Service Product Mix

Pricing of services
Service Promotion Mix
‘Place’ factor in services marketing
‘People’ in services
Service ‘Process’
Capacity planning
Capacity scheduling
• Formulating marketing mix for services is as important as
for products.

• It is the set of tools that a firm uses to pursue its marketing

objectives in the target market

• Service expectation levels of consumers are at an all time

high, hence formulation of service marketing mix needs to be
done on a professional level, by experts

• Offering quality services is not enough,Proper promotion,

sound pricing strategy, placement decisions, hiring right staff
and studying consumers enhances service delivery process

• This has resulted in broadening & modification of the

market mix i.e due to the inadequacy of the 4p’s an
extended mkt mix is devised
Expanded market mix for
services
An expanded marketing mix for services

Product
People (service)
Process
Place,
Place &
cyber- Customers Price
Price
Time
space & Customers
Customers
time

Promotion

Physical evidence
People
◦ All human actors who play a part in
service delivery and thus influence the
buyer’s perceptions: namely, the
firm’s personnel, the customer, and
other customers in the service
environment.

customer
service employees
other customers
Physical Evidence
◦ The environment in which the service is
delivered and where the firm and
customer interact, and any tangible
components that facilitate performance
or communication of the service.

•atmosphere
décor, music etc.
•equipment
•facilities
•uniforms
Process
◦ The actual procedures, mechanisms,
and flow of activities by which the
service is delivered—the service
delivery and operating systems.

service delivery systems

•back stage
•front stage
procedures
policies
 Expanded Marketing
Mix for Services
PEOPLE PHYSICAL PROCESS
EVIDENCE
Employees Facility design Flow of activities

Customers Equipment Number of steps

Communicating Signage Level of customer

culture and values involvement

Employee research Employee dress

Other tangibles
Product mix

• Product mix decides the magnitude of success, intensity

of profits and satisfaction levels of the consumer

• Factors influence the product mix based on the type of

service provided

• Eg: Hotel service, quality of consumers

Transport services-emerging lifestyles, levels of
urbanization
Personal care services- trends, tastes, fashion
 Consumers buy… not…

Speed/comfort An air ticket

Adventure/fun Tour package

Bill paying convenience Credit cards

Beauty Beauty treatments/cosmetics

Service Product Mix
Service product is intangible and
perishable , inseparable & heterogeneous in
nature.
Conceptualization of the service product
Step 1-costumer benefit concept

Step 2-service concept

Step 3-Service offer

Step 4-service delivery system

 Potential product
Augmented product
Expected product
Basic product
Core benefit
Levels of a service
product
Core product – seat in a theatre, room in a
hotel, services in a bank

Expected product – consumer perception

(speed in a bank, expertise/accuracy in
consultancy services, security in insurance)

Augmented product - additional attraction

provided to get an edge over competition,
this helps to keep marketing efforts pro
active

Potential product – process of discovering

new ways to attract more customer, retain
existing and fight competition (24x7 call
centres, banks open on Sunday)
Nature of service offering
 Three components are to be kept in mind when we
want to design the service offering.
Core service: The most basic component is the core
service and it addresses questions like “What is the
customer really purchasing”, “What business are we
in?” etc. It supplies the central problem solving
benefits that customers seek
Ex: Transport solves the need to move from one
location to another etc.
Core delivery process: The second component
concerns the core delivery process i.e - how the core
product is delivered to the customer, the customer’s
role in the process, how long the process is and style
of service offered.
 Supplementary services: This is the third
component and it augment(increases) ,
facilitates & enhances
The core service by making it easy to use and by
increasing the value and appeal.
Each of the supplementary elements may require
their own delivery system and
Prescribed service level.

Flowcharting offers an excellent way to under

stand & identify the many types of supplementary
services accompanying a core product
IDENTIFYING AND CLASSIFYING SUPPLEMENTARY
SERVICES:

Supplementary services can be identified

as-
THE service flower
Service product decision
A service provider may start with a single
service, than provide a range of services or
develop a new offering or enter a new market

These service product decision can be made by

using product/market matrix called Ansoff
matrix-
Market penetration-no change in service or
market—strategies to improve demand—
a) introduce schemes
b) attract non-users
c) grabbing competitors share

Market development—geog, age-group, social

class

Diversification—new service-new market

Managing services offering
New service development

Style changes
Service improvements
Process line extension
Supplementary services/new service
Product line extension.
major innovation
Steps in new service
development
* Idea generation – concept screening – testing
the concept—design service & assess market
potential – cost analysis – test marketing – final
launch
* Need identification – size of market – cost-
benefit analysis – introduction of new product

* product life cycle– launch, growth, maturity, &

decline
Designing of new service
Re-engineering service process—cost, speed &
productivity consideration
Use of flow charts, blue prints, review alternative
delivery methods, eliminate supplementary
services, rethink the process

Using research to design new service-ask

customers what features & price will create
value
Factors to be noted while
developing service product
mix
• Enrich peripheral services

• Understand service quality expectations

• Study behavioral profile of the consumers

(offering product is as important as formulating it)

• Take support of information technologies

• Product for all (single product for all/offer different

specialisation in same product)
 User

Culture Personality

Attributes Benefits Values

Branding of services

Difficult to create a distinct brand image for

services due to lack of consistency in service
delivery—need for the entire org to work
towards it.

Even so brand loyalty is high for services

Need for patronage in order to obtain

optimum satisfaction
 Devoted
Devoted
toBrand
to Brand

Valuesthe
Values theBrand
Brand
(brandas
(brand asfriend)
friend)

Satisfied &&Switching
Satisfied Switching Cost
Cost

SatisfiedCustomer
Satisfied Customer
(no reason
(no reasontotochange)
change)
NoBrand
No Brand Loyalty
Loyalty
(customer will
(customer will change)
change)
 Brand- Brand- Brand- Brand-
Branding Sponsor Name Strategy Repositioning
Decision Decision Decision Decision Decision
•Manu- brand •Line
facturer names extension
•Blanket
brand family •Brand •Reposi-
name extension tioning
•Brand •Distribu- •Separate
tor •Multi-
•No brand (private) family brands •No
brand names reposi-
•Company- •New tioning
•Licensed individual brands
•Individual
brand names •Cobrands
 Product Category
Existing New
Brand Name

Existing
Line Brand
Extension Extension

New
Multibrands New
Brands
 Lack Poor
Foreign
Distinctive
Language
Meanings

Easy to:
Suggest Suggest
Pronounce
Product Product
Recognize
Qualities Benefits
Remember
Pricing of services
• Research and expertise pertaining to the
pricing of services is found lacking

• Pricing approaches developed for

products are applied to services too

• The challenge is to determine a price at

which the service product is sold and also
gives profitable returns

• The price must be acceptable to the target

customer & should accurately reflect on
the other elements of the marketing mix
• Perception of value for a consumer –the
price determines the value attached by the
service provider & it should correspond
with the customers perception of value

• There are various factors that influence

price to be charged:-
• Range of service offered
• Demand & capacity constraints
• Kind of organization
• Market structure
• Competitors price
Three differences between
pricing for goods & services

Customer have limited knowledge

regarding reference prices for
services

Price is an important signal of

quality

Monetary price is not the only

relevant price to the customer
Pricing objectives
Survival

Maximization of current profit

Maximization of current revenue

prestige/ image

Patronage & user based objective

pricing
1. Cost based pricing - difficult as very small
portion of tangible goods sold, intangible service
difficult to price, profit considerations also included
after total cost is computed. The formula for
cost based pricing is

Price = direct cost + overhead cost profit margin

Draw back :-
Defining the unit in which service is purchased

Cost are difficult to identify

Calculation of peoples time

2. Competition based pricing – Not mean
charging the same price as the competitors
but only using it as a base for determining
ones own price .
Used usually were services are almost
standardized

Drawbacks :-
Competitors may not be the best parameter,
service standards/delivery processes may differ.

Small firms may charge comparatively low

prices, should we consider this firms
3. Value based pricing—
How customer defines value
Customers are weighing the perceived
benefits against the perceived cost they will
incur
Recognize trade off customers are willing to
make
Quantify non-monetary & monetary value to
the customer
People perceive different set of values,
identify one or more bundle that addresses a
segment.
 4. Demand based pricing --

It is associated with the customer rather

than the cost or competition
Relationship between price & demand
Drawbacks:-
Considers only the monetary aspect of
cost of service, however non-monetary
cost & benefit must be factored

Customer is willing to pay higher price

when he is able to save time & effort
capturing & communicating
value
Satisfaction based pricing – Service guarantees,
benefit driven or flat rate pricing

Relationship pricing – encourages a customer to

expand his dealings with service provider

Efficiency pricing- understanding , managing &

reducing cost . Providing value for money. Reducing
monetary burden to the consumers by providing
best service and a cost effective one. Efficiency
through innovation, making it difficult for
competitors to imitate
Satisfaction based pricing
Service guarantees—a powerful re-assurance,
gives them a recourse-usually a price
reduction or a refund. It symbolizes co
commitment—enhances confidence

Benefit driven— based on how it is used & how

it creates value. Service that directly benefits
customer. Customers feels more satisfied
than uncertain, than if the price of a
service is unrelated to the benefit it delivers

Flat rate pricing—where service prices are

un predictable & cost are badly managed
Relationship pricing
Long term contract– price & non-price
incentives are offered to strengthen the
existing relationship & build a new one.

Price bundling– selling two or more service

selling together. Provides various benefits to
the service provider.

Managing the perception of value— value is

subjective, not possible to assess the true
value of services especially for credence
qualities, hence necessary to communicate
Reducing the related monetary & non-
monetary cost– price paid also includes
non-monetary cost which is of 4 types –
Time cost
Physical cost
Psychological cost
Sensory cost
Price discrimination (different prices for
different consumers), penetration, skimming,
follow the competitor, are also few of the
strategies for pricing effectively used
Place in services
Mainly considered in terms of location, time &
cost (channels involved in distribution)

The decision regarding location are the most

crucial and accessibility and availability form an
significant base for location decisions.

Accessibility refers to convenience with which

the service can be purchased & availability
refers to the extent to which the service is
obtainable
location
Nature of service
Nature of interaction required
Customers needs & wants
Dependency of other services
Use of technology

The three possible interaction between service

provider & customer:-
The customer goes to the service provider
The service provider goes to the customer
Interact at arms length
Decision about location
• Factors influencing Location – (Nature of
services, competition etc)

Low contact services: remote sites, less

expensive

High contact services: accessibility, visibility,

customer convenience

location constraints: operational requirements

eg airports, resorts with certain special facilities,
economies of scale

locating in multi purpose facilities; near work

places
Decisions about time
Today for some highly responsive service
operations the standard has become 24/7, never
the less there are many firms who resist the trend
of 7 days operation.

Factors that encourage extended operating hours:-

Economic pressure from consumers
Changes in legislation
To improve asset utilization
Automated self service facilities
Availability of workers to work for extended hours
Pressure from competition
Direct distribution
The inseparable, intangible and the
perishable nature of services makes direct
distribution and indispensible option for
ensuring quality and care to the customer

Advantages of direct distribution

Greater control & monitoring
Closer and amicable relationship with the
customers
Ensure confidentiality & secrecy
Elimination of certain costs
Channels decisions
Channel decision may be influenced by the
following factors
Ease and accessibility for the customers

The added value or service or benefit they

provide

The cost to the company & the margins they

seek

Their reputation and reliability

Their expertise, ability and compatibility

The vital role that they play
Widely used distribution channels in service include-
Agent or broker
Franchised or contracted service deliveries
Electronics

Primary channels in service distribution

Franchises

Services Electronics Target

created by customer
company
Agents/brokers
Strategies for effective service
delivery
1. Control strategy—the pre requisites for
employing control strategy are –uniqueness of the
service offer, strong consumer demand, high
loyalty in target mkt
Approaches to implement control strategies:-
• Measurement
• Review

2. Partnering strategies— learn about end users,

improve delivery quality, communicate honestly
• Approaches to partnering
• Integration of goals
• Participation & co-operation
3 . Empowerment strategy- effective in the
following context:-
• Service principal is new to the market
• Lacks sufficient power to manage the channel
• The service intermediary is more talented

• Approaches to empowerment:-
• Provide needed support
• Train the intermediary to deliver quality service
• Enable to develop customer driven service
processes
• Change to co-operative management structure
‘People’ in services
• Includes both, employees and consumers - moment of
truth is dependent on both

• Most demanding job in the service business are the so

called front line jobs, they play a key role in
anticipating customers needs, building customer
relations, loyalty, customization, recovery etc

• Importance can be summed up as i) they are the core

part of the product ii) they represent the firm iii)
they are the brand

• Success depends on firms commitment to HR

employees
High contact services
Low contact services
Professional service employees
Consumer service employees

Challenges faced & sources of

conflicts
Emotional labor
 boundary spanning
Person/role conflict
Organization/client conflict
Inter client conflict
Strategies for customer oriented
service delivery
• Hire right people
• i) competing for the best people
• ii)hiring for service competence & service
inclination
• iii) being the preferred employer

• Develop/train employees to deliver services as per

standards
• i) Training for technical & interactive skills
• ii) Empowering employees-3 power tools
• iii) Promoting team work

• Provide needed support system to employees

• Retaining the best employees
• i)Rewards & appreciation & recognization
• ii)Including employees in companies vision

• Study target market/potential & current customers

* Observe service delivery process, keeping ‘people’ in

mind

• Give due importance to consumers feedback

• Employ CRM – identify, attracting, differentiating and

retaining customers
services
* Includes everything tangible

• It plays a major role in shaping service experience

& delivering customer satisfaction

• It applies to all types & sizes of service org, though

use of physical evidence is extensive in services
like hospitals, hotels and minimal in insurance
service, postal services, laundry services etc

• Due to the intangibility physical evidence is used as

an vital quality proxy & firms take great pain to
signal quality & portray a desired image
Service environment is also called as servicescape

Many servicescape may be purely functional , as they

are not the only one that shape customers perception

Impact of service environment on buying behavior:-

A) as an attention creating medium
B) as a message creating medium
C) as an effect creating medium

Designing a service env is considered an art & takes

considerable time & efforts. It requires consideration
about ambient conditions, space, functionality etc
Types of physical
evidence
Peripheral evidence:- those items that confirm
the service or are complementary to the service

Essential evidence:-includes physical elements

integral to the service though may not be always
passed on.

Elements of physical evidence:-

Physical environment
Communication
Price
Personnel
Corporate image & identity
Elements of physical env

Servicescape
Atmospheri Exterior design
c Signage
Parking
Sight Landscape
Sound Surrounding env
Smell Interiors
Touch Equipments
Facilities
Layout , etc
dimensions
Designing of servicescape will depend upon whether
it is a elaborate or lean servicescape , elaborate
service scape communicates heavily through
physical evidence

Communication:-
Tangibilizing the service
Tangibilizing the message

Price:-it is a visible indicator of service quality & level

Too low price
Too high price
Personnel
Corporate image & identity
Significance of physical
evidence
Shaping first impression

Managing trust

Managing service quality

Managing differentiation

Re-positioning

Improving productivity
Service process
Service design should essentially satisfy the
customers as well as be operationally efficient
. It involves series of activities, their
sequence, procedures that have to be
efficiently performed for delivery of service.

 Service process involves three concepts:-

A series of procedure
Creation & delivery of the service
Customer involvement & participation
’Factors to be considered while designing service process
• Nature of service -divergence, complexity
• Service location
• Customer participation
• Level of contact
• The service itself:
a) Process based
b) Technology, machinery, equipment based

Basic concepts for designing a process

* Process should be broken into logical steps
* process should be flexible
* should include the concept of deviation
process
Line & flow operation
Job shop process

Decisions in service process planning

 Basic technological decision
 Specific equipment decision

 Location & layout decision

 People’s decision

 Operation structure

 Process flow decision—blue print, flow charts,

& benchmarks
blue print as a key tool in
service design
It is the visual depiction of the process of service delivery,
the roles of the employees & customers & the visible
elements of the service.

It takes an holistic view about the delivery process

mechanism keeping in mind the customer

A blue print should address the following aspects:-

Service staff should understand what is required of them
Customer should have knowledge of his role
The time frame involved for each activity should be stated
print

Contact employees action

Support processes

Line of interaction

Line of visibility

Line of internal interaction

Steps in developing a service
blue print
Understanding the service to be blue printed
Identifying all the key activities involved in the service
delivery & specify the linkage between them
 distinguish between the on stage from the back stage
activities
Service blue print should clarify interaction between
customer & the employees & see the customers point of view
Identifying of support activities
Giving physical evidence to each customer action step
Create a script for the employees as well as the customers
which can help in identifying potential problems or failures
Flow charting for services
Involves presentation of the process visually
& in sequence

Useful in defining the points in the process

where the consumer uses core service &
where he uses the supplementary service

Next step would be to put all these customer

interactions linearly into a sequence in which
they occur
Benchmarking
This technique helps companies to become as good or
better than the best in most imp aspects of the org

Objective:-
Gives companies a standard to measure performance
It allows companies to identify best ways to get
competitive advantage
Allows companies to overcome problems or pursue
targets to confirm competitive advantage

Benchmarking is not a single job but is a continuous

process requiring commitment from all
Approaches of benchmarking
It may be related to:-
Customer service
Distribution channels
Improving human resources
Quality management
Manufacturing systems, cost etc
Product development
Inventory control and loads of other issues
concerned with effectively managing of
business activities
Steps in benchmarking
Identify the items to be benchmarked

Create a bench mark team

Trace out the bench mark pattern

Identify the data collection process

Termination of the benchmarking study

Implement the findings

Service Promotion Mix
Guidelines for an optimum promotion mix

• Develop word of mouth communication

network (Customers refer friends etc)
• Don’t over-promise
• Tangibilize the intangible factors
• Feature working relationships between
customer and service provider
• Propagate minimum/zero variance in service
delivery
• Focus on service quality dimension
• Position & differentiate the service via the
delivery process
• Make the service more easily understood
Developing promotion
strategy
• Select target market

• Develop firm’s positioning strategy

• Develop promotion/communication budget and mix

• Define communication objectives (in line with PLC)

• Divide communication objectives and target audience

– for users, non users, etc.
Elements of promotion
mix
• Advertising – TV, radio, newspapers,
magazines, outdoor, POP etc.

• Publicity

• Sales promotion – gifts, contests, discounts,

commission, fairs

• Personal selling

• Word of mouth

• Telemarketing
Services
Managing demand &
capacity
Fluctuating demand and perishable nature of services
poses a major challenge for service organizations

This problem becomes especially prominent for any

capacity constraint service & can be effectively
solved by two ways:-
Adjusting capacity to meet the change in the demand
through proper operations & H.R management
And by managing the level of demand through
devising effective marketing strategies
Managing capacity
The problem is familiar “it is either feast or
famine!”

At any given point a fixed capacity service may

face one of the four conditions:-

Excess demand– denied service, business lost

Demand exceeds optimum capacity:- quality may
suffer
Demand and supply are well balanced:- ideal
situation
Excess capacity- low productivity , low utilization.
Tailoring of capacity level(stretching or
shrinking)
Some capacity is elastic in absorbing extra demand
eg transportation services, hotels & restaurants by
switching to higher capacity or by extending the time

Chasing demand strategy:-

Schedule down time during period of low demand

Use part time employees

Rent or share extra facilities & equipments

Cross train employees

Managing demand
First it is important to understand the patterns of demand
as there may be seemingly random causes.

Several factors affect demand & thus service provider

should approach the situation in the foll manner:-
1) Examine whether the demand follows the predictable
cycle or not-- & than try to identify that underlining factor
2) Examine whether demand level changes randomly
3) Examine whether it can be associated to a particular
segment & than divide demand by market segment
demand
Using marketing mix elements to shape
demand

Product variation

Modifying the timing and location of delivery

Pricing strategies
Invent rising demand through queuing & reservation
Queuing system

a) Easy operational logic

b) Establish a reservation process

c) Differentiate waiting customers on the basis of:-

Importance
Urgency of job
payment of premium price
Duration of service transaction
 CLASS PARTICIPATION ACTIVITY
Service blueprint/ service
mapping

Benchmarking
Capacity planning
 Throws light on the quality and quantity of service needed
in future

 Market conditions, likes, tastes, expectations of consumers

are studied

 Their potential is rated

 Lapses in current process are identified and corrective

measures taken

 Firm tries to match the service offerings to the market

demand

Problems - Task of predicting behaviour of users is difficult

Unavailability of sufficient lead time in many cases
Capacity planning
important for
• Staying in business

• Fighting competition

• Enhancing profits

• Enhancing growth curve of the service firm

• Preparing the firm for anticipated/sudden changes

in demand, quality of services, new trends,
changing tastes etc (Decreasing response time)
Capacity scheduling
• Based on capacity planning

• It helps schedules capacity according to the plan –

man, machines, money, materials

• A detailed scheduling of need and usage of above

factors is essential on a time map

• Helps optimum utilisation of time and other

resources

• Reduces wastages
Case
A passenger with a confirmed ticket on early morning flight from
Ahmedabad to Mumbai could reach Ahmedabad only by 3.30 pm because
the train by which he was traveling to Ahmedabad got marooned due to
floods at night. He reached Ahmedabad traveling by special buses arranged
by the railways.

When he went to the airlines reservation office in town, the assistant

wanted to know whether he had any certificate from the railways confirming
all this. He did not. He was then told as per rules, he had to be treated a ‘No
Show’ and he would get no refund on the earlier ticket. He could buy a fresh
ticket for either of the evening flights, both of which were late and fully
booked. He could take his chances at the airport. He agreed.

The assistant then endorsed the morning ticket for either of the evening
flight (without any extra charges) and told him to go to the airport
immediately and enter his name among the wait-listed passengers. When
he reached the airport in about 30 minutes, he found that his name was
already among the wait-listed passengers. Apparently the assistant in the
office had called up and entered his name in the list