Brief Contents
Dedications
About the Authors
About the Contributors of the Cases
Preface
Acknowledgements
v
vi
xi
xxiii
xxxiii
Part I:
Understanding Service Products,
Consumers and Markets
2
Chapter 1
Chapter 2
Chapter 3
Introduction to Services Marketing
Consumer Behavior in a Services Context
Positioning Services in Competitive Markets
4
32
56
Part II:
Applying the 4Ps to Services
82
Chapter 4
Chapter 6
Chapter 7
Developing Service Products:
Core and Supplementary Elements
Distributing Service Through Physical and
Electronic Channels
Setting Prices and Implementing Revenue Management
Promoting Services and Educating Customers
Part III:
Managing the Customer Interface
196
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Designing and Managing Service Processes
Balancing Demand Against Productive Capacity
Crafting the Service Environment
Managing People for Service Advantage
198
228
252
276
Part IV:
Implementing Profitable Service Strategies 304
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Managing Relationships and Building Loyalty
Complaint Handling and Service Recovery
Improving Service Quality and Productivity
Organizing for Change Management and
Service Leadership
Chapter 5
i-xxxii_ESM_SL.indd 1
84
110
134
168
306
338
365
408
Part V: Cases
430
Glossary
Credits
Name Index
Subject Index
541
549
553
561
8/15/08 4:45:29 PM
CHAPTER
4
developing service products:
CORE and
SUPPLEMENTARY
ELEMENTS
LEARNING OBJECTIVES
By the end of this chapter, students should be able:
LO 1 Define what a service product is.
LO 2 Know how to design a service
concept.
LO 3 Describe the flower of service
and know how the facilitating
and enhancing supplementary
services relate to the core
product.
LO 4 Know how service firms use
different branding strategies
for their product lines.
LO 5 List the categories of new
service development, ranging
from simple style changes to
major innovations.
LO 6 Be familiar with the factors
needed to achieve success in
developing new services.
OPENING VIGNETTE1
Figure 4.1 Starbucks is a familiar
brand that even has traditional tea
consumers drinking out of its cups.
84
As you walk along the street, the aroma drifts through the air and attracts you. It is
drawing you toward the store with the green sign that has now become a common
sight. You enter Starbucks, the place where you can sit down and enjoy a great cup
of coffee in a comfortable settee or on a chair. You can also surf the Internet on the
free wireless broadband service that is available in many of the Starbucks outlets
around the world. Starbucks is a place that you would associate with coffee, before
anything else.
Chapter 4 • Developing Service Products: Core and Supplementary Elements
...One of the
trendsetters of
lifestyle services,
Starbucks has
popularized the
coffeehouse as
contemporary
and chic...
Applying the 4Ps to Services
PART II
As a service innovation, Starbucks has been transforming itself into a place for
entertainment. It wants to extend the pop culture. It does that through Hear Music
Starbucks. Customers can buy from an extensive selection of hand-selected and
compiled physical CDs in the Starbucks Hear Music Coffeehouses. Alternatively,
they can burn personalized CDs from a digital inventory of more than a million
sound tracks, including new recordings that can only be found in some Starbucks
outlets. Debut albums of some new musicians are actually launched and available
only exclusively at Starbucks outlets. Starbucks also sells movie DVDs and books
from emerging as well as established authors. It has tied up with Apple’s iTunes WiFi Music Store to allow music playing at selected Starbucks cafes, up to the last ten
songs played, to be browsed, bought and downloaded wirelessly onto the iPhone
or iPod. This music will sync back to the Mac or PC the next time it is connected.
Soon, we will no longer associate Starbucks with just mocha. Rather, we will see
it as a place to relax and feel at home. Starbucks is a company that has developed
new service innovations with great success. However, it cannot rest on its laurels
as competition is intense. It has to continue to reinvent itself to maintain its edge in
the industry.
85
LO 1
SERVICE PRODUCT
Define what a service product is.
W
LO 2
DESIGNING A SERVICE PRODUCT
Know how to design a
service concept.
H
hat do we mean by a service “product”? A service product consists of two
components, the core product and supplementary services. The core product
is based on the core set of benefits and solutions delivered to customers. These are
usually defined with reference to a particular industry like healthcare or transportation.
For example, in healthcare, the core product may be the restoration of the body back
to an optimum condition. Surrounding the core product is a variety of service-related
activities called supplementary services. Supplementary services augment the core
product by facilitating its use and enhancing its value and appeal. The supplementary
services often play an important role in differentiating and positioning the core
product against competing services.
ow should one go about designing a service concept? Experienced marketers
know that they need to look at the entire service performance in a holistic
manner. The firm needs to determine specific aspects that it plans to compete on.
In order to do that, the value proposition needs to combine three components:
(1) core product, (2) supplementary services, and (3) delivery processes. The delivery
processes are those that are used to deliver both the core product and supplementary
services. The design of the service offering must address the following issues:
u
How the different service components are delivered to the customer.
u
The nature of the customer’s role in those processes.
u
How long delivery lasts.
u
The recommended level and style of service to be offered.
There are four categories of services introduced in Chapter 1—people
processing, possessing processing, mental stimulus processing, and
information processing. Each of these has a different impact on operational
procedures, the degree of customer contact with service personnel and
facilities, and requirements for supplementary services. People processing
services usually have more supplementary elements. This is because the
customer must go to the service factory and spend time there during
service delivery (Figure 4.2).
Figure 4.2 Dental patients need to go
to the clinic to receive treatment.
86
Chapter 4 • Developing Service Products: Core and Supplementary Elements
Scheduling
Nature of
Process
Service
Level
Customer
role
DELIVERING CONCEPT FOR
CORE PRODUCT
PART II
SUPPLEMENTARY SERVICES
OFFERED AND HOW THEY
ARE CREATED AND
DELIVERED
Figure 4.3 Depicting the service
offering for an overnight hotel stay.
The integration of the core product, supplementary services, and delivery processes is
captured in Figure 4.3. The figure shows the components of the service offering for an
overnight stay at a luxury hotel. The core product is an overnight rental of a bedroom.
The delivery processes surrounding this core product are:
u
Nature of the process—people processing in this instance.
u
Customer’s role—what customers are expected to do for themselves; what the
hotel will do for them, such as making the bed, supplying bathroom towels,
and cleaning the room.
u
Scheduling—how long the room may be used before another payment
becomes due.
u
Service level—what level and style of service.
Surrounding the core product is a variety of supplementary services. These range
from reservations to meals and in-room service elements. Delivery processes must
be specified for each of these elements. The more expensive the hotel is, the higher
the level of service is required of each element. For example, very important guests
might be received at the airport and transported to the hotel in a limousine. Checkin arrangements can be done on the way to the hotel. By the time the guests arrive
at the hotel, they are ready to be escorted to their rooms, where a butler is on
hand to serve them. Specific design in terms of customer service processes, which
is called service blueprinting, is discussed in Chapter 8, Designing and Managing
Service Processes.
Applying the 4Ps to Services
87
LO 3
Describe the flower of service
and know how the facilitating and
enhancing supplementary services
relate to the core product.
THE FLOWER OF SERVICE2
T
here are two kinds of supplementary services. Facilitating supplementary services
are either needed for service delivery, or help in the use of the core product.
Enhancing supplementary services add extra value for the customer. These different
supplementary services can be classified into one of the following eight clusters.
Facilitating Services
o
o
o
o
Payment
Payment
Billing
Billing
Exceptions
Exceptions
KEY:
Facilitating
Facilitating elements
elements
Enhancing
Enhancing elements
elements
88
Enhancing Services
o
o
o
o
Information
Order-taking
Billing
Payment
Consultation
Hospitality
Safekeeping
Exceptions
In Figure 4.4, the eight clusters are displayed as petals surrounding the center of a
flower, hence we call it the Flower of Service. The petals are arranged in a clockwise
sequence depending on how they are likely to be encountered by customers. However,
the sequence may sometimes vary. For instance, payment may have to be made
before service is delivered rather than afterwards. In a well-designed
and well-managed service organization, the petals and core are
fresh and well-formed. A service that is badly designed or
poorly delivered is a like a flower with missing or dried
Information
Information
petals. Even if the core is perfect, the flower looks
unattractive. Think about one of your negative
Consultation
Consultation
experiences as a service customer. When you
were dissatisfied with a particular purchase,
was it the core that was at fault, or was it a
problem with one or more of the petals?
Order
Order
Taking
CORE
Figure 4.4 The Flower of Service:
Core product surrounded by cluster
of supplementary services.
A company’s market positioning strategy helps
to decide which supplementary services should
Safekeeping
Safekeeping
be included (see Chapter 3). If a company’s strategy
is to add benefits to increase customers’ perceptions of
quality, then more supplementary services are required. For
example, airlines such as Emirates, the award-winning Dubaibased airline, may offer supplementary service like goodie bags to soothe
hyperactive children. There is also in-flight entertainment such as cartoons and games
that can keep the children occupied for hours. This will help to reduce the stress faced
by parents traveling with young children. If the strategy is to compete on low prices,
then fewer supplementary services are required.
Hospitality
Hospitality
Chapter 4 • Developing Service Products: Core and Supplementary Elements
FACILITATING SUPPLEMENTARY SERVICES
Information
CORE
PART II
To obtain full value from any good or service, customers need relevant information
(Figure 4.5). New customers and prospects are especially hungry for information.
Information may sometimes be required by law. These include conditions of sale and
use, warnings, reminders, and notification of changes. Customers also appreciate
advice on how to get the most value from a service and how to avoid problems.
Companies should make sure that the information they provide is both timely
and accurate. If not, it is likely to make customers feel irritated or cause them
inconvenience.
• Direction to service site
• Schedules/service hours
• Prices
• Reminders
• Warnings
• Conditions of sale/service
• Notification of changes
• Documentation
• Comfirmation of reservations
• Summaries of account activities
• Receipts and tickets
Figure 4.5 Examples of information.
Traditional ways of providing information to customers
include using front-line employees, printed notices,
brochures, and instruction books. Information can also be
provided through videos or software-driven tutorials, touchscreen video displays, or through company web sites. The
types of information range from train and airline schedules,
to assistance in locating specific retail outlets, to information
on the services of professional firms. Many business logistics
companies offer shippers the opportunity to track the
movements of their packages, which have been assigned a
unique identification number (Figure 4.6). For example,
Amazon.com provides online customers with a reference
number and they can track the goods that they have
bought, and know when to expect the goods.
Figure 4.6 Shipments can be tracked
around the world with their identity code.
Applying the 4Ps to Services
89
Order-Taking
Once customers are ready to buy, the company accepts applications, orders, and
reservations (Figure 4.7). The process of order-taking should be polite, fast, and
accurate so that customers do not waste time and endure unnecessary mental or
physical effort. Technology can be used to make order-taking easier and faster for
both customers and suppliers.
Applications
• Memberships in clubs/programs
• Subscription services (e.g., utilities)
• Prerequisite based services (e.g.,
financial credit, college enrolment)
CORE
Order Entry
• On-site order fulfillment
• Mail/telephone/e-mail/web order
Reservations and Check-in
• Seats/tables/rooms
• Vehicles or equipment rental
• Professional appointments
Figure 4.7 Examples of
order-taking elements.
Order-taking includes applications, order entry, and reservations
or check-ins. Banks, insurance companies, utilities, and
universities usually require potential customers to go through
an application process. Order entry can be received through
a variety of sources such as through sales personnel, phone,
and e-mail or online (Figure 4.8). Airlines now make use of
ticketless systems, based on telephone or web site reservations.
Customers receive a confirmation number when they make
reservations and need to only show identification at the airport to
claim their seats and receive a boarding pass. Northwest Airlines
promotes order-taking online.
Billing
Figure 4.8 OpenTable takes dining
reservations to a whole new level
by allowing diners to bypass the
traditional call-and-hope reservation
experience with a mere click.
90
Billing is common to almost all services (unless the service
is provided free of charge). Customers usually expect bills
to be clear. Inaccurate, illegible, or incomplete bills risk
disappointing customers who may, up to that point, have
been quite satisfied with their experience. If customers are already dissatisfied,
the billing mistake may make them even angrier. Billing should also be timely,
because it encourages people to make payment faster. Procedures range from
verbal statements to a machine-displayed price, and from handwritten invoices
to elaborate monthly statements of account activity and fees (Figure 4.9).
Perhaps the simplest approach is self-billing. This is when the customer adds up
Chapter 4 • Developing Service Products: Core and Supplementary Elements
CORE
• Periodic statements of account activity
• Invoices for individual transactions
• Verbal statements of amount due
• Self-billing (computed by customer)
• Machine display of amount due
Figure 4.9 Examples of
billing elements.
Busy customers dislike being kept waiting for a bill to be prepared. There are
different ways in which bills can be presented to customers in a faster way. Hotels
and rental car firms now have express check-outs. Many hotels may push bills under
guestroom doors on the morning of departure showing charges to date. Others
offer customers the choice of seeing their bills beforehand on the TV monitors
in their rooms. Some car rental companies have an express check-out procedure.
An agent meets customers as they return their cars. After they have checked the
mileage and fuel gauge readings, the bill is printed on the spot using a portable
wireless terminal.
PART II
the amount of an order and authorizes a card payment or writes a check. In such
instances, billing and payment are combined into a single act, although the seller
may still need to check for accuracy.
Payment
In most cases, a bill requires the customer to take action on payment. One exception
is the bank statement which shows details of charges that have already been deducted
from the customer’s account. Increasingly, customers expect it to be easy and
convenient to make payment, including using credit, when they make purchases in
their own countries, and while traveling abroad.
A variety of options exist for customers to make payment (Figure 4.10). For selfservice payment systems, one may make payment by inserting coins, banknotes,
tokens or cards into machines. Good maintenance of the equipment is important.
Self-Service
• Insert card, cash or token into machine
• Electronic funds transfer
• Mail a check
• Enter credit card number online
CORE
Direct to Payee or Intermediary
• Cash handling or change giving
• Check handling
• Credit/charge/debit card handling
• Coupon redemption
Automatic Deduction from Financial Deposits
• Automated systems (e.g., machine-readable
tickets that operate entry gate)
• Human systems (e.g., toll collectors)
Figure 4.10 Examples
of payment elements.
Applying the 4Ps to Services
91
If the equipment breaks down, it can destroy the purpose of such a system. Most
payment still takes the form of cash or credit cards. However, more and more
shopping is being done online. PayPal offers a fuss-free and secure way to make
payments for goods bought over the Internet. Online shoppers must first register
with PayPal and have a credit card to use the service. Customers can make their
payments via PayPal who will process the payment to the seller. PayPal will then
charge the amount owed to the registered buyer’s account.
ENHANCING SUPPLEMENTARY SERVICES
Consultation
Now we move to enhancing supplementary services, led by consultation. Consultation
involves a dialog to probe customer requirements and then develop a solution that
is suited to the needs of the customer. Figure 4.11 provides examples of several
supplementary services in the consultation category.
CORE
• Customized advice
• Personal counseling
• Tutoring/training in product use
• Management or technical consulting
Figure 4.11 Examples of
consultation elements.
Figure 4.12 An auditor provides
a human touch during the
process of consultation.
At its simplest level, consultation consists of immediate advice from a knowledgeable
service person in response to the request, “What do you suggest?” (For example,
you might ask the person who cuts your hair for advice on different hairstyles and
products). Finally, management and technical consulting for corporate customers
include the “solution selling” associated with expensive industrial equipment and
services. Effective consultation requires an understanding of each customer’s current
situation, before suggesting a suitable course of action. Good customer records
can be a great help in this respect, particularly if relevant data
can be retrieved easily from a remote terminal.
In an Internet environment, which encourages
customers to engage in self-service applications and
be more self-reliant, companies should not forget
the personal touch of a “live” human being during
the process of consultation (Figure 4.12). The human
touch of a friendly customer-service officer will
certainly be valued and remembered, and will go a
long way for customers.
92
Chapter 4 • Developing Service Products: Core and Supplementary Elements
Counseling is another type of consultation that is less direct than consultation. It
involves helping customers understand their situations better, so that they can come
up with their “own” solutions and action programs. For example, diet centers such as
Weight Watchers use counseling to help customers change behaviors so that weight
loss can be sustained after the diet program has ended. Finally, advice, another form
of consultation, can also be offered through tutorials, group training programs, and
public demonstrations.
Hospitality
PART II
Hospitality-related services should, ideally, reflect pleasure at meeting new customers
and greeting old ones when they return. Well-managed businesses try, at least in
small ways, to ensure that their employees treat customers as guests. Courtesy
and consideration for customers’ needs apply to both face-to-face encounters and
telephone interactions (Figure 4.13). Hospitality is an element that can be more
clearly displayed in face-to-face encounters. In some cases, it starts (and ends) with an
offer of transport to and from the service site on courtesy shuttle buses. If customers
must wait outdoors before the service can be delivered, then a thoughtful service
provider will offer weather protection. If customers have to wait indoors, then
there can be a waiting area with seating and even entertainment (TV, newspapers
or magazines) to pass the time. Recruiting employees who are naturally warm,
welcoming, and considerate helps to create a hospitable atmosphere. Shoppers at
Giordano, an international clothing retailer with markets in the Asia Pacific and the
Middle East, are given a cheerful “Hello” and “Thank you” when they enter and leave
the store, even if they did not buy anything.
The quality of the hospitality services offered by a firm can increase or decrease
satisfaction with the core product. This is especially true for people-processing services
where customers cannot easily leave the service facility. Private hospitals often seek to
enhance their appeals by providing the level of room service that might be expected
in a good hotel. This includes the provision of quality meals. Some airlines seek to
differentiate themselves from their competitors with better meals and more attentive
cabin crew and Singapore Airlines is well-recognized in both areas.3
CORE
Greeting
Food and beverages
Toilets and washrooms
Waiting facilities and amenities
• Lounges, waiting areas, seating
• Weather protection
• Magazines, entertainment, newspapers
Transport
Security
Figure 4.13 Examples of
hospitality elements.
Applying the 4Ps to Services
93
SERVICE INSIGHTS 4.1
Cosmetic Surgeons’ Offices Turn Off Patients
It appears that plastic surgeons could use some
service marketing training along with their other
courses in medical school. Two experts, Kate Altork
and Douglas Dedo, who did a study of patients’
reactions to doctors’ offices found that many patients
will cancel a surgery, change doctors, or refuse to
consider future elective surgery if they feel uneasy in
the doctor’s office. The study results suggested that
patients do not usually “doctor-jump” because they
do not like the doctor, but because they do not like
the environment in which the service occurred. The
list of common patient dislikes includes: graphic
posters of moles and skin cancers decorating office
walls; uncomfortable plastic identification bracelets
for patients; examining rooms with no windows or
current reading material; bathrooms that are not
clearly marked; and not enough wastebaskets and
water coolers in the waiting room.
What do patients want? Most requests are
surprisingly simple and involve simple comforts
such as tissues, water coolers, telephones, plants,
bowls of candy in the waiting room, and live flower
arrangements in the lobby. Patients also want
windows in the examining rooms and gowns that
wrap around the entire body. They would like to sit
on a real chair when they talk to a doctor instead
of sitting on a stool or examining table. Finally,
patients who have not yet gone for surgery prefer
to be separated from patients who have had surgery
because they feel uneasy sitting next to someone
in the waiting room whose head is enclosed in
bandages.
These study results suggest that cosmetic surgery
patients would rather visit an office that looks
more like a health spa than a hospital ward. By
thinking like service marketers, savvy surgeons
could use this information to create patient-friendly
environments that will go well with, rather than go
against, their technical expertise.
Source
Bannon, L. (1997). Plastic surgeons are told to pay more attention to appearances. Wall Street Journal, March 15, p. B1.
94
Chapter 4 • Developing Service Products: Core and Supplementary Elements
Failures in hospitality can extend to the physical design of the areas where customers
wait prior to receiving service. A survey found that unappealing offices and lack of
comfort can drive away patients of cosmetic surgeons (Service Insights 4.1).
Safekeeping
PART II
While visiting a service site, customers often want their personal possessions to be
“looked after.” In fact, some customers may choose not to go to certain places that do
not have safekeeping services like a safe and convenient car park. On-site safekeeping
services includes coatrooms; baggage transport, handling and storage; safekeeping of
valuables; and even child care and pet care (Figure 4.14).
Caring for Possessions Customer Bring with Them
• Child care, pet care
• Parking for vehicles, valet parking
• Coat rooms
• Baggage handling
• Storage space
• Safe deposit boxes
• Security personnel
CORE
Caring for Goods Purchased (or Rented)
by Customers
• Packaging
• Pickup
• Tranportation and delivery
• Installation
• Inspection and diagnosis
• Cleaning
• Refueling
• Preventive maintenance
• Repair and renovation
Figure 4.14 Examples of
safekeeping elements.
Exceptions
Exceptions involve supplementary services that fall outside the normal service
delivery. Exceptions include special requests, and problem solving (Figure 4.15).
Special Requests in Advance of Service Delivery
• Children’s needs
• Dietary requirements
• Medical or disability need
• Religious observances
Handling Special Communications
• Complaints
• Compliments
• Suggestions
CORE
Problem Solving
• Warranties and guarantees
• Resolving difficulties that arise from using
the product
• Resolving difficulties caused by accidents,
service failures
• Assisting customers who have suffered an
accident or a medical emergency
Restitution
• Refunds and compensation
• Free repair of defective goods
Figure 4.15 Examples of
exception elements.
Applying the 4Ps to Services
95
Companies should anticipate exceptions and develop back-up plans and
guidelines in advance. That way, employees will not appear helpless
and surprised when customers ask for special assistance. Well-defined
procedures make it easier for employees to respond promptly and
effectively (Figure 4.16).
Managers need to keep an eye on the level of exception requests.
Too many requests may indicate that standard procedures need to
be changed. For example, if a dentist keeps receiving requests for
more information about a particular dental procedure, then this may
indicate that it is time to perhaps print some brochures that educate
customers. A flexible approach to exceptions is generally a good idea,
because it reflects responsiveness to customer needs. On the other
hand, too many exceptions may have a negative impact on other
customers, and overburden employees.
Figure 4.16 McDonald’s wellestablished procedures lets
employees respond smartly to
customers’ requests.
Figure 4.17 Security
features ensure that online
transactions are safe.
Managerial Implications
The eight categories of supplementary services forming the Flower of Service
collectively provide many choices for enhancing core products. As noted earlier,
some are facilitating services that enable customers to use the core product more
effectively. Others are “extras” that enhance the core or even reduce its non-financial
costs. Any badly handled element may negatively affect customers’ perceptions of
service quality.
Not every core product is surrounded by a large number of supplementary services from
all eight petals. People-processing services tend to have more supplementary elements,
especially hospitality, since they involve close (and often extended) interactions with
customers. When customers do not visit the service factory, the need for hospitality
may be limited to just letters and telecommunications. Possession-processing services
sometimes place heavy burdens on safekeeping elements. However, there may be
no need for this particular petal when providing information-processing services,
whereby customers and suppliers interact at arm’s length. Financial services that are
provided electronically are an exception to this however. Companies must ensure that
their customers’ intangible financial assets and their privacy are carefully safeguarded
in transactions that take place through the telephone or the web. (Figure 4.17).
A study of Japanese, American, and European firms serving businessto-business markets found that most companies simply added layer
upon layer of services to their core offerings without knowing what
customers really valued.4 Managers surveyed in the study indicated
that they did not understand which services should be offered to
customers as a standard package accompanying the core, and which
could be offered as options for an extra charge. There are no simple
rules governing decisions for core products and supplementary
services. However, managers should continually review their own
policies and those of competitors to make sure they are in line with
what the market practices, and customer needs.
96
Chapter 4 • Developing Service Products: Core and Supplementary Elements
BRANDING SERVICE PRODUCTS
AND EXPERIENCES
LO 4
n recent years, more and more service firms have started talking about their
products. What is the difference between a service and a product? A product
is a defined and consistent “bundle of output.” One bundle of output can be
differentiated from another bundle of output. Service providers can usually offer
a “menu” of products, representing an assembly of carefully prescribed elements
built around the core product. They may also bundle in certain value-added
supplementary services. Let us look at some examples from hotels, a computer
support service, and an international airline.
PART II
I
Know how service firms use
different branding strategies for
their product lines.
Product Lines and Brands
Most service firms offer a line of products rather than just a single product. As a
result, they must choose among three broad alternatives: using a single brand to cover
all products and services, a separate stand-alone brand for each offering, or some
combination of these two extremes.5 These alternatives are represented as a spectrum
in Figure 4.18. The term branded house is used to describe a company like the Virgin
Group, which applies its brand name to multiple offerings in often unrelated fields.6
Next on this spectrum are what they term sub-brands. A sub-brand is one where
the master brand is the main reference point, but the product itself has a distinctive
name too. Singapore Airlines Raffles Class, the company’s business class service, is an
example. The next category of brands are endorsed brands, where the product brand
is the main focus, but the corporate name is still featured (many hotel corporations
CORPORATE
BRANDING
INDIVIDUAL PRODUCT
BRANDING
“Branded House”
e.g., Virgin Group
“House of Brands”
e.g., Yum! Brands
Subbrands
e.g., Raffles Class at
Singapore Airlines
Endorsed Brands
e.g., Starwood
Hotels & Resorts
Figure 4.18 The spectrum of branding alternatives.
Applying the 4Ps to Services
97
use this approach). At the far end of the spectrum is the house of brands strategy. Yum!
Brands Inc. adopts the house of brands strategy, with more than 35,000 restaurants
in 110 countries. While we may not have heard of Yum! Brands, many certainly are
familiar with their restaurant brands—A & W, KFC, Pizza Hut, Taco Bell, and Long
John’s Silver. Each of these brands is actively promoted under their own brand name
(Figure 4.19).
Hotel Branding
There are many hotel chains that have a global presence. Many of these chains offer a
family of sub-brands/endorsed brands. For instance, Hilton Hotels Corporation has
ten sub-brands, and the Accor Group has ten sub-brands. Marriott International has
15 brands including the wholly owned Ritz-Carlton chain. However, to protect its
exclusive image, Ritz-Carlton is not normally identified for marketing purposes as
part of the Marriott Group.
Figure 4.19 KFC and Pizza
Hut are just some of the few
popular fast food brands
fronting Yum! Brands.
For a multibrand strategy to succeed, each brand must promise a different set of
benefits targeted at a different customer segment. In some instances, segmentation
is situation-based. The same individual may have different needs and willingness
to pay under differing circumstances, like when traveling with family or traveling
on business. A strategy of brand extension is aimed at encouraging customers to
continue staying within the brand family and this may be encouraged through loyalty
programs. A study of the brand-switching behavior of some 5,400 hotel customers
found that brand extensions do seem to encourage customers to stay within the
brand. However, brand extensions may be less effective in discouraging switching
when the number of brands reaches four or more.7
Sun Microsystems Hardware and Software Support
Sun Microsystems is an example of branding a high-tech, business-to-business
product line. The company offers a full range of hardware and software support in
a program branded as “SunSpectrum Support.”8 Four different levels of support are
available, sub-branded from platinum to bronze. The objective is to allow the buyers
to choose a level of support that meets the needs of their own organizations as well as
the willingness to pay. These are categorized as below:
98
u
Platinum: Mission-critical support with on-site service 24/7 and a two-hour
response time.
u
Gold: Business critical support with on-site service from Monday to Friday,
8am to 8pm, telephone service 24/7 and a four-hour response time.
u
Silver: Basic support with on-site service from Monday to Friday, 8am to
5pm, telephone service from Monday to Friday, 8am to 8pm, and a four-hour
response time.
u
Bronze: Self-support with phone service 8am to 5pm.
Chapter 4 • Developing Service Products: Core and Supplementary Elements
British Airways Sub-brands
u
First—deluxe service,
u
Club World—intercontinental business class,
u
World Traveller Plus—intercontinental premium economy class,
u
World Traveller—intercontinental economy class,
u
Club Europe—intra-European business class,
u
Euro-Traveller—intra-European economy class, and
u
UK Domestic—economy-class service between London and major
British cities.
PART II
British Airways (BA) is a good example of strong sub-branding in the airline industry.
BA offers seven distinct air travel products. They are:
Each BA sub-brand represents a specific service concept and a set of clearly stated
product specifications for pre-flight, in-flight, and on-arrival service elements.
Offering a Branded Experience
Branding can be used at both the company and product level by almost any service
business. In a well-managed firm, the corporate brand is not only easily recognized,
but it also has meaning for customers. The brand stands for a particular way of
doing business. Applying distinctive brand names to individual products helps
marketers to establish a mental picture of the service in customers’ minds and to
clarify the nature of the value proposition.
The Forum Corporation, a consulting firm, differentiates between (1) experience
with high variation from customer to customer, (2) a branded experience that is
similar across different firms, differentiated only by the brand name (ATMs are a
good example), and (3) a “Branded Customer Experience” in which the customer’s
experience is shaped in a specific and meaningful ways.9 (See Service Insights 4.2
for Forum’s recommendations on how to achieve this.)
Don Shultz emphasizes that “The brand promise or value proposition is not a tag
line, an icon, or a color or a graphic element, although all of these may contribute.
It is, instead, the heart and soul of the brand….”10 An important role for service
marketers is to become brand champions, familiar with and responsible for shaping
every aspect of the customer’s experience. We can relate the notion of a branded
service experience to the Flower of Service metaphor by emphasizing the need for
consistency in the color and texture of each petal. Unfortunately, many service
experiences remain much disorganized and create the impression of a flower stitched
together with petals drawn from many different plants!
We will return to a discussion of branding in the context of marketing communications
strategy in Chapter 7.
Applying the 4Ps to Services
99
SERVICE INSIGHTS 4.2
Moving Toward The Branded Customer Experience
Forum Corporation identifies six basic steps
to develop and deliver the Branded Customer
Experience:
1
Target profitable customers, employing
behavior
rather
than
demographic
segmentation as behavior is a more accurate
indicator of tastes and preferences.
2
3
Achieve a superior understanding about your
targeted customers’ value.
Create a brand promise—an expression of
what target customers can expect from their
experience with your organization—which
is of value to customers, addresses a need,
can be implemented, can be incorporated
into standards, and provides focus for the
organization and its employees.
4
5
Give employees the skills, tools, and
supporting processes needed to deliver the
customer experience that has been defined.
6
Make everyone a brand manager who is
behind the brand and supports the brand.
7
Make promises that your processes can
exceed.
8
Measure and monitor. Consistency of delivery
is paramount.
Apply that understanding to provide a truly
different customer experience.
Source
“Forum Issues #17” Boston: The Forum Corporation, 1997; Wheeler, J., & Smith, S. (2003). “Loyalty by Design” Forum
Corporation, 2003. Available: www.forum.com/publications, accessed March 2008.
NEW SERVICE DEVELOPMENT
I
ntense competition and rising customer expectations are having an impact on
nearly all service industries. Thus, success lies not only in providing existing
services well. Companies also need to create new approaches to services.
LO 5
List the categories of new
service development, ranging
from simple style changes to
major innovations.
100
A Hierarchy of New Service
Development Categories
Following are seven categories of new services that we can identify, ranging from
simple style changes to major innovations. They are in increasing complexity:
u
Style changes
u
Service improvements
u
Supplementary service innovations
u
Process line extensions
Chapter 4 • Developing Service Products: Core and Supplementary Elements
Product line extensions
u
Major process innovations
u
Major service innovations
1.
Style changes are the simplest type of innovation, usually involving no changes
in either processes or performance. However they are often highly visible, create
excitement, and may serve to motivate employees. Examples include repainting
retail branches and vehicles in new color schemes, designing new uniforms for
service employees, introducing a new bank check design, or minor changes in
service scripts for employees.
2.
Service improvements are the most common type of innovation. They involve
small changes in the performance of current products, including improvements
to either the core product or to existing supplementary services. For example,
students need to be physically present to attend lectures. Now, colleges have
moved to taping lectures and these can now be viewed online, when the students
are free. Hence, students now have a choice as to whether to attend lectures
or not.
3.
Supplementary service innovations take the
form of adding new facilitating or enhancing
service elements to an existing core service,
or of significantly improving an existing
supplementary service. Low-tech innovations
for an existing service can be as simple as
adding parking at a retail site, or agreeing
to accept credit cards for payment. To
enhance the existing core service, The Snap
Printing group that operates in Australia,
New Zealand, Ireland, and China, now
provides a complete web-based service that
allows customers to get advice, as well as
customized printing requirements direct
and online. Multiple improvements may
have the effect of creating what customers
perceive as an altogether new experience,
even though it is built around the same
core. Theme restaurants like the Rainforest
Café enhance the core food service with new experiences (Figure 4.20). The
cafés are designed to keep customers entertained with aquariums, live parrots,
waterfalls, fiberglass monkeys, talking trees that spout environment-related
information, and regularly timed thunderstorms, complete with lightning.11
PART II
u
Figure 4.20 Rainforest Café makes a
supplementary service innovation by
enhancing the core food service with
the experience of being in a jungle.
Applying the 4Ps to Services
101
4.
Process line extensions are less innovative than process innovations. However,
they often represent new ways of delivering existing products. The intention
is either to offer more convenience and a different experience for existing
customers, or to attract new customers who find the traditional approach
unappealing. Most commonly, they involve adding a lower contact distribution
channel to an existing high-contact channel, such as creating telephone-based or
Internet-based banking service. Barnes and Noble, the leading bookstore chain
in the United States, added a new Internet subsidiary, BarnesandNoble.com to
help it compete against Amazon.com (Figure 4.21). Such dual-track approaches
are sometimes referred to as “Clicks and Mortar.” Creating self-service options
to complement delivery by service employees is another form of process line
extension.
Figure 4.21 Barnes and Noble extends
their process line by offering an
Internet-distribution channel, entering
the age of the “Clicks and Mortar.”
102
Chapter 4 • Developing Service Products: Core and Supplementary Elements
Product line extensions are additions to current product lines by existing firms.
The first company in a market to offer such a product may be seen as an
innovator. The others are merely followers, often acting to defend themselves.
These new services may be targeted at existing customers to serve a broader
variety of needs, or designed to attract new customers with different needs (or
both). For example, many banks now sell insurance products in the hope of
increasing the number of profitable relationships with existing customers.
6.
Major process innovations consist of using new processes to deliver existing core
products in new ways with additional benefits. For example, the University
of Phoenix competes with other universities by delivering undergraduate and
graduate degree programs in a non-traditional way. It has no permanent campus,
but offers courses either online or at night in rented facilities. Its students get
most of the benefits of a college degree in half the time and at a much lower
price than other universities.12 In recent years, the growth of the Internet has
led to the creation of many service process innovations that exclude the use
of traditional stores and save customers time and travel. Often, these models
add new, timely, information-based benefits such as the opportunity to visit
chat-rooms with fellow customers, and suggestions for additional products that
match well with what has already been bought.
7.
Major service innovations are new core products for markets that have not been
previously defined. They usually include both new service characteristics and
radical new processes. Examples include relatively recent web-based television
services, and YouTube’s video sharing web services (Figure 4.22).
PART II
5.
Figure 4.22 YouTube allows users to
easily embed any hosted videos on
web pages or blogs, an innovation
which found favor among socialnetworking websites.
As the above typology suggests, service innovation can occur at many different levels.
However, not every type of service innovation has an impact on the features of the
service product, and not all are experienced by the customers.
Applying the 4Ps to Services
103
LO 6
Be familiar with the factors
needed to achieve success in
developing new services.
Achieving Success in Developing
New Services
For a new product to be successful, the sound core product is necessary but not
sufficient. It is the quality of the total service offering, and also the marketing
support that goes with it that is important for success. Chris Storey and Christopher
Easingwood emphasize that success is based on market knowledge: “Without an
understanding of the marketplace, knowledge about customers, and knowledge
about competitors, it is very unlikely that a new product will be a success.”13
A study by Scott Edgett and Steven Parkinson focused on discriminating between
successful and unsuccessful new financial services.14 They found that the three factors
contributing most to success were, in order of importance:
Figure 4.23 When sound human
resource strategy is wedded
to vibrant marketing synergy, a
successful product is born.
104
1.
Market synergy—the new product fit well with the existing image of the firm,
was better than competitors at meeting customers’ known needs, and received
strong support during and after the launch from the firm and its branches. In
addition, the firm had a good understanding of its customers’ purchase decision
behavior.
2.
Organizational factors—there was strong interfunctional cooperation and
coordination. Development personnel were fully aware of why they were
involved and of the importance of new products of the company.
3.
Market research factors—detailed and properly designed market research studies
were conducted early in the development process. There was a clear idea of the
type of information to be obtained. A good definition of the product concept
was developed before undertaking field surveys.
Another survey of financial service firms to determine what distinguished successful
from unsuccessful products yielded similar findings.15 In this instance, the key factors
for success were synergy (the fit between the product and the firm in terms of needed
expertise and resources being present) and internal marketing (the support given to
staff before its launch to help them understand the new product and its underlying
systems, plus details about direct competitors, and support). Yet another study found
similar factors, that marketing synergy and human resource issues like meeting
customer needs, and having a human resource strategy that links to the development
of service processes are keys to success (Figure 4.23).16
Chapter 4 • Developing Service Products: Core and Supplementary Elements
CHAPTER SUMMARY
LO 1 u A service product consists of two components, the
core product and supplementary services. The core
product is based on the core set of benefits and
solutions delivered to customers. Supplementary
services are those elements that facilitate and
enhance the use of the core product.
u Designing a service concept is a complicated task
that requires an understanding of how the core
and supplementary services should be combined,
sequenced, delivered, and scheduled to create
benefits that meet the needs of the target market
segments.
LO 2 u Different types of core products often share similar
supplementary elements. The Flower of Service
concept categorizes supplementary services into
eight groups (each represented as a petal surrounding
the core). The eight groups can be categorized as
(1) facilitating and (2) enhancing supplementary
services.
LO 3 u Facilitating supplementary services are needed
for service delivery or help in the use of the core
product. They are:
o
Information
o
Order-taking
o
Billing, and
o
Payment.
u Enhancing supplementary services add extra value
for the customer and include:
o
Consultation
o
Hospitality
o
Safekeeping
o
Dealing with exceptions.
LO 5 u When competition is intense, firms can create
new approaches to services in order to maintain a
competitive edge. There is a hierarchy of new service
development that has seven categories ranging from
simple changes to major innovations. They are:
o
Style changes
o
Service improvements
o
Supplementary service innovations
o
Process line extensions
o
Product line extensions
o
Major process innovations, and
o
Major service innovations.
u Major service innovations are relatively rare. More
common is the use of new technologies, such
as the Internet, to deliver existing services in
new ways. In mature industries, where the core
service can become a commodity, the search for
competitive advantage often depends on creating
new supplementary services or greatly improving
performance on existing ones.
LO 6 u The chances of success for a new service concept
increase when it:
o
Fits well with the firm’s expertise,
resources and existing image,
o
Provides a superior advantage over
competing services in terms of meeting
customers’ needs, and is
o
Well-supported by coordinated efforts
between the different functional areas
in a firm.
u The use of a flower helps us to understand that all
the supplementary elements must be performed
well. A weakness in one element will spoil the
overall impression.
LO 4 u Many firms offer several service products with
different performance attributes and brand each
package with a distinctive name. They can use a
variety of branding strategies such as branded house,
sub-brands, endorsed brands, and house of brands.
However, each of these different brands in the family
should offer a meaningful benefit or this strategy is
likely to be ineffective against competition.
Applying the 4Ps to Services
105
UNLOCK YOUR LEARNING
These keywords are found within the sections of each Learning Objective (LO). They are integral in
understanding the services marketing concepts taught in each section. Having a firm grasp of these
keywords and how they are used is essential in helping you do well for your course, and in the real
and very competitive marketing scene out there.
LO 1 1. Core product
12. Flower of Service
24. Branded customer experience
2. Service product
13. Hospitality
3. Supplementary services
14. Information
26. Major process innovations
15. Order-taking
27. Major service innovations
5. People processing
16. Payment
28. Process line extensions
6. Service concept
17. Safekeeping
29. Product line extensions
LO 2 4. Delivery processes
LO 3 7. Biling
LO 4 18. Branded house
LO 5 25. Categories of new services
30. Style changes
8. Consultation
19. Sub-brands
31. Service improvements
9. Enhancing supplementary
20. Endorsed brands
32. Supplementary service innovations
services
21. House of brands
10. Exceptions
22. Multi-brand strategy
11. Facilitating supplementary services
LO 6 33. Internal marketing
34. Market synergy
23. Branding
How well do
you know
the language
of services
marketing? Quiz
yourself!
Not for the academically faint-of-heart
For each keyword you are able to recall without referring to earlier pages, give
yourself a point (and a pat on the back). Tally your score at the end and see if you earned the
right to be called—a services marketeer.
SCORE
106
0–5
Services Marketing is done a great disservice.
6 – 11
The midnight oil needs to be lit, pronto.
12 – 18
I know what you didn’t do all semester.
19 – 24
A close shave with success.
25 – 29
Now, go forth and market.
30 – 34
There should be a marketing concept named after you.
Chapter 4 • Developing Service Products: Core and Supplementary Elements
KNOW YOUR ESM
1.
Define what is meant by core product
and supplementary services. Can they
be applied to goods as well as services?
Explain your answer.
4.
How is branding used in services marketing?
What is the distinction between a corporate
brand like Marriott and the names of its
different inns and hotel chains?
2.
Explain the flower of service concept.
What insights does this concept provide for
service marketers?
5.
What are the approaches that firms can take
to create new services?
3.
Explain the distinction between enhancing
and facilitating supplementary services.
Give several examples of each, relative to
services that you have used recently.
6.
Why do new services often fail? What
factors are associated with successful
development of new services?
PART II
Review Questions
WORK YOUR ESM
Application Exercises
1.
2.
Select a service that you are familiar with and
identify the core product and supplementary
services. Identify a competitor’s service and
show how the competitor’s core product
and supplementary services differ from the
one you had originally identified.
Select some branding examples from
financial services such as specific types of
retail bank accounts or insurance policies and
define their characteristics. How meaningful
are these brands likely to be to customers?
3.
Using a firm that you are familiar with,
analyze what opportunities it might have,
to create line extensions for its current and/
or new markets. What impact might these
extensions have on its present services?
Applying the 4Ps to Services
107
ENDNOTES
1
Horovitz, B. (2006). Starbucks aims beyond
lattes to extend brand. USA Today, 18 May 2006.
www.starbucks.com and www.hearmusic.com.
Accessed March 2008.
2
Lovelock, C. H. (1992). Cultivating the Flower
of Service: New ways of looking at core
and supplementary services. In P. Eiglier, &
E.�Langeard (Eds.), Marketing, Operations,
and Human Resources: Insights into Services,
(pp. 296–316). Aix-en-Provence, France: IAE,
Université d’Aix-Marseille III.
3
Heracleous, L., Wirtz, J., & Pangarkar, N.
(2006). Flying High: Cost Effective Service
Excellence – Lessons from Singapore Airlines.
Singapore: McGraw Hill.
4
Anderson J. C., & Narus, J. A. (1995). Capturing
the value of supplementary services. Harvard
Business
Review,
73(January–February),
pp. 75–83.
5
Devlin, J. (2003). Brand architecture in services:
The example of retail financial services. Journal
of Marketing Management, 19, pp. 1043–1065.
6
7
8
108
Aaker D., & Joachimsthaler, E. (2000). The brand
relationship spectrum: The key to the brand
challenge, California Management Review, 42(4),
pp. 8–23.
Jiang, W., Dev, C. S., & Rao, V. R. (2002).
Brand extension and customer loyalty:
Evidence from the lodging industry. Cornell
Hotel and Restaurant Administration Quarterly,
(August), pp. 5–16.
9
Wheeler J., & Smith, S. (2003). Managing the
Customer Experience. Upper Saddle River, NJ:
Prentice Hall.
10
Shultz, D. E. (2001). Getting to the heart
of the brand. Marketing Management,
(Sep.– Oct.), pp. 8–9.
11
Rubel, C. New menu for restaurants: Talking
trees and blackjack. Marketing News, (July),
p.1. Available: http://www.rainforestcafe.com/,
Accessed March 2008.
12
Traub, S. T.,& Drive-Thru U. (1997). The New
Yorker, (October);. Macht, J. (1998). Virtual You.
Inc. Magazine, (January), pp. 84–87. Available:
http://www.phoenix.edu/about_us/about_
us.aspx, Accessed March 2008.
13
Storey C. D., & Easingwood, C. J. (1998). The
augmented service offering: A conceptualization
and study of its impact on new service success.
Journal of Product Innovation Management, 15,
pp. 335–351.
14
Edgett S., & Parkinson, S. (1994). The
development of new financial services:
Identifying determinants of success and
failure. International Journal of Service Industry
Management, 5(4), pp. 24–38.
15
Storey C., & Easingwood, C. (1993). The impact
of the new product development project on the
success of financial services. Service Industries
Journal, 13(3), pp. 40–54.
16
Ottenbacher, M., Gnoth, J., Jones, P. (2006).
Identifying determinants of success in
development of new high-contact services.
International Journal of Service Industry
Management, 17(4), pp. 344–363
www.sun.com/service/support/sunspectrum,
Accessed 2 February 2008.
Chapter 4 • Developing Service Products: Core and Supplementary Elements