Marketing of services

Transcription

1 Marketing of services Introduction to services Fall 2015 Markku Tinnilä Aalto School of Business

2 Lecture contents and approach The nature of services as marketing object Elements and dimensions of marketing from advertising to understanding customers Why service marketing? Differences between marketing services and products Marketing mix for services the key elements Customers and buying profs and non-profs Managing service agreements and quality Cases

3 The nature of services as marketing object what are the main differences between physical products and services from MARKETING viewpoint? Service or product? Easy question? However, there is a service component in most of products Products are delivered, or offered at stores Maintenance, spare parts, Repair, help desk,.. Today, increasingly difficult to tell the difference

4 Service as core or supporting a product Sometimes a service is the main part of a transaction a core service Medical service Barbershop Lawyer Payments in a bank Credit card payments Plumber or services support the sales of a tangible productsupplementary services Installation & assembly of computers, furniture,. Delivery service Self-service

5 Examples of service industries the range of marketing Health Care public or private hospital, medical practice, dentist to consumers Manual work and knowledge Professional Services accounting, legal, architectural, consultant B2B and B2C Knowledge is the key Financial Services banking, investment advising, insurance B2B and B2C Domestic and global network Hospitality restaurant, hotel/motel, bed & breakfast B2C, manual work & experience (experience industry), servicescape Travel airlines, travel agencies, theme park B2B and B2C business connections Leisure experience Maintenance Plumbing, cleaning, manual work focused To summarize: Differing needs at customers no single way for marketing & selling

6 Differing customer needs who are the customers and how do you now what they want? Services are driven by customers or at least, should be Sometimes customers participate in service production coproduction Lot of interaction Products are made for customer, too Customer research Product development Have been around a long time However, in services the customer needs are more real time remember IHIP You need to know the customer needs at every service transaction Medical service, lawyer, etc each case is unique

7 Marketing of services

8 A very old joke - John Wanamaker, 1880 s marketing pioneer in USA "Half the money I spend on advertising is wasted; the trouble is I don't know which half. And despite all new tools from big data to social media analysis We still don t know which half..

9 What is marketing? Definition and main elements Marketing is not only promotion, although it is the most prominent and visible part Marketing is not only selling! Starts with understanding customers many tools for this, such as market Marketing research, is the customer process panels, of planning etc and executing the Based conception, that developing pricing, and promotion, planning and services distribution answers of ideas, to goods, customer and needs. services Which to create customers? exchanges Not all, that but satisfy selected individual and segments organizational objectives. Marketing Long tradition services in to product selected marketing, groups orshort segments one in services still an Execution exception? of services is related to operations management Fulfilling the service to create customer --American satisfaction Marketing Association and Not least of all making money Understanding customers & needs Developing & planning services Marketing services Executing services Creating satisfaction & making money

10 Nature of service marketing intangibility generally makes the marketing of services a challenge understanding how people buy services and the segments that exist is just as important knowing more about the value of customer segments is important -- some are more valuable than others knowing what they value so that service levels can be tailored is also important Tangible intangible

11 Why do firms focus on Services? Services can provide higher profit margins and growth potential than products Services are growing in new areas industrial and business services Transportation service instead of cars, copies instead of copiers, and..no worries? Customer satisfaction and loyalty are driven by service excellence and lead to long term relationships Services can be used as a differentiation strategy in competitive markets Caterpillar is known for excellent maintenance

12 Differences between marketing services and products

13 Differences between marketing services and products Marketing management tasks in the service sector differ from those in the manufacturing sector. The eight common differences are: Most service products cannot be inventoried Intangible elements usually dominate value creation Services are often difficult to visualize and understand Customers may be involved in co-production People may be part of the service experience Operational inputs and outputs tend to vary more widely The time factor often assumes great importance Distribution may take place through nonphysical channels (digital)

14 From lecture 1 Difference between products and services - Characteristics of Services Service marketing need to take into account that services are intangible, heterogenous, inseparable, and perishable So called IHIP Intangible: cannot be touched, seen, tasted, heard, felt, difficult to measure the quality Heterogenous: differences between services due to the difference in the people who perform them, very difficult to standardize quality Inseparable: service is produced and consumed at the same time, personnel is needed in the delivery of services Perishable: services unused in a period cannot be stored for use in the future In addition: fluctuating demand: demand for some services fluctuates by season, or even by time of day

15 IHIP in practice Intangible: cannot be touched, seen, tasted, heard, felt, difficult to measure the quality Heterogeneous: differences between services due to the difference in the people who perform them, very difficult to standardize quality Inseparable: service is produced and consumed at the same time, personnel is needed in the delivery of services Perishable: services unused in a period cannot be stored for use in the future In addition: fluctuating demand: demand for some services fluctuates by season, or even by time of day Fast food?

16 Differences of products and services Implications and marketing-related tasks Difference Most service products cannot be inventoried Intangible elements usually dominate value creation Services are often difficult to visualize & understand Customers may be involved in coproduction Implications Customers may be turned away Harder to evaluate service & distinguish from competitors Greater risk & uncertainty perceived Interaction between customer & provider; but poor task execution could affect satisfaction Marketing-Related Tasks Use pricing, promotion, reservations to smooth demand; work with ops to manage capacity Emphasize physical clues, Enhance brand and images in advertising Educate customers on making good choices; offer guarantees Develop user-friendly equipment, facilities & systems; train customers, provide good support

17 Differences of products and services Implications and marketing-related tasks Difference People may be part of service experience Implications Behavior of service personnel & customers can affect satisfaction Marketing-Related Tasks Recruit, train employees to reinforce service concept Shape customer behavior Operational inputs and outputs tend to vary more widely Time factor often assumes great importance Distribution may take place through nonphysical channels Hard to maintain quality, consistency, reliability Difficult to shield customers from failures Time is money; customers want service at convenient times Electronic channels or voice telecommunications Redesign for simplicity and failure proofing Institute good service recovery procedures Find ways to compete on speed of delivery; offer extended hours Create user-friendly, secure websites and free access by telephone

18 Services versus products the continuum Nothing material Products today have a higher service component than in previous decades No service Servitization of products (palvelullistaminen) Productization of services Virtually every product today has a service component to it Products are being transformed into services Few pure products or services

19 Where to draw the line between..

20 Why productization? Intangible and abstract what is security service? Introduction services - Markku Tinnilä 2015 Customer is not an expert Tangible, branded, standardised to a package, can be sold as such Marketing viewpoint: easier to communicate and sell a well-defined productized service Too few services have been productized Customer needs to buy hours/tasks and don t know what is included

21 Energy as a product energy Branded What is the difference Does customer undertand the differences? Risks and benefits of longer term agreements Customer benefit calculated 24

22 Marketing mix for services The key elements for marketing services these are the things you can play with

23 Traditional marketing mix of 4 P s All elements within the control of the firm that communicate the firm s capabilities and image to customers or that influence customer satisfaction with the firm s products and services Product Price Place Promotion Product Promotion Marketing mix Price Place

24 Traditional 4 Ps Applied to Services Product elements (Note: to fit into 4 P s we talk of SERVICE products) Service products are at the heart of services marketing strategy Productization Marketing mix begins with creating service concept that offers value service concept: description of a service idea and the principle to be followed in the production of a service product Service product consists of core and supplementary elements Core products meet primary needs Supplementary elements are value-adding enhancements

25 Traditional 4 Ps Applied to Services Place and time Services used to be very tied to service facilities offices, shops, banks, super markets,. Today, service distribution can take place through physical and non-physical channels (note: electronic, digital, mobile, wireless, ) Amazon, Norwegian place and time utility versus traditional bookstore or travel agent Not all the service elements need to be in one channel multiple channels typical Information-based services can be delivered almost instantaneously electronically Delivery Decisions: Where, When, How Time is of great importance as customers are physically present Convenience of place and time have become important determinants of effective service delivery open 24/7/365

26 Traditional 4 Ps Applied to Services Price and other user outlays Marketers must recognize that customer costs involve more than price paid to seller Identify and minimize non-monetary costs incurred by users: Additional monetary costs associated with service usage (e.g., travel to service location, parking, phone, babysitting, etc.) Time expenditures, especially waiting Bank branch offices, HSL office Unwanted mental and physical effort Contacting a call center Revenue management is an important part of pricing

27 Traditional 4 Ps Applied to Services Promotion (and Education) Plays three vital roles: Provide information and advice Advertisement Persuades the target customers of the merit of the service Encourages customer to take action at specific time Customers may be involved in co-production so: Teach customers how to move effectively through the service process Shape customers roles and manage their behavior

28 Services require an expanded marketing mix The 7 Ps of services marketing are needed to meet customer needs profitably Place Promotion Product Marketing mix People Process Price Physical environment People All human actors who play a 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. Physical environment The environment in which the service is delivered and where the firm and customer interact, and any tangible components that facilitate performance or communication of the service. Process The actual procedures, mechanisms, and flow of activities by which the service is delivered the service delivery and operating systems

29 People Remember: service is a task done for you by someone People are the firm in the customer s eye tangible contact point of the service are a critical part of the product may be involved in production can facilitate or inhibit service performance can impact service encounters via their attitude, behavior, or degree of involvement Interactions between customers and contact personnel strongly influence customer perceptions of service quality Well-managed firms devote special care to selecting, training and motivating service employees Other customers can also affect one s satisfaction with a service All this is obvious, but often forgotten!

30 Physical environment (facilities, servicescapes) includes: background characteristics (furnishings, noise, color) tangible cues/facilitating goods that facilitate performance or communication of the service examples: bank statements, travel brochures, business cards servicescapes provide tangible evidence of service performances Create and maintain physical appearances Buildings/landscaping Interior design/furnishings Vehicles/equipment Staff grooming/clothing Sounds and smells Manage physical cues carefully can have profound impact on customer impressions

31 Process the actual procedures, mechanisms, and flow of activities by which the service is delivered includes: How firm does things may be as important as what it does Customers often actively involved in processes, especially when acting as co-producers of service. E.g. fetch your food at McD and return the tray Operational inputs and outputs vary more widely Quality and content varies among employees, between employees Variations can be with different customers Variations from time of the day Monday morning? Variability can be reduced by: Standardized procedures, implementing rigorous management of service quality, training employees, automating tasks

32 Example: Delivery process (or Supply Chain) for Physical Goods Suppliers Recycling/Remanufacturing Process and Product Design Manufacturing Distribution Retailing Customer Customer Service Material transfer Information transfer

33 Suppliers Administrative Headquarters Delivery process or Service Chain for installation services Regional Offices because most services are tied directly to a specific service provider, most have been distributed directly to customers with advancing technology, many firms are now delivering services through machines channels of distribution are necessarily short; some firms use one agent intermediary, such as insurance, real estate, and travel agents some firms use franchises to distribute services Installation personnel Customer Material transfer Information transfer

34 Expanded marketing mix for services a summary Service

35 Ways to Use the 7 Ps Strategic viewpoint How effective is a firm s service marketing mix? Is the mix well-aligned with overall vision and strategy? What are the strengths and weaknesses in terms of the 7 Ps? Service implementation Who is the customer? What is the service? How effectively does the services marketing mix for a service communicate its benefits and quality? What changes/ improvements are needed?

36 Summarizing marketing mix There are differences between marketing services and products intangibility of offering makes the marketing of services a challenge Continuum of services versus products today no clear cut division The 7 P s remember people and physical environment Product Promotion People Marketing mix Place Process Price Physical environment

37 Relationship marketing and the value of customers

38 What is customer relationship marketing? Marketing designed to create, maintain, and enhance strong relationships with customers (and other stakeholders). Why is it important? It costs five times as much to attract a new customer as it does to keep a current one satisfied. It is claimed that a 5% improvement in customer retention (keeping the customers) can cause an increase in profitability of between 25 and 85 % depending on the industry. Likewise, it is easier to deliver additional products and services to an existing customer than to a first-time buyer. particularly important in B2B Many services can be priced to enhance long relationships instead of one off mobile flat rate 100 minutes/month, HSL card instead of pay per ride or call, yearly or multi-year contracts We aim at long term service relationships

39 Customer lifetime value And now we have a long term customer. Losing an existing customer means losing the entire revenue stream that customer represents not just that single encounter or sale It s about attracting, retaining and growing customers Growing share of customer -Increasing the share of the customer s purchasing of your services and products Best way is through cross-selling Getting more business from current customers by selling them additional or complementary services Case ISS: starting from cleaning office premises Now large range of related services to same customers Sodexo starting from catering to different facility related services

40 Customer satisfaction The extent to which a product or service s perceived performance matches a buyer s expectations. What are expectations based on? Past buying experiences good or bad (dissatisfied customers tell to 10 persons, satisfied to few) Friends, family and other associates Information about the competition competitors offering Promises made in marketing materials (your brand) Connected to customer loyalty & retention Highly satisfied customers are: Less price sensitive More likely to talk favorably about you More likely to refer you to others Remain loyal for longer

41 Tasks in customer relationship management Recognise important relationships Who? Developing activities Goals of CRM Need to do something! Activities in relationship management Goals & stratgies 44

42 Digital era and customer relationships bank relationship in the internet bank it only takes a click to compare the offerings and change the bank! Commitment of customers? Is price the only criterium? Easy to compare Mobile services make it even easier Shopping behaviour one service from one place, next from another How to build a longer term relationship?? 45

43 What are our objectives? Loyalty customers Turnover Share of customers purchases cross selling Brand image Profitability in the short and long terms 46

44 Customers of services B2C and B2B markets Purchasing Service contracts

45 Business Markets business-to-business (B2B) Companies and organizations that purchase products and services for the operation of a business or the completion of a business activity Derived Demand: quantity of product or service needed by a business in order to operate at a level that will meet the demand of its customers Elements such as: Capital: land, buildings, and major pieces of equipment Operating Equipment: smaller, less expensive equipment (cash registers, tools, small machines) Supplies: materials consumed in the operation of the business (paper, ink cartridges) Services: supporting different activities Raw Materials: materials incorporated into the products they make Component Parts: parts manufactured by another business incorporated into the products they make

46 Consumer markets Business-to-consumer (B2C) Direct Demand in B2C purchases of products and services for own use and needs Differences in purchasing B2B professional purchasing personnel, contracts, bids, auctions, rational motives. Role of marketing is to inform and influence decision making B2C- non-profs, all kinds of relationships from short to long, non-rational motives Marketing creates needs (?) with advertising, playing with feelings, motives, In consumer markets pricing strategies play a greater role E.g. discount or variable pricing strategies: cheaper during week days, happy hours, Kids eat free, flat rates for month, pay later,

47 Service purchasing by professionals How and why services are purchased?

48 Purchasing and outsourcing services Why to purchase? Make or buy in manufacturing applies also to services Should we do the service activity ourselves or buy it? Benefits of purchasing - allows the firm to focus on its core competence - service may be cheaper to purchase or outsource than perform in-house - provides access to latest technology- buy ICT as service - leverage benefits of supplier economy of scale or scope Scale with better processes, automation etc, scope with greater know how Risks - loss of direct control of quality and control of operations - jeopardizes employee loyalty - exposure to data security and customer privacy - dependence on one supplier compromises future negotiation leverage and increases risks - additional coordination expense and delays - atrophy of in-house capability to perform service e.g. outsourcing ICT means nobody knows anything in-house

49 Strategic supplier selection process for services Selection process and criteria similar to products, but Initial Supplier qualification Agree Measurement Criteria Obtain Relevant Information Make Selection More difficult due to service characteristics?! IHIP again Source: adapted from Katri Karjalainen

50 Impact of service characteristics on purchasing IHIP again Intangibility complicates determination of quality AND quality fluctuates due to human involvement (heterogeneity) Expectations vs perceptions of quality Intangibility makes it difficult to examine service in advance (or after) purchase Client expertise impacts too, supplier may need to educate customers Inseparability dual role of buyer as consumer and coproducer Defining both parties responsibilities needed Good planning & forecasting needed due to perishability No service inventory Source: adapted from Katri Karjalainen

51 Source: adapted from Katri Karjalainen Ellram et al. 2007

52 Source: adapted from Katri Karjalainen Ellram et al. 2007

53 How to guarantee service quality in purchasing - service level agreement (SLA) A method of specifying or defining services Main elements: Basic contract: goal, date, period, parties Definition of service Important specifications such as: coverage & levels of service (working days etc.), manpower and other resources available during different stages, reaction times, precision, compensation when failures SLA s formalize relationships As an example, internet service providers will commonly include service level agreements within the terms of their contracts. In this case the SLA will typically have a technical definition in terms of mean time between failures (MTBF), mean time to repair or mean time to recovery (MTTR); various data rates; throughput or similar measurable details. Source: adapted from Katri Karjalainen

54 Examples of SLA measures Help desk support Telephone response Problem resolution Complaint escalation Request for software fix 95% within 3 rings 65% through first-line support within 8 hours 35% through second-line support within 24 hours To first-line manager after 8 working hours To senior manager after 16 working hours Initial response within 5 working days Outline proposal within 15 working days Equipment maintenance Response to non-critical fault 2 working days Response to critical fault 2 hours First-time fix rate 95% Schedule adherence 95% within 2 working days Spares availability 95% within 48 hours 100% within 5 working days Source: adapted from Katri Karjalainen Johnston and Clark, 2005

55 Service contracting in B2B Change from products to multi-year service contracts case examples

56 Transformation from product to services and solutions KONE wins an order for two Beijing Subway lines 30/12/2009 KONE won an order to supply 140 escalators and 32 elevators for Beijing s rapidly expanding subway system. The order includes 140 TransitMaster escalators for line 6, which is under construction, and 32 MonoSpace elevators for the extended line 8. To satisfy the high-demanding subway transportation of Beijing, KONE employed its People Flow solutions to make travel easier and safer. More people means more pressure on the urban environment and its infrastructure. The concept of People Flow has already been widely received in KONE s infrastructure projects in China, for example in such stunning architectural masterpieces as Beijing Capital Airport T3 Terminal, Beijing- Shanghai High-speed Railway and Hongqiao Integrated Transportation Hub, says William B. Johnson, Managing Director of KONE China.

57 Today, for the first time in human history, more than half of the human race lives in cities. Morning and evening, they move through transit centers. The challenge is to keep things running smoothly. We have met the challenge around the world. KONE is the world s most experienced supplier of People Flow solutions for mass transit systems.

58 From products to services Vaisala Group Vaisala develops, manufactures and markets products and services for environmental and industrial measurement. Vaisala's markets are global. Vaisala had more than employees and achieved net sales of EUR million in Vaisala serves customers around the world. Operations outside Finland accounted for 97% of net sales Significant global market share 80-90%!!!! Focused strategy

59 Summary Not just one type of service marketing great variety depending on the type of service 7 P s of service marketing People and environment Customer value stems often from long term relationships Difference of consumer and business services professionals Vs non-profs in purchasing Service contracts define the quality and type of services Service companies aiming at larger range of services to same customers Place Promotion Price Product Marketing mix Physical environment People Process