MARKETING MIX IN SERVICE

MBA ITB 2016

Services Pose Distinctive Marketing
Challenges
Marketing management tasks in the service sector
differ from those in the manufacturing sector
The eight common differences are:
1. Most service products cannot be inventoried
2. Intangible elements usually dominate value creation
3. Services are often difficult to visualize and understand
4. Customers may be involved in co-production
5. People may be part of the service experience
6. Operational inputs and outputs tend to vary more widely
7. The time factor often assumes great importance
8. Distribution may take place through nonphysical channels
What are marketing implications?
 Differences, Implications, and
Marketing-Related Tasks (1)

Marketing-Related Tasks
Difference Implications
Use pricing, promotion,
Most service Customers may be and
products turned away reservations to smooth
cannot be inventoried demand; work with ops to
manage capacity
Harder to evaluate
Intangible elements service and distinguish Emphasize physical clues,
usually dominate from competitors employ metaphors and vivid
value creation images in advertising
Greater risk and
Services are often uncertainty perceived Educate customers on
difficult to visualize making good choices; offer
and understand guarantees
Interaction between
Customers may be Develop user-friendly
customer and provider;
involved in co- but poor task execution equipment, facilities, and
systems; train customers,
production could affect satisfaction
provide good support
Differences, Implications, and
Marketing-Related Tasks (2)

Difference Implications Marketing-Related Tasks

People may be part of Behavior of service Recruit, train employees to

service experience personnel and customers reinforce service concept
can affect satisfaction Shape customer behavior

Operational inputs Hard to maintain quality, Redesign for simplicity

and consistency, reliability and
outputs tend to vary Difficult to shield failure proofing
more widely customers from failures Institute good service
recovery procedures
Time is money;
Time factor often customers want service Find ways to compete on
assumes great at convenient times speed of delivery; offer
importance extended hours
Electronic channels or
Distribution may take voice telecommunications Create user-friendly,
place through secure websites and free
nonphysical channels access by telephone
 Services Require
An Expanded Marketing Mix The 7Ps of
Services Marketing
Product
Place and Time
Price
Promotion and Education
Process
Physical Environment
People

Working in Unison:
 (5) Process in Augmented Product

Reservation
Parking Get car
Check in Check out
Internet Internet
Use
room
internet USE GUESTROOM OVERNIGHT

Porter
Pay TV
Meal
Room service

Before Time Frame of An Overnight Hotel Stay

Visit (Real-time service use)
Simple Flowchart for Delivery
of a People-Processing Service

People Processing Stay at Motel

Spend
Park Car Check In Night in Breakfast Check Out
Room

Maid Makes
Breakfast
up Room
Prepared
(6) Physical Environment

Design servicescape and provide

tangible evidence of service
performances
Create and maintain physical
appearances
o Buildings/landscaping
o Interior design/furnishings
o Vehicles/equipment
o Staff grooming/clothing
o Sounds and smells
o Other tangibles
Manage physical cues carefully
can have profound impact on
customer impressions
(7) People
Interactions between customers and contact
personnel strongly influence customer
perceptions of service quality
The right customer-contact employees
performing tasks well
o Job design
o Recruiting
o Training
o Motivation
The right customers for firms mission
o Contribute positively to experience of other
customers
o Possessor can be trained to have
needed skills (co-production)
o Can shape customer roles and manage
customer behavior
Service Encounters Range from
High-Contact to Low-Contact

Levels of Customer Contact with

Service Organizations
Theatrical Metaphor:
An Integrative Perspective

Service dramas unfold on a stagesettings may

change as performance unfolds
Many service dramas are tightly scripted, others
improvised
Front-stage personnel are like members of a cast
Like actors, employees have roles, may wear special
costumes, speak required lines, behave in specific ways
Support comes from a backstage production team
Customers are the audiencedepending on type of
performance, may be passive or active participants
Service Employees Are Crucially
Important

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 3
Service Personnel: Source of Customer
Loyalty and Competitive Advantage

Customers perspective: Encounter with service staff

is most important aspect of a service
Moments of truth drive customers perception of
the service firm
Firms perspective: Frontline is an important source
of differentiation and competitive advantage. It is:
o A core part of the product
o the service firm
o The brand
Frontline is an important driver of customer loyalty
o Anticipating customer needs
o Customizing service delivery
o Building personalized relationships

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 4
 Frontline Work Is
Difficult and Stressful

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 6
Role Stress in Frontline Employees

Three main causes of role stress:

Person versus Role: Conflicts between what jobs
require and employees own personality and beliefs
o Organizations must instill professionalism in frontline staff
Organization versus Client: Dilemma whether to follow
company rules or to satisfy customer demands
o This conflict is especially acute in organizations that are not
customer oriented
Client versus Client: Conflicts between customers that
demand service staff intervention.
Ex.: Smoking in non smoking areas. Ex : Inconvenience caused
by other passengers in train journey

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 8
 Cycles of Success

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 10
Cycle of Success

Low
customer
turnover Repeat emphasis on
customer loyalty and
retention

Customer
loyalty
Higher
profit
margins
Broadened
Lowered turnover, job designs
high service quality

Continuity in
relationship with Train, empower frontline
customer Employee satisfaction, personnel to control quality
positive service attitude

Above average
Extensive wages
training
High customer Intensified
satisfaction selection effort

Source: Heskett and Schlesinger

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 18
 The Wheel of Successful HR in
Service Firms

Leadership that:
Focuses the entire 1. Hire the
organization on Right People
supporting the
frontline 3. Motivate and Be the preferred
Energize Your People employer & compete
Fosters a strong for talent market
Utilize the full
service culture with share
range of rewards
passion for service
and productivity
Service Excellence Intensify the
selection
& Productivity process
Drives values
that inspires,
energizes and
2. Enable Your People
guides service Empower frontline
providers Build high performance
service delivery teams
Extensive training

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 11 - 23
 Understanding Customer Responses to
Service Failure

Why do customers complain?

Obtain compensation for economic loss
Vent their anger
Help improve the service . Ex Alumni Association
For altruistic reasons Want to save prevent other customers from
undergoing the trauma of poor service
What proportion of unhappy customers complain? 5-10%
Why dont unhappy customers complain? time cost, uncertain outcome,
complaint process is not known, fear of confrontation etc.
Who is most likely to complain? people in Higher socioeconomic
circumstances
Where do customers complain? To the service rep in immediate contact
only. Rarely to the HQ or through email. Customer service centers are also called
up.
What do customers expect once they have made a complaint?

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 6
 How Complaint Resolution Affects
Customer Retention Rates
Percent of Unhappy
Customers Retained

100 95%
90 82%
80 70%
70
60 54%
46%
50
37%
40
30 19%
20 9%
10
0
Customer did not Complaint was Complaint Complaint was
complain not resolved was resolved resolved quickly

Problem cost > $100 Problem cost $1$5

Source: Claes Fornell, Birger Wernerfelt, A Model for Customer Complaint Management, Marketing
Science, Vol. 7, No. 3 (Summer, 1988), pp. 287298

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 10
The Service Recovery Paradox

Customers who experience a service failure that is

satisfactorily resolved may be more likely to make future
purchases than customers without problems

If second service failure occurs, the paradox disappears

customers expectations have been raised and they
become disillusioned

Severity and recoverability of failure (e.g., spoiled

wedding photos) may limit firms ability to delight
customer with recovery efforts

Best strategy: Do it right the first time

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 12
Principles of Effective Service
Recovery Systems

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 13
Components of an Effective
Service Recovery System

Increased
Do the job right the Effective Complaint
first time + Handling = Satisfaction and
Loyalty

Conduct research
Monitor complaints
Identify Service Develop Complaints as
Complaints opportunity culture

Resolve Complaints Develop effective system

Effectively and training in
complaints handling

Learn from the Conduct root cause analysis

Recovery Experience

Close the loop via feedback

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 14
Fluctuations in Demand Threaten
Service Productivity

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 3
Variations in Demand Relative to
Capacity

VOLUME DEMANDED
Demand exceeds capacity
(business is lost)
CAPACITY UTILIZED

Maximum Available Demand exceeds

Capacity optimum capacity
Optimum Capacity (quality declines)
(Demand and Supply
Well Balanced)

Excess capacity
Low Utilization (wasted resources)
(May Send Bad Signals)

TIME CYCLE 1 TIME CYCLE 2

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 6
From Excess Demand to
Excess Capacity
Four conditions potentially faced by fixed-capacity services:
Excess demand
o Too much demand relative to capacity at a given time => customer is
denied service => biz lost
Demand exceeds optimum capacity
o Upper limit to a firms ability to meet demand at a given time => no one
turned away, but conditions are deteriorating
Optimum capacity
o Demand =Supply ; Staff not over worked and Customers face no delay
Excess capacity
o Supply > Demand

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 4
Demand Levels Can Be Managed

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 16
Alternative Demand Management Strategies

Take no action
o Let customers sort it out. They learn from WOM when is the slack
and peak time, where to stand and what is the possible waiting time
Reduce demand
o Higher prices
o Communication : promoting usage of time slots. Evening Colleges
Increase demand
o Lower prices
o Communication, including promotional incentives
o More convenient delivery times and places
Inventory demand by reservation system :
Provide priority to special customers, others attended later.
Inventory demand by formalized queuing :
Special line for VIPs.

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 17
Marketing Strategies Can
Reshape Some Demand Patterns

Use price and other costs( time, psychological cost)

to manage demand
Change product elements. Price discounting will not
boost sales in off peak seasons. Ex Hotels offer various
menus during different time of the day to cater to
different customer needs
Modify place and time of delivery
o No change
o Vary times when service is available during summer caf remain
open till late night. Shops extend working hours during Diwali and
dussera
o Offer service to customers at a new location Free dental check up in
mobile dental vans.
Promotion and education customers about peak period
and slack period
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 18
Inventory Demand through Waiting
Lines and Reservations

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 20
Waiting Is a Universal Phenomenon!

An average person may spend up to 30 minutes/day

waiting in lineequivalent to over a week per year!
Almost nobody likes to wait
It's boring, time-wasting, and sometimes physically
uncomfortable

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 21
Saving Customers from
Burdensome Waits

Add extra capacity so that demand can be met

at most times (problem: may increase costs
too much)
Rethink design of queuing system to give
priority to certain customers or transactions
Redesign processes to shorten transaction
time. Use of internet
Manage customer behavior and perceptions of
wait
Install a reservations system Ex Web check
in
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 23
Alternative Queuing Configurations

Single line, single server, single stage

Ex : Small railway reservation stations
Single line, single servers, sequential stages
Govt offices
Parallel lines to multiple servers
Large railway reservation centers

Designated lines to designated servers

Ladies Q, Credit card booking, Group booking Q

Single line to multiple servers (snake)-Ex

Airport Check in One entrance and diff check in for diff
flights 29
21
28
20
Take a number (single or multiple servers) 30
26
25
24
31
Ex Banks 32
27
23

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 24
Minimize Perceptions of Waiting Time

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 26
Ten Propositions on Psychology of
Waiting Lines (1)
Unoccupied time feels longer than occupied time Place
TV

Pre- and post-process waits feel longer than in-process

waits Ex Movie: Wait 1 Buying Ticket, Wait 2 : Maneuvering vehicle
from parking lot

Anxiety makes waits seem longer

Uncertain waits are longer than known, finite waits

Inform customer the approx wait time

Unexplained waits are longer than explained waits- Inform

customer reason for delay and possible time for recovery
Sources: Maister; Davis & Heineke; Jones & Peppiatt

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 27
Ten Propositions on Psychology of
Waiting Lines (2)

Unfair waits are longer than equitable waiting : People

jumping Q
People will wait longer for more valuable services
Waiting alone feels longer than waiting in groups
Physically uncomfortable waits feel longer
Waits seem longer to new or occasional users Place a
lobby manager to take care of this

Sources: Maister; Davis & Heineke; Jones & Peppiatt

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 28
Create An Effective Reservation
System

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 29
Benefits of Reservations

Controls and smoothes demand

Pre-sells service
Informs and educates customers in advance of arrival
Saves customers from having to wait in line for service
(if reservation times are honored)
Data captured helps organizations
o Prepare financial projections
o Plan operations and staffing levels

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 30
Characteristics of Well-Designed
Reservations System

Fast and user-friendly for customers and staff

Answers customer questions
Offers options for self service (e.g., the Web)
Accommodates preferences (e.g., room with view)
Deflects demand from unavailable first choices to
alternative times and locations
Includes strategies for no-shows
o Requiring deposits to discourage no-shows
o Canceling unpaid bookings after designated time

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 31
 Setting Hotel Room Sales Targets by
Segment and Time Period
Week 36
Week 7
(High Season)
(Low Season)
100%
Out of commission for renovation Loyalty Program Members

Loyalty Program
Members
Capacity
(% rooms) Transient guests Weekend
package
50%
W/E
Transient guests package
Groups and conventions

Groups (no conventions)

Airline contracts Airline contracts

M Tu W Th F S Su M Tu W Th F S Su
Time Nights:
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 32