February 11, 2013
CHAPTER 10 - Services: The Intangible Product
Services we Sell
- 1800 Got Junk. Started in 1989, $158 million business today. On track to become the world's
largest junk removal company by 2012. Adds tangibility through superior customer service
Some More service Businesses
Accounting, engineering, agriculture, library design, etc. There are a lot! Our society is a very
service based society.
Service we Provide
By providing good customer service, firms add value to their products and services. Think about
your last outstanding or horrible customer service experience. How did it affect your attitude
toward the firm? How did it affect your purchase behavior?
Why Customers Leave
1% dies, 3% move away, 5% other friendships, 9% competitive reasons, 14% product
dissatisfaction but ... 68% leave because of an attitude of indifference toward the customer by
Apple Genius Bar - 90% of Apple customers report they are very satisfied with its customer
The Service Product Continuum
Service Dominant on the left of the spectrum and Product Dominant on the Right of the spectrum.
Most offerings lie somewhere in the middle.
Economic Importance of Service
Household maintenance became more specialized. Developed economies are increasingly service
oriented economies. Production was cheaper in other countries, high value placed on convenience
Services Marketing Differs from Product Marketing
Unique characteristics affecting service:
Intangible - requires using cues to aid customers. Atmosphere is important to convey value.
Images are used to convey benefit of value.
Inseparable Production and Consumption - Production and consumption are simultaneous (as it is
produced it is consumed). Little opportunity to test a service before use. Lower risk by offering
quarantees or warranties.
Inconsistent - The inconsistency comes from the number of people involved. Technology,
Training, Automation, Internet. Adding Convenience through self-checkout machines: increasing
use of self-checkout machine. Consumers enjoy faster checkout. Retailers save on labour and
Inventory - How are each of these perishable services? Plane: the flight takes off at a departure
time no matter how many people are in the seats, the seats are perishable. Restaurant: the
1 restaurant is open no matter how many people are in the seats, the perishable service is the empty
tables. Cruises: the perishable service is the empty rooms/cabin.
List five ways that Netflix has delivered superior customer service. Rating movies, personalized
waiting queues, watching trailers customized to a movie watching taste, personalized
recommendations each time they go on the sight, BOB (back of the box narrative about the movie
when you put your mouse over it), friends network that you can use with friends and they can
recommend movies to you. Next day delivery. When things go wrong they treat it as a personal
situation with that customer and admit their fault and provide compensation to the customer. They
rarely go down because they have good infrastructure in place.
What is the result of their attention to customer service? Customer loyalty. only a 4% drop off
Providing Great Service: The Gaps model - see slide show for graph
The Knowledge Gap: Knowing What Customers Want
- marketing research: understanding customers
- understanding customer expectations: expectations are based on knowledge and experience.
They vary according to the type of service and on the situation.
- evaluating service quality
The Standards Gap: Setting Service Standards
- setting standards for quality
- developing system to ensure high-quality service
The Delivery Gap: Delivering Service Quality
- empowering service providers: allowing employees to make decisions about how service is
provided to customers
Empowering employees: Legendary Service
- At the front entrance of all Stew Leonard's Dairy Stores stands a large rock with the words: Our
policy: Rule 1: The customer is always right. Rule 2: If the customer is ever wrong, re-read Rule
Providing Support and Incentives: Reduce delivery gap.
- provide emotional support to service providers
- consistent and coherent management
- reward employees for excellent service
- provide support necessary to deliver service
The Communications Gap: Communicating the Service Promise
- Manage customer expectations
- promise only what you can deliver
- communicate service expectations
2 Despite the Best of Intentions: Service Recovery
- resolve problems quickly
- listen to the customer: customers get emotional over a service failure. Often customers just want
someone to listen
- increase service recovery
- provide a fair solution
Finding a Fair Solution
Distributive fairness: value for value. Does the customer feel that they value they got is equal or
better to the value they lost.
Procedural fairness: the process is fair. ex: you were able to talk to someone, the recorded it, they
got back to me and fixed the problem.
Resolving problems quickly
The longer it takes to resolve service failure the more irrated the customer will become
Service Champions: Air Canada or West Jet?
How did Air Canada and West Jet each react to a massive weather related delay? Who won the
customer battle? Air Canada did nothing (did not provide any information to the customers), West
Jet, even though they are such a small carrier, they brought in more people, communicated with
the customers, provided food to the customers and hotel vouchers with transportation to the
customers. The media bashed air Canada and gave millions of free advertising to West Jet by
saying how good they did. Their seat count went way up. They have grown from a regional carrier
to a national carrier.
CHAPTER 11: Pricing Concepts and Strategies for Establishing Value
Price is a Signal
- prices can be both too high and too low. Prices too low may signal poor quality. Prices set too
high might signal low value.
Role of Price in the Marketing Mix
price is usually ranked as one of the most important factors in purchase decisions. Piece is the only
marketing mix element that generates revenue.
The 5 C's of Pricing
1 - Company Objectives
- Profit Orientation: in order to get high profits you have to maximize the margin (what it costs
and what you charge)
- Sales orientation: you want a high sales volume for lower price
- Competitor orientation: you compare to your competitors (higher or lower)
- Customer orientation:
2 - Customers
3 - Price elasticity of demand
- elastic (price sensitive)
- inelastic (price insensitive)
- consumers less sensit