1-8 PSM 2023 PDF

Product & Services Marketing
Session 1
Dr Anita Basalingappa
anita.basalingappa@micamail.in
The deck has concepts and frameworks drawn from
the reading material assigned and additional
references.
It would help if you revisited your session readings

for application and references.
Developed solely for ease of communication in class

and not for distribution or circulation to anybody
outside of your class.
Dr Anita Basalingappa, Professor, MICA

• The service sector is by far the largest in the world’s
economy. Services in India comprise ~54 percent of
GDP overall.
• Services are becoming an increasing share of the

revenues of companies around the world.

‘banks deliver services, not things’ - 1977

‘All actions & reactions that customers perceive
they have purchased’ – FedEx

Basic characteristics of services versus goods

Basic differences between goods and services
• Customers don’t obtain ownership of services.
• Service products are short-lived/ transient/ fleeting and cannot be inventoried.
• Intangible elements dominate value creation.
• Customers may be involved in the production process.
• Other people may form part of the product.
• There is greater variability in operational inputs and outputs.
• Many services are difficult for customers to evaluate.
• The time factor assumes great importance.
• Distribution channels take both physical and electronic forms.

Most Goods Most Services
Easy Difficult
to evaluate to evaluate
Clothing
Haircut
Chair
Foods
Motor vehicle
Entertainment
Computer repair
Restaurant meals
Lawn fertilizer
Legal services
Complex surgery
High in search High in experience High in credence
attributes attributes attributes

Often difficult for customers to evaluate
services
• Educate customers to help them make good choices, avoid
risk.
• Tell customers what to expect, what to look for.
• Create trusted brand with reputation for considerate,

ethical behavior.
• Encourage positive word-of-mouth from satisfied

customers.

Time factor assumes great importance
• Offer convenience of extended service hours, even 24/7.
• Understand customers’ time constraints and priorities.
• Minimize waiting time.
• Look for ways to compete on speed.

Distribution channels take different forms
• Tangible activities must be delivered through physical

channels.
• Use electronic channels (e.g., Internet, telephone) to

deliver intangible, information-based activities, expand
geographic reach, and achieve instantaneous delivery,
anywhere.

Emphasizes encounters
High with service personnel
Nur sing H ome

Hair Cut
4-Star Hotel
Management Consulting
Good Restaur ant
Telephone B anking
Airline Tr avel (Econ.)
Retail Banking Car Repair

ote Insur ance
Dr y Cleaning
Fast Food
Movie Theater
Cable T V
Mail Based Repairs
Emphasizes encounters Internet-based

Low
Services
with equipment
Differences between various types of
services
• What does our service operation actually do?
• What sorts of processes are involved in creating our

core product?
• Where do customers fit into our operations?

People processing
• People processing involves tangible actions to
people’s bodies. To receive this type of service,
customers must physically enter the “service
factory” and cooperate actively with service
personnel and/or systems. This means that
managers must be aware of the effects of the
physical environment and the front line
employees on customers. They also need to
educate customers to participate effectively and
efficiently in co-producing the service.
Club, Hotel
Possession processing
• Possession processing involves physical actions to
goods and other physical possessions belonging to
the customer. These activities are quasi-
manufacturing operations and do not always
involve simultaneous production and consumption.
Customers are less physically involved with this
type of processing than with people-processing
services, thus their co-production role is not as
great.
Courier, Repair,
Cleaning, Retail
Mental stimulus processing
• Mental stimulus processing refers to intangible
actions directed at people’s minds. The customer
must invest time and mental effort to receive these
services but may not need to be physically present
in the service provider’s factory. Because these
services have the capability to shape attitudes and
influence behaviors, managers must establish and
enforce high ethical standards in service delivery.
Education, news, entertainment, consulting

Information Processing
• Information processing describes intangible actions directed
at a customer’s assets. Although information is the most
intangible form of service output, it can be processed by
machines (most notably computers) or by people
(professionals who use their brains and skills) into more
enduring, tangible forms like reports, books, disks, videos or
CDs. Tradition and habit often dictate delivery of
information-processing services. Managers need to consider
these factors when service processes are designed so that
productivity and quality initiatives fit with customer
expectations about their level of involvement in service
operations
Ad agencies, MR,
Consulting, Lawyers, Tax
consultants, Research
• Product/ Service Offering
• Price
• Promotion
• Place
• Process
• People
• Physical Evidence

Session 2
Managing Service Quality
Return on Quality
Gaps Model of Service Quality
Return on Quality
• ROQ is based on four assumptions:

• Quality is an investment
• Quality efforts must be financially accountable
• It’s possible to spend too much on quality
• Not all quality expenditures are equally valid
• Implication: Quality improvement efforts may

benefit from being related to productivity
improvement programs

When does improving Service Quality/Reliability
become uneconomical?
Satisfy Target Customers

100% Through Service
Recovery
Service Quality/Reliability
Optimal Point of
Reliability/Quality: Cost
of Failure = Service
Recovery
Satisfy Target Customers

Through Service Delivery
A B C D as planned
Investment
Small Cost, Large Cost, Assumption: Customers are equally (or even more)
Large Improvement Small Improvement satisfied with the service recovery provided than with
a service that is delivered as planned.

Productivity
• Productivity measures amount of output produced

relative to the amount of inputs.
• Improvement in productivity means an

improvement in the ratio of outputs to inputs.
• Intangible nature of many service elements makes

it hard to measure the productivity of service firms,
especially for information based services.

• Efficiency: comparison to a standard--usually time-based (e.g., how long
employee takes to perform specific task)
• Problem: focus on inputs rather than outcomes
• May ignore variations in quality or value of service
• Effectiveness: degree to which firm is meeting its goals

• Cannot divorce productivity from quality/customer satisfaction
• Productivity: financial valuation of outputs to inputs

• Consistent delivery of outcomes desired by customers should command higher
prices

• Traditional measures of service output tend to ignore
variations in quality or value of service
• That is, they focus on outputs rather than outcomes, and stress
efficiency but not effectiveness.
• Firms that are more effective in consistently delivering

outcomes desired by customers can command higher prices.
Furthermore, loyal customers are more profitable.
• Measures with customers as denominator include:

• profitability by customer
• capital employed per customer

• How to transform inputs into outputs efficiently?
• Will improving productivity hurt quality?
• Will improving quality hurt productivity?
• Are employees or technology the key to

productivity?
• Can customers contribute to higher productivity?

Operations-driven versus Customer-driven Actions to
Improve Service Productivity
Operations-driven strategies Customer-driven strategies
❖ Control costs, reduce waste ❖ Change timing of customer
❖ Set productive capacity to match demand
average demand ❖ Involve customers more in
❖ Automate labor tasks production
❖ Ask customers to use third
❖ Upgrade equipment and systems parties
❖ Train employees
❖ Leverage less-skilled employees through
expert systems
Operations-driven AND Customer-driven Actions to

Improve Service Productivity
Improve and Redesign Customer
Service Processes
• Define the Problem
• Measure
• Analyse
• Improve
• Control
• Six Sigma Methodology

Expected Service
External communications to customers
→Lack of integrated service market communications
Gap 4 →Inefficient management of customer expectations
→Over promising
→Inadequate horizontal communications
Actual Service Delivery
→Deficiencies in human resource policies
Gap 3 → Failure to match supply and demand
→ Customer not fulfilling roles
Customer → Problems with intermediaries/ channels
Gap
Customer driven service designs and standards
Gap 2 →Poor service design
→ Absence of customer defined standards (absence of focus on customer
requirements)
→ Inappropriate physical evidence and servicescape
Company’s understanding of customer expectation
→Inadequate research
Gap 1 → Lack of upward communication
→ Insufficient relationship focus
→ Inadequate service recovery (for service failures)
Perceived Service Dr Anita Basalingappa, Professor, MICA
Components of
services marketing mix
• Product elements: All components of the service performance that create value for customers.
• Place and time: When, where, and how to deliver services to customers.
• Promotion and education: All communications activities and incentives designed to inform and
educate customers, build preference for a particular service, and encourage them to take action.
• Price and other user outlays: All the outlays incurred by customers in obtaining benefits from the
service product costs of service, including money, time expenditures, physical and mental effort,
and exposure to negative sensory experiences.
• Physical environment: The appearance of buildings, equipment, interiors, personnel, and other
clues that provide evidence of service quality.
• Process: Design of the method and sequence of actions in service creation and delivery.
• People: Interactions with employees involved in service production and with other customers
encountered during service delivery.

Product Price Promotion Place Process People Physical
Evidence
Intangibility
Perishability
Inseparability
Heterogeneity

Six Sigma Methodology to Improve and
Redesign Customer Service Processes
Process Improvement Process Design/Redesign
Define • Identify the problem • Identify specific or broad problems

• Define requirements • Define goal/change vision
• Set goals • Clarify scope & customer requirements
Measure • Validate problem/process • Measure performance to requirements
• Refine problem/goal • Gather process efficiency data
• Measure key steps/inputs
Analyze • Develop causal hypothesis • Identify best practices
• Identify root causes • Assess process design
• Validate hypothesis • Refine requirements
Improve • Develop ideas to measure root • Design new process

causes • Implement new process, structures and systems
• Test solutions
• Measure results
Control • Establish measures to maintain • Establish measures & reviews to maintain

performance performance
• Correct problems if needed • Correct problems if needed

Marketing Management : broad
areas
• Customer value→ benefits/cost
• Marketing environment→
• Buyer behaviour→
• STP→
• 4Ps→3 more Ps
• Market research→
• Marketing planning, organising and control→
• Marketing Audit→

Session 3
Consumer Behaviour:
behaviour that customers display in searching for, purchasing,
using, evaluating, and disposing of products and services that
they expect will satisfy their needs
(Schiffman and Kanuk, 2007)
Human behaviour flows from three main sources:

desire, emotion, and knowledge. Plato
Henry Assael’s Buyer Behaviour types
High Involvement of consumers Low Involvement of consumers
Differentiation
between
brands
High CBB: Automobile/ Insurance VSBB: Toys? /Restaurant
Low DRBB: Perfume/ ?? Travel, HBB: Toothpaste/ ?? Pushcarts,

airlines Cobbler

Consumer Behavior in services
• Info search: Use of personal sources, high perceived risk
• Eval of alt: Evoked set
• Service purchase & consumption: emotion & mood; service drama,

service roles & scripts, compatibility of customers
• Post purchase: attribution of dissatisfaction, Innovation diffusion (relative

advantage, compatibility, communicability, divisibility, complexity), brand loyalty
• Role of culture – values attitudes, manners & customs, material culture -

semiotics

Zone of Tolerance
Zone of Tolerance for different service dimensions
Desired Service
ZOT
Level of
Expectation
ZOT
Adequate
Service
Most imp Least imp

factors factors

Zone of Tolerance for first time and recovery service
Desired
Service
Level of
Expectation
Adequate
Service
Recovery First time

service service

Understanding consumer
expectations & perceptions
Customer Expectations
• What is the nature of customers’ service expectations? Are there
different types of expectations?
• What factors influence the formation of these expectations?
• How stable are the expectations? Do they change over time? Do

they vary across service situations and across customers?
• How can companies manage expectations to enhance customers’

perceptions of service?
• What can companies do to exceed customers’ expectations?

Model of customer expectations
Explicit Service Promises

Implicit Service Promises
EXPECTED SERVICE Word of Mouth
Past Experiences
Personal Needs
Personal Service Philosophy Desired Service
Derived Service Expectations ZOT
Adequate Service
Perceived Service Alternatives
Self Perceived Service Role CUSTOMER GAP Predicted Service
Situational factors
PERCEIVED SERVICE

Customer Perceptions
Customer Perceptions
Reliability
Responsiveness Service Quality
Assurance Situational factors
Empathy
Tangibles
Customer
Satisfaction
Product Quality
Personal factors
Price

Services: Product:
Hotel, MRO – Car- VW Passenger Car
Info search: Use of personal Credibility, WOM, Reviews, tariff Functional, Aesthetic, Experiential
Credibility dominates Past experience?
sources, high perceived risk
Eval of alt: Evoked set 2 4
Service purchase & Crucial for customer satisfaction Product dominates Interactions
consumption: emotion &

mood; service drama, service
roles & scripts, compatibility of
customers
Post purchase: attribution of Lower tendency to approach new service Higher tendency to approach new
providers brands
dissatisfaction, Innovation Attribution to dissatisfaction: Attribution to dissatisfaction:
diffusion (relative advantage, Relative advantage →directly proportional Can separate product from Service as it
compatibility, communicability, Compatibility→ is separable
Communicability→
divisibility, complexity), brand Divisibility→
loyalty Complexity→
Role of culture: values ++++ ++
Physical evidence and Servicescape cements Brand signifies culture
attitudes, manners & customs, perception of brand
material culture - semiotics
Indigo Case

IndiGo Airline
Product Price Promotion Place -Process People Physical
Evidence
Intangibility hybrid NA Service: Service + High high Remote
Intangible Products airline
services
including pre
journey;
interfacing
employees
Perishability No of Dynamic fare Timely Best utilization of perishable resources – seats & service
customers communica
who can be tion and
booked in disseminati
on each on is
flight important
Inseparability Ground NA NA Ground handling and Inflight services

Handling &
Inflight
services
Heterogeneity Perception Variability that Communic Complexity High: But efficient Perception Fixed + Role
based poses a ation of of communication can based. Role of of service
challenge if not fares and communica set standard service employees
communicated rules ` ting on the expectations employees significant
well Reach go interaction – both
crucial remote and face
to face significant

Expected Service
External communications to customers
→Lack of integrated service market communications
Gap 4 →Inefficient management of customer expectations
→Over promising
→Inadequate horizontal communications
Actual Service Delivery
→Deficiencies in human resource policies
Gap 3 → Failure to match supply and demand
→ Customer not fulfilling roles
Customer → Problems with intermediaries/ channels
Gap
Customer driven service designs and standards
Gap 2 →Poor service design
→ Absence of customer defined standards (absence of focus on customer
requirements)
→ Inappropriate physical evidence and servicescape
Company’s understanding of customer expectation
→Inadequate research
Gap 1 → Lack of upward communication
→ Insufficient relationship focus
→ Inadequate service recovery (for service failures)
Perceived Service
Objective: To increase ZOT
Controllable Uncontrollable
Through Service offering, Consumer Perception &
Perceived Communication (ESP, ISP) Choice
Service & Service Design Personal Needs
Personal Service
Alternatives Philosophy
Derived Service
Expectations
Through Communication Personal Needs

Self Perceived (ESP, ISP) & Service design Personal Service
Service Role Philosophy
Derived Service
Expectations
Communication (ESP)
Situational ×
Factors
Session 4
Transaction → Relationship
Marketing Marketing
One off exchanges, focus Ongoing exchanges,
Brand Management Customer Management
Short-term focus Time perspective Long-term focus
Mass communications Primary Personal

communication communications
Isolated market Customer feedback Ongoing dialogue
research mechanism
Mass mkts or mkt Market size Markets of one

segments
Market share, Criterion for success, Mind share, CLTV
Profitability, Brand critical metrics
Equity
Relationship Marketing basics
• Identify your customers
• Differentiate in terms of their needs and their value to

the company
• Interact in ways that improve cost efficiency and the

effectiveness of interactions
• Customize some aspects of the product/ services that are

offered

Ladder of Loyalty
• Partner
• Advocate
• Supporter
• Client
• Customer
• Prospect

Relational bonds
• Financial bonds – level 1
• Vol & freq rewards, Bundle & cross selling
• Social bonds – level 2

• Personal & continuous relationships
• Customization bonds – level 3

• Customer intimacy, mass customization, anticipation/ innovation
• Structural bonds – level 4

• Integrated info systems, joint investments, shared processes & equipment

CRM and STP
• MR & Analytics, Media, Ad agencies, Digital
Marketing boutiques, Consultants
• Credit cards STP
• Restaurant
• Hotels
• Hospitals
• Temples

Session 5
anita.Basalingappa@micamail.in
Pricing strategies:
•Rapid skimming strategy
•Rapid penetration strategy
•Slow penetration strategy
• Status quo pricing

• Competition based pricing
• Cost plus pricing
• Value in use pricing

3 approaches to pricing services
• 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

Activity Based Costing
• ABC management systems examine activities

needed to create and deliver service (do they add
value?)
• Must link resource expenses to:

• variety of products produced
• complexity of products
• demands made by individual customers

Additional pricing strategies
• Economy pricing
• Premium pricing
• Psychological pricing
• Bundled pricing
• Tiered pricing
• Value based pricing
• Hourly based pricing

Trading off Monetary and
Non- Monetary Costs
Clinic A Clinic B Clinic C

 Price Rs 150  Price Rs 300  Price Rs 500
 Located 1 hour away by  Located 15 min away  Located next to your
car or transit by car or transit office or college
 Next available  Next available  Next appointment is in
appointment is in 3 appointment is in 1 1 day
weeks week  Hours: Mon –Sat, 8am
 Hours: Monday –  Hours: Monday – – 10pm
Friday, 9am – 5pm Friday, 8am – 10pm  By appointment -
 Estimated wait at clinic  Estimated wait at clinic estimated wait at
is about 2 hours is about 30 - 45 clinic is about 0 to 15
minutes minutes

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

What Makes Service Pricing Strategy Different
(and Difficult)?
• No ownership of services--hard for firms to calculate financial costs of
creating an intangible performance
• Variability of inputs and outputs--how can firms define a “unit of

service” and establish basis for pricing?
• Many services hard for customers to evaluate--what are they getting in

return for their money?
• Importance of time factor--same service may have more value to

customers when delivered faster
• Delivery through physical or electronic channels--may create

differences in perceived value

Price Elasticity
Demand for service is price inelastic.

Big changes have little impact on demand.

Pricing Issues:
Putting Strategy into Practice
❖ 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?

Objectives of Pricing Strategies
• Revenue and profit objectives

• Seek profit
• Cover costs
• Patronage and user base-related objectives

• Build demand
• Build a user base

Ethical Concerns in Pricing
• Customers are vulnerable when service is hard to evaluate or they
don’t observe work
• Many services have complex pricing schedules
• hard to understand
• difficult to calculate full costs in advance of service
• Unfairness and misrepresentation in price promotions
• misleading advertising
• hidden charges
• Too many rules and regulations
• customers feel constrained, exploited
• customers unfairly penalized when plans change

Enhancing gross value
• Pricing Strategies to Reduce Uncertainty

• service guarantees
• benefit-driven (pricing that aspect of service that creates value)
• flat rate (quoting a fixed price in advance)
• Relationship Pricing
• non-price incentives
• discounts for volume purchases
• discounts for purchasing multiple services
• Low-cost Leadership
• Convince customers not to equate price with quality
• Must keep economic costs low to ensure profitability at low price

Paying for Service:
The Customer’s Perspective
Customer “expenditures” on service comprise both
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)

Determining the Total Costs of a Service to the
Consumer
Search Costs Price Operating Costs
Related Monetary
Costs Incidental
Expenses
Time Costs
Purchase and
Physical Costs
Use Costs
Psychological Costs
Sensory Costs
Necessary follow-
After Costs up
Problem
solving
• The right pricing strategy has to align with your business
goals, whether these are to maximize profitability, ensure
your business’ longevity, or grow your customer base
• Pricing strategies shape your prospects’ view of service

quality
• Your pricing strategy is a strategic tool to help you achieve

your business’ objectives
• maximizing profit
• growing market share
• keeping competition at bay
• building lasting relationships with customers
One that aligns with your business objectives

Session 6
Service recovery
To err is human …..
Action taken by a company in

response to a service failure

In absence of service recovery
• Dissatisfied customers
• Customers turning into terrorists
• -ve WOM
• Lose Customers
• Challenging the company through consumer courts
• Aggravate best employees
• Low employee morale

An effective service recovery
• Customer satisfaction & loyalty
• +ve WOM
• Service improved – information
• Assists doing it right the first time
• Reduces costs of failures

GIVES RISE TO -
RECOVERY PARADOX

Recovery Paradox is complex..
• It is difficult to fix mistakes
• Absurd to encourage service failure
• (reliability, most critical determinant of service quality is based
on – doing it right the first time)
• Very high recovery efforts will lead to profitable
results else..

How do customers react
to service failure?
Framework 1
SERVICE FAILURE
TAKE ACTION
Complain to provider Complain to friends Seek third party help
stay
switch
DO NOTHING
stay switch

Framework 2
SERVICE FAILURE
Complain
Suffer silently
Convert it into a truly

profitable way
Framework 3
(examining complaint handling relationships)
Purchasing event –
disatisfaction
Exit
Complain to firm
Interactional justice* Procedural justice* Distributive justice*
Third party action
Continued patronage

…Framework 3
Satisfaction with complaint handling
&
Prior experience with firm
TRUST & COMMITMENT
*Interactional Justice
*Procedural Justice
*Distributive Justice

Components of an effective service
recovery system
Increased
satisfaction & loyalty
Do the job right the Effective

first time
+ complaint handling
Identify service
complaints
Conduct research
Monitor complaints
Develop complaints
as opportunities
Resolve complaints
effectively
Develop effective
systems &
training in complaints
handling
Learn from
recovery experience
Conduct root
cause analysis

Guidelines for effective problem
resolution
• Act fast
• Admit mistakes but don’t be defensive
• Show that you understand the problem from each
customer’s point of view
• Don’t agree with customers
• Acknowledge the customer’s feelings either tacitly or
explicitly
• Give customers the benefit of doubt
• Clarify the steps needed to solve problems
• Keep customers informed about the progress
• Consider compensation
• Persevering to regain customer goodwill
SERVICE GUARANTEE
An assurance of quality of or length of use to be
expected from product offered for sale, often with
a promise of reimbursement

• Conditional guarantee
• Deliver within 45min else free delivery of pizza
• Unconditional guarantee
• 100% satisfaction guarantee

Warranty
• Are formal statements of expected product
performance by the manufacturer.
• Products under warranty can be returned to the
manufacturer, or designated repair center for
repair, replacement or refund
• Whether expressed or implied are legally
enforceable

Benefits of service guarantees
• A good guarantee forces the company to focus on
customers
• Sets clear standards for organization
• Generates immediate & relevant feedback from
customers
• Provides instant opportunity to recover
• Continuous improvement efforts
• Employee morale & loyalty
• For customers it reduces sense of risk & builds
confidence
Types of service guarantees
• Satisfaction vs Service attribute guarantees
• External vs Internal guarantees
• Characteristics of effective guarantees
• Unconditional
• Meaningful
• Easy to understand
• Easy to implement/invoke

When not to use a guarantee
• Existing service quality is poor
• Guarantee doesn’t fit service image – very superior
image
• Service quality is truly uncontrollable
• Costs of guarantee outweigh benefits
• Customer perceives little risk in service
• Little perceived variability in service quality among
competitors

Product & Services
Marketing
Session 7
Yield Management

Capacity Constraint Types of Service
Time (Human expertise) Legal; Consulting; Accounting; Medical

Labour (Firm’s POV) Law; Accounting; Consulting; Health; Hotel
Equipment Delivery; Telecom; Health club
Facilities Hotels; Restaurants; Airlines/Railways/Bus; Schools;
Hospitals; Theatres

The Strategic Levers of
Revenue (Yield) Management
Price
Fixed Variable
Duration
Movies Hotel Rooms

Predictable Event Space Airline Seats
Rental Cars
Restaurants
Unpredictable Club memberships Hospitals

Dealing with Common Customer Conflicts Arising from
Revenue Management
Customer conflict can arise from: Marketing tools to reduce

customer conflicts:
 Perceived Unfairness &  Fenced Pricing
Perceived Financial Risk  Bundling
Associated with Multi-Tier Pricing  Categorising
and Selective Inventory  High Published Price
Availability
 Unfulfilled Inventory Commitment  Well designed Customer Recovery
Programme for Oversale
 Unfulfilled Demand of Regular  Preferred Availability Policies
Customers
 Unfulfilled Price Expectation of  Offer Lower Displacement Cost
Group Customers Alternatives
 Change in the Nature of the  Physical Segregation & Perceptible
Service Extra Service
 Set Optimal Capacity Utilisation Level

Optimum vs maximum use of capacity

Managing Demand & Supply
How to fill 300 rooms for all 365 days of a year??

• Excess demand (Business lost)
• Maximum capacity utilized
• Optimum utility of capacity (ideal)
• Excess capacity (Business loss)
• Low utilization – may send bad signals

What can be done when demand & capacity
cannot be aligned?
• Peak – waiting line strategies, non peak time
incentives, temporary capacity increase
• Low – yield management

• Strategies for matching capacity and
demand
• Non peak time pricing/ incentives/ varying
facilities
• Strategies for adjusting capacity and

demand
• Temporary increase in capacity: Hire
services; Outsource services; Cross train
employees
• Waiting line strategies

• Multiple queues; single queue; Token
number based queue

Waiting line strategies
• Employ operational logic to reduce wait
• Make waiting fun – atleast tolerable
• Establish a reservation process
• Differentiate waiting customers

Yield
Management
• Balancing capacity utilization, pricing,
market segmentation & financial return
• Actual Revenue/ Potential Revenue

Session 8
New service development
Highlights of NSD
• What are new to the world offerings / value
innovations?
• Zoom video streaming platform
• Mobile pet cleaning services
• Why is there a high failure of New launches?

• 64 ideas :16 viable :8 marketable - executable:
4 prototypes: 2 products
Dr Anita Basalingappa | Professor | MICA

• Major service innovations--new core products for previously undefined
markets
• Major process innovations--using new processes to deliver existing

products and offer extra benefits
• Product line extensions--additions to current product lines
• Process line extensions--alternative delivery procedures
• Supplementary service innovations--adding new or improved facilitating

or enhancing elements
• Style changes--visible changes in service design or scripts

• Makes sense to understand the process of
NPD/NSD to avoid pitfalls
• Theory of Diffusion of Innovation in goods vs

services
• Innovators, Early adopters, Late adopters, Laggards

Challenges to NSD
• Oversimplification
• Incompleteness
• Biased Interpretation
• Subjective – based on degree of exposure &
personal bias

Process of NSD
• Business Strategy Development or Review
• New Service Strategy Development
• Idea Generation
• Screen ideas against new service strategy
• Concept Dev & Evaluation
• Test concept with customers & employees
• Business Analysis
• Test for profitability & feasibility
• Service Development & Testing
• Conduct service prototype test
• Market Testing
• Test service & other marketing mix elements
• Commercialization
• Post Intro Evaluation

Service Blueprint Components
A detailed plan for work to be carried out
– process, points of contact, evidence
A detailed plan for work to be carried out

– process, points of contact, evidence

Service Development through Delivery Options:
Alternative Meal Service Formats
Fast-Food
Restaurant See sign Park and Order meal, Pick up Find table Clear table
(Eat In) enter and pay meal and eat and leave
Drive-In See sign Stop car at Order via Get meal at Drive away,
Restaurant order point microphone pickup, pay eat later
(Take Out)
Home Telephone Order food, Driver rings Pay driver,

Delivery take food Eat
Restaurant give address doorbell
Home Arrange to Plan meal, Food and Meal is Staff cleans

Catering meet caterer pay deposit staff arrive prepared Eat up; pay
and served

Building a Service Blueprint

Success factors for NSD
• Market synergy
• Good fit between new product and firm’s image/resources
• Advantage vs. competition in meeting customers’ needs
• Strong support from firm during/after launch
• Firm understands customer purchase decision behavior
• Organizational factors
• Strong interfunctional cooperation and coordination
• Internal marketing to educate staff on new product and its
competition
• Employees understand importance of new services to firm
• Market research factors
• Scientific studies conducted early in development process
• Product concept well defined before undertaking field studies

Hard and Soft Measures of Service Quality
• Hard measures refer to standards and measures that can be

counted, timed or measured through audits
• typically operational processes or outcomes
• e.g. how many trains arrived late?
• Soft measures refer to standards and measures that cannot

easily be observed and must be collected by talking to
customers, employees or others
• e.g. SERVQUAL, surveys, and customer advisory panels.
• Control charts are useful for displaying performance over

time against specific quality standards.

Hard Measures of Service Quality
• Control charts to monitor a single variable

• Service quality indices
• Root cause analysis (fishbone charts)

Control Chart: Percent of Flights
Leaving within 15 Minutes of Schedule
100%
90%
80%
70%
60%
J F M A M J J A S O N D
Month

Composition of FedEx’s
Service Quality Index (SQI)
Weighting No of Incidents Daily
Failure Type Factor
X =
Points
Late Delivery 5
Tracing request unanswered 1
Complaints reopened 5
Missing proofs of delivery 1
Invoice adjustments 1
Missed pickups 10
Lost packages 10
Damaged packages 10
Aircraft Delays (minutes) 5
Overcharged (packages missing label) 5
Abandoned calls 1
Total Failure Points (SQI) = XXX,XXX

Cause and Effect Chart for
Airline Departure Delays
Facilities,
Front-Stage Procedures
Equipment Personnel
Aircraft late to Gate agents cannot Delayed check-in

Arrive late gate process fast enough procedure
Oversized bags Mechanical Acceptance of late
Customers Failures
Customers Late/unavailable passengers
Late pushback airline crew
Delayed
Departures
Late food Late cabin
service cleaners
Other Causes Poor announcement of
Weather Late baggage departures
Air traffic
Late fuel
Materials, Backstage Information

Supplies
Personnel

Soft
customer
defined
measures

Process for setting customer defined
standards
• Service encounter sequence
• Translate cust exp into beh/actions
• Select beh/actions into standards
• Set hard and soft standards
• Develop f/b mechanisms
• Establish measures
• Track measures
• f/b
• Update

Tools to Address Service Quality Problems
• Fishbone diagrams: A cause-and-effect diagram to identify

potential causes of problems.
• Pareto charts: Separating the trivial from the important.

Often, a majority of problems is caused by a minority of
causes i.e. the 80/20 rule.
• Blueprinting: A visualization of service delivery. It allows one

to identify fail points in both the frontstage and backstage.

Many of the services are the competing factors for
product/service offerings that have been built
around a manufactured tangible good (*SDL)
• Automobile maintenance and repair
• Medical tourism
• IT solutions
• Restaurant
• Shopping ‘experience’

People
• They are the Service

• They are the Organization in the customer’s eyes
• They are the Brand
• They are Marketers

Fin.

Quick
Review
8 sessions
Sullivan Ford Auto; Dr Beckitt’s Dental Clinic; Aarion Bank; Indigo Airlines; Custom Research Inc; Nor'easters Springfield; Accra Beach Hotel

Most Goods Most Services
4Ps to 7Ps
SDL
Easy Difficult
to evaluate to evaluate
Clothing
Haircut
Chair
Motor vehicle
Foods
Computer repair
Entertainment
Restaurant meals
Lawn fertilizer
Complex surgery
Legal services
People processing
Possession processing
Mental Stimulus processing
High in search High in experience High in credence Information processing
attributes attributes attributes
N u r s i n g H om e
H a i r Cu t
4 - S t a r H ot el
M a n a g em en t Con s u l t i n g
G oo d R es t a u r a n t
T el ep h on e B a n k i n g
A i r l i n e T r a v e l (E co n .)
R et a i l B a n k i n g Ca r R ep a i r
o te I n s u r a cen
D r y Cl ea n i n g
Intangibility F a s t F ood Movie Theater
Heterogeneity Ca b l e T V
Perishability
Inseparability Mail Based Repairs
Internet-based
Services
• Service Quality
• Gaps model of service quality: to reduce difference

between expectation and perception if not equate or
exceed performance beyond expectations
• Identify controllable and uncontrollable lapses across the
gaps identified in the process (sequence of actions in
service creation and delivery)

Types of Buying Behavior
Consumer Behavior in services
Buying decision process/ Consumer Journey
Zone of Tolerance
Model of Customer Expectations
Model of Customer Perceptions

Relationship Marketing
Identify | Differentiate | Interact | Customize
Ladder of Loyalty
Relationship bonds

Challenges in Pricing of Services | Monetary and Non –monetary costs of pricing
Status quo pricing

Competition based pricing
Cost plus pricing
Value in use pricing Pricing in OTT platforms
AVOD, SVOD, Freemium

Determining the Total Costs of a Service to the
Consumer
Search Costs Price Operating Costs
Related Monetary
Costs Incidental
Expenses
Time Costs
Purchase and
Physical Costs
Use Costs
Psychological Costs
Sensory Costs
Necessary follow-
After Costs up
Problem
solving
Service failures
Service recovery
Recovery paradox
Service Guarantee

Yield Management
Managing demand and capacity
Balancing capacity utilisation, pricing, market
segmentation & financial return

• New Service Development
• Challenges
• Over simplification
• Incompletedness
• Biased Interpretation
• Subjective – based on the degree of exposure & personal bias
• Service Blueprint Components
• Hard Measures & Soft Measures of Service Quality

• Buyer Utility Map

Fin.

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Product & Services Marketing

It would help if you revisited your session readings

Developed solely for ease of communication in class

Dr Anita Basalingappa, Professor, MICA

• Services are becoming an increasing share of the

Dr Anita Basalingappa, Professor, MICA

Dr Anita Basalingappa, Professor, MICA

Dr Anita Basalingappa, Professor, MICA

Dr Anita Basalingappa, Professor, MICA

• Customers don’t obtain ownership of services.

• Service products are short-lived/ transient/ fleeting and cannot be inventoried.

• Intangible elements dominate value creation.

• Customers may be involved in the production process.

• Other people may form part of the product.

• There is greater variability in operational inputs and outputs.

• Many services are difficult for customers to evaluate.

• The time factor assumes great importance.

• Distribution channels take both physical and electronic forms.

Dr Anita Basalingappa, Professor, MICA

Dr Anita Basalingappa, Professor, MICA

• Tell customers what to expect, what to look for.

• Create trusted brand with reputation for considerate,

• Encourage positive word-of-mouth from satisfied

Dr Anita Basalingappa, Professor, MICA

• Offer convenience of extended service hours, even 24/7.

• Understand customers’ time constraints and priorities.

• Minimize waiting time.

• Look for ways to compete on speed.

Dr Anita Basalingappa, Professor, MICA

• Tangible activities must be delivered through physical

• Use electronic channels (e.g., Internet, telephone) to

Dr Anita Basalingappa, Professor, MICA

Nur sing H ome

Retail Banking Car Repair

Mail Based Repairs

Emphasizes encounters Internet-based

• What does our service operation actually do?

• What sorts of processes are involved in creating our

• Where do customers fit into our operations?

Dr Anita Basalingappa, Professor, MICA

Dr Anita Basalingappa, Professor, MICA

Dr Anita Basalingappa, Professor, MICA

• ROQ is based on four assumptions:

• Implication: Quality improvement efforts may

Dr Anita Basalingappa, Professor, MICA

Satisfy Target Customers

Satisfy Target Customers

Dr Anita Basalingappa, Professor, MICA

• Productivity measures amount of output produced

• Improvement in productivity means an

• Intangible nature of many service elements makes

Dr Anita Basalingappa, Professor, MICA

• Effectiveness: degree to which firm is meeting its goals

• Productivity: financial valuation of outputs to inputs

Dr Anita Basalingappa, Professor, MICA

• Firms that are more effective in consistently delivering

• Measures with customers as denominator include: