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Lesson 33 3 more ps, differentiating services Lesson 33 3 more ps, differentiating services Document Transcript

  • Marketing Management Unit 3 Developing Market Strategies & the Offerings Chapter 11 - Introduction to Service Marketing Lesson 33 - 3 More Ps, Differentiating ServicesI hope know you are quiet clear with services and its characteristics now lets move on to importantissues in service marketing to start with lets take the topic special Considerations for Service Mar-keting first.First all of you must consider how the intangible/inventory/inseparable/inconsistency component af-fects the service.Marketing strategies for service firms: - If we see traditionally four Ps marketing approachworked well for goods, but additional elements require attention in service businesses. People, physi-cal evidence and process provide three additional Ps for service marketing.Most of the services are provide by People. In this case we are referring to the selection, trainingand motivation of employees, which can make a huge difference in customer satisfaction.Ideally employees should exhibit competence, a caring attitude, responsiveness, initiative, problem-solving ability and goodwill.Companies also try to demonstrate service quality through physical evidence and presentation. Ahotel will develop a look and observable style of dealing with customers that carry out its intendedcustomer value proposition, whether it is cleanliness, speed or some other benefit.Finally service companies can choose among different processes to deliver their services. Restau-rants have developed such different formats as cafeteria-style, fast food, buffet and candle lightservice.In view of this complexity, Gronroos has argued that service marketing requires not only externalmarketing but also internal and interactive marketing. As described in the figure belowExternal marketing: describes the normal work to prepare, price, distribute and promote the ser-vice to customers.Internal marketing: describes the work to train and motivate employees to serve customers better.Interactive marketing describes the employee’s skill in serving the client. Because the client judgesservice not only by its technical quality but also by functional quality service providers must deliver“high-touch” and “high-tech” products.Interactive marketing: marketing by a service firm that recognizes that perceived service qualitydepends heavily on the quality of buyer-seller interaction.Services Marketing Triangle Applications Exercise346 © Copy Right : Rai University 16.101G
  • Marketing ManagementFocus on a service organization. In the context you are focusing on, who occupies each of the threepoints of the triangle?How is each type of marketing being carried out currently?Are the three sides of the triangle well aligned?Are there specific challenges or barriers in any of the three areas?Application exercise:Focus on a service organization. In the context you are focusing on, who occupies each of the threepoints of the triangle?How is each type of marketing being carried out currently?Are the three sides of the triangle well aligned?Are there specific challenges or barriers in any of the three areas?Lets look at the Expanded mix for services - By now everyone is clear knows that services areusually produced and consumed simultaneously, customers are often present in the firms factory,interact directly with the firm’s personnel and are actually part of the service production process.Also, because services are intangible customers will often be looking for any intangible cue to helpthem understand the nature of the service experience. These facts have led services marketers toconclude that they can use additional variables to communicate with and satisfy their customers.For example, in the hotel industry the design and décor of the hotel as well as the appearance andattitudes of its employees will influence customer perceptions and experiences.Acknowledgment of the importance of these additional communication variables has led servicesmarketers to adopt the concept of “an expanded marketing mix for services in addition to thetradi-tional four P’s, the services marketing mix includes people, physical evidence, andprocess. “ table 11. is presenting expanded marketing mix for services.Lets start with the first additional P that is 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.All of the human actors participating in the delivery of a service provide cues to the customer regard-ing the nature of the service itself. How these people are dressed, their personal appearance, andtheir attitudes and behaviors all influence the customer’s per-ceptions of the service.The service provider, or contact person can be very important. In fact, for some services, such as16.101G © Copy Right : Rai University 347
  • Marketing Managementconsulting, counseling, teaching, and other profes-sional relationship-based services, the-provider isthe service. In other cases the con-tact person may play what appears to be a relatively small part inservice delivery, for instance, a telephone installer, an airline baggage handler, or an equipment deliv-ery dispatcher. Yet research suggests that even these providers may be the focal point of serviceencounters that can prove critical for the organization.In many service situations, you can also influence service deliv-ery, thus affecting service qualityand their own satisfaction.For example, a client of a consulting company can influence the quality of service received byproviding needed and timely information and by implementing recommendations provided by theconsultant.Similarly, health care patients greatly affect the quality of service they receive when they eithercomply or don’t comply with health regimens prescribed by the provider.If you are a customers you will obviously influence your own service outcomes, but you can alsoinfluence other customers as well.In a theater, at a ballgame, or in a classroom, customers can influence the quality of service receivedby others-either enhancing or detracting from other customers’ experiences.Given the strong influence they can have on service quality and service delivery, employees, thecustomer him/herself, and other customers are included within the people element of the servicesmarketing mix.The second additional P is Physical evidenceIt is basically related with the environment in which the service is delivered and where the firm andcustomer interact, and any tangible components that facilitate performance or commu-nication of theservice.The physical evidence of service includes all of the tangible representations of the service such asbrochures, letterhead, business cards, report formats, signage, and equipment. In some cases it in-cludes the physical facility where the service is of-fered-the servicescapeFor example, the retail bank branch facility. In other cases, such as telecommunication services, thephysical facility may be irrelevant. In this case other tangibles such as billing statements and appear-348 © Copy Right : Rai University 16.101G
  • Marketing Managementance of the repair truck may be important indicators of quality.Especially when consumers have little on which to judge the actual quality of service they will rely onthese cues, just as they rely on the cues provided by the people and the service process. Physicalevidence cues pro-vide excellent opportunities for the firm to send consistent and strong messagesre-garding the organization’s purpose, the intended market segments, and the nature of the service.Final additional P is Process:It is related to actual procedures, mechanisms, and flow of activities by which the service is deliv-ered-the service delivery and operating systems.The actual delivery steps the customer experiences, or the operational flow of the service, will alsoprovide customers with evidence on which to judge the service.Some services are very complex it requires you to follow a complicated and extensive series ofactions to complete the process. Highly bureaucratized services fre-quently follow this pattern, andthe logic of the steps involved often escapes the cus-tomer.Another distinguishing characteristic of the process that can provide evidence to the customer iswhether the service follows a production-line/standardized ap-proach or whether the process is anempowered/customized one. None of these char-acteristics of the service is inherently better orworse than another. Rather, the point is that these process characteristics are another form of evi-dence used by the consumer to judge service.For example, two successful airline companies, Southwest in the United States and Singapore Air-lines have extremely different process models.Southwest is a no-frills (no food, no assigned seats), no exceptions, low-priced airline that offersfrequent, relatively short-length domestic flights. All of the evidence it pro-vides is consistent with itsvision and market position as figure Exhibit 1-2. Sin-gapore Airlines, on the other hand, focuses onthe business traveler and is concerned with meeting individual traveler needs. Thus the process ishighly customized to the individual, and employees are employees are empowered to provide non-standard service when needed. Both airlines have been very successful.SOUTHWEST AIRLINES: ALIGNING PEOPLE, PROCESSES, AND PHYSICAL EVIDENCESouthwest Airlines occupies a solid position in the minds of U.S. air travelers as a reliable andconvenient, fun, low-fare, no-frills airline. Translated, this position means high value-a position rein-forced by all elements of South-west’s services marketing mix. It has maintained this posi-tion con-sistently over 25 years while, at the same time, making money every year-no other U.S. airlinecomes close to this record. Success has come for a number of rea-sons. One is the airline’s low coststructure. They fly only one type of plane (Boeing 737s), which lowers costs be-cause of the fuelefficiency of the aircraft itself combined with the ability to standardize maintenance and operationalprocedures. The airline also keeps its costs down by not serving meals, having no preassigned seats,and keeping employee turnover very low. Southwest Airline’s presi-dent, Herb Kelleher, is famousfor his belief that employ-ees come first, not customers. The Dallas-based carrier has managed to bethe low-cost provider and a preferred em-ployer while, at the same time, enjoying high levels of cus-tomer satisfaction and strong customer loyalty. Southwest Airlines has the best customer servicerecord in the airline industry and has won the industry’s “Triple Crown” for best baggage handling,on-time performance, and best cus-tomer complaint statistics several years in a row. This is a feataccomplished by no other airline.Observing Southwest Airline’s success, it is clear that all of its marketing mix is aligned around its16.101G © Copy Right : Rai University 349
  • Marketing Managementhighly suc-cessful market position. The three new marketing mix ele-ments all strongly reinforce thevalue image of the airline:People: Southwest uses its people and its customers very effectively to communicate its position.Employees are unionized, yet they are trained to have fun, allowed to define what “fun” means, andgiven authority to do what it takes to make flights lighthearted and enjoyable. People are hired atSouthwest for their attitudes; technical skills can and are trained. And, they are the most productivework force in the U.S. airline industry. Customers also are included in the atmosphere of fun, andmany get into the act by joking with the crew and each other and by flooding the airline with lettersexpressing their satisfac-tion. Herb Kelleher, the airline’s fun-loving president, en-courages employ-ees and customers alike through his infa-mous antics.Process: The service delivery process at Southwest also reinforces its position. There are no as-signed seats on the aircraft, so passengers line up and are “herded” by number onto the plane wherethey jockey for seats. The airline does not transfer baggage to connecting flights on other airlines.Food is not served in flight. In all, the process is very efficient, standardized, and low cost, al-lowingfor quick turnarounds and low fares. Customers are very much part of the service process-taking ontheir roles willingly.Physical evidence: All of the tangibles associated with Southwest further reinforce the marketposition. Southwest’s aircraft are orange and mustard brown in color, which accentuates their unique-ness and low-cost orientation. Employees dress casually, wearing shorts in the hot summer months toreinforce the “fun” and further emphasize the airline’s commitment to its employees’ comfort. Thereusable plastic boarding passes are another form of physical evidence that signals low cost and nofrills to customers. No meal service in flight confirms the low-price image through the absence oftangibles-no food. Because many people joke about airline food, its ab-sence for many is not viewedas a value detractor.The consistent positioning using the services marketing mix reinforces the unique image in thecustomer’s mind, giving Southwest Airlines its high-value position, which has resulted in a huge andcommitted following of satisfied customers.Source: Kevin Freiberg. and Jackie Freiberg, Nurs! Southwest Air-lines’ Crazy Recipe for Busi-ness and Personal Success (Austin, TX: Bard Press, Inc., 1996): and Kenneth Labich, “Is HerbKelleher America’s Best CEO?” Fortune (May 2, 1994).The three new marketing mix elements (people, physical evidence and process) are included in themarketing mix as separate elements because they are within the control of the firm and any or all ofthem may influence the customer’s initial decision to purchase a service, as well as the customer’slevel of satisfaction and repurchase decisions.As all of us know that it is very difficult to differentiate your self from your competitor as most of theservices are copied in this part we will focus on how to manage differentiation.We have seen that most of the service marketers frequently complain about the difficulty of differen-tiating their services .The de regulation of several major service industries-communications, trans-portation, energy, banking-precipitated intense price competition.The alternative to price competition is to develop a differentiated offer, delivery. Or image.Lets see what is Offer all about:It can include innovative features. What the customer expects is called the primary service package,and to this can be added secondary service features.350 © Copy Right : Rai University 16.101G
  • Marketing ManagementIn an airline industry, various carriers have introduced such secondary service features as movies,merchandise for sale, air-to-ground telephone service, and frequent flier award programs.Marriott is setting up hotel rooms for high-tech travelers who need accommodations that will supportcomputers, fax machines, and e-mail.The major challenge is that most service innovations are easily copied. Still the company that regu-larly introduces innovations will gain a succession of temporary advantages over competitors.DELIVERYA service company can hire and train better people to deliver its services. It can develop a moreattractive physical environment in which to deliver to service (music stores, PVR cinemas etc.) or itcan design a superior delivery process (Domino’s Pizza)IMAGEService Companies can also differentiate through symbols and branding.MANAGING SERVICE QUALITYAny service firm can win by delivering consistently higher-quality service than competitors andexceeding customer’s expectations. These expectations are formed by their past experiences, wordof mouth, and advertising.After receiving the service, customers compare the perceived service with the expected service. Ifthe perceived service falls below the expected service the, customers lose interest in the provider. Ifthe perceived service meets or exceeds their expectations, they are apt to use the provider.Paasuraman, Zeithaml and Berry formulated a service quality that highlights the main requirementsfor delivering high service quality. The model, shown in the below figure identifies five gaps thatcause unsuccessful delivery.1.Gap between consumer expectations and management perception; Management-does notperceive correctly what customers want. Hospital administrators may think that patients want betterfood, but patients may be more concerned with nurse responsiveness.2.Gap between management perception and service-quality specifications: management mightcorrectly perceive the customer’s wants nut not set a specified performance standard. Hospitaladministrators may tell the nurses to give fast service but without specifying it quantitatively.3.Gap between service-quality specifications and service delivery-The personnel might bepoorly trained, or incapable or unwilling to meet the standard. Or they may be held to conflictingstandards, such as taking time to listen to the customers and serving them fast.4.Gap between service delivery and external communications; statements made by companyrepresentatives and ads affect Consumer expectations. If a hospital brochure shows a beautifulroom, but the patient arrives and finds the room to be cheap and dirty looking, external communica-tions have distorted the customer’s expectations.5. Gap between perceived service and expected service: The gap occurs when the consumermisperceives the service quality .The Physician may keep visiting the patient to show care, but thepatient may interpret this as an indication that something really is wrong.Translation of perceptions into service –quality specifications16.101G © Copy Right : Rai University 351
  • Marketing Management GAP 5 GAP 4 GAP 3 GAP 2 GAP 1352 © Copy Right : Rai University 16.101G
  • Marketing ManagementArticle :Service Offerings versus ProductsMost physical goods tend to be relatively high in search qualities; these are attributes that a customercan determine prior to purchasing a product, such as colour, style, shape, price, fit, feel, hardness andsmell. Services, by contrast, may emphasise experience qualities, which can only be discerned afterpurchase or during consumption; as with taste, wearability, ease of handling, quietness and personaltreatment. Finally, there are credence qualities-characteristics that customers find hard to evaluateeven after consumption like surgery, legal services, etc.Since services are very competitive and there is a very high level of replication of products, consum-ers do not perceive a drastic fall in quality with falling price. For highly intangible service offerings inparticular, organisation-wide factors, such as the level of functional service quality, may be emphasisedwhen adding value (Gronroos, 1984; Parasuraman et al, 1991). Zeithaml, Parasuraman and Berry(1985) also highlighted the uniqueness of service offerings in terms of their intangibility, non-standardisation, perishability and inseparability of production and consumption. In addition, contribu-tions from Bharadwaj et al (1993), and Zeithaml (1988) suggest that extrinsic cues such as image andreputation may be particularly important in adding value in cases where consumer understanding ofservice offerings is limited. This is likely to be the case, in particular, where service offerings arecomplex and, as a result, highly ‘mentally intangible’ to the average consumer. Leonard L Berry, inhis model shown above, highlights the importance of the customer’s experience, which in turn isbased on the service performance.The presented brand is the company’s controlled communication of its identity through advertisementwhile the external brand communication refers to the information customers absorb about the com-pany that essentially is uncontrolled by the company. These factors, combined with the customer’sexperience, lead to increased brand awareness and brand meaning. Brand meaning refers to thecustomer’s dominant perceptions of the brand and hence differs from awareness. Both these factorsput together lead to development of brand equity. In services marketing, unlike in product marketing,it is the customer’s experience that plays a very important role and even if his services experiencediffers from the advertising message, he will go more by his experience. Thus, the main differentiat-ing role is played by the service performance.Service branding—the emerging paradigmServices’ marketing has a very sensitive aspect where the strategy revolves around the customer.Building a strategic relationship with the customer is very essential. By identifying the drivers ofconsumer choice, a service marketer can identify the factors that can be leveraged in differentservice conditions to add value to the consumer and thus differentiate the offering. The process ofadding value is in essence differentiating one’s offerings effectively in the eyes of the consumer, andthis is where branding services becomes important.Some of the reasons that make branding a valuable proposition for services are:Strong brands in-crease customers’ trust of the invisible purchase. Strong-brand companies have high ‘mind share’with targeted customers, which contributes to market share. They enable customers to better visualiseand understand intangible products.They reduce customers’ perceived monetary, social and safetyrisks in buying services.Steps for building a service brand With appropriate senior management commitment, building arelevant and powerful brand for any consumer-focused company, including a bank, is a reasonablegoal. There are six components that go into successfully branding a service sector firm. These stepsblueprint the process of developing a concise message or promise that an institution wants to commu-nicate to its customers, and for executing a strategy that delivers on that promise. The above figure16.101G © Copy Right : Rai University 353
  • Marketing Managementillustrates the process of building brands.1) The first step in building a branded business is to understand the role of the brand in that particularbusiness, including the leverage it can provide across markets and product categories. A brand canprovide information and communicate efficiently, qualify a product or service, or establish differen-tiation. A truly powerful brand can do all three if necessary. To decide what role brands should play,it is important to take a dispassionate look at the current status of the organisation and product/service offering-how they are perceived by customers, competitors and employees. In addition, theinstitution has to understand what these distinct constituencies need to know and believe about thebrand. For instance, in General Electric’s (GE) appliance business, the retail trade is most interestedin product quality, marketing support and access to credit. Consumers are interested in productquality, but in addition seek a set of design attributes. GE’s brands thus play two roles.2) Secondly, brand builders must choose a brand architecture consistent with the chosen role and theinstitution’s products, services and market landscape. There are three types of brand architectures:the first is a single brand—one brand that covers the entire product range, for example, Sony, HomeDepot and Visa. Then come tiered brands—with a parent brand supported by sub-brands for eachproduct line. Companies such as Sears and Nabisco use a tiered brand architecture, where individualbrands benefit from the corporate brand umbrella. The third architecture is multiple brands—witheach product carrying its own brand distinct from the parent. Procter & Gamble is a company thatuses multiple brand architecture, with each of its products—Tide, Pampers, Ivory Soap—buildingand supporting its own brand identity. Which brand architecture you choose depends on businessobjectives and market conditions. The single brand architecture best applies when customers seekthe same attributes across market segments and product lines. The tiered brand architecture allowsthe institution to build on critical foundation attributes while still tailoring the marketing message tospecific segments. Multiple brands are needed when each market segment has distinct needs.3) The third step in branding a business and developing a brand strategy is to position the brand toeffectively communicate the value proposition. Critical here are clarity, consistency and relevance.Volvo (safety), Nike (limitless performance) and Wal-Mart (good deals) are examples of companiesthat have clear brand positions. The clarity is achieved through the consistent use of all marketinglevers (price, product design, image and channel selection) to drive home a single message.4) In the fourth step, a company must develop the programmes needed to deliver the brand and thebrand promise. This happens through programmes or services that convey the brand message to thetarget audience. Nike’s support of grassroots athletic events and Visa’s Olympic sponsorship illus-trate the type of programmes needed to creatively deploy brands. Nike helps amateur athletes per-form, while Visa demonstrates its global reach.5) Essential for generating brand performance is the fifth step in effective branding: creating ordesigning an organisation to lead and manage a branded business, one that includes the right skills andstructure to execute the brand strategy. Citibank, for example, has recently recruited a number ofpeople with brand-building skills, including William Campbell, formerly the marketer behind many ofPhilip Morris’ successes.6) Finally, for a brand to be effective in the marketplace, the business system must be aligned with thebrand promise. It must start at the very top with a vision and strategy that is embraced and articulatedby senior management. Imagine Virgin Air without Richard Branson or Nike without Phil Knight andthe importance of leadership in establishing and driving a brand becomes obvious.354 © Copy Right : Rai University 16.101G
  • Marketing Management Points to remember: Slide 1 ___________________________________ Services Marketing Mix: 19 ___________________________________ SM 7 Ps for Services • Traditional Marketing Mix ___________________________________ • Expanded Mix for Services: 7 Ps • Building Customer Relationships Through People, Processes, and Physical Evidence • Ways to Use the 7 Ps ___________________________________ McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________ Slide 2 ___________________________________ 20 ___________________________________ SM Traditional Marketing Mix • 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 product and services: Product Price Place ___________________________________ Promotion McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________ Slide 3 ___________________________________ Table 1-3 1- 22 ___________________________________ SM Expanded Marketing Mix for Services ___________________________________ ___________________________________ McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________16.101G © Copy Right : Rai University 355
  • Marketing Management Slide 4 ___________________________________ Table 1-3 (Continued) 1- 23 ___________________________________ SM Expanded Marketing Mix for Services PEOPLE Employees PHYSICAL EVIDENCE Facility design PROCESS Flow of activities ___________________________________ Customers Equipment Number of steps Communicating culture and values Employee research Signage Employee dress Level of customer involvement ___________________________________ Other tangibles McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________ Slide 5 ___________________________________ 24 ___________________________________ SM Ways to Use the 7 Ps Overall Strategic Assessment Specific Service Implementation • Who is the customer? ___________________________________ • How effective is a firm’s services marketing mix? • What is the service? • Is the mix well-aligned • How effectively does the with overall vision and strategy? • What are the strengths and services marketing mix for a service communicate its benefits and quality? • What ___________________________________ weaknesses in terms of the changes/improvements are 7 Ps? needed? McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________ Slide 6 ___________________________________ Figure 1-5 1- 16 ___________________________________ SM The Services Marketing Triangle Internal Company (Management) External ___________________________________ Marketing Marketing “enabling the “setting the promise” Employees Interactive Marketing promise” Customers ___________________________________ “delivering the promise” Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________356 © Copy Right : Rai University 16.101G
  • Marketing Management Slide 7 ___________________________________ Ways to Use the 17 ___________________________________ SM Services Marketing Triangle Overall Strategic Assessment • How is the service Specific Service Implementation • What is being promoted ___________________________________ organization doing and by whom? on all three sides of • How will it be delivered the triangle? • Where are the weaknesses? and by whom? • Are the supporting systems in place to ___________________________________ deliver the promised • What are the service? McGraw-Hill strengths? © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________ Slide 8 ___________________________________ ___________________________________ 3 The Gap Model of Service Quality Customer Expected Service Expected Service GAP 5 Perceived Service Perceived Service ___________________________________ Provider Service Delivery GAP 4 Communication GAP 1 Service Delivery GAP 3 Quality Specifications Quality Specifications Communication with Customers with Customers ___________________________________ GAP 2 Mgmt perception Mgmt perception ___________________________________ ___________________________________ ___________________________________16.101G © Copy Right : Rai University 357
  • Marketing Management Tutorial - ICase studyMerrill LynchMerrill Lynch was founded when Charles Merrill and Edmund Lynch opened an underwriting firm onWall Street in 1914. The company built a legacy of personalized service, and became the first majorfirm to introduce investing to the mass market. Charles Merrill coined the phrase “Bringing WallStreet to Main Street” and is credited with helping to change consumer attitudes about investing.Merrill advocated sound investment strategy and made it accessible to the American public usingadvertisements with titles like “How to Invest.” Merrill Lynch had 400,000 clients by 1956, making itthe largest brokerage in the country. In 1971, the company unveiled its now-famous bull icon with anadvertising campaign titled “Merrill Lynch Is Bullish On America.” In 1977, Merrill Lynch introducedone of its most innovative and successful products, the Cash Management Account, which combinedchecking, money market, and margin accounts.A Modern Merrill LynchAs more Americans turned to investing to protect and build their wealth, Merrill Lynch distinguisheditself from other brokerages with the financial security it could provide, the high level of service itoffered, the personal contacts it established with its retail offices, and the advanced financial re-search it performed. As Merrill aggressively expanded into institutional investing and banking in the1980s, its image as a main street brokerage became somewhat muddled. The company’s associationwith high finance and corporate Wall Street became a negative after recession and scandals shookthe economy in the 1980s and early 1990s. So Merrill streamlined its operations and developedadvertising campaigns with themes like “A Tradition of Trust” that were intended to inspire confi-dence in the everyday investor. The company continued to grow its retail brokerage businesses andother financial services during the rest of the decade.Recently, Merrill Lynch found itself under assault from an unlikely segment: discount brokers. Onlinetrading sites set up by discount brokers like Ameritrade and Charles Schwab attracted waves of newinvestors as the Internet took hold in the latter half of the 1990s. Merrill was slow to move online,primarily because its brokers were reluctant to see the company give total control of trading toinvestors via an online portal, and the company was concerned about the effect of a proprietaryInternet e-commerce site on its heritage as a full-service, customer-focused broker. At the sametime, Merrill Lynch was losing current clients and failing to attract new ones as Internet technologygained popularity among investors. In 1998, Schwab’s assets under management grew by 39 per-cent, while Merrill’s grew by only 18 percent. By March of that year, Merrill Lynch executives wereexhorting the rest of the company to embrace the Internet. The company’s vice-chairman, John L.Steffens, argued that Merrill Lynch “had to offer an online-only account or it would lose too manyassets, not to mention the next generation of investors.”Merrill Arrives OnlineMerrill Lynch decided that it would provide online trading tools that augmentedits traditional off-line services. First, the company opened a bare-bones online site, calledMerrill Lynch Online, that enabled high-value customers to access accounts and information usingthe Internet. In December 1999, the company created Merrill Lynch Direct, a full-service, online-only retail trading site. To provide content and technology, the company invested in or partnered witha number of technology companies, such as IBM, Cisco, Microsoft, Bloomberg, and Real Networks.For $29.95 a trade, Merrill Lynch Direct gave customers broker-less trading, real-time market up-dates, a spectrum of services from the vaunted off-line side of the business, such as Merrill research,access to Merrill initial public offerings, and portfolio management tools. Many customers continuedto work closely with their brokers, whom the company encourages to provide consulting-type service358 © Copy Right : Rai University 16.101G
  • Marketing Managementto clients. To better combine its off-line strengths with its emerging on-line capabilities, the MerrillLynch developed a strategy called “Merrill Anywhere” that links clients to their accounts via theInternet, the telephone, and eventually a host of wireless platforms.Merrill Lynch Direct was recognized by Financial NetNews as the best in its category in 2000. Theaward for the individual investor portal applauded Merrill for “outshin[ing] its counterparts in the fullservice space” by combining its traditional off-line service with the Internet site. The addition ofonline trading technology helped Merrill Lynch achieve revenue records in every category and regionin 2000. Its institutional clients made a record $1.9 trillion in trades using Merrill’s online technology.The company earned $3.8 billion in 2000, a 41 percent increase from record earnings of $2.7 billionin 1999. Merrill Lynch may have been slow to adopt the online trading model, but today the companyis combining the Internet with its traditional financial services to yield impressive results.What are the service marketing strategy differences between Merrill Lynch on-line, Merrill LynchDirect and Schwab? Merrill Lynch On-line is designed to support and / or augment the regular fullservice, broker-based, operations for the “Priority Client” investor demographic that Merrill Lynchseeks to replace the middle America demographic of the 1950s and 1960s. Merrill Lynch Direct is adiscount competitor to Schwab and essentially copies or responds to the Schwab concept. However,Merrill Lynch Direct is separate from the Merrill Lynch Online and corporate operations and effec-tively is a separate brand and company. This could present some image and branding problems forMerrill Lynch as they work through adjustment to the fact that they have very different demograph-ics to work with in the future.Questions for discussions1. Given the direction of investment firm marketing, do you believe that the Merrill Lynch marketing service strategy is heading in the right direction? Could the Merrill Lynch marketing strategy backfire? Discuss2. How would you compare the service marketing concepts discussed in the text with how Merrill Lynch operates? Why did it take Merrill Lynch so long to get on board with the 21st Century?Test your self (See your understanding of the concept)Multiple Choice:1. A (n) _____________________ is any act or performance that one party can offer to anotherthat is essentially intangible and does not result in the ownership of anything. offer service product contract2. Which of the following is not one of the five categories of offerings that are characteristic of theService Mix? [Hint] Basic need Pure tangible good Tangible good with accompanying service Pure service3 . Because of the varying goods-to-service mix, it is difficult to generalize about services withoutfurther distinctions. Which of the following is not one of those distinctions? Services vary by being equipment-based or people-based.16.101G © Copy Right : Rai University 359
  • Marketing Management Services require the client’s presence and some do not. Services differ by whether they meet a personal need or a business need. All of the above are characteristics of services.4. Which of the following is not one of the four major characteristics that greatly affect the design ofservice marketing programs? [Hint] Intangible Inseparable Standardization Perishable5. There are a number of ways that a service provider can “tangibilize” a service. Which of thefollowing is not one of those ways? Place Rules People Price6. Because services depend on who provides them and when and where they are provided, servicesare highly __________________________. variable intangible inseparable perishable7. There are several strategies for producing a better match between demand and supply in a servicebusiness. Which of the following would be used to help out on the supply side? Part-time employees can be hired to serve peak demand. Peak-time efficiency routines can be introduced. Shared services can be developed. All of the above would help on the supply side.8. Traditional four Ps marketing approaches work well for goods, but additional elements requireattention in service businesses. Which of the following is not one of the suggested three additional Psto consider? People Physical evidence Price Process9. Because services are generally high in experience and credence qualities, there is more risk in thepurchase. This has several consequences. Which of the following is not one of the consequences ofthe high risk? Consumers rely on word of mouth rather than advertising. Consumers rely more on the search qualities than the experience qualities. Consumers rely heavily on price, personnel, and physical cues to judge quality. Consumers are highly loyal to service providers who satisfy them.10. Besides the price competition, there are a number of ways to differentiate among services.Which of the following is not one of those ways to manage differentiation? Policies for employees360 © Copy Right : Rai University 16.101G
  • Marketing Management Offering Delivery Image11. A service company can differentiate itself by designing a better and faster delivery system.Which of the following is not one of the levels of differentiation? Reliability Resilience Innovativeness All of the above are levels for designing a better and faster delivery system.12. Customers form their service expectations based on a number of elements such as word ofmouth, advertising, and which of the following? Management surveys Employee surveys Past experiences Unknown variables13. Parasuraman, Zeithaml, and Berry formulated a service-quality model that highlights the mainrequirements for delivering high service quality. Which of the following is not one of the Gaps of theirmodel? Gap between consumer expectation and management perception Gap between management perception and employees’ perception Gap between service-quality specifications and service delivery Gap between perceived service and expected service14. Service firms are under great pressure to keep costs down and increase productivity. Which ofthe following is not one of the seven approaches to improving service productivity? Decrease the quantity of service by surrendering some quality Have service providers work more skillfully Design a more effective service Increase the quantity of service by surrendering some quality15. A service company must define customer needs carefully in designing its service support pro-gram. Customers have three specific worries about this service. Which one of the following is notone of these worries? Failure frequency Downtime duration Out of pocket costs of maintenance and repair All of the above are customer worries.Essay question:Q1. Describe the five categories of offerings and how they are distinguished with services.Q2. There are four major characteristics of a service that make services different from products.What are they?Q3. In terms of marketing strategies for service firms, what are the three additional “Ps” that needto be added to the four traditional “Ps” of marketing?16.101G © Copy Right : Rai University 361