Services Marketing. 23C550 Lecture 8: Course review Exam details Mikko Laukkanen, D.Sc.

Transcription

1 Services Marketing 23C550 Lecture 8: Course review Exam details Mikko Laukkanen, D.Sc.

2 Lecture 1

3 The Service Marketing Triangle

4 Two ways of looking at services 1.Services are a residual that which are not products 2.Services are the unit of exchange think T. Levitt s Marketing Myopia (HBR 1960)

5 Goods vs. services (Zeithaml& Bitner& Gremler 2006) Goods Services Resulting implications Tangible Intangible Services cannot be inventoried Services cannot be easily patented Services cannot be readily displayed or communicated Pricing is challenging Standardized Heterogeneous Service delivery and customer satisfaction depend on interaction Service quality depends on many uncontrollable factors Service delivered may not match what was planned and promoted

6 Goods vs. services (Zeithaml& Bitner& Gremler 2006) Goods Services Resulting implications Production separate from consumption Simultaneous production and consumption (or inseparable) Customers participate in and affect the transaction Customers affect each other Employees affect the service outcome Decentralization may be essential Mass production is difficult Nonperishable Perishable Difficult to synchronize supply and demand with services Services cannot be returned or resold

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8 The Customer Gap Expected service is a result of previous experiences and knowledge Marketer can control: pricing, advertising, sales promises Marketer can t control: competitors actions, WoM, customer-specific needs Perceived service is the subjective assessment of the service received Expected service Perceived service Customer gap

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10 Provider Gap 1: The Listening Gap The firm lacks understanding of customer expectations or fails to observe changes in expectations over time Four factors: 1. Inadequate marketing research orientation 2. Lack of upward communication 3. Insufficient relationship focus 4. Inadequate service recovery

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12 Provider Gap 2: The Service Design and Standards Gap The firm is unable to translate identified customer preferences to service specifications which employees can execute. Three factors: 1. Poor service design 2. Absence of customer-driven standards 3. Inappropriate physical evidence and servicescape

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14 Provider Gap 3: The Service Performance Gap The firm s employees fail to turn service standards and design into excellent service Four factors: 1. Deficiencies in human resource policies 2. Failure to match supply and demand 3. Customers not fulfilling roles 4. Problems with service intermediaries

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16 Provider Gap 4: The Communication Gap The firm raises customer expectation to exceed perceived service level through communication. Five factors: 1. Lack of integrated services marketing communications 2. Ineffective management of customer expectations 3. Overpromising 4. Inadequate horizontal communications 5. Inappropriate pricing

17 Read this before starting on the first assignment Service Blueprinting: A Practical Technique for Service Innovation Mary Jo Bitner, Amy L. Ostrom, Felicia N. Morgan, California Management Review, Vol. 50, No. 3, Spring 2006 Builds on seminal works by G. Lynn Shostack: Designing services that deliver - Harvard business review, 1984; Service positioning through structural change - The Journal of Marketing, 1987; How to design a service - European Journal of Marketing, 1993

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19 Components of Service Blueprints Physical Evidence Customer Actions Line of Interaction Onstage/Visible Contact Employee Actions Backstage/Invisible Contact Employee Actions Line of Visibility Line of Internal Interaction Support Processes

20 Lecture 2

21 Service failure and recovery Service failure Dissatisfaction No complaint action Complaint action Exit/switch Stay Complain to provider Negative WOM Third-party action Stay Exit/switch

22 Service recovery paradox

23 Emotional journey (Dasu & Chase 2010)

24 How do customers interpret experiences (Chase & Dasu 2001) 1. Order the end sticks with you 2. Duration how long it takes, how many actions we need Keep them excited, distracted, engaged Too many actions may increase frustration 3. Rationalizing disappointments need a scapegoat We want a simple explanation and reason We assume that any diversion from routines is the root cause of all problems We blame individuals, not the system

25 Help from behavioral science (De Vine & Gilson 2010; Chase & Dasu 2001) 1. Get the unfortunate parts over with quickly How do you start calls and meetings Avoid dodging or shifting blame 2. Separate the joys, merge the pain Example: the continuous disappointment of low-cost airlines Example: Disney parks and speed of rides

26 Help from behavioral science (De Vine & Gilson 2010; Chase & Dasu 2001) 3. Ensure a peak at the end The end is more important the beginning Example: Malaysian Airlines and luggage carousel Desire to see improvement Golden egg at the end Example: consulting final report

27 Help from behavioral science (De Vine & Gilson 2010; Chase & Dasu 2001) 4. Give customer (controlled) freedom to choose Strong recommendations Inferior alternatives Example: blood donors choice of arm 5. Do not disturb or disrupt the routines and habits of customers Think Daniel Kahneman s System 1 and System 2

28 Multiple masters (Chung & Schneider 2002) Role conflict Discrepancies between perceived demands from customers and perceptions of what management rewards Customers have great deal of immediate influence over employees while management influence is legitimate but remote (Rafaeli 1989)

29 Multiple masters (Chung & Schneider 2002) Role conflict 1. Physical proximity 2. Amount of time together 3. Amount of feedback from customers 4. Amount of information from customers 5. Awareness of the crucial role of the customers Employees more enthusiastic gratifying customer needs than management (Parkington & Schneider 1979)

30 Multiple masters (Chung & Schneider 2002) Implications Identify behaviors employees believe customers want them to perform Set up ways to reward employees for engaging in those behaviors Research suggests that what employees say about customers is valid (Schneider & Alii 2000)

31 Lecture 3

32 Pricing recap The Pricing Triangle (e.g. Kotler) Customers perceptions of value PRICE Cost of creating service Competitors offerings

33 Pricing introduction Basic pricing structures and associated challenges in service pricing (adapted from Wilson et al.2008) Competition-based pricing Smaller firms may charge too little to remain viable Prices may not reflect customer value Service heterogeneity limits comparability Demand-based pricing Monetary price must be adjusted to reflect non-monetary costs Information on service costs less available to customers Cost-based pricing Difficulty in tracking costs Labor is difficult to price Mismatch between customer perceived value and true costs

34 Pricing objectives and pricing methods in the service sector (George J. Avlonitisand KostisA. Indounas, Journal of Services Marketing, 2005) Sample: 170 firms (rr 36,7) from Greek service sector participated in the study Survey: assessed the importance of 28 pricing objectives (1-5 scale) and reported use from 12 pricing methods (binary scale).

35 Pricing objectives and pricing methods in the service sector (George J. Avlonitisand Kostis A. Indounas, Journal of Services Marketing, 2005) Conclusions: Objectives are customer-based, but methods are not. May result from difficulty of determining customer preferences and needs. Cost-plus is still the dominant method. Pricing strategies based on customer orientation should be merged with market orientation views.

36 B2B Services Multi-dimensional procurement and purchasing process Long-term relationships Unions of products and services Layers of relationships Multiple agendas Lack of clear performance indicators

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38 Co-production in KIBS (Bettencourt & Ostrom & Brown & Roundtree 2002) Strategies for creating high performance clients Client sensitivity Client training, education & socialization Project leadership & client performance

39 Co-production in KIBS (Bettencourt & Ostrom & Brown & Roundtree 2002) Beneficial outcomes Sustainable competitive advantage Client satisfaction Client role clarity / Client motivation / Client knowledge, skills & abilities Effective client co-production

40 Reflection Set 1

41 Instructions Articles: 1) Funches, Markley, Davis (2009): Reprisal, retribution and requital: Investigating customer retaliation, Journal of Business Research, 62, ) McColl-Kennedy & Sparks (2003): Application of the Fairness Theory to Service Failures and Service Recovery, Journal of Service Research, 5(3), Write reflection papers on both articles (min. 1 page each, 1.5 line spacing, font 12) focusing on what you consider to be the main points of the article and reflecting on what you think about those points. You can use the Reading Guide on the course website to help you. Additionally write a short (1-3 page) recollection of a service failure you have experienced and reflect on how the points from the articles show up in your story.

42 Lecture 4

43 Assignment 1: SERVICE BLUEPRINTING AND THE GAPS-MODEL OBJECTIVES: To learn to how to use the Service Blueprinting technique and how to make judgments based on findings. To test the usability of the Gaps-model for analyzing service contexts and assessing service quality. To gain valuable experience in conducting marketing research in the field and reporting observations.

44 Lecture 5

45 Success drivers of service innovations (Berry et al. 2006) 1. A scalable business model 2. Comprehensive customer-experience management 3. Investment in employee performance 4. Continuous operational innovation 5. Brand differentiation 6. An innovation champion 7. A superior customer benefit 8. Affordability 9. Continuous strategic innovation

46 Combining products and services (Shankar & Berry & Dotzel 2009) Complementarity and independence 1.Flexible bundle Complex offerings High independence High complementarity 2.Peace-of-mind bundle Assurance: best-of-breed High independence Low complementarity Services Marketing - Laukkanen

47 Combining products and services (Shankar & Berry & Dotzel 2009) 3. Multi-benefit bundle Inseparable offerings Low independence High complementarity 4. One-stop bundle Driven by convenience No additional value in the bundle Maximum independence Minimal complementarity Services Marketing - Laukkanen

48 Combining products and services (Shankar & Berry & Dotzel 2009) Four rules for getting the most out of your hybrids 1.Look for points of differentiation in product and service markets. 2.Scope the service and scale the product. 3.Assess the revenue and profit potentials of various hybrids. 4.Invest in the brand. Services Marketing - Laukkanen

49 Services Marketing - Laukkanen Berry, Shankar, Parish, Cadwallader, Dotzel (2006) Creating New Markets Through Service Innovation MIT Sloan Managment Review

50 Lecture 6

51 "How to Sell Services More Profitably (Reinartz & Ulaga 2008) First step transforming (from industrial) to a service business: Recognize you are a service company Services already being provided Current service selling approaches Moving from free to fee Revenue from easily chargeable services Services Marketing - Laukkanen

52 "How to Sell Services More Profitably (Reinartz & Ulaga 2008) Second step transforming (from industrial) to a service business: Industrialize the back office Standardize service platforms Analyze cost-efficiency of service offering Tailor effectively and efficiently Services Marketing - Laukkanen

53 "How to Sell Services More Profitably (Reinartz & Ulaga 2008) Third step transforming (from industrial) to a service business: Create tech-savvy sales force Incentivize service sales Compensate for longer sales cycles Educate and equip knowledgeable sales staff Services Marketing - Laukkanen

54 "How to Sell Services More Profitably (Reinartz & Ulaga 2008) Fourth step transforming (from industrial) to a service business: Focus on customers processes Address problems holistically Align goals with customers business Develop new capabilities Services Marketing - Laukkanen

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56 Designing services to minimize costs and maximize value (Kim & Mauborgne, 1996) 1. Which of the factors that the industry takes for granted should be eliminated? 2. Which factors should be reduced well below industry s standards? 3. Which factors should be raised well above the industry s standards? 4. What factors should be created that the industry has never offered? Services Marketing - Laukkanen

57 Value curve: A graphic description of a company s relative performance across its industry s key success factors (Kim & Mauborgne, 1996) High relative level Three types of hotel services One-star hotel Two-star hotel Service innovation Low relative level

58 The Good-Centered View of Marketing (Vargo & Lusch 2004) 1. The purpose is to make and distribute things that can be sold 2. These things must be embedded with utility and value during the production and distribution superior value offered 3. Maximizing the profit from the sale of output 4. Production away from the market in order to maximize control and efficiency 5. The output can be inventoried until it is demanded Services Marketing - Laukkanen

59 A New Service-Dominant Logic for Marketing (Vargo & Lusch 2004) Customers do not buy goods or services: they buy offerings which render services which create value. [-] Activities render services, things render services. The shift in focus to services is a shift from the means and the producer perspective to the utilization and the customer perspective. (Gummesson 1995.) Services Marketing - Laukkanen

60 Differentiating between GDL and SDL (adapted from Vargo & Lusch 2004) Goods-Dominant Logic Service-Dominant Logic Primary unit of exchange Exchange for goods Exchange to acquire benefits and services Role of goods Goods are end products. Marketers change their form, place, time and possession. Goods are transmitters of embedded knowledge used my customers in value creation process. Role of customer Determination and meaning of value Firm-customer interaction Source of economic growth Marketers act on customers, who are the recipients of goods. Value is determined by the producer. Customers are acted on to create transactions. Wealth consists of owning, controlling, producing tangible resources. Marketing is the process of interaction with the customers, who are co-producers of service. Value is determined by user. Firms make value propositions. Customers are active participants. Wealth obtained through application and exchange of specialized knowledge and skills.

61 Reflection Set 2

62 Instructions Articles: 1) Meuter, Ostrom, Roundtree, & Bitner,(2000), Self-service Technologies: Understanding Customer Satisfaction with Technology-based Service Encounters", Journal of Marketing, 64, ) Glushko & Nomorosa (2012): Substituting Information for Interaction: A Framework for Personalization in Service Encounters and Service Systems. Journal of Service Research, 16(1), Write reflection papers on both articles (min. 1 page each, 1.5 line spacing, font 12) focusing on what you consider to be the main points of the article and reflecting on what you think about those points. You can use the Reading Guide on the course website to help you. Additionally write a short (1-3 page) recollection of an experience you ve had recently with service where technologies played a large role.

63 Lecture 7

64 OBJECTIVES The main pedagogical objectives of the assignment are: 1.To have the participants reflect on how services create value for different customers, and to practice using this insight in choosing the optimal customer segments to be targeted and the best service solutions. 2.To give the participants the opportunity to test the course concepts in the practical context of a new business and to get exposure to the types of questions facing an entrepreneur launching a new service.

65 Lecture 8

66 One more article for you to read Lovelock, Christopher & Gummesson Evert (2004): Whither Services Marketing? In Search of a New Paradigm and Fresh Perspectives, Journal of Service Research, 7/20, Provides a scathing critique of the IHIP framework and gives alternative paths for development of service research.

67 Lecture 9

68 OBJECTIVES The three main pedagogical objectives of the assignment are: 1.To show the participants how the different strategic and tactical issues covered throughout the course are interlinked. 2.To get participants to critically assess the changing value various offerings provide for diverse audiences and to design marketing strategy and communication suited for this heterogeneity. 3.To allow the participants to test how the services marketing concepts and tools presented during the course can be applied in an interesting and unique real-life context.

69 Exam details

70 Grading and attendance Assignments = 50 % Exam = 50 % (pair assignments 30 %, reflection papers 20 %)

71 EXAM Exam has three parts max 50 points Four mini-essays on lecture topics max 20 points Two (of three) essays on articles max 20 points Two mini-essays on assignments max 10 points Mikko will not take registrations for the exam, no matter how good the excuse!