Servicesmarketingnotes

LESSON 1: INTRODUCTION TO MARKETING
UNIT I INTRODUCTION TO MARKETING OF SERVICES
The Objective of this Lesson is to have an insight into

Origin of service marketing Marketing Organisations Marketing environment Marketing today
turers. They stored the products and organised their distribution to retailers and other smaller organizations throughout markets. This was the development of channels of distribution, still crucial to successful marketing today, and is recognized as first generation market-ing. At this stage the main concern was getting the product to market - selling all that was produced. Second Generation Marketing: It was only during the second half of the twen-tieth century that the focus began to shift towards the notion that producers should look at what consumers actually wanted - produce what can be sold to the market, rather than try to sell what is produced. This was the start of second generation marketing. The early stages of the second generation saw the develop-ment of the idea that firms should take on a marketing orientation - marketing should become the integrated focus of their business policy. Firms should seek to satisfy their profit needs by identifying And satisfying consumer needs. New ideas in the 1960s also pressed the need for a broader orientation with a focus on consumer needs and criticized .firms which were still too product orientated. By defining their business in terms of their products, firms could constrict their own growth and development - even survival- as consumer needs and technologies were changing rapidly. The essential task for firms was to analyze their business from the consumers perspective - to look at their market offerings in terms of the needs satisfied, rather than the products offered. Thus the Hollywood film industry, for example, needed to focus on its business as entertainment rather than making movies if it was to enjoy continued profitability and success in the face of increasing competition from television. Third Generation Marketing: From the mid-1960s onwards, marketing thought grew and matured. There was increasing awareness of the role that marketing played, not only in business but through its influence and impact on consumers and society as a whole. Marketing began to be seen as something which was not only relevant to commercial organizations, actively seeking profits at the end of the day. Marketing could be equally important for organizations and services which were not necessarily traditional, profit-led businesses. Schools, health programmes, charities and other types of not-for-profit organization could bene-fit from a marketing orientation. Even political parties could employ marketing programmes to win voters. Marketing was viewed as being applicable across a very broad spectrum of commercial and social activity. From this realization came the emergence of fired generation marketing. This hinged on the idea of a broader application of marketing within society, across all types of organization, and for greater benefit to society. Societys needs should be considered in line with those of consumers, and profits should not be
MARKETING OF SERVICES
Lets look at the origin of service marketing. Prior to the time of the Industrial Revolution, virtually all trade and exchange processes involved some personal contact between suppliers and their custom-ers. This meant that individual producers could cater to the needs of their customers, and most trade was very local in nature. The increase in overseas trading and the advent of the industrial revolution heralded the start of new types of trading practice, and the introduction of some of the processes which are part of marketing today. Initially, producers and manufacturers were concerned mainly with logistical issues - transporting and selling goods to widespread markets, often located far away from the point of production. The focus here was on production, with consumption and consumers being seen as the end result of a production and distribution chain. For as long as demand outstripped supply, which was gener-ally the case as western countries started to go through periods of dramatic growth in economic activity and technological change, producers could all exist profitably simply by producing more efficiently and cutting costs. Little attention was given to the role of the consumer in exchange processes. In the early twentieth century the realization that marketing was, in itself, an important part of the business process led to the founding of the American Marketing Association and the development of the earliest aspects of marketing theory and practice. It was much later, however, that the need for a marketing orientation was recognized, with a clear focus on the needs of the consumer. This chapter charts the progress of key developments in marketing from these early stages to the present, providing the basis for understanding marketing within a services context.
Developments in Marketing Theory

The greatly increased production of goods which arose out of mechanization following the industrial revolution was matched by increased levels of demand in the mass market. The problem for producers lay in getting their products to the market. Manufacturers were investing heavily in premises and machinery in pursuit of better and cheaper production. They did not want to be involved in the distribution of the product. A distribution trade grew up to serve every industry. First Generation Marketing: Wholesalers opened warehouses in major cities and bought products in bulk from the manufac11.313
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sought at an unacceptable cost to society. This has led to a call for firms to engage in ethical marketing practices and, increasingly, to adopt environmentally sound, green policies. In moving towards the development of a body of marketing theory, much has been drawn from other academic disciplines. This is especially true of the behavioral sciences, economics and management science. A debate exists as to how much actual marketing theory has been established to date. What is generally accepted, however, is that marketing is evolving as a discipline with a wide base of knowledge, concepts and techniques and areas of theory, which may ultimately crone together to provide an integrated base of marketing theory. One of the main reasons for this is the entrance into the marketing arena of a vast number of academics from other disciplines. Social psychologists, econo-mists and statisticians, for example, have all entered the field, together with practicing marketers from a vyl10le range of specialists such as advertising, distribution and product management. Marketing is, in itself, a complex subject covering a very wide area, rich in its diversity. This book looks at the develop-ment of marketing in relation to services and offers the reader insights from the extensive range of concepts and techniques available.
Some companies are product orientated, believing that consumers will seek products which are innovative or technologically superior in the marketplace. They constantly strive to develop new products which stand out. This is a high risk approach with significant chances of failure, as seen by the number of flops in the market, such as Sinclairs electric C5 personal transportation vehicle. This ap-proach can work successfully but needs to take into account consumer tastes and wants. Without doing this, firms can fall into the trap of becoming too narrowly constrained, by viewing their business is terms of products rather than in terms of customer need satisfactions. Both Q. production and a product orientation could equally apply to service providers, where there is too much attention focused on the service and the service provision, rather than on the customers. A selling orientation is where the focus of the firms attention is on the hard sell; heavy promotion, advertising and sales tactics to get rid of whatever is produced. This technique is evident today, particularly in the area of unsought goods - goods which do not full specific consumer needs, but which are heavily promoted, frequently with. deferred payment terms and pressurized sales tactics. A good example of this approach is in the selling of timeshare holidays which usually employs all the tactics outlined above - and often leads to unhappy consumers who claim they were pressurized or misled into signing a sales agreement. This approach can be lucrative in the short-term, but is unlikely to succeed in the long-term. An organisation which is marketing orientated, as indicated previously, aims to achieve its organizational objectives by anticipating and satisfying the needs and wants of its consumers. Long-term customer satisfaction is a key goal, and the organisation is committed to attracting arise retaining customers. The business is defined in terms of need satisfaction rather than specific service or product areas, and as those needs change, this should be reflected in the organizations activities. Additionally, organisations may adhere to a societal marketing orientation, where attention is given to the long-term good of society, as well as consumers. This is becoming more and more evident in todays environmentally conscious marketplace.
Tutorials
In light of above, Give the comparative analysis of phase of development of Aggarwal Sweets vis--vis Mc. Donalds
Marketing Organisations
What is meant by a marketing organisation? A marketing organisation has marketing as its key focus. It is organised around marketing and is customer-led or market-led. It anticipates and responds to the needs of the market in designing its current and future strategy. The idea of a marketing orientated organisation can be made clearer by comparing it with other organizational philosophies which have been identified. Firms which are production orientated focus on production as the key to success. In their view, the ~market will always seek products which are both cheaper and widely available. The organizations main task, therefore, is contin-ually to improve and refine production efficiency, thereby producing greater numbers of goods at lower prices This approach does hold some credibility, especially in situations where demand is relatively high, and could increase with lower prices. This is the case in areas such as home electronics where colour televisions and CD players, for examp1e, have become far more popular as supply increased and prices fell!. In the extreme, however, it ignores the customer viewpoint and will not succeed once markets have become saturated.
Marketing Today
The previous sections have outlined the developments within marketing which have led to what we know as marketing today. Arguably, however, it is external factors in the political, social and business world which have shaped the role and development of marketing. Some of the types of influences which have an impact on the development of marketing are as follows: Political/legal Changes in government policy towards business enterprise. The growth of global trade and the impact of trade barriers and currency agreements, for example. Privatization (of major importance in the UK). De-regulation of advertising for the professions. Legislation on environmental issues. Consumerism, and the power of consumer pressure groups. Economic
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World economic trends. Levels of consumer affluence, spending power. The imposition or relaxation of price controls. Inflation levels. Attitudes to, and increases in, consumer borrowing: The importance of the service economy. The opening of the single European market. Socio-cultural Increased numbers of women in the workplace. Cross cultural issues in international marketing. -. Increased leisure tile, and the wide scale pursuit of leisure interests. Higher levels of education, and increased participation. Growth in consumer travel and tourism. Technological The impact of technology on business processes; the use of scanning systems (EPOS) in retailing and the use of automatic cash dispensers (A TMs) in banking, for example. Technological developments in consumer products. Telecommunications impacts on business and society through developments such as telesales, telemarketing, teleworking. Awareness and use of technology in the home. The above lists are examples of the factors which have impacted on the develop-ment of marketing today. New modes of marketing have come about because of social and technological changes, such as the dramatic growth of direct market-ing which can be very finely tuned to customer wants through the use of sophisticated databases. Tele shopping via dedicated satellite TV channels is another new concept. Marketing education is increasing, and the recognition of marketing as a profession is growing, underpinned by the award of Chartered status to the Institute of Marketing, for example. The role and influence of marketing in almost every sphere of society today should not be underestimated. The final section of this chapter looks at one key development which perhaps typifies the way in which marketing responds to changes in society - green marketing.
recyclable packaging; hotels ask their clients not to waste energy, urging them to switch unnecessary lights off, and to indicate whether towels need to be laun-dered or may be used again; road transport providers ensure that vehicle emissions are monitored as part of regular maintenance. Although it can be more difficult to envisage appropriate green marketing strategies within a service organisation, as opposed to retailing or manufactur-ing, there are steps firms can take to ensure that their operations, at least, are environmentally friendly. A green audit can be undertaken which should cover several aspects, including: Activity Audits These involve a study of activities undertaken, especially activities which may impact on many areas of business, such as storage and distribution. Compliance Audits Undertaken to ensure that companies meet legal requirements in all areas from pollution to packaging and labelling. These aspects seem most relevant to services marketing, although there are many more ways in which organisations can undertake an environmental audit, some appropriate to a particular industry or sector. Looked at in this light, it is fairly easy to see how many service organisations can develop business strategies which are based on green thinking, and which may impact on marketing programmes. A busy hospital, for example, under-taking activity and site audits may find many ways of becoming more energy- efficient and of reducing waste. If this were achieved, it could feature in publicity and other material presented to patients and the public, enhancing the hospitals image and potentially saving money for re-investment into the service. Banks and insurance offices can encourage the introduction of the paper-free office through the use of electronic mail and telecommunications, and organize collection of waste paper for recycling where appropriate. They can undertake ethical investment, investing their clients funds only in businesses which are themselves run on environmentally sound lines. Leisure providers in the public sector can focus on conservation and nature in parks, for example, and promote projects to protect the environment in green belt areas and land reclamation schemes. However it is undertaken, it is clear that green marketing is here to stay, and environmental performance may become an important measure of an organizations success and standing in the future. Service organisations need to think green in all areas of activity - especially in services marketing.
Green Marketing
The advent of so-called green, or environmentally conscious, marketing is almost wholly due to pressure from consumers. Although some organisations, particularly in manufacturing, may have started to clean up their act because of legislation against pollution, for example, it is consumers who have made the greatest impact through their demand for greener products. Retailers and fast-moving consumer goods producers were, not surprisingly, the first to respond to these demands. Continued pressure, however, has meant that firms throughout the supply chain have also had to develop green marketing practices. Perhaps the most obvious developments have taken place in the household goods area. Supermarkets now stock a whole range of environmentally friendly products ranging from pump action sprays for anything from hairspray to air fresheners, toilet tissue made from recycled paper, detergents and washing powders without harmful chemicals and recyclable packaging for many items. Service providers have also entered this race to satisfy the new green consumer by a number of tactics. Fast food restaurants have promoted recycled and
Tutorials
Discuss the origin of marketing of services Now at this point, with your understanding ,try to discuss
the significance of Marketing organizations.

Marketing of services in todays environment. Discuss Service Marketing Mix
Case Study on Marketing Environment
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McDonalds has over many years built an operating strategy based on consistency and quality through a limited product range.Competitive forces have drawn the company into a much wider variety of foods and services in order to maintain growth. Now,new competitors threatens to beat Mc.Donalds at its own, original game. In addition,Mc.Donalds faces unprecedented challenges in its environmental policy. The case teaches approaches and dangers arising from flexibility, and the identification of capabilities that support different types of flexibility. The integration of environmental concerns with operations strategy is also addressed. With reference to the above context, interpret the micro environmental and macro environmental factors.
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LESSON 2: SPECIAL CHARACTERISTICS OF SERVICES

Special characteristics of service marketing Service Marketing Mix Service Marketing triangle
dental clinic. Perishability does not pose too much of a problem when demand for a service is steady, but in times of unusually high or low demand service organisations can have severe difficulties. The above characteristics are generally referred to in many texts as being what makes services marketing so different. However, this assumption should be queried on a number of grounds. Like all sweeping generalizations, generalizations concerning services marketing do not always represent the full picture. Consider the question of tangibility. In the main, services can be broken down into three main classifications: Rented goods services Consumer-owned goods services Non-goods services Some of these categories involve goods which are physical, and which contribute in some way to the service offering. This gives rise to questions about the degree to which services can be classed as intangible. Another way of classifying services is to consider the distinction between equipment-based services and people-based services. Examples of equipment-based services would include: Vending machines Car and tool hire Airlines People-based services would include: Nursery infant care Architects Legal services Yet another distinction can be made between consumed services, which are offered on a personal basis, and business-tobusiness or industrial services. Some service providers may operate in both these market sectors: Franchised child care services may offer local services to parents, and operate in-company schemes. Hotels may cater for the tourist and the business or conference market. Private health care programmes generally offer personal and corporate rates. On the other hand, some services such as industry-specific consultancy services or marine salvage operate in quite closely defined market sectors.
Lets understand the special characteristics of services .
Special Characteristics of Services

Services are said to have four key characteristics which impact on marketing programmes. These are: Intangibility Inseparability Heterogeneity variability Perish ability (simultaneous production/consumption) It is helpful to consider each of these characteristics briefly: Intangibility Services are said to be intangible - they cannot be seen or tasted, for example. This can cause lack of confidence on the part of the consumer As was apparent earlier, in considering pricing and services marketing, it is often difficult for the consumer to measure service value and quality. To overcome this, consumers tend to look for evidence of quality and other attributes, for example in the decor and surroundings of the beauty salon, or from the qualifications and professional standing of the consultant. Inseparability Services are produced and consumed at the same time, unlike goods which may be manufactured, then stored for later distribution. This means that the service provider becomes an integral part of the service itself. The waitress in the restaurant, or the cashier in the bank, is an inseparable part of the service offering. The client also participates to some extent in the service, and can affect the outcome of the service. People can be part of the service itself, and this can be an advantage for services marketers. Heterogeneity Invariability Because a service is produced and consumed simultaneously, and because individual people make up part of the service offering, it can be argued that a service is always unique; it only exists once, and is never exactly repeated. This can give rise to concern about service quality and uniformity issues. Personnel training and careful monitoring of customer satisfaction and feedback can help to maintain high standards. Perishability Services are perishable; they cannot be stored. Therefore an empty seat on a plane, for example, is a lost opportunity forever. Restaurants are now charging for reservations which are not kept, charges may be made for missed appointments at the
The Nature of the Service Product

Whichever means of classifying services is used, and whether or not there is agreement that the unique characteristics of services really represent unique distinctions, ultimately both physical goods and services provide benefits and satisfactions - both goods and services are products or offerings. Consider the following breakdown of service offerings: Utilities: gas, power, water Transport and communications Recreation and leisure Insurance, banking and finance
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Business, professional and scientific For most of these categories it is easy to think of products associated with them; insurance policies, heating and light, package holidays and so on. This has implications for services marketing management. As in traditional marketing concerned with-tangible products, the services marketing manager needs to look closely at marketing strategy, including such aspects as: The service element of the augmented product - the characteristics which help distinguish a product from its competitors - is now a key factor in long-term success. Rapid developments in technology which mean that firms can no longer sustain a leading edge position in the marketplace by technological superiority alone has led to the development of service as a marketing tool for competitive advantage. The impact on profitability can be two-fold: profitability can increase. not only through superior competitive positioning, but many service divisions now represent profit centres in their own right. Another important area which is receiving increasing attention from market-ers is the not-for-profit service sector. Not-forprofit organisations engage in a broad sphere of activity ranging from cultural, educational and political interests to social and leisure activities. The size of these organisations ranges from very small, local concerns to large, multi-national operations.
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The Services Marketing Mix

Another way to begin addressing the challenges of services marketing is to think cre-atively about the marketing mixthrough an expanded marketing mix for services. Traditional Marketing Mix One of the most basic concepts in marketing is the marketing mix, defined as the ele-ments an organization controls that can be used to satisfy or communicate with cus-tomers. The traditional marketing mix is composed of the four Ps: product, price, place (distribution), and promotion. 16 These elements appear as core decision vari-ables in any marketing text or marketing plan. The notion of a mix implies that all of the variables are interrelated and depend on each other to some extent. Further, the marketing mix philosophy implies that there is an optimal mix of the four factors for a given market segment at a given point in time. Key strategy decision areas for each of the four Ps are captured in the first four columns-in Table 1-3. Careful management of project, place, Promotion and price will clearly also be essential to the successful marketing of services. However, the strategies for the four Ps require some modifications when applied to services. For ex-ample, traditionally promotion is thought of as involving decisions related to sales, ad-vertising, sales promotions, and publicity. In services, these factors arc also important, but because services - are produced and consumed simultaneously, service delivery people (such as clerks, ticket-takers, nurses, phone personnel) are involved in real-time promotion of the service even if their jobs are typically defined in terms of the operational function they perform. Pricing also becomes very complex in services where unit costs needed to calculate prices may be difficult to determine, and where the customer frequently uses price as a cue to quality. Expanded Mix for Services Because services are usually produced an consumed simultaneously, customers are often present in the firms factory, interact directly with the firms personnel, and are actually part of the service production process. Also, because services are intangi-ble customers will often be 100kiIlg for any tangible cue to help them understand the nature of the service experience. These facts have led services marketers to con-clude that they can use additional variables to communicate with and satisfy their cus-tomers. For example, in the hotel industry .
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The Services Marketing Triangle

The services marketing triangle (Figure 1-5) shows the three interlinked groups that work together to develop, promote, and deliver services. These key players are labeled on the points of the triangle: the company (or SBU or department or management), the customers, and the providers (whoever it is that actually deliver the service to cus-tomers). Between these three points on the triangle, there are three types of marketing that must be successfully carried out for a service to succeed: external, internal, and interactive marketing.12 All these activities revolve around making and keeping promises to customers. For services, all three types of marketing activities are essen-tial for building and maintaining relationships with customers. Each is now discussed in more detail. External Marketing: Making Promises Through its external marketing efforts, a company makes promises to its customers regarding what they can expect and how it will be delivered. Traditional marketing ac-tivities such as advertising, sales; special promotions, and pricing facilitate this type of marketing. But for services, other factors also communicate the promise to cus-tomers. The service employees, the design and decor of the facility, and the service- process itself also communicate and help to set customer expectations. Service guar-antees and two-way communication (especially in situations where promises can be negotiated and expectations can be managed on an individual basis) are additional ways of communicating service promises. Unless consistent and realistic promises are set via all of these external communication vehicles, a customer relationship will be off to a shaky beginning. Further, if there-is a tendency to over promise, the relation-ship may also be off to a weak beginning. Interactive Marketing: Keeping Promises External marketing is just the beginning for services marketers: Promises made must be kept. Keeping promises, or interactive marketing, is the second type of marketing activity captured by the triangle-and is the most critical from the customers point of view. Service promises are most often kept or broken by the employees of the firm or by third-party providers, most often in real time. Sometimes service promises are even delivered through technology, as discussed a bit later. Interactive marketing occurs in the moment of truth when the customer interacts with the organization and the service is produced and consumed. Interestingly, promises are kept or broken and the relia-bility of service is tested every time the customer interacts with the organization. Internal Marketing :Enabling Promises A third form of marketing, internal marketing, takes place through the enabling of promises. In order for providers and service systems to deliver on the promises made, they must have the skills, abilities, tools, and motivation to deliver. In other words, they must be enabled. These essential services marketing activity has become known as internal marketing. Promises are easy to make, but unless providers are recruited, trained, provided with tools and appropriate internal systems, and rewarded for good service, the promises may not be kept. Internal marketing also hinges on the assump-tion that
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employee satisfaction and customer satisfaction are inextricably linked. Aligning the Sides of the Triangle In a triangle, all three sides are essential to complete the whole. For services all three marketing activities, represented by the sides of the triangle, are critical to success; without one of the sides-in place, the triangle, or the total marketing effort, cannot be optimally supported. Each side represents significant challenges, and as we proceed through the text we will find approaches and strategies for dealing with all three. FedEx Corporation is an example of a company that has all sides of the triangle well aligned. 13 With respect to external marketing, FedEx is a master. They understand their customers, do extensive market research (2,400 customer surveys per quarter), measure customer satisfaction daily (through their service quality indicator, or SQI), and listen to customers. Promises are communicated effectively to the marketplace through await-winning advertising messages and consistent statements by their people. Interactive marketing-keeping promises-is at the heart of FedExs strategy. The book-length Managers Guide, given to every FedEx manager, states that Each cus-tomer contact is a moment of truth that conveys an image of Federal Express. A shared goal within the company is that every one of these service encounters be flaw-less from the customers point of view. The folks that deliver FedExs premises di-rectly (drivers, front-line telephone people, business logistics consultants) all know -that 100 percent success in interactive marketing is the goal. FedEx also knows that 100 percent success is not possible unless all of these providers are enabled to provide quality service through technology, rewards, support systems, and empowerment. Open communication with employees is another key to successfully rallying them around new initiatives and opportunities aimed at building business. As a result of its support and fair treatment of employees, employee loyalty at FedEx is very high, and promises to customers can be kept. Technology and the Services Marketing Triangle With the impact of technology on all dimensions of service and service delivery, it has been suggested that the services triangle be expanded to explicitly include-technol-ogy-turning the triangle into a pyramid, as shown in Figure 1-6.14 The pyramid sug-gests that interactive marketing can be the result of customers, providers, and tech-nology (or some subset of the three) interacting in real time to produce the service. It also suggests that management has the responsibility to facilitate not only the delivery of service through human providers, but also the delivery through technology. Finally, the pyramid suggests that customers will, at times, interact only with technology and
company
Technology
Providers
customers
Figures 1-6 The services triangle and technology. therefore will need skills, abilities, and motivation to receive services in that manner. Issues of customer satisfaction with technology-delivered services are also implied. Returning to our FedEx example, we see further clues to FedExs success through their integration of technology into the services triangle. IS Via its POWERS HIP soft-ware and Internet access, FedEx is working with its customers to provide them access to FedEx order-taking, package-tracking, information-storing, and billing systems. The goal is to have all customers online by the year 2000. In this way, FedEx customers receive quality service, when they want it, and are able to customize the service on their own. FedEx sees limitless possibilities for improving customer service and providing new services to customers via technology.
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Tutorials
Discuss the special characteristics of Service marketing. What do you mean by Service triangle. Discuss. Discuss the difference between the Traditional and expanded
marketing mix.
Notes
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LESSON 3: CLASSIFICATION OF SERVICES

Classification of services Development of service marketing Examples of service sectors Importance of service sectors Factors contributing to growth Challenges faced by service sectors Difference between goods and services.
Profit Orientation The overall business orientation is a recognized means of classification:

Not-for-profit: The Scouts Association, charities, public
sector leisure facilities.

Commercial: banks, airlines, tour operators, hotel and
catering services.
The Development of Services Marketing

Firms which produce and manufacture physical goods were involved in market-ing long before service providers embraced marketing and developed specific marketing activities. Many of the developments in services marketing are fairly recent. There are a number of factors affecting developments within services marketing: Organisation size and structure Regulatory bodies Growth in service industries Characteristics of services Customer/employee interaction Service quality Specific service sectors Organisation Size and Structure Many service providers are typically small and specialized plumbers, lawyers and accountants are representative of the traditional service provider. In the past, they catered exclusively for the existing local demand. Marketing specialists were not employed due to the size of the operations, which may have been sole trader or partnership based, and due to limited competition, especially on a local scale. Regulatory Bodies Regulatory bodies have also restricted the activities of many service providers. Restrictions still exist today on the amount and type of advertising which can be undertaken by certain professional services, particularly in the medical and legal fields (although these have been relaxed in the UK and the USA). Public sector services and charities are also frequently constrained in their business activities by various forms of legislation and regulations. Growth in Service Industries However, growth in major services industries such as banking, hotel and catering and tourism services has been accompanied by new developments in marketing. Services marketing ideas and techniques have grown alongside the growth of the service economy. Marketing has contributed to the growth and success of service industries in a number of ways. The design of the service product, or offering, has shifted from a product-based focus to a customer focus - the organisation provides what the
Classification of Services
As has already been suggested, there are a number of ways of classifying service activity, and there is inevitably some degree of overlap between the methods available. This section outlines some of the methods of classification commonly used. End-user Services can be classified into the following categories:
Consumer: leisure, hairdressing, personal finance, package
holidays.
Business to business: advertising agencies, printing,
accountancy, consultancy. .
Industrial: plant maintenance and repair, work wear and
hygiene, installation, project management. Service Tangibility The degree of tangibility of a service can be used to classify services:
Highly tangible: car rental, vending machines,
telecommunications.
Service linked to tangible goods: domestic appliance repair,
car service.
Highly intangible: psychotherapy, consultancy, legal services.
People-based Services Services can be broken down into labour-intensive (peoplebased) and equipment-based services. This can also be represented by the degree of contact:
People-based services - high contact: education, dental care,
restaurants, medical services.

.Equipment-based -low contact automatic car wash,
launderette, vending machine, cinema. Expertise The expertise and skills of the service provider can be broken down into the following categories:
Professional: medical services, legal services, accountancy,
tutoring.
Non-professional: babysitting, care taking, casual labour.
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marlset needs! not what the organisation thinks the market wants.
Characteristics of Services
The characteristics of services intangibility, inseparability, heterogeneity and Perishability - mean that there are new considerations facing services marketers. These differences led to the development of the expanded marketing mix to focus on issues perceived by customers to be important in services marketing. Customer/employee Interaction The customer/employee interaction takes on a far more significant role in services marketing than in the marketing of physical goods. Consequently, services marketing attaches more emphasis to training and better communica-tions. Relatively new concepts have emerged to support services marketing such as internal marketing and relationship marketing. These are now finding increas-ing acceptance in mainstream marketing and are being applied to areas outside service. Service Quality Services marketing also places a clear focus on service quality and programmes for implementing service quality. The development of a clearer understanding of perceived service quality and the customers perception of quality based on the total service experience has addressed specific quality issues in services marketing. Specific Service Sectors Specific areas of services marketing have attractedihterest, especially not-for -profit organisations and professional services. Marketers in these organisations are faced with ethical considerations and other constraints. Certain public sector services are similarly constrained. The adoption of marketing by these organisations, and the growth or marketing expertise in the area, is leading to a greater marketing orientation.
electronic funds transfer and the use of databases have revolutionized services marketing management. In fact, most marketing-linked technological developments have a role to play in ser-vices marketing management. Many new technological developments have been developed specifically around services as discussed previously, such as cash dispensers. Many restaurants and fast food outlets use computerized till systems, where the order is keyed in to the till, or even a hand-held key pad, and relayed directly to the kitchen while the bill is being produced. It is not only consumer services which have been revolutionized by new technology. Industrial services are also utilizing new technology. Remote diag-nostics using the telephone modem facility allow computer service technicians to carry out software adjustments and upgrades from base, even if the customer is located overseas. Libraries and universities can utilize computer databases from anywhere in the world via computer modem links. In general, it can be seen that new technology increases the demand for services overall. This creates opportunities for marketers in service organisations.
International Services Marketing

The UK economy depends on invisible exports for a substantial proportion of revenue. Invisible exports have traditionally included shipping, insurance and investment but now cover a far wider range services. Service organisations are not only involved in the business of exporting, but are increasingly becoming international. Advertising agencies are an example of a service industry becom-ing internationalized in response to changes in the world market situation. London is still one of the major bases for financial services including commodities brokerage and insurance. City financial services and expertise are invisible exports when the customer is from outside the UK. Exporting is considered to be a higher risk venture for service organisations than for firms producing physical products. The main reason for this is that services tend to be far more people based. Production and consumption are inseparable, and the service provider must, therefore, establish a base in the target export market, with trained service personnel. It is not possible to export a batch of the product to be sold through distributors or agents as it is with physical goods. This means that the level of initial investment, even for a very small overseas operation, is relatively high. Market entry methods closely mirror those for international marketing of goods. Direct export is possible, as when a firm of consulting engineers sends a. member of staff to another country to carry out contract design work. Joint ventures may be undertaken, with the service provider forming a partnership with an organisation in the target country to develop business. Franchising is also undertaken, as evidenced by the worldwide growth of McDonalds fast food restaurants. McDonalds use a combination of franchising and setting up wholly owned subsidiaries on various locations. Agents who act as employees of the service provider can be appointed in export markets. Color Me
Technological Developments in Services Marketing

Perhaps the biggest impact of new technology in services marketing is the move away from traditionally people-based service to a higher degree of automation. Automated teller machines - the banks hole-in-the-wall cash dispensers - are a familiar sight on high streets everywhere. Automatic car washes, computerized self-serve ticket reservation machines, even remote banking services where all transactions are done by telephone are all gaining wide acceptance amongst consumers. Even one-to-one training programmes can now be delivered via interactive video technology. Technological advances in home equipment has led to a demand for new services. The widespread ownership pf VCRs (video cassette recorders) has led to flourishing video film rental businesses. Cable TV network and satellite TV receivers are growing in popularity, opening up new areas of business for installation contractors. Todays motor cars, with on board computers, need greater technical expertise for maintenance, which, in turn, leads to greater demand for training. Technological developments have also had an impact on the services market-ing management task. Information technology,
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Beautiful, a personal image consultancy service, has consultants in many countries. One of the main difficulties associated with international services marketing is the question of cultural differences. Cultural differences take on far greater significance in the highcontact service encounter situation. Service delivery may have to be adapted, and perceived service quality criteria examined from the perspective of the target customers in different markets.
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Tutorials
Discuss examples of service sectors. Explain the factors contributing to the growth of service
sectors
Challenges faced by Service sector are many. Discuss.
Notes
Good-Service Continuum
~Pure Goods w/ Goods Services Physical Product w/ product service 50/50 Equal mix Services ~Pure w/ Goods Services Knowledge based
Immediate consumption
Gasoline, steel, groceries.
Auto repair, computers.
Restaurants, Rental movie movies, theater, software. bookstores.
Medical care, consulting, day care.
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LESSON 4: CONSUMER BEHAVIOUR

Consumer buying decision-making process. Customer evaluation of services. Customer and service quality.
Consumer Behaviour
Consumers go through a decision-making process that can include up to five steps. We will use an adapted version of these steps to organize the information in this chapter. 1. Need recognition the customer has a need to fulfill or a problem to solve. 2. Information search the customer seeks out infor-mation to help satisfy the need. 3. Evaluation of alternatives The customer selects a subset of the alternatives and evaluates them. 4. Purchase The customer chooses a particular brand and then buys it. 5. Purchase outcomes The customer evaluates the choice made and decides whether it lives up to expecta-tions.
about experience qualities. Second, non personal sources of information may not be available because (d) many service providers are local, independent merchants with neither the experience nor the funds for advertising; (b) co-operative advertising, or advertising funded jointly by the retailer and the manufac-turer, is used in frequently with services because most local providers are both producer and retailer of the service and (c) professional associations banned advertising for so many years that both professionals and consumers tend to resist its use even though it is now permitted. Third, because consumers can discover few attributes before purchase of a service, they may feel greater risk in selecting a little-known alternative. Personal influence becomes pivotal as product complexity increases and when ob-jective standards by which to evaluate a product decrease (i.e., when experience qualities are high). 7 Most managers in service industries recognize the strong influence of word of mouth in services (Figure.2:3) Next, consumers may find post purchase information seeking more essential with services than with goods because services possess experience qualities that cannot be adequately assessed before purchase. One model of audience response to communication describes the situation that occurs -frequently when consumers select services: 1. The consumer selects from among virtually indistinguishable alternatives. 2. Through experience the consumer develops an attitude toward the service. 3. After the development of an attitude, the consumer learns more about the service by paying attention to messages supporting his or her choice. In contrast to the conventional view of audience response to communication, where consumers seek information and eval-uate products before purchase, with services most evaluation follows purchase. Perceived Risk While some degree of perceived risk probably accompanies all purchase transactions, more risk would appear to be involved in the purchase of services than in the purchase of goods because services are intangible;, non standard-ized, and usually sold without guarantees or warranties. First, the intangible nature of services and their high level of experience qualities imply that services generally must be selected on the basis of less pre purchase infor-mation than is the case for products. Second, because services are non standardized, there will always be uncertainty about the outcome and consequences each time a service is purchased. Third, service purchases may involve more perceived risk than product purchases because, with few exceptions, services are not accompanied by warranties or guarantees. The dissatisfied service purchaser can rarely return a service; he or she has already consumed it by the time he or she realizes his or her dissatisfaction. Finally, many services (e.g., medical diagnosis, pest
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Services: Categories in the Decisionmaking Process and Framework of the Chapter

Using an adaptation of the basic consumer decision-making process shown in Exhibit 2-1, we have organized this chapter into four main categories: (1) information search, (2) evaluation- of alternatives, (3) purchase andconsumption, and (4) post purchase evaluation (Figure 2-2). In purchase of services, these categories do not occur in a lin-ear sequence the way they most often do in the purchase of goods. As you will see in this chapter, once of the major differences between goods and services is that a greater portion of the evaluation of services succeeds purchase and consumption than is the case with goods. Therefore, while our categorization here follows the sequence consumers use with goods, we will show how these stages in services depart from evalu-ation of goods. Information Search Use of Personal Sources Consumers obtain information about products and services from personal sources (e.g., friends or experts) and from no personal sources (e.g., mass or selective media). When purchasing goods, consumers make generous use of both personal and non personal sources because both effectively - convey infor-mation about search qualities. When purchasing services, on the other hand, consumers seek and rely to a greater extent on personal sources for several reasons. First, mass and selective media can con-vey information about search qualities but can communicate little about experience qualities. By asking friends or experts about services, however, the consumers can obtain information vicariously
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control) are so tech-nical or specialized that consumers possess neither the knowledge nor the experience to evaluate whether they are satisfied, even after they have consumed the service. The increase in perceived risk involved in purchasing services suggests the use of strategies to reduce risk. Where appropriate, guarantees of satisfaction may be offered. To the extent possible, service providers should emphasize employee training and other procedures to standardize their offerings, so that consumers learn to expect a given level of quality and satisfaction. Evaluation of Service Alternatives Evoked Set. The evoked set. of alternatives-that group of products a consumer considers acceptable options in given product category-is likely to be smaller with services than with goods. One reason involves differences in retailing between goods and services. To purchase goods, consumer generally shop in retail stores that display competing products in close proximity, clearly demonetizing the possible alterna-tives. To purchase services, on the other hand, the consumer visits an establishment (e.g., a bank, a dry cleaner, or a hair salon) that almost always offers only a single brand for sale. A second reason for the smaller evoked set is that consumers are un-likely to find more than one or two businesses providing the same services in a given geographic area whereas they may find number Us retail stores carrying the identical manufacturers product. A third reason for a smaller evoked set is the difficulty of ob-taining adequate pre purchase information about services. Faced with the task of collecting and evaluating experience qualities, consumers may simply select the first acceptable alternative rather than searching many alterna-tives. In consumer behavior terms, the consumers evoked set of alternatives is smaller with services than with goods. The Internet has the potential to widen the set of alter-natives (see Technology Spotlight). For nonprofessional services, consumers decisions often entail the choice between performing the services for themselves or hiring someone to perform them. Working people may choose between cleaning their own homes or hiring housekeepers, between altering their families cloths or taking them to a tailor, even between staying home to take care of their children-or engaging a day care center to provide child care. Consumers may consider themselves as sources of supply for many. services, inducing lawn care, tax preparation, and preparing meals. This means that the customers- evoked frequently includes selfprovision of the service. Nonprofessional service providers, must recognize that they often replace or compete with the consumer, which may imply more exacting standards from the consumer and may require more individualized, personal attention from the service provider. Consumers know what they expect from providers of housecleaning or lawn care or day care because they know what they are accustomed to providing for themselves. The alert service marketer will be certain to research consumers expectations and demands in such situations.
So far, not every consumer is convinced that the cyber mall will replace the local mall. World Research found that consumers who do not buy online have these reasons for continuing to buy the traditional way: fear of hackers (21 percent), lack of products (16 percent), inability to see the products (15 percent), need to reveal personal information (13 percent) poorly designed site (8 percent) companies reputations (6 percent) and fear of money or merchandise getting lost (6 percent) Emotion and Mood Emotion and mood are feeling states that influence peoples (and therefore customers) perceptions and evaluations of their experiences. Moods -are distinguished from emotions in that - moods refer t6 transient feeling states that occur at specific times and in specific situations, whereas emotions are more intense, stable, and pervasive. Because services are experiences, moods and emotions, are critical factors that shape the perceived effectiveness of service encounters. If a service customer is in a bad mood when he enters a service establishment, service provision will likely be interpreted more negatively than if he were in a buoyant, positive mood. Similarly, if a service provider is irritable or sullen her interaction with customers will likely be colored by that mood. Furthermore, when another customer in a service establishment is cranky or fast rated, whether from problems with the service or from existing emo-tions unrelated to the service, his or her mood affects the provision of service for all customers who sense the negative mood. In sum, any service characterized by human interaction is strongly dependent on the moods and emotions of the service provider, the service customer, and other customers receiving the service at the same time. In what specific ways can mood affect the behavior of service customers? First, positive moods can make customers more obliging and willing to participate in be-haviors that help service encounters succeed. 12 A customer in a good emotional state is probably more willing to follow an exercise regimen prescribed by a physical ther-apist, bus his own dishes at a fast-food restaurant, and overlook delays in service. A customer in a negative mood may be less likely to engage in behaviors essential to the effectiveness of the service but that seem difficult or overwhelming: abstaining from chocolates when on a diet program with Weight Watchers, taking frequent aerobic classes from a health club, or completing homework assigned in a class. A second way that moods and emotions influence service customers is to bias the way they judge service encounters arid providers. Mood and emotions enhance and am-plify experiences, making them either more positive or more negative than they might seem in the absence of the moods and emotions. 13 After losing a big account, a sales-woman catching an airline flight will be more incensed with delays and crowding than she might be on a day when business went well. Conversely, the positive mood of a services customer at a dance or restaurant...will heighten the experience, leading to pos-itive evaluations of the, service establishment. The direction of the bias in evaluation is consistent with the polarity (that is, positive or negative) of the mood or emotion.
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Finally, moods and emotions affect the way information about service-is absorbed anti retrieved. AS memories about a service are encoded by a consumer, the feelings associated with the encounter become an inseparable part of the memory. If travelers fall in love during a vacation in the Bahamas, they may hold favorable assessments of the destination due more to their emotional state than to the destination itself. Con-versely, if a customer first realizes his level of fitness is poor when on a guest pass in a health club, the negative feelings may be encoded and retrieved every time he thinks of the health club or, for that matter, any health club. Service marketers need to be aware of the moods and emotions of customers and of service employees and should attempt to influence those moods and emotions in positive ways. They need to cultivate positive moods and emotions such as joy, delight, and contentment and discourage negative emotions such as distress, frustration, anger, and disgust. Service Provision as Drama. Researchers and managers of service businesses have compared service provision with drama, observing that both aim to create and Maintain a desirable impression before an audience, and both recognize that the way to accomplish this is by carefully managing the actors and the physical setting of their behavior.14 In fact, the service marketer must play many drama-related roles (includ-ing director, choreographer, and writer) to be sure the performances of the actors are pleasing to the audience. The Walt Disney Company explicitly considers its service provision a performance, even using show-business terms such as cast member, onstage, and show to - describe the operations at Disneyland and Walt Disney World. The skill of the service actors in performing their routines, .the way they appear, and their commitment to the show we all pivotal to service delivery. While service actors are present in most service performances, their importance increases when the degree of direct personal contact increases (such as in a hospital, resort, or restaurant), when the services involve repeat contact, and when the contact personnel as actors have discretion in determining the nature of the service and how it is delivered (as in education, medical services, and legal services). The physical setting of the service can be likened to the staging of a theatrical production including scenery, props, and other physical cues to create desired impres-sions. Among a settings features that may influence that character of a service are the colors or brightness of the services surroundings; the volume and pitch of sounds in the setting; the smells, movement, freshness, and temperature of the air; the use of space; the style arid comfort of the furnishings; and the settings design and cleanliness The setting increases in importance when the nature of a service is dis-tinguished by its environment, as is the case with Steak and Ale and Ponderosa Steak-houses or a downtown law firm.18 In essence, the delivery of service can be con-ceived as drama, where service personnel are the actors, service customers are the audience, physical evidence of the service is the setting, and the process of service assembly is the performance. The drama metaphor offers a useful way to conceive of service performances. Among the aspects of a service that can be
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considered in this way are selection of per-sonnel (auditioning the actors),training of personnel (rehearsing), clearly defining the role (scripting the performance), creation of the service environment (setting the stage), and deciding which aspects of the service should be performed in the presence of the customer (onstage) and which should be performed in the backroomJback-stagey.20 Service Roles and Scripts: If we think of service performances as drama, we can view each player as having a role to perform. Roles have been defined as combinations of social cues that guide and direct behavior in a given setting.21 The success of any service performance depends in patron how well the role set or players-both service employees and customersact out their roles.22 Service employees need to perform their roles according to expectations of the customer; if they do not, the cus-tomer may be frustrated and disappointed. As we discussed earlier in this chapter, the customers role must also be performed well. If customers are informed and educated about the expectations and requirements of the service (i.e., if the customer plays the proper role) and if the customer cooperates with the service provider to deliver the best possible service (i.e., if he or she is reading from the same script), the service performance is -likely to be successful. One of the factors that most influences the effectiveness of role performance is a script-a, coherent sequence of events expected by the individual, involving her ei-ther as a participant or as an observer.23 Service scripts consist of a set of ordered ac-tions, actors, and objects that, through repeated involvement, define what the customer expects.24 Conformance to scripts is satisfying to the customer, while deviations from the script lead to confusion and dissatisfaction. Consider the script that you hold for the first day of class in a college course. Among the actions you expect are the following: (1) enter the classroom; (2) see other students in the room who are taking the class; (3) see the professor in the front of the room; (4) listen to the professor describe the course; (5) get a syllabus of the class; and (6) leave class early and start the actual education on the second class day. If a pro-fessor performs in accordance with the script you hold, you feel comfortable, familiar, and satisfied with the service encounter. Experiencing a script that is incongruent with this expected pattern leads to confusion and dissatisfaction. What if you showed up and there were no other students in the class with you the first day? What if the pro-fessor sent a graduate student instead of coming herself? Suppose the professor told you she hadnt had time to write a syllabus? In these and other situations, negative de-partures from the customers expected script will detract from service performance. Positive discrepancies from the script are not as easy to specifythey may also de-tract or could surprise and add -to the service encounter. Suppose the college class we just discussed was filled to capacity on the first day. Would you interpret that as positive (a sure sign that the class was popular) or negative (a signal that personal at-tention from the professor may be reduced)? What if the professor was unusually friendly and so engaged students that they stayed to the end of the period on the first day of class? While some students might be delighted
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because the friendliness of the professor exceeded expectations, others might be disgruntled, having counted on more free time between classes. Still others may be suspicious, not trusting the friendliness because it doesnt follow the expected pattern. More personalization or attention is not always better. In summary, departures from the customers expected script includ-ing provision. Of more of an attribute than expected, may detract from or add to the service experience. The Compatibility of Service Customers: We have just discussed the roles of employees and customers receiving service. We now want to focus on the role of other customers receiving service at the same time. Consider how central the mere presence of other customers is in churches , restaurants, dances, bars, lounges, and spectator sports: If no one else shows up, customers will not get to socialize with others, one of the primary expectations in these types of services. However, if the number of customers becomes so dense that crowding occurs, customers may also be dissatisfied.26 The way other customers behave with many services such as airlines, education, clubs, and social organizations also exerts a major influence on a customers experience.27 In general, the presence, behavior, and similarity of other customers receiving services has a strong impact on the satisfaction and dissatisfaction of any given customer. Customers can be incompatible for many reasons-differences in beliefs, values, ex-periences, abilities to pay, appear rice, age, and health, to name just a few. The service marketer must anticipate, acknowledge, and deal with heterogeneous consumers who have the potential to be incompatible. The service marketer can also bring homoge-neous customers together and solidify relationships between them, which increases the cost to the customer of switching service providers.29 Customer compatibility is a fac-tor that influences customer satisfaction, particularly in high-contact services. Post Purchase Evaluation Attribution of Dissatisfaction: When consumers are disappointed with pur-chases-because the products did not fulfill the intended needs, did not perform satis-factorily, or were not worth their price-they may attribute their dissatisfaction to a number of different sources among them the producers, the retailers, or themselves. Because consumers participate to a greater extent in the definition and production of services, they may feel more responsible for their dissatisfaction when they purchase services than when they purchase goods. As an example, consider a female consumer purchasing a haircut; receiving the cut she desires depends in part upon her clear spec-ifications of her needs to the stylist. If disappointed, she may blame either the stylist (for lack of skill) or herself (for choosing the wrong stylist or for not communicating her own needs clearly). The quality of many services depends on the information the customer brings to the service encounter: A doctors accurate diagnosis requires a conscientious case history and a clear articulation of symptoms; a dry cleaners success in removing a spot de-pends on the consumers knowledge of its cause; and a tax prepare satisfactory per-formance relies on the receipts saved by the consumer. Failure to obtain satisfaction with any of
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these services may not be blamed completely on the retailer or producer, because the consumer must adequately perform his or her part in the production process also. With products, on the other hand, a consumers main form of participation is the act of purchase. The consumer may attribute failure to receive satisfaction to her own decision-making error, but she holds the producer responsible for product performance. Goods usually carry warranties or guarantees with purchase emphasizing that the producer believes that if something goes wrong, it is not the fault of the consumer. With services, consumers attribute some of their dissatisfaction to their own inability to specify or perform their part of the service. They also may complain less frequently about services than about goods because of their belief that they themselves are partly responsible for their dissatisfaction.. Innovation Diffusion: The rate of diffusion of an innovation depends on con-sumers perceptions of the innovation with regard to five characteristics: relative ad-vantage, compatibility, communicability; divisibility, and complexity.3O An offering that has a relative advantage over existing or competing products; that is compatible with existing norms, values, and15enaviors; that is communicable; and that is divisible (i.e. , that can be tried or tested on a Limited basis):diffuses more quickly than others. An offering that is complex, that is, difficult to understand or use, diffuses more slowly -than others. Considered as a group, services are less communicable, less divisible, more com-plex, and probably less compatible than goods. They are less communicable because they are intangible (e.g., their features cannot be displayed, illustrated, or compared) and because they are often unique to each buyer (as in a medical diagnosis or dental care). Services are less divisible because they are usually impossible to sample or test on a limited basis (e.g., how does one sample a medical diagnosis? a lawyers services in settling a divorce? even a haircut?). Services are frequently more complex than goods because they are composed of a bundle of different attributes, not all of which will be offered to every buyer on each purchase. Finally, services may be incompatible with existing values and behaviors, espe-cially if consumers are accustomed to providing the service for them selves. As an il-lustration, consider a novel day care center that cooks breakfast for children so that parents can arrive at work early. Mothers accustomed to performing this service for their children may resist adopting the innovation because it requires a change in habit; in behavior, even in values. Consumers adopt innovations in services more slowly than they adopt innovations in goods. Marketers may need to concentrate on incentives to trial when introducing new services. The awareness interest evaluation stages of the adoption process ,may best be bypassed because of the difficulty and inefficiency of communicating information about intangibles. Offering free visits, dollars-off coupons, and samples may be ap-propriate strategies to speed diffusion of innovations in services. Brand Loyalty: The degree - to which consumers are committed to particular brands of goods or services depends on a number of factors: the cost of changing brands (switching cost), the availability of substitutes the perceived risk associated
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with the purchase, and the degree to which they have obtained satisfaction in the past. Because it may be more costly to change brands of services, because they may have more difficulty being aware of the availability of substitutes, and because higher risks may accompany services, consumers are more likely to remain customers of particu-lar companies with services than with goods. Greater search costs and monetary costs may be involved in changing brands of services than in changing brands of goods. Because of the difficulty of obtaining in-formation about services, consumers may be unaware of alternatives or substitutes for their brands, or may be uncertain about the ability of alternatives to increase satisfac-tion - over present brands. Monetary fees may accompany brand switching in many services: Physicians often require complete physicals on the initial visit; dentists sometimes demand new X rays; and health clubs frequently charge membership fees at the outset to obtain long-term commitments from customers. If consumers perceive greater risks with services, as is hypothesized here, they probably depend on brand loyalty to a greater extent than when they purchase prod-ucts. Brand loyalty, described as a means of economizing decision effort by substituting habit for repeated, deliberate decision, functions as a device for reducing the risks of consumer decisions. A final reason consumers may be more -brand loyal with services is the recognition of the need for repeated patronage in order-to obtain optimum satisfaction from the seller Becoming a regular customer allows the seller to gain knowledge of the cust-omers tastes and preferences, ensures better treatment, and encourages more interest. In the consumer satisfaction. Thus, a consumer may exhibit brand loyalty to cultivate a satisfying relationship with the seller. Brand loyalty has two sides. The fact that a service providers own customers are brand loyal is not a problem. The fact that the customers of the providers competition are difficult capture, however, creates special challenges. The marketer may need to direct communications and strategy to the customers of competitors, emphasizing at-tributes and strengths that he or she possesses and the competitor lacks. Marketers can also facilitate switching from competitors services by reducing switching costs. AT&T promised MCI customers that it would handle the transfer from MCI to AT&T and also guaranteed it would pay to allow the customer to switch back if necessary, making it virtually costless for customers to switch long-distance carriers.
stage of the decision-making process for services-and is likely to be-come more so in the future-we place it at the center of this chapters framework (see Figure 2-4). Unfortunately, human nature dictates that we tend to view other cultures through the often cluttered lens of ourown.3l One expert on culture, Edward T. Hall, observed that in the United States people tend to view foreigners as underdeveloped Ameri-cans.32 Another, Geert Hofstede, sums up the message of one of his books as follows: Everybody looks at the world from behind the windows of a cultural-home, and everybody prefers to act as if people from other countries have something special about them (a na-tional character) but home, is normal. Unfortunately, there is no normal position in cultural matters. Definitions of the elements of culture vary, but a simple list of the major areas would include (1) language (both verbal and nonverbal), (2) values and attitudes, (3) manners and customs, (4) material culture, (5) aesthetics, and (6) education and social institu-tions. These cultural universals are manifestations of the way of life of any group of people. Services marketers must be particularly sensitive to culture because of cus-tomer contact and interaction with employees. Language is discussed in a later chap-ter, but the other elements of culture, as they affect consumer behavior, are covered next. Values and Attitudes Differ across Cultures Values and attitudes help to determine what members of a culture think is right, im-portant, and/or desirable. Because behaviors, including consumer behaviors, flow from values and attitudes, services marketers who want their services adopted across, cultures must understand these differences While American brands often have an exotic appeal to other cultures, U.S. firms should not count on this as a long-term strategy. In the late 1990s, Wal-Mart found that the cachet of U.S. brands was falling in Mexico. The Mexican news media alerted con-sumers to shoddy foreign goods and some WalMart customers turned to a spirit of nationalism. The retailer responded with an Hecho en Mexico program similar to the Made in the U.S.A. program that was successful in the United States. In some situations it is more than a case of nationalism: Brand attitudes are negatively influ-enced by specific prejudices toward dominating cultures. The Korean ban on Japa-nese movies and the French phobia about Euro Disney are good examples of the latter. Manners and Customs Manners and customs represent a cultures views of appropriate ways of behaving. It is important to monitor differences in manners and customs, because they can have a direct effect on the service encounter. Central and Eastern Europeans are perplexed by Western expectations that unhappy workers put on a happy face when dealing with customers. As an example, McDonalds requires Polish employees to smile whenever they interact with customers. Such a requirement strikes many employees as artificial and insincere. The fast-food giant has learned to encourage managers in Poland to probe employee problems and to assign troubled workers to the kitchen rather to the food counter.
The Role of Cultures in Services

Culture is learned, shared, and transmitted from one generation to the next, and is mul-tidimensional. Culture is important in services marketing because of its effects on the ways customers evaluate and use services. It also influences the way companies and their service employees interact with customers. Culture is important when we con-sider international services marketing taking the services from one country and of-fering them in others-but it is also critical within countries. More and more individual countries are becoming multicultural, making the need to understand how this factor affects evaluation, purchase, and use of services critical. Because culture is im-portant in every
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Habits are similar to customs, and these tend to vary by culture. Japanese take very few vacations, and when they do they like to spend 7" to 10 days. Their vacations are unusually crammed with activities-Rome, Geneva, Paris, and London in 10 days is representative. The travel industry has been responsive to the special preferences of these big-spending Japanese tourists. The Four Seasons Hotel chain provides special pillows, kimonos, slippers, and teas for Japanese guests. Virgin Atlantic Airways and other long-haul carriers ,have interactive screens available for each passenger, allow-ing viewing of Japanese (or American, French, etc.) movies, TV, and even gambling ,if regulators approve. Differences across cultures influence how consumers evaluate service, as explained in the Global Feature. Material Culture Material culture consists of the tangible products of culture, or as comedian George Carlin puts it, the stuff we own. What people own and how they use and display ma-terial possessions varies around the world. Cars, houses, clothes, and furniture are ex-amples of material culture. The majority of Mexicans do not own cars, limiting retails geographic reach. Further, most Mexicans own small refrigerators and have limited incomes that restrict the amount of groceries they can purchase at one time. Instead of the once-perweek shopping trip typical in the United States, Mexicans make frequent smaller trips. Pro-motional programs in Mexico are also constrained by the availability of media. Own-ership of televisions and radios affects the ability of services marketers to reach target audiences. Zoos as entertainment represent an interesting reflection of cultures influence. Any American visiting the Tokyo Zoo is impressed by two things: the fine collection of an-imals and the small cages in which the animals are kept. To the Japanese who live in one of the most crowded countries in the world and own relatively small houses, the small cages seem appropriate, whereas to the American eye the small cages may be perceived as mistreatment.
Customer Evaluation of Services

Search Qualities Qualities
Found mostly in goods Assist in judgement
Experience Experience Qualities Qualities

Found in combined categories Require use to assess quality
Credence Qualities Qualities

Found in services Nearly impossible to assess
Goods & Services
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Tutorials
Customers & Service Quality

Dimensions of Service Quality
Tangibles Reliability Responsiveness Assurance Empathy Consumer Factors W-O-M Personal needs Past exp. External commu
Discuss the consumer buying behavior of services. Goods and services are different. Explain. Explain the factors involved in customer service evaluation.
Notes
Quality Perception
Expected service Perceived service
Perceived Service quality
Consumer Buying Behavior of Services Services

Personal sources of information Postpurchase evaluation Surrogate (substitute) judgment cues Fewer acceptable brands or or suppliers suppliers and strong brand loyalty Slow adoption Customer Customer as competitor competitor
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LESSON 5: IMPOR TANCE OF SERVICES IN CUSTOMER SATISFACTION

Importance of after sales service :Consumer and industrial
markets
Product concept and after sales service After sales service and brand corporate image. Impact of service problems on buyer behavior Customer satisfaction and its role in buying process Service values and its market share Customer care programs
In the market for photocopying equipment, which is notorious for breaking down, Xerox, a leading manufacturer, advertises the fact that wherever their customers are located, throughout the whole of the USA, they are never more than three hours away from a service engineer. In the last few years there has been increasing corporate awareness of the strategic importance and value of service both as a profit centre and as a marketing tool. As this awareness has become established, there has been a considerable increase in the resources being made available to maximise its value to the overall profitability, directly and indirectly, of the company. It would be hard to imagine buying a car, a washing machine, or any other major purchase without some form of guarantee that long-term service will be available promptly. After-sales service has been part of the augmented product for so long now that it is no longer a special feature - consumers demand it. The Product Concept and After-sales Service The product concept describes all products as being made up in more than one stage, or level: Level 3: The augmented product Level 2: The physical, or expected, product. Level 1: The core product The core product relates to the products function in terms of the consumer need which it will satisfy. A washing machine will provide clean clothes, or aid family hygiene. The physical, or expected, product describes the actual shape, form and fea-tures provided by the product. In considering washing machines, attention would be paid to such aspects as variety of washing cycles available, colour options, size, ease of use and so on. The augmented product relates to the (often intangible) features, which providers of goods and services endeavor to incorporate into their products to make Them standout from the competition. In the case of washing machines an automatic drain feature might have been part of the augmented product twenty years ago. If it was perceived as an extra by the potential customer it could help to differentiate the firms offering from the competition. Of course automatic draining is taken for granted now, and has become part of the physical product. The consumer expects and demands it as a feature. Similarly, firms have built intangible qualities into the augmented product, which are now taken for granted. One year guarantees have been superseded by three and five year guarantees. Company name and image plays a more important role as mass advertising can be used to reinforce images of quality, strength and durability. Brand image is one of the most important
The Importance of After-sales Service; Consumer/Industrial Markets

Introduction Historically, after-sales service was regarded in most manufacturing companies as a necessary evil - as a supporting but relatively minor function in the overall structure of the organisation. This also applies in some degree to the channels - in the case of industrial products, it will usually be the manufacturer who provides service, whilst for many consumer and other types of goods it is the responsibility of the retailer, dealer or agent. While it was realised that it was important to provide a reasonable level of after-sales service, the role and function of service was generally viewed purely as a cost centre. It may well have been the last area for development and investment in many organisations. Changes came about as a result of increasing consumer pressure and more intense competition. As consumers grew more sophisticated, they became less willing to accept poor quality goods and services. Consumer protection legisla-tion forced firms to take responsibility for after-sales service, but, at the same time, organisations started to realise that by offering guarantees and service warranties they could enhance their competitive position. This applies not only to providers of actual goods but to service providers as well. If insurance organisati0ns failed to deal with queries and claims promptly their customers might switch insurers. If a tour operator promises trouble-free travel and then problems arise (even if they are the fault of an airline or hotel), the tour operator must take steps to rectify the problems immediately. Bad publicity resulting from poor aftersales service can be the fastest way of losing custom. A Service-orientated Approach Some companies anticipated this, and invested in after-sales service consistently. They were able to establish a leading competitive position based on their repu-tation for fair and unparalleled service. Marks and Spencer, the leading high street retailer in the UK, was providing instant money-back guarantees long before its competitors followed suit.
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intangible features which can influence consumer buying decisions. After-sales Service and Brand Corporate Image After-sales service plays a crucial role in ensuring the long-term credibility of company and brand image. When Perrier, the leading brand of bottled mineral water, suffered a contamination scare, it was not solely their brand image which helped them to rebuild their market share very quickly, it was the superbly efficient way in which they handled the incident, recalling the product and arranging instant refunds. Their aftersales service in the face of an extreme crisis (and in a potentially health-damaging situation) was seen to be concerned, responsible and anxious to rectify the situation. The brand lived up to its image as the leader on quality and satisfaction. It is even suggested that the contamination crisis actually improved the firms stand-ing in the consumers eyes. The Impact of Service Problems on Buyer Behaviour With growing interest in the area of quality and customer satisfaction, there has been an increase in research into the impact of service problems on buyer behaviour. The sort of findings which are beginning to emerge illustrate clearly the importance of post-purchase customer satisfaction levels. The figures given show the range of information coming from various sources and illustrate the extent of the problem, even though actual sources differ and have been generalised here Reports reveal evidence that the following factors and influences need to be considered:
The average business never hears from the vast majority of
Customer Satisfaction and its Role in The. Buying Process Manufacturers, retailers and all types of marketing organisations are now in-volved in massive campaigns to improve their quality of service and its profit-ability by ensuring customer satisfaction. Looking after the customer is at least as important as looking after his equipment, and this is borne out in surveys made both in the United States and in the United Kingdom. This is equally important in business-to-business and industrial markets as it is in consumer markets. A large number of independent market studies have clearly shown that customers place considerable value on the quality and responsiveness of the service organisation, as well as the reliability and availability of the equipment itself, in making the decision to purchase from one supplier versus another. In over 50 separate product studies carried out by just one research group in a wide variety of markets, it was found that issues of service are significantly more important than the product price and product features in the final purchase decision. In - essence, models of the buying decision process show that the typical purchaser will screen out all non-responsive suppliers (i.e. those whose price and features/ capabilities do not meet needs). The remaining acceptable suppliers are then usually chosen on the basis of service responsiveness and quality. In a study of over 3,000 users of data processing, office automation and telecommunications equipment, the key importance of service and service-related issues in the decision to buy was measured. In this particular study of the information technology market, users were asked to place a weighting, on a scale of 1-9 (with 9 being most important), as to the factors utilized to influence the buy decision. The results can be briefly summarised as follows:
The highest rating factor was reliability of the equipment
its dissatisfied customers.

For every complaint received, the average company has up to
26 custom-ers with problems, 6 of which are defined as serious by the client.

Of those who register a complaint, over half will do
business again with the organisation to whom they are complaining if the complaint is recti-fied.
If the complaint is rectified quickly and professionally then
followed by service response time and capability of service organisation, all weighed higher than 8.
Four further factors relating to service (e.g. speed of parts
95% win do business again with that vendor. In this event problems are, in this context, opportunities to demonstrate what a good company the vendor really is
The average customer who has had a problem with an
delivery) were weighted between 7 and 8.

The actual cost of the equipment was given an importance
organisation will tell another 9 or 10, and 130/0 of people with problems will tell over 20 others about it. Bad news travels wide, far and quickly.
People who have complained and have had their complaint
rating of only 6.5, slightly higher than the cost of service at 6.4. Only delivery times and instruction/training were weighted lower than this. Clearly, as this study related to the type of products where technical service support would be seen as essential - telecommunications and computer equip-ment - the results are perhaps not too surprising. However, for many consumer purchase decisions these factors rate highly in importance in exactly the same way. Cars, domestic appliances and home electronics are good examples. The more technical a product in the consumers perception, the greater the importance attached to after-sales service. It may be the level of service provided which has helped to maintain the strength of the television and VCR rental market in the UK, even though equipment prices have dropped dramatically in real terms, and consumer credit is far more widely available.
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resolved quickly and professionally will tell 5 others on average. It is, therefore, easy to see that customer satisfaction in the product and in the service represents a critical factor in the purchase decision. This implies that the service arm of any manufacturer can play an important role in the future marketing success of not only its own operations but those of all its channels of distribution. Customers perceptions of a companys image may owe more to the efficiency (or otherwise) of the service department than to the quality of the actual product.
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Service Value and Market Share In substance, the quality, image and responsiveness of the service organisation supporting the manufacturer or supplier of goods and services can significantly influence the decision to buy and thus gain market share. Many major suppliers of computers, cars, and goods and services for industrial and consumer markets place great emphasis on the quality, performance and responsiveness of their service operations. They actively highlight service performance and responsive-ness in sales, advertising and marketing efforts. In many cases, not only are such organisations able to gain and control market share, but they are also able to charge a premium price for the products being sold. This has come about as a result of a high degree of emphasis on service as a strategy aimed at both market perception and actual service delivery. Experience in a nun1ber of markets, including data processing, office automa-tion, telecommunications, medical electronics, and health care, for example, indicates quite clearly that the market will actually pay a premium price of up to 20% over its competitors in order to deal with a supplier with a high service image of quality and responsiveness. Thus, the primary value of service with respect to influencing market share lies in its vital importance to the customer in the supplier selection decision, and the customers willingness to pay a premium price even though product features of a variety of suppliers are essentially the same. In reversionary times, organizations face increasing competitive pressure in what is often a buyers market. Standardized products and services combine with aggressive advertising and pricing to reduce the opportunities available for differentiation in the marketplace. Increasingly the only differentiation between suppliers relates to the quality of service provided and the standard of customer care. Customer Care Programmes Service organisations are particularly dependent on levels of customer care, as the people element in the marketing mix reflects. Customer care can play an equally important role, however, in manufacturing, production and other organisations providing goods and services. For customer care programmes to be successful they need to span the entire organisation. Training will not work if it is carried out on a piecemeal basis and should be supported all the way from top management. Superficial attempts to develop customer care levels will undoubtedly lead to failure. Research among customers of computing and database services high-lighted that only three of the top six suppliers scored consistently high marks across a range of service criteria even though all six claimed to have carried out customer care training. The size of the organisation is no guarantee of customer care quality - frequently, smaller companies demonstrate a more conscientious approach to individual customers. Customer care training may initially be a very lengthy process as the ball starts rolling through all sectors of the organisation and costs will grow too, as further investment is required to update and maintain the initiative in the future. Other activities are
likely to arise as a direct result of customer care programmes such as the publication of internal newsletters, the establishment of incentive schemes and new ways of conducting staff appraisals; for example Rank Xerox has introduced a scheme whereby future pay rises for managers throughout Europe will be based on the results of a survey of customers. Customer care programmes will typically be comprised of six main stages, as follows: Objectives setting: define the programme objectives Current situation analysis: Conduct a customer service audit internally and externally Strategy development: Develop a strategy for raising levels of customer service from the current to the desired standard Functional planning: Define training needs and other requirements (problem-solving sessions or teambuilding for example) to execute the strategy Implementation: Implement training and other initiatives through workshops, seminars. Promote the programme both internally and externally. Develop in-ternal marketing programmes. Monitoring: Test results through customer and employee surveys, evaluate the training methods. Improve and update the programme on a continuous basis. Evaluating customer care programmes can be extremely difficult, in terms of their overall value to the company or their impact on profitability. Methods include using customer and employee satisfaction surveys and monitoring cus-tomer complaints. More tangible evidenceof the value of customer care pro-grammes may be seen in the balance sheet; British Airways went from a loss-making situation to turn In a healthy profit following its putting people first campaign. The campaign itself was a substantial investment, which involved training over 36,500 personnel at a reported cost of over 23 million.
Tutorials
If you are u buyer of banking service, then in light of above , compare the after sales service of ICICI and PNB, keeping in mind the following:
After sales service and brand corporate image. Impact of service problems on buyer behavior Customer satisfaction and its role in buying process Service values and its market share Customer care programs
Notes
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LESSON 6: MARKETING MIX
UNIT II MARKETING MIX
The Objective of the Lesson is

First P-Product Life cycle Services concept Service Mix
Each of these will influence decisions in developing and packaging the service product. Classification of Services There are a number of ways of classifying service activity, and there will always be some degree of overlap between the various methods used. The following are some of the most commonly used classification methods: End-user: Services can be classified into the following categories: Consumer Business-to-business Industrial Service tangibility: The degree of tangibility of a service can be used in classification: Highly tangible Service linked to tangible goods Highly intangible People-based services: Services can be broken down into labour-intensive (people-based) and equipment-based services: People-based services (high contact) Equipment-based (low contact) Expertise: The expertise and skills of the service provider can be broken down into the following categories: Professional Non-professional Profit orientation The overall business orientation is a recognized means of classification: Not-for-profit Commercial (A more detailed discussion of the above examples can be found in Chapter 3.) Having looked at some of the specific aspects relat4tg to the service product, the service concept - what actually constitutes the service product - can be -explored. Need Satisfaction In many ways it is hard to equate the properties of physical goods with those of services. Physical goods have shape and form, they may be sold according to weight, size or colour; they can be tasted or felt. These characteristics are only features of physical products, however. Consumers may have preference for certain types of physical characteristic when they are choosing a product, but their underlying motivation for making a purchase is to satisfy a need. They are looking for something which will provide the right kind of benefits to satisfy their need.
Product
Introduction The term product is widely used to refer to a market offering of any kind. In its broadest sense this may be anything from the physical- a tin of baked beans or a television set - to the abstract-an idea or a moral issue. Generally, however, most products are made up of a combination of physical elements and services. This is true in services marketing, where the service offering can include tangible features, such as food in a restaurant, or be a pure service, intangible in nature. Packaging usually refers to the actual external packaging of a product and it plays a key part in, for example fast-moving consumer goods marketing. The packaging, as well as protecting the contents, will perform a vital selling and promotional role, presenting the product and company image to potential customers. Essentially, in this sense, packaging is how the final product is put together and presented to the market. The same issues are vitally important for services marketing. Designing and developing the ideal service is not the full story; the way the service is packaged and presented to the market is the key issue. Branding the service, developing the right elements within it, adding tangible features - all these are critical tasks for services marketing management. This chapter looks at packaging the service product in its widest possible sense, and explores these issues together with an overview of product manage-ment in services. Ways of classifying services are considered, and an understand-ing of the service concept is developed. Traditional product management tasks - new service development and positioning - are also reviewed. Service Attributes In attempting to develop an understanding of the service concept, and what actually constitutes a service, it is worth drawing on issues addressed in earlier chapters to focus on the special nature of services, and the service offering: Special Characteristics of Services Services share several distinguishing characteristics, when compared to physical products. These are: Intangibility Inseparability Heterogeneity Perishability
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This is equally true of services. Even in relation to the most intangible service, customers receive benefits to which they attribute value, and a perception of quality. The idea that customers are looking for benefits rather than features is at the heart of a marketing orientation. Product-led companies (discussed in Chapter 1) focus on adding more and more features to products in order to attract customers. Marketing, however, places the focus firmly on the customers needs and wants and aims to provide want satisfactions, or benefits. The Service Concept Physical goods and services can be looked at in terms of benefits offered, as well as features and specific attributes associated with those benefits. The notion of the service concept is based in the idea that actual service offerings (or physical products, in fact) can be broken down into a number of levels relating to customer need-satisfactions, benefits and features. Typically, three levels are identified: The core benefit/service The expected service The augmented service The core benefit/service The core benefit ~ought relates specifically to the customers need. The customer may be feeling hungry, or may feel that they dont look their best. The customer might be a business needing help with promotion and advertising, or experiencing financial problems.
The core benefit satisfies the need/solves the problem.
The augmented service is the way# in which service
providers fine-tune the marketing mix to differentiate their service and make it stand out from the competition. The following table illustrates the service concept further:
Core Service Food provision Expected Service Clean facilities Choice available Prompt service Take away Well appointed salon Qualified stylists Range of treatments Augmented Service Up market dcor Exotic menu Silver service Free delivery Fine wines Live music Luxury salon Famous stylists Specialist treatments Refreshments Beauty therapy Sunbeds Professional qualifications Affiliated to professional body Specialist areas Overseas branches
Hairdressing
Business-toBusiness
Expert advice Reliable service Range of services
The expected service: this relates to customers expectations of what kind of services are available to satisfy their need. The hungry customer may decide to visit a snack bar or restaurant in order to satisfy their need for food. They will expect a certain level of service to be offered - a range of items on the menu, for example, clean and pleasant surroundings and prompt attention from staff. Someone visiting a hairdresser will have an idea of the range of facilities and treatments which should .be available. Similarly, the business customer will expect professional advice, expertise and practical help from an advertising agency or financial consultant. The expected service reflects standards required or expected by customers to satisfy their needs. The augmenting service Augmenting the service offering, or making it better in some way, is the means by which service providers differentiate their offering in an attempt to influence consumer choice. Extra features, over and above the expected service, can be added to make the service more attractive to prospective consumers. Often innovation is the key. Restaurants may work at creating a special ambience, perhaps through decor and music, or a snack bar may offer customized sandwiches and video games. A hairdressing salon might offer additional beauty therapy, free refreshments and a certain image. Professional service organisations might seek to augment their service offering with a range of specialists, for example, who are expert in specific industry areas, or they may focus on a more caring, personal service for their clients.
In marketing mix terms, it is often the special aspects of the service mix which can contribute to the augmented service. The inseparable nature of services, for example, means that service quality is often closely linked to the people element of the mix. Perceptions of service quality often depend also on consumers judgments about the surroundings in which the service is offered - the physical evidence - and the promptness of the service - the process. The following ideas suggest ways in which marketing mix variables can be adjusted to help differentia tion:
Product (service) Superior quality Well known/trusted brand image Unusual or additional features Extended guarantees The 'unique sales proposition' Tangibilisation 'Value added' Special discounts Preferential credit terms Innovative advertising campaigns Loyalty promotions! e.g. frequent flyer offers Special offers Direct mail PR, sponsorship Extensive availability More outlets than competitors Innovative methods, e.g. telephone banking Careful selection of quality channels Highly trained staff Better customer care Greater efficiency Personal attention Specialist skills Advances in technology, e.g. automated
Price
Promotion
Place
People
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Process
Advances in technology, e.g. automated queue Systems, cash dispensers Fast response times Comfortable surroundings Superior decor Qualifications Evidence of professional standing membership of professional bodies Strong, recognizable corporate image staff uniforms, house style Supporting literature, documentation High quality 'tangibles'
Service Mix
Augmented Service Branded Service Service
Core Core service service
Physical evidence
Long-term success and survival, however, means far more than developing a marketing mix for a differentiated service offering. To keep up with changes in consumer trends and new technologies, or to cope with new situations, service organisations need continuously to review and develop their service offering. The range of services offered - the service portfolio - should always be monitored and new services introduced or existing ones withdrawn at the right time.
Services Concept
Traditional Services Forces Creating Growth Service Characteristics Characteristics Service Mix Service Mix Development
Tutorials
In light of above, Compare the service mix , of a normal hair dresser vis- a vis, Habibs
Expanded Concept
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The Life Cycle Concept

Products and services are often said to have life cycles. This idea is based on an analogy with natural life cycles: birth, growth, maturity and so on. The product life cycle is frequently illustrated as being comprised of four stages: Launch, or introduction Growth Maturity Decline The product life cycle is typically represented graphically in terms of sales over time. Plotting the level of sales over a period will result in a life cycle curve which may look like this: Sales
will focus on attracting more new ~users, and repeat purchase. Further investment may be required. Maturity As growth slows down, the overall volume of sales may reach a fairly steady plateau, which continues over time. Competition will probably be well estab-lished, and promotion efforts reflect the battles between leading brands. Credit cards are an example of a mature service offering. New entrants may still be entering the market, as is the case with building societies offering their own cards. Marketing effort is aimed at keeping the level of sales high, thus ensuring continued profitability. Decline At some stage, the popularity of a product or service will begin to die. Levels of sales will fall off, and profitability diminishes. This may be due to a number of reasons, as when services have been superseded by new technologies or when consumer tastes have changed. Facsimile machines have more or less replaced telex communication services, for example, and insurance services sold directly by telephone have started to replace the need for individual brokers on the high street. The main decision for management is whether to continue to produce and sell the product or service if it is still creating profits, or to delete it altogether, perhaps because the organisation has launched newer services to replace it, and deletion would enhance their chances of success, or possibly to cut the risk of it being a drain on resources. Scope of the Life Cycle Concept These illustrate the basic ideas behind the life cycle concept, and its use as a management tool. There are many criticisms of the concept, mostly relating to the vast difference in the type of curves that can be seen (fads, for example, may grow sharply, but then drop off altogether, and never become mature). Cinema attendance in the UK all but died off altogether in the 1970s, resulting in the closure of many cinemas, but cinema has been successfully re launched in a new format with the opening of hugely successful multi-screen cinema complexes. There can also be ambiguity in what should be measured; industry cycles may differ for specific products, for example. The demand for information has never been higher, but, as mentioned previously, the means of transmitting informa-tion has changed, so telex machines have died, and so have telegrams, while fax and telephone usage have increased dramatically. The important thing is to monitor progress of all the organisations offerings, and to consider stages in the life cycle as part of that analysis, but not to rely on the life cycle concept in isolation as a predictive or prescriptive management tool. New Service Development Managing the organisations service portfolio, and developing and positioning new services, are functions critica 1 to the organisations success. The new product development process, as carried out by manufacturing companies, has been the focus of a significant amount of marketing literature for many years. The main reason for this is that it is both essential for longterm success, and a very costly, high risk process. The costs associated with the development and launch of a completely
Launch
Growth
Maturity Time
Decline
Sales, or even usage rates, of a service can be plotted in the same way as sales of physical products, and monitored over a period. This can be useful in manag-ing the organisations range of products or services, and in making decisions about promotion, for instance, or withdrawal of a service which has become outdated. The product life cycle concept holds that the different stages of the product life cycle have certain characteristics which are, more or less, common to all products or services. Understanding and analysing the various stapes, therefore, can be helpful in determining the appropriate marketing action. Introduction At the introduction stage the product or service is very new. Promotion will be intense and costly, and may need to be boosted if the service fails to meet initial targets. It will be aimed at getting users to try the service, and create interest. Television shopping is an example of a new service recently launched in the UK. This is a high risk stage, because the service will not yet have proved that it will be successful, and the costs of pre-launch development may be very high. Close monitoring is required. Growth As uptake of the service starts to grow, revenues will increase and profitability may be even achieved. The longer-term success of the service can be more easily assessed at this stage as market penetration increases. However, if the product appears to be doing well, it is likely at this stage that competitors will bring out rival offerings. This is the case with mobile telephones; when the market reaches near saturation they will have moved from the growth phase into the mature phase. Promotion may again need to be boosted to maintain the speed of growth and
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new product can be phenomenal and if the product fails to meet target sales figures - or, even worse, is a total flop - then the company may not survive. Unfortunately, the literature is full of classic tales of such misadventure as the Ford Edsel car and the Sinclair CS, and estimates of the failure rate of new products range from fifty per cent to nearer ninety per cent of all new products launched. Even relatively minor developments to new products can be a high risk undertaking, as was the case when Coca-cola launched its new version and quickly had to bring back the old, classic version (although some suggest it was actually a clever tactic to reinforce the brand, which may be true, but would certainly be too risky for any lesser brand to try). Persil washing powder also had to re-introduce its original product after the new improved version was alleged to have caused allergic reactions in some cases. Although the risks associated with failure may, at first sight, appear less for service providers than manufacturers (no expensive production facility to set up, for example) this is not necessarily the case. The costs of building a world class hotel are substantial, to say the least, and if that hotel remains half empty it is a failure. Even highly intangible new services such as insurance will cost a great deal to launch in terms of staff retraining, production of sales literature and documentation and expensive television advertising campaigns. To ensure the optimum chance of success. New Service Development Process: is a systematic staged process, which organizations adopt to screen new service ideas and maximize their chances of success in the market. Comprising of following stages:
Generation of ideas Screening Testing the concept Business analysis Practical development Market testing Launch
Tutorials
In light of above , Identify and Compare at which stage of PLC does Rai university stands , vis a vis Amity, in the professional education service sector.
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LESSON 7: POSITIONING AND DIFFERENTIATION OF SERVICES

The evolution of positioning Competitive differentiation of services Positioning and services
Positioning and Differentiation of Services

The Evolution of Positioning During the 1980s the strategic relevance of positioning started to become recognized amongst leading service organizations. Service companies are now identifying their key market segments and then determining how they wish consumers to perceive both their company and its products and services. Positioning is of particular significance in the services sector as it places an intangible service within a more tangible frame of reference. Thus the concept of positioning stems from a consideration of how a company wishes its target customer to view its products and services in relationship to those of its competitors and their actual, or perceived, needs. The idea of positioning can be traced to the idea of identifying needs and then fulfilling them. This idea, which has existed in writings on marketing since at least the 1940s, was developed further with, the concept of identifying improved ways of creating product appeal and the unique selling proposition. Other writers have referred to related ideas including product differentiation, distinctive business proposition and market position analysis. The concept of positioning also has origins in the increased recogni-tion of the importance of corporate image in the 1960s. To many, David Ogilvy of advertising agency Ogilvy and Mather epitomized the image era. His belief that every advertisement is a long-term investment in the image of a brand and his famous and highly successful campaigns for a wide range of manufactured products including Hathaway shirts, Schweppes soft drinks and Rolls Royce motor cars drew attention to the value ofbfand image. The notion of a unique selling proposition, which identified a unique product feature that was then emphasized to customers in the promotional campaign worked well where it was unique. Unfortunately technological advances often made so-called unique features short lived since they could be easily copied. In response to competitive imitation, advertising agencies such as Ogilvy and Mather developed image advertising as a means of differentiation. However, the enorm-ous increase in advertising in the 1960s led to considerable duplication of messages and as a result it became increasingly difficult for a company to distinguish its image from that of others. In the first book to be published on positioning Ries and Trout describe how marketing thought evolved from the
product era of the 1950s to the image era of the 1960s and the positioning era of the 1970s.1 They are credited with having developed the idea of position-ing through a series of articles they wrote in 1972. Ries and Trout argue that we live in an overcommunicated society where huge sums are spent on advertising but only a tiny fraction of it gains our attention. Their concept of positioning is that it is not what you do to a product. Positioning is what you do to the mind of the prospect. That is, you position the product in the mind of the prospect. Much of the discussion about positioning in companies, advertising agencies and in journal articles uses positioning in this restricted sense. This perspective of positioning suggests that positioning is largely a communications issue dealing with the psychology of posi-tioning an existing product in the consumers mind. It focuses on achieving a desirable position in the mind of the consumer and has little to do with the product. It sees changes in name, pricing or packaging as cosmetic changes aimed at securing this position in the consumers mind. We term this formal of positioning communications positioning; it is an important part, but only a part, of strategic positioning. Positioning can, however, be affected by all the elements of the services marketing mix, in addition to promotion. Thus price, distribution, people, processes, customer service and the product or service itself can all affect a firms positioning. Service processes can be particularly relevant to positioning. As Lynn Shostack has pointed out, processes have characteristics which affect positioning and which can also be deliberately- and strategically managed for positioning purposes. The strategic positioning of services, then, involves a consideration of these other elements of the marketing mix. We define positioning as follows: Positioning is concerned with the identification, development and communication of differentiated advantage, which makes the organizations products and services perceived as superior and distinctive to those of its competitors in the mind of its target customers. Positioning is thus concerned with differentiation and using it to advantageously fit the organization and its products or services, to a market segment. We can differentiate on the basis of subjective criteria which involve image and communication, or objective criteria which involve differentiation in terms of other elements of the marketing mix including product, processes, people, customer service, etc. In this chapter we begin with a consideration of the means of competitive differentiation. The specific characteristics of services and how they impact on positioning are then examined. We then provide an overview of the process of positioning including the development of positioning maps. Alternative strategies in positioning are then con-sidered.
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Competitive Differentiation of Services Positioning is heavily dependent on a firms capability to effectively differentiate itself from its competitors by providing superior delivered value to its customers. Superior delivered value can be thought of in terms of the total value offered to a customer less the total cost to the customer. It has been suggested that these elements have the following components:
Total customer value:
sales activity can be expanded further into the constituent activities of marketing management, which include advertising, sales force administration, sales force operations, promotion, etc. The generic value chain outlined in Figure 5.1 was derived largely from a consideration of manufacturing companies. Although it has broad applicability to services it is more useful to develop value chains which specifically reflect the tasks within a particular service sector. For example, in the management consulting sector the primary activities comprise the following:
Decisions on service configuration. Marketing and sales. Data collection. Data analysis. Interpretation and recommendations. Reporting and communication. Interpretation, service and evaluation
services value; product value; people value; and image value.

Total customer cost:
monetary price; time cost; energy cost; and psychic costs. Customers make buying decisions on services based on superior delivered value in terms of an acceptable balance between cost, value and quality. Customers who are purchasing services buy what they need based on cost components, valueadded components and quality components. Some illustrations are shown in Table 5.1.4 Once technique for considering ,superior delivered value is the value Chain. The value chain represents a means of identifying ways to create differentiation through value enhancement. The value chain developed by Michael Porter is shown in Figure 5.1. Value chain activities are
Table 5.1 Some cost, value-added and quality components for selected services Service Bank Discount store Cost components Service charges; interest rates Value-added components Quality components Variety of services; easy to Financial stability; personal understand services interest in customers Selection; well-known brands; pleasant atmosphere Taste of steak; atmosphere Hot product; taste; consistent product
For a retail financial service organization, such as a building society, the primary activities in the value chain include:
Funding. product innovation and design. Funds administration, Customer administration. Marketing.
Management consulting firms value chain

Delivery channels. Servicing
A bank operating in the corporate market defined. its value chains primary activities as:
Product creation Planning Marketing Selling Single target selling After sales service.
Sales/clearances; low Easy return; cheque price cashing
Family steak Salad bar; menu for Low prices; coupons house children Pizza restaurant Psychiatric hospital Specialty tune-up clinics Temporary secretarial service Specials; coupons; promotions; low prices Fast service; home delivery take out; variety
Comfortable rooms; Experienced physicians; Low-cost treatment visitor accommodations innovative treatment Reasonable cost; specials Car ready when promised Fixed right the first time; fast service qualified mechanics Well stocked; cheque cashing Clean; selection; specialty departments
Superior delivered value grows out of the way in. which firms organize and perform these discrete activities within the value chain. Development of a specific value chain which identifies these activities for a specific service company is of much greater use than relying on. The generic value chain. To gain advantage over its rivals a firm must promote this value to its customers through performing activities more efficiently than its competitors (lower cost advantage) or by performing activities in a unique way that creates greater buyer value (differentia-tion advantage). The process activities within a value chain should not be considered in isolation. It is essential to consider the linkages where the perform-ance of one activity has an impact on the cost or effectiveness of other activities. In a manufacturing company, improved product design may reduce the need for
Supermarket Low prices Reasonable cost
Performance guarantee; Competence of temps; follow up understands what we need
categorized into two types: primary activities (in-bound logistics, operations, out-bound logistics, marketing and sales, and service) and support activities (infrastructure, humanresource management, tech-nology development, and procurement).5 These support activities are integrating functions that cut across the various primary activities within the firm. It may also be useful to further subdivide specific primary activities within the value chain. For example, the marketing and
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inspection and result in significantly reduced after-sales service costs. However, of a service firm boundaries be-tween activities are often less clear. In services, activities such as marketing, operations and human resources cannot really be con-sidered independently, and effective co-ordination and integration of them becomes more essential than with manufactured goods. Appropriate cross-functional coordination of linked activities can re-duce the time needed to perform them. Reconfiguration of the value chain by relocating, reordering, regrouping or even carefully eliminat-ing activities may represent an opportunity for major improvement in delivered value. A critical role in a service organization is the examination of costs and performance in each value-creating activity within the value chain. Each element of the value chain represents an area which should be investigated thoroughly to identify existing or potential means by which the firm can achieve cost advantage or differentiation advantage. The objective of this examination is to identify improvement opportunities. To ensure differentiation is achieved, benchmarking of compet-itors value chains and their performance is essential. The value chain concept may be used in several ways by a service firm as follows: 1. The firm can use it to gain a clear understanding of its own value chain and where it seeks to gain sources of differentiation or cost advantage to achieve superior delivered value to its customers. 2. It can use it to understand where it fits in the value chain of its customer. If the customer is a typical manufacturing company its value chain will be similar to that of the generic value chain described above. However, if the customer is a service business the firm will benefit from considering how the value chain for this service company differs from the generic value chain. For indi-vidual customers (as opposed to companies), a personal value chain could also be considered; however, relatively little attention is given in the literature to an individuals value chains and more emphasis is usually placed on needs analysis. 3. It can be used to understand where it fits in the value chain of its suppliers and distributors. 4. To identify how competitors create value and how their activities compare to yours (competitive benchmarking). The ultimate purpose of value chain analysis is to systematically identify appropriate means of differentiation for a firm so that it can provide superior delivered value to its customers. This differentiation then needs to be communicated to its customers through positioning. Positioning and Services Positioning offers the opportunity to differentiate any service. Each service company and its goods and services has a position or image in the consumers mind and this influences purchase decisions. Positions can be implicit and unplanned and evolve over a period of time or can be planned as part of the marketing strategy and then communicated to the target market. The purpose of planned positioning is to create a differentiation in the customers mind which distinguishes the com-panys services from other competitive services. It is important to establish a position of value for the product or service in the
minds of the target market, i.e. it must be distinguishable by an attribute, or attributes, which are important to the customer. These attributes should be factors which are critical in the customers purchase decision. There is therefore no such thing as a commodity or standard service. Every service offered has the potential to be perceived as different by a customer. Buyers have different needs and are therefore attracted to different offers. It is therefore important to select distin-guishing characteristics which satisfy the following criteria:
Importance - the difference is highly valued to a sufficiently
large market.
Distinctiveness the difference is distinctly superior to
other offerings which are available.

Communicability - it is possible to communicate the
difference in a simple and strong way. Superiority - the difference is not easily copied by competitors.
Affordability - the target customers will be able and willing
to pay for the difference. Any additional cost of the distinguishing characteristic(s) will be perceived as sufficiently valuable to com-pensate for any additional cost.
Profitability - the company will achieve additional profits as
a result of introducing the difference. Each product or service has a set of attributes, which can be compared to competitive offerings. Some of these attributes will be real, others will be perceived as real. A company wishing to position itself should determine how many attributes and differences to promote to target customers. Some marketers advocate promoting one benefit and establishing recognition as being the leader for that particular attribute. Others suggest that promoting more than one benefit will help in carving out a special niche, which is less easily contested by competitors. The selection of the differentiating attri-bute(s) is most successful if it confirms facts, which are already in the mind of the target market. Denying or fighting customers perceptions of different offerings in the market is unlikely to be successful. A successful positioning strategy takes into account customers existing perceptions of market offerings. It determines needs which customers value and which are not being met by competitors services. It identifies which unsatisfied needs could be satisfied. The positioning strategy seeks to integrate all elements of the service, to ensure that the perceived position of the service is strongly reinforced. Services have a number of distinguishing characteristics which have special implications for the positioning and selection of which attri-butes to emphasize. Three of the key characteristics of services, discussed in Chapter 1, make positioning strategies of particular importance in marketing a service. These are the intangibility, the degree of variability or heterogeneity in quality of a given service, and inseparability - the fact that the performance of a service will often occur in the presence of a customer. Easing wood and Mahajan have illustrated a range of positions that can be adopted based on these services characteristics (see Table 5.2), some of which are outlined below.
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The intangibility of services makes the marketing task for a service different from that for a product which can be physically identified touched and compared. A service often cannot be marketed by features, which the consumer can readily identify, and compare, it may therefore be hard to evaluate. For example, with financial or legal advice choosing between alternative sources is difficult when the benefits are intangible (e.g. the quality of advice). It is thus not easy to compare the physical attributes of competing services. Positioning can permit an intangible service benefit to be represented tangibly. It can help the customer see an intangible benefit, by offering tangible evidence .For example, customers to a hotel expect an Table 5.2 Some alternative positioning based on service characteristics
Response to special service characteristics Intangibility q Offer a tangible representation q Offer an augmented service Heterogeneity q Superior selection, training and monitoring of contact personnel q Package the service q Industrialize the service production process Inseparability q Use multi-site locations q Customize the service q Offer a complete product line Basis of position The reputation and special capabilities of the organization itself q Expertise position q Reliability position q Innovativeness position q Performance position Augmentation of product offering q Product augmentation q Extra service People advantage More attractive packaged offering A superior product through technology (i.e. faster, more reliable, better value for money) Accessibility Extra attention given to individual requirements Satisfaction of more user needs within the sector
restaurant. As a result, the quality of the delivered service can vary widely. Further, the quality of a small element of the total service offering may affect the perceived quality of the service as a whole. For instance, a poor checkout procedure from a hotel, may greatly affect the perceived quality of the overall experience of staying in it. The customers perception of the quality of the service is therefore greatly affected by the quality of the staff who are responsible for delivery. An advantage can be gained by providing better-trained and more highly responsive people. A positioning strategy may therefore include the distinctive characteristic of employing better people. McDonalds recognized this advantage and established McDonalds Hamburger University where employees are trained to render a high quality standardized service and to limit the amount of variation in customer experience, giving a service which matches the customers perception. Services tend to be inseparable and are characterized by the fact that they are performed in the presence of the customer. A manufactured product is usually produced within a controlled environment, and there is an opportunity to control the quality and ensure compliance with customer expectations. Manufacturers are able to reject products which do not meet consistency and quality standards. However, a service frequently does not have these opportunities. Often a service will require customer presence both when the service is initially being delivered and then on an on-going basis. A service may require the customer to be present during most of the delivery process, as in the case of a patron in a restaurant or a passenger on an airline or train. The distinctive features of the services outlined above provides the basis for competitive positioning strategy. There are may dimensions on which services can be differentiated. Weve examined five alternative models for classifying services. Each of these represents an opportunity for creating differentiation of a service in some way. For example, there is the opportunity of customizing the service to meet the exact needs of the customer. This may have a danger, in that the modification process is often largely left to the front-line service provider. However, if customer needs can be closely matched customer satisfaction will be greater. SAS recognized this in empowering their employees and allowing them to make their own decisions during service delivery. They positioned themselves as an airline that cares for its passengers and is responsive to their needs. There are many examples of passengers who have been pleasantly surprised by the decision-making ability and empowerment of SAS staff, in contrast to the red tape of other airlines. Staff can decide, without reference to superiors, on upgrading passengers, resolving beggaring problems and special travel problems. Having outlined opportunities to use the distinctive characteristic of services to position the offerings of a company, we will now turn our attention to the levels of positioning and how the positioning process can be formally addressed.
Intangible benefit .:- cleanliness; and this view can be reinforced by plastic covered glasses in rooms and a paper cover over the lid of a lavatory stating sanitized for your protection. This helps the customer to associate cleanliness with the service offering, reinforcing the position that the hotel wishes to portray. Service companies often promote their reputations in an attempt to add tangibility. For example, they promote their reputation for expertise with a particular sector; Courts Bank positions itself as a bank for the wealthy upper class. Developing a positioning strategy may also assist identification of other tangible features which can be added to the service. The augmented service offer will be more easily distin-guished from other service offerings. For example, a positioning strategy for an insurance product which aims to be distinctive by its ease of take up for the customer, may include a step-by-step guide for prospective policy holders with sample forms which can be easily copied. Services are also highly variable and rely to a great extent on input from company employees for their production. For example, in a restaurant the waiter is the main point of contact with the customer and his service performance will be a major factor in the way the establishment will be judged. His performance will vary at different times, and there will also be variance between his service and that of another waiter or waitress in the
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LESSON 8: POSITIONING PROCESS

The Objective of this Lesson is to
The levels of positioning Process of positioning Evaluating positioning options Implementing Positioning and marketing mix
brands can be created at either the product sector level or at the individual product level. When we consider positioning of the product level we are usually concerned with the specific positioning for a target market segment. When we are concerned with positioning at the corporate level this usually, but not always, involves a consideration of segmentation. The Process of Positioning Product positioning involves a number of steps including the fol-lowing:
Determining levels of positioning. Identification of key attributes of importance to selected
The Levels of Positioning

We are primarily concerned in this chapter with the positioning of goods and services delivered by service organizations. We will use the term positioning or product positioning to reflect this emphasis. Whilst most of the emphasis is placed on positioning from this perspective it should be recognized that the principles of positioning apply at other levels. We can consider positioning at several levels:
Industry positioning - the positioning of the service
segments.
Location of attributes on a positioning map. Evaluating positioning options. Implementing positioning.
industry as a whole.
Organizational positioning - the positioning of the
organization as a whole.
Product sector positioning - the positioning of a range or
family of related products and services being offered by the organization.

Individual product or service positioning - the
As explained in the previous chapter the process of product position-ing has close linkages with market segmentation and developing a marketing mix. Each step is now examined. Determine Levels of Positioning We have already described how positioning can be directed at the product or service level, at product sector levels, or at the corporate level. The first step in positioning is to determine which level(s) are to receive explicit positioning attention. Some examples will illustrate the choices that are made by some service organizations. The level or levels of positioning to be undertaken are usually fairly clear cut, although some organizations have placed different emphasis on these levels at different points in time. For example, some British clearing banks are currently reemphasizing corporate positioning, rather than product positioning. The Forte Group has recently decided to reposition Forte Crest, one of its hotel groups, as the definitive hotel for business. About the same time they repositioned Forte Post-houses with a new lower room rate for the midmarket. Thus positioning for Forte is focusing on the product sector. American Express introduced its platinum card in the USA in 1984 at a product level. It was positioned to appeal to very high net worth individuals. This was a controversial move when it was introduced. Industry experts queried the positioning of a new card that cost US$250 for the privilege of carrying around a new color of plastic. The 100 000 people signing up showed this was a viable position. separate positioning undertaken for the green card, gold card, and optima products with in the cards product sector of American Express. Companies such as Club Med effectively position their organization as a whole on the basis of the Club Med experience. Although they offer ~ a product range in their winter and
positioning of specific products. In addressing their companies position, service organizations may wish to consider where their industry is positioned. A frequent means of positioning used within public- -relations agencies is to identify the relative favourability and familiarity of different organizations. This can also be applied to industries. provides details of selected service industries based on research by MORI. This provides useful context for the consideration of the organizational and product posi-tioning. At the corporate level a credibility/visibility or favourability/ familiar- Its frame work such as that shown can also be used for a company and its competitors. Regular monitoring can identify shifts in both the company and its competitors positions. Companies need not be concerned with all the levels listed above. For some organizations, such as a car rental company or a restaurant, the positioning decision for the organization and the services provided may be very similar. However, for larger multi-business service organizations such as banks, all these levels may need to be con-sidered. investment products), and the positioning of individual products and services within that sector. Two observations are worth making here. Firstly, that decisions relating to positioning of the organization and individual products should be clearly related and have some logic between them. Secondly, those
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summer brochures, emphasis is very much on an organizational positioning basis. Identification of Attributes Once the level of positioning has been determined it is necessary to identify the specific attributes that are important to the chosen market segments. In particular, the way in which purchasing decisions are made should be considered. Individuals use different criteria for making a purchase decision of a service. The purpose for using the service may change the set of criteria, e.g. business insurance or personal insurance. The timing of the use of the service will also affect the choice of service (e.g. the choice of a restaurant will be different for an individual if it is for a weekday lunch or a Saturday night dinner). A consideration of the decision-making unit is also relevant. For example, the decision may also be affected by whether a group or an individual will use the service, e.g. the amenities of a hotel may be more important for a family than for an individual. A hospital may be selected by either a patient or a doctor, with a different ranking of attributes being used in the selection process. Customers make choices between alternative services based on perceived differences between them. These may not be the most important attributes of the service. An example of this is the fact that passengers using airlines rank safety as the most important feature. But many airlines have similar standards of safety, so passengers choice of airline will actually be based on other characteristics such as comfort, convenience of flight times and standards of food and beverage. Thus research needs to identify the salient attributes which determine the selection of a service. This will form the basis of the positioning. First, research needs to be undertaken to identify the salient attributes and specific benefits required by the target market segment. A number of approaches can be used to identify salient attributes which can then be used to develop a positioning map. What is important here is the customers perception of the benefits that are delivered by these relevant attributes. An express parcel service scoring high on the speed dimension is one that is perceived as fast. The reality is that other service providers in the express parcel industry may provide a faster service but may be perceived as being slower. A range of analytical research techniques, most of them computer based, can be used to identify the salient attributes. These include perceptual mapping, factor analysis, discriminate function analysis, multiple correlation and regression analysis, and trade off and conjoint analysis. These tools are in the province of the market researcher, rather than the marketing manager, so will not be discussed further here. However, the reader interested in a technical discussion can refer to articles by Keon and Wind which discuss their relative merits. Location of Attributes on Positioning Map The positioning process involves the identification of the most import-ant attributes and location of various companies services, for these attributes, on a positioning map. Where a range of attributes are identified, statistical procedures exist for combining these attributes into aggregate dimensions. Such
dimensions are referred to by various names such as principal components, multi-dimensional scales, factors, etc., depending upon how the data were elicited and which statistical procedures were used. Usually two dimensions are used on position-ing maps and these often account for a large proportion of the explanation of the customers preferences. For example, in a political marketing study, the analysis showed that two factors accounted for 86 per cent of the discrimination amongst 14 political figures. Products or services are typically plotted on a two dimensional positioning map such as shown below:
ATTRIBUTE 1
ServiceA Service B Service C
1. ServiceD
ServiceE
Service F
Illustrative Positioning Map The positioning map can be used to identify the position of competitors services in relation to the selected attributes. The analysis can be further developed by drawing separate positioning maps for each market segment. Custom-ers in each market segment may perceive the service and its benefits differently, and different maps will show these different positions. With some positioning techniques respondents are requested to evaluate the relative similarity of different competitors services. The respondents are not told on which attributes to assess the similarity. Techniques such as multi-dimensional scaling can then be used to produce a positioning map that reflects the perceived extent of psychological distance between them This technique does not explicitly identify the axes used and these need to be inferred, or derived from further research. Often a second group of respondents is used, to avoid possible bias, in determining what characteristics they use to evaluate the services offered. The positioning map can be used to identify potential gaps in the market including where there is a demand but little competition (if such a position exists). It should be noted that the existence of a vacant space in a positioning map does not necessarily infer a viable positioning. Positioning maps can be based on either objective attributes or subjective attributes. The positioning map used in a study of UK national newspapers used objective variables of average age
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and average social class. Maps can also use a combination of objective and subjective attributes. A positioning study for; a bank used a positioning which positioned three banks on an objective dimension of best interest rates on loans and a subjective attribute friendly/courteous service . In addition to identifying where different companies products are positioned on the map we are also concerned with where are the areas of core demand. In some cases there is a clear area of core demand such as shown in Figure 5.6. This figure, based on an example from Cambell Pretty Associates, shows positions of various occupations in the workforce based on two key attributes: level of esteem associated with the occupation, and level of interest associated with the occupa-tion. In this example the area of core demand is clear - jobs which are relatively interesting and which have relatively high levels of esteem associated with them. The research showed that the client, the Australian Army Reserve, was positioned as an occupation of fairly high interest, but low esteem. The positioning task, then, was to create a communications and advertising campaign to reposition it in the area of core demand. In other cases areas of core demand may not be so obvious, particularly where there are different groups with different prefer-ences. Figure 5.7 shows a positioning study undertaken prior to the 1966 US presidential election and referred to above. A technique known as cluster analysis was used to identify groups with similar interests. The analysis identified eight clusters (or market segments) plus a student group. In this example political candidates, Humphrey, Kennedy and Johnson could have increased their acceptability to these segments by repositioning themselves by shifting perceptions of themselves upwards and to the right, modifying their position. Note that in this case the product, i.e. the politician, is probably unchanged but the perception of the product could be significantly altered by these politicians endorsing issues associated with conservatism and reduced government involvement. Evaluating Positioning Options Ries and Trout have suggested three broad positioning options:
Strengthening current position against competitors: This
Repositioning the competition: The Long Island Trust
Company was a small bank operating in Long Island - a commuter area fo~ New York City. The bank faced increased competition from large New York City banks such as Citibank, Chemical Bank and Chase, who had become firmly entrenched in Long Island following a new law which permitted unrestricted branch banking throughout New York State. Market research on six attributes showed that Long island Trust was last on a list of six banks in terms of perception of number-of branches, full range of -services, quality of service and large capital base. By repositioning Long Island as the Long Island Bank for Long Island residents the bank improved its ranking on all .attributes. Following the campaign Long Island Trust was ranked first on the number of branches and large capital base, and fourth on full range of services and quality of service. This represented a significantly improved positioning for the bank. Once a company had identified where it is positioned at present, it then needs to determine how to enhance or sustain its position rela8-ive to its competitors. Thomas Kosnik provides the following examples of these key characteristics of successful positioning: The positioning should be meaningful: Apple Computers image of a young, free spirited Silicon Valley company out to change the world worked well in the home and education markets, but has no relevance in the conservative corporate market. More recently Apple has focused marketing communication on the theme of problem solving for its customers.
The positioning must be believable: Many companies
often involves avoiding head-on attack. For example, Avis created a classic positioning with its campaign A vis is only No 2 in rent-a-cars, so why go with us? We try harder! By acknowledging that Hertz was the largest company in the car rental business A vis presented a believable positioning proposition (we try harder), and also capitalized on peoples natural sympathies for the underdog. Thus they used their number two position as an asset. Identifying an unoccupied market position: This strategy consists of identifying a gap in the market that was not filled by a competitor. United Jersey Bank, a small bank in New Jersey, positioned itself as the fast moving bank. In competing against giant banks like Citibank and Chase Manhattan it attacked their weak point of being slower (or at least perceived to be slower) in arranging loans and dealing with their customers.
claim to be all things to all people. For example, most of the Big Eight (now the Big Six) accounting firms claim to be able to undertake any management consulting project. Can they do an exceptional job on strategy consulting - compared to specialists like McKinsey & Company, Bain & BCG - and human resources - compared to specialists like Hay Associates? Interestingly the largest and most successful accounting firm to enter consulting has been Arthur Andersen, which for many years has focused mainly on one specific area - information systems.
The positioning must be unique: Many companies in the
computer industry claim they are unique by their leadership in technology. This is seldom the case for anyone of the computer companies. Companies need to find a positioning where they can consistently outpace the competitors in serving a given market. A wide range of approaches to differentiation are possible, twelve of which are shown in Table 5.3. Kosnik suggests that the following questions are relevant for considering which of these positioning alternatives is appropriate (they apply at either the corporate or the business level): Which one of these positions most differentiates our company or business unit? Which position is held by each of our major competitors?
Which positions are of most value to each of our target
market segments?
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Which positions are cluttered with lots of competitors
claiming to hold the title? Table 5.3 Alternative corporate positioning strategies
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Market share leader Quality leader Service leader Technology leader Innovation leader Flexibility Relationship leader Prestige leader Knowledge leader Global leader Bargain leader Value leader The biggest The best/most reliable products and services The most responsive when customers have problems The first to develop new technology The most creative in applying it The most adaptable The most committed to the customer's success The most exclusive The best functional, industry or technical expertise The best positioned to service world markets The lowest price The best price performance
Competitors
Companys perception of customers Customers perception of competitors Customers Competitors perception of customers
Competitors themselves perception of themselves
Customers perception of
Figure 5.8 Networks of perceptions It should be noted that companies often do not see themselves as their customers or competitors see them. Table 5.4 provides an illustration of the Big Eight chartered accounting firms in the late 1970s from the perspective of both how they see themselves, and how their competitors see them. Companies positioning changes over time, and the positions of the chartered accounting firms have changed following a number of recent mergers. Positioning at the corporate level is concerned with managing and communicating a differentiated position to enhance the visibility and credibility of the company. Companies must continually engage in a dialogue with their customers to support and enhance their position in the market. Implementing Positioning and the Marketing Mix How a company and service is positioned needs to be communicated throughout all of its implicit and explicit interactions with customers. This suggests that all elements of the company, its staff, policies and image, need to reflect a similar image which together conveys the Table 5.4 Competition and self-perception of the Big Eight accounting firms
Firm Peat, Marwick, Mitchell & Co. How they see themselves Aggressive but not in an unprofessional way. We have the best people. Biggest weakness: too decentralized Tough. We work harder. We've got a winner's kind of feeling. Our real strength is in the management team The premier accounting firm. We are to accounting what sterling is to silver. Our clients are the cream Tough. Aggressive. We speak with one voice everywhere. Not well known outside the US Not as aggressive as most of the Big Eight. Technical leader in the profession. The auditor's auditor Tend to be less aggressive than others. Heavy emphasis on client service. We do not want to be the biggest A practical firm. Pragmatic. We put strong How competitors see them Trying to recover from past problems with SEC. Very aggressive. Price cutter. Expanding scope of practice Has changed a lot. Most aggressive of the eight in hustling business. Price cutter Not very aggressive. Stuffy. Arrogant. Getting steamed up after losing some clients Aggressive. Likes publicity. First firm to emphasize growth. No room for individual thought Not very aggressive. Narrow in scope of services. Getting their act together. Strong auditors Not as aggressive as other Big Eight firms. Widely respected. Super professional Sleepy. Not growing fast except in certain industries. Not on the competitive edge. Loosest organization overseas
Which are relatively free of competition? Which corporate or business unit positions provide the best
fit with our companys product and product line positioning strategies? Review Alternative Perspectives of Positioning The preceding discussion has focused on positioning of services from the perspective of how the customer perceives the company. A range of other perspectives on positioning should be taken into account inducing the following:
The companys perception of itself. The companys perception of competitors. Competitors perception of the company. Competitors perception of themselves. The customers perception of competitors. Competitors perception of customers. The customers perception of themselves. The companys perception of its customers. The customers perception of the company.
A companys position is influenced by a group of competing com-panies and their customers. The network of perceptions between the company, its competitors and its customers is shown in Figure 5.8. These networks of perception can profoundly influence how com-panies develop their marketing strategies.
Company perception of itself
Coopers & Lybrand
Price Waterhouse & Co. Arthur Andersen & Co.
Company Competitors perception of company Companys perception of competitors Competitors perception of company
Deloitte Haskins & Sells Arthur Young & Co.
Ernst & Ernst
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Ernst & Ernst
Pragmatic. We put strong emphasis on quality service to our existing clients We want to be the best. We're not as big as we want to be. We're not price cutters, but we are price competitors
Very aggressive in hustling business. Enamored of size. Price cutter. Weak overseas
repositioning of the various Forte Group hotel brands into different price and quality offers is an example of this.
Service: availability and location (place). Some banks are
Touche Ross & Co.
position-ing themselves to be more accessible to the customer. This is achieved by use of technology - making A TMs widely available, as well as improved banking hours.
Promotion: Promotion and positioning are inextricably
desired position to the marketplace. This means that a company must establish a strategic positioning direction, which is followed through in all of its tactical marketing and sales activities. This is not always the case, and there is often a conflict between a desired position and that which is actually being conveyed. For example, before the Lord King and Sir Colin Marshall era, British Airways promoted itself as a caring airline. However, customers experience did not match this position. The company had to discon-tinue its advertising message we care for you, and make major changes within the company. This included a major refocus on how the passenger was perceived by employees. Staff had to actually care about the customer. To support this, the airline itself had to demon-strate a caring attitude to its employees. The successful repositioning of British Airways and its campaign Putting the Customer First was dependent on a coordinated and integrated internal and external marketing strategy. A significant failure of a positioning strategy occurs when target customer segments do not recall a service offering and the service does not stand out from those of its competitors. A successful positioning strategy should make the service clearly distinguishable by features which are desirable and important to the target customer segment. This means that the positioning strategy should be examined from time to time to ensure that it does not become outdated and that it is still. relevant to the target market segment. The marketing mix is the key to implementing a positioning strategy. The design of the marketing mix to implement the positioning must be based on the key salient attributes relevant to the target segment. These attributes should be identified in the context of analysis of competitors, whose positions should be assessed to discover their vulnerability. The marketing mix elements represent almost unlimited opportun-ities for positioning. As the next chapter is concerned with the market mix we shall present here only a brief example of how each element can support the positioning of a service firm.
The service product: The product itself offers considerable
bound together as it is the advertising and promotional programmes which communicate positioning. Positioning themes or signatures such as the following can help reinforce the desired positioning: Morgan Guaranty, the big bank of big business; IBM, fast, reliable service, every customer, everyday, every time American Airlines, we built an airline for the professional traveler Midland Bank, the listening bank; British Rail, were getting there; Federal Express, absolutely, positively overnight delivery British Airways, the worlds favorite airline; Simsbury, good food costs less at Simsburys
People: People are essential to delivery of positioning. For
Avis to deliver the we try harder positioning they had to ensure that every employee was actually trying harder to serve the customer, or was supporting someone who was serving the customer. British Airways spent several years on Putting the Customer First, and related initiatives aimed at training and improving-people perform-ance, before it attempted to communicate the positioning as shown in the recent customer care TV commercials. Processes: Processes are essential to delivering the position. If large queues develop in a bank or supermarket, or an ATM network ceases to function, no amount of communication or well-inten-tioned people will overcome the breakdown. Processes -are also fundamental to repositioning. Repositioning can be achieved through structural change in processes, involved changing (either increasing or decreasing), complexity and divergence of the service offer.
Customer service: Customer service influences customers
percep-tions greatly. It can thus be used as a weapon to create competitive advantage that is not easily copied. This represents an important mean of creating differentiation in the companys positioning strategy. Positioning thus guides the development of the marketing mix. All the elements of the marketing mix can be utilized to influence the customers perception and hence the positioning of the product or organization concerned. The marketing mix can be used to develop a coherent totality that creates the positioning in the customers mind. The Importance of Positioning Positioning involves both launching new brands into the marketplace (new brand positioning), and repositioning old brands. It is concerned with the differentiation of products and services and ensuring that they do not degenerate into a
oppor-tunity to deliver the positioning. For example, Barclays Connect card helps position the bank as innovative. The card fulfils a wide number of roles: cheque guarantee, cash withdrawal, Visa usage debited directly to the current cheque account, and a deposit card, to mention a few. Price: Retailers and hotel chains are examples of organizations with a good understanding of the role of price, and associated quality, in positioning. The recent
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commodity. To maximize its potential a company should position itself in its core market segments, where it is objectively or subjectively differentiated in a positive way over compet-ing offerings. Positioning is particularly important for services in the market of the 1990s. As a result of competitive pressure the consumer is becoming increasingly confused by the huge offering of services within each market sector. These offerings are communicated by a vast number of advertising messages promoting different features of the services. The key to a successful positioning strategy is to promote the feature which the company is best at and which exactly matches the needs of the customer. Because of intangibility and other features associated with services, consumers find that differentiation of services can be more difficult and complex. Successful positioning makes it easier for the customer to see a company services as being different from others and exactly what is wanted. Positioning is a strategic marketing tool which allows managers to determine what their position is now, what they wish it to be and what actions are needed to attain it. It permits market opportunities to be identified, by considering positions, which are not met by competitors products. It therefore helps influence both product development and the redesign of existing products. It also allows consideration of competitors possible moves and responses so that appropriate action can be taken. The concept is often considered at the product level although it is also relevant at the product sector and organizational level. Positioning involves giving the target market segment the reason for buying your services and thus underpins the whole marketing strategy. It also offers guidelines for development of a marketing mix with each element of the mix being consistent with the positioning.
Tutorials
In light of above, compare the competitive differentiation of services, in Airline industry. Explain the difference in positioning of Indian airlines vis--vis Jet Airways
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LESSON 10: PRICING THE SERVICE

Key pricing concepts Pricing issues for services Organizations objective and pricing Framework for pricing decisions
are covered later in this chapter. Initially, however, it is useful to consider the various approaches to pricing policy and examples of the way in which pricing is used as a marketing mix tool. Some of the most commonly used pricing concepts can be described as follows: Price Skimming Here the supplier skims the cream off the market by offering a product or service at a high price on a low volume basis. This is particularly appropriate for new products in new market situations where a proportion of consumers are always prepared to pay more for new, innovative goods. The price skimming approach can help speed up the payback period. Frequently, the price reduces after a period as the products become more popular and sales volume increases. Mobile telephones are an example of this; the actual product (the telephone) has reduced in price over time since initial introduction to the market and the service (mobile communications) charges have also reduced, bringing the mobile phone within reach of ordinary consumers. Penetration Pricing In this case the price is set at a low level in order to attract high volume sales, thus penetrating the market and gaining substantial market share. For new products and services the payback period is lengthy but with the advantage of establishing a strong market position. The strategy is especially suitable for use when entering highly competitive markets, such as the fast food restaurant business in the UK, or international airlines. New entrants would be unlikely to succeed by charging high prices; pricing would have to be attractive in comparison with the competition to penetrate the market. Mixed Pricing This is based on the above two pricing strategies; begin with a price skimming policy then reduce the price as competitors enter the market to defend the organisations position and attract new customers. The example given previously of mobile communications typifies this approach. Cost-plus Pricing Here pricing is based on the costs of producing the good or providing the service. The total costs are computed then the price determined by adding on some required margin or mark up. This approach has a number of weaknesses in that it considers neither the competitive situation nor the market potential. Prices may be set too high against those of competitors to attract customers or may not be set high enough to exploit demand, especially if the product or service is innovative, new, or distinctive in some way from competitive offerings. Variable Pricing This is particularly relevant in industrial and business-tobusiness markets where individual contracts are priced according
Introduction
The price is a key element of the marketing mix; it must be acceptable to target customers and it must reflect the other components of the mix accurately. The price of the service is the value attached to it by the service provider and it must correspond with the customers perception of value. If the service is priced at too high a level, customers who will not buy it will see it as poor value for money. On the other hand, if the price is too low, the service may be perceived as shoddy or inferior in quality. Many service providers offer a range of services at various price levels to meet the needs of different target segments who may have different levels of spending power. Airlines offer business class and economy class travel, for example, and theatres offer seat~ ate different prices according to the layout of the theatre, the view accorded by the seats and their relative proximity to the performance. Both airlines and theatres also offer different prices to customers buying the service at certain times, with lower prices being charged in the less busy, off-peak periods. Many factors influence the price which is ultimately charged. The type of organisation, the structure of the market, the life cycle stage of the service and prices charged by the competition may all have an impact on pricing decisions. Organizational objectives are also part of the pricing equation. If the service provider wants to position itself as offering a value-for-money, family restaurant, for example, the menu prices will be quite different from those of an exclusive gourmet establishment. Sometimes service providers, such as those in the public sector, have constraints imposed over the prices they can charge to customers. This has an impact on other aspects of the marketing mix, as the elements are always linked interdependently. These aspects of pricing the service are explored in this chapter.
Key Pricing Concepts

There are many alternative pricing concepts and techniques available to market-ing organisations. As with all aspects of marketing concepts and tools, certain of these have more relevance for service organisations than others. Rather like the promotional tools which go to make up the promotional mix, many of these tools and concepts may be combined to create an overall pricing strategy which is most effective for the organisation over time. Other issues, such as organizational objectives, will impact on the choices and decisions made with regard to pricing policy and
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to specification. Service provid-ers such as architects and consultants quote a price according to the needs of the project. Tendering is a situation which generally reflects this approach. Some-times variable prices include some fixed element, such as hourly labour charges, but even these may be variable in line with the complexity of the work. Marginal Pricing Marginal pricing is based on the concept of marginal cost and is particularly relevant for service industries. The marginal cost is the cost of the last unit of output and may be very low. For example, a unit of output for an airline could be defined as a fare paying passenger so the marginal cost of the last unit of output one extra passenger on a plane will be very low in comparison with the overall costs of fuel, maintenance, staffing costs and so on. It is probably equal to the cost of the meal and drinks served on board. Therefore, when there is spare capacity on a passenger airline, empty seats which can be filled by passengers paying vastly reduced ticket prices are preferable to empty seats.This is the principle behind standby airfares where seats are offered at the last minute for a fraction of the normal fare - anything over the marginal cost is a contribution to the companys profits. Travellers arriving late at night can often negotiate reduced room rates in hotels, and holiday makers prepared to make a last minute reservation can book package tours at heavily discounted prices. The perishable nature of services means that empty seats on a plane or vacant bedrooms in a hotel represent a business opportunity which is lost. Such surplus items cannot be set aside for an end-of-season salt7, for example, so any tactics (using promotional tools as well as reduced prices) which can help to maximise take-up of the service, thereby reducing any surplus, are extremely valuable. Promotional Pricing Sales promotion techniques often use tactical pricing reductions as a means of increasing sales over a short period. Discounts, special offers, vouchers, rebates and even buy now pay later schemes and interest-free credit are all examples of promotional pricing. It is useful to aid penetration or as a seasonal tool (hence the end-of-season sales) but should be treated as a short-term tactic, not a long-term measure. The overall effect of a price war between suppliers competing with one another can be to de-value the market. Loss leaders are another example of promotional pricing used in retailing especially. A staple product is offered at a lossmaking price to attract customers to the store where they will (hopefully) spend money on other products. Differential Pricing Another form of promotional pricing of particular concern to service marketers is differential pricing, where different prices are charged for the same service at different times or to different customers. This tactic is used to attract more business in slack periods or to attract particular groups of customers to make up demand at particular times. Differential pricing may be seasonal, reflecting the different prices charged for the same holidays in low-, mid- and high-season or by time period, hence the price of rail fares in peak periods compared with off-peak periods.
Hairdressers or theatres might offer reduced prices to senior citizens or students on certain days or for certain shows, when demand is likely to be low. In these circumstances, the differential price charged may be based on marginal pricing, demonstrating again how more than one approach may be combined in creating the ideal pricing strategy for an organisation.
Pricing Issues for Services

The overall pricing strategy will be influenced by the organisations objectives but certain factors will impact on actual pricing decisions and the selection of appropriate pricing policies. The factors affecting pricing policy include the following: Costs of producing the service and breakeven analysis Competitor pricing Demand levels and elasticity Regulatory factors Marketing mix Positioning Basic financial considerations need to underpin pricing decisions if a service provider is to operate profitably or survive in the competitive environment. Most service organisations are concerned with making a profit or, in the case of not-for-profit organisations, charities or services in the public sector, covering costs and possibly raising funds. It could be argued that there are exceptions; services which are heavily subsidized, such as museums, for example, but even subsidized services will generally seek to maximise possible sources of revenue and operate in a cost effective manner. Some services which do not charge prices to the end consumer as a rule are, nevertheless, subject to pricing mechanisms within local and national govern-ment. State schools and National Health Service Hospitals are examples of these. Other services are constrained in their pricing policy because fees or prices are standardized at national level, as with student fees which are standardized to a large extent at UK universities. Many public sector services traditionally supplied by local authorities such as refuse collection, school meals and janitorial services are now open to tender and public sector service providers are forced to compete for business against commercial service providers from the private sector. The costs of providing the service need to be analysed and prices set at competitive rates if the local authority is to continue to supply the service. In all the examples given, however, analysis of what the service costs to produce and deliver and other cost factors is an important task. Costs of Producing the Service and Breakeven Analysis In order to use costs as the basis for any formal pricing decisions, it is necessary for service organisations to analyse all costs accurately. Where organisations offer a range of services, the costs for each individual service must be assessed. There are three main components which make up the costs of providing a service: variable costs, fixed costs, overheads.
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Variable costs fluctuate in relation to the level of service output. They include the costs of materials and provisions, staffing costs and other areas of expenditure such as advertising. Fixed costs are those costs which do not generally alter in line with the volume of output. They include the costs associated with buildings, depreciation of vehicles and machinery, rates and local taxes, for example. It is true to say that fixed costs may, in fact, change over time with increased levels of service output (e.g. if another branch of a restaurant is opened) but they do not fluctuate in the way that variable costs do. Overheads are the costs attributable to management and administration within the organisation. Some costs may be shared costs which are allocated across the whole range of services. The costs of premises and vehicles are examples of costs which are likely to be shared but staffing costs may also be shared across a range of services unless service personnel are only involved in the production and delivery of individual service lines. Breakeven analysis is a basic tool which can be used to calculate the minimum quantity of a service which must be sold in order to cover the costs of producing and delivering that service; in other, words, to break even. Cost curves are plotted on a chart, then a revenue curve can be superimposed over them, thus creating a graph which depicts the profit/loss picture for several possible cost-revenue situations at different levels of service sales volume. The diagram illustrates breakeven analysis. Breakeven analysis is of limited value in determining pricing policy as it is based on very simplistic assumptions about the relationship between costs, price and demand: No account is taken of price elasticity of demand in relation to actual revenue. The breakeven point is derived from a calculation rather than from a forecast of the actual sales volume required to reach certain levels of profitability. In reality, variable costs within service organisations do not necessarily increase proportionately with levels of output and fixed costs /do not remain completely constant irrespective of levels of output. As with many marketing concepts and tools, managers should not rely on the breakeven concept in isolation in making pricing decisions. It is important to understand the concept, however, and its value as a simple method of evaluating different pricing options, especially where forms of cost-based pricing are involved. It should always be used in conjunction with other approaches which take into account the structure of the market, the potential demand for the service and the competitive situation. Competitor Pricing Organisations need information about competitors prices in order to make pricing decisions. This does not necessarily mean that organisations are going to set prices at the same level, nor to undercut competitors prices even, although tactical pricing battles are often seen between rival organisations or brands. The effect of price cutting as anything ether than a short-term, promotional tactic designed to gain short-term competitive
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advantage can be to de-value a market with the result that all competing organisations lose revenue eventually. Competition-orientated pricing (or me too pricing as it is sometimes known) occurs frequently in markets which are very price sensitive and where the core benefits sought are largely similar. Bank charges tend to be set at more or less the same level between the main banks and major airlines set their fares at compet-itive levels to survive in the market. Organisations operating competition orientated pricing strategies will tend to attempt to influence consumer preference through other elements of the marketing mix such as service quality. There may even be very valid reasons for choosing to set a price considerably higher than the main competitors if the service offered is of a much higher quality, or provides additional benefits. As stated previously, all marketing mix elements are interdependently linked, and price determination will take into account many factors besides competitor pricing. The key issue, however, is to analyse competitor pricing relative to the organisations own pricing strategy and that of other competitors. It can also be difficult to determine who competitors are, if indirect competi-tion is included as well as direct competitors. A restaurant may compare its prices with those of other restaurants and eating establishments in the locality but in reality there are other choices available to prospective customers in terms of how they spend their leisure time and money. It may be necessary to consider how the price of a meal at the restaurant compares with the price of an evening at the bowling alley or a trip to the local cinema or leisure centre. Demand Levels and Elasticity The level of demand for a particular service offering will be a key influence on pricing decisions. Demand levels may vary for a number of reasons: economic conditions and trends in consumer spending . the stage in the life cycle of a service seasonal variations busier times of day - peak periods level of marketing and promotional effort degree of Substitutability of the product or service. The key task is to forecast levels of demand and potential demand, taking price into account. The demand for some goods and services will go up ~d down in line with price increases and decreases, whereas the demand for other types of goods and services will remain more or less constant. Price elasticity of demand represents a measure of how sensitive demand is in relation to changes in price. Cigarettes, petrol, electricity and basic foodstuffs tend to have low elasticity while luxury or non-essential goods and services will tend to be more price sensitive. Regulatory Factors Regulatory measures imposed by government and other bodies on many kinds of organisations affect pricing decisions and, ultimately, the price charged. In the services sector, UK public utilities prices are monitored by consumer watchdog bodies set up by national government, such as OFTEL which monitors the telecommunications suppliers. These watchdog bodies bring pressure to bear on the service providers to supply at fair prices and to restrict price increases.
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Charities and not-for-profit organisations are frequently subject to constraints laid down within the constitution of the organisation, or set down by the board of trustees or other governing body regarding what they can charge for their services. Public sector services such as leisure centres and school meals services are also similarly constrained in their pricing decisions. Frequently such services are subsidized to some degree so they are able to afford to operate at a level which might technically be loss-making. Other formal regulatory factors influencing prices in the UK include legisla-tion such as the Trade Descriptions Act and the Consumer Protection Act. Collusion between companies in price setting is not allowed and the Monopolies and Mergers Commission is established to prevent the creation of monopolies. Marketing Mix As stated previously, the elements of the marketing mix are interdependently linked. Each element must sit congruently with the others to make the whole marketing mix offering credible and attractive. Some possible influences of the price on the other elements of the mix are as follows: Product/service offering: The price must reflect the value of the product accu-rately. Determining what value is associated with particular products or services is highly complex as perceived value is extremely subjective. What represents good value to one customer may not do so to the next. Many organisations offer a range of offerings at varying price levels in order to suit as many potential customers as possible. Offerings may vary in quality from the basic budget range to a luxury range, at prices to reflect the different quality levels. Hotels frequently offer varying standards of accommodation across ~ wide price scale. Other services may be offered at a discount for quantity or regular purchase. Promotion: Price mayor may not be a feature of promotion. Price sensitive goods and services often rely on attracting customers on the basis of price and will wish to communicate this to all potential customers. Similarly, organisations offering promotional pricing such as special discounts or vouchers will include this in promotion. Whether price is specifically referred to in the promotional message or not, however, it should accurately reflect the service quality and value to match customers expectations. Price reductions and offers used in sales promotion represent a key part of the promotional mix. Place: Expensive products and services which can command premium prices will be distributed through selected channels which should reflect the quality and status of the offering. Location can also be closely linked to price. More expensive, exclusive professional services such as law firms and stockbrokers are likely to be located in up market city centre offices. Consumers expect to pay more for these services than they would for a similar service from a provincial practitioner. People: Service quality should, ideally, never be compromised by price. Differ-ences in the level of service offered are, however, often clearly reflected in the price charged. More expensive services will often require higher levels of staff training and
more specialist knowledge on the part of individual members of staff. Process and physical evidence: Physical evidence is important in determining what constitutes value for money in the services sector. Facilities, decor and the physical environment in which the service exchange takes place (or is initiated) should reflect the price of the service. High street travel Agents offer a combina-tion of characteristics in respect of these marketing mix elements to attract customers; well trained staff in smart uniforms and pleasant, bright offices together with the latest in computer technology for on-line booking and information systems. Positioning The idea of positioning relates to the way consumers perceive and evaluate products and services. Specifically, it relates to the away in which consumers rank the features and attributes of a service against those of competing services. Consumers will perceive certain brands as being higher or lower in quality, for example, or of being more OF less expensive than other brands. They will also differ in terms of how important price is with regard to a particular product or service. Different target groups and segments will have different perceptions of price and some will be more sensitive than others. Consumers often rely heavily on price to make judgments about the quality of goods and services when they have little other information. For these reasons, it is critical for marketing managers to understand different customer attitudes towards price and their perceptions of quality in determining price levels.
Organisational Objectives and Pricing Policy

Many organizational objectives can be closely linked to specific pricing strategies and will play a large part in determining those strategies. Examples include: Maximise current profit Maximise current revenue Maintain price leadership Survival Maximise growth In price sensitive markets, price will have to be set relatively low to maximise revenue. To achieve maximum growth in sales, penetration pricing - where prices are sometimes set as low as possible - will be used. However, there may be other organizational objectives which are not so directly linked to price. A museum might have maximizing the number of visitors as its primary objective. Enhancing the image of the organisation, discouraging new competitors from entering markets and building brand loyalty are all examples of organizational objectives which are in this category. It is important for organisations to make decisions about prices which are compatible with the organisations overall objectives. In services marketing, many organisations, especially in the charity, not-for-profit and public sectors, the task of balancing decisions about pricing and overall objectives is highly complex and may be subject to all kinds of non-business constraints.
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The import-ant task, however, is to be very clear and explicit in specifying corporate objec-tives. These can then be analysed in the light of possible pricing problems and decisions made accordingly.
A Framework for Pricing Decisions

Prices are not set once only; developing pricing policy should be a continuous process, always open to refinement and adjustment when the need arises. It is important to recognize problems which can arise from the failure or inadequacy of some pricing programmes so that steps can be taken to rectify the situation. As with all aspects of marketing planning, pricing should be monitored continuously and corrective action implemented quickly. There are a number of key stages in price decision making which can be identified as follows: Analyse organizational objectives in terms of pricing. Determine demand levels and customer characteristics. Analyse costs. Examine competitor pricing and positioning. Set prices utilizing pricing concepts, e.g. cost-plus. Monitor market response to prices set and identify problems. Organisations should always be ready to adapt pricing to variable conditions in the market. Price should be used fully as a marketing tool- a key element within the marketing mix.
Tutorials
In light of above, Analyze the pricing differentiation of Cellular services. Explain the Organisationobjectives ,pricing concepts and issues of Airtel vis--vis Reliance.
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LESSON 11: PROMOTION AND COMMUNICATIONS IN SERVICES MARKETING

Introduction to promotion Communication Process Promotional Message Campaigns in service marketing Promotional mix Media Choice Managing Promotional Effort Monitoring and Evaluation
groups, for example. Communications can be viewed as the transmission of information. Service organisations may need to communicate information for various purposes: Externally To inform the target markets about current and new service offerings and benefits to educate customers to persuade existing and potential customers to buy to remind customers about the service and where it is available to publicize policy decisions, for example about environmental issues to make public announcements. Internally To inform employees about changes in the organisation t9 communicate plans and programmes effectively to keep all employees informed about company performance .to publicize incentive schemes and other events to inform and educate employees about new products and services to disseminate marketing intelligence within the organisation The above lists illustrate a variety of reasons why organisations need to commu-nicate both internally and externally. Different forms of communication will be used to meet the different information needs of organisations and to find the most appropriate means of transmitting the information effectively. Different forms of communication and promotional methods will be reviewed later in this chapter, but it is necessary at this stage to understand the communications process.
Introduction
Promotion is used to communicate information about goods and services to target market audiences thereby facilitating the exchange process. It is sometimes argued that effective marketing - offering the right service at the right price in the right locations to meet target customers needs and wants - should not require extensive promotional activity as the products or services will sell themselves. There is an element of truth in this, as the purpose of developing a finely tuned marketing mix is to match offerings and benefits very closely to the needs of identified target groups of customers. The result of this, in theory, is that custom-ers will favour one particular organisation over competitors and will actively seek their service offerings. However, in practice, it is difficult to imagine a situation where some element of promotion is not required to inform the customer of the organisations exis-tence or about the offering itself, even if this is simply by word of mouth. Promotion plays an important role ht informing, educating, persuading and reminding customers. This role is even more important in services where there is a high degree of intangibility so there is no physical product or packaging to attract potential customers attention. Additionally, effective communications are needed to inform customers about their role in the service delivery process. They need to know where automatic cash dispensers are located and how they work, for example, or how to make reservations for a restaurant or a seat at the theatre. The highly compet-itive marketplace for both commercial services and, increasingly, services in the not-for-profit and charitable sectors has led to advertising playing a major role in services marketing today. This is, however, only one aspect of the promotion and communications process which is explored in this chapter.
The Communications Process

Central to good communications is the need to be able to transmit messages accurately. This is not an easy task. There is so much room for misinterpretation or misunderstanding to occur in. any communications situation. Even in per-sonal, faceto-face communications it can be difficult to convey precise factual messages accurately. It can be imagined, therefore, that the difficulties involved in communicating a convincing, persuasive, unambiguous promotional message in a thirty second television advertising slot are immense. The communications processes is typically illustrated as consisting of four main elements: The source (the sender): encoding The message (which is subject to noise) The media selected to transmit the message The recipient: decoding The Source The starting point is the source - the person or organisation sending the message. The source must have a very clear idea of the objective of the communication, i.e. what is the desired outcome of sending this message. If this is not clear at the
Internal/External Communications
All organisations need to communicate with their customers (both internal and external) at various times and for a variety of reasons. Often, communications are also directed towards other groups such as the organisations publics -local authorities, government bodies, shareholders, community and pressure
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outset then the communications process is already in danger of breaking down. Encoding The source encodes the message by putting it into words, supported by images and pictures which will enhance the effectiveness of the message. Even simple direct communications go through this process of encoding; the right words have to be chosen carefully to avoid any misunderstanding. Essentially, the encoding process translates the thought and objectives of the sender into a message which will make sense to the intended recipient or audience. The Message The message has now been encoded and may be in the form of a letter, a spoken announcement or a television or radio advertisement, for example. In reviewing the message, the sender must be certain that it accurately conveys what they originally intended. The Media Selected to Transmit the Message Unless the message is going to be transmitted directly to the recipient, either face-to-face or by personal letter, for example, some form of media must be selected. The most appropriate medium for getting this message across to the target audience will depend on several factors. The choice of medium itself can affect the way the message is received and interpreted. An announcement about company policy may carry more weight if it is published in the Financial Times rather than the News of the World. On the other hand, if the intended audience is more likely to read a popular tabloid newspaper than the Financial Times, then this will dictate the choice of media. Noise The whole communications process is affected by noise. Noise, in this context, means anything which can detract from the message in any way by distracting the recipient. In the case of television advertisements, for example, noise can occur in the form of other advertisements, family conversations, the option of reading a book or a newspaper instead of watching television, and so on. Similarly, in newspaper .advertising, noise arises from exciting editorials, interesting photographs, other advertising offers or sports reports which compete for the readers attention. The reader may be introducing noise by listening to the radio as well as reading the paper. Noise occurs in many ways, most of which are beyond the control of the sender. Direct mail is increasingly used as a more direct medium of communica-tion for organisations to use in contacting their target customers to avoid the noise associated with other media forms. The sheer volume of direct mail now received by many consumers is in itself a form of noise, distracting the recipient from the intended message. For this reason, in using different media, it is essential to make the message as interesting or eye-catching as possible, in order to overcome such distractions. Decoding Decoding is the act of interpreting the message and forming an impression of what it is intended to convey in the light of the recipients own understanding. Noise .can have an effect on the message as not all the intended audience will pay full attention to the message, and of those who do, each will place their own
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interpretation on its meaning. The more complex the message, the more likely it is that distortion will occur. The Recipient The receiver of the message can themselves affect the accuracy of the message. Their personal beliefs, attitudes and preconceptions will influence how they interpret the message. The anti-nuclear campaigner is unlikely to be anything but sceptical of messages sent out by the nuclear industry to raise its public image. Other recipients may find such messages reassuring, however. Previous experience of the organisation will colour the recipients interpreta-tion of the message, as may cultural influences. Some famous advertising mis-takes have been in the international arena, where the use of particular colours or symbols has led to rejection of the advertising (and the relevant products) because the connotations attached to those colours and symbols have been unpleasant or made the advertisement socially unacceptable. The communications process ends with some form of feedback. Sometimes this is direct feedback, as in a personal sales negotiation, for example, while at other times it may be harder and take longer to measure the effectiveness of the communication, by monitoring increases in sales, for instance, or responses to sales promotions. One-way communications are the most difficult to monitor, especially as marketing communications compete with so many other messages and distractions in the crowded marketplace and there may be no direct form of feedback. Ensuring the most effective communications for marketing and promotion is a complex task. External communications form a key part of the promotional mix, and internal communications are vital for effective marketing management. Internal marketing programmes encourage good communications within organisations, and these are explored in Chapter 8, while this chapter explores communications within the promotional mix.
The Promotional Message

The promotional message may be designed with one or more aims in mind: to inform to entertain to educate to persuade to remind The promotional objectives will dictate, to a large extent, the nature and form the promotional message takes and the type of appeal used to get the message across. The promotional objectives will themselves be determined by a variety of factors: the competitive situation the positioning of the brand or service the life cycle stage of the service offering organizational and marketing objectives In launching a new service, the initial objective will be to create general awareness of the service, and the promotional message will be designed to inform consumers that it exists. Educating
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consumers in how to use the service and persuading them to try it, or participate in it, will follow. Once a service is established, promotional messages will serve to increase awareness or remind consumers about the service, and persuade new customers to purchase. A variety of different appeals will be used to present the promotional message. The type of message and the media choice available will influence the nature of the appeal. The types of appeal under consideration include: rational appeals emotional appeals fear appeals humour appeals The appeal used is designed to evoke some kind of reaction, in line with the promotional objectives. A mixture of more than one appeal may be used. Rational Appeals Some messages need to be long and detailed and will contain a quantity of information to inform and educate customers about the service offered. The content will be presented factually and logically and will often rely on explana-tions and comparisons. Rational appeals are founded on the notion that, pre-sented with all the facts about a superior service offering, consumers will make a rational decision to buy. They depend on fairly detailed information and are therefore more suited to newspaper and magazine advertising, although this type of appeal is also used in other media promotions. Industrial and business--to-business services often use this format in the trade and other press, as do certain financial and other consumer services. Emotional Appeals By using emotional appeals, advertisers attempt to provoke a response via emotions and feelings. Evidence suggests that emotional appeals enhance mes-sages because they make consumers feel more involved with the advertisement. Emotional appeals using animals, children and families have been used to sell everything from toilet rolls (the famous Andrex puppy) to life insurance and airlines. In a highly competitive marketplace, it may be difficult to differentiate a service using rational appeals and so emotional appeals are used in campaigns. British Airways efforts to differentiate itself on service and friendliness and a promotional campaign positioning BA as the worlds favorites airline have paid off, largely due to the success of its promotional campaign internationally. Fear Appeals Messages containing fear appeals are used by marketers to encourage customers to act in a particular way. The Automobile Association has used the portrayal of dreaded situations breaking down in the rush hour, or the lone female motorist being stranded in a remote area at night - to encourage people to become a member of its repair and rescue services. Fear appeals must not be too threatening and tend to work best when they present a solution to the problem within the message as in the Automobile Association campaigns mentioned. American Express use a similar format to promote their
travellers cheque, emphasizing their quick replacement service in the event of cheque being lost or stolen - the tourists nightmare. Humour Appeals Humorous messages are used successfully in many advertising campaigns. They attract the audiences interest and attention more effectively than serious mes-sages and can also have a mood-enhancing effect, which makes the recipient more responsive to the message. Humour should not undermine the product or services image, or detract from the actual message Humour has also been used successfully by the Automobile Association in some of their campaigns and this may help to alleviate the perceptions of anxiety associated with their service by customers, providing a balance between a service offering which is perceived as unwanted but a necessary evil, to be used in situations of dire necessity, and a service provider which is caring and friendly. Campaigns in Services Marketing Promotional messages of all types have been used successfully in services marketing, with campaigns often using a combination of appeals to get the message across. When First Direct launched their revolutionary direct banking service, the first promotional messages were designed to create awareness of the new service. The first of its kind, a bank with no branches where all transactions and services were accessible by telephone, twenty-four hours a day, it used a provocative message - banking without branches. its extraordinary. - with a telephone number and pictures of household objects unrelated to banking. The message had a humorous quirky appeal which served to arouse consumers curiosity; the message in-formed them that there was a radically new service being launched, but it did not attempt to explain the concept or educate the consumer about it in the advertisement because research had shown that it was simply too different for consumers to grasp quickly. Customers responding to the advertisement by telephone were then sold the new concept and its benefits in a personal, one-toone situation. In the services sector, promotional campaigns are undertaken by commercial organisations such as British Telecoms campaign its good to talk - designed to remind consumers about the service and prompt increased usage. A celebrity delivering the message in a confidential, personal manner developed an emotional aspect to the appeal, while information on the low cost of calls at particular times presented a rational message. McDonalds weve got time for you mes-sage emphasized their customer service through warmth and a strong emotional appeal, using young children and family images to attract customers. Commercial organisations use virtually all media to get their message across. Increasingly, promotion and advertising playa key role in the marketing strategy- of not-for-profit and charitable service
o r g a n i s a t i o n s .T h eNa t i o n a lC a n i n eDe f e n c eL e a g u e sme s s a Ig e ,

a dog is for life, not just for Christmas has been well known since it was first used in the early 1980s, and is another example of an emotional appeal.
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Public sector organisations use promotion to keep important issues in the -public mind. The Health Education Authoritys long-running AIDS awareness campaign has been the recipient of an award from the Institute of Practitioners in Advertising (IPA), as has the Health Education Board for Scotlands Smoke line campaign, designed to help people give up smoking with the line You can do it. We can help. Both of these have used a mix of appeals, including fear (showing- the harrowing effects of AIDS or smoking-related illness) and rational appeals within informative and educational messages. Government campaigns based on similar mix of appeals are widespread and serve to inform and educate the public about road safety, fire prevention and against drink-driving, for example.
Mass communication Cost-effective Supports other elements of the marketing mix Can be highly effective in creating strong brand image and appeal Advertising is non-personal and involves mass media communication of mes-sages to large numbers of people at the same time. Although company advertis-ing expenditures can be very high, especially in the case of consumer goods and services, the cost of reaching vast numbers of people is often far cheaper than other promotional means. Where there is little tangible difference between service providers and service offerings within a particular market sector, adver-tising can playa fundamental role in differentiation and positioning. Advertising is an extremely powerful tool for developing a strong brand or organizational image. It can be used to create awareness, and stimulate demand, and can successfully underpin the other marketing mix elements. There are some disadvantages associated with advertising, however: High development costs Rising costs of media space and airtime Lack of immediate feedback Problems concerned with credibility Low attention focus of audience The costs of developing and producing an effective advertisement can be very high, especially for television advertising. Advertisers are also dependent on the availability of suitable media and have to meet increasing prices for the best media. The majority of advertisements do not attract direct feedback so there are difficulties in monitoring the effectiveness of a poster. campaign, television commercial or newspaper advertisement. Advertising may also lack credibility with consumers who do not perceive it as genuine and are skeptical about claims made. Additionally, consumers fre-quently pay little attention to advertising, screening out those in which they have no special interest. Information overload arises when consumers are bom-barded by too much information from advertisers and other sources and they tend to switch off and quickly become unreceptive. This reinforces the import-ance of getting the right message across, in a way which will be well received and which is not at risk of being misinterpreted or misunderstood. Personal Selling Personal selling takes many forms but consists of the seller engaging in some kind of personal contact with the customer or potential customer in order to persuade them to make a purchase (or become a member of a club, or to enroll at a college or become a regular donor to a charity, for example). It differs from advertising in that there is this personal contact, either face-to-face or by tele-phone, usually. There is an inbuilt element of flexibility in personal selling because the salesperson can judge the customers responses to the message as the contact takes place and modify it accordingly.
The Promotional Mix

The basic elements which serve to achieve organizational communications ob-jectives form the promotional mix. This essentially brings together the various promotional tools used in the marketing programme in a coordinated and. controlled way. The elements which make up the promotional mix are: Advertising Personal selling Publicity/PR Sales promotion The promotional mix will be adjusted according to the organisations promo-tional objectives and its marketing situation. Generally, however, in consumer services marketing, advertising will be by far the main component (and the most expensive) while in industrial and business-to-business sectors greater reliance is placed on personal selling, trade fairs and other promotional tools. Advertising Advertising is paid-for publicity, transmitted through a wide variety of media. The media space and time must be bought (although this is sometimes provided by the media for certain charitable or public information announcements) with the target audience in mind. In this way, advertising is distinctive in that the advertiser has control over what is to be said and when and how it is to be transmitted, by which means. This is in contrast to PR, for example, which aims to attract favorable publicity or editorial comment, for example, neither of which can be guaranteed. All advertising is however subject to fairly strict controls and even govern-ment legislation, especially television advertising. Legal, decent, honest, truthful is the slogan of the advertising industrys watchdog, the Advertising Standards Authority. Consumers are invited to write in if any adverts do not stand up to this code, or are offensive or misleading. Advertisements may have to be withdrawn or modified if the Authority finds that complaints are justified or rules are being breached. The Independent Broadcasting Authority also monitors advertising very dosely and regulates what can be presented and at what time of day. There are a number of advantages to using advertising over other forms of media: Control (as discussed earlier)
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Personal selling can be used to get far more information across than an advertisement can do, and is used very widely in industrial selling where complex specifications and technical details need to be discussed. It is also widely used in the financial services sector for similar reasons, in that both the customer and seller need to ask many questions and provide substantial amounts of information for the right service offering to be specified. Personal selling has other advantages in that it can be aimed at specific target markets and prospects and also provides more direct feedback than other promotional methods. There are some disadvantages associated with personal selling. There is a very high cost per contact (when compared with advertising and other ,promotional methods) and setting up and training a sales force represents a significant investment for the organisation. Some organisations have developed a very negative image with the public for unethical practices using high-pressure sales - techniques - timeshare holiday companies have attracted masses of criticism in recent years, as have some areas of the financial services sector - with the result that consumers tend to regard all salespeople with suspicion and distrust. Telephone selling has also become widespread and, while it has a very useful role to play when the consumer has already shown interest, by responding to an advertisement for example, it is often done on a cold call basis and is seen as irritating and intrusive by the consumer. Publicity IPR Publicity refers to communications about organisations, products or services, which is not paid for or sponsored by the organisation in question. Often it takes the form of news reports and announcements. Not all publicity is good publicity, as organisations find to their cost sometimes. Whenever there are health or safety scares over a particular type of product, dramatic media coverage will ensure that consumers find out about it. Organisations will then attempt to restore good public relations through the use and application of PR tools. These include: Publicity through the media Involvement in social and community initiatives Sponsorship of events Public announcements and special publications Corporate brochures and other publicity material One of the main advantages afforded by publicity as opposed to paid-for advertising is enhanced credibility with audiences. Editorial features attract more attention generally than advertisements and are perceived as being more genuine and impartial. A company whose latest technological advance is fea-tured on the famous Tomorrow/s World television series benefits from the kind of attention which would be both costly and difficult to achieve through advertising alone. This impartiality also leads to a major disadvantage, however, which is lack of control over what is said, how it is presented and at what time, for example. PR managers will plan and distribute information on a systematic basis to try to ensure
that the organisation is presented in the best possible light. PR has traditionally been viewed as playing a supporting role in the promotional mix, underpinning activities such as advertising and sales promotion, but it is gaining wider attention and recognition as a communications tool in its own right. Sales Promotion Sales promotion consists of all those activities which can help to stimulate purchase of goods and services. Sales promotion activities can be aimed at the end consumer or at intermediaries in the channel, sometimes referred to as out of the pipeline and into the pipeline promotions respectively. Sales promotion tools include: Free samples Money-off coupons and special offers. Competitions Point-of-sale displays Free gifts and other incentives Sales promotions playa useful role in helping to stimulate trial of new products, and maintaining interest in established brands. Many financial service providers offer free gifts of small electrical appliances, gift items and even weekend breaks to customers who take out life insurance and savings plans. Competitions are used by many types of organisation to attract new customers and keep existing ones - the free prize draw for big money prizes being a popular approach. Sales promotions should be regarded as tactical methods of stimulating sales over a period whilst a particular promotion is running. They should not be used to replace other elements of the promotional mix as their effects are temporary nature and will not have longer-term impact on the consumer. Trade fairs and exhibitions can be viewed as a form of sales promotion when they are used, like the Ideal Home Exhibition, to introduce products and services to consumers and stimulate demand. Trade fairs can also be treated as publicity for organisations in situations where appearances at trade exhibitions are seen as a tool for corporate image building rather than as a selling toot as is often the case in industrial market sectors.
Media Choice and Selection

One of the key tasks facing promotional management is the selection of appro-priate media for advertising and other forms of communication. The choice of media available for transmitting the message to the target audience is immense - in the UK alone there are hundreds of regional newspapers and consumer magazines and some sixty Independent Local Radio stations to choose from apart from the national daily papers and regional and national television stations. The choice of media will be determined by a number of factors including: The available budget Target audience factors Level of coverage required Exposure and frequency Cost effectiveness Desired impact
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The amount of money available to finance a campaign may rule out the use of certain expensive media forms such as television and national press. The choice of available media will always be governed by budgetary considerations. The target audience profile may also rule out certain types of media or indicate clearly which might be most appropriate. Magazines use independent market research organisations to provide readership audits- detailed information about the number of readers frequently incorporating geo-demographic and other data about the profile of the readers. This information is a crucial selling tool for publishers trying to sell advertising space and is also very helpful to advertisers wishing to buy space in the most appropriate publication to reach their target audience. It is unlikely, however, that one particular communications vehicle, such as a magazine, will reach all members of the organisations target market. The level of coverage required to communicate the message to as many customers and potential customers will also be a key factor in media selection. Several different media will probably be used in order to maximise the level of coverage in communicating with the whole of the target audience. Audiences need to be exposed to an advertising message several times for that message to be remembered. This level of frequency - the possible number of times any individual is exposed to the communications message - is another factor which governs the choice of appropriate media. If individuals ideally need to see a television advertisement six times for it to be effective, the actual number of times it must be transmitted will be far greater to allow for different viewing habits among the target audience and to ensure everyone has at least six OTS (opportunities to see). Advertising media will also be looked at in terms of costeffectiveness before a decision is made. The number of people the message reaches will differ according to which medium is used, and the costs of using each media vary dramatically. For this reason, advertisers calculate the average CPT (cost per thousand) to estimate the relative cost-effectiveness of different media. The desired level of impact must also be considered. The CPT of outdoor poster advertising is only a tiny fraction of the CPT of cinema advertising, but the impact of transmitting an advertisement to an attentive audience sitting comfortably in a cinema is far higher than the impact of poster advertising to passengers and drivers in rush hour traffic. The success of the advertising campaign will depend on the selection of the right combination of media to maximise coverage and frequency cost effectively and within the required budget. The available media will include: Television Newspapers Magazines Cinema Radio Outdoor
Each medium has distinct advantages and disadvantages. Media planning and buying has become a specialized management function and media planners are also responsible for scheduling the timing of the campaign. Advertising is the element of the promotional mix most likely to be passed to outside experts advertising agencies and media buying services, for example. Its success depends on a mix of creativity and careful planning and scheduling in order to communicate the right message via the most effective media.
Managing the Promotional Effort

The development of an effective promotional campaign involves combining the promotional mix elements in the most appropriate way to meet the organisations communications objectives. Promotional management is con-cerned with this task of coordinating and implementing promotional programmes, integrated within organizational marketing programmes. Controlling the promotional programme and evaluating its overall effectiveness are also key parts of the promotional managers task. There are essentially three stages in promotional management: Developing the promotional mix Assigning the promotional budget Monitoring and evaluation In developing the promotional mix, advertising campaigns, publicity and PR, sales promotion and personal selling must be combated to create a compre-hensive promotional programme. Interestingly, in many organisations, manage-ment of the sales force is treated quite separately from promotional management, and the promotional mix is not fully integrated. Organisations which seek a marketing orientation should ensure that promotional elements are treated as a cohesive whole, and the management roles and tasks structured accordingly. The task of allocating the promotional budget most effectively can also be difficult, usually because the level of funding available never seems enough. In designing the most appropriate promotional mix, therefore, promotional management must include detailed castings of each proposed part of the promo-tional plan, to ensure that plans stay within budget and that the budget is allocated for maximum effectiveness. Many factors will influence the design of the promotional mix: The nature of the organisation The service offering Service life cycle stage Type of markets the organisation is operating in Customer characteristics Channels of distribution The main differences often lie between consumer markets and industrial mar-kets. Organisations such as banks and package tour operators seek to attract as many customers as possible from a broad spectrum of the population. They are likely to choose mass advertising via television, radio and the national press as their primary means of communicating with large numbers of customers. In consumer goods marketing; the . Buyer behaviour and decision processes
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sales force Often plays a key role in selling to the channel intermediaries. With expensive goods and services, such as cars, furni-ture, holidays and insurance, the role of the salesperson at the point of sale is also crucial. Industrial organisations tend to deal with far fewer customers as they are dealing with other companies, not the general public. They will select personal selling and sales promotion through trade fairs and exhibitions, supported by limited advertising in specialist journals and trade publications. Personal selling is most suitable for industrial products and services where the supplier often acts as consultant and has extensive contact with the client over long periods. Adver-tising is likely to be used to promote the organisation and build a strong corporate image. It may also be used to generate awareness of the organisation and its services and stimulate sales enquiries. Organisations can develop quite distinctive promotional strategies which become part of that organisations differentiation in the marketplace. Communi-cations programmes are clearly identifiable with a particular organisations image, or certain types of products. Successful promotional programmes, how-ever, will only be developed as a result of an integrated marketing programme and clearly defined marketing and communications objectives.
success of in-store promotions, for example, while they are actually taking place. Measuring sales response to special offers which have been advertised, such as a special McDonalds meal offer, is another important way of measuring results and also illustrates the way that promotional methods are often combined. The central focus of evaluation methods must be the promotional objectives. How well has the campaign met these objectives? How can the campaigns success be quantified? Weaknesses and failings of the campaign must also be clearly identified and tackled, withdrawing the promotion if necessary. The monitoring and evaluation system must feed results and information back into the planning cycle to help decisionmaking later.
Tutorials
In light of above, discuss the Promotional mix and Media Choice for insurance sector. Explain the concepts w.r.t ICICI vis--vis LIC.
Monitoring and Evaluation

The final stage in the promotional management process is that of monitoring and evaluating the programme. In order to do this effectively, controls must be built into the plan to enable its effectiveness to be measured. This control stage is an essential part of all planning. It serves a number of purposes in relation to the promotional plan and helps to determine the following: Are communications objectives being met? Has the target audience received the message? Have they received the right message? Are budgets being adhered to? There are several ways of evaluating the results of communications but there are many difficulties associated with measuring effectiveness - it might be impossi-ble to say how much an organisations image has been enhanced in .one individuals perception as a result of a particular advertising or PR campaign because perception is highly subjective. Some communications are designed to elicit some action response, however. Prompting trial purchase of a new product or buying a product to enjoy the opportunity to participate in a competition are examples of this, and are obviously easier to measure in terms of sales volume and level of demand. Evaluation methods include: Marketing research - awareness testing: This is typically carried out before and after the campaign to assess whether awareness of the organisation or service has increased following the promotion. Direct response: Many advertisements, sales promotions and exhibitions are designed to elicit orders and. response can therefore be measured by the number of responses received and orders placed. Point-of-sale monitoring: Developments such as EPOS (electronic point of sale) have made it possible to monitor the
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LESSON 12: CASE STUDY ON PROMOTIONS-IN SERVICE INDUSTRY

McDonalds marks another milestone in its leadership marketing efforts today with the announcement of a new marketing relationship with Sony Connect to launch an unprecedented multi-national restaurant promotion for customers. McDonalds Big Mac Meal Tracks offers every customer who purchases a Big Mac Extra Value Meal at participating McDonalds restaurants an access code worth one free song download at the Connect music store, which is accessible via www.connect.com. McDonalds Big Mac Meal Tracks promotion launches June 8 in the United States, Puerto Rico and Canada. Sony Europe and McDonalds will launch the promotion in France, Germany and the United Kingdom in early July. It is expected to roll out to additional McDonalds countries throughout the year as plans are finalized. During the initial launch, McDonalds anticipates providing millions of customer downloads, making this one of the largest music promotions of its kind. Our partnership with Sony Connect on this very exciting and relevant music event continues our commitment to surprising and delighting customers with fun and unique restaurant experiences, said Larry Light, McDonalds Executive Vice President and Global Chief Marketing Officer. Music continues to be at the forefront of our leadership marketing strategy. As the first to take a program like this across borders to six countries, we are achieving our goal of creating ideas that are first, big, best in music, fashion, entertainment and sports, areas of high interest to our customers. McDonalds Big Mac Meal Tracks promotion will run between six and ten weeks in the six participating countries. In the U.S., Puerto Rico, Canada and the UK, customers purchasing a Big Mac Extra Value Meal during this time period will receive a unique access code printed on the Big Mac sandwich carton. Customers will redeem their free access code for a song of their choice at the Connect music store, offered by Sony Connect Inc. in North America and by Sony Europe in Germany, France and the UK. The Connect music store is accessible via Connect.com, Connect.com/canada or Connect-Europe.com. In Germany, customers will receive a card with the access code with the purchase of a Big Mac Value Meal or Big Mac Maxi Value Meal. In compliance with French law, McDonalds France will run a sweepstakes for Big Mac customers with music downloads as prizes. The Big Mac Meal Tracks program is part of McDonalds worldwide Big Mac celebration, taking place in all McDonalds countries in June and July. Big Mac Meal Tracks is not only McDonalds first multinational music promotion, it is the first time that a music program of this scale is being offered to consumers in multiple countries around the world, said Dean Barrett, McDonalds Senior Vice President, Global Brand Business. Only
McDonalds, with our unequaled restaurant presence in 119 countries, and Sony Connect, with its technical knowledge and expertise, could make this happen. McDonalds will aggressively support the Big Mac Meal Tracks program. This includes a new global television commercial by Leo Burnett featuring high-tech special effects and a cameo appearance by superstar Justin Timberlake. It will air in the U.S., Puerto Rico and Canada beginning June 7, with other countries to follow. Radio advertising, in-store merchandising and special Big Mac packaging will further promote the program. We are delighted to be partnering with McDonalds on this innovative promotion, which will introduce millions of McDonalds consumers throughout North America and Europe to Sonys new Connect music store, which features their favorite artists and music, said Jay Samit, General Manager, Sony Connect Inc. This campaign by McDonalds will promote legal downloads, which is beneficial both to the entertainment industry and music fans around the world. McDonalds and Sony are both strong consumer brands globally, and we look forward to exploring more opportunities in other areas in the future, added Light. Sony Connect Inc., based in Santa Monica, California, is a subsidiary of Sony Corporation of America. Sony Connect currently offers consumers hundreds of thousands of music tracks from major label and independent artists, as well as the ability to enjoy that content on a wide range of digital music devices that are priced to suit any lifestyle. Connect Europe is based in Berlin and operated by Sony Network Services Europe, a division of Sony UK Ltd. The service will be launched later this month and will offer consumers hundreds of thousands of music tracks from major label and independent artists, as well as the ability to enjoy that content on a wide range of digital music devices that are priced to suit any lifestyle. McDonalds is the worlds leading food service retailer with more than 30,000 local McDonalds restaurants serving 47 million customers each day in more than 100 countries. More than 70 percent of McDonalds restaurants around the world are owned and operated by independent, local businessmen and women. With reference to the above, Explain the significance of Promotions in service industry
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LESSON 13: SERVICES DISTRIBUTION PLANNING
UNIT III DESIGNING SERVICES

Importance of Service distribution planning Key factors in Decision of Service Location Key factors in Decision of Direct distribution Channel Functions Channel selection
Introduction
Most producers of physical goods do not sell directly to their end consumers in todays market. They can make choices about where to produce the goods, based on lower labour costs and other considerations, together with decisions about which markets to sell the goods in and how to get the goods to the consumers. The inseparable nature of services means that such a range of choice is not open to service providers. In many instances, the quality and value associated with a service are dependent on the interaction between the service provider and the consumer at the point of exchange. Consumers of services actually participate in the service delivery process and the method chosen by the service provider for service delivery will form part of the service itself. Whether the exchange is based on hi-tech automatic means or traditional personal service, the methods used will influence the outcome of the exchange and customer satisfaction levels. Distribution, or the place element, of the marketing mix is concerned chiefly with two main issues: accessibility and availability. As shown above, the insep-arable nature of services means that services must be accessible to customers and potential customers in order for exchanges to take place. Accessibility must be a component of the actual service offering for it to have value-: Additionally, the - perishable nature of services means it is essential for the service to be available to customers - in the right place at the right time. The service cannot be stored until a later date; it must be available for consumption at the point of production. This chapter reviews the factors which service marketers need to take into account in determining a distribution strategy. The role of channel intermediaries is also discussed, together with channel management issues.
The UK National Lottery, launched in 1994, was designed to be easily acces-sible to all eligible players throughout the UK. Entry forms were simple to complete and could be bought via a network of retail outlets such as grocery stores and newsagents. However, when the lottery was actually launched, many of the chosen outlets either had not got the correct computer network installed or it failed to work correctly, rendering the service unavailable. In urban areas it was not too difficult for customers to find alternative outlets but some rural areas with just one designated lottery ticket seller were left with no means of entering. Despite the very high entry numbers recorded in the first week, significant adverse publicity resulted from dissatisfied would-be entrants and custom was lost. Many Government benefits which were, in theory; accessible and available to all eligible claimants were not being taken up by all potential payees. People were put off by the lengthy processes involved and their fear of having to deal with complex form filling. Sometimes they simply did- not know what kinds of benefits they were entitled to because of confusion over the different names given such as Family Credit, which some people thought was in fact a loan service rather than a benefit payment. In effect, the service was inaccessible for them. This led to the simplification of many of the procedures and the re-organization of the various departments responsible for dealing with claims to make the whole process much more accessible.
Location
These criteria - accessibility and availability - must be given priority in all decisions about services distribution. In this section the idea of place will be considered in terms of the location and time of the service delivery. This needs to be considered before any decisions regarding the use and selection of channels of distribution (reviewed in the next section) can be made. There are several key factors to be considered in decisions about service location: Service inseparability Perish ability The role of the consumer as co-producer of the service Customer needs and wants Importance of geographical location as part of the service Target markets Service Inseparability Some services are more inseparable than others; a hairdresser has to perform a service on a person-to-person basis with clients whereas credit card customers are happy to be able to use the credit card for cash or payments at vast numbers of locations without direct contact with the credit card company on each occasion.
Accessibility and Availability

Services must be both accessible and available to customers and potential cus-tomers in order for an exchange to take place and for the value of the service to be realized: Accessibility: refers to the ease and convenience with which a service can be purchased, used or received. Availability: refers to the extent to which a service is obtainable or capable of being purchased, used or received. Both criteria must be met in order to achieve successful services marketing. This can be illustrated by the following examples:
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The degree of direct access to the central service provider required will influence channel decisions. Many services are now provided using telephone contact and other forms of telecommunications and direct marketing: First Direct provide a complete telephone banking service as Direct Line does for insurance. Neither operation has actual branch offices on the high street; all contact is remote. Direct mail is used to promote the services offered by many service or-ganisations and service exchanges can frequently be carried out by mail, such as applying for a loan or responding to a charity appeal. NWS Bank offers loan services by post or telephone with loan cheques being delivered direct to customers homes by courier service within hours of the loan being approved. Some of these developments reflect moves on the part of service providers to reduce the degree of service inseparability thereby increasing flexibility and reducing costs of providing the service. Additionally, the benefits to the consumer are frequently greater: The convenience and ease with which credit cards can be used at locations worldwide without direct contact with the card provider, The advantages of dealing with a bank which is open outside normal trading hours and which is accessible from any telephone. Perishability This is another area where service marketing differs quite distinctly from the marketing of physical goods. A key function traditionally performed by channel members is to hold inventory - stocks o f physical goods held in ware houses for onward transportation to markets or, in the case of retailing, for example, stocks on the shelves for local customers to buy. Services cannot be stored in this way, so intermediarys playa different role .in facilitating the service exchange and often form part of the service production and delivery process. The Role of the Consumer as Co-producer of the Service The role of intermediaries in the production and delivery of a service has already been noted but there is another vital issue to be considered - the role of the consumer. Many services require extensive interaction on the part of the con-sumer in order for the service to have any value; the audience must go to the theatre, the customer must study the menu and place an order to eat at a restaurant. Customer needs must therefore be given priority when making decisions about when and where the service will be available. Theatrical perfor-mances given in the mornings might be highly accomplished but would be of little value if there were nobody watching. Customer Needs and Wants As stated, customer needs are a key factor influencing decisions about services distribution. These are likely to differ between various customer segments using the same services and between different types of service offering:
Some customers may be willing to collect their own take-away meals while others will always choose an outlet which offers delivery. Elderly or housebound persons may require home visits from doctors or chiropodists and will be the main consumers of specific home-based services such as meals on wheels and home helps. Some consun1ers may rate convenience as the key benefit sought in selecting a service whereas others may seek exclusivity. The latter group will be prepared to travel and put more effort into their participation in the service delivery by, for example, being prepared to queue to get into the best nightclub or to make a reservation weeks or months in advance for seats at the opera or a table at a gourmet restaurant. Bank customers may be willing to visit their local branch to conduct day-to-day transactions but may prefer a bank representative to visit them at home to discuss life insurance, pensions or mortgages. Buyer behaviour and the factors influencing service choice between different target segments are essential considerations in location decisions. The importance of geographical location as part of the service Again, service providers frequently have very different criteria to consider here from those affecting manufacturers of physical goods. Manufacturers may choose to produce the goods at a location convenient for cheap labour or natural resources and then ship the products to the target markets for consumption: Apart from the inseparable nature of services making this largely infeasible as, discussed previously, many services are dependent on geographical location as part of the service. Examples include: Tourist destinations Health spas (when located at real sources of spa water) Historic or geographic attractions such as Buckingham Palace or the Grand Canyon. In these cases, the idea of place is largely pre-determined and the key task for marketing managers is to manage the other elements of the mix in such a way as to get the maximum number-of visitors/customers to travel to the service. Some services, such as those examples given above, do attract customers who are prepared to travel for the service. The same applies to services such as specialist medical treatment or education and training where the patient or student may travel long distances to consume the service. The importance of geographical location must be looked at in the light of the needs and wants of different customer segments, as discussed in the preceding section. Some service providers need to travel to their customers, however. Electrical appliance repairs, decorating, plumbing and maintenance services frequently have to be carried out at the customers home or business premises. Other services need to be available locally as customers will not be willing to travel long distances for them, especially if there is strong competition
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nearby. Tyre repairs and garage services, banks, hairdressers and take-away food outlets are all typical examples. Target Markets Location decisions are influenced by all the factors outlined above. The key criteria, however, is to make the service accessible and available to all target market segments. Service providers can choose where to locate their service outlets, or where to provide their service in order to maximise their market opportunities, in all cases except those where to service is location specific (tourist destinations and historic site for example). Factors influencing such decisions include: Market size and structure by geographical region Location of potentially attractive consumer segments Organisational objectives Level of market coverage desired Number and type of competitors in region Local infrastructure; good road access, facilities, public transport network Distribution method The distribution methods selected will have an impact on location decisions: First Direct offers an innovative telephone banking service to all its consumers throughout the UK with no branch offices and all transactions conducted by telephone. The service is made available to customers via a twenty-four-hour telephone line, staffed by highly trained customer service personnel. In order to make the service accessible, however, this type of distribution strategy relies on widespread promotion to attract and inform potential customers, rather than local branches.
directly and invest in additional personnel and premises accordingly. The organisations objectives will also influence the distribution method selected. If the main objective is fast growth, then establishing a network of intermediaries may be the preferred alternative. Type of service: Perhaps the most relevant distinction here is that of people -based services and equipment-based services. Equipment-based services such as car rental, vending machines and dry cleaning do not involve such a high degree of personal involvement in the delivery of the service. Such services may be well suited to being operated through a network of agents, and frequently are. People-based services, however, which involve high levels of personal expertise or understanding, Or which require very close contact with customers, tend to be much more suited to direct distribution. Geographic spread of the market: Locally-based service organisations operat-ing in a limited area will probably be well placed to serve all their customers directly. Coverage of a wider market area will require further investment in setting up branches or the development of a network of intermediaries. Again the type of service and the organisations objectives and resources will also be key factors. In some situations, it is appropriate for the service provider to travel to the customers location, even overseas. Expertise-based services such as architects and consultants frequently operate in this way. Legal and political restrictions on foreign operations: In some foreign markets, restrictions apply to local investment and the setting up of overseas branches, in some cases actually prohibiting such activity. The only alternative may be to operate through local channels, making direct distribution impossible. Further discussion of these issues can be found in Chapter 23. Levels of technical skill or expertise required to deliver the service satisfacto-rily: People-based services, or other services which require a relatively high degree of technical skill or expertise for satisfactory delivery, are better suited to direct distribution. The costs of training channel members and monitoring quality need to be assessed against the cost of setting up branches to serve target markets. Some service intermediaries do provide personnel with the right skills and knowledge, however, especially in sectors traditionally served by agents or intermediaries; such as travel agents or insurance brokers. Customer preferences: The needs and wants of the customers must be considered in planning a distribution strategy. Different customer segments will exhibit varying buying habits, for example, which may influence their choice of service provider. For example, customers who are loyal to a particular bank or building society may be happy to consult them about all their financial service require-ments. Other customers may prefer to shop around and look for a better deal by contacting independent financial advisors who act as agents or brokers for a number of financial service providers. There are advantages for the service organization operating direct distribution methods. These include: Greater control
Direct Distribution
For reasons already highlighted, many service organisations choose direct dis-tribution methods which do not use outside agents or intermediaries. The inseparable nature of services and the role of the service provider in the service delivery process make this a desirable option for the sake of quality and cust9mer care. Quality standards may be difficult to maintain through a third party and the spirit or ethos of the service provider can be lost so that the customer does not benefit fully from the service exchange. For direct distribution to be a feasible option, certain considerations must be taken into account. The practical issues influencing decisions to undertake direct distribution include the following factors: Company resources/company objectives Type of service Geographic spread of the market Legal and political restrictions on foreign operations Levels of technical expertise or skill required to deliver the service satisfactorily Customer preferences Company resources: The structure and size of the service organisation will influence the choice of distribution strategy, and this may change over time. As organisations expand, they may choose to continue to serve each of their custom-ers
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Customer service and satisfaction levels can be more easily monitored, as can service quality Management has direct control over all aspects of operations Internal and external communications can be handled more effectively Closer involvement with customers Direct contact with customers can allow databases to be established and used for target marketing Greater confidentiality can be maintained Commission costs and other fees are avoided. Some of these advantages are far more important to certain types of service organisations than others. Banks and accountants, for example, do need detailed knowledge of their customers and have to maintain confidentiality. It is not so important for fast food restaurants or bus service operators to have such detailed information.
ing. This promotion may be as simple as displaying a Visa sign for information to planning complex campaigns. Personal selling: This is likely to be of greater importance in services marketing because of the key role played by the service provider (whether that be the actual organisation or an agent acting on its behalf) in the service delivery process. The ability of an intermediarys personnel to interact satisfactorily with customers in facilitating the service exchange is a key consideration in selecting and managing channels.
Channel Selection
Whilst it has been established that services organisations will not necessarily use channels in the same way as manufacturers of physical products, various types of intermediaries are used in many service situations. Care must be taken when selecting intermediaries or channel members. Their direct contact with the ultimate user of the service means that they can influence levels of quality and customer satisfaction. This is a more complex issue in services marketing because of the role of the service provider in the service delivery process and is the main concern of channel management in services marketing. Factors which influence the selection of channel members include the stand-ing of prospective intermediaries, their image, personnel and location. Channel members should be of sound financial standing and reflect the quality and image of the service offered. They need to have the appropriate facilities, resources and personnel to be able to deliver the service effectively. The special characteristics of services have led to certain types of channel being commonly used, while others, such as wholesalers and retailers, are not applicable in most circumstances. There are two main groups of channel intermediaries, which may be selected: Agents and brokers Franchise operators Agents and Brokers Many services are offered via networks of agents or brokers. The agents often provide a chain of offices throughout various locations and provide relevant facilities and expertise. Developments in technology mean that it is very easy for service organisations to maintain very close contact with agents via online computer systems as well as telephone contact. Agents may have specialist local knowledge which can enhance the performance of the service in a particular market. The level of service they provide varies according to the nature of the service offered. Basic service transactions such as encashment of travelers cheques may be all that is required, as opposed to more complex services such as financial advice. Franchise Operators Franchising involves the sale of a successful business formula to an external buyer or franchisee who runs the operation in a specified location. The franchiser can benefit from this approach in several ways: Low cost expansion: Expansion, often on a wide scale, can be undertaken with little capital investment as the required investment comes from the franchisees when they buy in to the operation.
Channel Functions
The role and functions of channel intermediaries in services marketing varies somewhat from that of the marketing of physical goods. Some comparisons can be drawn by looking at the functions traditionally associated with channel members: Storage and warehousing: This is obviously not applicable due to the perishable nature of services. Breaking bulk: This again relates to taking quantities of physical goods so does not apply. Delivery/transport: Intermediaries would undoubtedly playa role in the service delivery process but not in the context of delivering physical goods from stock After-sales service: This is frequently linked to the marketing of physical goods although is also applicable to services; whenever dissatisfaction occurs, in fact. Price setting In the sale of physical goods, each channel member will have applied some mark up to the price of the goods and has, usually, some flexibility in deciding what to charge and whether to offer discounts. In services marketing, channels tend to be much shorter with either direct distribution or the use of one level of intermediaries being common. Agents may make a charge for providing the service, as is the case with banks cashing travelers cheques, or theatre booking agencies. Alternatively, the agent may be paid a commission by the service or-ganisation, as with travel agents and insurance brokers (which will be incorporated into the price paid by end consumers) but will not them-selves have any control over price setting. Prices published in travel brochures and charged for insurance premiums will tend to be set by the central service provider. The degree to which intermediaries are involved in price setting will depend on the nature of the service and the distribution method (agent or franchisee, for example). Intermediaries will generally have less control over setting prices than is the case with physical goods. Promotion: Here the role-played by local agents and distributors will be similar in both services marketing and the marketing of physical goods, especially in international market58
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Rapid growth: Franchising offers a means of establishing outlets in many locations quickly, providing the franchise is successful and attracts investors. This is a vital factor in a competitive marketplace. Local management expertise/personnel: As individual business entrepreneurs in their own right, franchisees can provide excellent management coverage without massive central training and recruitment costs. The franchisers do not need to increase staff numbers in order to gain widespread expansion as local staff will be employed by the franchisee as part of the business. Similarly, the franchisee benefits from the arrangement in several ways: Reduced risk Buying into an established business fonnula with a well recognised organisation and brand name is less risky than starting up from scratch. . Business support The franchisee will benefit from services offered by the franchisor in staff training, for example, and the provision of business materials, technical and legal support and ongoing development. Franchising is not without its drawbacks, however. A poor operation run by a franchisee will carry the organisations name and reputation down with it. Some controls have to be built in to ensure franchisees do work to pre-determined quality standards and follow organisational policy. The .franchisor makes less profit through this system of distribution than they would make through direct expan-sion but this potential loss can be outweighed by the benefits of franchise growth. Franchisees can find that the promised profits do not materialise and become demotivated and let the business slide. Some may even have been the victims of the kind of unscrupulous trading practices which have been exposed from time to time. This can have the effect of creating a negative image of franchise operations which can deter would-be investors from buying genuine, well-run franchises. The success of franchising has been outstanding, however, with many household names in service industries being run on this basis. Dyno-rod drain cleaning services, Rentokil pest control and Prontaprint business printing and reprographic services are successful and well known examples.
7. Which two main types of intermediary tend to be most commonly selected in services marketing?
Discussion
1. What market trends are likely to affect place decisions for services marketers in the future? 2. A number of organisations have opted for direct distribution methods in fields where this has been a complete break with tradition (e.g. First Direct banking services). Could this be an appropriate route for other types of service? Suggest other innovative approaches suitable for consideration in relation to services.
Tutorials
1. Why is the distribution method particularly important in services marketing? 2. What criteria must be met with regard to distribution? Why is this so? 3. Outline the main factors which must be considered when making decisions about location. 4. Give examples of services which are wholly dependent upon geographical location together with examples of some which are not. 5. Why is direct distribution frequently the most logical choice for services marketing? 6. Describe the traditional functions of channel intermediaries and comment on their applicability to services marketing.
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LESSON 14: CASE STUDY ON SERVICE DISTRIBUTION PLANNING

Unit Trust of India: Strengthening Investor Relations through a Webenabled Portal
The Customer UTI - Indias largest mutual fund - stresses on launching innovative schemes to encompass all sections of society and cater to its various needs. Over the past 35 years, UTI has evolved and grown into a leading financial institution with invested funds of Rs. 72,698 crores under 88 schemes and over 45 million unit holding accounts. The challengeOver 20 million investors, 88 schemes and 45 million unit holding accounts create gargantuan customer relationship issues for this government-held mutual fund and asset management trust.UTI today has to contend with a number of fleet-footed, agile mutual fund companies that have entered the field following the opening up of the financial services market in the country. In the past five years, with these global, private sector companies as a benchmark, UTI had fallen way behind in terms of absolute service rendered to customers. In its efforts to present a new face to investors, UTI identified the need to improve its brand image and streamline its investor relations function. UTI discovered that the fastest route to reaching out to the scattered, 20 million-strong investor base was to leverage the web. UTI partnered with Wipro Infotech to achieve this complex task of building a customer-facing Internet portal.The solutionThe challenge was to build a unified solution that could handle the complexity of all the schemes and disseminate information seamlessly. The Wipro team recommended the Divine content management solution (earlier called Open Market) since UTIs content management and personalization requirements warranted the development of customized tools and interfaces with legacy systems. The content management utilizes Divines Content Server (on which other modules are built), Content Center (a browser based application that enables users to create, manage, manipulate and deliver content) and Personalization Center (that enables UTI to implement sophisticated personalization).Wipro also helped put together the production and staging environments for the Internet portal. Another integral component of the solution, where Wipro played a crucial role, was in the integration of the portal with UTIs generic software system, built on Tuxedo middleware. The connectivity to the Tuxedo based back-end application was essential to ensure seamless and updated information availability and this integration required Enterprise Application Integration skills on Tuxedo. The Benefits Users within UTI as well as the investing public have already started experiencing the difference. Typical investor queries that used to bog down the UTI staff, are today handled in a routine, automated manner. The new system has lowered overheads, and produced a timely flow of information between investors
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and UTI. The end-to-end integration and automation of routine operations and query handling brings great relief to the front-office staff. This seamless flow of information has helped improve UTIs customer responsiveness and the increased user friendliness of the site which has seen an increase in the number of hits from 30,000 -40,000 a month to 35,000-40,000 a day.The customer-facing portal is all set to boost UTIs image and launch it into the world of agile financial services companies that have been discerning enough to leverage process automation and the Internet to enhance business efficiency With reference to the above, Explain the significance of service distribution planning through web, in service industry.
LESSON 15: PEOPLE - THE FIFTH P

Importance of Employees in service marketing Role of employees in service marketing Staff selection and recruitment Training and Development HRM Issues
High Contact People-based services: Education, dental and medical care, restaurants LOW Contact Equipment-based services: Automatic car wash, launderette, vending machine, cinema Additionally, people-based services can be further broken down in terms of the expertise and skills of the service provider: Professional Medical and legal services, accountancy, tutoring Non-professional Babysitting, care taking, casual labour This illustrates the variety which exists in the roles of people in service provision. These different roles may be grouped into the following broad categories: Primary - where the service is actually carried out by the service provider, e.g. dentists, hairdressers. Facilitating - where employees facilitate the service transaction and participate in it, e.g. bank counter staff, waiters, hotel porters. Ancillary - where the employee helps to create the service exchange but then is not part of it, e.g. travel agents, insurance brokers, equipment hire. Frequently, the overall service offering will be made up of a combination of the roles described. The dentist will perform the actual primary service, but a receptionist may arrange appointments and send out reminders. The restaurant staffs are dependent on the chefs and kitchen staff, if they are to be able to perform the service. For every employee in a bank who has personal contact with customers, there may be a number of administrative staff behind the scenes. The important issue is that customer care is everyones concern throughout the organisation. Successful service provision is dependent on interpersonal ex-changes, between the provider and the customer, and between service personnel. Customer perceptions of quality are frequently influenced directly by the actions of service personnel. Levels of satisfaction or dissatisfaction can be governed by the way in which personnel deal with the specific needs and requests of customers; by the steps taken by service personnel in the event that some aspect of the service goes wrong; and by service which goes beyond the customers expectations, usually by the personal actions of an individual employee. This important role played by employees in service organisations (or other people working for services, such as volunteers or members) is critical to long-term success. The
Introduction
In todays competitive environment, organisations in all industries have been forced to realise the importance of customer care and its key role in strategy. Nowhere is this more vital than in services marketing. Consumers are becoming increasingly sophisticated in terms of their expectations and make far higher demands of those organisations who serve them. Quality is judged by standards of service and the role of the employee in service organisations is critical in maintaining quality standards. The inseparable nature of services means that the human element forms an intrinsic part of the service package. In some situations it is the service package, while sometimes it accompanies the more tangible elements which comprise the service offering. People as the fifth element in the services marketing mix applies not only to service personnel, but also recognizes the role that other people - the customers - play in service delivery. Sometimes the role of the customer is an important part of the service itself, as in education, for example, where the students must follow the learning programme or in car hire where the, benefit - transportation - can only be achieved through the customers driving. In many services like this, participation of some kind is essential to derive the service benefits. Management of people within the organisation is a key task. The organisations staff are its prime resource, and human resources management is the professional approach to finding and developing the right people. Central to successful service delivery is management of the customer/provider interface. Employees need to understand their role in the service exchange, and human resources management provides the programmes and strategies to ensure the highest standards of customer care.
The Role of the Employee in Services Marketing

The role of the employee in services marketing varies according to the situation and the level of interaction. Frequently this depends on the degree of tangibility of a service. The level of contact can be determined by classifying the service according to whether it is a labour-intensive (people-based) service or an equipment-based service, as follows:
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image of a service organisation is often indistinguishable from that of its employees. For this reason staff selection and training take high priority in service management.
Staff Selection and Recruitment

As the value of staff rates so highly in service organisations, careful recruitment of the right kind of personnel is an important step. Internal marketing, as described in Chapter 8, recognises that employees and potential employees are customers of the organisations internal market and their needs and wants should be considered in the same light as those of external clients. Marketing activities should be aimed at these internal markets in the same way as when marketing to external clients. Organisations seeking to attract excellent service personnel can consider using the same tools and techniques that they use to attract customers. Recruitment should not be left solely to the human resources management function but should be seen as a powerful tool in itself for enhancing and maintaining the organisations standing and image. The human resources management function can support advise and guide line management in this area. Programmes designed to generate interest in the organisation, through sponsorship and PR, for example, can also be used to attract the people who share the organisations ideals and standards. While many sources of information exist detailing approaches and techniques for recruitment, the basic steps are as follows: Preliminary stage Identification of vacancy (may be a new post or replacement0. Develop job profile - review job description and person specification. The person specification can be adapted to place emphasis on customer and service orientation, a desirable or even essential quality for all jobs. Consider internal sources Consider using specialist recruitment agency Advertise - internally and externally Process applications Screen applications for shortlist Selection stage Arranging interviews; venue, timing, date Determine process for selection; formal/informal interviews use of pre-selection test, presentations Conducting interviews Testing Offer / Acceptance Formal appointment Follow-up stage Induction Training Ongoing staff development and appraisal. Requirements for the Job Service employees frequently have significant personal contact with customers and responsibility for satisfactory service
delivery lies on the individuals shoul-ders. Conflicting demands from customers and management over time spent on personal service versus efficiency and productivity, for example, may need careful handling. Coping skills, manner and demeanor will all be key factors in a candidates ability to do the job, as well as their technical skills and qualifications. First Direct telephone banking, for example, look for empathy and ability to listen and communicate in their prospective employees, not just banking experience. Basic requirements should be identified as a starting point and may include: Qualifications / technical knowledge Ability, specialist skills and aptitude Experience Personality and personal attributes Physical characteristics Recruitment issues in the service sector Certain services have special aspects, which may impact on recruitment. The so-called caring professions are an example. Many caring services operate in traditionally low-paid sectors so a sense of vocation and commitment may be desirable personal attributes. Charities have sometimes experienced difficulties in attracting experienced managerial staff as applicants are sensitive to the moral issues involved in receiving high salaries from charitable bodies. To recruit appropriately qualified personnel, however, in, say, accountancy and marketing management, charities have to offer competitive salaries. Some services obviously require staff with certain qualifications, such as teachers and lawyers. The degree of specialization required will govern the potential marketplace for recruits. In a situation where demand for certain skills outstrips supply, which sometimes occurs, or in highly specialized areas, a different approach to recruitment may need to be found, such as in-service training for potential applicants, to bring them to the required standard. The rate of legislative changes, for example, affecting organisations in the public sector brought about by compulsory competitive tendering, privatisation and the introduction of a quality culture geared to customer care has led to different personnel requirements. Such organisations are having to compete more and more in the external marketplace, not just in terms of maintaining their services against competing private service prov1ders, but also in recruitment. They are often hampered or constrained in their strategy by existing practices which may be outdated or inappropriate and other influences including: Traditional low rates of Pay Cutbacks Tightly structured pay scales Conditions of service.
Training and Development

Training is needed on more than one level; at its basic level it may be needed to impart knowledge about a particular aspect of the organisation or job; at a broader level, it gives focus and
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direction for the future to employees and also plays a communications role within the organisation. The training opportunities offered by an organisation may be influential in attracting and retaining person-nel. Additionally, it can help create personal job satisfaction and can overcome difficulties associated with change, for example when introducing new technol-ogies. Essentially there are three stages in managing the training of the human resources - the staff - of the organisation. These are: Identification of training needs: Define training objectives, develop measures for evaluating training and decide on content/ scope. Implementation of training programmes: Design training methods, materials and facilities, coordinate training programme and trainees. Evaluation of training effectiveness: Measure outcomes, compare performance - adjust and refine future training accordingly. Staff development takes training a stage further. It should be ongoing, and form an integral part of the employees progress, incorporating areas such as the following: Functional training: specific job skills, technical skills Personal development: assertiveness training, study for formal qualifications Organisational development (cross-functional): quality initiatives, customer care programmes, corporate mission awareness Appraisal systems: incorporating both employee and employer feedback Training can be carried out in any number of ways. Workshops, team briefings, formal presentations and structured programmes are commonly used, together with work shadowing, job exchange schemes and project management. Different modes of training are more suited to different training and development needs; a formal presentation followed by handson practical exercises might be most useful for the introduction of a computer software package, while workshops are more appropriate for situations where participants are encouraged to discuss issues and make suggestions. Induction training is designed to help new employees understand the or-ganisation and their role within it. This is a key area, especially in service organisations where a customer orientation is essential. These programmes introduce new employees to the culture of the organisation, emphasise the standards required and highlight company values at an early stage. It may be implemented in stages over a period, or take place as an intensive programme over one or more days. If a new initiative is< launched, such as Total Quality Management (TQM), training will be an essential part of communicating the new policy to all employ-ees. The task of designing and implementing training and development programmes lies with Human Resources Management even though the commit-ment and initiation of such programmes must be led by top management and involve all line management and employees.
important as financial, operations or marketing management. The managers who look after the people within an organisation may be grouped under the headings: personnel, industrial relations, or training and development. They are all concerned with human resources management. Typically, the responsibilities of human resources managers include the following: Recruitment and selection Training and development Setting up new modes of operation, e.g. quality circles Management of change Team briefings, communications strategies Staff suggestion schemes Internal communications Administration (pensions, insurance) Appraisal schemes Pay structures Staff development and support Trade Union liaison Conditions of service Discipline and grievance procedures Termination issues (redundancy, ill-health) Capability Additionally, human resources management plays a very central role within an organisation. If the human resource task is to be handled effectively, managers need: A thorough understanding of the needs of the directors, managers and employees throughout the organization Clear identification with organizational goals and objectives Understanding of the needs and wants of external customers Close co-operation with other functional managers. In practical terms, there are a number of ways in which these wide-ranging aspects of human resources management can be translated into effective strategies for service organisations. A customer orientation must be at the forefront of all policies, with customer care heading the agenda. An audit of human resources management activity can be undertaken and continuously updated to ensure programmes and procedures are implemented in line with organisational and employee needs. An action plan can be designed along the following lines: Organisational Objectives Effective transmission of organisational objectives to all employees/members of the organisa tion. Providing opportunities for en1ployees to participate in developing organizational objectives. Ensuring that all employees understand how performance against objectives is measured, and their role in achieving success. Recruitment Developing programmes for successful recruitment. Building and promoting the organisations image. Conducting recruitment in a fair and professional way, in line with the guidelines contained in the code of conduct of the Institute of Personnel Development, for example.
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Human Resources Management Issues

When the people in an organisation represent its most valuable asset, then the task of looking after those people is equally
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Efficient response and follow-up procedures. Induction Establishment of effective induction programmes Managing ongoing induction with feedback Appraisal and Review Clearly defined job descriptions and person specifications and objectives. Development of competency profiles for specific jobs. Ensuring employees and managers share common understanding of the appraisal process. Providing appraisal training for all line managers and others required to undertake performance review activities. Training and Development Identification of training needs. Development and implementation of training programmes. Integration between training and other functions. Support for individual staff development. Management development programmes. Evaluation. Pay Structure and Benefits Establishment of salary structure and reviews. Reward systems for competence/ qualifications/performance. Provision and communication of benefits packages, pensions. Communications Internal marketing. Publication of staff magazine and other internal communications. Ensuring that staff are always kept informed and in touch, allowing for feedback fron1 staff. Transmission of new ideas and initiatives.
Quality
The broad nature of the function is clear, however, and its close relationship wi th customer service can be seen. Suggested elements for a customer service audit include evaluation and review of personnel issues and performance mea-sures, together with personal and job goal specification - all areas where integra-tion with human resources management is appropriate. Service organizations need to invest in human resources management to look after their most import-ant investment - the people examined. The basic steps in recruitment can be broken down into several key stages, Illustrated briefly here: Preliminary stage - identification of vacancy and requirements, processing applications Selection stage - arranging interviews, offer / acceptance, formal appointment Follow-up stage - induction, training, ongoing development. Training is needed to impart knowledge and build expertise and also to give focus and direction for the future direction of the organisation and its employees. Staff development incorporates training but goes a step further in designing strategies for an holistic approach to getting the most out of people and helping them maximise their potential. Human resources managers work alongside managers in other functional areas (including marketing) to look after the people in an organisation. Their responsibilities cover a wide area with regard to selection, training, industrial relations and other related issues. They also playa central role in the organisation in terms of enabling organisational objectives to be met successfully through the efforts and understanding of all the people in the organisation.
Tutorials
1. Why is the people element of the marketing mix so important in services marketing? 2. What is meant by the terms primary, facilitating and ancillary in relation to the roles of people in service provision? 3. In what ways can the actions of service personnel influence customer perceptions of quality? 4. How can internal marketing techniques help in recruiting the right personnel? 5. Outline the stages in the recruitment and selection process. 6. Suggest some of the influences which can hamper effective recruitment and human resources management in the public sector and similar areas. 7. What areas should be incorporated into effective staff development programmes? 8. List the typical responsibilities of the human resources manager.
Liaison with functional managers on quality initiatives. Involvement in implementing programmes for quality. Communicating to employees the nature of responsibility for quality; instilling ownership for quality issues. The above list contains suggestions for human resources management; the actual task will differ between organisations. Sometimes training and information programmes may need to be extended beyond the organisations employees, to subcontractors for instance. Nynex, the cable communications multinational, has suffered adverse publicity in the UK when installation work has damaged gas mains or created excessive disruption to homeowners in areas where installations have been carried out. The work has largely been carried out by independent subcontractors but the negative image has been associated with the Nynex name. In this situation, extending customer care awareness and training programmes to sub-contractors or agents, if feasible, may be worthwhile. The same may also be true in terms of channel management, where agents acting on behalf of a service provider need to be included in training and communications.
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LESSON 16: PROCESS AND PHYSICAL EVIDENCE

Importance of Process and Physical evidence Physical Evidence Influence of Physical evidence on corporate image and
base their opinions and it emerges from every interaction between the customer and the organisation at every level. The number of factors which can contribute to a customers perception can be vast and can range from fairly small details to more obvious influences. Using a fast food restaurant as an example, physical evidence could include
customer perception Process

Keys Factors affecting Process
Introduction
The intangible nature of services mean that they are not bought and owned by consumers in the same way that physical goods are. A service is performed rather than handed over. The consumer receives benefits deriving from the service - a feeling of satisfaction after a good meal, pleasure and entertainment from a visit to the theatre perhaps or a car in good working order after repairs have been carried out. This means that the performance process - the way in which the service is created and delivered - is an integral part of the service offering and the ultimate consumer benefits. Intangibility is also the reason for the importance of physical evidence in the services marketing mix. As discussed in previous sections, some services are more intangible than others. Some services are product based and service pro-viders will focus on ensuring that any facilitating goods which form part of the service are of an appropriate quality and standard. The food in a restaurant must be of an acceptable standard and the surroundings clean, cars for rental should be well maintained and in a presentable condition. Services which are highly intangible, however, such as consultancy and financial advice are more difficult for the consumer to assess. In the absence of actual goods or products about which the consumer can make judgments relating to quality and value, for example, the consumer will look for other ways of evaluating the service. Corporate image and corporate identity play a key role in consumer perception. These special aspects of services marketing are so fundamental to success that they represent two components of the marketing mix: process and physical evidence. Process is concerned with the functional aspects of service delivery such as queuing systems, timeliness and quality of delivery. Physical evidence includes facilitating goods, decor and comfort.
The food itself Its packaging Seating Overall appearance Of the restaurant Accessibility Facilities Staff Corporate image
Service delivery Atmosphere -
taste, smell, presentation, temperature style, colour, environmentally-friendly, convenience comfort, layout, availability hygiene, cleanliness, lighting, decor, attractiveness (inside and outside), well maintained car parking, location of entrances/ exits, wheelchair access, geographical location toilets, childrens' amusements, customer information, payphones personal appearance, dress code, manner, efficiency attitude towards the company image, logo, advertising, brand loyalty, the individual's knowledge of the organisation and its activities prompt, slow, slipshod, efficient welcoming, friendly, cold
Controlling so many variables is the key management task in developing a favourable image amongst customers and potential customers. Clearly it is more than a case of developing effective corporate relations and communications packages. The importance of other elements of the marketing. mix can be seen, especially in relation to the service product and the role of people in the service delivery process. Managing these elements correctly is of crucial importance, as has been discussed in earlier chapters.
Corporate Identity
One way in which organisations attempt to reinforce all the messages, signals and impressions which customers receive isthe establishment of a strong and positive corporate identity. Corporate identity goes beyond corporate image in that it builds a distinctive and recognisable physical identity for the organisation. Corporate identity tangibilises corporate image by linking the values, benefits and qualities of the organisations image with identifiable physical attributes such as brand names, logos, staff uniforms house-styles and consistent standards. Many organisations use corporate identity as a unique selling proposition in promotional strategy. This can be a powerful
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Corporate Image
The image which organisations present to the world at large is made up of many different elements. Its reputation as an employer and its approach to social organisation are also strongly influenced by visual and other sensory signals as well as their experiences of a particular service or organisation. Some of these influences make up the physical evidence component of the marketing mix. This is the evidence on which consumers
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tool for differentiation; particularly responsibility issues are examples of the factors which influence consumers subjective and objective judgments about an organisation. These factors are often of equal importance in forming consumer attitudes and judgments as more obvious ones such as service quality, value for money, guarantees and luxury decor. Image is, however, difficult to define as it is based on an individuals percep-tion of the message and signals reaching them concerning a particular product, organisation or public figure. It is therefore of vital importance that organizations ensure that the messages, information and signals which they send out are consistent with the organisations objectives and are positive and constructive at all times to protect the integrity of brand and corporate image. In order to do this, all the elements which make up the organisations image should be managed as effectively as possible. This is also vital in terms of the association between corporate image and the concept of corporate identity. Comprehensive corporate relations programmes, which incorporate public relations, can playa key role in determining how the organisation is perceived. Strategic programmes can be used to communicate effectively with target audiences which may include: Customers Potential customers Consumer groups The media Local groups or campaigns Special interest groups Volunteers (e.g. charities or parent teacher associations) Donors Employees From this list, it can be seen that effective corporate relations is a logical extension of relationship marketing.The key to successful corporate relations strategy lies in setting clear objec-tives. The strategy to achieve these objectives can then be designed using a combination of communications methods and tactics. The objectives may revolve around increasing awareness and ensuring that the organisation is regarded favorably by target audiences or promoting certain aspects of the organisations service which are innovative or which differentiate it from the competition, or probably a combination of a number of these. The benefits which can arise from a well planned corporate relations program can include: Enhanced market reputation Increased market share Greater employee satisfaction/loyalty Better links with suppliers, intermediaries and other bodies Improved understanding of the organisation and its activities internally and externally. However, managing the information and messages sent out by the organisation is not the only route to improved corporate image. Customers perceptions of an when brand and/or
corporate identity recognition is very strong, as the following examples illustrate: Canard advertises The one and only QE2 in a promotional campaign for the ocean liner of that name stressing its legendary elegance, entertainment and high level of personal service. Marriott hotels advertise the uniform appeal and quality of their hotels with the slogan: Always in the right place at the right time. ITT Sheraton focus on their corporate branding in advertisements which an-nounce that each of their 400-plus hotels is different and unique but based on Sheratons extensive experience with travelers around the world. Henley Management College ran advertisements -featuring the date of incorpo-ration (1945) and the award of a Royal Charter (1991), stating established in some twenty countries across five continents under the copy Where in the world but Henley? clearly establishing firm credentials as a leading business school. An increasing number of organisations are paying particular attention to corpo-rate identity to reinforce their image. The traditionally austere and imposing banking halls of the past have been refurbished in more attractive styles and made more welcoming. Corporate apparel, the term given to staff work wear and uniforms, is a booming business as the sectors which traditionally presented a strong identity through the attire of their personnel - airlines and security services, for example - have now been joined by banks, building societies, pub restaurant chains and retail travel agents, to name but a few. Staff uniforms or work wear represent only one physical manifestation of corporate identity. Others include the visual images mentioned earlier such as logos, house styles, architectural design of outlets which are instantly recognis-able and extend to monogrammed bathrobes, in hotels, corporate gifts bearing the organisations logo, in-house magazines such as those offered by airlines anything, in effect, which can be used to strengthen the customers awareness and favorable perception of the organisation.
Customer Perceptions and Physical Evidence

The examples of physical evidence described in the previous sections can be broken down into two main types, described by the following terms: Peripheral evidence This type of evidence can actually change hands during the service transaction as in the purchase of an airline ticket or the issuing of motor insurance cover note or a hotel room key. The purchaser may become the owner of the item, but it is, in itself, worthless unless the airline does offer the flight required or the insurance company actually exists and has sufficient funds available to cover a claim and the hotel room is warm, reasonably furnished and so on. Peripheral evidence includes those items which confirm the service, as in the examples mentioned but also includes items which are complementary to the service itself. This means that the service can be performed without these items but they enhance the organisations identity and can help make the customers experience more enjoyable or positive. Examples
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include books of matches, free house wine with a meal, toiletries and chocolate in hotel bedrooms, newspapers and magazines for airline passengers. Essential evidence. Essential evidence is integral to the service offering and includes, for example, the facilities offered by a leisure centre or the items on display in an exhibition or museum which make a visit worthwhile. This type of evidence will not normally be owned by or passed on to the customer, except on a temporary basis as in the case of car or equipment hire, or linen rental in catering. In all cases, the quality and standard of the essential evidence will be a major influence in the customers purchase decision. Both these types of evidence combine with the organisations other marketing mix elements, especially promotion and people, to create an impression on customers and potential customers. They also help to make the service more tangible, in that it can be associated with clear mental images, colours, names and so on, in the mind of the consumer, as the following examples illustrate: The Automobile Associations handbook and membership card are perma-nent, physical reminders of the organisations services, as is their distinctive livery on patrol cars and vans. The technical standard of the mechanics and the quantity of spare parts carried are examples of the essential physical evidence, which forms part of the service. The monthly viewing guide, Sky TV Guide mailed to satellite television subscribers, is a glossy, high quality magazine with articles and features as well as programme listings. This will reinforce the service image of quality when they are used on a daily basis in customers homes, while the essential evidence the quality of transmission - will also be closely regulated by the organisation. Physical evidence, in its many forms, will help the potential customer or user to evaluate the service offering. As discussed in Chapter 10, service quality is not easy to measure in a precise manner. The customers overall judgment of service quality can be an evaluation to both the process and the outcome, compared with the customers own expectations and desired benefits. Their impression of qual-ity will always be subjective and based on their individual perception of the physical evidence and other elements of the service offering. This leads to an important idea in assessing quality from a services marketing perspective: Perceived Service Quality Perceived. service quality represents the customers judgment of an organisations service based on their overall experience of the service encounter. A number of key criteria are used to make this judgement and the following list of examples shows clearly the importance of physical evidence and the service delivery process itself: People: credibility, professionalism, efficiency, courtesy, approachability, accessibility, appearance, communications skills Process: timekeeping, dependability, trusted performance levels, promptness, efficiency. Physical evidence: appearance of tangible aspects of the service, physical surroundings, smartness
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The relative importance of the customers perception of both essential and peripheral evidence in evaluating service quality has been highlighted but the impact of the service delivery process should also be considered. Customers are frequently active participants in the service process - they co-produce the service so this must be taken into account in planning and management. The following section looks at the process element of the services marketing mix and some of the technological developments, which have revolutionized service delivery in many fields.
Process
The study of process - the way things are actually done and the steps taken to achieve desired results - has been given considerable attention over the years in the areas of manufacturing, engineering and computer programming. Indeed it has given rise to such revolutionary developments as just-in-time and lean production in manufacturing and production operations. It is only more re-cently, however, that the importance of the actual process in service delivery has been recognized and developed as a tool for competitive advantage. Develop-ments in technology have also helped revolutionize many processes in the home, in industry and in the services sector. The principles by which service delivery processes can be designed, im-plemented and monitored are really no different from those mentioned relating to the fields of manufacturing, computing and so on. There are certain specific characteristics of service process design and implementation however which should be considered. These include: Customer participation in the process: The level of involvement or participa-tion of the customer in the service process in a self-service restaurant, for example, as opposed to waitress service. Location of service delivery: Should the process be carried out at the service providers premises or at the customers home? For some services, this seems a simple decision plumbing or carpet cleaning should be carried out in situ at the customers home while dry cleaning or a theatrical performance will be carried out at a specialist outlet or venue. In other cases, traditional practices may no longer be applicable as telephone banking and insurance services have shown, without the need for any branches on the high street. Travel arrangements can be made without visiting a travel agent and services as diverse as hair dressing, take-away food and financial consultancy can all be delivered to the customer at home if required. The service itself: The service itself - is it process dependent (usually the case with highly intangible services such as legal representation) or equipment based (such as vending machines or dry cleaning). High-contact or low-contact services: The level of contact between the customer and the service providers personnel- this can range from nil (as in the use of automatic cash dispensers, vending machines or ticket booking machines of various kinds) to very high contact as in medical or professional services where the client or patient is being looked after by the organisations personnel for varying periods of time.
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Degree of standardisation: The degree to which the service is delivered in a very standard format (for example, the McDonalds fast food experience) or whether some customization is catered for (as in professional services, where each clients needs will be slightly different and will be serviced accordingly). The extent to which the service can be altered from the standard to meet the needs of different consumers or users may be termed divergence. Complexity of the service: This is measured by the number of steps or activities which contribute toward the service delivery. Ensuring that tourists have an enjoyable holiday will include many different steps incorporating travel arrange-ments, hotel operational management, high levels of customer contact and service and so on. Less intricate processes will include far fewer steps and sequences of actions to deliver the service - a bank cashier accepting a deposit and updating the balance in a pass book for example, or a motor garage perform-ing a routine car service. Both these examples will be governed by standard procedures and guidelines which will be implemented with little divergence. In designing the service delivery process, all these issues should be taken into account. The steps required to deliver the service and provide the appropriate benefit satisfactions to the consumer can be mapped or blueprinted in the same way that flowcharts are used to denote all the decision, alternatives and actions required for a computer programmes to work successfully and carry out the tasks they are used for. Chapter 10 which looks at service quality contains some useful information about dev-eloping quality practices and processes for services, and in particular, about benchmarking for services and implementing the process. The purpose of setting down clear outlines or blueprints for service delivery processes and transactions is as follows: To ensure that the service is carried out in the fastest, most efficient and cost-effective manner possible To enable service quality to be monitored and benchmarks to be put in place thus allowing accurate measurement of both quality and productivity To facilitate staff training and enable individuals to carry responsibility for individual stages of the service transaction and delivery To reduce the amount of divergence thus enabling accurate budgeting and Manpower planning etc. to take place. Sometimes, however, it should be noted that complete standardisation of the service delivery process is not the most desirable option either for the service provider or the consumer. In many cases, the personal element of the service which caters to customers different needs is a key factor in differentiating a service from its competitors. Burger King have pioneered customer choice in allowing consumers to specify how they want their burger cooked and their own choice of sauces and accompaniments under the at BK you got it slogan. This shows how some degree of customization can be introduced into very simple service delivery processes and is in direct contrast with their arch rivals, McDonalds, whose range has been generally all offered as standard.
Some organisations choose to let their personnel have a certain amount of discretion to make decisions and take alternative actions to improve customer satisfaction. Traditionally this has been the prerogative of the senior manager who has been allowed to negotiate a waiver of bank charges, for example, or upgrade an airline seat or a hotel room to make up for some inconvenience caused to the customer by the service provider. Recently, however; the trend has been to allow greater flexibility to all staff, empowering them to use their own judgment to make decisions which will enhance the service delivery process. This empowerment of staff is very much in line with much of what has been said about people in earlier chapters (see Chapters 8, 9 and 15) and is said to lead to better staff and customer relations and higher levels of service quality through employee pride in the job and the individual ownership of problems and short-falls. It is even used in promotional material as a unique selling point as the following Marriott Hotels advertisement shows: I arrived at Hong Kong airport without my case. Thanks to the foresight of the Marriott concierge, it managed to arrive without me. The account then relates how the traveler was very relieved to find out that the concierge had spotted his briefcase and sent it after him. The grateful traveler then goes on to say: His initiative saved the day. I understand that this kind of conscientiousness on behalf of their guests is typical of all Marriott staff. They call it empowerment. I call it remarkable. A level of built-in flexibility in process design can help achieve greater customer satisfaction and a higher quality service overall. Changing attitudes towards staff empowerment and the increasing sophistication of the consumer and their demands are not the only factors to have impacted on service delivery processes, however.
Technological Developments
The pace of technological developments in recent years has had a major impact on service delivery processes and practices. Computer networks and the use of modems mean that realtime information about bank accounts, airline seat availability and theatre bookings, on-line information for electronic funds trans-fer at point of sale (EFTPOS) can all be accessed instantaneously, leading to obvious advantages for service providers as well as customers or users of the service. Automatic teller machines (A TM) are often cited as revolutionary technolog-ical developments in the services sector. These cash dispensing machines are a familiar sight throughout the UK on the high street, at supermarkets, shopping centres, motorway services and airports, while their numbers continue to grow. It would be virtually unthinkable to consider using a banking service which did not provide this facility, which is one of the reasons why their use has spread throughout all leading banks, finance houses and credit card issuers. The services provided by these machines, however, are constantly being upgraded. Innova-tions include multi-lingual options, where the user can specify a preferred language, instant statements and bill payments.
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Many organisations have used technology to improve service efficiency and profitability or to improve the service to their customers. The Royal Mail, one of the most advanced postal groups in the world, offers a fast, reliable service but has also managed to keep the price down thanks to advances in automated sorting and the use of barcodes. The Meteorological Office provides weather and climatic information on a worldwide scale for both public sector use and as a commercial service to industry. The service is entirely dependent on up-to-the-minute data of the most perishable kind and rapid transmission and processing of information are essential to the process. The use of information technology and advanced telecommunications has led to tremendous advances in all aspects of the process. Telecommunications facilities playa key role in ensuring that obser-vational data from all over the world are available promptly and reliably and then in delivering forecast products to consumers. Weather fax is another innovation in delivery which can provide hourly updated information on users terminals. MIST is another innovation, which delivers continuously updated data from the Meteorological Offices central computer directly to users terminals. Automated queuing systems in banks and post office$ are another familiar innovation which have reduced customer frustration and improved service generally. Remote diagnostic tools can now be used to provide repair and mainte-nance services for computer equipment without the need for the engineer to leave base and spend time traveling to the clients premises. Advances in technology have impacted on the process element in the marketing mix in many different ways as the above examples suggest. This is in addition to the number of new services, which have arisen directly from new technologies such as mobile telecommunications, satellite television, medical procedures such as scanning, laser treatments and keyhole surgery made possible by the use of fiber-optics, to suggest just a few examples. Atmospherics Another area which should be considered in reviewing the service process is that of atmospherics. This is the term given to the way in which marketers, notably in retailing, can plan for and provide an atmosphere within stores designed to be conducive to customer spending. This is a relatively new area of study and has been limited to retailing by and large, but has obvious applications for services marketing wherever the service exchange takes place at the service providers premises, and especially in services retailing operations such as banks, travel agencies, hair and beauty salons and extends to include restaurants, hotels and many other possibilities. Atmosphere can be used to create an image in the customers mind based on the following types of sensory stimuli: Sight - size, layout, lighting, colour Sound - music, background noise, volume, pitch, tempo Smell - fresh, heavily scented, appetite stimulant
Touch - temperature, comfort, soft/hard (seating etc.) The importance of creating a pleasant or enjoyable atmosphere has been well recognised but what is now emerging seems to be that consumers will respond to different atmospheres with different types of buying behaviour. Colour, for example, can have a variety of effects on humans. Some colours are known to stimulate while others represent comfort, warmth or security. Music has also been recognised as a mood influencer. Different combinations of colours and music could be used to create a soothing warm atmosphere in a restaurant, or to attract teenagers to a busy fast food outlet. The combined effects of atmospherics within the service environment and the role of the people participating in the service delivery process call affect the customers mood and subsequent purchase decisions. It can, theoretically, be possible for the services marketing managers to control all of these influences, thereby inducing moods which will lead the consumer to act in a certain way with regard to purchase -linger in a restaurant and spend more on drinks, actually make a holiday reservation while in the travel agency rather than simply picking up brochures, for example. Atmospherics is a developing area of study which is bound to be of potential interest to service marketers in all fields. Hospitals could aim for a brighter atmosphere to aid recovery, colleges could use colours and decor designed to stimulate concentration. Many steps have already been taken in this direction. Dentists have moved away from very stark, austere surgeries to more attractive decor, music and toys in an attempt to help patients relax and take a more favorable view of the experience, for example. Most of the research into the area has grown from retailing and developments in retail store and shopping mall design which can have a great deal of relevance for service marketers both now and in the future.
Tutorials
In light of above, Explain the physical evidence and process involved in a hospital. Compare Apollo Hospital with Moolchand Hospital
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LESSON 17: SERVICE QUALITY

Importance of Service Quality Developing service quality Features of service quality Service Quality standards Links between service quality and marketing Monitoring service quality
The perishable nature of services can lead to customer dissatisfaction if demand cannot be met (if a hotel room or air ticket is not available at the time a customer demands it, for example). The most relevant approach in defining and measuring service is the user-based approach. The idea that quality is subjective and will be strongly linked to the individuals needs and expectations recognizes that consumers have different criteria for judging service quality. This user-based approach equates quality with maximum levels or satisfaction. In measuring quality in this way, however, a distinction needs to be drawn between quality of service delivery and the service output, or benefit. The customer may be involved in the service production, thus impacting on the quality of the service delivery process. The actual output of the service may be judged by the customer in terms of their expectations of the outcome or benefit. The customers overall judgment of service quality can be an evaluation of both the process and the outcome, compared with the customers own expecta-tions and desired benefits. This leads to an important idea in assessing quality from a services marketing perspective: perceived service quality. Perceived service quality represents the customers judgment of an organizations service based on their overall experience of the service encounter. Understanding how customers arrive at this judgment - that is to say, how they decide whether or not they are satisfied with a particular service - is very important for services marketing management. Research has indicated that consumers make these decisions using a number of key criteria to judge the service. These key factors relate to areas covered by the extended services marketing mix: people, process and physical evidence. They can be broadly categorized as follows: People Credibility, professionalism, efficiency, courtesy approachability, accessibility, good communications, identifying and understanding customers needs Process Timekeeping, dependability, trusted performance levels promptness, efficiency Physical evidence Appearance of tangible aspects of the service, physical surroundings, smartness This list illustrates some of the criteria used by customers in judging quality. Understanding the concept of perceived service quality is important for services marketing management. The next section explores this further within the context of developing service quality.
Service Quality
There are many definitions of quality, and in many senses quality is subjective. To many people, quality implies luxury or excellence; a Rolls Royce rather than a Ford; cordon bleu instead of fast food. However, quality can also be measured in terms of fitness for purpose, and. a Ford Escort is regarded by many owners as a quality family car, while McDonalds provide a quality fast food service. In seeking quality service, consumer needs and expectations may differ. An elderly customer in a bank might appreciate a cashier who takes time to chat and who addresses the customer in a familiar way, while a business customer might expect to be spoken to in a professional manner and the transaction to be completed as efficiently and quickly as possible. Yet the functional service required in each instance may be identical, from the same cashier. In manufacturing, quality is seen as an element, which can be gauged precisely and measured in terms of conformance to specification. Quality control was applied at the end of the manufacturing process when units were checked for quality and defective units rejected. This has changed now to the extent that the emphasis is in building quality into the manufacturing process; quality of supplied materials, quality of production processes and quality assurance procedures mean that quality is built-in, rather than poor quality being filtered out at the finished goods stage. This built-in quality is still measured in terms of conformance to what are, largely, internally developed specifications which can themselves be constrained by cost and productivity considerations. Service quality is not easy to measure in a precise manner. The nature and characteristics of services can have an impact on quality issues: The intangibility of many services means that it can be very difficult for service quality to be measured and assessed. Inseparability of the service itself from the service provider highlights the role of people in the service transaction, and their influence on quality levels. The heterogeneous nature of service means that a service is never exactly repeated and will always be variable to some extent.
Developing Service Quality

The reasons why developing and delivering a quality service is so important can be broken down into three main areas:
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Organizations with a reputation for consistently high quality can sustain an enviable competitive advantage in the service marketplace. Quality is free - that is to say getting it right first time costs far less than providing remedies when services fail to meet the customers required standard. Better quality services can attract premium prices. Consumers are pre-pared to pay a higher price for services that fulfill all their expectation criteria. Each of the above reasons for putting quality first can have a direct impact on profitability. However, in terms of image and customer to user satisfaction, they are equally applicable to organizations operating in the not-for-profit sector. Assessing Service Quality Determining what makes a quality service is not easy, and differences between service organizations mean that there is no single set of factors which can be classified to produce recognizable standards. Leisure services, financial services, education and medical services ~ill all be judged on vastly different grounds. Services cover such a broad spectrum of activities, ranging from the highly tangible to the highly intangible, that universal regulation of quality standards is impractical. However, the common element in service quality, whatever the service, is that quality is based on the customers perception. With this in mind, it is important to note the features which all services share: Customer participation: Customers are frequently active participants in the service process - they co-produce the service. Intangibility: Highly intangible services may be based on philosophical or conceptual elements. This abstract nature of some services makes them difficult for the service provider to describe, and for the customer to evaluate. The service encounter: Services are often comprised of a number of component parts, and it is the sum of these, or the overall experience of the service encounter, which the customer will use to form judgments. Inseparability: Many specialized services are inseparable - the characteristics of the service provider in terms of expert knowledge or skill, for example, are a constituent part of the service quality. Service is, perhaps most importantly, a process and it is this element, which can be investigated and developed to meet specified standards. The Total Quality Management philosophy has for its main focus the interaction between people and systems. People are the critical ingredient in total quality, but in order to operate effectively, people require appropriate frameworks and systems.
Quality systems designed to reinforce performance in these areas focus on procedures and processes. These must attain certain quantifiable standards in order to gain approval. There are now both national and international quality performance standards which show that organizations are implementing quality operations. The approved standards are identified as follows: National: BS (British Standard) 5750 European: EN 29000 International: ISO 9000 BS 5750 was generally the first standard of its kind in the world. The British Standards Institute (BSI) spent many years developing the standard, and numer-ous steering committees took several years to generate the standards by which service could be measured. BSI literature at the time discusses the problems posed by the task, raising such questions as How do we put quality and its measurements in place for a service organization? Is quality important to the customer or the vendor? They suggest that it is important that quality is really that perceived by the customer, despite the fact that service may be said internally to have quality. Quality systems need to be set up in line with the BSI recommendations which, whilst appearing quite complex, can be broken down into more simplified areas. Quality should be functional, not restrictive, and should reflect the overall business (or business-like) activities of the organization. The most important aspect for success is, the commitment of everyone in the organization, not some specified quality manager. The BSI proposed that quality is a team concept. Marketing relates closely to this idea. Concepts such as internal marketing and relationship marketing, discussed in other chapters, focus clearly on the commit-ment and involvement of everyone in the organization in implementing success-ful marketing plans and programmers. There is, in fact, a very strong link existing between marketing and Total Quality Management. Both have a customer needs based philosophy, and many organizational issues are common to both. Marketing can playa significant role in quality. Setting Standards The true definition of quality will be unique to every organization as no two organizations will operate identical services marketing. Quality is situationspecific, and the parameters of what constitutes high quality can change over time. Market research needs to be undertaken to pinpoint exactly what makes a quality service experience - perceived service quality. This market research should be undertaken in both the internal and external markets. This is most important as it can reveal quality gaps. Quality gaps occur when a shortfall arises between the customer~ expectations and the service actually delivered. Quality gaps can be generated internally, as when managers do not fully understand what customers expect, or when they are not fully committed to tailoring the service to meet these expectations. Shortfalls in service quality can also arise when the performance of service delivery personnel fails to meet expectations.
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Service Quality Standards

Quality standards were originally developed within the context of production and manufacturing; the main concern was product quality and conformance. However, the development of systems to ensure performance quality now covers all functions, not just production and operations. Finance, administration and marketing all have an impact on the organizations performance and customer satisfaction levels.
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A further cause of inadequate service quality can be when advertising or other external communications lead customers to expect a higher standard of service than that which is actually delivered. A dry cleaning company offering a two-hour service may create customer dissatisfaction if the time taken is three hours when, in reality, a same-day service may be perfectly acceptable to that particular customer. The service delivery must match the expectations of the customer at that point in time, and in relation to that particular transaction. The Quality Audit A good starting point for internal market research is the quality audit. In the same way as a marketing or environmental audit is carried out, the whole company and all the processes which go to make up the service offering must be investi-gated and analyzed. The audit should cover all functions and departments, not merely frontline personnel. The quality audit provides an assessment of what is currently happening within the organization; market research should now be used to analyze how near (or far) the organization is to getting it right - delivering the right service fit through matching the service offering to the customers expectations. Internal market research can be carried out through focus groups or discus-sion sessions. It is probably best if these are held away from the normal working area and are conducted by interview or discussants who are not line manage-ment personnel. This should engender an atmosphere where participants feel able to discuss quality issues frankly and without inhibition. A checklist for the types of issues which need to be raised in internal market research includes the following: Internal Service Delivery This recognizes the fact that there are many parts which make up a service, and effective service delivery can depend on all of those parts combining together precisely. Besides service delivery personnel there are many other actors within a service organization who facilitate the service delivery. These employees, in conjunction with front-line personnel, all need to consider the following questions: Who is your internet customer? How many internal customers/ suppliers do you have? What are their needs? How does your interaction with internal customers in the organization impact on the service quality perceived by the ultimate (external) customer? What problems exist, and how can you overcome them? What do you think the role of marketing should be? Do you think that we deliver exactly what we have promised to the customer? If so, how often? If not, why not? Do you think that improvements could be made in your area? In other areas? If so, how? Do you think that we should measure performance and/ or quality? If so, how should this be done, and how often?
Internal Service Quality The employees own perceptions of the organizations service quality must be examined in order to assess where potential quality gaps may arise. The following questions need to be addressed: How do you measure service quality? What are your /the organizations (internal) standards for: excellent quality satisfactory quality poor quality? How do you know when you are achieving or failing to meet these standards? What processes for monitoring service quality exist? Service Delivery Quality Frontline personnel who are actually involved with customers in the service delivery process should consider issues relating to their understanding of service quality: What do you understand to be the customers expectations from this service encounter? What can you do to ensure that customer expectations are met fully? Are you doing anything, which has a negative effect on the quality of service delivery? Does anyone else in the organization? Who is your favorite customer, and why? How often do you have interaction with a customer? The results of this type of internal market research can only be utilized effectively if there is accurate information available on the needs and expectations of the external market. Market research to assess and measure customer expectations thoroughly is essential. Research must be designed to address the following Issues: How do our customers judge the quality of service we provide? What is their judgment criteria? How do they compare the quality of our service with that of our competitors? What are the key differences that make our service quality better (or poorer) than our competitors? How, in the customers view, can the quality of service we provide be improved? Market research of this nature should be ongoing to reflect changing needs and expectations. As consumer sophistication increases and new services become available in the marketplace the criteria by which customers judge service quality will change. Market research techniques for assessing service quality expectations vary, but will depend on getting close to the customer and building an understanding of their perception of service quality. Many restaurants, hotels and other service providers routinely offer their customers the opportunity to give feedback on the service they have received by providing customer satisfaction questionnaires for the customer to complete each time the service is used.
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Shops and retailers have customer service counters to deal with complaints, but in situations where the service is highly intangible it can be much more difficult to monitor customer satisfaction levels. High street shoppers will not hesitate to return goods which are unsatisfactory in any way, and customers who have received poor service from domestic trades people, for example, will be inclined to complain until they receive satisfaction. In cases, however, where services are far less tangible and customers are unhappy about the service they have received they may be unwilling to complain for a number of reasons: Embarrassment- customers may feel embarrassed about complaining for a service which they feel dissatisfied with. Many people do not want to make a fuss if they receive poor service from, say, a hairdresser or restaurant. Lack of specialist knowledge - customers buying the services of a lawyer, an accountant or a hypnotherapies, for example, may feel that the service they have received is not up to their expectations, but do not feel qualified themselves to take the service practitioner to task. Level of substitutability - if there are many service providers offering a particular service, then a customer who is not satisfied may find it simpler to change service providers than to complain. Substitution - swapping service providers when a service is not of satisfactory quality can result from any of the issues outlined above. On the other hand, research has shown that customers who do complain and then receive a positive response from the service provider which leads to customer satisfaction will be more inclined to use that service provider in the future. If one of the key factors in long-term success is customer retention, then it is vital that customer satisfac-tion be maintained, and customers are given the opportunity to discuss their service experiences. Research along the lines discussed will enable the service provider to establish what makes up service quality in their business. Quality gaps - where the employees understanding of what constitutes quality falls short of customer expectations - can be investigated and training or better communications implemented internally. In summery, the organizations approach to developing service quality standards and implementing quality practice can be represented by a seven point plan: Internal and external research what do customers really want and value? Listening to what customers and employees feel about performance against these factors Evaluation Action Monitoring Improving and building Motivating
monitored and which meet customer requirements. In order to do this, standard measures need to be determined. This section looks at how this can be achieved through benchmarking. The establishment of a baseline figure and a common index is an essential part of measuring performance, both externally and internally. The baseline is the target operating norm of the organization. This can be termed a benchmark - a standard against which performance can be measured. This should take into account the standards against which competitors will operate and should reflect optimum quality standards within the competitive environment. This may also mean taking into account the standards set by indirect competitors as well as organizations offering the same services. This would mean, for example, that airlines would not only gauge their benchmark standards by looking at other airlines quality standards, but also by considering the services offered by the railways and other alternative forms of travel and comparisons with their service quality. Studying best practice amongst organizations which are noncompeting (either directly or indirectly) can also help in achieving the objective of being the best - outperforming other organizations in the marketplace. Collaboration with non-competing firms based on sharing expertise in areas in which the organizations excel can lead to mutual benefits. Knowledge and experience regarding best practice can be shared, and this is likely to be more reliable and open than information sought concerning the competitions best practice. The idea of synergy can operate here as well; man-agement from very different types of organizations, possibly in completely different industries, may be able to find solutions and new ideas from each others viewpoints which they could not find in their own experience or within their own organization. The benchmark standards will be adjusted overtime to reflect the achieve-ment of increasingly higher standards through enhanced process quality and in response to new customer expectation levels. An index, which is a common scoring or weighting system which takes into account the different characteristics of the subject for measurement, should also be developed. This will enable service providers to measure performance and quality between different sized branches or based on newness of service activity in a particular market sector, for example. The actual values assigned to benchmarks will be situationspecific. They will be developed as a result of the research carried out by a particular organization. The key focus will be the same in any situation, however; the service delivery process and all the activities which go into it will be examined and broken down into component parts for which measurable targets, or benchmarks, can be set. This may translate quite simply into measures derived from variables which impact on the service encounter. Response time is one factor which impacts on service quality, and which is controllable by the service provider. Examples of standards or benchmarks based on response time variables include the following:
Benchmarking
The organization which has fully researched quality issues in both its internal and external markets should now be in a position to set quality standards which can be regulated and
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Time taken to answer telephones enquiries - Automatic Call Distribution systems can ensure that all calls are answered within a certain number of rings, and that calls are then managed efficiently. Queuing systems designed to ensure that all customers are served within an acceptable time. Response time to assist motorists in difficulty - the National Breakdown organization guarantees that assistance will arrive within one hour of the problem being reported. Benchmarks can be created for all the component parts of an organizations operations. The examples discussed above relate to just one area - response times. Some examples of the areas within an organization for which benchmarks can be established are as follows: Sales force: Call-to-order ratios, training, size, customer retention. Administration: Response times to written/ telephone enquiries, quality of ma-terials and literature used, training, expertise on both company and range of services. Resources: Implementation and management of systems, premises utilization staff development. Finance: Profitability levels, return on investment, costs reduction. This list is not comprehensive and it will, in practice, be made up of areas identified as being of the greatest importance in enabling the organization to out-perform others in the marketplace. Specific variables can be defined follow-ing analysis of the competitive arena, and the criteria used by customers in their own judgment of service quality. Benchmarking in this way will enable the organization to build in service quality, and to fine-tune its market offering so that all customer quality standards are met or exceeded.
values associated with both technical and functional service quality, and their relative importance. Technical quality and functional quality levels will depend on the implementation of service quality throughout the organization. Good communication - both inter-nal and external- and training of staff are critical factors in ensuring that quality performance standards are met. Communication Communication internally may need to be improved to ensure that there are no breakdowns in communication between the elements within the organization which make up a particular service. Communications should be designed to foster coordination and integration, enabling employees to be responsive to their internal customers and suppliers. Internal communications can also be a useful tool in engendering a team spirit and in motivating personnel. This can be very important in the drive for service quality. Management should end self that every employee knows what the organizations objectives are, what desired quality goals have been set and what their individual role is in achieving these targets. Training Training needs to be undertaken to develop employees understanding of how they can deliver service quality. This training might include customer care programmes, and specific technical training to develop expertise in advising customers about the services offered. Training for personal development is also important, as motivation and job satisfaction are key elements in the provision and maintenance of quality service. The Links Between Service Quality and Marketing Total Quality Management and marketing have very strong links within the organization. Both share a customer-directed philosophy, and both focus on teamwork and commitment from all levels of the organization. Managing service quality as outlined throughout this chapter combines the aims of marketing -meeting customer needs and expectations - with a framework for implementing quality which has similarities with Total Quality Management. Developments in internal marketing and relationship marketing combine to provide an approach which fosters integration and commitment to quality throughout the organization. The extent to which the organization is doing it right should be demonstrated by the findings of the internal and external research carried out. This will be an important factor in planning future programmes. If a quality gap is uncovered, then this will set clear pointers for liras where quality improvement programmes need to be implemented. Other measures of the degree to which quality improvements are needed will arise from the analysis of the competitive arena and from customer satisfaction and retention studies. Information of this nature can be used in quality programme definition. With the emphasis on the people and process elements of the services marketing mix, frameworks can be developed to ensure quality service implementation. These frameworks should be rigorously defined so that the chance of anything going wrong in the service delivery process is mini-
Implementing Quality Service

Marketing management can playa key role in achieving quality service through-out the organization. Service -quality is contingent on a highly developed customer orientation, and on meeting or exceeding the customers expectations. It has already been shown that market research must be carried out both inter-nally and externally in order to establish service quality standards - benchmarks - by which the organization can measure and assess its performance. Internal marketing has a key role to play, too. Quality in service organizations is largely inseparable from the service delivery, so the key focus in service quality is on people. Quality results from a team effort; a customer-consciousness which permeates through all levels of the organization, from top management down. Internal marketing is concerned with people in organizations and effective internal marketing programmes address the issues which impact on quality. Two of the most important components of internal marketing which are critical for any organization seeking to implement quality service are: Communication Training Perceived service quality, the customers individual evaluation of their service experience with an organization, drives from the
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mized. On the other hand, they should allow for flexibility and scope for the personal approach where appropriate. This idea brings service quality back to the marketing concept and the mar-keting mix. By fine-tuning all the elements of the marketing mix to the customers needs and wants and ensuring that the customer receives the benefits and quality which they are seeking, organizations build in service quality to their marketing programmes. This should include both internal and external marketing programmes. To summaries, the quality process for service organizations can be outlined as follows: Define and understand quality within the organizational context. Carry out market research, both internally and externally. Research the competitive arena. Develop organizational quality standards - Benchmarking. Identify where quality standards are being met/exceeded/not met. Develop a QUALITY Strategy to close quality gaps and build existing quality standards. Design programmes for implementation: procedures/ frameworks training communications Implement service quality programme. Monitor and evaluate the programme and fine tune where necessary. Implementing the service quality programme is really only a starting point; the programme must then be monitored and evaluated and it should be continu-ously performancetested. The use of benchmarks makes this possible. Develop-ing service quality strategies and programmes should be a cyclical process so that standards are updated and changed whenever needed to continue to maintain competitive advantage.
service quality. Customer reten-tion levels are a key indicator to quality performance, while other figures can also represent trends which reflect quality issues. Staff at all levels should be involved in the monitoring process and should be encouraged to be proactive in identify-ing and resolving quality problems. Internal market research should also con-tinue to ensure that no further quality gaps arise, and that staff are satisfied that all areas are working together for optimum service quality, Customer Satisfaction Analysis Organizations can use a number of methods to monitor customer satisfaction. Typically, this involves carrying out some sort of follow-up survey amongst customers who have used a service recently. National Breakdown, a motoring assistance organization, sends its members a satisfaction questionnaire after every breakdown. The questionnaire invites the customer to comment on the service delivery, and to assess specific features, such as the response time and the action taken. British Telecom telephones new subscribers after they have had a telephone installed to ask how they would rate the service received. Many hotel chains leave guest questionnaires in rooms, or present them at the time of checkout, for guests to comment on service quality. Focus group discussions and other market research techniques can be utilized to ask customers directly about their satisfaction with service quality. All these methods address the customer about satisfaction levels, but another very import-ant element in quality analysis is monitoring the times when the customer addresses the organization directly. In particular, it is important to monitor customer complaints. Customer complaints should be monitored closely to see whether any trends are emerging, and the nature of the complaints. This is critical, especially when the vast majority of customers who have experienced dissatisfaction may not complain, but simply switch to another service provider. The number of com-plaints received may be much smaller than the total number of dissatisfied customers, and steps must be taken to rectify the problems notified. Systems should be established therefore to carry out customer satisfaction analysis on a continuous basis. Market research, follow-up questionnaires and courtesy calls should be implemented, and a proper system for handling com-plaints set in place. A complaints handling system should not only ensure that complaints are dealt with speedily and positively, but also that the information regarding the complaint is fed back through the correct channels within the organization, so that future decisions and actions can be taken on an informed basis, and any underlying problems ironed out. Specialist Market Research This type of research can involve a number of techniques, but perhaps the most common is the mystery shopper technique. A mystery shopper - a trained market researcher - will visit the branches of the service provider and pose as an ordinary customer. They will assess such aspects as the expertise of the staff, courtesy and response times and will report back their findings. They may also observe the cleanliness of the premises,
Monitoring Service Quality

There are a number of techniques which can be employed to monitor service quality. These fall largely into three main categories: Internal Performance Analysis Customer satisfaction analysis Specialist Market Research These areas will be discussed individually in this section; in practice a service organization would develop monitoring and evaluation schemes based on a combination of these methods. Internal Performance Analysis Internal performance analysis will be undertaken by all organizations to measure the success of their planning, not necessarily relating solely to quality. Quality benchmarks will be used in the internal performance analysis to measure the quality standards being achieved in practice. Steps should be taken very quickly to rectify any shortfall in service quality and internal monitoring should be continuous. Sales figures, and other internal reporting data which is not directly quality -based, should also be referred to in monitoring
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the overall appearance of the staff and the customer environment. The purpose is to monitor overall standards and impressions of quality, not to single out individual members of staff. Mystery shoppers are widely used by banks, building societies and other service outlets. Mystery diners !lave long been the basis of some of the best known restaurant guides, and mystery guests are used to judge hotel standards. Observation techniques can also be used in assessing quality standards. The layout of waiting rooms and other facilities, in, say, hospitals, can be improve by observing the behavior of visitors. Signposts and directions can be made clearer if necessary, and vehicle access improved if observation suggests that these cause difficulty for users of the service. All of these considerations contrib-ute to the customers perceived service quality, and improvements should be made where necessary. The purpose of monitoring and evaluation in all of these methods is to ensure that plans and programmes are working effectively, and that desired standards are being achieved. There must be systems to feed back the findings of monitor-ing processes into the - service quality programmes so that continual improvement can result. The quest for high quality service delivery never ends; in fact, the quality goalposts keep changing as consumer tastes and developing technology bring about higher standards.
standard at which competitors operate and should reflect optimum quality within the competitive environment. Implementing quality service requires far more than the setting of benchmarks however; a highly developed customer orientation is vital if the organization is to meet and even exceed customer expectations continually. A detailed process for im-plementing service quality involves the development of a quality strategy, programmes for implementation and monitoring and evaluation procedures. Service quality can be monitored through various techniques based around the following: Internal performance analysis Customer satisfaction analysis Specialist market research
Tutorials
In light of above, Compare the Service quality standards of Haldirams versus Mc.Donalds.
Summary
Organizations are becoming increasingly aware of the importance of quality in gaining and maintaining competitive advantage. Service quality can only be measured against the needs and expectations of consumers. The special characteristics of services make it difficult to define quality in traditional ways. A user-based approach can be used which equates quality with the maximum levels of satisfaction; this is the idea of perceived service quality. Because all services are essentially different, it is not possible to develop a single set of standards or criteria against which quality levels can be measured. Specific common features which are likely to impact on service levels in all service organizations include the following: Customer participation Intangibility The service encounter Inseparability A starting point for assessing quality within the organization is by means of a quality audit which examines the whole company and all the processes which together comprise the service offering. Checklists can be raised to address specific issues concerning each of these areas: Internal service delivery Internal service quality Service delivery quality Benchmarking is an important step in measuring and monitoring service quality. A benchmark is a standard against which performance can be measured. It should take into account the
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LESSON 18: SERVICE STANDARDS

Factors necessary for appropriate service standards
Factors Necessary for Appropriate Service Standards

Standardization of Service Behaviors and Actions The translation of customer expectations into specific service quality standards de-pends on the degree to which tasks and behaviors to be performed can be standardized or reutilized (Figure 9-1). Some executives and managers believe that services cannot be standardized-that customization is essential for providing high-quality service. In certain expert services such as accounting, consulting, engineering, and dentistry, for example, professionals provide customized and individualized services; standard-izing of the tasks is perceived as being impersonal, inadequate, and not in the cus-tomers best interests. Managers also may feel that standardizing tasks is inconsistent with employee empowerment-that employees will feel controlled by the company if tasks are standardized. Further, they feel that services are too intangible to be measured. This view leads to vague and loose standard setting with little or no measurement or feedback. In reality, many service tasks are routine (such as those needed for opening check-ing accounts or spraying lawns for pests), and for these, specific rules and standards can be fairly easily established and effectively executed. Employees may welcome knowing how to perform actions most efficiently, for it frees them to use their inge-nuity in the more personal and individual aspects of their jobs. If services are cus-tomized for individual customers (e.g., investment portfolio management or estate planning), specific standards (such as those relating to time spent with the customer) may not be appropriate. Even in highly customized services, however, many aspects of service provision can be reutilized. Physicians and dentists, for example, can and do standardize recurring and non technical aspects of the service such as checking pa-tients in, weighing patients, billing patients, collecting payment, and taking routine measurements. In delegating these routine tasks to assistants, physicians and dentists can spend more of their time on the more expert services of diagnosis or patient care. According to one long term observer of services industries, standardization of service can take three forms: (1) substitution of technology for personal contact and human effort, (2) improvement in work methods, and (3) combinations of these two methods.4 Examples of technology substitution include automatic teller machines, au-tomatic car washes; and airport Xray machines. Improvements in work methods are illustrated by restaurant salad bars and reutilized tax and accounting services devel-oped by firms such as H&R Block and Comprehensive Accounting-Corporation.
Technology and work improvement methods facilitate the standardization of service necessary to provide consistent delivery to customers. By breaking tasks down and providing them efficiently, technology also allows the firm to calibrate service standards such as the length of time a transaction takes, the accuracy with which op-erations are performed, and the number of problems that occur. In developing work improvements, the firm comes to understand completely the process by which the service is delivered. With this understanding, the firm more easily establishes appro-priate service standards. How does a company change the way work is done to make the process of deliver-ing service match what customers expect? The concept of reengineering of company processes plays a major role. Reengineering involves rethinking the way the company is organized to perform its work. Often it involves creating completely new processes and approaches and ignoring the way work has been accomplished in the past. We will discuss reengineering and process management in other chapters, but these go hand in hand with the standards material we describe in this chapter. Standardization, whether accomplished by technology or by improvements in work processes, reduces gap 2. Both technology and improved work processes structure im-portant elements of service provision and also facilitate goal setting. It is important to recognize that standardization does not mean that service is performed in a rigid, me-chanical way. Customerdefined standardization ensures that the most critical elements of a service are performed as expected by customers, not that every action in a service is executed in a uniform manner. Using customer-defined standardization can, in fact, allow for and be compatible with employee. Empowerment. One example of this compatibility involves the time limits many companies establish for customer service calls. If their customers highest priorities involve feeling good about the call or resolving problems, then setting a limit for calls would be decidedly company de-fined arid not in customers best interests. In other words, this would be standardiza-tion that both constrains employees and works against customer priorities. Companies such as American Express and L. L. Bean, in using customer priorities rather than company priorities, have no set standard for the amount of time an employee spends on the telephone with a customer. Instead, they have standards that focus on making the customer satisfied and comfortable, allowing telephone representatives to use their own judgment about the time limits. Formal Service Targets and Goals Companies that have been successful in delivering consistently high service quality are noted for establishing formal standards to guide employees in providing service. These companies have an accurate sense of how well they are performing service that is critical to their customers-how long it takes to conduct transac77
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tions, how fre-quently service fails, now quickly they settle customer complaints-and strive to im-prove by defining goals that lead them to meet or exceed customer expectations. Several types of formal goal setting are relevant in service businesses. First, there are specific targets for individual behaviors or actions. As an ex-ample, consider the be-havior calls the customer back quickly, an action that signals responsiveness in con-tact employees. If the service goal for employee behavior is stated in such a general term as call the customer back quickly, the standard provides little direction for service employees. Different employees will interpret this vague objective in their own Ways, leading to inconsistent service: Some may call the customer back in 10 minutes whereas others may wait two to four days. And the firm itself will not be able to de-termine-when or if individual employees meet the goal because its- expression is not measurable-one could justify virtually any amount of time as quickly. On the other hand, if the individual employees service goal is to call each customer back within four hours, employees have a specific and unambiguous guideline about how quickly they should execute the action (four hours). Whether the goal is met is also unequivocal: If it occurs within four hours it meets the goal, otherwise it does not. Another type of formal goal setting involves the overall department or company tar-get, most frequently expressed as a percentage, across all executions of the behavior or action. For example, a department might set as its overall goal to call the customer back within four hours 97 percent of the time and collect data over a months or years time to evaluate the extent to which it meets the target. Service firms that produce consistently excellent service-firms such as Walt Disney, Federal Express, and Merrill Lynch-have very specific, quantified, measur-able service goals. Walt Disney calibrates employee performance on myriad behaviors and actions that contribute to guest perceptions of high service quality. Whether-they are set and monitored using audits (such as timed actions or customer perceptions (such as opinions about courtesy), service standards provide a means for formal goal setting. Customer not Company-Defined Standards Virtually all companies possess service standards and measures .that are company de-fined they are established to reach internal company goals for productivity, efficiency, cost, or technical quality. To close gap 2, standards set by companies must be based on customer requirements and expectations rather than just on internal company goals. In this chapter we make the case that company-defined standards are not typically suc-cessful in driving behaviors that close provider gap 2. Instead a company must set customer-defined standards operational standards based on pivotal customer require-ments that are visible to and measured by customers. These standards are deliberately chosen to match customer expectations and to be calibrated the way the customer views and expresses them. Because these are the goals that are essential to the provision of excellent service the rest of this chapter focuses on customer-defined standards. Knowing customer requirements, priorities, and expectation levels can be both ef-fective and efficient. Anchoring service
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standards on customers can save money by identifying what the-Customer values, thus eliminating activities and features that the customer either does not notice or will not pay for. Through precise measurement of expectations, the company often discovers that it has been over delivering to many customer needs: On the other hand, many firms create standards and policies to suit their own needs that are so counter to the wishes. of customers that the companies endanger their cus-tomer relationships. In late 1998, when the hotel industry was booming, many hotels initiated policies penalizing late arrivals and early departures as well as imposing minimum-stay requirements. The Hilton San Francisco and Towers Hotel began to charge guests $50 when they stayed fewer days than agreed to at check-in. The Peabody Orlando Kept guests onenight deposits unless they canceled at least three days prior to arrival. And a Chicago hotel required a business customer to buy four nights lodging when all she needed was three, putting the-customer out an extra cost of $2,700!6 Hotels defend these policies on the basis of self-protection, but they are clearly not customer oriented. While customer-defined standards need not conflict with productivity and effi-ciency, they do not originate with these company concerns. Rather they are anchored in and steered by customer perceptual measures of service quality or satisfaction. The service standards that evolve from a customer perspective are likely to be different from company-defined service standards. Virtually all organizations have lists of things they measure regularly, most of which fall into the category of companydefined standards. Often these standards deal with activities or actions that reflect the history of the business rather than the reality of todays competitive marketplace or the needs of current customers.
Customer-defined Service Standards

The types of standards that close provider gap 2 are customerdefined standards, oper-ational goals and measures based on pivotal customer requirements that are visible to and measured by customers. They are operations standards set to correspond to cus-tomer expectations and priorities rather than to company concerns such as productiv-ity or efficiency. Take a typical Operations standard such as inventory control. Most firms measure inventory control from the companys point of view. However, the highly successful office supply retailer Office Depot captures every single service measurement related to inventory control from the customers point of view. The company began with the question, What does the customer see? and answered, The av-erage number of stock outs per week. Office Depot then designed a customer-focused measurement system based on measures such as the number of complaints and com-pliments it received about inventory as well as a transaction-based survey with the cus-tomer about its performance in this area. These and other customer-defined standards allow for the translation of customer requirements into goals and guidelines for em-ployee performance.
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Hard Customer-Defined Standards Two major types of customer-defined service standards can be distinguished. All of the Federal Express standards that comprise the SQI fall into the category of hard standards and measures:-things that can be counted, timed, or observed through au-dits. Many of Federal Expresss standards relate to on-time delivery and not making mistakes, and for good reason. As we stressed earlier in this text, customer expectations of reliability-fulfillment of service promises-are high. A series of 35 studies across numerous industries from the Arthur D. Little management consulting firm found that the most frequently cited customer complaint was late product and service delivery (44 percent), followed by product and service quality mistakes (31 percent).? To address the need far reliability, companies can institute a do. it right the first time and an honor your promises value system by establishing reliability standards .An example of a generic reliability standard that would be relevant to virtually any service company is right first time, which means that the service performed is done correctly the first time according to the customers assessment. If the service involves delivery of products right first time to the customer might mean that the shipment is accurate-that it contains all that the customer ordered and nothing that the customer did not order. If the service involves installation of equipment, right first time would likely mean that the equipment was installed correctly and was able to be-used immediately by the customer. Another example of reliability standard is right an time, which means that the service is performed at the scheduled time. The company representative arrives when promised or the delivery is made at the time the customer expects it. In more complex services, such as disaster recovery or systems integration in computer service, right an time would likely mean that the service was completed by the promised date. When it comes to providing service across cultures and continents, service pro-viders need to recognize that customerdefined service standards often need to be adapted. In the United States we expect waiters to bring the check promptly. In fact, if we do not receive it shortly after the last course, and without our asking for it, we evaluate the service as slaw and non responsive. In Spain, however customers can side it rude far the waiter to bring the check to the table without being asked to. do so. They feel rushed, a state they dislike during meals. While bringing the check to the table (whether sooner or later, requested or not) is an activity that restaurants need to incorporate as a customer-defined service standard, the parameters of the standard must be adapted to the culture. Hard service standards far responsiveness are set to ensure the speed or promptness with which companies deliver products (within two working days), handle complaints (by sundown each day), answer questions (within two hours), and arrive far repair calls (within 30 minutes of estimated time). In addition to standard setting that speci-fies levels or response, companies must have well-staffed customer service depart-ments. Responsiveness perceptions diminish when customers wait to get through to the company by telephone, are put on hold, or are dumped into a phrase mail system.
Table 9-1 shows a sampling of the hard standards that have been established by service companies. This list is a small subset of all of these standards because we in-clude only those that customer defined-based an customers requirements and perspectives. Because. Federal Express has a relatively simple and standard set of services, it can translate mast of its customers requirements into hard standards and measures. Nat all standards, however, are as easily quantifiable as these at FedEx. Soft Customer Defined Standards All customer priorities cannot be counted, timed, or observed through audits. As Al-bert Einstein once said, Nat everything that counts can be counted, and not every-thing that can be counted, counts. Far example, understanding and knowing the customer is not a customer priority far, which a standard that counts, times, or observes employees can adequately capture. In contrast to hard measures, soft measures are those that must be documented using perceptual measures. We call the second category of customers-defined standards soft standards and measures because they are opinion-based measures that cannot be observed and must be collected by talking to customers, employees, or others. Soft standards provide direction, guidance. Table 9-1 Examples Of Hard Customer-defined Standards
Honeywell (Home and Building Division) Southern Pacific Federal Express Dun and Bradstreet Information Services University Microfilms Great Plains Software Canadian Imperial Bank of Commerce Aetna/U.S. Healthcare Granite Rock Lens crafters (optical retailer) Texas Instruments (Defense Systems Electronics Group) Company Fast turnaround on company investigations Fast processing of theses Rapid response to technical problems Accessibility Fast response; regular contact with customers Getting the concrete when the crew is ready Quick turnaround on glasses Compliance with commitments; more personal contact Fast response; on-time delivery; order accuracy 19 key attributes On-time delivery Orders- entered same day received; orders delivered when promised; order correct Operational measures to correspond with the 19 key attributes Number of packages right day late; Number of packages wrong day late; Number of missed pickups 36-hour response time (previous standard: 7 days) Theses processed in 60 days (previous average, 150 days) Response time guaranteed at 1 or 3 hours (or get $25 coupon) 5-minute early opening and late closing 20-second average call answering; 95% same day problem resolution; 2 -hour response time for requests; proactive service calls 3 times per year On- time delivery Glasses in 1 hour On- time delivery; product compliance to requirements; number of customer visits Customer-defined standards
Customer priorities
back to employees in ways to achieve customer satisfaction and can be quantified by measuring customer preconceptions and beliefs. These are especially important for person-to-person interactions such as the selling process and the delivery process for professional services. Table 9-2 shows examples of soft customer-defined standards. Mini Maid Services, a firm that franchises home and office janitorial services, suc-cessfully built a business by developing a repertoire of 22 customer defined soft stan-dards for daily cleaning chores; The company sends out crews of four who perform these 22 tasks in an average time of 55 minutes for a
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fee ranging from approximately $45 to $55. Follow-up trailer calls survey customer perceptions of the effectiveness of these soft standards. The Ritz-Carlton, inner of a Malcolm Baldrige Award, uses a set of; Gold Standards to drive the service performance it wants. The soft standards established are in-cluded in Table 9-2. The differences between hard and soft standards are illustrated in Exhibit 9-1 using the customer care standards developed at Ford Motor Company. One- Time Fixes When customer research is undertaken to find out what aspects of service need to be changed, requirements can sometimes be met using one-time fixes. One-time fixes are technology, policy, or procedure changes that, when instituted, address customer requirements (see Exhibit 9-2). Performance standards do not typically need to be developed for these dissatisfies because the one-time change in technology, policy, or procedures accomplishes the desired change. Table 9-2 Examples Of Soft Customer-defined Standards
Company General Electric Customer priorities Interpersonal skills of operators: Tone of voice Problem solving Summarizing actions Closing Treat me with respect Customer-defined standards Taking ownership of the call; following through with promises made; being courteous and knowledgeable; understanding the customer's question or request "Gold Standards" Uniforms are to be immaculate Wear proper and safe footwear Wear name tag Adhere to grooming standards Notify supervisor immediately of hazards Use proper telephone etiquette. Ask the caller, "May I place you on hold?" Do not screen calls Eliminate call transfers where possible Human voice on the line when customers report problems Tone of voice; other tasks not done (arranging gift boxes) while on the telephone with customers Customers not put on hold or transferred; ability to answer questions; courteous and professional; caring and concern Resolve problem at first contact (no transfers, other calls, or multiple contacts); communicate arid give adequate instructions; take all the time necessary. Listen; do everything possible to help; 'be appropriately reassuring (open and honest) Put card member at ease_ be patient in explaining billing process; display sincere interest in helping card member; listen attentively; address card member by name; thank card member at end of call
To illustrate policy and procedure changes in an international context, consider Londons Central Middlesex Hospital. At one time almost everything about Central Middlesex, from the architectural design of the buildings to staff processes and activities, centered on the inpatient aspects of the business, despite the fact that 90 per-cent of the hospitals patients were outpatients. When the hospital became a self governing trust under the British governments National Health Service reforms, plans were announced to convert it to a patientfocused hospital. The most important one-time fix was to reverse the emphasis from inpatients to outpatients. With the recogni-tion for this change, the hospital was reorganized around 14 ambulatory centers such as rehabilitation services and a family care center that combined obstetrics, pediatrics, and gynecology. Examples of successful one-time fixes include Marriott Hotels express checkout and-cheek-in, Hertz and other rental car companies express check-in, GM Saturns one-price policy for automobiles, and Granite Rocks 24-hour express service. In each of these examples, customer had expressed a desire to be served in ways different from the past. Marriotts customers had clearly Ti1dicatecfthelr frustration at waiting in long checkout lines. Saturn customers disliked haggling over car prices in dealer showrooms. And Granite Rock, a Malcolm Baldrige National Quality Award winner with a commodity product, had customers who desired 24-hour availability of ground rock from its quarry.
Ritz-Carlton
Exhibit 9-1 Hard and Soft Standards at Ford Motor Company

As we discuss in this chapter, there are two types of customerdefined service standards. Hard standards and measures are operational measures that can be counted, timed, or observed through audits. The other category, Soft standards, are option based measures that cannot be obtained by counting or timing but instead must be asked of the customer. A real example of the difference between, hard and soft standards might help distinguish between them. We use Ford Motor Companys Customer Care standards for service at their dealerships. Marketing research involving 2,400 customers asked them about spe-cific expectations for automobile sales and service; the fol-lowing seven specific service standards were established as most critical to customers: 1. Appointment available within one day of customers requested service day. 2. Write-up begins within four minutes or less. 3. Service needs are courteously identified, accurately recorded on repair order, and verified with customer. 4. Vehicle serviced right on the first visit. 5. Service statuses provided within one minute of inquiry. 6. Vehicle ready at agreed-upon time. 7. Thorough explanation given of work done, coverage, and charges.
Nationwide Insurance L. L. Bean
Responsiveness Calming human voice; minimize customer anxiety. Telephone responsiveness Resolution of problems Treatment Courtesy of representative
BellSouth American Express
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Hard Standards and Measures Several of these standards fall into the category of hard standards-,-they can be, timed, or observed through audits. Standards 2 and 5, for example, could be timed by an employee in the service establishment. The hard measure could be either (1) the frequency or percentage of times that the standards time periods are met or (2) the av-erage times themselves (e.g., average time that write-ups begin). Other standards could be counted or audited, such as standards 1,4, and 6. The service clerk who answers the telephone could record the number of times that appoint-ments were available within one day of the customer re-quest. The number of repeat visits could be counted to measure standard 4. And the number of vehicles ready at the agreed-upon time could be tallied as customers come in to pick up their cars. Soft Standards and Measures As Albert Einstein once said, Not everything that counts can be counted, and not everything that can be counted, counts. Consider standards 3 and 7 and note how they dif-fer from the ones we have just discussed. These represent desired behaviors that are soft and therefore cannot be counted or timed. Standard 7 requires a different type of measure-the customers perception or opinion about whether this behavior was performed appropriately. It is not that soft standards cannot be measured; instead, they must be measured in different ways. Soft standards provide direction, guidance, and feed-back to employees in ways to achieve customer satisfac-tion and can be quantified by measuring customer percep-tions and beliefs. These are especially important for person-to-person interactions such as the selling process and the delivery process for professional services. Where most companies in their industries decided for various reasons not to ad-dress1hese customer requirements, Marriott, Saturn, and Granite Rock each re-sponded with one-time fixes that virtually revolutionized the service quality delivered by their companies. Marriott used technology to create Express Checkout,! a one-time fix that also resulted in productivity improvements and cost reductions. The company also pioneered a similar one-time fix for hotel Express Check-In, again in response to customers expressed desires. Saturn countered industry tradition and offered cus-tomers a one-price policy that eliminated the haggling characteristics of automobile dealerships: And Granite Rock created an ATM like system for 24-hourcustomer access to rock ground to the 14 most popular consistencies. The company created its own Granite Express, Card that allowed customers to enter, select, and receive their supplies at any time of the day or night.
whether it should change its age- old process of multiple waiting lines into a serpentine -style single line. Both Wendys and Burger King already use the single-line system, as do airlines, banks, many ho-tels, and even the U.S. Postal Service. McDonalds re-search was conducted because the company was not cer-tain that customers were served best by a single line. Lets visit the single-versus-multiple-line question to see which creates the better standard for customer service. The Single Line Is Better Fairness speed, and lack of stress and frustration top the reason many companies and behavioral. researchers favor a single line. Consider the following scenario: You fling open the door to a McDonalds, size up how fast the various lines are moving, trying to avoid any mega orders in the works. When you pick a line, you keep glancing from side to side to see-if others are gaining on you. Inevitably, people who jump from line to line jostle one another. These queue hoppers also sometimes-arrive at the register clueless about what they want to order. Multiple lines have been found to create tremendous stress on customers because they require effort to be sure the right line is chosen. How many times have you been frustrated in lines and wondered how it is that you always choose the slow cashier/ teller/order-taker? Multiple Lines Are Better Those who oppose a single line do so on three counts. First, some critics claim they are dehumanizing, Because [the] velvet ropes corral customers like cattle. 10 Second one line can appear to/be much longer than several short ones, a perception that is incorrect based on actual time measurements but is nevertheless sufficient to drive cus-tomers away in search of an establishment with a shorter appearing wait. Finally, many of them are difficult to use by the disabled. Experts claim that most customers prefer the single line over the multiple lines, but innovative and customer -focused firms are going further than just making that deci-sion. Some are managing customer perceptions in lines, giving them something to watch or read or otherwise focus on to get their minds off the waits. Others are removing lines altogether, as is the case with restaurants (and some doctors offices) that give customers pagers so that they can shop or go elsewhere until it is time for them to be served. Still others are letting customers know how long. the wait is. Digital signs in the lobby of First Chicago NED Corporation tell customers the anticipated length of their wait, an up-to-date electronic version of the signs at Walt Disney theme parks that let little customers know how many minutes until they ride Space Mountain. One-time fixes are often accomplished by hard technology. Hard technology can simplify and improve customer service, particularly when it frees company personnel by handling routine, repetitious tasks and transactions. Customer service employees can then spend more time on the personal and possibly more essential portions of the job. Some hard technology, in particular computer databases that contain information on individual needs and interests of customers, allows the company to standardize the essential elements of service
Exhibit 9-2 One-time Fixes and Waiting in Line

Few customers like to wait in line, and any of us measure the responsiveness and service of an organization by how long it takes us to get to the teller or the counter or our table in. a restaurant. Because customers so often wait so long it may surprise your to rise you to know that the Subject is a source of constant study and one-time fixes in service companies! Take McDonalds, for example. In the late 1990s, an experiment conducted in 70 McDonalds restau-rants in California tested
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delivery. Basic delivery standards can then be established and measured. Some types of hard technology useful in standard setting include information databases, automated transactions, and scheduling and delivery systems. Ef-fective use of information databases is illustrated in this example from Pizza Hut: Pizza Hut centralized and computerized its home delivery operations. Rather than having the separate tasks of order taking, baking, and delivery all in the same location, the company de-veloped a system that works more effectively for both the company and the customer. Op-erators in a customer service center (not a bakery) take requests for pizza. Working from a database that shows past orders, trained operators take an average of 17 seconds to verify di-rections to a callers home and enter his or her request. Operators then route the orders to the closest bake shops, which are strategically located throughout cities to ensure fast de-liveries. Cooks in the satellite bake shops prepare pizzas on instructions sent to bake shop printers from order-takers computers. Drivers aim to complete their deliveries within a half hour of a customers call, and usually succeed. One-time fixes also deal with the aspects of service that are affected by things other than human performance: rules and policies, operating hours, product quality, and price. An example of a one-time fix involving a policy change is that of allowing front-line employees to refund money to dissatisfied customers. An example of operating hour changes is one allowing retail establishments to be open on Sundays. Building blocks: The Service Encounter Sequence Customer-defined standards are established to define processes or human performance operationally to meet the expectations of customers; Performance requirements are rarely the same across all parts of a company; instead they are associated with particular service processes and encounters. Consider Figure9-2, a representation of AT&T General BusinessSyst6ms customer contact focuses, which decomposes the relationship between the customer and AT&T across the entire business. Except for the top branch, labeled Product (which reflects the tangible equipment the company sells), each of the business process branches represents a company process during which customers and the firm interact. The first customer-firm interaction point is sale followed by installation, repair, and billing. AT&T recognized that its cus-tomers requirements and priorities differed across these processes. Because of these differences, internal measurements chosen to drive behavior differ across the pro-cesses arid correspond to customers/priorities in each individual encounter. A customers overall service quality evaluation is the accumulation of evaluations of multiple service experiences. Service encounters, therefore, are the building blocks for service quality and the component piece needed to establish service standards in a company. In establishing standards we are concerned with service encounter quality, because we want to understand for each service encounter the specific requirements and priorities, of the customer. When we know these priorities we can focus on them the aspects of service encounters for which standards should be established. There-fore, one of the first steps In establishing customer-defined standards is to delineate the
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service encounter sequence. Identifying the sequence can be done by listing the sequential steps and activities that the customer experiences in receiving the service. Alternatively, service blueprints, can be used to identify the sequence by noting all of the customers activities across the top of the. blueprint Vertical lines from customer activities into the lower levels of the blueprint signal the points at which-service encounters Jake place. Standards that meet customer expectations can then be established. Addressing Customer Requirements as Specific Behaviors and Actions Setting a standard in broad conceptual terms, such as improve skil1s in the company, is ineffective because the standard is difficult to interpret, measure, and achieve. When a company collects data, it often captures customer requirements in very abstract terms. In general contact or field people often find that data are not diagnostic-they are too broad and general. Research neither tells the in specifically what is wrong and right in their customer relationships Q-or helps them understand what activities can be eliminated so that the most important actions can be accomplished. In most cases, field people need help translating the data into specific actions to deliver better customer service. Effective service standards are defined in very specific ways that enable employees to understand what they are being asked to deliver. At best, these standards are set and measured in terms of specific responses of human behaviors and actions, as illustrated by the following quote from an American Airlines executive: We have standards for almost every area of the operation, and we check them on a regular ba-sis We are constantly measuring how long it takes us to answer a reservations call, or process a customer in a ticket line, or get a plane-load of passengers on board the aircraft, or open the door of the airplane once it reaches its destination or get food on or get trash Off.
Global Feature
Should Service Standards be Universal? As service companies expand their offerings to interna-tional stages, they face a critical question about service de-livery: Do we provide the same level of service in other countries as we do in our home country? The answer to this question depends on the answers to several other questions. First, are customer expectations of service de-livery uniform across international locations, or do cultural influences lead to different service delivery expectations? Second, what is the performance of competing firms in the countries where expansion is to take place? Third, do per-sonnel and infrastructure constraints exist in other countries that prevent meeting service performance expecta-tions? While all of these questions are important, we discuss the answer to the first most fully because .it strongly influences the other two questions. Responsiveness Varies by Cultures It has been shown that customers from 9ifferent cultures have different tolerances for service responsiveness and timeliness. As we discussed in this chapter Spanish. and American customers have different expectations of the speed with which a check
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is brought to the table following a meal. While Americans consider bringing the check to the table quickly to be good service, Spanish customers are in-sulted-believing that the service establishment is rushing them out the door. Larry Crosby, a renowned marketing researcher who has focused on international customer expectations, has pro-vided research evidence of differences in international customer expectation that lead directly to implications for service standards. In his work on customer expectations of service perceptions across countries; he developed the ac-companying exhibit, which are helpful and revealing. Two of the exhibits, one for mail delivery (A) and one for a sup-pliers follow-through on requests (B), provide evidence of how differently customers view levels of responsiveness. In Italy, more than 70 percent of customer rate receiving a letter mail in their country within three days good, very good, or excellent. In contrast, in the United Kingdom or the Netherlands, more than 90 percent consider that level of responsiveness to be fair or poor. As business-to-business customers of suppliers (B), Italians consider 75 percent followthrough on requests to be quite good (nearly 50 per-cent rating that level good, very good, or excellent), while al-most 60 percent of Australians consider that same service level to be fair or poor. As you can see, there is a great dif-ference in tolerances for responsiveness across countries. Reliability Varies by Cultures Other cultural expectation differences discussed in earlier chapters have a major effect on the service standards set in different countries. Asians are more sensitive to reliabil-ity than many other cultural groups, making it important that service standards focus on this area and ensure that performance is as promised. This sensitivity is demon-strated in Exhibit C. The ratings of a concert pianist who makes one noticeable mistake in a one-hour solo perfor-mance are shown for people from the United State, Canada, Italy, and Japan. While 45 percent of Americans and 40 percent of Canadians still consider the performance to be good, very good, or excellent, only 30 percent of the Japanese rated it that highly in fact; around 65 percent devalued the performance to fair or poor based on one mistake! In this particular entertainment service, the ratings of Italians were similar to the ratings of the Japanese; how ever in many other services Europeans are more forgiving than Asians of reliability problems.
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LESSON 19: INTERNAL SERVICE AUDIT

Internal service audit
Steps in Conducting an Internal Customer Service Audit

Define Your Customer 1. List all the people or departments in the organization who need help from you or your department in any way. This may include specific departments, particu-lar staff people, the CEO, certain executives, or the board of directors, 2. Prioritize the names on the list, placing the people or departments that rely on you the most at the top. Identify Your Contribution 3. For each of these customers, specify the primary need you think they have to which you can con-tribute. Talk to your internal customers about what problems they are trying to solve and think about how you can help. Define Service Quality 4. What are the critical moments of truth that really de-fine the department-internal customer interface from your customers point of view? Map the process, and list the moments of truth. Source: Reprinted from Karl Albrecht, At Americas Service 5. For each major internal customer design a customer report card (based on customer input) and a set of evaluation criteria for your departments service package, as seen through the eyes of that customer. The criteria might include such dimensions as time- lines, reliability, and cost. Validate Your Criteria 6. Talk to your customers. Allow them to revise, as nec-essary, how you saw their needs and the criteria they used in assessing your performance. This dialogue itself can go a long way toward building internal service teamwork. Measure Service Quality 7. Evaluate your service (using internal measures and/or customer surveys) against the quality criteria you es-tablished in talking to your customers. See how you score. Identify opportunities for improvement. Set up a process and timetable for following through. Develop a Mission Statement Based on What You Contribute 8. Consider drafting a brief, meaningful service missions statement for your operation. Be certain to frame it in terms of the value you contribute, not what you do. For example, the mission of the HR department should not be to deliver training (the action); it would be to create competent people (the contribution).
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Provide Supportive Technology and Equipment: When employees dont have the right equipment, or their equipment fails them, they can be easily frustrated in their desire to deliver quality service. To do their jobs effectively and efficiently, service employees need the right equipment and technology. Our Technology Spotlight in this chapter highlights the role of front-office automation in providing technology support for employees Having the right technology and equipment can extend into strategies regarding workplace and workstation design. For example, in designing their corporate head-quarters offices, Scandinavian Airline Systems identified particular serviceoriented goals that it wished to achieve, among them teamwork and open and frequent com-munication among managers. An office environment was designed with open spaces, to encourage meetings, and internal windows in offices, to encourage frequent inter-actions. In this way the workspace facilitated the internal service orientation. Develop Service-Oriented Internal Processes To best support service personnel should be designed with customer value and customer satisfaction in mind. In other words, internal procedures must support quality service performance. To illustrate, at Banca di America e di Italia in Italy, retailbanking support systems allow tellers to service customers effectively and quickly, while at the same time pro-viding them with detailed information for cross-selling. The teller handles a check only twice, and because of technological support requires no human back-office assistance. This efficient system came about as a result of a decision to cut costs and simultaneously improve customer service. To achieve these goals, all retail banking transactions were broken down into 10 families (e.g., payments, deposits, with-drawals, etc.). Then each type of transaction was redesigned to make it more customer-service oriented and to eliminate unnecessary steps that created no value for the customer. For example, the checking deposit transaction previously required 64 ac-tivities, nine forms, and 14 accounts. After redesign it needed 25 activities, two forms, and two accounts. The-result for Bal has been increased efficiency, reduced costs, greater customer satisfaction, and profitable growth (revenue doubled in the five-year period following the changes) In many companies internal processes are driven by bureaucratic rules, tradition, cost efficiencies, or the needs of internal employees. Providing service- and customer- oriented internal processes can therefore imply a need for total redesign of systems, similar to the changes implemented by BAI. This kind of wholesale redesign of sys-tems and processes has become known as process reengineering. While developing serviceoriented internal processes through reengineering sounds
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sensible, it is proba-bly one of the most difficult strategies to implement, especially in organizations that are steeped in tradition. Retain the Best People An organization that hires the right people trains and develops them to deliver service quality, and provides the needed support must also work to retain the best-ones. Em-ployees over especially when the best service employees are the-ones leaving, can be very detrimental to customer satisfaction employee morale, and overall service quality. And, just as they do with customers some firms spend: a lot of time attracting employees but then tend to take them for granted (or even worse), causing these good employees to search for job alternatives. Where as all of the strategies noted in the in-ternal marketing wheel (Figure 11-5) will support the retention of the best employees, here we will focus on some strategies that are particularly aimed at this goal. Include *Employees in the Companys Vision: For employees to remain moti-vated and interested in sticking with the organization and supporting its goals, they need to share an understanding of the organizations vision. People who deliver service day in and day out need to understand how their work fits into the big picture of the organization and its goals. They will be motivated to some extent by their pay-checks and other benefits, but the best employees will be attracted away to other op-portunities if they arent committed to the vision of the organization. And they cant be committed to the vision if that vision is kept secret from them. What this means in practice is that the vision is communicated to employees frequently, and that it is com-municated by top managers, often by the CEO. Respected CEOs such as Herb Kelle-her of Southwest Airlines, Howard Schultz of Star bucks, Fred Smith of FedEx, Bill Marriott of Marriott International, and Michael Armstrong of AT&T are known for communicating their visions clearly and often to employees. When the vision and direction are clear and motivating, employees are more likely to remain with the company through the inevitable rough spots along the path to the vision. Treat Employees as Customers: If employees feel valued and their needs are taken care of, they are more likely to stay with the organization. An extreme example of this view is provided by this quotation from Hal Rosebush, CEO of Rosebush Travel: As I watched people, knocking themselves out; for Rosebush Travel, I suddenly realized that it was my responsibility to make their lives more pleasant. In simple terms; that meant giving people the right working environment, \the right tools, and the right leadership. It meant eliminating fear, frustration, bureaucracy, and politics. Of course, .it meant decent compensation and bonuses when the company did well but it also meant helping people develop as human beings. Many companies have adopted the idea that employees are also customers of the organization, and that basic marketing strategic can be directed at them. The prod-uct that the organization has to offer its employees is a job (with assorted benefits), and quality of work life. To determine whether the job and work-life needs of em-ployees are being met, organizations conduct periodic internal marketing research to assess employees
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satisfaction and needs: For example, within American Express Travel Related Services, the Travelers Check Group (TCG) had a goal of Becoming the Best Place to Work of by doing the following:
Treating employees as customers. Using employee input and a fact-based approach for decision
making in the de-sign and implementation of human resources policies, programs, and processes.
Measuring employee satisfaction and trying to continuously
improve the work place environment

Benchmarking and incorporating best practices.
TCG developed an integrated employee survey program that included assessment of employee satisfaction, an evaluation of how well them organization was doing in living up to its basic values, and an assessment from the viewpoint of its employees on how well the company was doing in progressing toward its quality goals. These surveys are combined with company wide internal work force profiles and work and family surveys to assess employee needs. On the basis of all of the research, a number of initiatives to benefit employees were launched, including an expanded employee assistance program child care resource and referral service; adoption assistance; health care and de-pendent care reimbursement plans; family leave; family sick days; flexible returns; sabbaticals improved part time employee benefits; flexible benefits; and workplace flexibility initiatives including job-sharing, flex place, and flextime scheduling. What American Express and many other companies are finding is that to ensure employee satisfaction, productivity, and retention they are getting more and more involved in the private lives and family support of their workers. In addition to basic internal research, organizations can apply other marketing strategies to the it management of employees. For example, segmentation of the em-ployee population is apparent in many of the flexible benefit plans and career path choices now available to employees. Because not all employees are homogeneous and their needs will change over time; employees will have different insurance, work- scheduling, and family needs. Organizations that are set up to meet the needs of spe-cific segments and to adjust as people proceed through their lives will benefit from increased employee loyalty. Advertising and other forms of communication directed at employees can also serve to increase their sense of value and enhance their commit-ment to theorganization.51 Measure and Reward Strong Service Performers If a company wants the strongest service performers to stay with the organization, it must reward and promote them. This may seem obvious, but often the reward systems in organizations are not set up to reward service excellence. Reward systems may value productivity, quantity, sales, or some other dimension that can potentially work against good service. Even those service workers who are intrinsically motivated to deliver high service quality will become discouraged at some point and start looking elsewhere if their efforts are not recognized and rewarded. Alternatively, they may stop providing high levels of service and simply sink to meet the service performance of the lowest common de-nominator.
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Reward systems need to be linked to the organizations vision and to outcomes that are truly important. For instance, if customer retention is viewed as a critical outcome, service behaviors that increase retention need to be recognized and rewarded. This is the case at Toronto-based Cadet Uniform Services, a uniform rental company. Cadet employs 35 delivery route drivers (called customer service representatives, or CSRs), 50 to 60 percent of whose pay is based on customer retention levels. Reductions in pay are made for every customer that is lost for controllable reasons. (Situations not within the control of the CSR include a business closing, bankruptcy, or nonpayment cancel-lation.) Another 28percent of CSR pay is based on direct customer satisfaction input obtained in face-to-face interviews conducted by a five-person team. Ninety-five per-cent of Cadets drivers are college graduates, and their annual pay far exceeds indus-try averages. In determining whether this large investment in employee rewards is worthwhile, the company can point to the following statistics: Turnover among employees is close to 0 percent customer retention (excluding customers who leave for uncontrollable reasons) is close to 99 percent, sales continue to grow, and for the past 18 years average compounded growth for the company has been 22 to 23 percent an-nually In companies where customer satisfaction in every service encounter is a goal, there is often a need, to adjust the criteria by which employee performance is judged. In some cases this means shifting from a total emphasis on productivity data and hard numbers to other means of assessment. At AT&Ts customer sales and service centers, part of the reward system for individual associates is based on customer satisfaction measured at the level of the employee. Ongoing true moments surveys are used, whereby customers are called and asked to assess the level of service they received from, the particular employee they interacted with over the phone. These measure-ments (multiple customers for each employee each quarter) are then integrated into the employees performance evaluation and rewarded. Such measurement systems are challenging to effectively implement. The measures must be appropriate, the sampling of customers performed fairly, and the employees must buy in to the validity of the re-sults. AT&T has been perfecting its process, with employee involvement, for many years. Frequently these new reward structures are very difficult for managers to accept be-cause they may not be linked to hard data and thus may appear more subjective. In fact, many companies are still struggling with this piece of the internal marketing puzzle, and many find it the most difficult of all. Reward systems are usually well entrenched, and employees have learned over time how they need to perform within the old structures. Change is difficult both; for. the managers who may have created and still may believe in the old systems and for employees who are not sure what they need to do to succeed under the new rules. In developing new systems and structures to recognize customer focus and cus-tomer satisfaction, organizations have turned to a variety of types of rewards. Tradi-tional approaches such as higher pay, promotions and one-time monetary awards or prizes can be linked to service performance; In some
organizations employees are encouraged to recognize each other by personally giving a peer award to an employee they believe has excelled in providing service to the customer. Other type of rewards include special organizational and team celebrations for achieving improved customer satisfaction or for attaining customer retention goals. In most service organizations it is not only the major accomplishments but the daily perseverance and attention to de-tail that moves the organization forward, so recognition of the small wins: is also im-portant. Research suggests that when rewards are perceived as consistent with provid-ing service and quality to customers, front line the employees exercise less role stress and are more satisfied in their jobs.53 They want to provided good, service, and when they are rewarded for doing so it employees are happy. In too many organizations, how-ever, reward and incentives systems are still not matched with customer satisfaction and loyalty goals Service Culture: Most of this chapter Has focused on strategies for enabling customer -oriented service delivery. Looking at the bigger picture, beyond the specifies strategies, it is apparent that the behavior of employees in an organization will bi heavily influenced by the culture of the organization or the pervasive norms and values that shape individual and group behavior. Corporate culture has been defined as the pattern of shared values and beliefs that given the members of an organization meaning, and provide them with the rules for behavior in the organization. Culture has been defined more informally as what we do around here, or organizational glue, or central themes. Piglet in Winnie the Pooh might refer to culture as one of those things we sense in an underneath sort: of way to understand at a personal level what cooperate culture- is, think of different places youve worked or organizations you have been member of such as churches fraternities, schools, or associations. Your behavior and the behav-iors of others were no doubt influenced by the underlying values, norms and culture of the organization. Even when you first interview for a new job, you cart begin to get a sense of the culture through talking to a number of employees and 6bserving be-havior. Once on the job your formal training as well as informal observation of behavior will work together to give you a better picture of the organization culture. Experts have suggested that a customer-oriented, serviceoriented organization will have at its heart a service culture defined as a culture where dh. Appreciation for good service exists, and where giving good service to internal as will-as well as ultimate, extremely customers is considered a natural way of life and one of the most important norms by everyorze.56 This is a very rich definition with many implications for employee behaviors. First, a service culture exists if there is an appreciation for good service. This doesnt mean that the company has an advertising campaign that stresses the importance of service, but that in that underneath sort of way people know that good service is appreciated and valued. A second important point in. this definition is that good service is given to internal as well as external customers. It is not enough to promise excellent service to final customers; all people within the organization deserve the same kind of service. Finally, in a
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service culture good service is a way of life and it comes naturally because it is an important norm of the organization.
Global Feature
How well does a Company Service Culture Travel? While there are tremendous opportunities for growth in international markets, many companies find significant chal-lenges when they attempt to transport their services other countries. As you have learned in this chapter, services depend on people, are often delivered by people, and involve the interaction between employees and cus-tomers. Differences in values, norms of behavior, language, and even the definition of service become evident quickly and have implications for training, hiring, and incentives that can ultimately affect the success of the international expansion: Companies with strong service cultures are faced with the question of whether to try to replicate their culture and values in other countries or to adapt signifi-cantly. A few examples illustrate different approaches. McDonalds Approach McDonalds has been very successful in its international expansion. In Some ways it has remained very American in everything it does-people around the world want an American experience when they go to McDonalds. How-ever, the company is sensitive to cultural differences as well. This subtle blending of the McDonalds way with adoptions to cultural nuances has resulted in great suc-cess. One way that McDonalds maintains its standards is through its Hamburger University, which is required train-ing for all McDonalds;-employees worldwide before they can become managers. Each year approximately 3,000 employees from nearly 100 countries enroll and attend the Advanced Operations Course at HU, located in Oak Brook, Illinois. The, curriculum is 80 percent, devoted to communications and human-relations skills. The result is that all managers in all countries have the same-ketchup in their veins, and the restaurants basic- human resources and operating philosophies remain fairly stable from oper-ation to operation. Certain adaptations in decor, menu, and other areas of cultural differences are then allowed (see the Global Feature in Chapter 10 for some specific example UPSs Experience UPS has a strong culture built on employee productivity, highly standardized service delivery processes, and struc-tured training. Their brown trucks and uniforms are in-stantly . Recognizable in the United States As they ex-panded into countries-across Europe, UPS was surprised by some of the challenges of managing a global workforce. Some .of the surprises they ran into: indignation in France, when drivers were told they couldnt have wine with lunch; protests in Britain, when drivers dogs were banned from delivery trucks; and dismay in Spain, when it was found the brown UPS trucks resembled the local hearses. Disney in Europe When Disney first expanded into Europe by opening Eu-ro Disney near Paris, they also faced challenges and sur-prises. The highly structured, scripted, and customer oriented approach that Disney used in the United States was not easily duplicated with
European employees. In particular, the smiling, friendly, always -customer-focused behaviors of Disneys U.S. workforce did not suit the expe-rience and values of young French employees. In attempt-ing to transport the Disney culture and experience to Eu-rope, the company was confronted - with clashing values and norms of behavior in the workplace that made the expansion difficult. Customers also needed to be trained in the Disney way-not all cultures are comfortable with wait-ing in long lines, for example. And not all cultures treat their children in the same ways. For example, in the United States, families will spend lots of money at Disneyland on food, toys, and other things that their children must have. Some European cultures view this behavior as highly indulgent, so families will visit the park without buying much be-yond the ticket for admission. A U.S. Law Firm Goes to the United Kingdom The professions such- as law and medicine have well- established and quite unique practices across cultures. Pay rates, work styles, and business models can be quite ,different. So what happens when a-law firm seeks to ex-pand its services to another country? Unlike many- U.S law firms that tend to populate their international offices with American lawyers, Weil, Goshal and Manages, a New York firm, opened its offices in London by hiring primarily British solicitors Who wouldfunction as a firm with in a firm. One - of the biggest challenges they faced was how to blend the very different American and British legal cultures. First, the lawyers at Weil; Gotshal and -Manges tend to be worka-holics-commonly billing 2,500 hour a year while in Lon-don a partner would bill a respectable 1,500 hours. Pay dif-ferences were also obvious$650,OOO on average for London partners: $900,000 for Americans. Conflict, rather than synergy, sometimes resulted from the deeply rooted cultural differences. Despite the challenges, Weil, Gotshal says that its London operation broke even in 1998, its sec-ond year of operations, and should produce a profit in 1999. Developing a Service Culture The last point just made suggests why a service culture cannot be developed quickly and why there is no magic easy answer for how to sustain a service culture The hu-man resource and internal marketing practices illustrated by the strategies wheel in Figure 11-5 will support the development of a service culture over time. If, however an organization has-a culture that is rooted in government regulation-, product-, or operationsoriented traditions, no single strategy will change it overnight. Hundreds of little (but significant) things, not just one or two big things, are required to build and sustain a service culture. 57 Successful companies such as AT&T, Yellow Freight Sys-tems, IBM Global Services, and Xerox, to name just a few examples, have all found that it takes years of consistent, concerted effort to build a service culture and to shift the organization from its old patterns to new ways of doing business. Even for companies such as FedEx, Charles Schwab, Disney, and the Ritz-Carlton that started out with a strong service and customer focus, sustaining their established service cultures ,still takes constant attention to hundreds to details.
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Supporting a Service Culture As you might imagine, transporting a service culture through international business expansion is also very challenging. While there are, tremendous opportunities in the global marketplace, there are many legal, cultural, and language barriers that become particularly evident for services that depend on human interaction. Our Global Feature highlights some of the issues and experiences of several companies as they attempt to transport their service cultures.
Summary
Because many services are delivered by people to people in real time, closing the service performance gap is heavily dependent on human resource strategies. Often service employees are the service, and in all cases they represent the organizations in customers eyes. They affect service quality perceptions to a large degree through their influence on the five dimensions of service quality: reliability, responsiveness, empa-thy, assurance, and tangibles. It is essential to match what the customer wants and needs with service employees abilities to deliver. In this chapter we focused on service employees to provide understanding of the critical nature of their roles and appreciation of the inherent stresses and conflicts they face. You learned that front-line service jobs demand significant investments of emo-tional labor and that employees confront a variety of onthe-job conflicts. Sometimes service employees are personally uncomfortable with the roles they are asked to play; other times the requirements of the organization may conflict with client expectations and employees must resolve the dilemma on the spot. Sometimes there are conflicting needs among customers who are being served in turn (e.g., a bank teller line), or among customers being served simultaneously (e.g., a college classroom). At other times a front-line employee may be faced with a decision regarding satisfying a cus-tomer versus meeting productivity targets (e.g., an HMO physician who is required to see a certain number of patients in a defined period of time).
Tutorials
In light of above, Perform an internal service audit of any hospital, Compare the customer defined standards of Moolchand hospital vis--vis Apollo hospital.
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LESSON 20: MARKET RESEARCH PROCESS
UNIT IV ORGANISING SERVICES MARKETING

Market research applications for service marketing Market research process Gathering and storing information Marketing information system
To minimize risk (when plans are being made) To monitor performance (after implementation) The research process and the methods of conducting research are the same for service providers and manufacturers and retailers of physical products. Exam-ples of service industries using marketing research are widespread, as the following examples show: The management of Eurostar, Britains new high-speed London-Paris channel tunnel train service, conducted extensive research to establish what customers expected from the service and which customers to target. Research will be ongoing, with user profiling and satisfaction monitoring playing a key part. Other special techniques, such as the use of mystery shoppers, will also figure in future research, to ensure quality standards are met. First Direct, the Midland Banks telephone banking offshoot, undertook research into the brand, its image and what values it should represent to its target market, prior to its launch and as ongoing research. The Co-operative Bank used research to monitor the soundness of its strategy when it ventured to re-position its image not through innovative new services but by reinforcing its ethical stance. It established that its unwritten policies of ethical trading and investment were core principles that customers valued, and designed new advertising programmes to reflect this. Subsequent research was undertaken among new customers who responded to the adver-tising which reinforced the strategy; in many cases the banks ethical positioning was given as the main reason for opening an account. As can be seen, the reasons for using marketing research vary as information needs vary from organisation to organisation. In most cases, however, the marketing research process will be similar.
Introduction
At the core of the marketing concept is the need for organisations to be able to understand and anticipate their customers needs and wants. This close knowl-edge of customers can only be found through marketing research, in its various forms. At the simplest level, organisations should endeavour to keep track of its existing customers; who they are, where they come from, their buying patterns and so on. New organisations, or organisations seeking to enter new markets, will need to establish information about the market; its size and structure, current and future demand and the major competitors. There are many tools which can be used in marketing research to enable service providers to get closer to their customers and to understand the markets in which they seek to operate. The main approaches and methods will be looked at in this chapter. Marketing information may come from both internal and external sources. Many valuable sources of information are frequently to be found within organisations. Information, however, will not provide an effective solution to marketing management problems unless it is timely, accurate and available. Systematic handling of information within organisations can ensure that this is the case. Marketing information systems can be implemented within organisations to ensure that information is handled systematically. The marketing information system brings together information from many sources, both internal and exter-nal, and can be a valuable decision making tool for managers. It formalises information-gathering processes and brings together information and intelli-gence from employees, the organizations own records and external and new sources of data. The requirements for successful marketing information systems are also explored in this chapter.
The Marketing Research Process

The marketing research process can be broken down into the following stages: Problem definition/establishment of research objectives Secondary data examination (internal and external) Collection of primary data Data analysis Recommendations Implementation of findings Before discussing each of these stages in more detail, there are some points worth noting regarding the different types of research (and data produced) and the associated terminology: Primary or secondary data Secondary data is data already published in some form.
Marketing Research Applications for Services Marketing

Marketing research is used in all kinds of marketing situations. A basic definition of marketing research can be set down as: A systematic approach to identifying information needs, collecting and analyzing information to meet those needs utilizing the most appropriate methods. Although there are an infinite number of reasons for using marketing research, and a wide variety of research methods, it can be described as having two fundamental aims:
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Primary data is new data collected first hand in response to a particular problem or information need. Qualitative or quantitative data Data may be qualitative or quantitative. Qualitative data explores ideas, feelings and attitudes. It is concerned with answering questions such as why do they buy? Qualitative research may be undertaken to provide the basis for designing quantitative research. Quantitative research is concerned with how much and how many. Typically it involves larger scale research than qualitative research. Statistical methods are used to analyze results. In house or buy in Marketing research may be undertaken by the organisation itself, or bought in as a specialist service from outside. Alternatively, parts of the research, such as the fieldwork, may be done by outside specialists and the rest carried out in house. Customized or off the peg Specialist marketing research organisations generally offer two types of research. Customized research is designed and carried out in response to the needs of a particular organisation (or possibly more than one) which commissions the research. Off the peg research is designed by the research organisation to cover areas likely to be useful for businesses in particular sectors, then offered as a fairly standard package to any interested organisations. Population or sample The population or universe is the entire group which is to be studied. It may be the whole population of a country or region but may also be a specific population relating to the business area, e.g. all rail users or all existing customers of an organisation, or relating to a particular market segment, e.g. all higher education students in the UK, or all employed males under fifty. The sample is taken from the population to represent it as a whole. There are various methods of selecting samples, selected usually depending on the degree of accuracy required. At each stage in the research process, it is likely that decisions will have to be made about each of the aspects described above. Careful research design and selection of the most relevant types of information and sources underpins useful, cost-effective marketing research programmes. The following discussion of the stages in the research process will not always mirror exactly how service or-ganisations design and conduct marketing research, but aims to illustrate good practice and draw attention to important issues. Problem Definition/establishment of Research Objectives Defining the research problem or information need is sometimes a relatively simple task or may be highly complex. The issue needs to be set out quite clearly for the research objectives to be established. Examples of the problems faced by marketing managers might be as follows: What is the potential market for this new service? Why are sales of a particular service declining? How successful is our latest advertising campaign?
How do our customers rate us against our main competitors? When the problem has been identified clear research objectives should be drawn up. These should be quantifiable in some way and lay down the parameters of the research task; one of the main reasons for research not being carried out in the most cost-effective manner is because the brief is too broad. Secondary Data Examination (Internal and External) Examination of all relevant sources of secondary data must be undertaken before deciding to collect primary data for two reasons: Duplication: The information may already be available, so primary research may not be necessary Cost: The cost of generating primary-data is very high, so any possibility of acquiring data from already published sources should not be ruled out. It is usual to start by looking at internal sources of secondary data as these are likely to be most readily accessible. Internal sources of data include: Company accounts Sales reports Customer database and prospect files Previously conducted marketing research reports Competitor information held by the organisation Trade journals and other publications subscribed to. People are also very important sources of internal information. A great deal of market intelligence is often stored in the minds of sales personnel, for example. The marketing information system should be a means of ensuring that all information is fed back into the system, via sales report forms and other means to ensure it is readily available. Internal sources of data will probably not solve the information problem, but should be examined thoroughly to establish how much relevant information there is before looking to outside sources. External sources of data range from free or very cheap information to expen-sive research reports and publications. Sources of secondary data include the following types: Government statistics: There is a vast array of governmentproduced data available in the UK covering economic, business and social trends. The official census is a prime example of the sort of research published. Market information produced by specialist organisations: Organisations such as Mintel and Key Note produce and sell regular reports of a general nature covering different consumer and business-to-business market sectors. They pro-vide an overview of the latest trends in the market and its size and structure, for example, and cover topics such as breakfast cereals alcoholic drinks, printed circuits and tourism in the UK. They also produce panel data and audits. These are examples of off the peg research which is designed to be of interest to many organisations, so is general in nature, but is specially designed and collected so is more detailed than other secondary sources. Panels of consumers are monitored over periods and their buying and consumption of certain types of goods (e.g.
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personal products or consumer durables) recorded and analyzed, with the results being made available for sale. Audits are similar but are generally based on retail sales records such as supermarkets, for example, which are then broken down, product by product. Information on companies: Specialist organisations compile data about or-ganisations in the form of directories, financial guides and clippings services. Examples of these include Dunn and Bradstreet (financial data), Kompass (trade directories) and McCarthy Information (clippings). Again, these can be bought or subscribed to on a regular basis. Information about advertising and media: Specialized information for adver-tisers is available from many sources; BRAD (British Rates and Data) lists all advertising media and their costs, the Advertisers Annual, with detailed compar-ison of advertising agencies and Benns Media Directory which also covers adver-tising media and services. Other secondary sources: Trade publications publish their own surveys from time to time, as do other organisations and scientific or academic bodies. Infor-mation about these sources is likely to be found in the trade press, or made available by professional bodies to their members. Collection of Primary Data When secondary sources of data have been exhaustively searched, any remaining information needs will need to be met through the generation of primary data. The primary data collection needs to be carefully planned and the following questions addressed: What data is needed? Qualitative or quantitative? Is it exploratory in nature or does it need to be conclusive? How will it be generated? What techniques are to be used? Who will collect/analyze the data? Internal personnel or specialist research company? Who is to be studied? (population or sample?) When is the data required by? How much will the study cost? Are the costs of undertaking the study justifiable in terms of the costs associated with the potential risk of going ahead without this research? The main methods of gathering primary data appropriate for services marketing are as follows: Survey: personal; postal; telephone Observation: human; mechanical Experimentation Often, more than one type of approach is needed in order to satisfy the data requirements. For example, personal in-depth interviews may be used in the preliminary stages to identify the key themes or issues which need to be ad-dressed in a large-scale postal survey, for example. A combination of experimen-tation and observation could be used. The following outlines the approaches to the various methods. Survey: The survey is one of the most commonly used methods in marketing research. It is especially useful where large-scale studies are to be carried out, and may be used to
obtain both qualitative and quantitative data. There are various tools for collecting survey data: Interview - may be unstructured or structured. Questionnaire - may be closed or open. Interviews Interviews may be conducted in person or by telephone. Structured interviews will generally involve the use of a questionnaire so that specific items of information are gathered, addressing set topics. Unstructured interviews or depth discussions may also be done in person or by telephone. Often they are dont with a group of respondents (a focus group) and the interviewers role is really that of facilitator - to allow the discussion to flow in an unstructured free way, but remaining close to the topic under inves-tigation. Unstructured interviews are often useful when the organisation really does not know what sort of information it is looking for. Focus groups using unstructured interview methods are exploratory in nature and may be used in a number of situation to generate qualitative data: Concept testing In concept testing, to introduce a new product or service concept to potential customers to obtain their ideas and reaction. Preliminary research As a preliminary stage in designing a largescale survey- the participants views are noted and form the basis of the questionnaire. For example, a university was about to upgrade its teaching accommodation and wanted to solicit input from all teaching staff. To establish what were the most important features and facilities from the staff point of view, focus group discus-sions were held. From these discussions, detailed lists of equipment and other priorities were drawn up for inclusion in the questionnaire, which was then circulated to all staff. The same approach can be used by all types of service organisations, initially discussing the ideas with a number of customers or members, then using the results to formulate a wider survey. Attitude research In attitude research, where the underlying feelings and attitudes are the focus of attention. Sometimes facilitators may be psychologists with ability to draw participants and encourage them to open up. Depth inter-views, on a oneto-one basis may also be used for this purpose. They can be done by telephone, but will usually be done in person as they can take a long time and depend on a relaxed, confidential atmosphere. Questionnaires There are two main types of questionnaires: Open questionnaires Closed questionnaires Open questionnaires Open questionnaires can also be used to elicit qualitative data. These are questionnaires where the questions do not have fixed answers but space is left for respondents to write their own ideas. They are difficult to administer for two reasons: Low response rates Difficult and time-consuming analysis
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They suffer from a very low response rate due to the time and effort involved on the part of the respondent in completing the questionnaire. They are also ex-tremely difficult to analyse as it can be horrendously difficult, not to say time-consuming, to attempt to categories the responses. One or two open questions are often used alongside closed questions, how-ever, to attract some comment and ideas, often at the end. This might be along the lines of please use the space below of give any comments or suggestions you may have as to how our service can be improved... Closed questionnaires Closed questionnaires are those where the questions are closed, i.e. they offer set responses, usually in the form of alternative choices to be ticked off or indicated in some way. This is the most widely used form of questionnaire and it can be administered in person, by telephone or by mail. It is suitable for very wide scale surveys. The researchers (or field workers) seen with c1ipQQards in the street or going from house to house are usually carrying out questionnaire-type surveys. Advances in technology mean that responses can be input directly into a computer, either at the interviewers desk, if conducting telephone surveys, or by means of a hand-held scanner by a field worker. Administering the questionnaire Whichever method is used, the questionnaire will be designed so that information can be easily analyzed and collated. The design of the questionnaire will also have to take into account the way in which it is to be administered. Mail questionnaires, to be completed by the respondent themselves, must be clear and easy to follow. Telephone surveys and street interviews will need to be fairly short. Interviews to be conducted in the respondents home or place of work can be much lengthier and more detailed, provided the respondent is willing to spend the time. Questionnaires can even be administered by electronic mail, if all the respon-dents use the same electronic mail (e-mail) network. A university information technology service wished to survey all its users, who all had e-mail addresses. A questionnaire was transmitted via the network and responses sent straight back. As new developments in communications technology continue to spread, both in the business and domestic environment, this type of direct contact with respondents may increase, thus enabling new survey methods to be introduced. Observation: Observation techniques may be used in a number of ways to show how people behave in particular circumstances. Retail traffic studies, for exam-ple, are set up to observe the flow of customers around the establishment. They may be carried out by human observers in the store, or, as is more likely, by analyzing video recordings from cameras placed at strategic points. They can be used to monitor which displays attract customers attention, which route cus-tomers take through the sales floor and so on, and are helpful in planning store layout and sitting special displays for maximum sales impact. Similar techniques are useful in service retail outlets such as banks and restaurants. Observation may be useful in situations where a questionnaire might be inappropriate such as monitoring very young childrens responses to toys or cats tastes in pet food. Watching
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how people serve themselves in self-service restau-rants or how they use vending machines, can be helpful in improving the design or efficiency. Observation can be carried out by humans (e.g. the mystery shopper, who observes the quality of the service) or by mechanical means, such as video. Other types of observation by mechanical means have been developed to monitor human reactions to various stimuli. The attraction of images used in advertise-ments, for example, can be measured by showing the images to potential cus-tomers and using technological methods to measure the amount by which their pupils dilate. Observation tends to be a very objective method of carrying out research but it has limitations in that it may show how people do things but not why they are motivated to act in that way. Experimentation: Experimentation takes various forms and can be a useful tool for predicting purchase behavior. It is based on traditional scientific experimen-tation methods where an experiment is conducted to test something against other factors. In clinical testing a group of patients may try a new drug while another group - the control group - is given standard treatment without the new drug. The results of the experiment can be found by comparing the results of the two groups. In marketing, experimentation is frequently used to test new products, such as food items, where respondents take part in taste tests. Other applications are equally appropriate for services marketing, however. Launching it in one region then comparing the results against another region where standard promotional activities have been taking place can test a new promotion. Measuring the difference in sales can indicate how successful the new campaign has been, and its potential for more widespread use. In test markets, experimentation can be used where a new product or service is tested with a particular marketing mix in a market area and a slightly different marketing mix in another area. The results of the tests can be examined and adjustments made before going on to a wider test or a full launch. When a new cleaning product was launched, in the test in one area the product was priced just two pence lower than in the other test region. Sales of the lower priced product were fifty per cent higher than sales levels at the higher price. This was extremely helpful in determining the correct marketing n1ix, prior to national launch. Once the primary data has been collected the data must be analyzed. Data Analysis Good research design is the key to facilitating data analysis. Many techniques are used and developments in computer technology have meant that it is now far easier to handle great volumes of data than ever before. Statistical techniques may be used to analyse quantitative data. The analysis may be undertaken by the organisation itself or by outside specialists such as marketing research firms or statisticians. Qualitative data may need very subtle analysis. Recorded discus-sions from focus groups or depth interviews may be analysed by psychologists, for example. Explanation of actual methods of statistical analysis is beyond the scope of this chapter but it is important
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to appreciate that the analysis stage is as important as generating the data - raw data, however much of it there is, will not help marketing managers to make decisions. Recommendations and Implementation of Findings It may be possible to draw conclusions from the results of the research and even to establish sound forecasts and predictions. It is up to the expertise of marketing management, however, to use the information effectively. To do this, it is necessary to go back to the research objectives. The following questions must be addressed: What was the specific purpose of this research? Are the results sufficient to meet our information needs? Can the problem be solved? Is more research required? Can plans be made with confidence? (risk reduction) Are existing plans on course and meeting targets? (monitoring) When these questions have been answered implementation of the research findings can take place. The research does not stop there, however. Marketing research should be ongoing in many ways and when specific research projects end, continuous monitoring programmes start. A feedback loop needs to be built in to the process to meet the new information needs which will arise out of the implementation of current findings.
Timely Accurate Accessible Available Information must satisfy all these requirements if the marketing manager is to remain well informed, be in a position to manage proactively and make sound forecasts and decisions. The sources of information may vary, as suggested. Company reports, accounting records and customer databases are useful records as are customer complaint records and sales figures. External data may be obtained by subscribing to specialist journals and market reports, for example, and competitor activity might be monitored by members of the marketing department. The amount and type of data required will be as variable as the possible range of sources of such data. Organisations need to ensure that it is handled systematically in order to ensure that it is continuously updated and available. This is where the marketing information system comes in.
The Marketing Information System

The marketing information system (MIS) can be defined as follows: A marketing information system is designed to meet the information needs of marketing management for effective decision making by developing proce-dures for people and computer systems which ensure such information is available at the right time and in the right format. This definition highlights the key aspects of the MIS - it must take place within the organisation, involving all those people and departments which will ulti-mately have something to contribute to marketing decisions and outcomes. The MIS cannot exist within a vacuum; as with marketing itself, its success is dependent on the input of all parts of the organisation - a managerial process which works towards corporate objectives. It should also incorporate informa-tion from outside the organisation, when the information will affect, or help, the organisation in its quest to satisfy these objectives. The MIS is made up of a number of components which feed in together to build up a bank of information which should be continuously updated. These components will cover the various sources of information needed. They can be broken down as follows: Internal information: As discussed in earlier sections, the internal information will come from reports and records within the company. It is essentially infor-mation about the organisation itself. Financial records, production reports and customer records will all be contained in this part of the system, or should be accessible to it. Existing customer databases should be contained within this system. Sometimes various functional or departmental reports are produced and handled as separate items within the various divisions of the organisation the task of this component of the MIS is to set down procedures and methods whereby such information can be assimilated to provide a cohesive overall picture. External information: External information is all the information concerning the macro-environment and particularly
Gathering and Storing Marketing Information

There are many ways of gathering marketing information, as the preceding section illustrates. Organisations need to identify what their ongoing information needs are and how they can be met. Typically marketing management will need information on the following: Level of sales Sales trends Market .size Market growth rates Pricing trends Competitor activity Promotion effectiveness Profitability by service division/product line Advertising effectiveness Technological developments in the field The range of information needed is unlimited and will depend on the organizations activities. It may be used in all kind of situations, including the following: Market measurement and analysis, Medium to long term forecasting Identification and profiling of target segments Factors influencing performance and success Calculating market share Assessing customer satisfaction levels The sources of such information will be varied and come from both within the organisation and from external sources. Essentially information must be:
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the competitive environment. Much of it will be obtained from outside sources such as trade journals, market research reports bought from specialist organisations and other sources of information about the industry sector. Sometimes this information can be generated inter-nally; indeed, much of this sort of market intelligence is obtained through sales staff and other front-line personnel who have contact with customers and other suppliers. The role of the MIS in this area is to ensure that specific mechanisms and procedures are put in place to harness all such information and feed it into the system. Marketing research All marketing research carried out by an organisation, for whatever purpose, contributes to its information needs and should be looked at in relation to the other information about the organisation and its markets. For this reason, it is important that all new and ongoing research also feeds into the MIS for it to be available quickly and effectively. Other components or aspects of the system Frequently organisations are liter-ally swamped with information of the kind described above and although the MIS might be working reasonably well, it can be difficult for managers to extract specific information variables required for decision making. To counteract this, and largely due to the introduction of powerful computer systems on a wide-spread basis, new systems have been developed to manage data more effectively. Often based on sophisticated computer modeling techniques these systems can use data to prepare projections and forecasts, and help managers decision making by producing what if? scenarios (e.g. What is the likely impact on sales of a ten per cent price reduction? What is likely to happen to our market share if competitor A enters this market sector?). Marketing decision support systems These systems are generally called mar-keting decision support systems (MOSS) and can be bought as computing packages or custom, designed. They are traditionally large and very expensive and therefore mainly suited to larger organisations although new personal computer technology has meant that smaller, cheaper systems are now available on a more widespread basis. To enable the MIS to operate correctly, the information entered into it must itself be: timely accurate cost effective easy to analyse easy to assimilate This can be achieved by ensuring that there is a standardized reporting system within the organisation, which is properly understood and implemented by management and personnel in all areas. A properly coordinated system can yield the following benefits: A fast response to changes or problems within the marketing environment. Increased accuracy (in forecasting, targeting etc.).
More timely and effective reports. Integration of marketing into the organisation. Prevention of information being suppressed by individuals within the organisation. Computerization has had a massive impact on the volume and type of data stored by organisations. It has also revolutionized marketing information systems. However it should be remembered that it is not the volume of information processed, nor the speed by which the computer can process it which counts; it is the utilization of information and the processes which ensure it is fed into the MIS which are key factors for success. Computerization has also led to the development of analytical systems of higher levels of sophistication than ever before, and dependency on such systems has increased dramatically. However, the system will only be as good as the manager who feeds information into it, and interprets decision-model processes and results. The MOSS cannot act on its own initiative, nor provide a substitute for real management thinking processes. The basic design of the MIS which allows for smooth interchanges of infor-mation within the organisation coupled with responsive and responsible inter-action between functional managers and all staff is more important than expenditure on advanced computer systems. A tightly run formal system which has marketing as its focus, but which involves the whole organisation, is critical.
Summary
Successful marketing is dependent on knowing the consumer and understanding the market. This is equally true for commercial organisations and not-for-profit organisations who need to know and understand their users, donors, sponsors or voters. Marketing research is used in all kinds of marketing situations and has two main purposes: To minimize risk when plans are being made To monitor performance (after implementation) The marketing research process can be broken down into a number of stages: Problem definition/establishment of research objectives Secondary data examination (internal and external) Collection of primary data Data analysis Recommendations Implementation of findings Once information has been gathered and analysed, marketing management need to ensure that it can be accessed and utilized for marketing decision making. Information should always be: timely accurate accessible available
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Tutorials
In light of above, Discuss the Market research Process which ICICI bank must have taken , while entering into banking sector.
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LESSON 21: MARKETING PLANNING FOR SERVICES

Importance of Marketing planning for services Marketing audit Marketing planning process Roles and responsibilities
Many marketing textbooks explore the marketing audit in some depth, and definitions and descriptions of the audit process may vary. The following con-siderations and practical guidelines are useful, however, for service or-ganisations generally. The marketing audit has the following distinctive characteristics: Breadth of focus: The marketing audit is broad in nature, reflecting the broad role of marketing within the organisation. Objectivity: It should be conducted by someone who is independent of the organisation under scrutiny, for reasons of objectivity. Systematic: It should be carried out systematically in an ordered and precise way. Regular: The audit needs to be undertaken periodically, not carried out urgently in response to a crisis or sudden downturn in the companys fortunes. The audit is generally performed in three stages: the scope and approach are. agreed, the analysis is carried out and the resulting information reported back to management. The analysis stage is likely to be the most time-consuming as there will be a great deal of information to be gathered and scrutinized, and this can only be carried out effectively with the cooperation of all involved parties. The information should be presented in stages as the audit takes place, so the preliminary findings and issues emerging can be given prompt attention. As the report is finally completed, it is important that the organisation has decided on a plan of action for following up the findings and handling any problems or weaknesses uncovered. The marketing audit usually consists of several audits in fact, centred around the following main components: Marketing environment Marketing strategy Marketing organisation Marketing systems Marketing productivity Marketing function Some or all of these components may be investigated within the marketing audit (together with additional components relevant to a particular organisation or its Marketing Productivity A complete marketing audit will include a comprehensive examination of finan-cial information to determine levels of profitability and costs. Marketing pro-grammes need to be costeffective and measures should be established as far as possible to identify how marketing costs break down and which expenditure brings the highest returns. This is not always
Introduction
Whilst there appears to be general agreement amongst both marketing academics and practitioners that marketing planning is critical to the long-term success of the organisation, research has consistently revealed that the vast majority of organisations do not have established systems in place for marketing planning and programme implementation. This seems to be due to a number of causes; perhaps the most likely being management weakness in the area of planning coupled with a lack of line management support and inadequate organisation structures. Sometimes marketing planning is carried out, but on a piecemeal short-term basis. Managers undertake an annual planning exercise for marketing but con-strain their activities to reactive programmes which are economically viable in response to market changes. An in-depth look at the organizations marketing policies, strategies and structures is what may actually be required in order to do planning properly, rather than create purely short-term measures. This is equally true for both service organisations and companies in other sectors, and is of increasing importance in non-traditional marketing organisations such as charities and public bodies. The preceding chapter discussed strategic planning and the marketing man-agement process, from the corporate mission and environmental analysis through objectives setting and marketing management tasks. This chapter builds on this with a practical review of marketing planning and the- various stages involved in implementing and monitoring successful programmes. The market-ing audit is also covered in some detail as a practical management tool for evaluating marketing practice within the organisation as a precursor to actual planning activity. This can be particularly helpful for organisations new to marketing, such as those in the public and not-for-profit sectors.
The Marketing Audit

Rather like financial audits, the marketing audit should be carried out periodi-cally to check on current practice and evaluate systems and procedures. A marketing audit can be defined as follows: A marketing audit is an independent, comprehensive evaluation of the organizations marketing environment, objectives, strategies and activities, carried out systematically in order to pinpoint difficulties, problems and opportunities and make recommendations for improved performance.
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possible with some marketing activities where the results can be quite intangible (advertising designed to boost the organizations image, for example) and it is not easy to say what the real impact on sales and profit is. Efforts should be made, however, to ensure that marketing costs analysis is undertaken accurately and routinely within marketing programmes. The Marketing Function In this stage of the audit, attention is turned to specific functional areas of marketing. Advertising programmes, for example, may be set up in a very loosely controlled way, or there may be weaknesses within the sales force which need investigation. The audit may have revealed potential problems in one or more functional areas within marketing and a decision can be made whether to undertake functional audits and, if so, how many areas to audit in this way. Marketing Effectiveness The marketing audit can perform more than one function. Its key aim is to analyse the organizations overa1l9marketing effectiveness. It can also have an educational role, creating greater awareness of what constitutes effective marketing among managers throughout the organisation. In the service sector, many organisations are becoming more marketing driven, especially in the not-for-profit and public sectors, for example~ In organisations where there has previously been no formal marketing activity a marketing audit can be used to highlight what activity should be undertaken and to what extent a marketing orientation exists. The following checklist gives suggestions for formulating approaches to the audit: Macro-environmental Issues Is government activity likely to affect the organisation through new-legislation, tax regulations? . What legal requirements is the service subject to? What effects are inflation/recession/interest rates/trends in consumer spending likely to have on the organizations activities? Are demographic trends likely to affect served markets? Are consumer pressure groups influential in this-sector? What is the position regarding international activity? Micro-environmental Issues Market analysis - size, structure, growth, market share, segmentation, positioning. Competitor analysis - who are the main competitors? How do they operate? Who is the customer? How do they buy? What are their needs and wants? What benefits do they rate most highly? How are channels selected and managed? SWOT analysis. How does the organisation structure affect marketing? Who are the key stakeholders in the organisation? Marketing Strategy Issues How do the marketing objectives measure up to the organisations strengths, weaknesses and competitive environment?
Are corporate and marketing objectives clearly understood? Is the strategy sound and well supported with adequate marketing resources and expertise? Are marketing efforts being channeled in the right directions for optimum success? Is there a formalises planning system? What control systems exist for monitoring once plans have been implemented? Marketing Organisation Issues Does marketing management have the required expertise and knowl-edge? Do they receive full support from marketing staff and at corporate management level? To what extent does marketing play an integrative role with other departments? Are intra- and inter-departmental communications effective? Is further training/investment in personnel needed to achieve marketing objectives? Marketing Systems Issues Is there a marketing information system? Is it effective, accurate and up to date? Are there formal reporting procedures set down? What other formal and informal control systems exist? How is new service development carried Out? Marketing Productivity Issues Are marketing costs regularly monitored and analysed against performance? Is profitability analysed and measured in terms of markets, segments, service types and channel? Are any marketing activities unnecessary? Marketing Function Issues How effective are service design and delivery systems? What controls exist to monitor marketing mix activities? Are marketing functions (e.g promotional programmes) efficiently and with optimal use of resources? The marketing audit forms a basis for the marketing planning process. Marketing plans focus on specific, detailed marketing strategies and programmes, designed to help the organisation achieve its marketing objectives within its chosen markets. The marketing plan coordinates and manages the marketing effort.
The Marketing Planning Process

Marketing planning is one stage in the marketing management process. Marketing management is responsible for: Analyzing marketing opportunities. Marketing research and selection of target markets. Designing marketing strategies. Designing and implementing detailed marketing plans. Effective monitoring and control. (Aspects of services marketing management are discussed in more detail in Chapter 6.) Marketing planning is a sub-set of corporate strategic planning. At the corpo-rate level, organizational objectives and strategies are established. These are then translated into functional
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objectives and strategies. Marketing is only one of these functions; finance and accounting, production and other functional areas will engage in planning to meet their own objectives. The marketing planning process actually goes beyond designing effective marketing plans and programmes; it encompasses decisions and procedures necessary for effective plans to be drawn up and for their successful execution. It addresses the questions: Where are we now? (analysis stage), Where do we want to be? (planning stage), How do we get there? (implementation stage) How successful are we? (monitoring stage) The stages in the marketing planning process can be viewed as follows: Analysis Stage Current marketing situation analysis: the marketing audit the environmental analysis SWOT analysis This stage covers the relevant background information necessary for plans to be formulated and decisions to be made. It includes detailed analyses of the current market situation, the organizations existing products/services situation, the competitive situation and the SWOT analysis. The outcome of the current situa-tion analysis and the SWOT analysis in particular provides a foundation for the next stage in the process. Planning Stage Defining the requirements of the plan: objectives setting strategic outline At this stage, marketing managers are fully aware of the factors in the organizations current situation which will influence its marketing activity so will look at corporate objectives in the light of this information to develop marketing objectives and evaluate strategic alternatives. Marketing objectives should meet certain criteria: They should be stated clearly and unambiguously. They should be measurable (by sales volume, or percentage increase over the last three years, for example). They should be consistent with the organizations objectives and resources. They should be set down in order of priority. Strategy is based on the idea of a game plan, as in chess, or in military strategy. Thus, marketing strategy sets down the game plan by which the objectives are to be achieved. Each objective should be viewed very closely and strategic alternatives drawn up. For example, a desired increase in sales revenue from a particular service could be achieved in a number of different ways; by greater market penetration, for example, or by enhancing the service offering and charging a higher price. Strategic options should be carefully evaluated for each objective and the best possible course(s) of action selected in each case.
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The next step is therefore to establish plans of action for each selected strategy. Implementation stage Putting plans into operation: designing action programmes assigning responsibility for their execution costing the programmes This stage is concerned with the operationalization of marketing strategy. The strategy defines the broad areas of marketing activity which must be undertaken to enable the organisation to meet its marketing objectives. These must be translated into programmes of action to be carried out by the various functions within marketing. At the implementation stage, the key questions to be addressed are: What needs to be done? (defining appropriate action) When will it be done? (scheduling and timing) Who will do it? (designating clear areas of responsibility) How much will it cost? (budget planning) The marketing plan will focus on the various marketing mix activities which make up the organizations service offering within its chosen market(s): The service package -features, benefits Pricing policy Promotional programmes Distribution - making the service accessible People aspects of successful service delivery Process design Physical evidence Each element of the marketing mix activities proposed must be carefully costed and analysed for optimal use of organizational resources and to ensure the most suitable approaches are used so that marketing objectives can be met. Measurable targets should be built into the plan to allow for effective monitoring pro-grammes. Clear areas of responsibility for carrying out designated tasks must be set down and understood by all concerned for successful implementation. Monitoring stage Controlling the plan: establishing required performance targets monitoring performance against targets designing corrective courses of action where required contingency planning The last stage in the marketing planning process sets in place control techniques for monitoring the plans performance. Usually this entails a systematic review of all aspects of the plan against targets set, usually on a monthly or quarterly basis. The review must be carried out regularly to ensure prompt attention and action in areas when the results lag behind targets set. Managers and others responsible for implementation of all elements of the action programme should be involved in the
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monitoring process. Control mechanisms should be in place based on the components identified above: Establishing required performance targets: Targets are derived from the marketing objectives set down in response to corporate objectives. They should: Indicate clearly required levels of individual performance. Allocate responsibility for individual achievement to the appropriate persons. Delineate clearly between areas of individual responsibility for which individuals have control and uncontrollable factors which should be excluded from that individuals required targets. Be prioritized and ensure they are feasible and compatible. Have some built-in flexibility in order to respond proactively to changes in the organizations environment. Monitoring performance against targets Measures for evaluating perfor-mance against targets need to be established. Individual targets for all func-tional areas within marketing should have appropriate criteria set down for performance to be measured against, and this should be clearly communicated to the individuals concerned at the time the targets are set. In some areas, performance against targets will be relatively easy to assess, while at other times the reasons for failure to meet targets may not be immediately obvious. The main criteria for determining the level of success against targets will be based on: Market analysis: market share, market penetration. Financial analysis: sales volume, profitability, contribution. Functional effectiveness: specific measures of advertising effectiveness, results of promotional call1paigns, productivity of sales or marketing personnel. Customer satisfaction: complaints monitoring, satisfaction surveys. Efficiency measures: improved processes, response speed. Adequate levels of performance against all targets is necessary for the longer term implementation of successful marketing programmes. Vastly increased sales volume, for example, will not represent success if the number of complaints increases dramatically and customers are not retained. Designing corrective courses of action where required: The purpose of an effective monitoring system is to identify areas of shortfall between actual performance and targets quickly and deal with problem areas promptly. If advertising is not achieving the required results, then perhaps the budget needs to be increased, or the effort may be best diverted into another activity such as sales promotion. Fine-tuning of all elements of the marketing plan is the key task here, and it is dependent on an accurate and timely monitoring system. Contingency planning: This is designed to focus management thinking on alternative courses of action which can be taken when unexpected situations arise which make the designated action programme, or parts of it, unworkable. Contingency plans should be drawn up as part of the overall plan, and reviewed as part of the monitoring process. They should be
designed into the monitoring programme so that they can be implemented readily if required. The marketing planning process coordinates and directs the organisations mar-keting effort. It contributes to the overall organizational objectives by setting down action programmes to meet agreed marketing objectives. Its successful implementation depends on careful analysis and evaluation of strategic alterna-tives; development of programmes which will operationally the strategy and meet objectives; accurate monitoring and implementation of corrective action or contingency plans where appropriate. Successful marketing planning and implementation also depends on the organisation itself, its structure and marketing orientation and the performance of individuals within it.
Roles and Responsibilities

Effective implementation of marketing programmes requires co-ordinating the efforts of all employees. Their co-operation is essential in realizing strategies designed to increase productivity and customer service to gain and maintain competitive advantage. The marketing planning process provides the necessary structure and direction for marketing activities to bring about desired changes and results but the key task for managers is finding means to ensure plans are effectively carried out. This can be achieved through the following: Internal marketing Motivation and leadership Effective communications Co-ordination of the marketing task
Internal Marketing
This is a means of involving staff at all levels in effective marketing programmes by enabling them to understand more clearly their role within the marketing process. Internal marketing can be defined as follows: Treating with equal importance the needs of the internal market - the employees -:- and the external market through proactive programmes and planning to bring about desired organizational objectives by delivering both employee and customer satisfactions. Internal marketing programmes consist of training and staff development, effec-tive internal communications and integration schemes, designed to enhance knowledge and understanding of the overall marketing orientation within the organisation. Internal marketing is the focus of the next chapter. Briefly, the aims of internal marketing are to ensure that all personnel: are committed to the goal of guaranteeing the best possible treatment of customers are themselves motivated see themselves participating actively in achieving the organisations goals. Motivation and Leadership Internal marketing can playa key role in motivating employees throughout the organisation and is especially important in motivating marketing personnel whose task it is to implement marketing plans. Motivational programmes can be developed by management and geared towards the ultimate attainment of
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corporate goals, but must focus on the needs of the employees. Such programmes may incorporate tangible rewards schemes: Performance-related pay Staff incentive schemes However, employee commitment and job satisfaction is also closely linked to their understanding of their own role in the organisation, and the recognition of their individual contribution. The role of management in motivating employees is crucial. Marketing management have a dual role within the organisation: to develop strategic marketing plans and action programmes to mobilize marketing personnel and resources within the organisation to meet organizational objectives by serving customer needs and wants most effectively to help instill a marketing and customer orientation amongst all management and employees. Marketing managers must have close links with top management, therefore, to ensure that marketing receives full support and the resources necessary for successful implementation of marketing programmes. They should also commu-nicate closely with marketing and other personnel to help them to get the job done and they should lead by example. Human resources management should work with marketing managers to help in motivating staff, and integration with other functional areas of management is important. This clearly underlines again the central, integrative role of marketing. Effective Communications Good communications can also playa key role in ensuring that plans are implemented effectively and motivating personnel. Marketing managers need to communicate with top management to ensure that plans and programmes always match organizational objectives accurately. They need to communicate with marketing and other staff to ensure that activities and responsibilities are clearly understood and operationalised effectively. Internal marketing programmes incorporate communications as their main component and other management tools such as the marketing information system are useful. Communications should be established as a two-way process, so that a dialogue is achieved between: Marketing managers and marketing personnel The marketing function and other functions and staff throughout the organisation Marketing management and corporate-level top management. Systematic reporting procedures and a structured flow of information both upwards and downwards within the organisation all contribute to effective communications. Co-ordination of the Marketing Task The marketing function involves many different specialisms and task areas, which must be managed as a cohesive whole for effective implementation. Management tasks include: Scheduling and synchronizing individual activities
Designing reporting and control procedures for all separate task areas Liaison with other functional management Integration with other internal Junctions Integration and co-ordination with external players; advertising agencies and other suppliers, marketing channels and agents. Internal marketing and effective communications programmes will help in the task of co-ordinating the marketing effort. Each individual both within the organisation and outside it who has an input into the marketing process needs to understand precisely their own role and responsibilities. Pulling together the marketing effort underpins successful implementation of the. marketing programme.
Summary
The marketing audit represents the first stage in the marketing planning process. The audit is used to review and evaluate the current position of the organisations marketing activities and to analyse the organisations overall effectiveness. The marketing audit, once completed, forms a base for marketing plans to be designed and implemented. Marketing planning is essentially a process comprised of four main stages: Analysis stage Planning stage Implementation stage Monitoring stage Monitoring is critical to the successful implementation of any plan and control mechanisms should be built into the plan to ensure prompt attenti9n and action if the plan lags behind targets set. Effective control can be established using the following key steps: Establishing required performance targets Monitoring performance against targets Designing corrective courses of action where required Contingency planning In order for marketing plans to be successfully executed, however, the efforts of all employees need to be co-ordinated. Effective implementation can be aided by: Internal marketing Motivation and leadership Effective communications Co-ordination of the marketing task The marketing planning process provides structure and direction for marketing activities and should be undertaken as a medium to long-term commitment not, as is frequently the case, on a piecemeal short-term basis. A systematic and thorough approach to marketing analysis, planning, implementation and monitoring is critical to the successful achievement of organizational objectives.
Tutorials
In light of above, Suggest the Marketing planning process for RAI University
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LESSON 22: INTERNAL MARKETING

Significance of internal marketing Marketing concept and internal marketing Role of internal marketing Components of internal marketing Management approach to successful internal marketing Internal marketing planning Developing internal marketing planning Implementing the internal marketing plan
processes. Other definitions include planning, pricing, promotion and distribution, and also consider issues such as firms serving customer groups more effectively than the competition, for example. Almost all descriptions of the marketing concept, however, focus on the key element of exchange processes, which lead to some form of satisfaction - for the customer, the organisation, even society as a whole. Internal marketing takes the marketing concept as it is applied to external customers and applies it internally. It gives employees the status of internal customers, with the same level of importance as external customers. The under-lying theory is that optimum levels of customer satisfaction will be gained when employees themselves are satisfied, and organisations should pay as much attention to their internal marketing programmes as to their external marketing plans and strategies.
Introduction
The concept of internal marketing has its origins in conventional marketing theory and the marketing concept itself. It is interesting to note that the internal marketing concept has been developed largely within the context of services marketing, where it has long been recognized that high levels of customer service depend heavily on the personnel who interact with customers. The employees are in many senses an important part of the service product as has been stated in previous chapters. They represent the fifth P in the services marketing mix. Internal marketing addresses employees - the internal market within an organisation - whose participation and role is recognized as being critical to levels of service quality and delivery. However, internal marketing is now being seen as more and more essential for all organisations in striving for marketing success. Internal marketing is a means of involving staff at all levels in effective marketing programmes by enabling them to understand their role within the marketing process. Internal marketing programmes consist of training and staff development, effective internal communications and integration schemes, de-signed to enhance knowledge and understanding of the overall marketing orientation within the organisation. Whilst the importance of internal marketing is widely recognized, criticism has arisen due to the difficulties in implementing internal marketing, and the lack of planning tools available to managers wishing to do so. This chapter reviews the internal marketing concept but also focuses closely on implementation issues. A framework for implementing internal marketing is proposed and some practical issues are addressed.
Definition of Internal Marketing

Internal marketing can be defined as follows: Treating with equal importance the needs of the internal market the employees - and the external, market through proactive programmes and planning to bring about desired organizational objectives by delivering both employee and customer satisfactions. Internal marketing should also cover issues which are traditionally linked with other areas in organisations, such as human resources management. This is highlighted by training needs which should be thoroughly examined, and the implementation of training programmes designed to enhance: Knowledge of the firms product/service mix. Pride in the firm itself, and individual jobs. Awareness of opportunities for new service and business development. Specific marketing skills. It is clear, therefore, that internal marketing- is concerned with more than treating the employee as a customer; ,it means that the organisation should constantly endeavour to develop programmes and strategies for enhancing employee satisfaction in much the same way as external marketing plans which are continuously updated and improved to meet external customer demands.
The Role of Internal Marketing

If it is possible to ensure that the staff of a firm: are committed to the goal of guaranteeing the best possible treatment of customers are motivated see themselves participating actively in achieving the organisations goals and if internal marketing is the key to this, then the potential for long-term success is evident. Customer service is the critical element which internal marketing influences, whatever business or industry the organisation
The Marketing Concept and Internal Marketing

In order to understand internal marketing it is useful to review the idea of the marketing concept and to examine some of the fundamental ideas put forward. The marketing concept can be generally defined as a human activity directed at satisfying needs and wants through exchange
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operates in, and customer service is one of the most crucial aspects of an organisations competitive advantage. Internal marketing is attracting increasing attention and growing recognition as an implementation tool for adoption by all organisations. The most advanced systems for developing marketing plans and strategies are worthless if the plan fails at the implementation stage. There are a number of areas where internal marketing can playa key role: Management of change, where internal marketing may be used to place, and gain acceptance of new systems such as the introduction of information technology and new working practices, and other changes. Building corporate image, where internal marketings role is to create awareness and appreciation of the companys aims and strengths - as all employees are potential company ambassadors. Strategic internal marketing which aims at reducing interdepartmental and inter-functional conflict and developing the co-operation and commitment needed to make external marketing strategies work.
Management Approaches to Successful Internal Marketing

It is important that management embrace the underlying philosophy of internal marketing if they are to develop and direct successful programmes. Managers should lead by example, and set high standards of customer relations and job effectiveness by their own good practice, not by simply dictating rules or making unreasonable demands on employees. It has been stated earlier that internal marketing is closely related to the area of human resource management within the organisation. However, whereas a traditional view of human resource management may be seen as getting things done through people, internal marketing moves towards an alternative idea -developing human potential so that organizational goals can be achieved through the satisfaction of individual goals. Employee commitment and loyalty cannot necessarily be bought on an eco-nomic basis alone. Equally important is a clear and visible long-run programme which really does put the customer first, whether in the internal or external marketplace. Consistency on the part of management, both in action and word, in all dealings with internal and external customers is the foundation for marketing success.
Components of Internal Marketing Programmes

How is internal marketing to be implemented? It is essential to explore what are seen to be the fundamental criteria for a successful internal marketing programme, and to identify the components of programme formulation. The four most important areas within the organisations internal environment which are essential to an internal marketing programme can be described as: Motivation Co-ordination Information Education This set of ideas clearly interlinks with the perspectives of internal marketing discussed earlier, but what steps can be taken to ensure these areas are reinforced? To formulate any programme an analysis of the critical components must be undertaken. This may involve information gathering to assess Employee knowledge Attitudes Behaviour. Once this has been done, management action needs to cover: Selection Training Motivation Direction. In this way, managers can help employees to make a more effective contribution to the organisations marketing objectives, providing overall guidance and sup-port for the internal marketing programme. Communication should reach all employees and include all messages about information and action in order to achieve increased motivation and effectiveness.
Internal Marketing Planning

As internal marketing has been developed directly from conventional marketing theory, and the marketing concept, it is argued that internal marketing planning is therefore made simple. There should be no difficulty in taking conventional marketing planning tools and developing internal marketing programmes along the same lines. Adopting this method would mean that for every marketing mix decision, for example, which the company took for its external marketing strategy, there would be a corresponding internal marketing mix decision. This would, in turn, affect the outcome of the external marketing 8trategy which may lead to new marketing mix decisions being implemented both internally and externally. The main criticism of this approach might be that it seems to assume that, for any organisation, the internal and external markets (or customers) will behave in a similar fashion and can therefore be treated in an almost identical manner. But this is not likely to be the case, for the following reasons: Changing external markets Internal market characteristics Changing external markets: Many firms operate in more than one market, and these markets can be very different indeed. Even segments within the same market can have individual and distinctive characteristics. This means that most firms will have external marketing plans, which are continuously being monitored and fine-tuned to changing market conditions, whilst the internal market n1ay be changing either more slowly or at greater speed. Internal market characteristics: Organizational behaviour theory and research may suggest that internal markets in firms of similar size and structure, regard-less of what product or service they provide, may be more closely aligned in terms of
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their behaviour and needs, than the internal markets of all firms operating in one particular external-marketplace, which may be widely differing in all aspects. The answer could be to focus on the overall external strategy (sustained growth, total quality, market development, etc.), and then find a way of devel-oping the internal market so that it will provide optimum levels of support and commitment to the success of the strategy. In order to do this well, the internal market should be researched and approached as a special and unique entity, and internal marketing programmes will reflect this without necessarily matching closely the external plans and activities.
tion of opportunities both inter-nally and externally. It must be both compatible with external research activities and contribute in the same manner to decision-making. The internal market should itself be researched to explore issues which are likely to affect the successful implementation of internal marketing programmes and individual roles and responsibilities. Subjects for research may include: Employee attitudes towards the organisation and its mission Levels of job satisfaction Assessing skill and knowledge needs Needs and wants of employees Market Segmentation This is necessary to ensure most effective, accurate and appropriate targeting of internal marketing efforts. Bases for segmentation may be determined as a result of the market research but may include, for example, level in organisation. The best route for segmenting the internal market may not be by existing department/line management divisions as this can lead to a less unified ap-proach. Internal marketing should be viewed as a means of reducing potential communication problems or friction between different functional areas. Marketing Action This involves the selection and implementation of appropriate marketing activities to achieve optimum internal marketing success. Better internal communica-tions, teamwork and employee empowerment are some of the aims of internal marketing. Practical initiatives to achieve these aims need to be worked out and assigned to individuals and management teams. Customer care programmes and staff training and development are some of the methods available. Marketing Communication Accurate and timely spreading of marketing information should be undertaken, both internally and externally. This process should be targeted to encourage participation in achievement of personal and organizational goals. In-house magazines, regular team briefings and encouragement of better two-way communications are the sorts of approaches which are helpful. Marketing Orientation The overall aim should be to create an internal environment which is flexible and responsive, and which nurtures common values and behaviour which reflect the organisations goals. The organisations marketing objectives and mission must be made clear to all employees, and clearly defined individual goals set down to enable personnel to see their own contribution to achieving the organisations objectives.
Developing Internal Marketing Programmes

Internal marketing has an important role to play in the acceptance and subse-quent implementation of marketing~ plans. Bur what is the process for the implementation of internal marketing? Should service organisations look beyond traditional planning concepts for internal markets? Recommended internal marketing methods and planning tools to assist man-agers in their course of action are vitally important, and this whole area has been the focus of a great deal of interest recently, both among academics and practi-tioners. There is no single methodology to meet all internal marketing needs but it is possible to develop a planning framework of internal marketing at this stage. A number of key components of internal marketing programme formulation have been discussed. An action plan for implementing internal marketing encompasses the following stages: Market definition Market research Market segmentation Marketing action Marketing communication Marketing orientation The successful implementation of internal marketing within the organisation hinges on integration, co-ordination and cooperation within the internal market. To achieve this, it is essential to study and fully understand the characteristics of the organisations internal markets. Accordingly, the action plan starts at that point: Market Definition The internal market should be clearly defined to ensure that providers and receivers of internal services can identify with the concept of internal customers, whose needs require satisfaction. Each player is participating in, and serving, a clearly defined market. This may be across the whole organisation, or reflect inter- and intra-departmental relationships and activities. The structure of the market is important, with attention being paid to both formal and informal lines of communication and power. Market Research Information should be continuously collected and analysed at all levels in the organisation. This contributes to the identifica-
Implementing the Plan

Implementing internal marketing programmes can be achieved through co-operation between top management within the organisation and functional managers. It requires a flexible approach which will lead to an internal environ-ment which is both committed to organizational goals and responsive to chang-ing organizational needs. The changing needs of employees must also be taken into account.
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Marketing management should work with human resources management to develop a plan for action, as they will have the specialized knowledge and insight necessary to operationalised the stages outlined above. It should be emphasized, however, that responsibility for implementing the plan lies with all managers and employees throughout the organisation. Taking a marketing planning framework, the internal marketing plan can be viewed as follows: Marketing audit: Carry out a marketing audit of the internal market, paying particular attention to the areas highlighted previously. Marketing analysis: Conduct an analysis of the internal market in terms of its Strengths, weaknesses, opportunities and threats. Objectives setting: Review the organisations objectives in the light of internal marketing and develop internal objectives Strategy development: Strategic options relating to the internal market need to be examined. Enhanced customer service may be attainable through better training or greater staff empowerment, for example. Designing action programmes: This can be undertaken by managers to deter-mine the most appropriate courses of action and the likely costs and resources required. PR managers may assist in developing a staff magazine, for example, while human resources management can develop training programmes. Assigning responsibility for their execution: This is the area which needs to be looked at from a company-wide perspective, and action plans should be broken down into their core components for implementation by the most appropriate individuals. Monitoring and controlling the plan: Some measures need to be determined to establish the success levels of internal marketing programmes. These must be established alongside the programme objectives. Some aspects may be incorpo-rated into staff performance evaluation and appraisal schemes, for example, while others may be monitored according to -reduced levels of customer complaints or better quality levels. The planning framework illustrated should represent a dynamic flow process: as situations arise within the internal market place, and changes take place within the internal environment, management will respond and the plan may be fine-tuned as it evolves. The internal environment should foster an atmosphere which is both flexible and responsive; this is most important. Within todays ever- changing external environment it becomes even more so. The Institute of Man-agement in the/UK undertook a major research initiative to look at the future for business organisations through the 1990s, and concluded in its published report that In todays demanding business environment an organisation needs to be responsive-and flexible if it is to survive. It must continually adapt to changing situations and requirements. In order to meet these demands (and this does not only apply to British or-ganisations), a service organisation depends more and more upon its people. If all personnel are: actively partici-
pating in the firms overall strategy given every opportunity to develop their full potential keen to understand and believe in the firms goals the chances of success must be high. They will be prepared and equipped to be flexible and responsive. The costs of implementing internal marketing pro-grammes throughout the organisation can be high. This should not prevent internal marketing from being given high priority. The potential costs of failed external marketing strategies are far higher.
Summary
Internal marketing is based on the notion of communicating with internal markets as well as external markets - treating employees like customers. It affords recognition to the vital role of people within the service organization and represents a means of involving staff at all levels in effective marketing through the application of the marketing concept internally. Internal marketing encompasses a number of elements, all of which help contribute towards enhanced customer service and a greater degree of marketing orientation within the organisation. These elements include: Training programmes Internal communications Motivational programmes For internal marketing to be successful it requires careful attention and planning. An action plan for implementing internal marketing encompasses the following stages: Market definition Market research Market segmentation Marketing action Marketing communication Marketing orientation A marketing planning framework can be developed for internal marketing which needs co-operation from top management and employees throughout the organisation; it should not be the sole responsibility of marketing management.
Tutorials
In light of above, Discuss the action plan for implementing internal marketing in Airline industry. Narrate with the help of Jet Airways
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LESSON 23: RELATIONSHIP MARKETING

Significance of relationship marketing Building Relationships Quality and relationship marketing Customer Retention
Building Relationships
The key focus of marketing has always been the market customer needs and wants. However, there are many other influences on an organisations marketing activity. In conducting a SWOT (strengths, weaknesses, opportunities and threats) analysis, an organisation must consider these micro-environmental fac-tors. As well as the organisation itself, and its internal and external markets, its publics must be considered. An organisations publics include: Suppliers Intermediaries and other channel members The government and its agencies Shareholders Community groups Affiliated trade and professional associations Trade unions Banks and finance houses Consumer groups The aim in relationship marketing is to build and maintain relationships with all the organisations publics. The list given is not comprehensive, and some publics will obviously have more influence over a particular firms activities than others. The task is to identify those groups which are the main influencers and to design marketing programmes and strategies which take the influencers into account. Relationships with Channel Members Out of all the influencers discussed above, a particular group merits special attention when it comes to building relationships. This set of publics interact directly with the organisation at the input and output stages. They are cooperators in the business activity. They are all channel members and they represent both the supply side and the distribution side. Some sources focus solely on supplier markets but channel members such as intermediaries and agents in the distribution market can have an equal impact on an organisation. If fully integrated channels are the most efficient {where a single organisation operates at every channel level}, then it is obvious that, where full integration is not possible, relationships must be developed within the channel. Even in services marketing, where channels may not exist to the same degree, this is vital. Package tour operators must have positive relationships with their suppliers (hotels and airlines, for example) and with their distributors (travel agents). Financial organisations must have confidence in brokers who trade in their services. Restaurants, hairdressers, auto-service stations and hotels must be on good terms with their suppliers to be able to operate effectively. The objective of relationship building wit~ these groups is to develop co-operation and co-ordination between all the parties
Introduction
Marketing is continually evolving in response to the changing environment. New strategies, techniques and tools for marketing managers are constantly being developed. This book has demonstrated how many areas which were not tradi-tionally associated with marketing, such as the not-for-profit sector, have increasingly become the focus of marketing attention. Marketing has also moved away from the original idea of bringing about mutually satisfying benefits or exchanges. Societal marketing, for instance, ad-dresses a wider need - in societal marketing, the exchange should result in benefits to society as well as the organisation and its customers. Green marketing, following the trend towards environmentalism which is growing through concern for the worlds resources, suggests that no marketing decision should be undertaken without regard to the possible long-term effects. Product design, packaging, manufacturing process and distribution decisions are examples of the issues influenced by green thinking. Consumers have responded the these changes and have become more sophis-ticated in their demands and expectations. They are prepared to seek out prod-ucts which are more environmentally friendly, for example, and will think twice before investing money in a bank which invests in countries or industries which are politically and environmentally unsound, in societal terms. Services marketing is also a growing specialty, and concepts such as internal marketing have been developed within the services sector, but are now widely recognized to be highly relevant to all organisations. Internal marketing calls upon the organisation to have equal regard for its internal customers - the employees - as for its external markets. Internal marketing programmes can enhance employee and customer satisfaction through increased involvement between all members of the organisation in its marketing efforts. Relationship marketing goes a step further. Organisations are urged to focus not only on their relationship with customers external and internal- but with other elements within industry and society which can impact on the organisations long-term success. The emphasis too is not on bringing about exchange processes, but on building relationships. Quality service is the key to customer retention through customer satisfaction. Customers who keep coming back for more is the goal; zero defections rather than zero defects.
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who can impact on the overall satisfaction of the ultimate consumer. Quality of service delivery is paramount, and suppliers and channel members playa major role in service quality. Relationships with Customers Relationship marketing is also about building relationships with customers, rather than creating exchange processes. Customer contact should be maintained after the sale has been completed, and the focus is on retaining customers, rather than simply trying to attract new ones. North West Securities, a financial services company specializing in consumer credit, telephones everyone of its credit customers three or four times a year. This telephone contact is used to check that the customer is still satisfied with the service they are receiving, and to update them with details of new services available. A freefone number is given to customers who can use it to call any time, free of charge. They aim to maintain a high customer retention rate. Car manufacturers and dealers have long recognized the value of this type of after-sales marketing. Existing customers are invited to social events when new models are launched, and are contacted periodically by dealers anxious to maintain a front of mind relationship. Manufacturers actually employ sales and marketing professionals to develop innovative after-sales strategies to increase customer retention. Insurance companies developed this kind of relationship in the days when the Insurance Man - the representative - used .to call on all his customers every week to collect payment. It was not unusual for the Insurance Man to become a family friend, and he was guaranteed all the familys insurance business, from life and savings policies through to pensions and funeral policies. Personal contact is still of critical importance in this market. Referral Markets Another important influence on an organisations performance is the level of business (or activity) arising from referrals. This is especially important in services marketing where word of mouth recommendation can be a key factor in the consumer decision process. Frequently, referrals are informal- through family or friends, for example - but often they are more formal, as in industrial markets where specifies (who may be from outside the client organisation) playa major part in buying decisions. Architects or consultants .are often cast in the role of specifies when they advise their client where to source materials and services. In consumer markets, formal referrals exist in many forms. The first-time buyer in the housing market may well take their estate agents advice on which mortgage company to approach, and which solicitor to use. Travel agencies recommend which holiday tour operator will meet a customers requirements. Insurance agents put forward the best policies for their clients. Most organisations will find that a proportion of their customers come to them via a referral of some kind. For this reason, it is important to direct some marketing activity .towards the members of the referral market - the specifies wherever possible. This is already done in many formal referral situations, where insurance agents and travel agents receive
commission and. other incentives to ensure their support. The pharmaceutical industry spends massive amounts on promoting their products to doctors who act as specifiers. Where referrals are largely informal, however, it can still be possible to use innovative methods to develop this area. Health clubs invite members to intro-duce their friends for a trial session. If the friend takes out a subscription, the existing member receives some incentive, such as free sunbed sessions. The British Benefit Society (a Friendly Society specializing in savings and loans) offers small cash gifts to members who recruit further members. Existing customers can be the best source of referrals there is, provided that they are themselves experiencing high levels of satisfaction with the service they have received. This demonstrates again the potential power of relationship marketing. Internal Markets Relationship marketing may go further than internal marketing but it still retains a very clear focus on the needs and wants of the internal market. Specially formulated internal marketing programmes to communicate, train and motivate internal market members are very important if the relationship is to be a positive one. Relationship marketing places the emphasis on building and maintaining a good workforce. Service quality depends to a very great extent on people, and developing long-term relationships with internal customers is just as important as building relationships with external ones. Service organisations, in particular, have to pay special attention to recruit-ment of quality personnel. Recruiting the individuals of the right caliber is not always easy, especially under the current demographic changes being experi-enced in the UK (and other areas) today. Recent forecasts show that by the end of the 1990s the demand for graduates will far outstrip the supply. Evidence also suggests that prospective employees, like consumers, are becom-ing more sophisticated in their demands. A 1990 survey of marketing, administra-tion and personnel professionals showed that in choosing a firm to work for, a socially responsible image and greed policies were the most important factors. Organisations need therefore to communicate with prospective employees -the employee market. Building relationships with the employee market, espe-cially through long-term positive visibility on the graduate recruitment scene, for example, can help to ensure the future well-being of the organisation. In summary, relationship marketing is concerned with building long-term relationships rather than bringing about exchange processes. It is customer and market orientated, but it identifies a number of markets which the organisation needs to understand and relate to. The organisation must design and implement strategies and programmes for successful relationship marketing. The markets which need to be addressed are as follows: Customer - existing and potential Internal markets Influencers
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Referral markets Channel markets - supply and distribution Potential employees
service market sector. Competitors can work co-operatively to develop markets, and this should be the aim. The objective of this analysis is to identify opportunities and threats. Market Analysis and Segmentation The next state in the strategic process is market analysis and segmentation. In relationship marketing, this should include, as far as possible, analysis of the six market groups identified earlier. These groups might then be segmented so that the organisation can focus on means of tailoring the relationship to the specific needs of different groups. Not all of the market groups will be addressed by formal marketing programmes some segments may require more informal communication to build and maintain the relationship. Internal markets should be analysed and segmented as part of this process. There are a number of ways of segmenting internal markets, and these tend to be organisation-specific. Researching the internal market will help in determining the best way to segment it. Strategy Formulation Once the macro-environmental analysis and internal review have been com-pleted, objective setting is the next step. Management then need to select the strategic options which will provide the greatest chance of successfully achieving the organisations goals. Developing the Relationship Marketing Mix It is in the marketing programme formulation that relationship marketing can be seen to be put into effect. In services marketing, this will focus on the seven Ps: Product Price Promotion Place People Process Physical evidence The marketing mix must be tailored to each of the six markets previously identified, although the various elements of the mix will be used to a lesser or greater degree in the different cases. The product, or service offering, will be present mainly in the customer market, except when it is also used in or offered to the referral market. The promotional mix is the one most likely to be targeted to each market segment. Relationship marketing can be used to differentiate the product or service in the perception of the consumer. This enables the organisation to undertake product (or service) positioning. Quality service, in particular, stemming from consistent and supportive relationships can be a very useful tool for positioning.
Relationship Marketing Management

Relationship marketing strategy development is really no different to marketing strategy generally except that there should be a clear directional focus on rela-tionship building throughout the formulation of strategic plans. A strategic focus is important for any successful marketing organisation, and, as stated earlier, relationship marketing just goes a step further. This section provides an overview of strategic planning in relationship marketing: Objectives setting The mission SWOT analysis Market analysis and segmentation Strategy formulation Developing the relationship marketing mix The major objective in relationship marketing is quality, because relationships cannot be sustained if there are any problems with quality. This is particularly applicable to services marketing, where delivery of quality service is most important. The Mission The starting point in strategic planning is the mission statement, and this pro-vides a centralized strategic focus for the organisation. An organisation which is committed to relationship marketing will develop a mission which reflects this through a focus on shared values and people-based goals. Customer and em-ployee loyalty, even specific statements about customer confidence in making recommendations, are some of the key ideas which the mission statement should include in relationship marketing. It is very easy to relate these ideas to services marketing. Customer service should playa key role in the organisations mission state-ment. This can help the mission to become something that is owned by every-body in the organisation because it reflects the role that all employees can play in customer service. The mission statement should be accessible to everyone in the company. SWOT Analysis The next step in the strategic planning process is the SWOT analysis. This will cover the broad areas of the companys macro- and micro-environments, but will look in greater depth into the six market areas identified previously. An in-depth internal examination of the organisation should be undertaken to. assess strengths and weaknesses. The internal market analysis will also contribute to this. The competitive environment must be thoroug11ly examined, and the relationship with competitors. This will tend to follow the industry structure, and other major competitive factors such as the degree of rivalry and barriers to entry. Strategies relating to competitors, while not actually relationship building in the same sense as relationship marketing, should focus on co-operation and avoid devaluing the industry or
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Quality and Relationship Marketing

Throughout this chapter it must be clear that relationship marketing has as its central strategic focus the role of quality. By improving and developing relation-ships with the six key markets through the design and implementation of formal organizational plans and systems (rather than leaving the relationship aspects to chance) quality becomes integral to the organisations activities.
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In services marketing where the service delivery is the fundamental measure of quality, and where people are the service providers, developing relationships through people helps build quality into the service. Relationship marketing goes beyond internal marketing in this context, and it also builds on other advancements in quality such as Total Quality Manage-ment (TQM). There are a number of ways in which systematic relationship building can help increase service quality levels. Increased customer contact - it should not only be the job of field service staff to visit customers. Relationship marketing should allow for more customer contact (and on a more regular basis) between the customer and the organisation on many levels. The relationship can be helped enormously be allowing no frontline staff to mix with their opposite number, for example on the customer organisation staff; customer conferences and focus groups can present an excellent forum for feedback and new ideas. Enhanced customer service - increased (but not necessarily more expensive) communications with customer groups can enhance customer service. Regular updates, progress reports and newsletters can be amongst the simplest and most effective forms of communication. Acknowledgement of orders and documents, together with brief but courteous notes if the service delivery is to be delayed at all, can help raise perceptions of service. In legal practices, for example, cases can drag on for years, and end up being very expensive so there is an enormous bill to settle at the end. In relationship marketing, the client would be regularly updated on any news (and also if there was no news which can be as important), and the bill could be negotiated and spread over the duration of the case. This would solve two of the major complaints from consumers: that they are left in the dark while waiting for the outcome of their case, and that the final bill is always too high.
By the same token, customer complaints handling procedures should be properly carried out to ensure that the complaint is rectified and the customer is satisfied the necessary action is taken to prevent that .problem occurring again but the starting point is usually to examine the external environment and the changes taking place within it. The audit then gradually narrows its focus from the general aspects of the organizations marketing activity to the more specific, until, finally, specific problem areas or difficulties can be probed more closely if required. It is useful to understand the components identified above, and the main questions which should be addressed in the audit. The Marketing Environment The marketing environment is made up of two parts: the macro-environment (or external environment) and the micro(internal) environment. The macro -environment represents all the outside influences which will impact on an organizations marketing or business activity. It includes economic and political factors and socio-cultural trends, for example. The external environmental influ-ences will affect all organisations within a sector to a greater or lesser degree. The internal environment relates to a particular organisation and its publics. A more detailed description of the marketing environment can be found in Chapter 6. Marketing Strategy The environmental analysis can be used as a basis for SWOT (strengths, weaknesses, opportunities and threats) analysis. The audit can now focus on the corporate mission and objectives and consider the organizations marketing objectives in the light of existing opportunities and strengths, and possible problemareas. The current marketing strategy should be examined to ensure that it represents the most appropriate course of action for the successful achieve-ment of organizational goals. The strategy should fulfil the organizations mar-keting objectives in a way which Makes optimum use of resources while taking account of strengths and weaknesses. It should also be assessed for its suitability with regard to opportunities and threats facing the company. Marketing Organisation The role of marketing in the service organisation is a critical one, and the way in which companies organize themselves for marketing can be crucial for success, as discussed Integration between management functions, internal communications and established links between different functional areas should all be looked at within the marketing organisation audit. Training and human resources issues should also be considered as a particularly important issue for labour-intensive service industries where people playa key role in all aspects of marketing. Marketing Systems This examines the systems used by marketing management to gather informa-tion, design plans and programmes, implement plans and monitor their effec-tiveness. Processes and procedures set down for marketing activity of all kinds need to be included. The focus here- is Jon the actual modes of Implementation and monitoring rather than the marketing strategy itself. New product or service development processes, budgeting and reporting procedures, marketing re-search and
Customer Retention
As well as quality, the other key aspect of relationship marketing is customer retention. Loyal customers who keep on repurchasing are extremely valuable. Compared with the cost of attracting new customers through advertising, sales promotion and other means, any effective method of retaining existing custom-ers who will continue to spend money with the organisation must be important. A number of tools can assist in the process. An example of this is database marketing where customer-buying histories and other information can be listed on a database, and then referenced and cross-referenced in the future to target new products or promotions accurately. Another important aspect of the task of analyzing how to retain customers is to carry out market research amongst customers who have defected. Why did they go to a competitor? Why have they stopped using your service? The answers to these questions can hold vital information for services marketing managers. Research is important to establish why customers defect, as studies have shown that a large proportion of dissatisfied customers never complain - they simply stop using the service.
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marketing information systems are all examples of the areas to be investigated by the auditors at this stage.
Tutorials
In light of above, Compare the relationship marketing management in telecom sector, Compare Hutch vis-vis Airtel
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LESSON 24: A CASE STUDY ON RELATIONSHIP MARKETING THROUGH SMS

The Brief
A relationship marketing company in Cape Town, South Africa, jSRM, has been successfully using SMS to solve a simple, yet important requirement for their clients. How does one communicate with customers efficiently, quickly, and cost effectively, while still managing to strengthen the brand and deliver a personal message? Relationship marketing is based on a sustained and two way communications process. It involves the management of communications strategy and implementation, and incorporates the creation and management of client databases. Using one of Clickatells products, Clickatell Communicator, jSRM has been assisted in achieving this goal. The Solution Using SMS was the obvious answer to their requirement for a fast and cost effective medium. By its very nature, SMS is extremely useful for delivering short messages which need to be delivered in a short space of time. Aside from the time taken to deliver the messages themselves, SMS allows marketing communications to be prepared and delivered faster than any other traditional media. Since the message is short and text based, the preparation time is reduced dramatically. A standard mail, or even an email, would take considerable time in order to be properly prepared. Also, since SMS has an extremely low cost associated with it, jSRM and their clients are able to use it more frequently than standard media. And, as SMS is database driven, it allows the marketer to target and profile the audience according to the strategy or the specific message content. All these factors help jSRM to facilitate the relationships between their clients and customers. With Clickatells SMS delivery service, some of the message headers, or Sender IDs, can also be branded. This adds an extra level of credibility, which jSRM can attach to each outgoing message. From the recipients point of view, the message comes from a company that they have a growing relationship with, and not from an unknown telephone number. All this without the recipient even knowing that jSRM is involved. This feature is only available on some of the networks that jSRM delivers to. Application Clickatell Communicator has been designed to make SMS messaging simple and seamless. Some of the features that have helped jSRM are:
An intuitive, easy to use, messaging interface, A database uploading facility (where recipient databases may A message personalization tool, which, similar to a mail
merge, can personalise each outgoing message with up to 5 variables (such as name, account details, birth ate etc.)
A message delivery reporting tool
And jSRM have successfully used SMS for a wide variety of different message types, including:
Event reminders (sent before an event to reaffirm
attendance)
Calls to action (such as Collect your tickets at..) Birthday wishes Thank you notes (for attendance etc. etc.) Any many more..
With reference to the above context, Explain significance of relationship marketing in service industry.
be uploaded for easy messaging),

A group management system (for creating groups of
recipients)
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LESSON 25: CUSTOMERS ROLES IN SERVICE DELIVERY

The Objectives of this Lesson are to
Role of customers in successful service delivery Importance of customers in successful service delivery Level of customer participation
UNIT V DELIVERING SERVICES IN REAL TIME
with prices significantly lower than what they would normally pay. iPrint has successfully transformed a people-intensive, manual service business into an electronically automated, self-service function where customers are empow-ered to create their own value and satisfaction. Because they do so much of the work, customers essentially become co producers of the service, enhancing iPrints pro-ductivity, which allows the company to charge lower prices. Everyone wins. So does that mean traditional providers of commercial printing services will be driven out of business by companies like iPrint? Probably not. There are segments of customers who will always want personal advice and the direct involvement of professional designers. However, what this does say is that there are segments of cus-tomers in the marketplace who will respond to new choices and who are willing to co produce services, creating value and satisfaction for themselves. We examine the unique roles played by customers in service delivery situations. Service customers are often present in the factory (the place the service is produced and/or consumed), interacting with employees and with other customers. For example, in a classroom or training situation, students (the customers) are sitting in the factory interacting with the instructor and other students as they consume the educa-tional services. Because they are present during service production customers can con-tribute to or detract from the successful delivery of the service and to their own satis-faction. These roles are unique to service situations. In a manufacturing context, rarely does the production facility contend with customer presence on the factory floor, nor does it rely on the customers immediate real-time input to manufacture the product. As the example in the opening paragraphs of the chapter illustrates, service customers can actually produce the service themselves and to some extent are thus responsible for their own satisfaction. Using imprints online services, customers create value for themselves and in the process also reduce the prices they pay for printing services. Because-customers are participants in service production and delivery, they can po-tentially contribute to the widening-of gap 3. That is, customers themselves can influ-ence whether the delivered service meets customer-defined specifications. Sometimes customers contribute to gap 3 because they lack understanding of their roles and exactly what they should do in a given situation. This is particularly true in cases where the customer may be confronting a service concept for the first time. For example, customers using the services of imprint for the first time need detailed, but simple, instructions to help them understand how to use the service effectively and get the greatest value.
Customers Roles in Service Delivery

In the current environment of online and Internet-based services, customers can actu-ally produce services for themselves with little or no interpersonal interaction with the provider. One company, iPrint is changing the way business customers interact with commercial printers. iPrint, a Web-based custom printing service, bills itself as the most complete, fully automated, selfservice online creation, ordering, and commer-cial printing environment that the industry has ever seen. iPrint opened its storefront on the Internet in January 1997 and has seen orders grow 20 percent per month. By 1999, in just over two years, iPrint had had more than 2.5 million visitors to its Web site. Much of the relatively new companys success can be attributed to its business model, which provides customers an easy, continually accessible way to independently create and under customized print jobs, sometimes at half of the cost of traditional commercial printers. Customers of ,iPrint create their own value through participation in the production of customized printing services. Customers with little or no knowledge of graphic de-sign can easily, quickly, and from the convenience of their own home or office, create their own design on a wide range of products. iPrint offers business cards, notepads, stationery, various gift items, and promotional products. New products such as photo calendars and additional business forms are continually being added, many at the request of loyal customers. Although creating graphic designs is a highly complex process with hundreds of variable to consider, iPrint created a simple step-by-step process to create personal-ized products. Customers adapt existing designs to meet their specifications and then view the finished product, selecting from a wide range of options such as paper, font, size, and color (1S well as clip art or business logos. Completed designs can be purchased over the Internet and are typically received in a few days. Designs are also automatically saved for two years to allow for easy re-ordering. Although iPrint notifies customers via e-mail when the order is placed and when it has been printed, customers are also able to actively participate after the or-der has been placed by tracking the order throughout the processing printing, and shipping process. In addition to extensive customer education through detailed step-by-step instruc-tions, iPrint provides easy access to frequently asked questions, and contact with service providers is available through e-mail, phone, or fax if necessary. Customers participating in the design of their own products are rewarded
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At other times customers may understand their roles but be unwilling or unable to perform for some reason. In a health club context, a member may understand that to get into good physical shape he must follow the workout guidelines set up by the trainer. If work schedule demands or illness keep the member from living up to his part of the guidelines, the service will not be successful because of customer inaction. In a different situation, customers may choose not to perform the roles defined for them be-cause they are not rewarded in any way for contributing their effort. When service cus-tomers are enticed through price reductions, greater convenience, or- some other tan-gible benefit, they are more likely to perform theirroles willingly, as in the case of our opening vignette about iprint. Finally, gap 3 may be widened not through actions or inactions on the part of the customer, but because of what other customers do. Other customers who are in the service factory either receiving the service simultaneously (i.e., passengers on an air-plane flight) or waiting their turn to receive the service sequentially (i.e., bank cus-tomers waiting in line, Disneyland customers waiting for one of the rides) can influ-ence whether the service is effectively and efficiently delivered. This chapter focuses on the roles of customers in service delivery and strategies to effectively manage customers in the production process to enhance productivity, qual-ity, and customer satisfaction.
to facilitate the service performance. The drama metaphor provides a compelling frame of reference for recognizing the interdependent roles of actors and audience in service delivery. Recognition of the role of customers is also reflected in the definition of the people element of the services marketing mix given earlier. People: all h(.man actors who playa part in service delivery and thus influence the buyers perceptions; namely, the firms personnel, the customer, and other customers in the service environment. In this chapter we focus on the customer receiving the service, and other cus-tomers in the service environment, that is, the service audience. Customer Receiving the Service Because the customer receiving the service participates in the delivery process, she can contribute to gap 3 through her own appropriate or inappropriate, effective or in-effective, productive or unproductive behaviors. Even in a relatively simple service such as retail mail order, customers actions and preparation can have an effect on service delivery.4 Customers who are unprepared in terms of what they want to order can soak up the customer service representatives time as they seek advice. Similarly, shoppers who are not prepared with their credit-card numbers can put the represen-tative on hold while they search for their cards, or go to another room or even out to their cars to get them. Meanwhile, other customers and calls are left unattended, causing longer wait times and potential dissatisfaction. The level of customer participation-low, medium high-varies across services, as shown in Table 12-1. In some cases, all that is required is the customers physical presence (low level of participation), with the employees of the firm doing all of the service production work, as in the case of a symphony concert. Symphony-goers must be present to receive the entertainment service; but little else is required once they are seated. In other cases, consumer inputs are required to aid the service organization in creating the service (moderate level of participation). Inputs can include information effort, or physical possessions. All three of these are required for a CPA to prepare a clients tax return effectively: information in the form of tax history, marital status, and number of dependents; effort in putting the information together in a useful fashion; and physical possessions such as receipts and past tax returns. In some situations, cus-tomers can actually be involved in co creating the service (high level of participation). For these services customers have mandatory production roles that, if not fulfilled, will affect the nature of the service outcome. All forms of education, training, and health maintenance it this profile. Unless-the customer does ,something (e.g., studies, exer-cises, eats the right foods), the service provider cannot effectively deliver the service outcome. Table 12-1 provides several examples of each level of participation for both consumer and business-to-business services. The effectiveness of customer involve-ment at all of the levels will impact organizational productivity and ultimately, qual-ity and customer satisfaction.
The Lmportance of Customers in Service Delivery

Customer participation at some level is inevitable in service delivery. Services are ac-tions or performances, typically produced and consumed simultaneously. In many sit-uations employees, customers, and even others in the service environment interact to produce the ultimate service outcome. Because they participate, customers are indis-pensable to the production process of service organizations and they can actually con-trol or contribute to their own satisfaction. The importance of customers in successful service delivery is obvious if one thinks of service performances as a form of drama: The drama metaphor for services ,suggests the reciprocal, interactive roles of employees (actors), and customers (audience) in creating the service experience. The service actors and audience are surrounded by the service setting or the service escape .The drama metaphor argues that the development and maintenance of an in-teraction (e.g., a service experience) relies on the audiences input as well as the ac-tors presentation. Through this metaphor, service performances or service delivery situations are viewed as tenuous, fragile processes that can be influenced by behaviors of customers as well as by employees.3 Service performance results from actions and interactions among individuals in both groups. Consider the services provided by a cruise ship company. The actors (ships per-sonnel) provide the service through interactions with their audience (the passengers) and among each other. The audience also produces elements of the service through in-teractions with the actors and other audience members. And, both actors and audience are surrounded by an elaborate setting (the cruise ship itself) that provides it context
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Table 12-1 Levels Of Customer Participation Across Different Services

Low: Consumer presence Moderate: Consumer inputs required during service required for service creation delivery Products are standardized Client inputs customize a standard service Service is provided Provision of service requires regardless or--any customer purchase individual purchase Customer inputs (information, Payment may be the only materials) are necessary for an required customer input adequate outcome, but the service firm provides the service Examples: Haircut End consumer Annual physical exam Airline travel Full-service restaurant Motel stay Fast -food restaurant Agency -created advertising Business-to-business Campaign customer Payroll service Uniform cleaning service Freight transportation Pest control Interior greenery maintena nce service High: Customer co creates the service product Active client participation guides the customized service Service cannot be createdapart from the customer's purchase and active participation Customer inputs are mandatory and co create the outcome Marriage counseling Personal training Weight-reduction program Management consulting Executive management seminar Install computer network
cutting in line. Other times, dissatisfaction resulted when other customers were impersonal, rude, unfriendly, or even spiteful. There are just as many examples of other customers enhancing satisfaction and quality for their fellow customers as detracting from them. Sometimes the mere pres-ence of other customers enhances the experience. This is true at sporting events, in movie theaters, and in other-entertainment venues. The presence of other patrons is es-sential for true enjoyment of the experience: In other cases, other customers provide a positive social dimension to the service experience. At health clubs, churches, and re-sorts such as Club Med, other customers provide opportunities to socialize and build friendships as suggested in Figure 12-1. Long-time, established customers may also socialize new customers by teaching them about the service and how to use it effec-tively. In some situations, such as educational classrooms, group counseling, and weight-loss programs, customers may actually help each other to achieve service goals and outcomes. The success of the Weight Watchers organization, for example, depends significantly on the camaraderie and support that group members provide each other during the weight-loss process. In the study of central Florida tourist attractions men-tioned earlier, it was found that customers increased the satisfaction of others by hav-ing friendly conversations while waiting in line, taking photos, assisting with children, and returning dropped or lost items. Just the presence of other happy customers cre-ated a fun atmosphere that enhanced enjoyment of the attraction.
Other Customers In many service contexts, customers receive the service simultaneously with other cus-tomers or must wait their turn while other customers are being served. In both cases, other customers are present in the service environment and can affect the nature of the service outcome or process. Other customers can enhance customer satisfaction and perceptions of quality, or they can detract from satisfaction and quality. Some of the ways other customers can negatively affect the service experience are by exhibiting disruptive behaviors, causing delays, overusing, excessively crowding, and manifesting incompatible needs. In restaurants, hotels, airplanes, and other envi-rOpP1ents where customers are cheek to jowl as they receive the service, crying babies, smoking patrons, and loud, unruly groups can be disruptive and detract from the experiences of their fellow customers. The customer is disappointed through no direct fault of the provider. In other cases, overly demanding customers (even customers with le-gitimate problems) can cause a delay for others while their needs are met. This is a common occurrence in banks, post offices, and customer service counters in retail stores. Excessive crowding or overuse of a service can also affect the nature of the cus-tomer experience. Visiting Sea World in San Piego on the Fourth of July is a very different experience from visiting the same park mid-week in February. Similarly, the quality of telecommunication services can suffer on special holidays such as Christmas and Mothers Day when large numbers of customers all try to use the service at once. Finally, customers who are being served simultaneously but who have incompati-ble needs can negatively affect each other. This can occur in restaurants, college class-rooms, hospitals, and any service establishment where multiple segments are served simultaneously. In a study of critical service encounters occurring in tourist attractions across central Florida, researchers found that customers negatively affected each other when they failed to follow either explicit or implicit rules of conduct. Customers re-ported such negative behaviors as pushing, shoving, smoking, drinking alcohol, being verbally abusive, or
Customer Roles
The following sections examine in more detail three major roles played by customers in service delivery: customers as predictive resources; customers as contributors to quality and satisfaction; customers as competitors Customers as Productive Resources Service customers have been referred to as partial employees of the organization human resources who contribute to the organizations productive capacity. Some management experts have suggested that the organizations boundaries be expanded to consider the customer as part of the service system. In other words, if customers con-tribute effort, time, or other resources to the service production process, they should be considered as part of the organization. Customer inputs can affect the organizations productivity through both the quality of what they contribute and the resulting quality and quantity of output generated. For example, in contributing information and effort in the preparation of their tax returns, clients of a CPA firm are part of the service production process. The quality of the in-formation they provide ultimately affects the quality of the tax return. And, if they pro-vide information in a useful form, the accountant will spend less time preparing the return, thus allowing him to produce more returns in a given time. The contributions of the client thus enhance the overall productivity of the firm in both quality and quantity of service. In a different context, Southwest Airlines depends on customers to per-form critical service roles for themselves, thus increasing the overall productivity of the airline. Passengers are asked to carry their own bags when
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transferring to other air-lines, get their own food, and seat themselves. Customer participation in service production raises a number of issues for organi-zations. Because customers can influence both the quality and quantity of production, some experts believe the delivery system should be isolated as much as possible from customer inputs in order to reduce the uncertainty they can bring into the production process. This view sees customers as a major source of uncertainty-the timing of their demands, and the uncontrollability of their attitudes and actions. The logical con-clusion is that any service activities that do not require customer contact or involve-ment should be performed away from customers-the less direct contact there is be-tween the customer and the service production system, the greater the potential for the system to operate at peak efficiency. The introduction of ATM machines and auto-mated customer service telephone lines in the banking industry are both examples of ways to reduce direct customer contact in that industry, resulting in greater efficien-cies and reduced costs. Other routine banking tasks that employees used to perform in full view of customers have also been removed to back-office locations, out of sight of customers. Other experts believe that services can be delivered most efficiently if customers are truly viewed as partial employees and their participative roles are designed to maxi-mize their contributions to the service creation process. The logic in this case is that organizational productivity can be increased if customers learn to perform service -related activities they currently are not doing or are educated to perform more effec-tively the tasks they are already doing. For example, when self-service gasoline stations first came into being, customers were asked to pump their own gas. By having customers perform this task, fewer em-ployees were needed and the overall productivity of gas stations improved. Now many gas stations offer customers the option of paying for their gas at the pump by popping their credit cards into a slot on the pump, punching a few buttons, and leaving the sta-tion without dealing directly with a cashier. This option is popular with customers because it gets them out of the station quickly and also enhances productivity for the company by reducing reliance on cashiers. Interestingly, because of the resulting shorter lines at the cashier, some gas stations have also found that their sales of beer, soda, snacks, and other store items have actually increased. Automated checkout counters and selfscanning of items are innovations evolving within the grocery in-dustry. With this approach, customers can scan their own groceries using a handheld scanner and then take the bill to a cashiers station to pay. This increases organiza-tional productivity by using the customer as a resource. Customers as Contributors to Service Quality and Satisfaction Another role customers can play in services delivery is that of contributor to their own satisfaction and the ultimate quality of the services they receive. Customers may care little that they have increased the productivity of the organization through their par-ticipation, but they likely care a great deal about whether their needs are fulfilled. Ef-fective customer participation can
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increase the likelihood that, needs are met and that the benefits the customer seeks are actually attained. Think about services such as health care, education, personal fitness, and weight loss, where the service outcome is highly dependent on customer participation In these cases, unless the customer per-forms her role effectively, the desired service outcome is not possible. Research has shown that in education, active participation by students-as opposed to passive lis-tening-increases learning (the desired service outcome) significantly.13 The same is true inhea1th care, where patient compliance in terms of taking prescribed medica-tions or changing diet or other habits can be critical to whether the patient regains her health (the desired service outcome). In both of these examples, the customers con-tribute directly to .the quality of the outcome and to their own satisfaction with the service: In a business-to-business context, Yellow Freight Systems and others in the in-dustry have found that in many situations customers cause their own dissatisfaction with the service by failing to pack shipments appropriately resulting in breakage or delays when things need to be repacked. Research suggests that customers who believe they have done their part to be ef-fective in service interactions are more satisfied with the service. In a study done in the banking industry, bank customers were asked to rate themselves (on a scale from strongly agree to strongly disagree) on questions related to their contributions to service delivery as follows: What they did-technical Quality of Customer Inputs I clearly explained what I wanted the bank employee to do. I gave the bank employee proper information. I tried to cooperate with the bank employee. I understand the procedures associated with this service. How they did it Functional Quality of Customer Inputs I was friendly to the bank employee. I have a good relationship with the bank employee. I was courteous to the bank employee. Receiving this service was a pleasant experience. Results of the study indicated that the customers perceptions of both what they did and how they did it were significantly related to customers satisfaction with the service they received from the bank.That is, those customers who responded more positively to the questions were also more satisfied with the bank. Customers contribute to quality service delivery when they ask questions, take re-sponsibility for their own satisfaction and complain. When there is a service failure. Consider the service scenarios shown . The four scenarios illustrate the-wide variations in customer participation that cash result in equally wide variations in service quality and customer satisfaction. Customers who take responsibility, and providers who encourage their customers to become their partners in identifying and satisfying their own needs, will together produce bigger levels of service quality. Our Glohai Feature shows how Swedens IKEA, the worlds largest retailer of home furnishings, has creatively Engaged its customers in a new role:
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IKEA wants. It cus-tomers to understand that their role is not to consume value but to create it. The company relies on its customers to be IKEAs partners in creating value for themselves. .
some cases there is a-price discount advantage for self-service, but other times customers are motivated by convenience. and a sense-of greater control over the service outcome and timing of delivery. Interestingly, because service customers must participate in service-deliver, they frequently blame themselves (at least partially) when things go wrong. Why did it take so long to reach an accurate diagnosis of my health problem? Why was the service contract for our companys cafeteria food service full of errors? Why was the room we reserved for our meeting unavailable when we arrived? If customers believe they are partially (or totally) to blame for the failure, they may be less dissatisfied with the service provider than when they believe the provider is responsible and could have avoided the problem.
Exhibit 12-1 Which Customer (A Or B) will be Most Satisfied?

For each scenario, ask Which customer (A or B) will be most satisfied and receive the greatest quality and value, and why? Scenario 1: A major international hotel: Guest A called the desk right, after check-in to report that his TV was not working and that the-light over the bed was burned out; both problems were fixed immediately. The hotel staff exchanged his TV for one that worked and fixed the light bulb. Later they brought him a fruit plate to make up for the inconvenience. Guest B did not communicate to man-agement until checkout time that his TV did not work and he could not read in his bed. His complaints were over-heard by guests checking in who wondered whether they had chosen the right place to stay. Scenario 2: Office of a professional tax prepare: Client A has organized into categories the information necessary to do her taxes arid has provided all documents requested by the accountant. Client B has a box full of pa-pers and receipts, many of which are not relevant to her taxes but which she brought along just in case. Scenario 3: An airline flight from London to New York: Passenger A arrives for the flight with a portable tape player and reading material and wearing warm clothes; passenger A also called ahead to order a special meal. Passenger B, who arrives empty-handed, becomes annoyed when the crew runs out of blankets, complains about the magazine selection and the meal, and starts fidgeting after the movie. Scenario A: Architectural consultation for remodel-ing an office building: Client A has invited the architects to meet with its remodeling and design committee made up of managers, staff, and customers in order to lay the groundwork for a major remodeling job that will affect everyone who works in the building as well as customers. The committee has already formulated initial ideas and Surveyed staff and customers for input. Client B has invited architects in following a decision the week previously to remodel the building; the design committee is two man-agers who are preoccupied with other more immediate tasks and have little idea what they need or what customers and staff would prefer in terms of a redesign of the office space. In addition to contributing to their own satisfaction by improving the quality of service delivered to them, some customers simply enjoy participating in service de-livery. These customers find the act of participating to be intrinsically attractive. They enjoy using the Internet to attain airline tickets, or they may like to do all of their banking via ATMs and automated phone systems, or to pump their own gas. Often cus-tomers who like self-service in one setting (e.g., pumping their own gas) are predisposed to serving themselves in other settings as well (e.g., carrying their own bags onto the aircraft, using the self-service vending machines as opposed to room service, -purchasing travelers checks through an (ATM). In
Global Feature
At Swedens IKEA Customer Create Value for Themselves IKEN of Sweden has managed to transform itself from a small J11ail-orderfurniture company in the 1950s into the world largest retailer of home furnishings. In 1999 their 100 stores in 28 countries around the world were visited by close to 200 million people, generating more than $6 billion in revenues. The company sells simple Scandinavian design furnishings, charging 25 to 50 percent Iess than its competitors. Approximately 84 percent of sales come from Europe, percent from North America, and 3 percent from Africa. The first IKEA store in Mainland China opened in1998, and the first in Moscow opened in 1999. A key to IKEAs successful global expansion has been the companys policy of allowing each of its stores to tailor its mix according to local market needs and budgets. Another fascinating key to. IKEAs spectacular success is the companys relationship with its customers. IKEA has drawn the customer into its production system: If cus-tomers agree to take on certain key tasks traditi9nally done by manufacturers and retailers-the assembly of products and their delivery to customers homes-then IKEA promises to deliver welldesigned products at substantially, lower prices. In effect IKEAs customers become essential contributors -to valuethey create value for themselves through participating in the manufacturing and delivery process; IKEA has made being part of the value creation process an easy, fun, and pleasant experience for customers. The companys stores -are a pleasure to shop in. Free strollers and supervised childcare are provided as well as wheel-chairs for those who need them. When customers enter the store they are given catalogs, tape measures, pens, and notepaper to use as they shop, allowing the customer to perform functions commonly done by sales- and service- people After payment, customers take their purchases to their cars on carts; if necessary they can rent or buy a roof rack to carry larger purchases. Thus, customers also pro-vide furniture loading and delivery services for themselves. At home, the IKEA customer then takes on the role of manufactured in assembling the new furnishings following carefully written, simple, and direct instructions. IKEA prints more than 45 million catalogs per year in 38 editions and 17
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different languages, making its products and in-structions for their use accessible worldwide. IKEAs success is attributable in part to recognizing that customers can be part of the business system, performing roles they have never performed before. The companys implementation of this idea through clearly defining cus-tomers new roles and making it fun to perform these roles is the genius of their strategy. Through the process, customer create and contribute to their own satisfaction. Customers as Competitors A final role played by service customers is that of potential competitor. If self-service customers can be viewed as resources of the firm, or as partial employees, self-service customers could in some cases partially perform the service or perform the en-tire service for themselves and not need the provider at all. Customers thus in a sense are competitors of the companies that supply the service. Whether to produce a ser-vice for themselves (internal exchange), for example, child care, home maintenance, car repair, or have someone else provide the service for them (external exchange).is a common dilemma for consumers. Similar internal versus external exchange decisions are made by organizations. Firms frequently choose to outsource service activities such as payroll, data process-ing, research, accounting, maintenance, and facilities management. They find that it is advantage to focus an their care businesses and leave these essential support services to others with greater expertise. Alternatively, a firm may decide to stop pur-chasing services externally and bring the service production process in-house. Whether a house hold or a firm chooses to produce a particular service for itself or contract externally far the service depends on a variety of factors. A proposed model of internal/external exchange suggests that such decisions depend on the following Expertise capacity - The likelihood of producing the service internally is increased if the household or firm possesses the specific skills and knowledge needed to produce it Having the expertise will not necessary result in internal service production how ever because other factors (e.g., available resource, and time) will also influence the decision. (Far firms, making the decision to outsource is often based on recognizing that although they may have the expertise, someone else can do it better.) Resource capacity- To decide to produce a service internally, the household or firm must have the needed resources including people, space, money, and materials-If the resources are not available internally, external exchange is more likely. Time capacity-Time is a critical factor in internal/external exchange decisions. Households and firms with adequate time capacity are more likely to produce services internally than are groups with time constraints. Economic rewards-The economic advantages or disadvantages of a particular ex-change decision will be influential in choosing between internal and external options. The actual monetary costs of the two options will be factors that sway the decision. Psychic rewards-Rewards of a non-economic nature have a potentially strong in-fluence on exchange decisions. Psychic
rewards include the degree of satisfaction, en-joyment, and gratification, or happiness that is associated with the external or internal ex-change. Trust-In this context trust means the degree of confidence or certainty the household or firm has in the various exchange options. The decision will depend to same ex-tent the level of self-trust versus trust of others in the particular context. Control The house hold or firms desire far control aver the process and outcome of the exchange will also influence the internal/external choice. Entities that desire and can implement a high degree of control aver the tasks are more likely to Engage in in- external exchange. The important thing to remember from this section is that in many service scenario customers can and do choose to fully or partially produce the service themselves. Thus in addition to recognizing that customers can be productive resources and co creators of quality and value, organizations also need to recognize the customers role as a potential competitor.
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LESSON 26: STRATEGIES FOR ENHANCING CUSTOMER PARTICIPATION

Strategies for enhancing Customer participation
Strategies for Enhancing Customer Participation

From the preceding discussion it is clear that the level and nature of customer participation in the service process are strategic decisions that can impact an organizations productivity, its position relative to competitors, its service quality, and its cus-tomers satisfaction. In the following sections well examine the strategies captured in Figure 12-3 far involving customers effectively in the service delivery process. The overall goals of a customer participation strategy will typically be to increase produc-tivity and customer satisfaction while simultaneously decreasing uncertainty due to unpredictable customer actions. The ultimate form of customer participation IS self-service, often facilitated by technology Fine Customer Jobs In developing strategies for addressing customer involvement in service delivery, the organization first determines what type of participation it wants from customers, thus beginning to define the customers job. Identifying the current level of customer par-ticipation can serve as a starting point. Customers roles may be partially predeter-mined by the nature of the service, as suggested earlier in Table 12-1. It may be that the service requires only the customers presence (e.g., a concert, airline travel), or it may require moderate levels of input from the customer in the form of effort. or infor-mation (e.g., haircut, tax preparation), or it may require the customer to actually core ate the service outcome (e.g., fitness training, consulting). The organization may decide that it is satisfied with the existing level of participa-tion it requites from customers but wants to make the participation more effective. For example Charles Schwab has always positioned itself as a company whose customers are highly involved in their personal investment decisions. Over time this position has been implemented in different ways. Advances in technology have allowed Charles Schwab to solidify its position as the investment company for independent investors, as featured in the Technology spotlight .Alternatively, the organization may choose to increase the level of customer partic-ipation, which may reposition the service in the customers eyes Experts have sug-gested that higher levels of customer participation are strategically advisable when service production and delivery are inseparable; marketing benefits (cross-selling, building loyalty)can be enhanced by on-site contact with the customer; and customers can supplement for the labor and information provided by employees. In health care, researchers and providers are working on ways to gain more active customer participation in treatment decisions. By viewing videotapes that combine scientific data, candid
patient interviews, and descriptions of the risks and benefits of different treatment options, patients can be better educated and able to participate in their own treatment decisions. By actively involving patients in treatment decisions and other issues relevant to their own health, a particular health care organization (or perhaps eventually the whole industry) might reposition itself and in effect democra-tize the doctor-patient relationship. In addition to causing a shift in the roles of pa-tients and providers, videos and other similar practices could have a profound effect on the industry? At Kaiser Permanente Medical Group in Denver, the rate of prostate surgery among its members plunged 44 percent in the first year after doctors began showing patients a video on benign prostate disease. The video made patients more aware of alternative treatments, and the pros and cons of surgery. At Group Health of Puget Sound, a health maintenance organization in Washington state, surgery rates dropped 60 percent after patients viewed the prostate disease video. Technology Spotlight User friendly and reliable, customer understand their roles, and they have the capability to use the technology. Research suggest that as firms move into SSTs as a mode of delivery, some important questions to ask are:
What is our strategy? What do we hope to achieve through
the SSTs (e.g., cost saving, revenue growth, competitive advantage)? What are the benefits to customers of producing the service on their own through the SST? Do they know and understand these benefit ?
How can customers be motivated to try the SST? Do they
understand their role? Do they have the capability to perform this role?
How technology ready are our customer? Are there segments
of customers who are more ready to use the technology than others?
How can customers be involved in the design of the service
technology system and processes so that they will be move likely to adopt and use the SST?
What form of customer education will be needed to
encourage adopting? Will other incentives be needed? Adopting SSTs requires a behavior change for customers moving from a nonexistent or partial co production role to the role of sole producer, the ultimate in customer participation. Finally, the organization may decide it wants to reduce customer participation, due to all the uncertainties it causes In such situations the strategy may be to isolate all but-the essential tasks keeping customers away from the service facility and employees much as possible Mail order is an extreme example of this form of service. Customers are in contact with the
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organization via telephone or the Internet, never see the organizations facility, and have limited employee interactions. The customers role is thus extremely limited and can interfere very little with the service delivery process. Once the desired level of participation is clear, the organization can define more specifically what the customers job entails The customers job description will vary with the type of service and the organizations desired position within its industry.
The Customers Job: Helping Himself
In many cases the organization may decide to increase the level of customer involvement in service delivery through active participation. In such situations the customer becomes a productive resource, performing aspects of the service heretofore per-formed by employees or others. Many of the examples presented in this chapter are il-lustrations of customers helping themselves (e.g., IKEA of Sweden, Charles Schwab, Kaiser Permanente, Group Health of Puget Sound). In each of these cases, the customer has particular tasks that must be performed to fulfill his or her role. The result may be increased productivity for the firm and/or increased value, quantity, and satisfaction for the customer.
The Customers Job: Helping Others
Participate Some customer segments enjoy self-service: whereas others prefer to have the service performed entirely for them. In banking, one customer may prefer that a human teller complete all of her transactions, whereas another much prefers the ATM and automated banking via touch tone phone. Companies that provide education and training services to organizations know that there are some customers who want to be involved in desigI1ing the training and perhaps in delivering it to their employ-ees. Other companies: want to hand over the entire training design and delivery to the consulting organization staying at arms length with little of their own time and energy invested in the service. In health care, it is dear that some patients want lots of infor-mation and want the doctor to tell them what in their own diagnosis and treatment decisions. Oth-ers simply want the doctor to tell them what to do. Despite all of the customer service and purchase options now available via the Internet, there are still large numbers of customers who prefer human, high-contact service delivery rather than self-service. Because of these differences in preferences, most companies find they need to provide service delivery choices for different market segments. Often an organizational can customize its services to fit the needs of these different segments-those who want to participate and those who prefer little involvement. Banks typically do this by offering both automated self-service options and high touch, human delivery options. At other times, as in the case of Charles Schwab or IKEA (see Global Feature), the organization can effectively position itself to specifi-cally serve only segments of customers who, want to participate by designing its services to require, customer independence and involvement.
Sometimes the customer may be called on to help others who are experiencing the service. A child at a day care center might be appointed buddy of the day to help a new child acclimate into the environment. Long-time residents of retirement commu-nities often assume comparable roles to welcome new residents. Many universities have established men to ring programs, particularly for students from minority groups, in which experienced students with similar backgrounds help newcomers adjust and learn the system. Many membership organizations (e.g. health clubs, churches, social organizations) also rely heavily, although often informally, 011 current members to help orient new members and make them feel welcome. In performing these types of roles, customers are again performing productive functions for the organization, increasing customer satisfaction and retention. Acting as a mentor or facilitator can have very positive effects on the person performing the role and is likely to increase his or her loyalty as well.
The Customers Job: Promoting the Company
Exhibit 12-2 Customers as Service Promoters

Organizations often encourage their customers to help promote the organizations services through word of mouth. Here we share a variety of examples from different indus-try contexts: A dental practice encourages referrals by sending flow-ers, candy, or tickets to a local sports event to its patients whose names appear frequently in their who referred you? database. A bowling alley holds a drawing for one of it regular patrons. The person whose name is drawn is given a party at the bowling alley to which he or she can invite friends for free bowling. This effectively creates a word-of -mouth champion who brings new people into the estab-lishment. A chiropractor gives a free next exam to people who re-fer new patients. Patients who make referrals have their names listed on a board in the office waiting area. To increase membership, a credit union published a member referral coupon in its newsletter those who re-ferred new members: were then given $5. A credit card that gives customers frequent flyer points every time they use their credit card, offers 10,000 free miles to those who can solicit a new credit -card customer. A nightclub holds regular drawings (using business cards left by its patrons). Those whose names are drawn -get a free party (no entry charge) for as many of their friends as they want to invite.
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In some cases the customers job may include a sales or promotional element. As you know from previous chapters, service customers rely heavily on word-of-mouth endorsements in deciding which providers to try. They are more comfortable getting a recommendation from someone who has actually experienced the service than from advertising alone. A positive recommendation from a friend, relative, colleague, or even an acquaintance can pave the way for a positive service experience. Many service organizations have been very imaginative in getting their current customers to work as promoters or salespeople, as shown in Exhibit 12-2.
Individual Differences: Not Everyone Wants to Participate
In defining customers jobs it is important to remember that not everyone will want to
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An express contact Lens Company asks patrons to list friends names on a card. For each friend who buys, the original patron gets $15 or a free pair of disposable con-tacts. Recruit, Educate,and Reward Custome,Rs Once the customers roles clearly defined, the organization can think in terms of fa-cilitating that role. In a sense, the customer becomes a partial employee of the or-ganization at some level, and strategies for managing customer behavior in service production and delivery can mimic to some degree the efforts aimed at service em-ployees discussed in Chapter 11. General models of employee behavior suggest that behavior is determined, by role dairy, ability to perform and motivation to perform. Similarly, customer behavior in a service production and delivery situation will be ciliated when (l) customers understand their roles and how they are expected to per-form, (2) customers are able to perform as expected, and (3) there are valued rewards for performing as expected. Through these means, the organization will also reduce the inherent uncertainty associated will the unpredictable quality and timing of cus-tomer participation.
Recruit the Right Customers
forms of education are discussed further in the following paragraphs. Many services offer customer orientation programs to assist customers in under-standing their roles and what to expect from the process before experiencing it. Uni-versities offer orientation programs for new students, and often for their parents as well, to preview the culture, university procedures, and expectations of students. Sim-ilarly, health clubs use formal training programs to educate customers on how to use the facilities and equipment. When customers begin the Weight Watchers program their first group meeting includes a thorough orientation to the program and their re-sponsibilities, as described in Exhibit 12-3. In, a mammography screen context, research has found that orientation and formal education of customers can relieve customer fears and perceptions of risk and ulti-mately increase customer satisfaction (see Exhibit 12-4). Customer education can also be partially accomplished through written literature and customer, handbooks that describe customers roles and responsibilities. Many hospitals have developed patient handbooks, very similar in appearance to employee handbooks, to describe what the patient should do in preparation for arrival at the hospital, what will happen when he or she arrives, and policies regarding visiting hours and billing procedures. The handbook may even describe the roles and responsibilities of family members.
Before the company begins the process of educating and socializing customers for their roles; it must attract the right customers to fill those roles. The organization should seek to attract customers who will be comfortable with the roles. To do this, it should clearly communicate the expected roles and responsibilities in advertising, per-sonal selling, and other company messages. By previewing their roles and what is required of them in the service process, customers can self-select into (or out of) the re-lationship. Self-selection should result in enhanced perceptions of service quality from the customers point of view and reduced uncertainty for the Organization To illustrate, a child care center that requires parent participation on the site at least one-half day per week needs to communicate that expectation before it enrolls any child in its program. For some families, this level of participation will not be possible or desirable, thus precluding them from enrolling in the center. Another center could choose to have a variety of options available for families ranging from no on-site par-ticipation to daily participation. Whatever the case, the expected level of participation needs to be communicated clearly in order to attract customers who are ready and willing to perform their roles. In a sense this is similar to a manufacturing firm exercising control over the quality of inputs into the production process.
Educate and Train, Customers to Perform Effectively
Exhibit 12 Weight Watchers Educates and Orients New Members

When new members first join Weight Watchers, one of the largest and most successful commercial weight-loss organizations in the world, they are thoroughly educated re-garding the program and their responsibilities. For example, when a new member attends her first meeting at a local chapter of Weight Watchers of Arizona, she watches a video that tells about the program and reviews how the food plan works. New members are also given a booklet entitled Welcome to Weight Watchers that covers topics such as welcome to weight watches. Weight loss consumer bill of rights here are the facts, what should I Know Before I Begin the Program? Important Health No-tices, How Do I Qualify for Weight Watchers Membership? What Can I Expect from the Weight Watchers Pro-gram?, Nutritional Content of the Food Plan, Activity Plan, Behavioral Support, Maintenance Plan, and others. In addition to the video, the booklet, and a discussion of all topics led by the group leader, the new member also receives a Program Planner and Tracker. This form is used by the member to record daily food selections and physical activity. Weight Watchers knows that its business cat} succeed only if members do their part in following the weight-loss plan. Through the orientation, the booklets, and the food and activity forms, the organization clearly defines the members responsibilities and makes the plan as easy as possible to follow.
Customers need to be educated, or In essence socialized so that they can perform their roles effectively. Through the socialization process, it is possible for service cus-tomers to gain an appreciation of specific organizational values, develop the abilities necessary to function within a specific context, understand what is expected of them, and acquire the skills and knowledge to interact with employees and othercus-tomers.3l Customer education programs can take the form of formal orientation pro-grams, written literature provided to customers, directional cues and signage in the service environment, and learning from employees and other customers. Each of these
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Exhibit 12-4. Realistic Service Previews Reduce Customer Anxiety and Improve Satisfaction
Research in a mammography screening context found that if potential patients are oriented through a realistic preview of the
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process, patient anxiety is-reduced and ultimate sat-isfaction increased. An experiment was conducted that in-volved 134 women who had never experienced a mammo-gram and who had little knowledge about the procedure. Half of the women were given a realistic preview of the process, while the others received no preview. The preview consisted of written information about mammography including sections on: what is a mammogram, how the pro-cedure works, instructions to follow before mammography, what happens during mammography, after the examination, the role .of mammography, and some common misconcep-tions. The realistic preview also included a seven-minute videotape illustrating the entire procedure. The written ma-terials and the videotape both helped to dispel overly pes-simistic expectations as well as to guard against overly pos-itive ideas the potential patients may have had. After the preview (or no preview), women in the exper-iment answered questions that assessed the accuracy of their expectations, their sense of control, and their level of anxiety relative to mammography. The women then read one of three versions of an actual mammography experience and were asked to imagine themselves as the woman in the story. One version of the story followed the realistic preview exactly, another version included several blunders on the part of the fictitious provider, and the final version enhanced the service experience, making it even better than the realistic preview. After reading the story, and imagining that the events had actually happened to them, the women responded to questions regarding their satis-faction with the mammography screening process. Results of the study showed that those women who had been oriented through the realistic preview did indeed have more realistic and accurate expectations for the mammog-raphy experience than did those who had. no preview. Sec-ond, the women who saw the preview reported signifi-cantly less anxiety and significantly greater perceptions of control over the process than did women who had no pre-view. Finally, across all of the different scenarios, women who received the preview were more satisfied with the actual service experience. The realistic preview thus af-fected potential mammography patients preserves feelings (anxiety and control), as well as their satisfaction with the service. While formal training and written information are usually provided in advance of the. service experience, other strategies can be employed for continuing the customer socialization process during the experience itself. On site, customers require two kinds of orientation: place orientation (where am I? and how do 1 get from here to there?), and function orientation (how does this organization work? and what am 1 supposed to do?) Signage, the layout of the service facility, and other orientation aids can help customers to answer these questions, allowing them to perform their roles more ef-fectively. Orientation aids can also take the form of rules that define customer behav-ior for safety (airlines, health clubs), for appropriate dress (restaurants, entertainment venues), and noise levels (hotels, classrooms, theaters). Before showing a movie, many theaters now flash a sign on the screen that says Please, no talking, or crying babies.
Customer are also socialized to their expected roles though information provided by employees and by observing other customers. It has been said that when McDon-alds first went to England, the British customers were not accustomed to busing their own trays. They quickly learned, however, by observing the customers McDonalds had hired to demonstrate appropriate busing behavior. These customers were hired to sit in the restaurants and at predictable intervals to carry a dirty tray over to the trash can and dispose of it.
Reward Customers for Their Contributions
Customers are more likely to perform their roles effectively, or to participate actively, if they are rewarded for doing so. Rewards are likely to come in the form of increased control over thedelivery process, timesavings, monetary savings, and psychological or physical benefits. For instance, some CPA firms provide clients with extensive forms to complete before they meet with their accountant. If the forms are completed, the CPA will have less work to do and the client will be rewarded with fewer billable hours. Those clients who choose not to perform the requested role will pay a higher price for the service. ATM customers who perform banking services for themselves are also rewarded, through greater access to their bank, both in terms of locations and times. In health care contexts, patients who perform their roles effectively are likely to be rewarded with better health or quicker recovery. Customers may not realize the benefits or rewards of effective participation unless the organization makes the benefits apparent to them. In. other words, the organization needs to clarify the performance-contingent benefits that can accrue to customers just as it defines these types of benefits to employees. The organization also should recog-nize that-not all customers are motivated by the same types of rewards. Some may value the increased access and timesavings they can gain by performing their service roles effectively. Others may value the monetary savings. Still others may be looking for greater personal control over the service outcome.
Avoid Negative Outcomes of Inappropriate Customer Participation
If customers are not effectively socialized, the organization runs the risk that in appropriate customer behaviors will result in negative outcomes 1. Customers who do not understand the service system or the process of .delivery may slowdown the service process and negatively affect their own as well as other customers outcomes. In a rental car context, customers who do not under-stand the reservation process the information needed from them; insurance cov-erage issues, and the pick-up and drop-off procedures can slow the flow for em-ployees and other customers, negatively affecting both productivity and quality of service. 2. If customers dont perform their roles effectively, it may not be possible for employees to provide the levels of technical and process quality promised by the or-ganization. For example, in a management consulting practice, clients who do not provide the level of information and cooperation needed by the consultants will likely receive inferior service
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both in terms of the usefulness of the management report and the timeliness of the delivery. 3. If customers are frustrated because of their own inadequacies and in competencies employees are likely to suffer emotionally and beless able to deliver qual-ity service For example, if customers routinely enter the service delivery process with little knowledge of how the system works and their role in it, they are likely to take out their frustrations on front-line employees. This negative impact on in-dividual employees can take its toll on the organization in the form of turnover and decreased motivation to serve. Manage the Customer Mix Because customers frequently interact with each other in the process of service deliv-ery and consumption, another important strategic objective is the effective manage-ment of the mix of customers who simultaneously experience the service. If a restau-rant chooses to serve two segments during the dinner hour that are incompatible with each other for example, single college students who want to party and families with small children who want quiet-it may find that the two groups do not merge well. Of course it is possible to manage these segments so that they do not interact with each other by seating them in separate sections or by attracting the two segments at differ-ent lines of day. Smokers and nonsmokers are c6ften incompatible segments that a service firm must manage if it wants to serve both segments well. Major tourism at-tractions around the world are faced with the challenge of accommodating visitor segments who differ in the languages they speak, the foods they want to eat, their values, and their perceptions of appropriate behaviors. Sometimes these visitors call clash when they do not understand and appreciate each other. The process of managing multiple and sometimes conflicting segments is known as compatibility management, broadly defined as a process of first attracting homoge-neous consumers to the service environment, then actively managing both the physi-cal environment and customer-to-customer encounters in such a way as to enhance satisfying encounters and minimize dissatisfying encounters. Compatibility man-agement will be critically important for some businesses (e.g., health clubs, public transportation, hospitals) and less important for others. Table 12-2 lists seven interrelated characteristics of service businesses that will increase the importance of com-patibility management. Table 12-2 Characteristics Of Service That Increase The Importance Of Compatible Segments
Characteristic Customers are in close physical proximity to each other Explanation Customers will more often notice each other and be influenced by each other's behavior when they are enclose physical proximity. Conversation (or lack thereof) can be a component of Both satisfying and dissatisfying encounters with fellow patrons When a service facility supports varied activities all going on at the same time, the activities themselves may be compatible. Example Airplane, flights Entertainment events Sports events Full-service restaurants Cocktail lounges Educational settings Libraries Health clubs Resort hotels
The service environment' attracts a heterogeneous customer mix.
Many service environments, particularly those open to the public, will attract a variety of customer segments. The core service is to arrange and nurture compatible relationships between customers. Waiting in line for service can be monotonous or anxiety producing. The boredom or stress can be magnified or lessened by other customers depending on their compatibility. The need to share space, time and other service factors is common in many services, but may become a problem if segments are not comfortable with sharing or with each other or when the need to share is intensified due to capacity constraints.
Public parks Public transportation Open-enrollment colleges Big Brothers/Big Sisters Weight-loss group programs Mental health support groups Medical clinics Tourist attractions Restaurants
The core service is compatibility.
Customers must occasionally wait for the service.
Customers are expected to share time, space, or service utensils with each other.
Golf courses Hospitals Retirement communities Airplanes
To manage multiple (and sometimes conflicting) segments, organizations rely on a variety of strategies. Attracting maximally homogeneous groups of customers through careful positioning and segmentation strategies is one approach. This is the strategy used by the Ritz-Carlton Hotel Company, for which upscale travelers are the primary target segment. The RitzCarlton is positioned to communicate that message to the marketplace, and customers self-select into the hotel. However, even in that context there are potential conflicts, for example when the hotel is simultaneously hosting a large business convention and serving individual business travelers. A second strategy is often used in such cases. Compatible customers are grouped together physically so that the segments are less likely to interact directly with each other. The Ritz-Carlton keeps meetings and large group events separated from the areas of the hotel used by individual businesspeople. As much as possible, sleeping rooms can be assigned on the same basis. Other strategies for enhancing customer compatibility include customer codes of conduct such as the regulation of smoking behavior and dress codes. Clearly such codes of conduct may vary from one service establishment to another. Finally, train-ing employees to observe customer-to-customer interactions and to be sensitive to po-tential conflicts is another strategy for increasing compatibility among segments. Employees can also be trained to recognize opportunities to foster positive encounters among customers in certain types of service environments.
Summary
This chapter focused on the. role of customers in service delivery. The customer re-ceiving the service and the other customers in the service environment can all poten-tially cause a widening of gap 3 if they fail to perform their roles effectively. A num-ber of reasons why customers may cause a widening of the service delivery gap were suggested: Customer lack understanding of their roles customers are unwilling or unable to perform their roles customers are not rewarded for good performance other customers interfere market segments are incompatible. The challenge of managing customers in the process of service delivery is unique to service firms. While manufacturers are not
There is verbal interaction a mong customers. Customers are engaged in numerous and varied activities.
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c0ncemed with customer participation in the manufacturing process, service managers are constantly faced with this issue, because their customers are often present and active partners in service production. As participants in service production and delivery, customers can perform three primary roles, discussed and illustrated in the chapter: productive resources for the organiza-tion contributors to service quality and satisfaction, and competitors in performing the service for themselves. Through understanding the importance of customers in service delivery and identi-fying the roles being played by the customer in a particular context, managers can de-velop strategies to enhance customer participation. Strategies discussed in the text in-clude defining the customers roles and jobs, recruiting customers who match the customer profile in terms of desired level of participation educating customers so they are able to perform their roles effectively, rewarding customers for their contributions and managing the customer mix to enhance the experiences of all segments. By implementing these strategies, organizations should see a reduction in gap 3 due to ef-fective and efficient customer contributions to service delivery. Who are the biggest consumers of distance learning? High-tech companies use more distance learning than any other industry because of the fast pace of product change. Higher education statistics show that 90 percent of all higher education institutions with more than 10,000 students and 85 percent of those with enrollments of 1,000 to 10,000 offer distance education courses. How effective is distance learning? Some skeptics overlook the fact that learning is not a place; its a process, claims Vicky Phillips, author of the book, The Best Dis-tance Learning Graduate Schools. Current research is sketchy, but one study supports her point. A researcher analyzed studies from 248 separate sources on the effective-ness of online degree programs and concluded that people learn just as well with a personal computer as they do by spending hours sitting in lecture halls. Much re-mains to be learned about the effectiveness of distance learning as a whole as well as the types of distance learning that are most successful. How effective is distance learning in other cultures and countries? Thomas Cooper, an expert on mass communication, emphasizes that trust is a critical component of communication. Trust in many cultures involves either touch or direct vision, some-thing that is not achieved with technology. The United States is one of the few cultures in which technologies such as bank teller machines are trusted by most consumers. For videoconferencing to be introduced in cultures where surrogate or substitute people are either offensive or not acceptable-the technology seems to be culturally insensitive if not inappropriate for many people. Also, there are some cultures that accept distance learning but still feel reduced, trivialized, muzzled, or as in the word, distanced from the educational process. Only time will tell how far the distance learning revolution will go, but many prog-nosticators expect it to completely alter the way learning is achieved. According to one expert: Education will change from a place-centered enterprise to education where you need it. A decade from now, it wouldnt
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surprise me if the majority of education took place in peoples homes, in peoples offices, on the production line, wherever it is needed. Except for situations such as distance learning, where electronic channels can be used to distribute services, providers and consumers come into direct contact in service pro-vision. Because of the inseparability of production and consumption in service, providers must either be present themselves when customers receive service or find ways to involve others in distribution. Involving others can be problematic, because quality in-service occurs in the service encounter between company and customer. Unless the service distributor is willing and able to perform in the service encounter as the service principal would, the value of the offering decreases and the reputation of the original service may be damaged. Chapter 11 pointed out the challenges of con-trolling encounters within service organizations themselves, but most service (and many manufacturing) companies face an even more formidable task: attaining service excellence and consistency when intermediaries represent them to customers. This chapter discusses both the challenges of delivering service through intermediaries and approaches that engender alignment with the goals of the service provider. Two services marketers are involved in delivering service through intermediaries: the service principal, or originator, and the service deliverer; or intermediary. The service principal is the entity that creates the service concept (whose counterpart is the manufacturer of physical goods), and the service deliverer is the entity that interacts with the custom in the actual execution of the service (whose counterpart is the dis-tributor or wholesaler of physical goods). Because both the service supplier and the service deliverer are potential roles that you may play in your career, we examine the issues surrounding distribution of services from both perspectives. Service intermediaries perform many important functions for the service principal. First, they often co produce the service, fulfilling service principals promises to cus-tomers. Franchise services such as haircutting, key making, and dry cleaning are pro-duced by the intermediary (the franchisee) using process developed by the service principal, (hence the phrase co producer). Service intermediaries also make services locally available, providing time and place convenience for the customer. Because they represent multiple service principals, such intermediaries as travel and insurance agents provide a retailing function for customers, gathering together in one place a va-riety of choices. And in many financial or professional services, intermediarys func-tion as the glue between the brand or company name and the customer by building the trusting relationship required in these complex and expert offerings. In contrast to channels for products, channels for services are almost always direct, if not to the customer then to the intermediary that sells to the customer. Because services cannot be owned, there are no titles or rights to most services that can be passed along a delivery channel. Because services are intangible and perishable, inven-tories cannot exist, making warehousing a dispensable function. In general, because services
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cant be produced, warehoused, and then retailed as goods can, many channels available to goods producers are not feasible for service firms. Many of the primary functions distribution channels serve-inventorying, securing, and taking title to goodshave no meaning in services. The focus in service distribution is on identify-ing ways to bring the customer and principal or its representative together. The options for doing so are limited to franchisees, agents brokers, and electronic channels. We do not include retailers in our short list of service intermediaries because most retailers from department stores to discount stores-are channels for delivering physical goods rather than services. Retailers that sell only services (movie theaters, film-processing kiosks, restaurants) or retail services that support physical products (automobile dealers, gas stations) can also be described as dealers or franchises. For our purposes in-this chapter they are grouped into-the franchise category because they possess the same characteristics, strengths, and weakness as franchises. Goods retailers, by the way, are service organizations themselves, making them in-termediaries for goods if not services. Manufacturing companies depend on retailers to represent, explain, promote, and ensure their products-all presale services. They also need retailers to return, exchange, support, and service products-all post scale services. These roles are increasingly critical as products become more complex, tech-nical and expensive. For example, camera and computer firms rely on retailer carry-ing their products to understand and communicate highly technical information so that customers choose products that fit their needs. A retailer that leads the customer to the wrong product choice or that inadequately instructs on how to use it creates service problems that strongly influence the manufacturers reputation. Service principals depend on their intermediaries to deliver service to their specifi-cations. It is in the execution by the intermediary that the customer evaluates the qual-ity of the company. When a McDonalds franchisee cooks the McNuggets too short a time, the customers perception of the companyand of other McDonalds fran-chisees-is tarnished. When one Holiday Inn franchisee has unsanitary conditions, it reflects on all others and on the Holiday Inn brand itself. Unless service providers en-sure that the intermediarys goals, incentives, and motives are consistent with their own, they lose control over the service encounters between the customer and the in-termediary. When someone other than the service principal is critical to the fulfillment of quality service, a firm-must develop ways to either control of motivate these inter-mediaries to meet company goals and standards. This chapter describes the types and roles of service intermediaries
Tutorials
In light of above, Enumerate the variety of roles that service customers play: productive resources for the organization; contributors to quality and satisfaction; competitors.
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LESSON 27: DELIVERING THROUGH INTERMEDIARY CHANNELS

Objectives of this Lesson are to
Direct or company owned channels Key problems involving intermediaries Key intermediaries involved in service delivery
Direct or Company-owned Channels

Although we call this chapter Delivering Service through Intermediaries and Elec-tronic Channels, it is important to acknowledge that many services are distributed di-rectly from provider - t9 customer. Some of these are local services doctors, dry cleaners, and hair stylists-whose area of distribution is limited. Others are national chains with multiple outlets but are considered direct channels because the provider owns all the outlets. Starbucks, the popular chain of coffee shops, is an example of a service provider with all company-owned outlets. Its 2,000 U.S.-based coffee shops are completely run and managed by the company. Exhibit 13 1 which describes some of the reasons for the success of the chain, illustrates the general benefits of company- owned outlets: control, consistency, arid maintenance of image. Perhaps the major benefit of distributing the way Starbucks does through company- owned channels is that the company has complete control over the outlets. One of the most critical implications of this type of Control is that .the owner can maintain con-sistency in service provision. Standards can be established, and will be carried out as planned, because the company itself is able to monitor and reward proper execution of the service. Control over hiring, firing, and motivating employees is also a benefit of company-owned channels. As demonstrated in Exhibit 13-1, one of the keys to Star-bucks success is hiring the right baristas or coffee makers, something the company is far more likely to do than a franchisee. Using company-owned channels allows the company to expand of contract sites without being bound by contractual agreements with other entities. A final benefit is that the company owns the customer relationship. In service industries where skilled or professional workers have individual rela-tionships with customers, a major concern involves whether the loyalty the customer feels is for the company or for the individual service employee. It is well known, for example, that-most people are loyal to individual hair stylists and will follow them from one place of business to another. Therefore, one of the important issues in service delivery is who owns the customer relationship-the store or the provider. With company-owned channels, the company owns both the store and the em-ployee and therefore has complete control over the customer relationship. Technology Spotlight Self-service technologies-the ultimate in customer participation Self-service technologies are services produced entirely by the customer without any direct involvement or interaction with
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the firms employees. As such they represent the ultimate form of customer participation along a continuum from services that are produced entirely by the firm to those that are produced entirely by the customer. This continuum is depicted in the accompanying figure, using the examples of retail gasoline service to illustrate the various ways the same service could be delivered along all points on the continuum. At the far end of the continuum, the gas station attendant does everything from pumping the gas to taking payment. On the other end of the spectrum, the customer does everything, and in between are various forms and levels of customer participation. Services Production Continuum Customer Production 1 2 Joint Production Firm Production 3 4 5
Gas Station Illustration 1. Customer pumps gas and pays at the pump with automation 2. Customer pumps gas and goes inside to pay attendant 3. Customer pumps gas and attendant takes payment at the pump 4. Attendant pumps gas and customer pays at the pump with automation 5. Attendant pumps gas and customer goes inside to pay attendant 6. Attendant pumps gas and takes payment from customer at the pump Advances in technology, particularly the internet, have allowed the introduction of a wide range of self-service technologies that occupy the far left end of the customer participation continuum. These technologies have proliferated as companies se the potential cost savings and efficiencies that can be achieved, potential sales growth, increased customer satisfaction, and competitive advantage. Here is a partial list of some of the types of self-service technologies (SSTs) available to consumers:
ATMs Pay at the pump Automated airline check-in Automated hotel check-in/out Automated car rental Automated filling of legal claims Automated drivers license testing Automated betting machines Electronic blood pressure machines Various vending services (food, drink, cameras, etc) Tax preparation software
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Self-scanning at retail stores Internet banking MVD auto registration online Online auctions Home and car buying online Automated investment transactions Insurance online Package tracking Internet shopping (amazon.com. Gap, E-stamps, etc.,) Internet information search Various IVR phone systems (phone banking, prescription
quality customer service. Baristas are , taught coffee knowledge so that among other things they know how everything tastes and customer service so that they can explain the Italian drink names to customers. Ensuring Product Quality Retail skills is another portion of the training, which teaches such specifics as how to wipe oil from the coffee bin, open a giant bag of beans, and clean the milk wand on the espresso machine, all of this to ensure that the coffee drinks taste just right. Another part, brewing the perfect cup at home, helps baristas teach customers how to use the espresso machines and coffee they buy at Starbucks to replicate the product they get in the coffeehouse. Service Standards No pot of Starbucks coffee sits on a burner for more than 20 minutes. An espresso machine with unused coffee must be purged regularly. And no one goes home at night unless everything-everything-is completed, cleaned, and pol-ished according to the service standards in the manual. Us-ing such standards ensures that both service and quality are maintained. Star Skills To hire, keep, and motivate the very best employees, Starbucks has three guidelines for on-the-job interpersonal relations: (1) maintain and enhance self-esteem, (2) listen and acknowledge, and (3) ask for help. These and other human resource practices, including higher-than-average pay, health insurance, and stock options, lowers barista turnover to 60 percent compared with 140 percent for hourly workers in the fast-food business in general. Joe, a Magazine What other coffee shop do you know that is large and influential enough to join forces with Time Inc. to publish a magazine? Starbucks has created Joe, a cultural review that will be sold in U.S. and Canadian stores. Subtitled, Life Is Interesting. Discuss, the magazine was designed to replicate the ideas and conversations that occur in a cof-feehouse. If you have any doubt about whether all these steps pay off in terms of quality product and service, check out Star-bucks at airports or on the turnpike. Youll notice a differ-ence. While the company doesnt franchise domestically, it does license sites to companies with contracts from public agencies to run those facilities. No highly trained baristas work at these outlets, and no service quality standards can be enforcing in them. The result is a hiss consistent, less pleasant, and less flavorful experience. And, if you need further evidence, compare a coffee shop cup of Starbucks coffee to one offered on any United Airlines flight. Its the same coffee, but a harried flight attendant with 65 passen-gers needing meals and drinks just cant provide the same consistency and attention to every cup. Probably the largest impediment to most service chains, the company must bear all the financial risk. When expanding, the firm must find all the capital, sometimes using it for store proliferation rather than for other uses (such as advertising, service quality, or new-service development) that would be more profitable. Second, large companies are rarely experts in local markets they know their businesses but not all consumer
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ordering, etc.,) Some of these SSTs-ATMs, pay-at-the-ump gas, Internet information search-have been very successful, embraced by customers for the benefits they provide in terms of convenience, accessibility, and ease of use. Benefits to firms in terms of cost savings and/or revenue growth can also result for those that succeed. Others-airline ticketing kiosks online hotel bookings- have been less successful initially. Failure is often attributable to customers not having the ability or motivation to use the technology. Other times customers see no value in using the technology when compared with the alternative interpersonal mode of delivery. Or, in some cases, they may not know how to use the technology. Throughout the text we highlight some of the most successful self-service technologies in the marketplace today. They have been successful because they offer clear benefits to customers, the benefits are well understood and appreciated compared with alternative delivery modes the technology.
Exhibit 13-1. Starbucks Shows Success of Company-owned Service Channels

One of the biggest marketing success stories of the last decade is Starbucks Coffee Company, although it has been in business for almost 25 years. Ten years ago, its owner began to think of coffee not as something to retail in a store but instead as something to experience in a coffeehouse. At that point, he created the Starbucks that we know today, the Starbucks that successfully replicates a perfectly creamy cafe latte in stores from Seattle to St. Paul. Con-sistency of service and product are two of the most impor-tant reasons that Starbucks has grown to more than 2,000 U.S.-based outlets and expanded internationally, and that it annually reports profit growth of more than 50 percent a year. (Even a world-class service provider such as Starbucks can have a bad day as we saw in Chapter 7!) Be-cause Starbucks owns every domestic outlet, it maintains control over all that takes place in them, and here are some of the efforts it undertakes to ensure that the Starbucks ex-perience is always the same, always positive. Employee Training: Learning to Be a Barista All employees are called partners, and those that prepare coffee are called baristas, the Italian name for one who prepares and serves coffee. As many as 400 to 500 em-ployees per month nationally are carefully trained to call (triple-tall nonfat mocha), make drinks, clean espresso machines, and deliver
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markets themselves. When adjustments are needed in business formats for different markets, they may be unaware of what these adjustments should be. This is especially true when companies expand into other cultures and other countries. Partnering or using joint ventures is almost always preferred to company-owned channels in these situations. When two or more service companies want to offer a service and neither has the full financial capability or expertise, they often undertake service partnerships. These operate very much like company-owned channels except that they involve multiple owners. The benefits are that risk and effort are shared, but the disadvantages are that control and returns are also distributed among the partners. Several of the areas in which partnerships are common are in telecommunications, high-technology services, Internet-based services, and entrepreneurial services. Another area in which service partnerships proliferate is when companies expand beyond their country boundaries -typically one partner provides the business format and the other provides the knowl-edge of the local market. Key Problems Involving Intermediaries Key problems with intermediaries include conflict over objectives and performance, conflict over costs and rewards, difficulty controlling quality and consistency across outlets, tension between empowerment and control, and channel ambiguity.
Channel Conflict over Objectives and Performance
princi-pal suffers because the entire brand and reputation are jeopardized, and other inter-mediaries endure negative attributions to their outlets. The problem is particularly acute in highly specialized services such as management consulting or architecture, where execution of the complex offering may be difficult to deliver to the standards of the principal.
Tension between Empowerment and Control
McDonalds and other successful service businesses were founded on the principle of performance consistency. Both they and their intermediaries - attained profits and longevity by the companys controlling virtually every aspect of their intermediaries businesses. McDonalds, for example, is famous for its demanding and rigid service standards (such as turn, never flip, hamburgers on the grill), carefully specified sup-plies, and performance monitoring. The strategy makes sense, because unless an in-termediary delivers service exactly the same way the successful company outlets pro-vide it, the service may not be as desirable to customers. From the principals point of view, its name and reputation are on the line in each outlet, making careful control a necessity. Control, however, can have negative ramifications within intermediaries. Many service franchisees, for example, are entrepreneurial by nature and select service fran-chising because they can own and operate their own businesses. If they are to deliver according to consistent standards, their independent ideas must be integrated into and often subsumed by the practices and policies of the service principal. In these situations they often feel like automatons with less freedom than they had in corporate jobs.
Channel Ambiguity
The parties involved in delivering services are not always in agreement about the way the channel should operate. Channel conflict can occur between the service provider and the service intermediary, among intermediaries in a given area, and between different types of channels used by a service provider (e.g., when a service principal has its own outlets as well as franchised outlets). The conflict most often centers on the parties having different goals, competing roles and rights, and conflicting views of the way the channel is performing. Sometimes the conflict occurs because the service principal and its intermediaries are too dependent on each other.
Channel Conflict over Costs and Rewards
The monetary arrangement between those who create the service and those who de-liver it is a pivotal issue of contention. Nowhere was this type of conflict better demon-strated than when major airlines surprised their major distribution channel (travel agencies) with caps on fees. Instead of the traditional 10 percent commission on total airfare, Delta pioneered a $50-or-Iess fee per ticket, unilaterally and dramatically al-tering the compensation arrangement. The manner in which the airlines made the change so infuriated travel agencies that they struck back against the airlines through such strategies as teaching consumers how to. buy cheap tickets without staying over a Saturday night, purchasing wholesale tickets, and recommending small, discount carriers.
Difficulty Controlling Quality and Consistency across Outlets
When empowerment is the chosen strategy, doubt exists about the roles of the com-pany and the intermediary. Who will undertake market research to identify customer requirements, the company or an intermediary? Who owns the results and in what way are they to be used? Who determines the standards for service delivery, the franchiser or the franchisee? Who should train a dealers customer-service representatives, the company or the dealer? In these and other situations, the roles of the principal and its intermediaries are unclear, leading to confusion and conflict. Key Intermediaries for Service Delivery One way to organize the discussion of delivering service through intermediaries is to describe the primary channels of service distribution. Services can be distributed to the end customer through franchisees, agents, brokers, and electronic channels. Fran-chisees are service outlets licensed by a principal to deliver a unique service concept it has created or popularized. Examples include fast-food chains (McDonalds, Burger King), video stores (Blockbusters), automobile repair services (Jiffy Lube), and ho-tels (Holiday Inn). Agents and brokers .are representatives who distribute and sell the - services of one or more service suppliers. Examples include insurance (Paul Revere Insurance Company), financial services (Oppenheimer mutual funds), and travel services (American Express). EleCtronic cAannels include all forms of service provi-sion through television, telephone, interactive multimedia, and computers.
One of the biggest difficulties for both principals and their intermediaries involves the inconsistency and lack of uniform quality that result when multiple outlets deliver services. When shoddy performance occurs, even at a single outlet, the service
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Many fi-nancial and information services are currently distributed through electronic media: ban19ng, bill paying, education. Exhibit 13-2 reviews basic principles about distribution, for your information.
Push versus Pull Strategies Push strategy involves companies aggressively pro-moting their products to intermediaries through personal selling, trade advertising, and trade incentives. .. Pull strategy consists of building a reputation with .customers through direct advertising and branding, creating a desire for the manufacturers brand which is then pulled through the channel pf distribution.
Exhibit 13-2 Reviewing the Basics About Distribution from Marketing Principles
Rather than reiterate topics covered in your marketing principles course and textbook, we list and briefly summa-rize below the basics about distribution. Knowing these basics allows you to step right into our chapters discus-sion of service intermediaries. Basic Channel Functions 1. Decreasing the cost of delivering products and services to customers: Because the channel allows specialization, all parties can concentrate on what they do best, thereby lowering cost. 2. Regrouping. activities: Intermediaries are charged with sorting out, accumulating, allocating, and as-sorting products and services. 3. Standardizing transactions: Intermediaries deliver products or services in consistent form, based on the needs of the buyer and the supply of the seller. 4. Matching buyers and sellers: Intermediaries spend time in the market, learning about customers and about what sellers have to offer them. 5. Provide customer service and support: Intermedi-aries provide various services including technical support, delivery, transportation, and education. Types of Intermediaries Retailers: Intermediaries who sell directly to end cus-tomers. They may be retail stores, mail order, door-to--door, even vending machines.Wholesalers: Organizations that buy from producers and sell to retailers and organizational customers. Number of Intermediaries Three strategies are available for distribution of products and services: Intensive distribution: Locating the offering in numer-ous outlets. Selective distribution: Use of more than one but less than all intermediaries who are willing. Exclusive distribution: Limiting the number of inter-mediaries to one per given area. Criteria for Evaluating the Channel Alternatives Economic criteria: The sales expected and costs asso-ciated with the channel. Control criteria: The degree to which the service provider can expect to have its policies and procedures ad-hered to in the relationship. Adaptive criteria: The extent to which the type of chan-nel is able to change and be flexible when desired by the service provider.
Notes
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LESSON 28: BASIC CHANNEL FUNCTIONS

The Objective of the Lesson is to
Basic channel functions Key Benefits and challenges faced by the intermediaries Strategy for effective service delivery through intermediaries.
Elements of a Franchise Agreement

Agreements and contracts are essential in franchising. Service companies have found that a franchise agreement should describe virtually all of the following aspects of the partnership:
The nature of the service to be supplied by the fran-chisee. The geographic territory in which the franchisee can offer the
service.
How much of the revenue generated by the franchisee must
Franchising works well with services that can be standardized and virtually dupli-cated, typically through the delivery process, service policies, warranties, guarantees, promotion, and branding. Jiffy Lube, H&R Block tax services, and Red Roof Inns are examples of companies that are ideal for franchise operations. The more complex and professional the service, such as with internal medicine or business consulting, the less likely it is that services will be duplicated exactly the way the franchiser desires. At its best, franchising refers to a relationship or partnership in which the service provides -the franchiserdevelops and optimizes a service format that it licenses for delivery by other parties-:-the franchisees. Both parties agree on how profits and risks will be de-termined (see Exhibit 13-3). The Franchiser (Service Principal) Perspective More than 2,500 U.S. fran-chisers license their brand names, business processes or formats, unique products, services, or reputations in return for fees and royalties from franchisees. Examples of industries where franchising is prevalent, and the reasons they are desirable to fran-chisees, include (1) fast foods, with unique cooking or delivery processes and brand names; (2) health and fitness centers, with established formats for marketing to cus-tomers and pricing as well as hiring and motivating employees; (3) motels, hotels, and rental cars, founded on national names and reputations; (4) travel agencies, with tick-eting and distribution processes; and (4) video stores, with unique store environments, purchasing, and computer systems. Benefits and challenges for the franchiser are dis-cussed below and summarized in Exhibit 13-4.
be paid to the franchiser. .

The length of the agreement (usually 5 to 10 years with
options to renew).
The up-front fee for the franchise. The instructions by which the franchisee agrees to operate
and deliver service (price, reliability of service, ad-vertising) .

The promise that the franchisee will not act as an in-
termediary for any other service firm in the same industry (which is what technically distinguishes franchisees from dealers and agents). The promotional support to be given to the franchisee to improve the value of the franchised brands. The administrative and technical support provided by the franchiser.
The way that the franchise agreement can be termi-nated.
Exhibit 13-4 Summary of Benefits and Challenges for Franchisers of Service

Benefits
Leverages the business format to gain expansion and
As you may have guessed, these are the issues that cre-ate misunderstanding and conflict between franchisees and franchisers-the reasons for channel conflict and channel ambiguity, as well as tension between control and empow-erment. The principal appears to have the upper hand be-cause it is the entity drawing up the contracts and selecting franchisees, but franchising has benefits and challenges for all parties involved. Franchising Franchising is the most common type of distribution in services and accounts for most retail sales.1O The practice is large and growing rapidly. In this chapter we use the broadest possible definition of franchising and incorporate two other types of inter-mediaries in the category: retailers and dealers. Retailers are outlets authorized to dis-tribute products and services to end customers. Because this chapter is about distributing services rather than products, we discuss only those retailers that distribute services, such as film-processing companies, restaurants, dry cleaners, and distributors of movies. When we narrow the list of retailers to services, most are operated as fran-chises and are subject to the same advantages and challenges.
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revenues
Maintains consistency in outlets Gains knowledge of local markets Shares financial risk and frees up capital
Challenges
Difficulty in maintaining and motivating franchisees . Highly
publicized disputes and conflict

Possibility of inconsistent quality that can undermine the
company name
Control of customer relationship by intermediary
Benefits of Franchising for the Franchiser

Leverages the business format to gain expansion and
revenues. Virtually all companies that seek to franchise their business concepts do so because they want wider distribution than they can support in company outlets. The reasons they desire wider distribution are to increase
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revenues, gain larger market share, obtain greater brand name recognition, or gain additional economies of scale. Even when franchis-ers can finance additional company-owned outlets, they may choose to minimize their investment and financial risks by sharing them with franchisees.
Maintains consistency in outlets: When franchisers have
strong contracts and unique business formats, they can require franchisees to deliver services according to their specifications. The franchiser can stipulate virtually all aspects, from hiring and training practices to prices to store design. This chapters Global Feature illustrates the way Starbucks Coffee attempts to maintain consistency across cultures and countries thfQugh franchising.
Gains knowledge of local markets: National chains are
unlikely to understand local markets as well as the businesspeople who live in the markets. With franchising, the company obtains personnel knowledgeable and connected in the local markets.
Shares financial risk and frees up capital: Franchisees
Starbucks goes Global Earlier in this chapter, we talked about Starbucks coffee-houses as an example of a very successful company- owned service organization, with 2,000 outlets in .the United States. The company now has more than 250 out-lets abroad in places as close as Canada and as far as China. When the company chose to go international, man-agement realized that its best route was not to own but in-stead to franchise or form other types of alliances with or-ganizations within each country. This approach would allow Starbucks to understand the individual markets better and would limit the capital investment necessary to expand. In an unusual twist, the company began its expansion in Asia, rather than in Europe. In each country, it met with different scenarios and challenges as are illustrated by its experiences in Japan and China. Japan Joining with Sazaby, Inc., a Japanese retailer and restaura-teur, Starbucks opened more than a dozen stores in Japan beginning in 1997. The company chose Japan as its first ex-pansion outside North America because it is the third largest coffeeconsuming country in the world (6.1 million bags per year compared with 18.1 million bags in the United States.). Possibly the most compelling result of the an-nouncement of the entry of Starbucks was the intense fear on the part of existing coffeebar owners in Japan. Even though Starbucks was introducing a mere dozen outlets, the owners of the mega-chains were filled with anxiety. A manager of Doutor Coffee Company, Japans number one coffee-bar chain (453 shops) exclaimed, Theyre a big threat and could take customers away from us. Many coffee bars imitated Starbucks in design and started offering Seattle coffee. Exec.!1tivessU9h as .Seiji Honna president of Pronto Corporation (94stores), traveled to the United States to gather intelligence from more than 20 Starbucks locations on the West, Coast He, like others, worried that the Japanese outlets I lacked the sophistication of Star-bucks, the ability to [package] the store: [mesh] such ele-ments as store design, package design and other merchan-dising techniques into a compelling entity. Starbucks had so successfully created and. distributed its service in the United States that the Japanese were afraid of their ability to compete. What all of this means is that as Starbucks opens more stores (it plans 100 openings in the next five years), the Japanese will be ready. Rather than entering qui-etly and gaining a toehold before having to compete, Star-bucks had been targeted before it entered with its first store. China After selling Starbucks coffee to Beijing hotels for four years, the company decided to open franchise outlets there in 1998. Challenges abounded. There was of course, the challenge of persuading members of a tea-drinking nation to switch to java. But more immediate has been the chal-lenge of establishing local managers to run shops that can convey the spirit of Seattle in Beijing. The problem was hiring, motivating, and training both baristas who could de-liver the consistent service and coffee drinks that made the chain so successful in the United States and managers who would uphold the high standards of the company. The company approached the hiring problem for
must contribute their own capital for equipment and personnel, thereby .bearing part of the risk of doing business. Rather than investing the bulk of money in distribution, having franchisees _ allows service principals to invest in core service production facilities.
Challenges of Franchising for the Franchiser
Difficulty in maintaining and motivating franchisees. The
ability to motivate internal employees is difficult enough. But motivating independent operators to price, deliver, promote, and hire according to standards the principal establishes is a difficult job. When business is down, franchisees may be hard to maintain. Most franchising contracts are for 5 to 10 years, after which the franchisee can renew.
Highly publicized disputes between franchisees and
franchisers. Because they. are gaining more economic clout, franchisees are organizing, then hiring lobby-ists and lawyers to press their cause. Many states and even the federal government have implemented legislation boosting franchisees rights, especially the right to re-new and to transfer the franchise when desired.
Inconsistent quality that can undermine the company name.
In instances where quality varies, the principal may find that the companys reputation is being damaged by lowperforming franchisees.
Customer relationships controlled by the intermediary rather
than the service principal. The closer a service company is to the customer, the better able it is to listen to that customers concerns and ideas. When franchisees are involved, a relationship forms between the customer and the franchise, rather than between the customer and the service principal. All customer information, including identifying demographics, purchase history, and preferences are in the hands of the intermediary rather than the principal.
Global Feature
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managers by targeting young people who had experience running suc-cessful American-style restaurants such as the,Hard Rock Cafe. They recruited baristas through job fairs and ads and focused on aspects such as career and personal develop-ment as well as the cool factor of being associated with the popculture scene in Seattle. Starbucks dealt with the motivation issue by sending the best manager recruits to Seattle for three months to absorb the culture and lifestyle of Starbucks and the West Coast The structured training, as it turns out, helped motivate and keep employees. be-cause they felt confident in the company. So do the infor-mality and culture of listening at Starbucks which seem to inculcate trust in employees and thereby generate loyalty. The company isnt stopping in Asia. It has partnered with Chapters, Inc., a Toronto books retailer with sites throughout Canada and is now evaluating European and Latin American markets. The Franchisees View: Generalizing about franchising can be difficult because more than 65 types of businesses exist, which generate more than $800 billion in sales each year. Some franchises are highly desirable and lucrative, such as soda bottlers and beer distributors (although these forms are largely unavailable to new franchisees because they have reached capacity). Others are less certain, including convenience marts and auto-service shops. Many are transient operations that are underfinanced and inadequately supported and can disappoint the independent operators who pur-chase them. Benefits of Franchising for Franchisees
Obtaining an established business format on which to
few systems are minting money for franchisees today. Most markets are crowded, and expenses are rising.13 Nearly 9 of 10 franchis-ers are cutting up only about a quarter of every dollar of sales. Most people think of franchising as some kind of bonanza. . . the reality is if you get a solid operation, work damn hard, and if youre making $40,000 a year after four years, thats good.
Encroachment and franchise saturation: Most lawsuits by
franchisees involve encroachment of existing stores-the opening of new units within three miles of ex-isting ones without compensation to the existing franchisee. When encroachment oc-curs, potential revenues are diminished, and franchisers often will not offer the en-croaching franchise to the franchisee in the local area, believing that the competition between franchisees will increase revenues.
High failure rates and unfair terminations: Earlier in this
chapter we stated that the International Franchise Association claims that less than 5 percent of fran-chises are terminated on an annual basis. Others dispute this figure, maintaining that it is based on old studies. Several new academic studies poke giant holes in the fran-chise associations claims. One study found that almost 35 percent of franchises failed versus 28 percent for other small businesses. Another showed that both small busi-nesses and franchises have roughly equal and high failure rates.
Lack of perceived control: About one-third of new
base a business: This is One of the primary benefits to the franchisee. One expert has defined franchising as an entrepreneur in a prepackaged box, a super-efficient distributor of services and goods through a decentralized web. Franchisees sign on because the franchisers have created businesses that work, that already have strong images and track records, and that have been tested for effectiveness. Receiving national or regional brand marketing: One of the biggest advan-tages comes from the brand name and marketing the franchisee obtains. Franchisees expect-and usually receive-advertising and other marketing expertise as well as a reputation that they do not peed to build themselves.
Minimizing the risks of starting a business: One of the
franchisees are ex-employees; of large companies. These are people who once exerted a great deal of control over their Jobs, something that changes quickly when a franchise operation is purchased. One i1-dicator of the perceived lack of control is that since 1990, franchisee, complaints fil1d against parent companies with the Federal Trade Commission have been growing at a greater than 50-percent annual rate. What Makes a Franchise or Retail Store a Star? A Wall Street Journal reporter answered this question by locating the biggest U.S. outlet for 20 big brands, among them many service businesses. He concluded that location, luck, and service determine the winners. Here are several of me star franchisees that won. Hertz Rent a Car Parent Company: Hertz Corp. Biggest Outlet: Los Angeles International Airport Size Indicator: Most rentals a day Explanation: Nine counters in seven terminals serve customers round-the -clock at the West Coasts busiest airport. Daily rentals average 2,000. In the first half of 1992, the facility grossed $37 million. Hertz parking lots, maintenance facilities and offices cover 36 acres. The operation pumps more than one million gallons of gasoline a year. Seventeen buses shuttle customers to and from vehicles. Most. popular car: Ford Taurus. Five percent of airport rentals are convertibles. -Hertzs staff at the airport numbers 300. The size of the operation multiplies problems, such as a flight delaying fog. If we make a mistake we can upset several hundred customers at a time, says Charles Shafer, division vice president.
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biggest selling points of franchising is the claim of diminished risk of purchasing a franchise over initiating ones own business. The U.S. Small Business Administration claims that whereas 63' percent of new businesses fail within six years, only 5 percent of new franchises fail. For smallbusiness owners, franchising also offers an alternative way of raising capi-tal that speeds growth. 12 Some of the most successful franchises in the world are profiled in Exhibit 13-5. Challenges of Franchising for the Franchisee
Disappointing profits and revenues: A recent report on
franchising suggests: For all their past successes, previous
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Ftd Floral Delivery Parent Company: Florists Transworld Delivery Association Biggest Outlet: McShan Florist Inc., Dallas Size Indicator: Most flowers-by-wire orders in U.S. Explanation: Serving Dallas but not neighboring Fort Worth, the florist typically fills 1,100 FTD orders a week; an arrangement averages $38. McShan employs 150, has more than two dozen phone lines, a 27,000-square-foot store and 50 delivery trucks, but no greenhouse. Neiman Marcus is a major local customer. Obituary-page ads read, We dont sell flowers, we sell love. Dallas literally grew up to McShans door. Once surrounded by cotton fields, the store now is ringed by homes, many of which it landscaped. The business hasnt branched out because, says president Bruce McShan, We prefer to have one big headache instead of a lot of little ones. Mcdonalds Parent Company: McDonalds Corp. Biggest Outlet: On turnpike near Darien, Conn. Size Indicator: Most McDonalds customers served in U.S. Explanation: Near the New York -Connecticut border on Interstate 95, this round-the-clock McDonalds serves nearly three million travelers a year. On average, the franchise sells 8,000 meals daily. Everything about the store is mammoth. 19 cash registers, including portables for overflow crowds, a 12foot fry grill, 32 telephones. Employees work in teams. One directs traffic, another operates a yogurt bar. Retirees pass out maps in a tourist center equipped with an automatic teller machine. Owner-operator George Michell says the busiest days of the year are Thanksgiving weekend. Federal Express Parent Company: Federal Express Corp. Biggest Outlet:. Center at 525 Seventh Ave., New York Cit>. Size Indicator: Handles most packages and documents daily. Explanation: Located in the heart of New York Citys Garment Center, between 38th and 39th streets. This is the busiest of Federal Expresss 434 U.S. service centers; its daily volume of 1 ,000 items is three times the average. Proximity to Penn Station is a traffic booster. Major customers include dressmakers and fashion-design houses as well as neighborhood department stores. Many parcels are boxes you couldnt carry home, says manager Valerie Blanchard. The center also handles a heavy volume of tickets for travel agents. Seven full-time employees staff the facility, which is open until 9:30 P.M. weekdays and 7 P.M. on Saturdays. H&R Block Parent Company: H&R Block Inc. Biggest Outlet: Downtown Stamford; Conn. Size Indicator: Most clients served Explanation: The office handled more than 8,000 returns last year -almost twice the next-busiest office. Why? Its a mystery to me, says district manager Jack Marvill. The volume was so large that two more Stamford outlets recently opened. The downtown office doesnt offer unusual services, and its clientele is described as a typical mixture of commercial and individual
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taxpayers. The facility has 19 tax-preparation stations and employs about 50. Hilton Hotels Parent Company: Hilton Hotels Corp. Biggest Outlet: Flamingo Hotel, Las Vegas Size Indicator: Most rooms Explanation: This 3,530_room hotel, built by gangster Bugsy Siegel in the 1940s, is popular with tourists; the nearby 3,200room Las Vegas Hilton caters to high rollers and conventioneers. With single rooms priced at under $50, the Flamingo averages a 90% occupancy rate and is Hiltons most profitable, says vice president Marc Grossman. Located at one of the busiest Strip intersections, the hotel is staffed by nearly 4,000 employees. Its 27 stories include a casino, two grand ballrooms, eight restaurants, three lounges, 55 elevators, parking for 230 and a furrier. A $100 million expansion will add a tower and waterfalls.
High fees: Franchisees typically pay between $5,000 and
$35,000 in up-front fees to acquire a franchise: They are also required to buy equipment, pay for training, and secure a mortgage or lease. On top of these fixed charges, monthly royalties are 2 to 8 percent of gross sales, even without advertising fees. 15 Franchisees of one com-pany, Little Caesars Enterprises, Inc., say they are forced to buy ingredients and paper from a company-owned distributor, paying up to 15 percent more than rivals for iden-tical items.16 A lawyer for the trade group of franchisees, the American Association of Franchisees and Dealers, claims that, Most [franchisers] treat franchisees like inden-tured servants. They have fewer rights than employees. Unrealistic expectations: Some of what creates problems for franchisees in-volves approaching the agreement with expectations about revenues and profits that are unrealistic. Franchisers are partly responsible for the elevated expectations be-cause they attract and sign new franchisees with promises that they can achieve the performance of their star franchises. More than one service principal has been found guilty of overpromising. Another area in which expectations are unrealistic involves the time commitment the franchisee must make to achieve success. Agents and Brokers In common terminology, an agent is an intermediary who acts on behalf of a service principal (such as a brokerage firm or a popular sports figure) and is authorized to make agreements between customers and those principals. Agents and brokers do not take title to services but instead deliver the rights to them. They have legal authority to market services as well .as to perform other marketing functions on behalf of pro-ducers. The two forms of intermediaries perform many of the same functions but are distinct from each other in some ways. Types of Agents: generally work for principles continuously, rather than for a single deal. Selling agents have contractual authority to sell a service principals output (which can be anything from an athletes time to travel, insurance, or financial services), usu-ally because the
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principal is not interested, feels unqualified, or lacks the resources to do so. Nancy Kerrigan needed to focus on her skating and knew little about negotia-tion and contracts, so she hired Pro-Serve to represent her and handle all business as-pects for her. Selling agents act as a sales force with a difference: Because. they know the market better than the service principal, they are typically entrusted with influence over prices, terms, and conditions of sale. Unlike a sales force, the selling agent normally has no territorial limits but represents the service principal in all areas. Purchasing agents also have long-term relationships with buyers, evaluating and making purchases for them. They are knowledgeable and provide helpful market in-formation clients as well as obtaining the best services and prices available. Purchasing agents are frequently hired by companies and individuals to find art, antiques, and rare jewelry. Facilitating agents help with the marketing process by adding ex-pertise or support such as financial services, risk taking, or transportation. Types of Brokers: Brokers bring buyers and sellers together while assisting in ne-gotiation. They are paid by the party who hired them, rarely become involved in financ-ing or assuming risk, and are not long-term representatives of buyers or sellers. The most familiar examples are real estate brokers, insurance brokers, and security brokers. Benefits and challenges in using agents and brokers are summarized in Exhibit 13-6. Benefits of Agents and Brokers: The travel industry provides. an example of both agents and brokers. Three main categories of travel intermediaries exist: tour packagers, retail travel agents, and specialty channelers (including incentive travel firms, meeting and convention planners, hotel representatives, association executives, and corporate travel offices). You are likely to be most familiar with retail travel agents. Industry convention terms the travel companies as brokers and the individuals who work for them as travel agents or sales associates. We will illustrate some of the benefits and challenges of agents and brokers using this industry.
services that meet their needs. Travel agents and brokers accomplish the intermediary role by assembling information from travel suppliers and offering it to travelers. Possession of Special Skills and Knowledge: Each of the three intermediaries have special knowledge and skills in their areas. Retail travel agents know the indus-try well and know how to access the information they do not possess, often through reference materials and online services. Tour packagers have a more specialized role-they assemble, promote, and price bundles of travel services from travel suppli-ers, then offer these bundles either to travelers themselves or to retail travel agents. Specialty channelers (which we could put in the category of facilitating agents) have even more specialized roles: Some work in corporate travel offices to lend their skills to an entire corporation, others are business meeting and convention planners who act almost as tour packagers for whole companies or associations, and some are incentive travel firms that focus on travel recognition programs in corporations or associations. Wide Representation: Because agents and brokers are paid by commission rather than by salary, there is little risk or disadvantage in extending the service offerings to a wide geography. Thus, companies have representatives in many places, far more places than the company would place them if fixed costs such as buildings, equipment, and salaries were required. Knowledge of Local Markets: Another key benefit of agents and brokers is that they become experts in the markets they serve. They know or learn the unique needs of different markets, including international markets. They understand what their clients preferences are and how to adapt the principals services to match the needs of clients. This benefit is particularly needed and appreciated when clients are dispersed internationally. Knowing the culture and taboos of a country is critical for successful selling. Most companies find that obtaining local representation by experts with this knowledge is necessary. Customer choice: Travel and insurance agents provide a retailing service for customers-they represent the services of multiple suppliers. If a traveler needed to visit six or eight different travel agencies, each of which carried the services of a single sup-plier, imagine the effort a customer would need to make to plan a trip! Independent in-surance agents have the right to sell a wide variety of insurance, which allows them to offer customers a choice. These types of agents also are able to compare prices across suppliers and get the best prices for their clients. Challenges of Delivering Service through Agents and Brokers Loss of Control over Pricing and Other Aspects of Marketing As Representatives of service principals and experts on customer markets, agents and brokers are typically empowered to negotiate price, configure services, and otherwise alter the marketing of a principals service. This issue could be particularly important-and possibly detri-mental-when a service provider depends on a particular (high) price to convey a level of service quality. If the price can be changed, it might drop to a level that undermines the quality image. In addition, the agent has the flexibility to give different prices to different customers. As long as the customers are geographically dispersed, this will
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Exhibit 13-6 Summary of Benefits and Challenges in Distributing Services Thrqugh Agents and Brokers
Benefits
Reduced selling and distribution costs Intermediarys possession of special skills and knowledge Wide representation Knowledge of local markets Customer choice
Challenges
Loss of control over pricing and other aspects of mar-keting Representation of multiple service principals
Reduced Selling and Distribution Costs: If an airline or resort hotel needed to contact every potential traveler to promote its offerings, costs would be exorbitant Be-cause most travel services are transactional rather than long term in nature, travelers would need to expend tremendous effort to find
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not create a problem for the service principal; however, if buyers compare prices and realize they are being given different prices, they may perceive the service principal as unfair or unethical. Representation of Multiple Service Principals: As we already discussed, when independent agents represent multiple suppliers they offer customer choice. From the perspective of the service principal, however, customer choice means that the agent represents and in many cases advocates a competitive service offering. This is the same challenge a manufacturer confronts when distributing products in a retail store. Only in rare cases are its products the only ones in a given category on the retail floor. In a service context, consider the use of independent insurance agents. These agents carry a range of insurance products from different companies, serving as a surrogate service retail store for customers. When they find a customer who needs insurance, they sell from their portfolio the offerings that best match customers requirements. Electronic Channels Electronic channels are the only service distributors that do not require direct human interaction. What they do require is some predesigned service (almost always infor-mation, education, or entertainment) and an electronic vehicle to deliver it. We are all familiar with telephone in a television channels and the Internet and Web and may be aware of the other electronic vehicles that are currently under development. The con-sumer and business services that will be. made possible through these vehicles include movies on demand, interactive news and music, banking and financial services, mul-timedia libraries and databases, distance learning, desktop video conferencing, remote health services, and interactive, network-based games. The more a service relies on technology and/or equipment for service production and the less it relies on face-to-face contact with service providers, the less the service is characterized by inseparability and nonstandardization. As you will see in the fol-lowing section (and in Exhibit 13-7), using electronic channels overcomes some of the problems associated with service inseparability and allows a form-of standardization not previously possible in most services. The Web and e-commerce alone will revolutionize the way services are delivered to customers and change the traditional relationship between the customer and the company: The Internet will change the relationship between consumers and producers in ways more profound than you can yet imagine. The Internet is not just another marketing channel; its not just another advertising medium; its not just a way to speed up transactions. The Inter-net is the foundation for a new industrial order. The Internet will empower consumers like nothing else ever has. Think about this: Already 16 percent of car buyers shop online before showing up at a dealership, and they arent comparing paint jobs-theyre arming them-selves with information on dealer costs.
Notes
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LESSON 29: THE INTEGRATED GAP MODEL OF SERVICE QUALITY

Significance of GAP Model GAP Model of service quality
Customer
Gaps Model of Service Quality

Expected services Perceived
Service delivery Gap 3 Company Gap 1 Customer driven service designs and standards Gap 2 Company perceptions of consumer expectations External communications to customers
As you have observed through out this text, effective services marketing is a complex undertaking involving many different skills and tasks. Executives of services organi-zations have long been confused about how to approach this complicated topic in an organized manner. This text was structured around-one approach to view services in a structured and integrated way called the gaps model of service quality. Each of the first five part openers in the text focused on specific aspects of the model that were covered in the chapters following it In this chapter ,we draw all of that material to gather in one place, reinforcing the general ideas and structure of the gaps model and thereby summarizing the text and course. The gaps model positions the key concepts, strategies, and decisions in services, marketing in a manner that begins with the customer and builds the organizations tasks around what are needed to close the gap between customer expectations and per-ceptions. The integrated gaps model of service quality, which was first overviewed in the Part One opener, is shown in Figure 18-1 The central focus of the gaps model is the customer gap, the difference between customer expectations and perceptions. Firms need to close this gap-between what customers expect and receive in order to satisfy their customers and build longterm. Relationships with them. To close this all-important customer gap, the model suggests that four other gaps-the provider gaps-need to be closed. The following four provider gaps, shown below the horizontal line in Figure 18-1, are the underlying causes behind the customer gap: Gap 1: Not knowing what customers expect. Gap 2: Not selecting the right service designs and standards. Gap 3: Not delivering to service standards. Gap 4: Not matching performance to promises.
Gap 4
Figure 18 1 Closing the Customer Gap Above the- center horizontal line in Figure 18-1 are the two boxes that correspond to customer expectations and customer perceptions. While customer perceptions are sub-jective assessments of actual service experiences, customer expectations are the stan-dards of, or reference points for, performance against which service experiences are compared. The sources of customer expectations consist of marketer-controlled fac-tors, such as advertising, as well as factors that the marketer has limited ability to af-fect, such as innate personal needs. Ideally, expectations and perceptions are identical: Customers perceive that they get what they think they will and should. In practice, a customer gap typically exists. Services marketing -bridges this distance, - and we de-voted virtually the entire text to describing strategies and practices designed to close this customer gap. In this text, we attempted to show that the unique characteristics of services dis-cussed as, intangibility, heterogeneity, inseparability of production and consumption, and perish ability-necessitated different consumer evaluation processes from those used when - assessing goods. The key factors leading to the customer gap are shown in Figure 18-2. Each of these factors was discussed in, initial chapters and strategies used to address them were offered in those same chapters. Provider Gap 1: Not Knowing What Customers Expect Provider gap 1 is the difference between customer expectations of service and com-pany understanding of those expectations. Many reasons exist for managers not being aware-of what customers expect: They may not interact directly with customers, be un-willing to ask about expectations, or be unprepared to address- them. When people with the authority and responsi-
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bility for setting priorities do not fully understand cus-tomers service expectations, they may trigger a chain of bad decisions and sub optimal resource allocations that result in perceptions of-poor service quality. In this text,
Too many layers between contact personnel and top management

Insufficient relationship focus
Lack of market segmentation Focus on transactions rather than relationship Focus on new customers rather than relationship customers
Inadequate service recovery
Customer expectations
Customer gap
Provider gap 1: Not knowing what customer expect Provider gap 2; not selecting the right service designs and
standards
Provider gap 3: Not delivering to service standards Provider gap 4: not matching performance to promises
Company perceptions of customer expectations
Customer
Figures 18-2 key factors leading to the customer gap. we broadened the responsibility for the first provider gap from managers alone to any employee in the organization with the authority to change or influence service policies and procedures. In todays changing organizations, the authority to make adjustments in service delivery is delegated to empowered teams and front-line people. Figure 18-3 shows the key factors responsible for provider gap 1. An inadequate marketing research orientation is one of the critical factors. When management or em-powered employees do not acquire accurate information about customers expectations, provider gap 1 is large. Formal and informal methods to capture information about customer expectations must be developed through market research. Techniques involving a variety of traditional research approaches must be used to stay close to the customer, among them customer visits survey research, complaint systems, and cus-tomer panels. More innovative techniques-such as quality function deployment, structured brainstorming, and service quality gap analysis are Often needed. Figures 18-3 key factors leading to provider gap 1.
Another key factor that is related to provider gap 1 is lack of upward communica-tion. Front-line employees often know a great deal about customers; if management is not in contact with front-line employees and does not understand what they know, the gap widens. Another key factor related to provider gap 1 involves the lack of company strate-gies to retain customers and strengthen relationships with them, an approach called relationship marketing. When organizations have strong relationships with existing: cus-tomers; provider gap 1 is less likely to occur. Relationship marketing is distinct from transactional marketing, the term used to describe the more conventional emphasis on acquiring new customers rather than on retaining them. When companies focus too much on attracting new customers, they may fail to understand the changing needs and. expectations of their current customers. One of the major- marketing factors that is leveraged in relationship marketing, particularly in manufacturing companies, is service Technology affords companies the ability to acquire and integrate vast quan-tities of data on customers that can be used to build relationships. Frequent flyer travel programs conducted by airlines, car -rental companies, and hotels are among the most familiar programs of this type. The final key factor associated with provider gap 1 is lack of service recovery. Even the best companies, with the best of intentions and clear understanding of their cus-tomers expectations sometimes fail. It is critical for an organization to understand the importance of service recovery-why people complain, what they expect when they complain, and how to develop effective service recovery strategies for dealing with inevitable service failures. This might involve a well-defined complaint-handling proce-dure and empowering employees to react on the spot; in real time to fix the failure; other times it involves a-service guarantee or ways to compensate the customer for the unfulfilled promise. To address the factors in provider gap 1, this text covered topics that included how to understand customers through multiple research strategies (Chapter 5), how to build strong relationships and -understand customer needs over time (Chapter 6), and how to implement recovery strategies when things go wrong. (Chapter 7) Through these strategies, provider gap 1 the customer expectations gap can be minimized.
Customer Expectations Gap 1

Inadequate marketing research orientation
Insufficient marketing research Research not focused on service quality Inadequate use of market research Lack of upward communication Lack of interaction between management and customers Insufficient communication between contact employees and managers
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Provider Gap 2: Not Havingthe.right Service Quality Designs and-standards A recurring theme in service companies is the difficulty experienced in translating cus-tomers expectations into service-quality specifications. These problems are reflected in provider gap 2, the difference between company understanding of customer expectations and development of customer-driven service designs and standards. Figure 18-4 shows the key factors leading to this gap. Customer-driven standards are differ-ent from the conventional performance standards that most services companies establish in that they are based on pivotal customer requirements that are visible to and measured by customers. They are operations standards set to correspond to customer expectations and priorities rather than to company concerns such as productivity or ef-ficiency.
Customer Driven Service Design and Standards
setting customer defined performance standards-has a powerful positive effect- on closing the customer gap. Because services, are intangible, they are difficult to describe and communicate. This is particularly true when new services are being developed It is critical that all people involved (managers, front-line employees, and behind the scenes support staff) /be working with the same concepts of the new service, based on customer needs and expectations. For a service that already exists, any attempt to improve it will also suf-fer unless everyone has the same vision of the service and associated issues. One of the most important ways to avoid gap 2 is to clearly design services without over simplification, incompleteness, subjectivity, or bias. To do this, tools are needed to ensure that new an existing services are developed and improved in .as careful a manner as possible. Another factor involved in provider gap 2 is physical evidencethe tangibles sur-rounding the service. By physical evidence we mean, everything from business cards to reports, signage, Internet presence, equipment, and facilities used to deliver the service. The services cape, the physical setting where the service is delivered, must be appropriate. Think of a restaurant, a hotel, a theme park, health club, a hospital, or a school. The services cape-the physical facility-is critical in these industries in terms of communicating about the service and making the entire experience pleasurable. Service organizations must explore the importance of physical evidence, the variety of roles it plays and strategies for effectively designing physical evidence and the services cape to meet customer expectations. In this text, you learned to develop effective strategies for new services and to use service blueprinting as an implementation tool (Chapter 8), to develop customer defined (as opposed to company-defined) service standards t chapter 9), and to effectively design physical evidence and the services cape to meet customer expecta-tions (Chapter 10). Through these strategies, provider gap 2 the service design and standards gapcan be minimized. Provider Gap 3: Not Delivering to Service Standards Provider gap 3 is the discrepancy between development of customer-driven service standards and actual service performance by company employees. Even when guide-lines exist for performing services well and treating customers correctly, highquality service. Performance is not a: certainty. Standards must be backed by appropriate resources (people, systems, and technology) and also must be enforced to be effective that is, employees must be measured and compensated on the basis of performance along those standards. Thus, even when standards accurately reflect customers ex-pectations, if the company fails to provide support for them-if it does not facilitate, encourage, and require their achievement-standards do no good. When the level of service-delivery performance falls short of the standards, it falls short of what cus-tomers expect as well. Narrowing gap 3-by ensuring that all the resources needed to achieve the standards are in place-reduces the customer gap. Research and company experience has identified many of the critical -inhibitors to closing gap 3 (see Figure 18-5). These include employees who do not clearly under-stand the roles they are to play in the company, employees who see conflict between
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Provider gap 2 exists in service organizations for a variety of reasons. Those re-sponsible for setting standards, typically management, sometimes believe that cus-tomer expectations are unreasonable or unrealistic. They may also believe that the de-gree of variability inherent in service defies standardization and therefore that setting standards will not achieve the desired goal. However, the quality of service delivered by customer contact personnel is critically influenced by the standards against which
Customer driven service design and standards
Gap 2
Poor service design
Unsystematic new service development process Vague, undefined service designs Failure to connect service design to service positioning
Absence of customer defined standards
Lack of customer defined service standards Absence of process management to focus on customer requirements Absence of formal process for setting service quality goals
Inappropriate physical evidence and services cape
Management perceptions of customer expectations
Figures 18-4 key factors leading to provider gap 2. They are evaluated and compensated. Standards signal to contact personnel what man-agement priorities are and which types of performance really count. When service standards are absent or when the standards in place do not reflect customers expecta-tions, quality of service as perceived by customers is likely to suffer. In contrast, when there are standards reflecting what customers expect, the quality of service they re-ceive is likely to be enhanced. Therefore closing provider gap 2-by
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customers and company management, the wrong employees, inadequate technology, inappropriate compensation and recognition, and lack - of empowerment and team-work. These factors all relate to the companys human resource function, involving in-ternal-practices such as recruitment,-1raining, feedback job design, motivation, and Figures 18-5 key reasons leading to provider gap 3.
Service Delivery
Franchisers of services depend on their franchisees to execute service delivery as they have specified it. And it is in the execution: by the franchisee that the customer. Evaluate the service quality of the company.With franchises and other types: of intermediates mediaries, someone- other than the producer is critically important to the fulfillment of quality service. The service delivery process is complicated by outside parties who are likely to embrace goals and values that do not directly align with those of the service organization. For this reason, a firm must develop ways to either control- or motivate these- intermediaries to meet company goals. As we have just discussed, part of the variability in provider gap 3 comes from em-ployees and intermediaries who are involved with service delivery. The other impor-tant variable is the customer. Even if contact employees and - intermediaries are 100 percent consistent in their service delivery (an unlikely but highly-desirable state!), the uncontrollable-variable of the customer can introduce heterogeneity it service deliv-ery. If customer do not perform their roles appropriately-if, for example, they fail to provide all the information necessary to the provider or neglect-to read- and-follow instruction service quality is jeopardized. Another issue in gap 3 is the -need in service firms to synchronize demand and capacity. Because services are perishable cannot be inventoried, service companies frequently face situations of over or under demand. Lacking inventories to-handle overhead companies lose sales when capacity is inadequate to handle customer needs on the other hand, capacity is frequently underutilized in slow periods, most companies rely on operation strategies - such as cross -training or varying the size of the employee pool to synchronize supply and demand. The use of marketing strategies in many- companies is limited. Marketing strategies for managing demand such as price changes, advertising, promotion, and alternative service offerings-can supplement approaches for managing supply. Provider Gap 4: When Promises do not Match Performance Provider gap. 4 illustrate the difference between service delivery and the service providers external communications. Promises made by a service company through its media advertising sales force, and other communications may potentially raise customer expectations that serve as the standard against which customers assess service quality. The discrepancy between actual and promised service therefore has an adverse effect, on the customer gap. Broken promises can occur for many reasons: Over promising in advertising or personal selling, inadequate coordination between op-erations and marketing, and differences in policies and procedures across service out-lets. Figure 18-6 shows the key factors that lead to provider gap 4. In addition to unduly elevating expectations through exaggerated claims, there are other, less obvious ways in which external communications influence customers service quality assessments. Service companies frequently fail to capitalize on oppor-tunities to educate customers to use services appropriately. They also frequently fail to manage customer expectations of what they will receive in service transactions and relationships.
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Gap 3
Deficiencies in Human Resource policies Ineffective recruitment Role ambiguity and role conflict Poor employee technology job it
Inappropriate evaluation and compensation system Lack of empowerment , perceived control and team work
Failure to match supply and demand
Failure to smooth peaks and valley of demand Inappropriate customer mix Over reliance on price to smooth demand
Customers not fulfilling roles
Customers lack knowledge of their roles and responsibilities Customers negatively affect each other
Problems with service intermediaries
Channel conflict over objectives and performance Channels conflict over cost rewards Difficulty controlling quality and consistency
Tension between empowerment and control
Customer Driven service designs and standards
organizational structure. To deliver better service performance, these issues must be - addressed across functions (e.g., with both marketing and human resources) if they are to be effective. One of thy difficulties associated with gap 3 involves the challenge in delivering service through such intermediaries as retailers, franchisees, agents, and brokers. Be-cause quality in service occurs in the human interaction between customers and service providers, control over the-service encounter by the company is crucial, yet it rarely is fully possible. Most service (and many manufacturing) companies face an even more formidable task: attaining service excellence an<1 consistency in the pres-ence of intermediaries who represent them, interact with their customers, and yet are not under their direct control. Among the intermediaries that playa central role in service delivery are retailers, franchisees and dealers.
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One of the major difficulties associated with provider gap is that communications to consumers involve issues that crossdisciplinary boundaries. Because service ad-vertising promises what people do, and because what people do cannot be controlled in the way that machines that produce physical goods can be controlled, this type of communication involves functions other than the marketing department. This is what we called interactive marketing-the marketing between contact people and cus-tomers and it must be coordinated with the conventional types of external marketing used in product and ,service firms. When employees who promote the service do not fully understand the reality of service delivery, they are likely to make exaggerated promises or fail to communicate to customers aspects of the service intended to serve them well. The result is poor service quality perceptions. Effectively coordinating ac-tual service delivery with external communications, therefore, narrows provider gap 4 and favorably affects the customer gap as well. Another issue related to gap 4 is ass9ciated with the pricing of services. In pack-aged goods (and even in durable goods), many customers possess enough price knowledge before purchase to be able to judge whether a price is fair or in line with competition. With services, customers often have no internal reference point for prices before purchase and consumption. Pricing strategies such as discounting, everyday Figure 18-6 key reasons for provider gap 4.
prices, and couponing obviously need to be different with services in cases where the customer has no sense of the price to start with. Techniques for developing prices for services are more complicated than those for pricing of tangible goods. In summary, external communications-whether from. marketing communications or pricing-can create a larger customer gap by raising expectations about service de-livery. In addition to improving service delivery, companies must also manage all communications to customers so that inflated promises do not lead to higher expecta-tions. Chapters 15 (which discussed integrated services n1arketing communications) and 16 (which covered pricing) of this text described methods to accomplish these objectives. Putting it all Together: Closing the Gaps The full conceptual model shown in Figure 18-1 conveys a clear message to managers wishing to improve the quality of service: The key to closing the customer gap is to close provider gaps 1 through 4 and keep them closed. To the extent that one or more of provider gaps 1 through 4 exist, customers perceive service quality shortfalls. The model, called the gaps model of service quality, serves as a framework for service or-ganizations .attempting to .improve quality service and services marketing. This model begins where the process of improving service quality begins: by gain-ing an understanding of the nature and extent of the customer gap. Given the strong focus on the customer and the need to use knowledge about the customer to drive busi-ness strategy, we believe this foundation of emphasis is warranted.
Gap 4
Service delivery
Summary
The chapter presented the integrated gaps model of service quality (shown in Figure 18-1) a framework for understanding and improving service delivery. The entire text was organized around this model of service quality, which focuses on five. pivotal gaps in delivering and marketing services:
The customer gap: Difference between customer expectations
Lack of integrated services marketing communications
Tendency to view each external communication as independent Not including interactive marketing inn communications plan Absence of strong internal marketing program
Ineffective management of customer expectations
and perceptions.
Provider gap 1: Not knowing what customers expect. Provider gap 2: Not selecting the right service designs and
standards.
Provider gap 3: Not delivering to service standards. Provider gap 4: Not matching performance to promises.
Not managing customer expectations through all forms of communication Not adequately education customer
Over promising
Over promising in advertising Over promising in personal selling Over promising though physical evidence cues
Inadequate horizontal communications
The gaps model positions the key concepts, strategies, and decisions in services mar-keting in a manner that begins with the custOf11er and builds the organizations tasks around what is needed to close the gap between customer expectations and perception.
Tutorials
1. If you were the manager of a service organization and wanted to apply the gaps model to im-prove service/ which gap would you start with? Why? In what order would you proceed to close the gaps? 2 Can provider gap 4 be closed prior to closing any of the other three provider gaps? How?
Insufficient communication between sales and operations Insufficient communication between advertising and operations Differences in policies and procedure across branches or units
External communications to customers
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3. Which of the four provider gaps do you believe is hardest to close? Why?
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LESSON 30:Tutorial
Why Service Stinks and Some Solutions
An Example
zAt an electric utility
yThe top 350 business clients are served by six people. yThe next tier of 700 are handled by six more,
CHALLENGES IN SERVICE MARKETING
y30,000 others get two reps to serve their needs. yMeanwhile, the 300,000 residential customers at the lowest end are left with an 800 number. yNo one is ignored, but our biggest customers certainly get more attention than the rest.''
OBJECTIVE OF THIS LESSON IS TO:

zCompanies know just how good a customer you are--and unless you're a high roller, they would rather lose you than take the time to fix your problem
Students Taking This Class Know Why

z As time goes on, service gap is growing wider. z Studies vividly detail what consumers already know: Good service is increasingly rare. z From passengers languishing in airport queues to bank clients caught in voice-mail hell, most consumers feel they're getting squeezed by Corporate America's push for profits and productivity. z The result is more efficiencies for companies--and more frustration for their less valuable customers. z ''Time saved for them is not time saved for us,''
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The New Consumer Apartheid

z Andrew Chan's experience with Ikea is typical. The Manhattan artist recently hauled a table home from an Ikea store in New Jersey only to discover that all the screws and brackets were missing. When he called to complain, the giant furniture retailer refused to send out the missing items and insisted he come back to pick them up himself, even though he doesn't own a car. Maybe he just reached the wrong guy, says Tom Cox, customerservice manager for Ikea North America, noting that the usual procedure is to mail small items out within a couple of days.
How You Can Get Stiffed

z FLYING y Canceled flight? No problem. With top status, you're whisked past the queue,handed a ticket for the next flight, and driven to the first-class lounge. z BILLING y Big spenders can expect special discounts, promotional offers, and other goodies when they open their bills. The rest might get higher fees,strippeddown service, and a machine to answer their questions z BANKING y There's nothing like a big bank account to get those complaints answered and service charges waived every time. Get pegged as a money-loser, and your negotiating clout vanishes z LODGING y Another day, another upgrade for frequent guests. Sip champagne before the chef prepares your meal. First -time guest? So sorry. Your room is up three flights and to the left z RETAILING y Welcome to an after-hours preview for key customers where great sales abound and staff await your every need. Out in the aisles, it's back to selfservice ___________________________________________ ___________________________________________ _____
NO ELEPHANT?
z Life isn't so tough for everyone, though. Roy Sharda, a Chicago Internet executive and road warrior is a ''platinum'' customer of Starwood Hotels & Resorts Worldwide. When he wanted to propose to his girlfriend, Starwood's Sheraton Agra in India arranged entry to the Taj Mahal after hours so he could pop the question in private. Starwood also threw in a horse-drawn carriage, flowers, a personalized meal, upgrades to the presidential suite, and a cheering reception line led by the general manager. It's no wonder Sharda feels he was ''treated like true royalty.''
The dark side of the technology boom

zConsumers have become commodities to pamper, squeeze, or toss away, according to Leonard L. Berry, marketing professor at Texas A&M University. He sees ''a decline in the level of respect given to customers and their experiences.''
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Technology is creating a radical new business model

zCompanies can measure exactly what service costs on an individual level and assess the return on each dollar. zThey can know
y exactly how much business someone generates, y what he is likely to buy, y and how much it costs to answer the phone.
Stratification
zThe top tier may enjoy an unprecedented level of personal attention. But those who fall below a certain level of profitability for too long may find themselves bounced from the customer rolls altogether or facing fees that all but usher them out the door.
The Expanded 80/20 Pyramid

zDeliver a level of service based on each person's potential to produce a profit--and not a single phone call more. zOne estimate is that the top 20% of customers at a typical commercial bank generate up to six times as much revenue as they cost, while the bottom fifth cost three to four times more than they make for the company.
An Alternative---Create Tiers With Fees

zCompanies may offer to move people to the front of the line for a fee. z''There has been a fundamental shift in how companies assess customer value and apply their resources,'' zManagers increasingly treat top clients with kid gloves and cast the masses ''into a labyrinth of low-cost customer service where, if they complain, you just live with it.''
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Two Trends: Across Businesses and the Web

z It has become much easier to track and measure individual transactions across businesses. z Second, the Web has also opened up options. z People can now serve themselves at their convenience at a negligible cost, but they have to accept little or no human contact in return. z Such huge savings in service costs have proven irresistible to marketers, who are doing everything possible to push their customers--especially lowmargin ones--toward self-service.
Three Company Issues

zCustomers don't like to know they're being treated differently. zTaking service away from the low spenders doesn't generate much positive press for companies. zMost programs fail to measure the potential value of a customer. zYour mission or vision may conflict.
Almost everyone is doing it.

z Charles Schwab Corp.'s top-rated Signature clients--who start with at least $100,000 in assets or trade 12 times a year-never wait longer than 15 seconds to get a call answered, while other customers can wait 10 minutes or more. z At Sears, Roebuck & Co., big spenders on the company's credit card get to choose a preferred two-hour time slot for repair calls while regular patrons are given a four-hour slot. z Maytag Corp. provides premium service to people who buy pricey products such as its front-loading Neptune washing machines, which sell for about $1,000, twice the cost of a top-loading washer. This group gets a dedicated staff of ''product experts,'' an exclusive toll-free number, and speedy service on repairs. When people are paying this much, ''they not only want more service; they deserve it,'' says Dale Reeder, Maytag's general manager of customer service.
Is this service divide fair?

z companies insist they simply can't afford to spend big bucks giving every customer the hands-on service of yesteryear. z In many cases, the trade-off in service means lower prices. z Consumers themselves have cast a vote against high-quality service by increasingly choosing price, choice, and convenience over all else
y However, while many consumers refuse to pay more for service, they're clearly dismayed when service is taken away.
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Sense of Entitlement?
z Consumers are much more demanding about getting what they want. z Reasons:
y One reason is the explosion of choices,
x with everything from hundreds of cable channels to new players emerging from deregulated industries like airlines and telecom companies.
An Example
z Steve Reed, a West Coast sales executive, was shocked when a United Airlines Inc. ticketing agent told him: ''Wow, somebody doesn't like you.'' Not only did she have access to his Premier Executive account information but there was a nasty note about an argument he had had with a gate agent in San Francisco several months earlier. In retrospect, he feels that explained why staff seemed less accommodating following the incident. Now, Reed refuses to give more than his name for fear ''of being coded and marked for repercussions.''
y Rewards programs
x frequent-flier miles: Those who know their worth expect special privileges that reflect it. Says Bonnie S. Reitz, senior vice-president for marketing, sales, and distribution at Continental Airlines Inc.: ''We've got a hugely educated, informed, and more experienced consumer out there now.''
Ethics and Privacy

zBased on a wealth of personal information zIt threatens to become an intensely personal form of ''redlining''--the controversial practice of identifying and
avoiding unprofitable neighborhoods or types of people.
PIGEONHOLING
. The Consumers Union points out that it's unnecessary to fill out
surveys with warranty cards. Just send in a proof of purchase with your name and address. ''Protecting your privacy is a significant tool to prevent yourself from being pigeonholed as undesirable,'' says Gene Kimmelman, Washington co-director for the CU. It's equally important to recognize what kind of information companies are looking for. If you don't live in an upmarket Zip Code, consider using your work address for correspondence. Be optimistic when estimating your income or spending: The better the numbers look, the better you'll be treated.
zNew tiers are not only highly individualized but they are often invisible.
y You don't know when you're being directed to a different telephone queue or sales promotion. You don't hear about the benefits you're missing. You don't realize your power to negotiate with everyone from gate agents to bank employees is predetermined by the code that pops up next to your name on a computer screen.
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Your Actual Payment Record

Check for mistakes:
pull your credit history at least once a year to check if there are any liens or mistakes. ''You may discover that you're listed as having missed a payment that you thought you made on time,'' The three main reporting bureaus--Experian, Trans Union, and Equifax--charge a small fee for a copy of your credit history. If, however you have recently been denied credit, employment, or insurance, such a report is free from all three companies .
Calling A Service Center?

zPros disagree on tactics for bypassing the service maze. One customer representative argues that when calling a service center it's better to punch in no account number if you're a low-value customer. The reason? Without proper identification, he says, a live person has to get on the line. ''Pretend you're calling from a rotary phone,'' he advises. But another tactic may be to punch zero or choose an option that's likely to get immediate attention.
Credit Cards
zMultiple credit cards can be a mistake, especially if they're the no-frills variety that are frequently offered to less desirable candidates. Not only can they drain the credit you might need for other activities, but they're also unlikely to propel you into a higher category. Using a spouse's card or account is also to be avoided, because it robs you of a chance to build your own credit history. If a mistake is made on your account, fight it.
Perception is Everything!
zIn the end, resistance may be futile, and the best strategy for beating the system may be to join it. Shop around for the best company, and try to consolidate your business there. These days, the best way to ensure good service is to make yourself look like a high-value, freespending customer.
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Making the Grade:How to get better service

z CONSOLIDATE YOUR ACTIVITIES Few things elevate status and trim costs like spending big in one place. Be on the lookout for packages or programs that reward loyal behavior. z PROTECT YOUR PRIVACY Avoid surveys and be frugal with releasing credit-card or Social Security information. The less companies know, the less they can slot you. z JUMP THE PHONE QUEUE If you want to reach a live human, don't admit to having a touch-tone phone at the prompt. Or listen for options that are less likely to be handled automatically. z FIGHT BACK If you feel badly treated, complain. Make sure management knows just how much business you represent and that you're willing to take it elsewhere.
How It Works!
z At All First Bank in Baltimore, only those slotted as top customers get the option to click on a Web icon that directs them to a live service agent for a phone conversation. The rest never see it. z First Union, meanwhile, codes its credit-card customers with tiny colored squares that flash when service reps call up an account on their computer screens.
y Green means the person is a profitable customer and should be granted waivers or otherwise given white-glove treatment. y Reds are the money losers who have almost no negotiating power, and yellow is a more discretionary category in between. y ''The information helps our people make decisions on fees and rates,'' explains First Union spokeswoman Mary Eshet.
Segmentation Pays
z Continental Airlines Inc. has started rolling out a Customer Information System where every one of its 43,000 gate, reservation, and service agents will immediately know the history and value of each customer. A so-called intelligent engine not only mines data on status but also suggests remedies and perks, from automatic coupons for service delays to priority for upgrades, g iving the carrier more consistency in staff behavior and service deliv ery. The technology will even allow Continental staff to note details about the preferences of top customers so the airline can offer them extra services. As Vice-President Reitz puts it: ''We even know if they put their eyeshades on and go to sleep.'' Such tiering pays off. Thanks to its heavy emphasis on top-tier clients, about 47% of Continental's customers now pay higher -cost, unrestricted fares, up from 38% in 1995.
'We're Sorry, All of Our Agents Are Busy with More Valuable Customers'
z CODING
Some companies grade customers based on how profitable their business is. They give each account a code with instructions to service staff on how to handle each category.
z ROUTING
Based on the customer's code, call centers route customers to di fferent queues. Big spenders are whisked to high -level problem solvers. Others may never speak to a live person at all.
z TARGETING
Choice customers have fees waived and get other hidden discounts based on the value of their business. Less valuable customers may never even know the promotions exist.
z SHARING
Companies sell data about your transaction history to outsiders. You can be slotted before you even walk in the door, since your buying potential has already been measured.
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Fees A Solution---?
zInnovative players are striving to use their treasure trove of information to move customers up the value chain instead of letting them walk out the door.
z Capital One Financial Corp. of Falls Church, Va., is an acknowledged master of tiering, offering more than 6,000 credit cards and up to 20,000 permutations of other products, from phone cards to insurance.
y That range lets the company match clients with someone who has appropriate expertise. ''We look at every single customer contact as an opportunity to make an unprofitable customer profitable or make a profitable customer more profitable,'' says Marge Connelly, senior vicepresident for domestic card operations.
The Final Solution

zAlthough the level and type of service may vary, quality of service should always be uncompromising--zPromptness, Courtesy, Cleanliness, and Appreciation for Business are always expected.
y What do I expect if I buy a $1500 suit at Bijans on Hollywoods Rodeo Drive? y What do I expect if I buy a $150 suit off the rack at a discount store? y Note: I dont expect worse service at the discount store --- I expect less of it.
What Will Future Hold? What Are Some Solutions?

zDeliver a level of service based on each person's potential to produce a profit zExplain the different levels of service and fees costs associated with them (education)
yMake the invisible visible
In Conclusion
zThe customer is the ultimate boss. He can fire everyone on down, just by spending his or her money elsewhere.
zWhat the customer gets as well as how they get it are important zTwo types of quality
yregular and handling of problems
zThink potential and long-term
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How to Improve Your Profile

Information can be used for or against you. Be stingy with the information you give out-especially if it's unlikely to help your status. Don't fill out surveys, sweepstakes forms, or applications if you're not comfortable with how the information might be used. Be wary when a company asks if it can alert you to other products and services. A yes may permit them to sell data that you don't want distributed.
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LESSON 9: CASE STUDY ON POSITIONING AND DIFFERENTIATION

Back in the early 80s, when Virgin Atlantic was created, Richard Branson was a go-getting, sweater-wearing entrepreneur and head of the successful Virgin Group, probably best known for Virgin Records.Richard was born in 1950 and at age 17, while at Stowe - the famous English public school - started a student advisory service. Three years later, he founded the Virgin mail order record company and shortly afterwards opened a shop on Oxford Street, Londons main shopping thoroughfare.In 1972 a studio was built in Oxfordshire, the very one that Mike Oldfield recorded his five millions selling album Tubular Bells. This was to provide the catalyst for Virgin Records that went on to sign major names such as The Rolling Stones, Culture Club, Janet Jackson, Peter Gabriel, Simple Minds and The Human League - all contributing to the continued success story.By the early 1980s, Virgin Records was one of the top six record companies in the world. Then, in 1984, Richard got a phone call out of the blue suggesting a jumbo jet passenger service between London and New York. Richard liked the idea, much to the horror of his fellow directors who thought him crazy. Undeterred, Richard announced to the world that Virgin Atlantic Airways would begin operating within three months! At which point a lot of other people agreed - he was crazy!But, an aircraft was found, staff were hired, licences granted and, thanks in no small part to Richards infectious enthusiasm, on 22 June 1984 an aircraft packed with friends, celebrities and the media set off for Newark, New Jersey - and a phenomenon was born!Since then, Virgin Atlantic has become the second largest long-haul international airline operating services out of Londons Heathrow and Gatwick Airports to 22 destinations all over the world - from Shanghai to the Caribbean and, of course, the US.In 1992 Richard sold Virgin Music for $1bn to Thorn EMI and ploughed the profits back into Virgin Atlantic, improving an already great service even further. However, he still has a big role in the entertainment industry through the international Megastores, the V2 record label and interests in night-clubs, book and software publishing, film and video editing and hotels.In December 1999, Richard signed an agreement to sell a 49% stake of Virgin Atlantic to Singapore Airlines to form a unique global partnership - the deal valuing Virgin Atlantic at a minimum of 1.225bn. At the same time the combined sales of the different Virgin holding companies was around 3bn.It turned out that 1999 was an eventful year for Richard and was topped off by being awarded a knighthood for his services to entrepreneurship.As you might imagine, Richard never stops (which can be exhausting for the people around him!) and sets himself just as steep challenges in his personal life as in his business life. Just for fun, he has been involved in round the world balloon attempts as well as rekindling the spirit of the Blue Riband when he crossed the Atlantic in his Virgin Atlantic Challenger II boat in the fastest ever recorded time. What was it they said about him being crazy?So what next? Well theres plenty planned, not least the
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introduction of the six A380 aircraft we have ordered which are due to arrive in 2006!Oh, and theres somewhere Richard hasnt ventured yet - he has apparently been heard to wonder whether it would be feasible to increase our long-haul capacity, and just how do you build a hotel in space???? With reference to the above context, interpret the Positioning and differentiation of Virgin Atlantic airlines vis--vis other airlines.
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LESSON 1: INTRODUCTION TO MARKETING

UNIT I INTRODUCTION TO MARKETING OF SERVICES

The Objective of this Lesson is to have an insight into

Developments in Marketing Theory

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the significance of Marketing organizations.

Case Study on Marketing Environment

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LESSON 2: SPECIAL CHARACTERISTICS OF SERVICES

Lets understand the special characteristics of services .

Special Characteristics of Services

The Nature of the Service Product

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The Services Marketing Mix

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The Services Marketing Triangle

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LESSON 3: CLASSIFICATION OF SERVICES

Profit Orientation The overall business orientation is a recognized means of classification:

sector leisure facilities.

The Development of Services Marketing

restaurants, medical services.

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International Services Marketing

Technological Developments in Services Marketing

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Gasoline, steel, groceries.

Auto repair, computers.

Restaurants, Rental movie movies, theater, software. bookstores.

Medical care, consulting, day care.

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LESSON 4: CONSUMER BEHAVIOUR

Services: Categories in the Decisionmaking Process and Framework of the Chapter

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The Role of Cultures in Services

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Customer Evaluation of Services

Experience Experience Qualities Qualities

Credence Qualities Qualities

Goods & Services

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Customers & Service Quality

Expected service Perceived service

Perceived Service quality

Consumer Buying Behavior of Services Services

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LESSON 5: IMPOR TANCE OF SERVICES IN CUSTOMER SATISFACTION

The Importance of After-sales Service; Consumer/Industrial Markets

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its dissatisfied customers.

26 custom-ers with problems, 6 of which are defined as serious by the client.

delivery) were weighted between 7 and 8.

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