Marketing Strategies for Service Firms

internal marketing Marketing by a service firm to train and effectively motivate its customer-contact employees and all the supporting service people to teorfe as a team to provide customer satisfaction.

interactive marketing Marketing by a service firm that recognizes that perceived service quality depends heavily on the quality of buyer-seller interaction.

Until recently, service firms lagged behind manufacturing firms in their use of marketing. Many service businesses are small {shoe repair shops, barber shops, dry cleaners) and often consider marketing unnecessary or too costly. Some service organizations (e.g. schools, churches) were at one time so much in demand that they did not need marketing until recently. Others (e.g. legal, medical and accounting practices) believed that it was unprofessional to use marketing. Still Others who sell sensitive services did not contemplate using marketing techniques because it was not discreet to do so (see Marketing Highlight 15,1).

Furthermore, service businesses are more difficult to manage when using only traditional marketing approaches. In a product business, mass-produced products are fairly standardized and sit on shelves waiting for customers. But in a service business, the customer and frontline service employee interact to create the service. Thus service providers must work to interact effectively with customers to create superior value during service encounters. Effective intetae-tion, in turn, depends on the skills of frontline service staff, and on the service production and support processes backing these employees.

Thus successful service companies focus their attention on both their employees and customers. They understand the service-profit chain, which links service firms' profits with employee and customer satisfaction. This chain consists of five links:"

1. Healthy service-profits and growth - superior service firm performance, which results from ...

2. Satisfied and loyal customers - satisfied customers who remain loyal, repeat purchase and refer other customers, which results from ...

3. Greater service value - more effective and efficient customer value creation and service delivery, which results from...

4. Satisfied and productive service employees - more satisfied, loyal and hard-working employees, which results from...

5. Internal service quality - superior employee selection and training, a quality work environment and strong support for those dealing with customers.

Thus reaching service profits and growth goals begins with taking care of those who take care of customers. All of this suggests that service marketing requires more than just traditional external marketing using the four Ps. Figure 15.2 shows that service marketing also requires both internal marketing and interactive marketing.

Internal marketing means that die service firm must invest heavily in employee quality and performance. It must effectively train and motivate its customer-contact employees and all the supporting service people to work as a team to provide customer satisfaction. For the firm to deliver consistently high service quality, everyone must practise a customer orientation. Tt is not enough to have a marketing department doing traditional marketing while the rest of the company goes its own way. Marketers must also encourage everyone else in the organization to practise marketing. In fact, internal marketing must precede external marketing. It makes little sense to advertise excellent service before the company's staff is ready, willing and able to provide it.

Interactive marketing means that perceived service quality depends heavily on the quality of the buyer-seller interaction. In product marketing, product

Marketing Strategies For Service Firms

Three types of marketing in service industries quality often depends little on how the product is obtained. But in services marketing, especially in high-contact and professional services, service quality depends on both the service deliverer and the quality of the delivery. Effective service deliverer-customer interaction is important for achieving a satisfactory service transaction. The customer judges service quality not just on technical quality (e.g. the success of the surgery, the tastiness of the food served in the restaurant), but also on its functioned quality (e.g. whether the doctor showed concern and inspired confidence, whether the waiter was friendly and polite). Also, each interaction is a 'moment of truth' for the provider, where not just the service encounter, but also the organization, will be decisively judged by the customer. Thus, professionals cannot assume that they will satisfy the client simply by providing good technical service. They have to master interactive marketing skills or functions as well.7

Effective buyer—seller interaction may help to secure a satisfied customer. However, to retain customers over the long term, many service providers have to develop widevrelationship marketing skills for managing customer relationships. The topic of relationship marketing was dealt with in greater detail in Chapter 11.

Today, as competition and costs increase, and as productivity and quality decrease, more marketing sophistication is needed. Service companies face three major marketing tasks: they want to increase their ctmvpetitive differentiation, service quality and productivity.

Managing Differentiation

In these days of intense price competition, service marketers often complain about the difficulty of differentiating their services from those of competitors. Service differentiation poses particular problems. First, service intangibility and inseparability mean that consumers rarely compare alternative service offerings in advance of purchase in the way that potential buyers of products do. Differences in the attractiveness or value of competing services are not readily obvious to the potential buyer. Service providers often use pricing to differentiate their offering. However, pricing strategics (e.g. price cuts) are quickly emulated

Service differentiation: Virgin Atlantic uses in-flight entertainment to provide a very difficult service in a very competitive market.

by competitors. Furthermore, intense price competition erodes margins and docs not create a sustainable differential advantage over the long term.

The solution to price competition is to develop a differentiated offer, delivery and image. The offer can include inno'oative features that set one company's offer apart from its competitors' offers. For example, airlines such as Virgin Atlantic have introduced such innovations as in-flight movies, advance seating, air-to-ground telephone service and frequent-flyer awareness programmes to differentiate their offers. British Airways even offers international business and first-class travellers a sleeping compartment, hot showers and cooked-to-order breakfasts. Unfortunately, this exposes a second problem - service innovations cannot be patented and are easily copied. Still, the service company that innovates regularly will usually gain a succession of temporary advantages and an innovative reputation that may help it keep customers who want to go with the best.

Third, the variability ofservices suggests that standardization and quality are difficult to control. Consistency in quality is generally hard to obtain, but firms that persistently cultivate a customer orientation and execute sound internal marketing schemes will increase their ability to differentiate their brand by offering superior-quality service delivery.

The service company can differentiate its service delivery in three ways: through people, physical environment and process. These are often referred to as the additional three Ps in service marketing. The company can distinguish itself by having more able and reliable customer-con tact people than its competitors have. The enthusiasm and smart appearance of front-line customer-contact staff also helps. More importantly, as mentioned earlier, the service business thai emphasizes an internal marketing approach, combined with customer-focused staff training and education, can succeed in improving employee quality and performance that will sustain superiority in service delivery. Ultimately, it is the support and participation of front-line staff and all the people involved in the operational processes that is vital to the success of service production and delivery, and, therefore, the customer relationship and the organization's success.

The firm can develop a superior physical environment in which the service product is delivered. Hotels and restaurants, for example, will pay a great deal of attention to interior decor and ambience to project a superior service to target

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To differentiate its service, British Airways offers international travellers such features as sleeping compartments and hot showers. As the continents in this ad show, customers really appreciate such services.

customers. Some retailers, such as The Body Shop and Harrods, have effectively managed the physical environment, giving very distinctive identities to their outlets.

Or it can design a superior delivery process. For example, a bank might offer its customers home banking as a better way to use banking services than by having to drive, park and wait in line. Direct Line, the; British insurance company, pioneered telephone selling of motor insurance, and succeeded in overtaking traditional providers in the industry.

Finally, service intangibility and variability mean that a consistent sendee brand image is not easily built. Brand image also takes time to develop and cannot be copied by competitors. Service companies that work on distinguishing their service by creating unique and powerful images, through symbols or branding, will gain a lasting advantage over competitors with lack-lustre images. For example. the Kitz, Sheraton, Hard Rock Cafe, British Airways, Citibank, Swissair and Benetton all enjoy superior brand positioning which has taken years of effort to develop. Organizations such as Lloyd's Bank (which adopted the black horse as its symbol of strength), McDonald's (personified by its Ronald McDonald clown) and the International Red Cross have all differentiated their images through symbols.

Managing Service Quality

One of the principal ways in which a service firm can differentiate itself is by delivering consistently higher quality than its competitors. Like manufacturers before them, many service industries have now joined the total quality management revolution. Recent years have seen the rapid adoption of service quality standards and awards such as the BS5750/ISO9000 international standard, the Malcolm Raldridge National Quality Award in the USA, the European Foundation for Quality Management Award and similar schemes in other countries. In Scandinavian countries, and particularly Sweden, service quality management has become a topic of national concern, with the government taking a lead role through initiatives such as the Swedish Customer Satisfaction Barometer. Many service companies are finding that outstanding quality can give them a potent competitive advantage that leads to superior sales and profit performance. True, offering greater service quality results in higher costs. However, investments usually pay off because greater customer satisfaction leads to increased customer retention and sales.8

The key is to exceed the customer's service quality expectations. As the chief executive at American Express puts it, 'Promise only what you can deliver and deliver more than you promise!'9 These expectations are based on past encounters and experiences, word of mouth and the firm's advertising. If perceived service of a given firm exceeds expected service, customers arc apt to use the service provider again. Customer retention is, perhaps, the best measure of quality and reflects the firm's ability to hang on to its customers by consistently delivering value to them. Thus, where the manufacturer's quality target might be 'zero defects', the service provider's goal is 'zero customer defections'.

To meet quality targets, the service provider needs to identify the expectations of target customers concerning service quality. Unfortunately, quality in service industries is harder to define, judge or quantify than product quality. It is bard to quantify service quality because intangibility means that there are seldom physical dimensions, like performance, functional features or maintenance cost, which can be used as benchmarks and measured. It is harder to get agreement on the quality of a haircut than on that of a hair dryer, for instance. The inseparability of production and consumption means that service quality must be defined on the basis of both the process in which the service is delivered and the actual outcome experienced by the customer. Again, it is difficult to quantify standards or reference points against which service delivery process and performance outcomes are measured. We will look at service quality dimensions in greater detail later in the chapter.

To measure service quality, in practice, the provider has to determine how customers of the service perceive quality Studies suggest that customer assessments of service quality are the result of a comparison of what they expect with what they experience.10 Any mismatch between the two is a 'quality gap'. The service quality manager's goal is therefore to narrow the quality gap, taking into account that what is being measured is perceived quality, which is always a judgement by the customer. Hence, what the customer thinks is reality, is reality; quality is whatever the customer says it is. To improve quality, service marketers have to identify: the key determinants of service quality (that is, the key criteria customers use to judge quality); what target customers' expectations are; and how customers rate the firm's service in relation to these criteria against what they expected.

What are the criteria that typically reflect service quality? An important study highlights ten key determinants of perceived service quality.11 Figure 15,3 summarizes these dimensions: access (is the service easy to get access to and delivered on time?); credibility (is the company credible and trustworthy?)! knowledge (does the service provider really understand customers' needs?}; reliability (how dependable and consistent is the service?); security (is the service low-risk and free from danger?); competence (are staff knowledgeable and in possession of the skills required to delivery good service?); communication (how well has the company explained its service?); courtesy (are staff polite, consid

Sales Promotion Strategy
Figure 15.3

Key determinants of perceived service quality erate and sensitive to customers?); responsiveness (are staff willing and quick to deliver the service?); and tangiblvx (does the appearance of staff, the physical environment and other tangible representations of the service reflect high quality?). The first five are concerned with the quality of the outcome of service provided, while the last five are related to the quality of the delivery process. By focusing on the dimensions that are important to customers, the service firm can ensure that customers' expectations are fully met.

To a large extent, aspects such as good understanding of customers' needs and the ability to provide consistent and dependable service are achieved through internal marketing and continual investment in employee quality and performance. The reputation and credibility of the service provider and customers' perceived risk arc interrelated. If the consumer trusts the service provider, he or she expcets that the service is free from danger or perceives little risk in using the service. Credibility can be improved through effective communication of service quality through advertising find/or satisfied customers. Access can be improved by having multisite locations (e.g. Pizza lint, McDonald's, Benetton), and waiting times can be reduced through synchronizing supply and demand and/or tackling staff productivity problems.

During the past dceade, many service companies have invested heavily to develop streamlined and efficient service delivery systems. They want to ensure that customers will receive consistently high-quality service in every service encounter. Unlike product manufacturers, which can adjust their machinery and inputs until everything is perfect, service quality will always vary, depending on the interactions between employees and customers. Problems will inevitably occur:

Mistakes arc a critical part of every service. Hard as they try, even the best service companies can't prevent the occasional late delivery, burned steak, or grumpy employee. The fact is, in services, often performed in the customer's presence, errors are inevitable. While companies cannot always prevent service problems, they can learn to recover from them when they occur. Good service recovery can turn angry customers into loyal ones. In fact, it can win customer purchasing and loyalty and create more good will than if things had gone well in the first place.12

The first step is to empower front-line service employees - that is, to give them the authority, responsibility and incentives to recognize, care about and tend to customer needs, even going beyond their normal jobs to solve customer problems. Such empowered employees can act quickly and effectively to keep service problems from resulting in lost customers.

Studies in well-managed service companies show that they share a number of common virtues regarding sendee quality. These arc summarized below:

1. Top service companies are 'customer obsessed'. They have a distinctive strategy for satisfying customer needs that wins enduring customer loyalty. At British Telecom, liaison panels are set up which demonstrate management commitment to listen to customers and ensure that the ethos of customer care is embedded in the whole company.

2. They have a history of top management commitment to quality. Management at companies such as Marks & Spencer, American Express, Swissair and McDonald's look not only at financial performance, but also at service performance. They develop a quality culture that encourages and rewards good service delivery,

3. The best service providers set high service quality standards. Swissair, for example, aims to have 96 per cent or more of its passengers rate its service as good or superior; otherwise, it takes action. The standards must be set appropriately high. A 98 per cent accuracy standard may sound good, but using this standard, 64,000 Federal Express packages would be lost each day, 10 words would be misspelled on each page, 400,000 prescriptions would be misfilled daily, and drinking water would be unsafe eight days a year. Top service companies do not settle merely for 'good' service, they aim for 100 per cent defect-free service,13

4. Top service firms watch service performance closely — both their own and that of competitors. They communicate their concerns about service quality to employees and provide performance feedback. They use methods such as comparison shopping, customer surveys, suggestion schemes and customer complaint programmes. Customer complaints are an opportunity for companies to remedy poor service, and, when they are dealt with promptly and effectively, customer eare in service-recovery situations can be a source of unrivalled competitive advantage (see Marketing Highlight 15.2).

5. Well-managed service companies satisfy employees as 'well as customers. They believe that good employee relations will result in good customer relations. Management clearly defines and communicates sendee level targets so that, first, its employees know what service goals they must achieve, and secondly, its customers know what to expect to receive from their interaction with the service provider.

Management must also create an environment of employee support, reward good service and monitor employee job satisfaction. For example, the Danish-based international cleaning services giant ISS (International Service System) stresses good working relations and utilization of human resources. Staff are encouraged Co join trade unions. Total quality management is firmly upheld - staff are trained so that they can do their jobs well and derive satisfaction from them - happy satisfied customers yield happy employees. It has also gone to the extreme of moving into palatial new headquarters in a wooded country estate in northern Copenhagen - an absence of air-conditioning or dust-hugging carpets, together with soothing colours, reflect management's belief that scientific cleaning can help reduce staff illness.

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  • Gerardina
    How gaborone sun hotel motivate its employees internal marketing?
    6 years ago
  • eula
    How gaborone sun hotel segment,tagert, differentiation and positioning of its services?
    6 years ago
    How Gaborone sun hotels manage their marketing?
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