Services Marketing

Consumer Behavior
 So far…
• What makes services different?
• How to position service? Marketing vs.
production orientation.
• 3 additional p’s of Services Marketing.
• Internal, Interactional and External Marketing
 Organization External Marketing
Internal Marketing 1. Culture
2. Perceptions Technical/
3. Analysis Physical /Corporate
4. Strategy
Job Environment / 5. Implementation Quality and Brand
Employee 6. Control Image/Information
Benefits
Customer Service Patronage/
orientation/ Process Payment/
Development/ Recommendation/
Information
Information
Service Functional Service Quality/Delivery/
Production/ Information Customers
Providers 1. Culture
1. Culture 2. Perceptions
2. Perceptions 3. Motivations
3. Motivations
4. Expectations
4. Expectations
Functional Service Quality/Delivery/
Production/ Information

Interactive Marketing

Service Marketing Trinity

 1 Issue—Risk
st

• Uncertainty regarding buying goals (Consequence)

• Uncertainty regarding brands (Choice)
• Uncertainty on chosen brand.
• Specifically for services—Expectation Management
– What to expect? Standardize? Advertisement?
– Knowledge. Co-Producers?
• Ability
• Attitude
• What reduces risk
• Communication—”Tangibility” issues?
• Price—”Fair Price” issues
• Information—”Tangibility” Issues?
• Guarantees—”Tangibility” & “Fairness” issues?
• How does the consumer manage risks
– Problem Recognition
– Search & Evaluation
– Purchase– Lack of Surrogate Consumption (who controls the transaction) and Service
Encounter Issues
– Post Purchase—Satisfaction Issues
 Formation of Expectations

Enduring Service
Intensifiers
Explicit Service
Desired Service Promises

Personal Needs
Implicit Service
Zone Promises

of
Transitory Service Tolerance Word-of-Mouth
Intensifiers

Past Experience
Perceived Service
Alternatives
Adequate Service

Self-Perceived Predicted
Service Role
Service
Situational
Factors
 Perceived Control
• Why Control?
– Human need to demonstrate one’s competence, superiority,
and mastery over the environment and other people!
• Who Controls?
– Management?
– Customer?
– Employees?
– Environment?
 Control Conflicts

Ex
ng

te
eti Firm

rn
k
ar

al
(Procedures and Environment)
lM

M
a

ar
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er

ke
Int

tin
Autonomy/Control Satisfaction/Control

g
Vs. Vs.
Efficiency Efficiency

Contact Personnel Customers

Control—Customer, Employee or
Environment
Attribution for failure or Success
—Customer, Employee or
Environment
 Attribution– Who is responsible?
• Accept Responsibility for Success and reject
responsibility for failures
• Overestimate their ability to cause an
outcome that is actually determined by
chance—Lake Wobegon Syndrome
• Believe that their own behavior is driven by
situational factors and that the other’s
behavior is determined by their personality
traits.
 Issues
• Can we increase the perceived control and
thereby increase the perceived value for
money?
• Increase the cognitive control element by
customer education (reduce uncertainty)?
• Can we build perceived control into our
service encounter?
 2 Issue—Trust
nd

• Service Consumption is more risky and therefore

trust relationship is more relevant to services
marketing.
• Market Offerings are difficult to evaluate. The degree
varies between low difficulty for search goods and
high for belief (credence goods)
• Most goods have low level of trust relationship while
services have a high level of trust relationships.
 Generalized Personality based
Trust—
Trust— --General tendency to trust/distrust
Derived from social norms based on personality traits

Consumer
Trust

Process Based
System Trust—
Trust— Developed through
Derived from legal system or repeated interactions
Professional or Bureaucracy Firm/Brand Specific
 Tradeoffs…
• Higher Systems trust makes it easy for
communication/ branding/ etc.
• Higher Personalized Trust makes customer
satisfied
 The Service-Trust Tradeoff

Degree of Interaction and Customization

Low High

Service Factory
Low •Airlines Service Shop
Degree of labor Intensity

•Trucking •Hospitals
•Hotels •Auto Repair
•Resorts & Recreation •Other Repair Services

Mass Service Professional

•Retailing
•Wholesaling Service
High •Schools •Doctors
•Retail Banking •Accountants
•Consultants

So, very important issue! Not all services need

the same strategy!
 News Paper Report on Air Emirates

• Air Emirates reported to the Security Guards

of the Kolkata Airport on Arrival that a
customer misbehaved with the crew.
• Reports suggest that the altercation started
when the customer wanted to be served an
early dinner so that he can have his medicines
• So, what is to be done?
 News Paper Report on Air Emirates

• Air Emirates reported to the Security Guards

of the Kolkata Airport on Arrival that a
customer misbehaved with the crew.
• Reports suggest that the altercation started
when the customer wanted to be served an
early dinner so that he can have his medicines
• So, what is to be done?
This would require a sync between…

Target Market

Service Operating
Service Design
System

Is there a sync?
 However……
• This would require a huge amount of work to
be done by customers… and therefore,

Customer Participation
 What is Customer Participation
• Is a behavioral concept that refers to the
actions and resources supplied by the
customers for service production and delivery.
• It includes mental, physical and emotional
inputs and efforts put in by the customer!
• Is it different from Customer Involvement and
customer contact?
 Customer Operator Roles

Only Presence is
Self Service (ATMs)
required (surgery)
Challenge in Managing Customer Operators

• More in number
• Less Capable
• Selection difficult esp. for mass services
• Customers have greater discretionary powers
with regard to behavior and performance on
the job.
• Difficult to ‘reward/punish’ behavior and
performance
All this leads to Variability induced by customers
 So, why is this problem?
• No choice! After all, I cannot teach if you do not
come to class. Similarly, a barber cannot cut the
hair of a customer in his absence!
• However, a company can look at this issue of
customer operators strategically
– For example, if I depend only on your physical
presence in the class and would teach you here
without you having to do any work outside the class, I
will never be able to complete the course nor make it
as interesting as it is today (sic!)
 Some companies……
• ZIPCAR—keeps the costs down by making the customers do most of the “production work”
• eBay—eliminates frauds by involving customers to “rate” suppliers
• XLRI—Makes students work hard outside the class
• Banks—Cut down on expansion costs by internet banking and ATMs and make customers
do the work.
• Emirates Air—insists on tele-check-in/ self check-in at kiosks by all economy class
passengers and thereby reduces costs
• Jet Airways goes one step forward—It uses net check-in as a kind of reward for its preferred
customers
• Indian Railways’ reach has expanded to international through internet reservation without
having to invest in offices at foreign locations! And makes money out of internet
reservation!
• Amazon, Wal-Mart, Reliance Retail, Big Bazar, ICICI-Lombart and the list is endless…….All
use some form of Customer operator roles as a strategic input to their business!
• IKEA: Reduces costs by asking customers to cart and assemble the furniture
themselves…..thereby giving customers more options (assortment)
 Strategic importance of Customer
Participation
• Increased Productivity—Zipcar, XLRI, Emirates
etc.
• Value Added Service—Jet Airways
• Filling Niches—Dell Computers (net based
channel)
• Reaching Unserved Markets –Indian Railways,
Banks (esp. credit card companies)
• Enhancing customer loyalty and retention
through improved service quality—eBay,
Shouldice Hospital , Club Med
 Why would customers work?
• Convenience
– Decision Convenience
– Access Convenience
– Transaction Convenience
– Benefit Convenience
– Post-Benefit Convenience
• Do meaningful and enjoyable tasks themselves
– Club Med where the Guests create the “games”
– “Build-a-Bear” asks the young customers to build their own teddy bear
– A hotel asks customers to cook themselves
• Transparency and control
• Peer Involvement: XLRI?
• Cost Savings
• Lack of Trust esp. for a valuable service
 Issues involved in Customer Operators
• Number of Operators
– Mistakes are larger so, processes must be more robust.
• Selection of Operators
– Focus has usually been on profitability and/or credit worthiness—very
seldom on “customer operator roles”—an exception are academic institutes.
• Ability of Operators
– Focus on ability is very low. Some organizations are mandated by law to
include people with different abilities that might create a problem.
• Discretion of Operators
– Most companies skirt this issue by not allowing any discretion to the
operators. But despite this, a huge amount of discretion still persist. For
example, a customer has the discretion of withdrawing money from ATM or
from the teller—this leads to double costs for the Bank.
Problem of Variability Induced by Customers

Subjective
Arrival Request Capability Effort
Preference
 SWA
• What is the variability that SWA tries to
manage?
– Subjective Preference Variability
– Request Variability
– Arrival Variability
• The most Important issue is
– What is your Target Market?
– What is your Service Operating Concept?
– Are these in sync?
 The Target Market
• The unserved markets…unserved by the large full-service
airlines
• Price Conscious
• And therefore, the value proposition is Low Price, reliable travel.
– Low Price
– Simple fare structure
– Point to point
– Frequent Flights
– Friendly Employees
• Which means that the company does NOT offer somethings, like
meals, seat choice, baggage transfer, tiered services….
 So,
• What is the service operating system?
– Employees?
– Operations?
– Customers?
 Let’s look at the economics
• Flights per day (Page 2): 2700
• Planes: 344
• Turnaround per day: 2356
• Hours faster (Page 3): 0.5
• Hours saved = 1200 per day
• So if a plane files 12 hours a day, then the above
saving translates into 100 extra planes a day…Just
the savings in terms of investment is 320 million
(100*40 million (cost per plane)*.08 (Interest))
 Economics of Frequent Fliers
• Profit of SWA = 603 million
• Number of flights: 1000000
• Therefore: Profit per flight = 611.87
• Average fare = $86
• Therefore, profit comes from last 7.7
customers (611.87/86)
 Management of Variability
• Reduce
– Impersonal
– Individual Needs unmet
• Accommodate
– Costs
– Operational Complexity
 Variability Management
High
Low-Cost
Accommodation

Classic Accommodation
Quality of Service Experience

Uncompromised
Reduction

Classic
Reduction

Low High

Cost to Serve
 Southwest Airlines
• Classic Reduction
– How is the customer compensated
• Usually through lower price—How does the company
make money?
• Faster turnaround
• Simple fare structure
 Key Success factors for reduction and
accommodation strategies.
Reduction strategies favor operational Accommodation strategies favor service
simplicity over experience. Key Question: experience over operational simplicity.
How are the customers compensated? Key question: How is the firm
compensated?
Duel win strategies provide for operational simplicity without compromising
experience. Key Question: Possible?
• Customers are narrowly selected based on their common variability. Key question: Is
there sufficient demand?
•Firms influence customers to change their behavior without compromising service
experience. Key Question: Does there exist a suitable mechanism for eliciting the
desired behavior?
•Customers provide for customization steps, thereby keeping costs low. Key Question:
Are customers willing and able to perform the necessary tasks?
 So, for low cost accommodation / or
uncompromised reduction
• See how the customers and company get
compensated…This is crucial.
• Try and keep as much separation as possible
between the customers that are
accommodated and those that are not. SWA
did this by IT (online checkin). XLRI Profs.
Cannot and therefore cannot follow both
accommodation and reduction
simultaneously.
 And finally…
• Let go of the customer….
– Most cost savings purported due reductions and
Satisfaction purported due to accommodation do
not occur since
• We target multiple segments with the same resource.
• So, know when to say “NO” to a customer…let go!
 Example of Managing Arrival Variability
• Classic Reduction
– Require customer reservations: Indian
Railways, Admission into XLRI,
– Require off-peak pricing: Airlines
– Limited Service Availability: Some
restaurants—These have two menus—
one for Peak and the other Off-Peak,
some have predetermined Combos
(McDonalds)
• Uncompromised Reduction
– Create Complementary Demand: Some
Restaurants have a bar in the waiting
area, which makes wait pleasurable.
– Outsource Consumer Contact: Most
Repair Services
• Classic Accommodation
– Slack Labor: Full Service restaurants—these
have people who do not have work during
off-peak. Normally, holidays for staff are
scheduled during these periods.
– Flexible Labor: One sees this in Banks where
a Teller may perform another role during
off-peak
• Low-cost accommodation
– Low Cost Labor—Generally seen in retail
setup (Home delivery etc.), Also seen in
bank where the security guard also doubles-
up for a receptionist.
– Automation- eBay, Amazon, any internet
based service
– Customer Self-Service: ATMs, Some
Hospitals make customers do the initial
screening for non-life threatening diseases
 Example of Managing Request Variability
• Classic Reduction
– Require customer reservation by
type and no change allowed:
Railways
– Persuade Customers to
compromise requests: Some
Banks do not allow a specific
denomination withdrawal.
• Uncompromised Reduction
– Target customers based on
request: XLRI admission, Ginger
Hotels
– Persuade customers to adjust
preferences: Low cost airlines
• Classic Accommodation
– Specialized Slack Labor: Seen in High
end Retail Outlets (Tanishq etc.)
– Cross Training: Seen in Banks
• Low-Cost Accommodation
– Low Cost Labor—Generally seen in
retail setup (Home delivery etc.),
– Automation- eBay, Amazon, any
internet based service which
provides for a menu
– Customer Self-Service: ATMs, Hotel
in New England that allows
customers to choose the ingredients
in their food. Some retailers have
self-check-out
Example of Managing Capabilities Variability
• Classic Reduction
– Instrumental approach to
training: Banks which charge
extra for the customers if
they withdraw from teller
rather than ATMs
• Un-compromised Reduction
– Target customers based on
capabilities: Insurance
Companies
– Normative Approach to
Training: XLRI? ZIPCAR?
• Classic Accommodation
– Experienced Employees:
High Class restaurants
which have specialized
experienced labor, like
wine waiters etc.
• Low Cost Accommodation
– Customer Self Service: This
should be done along with
a targeted group of
customers. XLRI Teaching?
 Example of Managing Effort Variability
• Classic Reduction
– Instrumental approach to
preparation and effort: XLRI focus
on grades or marks for attendance.
– Pre-Prepared formats for Banks
and other government
departments
• Un-compromised reduction
– Target customers based on
motivation: Pre-elective Tests for
some electives. Bank credit checks.
– Normative Approach to
preparation and effort—eBay
• Classic Accommodation
– Experienced Employees:
Consulting, MDPs, Students? Spas.
• Low-Cost Accommodation
– Customer Self Service: Hospitals,
these days, through their service
design insist on the patients taking
up some jobs so that recovery is
faster. For example, in Tata
Memorial Mumbai, the remote to
the TV is not given to the patient.
So the Patient has to walk to the
TV to change the channel.
 Example of Managing Subjective Preference
Variability
• Classic Reduction • Classic Accommodation:
– Persuade customers to reduce
expectation—Usually low cost – Experienced Employees:
airlines focus only on timely arrival Orient Express Hotels,
and departure at a reasonable price
Taj Hotels
• Un-compromised reduction
– Target customers based on • Low Cost
subjective preference—Club Med Accommodation:
– Increase customer influence on
outcome: eBay – Customer Self Service:
– Persuade customers to adjust
preferences without compromising
quality or re-define quality: Ginger
Hotels
How to Manage the customers operators—1st
Issue: Job Design
• Not possible to select and train customers to match up to higher roles.
• Therefore, the job design must take care of
– Lower ability of customers to perform, therefore, the jobs must reflect lower
skills. Those of you have tried to assemble toys for their children or other’s
children, would realize this problem. Understand that the customer is trying to
solve a problem, not enjoying a puzzle!
– Let us look at the self checkout issue in a supermarket. The employees who do the
checkout perform
• Standard Checkout functions
• Fraud Prevention
• Awkward measurement items
– Can the customer operators perform all the tasks?
– As compared to this, almost 90% of customers in America switched to self service
at Petrol Stations. Similarly, the self check-in at Airports is a very simple task!
 How to Manage the customers operators—2nd
issue: Performance management
• How to make customers do what they are
supposed to do.
– Instrumental Controls
– Normative Controls.
 Example: eBay
• An extreme example of a company where the
entire effort of the service is provided by the
participants.
• Basically, a two sided market where one
customer controls the behavior of the other
through a set of features in the service itself.
– Simple to operate
– Simple to understand
– The customer gets “rewarded” by sticking to rules.
 Example: First Union Bank
• After having installed ATMs, the Bank discovered that
customers chose that mode of distribution which
was convenient to them for that particular
transaction. This lead to an escalation of fixed costs.
• So the company appointed rather aggressive
“greeters” at the door to the bank, explaining to
customers who wanted to use the teller services why
they should use the ATMs.
• The feature bombed! CSI ratings fell alarmingly!
Why?
 Example: Tiffany and Co.
• The company is known for its “white-gloved”
assistants. This increased the outlets customers so
much so, that the retail outlet provided “beepers”
for waiting customers (much like McDonald)!
• This addressed the “arrival” variability issue by
dealing it fairly—First come-first served.
• This lead to a fall in customer satisfaction ratings
• Why?
 Example: Dell
• Too much requirement of customer service
lead to a drain on resources and made
customers un-happy
• So, outsourced customer service, so that the
Transactional Disutility fell on the outsourced
company rather than Dell!
• Works?
 Example: Gateway
• This is a computer manufacturing company. The retailers of
computer hardware, due to heavy competition and very
little product differentiation, tended to rely heavily on price
promotions rather than service!
• The company entered the retail trade with focus on
excellent customer service.
• Increased the footfalls with loads of prospective customers
coming into the store to gather information from experts in
the store—and went to other retailers and bought at a
price discount!
• What happened?
 Example: Southwest Airlines
• This company wanted to reward early arrivals.
So, those customers who arrived early for
check-in, were assigned Zone 1. Zone 1
customers got to choose their own seats. Next
in line were Zone 2 and so on!
• Normally, business travelers (most profitable
segment) do not arrive early, and they ended
up getting the middle seats!
• So, what to do?
 Approaches to Reduction/Accommodation and
variability type
Company Arrival Reques Capabil Effort Sub. Issue
t ity Pref.
Zipcar # How to control in a reduction approach:
Instrumental vs. Normative
eBay # # The mutual benefit of a Low-Cost
accommodation
First Union # # The danger of misdiagnosing type of
variability
South West # The classic requirement of a reduction
approach: When to say “no” to your
best customers
Tiffany # The problem of low cost-
accommodation when the segment size
is small.
Gateway # The lure of classic accommodation – the
“returns” to the company
Dell # # Using third parties to manage variability
in case of a classic reduction.