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Module 7

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  • 1. Module 7 Managing Service Promises 1
  • 2. The Communication Gap Expected CUSTOMER Service Customer Gap Perceived Service External Communications to Customers Service Delivery COMPANY GAP 4 GAP 3 Customer-Driven Service Designs and Standards GAP 2 GAP 1 Company Perceptions of Consumer Expectations 2
  • 3. Module 7(a) Integrated Service Marketing Communication 3
  • 4. Key Factors Related To Communication Service Delivery Gap 4 Inadequate management of service promises Overpromising in advertising and personal selling Insufficient customer education Inadequate horizontal communication Difference in policies and procedures across branches or units External Communications to Customers 4
  • 5. Learning Objectives  Discuss the key reasons for provider GAP 4 that relates to marketing communication.  Present strategies for managing customer expectations.  Present five categories of strategies for matching service delivery with promises. 5
  • 6. The Need for Coordination in Marketing Communication Communication and The Services Marketing Triangle Company (Management) Internal Marketing “enabling the promise” Vertical Communication Horizontal Communication Employees External Marketing “setting the promise” Advertising Sales Promotion Public Relations Direct Marketing Interactive Marketing “delivering the promise” Personal Selling Customer Service Center Service Encounters Servicescapes Customers 6
  • 7. Key Service Communication Challenges Discrepancies between what is communicated about a service and what a customer receives- or perceives that they receives- can powerfully affect consumer evaluation of service quality. The factors that contribute to the communication challenges include a) b) c) d) Inadequate Management of Service Promises Inadequate Management of Customer Expectations Inadequate Customer Education Inadequate Internal Marketing Communication 7
  • 8. Approaches for Integrating Services Marketing Communication Manage customer expectations Manage service promises Goal: Delivery is greater than or equal to promises Manage internal marketing communication Improve customer education
  • 9. Approaches for Managing Service Promises MANAGING SERVICE PROMISES Create effective services communications Coordinate external communication Make realistic promises Offer service guarantees Goal: Delivery is greater than or equal to promises
  • 10. Approaches for Managing Service Promises 1. Create Effective Service Advertising  Guidelines for service advertising effectiveness  Use narratives to demonstrate the service experience like vasan eye care  Present vivid information, evoke strong emotions like airtel  Use interactive imagery like LIC, ICICI Prudential, Mcdonalds  Focus on the tangibles like ICICI Bank or ITC Hotels  Feature service employee in communication Chevrolet CEO  Promise what is possible  Encourage WOM communication  Feature Service Customers eg LIC customer testimonials 10
  • 11. Approaches for Managing Service Promises 2. Coordinate External Communication  Manage brand image through all the external communication vehicles like advertising, websites, sales promotion, public relations, direct marketing and personal selling 3. Make Realistic Promises 4. Offer Service Guarantees
  • 12. Approaches for Managing Customer Expectations Offer choices Create tiered-value offerings Communicate criteria for service effectiveness Negotiate unrealistic expectations Goal: Delivery is greater than or equal to promises
  • 13. Approaches for Improving Customer Education Goal: Delivery is greater than or equal to promises Prepare customers for the service process Confirm performance to standards Clarify expectations after the sale Teach customers to avoid peak demand periods and seek slow periods
  • 14. Approaches for Managing Internal Marketing Communications Goal: Delivery is greater than or equal to promises Create effective vertical communications Create effective horizontal communications Align back-office personnel with external customers Create cross-functional teams
  • 15. Module 7 (b) Pricing of Services 15
  • 16. Key Factors Related To Pricing Service Delivery Gap 4  Assuming that customers hold reference prices for services  Narrowing defining price as monetary cost  Signaling the wrong quality level with an inappropriate price  Not understanding customers’ value definitions  Not matching price strategy to customers’ value definitions External Communications to Customers 16
  • 17. Learning Objectives  Three major ways that service prices are perceived differently from goods prices by customers.  Key ways that pricing of services differs from pricing of goods from a company’s perspective.  What value means to customer and the role that price plays in value. 17
  • 18. Most service organizations use artless and unsophisticated approach to pricing without regard to :  Underlying shifts in demand  The rate that supply can be expanded  Prices of available substitutes  Consideration of the price-volume relationship  Availability of future substitutes 18
  • 19. 3 key ways that Service Prices are Different for Consumers KEY WAYS: 1. Customer knowledge of service prices 2. The role of non-monetary Costs 3. Price as an Indicator of Service Quality 19
  • 20. 1. Customer Knowledge of Service Prices To what extent do customer use price as a criterion in selecting services? How much do customer know about the cost of services? 20
  • 21. Customer Knowledge… Service variability limits knowledge  Variety of combinations (eg. Life insurance)  Different features Providers are unable to estimate prices in advance (e.g. Legal services) Individual customer needs vary (e.g. Beauty salon) Collection of price information is difficult in services Prices are not visible (e.g. Financial Services) 21
  • 22. Reference Prices  It is a price point in memory for a good or a service and consists of :  The price last paid  The price most frequently paid  The average of all prices customer have paid for similar offerings.  Generally consumers are quite uncertain about their knowledge of the prices of services than of goods. 22
  • 23. 2. The Role of Non-monetary Costs  Demand for a service is not just a function of monetary price but is influenced by other cost as well. Such as :  Time costs (participation is required)  Search costs  Convenience costs Psychological costs Fear of not understanding(insurance), rejection(bank loans, credit cards), outcomes (medical diagnoses) Reducing Nonmonetary Costs 23
  • 24. 3. Price as an Indicator of Service Quality  Customer uses price as an indicator of both service costs and service quality Some cues used by customers other than price:  When service cues to quality are readily accessible  When brand names provide evidence of a company’s reputation  When the level of advertising communicates the belief in the brand 24
  • 25. Reason Reason for this is risk associated with the service purchase. High risk situation(e.g medical), customer takes price as a surrogate for quality. 25
  • 26. Approaches to Pricing Services There are three approaches -:  Cost-Based Pricing  Competition Based Pricing  Demand Based Pricing 26
  • 27. DemandBased Challenges: 1.Monetary price must be adjusted to reflect the value of non- monetary costs. 2.Information on service costs is less available to customers; hence price may not be a central factor. CostBased Three basic marketing Price structures & Challenges Challenges: 1.Costs are difficult to trace. 2.Labor is more difficult to price than materials. 3.Costs may not equal the value that customers perceive the services are worth. CompetitionBased Challenges: 1. Small firms may charge too little to be viable 2. Heterogeneity of services limits comparability. 3. Prices may not reflect customer value. 27
  • 28. Cost-Based Pricing In Cost - Based Pricing, the company determines expenses from raw materials and labor, adds amount or percentages for overhead and profit, thereby arrives at the price. Price = Direct costs + Overhead costs + Profit margin 28
  • 29. Cost-Based Pricing… Direct costs involve materials and labor that are associated with delivering the service Overhead costs are a share of fixed costs Profit margin is a %age of full costs( direct + overhead) Industries using cost-based pricing are construction, engineering, advertising etc. 29
  • 30. Problems with Cost - Based Pricing Costs are difficult to trace. Labor is more difficult to price than materials. Costs may not equal the value the customers perceive the services are worth 30
  • 31. Examples of Cost - Based Pricing Cost-plus pricing - Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price. Fee for Service - Hourly fee usually charged for consultancy or by lawyers. 31
  • 32. Competition- Based Pricing Focuses on the prices charged by other firms in the same industry and market. This approach usually works where -: Services are standard (e.g. dry- cleaning) Where there are oligopolies (a few large service providers, as in airlines) 32
  • 33. Problems with Competition-Based Pricing Small firms may charge too little and not make margins high enough to remain in business. Thus, many small establishments cannot deliver services at the low prices charged by chain operators.  Heterogeneity of services across and within providers also makes it difficult for a firm to follow this approach. (e.g. different banks have different charges for making DD’s) 33
  • 34. Examples of Competition-Based Pricing Price signaling – It occurs in a market with a high concentration of sellers. Any price offered by one company will be matched by competitors to avoid giving a low- cost seller an advantage e.g. airlines. Going - rate pricing – It involves charging the most prevalent rate in the market. ( e.g. mobile service providers). 34
  • 35. The Two Approaches Cost-based pricing Competition-based pricing Are based on the company and its competitors rather than on customers. Neither approach takes into consideration that customers may lack reference prices May be sensitive to nonmonetary prices May judge quality on the basis of price All the above factors can and should be accounted for in a company’s pricing decisions. 35
  • 36. Demand Based Pricing Setting prices consistent with customer perceptions of value Prices are based on what customers will pay for the services provided Nonmonetary costs and beliefs must be factored into the calculation of perceived value to the customer. When services require time, inconvenience, psychological and search costs the monetary prices must be adjusted to compensate. 36
  • 37. Demand Based….. Services save time, inconvenience, psychic and search costs, the customer is likely willing to pay a higher monetary price. Information on service based costs may be less available to customers, making monetary price not as large or salient a factor in initial service selection as it is in goods purchasing. 37
  • 38. VALUE One of the most appropriate ways that companies process their services is basing the price on the perceived value of the service to the customer. A service marketer needs to ask the following questions What do customers mean by value? How can it be quantified in rupees so that appropriate price is fixed? Is the meaning of value similar across consumers and services? How can value perceptions be influenced?  To Understand demand-based pricing approaches, it is must to fully understand what value means to customers.  Not a simple task  Consumers discuss value, they use the term in many different ways and talk about a myriad of attributes or components 38
  • 39. Four meanings of perceived VALUE Value is low price Value is everything I want in a service Value is the quality I get for the price I pay Value is all that I get for all that I give 39
  • 40. Pricing Strategies When the Customer Means - “Value Is Low Price” Discounting - price cuts and offers to price- sensitive customers. 10%,50% offered by companies on services. Odd pricing - placing the price just below the exact dollar amount. 999,399,599 Syncro-pricing - is done to manage demand Place, Time, Quantity and incentives. Penetration pricing low price strategy. 40
  • 41. Value is Low Price Equate value with low price Money is most salient in their perceptions of value Fast food restaurant : “service is a value, when coupons are used” Airline travel : “value is when airline tickets are discounted” Dry Cleaning: “Value means the lowest price” 41
  • 42. Pricing Strategies When the Customer Means - “Value Is Everything I Want in a Service” Prestige pricing Demand based pricing who offer high quality services. Skimming pricing Services introduced at high prices. 42
  • 43. Value is Whatever I Want in a Product or Service Emphasize the benefits they receive from a service or product Price is far less important than the quality or features Ex. : Insurance industry MBA degree : “value is very best education” Medical service : “value is high quality” Rock concert : “value is the best performance” 43
  • 44. Pricing Strategies When the Customer Means - “Value Is the Quality I Get for the Price I Pay” Value Pricing Giving more for less. Services combined and provided at a cost lower than they would cost individually. Market Segmentation Pricing Charging different prices to groups of customers for what they perceive as different qualities of service. Occurs when segments show different price elasticity's of demand and desire different quality of service.  Client Category  Service Version 44
  • 45. Value is the Quality I Get for the Price I Pay Trade off between the money they give and the quality they receive. Hotel for vacation : “ value is price first and quality second ” Hotel for business travel : “ value is the lowest price for a quality brand ” Computer services contract : “value is the same as quality. No –value is affordable quality” 45
  • 46. Pricing Strategies When the Customer Means - “Value Is All That I Get for All That I give” Includes not just the money spent on the service, but also the time and effort. Price Framing : 1994 Olympics broadcast Price Bundling :  Mixed Bundling : a bunch of services offered at lower price than its individual costs.  Mixed Leader Bundling : Discount on additional related products. Eg: TV cable connections  Mixed Joint Bundling: single service is formed for the combined set of services to increase demand for both the services by packaging them together. 46
  • 47. Complementary Pricing Captive Pricing : the cost is divided into initial fixed cost and future recurrent variable costs. Result Based Pricing Contingency Pricing : the pricing is based on the end result of the service, as a percentage of the outcome. Eg : Lawyer’s fee. Loss Leadership : one Partial Contingency Pricing : product is priced lowest in the pricing is done in two the market to attract parts , one initial fee customer attention and (nominal amount) and the drive them to the store . secondly a contingency The remaining products price for the service. are normal or high priced. Eg : PayPerClick strategy adopted by Google and 47 Yahoo for advertisements
  • 48. Value is what I get for what I give All the benefits they receive as well as all sacrifice components (money, effort, time) when describing value Housekeeping service : “value is how many rooms I can get cleaned for what the price is” Hair stylist : “value is what I pay in cost and time for the look I get” 48
  • 49. End Of Module 7 49