mark 3
Chapter 11
Complexity of Products
Core customer value: the basic problem solving benefits that consumers are seeking
Actual product: when marketers convert core customer value into a product
Associated services/augmented product: nonphysical aspects of the product such as product warranties, financing, product support, and after sale service
Types of Products
Two primary categories of products and services that reflect who buys them: consumers and businesses
Consumer products: products and services used by people for their personal use
Classified by how they are used and how they are purchased
Specialty products/services: those for which customers express such a strong preference they will expend considerable effort to search for best suppliers (ex: luxury cards, legal or medical professionals, etc.)
Shopping products/services: products or services for which consumers will spend a fair amount of time comparing alternatives such as furniture, apparel, appliances, fragrances, travel
Convenience products/services: those products or services for which the consumer is not willing to spend any effort to evaluate before the purchase
Unsought products/services: products or services that consumers either do not normally think of buying or do not know about
Product Mix and Product Line Decisions
Product mix: complete set of all products and services offered by a firm; typically consists of various product lines
Reflects breadth and depth of company’s product lines
Product lines: groups of associated items that consumers tend to use together or think of as part of a group of similar products or services
Product mix breadth : represents a count of the number of product lines offered by the firm
Product line depth: equals the number of products within a product line
Cannibalize: if products are too similar, sales of one brand may cannibalize, take away sales from the other brand with no net sales, profit, or market share increase
Increasing Depth
Firms may add items to address changing consumer preference or to avoid competitors while boosting sales (ex: more dairy free flavors of frozen desserts)
Decreasing Depth
Necessary to delete products within a product line to realign the firm’s resources
Firms can eliminate their unprofitable or low margin items and refocus their marketing efforts on their more profitable items
Decreasing Breadth
Sometimes it's necessary to delete entire product lines to address changing market conditions or meet internal strategic priorities
Ex: firm drops its entire line of protein bars and focuses only on energy drinks and vitamin water
Increasing Breadth
Firms often add new product lines to capture new or evolving markets and increase sales
Ex: firm adds a whole new line of yogurt
Branding
Company lives or dies based on brand awareness
Consumers cannot buy products they don’t know exist
Even if the brand name is familiar, won’t help sales of individual products unless consumers know what products are available under that name
Branding also provides a way for a firm to differentiate its product offerings from its competitors
Ways Brands add Value for the Customers
Brands Facilitate Purchases
Brands are often easily recognized by consumers and signify a certain quality and familiar attributes which help consumers make quick decisions especially regarding purchases
Brands Establish Loyalty
Over time with continued use, consumers learn to trust certain brands
Brands Protect from Competition and Price Competition
Strong brands are protected from competition from other firms and price competition because these brands are more established in the market and have a loyal customer base
Brands are Assets
Brands can be legally protected through trademarks and copyrights and thus constitute a unique form of ownership
Sometimes firms have to fight to ensure their brand names are not being used, directly or indirectly
Brands affect Market Value
Value of a company is its overall monetary worth which comprises of a vast number of assets
When the brand loses value, it also threatens other assets
Brand Equity for the Owner
Brand equity: set of assets and liabilities linked to a brand that add to or subtract from the value provided by the product or service
Experts look at four aspects of a brand to determine its equity:
Brand awareness
Perceived value
Brand associations
Brand loyalty
Brand Awareness
Measures how many consumers in a market are familiar with the brand and what it stands for and have an opinion about it
More aware of or familiar with brand they are, the easier their decision making process is which improves chances of purchase
Marketers create brand awareness through repeated exposures of the various brand elements (brand name, logo, symbol, packaging, etc.) in the firm’s communication to consumers through advertising, publicity, or other methods
Over time certain brands gain dominance in a particular product market over time that they become synonymous with the product itself (ex: Band-Aid adhesive bandages)
Perceived Value
Relationship between a product’s or service’s benefits and its costs
Perceived value of a cheaper choice will be higher if they believe the cheap option and the more expensive option is the same quality
Brand Associations
Reflects the mental and emotional links that consumers make between a brand and its key product attributes such as a logo, its color, a slogan, or a famous personality
Brand Loyalty
Occurs when a consumer buys the same brand’s product or service repeatedly over time rather than buying from multiple suppliers within the same category
Firms have loyalty reward programs (CRM -customer relationship management programs)
Marketing costs of reaching loyal customers are low because they don’t need an extra push to buy the firm’s brands
Loyal consumers praise the product so through positive word of mouth , it reaches potential customers
Brand loyal customers don’t switch to competitors’ brands even when provided with a variety of incentives
Brand Ownership
Two basic brand ownership strategies:
manufacturer/national brands and retailer/store brands
Brands can also be marketed using a common/family name or as individual brands
Manufacturer/National Brands → literally created and controlled by manufacturer
Owned and managed by the manufacturer
Manufacturer develops the merchandise and ensures its quality and appealing brand image
Manufacturers retain more control over their marketing strategy and can choose their market segments and positioning and build the brand and create their own brand equity
Retailer/store brands (aka private label brands)
Products developed by retailers
In some cases, retailers manufacture their own products and in other cases they develop the design and specifications for their retailer/store brands and then contract manufacturers to product those products
Naming Brands and Product Lines
Family brands
Family brand: when products are sold under one name
Corporate name used across brands and product lines
Individuals brands benefit from the overall brand awareness associated with the family name
Individual brands
Products have individual identities
Ex: Kraft owns Jell-o but still keeps its own identity, not part of Kraft name
Brand and Line Extensions
Brand extensions: refer to use of the same brand name in a different product line (increase in product mix’s breadth)
Ex: Colgate sells toothpaste, toothbrushes, dental floss, etc.
Line extension: use of same brand name within the same product line (increase in product line’s depth)
Advantages to using the same brand name for new products
1) If brand name is already well established, firm can spend less in developing consumer brand awareness
2) If the original brand or the brand extension has strong consumer acceptance, the same perception will carry over to the other product
Ex: Ferrari well known for cars, leveraged brand name to clothes with its well known horse logo
3) when brand extensions are used for complementary products, a synergy exists between the two products that can increase overall sales
Ex: Lays chips and dips
Brand dilution: when the brand extension adversely affects consumer perceptions about the attributes the core brand is believed to hold
Means the brand extension was unsuccessful
This can dilute brand equity
To prevent negative consequences of brand extensions, firms should consider the following
Marketers should evaluate the fit between the product class of the core brand and the extension
Firms should evaluate consumer perceptions of the attributes of the core brand and seek out similar attributes for the extension because brand specific associations are important for extensions (consumers seek same attributes from current brand to extension)
To avoid diluting the brand and damaging brand equity, firms should refrain from extending the brand name to too many products and product categories
Firms should consider whether the brand extension will be distanced from the core brand especially if the firms wants to use some but not all of the existing brand associations
Co-branding
Co-branding: practice of marketing two or more brands together on the same package, promotion, or store
Co-branding can enhance consumers’ perceptions of product quality by signaling unobservable product quality through links between the firm’s brand and a well-known quality brand
Can create risks, especially when the customers of each of the brands turn out to be vastly different
Can also fail when there are disputes or conflicts of interest between the co-brands
Brand Licensing
Brand licensing: contractual arrangement between firms whereby one firm allows another to use its brand name, logo, symbols, and/or characters in exchange for a negotiated fee
Common for toys, apparel, accessories, and entertainment products such as video games
Licensing is an effective form of attracting visibility for the brand and thereby building brand equity while also generating additional revenue
Comes with risks like dilution of brand equity through overexposure of the brand, especially if the brand name and characters are used inappropriately
Brand Repositioning
Brand repositioning/rebranding: refers to a strategy in which marketers change a brand’s focus to target new markets or realign the brand’s core emphasis with changing market preferences
Can be a huge success with costs and risks, or be a failure
Need to spend lots of money to change the brand’s image through different forms of promotion
If it is a failure, effects cannot be reversed
Packaging
Primary package: one the consumer uses, such as a toothpaste tube
Secondary package: wrapper or exterior carton that contains the primary package and provides the UPC label used by retail scanners
Packaging Key roles
Attracts consumers’ attention
Enables products to stand out from their competitors
Offers a promotion tool (“NEW and “IMPROVED” promises on labels)
Allows for same product to appeal to different markets with different sizes
Sustainable packaging: product packaging that has less of a negative impact on the environment
Other ways packaging is used in a subtler way
To help suppliers save costs
When costs of producing a product rise significantly, manufacturers are faced with either raising prices or reducing the amount of product sold in a package
Product Labeling
Labels are an important element of branding and can be used for promotion
Labels on products and packages provide information the consumer needs for a purchase decision and consumption of the product
Several federal agencies, industry groups, and consumer watchdogs carefully monitor product labels
FDA (food and drug administration) is the primary federal agency that reviews food and package labels and ensures the claims made by the manufacturer are true
Product label used a communication tool
Focus of the label signals to consumers that the product offers these benefits
Chapter 12
Why do firms create new products?
innovation : refers to the process by which ideas are transformed into new offerings including products, services, processes, and branding concepts that will help firms grow
Without innovation firms would either have to continue to market current products to current customers or take the same product to another market with similar customers
Changing customer needs
When a firm adds products, services, and processes to their offerings, firms can create and deliver value more effectively by satisfying the changing needs of current and new customers or by keeping their customers from getting bored
Market Saturation
The longer a product exists in the marketplace, the more likely it is the market will become saturated
Without new products or services the value of the firm will ultimately decline
Firms sustain their growth by getting consumers excited about new looks and new features
Saturated markets can also offer opportunities for a company that is willing to adopt a new process or mentality
Managing Risk through Diversity
Through innovation, firms often create a broader portfolio of products which help diversify their risk and enhance firm value better than a single product can
More products, less risk
Some products in a portfolio perform poorly, while others do better
Firms with multiple products can better withstand external shocks like changes in consumer preferences or intensive competitive activity
Fashion Cycles
In industries that rely on fashion trends and experience short product life cycles - including apparel, arts, books, and software markets - most sales come from new products
In the case of apparel, fashion designers produce entirely new product selections a few times per year (to keep up with new trends)
Improving Business Relationships
Improving relationships with suppliers when customers ask for products they don’t sell, the retailer and the supplier work together to get those products on the shelves as quick as possible
Diffusion of Innovation
Process by which the use of an innovation (product, service, or process) spreads throughout a market group over time and across various categories of adopters
Helps marketers understand the rate at which consumers are likely to adopt a new product or service
Pioneers/breakthroughs: new to world products that can create new markets or change the rules of competition and consumer preferences in a market
Ex: Apple iPod changed the way people listened to music but also created a new industry devoted to accessories such as cases, earbuds, etc.
Pioneers as first movers: first to create the market or product category become recognizable to consumers and establish a dominance and early market share lead
Not all pioneers success because imitators watch pioneers flaws and build off that
Pioneers spend more on marketing, and sometimes the design is somewhat flawed at a more expensive price
Imitators can sell for a lower price with a better design of the product
Main reasons pioneers fail is because they neglect appropriate product testing, target the wrong segment, and/or poor positioning
Diffusion of Innovation curve
Few people buy the product/service first, the more buy, then fewer people buy at the degree of diffusion slows
Purchasers divided into five groups based on when they buy the product after it has been introduced
1) Innovators: buyers who want to be the first to have a new product or service; these buyers enjoy taking risks are highly knowledgeable; crucial for success of new product/service because they help product gain market acceptance through positive word of mouth
2) Early Adopters: don’t like to take as much risk as innovators but instead wait and purchase the product after careful review
3) Early Majority: don’t like to take as much risk and wait until all the bugs are worked out of a particular service or product; by this time competitors usually have reached its peak so these buyers have many price and quality choices
4) Late Majority: product has achieved its full market potential at this point; sales tend to level off or may even decline
5) Laggards: like to avoid change and rely on traditional products until the products are no longer available (sometimes they may never adopt a certain product or service)
Diffusion of innovation theory can help firms predict which types of customers will buy their new product or service immediately after its introduction as well as later as the product is more accepted by the market
Relative Advantage: if a product or service is perceived to be better than substitutes, then the diffusion will be relatively quick
Compatibility: diffusion process may be faster or slower depending on various consumer features which includes on international cultural differences
Dishwasher features that are different for Americans compared to Asians
Observability: when products are easily observed, their benefits or uses are easily demonstrated to others, which enhances diffusion process
Video of quality of blender (how fast and effective it works)
Complexity and Trialability: products that are less complex and easy to try diffuse more quickly and lead to faster and greater adoption than those that are not so easy to try
How Firms Develop New Products
Idea Generation - development of visible new product ideas; mostly pioneers as they use their own internal research and development efforts, r&d consortia, licensing, brainstorming, outsourcing, competitors’ products, customer input
Internal research and development
Costs for R&D is high, but firms expect the profits and sales of the product to be a lot higher than the costs of R&D
R&D investments generally are considered continuous investments, so firms may lose money on a few new products
R&D consortia: groups of other firms and institutions, possibly government and educational institutions, to explore new ideas or obtain solutions for developing new products
R&D investments come from the group as a whole and participating firms and institutions share the results
Licensing: in search for new products, firms can buy rights to use a technology or ideas from other firms through a licensing agreement
This saves costs and means that the firm is banking on a solution that already exists but has not been marketed yet
Brainstorming: group works together to generate ideas, no idea can be immediately accepted or rejected but is rather voted at the end of the session.
Outsourcing: practice in which a firm hires an outside firm to help generate ideas and develop new products and services
Competitors’ Products: new product entry by a competitor may trigger a market opportunity for a firm which they can then use reverse engineering to bring an improved version to market
Reverse engineering: taking apart a product, analyzing it, and creating an improved product that doesn’t infringe on the competitor’s patents if any exist
Customer input
Listening to customer input for product development process
Comes from a variety of sources such as social media
Lead users: innovative product users who modify existing products according to their own ideas to suit their specific needs
Concept testing
Concept statement: Idea developed into a concept which is a brief written description of the product: its technology, working principles, and forms; and what customers needs it would satisfy
Concept testing: process in which a concept statement is presented to potential buyers to users to obtain their reactions; their reactions help estimate sales value and determine if the idea is worth further development
Marketers need to ask if the product would satisfy a need other current products are not meeting and the frequency of how much someone would buy the product and for what occasion
Concepts that receive high evaluations from potential consumers move to the next step of product development
Product Development
Product development/product design: process of balancing various engineering, manufacturing, marketing, and economic considerations to develop a product’s form and features
Protype: first physical form or service description of a new product still in rough form which has the same properties as a new product but is produced through different manufacturing processes
Alpha testing: product prototype is tested to determine whether the product will perform according to design and whether it satisfies the need for which it was intended
Beta testing: product prototype is tested and uses potential consumers who examine the prototype in a real use setting to determine its functionality, performance, potential problems, and other issues specific to its use
Marketing Testing
After developing new product and testing the prototype, must test the market for the new product with a trial batch of products (premarket testing and test marketing)
Premarket Tests: way for firm to determine how many consumers will try and then continue to use the product or service according to a small group of potential consumers
Nielsen BASES test: potential customers are exposed to marketing mix variables such as advertising and then surveyed and given a sample of product to try. During the second survey, they are asked if they would buy or use the product again
Test Marketing: introduces the offering to a limited geographic area ( a few cities) prior to a national launch.
Strong predictor of product success because the firm can study actual purchase behavior which is more reliable than a simulated test
The disadvantage: test marketing costs more and takes longer than premarket tests which is an advantage to competitors who can get a similar or better product to the market first without test marketing’
Product Launch
Firm is ready to launch product to entire market if market testing returns with positive results
Most critical step in new product introduction so requires tremendous financial resources and extensive coordination of all aspects of the marketing mix
Evaluation of Results
Marketers must review to determine whether the product and its launch were a success or failure and what additional resources or changes to marketing mix are needed
Firms can measure success of a new product by three interrelated factors
1) satisfaction of technical requirements (performance)
2) customer acceptance
3) satisfaction of firm’s financial requirements (sales and profits)
If product is not performing sufficiently well, poor customer acceptance will result which leads to poor financial performance
Product Life Cycle
Product Life Cycle: defines the stages that products move through as they enter, get established in, and ultimately leave the marketplace
1) Introduction stage: characterized by initial losses to the firm due to its high start up costs and low levels of sales revenue as the product begins to take off. If the product is successful, firms may start seeing profits toward end of this stage
2) Growth Stage: product gains acceptance, demand and sales increase, and more competitors emerge in the product category.
Market becomes more segmented and consumer preferences more varied which increases the potential for new markets or new uses of the product or service
3) Maturity Stage
Industry sales reach their peak so firms try to rejuvenate their products by adding new features or repositioning them
Face intense competition on price as average price of product falls compared with shifts during the previous two stages of life cycle
Entry into new Markets or Market Segments
When a market is saturated, firms may attempt to enter new geographic markets including international markets
Development of New Products
Despite market saturation, firms need to continuously introduce new products with improved features or find new uses for existing products because they need constant innovation to defend market share from competition
4) Decline Stage
Firms with products in the decline stage either position themselves for a segment of die hard consumers, those with special needs, or they completely exit the market
The few laggards who have not yet tried the product or service enter the market at this stage
Shape of Product Life Cycle Curve
Product life cycle curve is bell shaped with regard to sales and profits
Some products move faster through their product life cycle than others depending on how different the category is from offerings currently in the market and how valuable it is to the consumer
New products and services that consumers accept quickly have higher consumer adoption rates very early in their product life cycles and move faster across the various stages
Chapter 14
Five Cs of Pricing
Price - overall sacrifice customer makes to obtain product/service
1) Company Objectives: firm defines objectives that seem to fit with where the firm needs to go to be successful
Profit Orientation: goal specifically by focusing on target profit pricing, maximizing profits, or target return pricing
Target profit pricing: firms implement this when they have a particular profit goal as their main concern. Firms use price to stimulate a certain level of sales at a certain profit per unit
Maximizing Profits: relies on economic theory; predicting sales and profit to identify at which price profits are maximized
Target return pricing: when firms are less concerned with absolute level of profits and more interested in pricing strategies that produce a specific return on their investment (usually expressed as a percentage of sales)
Sales Orientation: firms using a sales orientation to set prices believe that increasing sales will help the firm more than will increasing profits
Some firms may be more concerned about their overall market share than about dollar sales because they believe that market share better reflects their success than sales
Premium pricing: means that the firm purposely prices a product above the prices set for competing products to capture those customers who always shop for the best or for whom price does not matter
Competitor Orientation
Competitor orientation: strategize according to the basis of measuring themselves primarily against their competition
Competitive parity: set prices similar to those of their major competitors
Status quo pricing: changes prices only to meet those of competition
Customer orientation
Customer orientation: when a firm sets its pricing strategy based on how it can add value to its products or services
2) Customers: want value
Demand curves and pricing
Demand curve: shows how many units of a product or service consumers will demand during a specific period of time at different prices (downward sloping demand curve)
Prestige products or services: products or services consumers purchase for their status rather than for their functionality
Price elasticity of demand
Price elasticity of demand: measures how changes in a price affect the quantity of the product demanded
formula :
Elastic: when the market for a product or service is price sensitive (when price elasticity is less than -1)
inelastic : when market for product is viewed as price insensitive (when its price elasticity is greater than -1)
Dynamic pricing aka individualized pricing: refers to process of charging different prices for goods or services based on type of customer, time of day, week, season, and level of demand
Factors influencing price elasticity of demand
Income effect: refers to change in quantity of product demanded by consumers due to changes in their income
Substitution effect: refers to consumers’ ability to substitute other products for the focal brand
Cross price elasticity: percentage change in quantity of product A demanded compared with percentage change in price in product B
Complementary products: chip and dip for example; demands are positively related (rise or fall together)
Substitute products: coca cola and pepsi for example; changes in their demand are negatively related
3) Costs: prices and costs are not to be perceived the same
Variable costs: primarily labor and material costs that vary with product volume; total variable costs increase or decrease with more or less of a good or service
Fixed costs: costs that remain at the same level regardless of any changes in volume of production
Total cost: sum of variable and fixed costs
Break even analysis: technique that enables managers to examine relationships among cost, price, revenue and profit over different levels of production and sales
Break even point: point at which number of units sold generates just enough revenue to cover the total costs
Total revenue = price * quantity
Contribution per unit: price - the variable cost per unit
Break even point (units): fixed costs / contributions per unit
Profit = (contribution per unit * quantity) - fixed costs
Break even point (units) = (fixed costs + target profit) / contributions per unit
4) Competition
Monopoly: one firm provides the product or service in a particular industry which results in less price competition
Oligopolistic competition: only a few firms dominate; firms typically change their prices in reaction to competition to avoid upsetting a stable competitive environment
Price war: when two or more firms compete primarily by lowering their prices
Predatory pricing: when a firm sets a very low price for one or more of its products with the intent of driving its competition out of business (illegal in the US under Sherman Antitrust Act and Federal Trade Commision Act)
Monopolistic competition: occurs when many firms are competing for customers in a given market but their products are differentiated
Pure competition: large number of sellers offer standardized products or commodities that consumers perceive as substitutable such as grains, meat, spices, etc.
5) Channel Members
Channel members such as manufacturers, wholesalers, and retailers have different perspectives when it comes to pricing strategies
They need to all communicate pricing goals and select channel partners that agree with them or conflict will arise
retailers ‘ cooperative: helps members achieve economies of scale by buying as a group
Pricing Strategies
Pricing strategy: long term approach to setting prices broadly in an integrative effort based on the five Cs of pricing
Everyday low pricing (EDLP) strategy: continuity of their retail prices at a level somewhere between regular, non sale price and the deep discount sale prices their competitors may offer
high/low pricing strategy: relies on promotion of sales, during which prices are temporarily reduced to encourage purchases
Reference price: price which buyers compare the selling price to (“original price” vs selling price)
New product pricing strategies
Penetration pricing strategy: set initial price low for introduction of new product or service; incentive for buyer to purchase product immediately
Experience curve effect: as sales continue to grow, costs continue to drop
Price skimming: innovators and early adopters who are willing to pay a higher price to obtain the new product or service to have the innovation first
For price skimming to work, product or service must be perceived as breaking new ground in some way; offering consumers new benefits currently unavailable in alternative products
Legal and Ethical Aspects of Pricing
Deceptive or illegal price advertising
Deceptive reference prices
Inflating reference price to make the sale price look a great deal
Loss leader pricing
Loss leader pricing: lowering a regularly purchased item’s price below the store’s cost
Leader pricing: attempts to build store traffic by aggressively pricing and advertising a regularly purchased item priced at or above store’s cost
Bait and switch: deceptive tactic in which store lures customers with a very low price on an item only to aggressively pressure them into purchasing a higher priced model by making it seem like the lower priced model is unfavorable
Predatory pricing
When a firm sets a very low price for one or more of its products with intent to drive its competition out of business
Must prove intent and the complainant must prove that the firm charged prices lower than its average cost
Price discrimination
When firms sell the same product to different resellers at different prices
Price fixing
Practice of colluding with other firms to control prices (can be either vertical or horizontal)
Horizontal price fixing: illegal; occurs when competitors who produce and sell competing products work together to control prices taking price out of the decision process for consumers
Vertical price fixing: occurs when parties at different levels of the same marketing channel (e.g. manufacturers and retailers) agree to control the prices passed on to consumers
Manufacturer’s suggested retail price (MSRP): manufacturers often encourage retailers to sell their merchandise at a specific price
Gray market pricing
Gray market: employs irregular but not necessarily illegal methods
Legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer
Chapter 13: The Intangible Product
Services Marketing Differs from Product Marketing
Services are intangible, inseparable, heterogenous, and perishable
Intangible
Difference between a product and a service is that services are intangible
intangible : they cannot be touched, tasted, or seen like a pure product can
Makes it difficult to convey the benefits of services
Service that cannot be shown directly to potential customers is also difficult to promote
Inseparable Production and Consumption
Services are produced and consumed at the same time making the service and consumption inseparable
Since the service is inseparable from its consumption, customers rarely have the opportunity to try the service before they purchase it
Choosing reliable, high quality providers for services like health, safety, or wellness is extremely important
Purchase risk for service providers for all types can be relatively high so service firms sometimes provide extended warranties and 100 percent satisfaction guarantees
Heterogenous
The more humans needed to provide a service, the more likely there is to be heterogeneity, or variability in the service’s quality
With products, if a consumer has a problem with a product it can be replaced, redone, destroyed or recalled and even before the product gets in the consumer’s hand the problem can be fixed
This is not applicable to services, a service cannot be recalled and by the time the firm recognizes a problem, the damage has been done
however , marketers can use this variable nature of services to their advantage
A micro marketing segmentation strategy can customize a service to meet customers’ needs exactly
In an alternative approach, some service providers tackle the variability issue by replacing people with customers
Companies often rely on online chatbots to address customers’ basic needs and questions leaving human call center reps open to handle more complex and challenging issues
Through these techniques, companies can provide efficient consistent basic services while also ensuring human employees have time to deal with more demanding service requests
Perishable
Services are perishable in that they cannot be stored for use in the future (ex: gym membership)
Perishability of services provides both challenges and opportunities to marketers in terms of matching demand and supply
If demand equals supply then no issue, but this rarely happen
For ex: a ski area can be open as long as there is snow but demand peaks on weekends and holidays so ski areas often offer less expensive tickets during off peak periods to stimulate demand
Developing a Service Strategy Using the Seven Ps
Products: goods, services, and ideas
Price:
Due to services’ intangible nature it is harder to make comparisons among similar service offerings, and becomes more complicated to set a competitive price
Because of heterogeneity, services are difficult to price according some previously set cost
Ex: some ski instructors are more expensive than others because of more experience
Services are perishable so altering the price in response to supply and demand is not always possible.
If a physical good fails to sell, marketers can reduce the price to stimulate demand but this is not same with services
For example if they reduce the cost to ski, many customers will be appealed to this and the ski mountain becomes overcrowded making it an unenjoyable experience for the majority of skiers!!!!!!
Place:
Issues regarding place of where to locate a store are similar for marketers of both goods and services
Convenient locations is a critical success factor
Visible presence on the internet is equally important
Promotion:
Important to use full range of IMC: advertise in publications and using general appeal messages
Target local papers and newsletters to promote its special events and offers
Sales promotion programs such as coupons for its restaurants for example or contests to win free lift tickets and ski lessons encourages new customers to try the resort and get current customers to visit more often
Sales reps should be well trained to facilitate the sales of all its services
Direct marketing initiatives are extensive, including emails, instant messages, and traditional mail
Website, blogs, and social media presence provide virtually unlimited opportunities to reach current and potential customers and expose them to its service offerings
Presentation
Presentation is particularly critical for services marketing, because of the intangible nature of services
Display or quality of overall physical environment is extremely important
Personnel
In person to person business transactions, personnel are generally more important for services than for goods
Ex: impossible to take a ski or board lesson on the mountain without face to face interactions
Processes
Processes describe the actions required to get the good or service to the customer
For delivery of goods it is about efficiency and effectiveness of the supply chain
When a process for providing goods, fails, the sale may be delayed, substituted or lost
Due to the perishable nature of services, if the process fails to deliver the service adequately, when and where the customer wants it, the sales opportunity likely cannot be salvaged
Providing Great Service: The Service Gaps Model
Service gaps: the result of when the delivery of that service fails to meet customers’ expectations
Service Gaps Model: designed to encourage the systematic examination of all aspects of the service delivery process and prescribe the steps needed to develop an optimal service strategy
Four Service Gaps:
Knowledge gap: reflects the difference between customers’ expectations and the firm’s perception of those customer expectations
Firms can close this gap by determining what customers really want by doing research using marketing metrics such as service quality and the zone of tolerance
Standards gap: the difference between the firm’s perceptions of customers’ expectations and the service standards it sets
By setting appropriate service standards, training employees to meet and exceed those standards, and measuring service performance, firms can attempt to close this gap
Delivery Gap
Communication Gap: refers to the difference between the actual service provided to customers and the service the firm’s promotion program promises
If firms are more realistic about the services they can provide and can also manage customer expectations effectively, they can generally close this gap
The Knowledge Gap: Understanding Customer Expectations
Firms must understand customers’ expectations and in order to do this firms undertake customer research and increase the interaction and communication between managers and employees
customers ‘ expectations are based on their knowledge and experiences
Expectations vary according to type of service (motel v. luxury hotel)
Service provider needs to know and understand the expectations of the customers in its target market
Evaluating Service Quality using Well-Established Marketing Metrics
To meet or exceed customers’ expectations marketers must determine what those expectations are
service quality: customers’ perceptions of how well a service meets or exceeds their expectations
Because of intangibility, the service quality is often difficult for customers to evaluate
Five Distinct Service dimensions to determine overall service quality:
Tangibles ex: rooms are updated to 21st century and upscale restaurants and pools and bowling alleys (clean and fancy)
Empathy: personalizing communications like addressing a guest by their name
Assurance: if a guest problem arises employees are trained to offer something else to solve the problem (ex: free desert if problem with order)
Responsiveness: HEART MODEL → “hear what a guest has to say”, “empathize with them”, “apologize for the situation”, “respond to guest’s needs” by “taking action and following up”
Reliability: making and keeping promises to customers, if employers are unable to answer a question accurately they need to immediately contact someone who can, they are to never guess
Voice of customer (VOC) program: collects customer inputs and integrates them into managerial decisions
Most service firms have developed voice of customer programs and employ ongoing marketing research to assess how well they are meeting their customers’ expectations
Zone of tolerance: the difference between customers’ expectations of desired service and the minimum level of acceptable service (firm will ask a series of questions to define zone of tolerance…shown below)
Desired and expected level of service for each dimension from low to high
Customers’ perceptions of how well the focal service performs and how well a competitive service performs from low to high
Importance of each service quality dimension to the firm
Straightforward and inexpensive method of collecting consumers’ perceptions of service quality is to gather them at the time of the sale
Service providers can ask customers how they liked the service
Regardless of how info is collected, companies should not lose it which can happen if there is no effective mechanism for filtering it up to the key decision makers
A second method is assessing customers’ expectations by making effective use of customer complaint behavior
Even firms with great formal research mechanisms must put managers on the frontline to interact directly with customers
Unless managers who make service quality decisions know what their service providers are facing on a day to day basis, and unless they can talk directly to customers with whom those service providers interact, any customer service program they create will not be as good as it could be
The Standards Gap: Setting Service Standards
To consistently deliver service that meets customers’ expectations, firms must set specific, measurable goals
Service providers generally want to do a good job as long as they know what is expected of them
Should be shown those standards and what specific tasks they are responsible for performing
More employees will buy into a quality-oriented process if they are involved in setting the goals
Employees must be trained in depth not only to complete their specific tasks but how to treat guests and the manager needs to set an example of high service standards which will translate throughout the whole organization
The Delivery Gap: Delivering Service Quality
Where the customer directly interacts with the service provider
Ex: unclean room, power issues, unheated swimming pool
Even if there are no other gaps, a delivery gap always results in a service failure
Delivery gaps can be reduced when employees are empowered to spontaneously act in the customers’ and the firm’s best interests when problems or crises are experienced
Empowering Service Providers:
empowerment : in service means allowing employees to make decisions about how service is provided to customers(service quality generally improves when they are able to make their own decisions)
Support and Incentives for Employees
To ensure the service is delivered properly, management needs to support the service providers in several ways and give them incentives
emotional support: concern for employees’ well-being and standing behind their decisions
Instrumental support: systems and equipment to deliver the service properly
Support that managers provide must be consistent and coherent throughout the organization
Important part of any customer service program is providing rewards to employees for their excellent service
Use of Technology
Using technology to facilitate service delivery can provide many benefits, such as access to a wider variety of services, a greater degree of control by customer over services, and ability to easily obtain information
How advanced technologies are likely to affect marketing of services is to distinguish them in two dimensions: traditional interactions with humans and interactions with technology
Low tech, low effort quadrant: traditional service delivery technologies provided by ATMS, self-service kiosks, or self scanning devices where effort provided by humans and technology is low
Low tech, high effort quadrant: situations in which humans are strongly present, but role of technology is less like when a patient chats with a medical professional through zoom
High tech, low effort: technology is extremely prominent but less human effort is required. Ex: technology is deliberately and effectively engages with the consumer
High tech, high effort: human effort and technology are critical. Ex: doctors using technology to reduce chance of making a mistake on a patient’s diagnosis
The Communication Gap: Communicating the Service Promise
If a firm promises more than it can deliver, customers’ expectation won’t be met
If an advertisement promises something, and the service doesn’t deliver on the promise, the customer will never return
Dissatisfied customers will vent on social media/ internet platforms
Communication gap can be reduced by managing customer expectations and by promising only what you can deliver or possibly even a little less
An easy way to manage customer expectations is to coordinate how the expectation is created and the way the service is provided as expectation are typically created through promotions, advertising, or personal selling
Customer expectations can be managed when the service is delivered
People are generally reasonable when they are warned that some aspect of the service may be below their expectations, they just don't like surprises
Ex: supplies during a sale item are limited
Service Quality, Customer Satisfaction, and Loyalty
Good service quality leads to satisfied and loyal customers
Post Purchase evaluation may produce three outcomes: satisfaction, dissonance, and loyalty
Dissonance: may be a passing emotion that is overcome
Satisfaction leads to loyalty
If a firm can minimize and eliminate any service gaps, customers are likely to exhibit significant loyalty to it.
customers want to continue receiving such superior service and have no desire to go elsewhere for the offerings it provides them
Service Recovery
Despite a firm’s best efforts, sometimes service providers fail to meet customer expectation
Best course of action is to attempt to make amends with the customer and learn from the experience
Effective service recovery efforts can significantly increase customer satisfaction, purchase intentions, and positive word of mouth
Effective service recovery demandsrice
1) listening to customers and involving them in the service recovery
2) providing a fair solution
3) resolving the problem quickly
Listening to Customers and Involving them in Service Recovery
Firms often don’t find out about service failures until a customer complains
Customer must have opportunity to air complaint completely and then the firm must listen carefully to what they are saying
Customers can become very emotional about a service failure whether the failure is serious or minor
In many cases the customer may just want to be heard and the service provider should give the customer all the time they need to get it out
Service providers should become a sympathetic ear and carefully listen to ensure the situation doesn’t happen again
When the company and the customer work together, the outcome is often better than either could achieve on their own
Finding a Fair Solution
Customers want to be treated fair
“fair“ is based on their previous experiences with other firms, how they have seen other customers treated, material they have read, and stories recounted by their friends
Distributive Fairness:
Pertains to a customer’s perception of the benefits they received compared with the costs (inconvenience or loss)
Customers want to be compensated a fair amount for perceived loss that resulted from a service failure
Key to distributive fairness is listening carefully to the customer as most of the times they want tangible restitution not just an apology
If providing tangible restitution isn’t possible, the next best thing is to assure the customer that steps are being taken to prevent the failure from recurring
Procedural Fairness:
Refers to the perceived fairness of the process used to resolve them
Customers tend to believe they have been treated fairly if the service providers follow specific company guidelines
Service providers should be empowered with some procedural flexibility to solve customer complaints
For example: 90 day return policy
Resolving Problems Quickly
Longer it takes to resolve a service failure, the more irritated the customer will become and tell more people about it
To resolve service failures quickly, firms need clear policies, adequate training for their employees and empowered employees