Professional Documents
Culture Documents
M.K.Chakravorty
Basics
Activities or benefit that one party can offer to another that are essentially intangible and do not result in ownership of anything, may or may not involving a physical product. - Service doesnt grow at expense of othersit helps other
sectors -Service is equally capital intensive -Productivity / ROCE etc. are equally important -Not always service after productit happens simultaneously -With growing competition, intangibility is becoming the differentiator
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Broad categories
-Business Services
-Communications
-Distribution
-Environment -Tourism --Transportation
-Education
-Finance -Recreation
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Trends globally
--In USA service contributed 54% 0f GDP in 1948, 80% in
2000,84% in2005 74% of total employment --In India, -In 1960agri(50%), service (17%) -In 2000---agri(24%), service (53%) -In 2005---agri(21%), service (57%) -more & more services are being taxed in last few budgets -As economy develops, role of agriculture in economy declines, that of service rises -Service today constitutes 20% global trade -Issues related to global trade of servicesNo detailed international classification, no standardized method of valuing services
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Services
1. 2. 3. Intangible Heterogeneous Production, distribution & consumption are simultaneous process An activity or process Core value produced in buyer seller interaction Consumer participate in production process Cannot be kept in stock No transfer of ownership
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7. 8.
Tangible Homogeneous Production & Distribution separated from consumption A thing Core value produced in factory or filled Consumer dont participate in production process Can be kept in stock Transfer of ownership
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6. 7. 8.
Characteristics of services
Intangibility
Cant see/touch/feel
Inseparability
Production/distribution / consumption simultaneous
Heterogeneity
variation in quality/ time consumed/extent of service
Perishability
Cant be stored
Therefore, challenges
.. Tangibilize the intangible .. Increase productivity of providers who are inseparable from products .. Standardize the quality .. Optimize demand movement & supply capacity
Intangibility
Marketing Implications - No patent
- No ready display - Communications problem - Pricing difficulty
Inseparability
Marketing implications -Consumer involved in
production -No mass production -Supply demand matching
Strategies
-Selection & training of persons -Consumer management -Multi-site location
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Heterogeneity
Marketing implications
-Standardization difficult
Strategies
-Industrialize
-Customize
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Perishability
Marketing Implications
-No inventory
Strategies
-Demand forecasting
-Place
-1 or 2 levels-agents /brokers franchisee -Promotion -Direct / PR / branding / corporate advertising
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Consumer Behaviour
-Initiator -Person identifying a specific need and purpose to buy a particular service -Influencer -Person or group-advising -Gatekeeper -Person / organization / materialacting as a filter for decision choice net -Decider -Taking the buying decisionmay or may not execute the purchase -Buyer -Makes actual purchase -User--------Person actually consuming
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Output
Service encounter | Usage evaluation | Repeat | Acts as W.O.M. to input to process
Influencing Factors
Socio-cultural characters
-Culture Set of belief, values and customs that goes deep as a person grows -Reference groups -Family Situational characters -Time, -Stores atmosphere -Buyers perception of trust on service provider -Marketing stimuli
Psychological Characters -Perceptionprocess by which an individual buyers , organize select & interpret information -Attitudelearned disposition to respond in a consistent manner to stimulus -MotivationDriving force within one that compels him to action Personal Characters -Personality, life style, demographic
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Internal Marketing
Transactional Marketing
External Marketing
Moment of Truth
EMPLOYEE
CUSTOMER
Personal need Image Word of mouth Previous experiences
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Internal Marketing
Engagement of every single individual in marketing a service
-Recruitment -HR Policies -Compensation structure & incentives -Training -Product knowledge -Product Handling -Customer knowledge -Selling -Motivation
-Empowerment -Matrix Responsibility Structure
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External Marketing
-Creation of promise, corresponding with personal need & aspirations of target customers:
-Tangible concept of total promise -Creating expectations by promises -Value of the promise -Non-personal communications
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Transactional Marketing
-Management of customer contact-buyer-seller interaction moment of truth -with support from --Managers --Supporting functions --Investment in technology --Operations --Admin. systems --Elements of success -Contact Person -System & physical resources -Customers and fellow customers -Management support -Support personnel -Technology support -Price -Corporate & local image
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External Marketing
Internal & Transactional Marketing - Fulfilling Promises -- Ability and motivation to meet expectations of customers created by external marketing effort
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Supplementary Services These service elements augment the core product, both facilitating its use and enhancing its value and appeal.
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Use phone
Nature of Scheduling Process
Parking
Room service
core
Service level Customer role
Check in/out
Pay TV
Porter
Billing
Core
Order Taking
Hospitality
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Target audiences
Prospects Users Employees
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Word of Mouth
Recommendations from a user are more acceptable to buyer than companys claims. Higher the perceived risk and lesser the knowledge of the customer, more important is WOM. Few methods of creating favorable WOM: --Reference list --Create promotions so others talk --Develop referral Incentive scheme --Trial use --Publicize testimonials for WOM --Brochures may contain positive comments from satisfied customers
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---Personal communication
---Advertising ---Sales promotion ---Public relations ---Instructional materials ---Corporate design
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Production channels
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Marketing channels
Service Outlets
Advertising Sales promotions
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Source
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Cover Costs
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Maximize Demand (capacity available) Achieve Full Capacity Usage (cinema, hotel, air lines etc.) Build Market share (economies of scale, cost differentiation) Stimulate trial & adoption of service (New Services)
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Cost of Service
Usual product costing method may be used for service product, only when variable & semi variable costs component is very high. But many services have very high fixed cost. So now a days Activity Based Costing (ABC) is preferred. An activity is a set of tasks that combine to comprise the process needed to create and deliver the service. Draw a flow chart where each step constitutes an activity with which costs can be linked. Value of a service may be explained as customers perceived benefit against perceived cost. Value is highly personal and may be classified as: --Low price, --Whatever I want in a product, --A quality I get for the I pay, --What I get for what I give.
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b) He was willing to pay---Rs120/- for the desired service ba= Rs20/- is consumer surplus (value)
When b=a value is adequate. If ba=--ve then consumer net value is negative. Service product will not sell.
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Value to customers
Costs
Competition
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Relationship Pricing
Volume discount helps both buyer and seller. But competitor may lure the customer by offering more. Better way is to provide number of services for the same customer. This helps to understand the customer better and customize the services. Then it becomes costlier for customer to change supplier. Low cost leadership Target customer segment with tight financial budget. Use volume discount incentive. Managing Perception Value Customer should be persuaded to consider total cost of service not the time spent only (surgery, legal, T.V., repair etc. )
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-Personalization, customization, and switching costs matter. (preference for particular hair cutter, family doctor, etc. )
-Time and location specificity reduce choice. (Banks near residence / office, ATM, Flight time)
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Price Elasticity
The concept of elasticity describes how sensitive is demand to changes in price and is computed as follows: % change in demand Price elasticity=-------------------------------% change in price When a small change in price has a big impact on sales, demand for that product is said to be Price Elastic. But when a change in price has little effect on sales, demand is described as Price Inelastic.
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Rate Fences
Price customization for same product means charging different customers different prices for what in effect is the same product. One has to ensure that the high value buyers do not the benefit of low prices by building rate fences. Physical /Tangible Fences (e.g. Airlines First class, Railway1st A/C, Theatre front seat etc. ) Non Physical Fences for lower prices -Booking in advance -Cancellation charges -Penalty -Less no. of supplementary services
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Market sensitivity
Competition Per day, per hour Per Km. Per trip etc. Clear idea in advance Hide discount, guarantee Flexibility for customer
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-Cautious approach ---( Instead of weekend surcharge allow discount on week days)
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Single Site
Multiple Sites
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Multipurpose Facility
Customers convenience/cost
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Role of Intermediaries
Many service organizations find it cost-effective to delegate certain tasks, usually supplementary service elements. Generally core products and some supplementary services are delivered by originating source, and the rest of supplementary services are delivered through intermediaries. However the responsibility lies with the originator franchising. Even the delivery of the core product can be outsourced to an intermediarie. This is the essence of business format franchising. Franchising has become a popular way to expand delivery of an effective service concept embracing all 7 Ps to multiple sites without the level of investment capital that would be needed for rapid expansions of company owned and managed services. Franchisors control not only output specification, but also the appearances of the servicescape, employee performance and such elements as service timetables.
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Trucking companies use licensing routes to have independent agents in different cities to deliver the whole service .Universities allow education institutions to deliver courses designed by them . Financial services- Banks acting for M.F.S Insurance companies (only selling)
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Technology
Significant economies may be gained by centralizing information hubs on a certain wide or even global basis. Improvement in these technologies create cheaper transportation improved performance, physical design and shorten distances. Ex- Call center jobs, Back room jobs.
Government Rules Govt policies can serve to encourage or discourage development of a transnationally integrated strategy. W.T.O has helped in this regard. But still many remain purely local . Ex- Plumbers, Electrician etc
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Physical Evidence
1.Sound & Tone of voice 2. Appearance of Employee & Building 3. Dcor,Employee,other coat,etc. 4. Lounge Decor, Table sitting, & other customers 5. Room Dcor, Staff behavior, Class of other guests 6. Menu Card, Employee 7.Preparation, Taste, quality 8.Transperent, Quick payment 9.Design, Cleanliness, Direction 10. Dcor, Employee
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An important part of process design, is to define the roles of customers should play in the production of services. Their level of desired participation needs to be determined and customers need to be motivated and taught to play their part in service delivery.
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Moderate High customer customer inputs co-produces the rqrd for service service prod
(Consumer Services) Hair cut, annual physical check up (Business to business services) ADV. Agency, Payroll (Consumer Services) Marriage counsel, personal Training, Weight reduction (Business to business services) Management consultant, Seminar, Super market
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Firms that fail to deal effectively with customer misbehaviors, risks damaging their relationships with all the other customers that they would like to keep. Following are the problems (P) & solutions (S) Pthe thief ( Shop lifter, Towel, Linen theft, E crime ) S---a) Find the route of theft and try to plug it, and if necessary prosecute. b) But take care that honest customers do not suffer. Genuine mistakes are to be ignored. c) be sensitive and handle carefully.
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P)---the rule breaker ( Carrying gun in airlines, No shoe, No shirt in clubs etc. Jump the Q ) S)---Rules should be properly conveyed, may be on a billboard. ---Take help of other customers. ---Too many rules and control reduces the pleasure of service. ---The fewer the rules, the more explicit,the important ones can be.
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P)--- the dead beat (Those who fail to pay ) S)---Prevention is better than cure. ---Ask for credit card before order. ---Present the bill immediately after the service. ---Handle softly and tactfully.
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Loss of business, crowding, customer not satisfied. 2.Demand =Capacity Well balanced, customer satisfied. 3.Demand < Capacity Loss of capacity leads to loss of money.
For most of service sector it is either feast or famine . Hence one must try to balance capacity and demand.
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--No. of people standing in Buses / Metro --Use higher capacity Aircraft, Puja special trains --Add extra table in restaurant --Provide faster service, earlier opening & late closing
Adjust capacity to match demand --Schedule down time during periods of low demand --Use part time employees --Rent or share extra facilities and equipment --Cross train employees
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Reduce demand
Higher prices will increase profits; communication can encourage use in other time slots.
Take no action unless opportunities exist to stimulate more profitable segments.
Take no action
Increase Demand
Lower prices selectively; use communications and variations in products and distribution. (cost and profit trade off)
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Consider priority system for Clarify that space is most desirable segments; available and that no make other customers shift reservations are needed to off peak period or to future peak
Consider override for most desirable segments; try to keep waiting customers occupied and comfortable; try to predict wait period accurately Not applicable
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Most periodic cycles of demand for a particular service in length generally varies from 1day to 12 months. e.g. Festive season, Winter and Summer sales etc. No strategy for smoothing demand is likely to succeed unless it is based on an understanding of why customers from specific segment choose to use the service when they do it. e.g. Business Travel---mostly not in weekends.
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X X
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O X + ++
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22 20
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15 16 21 17
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One of the direct way of reducing excess demand at peak periods is to charge customers more money to use services during these periods. Reverse is to reduce prices to increase demand. Change Product Elements / Time Educational Institution---Rent out during weekends/ holidays for program for adults, social functions, etc. Small Boats---Offer cruises in summer and dock side venue for private function in winter. Modify the Place & Time of Delivery Movie Theatre---Different rates for Morning / Evening shows Shops--- Open for longer period in festive time
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Promotion & Educating the customer Airlines--- Buy early for cheap rates Post Office---Mail early the Christmas Cards Demand control through Reservation In business whose demand regularly exceeds supply, managers can often take steps to inventory demand. 1.First come first served 2.Advance Reservation
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Dimensions of affect
Environmental stimuli & cogntive process Response Behavior Approach/Avoidance &Cognitive Process
and behavioral responses. Research has shown that scents can have significant impact on customers response. Colour Colour is stimulating, calming, expressive, disturbing, impress ional, cultural, exuberant, and symbolic. It pervades every aspect of our lives, shines the ordinary and gives beauty, drama to everyday objects. Research in service environment has shown despite differing colour preferences, people generally drawn to warm colour environment. Red though belongs to warm category is perceived to be negative. Warm--- Orange, Yellow, Red Cool----- Green, Blue, Indigo, Violet
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People as part of Service Environment The appearance and behavior of service personnel and customers can reinforce or detract from the impression created by the service environment. Like wise marketing communication can also enhance or detract the impression of the service ambience. Design with a Holistic View The holistic characteristics of environment makes deigning service environment an art, so much so that specialist designers are required for different areas. e.g. Only hotel lobby, Restaurant bars, clubs etc.
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Design from a Customers Perspective Many service environment are designed only on esthetic values and forget the customers convenience. But if you do not keep your customer in mind through out, you could end up with an investment that is not effective. e.g. Hotel---Absence of signs from Ball Room to Rest Room Airport-Luggage brushing against artifacts, glass panes etc.
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It becomes the responsibility of the frontline staff. 4. Emotional labour The term emotional labour means the emotion that arises from the discrepancy between the way frontline staff feel inside, and the emotions they are expected to portray in front of customers. Successful company in service firms have: Leadership that -Focuses the entire organization on the frontline to support the frontline -Fosters a strong service culture with passion for service and productivity -Drives values that inspire, energize, and guide service providers
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Tiering of Services
Good Platinum relationship
Gold
Iron
Poor relationship Lead
Which segment sees high value in our offer, spends more with us over time, costs less to maintain and spreads positive word of mouth.
Which segment costs us in time and effort and money but does not provide the returns we want? What segment is difficult to do business with.
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Enabled through
--Frontline staff --Membership Program --Account managers --CRM system
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Unpleasantness -For being treated rudely -For being hassled -Feeling embarrassed
Service Guarantees
A growing number of companies offer customer a satisfaction guarantee promising that if service delivery fails to meet predefined standards, the customer is entitled to one or more forms of compensation, such as an easy to claim replacement, refund or credit. Some firms place conditions on these guarantees, others offer them unconditionally. e.g. Pizza 1/2 hr. delivery -- 24 hr. delivery any where in U.S.A.
- Unsolicited customer feed back - Focus group discussions and service review
Service firms need to develop effective strategies to recover from service failures so that they can maintain customer goodwill. That is vital for the long term success of the company. Even the best recovery strategy is not as good as being treated right the first time. The ultimate objective of an effective customer feedback system is to institutionalize systematic and continuous customer-driven learning.
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An ongoing challenge is to balance the concerns of each function not only at the head office but also in the field. Ultimately a companys ability to effectively integrate marketing, operations and human resource management, will determine whether it is classified as a service loser, a service nonentity, a service professional, or a service leader.
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