Managing services

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Managing services

  1. 1. Product and Pricing Management MANAGING SERVICES
  2. 2. The Growth and Importance of Services in the U.S. Economy <ul><li>About 90% of the 2.7 million new jobs created each year are in the services sector. </li></ul><ul><li>Services accounted for $4.679 trillion in 1998, which was an increase of more than 300% since 1980. </li></ul><ul><li>Services represent a large export business--the $280 billion of service exports in 1998 is one of the few areas in which the U.S. has a trade surplus. </li></ul>
  3. 3. Importance of Services in the U.S. Gross Domestic Product 8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 GDP Services Goods 1970 1975 1980 1985 1990 1995 1998 Billions of dollars
  4. 4. New Services Identified by U.S. Census Bureau <ul><li>Reproduction of computer software </li></ul><ul><li>Pet care services </li></ul><ul><li>Cable networks </li></ul><ul><li>Satellite communications </li></ul><ul><li>Paging </li></ul><ul><li>Cellular and other wireless communications </li></ul><ul><li>Telecommunication resellers </li></ul><ul><li>Credit card issuing </li></ul><ul><li>Temporary help supply </li></ul><ul><li>Telemarketing bureaus </li></ul><ul><li>Interior design services </li></ul><ul><li>Industrial design services </li></ul><ul><li>Hazardous waste collection </li></ul><ul><li>HMO medical centers </li></ul><ul><li>Continuing care retirement communities </li></ul><ul><li>Casino hotels </li></ul><ul><li>Casinos </li></ul><ul><li>Other gambling industries </li></ul><ul><li>Bed and breakfast inns </li></ul><ul><li>Automotive oil change and lubrication shops </li></ul><ul><li>Diet and weight reducing centers </li></ul>
  5. 5. The Four I’s of Service <ul><li>Intangibility Services cannot be held, touched, or seen before the purchase decision. </li></ul><ul><li>Inconsistency Service quality varies with the capabilities of the people who provide the service. </li></ul><ul><li>Inseparability The consumer cannot separate the deliverer of the service from the service itself. </li></ul><ul><li>Inventory The inventory cost of a service is the cost of paying the person used to provide the service along with the cost of any needed equipment. </li></ul>
  6. 6. Service & Idle Production Capacity <ul><li>Inventory of services is different from that of goods. </li></ul><ul><li>With services, inventory carrying costs are more subjective and are related to idle production capacity , which is when the service provider is available but there is no demand. </li></ul><ul><li>The inventory cost of a service is the cost of paying the person used to provide the service along with any needed equipment. </li></ul>
  7. 7. Inventory Carrying Costs of Services hotel restaurant Low Cost Cost of Inventory High Cost Hair Salon Real Estate Employment agency Insurance company auto repair dry cleaner Amusement park Utility Airline Hospital
  8. 8. Service Continuum Teaching Nursing The theatre Advertising agency Air travel Television Fast-food restaurant Tailored suit Automobile House Dog food Necktie Salt Balanced item equally weighed between goods and services Service-dominated item (intangible) Good-dominated item (tangible) Balanced
  9. 9. Service Classifications Equipment-based People-based Automated Monitored by relatively unskilled operators Operated by skilled operators Skilled labor Unskilled labor Professionals <ul><li>Vending machines </li></ul><ul><li>Automated car washes </li></ul><ul><li>ATM </li></ul><ul><li>Motion picture theaters </li></ul><ul><li>Dry cleaning </li></ul><ul><li>Taxis </li></ul><ul><li>Electric utilities </li></ul><ul><li>Airlines </li></ul><ul><li>Computer network installation </li></ul><ul><li>Lawn care </li></ul><ul><li>Security guards </li></ul><ul><li>Janitorial services </li></ul><ul><li>Appliance repair </li></ul><ul><li>Plumbing </li></ul><ul><li>Catering </li></ul><ul><li>Lawyers </li></ul><ul><li>Managing consultants </li></ul><ul><li>Accountants </li></ul>Service
  10. 10. Some Characteristics of the Service Purchase <ul><li>Consumers cannot make a pre-purchase evaluation of all the characteristics of services because services: </li></ul><ul><li>- cannot be displayed </li></ul><ul><li>- cannot be demonstrated </li></ul><ul><li>- cannot be illustrated </li></ul><ul><li>Similarly, because service providers may vary in their delivery of a service, an evaluation of a service may change with each purchase </li></ul>
  11. 11. Services with Credence Properties <ul><li>Services provided by specialized professionals such as medical diagnoses and legal services have credence properties , or characteristics that the consumer may find impossible to evaluate even after purchase and consumption . </li></ul><ul><li>To reduce the uncertainty created by credence properties , service consumers turn to personal sources of information such as early adopters, opinion leaders, and reference group members during the purchase decision process. </li></ul>
  12. 12. How Consumers Evaluate Goods and Services Most goods Easy to evaluate Most services Difficult to evaluate High in credence properties High in experience properties High in search properties Clothing Jewelry Furniture Houses Automobiles Restaurant meals Vacation Haircuts Child care Television repair Legal services Root canal Auto repair Medical diagnosis
  13. 13. Dimensions of service quality
  14. 14. Customer Contact in car rental Green shaded boxes indicate customer activity . 1. Customer contacts rental company 3. Customer arrives 4. Receive customer information 6. Customer takes bus to care and departs 7. Customer returns car to receiving lot 8. Customer checks in 9. Receive customer information 10. Customer receives bill Access reservation system 2. Receive customer information 5. Assign car A. Preliminary inspection B. Secondary inspection C. Perform periodic maintenance D. Preparation and park in ready lot E. Update car status in reservation system
  15. 15. The Customer Contact Audit <ul><li>The customer contact audit is a flowchart of the points of interaction between consumer and service provider. </li></ul><ul><li>Customer contact audits are particularly important in high-contact services such as hotels, educational institutions, and automobile rental agencies. </li></ul><ul><li>The interactions identified in a customer contact audit often serve as the basis for developing relationships with customers . </li></ul>
  16. 16. Relationship Marketing <ul><li>Relationship marketing provides several benefits for service customers including: </li></ul><ul><ul><li>the continuity of a single provider </li></ul></ul><ul><ul><li>customized service delivery </li></ul></ul><ul><ul><li>reduced stress due to a repetitive purchase process </li></ul></ul><ul><ul><li>and an absence of switching costs </li></ul></ul>
  17. 17. Internal Marketing <ul><li>Internal marketing is based on the notion that a service organization must focus on its employees, or internal market, before successful programs can be directed at customers. </li></ul><ul><li>The internal marketing concept holds that an organization’s employees (its “internal market”) will be influenced to develop a market orientation if marketing-like activities are directed at them. </li></ul><ul><li>The idea of internal marketing suggests that employees and employee development through recruitment, training, communication, and administration are critical to the success of service organizations. </li></ul>
  18. 18. Managing the Marketing of Services--Product <ul><li>3 aspects of the product/service element </li></ul><ul><li>mix that warrant special attention: </li></ul><ul><li>1. Exclusivity </li></ul><ul><li>2. Brand name </li></ul><ul><li>3. Capacity management </li></ul>
  19. 19. Managing Capacity in a Hotel Executive service guests* Executive service guests* Transient guests † Transient guests † Weekend package Weekend package Groups and conventions Groups (no conventions) Airline contracts Airline contracts M Tu W Th F S Sn M Tu W Th F S Sn Time Week 7(low season) Week 36 (high season) Nights: Out of commission for renovation 100% 50% Time capacity (percent of rooms) * Employees of corporations called upon by salesforce (book rooms through special reservations line). † Customers reserving rooms via public telephone number or by just “walking in.”
  20. 20. Managing the Marketing of Services--Pricing <ul><li>Price plays two essential roles regarding </li></ul><ul><li>the pricing of services: </li></ul><ul><li> 1. To affect consumer perceptions and </li></ul><ul><li> 2. To be used in capacity management . </li></ul><ul><li>Off-peak pricing consists of charging different prices during different times of the day or days of the week to reflect variations in demand for the service. </li></ul>
  21. 21. Managing the Marketing of Services--Place <ul><li>Place or distribution is a major factor in developing a service marketing strategy because of the inseparability of services from the producer . </li></ul><ul><li>As competition grows , the value of convenient location becomes more important. </li></ul><ul><li>The availability of electronic distribution through the World Wide Web now provides global coverage for travel services, banking, entertainment, and many other information-based services. </li></ul>
  22. 22. Managing the Marketing of Services--Promotion <ul><li>In most cases promotional concerns of services are similar to those of products. </li></ul><ul><li>The value of promotion (advertising) is to stress: </li></ul><ul><ul><li>availability </li></ul></ul><ul><ul><li>location </li></ul></ul><ul><ul><li>consistent quality </li></ul></ul><ul><ul><li>and efficient, courteous service </li></ul></ul>Heart by-pass Surgery 20% discount for weekend procedures
  23. 23. Advertising & Professional Services <ul><li>A Supreme Court case in 1976 struck down constraints by professional organizations to constrain the advertising of professional services, specifically the American Medical Association and the American Bar Association. </li></ul><ul><li>Although opposition to advertising still remains in some professional groups, the barriers to promotion are being broken down, mostly in response to competitive pressures. </li></ul>
  24. 24. IRS E File Advertisement
  25. 25. Services and Publicity <ul><li>Publicity has played a major role in the promotional strategies of nonprofit services and some professional services. </li></ul><ul><li>Many nonprofit groups have relied on Public Service Announcements (PSAs) as the foundation of their media plan because they are free. </li></ul>
  26. 26. Services in the Future <ul><li>In the future we can expect : </li></ul><ul><ul><li>- new and better services </li></ul></ul><ul><ul><li>- an unprecedented variety of suppliers </li></ul></ul><ul><li>Changes in the services industry will be </li></ul><ul><li>driven by: </li></ul><ul><li>- deregulation </li></ul><ul><li>- technological development and </li></ul><ul><li>- consumer interests </li></ul>

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