A Framework For Developing Effective Service Marketing Strategies: Overview Understanding Customer Needs, Decision Making, and Behavior in Service Encounters Building the Service Model Managing the Customer Interface Value Proposition – specified package of benefits and solution, emphasizing key points of difference relative to competing alternatives ad how to it proposes to deliver them to target customers. Implementing Profitable Service Strategies

Ashesi University COURSE TITLE : SERVICES MARKETING SEMESTER : SECOND, 2009/2010 MODULE 8: Marketing Mix I: The Service Product Lecturer: Ebow Spio

Learning Outcomes Understand the key ingredients in a service product Document the delivery sequence over time Know the role of flowcharting in clarifying product elements Categorize supplementary services that surround the core product Understand the role of branding for different service products Know the hierarchy of new service categories Know how new services can be developed Know the ingredients of success in developing new services

Planning and Creating Services A service product comprises all elements of service performance, both tangible and intangible, that create value for customers The service concept is represented by: A core product i.e. addresses the basic need such as providing transport service Accompanied by supplementary services : Facilitate use of core product and add value and differentiation to the customer’s overall experience

Core Products and Supplementary Services In mature industries, core products often become commodities Supplementary services help to differentiate core products and create competitive advantage by: Facilitating use of core product (a service or a good) Enhancing the value and appeal of the core product

Augmenting the Core Product (Fig 3.1) Figure 3.1 Shostack’s Molecular Model: Passenger Airline Service Distribution Price Pre- & Postflight Service Service Frequency In-flight Service Food & Drink Vehicle Transport There are tangible elements and intangible elements of the service. Supplementary services either facilitate the core service or enhance the service. Key Tangible Elements Intangible Elements Marketing Positioning (weighted toward evidence) Source: Shostack

Augmenting the Core Product Are supplementary services needed to facilitate use of core product or simply to add extra appeal? Should customers be charged separately for each service element? Or should all elements be bundled at a single price?

Designing a Service Concept Core Product Central component that supplies the principal, problem-solving benefits customers seek Supplementary Services Augment the core product, facilitating its use and enhancing its value and appeal Delivery Processes Used to deliver both the core product and each of the supplementary services Value Proposition is a specified package of benefits and solutions that highlights key points of difference relative to competing alternatives. Value proposition must address and integrate core product, supplementary services, and delivery processes.

Defining Core and Supplementary Elements of Our Service Product How is our core product defined and what supplementary elements augment it? What product benefits create most value for customers? Is our service package differentiated from competition in meaningful ways for target customers? What are current levels of service on core product and each supplementary element? Can we charge more for higher service levels? For example: Faster response and execution Better physical amenities Easier access Higher staffing levels Superior caliber personnel Alternatively, should we cut service levels and charge less?

Core and Supplementary Product Design: An Integrated Perspective (Fig 3.2) Delivery Concept for Core Product Supplementary services offered and delivered Scheduling Nature of Process Service Level Customer Role The design of the service offering must address the following issues How the different service components are delivered to the customer The nature of the customer’s role in those processes How long delivery lasts The prescribed level and style of service to be offered.

Documenting Delivery Sequence Over Time Must address sequence in which customers will use each core and supplementary service Determine approximate length of time required for each step Customers may budget a specific amount of time for an activity Information should reflect good understanding of customers, especially their: Needs Habits Expectations Question: Do customers’ expectations change during service delivery in light of perceived quality of each sequential encounter?

Core and Supplementary Services at Luxury Hotel (Offering Much More than Cheap Motel!) Reservation Valet Parking Reception Baggage Service Cocktail Bar Restaurant Entertainment/ Sports/ Exercise Internet Wake-up Call Room Business Center Cashier A Bed for the Night in an Elegant Private Room with a Bathroom

What Happens, When, in What Sequence What Happens, When, in What Sequence? Time Dimension in Augmented Product (Fig 3.3) Reservation internet Parking Get car Check in Check out Internet Internet Use room USE GUESTROOM OVERNIGHT Porter Pay TV Meal Room service Time Frame of An Overnight Hotel Stay (Real-time service use) Before Visit

Flowcharting Service Delivery Helps to Clarify Product Elements Offers way to understand totality of customer’s service experience Useful for distinguishing between core product itself and service elements that supplement core Restaurants: Food and beverage (core) Reservations (supplementary services) Shows how nature of customer involvement with service organizations varies by type of service: People processing Possession processing Mental Stimulus processing Information processing Flowcharting, a technique for displaying the nature and sequence of the different steps involved in delivering service to customers.

Simple Flowchart for Delivery of a People-Processing Service (Fig 3.4) People Processing – Stay at Motel Park Car Check In Spend Night in Room Breakfast Check Out Breakfast Prepared Maid Makes up Room

Simple Flowchart for Delivery of a Possession-Processing Service Possession Processing – Repair a DVD Player Travel to Store Technician Examines Player, Diagnoses Problem (Later) Play DVDs at Home Leave Store Return, Pick up Player and Pay Technician Repairs Player

Simple Flowchart for Delivery of Mental Stimulus-Processing Service Mental Stimulus Processing – Weather Forecast Turn on TV, Select Channel View Presentation of Weather Forecast TV Weatherperson Prepares Local Forecast Confirm Plans for Picnic Meteorologists Input Data to Models and Creates Forecast from Output Collect Weather Data

Simple Flowchart for Delivery of An Information-Processing Service Information Processing – Health Insurance Learn about Options Select Plan, Complete Forms Pay Customer Information Entered in Database Printed Policy Documents Arrive Insurance Coverage Begins University and Insurance Company Agree on Terms of Coverage

The Flower of Service (Fig 3.6) Information Payment Consultation Billing Core Order Taking Facilitating Supplementary services are either required for service delivery or aid in the use of the core product. Enhancing Supplementary services add extra value for customers. Exceptions Hospitality Safekeeping KEY: Facilitating elements Enhancing elements

How to Determine What Supplementary Services Should Be Offered Not every core product is surrounded by supplementary elements from all eight clusters Nature of product helps to determine: Which supplementary services must be offered Which might usefully be added to enhance value and ease of doing business with the organization People-processing and high-contact services tend to have more supplementary services Market positioning strategy helps to determine which supplementary services should be included Firms that offer different levels of service often add extra supplementary services for each upgrade in service level ( E.g. first class, business class or economy class)

The Flower of Service: Facilitating Services—Information Customers often require information about how to obtain and use a product or service. Examples of elements: Directions to service site Schedule/service hours Prices Conditions of sale Usage instructions Core

The Flower of Service: Facilitating Services—Order Taking Core Customers need to know what is available and may want to secure commitment to delivery. The process should be fast and smooth. Examples of elements: Applications Order entry Reservations and check-in

The Flower of Service: Facilitating Services—Billing Core “How much do I owe you?” Bills should be clear, Accurate, and intelligible. Examples of elements: Periodic statements of account activity Machine display of amount due

The Flower of Service: Facilitating Services—Payment Core Customers may pay faster and more cheerfully if you make transactions simple and convenient for them. Examples of elements: Self service payment Direct to payee or intermediary Automatic deduction

The Flower of Service: Enhancing Services—Consultation Core Value can be added to goods and services by offering advice and consultation tailored to each customer’s needs and situation. Examples of elements: Customized advice Personal counseling Management consulting

The Flower of Service: Enhancing Services—Hospitality Customers who invest time and effort in visiting a business and using its services deserve to be treated as welcome guests— after all, marketing invited them! Examples of elements: Greeting Waiting facilities and amenities Food and beverages Toilets and washrooms Security Core

The Flower of Service: Enhancing Services—Safekeeping Customers prefer not to worry about looking after the personal possessions that they bring with them to a service site. Examples of elements: Looking after possessions customers bring with them Caring for goods purchased (or rented) by customers Core

The Flower of Service: Enhancing Services—Exceptions Customers appreciate some flexibility when they make special requests and expect responsiveness when things don’t go according to plan. Examples of elements: Special requests in advance Complaints or compliments Problem solving Restitution e.g. refund Core

Managerial Implications To develop product policy and pricing strategy, managers need to determine: Which supplementary services should be offered as a standard package accompanying the core Which supplementary elements could be offered as options for an extra charge In general, firms that compete on a low-cost, no-frills basis needs fewer supplementary elements than those marketing expensive, high-value-added services Each flower petal must receive consistent care and concern to remain fresh and appealing

Planning and Branding Service Products A product implies a defined and consistent “bundle of output” and also ability of firm to differentiate its bundle of output from competitors’ Service firms can differentiate their products in similar fashion to various “models” offered by manufacturers Providers of more intangible services also offer a “menu” of products Represent an assembly of elements that are built around the core product May include certain value-added supplementary services

Examples: Coca Cola, Nokia, Mercedes Benz, Toyota etc. What is a BRAND? A brand is a product or service that has a unique identity. It may have a unique name, logo, design and packaging. It is more than an undifferentiated commodity , product or service Examples: Coca Cola, Nokia, Mercedes Benz, Toyota etc.

BRAND A name, term, symbol or design, or a combination of them intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.

Brands vs. Products “ A brand is a product or service or organization, considered in combination with its name, its identity and its reputation” Simon Anholt

Branding Branding is the process by which companies distinguish their product offerings from the competitor. It is the process of designing, planning and communicating the name and the identity, in order to build or manage the reputation of a brand

Slogans e.g. “Discover the gem in reading” from Beacon Books Company Brand Elements Brand names Slogans e.g. “Discover the gem in reading” from Beacon Books Company Characters Logos Symbols

Product Lines and Brands Most service organizations offer a line of products rather than just a single product They may choose among three broad alternatives: Single brand to cover all products and services A separate, stand-alone brand for each offering Some combination of these two extremes

Spectrum of Branding Alternatives (Fig 3.8) Individual Product Branding Corporate Branding “Branded House” e.g., Virgin Group “House of Brands” e.g., P&G Sub-brands e.g., Raffles Class at Singapore Airlines Endorsed Brands e.g., Courtyard by Marriott Source: Derived from Aaker and Joachimsthaler

Example: British Airways Sub-brands British Airways offers six distinct air travel products Four intercontinental offerings: First (deluxe service) Club World (business class) World Traveller Plus (premier economy class) World Traveller (economy class) Two intra-European offerings: Club Europe Euro-Traveller

Offering a Branded Experience (1) Branding can be employed at both corporate and product levels Corporate brand: Easily recognized Holds meaning to customers Stands for a particular way of doing business Product brand: Helps firm communicate distinctive experiences and benefits associated with a specific service concept Moving toward branded customer experience includes: Create brand promise Shape truly differentiated customer experience Give employees skills, tools, and supporting processes to deliver promise Measure and monitor

Strategic Brand Management The Strategic Brand Management Process is defined as involving four main steps: 1. Identifying and establishing brand positioning and values 2. Planning and implementing brand marketing programs 3. Measuring and interpreting brand performance 4. Growing and sustaining brand equity

Steps in Segmentation, targeting and positioning Select Customers to Serve Decide on value proposition Segmentation Divide the total market into Smaller segments Differentiation Differentiate the market offering to create superior customer value Targeting Selecting the segment or segments to enter Positioning Position the market offering in the minds of the target customers Create value for target customers

Definition of Key Concepts Market Segmentation Dividing a market into smaller groups with distinct needs, characteristics, or behaviours who might require separate products or marketing mixes Market Targeting The process of evaluating each segment’s attractiveness and selecting one or more segments to enter Differentiation Actually differentiating the market offering to create superior customer value Positioning Arranging for a product to occupy a clear, distinctive and desirable place relative to competing products in the minds of target consumers

A Hierarchy of New Service Categories (1) Major service innovations New core products for previously undefined markets e.g. eBay’s launch of auction online. Major process innovations Using new processes to deliver existing products with added benefits e.g. online degrees or Open University in the UK Product-line extensions Additions to current product lines e.g. Bankassurance by Barclays and Enterprise Insurance Process-line extensions Alternative delivery procedures e.g. Internet banking, ATM service

A Hierarchy of New Service Categories (2) Supplementary service innovations Addition of new or improved facilitating or enhancing elements e.g. paying utility ( electricity, water, Cable TV) bills at the bank Service improvements Modest changes in the performance of current products (core or supplementary or both) Style changes Visible changes in service design or scripts

Reengineering Service Processes Service processes affect not only customers, but also cost, speed, and productivity with which desired outcome is achieved Reengineering involves analyzing and redesigning processes to achieve faster and better performance Running tasks in parallel instead of sequence can reduce/eliminate dead time Examination of processes can lead to creation of alternative delivery methods that constitute new service concepts Add/eliminate supplementary services Resequence delivery of service elements Offer self-service options

Physical Goods as a Source Of New Service Ideas Services can be built around rentals: Alternatives to owning a physical good and/or doing work oneself Customers can rent goods—use and return for a fee—instead of purchasing them Customers can hire personnel to operate own or rented equipment Any new durable good may create need for after-sales services now and in future—possession processing Shipping Installation Problem-solving and consulting advice Cleaning and maintenance Upgrades Removal and disposal

Creating Services as Substitutes for Owning and/or Using Goods (Fig 3 Rent Use of a Physical Good Own a Physical Good Drive Own Car Use Own Computer Rent a Car and Drive it Rent Use of Computer Perform Work Oneself Hire a Chauffeur to Drive Hire a Typist to Type Hire a Taxi or Limousine Send Work Out to a Secretarial Service Hire Someone to Do Work

Caterpillar Promotes Its Service Businesses (Fig 3.11) Reprinted Courtesy of Caterpillar, Inc.

Achieving Success in Developing New Services Services are not immune to high failure rates that plague new manufactured products “dot.com” companies In developing new services Core product is of secondary importance Ability to maintain quality of the total service offering is key Accompanying marketing support activities are vital Market knowledge is of utmost importance Causes for failure include not meeting a demonstrable consumer need, inability to cover costs from revenues, and poor execution.

Success Factors in New Service Development Market synergy Good fit between new product and firm’s image/resources Advantage versus competition in meeting customers’ needs Strong support from firm during/after launch Firm understands customer purchase decision behavior Organizational factors Strong interfunctional cooperation and coordination Internal marketing to educate staff on new product and its competition Employees understand importance of new services to firm Market research factors Scientific studies conducted early in development process Product concept well defined before undertaking field studies

New Product Development : Why New Products Fail ? Overestimation of market size or opportunity Poor design Incorrect positioning/differentiation Wrong timing Priced too high Ineffective promotion Management influence High development costs Competition Unexpected delays in development e.g. Air Bus 380 super jumbo Lack of sound marketing information or research

New Product Development : Factors that influence new product success? Unique superior product Well defined product concept Better at meeting market needs Senior Management commitment & company wide effort A smoothly functioning and proficiency in executing the new product development process Clearly segmented market

New Product Development Process New Product Strategy Idea Generation Idea Screening, Concept Development & Testing Marketing Strategy Business Analysis Product Development Test Marketing Commercialization

Summary and Key Points Planning and creating services involve: Augmenting core product Designing core product, supplementary services, and delivery process Documenting delivery sequence over time with flowcharts Gaining insights from flowcharting Flower of service includes core product and two types of supplementary services: facilitating and enhancing Facilitating services include information, order taking, billing, and payment Enhancing services include consultation, hospitality, safekeeping, and exceptions Spectrum of branding alternatives exists for services Branded house Sub-brands Endorsed brands House of brands

Summary and Key Points Seven categories of new services: Major service innovations Major process innovations Product-line extensions Process-line extensions Supplementary service innovations Service improvements Style changes To develop new services, we can Reengineer service processes Use physical goods as a source of new service ideas Use research to design new services Achieve success in developing new services

Tutorial Assignment Choose a service with which you are familiar and create a simple flowchart for it. Define the front stage and back stage activities. Identify some real-world examples of branding from financial services such as specific types of retail bank accounts or insurance policies and define their characteristics. How meaningful are these brands likely to be to customers? Explain the role of supplementary services. Can they be applied to goods as well as services? If so, how might they relate to marketing strategy?  

Tutorial Assignment 4. Explain the “Flower of Service” concept and identify each of the petals. What insights does this concept provide for service marketers? Be Our Guest : How Disney Does it 6. Group Assignment 1 : Case :Dr Beckett’s Dental Office on page 495 of Core Text. Answer questions 1-4. Submission Date: 19/02/2010