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Midterm Study Guide

by: Megan Angelo

Midterm Study Guide JMC-41005-001

Megan Angelo

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Ch. 4-7
Advertising Campaigns
Phillip W. Johnston
Study Guide
services, Marketing
50 ?




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This 31 page Study Guide was uploaded by Megan Angelo on Saturday October 8, 2016. The Study Guide belongs to JMC-41005-001 at Kent State University taught by Phillip W. Johnston in Fall 2016. Since its upload, it has received 8 views. For similar materials see Advertising Campaigns in Advertising at Kent State University.


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Date Created: 10/08/16
Chapter 4 Developing Service Products: Core and Supplementary Elements 4.1 The Flower of Service 4.2 Facilitating Supplementary Services 4.3 Enhancing Supplementary Services 4.4 Branding Service Products and Experiences 4.5 New Service Development 4.1 What is a “core product” or “core service”?  It meets the need identified by the consumer, which begins the consumer decision process discussed in chapter 2.  On page 20 in the text, it is defined as meeting “the customer’s primary need.”  In other words, it is the reason that a customer purchases a service; for example, the core service offered by a hotel is a place to sleep for the night. A service product comprises all elements of service performance, both tangible and intangible, that create value for customers. The service concept is represented by:  A core service  Accompanied by supplementary services Figure 4.2 • There are two kinds of supplementary services: – Facilitating supplementary services, which are either needed for service delivery, or help in the use of the core product – Enhancing supplementary services add extra value for the customer • Positioning strategy helps to determine which supplementary services should be included • Facilitating – Information ― customers often require information about how to obtain and use a product or service – Order-Taking ― Customers need to know what is available and may want to secure commitment to delivery. The process should be fast and smooth – Billing ― Bills should be clear, accurate and intelligible – Payment ― Customers may pay faster and more cheerfully if you make it simple and convenient for them • Enhancing – Consultation ― Value is added by offering consultation tailored to each customer’s needs and situation – Hospitality ― Customers (who invest time and effort) deserve to be treated as welcome guests – Safekeeping ― Customers prefer not to worry about looking after the personal possessions that they bring with them to a service site – Exceptions ― Customers appreciate flexibility when they make special requests and expect responsiveness when things don’t go according to plan 4.2 Examples of Information: Examples of Order Taking: Examples of Billing: Examples of Payment Methods: 4.3 Examples of Consultation: Examples of Hospitality: Examples of Safekeeping: Examples of Exceptions: Managerial Implications • Not every core product is surrounded by supplementary elements from all eight clusters • Nature of product helps to determine: – Which supplementary services must be offered – Which might usefully be added to enhance value and ease of doing business • People-processing and high contact services tend to have more supplementary elements • Firms that offer different levels of service often add extra supplementary services for each upgrade in service level 4.4 • A service product offers a defined and consistent “bundle of output” • Each firm must differentiate its bundle of output from those of competitors • Providers of more intangible services may also offer a “menu” of products – These represent an assembly of elements that are built around the core product – May include certain enhancing supplementary services • Most service organizations offer a line of products rather than just a single service. • For branding, they may choose among three alternatives: – A single brand to cover all products – A separate, stand-alone brand for each offering – Some combination of these two extremes • Branding can be used at both company and product levels • Company level -- corporate brand: – Easily recognized – Holds meaning to customers – Stands for a particular way of doing business • Product level brand name: – Helps firm establish mental picture of service in consumers’ minds – Helps clarify value proposition • Four key ways to build strong brands – Dare to be different – Determine your own fame – Make an emotional connection – Internalize the brand 4.5 1. Style changes – Visible changes in service design or scripts 2. Service improvements – Modest changes in the performance of current products 3. Supplementary service innovations – Addition of new or improved facilitating or enhancing elements 4. Process-line extensions – Alternative delivery procedures 5. Product-line extensions – Additions to current product lines 6. Major process innovations – Using new processes to deliver existing products with added benefits 7. Major service innovations – New core products for previously undefined markets 8. In developing new services, – Ability to maintain quality of the total service offering is key – The core product is of secondary importance – Accompanying marketing support activities are vital – Market knowledge is of utmost importance 9. Market synergy – Good fit between new product and firm image/resources – Advantage vs. competition in meeting customers’ needs – Strong support from firm during/after launch – Understand customer purchase decision behavior 10.Organizational factors – Strong cross-functional cooperation and coordination – Internal marketing to educate staff on new product – Employees understand importance of new services 11.Market research factors – Scientific studies conducted early in development – Product concept well defined before doing field studies Chapter 5 Distributing Services through Physical and Electronic Channels 5.1 Distribution in a Services Context 5.2 Distribution Options for Serving Customers 5.3 Place and Time Decisions 5.4 Delivering Services in Cyberspace 5.5 The Role of Intermediaries 5.6 Distributing Services Internationally • 5.1 Distribution in a Services Context In a services context, we often “move nothing” – there is no need for physical distribution • Experiences, performances and solutions are not physically shipped or stored, although some related tangibles might be • More and more informational transactions are conducted through electronic, not physical, channels • 5.2 Distribution Options for Serving Customers: Determining the Type of Contact Customers visit service site – Convenience of service locations and operational schedules are important when a customer has to be physically present • Service providers go to customers – Unavoidable when object of service is immovable – Often needed for remote areas – Greater likelihood of visiting corporate customers than individual consumers • Service transaction is conducted remotely – May require logistics and telecommunications • For complex and high-perceived risk services, people typically prefer personal channels • Consumers with greater confidence and knowledge about a service or channel tend to use impersonal and self-service channels • Customers who are more technology savvy typically prefer remote, self- service channels • Customers with social motives tend to use personal channels • Convenience is a key driver of channel choice 5.3 Place and Time Decisions Places for Physical Service Delivery (1) • Mini-stores – Create many small service factories to maximize geographic coverage ○ Automated kiosks – Separating front and back stages of operation ○ Fast food – Purchasing space from another provider in complementary field ○ Cosmetics counters in department stores • Locating in Multipurpose Facilities – Proximity to where customers live or work ○ Service stations • Cost, productivity and access to labor are key issues when locating a service facility • Locational constraints – Operational requirements ○ Airports – Geographic factors ○ Ski Resorts – Need for economies of scale ○ Hospitals • Traditionally, services were geographically constrained, and schedules were restricted, with availability limited to daytime hours • Today – More flexible, responsive service operations: ○ 24/7 service – 24 hours a day, 7 days a week, around the world 5.4 Delivering Services in Cyberspace Distribution of Supplementary Services in Cyberspace • Five of the supplementary services are information-based • These services can all be distributed electronically: – Information – Consultation – Order-taking – Billing – Payment • Distribution of information, consultation and order-taking has reached very sophisticated levels in global service industries (e.g., hotels, airlines, car rental companies) Figure 5.14 • Technological Innovations – Development of “smart” mobile phones, PDAs, and Wi-Fi high-speed Internet technology that links users to Internet from almost anywhere – Voice-recognition technology – Smart cards ○ Store detailed information about the customer ○ Act as electronic purse containing digital money • Electronic channels can be offered together with physical channels, or take the place of physical channels • What factors lure customers to virtual stores? – Convenience – Ease of search – Broader selection – Potential for better prices – 24-hour service; prompt delivery • Recent developments link websites, customer relationship management (CRM) systems, and mobile telephony • Mobile devices can be used to help consumers: – Access services – Alert them to opportunities/problems – Update information in real time 5.5 The Role of Intermediaries Sharing Responsibilities For Supplementary Service (Figure 5.19) • Popular way to expand service delivery; lower monetary investment than expansion of company-owned and managed sites • Franchisor provides training, equipment and support marketing activities to franchisees • Growth-oriented firms may like to franchise because franchisees are motivated for success • There is significant attrition among franchisors in the early years • 33% of all systems fail within first 4 years • 75% of all franchisors cease to exist after 12 years • Disadvantages of franchising • Loss of control over service delivery • Effective quality control, important but difficult • Conflict may occur between franchisees • Alternative: license another supplier to act on the original supplier’s behalf to deliver core product, e.g. • Banks and airlines selling insurance products 5.6 Distributing Services Internationally How to Enter International Markets? (Figure 5.22) Ch. 6 Setting Prices and Implementing Revenue Management 6.1 Effective Pricing is Central to Financial Success • Difficult to calculate financial costs of creating a service process or performance • Variability of inputs and outputs: How can firms define a “unit of service” and establish a basis for pricing? • Importance of time factor – same service may have more value to customers when delivered faster • Customers find service pricing difficult to understand, risky and sometimes even unethical! • Revenue and Profit Objectives • Seek profit • Cover costs • Patronage and User-Based Objectives • Build demand • Demand maximization • Full capacity utilization • Build a user base • Stimulate trial and adoption of new service Build market share 6.2 Three Main Approaches to Pricing • Cost-Based Pricing – Set prices relative to financial costs (difficult to trace) – Activity-Based Costing may define costs – Pricing implications of cost analysis • Value-Based Pricing – Relate price to value perceived by customer • Competition-Based Pricing – Monitor competitors’ pricing (especially if service lacks differentiation) – Who is the price leader - does one firm set the pace? • Traditional cost-based pricing approach – Emphasizes expense categories (overhead allocated arbitrarily) – May inaccurately assess value generated for customers • Activity Based Cost management systems – Link marketing expenditures to customer value produced – Yield accurate cost data (even with high fixed costs) • When looking at prices, customers care about value to themselves, not what service production costs the firm • Exchange will not take place unless customer sees positive net value • Monetary price is not the only perceived outlay in purchasing and using a service • Net Value = Perceived Benefits to Customer minus All Perceived Outlays (Money, Time, Mental/Physical Effort) When looking at competing services, customers compare relative net values Customer “expenditures” on service include both financial and non-financial outlays  Financial costs: • price of purchasing service • expenses associated with search, purchase activity, usage  Time expenditures  Physical effort (e.g., fatigue, discomfort)  Psychological burdens (mental effort, negative feelings)  Negative sensory burdens (unpleasant impact on any of the five senses) • Reduce time costs of service at each stage • Minimize psychological costs of service – For instance, eliminate/redesign unpleasant or inconvenient procedures • Eliminate physical costs of service – For instance, use painkillers during surgical procedures and headsets with music during unpleasant noise • Decrease unpleasant sensory costs of service – Unpleasant sights, sounds, smells, feel, tastes • Suggest ways for customers to reduce other monetary costs, such as using free parking When is Price Competition High? • There are more competitors • There are more available offers to substitute a different provider • There is a wider distribution of competitors • Demand decreases • There is surplus capacity in the industry When is Price Competition Reduced? • Non-price-related costs of using competing alternatives are high • Personal relationships matter • Switching costs are high • Time and location specificity reduces choice • Examine all financial and non-monetary costs of your competitors! 6.3 Revenue Management: What it is and How it Works • Most effective when: – Relatively high fixed capacity and high fixed costs – Perishable inventory – Variable and uncertain demand – A wide range of customer price sensitivities • Revenue management is a form of price customization – Charges different value segments different prices for the same product based on their price sensitivities • It uses mathematical models to examine historical data and real time information to decide: – What prices to charge within each price bucket – How many service units to allocate to each bucket • Rate fences deter customers who are willing to pay more from trading down to lower prices 6.4 Ethical Concerns in Service Pricing • Customers are vulnerable when service is hard to evaluate; they assume that higher price indicates better quality • Many services have complex pricing schedules – Hard to understand – Difficult to calculate full price in advance of service • Quoted prices are not the only expenditures – Hidden charges – Many kinds of fees • Too many rules and regulations – Customers feel constrained or exploited – Customers face unfair fines and penalties • Design clear, logical, and fair price schedules and rate fences • Use high published prices and present rate fences as opportunities for discounts (rather than quoting lower prices and using fences to impose surcharges) • Communicate consumer benefits of revenue management • Use bundling to “hide” discounts, to reduce perceptions of unfairness for those not receiving the discount • Take care of loyal customers • Use service recovery to compensate for overbooking 6.5 Putting Service Pricing into Practice Putting Service Pricing into Practice (Table 5.3) • How much should we charge? • What should be the basis for pricing? • Who should collect payments? • Where should payments be made? • When should payments be made? • How should payments be made? • How should we communicate prices? • How much should we charge? • The pricing tripod model helps with costs, customer price sensitivity, and competitors • Consider whether discounts are offered • Are any psychological pricing points used? • What should be the basis for pricing? • Completing a task • Admission to a service performance • Time based (e.g. hourly rate) • Monetary value of service delivered (e.g. commission) • Consumption of physical resources (e.g. food and beverages) • Distance-based (e.g. transportation) • Who should collect payments? • Service provider or specialist intermediaries • Direct or indirect channels • Where should payments be made? • Conveniently located intermediaries • By mail • Bank transfer • Internet, phone, fax; charge to credit card • When should payments be made? • In advance • After service delivery is completed • How should payments be made? • Cash • Check • Debit or Credit Card • Tokens or Vouchers • Stored Value Card (e.g. Starbucks) • How should we communicate prices? • Relate the price to that of competing products • Use salespeople and customer service representatives • Good signage at retail points • Ensure price is accurate and intelligible Ch. 7 Promoting Services and Educating Customers 7.1 Role of Marketing Communications • Position and differentiate service • Promote contribution of personnel and backstage operations • Add value through communication content • Facilitate customer involvement in production • Stimulate or shift demand to match capacity 7.2 Challenges of Service Communications • May be difficult to communicate service benefits to customers, especially when intangible • Intangibility creates 4 problems: – Abstractness ○ Services have no one-to-one correspondence with physical objects – Generality ○ Physical objects representing the service are not specific enough – Non-searchability ○ Many service attributes cannot be evaluated before purchase – Mental impalpability ○ Customers find it hard to grasp benefits of complex, multidimensional, or new service offerings • To overcome intangibility – Use tangible cues in advertising – Use metaphors to communicate benefits of service offerings 7.3 Marketing Communications Planning Checklist for Marketing Communications Planning: The “5 Ws” Model • Who is our target audience? • What do we need to communicate and achieve? • How should we communicate this? • Where should we communicate this? • When do communications need to take place? Target Audience: Three Broad Categories • Prospects – Employ traditional communication mix, because prospects are not known in advance • Users – More cost effective channels, based on knowledge of customers • Employees – Secondary audience for communication campaigns through public media – Shape employee behavior if they better understand customers; be careful not to over-promise on behalf of employees – Internal promotional activities may be directed only toward staff (see chapter 11) • Create memorable images of specific companies and their brands • Build awareness or interest for unfamiliar service/brand • Compare a service favorably with competitors’ offerings • Build preference by communicating brand strengths and benefits • Reposition service relative to competitive offerings • Reduce uncertainty and perceived risk by providing useful information and advice Common Educational and Promotional Objectives in Service Settings (2) • Provide reassurance (e.g. promote service guarantees) • Encourage trial by offering promotional incentives • Familiarize customers with service processes before use • Teach customers how to use a service to best advantage • Stimulate demand in off-peak, shift during peak • Recognize and reward valued customers 7.4 The Marketing Communications Mix Advertising: Purposes: Build awareness, inform, persuade, and remind • Effectiveness remains controversial: – 65% of people feel “constantly bombarded” by ad messages (The Economist 2004) – 59% feel ads have little relevance (The Economist 2004) – Less than half of all ads generate a positive return on their investment (Shaw 2004) • Challenge: How to stand out from the crowd? – Longer, louder, larger is not the answer – For low involvement services, use emotional appeals and focus on the service – Use striking designs, formats, and humor – Consider new media such as video games, smartphone apps • Public Relations: Public relations (PR) stimulates positive media interest in an organization and its products – use press conferences, news releases, event sponsorships • Other PR techniques include: – Recognition and reward programs – Testimonials from public figures – Community involvement and fundraising • Unusual opportunities can be used to promote a company’s expertise – e.g. FedEx safely transported two giant pandas from Chengdu, China, to the National Zoo in Washington, D.C. in an aircraft renamed “FedEx PandaOne” • Direct Marketing: Uses a detailed database to send mailers, email, and text messages • Personalized messages can be sent to highly targeted customers – Need detailed database of information about customers and prospects • On-demand technologies empower consumers to decide how and when they prefer to be reached, and by whom – e.g. email spam filters, pop-up blockers, podcasting • Permission marketing persuades customers to volunteer their attention, and reaches individuals who express interest – e.g. people can register at a firm’s website and specify what type of information they like to receive via email – Enables firms to build stronger relationships with customers Sales Promotion: Consider it “communication with an incentive” (p. 201) • Usually specific to a time period, price, or customer group • Motivates customers to use a specific service sooner, in greater volume with each purchase, or more frequently – Samples (e.g. short service experience) – Coupons/discounts – Gifts (possibly with purchase) – Competitions • Interesting sales promotions can generate attention and put firm in favorable light (especially if interesting results publicized) • Customers acquired via promotions tend to have lower repurchase rates and lifetime values Personal Selling: Interpersonal encounters educate customers and promote a particular brand or product • For infrequently purchased or complex services, the sales rep may act as a consultant • Many B2B firms have a dedicated sales force • Face-to-face selling of new products is expensive—telemarketing is a lower cost but potentially frustrating alternative Trade Shows: Popular in B2B marketplaces, where they include personal selling • Stimulate media coverage by providing new product information • Many suppliers and prospective buyers attend trade shows • Opportunity to see physical evidence in the form of exhibits, samples, demonstrations, and brochures (e.g. Sunkist provides cooking demonstrations in which chefs use citrus fruit) • Sales reps may generate five qualified leads per hour Company Website: Websites should offer quality content, be quick to open, easy to use, and updated frequently • Websites can: – Create consumer awareness and interest – Provide information and consultation – Allow two-way communication through email and chat rooms – Encourage product trial – Allow customers to place orders – Measure effectiveness of advertising or other promotional activities • Innovative companies look for ways to improve the appeal and usefulness of their sites – B2B sites may offer technical information – Consumer sites might include photos or videos Online Advertising: Banner advertising may appear on portals such as Yahoo, CNN, etc. – Draw online traffic to the advertiser’s own site – Websites may include advertisements of other related, not competing services – Increasing trend toward fees based on customers engaging in behaviors such as providing information or purchasing • Search engine advertising – Lets advertisers know exactly what consumers want through their keyword searches – Can target relevant messages directly to desired consumers – Options include paying for ads related to relevant keyword searches, sponsoring a short text message with a click- through link, and buying rankings in the display of search results Impersonal versus Personal Communications • These used to be different and separate, but technology has created a gray area • Although both are forms of direct marketing, direct mail and email can be personalized • Electronic recommendation agents can also personalize communications • With advances in on-demand technologies, consumers are increasingly empowered to decide how and when they like to be reached (see Service Insights 7.3) Messages through Service Delivery Channels • Service outlets – Planned and unintended messages are sent through banners, posters, signage, brochures, video screens, audio etc. – It is important how the servicescape is designed (chapter 10) • Frontline employees – Serve customers face-to-face, by phone, or by email – Communications may be related to the core service or to supplementary services – New customers in particular may need help – Personal experiences can impact brand equity (remember the service journals?) • Self-service delivery points – ATMs, vending machines and websites are examples; they require communications about how to use them Messages Originating from Outside the Organization • Word of Mouth (WOM) – Recommendations from other customers are viewed as credible, and reduce customer risk – Strategies to encourage satisfied customers to share WOM: ○ Create exciting promotions that get people talking ○ Offer promotions that encourage customers to persuade others to join them in the service ○ Develop referral incentive schemes ○ Reference other buyers and knowledgeable people ○ Present and publicize testimonials • Blogs – A new type of online WOM – Communications about customer experiences influence opinions of brands and products – Some firms monitor blogs as a form of market research and feedback • Twitter – Becoming increasingly popular – was the fastest-growing social networking service • Media Coverage – Compares, contrasts service offerings from competing organizations – Consumer affairs journalists offer advice on “best buys” Ethical Issues in Communication • Consumers find services difficult to evaluate, making them more dependent on marketing communications • Communications often include promises about benefits and quality of service; this leads to unmet customer expectations • Why do expectations go unmet? – Poor internal communications between operations and marketing personnel concerning level of service performance – Overpromising in order to secure sales – Deceptive promotions • Unwanted intrusion by telemarketers, direct mail, and email into people’s personal lives 7.5 The Roles of Corporate Design • Many service firms employ a unified and distinctive visual appearance for all tangible elements, such as logos, uniforms, physical facilities • Colors provide recognition and strengthen brand image – e.g. BP’s bright green and yellow service stations • Company names may be incorporated into logos or designs – e.g. “FedEx” is featured within its new logo • A trademarked symbol may be widely recognized – e.g. McDonald’s “Golden Arches” • Create tangible recognizable symbols associated with brands – e.g. Qantas’ use of the kangaroo


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