Chapter 4 Service Marketing free essay sample

4 CHAPTER developing service products: CORE and SUPPLEMENTARY ELEMENTS LEARNING OBJECTIVES By the end of this chapter, students should be able: LO 1 De? ne what a service product is. LO 2 Know how to design a service LO 4 Know how service ? rms use concept. different branding strategies for their product lines. service development, ranging from simple style changes to major innovations. needed to achieve success in developing new services. LO 3 Describe the ? ower of service LO 5 List the categories of new and know how the facilitating and enhancing supplementary services relate to the core product. LO 6 Be familiar with the factors OPENING VIGNETTE1 Figure 4. 1 Starbucks is a familiar brand that even has traditional tea consumers drinking out of its cups. As you walk along the street, the aroma drifts through the air and attracts you. It is drawing you toward the store with the green sign that has now become a common sight. You enter Starbucks, the place where you can sit down and enjoy a great cup of coffee in a comfortable settee or on a chair. You can also surf the Internet on the free wireless broadband service that is available in many of the Starbucks outlets around the world. Starbucks is a place that you would associate with coffee, before anything else. 84 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements As a service innovation, Starbucks has been transforming itself into a place for entertainment. It wants to extend the pop culture. It does that through Hear Music Starbucks. Customers can buy from an extensive selection of hand-selected and compiled physical CDs in the Starbucks Hear Music Coffeehouses. Alternatively, they can burn personalized CDs from a digital inventory of more than a million sound tracks, including new recordings that can only be found in some Starbucks outlets. Debut albums of some new musicians are actually launched and available only exclusively at Starbucks outlets. Starbucks also sells movie DVDs and books from emerging as well as established authors. It has tied up with Apple’s iTunes WiFi Music Store to allow music playing at selected Starbucks cafes, up to the last ten songs played, to be browsed, bought and downloaded wirelessly onto the iPhone or iPod. This music will sync back to the Mac or PC the next time it is connected. Soon, we will no longer associate Starbucks with just mocha. Rather, we will see it as a place to relax and feel at home. Starbucks is a company that has developed new service innovations with great success. However, it cannot rest on its laurels as competition is intense. It has to continue to reinvent itself to maintain its edge in the industry. One of the trendsetters of lifestyle services, Starbucks has popularized the co? eehouse as contemporary and chic Applying the 4Ps to Services 85 PART II LO 1 De? ne what a service product is. SERVICE PRODUCT W hat do we mean by a service â€Å"product†? A service product consists of two components, the core product and supplementary services. The core product is based on the core set of bene? s and solutions delivered to customers. These are usually de? ned with reference to a particular industry like healthcare or transportation. For example, in healthcare, the core product may be the restoration of the body back to an optimum condition. Surrounding the core product is a variety of service-related activities called supplementary services. Supplementa ry services augment the core product by facilitating its use and enhancing its value and appeal. The supplementary services often play an important role in di? erentiating and positioning the core product against competing services. LO 2 Know how to design a service concept. DESIGNING A SERVICE PRODUCT ow should one go about designing a service concept? Experienced marketers know that they need to look at the entire service performance in a holistic manner. The ? rm needs to determine speci? c aspects that it plans to compete on. In order to do that, the value proposition needs to combine three components: (1) core product, (2) supplementary services, and (3) delivery processes. The delivery processes are those that are used to deliver both the core product and supplementary services. The design of the service o? ering must address the following issues: u u u u How the di? rent service components are delivered to the customer. The nature of the customer’s role in those processes. How long delivery lasts. The recommended level and style of service to be o? ered. There are four categories of services introduced in Chapter 1—people processing, possessing processing, mental stimulus processing, and information processing. Each of these has a di ? erent impact on operational procedures, the degree of customer contact with service personnel and facilities, and requirements for supplementary services. People processing services usually have more supplementary elements. This is because the customer must go to the service factory and spend time there during service delivery (Figure 4. 2). H Figure 4. 2 Dental patients need to go to the clinic to receive treatment. 86 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements SUPPLEMENTARY SERVICES OFFERED AND HOW THEY ARE CREATED AND DELIVERED Scheduling Nature of Process DELIVERING CONCEPT FOR CORE PRODUCT Figure 4. 3 Depicting the service offering for an overnight hotel stay. The integration of the core product, supplementary services, and delivery processes is captured in Figure 4. . The ? gure shows the components of the service o? ering for an overnight stay at a luxury hotel. The core product is an overnight rental of a bedroom. The delivery processes surrounding this core product are: u u Nature of the process—people processing in this instance. Customer’s role—what customers are expected to do for themselves; what the hotel will do for them, such as ma king the bed, supplying bathroom towels, and cleaning the room. Scheduling—how long the room may be used before another payment becomes due. Service level—what level and style of service. u u Surrounding the core product is a variety of supplementary services. These range from reservations to meals and in-room service elements. Delivery processes must be speci? ed for each of these elements. The more expensive the hotel is, the higher the level of service is required of each element. For example, very important guests might be received at the airport and transported to the hotel in a limousine. Checkin arrangements can be done on the way to the hotel. By the time the guests arrive at the hotel, they are ready to be escorted to their rooms, where a butler is on hand to serve them. Speci? design in terms of customer service processes, which is called service blueprinting, is discussed in Chapter 8, Designing and Managing Service Processes. Applying the 4Ps to Services 87 PART II Service Level Customer role Describe the ? ower of service and know how the facilitating and enhancing supplementary services relate to the core product. LO 3 THE FLOWER OF SERVICE2 T o o o o here a re two kinds of supplementary services. Facilitating supplementary services are either needed for service delivery, or help in the use of the core product. Enhancing supplementary services add extra value for the customer. These di? rent supplementary services can be classi? ed into one of the following eight clusters. Facilitating Services Information Order-taking Billing Payment o o o o Enhancing Services Consultation Hospitality Safekeeping Exceptions Payment Payment In Figure 4. 4, the eight clusters are displayed as petals surrounding the center of a ? ower, hence we call it the Flower of Service. The petals are arranged in a clockwise sequence depending on how they are likely to be encountered by customers. However, the sequence may sometimes vary. For instance, payment may have to be made before service is delivered rather than afterwards. In a well-designed and well-managed service organization, the petals and core are fresh and well-formed. A service that is badly designed or poorly delivered is a like a ? ower with missing or dried Information Information petals. Even if the core is perfect, the ? ower looks unattractive. Think about one of your negative Consultation Consultation experiences as a service customer. When you were dissatis? ed with a particular purchase, was it the core that was at fault, or was it a problem with one or more of the petals? CORE Order Order Taking Billing Billing Figure 4. The Flower of Service: Core product surrounded by cluster of supplementary services. Exceptions Exceptions KEY: Facilitating elements Facilitating elements Enhancing elements Enhancing elements A company’s market positioning strategy helps to decide which supplementary services should Safekeeping Safekeeping be included (see Chapter 3). If a company’s strategy is to add bene? ts to increase customersâ₠¬â„¢ perceptions of quality, then more supplementary services are required. For example, airlines such as Emirates, the award-winning Dubaibased airline, may o? er supplementary service like goodie bags to soothe hyperactive children. There is also in-? ight entertainment such as cartoons and games that can keep the children occupied for hours. This will help to reduce the stress faced by parents traveling with young children. If the strategy is to compete on low prices, then fewer supplementary services are required. Hospitality Hospitality 88 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements FACILITATING SUPPLEMENTARY SERVICES Information To obtain full value from any good or service, customers need relevant information (Figure 4. 5). New customers and prospects are especially hungry for information. Information may sometimes be required by law. These include conditions of sale and use, warnings, reminders, and noti? cation of changes. Customers also appreciate advice on how to get the most value from a service and how to avoid problems. Companies should make sure that the information they provide is both timely and accurate. If not, it is likely to make customers feel irritated or cause them inconvenience. CORE †¢ Direction to service site †¢ Schedules/service hours †¢ Prices †¢ Reminders †¢ Warnings †¢ Conditions of sale/service †¢ Noti? cation of changes †¢ Documentation †¢ Com? rmation of reservations †¢ Summaries of account activities †¢ Receipts and tickets Figure 4. Examples of information. Traditional ways of providing information to customers include using front-line employees, printed notices, brochures, and instruction books. Information can also be provided through videos or software-driven tutorials, touchscreen video displays, or through company web sites. The types of information range from train and airline schedules, to assistance in locating speci? c retail outlets, to information on the services of professional ? rms. Many business logistics companies o? er shippers the opportunity to track the movements of their packages, which have been assigned a unique identi? ation number (Figure 4. 6). For example, Amazon. com provides online customers with a reference number and they can track the goods that they have bought, and know when to expect the goods. Figure 4. 6 Shipments can be tracked around the world with their identity code. Applying the 4Ps to Services 89 PART II Order-Taking Once customers are ready to buy, the company accepts applications, orders, and reservations (Figure 4. 7). The process of order-taking should be polite, fast, and accurate so that customers do not waste time and endure unnecessary mental or physical e? ort. Technology can be used to make order-taking easier and faster for both customers and suppliers. Applications †¢ Memberships in clubs/programs †¢ Subscription services (e. g. , utilities) †¢ Prerequisite based services (e. g. , ? nancial credit, college enrolment) CORE Order Entry †¢ On-site order ful? llment †¢ Mail/telephone/e-mail/web order Reservations and Check-in †¢ Seats/tables/rooms †¢ Vehicles or equipment rental †¢ Professional appointments Figure 4. 7 Examples of order-taking elements. Order-taking includes applications, order entry, and reservations or check-ins. Banks, insurance companies, utilities, and universities usually equire potential customers to go through an application process. Order entry can be received through a variety of sources such as through sales personnel, phone, and e-mail or online (Figure 4. 8). Airlines now make use of ticketless systems, based on telephone or web site reservations. Customers receive a con? rmation number when they make reservations and need to only show identi? cation at the airport to claim their seats and receive a boarding pass. Northwest Airlines promotes order-taking online. Billing Billing is common to almost all services (unless the service is provided free of charge). Customers usually expect bills to be clear. Inaccurate, illegible, or incomplete bills risk disappointing customers who may, up to that point, have been quite satisfied with their experience. If customers are already dissatisfied, the billing mistake may make them even angrier. Billing should also be timely, because it encourages people to make payment faster. Procedures range from verbal statements to a machine-displayed price, and from handwritten invoices to elaborate monthly statements of account activity and fees (Figure 4. 9). Perhaps the simplest approach is self-billing. This is when the customer adds up Figure 4. 8 OpenTable takes dining reservations to a whole new level by allowing diners to bypass the traditional call-and-hope reservation experience with a mere click. 90 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements the amount of an order and authorizes a card payment or writes a check. In such instances, billing and payment are combined into a single act, although the seller may still need to check for accuracy. CORE Figure 4. 9 Examples of billing elements. Busy customers dislike being kept waiting for a bill to be prepared. There are di? erent ways in which bills can be presented to customers in a faster way. Hotels and rental car ? rms now have express check-outs. Many hotels may push bills under guestroom doors on the morning of departure showing charges to date. Others o? er customers the choice of seeing their bills beforehand on the TV monitors in their rooms. Some car rental companies have an express check-out procedure. An agent meets customers as they return their cars. After they have checked the mileage and fuel gauge readings, the bill is printed on the spot using a portable wireless terminal. Payment In most cases, a bill requires the customer to take action on payment. One exception is the bank statement which shows details of charges that have already been deducted from the customer’s account. Increasingly, customers expect it to be easy and convenient to make payment, including using credit, when they make purchases in their own countries, and while traveling abroad. A variety of options exist for customers to make payment (Figure 4. 10). For selfservice payment systems, one may make payment by inserting coins, banknotes, tokens or cards into machines. Good maintenance of the equipment is important. Self-Service †¢ Insert card, cash or token into machine †¢ Electronic funds transfer †¢ Mail a check †¢ Enter credit card number online Direct to Payee or Intermediary †¢ Cash handling or change giving †¢ Check handling †¢ Credit/charge/debit card handling †¢ Coupon redemption Automatic Deduction from Financial Deposits †¢ Automated systems (e. g. , machine-readable tickets that operate entry gate) †¢ Human systems (e. g. , toll collectors) Figure 4. 10 Examples of payment elements. CORE Applying the 4Ps to Services 91 PART II †¢ Periodic statements of account activity †¢ Invoices for individual transactions †¢ Verbal statements of amount due †¢ Self-billing (computed by customer) †¢ Machine display of amount due If the equipment breaks down, it can destroy the purpose of such a system. Most payment still takes the form of cash or credit cards. However, more and more shopping is being done online. PayPal offers a fuss-free and secure way to make payments for goods bought over the Internet. Online shoppers must first register with PayPal and have a credit card to use the service. Customers can make their payments via PayPal who will process the payment to the seller. PayPal will then charge the amount owed to the registered buyer’s account. ENHANCING SUPPLEMENTARY SERVICES Consultation Now we move to enhancing supplementary services, led by consultation. Consultation involves a dialog to probe customer requirements and then develop a solution that is suited to the needs of the customer. Figure 4. 11 provides examples of several supplementary services in the consultation category. CORE †¢ Customized advice †¢ Personal counseling †¢ Tutoring/training in product use †¢ Management or technical consulting Figure 4. 11 Examples of consultation elements. Figure 4. 12 An auditor provides a human touch during the process of consultation. At its simplest level, consultation consists of immediate advice from a knowledgeable service person in response to the request, â€Å"What do you suggest? † (For example, you might ask the person who cuts your hair for advice on di? erent hairstyles and products). Finally, management and technical consulting for corporate customers include the â€Å"solution selling† associated with expensive industrial equipment and services. E? ctive consultation requires an understanding of each customer’s current situation, before suggesting a suitable course of action. Good customer records can be a great help in this respect, particularly if relevant data can be retrieved easily from a remote terminal. In an Internet environment, which encourages customers to engage in self-service applications and be more self-reliant, companies should not for get the personal touch of a â€Å"live† human being during the process of consultation (Figure 4. 12). The human touch of a friendly customer-service o? er will certainly be valued and remembered, and will go a long way for customers. 92 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements Counseling is another type of consultation that is less direct than consultation. It involves helping customers understand their situations better, so that they can come up with their â€Å"own† solutions and action programs. For example, diet centers such as Weight Watchers use counseling to help customers change behaviors so that weight loss can be sustained after the diet program has ended. Finally, advice, another form of consultation, can also be o? red through tutorials, group training programs, and public demonstrations. Hospitality Hospitality-related services should, ideally, re? ect pleasure at meeting new customers and greeting old ones when they return. Well-managed businesses try, at least in small ways, to ensure that their employees treat customers as guests. Courtesy and consideration for customers’ needs apply to both face-to-face encounters and telephone interactions (Figure 4. 13). Hospitality is an element that can be more clearly displayed in face-to-face encounters. In some cases, it starts (and ends) with an o? r of transport to and from the service site on courtesy shuttle buses. If customers must wait outdoors before the service can be delivered, then a thoughtful service provider will o? er weather protection. If customers have to wait indoors, then there can be a waiting area with seating and even entertainment (TV, newspapers or magazines) to pass the time. Recruiting employees who are naturally warm, welcoming, and considerate helps to create a hospitable atmosphere. Shoppers at Giordano, an international clothing retailer with markets in the Asia Paci? and the Middle East, are given a cheerful †Å"Hello† and â€Å"Thank you† when they enter and leave the store, even if they did not buy anything. The quality of the hospitality services o? ered by a ? rm can increase or decrease satisfaction with the core product. This is especially true for people-processing services where customers cannot easily leave the service facility. Private hospitals often seek to enhance their appeals by providing the level of room service that might be expected in a good hotel. This includes the provision of quality meals. Some airlines seek to di? rentiate themselves from their competitors with better meals and more attentive cabin crew and Singapore Airlines is well-recognized in both areas. 3 CORE Greeting Food and beverages Toilets and washrooms Waiting facilities and amenities †¢ Lounges, waiting areas, seating †¢ Weather protection †¢ Magazines, entertainment, newspapers Transport Security Figure 4. 13 Examples of hospitality elements. Applying the 4Ps to Services 93 PART II SERVICE INSIGHTS 4. 1 Cosmetic Surgeons’ Of? ces Turn Off Patients It appears that plastic surgeons could use some service marketing training along with their other courses in medical school. Two experts, Kate Altork and Douglas Dedo, who did a study of patients’ reactions to doctors’ o? ces found that many patients will cancel a surgery, change doctors, or refuse to consider future elective surgery if they feel uneasy in the doctor’s o? ce. The study results suggested that patients do not usually â€Å"doctor-jump† because they do not like the doctor, but because they do not like the environment in which the service occurred. The list of common patient dislikes includes: graphic posters of moles and skin cancers decorating o? ce walls; uncomfortable plastic identi? ation bracelets for patients; examining rooms with no windows or current reading material; bathrooms that are not clearly marked; and not enough wastebaskets and water coolers in the waiting room. What do patients want? Most requests are surprisingly simple and involve simple comforts such as tissues, water coolers, telephones, plants, bowls of candy in the waiting room, and live ? ower arrangements in the lobby. Patients also want windows in the examining rooms and gowns that wrap around the entire body. They would like to sit on a real chair when they talk to a doctor instead of sitting on a stool or examining table. Finally, patients who have not yet gone for surgery prefer to be separated from patients who have had surgery because they feel uneasy sitting next to someone in the waiting room whose head is enclosed in bandages. These study results suggest that cosmetic surgery patients would rather visit an o? ce that looks more like a health spa than a hospital ward. By thinking like service marketers, savvy surgeons could use this information to create patient-friendly environments that will go well with, rather than go against, their technical expertise. Source Bannon, L. (1997). Plastic surgeons are told to pay more attention to appearances. Wall Street Journal, March 15, p. B1. 94 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements Failures in hospitality can extend to the physical design of the areas where customers wait prior to receiving service. A survey found that unappealing o? ces and lack of comfort can drive away patients of cosmetic surgeons (Service Insights 4. 1). Safekeeping While visiting a service site, customers often want their personal possessions to be â€Å"looked after. † In fact, some customers may choose not to go to certain places that do not have safekeeping services like a safe and convenient car park. On-site safekeeping services includes coatrooms; baggage transport, handling and storage; safekeeping of valuables; and even child care and pet care (Figure 4. 14). Caring for Possessions Customer Bring with Them †¢ Child care, pet care †¢ Parking for vehicles, valet parking †¢ Coat rooms †¢ Baggage handling †¢ Storage space †¢ Safe deposit boxes †¢ Security personnel CORE Caring for Goods Purchased (or Rented) by Customers †¢ Packaging †¢ Pickup †¢ Tranportation and delivery †¢ Installation †¢ Inspection and diagnosis †¢ Cleaning †¢ Refueling †¢ Preventive maintenance †¢ Repair and renovation Figure 4. 14 Examples of safekeeping elements. Exceptions Exceptions involve supplementary services that fall outside the normal service delivery. Exceptions include special requests, and problem solving (Figure 4. 15). Special Requests in Advance of Service Delivery †¢ Children’s needs †¢ Dietary requirements †¢ Medical or disability need †¢ Religious observances Handling Special Communications †¢ Complaints †¢ Compliments †¢ Suggestions CORE Problem Solving †¢ Warranties and guarantees †¢ Resolving dif? culties that arise from using the product †¢ Resolving dif? ulties caused by accidents, service failures †¢ Assisting customers who have suffered an accident or a medical emergency Restitution †¢ Refunds and compensation †¢ Free repair of defective goods Figure 4. 15 Examples of exception elements. Applying the 4Ps to Services 95 PART II Companies should anticipate exceptions and develop back-up plans and guidel ines in advance. That way, employees will not appear helpless and surprised when customers ask for special assistance. Well-de? ned procedures make it easier for employees to respond promptly and e? ectively (Figure 4. 16). Managers need to keep an eye on the level of exception requests. Too many requests may indicate that standard procedures need to be changed. For example, if a dentist keeps receiving requests for more information about a particular dental procedure, then this may indicate that it is time to perhaps print some brochures that educate customers. A ? exible approach to exceptions is generally a good idea, because it re? ects responsiveness to customer needs. On the other hand, too many exceptions may have a negative impact on other customers, and overburden employees. Figure 4. 6 McDonald’s wellestablished procedures lets employees respond smartly to customers’ requests. Managerial Implications The eight categories of supplementary services forming the Flower of Service collectively provide many choices for enhancing core products. As noted earlier, some are facilitating services that enable customers to use the core product more e? ectively. Others are â€Å"extras† that enhance the core or even reduce its non-? nancial costs. Any badly handled element may negatively a? ect customers’ perceptions of service quality. Not every core product is surrounded by a large number of supplementary services from all eight petals. People-processing services tend to have more supplementary elements, especially hospitality, since they involve close (and often extended) interactions with customers. When customers do not visit the service factory, the need for hospitality may be limited to just letters and telecommunications. Possession-processing services sometimes place heavy burdens on safekeeping elements. However, there may be no need for this particular petal when providing information-processing services, whereby customers and suppliers interact at arm’s length. Financial services that re provided electronically are an exception to this however. Companies must ensure that their customers’ intangible ? nancial assets and their privacy are carefully safeguarded in transactions that take place through the telephone or the web. (Figure 4. 17). A study of Japanese, American, and European ? rms serving businessto-business markets found that most companies simply added layer upon layer of services to their core o? erings without knowing what customers really valued. 4 Managers surveyed in the study indicated that they did not understand which services should be o? red to customers as a standard package accompanying the core, and which could be o? ered as options for an extra charge. There are no simple rules governing decisions for core products and supplementary services. However, managers should continually review their own policies and those of competitors to make sure they are in line with what the market practices, and customer needs. Figure 4. 17 Security features ensure that online transactions are safe. 96 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements BRANDING SERVICE PRODUCTS AND EXPERIENCES recent years, more and more service ? rms have started talking about their products. What is the di? erence between a service and a product? A product is a de? ned and consistent â€Å"bundle of output. † One bundle of output can be di? erent iated from another bundle of output. Service providers can usually o? er a â€Å"menu† of products, representing an assembly of carefully prescribed elements built around the core product. They may also bundle in certain value-added supplementary services. Let us look at some examples from hotels, a computer support service, and an international airline. I Know how service ? rms use different branding strategies for their product lines. LO 4 Product Lines and Brands Most service ? rms o? er a line of products rather than just a single product. As a result, they must choose among three broad alternatives: using a single brand to cover all products and services, a separate stand-alone brand for each o? ering, or some combination of these two extremes. 5 These alternatives are represented as a spectrum in Figure 4. 18. The term branded house is used to describe a company like the Virgin Group, which applies its brand name to multiple o? rings in often unrelated ? elds. 6 Next on this spectrum are what they term sub-brands. A sub-brand is one where the master brand is the main reference point, but the product itself has a distinctive name too. Singapore Airlines Ra? es Class, the company’s business class service, is an example. The next category of brands are endorsed brands, where the product brand is the main focus, but the corp orate name is still featured (many hotel corporations CORPORATE BRANDING INDIVIDUAL PRODUCT BRANDING â€Å"Branded House† e. g. , Virgin Group Subbrands e. g. , Raf? es Class at Singapore Airlines Endorsed Brands e. . , Starwood Hotels Resorts â€Å"House of Brands† e. g. , Yum! Brands Figure 4. 18 The spectrum of branding alternatives. Applying the 4Ps to Services 97 PART II use this approach). At the far end of the spectrum is the house of brands strategy. Yum! Brands Inc. adopts the house of brands strategy, with more than 35,000 restaurants in 110 countries. While we may not have heard of Yum! Brands, many certainly are familiar with their restaurant brands—A W, KFC, Pizza Hut, Taco Bell, and Long John’s Silver. Each of these brands is actively promoted under their own brand name (Figure 4. 9). Hotel Branding There are many hotel chains that have a global presence. Many of these chains o? er a family of sub-brands/endorsed brands. For instance, Hilt on Hotels Corporation has ten sub-brands, and the Accor Group has ten sub-brands. Marriott International has 15 brands including the wholly owned Ritz-Carlton chain. However, to protect its exclusive image, Ritz-Carlton is not normally identi? ed for marketing purposes as part of the Marriott Group. For a multibrand strategy to succeed, each brand must promise a di? erent set of bene? ts targeted at a di? rent customer segment. In some instances, segmentation is situation-based. The same individual may have di? erent needs and willingness to pay under di? ering circumstances, like when traveling with family or traveling on business. A strategy of brand extension is aimed at encouraging customers to continue staying within the brand family and this may be encouraged through loyalty programs. A study of the brand-switching behavior of some 5,400 hotel customers found that brand extensions do seem to encourage customers to stay within the brand. However, brand extensions may be less e? ctive in discouraging switching when the number of brands reaches four or more. 7 Figure 4. 19 KFC and Pizza Hut are just some of the few popular fast food brands fronting Yum! Brands. Sun Microsystems is an example of branding a high-tech, business-to-business product line. The company o? ers a full range of hardware and software support in a program branded as â€Å"SunSpectrum Support. †8 Four di? erent levels of support are available, sub-branded from platinum to bronze. The objective is to allow the buyers to choose a level of support that meets the needs of their own organizations as well as the willingness to pay. These are categorized as below: u u u Platinum: Mission-critical support with on-site service 24/7 and a two-hour response time. Gold: Business critical support with on-site service from Monday to Friday, 8am to 8pm, telephone service 24/7 and a four-hour response time. Silver: Basic support with on-site service from Monday to Friday, 8am to 5pm, telephone service from Monday to Friday, 8am to 8pm, and a four-hour response time. Bronze: Self-support with phone service 8am to 5pm. Sun Microsystems Hardware and Software Support u 98 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements British Airways Sub-brands u u u u u u u First—deluxe service, British Airways (BA) is a good example of strong sub-branding in the airline industry. BA o? ers seven distinct air travel products. They are: Club World—intercontinental business class, World Traveller Plus—intercontinental premium economy class, World Traveller—intercontinental economy class, Club Europe—intra-European business class, Euro-Traveller—intra-European economy class, and UK Domestic—economy-class service between London and major British cities. Each BA sub-brand represents a speci? c service concept and a set of clearly stated product speci? ations for pre-? ight, in-? ight, and on-arrival service elements. Offering a Branded Experience Branding can be used at both the company and product level by almost any service business. In a well-managed ? rm, the corporate brand is not only easily recognized, but it also has meaning for customers. The brand stands for a particular way of doing business. Applying distinctive brand names to individual products helps marketers to establish a mental picture of the service in customers’ minds and to clarify the nature of the value proposition. The Forum Corporation, a consulting ? m, di? erentiates between (1) experience with high variation from customer to customer, (2) a branded experience that is similar across di? erent ? rms, di? erentiated only by the brand name (ATMs are a good example), and (3) a â€Å"Branded Customer Experience† in which the customer’s experience is shaped in a speci? c and meaningful ways. 9 (See Service Insights 4. 2 for Forum’s recommendations on how to achieve this. ) Don Shultz emphasizes that â€Å"The brand promise or value proposition is not a tag line, an icon, or a color or a graphic element, although all of these may contribute. It is, instead, the heart and soul of the brand†¦. †10 An important role for service marketers is to become brand champions, familiar with and responsible for shaping every aspect of the customer’s experience. We can relate the notion of a branded service experience to the Flower of Service metaphor by emphasizing the need for consistency in the color and texture of each petal. Unfortunately, many service experiences remain much disorganized and create the impression of a ? ower stitched together with petals drawn from many di? erent plants! We will return to a discussion of branding in the context of marketing communications strategy in Chapter 7. Applying the 4Ps to Services 99 PART II SERVICE INSIGHTS 4. 2 Moving Toward The Branded Customer Experience Forum Corporation identi? es six basic steps to develop and deliver the Branded Customer Experience: 1 2 3 Target pro? table customers, employing behavior rather than demographic segmentation as behavior is a more accurate indicator of tastes and preferences. Achieve a superior understanding about your targeted customers’ value. Create a brand promise—an expression of what target customers can expect from their experience with your organization—which is of value to customers, addresses a need, can be implemented, can be incorporated into standards, and provides focus for the organization and its employees. 4 5 6 7 8 Apply that understanding to provide a truly di? erent customer experience. Give employees the skills, tools, and supporting processes needed to deliver the customer experience that has been de? ned. Make everyone a brand manager who is behind the brand and supports the brand. Make promises that your processes can exceed. Measure and monitor. Consistency of delivery is paramount. Source â€Å"Forum Issues #17† Boston: The Forum Corporation, 1997; Wheeler, J. , Smith, S. (2003). â€Å"Loyalty by Design† Forum Corporation, 2003. Available: www. forum. com/publications, accessed March 2008. NEW SERVICE DEVELOPMENT ntense competition and rising customer expectations are having an impact on nearly all service industries. Thus, success lies not only in providing existing services well. Companies also need to create new approaches to services. I List the categories of new service development, ranging from simple style changes to major innovations. LO 5 A Hierarchy of New Service Development Categories Following are seven categories of new services that we can identify, ranging from simple style changes to major innovations. They are in increasing complexity: u u u u Style changes Service improvements Supplementary service innovations Process line extensions 100 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements u u u Product line extensions Major process innovations Major service innovations Style changes are the simplest type of innovation, usually involving no changes in either processes or performance. However they are often highly visible, create excitement, and may serve to motivate employees. Examples include repainting retail branches and vehicles in new color schemes, designing new uniforms for service employees, introducing a new bank check design, or minor changes in service scripts for employees. Service improvements are the most common type of innovation. They involve small changes in the performance of current products, including improvements to either the core product or to existing supplementary services. For example, students need to be physically present to attend lectures. Now, colleges have moved to taping lectures and these can now be viewed online, when the students are free. Hence, students now have a choice as to whether to attend lectures or not. Supplementary service innovations take the form of adding new facilitating or enhancing service elements to an existing core service, or of signi? cantly improving an existing supplementary service. Low-tech innovations for an existing service can be as simple as adding parking at a retail site, or agreeing to accept credit cards for payment. To enhance the existing core service, The Snap Printing group that operates in Australia, New Zealand, Ireland, and China, now provides a complete web-based service that allows customers to get advice, as well as customized printing requirements direct and online. Multiple improvements may have the e? ect of creating what customers perceive as an altogether new experience, even though it is built around the same core. Theme restaurants like the Rainforest Cafe enhance the core food service with new experiences (Figure 4. 20). The cafes are designed to keep customers entertained with aquariums, live parrots, waterfalls, ? erglass monkeys, talking trees that spout environment-related information, and regularly timed thunderstorms, complete with lightning. 11 1. 2. 3. Figure 4. 20 Rainforest Cafe makes a supplementary service innovation by enhancing the core food service with the experience of being in a jungle. Applying the 4Ps to Services 101 PART II 4. Process line extensions are les s innovative than process innovations. However, they often represent new ways of delivering existing products. The intention is either to o? er more convenience and a di? erent experience for existing customers, or to attract new customers who ? d the traditional approach unappealing. Most commonly, they involve adding a lower contact distribution channel to an existing high-contact channel, such as creating telephone-based or Internet-based banking service. Barnes and Noble, the leading bookstore chain in the United States, added a new Internet subsidiary, BarnesandNoble. com to help it compete against Amazon. com (Figure 4. 21). Such dual-track approaches are sometimes referred to as â€Å"Clicks and Mortar. † Creating self-service options to complement delivery by service employees is another form of process line extension. Figure 4. 1 Barnes and Noble extends their process line by offering an Internet-distribution channel, entering the age of the â€Å"Clicks and Mortar. † 102 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements 5. Product line extensions are additions to current product lines by existing ? rms. The ? rst company in a market to o? er such a product may be seen as an innovator. The others are merely followers, often acting to defend themselves. These new services may be targeted at existing customers to serve a broader variety of needs, or designed to attract new customers with di? erent needs (or both). For example, many banks now sell insurance products in the hope of increasing the number of pro? table relationships with existing customers. Major process innovations consist of using new processes to deliver existing core products in new ways with additional bene? ts. For example, the University of Phoenix competes with other universities by delivering undergraduate and graduate degree programs in a non-traditional way. It has no permanent campus, but o? ers courses either online or at night in rented facilities. Its students get most of the bene? ts of a college degree in half the time and at a much lower price than other universities. 2 In recent years, the growth of the Internet has led to the creation of many service process innovations that exclude the use of traditional stores and save customers time and travel. Often, these models add new, timely, information-based bene? ts such as the opportunity to visit chat-rooms with fellow customers, and suggestions for additional prod ucts that match well with what has already been bought. Major service innovations are new core products for markets that have not been previously de? ned. They usually include both new service characteristics and radical new processes. Examples include relatively recent web-based television services, and YouTube’s video sharing web services (Figure 4. 22). 6. 7. Figure 4. 22 YouTube allows users to easily embed any hosted videos on web pages or blogs, an innovation which found favor among socialnetworking websites. As the above typology suggests, service innovation can occur at many di? erent levels. However, not every type of service innovation has an impact on the features of the service product, and not all are experienced by the customers. Applying the 4Ps to Services 103 PART II Be familiar with the factors needed to achieve success in developing new services. LO 6 Achieving Success in Developing New Services For a new product to be successful, the sound core product is necessary but not su? cient. It is the quality of the total service o? ering, and also the marketing support that goes with it that is important for success. Chris Storey and Christopher Easingwood emphasize that success is based on market knowledge: â€Å"Without an understanding of the marketplace, knowledge about customers, and knowledge about competitors, it is very unlikely that a new product will be a success. †13 A study by Scott Edgett and Steven Parkinson focused on discriminating between successful and unsuccessful new ? ancial services. 14 They found that the three factors contributing most to success were, in order of importance: 1. Market synergy—the new product ? t well with the existing image of the ? rm, was better than competitors at meeting customers’ known needs, and received strong support during and after the launch from the ? rm an d its branches. In addition, the ? rm had a good understanding of its customers’ purchase decision behavior. Organizational factors—there was strong interfunctional cooperation and coordination. Development personnel were fully aware of why they were involved and of the importance of new products of the company. Market research factors—detailed and properly designed market research studies were conducted early in the development process. There was a clear idea of the type of information to be obtained. A good de? nition of the product concept was developed before undertaking ? eld surveys. 2. 3. Figure 4. 23 When sound human resource strategy is wedded to vibrant marketing synergy, a successful product is born. Another survey of ? nancial service ? rms to determine what distinguished successful from unsuccessful products yielded similar ? ndings. 15 In this instance, the key factors for success were synergy (the ? between the product and the ? rm in terms of needed expertise and resources being present) and internal marketing (the support given to sta? before its launch to help them understand the new product and its underlying systems, plus details about direct competitors, and support). Yet another study found similar factors, that marketing synergy and human resource issues like me eting customer needs, and having a human resource strategy that links to the development of service processes are keys to success (Figure 4. 23). 16 104 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements CHAPTER SUMMARY LO 1 u A service product consists of two components, the core product and supplementary services. The core product is based on the core set of bene? ts and solutions delivered to customers. Supplementary services are those elements that facilitate and enhance the use of the core product. u Designing a service concept is a complicated task that requires an understanding of how the core and supplementary services should be combined, sequenced, delivered, and scheduled to create bene? ts that meet the needs of the target market segments. LO 5 u When competition is intense, ? rms can create ew approaches to services in order to maintain a competitive edge. There is a hierarchy of new service development that has seven categories ranging from simple changes to major innovations. They are: o o o o o o o Style changes Service improvements Supplementary service innovations Process line extensions Product line extensions Major process innovations, and Major service innovations . LO 2 u Different types of core products often share similar supplementary elements. The Flower of Service concept categorizes supplementary services into eight groups (each represented as a petal surrounding the core). The eight groups can be categorized as (1) facilitating and (2) enhancing supplementary services. for service delivery or help in the use of the core product. They are: o o o o Information Order-taking Billing, and Payment. LO 3 u Facilitating supplementary services are needed u Major service innovations are relatively rare. More common is the use of new technologies, such as the Internet, to deliver existing services in new ways. In mature industries, where the core service can become a commodity, the search for competitive advantage often depends on creating new supplementary services or greatly improving performance on existing ones. LO 6 u The chances of success for a new service concept increase when it: o o Fits well with the ? rm’s expertise, resources and existing image, Provides a superior advantage over competing services in terms of meeting customers’ needs, and is Well-supported by coordinated efforts between the different functional areas in a ? rm. u Enhancing supplementary services add extra value for the customer and include: o o o o Consultation Hospitality Safekeeping Dealing with exceptions. o u The use of a ? ower helps us to understand that all the supplementary elements must be performed well. A weakness in one element will spoil the overall impression. LO 4 u Many ? rms offer several service products with different performance attributes and brand each package with a distinctive name. They can use a variety of branding strategies such as branded house, sub-brands, endorsed brands, and house of brands. However, each of these different brands in the family should offer a meaningful bene? t or this strategy is likely to be ineffective against competition. Applying the 4Ps to Services 105 UNLOCK YOUR LEARNING These keywords are found within the sections of each Learning Objective (LO). They are integral in understanding the services marketing concepts taught in each section. Having a ? rm grasp of these keywords and how they are used is essential in helping you do well for your course, and in the real and very competitive marketing scene out there. LO 1 1. Core product 2. Service product 3. Supplementary services 12. Flower of Service 13. Hospitality 14. Information 15. Order-taking 16. Payment 17. Safekeeping 24. Branded customer experience LO 5 25. Categories of new services 26. Major process innovations 27. Major service innovations 28. Process line extensions 29. Product line extensions 30. Style changes 31. Service improvements 32. Supplementary service innovations LO 2 4. Delivery processes 5. People processing 6. Service concept LO 3 7. Biling 8. Consultation 9. Enhancing supplementary services 10. Exceptions LO 4 18. Branded house 19. Sub-brands 20. Endorsed brands 21. House of brands 22. Multi-brand strategy 23. Branding LO 6 33. Internal marketing 34. Market synergy 11. Facilitating supplementary services How well do you know the language of services marketing? Quiz yourself! Not for the academically faint-of-heart For each keyword you are able to recall without referring to earlier pages, give yourself a point (and a pat on the back). Tally your score at the end and see if you earned the right to be called—a services marketeer. SCORE 0–5 6 – 11 12 – 18 19 – 24 25 – 29 30 – 34 Services Marketing is done a great disservice. The midnight oil needs to be lit, pronto. I know what you didn’t do all semester. A close shave with success. Now, go forth and market. There should be a marketing concept named after you. 106 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements KNOW YOUR ESM Review Questions 1. De? ne what is meant by core product and supplementary services. Can they be applied to goods as well as services? Explain your answer. Explain the ? ower of service concept. What insights does this concept provide for service marketers? Explain the distinction between enhancing and facilitating supplementary services. Give several examples of each, relative to services that you have used recently. 4. How is branding used in services marketing? What is the distinction between a corporate brand like Marriott and the names of its different inns and hotel chains? What are the approaches that ? rms can take to create new services? 2. 5. 6. WORK YOUR ESM Application Exercises 1. Select a service that you are familiar with and identify the core product and supplementary services. Identify a competitor’s service and show how the competitor’s core product and supplementary services differ from the one you had originally identi? ed. Select some branding examples from ? nancial services such as speci? c types of retail bank accounts or insurance policies and de? ne their characteristics. How meaningful are these brands likely to be to customers? 3. 2. Using a ? m that you are familiar with, analyze what opportunities it might have, to create line extensions for its current and/ or new markets. What impact might these extensions have on its present services? Applying the 4Ps to Services 107 PART II 3. Why do new services often fail? What factors are associated with successful development of new services? ENDNOTES 1 Horovitz, B. (2006). Starbucks aims beyond lattes to extend brand. USA Today, 18 May 2006. www. starbucks. com and www. hearmusic. com. Accessed March 2008. Lovelock, C. H. (1992). Cultivating the Flower of Service: New ways of looking at core and supplementary services. In P. Eiglier, E.? Langeard (Eds. ), Marketing, Operations, and Human Resources: Insights into Services, (pp. 296–316). Aix-en-Provence, France: IAE, Universite d’Aix-Marseille III. Heracleous, L. , Wirtz, J. , Pangarkar, N. (2006). Flying High: Cost Effective Service Excellence – Lessons from Singapore Airlines. Singapore: McGraw Hill. Anderson J. C. , Narus, J. A. (1995). Capturing the value of supplementary services. Harvard Business Review, 73(January–February), pp. 75–83. Devlin, J. (2003). Brand architecture in services: The example of retail ? nancial services. Journal of Marketing Management, 19, pp. 1043–1065. Aaker D. , Joachimsthaler, E. (2000). The brand relationship spectrum: The key to the brand challenge, California Management Review, 42(4), pp. 8–23. Jiang, W. , Dev, C. S. , Rao, V. R. (2002). Brand extension and customer loyalty: Evidence from the lodging industry. Cornell Hotel and Restaurant Administration Quarterly, (August), pp. 5–16. www. sun. com/service/support/sunspectrum, Accessed 2 February 2008. 9 Wheeler J. , Smith, S. (2003). Managing the Customer Experience. Upper Saddle River, NJ: Prentice Hall. Shultz, D. E. (2001). Getting to the heart of the brand. Marketing Management, (Sep. – Oct. ), pp. 8–9. Rubel, C. New menu for restaurants: Talking trees and blackjack. Marketing News, (July), p. 1. Available: http://www. rainforestcafe. com/, Accessed March 2008. Traub, S. T. , Drive-Thru U. (1997). The New Yorker, (October);. Macht, J. (1998). Virtual You. Inc. Magazine, (January), pp. 84–87. Available: http://www. phoenix. edu/about_us/about_ us. aspx, Accessed March 2008. Storey C. D. , Easingwood, C. J. (1998). The augmented service offering: A conceptualization and study of its impact on new service success. Journal of Product Innovation Management, 15, pp. 335–351. Edgett S. , Parkinson, S. (1994). The development of new ? ancial services: Identifying determinants of success and failure. International Journal of Service Industry Management, 5(4), pp. 24–38. Storey C. , Easingwood, C. (1993). The impact of the new product development project on the success of ? nancial services. Service Industries Journal, 13(3), pp. 40–54. Ottenbacher, M. , Gnoth, J. , Jones , P. (2006). Identifying determinants of success in development of new high-contact services. International Journal of Service Industry Management, 17(4), pp. 344–363 10 2 11 3 12 4 13 5 14 6 15 7 16 8 108 Chapter 4 †¢ Developing Service Products: Core and Supplementary Elements