COURSE TITLE : SERVICES MARKETING Ashesi University COURSE TITLE : SERVICES MARKETING SEMESTER : SECOND, 2011/2012 MODULE 8: Consumer Behavior—Managing and Understanding the Service Experience Lecturer: Ebow Spio

Learning Objectives Understand why different types of service processes require different approaches to marketing strategy Apply the three-stage model of consumer decision making to services Understand why people often have difficulty in evaluating the services they use Know the perceived risks involved in purchasing and using services and explore ways firms can reduce consumer risks perceptions Understand how customers form expectations and differentiate between desired and adequate service levels Obtain insights from viewing service delivery as a form of theater In order to develop effective marketing strategies we need to understand why customers use services and how they choose among competing service suppliers. We also need understand the the nature of encounters that customers have with their chosen service during service delivery and consumption. What are their expectations at each stage of the service delivery.

Differences among Services Affect Customer Behavior Consumers are rarely involved in the manufacture of goods but often participate in service creation and delivery Challenge for service marketers is to understand how customers interact with service operations Based on differences in nature of service act (tangible/intangible) and who or what is direct recipient of service (people/possessions), there are four categories of services: People processing Possession processing Mental stimulus processing Information processing A process is a particular method of operation or a series of actions, typically involving multiple steps that often need to take place in a defined sequence (e.g. steps customer goes through a hair salon : phoning in advance to make an appointment, arriving at the salon, waiting, having a shampoo, discussing options with the cutter, have her hair cut and styled, tipping, paying and finally leaving). From an operational perspective, a process involves taking inputs and transforming them into output. There a 3 categories of things that are processed in services namely people, physical objects, and data. Process can be tangible e.g. repairing a broken down car or intangible such as insurance.

Four Categories Of Services (Fig 2.1) Information processing (services directed at intangible assets): Accounting Banking Nature of the Service Act People Possessions Tangible Actions People processing (services directed at people’s bodies): Barbers Health care Who or What Is the Direct Recipient of the Service? Possession processing (services directed at physical possessions): Refueling Disposal/recycling Mental stimulus processing (services directed at people’s minds): Education Advertising/PR Intangible Actions Important marketing-relevant differences exist among services. These differences include whether A service is targeted at customers in person or their possessions, A service actions and output are tangible or intangible in nature Customers need to be involved in service production and how much contact if any they need to have with service facilities, employees and other customers.

Four Categories Of Services People Processing Customers must: Physically enter the service factory Co-operate actively with the service operation Managers should think about process and output from customer’s perspective To identify benefits created and non-financial costs: Time, mental, physical effort People processing involves tangible actions to people’s bodies. To receive this type of service, customers must physically enter the “service factory” and cooperate actively with service personnel and/or systems. This means that managers must be aware of the effects of the physical environment, and the effects front-line employees have on customers. They also need to educate customers to participate effectively and efficiently in co-producing the service

Possession Processing Customers are less physically involved compared to people processing services Involvement is limited Production and consumption are separable Possession processing involves physical actions to goods and other physical possessions belonging to the customer. These activities are quasi-manufacturing operations, and do not always involve simultaneous production and consumption. Customers are less physically involved with this type of processing than with people-processing services. Thus, their co-production role is not as great

Mental Stimulus Processing Ethical standards required when customers who depend on such services can potentially be manipulated by suppliers Physical presence of recipients not required Core content of services is information-based Can be “inventoried” Mental stimulus processing refers to intangible actions directed at people’s minds. The customer must invest time and mental effort to receive these services, but may not need to be physically present in the service provider’s factory. Because these services have the capability to shape attitudes and influence behaviors, managers must establish and enforce high ethical standards in service delivery

Information Processing Information is the most intangible form of service output But may be transformed into enduring forms of service output Line between information processing and mental stimulus processing may be blurred.

Customer Decision Making: Three –Stage Model of Service Consumption Prepurchase Stage Service Encounter Stage Post-Encounter Stage

Pre-purchase Stage: Overview Customers seek solutions to aroused needs Evaluating a service may be difficult Uncertainty about outcomes increases perceived risk What risk reduction strategies can service suppliers develop? Understanding customers’ service expectations Components of customer expectations Making a service purchase decision Prepurchase Stage Service Encounter Stage A person’s decision to buy and use a service reflects arousal of an underlying need. Once you recognize a need, you start to look for a solution, and that requires searching for information and sometimes advice. Post-Encounter Stage

Pre-purchase Stage Need recognition Information search Evaluation of Alternatives Purchase decision

Customers Seek Solutions to Aroused Needs People buy goods and services to meet specific needs/wants External sources may stimulate the awareness of a need Companies may seek opportunities by monitoring consumer attitudes and behavior Figure 2.4 Prudential Financial’s advertising stimulates thinking about retirement needs Courtesy of Masterfile Corporation

Evaluating a Service May Be Difficult Search attributes help customers evaluate a product before purchase Style, color, texture, taste, sound Experience attributes cannot be evaluated before purchase—must “experience” product to know it Vacations, sporting events, medical procedures Credence attributes are product characteristics that customers find impossible to evaluate confidently even after purchase and consumption Quality of repair and maintenance work Alternatives that consumers consider actively are known as evoked set, which derived from options that consumers remember from past experience and exposure, plus new options that are highlighted by external sources, including advertising, retail displays, news stories, recommendation from service personnel and other customers. Services especially those that provide few tangible clues, can be difficult to evaluate before purchase. As a result customers may way worry about the risks of making a purchase that proves later to be disappointing. Easy or difficulty of purchase is based on product attributes. Product attributes include all features (both tangible and intangible) of a good or service that can be evaluated by customers. Most goods are high in search attributes, which make it easier for customers to evaluate their quality. Many services are high in experience and/or credence attributes. The dominance of intangible elements and the variability of operational inputs and outputs make difficult to evaluate service alternatives and creates uncertainty for customers. As a result, service marketers need to find ways to reduce the perceived uncertainty and risk of purchasing services, especially for a first time customer.

How Product Attributes Affect Ease of Evaluation Source: Adapted from Zeithaml Most Goods High in search attributes High in experience High in credence Difficult to evaluate* Easy to evaluate Most Services Clothing Chair Motor vehicle Foods Restaurant meals Lawn fertilizer Haircut Entertainment Computer repair Education Legal services Complex surgery *NOTE: Difficulty of evaluation tends to decrease with broad exposure to a service category and frequency of use of a specific supplier Search Attributes help customers evaluate a product before purchasing it. E.g. Style, colour, texture, taste and sound Experience Attributes can’t be evaluated before purchase, customer must “experience” the service to know what they are getting. Credence Attributes are product characteristics that customers find impossible to evaluate confidently even after purchase and consumption, because the customer is forced to trust that certain tasks have been performed from which benefits will result. It comes down to a matter of believing the service provider.

Perceived Risks in Purchasing and Using Services Functional—unsatisfactory performance outcomes Financial—monetary loss, unexpected extra costs Temporal—wasted time, delays leading to problems Physical—personal injury, damage to possessions Psychological—fears and negative emotions Social—how others may think and react Sensory—unwanted impact on any of five senses

How Might Consumers Handle Perceived Risk? Seeking information from respected personal sources Relying on a firm that has a good reputation Looking for guarantees and warranties Visiting service facilities or trying aspects of service before purchasing Asking knowledgeable employees about competing services Examining tangible cues or other physical evidence Using the Internet to compare service offerings and search for independent reviews and ratings

Strategic Responses to Managing Customer Perceptions of Risk Offer performance warranties, guarantees to protect against fears of monetary loss For products where customers worry about performance, sensory risks: Offer previews, free trials (provides experience) Advertising (helps to visualize) For products where customers perceive physical or psychological risks: Institute visible safety procedures Deliver automated messages about anticipated problems Websites offering FAQs and more detailed background Train staff members to be respectful and empathetic

Understanding Customers’ Service Expectations Customers evaluate service quality by comparing what they expect against what they perceive Situational and personal factors also considered Expectations of good service vary from one business to another, and among differently positioned service providers in the same industry Expectations change over time (influenced by ads, pricing, new technologies, innovation, social trends, increased access to information, consumer advocacy etc.) Example: Service Perspectives 2.1 Parents wish to participate in decisions relating to their children’s medical treatment for heart problems Media coverage, education, the Internet has made this possible Perceived service quality results from comparing the service you perceived you obtained against what you expected to received.

Factors Influencing Customer Expectations of Service (Fig 2.8) Predicted Service Explicit & Implicit Service Promises Word-of-Mouth Past Experience Desired Service ZONE OF TOLERANCE Adequate Service Personal Needs Beliefs about What Is Possible Perceived Service Alterations Situational Factors Source: Adapted from Valarie A. Zeithaml, Leonard A. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of Service,” Journal of the Academy of Marketing Science 21, no. 1 (1993): pp 1–12.

Components of Customer Expectations Desired Service Level: Wished-for level of service quality that customer believes can and should be delivered Adequate Service Level: Minimum acceptable level of service Predicted Service Level: Service level that customer believes firm will actually deliver Zone of Tolerance: Range within which customers are willing to accept variations in service delivery If good service is expected the adequate level will be higher than if poorer service is expected. It can be hard for firms to achieve consistent delivery by all employees in the same company and even by the same service employee from on time of day and one day to another. The size of the zone of tolerance can be larger or smaller for individual customers, depending on such factors as competition, price or importance of specific service attributes, each of which can influence the level of adequate service.

Service Encounter Stage: Overview Service encounters range from high- to low-contact Understanding the servuction system Service marketing systems: high- contact and low-contact Role and script theories Theater as a metaphor for service delivery: An integrative perspective Implications for customer participation in service creation and delivery Prepurchase Stage Service Encounter Stage Service encounter is a period of time during which you, as customer, interact directly with a service provider. Post-Encounter Stage

Service Encounters Range from High-Contact to Low-Contact (Fig 2.9) High –contact service entails interactions throughout service delivery between customers and the organization. Low-contact on the contrary involves little , if any physical contact between customers and service providers. Figure 2.9 Levels of Customer Contact with Service Organizations

Distinctions between High-Contact and Low-Contact Services High-Contact Services Customers visit service facility and remain throughout service delivery Active contact between customers and service personnel Includes most people-processing services Low-Contact Services Little or no physical contact with service personnel Contact usually at arm’s length through electronic or physical distribution channels New technologies (e.g. the Web) help reduce contact levels Medium-Contact Services Lie in between These Two

The Servuction System: Service Production and Delivery Service Operations (front stage and backstage) Where inputs are processed and service elements created Includes facilities, equipment, and personnel Service Delivery (front stage) Where “final assembly” of service elements takes place and service is delivered to customers Includes customer interactions with operations and other customers Service Marketing (front stage) Includes service delivery (as above) and all other contacts between service firm and customers Customers of low-contact services normally never see the “factory’” where the work is performed; at most, they will talk with a service provider by telephone.

Service Marketing System for a High-Contact Service (e. g Service Marketing System for a High-Contact Service (e.g. hotel, health club, restaurant) SERVICE MARKETING SYSTEM The Customer Technical Core Interior & Exterior Facilities Equipment Service People Other Customers Advertising Sales Calls Market Research Surveys Billing/Statements Misc. Mail, Phone Calls, E-mails, Faxes, etc. Website Random Exposure to Facilities/Vehicles Chance Encounters with Service Personnel Word of Mouth Service Delivery System Other Contact Points Service Operations System Backstage (invisible) Front Stage (visible) Collectively, the visible part of service operations, service delivery and other contact points add up to what we call service marketing system. It represents all the many different ways the customer may learn about and encounter the organization in question.

Service Marketing System for a Low-Contact Service (e. g Service Marketing System for a Low-Contact Service (e.g. internet based banking) The Customer Backstage (invisible) Front Stage (visible) Advertising Market Research Surveys Billing/Statements Random Exposure to Facilities/Vehicles Word of Mouth Phone, Fax, Web- site, etc. Self Service Equipment Mail Technical Core Other Contact Points Service Delivery System Service Operations System SERVICE MARKETING SYSTEM Service encounters are unlikely to involve visits to company sites or meetings with service personnel. Instead access to service is will be made through self service equipment etc. Customers have fewer encounter in each service transactions.

Theater as a Metaphor for Service Delivery “All the world’s a stage and all the men and women merely players. They have their exits and their entrances and each man in his time plays many parts” William Shakespeare As You Like It

Theatrical Metaphor: An Integrative Perspective Service dramas unfold on a “stage”—settings may change as performance unfolds Many service dramas are tightly scripted, others improvised Front-stage personnel are like members of a cast Like actors, employees have roles, may wear special costumes, speak required lines, behave in specific ways Support comes from a backstage production team Customers are the audience—depending on type of performance, may be passive or active participants Both employees and an customers act out their parts in the performance according to predetermined roles. A role is what an individual is required to do perform in order to achieve a goal. Script is the sequence of behaviour that employees and customers are expected to learn and follow during service delivery.

Implications of Customer Participation in Service Delivery Greater need for information/training to help customers to perform well, get desired results Customers should be given a realistic service preview in advance of service delivery, so they have a clear picture of their expected role Figure 2.13: Tourists Appreciate Easy-to-Understand Instructions When Traveling

Post-Encounter Stage: Overview Prepurchase Stage Evaluation of service performance Future intentions Service Encounter Stage Post-Encounter Stage

Customer Satisfaction Is Central to the Marketing Concept Satisfaction defined as attitude-like judgment following a service purchase or series of service interactions Customers have expectations prior to consumption, observe service performance, compare it to expectations Satisfaction judgments are based on this comparison Positive disconfirmation if better than expected Confirmation if same as expected Negative disconfirmation if worse than expected Satisfaction reflects perceived service quality, price/quality tradeoffs, personal and situational factors Research shows links between customer satisfaction and a firm’s financial performance

Customer Delight: Going Beyond Satisfaction Research shows that delight is a function of three components: Unexpectedly high levels of performance Arousal (e.g., surprise, excitement) Positive affect (e.g., pleasure, joy, or happiness) Is it possible for customers to be delighted by very mundane services? Strategic links exist between customer satisfaction and corporate performance. Getting feedback during service delivery help to boost customer loyalty Progressive Insurance seeks to delight customers through exceptional customer service (Best Practice in Action 2.1)

Tutorial Assignments Explain why services tend to be harder for customers to evaluate than goods. 2. Choose a service with which you are familiar and create a diagram that represents the servuction system. Define the front-stage and backstage activities.

Tutorial Assignments 5. Select a service that requires a moderate or high level of customer participation and then to answer some or all of the following questions: What service have you selected? Describe your role as a customer in the service delivery process. How did you learn your “role”? How important is the customer to the service delivery process? How would you describe your level of participation (low/medium/high)? Explain. What influence do other customers have on your service experience? When might other customers enhance your experience? When might other customers diminish your experience? Could you be considered a “partial employee” of this organization? Explain. When might you, as the customer, be able to enhance your experience? When might you, as the customer, do something that diminishes your experience? Is this a service that you might be able to provide yourself (without the service provider’s assistance)? Why or why not?