Service - Marketing Mix Decesions

Marketing Mix Decision in Services
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
9- 1
The 7 Ps
Slide 2004 by Christopher Lovelock and Jochen Wirtz
Services Marketing 5/E
9- 2
Creating the
Service Product
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Key Steps in Service Planning: Matching Opportunities to Resources
Must relate marketing opportunities to firms resources

Identify, evaluate firms marketing assets
(physical, financial, technological, human)
Customer portfolio/lifetime value (customer equity) Market knowledge Marketing implementation skill Product line Competitive positioning strategies Brand reputation (brand equity)
Identify, evaluate firms operating assets
Physical facilities, equipment Technology and systems (especially IT) Human resources (numbers, skills, productivity) Leverage through alliances and partnerships Potential for customer self service Cost structure
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Service Design Involves Matching Marketing Concept with Operations Concept (Fig. 4.1)
Corporate Objectives and Resources
Marketing Assets
(Customer Base, Mkt. Knowledge, Implementation Skills, Brand Reput.)
Operating Assets
(Facilities/Equipment, IT Systems, People, Op. Skills, Cost Structure)
Service Marketing Concept

Benefits to customer from core/ supplementary elements, style, service level, accessibility
Service Operations Concept

Nature of processes Geographic scope of ops Scheduling Facilities design/layout HR (numbers, skills) Leverage (partners, self-service) Task allocation: front/backstage staff; customers as co-producers
User costs/outlays incurred Price/other monetary costs Time Mental and physical effort Neg. sensory experiences
Service Delivery Process
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Understanding the Components of the Augmented Service Product
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The Augmented Product
Most firms offer customers a package of benefits:

core product (a good or a service) supplementary services that add value to the cores
In mature industries, core products often become

commodities
Supplementary services help to differentiate core products

and create competitive advantage by:
facilitating use of the core service enhancing the value and appeal of the core
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Shostacks Molecular Model of a Total Market Entity - Passenger Airline Service (Fig. 4-2)
Distribution Price
Service
frequency
Vehicle
Transport
In-flight service
Pre- and post-flight service

KEY
Food and drink
Tangible elements Intangible elements

Marketing Positioning (Weighted toward evidence)
Source: Shostack
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What Should Be the Core and Supplementary Elements of Our Service Product?
How is our core product defined and what supplementary

elements currently augment this core?
What product benefits create the most value for customers? Is our service package differentiated from the competition in
ways that are meaningful to target customers?
What are current levels of service on the core product and

each of the supplementary elements?
Can we charge more for higher service levels on key

attributes (e.g., faster response, better physical amenities, easier access, more staff, superior caliber personnel)?
Alternatively, should we cut service levels and charge less?

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Defining The Nature of the service Offering: What Do We Offer and How Do We Create and Deliver It?
Reservation Use Phone
Parking
Delivery Processes for supplementary Services
Core Delivery Process

Scheduling
Process CheckIn / CheckOut
Core Room Service Service Level Customer Role
Porter In Room Movie

Meal
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Core and Supplementary Services in a Luxury Hotel (Offering Guests Much More than a Cheap Motel!)
Reservation Cashier Business Center A Bed for the Night in an Elegant Private Room with a Bathroom Valet Parking Reception Baggage Service
Room Service Wake-up Call T elephone
Cocktail Bar
Entertainment/ Sports / Exercise
Restaurant
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What Happens, When, and in What Sequence? Documenting the Delivery Sequence Over Time
Reservation Parking Check in USE ROOM Get car Check out Phone USE GUESTROOM OVERNIGHT Porter Meal Pay TV Room service
Pre Visit
Time Frame of an Overnight Hotel Stay (real-time service use)

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The Flower of Service: Categorizing Supplementary Services (Fig. 4-5)
Information
Payment
Billing
Core
Consultation
Order-Taking
Exceptions
KEY:
Hospitality Safekeeping
Facilitating elements Enhancing elements

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Branding Service Products
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Service Branding: Clarifying Distinctive Service Offerings
Marriott Hotel Brands

Marriott Hotels Marriott Resorts Courtyard by Marriott Fairfield Inns Residence Inns
British Airways Brands

Intercontinental First Club World World Traveller Plus World Traveller European Club Europe Euro-Traveller UK Domestic Shuttle
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SpringHill Suites
TownePlace Suites Marriott Vacation Clubs
International
Service Branding: Clarifying Distinctive Service Offerings
ITC- Welcome Group

The Welcomgroup
Luxury Collection (Starwood) Fortune Hotels (Resort Areas) ITC-Welcomgroup Hotels(Business Hotels) Welcomgroup Heritage Hotels (Heritage Mansions)
ITC Windsor- Banglore

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Branding a High-Tech, B2B Product Line: A Family of Brands at Sun Microsystems
Corporate umbrella brand

Sun Microsystems
Product line brand (system support services)

Sun Spectrum Support
Sub-brands (4 levels of support service programs)

Platinum Gold Silver Bronze
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Sun Microsystems - Sun Spectrum Support
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Sun Spectrum Support: Sub-branding Highlights Four Service Levels

Sub-branding clarifies service levels offered at different fees
Platinum: Mission Critical
On-site service 24/7, two-hour response; telephone support 24/7, onsite parts replacement; additional services available
Gold: Business Critical
Onsite service Mon-Fri 8am-8pm, four-hour response; telephone support 24/7; onsite parts replacement
Silver: Basic Support
Onsite service Mon-Fri 8am-5pm, four-hour response; telephone support Mon-Fri 8am-8pm; onsite parts replacement
Bronze: Self Support
Phone support Mon-Fri 8am-5pm; parts replacement by courier

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Pricing and Revenue Management
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What Makes Service Pricing Strategy Different (and Difficult)?
No ownership of services--hard for firms to calculate

financial costs of creating an intangible performance unit of service and establish basis for pricing? are they getting in return for their money? value to customers when delivered faster create differences in perceived value
Variability of inputs and outputs--how can firms define a
Many services hard for customers to evaluate--what

Importance of time factor--same service may have more Delivery through physical or electronic channels--may
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Objectives of Pricing Strategies
Revenue and profit objectives

Seek profit Cover costs
Patronage and user base-related objectives

Build demand Build a user base
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The Pricing Tripod (Fig. 6.1)
Pricing Strategy
Competition
Costs
Value to customer
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Three Main Approaches to Pricing
Cost-Based Pricing
Set prices relative to financial costs
(problem: defining costs)
Competition-Based Pricing
Monitor competitors pricing strategy
(especially if service lacks differentiation) Who is the price leader? (one firm sets the pace)
Value-Based
Relate price to value perceived by customer
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Activity-Based Costing: Relating Activities to the Resources They Consume
Managers need to see costs as an integral part of a firms

effort to create value for customers
When looking at prices, customers care about value to

themselves, not what production costs the firm
Traditional cost accounting emphasizes expense

categories, with arbitrary allocation of overheads
ABC management systems examine activities needed to

create and deliver service (do they add value?)
ABC analysis also helps in pinpointing differences in the

costs of serving different customers.
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Net Value = (Benefits Outlays)

(Fig. 6.3)
Effort Time
Perceived Benefits
Perceived Outlays
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Paying for Service: The Customers Perspective

Customerexpendituresonservicecompriseboth financial and non-financial outlays
Financial costs:
price of purchasing service expenses associated with search, purchase activity, usage
Time expenditures Physical effort (e.g., fatigue, discomfort) Psychological burdens (mental effort, negative feelings) Negative sensory burdens (unpleasant sensations affecting any
of the five senses)
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Determining the Total Costs of a Service to the Consumer (Fig. 6.4)

Search Costs Price Related Monetary Costs Time Costs Purchase and Use Costs Operating Costs
Incidental Expenses
Physical Costs
Psychological Costs Sensory Costs Necessary follow-up Problem solving
After Costs
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Trading off Monetary and Non- Monetary Costs

(Fig. 6.5)
Which clinic would you patronize if you needed a chest x-ray (assuming all three clinics offer good quality) ?
Clinic A
Price Rs 450 Located 1 hour away by car or transit Next available appointment is in 3 weeks Hours: Monday Friday, 9am 5pm Estimated wait at clinic is about 2 hours
Clinic B
Price Rs 850 Located 15 min away by car or transit Next available appointment is in 1 week Hours: Monday Friday, 8am 10pm Estimated wait at clinic is about 30 45 minutes
Clinic C
Price Rs1050 Located next to your office or college Next appointment is in 1 day Hours: Mo Sat, 8am 10pm By appointment estimated wait at clinic is about 0 to 15 minutes
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Increasing Net Value by Reducing Non-financial Costs of Service
Reduce time costs of service at each stage

Minimize unwanted psychological costs of service Eliminate unwanted physical costs of service Decrease unpleasant sensory costs of service
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Revenue Management: Maximizing Revenue from Available Capacity at a Given Time
Based on price customization - charging different customers

(value segments) different prices for same product
Useful in dynamic markets where demand can be divided

into different price buckets according to price sensitivity
Requires rate fences to prevent customers in one value

segment from purchasing more cheaply than willing to pay
RM uses mathematical models to examine historical data

and real time information to determine
what prices to charge within each price bucket how many service units) to allocate to each bucket
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Ethical Concerns in Pricing
Customers are vulnerable when service is hard to evaluate

or they dont observe work
Many services have complex pricing schedules
Unfairness and misrepresentation in price promotions

Too many rules and regulations
customers feel constrained, exploited customers unfairly penalized when plans change
misleading advertising hidden charges
hard to understand difficult to calculate full costs in advance of service
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Pricing Issues: Putting Strategy into Practice (Table 6.3)
How much to charge? What basis for pricing? Who should collect
payment?
Where should payment be

made?
When should payment be

made?
How should payment be

made?
How to communicate
prices?
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Distributing Services
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Applying the Flow Model of Distribution to Services

Distribution embraced three interrelated elements
Information and promotion flow Negotiation flow Product flow
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Information and Physical Processes of the Augmented Service Product (Fig. 7.1)
Information Processes
Information Consultation Payment

OrderTaking
Billing
Core
Exceptions
Safekeeping
Hospitality
Physical Processes
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Using Websites for Service Delivery

Information
Read brochure/FAQ; get schedules/ directions; check prices
Payment
Pay by bank card Direct debit
Consultation
Conduct e-mail dialog Use expert systems
Billing
Receive bill Make auction bid Check account status Core
Order-Taking
Make/confirm reservations Submit applications Order goods, check status
Exceptions
Make special requests Resolve problems
Hospitality
Record preferences
Safekeeping
Track package movements Check repair status
CORE: Use Web to deliver information-based core services

9 - 37
Options for Service Delivery

There are 3 types of interactions between customers and service firms
Customer goes to the service provider (or intermediary) Service provider goes to the customer Interaction at arms length (via the Internet, telephone, fax,
mail, etc.)
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Method of Service Delivery (Table 7.1)

Availability of Service Outlets Nature of Interaction Single Site Multiple Sites between Customer and Service Organization
Customer goes to service organization
Service organization goes to customer Customer and service organization transact at arms length
Theater Barbershop House painting Mobile car wash Credit card company Local TV station
Bus service Fast-food chain Mail delivery Auto club road service Broadcast network Telephone company
9 - 39
Place vs. Cyberspace
Place - customers and

suppliers meet in a physical environment
Required for people processing Offers live experiences, social More emphasis on eye-catching
servicescape, entertainment interaction, e.g., food services
services
Cyberspace - customers Ideal for info-based services

and suppliers do business electronically in virtual environment created by phone/internet linkages
Saves time Facilitates information gathering May use express logistics service
to deliver physical core products
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24/7 - Factors Encouraging Extended Operating Hours (Mgt Memo 7.1)
Economic pressure from consumers

Changes in legislation Economic incentives to improve asset utilization Availability of employees to work nights, weekends Automated self-service
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Technology Revolutionizes Service Delivery: Some Examples
Smart mobile telephones to link users to Internet Voice recognition software Automated kiosks for self-service (e.g. bank ATMs) Web sites
provide information take orders and accept payment deliver information-based services
Smart cards that can act as electronic wallets
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E-Commerce: Factors that Attract Customers to Virtual Stores
Convenience (24-hour availability, save time, effort)

Ease of obtaining information on-line and searching for
desired items
Better prices than in bricks-and-mortar stores Broad selection
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Splitting Responsibilities for Delivering Supplementary Services (Fig. 7.2)
As created by originating firm
As enhanced by distributor
As experienced by customer
Core
Core
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Franchising
Franchising is a fast growth strategy, when
Resources are limited
Long-term commitment of store managers is crucial

Local knowledge is important Fast growth is necessary to pre-empt competition
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Service Process and Market Entry
People Processing Services

Export the service concept Import customers Transport customers to new locations
Possession Processing Services

Most require an ongoing local presence, whether it is the
customers dropping off items or personnel visiting customer sites
Information Based Services

Export the service to a local service factory Import customers Export the information via telecommunications and transform it
locally
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Forces for Internationalization
Market drivers
Competition drivers Technology drivers
Cost drivers
Government drivers Impact will vary by service type (people, possessions, information)
9 - 47
Modes of Internationalization
Export information-based services

transmit via electronic channels store in physical media, ship as merchandise
Use third parties to market/deliver service concept

licensing agents brokers franchising alliance partners minority joint ventures
Control service enterprise abroad

direct investment in new business buyout of existing business
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Conclusion
Where
Can the customer obtain the delivery?
When
Decisions on scheduling of service delivery?
How
Channels and procedures for delivering the core & Supplementary service
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Designing the Communications Mix / promotion for Services
9 - 50
Setting Clear Objectives: Checklist for Marketing Communications Planning (5 Ws)
Who is our target audience? What do we need to communicate and achieve? How should we communicate this? Where should we communicate this? When do communications need to take place?
9 - 53
Marketing Communications Mix for Services

(Fig. 10.4)
Personal Communications
Selling
Advertising
Broadcast
Sales Promotion
Sampling
Publicity & Public Relations

Press releases/kits Press conferences Special events Sponsorship
Instructional Materials
Web sites
Corporate Design
Signage
Customer service
Print
Coupons Sign-up rebates Gifts
Manuals
Interior decor
Training
Internet
Brochures Videoaudiocassettes Software CD-ROM
Vehicles
Telemarketing Word-of-mouth Word mouth (other of customers)
Outdoor
Equipment
Direct mail
Prize promotions
Trade Shows, Exhibitions
Stationery
Media-initiated coverage
Voice mail
Uniforms
Key: * Denotes communications originating from outside the organization
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Originating Sources of Messages Received by a Target Audience (Fig. 5-5)

Messages originating within the organization
Front-line staff Service outlets
Advertising Sales promotions Direct marketing Personal selling Public relations
A U D I E N C E
Word of mouth
Messages originating outside the organization

Media editorial
9 - 57
What is Brand Equity and Why Does It Matter? (FromBerry,CultivatingBrandEquity)

Definition: A set of assets and liabilities linked to a brands name and symbol that adds to (or subtracts from) the perceived value of the product Insights
Brand equity can be positive or negative Positive brand equity creates marketing advantage for
firm plus value for customer
Perceived value generates preference and loyalty Management of brand equity involves investment to
create and enhance assets, remove liabilities
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A Service Branding Model: How Communications + Experience Create Brand Equity
Marketer-controlled communications
Firms Presented Brand (Sales, Advertising, PR)

Uncontrolled brand communications
Awareness of Firms Brand
What Media, Intermediaries, Word-of-Mouth Say re: Firm
Firms Brand Equity
Customers Experience with Firm
Meaning Attached To Firms Brand

Source: Adapted from L. L. Berry ( Fig. 1)
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Service - Marketing Mix Decesions

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Service - Marketing Mix Decesions

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Marketing Mix Decision in Services

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Key Steps in Service Planning: Matching Opportunities to Resources

Must relate marketing opportunities to firms resources

Identify, evaluate firms operating assets

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Service Marketing Concept

Service Operations Concept

Service Delivery Process

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Understanding the Components of the Augmented Service Product

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

The Augmented Product

Most firms offer customers a package of benefits:

In mature industries, core products often become

Supplementary services help to differentiate core products

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Pre- and post-flight service

Food and drink

Tangible elements Intangible elements

How is our core product defined and what supplementary

What are current levels of service on the core product and

Can we charge more for higher service levels on key

Alternatively, should we cut service levels and charge less?

Delivery Processes for supplementary Services

Core Delivery Process

Process CheckIn / CheckOut

Core Room Service Service Level Customer Role

Porter In Room Movie

Room Service Wake-up Call T elephone

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Time Frame of an Overnight Hotel Stay (real-time service use)

Slide 2004 by Christopher Lovelock and Jochen Wirtz

The Flower of Service: Categorizing Supplementary Services (Fig. 4-5)

Facilitating elements Enhancing elements

Services Marketing 5/E

Branding Service Products

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Service Branding: Clarifying Distinctive Service Offerings

Marriott Hotel Brands

British Airways Brands

Services Marketing 5/E

Service Branding: Clarifying Distinctive Service Offerings

ITC- Welcome Group

ITC Windsor- Banglore

Services Marketing 5/E

Branding a High-Tech, B2B Product Line: A Family of Brands at Sun Microsystems

Corporate umbrella brand

Product line brand (system support services)

Sub-brands (4 levels of support service programs)

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Sun Microsystems - Sun Spectrum Support