Services Mk Ting

7/30/2019 Services Mk Ting

1/86

Services Marketing

Prepared for The Chartered Institute of Marketingby

Steering Group:Laurie Young, PricewaterhouseCoopers (Chair)

David Ryan, Student AssistantRaoul Pinnell, Shell International

Sara Sheppard, Microsoft

Adrian Hosford, BTNigel Cryer, NatWest/RBSNicola Murphy, River Publishing

Janine Chung, PricewaterhouseCoopers

January 2002

www.connectedinmarketing.com

The CharteredInstitute of Marketing Everything you need to know about e -marketing
http://www.connectedinmarketing.com/http://www.connectedinmarketing.com/


2/86

Executive Summary

INTRODUCTION

The growing importance of the role that services play in both the economy as awhole and organisations in particular cannot be over-estimated. This encompassesnot only pure service industries as such, but companies which market physicalgoods where the element of service in their offering is increasingly one of the fewsources of competitive differentiation. And while a focus on the customer

underpins the marketing of both physical goods and services, its critical tounderstand the limitations of traditional marketing when it comes to developingthe most effective tools and techniques for services marketing. This Canon ofKnowledge, a comprehensive examination of every aspect of services marketing,tells you what you need to know. And, to show the practice behind the theory,there are over a dozen up-to-date case studies on how companies likePricewaterhouseCoopers, Microsoft, NatWest, Hyatt Hotels, Centrica, BT andSun Microsystems approach the marketing of services.

Executive Summary / 1 The Chartered Institute of Marketing


3/86

Contents


Page

INTRODUCTION 1

SECTION 1. DRIVING FORCES AND STRATEGIC OVERVIEW 3

A. Introduction 3

B. Strategic Aspects and Implications of Customer Care 4

C. Service Categorisation 9

D. Common Elements and Differences between Services

and Physical Goods 17

SECTION 2. SERVICE MARKETING AT THE STRATEGIC LEVEL 26

A. Introduction 26

B. Possible Customer Segmentation Variables 27

C. Brand Strategy 31

D. Crystallising the Service Direction and Developing Service Strategies 35

SECTION 3. UNDERSTANDING CUSTOMERS SERVICE REQUIREMENTS 41

A. Introduction 41B. The Gap Model 42

C. Perceived Control 46

SECTION 4. THE SEVEN PS OF SERVICE MARKETS 50

A. Introduction 50

B. Marketing Mix for Services: Seven Ps, Not Four 51

C. Proposition Designing, Researching and Developing Services 55

SECTION 5. MARKETING MANAGEMENT PROCESS FOR SERVICEORGANISATIONS 62

A. Introduction 62

B. Marketing Planning Process for Services 63

C. Creating a New Service Development Process 68

SECTION 6. SERVICE OPERATIONS 73

A. Introduction 73

B. Operational Challenges of Different Service Types 74

C. Service Recovery 78

D. Application of Processes to Quality Service 82


4/86

SSEECCTTIIOONN 11..

DRIVING FORCES AND STRATEGIC OVERVIEW

A. Introduction

Services have become increasingly important in the economic structure ofmany countries with growing contribution to employment and GDP levels.Domestic service organisations are also facing increasing competition frominternational service providers while, on the other hand, there aresignificant opportunities for the marketing of services across nationalborders.

However, many marketing concepts and tools currently applied to servicesmarketing have been simply transferred over from the manufacturing sector.While there are common elements between services and physical goodswith an overriding need to recognise and respond to customerrequirements, there is a need for services-specific marketing tools andconcepts. As a result, services marketing is an important area ofindependent knowledge for marketers.



5/86

B. Strategic Aspects and Implications of Customer Care

1. Key Considerations

1.1 Customer care is all about putting the customer first,anticipating the customers needs and problems, establishingrelationships and tailoring services to meet specific needs.

1.2 Good customer care leads to customer retention. This is ofstrategic importance for organisations as there is a highcorrelation between customer retention and profitability.Retained/repeat customers usually cost less to service, they nolonger require up-front marketing costs, they often providepositive referrals and over time they can increase theirexpenditure and even be willing to pay a price premium. They

represent a significant profit improvement opportunity.

1.3 However, the disciplines of strategic marketing need to beapplied to customer care, satisfaction research and servicedevelopment. Otherwise, damage can be done to thecompany.

1.4 For instance, it is also dangerous to assume that all customersshould be given best service. Service organisations mustidentify and focus on their most profitable customers from alifetime value perspective and be prepared to lose those

customers who are expected to cost more to service than theincome they are likely to generate.

2. Practical Guidance

2.1 Customer care programmes require a number of stages,typically:

Applying research to identify and measure the importanceof customer needs and expectations.

Translating customer needs into service specifications.

Setting measurable standards and systems for servicedelivery.

Managing employees (recruitment, selection, rewards etc.).

Managing the delivery process to include appropriatecomplaints handling and service recovery systems.

Monitoring the customer care programme, to evaluatecustomer (dis)satisfaction and employee performance.

Reviewing organisation structures and customer careobjectives.



6/86

2.2 Caring for and retaining customers is a marketing goal becausethe profitability of retained customers is high, with littlemarketing effort required to encourage extra sales.

2.3 Coupled with this is a growing need for focus on long termrelationships as growth in services means that moretransactions involve long term relationships with increasedinterest in customer service as a means of differentiation. Longterm customers also tend to have lower maintenance costs asthey become accustomed to the company, its procedures andemployees. Therefore, they ask fewer questions and tend tohave fewer problems.

2.4 Any customer lost through dissatisfaction becomes a customergained by the competition. Consequently, retaining customers

becomes a strategic commercial issue for service organisations.

2.5 Effective customer retention also acts as an additional benefitfor employees, providing them with motivation and increasingtheir willingness to perform excellent customer service.

2.6 Although customer retention programmes can be expensive,segmenting customers into different levels of profitability canbe effective, by focusing efforts on the most profitable,therefore most valuable, customers.

3. Models, Tools and Concepts

3.1 Customer care or retention is recognised by many serviceorganisations as of vital strategic importance and retentionprogrammes are widely used. There is an urgent need to movefrom a short term transaction-based focus to longer termcustomer relationship management.

3.2 Customer care, after-care service and relationship managementshould be positioned as the marketers domain. An integratedset of tools needs to be developed to make this concept of

practical use for marketers. These should be included inmarketing text books.

4. Authoritative Sources

4.1 Anderson, E. W. and Fornell, C. (1993) A Customer SatisfactionResearch Prospectusin Rust, Roland T. and Oliver, R. L. (eds)Service Quality: New Directions in Theory and Practice.California, Thousand Oaks, SAGE Publications.

4.2 Bateson, J. E. G. and Hoffman, D. K. (1999) Managing Services

Marketing. 4th Edition, Fort Worth, Dryden Press.



7/86

4.3 Lewis, B. R. (1995) Customer Care in Servicesin Glynn, W. J.and Barnes, J. G. (eds) Understanding Services Management.Chichester, John Wiley & Sons.

4.4 Payne, A. (1993) The Essence of Services Marketing. London,Prentice-Hall.

5. Case Study


NatWest(Link to second NatW(Link to second NatWest case in Section 5, sub section C)est case in Section 5, sub section C)

Key points:

Customers often have lifetime relationships with their banks.

These relationships can be complex as they change over timeso it is essential to have a carefully-crafted strategy towardthem.

A balance has to be struck between customer retention andacquisition.

NatWests retail bank offers a range of personal and businessbanking services to almost 8 million personal customers and

850,000 small business accounts. Since March 2000 it has beenpart of the Royal Bank of Scotland, the sixth largest bank in theworld.

Financial services in general and banking in particular havechanged radically in the last decade or so. Whereas in the past thefour High Street banks, including NatWest, operated in a relativelystable market where there was little differentiation and littlecompetition, a combination of factors such as the Internet, thearrival of competitors both virtually and from other sectors likesupermarkets, and a shift in consumer power have all contributed

to the need for banks to rethink how they go to market.

Relationship of a Lifetime

To understand how an organisation like NatWest approaches themarketing of its services, its important firstly to understand howthat service operates. As Michael Sadler, head of customermarketing and the customer marketing segments team explains,most people have a relationship with their bank throughout theirlifetime.

So banking is neither about a single purchase nor a transactionalrelationship. When someone buys a holiday, for example, its aone-off and comes to an end. But thats not the same when peopleare saving for the future or planning investments.


8/86


Because its also a business where good ideas can be copiedinstantly, differentiation has to come from the brand, the serviceand the delivery. Products arent immaterial but enter the word

mortgage into a search engine on the Internet and in less than asecond it produces over five million results. Your entire focus hasto be on the continuation of the experience so that every time youtouch a customer you are either enhancing or diminishing thebrand, Sadler says.

And this has to be a two stage process, as Nigel Cryer, SeniorManager, marketing excellence, adds: Selling the product is justthe beginning because then its how much they use it how muchthey deposit or use their credit card, for example whichdetermines our profitability. So you not only have the challenge of

selling products up-front but you also have to continue to marketto those customers to try and increase usage.

Layers of Complexity

Sadler uses the framework of Maslows hierarchy of needs todescribe the complex layers of the relationship most people havewith their banks. Maslow put basic physiological needs at thelowest level of the triangle, followed in ascending order by safetyneeds, belonging needs, esteem needs and at the top, self-actualisation.

So base one for banking is the physiological need of being ableto get at your money, he says: If you cant deliver the ability forsomeone to access their cash and run their daily life successfullyyou can forget everything else. Thats followed by the need to feelthat the bank is secure and the money will be safe.

Once those more basic needs are satisfied, the relationship startsbecoming less straightforward, with more intangible factors likebranding playing a more influential role, says Sadler. Customerson that level look at whether the brand resonates with them.

Achieving the pinnacle of self-actualisation is a much bigger andmore involving task and as yet only really applicable to premiumcustomers because its here that the bank becomes a financialfacilitator. This isnt about interference but working in thebackground to help customers manage their finances in such away that it releases what was dead time back to them and letsthem get on with their lives.


9/86


Finding New Customers

Historically, recruitment of new customers has been focused onseed corn or targeting young adults, students and childrenbecause its a well-accepted fact that the majority of people staywith their first bank for the rest of their lives. Even though for thefirst five years or so there would be little profit and probablymainly costs to the bank from these relationships, that would berecompensed by having a 40-50 year relationship from then on.

But as the industrys cost structure came under increasing scrutinybecause of market changes over the last few years, banks did theirnet present value sums on these young customers and, accordingto Sadler, some US banks decided to ignore students because they

were so unprofitable. It didnt last, however: Three years laterthey raced back to them because where else are you going to findyour customers for the longer term?

The new entrants like virtual e-banks and supermarkets face adifferent challenge in terms of acquisition. Because they usuallydont have the resources to wait five years for customers tobecome profitable, they have been pouring their marketing effortsinto getting customers of the High Street banks to switch.

Switching, in fact, is becoming more of a prominent issue since

the government push to make it easier and quicker for people tomove bank accounts. The question is, notes Sadler, do allbanks now have to look again at their strategies and see ifacquisition of switchers is becoming a more important factor? Thejury is still out. What we have seen is more of a focus on it. Andsome banks have been very successful.

But he wonders if its the fact that the cake has become bigger orthat some of these new banks are managing to get a bigger slice?At the moment it seems to be the latter but theres no room forcomplacency, he warns. Inertia is no longer good enough on its

own. Nor is simply telling customers they should switch becausethey can. Banks will have to offer a compelling reason forsomeone to switch.


10/86

C. Service Categorisation


1.1 Service businesses have similarities which enable commonmarketing strategies and approaches to be made. Services canbe categorised in various ways. Examples include: industrysector, type of seller or purchaser, demand characteristics,degree of intangibility, extent of customer contact etc. Servicesmight also be classified with regard to similarity of marketingrequirements or benefits to customers.

1.2 Service categorisation by sector:

Markets and specific industries can be used to classify

services in an attempt to identify common buying criteria.This can help to demarcate the service organisationsplaying field and to define the organisations mission andgoals.

For classification by industry, international StandardIndustrial Classification (SIC) codes are used. These codeslabel each industry with a unique code. These codes can beused to describe the characteristics of an industry, althoughthey do not identify the benefits which services can providein each industry.

1.3 Service categorisation volume-based. Services can bedefined in terms of their volume-variety characteristics:

Professional services involve considerable time spentwith the client, thereby reducing the volume oftransactions, with a significant degree of variety/customisation in line with each customers specific needs,e.g. management consultancies.

Mass services involve many customer transactions with

very little customisation, e.g. supermarkets.

Service shops lie between professional and mass serviceswith some degree of customisation, e.g. car rentalcompanies.

1.4 Service categorisation: needs-based:

Services can be grouped together based on the underlyingcustomer need to be met. For example, fast food restaurantsmay meet customer needs for a lunchtime snack or quick

rendezvous, while an elegant restaurant with full waiterservice could be perceived as meeting the customers needto be spoilt and to be respected by his or her dinner guests.



11/86

1.5 Service categorisation by nature of service act:

Services can be defined as tangible acts directed at peoplesbodies, for example beauty salons, or directed at goods and

other physical possessions, for example janitorial services.They can also be defined as intangible acts directed atpeoples minds, for example education, or directed atintangible assets, for example insurance.

1.6 Service categorisation by duration of service contract:

Services can be categorised by the extent of the ongoingrelationship and service provision between the serviceorganisation and customer (i.e. annuity versus jobbingservices).

For example, there could be a membership relationshipas in membership of the AA, or there could be no formalrelationship as in listening to a radio station.

At the same time, there could be a continuous level ofservice delivery such as insurance cover and maintenance,or there could be one-off transactions such as occasionalcar rental.

1.7 Service categorisation by customisation and judgement:

As services are produced as they are consumed, often withthe consumer present, there is far greater scope for tailoringthe service to meet specific customer needs than withconsumer products.

Customisation can take place along two dimensions. Thereis the degree to which services lend themselves tocustomisation. For example, legal services are highlycustomisable, while public transport is not easy tocustomise.

There is also the degree to which service employees canexercise judgement in meeting individual customer needs.For example, a language tutor can tailor classes to meet thestudents level of understanding while, on the other hand, itis not easy for a retail banker to change terms andconditions on a standard mortgage.



12/86

1.8 Service categorisation by nature of demand and supply:

Service organisations often face demand fluctuations overtime. These could be wide, such as demand for a hospitals

maternity services, or they could be narrow, such as drycleaning.

At the same time, supply is constrained to various degrees.For example, a telephone company is often able to meetpeak demand without major delay, while theatres often facea situation where peak demand exceeds capacity.

1.9 Service categorisation by service delivery:

Some services can be made available through single sites

(for example, a theatre) or through multiple sites (forexample, AA emergency repairs).

Customers can either visit the service organisation (forexample, visits to a fast food outlet) or the service providercan visit the customer (for example, a gardening service).There can also be an arms length relationship between thecustomer and service organisation (for example, atelevision station).


2.1 While various studies have come up with differentclassification methods, many of these classifications do nothelp in the development of marketing strategies. More effectiveclassification schemes would allow managers in serviceorganisations to compare their organisation with other serviceproviders sharing the same characteristics, so that managerscan cross industry boundaries and gain experience from otherservice providers with similar problems and characteristics.

2.2 One suggested framework for the classification of services asks

the following five questions:

What is the nature of the service act?

What style of relationship does the service organisationhave with its customers?

How much room is there for customisation and judgement?

What is the nature of demand and supply for the service?

How is the service delivered?



13/86

2.3 By classifying together like services, valuable lessons can belearnt and shared.

2.4 Service categorisation by sector:

If sector comparisons result in identifying common buyingcriteria, marketing programmes to different groups can bedeveloped.

2.5 Service categorisation volume-based:

The degree of volume/variety affects both the processimplied in service delivery as well as the potential size ofthe market and the marketing techniques involved.

2.6 Service categorisation needs-based: In both the case of the fast food outlet and the elegant

restaurant, the product aspect of the service deliveryremains the same, i.e. food.

However, service organisations must also identify the basicneed being met beyond the mere product aspect and mustdesign the process and service surround (or physicalevidence) to meet that need.

2.7 Service categorisation by nature of service act:

Categorisation in terms of the nature of the service act helpsto answer the following questions:

Does the customer need to be physically present duringthe service delivery, at the commencement ortermination of the service, or not at all?

Does the customer need to be mentally present duringservice delivery?

How is the target of the service act modified byreceiving the service and how does the customerbenefit from these modifications?

Understanding of the nature of the service can help in thedevelopment of more convenient forms of delivery.



14/86

2.8 Service categorisation by duration of service contract:

These different types of engagement create differentperceptions of value and price. When service is offered on

an ongoing basis, a single periodic charge is oftenconvenient and simple. On the other hand, membershiprelationships can offer a full range of free services, or abasic level of free services and separate charges for use ofadditional services. However, customers get used to levelsof service over time so there is ongoing pressure to eitherreduce prices or add value to the offer.

Annuity services or membership transactions usually offerthe advantage of customer loyalty and allow for thecollection of data which can be managed for customer

segmentation purposes. Consequently, it is often in the bestinterest of a service organisation to develop ongoingrelationships to ensure repeat business and continuousfinancial support.

Random transactions with no formal relationship includeservices such as transport or restaurants. In such cases, theservice organisation usually has less knowledge of itscustomers. Price is based on the perceived value of thetransaction.

2.9 Service categorisation by customisation and judgement:

There is often a conflict between the search for costreduction through standardisation and the desire to meetcustomer needs through customisation.

Nevertheless, mass production of a service can generatecustomer satisfaction by producing consistency, speed andlow prices.

With regard to judgement on the part of the service

employee to produce a customised solution, it is importantto first diagnose the customer need and then to outlinethe solution to give the customer an idea of the finaloutput so as to reduce uncertainty.

2.10 Service categorisation by nature of demand and supply:

Different demand types require different marketingcommunication techniques to manage expectation. Tosmooth out variations in demand, customers could beencouraged to change their behaviour through pricing

reductions, or to ration demand through reservation orqueuing systems. To generate demand in periods of excesscapacity, new customers with countercyclical demandscould be sought.



15/86

However, it is very important to have appropriateforecasting and demand management processes in thebusiness.

Even though services cannot be stored, it may still bepossible to manage capacity, such as hiring part-timeemployees or renting extra facilities for peak periods.

2.11 Service categorisation by service delivery:

Offering service through multiple sites can increasecustomer convenience, but may raise costs and incurproblems related with consistency and quality control.

Instances where the service provider visits the customer are

expensive and, as a result, there has been a move awayfrom this approach.

For some service industries, such as retail banking, the costof service delivery is a major strategic issue. It has causednew forms of delivery such as ATMs and telephone bankingto evolve.

Some parts of a service can be separated from the coreproduct. For example, a customer must visit the theatre toattend a play, but reservations can be made over the

telephone or Internet.

Some parts of a service can also be made through anintermediary or broker. For example, an airline can selltickets through a network of travel agents with greatergeographical reach.


3.1 While the various classification methods proposed are of somebenefit, marketing practitioners should ideally look to

businesses with similar marketing requirements for practicallearning purposes.

3.2 Service categorisation is a concept which underpinsunderstanding of services marketing and application of tools.

3.3 It also underpins the whole approach in different serviceorganisations. By making this explicit marketing can make theapproach to the market more effective and efficient.

3.4 Concepts of service categorisation need to be integrated into

general services marketing training.



16/86


4.1 Lovelock, C. (1983) Classifying Services to Gain StrategicMarketing Insights.Journal of Marketing, Vol. 47 (3), pp. 9-30.

Also published in:Gabbott, M. and Hogg, G. (eds) (1997) Contemporary ServicesMarketing Management: A Reader. London, Dryden Press.

4.2 Palmer, A. (2001) Principles of Services Marketing. 3rd Edition,Maidenhead, McGraw-Hill.

4.3 Kasper, H., van Helsdingen, P. and de Vries, W. Jr. (1999)Services Marketing Management: An International Perspective.Chichester, John Wiley & Sons.

4.4 Slack, N., Chambers, S. and Johnston, R. (2001) OperationsManagement. 3rd Revised Edition, Harlow, Pearson Education.

4.5 Lovelock, C. (1983) Classifying Services to Gain StrategicMarketing Insights.Journal of Marketing, Vol. 47 (3), pp. 9-30.Also published in:Gabbott, M. and Hogg, G. (eds) (1997) Contemporary ServicesMarketing Management: A Reader. London, Dryden Press.

5. Case Study


PricewaterhouseCoopers (PwC)(Link to second PwC case in Section 2., sub section C)(Link to second PwC case in Section 2., sub section C)

Key points:

Understanding the dynamics of the professional servicesbusiness is essential as a basis for marketing.

Embedding marketing thinking is done through persuasionand best practice.

Introduction

PricewaterhouseCoopers is the worlds largest professionalservices organisation, with revenues of around $20 billion.Organised as a partnership, it is comprised of roughly 9,000partners with 150,000 staff altogether, and has a presence in150 countries. Its current incarnation stems from a merger withCoopers & Lybrand in 1998.


17/86


Pioneering Marketing

It has four main divisions: audit, tax, consultancy and corporatefinance. L. Young has been the global head of marketing for the

latter, called Corporate Finance and Recovery for the last twoyears. This covers activities such as international reorganisations,mergers and acquisitions, group rationalisations, turnarounds,bankruptcy and other formal insolvency procedures.

His division is now two-thirds of the way through a three-yearprogramme to determine how it should best apply the principlesof marketing. The first year was spent defining just howprofessional services should be marketed. That has led to the set-up of about half a dozen pilot programmes which, if successful,could be spread to offices around the world.

Understanding Market Dynamics

The starting point in developing the proper services marketingtechniques is to understand the dynamics of the business. In anorganisation like PwC the key dynamic is the quality of its peopleand the good work they do for their clients. That builds up thefirms reputation through client referral which in turn helps buildup the brand as a whole. But its a complex process based on theintermingling of the reputation of both the firm itself and the

individual partners.To deepen the understanding of market perception Young and histeam have instituted a new tracking survey of all PwCs corporatefinance partners across Europe. It is based on interviews withsenior executives after the completion of a deal, andbenchmarked against competitors. Its a virtuous circle becausehaving such precise data becomes directional in terms of helpingindividuals understand their market better and hence where todirect their efforts more precisely.

Embedding Marketing

Encouraging more marketing-led processes in a fluid organisationlike PwC which consists of very smart, independent senior peopleis not straightforward. But its very organic structure is also itsstrength in that it is flexible, diverse and entrepreneurial. As Youngputs it, excellence emerges from what might seem in a morehierarchical company like chaos.

It is more about persuasion than imposition, which is why thereisnt a big central marketing department. Instead, the local

practices are encouraged to employ professional marketers tolook at the way they go to market and to devise programmesappropriate to their markets. This building of a professionalmarketing cadre will help embed the spirit of marketingthroughout the division.


18/86

D. Common Elements and Differences between Servicesand Physical Goods


1.1 Goods tend to be physical objects whereas services areintangible, an action or a deed. A physical good providesbenefits because of its physical characteristics, while thebenefits of a service lie in the nature of the action or deed.

1.2 As services are actions rather than physical objects, theycannot be seen, felt, tasted or touched. For example, a patientundergoing surgery receives a service, in this case anoperation, but cannot actually touch the result, e.g. improvedhealth. The patient can, however, touch and feel the operating

theatre, equipment etc. but not the skill and expertise of thesurgeon and other operating theatre staff members.

1.3 Inseparability means that the person delivering the service isintimately involved in the service itself and becomes part ofthe service.

1.4 Unlike physical goods which can be produced and sold/usedat a later stage, most services are produced and consumed atthe same time. This means that consumers will often interactwith each other and can negatively or positively influence the

experience, e.g. loud diners at a nearby table in a restaurant.Users will talk about the service experience and a negative orpositive reputation will result. It also means that serviceproviders play a role as part of the service experience itself. Forexample, the attitude of a waiter can make the differencebetween a memorable and an unpleasant dining experience.

1.5 Because services represent the performance of an action, notwo services are ever alike. For example, a haircut given to onecustomer by one hairdresser will not be the same as that givenby another hairdresser to another customer. Also, customer

demands are different and will relate to service providers indifferent ways. For example, one student will require constantassistance from his or her teacher or professor, while anotherwill require no contact.

1.6 Perishability means that services cannot be stored, saved orreturned. They cannot easily be changed. They must be usedby the customer at the time that they are delivered by theservice provider. For example, an empty seat on a particularflight from London to Paris cannot be sold to a passengerleaving on a later flight to Paris.



19/86

1.7 When a customer pays for a physical product, the customerowns the product and has it in his or her possession. Paymentfor services, on the other hand, implies the temporary hiringor use of a particular service, e.g. a seat at a concert, a hotel

room.

1.8 Pricing in the service sector is less influenced by cost than it isby customers perceptions of value or worth. It is importantto understand that price and quality are linked together,indicating the value of the service to the customer.

1.9 The location of the service encounter depends to a greatextent on the customer. Unlike physical goods, most serviceshave to be brought to the customer, thereby makingaccessibility an important distinguishing factor.

1.10 Given the intangible nature of services, branding becomesimportant in portraying quality, distinguishing one service fromanother, and achieving differentiation.


2.1 The essential differences between physical goods and servicesdemand different marketing techniques. These need to beunderstood and used appropriately. In reality, there are veryfew pure goods or pure services. When a good is

purchased, it usually involves some supporting servicecomponent. In the same way, services often involve somephysical component, e.g. cooking and service at a restaurantinvolves the actual delivery and consumption of food, whilerepairs to a car often involve the addition of new parts.

2.2 Items purchased are often physical goods, whereas servicestend to be rented, leased or merely used for a short period oftime such as the 30 minutes spent in a dentists chair.

2.3 Physical goods are usually easier for the consumer to search

for, i.e. they possess physical qualities and attributes which canbe easily discerned, e.g. style, colour, size etc. Services areusually high in credence qualities, i.e. characteristics whichthe consumer may find difficult or impossible to evaluate evenafter the service is performed for example, the effects of adental appointment.

2.4 Intangibility is a concept which affects marketing and thedelivery of all services:

For instance, small- and medium-sized businesses need to

use physical tools to turn intangibilities into tangiblebenefits for customers.



20/86

Intangible services cannot be stored, therefore avoidingproblems associated with storage, obsolescence etc.However, because they cannot be stored, services cannotbe carried over from a low-demand period to a period of

high demand.

Services can also not be patented, thereby making itdifficult to protect service concepts from competitors.However, good service can often rely on intangibleconcepts such as friendly service something which cannotnecessarily be imitated.

2.5 Inseparability:

Service organisations need to recognise the importance of

their employees, particularly those in the front line whointeract with customers and form their impressions of theservice. It is important for organisations to understand theprocesses involved in their service delivery and the keyplayers involved.

Mapping out levels of customer contact can help show updeficiencies and make appropriate improvements.

2.6 Simultaneous production and consumption:

The quality of the service encounter will be highlydependent on what happens in real time, thereforemaking it difficult to achieve consistency and control.Marketers must therefore become actively involved indirecting the design of the service experience to matchexpectation.

The simultaneous production and consumption of servicesmakes mass consumption difficult, if not impossible.Usually service operations must be decentralised so that theservice can be delivered to customers in convenient

locations.

2.7 Heterogeneity:

Because a particular service can be delivered in a variety ofways, achieving consistency is difficult for a number ofreasons such as the level of demand at any one time, stafftraining, and the ability of customers to state what theyactually want. Some organisations also outsource some oftheir services, e.g. call centres, thereby making it difficult tocontrol consistency.

However, on the other hand, the ability to deliver a servicein a non-uniform manner allows the organisation to retainflexibility and to meet specific customer needs.



21/86

2.8 Perishability:

Perishability makes it important to be able to forecastdemand and capacity. It also makes it important to be able

to recover the customers goodwill if a service goes bad.

2.9 Ownership:

As ownership does not transfer, client perceptions of valueare hard to manage.

The client does not have permanent possession of theservice, so it is important for any service provider to devisestrategies to encourage the client to return for the next timehe or she requires the service; e.g. an airline might

introduce a loyalty programme for frequent flyers.

2.10 Developing and managing value perception:

Marketing strategy must identify and capture what gives theservice value to customers.

2.11 Channels to market:

Channel decisions for services take on a whole newmeaning as services can often not be separated from theperson performing the service. They are also perishable andinventory is generally not carried. Consequently, direct saleis often the most common form of distribution in serviceswith short channels, although many service channels alsocontain one or more intermediaries.

Service organisations must ensure that their operation iswidespread enough to cover those areas where service isdemanded and to meet different customer demands. Aswell, as production and consumption tend to besimultaneous, each location has to be its own factory or

production unit. Any change in channel requires a change in consumer

behaviour. For example, the move to shift bank customersfrom making their transactions at a branch to doing theirbusiness over the Internet or at an ATM requires customeracceptance and education.

The service environment also takes on importance withcustomers judging the quality of the service on the physicalappearance of facilities and employees.



22/86

2.12 Branding and reassurance techniques:

The practitioners who compiled this canon of knowledgeconsider that academics have not given sufficient weight to

the issue of brand to services. The intangibility of servicesand the effect of the service process cause customers toseek emotional reassurance from brand consistency.

In a service business the corporate brand seems to be themost important reference for clients. Whereas the marketingof physical products relies in part on the physical attributesof a product, this is not possible with services. Brands inservices are built not only on design but also on thedynamic aspects of the service experience, i.e. howcustomers are served, employees, total customer

experience. These must embody the brand values.

Consequently, strong brands will enable serviceorganisations to provide some sense of tangibility tointangible services. A strong brand gives a service its ownproperties and can provide a competitive edge.


3.1 Common elements and differences between services andphysical goods is a concept which underpins understanding of

services marketing and application of tools. This needs to beintegrated into general services marketing training.

3.2 Intangibility is a concept which underpins understanding ofservices marketing and application of tools, and in particularbrand strategy and physical evidence to tangibilise theintangible.

3.3 The concept of inseparability is particularly relevant toappropriate people management.

3.4 The concept of perishability is particularly relevant to demandmanagement.

3.5 Many service organisations invest heavily in the developmentof their brand as a form of competitive differentiation. Currentunderstanding of this concept is based on experience obtainedfrom marketing practice. This concept requires furtheracademic research.



23/86


4.1 Palmer, A. (2001) Principles of Services Marketing. 3rd Edition,Maidenhead, McGraw-Hill.

4.2 Rathmell, J. M. (1996) What is Meant by Services? Journal ofMarketing, Vol. 30 (4), pp.32-36.Also published in:Gabbott, M. and Hoggs, G. (eds) (1997) ContemporaryServices Marketing Management: A Reader. London,Dryden Press.

4.3 Zeithaml, V. A. (1984) How Consumer Evaluation ProcessesDiffer between Goods and Servicesin Lovelock, C. (ed)Services Marketing. London, Prentice-Hall.

Also published in:Donnelly, J. H. and George, W. R. (1981) Marketing ofServices. Chicago, American Marketing Association.

4.4 Zeithaml, V. A. and Bitner, M. J. (2000) Services Marketing:Integrating Customer Focus Across the Firm. 2nd Edition,Boston, McGraw-Hill.

4.5 Cowell, D. (1984) The Marketing of Services. Oxford,Butterworth-Heinemann.

4.6 Shostack, G. L. (1977) Breaking Free from Product Marketing.Journal of Marketing, Vol. 41 (2), pp. 73-80.

4.7 Bateson, J. E. G. and Hoffman, D. K. (1999) Managing ServicesMarketing. 4th Edition, Fort Worth, Dryden Press.


4.9 Levitt, T. (1972) Production-line Approaches to Service.Harvard Business Review, Vol. 50 (5), pp. 41-52.

5. Case Study


Hyatt International

Key points:

Customer interaction is what differentiates physical goodsfrom services like the hotel industry.

This means that every employee has to be an embodiment ofthe brand promise.

Using data to drive deeper customer understanding is critical.


24/86


Introduction

The Chicago-based Hyatt Corporation is the largest private hotelgroup in the world. It operates through two separate arms: HyattInternational and Hyatt Corporation. The domestic divisionmanages 123 hotels in the US, Canada and the Caribbean whileHyatt International currently manages 79 hotels in 36 countries.

The Differences with Services

John Wallis, senior vice president for marketing at HyattInternational, and who has been with the company for 20 years,is quite clear about the difference between marketing a serviceand marketing a physical good: One word the customer. When

you are in services you are interacting with the customer andhave to make sure you are delivering what your message haspromised.

Which, of course, is much harder in an industry like the hotelbusiness since you are as strong as your weakest link. Every singleperson has to be the embodiment of the brand or the relationshipcan be damaged. Your brand is managed by the last contactanybody has with the customer, whether its a bell boy, ahousemaid, or at the check-in, he points out.

You can send whatever marketing message you want but if thecustomer doesnt see the perceived value and receive the serviceswe are marketing, you can have a negative reaction to a positivestatement.

Making a Positive from a Negative

If that does happen, there is a process in place to try and turnwhat Wallis calls a negative brand contact into a more positiveone. For example, if a complaint gets as high as Wallis himself, hesimply picks up the phone to the customer to discuss how the

problem can be solved. Often he will find that just the fact of hisphoning will do the trick.

And when complaints do arrive on his desk, its usually becausethere has been a lack of personal interaction with the customer atlower levels. So hotel general managers are encouraged to get onthe phone to see if they can find a solution to a customerscomplaint.


25/86


Getting the Right Processes in Place

Another critical aspect of the business is finding the right balancebetween customer acquisition and retention. The problem withsales people in general, Wallis believes, is that they tend to bemuch more comfortable talking to customers they know thanmeeting rejection from those they dont.

So what Hyatt has done is devise an individual sales plan for eachsales person in which they write down what customers they planto retain, what customers they will grow and who the potentialcustomers are they are going to acquire over the coming year.Bonuses are based on achieving all three goals.

This is all part of a systematic approach which Wallis feels isessential to progress, particularly in light of the fact that channelsto market are getting so much more complicated. Hyatt is taking along, hard and thoughtful look at the impact of the Internet on thepricing structure in what is already a fiercely competitive sector.

There has to be a sensitive trade-off between the price the marketwill accept, and protecting the investment the company has madein building the values of the brand, according to Wallis: Onething I have always found in my career is that when you dropyour prices, especially in resorts, you get a different class of

customers and create a downward spiral.

Exploiting the Data

One of the more positive characteristics of the hotel industry isthe amount of data it collects, making customer segmentation farmore detailed although it has to be done within the frameworkof data privacy regulations. At Hyatt, it has been the basis of abrand strategy which has created three distinct sub brands toreflect that segmentation: Park Hyatt, which is aboutsophistication and intimacy, Grand Hyatt, located in premier

cities and the workhorse brand, Regency Hyatt.

As Wallis explains, Because we have been collecting data for sixyears, we have been able to understand that we have a differenttype of customer going to our different brands. Unless youunderstand your customer and what we call purpose of visit, youcan make some big mistakes in how you target your marketingdollars.


26/86


Motivating Employees

Training is a core part of the companys operations and hascontinued as budgeted despite the downturn caused by the eventsof 11th September. But, as Wallis explains, if the occupancy ratesfall, then the company has to make sure it takes care of those whodo stay in the hotels that much better.

In addition, he believes that Hyatt has the opportunity through itsconcentration on training to differentiate itself even further whenthe market does come back.

This is part of an overall culture where people are encouraged totake risks: I think we encourage people not only to come up withgood ideas but then to have a go at them. They might makemistakes, but we have to allow people the freedom to think andthen to act. A person is ten times more motivated if given anopportunity to do something.

New ideas are tested through small pilot projects so it if fails, littleharm is done. If it succeeds, then the message spreads to hotelsaround the world through what Wallis describes as the coconutradio by whomever has had good results from a new initiative.

Ultimately, success comes from remembering just who owns thebrand: What we keep stressing throughout the company is thatits the customer that owns the brand. We just own the logo.


27/86

SSEECCTTIIOONN 22..

SERVICE MARKETING AT THE STRATEGIC LEVEL

A. Introduction

As is the case with the marketing of physical goods, organisations wishing toenter the services market must select and develop the appropriate marketpositioning and the strategies to achieve this desired position. They alsorequire the appropriate internal competences and must develop anorganisational culture which encourages a service orientation. However,there are a number of strategic issues which have unique dimensions whentackled by service organisations. For example, it is possible, due to theexistence of a service process, to segment using nave and experiencedcustomers. This section aims to summarise those issues.

For instance, with regard to their external image and in response to theheterogeneity of services, service organisations need to develop strongbrands to deliver a message of consistency and quality. However, immenseeffort is required to maintain brand integrity or consistency through theservice experience.



28/86

B. Possible Customer Segmentation Variables


1.1 Segmentation of customers to gain competitive advantage is awell-established concept. There are, however, uniquesegmentation methods open to service marketers. For instance,customers become familiar with a service providers deliveryprocess. It is therefore possible to create different offers fornew and experienced users.

1.2 People also have different emotional reactions to services,creating another potential basis for segmentation.


2.1 The unique dynamics of services marketing provide anopportunity to segment producing different service offers andcommunication techniques.


3.1 Despite the takeover of NatWest by the Royal Bank ofScotland, the two brands were retained, catering for theemotional needs of different customers preferring to deal withan English or Scottish service organisation.

3.2 Customer segmentation on functional and emotive values isnot usually practiced. Rather, more traditional customersegmentation techniques are used based on factors such asincome, age, specific need etc.

3.3 Current understanding of this concept is based on experienceobtained from marketing practice. This concept requires furtheracademic research.

4. Case Study


Laing Homes

Key points:

The marketing of new houses is becoming far moresophisticated and based on an increased understanding ofcustomer segmentation.

This contributes to increased customer satisfaction from the

home building through to after-sales service.


29/86


Introduction

The marketing of new homes used to be relatively straightforward.It revolved mainly around the selling of bricks and mortar, with aone size fits all mentality as the prevailing ethos.

Nor was this surprising. As Steven Lidgate of Laing Homesexplains, in the 1970s house builders were rushing to catch upwith the latent demand of the post-war baby boomers to owntheir first homes. The architecture was all about one colour, noindividuality, and housing was seen as utilitarian and aboutgetting a roof over your head. And everybody who had a three-bedroom house was thought to be identical.

Taking a New ApproachThe recession of the early 1990s and the resulting appearance ofthe concept of negative equity, where the value of houses coulddrop below their purchase price, had a profound effect on themarket. For Laing in particular, it meant a fundamental rethinkabout its strategy which began with the hiring of Lidgate in 1992.He had been in the business since the early 1970s, and could seethat what the sector needed was a much more marketing-ledapproach where the focus on branding and service played acritical role.

The first phase of his refashioning of Laing Homes, which is partof the John Laing group, was to push more responsibility down tothe local managers with the aim of making them moreentrepreneurial and thus attuned to local needs. In other words,they would no longer have to follow a fixed template in housedesign, but could tailor according to the area they operated in.

Becoming a Premium Brand

Once the right people and the right environment were in place,

Lidgate embarked on the next stage of moving the brand imagemore upmarket. Key to that was emphasising the location asmuch as the house design: What we have been saying to thepeople in our area offices is that if you want to build houses inPutney or St. Albans I want to be in the best or, at the most,second best location. It doesnt matter whether you are building alarge, six bedroom detached home or a one bedroom flat. Be inthe best area.


30/86


Accompanying that was a change of logo to a pineapple, thesymbol of wealth and prosperity often seen on the gates of statelyhomes, to underline the change of style and direction. The target

was now those customers who could pay anywhere from200,000 to well over the million mark.

But going after a more discerning customer has meant that thecompany has had to look carefully at the whole process andmake sure the focus on customer satisfaction is a continualthread, from building and selling a home through to the after-salesservice.

A Role for Rigorous Research

To make sure it was going in the right direction, Laing felt it firsthad to get to grips with just who their customers were. So Lainghas been undertaking extensive research into its market so that itcould not only begin to get closer to its customers byunderstanding the customer base, but ultimately to use it as abasis for product innovation, marketing and customer service.

The first stage of the research to identify and understand thecurrent and potential new home buyer was completed in summer2000 by the Henley Centre.

First findings showed that the reality did not always meetperceptions. For example, customers were more varied and lesstraditional than previously thought, were younger than estimated(in the 25-44 age bracket), skewed towards the AB socio-economic group and comprised more couples and singles thanhouseholds with children.

The research also found different segments based on whatcustomers want from sales/after-service, which tend to range fromthose more rationally motivated toward the purchase at one endof the spectrum to those more emotionally involved:

Convenience converts are those who might like older homesbut dont want to have to do a lot of work on them. Theyrequire a streamlined approach from Laing Homes and dontwant to be bothered with details.

Dream homers are at the opposite end of the spectrum andare more likely to want to be deeply involved in the buyingprocess, including the interior design.

Evangelists sit in the middle. The feel strongly that new homes

are better than old ones for both rational and emotionalreasons. Sales service should be flexible and customisedexactly to match their demands.


31/86


What Customers Really Want

The second stage of the research went into more depth to exploreattitudes towards privacy, home working, storage, customerservice and indulgence as a basis for new offers. Key findingsincluded:

Dislike of noise pollution and a demand for privacy in thesense of being able to do things like wander down to thekitchen in the morning without being overseen, and gardenprivacy. Overall, there is a tension between wanting moreprivate space but also wanting versatility in the use of thatspace.

Storage demands depend on the segment. Dream homers, forexample, want to see that their home matches up to the showhome while convenience converts are more realistic about thereality of showrooms.

Home working demands versatility in the use of any officespace.

Customer service/indulgence: the little things are importantto make buyers feel special and indulged throughout thepurchasing process. Also, peoples expectations of service areincreasingly much higher.

Developing a Lifelong Relationship

The research has already played a role in new initiatives such asProject Champion, the aim of which is to develop a lifelongcustomer care package which is aimed at reducing defects,implementing rigorous quality assurance, providing bettercommunications with the customer and including all staff inmany aspects of customer service.

Other initiatives include a new sales information systems, and acustomer-focused web site. Laing Homes is also looking at waysto address customer demands about privacy, noise pollution andstorage.

And this customer-centric strategy seems to be paying off:turnover has doubled during the last five years, from 275.8million to 573.7 million. Operating profit for the year 2000 was64.3 million up 38% from 1999. The average selling price hasalso risen sharply in the last five years from 89,000 to 236,000.Margins have also improved significantly, rising from 13.6% in

1999 to 16.7% in 2000.


32/86

C. Brand Strategy


1.1 Unlike products, services are non-standardised. Delivery andcustomer perceptions are influenced by the actions of front-line employees and the inconsistency of service quality.

1.2 However, customers can reduce risks associated with servicesby going straight to a well-known brand or the positive imageof a respected service organisation. Consequently, a direct linkis established between expectation, the service provided and aspecific need.

1.3 Familiarity with a brand and its dependability will reduce the

risk of negative service outcomes, thereby enhancing brandloyalty.

1.4 In services, it can be difficult to attach a brand to intangibleitems such as electricity or marital advice. Consequently, thebrand name used to promote services is often the same as thecompany or corporate name and usually indicates the industryin which the service organisation operates, e.g. British Airways,Royal Bank of Scotland. Consequently, it is the organisationfrom which the customer buys a service, rather than a specificbrand based around a specific service proposition. Therefore,

the company brand name, or master brand, takes onsignificant importance.

1.5 Brands are successful because they deliver a promise tocustomers consistently. The integrity of the brand is foundedon this ability to deliver to a set of expectations. In a productthis is the experience of using the product; in a service offer,brand integrity is derived from the customers experience ofthe service. All aspects of service delivery (people, prices andenvironment) must embody the brand.


2.1 It is essential that service marketers develop a brand strategywhich sets expectation in the minds of customers and becomesa basis for differentiation. This is likely to be a strategy todevelop a corporate brand.

2.2 Branding aims to give service organisations a marketing edgeby reinforcing the organisations services in a way that isdifferentiated from its competitors. Branding is also importantwhen an organisation wants to extend its service offering into a

new area, when it changes its marketing strategy, or whencustomers have little or no experience with competingorganisations and respond to the strongest presented brand.



33/86

2.3 Brand meaning is a function of brand presentation throughmarketing communications and service concept, quality andvalue. However, it is also the customers impression of theservice.

2.4 Customers experience-based beliefs are more powerful thanthe effects of company communications which may contradictexperience. Consequently, it is important to reinforce brandmarketing by delivering a service which reinforces theintended brand image. An excellent branding strategy canmake an already strong service stronger but it cannot rescue aweak service.

2.5 Service marketers must influence service delivery and servicedesign strategies so that they meet expectations set by the

corporate brand. Failure to enforce the appropriateorganisational processes and capabilities can cause branddilution.


3.1 Brand strategies are used successfully as a major tool by manyservice organisations.

3.2 Concepts of brand strategy need to be integrated into generalservices marketing training.


4.1 Blankson, C. and Kalafatis, S. P. (1999) Issues and Challengesin the Positioning of Service Brands: A Review Journal ofProduct and Brand Management, Vol. 8 (2), pp. 106-118.


4.3 Berry, L. L. and Parasuraman, A. (1991) Marketing Services:Competing through Quality. New York, The Free Press.

4.4 Mudie, P. and Cottam, A. (1999) The Management andMarketing of Services. 2nd Edition, London,Butterworth-Heinemann.



34/86

5. Case Study


PricewaterhouseCoopers (PwC)

(Link to other PwC case in Section 1., sub section C)(Link to other PwC case in Section 1., sub section C)

Key points:

Taking a well-researched and consistent approach torebranding can produce impressive results.

Regular tracking of brand perception serves to bolster thebrand.

Introduction

PricewaterhouseCoopers is the worlds largest professionalservices firm. It employees 150,000 people, of which 9,000 are atpartner level, and has offices in 150 countries. It was created by a1998 worldwide merger between Price Waterhouse and Coopers& Lybrand.

It has six areas of service, including auditing, business processoutsourcing, global HR solutions, consultancy, tax expertise andcorporate finance and recovery. Cutting across those arespecialists in a wide range of industries, from automotive and

aviation to retailing, technology and utilities.

Creating a New Brand

In a partnership like PwC, composed of intelligent andindependent individuals, change cant be pushed through fromthe top but has to be done through persuasion andencouragement. The brand redesign since the merger illustrateshow this can be done, and how a more consistent approach canachieve impressive results.

The process began with a central marketing and communicationsteam defining the new brand values based on the theme ofpeople, knowledge, worlds. Once the core values were decidedon, there was a comprehensive redesign that included new logoand identity guidelines for all visual aspects of the firm, fromadvertising and business cards through to the buildingsthemselves.

A key aspect of the project, and one which is still ongoing, hasbeen the commissioning of leading photographers to take photosof PwC staff from a range of positions around the world. They are

included in the extensive online catalogue which staff can accessand from which they can download whatever they need for apresentation, say which will ensure that the images, colours,logos, photos etc. are in keeping with the brand values.


35/86


PwC has also created a more physical representation of the brandin the form of a vessel in the warm earth colours that characterisethe brand. The vessels are created in each country and have faces

on opposite sides in keeping with the local culture and toemphasise PwCs strengths in terms of both its people and itsmarket understanding.

A Cultural Shift

The feeling is that this initiative has brought consistency anddiscipline to the brand. And while at first people didnt likehaving it imposed on them, the brand is now becoming part ofthe firms DNA.

To continue to bolster the brand the firm carries out a brandtracking survey every year. Based on interviews with seniorpeople across the world, the data can be cut so that its relevantfor each particular division. The survey tracks measures likeloyalty, awareness and familiarity with the brand compared tocompetitors.

In the last two years awareness of the PwC brand has risen by70%.


36/86

D. Crystallising the Service Direction and DevelopingService Strategies


1.1 Marketing strategy, properly developed, is closely related tobusiness strategy. In fact, in a market-led business, the twoshould be indistinguishable. Marketing strategies and marketperspective should therefore give direction to the strategies of aservice business, from service design through to after-carepolicy.

1.2 A service strategy within an organisation requires the definitionof service concepts related to the organisations mission andstrategy. The service concept states whatshould be done, to

whom, how, with which resources, and what benefitsshouldbe offered to customers.

1.3 There are various definitions for services, although mostauthors define a service as an activity or benefit which isessentially intangible and does not result in ownership of theservice provided.

1.4 Service organisations seeking sustainable competitiveadvantage have two alternatives. They can either compete onprice or add perceived use value or both at the same time.

Perceived use value represents the benefits obtained by thecustomer from the transaction while perceived price is the costincurred by the customer. The Strategy Compass is a tool tohelp identify the optimum direction.

1.5 Shiv Mathur and Alfred Kenyon propose that the focus ofcompetition is not between companies but between serviceofferings. Competitive strategies must be devised todifferentiate each individual offering as the customers, whodecide whether a service offering is successful, differ for eachservice offering. These are Differentiation Matrices.


2.1 The strategic requirements to deliver good quality to customersimply the development of a service strategy. This means that allaspects of organisational design must be geared to providingservice which meets market expectation.

2.2 If the service organisation lacks a clearly defined serviceconcept, the service organisation will not have a stablefoundation on which to discuss goals, resources to be used,

and performance standards.



37/86

2.3 Clear definition of the service concept is required so thatservice employees understand what they are supposed to do.As well, if the service concept is not understood at the middlemanagement level, supervisory duties may be difficult.

2.4 An exact definition of services is not required to understandthe marketing issues involved. What is important to achieve inthe case of both physical goods and services is identification ofcustomer needs and the delivery of benefits to customers. It isalso important to understand that customers are more involvedin the service process than is the case with physical goods.Consequently, the service delivery process itself takes ongreater importance.

2.5 Using the Strategy Compass, different services can be plotted

on a matrix showing how customers perceive a services priceand its perceived use value. The position of an organisationsservice(s) on the matrix can identify future strategies or movesup or down or to one or other side on the strategy compass.

2.6 Differentiation Matrices: services which are undifferentiated interms of design/features or support become mere commodities.They are likely to face fierce competition in the open marketand are unlikely to command premium prices. On the otherhand, differentiated services are likely to be able to sustaintheir price position.

2.7 The product component of the service itself can bedifferentiated with respect to content and image, making itexclusive as opposed to standard.

2.8 Similarly, a supporting service can also be differentiated withrespect to personalisation and the expertise providing theservice. For example, specific investment advice provided by aqualified financial adviser becomes a service provided by aconsultant, whereas a standard bus ticket issued by arelatively untrained ticket issuer becomes a service providedby a trader.


3.1 Some services organisations invest heavily in the developmentof an organisational service orientation with efforts directed atcultural change. Others ignore the concept and suffer theconsequences.

3.2 The development of a service orientation within organisationswishing to compete in the area of services is of majorimportance and one which is often ignored. This conceptneeds to be integrated into general services marketing training.



38/86

3.3 Clear definition and application of the service concept variesamong service organisations.

3.4 The Strategy Compass is a very illustrative and effective tool

and needs to be made known on wider level to marketingpractitioners. While service organisations may not use thestrategy compass as their main tool, they do face the clearchoice of modifying price and/or the value inherent in theirservice.

3.5 The Shiv Mathur matrices are a very illustrative and effectivetool and need to be made known on wider level to marketingpractitioners. While they may not use the Shiv Mathur matricesas a tool in its pure form, most service organisations face theneed to decide whether they will compete by providing a

standardised or more differentiated product.


4.1 Grnroos, C. (2000) Service Management and Marketing: ACustomer Relationship Management Approach. 2nd Edition,Chichester, John Wiley & Sons.

4.2 Hoffman, D. K. and Bateson, J. E. G. (1997) Essentials ofServices Marketing. Fort Worth, Dryden Press.

4.3 Eiglier, P. and Langeard, E. (1977) Marketing ConsumerServices: New Insights. MSI Report, Cambridge, Mass.

4.4 Shostack, G. L. (1977) Breaking Free from Product Marketing.Journal of Marketing, Vol. 41 (2), pp. 73-80.

4.5 Bateson, J. E. G. and Hoffman, D. K. (1999) Managing ServicesMarketing. 4th Edition, Fort Worth, Dryden Press.

4.6 Cowell, D. (1984) The Marketing of Services. Oxford,Butterworth-Heinemann.

4.7 Bowman, C. and Faulkner, D. (1997) Competitive andCorporate Strategy. London, Richard D. Irwin Inc.

4.8 Adapted from Bowman, C. (1998) Strategy in Practice. London,Prentice-Hall.

4.9 Mathur, S. and Kenyon, A. (1997) Creating Value: ShapingTomorrows Business. Oxford, Butterworth-Heinemann.



39/86

5. Case Study


Centrica

(Link to second case stud(Link to second case study in Section 6., sub section C)y in Section 6., sub section C)

Key points:

Centrica has developed a clear company vision with regard toits services strategy.

Despite the huge customer base, the market is based not juston price but perceived benefits.

Front line staff are key brand ambassadors.

Introduction

Centrica is a provider of energy and other essential services in thehome and on the road. Formed in 1997 with the demerger ofBritish Gas, the 9.9 billion company now encompasses a rangeof brands. There is the British Gas brand, which is the umbrellafor not just gas, electricity and telecommunications services, butalso home services like security, maintenance schemes, andappliance repair.

The other brands include the Automobile Association (AA),financial services brand Goldfish, One.Tel, which offers fixed andmobile telecoms, plus two energy subsidiaries, Direct Energy inCanada and Energy America in the US.

A Clear Company Vision

Peter Woolston is Centricas strategic marketing manager, with abroad remit across the group in terms of providing marketingexpertise and consistency. He sees Centricas vision as both veryclear and consistent in the way the company has positioned itself:

We have a desire to own the space around the home and car soour business is about providing essential services and productscustomers need around the home.

We are really about selling consumer benefits which is a service-type orientation he continues. The philosophy of the business isto give you something essential we think you will find of value.And the financial services division, Goldfish, fits into the fullservices brief since it supports customers in acquiring relevantpurchases.


40/86


Woolston calculates that the company services 20 millionhouseholds in the UK in some way, out of a total of 22/23 million.That includes 15 million gas customers, 5 million electricity

customers although there is some overlap and roughly10 million AA members.

Despite the size of the market, its critical to differentiate thebusiness through the quality of the service offering andexperience the customer receives, which means that its not acommoditised market in the usual sense. Customers decide notjust on price but they have to feel they are getting some otherbenefit as well, he believes.

The Personal TouchProbably our major brand benefit is the amount of contact wehave through our service engineers and patrols. They are thereally key brand ambassadors. And they are usually arriving whentheres a crisis to resolve so they tend to be well-received, heexplains.

The company invests a lot of money to ensure the quality of thefront line staff, including the provision of training and equipmentsupport: service engineers, for example, have state-of-the-artlaptops for diagnostics or to order spare parts so the speed of

service for customers is as quick as possible. And the responsetime of AA patrols is considered well up to industry standard ifnot better.

And while customising service can be a big challenge in such amass market, to some extent the relationship customers have withservice engineers can bring a more personal touch, particularly ifthe same engineer covers a particular area. Also, customers can tosome extent select packages of services like gas, electricity andtelecoms and be offered special rates.

But making the satisfaction of customer requirements a corecompetence on such a scale is a big logistics issue, agreesWoolston. Of the 35,000 employee base there are some6,000 service engineers, 4,000 patrols and around 10,000 callcentre staff who have to deal with up to 1.4 million calls a week.


41/86


Understanding Perceptions of Value

Defining and managing customers perceptions of value on such ascale is difficult but Centrica pours a lot of effort into research toenhance understanding of its customers, so it can create newproducts tailored to demand.

This is being underpinned by big investments in the infrastructureso that in time information about individual customers will all bein one place. This will not only arm the front line with morecomprehensive, up-to-date information about individualcustomers, but make customer segmentation far more accurate.

Proliferation of Channels

A few years ago the company was a one-product, one-countrybusiness. Now there are 50 different product sets and growing,and up to 30-40 ways of reaching the market, from traditionalmarketing techniques like advertising and direct marketing, tonew technologies like the web, to marketing affinities and the billitself.

One recent innovation in channel development has been thelaunch of a newly-revamped British Gas site on the Internet calledwww.house.co.uk. It displays the wide range of services on offer,

as well as allowing customers to carry out various transactionslike paying bills.

Future Ambitions

Woolston believes that this site will help support and stretch theBritish Gas brand, which he feels has come a long way in the lastfew years in terms of customer satisfaction. But it wants to gofurther and bring its services up to world class standard.

This is in line with its international ambitions: it has a goal of

gaining 10 million customers over the next five years mainly inNorth America and western Europe. This process has alreadybegun with the purchase of two energy companies as NorthAmerica begins to deregulate its energy industry, with smallerventures on the Continent, including the luminus joint venture inBelgium.

And Centrica,with its four to five year head start in the market, isin pole position in terms of its experience and expertise tocapitalise on these new opportunities, believes Woolston.


42/86

SSEECCTTIIOONN 33..

UNDERSTANDING CUSTOMERS SERVICEREQUIREMENTS

A. Introduction

Service organisations cannot operate in a vacuum. They must be customer-focused and, therefore, must get to know and understand the needs of theirexisting and potential customers.

Information can be collected using a variety of research methodologies.Once customers desired service requirements are known, the serviceorganisation must then identify the tasks which it must undertake to producethe desired customer result. There are a number of unique issues involved inunderstanding the requirements from service offers. They are explored inthis section.



43/86

B. The Gap Model


1.1 The gap model is a robust conceptual model to diagnose andresolve service performance issues. It begins with the customerand determines the organisations tasks around what needs tobe done to close the gap between customer expectations andperceptions.

1.2 Firms need to close the gap between what customers expectand receive to satisfy customers and to build long termrelationships with them.


2.1 The gap model can provide managers with priorities toimprove service quality and services marketing. It is a practicaltool by which service marketers can direct improvement inservice operations.


3.1 Service organisations often use the gap model or variants toidentify areas for improvement and development.

3.2 The gap model is a useful tool and needs to be made knownon wider level to marketing practitioners.


The Gap Model of Service Quality

Expected Service

Perceived Service

Service Delivery(incl. pre and post contacts)

Translation of Perceptions into

Service Quality Specs

Management Perceptions ofConsumer Expectations

ExternalCommunications

to Consumers

GAP 4

GAP 1

GAP 3

GAP 2

MARK

ETER

C

ONSUM

ER

Source: L. Berry


44/86


4.1 Parasuraman, A., Zeithaml, V. A. and Berry, L. L. (1985) AConceptual Model of Service Quality and its Implications for

Future Research. Journal of Marketing, 49, (4) pp. 41-50.4.2 Zeithaml, V. A. and Bitner, M. J. (2000) Services Marketing:

Integrating Customer Focus Across the Firm. 2nd Edition,Boston, McGraw-Hill.

5. Case Study


BT Retail

Key points: The starting point is to design services customers want and

then keep evolving them to improve any gaps betweenperformance and satisfaction.

This is carried out in a comprehensive framework designed toemphasise the link between employee satisfaction, customersatisfaction and shareholder value.

Introduction

BT Retail, part of the BT Group, one of the worlds largestproviders of telecommunications services, is responsible for thecompanys business and residential customers. As of June 2001that encompassed 29 million customer lines, of which about ninemillion were business lines and lines for other service providers.

Perceptions of Value

While there are obviously physical aspects to telecoms, it is theservices element that dominates the marketing approach the

company takes, according to Adrian Hosford, director ofBT Group Social Policy: When you think about services, youhave to think about the systems and processes in total, whichincludes a lot of people components. And you need to managethat as a whole.

This is because what counts is not the products themselves butcustomers perceptions of the services, whether its making aphone call or filling some other need. While some of thatperception will be associated with the hardware, more isassociated with all the bits that go into making the service work.

And to try and ensure those services are the ones customers want.BT is listening to its customers to understand their needs in orderto be able to pull the most appropriate services together from thenetwork, products and people.


45/86


Keeping Customers

Given that the business is essentially about communications andconnection, retention in particular is critical because its the usagethat drives profitability. And we dont drive usage from justproviding the enabling mechanisms but from people and theirapplications, he explains.

The starting point is to try to design services that customers needand want, and then evolve the service to make sure the gapbetween performance and satisfaction is continually improving.Handling the causes of a breakdown in customer relationships isalso critical: We try to make sure the complaints are handled toincrease retention rather than push them over the edge, notes

Hosford.A lot of resources are being put into designing processes andsystems that underpin this focus on retention. This includes notonly extensive training, but also encouraging employees to beempowered and as individual as possible within definedparameters. The brand isnt a have a nice day type ofcommoditised service. We encourage people to be themselvesand to take ownership of the customer needs, he says.

Links between Employee and Customer Satisfaction

This is all being done in the context of a comprehensiveframework designed to emphasise the link between employeesatisfaction, customer satisfaction and, ultimately, shareholdervalue. Its main tenets have been outlined in a White Paperpublished in October 2001 by BT Retail chief executive officer,Pierre Danon, and called Enlightened Values(www.BT.com/betterworld).

In it he underlines just what impact a demotivated customer-facing employee can have on customer retention and hence

profits. Based on research on the number of very dissatisfiedcustomers who said they would leave, along with some roughassumptions on things like average size of bill, the number ofcustomers a customer adviser might deal with in a year and netmargin, the company estimates that a single call centre employeewith poor customer handling skills could reduce company profitsby 300,000.


46/86


Digging Deeply into the Data

Extensive qualitative and quantitative research has been carriedout to understand what really drives customer satisfaction. Thishas become the basis for:

Modelling and weighting the real drivers of customersatisfaction.

Targeting those drivers and monitoring continuousimprovement.

Totally aligning the voice of the customer with internalmeasures and targets.

Qualitative research, for example, has shown the importance ofmore tangible factors like price and value, products and services,and customer contacts and experience. But intangible factors likeimage and reputation are just as important.

Getting the Right Measures

The company has gone even further to develop more precisemeasures by disentangling the masses of data it has from sourceslike surveys, media coverage and reputation rankings tounderstand the real linkages between cause and effect in

mathematical terms.

So, for example, under the headings of products and services,contacts and experience, price and vision, and image andreputation, it has developed detailed measures to see howmovement in any one of them affects changes in satisfaction.What the company has also found from this work is just howcentral BTs overall image and reputation is in determiningcustomer satisfaction.

Nor is this a process with an endpoint, stresses Hosford: Because

customer expectations are rising all the time our services have toevolve quickly. Its a moving target.

7/30/2019 Services Mk T

Services Mk Ting

Documents

Transcript of Services Mk Ting