quality standards are being met/exceeded/notmet. Develop a QUALITY Strategy to close quality gaps andbuild existing quality standards.Design programmes for implementation:procedures/ frameworkstrainingcommunicationsImplement service quality programme.Monitor and evaluate the programme and fine tune wherenecessary. Implementing the service quality programme is reallyonly a starting point; the programme must then be monitoredand evaluated and it should be continu-ously performance-tested. The use of benchmarks makes this possible.Develop-ing service quality strategies and programmes shouldbe a cyclical process so that standards are updated and changedwhenever needed to continue to maintain competitive advan-tage.

Monitoring Service QualityThere are a number of techniques which can be employed tomonitor service quality. These fall largely into three maincategories:

Internal Performance AnalysisCustomer satisfaction analysis

Specialist Market ResearchThese areas will be discussed individually in this section; inpractice a service organization would develop monitoring andevaluation schemes based on a combination of these methods.

Internal Performance AnalysisInternal performance analysis will be undertaken by all organiza-tions to measure the success of their planning, not necessarilyrelating solely to quality. Quality benchmarks will be used in theinternal performance analysis to measure the quality standardsbeing achieved in practice. Steps should be taken very quickly torectify any shortfall in service quality and internal monitoringshould be continuous.Sales figures, and other internal reporting data which is notdirectly quality -based, should also be referred to in monitoring

service quality. Customer reten-tion levels are a key indicator toquality performance, while other figures can also representtrends which reflect quality issues. Staff at all levels should beinvolved in the monitoring process and should be encouragedto be proactive in identify-ing and resolving quality problems.Internal market research should also con-tinue to ensure that nofurther quality gaps arise, and that staff are satisfied that all areasare working together for optimum service quality,

Customer Satisfaction AnalysisOrganizations can use a number of methods to monitorcustomer satisfaction. Typically, this involves carrying out somesort of follow-up survey amongst customers who have used aservice recently. National Breakdown, a motoring assistanceorganization, sends its members a satisfaction questionnaireafter every breakdown. The questionnaire invites the customerto comment on the service delivery, and to assess specificfeatures, such as the response time and the action taken. BritishTelecom telephones new subscribers after they have had atelephone installed to ask how they would rate the servicereceived. Many hotel chains leave guest questionnaires in rooms,or present them at the time of checkout, for guests to commenton service quality.Focus group discussions and other market research techniquescan be utilized to ask customers directly about their satisfactionwith service quality. All these methods address the customerabout satisfaction levels, but another very import-ant element inquality analysis is monitoring the times when the customeraddresses the organization directly. In particular, it is importantto monitor customer complaints.Customer complaints should be monitored closely to seewhether any trends are emerging, and the nature of thecomplaints. This is critical, especially when the vast majority ofcustomers who have experienced dissatisfaction may notcomplain, but simply switch to another service provider. Thenumber of com-plaints received may be much smaller than thetotal number of dissatisfied customers, and steps must betaken to rectify the problems notified.Systems should be established therefore to carry out customersatisfaction analysis on a continuous basis. Market research,follow-up questionnaires andcourtesy calls should be implemented, and a proper system forhandling com-plaints set in place. A complaints handlingsystem should not only ensure that complaints are dealt withspeedily and positively, but also that the information regardingthe complaint is fed back through the correct channels withinthe organization, so that future decisions and actions can betaken on an informed basis, and any underlying problemsironed out.

Specialist Market ResearchThis type of research can involve a number of techniques, butperhaps the most common is the ‘mystery shopper’ technique.A mystery shopper - a trained market researcher - will visit thebranches of the service provider and pose as an ordinarycustomer. They will assess such aspects as the expertise of thestaff, courtesy and response times and will report back theirfindings. They may also observe the cleanliness of the premises,


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the overall appearance of the staff and the customer environ-ment. The purpose is to monitor overall standards andimpressions of quality, not to single out individual membersof staff.Mystery shoppers are widely used by banks, building societiesand other service outlets. Mystery diners !lave long been thebasis of some of the best known restaurant guides, andmystery guests are used to judge hotel standards.Observation techniques can also be used in assessing qualitystandards. The layout of waiting rooms and other facilities, in,say, hospitals, can be improve by observing the behavior ofvisitors. Signposts and directions can be made clearer ifnecessary, and vehicle access improved if observation suggeststhat these cause difficulty for users of the service. All of theseconsiderations contrib-ute to the customer’s perceived servicequality, and improvements should be made where necessary.The purpose of monitoring and evaluation in all of thesemethods is to ensure that plans and programmes are workingeffectively, and that desired standards are being achieved. Theremust be systems to feed back the findings of monitor-ingprocesses into the - service quality programmes so that con-tinual improvement can result. The quest for high qualityservice delivery never ends; in fact, the quality goalposts keepchanging as consumer tastes and developing technology bringabout higher standards.

SummaryOrganizations are becoming increasingly aware of the impor-tance of quality in gaining and maintaining competitiveadvantage. Service quality can only be measured against theneeds and expectations of consumers. The special charac-teristics of services make it difficult to define quality intraditional ways. A user-based approach can be used whichequates quality with the maximum levels of satisfaction; this isthe idea of perceived service quality.Because all services are essentially different, it is not possible todevelop a single set of standards or criteria against which qualitylevels can be measured. Specific common features which arelikely to impact on service levels in all service organizationsinclude the following:Customer participationIntangibilityThe service encounterInseparabilityA starting point for assessing quality within the organization isby means of a quality audit which examines the whole companyand all the processes which together comprise the serviceoffering. Checklists can be raised to address specific issuesconcerning each of these areas:Internal service deliveryInternal service qualityService delivery qualityBenchmarking is an important step in measuring and monitor-ing service quality. A benchmark is a standard against whichperformance can be measured. It should take into account the

standard at which competitors operate and should reflectoptimum quality within the competitive environment. Imple-menting quality service requires far more than the setting ofbenchmarks however; a highly developed customer orientationis vital if the organization is to meet and even” exceed customerexpectations continually. A detailed process for im-plementingservice quality involves the development of a quality strategy,programmes for implementation and monitoring and evalua-tion procedures.Service quality can be monitored through various techniquesbased around the following:Internal performance analysisCustomer satisfaction analysisSpecialist market research

TutorialsIn light of above, Compare the Service quality standards ofHaldiram’s versus Mc.Donalds.


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LESSON 18:SERVICE STANDARDS

The Objective of this Lesson is to havean insight into• Factors necessary for appropriate service standards

Factors Necessary for AppropriateService StandardsStandardization of Service Behaviors and ActionsThe translation of customer expectations into specific servicequality standards de-pends on the degree to which tasks andbehaviors to be performed can be standardized or reutilized(Figure 9-1). Some executives and managers believe that servicescannot be standardized-that customization is essential forproviding high-quality service. In certain “expert” services suchas accounting, consulting, engineering, and dentistry, forexample, professionals provide customized and individualizedservices; standard-izing of the tasks is perceived as beingimpersonal, inadequate, and not in the cus-tomer’s bestinterests. Managers also may feel that standardizing tasks isinconsistent with employee empowerment-that employees willfeel controlled by the company if tasks are standardized.Further, they feel that services are too intangible to be mea-sured. This view leads to vague and loose standard setting withlittle or no measurement or feedback.In reality, many service tasks are routine (such as those neededfor opening check-ing accounts or spraying lawns for pests), andfor these, specific rules and standards can be fairly easilyestablished and effectively executed. Employees may welcomeknowing how to perform actions most efficiently, for it freesthem to use their inge-nuity in the more personal and indi-vidual aspects of their jobs. If services are cus-tomized forindividual customers (e.g., investment portfolio managementor estate planning), specific standards (such as those relating totime spent with the customer) may not be appropriate. Even inhighly customized services, however, many aspects of serviceprovision can be reutilized. Physicians and dentists, forexample, can and do standardize recurring and non technicalaspects of the service such as checking pa-tients in, weighingpatients, billing patients, collecting payment, and taking routinemeasurements. In delegating these routine tasks to assistants,physicians and dentists can spend more of their time on themore expert services of diagnosis or patient care.According to one long term observer of services industries,standardization of service can take three forms: (1) substitutionof technology for personal contact and human effort, (2)improvement in work methods, and (3) combinations of thesetwo methods.4 Examples of technology substitution includeautomatic teller machines, au-tomatic car washes; and airport X-ray machines. Improvements in work methods are illustrated byrestaurant salad bars and reutilized tax and accounting servicesdevel-oped by firms such as H&R Block and ComprehensiveAccounting-Corporation.

Technology and work improvement methods facilitate thestandardization of service necessary to provide consistentdelivery to customers. By breaking tasks down and providingthem efficiently, technology also allows the firm to calibrateservice standards such as the length of time a transaction takes,the accuracy with which op-erations are performed, and thenumber of problems that occur. In developing work improve-ments, the firm comes to understand completely the process bywhich the service is delivered. With this understanding, the firmmore easily establishes appro-priate service standards.How does a company change the way work is done to make theprocess of deliver-ing service match what customers expect?The concept of reengineering of company processes plays amajor role. Reengineering involves rethinking the way thecompany is organized to perform its work. Often it involvescreating completely new processes and approaches and ignoringthe way work has been accomplished in the past. We will discussreengineering and process management in other chapters, butthese go hand in hand with the standards material we describein this chapter.Standardization, whether accomplished by technology or byimprovements in work processes, reduces gap 2. Both technol-ogy and improved work processes structure im-portantelements of service provision and also facilitate goal setting. It isimportant to recognize that standardization does not mean thatservice is performed in a rigid, me-chanical way. Customer-defined standardization ensures that the most critical elementsof a service are performed as expected by customers, not thatevery action in a service is executed in a uniform manner. Usingcustomer-defined standardization can, in fact, allow for and becompatible with employee. Empowerment. One example ofthis compatibility involves the time limits many companiesestablish for customer service calls. If their customers’ highestpriorities involve feeling good about the call or resolvingproblems, then setting a limit for calls would be decidedlycompany de-fined arid not in customers’ best interests. In otherwords, this would be standardiza-tion that both constrainsemployees and works against customer priorities. Companiessuch as American Express and L. L. Bean, in using customerpriorities rather than company priorities, have no set standardfor the amount of time an employee spends on the telephonewith a customer. Instead, they have standards that focus onmaking the customer satisfied and comfortable, allowingtelephone representatives to use their own judgment about thetime limits.

Formal Service Targets and GoalsCompanies that have been successful in delivering consistentlyhigh service quality are noted for establishing formal standardsto guide employees in providing service. These companies havean accurate sense of how well they are performing service that iscritical to their customers-how long it takes to conduct transac-


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tions, how fre-quently service fails, now quickly they settlecustomer complaints-and strive to im-prove by defining goalsthat lead them to meet or exceed customer expectations.Several types of formal goal setting are relevant in servicebusinesses. First, there are specific targets for individualbehaviors or actions. As an ex-ample, consider the be-havior“calls the customer back quickly,” an action that signals respon-siveness in con-tact employees. If the service goal for employeebehavior is stated in such a general term as “call the customerback quickly,” the standard provides little direction for serviceemployees. Different employees will interpret this vagueobjective in their own Ways, leading to inconsistent service:Some may call the customer back in 10 minutes whereas othersmay wait two to four days. And the firm itself will not be ableto de-termine-when or if individual employees meet the goalbecause its- expression is not measurable-one could justifyvirtually any amount of time as “quickly.” On the other hand, ifthe individual employee’s service goal is to call each customerback within four hours, employees have a specific and unam-biguous guideline about how quickly they should execute theaction (four hours). Whether the goal is met is also unequivo-cal: If it occurs within four hours it meets the goal, otherwise itdoes not.Another type of formal goal setting involves the overalldepartment or company tar-get, most frequently expressed as apercentage, across all executions of the behavior or action. Forexample, a department might set as its overall goal “to call thecustomer back within four hours 97 percent of the time” andcollect data over a month’s or year’s time to evaluate the extentto which it meets the target.Service firms that produce consistently excellent service-firmssuch’ as Walt Disney, Federal Express, and Merrill Lynch-havevery specific, quantified, measur-able service goals. Walt Disneycalibrates employee performance on myriad behaviors andactions that contribute to guest perceptions of high servicequality. Whether-they are set and monitored using audits (suchas timed actions or customer perceptions (such as opinionsabout courtesy), service standards provide a means for formalgoal setting.

Customer not Company-Defined StandardsVirtually all companies possess service standards and measures.that are company de-fined they are established to reach internalcompany goals for productivity, efficiency, cost, or technicalquality. To close gap 2, standards set by companies must bebased on ‘customer requirements and expectations rather thanjust on internal company goals. In this chapter we make the casethat company-defined standards are not typically suc-cessful indriving’ behaviors that close provider gap 2. Instead a companymust set customer-defined standards operational standardsbased on pivotal customer require-ments that are visible to andmeasured by customers. These standards are deliberately chosento match customer expectations and to be calibrated the way thecustomer views and expresses them. Because these are the goalsthat are essential to the provision of excellent service the rest ofthis chapter focuses on customer-defined standards.Knowing customer requirements, priorities, and expectationlevels can be both ef-fective and efficient. Anchoring service

standards on customers can save money by identifying whatthe-Customer values, thus eliminating activities and featuresthat the customer either does not notice or will not pay for.Through precise measurement of expectations, the companyoften discovers that it has been over delivering to many cus-tomer needs:On the other hand, many firms create standards and policies tosuit their own needs that are so counter to the wishes. ofcustomers that the companies endanger their cus-tomerrelationships. In late 1998, ‘when the hotel industry wasbooming, many hotels initiated policies penalizing late arrivalsand early departures as well as imposing minimum-stayrequirements. The Hilton San Francisco and Towers Hotelbegan to charge guests $50 when they stayed fewer days thanagreed to at check-in. The Peabody Orlando Kept guests’ one-night deposits unless they canceled at least three days prior toarrival. And a Chicago hotel required a business customer tobuy four nights’ lodging when all she needed was three, puttingthe-customer out an extra cost of $2,700!6 Hotels defend thesepolicies on the basis of self-protection, but they are clearly notcustomer oriented.While customer-defined standards need not conflict withproductivity and effi-ciency, they do not originate with thesecompany concerns. Rather they are anchored in and steered bycustomer perceptual measures of service quality or satisfaction.The service standards that evolve from a customer perspectiveare likely to be different from company-defined service stan-dards.Virtually all organizations have lists of things they measureregularly, most of which fall into the category of company-defined standards. Often these standards deal with activities oractions that reflect the history of the business rather than thereality of today’s competitive marketplace or the needs ofcurrent customers.

Customer-defined Service StandardsThe types of standards that close provider gap 2 are customer-defined standards, oper-ational goals and measures based onpivotal customer requirements that are visible to and measuredby customers. They are operations standards set to correspondto cus-tomer expectations and priorities rather than to companyconcerns such as productiv-ity or efficiency. Take a typical‘Operations standard such as inventory control. Most firmsmeasure inventory control from the company’s point of view.However, the highly successful office supply retailer OfficeDepot captures every single service measurement related toinventory control from the customer’s point of view. The com-pany began with the question, “What does the customer see?”and answered, “The av-erage number of stock outs per week.”Office Depot then designed a customer-focused measurementsystem based on measures such as the number of complaintsand com-pliments it received about inventory as well as atransaction-based survey with the cus-tomer about its perfor-mance in this area. These and other customer-defined standardsallow for the translation of customer requirements into goalsand guidelines for em-ployee performance.


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“Hard” Customer-Defined StandardsTwo major types of customer-defined service standards can bedistinguished. All of the Federal Express standards thatcomprise the SQI fall into the category of “hard” standards andmeasures:-things that can be counted, timed, or observedthrough au-dits. Many of Federal Express’s standards relate toon-time delivery and not making mistakes, and for goodreason. As we stressed earlier in this text, customer expecta-tions of reliability-fulfillment of service promises-are high. Aseries of 35 studies across numerous industries from theArthur D. Little management consulting firm found that themost frequently cited customer complaint was late product andservice delivery (44 percent), followed by product and servicequality mistakes (31 percent).?To address the need far reliability, companies can institute a “do.it right the first time” and an “honor your promises” valuesystem by establishing reliability standards .An example of ageneric reliability standard that would be relevant to virtually anyservice company is “right first time,” which means that theservice performed is done correctly the first time according tothe customer’s assessment. If the service involves delivery ofproducts right first time” to the customer might mean that theshipment is accurate-that it contains all that the customerordered and nothing that the customer did not order. If theservice involves installation of equipment, “right first time”would likely mean that the equipment was installed correctlyand was able to be-used immediately by the customer. Anotherexample of reliability standard is “right an time,” which meansthat the service is performed at the scheduled time. Thecompany representative arrives when promised or the delivery ismade at the time the customer expects it. In more complexservices, such as disaster recovery or systems integration incomputer service, “right an time” would likely mean that theservice was completed by the promised date.When it comes to providing service across cultures andcontinents, service pro-viders need to recognize that customer-defined service standards often need to be adapted. In theUnited States we expect waiters to bring the check promptly. Infact, if we do not receive it shortly after the last course, andwithout our asking for it, we evaluate the service as slaw andnon responsive. In Spain, however customers can side it rudefar the waiter to bring the check to the table without being askedto. do so. They feel rushed, a state they dislike during meals.While bringing the check to the table (whether sooner or later,requested or not) is an activity that restaurants need to incorpo-rate as a customer-defined service standard, the parameters ofthe standard must be adapted to the culture.Hard service standards far responsiveness are set to ensure thespeed or promptness with which companies deliver products(within two working days), handle complaints (by sundowneach day), answer questions (within two hours), and arrive farrepair calls (within 30 minutes of estimated time). In additionto standard setting that speci-fies levels or response, companiesmust have well-staffed customer service depart-ments. Respon-siveness perceptions diminish when customers wait to getthrough to the company by telephone, are put on hold, or aredumped into a phrase mail system.

Table 9-1 shows a sampling of the hard standards that havebeen established by service companies. This list is a small subsetof all of these standards because we in-clude only those thatcustomer defined-based an customers’ requirements andperspectives. Because. Federal Express has a relatively simple andstandard set of services, it can translate mast of its customers’requirements into hard standards and measures. Nat allstandards, however, are as easily quantifiable as these at FedEx.

Soft Customer Defined StandardsAll customer priorities cannot be counted, timed, or observedthrough audits. As Al-bert Einstein once said, “Nat everythingthat counts can be counted, and not every-thing that can becounted, counts.” Far example, “understanding and knowingthe customer” is not a customer priority far, which a standardthat counts, times, or observes employee’s can adequatelycapture. In contrast to hard measures, soft measures are thosethat must be documented using perceptual measures. We callthe second category of customers-defined standards softstandards and measures because they are opinion-basedmeasures that cannot be observed and must be collected bytalking to customers, employees, or others. Soft standardsprovide direction, guidance.Table 9-1 Examples Of Hard Customer-defined Standards

back to employees in ways to achieve customer satisfaction andcan be quantified by measuring customer preconceptions andbeliefs. These are especially important for person-to-personinteractions such as the selling process and the delivery ‘processfor professional services. Table 9-2 shows examples of softcustomer-defined standards.Mini Maid Services, a firm that franchises home and officejanitorial services, suc-cessfully built a business by developing arepertoire of 22 customer defined soft stan-dards for dailycleaning chores; The company sends out crews of four whoperform these 22 tasks in an average time of 55 minutes for a

Honeywell (Home and Building Division) Southern Pacific Federal Express Dun and Bradstreet Information Services University Microfilms Great Plains Software Canadian Imperial Bank of Commerce Aetna/U.S. Healthcare Granite Rock Lens crafters (optical retailer) Texas Instruments (Defense Systems Electronics Group)

Fast response; on-time delivery; order accuracy 19 key attributes On-time delivery Fast turnaround on company investigations Fast processing of theses Rapid response to technical problems Accessibility Fast response; regular contact with customer’s Getting the concrete when the crew is ready Quick turnaround on glasses Compliance with commitments; more personal contact

Orders- entered same day received; orders delivered when promised; order correct Operational measures to correspond with the 19 key attributes Number of packages right day late; Number of packages wrong day late; Number of missed pickups 36-hour response time (previous standard: 7 days) Theses processed in 60 days (previous average, 150 days) Response time guaranteed at 1 or 3 hours (or get $25 coupon) 5-minute early opening and late closing 20-second average call answering; 95% same day problem resolution; 2 -hour response time for requests; proactive service calls 3 times per year On-time delivery Glasses in 1 hour On-time delivery; product compliance to requirements; number of customer visits

Company Customer priorities Customer-defined standards


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fee ranging from approximately $45 to $55. Follow-up trailercalls survey customer perceptions of the effectiveness of thesesoft standards.The Ritz-Carlton, inner of a Malcolm Baldrige Award, uses a setof; “Gold Standards” to drive the service performance it wants.The soft standards established are in-cluded in Table 9-2. -The differences between hard and soft standards are illustratedin Exhibit 9-1 using the customer care standards developed atFord Motor Company.

One- Time FixesWhen customer research is undertaken to find out what aspectsof service need to be changed, requirements can sometimes bemet using one-time fixes. One-time fixes are technology, policy,or procedure changes that, when instituted, address customerrequirements (see Exhibit 9-2). Performance standards do nottypically need to be developed for these dissatisfies because theone-time change in technology, policy, or procedures accom-plishes the desired change.Table 9-2 Examples Of Soft Customer-defined Standards

Company Customer priorities Customer-defined standards General Electric Ritz-Carlton Nationwide Insurance L. L. Bean BellSouth American Express

Interpersonal skills of operators: Tone of voice Problem solving Summarizing actions Closing Treat me with respect Responsiveness Calming human voice; minimize customer anxiety. Telephone responsiveness Resolution of problems Treatment Courtesy of representative

Taking ownership of the call; following through with promises made; being courteous and knowledgeable; understanding the customer's question or request "Gold Standards" Uniforms are to be immaculate Wear proper and safe footwear Wear name tag Adhere to grooming standards Notify supervisor immediately of hazards Use proper telephone etiquette. Ask the caller, "May I place you on hold?" Do not screen calls Eliminate call transfers where possible Human voice on the line when customers report problems Tone of voice; other tasks not done (arranging gift boxes) while on the telephone with customers Customers not put on hold or transferred; ability to answer questions; courteous and professional; caring and concern Resolve problem at first contact (no transfers, other calls, or multiple contacts); communicate arid give adequate instructions; take all the time necessary. Listen; do everything possible to help; 'be appropriately reassuring (open and honest) Put card member at ease_ be patient in explaining billing process; display sincere interest in helping card member; listen attentively; address card member by name; thank card member at end of call

To illustrate policy and procedure changes in an internationalcontext, consider London’s Central Middlesex Hospital. At onetime almost everything about Central Middlesex, from thearchitectural design of the buildings to staff processes andactivities, centered on the inpatient aspects of the business,despite the fact that 90 per-cent of the hospital’s patients wereoutpatients. When the hospital became a self governing trustunder the British government’s National Health Servicereforms, plans were announced to convert it to a patient-focused hospital. The most important one-time fix was toreverse the emphasis from inpatients to outpatients. With therecogni-tion for this change, the hospital was reorganizedaround 14 ambulatory centers’ such as rehabilitation servicesand a family care center that combined obstetrics, pediatrics, andgynecology.Examples of successful one-time fixes include Marriott Hotel’sexpress checkout and-cheek-in, Hertz and other rental carcompanies’ express check-in, GM Saturn’s one-price policy forautomobiles, and Granite Rock’s 24-hour express service. Ineach of these examples, customer had expressed a desire to beserved in ways different from the past. Marriott’s customers hadclearly Ti1dicatecf’thelr frustration at waiting in long checkoutlines. Saturn customers disliked haggling over car prices in dealershowrooms. And Granite Rock, a Malcolm Baldrige NationalQuality Award winner with a “commodity” product, had’customers who desired 24-hour availability of ground rockfrom its quarry.

Exhibit 9-1 Hard and Soft Standards atFord Motor CompanyAs we discuss in this chapter, there are two types of customer-defined service standards. “Hard” standards and measures areoperational measures that can be counted, timed, or observedthrough audits. The other category,’“Soft” standards, are” option based measures that cannot beobtained by counting or timing but instead must be asked ofthe customer. A real example of the difference between, hardand soft standards might help distinguish between them. Weuse Ford Motor Company’s CustomerCare standards for service at their dealerships. Marketingresearch involving 2,400 customers asked them about spe-cificexpectations for automobile sales and service; the fol-lowingseven specific service standards were established as most criticalto customers:1. Appointment available within one day of customer’s

requested service day.2. Write-up begins within four minutes or less.3. Service needs are courteously identified, accurately recorded

on repair order, and verified with customer.4. Vehicle serviced right on the first visit.5. Service statuses provided within one minute of inquiry.6. Vehicle ready at agreed-upon time.7. Thorough explanation given of work done, coverage, and

charges.


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Hard Standards and MeasuresSeveral of these standards fall into the category of hardstandards-,-they can be, timed, or observed through audits.Standards 2 and 5, for example, could be timed by an employeein the service establishment. The hard measure could be either(1) the frequency or percentage of times that the standard’s timeperiods are met or (2) the av-erage times themselves (e.g.,average time that write-ups begin). Other standards could becounted or audited, such as standards 1,4, and 6. The serviceclerk who answers the telephone could record the number oftimes that appoint-ments were available within one day of thecustomer re-quest. The number of repeat visits could becounted to measure standard 4. And the number of vehiclesready at the agreed-upon time could be tallied as customerscome in to pick up their cars.

Soft Standards and MeasuresAs Albert Einstein once said, “Not everything that counts canbe counted, and not everything that can be counted, counts.”Consider standards 3 and 7 and note how they dif-fer from theones we have just discussed. These represent desired behaviorsthat are soft and therefore cannot be counted or timed.Standard 7 requires a different type of measure-the customer’sperception or opinion’ about whether this behavior wasperformed appropriately. It is not that soft standards cannot bemeasured; instead, they must be measured in different ways.Soft standards provide direction, guidance, and feed-back toemployees in ways to achieve customer satisfac-tion and can bequantified by measuring customer percep-tions and beliefs.These are especially important for person-to-person interactionssuch as the selling process and the delivery process for profes-sional services.Where most companies in their industries decided for variousreasons not to ad-dress’1hese customer requirements, Marriott,Saturn, and Granite Rock each re-sponded with one-time fixesthat virtually revolutionized the service quality delivered by theircompanies. Marriott used technology to create Express Check-out,! a one-time fix that also resulted in productivityimprovements and cost reductions. The company also pio-neered a similar one-time fix for hotel Express Check-In, againin response to customers’ expressed desires’. Saturn counteredindustry tradition and offered cus-tomers a one-price policy thateliminated the haggling characteristics of automobiledealerships:’ And Granite Rock created an ATM like system for24-hourcustomer access’ to rock ground to the 14 most popularconsistencies. The company created its own Granite Express,Card that allowed customers to enter, select, and receive theirsupplies at any time of the day or night.

Exhibit 9-2 One-time Fixes and Waiting inLineFew customers like to wait in line, and any of us measure theresponsiveness and service of an organization by how long ittakes us to get to the teller or the counter or our table in. arestaurant. Because customers so often wait so long it maysurprise your to rise you to know that the Subject is a source ofconstant ‘study and one-time fixes in service companies! TakeMcDonald’s, for example. In the late 1990s, an experimentconducted in 70 McDonald’s restau-rants in California tested

whether it should change its age- old process of multiplewaiting lines into a “serpentine -style” single line. Both Wendy’sand Burger King already use the single-line system, as doairlines, banks, many ho-tels, and even the U.S. Postal Service.McDonald’s re-search was conducted because the company wasnot cer-tain that customers were served best by a single line.Let’s visit the single-versus-multiple-line question to see whichcreates the better standard for customer service.

The Single Line Is BetterFairness speed, and lack of stress and frustration top the reasonmany companies and behavioral. researchers favor a single line.Consider the following scenario:You fling open the door to a McDonald’s, size up how fast thevarious lines are moving, trying to avoid any mega orders in theworks. When you pick a line, you keep glancing from side to sideto see-if others are gaining on you. Inevitably, people whojump from line to line jostle one another. These queue hoppersalso sometimes-arrive at the register clueless about what theywant to order.Multiple lines have been found to create tremendous stress oncustomers because they require effort to be sure the right” line ischosen. How many times have you been frustrated in lines andwondered how it is that you always choose the slow cashier/teller/order-taker?

Multiple Lines Are BetterThose who oppose a single line do so on three counts. ‘First,some critics claim they are “dehumanizing, Because [the] velvetropes corral customers like’ cattle.” 10 Second one line canappear to/be much longer than several short ones, a perceptionthat is incorrect based on actual time measurements but isnevertheless sufficient to drive cus-tomers away in search of anestablishment with a shorter appearing wait. Finally, many ofthem are difficult to use by the disabled.Experts claim that most customers prefer the single line overthe multiple lines, but innovative and customer -focused firmsare going further than just making that deci-sion. Some aremanaging’ customer perceptions in lines, giving them some-thing to watch or read or otherwise focus on to get their mindsoff the waits. Others are removing lines altogether, as is the casewith restaurants (and some doctor’s offices) that give customerspagers so that ‘they can shop or go elsewhere until it is time forthem to be served. Still others are letting customers know howlong. the wait is. Digital signs in the lobby of First ChicagoNED Corporation tell customers the anticipated length of theirwait, an up-to-date electronic version of the signs at Walt’Disney theme parks that let little customers know how manyminutes until they ride Space Mountain.One-time fixes are often accomplished by hard technology. Hardtechnology can simplify and improve customer service, particu-larly when it frees company personnel by handling routine,repetitious tasks and transactions. Customer service employeescan then spend more time on the personal and possibly moreessential portions of the job. Some hard technology, inparticular computer databases that contain information onindividual needs and interests of customers, allows thecompany to standardize the essential elements of service


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delivery. Basic delivery standards can then be established andmeasured. Some types of hard technology useful in standardsetting include information databases, automated transactions,and scheduling and delivery systems. Ef-fective use of informa-tion databases is illustrated in this example from Pizza Hut:Pizza Hut centralized and computerized its home deliveryoperations. Rather than having the separate tasks of ordertaking, baking, and delivery all in the same location, thecompany de-veloped a system that works more effectively forboth the company and the customer. Op-erators in a customerservice center (not a bakery) take requests for pizza. Workingfrom a database that shows past orders, trained operators takean average of 17 seconds to verify di-rections to a caller’s homeand enter his or her request. Operators then route the orders tothe closest bake shops, which are strategically located through-out cities to ensure fast de-liveries. Cooks in the satellite bakeshops prepare pizzas on instructions sent to bake shop printersfrom order-takers’ computers. Drivers aim to complete theirdeliveries within a half hour of a customer’s call, and usuallysucceed.One-time fixes also deal with the aspects of service that areaffected by things other than human performance: rules andpolicies, operating hours, product quality, and price. An exampleof a one-time fix involving a policy change is that of allowingfront-line employees to refund money to dissatisfied custom-ers. An example of operating hour changes’ is one allowingretail establishments to be open on Sundays.

Building blocks: The Service Encounter SequenceCustomer-defined standards are established to define processesor human performance operationally to meet the expectationsof customers”; Performance requirements are rarely the sameacross all parts of a company; instead they are associated withparticular service processes and encounters. Consider Figure9-2,a representation of AT&T General BusinessSyst6ms’ customercontact focuses, which decomposes the relationship between thecustomer and AT&T across the entire business. Except for thetop branch, labeled Product” (which reflects the tangibleequipment the company sells), each of the business processbranches represents a company process during which customersand the firm interact. The first customer-firm interaction pointis sale followed by installation, repair, and billing. AT&Trecognized that its cus-tomers’ requirements and prioritiesdiffered across these processes. Because of these differences,internal measurements chosen to drive behavior differ acrossthe pro-cesses arid correspond to customers/’priorities in eachindividual encounter.A customer’s overall service quality evaluation is the accumula-tion of evaluations of multiple service experiences. Serviceencounters, therefore, are the building blocks for service qualityand the component piece needed to establish service standardsin a company. In establishing standards we are concerned withservice encounter quality, because we want to understand foreach service encounter the specific requirements and priorities,of the customer. When we know these priorities we can focuson them the ‘aspects’ of service encounters for which standardsshould be established. There-fore, one of the first steps Inestablishing customer-defined standards is to delineate the

service encounter sequence. Identifying the sequence can bedone by listing the sequential steps and activities that thecustomer experiences in receiving the service. Alternatively,service blueprints, can be used to identify the sequence bynoting all of the customers activities across the top of the.blueprint Vertical lines from customer activities into the lowerlevels of the blueprint signal the points at which-serviceencounters Jake place. Standards that meet customer expecta-tions can then be established.

Addressing Customer Requirements as SpecificBehaviors and ActionsSetting a standard in broad conceptual terms, such as improveskil1s in the company,” is ineffective because the standard isdifficult to interpret, measure, and achieve. When a companycollects data, it often captures customer requirements in veryabstract terms. In general contact or field people often find thatdata are not diagnostic-they are too broad and general. Researchneither tells the in specifically what is wrong and right in theircustomer relationships Q-or helps them understand whatactivities can be eliminated so that the most important actionscan be accomplished. In most cases, field people need helptranslating the data into specific actions to deliver bettercustomer service.Effective service standards are defined in very specific ways thatenable employees to understand what they are being asked todeliver. At best, these standards are set and measured in termsof specific responses of human behaviors and actions, asillustrated by the following quote from an American Airlinesexecutive:We have standards for almost every area of the operation, andwe check them on a regular ba-sis We are constantly measuringhow long it takes us to answer a reservations call, or process acustomer in a ticket line, or get a plane-load of passengers onboard the aircraft, or open the door of the airplane once itreaches its destination or get food on or get trash Off.

Global Feature

Should Service Standards be Universal?As service companies expand their offerings to interna-tionalstages, they face a critical question about service de-livery: Do weprovide the same level of service in other countries as we do inour home country? The answer to this question depends on theanswers to several other questions. First, are customer expecta-tions of service de-livery uniform across international locations,or do cultural influences lead to different service deliveryexpectations? Second, what is the performance of competingfirms in the countries where expansion is to take place? Third,do per-sonnel and infrastructure constraints exist in other coun-tries that prevent meeting service performance expecta-tions?While all of these questions are important, we discuss the’answer to the first most fully’ because .it strongly influences theother two ‘questions.

Responsiveness Varies by CulturesIt has been shown that customers from 9ifferent cultures havedifferent tolerances for service responsiveness and timeliness.As we discussed in this chapter Spanish. and American custom-ers have different expectations of the speed with which a check


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is brought to the table following a meal. While Americansconsider bringing the check to the table quickly to be goodservice, Spanish customers are in-sulted-believing that theservice establishment is rushing them out the door.Larry Crosby, a renowned marketing researcher who has focusedon international customer expectations, has pro-vided researchevidence of differences in international customer expectationthat lead directly to implications for service standards. In hiswork on customer expectations of service perceptions acrosscountries; he developed the ac-companying exhibit, which arehelpful and revealing. Two of the exhibits, one for mail delivery(A) and one for a sup-plier’s follow-through on requests (B),provide evidence of how differently customers view levels ofresponsiveness. In Italy, more than 70 percent of customer ratereceiving a letter mail in their country within three days good,very good, or excellent. In contrast, in the United Kingdom orthe Netherlands, more than 90 percent consider that level of re-sponsiveness to be fair or poor. As business-to-businesscustomers of suppliers (B), Italians consider 75 percent follow-through on requests to be quite good (nearly 50 per-cent ratingthat level good, very good, or excellent), while al-most 60percent of Australians consider that same service level to be fairor poor. As you can see, there is a great dif-ference in tolerancesfor responsiveness across countries.

Reliability Varies by CulturesOther cultural expectation differences discussed in earlierchapters have a major effect on the service standards set indifferent countries. Asians are more sensitive to reliabil-ity thanmany other cultural groups, making it important that servicestandards focus on this area and ensure that performance is aspromised. This sensitivity is demon-strated in Exhibit C. Theratings of a concert pianist who makes one noticeable mistakein a one-hour solo perfor-mance are shown for people from theUnited State, Canada, Italy, and Japan. While 45 percent ofAmericans and 40 percent of Canadians still consider theperformance to be good, very good, or excellent, only 30 percentof the Japanese rated it that highly in fact; around 65 percentdevalued the performance to fair or poor based on one mistake!In this particular entertainment service, the ratings of Italianswere similar to the ratings of the Japanese; how ever in manyother services Europeans are more forgiving than Asians ofreliability problems.


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LESSON 19:INTERNAL SERVICE AUDIT

The Objective of this Lesson is to• Internal service audit

Steps in Conducting an InternalCustomer Service AuditDefine Your Customer

1. List all the people or departments in the organization whoneed help from you or your department in any way. This mayinclude specific departments, particu-lar staff people, theCEO, certain executives, or the board of directors,

2. Prioritize the names on the list, placing the people ordepartments that rely on you the most at the top.

Identify Your Contribution3. For each of these customers, specify the primary need you

think they have to which you can con-tribute. Talk to yourinternal customers about what problems they are trying tosolve and think about how you can help.

Define Service Quality

4. What are the critical moments of truth that really de-fine thedepartment-internal customer interface from your customer’spoint of view? Map the process, and list the moments oftruth. Source: Reprinted from Karl Albrecht, At America’sService

5. For each major internal customer design a customer reportcard (based on customer input) and a set of evaluationcriteria for your department’s service package, as seen throughthe eyes of that customer.

The criteria might include such dimensions as time- lines,reliability, and cost.

Validate Your Criteria

6. Talk to your customers. Allow them to revise, as nec-essary,how you saw their needs and the criteria they used inassessing your performance. This dialogue itself can go along way toward building internal service teamwork.

Measure Service Quality

7. Evaluate your service (using internal measures and/orcustomer surveys) against the quality criteria you es-tablishedin talking to your customers. See how you score. Identifyopportunities for improvement. Set up a process andtimetable for following through.

Develop a Mission Statement Based on What YouContribute8. Consider drafting a brief, meaningful service missions

statement for your operation. Be certain to frame it in termsof the value you contribute, not what you do. For example,the mission of the HR department should not be “to delivertraining” (the action); it would be “to create competentpeople” (the contribution).

Provide Supportive Technology and Equipment: Whenemployees don’t have the right equipment, or their equipmentfails them, they can be easily frustrated in their desire to deliverquality service. To do their jobs effectively and efficiently, serviceemployees need the right equipment and technology. OurTechnology Spotlight in this chapter highlights the role offront-office automation in providing technology support foremployeesHaving the right technology and equipment can extend intostrategies regarding workplace and workstation design. Forexample, in designing their corporate head-quarters offices,Scandinavian Airline Systems identified particular service-oriented goals that it wished to achieve, among them teamworkand open and frequent com-munication among managers. Anoffice environment was designed with open spaces, to encour-age meetings, and internal windows in offices, to encouragefrequent inter-actions. In this way the workspace facilitated theinternal service orientation.

Develop Service-Oriented Internal ProcessesTo best support service personnel should be designed withcustomer value and customer satisfaction in mind. In otherwords, internal procedures must support quality serviceperformance.To illustrate, at Banca di America e di Italia in Italy, retail-banking support systems allow tellers to service customerseffectively and quickly, while at the same time pro-viding themwith detailed information for cross-selling. The teller handles acheck only twice, and because of technological support requiresno human back-office assistance. This efficient system cameabout as a result of a decision to cut costs and simultaneouslyimprove customer service. To achieve these goals, all retailbanking transactions were broken down into 10 “families” (e.g.,payments, deposits, with-drawals, etc.). Then each type oftransaction was redesigned to make it more customer-serviceoriented and to eliminate unnecessary steps that created novalue for the customer. For example, the checking deposittransaction previously required 64 ac-tivities, nine forms, and 14accounts. After redesign it needed 25 activities, two forms, andtwo accounts. The-result for Bal has been increased efficiency,reduced costs, greater customer satisfaction, and profitablegrowth (revenue doubled in the five-year period following thechanges)In many companies internal processes are driven by bureaucraticrules, tradition, cost efficiencies, or the needs of internalemployees. Providing service- and customer- oriented internalprocesses can therefore imply a need for total redesign ofsystems, similar to the changes implemented by BAI. This kindof wholesale redesign of sys-tems and processes has becomeknown as “process reengineering.” While developing service-oriented internal processes through reengineering sounds


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sensible, it is proba-bly one of the most difficult strategies toimplement, especially in organizations that are steeped intradition.

Retain the Best PeopleAn organization that hires the right people trains and developsthem to deliver service quality, and provides the needed supportmust also work to retain the best-ones. Em-ployees overespecially when the best service employees are the-ones leaving,can be very detrimental to customer satisfaction employeemorale, and overall service quality. And, just as they do withcustomers some firms spend: a lot of time attracting employeesbut then tend to take them for granted (or even worse), causingthese good employees to search for job alternatives. Where as allof the strategies noted in the in-ternal marketing wheel (Figure11-5) will support the retention of the best employees, here wewill focus on some strategies that are particularly aimed at thisgoal.Include *Employees in the Company’s Vision: For employ-ees to remain moti-vated and interested in sticking with theorganization and supporting its goals, they need to share anunderstanding of the organization’s vision. People who deliverservice day in and day out need to understand how their workfits into the big picture of the organization and its goals. Theywill be motivated to some extent by their pay-checks and otherbenefits, but the best employees will be attracted away to otherop-portunities if they aren’t committed to the vision of theorganization. And they can’t be committed to the vision if thatvision is kept secret from them. What this means in practice isthat the vision is communicated to employees frequently, andthat it is com-municated by top managers, often by the CEO.Respected CEOs such as Herb Kelle-her of Southwest Airlines,Howard Schultz of ‘Star bucks, Fred Smith of FedEx, BillMarriott of Marriott International, and Michael Armstrong ofAT&T are known for communicating their visions clearly andoften to employees. When the vision and direction are clear andmotivating, employees are more likely to remain with the com-pany through the inevitable rough spots along the path to thevision.Treat Employees as Customers: If employees feel valued andtheir needs are taken care of, they are more likely to stay with theorganization. An extreme example of this view is provided bythis quotation from Hal Rosebush, CEO of Rosebush Travel:As I watched people, knocking themselves out; for RosebushTravel, I suddenly realized that it was my responsibility to maketheir lives more pleasant. In simple terms; that meant givingpeople the right working environment, \the right tools, and theright leadership. It meant eliminating fear, frustration, bureau-cracy, and politics. Of course, .it meant decent compensationand bonuses when the company did well but it also meanthelping people develop as human beings.Many companies have adopted the idea that employees are alsocustomers of the organization, and that basic marketingstrategic can be directed at them. The prod-uct that the organiza-tion has to offer its employees is a job (with assorted benefits),and quality of work life. To determine whether the job andwork-life needs of em-ployees are being met, organizationsconduct periodic internal marketing research to assess employees

satisfaction and needs: For example, within American ExpressTravel Related Services, the Travelers Check Group (TCG) had agoal of “Becoming the Best Place to Work of by doing thefollowing:• Treating employees’ as customers.• Using employee input and a fact-based approach for decision

making in the de-sign and implementation of humanresources policies, programs, and processes.

• Measuring employee satisfaction and trying to ‘continuouslyimprove the work place environment

• Benchmarking and incorporating best practices.TCG developed an integrated employee survey program thatincluded assessment of employee satisfaction, an evaluation ofhow well them organization was doing in living up to its basicvalues, and an assessment from the viewpoint of its employeeson how well the company was doing in progressing toward itsquality goals. These surveys are combined with company wideinternal work force profiles and work and family surveys toassess employee needs. On the basis of all of the research, anumber of initiatives to benefit employees were launched,including an expanded employee assistance program child careresource and referral service; adoption assistance; health care andde-pendent care reimbursement plans; family leave; family sickdays; flexible returns; sabbaticals improved part time employeebenefits; flexible benefits; and workplace flexibility initiativesincluding job-sharing, flex place, and flextime scheduling. WhatAmerican Express and many other companies are finding is thatto ensure employee satisfaction, productivity, and retention theyare getting more and more involved in the private lives andfamily support of their workers.In addition to basic internal research, organizations can applyother marketing strategies to the it management of employees.For example, segmentation of the em-ployee population isapparent in many of the flexible benefit plans and career pathchoices now available to employees. Because not all employeesare homogeneous and their needs will change over time;employees will have different insurance, work- scheduling, andfamily needs. Organizations that are set up to meet the needsof spe-cific segments and to adjust as people proceed throughtheir lives will benefit from increased employee loyalty.Advertising and other forms of communication directed atemployees can also serve to increase their sense of value andenhance their commit-ment to theorganization.51Measure and Reward Strong Service Performers If a companywants the strongest service performers to stay with the organi-zation, it must reward and promote them. This may seemobvious, but often the reward systems in organizations are notset up to reward service excellence. Reward systems may valueproductivity, quantity, sales, or some other dimension that canpotentially work against good service. Even those serviceworkers who are intrinsically motivated to deliver high servicequality will become discouraged at some point and start lookingelsewhere if their efforts are not recognized and rewarded.Alternatively, they may stop providing high levels of service andsimply sink to meet the service performance of the lowestcommon de-nominator.


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Reward systems need to be linked to the organization’s visionand to outcomes that are truly important. For instance, ifcustomer retention is viewed as a critical outcome, servicebehaviors that increase retention need to be recognized andrewarded. This is the case at Toronto-based Cadet UniformServices, a uniform rental company. Cadet employs 35 deliveryroute drivers (called customer service representatives, or CSRs),50 to 60 percent of whose pay is based on customer retentionlevels. Reductions in pay are made for every customer that is lostfor controllable reasons. (Situations not within the control ofthe CSR include a business closing, bankruptcy, or nonpaymentcancel-lation.) Another 28’percent of CSR pay is based on directcustomer satisfaction input obtained in face-to-face interviewsconducted by a five-person team. Ninety-five per-cent of Cadet’sdrivers are college graduates, and their annual pay far exceedsindus-try averages. In determining whether this large invest-ment in employee rewards is worthwhile, the company canpoint to the following statistics: Turnover among employees isclose to 0 percent customer retention (excluding customers wholeave for uncontrollable reasons) is close to 99 percent, salescontinue to’ grow, and for the past 18 years average com-pounded growth for the company has been 22 to 23 percentan-nuallyIn companies where customer satisfaction in every serviceencounter is a goal, there is often a need, to adjust the criteria bywhich employee performance is judged. In some cases thismeans shifting from a total emphasis on productivity data andhard numbers to other means of assessment. At AT&T’scustomer sales and service centers, part of the reward system forindividual associates is based on customer satisfaction measuredat the level of the employee. Ongoing “true moments” surveysare used, whereby customers are called and asked to assess thelevel of service they received from, the particular employee theyinteracted with over the phone. These measure-ments (multiplecustomers for each employee each quarter) are then integratedinto the employee’s performance evaluation and rewarded. Suchmeasurement systems are challenging to effectively implement.The measures must be appropriate, the sampling of customersperformed fairly, and the employees must buy in to the validityof the re-sults. AT&T has been perfecting its process, withemployee involvement, for many years.Frequently these new reward structures are very difficult formanagers to accept be-cause they may not be linked to hard dataand thus may appear more subjective. In fact, many companiesare still struggling with this piece of the internal marketing puz-zle, and many find it the most difficult of all. Reward systemsare usually well entrenched, and employees have learned overtime how they need to perform within the old structures.Change is difficult both; for. the managers who may havecreated and still may believe in the old systems and for employ-ees who are not sure what they need to do to succeed under thenew rules.In developing new systems and structures to recognizecustomer focus and cus-tomer satisfaction, organizations haveturned to a variety of types of rewards. Tradi-tional approachessuch as higher pay, promotions and one-time monetary awardsor prizes can be linked to service performance; In some

organizations employees are encouraged to recognize each otherby personally giving a “peer award to an employee they believehas excelled in providing service ‘to the customer. Other type ofrewards include special organizational and team celebrations forachieving improved customer satisfaction or for attainingcustomer retention goals. In most service organizations it is notonly the major accomplishments but the daily perseverance andattention to de-tail that moves the organization forward, sorecognition of the “small wins: is also im-portant. Researchsuggests that when rewards are perceived as consistent withprovid-ing service and quality to customers, front line theemployees exercise less role stress and are more satisfied in theirjobs.53 They want to provided good, service, and when they arerewarded for doing so it employees are happy. In too manyorganizations, how-ever, reward and incentives systems are stillnot matched with customer satisfaction and loyalty goalsService Culture: Most of this chapter Has focused onstrategies for enabling customer -oriented service delivery.Looking at the bigger picture, beyond the specifies strategies, itis apparent that the behavior of employees in an organizationwill bi heavily influenced by the culture of the organization orthe pervasive norms and values that shape individual andgroup behavior. Corporate culture has been defined as thepattern of shared values and beliefs that given the members ofan organization meaning, and provide them with the rules forbehavior in the organization. Culture has been defined moreinformally as what we do around here, or organizational glue,”or central themes.Piglet in Winnie the Pooh might refer to culture as one of thosethings we sense “in an underneath sort: of way to understandat a personal level what cooperate culture- is, think of differentplaces you’ve worked or organizations you have been memberof such as churches” fraternities, schools, or associations. Yourbehavior and the behav-iors of others were no doubt influ-enced by the underlying values, norms and culture of the‘organization. Even when you first interview for a new job, youcart begin to get a sense of the culture through talking to anumber of employees and 6bserving be-havior. Once on thejob your formal training as well as informal observation of be-havior will work together to give you a better picture of theorganization culture.Experts have suggested that a customer-oriented, service-oriented organization will have at its heart a “service culture”defined as “a culture where dh. Appreciation for good serviceexists, and where giving good service to internal as will-as wellas ultimate, extremely customers is considered a natural way oflife and one of the most important norms by everyorze.”56This is a very rich definition with many implications for em-ployee behaviors. First, a service culture exists if there is an“appreciation for good service.” This doesn’t mean that thecompany has an advertising campaign that stresses the impor-tance of service, but that “in that underneath sort of way”people know that good service is appreciated and valued. Asecond important point in. this definition is that good service isgiven to internal as well as external customers. It is not enoughto promise excellent service to final customers; all people withinthe organization deserve the same kind of service. Finally, in a


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service culture good service is “a way of life” and it comesnaturally because it is an important norm of the organization.

Global FeatureHow well does a Company Service Culture Travel?While there are tremendous opportunities for growth in in-ternational markets, many companies find significant chal-lengeswhen they attempt to transport their services other countries.As you have learned in this chapter, services depend on people,are often delivered by people, and involve the interactionbetween employees and cus-tomers. Differences in values,norms of behavior, language, and even the definition of servicebecome evident quickly and have implications for training,hiring, and incentives that can ultimately affect the success of theinternational expansion: Companies with strong service culturesare faced with the question of whether to try to replicate theirculture and values in other countries or to adapt signifi-cantly. Afew examples illustrate different approaches.

McDonald’s ApproachMcDonald’s has been very successful in its internationalexpansion. In Some ways it has remained very “American” ineverything it does-people around the world want an Americanexperience when they go to McDonald’s. How-ever, thecompany is sensitive to cultural differences as well. This subtleblending of the “McDonald’s” way with adoptions to culturalnuances has resulted in great suc-cess. One way that McDonald’smaintains its standards is through its Hamburger University,which is required train-ing for all McDonald’s;-employeesworldwide before they can become managers. Each yearapproximately 3,000 employees from nearly 100 countries enroll– and attend the Advanced Operations Course at HU, located inOak Brook, Illinois. The, curriculum is 80 percent, devoted tocommunications and human-relations skills. The result is thatall managers in all countries have the same-’ketchup in theirveins,” and the restaurant’s basic- human resources andoperating philosophies remain fairly stable from oper-ation tooperation. Certain adaptations in decor, menu, and other areas -of cultural differences are then allowed (see the Global Featurein Chapter 10 for some specific example

UPS’s ExperienceUPS has a strong culture built on employee productivity, highlystandardized service delivery processes, and struc-tured training.Their brown trucks and uniforms are in-stantly . Recognizablein the United States As they ex-panded into countries-acrossEurope, UPS was surprised by some of the challenges ofmanaging a global workforce. Some .of the surprises they raninto: indignation in France, when drivers were told theycouldn’t have wine with lunch; protests in Britain, when drivers’dogs were banned from delivery trucks; and dismay in Spain,when it was found the brown UPS trucks resembled the localhearses.

Disney in EuropeWhen Disney first expanded into Europe by opening Eu-roDisney near Paris, they also faced challenges and sur-prises. Thehighly structured, scripted, and customer oriented approach thatDisney used in the United States was not easily duplicated with

European employees. In particular, the smiling, friendly, always-customer-focused behaviors of Disney’s U.S. workforce didnot suit the expe-rience and values of young French employees.In attempt-ing to transport the Disney culture and experience toEu-rope, the company was confronted - with clashing valuesand norms of behavior in the workplace that made the ex-pansion difficult. Customers also needed to be “trained” in theDisney way-not all cultures are comfortable with wait-ing inlong lines, for example. And not all cultures treat their childrenin the same ways. For example, in the United States, familieswill spend lots of money at Disneyland on food, toys, andother things that their children must have. Some Europeancultures view this behavior as highly indulgent, so families willvisit the park without buying much be-yond the ticket foradmission.

A U.S. Law Firm Goes to the United Kingdom

The professions such-’ as law and medicine have well- estab-lished and quite unique practices across cultures. Pay rates, workstyles, and business models can be quite ,different. So whathappens when a-law firm seeks to ex-pand its services toanother country? Unlike many- U.S law firms that tend topopulate their international offices with American lawyers, Weil,Goshal and Manages, a New York firm, opened its offices inLondon by hiring primarily British solicitors Who would-function as a firm with in a firm.” One - of the biggestchallenges they faced was how to blend the very differentAmerican and British legal cultures. First, the lawyers at Weil;Gotshal and -Manges tend to be worka-holics-commonlybilling 2,500 hour a year while in Lon-don a partner would bill arespectable 1,500 hours. Pay dif-ferences were also obvious-$650,OOO on average for London partners: $900,000 forAmericans. Conflict, rather than synergy, sometimes resultedfrom the deeply rooted cultural differences. Despite thechallenges, Weil, Gotshal says that its London operation brokeeven in 1998, its sec-ond year of operations, and shouldproduce a profit in 1999.

Developing a Service CultureThe last point just made suggests why a service culture cannotbe developed quickly and why there is no magic easy answer forhow to sustain a service culture The hu-man resource andinternal marketing practices illustrated by the strategies wheel inFigure 11-5 will support the development of a service cultureover time. If, however an organization has-a culture that isrooted in government regulation-, product-, or operations-oriented traditions, no single strategy will change it overnight.Hundreds of little (but significant) things, not just one or twobig things, are required to build and sustain a service culture. 57Successful companies such as AT&T, Yellow Freight Sys-tems,IBM Global Services, and Xerox, to name just a few examples,have all found that it takes years of consistent, concerted effortto build a service culture and to shift the organization from itsold patterns to new ways of doing business. Even for com-panies such as FedEx, Charles Schwab, Disney, and theRitz-Carlton that started out with a strong service and customerfocus, sustaining their established service cultures ,still takesconstant attention to hundreds to details.


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Supporting a Service CultureAs you might imagine, transporting a service culture throughinternational businessexpansion is also very challenging. While there are, tremendousopportunities in the ‘global marketplace, there are many legal,cultural, and language barriers that become particularly evidentfor services that depend on human interaction. Our GlobalFeature highlights some of the issues and experiences of severalcompanies as’ they attempt to transport their service cultures.

SummaryBecause many services are delivered by people to people in realtime, closing the service performance gap is heavily dependenton human resource strategies. Often service employees are theservice, and in all cases they represent the organizations incustomers’ eyes. They affect service quality perceptions to a largedegree through their influence on the five dimensions of servicequality: reliability, responsiveness, empa-thy, assurance, andtangibles. It is essential to match what the customer wants andneeds with service employees’ abilities to deliver.In this chapter we focused on service employees to provideunderstanding of the critical nature of their roles and apprecia-tion of the inherent stresses and conflicts they face. You learnedthat front-line service jobs demand significant investments ofemo-tional labor and that employees confront a variety of on-the-job conflicts. Sometimes service’ employees are personallyuncomfortable with the roles they are asked to play; other timesthe requirements of the organization may conflict with clientexpectations and employees must resolve the dilemma on thespot. Sometimes there are conflicting needs among customerswho are being served in turn (e.g., a bank teller line), or amongcustomers being served simultaneously (e.g., a college class-room). At other times a front-line employee may be faced witha decision regarding satisfying a cus-tomer versus meetingproductivity targets (e.g., an HMO physician who is required tosee a certain number of patients in a defined period of time).

TutorialsIn light of above, Perform an internal service audit of anyhospital, Compare the customer defined standards ofMoolchand hospital vis-à-vis Apollo hospital.


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LESSON 20:MARKET RESEARCH PROCESS

The Objective of this Lesson is to havean insight into• Market research applications for service marketing• Market research process• Gathering and storing information• Marketing information system

IntroductionAt the core of the marketing concept is the need fororganisations to be able to understand and anticipate theircustomers’ needs and wants. This close knowl-edge ofcustomers can only be found through marketing research, in itsvarious forms. At the simplest level, organisations shouldendeavour to keep track of its existing customers; who they are,where they come from, their buying patterns and so on. Neworganisations, or organisations seeking to enter new markets,will need to establish information about the market; its size andstructure, current and future demand and the major competi-tors.There are many tools which can be used in marketing research toenable service providers to get closer to their customers and tounderstand the markets in which they seek to operate. The mainapproaches and methods will be looked at in this chapter.Marketing information may come from both internal andexternal sources. Many valuable sources of information arefrequently to be found within organisations. Information,however, will not provide an effective solution to marketingmanagement problems unless it is timely, accurate and available.Systematic handling of information within organisations canensure that this is the case.Marketing information systems can be implemented withinorganisations to ensure that information is handled systemati-cally. The marketing information system brings togetherinformation from many sources, both internal and exter-nal,and can be a valuable decision making tool for managers. Itformalises information-gathering processes and brings togetherinformation and intelli-gence from employees, theorganization’s own records and external and new sources ofdata. The requirements for successful marketing informationsystems are also explored in this chapter.

Marketing Research Applications forServices MarketingMarketing research is used in all kinds of marketing situations.A basic definition of marketing research can be set down as:A systematic approach to identifying information needs,collecting and analyzing information to meet those needsutilizing the most appropriate methods.Although there are an infinite number of reasons for usingmarketing research, and a wide variety of research methods, itcan be described as having two fundamental aims:

To minimize risk (when plans are being made)To monitor performance (after implementation)The research process and the methods of conducting researchare the same for service providers and manufacturers andretailers of physical products. Exam-ples of service industriesusing marketing research are widespread, as the followingexamples show:The management of Eurostar, Britain’s new high-speedLondon-Paris channel tunnel train service, conducted extensiveresearch to establish what customers expected from the serviceand which customers to target. Research will be ongoing, withuser profiling and satisfaction monitoring playing a key part.Other special techniques, such as the use of ‘mystery shoppers’,will also figure in future research, to ensure quality standards aremet.First Direct, the Midland Bank’s telephone banking offshoot,undertook research into the brand, its image and what values itshould represent to its target market, prior to its launch and asongoing research.The Co-operative Bank used research to monitor the soundnessof its strategy when it ventured to re-position its image notthrough innovative new services but by reinforcing its ethicalstance. It established that its unwritten policies of ethicaltrading and investment were core principles that customersvalued, and designed new advertising programmes to reflectthis. Subsequent research was undertaken among new custom-ers who responded to the adver-tising which reinforced thestrategy; in many cases the bank’s ethical positioning was givenas the main reason for opening an account.As can be seen, the reasons for using marketing’ research vary asinformation needs vary from organisation to organisation. Inmost cases, however, the marketing research process will besimilar.

The Marketing Research ProcessThe marketing research process can be broken down into thefollowing stages:Problem definition/establishment of research objectivesSecondary data examination (internal and external) Collection ofprimary dataData analysisRecommendationsImplementation of findingsBefore discussing each of these stages in more detail, there aresome points worth noting regarding the different types ofresearch (and data produced) and the associated terminology:Primary or secondary data Secondary data is data alreadypublished in some form.

UNIT IVORGANISING SERVICES MARKETING


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Primary data is new data collected first hand in response to aparticular problem or information need.Qualitative or quantitative data Data may be qualitative orquantitative.Qualitative data explores ideas, feelings and attitudes. It isconcerned with answering questions such as “why do theybuy?” Qualitative research may be undertaken to provide thebasis for designing quantitative research.Quantitative research is concerned with how much and howmany. Typically it involves larger scale research than qualitativeresearch. Statistical methods are used to analyze results.In house or buy in Marketing research may be undertaken bythe organisation itself, or bought in as a specialist service fromoutside. Alternatively, parts of the research, such as the field-work, may be done by outside specialists and the rest carried outin house.Customized or ‘off the peg’ Specialist marketing researchorganisations generally offer two types of research.Customized research is designed and carried out in response tothe needs of a particular organisation (or possibly more thanone) which commissions the research.‘Off the peg’ research is designed by the research organisation tocover areas likely to be useful for businesses in particular sectors,then offered as a fairly standard package to any interestedorganisations.Population or sample The population or universe is the entiregroup which is to be studied. It may be the whole populationof a country or region but may also be a specific populationrelating to the business area, e.g. all rail users or all existingcustomers of an organisation, or relating to a particular marketsegment, e.g. all higher education students in the UK, or allemployed males under fifty.The sample is taken from the population to represent it as awhole. There are various methods of selecting samples, selectedusually depending on the degree of accuracy required.At each stage in the research process, it is likely that decisionswill have to be made about each of the aspects described above.Careful research design and selection of the most relevant typesof information and sources underpins useful, cost-effectivemarketing research programmes. The following discussion ofthe stages in the research process will not always mirror exactlyhow service or-ganisations design and conduct marketingresearch, but aims to illustrate good practice and draw attentionto important issues.

Problem Definition/establishment of ResearchObjectivesDefining the research problem or information need is some-times a relatively simple task or may be highly complex. Theissue needs to be set out quite clearly for the research objectivesto be established. Examples of the problems faced by market-ing managers might be as follows:What is the potential market for this new service?Why are sales of a particular service declining?How successful is our latest advertising campaign?

How do our customers rate us against our main competitors?When the problem has been identified clear research objectivesshould be drawn up. These should be quantifiable in some wayand lay down the parameters of the research task; one of themain reasons for research not being carried out in the mostcost-effective manner is because the brief is too broad.

Secondary Data Examination (Internal and External)Examination of all relevant sources of secondary data must beundertaken before deciding to collect primary data for tworeasons:Duplication: The information may already be available, soprimary research may not be necessaryCost: The cost of generating primary-data is very high, so anypossibility of acquiring data from already published sourcesshould not be ruled out.It is usual to start by looking at internal sources of secondarydata as these are likely to be most readily accessible. Internalsources of data include:Company accountsSales reportsCustomer database and prospect filesPreviously conducted marketing research reportsCompetitor information held by the organisationTrade journals and other publications subscribed to.People are also very important sources of internal information.A great deal of market intelligence is often stored in the mindsof sales personnel, for example.The marketing information system should be a means ofensuring that all information is fed back into the system, viasales report forms and other means to ensure it is readilyavailable. Internal sources of data will probably not solve theinformation problem, but should be examined thoroughly toestablish how much relevant information there is beforelooking to outside sources.External sources of data range from free or very cheap informa-tion to expen-sive research reports and publications. Sources ofsecondary data include the following types:Government statistics: There is a vast array of government-produced data available in the UK covering economic, businessand social trends. The official census is a prime example of thesort of research published.Market information produced by specialist organisations:Organisations such as Mintel and Key Note produce and sellregular reports of a general nature covering different consumerand business-to-business market sectors. They pro-vide anoverview of the latest trends in the market and its size andstructure, for example, and cover topics such as ‘breakfast cerealsalcoholic drinks’, ‘printed circuits’ and ‘tourism in the UK’.They also produce panel data and audits. These are examples of‘off the peg’ research which is designed to be of interest tomany organisations, so is general in nature, but is speciallydesigned and collected so is more detailed than other secondarysources. Panels of consumers are monitored over periods andtheir buying and consumption of certain types of goods (e.g.


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personal products or consumer durables) recorded andanalyzed, with the results being made available for sale. Auditsare similar but are generally based on retail sales records such assupermarkets, for example, which are then broken down,product by product.Information on companies: Specialist organisations compiledata about or-ganisations in the form of directories, financialguides and clippings services. Examples of these include Dunnand Bradstreet (financial data), Kompass (trade directories) andMcCarthy Information (clippings). Again, these can be boughtor subscribed to on a regular basis.Information about advertising and media: Specializedinformation for adver-tisers is available from many sources;BRAD (British Rates and Data) lists all advertising media andtheir costs, the Advertisers Annual, with detailed compar-isonof advertising agencies and Benn’s Media Directory which alsocovers adver-tising media and services.Other secondary sources: Trade publications publish theirown surveys from time to time, as do other organisations andscientific or academic bodies. Infor-mation about these sourcesis likely to be found in the trade press, or made available byprofessional bodies to their members.

Collection of Primary DataWhen secondary sources of data have been exhaustivelysearched, any remaining information needs will need to be metthrough the generation of primary data. The primary datacollection needs to be carefully planned and the followingquestions addressed:What data is needed? Qualitative or quantitative?Is it exploratory in nature or does it need to be conclusive?How will it be generated? What techniques are to be used?Who will collect/analyze the data? Internal personnel orspecialist research company?Who is to be studied? (population or sample?)When is the data required by?How much will the study cost? Are the costs of undertakingthe study justifiable in terms of the costs associated with thepotential risk of going ahead without this research?The main methods of gathering primary data appropriate forservices marketing are as follows:Survey: personal; postal; telephoneObservation: human; mechanicalExperimentationOften, more than one type of approach is needed in order tosatisfy the data requirements. For example, personal in-depthinterviews may be used in the preliminary stages to identify thekey themes or issues which need to be ad-dressed in a large-scalepostal survey, for example. A combination of experimen-tationand observation could be used. The following outlines theapproaches to the various methods.Survey: The survey is one of the most commonly usedmethods in marketing research. It is especially useful wherelarge-scale studies are to be carried out, and may be used to

obtain both qualitative and quantitative data. There are varioustools for collecting survey data:Interview - may be unstructured or structured.Questionnaire - may be ‘closed’ or ‘open’.

InterviewsInterviews may be conducted in person or by telephone.Structured interviews will generally involve the use of aquestionnaire so that specific items of information are gathered,addressing set topics.Unstructured interviews or depth discussions may also be donein person or by telephone. Often they are don’t with a group ofrespondents (a focus group) and the interviewer’s role is reallythat of facilitator - to allow the discussion to flow in anunstructured free way, but remaining close to the topic underinves-tigation. Unstructured interviews are often useful whenthe organisation really does not know what sort of informationit is looking for. Focus groups using unstructured interviewmethods are exploratory in nature and may be used in anumber of situation to generate qualitative data:Concept testing In concept testing, to introduce a new productor service concept to potential customers to obtain their ideasand reaction.Preliminary research As a preliminary stage in designing a large-scale survey- the participants’ views are noted and form thebasis of the questionnaire. For example, a university was aboutto upgrade its teaching accommodation and wanted to solicitinput from all teaching staff. To establish what were the mostimportant features and facilities from the staff point of view,focus group discus-sions were held. From these discussions,detailed lists of equipment and other priorities were drawn upfor inclusion in the questionnaire, which was then circulated toall staff. The same approach can be used by all types of serviceorganisations, initially discussing the ideas with a number ofcustomers or members, then using the results to formulate awider survey.Attitude research In attitude research, where the underlyingfeelings and attitudes are the focus of attention. Sometimesfacilitators may be psychologists with ability to draw participantsand encourage them to open up. Depth inter-views, on a one-to-one basis may also be used for this purpose. They can bedone by telephone, but will usually be done in person as theycan take a long time and depend on a relaxed, confidentialatmosphere.Questionnaires There are two main types of questionnaires:Open questionnairesClosed questionnairesOpen questionnaires ‘Open’ questionnaires can also be used toelicit qualitative data. These are questionnaires where thequestions do not have fixed answers but space is left forrespondents to write their own ideas. They are difficult toadminister for two reasons:Low response ratesDifficult and time-consuming analysis


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They suffer from a very low response rate due to the time andeffort involved on the part of the respondent in completing thequestionnaire. They are also ex-tremely difficult to analyse as itcan be horrendously difficult, not to say time-consuming, toattempt to categories the responses.One or two open questions are often used alongside closedquestions, how-ever, to attract some comment and ideas, oftenat the end. This might be along the lines of “please use thespace below of give any comments or suggestions you mayhave as to how our service can be improved...”Closed questionnaires ‘Closed’ questionnaires are those wherethe questions are closed, i.e. they offer set responses, usually inthe form of alternative choices to be ticked off or indicated insome way. This is the most widely used form of questionnaireand it can be administered in person, by telephone or by mail. Itis suitable for very wide scale surveys. The researchers (or fieldworkers) seen with c1ipQQards in the street or going fromhouse to house are usually carrying out questionnaire-typesurveys. Advances in technology mean that responses can beinput directly into a computer, either at the interviewer’s desk, ifconducting telephone surveys, or by means of a hand-heldscanner by a field worker.Administering the questionnaire Whichever method is used,the questionnaire will be designed so that information can beeasily analyzed and collated. The design of the questionnairewill also have to take into account the way in which it is to beadministered. Mail questionnaires, to be completed by therespondent themselves, must be clear and easy to follow.Telephone surveys and street interviews will need to be fairlyshort. Interviews to be conducted in the respondent’s home orplace of work can be much lengthier and more detailed,provided the respondent is willing to spend the time.Questionnaires can even be administered by electronic mail, ifall the respon-dents use the same electronic mail (e-mail)network. A university information technology service wished tosurvey all its users, who all had e-mail addresses. A question-naire was transmitted via the network and responses sentstraight back. As new developments in communicationstechnology continue to spread, both in the business anddomestic environment, this type of direct contact with respon-dents may increase, thus enabling new survey methods to beintroduced.Observation: Observation techniques may be used in anumber of ways to show how people behave in particularcircumstances. Retail traffic studies, for exam-ple, are set up toobserve the flow of customers around the establishment. Theymay be carried out by human observers in the store, or, as ismore likely, by analyzing video recordings from cameras placedat strategic points. They can be used to monitor which displaysattract customers’ attention, which route’ cus-tomers takethrough the sales floor and so on, and are helpful in planningstore layout and sitting special displays for maximum salesimpact. Similar techniques are useful in service retail outlets suchas banks and restaurants.Observation may be useful in situations where a questionnairemight be inappropriate such as monitoring very youngchildren’s responses to toys or cats’ tastes in pet food. Watching

how people serve themselves in self-service restau-rants or howthey use vending machines, can be helpful in improving thedesign or efficiency.Observation can be carried out by humans (e.g. the mysteryshopper, who observes the quality of the service) or bymechanical means, such as video. Other types of observation bymechanical means have been developed to monitor humanreactions to various stimuli. The attraction of images used inadvertise-ments, for example, can be measured by showing theimages to potential cus-tomers and using technologicalmethods to measure the amount by which their pupils dilate.Observation tends to be a very objective method of carryingout research but it has limitations in that it may show howpeople do things but not why they are motivated to act in thatway.Experimentation: Experimentation takes various forms andcan be a useful tool for predicting purchase behavior. It is basedon traditional scientific experimen-tation methods where anexperiment is conducted to test something against other factors.In clinical testing a group of patients may try a new drug whileanother group - the control group - is given standard treatmentwithout the new drug. The results of the experiment can befound by comparing the results of the two groups. In market-ing, experimentation is frequently used to test new products,such as food items, where respondents take part in taste tests.Other applications are equally appropriate for services market-ing, however. Launching it in one region then comparing theresults against another region where standard promotionalactivities have been taking place can test a new promotion.Measuring the difference in sales can indicate how successful thenew campaign has been, and its potential for more widespreaduse.In test markets, experimentation can be used where a newproduct or service is tested with a particular marketing mix in amarket area and a slightly different marketing mix in anotherarea. The results of the tests can be examined and adjustmentsmade before going on to a wider test or a full launch. When anew cleaning product was launched, in the test in one area theproduct was priced just two pence lower than in the other’ testregion. Sales of the lower priced product were fifty per centhigher than sales levels at the higher price. This was extremelyhelpful in determining the correct marketing n1ix, prior tonational launch.Once the primary data has been collected the data must beanalyzed.

Data AnalysisGood research design is the key to facilitating data analysis.Many techniques are used and developments in computertechnology have meant that it is now far easier to handle greatvolumes of data than ever before. Statistical techniques may beused to analyse quantitative data. The analysis may be under-taken by the organisation itself or by outside specialists such asmarketing research firms or statisticians. Qualitative data mayneed very subtle analysis. Recorded discus-sions from focusgroups or depth interviews may be analysed by psychologists,for example. Explanation of actual methods of statisticalanalysis is beyond the scope of this chapter but it is important


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to appreciate that the analysis stage is as important as generatingthe data - ‘raw’ data, however much of it there is, will not helpmarketing managers to make decisions.

Recommendations and Implementation of FindingsIt may be possible to draw conclusions from the results of theresearch and even to establish sound forecasts and predictions.It is up to the expertise of marketing management, however, touse the information effectively. To do this, it is necessary to goback to the research objectives. The following questions mustbe addressed:What was the specific purpose of this research?Are the results sufficient to meet our information needs?Can the problem be solved?Is more research required?Can plans be made with confidence? (risk reduction)Are existing plans on course and meeting targets? (monitoring)When these questions have been answered implementation ofthe research findings can take place. The research does not stopthere, however. Marketing research should be ongoing in manyways and when specific research projects end, continuousmonitoring programmes start. A feedback loop needs to bebuilt in to the process to meet the new information needswhich will arise out of the implementation of current findings.

Gathering and Storing MarketingInformationThere are many ways of gathering marketing information, asthe preceding section illustrates. Organisations need to identifywhat their ongoing information needs are and how they can bemet. Typically marketing management will need information onthe following:Level of salesSales trendsMarket .sizeMarket growth ratesPricing trendsCompetitor activityPromotion effectivenessProfitability by service division/product line AdvertisingeffectivenessTechnological developments in the fieldThe range of information needed is unlimited and will dependon the organization’s activities. It may be used in all kind ofsituations, including the following:Market measurement and analysis,Medium to long term forecastingIdentification and profiling of target segmentsFactors influencing performance and successCalculating market shareAssessing customer satisfaction levelsThe sources of such information will be varied and come fromboth within the organisation and from external sources.Essentially information must be:

Timely Accurate Accessible AvailableInformation must satisfy all these requirements if the market-ing manager is to remain well informed, be in a position tomanage proactively and make sound forecasts and decisions.The sources of information may vary, as suggested. Companyreports, accounting records and customer databases are usefulrecords as are customer complaint records and sales figures.External data may be obtained by subscribing to specialistjournals and market reports, for example, and competitoractivity might be monitored by members of the marketingdepartment.The amount and type of data required will be as variable as thepossible range of sources of such data. Organisations need toensure that it is handledsystematically in order to ensure that it is continuously updatedand available. This is where the marketing information systemcomes in.

The Marketing Information SystemThe marketing information system (MIS) can be defined asfollows:A marketing information system is designed to meet theinformation needsof marketing management for effective decision making bydeveloping proce-dures for people and computer systems whichensure such information isavailable at the right time and in the right format.This definition highlights the key aspects of the MIS - it musttake place within the organisation, involving all those peopleand departments which will ulti-mately have something tocontribute to marketing decisions and outcomes. The MIScannot exist within a vacuum; as with marketing itself, itssuccess is dependent on the input of all parts of theorganisation - a managerial process which works towardscorporate objectives. It should also incorporate informa-tionfrom outside the organisation, when the information will affect,or help, the organisation in its quest to satisfy these objectives.The MIS is made up of a number of components which feedin together to build up a bank of information which should becontinuously updated. These components will cover the varioussources of information needed. They can be broken down asfollows:Internal information: As discussed in earlier sections, theinternal information will come from reports and records withinthe company. It is essentially infor-mation about theorganisation itself. Financial records, production reports andcustomer records will all be contained in this part of the system,or should be accessible to it. Existing customer databasesshould be contained within this system. Sometimes variousfunctional or departmental reports are produced and handled asseparate items within the various divisions of the organisation -the task of this component of the MIS is to set down proce-dures and methods whereby such information can beassimilated to provide a cohesive overall picture.External information: External information is all theinformation concerning the macro-environment and particularly


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the competitive environment. Much of it will be obtained fromoutside sources such as trade journals, market research reportsbought from specialist organisations and other sources ofinformation about the industry sector. Sometimes thisinformation can be generated inter-nally; indeed, much of thissort of market intelligence is obtained through sales staff andother front-line personnel who have contact with customersand other suppliers. The role of the MIS in this area is toensure that specific mechanisms and procedures are put in placeto harness all such information and feed it into the system.Marketing research All marketing research carried out by anorganisation, for whatever purpose, contributes to its informa-tion needs and should be looked at in relation to the otherinformation about the organisation and its markets. For thisreason, it is important that all new and ongoing research alsofeeds into the MIS for it to be available quickly and effectively.Other components or aspects of the system Frequentlyorganisations are liter-ally swamped with information of thekind described above and although the MIS might be workingreasonably well, it can be difficult for managers to extract specificinformation variables required for decision making. To counter-act this, and largely due to the introduction of powerfulcomputer systems on a wide-spread basis, new systems havebeen developed to manage data more effectively. Often basedon sophisticated computer modeling techniques these systemscan use data to prepare projections and forecasts, and helpmanagers’ decision making by producing “what if?” scenarios(e.g. What is the likely impact on sales of a ten per cent pricereduction? What is likely to happen to our market share ifcompetitor A enters this market sector?).Marketing decision support systems These systems are generallycalled mar-keting decision support systems (MOSS) and can bebought as computing packages or custom, designed. They aretraditionally large and very expensive and therefore mainlysuited to larger organisations although new personal computertechnology has meant that smaller, cheaper systems are nowavailable on a more widespread basis.To enable the MIS to operate correctly, the information enteredinto it must itself be:timelyaccuratecost effectiveeasy to analyseeasy to assimilateThis can be achieved by ensuring that there is a standardizedreporting system within the organisation, which is properlyunderstood and implemented by management and personnelin all areas. A properly coordinated system can yield thefollowing benefits:A fast response to changes or problems within the marketingenvironment.Increased accuracy (in forecasting, targeting etc.).

More timely and effective reports.Integration of marketing into the organisation.Prevention of information being suppressed by individualswithin the organisation.Computerization has had a massive impact on the volume andtype of data stored by organisations. It has also revolutionizedmarketing information systems.However it should be remembered that it is not the volume ofinformation processed, nor the speed by which the computercan process it which counts; it is the utilization of informationand the processes which ensure it is fed into the MIS which arekey factors for success.Computerization has also led to the development of analyticalsystems of higher levels of sophistication than ever before, anddependency on such systems has increased dramatically.However, the system will only be as good as the manager whofeeds information into it, and interprets decision-modelprocesses and results. The MOSS cannot act on its owninitiative, nor provide a substitute for real managementthinking processes.The basic design of the MIS which allows for smooth inter-changes of infor-mation within the organisation coupled withresponsive and responsible inter-action between functionalmanagers and all staff is more important than expenditure onadvanced computer systems. A tightly run formal system whichhas marketing as its focus, but which involves the wholeorganisation, is critical.

SummarySuccessful marketing is dependent on knowing the consumerand understanding the market. This is equally true for commer-cial organisations and not-for-profit organisations who need toknow and understand their users, donors, sponsors or voters.Marketing research is used in all kinds of marketing situationsand has two main purposes:To minimize risk when plans are being madeTo monitor performance (after implementation)The marketing research process can be broken down into anumber of stages:Problem definition/establishment of research objectivesSecondary data examination (internal and external)Collection of primary dataData analysisRecommendationsImplementation of findingsOnce information has been gathered and analysed, marketingmanagement need to ensure that it can be accessed and utilizedfor marketing decision making. Information should always be:timelyaccurateaccessibleavailable


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TutorialsIn light of above, Discuss the Market research Process whichICICI bank must have taken , while entering into bankingsector.


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LESSON 21:MARKETING PLANNING FOR SERVICES

The Objective of this Lesson is to havean insight into• Importance of Marketing planning for services• Marketing audit• Marketing planning process• Roles and responsibilities

IntroductionWhilst there appears to be general agreement amongst bothmarketing academics and practitioners that marketing planningis critical to the long-term success of the organisation, researchhas consistently revealed that the vast majority of organisationsdo not have established systems in place for marketing planningand programme implementation. This seems to be due to anumber of causes; perhaps the most likely being managementweakness in the area of planning coupled with a lack of linemanagement support and inadequate organisation structures.Sometimes marketing planning is carried out, but on a piece-meal short-term basis. Managers undertake an annual planningexercise for marketing but con-strain their activities to reactiveprogrammes which are economically viable in response tomarket changes. An in-depth look at the organization’smarketing policies, strategies and structures is what may actuallybe required in order to do planning properly, rather than createpurely short-term measures. This is equally true for both serviceorganisations and companies in other sectors, and is ofincreasing importance in non-traditional marketingorganisations such as charities and public bodies.The preceding chapter discussed strategic planning and themarketing man-agement process, from the corporate missionand environmental analysis through objectives setting andmarketing management tasks. This chapter builds on this witha practical review of marketing planning and thevarious stagesinvolved in implementing and monitoring successfulprogrammes. The market-ing audit is also covered in somedetail as a practical management tool for evaluating marketingpractice within the organisation as a precursor to actual planningactivity. This can be particularly helpful for organisations new tomarketing, such as those in the public and not-for-profitsectors.

The Marketing AuditRather like financial audits, the marketing audit should becarried out periodi-cally to check on current practice and evaluatesystems and procedures. A marketing audit can be defined asfollows:A marketing audit is an independent, comprehensive evaluationof the organization’s marketing environment, objectives,strategies and activities, carried out systematically in order topinpoint difficulties, problems and opportunities and makerecommendations for improved performance.

Many marketing textbooks explore the marketing audit in somedepth, and definitions and descriptions of the audit processmay vary. The following con-siderations and practical guidelinesare useful, however, for service or-ganisations generally. Themarketing audit has the following distinctive characteristics:Breadth of focus: The marketing audit is broad in nature,reflecting the broad role of marketing within the organisation.Objectivity: It should be conducted by someone who isindependent of the organisation under scrutiny, for reasons ofobjectivity.Systematic: It should be carried out systematically in anordered and precise way.Regular: The audit needs to be undertaken periodically, notcarried out urgently in response to a crisis or sudden downturnin the company’s fortunes.The audit is generally performed in three stages: the scope andapproach are.agreed, the analysis is carried out and the resulting informationreported back to management. The analysis stage is likely to bethe most time-consuming as there will be a great deal ofinformation to be gathered and scrutinized, and this can only becarried out effectively with the cooperation of all involvedparties. The information should be presented in stages as theaudit takes place, so the preliminary findings and issuesemerging can be given prompt attention. As the report is finallycompleted, it is important that the organisation has decided ona plan of action for following up the findings and handling anyproblems or weaknesses uncovered.The marketing audit usually consists of several audits in fact,centred aroundthe following main components:Marketing environmentMarketing strategyMarketing organisationMarketing systemsMarketing productivityMarketing functionSome or all of these components may be investigated withinthe marketing audit (together with additional componentsrelevant to a particular organisation or its

Marketing ProductivityA complete marketing audit will include a comprehensiveexamination of finan-cial information to determine levels ofprofitability and costs. Marketing pro-grammes need to be cost-effective and measures should be established as far as possibleto identify how marketing costs break down and whichexpenditure brings the highest returns. This is not always


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possible with some marketing activities where the results can bequite intangible (advertising designed to boost theorganization’s image, for example) and it is not easy to say whatthe real impact on sales and profit is. Efforts should be made,however, to ensure that marketing costs analysis is undertakenaccurately and routinely within marketing programmes.

The Marketing FunctionIn this stage of the audit, attention ‘is turned to specificfunctional areas of marketing. Advertising programmes, forexample, may be set up in a very loosely controlled way, or theremay be weaknesses within the sales force which need investiga-tion. The audit may have revealed potential problems in one ormore functional areas within marketing and a decision can bemade whether to undertake functional audits and, if so, howmany areas to audit in this way.

Marketing EffectivenessThe marketing audit can perform more than one function. Itskey aim is to analyse the organization’s overa1l9marketingeffectiveness. It can also have an educational role, creating greaterawareness of what constitutes effective marketing amongmanagers throughout the organisation. In the service sector,many organisations are becoming more marketing driven,especially in the not-for-profit and public sectors, for example~In organisations where there has previously been no formalmarketing activity a marketing audit can be used to highlightwhat activity should be undertaken and to what extent amarketing orientation exists. The following checklist givessuggestions for formulating approaches to the audit:

Macro-environmental IssuesIs government activity likely to affect the organisation throughnew-legislation, tax regulations? .What legal requirements is the service subject to?What effects are inflation/recession/interest rates/trends inconsumer spending likely to have on the organization’sactivities?Are demographic trends likely to affect served markets?Are consumer pressure groups influential in this-sector?What is the position regarding international activity?

Micro-environmental IssuesMarket analysis - size, structure, growth, market share, segmen-tation, positioning.Competitor analysis - who are the main competitors? How dothey operate?Who is the customer? How do they buy? What are their needsand wants? What benefits do they rate most highly?How are channels selected and managed?SWOT analysis.How does the organisation structure affect marketing?Who are the key stakeholders in the organisation?

Marketing Strategy IssuesHow do the marketing objectives measure up to theorganisations strengths, weaknesses and competitive environ-ment?

Are corporate and marketing objectives clearly understood?Is the strategy sound and well supported with adequatemarketing resources and expertise?Are marketing efforts being channeled in the right directions foroptimum success?Is there a formalises planning system?What control systems exist for monitoring once plans havebeen implemented?

Marketing Organisation IssuesDoes marketing management have the required expertise andknowl-edge? Do they receive full support from marketing staffand at corporate management level? To what extent doesmarketing play an integrative role with other departments?Are intra- and inter-departmental communications effective?Is further training/investment in personnel needed to achievemarketing objectives?

Marketing Systems IssuesIs there a marketing information system? Is it effective, accurateand up to date?Are there formal reporting procedures set down?What other formal and informal control systems exist?How is new service development carried Out?

Marketing Productivity IssuesAre marketing costs regularly monitored and analysed againstperformance?Is profitability analysed and measured in terms of markets,segments, service types and channel?Are any marketing activities unnecessary?

Marketing Function IssuesHow effective are service design and delivery systems?What controls exist to monitor marketing mix activities?Are marketing functions (e.g promotional programmes)efficiently and with optimal use of resources?The marketing audit forms a basis for the marketing planningprocess. Marketing plans focus on specific, detailed marketingstrategies and programmes, designed to help the organisationachieve its marketing objectives within its chosen markets. Themarketing plan coordinates and manages the marketing effort.

The Marketing Planning ProcessMarketing planning is one stage in the marketing managementprocess. Marketing management is responsible for:Analyzing marketing opportunities.Marketing research and selection of target markets.Designing marketing strategies.Designing and implementing detailed marketing plans.Effective monitoring and control.(Aspects of services marketing management are discussed inmore detail in Chapter 6.)Marketing planning is a sub-set of corporate strategic planning.At the corpo-rate level, organizational objectives and strategiesare established. These are then translated into functional


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objectives and strategies. Marketing is only one of thesefunctions; finance and accounting, production and otherfunctional areas will engage in planning to meet their ownobjectives. The marketing planning process actually goes beyonddesigning effective marketing plans and programmes; itencompasses decisions and procedures necessary for effectiveplans to be drawn up and for their successful execution. Itaddresses the questions:“Where are we now?” (analysis stage),“Where do we want to be?” (planning stage), “How do we get there?” (implementation stage) “How successful are we?” (monitoring stage)The stages in the marketing planning process can be viewed asfollows:

Analysis StageCurrent marketing situation analysis:the marketing auditthe environmental analysisSWOT analysisThis stage covers the relevant background information necessaryfor plans to be formulated and decisions to be made. Itincludes detailed analyses of the current market situation, theorganization’s existing products/services situation, thecompetitive situation and the SWOT analysis. The outcome ofthe current situa-tion analysis and the SWOT analysis inparticular provides a foundation for the next stage in theprocess.

Planning StageDefining the requirements of the plan:objectives settingstrategic outlineAt this stage, marketing managers are fully aware of the factorsin the organization’s current situation which will influence itsmarketing activity so will look at corporate objectives in the lightof this information to develop marketing objectives andevaluate strategic alternatives. Marketing objectives should meetcertain criteria:They should be stated clearly and unambiguously.They should be measurable (by sales volume, or percentageincrease over the last three years, for example).They should be consistent with the organization’s objectivesand resources.They should be set down in order of priority.Strategy is based on the idea of a game plan, as in chess, or inmilitary strategy. Thus, marketing strategy sets down the gameplan by which the objectives are to be achieved. Each objectiveshould be viewed very closely and strategic alternatives drawnup. For example, a desired increase in sales revenue from aparticular service could be achieved in a number of differentways; by greater market penetration, for example, or by enhanc-ing the service offering and charging a higher price.Strategic options should be carefully evaluated for each objectiveand the best possible course(s) of action selected in each case.

The next step is therefore to establish plans of action for eachselected strategy.Implementation stagePutting plans into operation:designing action programmesassigning responsibility for their executioncosting the programmesThis stage is concerned with the operationalization of market-ing strategy. The strategy defines the broad areas of marketingactivity which must be undertaken to enable the organisation tomeet its marketing objectives. These must be translated intoprogrammes of action to be carried out by the various func-tions within marketing. At the implementation stage, the keyquestions to be addressed are:“What needs to be done?” (defining appropriate action)“When will it be done?” (scheduling and timing)“Who will do it?” (designating clear areas of responsibility)“How much will it cost?” (budget planning)The marketing plan will focus on the various marketing mixactivities whichmake up the organization’s service offering within its chosenmarket(s):The service package -features, benefitsPricing policyPromotional programmesDistribution - making the service accessiblePeople aspects of successful service delivery”Process designPhysical evidenceEach element of the marketing mix activities proposed must becarefully costed and analysed for optimal use of organizationalresources and to ensure the most suitable approaches are usedso that marketing objectives can be met. Measurable targetsshould be built into the plan to allow for effective monitoringpro-grammes. Clear areas of responsibility for carrying outdesignated tasks must be set down and understood by allconcerned for successful implementation.Monitoring stageControlling the plan:establishing required performance targetsmonitoring performance against targetsdesigning corrective courses of action where requiredcontingency planningThe last stage in the marketing planning process sets in placecontrol techniques for monitoring the plan’s performance.Usually this entails a systematic review of all aspects of the planagainst targets set, usually on a monthly or quarterly basis. Thereview must be carried out regularly to ensure prompt attentionand action in areas when the results lag behind targets set.Managers and others responsible for implementation of allelements of the action programme should be involved in the


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monitoring process. Control mechanisms should be in placebased on the components identified above:Establishing required performance targets: Targets arederived from the marketing objectives set down in response tocorporate objectives. They should:Indicate clearly required levels of individual performance.Allocate responsibility for individual achievement to theappropriate persons.Delineate clearly between areas of individual responsibility forwhich individuals have control and uncontrollable factors whichshould be excluded from that individual’s required targets.Be prioritized and ensure they are feasible and compatible.Have some built-in flexibility in order to respond proactively tochanges in the organization’s environment.Monitoring performance against targets Measures for evaluatingperfor-mance against targets need to be established. Individualtargets for all func-tional areas within marketing should haveappropriate criteria set down for performance to be measuredagainst, and this should be clearly communicated to theindividuals concerned at the time the targets are set. In someareas, performance against targets will be relatively easy to assess,while at other times the reasons for failure to meet targets maynot be immediately obvious. The main criteria for determiningthe level of success against targets will be based on:Market analysis: market share, market penetration.Financial analysis: sales volume, profitability, contribution.Functional effectiveness: specific measures of advertisingeffectiveness,results of promotional call1paigns, productivity of sales ormarketing personnel.Customer satisfaction: complaints monitoring, satisfactionsurveys.Efficiency measures: improved processes, response speed.Adequate levels of performance against all targets is necessaryfor the longer term implementation of successful marketingprogrammes. Vastly increased sales volume, for example, willnot represent success if the number of complaints increasesdramatically and customers are not retained.Designing corrective courses of action where required: Thepurpose of an effective monitoring system is to identify areasof shortfall between actual performance and targets quickly anddeal with problem areas promptly. If advertising is notachieving the required results, then perhaps the budget needs tobe increased, or the effort may be best diverted into anotheractivity such as sales promotion. Fine-tuning of all elements ofthe marketing plan is the key task here, and it is dependent onan accurate and timely monitoring system.Contingency planning: This is designed to focus managementthinking on alternative courses of action which can be takenwhen unexpected situations arise ‘which make the designatedaction programme, or parts of it, unworkable. Contingencyplans should be drawn up as part of the overall plan, andreviewed as part of the monitoring process. They should be

designed into the monitoring programme so that they can beimplemented readily if required.The marketing planning process coordinates and directs theorganisation’s mar-keting effort. It contributes to the overallorganizational objectives by setting down action programmesto meet agreed marketing objectives. Its successful implementa-tion depends on careful analysis and evaluation of strategicalterna-tives; development of programmes which will opera-tionally the strategy and meet objectives; accurate monitoringand implementation of corrective action or contingency planswhere appropriate. Successful marketing planning and im-plementation also depends on the organisation itself, itsstructure and marketing orientation and the performance ofindividuals within it.

Roles and ResponsibilitiesEffective implementation of marketing programmes requiresco-ordinating the efforts of all employees. Their co-operation isessential in realizing strategies designed to increase productivityand customer service to gain and maintain competitive advan-tage. The marketing planning process provides the necessarystructure and direction for marketing activities to bring aboutdesired changes and results but the key task for managers isfinding means to ensure plans are effectively carried out. Thiscan be achieved through the following:Internal marketingMotivation and leadershipEffective communicationsCo-ordination of the marketing task

Internal MarketingThis is a means of involving staff at all levels in effectivemarketing programmes by enabling them to understand moreclearly their role within the marketing process. Internal market-ing can be defined as follows:Treating with equal importance the needs of the internal market- the employees -:- and the external market through proactiveprogrammes and planning to bring about desired organiza-tional objectives by delivering both employee and customersatisfactions.Internal marketing programmes consist of training and staffdevelopment, effec-tive internal communications and integra-tion schemes, designed to enhance knowledge andunderstanding of the overall marketing orientation within theorganisation. Internal marketing is the focus of the nextchapter. Briefly, the aims of internal marketing are to ensure thatall personnel:are committed to the goal of guaranteeing the best possibletreatment of customers are themselves motivated see them-selves participating actively in achieving the organisation’s goals.

Motivation and LeadershipInternal marketing can playa key role in motivating employeesthroughout the organisation and is especially important inmotivating marketing personnel whose task it is to implementmarketing plans. Motivational programmes can be developedby management and geared towards the ultimate attainment of


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corporate goals, but must focus on the needs of the employees.Such programmes may incorporate tangible rewards schemes:Performance-related payStaff incentive schemesHowever, employee commitment and job satisfaction is alsoclosely linked to their understanding of their own role in theorganisation, and the recognition of their individual contribu-tion. The role of management in motivating employees iscrucial.Marketing management have a dual role within theorganisation:to develop strategic marketing plans and action programmes tomobilize marketing personnel and resources within theorganisation to meet organizational objectives by servingcustomer needs and wants most effectively to help instill amarketing and customer orientation amongst all managementand employees.Marketing managers must have close links with top manage-ment, therefore, to ensure that marketing receives full supportand the resources necessary for successful implementation ofmarketing programmes. They should also commu-nicate closelywith marketing and other personnel to help them to get the jobdone and they should lead by example. Human resourcesmanagement should work with marketing managers to help inmotivating staff, and integration with other functional areas ofmanagement is important. This clearly underlines again thecentral, integrative role of marketing.

Effective CommunicationsGood communications can also playa key role in ensuring thatplans are implemented effectively and motivating personnel.Marketing managers need to communicate with top manage-ment to ensure that plans and programmes always matchorganizational objectives accurately.They need to communicate with marketing and other staff toensure that activities and responsibilities are clearly understoodand operationalised effectively.Internal marketing programmes incorporate communications astheir main component and other management tools such as themarketing information system are useful. Communicationsshould be established as a two-way process, so that a dialogue isachieved between:Marketing managers and marketing personnelThe marketing function and other functions and staff through-out the organisationMarketing management and corporate-level top management.Systematic reporting procedures and a structured flow ofinformation both upwards and downwards within theorganisation all contribute to effective communications.

Co-ordination of the Marketing TaskThe marketing function involves many different specialisms andtask areas, which must be managed as a cohesive whole foreffective implementation. Management tasks include:Scheduling and synchronizing individual activities

Designing reporting and control procedures for all separate taskareasLiaison with other functional managementIntegration with other internal JunctionsIntegration and co-ordination with external players; advertisingagencies and other suppliers, marketing channels and agents.Internal marketing and effective communications programmeswill help in the task of co-ordinating the marketing effort. Eachindividual both within the organisation and outside it who hasan input into the marketing process needs to understandprecisely their own role and responsibilities. Pulling together themarketing effort underpins successful implementation of the.marketing programme.

SummaryThe marketing audit represents the first stage in the marketingplanning process. The audit is used to review and evaluate thecurrent position of the organisation’s marketing activities andto analyse the organisation’s overall effectiveness. The marketingaudit, once completed, forms a base for marketing plans to bedesigned and implemented.Marketing planning is essentially a process comprised of fourmain stages:Analysis stagePlanning stageImplementation stageMonitoring stageMonitoring is critical to the successful implementation of anyplan and control mechanisms should be built into the plan toensure prompt attenti9n and action if the plan lags behindtargets set. Effective control can be established using thefollowing key steps:Establishing required performance targetsMonitoring performance against targetsDesigning corrective courses of action where requiredContingency planningIn order for marketing plans to be successfully executed,however, the efforts of all employees need to be co-ordinated.Effective implementation can be aided by:Internal marketingMotivation and leadershipEffective communicationsCo-ordination of the marketing taskThe marketing planning process provides structure anddirection for marketing activities and should be undertaken as amedium to long-term commitment not, as is frequently thecase, on a piecemeal short-term basis. A systematic and thor-ough approach to marketing analysis, planning,implementation and monitoring is critical to the successfulachievement of organizational objectives.

TutorialsIn light of above, Suggest the Marketing planning process forRAI University


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LESSON 22:INTERNAL MARKETING

The Objective of this Lesson is to havean insight into• Significance of internal marketing• Marketing concept and internal marketing• Role of internal marketing• Components of internal marketing• Management approach to successful internal marketing• Internal marketing planning• Developing internal marketing planning• Implementing the internal marketing plan

IntroductionThe concept of internal marketing has its origins in conven-tional marketing theory and the marketing concept itself. It isinteresting to note that the internal marketing concept has beendeveloped largely within the context of services marketing,where it has long been recognized that high levels of customerservice depend heavily on the personnel who interact withcustomers.The employees are in many senses an important part of theservice product as has been stated in previous chapters. Theyrepresent the fifth ‘P’ in the services marketing mix. Internalmarketing addresses employees - the internal market within anorganisation - whose participation and role is recognized asbeing critical to levels of service quality and delivery. However,internal marketing is now being seen as more and moreessential for all organisations in striving for marketing success.Internal marketing is a means of involving staff at all levels ineffective marketing programmes by enabling them to under-stand their role within the marketing process. Internalmarketing programmes consist of training and staff develop-ment, effective internal communications and integrationschemes, de-signed to enhance knowledge and understandingof the overall marketing orientation within the organisation.Whilst the importance of internal marketing is widely recog-nized, criticism has arisen due to the difficulties inimplementing internal marketing, and the lack of planningtools available to managers wishing to do so. This chapterreviews the internal marketing concept but also focuses closelyon implementation issues. A framework for implementinginternal marketing is proposed and some practical issues areaddressed.

The Marketing Concept and InternalMarketingIn order to understand internal marketing it is useful to reviewthe idea of the marketing concept and to examine some of thefundamental ideas put forward.The marketing concept can be generally defined as a humanactivity directed at satisfying needs and wants through exchange

processes. Other definitions include planning, pricing, promo-tion and distribution, and also consider issues such as firmsserving customer groups more effectively than the competition,for example. Almost all descriptions of the marketing concept,however, focus on the key element of exchange processes,which lead to some form of satisfaction - for the customer, theorganisation, even society as a whole.Internal marketing takes the marketing concept as it is appliedto external customers and applies it internally. It gives employeesthe status of internal customers, with the same level ofimportance as external customers. The under-lying theory is thatoptimum levels of customer satisfaction will be gained whenemployees themselves are satisfied, and organisations shouldpay as much attention to their internal marketing programmesas to their external marketing plans and strategies.

Definition of Internal MarketingInternal marketing can be defined as follows:Treating with equal importance the needs of the internal marketthe employees - and the external, market through proactiveprogrammes and planning to bring about desired organiza-tional objectives by delivering both employee and customersatisfactions.Internal marketing should also cover issues which are tradition-ally linked with other areas in organisations, such as humanresources management. This is highlighted by training needswhich should be thoroughly examined, and the implementa-tion of training programmes designed to enhance:Knowledge of the firm’s product/service mix.Pride in the firm itself, and individual jobs.Awareness of opportunities for new service and businessdevelopment.Specific marketing skills.It is clear, therefore, that internal marketingis concerned withmore than treating the employee as a customer; ,it means thatthe organisation should constantly endeavour to developprogrammes and strategies for enhancing employee satisfactionin much the same way as external marketing plans which arecontinuously updated and improved to meet external customerdemands.

The Role of Internal MarketingIf it is possible to ensure that the staff of a firm: are commit-ted to the goal of guaranteeing the best possible treatment ofcustomers are motivated see themselves participating actively inachieving the organisation’s goals and if internal marketing isthe key to this, then the potential for long-term success isevident.Customer service is the critical element which internal marketinginfluences, whatever business or industry the organisation


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operates in, and customer service is one of the most crucialaspects of an organisation’s competitive advantage.Internal marketing is attracting increasing attention and growingrecognition as an implementation tool for adoption by allorganisations. The most advanced systems for developingmarketing plans and strategies are worthless if the plan fails atthe implementation stage. There are a number of areas whereinternal marketing can playa key role:Management of change, where internal marketing may beused to place, and gain acceptance of new systems such as theintroduction of information technology and new workingpractices, and other changes.Building corporate image, where internal marketing’s role isto create awareness and appreciation of the company’s aims andstrengths - as all employees are potential company ambassadors.Strategic internal marketing which aims at reducing inter-departmental and inter-functional conflict and developing theco-operation and commitment needed to make externalmarketing strategies work.

Components of Internal MarketingProgrammesHow is internal marketing to be implemented? It is essential toexplore what are seen to be the fundamental criteria for asuccessful internal marketing programme, and to identify thecomponents of programme formulation.The four most important areas within the organisation’sinternal environmentwhich are essential to an internal marketing programme can bedescribed as:MotivationCo-ordinationInformationEducationThis set of ideas clearly interlinks with the perspectives ofinternal marketing discussed earlier, but what steps can be takento ensure these areas are reinforced? To formulate anyprogramme an analysis of the critical components must beundertaken. This may involve information gathering to assessEmployee knowledgeAttitudesBehaviour.Once this has been done, management action needs to cover:SelectionTrainingMotivationDirection.In this way, managers can help employees to make a moreeffective contribution to the organisation’s marketing objectives,providing overall guidance and sup-port for the internalmarketing programme. Communication should reach allemployees and include all messages about information andaction in order to achieve increased motivation and effectiveness.

Management Approaches to SuccessfulInternal MarketingIt is important that management embrace the underlyingphilosophy of internal marketing if they are to develop anddirect successful programmes. Managers should lead byexample, and set high standards of customer relations and jobeffectiveness by their own good practice, not by simply dictatingrules or making unreasonable demands on employees.It has been stated earlier that internal marketing is closely relatedto the area of human resource management within theorganisation. However, whereas a traditional view of humanresource management may be seen as ‘getting things donethrough people’, internal marketing moves towards analternative idea -developing human potential so that organiza-tional goals can be achieved through the satisfaction ofindividual goals.Employee commitment and loyalty cannot necessarily bebought on an eco-nomic basis alone. Equally important is aclear and visible long-run programme which really does put thecustomer first, whether in the internal or external marketplace.Consistency on the part of management, both in action andword, in all dealings with internal and external customers is thefoundation for marketing success.

Internal Marketing PlanningAs internal marketing has been developed directly fromconventional marketing theory, and the marketing concept, it isargued that internal marketing planning is therefore madesimple. There should be no difficulty in taking conventionalmarketing planning tools and developing internal marketingprogrammes along the same lines.Adopting this method would mean that for every marketingmix decision, for example, which the company took for itsexternal marketing strategy, there would be a correspondinginternal marketing mix decision. This would, in turn, affect theoutcome of the external marketing 8trategy which may lead tonew marketing mix decisions being implemented bothinternally and externally.The main criticism of this approach might be that it seems toassume that, for any organisation, the internal and externalmarkets (or customers) will behave in a similar fashion and cantherefore be treated in an almost identical manner. But this isnot likely to be the case, for the following reasons:Changing external marketsInternal market characteristicsChanging external markets: Many firms operate in more thanone market, and these markets can be very different indeed.Even segments within the same market can have individual anddistinctive characteristics. This means that most firms will haveexternal marketing plans, which are continuously being moni-tored and ‘fine-tuned’ to changing market conditions, whilstthe internal market n1ay be changing either more slowly or atgreater speed.Internal market characteristics: Organizational behaviourtheory and research may suggest that internal markets in firmsof similar size and structure, regard-less of what product orservice they provide, may be more closely aligned in terms of


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their behaviour and needs, than the internal markets of all firmsoperating in one particular external-marketplace, which may bewidely differing in all aspects.The answer could be to focus on the overall external strategy(sustained growth, total quality, market development, etc.), andthen find a way of devel-oping the internal market so that it willprovide optimum levels of support and commitment to thesuccess of the strategy. In order to do this well, the internalmarket should be researched and approached as a special andunique entity, and internal marketing programmes will reflectthis without necessarily matching closely the external plans andactivities.

Developing Internal MarketingProgrammesInternal marketing has an important role to play in the accep-tance and subse-quent implementation of marketing~ plans.Bur what is the process for the implementation of internalmarketing? Should service organisations look beyond tradi-tional planning concepts for internal markets?Recommended internal marketing methods and planning toolsto assist man-agers in their course of action are vitally impor-tant, and this whole area has been the focus of a great deal ofinterest recently, both among academics and practi-tioners.There is no single methodology to meet all internal marketingneeds but it is possible to develop a planning framework ofinternal marketing at this stage.A number of key components of internal marketingprogramme formulation have been discussed. An action planfor implementing internal marketing encompasses the follow-ing stages:Market definitionMarket researchMarket segmentationMarketing actionMarketing communicationMarketing orientationThe successful implementation of internal marketing within theorganisation hinges on integration, co-ordination and co-operation within the internal market. To achieve this, it isessential to study and fully understand the characteristics of theorganisation’s internal markets. Accordingly, the action planstarts at that point:

Market DefinitionThe internal market should be clearly defined to ensure thatproviders and receivers of internal services can identify with theconcept of internal customers, whose needs require satisfaction.Each player is participating in, and serving, a clearly definedmarket. This may be across the whole organisation, or reflectinter- and intra-departmental relationships and activities. Thestructure of the market is important, with attention being paidto both formal and informal lines of communication andpower.

Market Research

Information should be continuously collected and analysed atall levels in the organisation. This contributes to the identifica-

tion of opportunities both inter-nally and externally. It must beboth compatible with external research activities and contributein the same manner to decision-making. The internal marketshould itself be researched to explore issues which are likely toaffect the successful implementation of internal marketingprogrammes and individual roles and responsibilities. Subjectsfor research may include:Employee attitudes towards the organisation and its missionLevels of job satisfactionAssessing skill and knowledge needsNeeds and wants of employees

Market SegmentationThis is necessary to ensure most effective, accurate and appropri-ate targeting of internal marketing efforts. Bases forsegmentation may be determined as a result of the marketresearch but may include, for example, level in organisation. Thebest route for segmenting the internal market may not be byexisting department/line management divisions as this can leadto a less unified ap-proach. Internal marketing should beviewed as a means of reducing potential communicationproblems or friction between different functional areas.

Marketing ActionThis involves the selection and implementation of appropriatemarketing activities to achieve optimum internal marketingsuccess. Better internal communica-tions, teamwork andemployee empowerment are some of the aims of internalmarketing. Practical initiatives to achieve these aims need to beworked out and assigned to individuals and managementteams. Customer care programmes and staff training anddevelopment are some of the methods available.

Marketing CommunicationAccurate and timely spreading of marketing informationshould be undertaken, both internally and externally. Thisprocess should be targeted to encourage participation inachievement of personal and organizational goals. In-housemagazines, regular team briefings and encouragement of bettertwo-way communications are the sorts of approaches which arehelpful.

Marketing OrientationThe overall aim should be to create an internal environmentwhich is flexible and responsive, and which nurtures commonvalues and behaviour which reflect the organisation’s goals. Theorganisation’s marketing objectives and mission must be madeclear to all employees, and clearly defined individual goals setdown to enable personnel to see their own contribution toachieving the organisation’s objectives.

Implementing the PlanImplementing internal marketing programmes can be achievedthrough co-operation between top management within theorganisation and functional managers. It requires a flexibleapproach which will lead to an internal environ-ment which isboth committed to organizational goals and responsive tochang-ing organizational needs. The changing needs ofemployees must also be taken into account.


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Marketing management should work with human resourcesmanagement to develop a plan for action, as they will have thespecialized knowledge and insight necessary to operationalisedthe stages outlined above. It should be emphasized, however,that responsibility for implementing the plan lies with allmanagers and employees throughout the organisation.Taking a marketing planning framework, the internal marketingplan can be viewed as follows:Marketing audit: Carry out a marketing audit of the internalmarket, paying particular attention to the areas highlightedpreviously.Marketing analysis: Conduct an analysis of the internal marketin terms of its Strengths, weaknesses, opportunities andthreats.Objectives setting: Review the organisation’s objectives in thelight of internal marketing and develop internal objectives ‘“Strategy development: Strategic options relating to the internalmarket need to be examined. Enhanced customer service” maybe attainable through better training or greater staff empower-ment, for example.Designing action programmes: This can be undertaken bymanagers to deter-mine the most appropriate courses of actionand the likely costs and resources required. PR managers mayassist in developing a staff magazine, for example, whilehuman resources management can develop trainingprogrammes.Assigning responsibility for their execution: This is the areawhich needs to be looked at from a company-wide perspective,and action plans should be broken down into their corecomponents for implementation by the most appropriateindividuals.Monitoring and controlling the plan: Some measures needto be determined to establish the success levels of internalmarketing programmes. These must be established alongsidethe programme objectives. Some aspects may be incorpo-ratedinto staff performance evaluation and appraisal schemes, forexample, while others may be monitored according to -reducedlevels of customer complaints or better quality levels.The planning framework illustrated should represent a dynamicflow process: as situations arise within the internal market place,and changes take place within the internal environment,management will respond and the plan may be fine-tuned as itevolves. The internal environment should foster an atmospherewhich is both flexible and responsive; this is most important.Within today’s ever- changing external environment it becomeseven more so. The Institute of Man-agement in the/UKundertook a major research initiative to look at the future forbusiness organisations through the 1990s, and concluded in itspublished report that“In today’s demanding business environment an organisationneeds to be responsive-and flexible if it is to survive. It mustcontinually adapt to changing situations and requirements.”In order to meet these demands (and this does not only applyto British or-ganisations), a service organisation depends moreand more upon its people. If all personnel are: actively partici-

pating in the firm’s overall strategy given every opportunity todevelop their full potential keen to understand and believe inthe firm’s goals the chances of success must be high. They willbe prepared and equipped to be flexible and responsive. Thecosts of implementing internal marketing pro-grammesthroughout the organisation can be high. This should notprevent internal marketing from being given high priority. Thepotential costs of failed external marketing strategies are farhigher.

SummaryInternal marketing is based on the notion of communicatingwith internal markets as well as external markets - treatingemployees like customers. It affords recognition to the vital roleof people within the service organization and represents ameans of involving staff at all levels in effective marketingthrough the application of the marketing concept internally.Internal marketing encompasses a number of elements, all ofwhich help contribute towards enhanced customer service and agreater degree of marketing orientation within the organisation.These elements include:Training programmesInternal communicationsMotivational programmesFor internal marketing to be successful it requires carefulattention and planning. An action plan for implementinginternal marketing encompasses the following stages:Market definitionMarket researchMarket segmentationMarketing actionMarketing communicationMarketing orientationA marketing planning framework can be developed for internalmarketing which needs co-operation from top management andemployees throughout the organisation; it should not be thesole responsibility of marketing management.

TutorialsIn light of above, Discuss the action plan for implementinginternal marketing in Airline industry.Narrate with the help of Jet Airways


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LESSON 23:RELATIONSHIP MARKETING

The Objective of this Lesson is to havean insight into• Significance of relationship marketing• Building Relationships• Quality and relationship marketing• Customer Retention

IntroductionMarketing is continually evolving in response to the changingenvironment. New strategies, techniques and tools for market-ing managers are constantly being developed. This book hasdemonstrated how many areas which were not tradi-tionallyassociated with marketing, such as the not-for-profit sector,have increasingly become the focus of marketing attention.Marketing has also moved away from the original idea ofbringing about mutually satisfying benefits or exchanges.Societal marketing, for instance, ad-dresses a wider need - insocietal marketing, the exchange should result in benefits tosociety as well as the organisation and its customers.Green marketing, following the trend towards environmental-ism which is growing through concern for the world’s resources,suggests that no marketing decision should be undertakenwithout regard to the possible long-term effects. Productdesign, packaging, manufacturing process and distributiondecisions are examples of the issues influenced by ‘green’thinking.Consumers have responded the these changes and have becomemore sophis-ticated in their demands and expectations. Theyare prepared to seek out prod-ucts which are more environmen-tally friendly, for example, and will think twice before investingmoney in a bank which invests in countries or industries whichare politically and environmentally unsound, in societal terms.Services marketing is also a growing specialty, and concepts suchas internal marketing have been developed within the servicessector, but are now widely recognized to be highly relevant to allorganisations. Internal marketing calls upon the organisation tohave equal regard for its internal customers - the employees - asfor its external markets. Internal marketing programmes canenhance employee and customer satisfaction through increasedinvolvement between all members of the organisation in itsmarketing efforts.Relationship marketing goes a step further. Organisations areurged to focus not only on their relationship with customers -external and internal- but with other elements within industryand society which can impact on the organisation’s long-termsuccess. The emphasis too is not on bringing about exchangeprocesses, but on building relationships. Quality service is thekey to customer retention through customer satisfaction.Customers who keep coming back for more is the goal; zerodefections rather than zero defects.

Building RelationshipsThe key focus of marketing has always been the market -customer needs and wants. However, there are many otherinfluences on an organisation’s marketing activity. In conductinga SWOT (strengths, weaknesses, opportunities and threats)analysis, an organisation must consider these micro-environ-mental fac-tors. As well as the organisation itself, and itsinternal and external markets, its publics must be considered.An organisation’s publics include:SuppliersIntermediaries and other channel membersThe government and its agenciesShareholdersCommunity groupsAffiliated trade and professional associationsTrade unionsBanks and finance housesConsumer groupsThe aim in relationship marketing is to build and maintainrelationships with all the organisation’s publics. The list given isnot comprehensive, and some publics will obviously have moreinfluence over a particular firm’s activities than others. The taskis to identify those groups which are the main influencers andto design marketing programmes and strategies which take theinfluencers into account.

Relationships with Channel MembersOut of all the influencers discussed above, a particular groupmerits special attention when it comes to building relationships.This set of publics interact directly with the organisation at theinput and output stages. They are cooperators in the businessactivity. They are all channel members and they represent boththe supply side and the distribution side. Some sources focussolely on supplier markets but channel members such asintermediaries and agents in the distribution market can have anequal impact on an organisation.If fully integrated channels are the most efficient {where a singleorganisation operates at every channel level}, then it is obviousthat, where full integration is not possible, relationships mustbe developed within the channel. Even in services marketing,where channels may not exist to the same degree, this is vital.Package tour operators must have positive relationships withtheir suppliers (hotels and airlines, for example) and with theirdistributors (travel agents). Financial organisations must haveconfidence in brokers who trade in their services. Restaurants,hairdressers, auto-service stations and hotels must be on goodterms with their suppliers to be able to operate effectively.The objective of relationship building wit~ these groups is todevelop co-operation and co-ordination between all the parties


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who can impact on the overall satisfaction of the ultimateconsumer. Quality of service delivery is paramount, andsuppliers and channel members playa major role in servicequality.

Relationships with CustomersRelationship marketing is also about building relationshipswith customers, rather than creating exchange processes.Customer contact should be maintained after the sale has beencompleted, and the focus is on retaining customers, rather thansimply trying to attract new ones.North West Securities, a financial services company specializingin consumer credit, telephones everyone of its credit customersthree or four times a year. This telephone contact is used tocheck that the customer is still satisfied with the service they arereceiving, and to update them with details of new servicesavailable. A ‘freefone’ number is given to customers who canuse it to call any time, free of charge. They aim to maintain ahigh customer retention rate.Car manufacturers and dealers have long recognized the valueof this type of after-sales marketing. Existing customers areinvited to social events when new models are launched, and arecontacted periodically by dealers anxious to maintain a ‘front ofmind’ relationship. Manufacturers actually employ sales andmarketing professionals to develop innovative after-salesstrategies to increase customer retention.Insurance companies developed this kind of relationship in thedays when the ‘Insurance Man’ - the representative - used .to callon all his customers every week to collect payment. It was notunusual for the Insurance Man to become a family friend, andhe was guaranteed all the family’s insurance business, from lifeand savings policies through to pensions and funeral policies.Personal contact is still of critical importance in this market.

Referral MarketsAnother important influence on an organisation’s performanceis the level of business (or activity) arising from referrals. This isespecially important in services marketing where ‘word ofmouth’ recommendation can be a key factor in the consumerdecision process. Frequently, referrals are informal- throughfamily or friends, for example - but often they are more formal,as in industrial markets where specifies (who may be fromoutside the client organisation) playa major part in buyingdecisions. Architects or consultants .are often cast in the role ofspecifies when they advise their client where to source materialsand services.In consumer markets, formal referrals exist in many forms. Thefirst-time buyer in the housing market may well take their estateagent’s advice on which mortgage company to approach, andwhich solicitor to use. Travel agencies recommend which holidaytour operator will meet a customer’s requirements. Insuranceagents put forward the best policies for their clients.Most organisations will find that a proportion of theircustomers come to them via a referral of some kind. For thisreason, it is important to direct some marketing activity.towards the members of the referral market - the specifies -wherever possible. This is already done in many formal referralsituations, where insurance agents and travel agents receive

commission and. other incentives to ensure their support. Thepharmaceutical industry spends massive amounts on promot-ing their products to doctors who act as specifiers.Where referrals are largely informal, however, it can still bepossible to use innovative methods to develop this area. Healthclubs invite members to intro-duce their friends for a trialsession. If the friend takes out a subscription, the existingmember receives some incentive, such as free sunbed sessions.The British Benefit Society (a Friendly Society specializing insavings and loans) offers small cash gifts to members whorecruit further members. Existing customers can be the bestsource of referrals there is, provided that they are themselvesexperiencing high levels of satisfaction with the service theyhave received. This demonstrates again the potential power ofrelationship marketing.

Internal MarketsRelationship marketing may go further than internal marketingbut it still retains a very clear focus on the needs and wants ofthe internal market. Specially formulated internal marketingprogrammes to communicate, train and motivate internalmarket members are very important if the relationship is to be apositive one.Relationship marketing places the emphasis on building andmaintaining a good workforce. Service quality depends to a verygreat extent on people, and developing long-term relationshipswith internal customers is just as important as buildingrelationships with external ones.Service organisations, in particular, have to pay special attentionto recruit-ment of quality personnel. Recruiting the individualsof the right caliber is not always easy, especially under the currentdemographic changes being experi-enced in the UK (and otherareas) today. Recent forecasts show that by the end of the 1990sthe demand for graduates will far outstrip the supply.Evidence also suggests that prospective employees, likeconsumers, are becom-ing more sophisticated in their demands.A 1990 survey of marketing, administra-tion and personnelprofessionals showed that in choosing a firm to work for, asocially responsible image and ‘greed’ policies were the mostimportant factors.Organisations need therefore to communicate with prospectiveemployees -the employee market. Building relationships withthe employee market, espe-cially through long-term positivevisibility on the graduate recruitment scene, for example, canhelp to ensure the future well-being of the organisation.In summary, relationship marketing is concerned with buildinglong-term relationships rather than bringing about exchangeprocesses. It is customer and market orientated, but it identifiesa number of ‘markets’ which the organisation needs tounderstand and relate to. The organisation must design andimplement strategies and programmes for successful relation-ship marketing. The markets which need to be addressed are asfollows:Customer - existing and potentialInternal marketsInfluencers


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Referral marketsChannel markets - supply and distributionPotential employees

Relationship Marketing ManagementRelationship marketing strategy development is really nodifferent to marketing strategy generally except that there shouldbe a clear directional focus on rela-tionship building throughoutthe formulation of strategic plans. A strategic focus is impor-tant for any successful marketing organisation, and, as statedearlier, relationship marketing just goes a step further. Thissection provides an overview of strategic planning in relation-ship marketing:Objectives settingThe missionSWOT analysisMarket analysis and segmentationStrategy formulationDeveloping the relationship marketing mixThe major objective in relationship marketing is quality, becauserelationships cannot be sustained if there are any problems withquality. This is particularly applicable to services marketing,where delivery of quality service is most important.

The MissionThe starting point in strategic planning is the mission state-ment, and this pro-vides a centralized strategic focus for theorganisation. An organisation which is committed to relation-ship marketing will develop a mission which reflects thisthrough a focus on shared values and people-based goals.Customer and em-ployee loyalty, even specific statements aboutcustomer confidence in making recommendations, are some ofthe key ideas which the mission statement should include inrelationship marketing. It is very easy to relate these ideas toservices marketing.Customer service should playa key role in the organisation’smission state-ment. This can help the mission to becomesomething that is ‘owned’ by every-body in the organisationbecause it reflects the role that all employees can play in cus-tomer service. The mission statement should be accessible toeveryone in the company.

SWOT AnalysisThe next step in the strategic planning process is the SWOTanalysis. This will cover the broad areas of the company’smacro- and micro-environments, but will look in greater depthinto the six market areas identified previously. An in-depthinternal examination of the organisation should be undertakento. assess strengths and weaknesses. The internal marketanalysis will also contribute to this.The competitive environment must be thoroug11ly examined,and the relationship with competitors. This will tend to followthe industry structure, and other major competitive factors suchas the degree of rivalry’ and barriers to entry.Strategies relating to competitors, while not actually relationshipbuilding in the same sense as relationship marketing, shouldfocus on co-operation and avoid devaluing the industry or

service market sector. Competitors can work co-operatively todevelop markets, and this should be the aim. The objective ofthis analysis is to identify opportunities and threats.

Market Analysis and SegmentationThe next state in the strategic process is market analysis andsegmentation. In relationship marketing, this should include, asfar as possible, analysis of the six market groups identifiedearlier. These groups might then be segmented so that theorganisation can focus on means of tailoring the relationship tothe specific needs of different groups. Not all of the marketgroups will be addressed by formal marketing programmes -some segments may require more informal communication tobuild and maintain the relationship.Internal markets should be analysed and segmented as part ofthis process. There are a number of ways of segmentinginternal markets, and these tend to be organisation-specific.Researching the internal market will help in determining thebest way to segment it.

Strategy FormulationOnce the macro-environmental analysis and internal review havebeen com-pleted, objective setting is the next step. Managementthen need to select the strategic options which will provide thegreatest chance of successfully achieving the organisation’s goals.

Developing the Relationship Marketing MixIt is in the marketing programme formulation that relationshipmarketing can be seen to be put into effect. In services market-ing, this will focus on the seven P’s:ProductPricePromotion PlacePeopleProcessPhysical evidenceThe marketing mix must be tailored to each of the six marketspreviously identified, although the various elements of the mixwill be used to a lesser or greater degree in the different cases.The product, or service offering, will be present mainly in thecustomer market, except when it is also used in or offered to thereferral market. The promotional mix is the one most likely tobe targeted to each market segment.Relationship marketing can be used to differentiate the productor service in the perception of the consumer. This enables theorganisation to undertake product (or service) positioning.Quality service, in particular, stemming from consistent andsupportive relationships can be a very useful tool for position-ing.

Quality and Relationship MarketingThroughout this chapter it must be clear that relationshipmarketing has as its central strategic focus the role of quality. Byimproving and developing relation-ships with the six keymarkets through the design and implementation of formalorganizational plans and systems (rather than leaving therelationship aspects to chance) quality becomes integral to theorganisation’s activities.


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In services marketing where the service delivery is the funda-mental measure of quality, and where people are the serviceproviders, developing relationships through people helps buildquality into the service.Relationship marketing goes beyond internal marketing in thiscontext, and it also builds on other advancements in qualitysuch as Total Quality Manage-ment (TQM). There are a numberof ways in which systematic relationship building can helpincrease service quality levels.Increased customer contact - it should not only be the job offield service staff to visit customers. Relationship marketingshould allow for more customer contact (and on a more regularbasis) between the customer and the organisation on manylevels. The relationship can be helped enormously be allowingno frontline staff to mix with their opposite number, forexample on the customer organisation staff; customer confer-ences and focus groups can present an excellent forum forfeedback and new ideas.Enhanced customer service - increased (but not necessarilymore expensive) communications with customer groups canenhance customer service. Regular updates, progress reports andnewsletters can be amongst the simplest and most effectiveforms of communication. Acknowledgement of orders anddocuments, together with brief but courteous notes if theservice delivery is to be delayed at all, can help raise perceptionsof service. In legal practices, for example, cases can drag on foryears, and end up being very expensive so there is an enormousbill to settle at the end. In relationship marketing, the clientwould be regularly updated on any news (and also if there wasno news which can be as important), and the bill could benegotiated and spread over the duration of the case. Thiswould solve two of the major complaints from consumers:that they are ‘left in the dark’ while waiting for the outcome oftheir case, and that the final bill is always too high.

Customer RetentionAs well as quality, the other key aspect of relationship marketingis customer retention. Loyal customers who keep on re-purchasing are extremely valuable. Compared with the cost ofattracting new customers through advertising, sales promotionand other means, any effective method of retaining existingcustom-ers who will continue to spend money with theorganisation must be important.A number of tools can assist in the process. An example ofthis is database marketing where customer-buying histories andother information can be listed on a database, and thenreferenced and cross-referenced in the future to target newproducts or promotions accurately.Another important aspect of the task of analyzing how toretain customers is to carry out market research amongstcustomers who have defected. Why did they go to a competi-tor? Why have they stopped using your service? The answers tothese questions can hold vital information for services market-ing managers.Research is important to establish why customers defect, asstudies have shown that a large proportion of dissatisfiedcustomers never complain - they simply stop using the service.

By the same token, customer complaints handling proceduresshould be properly carried out to ensure that the complaint isrectified and the customer is satisfied the necessary action istaken to prevent that .problem occurring again but the startingpoint is usually to examine the external environment and thechanges taking place within it. The audit then gradually narrowsits focus from the general aspects of the organization’s market-ing activity to the more specific, until, finally, specific problemareas or difficulties can be probed more closely if required. It isuseful to understand the components identified above, and themain questions which should be addressed in the audit.

The Marketing EnvironmentThe marketing environment is made up of two parts: themacro-environment (or external environment) and the micro-(internal) environment. The macro -environment represents allthe outside influences which will impact on an organization’smarketing or business activity. It includes economic and politicalfactors and socio-cultural trends, for example. The externalenvironmental influ-ences will affect all organisations within asector to a greater or lesser degree. The internal environmentrelates to a particular organisation and its publics. A moredetailed description of the marketing environment can befound in Chapter 6.

Marketing StrategyThe environmental analysis can be used as a basis for SWOT(strengths, weaknesses, opportunities and threats) analysis. Theaudit can now focus on the corporate mission and objectivesand consider the organization’s marketing objectives in the lightof existing opportunities and strengths, and possible problem-areas. The current marketing strategy should be examined toensure that it represents the most appropriate course of actionfor the successful achieve-ment of organizational goals. Thestrategy should fulfil the organization’s mar-keting objectives ina way which Makes optimum use of resources while takingaccount of strengths and weaknesses. It should also be assessedfor its suitability with regard to opportunities and threats facingthe company.

Marketing OrganisationThe role of marketing in the service organisation is a critical one,and the way in which companies organize themselves formarketing can be crucial for success, as discussed Integrationbetween management functions, internal communications andestablished links between different functional areas should all belooked at within the marketing organisation audit. Training andhuman resources issues should also be considered as a particu-larly important issue for labour-intensive service industrieswhere people playa key role in all aspects of marketing.

Marketing SystemsThis examines the systems used by marketing management togather informa-tion, design plans and programmes, implementplans and monitor their effec-tiveness. Processes and proceduresset down ‘for marketing activity of all kinds need to beincluded. The’ focus here- is Jon the ‘actual modes of Imple-mentation and monitoring rather than the marketing strategyitself. New product or service development processes, budget-ing and reporting procedures, marketing re-search and


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marketing information systems are all examples of the areas tobe investigated by the auditors at this stage.

TutorialsIn light of above, Compare the relationship marketingmanagement in telecom sector, Compare Hutch vis-vis Airtel


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LESSON 24:A CASE STUDY ON RELATIONSHIP MARKETING THROUGH SMS

The BriefA relationship marketing company in Cape Town, South Africa,jSRM, has been successfully using SMS to solve a simple, yetimportant requirement for their clients. How does one commu-nicate with customers efficiently, quickly, and cost effectively,while still managing to strengthen the brand and deliver apersonal message?Relationship marketing is based on a sustained and two waycommunications process. It involves the management ofcommunications strategy and implementation, and incorporatesthe creation and management of client databases. Using one ofClickatell’s products, Clickatell Communicator, jSRM has beenassisted in achieving this goal.

The SolutionUsing SMS was the obvious answer to their requirement for afast and cost effective medium. By it’s very nature, SMS isextremely useful for delivering short messages which need to bedelivered in a short space of time.Aside from the time taken to deliver the messages themselves,SMS allows marketing communications to be prepared anddelivered faster than any other traditional media. Since themessage is short and text based, the preparation time is reduceddramatically. A standard mail, or even an email, would takeconsiderable time in order to be properly prepared.Also, since SMS has an extremely low cost associated with it,jSRM and their clients are able to use it more frequently thanstandard media. And, as SMS is database driven, it allows themarketer to target and profile the audience according to thestrategy or the specific message content.All these factors help jSRM to facilitate the relationshipsbetween their clients and customers.With Clickatell’s SMS delivery service, some of the messageheaders, or Sender ID’s, can also be branded. This adds an extralevel of credibility, which jSRM can attach to each outgoingmessage. From the recipients’ point of view, the message comesfrom a company that they have a growing relationship with, andnot from an unknown telephone number. All this without therecipient even knowing that jSRM is involved. This feature isonly available on some of the networks that jSRM delivers to.

ApplicationClickatell Communicator has been designed to make SMSmessaging simple and seamless. Some of the features that havehelped jSRM are:• An intuitive, easy to use, messaging interface,• A database uploading facility (where recipient databases may

be uploaded for easy messaging),• A group management system (for creating groups of

recipients)

• A message personalization tool, which, similar to a mailmerge, can personalise each outgoing message with up to 5variables (such as name, account details, birth ate etc.)

• A message delivery reporting toolAnd jSRM have successfully used SMS for a wide variety ofdifferent message types, including:• Event reminders (sent before an event to reaffirm

attendance)• Calls to action (such as “Collect your tickets at…..”)• Birthday wishes• Thank you notes (for attendance etc. etc.)• Any many more………..With reference to the above context, Explain significance ofrelationship marketing in service industry.


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LESSON 25:CUSTOMERS’ ROLES IN

SERVICE DELIVERY

The Objectives of this Lesson are to• Role of customers in successful service delivery• Importance of customers in successful service delivery• Level of customer participation

Customers’ Roles in Service DeliveryIn the current environment of online and Internet-basedservices, customers can actu-ally produce services for themselveswith little or no interpersonal interaction with the provider. Onecompany, iPrint is changing the way business customers interactwith commercial printers. iPrint, a Web-based custom printingservice, bills itself as the most complete, fully automated, self-service online creation, ordering, and commer-cial printingenvironment that the industry has ever seen.iPrint opened its storefront on the Internet in January 1997 andhas seen orders grow 20 percent per month. By 1999, in justover two years, iPrint had had more than 2.5 million visitors toits Web site. Much of the relatively new company’s success canbe attributed to its business model, which provides customersan easy, continually accessible way to independently create andunder customized print jobs, sometimes at half of the cost oftraditional commercial printers.Customers of ,iPrint create their own value through participa-tion in the production of customized printing services.Customers with little or no knowledge of graphic de-sign caneasily, quickly, and from the convenience of their own home oroffice, create’ their own design on a wide range of products.iPrint offers business cards, notepads, stationery, various giftitems, and promotional products. New products such as photocalendars and additional business forms’ are continually beingadded, many at the request of loyal customers.Although creating graphic designs is a highly complex processwith hundreds of variable to consider, iPrint created a simplestep-by-step process to create personal-ized products. Custom-ers adapt existing designs to ‘meet their specifications and thenview the finished product, selecting from a wide range ofoptions such as paper, font, size, and color (1S well as clip art orbusiness logos.Completed designs can be purchased over the Internet and aretypically received in a few days. Designs are also automaticallysaved for two years to allow for easy re-ordering. AlthoughiPrint notifies customers via e-mail when the order is placed andwhen it has been printed, customers are also able to activelyparticipate after the or-der has been placed by tracking the orderthroughout the processing printing, and shipping process.In addition to extensive customer education through detailedstep-by-step instruc-tions, iPrint provides easy access tofrequently asked questions, and contact with service providers isavailable through e-mail, phone, or fax if necessary. Customersparticipating in the design of their own products are rewarded

with prices significantly lower than what they would normallypay.iPrint has successfully transformed a people-intensive, manualservice business into an electronically automated, self-servicefunction where customers are empow-ered to create their ownvalue and satisfaction. Because they do so much of the work,customers essentially become “co producers” of the service,enhancing iPrint’s pro-ductivity, which allows the company tocharge lower prices. Everyone wins.So does that mean traditional providers of commercial printingservices will be driven out of business by companies like iPrint?Probably not. There are segments of customers who will alwayswant personal advice and the direct involvement of pro-fessional designers. However, what this does say is that there aresegments of cus-tomers in the marketplace who will respond tonew choices and who are willing to co produce services, creatingvalue and satisfaction for themselves.We examine the unique roles played by customers in servicedelivery situations. Service customers are often present in the“factory” (the place the service isproduced and/or consumed), interacting with employees andwith other customers. For example, in a classroom or trainingsituation, students (the customers) are sitting in the factoryinteracting with the instructor and other students as theyconsume the educa-tional services. Because they are presentduring service production customers can con-tribute to’ ordetract from the successful delivery of the service and to theirown satis-faction. These roles are unique to service situations.In a manufacturing context, rarely does the production facilitycontend with customer presence on the factory floor, nor does itrely on the customer’s immediate real-time input to manufac-ture the product. As the example in the opening paragraphs ofthe chapter illustrates, service customers can actually produce theservice themselves and to some extent are thus responsible fortheir own satisfaction. Using imprint’s online services, custom-ers create value for themselves and in the process also reducethe prices they pay for printing services.Because-customers are participants in service production anddelivery, they can po-tentially contribute to the widening-of gap3. That is, customers themselves can influ-ence whether thedelivered service meets customer-defined specifications.Sometimes customers contribute to gap 3 because they lackunderstanding of their roles and exactly what they should do ina given situation. This is particularly true in cases where thecustomer may be confronting a service concept for the first time.For example, customers using the services of imprint for thefirst time need detailed, but simple, instructions to help themunderstand how to use the service effectively and get thegreatest value.

UNIT VDELIVERING SERVICES IN REAL TIME


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At other times “customers may understand their roles but beunwilling or unable to perform for some reason. In a healthclub context, a member may understand that to get into goodphysical shape he must follow the workout guidelines set up bythe trainer. If work schedule demands or illness keep themember from living up to his part of the guidelines, the servicewill not be successful because of customer inaction. In adifferent situation, customers may choose not to perform theroles defined for them be-cause they are not rewarded in anyway for contributing their effort. When service cus-tomers areenticed through price reductions, greater convenience, or- someother tan-gible benefit, they are more likely to perform their-roles willingly, as in the case of our opening vignette aboutiprint.Finally, gap 3 may be widened not through actions or inactionson the part of the customer, but because of what othercustomers do. Other customers who are in the service factoryeither receiving the service simultaneously (i.e., passengers on anair-plane flight) or waiting their turn to receive the servicesequentially (i.e., bank cus-tomers waiting in line, Disneylandcustomers waiting for one of the rides) can influ-ence whetherthe service is effectively and efficiently delivered.This chapter focuses on the roles of customers in servicedelivery and strategies to effectively manage customers in theproduction process to enhance productivity, qual-ity, andcustomer satisfaction.

The Lmportance of Customers in ServiceDeliveryCustomer participation at some level is inevitable in servicedelivery. Services are ac-tions or performances, typically producedand consumed simultaneously. In many sit-uations employees,customers, and even others in the service environment interactto produce the ultimate service outcome. Because they partici-pate, customers are indis-pensable to the production process ofservice organizations and they can actually con-trol or contributeto their own satisfaction.The importance of customers in successful service delivery isobvious if one thinks of service performances as a form ofdrama: The drama metaphor for services ,suggests the recipro-cal, interactive roles of employees (actors), and customers(audience) in creating the service experience. The service actorsand audience are surrounded by the service setting or the serviceescape .The drama metaphor argues that the development andmaintenance of an in-teraction (e.g., a service ‘experience) relieson the audience’s input as well as the ac-tors’ presentation.Through this metaphor, service performances or service deliverysituations are viewed as tenuous, fragile processes that can beinfluenced by behaviors of customers as well as by employees.3Service performance results from actions and interactionsamong individuals in both groups.Consider the services provided by a cruise ship company. Theactors (ship’s per-sonnel) provide the service through interac-tions with their audience (the passengers) and among eachother. The audience also produces elements of the servicethrough in-teractions with” the actors and other audiencemembers. And, both actors and audience are surrounded by anelaborate setting (the cruise ship itself) that provides it context

to facilitate the service performance. The drama metaphorprovides a compelling frame of reference for recognizing theinterdependent roles of actors and audience in service delivery.Recognition of the role of customers is also reflected in thedefinition of the people element of the services marketing mixgiven earlier. People: all h£(.man actors who playa part in servicedelivery and thus influence the buyer’s perceptions; namely, thefirm’s personnel, the customer, and other customers in theservice environment. In this chapter we focus on the customerreceiving the service, and other cus-tomers in the serviceenvironment, that is, the “service audience.”

Customer Receiving the ServiceBecause the customer receiving the service participates in thedelivery process, she can contribute to gap 3 through her ownappropriate or inappropriate, effective or in-effective, productiveor unproductive behaviors. Even in a relatively simple servicesuch as retail mail order, customers’ actions and preparation canhave an effect on service delivery.4 Customers who are unpre-pared in terms of what they want to order can soak up thecustomer service representative’s time as they seek advice.Similarly, shoppers who are not prepared with their credit-cardnumbers can “put the represen-tative on hold” while theysearch for their cards, or go to another room or even out totheir cars to get them. Meanwhile, other customers and calls areleft unattended, causing longer wait times and potentialdissatisfaction.The level of customer participation-low, medium high-variesacross services, as shown in Table 12-1. In some cases, all that isrequired is the customer’s physical presence (low level ofparticipation), with the employees of the firm doing all of theservice production work, as in the case of a symphony concert.Symphony-goers must be present to receive the entertainmentservice; but little else is required once they are seated. In othercases, consumer inputs are required to aid the service organiza-tion in creating the service (moderate level of participation).Inputs can include information effort, or physical possessions.All three of these are required for a CPA to prepare a client’s taxreturn effectively: information in the form of tax history, maritalstatus, and number of dependents; effort in putting theinformation together in a useful fashion; and physical posses-sions such as receipts and past tax returns. In some situations,cus-tomers can actually be involved in co creating the service(high level of participation). For these services customers havemandatory production roles that, if not fulfilled, will affect thenature of the service outcome. All forms of education, training,and health maintenance it this profile. Unless-the customerdoes ,something (e.g., studies, exer-cises, eats the right foods),the service provider cannot effectively deliver the serviceoutcome. Table 12-1 provides several examples of each level ofparticipation for both consumer and business-to-businessservices. The effectiveness of customer involve-ment at all ofthe levels will impact organizational productivity and ultimately,qual-ity and customer satisfaction.


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Table 12-1 Levels Of Customer Participation Across DifferentServices

Other CustomersIn many service contexts, customers receive the service simulta-neously with other cus-tomers or must wait their turn whileother customers are being served. In both cases, other custom-ers” are present in the service environment and can affect thenature of the service outcome or process. Other customers canenhance customer satisfaction and perceptions of quality, orthey can detract from satisfaction and quality.Some of the ways other customers can negatively affect theservice experience are by exhibiting disruptive behaviors, causingdelays, overusing, excessively crowding, and manifestingincompatible needs. In restaurants, hotels, airplanes, and otherenvi-rOpP1ents where customers are cheek to jowl as theyreceive the service, crying babies, smoking patrons, and loud,unruly groups can be disruptive and detract from the expe-riences of their fellow customers. The customer is disappointedthrough no direct fault of the provider. In other cases, overlydemanding customers (even customers with le-gitimate‘problems) can cause a delay for others while their needs aremet. This is a common occurrence in banks, post offices, andcustomer service counters in retail stores. Excessive crowding oroveruse of a service can also affect the nature of the cus-tomerexperience. Visiting Sea World in San Piego on the Fourth ofJuly is a very different experience from visiting the same parkmid-week in February. Similarly, the quality of telecommunica-tion services can suffer on special holidays such as Christmasand Mother’s Day when large numbers of customers all try touse the service at once.Finally, customers who are being served simultaneously butwho have incompati-ble needs can negatively affect each other.This can occur in restaurants, college class-rooms, hospitals, andany service establishment where multiple segments are servedsimultaneously. In a study’ of critical service encountersoccurring in tourist attractions across central Florida, researchersfound that customers negatively affected each other when theyfailed to follow either explicit or implicit “rules of conduct.”Customers re-ported such negative behaviors as pushing,shoving, smoking, drinking alcohol, being verbally abusive, or

Low: Consumer presence required during service delivery

Moderate: Consumer inputs required for service creation

High: Customer co creates the service product

Products are standardized Service is provided regardless or--any individual purchase Payment may be the only required customer input Examples: End consumer Airline travel Motel stay Fast -food restaurant Business-to-business customer Uniform cleaning service Pest control Interior greenery maintenance service

Client inputs customize a standard service Provision of service requires customer purchase Customer inputs (information, materials) are necessary for an adequate outcome, but the service firm provides the service Haircut Annual physical exam Full-service restaurant Agency-created advertising Campaign Payroll service Freight transportation

Active client participation guides the customized service Service cannot be created-apart from the customer's purchase and active participation Customer inputs are mandatory and co create the outcome Marriage counseling Personal training Weight-reduction program Management consulting Executive management seminar Install computer network

cutting in line. Other times, dissatisfaction resulted when othercustomers were impersonal, rude, unfriendly, or even spiteful.There are just as many examples of other customers enhancingsatisfaction and quality for their fellow customers as detractingfrom them. Sometimes the mere pres-ence of other customers”enhances the experience. This is true at sporting events, inmovie theaters, and in other-entertainment venues. Thepresence of other patrons is es-sential for true enjoyment’ ofthe experience: In other cases, other customers provide apositive social dimension to the service experience. At healthclubs, churches, and re-sorts such as Club Med, other customersprovide opportunities to socialize and build friendships assuggested in Figure 12-1. Long-time, established customersmay also socialize new customers by teaching them about theservice and how to use it effec-tively. In some situations, such aseducational classrooms, group counseling, and weight-lossprograms, customers may actually help each other to achieveservice goals and outcomes. The success of the Weight Watchersorganization, for example, depends significantly on thecamaraderie and support that group members provide eachother during the weight-loss process. In the study of centralFlorida tourist attractions men-tioned earlier, it was found thatcustomers increased the satisfaction of others by hav-ingfriendly conversations while waiting in line, taking photos,assisting with children, and returning dropped or lost items.Just the presence of other happy customers cre-ated a funatmosphere that enhanced enjoyment of the attraction.

Customer RolesThe following sections examine in more detail three major rolesplayed by customers in service delivery: customers as predictiveresources; customers as contributors to quality and satisfaction;customers as competitors

Customers as Productive ResourcesService customers have been referred to as “partial employees”of the organization human resources who contribute to theorganization’s productive capacity. Some management expertshave suggested that the organization’s boundaries be expandedto consider the customer as part of the service system. In otherwords, if customers con-tribute effort, time, or other resourcesto the service production process, they should be considered aspart of the organization.Customer inputs can affect the organization’s productivitythrough both the quality of what they contribute and theresulting quality and quantity of output generated. Forexample, in contributing information and effort in the prepara-tion of their tax returns, clients of a CPA firm are part of theservice production process. The quality of the in-formation theyprovide ultimately affects the quality of the tax return. And, ifthey pro-vide information in a useful form, the accountant willspend less time preparing the return, thus allowing him toproduce more returns in a given time. The contributions of theclient thus enhance the overall productivity of the firm in bothquality and quantity of service. In a different context, SouthwestAirlines depends on customers to per-form critical service rolesfor themselves, thus increasing the overall productivity of theairline. Passengers are asked to carry their own bags when


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transferring to other air-lines, get their own food, and seatthemselves.Customer participation in service production raises a numberof issues for organi-zations. Because customers can influenceboth the quality and quantity of production, some expertsbelieve the delivery system should be isolated as much aspossible from customer inputs in order to reduce the uncer-tainty they can bring into the production process. This view seescustomers as a major source of uncertainty-the timing of theirdemands, and the uncontrollability of their attitudes andactions. The logical con-clusion is that any service activities thatdo not require customer contact or involve-ment should beperformed away from customers-the less direct contact there isbe-tween the customer and the service production system, thegreater the potential for the system to operate at peak efficiency.The introduction of ATM machines and auto-mated customerservice telephone lines in the banking industry are bothexamples of ways to reduce direct customer contact in thatindustry, resulting in greater efficien-cies and reduced costs.Other routine banking tasks that employees used to perform infull view of customers have also been removed to back-officelocations, out of sight of customers.Other experts believe that services can be delivered mostefficiently if customers are truly viewed as partial employees andtheir participative roles are designed to maxi-mize their contri-butions to the service creation process. The logic in this case isthat organizational productivity can be increased if customerslearn to perform service -related activities they currently are notdoing or are educated to perform more effec-tively the tasks theyare already doing.For example, when self-service gasoline stations first came intobeing, customers were asked to pump their own gas. By havingcustomers perform this task, fewer em-ployees were needed andthe overall productivity of gas stations improved. Now manygas stations offer customers the option of paying for their gasat the pump by popping their credit cards into a slot on thepump, punching a few buttons, and leaving the sta-tionwithout dealing directly with a cashier. This option is popularwith customers because it gets them out of the station quicklyand also enhances productivity for the company by reducingreliance on cashiers. Interestingly, because of the resultingshorter lines at the cashier, some gas stations have also foundthat their sales of beer, soda, snacks, and other store items haveactually increased. Automated checkout counters and self-scanning of items are innovations evolving within the groceryin-dustry. With this approach, customers can scan their owngroceries using a handheld scanner and then take the bill to acashier’s station to pay. This increases organiza-tional productiv-ity by using the customer as a resource.

Customers as Contributors to Service Quality andSatisfactionAnother role customers can play in services delivery is that ofcontributor to their own satisfaction and the ultimate quality ofthe services they receive. Customers may care little that they haveincreased the productivity of the organization through theirpar-ticipation, but they likely care a great deal about whethertheir needs are fulfilled. Ef-fective customer participation can

increase the likelihood that, needs are met and that the benefitsthe customer seeks are actually attained. Think about servicessuch as health care, education, personal fitness, and weight loss,where the service outcome is highly dependent on customerparticipation In these cases, unless the customer per-forms herrole effectively, the desired service outcome is not possible.Research has shown “that in education, active participation bystudents-as opposed to passive lis-tening-increases learning (thedesired service outcome) significantly.13 The same is trueinhea1th care, where patient compliance in terms of takingprescribed medica-tions or changing diet or other habits can becritical to whether the patient regains her health (the desiredservice outcome). In both of these examples, the customerscon-tribute directly to .the quality of the ‘outcome and to theirown satisfaction with the service: In a business-to-businesscontext, Yellow Freight Systems and others in the in-dustryhave found that in many situations customers cause their owndissatisfaction with the service by failing to ‘pack ‘shipmentsappropriately resulting in breakage or delays when things needto be repacked.Research suggests that customers who believe they have donetheir part to be ef-fective in service interactions are more satisfiedwith the service. In a study done in ‘the banking industry, bankcustomers were asked to rate themselves (on a scale from“strongly agree” to “strongly disagree”) on questions related totheir contributions to service delivery as follows:

What they did-technical Quality of Customer InputsI clearly explained what I wanted the bank employee to do. Igave the bank employee proper information.I tried to cooperate with the bank employee.I understand the procedures associated with this service.

How they did it Functional Quality of CustomerInputsI was friendly to the bank employee.I have a good relationship with the bank employee.I was courteous to the bank employee.Receiving this service was a pleasant experience.Results of the study indicated that the customers’ perceptionsof both what they did and how they did it were significantlyrelated to customers’ satisfaction with the service they receivedfrom the bank.That is, those customers who responded morepositively to the questions were also more satisfied with thebank.Customers contribute to quality service delivery when they askquestions, take re-sponsibility for their own satisfaction andcomplain. When there is a service failure. Consider the servicescenarios shown . The four scenarios illustrate the-widevariations in customer participation that cash result in equallywide variations in service quality and customer satisfaction.Customers who take responsibility, and providers whoencourage their customers to become their partners in identify-ing and satisfying their own needs, will together produce biggerlevels of service quality. Our Glohai Feature shows howSweden’s IKEA, the world’s largest retailer of home fur-nishings, has creatively Engaged its customers in a new role:


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“IKEA wants. It cus-tomers to understand that their role isnot to consume value but to create it.” The company relies onits customers to be IKEA’s partners in creating value for them-selves. .

Exhibit 12-1 Which Customer (A Or B)will be Most Satisfied?For each scenario, ask “Which customer (A or B) will be mostsatisfied and receive the greatest quality and value, and why?”Scenario 1: A major international hotel: Guest A called thedesk right, after check-in to report that his TV was not workingand that the-light over the bed was burned out; both problemswere fixed immediately. The hotel staff exchanged his TV forone that worked and fixed the light bulb. Later they broughthim a’ fruit plate to make up for the inconvenience. Guest B didnot communicate to man-agement until checkout time that hisTV did not work and he could not read in his bed. Hiscomplaints were over-heard by guests checking in who won-dered whether they had chosen the right place to stay.Scenario” 2: Office of a professional tax prepare: Client Ahas organized into categories the information necessary to doher taxes arid has provided all documents requested by theaccountant. Client B has a box full of pa-pers and receipts,many of which are not relevant to her taxes but which shebrought along just in case.”Scenario 3: An airline flight from London to New York:Passenger A arrives for the flight with a portable tape player andreading material and wearing warm clothes; passenger A alsocalled ahead to order a special meal. Passenger B, who arrivesempty-handed, becomes annoyed when the crew runs out ofblankets, complains about the magazine selection and the meal,and starts fidgeting after the movie.Scenario A: Architectural consultation for remodel-ing anoffice building: Client A has invited the architects to meet withits remodeling and design committee made up of managers,staff, and customers in order to lay the groundwork for a majorremodeling job that will affect everyone who works in thebuilding as well as customers. The committee has alreadyformulated initial ideas and “Surveyed staff and customers forinput. Client B has invited architects in following a decision theweek previously to remodel the building; the design committeeis two man-agers who are preoccupied with other moreimmediate tasks and have little idea what they need or whatcustomers and staff would prefer in terms of a redesign of theoffice space.”In addition to contributing to their own satisfaction byimproving the quality of service delivered to them, somecustomers’ simply enjoy participating in service de-livery. Thesecustomers find the act of participating to be intrinsicallyattractive. They enjoy using the Internet to attain airline tickets,or they may like to do all of their banking via ATMs andautomated phone systems, or to pump their own gas. Oftencus-tomers who like self-service in one setting (e.g., pumpingtheir own gas) are predisposed to serving themselves in othersettings as well (e.g., carrying their own bags onto the aircraft,using the self-service vending machines as opposed to roomservice, -purchasing travelers checks through an (ATM). In

some cases there is a-price discount advantage for self-service,but other times customers are motivated by convenience. and asense-of greater control over the service outcome and timing ofdelivery.Interestingly, because service customers must participate inservice-deliver, they frequently blame themselves (at leastpartially) when things go wrong. Why did it take so long toreach an accurate diagnosis of my health problem? Why was theservice contract for our company’s cafeteria food service full oferrors? Why was the room we reserved for our meetingunavailable when we arrived? If customers believe they arepartially (or totally) to blame for the failure, they may be lessdissatisfied with the service provider than when they believe theprovider is responsible and could have avoided the problem.

Global FeatureAt Sweden’s IKEA Customer Create Value forThemselvesIKEN of Sweden has managed to transform itself from asmall J11ail-orderfurniture company in the 1950s into the worldlargest retailer of home furnishings. In 1999 their 100 stores in28 countries around the world were visited by close to 200million people, generating more than $6 billion in revenues.The company sells simple Scandinavian design furnishings,charging 25 to 50 percent Iess than its competitors. Approxi-mately 84 percent of sales come from Europe, percent fromNorth America, and 3 percent from Africa. The first IKEA storein Mainland China opened in1998, and the first in Moscowopened in 1999. A key to IKEAs successful global expansionhas been the company’s policy of allowing each of its stores totailor its mix according to local market needs and budgets.Another fascinating key to. IKEA’s spectacular success is thecompany’s relationship with its customers. IKEA has drawnthe customer into its production system: “If cus-tomers agreeto take on certain key tasks traditi9nally done by manufacturersand retailers-the assembly of products and their delivery tocustomers’ homes-then IKEA promises to deliver well-designed products at substantially, lower prices.” In effectIKEA’s customers become essential” contributors -to value-they create value for themselves through participating in themanufacturing and delivery process;IKEA has made being part of the value creation process aneasy, fun, and pleasant experience for customers. The company’sstores -are a pleasure to shop in. Free strollers and supervisedchildcare are provided as well as wheel-chairs for those who needthem. When customers enter the store they are given catalogs,tape measures, pens, and notepaper to use as they shop,allowing the customer to perform functions commonly doneby sales- and service- people After payment, customers taketheir purchases to their cars on carts; if necessary they can rent orbuy a roof rack to carry larger purchases. Thus, customers alsopro-vide furniture loading and delivery services for themselves.At home, the IKEA customer then takes on the role ofmanufactured in assembling the new furnishings followingcarefully written, simple, and direct instructions. IKEA printsmore than 45 million catalogs per year in 38 editions and 17


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different languages, making its products and in-structions fortheir use accessible worldwide.IKEA’s success is attributable in part to recognizing thatcustomers can be part of the business system, performing rolesthey have never performed before. The company’s implementa-tion of this idea through clearly defining cus-tomers’ new rolesand making it fun to perform these roles is the genius of theirstrategy. Through the process, customer create and contribute totheir own satisfaction.

Customers as Competitors“A final role played by service customers is that of potentialcompetitor. If self-service customers can be viewed as resourcesof the firm, or as “partial employees,” self-service customerscould in some cases partially perform the service or perform theen-tire service for themselves and not need the provider at all.Customers thus in a sense are competitors of the companiesthat supply the service. Whether to produce a ser-vice forthemselves (internal exchange), for example, child care, homemaintenance, car repair, or have someone else provide theservice for them (external exchange).is a common dilemma forconsumers.Similar internal versus external exchange decisions are made byorganizations. Firms frequently choose to outsource serviceactivities such as payroll, data process-ing, research, accounting,maintenance, and facilities management. They find that itis advantage to focus an their care businesses and leave theseessential support services to others with greater expertise.Alternatively, a firm may decide to stop pur-chasing servicesexternally and bring the service production process in-house.Whether a house hold or a firm chooses to produce a particularservice for itself or contract externally far the service depends ona variety of factors. A proposed model of internal/externalexchange suggests that such decisions depend on the followingExpertise capacity - The likelihood of producing the serviceinternally is increased if the household or firm possesses thespecific skills and knowledge needed to produce it Having theexpertise will not necessary result in internal service productionhow ever because other factors (e.g., available resource, and time)will also influence the decision. (Far firms, making the decisionto outsource is often based on recognizing that although theymay have the expertise, someone else can do it better.)Resource capacity- To decide to produce a service internally, thehousehold or firm must have the needed resources includingpeople, space, money, and materials-If the resources are notavailable internally, external exchange is more likely.Time capacity-Time is a critical factor in internal/externalexchange decisions. Households and firms with adequate timecapacity are more likely to produce services internally than aregroups with time constraints.Economic rewards-The economic advantages or disadvantagesof a particular ex-change decision will be influential in choosingbetween internal and external options. The actual monetarycosts of the two options will be factors that sway the decision.Psychic rewards-Rewards of a non-economic nature have apotentially strong in-fluence on exchange decisions. Psychic

rewards include the degree of satisfaction, en-joyment, andgratification, or happiness that is associated with the external orinternal ex-change.Trust-In this context trust means the degree of confidence orcertainty the household or firm has in the various exchangeoptions. The decision will depend to same ex-tent the level ofself-trust versus trust of others in the particular context.Control The house hold or firm’s desire far control aver theprocess and outcome of the exchange will also influence theinternal/external choice’. Entities that desire and can implementa high degree of control aver the tasks are more likely to Engagein in- external exchange.The important thing to remember from this section is that inmany service scenario customers can and do choose to fully orpartially produce the service themselves. Thus in addition torecognizing that customers can be productive resources and cocreators of quality and value, organizations also need torecognize the customer’s role as a potential competitor.

Notes


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LESSON 26:STRATEGIES FOR ENHANCING CUSTOMER PARTICIPATION

The Objective of this Lesson is to• Strategies for enhancing Customer participation

Strategies for Enhancing CustomerParticipationFrom the preceding discussion it is clear that the level andnature of customer participation in the service process arestrategic decisions that can impact an organization’s productivity,its position relative to competitors, its service quality, and itscus-tomers’ satisfaction. In the following sections we’ll examinethe strategies captured in Figure 12-3 far involving customerseffectively in the service delivery process. The overall goals of acustomer participation strategy will typically be to increaseproduc-tivity and customer satisfaction while simultaneouslydecreasing uncertainty due to unpredictable customer actions.The ultimate form of customer participation IS self-service,often facilitated by technology

Fine Customer JobsIn developing strategies for addressing customer involvementin service delivery, the organization first determines what typeof participation it wants from customers, thus beginning todefine the customer’s job.” Identifying the current level ofcustomer par-ticipation can serve as a starting point. Customers’roles may be partially predeter-mined by the nature of theservice, as suggested earlier in Table 12-1. It may be that theservice requires only the customer’s presence (e.g., a concert,airline travel), or it may require moderate levels of input fromthe customer in the form of effort. or infor-mation (e.g.,haircut, tax preparation), or it may require the customer toactually core ate the service outcome (e.g., fitness training,consulting).The organization may decide that it is satisfied with the existinglevel of participa-tion it requites from customers but wants tomake the participation more effective. For example CharlesSchwab has always positioned itself as a company whosecustomers are highly involved in their personal investmentdecisions. Over time this position has been implemented indifferent ways. Advances in technology have allowed CharlesSchwab to solidify its position as the investment company forindependent investors, as featured in the Technology spotlight.Alternatively, the organization may choose to increase the levelof customer partic-ipation, which may reposition the service inthe customer’s eyes Experts have sug-gested that higher levelsof customer participation are strategically advisable when serviceproduction and delivery are inseparable; marketing benefits(cross-selling, building loyalty)”can be enhanced by on-sitecontact with the customer; and customers can supplement forthe labor and information provided by employees.In health care, researchers and providers are working on ways togain more active customer participation in treatment decisions.By viewing videotapes that combine scientific data, candid

patient interviews, and descriptions of the risks and benefits ofdifferent treatment options, patients can be better educated andable to participate in their own treatment decisions. By activelyinvolving patients in treatment decisions and other issuesrelevant to their own health, a particular health care organization(or perhaps eventually the whole industry) might repositionitself and in effect “democra-tize the doctor-patient relationship.In addition to causing a shift in the roles of pa-tients andproviders, videos and other similar practices could have aprofound effect on the industry? At Kaiser Permanente MedicalGroup in Denver, the rate of prostate surgery among itsmembers plunged 44 percent in the first year after doctors beganshowing patients a video on benign prostate disease. The videomade patients more aware of alternative treatments, and thepros” and cons of surgery. At Group Health of Puget Sound, ahealth maintenance organization in Washington state, surgeryrates dropped 60 percent after patients viewed the prostatedisease video.

Technology SpotlightUser friendly and reliable, customer understand their roles, andthey have the capability to use the technology.Research suggest that as firms move into SSTs as a mode ofdelivery, some important questions to ask are:• What is our strategy? What do we hope to achieve through

the SSTs (e.g., cost saving, revenue growth, competitiveadvantage)?

• What are the benefits to customers of producing the serviceon their own through the SST? Do they know andunderstand these benefit ?

• How can customers be motivated to try the SST? Do theyunderstand their role? Do they have the capability to performthis role?

• How technology ready are our customer? Are there segmentsof customers who are more ready to use the technology thanothers?

• How can customers be involved in the design of the servicetechnology system and processes so that they will be movelikely to adopt and use the SST?

• What form of customer education will be needed toencourage adopting? Will other incentives be needed?

Adopting SSTs requires a behavior change for customersmoving from a nonexistent or partial co production role to therole of sole producer, the ultimate in customer participation.Finally, the organization may decide it wants to reduce customerparticipation, due to all the uncertainties it causes In suchsituations the strategy may be to isolate all but-the essentialtasks keeping customers away from the service facility andemployees much as possible Mail order is an extreme exampleof this form of service. Customers are in contact with the


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organization via telephone or the Internet, never see theorganization’s facility, and have limited employee interactions.The customers role is thus extremely limited and can interferevery little with the service delivery process.Once the desired level of participation is clear, the organizationcan define more specifically what the customer’s “job” entailsThe customer’s “job description” will vary with the type ofservice and the organization’s desired position within itsindustry.

The Customer’s Job: Helping HimselfIn many cases the organization may decide to increase the levelof customer involvement in service delivery through activeparticipation. In such situations the customer becomes aproductive resource, performing aspects of the service hereto-fore per-formed by employees or others. Many of the examplespresented in this chapter are il-lustrations of customers“helping themselves” (e.g., IKEA of Sweden, Charles Schwab,Kaiser Permanente, Group Health of Puget Sound). In each ofthese cases, the customer has particular tasks that must beperformed to fulfill his or her role. The result may be increasedproductivity for the firm and/or increased value, quantity, andsatisfaction for the customer.

The Customer’s Job: Helping OthersSometimes the customer may be called on to help others whoare experiencing the service. A child at a day care center might beappointed “buddy of the day” to help a new child acclimateinto the environment. Long-time residents of retirementcommu-nities often assume comparable roles to welcome newresidents. Many universities have established men to ringprograms, particularly for students from minority groups, inwhich experienced students with similar backgrounds helpnewcomers adjust and learn the system. Many membershiporganizations (e.g. health clubs, churches, social organizations)also rely heavily, although often informally, 011 current mem-bers to help orient new members and make them feel welcome.In performing these types of roles, customers are againperforming productive functions for the organization, increas-ing customer satisfaction and retention. Acting as a mentor orfacilitator can have very positive effects on the person perform-ing the role and is likely to increase his or her loyalty as well.

The Customer’s Job: Promoting the CompanyIn some cases the customer’s job may include a sales orpromotional element. As you know from previous chapters,service customers rely heavily on word-of-mouth en-dorsements in deciding which providers to try. They are morecomfortable getting a recommendation from someone who hasactually experienced the service than from advertising alone. Apositive recommendation from a friend, relative, colleague, oreven an acquaintance can pave the way for a positive serviceexperience. Many service organizations have been very imagina-tive in getting their current customers to work as promoters orsalespeople, as shown in Exhibit 12-2.

Individual Differences: Not Everyone Wants toParticipateIn defining customers’ jobs it is important to remember thatnot everyone will want to

Participate Some customer segments enjoy self-service: whereasothers prefer to have the service performed entirely for them. Inbanking, one customer may prefer that a human teller completeall of her transactions, whereas another much prefers the ATMand automated banking via touch tone phone. Companies thatprovide education and training services’ to organizations knowthat there are some customers who want to be involved indesigI1ing the training and perhaps in delivering it to theiremploy-ees. Other companies: want to hand over the entiretraining design and delivery to the consulting organizationstaying at arms length with little of their own time and energyinvested in the service. In health care, it is dear that somepatients want lots of infor-mation and want the doctor to tellthem what in their own diagnosis and treatment decisions.Oth-ers simply want the doctor to tell them what to do.Despite all of the customer service and purchase options ‘nowavailable via the Internet, there are still large numbers ofcustomers who prefer human, high-contact service deliveryrather than self-service. Because of these differences in prefer-ences, most companies find they need to provide servicedelivery choices for different market segments.Often an organizational can customize its services to fit theneeds of these different segments-those who want to partici-pate and those who prefer little involvement. Banks typically dothis by offering both automated self-service options and hightouch, human delivery options. At other times, as in the case ofCharles Schwab or IKEA (see Global Feature), the organizationcan effectively position itself to specifi-cally serve only segmentsof customers who, want to participate by designing its servicesto require, customer independence and involvement.

Exhibit 12-2 Customers as “ServicePromoters”Organizations often encourage their customers to help pro-mote the organization’s services through word of mouth. Herewe share a variety of examples from different indus-trycontexts:A dental practice encourages referrals by sending flow-ers, candy,or tickets to a local sports event to its patients whose namesappear frequently in their “who referred you?” database.A bowling alley holds a drawing for one of it regular patrons.The person whose name is drawn is given a party at thebowling alley to which he or she can invite friends for freebowling. This effectively creates a “word-of -mouth champion”who brings new people into the estab-lishment.A chiropractor gives a free next exam to people who re-fer newpatients. Patients who make referrals have their names listed ona board in the office waiting area.To increase membership, a credit union published a memberreferral coupon in its newsletter those who re-ferred newmembers: were then given $5.A credit card that gives customers frequent flyer points everytime they use their credit card, offers 10,000 free miles to thosewho can solicit a new credit -card customer.A nightclub holds regular drawings (using business cards left byits patrons). Those whose names are drawn -get a free party (noentry charge) for as many of their friends as they want to invite.


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An express contact “Lens Company asks patrons to list friends’names on a card. For each friend who buys, the original patrongets $15 or a free pair of disposable con-tacts.

Recruit, Educate,and Reward Custome,RsOnce the customer’s roles clearly defined, the organization canthink in terms of fa-cilitating that role. In a sense, the customerbecomes a “partial employee” of the or-ganization at some‘level, and strategies for managing customer behavior in serviceproduction and delivery can mimic to some degree the effortsaimed at service em-ployees discussed in Chapter 11. Generalmodels of employee behavior suggest that behavior is deter-mined, by role dairy, ability to perform and motivation toperform. Similarly, customer behavior in a service productionand delivery situation will be ciliated when (l) customersunderstand their roles and how they are expected to per-form,(2) customers are able to perform as expected, and (3) there arevalued rewards for performing as expected. Through thesemeans, the organization will also reduce’ the inherent uncer-tainty associated will the unpredictable quality and timing ofcus-tomer participation.

Recruit the Right CustomersBefore the company begins the process of educating andsocializing customers for their roles; it must attract’ the rightcustomers to fill those roles. The organization should seek toattract customers who will be comfortable with the roles. To dothis, it should clearly communicate the expected roles ‘andresponsibilities in advertising, per-sonal selling, and othercompany messages. By previewing their roles and what is re-quired of them in the service process, customers can self-selectinto (or out of) the re-lationship. Self-selection should result inenhanced perceptions of service quality from the customer’spoint of view and reduced uncertainty for the OrganizationTo illustrate, a child care center that requires parent participationon the site at least one-half day per week needs to communicatethat expectation before it enrolls any child in its program. Forsome families, this level of participation will not be possible ordesirable, thus precluding them from enrolling in the center.Another center could choose to have a variety of optionsavailable for families ranging from no on-site par-ticipation todaily participation. Whatever the case, the expected level ofparticipation needs to be communicated clearly in order toattract customers who are ready and willing to perform theirroles. In a sense this is similar to a manufacturing firm exer-cising control over the quality of inputs into the productionprocess.

Educate and Train, Customers to Perform EffectivelyCustomers need to be educated, or In essence “socialized” sothat’ they can perform their roles effectively. Through thesocialization process, it is possible for service cus-tomers to gainan appreciation of specific organizational values, develop theabilities necessary to function within a specific context, under-stand what is expected of them, and acquire the skills andknowledge to interact with employees and othercus-tomers.3lCustomer education programs can take the form of formalorientation pro-grams, written literature provided to customers,directional cues and signage in the service ‘environment, andlearning from employees and other customers. Each of these

forms of education are discussed further in the followingparagraphs.Many services offer “customer orientation programs to assistcustomers in under-standing their roles and what to expectfrom the process before experiencing it. Uni-versities offerorientation programs for new students, and often for theirparents as well, to preview the culture, university procedures,and expectations of students. Sim-ilarly, health clubs use formaltraining programs to educate customers on how to use thefacilities and equipment. When customers begin the WeightWatchers program their first group meeting includes a thoroughorientation to the program and their re-sponsibilities, asdescribed in Exhibit 12-3.In, a mammography screen context, research has found thatorientation and formal education of customers can relievecustomer fears and perceptions of risk and ulti-mately increasecustomer satisfaction (see Exhibit 12-4).Customer education can also be partially accomplished throughwritten literature and customer, “handbooks” that describecustomers’ roles and responsibilities. Many hospitals havedeveloped patient handbooks, very similar in appearance toemployee handbooks, to describe what the patient should do inpreparation for arrival at the hospital, what will happen when heor she arrives, and policies regarding visiting hours and billingprocedures. The handbook may even describe the roles andresponsibilities of family members.

Exhibit 12 Weight Watchers Educates andOrients New MembersWhen new members first join Weight Watchers, one of thelargest and most successful commercial weight-loss orga-nizations in the world, they are thoroughly educated re-gardingthe program and their responsibilities. For example, when anew member attends her first meeting at a local chapter ofWeight Watchers of Arizona, she watches a video that tellsabout the program and reviews how the food plan works. Newmembers are also given a booklet entitled “Welcome to WeightWatchers” that covers topics such as welcome to weight watches.Weight loss consumer bill of rights here are the facts, whatshould I Know Before I Begin the Program? Important HealthNo-tices, How Do I Qualify for Weight Watchers Membership?What Can I Expect from the Weight Watchers Pro-gram?,Nutritional Content of the Food Plan, Activity Plan, BehavioralSupport, Maintenance Plan, and others.In addition to the video, the booklet, and a discussion of alltopics led by the group leader, the new member also receives a“Program Planner and Tracker.” This form is used by themember to record daily food selections and physical activity.Weight Watchers knows that its business cat} succeed only ifmembers do their part in following the weight-loss plan.Through the orientation, the booklets, and the food andactivity forms, the organization clearly defines the member’sresponsibilities and makes the plan as easy as possible to follow.

Exhibit 12-4. Realistic Service PreviewsReduce Customer Anxiety and ImproveSatisfactionResearch in a mammography screening context found that ifpotential patients are oriented through a realistic preview of the


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process, patient anxiety is-reduced and ultimate sat-isfactionincreased. An experiment was conducted that in-volved 134women who had never experienced a mammo-gram and whohad little knowledge about the procedure. Half of the womenwere given a realistic preview of the process, while the othersreceived no preview. The preview consisted of written informa-tion about mammography’ including sections on: what is amammogram, how the pro-cedure works, instructions tofollow before mammography, what happens during mammog-raphy, after the examination, the role .of mammography, andsome common misconcep-tions. The realistic preview alsoincluded a seven-minute videotape illustrating the entireprocedure. The written ma-terials and the videotape bothhelped to dispel overly pes-simistic expectations as well as toguard against overly pos-itive ideas the potential patients mayhave had.After the preview (or no preview), women in the exper-imentanswered questions that assessed the accuracy of their expecta-tions, their sense of control, and their level of anxiety relative tomammography. The women then read one of three versions ofan actual mammography experience and were asked to imaginethemselves as the woman in the story. One version of the storyfollowed the realistic preview exactly, another version includedseveral blunders on the part of the fictitious provider, and thefinal version enhanced the service experience, making it evenbetter than the realistic preview. After reading the story, andimagining that the events had actually happened to them, thewomen responded to questions regarding their satis-factionwith the mammography screening process.Results of the study showed that those women who had beenoriented through the realistic preview did indeed have morerealistic and accurate expectations for the mammog-raphyexperience than did those who had. no preview. Sec-ond, thewomen who saw the preview reported signifi-cantly less anxietyand significantly greater perceptions of control over the processthan did women who had no pre-view. Finally, across all of thedifferent scenarios, women who received the preview were moresatisfied with the actual service experience. The realistic previewthus af-fected potential mammography patients’ preserves feel-ings (anxiety and control), as well as their satisfaction with theservice.While formal training and written information are usuallyprovided in advance of the. service experience, other strategiescan be employed for continuing the customer socializationprocess during the experience itself. On site, customers requiretwo kinds of orientation: place orientation (where am I? andhow do 1 get from here to there?), and function orientation(how does this organization work? and what am 1 supposed todo?) Signage, the layout of the service facility, and otherorientation aids can help customers to answer these questions,allowing them to perform their roles more ef-fectively. Orienta-tion aids can also take the form of rules that define customerbehav-ior for safety (airlines, health clubs), for appropriate dress(restaurants, entertainment venues), and noise levels (hotels,classrooms, theaters). Before showing a movie, many theatersnow flash a sign on the screen that says “Please, no talking, orcrying babies.”

Customer are also socialized to their expected roles thoughinformation provided by employees and by observing othercustomers. It has been said that when McDon-ald’s first wentto England, the British customers were not accustomed tobusing their own trays. They quickly learned, however, byobserving the customers McDonald’s had hired to “demon-strate” appropriate busing behavior. These customers werehired to sit in the restaurants and at predictable intervals to carrya dirty tray over to the trash can and dispose of it.

Reward Customers for Their ContributionsCustomers are more likely to perform their roles effectively, orto participate actively, if they are rewarded for doing so. Rewardsare likely to come in the form of increased control over the-delivery process, timesavings, monetary savings, andpsychological or physical benefits. For instance, some CPA firmsprovide clients with extensive forms to complete before theymeet with their accountant. If the forms are completed, theCPA will have less work to do and the client will be rewardedwith fewer billable hours. Those clients who choose not toperform the requested role will pay a higher price for the service.ATM customers who perform banking services for themselvesare also rewarded, through greater access to their bank, both interms of locations and times. In health care contexts, patientswho perform their roles effectively are likely to be rewarded withbetter health or quicker recovery.Customers may not realize the benefits or rewards of effectiveparticipation unless the organization makes the benefitsapparent to them. In. other words, the organization needs toclarify the performance-contingent benefits that can accrue tocustomers just as it defines these types of benefits to employ-ees. The organization also should recog-nize that-’not allcustomers are motivated by the same types of rewards. Somemay value the increased access and timesavings they can gain byperforming their service roles effectively. Others may value themonetary savings. Still others may be looking for greaterpersonal control over the service outcome.

Avoid Negative Outcomes of Inappropriate CustomerParticipation“If customers are not effectively socialized, the organizationruns the risk that in appropriate customer behaviors will resultin negative outcomes1. Customers who do not understand the service system or the

process of .delivery may slowdown the service process andnegatively affect their own as well as other customers’outcomes. In a rental car context, customers who do notunder-stand the reservation process the information neededfrom them; insurance cov-erage issues, and the pick-up anddrop-off procedures can slow the flow for em-ployees andother customers, negatively affecting both productivity andquality of service.

2. If customers don’t perform their roles effectively, it may notbe possible for employees to provide the levels of technicaland process quality promised by the or-ganization. Forexample, in a management consulting practice, clients’ whodo not provide the level of information and cooperationneeded by the consultants will likely receive inferior service


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both in terms of the usefulness of the management reportand the timeliness of the delivery.

3. If customers are frustrated because of their owninadequacies and in competencies employees are likely to”suffer emotionally and be’less able to deliver qual-ity serviceFor example, if customers routinely enter the service deliveryprocess with little knowledge of how the system works andtheir role in it, they are likely to take out their frustrations onfront-line employees. This negative impact on in-dividualemployees can take its toll on the organization in the formof turnover and decreased motivation to serve.

Manage the Customer MixBecause customers frequently interact with each other in theprocess of service deliv-ery and consumption, another impor-tant strategic objective is the effective manage-ment of the mixof customers who simultaneously experience the service. If arestau-rant chooses to serve two segments during the dinnerhour that are incompatible with each other for example, singlecollege students who want to party and families with smallchildren who want quiet-it may find that the two groups do notmerge well. Of course it is possible to manage these segmentsso that they do not interact with each other by seating them inseparate sections or by attracting the two segments at differ-entlines of day. Smokers and nonsmokers are c6ften incompatiblesegments that a service firm must manage if it wants to serveboth segments well. Major tourism at-tractions around theworld are faced with the challenge of accommodating visitorsegments who differ in the languages they speak, the foods theywant to eat, their values, and their perceptions of appropriatebehaviors. Sometimes these visitors call clash when they do notunderstand and appreciate each other.The process of managing multiple and sometimes conflictingsegments is known as compatibility management, broadlydefined as “a process of first attracting homoge-neous consum-ers to the service environment, then actively managing both thephysi-cal environment and customer-to-customer encounters in‘such a way as to enhance satisfying encounters and minimizedissatisfying encounters. Compatibility man-agement will becritically important for some businesses (e.g., health clubs,public transportation, hospitals) and less important for others.Table 12-2 lists seven interrelated characteristics of servicebusinesses that will increase the importance of com-patibilitymanagement.Table 12-2 Characteristics Of Service That Increase The Impor-tance Of Compatible Segments

Characteristic Explanation Example Customers are in close physical proximity to each other There is verbal interaction among customers. Customers are engaged in numerous and varied activities.

Customers will more often notice each other and be influenced by each other's behavior when they are enclose physical proximity. Conversation (or lack thereof) can be a component of Both satisfying and dissatisfying encounters with fellow patrons When a service facility supports varied activities all going on at the same time, the activities themselves may be compatible.

Airplane, flights Entertainment events Sports events Full -service restaurants Cocktail lounges Educational settings Libraries Health clubs Resort hotels

The service environment' attracts a heterogeneous customer mix. The core service is compatibility. Customers must occasionally wait for the service. Customers are expected to share time, space, or service utensils with each other.

Many service environments, particularly those open to the public, will attract a variety of customer segments. The core service is to arrange and nurture compatible relationships between customers. Waiting in line for service can be monotonous or anxiety producing. The boredom or stress can be magnified or lessened by other customers depending on their compatibility. The need to share space, time and other service factors is common in many services, but may become a problem if segments are not comfortable with sharing or with each other or when the need to share is intensified due to capacity constraints.

Public parks Public transportation Open-enrollment colleges Big Brothers/Big Sisters Weight-loss group programs Mental health support groups Medical clinics Tourist attractions Restaurants Golf courses Hospitals Retirement communities Airplanes

To manage multiple (and sometimes conflicting) segments,organizations rely on a variety of strategies. Attracting maxi-mally homogeneous groups of customers through carefulpositioning and segmentation strategies is one approach. Thisis the strategy used ‘by the Ritz-Carlton Hotel Company, forwhich upscale travelers are the primary target segment. The Ritz-Carlton is positioned to communicate that message to themarketplace, and customers self-select into the hotel. However,even in that context there are potential conflicts, for examplewhen the hotel is simultaneously hosting a large businessconvention and serving individual business travelers. A secondstrategy is often used in such cases. Compatible customers aregrouped together physically so that the segments are less likelyto interact directly with each other. The Ritz-Carlton keepsmeetings and large group events separated from the areas of thehotel used by individual businesspeople. As much as possible,sleeping rooms can be assigned on the same basis.Other strategies for enhancing customer compatibility includecustomer “codes of conduct” such as the regulation ofsmoking behavior and dress codes. Clearly such codes ofconduct may vary from one service establishment to another.Finally, train-ing employees to observe customer-to-customerinteractions and to be sensitive to po-tential conflicts is anotherstrategy for increasing compatibility among segments. Em-ployees can also be trained to recognize opportunities to fosterpositive encounters among customers in certain types of serviceenvironments.

SummaryThis chapter focused on the. role of customers in servicedelivery. The customer re-ceiving the service and the othercustomers in the service environment can all poten-tially cause awidening of gap 3 if they fail to perform their roles effectively’.A num-ber of reasons why customers may ‘cause a widening ofthe service delivery gap were suggested: Customer lack under-standing of their roles customers are unwilling or unable toperform their roles customers are not rewarded for goodperformance other customers interfere market segments areincompatible.The challenge of managing customers in the process of servicedelivery is unique to service firms. While manufacturers are not


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c0ncemed with customer participation in the manufacturingprocess, service managers are constantly faced with this issue,because their customers are often present and active partners inservice production. As participants in service production anddelivery, customers can perform three primary roles, discussedand illustrated in the chapter: productive resources for theorganiza-tion contributors to service quality and satisfaction,and competitors in performing the service for themselves.Through understanding the importance of customers in servicedelivery and identi-fying the roles being played by the customerin a particular context, managers can de-velop strategies toenhance customer participation. Strategies discussed in the textin-clude defining the customers’ roles and jobs, recruitingcustomers who match the customer profile in terms of desiredlevel of participation educating customers so they are able toperform their roles effectively, rewarding customers for theircontributions and managing the customer mix to enhance theexperiences of all segments. By implementing these strategies,organizations should see a reduction in gap 3 due to ef-fectiveand efficient customer contributions to service delivery.Who are the biggest consumers of distance learning? High-techcompanies use more distance’ learning than any other industrybecause of the fast pace of product change. Higher educationstatistics show that 90 percent of all higher education in-stitutions with more than 10,000 students and 85 percent ofthose with enrollments of 1,000 to 10,000 offer distanceeducation courses.How effective is distance learning? “Some skeptics overlook thefact that learning is not a place; it’s a process,” claims VickyPhillips, author of the book, The Best Dis-tance LearningGraduate Schools. Current research is sketchy, but one studysupports her point. A researcher analyzed studies from 248separate sources on the effective-ness of online degree programsand concluded that people learn just as well with a personalcomputer as they do by spending hours sitting in lecture halls.Much re-mains to be learned about the effectiveness of distancelearning as a whole as well as the types of distance learning thatare most successful.How effective is distance learning in other cultures and coun-tries? Thomas Cooper, an expert on mass communication,emphasizes that trust is a critical component of communica-tion. Trust in many cultures involves either touch or directvision, some-thing that is not achieved with technology. TheUnited States is one of the few cultures in which technologiessuch as bank teller machines are trusted by most consumers.For videoconferencing to be introduced in cultures wheresurrogate or substitute people are either offensive or notacceptable-the technology seems to be culturally insensitive ifnot inappropriate for many people.” Also, there are somecultures that accept distance learning but still feel “reduced,trivialized, muzzled, or as in the word, distanced from theeducational process.Only time will tell how far the distance learning revolution willgo, but many prog-nosticators expect it to completely alter theway learning is achieved. According to one expert:Education will change from a place-centered enterprise to“education where you need it.” A decade from now, it wouldn’t

surprise me if the majority of education took place in people’shomes, in people’s offices, on the production line, wherever it isneeded.

Except for situations such as distance learning, where electronicchannels can be used to distribute services, providers andconsumers come into direct contact in service pro-vision.Because of the inseparability of production and consumptionin service, providers must either be present themselves whencustomers receive service or find ways to involve others indistribution. Involving others can be problematic, becausequality in-service occurs in the service encounter betweencompany and customer. Unless the service distributor is willingand able to perform in the service encounter as the serviceprincipal would, the value of the offering decreases and thereputation of the original service may be damaged. Chapter 11pointed out the challenges of con-trolling encounters withinservice organizations themselves, but most service (and manymanufacturing) companies face an even more formidable task:attaining service excellence and consistency when intermediariesrepresent them to customers. This chapter discusses both thechallenges of delivering service through intermediaries andapproaches that engender alignment with the goals of theservice provider.Two services marketers are involved in delivering servicethrough intermediaries: the service principal, or originator, andthe service deliverer; or intermediary. The service principal is theentity that creates the service concept (whose counterpart is themanufacturer of physical goods), and the service deliverer is theentity that interacts with the custom in the actual execution ofthe service (whose counterpart is the dis-tributor or wholesalerof physical goods). Because both the service supplier and theservice deliverer are potential roles that you may play in yourcareer, we examine the issues surrounding distribution ofservices from both perspectives.Service intermediaries perform many important functions forthe service principal. First, they often co produce the service,fulfilling service principals’ promises to cus-tomers. Franchiseservices such as haircutting, key making, and dry cleaning arepro-duced by the intermediary (the franchisee) using processdeveloped by the service principal, (hence the phrase “coproducer). Service intermediaries also make services locallyavailable, providing time and ‘place convenience for thecustomer. Because they represent multiple service principals,such intermediaries as travel and insurance agents provide aretailing function for customers, gathering together in one placea va-riety of choices. And in many financial or professionalservices, intermediary’s func-tion as the glue between the brandor company name and the customer by building the trustingrelationship required in these complex and expert offerings.In contrast to channels for products, channels for services arealmost always direct, if not to the customer then to theintermediary that sells to the customer. Because services cannotbe owned, there are no titles or rights to most services that canbe passed along a delivery channel. Because services are intan-gible and perishable, inven-tories cannot exist, makingwarehousing a dispensable function. In general, because services


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can’t be produced, warehoused, and then retailed as goods can,many channels available to goods producers are not feasible forservice firms. Many of the primary functions distributionchannels serve-inventorying, securing, and taking title to goods-have no meaning in services. The focus in service distribution ison identify-ing ways to bring the customer and principal or itsrepresentative together. The options for doing so are limited tofranchisees, agents brokers, and electronic channels.

We do not include retailers in our short list of serviceintermediaries because most retailers from department stores -to discount stores-are channels for delivering physical goodsrather than services. Retailers that sell only’ services (movietheaters, film-processing kiosks, restaurants) or retail servicesthat support physical products (automobile dealers, gasstations) can also be described as dealers or franchises. For ourpurposes in-this chapter they are grouped into-the franchisecategory because they possess the same characteristics, strengths,and weakness as franchises.Goods retailers, by the way, are service organizations them-selves, making them in-termediaries for goods if not services.Manufacturing companies depend on retailers to represent,explain, promote, and ensure their products-all presale services.They also need retailers to return, exchange, support, and serviceproducts-all post scale services. These roles are increasinglycritical as products become more complex, tech-nical andexpensive. For example, camera and computer firms rely onretailer carry-ing their products to understand and communicatehighly technical information so that customers choose productsthat fit their needs. A retailer that leads the customer to thewrong product choice or that inadequately instructs on how touse it creates service problems that strongly influence themanufacturer’s reputation.Service principals depend on their intermediaries to deliverservice to their specifi-cations. It is in the execution by theintermediary that the customer evaluates the qual-ity of thecompany. When a McDonald’s franchisee cooks the McNuggetstoo short a time, the customer’s perception of the company-and of other McDonald’s fran-chisees-is tarnished. When oneHoliday Inn franchisee has unsanitary conditions, it reflects onall others and on the Holiday Inn brand itself. Unless serviceproviders en-sure that the intermediary’s goals, incentives, andmotives are consistent with their own, they lose control over theservice encounters between the customer and the in-termediary.When someone other than the service principal is critical to thefulfillment of quality service, a firm-must develop ways toeither control of motivate these inter-mediaries to meetcompany goals and standards. This chapter describes the typesand roles of service intermediaries

TutorialsIn light of above, Enumerate the variety of roles that servicecustomers play: productive resources for the organization;contributors to quality and satisfaction; competitors.


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LESSON 27:DELIVERING THROUGH INTERMEDIARY CHANNELS

Objectives of this Lesson are to• Direct or company owned channels• Key problems involving intermediaries• Key intermediaries involved in service delivery

Direct or Company-owned ChannelsAlthough we call this chapter “Delivering Service throughIntermediaries and Elec-tronic Channels,” it is important toacknowledge that many services are distributed di-rectly fromprovider - t9 customer. Some of these are local services doctors,dry cleaners, and hair stylists-whose area of distribution islimited. Others are national chains with multiple outlets but areconsidered direct channels because the provider owns all theoutlets. Starbucks, the popular chain of coffee shops, is anexample of a service provider with all company-owned outlets.Its 2,000 U.S.-based coffee shops are completely run andmanaged by the company. Exhibit 13 – 1 which describes someof the reasons for the success of the chain, illustrates the generalbenefits of company- owned outlets: control, consistency, aridmaintenance of image.Perhaps the major benefit of distributing the way Starbucksdoes through company- owned channels is that the companyhas complete control over the outlets. One of the most criticalimplications of this type of Control is that .the owner canmaintain con-sistency in service provision. Standards can beestablished, and will be carried out as planned, because thecompany itself is able to monitor and reward proper executionof the service. Control over hiring, firing, and motivatingemployees is also a benefit of company-owned channels. Asdemonstrated in Exhibit 13-1, one of the keys to Star-bucks’success is hiring the right baristas or coffee makers, somethingthe company is far more likely to do than a franchisee. Usingcompany-owned channels allows the company to expand ofcontract sites without being bound by contractual agreementswith other entities. A final benefit is that the company owns thecustomer relationship.In service industries where skilled or professional workers haveindividual rela-tionships with customers, a major concerninvolves whether the loyalty the customer feels is for thecompany or for the individual service employee. It is wellknown, for example, that-most people are loyal to individualhair stylists and will follow them from one place of business toanother. Therefore, one of the important issues in servicedelivery is who owns the customer relationship-the “store” orthe “provider.” With company-owned channels, the companyowns both the “store” and the “em-ployee” and therefore hascomplete control over the customer relationship.

Technology SpotlightSelf-service technologies-the ultimate in customer participationSelf-service technologies are “services produced entirely by thecustomer without any direct involvement or interaction with

the firm’s employees.” As such they represent the ultimate formof customer participation along a continuum from services thatare produced entirely by the firm to those that are producedentirely by the customer. This continuum is depicted in theaccompanying figure, using the examples of retail gasolineservice to illustrate the various ways the same service could bedelivered along all points on the continuum. At the far end ofthe continuum, the gas station attendant does everything frompumping the gas to taking payment. On the other end of thespectrum, the customer does everything, and in between arevarious forms and levels of customer participation.

Services Production ContinuumCustomer Production Joint Production Firm Production

1 2 3 4 5

Gas Station Illustration

1. Customer pumps gas and pays at the pump withautomation

2. Customer pumps gas and goes inside to pay attendant3. Customer pumps gas and attendant takes payment at the

pump4. Attendant pumps gas and customer pays at the pump with

automation5. Attendant pumps gas and customer goes inside to pay

attendant6. Attendant pumps gas and takes payment from customer at

the pumpAdvances in technology, particularly the internet, have allowedthe introduction of a wide range of self-service technologiesthat occupy the far left end of the customer participationcontinuum. These technologies have proliferated as companiesse the potential cost savings and efficiencies that can be achieved,potential sales growth, increased customer satisfaction, andcompetitive advantage. Here is a partial list of some of thetypes of self-service technologies (SSTs) available to consumers:• ATMs• Pay at the pump• Automated airline check-in• Automated hotel check-in/out• Automated car rental• Automated filling of legal claims• Automated drivers license testing• Automated betting machines• Electronic blood pressure machines• Various vending services (food, drink, cameras, etc)• Tax preparation software


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• Self-scanning at retail stores• Internet banking• MVD auto registration online• Online auctions• Home and car buying online• Automated investment transactions• Insurance online• Package tracking• Internet shopping (amazon.com. Gap, E-stamps, etc.,)• Internet information search• Various IVR phone systems (phone banking, prescription

ordering, etc.,)Some of these SSTs-ATMs, pay-at-the-ump gas, Internetinformation search-have been very successful, embraced bycustomers for the benefits they provide in terms of conve-nience, accessibility, and ease of use. Benefits to firms in termsof cost savings and/or revenue growth can also result for thosethat succeed. Others-airline ticketing kiosks online hotelbookings- have been less successful initially. Failure is oftenattributable to customers not having the ability or motivationto use the technology. Other times customers see no value inusing the technology when compared with the alternativeinterpersonal mode of delivery. Or, in some cases, they may notknow how to use the technology.Throughout the text we highlight some of the most successfulself-service technologies in the marketplace today. They havebeen successful because they offer clear benefits to customers,the benefits are well understood and appreciated compared withalternative delivery modes the technology.

Exhibit 13-1. Starbucks Shows Success ofCompany-owned Service ChannelsOne of the biggest marketing success stories of the last decadeis Starbucks Coffee Company, although it has been in businessfor almost 25 years. Ten years ago, its owner began to think ofcoffee not as something to retail in a store but instead assomething to experience in a coffeehouse. At that point, hecreated the Starbucks that we know today, the Starbucks that“successfully replicates a perfectly creamy cafe latte in stores fromSeattle to St. Paul.” Con-sistency of service and product are twoof the most impor-tant reasons that Starbucks has grown tomore than 2,000 U.S.-based outlets and expanded internation-ally, and that it annually reports profit growth of more than 50percent a year. (Even a world-class service provider such as Star-bucks can have a “bad day” as we saw in Chapter 7!) Be-causeStarbucks owns every domestic outlet, it maintains control overall that takes place in them, and here are some of the efforts itundertakes to ensure that the Starbucks ex-perience is always thesame, always positive.

Employee Training: Learning to Be a BaristaAll employees are called partners, and those that prepare coffeeare called “baristas,” the Italian name for one who prepares andserves coffee. As many as 400 to 500 em-ployees per monthnationally are carefully trained to “call” (“triple-tall nonfatmocha”), make drinks, clean espresso machines, and deliver

quality customer service. Baristas are , taught “coffee knowl-edge” so that among other things they know how everythingtastes and “customer service” so that they can explain the Italiandrink names to customers.

Ensuring Product Quality“Retail skills” is another portion of the training, which teachessuch specifics as how to wipe oil from the coffee bin, open agiant bag of beans, and clean the milk wand on the espressomachine, all of this to ensure that the coffee drinks taste justright. Another part, “brewing the perfect cup at home,” helpsbaristas teach customers how to use the espresso machines andcoffee they buy at Starbucks to replicate the product they get inthe coffeehouse.

Service StandardsNo pot of Starbucks coffee sits on a burner for more than 20minutes. An espresso machine with unused coffee must bepurged regularly. And no one goes home at night unlesseverything-everything-is completed, cleaned, and pol-ishedaccording to the service standards in the manual. Us-ing suchstandards ensures that both service and quality are maintained.

Star SkillsTo hire, keep, and motivate the very best employees, Starbuckshas three guidelines for on-the-job interpersonal relations: (1)maintain and enhance self-esteem, (2) listen and acknowledge,and (3) ask for help. These and other human resource practices,including higher-than-average pay, health insurance, and stockoptions, lowers barista turnover to 60 percent compared with140 percent for hourly workers in the fast-food business ingeneral.

Joe, a MagazineWhat other coffee shop do you know that is large and in-fluential enough to join forces with Time Inc. to publish amagazine? Starbucks has created Joe, a cultural review that willbe sold in U.S. and Canadian stores. Subtitled, Life Is Interest-ing. Discuss, the magazine was designed to replicate the ideasand conversations that occur in a cof-feehouse.If you have any doubt about whether all these steps pay off interms of quality product and service, check out Star-bucks atairports or on the turnpike. You’ll notice a differ-ence. While thecompany doesn’t franchise domestically, it does license sites tocompanies with contracts from public agencies to run thosefacilities. No highly trained baristas work at these outlets, andno service quality standards can be enforcing in them. The resultis a hiss consistent, less pleasant, and less flavorful experience.And, if you need further evidence, compare a coffee shop cupof Starbucks coffee to one offered on any United Airlines flight.It’s the same coffee, but a harried flight attendant with 65passen-gers needing meals and drinks just can’t provide thesame consistency and attention to every cup.Probably the largest impediment to most service chains, thecompany must bear all the financial risk. When expanding, thefirm must find all the capital, sometimes using it for storeproliferation rather than for other uses (such as advertising,service quality, or new-service development) that would bemore profitable. Second, large companies are rarely experts inlocal markets they know their businesses but not all consumer


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markets themselves. When adjustments are needed in businessformats for different markets, they may be unaware of whatthese adjustments should be. This is especially true whencompanies expand into other cultures and other countries.Partnering or using joint ventures is almost always preferred tocompany-owned channels in these situations.When two or more service companies want to offer a serviceand neither has the full financial capability or expertise, theyoften undertake service partnerships. These operate very muchlike company-owned channels except that they involve multipleowners. The benefits are that risk and effort are shared, but thedisadvantages are that control and returns are also distributedamong the partners. Several of the areas in which partnershipsare common are in telecommunications, high-technologyservices, Internet-based services, and entrepreneurial services.Another area in which service partnerships proliferate is whencompanies expand beyond their country boundaries -typicallyone partner provides the business format and the otherprovides the knowl-edge of the local market.

Key Problems Involving IntermediariesKey problems with intermediaries include conflict over objec-tives and performance, conflict over costs and rewards, difficultycontrolling quality and consistency across outlets, tensionbetween empowerment and control, and channel ambiguity.

Channel Conflict over Objectives and PerformanceThe parties involved in delivering services are not always inagreement about the way the channel should operate. Channelconflict can occur between the service provider and the serviceintermediary, among intermediaries in a given area, and betweendifferent types of channels used by a service provider (e.g., whena service principal has its own outlets as well as franchisedoutlets). The conflict most often centers on the parties havingdifferent goals, competing roles and rights, and conflictingviews of the way the channel is performing. Sometimes theconflict occurs because the service principal and its intermediariesare too dependent on each other.

Channel Conflict over Costs and RewardsThe monetary arrangement between those who create theservice and those who de-liver it is a pivotal issue of conten-tion. Nowhere was this type of conflict better demon-stratedthan when major airlines surprised their major distributionchannel (travel agencies) with caps on fees. Instead of thetraditional 10 percent commission on total airfare, Deltapioneered a $50-or-Iess fee per ticket, unilaterally and dramati-cally al-tering the compensation arrangement. The manner inwhich the airlines made the change so infuriated travel agenciesthat they struck back against the airlines through such strategiesas teaching consumers how to. buy cheap tickets without stayingover a Saturday night, purchasing wholesale tickets, andrecommending small, discount carriers.

Difficulty Controlling Quality and Consistency acrossOutletsOne of the biggest difficulties for both principals and theirintermediaries involves the inconsistency and lack of uniformquality that result when multiple outlets deliver services. Whenshoddy performance occurs, even at a single outlet, the service

princi-pal suffers because the entire brand and reputation arejeopardized, and other inter-mediaries endure negative attribu-tions to their outlets. The problem is particularly acute in highlyspecialized services such as management consulting or architec-ture, where execution of the complex offering may be difficultto deliver to the standards of the principal.

Tension between Empowerment and ControlMcDonald’s and other successful service businesses werefounded on the principle of performance consistency. Both theyand their intermediaries - attained profits and longevity by thecompany’s controlling virtually every aspect of their intermediar-ies’ businesses. McDonald’s, for example, is famous for itsdemanding and rigid service standards (such as “turn, never flip,hamburgers on the grill”), carefully specified sup-plies, andperformance monitoring. The strategy makes sense, becauseunless an in-termediary delivers service exactly the same way thesuccessful company outlets pro-vide it, the service may not be asdesirable to customers. From the principal’s point of view, itsname and reputation are on the line in each outlet, makingcareful control a necessity.Control, however, can have negative ramifications withinintermediaries. Many service franchisees, for example, areentrepreneurial by nature and select service fran-chising becausethey can own and operate their own businesses. If they are todeliver according to consistent standards, their independentideas must be integrated into and often subsumed by thepractices and policies of the service principal. In these situa-tions they often feel like automatons with less freedom thanthey had in corporate jobs.

Channel AmbiguityWhen empowerment is the chosen strategy, doubt exists aboutthe roles of the com-pany and the intermediary. Who willundertake market research to identify customer requirements,the company or an intermediary? Who owns the results and inwhat way are they to be used? Who determines the standardsfor service delivery, the franchiser or the franchisee? Who shouldtrain a dealer’s customer-service representatives, the company orthe dealer? In these and other situations, the roles of theprincipal and its intermediaries are unclear, leading to confusionand conflict.

Key Intermediaries for Service Delivery

One way to organize the discussion of delivering servicethrough intermediaries is to describe the primary channels ofservice distribution. Services can be distributed to the endcustomer through franchisees, agents, brokers, and electronicchannels. Fran-chisees are service outlets licensed by a principalto deliver a unique service concept it has created or popularized.Examples include fast-food chains (McDonald’s, Burger King),video stores (Blockbuster’s), automobile repair services (JiffyLube), and ho-tels (Holiday Inn). Agents and brokers .arerepresentatives who distribute and sell the - services of one ormore service suppliers. Examples include insurance (Paul RevereInsurance Company), financial services (Oppenheimer mutualfunds), and travel services (American Express). EleCtroniccAannels include all forms of service provi-sion throughtelevision, telephone, interactive multimedia, and computers.


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Many fi-nancial and information services are currently distrib-uted through electronic media: ban19ng, bill paying, education.Exhibit 13-2 reviews basic principles about distribution, foryour information.

Exhibit 13-2 Reviewing the Basics AboutDistribution from Marketing PrinciplesRather than reiterate topics covered in your marketing principlescourse and textbook, we list and briefly summa-rize below thebasics about distribution. Knowing these basics allows you tostep right into our chapter’s discus-sion of service intermediar-ies.

Basic Channel Functions

1. Decreasing the cost of delivering products and services tocustomers: Because the channel allows specialization, allparties can concentrate on what they do best, therebylowering cost.

2. Regrouping. activities: Intermediaries are charged withsorting out, accumulating, allocating, and as-sorting productsand services.

3. Standardizing transactions: Intermediaries deliver productsor services in consistent form, based on the needs of thebuyer and the supply of the seller.

4. Matching buyers and sellers: Intermediaries spend time inthe market, learning about customers and about whatsellers have to offer them. -

5. Provide customer service and support: Intermedi-ariesprovide various services including technical support, delivery,transportation, and education.

Types of IntermediariesRetailers: Intermediaries who sell directly to end cus-tomers.They may be retail stores, mail order, door-to--door, evenvending machines.-Wholesalers: Organizations that buy from producers and sell toretailers and organizational customers.

Number of IntermediariesThree strategies are available for distribution of products andservices:Intensive distribution: Locating the offering in numer-ousoutlets.Selective distribution: Use of more than one but less than allintermediaries who are willing.Exclusive distribution: Limiting the number of inter-mediariesto one per given area.Criteria for Evaluating the Channel AlternativesEconomic criteria: The sales expected and costs asso-ciated withthe channel.Control criteria: The degree to which the service provider canexpect to have its policies and procedures ad-hered to in therelationship.Adaptive criteria: The extent to which the type of chan-nel isable to change and be flexible when desired by the serviceprovider.

“Push” versus” Pull” Strategies“Push” strategy involves companies aggressively pro-motingtheir products to intermediaries through personal selling, tradeadvertising, and trade incentives. ..“Pull” strategy consists of building a reputation with .custom-ers through direct advertising and branding, creating a desire forthe manufacturer’s brand which is then pulled through thechannel pf distribution.

Notes


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LESSON 28:BASIC CHANNEL FUNCTIONS

The Objective of the Lesson is to• Basic channel functions• Key Benefits and challenges faced by the intermediaries• Strategy for effective service delivery through intermediaries.

Elements of a Franchise AgreementAgreements and contracts are essential in franchising. Servicecompanies have found that a franchise agreement shoulddescribe virtually all of the following aspects of the partnership:• The nature of the service to be supplied by the fran-chisee.• The geographic territory in which the franchisee can offer the

service.• How much of the revenue generated by the franchisee must

be paid to the franchiser. .• The length of the agreement (usually 5 to 10 years with

options to renew).• The up-front fee for the franchise.• The instructions by which the franchisee agrees to operate

and deliver service (price, reliability of service, ad-vertising) .• The promise that the franchisee will not act as an in-

termediary for any other service firm in the same industry(which is what technically distinguishes franchisees from -dealers and agents).

• The promotional support to be given to the franchisee toimprove the value of the franchised brands.

• The administrative and technical support provided by thefranchiser.

• The way that the franchise agreement can be termi-nated.As you may have guessed, these are the issues that cre-atemisunderstanding and conflict between franchisees andfranchisers-the reasons for channel conflict and channel ambigu-ity, as well as tension between control and empow-erment. Theprincipal appears to have the upper hand be-cause it is the entitydrawing up the contracts and selecting franchisees, but franchis-ing has benefits and challenges for all parties involved.

FranchisingFranchising is the most common type of distribution inservices and accounts for most retail sales.1O The practice islarge and growing rapidly. In this chapter we use the broadestpossible definition of franchising and incorporate two othertypes of inter-mediaries in the category: retailers and dealers.Retailers are outlets authorized to dis-tribute products andservices to end customers. Because this chapter is about distrib-uting services rather than products, we discuss only thoseretailers that distribute services, such as film-processingcompanies, restaurants, dry cleaners, and distributors ofmovies. When we narrow the list of retailers to services, mostare operated as fran-chises and are subject to the same advan-tages and challenges.

Franchising works well with services that can be standardizedand virtually dupli-cated, typically through the delivery process,service policies, warranties, guarantees, promotion, andbranding. Jiffy Lube, H&R Block tax services, and Red RoofInns are examples of companies that are ideal for franchiseoperations. The more complex and professional the service,such as with internal medicine or business consulting, the lesslikely it is that services will be duplicated exactly the way thefranchiser desires. At its best, franchising refers to a relationshipor partnership in which the service provides -the franchiser-develops and optimizes a service format that it licenses fordelivery by other parties-:-the franchisees. Both parties agree onhow profits and risks will be de-termined (see Exhibit 13-3).The Franchiser (Service Principal) Perspective More than 2,500U.S. fran-chisers license their brand names, business processesor formats, unique products, services, or reputations in returnfor fees and royalties from franchisees. Examples of industrieswhere franchising is prevalent, and the reasons they are desirableto fran-chisees, “include (1) fast foods, with unique cooking ordelivery processes and brand names; (2) health and fitnesscenters, with established formats for marketing to cus-tomersand pricing as well as hiring and motivating employees; (3)motels, hotels, and rental cars, founded on national names andreputations; (4) travel agencies, with tick-eting and distributionprocesses; and (4) video stores, with unique store environ-ments, purchasing, and computer systems. Benefits andchallenges for the franchiser are dis-cussed below and summa-rized in Exhibit 13-4.

Exhibit 13-4 Summary of Benefits andChallenges for Franchisers of ServiceBenefits

• Leverages the business format to gain expansion andrevenues

• Maintains consistency in outlets• Gains knowledge of local markets• Shares financial risk and frees up capital

Challenges

• Difficulty in maintaining and motivating franchisees . Highlypublicized disputes and conflict

• Possibility of inconsistent quality that can undermine thecompany name

• Control of customer relationship by intermediary

Benefits of Franchising for the Franchiser

• Leverages the business format to gain expansion andrevenues. Virtually all companies that seek to franchise theirbusiness concepts do so because they want widerdistribution than they can support in company outlets. Thereasons they desire wider distribution are to increase


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revenues, gain larger market share, obtain greater brand namerecognition, or gain additional economies of scale. Evenwhen franchis-ers can finance additional company-ownedoutlets, they may choose to minimize their investment andfinancial risks by sharing them with franchisees.

• Maintains consistency in outlets: When franchisers havestrong contracts and unique business formats, they canrequire franchisees to deliver services according to theirspecifications. The franchiser can stipulate virtually all aspects,from hiring and training practices to prices to store design.This chapter’s Global Feature illustrates the way StarbucksCoffee attempts to maintain consistency across cultures andcountries thfQugh franchising.

• Gains knowledge of local markets: National chains areunlikely to understand local markets as well as thebusinesspeople who live in the markets. With franchising,the company obtains personnel knowledgeable andconnected in the local markets.

• Shares financial risk and frees up capital: Franchiseesmust contribute their own capital for equipment andpersonnel, thereby .bearing part of the risk of doingbusiness. Rather than investing the bulk of money indistribution, having franchisees _ allows service principals toinvest in core service production facilities.

Challenges of Franchising for the Franchiser

• Difficulty in maintaining and motivating franchisees. Theability to motivate internal employees is difficult enough.But motivating independent operators to price, deliver,promote, and hire according to standards the principalestablishes is a difficult job. When business is down,franchisees may be hard to maintain. Most franchisingcontracts are for 5 to 10 years, after which the franchisee canrenew.

• Highly publicized disputes between franchisees andfranchisers. Because they. are gaining more economic clout,franchisees are organizing, then hiring lobby-ists and lawyersto press their cause. Many states and even the federalgovernment have implemented legislation boostingfranchisees’ rights, especially the right to re-new and totransfer the franchise when desired.

• Inconsistent quality that can undermine the company name.In instances where quality varies, the principal may find thatthe company’s reputation is being damaged by low-performing franchisees.

• Customer relationships controlled by the intermediary ratherthan the service principal. The closer a service company is tothe customer, the better able it is to listen to that customer’sconcerns and ideas. When franchisees are involved, arelationship forms between the customer and the franchise,rather than between the customer and the service principal.All customer information, including identifyingdemographics, purchase history, and preferences are in thehands of the intermediary rather than the principal.

Global Feature

Starbucks goes GlobalEarlier in this chapter, we talked about Starbucks coffee-housesas an example of a very successful company- owned serviceorganization, with 2,000 outlets in .the United States. Thecompany now has more than 250 out-lets abroad in places asclose as Canada and as far as China. When the company choseto go international, man-agement realized that its best routewas not to own but in-stead to franchise or form other types ofalliances with or-ganizations within each country. This approachwould allow Starbucks to understand the individual marketsbetter and would limit the capital investment necessary toexpand. In an unusual twist, the company began its expansionin Asia, rather than in Europe. In each country, it met withdifferent scenarios and challenges as are illustrated by its experi-ences in Japan and China.

JapanJoining with Sazaby, Inc., a Japanese retailer and restaura-teur,Starbucks opened more than a dozen stores in Japan beginningin 1997. The company chose Japan as its first ex-pansionoutside North America because it is the third largest coffee-consuming country in the world (6.1 million bags per yearcompared with 18.1 million bags in the United States.). Possiblythe most compelling result of the an-nouncement of the entryof Starbucks was the intense fear on the part of existing coffee-bar owners in Japan. Even though Starbucks was introducing amere dozen outlets, the owners of the mega-chains were filledwith anxiety. A manager of Doutor Coffee Company, Japan’snumber one coffee-bar chain (453 shops) exclaimed, “They’re abig threat and could take customers away from us.” Many cof-fee bars imitated Starbucks in design and started offering“Seattle coffee.” Exec.!1tivessU9h as .Seiji Honna president ofPronto Corporation (94—stores), traveled to the United Statesto gather intelligence from more than 20 Starbucks locations onthe West, Coast He, like others, worried that the Japaneseoutlets I lacked the sophistication of Star-bucks, the ability to“[package] the store: [mesh] such ele-ments as store design,package design and other merchan-dising techniques into acompelling entity.” Starbucks had so successfully created and.distributed its service in the United States that the Japanesewere afraid of their ability to compete. What all of this means isthat as Starbucks opens more stores (it plans 100 openings inthe next five years), the Japanese will be ready. Rather thanentering qui-etly and gaining a toehold before having tocompete, ‘Star-bucks had been targeted before it entered with itsfirst store.

ChinaAfter selling Starbucks coffee to Beijing hotels for four years, thecompany decided to open franchise outlets there in 1998.Challenges abounded. “There was of course, the challenge ofpersuading members of a tea-drinking nation to switch to java.But more immediate has been the chal-lenge of establishinglocal managers to run shops that can convey the spirit of Seattlein Beijing.” The problem was hiring, motivating, and trainingboth baristas who could de-liver the consistent service andcoffee drinks that made the chain so successful in the UnitedStates and managers who would uphold the high standards ofthe company. The company approached the hiring problem for


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managers by targeting young people who had experiencerunning suc-cessful American-style restaurants such as the,HardRock Cafe. They recruited baristas through job fairs and ads andfocused on aspects such as career and personal develop-ment aswell as the “cool” factor of being associated with the pop-culture scene in Seattle. Starbucks dealt with the motivationissue by sending the best manager recruits to Seattle for threemonths to absorb the culture and lifestyle of Starbucks and theWest Coast The structured training, as it turns out, helpedmotivate and keep employees. be-cause they felt confident in thecompany. So do the infor-mality and culture of listening atStarbucks which seem to inculcate trust in employees andthereby generate loyalty.The company isn’t stopping in Asia. It has partnered withChapters,’ Inc., a Toronto books retailer with sites throughoutCanada and is now evaluating European and Latin Americanmarkets.The Franchisee’s View: Generalizing about franchising can bedifficult because more than 65 types of businesses exist, whichgenerate more than $800 billion in sales each year. Somefranchises are highly desirable and lucrative, such as sodabottlers and beer distributors (although these forms are largelyunavailable to new franchisees because they have reachedcapacity). Others are less certain, including convenience martsand auto-service shops. Many are transient operations that areunderfinanced and inadequately supported and can disappointthe independent operators who pur-chase them.

Benefits of Franchising for Franchisees

• Obtaining an established business format on which tobase a business: This is One of the primary benefits to thefranchisee. One expert has defined franchising as an“entrepreneur in a prepackaged box, a super-efficientdistributor of services and goods through a decentralizedweb.” Franchisees sign on because the franchisers havecreated businesses that work, that already have strong imagesand track records, and that have been tested for effectiveness.

• Receiving national or regional brand marketing: One ofthe biggest advan-tages comes from the brand name andmarketing the franchisee obtains. Franchisees expect-andusually receive-advertising and other marketing expertise aswell as a reputation that they do not peed to buildthemselves.

• Minimizing the risks of starting a business: One of thebiggest selling points of franchising is the claim ofdiminished risk of purchasing a franchise over initiatingone’s own business. The U.S. Small Business Administrationclaims that whereas 63' percent of new businesses fail withinsix years, only 5 percent of new franchises fail. For small-business owners, franchising also offers an alternative way ofraising capi-tal that speeds growth. 12

Some of the most successful franchises in the world are profiledin Exhibit 13-5.

Challenges of Franchising for the Franchisee

• Disappointing profits and revenues: A recent report onfranchising suggests: “For all their past successes, previous

few systems are minting money for franchisees today. Mostmarkets are crowded, and expenses are rising.”13 Nearly 9 of10 franchis-ers are cutting up only about a quarter of everydollar of sales. “Most people think of franchising as somekind of bonanza. . . the reality is if you get a solid operation,work damn hard, and if you’re making $40,000 a year afterfour years, that’s good.”

• Encroachment and franchise saturation: Most lawsuits byfranchisees involve encroachment of existing stores-theopening of new units within three miles of ex-isting oneswithout compensation to the existing franchisee. Whenencroachment oc-curs, potential revenues are diminished,and franchisers often will not offer the en-croaching franchiseto the franchisee in the local area, believing that thecompetition between franchisees will increase revenues.

• High failure rates and unfair terminations: Earlier in thischapter we stated that the International FranchiseAssociation claims that less than 5 percent of fran-chises areterminated on an annual basis. Others dispute this figure,maintaining that it is based on old studies. Several newacademic studies poke giant holes in the fran-chiseassociation’s claims. One study found that almost 35 percentof franchises failed versus 28 percent for other smallbusinesses. Another showed that both small busi-nessesand franchises have roughly equal and high failure rates.

• Lack of perceived control: About one-third of newfranchisees are ex-employees; of large companies. These arepeople who once exerted a great deal of control over their

• Jobs, something that changes quickly when a franchiseoperation is purchased. One i1-dicator of the perceived lackof control is that since 1990, franchisee, complaints fil1dagainst parent companies with the Federal TradeCommission have been growing at a greater than 50-percentannual rate.

What Makes a Franchise or Retail Store a Star?A Wall Street Journal reporter answered this question bylocating the biggest U.S. outlet for 20 big brands, among themmany service businesses. He concluded that location, luck, andservice determine the winners. Here are several of me starfranchisees that won.

Hertz Rent a CarParent Company: Hertz Corp. Biggest Outlet : Los Angeles International AirportSize Indicator: Most rentals a day Explanation: Nine counters inseven terminals serve customers round-the -clock at the WestCoast’s busiest airport. Daily rentals average 2,000. In the firsthalf of 1992, the facility grossed $37 million. Hertz parkinglots, maintenance facilities and offices cover 36 acres. Theoperation pumps more than one million gallons of gasoline ayear. Seventeen buses shuttle customers to and from vehicles.Most. popular car: Ford Taurus. Five percent of airport rentalsare convertibles. -Hertz’s staff at the airport numbers 300. Thesize of the operation multiplies problems, such as a flightdelaying fog. “If we make a mistake we can upset severalhundred customers at a time,” says Charles Shafer, division vicepresident.


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Ftd Floral DeliveryParent Company: Florists’ Transworld Delivery AssociationBiggest Outlet : McShan Florist Inc., DallasSize Indicator: Most flowers-by-wire orders in U.S.Explanation: Serving Dallas but not neighboring Fort Worth,the florist typically fills 1,100 FTD orders a week; an arrange-ment averages $38. McShan employs 150, has more than twodozen phone lines, a 27,000-square-foot store and 50 deliverytrucks, but no greenhouse. Neiman Marcus is a major localcustomer. Obituary-page ads read, “We don’t sell flowers, wesell love.” Dallas literally grew up to McShan’s door. Oncesurrounded by cotton fields, the store now is ringed by homes,many of which it landscaped. The business hasn’t branched outbecause, says president Bruce McShan, “We prefer to have onebig headache instead of a lot of little ones.”

Mcdonald’sParent Company: McDonald’s Corp.Biggest Outlet : On turnpike near Darien, Conn.Size Indicator: Most McDonald’s customers served in U.S.Explanation: Near the New York -Connecticut border onInterstate 95, this round-the-clock McDonald’s serves nearlythree million travelers a year. On average, the franchise sells8,000 meals daily. Everything about the store is mammoth. 19cash registers, including portables for overflow crowds, a 12-foot fry grill, 32 telephones. Employees work in teams. Onedirects traffic, another operates a yogurt bar. Retirees pass outmaps in a tourist center equipped with an automatic tellermachine. Owner-operator George Michell says the busiest daysof the year are Thanksgiving weekend.

Federal ExpressParent Company: Federal Express Corp.Biggest Outlet :. Center at 525 Seventh Ave., New York Cit>”.Size Indicator: Handles most packages and documents daily.Explanation: Located in the heart of New York City’s GarmentCenter, between 38th and 39th streets. This is the busiest ofFederal Express’s 434 U.S. service centers; its daily volume of 1,000 items is three times the average. Proximity to Penn Stationis a traffic booster. Major customers include dressmakers andfashion-design houses as well as neighborhood departmentstores. “Many parcels are boxes you couldn’t carry home,” saysmanager Valerie Blanchard. The center also handles a heavyvolume of tickets for travel agents. Seven full-time employeesstaff the facility, which is open until 9:30 P.M. weekdays and 7P.M. on Saturdays.

H&R BlockParent Company: H&R Block Inc.Biggest Outlet : Downtown Stamford; Conn.Size Indicator: Most clients servedExplanation: The office handled more than 8,000 returns lastyear -almost twice the next-busiest office. Why? “It’s a mysteryto me, says district manager Jack Marvill. The volume was solarge that two more Stamford outlets recently opened. Thedowntown office doesn’t offer unusual services, and its clienteleis described as a typical mixture of commercial and individual

taxpayers. The facility has 19 tax-preparation stations andemploys about 50.

Hilton HotelsParent Company: Hilton Hotels Corp.Biggest Outlet : Flamingo Hotel, Las VegasSize Indicator: Most roomsExplanation: This 3,530_room hotel, built by gangster BugsySiegel in the 1940s, is popular with tourists; the nearby 3,200-room Las Vegas Hilton caters to high rollers andconventioneers. With single rooms priced at under $50, theFlamingo averages a 90% occupancy rate and is Hilton’s mostprofitable, says vice president Marc Grossman. Located at oneof the busiest “Strip” intersections, the hotel is staffed by nearly4,000 employees. Its 27 stories include a casino, two grandballrooms, eight restaurants, three lounges, 55 elevators,parking for 230 and a furrier. A $100 million expansion will adda tower and waterfalls.• High fees: Franchisees typically pay between $5,000 and

$35,000 in up-front fees to acquire a franchise: They are alsorequired to buy equipment, pay for training, and secure amortgage or lease. On top of these fixed charges, monthlyroyalties are 2 to 8 percent of gross sales, even withoutadvertising fees. 15 Franchisees of one com-pany, LittleCaesars Enterprises, Inc., say they are forced to buyingredients and paper from a company-owned distributor,paying up to 15 percent more than rivals for iden-ticalitems.16 A lawyer for the trade group of franchisees, theAmerican Association of Franchisees and Dealers, claimsthat, “Most [franchisers] treat franchisees like inden-turedservants. They have fewer rights than employees.”

• Unrealistic expectations: Some of what creates problemsfor franchisees in-volves approaching the agreement withexpectations about revenues and profits that are unrealistic.Franchisers are partly responsible for the elevatedexpectations be-cause they attract and sign new franchiseeswith promises that they can achieve the performance of theirstar franchises. More than one service principal has beenfound guilty of overpromising. Another area in whichexpectations are unrealistic involves the time commitmentthe franchisee must make to achieve success.

Agents and BrokersIn common terminology, an agent is an intermediary who actson behalf of a service principal (such as a brokerage firm or apopular sports figure) and is authorized to make agreementsbetween customers and those principals. Agents and brokers donot take title to services but instead deliver the rights to them.They have legal authority to market services as well .as toperform other marketing functions on behalf of pro-ducers.The two forms of intermediaries perform many of the samefunctions but are distinct from each other in some ways.Types of Agents: generally work for principles continuously,rather than for a single deal.Selling agents have contractual authority to sell a serviceprincipal’s output (which can be anything from an athlete’s timeto travel, insurance, or financial services), usu-ally because the


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principal is not interested, feels unqualified, or lacks theresources to do so. Nancy Kerrigan needed to focus on herskating and knew little about negotia-tion and contracts, so shehired Pro-Serve to represent her and handle all business as-pectsfor her. Selling agents act as a sales force with a difference:Because. they know the market better than the service principal,they are typically entrusted with influence over prices, terms, andconditions of sale. Unlike a sales force, the selling agent nor-mally has no territorial limits but represents the service principalin all areas.Purchasing agents also have long-term relationships withbuyers, evaluating and making purchases for them. They areknowledgeable and provide helpful market in-formation clientsas well as obtaining the best services and prices available. Pur-chasing agents are frequently hired by companies andindividuals to find art, antiques, and rare jewelry. Facilitatingagents help with the marketing process by adding ex-pertise orsupport such as financial services, risk taking, or transportation.Types of Brokers: Brokers bring buyers and sellers togetherwhile assisting in ne-gotiation. They are paid by the party whohired them, rarely become involved in financ-ing or assumingrisk, and are not long-term representatives of buyers or sellers.The most familiar examples are real estate brokers, insurancebrokers, and security brokers.Benefits and challenges in using agents and brokers are summa-rized in Exhibit 13-6.Benefits of Agents and Brokers: The travel industry provides.an example of both agents and brokers. Three main categoriesof travel intermediaries exist: tour packagers, retail travel agents,and specialty channelers (including incentive travel firms,meeting and convention planners, hotel representatives,association executives, and corporate travel offices). You arelikely to be most familiar with retail travel agents. Industryconvention terms the travel companies as brokers and theindividuals who work for them as travel agents or salesassociates. We will illustrate some of the benefits and challengesof agents and brokers using this industry.

Exhibit 13-6 Summary of Benefits andChallenges in Distributing ServicesThrqugh Agents and BrokersBenefits

• Reduced selling and distribution costs• Intermediary’s possession of special skills and knowledge• Wide representation• Knowledge of local markets• Customer choice

Challenges

• Loss of control over pricing and other aspects of mar-keting• Representation of multiple service principalsReduced Selling and Distribution Costs: If an airline orresort hotel needed to contact every potential traveler topromote its offerings, costs would be exorbitant Be-cause mosttravel services are transactional rather than long term in nature,travelers would need to expend tremendous effort to find

services that meet their needs. Travel agents and brokersaccomplish the intermediary role by assembling informationfrom travel suppliers and offering it to travelers.Possession of Special Skills and Knowledge: Each of thethree intermediaries have special knowledge and skills in theirareas. Retail travel agents know the indus-try well and knowhow to access the information they do not possess, oftenthrough reference materials and online services. Tour packagershave a more specialized role-they assemble, promote, and pricebundles of travel services from travel suppli-ers, then offerthese bundles either to travelers themselves or to retail travelagents. Specialty channelers (which we could put in the categoryof facilitating agents) have even more specialized roles: Somework in corporate travel offices to lend their skills to an entirecorporation, others are business meeting and conventionplanners who act almost as tour packagers for whole companiesor associations, and some are incentive travel firms that focuson travel recognition programs in corporations or associations.Wide Representation: Because agents and brokers are paid bycommission rather than by salary, there is little risk or disadvan-tage in extending the service offerings to a wide geography.Thus, companies have representatives in many places, far moreplaces than the company would place them if fixed costs such asbuildings, equipment, and salaries were required.Knowledge of Local Markets: Another key benefit of agentsand brokers is that they become experts in the markets theyserve. They know or learn the unique needs of differentmarkets, including international markets. They understand whattheir clients’ preferences are and how to adapt the principal’sservices to match the needs of clients. This benefit is particularlyneeded and appreciated when clients are dispersed internation-ally. Knowing the culture and taboos of a country is critical forsuccessful selling. Most companies find that obtaining localrepresentation by experts with this knowledge is necessary.Customer choice: Travel and insurance agents provide aretailing service for customers-they represent the services ofmultiple suppliers. If a traveler needed to visit six or eightdifferent travel agencies, each of which carried the services of asingle sup-plier, imagine the effort a customer would need tomake to plan a trip! Independent in-surance agents have theright to sell a wide variety of insurance, which allows them tooffer customers a choice. These types of agents also are able tocompare prices across suppliers and get the best prices for theirclients.

Challenges of Delivering Service through Agentsand BrokersLoss of Control over Pricing and Other Aspects of MarketingAs Representatives of service principals and experts oncustomer markets, agents and brokers are typically empoweredto negotiate price, configure services, and otherwise alter themarketing of a principal’s service. This issue could be particu-larly important-and possibly detri-mental-when a serviceprovider depends on a particular (high) price to convey a level ofservice quality. If the price can be changed, it might drop to alevel that undermines the quality image. In addition, the agenthas the flexibility to give different prices to different customers.As long as the customers are geographically dispersed, this will


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not create a problem for the service principal; however, if buyerscompare prices and realize they are being given different prices,they may perceive the service principal as unfair or unethical.Representation of Multiple Service Principals: As wealready discussed, when independent agents represent multiplesuppliers they offer customer choice. From the perspective ofthe service principal, however, customer choice means that theagent represents and in many cases advocates a competitiveservice offering. This is the same challenge a manufacturerconfronts when distributing products in a retail store. Only inrare cases are its products the only ones in a given category onthe retail floor. In a service context, consider the use ofindependent insurance agents. These agents carry a range ofinsurance products from different companies, serving as asurrogate service retail store for customers. When they find acustomer who needs insurance, they sell from their portfoliothe offerings that best ‘match customers’ requirements.

Electronic ChannelsElectronic channels are the only service distributors that do notrequire direct human interaction. What they do require is somepredesigned service (almost always infor-mation, education, orentertainment) and an electronic vehicle to deliver it. We are allfamiliar with telephone in a television channels and the Internetand Web and may be aware of the other electronic vehicles thatare currently under development. The con-sumer and businessservices that will be. made possible through these vehiclesinclude movies on demand, interactive news and music,banking and financial services, mul-timedia libraries anddatabases, distance learning, desktop video conferencing, remotehealth services, and interactive, network-based games.The more a service relies on technology and/or equipment forservice production and the less it relies on face-to-face contactwith service providers, the less the service is characterized byinseparability and nonstandardization. As you will see in thefol-lowing section (and in Exhibit 13-7), using electronicchannels overcomes some of the problems associated withservice inseparability and allows a form-of standardization notpreviously possible in most services.The Web and e-commerce alone will revolutionize the wayservices are delivered to customers and change the traditionalrelationship between the customer and the company:The Internet will change the relationship between consumersand producers in ways more profound than you can yetimagine. The Internet is not just another marketing channel; it’snot just another advertising medium; it’s not just a way tospeed up transactions. The Inter-net is the foundation for anew industrial order. The Internet will empower consumers likenothing else ever has. Think about this: Already 16 percent ofcar buyers shop online before showing up at a dealership, andthey aren’t comparing paint jobs-they’re arming them-selveswith information on dealer costs.

Notes


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LESSON 29:THE INTEGRATED GAP MODEL OF SERVICE QUALITY

The Objective of this Lesson is to havean insight into• Significance of GAP Model• GAP Model of service qualityAs you have observed through out this text, effective servicesmarketing is a complex undertaking involving many differentskills and tasks. Executives of services organi-zations have longbeen confused about how to approach this complicated topic inan organized manner. This text was structured around-oneapproach to view services in a structured and integrated waycalled the gaps model of service quality. Each of the first fivepart openers in the text focused on specific aspects of the modelthat were covered in the chapters following it In this chapter ,wedraw all of that material to gather in one place, reinforcing the’general ideas and structure of the gaps model and therebysummarizing the text and course.The gaps model positions the key concepts, strategies, anddecisions in services, marketing in a manner that begins withthe customer and builds” the organization’s tasks around whatare needed to close the gap between customer expectations andper-ceptions. The integrated gaps model of service quality,which was first overviewed in the Part One opener, is shown inFigure 18-1The central focus of the gaps model is ‘the customer gap, thedifference between customer expectations and perceptions.Firms need to close this gap-between what customers expectand receive in order to satisfy their customers and build long-term. Relationships with them. To close this all-importantcustomer gap, the model suggests that four other gaps-theprovider gaps-need to be closed.The following four provider gaps, shown below the horizontalline in Figure 18-1, are the underlying causes behind thecustomer gap:Gap 1: Not knowing what customers expect.Gap 2: Not selecting the right service designs and standards.Gap 3: Not delivering to service standards.Gap 4: Not matching performance to promises.

Gaps Model of Service Quality

Figure 18 –1

Closing the Customer GapAbove the- center horizontal line in Figure 18-1 are the twoboxes that correspond to customer expectations and customerperceptions. While customer perceptions are sub-jectiveassessments of actual service experiences, customer expectationsare the stan-dards of, or reference points for, performanceagainst which service experiences are compared. The sources ofcustomer expectations consist of marketer-controlled fac-tors,such as advertising, as well as factors that the marketer haslimited ability to af-fect, such as innate personal needs. Ideally,expectations and perceptions are identical: Customers perceivethat they get what they think they will and should. In practice, acustomer gap typically exists. Services marketing -bridges thisdistance, - and we de-voted virtually the entire text to describingstrategies and practices designed to close this customer gap.In this text, we attempted to show that the unique characteris-tics of services dis-cussed as, intangibility, heterogeneity,inseparability of production and consumption, and perishability-necessitated different consumer evaluation processesfrom those used when - assessing goods.The key factors leading to the customer gap are shown in Figure18-2. Each of these factors was discussed in, initial chapters andstrategies used to address them were offered in those samechapters.

Provider Gap 1: Not Knowing What CustomersExpectProvider gap 1 is the difference between customer expectationsof service and com-pany understanding of those expectations.Many reasons exist for managers not being aware-of whatcustomers expect: They may not interact directly with customers,be un-willing to ask about expectations, or be unprepared toaddress- them. When people with the authority and responsi-

Expected services

Perceived

Company Customer driven service designs and standards

Service delivery External communications to customers

Company perceptions of consumer expectations

Gap 3

Gap 4

Customer

Gap 2

Gap 1


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bility for setting priorities do not fully understand cus-tomers’service expectations, they may trigger a chain of bad decisionsand sub optimal resource allocations that result in perceptionsof-poor service quality. In this text,

• Provider gap 1: Not knowing what customer expect• Provider gap 2; not selecting the right service designs and

standards• Provider gap 3: Not delivering to service standards• Provider gap 4: not matching performance to promises

Figures 18-2 key factors leading to the customer gap.we broadened the responsibility for the first provider gap frommanagers alone to any employee in the organization with theauthority to change or influence service policies and procedures.In today’s changing organizations, the authority to makeadjustments in service delivery is delegated to empoweredteams and front-line people.Figure 18-3 shows the key factors responsible for provider gap1. An inadequate marketing research orientation is one of thecritical factors. When management or em-powered employeesdo not acquire accurate information about customers expecta-tions, provider gap 1 is large. Formal and informal methods tocapture information about customer expectations must bedeveloped through market research. Techniques involving avariety of traditional research approaches must be used to stayclose to the customer, among them customer visits surveyresearch, complaint systems, and cus-tomer panels. Moreinnovative techniques-such as quality function deployment,structured brainstorming, and service quality gap analysis areOften needed.

Figures 18-3 key factors leading to provider gap 1.

• Inadequate marketing research orientationInsufficient marketing researchResearch not focused on service qualityInadequate use of market research

• Lack of upward communicationLack of interaction between management and customersInsufficient communication between contact employees andmanagers

Customer gap

Customer expectations

Customer

Gap

1

Customer Expectations

Too many layers between contact personnel and topmanagement

• Insufficient relationship focusLack of market segmentationFocus on transactions rather than relationshipFocus on new customers rather than relationship customers

• Inadequate service recovery

Another key factor that is related to provider gap 1 is lack ofupward communica-tion. Front-line employees often know agreat deal about customers; if management is not in contactwith front-line employees and does not understand what theyknow, the gap widens.Another key factor’ related to provider gap 1 involves the lack ofcompany strate-gies to retain customers and strengthenrelationships with them, an approach called relationshipmarketing. When organizations have strong relationships withexisting: cus-tomers; provider gap 1 is less likely to occur.Relationship marketing is distinct from transactional marketing,the term used to describe the more conventional emphasis onacquiring new customers rather than on retaining them. Whencompanies focus too much on attracting new customers, theymay fail to understand the changing needs and. expectations oftheir current customers. One of the major- marketing factorsthat is leveraged in relationship marketing, particularly inmanufacturing companies, is service Technology affordscompanies the ability to acquire and integrate vast quan-tities ofdata on customers that can be used to build relationships.Frequent flyer travel programs conducted by airlines, car -rentalcompanies, and hotels are among the most familiar programsof this type.The final key factor associated with provider gap 1 is lack ofservice recovery. Even the best companies, with the best ofintentions and clear understanding of their cus-tomers’expectations sometimes fail. It is critical for an organization tounderstand the importance of service recovery-why peoplecomplain, what they expect when they complain, and how todevelop effective service recovery strategies for dealing with in-evitable service failures. This might involve a well-definedcomplaint-handling proce-dure and empowering employees toreact on the spot; in real time to fix the failure; other times itinvolves a-service guarantee or ways to compensate the cus-tomer for the unfulfilled promise.To address the factors in provider gap 1, this text covered topicsthat included how to understand customers through multipleresearch strategies (Chapter 5), how to build strong relation-ships and -understand customer needs over time (Chapter 6),and how to implement recovery strategies when things go -wrong. (Chapter 7) Through these strategies, provider gap 1 thecustomer expectations gap can be minimized.

Company perceptions of customer expectations


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Provider Gap 2: Not Havingthe.right Service QualityDesigns and-standardsA recurring theme in service companies is the difficulty experi-enced in translating cus-tomers expectations into service-qualityspecifications. These problems are reflected in provider gap 2,the difference between company understanding of customerexpectations and development of customer-driven servicedesigns and standards. Figure 18-4 shows the key factorsleading to this gap. Customer-driven standards are differ-entfrom the conventional performance standards that mostservices companies establish in that they are based on pivotalcustomer requirements that are visible to and measured bycustomers. They are operations standards set to correspond tocustomer expectations and priorities rather than to companyconcerns such as productivity or ef-ficiency.

Customer Driven Service Design and StandardsProvider gap 2 exists in service organizations for a variety ofreasons. Those re-sponsible for setting standards, typicallymanagement, sometimes believe that cus-tomer expectationsare unreasonable or unrealistic. They may also believe that thede-gree of variability inherent in service defies standardizationand therefore that setting standards will not achieve the desiredgoal. However, the quality of service delivered by customercontact personnel is critically influenced by the standards againstwhich

• Poor service designUnsystematic new service development processVague, undefined service designsFailure to connect service design to service positioning

• Absence of customer defined standardsLack of customer defined service standardsAbsence of process management to focus on customerrequirementsAbsence of formal process for setting service quality goals

• Inappropriate physical evidence and services cape

Figures 18-4 key factors leading to provider gap 2.They are evaluated and compensated. Standards signal tocontact personnel what man-agement priorities are and whichtypes of performance really count. When service standards areabsent or when the standards in place do not reflect customers’expecta-tions, quality of service as perceived by customers islikely to suffer. In contrast, when there are standards reflectingwhat customers expect, the quality of service’ they re-ceive islikely to be enhanced. Therefore closing provider gap 2-by

Gap

2

Customer driven service design and standards

Management perceptions of customer expectations

setting customer defined performance standards-has a powerfulpositive effect- on closing the customer gap.Because services, are intangible, they are difficult to describe andcommunicate. This is particularly true when new services arebeing developed It is critical that all people involved (managers,front-line employees, and behind the scenes support staff) /beworking with the same concepts of the new service, based oncustomer needs and expectations. For a service that alreadyexists, any attempt to improve it will also suf-fer unlesseveryone has the same vision of the service and associatedissues. One of the most important ways to avoid gap 2 is toclearly design services without over simplification, incomplete-ness, subjectivity, or bias. To do this, tools are needed to ensurethat new an existing services are developed and improved in .ascareful a manner as possible.Another factor involved in provider gap 2 is physical evidence-the tangibles sur-rounding the service. By physical evidence wemean, everything from business cards to reports, signage,Internet presence, equipment, and facilities used to deliver theservice. The services cape, the physical setting where the serviceis delivered, must be appropriate. Think of a restaurant, a hotel,a theme park, health club, a hospital, or a school. The servicescape-the physical facility-is critical in these industries in terms ofcommunicating about the service and making the entireexperience pleasurable. Service organizations must explore theimportance of physical evidence, the variety of roles it plays”and strategies for effectively designing physical evidence and theservices cape to meet customer expectations.In this text, you learned to develop effective strategies for newservices and to use service blueprinting as an implementationtool (Chapter 8), to develop customer defined (as opposed tocompany-defined) service standards t chapter 9), and toeffectively design physical evidence and the services cape to meetcustomer expecta-tions (Chapter 10). Through these strategies,provider gap 2 the service design and standards gap—can beminimized.

Provider Gap 3: Not Delivering to Service StandardsProvider gap 3 is the discrepancy between development ofcustomer-driven service standards and actual service perfor-mance by company employees. Even when guide-lines exist forperforming services well and treating customers correctly, high-quality service. Performance is not a: certainty. Standards mustbe backed by appropriate resources (people, systems, andtechnology) and also must be enforced to be effective that is,employees must be measured and compensated on the basis ofperformance along those standards. Thus, even when standardsaccurately reflect customers’ ex-pectations, if the company failsto provide support for them-if it does not facilitate, encourage,and require their achievement-standards do no good. When thelevel of service-delivery performance falls short of the stan-dards, it falls short of what cus-tomers expect as well.Narrowing gap 3-by ensuring that all the resources needed toachieve the standards are in place-reduces the customer gap.Research and company experience has identified many of thecritical -inhibitors to closing gap 3 (see Figure 18-5). Theseinclude employees who do not clearly under-stand the roles theyare to play in the company, employees who see conflict between


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customers and company management, the wrong employees,inadequate technology, inappropriate compensation andrecognition, and lack - of empowerment and team-work. Thesefactors all relate to the company’s human resource function,involving in-ternal-practices such as recruitment,-1raining,feedback job design, motivation, andFigures 18-5 key reasons leading to provider gap 3.

• Deficiencies in Human ResourcepoliciesIneffective recruitmentRole ambiguity and role conflictPoor employee technology job it

Inappropriate evaluation and compensation systemLack of empowerment , perceived control and team work

• Failure to match supply and demandFailure to smooth peaks and valley of demandInappropriate customer mixOver reliance on price to smooth demand

• Customers not fulfilling rolesCustomers lack knowledge of their roles and responsibilitiesCustomers negatively affect each other

• Problems with service intermediariesChannel conflict over objectives and performanceChannels conflict over cost rewardsDifficulty controlling quality and consistency

• Tension between empowerment and control

organizational structure. To deliver better service performance,these issues must be - addressed across functions (e.g., withboth marketing and human resources) if they are to be effective.One of thy difficulties associated with gap 3 involves thechallenge in delivering service through such intermediaries asretailers, franchisees, agents, and brokers. Be-cause quality inservice occurs in the human interaction between customers andservice providers, control over the-service encounter by thecompany is crucial, yet it rarely is fully possible. Most service(and many manufacturing) companies face an even moreformidable task: attaining service excellence an<1 consistency inthe pres-ence of intermediaries who represent them, interactwith their customers, and yet are not under their direct control.Among the intermediaries that playa central role in servicedelivery are retailers, franchisees and dealers.

Service Delivery

Gap

3

Customer Driven service designs and standards

Franchisers of services depend on their franchisees to executeservice delivery as they have specified it. And it is in theexecution: by the franchisee that the customer. Evaluate theservice quality of the company.With franchises and other types:of intermediates mediaries, someone- other than the produceris critically important to the fulfillment of quality service. Theservice delivery process is complicated by outside parties who arelikely to embrace goals and values that do not directly align withthose of the service organization. For this reason, a firm mustdevelop ways to either control- or motivate these- intermediar-ies to meet company goals. -As we have just discussed, part of the variability in provider gap3 comes from em-ployees and intermediaries who are involvedwith service delivery. The other impor-tant variable is thecustomer. Even if contact employees and - intermediaries are100 percent consistent in their service delivery (an unlikely buthighly-desirable state!), the uncontrollable-variable of thecustomer can introduce heterogeneity it service deliv-ery. Ifcustomer do not perform their roles appropriately-if, forexample, they fail to provide all the information necessary to theprovider or neglect-to read- and-follow instruction – servicequality is jeopardized.Another issue in gap 3 is the -need in service firms to synchro-nize demand and capacity. Because services are perishable cannotbe inventoried, service companies frequently face situations ofover or under demand. Lacking inventories to-handle overheadcompanies lose sales when capacity is inadequate to handlecustomer needs on the other hand, capacity is frequentlyunderutilized in slow periods, most companies rely onoperation strategies - such as cross -training or varying the sizeof the employee pool to synchronize supply and demand. Theuse of marketing strategies in many- companies is limited.Marketing strategies for managing demand such as pricechanges, advertising, promotion, and alternative serviceofferings-can supplement approaches for managing supply.

Provider Gap 4: When Promises do not MatchPerformanceProvider gap. 4 illustrate the difference between service deliveryand the service provider’s external communications. Promisesmade by a service company through its media “advertising “-sales force, and other communications may potentially raisecustomer expectations that serve as the standard against whichcustomers assess service quality. The discrepancy between actualand promised service therefore has an adverse effect, on thecustomer gap. Broken promises can occur for many reasons:Over promising in advertising or personal selling, inadequatecoordination between op-erations and marketing, and differ-ences in policies and procedures across service out-lets. Figure18-6 shows the key factors that lead to provider ‘gap 4.In addition to unduly elevating expectations through exagger-ated claims, there are other, less obvious ways in which externalcommunications influence customers’ service quality assess-ments. Service companies frequently fail to capitalize onoppor-tunities to educate customers to use services appropri-ately. They also frequently fail to manage customer expectationsof what they will receive in service transactions and re-lationships.


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One of the major difficulties associated with provider gap isthat communications to consumers involve issues that cross-disciplinary boundaries. Because service ad-vertising promiseswhat people do, and because what people do cannot becontrolled in the way that machines that produce physical goodscan be controlled, this type of communication involvesfunctions’ other than the marketing department. This is whatwe called interactive marketing-the marketing between contactpeople and cus-tomers and it must be coordinated with theconventional types of external marketing used in product and,service firms. When employees who promote the service donot fully understand the reality of service delivery, they are likelyto make exaggerated promises or fail to communicate tocustomers aspects of the service intended to serve them well.The result is poor service quality perceptions. Effectivelycoordinating ac-tual service delivery with external communica-tions, therefore, narrows provider gap 4 and favorably affectsthe customer gap as well.Another issue related to gap 4 is ass9ciated with the pricing ofservices. In pack-aged goods (and even in durable goods), manycustomers possess enough price knowledge before purchase tobe able to judge whether a price is fair or in line with com-petition. With services, customers often have no internalreference point for prices before purchase and consumption.Pricing strategies such as discounting, “everydayFigure 18-6 key reasons for provider gap 4.

• Lack of integrated services marketing communicationsTendency to view each external communication asindependentNot including interactive marketing inn communicationsplanAbsence of strong internal marketing program

• Ineffective management of customer expectationsNot managing customer expectations through all forms ofcommunicationNot adequately education customer

• Over promisingOver promising in advertisingOver promising in personal sellingOver promising though physical evidence cues

• Inadequate horizontal communicationsInsufficient communication between sales and operationsInsufficient communication between advertising andoperationsDifferences in policies and procedure across branches or units

Gap

4

Service delivery

External communications to customers

prices,” and couponing obviously need to be different withservices in cases where the customer has no sense of the price tostart with. Techniques for developing prices for services aremore complicated than those for pricing of tangible goods.In summary, external communications-whether from. market-ing communications or pricing-can create a larger customer gapby raising expectations about service de-livery. In addition toimproving service delivery, companies must also manage allcommunications to customers so that inflated promises do notlead to higher expecta-tions. Chapters 15 (which discussedintegrated services n1arketing communications) and 16 (whichcovered pricing) of this text described methods to accomplishthese objectives.

Putting it all Together: Closing the GapsThe full conceptual model shown in Figure 18-1 conveys a clearmessage to managers wishing to improve the quality of service:The key to closing the customer gap is to close provider gaps 1through 4 and keep them closed. To the extent that one ormore of provider gaps 1 through 4 exist, customers perceiveservice quality shortfalls. The model, called the gaps model ofservice quality, serves as a framework for service or-ganizations.attempting to .improve quality service and services marketing.This model begins where the process of improving servicequality begins: by gain-ing an understanding of the nature andextent of the customer gap. Given the strong focus on thecustomer and the need to use knowledge about the customer todrive busi-ness strategy, we believe this foundation of emphasisis warranted.

SummaryThe chapter presented the integrated gaps model of servicequality (shown in Figure 18-1) a framework for understandingand improving service delivery. The entire text ‘was organizedaround this model of service quality, which focuses on five.pivotal gaps in delivering and marketing services:• The customer gap: Difference between customer expectations

and perceptions.• Provider gap 1: Not knowing what customers expect.• Provider gap 2: Not selecting the right service designs and

standards.• Provider gap 3: Not delivering to service standards.• Provider gap 4: Not matching performance to promises.The gaps model positions the key concepts, strategies, anddecisions in services mar-keting in a manner that begins withthe custOf11er and builds the organization’s tasks around whatis needed to close the gap between customer expectations andperception.

Tutorials1. If you were the manager of a service organization and

wanted to apply the gaps model to im-prove service/ whichgap would you start with? Why? In what order would youproceed to close the gaps?

2 Can provider gap 4 be closed prior to closing any of theother three provider gaps? How?


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3. Which of the four provider gaps do you believe is hardest toclose? Why?


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LESSON 30:Tutorial

Why Service Stinks and Some Solutions

CHALLENGES IN SERVICE MARKETING

OBJECTIVE OF THIS LESSON IS TO:

zCompanies know just how good a customer you are--and unless you're a high roller, they would rather lose you than take the time to fix your problem

An ExamplezAt an electric utilityyThe top 350 business clients are served by six

people.

yThe next tier of 700 are handled by six more, y30,000 others get two reps to serve their

needs. yMeanwhile, the 300,000 residential customers

at the lowest end are left with an 800 number. y“No one is ignored, but our biggest customers

certainly get more attention than the rest.''

Students Taking This Class Know Why

z As time goes on, service gap is growing wider.

z Studies vividly detail what consumers already know: Good service is increasingly rare.

z “From passengers languishing in airport queues to bank clients caught in voice-mail hell, most consumers feel they're getting squeezed by Corporate America's push for profits and productivity.”

z The result is more efficiencies for companies--and more frustration for their less valuable customers.

z ''Time saved for them is not time saved for us,''


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The New Consumer ApartheidzAndrew Chan's experience with Ikea is typical. The

Manhattan artist recently hauled a table home from an Ikea store in New Jersey only to discover that all the screws and brackets were missing. When he called to complain, the giant furniture retailer refused to send out the missing items and insisted he come back to pick them up himself, even though he doesn't own a car. Maybe he just reached the wrong guy, says Tom Cox, customer-service manager for Ikea North America, noting that the usual procedure is to mail small items out within a couple of days.

NO ELEPHANT?zLife isn't so tough for everyone, though. Roy Sharda,

a Chicago Internet executive and road warrior is a ''platinum'' customer of Starwood Hotels & Resorts Worldwide. When he wanted to propose to his girlfriend, Starwood's Sheraton Agra in India arranged entry to the Taj Mahal after hours so he could pop the question in private. Starwood also threw in a horse-drawn carriage, flowers, a personalized meal, upgrades to the presidential suite, and a cheering reception line led by the general manager. It's no wonder Sharda feels he was ''treated like true royalty.''

How You Can Get Stiffedz FLYINGyCanceled flight? No problem. With top status, you're whisked past the

queue,handed a ticket for the next flight, and driven to the first-class lounge.z BILLINGyBig spenders can expect special discounts, promotional offers, and other

goodies when they open their bills. The rest might get higher fees,stripped-down service, and a machine to answer their questions

z BANKINGyThere's nothing like a big bank account to get those complaints answered

and service charges waived every time. Get pegged as a money-loser, and your negotiating clout vanishes

z LODGINGyAnother day, another upgrade for frequent guests. Sip champagne before the

chef prepares your meal. First-time guest? So sorry. Your room is up three flights and to the left

z RETAILINGyWelcome to an after-hours preview for key customers where great sales

abound and staff await your every need. Out in the aisles, it's back to self-service_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

The dark side of the technology boom

zConsumers have become commodities to pamper, squeeze, or toss away, according to Leonard L. Berry, marketing professor at Texas A&M University. He sees ''a decline in the level of respect given to customers and their experiences.''


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Technology is creating a radical new business model

zCompanies can measure exactly what service costs on an individual level and assess the return on each dollar.

zThey can know yexactly how much business someone

generates, ywhat he is likely to buy,

yand how much it costs to answer the phone.

The Expanded 80/20 Pyramid

zDeliver a level of service based on each person's potential to produce a profit--and not a single phone call more.zOne estimate is that the top 20% of

customers at a typical commercial bank generate up to six times as much revenue as they cost, while the bottom fifth cost three to four times more than they make for the company.

Stratification

zThe top tier may enjoy an unprecedented level of personal attention. But those who fall below a certain level of profitability for too long may find themselves bounced from the customer rolls altogether or facing fees that all but usher them out the door.

An Alternative---Create Tiers With Fees

zCompanies may offer to move people to the front of the line for a fee.

z''There has been a fundamental shift in how companies assess customer value and apply their resources,''

zManagers increasingly treat top clients with kid gloves and cast the masses ''into a labyrinth of low-cost customer service where, if they complain, you just live with it.''


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Two Trends: Across Businesses and the Web

zIt has become much easier to track and measure individual transactions across businesses.

zSecond, the Web has also opened up options.

zPeople can now serve themselves at their convenience at a negligible cost, but they have to accept little or no human contact in return.

zSuch huge savings in service costs have proven irresistible to marketers, who are doing everything possible to push their customers--especially low-margin ones--toward self-service.

Almost everyone is doing it.

z Charles Schwab Corp.'s top-rated Signature clients--who start with at least $100,000 in assets or trade 12 times a year--never wait longer than 15 seconds to get a call answered, while other customers can wait 10 minutes or more.

z At Sears, Roebuck & Co., big spenders on the company's credit card get to choose a preferred two-hour time slot for repair calls while regular patrons are given a four-hour slot.

zMaytag Corp. provides premium service to people who buy pricey products such as its front-loading Neptune washing machines, which sell for about $1,000, twice the cost of a top-loading washer. This group gets a dedicated staff of ''product experts,'' an exclusive toll-free number, and speedy service on repairs. When people are paying this much, ''they not only want more service; they deserve it,'' says Dale Reeder, Maytag's general manager of customer service.

Three Company Issues

zCustomers don't like to know they're being treated differently.

zTaking service away from the low spenders doesn't generate much positive press for companies.

zMost programs fail to measure the potential value of a customer.

zYour mission or vision may conflict.

Is this service divide fair?

zcompanies insist they simply can't afford to spend big bucks giving every customer the hands-on service of yesteryear.

zIn many cases, the trade-off in service means lower prices.

zConsumers themselves have cast a vote against high-quality service by increasingly choosing price, choice, and convenience over all elseyHowever, while many consumers refuse to pay more for

service, they're clearly dismayed when service is taken away.


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Sense of Entitlement?zConsumers are much more demanding about getting

what they want. zReasons:yOne reason is the explosion of choices, ⌧with everything from hundreds of cable channels to new players

emerging from deregulated industries like airlines and telecom companies.

yRewards programs ⌧frequent-flier miles: Those who know their worth expect special

privileges that reflect it. Says Bonnie S. Reitz, senior vice-president for marketing, sales, and distribution at Continental Airlines Inc.: ''We've got a hugely educated, informed, and more experienced consumer out there now.''

Ethics and PrivacyzBased on a wealth of personal informationzIt threatens to become an intensely personal

form of ''redlining''--the controversial practice of identifying and

avoiding unprofitable neighborhoods or types of people.

zNew tiers are not only highly individualized but they are often invisible.yYou don't know when you're being directed to a different telephone

queue or sales promotion. You don't hear about the benefits you're missing. You don't realize your power to negotiate with everyonefrom gate agents to bank employees is predetermined by the code that pops up next to your name on a computer screen.

An Example

z Steve Reed, a West Coast sales executive, was shocked when a United Airlines Inc. ticketing agent told him: ''Wow, somebody doesn't like you.'' Not only did she have access to his Premier Executive account information but there was a nasty note about an argument he had had with a gate agent in San Francisco several months earlier. In retrospect, he feels that explained why staff seemed less accommodating following the incident. Now, Reed refuses to give more than his name for fear ''of being coded and marked for repercussions.''

PIGEONHOLING

. The Consumers Union points out that it's unnecessary to fill outsurveys with warranty cards. Just send in a proof of purchase with your name and address. ''Protecting your privacy is a significant tool to prevent yourself from being pigeonholed as undesirable,'' says Gene Kimmelman, Washington co-director for the CU. It's equally important to recognize what kind of information companies are looking for. If you don't live in anupmarket Zip Code, consider using your work address for correspondence. Be optimistic when estimating your income or spending: The better the numbers look, the better you'll be treated.


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Your Actual Payment Record

Check for mistakes:

pull your credit history at least once a year to check if there are any liens or mistakes. ''You may discover that you're listed as having missed a payment that you thought you made on time,'' The three main reporting bureaus--Experian, Trans Union, and Equifax--charge a small fee for a copy of your credit history. If, however you have recently been denied credit, employment, or insurance, such a report is free from all three companies.

Credit Cards

zMultiple credit cards can be a mistake, especially if they're the no-frills variety that are frequently offered to less desirable candidates. Not only can they drain the credit you might need for other activities, but they're also unlikely to propel you into a higher category. Using a spouse's card or account is also to be avoided, because it robs you of a chance to build your own credit history. If a mistake is made on your account, fight it.

Calling A Service Center?

zPros disagree on tactics for bypassing the service maze. One customer representative argues that when calling a service center it's better to punch in no account number if you're a low-value customer. The reason? Without proper identification, he says, a live person has to get on the line. ''Pretend you're calling from a rotary phone,'' he advises. But another tactic may be to punch zero or choose an option that's likely to get immediate attention.

Perception is Everything!

zIn the end, resistance may be futile, and the best strategy for beating the system may be to join it. Shop around for the best company, and try to consolidate your business there. These days, the best way to ensure good service is to make yourself look like a high-value, free-spending customer.


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Making the Grade:How to get better servicezCONSOLIDATE YOUR ACTIVITIES

Few things elevate status and trim costs like spending big in one place. Be on the lookout for packages or programs that reward loyal behavior.zPROTECT YOUR PRIVACY

Avoid surveys and be frugal with releasing credit-card or Social Security information. The less companies know, the less they can slot you.zJUMP THE PHONE QUEUE

If you want to reach a live human, don't admit to having a touch-tone phone at the prompt. Or listen for options that are less likely to be handled automatically.zFIGHT BACK

If you feel badly treated, complain. Make sure management knows just how much business you represent and that you're willing to take it elsewhere.

Segmentation Pays

z Continental Airlines Inc. has started rolling out a Customer Information System where every one of its 43,000 gate, reservation, and service agents will immediately know the history and value of each customer. A so-called intelligent engine not only mines data on status but also suggests remedies and perks, from automatic coupons for service delays to priority for upgrades, g iving the carrier more consistency in staff behavior and service delivery. The technology will even allow Continental staff to note details about the preferences of top customers so the airline can offer them extra services. As Vice-President Reitz puts it: ''We even know if they put their eyeshades on and go to sleep.'' Such tiering pays off. Thanks to its heavy emphasis on top-tier clients, about 47% of Continental's customers now pay higher -cost, unrestricted fares, up from 38% in 1995.

How It Works!z At All First Bank in Baltimore, only those slotted as top

customers get the option to click on a Web icon that directs them to a live service agent for a phone conversation. The rest never see it.

z First Union, meanwhile, codes its credit-card customers with tiny colored squares that flash when service reps call up an account on their computer screens. yGreen means the person is a profitable customer and should be

granted waivers or otherwise given white-glove treatment.

yReds are the money losers who have almost no negotiating power, and yellow is a more discretionary category in between.

y ''The information helps our people make decisions on fees and rates,'' explains First Union spokeswoman Mary Eshet.

'We're Sorry, All of Our Agents Are Busy with More Valuable Customers'zCODING

Some companies grade customers based on how profitable their business is. They give each account a code with instructions to service staff on how to handle each category.

zROUTINGBased on the customer's code, call centers route customers to di fferent queues. Big spenders are whisked to high-level problem solvers. Others may never speak to a live person at all.

z TARGETINGChoice customers have fees waived and get other hidden discounts based on the value of their business. Less valuable customers may never even know the promotions exist.

z SHARINGCompanies sell data about your transaction history to outsiders.You can be slotted before you even walk in the door, since your buying potential has already been measured.


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Fees A Solution---?zInnovative players are striving to use their

treasure trove of information to move customers up the value chain instead of letting them walk out the door.

z Capital One Financial Corp. of Falls Church, Va., is an acknowledged master of tiering, offering more than 6,000 credit cards and up to 20,000 permutations of other products, from phone cards to insurance.

y That range lets the company match clients with someone who has appropriate expertise. ''We look at every single customer contact as an opportunity to make an unprofitable customer profitable or make a profitable customer more profitable,'' says Marge Connelly, senior vice-president for domestic card operations.

What Will Future Hold?What Are Some Solutions?zDeliver a level of service based on each

person's potential to produce a profitzExplain the different levels of service and fees

costs associated with them (education)yMake the invisible visible

zWhat the customer gets as well as how they get it are importantzTwo types of qualityyregular and handling of problems

zThink potential and long-term

The Final Solution

zAlthough the level and type of service may vary, quality of service should always be uncompromising---zPromptness, Courtesy, Cleanliness, and

Appreciation for Business are always expected.yWhat do I expect if I buy a $1500 suit at Bijan’s on

Hollywood’s Rodeo Drive?yWhat do I expect if I buy a $150 suit off the rack

at a discount store?yNote: I don’t expect worse service at the discount

store --- I expect less of it.

In Conclusion

zThe customer is the ultimate boss. He can fire everyone on down, just by spending his or her money elsewhere.


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How to Improve Your Profile

Information can be used for or against you.Be stingy with the information you give out--especially if it's unlikely to help your status. Don't fill out surveys, sweepstakes forms, or applications if you're not comfortable with how the information might be used. Be wary when a company asks if it can alert you to other products and services. A yes may permit them to sell data that you don't want distributed.


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LESSON 9:CASE STUDY ON POSITIONING AND DIFFERENTIATION

Back in the early 80s, when Virgin Atlantic was created, RichardBranson was a go-getting, sweater-wearing entrepreneur andhead of the successful Virgin Group, probably best known forVirgin Records.Richard was born in 1950 and at age 17, while atStowe - the famous English public school - started a studentadvisory service. Three years later, he founded the Virgin mailorder record company and shortly afterwards opened a shop onOxford Street, London’s main shopping thoroughfare.In 1972a studio was built in Oxfordshire, the very one that MikeOldfield recorded his five millions selling album ‘Tubular Bells’.This was to provide the catalyst for Virgin Records that went onto sign major names such as The Rolling Stones, Culture Club,Janet Jackson, Peter Gabriel, Simple Minds and The HumanLeague - all contributing to the continued success story.By theearly 1980s, Virgin Records was one of the top six recordcompanies in the world. Then, in 1984, Richard got a phone callout of the blue suggesting a jumbo jet passenger servicebetween London and New York. Richard liked the idea, muchto the horror of his fellow directors who thought him crazy.Undeterred, Richard announced to the world that VirginAtlantic Airways would begin operating within three months!At which point a lot of other people agreed - he was crazy!But,an aircraft was found, staff were hired, licences granted and,thanks in no small part to Richard’s infectious enthusiasm, on22 June 1984 an aircraft packed with friends, celebrities and themedia set off for Newark, New Jersey - and a phenomenon wasborn!Since then, Virgin Atlantic has become the second largestlong-haul international airline operating services out ofLondon’s Heathrow and Gatwick Airports to 22 destinations allover the world - from Shanghai to the Caribbean and, ofcourse, the US.In 1992 Richard sold Virgin Music for $1bn toThorn EMI and ploughed the profits back into Virgin Atlantic,improving an already great service even further. However, hestill has a big role in the entertainment industry through theinternational Megastores, the V2 record label and interests innight-clubs, book and software publishing, film and videoediting and hotels.In December 1999, Richard signed anagreement to sell a 49% stake of Virgin Atlantic to SingaporeAirlines to form a unique global partnership - the deal valuingVirgin Atlantic at a minimum of £1.225bn. At the same timethe combined sales of the different Virgin holding companieswas around £3bn.It turned out that 1999 was an eventful yearfor Richard and was topped off by being awarded a knighthoodfor his services to entrepreneurship.As you might imagine,Richard never stops (which can be exhausting for the peoplearound him!) and sets himself just as steep challenges in hispersonal life as in his business life. Just for fun, he has beeninvolved in round the world balloon attempts as well asrekindling the spirit of the Blue Riband when he crossed theAtlantic in his Virgin Atlantic Challenger II boat in the fastestever recorded time. What was it they said about him beingcrazy?So what next? Well there’s plenty planned, not least the

introduction of the six A380 aircraft we have ordered which aredue to arrive in 2006!Oh, and there’s somewhere Richard hasn’tventured yet - he has apparently been heard to wonder whetherit would be feasible to increase our long-haul capacity, and justhow do you build a hotel in space????With reference to the above context, interpret the Positioningand differentiation of Virgin Atlantic airlines vis-à-vis otherairlines.

services marketing notes.pdf

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