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Services Marketing
BCOM HONOURS:
SERVICES MARKETING WORKSHOP
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 1
Services Marketing
1.THEORETICAL DISCUSSION ON
SERVICES MARKETING
2. ASSIGNMENT DISCUSSION
3. EXAMINATION PREPARATION
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 2
Services Marketing
Chapter 2 :
New Perspectives On
Marketing in the
Service Economy
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 3
Why Study Services?
Services Marketing
 Services dominate most economies and are growing
rapidly:
 Services account for more than 60% of GDP worldwide
 Almost all economies have a substantial service sector
 Most new employment is provided by services
 Strongest growth area for marketing
 Understanding services offers you a personal competitive
advantage
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 4
Why Study Services?
Services Marketing
 Most new jobs are generated by services
 Powerful forces are transforming service markets
 Government policies, social changes, business trends,
advances in IT, internationalization
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 5
Transformation of the
Service Economy
Social
Changes
Government
Policies
Services Marketing
Business
Trends
Advances
In IT
Globalization
 New markets and product categories
 Increase in demand for services
 More intense competition
Innovation in service products & delivery systems, stimulated by better technology
Customers have more choices and exercise more power
Success hinges on:  Understanding customers and competitors
 Viable business models
 Creation of value for customers and firm
Increased focus on services marketing and management
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 6
Factors Stimulating Transformation
of the Service Economy
Social
Changes
Business
Trends
Services Marketing
Advances
In IT
Government
Policies
Globalization
 Changes in regulations
 Privatization
 New rules to protect customers, employees,
and the environment
 New agreement on trade in services
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 7
Factors Stimulating Transformation
of the Service Economy
Social
Changes
Business
Trends
Advances
In IT
Government
Policies
Globalization







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Slide © 2010 by Lovelock & Wirtz
Services Marketing
Rising consumer expectations
More affluence
More people short of time
Increased desire for buying experiences vs.
things
Rising consumer ownership of high tech
equipment
Easier access to information
Immigration
Growing but aging population
Services Marketing 7/e
Chapter 1 – Page 8
Factors Stimulating Transformation
of the Service Economy
Social
Changes
Business
Trends
Services Marketing
Advances
In IT
Government
Policies
Globalization
 Push to increase shareholder value
 Emphasis on productivity and cost savings
 Manufacturers add value through service and
sell services
 More strategic alliances and outsourcing
 Focus on quality and customer satisfaction
 Growth of franchising
 Marketing emphasis by nonprofits
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 9
Factors Stimulating Transformation
of the Service Economy
Social
Changes
Business
Trends
Advances
In IT
Government
Policies
Globalization






Slide © 2010 by Lovelock & Wirtz
Services Marketing
Growth of Internet
Greater bandwidth
Compact mobile equipment
Wireless networking
Faster, more powerful software
Digitization of text, graphics, audio, video
Services Marketing 7/e
Chapter 1 – Page 10
Factors Stimulating Transformation
of the Service Economy
Social
Changes
Business
Trends
Services Marketing
Advances
In IT
Government
Policies
Globalization
 More companies operating on transnational
basis
 Increased international travel
 International mergers and alliances
 “Offshoring” of customer service
 Foreign competitors invade domestic markets
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 11
Definition of Services
Services Marketing
 Services
 are economic activities offered by one party to another
 most commonly employ time-based performances to bring about
desired results
 In exchange for their money, time, and effort, service
customers expect to obtain value from
 access to goods, labor, facilities, environments, professional
skills, networks, and systems;
 normally do not take ownership of any of the physical elements
involved.
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 12
Service Products vs. Customer
Service & After-Sales Service
Services Marketing
 A firm’s market offerings are divided into core product
elements and supplementary service elements
 Need to distinguish between:
 Marketing of services – when service is the core product
 Marketing through service – when good service increases the
value of a core physical good
 Manufacturing firms are reformulating and enhancing
existing added-value services to market them as standalone core products
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 13
Service – A Process Perspective
Services Marketing
 Differences exist amongst services depending on what is
being processed
 Classification of services into
 People processing
 Possession processing
 Mental stimulus processing
 Information processing
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 14
4 Categories of Services
Services Marketing
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 15
Services Pose Distinctive
Marketing Challenges
Services Marketing
 Marketing management tasks in the service sector differ
from those in the manufacturing sector.
 Eight common differences between services and goods but
they do not apply equally to all services
What are marketing implications of these differences?
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 16
Differences, Implications, and
Marketing-Related Tasks
Services Marketing
Difference
Implications
Marketing-Related Tasks
 Most service products
cannot be inventoried
 Customers may be
turned away
 Use pricing, promotion,
reservations to smooth
demand; work with ops to
manage capacity
 Intangible elements
usually dominate
value creation
 Harder to evaluate
service & distinguish
from competitors
 Emphasize physical clues,
employ metaphors and vivid
images in advertising
 Services are often
difficult to visualize &
understand
 Greater risk &
uncertainty perceived
 Educate customers on
making good choices; offer
guarantees
 Customers may be
involved in coproduction
 Interaction between
customer & provider;
poor task execution
could affect satisfaction
 Develop user-friendly
equipment, facilities &
systems; train customers,
provide good support
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 17
Differences, Implications, and
Marketing-Related Tasks
Services Marketing
Difference
Implications
Marketing-Related Tasks
 People may be part of
service experience
 Behavior of service
personnel & customers
can affect satisfaction
 Recruit, train employees to
reinforce service concept
 Shape customer behavior
 Operational inputs and
outputs tend to vary
more widely
 Hard to maintain quality,
consistency, reliability
 Difficult to shield
customers from failures
 Redesign for simplicity and
failure proofing
 Institute good service
recovery procedures
 Time factor often
assumes great
importance
 Time is money;
customers want service
at convenient times
 Find ways to compete on
speed of delivery; offer
extended hours
 Distribution may take
place through
nonphysical channels
 Electronic channels or
voice communications
 Create user-friendly,
secure websites and free
access by telephone
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 18
Services Require
An Extended Marketing Mix
Services Marketing
 Marketing can be viewed as:
 A strategic and competitive thrust pursued by top management
 A set of functional activities performed by line managers
 A customer-driven orientation for the entire organization
 Marketing is only function to bring operating revenues into
a business; all other functions are cost centers
 The “7 Ps” of services marketing are needed to create
viable strategies for meeting customer needs profitably
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 19
The 7Ps of Services Marketing
Services Marketing
 Traditional Marketing Mix Applied to Services
 Product (Chapter 4)
 Place and Time (Chapter 5)
 Price (Chapter 6)
 Promotion and Education (Chapter 7)
 Extended Marketing Mix for Services
 Process (Chapter 8 & 9)
 Physical Environment (Chapter 10)
 People (Chapter 11)
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 20
Marketing to be Integrated with
Other Management Functions
Services Marketing
Three management functions play central and interrelated
roles in meeting needs of service customers
Operations
Management
Marketing
Management
Customers
Human Resources
Management
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 21
Services Marketing
Developing Effective Service
Marketing Strategies
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 22
Overview of Framework
Services Marketing
Understanding Service Products, Consumers and
Markets
Applying the 4 P’s of Marketing to Services
The Extended Services Marketing Mix for
Managing the Customer Interface
Implementing Profitable Service Strategies
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 23
Services Marketing
Chapter 3:
Consumer Behavior
in a Services Context
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 24
Pre-purchase Stage - Overview
Services Marketing
Pre-purchase Stage

Customers seek solutions to
aroused needs
 Evaluating a service may be
difficult
Service Encounter
Stage
Post-encounter Stage
Slide © 2010 by Lovelock & Wirtz

Uncertainty about outcomes
Increases perceived risk

What risk reduction strategies
can service suppliers develop?

Understanding customers’
service expectations

Components of customer
expectations
 Making a service purchase
decision
Services Marketing 7/e
Chapter 1 – Page 25
How Product Attributes Affect
Ease of Evaluation
Most Goods
Services Marketing
Most Services
Easy
To Evaluate
Difficult
To evaluate
Clothing
Chair
Motor Vehicle
Foods
High In
Search
Attributes
Restaurant Meals
Lawn Fertilizer
Haircut
Entertainment
High In
Experience
Attributes
Computer Repair
Education
Legal Services
Complex Surgery
High In
Credence
Attributes
Source: Adapted from Valarie A. Zeithaml , “How Consumer Evaluation Processes Differ Between Goods & Services,” in J.H. Donelly and W. R. George, Marketing of
Services (Chicago: American Marketing Association, 1981)
Services Marketing 7/e
Chapter 1 – Page 26
Slide © 2010 by Lovelock & Wirtz
Strategic Responses to Managing
Customer Perceptions of Risk
Services Marketing
Free trial (for
services with
high experience
attributes)
Advertise (helps
to visualize)
Display
credentials
Use evidence
management
(e.g., furnishing,
equipment etc.)
Offer
guarantees
Encourage visit
to service
facilities
Give customers
online access
about order
status
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 27
Factors Influencing Customer
Expectations of Service
Services Marketing
Source: Adapted from Valarie A. Zeithaml, Leonard A. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of
Service,” Journal of the Academy of Marketing Science 21, no. 1 (1993): 1-12
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 28
Components of Customer
Expectations
Services Marketing
Desired Service Level
• wished-for level of service quality that customer believes can and
should be delivered
Adequate Service Level
• minimum acceptable level of service
Predicted Service Level
• service level that customer believes firm will actually deliver
Zone of Tolerance
• Acceptable range of variations in service delivery
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 29
Purchase Decision
Services Marketing
 Purchase Decision: Possible alternatives are compared and
evaluated, whereby the best option is selected
 Simple if perceived risks are low and alternatives are clear
 Complex when trade-offs increase
 Trade-offs are often involved
 After making a decision, the consumer moves into the
service encounter stage
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 30
Service Encounter Stage - Overview
Services Marketing
Pre-purchase Stage
● Service encounters range from highto low-contact
● Understanding the servuction
system
Service Encounter
Stage
● Theater as a metaphor for service
delivery: An integrative perspective
 Service facilities
 Personnel
Post-encounter Stage
Slide © 2010 by Lovelock & Wirtz
 Role and script theories
Services Marketing 7/e
Chapter 1 – Page 31
Service Encounter Stage
Services Marketing
 Service encounter – a period of time during which a
customer interacts directly with the service provider
 Might be brief or extend over a period of time (e.g., a phone call or
visit to the hospital)
 Models and frameworks:
1.
“Moments of Truth” – importance of managing touchpoints
2.
High/low contact model – extent and nature of contact points
3.
Servuction model – variations of interactions
4.
Theater metaphor – “staging” service performances
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 32
Distinctions between High-Contact
and Low-Contact Services
 High-Contact Services
 Low-Contact Services
 Customers visit service
facility and remain
throughout service delivery
 Active contact
 Includes most peopleprocessing services
Slide © 2010 by Lovelock & Wirtz
Services Marketing
 Little or no physical contact
 Contact usually at arm’s
length through electronic or
physical distribution
channels
 Facilitated by new
technologies
Services Marketing 7/e
Chapter 1 – Page 33
Implications of Customer
Participation in Service Delivery
Services Marketing
 Greater need for information/training
 Help customers to perform well, get desired results
 Customers should be given a realistic service preview in
advance of service delivery
 This allows them to have a clear idea of their expected role and
their script in this whole experience
 Manages expectations and emotions
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 34
Post-purchase Stage - Overview
Services Marketing
Pre-purchase Stage
● Evaluation of service
performance
● Future intentions
Service Encounter
Stage
Post-encounter Stage
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 35
Services Marketing
Chapter 4:
Developing
Service Products:
Core and Supplementary
Elements
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 36
Service Products
Services Marketing
A service product comprises of all elements of service performance,
both tangible and intangible, that create value for customers.
Service products consist of:
 Core Product  central component that supplies the principal,
problem-solving benefits customers seek
 Supplementary Services  augments the core product,
facilitating its use and enhancing its value and appeal
 Delivery Processes  used to deliver both the core product and
each of the supplementary services
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 37
Designing a Service Concept
Services Marketing
 Service concept design must address the following issues:
 How the different service components are delivered to the
customer
 The nature of the customer’s role in those processes
 How long delivery lasts
 The recommended level and style of service to be offered
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 38
Documenting Delivery Sequence
Over Time
Services Marketing
 Must address sequence in which customers will use each
core and supplementary service
 Determine approximate length of time required for each
step
 Information should reflect good understanding of
customers, especially their:
 needs
 habits
 expectations
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 39
The Flower of Service
Services Marketing
 There are two types of supplementary services
 Facilitating: either needed for service delivery, or help in the use
of the core product
 Enhancing: add extra value for the customer
 Market positioning strategy helps to determine which
supplementary services should be included
Information
Payment
Billing
KEY:
Consultation
Core
Order-Taking
Exceptions
Hospitality
Safekeeping
Enhancing elements
Facilitating elements
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 40
Managerial Implications
Services Marketing
 Core products do not have to have supplementary elements
 Nature of product helps determine supplementary services
offered to enhance value
 People-processing and high contact services have more
supplementary services
 Different levels of service can add extra supplementary services
for each upgrade in service level
 Low-cost, no-frills basis firms needs fewer supplementary
elements
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 41
Spectrum of Branding Alternatives
Services Marketing
Source: Derived from Aaker and Joachimsthaler
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 42
Offering a Branded Experience
Services Marketing
Branding can be employed at corporate and product levels
 Corporate brand:
 Easily recognized,
 Holds meaning to customers,
 Stands for a particular way of doing business
 Product brand:
 Helps firm communicate distinctive experiences and benefits
associated with a specific service concept
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 43
Moving Towards a Branded
Experience
Slide © 2010 by Lovelock & Wirtz
Services Marketing
Create brand
promise
Shape truly
differentiated
customer
experience
Give employees
skills, tools, and
supporting
processes to
deliver promise
Measure and
monitor
Services Marketing 7/e
Chapter 1 – Page 44
A Hierarchy of
New Service Categories
Services Marketing
Major Service Innovations: New core products for previously
undefined markets
Major Process Innovations: Using new processes to deliver existing
products with added benefits
Product Line Extensions: Addition to current product lines
Process-line Extensions: Alternative delivery procedures
Supplementary Service Innovations: Additions of new or improved
facilitating or enhancing elements
Service Improvements: Modest changes in the performance of
current products
Style Changes: Visible changes in service design or scripts
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 45
Achieving Success in Developing
New Services
Services Marketing
 Services are not immune to high failure rates that plague
new manufactured products
 In developing new services:
 core product is often of secondary importance, many innovations
are in supplementary services or service delivery
 ability to maintain quality of the total service offering is key
 accompanying marketing support activities are vital
 Market knowledge is of utmost importance
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 46
Success Factors in
New Service Development
Services Marketing
 Market synergy




Good fit between new product and firm’s image
Advantage in meeting customers’ needs
Strong support from firm during and after launch
Understands customer purchase decision behavior
 Organizational factors
 Strong inter-functional cooperation and coordination
 Internal marketing to educate staff on new product and its
importance
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 47
Success Factors in
New Service Development
Services Marketing
 Market research factors
 Scientific studies
conducted early in
development process
 Product concept well
defined before
undertaking field studies
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 48
Services Marketing
Chapter 5:
Distributing Services
Through Physical
And Electronic Channels
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 49
Distribution in a Services Context
Services Marketing
 In a services context, we
often don’t move physical
products
 Experiences, performances,
and solutions are not being
physically shipped and
stored
 More and more informational
transactions are conducted
through electronic and not
physical channels
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 50
Applying the Flow Model of
Distribution to Services
Services Marketing
The three interrelated elements of distribution are:
 Information and promotion flow
 To get customer interested in buying the service
 Negotiation flow
 To sell the right to use a service
 Product flow
 To develop a network of local sites
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 51
Distinguishing between Distribution
of Supplementary and Core Services
Services Marketing
 Most core services require
physical locations
 Many supplementary
services are informational;
can be distributed widely
and cost-effectively via
other means
 Telephone
 Internet
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 52
Information and Physical Processes
of Augmented Service Products
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Services Marketing
Chapter 1 – Page 53
Using Websites for Service Delivery
Services Marketing
Information
Read brochure/FAQ; get schedules/
directions; check prices
Consultation
Payment
Conduct e-mail dialog
Use expert systems
Pay by bank card
Direct debit
Billing
Order-Taking
Receive bill
Make auction bid
Check account status
Core
Exceptions
Make/confirm reservations
Submit applications
Order goods, check status
Hospitality
Make special requests
Resolve problems
Record preferences
Safekeeping
Track package movements
Check repair status
CORE: Use Web to deliver information-based core services
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 54
Six Options For Service Delivery
Services Marketing
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 55
Channel Preferences Vary Among
Customers
Services Marketing
 For complex and high-perceived risk services, people tend
to rely on personal channels
 Individuals with greater confidence and knowledge about a
service/channel tend to use impersonal and self-service
channels
 Customers with social motives tend to use personal
channels
 Convenience is a key driver of channel choice
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 56
Place Decisions of Service Delivery
Services Marketing
 Cost, productivity, and access to labor are key determinants
to locating a service facility
 Location constraints
 Operational requirement (e.g., airports)
 Geographic factor (e.g., ski resorts)
 Need for economies of scale (e.g., hospitals)
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 57
Time of Service Delivery
Services Marketing
 Traditionally, schedules
were restricted
 Service availability limited to
daytime, 40-50 hours a week
 Today
 For flexible, responsive
service operations: 24/7
service, 24 hours a day, 7
days a week, all around the
world
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 58
Service Delivery Innovations
Facilitated by Technology
Services Marketing
 Technological Innovations
 Development of “smart” mobile telephones and PDAs, and
presence of Wi-Fi
 Voice-recognition technology
 Websites
 Smart cards
- Store detailed information about customer
- Act as electronic purse containing digital money
 Electronic channels can be offered together with physical
channels, or replace physical channels
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 59
Splitting Responsibilities
for Service Delivery
Services Marketing
Challenges for original supplier
● Act as guardian of overall process
● Ensure that each element offered by intermediaries fits overall service concept
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 60
The Challenge of Distribution in
Large Domestic Markets
Services Marketing
 Distributing services (i.e., physical logistics) faces
challenges due to:




Distances involved
Multiple time zones
Multiculturalism
Differences in laws and tax rates
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 61
Impact of Globalization Drivers on
Various Service Categories
Services Marketing
Globalization
Drivers
People Processing
Competition
Simultaneity of production
and consumption limits
leverage of foreign
competitive advantage,
but management systems
can be globalized.
Technology drives
globalization of
competitors with
technical edge.
Highly vulnerable to
global dominance by
competitors with
monopoly or
competitive advantage
in information.
Market
People differ
economically and
culturally, so needs for
service and ability to pay
may vary.
Level of economic
development impacts
demand for services to
individually owned
goods.
Demand for many
services is derived to a
significant degree from
economic and
educational levels.
Slide © 2010 by Lovelock & Wirtz
Possession
Processing
Services Marketing 7/e
Information Based
Chapter 1 – Page 62
Impact of Globalization Drivers on
Various Service Categories
Globalization
Drivers
People Processing
Services Marketing
Possession
Processing
Information
Based
Technology
Use of IT for delivery of
supplementary services
may be a function of
ownership and familiarity
with technology.
Need for technologybased service delivery
systems depends on
possessions requiring
service and the cost
trade-offs in labor
substitution
Ability to deliver core
services through
remote terminals may
be a function of
investment in
computerization, etc.
Cost
Variable labor rates may
impact pricing in laborsensitive services.
Variable labor rates may
favor low-cost locations.
Major cost elements
can be centralized
and minor cost
elements localized.
Social policies (e.g.,
health) vary widely and
may affect labor cost, etc.
Policies may
decrease/increase cost
and
encourage/discourage
certain activities
Policies may impact
demand and supply
and distort pricing
Government
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 63
Services Marketing
Chapter 6:
Setting Prices and
Implementing
Revenue Management
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 64
What Makes Service Pricing
Strategy Different and Difficult?
Services Marketing
 Harder to calculate financial costs of creating a service
process or performance than a manufactured good
 Variability of inputs and outputs:
 How can firms define a “unit of service” and establish basis for
pricing?
 Importance of time factor – same service may have more
value to customers when delivered faster
 Customers find service pricing difficult to understand, risky,
and sometimes even unethical
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 65
The Pricing Tripod
Services Marketing
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 66
Three Main Approaches to Pricing
Services Marketing
Cost-Based
Pricing
• Set prices relative
to financial costs
Value-Based
Pricing
CompetitionBased Pricing
• Relate price to
value perceived by
customer
• Monitor competitors’
pricing strategy
• Activity-Based
Costing
• Dependent on the
price leader
• Pricing
implications of cost
analysis
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 67
Defining Total User Cost
Services Marketing
Money
Purchase
Search Costs*
Time
Operating Costs
Physical Effort
Purchase and Service
Encounter Costs
Incidental Expenses
Psychological Burdens
Sensory
Burdens
Post Purchase Costs*
Necessary
Follow-up
* Includes all five
cost categories
Problem
Solving
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 68
Competition-Based Pricing
Services Marketing
Price competition increases due to:
•
•
•
•
Increasing competition
Increase in substituting offers
Wider distribution of competitor
Increasing surplus capacity in the industry
However under these circumstances,
price competition can decrease:
•
•
•
•
•
Slide © 2010 by Lovelock & Wirtz
High non-price-related costs of using alternatives
Personal relationships matter
Switching costs are high
Time and location specificity reduces choice
Managers should examine all related financial and
non-monetary costs
Services Marketing 7/e
Chapter 1 – Page 69
Maximizing Revenue from
Available Capacity at a Given Time
Services Marketing
 Most effective in the following conditions:





High fixed cost structure
Relatively fixed capacity
Perishable inventory
Variable and uncertain demand
Varying customer price sensitivity
 Revenue management (RM) is price customization
 Charge different value segments different prices for same product
based on price sensitivity
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 70
Maximizing Revenue from
Available Capacity at a Given Time
Services Marketing
 RM uses mathematical models to examine historical data
and real time information to determine
 What prices to charge within each price bucket
 How many service units to allocate to each bucket
 Rate fences deter customers willing to pay more from
trading down to lower prices (minimize consumer surplus)
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 71
Price Elasticity
Services Marketing
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 72
Key Categories of Rate Fences:
Physical (Product-Related) Fences
Services Marketing
Product-Related Fences
Rate Fences
Examples
Basic Product
 Class of travel (Business/Economy class)
 Size and furnishing of a hotel room
 Seat location in a theater
Amenities
 Free breakfast at a hotel, airport pick up, etc.
 Free golf cart at a golf course
Service Level
 Priority wait listing
 Increase in baggage allowances
 Dedicated service hotlines
 Dedicated account management team
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 73
Key Categories of Rate Fences:
Non Physical Fences
Services Marketing
Transaction Characteristics
Rate Fences
Examples
Time of booking or
reservation
 Requirements for advance purchase
Location of booking or
reservation
 Passengers booking air tickets for an identical route in
different countries are charged different prices
 Must pay full fare two weeks before departure
Flexibility of ticket usage  Fees/penalties for canceling or changing a reservation
(up to loss of entire ticket price)
 Non-refundable reservation fees
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 74
Key Categories of Rate Fences:
Non Physical Fences
Services Marketing
Consumption Characteristics
Rate Fences
Example
Time or duration of use
 Early bird special in restaurant before 6pm
 Must stay over on Sat for airline, hotel
 Must stay at least five days
Location of consumption  Price depends on departure location, especially in
international travel
 Prices vary by location (between cities, city centre vs.
edges of city)
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 75
Key Categories of Rate Fences:
Non Physical Fences
Services Marketing
Buyer Characteristics
Rate Fences
Examples
Frequency or volume of
consumption
 Member of certain loyalty tier with the firm get
priority pricing, discounts or loyalty benefits
Group membership
 Child, student, senior citizen discounts
 Affiliation with certain groups (e.g., Alumni)
Size of customer group
Slide © 2010 by Lovelock & Wirtz
 Group discounts based on size of group
Services Marketing 7/e
Chapter 1 – Page 76
Pricing Issues:
Putting Strategy into Practice
Services Marketing
1. How much to
charge?
2. What basis
for pricing?
3. Who should
collect
payment?
4. Where
should payment
be made?
5. When should
payment be
made?
6. How should
payment be
made?
7. How to
communicate
prices?
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 77
Services Marketing
Chapter 7:
Promoting Services
and Educating
Customers
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 78
Specific Roles of Marketing
Communications
Services Marketing
 Position and differentiate service
 Help customer evaluate offerings and highlight differences
that matter
 Promote contribution of personnel and backstage
operations
 Add value through communication content
 Facilitate customer involvement in production
 Stimulate or dampen demand to match capacity
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 79
Promote Contributions of
Service Personnel
Services Marketing
 Frontline personnel are central to service delivery in highcontact services
 Make the service more tangible and personalized
 Show customers work performed behind the scenes to
ensure good delivery
 To enhance trust, highlight expertise and commitment of
employees
 Advertisements must be realistic
 Messages help set customers’ expectations
 Service personnel should be informed about the content of new
advertising campaigns or brochures before launch
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 80
Checklist: The “5 Ws” Model
Services Marketing
 Who is our target audience?
 What do we need to communicate and achieve?
 How should we communicate this?
 Where should we communicate this?
 When do communications need to take place?
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 81
Educational and Promotional
Objectives in Service Settings
Services Marketing
Create memorable
images of specific
companies and
their brands
Build awareness
and interest for
unfamiliar service
Compare service
favorably with
competitors’
offerings
Build preference by
communicating
strengths and
benefits
Reposition service
relative to
competition
Reduce uncertainty
or perceived risk by
providing useful info
and advice
Provide
reassurance (e.g.,
promote service
guarantees)
Encourage trial by
offering promotional
incentives
Familiarize
customers with
service processes
before use
Teach customers
how to use a
service to best
advantage
Stimulate demand
in off-peak,
discourage during
peak
Recognize and
reward valued
customers and
employees
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 82
Marketing Communications Mix
for Services
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Services Marketing
Chapter 1 – Page 83
Sources of Messages Received by
Target Audience
Services Marketing
Source: Adapted from a diagram by Adrian Palmer, Principles of Services Marketing, London: McGraw-Hill,4th ed., 2005, p. 397
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 84
Traditional Marketing Channels
Services Marketing
Channel
Aim
Challenges
Advertising: Done via
media channels
Build awareness, inform,
persuade, and remind
Needs to be unique as less
than half of all ads generate a
positive ROI
Public relations: Efforts
to stimulate positive
interest through third
parties
Builds reputation and credibility Form relationships with its
to secure an image conducive employees, customers, and
to conduct business
the community
Direct Marketing such
as mail, e-mail & text
messages
Send personalized messages
to highly targeted microsegments; use permission
marketing where customers
“raise their hands” and agree
to learn more about a company
and its products
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Advance in on-demand
technologies (e.g., spam
filters, cookie busters, pop-up
blockers) empower
consumers to decide how and
when they prefer to be
reached, and by whom
Chapter 1 – Page 85
Traditional Marketing Channels
Services Marketing
Channel
Aim
Challenges
Sales Promotion:
Communication attached to
an incentive that is specific
to a period of time, price, or
customer group
Generate attention and
speed up introduction
and acceptance of new
services
Motivating customers to use a
service sooner, in greater
volume, or more frequently
especially during periods when
demand would be weak
Personal Selling:
Common in b2b and
infrequently purchased
services
Educate customers and
promote preferences for
particular brand or
product
Relationship marketing strategies
based on account management
programs incur high staffing
costs; telemarketing is a lower
cost alternative
Trade Shows
Stimulate extensive
Opportunity to learn about latest
media coverage with
offerings from wide array of
many prospective buyers suppliers
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 86
Internet Marketing Offers Powerful
Opportunities
Services Marketing
 Supplement traditional marketing channels at a reasonable
cost
 Part of an integrated, well-designed communications
strategy
 Can market through the company’s own website or through
online advertising
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 87
Effective Advertising on Internet:
Banner Advertising
Services Marketing
Banner Advertising: Placing advertising banners and buttons
on portals such as Yahoo and other firms’ websites to draw
online traffic to own site
 Easy for advertisers to measure how many visits to its own
website are generated by click-throughs
 Limitations

Obtaining many exposures does not necessarily lead to increase in
awareness, preference, or sales

Fraudulent click-throughs designed to boost apparent effectiveness
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 88
Effective Advertising on Internet:
Search Engine Advertising
Services Marketing
Search Engine Advertising (Reverse broadcast network):
search engines let advertisers know exactly what consumer
wants through their keyword search
 Target relevant messages directly to desired consumers
 Advertising options:



Pay for targeted placement of ads to relevant keyword searches
Sponsor a short text message with a click-through link
Buy top rankings in the display of search results
 E.g., Google – The New Online Marketing Powerhouse via
Adsense and Adwords
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 89
Messages Transmitted through
Service Delivery Channels
Service outlets
Front-line
employees
Self-service
delivery points
Customer
training
Slide © 2010 by Lovelock & Wirtz
Services Marketing
• Messages reach customers through the
service delivery environment
• Servicescape: Physical design
• Shape customer’s perceptions
• Delivers supplementary services
• Cross-selling of additional services
• ATM, vending machines and websites
• Require clear signage and instructions on
how to use the service
• Familiarize customers with service
product and teach them how to use it to
their best advantage
Services Marketing 7/e
Chapter 1 – Page 90
Strategies for Corporate Design
Services Marketing
 Many service firms employ a unified and distinctive visual
appearance for all tangible elements
 e.g., Logos, uniforms, physical facilities
 Provide a recognizable theme linking all the firm’s
operations use of physical evidence
 e.g., BP’s bright green and yellow service stations
 Use of trademarked symbol as primary logo, with name
secondary
 McDonald’s “Golden Arches”
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 91
Strategies for Corporate Design
Services Marketing
 International companies need to select designs carefully to
avoid conveying a culturally inappropriate message
 Easily recognizable corporate symbols important for
international marketers in markets where:
 Local language is not written in Roman Script
 Significant portion of population is illiterate
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 92
Services Marketing
Chapter 8:
Positioning Services
in Competitive Markets
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 93
Basic Focus Strategies for Services
Services Marketing
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 94
Considerations for using Focused
Strategies
Services Marketing
Fully focused: Limited range of services to narrow and specific
market
 Risks
 Opportunities


Developing recognized
expertise in a well-defined
niche may provide
protection against wouldbe competitors
Allows firms to charge
premium prices
Slide © 2010 by Lovelock & Wirtz

Market is too small to
generate needed volume

Demand may be displaced
by generic competition
from alternative products

Purchasers in chosen
segment may be
susceptible to economic
downturn
Services Marketing 7/e
Chapter 1 – Page 95
Considerations for using Focused
Strategies
Services Marketing
 Market focused
 Narrow market segment with wide range of services
 Need to make sure firms have operational capability to do and
deliver each of the different services selected
 Need to understand customer purchasing practices and
preferences
 Service focused
 Narrow range of services to fairly broad market
 As new segments are added, firm needs to develop knowledge and
skills in serving each segment
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 96
Considerations for Using
Focus Strategies
Services Marketing
 Unfocused
 Broad markets with wide
range of services
 Many service providers fall
into this category
 Danger – becoming a “jack
of all trades and master of
none”
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 97
Market Segmentation
Services Marketing
 Firms vary widely in their abilities to serve different types of
customers
 A market segment is composed of a group of buyers
sharing common characteristics, needs, purchasing
behavior, and consumption patterns
 Target segments should be selected with reference to
 Firm’s ability to match or exceed competing offerings directed at
the same segment
 Not just profit potential
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 98
Developing Right Service Concept
for a Specific Segment
Services Marketing
 Use research to identify and prioritize which attributes of a given
service are important to specific market segments
 Individuals may set different priorities according to:

Purpose of using the service

Who makes decision

Timing of use

Whether service is used alone or with a group

Composition of that group
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 99
Establishing Service Levels
Services Marketing
 Make decisions on service levels – level of performance firm
plans to offer on each attribute

Easily quantified attributes are easier to understand – e.g., vehicle speed,
physical dimensions

Qualitative attributes subject to individual interpretation – e.g., physical
comfort, noise levels
 Can often segment customers according to willingness to trade
off price versus service level:

Price-insensitive customers willing to pay relatively high price for high
levels of service

Price-sensitive customers look for inexpensive service with relatively low
performance
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 100
Four Principles of Positioning
Strategy
Services Marketing
 Must establish position for firm or product in minds of
customers
 Position should be distinctive, providing one simple,
consistent message
 Position must set firm/product apart from competitors
 A company cannot be all things to all people – must focus
its efforts
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 101
Principles of Positioning
Services Marketing
What customers
do we serve now,
and which ones
would we like to
target?
What does our
firm stand for in
the minds of
current and
potential
customers?
Slide © 2010 by Lovelock & Wirtz
What is value
proposition for
our current
service products,
and market
segments?
How does each
of our service
products differ
from
competitors’?
Avoid trap of
investing too
heavily in points
of differences that
are easily copied!
Services Marketing 7/e
How well do
target customers
perceive our
service products
as meeting their
needs?
What changes
must we make to
strengthen our
competitive
position?
Chapter 1 – Page 102
Developing an Effective Positioning
Strategy
Services Marketing
 Positioning links market analysis and competitive analysis
to internal corporate analysis
 Market Analysis
 Internal Analysis
 Competitor Analysis
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 103
Market, Internal, and Competitive
Analyses
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Services Marketing
Chapter 1 – Page 104
Positioning Maps Help Managers to
Visualize Strategy
Services Marketing
 Research provides input to development of positioning
maps – challenge is to ensure that
 Attributes employed in maps are important to target segments
 Performance of individual firms on each attribute accurately
reflects perceptions of customers in target segments
 Predictions can be made of how positions may change in
light of future developments
 Charts and maps can facilitate “visual awakening” to
threats and opportunities, suggest alternative strategic
directions
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 105
Positioning After New Construction:
Location vs. Physical Luxury
Services Marketing
High Luxury
Mandarin
New Grand
Heritage
Marriott
Sheraton
Shangri-La
Continental
Action?
Regency
PALACE
Financial
District
No action?
Inner
Suburbs
Shopping District
and Convention Center
Castle
Italia
Alexander IV
Atlantic
Airport Plaza
Moderate Luxury
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 106
Repositioning
Services Marketing
 Firm may have to make significant change in existing
position
 Revising service characteristics; redefining target market
segments; abandoning certain products; withdrawing from certain
market segments
 Improving negative brand perceptions may require
extensive redesign of core product
 Repositioning introduces new dimensions into positioning
equation that other firms cannot immediately match
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 107
Services Marketing
Chapter 9:
Designing and
Managing
Service Processes
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 108
Flowcharting Service Delivery
Helps to Clarify Product Elements
Services Marketing
 Technique for displaying the nature and sequence of the different
steps in delivery service to customers
 Offers way to understand total customer service experience
 Shows how nature of customer involvement with service
organizations varies by type of service:




People processing
Possession processing
Mental Stimulus processing
Information processing
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 109
Flowcharts for People and
Possession Processing Services
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Services Marketing
Chapter 1 – Page 110
Developing a Blueprint
Services Marketing
 Developing a Blueprint
 Identify key activities in creating and delivering service
 Define “big picture” before “drilling down” to obtain a higher level
of detail
 Advantages of Blueprinting
 Distinguish between “frontstage” and “backstage”
 Clarify interactions and support by backstage activities and
systems
 Identify potential fail points; take preventive measures; prepare
contingency
 Pinpoint stages where customers commonly have to wait
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 111
Key Components of a Service
Blueprint
Services Marketing
Define standards
for frontstage
activities
Specify physical
evidence
Identify principal
customer actions
Line of visibility
Frontstage
actions by
frontline
personnel
Line of interaction
Backstage
actions by
customer contact
personnel
Support
processes
involving other
personnel
Support
processes
involving IT
Objectives:
Identify fail
points & risks
of excessive
waits
Set service
standards
Fail-proof
process
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 112
Setting Service Standards and
Targets
Services Marketing
 Service providers set standards for each step sufficiently
high to satisfy and even delight customers
 Include time parameters, script and prescriptions for appropriate
style and demeanor
 Must be expressed in ways that permit objective measurement
 Performance targets – specific process and team
performance targets for which staff are responsible for
 Evaluated based on distinction between standards and
targets
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 113
Setting Standards and Targets for
Customer Service Processes
• Responsiveness
• Reliability
• Competence
• Accessibility
• Courtesy
• Communication
• Credibility
• Confidentiality
• Listening to the
customer
Slide © 2010 by Lovelock & Wirtz
Processing time to
approve
applications
Creates a Base to
Measure Customer
Satisfaction
24 hours
Define Service Quality
Goals for Staff
Services Marketing 7/e
Services Marketing
80% of all applications
in 24 hours
Define/Process
Departmental Service
Goals
Chapter 1 – Page 114
Why Redesign a Service Process?
Services Marketing

Revitalizes process that has become outdated

Changes in external environment make existing practices obsolete and require redesign
of underlying processes

Rusting occurs internally
 Natural deterioration of internal processes; creeping bureaucracy; evolution of
spurious, unofficial standards
 Symptoms:
- Extensive information exchange
- Data that is not useful
High ratio of checking control activities to value-adding activities

Redesign aims to achieve these performance measures:
 Reduced number of service failures
 Reduced cycle time from customer initiation of a service process to its completion
 Enhanced productivity
 Increased customer satisfaction
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 115
Process Redesign: Approaches and
Potential Benefits
Eliminating nonvalue-adding steps
Shifting to selfservice
Delivering direct
service
Slide © 2010 by Lovelock & Wirtz
Services Marketing
• Streamline front-end and back-end processes of
services
• Improve productivity and customer satisfaction
•
•
•
•
Increase in productivity and service quality
Lower costs and perhaps prices
Enhance technology reputation
Differentiates company
• Improve convenience for customers
• Productivity can be improved by eliminating
expensive retail locations
• Increase customer base
Services Marketing 7/e
Chapter 1 – Page 116
Process Redesign: Approaches and
Potential Benefits
Bundling
services
Redesigning
physical aspects
of service process
Slide © 2010 by Lovelock & Wirtz
Services Marketing
• Involves grouping multiple services into one
offer, focusing on a well-defined customer
group
• A better fit to the needs of target segment
• Increase productivity with customized service
• Increase per capita service use
• Focus on tangible elements of service
process (facilities and equipment)
• Increase convenience
• Enhance satisfaction and productivity of
frontline staff
• Cultivate interest in customers
Services Marketing 7/e
Chapter 1 – Page 117
Customer as Co-producer:
Levels of Customer Participation
Services Marketing
High – Customer works actively with provider to co-produce
the service
• Service cannot be created without customer’s active participation
• Customer can jeopardize quality of service outcome
Medium – Customer inputs required to assist provider
• Provide needed information and instructions
• Make some personal effort; share physical possessions
Low – Employees and systems do all the work
• Involves standardized work
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 118
Customers as Partial Employees
Services Marketing
 Customers can influence productivity and quality of service
processes and outputs
 Customers not only bring expectations and needs but also
need to have relevant service production competencies
 For the relationship to last, both parties need to cooperate
with each other
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 119
Managing Customers
Services Marketing
Recruitment and Selection
Job Analysis
Education and Training
• Recruit customers that possess the competency to
perform the necessary tasks
• Are customers aware of their roles and equipped
with the required skills?
• Information required for them to perform their roles
via instructions or video demonstration
Motivate
• Ensure that they will be rewarded for good
performance
Appraise
• For sub-par performances, improve customer
training or change the role or process
Ending
Slide © 2010 by Lovelock & Wirtz
• Last resort: if customer is non compliant consider
termination of the relationship
Services Marketing 7/e
Chapter 1 – Page 120
Self-Service Technologies (SSTs)
Services Marketing
 SSTs are the ultimate form of customer involvement where
customers undertake specific activities using facilities or
systems provided by service supplier
 Customer’s time and effort replace those of employees
 Information-based services lend selves particularly well to
SSTs
 Used in both supplementary services and delivery of core product
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 121
Self-Service Technologies (SSTs)
Services Marketing
Many companies and government organizations seek to
divert customers from employee contact to Internet-based
self-service
Advantages:
Disadvantages:

Time and Cost savings

Flexibility

Convenience of location

Greater control over service
delivery

High perceived level of
customization
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e

Anxiety and stress
experienced by customers
who are uncomfortable with
using them

Some see service
encounters as social
experiences and prefer to
deal with people
Chapter 1 – Page 122
What Aspects Of SSTs Please Or
Annoy Customers?
Services Marketing
People love SSTs when…
People hate SSTs when…
• SST machines are conveniently
located and accessible 24/7– often as
close as the nearest computer!
• SSTs fail – system is down, PIN
numbers not accepted, etc.
• Obtaining detailed information and
completing transactions can be done
faster than through face-to-face or
telephone contact
• Customers themselves mess up –
forgetting passwords; failing to provide
information as requested; simply hitting
wrong buttons
Key weakness: Few firms incorporate service recovery systems such that
customers are still forced to make telephone calls or personal visits
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 1 – Page 123
Putting SSTs to Test by
Asking a Few Simple Questions
Services Marketing
 Does the SST work reliably?
 Firms must ensure that SSTs are dependable and user-friendly
 Is the SST better than interpersonal alternatives?
 Customers will stick to conventional methods if SST doesn’t create
benefits for them
 If it fails, what systems are in place to recover?
 Always provide systems, structures, and technologies that will
enable prompt service recovery when things fail
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Managing Customer’s Reluctance to
Change
Services Marketing
 Increasing customer’s participation level in a service can be
difficult
 Marketing communications to be used to:
 Prepare customer for change
 Explain the rationale and benefits
 What customers need to do differently in the future
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Services Marketing
Chapter 10:
Crafting the Service
Environment
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Purpose of Service Environments
Services Marketing
 Shape customers’ experience and their behaviors
 Support image, positioning, and differentiation
 Part of the value proposition
 Facilitate service encounter and enhance productivity
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Shape customers’ experience and
their behaviors
Services Marketing
 Message-creating medium
 symbolic cues to communicate the distinctive nature and quality of
the service experience
 Attention-creating medium
 make servicescape stand out from competition and attract
customers from target segments
 Effect-creating medium
 use colors, textures, sounds, scents, and spatial design to
enhance desired service experience
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Support Image, Position, and
Differentiation
Orbit Hotel and Hostel, Los Angeles
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Services Marketing
Four Seasons Hotel, New York
Chapter 1 – Page 129
Servicescape as Part of Value
Proposition
Services Marketing
 Physical surroundings help shape appropriate feelings and
reactions in customers and employees
 e.g., Disneyland, Denmark’s Legoland
 Servicescapes form a core part of the value proposition
 Las Vegas: repositioned itself to a somewhat more wholesome fun
resort, visually striking entertainment center
 Florida-based Muvico: builds extravagant movie theatres and
offers plush amenities. “What sets you apart is how you package it.”
(Muvico’s CEO, Hamid Hashemi)
The power of servicescapes is being discovered
Slide © 2010 by Lovelock & Wirtz
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An Integrative Framework:
The Servicescape Model
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Services Marketing
Chapter 1 – Page 131
An Integrative Framework:
The Servicescape Model
Services Marketing
 Identifies the main dimensions in a service environment and
views them holistically
 Internal customer and employee responses can be
categorized into cognitive, emotional, and psychological
responses, which lead to overt behavioral responses
towards the environment
 Key to effective design is how well each individual
dimension fits together with everything else
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The Mehrabian-Russell
Stimulus-Response Model
Services Marketing
Feelings Are a Key Driver of Customer Responses to
Service Environments
Environmental Stimuli
and Cognitive
Processes
Slide © 2010 by Lovelock & Wirtz
Dimensions of
Affect:
Pleasure and
Arousal
Services Marketing 7/e
Response/Behaviors:
Approach Avoidance
& Cognitive
Processes
Chapter 1 – Page 133
The Russell Model of Affect
Services Marketing
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Services Marketing 7/e
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Main Dimensions in
Servicescape Model
Services Marketing
 Ambient Conditions
 Characteristics of environment pertaining to our five senses
 Spatial Layout and Functionality
 Spatial layout:
- floorplan
- size and shape of furnishings
 Functionality: ability of those items to facilitate performance
 Signs, Symbols, and Artifacts
 Explicit or implicit signals to:
-
help consumers find their way
HOLISTIC ENVIRONEMNT
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Services Marketing
Chapter 11:
Implementing Profitable
service strategies
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Loyalty
Services Marketing
 Customer loyalty is an important driver of profitability so firms
need to assess lifetime customer value and narrow gap between
actual and potential value
 Building a foundation of loyalty involves



Good fit between customer needs and capabilities
Tiering services effectively
Obtaining customer satisfaction through service quality
 Customer loyalty bonds include


Reward-based, social, customization, and structural bonds
Created through membership and loyalty programs
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Loyalty
Services Marketing
 Strategies for reducing customer defections include



Analyzing customer defections and monitoring declining accounts
Addressing key churn drivers, increasing switching costs
Implementing effective complaint-handling and service recovery
procedures
Slide © 2010 by Lovelock & Wirtz
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Objectives of CRM Systems
Services Marketing
 Data collection
 Customer data such as contact details, demographics, purchasing
history, service preferences
 Data analysis
 Data captured is analyzed and categorized
 Used to tier customer base and tailor service delivery accordingly
 Sales force automation
 Sales leads, cross-sell and up-sell opportunities effectively identified
and processed
 Track and facilitate entire sales cycle
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Objectives of CRM Systems
Services Marketing
 Marketing automation




Mining of customer data enables the firm to target its market
Goal to achieve one-to-one marketing and cost savings
Results in increasing the ROI on its marketing expenditure
Enables the assessment of the effectiveness of marketing campaigns
through the analysis of responses
 Call center automation


Call center staff have customer information at their fingertips resulting in
improved service levels to customers.
Caller ID and account numbers allow call centers to identify the customer
tier the caller belongs to, and to tailor the service accordingly.
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CRM: Strategy Development
Services Marketing
 Strategy Development
Slide © 2010 by Lovelock & Wirtz

Responsibility of top management

Used to guide the development for the
customer strategy

Assessment of business strategy
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CRM: Value Creation
Services Marketing
 Value Creation

Translates business and customer strategies into specific
value propositions for both customers and firm
- Customers benefit from priority, tiered services,
loyalty rewards, and customization
- Company benefits from reduced customer acquisition
and retention costs, and increased share-of-wallet

Slide © 2010 by Lovelock & Wirtz
Dual creation of value: customers need to participate in CRM
to reap value from firm’s CRM initiatives
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CRM: Multi-Channel Integration
Services Marketing
 Multi-Channel Integration
Slide © 2010 by Lovelock & Wirtz

Serve customers well across many
potential interfaces

Offer a unified interface that delivers
customization and personalization
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CRM: Performance Assessment
Services Marketing
Performance Assessment
 Is CRM system creating value for key stakeholders?
Slide © 2010 by Lovelock & Wirtz

Are marketing and service standard objectives
being achieved?

Is CRM system meeting performance standards?
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CRM: Information Management
Services Marketing
 Information Management
Slide © 2010 by Lovelock & Wirtz

Collect customer information from all channels

Integrate it with other relevant information

Make useful information available to the frontline

Create and manage data repository, IT systems,
analytical tools, specific application packages
Services Marketing 7/e
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Integrated Framework for
CRM Strategy
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Services Marketing
Chapter 1 – Page 146
Common Failures in
CRM Implementation
Services Marketing
 Service firms often equate installing CRM systems with
having a customer relationship strategy
 Common reasons for failures






Viewing CRM as a technology initiative
Lack of customer focus
Insufficient appreciation of customer lifetime value (CLV)
Inadequate support from top management
Failure to reengineer business processes
Underestimating the challenges in date integration
Slide © 2010 by Lovelock & Wirtz
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Customer Response Categories
to Service Failures
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Services Marketing
Chapter 1 – Page 148
Understanding Customer
Responses to Service Failure
Services Marketing
 Who is most likely to complain?
 Where do customers complain?
 What do customers expect once they have made a
complaint?
 Procedural, interactional, and outcome justice
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Service Recovery
Services Marketing
 Service Recovery



Plays a crucial role in achieving customer satisfaction by testing a firm’s
commitment to satisfaction and service quality
Impacts customer loyalty and future profitability
Severity and “recoverability” of failure (e.g., spoiled wedding photos) may
limit firm’s ability to delight customer with recovery efforts
 Service Recovery Paradox: Customers who experience a service
failure that is satisfactorily resolved may be more likely to make
future purchases than customers without problems

If second service failure occurs, the paradox disappears
Best Strategy: Do it Right the First Time
Slide © 2010 by Lovelock & Wirtz
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Components of an Effective
Service Recovery System
Do the job right the first
time
+
Effective Complaint
Handling
Services Marketing
=
Increased Satisfaction
and Loyalty
Conduct research
Monitor complaints
Identify Service
Complaints
Resolve Complaints
Effectively
Learn from the Recovery
Experience
Develop “Complaints as
Opportunity” culture
Develop effective system and
training in complaint handling
Conduct root cause analysis
Close the loop via feedback
Slide © 2010 by Lovelock & Wirtz
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Strategies to Reduce Customer
Complaint Barriers
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Services Marketing
Chapter 1 – Page 152
Service Guarantees Help Promote
and Achieve Service Loyalty
Services Marketing
 Force firms to focus on what
customers want
 Set clear standards
 Highlight cost of service failures
 Help firm identify and overcome
fail points
 Reduce the risk of purchase
decision and build long-term
loyalty
Slide © 2010 by Lovelock & Wirtz
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People
Services Marketing
 Service employees are crucially
important to firm’s success
 Source of customer loyalty and
competitive advantage
 Frontline work is difficult and
stressful; employees are
boundary spanners, undergo
emotional labor, face a variety of
conflicts
 Understand cycles of failure,
mediocrity, and success
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People
Services Marketing
 Know how to get HRM aspect right







Hire the right people
Identify the best candidate
Train service employees actively
Empower the frontline
Build high-performance service delivery teams
Motivate and energize people
Unions have a role to play
 Understand role of service culture and service leadership in
sustaining service excellence
Slide © 2010 by Lovelock & Wirtz
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The Service Talent Cycle
Services Marketing
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Levels of Employee Involvement
Services Marketing
Suggestion involvement
• Employee makes recommendation through formalized program
Job involvement
• Employees retrained, supervisors reoriented to facilitate
performance
High involvement
• Information is shared for participation in management
decisions
• Employees skilled in teamwork, problem solving, etc.
• Profit sharing and stock ownership
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Services Marketing
Chapter 12:
Assignment
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Services Marketing
Criteria to consider:
Assignment due
 You need to understand the theory very well
 Practical application of theory, critical discussions and
evidence of research are NB
 Follow ‘Assignment format’ instructions
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Services Marketing
EXAMINATION PREPARATION
• Two sections: Section A: Case study (compulsory) & Section B: choose 3 out of 4
essay questions
• 3hr paper, closed book examination
• Please read the question correctly and only answer what the question requires.
• You are allowed to bring in other theories and models BUT you need to relate to the
question and explain model/diagram
• Think critically, use examples to aid your discussion, apply theory to the question/case
• You will be provided with a exam guideline nearer to the exam: chapters to focus on BUT
YOU HAVE TO HAVE A COMPLETE UNDERSTANDING AND KNOWLEDGE OF THE
ENTIRE MODULE.
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