Chapter 4


Published on

  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Chapter 4

  1. 1. 4CHAPTER developing service products: CORE and SUPPLEMENTARY ELEMENTS LEARNING OBJECTIVES By the end of this chapter, students should be able: LO 1 Define what a service product is. LO 4 Know how service firms use different branding strategies LO 2 Know how to design a service for their product lines. concept. LO 5 List the categories of new LO 3 Describe the flower of service service development, ranging and know how the facilitating from simple style changes to and enhancing supplementary major innovations. services relate to the core product. LO 6 Be familiar with the factors needed to achieve success in developing new services. OPENING VIGNETTE1 As you walk along the street, the aroma drifts through the air and attracts you. It is drawing you toward the store with the green sign that has now become a common Figure 4.1 Starbucks is a familiar sight. You enter Starbucks, the place where you can sit down and enjoy a great cup brand that even has traditional tea consumers drinking out of its cups. of coffee in a comfortable settee or on a chair. You can also surf the Internet on the free wireless broadband service that is available in many of the Starbucks outlets around the world. Starbucks is a place that you would associate with coffee, before anything else. 84 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  2. 2. As a service innovation, Starbucks has been transforming itself into a place forentertainment. It wants to extend the pop culture. It does that through Hear MusicStarbucks. Customers can buy from an extensive selection of hand-selected andcompiled physical CDs in the Starbucks Hear Music Coffeehouses. Alternatively,they can burn personalized CDs from a digital inventory of more than a millionsound tracks, including new recordings that can only be found in some Starbucksoutlets. Debut albums of some new musicians are actually launched and availableonly exclusively at Starbucks outlets. Starbucks also sells movie DVDs and books ...One of thefrom emerging as well as established authors. It has tied up with Apple’s iTunes Wi-Fi Music Store to allow music playing at selected Starbucks cafes, up to the last ten trendsetters ofsongs played, to be browsed, bought and downloaded wirelessly onto the iPhone lifestyle services,or iPod. This music will sync back to the Mac or PC the next time it is connected. Starbucks has PART IISoon, we will no longer associate Starbucks with just mocha. Rather, we will seeit as a place to relax and feel at home. Starbucks is a company that has developednew service innovations with great success. However, it cannot rest on its laurels popularized theas competition is intense. It has to continue to reinvent itself to maintain its edge in coffeehouse asthe industry. contemporary and chic... Applying the 4Ps to Services 85
  3. 3. LO 1 SERVICE PRODUCT W Define what a service product is. hat do we mean by a service “product”? A service product consists of two components, the core product and supplementary services. The core product is based on the core set of benefits and solutions delivered to customers. These are usually defined with reference to a particular industry like healthcare or transportation. For example, in healthcare, the core product may be the restoration of the body back to an optimum condition. Surrounding the core product is a variety of service-related activities called supplementary services. Supplementary services augment the core product by facilitating its use and enhancing its value and appeal. The supplementary services often play an important role in differentiating and positioning the core product against competing services. LO 2 DESIGNING A SERVICE PRODUCT Know how to design a service concept. H ow should one go about designing a service concept? Experienced marketers know that they need to look at the entire service performance in a holistic manner. The firm needs to determine specific aspects that it plans to compete on. In order to do that, the value proposition needs to combine three components: (1) core product, (2) supplementary services, and (3) delivery processes. The delivery processes are those that are used to deliver both the core product and supplementary services. The design of the service offering must address the following issues: u How the different service components are delivered to the customer. u The nature of the customer’s role in those processes. u How long delivery lasts. u The recommended level and style of service to be offered. There are four categories of services introduced in Chapter 1—people processing, possessing processing, mental stimulus processing, and information processing. Each of these has a different impact on operational procedures, the degree of customer contact with service personnel and facilities, and requirements for supplementary services. People processing services usually have more supplementary elements. This is because the customer must go to the service factory and spend time there during service delivery (Figure 4.2). Figure 4.2 Dental patients need to go to the clinic to receive treatment.86 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  4. 4. Nature of DELIVERING CONCEPT FORSUPPLEMENTARY SERVICES Scheduling CORE PRODUCT ProcessOFFERED AND HOW THEYARE CREATED ANDDELIVERED Service Customer Level PART II role Figure 4.3 Depicting the service offering for an overnight hotel stay.The integration of the core product, supplementary services, and delivery processes iscaptured in Figure 4.3. The figure shows the components of the service offering for anovernight stay at a luxury hotel. The core product is an overnight rental of a bedroom.The delivery processes surrounding this core product are:u Nature of the process—people processing in this instance.u Customer’s role—what customers are expected to do for themselves; what the hotel will do for them, such as making the bed, supplying bathroom towels, and cleaning the room.u Scheduling—how long the room may be used before another payment becomes due.u Service level—what level and style of service.Surrounding the core product is a variety of supplementary services. These rangefrom reservations to meals and in-room service elements. Delivery processes mustbe specified for each of these elements. The more expensive the hotel is, the higherthe level of service is required of each element. For example, very important guestsmight be received at the airport and transported to the hotel in a limousine. Check-in arrangements can be done on the way to the hotel. By the time the guests arriveat the hotel, they are ready to be escorted to their rooms, where a butler is onhand to serve them. Specific design in terms of customer service processes, whichis called service blueprinting, is discussed in Chapter 8, Designing and ManagingService Processes. Applying the 4Ps to Services 87
  5. 5. LO 3 THE FLOWER OF SERVICE2 Describe the flower of service and know how the facilitating and enhancing supplementary services relate to the core product. T here are two kinds of supplementary services. Facilitating supplementary services are either needed for service delivery, or help in the use of the core product. Enhancing supplementary services add extra value for the customer. These different supplementary services can be classified into one of the following eight clusters. Facilitating Services Enhancing Services o Information o Consultation o Order-taking o Hospitality o Billing o Safekeeping o Payment o Exceptions In Figure 4.4, the eight clusters are displayed as petals surrounding the center of a flower, hence we call it the Flower of Service. The petals are arranged in a clockwise sequence depending on how they are likely to be encountered by customers. However, the sequence may sometimes vary. For instance, payment may have to be made before service is delivered rather than afterwards. In a well-designed and well-managed service organization, the petals and core are fresh and well-formed. A service that is badly designed or Information poorly delivered is a like a flower with missing or dried Information petals. Even if the core is perfect, the flower looks Payment Payment Consultation Consultation unattractive. Think about one of your negative experiences as a service customer. When you were dissatisfied with a particular purchase, was it the core that was at fault, or was it a problem with one or more of the petals? Billing Billing Order Order CORE Taking Figure 4.4 The Flower of Service: Core product surrounded by cluster of supplementary services. Exceptions Exceptions Hospitality A company’s market positioning strategy helps Hospitality to decide which supplementary services should KEY: Safekeeping Safekeeping be included (see Chapter 3). If a company’s strategy Facilitating elements Facilitating elements is to add benefits to increase customers’ perceptions of Enhancing elements Enhancing elements quality, then more supplementary services are required. For example, airlines such as Emirates, the award-winning Dubai- based airline, may offer supplementary service like goodie bags to soothe hyperactive children. There is also in-flight entertainment such as cartoons and games that can keep the children occupied for hours. This will help to reduce the stress faced by parents traveling with young children. If the strategy is to compete on low prices, then fewer supplementary services are required.88 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  6. 6. FACILITATING SUPPLEMENTARY SERVICESInformationTo obtain full value from any good or service, customers need relevant information(Figure 4.5). New customers and prospects are especially hungry for information.Information may sometimes be required by law. These include conditions of sale anduse, warnings, reminders, and notification of changes. Customers also appreciateadvice on how to get the most value from a service and how to avoid problems.Companies should make sure that the information they provide is both timelyand accurate. If not, it is likely to make customers feel irritated or cause them PART IIinconvenience. • Direction to service site • Schedules/service hours • Prices • Reminders • Warnings CORE • Conditions of sale/service • Notification of changes • Documentation • Comfirmation of reservations • Summaries of account activities • Receipts and tickets Figure 4.5 Examples of information.Traditional ways of providing information to customersinclude using front-line employees, printed notices,brochures, and instruction books. Information can also beprovided through videos or software-driven tutorials, touch-screen video displays, or through company web sites. Thetypes of information range from train and airline schedules,to assistance in locating specific retail outlets, to informationon the services of professional firms. Many business logisticscompanies offer shippers the opportunity to track themovements of their packages, which have been assigned aunique identification number (Figure 4.6). For example, provides online customers with a referencenumber and they can track the goods that they havebought, and know when to expect the goods. Figure 4.6 Shipments can be tracked around the world with their identity code. Applying the 4Ps to Services 89
  7. 7. Order-Taking Once customers are ready to buy, the company accepts applications, orders, and reservations (Figure 4.7). The process of order-taking should be polite, fast, and accurate so that customers do not waste time and endure unnecessary mental or physical effort. Technology can be used to make order-taking easier and faster for both customers and suppliers. Applications • Memberships in clubs/programs • Subscription services (e.g., utilities) • Prerequisite based services (e.g., financial credit, college enrolment) Order Entry CORE • On-site order fulfillment • Mail/telephone/e-mail/web order Reservations and Check-in • Seats/tables/rooms • Vehicles or equipment rental Figure 4.7 Examples of • Professional appointments order-taking elements. Order-taking includes applications, order entry, and reservations or check-ins. Banks, insurance companies, utilities, and universities usually require potential customers to go through an application process. Order entry can be received through a variety of sources such as through sales personnel, phone, and e-mail or online (Figure 4.8). Airlines now make use of ticketless systems, based on telephone or web site reservations. Customers receive a confirmation number when they make reservations and need to only show identification at the airport to claim their seats and receive a boarding pass. Northwest Airlines promotes order-taking online. Billing Billing is common to almost all services (unless the service is provided free of charge). Customers usually expect bills to be clear. Inaccurate, illegible, or incomplete bills risk Figure 4.8 OpenTable takes dining disappointing customers who may, up to that point, have reservations to a whole new level by allowing diners to bypass the been quite satisfied with their experience. If customers are already dissatisfied, traditional call-and-hope reservation the billing mistake may make them even angrier. Billing should also be timely, experience with a mere click. because it encourages people to make payment faster. Procedures range from verbal statements to a machine-displayed price, and from handwritten invoices to elaborate monthly statements of account activity and fees (Figure 4.9). Perhaps the simplest approach is self-billing. This is when the customer adds up90 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  8. 8. the amount of an order and authorizes a card payment or writes a check. In suchinstances, billing and payment are combined into a single act, although the sellermay still need to check for accuracy. • Periodic statements of account activity • Invoices for individual transactions CORE • Verbal statements of amount due • Self-billing (computed by customer) • Machine display of amount due PART II Figure 4.9 Examples of billing elements.Busy customers dislike being kept waiting for a bill to be prepared. There aredifferent ways in which bills can be presented to customers in a faster way. Hotelsand rental car firms now have express check-outs. Many hotels may push bills underguestroom doors on the morning of departure showing charges to date. Othersoffer customers the choice of seeing their bills beforehand on the TV monitorsin their rooms. Some car rental companies have an express check-out procedure.An agent meets customers as they return their cars. After they have checked themileage and fuel gauge readings, the bill is printed on the spot using a portablewireless terminal.PaymentIn most cases, a bill requires the customer to take action on payment. One exceptionis the bank statement which shows details of charges that have already been deductedfrom the customer’s account. Increasingly, customers expect it to be easy andconvenient to make payment, including using credit, when they make purchases intheir own countries, and while traveling abroad.A variety of options exist for customers to make payment (Figure 4.10). For self-service payment systems, one may make payment by inserting coins, banknotes,tokens or cards into machines. Good maintenance of the equipment is important. Self-Service • Insert card, cash or token into machine • Electronic funds transfer • Mail a check • Enter credit card number online Direct to Payee or Intermediary • Cash handling or change giving CORE • Check handling • Credit/charge/debit card handling • Coupon redemption Automatic Deduction from Financial Deposits • Automated systems (e.g., machine-readable Figure 4.10 Examples tickets that operate entry gate) of payment elements. • Human systems (e.g., toll collectors) Applying the 4Ps to Services 91
  9. 9. If the equipment breaks down, it can destroy the purpose of such a system. Most payment still takes the form of cash or credit cards. However, more and more shopping is being done online. PayPal offers a fuss-free and secure way to make payments for goods bought over the Internet. Online shoppers must first register with PayPal and have a credit card to use the service. Customers can make their payments via PayPal who will process the payment to the seller. PayPal will then charge the amount owed to the registered buyer’s account. ENHANCING SUPPLEMENTARY SERVICES Consultation Now we move to enhancing supplementary services, led by consultation. Consultation involves a dialog to probe customer requirements and then develop a solution that is suited to the needs of the customer. Figure 4.11 provides examples of several supplementary services in the consultation category. • Customized advice • Personal counseling CORE • Tutoring/training in product use • Management or technical consulting Figure 4.11 Examples of consultation elements. At its simplest level, consultation consists of immediate advice from a knowledgeable Figure 4.12 An auditor provides service person in response to the request, “What do you suggest?” (For example, a human touch during the you might ask the person who cuts your hair for advice on different hairstyles and process of consultation. products). Finally, management and technical consulting for corporate customers include the “solution selling” associated with expensive industrial equipment and services. Effective consultation requires an understanding of each customer’s current situation, before suggesting a suitable course of action. Good customer records can be a great help in this respect, particularly if relevant data can be retrieved easily from a remote terminal. In an Internet environment, which encourages customers to engage in self-service applications and be more self-reliant, companies should not forget the personal touch of a “live” human being during the process of consultation (Figure 4.12). The human touch of a friendly customer-service officer will certainly be valued and remembered, and will go a long way for customers.92 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  10. 10. Counseling is another type of consultation that is less direct than consultation. Itinvolves helping customers understand their situations better, so that they can comeup with their “own” solutions and action programs. For example, diet centers such asWeight Watchers use counseling to help customers change behaviors so that weightloss can be sustained after the diet program has ended. Finally, advice, another formof consultation, can also be offered through tutorials, group training programs, andpublic demonstrations.HospitalityHospitality-related services should, ideally, reflect pleasure at meeting new customers PART IIand greeting old ones when they return. Well-managed businesses try, at least insmall ways, to ensure that their employees treat customers as guests. Courtesyand consideration for customers’ needs apply to both face-to-face encounters andtelephone interactions (Figure 4.13). Hospitality is an element that can be moreclearly displayed in face-to-face encounters. In some cases, it starts (and ends) with anoffer of transport to and from the service site on courtesy shuttle buses. If customersmust wait outdoors before the service can be delivered, then a thoughtful serviceprovider will offer weather protection. If customers have to wait indoors, thenthere can be a waiting area with seating and even entertainment (TV, newspapersor magazines) to pass the time. Recruiting employees who are naturally warm,welcoming, and considerate helps to create a hospitable atmosphere. Shoppers atGiordano, an international clothing retailer with markets in the Asia Pacific and theMiddle East, are given a cheerful “Hello” and “Thank you” when they enter and leavethe store, even if they did not buy anything.The quality of the hospitality services offered by a firm can increase or decreasesatisfaction with the core product. This is especially true for people-processing serviceswhere customers cannot easily leave the service facility. Private hospitals often seek toenhance their appeals by providing the level of room service that might be expectedin a good hotel. This includes the provision of quality meals. Some airlines seek todifferentiate themselves from their competitors with better meals and more attentivecabin crew and Singapore Airlines is well-recognized in both areas.3 Greeting Food and beverages Toilets and washrooms Waiting facilities and amenities CORE • Lounges, waiting areas, seating • Weather protection • Magazines, entertainment, newspapers Transport Security Figure 4.13 Examples of hospitality elements. Applying the 4Ps to Services 93
  11. 11. SERVICE INSIGHTS 4.1 Cosmetic Surgeons’ Offices Turn Off Patients It appears that plastic surgeons could use some bowls of candy in the waiting room, and live flower service marketing training along with their other arrangements in the lobby. Patients also want courses in medical school. Two experts, Kate Altork windows in the examining rooms and gowns that and Douglas Dedo, who did a study of patients’ wrap around the entire body. They would like to sit reactions to doctors’ offices found that many patients on a real chair when they talk to a doctor instead will cancel a surgery, change doctors, or refuse to of sitting on a stool or examining table. Finally, consider future elective surgery if they feel uneasy in patients who have not yet gone for surgery prefer the doctor’s office. The study results suggested that to be separated from patients who have had surgery patients do not usually “doctor-jump” because they because they feel uneasy sitting next to someone do not like the doctor, but because they do not like in the waiting room whose head is enclosed in the environment in which the service occurred. The bandages. list of common patient dislikes includes: graphic posters of moles and skin cancers decorating office These study results suggest that cosmetic surgery walls; uncomfortable plastic identification bracelets patients would rather visit an office that looks for patients; examining rooms with no windows or more like a health spa than a hospital ward. By current reading material; bathrooms that are not thinking like service marketers, savvy surgeons clearly marked; and not enough wastebaskets and could use this information to create patient-friendly water coolers in the waiting room. environments that will go well with, rather than go against, their technical expertise. What do patients want? Most requests are surprisingly simple and involve simple comforts such as tissues, water coolers, telephones, plants, Source Bannon, L. (1997). Plastic surgeons are told to pay more attention to appearances. Wall Street Journal, March 15, p. B1.94 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  12. 12. Failures in hospitality can extend to the physical design of the areas where customerswait prior to receiving service. A survey found that unappealing offices and lack ofcomfort can drive away patients of cosmetic surgeons (Service Insights 4.1).SafekeepingWhile visiting a service site, customers often want their personal possessions to be“looked after.” In fact, some customers may choose not to go to certain places that donot have safekeeping services like a safe and convenient car park. On-site safekeepingservices includes coatrooms; baggage transport, handling and storage; safekeeping ofvaluables; and even child care and pet care (Figure 4.14). PART II Caring for Possessions Customer Bring with Them • Child care, pet care • Parking for vehicles, valet parking • Coat rooms • Baggage handling • Storage space • Safe deposit boxes • Security personnel Caring for Goods Purchased (or Rented) CORE by Customers • Packaging • Pickup • Tranportation and delivery • Installation • Inspection and diagnosis • Cleaning • Refueling • Preventive maintenance Figure 4.14 Examples of • Repair and renovation safekeeping elements.ExceptionsExceptions involve supplementary services that fall outside the normal servicedelivery. Exceptions include special requests, and problem solving (Figure 4.15). Special Requests in Advance of Service Delivery • Children’s needs • Dietary requirements • Medical or disability need • Religious observances Handling Special Communications • Complaints • Compliments • Suggestions CORE Problem Solving • Warranties and guarantees • Resolving difficulties that arise from using the product • Resolving difficulties caused by accidents, service failures • Assisting customers who have suffered an accident or a medical emergency Restitution • Refunds and compensation Figure 4.15 Examples of • Free repair of defective goods exception elements. Applying the 4Ps to Services 95
  13. 13. Companies should anticipate exceptions and develop back-up plans and guidelines in advance. That way, employees will not appear helpless and surprised when customers ask for special assistance. Well-defined procedures make it easier for employees to respond promptly and effectively (Figure 4.16). Managers need to keep an eye on the level of exception requests. Too many requests may indicate that standard procedures need to be changed. For example, if a dentist keeps receiving requests for more information about a particular dental procedure, then this may indicate that it is time to perhaps print some brochures that educate customers. A flexible approach to exceptions is generally a good idea, because it reflects responsiveness to customer needs. On the other hand, too many exceptions may have a negative impact on other customers, and overburden employees. Figure 4.16 McDonald’s well- established procedures lets Managerial Implications employees respond smartly to The eight categories of supplementary services forming the Flower of Service customers’ requests. collectively provide many choices for enhancing core products. As noted earlier, some are facilitating services that enable customers to use the core product more effectively. Others are “extras” that enhance the core or even reduce its non-financial costs. Any badly handled element may negatively affect customers’ perceptions of service quality. Not every core product is surrounded by a large number of supplementary services from all eight petals. People-processing services tend to have more supplementary elements, especially hospitality, since they involve close (and often extended) interactions with customers. When customers do not visit the service factory, the need for hospitality may be limited to just letters and telecommunications. Possession-processing services sometimes place heavy burdens on safekeeping elements. However, there may be no need for this particular petal when providing information-processing services, whereby customers and suppliers interact at arm’s length. Financial services that are provided electronically are an exception to this however. Companies must ensure that Figure 4.17 Security their customers’ intangible financial assets and their privacy are carefully safeguarded features ensure that online in transactions that take place through the telephone or the web. (Figure 4.17). transactions are safe. A study of Japanese, American, and European firms serving business- to-business markets found that most companies simply added layer upon layer of services to their core offerings without knowing what customers really valued.4 Managers surveyed in the study indicated that they did not understand which services should be offered to customers as a standard package accompanying the core, and which could be offered as options for an extra charge. There are no simple rules governing decisions for core products and supplementary services. However, managers should continually review their own policies and those of competitors to make sure they are in line with what the market practices, and customer needs.96 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  14. 14. BRANDING SERVICE PRODUCTS LO 4AND EXPERIENCES Know how service firms use different branding strategies forI n recent years, more and more service firms have started talking about their products. What is the difference between a service and a product? A productis a defined and consistent “bundle of output.” One bundle of output can be their product lines.differentiated from another bundle of output. Service providers can usually offera “menu” of products, representing an assembly of carefully prescribed elementsbuilt around the core product. They may also bundle in certain value-addedsupplementary services. Let us look at some examples from hotels, a computersupport service, and an international airline. PART IIProduct Lines and BrandsMost service firms offer a line of products rather than just a single product. As aresult, they must choose among three broad alternatives: using a single brand to coverall products and services, a separate stand-alone brand for each offering, or somecombination of these two extremes.5 These alternatives are represented as a spectrumin Figure 4.18. The term branded house is used to describe a company like the VirginGroup, which applies its brand name to multiple offerings in often unrelated fields.6Next on this spectrum are what they term sub-brands. A sub-brand is one wherethe master brand is the main reference point, but the product itself has a distinctivename too. Singapore Airlines Raffles Class, the company’s business class service, is anexample. The next category of brands are endorsed brands, where the product brandis the main focus, but the corporate name is still featured (many hotel corporations CORPORATE INDIVIDUAL PRODUCT BRANDING BRANDING “Branded House” “House of Brands” e.g., Virgin Group e.g., Yum! Brands Subbrands Endorsed Brands e.g., Raffles Class at e.g., Starwood Singapore Airlines Hotels & Resorts Figure 4.18 The spectrum of branding alternatives. Applying the 4Ps to Services 97
  15. 15. use this approach). At the far end of the spectrum is the house of brands strategy. Yum! Brands Inc. adopts the house of brands strategy, with more than 35,000 restaurants in 110 countries. While we may not have heard of Yum! Brands, many certainly are familiar with their restaurant brands—A & W, KFC, Pizza Hut, Taco Bell, and Long John’s Silver. Each of these brands is actively promoted under their own brand name (Figure 4.19). Hotel Branding There are many hotel chains that have a global presence. Many of these chains offer a family of sub-brands/endorsed brands. For instance, Hilton Hotels Corporation has ten sub-brands, and the Accor Group has ten sub-brands. Marriott International has 15 brands including the wholly owned Ritz-Carlton chain. However, to protect its exclusive image, Ritz-Carlton is not normally identified for marketing purposes as part of the Marriott Group. For a multibrand strategy to succeed, each brand must promise a different set of benefits targeted at a different customer segment. In some instances, segmentation is situation-based. The same individual may have different needs and willingness to pay under differing circumstances, like when traveling with family or traveling on business. A strategy of brand extension is aimed at encouraging customers to continue staying within the brand family and this may be encouraged through loyalty programs. A study of the brand-switching behavior of some 5,400 hotel customers found that brand extensions do seem to encourage customers to stay within the brand. However, brand extensions may be less effective in discouraging switching Figure 4.19 KFC and Pizza when the number of brands reaches four or more.7 Hut are just some of the few popular fast food brands fronting Yum! Brands. Sun Microsystems Hardware and Software Support Sun Microsystems is an example of branding a high-tech, business-to-business product line. The company offers a full range of hardware and software support in a program branded as “SunSpectrum Support.”8 Four different levels of support are available, sub-branded from platinum to bronze. The objective is to allow the buyers to choose a level of support that meets the needs of their own organizations as well as the willingness to pay. These are categorized as below: u Platinum: Mission-critical support with on-site service 24/7 and a two-hour response time. u Gold: Business critical support with on-site service from Monday to Friday, 8am to 8pm, telephone service 24/7 and a four-hour response time. u Silver: Basic support with on-site service from Monday to Friday, 8am to 5pm, telephone service from Monday to Friday, 8am to 8pm, and a four-hour response time. u Bronze: Self-support with phone service 8am to 5pm.98 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  16. 16. British Airways Sub-brandsBritish Airways (BA) is a good example of strong sub-branding in the airline industry.BA offers seven distinct air travel products. They are:u First—deluxe service,u Club World—intercontinental business class,u World Traveller Plus—intercontinental premium economy class,u World Traveller—intercontinental economy class,u Club Europe—intra-European business class, PART IIu Euro-Traveller—intra-European economy class, andu UK Domestic—economy-class service between London and major British cities.Each BA sub-brand represents a specific service concept and a set of clearly statedproduct specifications for pre-flight, in-flight, and on-arrival service elements.Offering a Branded ExperienceBranding can be used at both the company and product level by almost any servicebusiness. In a well-managed firm, the corporate brand is not only easily recognized,but it also has meaning for customers. The brand stands for a particular way ofdoing business. Applying distinctive brand names to individual products helpsmarketers to establish a mental picture of the service in customers’ minds and toclarify the nature of the value proposition.The Forum Corporation, a consulting firm, differentiates between (1) experiencewith high variation from customer to customer, (2) a branded experience that issimilar across different firms, differentiated only by the brand name (ATMs are agood example), and (3) a “Branded Customer Experience” in which the customer’sexperience is shaped in a specific and meaningful ways.9 (See Service Insights 4.2for Forum’s recommendations on how to achieve this.)Don Shultz emphasizes that “The brand promise or value proposition is not a tagline, an icon, or a color or a graphic element, although all of these may contribute.It is, instead, the heart and soul of the brand….”10 An important role for servicemarketers is to become brand champions, familiar with and responsible for shapingevery aspect of the customer’s experience. We can relate the notion of a brandedservice experience to the Flower of Service metaphor by emphasizing the need forconsistency in the color and texture of each petal. Unfortunately, many serviceexperiences remain much disorganized and create the impression of a flower stitchedtogether with petals drawn from many different plants!We will return to a discussion of branding in the context of marketing communicationsstrategy in Chapter 7. Applying the 4Ps to Services 99
  17. 17. SERVICE INSIGHTS 4.2 Moving Toward The Branded Customer Experience Forum Corporation identifies six basic steps to develop and deliver the Branded Customer Experience: 4 Apply that understanding to provide a truly different customer experience. 1 Target profitable customers, employing behavior rather than demographic segmentation as behavior is a more accurate 5 Give employees the skills, tools, and supporting processes needed to deliver the customer experience that has been defined. indicator of tastes and preferences. 2 Achieve a superior understanding about your targeted customers’ value. 6 Make everyone a brand manager who is behind the brand and supports the brand. 3 Create a brand promise—an expression of what target customers can expect from their 7 Make promises that your processes can exceed. experience with your organization—which is of value to customers, addresses a need, can be implemented, can be incorporated into standards, and provides focus for the 8 Measure and monitor. Consistency of delivery is paramount. organization and its employees. Source “Forum Issues #17” Boston: The Forum Corporation, 1997; Wheeler, J., & Smith, S. (2003). “Loyalty by Design” Forum Corporation, 2003. Available:, accessed March 2008. NEW SERVICE DEVELOPMENT I ntense competition and rising customer expectations are having an impact on nearly all service industries. Thus, success lies not only in providing existing services well. Companies also need to create new approaches to services. LO 5 A Hierarchy of New Service List the categories of new service development, ranging Development Categories from simple style changes to Following are seven categories of new services that we can identify, ranging from major innovations. simple style changes to major innovations. They are in increasing complexity: u Style changes u Service improvements u Supplementary service innovations u Process line extensions100 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  18. 18. u Product line extensionsu Major process innovationsu Major service innovations1. Style changes are the simplest type of innovation, usually involving no changes in either processes or performance. However they are often highly visible, create excitement, and may serve to motivate employees. Examples include repainting retail branches and vehicles in new color schemes, designing new uniforms for service employees, introducing a new bank check design, or minor changes in PART II service scripts for employees.2. Service improvements are the most common type of innovation. They involve small changes in the performance of current products, including improvements to either the core product or to existing supplementary services. For example, students need to be physically present to attend lectures. Now, colleges have moved to taping lectures and these can now be viewed online, when the students are free. Hence, students now have a choice as to whether to attend lectures or not.3. Supplementary service innovations take the form of adding new facilitating or enhancing service elements to an existing core service, or of significantly improving an existing supplementary service. Low-tech innovations for an existing service can be as simple as adding parking at a retail site, or agreeing to accept credit cards for payment. To enhance the existing core service, The Snap Printing group that operates in Australia, New Zealand, Ireland, and China, now provides a complete web-based service that allows customers to get advice, as well as customized printing requirements direct and online. Multiple improvements may have the effect of creating what customers perceive as an altogether new experience, even though it is built around the same core. Theme restaurants like the Rainforest Café enhance the core food service with new experiences (Figure 4.20). The Figure 4.20 Rainforest Café makes a cafés are designed to keep customers entertained with aquariums, live parrots, supplementary service innovation by waterfalls, fiberglass monkeys, talking trees that spout environment-related enhancing the core food service with information, and regularly timed thunderstorms, complete with lightning.11 the experience of being in a jungle. Applying the 4Ps to Services 101
  19. 19. 4. Process line extensions are less innovative than process innovations. However, they often represent new ways of delivering existing products. The intention is either to offer more convenience and a different experience for existing customers, or to attract new customers who find the traditional approach unappealing. Most commonly, they involve adding a lower contact distribution channel to an existing high-contact channel, such as creating telephone-based or Internet-based banking service. Barnes and Noble, the leading bookstore chain in the United States, added a new Internet subsidiary, to help it compete against (Figure 4.21). Such dual-track approaches are sometimes referred to as “Clicks and Mortar.” Creating self-service options to complement delivery by service employees is another form of process line extension. Figure 4.21 Barnes and Noble extends their process line by offering an Internet-distribution channel, entering the age of the “Clicks and Mortar.”102 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  20. 20. 5. Product line extensions are additions to current product lines by existing firms. The first company in a market to offer such a product may be seen as an innovator. The others are merely followers, often acting to defend themselves. These new services may be targeted at existing customers to serve a broader variety of needs, or designed to attract new customers with different needs (or both). For example, many banks now sell insurance products in the hope of increasing the number of profitable relationships with existing customers.6. Major process innovations consist of using new processes to deliver existing core products in new ways with additional benefits. For example, the University of Phoenix competes with other universities by delivering undergraduate and graduate degree programs in a non-traditional way. It has no permanent campus, PART II but offers courses either online or at night in rented facilities. Its students get most of the benefits of a college degree in half the time and at a much lower price than other universities.12 In recent years, the growth of the Internet has led to the creation of many service process innovations that exclude the use of traditional stores and save customers time and travel. Often, these models add new, timely, information-based benefits such as the opportunity to visit chat-rooms with fellow customers, and suggestions for additional products that match well with what has already been bought.7. Major service innovations are new core products for markets that have not been previously defined. They usually include both new service characteristics and radical new processes. Examples include relatively recent web-based television services, and YouTube’s video sharing web services (Figure 4.22). Figure 4.22 YouTube allows users to easily embed any hosted videos on web pages or blogs, an innovation which found favor among social- networking websites.As the above typology suggests, service innovation can occur at many different levels.However, not every type of service innovation has an impact on the features of theservice product, and not all are experienced by the customers. Applying the 4Ps to Services 103
  21. 21. LO 6 Achieving Success in Developing Be familiar with the factors needed to achieve success in New Services developing new services. For a new product to be successful, the sound core product is necessary but not sufficient. It is the quality of the total service offering, and also the marketing support that goes with it that is important for success. Chris Storey and Christopher Easingwood emphasize that success is based on market knowledge: “Without an understanding of the marketplace, knowledge about customers, and knowledge about competitors, it is very unlikely that a new product will be a success.”13 A study by Scott Edgett and Steven Parkinson focused on discriminating between successful and unsuccessful new financial services.14 They found that the three factors contributing most to success were, in order of importance: 1. Market synergy—the new product fit well with the existing image of the firm, was better than competitors at meeting customers’ known needs, and received strong support during and after the launch from the firm and its branches. In addition, the firm had a good understanding of its customers’ purchase decision behavior. 2. Organizational factors—there was strong interfunctional cooperation and coordination. Development personnel were fully aware of why they were involved and of the importance of new products of the company. 3. Market research factors—detailed and properly designed market research studies were conducted early in the development process. There was a clear idea of the type of information to be obtained. A good definition of the product concept was developed before undertaking field surveys. Another survey of financial service firms to determine what distinguished successful from unsuccessful products yielded similar findings.15 In this instance, the key factors for success were synergy (the fit between the product and the firm in terms of needed Figure 4.23 When sound human resource strategy is wedded expertise and resources being present) and internal marketing (the support given to to vibrant marketing synergy, a staff before its launch to help them understand the new product and its underlying successful product is born. systems, plus details about direct competitors, and support). Yet another study found similar factors, that marketing synergy and human resource issues like meeting customer needs, and having a human resource strategy that links to the development of service processes are keys to success (Figure 4.23).16104 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  22. 22. CHAPTER SUMMARYLO 1 u A service product consists of two components, the LO 5 u When competition is intense, firms can create core product and supplementary services. The core new approaches to services in order to maintain a product is based on the core set of benefits and competitive edge. There is a hierarchy of new service solutions delivered to customers. Supplementary development that has seven categories ranging from services are those elements that facilitate and simple changes to major innovations. They are: enhance the use of the core product. o Style changes u Designing a service concept is a complicated task that requires an understanding of how the core o Service improvements and supplementary services should be combined, o Supplementary service innovations sequenced, delivered, and scheduled to create benefits that meet the needs of the target market o Process line extensions segments. o Product line extensionsLO 2 u Different types of core products often share similar supplementary elements. The Flower of Service o Major process innovations, and concept categorizes supplementary services into eight groups (each represented as a petal surrounding o Major service innovations. the core). The eight groups can be categorized as u Major service innovations are relatively rare. More (1) facilitating and (2) enhancing supplementary common is the use of new technologies, such services. as the Internet, to deliver existing services inLO 3 u Facilitating supplementary services are needed new ways. In mature industries, where the core for service delivery or help in the use of the core service can become a commodity, the search for product. They are: competitive advantage often depends on creating new supplementary services or greatly improving o Information performance on existing ones. o Order-taking LO 6 u The chances of success for a new service concept increase when it: o Billing, and o Fits well with the firm’s expertise, o Payment. resources and existing image, u Enhancing supplementary services add extra value o Provides a superior advantage over for the customer and include: competing services in terms of meeting customers’ needs, and is o Consultation o Well-supported by coordinated efforts o Hospitality between the different functional areas o Safekeeping in a firm. o Dealing with exceptions. u The use of a flower helps us to understand that all the supplementary elements must be performed well. A weakness in one element will spoil the overall impression.LO 4 u Many firms offer several service products with different performance attributes and brand each package with a distinctive name. They can use a variety of branding strategies such as branded house, sub-brands, endorsed brands, and house of brands. However, each of these different brands in the family should offer a meaningful benefit or this strategy is likely to be ineffective against competition. Applying the 4Ps to Services 105
  23. 23. UNLOCK YOUR LEARNING These keywords are found within the sections of each Learning Objective (LO). They are integral in understanding the services marketing concepts taught in each section. Having a firm grasp of these keywords and how they are used is essential in helping you do well for your course, and in the real and very competitive marketing scene out there. LO 1 1. Core product 12. Flower of Service 24. Branded customer experience 2. Service product 13. Hospitality LO 5 25. Categories of new services 3. Supplementary services 14. Information 26. Major process innovations LO 2 4. Delivery processes 15. Order-taking 27. Major service innovations 5. People processing 16. Payment 28. Process line extensions 6. Service concept 17. Safekeeping 29. Product line extensions LO 3 7. Biling LO 4 18. Branded house 30. Style changes 8. Consultation 19. Sub-brands 31. Service improvements 9. Enhancing supplementary 20. Endorsed brands 32. Supplementary service innovations services 21. House of brands LO 6 33. Internal marketing 10. Exceptions 22. Multi-brand strategy 34. Market synergy 11. Facilitating supplementary services 23. Branding How well do you know the language of services marketing? Quiz yourself! Not for the academically faint-of-heart For each keyword you are able to recall without referring to earlier pages, give yourself a point (and a pat on the back). Tally your score at the end and see if you earned the right to be called—a services marketeer. SCORE 0–5 Services Marketing is done a great disservice. 6 – 11 The midnight oil needs to be lit, pronto. 12 – 18 I know what you didn’t do all semester. 19 – 24 A close shave with success. 25 – 29 Now, go forth and market. 30 – 34 There should be a marketing concept named after you.106 Chapter 4 • Developing Service Products: Core and Supplementary Elements
  24. 24. KNOW YOUR ESM Review Questions 1. Define what is meant by core product 4. How is branding used in services marketing? and supplementary services. Can they What is the distinction between a corporate be applied to goods as well as services? brand like Marriott and the names of its Explain your answer. different inns and hotel chains? 2. Explain the flower of service concept. 5. What are the approaches that firms can take What insights does this concept provide for to create new services? service marketers? 6. Why do new services often fail? What 3. Explain the distinction between enhancing factors are associated with successful PART II and facilitating supplementary services. development of new services? Give several examples of each, relative to services that you have used recently.WORK YOUR ESM Application Exercises 1. Select a service that you are familiar with and define their characteristics. How meaningful identify the core product and supplementary are these brands likely to be to customers? services. Identify a competitor’s service and 3. Using a firm that you are familiar with, show how the competitor’s core product analyze what opportunities it might have, and supplementary services differ from the to create line extensions for its current and/ one you had originally identified. or new markets. What impact might these 2. Select some branding examples from extensions have on its present services? financial services such as specific types of retail bank accounts or insurance policies and Applying the 4Ps to Services 107
  25. 25. ENDNOTES 1 Horovitz, B. (2006). Starbucks aims beyond 9 Wheeler J., & Smith, S. (2003). Managing the lattes to extend brand. USA Today, 18 May 2006. Customer Experience. Upper Saddle River, NJ: and Prentice Hall. Accessed March 2008. 10 Shultz, D. E. (2001). Getting to the heart 2 Lovelock, C. H. (1992). Cultivating the Flower of the brand. Marketing Management, of Service: New ways of looking at core (Sep.– Oct.), pp. 8–9. and supplementary services. In P. Eiglier, & 11 Rubel, C. New menu for restaurants: Talking E.�Langeard (Eds.), Marketing, Operations, trees and blackjack. Marketing News, (July), and Human Resources: Insights into Services, p.1. Available:, (pp. 296–316). Aix-en-Provence, France: IAE, Accessed March 2008. Université d’Aix-Marseille III. 12 Traub, S. T.,& Drive-Thru U. (1997). The New 3 Heracleous, L., Wirtz, J., & Pangarkar, N. Yorker, (October);. Macht, J. (1998). Virtual You. (2006). Flying High: Cost Effective Service Inc. Magazine, (January), pp. 84–87. Available: Excellence – Lessons from Singapore Airlines. Singapore: McGraw Hill. us.aspx, Accessed March 2008. 4 Anderson J. C., & Narus, J. A. (1995). Capturing 13 Storey C. D., & Easingwood, C. J. (1998). The the value of supplementary services. Harvard augmented service offering: A conceptualization Business Review, 73(January–February), and study of its impact on new service success. pp. 75–83. Journal of Product Innovation Management, 15, pp. 335–351. 5 Devlin, J. (2003). Brand architecture in services: The example of retail financial services. Journal 14 Edgett S., & Parkinson, S. (1994). The of Marketing Management, 19, pp. 1043–1065. development of new financial services: Identifying determinants of success and 6 Aaker D., & Joachimsthaler, E. (2000). The brand failure. International Journal of Service Industry relationship spectrum: The key to the brand Management, 5(4), pp. 24–38. challenge, California Management Review, 42(4), pp. 8–23. 15 Storey C., & Easingwood, C. (1993). The impact of the new product development project on the 7 Jiang, W., Dev, C. S., & Rao, V. R. (2002). success of financial services. Service Industries Brand extension and customer loyalty: Journal, 13(3), pp. 40–54. Evidence from the lodging industry. Cornell Hotel and Restaurant Administration Quarterly, 16 Ottenbacher, M., Gnoth, J., Jones, P. (2006). (August), pp. 5–16. Identifying determinants of success in development of new high-contact services. 8, International Journal of Service Industry Accessed 2 February 2008. Management, 17(4), pp. 344–363108 Chapter 4 • Developing Service Products: Core and Supplementary Elements