Marketing of Service - Research Paper Example

Service marketing Introduction: The service sector is going through almost revolutionary change, which dramatically affects the way in which we live and work. New services are continually being launched to satisfy our existing needs. The service sector is remarkably diverse. The size of the service sector is increasing in almost all economics around the world. As a national economy develops, the relative share of employment among agriculture, industry (including manufacturing and mining) and service changes dramatically (OECD, 2000). Even in emerging economics, services output is growing rapidly and often represents at least half of GDP (World Bank, 1996). In developed countries, knowledge based services – defined as those that are intensive uses of high technology and/or have relatively highly skilled workforces are providing the most dynamic components (Peneder, Kaniovsky and Dachs, 2003, 47-66). What is service: A service is an act or performance offered by one party to another. Although the process may be tied to a physical product, the performance is transitory, often intangible in nature, and does not normally result in ownership of any of the factors of production. More amusingly once Gummesson (1987) said, “Services have also been described as something that can be bought and sold but which cannot be dropped on your foot” (19-22). Therefore, it has been very clear that in the case of goods, the benefits come from ownership of physical objects or devices, whereas in services the benefits are created by actions or performances (Bery, 1980). The dynamic environment of services today places a premium on effective marketing. Christian Gronsoos (2001) argues that service-marketing function is much broader than the activities and output of the traditional marketing department, requiring close cooperation between marketers and those managers responsible for operations and human resources (Gronsoos, 2001, 26-27). Difference of service marketing: Marketing management tasks in services sector tend to differ from those in manufacturing sector in several important respects. In the area of services, marketing employees must be customer service oriented in addition to being concerned about efficiency. The service product must be tailored to customer needs, price, realistically distributed through convenient channels and actively promoted to customers. The basic marketing concepts and practices that have been developed for manufacturing companies cannot be directly transferable or applicable to service organizations. Marketing management tasks in service sector tend to differ from those in manufacturing sector in several important respects. There are the basic differences that can help us to distinguish the tasks associated with marketing services from those involved with marketing physical goods. Customers do not obtain ownership of service: The key distinction between manufacturing and services lies in the fact that customers usually derive value from services without obtaining ownership of any tangible elements exceptions include food services etc. The most important challenge from the marketing point of view is the pricing of the services. Pricing of services becomes time based. Service products are ephemeral and cannot be inventoried: Service is a deed or performance; it is ephemeral- transitory and perishable. It cannot be stocked as inventory in general. Therefore, the key task for the service marketers is to match service demands and capacity time to time. Intangible elements dominate value creation: All services often include important tangible elements. Useful way to distinguish between goods and services was first suggested by Lynn Shostack (1977). In the absence of significant tangible elements, marketers may find it useful to employ physical images and metaphors to demonstrate the competencies of the service firm and to illustrate the benefits resulting from service delivery. Customers may be involved in the production process: People can be part of the service itself and this can be advantage of services marketers. Many services require customers to participate in creating the service product. For most of the service customers can be thought of as partial employees, and services firms have much gain from trying to train customers to make them more competent and productive (Canziani, 1997). Other people may form part of the product: Services in general differ based on its contact with the customers and quality of services. As a result, the type of customers who patronize the particular services can shape the nature of service experience. The services offerings are unique in nature and it only exists ones and so never exactly repeated. Therefore, services firms need to devote special care to selecting, training and motivating those employees who will be serving customers directly. In addition to possessing, the technical skills are required by the job, these employees also need to possess good interpersonal skills. There is greater variability in operational inputs and outputs: In most of the services, presence of employees and customers at the same time create a difficult situation to standardize and control quality of services input and output. In these situations, it is difficult to shield customers from the result of service failures. This situation makes it difficult for service organizations to improve productivity and quality consistently. Many services are difficult for customers to evaluate : Most of the services may emphasize on experience based on taste, wearability, and ease of handling, quietness and personal treatment. It also depends on credence, which the customer find difficult to evaluate. Therefore, marketers always find it difficult to pursue customers all the time. To influence the customers, marketers educate them about service features. Firms, which develop a reputation for considerate treatment for its customers, will gain the trust. The time factor assumes great importance: Most of the time services are delivered in real time in the presence of customers. The basic focus of good service depends on the timely service. Timely service is the key element for good service. Service marketers need to understand customer’s time constraints and priorities. Distribution channels take different form: Manufacturers usually require physical distribution channels whereas services actually combine the service factory, retail outlet and point of consumption. At present most of the services are using electronic channels. With the advances in computers and telecommunication technologies electronic means of service delivery expanding rapidly. Types of services: Numerous proposals have been made for classifying services (Lovelock, 1983, 9-20). A particularly significant classification is based on the processes by which services are created and delivered. Looking at the service processes from a purely operational perspective, we can categorized services into four main categories i.e. people processing e.g. Hotel industry the service directed by people’s bodies, possession processing, the service directed at physical possessions include Transportation, warehousing etc., Mental stimulus processing i.e. services directed at people’s mind includes Advertisement/PR, entertainment, education etc. and information processing, the services directed at intangible assets include Banking, data processing, legal service etc. Each category involves fundamentally different processes, with vital implication for marketing, operations and HR managers. Strictly speaking, personal contact is unnecessary in almost all kind of services. Experience shows that successful personal relationships built on trust will be created maintain purely long-term relationship thorough telephone, websites or e-mail contacts. Looking at distinctive nature of services performances, collectively seven elements referred as the 7P’s of service marketing represents a set of inter related decision variables facing managers of service organization and these are product elements, place & time, promotion and education, price and other user outlays, physical environment, process and people. Services firms must understand the implications of seven components of the services marketing mix in order to develop effective strategies. Understanding customer behaviour lies at the heart of marketing. The contact between customer and service providers provides the opportunity to understand customers’ need and expectations. A service encounter is a period of time during which customers interact directly with a service (Chase and Das, 2001). It is difficult to improve service quality and productivity without full understanding of the customers involvement in a given service environment. Speeding up processes and weeding out unnecessary steps to avoid wasted time and effort are often important ways for a firm to improve the perceived value of its services. As the level of customer contact with the service operation increases, there are likely to be more and longer services encounters. Services can be grouped into three levels of customer contact representing the extent of interaction with service personal, physical service elements of both. High contact services contain all people processing services. Traditional retail banking where personal contacts are more frequent comes under this category where as telephone banking, Internet banking, ATM facilities grouped under low contact services. In this category, contact takes place at arm’s length through medium of physical distribution channels such as mail or courier or electronic channels as telephone and Internet. Many high contact and medium contact services are being transformed into low contact services as customers engage in conducting their banking transaction by telephone or Internet. The types of encounter that takes place during service delivery depend largely on the level of contact that customers have with the provider. A service business can be viewed as a system made up to three overlapping elements: Service operations, service delivery and service marketing. This service marketing system represents all the ways the customer may encounter or learn about the organization. The scope and the structure of the services marketing system often vary sharply from one type of organization of another. The significance of this approach to conceptualizing service creation and delivery is that it represents the customers view, looking at the service business from the outside as opposed to an internally focused operations perspective. Theater is a good metaphor for services, as delivery consists of a series of events that customers experience as a performance (Grove, Fisk and John, 2000). This approach is particularly useful of high contact service providers. We think of service facilities as containing the stage on which the drama unfolds. Role and script theories offer some interesting in rights for services provides. In service encounters, employees and customers each have roles to play. The satisfaction of both parties depends on role congruence, or the extent to which each person acts out his or her prescribed role during the service encounter. Employees must perform their roles to customer expectations or risk dissatisfying or losing customers’ altogether. In addition, customer, too, must play by the rules or risk causing problems for the firm, its employees and even other customers. Scripts are sequences of behaviour that both employee and customers are expected to learn and follow during service delivery. Scripts are learned through experience, education and communication with others (Harris, Harris and Baron, 2003) the script provides detailed actions that customers and employees expected to perform. Any deviation may frustrate both customers and employees and may lead to high levels to dissatisfaction. Under participation causes, customers to experience a decrease in service benefits and over participation may cause the firm to spend more resources customizing a service than was originally intended. Therefore, service providers have to work as teachers to educate their customers through various ways. Schneider and Bowen (1995) suggests giving customers a realistic service preview in advance of service delivery to provide them clear picture of the role they will play in service co production. An individual’s behaviour often reflects personal attitudes and beliefs. Recent research by A. Parasuraman (2000) shows that certain personal characteristics are associated with customer readiness to accept new technologies. These attributes include innovativeness, a positive view of technology and a belief that technology offers increased control, flexibility and efficiency in people’s lives. In highly developed economies, growth is slowing in mature consumer service industries. Corporate growth will have to be based on taking share from domestic competitors or by expanding into international markets. In each instance, firms should be selective in targeting customers and seek to be distinctive in the way they present themselves. Service focused firms offer a narrow range of services to a fairly broad market. To acquire more market and customer base organizations are trying to attract the customers by promising them value added efficient and quick services. Some organizations have increased their customer base but their physical facilities are such that it cannot sustain the pressure. This situation immediately results in dis-satisfied customers. Sometimes services providers create a brand name and attract more customers beyond its serving capacity with higher expectation level of customers cause disillusioned customer as seen in the case of Pizza Hut. In this case customer has not satisfied with the services but reluctant to visit Pizza Hut due to its brand name. Services environments are often designed to facilitate the service encounter and to increase productivity. Chase and Stewart (1994) have highlighted ways in which fail-safe methods embodied in service environment can help reduce service failures and support a fast and smooth service delivery process. As we know that dissatisfaction of customers increasing day by day towards most of the services. As most of the service encounters with established brand names like Telestra, Quantas, J Mayer retail, Optus, Mcdonalds etc. have not been able to satisfy the customers’ needs and expectations. During the service Encounter with Telestra staff the company have wrong information about the customer. Due to information, gap customer has encountered the service problems, which prompted him not to use the Telestra services. During the service encounter with Pizza hut customer has encountered different problems. The customer wanted to avail free voucher services twice and told the service provider prior to availing services but even then, he was not allowed to avail the benefits, which annoyed the customer with the service encounter. This is an interpretation gap. If the organization has informed clearly to its customers this type of service encounter has not happened. In the case of Pizza hut customer loyalty is enormous so customer will visit again. In case of JB, HI-FI customer has encounter service problem due to knowledge and information gap of serving person. During the service encounter customer has not been attended properly as well as not been provided the required information properly. In this situation customer only needed a little bit more attention and patience hearing. In case of service encounter with Quantas, customer got the worst kind of service encounter. Initially customer has used the service of online ticket booking and when actually reached to avail service he has been denied without telling any reasons. This kind of service encounter actually poses all types of problems to customers and generate negative image of the organization overall. In future whenever customer gets an alternative, he will take other options not Quantas services. In case of service encounter in restaurant customer encountered the problem due to untrained staff. If the service organizations do not emphasize on staff training they will face these types of bad service encounters and ultimately loose good customers. In case of J Mayers service encounter, customer faces the problem due to internal communication gap, perception and service gap. Once the service provider admits that the product may be faulty, the problems should have been solved. This may also be a procedural problem and if the provider has checked the product before delivery this problem has not happened. The best service encounter in my opinion was Bronte guesthouse services. This service encounter has all the best possible service features. The service provider has all the knowledge about its services and its customer. The service provider has all the knowledge about its customer needs, expectations, likings and dis-likings. This service is so special because it provided the customer beyond his expectations and that surprise as well as made loyal to him with the organization. In case of Benchmark physiotherapy customer was satisfied with the services but not satisfied with the infrastructure. Therefore, this service encounter was somewhat satisfying but not up to the mark. After scanned through all the service encounters we can conclude that in the service marketing, customer satisfaction has to be put at the top. The basic environment of services has changed a lot and people say customers’ expectation is increasing in leaps and bounds. Analysis of various factors or environment may trigger dissatisfaction among customers. The Mehrabian- Russel stimulus response model indicates how change in environment affects people. Russell Model explains that when a customer attributes a service failure to the firms, blames the firm for something under the firms control, the firm is not doing much to avoid its happening again, and this powerful cognitive attribution process feeds directly into high arousal and displeasure (Donovain & Rossiter 1982). Mary Jo Bitner (1992) has developed a comprehensive model that she named the service scape. The model shows that there are customer and employee response moderators. This means that the same service environment can have different effects on different customers depending upon what they like. One of the important contributions of this model was that it includes employee responses in service environment. Now in highly competitive service industry, which in integrating world wide, targeting, acquiring and retaining the right customer is at the core of many successful organizations. To retain the customer, building relationship is the basic requirement for any organization. Loyal customer can mean to a firm: a consistent source of revenue over a period of many years. However, this loyalty cannot be taken for granted. It will continue only as long as the customer feels that he or she is receiving better value (including superior quality relative to price). Most of the service encounters, which revealed satisfied customers, are only due to best possible services to their customers. They ultimately provided their customers the personalized and effective services and therefore creating long-term loyalty. Today in a fiercely competitive environment, creating long-term customer relationship and loyalty is a challenge. The process starts by identifying and targeting right customers. Whom should we be serving? Is a question that every service business needs to raise periodically? Customers often differ widely in terms of their needs and the value they can contribute to a company. Not all customers offer a good fit with the organizations capabilities delivery technologies and strategic directions. Frederick Reich (2001) said, “The result should be a win-win situation where profits are earned through the success and satisfaction of customers and not at their expenses”. To many services, especially banks still focus on the number of customer they serve an important issue for operations and human resource planning without giving sufficient attention to the value of each customer. Generally speaking, heavy users buy more frequently and in larger volumes and are more profitable than are occasional user. We also note that not all segments are worth serving and it may not be realistic to try to retain them. Service customers who buy based strictly on lowest price and not good target customers for relationship marketing in the first place. These deal prone customers continually seek the lowest price on offer (Berry, 1999). Acquiring the right customer can bring in long term revenues, continued growth from referrals and enhanced satisfaction from employees whose daily jobs are improved when they can deal with appreciative customers. Attracting the wrong customers typically results in costly churn, a diminished company reputation and disillusioned employees. However, marketers should not assume that the ‘right customer’ is always high spenders. Depending on the service business model, the right customers can come from a large group of people that no other supplier is doing a good job of serving. Different segments offer different value for the organization. Like investments, some types of customers may be more profitable than others in short term but others may have greater potential for long-term growth. A wise organization may seek a mix of such segments in order to reduce risks that markets or macro economic forces (Dahr and Glazer, 2003) might affect various types of customers. As David Maister (1997) emphasizes marketing is about getting better business, not simply more business. According the Valarie Zeithaml, Roland Rust and Katharine Remon (2001) it is critical that service organization understand the needs of customers within different profitability tiers and adjust their service levels accordingly. Instead of providing same level of services to all customers, organizations customized their service for each segment based on requirements and value. Terminating customers comes as a logical consequence of the realization that not all existing customer relationships are worth keeping. Many relationships are no longer profitable for the firm, as they may cost more to maintain than the revenues they generate. Customer satisfaction has always been the acid test for every organization and when we talk of service firms, it has the ultimate importance beyond doubt. To measure customer satisfaction with different aspects of service quality Valarie Zeithaml et al. (1988) developed a survey research instrument called SERVQUAL. It is seen as a generic measurement tool that can be applied across a broad spectrum of service industry. It is valuable tool to identify some of key underlying constructs in service quality. In this scale customers use dimensions of credibility, security, access, communication, understanding the customer, tangibles, reliability, responsiveness, competence and courtesy to evaluate service quality of the organizations. Comparing performance to expectations works well in reasonably competitive markets where customers have sufficient knowledge to choose purposefully a service that meets or exceeding customer’s expectations. The manager’s task is to balance customer expectations and perceptions and to close gaps between the two. Zeithanl, Beery and Parasuraman (1988) identified seven types of gap during design and delivery of service performance. These are knowledge Gap, standard gap, internal communication gap, perceptions gaps, interpretation gap and the service gap. Gaps at any point in service design and delivery can damage relationship with customers. The service gap is most critical, hence the ultimate goal in improving service quality is to close or narrow the gap as much as possible. To eliminate various gaps Zenithal et al. (1996) proposed that to eliminate the knowledge gap, organization has to learn what customers expect through research, complaint analysis etc. As in one of the service encounters in the restaurant, though the product (food) was good but the service provided by the waiter was bad due to inadequate knowledge and training to waiters. Through establishing the right service and quality standards, we can minimize standard gap. To minimize the delivery gap firm has to ensure that service performances meet standards. The internal communication gap can be reduced through ensuring communication promises realistic. The gap of perception could be minimized to inform customers during service delivery as well as the end because this gap recognizes that customers do not always correctly understand what the service has done for them. The interpretation gap could be minimized through rechecking of all published materials so that customers understand as well as service personnel keep communicating directly to customers so that they could understand that the massage they want to convey reached to the customers correctly for need changes. Service organizations must apply customer driven approaches to improve productivity. Customers buy goods and services to meet specific needs. Consumers may compare what they received against what they expected, if it costs them money, time and effort. According to Daniel Bethamy of American Express, Consumer wants “Memorable experiences not gadgets” (Forest, Kerwin and Jackbon, 1997, 42). This shift in consumer behavior and attitudes provides opportunities for those service companies that understand and meet changing needs, continuing to adapt their offerings over time as people’s needs evolve. Customer expectation embrace several elements including desired services, adequate services, predicted services and a zone of tolerance that falls between the desired and adequate service level (Zeithaml, Berry and Parasuraman, 1996, 31-46). Customers may create service standards in mind (their expectations) prior to consumption, observe service performance, compare it to their standards, and then form satisfaction judgments based on this comparisons. Customer satisfaction and a firm’s overall performance are strategically connected. Michigan University Researches found that on an average, 1% increase in customer satisfaction associated with a 2.37% increase in firms return on investment (Anderson & Mittal, 2000, 107-120). To identify and manage potential fail points we have to focus mainly on customers. As Susan Fournier and David Nick (1999, 5-23) states, “Customer satisfaction is central to marketing concept – It is now common to find mission statements designed around the satisfaction nation, marketing plans and incentive programs that target satisfaction as a goal and consumer communication that trumpet awards for satisfaction achievements in the marketplace.” Marketing managers should think about what marketing strategies should be used to influence customers to behave in a more productive ways. Three such strategies are changing the timing of customer demand, involving customer more actively in the production process and asking customer to use third parties. Many services depend on direct interaction between customers and firms employees. Service quality is often assessed based on customers’ interaction with front – line staff and successful service firms devote significant effort to recruiting training, motivating these employees. Managers need to be attentive to all aspects of the service performance that have the potential to create value for customers. Firms may deliver service directly to customers or through intermediary organizations. Speed and convenience of place and time for the customer are becoming important determinants in service delivery strategies. Promotion of a product needed effective communication. Promotion provides the needed information, advice persuading the target customers but in services, marketing much communication is educational in nature. Companies may need to teach their customers about the benefits of the services, where and when to obtain it and how to participate in service processes. The pricing component in service marketing strategy is not limited to the traditional pricing tasks to determining the selling price to customers, setting margins for any intermediaries and establishing credit terms. Marketers must understand and where feasible, seek to minimize other outlays that customers are likely to incur in purchasing and using a service. For any service organization, matching customers’ needs to firms’ capabilities is vital. Six customer service representative (CSR) characteristics and their influences on customer satisfaction and service representatives contribute to customer satisfaction more when they exhibit the characteristics of thoroughness, knowledgeableness, and preparedness, regardless of the richness of the medium used. Surprisingly, while three other CSR characteristics studied (courtesy, professionalism, and attentiveness) are traditionally believed to be important in face-to-face encounters, they had no significant impact on customer satisfaction in the technology-mediated (Froehle, 2006). Managers must think carefully about how customer needs relate to such operational elements as speed and quality, the times when service is available, the firms capacity to serve many customers simultaneously and the physical features and appearance of service facilities. Service marketers must understand the power of relationship management. Many firm have large numbers of customers, may have different touch points, at different geographical locations. From a customer perspective, well-implemented CRM systems offer a unified customer interface, which means that at each transaction, the relevant account details, knowledge of customer preferences and past transactions, or history of a service problem are at the fingertips of the person service the customer. This can result in a vast service improvement. From the firm’s perspective, service staffs are crucially important, as they can be a key determinant of customer loyalty (or defections) and therefore play an important role in the service profit chain. From the customer’s perspective, the encounter with service staff is probably the most important aspect of a service. The service levels and the way services are delivered by the frontline can be an important source of differentiation as well as competitive advantage for the organizations. In addition, the strength of the customer / frontline staff relationship is often an important driver of customer loyalty (Bove and Johnson, 2001). Service staff is so important to customers and the firms competitive positioning because the frontline is a core part of the product; is the service firm; is the brand. Furthermore, frontline staffs play a key role in anticipating customers’ need, customizing the service delivery and building personalized relationship with customers, which ultimately lead to customer loyalties. Therefore, it is very necessary and important for the service organizations to adopt such HR strategies, which can help them to move in the direction of success. Successful service organizations are committed to effective management of human resources. Top and middle management continuously rein force a strong culture that emphasizes service excellence and productivity. Employees understand and support the goals of an organization, and a value-driven leadership inspires and guides service providers and brings their passion for serving to the full and gives them a fulfilled working life. 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