Service and Relationship Marketing

Module:1

Chapter:1 – Basics of Service Marketing

• What are services?The word service originally associated with the work performed by servants for their masters.

“ the action of serving, helping or benefiting; conduct tending to the welfare or advantage of another”

Services are acts, deeds, performance or efforts.The aim of service is to provide solution to the customers problem.

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Service and Relationship Marketing Module:1

Chapter:1 – Basics of Service Marketing

Services is an activity or series of activities take place by interaction between customer and service employees

It’s an economic activity which is consumed at a time it is produced and provide added value in forms of Convenience, amusement, timeliness , comfort or health

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Services Defined…

“Activities, Benefits or Satisfactions which are offered for sale

or provided in connection with the sale of goods”

American Marketing Association

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Services Defined…

“Separately identifiable, intangible activities which provide want satisfaction

when marketed to consumers and/or industrial users and which are not necessarily tied to the sale of a

product or another service”

William J. Stanton

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Services Defined…

“Any activity or benefit that one party can offer to another that is essentially intangible and does not

result in the ownership of anything.Its production may or may not be tied to a physical

product”

Philip Kotler and Bloom

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Goods Vs. Services• Goods are tangible

• Goods are homogeneous

• Goods are produced in the factory

• Production, distribution and consumption are separate and independent functions in goods

• Services are intangible

• Services are heterogeneous

• Services are produced in buyer-seller interactions

• Production, distribution and consumption take place simultaneously in the case of services

Why Services Marketing ???

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Goods Vs. Services

• Consumers do not generally participate in the production of goods

• Goods can be stored

• In sale of goods, transfer of ownership takes place

• Consumers are co-producers in services

• Services can not be stored

• In the sale of services, transfer of ownership will not take place

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Characteristics of Services…

• Intangibility• Inseparability• Variability• Perishability• Customer participation• No ownership

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Intangibility…

• Challenges :- Cannot be communicated

easily- Consumer suspects due to

absence of concrete evidences

- Design of total service package not possible

- Comparative presentation is not possible

• Strategic Options :- Making the service process

tangible to the maximum possible extent

- Managing and promoting word-of-mouth communication

- Strengthening internal and external marketing

- Use of Relationship Marketing

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Inseparability…

• Challenges :- Problems of market

expansion- Maintenance of service

quality- Compulsory presence of

consumer- Limited production capacity- Operation at limited

capacity

• Strategic Options :- Minimization of customer

interactions- Innovating techniques of

indirect interaction- Standardization to the

maximum possible extent- Developing distribution

network with quality control mechanisms

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Variability…

• Challenges :- Limited scope for

standardization- Not possible to

communicate exactly what the consumer is going to receive

- Quality can be determined only after the service is consumed

• Strategic Options :- More focus on

standardization- Internal marketing and

employee training- Positioning variation as a

strength of innovation- Promote research and

innovation

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Perishability…

• Challenges :- Storage of service is not

possible- Sales volume

continuously in relation to the capacity

- Time pressure in sales

• Strategic Options :- Demand management- Capacity management- Tactical approaches- Continuous study on

demand patterns and competitive parameters

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Customer Participation…

• Challenges :- Customers are not

controllable- Production quality also

depends upon customer’s knowledge and ability to participate

- Customers are evaluating at every stage of service production

• Strategic Options:- Effective external marketing- Customer education and

training- Effective interactive

marketing- Management of

movements of truth- Effective internal marketing

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No ownership…

• Challenges:- Nothing remains after

consumption- Very less time to the

consumer to evaluate the product

- High consumer dissonance

• Strategic Options:- Making communication

tangible- Customer relationship

marketing- Managing high level of

company image

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Sources for service sector growth Innovation

-: Push Theory of Innovation-: Pull theory of Innovation

Social Trends

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Reasons for Growth in Services Sector… Growth in intermediate demand from firmGrowth in final demand from customers

• Increase in affluence• More leisure time• Working woman• Growth in population of DINKS• Greater life expectancy• Greater complexity of products• Greater complexity in life• Greater concern for resource scarcity and ecology• Increasing number of new products

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Service Sector in Indian Economy…

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Reasons for growth of Services in India…• Economic Affluence• Changing Role of Women• Cultural Changes• IT Revolution• Development of Markets• Unbundling Corporations• Increasing Consciousness of Health Care• Economic Liberalization• Migration• Export Potential• Service Tax

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Factors Stimulation the transformation of the Service Economy

Government Policies Change in regulation Privatization New rules to protect customer, employees and the environment New agreements on trade in services

Social Changes Rising consumer Expectation More affluence More people short of time Increased desire for buying experience vs things Rising consumer ownership of computer, cell phones, and high tech

equipments

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Rising consumer ownership of computer, cell phones, and high tech equipments Easier access to more information Immigration Gewoning but aging population

Business Trends Push to increase shareholders value Emphasis on productivity and cost saving Manufacturera add value through service service and sell services More strategic alliances and outsourcing Focus on quality and customer satisfaction Growth of franchising Marketing emphasis by nonprofits

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Advance in Information Technology Growth of Internet Greater bandwidth Compact Mobile Equipment Wireless networking Faster, more powerful software Digitization of text, graphics, audio and video

Globalization More companies operation on transnational basis Increased international Travel International merger and acquisitions, JV’s ‘Off shoring’ of customer service Foreign competitors invade domestic markets

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Role (Type) of Services in Economy Value Added Services

Financing, Leasing, Insurance Infrastructure service

Communications, Transportation, Utilities, Banking Manufacturing Services inside company

Finance, Accounting, Legal , R&D and design Distribution service

Wholesaling, Retailing, Repairing Personal Service

Health care, Restaurants, Hotels Business Service supporting Manufacturing

Consulting, Auditing, Advertising, Waste Disposal Governments Service

Military, Education, Judicial, Police and fire protection

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Service Classification :Service process Matrix

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LOW High

LOW

High

Mass services•Retailing•Wholesaling•School•Retail aspect of commercial Banking

Service factory•Airlines•Trucking•Hotels•Resorts & Recreation

Service Shop•Hospitals•Auto Repair•Other repair services

Professional Services•Physicians•Lawyers•Accountants•ArchitectsD

eg

ree

of

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r in

ten

sity

Degree of Interaction and Customization

How to win customer in Service Business(USP’s)

• AvailabilityHow accessible is the service?(ATM’s – service beyond the traditional banker’s hours)

• Convenience

(The location of service where customer must travel to that service-Fast food restaurants)

• Dependability

Hoe reliable is the service?

(Airlines- on time departure & arrival performance will build huge trust)

• Personalization need for Customization -Are you treated as an individual?

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• PriceThe price is viewed as being a surrogate for quality.

• Quality

Quality is judged by both the process of services delivery and the put comes of the service. It is difference between service expectation & service experience

• ReputationUnlike a product, a poor service experience can note exchanged or returned for a different model. Positive word-of-mouth is the most effective form of advertising.

• SafetyIn air travel and medicine, the customers are putting their lives in the hands of the service provider

• SpeedHow long must I wait for service? For emergency service such as fire or police

protection, response time is the major criterion of performance.SRM/M1/SS

Technology in Services

The introduction of technology often empowers the customer to perform the service unassisted.

For, example , the credit card reader at the pump facilitates the purchase of a gasoline without help and Internet allows customer to book their own flights

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• Technology in Service EncounterAdvances in communication and information technology are having profound effect on ways customers interface with service providers.There are five modes of technology’s contribution to the service encounter.

(A)Technology free service encounterwhere the customer is in physical proximity to and interacts with a human service provider. This mode represents the traditional high-touch service in which technology does not pay a direct role. Such as Saloon, hair dresser, tailor

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CUSTOMER SERVER

TECHNOLOGY

(B)Technology-assisted service encounterHere only the service provider has access to the technology to improve the quality of face to face service.A health care service performed by technology which is operated by only professionals

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CUSTOMER SERVER

TECHNOLOGY

(C)Technology- facilitated service encounterHere both the customer and service provider have access to the same technology.For examplea financial planner in consultation with a client can refer to a financial model on a personal computer to illustrate projected returns for different risk profiles

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CUSTOMER SERVER

TECHNOLOGY

(D)Technology-meditated service encounterThe customer and human service provider are not physically together and thus the service encounter no longer is the traditional face to face contact. Its about Getting technical help on a distance call .ExampleGPS services or services provided by Just dial .

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CUSTOMER SERVER

TECHNOLOGY

(E)Technology-generated service encounterHuman service provider is replaced entirely with technology that allows the customer to self-service.It reduces the cost of service deliveryFor Examplebank ATM’s, website based information, e-commerce

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CUSTOMER SERVER

TECHNOLOGY

The Emergence of Self Service

Elimination of labor costs for nonproductive activity is the principle driver for the service provider.

Customer acceptance results from increased opportunity for customization, accuracy, convenience and speed.

Cost saving and place & Time has lead the buisiness to become Self Service by customer him/herself.

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Evolution of Self Service

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Service Industry Human Contact Machine-Assisted Service

Electronic Service

Banking Teller ATM Online Banking

Grocery Checkout Clerk Self-check out station

Online order/pick up

Airlines Ticket Agent Check in kiosks Print boarding pass

Restaurants Wait person Vending machine Online order/delivery

Movie theater Ticket sale Kiosk Ticketing Pay-for-view

Book store Information clerk Stock-availability terminal

Online shopping

Education Teacher Computer Tutorial

Distance Learning

Gambling Poker dealer Computer Poker Online poker

Automation in ServicesAutomation means replacing human manual activity by the machine.

for Example:--an automatic lawn sprinkler system a hotel-automated answering systems that route callers by means of Touch -Tone pones like Toll free or customer care services of the service provider

David A Collier has suggested following automation categories1. Fixed sequence (F)

A machine that repetitively performs successive steps in a given operation according to a predetermined sequence, condition and position and whose set information cannot be changed easily. E.g. automatic parking lot gate

2. Variable sequence(V)A machine same as fixed sequence robot but whose set information can

be changed easily. E.g. automated teller machine

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3. Playback(P)A machine that can produce operation from memory that were

originally executed under human control. E.g. telephone answering machine

4. Numerical Controlled(N)A machine that can perform task according to sequence as

command by stored information tat can be reprogrammed easily. E.g. animated character at an amusement park.

5. Intelligent(I)A machine with sensory perception devices, such as visual or

tactile receptors, that can detect changes in the work environment or task by itself and has its own decision-making abilities. E.g. autopilot for a commercial airplane

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6. Expert system(E)A computer program that uses an inference engine (e.g. decision rules) and a knowledge base (i.e. information on a particular subject) to diagnose problemex- maintenance trouble shooting for elevator repair

7. Totally automated system(T)

A system of machine and computers that performs all the physical and intellectual tasks that are required to produce or deliver a service.ex- electronic fund transfer

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Internet ServicesWebsites can be used in many different ways

As a channel to sell a product or service (amazone.com, wine.com) As a supplemental channel (online booking of order) For technical support (dell.com, nike.com) To Embellish existing service (HBR cases & Research paper) To convey information (Dr. Koop, wikipedia) To communicate with Membership To play Games

Internet Models Internet Access Provider Portal Information content Online Retailer Transaction Enablers Market Makers

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Comparison of Electronic and Traditional Services

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Features Electronic Service Traditional Service

Service Encounter Screen to face Face to Face

Availability Anytime Standard Working Hour

Access From home Travel to location

Market Area Worldwide Local

Ambiance Electronic Interface Physical Environment

Competitive Differentiation

Convenience Personalization

Privacy Anonymity Social interaction

E-Business ModelsPeter Weill and Michael Vitale have described eight generic e-

business models.Content Provider

Provides content such as information, digital products and services. Ex- Reuters, a British news agency

Direct to customerProvides goods & services directly to the customer, often bypassing traditional retail channel memebers. Ex-Dell computer

Full service ProviderProvide full range of service in one domain directly. E.g. financial, health, indusyrial chemicals. Ex – General Electric Supply

I

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IntermediaryBrings together buyers and sellers by concentrating information. Ex-eBay

Shared InfrastructureBrings together multiple competitors to cooperate by sharing common IT infrastructure. An example is SABRE reservation system for airlines.

Value Net IntegratorCoordinates activities across the value net by gathering, synthesizing, and distributing information. Ex 7-eleven Japan

Virtual CommunityCreated & facilitates online community of people with Monster.com, the job-placement service firm.

Whole-of-EnterpriseProvides a firm wide single point of contact, consolidating all services provides by a large multiunit organization. An example is the U S federal government

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Managing the New Technology Adoption Process

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Orientation & Education

Technology opportunity Analysis

Implementation

Equipment selection and

contract commitments

Implementation Planning

Design specification

Functional specification

Application requirements

analysis

Testing of technology

Review of Results

Managing the New

TechnologyAdoption

Managing the New

TechnologyAdoption

8p’s of Services Marketing MixProduct elements - the core and periphery service elements at the centre of the company's marketing strategy;

Place and Time - delivering product elements to customers can be done physically and/or electronically, depending upon the service. Speed and convenience are essential to the customer and are important value-adds;

Price and Other User Outlays - pricing is only a part of what customers may part with when purchasing a service; one must also consider time and convenience;

Promotion and Education - speaks for itself, but the marketer must make sure communications not only provide information, but also persuade the customer of the service's relevance to the customer's particular 'problem';

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Process - the means by which the firm delivers product elements;

People - front-line staff will have a direct impact on perceptions; and

Physical Environment - the appearance of the place where the services are delivered may have a significant impact upon whether the service was satisfactory;

Productivity and Quality - improving productivity is a requisite in cost management; but quality, as defined by the customer, is essential for a service to differentiate itself from other providers.

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Service and Relationship Marketing Module:1

Chapter:2 – Customer Behavior in Service Encounter

Four Broad Categories of Service- A Process PerspectiveIn service, people, physical objects, and data can be processed , and the nature of the processing can be tangible or intangible. Tangible actions are performed on people’s bodies or to their physical possession. Intangible actions are performed on people’s minds or to their intangible assets.This gives rise to classification of services into four broad categories. They are

People processingPossession processingMental stimulus processingInformation processing

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Who or What is the Direct Recipient of the service ?

Nature of the Service Act People Possessions

Tangible Actions People-processing (services directed to people’s bodies):Passenger Transportation, LodgingHealth care

Possession-processing (Services directed at physical possessions)Freight transportationRepair and MaintenanceLaundry and dry cleaning

Intangible Actions Mental Stimulus processing(service directed at people’s mind):EducationAdvertising/PRPsychotherapy

Information Processing(services directed at intangible assets)AccountingBankingLegal services

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The Three Stage Model of Service Consumption/Customer Decision Making

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Pre-purchase Stage

Post-encounter Stage

Service Encounter Stage

Pre-purchase Stage

Pre-purchase Stage - Overview

• Customers seek solutions to aroused needs

• Evaluating a service may be difficult

• Uncertainty about outcomes Increases perceived risk

• What risk reduction strategies can service suppliers develop?

• Understanding customers’ service expectations

• Components of customer expectations

• Making a service purchase decision

Pre-purchase Stage

Service Encounter Stage

Post-encounter Stage

Need Arousal

• Decision to buy or use a service is triggered by need arousal

• Triggers of need:– Unconscious minds (e.g., personal identity and aspirations)– Physical conditions (e.g., hunger )– External sources (e.g., a service firm’s marketing activities)

• Consumers are then motivated to find a solution for their need

Courtesy of Masterfile Corporation

Information Search

• Need arousal leads to attempts to find a solution

• Evoked set – a set of products and brands that a consumer considers during the decision-making process – that is derived from past experiences or external sources

• Alternatives then need to be evaluated before a final decision is made

Evaluating Alternatives –

Service Attributes• Search attributes help customers evaluate a product before purchase

– E.g., type of food, location, type of restaurant and price• Experience attributes cannot be evaluated before purchase

– The consumer will not know how much s/he will enjoy the food, the service, and the atmosphere until the actual experience

• Credence attributes are those that customers find impossible to evaluate confidently even after purchase and consumption

– E.g., hygiene conditions of the kitchen and the healthiness of the cooking ingredients

How Product Attributes Affect Ease of Evaluation

Most Goods

Difficult To evaluate

EasyTo Evaluate

Most Services

Clothing

Chair

Motor

Vehicle

FoodsHigh In Search

Attributes

Restaurant

Meals

Lawn Fertilizer

Haircut

EntertainmentHigh In

ExperienceAttributes

Computer

Repair

Education

Legal Services

Complex

SurgeryHigh In

CredenceAttributes

Source: Adapted from Valarie A. Zeithaml , “How Consumer Evaluation Processes Differ Between Goods & Services,” in J.H. Donelly and W. R. George, Marketing of Services (Chicago: American Marketing Association, 1981)

Perceived Risks of Purchasing and Using Services

• Functional – unsatisfactory performance outcomes

• Financial – monetary loss, unexpected extra costs

• Temporal – wasted time, delays leading to problems

• Physical – personal injury, damage to possessions

• Psychological – fears and negative emotions

• Social – how others may think and react

• Sensory – unwanted impact on any of five senses

How Might Consumers Handle Perceived Risk?

• Seek information from respected personal sources

• Compare service offerings and search for independent reviews and ratings via the Internet

• Relying on a firm with good reputation

• Looking for guarantees and warranties

• Visiting service facilities or going for trials before purchase and examining tangible cues or other physical evidence

• Asking knowledgeable employees about competing services

Strategic Responses to Managing Customer Perceptions of Risk

Understanding Customers’ Service Expectations

• Customers evaluate service quality by comparing what they expect against what they perceive – Situational and personal factors also considered

• Expectations of good service vary from one business to another, and differently positioned service providers in same industry

• Expectations change over time

Factors Influencing Customer Expectations of Service

Source: Adapted from Valarie A. Zeithaml, Leonard A. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of Service,” Journal of the Academy of Marketing Science 21, no. 1 (1993): 1-12

Components of Customer Expectations

Purchase Decision• Purchase Decision: Possible alternatives are compared and

evaluated, whereby the best option is selected– Simple if perceived risks are low and alternatives are clear– Complex when trade-offs increase

• Trade-offs are often involved

• After making a decision, the consumer moves into the service encounter stage

Service Encounter Stage

Service Encounter Stage - Overview

Pre-purchase Stage

Service Encounter Stage

Post-encounter Stage

● Service encounters range from high- to low-contact

● Understanding the servuction system

● Theater as a metaphor for service delivery: An integrative perspective

Service facilities

Personnel

Role and script theories

Service Encounter Stage• Service encounter – a period of time during which a customer

interacts directly with the service provider– Might be brief or extend over a period of time (e.g., a phone call or visit to

the hospital)

• Models and frameworks:1. “Moments of Truth” – importance of managing touchpoints2. High/low contact model – extent and nature of contact points3. Servuction model – variations of interactions4. Theater metaphor – “staging” service performances

Moments of Truth

“[W]e could say that the perceived quality is realized at

the moment of truth, when the service provider and the

service customer confront one another in the arena. At

that moment they are very much on their own… It is the

skill, the motivation, and the tools employed by the firm’s

representative and the expectations and behavior of the

client which together will create the service delivery

process.”Richard Normann

Service Encounters Range from High-Contact to Low-Contact

Distinctions between High-Contact and Low-Contact Services

The Servuction System

Source: Adapted and expanded from an original concept by Eric Langeard and Pierre Eiglier

The Servuction System:Service Production and Delivery

• Servuction System: visible front stage and invisible backstage

• Service Operations– Technical core where inputs are processed and service elements created – Contact people– Inanimate environment

• Service Delivery– Where “final assembly” of service elements takes place and service is

delivered– Includes customer interactions with operations and other customers

Theater as a Metaphor for Service Delivery

William Shakespeare

As You Like It

Theatrical Metaphor: an Integrative Perspective

Good metaphor as service delivery is a series of events that customers experience as a performance

Implications of Customer Participation in Service Delivery

• Greater need for information/training – Help customers to perform well, get desired results

• Customers should be given a realistic service preview in advance of service delivery– This allows them to have a clear idea of their

expected role and their script in this whole experience

– Manages expectations and emotions

Post-Encounter Stage

Post-purchase Stage - Overview

Pre-purchase Stage

Service Encounter Stage

Post-encounter Stage

●Evaluation of service performance

●Future intentions

Customer Satisfaction with Service Experience

• Satisfaction: attitude-like judgment following a service purchase or series of service interactions– Whereby customers have expectations prior to consumption, observe

service performance, compare it to expectations

• Satisfaction judgments are based on this comparison– Positive disconfirmation (better) – Confirmation (same) – Negative disconfirmation (worse)

Customer Delight:Going Beyond Satisfaction

• Research shows that delight is a function of three components– Unexpectedly high levels of performance– Arousal (e.g., surprise, excitement)– Positive affect (e.g., pleasure, joy, or happiness)

• Strategic links exist between customer satisfaction and corporate performance– By creating more value for customers (increased satisfaction), the firm

creates more value for the owners

• Best Practice in Action 2.1: Progressive Insurance Delights Its Customers

– Provided excellent customer service which allowed them to lower costs and also increase customer satisfaction and retention

Customer Delight:Going Beyond Satisfaction

Summary

Pre-purchase Stage

Service Encounter Stage

Post-encounter Stage