Chapter 13: Designing and Managing Services

1. How do we define and classify services and how do they differ from
goods?
A service is any act of performance that one party can offer another that is essentially intangible and
does not result in the ownership of anything; its production may or may not be tied to a physical
product. Some service sectors are government, business, retail, manufacturing and private non-
profit.

Categories of Service Mix

The service component can be a minor or a major part of the total offering.

 Pure tangible good

 Tangible good with accompanying services
 Hybrid: Offering consists of equal parts goods and services. Eg: Restaurant
 Major service with accompanying minor goods and services: Eg: Airline
 Pure service

Service Distinctions

• Equipment-based or people-based
• Service processes: Companies can choose among different processes to deliver their service.
Eg: Restaurant may opt for cafeteria style, fast food, buffet or candlelight.
• Client’s presence required or not
• Personal needs or business needs
• Objectives and ownership: Objective – profit or not for profit, ownership – private or public

Service characteristics

Intangibility:

Tangibilize the service through good exterior and interior (place, few waiting lines), good personnel
(people), good equipment, communication material, meaningful symbols and use of price (eg:
dominoes – free if delivered later than 30min)

Inseparability:

Services are produced and consumed simultaneously. Provider-client interaction eg: barber and
client.

Variability:
Some doctors have an excellent bedside manner, others are apathetic. Service guarantees reduce
perceived risks due to variability. To increase quality control, invest in good hiring and training
procedures, standardize the service-performance process throughout the organization and monitor
customer satisfaction.

Perishability:

This can be a problem when demand fluctuates. Demand or yield management is critical. On the
demand side: Have differential pricing, cultivate non peak demand, complementary services to
waiting customers and reservation systems. On the supply side, part-time employees can serve peak
demand, peak time efficiency routines can allow employees to perform only essential tasks,
increased customer participation can be encouraged, shared services can improve offerings (medical
equipment shared between hospitals) and facilities for future expansion can be a good investment.

2. How do we market services?

Shifting Customer Relationship

Profit Tiers: Firms have decided to raise fees and lower service to those customers who barely pay
their way and to coddle big spenders to retain their patronage for as long as possible.

Customer Empowerment: Customers have become sophisticated about buying product support
services and are pressing for services unbundling. Internet lets consumers vent their rage about bad
service. More important than simply responding to a disgruntled consumer is preventing
dissatisfaction from occurring in the future.

Coproduction: Consumers play an active role in the delivery of service every step of the way. Their
words and actions affect the quality of their service experiences and those of others, and the
productivity of frontline employees.

Causes for Customer Failures

Solutions for Customer Failures

 Redesign processes and redefine customer roles to simplify service encounters. Eg: Netflix
allows customers to return DVDs by mail at leisure
 Incorporate the right technology to aid employees and customers. Eg: Virtual copy of
purchase info in case customers are unable to produce a receipt
 Create high performance customers by enhancing their role clarity, motivation and ability.
Eg: Saturn coaches novice buyers about proper vehicle maintenance.
 Encourage customer citizenship where customers help customers: Eg Help forums where
other customers reply to queries

Factors Leading to Customer Switching Behavior

• Pricing: high, deceptive, unfair

• Inconvenience: waiting, location
• Core Service Failure
• Service Encounter Failures: uncaring, impolite
• Response to Service Failure
• Competition
• Ethical Problems: Cheat, unsafe
• Involuntary Switching: customer moved / provider closed

Holistic Marketing

External: Normal work of preparing, pricing, distributing and promoting the service to customers
Internal: Training and motivating employees to serve customers well
Interactive: Employee’s skill in serving the client. Clients judge service not only by technical but also
its functional quality (was the surgeon concerned?)

3. How can we improve service quality?

Customers compare the perceived service with the expected service. Delighting customers is a
matter of exceeding expectations.
Five gaps that cause unsuccessful delivery:

• Gap between customer expectation and management perception

• Gap between management perception and service quality specification (deliver ‘fast’)
• Gap between service quality specification and service delivery
• Gap between service delivery and external communications (ads)
• Gap between perceived service and expected service

Five determinants of service quality (RATER)

• Reliability
• Responsiveness
• Assurance: knowledge and courtesy of employees
• Empathy
• Tangibles: Physical facilities, equipment, personnel, communication materials

Best Practices of Service-Quality Management

• Strategic Concept: Top service companies are customer obsessed. They have a clear sense of
their target customers and their needs. They have developed a distinctive strategy for
satisfying their needs.

• Top-Management Commitment: Management looks at service performance along with

financial performance

• High Standards

• Self-Service Technologies: Self service is more convenient to customers.

• Monitoring Systems: Top firms audit service performance, both their own and competitors
on a regular basis. They collect voice of the customer measurements to probe customer
satisfiers and dissatisfiers. Eg: Mystery shopping. We can judge services on customer
importance and company performance.
 • Satisfying Customer Complaints: Getting frontline employees to adopt extra role behavior
and to advocate the interests and image of the firm to consumers, as well as take initiative
and engage in conscientious behavior in dealing with consumers. Companies are also
increasing the quality of their call centers and customer service reps.

• Satisfying Employees: Positive employee attitudes will promote stronger customer loyalty.

4. How do service marketers create strong brands?

Differentiating Services:

• Ordering ease
• Delivery
• Installation
• Customer training: Training the customer’s employees to use the vendor’s equipment
properly
• Customer consulting: Data, information systems and advice services that sellers offer to
buyers
• Maintenance and repair
• Returns (product returns)

What the customer expects is called the primary service package. The provider can add secondary
service features to the package. Many companies are using the web for this purpose. Sometimes the
company achieves differentiation through the sheer range of its service offerings and the success of
its cross selling efforts. The major challenge is that most service offerings and innovations are easily
copied.

Brand Strategies

• Choosing brand elements: Name, logo, symbols, characters, slogans, physical facilities
• Establishing image dimensions: Different brand personalities for different hotels, design
marketing communication and information programs for consumers
• Devising branding strategy: Develop a brand hierarchy and brand portfolio that permits
positioning and targeting of different market segments

5. How can goods marketers improve customer support services? (Refer

Q 2)
Customers have three specific worries:

• Reliability and failure frequency

• Downtime (time taken to fix), service dependability
• Out of pocket costs (for maintenance and repair)
A buyer takes all these factors into consideration and tries to estimate the life cycle cost, which is
the product’s purchase cost plus the discounted cost of maintenance and repair less the discounted
salvage value.

To provide the best support, manufacturers must identify the services customers value most and
their relative importance. They may also add value augmenting services that extend beyond the
functioning and performance of the product itself.

Post-sale Service Strategy

Customer service evolution: Initially manufacturers ran their own part and service departments to
stay close to their equipment. Then they began leasing them to authorized distributors and dealers.
Eventually, independent service firms emerged.

Customer service imperative: Customer service choices are increasing rapidly and manufacturers
must figure out how to make money on their equipment, independent of service contracts.

• Satisfying Customer Complaints: Getting frontline employees to adopt extra role behavior
and to advocate the interests and image of the firm to consumers, as well as take initiative
and engage in conscientious behavior in dealing with consumers. Companies are also
increasing the quality of their call centers and customer service reps.

• Customer training: Training the customer’s employees to use the vendor’s equipment
properly
• Customer consulting: Data, information systems and advice services that sellers offer to
buyers