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Service ?????????? ď Ž “There

are no such thing as service industries. There are only industries whose service components are greater or less than those of other industries. Everybody is in service.� Theodore Levitt-

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is the part of the product or the full product for which the customer is willing to see value and pay for it.

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Services are intangible acts.

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Services are activities or benefits that one party can offer to another that are essentially intangible and don’t result in the transfer of ownership of anything.

Difference between physical goods and services Physical goods






Production and distribution are separated from consumption

Production, distribution and consumption are simultaneous processes

A thing

An activity or process

Core value processed in factory

Core value produced in the buyerseller interaction

Customers do not participate in the production process

Customers participate in production

Can be kept in stock

Cannot be kept in stock

Transfer of ownership

No transfer of ownership

Why to study this subject? 

Service Sector in India today accounts for more than half of India's GDP. According to data for the financial year 2006-2007, the share of services, industry, and agriculture in India's GDP is 55.1 per cent, 26.4 per cent, and 18.5 per cent respectively. The fact that the service sector now accounts for more than half the GDP marks a watershed in the evolution of the Indian economy and takes it closer to the fundamentals of a developed economy.

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The various sectors that combine together to constitute service industry in India are: Trade Hotels and Restaurants Railways Other Transport & Storage Communication (Post, Telecom) Banking Insurance Dwellings, Real Estate Business Services Public Administration; Defense Personal Services Community Services Other Services

Reasons for growth and current status 

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Affluence (personal security, interior designing) Leisure time (travel agency, resort, hotels) Working wives (day care, packed food and home delivery) Product complexity (after sales services) Life’s complexity (legal advisor, property advisors) Resource scarcity (pollution control, car pool)

Characteristics of a Service     

Lack of ownership. Intangibility Inseparability Perishability Heterogeneity

Intangibility - example ď Ž

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It is easy for the customer to evaluate a ready-made apartment or house for sale than a blueprint of the project. This is the reason that developers keep a sample flat and display scale models of real estate developments in their offices.

Time sharing resorts/insurance ď Ž

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It would be very difficult for the sales man of a time sharing resort or an insurance company to persuade the customers due to the intangibility of the offer. Showing a film or video promotion is one way of convincing would-be buyers.

Perishability - example ď Ž

The ocean cruise ship will sail even if a few berths remain unsold.

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A flight of British airways is suppose to take off at 9 a.m. and only 400 out of 500 seats have been sold.

Heterogeneity - example ď Ž

A customer in a bank will not get the same kind of service from two different employees of the bank. One could be friendly and another one could be rude.

Inseparability – example 

For a surgery, a doctor as well as a patient both should be there. Surgery wont be possible if one of the both is absent. A lecture cant be delivered if a faculty has not come even if the class is in full strength.

Intangibility – a big-2 problem? 

Services are intangible so it becomes difficult for a marketer to promote its services because:-

Difficult to conceptualize: Clients and prospects have difficulty picturing, in their mind's eye, the services process and outcomes.

Difficult to evaluate: The difficulty in conceptualizing leads to difficulty in evaluating the service.

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Uncertainty and perceived risk: Without a clear evaluation framework, the client level of uncertainty and perceived risk rises. Added uncertainty and risk is magnified to sell services, especially in new client generation where trust has yet to be established.

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Difficult to promote the offering: Difficulty conceptualizing also leads to difficulty in creating focused marketing communications (from the firm's perspective) and difficulty selling the services internally to colleagues (from the client's perspective).

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Difficult to control service quality: The less tangible the process and expected outcomes of a particular service, the more difficult it is to measure the service quality. And, as we all know, what can't be measured can't be managed or controlled.

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Difficult to set prices: 1. The less we know about the actual service delivery process, the less we understand the cost-basis of providing the service. 2. The less tangible the delivery outputs and expected business outcomes, the less we can establish the business value of the service. Thus, it's difficult to set price on either a cost-plus basis (#1) and/or a value basis (#2).

Uncovering the Tangibles in What We Offer The first step in tangibilizing our services is making explicit the core of what we actually do. Usually the best, most tangible aspects of our services are those aspects that are the simplest aspects most familiar to us.

Examples ď Ž

Few examples of how common jargon might be translated into tangible descriptions that will help us communicate to the marketplace:

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Marketing Speak We offer efficient and effective customer and business needs-focused IT and networking solutions.

More Tangible 

We fix complex and difficult computer problems well

We keep your networks up 24/7 so your people can work all day and not lose productive time

We cost less than a full time staff person and we never call in sick

We keep up with the latest technology and explain it in terms that both the non - IT and the IT staff can understand and evaluate

Marketing Speak HR solutions to help you attract, retain, and develop your key staff. More Tangible We deliver classroom and e-learning based management and leadership development seminars

Our payroll service gets your employees' paychecks right all the time, on time.

Our employee 401k plan comes with free financial planning from certified financial planners

Marketing Mix for services

People ď Ž

An essential ingredient to any service provision is the use of appropriate staff and people. Recruiting the right staff and training them appropriately in the delivery of their service is essential if the organization wants to obtain a form of competitive advantage. Consumers make judgments and deliver perceptions of the service based on the employees they interact with. Staff should have the appropriate interpersonal skills, attitude, and service knowledge to provide the service that consumers are paying for. Many British organizations aim to apply for the Investors In People accreditation, which tells consumers that staff are taken care off by the company and they are trained to certain standards.

Process ď Ž

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It Refers to the systems used to assist the organization in delivering the service. Imagine you walk into Burger King and you order a Whopper Meal and you get it delivered within 2 minutes. What was the process that allowed you to obtain an efficient service delivery? Banks that send out Credit Cards automatically when their customers old one has expired again require an efficient process to identify expiry dates and renewal. An efficient service that replaces old credit cards will foster consumer loyalty and confidence in the company.

Physical Evidence ď Ž

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Where is the service being delivered? Physical Evidence is the element of the service mix which allows the consumer again to make judgments on the organization. If you walk into a restaurant your expectations are of a clean, friendly environment. On an aircraft if you travel first class you expect enough room to be able to lay down! Physical evidence is an essential ingredient of the service mix, consumers will make perceptions based on their sight of the service provision which will have an impact on the organizations perceptual plan of the service.

tHe services Marketing triangLe ď Ž

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The services marketing triangle shows the three interlinked groups that work together to develop, promote, and deliver services. These key players are labeled on the points of the triangle: the company (or SBU or department or "management"), the customers, and the providers (whoever it is that actually deliver the service to customers). Between these three points on the triangle, there are three types of marketing that must be successfully carried out for a service to succeed: external, internal, and interactive marketing.

Example:- FEDEX 

FedEx Corporation is an example of a company that has all sides of the triangle well aligned. With respect to external marketing, FedEx is a master. They understand their customers, do extensive market research (2,400 customer survey’s per quarter), measure customer satisfaction daily (through their service quality indicator, or SQI), and listen to customers. Promises are communicated effectively to the marketplace through await-winning advertising messages and consistent statements by their people.

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Interactive marketing-keeping promises-is at the heart of FedEx's strategy. The book-length "Manager's Guide," given to every FedEx manager, states that "Each cus-tomer contact is a moment of truth that conveys an image of Federal Express." A shared goal within the company is that every one of these service encounters be flawless from the customer's point of view. The folks that deliver FedEx's premises directly (drivers, front-line telephone people, business logistics consultants) all know -that 100 percent success in interactive marketing is the goal

FedEx also knows that 100 percent success is not possible unless all of these providers are enabled to provide quality service through technology, rewards, support systems, and empowerment. Open communication with employees is another key to successfully rallying them around new initiatives and opportunities aimed at building business. As a result of its support and fair treatment of employees, employee loyalty at FedEx is very high, and promises to customers can be kept.

cLassifications of Type of service services Example Pure tangible goods

Soap, shampoo, salt

Tangible good with accompanying service

Auto with repair services

Services with Airline trip with food accompanying minor goods Pure services


Type of service


Equipment based service

Vending machine, internet, weighing machine

People based service

Architects legal services , nursery infant care, teaching, counselling and surgery

Personal service

Child day care, personal health program

Industrial service

Industry specific consultancy , hotels

End-user 

Services can be classified into the following categories: 􀂃 Consumer: leisure, hairdressing, personal finance, package holidays. 􀂃 Business to business: advertising agencies, printing, accountancy, consultancy. 􀂃 Industrial: plant maintenance and repair, work wear and hygiene, installation, project management.

Service tangibility

The degree of tangibility of a service can be used to classify services: 􀂃 Highly tangible: car rental, vending machines, telecommunications. 􀂃 Service linked to tangible goods: domestic appliance repair, car service. 􀂃 Highly intangible: psychotherapy, consultancy, legal services.

Expertise 

The expertise and skills of the service provider can be broken down into the following categories: 

􀂃 Professional: medical services, legal services, accountancy, tutoring. 􀂃 Non-professional: babysitting, care taking, casual labour.

Differentiation in services   

Offering Faster and better delivery Image

Service quality

In services, the last experience remains uppermost in your mind. Therefore, it is not enough to be good, you have to be consistently good

Moments of Truth 

Each customer contact is called a moment of truth.

You have the ability to either satisfy or dissatisfy them when you contact them.

A service recovery is satisfying a previously dissatisfied customer and making them a loyal customer.

Multiple perspectives on quality 

Product based (based on measurable parameters, Domino’s pizza delivered in 30 mins) User based (quality is in the eyes of beholder, what a consumer expects what all features should be there and how to differentiate between attributes that provide quality and satisfaction) Manufacturing based (if the outcome is according to the design specifications)

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Value based (equate quality with value. A balance should be there between benefits and price paid by the customer) Transcendental (experienced but can be described nor documented)

Service Quality Models  

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RATER MODEL Grönroos' Perceived Service Quality model The GAP model Kano's Two Factor Model

RATER model:ď Ž

A complementary analysis of the perception gap is the RATER model also produced by Zeithaml (1990). RATER identifies the 5 key areas which together form the qualities of a service offering from a customer perspective. RATER focuses on the dimensions of customers expectations. The research also suggests the relative importance of each of the factors.

Dimensions of Service Quality ď Ž

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Reliability: Perform promised service dependably and accurately. Example: receive mail at same time each day. Responsiveness: Willingness to help customers promptly. Example: avoid keeping customers waiting for no apparent reason.

Dimensions of Service Quality 

Assurance: Ability to convey trust and confidence. Example: being polite and showing respect for customer. Empathy: Ability to be approachable. Example: being a good listener. Tangibles: Physical facilities and facilitating goods. Example: cleanliness.

RATER dimensions sorted by relative importance (Zeithaml 1990)



Relative importance


Ability to perform the promised service dependably and accurately



Willingness to help customers and provide prompt service



Knowledge and courtesy of 19% employees and their ability to convey trust and confidence


Caring individualized attention the firm provides its customers



Appearance of physical facilities, equipment, personnel and communication materials


Relative Importance of Service Dimensions When Respondents Allocate 100 Points [Study 1] RELIABILITY 32% TANGIBLES 11%



ASSURANCE 19% © A. Parasuraman, University of Miami; not to be reproduced or disseminated without the author’s permission


Relative Importance of Service Quality Dimensions [Study 2] Mean Number of Points Allocated out of 100 Points 33








32 14


15 19

Computer Manufacturer

All Companies



Retail Chain


12 23



17 19


Auto Insurer Reliability




Life Insurer Assurance


Š A. Parasuraman, University of Miami; not to be reproduced or disseminated without the author’s permission

Tangibles 53

Determinants of Perceived Service Quality Word of Mouth

Personal Needs

Expected Service Service Quality Gap

Past Experience External Communication to Customers Perceived Service Quality

Perceived Service Š A. Parasuraman, University of Miami; not to be reproduced or disseminated without the author’s permission


Determinants of Perceived Service Quality Dimensions of Service Quality 1. Access 2. Communication 3. Competence 4. Courtesy 5. Credibility 6. Reliability 7. Responsiveness 8. Security 9. Tangibles 10. Understanding/Knowing the Customer

Word of Mouth

Personal Needs

Expected Service

Service Quality Gap

Past Experience

External Communication to Customers

Perceived Service Quality

Perceived Service

Š A. Parasuraman, University of Miami; not to be reproduced or disseminated without the author’s permission


Perceived Service Quality Word of mouth

Service Quality Dimensions Reliability Responsiveness Assurance Empathy Tangibles

Personal needs

Expected service

Perceived service

Past experience

Service Quality Assessment 1. Expectations exceeded ES<PS (Quality surprise) 2. Expectations met ES~PS (Satisfactory quality) 3. Expectations not met ES>PS (Unacceptable quality)

Grönroos' Perceived Service Quality model 

In Grönroos' Perceived Service Quality model, expectations are a function of market communications, image, word of mouth, and consumer needs and learning, whereas experience is a product of a technical and functional quality, which is filtered through the image.

The model created by Grönroos (1984b) attempts to understand how the quality of a given service is perceived by customers. It divides the customer's perception of any particular service into two dimensions:

Technical quality - What the consumer receives, the technical outcome of the process. Functional quality - How the consumer receives the technical outcome, what Grönroos calls the "expressive performance of a service" Grönroos suggested that, in the context of services, functional quality is generally perceived to be more important than technical quality, assuming that the service is provided at a technically satisfactory level. He also points out that the functional quality dimension can be perceived in a very subjective manner

Grönroos more clearly shows the existence of a perception gap, although there is no suggestion of "delighting" only of narrowing the gap. However the model has more practical application as it shows factors that contribute to each side of the gap. This model demonstrates that in order to minimize the gap two things are critical. First is the expectations that build on the basis of traditional marketing methods and second the experiences means how well the customer understands the functional and technical aspect of the product or your services.

GAP Model ď Ž

In common with the GrĂśnroos model it shows the perception gap (Gap 5) and outlines contributory factors. In this case expected service is a function of word of mouth communication, personal need and past experience, and perceived service is a product of service delivery and external communications to consumers. "GAP" model of service quality was given by Parasuraman (Zithaml & Bitner 1996).


Customers’ Service Expectations Service Quality Gap Customers’ Service Perceptions


Organization’s Understanding of Expectations

Service Standards Gap Organization’s Service Standards


Service Performance Gap


Organization’s Communications to Customers

Organization’s Service Performance Internal Communication Gap

© A. Parasuraman, University of Miami; not to be reproduced or disseminated without the author’s permission


Service Quality Gap Model

Service Quality Gap Model Customer

Perceptions Managing the Evidence

Customer Satisfaction GAP 5



Customer / Marketing Research GAP 1

Communication GAP 4

Understanding the Customer

Management Perceptions of Customer Expectations

Service Delivery Conformance GAP 3


Design GAP 2

Service Standards

Service Design

Gap 1 Customer Expectations (Expected Service)


Lack of Market Research Orientation;


Inadequate upward communication;


Too many levels of management

Managements Perception of Customer Expectations

Gap 2 Management Perceptions of Customer Expectations

1. 2. 3.

Inadequate management commitment to Service Quality Perception of infeasibility Absence of goal setting

Service Quality Specifications

Gap 3 Service Quality Specifications

1. 2. 3. 4. 5.

Role ambiguity Role conflict Poor technology Lack of team work Poor employee â&#x20AC;&#x201C; job fit

Service Delivery

Gap 4 Service Delivery

1. 2.

Propensity to overpromise Inadequate horizontal communication

External Communications to Customers


Word-of-mouth Communication

Personal Needs

Past Experience

Expected Service GAP 5

Perceived Service




Converting perceptions into service quality specifications

Management perceptions of consumer expectations Service Provider

External communication to consumers

Service Delivery GAP 4

















YES © A. Parasuraman, University of Miami; not to be reproduced or disseminated without the author’s permission


Kano's Two Factor Model 

In 1984 the Japanese quality guru, Professor Noriaki Kano, introduced a two-factor quality model, commonly known as "Kano's Curve" The curve illustrates the difference between must-be, attractive, and linear quality elements. The vertical axis describes customer satisfaction that can move from "very dissatisfied" to "very satisfied". The horizontal axis describes the existence or non-existence of a quality element, ranging from "not available" to "high degree of availability".

Must-Be Quality   

It is an attribute which the customer expects as a matter of course. If it is not there, the customer will be extremely dissatisfied. It is similar to "hygiene factors". For example, customers expect a prompt response when calling a call centre, if the call centre takes a long time to answer the call the customer will be extremely dissatisfied. However, if the call is answered promptly, the customer will not express satisfaction but treats it as a normal, standard occurrence. Beyond a certain point, improvements in "mustbe" qualities will yield no discernible improvements in satisfaction.

Attractive Quality 

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It is that aspect of a product or service that goes beyond established current needs and therefore is not expected by customers. In contrast to the "must-be" qualifiers these aspects genuinely can differentiate a particular service. This aspect is similar to motivating factors. If a new feature gives customers a benefit they seek, the customer may be thrilled and excited, but if this feature is not available, the customer has no comment.

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Customers get great satisfaction from a feature - and are willing to pay a price premium. However, satisfaction will not decrease (below neutral) if the product lacks the feature. These features are often unexpected by customers and they can be difficult to establish as needs up front. Sometimes called unknown or latent needs.

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For example Federal Express identified that customers felt a concern when they sent their parcels that they may not arrive on time, if at all. By providing a Web based service customers can check that their parcel has been delivered and signed for. This "closes the loop" and gives customers a new value element which provides a benefit. While no other player in the business has a corresponding service, customers will see this as a differentiating value element. Attractive qualities are not missed if they are not present, but provide a differentiation when they are.

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The strength of the Kano model is that it identifies that some aspects of service are simply required to be "in the game" whereas others serve to genuinely provide competitive advantage and that there are diminishing returns to be gained from simply focusing on must-be qualities. However Kano does not provide diagnostic tools to identify or measure the different aspects, nor does he suggest how they change with time or environment.

How to improve service quality?   

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Face to face interaction between employer and employees. Reduce the organizational barriers. Service quality goals must be set along with the necessary processes. Develop customer trust. Pretest new procedures and equipments before introducing them. Understand the determinants of consumer behavior. Teach customers how to use service innovations. Monitor and evaluate benefits.

How to improve service quality :- Performance Standards 

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Qualitative (reliability, responsiveness, tangibles, assurance, empathy) Quantitative Benchmark (In line with Customer expectations).

FedEx Service Quality Indicator (Quantitative)          

No. of damaged packages; No. of lost packages; Missed pickups; Aircraft delays; Reopened complaints (complaints not solved first time); Wrong day late deliveries; Right day wrong delivery; Abandoned calls; Invoice adjustment requests; Missing proof of deliveries.

Challenges of Performance Measurements 

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Deciding strategy - Customer satisfaction vs. Customer delight; Developing Service Quality dimensions specific to business needs; Defining the dimensions; Developing common understanding throughout the organization - Achieving clear focus & direction; Establishing measurement framework; Utilizing measurements; Benchmark to set targets; Aligning measurement techniques with the dimensions; Addressing Service Quality Gaps.

Nature of Service Expectations

Desired Service

Level Customers Believe Can and Should Be Delivered

Zone of Tolerance Adequate Service

Minimum Level Customers Are Willing to Accept

Š A. Parasuraman, University of Miami; not to be reproduced or disseminated without the authorâ&#x20AC;&#x2122;s permission


Conclusion  

SERVICE QUALITY Quality is defined as the ability of a work product to pass its acceptance standards. There are a number of models which try to capture and define "Service Quality". They each have their strengths, and weaknesses.

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In the end though the core definition is simple and consistent:

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Service quality is: Customers thinking they're getting better service than expected.

Unconditional Service Guarantee: Customer View search from internet  

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Unconditional (L.L. Bean) Easy to understand and communicate (Bennigan’s) Meaningful (Domino’s Pizza) Easy to invoke (Cititravel) Easy to collect (Manpower)

Unconditional Service Guarantee: Management View    

Focuses on customers (British Airways) Sets clear standards (FedEx) Guarantees feedback (Manpower) Promotes an understanding of the service delivery system (Bug Killer) Builds customer loyalty by making expectations explicit

Consumer behavior in services    

Why to study CB in service marketing? Customer is the reason for existence. Customers mind is like a black box. Customers participate in service creation and delivery. Challenge here for service marketer is to understand how customers interact with service operations.

Consumer – the black box Buy External stimulus Company controlled Social forces


No buy Consumer’s mind

Customer expectation of service Service promise Word Of Mouth Personal needs Desired service Belief about what is possible

Zone of tolerance

Perceived service alterations Adequate service Situational factors Predicted service

The purchase process Pre- purchase stage

Service encounter stage

Post-purchase stage

Pre- purchase stage   

Awareness of need Information search Evaluation of alternative service suppliers

Service encounter stage ď Ž ď Ž

Request service from chosen supplier Service delivery

Post purchase stage ď Ž ď Ž

Evaluation of service performance Future intensions

Buying situations faced by a customers Buying situations

Modified rebuy

Straight rebuy

New task

Straight rebuy    

Examples : Getting a bank draft done. Buying stamps from the post office Getting photocopies

Modified rebuy ď Ž

New variant of a product i.e. soap or new facial treatment.

New task ď Ž

Vacation package tour, flights, insurance.

Buying roles played by a consumer      

Initiator Influencer Gate keeper Decider Buyer User

Classification of buyers ď Ž

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Personal buyer :- buying AMC for Personal Computer. Organizational buyer :- buying AMC for the office.

Factors affecting buying behavior 

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Situational factors (time, store’s atmosphere, marketing stimuli) Buyers psychological factors Buyer’s social factors Buyer’s personal factors

QuaLities of services

Search qualities Packaged item e.g. soap

Experience qualities

Credence qualities Consultancy, dentist services

Holidays, travel

Consumer Evaluation Processes for Services Search Qualities attributes a consumer can determine prior to purchase of a product Experience Qualities attributes a consumer can determine after purchase (or during consumption) of a product Credence Qualities characteristics that may be impossible to evaluate even after purchase and consumption

Continuum of Evaluation for Different Types of Products/services

Most Services

Most Goods Easy to evaluate

Medical diagnosis

Auto repair


Root canals

Legal services

Television repair

Child care



Restaurant meals


High in search qualities







Difficult to evaluate

High in experience High in credence qualities qualities

Parsuraman identified 10 search qualities which may influence the consumers evaluation of services which are:

Consistency (performing the service right first time. Honoring the promises) Concern (giving prompt service, setting up appointments quickly) Competence (required skills and knowledge to perform the service) Contact (ease of contact; phone lines are not busy)

Courtesy (politeness, respect, consideration and friendliness of contact personnel) Communication (customers should be informed in a way that they may understand) Credibility (trustworthiness and honesty, keeping customer’s interest at heart.) Confidentiality (freedom from risk or doubt; are my dealings with the company private?) Customer knowledge (learning the customer’s specific requirements) Tangibles (physical evidence, appearance of personnel, equipments used to provide the services.)

Consumer perception of service 

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Jet airways was the first air line in the country to launch a western dress code for its air hostesses. Now the three female members of the same family may perceive it differently. Grandmother:- obscene and immoral. Mother:- doubtful but will admire the confidence. Teenage Daughter :- extremely normal and completely approving the change.

Factors affecting perception External factors •Size •Position •Movement •Repetition •Intensity •Color •Isolation •Novelty •Attractive Spokesperson •Scene change

Internal factors •Selective attention •Selective exposure •Subliminal perception •Selective distortion •Perceptual vigilance •Moods •Involvement •Experience

Relationship Marketing  

Relationship marketing means that we treat everyone as if they are customers. This includes the people that supply us with goods and services, and the channel intermediaries that may buy goods and services from us for resale to their own customers. By relationship-building with all of these organizations and individuals, we can develop strategies that are in the best interest of everyone in the entire channel of distribution. As a result, everyone wins. Decisions are not made to optimize our own power and position within the channel; rather, decisions are made to optimize efficiency for the entire channel itself.

The Firmâ&#x20AC;&#x2122;s Potential Marketing Relationships Supplier Partnerships Goods Suppliers

Services Suppliers

Business Units


Focal Firm


Nonprofit Organizations

Functional Departments

Internal Partnerships

Lateral Partnerships


Intermediate Customers

Ultimate Customers

Buyer Partnerships

Main marketing approaches Marketing Transactional Short term focus Sensitive to price Technical quality dominating Monitoring market share Ad hoc customer survey No role of internal marketing

Relationship long term focus Less Sensitive to price Functional quality dominating Monitoring customer base Customer feedback system Substantial role of internal marketing

relationship marketing:       

Focuses on long term rather than short term. Emphasizes retaining customers over making a sale. Ranks customer service as a high priority. Encourages frequent customer contact. Fosters customer commitment with the firm. Bases customer interactions on cooperation and trust. Commits all employees to providing high-quality products.

Benefits of relationship marketing     

Reduced customer price sensitivity. Barriers to competitors Lower marketing expenditure Customers can be served more efficiently. Companies can charge more price from their customers as they value benefits more than price. Customized service can be provided to the customers. Feeling of security develops for the seller.

Strategies of relationship management ď Ž ď Ž

No single acceptable model. Berry suggested 5 strategy model for relationship management.

Market to employees Price service to encourage customers Augment with extra benefits Customize the relationship

Core service

Shani and Chalasani gave 3 elements strategy Focus on relationship marketing activities

Build up the customer data base

Pursue niche marketing strategy to find the gap

Berry and Parsuraman developed the framework for relationship strategies 

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The framework gave four types of retention strategies that bind the customers a little closer to the firm. Financial bond Social bond Customization bond Structural bond

Financial bond

Frequent flyer program ď Ž

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Frequent flyer programs provide financial incentives and rewards for the travelers who choose their airline for a long time. Hotel and telecom industries are also example of these kind of programs.

Advantages/disadvantages of financial bonds ď Ž

Advantages :Easy to initiate. Can result in short term profits.

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Disadvantages :No long term advantage. Competitors can imitate these techniques.

Social Bonds

Social bonds  

Giving the customers more than the price discounts. Seeing customers as clients whose needs and wants are important for a company to understand. Although these bonds don’t tie the customers permanently to the firm still these are very difficult for competitors to imitate In the absence of a strong reason to shift to competitors the customers will stay with the company. Mainly used by professional service providers like doctor, lawyer, teacher, hair dresser etc.

Customization bonds

Customization bonds ď Ž ď Ž

Two terms are commonly used here:Customer intimacy (intimate knowledge of individual customer and development of one to one solution can increase loyalty. Customer intimacy involves knowing enough about the customer (perhaps through database tracking systems) to anticipate his/her needs and to supply them. An example might be desk delivery of a new book on a topic known to be of interest to a client. Another example is the use of tools like Instant Messaging. )

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Mass customization (use of flexible processes and organizational structures to produce varied and often individually customized products and services at the price of standardized mass-produced alternatives.) The "my library" (or "my account") webpage is one example.

Structural bonds ď Ž

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Structural bonds are created by providing services to the client that designed right into the service delivery systems. Often structural bonds are created by providing customized services to the client that are technology based and serve to make the customer more productive .

Example :- FedEx ď Ž

The company provides free computers to customers with stored addresses and shipping data, printed mailing labels, and a tracking system for packages.

Modification of the framework

THE RELATIONSHIP MARKETING CONTINUUM Firms try to move buyer-seller relationship from the lowest to the highest level of the continuum of relationship marketing to strengthen the mutual commitment between them.

FIRST LEVEL: FOCUS ON PRICE • Most superficial level, least likely to lead to long-term relationship. • Marketers rely on pricing to motivate customers. • Competitors can easily duplicate pricing benefits.

SECOND LEVEL: SOCIAL INTERACTIONS • Customer service and communication are key factors. • Example: Wine shop holding a wine-tasting reception.

THIRD LEVEL: INTERDEPENDENT PARTNERSHIP • Relationship transformed into structural changes that ensure partnership and interdependence between buyer and seller. • Example: Barnes & Noble’s member program that promotes repeat purchases by customer and provides discounts to the customer.

Tools of Relationship Marketing:  

 

Customer database :For some organizations, the database is so huge and complex, it is often called as Marketing Warehouse or data warehouse. However, smaller version of the database is known as data mart. In all these types of database efforts are made to save, as many data about the customer as available and to retrieve them on demand. The database captures data regarding almost all aspects of the customer – like their transaction habits, their life cycle stages, personal likeness and disliking, date of birth of the family members etc. so that whatever information is required about the customer can be retrieved almost without any effort.

For example, a world-renowned chain of hotels makes it a policy to treat each and every customer in customized manner. One such customization is delivering the customer his or her favorite newspaper in the morning. This information is stored in the central network of the chain and the housekeeping staff at any country can have access to the customer preferences database when the customer books himself or herself for that particular branch of the chain. This is possible only through a thorough database about the preferences of the customer, recorded when he/she had visited the hotel chain last. The customer remains satisfied with such individual attention and will in all probability be loyal to the chain.

Data Mining: ď Ž

It is observed that even with the fastest microprocessors available for data warehousing serious problems are encountered in retrieving the required information on time. Data Mining is a development in Information Technology, through which required information is mined from the server.

OLAP (online Data Processing) 

It is another tool through which retrieval and storage are made faster than ever before. This tool stores data in hypercube format specially designed to summary values of each of the transaction points across all of the various dimensions. Source record are extracted from the relational database, aggregated and batch loaded into predefined dimensions on a dedicated multidimensional server.

If any time a user needs to see a new dimension, it can be created with the next reload by the database administrator. The user may see the combination of dimensions at a time, say, past year’s sales by trading area and product category; go down immediately to see what’s going on in a specific store by department and item; then roll right back up to a regional level, merely by clicking at the appropriate dialogue boxes.

RFM Model : 

This model is helpful in monitoring retention of a particular customer. This method tries to rank a customer relative to all other customers in terms of Recency, Frequency and Monetary Value. Recency is how recently a customer has visited for a purchase, which is the most important indicator of future behaviour. Frequency is the repeat rate, while monetary value means the volume of transaction in one go (or over a period of time). The RFM model suggests that a company should find out segments of customers on the basis of their recency, repeat rate and monetary value. The propagators of this model insist that each company might have different strategies to deal with the RFM segments, but such segmentation is a must for relationship marketing.

Summary ď Ž

Relationship marketing is essentially based on the skills of relationship building and maintenance between the firm and the customer. To make a customer loyal to the organization the marketers must delight he customer each time he/she is visiting the firm. For this the firm must think ahead of its competitors and the customer himself. Every time some pleasant surprise should be offered to delight the customer.

Service recovery ď Ž

It refers to the actions taken by a company in response to a service failure.

Service Recovery ď Ž

ď Ž

ď Ž

When a customer confronts a service failure, he or she can choose to take action or do nothing. Many customers are very passive about their dissatisfaction and say or do nothing but they will decide whether to continue to use the organization providing the service or not. Generally, those who take action are more apt to continue to use the organization's services than those who do nothing (a reason why it's good to encourage complaints).

Unhappy Customersâ&#x20AC;&#x2122; Repurchase Intentions Unhappy Customers Who Donâ&#x20AC;&#x2122;t Complain



Unhappy Customers Who Do Complain Complaints Not Resolved


46% 54%

Complaints Resolved

70% 82%

Complaints Resolved Quickly

Percent of Customers Who Will Buy Again Minor complaints ($1-$5 losses)

Major complaints (over $100 losses)


Customer Complaint Actions Tracking Service Failures

ď Ž

ď Ž

When a customer decides to take action, he/she may choose to complain to the provider, complain to family and friends, or complain to a third party. Four categories of response types have been identified:

 

  

Passives. These are the ones who do nothing. They often doubt the effectiveness of complaining and think the consequences aren't worth the time and effort. Voicers. These customers actively complain to the service provider but usually not to third parties, and usually don't switch providers. These customers are the organization's best friends, in a way. Their complaints allow the service provider a second chance. This group believes complaining has social benefits and that the consequences of their complaining can be positive.

 

Irates. These customers complain to friends and relatives and usually switch providers. They may feel alienated and are definitely more angry with the provider than either of the first two. They are less likely to give the provider a second chance.

Activists ď&#x192;&#x2DC;



These customers have an above average propensity to complain on all dimensions. They will complain to the provider, tell others, and complain to third parties. Sometimes they can become "terrorists," that is, they may take extreme actions destructive of property and sometimes outside the law.

Why do people complain? 

They believe that positive consequences may occur. They believe that they should be provided the compensation for the service failure. They feel a social obligation to complain.

Why people don’t complain?  

Waste of time and money. They don’t believe anything positive will happen.

When people complain, what they expect? ď Ž

ď Ž

ď Ž

Outcome fairness (compensation that can match their dissatisfaction level in terms of money, apology and future free services. ) Interactive fairness (customers should be treated politely with care and honesty.) Procedural fairness (fairness in terms of policies, rules and timeliness of the complaint process, quick handling of complaints, absence of hassles)

Service recovery strategies       

Welcome and encourage complaints. Fall safe your service. Learn from lost customers. Act quickly. Treat customers fairly. Learn from recovery experiences. Do the right things first time.

Service Recovery Strategies

il Fa

fe Sa

e th

c vi r Se

We En lcom co ura e an ge d Co m


pla i

n ts

Act Quickly

Learn from ers Lost Custom

Service Recovery Strategies

Le Re arn f co rom ve ry Ex pe ri

en ce s

e Tr


st u C


s er

ir l a F


Do the things right first time only. ď Ž

ď Ž

Service recovery will be unnecessary if customers get what they expect. Create a culture of ZERO defections.

Welcome and encourage complaints 

 

Complaints should be anticipated and encouraged. A complaining customer should be viewed as a friend. Satisfaction surveys, lost customer research should be done. Teach customers how to complain. Make use of technology to make the process of complaining simplified.

Causes behind service switching Response to service failure Negative response No response Reluctant response

Pricing High price Unfair price Deceptive pricing Inconvenience Location/hours Wait for appointment Wait for service Core service failure Billing error Core service failure Service catastrophe Service Impolite Uncaring Unknowledgeable

Competition Found better service Service Switching behavior

Ethical problems Cheat Hard sell Conflict of interest Unsafe Involuntary switching Customer moved Service provider moved

Service Guarantees

guarantee = an assurance of the fulfillment of a condition A formal agreement, usually in writing, that a service will conform to specified standards for a particular period of time.

services are often not guaranteed

 

cannot return the service service experience is intangible (so what do you guarantee?)

Guarantee and warranty ď Ž ď Ž

Guarantee (a thing is replaced) Warranty (a thing is repaired)

ď Ž

In the event that a product or service fails to perform as promised, the warranty may make repairs or exchanges of the product easier. There are some obligations that the purchaser must fulfill. If you have a warranty on a car for instance, and you run that car into a tree, you generally wonâ&#x20AC;&#x2122;t get free repairs since your action, whether accident or not, constitutes a misuse of the car. However if your car is under warranty and the engine falls out of it while youâ&#x20AC;&#x2122;re driving, you may be entitled to free or reduced price repairs.

Service guarantee ď Ž

ď Ž

A service guarantee is a statement that clarifies what the customers can expect from a service, and what the company will do to rectify the situation if the service does not meet expectations. The guarantee have been claimed to have a number of influences on how services are managed as the guarantee clearly states the level at which the service should be delivered, and indicates the costs of failing to do so.

Example 

AIRTEL Broadband and Telephone Services, the landline and broadband service from Bharti group, will offer guaranteed service to subscribers. Under the service guarantee, AIRTEL will repair telephones that are out of order within four working hours and promise error-free bills. If the company fails to meet the promises, it will pay Rs 100 to the customer. The amount will be credited in the next telephone bill. Source :- Hindu business line, 2005

Example 2 

24 Hours Service Guarantee by standard Chartered At Standard Chartered, we are committed to giving the best and fastest service in Uganda. That’s why we are the first to guarantee one-day response to your personal loan application. We guarantee that if we don't get back to you with an answer within 24 hours, we will give you UGX 500,000 - no questions asked! Put us to the test! Apply for your Smart Credit loan today. Visit your nearest branch or Call 041 4340077 Source:-

Characteristics of an Effective Service Guarantee 

Unconditional 

Meaningful 

It should guarantee elements of the service that are important to the customer. The payout should cover fully the customer's dissatisfaction.

Easy to Understand and Communicate  

The guarantee should make its promise unconditionally - no strings attached. (Korean Bridge Project)

For customers - they need to understand what to expect. For employees - they need to understand what to do.

Easy to Invoke and Collect 

There should not be a lot of hoops or red tape in the way of accessing or collecting on the guarantee.

Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.

Why a Good Guarantee Works 

forces company to focus on customers

sets clear standards

generates feedback

forces company to understand why it failed

builds “marketing muscle”

Service Guarantees 

Does everyone need a guarantee?

Reasons companies do NOT offer guarantees:   

too many uncontrollable external variables fears of cheating by customers costs of the guarantee are too high

Service Guarantees 

service guarantees work for companies who are already customer-focused effective guarantees can be BIG deals - they put the company at risk in the eyes of the customer customers should be involved in the design of service guarantees the guarantee should be so stunning that it comes as a surprise -- a WOW!! factor “it’s the icing on the cake, not the cake”

Physical Evidence and the Servicescape

What is physical evidence?

Physical facility

Other Tangible communication


Physical evidence

Definition ď Ž

ď Ž

Servicescape: the environment in which the service is delivered and where the firm and the customer interact Any tangible commodities that facilitate performance or communication of the service

Definition 2 

The "servicescape" – the set of tangible, physical cues that represent an organization to its clients – has been shown to strongly influence customer behavior and satisfaction (Bitner 1992; Stone and English 1998; Wirtz and Bateson 1999; Yun et al. 2001;Mummalaneni 2005).

Servicescape 

Facility exterior:     

Exterior design Signage Parking Landscape Surrounding environment

Servicescape 

Facility interior:     

Interior design Equipment Signage Layout Air quality/temperature

Other Tangibles        

Business cards Stationery Billing statements Reports Employee dress Uniforms Brochures Web pages

Elements of Physical Evidence Servicescape

Other tangibles

Facility exterior

Business cards Stationery Billing statements Reports Employee dress Uniforms Brochures Web pages Virtual servicescape

Exterior design Signage Parking Landscape Surrounding environment Facility interior Interior design Equipment Signage Layout Air quality/temperature

Virtual servicescape ď Ž

The design of the virtual site that customers encounter in an e-service setting can be labeled the "virtual servicescape", and is likely to influence customer feelings toward, perceptions of, and inclinations to do business with an organization

Purpose of service environments 

  

Affect creating medium (use different color, textures etc to give a different kind of experience) Message creating medium (use symbolic clues to communicate to your target audience ) Attention creating medium (make your servicescape standout from your competitors.) Helps in differentiation and identification of a service. Failures can be reduced to a significant level. It adds to the service experience.

Examples of Physical Evidence from the Customerâ&#x20AC;&#x2122;s Point of View

Typology of Service Organizations Based on Variations in Form and Use of the Servicescape Complexity of the servicescape evidence Servicescape usage



Self-service (customer only)

Golf Land Surf 'n' Splash

ATM Ticketron Post office kiosk Internet services Express mail drop-off

Interpersonal services (both customer and employeee)

Hotel Restaurants Health clinic Hospital Bank Airline School

Dry cleaner Hot dog stand Hair salon

Remote service (employee only)

Telephone company Insurance company Utility Many professional services

Telephone mail-order desk Automated voice-messagingbased services

Strategic role of servicescape 

Package (wraps the service in an effective manner. It is the outer representation of what’s inside) Facilitator (enhance the performance of the people in the environment) Socialize (clearly defines the expected role and behavior) Differentiator (different from competitors and can be used as a differentiation strategy)

Understanding Servicescape Effects on Behavior   

Stimulus-Organism-Response Theory Multidimensional environment is the stimulus Consumers and employees are the organisms Behaviors are the responses




“Response”: Behaviors in the Servicescape 

Individual behaviors  

Approach--stay, explore, work, affiliate Avoidance--not to stay, explore, work, affiliate

Social interactions 

Between and among customers and employees The best design for one person or group may not be the best design for others

â&#x20AC;&#x153;Responseâ&#x20AC;?: Behaviors in the Servicescape Arousal Distressing Displeasure


Gloomy Mehrabian-Russell Model


Relaxing Nonarousal

“Organism”: Internal Responses to the Servicescape 

Cognitive   

Beliefs Categorization Symbolic meanings

Emotional  

Mood Attitude

Physiological    

Pain Comfort Movement Physical fitness

“Organism”: Internal Response Moderators   

Personality Purchase situation Temporary mood states

“Stimulus”: Environmental Dimensions of the Servicescape 

Ambient conditions     

Temperature Air quality Noise Music Odor

“Stimulus”: Environmental Dimensions of the Servicescape 

Spatial Layout/Function   

Layout Equipment Furnishings

Signs, Symbols, and Artifacts   

Signage Personal artifact Style of decor

“Stimulus”: Environmental Dimensions of the Servicescape   

Sound appeals Scent appeals Sight appeals   

Size perceptions Shape Color perceptions

A Framework for Understanding Environment-User Relationships in Service Organizations

Internal Responses 

Cognitive: what does the servicescape cause me to think of this place? I can categorize or label them. This is a ________ store! Emotional: stimulates psychological feelings comfortable, friendly, gloomy, depressing Physiological: related to temperature, noise, lighting, etc. This place is too _____! Very much a personal thing

Categories of Stimuli 

Ambient: 

Layout and functionality: 

intangibles, related to five senses - noise, odours, temperature, music, color, surfaces easy to use, comfortable, enhances the experience or not - adequate facilities, parking, carts, etc.

Signs and symbols: 

creates an ambiance, facilitates traffic flow, includes materials used, décor, photos, age of magazines

Role of customers in the servicescape 

Customers as the productive asset (customers are partial employees, temporary members or participants in the service delivery process) Customer as contributor to quality, satisfaction and value (effective participation means that needs are successfully met that in-turn will give the organization a competitive edge.) Customers as competitors (customer performing the service by himself/herself and excluding the service provider. E.g. ATM, booking and ordering products online) Customers recommend the services to others (w.o.m)

Understanding Servicescape Effects    

Environment surveys Direct observation Experiments Photographic blueprints

Guidelines for Physical Evidence Strategy 

 

Recognize the strategic impact of physical evidence Map the physical evidence of service Clarify the roles of servicescape

Guidelines for Physical Evidence Strategy 

Assess and identify physical evidence opportunities Be prepared to update and modernize the evidence Work cross-functionally




© 2000 The McGraw-Hill Companies

Managing Capacity and Demand


Supply/ capacity


Demand and Capacity • Demand is the request for services on a daily basis Capacity is the amount of people/equipment available to meet demand

Strategies for Matching Supply and Demand for Services DEMAND STRATEGIES

Developing complementary services Developing reservation systems


Partitioning demand

Sharing capacity

Establishing price incentives

Crosstraining employees

Promoting off-peak demand

Using part-time employees

Yield management

Increasing customer participation Scheduling work shifts Creating adjustable capacity

Managing Demand and Capacity • Explain: • the underlying issue for capacity-constrained services • the implications of capacity constraints • the implications of different types of demand patterns on matching supply and demand • Lay out strategies for matching supply and demand through: • shifting demand to match capacity or • flexing capacity to meet demand • Demonstrate the benefits and risks of yield management strategies • Provide strategies for managing waiting lines

Understanding Capacity Constraints and Demand Patterns Capacity Constraints  Time, labor, equipment and facilities  Optimal versus maximal use of capacity

Demand Patterns

• Charting demand patterns • Predictable cycles • Random demand fluctuations • Demand patterns by market segment

Figure 14-3

Strategies for Shifting Demand to Match Capacity Demand Too High • • • • •

Shift Demand

Use signage to communicate • busy days and times Offer incentives to customers for usage during non-peak times • Take care of loyal or regular • customers first Advertise peak usage times and • benefits of non-peak use • Charge full price for the service-no discounts

Demand Too Low

Use sales and advertising to increase business from current market segments Modify the service offering to appeal to new market segments Offer discounts or price reductions Modify hours of operation Bring the service to the customer

Figure 14-4

Strategies for Flexing Capacity to Match Demand Demand Too High

• • • • • • •

Flex Capacity

Stretch time, labor, facilities and equipment Cross-train employees Hire part-time employees Request overtime work from employees Rent or share facilities Rent or share equipment Subcontract or outsource activities

• • • •

Demand Too Low

Perform maintenance renovations Schedule vacations Schedule employee training Lay off employees

Table 14-1

What is the Nature of Demand RelativeExtent to Supply? of demand fluctuations over time Extent to which supply is constrained


Peak demand can 1 usually be met Electricity without a major Natural gas delay Telephone Hospital maternity unit Police and fire emergencies Peak demand regularly exceeds capacity

4 Accounting and tax preparation Passenger transportation Hotels and motels Restaurants Theaters

Narrow 2 Insurance Legal services Banking Laundry and dry cleaning

3 Services similar to those in 2 but which have insufficient capacity for their base level of business

Source: Christopher H. Lovelock, â&#x20AC;&#x153;Classifying Services to Gain Strategic Marketing Insights,â&#x20AC;? Journal of Marketing, 47, 3 (Summer 1983): 17.

Table 14-2

What is the Constraint on Capacity? Nature of the constraint

Type of service


Legal Consulting Accounting Medical


Law firm Accounting firm Consulting firm Health clinic


Delivery services Telecommunication Utilities Health club


Hotels Restaurants Hospitals Airlines Schools Theaters Churches

Queue Configurations Multiple Queue

Single queue

Take a Number Enter 3

4 8



10 12




7 12-216



Yield management is a term that has become attached to a variety of methods, some very sophisticated matching demand and supply in capacity-constrained services. Using yield management models, organizations find the best balance at a particular point in time among the prices charged, the segments sold to, and the capacity used.

ď Ž

ď Ž

The goal of yield management is to produce the -best possible financial return from a limited available capacity. Specifically, yield management has been defined as "the process of allocating the right type of capacity to the right kind of cust0mer at the right price so as to maximize revenue or yield. Although the implementation of yield management can involve complex mathematical models and computer programs, the underlying effectiveness measure is the ratio of. actual revenue to potential revenue for a particular measurement period:

  

'Yield = Actual revenue / Potential revenue where Actual revenue = actual capacity used x average actual price Potential revenue = total capacity x maximum price

ď Ž

The equations indicate that yield is a function of price and capacity used. Recall that capacity constraints can be in the form of time, labor, equipment, or facilities. Yield is essentially a measure of the extent to which an organization's resources (or capacities) are achieving their full revenue-generating potential. Yield can be raised by increasing capacity used or by increasing price, and the trade-offs are immediately apparent.

Yield Management Examples ď Ž

Take, for example, "a hotel that has 200 rooms that it can rent at a rate of $100 per night (potential revenue of $20,000). One night it rents 'all of .the rooms at a -reduced rate of $50' per night, yielding a revenue of $10,000. Although capacity was used to the maximum level that night, yield was only 50 percent ($10,000/$20,000). If, on the other hand the hotel had charged. Its full rate it might have sold 'only 40 percent of its rooms

ď Ž

Because of customer price sensitivity. The yield under these circumstances would have been 40 percent ($8,000/$20,000.). At the $100 rate .the hotel may thus be maximizing the per-room price but not the potential yield-or revenue generation for the entire hotel. Perhaps combination of e two room rates would be the best solution. If the hotel could fill 40 percent of the rooms -at $100 per night and the -other 60 percent at $50, the revenue would be $14,000, resulting in a yield of -70 percent ($14,000/ $20,000), clearly better than the other two alternatives.

ď Ž

ď Ž

ď Ž

In a different context, a firm could determine the best mix to business for using its labor capacity to yield the highest returns. For example, if one attorney has 40 potential billable hours in a given week and her rate is $200 per hour for private corporate clients, then maximum revenue generation by that attorney in a week is $8,000. Assume her rate for public and nonprofit clients is $100 per hour. As in the preceding hotel example, if the attorney could bill out all of her hours in a week to public clients at the $'100 rate, yield would be 50 percent.

ď Ž

Yield management attempts to manage demand to meet capacity (fixed number of rooms or' fixed number of hours in these examples) by deciding what amount of capacity to Offer at what price to' what market segments in order to maximize revenues over a particular, period. It forces recognition of the trade-offs inherent in serving a lower-paying market segment to fill capacity when there may be some demand from higher-paying clientele.

ď Ž

If she were to hold out for private corporate clients, she might be able to sell only 30 percent of her available time (12 hours), resulting in a yield of 30 percent ($2,400/$8,000). By combining the two strategies the attorney could possibly sell 30 percent of her time at $200 per hour to private corporate clients and the remaining 70 percent to public clients for $100 per hour, resulting in a yield pf 65 percent ($5,200/$8,000), clearly better than the other two alternatives.

Technology spotlight  

Information and technology drive yield management systems Yield management is not a new concept, in fact, the basic ideas behind yield management – achieving maximum profits through the most effective use of capacity has been around forever. It is easy to find examples of capacity constrained businesses using price to shift demand; the alters that charge different prices for matinees versus evening performances, intercity trains with different prices on weekdays than on weekends, ski resorts with cheaper prices for night skiing and restaurant with twilight’ dinner specials. All of these strategies illustrate attempts to smooth the peaks and valleys of demand using price as the primary motivator.

ď Ž

The difference in these basic pricing strategies and more sophisticated yield management approaches currently in use by airlines, hotels, shippers, and others is the reliance of these latter strategies on massive database, sophisticated mathematical algorithms, and complex analyses these new forms of yield management consider not only price but also market segments, price sensitivity among segments, timing of demand, and potential profitability of customer segments â&#x20AC;&#x201C; all simultaneously. What makes new forms of yield management possible are the technology and systems underlying them. Here we provide a few examples of what some companies and industries are doing.

American Airlines ď Ž

American airlines is the original pioneer and still the king of yield management. Beginning with super saver farer in the mid 1970s, American now depends on system developed by the sabre group (both American and Sabre are subsidiaries of AMR Group) to support and exceeding complex system of fares. Using a system of models containing algorithm that optimize prices, manage wait lists, and handle traffic management, American allocates seats on every one of its flights. Even night the number of seats sold on each of American flights is compared with a sales forecast for that flight. Blocks of seats are moved form higher to lower fares if sales are below projections.

ď Ž

If sales are at or above the forecast, on changes are made. About 50000 fare change are made every night. The objective s to sell the fight seats to the right customers at the right price. To do this requires massive amounts of data the typical yield management database for a large airline can exceed 300 gigabytes of data, equivalent to a 6350 meter stack of paper. For a person to scan this data, he would need to work 43 years, 40 hours per week, and spend only five seconds per pages.

Challenges of yield management ď Ž

There is evidence that yield management programs can significantly improve revenues. However, while yield management may appear to be an ideal solution to the problem of matching supply and demand, it is not without risks. By becoming focused on maximizing financial returns through differential capacity allocation and pricing, an organization may find that it risks:

ď Ž

ď Ž

Loss of competitive focus. Yield management may result in overfocusing on profit maximization and inadvertent neglect of aspects of the' service that provide long-term competitive success. Customer alienation. If customers learn that they are paying a higher price for service than someone else, they may perceive the pricing as unfair, particularly if they don't understand the reasons. Customer education is thus essential in an effective yield management program. Customers can be further alienated if they fall victim (and are not compensated adequately) to overbooking practices that are often necessary to make yield management systems work effectively.

ď Ž

ď Ž

Employee morale problems. Yield management systems take much guesswork and judgment away from sales and reservations people. While some employees may appreciate the guidance, others may resent the rules and restrictions on their own discretion. Incompatible incentive and reward systems;'Employees may resent yield man-agement systems if these don't match incentive structures. For example, many managers are rewarded on the basis of capacity utilization, or average rate charged, whereas yield management balances the two factors.

ď Ž

ď Ž

Lack of employee training. Extensive training is required to make a yield management system work. Employees need to understand its - purpose, how it work, how they should make decision and how the system will affect their jobs. Inappropriate organization of the' yield management function. To be most effective with yield management, an organization must have centralized reservations. While airlines and some large hotel chains and shipping companies do have such centralization, other smaller organizations may have' decentralized reservations systems and thus find it difficult to operate, a yield management system effectively:


ď Ž

Sometimes it is not possible to manage capacity to match demand, or vice versa. It may be too costlyfor example, for-most health clinics it would not be economically feasible to 'add additional facilities or physicians to handle peaks in demand during the winter flu season; patients usually simply have to wait to be seen. Even though patients are scheduled by appointments in a physician's office frequently there is a wait because some patients take longer t6 serve than the time allotted to them.

ď Ž

In today's fast-paced society, waiting is not something most people tolerate well. As people work longer hours, individuals have less leisure, and families have fewer hours together; the pressure on people's time is greater than ever. In this environment, customers are looking for efficient, quick service with no wait. Organizations that make customers wait take the chance that they will lose business or at the very least that customers will be dissatisfied.

waiting line strategies. ď ą

ď Ž

ď Ž

Employ Operational logic

If customer waits are common, a first step is to analyze the operational processes to remove any inefficiencies. It may. be possible to redesign the system to move customers along more quickly Modifications in the operational system were part of the solution employed by the First National Bank of Chicago in its efforts. to reduce customer waiting and improve service

ď Ž

In introducing its express check-in, Marriott Hotels used, an operations based modification to e1iminate much of the waiting previously experienced by its guests. Guests who -use a credit card and reregister can avoid waiting ip. line at the hotel front desk altogether_ The guest can make it from the curb outside the hotel to his or her room in as. little as three minutes when escorted by a "guest service associate" who checks the guest into the hotel, picks up keys and paperwork from a rack in the lobby, and then escorts the guest directly to the room.

ď Ž

When queues are inevitable, .the organization faces the operational decision of what kind of queuing system to use, or how to configure the queue. Queue configuration refers to the number of queues, their locations, their spatial requirement, and their effect on customer behavior.

  

Multiple queues Single queue Number system

Figure 15.6

Waiting Line Configurations

Source: J. A. Fitzsimmons and M. J. Fitzsimmons, Service Management, 4th ed. (New York: Irwin/McGraw-Hill, 2004), chap. 11, p. 296.

ď Ž

Establish a- Reservation Process

ď Ž

When waiting cannot be avoided, a reservation system can help to spread demand. Restaurants, transportation companies, theaters, physicians, and many other service providers use reservation systems to alleviate long waits. The idea behind a reservation-system is to guarantee that the service will be available when the customer arrives. Beyond 'simply reducing waiting time, a reservation system has the added benefit of potentially shifting demand to less-desirable time periods.

ď Ž

A challenge inherent in reservation systems, however, is what to do about -"no shows." Inevitably there will be customers who reserve a time but do not show -up. Some organizations deal with this by overbooking the service capacity on the basis of past records of noshow percentages. If the predictions are accurate, overbooking is a good solution. When predictions are inaccurate, however customers may still have to wait and sometimes may not be served at all, as when airlines overbook the number of seats available on a flight. Victims of overbooking may be compensated for their inconvenience in such cases. To minimize the no â&#x20AC;&#x201C;show problem, some organizations (e.g., hotels, airlines, conferences/training programs, theaters) charge customers who fail to show up or cancel their reservations within a certain time frame.

Differentiate Waiting Customers ď Ž

Not all customers necessarily need to wait the same length of time for service. On the basis of need or customer priority, some organizations differentiate among customers, allowing some to experience shorter waits for service than others. Known as "queue discipline," such differentiation reflects management policies regarding who to select next for service. The most popular discipline is firstcome, first-served. flow ever, the rules may apply. Differentiation can be based on factors such as.

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Importance of the customer. Frequent customers or customers who spend large amounts with the organization can be given priority in service by providing them with a special waiting area or segregated lines. â&#x20AC;˘ Urgency of the job. Those. Customers with the most urgent need may be served first. This is the strategy used in emergency health care. It is also the strategy used by maintenance services such as air conditioning repair that-give priority to customers whose air conditioning is not functioning over those who call for routine maintenance.

Duration of the service transaction. In many situations, shorter service jobs get priority through "express lanes." At other times, when a service provider sees that a transaction is going to require extra time, the' customer is referred to a designated provider who deals only with these special-needs customers. • Payment of a premium price. Customers who pay extra (e.g., first 'class on an airline) are often given priority via separate check-in lines or express systems.

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Make Waiting Fun, or at Least Tolerable Even when they have to wait, customers can be more to less satisfied depending on how the wait is handled by the organization. Of course the actual length of the wait will affect how customers feel" about their service experience. But it is not just the actual time spent waiting that has an impact on customer satisfaction-it's how customers feel about the wait and their perceptions during it.

Waiting Line Issues    

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unoccupied time feels longer preprocess waits feel longer anxiety makes waits seem longer uncertain waits seem longer than finite waits unexplained waits seem longer unfair waits feel longer longer waits are more acceptable for “valuable” services solo waits feel longer

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Unoccupied Time Feels Longer than Occupied Time When customers are unoccupied they will likely be bored and will notice the passage of time more than when they have something to do. Providing something for waiting customers to do, particularly if the activity offers a benefit in and of itself or is related in some way to the service, can improve the customer's experience "and may benefit the organization as well. Examples include giving customers menus to look at while waiting in a restaurant, providing interesting information to read in a dentist's office, or playing entertaining programs over the phone while customers are on hold. At Macy's in New York, children waiting to see Santa Claus wend their way through displays of dancing teddy bears, elves, and electric trains that become part of the total service adventure.

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Preprocess Waits Feel Longer than In-Process Waits If wait time is occupied with activities that relate' to the upcoming service, 'customers may perceive that the service has started and they are no longer actually waiting. This in-process activity will make the length of the wait seem shorter and will also benefit the service provider by making the customer better prepared when the service actually does begin. Fining out' medical information while waiting to see the physician, reading a menu while waiting to be seated in a restaurant, and watching a videotape of the. upcoming service event are all activities that can at the same time educate the customer and reduce perceptions of waiting. Research in a restaurant context found. that customers reacted less negatively to in process waits than to either preprocess or post process waits.

service DeveLoPMent anD Design


The service offer can be a good or a service or both. The various tangible and intangible feature of a service satisfy the needs and wants of the customers. For example credit card, the tangible features could be colorful mailers, free diary, calendars and other free gifts. The intangible benefits may be convenience, maximum acceptance, insurance etc.

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In service marketing as service is intangible so no exchange takes place. The marketer performs a deed for the buyer. The consumer as well only consumes the experience but never gets to own the offer.

Example 

You ride on a super luxurious Volvo bus from Delhi to Manali. You can only experience the journey but you never own the bus. Your quality of experience is definitely affected by tangible components of the service offer: cushioned seats, airconditioning, complementary food, music and video entertainment etc. So the service transaction remains the main focus for the service marketing strategies and management.

Total product concept ď Ž

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People view goods or service not just an isolated items but they view them as a bundle of elements. These elements were created by marketers to combat magnifying competition and creating a difference in the eyes of the customers. Now intangible have become important components of the product while for services tangibles have become add-ons.

Now a suburban mall is not just a place for buying monthly provisions.

Now it has become a socializing forum an evening out with your family.

Theodore Levitt gave the concept of Total product.     

He distinguished among:Generic product (core product) Expected product Augmented product Potential Product

Generic product (core product) ď Ž

Generic product is the basic product This first product level = core product = core benefit What is the basic thing that people are buying? The core benefit of buying a drill is making holes The core benefit of a car is transportation.

The expected product 

People are not satisfied with the core benefit of a product or service. They expect additional things

This product level comprises all the attributes offered in the actual product It includes the design of the product, packaging, quality levels, features and brand names. If these features exceed the buyers expectations they will be satisfied.

A CD or DVD player is expected to offer a certain quality of sound, a choice of battery, control lights, look sophisticated

The augmented product 

Competition forces firms to offer more than the expected products.

The augmented product has to offer additional aspects or elements that support the core and actual product features Customer service, delivery, after-sales service, guarantee

Many products are marketed at augmented product level – USP


Products can be augmented by Image Assistance Credit Delivery Installation Service Guarantees

The potential product 

Comprises all the augmentations and transformations a product might undergo in the future.

The emphasis is put on future product improvements to keep the product competitive


The potential product has to include everything that might be done to attract and keep customers






Example:- HOSPITAL Core product/ Expected Service service

Augmented service

Quality treatment



facilities Qualified staff Reasonable rates Efficient tools for surgery Range of rooms

education and training Research and laboratory Internationally recognized doctors Hostel facility

Service Product Audit 

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Its very essential to know that you as a marketer is exactly offering the same thing as desired by the customers. It can be done by marketing research techniques. The areas where the audit can probe are: Target market segment current and potential customers Benefits that the customers perceive Does the offer accomplish the needs of the customers Effectiveness of the competition

Product or offer mix 

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The complete bouquet of all offers of a firm is called product (offer) mix. A firm can expand its offer mix by following three ways:Increase the no. of service product lines (width) Increase the no. of service offer items within each product line (length) Increase the no of variants in a product line (depth)

Adding new product line (width) 

A service product line can be explained as a group of closely related offers, targeted at the same type of customers. The width of a product mix of service refers to the different business lines. Some companies tend to stick to their core business while others expand. Example:- CMC Ltd- public sector software giant has continued to remain in the core area of software consultancy while others like Infosys and wipro have entered in to BPO business.

ITC in to hospitality (Welcom group), travel and cargo (international travel house), golf course management, education (sangeet research academy), apparels (wills lifestyle) ICICI in to insurance (ICICI PRUDENTIAL and LOMBARD), Information Technology (ICICI InfoTech), home and personal loans etc.

Increase the no of variants in a product line (depth) 

Depth refers to the variants of a product or a service available to the customers. It gives customer the variety in terms of Size, color, weight, volume or special features. Special features are applied in service marketing. Example:- mutual funds schemes are growth oriented, dividend paying or both.

Supplementary service ď Ž

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The additional services offered by organizations to augment the core product/services are called supplementary services. Supplementary services enhance the use of core service.

Why do we need supplementary service? ď Ž

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One is at risk that if every service provider will give the same core benefit the service will be perceived as a commodity and customers will make choices on the basis of price only. Supplementary services in order to complement the core service must be developed to differentiate from others. The core product with supplementary services becomes the augmented product.

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These supplementary services are shown as petals surrounding the centre of the flower, this is known as flower of service.

Information:- service hrs, service level agreement detail, value, fees, guarantee/warranty. Order taking:- credit card check in bank, medical report or examination before giving an insurance. Invoices :- computerized accurate and customer friendly interpreting statements. Payments :- telephone bills paid at retail outlets, coin system in parking.

Consultation:- personal training at gym, tax consultation, organizational audit. Hospitality:- face to face greetings, tea and beverages served, newspapers in waiting areas. Safe keeping:- security staff looking after vehicles, luggage handling at airport, safe deposit boxes at a bank. Exception:- person in a wheel chair requiring special assistance to board a flight, a special dietary requirements in an airline.

Identifying and classifying supplementary services          

Ss that are used to enhance the core service or required for service delivery Information Order taking Billing Payment Ss that add extra value for the customers Consultation Hospitality Safe keeping Exceptions

Service design 

It is a process that unifies the core and the supplementary services to meet customers’ needs. The concept of blue printing is used to document an existing service design or new service design. All the key activities to deliver a service are needed to develop a blue print. The blueprint illustrates the interaction between customers and the front line employees and the back up support of other systems and other staff members.

Positioning 

"A product's position is how potential buyers see the product” The process by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization. It is the 'relative competitive comparison' their product occupies in a given target market.

positioning process 

Defining the market in which the product or brand will compete (who the relevant buyers are) Identifying the attributes (also called dimensions) that define the product 'space' Collecting information from a sample of customers about their perceptions of each product on the relevant attributes Determine each product's share of mind

Determine each product's current location in the product space Determine the target market's preferred combination of attributes (referred to as an ideal vector) Examine the fit between:  

The position of your product The position of the ideal vector


Perceptual mapping ď Ž

Perceptual mapping is a graphics technique used by asset marketers that attempts to visually display the perceptions of customers or potential customers. Typically the position of a product, product line, brand, or company is displayed relative to their competition.

Pricing 

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Price is what customers are willing to pay for services. How much a customer is willing to pay depends on the value he perceives in the service offer. Price= quantity of money received by the service provider Quantity of service received by the buyer

Buyerâ&#x20AC;&#x2122;s perception of value Product value Service value Personnel value

Total Customer value

Image value Buyerâ&#x20AC;&#x2122;s perception of value Monetary cost Time cost Energy cost Psychic cost

Total Customer cost


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What makes pricing of the services THE DIFFICULT? Higher fixed cost to variable cost ratio Variability of input and output Services are difficult to evaluate before experiencing.

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The services firms have higher fixed costs like due to infrastructure (building i.e. hotel, college) and equipments (travel, gym) But the cost of serving individual customer is quite low. (variable cost)

Strategies for pricing of a service ď Ž

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Cost based pricing (in certain cases costs are determined by the government i.e. water, electricity, telecommunication) Competition based pricing Value based pricing

Cost-plus pricing  

Here pricing is based on the costs of producing the good or providing the service. The total costs are computed then the price determined by adding on some required margin or 'mark up'. This approach has a number of weaknesses in that it considers neither the competitive situation nor the market potential. Prices may be set too high against those of competitors to attract customers or may not be set high enough to exploit demand, especially if the product or service is innovative, new, or distinctive in some way from competitive offerings.

Variable pricing ď Ž

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This is particularly relevant in industrial and business-to-business markets where individual contracts are priced according to specification. Service providers such as architects and consultants quote a price according to the needs of the project. Tendering is a situation which generally reflects this approach.

Marginal pricing 

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Marginal pricing is based on the concept of marginal cost and is particularly relevant for service industries. The marginal cost is 'the cost of the last unit of output' and may be very low. For example, a unit of output for an airline could be defined as a fare paying passenger so the marginal cost of the last unit of output one extra passenger on a plane will be very low in comparison with the overall costs of fuel, maintenance, staffing costs and so on. It is probably equal to the cost of the meal and drinks served on board.

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Therefore, when there is spare capacity on a passenger airline, empty seats which can be filled by passengers paying vastly reduced ticket prices are preferable to empty seats. This is the principle behind 'standby' airfares where seats are offered at the last minute for a fraction of the normal fare - anything over the marginal cost is a contribution to the company's profits.

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Travellers arriving late at night can often negotiate reduced room rates in hotels, and holiday makers prepared to make a last minute reservation can book package tours at heavily discounted prices. The perishable nature of services means that empty seats on a plane or vacant bedrooms in a hotel represent a business opportunity which is lost.

Promotional pricing 

Sales promotion techniques often use tactical pricing reductions as a means of increasing sales over a short period. Discounts, special offers, vouchers, rebates and even 'buy now pay later' schemes and interest-free credit are all examples of promotional pricing. It should be treated as a short-term tactic, not a long-term measure. The overall effect of a price war between suppliers competing with one another can be to de-value the market.

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'Loss leaders' are another example of promotional pricing used in retailing especially. A staple product is offered at a loss-making price to attract customers to the store where they will (hopefully) spend money on other products. Wal mart follow this strategy by offering few toys under the loss leader strategy.

Differential pricing 

Another form of promotional pricing of particular concern to service marketers is differential pricing, where different prices are charged for the same service at different times or to different customers. This tactic is used to attract more business in slack periods or to attract particular groups of customers to make up demand at particular times. Differential pricing may be seasonal, reflecting the different prices charged for the same holidays in low-, mid- and high-season or by time period, hence the price of rail fares in peak periods compared with off-peak periods. Airlines and cinemas are the other examples.

Pricing strategies are the functions of pricing objectives which are:

Survival (in highly competitive era this objective may involve price cuts and lower profitability level) Sales maximization (service providers will have this objective when the aim is to have economies of scale) Prestige (certain lawyers and CA charge high fees just to position themselves as exclusive) Social consideration (in healthcare industry providers can't decide the price government intervenes and in education and transportation industry government subsidies)

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Stimulate patronage (in case of new service offer the service provider may go for penetration or skimming pricing strategy) Matching supply and demand (to manage the demand offer off- peak discount and offering discount in case of low demand period )

Price skimming ď Ž

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Here the supplier 'skims the cream' off the market by offering a product or service at a high price on a low volume basis. This is particularly appropriate for new products in new market situations where a proportion of consumers are always prepared to pay more for new, innovative goods. Mobile telephones are an example of this; the actual product (the telephone) has reduced in price over time since initial introduction to the market and the service (mobile communications) charges have also reduced, bringing the mobile phone within reach of ordinary consumers.

Penetration pricing ď Ž

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In this case the price is set at a low level in order to attract high volume sales, thus gaining substantial market share. For new products and services the payback period is lengthy but with the advantage of establishing a strong market position. The strategy is especially suitable for use when entering highly competitive markets, such as the fast food restaurant business in the UK, or international airlines.

Mixed pricing ď Ž

This is based on the above two pricing strategies; begin with a price skimming policy then reduce the price as competitors enter the market to defend the organisation's position and attract new customers. The example given previously of mobile communications typifies this approach.

Factors contributing to price sensitivity         

Substitute awareness effect Unique value effect Switching costs effect Difficult comparison effect Price quality effect Total expenditure effect End benefit effect Shared cost effect Sunk cost effect


Prices are not set once only; developing pricing policy should be a continuous process, always open to refinement and adjustment when the need arises. It is important to recognize problems which can arise from the failure or inadequacy of some pricing programs so that steps can be taken to rectify the situation. As with all aspects of marketing planning, pricing should be monitored continuously and corrective action implemented quickly.

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There are a number of key stages in price decision making which can be identified as follows: Analyse organizational objectives in terms of pricing. Determine demand levels and customer characteristics. Analyse costs. Examine competitor pricing and positioning. Set prices utilizing pricing concepts, e.g. cost-plus. Monitor market response to prices set and identify problems. Organisations should always be ready to adapt pricing to variable conditions in the market. Price should be used fully as a marketing tool- a key element within the marketing mix.

service marketing  

ppt of service marketing