Professional Development Programme on Enriching Knowledge of the
Business, Accounting and Financial Studies (BAFS) Curriculum
Course 2 : Contemporary Perspectives on Management
Unit 10 : Marketing Mix Design for Services
Technology Education Section, Curriculum Development Institute
Education Bureau, HKSARG
August 2008
1
2
On completion of the unit, participants should be able to:
– understand the basic characteristics for services and its impact on marketing mix design;
– elaborate on the unique marketing mix for services;
• People
• Physical evidence
• Process
– define services quality by SERVQUAL Instrument; and
– explore the possibilities of providing services on the internet.

3
Definitions of Services
Characteristics of Services
Services Marketing Mix
Service Package
Services Quality
Services on the Internet
Intangibility
Inseparability
Heterogeneity
Perishability
5th P: People
6th P: Physical
7th P: Process
Supporting Facility
Facilitating Goods
Information
Explicit Services
Implicit Services
SERVQUAL Instrument
Types of person/role conflict
Reducing person/role conflict
Location Selection
Designing a good layout
Capacity Utilization Measures
Framing Service Experience
Empower and Enfranchise
The Servuction Model
(1)
“Services are relatively intangible , produced and consumed simultaneously and often less standardised than goods.
These unique characteristics of services present special challenges and marketing opportunities to the services marketer.”
(Christopher Lovelock and Jochen Wirtz, 2004)
4
Unit Outline

(2)
Philip Kotler (2002) explains, “A service is any activity that one party can offer to another that is essentially intangible and does not result in the ownership of anything . Its production may or may not be tied to a physical product.”
5
Unit Outline
Services Characteristics and
Marketing Strategy
(1)
Intangibility Inseparability
Characteristics of Services
Perishability
Heterogeneity
6
Unit Outline

Services Characteristics and
Marketing Strategy
(2) z
Intangibility
Services cannot be seen, tasted, felt, heard, or smelled before they are bought.
z
Marketing strategy: making the service offering more tangible by drawing the buyer’s attention to tangible features, e.g. place, people, price, equipment, etc.
Characteristics of Services
Inseparability
Perishability
Heterogeneity
7
Unit Outline
Services Characteristics and
Marketing Strategy
(3)
8
Unit Outline

Services Characteristics and
Marketing Strategy
(4)
Intangibility
Characteristics of Services
Inseparability z
Simultaneous
Inseparability production and consumption z
Marketing strategy: increase production by training service providers to work faster
Heterogeneity
9
Unit Outline
Services Characteristics and
Marketing Strategy
(5)
Perishability
Inseparability Intangibility
Heterogeneity z
Standardization is difficult
- greatly depending on who provides services and when, where and how z
HR strategy: select best fit persons and train them accordingly z satisfaction
10
Unit Outline
Characteristics of Services
Perishability

Services Characteristics and
Marketing Strategy
(6)
Intangibility Inseparability
Heterogeneity
11
Unit Outline
Characteristics of Services
Perishability z
Services cannot be stored for later sale or use.
z
Marketing strategy
(when demand fluctuates) :
reservation system (on first come first serve) employees to serve customers
There are 7 elements in Services Marketing Mix:
• 1 st P: Product Æ * discussed in Unit 9
• 2 nd P: Price Æ * discussed in Unit 9
• 3 rd P: Place Æ * discussed in Unit 9
• 4 th P: Promotion Æ * discussed in Unit 9
• 5 th P: People
• 6 th P: Physical evidence
• 7 th P: Process
12
Unit Outline

th
(1)
• Employees in boundary-spanning roles are named as
“ boundary spanners ”.
• The Boundary-Spanning Role is defined as one that links an organization with the outside world (i.e. by interacting with non members of the organization).
• Two roles of “boundary spanners”:
– Information transfer – collect information and feedback to the service company
– Representation – as the organization’s personal representatives
13
Unit Outline
th
(2)
Name of Services Organization
Bank
Fast Food Shop or restaurant
Beauty Consultancy Shop
Retail Shop
Examples of boundary spanners:
Teller, Customer Services Officers, etc.
Cashier, Waiter, Cleaner, etc.
Receptionist, Beauty Consultant, etc.
Cashier, Sales Representatives, etc.
14
Unit Outline

(1)
• Person/role conflicts is defined as “a bad fit between an individual’s self perception and the specific role the person must play in an organization”.
• Since boundary spanners keep close contact with customers (or other non members of the organization), they may face Person/role conflicts in their daily works.
15
Unit Outline
David has been working as a waiter (that is called as taking the “boundary spanner” role) in a Chinese restaurant for over 10 years. His usual duties include adding water to empty tea pots and taking “dishes order” for the customers. During the peak period (lunch hours), there are lot of customers in the restaurant raising their hands for “adding water services”……
16
Unit Outline

Some customers are anxious to finish their
“quick lunch”. They then would go to the
“pantry area” and try to add water by themselves instead of waiting for David’s services.
– How would he reduce the person/role conflict?
17
Unit Outline
(solution) (1)
David’s own personal space is the “pantry area” where he can defend against customers and other boundary spanners. When customers trespass on this space, it can lead to reactions that conflict with his own role (as a waiter).
18
Unit Outline

(solution) (2)
David would build up his “protection wall” to pile up some table cloths surrounding the
“pantry area” so that the customers could not easily trespass on his personal space.
19
Unit Outline
(1)
• Implication to services managers = they need to be sensitive and actively seek input from boundary spanners about the issue.
• To improve the quality of service, it is important to ensure that boundary spanners are well trained in managing the “ad hoc” issues by:
– Empowerment, and/or
– Enfranchisement
20
Unit Outline

(2)
• Empowerment = giving discretion to boundary spanners (i.e. front line personnel) to meet the needs of consumers creatively
• Enfranchisement = empowerment coupled with a performance based compensation method for boundary spanners who could meet the services marketing objectives of the organization
21
Unit Outline
When to empower and enfranchise?
• There is no single solution to the problems encountered in managing contact personnel.
• It depends on the “personal judgment” of the boundary spanners.
22
Unit Outline

th
(1)
• Location and site selection is a strategic decision. Why?
– Because it will have long-term effects on costs, demand, and profitability.
23
Unit Outline
th
(2)
• Particularly important to service organizations.
Why?
– Because most services are produced and consumed simultaneously
– Also most services require a customer’s presence
– Some services make their facilities accessible to as large a customer group as possible
24
Unit Outline

6 th P: Physical Evidence –
Location Selection
(Quantitative Method)
‘Factor weighting’ has 6 steps:-
1. Develop a list of relevant factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Have management score at each location
5. Multiple the score times the weight
6. Consider the maximum point score
25
Unit Outline
Dora’s Cake Shop –
Location Selection
(1)
Apply Factor weighting method to select a suitable location for Dora’s cake shop between:
– Central,
– Mongkok, and
– Shatin
26
Unit Outline

Dora’s Cake Shop –
Location Selection
(2)
27
Step 1: Develop a list of relevant factors:
– Size of nearest market
• how many customers are close to the location under consideration?
– Transportation facilities
• Is the transportation facilities to the location under consideration well arranged?
• Could customers go to the cake shop by public transportation?
– Rental cost of the shop
• Are the monthly rental charges of the location low?
– Number and size of competitors
• Are there lots of large competitors around?
– Communication facilities
• Are the communication facilities of the location well developed?
(in terms of fax, telephone lines, e-mail, etc.)
Unit Outline
Dora’s Cake Shop –
Location Selection
(3)
Step 2: Assign a weight to each factor:
– Size of nearest market – 7
– Transportation facilities – 5
– Rental cost of the shop –3
– Number and size of competitors – 4
– Communication facilities – 6
– The higher weighted score indicates a higher importance of that factor. In this illustration, for example, “size of nearest market” is the most important factors whereas “rental cost of the shop” is the least important.
28
Unit Outline

Dora’s Cake Shop –
Location Selection
(4)
Step 3: Develop a scale for each factor:
– Size of nearest market – ranging from 1, 2, 3, 4 & 5
– Transportation facilities – ranging from 1, 2, 3, 4 & 5
– Rental cost of the shop – ranging from 1, 2, 3, 4 & 5
– Number and size of competitors – ranging from 1, 2, 3, 4 & 5
– Communication facilities – ranging from 1, 2, 3, 4 & 5
– The scale for each factor should be consistent. In this illustration, it ranges from 1, 2, 3, 4 and 5.
– If the location shows a preferable indicator towards the factor, a higher score (5, or 4) will be assigned. On the other hand, if the location represents a non preferable indicator towards the factor, a lower score (1, or 2) will be assigned. The score
3 stands for “mild preference”.
29
Unit Outline
Dora’s Cake Shop –
Location Selection
(5)
Step 4: Have management score at each location:
– Size of nearest market a high score for larger customer base
– Transportation facilities – a high score for a more convenient mode of transportation available
– Rental cost of the shop – a high score for a place charged for lower rent
– Number and size of competitors - a high score for a place with fewer competitors
– Communication facilities - a high score for a place with better communication facilities where customers could order cakes through faxes, and internet, etc.
30
Unit Outline

Dora’s Cake Shop –
Location Selection
(6)
Step 5: Multiple the score times the weight:
– For “Size of the nearest market”,
– Important weight = 7
– Location score for Central = 5
– Weighted score for Central = 7 times 5 = 35
– Apply the similar calculation steps for Mongkok and Shatin accordingly.
31
Unit Outline
Dora’s Cake Shop –
Location Selection
(7)
Step 6: Consider the maximum point score:
– From the next page of computation table:
– The summation weighted score for
• Central = 114
• Mongkok = 97
• Shatin = 89
– Central’s score (of 114) out-wins that of Mongkok (97) and
Shatin (89).
– Thus, Central will be a suitable place to locate Dora’s cake shop.
32

Dora’s Cake Shop –
Location Selection
(8)
Factor
Size of nearest market
Important
Weight
7
5 Transportation facilities
Rental cost of the shop
Number and size of competitors
Communication facilities
3
4
6
Location Scores
Central Mongkok
5
4
3
5
5
4
5
4
2
4
Shatin
3
4
4
3
4
TOTAL
Weighted Scores
Central Mongkok Shatin
35
20
9
20
30
114
28
25
12
8
24
97
21
20
12
12
24
89
33
Unit Outline
6 th P: Physical Evidence –
Designing a good layout
Another factor to consider is good layout which satisfies the following objectives:
1. Movement of people, materials and paper work must be kept at the minimum distance possible
2. High utilization of the space
3. Flexibility of rearrangement, services and growth
4. Satisfactory physical environment
5. Convenience for customers during the service
6. Attractive appearance
34
Unit Outline

Dora’s Cake Shop - Layout Design
(1)
How to design the layout for Dora’s cake shop?
35
Unit Outline
Dora’s Cake Shop - Layout Design
(2)
• Western café – appeal of “home feel”
– Big sofa + armchairs + round table + TV + broadcast of soft music, ……
– Feasible to rearrange the furniture and other decorations after a few months
• Portrait of “being natural” mood
– Feel liked home
– “Be yourself” and relaxed
• A place to meet friends + enjoy cake & coffee
• May bring “pets”
– as pets may be viewed as one of the family members of the customers
36
Unit Outline

th
• Process is the 7 th P because one unique characteristic of services is “ inseparability ”.
• Services are all about the interaction between the service providers and the customers.
• Throughout the “ process ”, customers satisfaction or dissatisfaction will be formed based on the quality of services delivered (as compared with the expectations of the customers).
• It is necessary to manage the capacity of the service providers well to satisfy customer demands.
37
Unit Outline
7 th P: Process –
Capacity Utilization Measures
(1)
Three measures of capacity utilization are needed:
– percentage of total time that facilities and equipment are in operation
– percentage of the physical space (e.g., seats) actually utilised
– intensity of usage of labor time
38
Unit Outline

7 th P: Process –
Capacity Utilization Measures
(2)
• In a well managed service operation, all three areas stated above should be in balance. Similarly, sequential operations will be designed to minimise the risk of bottlenecks at any point in the process.
• However, this ideal may prove difficult to achieve.
Not only does the demand vary over time but the time and effort required to possess each customer also varies.
• Also service tasks are not homogeneous (i.e. heterogeneity) so the serving times vary according to the nature of the customers' problems.
39
Unit Outline
7 th P: Process –
Framing Service Experience
• “Happy employees will bring in happy customers”.
• Besides boundary spanners’ personal feeling, customers’ service experience in the process could not be overlooked to ensure the future business success of running a service organization.
• The Servuction Model - is a simple but powerful model that illustrates factors influencing the service experience of a customer when enjoying a service.
40
(K. Douglas Hoffman and John E. G. Bateson, 2002)
Unit Outline

Framing Service Experience:
The Servuction Model
(1)
The model is constructed by two parts which are visible or invisible to the consumer:
– The visible part of the model consists of three parts: the inanimate environment, contact personnel or service providers, and other customers
(denoted as Customer
B in the following figure on slide number 42 ).
– The invisible component of the model consists of the invisible organization and systems.
41
(K. Douglas Hoffman and John E. G. Bateson, 2002)
Unit Outline
Framing Service Experience:
The Servuction Model
(2)
Invisible organization and systems
Inanimate
Environment
Contact
Personnel
Or
Service
Provider
Invisible Visible
Customer A
Bundle of service benefits received by Customer A
Customer B
42
Unit Outline

Servuction Model :
Inanimate Environment
(1)
• Includes all nonliving features that are present during the service encounter.
• Because services are intangible, they cannot be objectively evaluated like products. Hence, in the absence of tangible product, consumers look for tangible cues that surround the service on which to base their service performance evaluation.
43
Unit Outline
Servuction Model :
Inanimate Environment
(2)
• The inanimate environment is full of tangible cues such as furniture, flooring, lighting, music, wall hangings and an array of other inanimate objects that vary according to the service being provided.
• This relates to the importance of the physical evidence in consumer perceptions of service performance.
44
Unit Outline

Servuction Model :
Contact personnel
• Contact personnel are the employees other than primary service provider who briefly interact with customers.
• Example: parking attendants, receptionists, and hosts and hostesses.
45
Unit Outline
Servuction Model :
Service Provider
• Service provider are the primary providers of a core service.
• Example: dentists, physicians, school teachers.
46
Unit Outline

Servuction Model :
Service Provider - Implications
(1)
• Unlike consumption of physical products, the consumption of services often takes place where the service is produced (i.e. Dora’s Cake Shop ) or where the service is provided at the consumer’s residence or workplace (i.e. venue being specified by the corporations).
• Regardless of the service delivery location, interactions between consumers and contact personnel or service providers are commonplace.
47
Unit Outline
Servuction Model :
Service Provider - Implications
(2)
• Thus, the impact of contact personnel and service providers on the service experience can be profound.
• Because of the important role of service providers and other contact personnel within the service encounter, the management issues of “People”
(hiring, training and empowering issues) could not be overlooked.
48
Unit Outline

Servuction Model :
Customer A
• Customer A is the recipient of the bundle of benefits that is created through the service experience.
• Customer A is the one who actually purchases the service.
49
Unit Outline
Servuction Model :
Customer B
• Customers B represents all other customers who are part of customer A’s experience
• Consumption of services as “shared experience” because it often occurs in the presence of other customers. Examples include eating at a cake shop, seeing a show at a movie theatre, attending class in a classroom, etc.
• As in the case with the other visible components of the servuction model, other customers can impact
Customer A’s service experience.
50
Unit Outline

Servuction Model :
Customers - Implications
(1)
• One day, customer A (i.e. David and his wife) went into Dora’s cake shop and ordered cakes and coffees, ……
• Customer B (i.e. another customer who was also in the cake shop) suddenly screamed and vomited after eating a small slice of cake.
• Upon seeing this unappetising news, David and his wife stared at one another so as not to look in the direction of Customer B’s problem while deciding on their next course of action.
51
Unit Outline
Servuction Model :
Customers - Implications
(2)
• In this case, Customer B had indeed made a significant impact on all the cake shop’s customers.
• In fact, Customer B’s actions practically cleared the entire cake shop in under 60 seconds.
52
Unit Outline

(1)
53
A bundle of goods and services that is provided in some environment
(Roger W Schmenner, 1986)
– Consisted of 5 features which are experienced by customers and form the basis of his or her perception of the service:
• Supporting Facility
• Facilitating Goods
• Information
• Explicit Services
• Implicit Services
– Key Success Factor: service manager offers a total experience for customer that is consistent with the desired service package.
Unit Outline
Service Package:
Supporting Facility
• Supporting Facility : The physical resources that must be in place before a service can be sold.
– Example: golf course, hospital, school campus, airplane.
– Æ = Dora’s Cake Shop
54
Unit Outline

Service Package:
Facilitating Goods
• Facilitating Goods : The material consumed by the buyer or items provided by the consumer.
– Example: food items, legal documents, golf club membership, medical history.
– Æ = Cake and coffee consumed by the customers at Dora’s cake shop
55
Unit Outline
Service Package:
Information
• Information : Operations data or information that is provided by the customer to enable efficient and customised service.
– Example: patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi.
– Æ = Customers’ preferences on taste of cakes and coffee being served at Dora’s cake shop
56
Unit Outline

Service Package:
Explicit Services
• Explicit Services : Benefits readily observable by the senses and that consist of the essential or intrinsic features of the services.
– Example: quality of meal, attitude of the waiter, ontime departure.
– Æ = The quality of cakes and coffee provided by
Dora’s cake shop, attitude of Dora’s staff on serving the customers, on-time delivery of cakes to the corporate customers (located in the Central)
57
Unit Outline
Service Package:
Implicit Services
• Implicit Services : Psychological benefits or extrinsic features which the consumer may sense only vaguely.
– Example: privacy of loan office, security of a well lighted parking lot, worry free auto repair, etc.
– Æ = “Feel of comfort” or “Home feel” at Dora’s cake shop
58
Unit Outline

(1)
• Assessment of quality is made during the service delivery process.
• Each customer contact is referred to as a moment of truth , an opportunity to satisfy or dissatisfy the customer.
• Customer satisfaction is defined by comparing perceptions of service received with expectations of service desired.
• Expectations are based on: (1) word of mouth,
(2) personal needs, and (3) past experience.
59
Unit Outline
(2)
Service Quality Dimensions
• Reliability
• Responsiveness
• Assurance
• Empathy
• Tangibles
Word of mouth Personal needs Past experience
Expected service
Perceived service
Service Quality Assessment
1. Expectations exceeded
ES < PS (Quality surprise)
2. Expectations met
ES = PS (Satisfactory quality)
3. Expectation not met
EX > PS (Unacceptable quality)
60
Unit Outline

(1)
• Measuring service quality is a challenge because customer satisfaction is determined by many intangible factors. Unlike a product with physical features that can be objectively measured, service quality contains many psychological features.
• In addition, service quality often extends beyond immediate encounter because it has an impact on a person’s future quality of life.
61
Unit Outline
(2)
• The multiple dimensions of service quality are captured in the SERVQUAL instrument which is an effective tool for surveying customer satisfaction.
• By SERVQUAL , it could be understood as a combination of “ SERV ice” and “ QUAL ity”.
• Most of the “best services award” would be based on the following five dimensions to evaluate the overall service quality of a service provider.
(James A Fitzsimmons and Mona J Fitzsimmons, 2006)
62
Unit Outline

(2)
• 5 dimensions of service quality:
–
Reliability : Perform promised service dependably and accurately
–
Responsiveness : Willingness to help customers promptly
–
Assurance : Ability to convey trust and confidence
–
Empathy : Ability to be approachable
–
Tangibles : Physical facilities and facilitating goods
(James A Fitzsimmons and Mona J Fitzsimmons, 2006)
63
Unit Outline
(3)
• This two-part instrument has an initial section to record customer expectations for a class of service (e.g. catering services ) , followed by a second section to record a customer’s perceptions for a particular service firm (e.g. Dora’s cake shop ).
• The statements in the survey describe aspects of the five dimensions of service quality: Reliability,
Responsiveness , Assurance , Empathy and
Tangibles .
64
Unit Outline

(4)
•
A score for the quality of service is calculated by computing the differences between the ratings that customers assign to paired expectation and perception statements.
•
A seven-point scale ranging from
“
Strongly
Agree
”
(7) to
“
Strongly Disagree
”
(1), with no labels for the intermediate scale points (i.e. 2 through 6), accompanied each statement.
65
Unit Outline
(5)
66
Check customer
s
:
–
Dora
’ s cake shop should have up-to-date equipment.
–
Her physical facilities should be visually appealing.
–
Her employees should be well dressed and appear neat.
–
She shouldn
’ t be expected to have operating hours convenient to all their customers.
– etc.
Unit Outline

(6)
Check customer
s
:
–
Dora
’ s cake shop has up-to-date equipment.
–
Her physical facilities are visually appealing.
–
Her employees are well dressed and appear neat.
–
She does not have operating hours convenient to all their customers.
– etc.
67
Unit Outline
Services on the Internet :
Multiple applications for websites
(1)
• As a Channel to sell a Product or Service
• As a Supplemental Channel of Conventional
Businesses to extend their market
• To Process Transaction, such as transfer from client’s one account to another
• To Convey Information about the organization
(including names of officers, addresses, phone numbers, and types of services)
68
Unit Outline

Services on the Internet :
Multiple applications for websites
(2)
• As a Promotion Channel - More advertisers are now using the medium of internet to advertise and promote their businesses or products for the specifically targeted groups of audience
69
Unit Outline
Design the services marketing mix for Dora’s cake shop in terms of the 5 th , 6 th and 7 th P:
– 5 th P: People
– 6 th P: Physical evidence
– 7 th P: Process
70
Unit Outline

(solution) (1)
5 th P – People:
– Recruit one to two new staff: able to brew coffee, love to meet people (sociable), etc.
– “Happy employees bring in happy customers”
– OR, ask for new partners to run the cake shop business? When is the appropriate time?
71
Unit Outline
(solution) (2)
6 th P - Physical evidence:
– Location: Central
• Based on “Factor Weighting in Selection of Dora cake shop’s Location”
(slide page 33)
• Close to the four major customers (i.e. corporate customers)
• Near “Hollywood Road”, Hong Kong where most of the potential individual customers locate:
– Office workers
– Retired couples
– Yuppies (leisure life followers)
– Friends (on a social gathering)
• and to avoid “high rent” issue
72
Unit Outline

(solution) (3)
7 th P - Process:
– When customers pop in Dora’s cake shop, Dora and her team (as boundary spanners) will warm welcome them, calling their names (if their memory are good and assuming that this is not the first time visit from the customers), directing them to a place where they like to settle down.
– Customers sit comfortably at the sofa, listening to the soft music, thinking of what kind of cake and coffee to order. The “moment of truth” is so memorable.
73
Unit Outline
(solution) (4)
7 th P - Process
(cont.)
:
– If there are not many customers in the cake shop,
Dora will actively introduce her new flavour cake to the loyal customers and invite them to try a slice of the cake (on complimentary basis).
– Customers’ feedbacks are collected informally to improve the products sold.
– New customers also feel the “warm atmosphere” in the cake shop and will consider visiting it again.
74
Unit Outline

Physical evidence 4P (Unit 9)
People
Services
Process
Tangible elements
Cake & Drink
75
• James A Fitzsimmons and Mona J Fitzsimmons, Service Management: Operations,
Strategy, Information Technology, 5 th edition, McGraw Hill, 2006.
• Christopher Lovelock and Jochen Wirtz, Services Marketing: People, Technology,
Strategy, 5 th edition, Prentice Hall, 2004.
• K. Douglas Hoffman and John E. G. Bateson, Essentials of Services Marketing:
Concepts, Strategies and Cases, 2 nd edition, Harcourt, 2002.
76

•
洗曰明 , 游漢明 (1998), 市場營銷啓示錄 , 商務印書館
•
洗曰明 (2003), 新世紀營銷 二十一世紀營銷新思維 , 匯智出版
•
張多中 (1999), 市場定位方略 , 廣東經濟出版社
•
葉萬春 (2004), 服務營銷管理 , 中國圖書
•
閔建蜀 (1982), 市場管理 , 商務印書館
77
End of unit Assessment
This is the end of Unit 10.
Please go to the Unit
Assessment before attempting the next unit.
78