Services Marketing

Advertising and Brand Creation

Challenges
Consumer-Based Brand Equity
Pyramid

Consumer- 4 Intense, Active Loyalty

Consumer Acceptance Cycle

Brand
Resonance

Consumer Consumer 3 Positive Accessible Reactions

Judgments Feelings

Brand Brand 2 Points of Difference

Performance Imagery

Brand Salience 1 Deep Broad Brand Awareness

 Intangibility
• Types of Intangibility
– Incorporeal Existence
– Abstractness
– Generality
– Non-searchability
– Mental Impalpability
• Type of Advertising used is
Transformational Advertising
 Qualities of Advertising in
Services
• Directed towards Employees
• Generate or stimulate Word of mouth
• Use of concrete symbols (Bull in Merrill
Lynch)
• Use behind the scenes images
• Use of service scripts to set correct
expecations
 Advertising Strategy Property of Intangibility Description
Physical Representation Incorporeal Existence Show Physical Components of the
Service
Incorporeal Existence
Documentation

System Documentation Generality Objectively Document physical

system capacity

Performance Documentation Generality Document and cite past performance

statistics or cite independently
Non Searchability audited performance

Consumption Documentation Non Searchability Obtain and present consumer

testimonials

Episodes

Service Consumption episode Abstractness Capture and Display typical

customers benefiting from a service

Service Performance Episode Generality Present a vivid story of an actual

service delivery incident

Service Process Episode Impalpability Present a vivid documentary on a

step-by-step service process

Case History Episode Impalpability Present an actual case history of what

the firm did for a specific client
 Service Management

Pricing & Customer Lifetime Value

(CLTV)
 Why Prices?
• Only marketing mix that can immediately
impact both sales and revenues.
• However, the only marketing mix that
depends more on outsiders than insiders.
– Company Objectives
– Costs
– Customers
– Competitors
– Changes in the above
 Theories of Price?
• Pricing Theory of Accounting: The accounting aspect
of price is targeted at cost estimation and rationalisation
by the firm.
• Pricing Theory in Economics: The crux of this theory is
the Law of Demand which states that, ceteris paribus,
quantity demanded of a product is inversely proportional
to price. While this law and its implications have been
extensively researched, it was soon found by marketing
strategists that microeconomic theory was unable to
explain the pricing phenomena for any useful purpose.
• Pricing Theory in Behavioural Science: Starts with the
St. Petersburg's Paradox and determines the way
customer looks at the “Value” concept in price.
 Conceptualizing Price
• Willingness to pay
– How much is the customer willing to pay for the product and
services
• Distributive Justice
– “Fairness” Concept
• Both these concepts are difficult to measure for services
since services are intangibles and therefore
communicating the same becomes tough. All models
that exist are from a “Manufacturing” view point.
– Marginal Price
– Cost Plus Price
– Value Price
 The Problem with Pricing Services—Demand

• Demand Considerations: Search difficult and

hence demand tends to be inelastic, therefore,
price sensitivity is lower
• In addition, cross elasticity for complementary
goods need to be considered since there is an
implied bundling of service products.
• Therefore, price discrimination of 1st 2nd and 3rd
degree is possible in services leading to
questions of ethics/legality in services pricing.
 The Problem with Pricing Services—Cost

• Knowledge of actual prices is post

consumption
• Cost oriented pricing is tough in services
• Services tend to have a high
Fixed/variable cost ratio since there is no
WIP & Rawmaterials, therefore breakeven
takes a long time.
• Economies of scale tend to be limited
since the services are labor intensive
 The Problem with Pricing Services--
Customers
• Price is sometimes the only tangible cue
available to the customer pre-purchase
• Therefore, this becomes a cue for quality
• Therefore, reservation prices (reference
prices) are difficult to be evaluated or
created in service customers
 The Problem with Pricing Services—
Competitive
• It is difficult to compare prices of
competitors
• Self Service is a viable competitive
alternative
 The Problem with Pricing Services—Profit

• Bundling of services makes it difficult for

evaluating individual product prices
• Which means that price bundling is
possible in services is possible to a
greater extent
 Strategies with respect to Pricing
• Cost Plus Pricing
• Price Discrimination
– 1st Degree
– 2nd Degree
– 3rd Degree
• Bundling
• Peak Load
• Ramsay’s Pricing Model
 Concept of Advance Pricing
• Separating Purchase from Consumption
– Selling Vacations, Entertainment, Sporting Events etc.
– “Trapped”
– Black Market?
• Uncertainty about their valuations of the Service
at a later date.
• Uncertainty in seller costs
• Changes in quantity purchased
• Buyer Demand for flexibility
• Can build in 1st degree price discrimination.
 CLTV
• Segmentation has become easier with
availability of Data
• Firms need to systematically estimate
profitability from every customer
• The need is to generate customer who will do
repeat purchase and will also require lower
maintenance.
• The firm needs to compare initial acquisition
costs with profits generated over the customer’s
expected relationship with the firm
The Customer Asset Based Model

1. Evaluate the customer base Aggregate Level

2. Evaluate Customer Acquisition

Retention and Abandonment

3. Select Customer/Segment- Individual/

Specific Marketing Actions Segment Level

4. Observe Customer/Segment
Specific Results

5. Observe Aggregate Results Aggregate Level

Services Marketing

Relationship Marketing and

Loyalty Programs
What is Relationship Marketing?
• Relationship marketing centers on developing a
continuous relationship with consumers across a
family of related products and services
– A relationship has to be established – It does not
happen by chance
– Relationship is long term
– The customer should want and acknowledge a
relationship
– It should be a win-win situation for both the customer
and the service provider.
Are these examples of Relationship
Marketing?
• Database Marketing
• Loyalty Programs
• True Relationship is like marriage—you
stick to the same spouse inspite of
available and more attractive alternatives.
 Relationships, Pseudo-
Relationships and Encounters
Relationships Pseudo Encounters
Relationships

Reciprocal Yes, with With No

Provider Company
Expect Yes, with With No
Future provider Company
Shared Yes, with With No
Information Provider Company
 Issue Relationship Pseudo Relationship
Infrastructure No Yes
Feedback Inherent To be Managed
Basis Trust Rules/Scripts
Customization Yes Standardized
Provider Type Expertise Efficiency/Convenience
Wait Willing Un willing
Appointment Yes Spontaneity
Difficulty Yes to start and end Easy to enter and leave
Type of service Credence Experience
Ties and Networking Yes No
Emotional Involvement Yes No (Emotional Labor)
Knowledge of others Yes No
Discrimination Possible Not Possible
Attributions External Internal for negative and
external for positive
 Levels of Retention Strategy
Level Bond Type Marketing Customization Main Competitive
Orientation Marketing Mix Advantage
Element Potential

1 Financial Customer Low Price Low

2 Financial and Client Medium Personal Medium

Social Communi
cation

3 Financial Client Medium to Service High

Social and High Delivery
Structural
 Brand Loyalty
• Biased Behavioral responses expressed over
time by a customer with respect to one or more
alternative brands out of a set of such brands–
Jacoby and Chestnut (1978)
• When a customer feels so strongly that you can
best meet his or her requirement, your
competition is excluded from his or her
consideration set, and he or she buys
exclusively from you – referring to you as “my
hotel”, “my airline”—Rob Smith (1998)
 Problems with Loyalty in Services
• Unlike manufactured Goods where the decision to buy
your product occurs at the point of purchase, for
services, the decision is made prior to purchase. So,
loyalty programs have to consider not only current sales
but future behavior
• For manufactured goods, switching occurs in a place
outside the control of the manufacturer, so attributions
for product failure do not necessarily reflect on the
manufacturer (generally transaction related—Price,
Product not available, Variety Seeking etc.). But in
Services, the key driver to switching is Service Failures;
either in the core service, failed encounters or inability to
manage service failures.
Defensive Strategies to manage switching and
loyalty in service settings
 Concept of Net Promoter Score
• Use the Net Promoter Score.
• Ask your customers “How likely is it that you
would recommend us to a friend or colleague?”
• Rate the likelihood on a scale of 1 (not at all
likely) to 10 (extremely likely)
• Responses tend to cluster around 3 groups
– Promoters– Ratings of 9 and above
– Passively satisfieds– Ratings of 7 & 8
– Detractors—Ratings of 6 and below
 NPS
• Net Promoter Score = % Promoters - %
Detractors
• This metric correlates well with company
growth rates
• New Studies have shown that a 12 point
increase in NPS doubles the growth rate
• Study by LSE found that a 7-point
increase in NPS on an average with one
% point increase in growth rate.
 Why does this Happen?
• Simply put the promoters add more value
to the firm by having more CLTV by
– Higher Retention rates
– Less price sensitive
– Spend more
– Reduction in costs
– Better Word of Mouth
• However, can you put a value to Net
Promoters?
 Study of Dell Inc.
• Dells 8 million customers were each worth $210 for the
company (CLTV)
• 60% of customers were the Promoters—their value was
$328 i.e. $118 more than average
• 15% of customers were the Detractors: each was worth -
$ 57 i.e. each detractor was actually eroding the
company’s profits. Therefore even if you could covert
10% of the detractors to promoters, 2 million USD to
bottom line. An astonishing figure indeed!
• Therefore, the 1st question is when we invest on loyalty
programmes, should we invest in Promoters or
Detractors.
• The 2nd question is perhaps more important, what about
customers who have unpredictable behavior!
 To sum up….
• At low levels of attitudinal loyalty, the relative
attractiveness of a reward programme will have
a stronger positive effect on share of wallet than
at higher levels of attitudinal loyalty.
• At lower levels of attitudinal loyalty, the
perceived switching costs associated with a
reward programme will have a stronger positive
effect on share of wallet than at higher levels of
attitudinal loyalty.
Services Marketing

Strategizing on HRM
 Why Service Stinks…..
• Apathy: DILLIGAD—Do I look like I give a
damn?
• Brush off: “I want you to go away” look
• Coldness: “I do not care what you really want”
• Condescension: “You are the client/patient, so
you must be stupid”
• Robotism: “Customers are inputs to be
processed”
• Rulebook: “Please apply in triplicates for a
refund”
• Runaround: “Office-Office”
 Developing Service Culture—The
Role of HRM
• The Climates and cultures for service Excellence
by employees in service business are related to
organizational effectiveness as reflected by
Consumer Satisfaction
• HRM Practices (Selection, training, reward
systems, and so on) are a central means by
which a firm can manage its service culture and
shape it to ‘fit’ its own strategically defined
segments
• Tight integration of HRM with other
organizational functions is the key to having the
desired effect on customer satisfaction.
• Employees are not only the “How” of a
services but also the “What”—Substitutes
of Intangibility
• Effects of HRM “spill over” onto to
customers i.e. employee satisfaction
influences customer satisfaction
 Service Culture Dimensions
• Managerial Behavior that rewards, supports,
plans and expects service excellence
• Systems support in form of marketing,
personnel, and operations
• Customer attraction and retention behaviors
that demonstrate the importance of customers
• Logistics support for the tools, equipment,
supplies, and facilities needed for delivering
services.
 Issue 1: Subordinate versus
Professional
• Boundary Spanning Roles
– Information Transfer
– Representation

Subordinate Professional
Service Roles Service Roles
The service providers are subordinate The service providers, due to
to the organization and customers their expertise are often superior
to the organization and
customers
 Issue 2: Sources of Conflict
• Person/role Conflict
– Inequality Dilemmas
– Feelings versus Behavior
– Territorial Conflict
• Organisation/Client Conflict
– A question of control—A subordinate role may
have a greater conflict than a professional
role.
• Interclient Conflict
 Therefore Stress….
• Whom to obey The Client or The
Organisation
– Frustration
– Dissatisfaction
– Turnover
Completely
Avoid Customers
Side with Customers
People Processing
 Issue 4: Empowerment
• Benefits
– Responsive
– Employee Satisfied
– Quality improvement without market research
• Costs
– Recruiting costs and of course, reward costs
– Customization problem?
– Service Provider Generosity?
• Perhaps Empowerment is a function of whether
you want a genuine relationship with the
customer or a pseudo-relationship.
 Issue 4: Empowerment (Contd.)
Involvement Oriented
High Involvement: Usually Professional Services; Top
Management and Profit Sharing

1. Basic Business
Strategy
Job Involvement: Skill based, specifically for Middle
2. Tie to the Management
Customers

3. Technology

4. Business Suggestion Involvement: Make Suggestions No

Environment implementation
5. Type of
people

Production Line: Workers Know Nothing “Idiot Proof Jobs

Control Oriented
 The Fundamental Question,
However is….
• What is the relationship between
– Employee Management
– Customer Satisfaction
– Financial Performance

The Service Profit Chain Analysis

 Revenue
Growth
Internal External
Customer Customer Customer
Service Employees Service Value Satisfaction
Loyalty
Quality Quality
Profitabi-
lity

The Service Profit Chain

 Important Question
• It all sounds very nice! But do these
relationships exist in practice?
• The question is not of some fancy
hypothesis—Are there hard measures to
view these relationships? If yes, who
implemented it and what was the result.
• 4 companies have done it. We will discuss
the experience of Sears Roebuck and Co.
 Sears Roebuck and Company
• In 1992, Sears incurred a loss of $ 3.9 billion on
a sales of $ 52 billion. It fell from the top position
in US retail industry to an insignificant 3rd behind
Kmart and Wal-Mart
• The Board brought in Arthur Martinez, who
implemented a model quite similar to the SPC
leading to an increase in stock prices of Sears
by 274% within 6 years
• The basic premise was that while the managers
knew that growth is to be obtained, they were
unsure as to what is to be done on a day-to-day
basis so that Growth happens.
 The Model
• Knowing the Complexities in the SPC
model, Sears developed a model of its
own which contained the basic elements
of SPC. The Model is
Work X Shop = Invest

Compelling Compelling Compelling

Place to Work × Place to Shop = Place to invest
The Relationships as developed by
Sears Data
• A 1.3 unit rise in Customer Impression (as
measured by compelling place to shop)
resulted in 0.5% growth in revenues
• Again 5 units of Employee Attitude (as
measured by Compelling place to work)
resulted in a 1.3 units increase in
Customer Impression
 Measure of Compelling Place to
Shop
• Directly Proportional to
– Employee competency
– Employee Helpfulness } Employee actions

}
– Right Merchandise in stock
– Value for price paid Internal
Service
– Returning Merchandise (Low Risk)
 Measures of Compelling Place To
Work
• By way of a questionnaire
– I Like the kind of work I do
– My Work gives me a sense of accomplishment
– I am proud to say that I work at Sears
– How does the amount of work you are expected to do influence
your overall attitude about your job?
– How does the physical working conditions influence your overall
attitude about your job?
– How does the way you are treated by your supervisors influence
your overall attitude about your job?
– I feel good about the future of the company
– Sears is making changes necessary to compete effectively
– I understand our business strategy
– Do you see a connection between what you do and the
company’s strategic objectives.
 The Service Profit Chain at Sears Roebuck &
Company

Revenue
Growth
Employees
Internal Satisfaction External
Capability Customer Customer Customer
Service Productivity Service Value Satisfaction
Loyalty Loyalty
Quality Quality
Profitabi-
lity

Work X Shop = Invest

 Take Aways from Sears’
Experience
• Managers who implement SPC have to
understand the links
• Measure Performance on the elements of the
chain
• Link Measurements to variable compensation
• Linking the Competitive Positioning with
Orgainsational Capabilities
– What to do?
– How well to do it?
 Future Directions of SPC
• Full Profit Potential Analysis
– Extension of CLTV
– Stage 1: How much is the customer’s value for the
next transaction? (Customer is a Point on the map)
– Stage 2: How much is the customer’s Value for his
lifetime with the company (CLTV) (customer is a line
on the map)
– Stage 3: Introduce more complexities into the model
(The map it self is a multi-dimensional figure)
• What if he buys more?
• What if the margins on our product increases
• What if Customers Behavior Pattern is changed etc. etc.
A final Word…..

Great
High Employee
Employee
Motivation
Satisfaction

Quality
“Wheel” High level of
Increased Service quality
Volume of Compared
Business To customer
expectations

Great
Customer
satisfaction
Good Luck and God Bless