Services Marketing Session 4th Dated: -28-03-2010 BY: -Neeraj Gupta

Service provider needs to change according to the change of customer’s needs and preferences. Service provider needs to perceive the view of the customer about the services.

Customer wants the fulfillment of words which were told by the service provider. Customers do not expect that all their needs will be fulfilled but at least those promised by the company. Affected by: - Assurance Reliability Empathy Responsiveness Tangibiltiy

Model of Consumer Expectations Ideal Service Desired Service Predicted Service Zone of Tolerance Adequate Service Source: Adapted from Valarie A. Zeithaml, Leonard L. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of Services” Journal of Academy of Marketing Science, Vol. 21 (Winter 1993), pp. 1-12

Factors that influence Customer Service Expectations Customer Needs Enduring Service Intensifiers Derived Service Expectations Customer Philosophy Transitory Service Intensifier: - Personal emergencies & failure of a service provider to offer quality service the first time & push factors Perceived Service Alternative Situational Factors Predicated Service Expectations due to factors that are out of control of everybody Explicit Service Promises Implicit Service Promises Word of mouth publicity Past Experience Speed of delivery Certainty of delivery Ease Personal Reognition

Managing Customer Expectations Managing promises Reliability “Getting it right for the first time” Effective Communication

Exceeding Customer Expectations To exceed customer expectations, companies need to know the customer expectations. The Process dimension of service gives service providers an opportunity to exceed their customer’s expectations and surprise them with their competence, courtesy, and commitment. 7

Factors that Influence Customer Perceptions Service Encounter Remote encounter Phone encounter Face-to-face encounter Factors leading to satisfaction or dissatisfaction in service encounters Recovery Adaptability Spontaneity Coping

Types of Service encounter Remote encounters Phone encounters Face-to-face encounters

Types of Service encounter A. Remote encounters No direct human contact Example: ATM machines Tangible clues of the service Air-conditioning Piped music Quality of technical processes & systems

Types of Service encounter B. Phone encounters Use of telecommunications Eg: Utilities, Insurance, Telecommunication & Banking Telephone services Customer inquiry Registration of complaints Taking orders Reserving tickets

Types of Service encounter C. Face-to-face encounters Direct contact b/w service provider & a customer Eg: Restaurants, banks & Grocery stores Assessment of both verbal & non-verbal behaviour

Factors that Influence Customer Perceptions Service Evidence Service personnel Physical environment Shaping the first impression of the customer Managing the trust of the customer Facilitating quality service Providing a sensory stimulation to customers Changing the image of service organizations Management of Hotel services to its customers

Factors that Influence Customer Perceptions Contd.. Image: The Image of service provider definitely gives a clue of service quality to the customers. Price: Price also give the picture of quality of service provided by service provider Chapter - 04 14

Marketing Research in Services Marketing research is a necessary and useful analytical tool for service firms for the following reasons: Keeps in Touch Perceptual Veil: Success might breed arrogance in a service firm and they might suffer from marketing myopia. They then may not perceive the real needs of the customers. This blindness also comes when a successful service firm has many layers and tiers of management and the market information has to go through all of them, leading to a distortion of the message. Minimizing Risks Growing customer expectations resulting in expanded markets

Scope of Marketing Research In Services Research of services environment like the political and socio-economic factors Research into customer needs Research into customer expectations Customer perception studies Benchmarking Studies Service Distribution Studies Pricing Research Promotion Research Communications Research Key Client Analysis Panel studies for customer satisfaction indices and brand tracking

Using Marketing Research in Services Examples FedEx entered into partnership with the Post office - synergize their strengths -better service FedEx allows the Post office to use its planes to deliver letters - in urgent category

Using Marketing Research in Services Examples Citibank partnered with American airlines – enhanced customer benefits

Influencing Customer Perceptions Service encounters Reflect evidence of service Communicate and create a realistic Image Quality and value through Pricing

CRM in pricing services For a service firm, its marketing philosophy should be: To acquire customers To retain customers To do business with only profitable customers.

Service Profit Chain Model The 'service-profit chain' model is based on the following seven theorems: Profit and growth are linked to customer loyalty. Customer loyalty is linked to customer satisfaction. Customer satisfaction is linked to service value. Service value is linked to employee productivity. Employee productivity is linked to employee loyalty. Employee loyalty is linked to employee satisfaction. Employee satisfaction is linked to internal quality of work life (internalizing the firm's brand). The limitations of this model are: Relationship between satisfaction and loyalty is not always linear. The relationship depends on the type of industry. Where the choices for the customer are very high, the relationship is very strong and customer migration is possible; in monopolistic competition (utilities, public transportation, government/ public service, etc.), the relationship is weak.

Benefits of Customer Retention programme Customer retention is cheaper than customer acquisition Reduces communication costs for customer acquisitions like advertising and other promotions. Loyal customers tend to do repeat purchase, reducing marketing costs but increasing revenues. Loyal customers tend to avoid substitutes and other competition and perform repeat purchases even if the price of the service is more - increasing revenue and profit. Satisfied customers who metamorphose into 'advocates' or 'apostles' perform the role of unpaid salesmen, promoting the service of their own free will. Repeat customers are less expensive to serve than first time customers, as they are well aware of the offer and do not require customer support, education, guidance and training.

Components of CRM Customers Relationship Management CRM extends itself from customer acquisition to customer retention to customer delight. The important steps are: Identifying the right customer Retaining the right customer Delighting the customer

CRM Business Cycle Acquisition and Retaining Understand and Differentiate Several activities are important: Profiling to understand demographics, purchase patterns and channel preference. Segmentation to identify logical unique groups of customers that tend to look alike and behave in a similar fashion. While the promise of one-one marketing sounds good, not many organizations have mastered the art of treating each customer uniquely. Identification of actionable segments is a practical place to start. Primary research to capture needs and attitudes. Customer valuation to understand profitability, as well as lifetime value or long-term potential. Value may also be based on the customer's ability or inclination to refer other profitable customers. Develop and Customize Interact and deliver

Customer Relationship Analysis The Bottom Line of CRM: Know Your Customer Returns Bringing Knowledge into the equation Business drivers Customer analysis solutions Technology Drivers Importance of Customer-relationship Analytics

Customer Relationship Analytics Customer value assessment, for examining customer – and channel-value from multiple perspectives, such as lifetime sales, gross margin contribution, and by factors that affect profitability such as discounts, freight and handling, and average selling price. Customer acquisition and targeted selling, for additional profiling, segmentation and ranking of customers based on the propensity to buy, order frequency, and overall purchasing behaviour. Customer management, for understanding the impact of order fulfillment, returns and call-centre activity on actual sales performance. This will allow companies to review year-to-date sales and revenue and problems reported by customers to identify correlations and better understand how customer service issues are impacting profits.

Lifetime Value of a Customers The basic idea is that customers should be judged on their profitability to the firm over the total time they make purchases. Profitability is usually based on net value, that is, the mark-ups over cost less the cost of acquiring and keeping the customer. Fixed costs are not considered because it is assumed that these costs will be incurred with or without the particular customer. Approach The simplest approach to lifetime value is to compute the average net revenue by multiplying four quantities together: Avg. sale * No. of purchases/year * Stay of customer * Average Profit % Having the net revenue, the lifetime value can be determined by subtracting acquisition and retention costs: Lifetime value = Lifetime revenue – Cost to acquire – (Cost to retain × no. of purchases)

Lifetime Value of a Customers Three strategies can be followed to increase the value of the customer: Increase size of average sales (tie-ins, package multiple items). Increase the number of sales (find other customer-needs you can provide and satisfy them with). Increase profit margin (reduce overhead costs, reduce cost of goods and raise price if market will stand it).

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