ADDING VALUE TO CORE PRODUCTS WITH SUPPLEMENTARY SERVICES
Best definition of services from “product” standpoint (by Federal Express): “All action and
reactions that customers perceive they have purchased”.
While industry matures, the core product eventually becomes a commodity (as competition
increases and industry matures).
Competitive advantage in a mature industry often emphasizes performance on the supplementary
service elements that are bundled with the core. (However, if a company can’t do a decent job on
the core, it is going out of business).
Core products and supplementary services.
Performing well on service delivery requires service marketers to take the following steps:
1. Determine what actions and reactions customers expect the firm to provide.
2. Group these activities in core and supplementary service elements.
3. Evaluate how well the organization is performing on each one – if, indeed, management even
responds to each of the customer’s requirements.
4. Redesign existing service “packages” in order to offer customers in each target market segment
a product offering and delivery system that meets their expectations for performance and value
within the constraints of a price that will allow the provider to obtain a reasonable profit.
The augmented product.
Kotler, 1972: “the tangible product along with the whole cluster of services that accompany it”.
Basic, expected, augmented product. While maturing, parts of augmented product become its
expected characteristics. (Airlines offer frequent flyer program a priori).
Additionally, “potential” product is everything that a product can become.
How service researchers conceptualize the augmented product.
Levitt extends Kotler’s statement and is telling about keeping pushing out the boundaries of the
service package, in terms of what service elements are offered and the characteristics of each one.
Figure. Shostack’s molecular model: passenger airline service.
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Adding value to core products
with supplementary services
Shostack’s model is a metaphorical analogy to help marketers to visualize and manage (what she
termed) “total market entity”.
Shostak wants to determine which service elements are tangible and which are intangible in order to
help formulate product policy and communication program.
Eiglier and Langeard proposed a core and peripheral services model in which the core service is
surrounded by a circle containing a series of peripheral services that are specific to that particular
product.
The scientists want to underline 2 issues:
- whether supplementary services are needed to facilitate use of the core service or simply add
extra appeal and
- whether customers should be charged separately for each service element or whether all
elements should be bundled under a single price tag.
Grönroos (with a related approach from Wandermerwe) came up with another model, where
customer is placed at the center of the circle and portrays a clockwise movement through a
hierarchy of effects model. (First – communications, then – interactions, then…., eventually – stay
or not stay with the service).
Grönroos and Wandermerwe think about the sequence in which communication activities and
product-related elements are involved in learning about, purchasing, and consuming a service.
Classifying supplementary services.
Product augmentation possibilities.
After creating a list of all possible services, a provider asks:
- is our organization currently providing this supplementary service? And if so, how well are we
performing on quality and value relative to (a) the competition and (b) customers’ expectations?
- If we are not providing this supplementary service, are our competitors doing so or not? And
either way, do our customers expect it or would they appreciate it if we took the initiative to do
so?
The first step in identifying existing supplementary services for a given product is to develop a
flowchart of service delivery.
In many instances consumption of a product/service is “sandwiched” sequentially between several
supplementary services that precede and follow the core.
Note: radically different core services may have identical (and of limited list) supplementary
services. (E.g., from information to billing and from reservations/order-taking to problem
resolution).
8 major clusters of supplementary services:
- Information;
- Order-taking;
- Safekeeping;
- Billing;
- Consultation;
- Hospitality;
- Exceptions;
- Payment.
(These are drawn if a form of a flower around the core for demonstrative purposes – “the flower of
service”).
The metaphorical idea is to keep the flower complete, “fresh-looking”, and developed.
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Adding value to core products
with supplementary services
The flower form model helps to identify which services are required, which are a potential for
growth, and in case of failure, which ones performed poorly (if not the core).
Generally, people-processing services tend to be accompanied by more supplementary serviced than
do the other three categories (core service classification model).
Also, high-contact services have more supplementary services than low-contact.
Another determinant of what supplementary services to include is the market positioning strategy.
Adding benefits to gain a competitive edge will probably require more supplementary services.
Information.
(New customers and prospects are especially information hungry: they want to know what product
will best meet their needs).
Instructions, directions, service hours, prices, usage conditions, conditions of sale, warnings,
reminders, notifications, charges, documentation, confirmations, receipts, tickets, summaries of
account activity.
Sources: employees (not always knowledgeable as customers want), printed notices, brochures,
instruction books, software-driven tutorials, video-displays, robotic telephone answering.
E.g., GE company has 1/3 of all calls (160,000 per year) coming from callers needing more
information about GE products or wanting to buy them. GE business information center (GEBIC)
puts these customers in touch with one of 3000 GEBIC product experts or with the sales contact.
E.g. White Flower Farm (mail order flower nursery) teaches customers which flowers best fit their
requirements and conditions. It publishes the Garden Book with 10 temperature zones in US (from
minus 50 lowest average to plus 10 lowest average).
A customer can select flowers against such characteristics as: color, height, blooming season,
hardiness zone, preferred soil conditions, amount of sun required, spacing, suitability of flowers for
cutting, etc.
Consultation.
(Instead of pre-prepared info, consulting is a dialogue).
E.g.: advice, auditing, personal counseling, tutoring/training in product usage, management or
technical consultancy.
Customer record may suggest appropriate solutions at lesser effort.
Counseling – a more subtle approach, because it involves helping customers to better understand
their own situation and encouraging them to come up with their “own” solutions and action
programs (e.g., scenario of medical treatment).
“Solution selling” may be associated with marketing expensive industrial equipment and services;
the sales engineer researches the customer’s situation and then offers objective advice about what
particular package of equipment and systems will yield the best results for customer.
Some consultancy services are offered for free; some – unbundled.
Order-taking.
Once customers are ready to buy, a key supplementary element should come into play: accepting
applications, orders, and reservations.
Applications:
- membership in clubs or programs;
- subscription services (e.g., utilities);
- prerequisite-based services (e.g., credit, college enrollment).
Order entry:
- on-site fulfillment;
- mail/telephone order for subsequent fulfillment.
Reservations:
- seats;
- tables;
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Adding value to core products
with supplementary services
- rooms;
- rentals of vehicles or other equipment;
- professional appointments;
- admission to restricted facilities (e.g., exhibitions).
(Typical bureaucracy at this stage should be replaced with promptness and politeness).
Hospitality: taking care of the customer.
“Reflecting pleasure at meeting new customers and greeting old ones when they return”. (Courtesy
and consideration for customers’ needs apply to telephone interactions, too, but it is face-to-face
encounters that hospitality finds its full expression).
Examples of hospitality elements:
- greeting;
- food and beverages;
- toilets and washrooms;
- bathroom kits;
- waiting facilities and amenities:
- lounges, waiting areas, seating;
- weather protection;
- magazines, entertainment, newspapers;
- transportation;
- security.
Flowcharting customer’s progress through the service delivery system is a useful way to identify
opportunities to improve hospitality.
Safekeeping: looking after the customer’s possessions.
Examples of safekeeping elements.
Caring for possessions customers bring with them:
- child care;
- pet care;
- parking facilities and vehicles;
- valet parking;
- coat room;
- baggage handling;
- storage space;
- safety deposit/security.
Caring for goods purchased (or rented by customers):
- packaging;
- pick-up;
- transportation;
- delivery;
- installation;
- inspection and diagnosis;
- cleaning;
- refueling;
- preventive maintenance;
- repairs and renovation;
- upgrade.
Exceptions.
(Group of supplementary services that fall outside the routine of normal service delivery).
Examples of exception elements.
Special requests in advance of service delivery:
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Adding value to core products
with supplementary services
- children’s needs;
- dietary requirements;
- medical or disability needs;
- religious observance;
- deviations from standard operating procedures.
Handling special communications:
- complaints;
- compliments;
- suggestions.
Problem solving:
- warranties and guarantees against product malfunction;
- resolving difficulties that arise from using the product;
- resolving difficulties caused by accidents, service failures, and problems with staff or other
customers;
- assisting customers who have suffered an accident or medical surgery.
Restitution:
- refunds;
- compensation in kind for unsatisfactory goods and services;
- free repair of defective goods.
Billing.
Besides obvious things like inaccurate billing or time wasting waiting for a bill, the contemporary
tendency is making all billing computerized, that is becoming difficult to interact with in case of
error.
(No payment on-time generates escalating sequence of ever larger bills (compounded interest and
penalty charges), accompanied by increasingly threatening, robot-generated letters).
Examples of billing elements:
- periodic statements of account activity;
- invoices for individual transactions;
- verbal statements of amount due;
- machine display of amount due;
- self-billing (computed by customer).
Essentially, the billing form has to have a format where a customer gets more value than just the
basic requirement to knowing how much to pay at the end of the month.
Marketing research can be helpful in revealing what level of detail customers need in billing format.
E.g. WayBank surveyed its customers about the information customers required in the bills,
however initially found no consensus; eventually, the requests were transformed into three
documents, differing in level of detail and could be obtained by customers upon request.
Database management becomes a crucial element when dealing with frequent transactions and large
customer base.
Payment.
Examples of payment elements.
Self-service:
- exact change in machine;
- cash in machine with change returned;
- insert payment card;
- insert credit/charge/debit card;
- insert token;
- electronic funds transfer;
- mail a check.
Direct to payee or intermediary:
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Adding value to core products
with supplementary services
- cash handling and change giving;
- check handling;
- credit/charge/debit card handling;
- coupon redemption;
- tokens, vouchers, etc.
Automatic deduction from financial deposits (e.g., bank charges).
Control and verification:
- automated systems (e.g., machine readable tickets operate entry gate);
- personal systems (e.g., gate controllers, ticket inspectors).
Opportunities to use information technology.
Figure. Information and physical processes of the flower of service.
How information technology enhances delivery of supplementary services.
E.g., making reservations, obtaining information, billing, making payment, etc. have all benefited
from easier, faster, and cheaper access to databases. Telephone keypad is becoming an interaction
keyboard. (What else?).
Giving employees convenient access to database transforms them to consultants.
(E.g., warehousing compiled with effective logistics database makes maintenance and delivery
maximum efficient; logistics operations are impossible today without maintenance of a flexible and
user-friendly database).
Exceptions require custom data entry and retrieval by operations to follow requests (e.g., customordered food in a flight).
For billing and payment, the society is still far from being “cash-less” or “cheque-less”; however,
cards gain greater share in payments.
Managerial implications.
Depending on the product/service, competition, service/customer maturity, the selection of petals is
upon managerial decision. The key idea is the balance between “value” that the mix of petals brings
to customers, costs they are associated with, and as a result – the realization of objectives.
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Adding value to core products
with supplementary services
Product policy issues.
Whether to offer some petals as optional extras (and whether or not to charge extra price for them)
or whether to bundle all service elements together at a single – these are the primary product and
positioning policy, but they also lead into pricing strategy.
There are no simple answers; one option is to offer both “a la carte items” and fixed price
combinations, and let customers make the choice.
The listings above may serve as a starting point for creating augmented product/service, but, still, a
company may compete on “no frills” basis, offering the core at minimum price.
Outsourcing.
It is an important strategic decision whether to outsource specific supplementary service elements
or to deliver them by the company.
Retailers and distributors often offer to take responsibility for a wide array of supplementary
services, including many aspects of information and consultation, order taking, problem solving,
billing and payment.
Sometimes companies may rely solely on their core product, outsourcing all of the rest to other
companies.
Critical distinction is outsourcing either front-desk or backstage operations. The first is undesirable
as it leads to loss of consistency and lack of control.
Transforming supplementary services into core products.
Firms, performing particularly well on delivering supplementary services for their own core
products sometimes develop this expertise into an outsourcing service that they can sell to other
organizations. In effect, they create a new core product.
E.g., AMEX developed extensive expertise in billing its charge card customers and collecting their
payments. With systems and procedures already in place, it offered this service to other companies
that preferred to outsource this activity.
Digital Equipment, Hewlett Packard, IBM gained expertise in maintaining and repairing equipment
that now they render standalone similar services to parties, that operate equipment from different
suppliers.
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Adding value to core products
with supplementary services