Essential Concepts in Services Marketing Strategy
The 7 Ps of the Services Marketing Mix
The 7 Ps of the services marketing mix are:
- Product: The core service and any supplementary services.
- Price: The monetary cost to the consumer, but also non-monetary costs like time and effort.
- Place: The distribution channels and physical locations where the service is delivered.
- Promotion: All communications with customers to inform, persuade, and remind them.
- People: All human actors who play a part in service delivery and thus influence the buyer’s perception, including the firm’s personnel, the customer, and other customers in the service environment.
- Physical Evidence: The environment in which the service is delivered, where the firm and customer interact, and any tangible commodities that facilitate performance or communication of the service.
- Process: The actual procedures, mechanisms, and flow of activities by which the service is delivered.
Understanding Desired and Predicted Service
- Desired Service: This refers to the level of service that a customer hopes to receive – the “wished for” level of service. It is what the customer believes can and should be delivered.
- Predicted Service: This is the level of service that a customer expects to receive. It is what the customer anticipates will happen based on past experiences, word-of-mouth, and external communications.
The difference lies in the customer’s mindset: desired is aspirational, while predicted is based on realistic expectations. If the actual service falls short of the predicted service, the customer will be dissatisfied. If it exceeds the desired service, they will be delighted.
The Services Marketing Triangle and Key Relationships
The services marketing triangle illustrates the three key relationships that are essential for successful service delivery:
Company to Employees (Internal Marketing)
This involves enabling and motivating employees to deliver excellent service. It is about training, empowering, and supporting staff to ensure they are capable and willing to provide high-quality service. Example: Employee training programs, internal communications, motivation schemes.
Company to Customers (External Marketing)
This refers to traditional marketing efforts that promise services to customers. It includes advertising, sales promotions, public relations, and pricing strategies aimed at attracting and retaining customers. Example: Advertisements for a bank’s new loan product.
Employees to Customers (Interactive Marketing)
This is the moment of truth where the service is actually delivered and the promise is kept or broken. It is about the real-time interaction between service employees and customers. Example: A helpful and friendly airline attendant assisting a passenger.
Service Blueprinting: Mapping the Customer Journey
Service blueprinting is a visual tool that maps out the entire customer experience and all related service processes. It extends the traditional flowchart by adding the customer’s actions, front-stage (visible to customer) employee actions, back-stage (invisible to customer) employee actions, and supporting processes. It helps organizations understand the service delivery process from the customer’s perspective, identify potential failure points (poka-yokes), and improve efficiency and quality.
Market Segmentation in Service Industries
Market segmentation involves dividing a broad consumer or business market into sub-groups of consumers (segments) based on some type of shared characteristics. Common bases for segmenting service markets include:
Geographic Segmentation
Dividing the market based on location (e.g., city, region, country). Example: A local dry cleaner primarily targets customers within a specific residential area.
Demographic Segmentation
Dividing the market based on characteristics like age, gender, income, education, occupation, and family size. Example: A luxury spa might target high-income individuals, while a children’s play area targets families with young kids.
Psychographic Segmentation
Dividing the market based on lifestyle, personality traits, values, attitudes, and interests. Example: An adventure tour operator might target individuals who enjoy high-risk, exciting activities. A yoga studio might target individuals interested in wellness and mindfulness.
Behavioral Segmentation
Dividing the market based on consumer behavior patterns, such as usage rate, loyalty, benefits sought, and readiness to buy. Example: An airline might offer loyalty programs to frequent flyers (usage rate/loyalty). A software company might segment based on the specific features customers use most frequently.
The Six Stages of Service Buying Behavior
The service buying behavior process generally mirrors the consumer decision-making process but with unique considerations due to the intangible nature of services. The stages include:
Need Recognition
The process begins when a customer recognizes a need or a problem that a service can solve. This could be a functional need (e.g., car repair), a social need (e.g., a party planner), or a psychological need (e.g., therapy). Example: A person’s internet connection is slow, leading them to recognize a need for a faster internet service.
Information Search
Once a need is recognized, customers seek information about potential service providers. Due to intangibility, this search often relies heavily on:
- Personal Sources: Word-of-mouth from friends, family, and colleagues (highly influential for services).
- Experiential Sources: Past experiences with similar services.
- Public Sources: Online reviews, consumer reports, social media.
- Commercial Sources: Advertising, brochures, websites of service providers.
Example: The person with slow internet asks friends for ISP recommendations, reads online reviews of local providers, and checks their websites for plans and pricing.
Evaluation of Alternatives
Customers compare different service offerings based on criteria important to them. Due to intangibility, evaluation criteria for services are often more subjective and can include:
- Reliability: Ability to perform the promised service dependably and accurately.
- Assurance: Knowledge and courtesy of employees and their ability to convey trust and confidence.
- Tangibles: Physical facilities, equipment, personnel, and communication materials.
- Empathy: Caring, individualized attention provided to customers.
- Responsiveness: Willingness to help customers and provide prompt service.
Example: They compare ISPs based on advertised speed, price, customer service ratings, and contract terms. They might prioritize a reliable connection over the absolute lowest price.
Service Purchase/Choice
The customer chooses the service provider they believe will best meet their needs and expectations. This stage also involves the commitment to the service, which might include signing a contract or making a booking. Example: The person selects a specific ISP plan and signs up for their service.
Service Consumption/Experience
This is the “moment of truth” where the service is actually delivered and experienced by the customer. Due to inseparability, the customer is often involved in the service production process. Example: The ISP technician installs the equipment, and the customer begins using the internet service, interacting with the service itself and potentially with customer support.
Post-Purchase Evaluation
After consuming the service, customers evaluate their experience and determine their satisfaction or dissatisfaction. This evaluation influences future purchase decisions and word-of-mouth. Cognitive dissonance (buyer’s remorse) can occur if expectations are not met. Example: The customer assesses if the internet speed is as advertised, if customer support is responsive when issues arise, and if the overall experience is worth the cost.
Defining Service Culture
Service culture refers to the shared values, beliefs, and norms that guide the behavior of individuals and groups within an organization towards serving customers. It is an organizational climate that encourages customer-focused behavior at all levels, from top management to frontline employees. In a strong service culture, everyone understands that their job is to serve customers, both internal (colleagues) and external.
Key Characteristics of a Strong Service Culture
- Customer-Centricity: The customer’s needs and satisfaction are at the core of all decisions and actions.
- Employee Empowerment: Employees are given the authority and resources to resolve customer issues and make decisions that enhance the customer experience.
- Emphasis on Training: Continuous training for employees on product knowledge, interpersonal skills, and service recovery.
- Leadership Commitment: Top management actively champions and models service excellence.
- Internal Marketing: Treating employees as internal customers, fostering a positive work environment, and ensuring they understand their role in delivering customer value.
- Recognition and Rewards: Systems are in place to acknowledge and reward employees for excellent service.
- Open Communication: Channels for feedback from customers and employees are encouraged and acted upon.
SERVQUAL: Measuring Service Quality Dimensions
SERVQUAL is a widely used multi-item scale developed by Parasuraman, Zeithaml, and Berry to measure service quality from a customer’s perspective. It identifies five core dimensions that customers use to evaluate service quality, based on the gap between their expectations and perceptions.
The five dimensions are:
Tangibles
The appearance of physical facilities, equipment, personnel, and communication materials. Example: Clean and modern bank branches, professional attire of hotel staff, well-designed websites, clear brochures. Questions: “The bank has attractive physical facilities.” “The hotel’s employees are neatly dressed.”
Reliability
The ability to perform the promised service dependably and accurately. This is often considered the most important dimension. Example: An airline consistently departing and arriving on time, a package delivery service always delivering on the promised date, a repair service fixing the problem correctly the first time. Questions: “When the bank promises to do something by a certain time, it does so.” “The airline provides its service at the promised time.”
Responsiveness
The willingness to help customers and provide prompt service. Example: A customer service representative answering calls quickly and being ready to assist, a doctor’s office returning calls promptly, a restaurant waiter being attentive to diners’ needs. Questions: “Employees in this firm are always willing to help customers.” “The service provider gives prompt service to customers.”
Assurance
The knowledge and courtesy of employees and their ability to convey trust and confidence. This dimension includes competence, credibility, and security. Example: A financial advisor’s expertise and honesty, a mechanic’s certification and clear explanation of repairs, a security guard’s professional demeanor. Questions: “You can trust the employees of this firm.” “Employees of this firm have the knowledge to answer your questions.”
Empathy
The caring, individualized attention the firm provides to its customers. This includes access, communication, and understanding the customer. Example: A nurse showing genuine concern for a patient’s comfort, a lawyer taking the time to explain complex legal terms in an understandable way, a salon stylist remembering a client’s preferences. Questions: “The firm gives you individual attention.” “The firm has employees who understand your specific needs.”
Pricing Strategies for Services
Pricing services is complex due to their intangibility, perishability, variability, and inseparability. Here are different pricing strategies:
Cost-Based Pricing
Concept: Prices are set by calculating the costs associated with delivering the service (fixed costs + variable costs) and adding a markup for profit. Types: Cost-plus pricing (adding a standard markup to the cost); Activity-based costing (allocating costs to specific service activities). Example: A consulting firm calculating the total hours spent on a project, multiplying by an hourly rate (covering employee salaries, overheads), and adding a profit margin.
Competition-Based Pricing
Concept: Prices are set primarily based on what competitors are charging for similar services. Types: Going-rate pricing (matching competitors’ prices); Price leadership (one dominant firm sets prices, and others follow); Sealed-bid pricing (bidding for contracts based on competitor likely bids). Example: Two identical dry cleaning services in the same neighborhood pricing their services similarly to attract customers. Limitations: May not reflect the firm’s costs or unique value proposition.
Value-Based Pricing (Customer-Based Pricing)
Concept: Prices are set based on the perceived value of the service to the customer, rather than just the cost of providing it. This requires understanding customer benefits and willingness to pay. Types: Perceived value pricing (basing price on the customer’s perceived value of the service); Value-added pricing (adding features or services to justify a higher price). Example: A luxury hotel charging premium rates not just for the room, but for the overall experience, exclusive amenities, and exceptional service, which customers highly value. A specialized legal firm charging high fees for unique expertise that delivers significant value to clients.
Demand-Based Pricing (Yield Management/Dynamic Pricing)
Concept: Prices vary based on demand, time of purchase, and capacity utilization. This is particularly relevant for perishable services. Example: Hotels: Room rates change based on occupancy, day of the week, and events in the city. Ride-sharing apps: Surge pricing during peak hours or high demand.
Relationship Pricing
Concept: Prices are set to foster long-term customer relationships rather than maximizing profit from a single transaction. This includes loyalty programs, bundled services, and volume discounts. Example: Gyms offering lower monthly fees for annual memberships compared to month-to-month plans.