sq lecture one : introduction
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Lecture One
Course overview
Introduction to Services
Marketing (Ch 1 )
Service Quality MKTG 1268
1
JAN 2013 Semester
GEOFFREY DA SILVA
Course objectives
1. Recognize the customer’s and the service
provider’s (e.g. marketer’s) perspective
and roles in service exchanges.
2. Implement marketing plans.
3. Recognize and adapt to changing
environments.
2
Learning outcomes
1. Describe the unique characteristics of services and
their implications on marketing strategies.
2. Describe the major differences between marketing
products and services in relation to the expanded
marketing mix of product, price, promotion, place &
time (e.g. service logistics), people, processes and
physical evidence and the different nature of
consumer behaviour.
3. Describe the links between Marketing, Operations
and Human Resource Management in service
organizations.
3
Learning outcomes (cont’d)
4. Articulate key concepts in services marketing
including: service encounters, service blueprinting,
relationship marketing, service scripts, service
guarantees and service logistics.
5. Conceptualize and articulate service quality and
describe how it can be defined, measured and
improved.
6. Expound the concepts involved in implementing
service quality such as setting service standards,
customer focus, organisational change, leadership,
quality tools, quality awards and processes.
4
Coverage of topics (RMIT syllabus)
5
Class 1: Course overview; Introduction to Services Marketing (Ch 1 ) Class 2: Customer Behaviour in the Services Context (Ch 2), Introduction to ’Service Quality’ (Ch 14) Class 3: Positioning Services in Competitive Markets; Developing Service Products (Ch 3 and 4) Class 4: Distributing Services Through Physical and Electronic Channels; Setting Prices and Implementing Revenue Management (Ch 5 and 6) Class 5: Promoting Services and Educating Customers; Designing and Managing Service Processes(Ch 7 and 8) Class 6: Crafting the Service Environment (Ch 10) Class 7: Managing People for Service Advantage (Ch 11) Class 8: Balancing Demand Against Productive Capacity (Ch 9) Class 9: Managing Relationships and Building Loyalty, Complaint Handling and Service Recovery (Ch 12 and 13) Class 10: Improving Service Quality and Productivity (Ch 14) Class 11: Organising for Change Management and Service Leadership (Ch 15) Class 12: Revision and exam discussion / hints
Compulsory textbook
Lovelock, C., Wirtz, J. and Chew, P. (2013), Essentials of Services Marketing, 2ND Edition Pearson Education, Singapore.
6
Before we start…
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This is not a foundation course but rather an applied course
You are assumed to have understood all the earlier topics and concepts that you have learnt in previous Marketing courses such as Principles of Marketing, Consumer Behavior and Marketing Research
Many of the topics we will cover in Services Quality/Marketing course will draw upon these concepts
What concepts?
8
What is the marketing concept?
Understanding the marketing environment
Understanding consumer buying behavior- this is challenging in SM since the product is intangible and the customer does not buy the product per se but rather experiences a service.
Segmentation, Targeting and Positioning- the foundation for Marketing Strategy
The Marketing Mix- now we don’t have 4 but rather 7 Ps
Overview of Chapter 1
Why study services? Powerful forces that are transforming service markets What are services? Four broad categories of services Challenges posed by services Expanded marketing mix for services Framework for effective services marketing strategies
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Services Marketing (education – your most
important service product purchase in your life?) 10
Why Study Services?
Services Dominate Economy in Most Nations
Most New Jobs are Generated by Services Fastest Growth Expected in Knowledge-Based
Industries
Many New Jobs are Well-Paid Positions Requiring Good Educational Qualifications
Many manufacturing firms moved to marketing stand- alone services
11
Contribution of Services Industries to
Global GDP 12
Estimated Size of Service Sector in
Selected Countries 13
Contribution of Services to Singapore economy
14
See Department of Statistics for details
Web Link
http://www.singstat.gov.sg/stats/themes/economy/services.ht
ml
There is also a national index for SQ in Singapore
15
Customer Satisfaction Index of Singapore
Undertaken by the Institute of Service Excellence at
the Singapore Management University
Website: http://www.smu.edu.sg/centres/ises/
2011 report:
http://www.smu.edu.sg/centres%5Cises%5Cdownloads
%5Ccsisg2011q1_executivesummary.pdf
Powerful forces that are transforming service markets
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1. Social changes
2. Business trends like productivity and
cost savings, franchising etc.
3. Advances in information technology
4. Internationalization and globalization
Government
Policies
Business
Trends
Social
Changes Advances
in IT
Globalization
Innovation in service products & delivery systems, stimulated by better technology
Customers have more choices and exercise more power
Success hinges on:
● Understanding customers and competitors
● Viable business models
● Creation of value for customers and firm
● New markets and product categories
● Increase in demand for services
● More intense competition
Forces Transforming the Service Economy
17
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
● Changes in regulations
● Privatization
● New rules to protect customers,
employees, and the environment
● New agreement on trade in services
Forces Transforming the Service Economy (1)
18
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
● Rising consumer expectations
●More affluence
● Personal Outsourcing
● Increased desire for buying experiences vs. things
● Rising consumer ownership of high tech equipment
● Easier access to more information
● Immigration
●Growing but aging population
Forces Transforming the Service Economy (2)
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Rea
d the e
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and
the im
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serv
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Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
● Push to increase shareholder value
● Emphasis on productivity and cost savings
●Manufacturers add value through service and
sell services
●More strategic alliances
● Focus on quality and customer satisfaction
●Growth of franchising
●Marketing emphasis by nonprofits
Forces Transforming the Service Economy (3)
21
Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
●Growth of Internet
●Greater bandwidth
● Compact mobile equipment
●Wireless networking
● Faster, more powerful software
● Digitization of text, graphics, audio, video
Forces Transforming the Service Economy (4)
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Rea
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and
the im
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serv
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Government
Policies
Business
Trends
Social
Changes
Advances in
IT
Globalization
●More companies operating on transnational
basis
● Increased international travel
● International mergers and alliances
● “Offshoring” of customer service
● Foreign competitors invade domestic markets
Forces Transforming the Service Economy (5)
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Rea
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and
the im
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n th
e
serv
ice e
cono
my
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The combined
model (figure 1.6)
What are Services? (1)
Services involve a form of rental, offering benefits without transfer of ownership
Include rental of goods
Marketing tasks for services differ from those involved in selling goods and transferring ownership
27
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 28
Rented goods services
Defined space and place rentals
Labor and expertise rentals
Access to shared physical
environments
Access to and usage of systems
and networks
Five broad categories within non-ownership
framework of which two or more may be combined
Explanation of the 5 broad categories:
29
Rented goods services—provides customers with temporary right to
exclusive use of physical good
Defined space and place rentals—obtain a defined portion of a
larger space and sharing its use with other customers, under varying
degrees of privacy
Labor and expertise rentals—hire others to work that they either
choose not to do, or lack the necessary expertise and tools to do
Access to shared physical environments—may be located indoors or
outdoors or a combination
Systems and networks: access and usage—rent the right to
participate in specified networks like telecommunications, utilities etc.
Four Broad Categories of Services
Based on differences in nature of service act (tangible/intangible) and who or what is direct recipient of service (people/possessions), there are four categories of services:
People processing
Possession processing
Mental stimulus processing
Information processing
30
Four Categories Of Services
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31
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1.4 Four broad categories of services
People Processing
Customers must:
physically enter the service factory
co-operate actively with the service operation
Managers should think about process and output from customer’s perspective
to identify benefits created and non-financial costs: Time, mental, physical effort
33
1.4 Four broad categories of services Possession Processing
Possession Processing
Customers are less involved compared to people processing services
Involvement may be limited to just dropping off the possession
Production and consumption are separable
People processing
34
Possession processing
35
1.4 Four broad categories of services Mental Stimulus Processing
● Mental Stimulus Processing
● Ethical standards required when customers who depend on such services can potentially be manipulated by suppliers
● Physical presence of recipients not required
● Core content of services is information-based
Can be ‘inventoried’’
36
1.4 Four broad categories of services Information Processing
Information Processing
Information is the most intangible form of service output
May be transformed into enduring forms of service output
Line between information processing and mental stimulus processing may be blurred.
Mental Stimulus Processing
37
Information Processing
Think about your project – the nature of the service
product: 38
Given the nature of your service product, which cell
would it be put under?
How would this classification affect your positioning
of your service offer?
You need to use the service classification matrix to
determine this.
What marketing challenges would your service
product face?
39
Challenges posed by services Services Pose Distinctive Marketing Challenges
• Marketing management tasks in the service sector differ from
those in the manufacturing sector.
• The eight common differences are:
– Most service products cannot be inventoried
– Intangible elements usually dominate value creation
– Services are often difficult to visualize and understand
– Customers may be involved in co-production
– People may be part of the service experience
– Operational inputs and outputs tend to vary more widely
– The time factor often assumes great importance
– Distribution may take place through nonphysical channels
40
Challenges posed by services Differences, Implications, and Marketing-Related Tasks (1) (Table 1.2)
Difference
Most service products cannot be inventoried
Intangible elements usually dominate value creation
Services are often difficult to visualize & understand
Customers may be involved in co- Production
Implications
Customers may be turned away
Harder to evaluate service & distinguish from competitors
Greater risk & uncertainty perceived
Interaction between customer & provider; but poor task
execution could affect
satisfaction
Marketing-Related Tasks
Use pricing, promotion, reservations to smooth demand; work with ops to manage capacity
Emphasize physical clues, employ metaphors and vivid images in advertising
Educate customers on making good choices; offer guarantees
Develop user-friendly equipment, facilities & systems; train customers, provide good support
41
Challenges posed by services Differences, Implications, and Marketing-Related Tasks (2) (Table 1.2)
Implications
Behavior of service personnel & customers can affect satisfaction
Hard to maintain quality,
consistency, reliability
Difficult to shield
customers from failures
Time is money;
customers want service at convenient times
Electronic channels or voice
telecommunications
Difference
People may be part of service experience
Operational inputs and
outputs tend to vary more widely
Time factor often assumes great importance
Distribution may take place through nonphysical channels
Marketing-Related Tasks
Recruit, train employees to reinforce service concept
Shape customer behavior
Redesign for simplicity and failure proofing
Institute good service recovery procedures
Find ways to compete on speed of delivery; offer extended hours
Create user-friendly, secure websites and free access by telephone
42
Challenges posed by services Added by Physical, Intangible Elements Helps Distinguish Goods and Services (Fig 1.14)
EXPANDED MARKETING MIX FOR
SERVICES
The 7 Ps
43
Services Require An Expanded Marketing Mix
● Marketing can be viewed as:
A strategic and competitive thrust pursued by top management
A set of functional activities performed by line managers
A customer-driven orientation for the entire organization
● Marketing is only function to bring operating revenues into a business; all other functions are cost centers.
● The “7 Ps” of services marketing are needed to create viable strategies for meeting customer needs profitably in a competitive marketplace
44
The 7 Ps of Services Marketing
● Product elements (Chapter 4)
● Place and time (Chapter 5)
● Price and other user outlays (Chapter 6)
● Promotion and education (Chapter 7)
● Process (Chapter 8)
● Physical environment (Chapter 10)
● People (Chapter 11)
45
Product elements
Service products are at the heart of services marketing strategy
Marketing mix begins with creating service concept that offers value
Service product consists of core and supplementary elements:
Core products meet primary needs
Supplementary elements are value-added enhancements
46
The 7 Ps of services marketing
Applying the 4 Ps of Marketing to Services (1)
Services are not just products- they are experiences
47
Place and time Service distribution can take place through physical and
non-physical channels
Some firms can use electronic channels to deliver all (or at least some) of their service elements
Information-based services can be delivered almost instantaneously electronically
48
The 7 Ps of services marketing
Applying the 4 Ps of Marketing to Services (2a)
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Place and time
Delivery Decisions: Where, When, How
Time is of great importance as customers are physically
present
Convenience of place and time become important
determinants of effective service delivery
The 7 Ps of services marketing
Applying the 4 Ps of Marketing to Services (2b)
• Price and other user outlays
From the firm’s perspective, pricing generates
income and creates profits
From the customer’s perspective, pricing is key part
of costs to obtained wanted benefits
Marketers must recognize that customer costs involve
more than price paid to seller
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 50
The 7 Ps of services marketing
Applying the 4 Ps of Marketing to Services (3a)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 51
The 7 Ps of services marketing
Applying the 4 Ps of Marketing to Services (3b)
• Price and other user outlays
Identify and minimize non-monetary costs incurred by users:
Additional monetary costs associated with service usage (e.g., travel to service location, parking, phone, babysitting, etc.)
Time expenditures, especially waiting
Unwanted mental and physical effort
Negative sensory experiences Revenue management is an important part of pricing
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 52
The 7 Ps of services marketing
Applying the 4 Ps of Marketing to Services (4)
• Promotion and Education
Plays three vital roles:
Provide information and advice
Persuades the target customers of merit of service product or brand
Encourages customer to take action at specific time
Customers may be involved in co-production so:
Teach customer how to move effectively through the service process
Shape customers’ roles and manage their behavior
Promotion of Services (advertising)
53
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 54
The 7 Ps of services marketing Extended Mix for Managing the Customer Interface (1)
• Process
How firm does things may be as important as what it does
Customers often actively involved in processes, especially when acting as co-producers of service
Operational inputs and outputs vary more widely
Customers are often involved in co-production
Demand and capacity need to be balanced
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 55
The 7 Ps of services marketing
Extended Mix for Managing the Customer Interface (2a)
• Physical environment
Design servicescape and provide tangible evidence
of service performances
Manage physical cues carefully— can have
profound impact on customer impressions
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 56
The 7 Ps of services marketing
Extended Mix for Managing the Customer Interface (2a)
• Physical environment
Create and maintain physical appearances
Buildings/landscaping
Interior design/furnishings
Vehicles/equipment
Staff grooming/clothing
Sounds and smells
Other tangibles
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 57
The 7 Ps of services marketing
Extended Mix for Managing the Customer Interface (3)
• People
Interactions between customers and contact personnel strongly influence customer perceptions of service quality
Well-managed firms devote special care to selecting, training and motivating service employees
Other customers can also affect one’s satisfaction with a service
People factor in services marketing
58
Recognize why service businesses need to integrate the
marketing, operations, and human resource functions
59
The 7Ps model demonstrates that marketing can’t operate separately from other functional areas in a successful service organization.
Marketing, operations, and human resources all play central and interrelated roles in meeting customer needs
Marketing links the firm to its external environment and acts as a customer champion; operations is concerned with service design and delivery, often involving customers in operational processes; and human resources helps to recruit, train, and motivate employees whose jobs bring them into direct contact with customers.
LETS RECAP: So now you should be clear that
services have FOUR important characteristics
Intangibility Heterogeneity
Simultaneous Production
and Consumption
Perishability
Important points to note:
- These characteristics are actually CHALLENGES or problems faced by the service
marketer
- The service marketer needs to use the right tools – marketing mix elements to
overcome these challenges
Additional Slides on the Four Characteristics of Services
• Source: Philip Kotler and Kevin Lane Keller
• Marketing Management (an Asian Perspective)
61
Intangibility
• Unlike physical products, services cannot be seen, tasted, felt, heard, or smelled before they are bought.
• To reduce uncertainty, buyers will look for evidence of quality.
• They will draw inferences about quality from the place, people, equipment, communication material, symbols, and price that they see.
• Therefore, the service provider’s task is to “manage the evidence,” to “tangibilize the intangible.”Whereas product marketers are challenged to add abstract ideas, service marketers are challenged to add physical evidence and imagery to abstract offers
• Service companies can try to demonstrate their service quality through physical evidence and presentation.
62
Suppose a bank wants to position itself as a “fast” bank. It could make this positioning strategy tangible through a number of marketing tools:
• Place — The exterior and interior should have clean lines. The layout of the desks and the traffic flow should be planned carefully. Waiting lines should not get overly long.
• People — Personnel should be busy. There should be a sufficient number of employees to manage the workload.
• Equipment — Computers, copying machines, and desks should be and look “state of the art.”
• Communication material — Printed materials — text and photos — should suggest efficiency and speed.
• Symbols — The name and symbol should suggest fast service.
• Price — The bank could advertise that it will deposit $5 in the account of any customer who waits in line for more than five minutes
63
Managing the Physical Evidence : DBS Bank
• This DBS branch in Singapore looks very modern and is equipped with gadgets to appeal to the more tech-savvy market.
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Intangibility
• Service marketers must be able to transform intangible services into concrete benefits.
• Because there is no physical product, the service provider’s facilities—its primary and secondary signage, environmental design and reception area, employee apparel, collateral material, and so on—are especially important.
• All aspects of the service delivery process can be branded.
65
Intangibility
• Service providers such as medical doctors will use brand elements such as where they received their medical education from to make their service and benefits more tangible.
66
Inseparability
• Services are typically produced and consumed simultaneously.
• Because the client is also present as the service is produced, provider-client interaction is a special feature of service marketing.
• Several strategies exist for getting around this limitation: i. Work with larger groups ii. Work faster iii. Train more service providers
67
Variability
• Because they depend on who provides them and when and where they are provided, services are highly variable.
• This is a challenge of ensuring high and consistent standards of service quality.
• To reassure customers, some firms offer service guarantees that may reduce consumer perception of risk.
68
There are three steps service firms can take to increase quality control:
1. Invest in good hiring and training procedures.
2. Standardize the service-performance process throughout the organization.
– Prepare a service blueprint that depicts events and processes in a flowchart, with the objective of recognizing potential fail points.
– Monitor customer satisfaction; take action to overcome service gaps
69
Blueprint for Overnight Hotel Stay
70
Process (P) in the Services Marketing Mix
Perishability
• Services cannot be stored.
• Perishability is not a problem when demand is steady.
• When demand fluctuates service firms have problems.
• Several strategies can produce a better match between supply and demand
–Pricing and promotions are often used to influence demand and supply
71
How would you LINK the 4 characteristics of
services to the 7 Ps? 72
Intangibility Perishability Heterogeneity Inseparability
PRODUCT X X
PRICE X
PROMOTION X X
PLACE X
PEOPLE X X
PHYSICAL EV X
PROCESS X X
This is just an illustration to show how the different elements of the marketing mix can
address the challenges of the services characteristics; the links are not necessarily
definitive but rather indicative. What do you think?
© Geoffrey da Silva
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 73
Framework for effective services marketing strategies
Overview
Reasons for studying services
Service sector dominates economy in most nations
Most new jobs are generated by services
Powerful forces—government policies, social changes, business trends, IT advances, and globalization—are transforming service markets
The service concept and its definition:
Services offer benefits without transfer of ownership
Four broad categories of services – people processing, possession processing, mental stimulus processing and information processing
Customers expect value from access to goods, facilities, labor, professional skills, environments, networks & systems in return for money, time, effort
Chapter 1 Summary: Introduction to Services
Marketing (1) 74
74
Services present distinctive marketing challenges relative to goods, requiring:
Expanded marketing mix comprising 7Ps instead of traditional 4Ps
Framework for developing effective services marketing strategies:
Understanding service products, consumers & markets
Applying the 4 Ps to services
Managing the customer interface
Implementing profitable service strategies
Chapter 1 Summary: Introduction to Services
Marketing (2) 75
75
Sample Practice Exam Essay Questions
76
1. The marketing of services is different to the
marketing of tangible goods‖. Provide support for
this statement by:
(a.) Identifying and explaining the unique
characteristics of services.
(b.) Describing the expanded marketing mix for
services, highlighting how it may be different to the
―traditional marketing mix of 4Ps‖.
77
2. List and describe each of the expanded marketing
mix elements and contrast the expanded marketing
mix for services to the traditional marketing mix for
tangible goods
3. List and discuss each of the four broad categories of
services.
Demonstrate your understanding of these four
categories of services by giving at least three
examples of each and highlighting the implications
of such services
Sample Practice Exam Essay Questions
Sample Practice Exam Essay Questions
78
List and explain why the unique characteristics of
services (that makes them different to tangible
goods).
Classify the following two services into
people/possession/mental-stimulus/information-
processing services and explain your selection:
Funeral service
Online dating service
Sample Practice Exam Essay Questions
79
The marketing mix for services is different to that of
tangible goods. Explain the marketing mix elements
applicable to service contexts, and highlight its
differences to the marketing mix elements of
tangible goods. Select a service that you are
familiar with, and describe its marketing mix
elements.
Sample Practice Exam Essay Questions
80
Demonstrate your understanding of the unique
characteristics of services by listing the eight (8)
common differences between services and tangible
goods, and relating each to the example of
education (and other services e.g. library,
administrative and IT support) provided by a
university.
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