SQ Lecture One : Introduction


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SQ Lecture One : Introduction

  1. 1. 1 Service Quality MKTG 1268 Lecture One Course overview Introduction to Services Marketing (Ch 1 )JAN 2013 Semester GEOFFREY DA SILVA
  2. 2. Course objectives2 1. Recognize the customer’s and the service provider’s (e.g. marketer’s) perspective and roles in service exchanges. 2. Implement marketing plans. 3. Recognize and adapt to changing environments.
  3. 3. Learning outcomes3 1. Describe the unique characteristics of services and their implications on marketing strategies. 2. Describe the major differences between marketing products and services in relation to the expanded marketing mix of product, price, promotion, place & time (e.g. service logistics), people, processes and physical evidence and the different nature of consumer behaviour. 3. Describe the links between Marketing, Operations and Human Resource Management in service organizations.
  4. 4. Learning outcomes (cont’d)4 4. Articulate key concepts in services marketing including: service encounters, service blueprinting, relationship marketing, service scripts, service guarantees and service logistics. 5. Conceptualize and articulate service quality and describe how it can be defined, measured and improved. 6. Expound the concepts involved in implementing service quality such as setting service standards, customer focus, organisational change, leadership, quality tools, quality awards and processes.
  5. 5. Coverage of topics (RMIT syllabus)5 Class 1: Course overview; Introduction to Services Marketing (Ch 1 ) Class 2: Customer Behaviour in the Services Context (Ch 2), Introduction to ’Service Quality’ (Ch 14) Class 3: Positioning Services in Competitive Markets; Developing Service Products (Ch 3 and 4) Class 4: Distributing Services Through Physical and Electronic Channels; Setting Prices and Implementing Revenue Management (Ch 5 and 6) Class 5: Promoting Services and Educating Customers; Designing and Managing Service Processes(Ch 7 and 8) Class 6: Crafting the Service Environment (Ch 10) Class 7: Managing People for Service Advantage (Ch 11) Class 8: Balancing Demand Against Productive Capacity (Ch 9) Class 9: Managing Relationships and Building Loyalty, Complaint Handling and Service Recovery (Ch 12 and 13) Class 10: Improving Service Quality and Productivity (Ch 14) Class 11: Organising for Change Management and Service Leadership (Ch 15) Class 12: Revision and exam discussion / hints
  6. 6. Compulsory textbook6  Lovelock, C., Wirtz, J. and Chew, P. (2013), Essentials of Services Marketing, 2ND Edition Pearson Education, Singapore.
  7. 7. Before we start…7  This is not a foundation course but rather an applied course  You are assumed to have understood all the earlier topics and concepts that you have learnt in previous Marketing courses such as Principles of Marketing, Consumer Behavior and Marketing Research  Many of the topics we will cover in Services Quality/Marketing course will draw upon these concepts
  8. 8. What concepts?8  What is the marketing concept?  Understanding the marketing environment  Understanding consumer buying behavior- this is challenging in SM since the product is intangible and the customer does not buy the product per se but rather experiences a service.  Segmentation, Targeting and Positioning- the foundation for Marketing Strategy  The Marketing Mix- now we don’t have 4 but rather 7 Ps
  9. 9. Overview of Chapter 19  Why study services?  Powerful forces that are transforming service markets  What are services?  Four broad categories of services  Challenges posed by services  Expanded marketing mix for services  Framework for effective services marketing strategies
  10. 10. Services Marketing (education – your most important service product purchase in your life?)10
  11. 11. Why Study Services?11  Services Dominate Economy in Most Nations  Most New Jobs are Generated by Services  Fastest Growth Expected in Knowledge-Based Industries  Many New Jobs are Well-Paid Positions Requiring Good Educational Qualifications  Many manufacturing firms moved to marketing stand- alone services
  12. 12. Contribution of Services Industries to Global GDP12
  13. 13. Estimated Size of Service Sector in Selected Countries13
  14. 14. Contribution of Services to Singapore economy14  See Department of Statistics for details  Web Link http://www.singstat.gov.sg/stats/themes/economy/services.ht ml
  15. 15. There is also a national index for SQ in Singapore15  Customer Satisfaction Index of Singapore  Undertaken by the Institute of Service Excellence at the Singapore Management University  Website: http://www.smu.edu.sg/centres/ises/  2011 report:  http://www.smu.edu.sg/centres%5Cises%5Cdownloads %5Ccsisg2011q1_executivesummary.pdf
  16. 16. Powerful forces that are transforming service markets16 1. Social changes 2. Business trends like productivity and cost savings, franchising etc. 3. Advances in information technology 4. Internationalization and globalization
  17. 17. Forces Transforming the Service Economy17 Social Business Advances Changes Trends in IT Government Globalization Policies ● New markets and product categories ● Increase in demand for services ● More intense competition Innovation in service products & delivery systems, stimulated by better technology Customers have more choices and exercise more power Success hinges on: ● Understanding customers and competitors ● Viable business models ● Creation of value for customers and firm
  18. 18. Forces Transforming the Service Economy (1)18 Social Business Advances in Changes Trends IT Government Globalization Policies ● Changes in regulations ● Privatization ● New rules to protect customers, employees, and the environment ● New agreement on trade in services
  19. 19. Forces Transforming the Service Economy (2)19 Social Business Advances in Changes Trends IT Government Globalization Policies ● Rising consumer expectations ● More affluence ● Personal Outsourcing ● Increased desire for buying experiences vs. things ● Rising consumer ownership of high tech equipment ● Easier access to more information ● Immigration ● Growing but aging population
  20. 20. 20 Read the examples and the impact on the service economy
  21. 21. Forces Transforming the Service Economy (3)21 Social Business Advances in Changes Trends IT Government Globalization Policies ● Push to increase shareholder value ● Emphasis on productivity and cost savings ● Manufacturers add value through service and sell services ● More strategic alliances ● Focus on quality and customer satisfaction ● Growth of franchising ● Marketing emphasis by nonprofits
  22. 22. Forces Transforming the Service Economy (4)22 Social Advances in Business Changes Trends IT Government Globalization Policies ● Growth of Internet ● Greater bandwidth ● Compact mobile equipment ● Wireless networking ● Faster, more powerful software ● Digitization of text, graphics, audio, video
  23. 23. 23 Read the examples and the impact on the service economy
  24. 24. Forces Transforming the Service Economy (5)24 Social Business Advances in Changes Trends IT Government Globalization Policies ● More companies operating on transnational basis ● Increased international travel ● International mergers and alliances ● “Offshoring” of customer service ● Foreign competitors invade domestic markets
  25. 25. 25 Read the examples and the impact on the service economy
  26. 26. The combined model (figure 1.6)26
  27. 27. What are Services? (1)27  Services involve a form of rental, offering benefits without transfer of ownership  Include rental of goods  Marketing tasks for services differ from those involved in selling goods and transferring ownership
  28. 28. Five broad categories within non-ownership framework of which two or more may be combined Rented goods Defined space Labor and services and place rentals expertise rentals Access to shared Access to and physical usage of systems environments and networks28 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
  29. 29. Explanation of the 5 broad categories:29  Rented goods services—provides customers with temporary right to exclusive use of physical good  Defined space and place rentals—obtain a defined portion of a larger space and sharing its use with other customers, under varying degrees of privacy  Labor and expertise rentals—hire others to work that they either choose not to do, or lack the necessary expertise and tools to do  Access to shared physical environments—may be located indoors or outdoors or a combination  Systems and networks: access and usage—rent the right to participate in specified networks like telecommunications, utilities etc.
  30. 30. Four Broad Categories of Services30  Based on differences in nature of service act (tangible/intangible) and who or what is direct recipient of service (people/possessions), there are four categories of services:  People processing  Possession processing  Mental stimulus processing  Information processing
  31. 31. Four Categories Of Services31 31
  32. 32. 1.4 Four broad categories of services  People Processing  Customers must:  physically enter the service factory  co-operate actively with the service operation  Managers should think about process and output from customer’s perspective  to identify benefits created and non-financial costs: Time, mental, physical effort32
  33. 33. 1.4 Four broad categories of services Possession Processing  Possession Processing  Customers are less involved compared to people processing services  Involvement may be limited to just dropping off the possession  Production and consumption are separable33
  34. 34. People processing Possession processing34
  35. 35. 1.4 Four broad categories of services Mental Stimulus Processing ● Mental Stimulus Processing ● Ethical standards required when customers who depend on such services can potentially be manipulated by suppliers ● Physical presence of recipients not required ● Core content of services is information-based Can be ‘inventoried’’35
  36. 36. 1.4 Four broad categories of services Information Processing  Information Processing  Information is the most intangible form of service output  May be transformed into enduring forms of service output  Line between information processing and mental stimulus processing may be blurred.36
  37. 37. Mental Stimulus Information Processing Processing37
  38. 38. Think about your project – the nature of the service product:38  Given the nature of your service product, which cell would it be put under?  How would this classification affect your positioning of your service offer?  You need to use the service classification matrix to determine this.  What marketing challenges would your service product face?
  39. 39. Challenges posed by services Services Pose Distinctive Marketing Challenges • Marketing management tasks in the service sector differ from those in the manufacturing sector. • The eight common differences are: – Most service products cannot be inventoried – Intangible elements usually dominate value creation – Services are often difficult to visualize and understand – Customers may be involved in co-production – People may be part of the service experience – Operational inputs and outputs tend to vary more widely – The time factor often assumes great importance – Distribution may take place through nonphysical channels39
  40. 40. Challenges posed by services Differences, Implications, and Marketing-Related Tasks (1) (Table 1.2) Difference Implications Marketing-Related Tasks Most service products  Customers may be  Use pricing, promotion, cannot be inventoried turned away reservations to smooth demand; work with ops to Intangible elements  Harder to evaluate manage capacity usually dominate service & distinguish  Emphasize physical clues, value creation from competitors employ metaphors and vivid images in advertising Services are often  Greater risk & difficult to visualize & uncertainty perceived  Educate customers on understand making good choices; offer guarantees Customers may be  Interaction between involved in co- customer & provider;  Develop user-friendly Production but poor task equipment, facilities & execution could affect systems; train customers, satisfaction provide good support40
  41. 41. Challenges posed by services Differences, Implications, and Marketing-Related Tasks (2) (Table 1.2) Difference Implications Marketing-Related Tasks People may be part of  Behavior of service  Recruit, train employees to service experience personnel & customers reinforce service concept can affect satisfaction  Shape customer behavior Operational inputs  Hard to maintain quality,and  Redesign for simplicity and outputs tend to vary consistency, reliability failure proofing more widely  Difficult to shield  Institute good service recovery procedures customers from failures  Time is money;  Find ways to compete on Time factor often customers want service speed of delivery; offer assumes great at convenient times extended hours importance  Electronic channels or  Create user-friendly, Distribution may take voice secure websites and free place through telecommunications access by telephone nonphysical channels41
  42. 42. Challenges posed by services Added by Physical, Intangible Elements Helps Distinguish Goods and Services (Fig 1.14)42
  44. 44. Services Require An Expanded Marketing Mix44 ● Marketing can be viewed as: A strategic and competitive thrust pursued by top management A set of functional activities performed by line managers A customer-driven orientation for the entire organization ● Marketing is only function to bring operating revenues into a business; all other functions are cost centers. ● The “7 Ps” of services marketing are needed to create viable strategies for meeting customer needs profitably in a competitive marketplace
  45. 45. The 7 Ps of Services Marketing45 ● Product elements (Chapter 4) ● Place and time (Chapter 5) ● Price and other user outlays (Chapter 6) ● Promotion and education (Chapter 7) ● Process (Chapter 8) ● Physical environment (Chapter 10) ● People (Chapter 11)
  46. 46. The 7 Ps of services marketing Applying the 4 Ps of Marketing to Services (1)46  Product elements  Service products are at the heart of services marketing strategy  Marketing mix begins with creating service concept that offers value  Service product consists of core and supplementary elements:  Core products meet primary needs  Supplementary elements are value-added enhancements
  47. 47. Services are not just products- they are experiences47
  48. 48. The 7 Ps of services marketing Applying the 4 Ps of Marketing to Services (2a)48  Place and time  Service distribution can take place through physical and non-physical channels  Some firms can use electronic channels to deliver all (or at least some) of their service elements  Information-based services can be delivered almost instantaneously electronically
  49. 49. The 7 Ps of services marketing Applying the 4 Ps of Marketing to Services (2b)49  Place and time  Delivery Decisions: Where, When, How  Time is of great importance as customers are physically present  Convenience of place and time become important determinants of effective service delivery
  50. 50. The 7 Ps of services marketing Applying the 4 Ps of Marketing to Services (3a) • Price and other user outlays  From the firm’s perspective, pricing generates income and creates profits  From the customer’s perspective, pricing is key part of costs to obtained wanted benefits  Marketers must recognize that customer costs involve more than price paid to seller50 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
  51. 51. The 7 Ps of services marketing Applying the 4 Ps of Marketing to Services (3b) • Price and other user outlays  Identify and minimize non-monetary costs incurred by users:  Additional monetary costs associated with service usage (e.g., travel to service location, parking, phone, babysitting, etc.)  Time expenditures, especially waiting  Unwanted mental and physical effort  Negative sensory experiences  Revenue management is an important part of pricing51 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
  52. 52. The 7 Ps of services marketing Applying the 4 Ps of Marketing to Services (4) • Promotion and Education  Plays three vital roles:  Provide information and advice  Persuades the target customers of merit of service product or brand  Encourages customer to take action at specific time  Customers may be involved in co-production so:  Teach customer how to move effectively through the service process  Shape customers’ roles and manage their behavior52 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
  53. 53. Promotion of Services (advertising)53
  54. 54. The 7 Ps of services marketing Extended Mix for Managing the Customer Interface (1) • Process  How firm does things may be as important as what it does  Customers often actively involved in processes, especially when acting as co-producers of service  Operational inputs and outputs vary more widely  Customers are often involved in co-production  Demand and capacity need to be balanced54 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
  55. 55. The 7 Ps of services marketing Extended Mix for Managing the Customer Interface (2a) • Physical environment  Design servicescape and provide tangible evidence of service performances  Manage physical cues carefully— can have profound impact on customer impressions55 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
  56. 56. The 7 Ps of services marketing Extended Mix for Managing the Customer Interface (2a) • Physical environment  Create and maintain physical appearances  Buildings/landscaping  Interior design/furnishings  Vehicles/equipment  Staff grooming/clothing  Sounds and smells  Other tangibles56 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
  57. 57. The 7 Ps of services marketing Extended Mix for Managing the Customer Interface (3) • People  Interactions between customers and contact personnel strongly influence customer perceptions of service quality  Well-managed firms devote special care to selecting, training and motivating service employees  Other customers can also affect one’s satisfaction with a service57 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
  58. 58. People factor in services marketing58
  59. 59. Recognize why service businesses need to integrate the marketing, operations, and human resource functions59  The 7Ps model demonstrates that marketing can’t operate separately from other functional areas in a successful service organization.  Marketing, operations, and human resources all play central and interrelated roles in meeting customer needs  Marketing links the firm to its external environment and acts as a customer champion; operations is concerned with service design and delivery, often involving customers in operational processes; and human resources helps to recruit, train, and motivate employees whose jobs bring them into direct contact with customers.
  60. 60. LETS RECAP: So now you should be clear thatservices have FOUR important characteristics Intangibility Heterogeneity Simultaneous Production Perishability and ConsumptionImportant points to note:- These characteristics are actually CHALLENGES or problems faced by the service marketer- The service marketer needs to use the right tools – marketing mix elements to overcome these challenges
  61. 61. Additional Slides on the Four Characteristics of Services• Source: Philip Kotler and Kevin Lane Keller• Marketing Management (an Asian Perspective) 61
  62. 62. Intangibility• Unlike physical products, services cannot be seen, tasted, felt, heard, or smelled before they are bought.• To reduce uncertainty, buyers will look for evidence of quality.• They will draw inferences about quality from the place, people, equipment, communication material, symbols, and price that they see.• Therefore, the service provider’s task is to “manage the evidence,” to “tangibilize the intangible.”Whereas product marketers are challenged to add abstract ideas, service marketers are challenged to add physical evidence and imagery to abstract offers• Service companies can try to demonstrate their service quality through physical evidence and presentation. 62
  63. 63. Suppose a bank wants to position itself as a “fast” bank. It could makethis positioning strategy tangible through a number of marketing tools: • Place — The exterior and interior should have clean lines. The layout of the desks and the traffic flow should be planned carefully. Waiting lines should not get overly long. • People — Personnel should be busy. There should be a sufficient number of employees to manage the workload. • Equipment — Computers, copying machines, and desks should be and look “state of the art.” • Communication material — Printed materials — text and photos — should suggest efficiency and speed. • Symbols — The name and symbol should suggest fast service. • Price — The bank could advertise that it will deposit $5 in the account of any customer who waits in line for more than five minutes 63
  64. 64. Managing the Physical Evidence : DBS Bank• This DBS branch in Singapore looks very modern and is equipped with gadgets to appeal to the more tech-savvy market. 64
  65. 65. Intangibility• Service marketers must be able to transform intangible services into concrete benefits.• Because there is no physical product, the service provider’s facilities—its primary and secondary signage, environmental design and reception area, employee apparel, collateral material, and so on—are especially important.• All aspects of the service delivery process can be branded. 65
  66. 66. Intangibility• Service providers such as medical doctors will use brand elements such as where they received their medical education from to make their service and benefits more tangible. 66
  67. 67. Inseparability• Services are typically produced and consumed simultaneously.• Because the client is also present as the service is produced, provider-client interaction is a special feature of service marketing.• Several strategies exist for getting around this limitation: i. Work with larger groups ii. Work faster iii. Train more service providers 67
  68. 68. Variability• Because they depend on who provides them and when and where they are provided, services are highly variable.• This is a challenge of ensuring high and consistent standards of service quality.• To reassure customers, some firms offer service guarantees that may reduce consumer perception of risk. 68
  69. 69. There are three steps service firms can take to increase quality control:1. Invest in good hiring and training procedures.2. Standardize the service-performance process throughout the organization. – Prepare a service blueprint that depicts events and processes in a flowchart, with the objective of recognizing potential fail points. – Monitor customer satisfaction; take action to overcome service gaps 69
  70. 70. Blueprint for Overnight Hotel Stay Process (P) in the Services Marketing Mix 70
  71. 71. Perishability• Services cannot be stored.• Perishability is not a problem when demand is steady.• When demand fluctuates service firms have problems.• Several strategies can produce a better match between supply and demand – Pricing and promotions are often used to influence demand and supply 71
  72. 72. How would you LINK the 4 characteristics of services to the 7 Ps? © Geoffrey da Silva72 Intangibility Perishability Heterogeneity Inseparability PRODUCT X X PRICE X PROMOTION X X PLACE X PEOPLE X X PHYSICAL EV X PROCESS X X This is just an illustration to show how the different elements of the marketing mix can address the challenges of the services characteristics; the links are not necessarily definitive but rather indicative. What do you think?
  73. 73. Framework for effective services marketing strategies Overview73 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
  74. 74. Chapter 1 Summary: Introduction to Services Marketing (1)74  Reasons for studying services  Service sector dominates economy in most nations  Most new jobs are generated by services  Powerful forces—government policies, social changes, business trends, IT advances, and globalization—are transforming service markets  The service concept and its definition:  Services offer benefits without transfer of ownership  Four broad categories of services – people processing, possession processing, mental stimulus processing and information processing  Customers expect value from access to goods, facilities, labor, professional skills, environments, networks & systems in return for money, time, effort 74
  75. 75. Chapter 1 Summary: Introduction to Services Marketing (2)75  Services present distinctive marketing challenges relative to goods, requiring:  Expanded marketing mix comprising 7Ps instead of traditional 4Ps  Framework for developing effective services marketing strategies:  Understanding service products, consumers & markets  Applying the 4 Ps to services  Managing the customer interface  Implementing profitable service strategies 75
  76. 76. Sample Practice Exam Essay Questions76 1. The marketing of services is different to the marketing of tangible goods‖. Provide support for this statement by: (a.) Identifying and explaining the unique characteristics of services. (b.) Describing the expanded marketing mix for services, highlighting how it may be different to the ―traditional marketing mix of 4Ps‖.
  77. 77. Sample Practice Exam Essay Questions77 2. List and describe each of the expanded marketing mix elements and contrast the expanded marketing mix for services to the traditional marketing mix for tangible goods 3. List and discuss each of the four broad categories of services.  Demonstrate your understanding of these four categories of services by giving at least three examples of each and highlighting the implications of such services
  78. 78. Sample Practice Exam Essay Questions78  List and explain why the unique characteristics of services (that makes them different to tangible goods).  Classify the following two services into people/possession/mental-stimulus/information- processing services and explain your selection:  Funeral service  Online dating service
  79. 79. Sample Practice Exam Essay Questions79  The marketing mix for services is different to that of tangible goods. Explain the marketing mix elements applicable to service contexts, and highlight its differences to the marketing mix elements of tangible goods. Select a service that you are familiar with, and describe its marketing mix elements.
  80. 80. Sample Practice Exam Essay Questions80  Demonstrate your understanding of the unique characteristics of services by listing the eight (8) common differences between services and tangible goods, and relating each to the example of education (and other services e.g. library, administrative and IT support) provided by a university.