Lecture 1
What is marketing?
Marketing is a process by which companies create value for customers (needs + wants of target
market) & build strong customer relationships (to capture value from customers in return gain $)
4Ps (product, place, price, promotion) – Marketing mix
o But are they sufficient for all types of organizations?
7Ps physical env, process, ppl
Physical env starts from outside the factory not just inside (poor neighborhood)
impression = * b/c services are not tangible
Why cover services separately?
o Services: intangible; activities; performance that cannot be seen/ touched
Services = Experience; can be diff from each other (factory itself – have to enter factory
to experience)
o Product: tangible; can be seen or touched
Product u can test it out before buying (see what has been built after its been in the
factory)
Why study services marketing?
o Ex: Apple store
Prior to 2001 used other distributors to sell their products but companies can gain
more control of what to sell and how to sell (increasing competitive advantage); location
also creates value
Good artists copy… great artists steal – Pablo Picasso
We have always been shameless about stealing great ideas – Steve Jobs
Lecture 2 (part 1: intro to services marketing)
Process
• how a firm does things is as important as what it does
• It is necc to design and implement effective processes for the creation and delivery of services
• Operational inputs and outputs can very widely (customer service process management = challenge)
effective service firms work to reduce variability by carefully designing customer service processes,
adopting procedures, equip, training, etc)
• Customers are often involved in co-operation (ex: consumer is expected to inform ibankers in what
they need and risks willing to take)
• Effective service management involves the balancing of demand and capacity, design of waiting
systems, management of impact of waiting on the customer’s psychology
Physical env
• Appearance of landscape, buildings, staff members’ uniforms, etc. can be visible cues that provide
tangible evidence of the firm’s service quality
People
• Many services will always need direct interaction b/w customers and service employees
• How diff b/w one service supplier and another lies in the attitude and skills of their employees
• Need good interpersonal skills and (+) attitude
Information Processing
Information is the most intangible form of service output
May be transformed into more permanent forms of service output
Line between information processing and mental stimulus processing may be blurred.
Ex: info and comm tech (ICT)
Lecture 3 (chapter 2: consumer behaviour in a services context)
***Evaluate experience by: compare perception of their experience in the post-purchase stage with their
expectations formed in pre-purchase stage***
A. Pre-purchase stage
1) Need awareness
• A service purchase is triggered by an underlying need (need arousal)
• Needs may be due to:
– People’s unconscious minds (e.g., aspirations)
– Physical conditions (e.g., chronic back pain)
– External sources (e.g., marketing activities)
• When a need is recognized, people are likely to take action to resolve it
– This source of motivation can be in/external
– Marketers try to understand unconscious needs (Freud – tip of iceberg analogy)
you can see a small part of the iceberg but most are unaware of the bottom
of the iceberg, which is what marketers are trying to understand
2) Info search
• When a need is recognized, people will search for solutions to help narrow down what services
can be used to satisfy needs
• Several alternatives may come to mind and these form the evoked set
• Evoked set – set of possible services or brands that a customer may consider in the decision
process
• derived from past experience/ external sources like social media, online reviews, ads,
news stories, recommendations from peers
• different alternatives need to be evaluated before a final choice is made
• Only a few alternatives are seriously considered =consideration set
3) Evaluation of alternatives
• Service attributes (Multi-attribute model)
• Perceived risk
• 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
Explicit and implicit, service promises, WOM, past experience influences directly and indirectly all levels of
services
3 types of expectations – components of custom expectations:
1. Desired service
• ” wished for” level of service – combo of what customers believe can and should be
delivered in the context of their personal needs
2. Zone of tolerance
• It is difficult to achieve consistent service delivery at all touch points
• The extent to which customers are willing to accept variations in service delivery
• Customers don’t pay explicit attention to service performance but when service falls
outside of range, customers will react either (+/-)
3. Adequate service
• Most customers understand that firms can’t always deliver the “wished for” level of
service
• Threshold level of expectations termed adequate service and predicted service level
• Adequate service: min level of service customers will accept without being dissatisfied
• Predicted service: Service level that customer believes firm will actually deliver
• Predicted affect how customers defined adequate service directly
• If good services is predicted, the adequate level will be higher than if
poorer service is predicted
4) Purchase decision
Blue (1) can fluctuate consumer’s service desires --> can raise or lower desired service depending on the
blue (1)
Explicit – directly stated reputation of the organization
Implicit – indirectly stated reputation of the organization (high price means service must be good)
Predicted service depends on blue (1)
Adequate service: Minimum service expected
Situational factors – ex: going to the hairdresser on Sunday – busy so not as much time spent on hair cut
lower quality
Adequate service high – do it myself, require more for one to purchase
Play with zone of tolerance
- Some companies narrow it b/c it would be hard for competitors to apply it (hard for competitors to enter)
effectively compete with competitors
Role theory: if we view service delivery from a theatrical POV then both
employees and customers act out their parts in the performance according
to predetermined roles
o Roles: Employees have roles to play like actors
Script theory: just like in a movie script, a service script specifies the
sequences of behaviour that employees and customers are expected to learn
and follow during service delivery
o Script: Specifies the behavior of customers and employees
Role and script complement each other Scripts
Perceived control theory: holds customers have a need for control during the
service encounter
The higher the level of perceived control during a service situation, the
higher will be their level of satisfaction
Service encounters range from HIGH- contact to LOW contact
o Banking can be low to high contact institution service they provide the same thing but
depends on how they interact and service elements belong to diff part
In the post encounter stage, customers eval the service performance they have experienced and
compare it with their prior expectations
o The expectancy-disconfirmation model of satisfaction: satisfaction is a judgement that follows
a series of consumer product interactions
o In this model, confirmation/ disconfirmation of pre-consumption expectations is essential
determinant of satisfaction
o Zone of tolerance may be narrow and firm if expectations are related to attributes that are
important to the DM process
Ex: if customer pays a premium of $350 for a direct flight instead of choosing one that
has a 4 hour stopover, then they will not take it lightly if there is a 6 hour flight delay
Customer satisfaction = central to marketing concept
o Customers have expectations prior to consumption, observe service performance, compare it
to expectations
o Satisfaction judgments are based on this comparison
Positive disconfirmation if better than expected
Confirmation if same as expected
Negative disconfirmation if worse than expected
o Can be +/- disconfirmation disconfirm a (-) experience that would be good (exceed level of
service)
Satisfaction vs. service quality
o Both customer satisfaction and service quality are determined by comparing customers’
expectations with their performance perceptions.
o Satisfaction vs. service quality
Satisfaction = eval of a single consumption experience
direct and immediate response to experience – fleeting judgement
Service quality = relatively stable attitudes and beliefs about a firm
Ex: visit your fav Starbucks outlet and dissatisfied with a particular visit, still think
café is fantastic and offer excellent service
o Excellent Service quality is defined as the high standard of performance that consistently meets
or exceeds customer expectations. (customer loyalty*)
*Loyalty is a customer’s willingness to continue patronizing a firm over the long term on
an exclusive basis.
Customer delight: going beyond satisfaction
o Research shows that delight =fxn of 2 components:
I. Unexpectedly high levels of performance
II. (+) affect – Pleasure/Arousal (e.g., joy, happiness, surprise, excitement)
o Once customers are delighted, their expectations are raised
If service levels return to previous levels, this may lead to dissatisfaction and it will be
more difficult to “delight” customers in future
Dimensions of service quality
o Tangibles: Appearance of physical elements
Can make inferences to eval other aspects on things that we don’t have knowledge on
Ex: Starbucks – mistakes on the board makes it look less classy (note interpreted
negatively by consumer)
o Reliability: Dependable & accurate performance
Meeting promises (in/explicit) ex: laundry – return laundry spotless, if returned with
dirt then company did not keep promise
Accuracy – ex: when server gives you the wrong bill
o Responsiveness: Promptness & helpfulness
Ex: when companies make you wait not prompt interpret as not responsive
o Assurance: Competence, courtesy, credibility, security
Popular with credence attributes
Ex: Cannot verify if doctor is making right diagnosis may not be able to
evaluate even after service is given
o That’s why docs post their diplomas
o Empathy: Easy access, good communication, understanding of customer
Acknowledging consumers ex: hotels –doorman opens the door and says Mrs. Smith
The GAP Model (14.3) – A conceptual tool to ID and correct service quality problems (6 service quality gaps)
• Diagnostic system to company not meeting needs must know where firm is failing
o Don’t want to spend on something that wont help with customer satisfaction
o What management want and customer wants
• Gap 1: knowledge gap (listening gap)
o Do research on customers, ask exec to be part of the production process and learn what makes
consumers happy, ask employees to be part of the DM process (management and these
employees are often separated)
• Gap 2: The policy gap
• Gap 3: delivery gap
o Depends on how standards are developed and how they are followed
o Why does this happen?
Employees can’t deliver b/c they are not trained, not motivated, hired the wrong ppl?
Balance demand with capacity
Part of franchise? – no control
• Gap 4: Communication gap
o Oversell to consumers and
make promises that company
cannot keep expectations
may go up therefore creating
gap b/w what is expected and
what is perceived
• Gap 5: Perception gap
o Why? – credence attributes?
Too many things to eval?
• Gap 6: The service quality gap
o comparing expected and
perceived service gap
means its (-) expectations
not met
Lecture 4 – chapter 3: positioning services in competitive markets
To delight customers focus on the 4Cs customer, competitor, company and corporate partners
Internal corporate
analysis see how
much assets/
resources a firm has
• Who are our customers and how are we going to satisfy them? How we position ourselves and define
our brand? Must communicate vision clearly to consumers (3Cs, STP)
o Use STP ID suitable market position and develop strategy to reach them (elements of
positioning strategy)
• Segmentation those who are willing and able to buy our services (needs, demographic, geographic,
lifestyle)
o Ex: Wholefoods Health conscious, middle to upper class individuals
Adapting to consumers people are busy Ready-made food
o Easier to go after segments that are not already served (reduce competition)
• TARGET: Focus strategies - how narrow the segment is going to be? Which segment is most interested
in its service?
• POSITION: How are you going to serve the consumers, is it easy to address?
Examples of INFORMATION
Examples of PAYMENT
Examples of CONSULTATION
Examples of HOSPTALITY
Examples of SAFEKEEPING
Examples of EXCEPTIONS
Managerial Implications
• 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
• People-processing and high contact
services tend to have more
supplementary services
• Firms that offer different levels of
service often add extra supplementary
services for each upgrade in service
level
If they serve alcohol in Starbucks it can ruin the atmosphere sets diff atmosphere for different target
consumers two different segments to serve
Risk of losing existing loyal customers
4.4 Branding Service Products and Experiences
Cheaper corporate brand but it might confuse people when it offers different pdt lines
Building Brand Equity
Brand equity: value premium that comes with a brand; it’s the additional amount that customers are willing
to pay for a branded service over a similar service that has no brand; 6 key components:
• Company’s presented brand – mainly through advertising, service facilities and personnel
• External brand communications – from word-of-mouth and publicity. (helps brand awareness)
o Outside of the firm’s control
• Customer experience with the company – what the customer goes through when they patronize the
company
• Brand awareness – the ability to recognize and recall a brand when provided a cue
• Brand meaning – what comes to customer’s mind when a brand is mentioned
• Brand equity – the degree of marketing adv that a brand has over its competitors
o External communication can help create brand awareness, but its customer’s actual experience
with the brand that is more powerful in building brand equity
Process line extensions add another channel to system. High contact services usu. Ex: bank (adding online
banking) delivering core pdt thru low contact services
- Ex: Shoppers adding self check out
Major process innovations goal: create diff benefits (ex: lectures at school but adding parallel services
online to students) ex: Amazon having physical stores – bought sears – use amazon prime to buy
groceries
Ex: Tesco use smart phones to shop; posted pics of grocery items and blended them into consumer’s
everyday lives subway station (ppl don’t have to go grocery shopping)
New tech allow them to be #1 in market without investing in physical stores
o Having access to services at all times (mobile devices) send notifications alert consumers
Websites hotels, planes (going thru company websites instead of physical stores)
Agents are all connected and make deals in real time
Normal distribution system
Tech changed nature of CRM Hilton
Know the profile of the guest with tech track who is staying, what they need
o Ex: Kelly’s birthday so staff knows and create good experience
o Keeps track and can customize people’s stay (personalized)
o Internally can communicate (staff-staff)
5.5 The Role of intermediaries
Franchising
Popular way to expand delivery of effective service concept, without a high level of monetary
investments compared to rapid expansion of company-owned and -managed sites
o Franchisor provides training, equipment and support marketing activities.
o Franchisees invest time and finance, and follow copy and media guidelines of franchisor
Growth-oriented firms like franchising because franchisees are motivated to ensure good customer
service and high-quality service operations
Study shows significant attrition rate among franchisors in the early years of a new franchise system
o 1/3 of all systems fail within 1st 4 years
o 3/4 of all franchisors cease to exist after 12 years
Success factors of franchisors
o Larger size and more recognizable brand name
o Lower overhead per outlet
o Building cooperative rather than controlling relationship
Disadvantages of franchising
o Some loss of control over delivery system and, thereby, over how customers experience actual
service
o Effective quality control is important but yet difficult
o Conflict b/w franchisees may arise especially as they gain experience
Alternative: license another supplier to act on OG supplier’s behalf to deliver core pdt
o Trucking companies
o Banks selling insurance products
*Franchise whole flower of service (outsourced)
Ex: enterprise rent a car (#1) picked up customers (place element) – avoided airports (where they
pick up customers)
o Idea from customer rent cars
Lecture 7 – Chapter 6: Setting Prices & Implementing Revenue Management
2 focuses
1. Cover cost max revenue
2. Build demand Full house effect (want the place to look full) willing to jeopardize revenue
Class
Price floor vs. price ceiling
Price floor (cannot go below that, have to cover the cost)
Price ceiling (how much consumers are willing to pay)
Competitors are in b/w the two
o Depends on the industry you are in
Company itself (not covered in the tripod) – the objective of the company (mission
statement)
ABC useful for high fixed costs and complex pdt lines with shared infrastructure
More accurate way to allocate indirect costs/ overheads (look at resources needed to
perform each activity then allocates an indirect cost to the service based on the quantities
and types of activities required to create and deliver the service)
Fixed cost (utilities and salary) and variable cost must be covered and have to know how to apply
that to the cost of the pdt
Switch from traditional costing approach and apply ABC now Directly and indirectly
contribute to the production of services
Ratio of fixed to variable cost is diff in services
Time based cost pdt but for service we don’t have that (time spent depends on the
customer) therefore very hard to price
Can we charge consumers based on?
o How service is provided?
o Simple and complexity of service?
1. Costs
Costs based pricing
o Traditional costing approach
Emphasizes expense categories (arbitrary overheads allocation)
May result in reducing value generated for customers
o Activity-Based Costing (ABC) management systems
Link resource expenses to variety and complexity of goods/services produced
Yields accurate cost info
Value based pricing
o Value exchange will not take place unless customer sees (+) net value in transaction
No customer will pay more for a service than he/ she thinks is worth
Must understand how customer perceive (needs + wants) service value in order to
set an appropriate price
Ex: low price, w.e. I want in a pdt, is quality what I am paying for
Net Value = All Perceived Benefits to Customer (Gross Value) minus (-) All Perceived Outlays ($, Time, & Effort)
o Monetary price is not only perceived outlay in purchasing, using a service
o When looking at competing services, customers are mainly comparing relative net values
Value based pricing: managing perception of value
o Since value is subjective not all customers have the skills/ knowledge to judge the quality
and value they receive – esp for credence services
ex: specialized hospitals have to find ways to comm time, research, prof expertise
b/c invisibility of backstage facilities and labour makes it hard for customers to see
what they’re getting for their money (manage perception of value = *)
don’t want to just decrease price b/c price is also a benefit (price can add value to
consumer perception higher price the place delivers higher quality pdts)
cover other costs to decrease monetary value
o ex: offering babysitting services in gym facilities don’t have to pay extra
o Increase perception of BENEFITS
Effective communication and personal explanation to convey value
Can use production channels – firm itself to add to benefit, other than using
traditional methods of ad (which can be costly)
o Reduce perception of COSTS:
1) monetary costs (searching, purchasing, using service)
2) non-monetary costs (4 distinct categories of non-monetary costs)
Time Costs
Ex: travelling to gov office and waiting
Ex: gas price/ parking ticket
Physical Costs
Ex: effort, fatigue, discomfort (delivery thru self-service, long ques)
Psychological (Mental) Costs
Effort Ex: filling in forms requiring lots of details
Ex: social embarrassments way docs talk to patients
Sensory Costs (unpleasant sights, sounds, feel, tastes, smells)
Ex: waiting areas noisy, cold, messy?
A firm can create competitive advantage and increase consumer value by minimizing related monetary and
non-monetary costs
Defining total user costs
2. Competition
Price competition intensifies when:
o Increasing # of competitors
o Increasing # of sub offers
o Wider distribution of competitors
o Increasing surplus capacity in the industry
Price competition is reduced when:
o Non-price-related costs of using competing alternatives are high
o Personal relationships matter
o Ex: GP, hairstylist
o Time and location specificity reduces choice
o Switching costs are high
o Ex: takes time/ effort to switch providers, customers are less likely to take
advantage of competing offers (cell phone providers require contracts and charge
financial penalties for early cancellation of service)
o Ex: have to learn about preferences all over again (related to relationships)
3. Value to customer
6.3 Revenue Management
Rate fences deter customers willing to pay more from trading down to lower prices (min consumer
surplus)
o Rate fences allow customers to self segment on basis of service characteristics and
willingness to pay
Help restrict lower prices to customers who are willing to accept restrictions on
consumption experience
2. Users
o More cost-effective channels
Ex: cross/ up selling efforts by front line employees, point of sale promo, info distributed
during service encounters, location based mobile apps
3. Employees
o Secondary audience for comm through public media
o Campaign targeted to consumers can shape employee behavior
o Part of internal marketing using company-specific channels
7.3 marketing communications planning – strategic and tactical service communications objectives (WHAT)
Strategic objectives:
Building a service brand and positioning it and its service products against competition
Persuading target customers that their service product offers a better solution for customer needs
Tactical objectives
Focuses on shaping and managing customers’ perception, beliefs and attitudes during the 3 stages of
service consumption:
o Pre-purchase stage (need, perception, attributes, decision rules, etc.)
AIDA Model: customers move from cognitive (Awareness) to affective (Interest and
Desire) and finally to behaviour (Action) responses.
* not everyone is ready to buy services
*** include cognitive, affective and beahviour in the individual assignment
Cognitive – how we categorize things in our brain
o Encounter stage (perception, roles and scripts, etc.)
o Post-purchase stage (evaluation, WOM, referrals, repurchase, loyalty, etc.)
It is argued that in services, intangibility (i.e., its properties, such as abstractness, generality,
nonsearchability, and mental impalpability) influences the nature of communication tasks.
o Intangible nature of services presents problems to consumers
o Intangibility is considered as the root source of service advertising difficulty (may be difficult to
communicate service benefits to customers).
“In fact, many physical products also appeal to consumers with their intangible benefits and that advertising
professionals already have handled this challenge well.” - Mittel, 1999 (p. 99)
So, how to transform the abstract into the concrete, the general into the specific, the nonsearchable into the
searchable, and the mentally impalpable into the palpable?
7.5 Marketing communications mix – marketing communication mix (tools) for services
Channels can be categorized:
o Non-personal mass media
Effective for creating awareness and positioning the service
o Personal communications
Explain complex service info, reduce risk perceptions and persuade the consumer to buy
the service
o Direct marketing is highly cost-effective in the post encountered stage
Encourages customers to come back and to recommend pdt to their peers