Servicesmarketingnotes

MARKETING OF SERVICESUNIT I
INTRODUCTION TO
MARKETING OF SERVICES
LESSON 1:
INTRODUCTION TO MARKETING
The Objective of this Lesson is to have

an insight into
· Origin of service marketing
· Marketing Organisations
· Marketing environment
· Marketing today
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 manufac
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 consumer s
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. Society s needs should be considered
in line with those of consumers, and profits should not be
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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.
Tutorials
In light of above, Give the comparative analysis of phase of
development of Aggarwal Sweets vis-à-vis Mc. Donald s
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
organization s 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.
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 Sinclair s 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 firm s 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 organization s 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 today s environmentally conscious marketplace.
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.
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
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 hospital s 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 organization s success and standing in
the future. Service organisations need to think green in all areas
of activity - especially in services marketing.
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 today s environment . Discuss
Service Marketing Mix
Case Study on Marketing Environment
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3
McDonald s 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.Donald s at its own,
original game. In addition,Mc.Donald s 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

an insight into
· Special characteristics of service marketing
· Service Marketing Mix
· Service Marketing triangle
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
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.
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.

6 11.313
The Services Marketing Mix
Another way to begin addressing the challenges of services
marketing is to think cre-atively about the marketing mix-
through 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 P s: 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 P s 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 P s 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 firm s factory,
interact directly with the firm s 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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8 11.313
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 promise s 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 customer s 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 survey s 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
FedEx s strategy. The book-length Manager s 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 customer s point of
view. The folks that deliver FedEx s 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
Technology
company
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
FedEx s 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.
10 11.313
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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11
LESSON 3:
CLASSIFICATION OF SERVICES

an insight into
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.
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.
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
12
11.313
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 customer s 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.
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. Today s 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,
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
11.313 13
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 high-
contact 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.
14 11.313
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
~Pure
Services
Immediate
consumption
~Pure
Goods
Physical
product
50/50
Equal
mix
Services
w/ Goods
Know-
ledge
based
Goods w/
Services
Product w/
service
Gasoline,
steel,
groceries.
Auto repair,
Restaurants, Rental Medical
computers.
movie movies, care,
theater, software. consulting,
bookstores. day care.
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15
LESSON 4:
CONSUMER BEHAVIOUR

an insight into
· 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.
Services: Categories in the Decision-
making 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 and consumption, 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 consumer s 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
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
16 11.313
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 manufacturer s
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 consumer s 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 cloth s 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 customer s- evoked frequently includes self-
provision 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 people s (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.
11.313 17
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 setting s
features that may influence that character of a service are the
colors or brightness of the service s 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 setting s 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
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
back roomJback-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 customers-
act 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 customer s 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 hadn t had
time to write a syllabus? In these and other situations, negative
de-partures from the customer s expected script will detract
from service performance.
Positive discrepancies from the script are not as easy to specify-
they 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
18 11.313
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 doesn t follow the expected pattern. More
personalization or attention is not always better. In summary,
departures from the customer s 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
customer s 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 doctor s accurate
diagnosis requires a conscientious case history and a clear
articulation of symptoms; a dry cleaner s success in removing a
spot de-pends on the consumer s 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
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 consumer s 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 lawyer s 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
11.313 19
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-omer s 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 provider s
own customers are brand loyal is not a problem. The fact that
the customers of the provider s 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.
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
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
chapter s framework (see Figure 2-4).
Unfortunately, human nature dictates that we tend to view
other cultures through the often cluttered lens of our own.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 Wal-
Mart 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 culture s 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,
McDonald s 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.
20 11.313
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 retail s
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
culture s 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.
ääSearch QualitiesSearch Qualities
ääFound mostly in goodsFound mostly in goods
ääAssist in judgementAssist in judgement
ääExperience QualitiesExperience Qualities
ääFound in combined categoriesFound in combined categories
ääRequire use to assess qualityRequire use to assess quality
ääCredence QualitiesCredence Qualities
ääFound in servicesFound in services
ääNearly impossible to assessNearly impossible to assess
Customer Evaluation of ServicesCustomer Evaluation of Services
Goods & ServicesGoods & Services
11.313 21
Tutorials
· Discuss the consumer buying behavior of services.
Customers & Service Quality
Customers & Service QualityCustomers & Service Quality
· Goods and services are different. Explain.
· Explain the factors involved in customer service evaluation.
Notes
Quality
Perception
Consumer Factors
Dimensions of
Service Quality
Tangibles
Reliability
Responsiveness
Assurance
Empathy
W-O-M Personal
needs
Past
exp.
External
commu
Expected
service
Perceived
service
Perceived
Service quality
Consumer Buying Behavior of ServicesConsumer Buying Behavior of Services
ääPersonal sources of information
Personal sources of informationPersonal sources of information
ääPostpurchase evaluation
Postpurchase evaluationPostpurchase evaluation
ääSurrogate (substitute) judgment cues
Surrogate (substitute) judgment cuesSurrogate (substitute) judgment cues
22 11.313
ääFewer acceptable brands or suppliersFewer acceptable brands or suppliers
and strong brand loyaltyand strong brand loyalty
ääSlow adoptionSlow adoption
ääCustomer as competitorCustomer as competitor
LESSON 5:
IMPORTANCE OF SERVICES IN CUSTOMER SATISFACTION

an insight into
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
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 after-
sales 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.
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 product s 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 firm s 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
11.313
23
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 after-
sales 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 firm s 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

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
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
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
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 company s image may owe more
to the efficiency (or otherwise) of the service department than
to the quality of the actual product.
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

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
delivery) were weighted between 7 and 8.
The actual cost of the equipment was given an importance
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 consumer s
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.
24
11.313
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 customer s 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 buyer s 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
11.313 25
UNIT II
MARKETING MIXUNIT II
MARKETING MIX
LESSON 6:
MARKETING MIX
The Objective of the Lesson is

· First P-Product
· Life cycle
· Services concept
· Service Mix
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
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 recog
nized 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.
26 11.313
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 don t 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 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.
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 Expected Augmented
Food provision Service
Clean facilities
Choice available
Prompt service
Take away
Service
Up market décor
Exotic menu
Silver service
Free delivery
Fine wines
Hairdressing
Well appointed salon
Qualified stylists
Range of treatments
Live music
Luxury salon
Famous stylists Specialist
treatments Refreshments
Beauty therapy
Sunbeds
ProfessionalBusiness-toqualifications
Business Expert advice
Reliable service
Range of services
Affiliated to
professional body
Specialist areas Overseas
branches
In marketing mix terms, it is often the special aspect s 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)
Price
Promotion
Place
People
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
11.313
27
Traditional
Services
Expanded
Concept
Forces CreatingForces Creating
GrowthGrowth
ServiceService
CharacteristicsCharacteristics
Service MixService Mix
DevelopmentDevelopment
Traditional
Services
Expanded
Concept
Forces CreatingForces Creating
GrowthGrowth
ServiceService
CharacteristicsCharacteristics
DevelopmentDevelopment
Process
Physical
evidence
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'
Augmented ServiceAugmented Service
BrandedBranded
ServiceService
CoreCore
serviceservice
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 ConceptServices Concept
Tutorials
In light of above, Compare the service mix , of a normal hair
dresser vis- a vis, Habibs
28 11.313
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
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 organisation s 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
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 organisation s 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 organisation s service portfolio, and developing
and positioning new services, are functions critica 1 to the
organisation s 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 long-
term success, and a very costly, high risk process. The costs
associated with the development and launch of a completely
11.313 29
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.
30 11.313
LESSON 7:
POSITIONING AND DIFFERENTIATION OF SERVICES

an insight into
· 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 over-
communicated 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
consumer s 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
consumer s 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 firm s
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 organization s 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.
11.313 31
Competitive Differentiation of Services
Positioning is heavily dependent on a firm s 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:

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, value-
added 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 Cost components Value-added components Quality components
Service charges; Variety of services; easy toFinancial stability; personal
Bank
interest rates understand services interest in customers
Discount Sales/clearances; low Easy return; cheque Selection; well-known
store price cashing brands; pleasant atmosphere
Family steak Low prices; coupons Salad bar; menu for
Taste of steak; atmosphere
house children
Specials; coupons;
Pizza
Fast service; home Hot product; taste;
promotions; low
restaurant delivery take out; variety consistent product
prices
Psychiatric Comfortable rooms; Experienced physicians;
Low-cost treatment
hospital visitor accommodations innovative treatment
Specialty
Reasonable cost; Car ready when promised Fixed right the first time;
tune-up
specials fast service qualified mechanics
clinics
Well stocked; cheque Clean; selection; specialty
Supermarket Low prices
cashing departments
Temporary
Performance guarantee; Competence of temps;
secretarial Reasonable cost
follow up understands what we need
service
categorized into two types: primary activities (in-bound
logistics, operations, out-bound logistics, marketing and sales,
and service) and support activities (infrastructure, human-
resource 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
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
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 firm s value chain
Delivery channels.
Servicing
A bank operating in the corporate market defined. its value
chain s primary activities as:
Product creation
Planning
Marketing
Selling
Single target selling
· After sales service.
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
32
11.313
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 individual s 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 consumer s 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 customer s mind which distinguishes the com-pany s
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
customer s 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.
11.313
33
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
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
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 customer s 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 McDonald s 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
customer s 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. We ve
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.
34 11.313
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
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

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
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
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
segments.
Location of attributes on a positioning map.
Evaluating positioning options.
· Implementing positioning.
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 mid-
market. 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
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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 customer s 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 customer s 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
36 11.313
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

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 people s
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.
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
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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37
Competitors Competitors
Which positions are cluttered with lots of competitors
claiming to hold the title?
Table 5.3 Alternative corporate positioning strategies
1. Market share leader
The biggest
2. Quality leader
The best/most reliable products and services
3. Service leader
The most responsive when customers have
4. Technology leader
problems The first to develop new
5. Innovation leader
technology
6. Flexibility
The most creative in applying it
7. Relationship leader
The most adaptable
8. Prestige leader
The most committed to the customer's
9. Knowledge leader
success
10. Global leader
The most exclusive
11. Bargain leader
The best functional, industry or technical
12. Value leader
expertise The best positioned to service
world markets
The lowest price
The best price performance
Which are relatively free of competition?

Which corporate or business unit positions provide the best
fit with our company s 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 company s perception of itself.

The company s 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 company s perception of its customers.
The customers perception of the company.
A company s 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
Company
Competitor s
perception of
company
Company s perception
of competitors
Competitor s
perception of
company
Company s perception
of customers
Customers perception of competitors
Competitors perception of customers
Customers
Competitor s Customers perception of

themselves
perception of themselves
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
How they see themselves
How competitors see them
Peat, Marwick,
Aggressive but not in an
Trying to recover from past
Mitchell & Co.
unprofessional way. We
problems with SEC. Very
have the best people.
aggressive. Price cutter.
Biggest weakness: too
Expanding scope of practice
decentralized
Has changed a lot. Most
Coopers &
Tough. We work harder.
aggressive of the eight in
Lybrand
We've got a winner's kind
hustling business. Price
of feeling. Our real
cutter
strength is in the
management team
Not very aggressive. Stuffy.
Price
The premier accounting
Arrogant. Getting steamed
Waterhouse &
firm. We are to
up after losing some clients
Co.
accounting what sterling
Aggressive. Likes publicity.
is to silver. Our clients are
First firm to emphasize
the cream
growth. No room for
Arthur
Tough. Aggressive. We
individual thought
Andersen &
speak with one voice
Not very aggressive. Narrow
Co.
everywhere. Not well
in scope of services. Getting
known outside the US
their act together. Strong
Not as aggressive as most
auditors
of the Big Eight.
Not as aggressive as other
Deloitte
Technical leader in the
Big Eight firms. Widely
Haskins & Sells
profession. The auditor's
respected. Super
auditor
professional
Arthur Young
Tend to be less aggressive
& Co.
than others. Heavy
Sleepy. Not growing fast
emphasis on client
except in certain industries.
service. We do not want
Not on the competitive
to be the biggest
edge. Loosest organization
A practical firm.
overseas
Ernst & Ernst
Pragmatic. We put strong
38
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Ernst & Ernst Pragmatic. We put strong
emphasis on quality
Very aggressive in hustling
service to our existing
business. Enamored of size.
clients
Price cutter. Weak overseas
Touche Ross &
We want to be the best.
Co.
We're not as big as we
want to be. We're not
price cutters, but we are
price competitors
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

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
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

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
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, we re getting there ;
Federal Express, absolutely, positively overnight delivery
British Airways, the world s favorite airline ;
Simsbury, good food costs less at Simsbury s
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 company s positioning strategy.
Positioning thus guides the development of the marketing
mix. All the elements of the marketing mix can be utilized to
influence the customer s 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 customer s 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
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39
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-à-vis Jet Airways
40 11.313
LESSON 10:
PRICING THE SERVICE

an insight into
· Key pricing concepts
· Pricing issues for services
· Organization s objective and pricing
· Framework for pricing decisions
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 customer s 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
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 organisation s 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
42 11.313
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
company s 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 loss-
making 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.
11.313 43
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
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
organisation s 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.
44 11.313
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 organisation s 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.
11.313 45
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 Organisation objectives ,pricing concepts
and issues of Airtel vis-à-vis Reliance.
46 11.313
LESSON 11:
PROMOTION AND COMMUNICATIONS IN SERVICES MARKETING

an insight into
· Introduction to promotion
· Communication Process
· Promotional Message
· Campaigns in service marketing
· Promotional mix
· Media Choice
· Managing Promotional Effort
· Monitoring and Evaluation
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 organisation s 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.
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 organisation s publics -local authorities,
government bodies, shareholders, community and pressure
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.
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
11.313 47
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
reader s 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
recipient s 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
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
recipient s 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
48 11.313
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 world s 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
traveller s cheque, emphasizing their quick replacement service in
the event of cheque being lost or stolen - the tourist s nightmare.
Humour Appeals
Humorous messages are used successfully in many advertising
campaigns. They attract the audience s 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 service s 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. it s 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 Telecom s campaign
it s 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 we ve 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
organisations. The National Canine Defence League s m essage,
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.
11.313 49
Public sector organisations use promotion to keep important
issues in the -public mind. The Health Education Authority s
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 Scotland s 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.
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
organisation s 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
industry s 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)
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 advertise
ment 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 customer s responses to the message as the
contact takes place and modify it accordingly.
50 11.313
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
11.313 51
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
organisation s 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 cost-
effectiveness 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 organisation s 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 manager s 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 .
Buyer behaviour and decision processes
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
52 11.313
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 organisation s differentiation
in the marketplace. Communi-cations programmes are
clearly identifiable with a particular organisation s 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.
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
organisation s image has been enhanced in .one individual s
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
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 campaign s 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 decision-
making later.
Tutorials
In light of above, discuss the Promotional mix and Media
Choice for insurance sector.
Explain the concepts w.r.t ICICI vis-à-vis LIC.
11.313 53
LESSON 12:
CASE STUDY ON PROMOTIONS-IN SERVICE INDUSTRY
McDonald s 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.
McDonald s Big Mac Meal Tracks offers every customer who
purchases a Big Mac Extra Value Meal® at participating
McDonald s restaurants an access code worth one free song
download at the Connect music store, which is accessible via
www.connect.com.
McDonald s Big Mac Meal Tracks promotion launches June 8 in
the United States, Puerto Rico and Canada. Sony Europe and
McDonald s will launch the promotion in France, Germany and
the United Kingdom in early July. It is expected to roll out to
additional McDonald s countries throughout the year as plans
are finalized. During the initial launch, McDonald s 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, McDonald s 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.
McDonald s 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, McDonald s France will run a
sweepstakes for Big Mac customers with music downloads as
prizes.
The Big Mac Meal Tracks program is part of McDonald s
worldwide Big Mac celebration, taking place in all McDonald s
countries in June and July.
Big Mac Meal Tracks is not only McDonald s 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, McDonald s
Senior Vice President, Global Brand Business. Only
McDonald s, with our unequaled restaurant presence in 119
countries, and Sony Connect, with its technical knowledge and
expertise, could make this happen.
McDonald s 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 McDonald s on this
innovative promotion, which will introduce millions of
McDonald s consumers throughout North America and
Europe to Sony s new Connect music store, which features their
favorite artists and music, said Jay Samit, General Manager,
Sony Connect Inc. This campaign by McDonald s will promote
legal downloads, which is beneficial both to the entertainment
industry and music fans around the world.
McDonald s 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.
McDonald s is the world s leading food service retailer with
more than 30,000 local McDonald s restaurants serving 47
million customers each day in more than 100 countries. More
than 70 percent of McDonald s 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
54 11.313
MARKETING OF SERVICESUNIT III
DESIGNING SERVICES
LESSON 13:
SERVICES DISTRIBUTION PLANNING

an insight into
· 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 today s 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.
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:
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.
11.313 55
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 of 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 intermediary s 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
customer s 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
56 11.313
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.
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
directly and invest in additional personnel and premises
accordingly. The organisation s 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 organisation s objectives and
resources will also be key factors. In some situations, it is
appropriate for the service provider to travel to the customer s
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
11.313 57
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.
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 market
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 intermediary s 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.
58 11.313
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 organisation s 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.
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.
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.
11.313 59
LESSON 14:
CASE STUDY ON SERVICE DISTRIBUTION PLANNING
Unit Trust of India: Strengthening

Investor Relations through a Web-
enabled Portal
The Customer
UTI - India s 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 govern-
ment-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 UTI s
content management and personalization requirements
warranted the development of customized tools and interfaces
with legacy systems. The content management utilizes Divine s
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 UTI s
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
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 UTI s 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 UTI s 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.
60 11.313
LESSON 15:
PEOPLE - THE FIFTH P

an insight into
· Importance of Employees in service marketing
· Role of employees in service marketing
· Staff selection and recruitment
· Training and Development
· HRM Issues
Introduction
In today s 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
customer s 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 organisation s 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:
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 everyone s 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 customer s 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
11.313 61
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 organisation s 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
organisation s 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
organisation s 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 individual s 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 candidate s 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 prov1 ders, 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
62 11.313
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 employee s 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 hands-
on 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.
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
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 organisation s 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.
11.313 63
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
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 organisation s 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.
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.
64 11.313
LESSON 16:
PROCESS AND PHYSICAL EVIDENCE

an insight into
Importance of Process and Physical evidence

Physical Evidence
Influence of Physical evidence on corporate image and
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.
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
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 customer s
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
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 is-
the 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 organisation s
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
11.313
65
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
individual s 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 organisation s 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 organisation s 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 organisation s
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 Sheraton s 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 organisation s logo, in-house magazines such as
those offered by airlines anything, in effect, which can be used to
strengthen the customer s 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 organisation s identity and can help make the
customer s experience more enjoyable or positive. Examples
66 11.313
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 customer s purchase decision.
Both these types of evidence combine with the organisation s
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 Association s handbook and membership card
are perma-nent, physical reminders of the organisation s
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 customer s overall judgment of service quality can
be an evaluation to both the process and the outcome, compared
with the customer s 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 customer s judgment of
an organisation s 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
The relative importance of the customer s 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 provider s premises or at the customer s
home? For some services, this seems a simple decision plumbing
or carpet cleaning should be carried out in situ at the
customer s 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 provider s 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 organisation s
personnel for varying periods of time.
11.313 67
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 client s 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 real-
time 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.
68 11.313
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 Office s
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 client s 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 provider s 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 customer s
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 customer s 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
11.313 69
LESSON 17:
SERVICE QUALITY

an insight into
· Importance of Service Quality
· Developing service quality
· Features of service quality
· Service Quality standards
· Links between service quality and marketing
· Monitoring 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.
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 individual s 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 customer s overall judgment of service quality can be an
evaluation of both the process and the outcome, compared
with the customer s 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 customer s judgment of
an organization s 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.
Developing Service Quality
The reasons why developing and delivering a quality service is
so important can be broken down into three main areas:
70 11.313
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
customer s 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 customer s 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.
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
organization s performance and customer satisfaction levels.
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 situation- specific, 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.
11.313 71
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 organization s 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 organization s (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 customer s 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 customer s 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 expecta
tions 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.
72 11.313
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 organization s 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
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
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 situation-
specific. 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:
11.313 73
Time taken to answer telephone s 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
organization s 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.
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 customer s 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 customer s individual evaluation of
their service experience with an organization, drives from the
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 organization s
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-
74 11.313
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 customer s 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 performance-
tested. 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.
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
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,
11.313 75
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 customer s 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.
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
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
Haldiram s versus Mc.Donalds.
76 11.313
LESSON 18:
SERVICE STANDARDS

an insight into
· 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-tomer s 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 X-
ray 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. Customer-
defined 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 transac-
11.313 77
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 employee s 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 month s or year s 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
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 one-
night 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 company-
defined standards. Often these standards deal with activities or
actions that reflect the history of the business rather than the
reality of today s competitive marketplace or the needs of
current customers.
Customer-defined Service Standards
The types of standards that close provider gap 2 are customer-
defined 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 company s point of view.
However, the highly successful office supply retailer Office
Depot captures every single service measurement related to
inventory control from the customer s 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.
78 11.313
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 Express s 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 customer s 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 customer-
defined 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 employee s 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
Fast response; on-time
Orders- entered same day
and Building
delivery; order accuracy
received; orders delivered
Division)
19 key attributes
when promised; order correct
Southern Pacific
Operational measures to
On-time delivery
correspond with the 19 key
Federal Express
attributes
Fast turnaround on
Number of packages right day
Dun and Bradstreet
company investigations
late;
Information
Number of packages wrong
Services
Fast processing of theses
day late;
Rapid response to
Number of missed pickups
University
technical problems
36-hour response time
Microfilms
(previous standard: 7 days)
Accessibility
Theses processed in 60 days
Great Plains
(previous average, 150 days)
Software
Fast response; regular
Response time guaranteed at 1
contact with customer s
or 3 hours (or get $25 coupon)
Canadian Imperial
5-minute early opening and
Bank of Commerce
Getting the concrete
late closing
when the crew is ready
20-second average call
Aetna/U.S.
answering; 95% same day
Healthcare
Quick turnaround on
problem resolution; 2-hour
glasses
response time for requests;
Granite Rock
proactive service calls 3 times
Lens crafters
Compliance with
per year
(optical retailer)
commitments; more
On-time delivery
personal contact
Glasses in 1 hour
Texas Instruments
On-time delivery; product
(Defense Systems
compliance to requirements;
Electronics Group)
number of customer visits
Company
Customer priorities
Customer-defined standards
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
11.313 79
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 Customer priorities Customer-defined standards
General
Electric
Interpersonal skills
of operators:
Taking ownership of the call;
following through with
Tone of voice
Problem solving
promises made; being
courteous and knowledgeable;
Summarizing actions
Closing
understanding the customer's
question or request
Ritz-Carlton
Treat me with
respect "Gold Standards"
Uniforms are to be immaculate
Wear proper and safe footwear
Wear name tag
Adhere to grooming standards
Nationwide Responsiveness Notify supervisor immediately
Insurance
Calming human
of hazards
Use proper telephone
L. L. Bean voice; minimize
customer anxiety.
etiquette.
Ask the caller, "May I place
Telephone
you on hold?"
Do not screen calls
BellSouth responsiveness Eliminate call transfers where
possible
American Resolution of
Human voice on the line when
customers report problems
Express problems Tone of voice; other tasks not
done (arranging gift boxes)
Treatment while on the telephone with
customers
Courtesy of
representative
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 London s 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 hospital s patients were
outpatients. When the hospital became a self governing trust
under the British government s National Health Service
reforms, plans were announced to convert it to a patient-
focused 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 Hotel s
express checkout and-cheek-in, Hertz and other rental car
companies express check-in, GM Saturn s one-price policy for
automobiles, and Granite Rock s 24-hour express service. In
each of these examples, customer had expressed a desire to be
served in ways different from the past. Marriott s customers had
clearly Ti1dicatecf thelr 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.
Exhibit 9-1 Hard and Soft Standards at
Ford Motor Company
As we discuss in this chapter, there are two types of customer-
defined 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 Company s 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 customer s
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.
80 11.313
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 standard s 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 customer s
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-dress 1hese 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.
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
McDonald s, for example. In the late 1990s, an experiment
conducted in 70 McDonald s restau-rants in California tested
whether it should change its age- old process of multiple
waiting lines into a serpentine -style single line. Both Wendy s
and Burger King already use the single-line system, as do
airlines, banks, many ho-tels, and even the U.S. Postal Service.
McDonald s re-search was conducted because the company was
not cer-tain that customers were served best by a single line.
Let s 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 McDonald s, 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 doctor s 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
11.313 81
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 caller s 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 customer s 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 customer s 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
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
82 11.313
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-plier s 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 follow-
through 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.
11.313 83
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 customer s
point of view? Map the process, and list the moments of
truth. Source: Reprinted from Karl Albrecht, At America s
Service
5. For each major internal customer design a customer report
card (based on customer input) and a set of evaluation
criteria for your department s 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).
Provide Supportive Technology and Equipment: When
employees don t 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 service-
oriented 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, retail-
banking 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 service-
oriented internal processes through reengineering sounds
84 11.313
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 Company s 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 organization s 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 aren t committed to the vision of the
organization. And they can t 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
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.
11.313
85
Reward systems need to be linked to the organization s 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 28 percent 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 Cadet s
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&T s
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 employee s 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 you ve 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, service-
oriented 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 doesn t 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
86 11.313
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.
McDonald s Approach
McDonald s 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 McDonald s. How-ever, the
company is sensitive to cultural differences as well. This subtle
blending of the McDonald s way with adoptions to cultural
nuances has resulted in great suc-cess. One way that McDonald s
maintains its standards is through its Hamburger University,
which is required train-ing for all McDonald s;-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 restaurant s 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
UPS s 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
couldn t 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 Disney s 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 would-
function 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 operations-
oriented 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.
11.313 87
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 on-
the-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-à-vis Apollo hospital.
88 11.313
MARKETING OF SERVICESUNIT IV
ORGANISING SERVICES MARKETING
LESSON 20:
MARKET RESEARCH PROCESS

an insight into
· Market research applications for service marketing
· Market research process
· Gathering and storing information
· Marketing information system
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
organization s own records and external and new sources of
data. The requirements for successful marketing information
systems are also explored in this chapter.
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:
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, Britain s 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 Bank s 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 bank s 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.
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.
11.313 89
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 government-
produced 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.
90 11.313
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 Benn s 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 don t with a group of
respondents (a focus group) and the interviewer s 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 large-
scale 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 one-
to-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
11.313 91
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 interviewer s 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 respondent s 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
children s responses to toys or cats tastes in pet food. Watching
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
92 11.313
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.
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 organization s 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:
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
11.313 93
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
94 11.313
Tutorials
In light of above, Discuss the Market research Process which
ICICI bank must have taken , while entering into banking
sector.
11.313 95
LESSON 21:
MARKETING PLANNING FOR SERVICES

an insight into
· Importance of Marketing planning for services
· Marketing audit
· Marketing planning process
· Roles and responsibilities
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 organization s
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 organization s marketing environment, objectives,
strategies and activities, carried out systematically in order to
pinpoint difficulties, problems and opportunities and make
recommendations for improved performance.
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 company s 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 cost-
effective 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
96 11.313
possible with some marketing activities where the results can be
quite intangible (advertising designed to boost the
organization s 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 organization s 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 organization s
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, segmen
tation, 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
11.313 97
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
organization s 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 organization s 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 organization s 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.
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 organization s 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 plan s 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
98 11.313
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 individual s 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 organization s 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
organisation s 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 organisation s 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
11.313 99
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 organisation s marketing activities and
to analyse the organisation s 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
100 11.313
LESSON 22:
INTERNAL MARKETING

an insight into
· 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
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.
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
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.
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 firm s 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 organisation s 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
11.313 101
operates in, and customer service is one of the most crucial
aspects of an organisation s 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 marketing s role is
to create awareness and appreciation of the company s 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.
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 organisation s
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 organisation s 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.
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.
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
102 11.313
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.
Developing Internal MarketingProgrammes
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
organisation s 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
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 organisation s goals. The
organisation s 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 organisation s objectives.
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.
11.313 103
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 organisation s 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 today s 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 today s 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 firm s overall strategy given every opportunity to

develop their full potential keen to understand and believe in
the firm s 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
104 11.313
LESSON 23:
RELATIONSHIP MARKETING

an insight into
· Significance of relationship marketing
· Building Relationships
· Quality and relationship marketing
· Customer Retention
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 world s 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 organisation s 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.
Building Relationships
The key focus of marketing has always been the market customer
needs and wants. However, there are many other
influences on an organisation s 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 organisation s 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 organisation s publics. The list given is
not comprehensive, and some publics will obviously have more
influence over a particular firm s 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
11.313 105
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 family s 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 organisation s 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
agent s advice on which mortgage company to approach, and
which solicitor to use. Travel agencies recommend which holiday
tour operator will meet a customer s 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
106 11.313
Referral markets
Channel markets - supply and distribution
Potential employees
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 organisation s
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 company s
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
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 organisation s 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 P s:
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.
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
organisation s activities.
11.313 107
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.
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.
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 organization s 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 organization s
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 organization s marketing objectives in the light
of existing opportunities and strengths, and possible problem-
areas. 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 organization s 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
108 11.313
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
11.313 109
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
Clickatell s 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 it s 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 Clickatell s SMS delivery service, some of the message
headers, or Sender ID s, 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
be uploaded for easy messaging),
A group management system (for creating groups of
recipients)
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.
110
11.313
MARKETING OF SERVICESUNIT V
DELIVERING SERVICES IN REAL TIME
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
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, self-
service 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 company s 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
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 iPrint s 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 customer s 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 imprint s 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.
11.313 111
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 their-
roles 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.
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 audience s 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 (ship s 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
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 buyer s perceptions; namely, the
firm s 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 representative s 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 customer s 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 client s 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.
112 11.313
Table 12-1 Levels Of Customer Participation Across Different
Services
Low: Consumer presence
Moderate: Consumer inputs
High: Customer co creates
required during service
required for service creation
the service product
delivery
Products are standardized
Client inputs customize a
Active client participation
standard service
guides the customized
Service is provided
Provision of service requires
service
regardless or--any
customer purchase
individual purchase
Service cannot be created-
Customer inputs (information,
apart from the customer's
Payment may be the only
materials) are necessary for an
purchase and active
required customer input
adequate outcome, but the
participation
service firm provides the service
Examples:
Haircut
Customer inputs are
End consumer
Annual physical exam
mandatory and co create the
Airline travel
Full-service restaurant
outcome
Motel stay
Fast -food restaurant
Agency -created advertising
Marriage counseling
Business-to-business
Campaign
Personal training
customer
Payroll service
Weight-reduction program
Uniform cleaning service
Freight transportation
Pest control
Management consulting
Interior greenery
Executive managementmaintenance service
seminar
Install computer network
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 Mother s 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
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.
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
organization s productive capacity. Some management experts
have suggested that the organization s 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 organization s 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
11.313 113
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 self-
scanning 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
cashier s 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
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
Sweden s IKEA, the world s largest retailer of home furnishings,
has creatively Engaged its customers in a new role:
114 11.313
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 IKEA s partners in creating value for themselves.
.
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
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 company s 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.
Global Feature
At Sweden s 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 company s policy of allowing each of its stores to
tailor its mix according to local market needs and budgets.
Another fascinating key to. IKEA s spectacular success is the
company s 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 well-
designed products at substantially, lower prices. In effect
IKEA s customers become essential contributors -to value-
they 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 company s
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
11.313 115
different languages, making its products and in-structions for
their use accessible worldwide.
IKEA s success is attributable in part to recognizing that
customers can be part of the business system, performing roles
they have never performed before. The company s 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 firm s 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 customer s role as a potential competitor.
Notes
116 11.313
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 organization s productivity,
its position relative to competitors, its service quality, and its
cus-tomers satisfaction. In the following sections we ll 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 customer s 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 customer s 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 customer s 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
11.313
117
organization via telephone or the Internet, never see the
organization s 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 customer s job entails
The customer s job description will vary with the type of
service and the organization s desired position within its
industry.
The Customer s 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 Customer s Job: Helping Others
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 Customer s Job: Promoting the Company
In some cases the customer s 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
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.
Exhibit 12-2 Customers as Service
Promoters
Organizations often encourage their customers to help promote
the organization s 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.
118 11.313
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 customer s 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
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 customer s
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
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
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.
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 member s
responsibilities and makes the plan as easy as possible to follow.
Exhibit 12-4. Realistic Service Previews
Reduce Customer Anxiety and ImproveSatisfaction
Research in a mammography screening context found that if
potential patients are oriented through a realistic preview of the
11.313 119
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-ald s first went
to England, the British customers were not accustomed to
busing their own trays. They quickly learned, however, by
observing the customers McDonald s 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 the-
delivery 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 don t 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
120 11.313
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 be less 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
There is verbal
interaction among
customers.
Customers are engaged
in numerous and varied
activities.
Explanation Example
Customers will more often Airplane, flights
notice each other and be Entertainment events
influenced by each other's Sports events
behavior when they are
enclose physical proximity. Full-service restaurants
Cocktail lounges
Conversation (or lack thereof) Educational settings
can be a component of Both
satisfying and dissatisfying
encounters with fellow patrons Libraries
Health clubs
When a service facility Resort hotels
supports varied activities all
going on at the same time, the
activities themselves may be
compatible.
The service environment'
attracts a heterogeneous
customer mix.
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.
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
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 Ritz-
Carlton 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
11.313 121
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; it s 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 wouldn t
surprise me if the majority of education took place in people s
homes, in people s 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, intermediary s 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
122 11.313
can t 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 goods-
have 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
manufacturer s 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 McDonald s franchisee cooks the McNuggets
too short a time, the customer s perception of the company-
and of other McDonald s 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 intermediary s 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.
11.313 123
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
the firm s 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 Joint Production Firm Production
1 2 345
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
124
11.313
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
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 Star-
bucks 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
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. You ll notice a differ-ence. While the
company doesn t 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.
It s the same coffee, but a harried flight attendant with 65
passen-gers needing meals and drinks just can t 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
11.313
125
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
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
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
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
McDonald s and other successful service businesses were
founded on the principle of performance consistency. Both they
and their intermediaries - attained profits and longevity by the
company s controlling virtually every aspect of their intermediaries
businesses. McDonald s, 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 principal s 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
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 dealer s 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 (McDonald s, Burger King),
video stores (Blockbuster s), 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.
126 11.313
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.
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 chapter s 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.
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 manufacturer s brand which is then pulled through the
channel pf distribution.
Notes
11.313 127
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
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 intermediary
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.
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.
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 franchiser-
develops 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.
Exhibit 13-4 Summary of Benefits and
Challenges for Franchisers of Service
Benefits
Leverages the business format to gain expansion and

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
128
11.313
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 chapter s 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
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 company s reputation is being damaged by low-
performing 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 customer s
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
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 coffee-
consuming 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 coffee-
bar 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, Japan s
number one coffee-bar chain (453 shops) exclaimed, They re 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 (94 stores), 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
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129
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 pop-
culture 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 isn t 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 Franchisee s 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

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
biggest selling points of franchising is the claim of
diminished risk of purchasing a franchise over initiating
one s 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 small-
business 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
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 you re making $40,000 a year after
four years, that s 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
association s 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
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
Coast s 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. -Hertz s 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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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 don t sell flowers, we
sell love. Dallas literally grew up to McShan s door. Once
surrounded by cotton fields, the store now is ringed by homes,
many of which it landscaped. The business hasn t branched out
because, says president Bruce McShan, We prefer to have one
big headache instead of a lot of little ones.
Mcdonald s
Parent Company: McDonald s Corp.
Biggest Outlet: On turnpike near Darien, Conn.
Size Indicator: Most McDonald s customers served in U.S.
Explanation: Near the New York -Connecticut border on
Interstate 95, this round-the-clock McDonald s 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 City s Garment
Center, between 38th and 39th streets. This is the busiest of

Federal Express s 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 couldn t 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? It s a mystery

to me, says district manager Jack Marvill. The volume was so
large that two more Stamford outlets recently opened. The
downtown office doesn t offer unusual services, and its clientele
is described as a typical mixture of commercial and individual
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 Hilton s 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
principal s output (which can be anything from an athlete s time
to travel, insurance, or financial services), usu-ally because the
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131
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.
Exhibit 13-6 Summary of Benefits and
Challenges in Distributing Services
Thrqugh Agents and Brokers
Benefits
· Reduced selling and distribution costs
· Intermediary s 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
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 principal s
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 principal s 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
132 11.313
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; it s
not just another advertising medium; it s 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 aren t comparing paint jobs-they re arming them-selves
with information on dealer costs.
Notes
11.313 133
LESSON 29:
THE INTEGRATED GAP MODEL OF SERVICE QUALITY

an insight into
· Significance of GAP Model
· GAP Model of service quality
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 organization s 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 long-
term. 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.
Gaps Model of Service Quality
Expected
services
Perceived
Company
Customer driven service
designs and standards
Service delivery
External
communications
to customers
Company perceptions of
consumer expectations
Gap 3
Gap 4
Customer
Gap 2
Gap 1
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-
134 11.313
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,
Customer
gap
Customer expectations
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
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 today s 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.
Gap
1
Customer Expectations
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
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

Company perceptions
of customer expectations
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.
11.313
135
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
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
Gap
2
Customer driven service
design and standards
· 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
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 evidence-
the 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 gap can 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, high-
quality 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
136 11.313
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 company s 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
Deficiencies in Human Resource

policies
Gap
Ineffective recruitment
3
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.
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 provider s 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.
11.313
137
One of the major difficulties associated with provider gap is
that communications to consumers involve issues that cross-
disciplinary 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.
Gap
4
Service delivery
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

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

Insufficient communication between sales and operations
Insufficient communication between advertising and
operations
Differences in policies and procedure across branches or units
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.
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

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.
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 organization s 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?
138
11.313
External communications to customers
3. Which of the four provider gaps do you believe is hardest to
close? Why?
11.313 139
LESSON 30:Tutorial
Why Service Stinks and
Some Solutions
CHALLENGES IN SERVICE
MARKETING
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,
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.
y No 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
zAs time goes on, service gap is growing wider.
zStudies 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.
zThe 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,''
140 11.313
The New Consumer
Apartheid
zAndrew 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, customer-
service manager for Ikea North America, noting
that the usual procedure is to mail small items out
within a couple of days.
NO ELEPHANT?
zLife 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.''
How You Can Get Stiffed
FLYING
yCanceled 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.
BILLING
yBig 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
BANKING
yThere'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
LODGING
yAnother 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
RETAILING
yWelcome 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 self-
service
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.''
11.313 141
Technology is creating a
radical new business model
Stratification
zCompanies can measure exactly what

service costs on an individual level and
assess the return on each dollar.
zThey can know
yexactly how much business someone
generates,
ywhat he is likely to buy,
yand how much it costs to answer the phone.
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.''
142 11.313
Two Trends: Across
Businesses and the Web
Three Company Issues
zIt has become much easier to track and measure
individual transactions across businesses.
zSecond, the Web has also opened up options.
zPeople can now serve themselves at their
convenience at a negligible cost, but they have to
accept little or no human contact in return.
zSuch huge savings in service costs have proven
irresistible to marketers, who are doing everything
possible to push their customers--especially low-
margin ones--toward self-service.
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.
zCharles 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.
zAt 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.
zMaytag 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?
zcompanies insist they simply can't afford to spend
big bucks giving every customer the hands-on
service of yesteryear.
zIn many cases, the trade-off in service means lower
prices.
zConsumers themselves have cast a vote against
high-quality service by increasingly choosing price,
choice, and convenience over all else
yHowever, while many consumers refuse to pay more for
service, they're clearly dismayed when service is taken
away.
11.313 143
zConsumers are much more demanding about getting zConsumers are much more demand
ing about getting
Sense of Entitlement?
An Example
what they want.
zReasons:
yOne reason is the explosion of choices,
xwith everything from hundreds of cable channels to new players
emerging from deregulated industries like airlines and telecom
companies.
yRewards programs
xfrequent-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.''
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.''
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.
zNew tiers are not only highly individualized
but they are often invisible.
yYou 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.
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.
144 11.313
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, free-
spending customer.
11.313 145
How It Works!
Segmentation Pays
zContinental 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, giving
the carrier more consistency in staff behavior and service delivery.
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'
zCODING
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 eac
h
category.
zROUTING
Based on the customer's code, call centers route customers to different queues.
Big
spenders are whisked to high-level problem solvers. Others may never speak to a
live person at all.
zTARGETING
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.
zSHARING
Companies sell data about your transaction history to outsiders.You can be slott
ed
before you even walk in the door, since your buying potential has already been
measured.
Making the Grade:How to get better service
zCONSOLIDATE YOUR ACTIVITIES
in one place. Be on the lookout for packages or programsFew things elevate statu
s and trim costs like spending big
that reward loyal behavior.
zPROTECT YOUR PRIVACY
Avoid surveys and be frugal with releasing credit-card or
Social Security information. The less companies know, theless they can slot you.
zJUMP THE PHONE QUEUE

If you want to reach a live human, don't admit to having atouch-tone phone at th
e prompt. Or listen for options that
are less likely to be handled automatically.
zFIGHT BACK
If you feel badly treated, complain. Make suremanagement knows just how much bus
iness you represent
and that you're willing to take it elsewhere.
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.
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.
yGreen means the person is a profitable customer and should be
granted waivers or otherwise given white-glove treatment.
yReds are the money losers who have almost no negotiating power,
and yellow is a more discretionary category in between.
''The information helps our people make decisions on fees and
rates,'' explains First Union spokeswoman Mary Eshet.
146
11.313
Fees A Solution---?
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
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
In Conclusion
zThe customer is the
ultimate boss. He can
fire everyone on down,
just by spending his or
her money elsewhere.
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.
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.
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 vice-
president 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.
yWhat do I expect if I buy a $1500 suit at Bijan s on
Hollywood s Rodeo Drive?
yWhat do I expect if I buy a $150 suit off the rack
at a discount store?
yNote: I don t expect worse service at the discount
store ---I expect less of it.
11.313 147
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.
148 11.313
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, London s 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 Richard s 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
London s 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 there s plenty planned, not least the
introduction of the six A380 aircraft we have ordered which are
due to arrive in 2006!Oh, and there s somewhere Richard hasn t
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-à-vis other
airlines.
11.313 41

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MARKETING OF SERVICESUNIT I

The Objective of this Lesson is to have

turers. They stored the products and organised their distribution

Second Generation Marketing: It was only during the second

Discuss the origin of marketing of services

The Objective of this Lesson is to have

package holidays and so on. This has implications for services

the services marketing manager needs to look closely at

marketing strategy, including such aspects as:

Another important area which is receiving increasing attention

© Copy Right: Rai University

Discuss the special characteristics of Service marketing.

The Objective of this Lesson is to have

Consumer: leisure, hairdressing, personal finance, package

Highly tangible: car rental, vending machines,

Professional: medical services, legal services, accountancy,

Not-for-profit: The Scouts Association, charities, public

Discuss examples of service sectors.

The Objective of this Lesson is to have

Evaluation of Service Alternatives

The Objective of this Lesson is to have

Importance of after sales service :Consumer and industrial

Level 1: The core product

The physical, or expected, product describes the actual shape,

The augmented product relates to the (often intangible)

Them standout from the competition. In the case of washing

Of course automatic draining is taken for granted now, and has

Similarly, firms have built intangible qualities into the augmented

Company name and image plays a more important role as mass

The average business never hears from the vast majority of

The highest rating factor was reliability of the equipment

The Objective of the Lesson is

End-user: Services can be classified into the following categories:

labour-intensive (people-based) and equipment-based services:

be broken down into the following categories:

nized means of classification:

found in Chapter 3.)

The expected service reflects standards required or expected

The augmented service is the way# in which service

Sales, or even usage rates, of a service can be plotted in the same

The Objective of this Lesson is to have

Total customer value:

Decisions on service configuration.

Importance -the difference is highly valued to a sufficiently

The Objective of this Lesson is to

The levels of positioning

Industry positioning -the positioning of the service

Determining levels of positioning.

Determine Levels of Positioning

Illustrative Positioning Map

Strengthening current position against competitors: This

The positioning should be meaningful: Apple

Which position is held by each of our major competitors?

Which are relatively free of competition?

The company s perception of itself.

Competitor s Customers perception of

The service product: The product itself offers considerable

Service: availability and location (place). Some banks are

People: People are essential to delivery of positioning. For

The Objective of this Lesson is to have

Costs of producing the service and breakeven analysis Competitor

Breakeven analysis is a basic tool which can be used to calculate