Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum

Course 2 : Contemporary Perspectives on Management

Unit 10 : Marketing Mix Design for Services

Technology Education Section, Curriculum Development Institute Education Bureau, HKSARG August 2008

Learning Objectives
On completion of the unit, participants should be able to:
understand the basic characteristics for services and its impact on marketing mix design; elaborate on the unique marketing mix for services; People Physical evidence Process define services quality by SERVQUAL Instrument; and explore the possibilities of providing services on the internet.
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Unit Outline
Definitions of Services Characteristics of Services Intangibility Inseparability Heterogeneity Perishability 5th P: People

Services Marketing Mix

Types of person/role conflict Reducing person/role conflict Location Selection Designing a good layout Capacity Utilization Measures Framing Service Experience

6th P: Physical 7th P: Process Service Package Supporting Facility Facilitating Goods Information Explicit Services Implicit Services Services Quality SERVQUAL Instrument Services on the Internet 3

Empower and Enfranchise

The Servuction Model

Definitions of Services

(1)

Services are relatively intangible, produced and consumed simultaneously and often less standardised than goods. These unique characteristics of services present special challenges and marketing opportunities to the services marketer.
(Christopher Lovelock and Jochen Wirtz, 2004)

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Definitions of Services

(2)

Philip Kotler (2002) explains, A service is any activity that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product.

Unit Outline

Services Characteristics and Marketing Strategy (1)

Inseparability

Intangibility

Characteristics of Services

Heterogeneity
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Perishability

Unit Outline

Services Characteristics and Marketing Strategy (2)

Intangibility
Services cannot be seen, tasted, felt, heard, or smelled before they are bought. Marketing strategy: making the service offering more tangible by drawing the buyers attention to tangible features, e.g. place, people, price, equipment, etc. Heterogeneity
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Inseparability

Characteristics of Services

Perishability

Unit Outline

Services Characteristics and Marketing Strategy (3)

Tangible products
Production Time Sale Consumption

Intangible products
Sale Production Consumption
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Unit Outline

Services Characteristics and Marketing Strategy (4)

Inseparability
Intangibility Simultaneous Inseparability production and consumption Marketing strategy: increase production by training service providers to work faster

Characteristics of Services

Heterogeneity
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Perishability

Unit Outline

Services Characteristics and Marketing Strategy (5)

Inseparability

Intangibility

Heterogeneity
Standardization is difficult - greatly depending on who provides services and when, where and how HR strategy: select best fit persons and train them accordingly monitor customer Heterogeneity satisfaction
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Characteristics of Services

Perishability

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Services Characteristics and Marketing Strategy (6)

Inseparability

Intangibility

Perishability
Characteristics of Services

Services cannot be stored for later sale or use.

Marketing strategy
(when demand fluctuates): - reservation system (on first come first serve) - recruit more part-time Perishability employees to serve customers

Heterogeneity
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Unit Outline

Services Marketing Mix - 7 Ps

There are 7 elements in Services Marketing Mix:
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* discussed in Unit 9 1st P: Product * discussed in Unit 9 2nd P: Price 3rd P: Place * discussed in Unit 9 * discussed in Unit 9 4th P: Promotion 5th P: People 6th P: Physical evidence 7th P: Process

Unit Outline

5th P: People

(1)

Employees in boundary-spanning roles are named as boundary spanners. The Boundary-Spanning Role is defined as one that links an organization with the outside world (i.e. by interacting with non members of the organization). Two roles of boundary spanners:
Information transfer collect information and feedback to the service company Representation as the organizations personal representatives

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Unit Outline

5th P: People

(2)

Name of Services Organization

Bank Fast Food Shop or restaurant Beauty Consultancy Shop Retail Shop

Examples of boundary spanners:

Teller, Customer Services Officers, etc. Cashier, Waiter, Cleaner, etc. Receptionist, Beauty Consultant, etc. Cashier, Sales Representatives, etc.

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Unit Outline

People Person/role conflict

(1)

Person/role conflicts is defined as a bad fit between an individuals self perception and the specific role the person must play in an organization. Since boundary spanners keep close contact with customers (or other non members of the organization), they may face Person/role conflicts in their daily works.

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Unit Outline

Challenging Corner 1
David has been working as a waiter (that is called as taking the boundary spanner role) in a Chinese restaurant for over 10 years. His usual duties include adding water to empty tea pots and taking dishes order for the customers. During the peak period (lunch hours), there are lot of customers in the restaurant raising their hands for adding water services

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Challenging Corner 1
Some customers are anxious to finish their quick lunch. They then would go to the pantry area and try to add water by themselves instead of waiting for Davids services. How would he reduce the person/role conflict?

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Unit Outline

Challenging Corner 1

(solution) (1)

Davids own personal space is the pantry area where he can defend against customers and other boundary spanners. When customers trespass on this space, it can lead to reactions that conflict with his own role (as a waiter).

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Unit Outline

Challenging Corner 1

(solution) (2)

David would build up his protection wall to pile up some table cloths surrounding the pantry area so that the customers could not easily trespass on his personal space.

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Reducing person/role conflict

(1)

Implication to services managers = they need to be sensitive and actively seek input from boundary spanners about the issue. To improve the quality of service, it is important to ensure that boundary spanners are well trained in managing the ad hoc issues by: Empowerment, and/or Enfranchisement
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Unit Outline

Reducing person/role conflict

(2)

Empowerment = giving discretion to boundary spanners (i.e. front line personnel) to meet the needs of consumers creatively Enfranchisement = empowerment coupled with a performance based compensation method for boundary spanners who could meet the services marketing objectives of the organization

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Unit Outline

When to empower and enfranchise?

There is no single solution to the problems encountered in managing contact personnel. It depends on the personal judgment of the boundary spanners.

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Unit Outline

6th P: Physical Evidence

(1)

Location and site selection is a strategic decision. Why? Because it will have long-term effects on costs, demand, and profitability.

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Unit Outline

6th P: Physical Evidence

(2)

Particularly important to service organizations. Why? Because most services are produced and consumed simultaneously Also most services require a customers presence Some services make their facilities accessible to as large a customer group as possible
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Unit Outline

6th P: Physical Evidence Location Selection (Quantitative Method)

Factor weighting has 6 steps:1. Develop a list of relevant factors 2. Assign a weight to each factor 3. Develop a scale for each factor 4. Have management score at each location 5. Multiple the score times the weight 6. Consider the maximum point score

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Unit Outline

Doras Cake Shop Location Selection (1)

Apply Factor weighting method to select a suitable location for Doras cake shop between: Central, Mongkok, and Shatin

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Unit Outline

Doras Cake Shop Location Selection (2)

Step 1: Develop a list of relevant factors:
Size of nearest market
how many customers are close to the location under consideration? Is the transportation facilities to the location under consideration well arranged? Could customers go to the cake shop by public transportation? Are the monthly rental charges of the location low? Are there lots of large competitors around? Are the communication facilities of the location well developed? (in terms of fax, telephone lines, e-mail, etc.)

Transportation facilities

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Rental cost of the shop Number and size of competitors Communication facilities

Unit Outline

Doras Cake Shop Location Selection (3)

Step 2: Assign a weight to each factor:
Size of nearest market 7 Transportation facilities 5 Rental cost of the shop 3 Number and size of competitors 4 Communication facilities 6 The higher weighted score indicates a higher importance of that factor. In this illustration, for example, size of nearest market is the most important factors whereas rental cost of the shop is the least important.

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Unit Outline

Doras Cake Shop Location Selection (4)

Step 3: Develop a scale for each factor:
Size of nearest market ranging from 1, 2, 3, 4 & 5 Transportation facilities ranging from 1, 2, 3, 4 & 5 Rental cost of the shop ranging from 1, 2, 3, 4 & 5 Number and size of competitors ranging from 1, 2, 3, 4 & 5 Communication facilities ranging from 1, 2, 3, 4 & 5 The scale for each factor should be consistent. In this illustration, it ranges from 1, 2, 3, 4 and 5. If the location shows a preferable indicator towards the factor, a higher score (5, or 4) will be assigned. On the other hand, if the location represents a non preferable indicator towards the factor, a lower score (1, or 2) will be assigned. The score 3 stands for mild preference.
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Unit Outline

Doras Cake Shop Location Selection (5)

Step 4: Have management score at each location:
Size of nearest market - a high score for larger customer base Transportation facilities a high score for a more convenient mode of transportation available Rental cost of the shop a high score for a place charged for lower rent Number and size of competitors - a high score for a place with fewer competitors Communication facilities - a high score for a place with better communication facilities where customers could order cakes through faxes, and internet, etc.

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Unit Outline

Doras Cake Shop Location Selection (6)

Step 5: Multiple the score times the weight:
For Size of the nearest market, Important weight = 7 Location score for Central = 5 Weighted score for Central = 7 times 5 = 35 Apply the similar calculation steps for Mongkok and Shatin accordingly.

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Unit Outline

Doras Cake Shop Location Selection (7)

Step 6: Consider the maximum point score:
From the next page of computation table: The summation weighted score for
Central = 114 Mongkok = 97 Shatin = 89

Centrals score (of 114) out-wins that of Mongkok (97) and Shatin (89). Thus, Central will be a suitable place to locate Doras cake shop.

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Doras Cake Shop Location Selection (8)

Location Scores Factor Size of nearest market Transportation facilities Rental cost of the shop Number and size of competitors Communication facilities Important Central Mongkok Weight 7 5 3 4 6 5 4 3 5 5 4 5 4 2 4 Shatin 3 4 4 3 4 TOTAL Weighted Scores Central 35 20 9 20 30 114 Mongkok 28 25 12 8 24 97 Shatin 21 20 12 12 24 89

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Unit Outline

6th P: Physical Evidence Designing a good layout

Another factor to consider is good layout which satisfies the following objectives:
1. Movement of people, materials and paper work must be kept at the minimum distance possible 2. High utilization of the space 3. Flexibility of rearrangement, services and growth 4. Satisfactory physical environment 5. Convenience for customers during the service 6. Attractive appearance
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Unit Outline

Doras Cake Shop - Layout Design

(1)

How to design the layout for Doras cake shop?

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Unit Outline

Doras Cake Shop - Layout Design

Western caf appeal of home feel

(2)

Big sofa + armchairs + round table + TV + broadcast of soft music, Feasible to rearrange the furniture and other decorations after a few months

Portrait of being natural mood

Feel liked home Be yourself and relaxed

A place to meet friends + enjoy cake & coffee May bring pets
as pets may be viewed as one of the family members of the customers
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Unit Outline

7th P: Process
Process is the 7th P because one unique characteristic of services is inseparability. Services are all about the interaction between the service providers and the customers. Throughout the process, customers satisfaction or dissatisfaction will be formed based on the quality of services delivered (as compared with the expectations of the customers). It is necessary to manage the capacity of the service providers well to satisfy customer demands.

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Unit Outline

7th P: Process Capacity Utilization Measures (1) Three measures of capacity utilization are needed:
percentage of total time equipment are in operation that facilities and

percentage of the physical space (e.g., seats) actually utilised intensity of usage of labor time

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Unit Outline

7th P: Process Capacity Utilization Measures (2)

In a well managed service operation, all three areas stated above should be in balance. Similarly, sequential operations will be designed to minimise the risk of bottlenecks at any point in the process. However, this ideal may prove difficult to achieve. Not only does the demand vary over time but the time and effort required to possess each customer also varies. Also service tasks are not homogeneous (i.e. heterogeneity) so the serving times vary according to the nature of the customers' problems.
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Unit Outline

7th P: Process Framing Service Experience

Happy employees will bring in happy customers. Besides boundary spanners personal feeling, customers service experience in the process could not be overlooked to ensure the future business success of running a service organization. The Servuction Model - is a simple but powerful model that illustrates factors influencing the service experience of a customer when enjoying a service.

(K. Douglas Hoffman and John E. G. Bateson, 2002)

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Unit Outline

Framing Service Experience: The Servuction Model (1)

The model is constructed by two parts which are visible or invisible to the consumer:
The visible part of the model consists of three parts: the inanimate environment, contact personnel or service providers, and other customers (denoted as Customer
B in the following figure on slide number 42).

The invisible component of the model consists of the invisible organization and systems.

(K. Douglas Hoffman and John E. G. Bateson, 2002)

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Unit Outline

Framing Service Experience: The Servuction Model (2)

Inanimate Environment Invisible organization and systems Contact Personnel Or Service Provider

Customer A

Customer B

Invisible

Visible
Bundle of service benefits received by Customer A

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Unit Outline

Servuction Model : Inanimate Environment (1)

Includes all nonliving features that are present during the service encounter. Because services are intangible, they cannot be objectively evaluated like products. Hence, in the absence of tangible product, consumers look for tangible cues that surround the service on which to base their service performance evaluation.

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Unit Outline

Servuction Model : Inanimate Environment (2)

The inanimate environment is full of tangible cues such as furniture, flooring, lighting, music, wall hangings and an array of other inanimate objects that vary according to the service being provided. This relates to the importance of the physical evidence in consumer perceptions of service performance.

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Unit Outline

Servuction Model : Contact personnel

Contact personnel are the employees other than primary service provider who briefly interact with customers. Example: parking attendants, receptionists, and hosts and hostesses.

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Unit Outline

Servuction Model : Service Provider

Service provider are the primary providers of a core service. Example: dentists, physicians, school teachers.

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Unit Outline

Servuction Model : Service Provider - Implications (1)

Unlike consumption of physical products, the consumption of services often takes place where the service is produced (i.e. Doras Cake Shop) or where the service is provided at the consumers residence or workplace (i.e. venue being specified by the corporations). Regardless of the service delivery location, interactions between consumers and contact personnel or service providers are commonplace.

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Unit Outline

Servuction Model : Service Provider - Implications

(2)

Thus, the impact of contact personnel and service providers on the service experience can be profound. Because of the important role of service providers and other contact personnel within the service encounter, the management issues of People (hiring, training and empowering issues) could not be overlooked.

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Unit Outline

Servuction Model : Customer A

Customer A is the recipient of the bundle of benefits that is created through the service experience. Customer A is the one who actually purchases the service.

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Servuction Model : Customer B

Customers B represents all other customers who are part of customer As experience Consumption of services as shared experience because it often occurs in the presence of other customers. Examples include eating at a cake shop, seeing a show at a movie theatre, attending class in a classroom, etc. As in the case with the other visible components of the servuction model, other customers can impact Customer As service experience.

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Unit Outline

Servuction Model : Customers - Implications (1)

One day, customer A (i.e. David and his wife) went into Doras cake shop and ordered cakes and coffees, Customer B (i.e. another customer who was also in the cake shop) suddenly screamed and vomited after eating a small slice of cake. Upon seeing this unappetising news, David and his wife stared at one another so as not to look in the direction of Customer Bs problem while deciding on their next course of action.

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Unit Outline

Servuction Model : Customers - Implications (2)

In this case, Customer B had indeed made a significant impact on all the cake shops customers. In fact, Customer Bs actions practically cleared the entire cake shop in under 60 seconds.

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Unit Outline

The Service Package

(1)

A bundle of goods and services that is provided in some environment (Roger W Schmenner, 1986)
Consisted of 5 features which are experienced by customers and form the basis of his or her perception of the service:
Supporting Facility Facilitating Goods Information Explicit Services Implicit Services

Key Success Factor: service manager offers a total experience for customer that is consistent with the desired service package.
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Unit Outline

Service Package: Supporting Facility Supporting Facility: The physical resources that must be in place before a service can be sold.
Example: golf course, hospital, school campus, airplane. = Doras Cake Shop

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Unit Outline

Service Package: Facilitating Goods Facilitating Goods: The material consumed by the buyer or items provided by the consumer.
Example: food items, legal documents, golf club membership, medical history. = Cake and coffee consumed by the customers at Doras cake shop

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Unit Outline

Service Package: Information Information: Operations data or information that is provided by the customer to enable efficient and customised service.
Example: patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi. = Customers preferences on taste of cakes and coffee being served at Doras cake shop

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Unit Outline

Service Package: Explicit Services Explicit Services: Benefits readily observable by the senses and that consist of the essential or intrinsic features of the services.
Example: quality of meal, attitude of the waiter, ontime departure. = The quality of cakes and coffee provided by Doras cake shop, attitude of Doras staff on serving the customers, on-time delivery of cakes to the corporate customers (located in the Central)

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Unit Outline

Service Package: Implicit Services Implicit Services: Psychological benefits or extrinsic features which the consumer may sense only vaguely.
Example: privacy of loan office, security of a well lighted parking lot, worry free auto repair, etc. = Feel of comfort or Home feel at Doras cake shop

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Unit Outline

Defining Services Quality

(1)

Assessment of quality is made during the service delivery process. Each customer contact is referred to as a moment of truth, an opportunity to satisfy or dissatisfy the customer. Customer satisfaction is defined by comparing perceptions of service received with expectations of service desired. Expectations are based on: (1) word of mouth, (2) personal needs, and (3) past experience.
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Unit Outline

Defining Services Quality

(2)

Word of mouth

Personal needs

Past experience

Service Quality Dimensions Reliability Responsiveness Assurance Empathy Tangibles

Expected service

Perceived service

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

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Unit Outline

SERVQUAL Instrument

(1)

Measuring service quality is a challenge because customer satisfaction is determined by many intangible factors. Unlike a product with physical features that can be objectively measured, service quality contains many psychological features. In addition, service quality often extends beyond immediate encounter because it has an impact on a persons future quality of life.

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Unit Outline

SERVQUAL Instrument

(2)

The multiple dimensions of service quality are captured in the SERVQUAL instrument which is an effective tool for surveying customer satisfaction. By SERVQUAL, it could be understood as a combination of SERVice and QUALity. Most of the best services award would be based on the following five dimensions to evaluate the overall service quality of a service provider.

(James A Fitzsimmons and Mona J Fitzsimmons, 2006)

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Unit Outline

SERVQUAL Instrument
5 dimensions of service quality:

(2)

Reliability: Perform promised service dependably and accurately Responsiveness: Willingness to help customers promptly Assurance: Ability to convey trust and confidence Empathy: Ability to be approachable Tangibles: Physical facilities and facilitating goods

(James A Fitzsimmons and Mona J Fitzsimmons, 2006)

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Unit Outline

SERVQUAL Instrument

(3)

This two-part instrument has an initial section to record customer expectations for a class of service (e.g. catering services) , followed by a second section to record a customers perceptions for a particular service firm (e.g. Doras cake shop). The statements in the survey describe aspects of the five dimensions of service quality: Reliability, Responsiveness, Assurance, Empathy and Tangibles.
Unit Outline

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SERVQUAL Instrument

(4)

A score for the quality of service is calculated by computing the differences between the ratings that customers assign to paired expectation and perception statements. A seven-point scale ranging from Strongly Agree (7) to Strongly Disagree (1), with no labels for the intermediate scale points (i.e. 2 through 6), accompanied each statement.

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Unit Outline

SERVQUAL Instrument

(5)

Check customers expectation:

Statements may include:
Doras cake shop should have up-to-date equipment. Her physical facilities should be visually appealing. Her employees should be well dressed and appear neat. She shouldnt be expected to have operating hours convenient to all their customers. etc.
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Unit Outline

SERVQUAL Instrument

(6)

Check customers perception:

Statements may include:
Doras cake shop has up-to-date equipment. Her physical facilities are visually appealing. Her employees are well dressed and appear neat. She does not have operating hours convenient to all their customers. etc.
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Unit Outline

Services on the Internet : Multiple applications for websites (1) As a Channel to sell a Product or Service As a Supplemental Channel of Conventional Businesses to extend their market To Process Transaction, such as transfer from clients one account to another To Convey Information about the organization (including names of officers, addresses, phone numbers, and types of services)

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Unit Outline

Services on the Internet : Multiple applications for websites (2) As a Promotion Channel - More advertisers are now using the medium of internet to advertise and promote their businesses or products for the specifically targeted groups of audience

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Unit Outline

Challenging Corner 2
Design the services marketing mix for Doras cake shop in terms of the 5th, 6th and 7th P:
5th P: People 6th P: Physical evidence 7th P: Process

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Unit Outline

Challenging Corner 2
5th P People:

(solution) (1)

Recruit one to two new staff: able to brew coffee, love to meet people (sociable), etc. Happy employees bring in happy customers OR, ask for new partners to run the cake shop business? When is the appropriate time?

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Unit Outline

Challenging Corner 2
6th P - Physical evidence:
Location: Central

(solution) (2)

Based on Factor Weighting in Selection of Dora cake shops Location (slide page 33) Close to the four major customers (i.e. corporate customers) Near Hollywood Road, Hong Kong where most of the potential individual customers locate:
Office workers Retired couples Yuppies (leisure life followers) Friends (on a social gathering)

and to avoid high rent issue

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Unit Outline

Challenging Corner 2
7th P - Process:

(solution) (3)

When customers pop in Doras cake shop, Dora and her team (as boundary spanners) will warm welcome them, calling their names (if their memory are good and assuming that this is not the first time visit from the customers), directing them to a place where they like to settle down. Customers sit comfortably at the sofa, listening to the soft music, thinking of what kind of cake and coffee to order. The moment of truth is so memorable.
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Unit Outline

Challenging Corner 2
7th P - Process
(cont.)

(solution) (4)

If there are not many customers in the cake shop, Dora will actively introduce her new flavour cake to the loyal customers and invite them to try a slice of the cake (on complimentary basis). Customers feedbacks are collected informally to improve the products sold. New customers also feel the warm atmosphere in the cake shop and will consider visiting it again.

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Unit Outline

Summary

Physical evidence

4P (Unit 9)

Services

Process

People Tangible elements Cake & Drink

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References
James A Fitzsimmons and Mona J Fitzsimmons, Service Management: Operations, Strategy, Information Technology, 5th edition, McGraw Hill, 2006. Christopher Lovelock and Jochen Wirtz, Services Marketing: People, Technology, Strategy, 5th edition, Prentice Hall, 2004. K. Douglas Hoffman and John E. G. Bateson, Essentials of Services Marketing: Concepts, Strategies and Cases, 2nd edition, Harcourt, 2002.

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Further Readings

, (1998), , (2003), , (1999), , (2004), , (1982), ,

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End of the Unit

End-of-unit Assessment
This is the end of Unit 10. Please go to the Unit Assessment before attempting the next unit.

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