Midterm Study Guide
Midterm Study Guide JMC-41005-001
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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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