1. Chapter 9: Services Marketing Strategies

2. Structure A. INTRODUCTION 1. Overview and Strategy Blueprint 2. Marketing Strategy: Analysis & perspectives B. WHERE ARE WE NOW? 3. Environmental & Internal Analysis: Market Information & Intelligence C. WHERE DO WE WANT TO BE? 4. Strategic Marketing Decisions, Choices & Mistakes 5. Segmentation, Targeting & Positioning Strategies 6. Branding Strategies 7. Relational & Sustainability Strategies E. DID WE GET THERE? 14. Strategy Implementation, Control & Metrics D. HOW WILL WE GET THERE? 8. Product Innovation & Development Strategies 9. Service Marketing Strategies 10. Pricing & Distribution 11. Marketing Communications 12. E-Marketing Strategies 13. Social and Ethical Strategies

3. Chapter Highlights Service dominant logic Operational efficiency and profitability Differentiation and competitive advantage Nature of services and the service experience

4. Learning Objectives  Provide an overview of the nature of services.  Investigate the relationship between service quality and customer satisfaction and profitability.  Apply the service dominant logic to both services and manufactured goods.  Discuss ways in which services can streamline operations and improve productivity and profitability.  Examine the nature of the customer service experience.  Establish the relationship between customer value and sustainable competitive advantage.  Present several strategic tools for fine assessment of the service process and the delivery of customer value.

5. Introduction The service sector is the fastest growing sector in the world economy Services by nature are intangible, heterogeneous, inseparable and perishable Attain sustainable competitive advantage through customer satisfaction and the creation of perceived value Services cannot be protected with property rights

6. Nature of Services and the Service Experience

7. The distinctive nature of services Too often it is assumed that what works for manufactured products will also work for services There are four readily accepted distinguishing characteristics of services that create unique strategic challenges (see Fig 9.1)

9. Intangibility Services cannot be touched and felt –It has to be experienced by the customers Intangibility intensifies any perceived risk on the part of the consumer The challenge for the services marketer is to find images as well as physical evidence that enhanced perceptions of service quality Even the most intangible services, have certain tangible aspects

10. Heterogeneity It is difficult to be a low cost provider or to differentiate for positioning purposes Require personnel meet certain standards of education, but you cannot control the “human factor” The inconsistencies brought about by changes in mood states and emotions can provide differences in interactions The key challenge is “consistency” –Standardize as much as possible –At the same time allow enough flexibility

11. Inseparability Customers are co-producers / designers Hard to reduce costs and maintain a quality image The product of the service must be brought to the customer –Greater decentralization and employee empowerment

12. The service experience Service strategist must know what the consumer is looking out for when they “experience” the service in question Zeithaml et al. (1990) have found that service quality is a multi-faceted construct with five dimensions –Reliability –Responsiveness –Empathy –Assurance –Tangibles They created the SERVQUAL instrument to measure the customer perceptions of service quality (see Figure 9.2) Perception of service quality leads to customer satisfaction, which in turn leads to positive purchase intentions, which leads to sales and profits (Heskett et al.,1997)

14. Service dominant logic Assuming that products are separate and distinct from services may be somewhat of a problematic perspective since a service component beyond the actual manufactured product is a key ingredient in the ability to attract and retain customers. Vargo and Lusch (2004) have introduced a valuable new perspective for marketing which they call service dominant logic (see Figure 9.3) in which the firm would use the customer as a coproducer of the service or good created.

15. Service dominant logic Vargo and Lusch (2004) present eight different foundational premises which differ between goods- centred and service-centred logic (see Figure 9.4): The application of specialized skills and knowledge is the fundamental unit of exchange Indirect exchange masks the fundamental unit of exchange Goods are distribution mechanisms for service provision Knowledge in the fundamental source of competitive advantage All economies are services economies The customer is always a coproducer The enterprise can only make value propositions A service-centred view is customer oriented and relational

16. Operational Excellence

17. Operational efficiencies and profitability Operational excellence is one way in which service firms can achieve strategic success –Streamlining –Cost cutting –Creative strategic alliances –Internal culture creation and enhancement

18. Streamlining and cost-cutting Four major trends have forced service providers to focus on cost-cutting –Ever-intensifying competition –Slowing industry growth projections –Increasing level of parity across providers –Increasing level of customer expectations Metters and Vargas (2000) argue that for services to streamline and improve efficiencies, they must redesign the jobs of the personnel involved in the service delivery process Technologies become available that allow cost- cutting across the entire sector, while improving the quality of the service.

19. Streamlining and cost-cutting When these technologies are not available, management should consider “decoupling” service tasks to gain efficiencies There are four different competitive approaches to decoupling (see Fig 9.5) –Cost leaders –Cheap convenience –Dedicated service –Premium service

21. Creative Strategic Alliances Strategic partnering between different service providers Can be used to strengthen brands and cut costs There are two major types of strategic alliances for services –Brand sharing alliances –Asset sharing alliances Coopetition focuses on a continuum between cooperation and competition, and great promise is seen for the small service firm, particularly for nonprofits and charitable organizations, which are asked to accomplish much with extremely limited budgets (Kirchner, Markowski and Ford 2007). Outsourcing (see Fig. 9.6)

23. Differentiation and Competitive Advantage

24. Customer value as sustainable competitive advantage Competitive advantage for service firms lies in continually exceeding customer expectations (Ford et al, 2001) Successful segmentation –Identify attractive customers –Restructure business to cater to their needs –Create sustainable perceptual differentiation –Stay focused on customer satisfaction Not only meet customer expectations, exceed them

25. Internal employee culture creation and enhancement Service firms are constantly faced with employee turnover, and a lot of the problems experienced have to do with the lack of care and nurturing of these important facilitators (Frei 2008). Setting up a supportive internal culture could keep employees happier and more productive. One of the most important ways in which a company can keep good employees and attract qualified candidates is to create an environment in which the employees are treated in the same way as they would treat customers.

26. Relationship building with customers Zeithaml, Rust and Lemon (2001) found that a number of successful service firms have actually created customer pyramids which differentiate customers by profit potential and recognize that different groups of customers have different sets of expectations. The authors make the following suggestions regarding when firms should utilize this customer pyramid: –When service resources, including employee time, are limited. –When customers want different services or service levels. –When customers are willing to pay for different levels of service. –When customers define value in different ways. –When customers can be separated from each other. –When service differentials can lead to upgrading customers to another level. –When they can be accessed either as a group or individually. One of the ways in which companies can make customers feel more of a relationship with the service is through their greater involvement as co-producers of the service creation and delivery (Grenci and Watts 2007).

27. Customer service as differentiator When a service company uses customer service as its sole focus for differentiation from its competition, it may face perceptual difficulties. If everyone stands for service, then there is no distinction in centering on customer service as the main foundation for differentiation. Companies need to continually exceed their past offerings and set new standards in their offerings of customer service to stay ahead of the competition (Wiersema 2001). Merely offering customer service is not enough, offering incomparable service is the key to success.

28. The Latest Thinking: Great Performances and Emotional Engagement Stuart (2006) argues that just any performance will not create the appropriate emotional engagement with the customer to build an emotional bond, and that the service provider must ensure that the presentation creates a “great performance.” Stuart (2006) studied a series of successful theatre companies and found that there was a uniform process for the development of a successful theatrical offering which involved five phases: –1) development of vision and strategic focus, –2) selection of the offering to fit the vision and focus, –3) selection of the various personnel to be involved and preplanning, –4) the handling of the artistic as well as technical design for the offering, and –5) a period of integration and experimentation in which an optimal design was found and prepared for final offering.

29. The Latest Thinking: The Harvard Business School Services Model Frei (2008) reports that an extensive study of the world’s most successful services has produced a model of services which is now being taught at Harvard Business School that focuses on the differences between product companies and services. This model is comprised of four critical elements: –the offering –the funding mechanism –the employee management system –the customer management system

30. Conclusion Services may not be as different from manufactured goods as once thought as the need to apply service strategies in non-service settings increases as the service-centred dominant logic perspective becomes increasingly relevant. Customer satisfaction will lead to loyalty and profitability. Imperative to monitor changes in the expectations of the consumers. It is important to streamline where possible to build on strengths and minimise weaknesses. Customer service as a means for differentiation for a service firm may not be a viable strategy, other defining characteristics may be more viable.