7Ps in Service Industries - Coursework Example

Table of contents 1. Introduction a. Service marketing – definition b. Marketing mix c. Examples of 7Ps in service industries d. Competence required in service marketing e. Product Vs service marketing f. Characteristics of a service 2. Success factors in service marketing a. Critical success factors b. Critical success factors examples c. CSFs for a profit seeking service organization d. Measurement of CSFs e. Key performance indicators examples 3. Customer satisfaction a. Customer satisfaction – definition b. Characteristics of customer satisfaction 4. Customer’s expectations & perceptions in service marketing SERVICE MARKETING 1. Introduction 1.1. Service Marketing - Definition Service marketing is marketing based on relationship & value where the service-base business promotes the services provided by the business which are intangible, depends on the reputation of a single person, cannot be returned (the buyer cannot return the service) & difficult to compare the quality of similar services provided by other service providers. Whereas in traditional goods-based business the goods are tangible, not depends on the reputation of a single person, can be returned & can be compared with other similar type of goods. In this highly competitive environment marketing plays a key role in gaining competitive advantage and organizations are spending heavily on marketing irrespective of whether it is goods based business or a service based business. It is also estimated that almost 50% of the price paid for a commodity goes to the marketing of the product in US. (http://www.scribd.com/doc/18315578/Service-Marketing) 1.2. Marketing Mix In the traditional marketing the marketing mix that the firm can use to influence the buyer’s responses are commonly grouped in to four classes, which are referred to as ‘the four Ps’ – product, price, promotion & place (or distribution) whereas in service marketing there are an additional 3Ps - people/participants, processes and physical evidence. 1.3. Examples of 7Ps in Service Industries Some of the examples of the 7Ps which are relevant to the service industries are: 1. Product-Customization: e.g. Holidays no longer have to be for the precise seven days a tour company dictates. 2. Price: Prices can be lower because of e-business techniques automating process. From customer’s perspectives, prices are easy to compare on the internet (greater transparency) so there is more pressure on service providers to be more competitive. 3. Promotion – Websites, Search engine results (influenced by search engine marketing) & emails. 4. Place/distribution – Delivery over the internet (e.g. music, software, video) 5. People/participants – Service businesses usually have high person-to-person contact. It is important that these contacts are conducted well as there is often no quality control step that can intervene between employee & customer. 6. Processes – In a service business a customer is often exposed to more business processes. For example, a lot of information has to be provided if a customer is buying on-line insurance. The process has to be made high quality and easy to use. Many people become frustrated with e-commerce sites because a small error is only reported at the end of the process, and then the customer has to start from the beginning again. 7. Physical evidence – Is the website well designed? Does it look good? The website frequently gives potential customers their first impression of the organization. 1.4. Competence required in service marketing In marketing a Product the focus is on to make as many sells as possible. The product can be sold to any geographical area in the world and hence broad marketing techniques can be applied to reach the largest possible audience. In a service business the service provider is marketing himself – his expertise, competence & commitment to provide exceptional services. The service technically does not exist until the customer values the service to be provided and is willing to pay for it. Hence, the marketing efforts should be focused on communicating to the customer that the service provided by you is valuable to them. According to ITSMA’s assessment, competency levels are uneven across the seven services marketing categories: Strategy & market planning Portfolio Management Marketing communications Relationship Management Marketing operations Sales channel enablement Alliance Management (http://www.itsma.com/events/services-marketing-competency-report-card/) 1.5. The characteristics of a service There are five characteristics of a service that are different from a product. Lack of ownership: Unlike a product a service cannot be owned or stored. Services are utilized or employed for a period of time. For example when buying a ticket of cinema hall the service may last for 3 to 4 hours for a particular movie, but customers want and expect exceptional service for that time. Intangibility: Unlike a product a service cannot be touched or hold. For example delivering a courier or consignment they are services but they don’t produce anything. Inseparability: Services cannot be separated from the person who provides the services. A product produced by the producer can be taken away from him and can be sold to another person, whereas a person after taking service cannot sell that service to another person. Perishable: Services last for a specific period of time and cannot be stored like a product for later use. For example if someone is travelling by train the service will only last for the duration of the journey. Heterogeneity: Each service provided by the service provider is difficult to experience identical. For example if travelling by train the service quality may differ from the first time you travelled by that train to the second, as it is very difficult to standardize each and everything. Another Example is a person goes to an internet café and gets an exceptional service, and then returns dissatisfied next day from the internet café service. 2. Success factors in service marketing 2.1. Critical success factors An important strength for any organization will be the achievement of critical success factors (CSFs) irrespective of whether it is a service based business or goods/product based business. Critical success factors are performance requirements that are fundamental to an organization’s success. In this context CSFs should be viewed as those services which are valued by the customers. This is where the organization must outperform competition. The achievement of critical success factors should allow the organization to cope better than rivals with any changes in its competitive environment. Successful service marketing takes commitment & consistency, but they are hard to achieve. Firms such as consultants, lawyers, accountants, advisors, and executive recruiters fail to commit to consistent marketing. Some are structural and some exasperation, but the result is that service marketing fails more often than it accomplish. (http://www.online-pr.com/Holding/ServiceMarketingSecret.pdf). The factors that make service marketing successful are different for each service Industry. CSFs will vary from segment to segment. The organization will need to assess its strategic capabilities to identify which segments it should target. This is where organization must outperform competition. The customer’s understanding of value can vary over time, so the service provider needs to be open to changing the monitored CSFs. An organization will develop its CSFs when it determines its mission and objectives. The mission statement represents the aspirations of the organization. Long term objectives may be expressed in terms of increasing shareholder value added for a profit seeking company or to relieve poverty in developing nations or save rare animal species for a charity, i.e. not-for-profit organization. CSFs relate to how objectives can be attained and should be identified early in the strategic planning process. Functions and processes refer to the KPIs that help to measure the achievement of CSFs. Activities refer to the day-to-day functions that drive the organization and the need to do these with excellence. 2.2. CSFs for a Profit seeking Service Organization For a profit-seeking organization, CSFs should relate to the key factors for business success, which are typically the following: Profitability – Traditionally the primary objective is growth in earnings per share. Market share Growth Innovation Customer Satisfaction The quality of firm’s products. 2.3. CSFs Examples Examples of CSFs for a major parcel delivery service such as DHL would include: Speedy collection from customers after their request for a parcel to be delivered. Rapid and reliable delivery. 2.4. Measurement of CSFs After the identification of critical success factors they should be translated into a range of KPIs. The measured targets for CSFs are called key performance indicators (KPIs). KPIs used to assess performance in relation to the CSFs identified may be: 1. Quantitative- direct measures of sales, costs, ROCE and profit. 2. Qualitative- market share, customer base, etc. 3. Relative or absolute- relative measures are frequently more useful than measures in absolute terms, e.g. complaints per customer may be more useful than simply the number of complaints. 4. Value for money (VFM) measures- the pursuit of economy, effectiveness and efficiency are mainly used by the public sector and other non-profit-seeking organization. Measures for service efforts and accomplishment fall into four categories: Input measures – the effort expended on an activity – ‘economy’ is a measure of inputs to achieve a certain service. Output measures – the level of services provided- ‘effectiveness is a measure of outputs, i.e. services and facilities Outcome measures – the effect a service has on the activities stated objectives. Efficiency measures – a comparison of the level of inputs with outputs or outcomes – it is the optimum of economy and effectiveness, i.e. the measures of outputs over inputs. 2.5. KPIs Example For example using the CSFs previously identified for a parcel delivery company DHL. Their performance can be measured by establishing key performance indicators for each and measuring actual achievements against them, e.g.: Collection from customers within 3 hours of receiving the order, in any part of the country, for orders received before 2.30pm on a working day. Next day delivery for 100% of parcels to destinations within the UK. Delivery within 2 days for 100% of parcels to destinations in Europe. 3. Customer Satisfaction 3.1. Customer Satisfaction - Definition Customer satisfaction refers to whether the customers are happy with the service provided by the business. Satisfaction is the feeling of pleasure for the services received and if the services provided falls short of expectations then the customer is dissatisfied. Achieving high level of customer satisfaction is important to service businesses because satisfied customers are loyal to the organization and these results in repeated services purchased by the customer. With high number of competitors in the market it is even more important to satisfy customers otherwise the customers can move to the competitors if they are providing better services. 3.2. Characteristics of Customer Satisfaction Customer satisfaction depends on the number of characteristics like: Quality: Cost is long forgotten but quality is remembered for ever. Market is ready to pay a premium for quality. A customer could be satisfied by providing him a quality service i.e. if a service provided is meeting customer’s requirement then it is a quality service. A vital part of strategy development is to identify the customer and what their quality requirements are. Organizations A may pursue a strategy of differentiation based on quality whether by providing a better service at the same price as competitors or with a higher-quality service at a premium price. How well they are treated: Each and every individual wants to be treated with respect and fairness. They want to feel that their opinion is valued by the service provider. Customer believes that as they are paying money for the services to be purchased it is their right to be treated fairly and respectfully. Serious consideration of customer complaints The customers want businesses to charge a fair & just price for the services purchased. How much aggravation they had to endure – Aggravation are of two types – those that shouldn’t have happened or those that happen to everyone such as long waits, multiple visits, etc. The above mentioned are only some of the characteristics for customer satisfaction, but there are also some other characteristics that results in the satisfaction of the customers. 5. Customer’s expectations & perceptions in service marketing Delivering quality services consistently to customers gives a competitive advantage to service industries. To gain this advantage an organization needs to understand the expectations of the customers. In order to meet customer’s expectations an organization needs to anticipate the needs of the customers. An organization should continuously take feedback from it’s customers regarding the level of service provided by the organization & should also engage in regular communication with the customers. This will enable the organization to review the feedback and predict the expectations of the customers. The customers also want the services to be purchased at a reasonable & fair price. In the current highly competitive environment service firms have been increasingly competing to gain maximum market share on the basis of delivery- time or response. For examples, several companies are offering their services for free if they don’t provide their services on time. Take an example of a Shipping line company waiving off certain charges if they don’t deliver their client’s cargo on a particular destination on an agreed time. Some banks (e.g., Indy Mac Bank) even offer handsome rebates on mortgage closing costs if they fail to respond to loan applications within several specified hours. The main purpose of this offers made by service organizations to their customers is to increase the level of commitment and can provide a powerful source of competitive advantage as the firm guarantees it services and is able to fulfill the guarantee at high reliability. (http://faculty.haas.berkeley.edu/hoteck/PAPERS/MS2.pdf) The reason for choosing a delivery –time commitment by an organization is because it will have a major marketing impact. The organization should also assess its strategic capabilities to ensure that it had sufficient resources (e.g. level of staffing) and competences to fulfill the commitment with high reliability. The organization should also perform a cost & benefit analysis before making delivery –time commitment to its customers to ensure that benefits to be achieved outweighs the cost incurred in fulfilling the commitment (for e.g. cost of failure or increasing staff levels). The benefits for such a commitment would include attraction of impatient customers. (http://faculty.haas.berkeley.edu/hoteck/PAPERS/MS2.pdf) If an organization is meeting the expectations of it’s customers than they would achieve customer loyalty towards the organization which would result in repeat purchasing of the services by the customer. Research also suggests that the cost of retaining an existing customer is much less than the cost of finding a new customer. Work Cited “Critical Skills for Services Success: The Services Marketing Competency Report Card”. ITSMA. 6 Mar. 2007. 25. Dec. 2009. Ho, Teck. Setting Customer Expectation in Service Delivery: An Integrated Marketing-Operations Perspective. 1. Jun. 2003. 25. Dec. 2009. Horton, James. The secret of service marketing. n.d. 25. Dec. 2009. “Service Marketing”. Scribe. n.d. 25 Dec. 2009. Read More