West, Ford & Ibrahim: Strategic
Marketing 2e
Topic 8: Services Marketing
Strategies
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Structure
A. INTRODUCTION
1. Overview and Strategy Blueprint
2. Marketing Strategy: Analysis &
perspectives
C. WHERE DO WE WANT TO BE?
B. WHERE ARE WE NOW?
3. Environmental & Internal Analysis:
Market Information & Intelligence
4. Strategic Marketing Decisions,
Choices & Mistakes
5. Segmentation, Targeting
& Positioning Strategies
6. Branding Strategies
7. Relational & Sustainability
Strategies
D. HOW WILL WE GET THERE?
E. DID WE GET THERE?
14. Strategy Implementation, Control
& Metrics
8. Product Innovation & Development
Strategies
9. Service Marketing Strategies
10. Pricing & Distribution
11. Marketing Communications
12. E-Marketing Strategies
13. Social and Ethical Strategies
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Chapter Highlights
Differentiation and competitive advantage
Operational efficiency and profitability
Service dominant logic
Nature of services and the service experience
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Learning Objectives
 Provide an overview of the nature of services.
 Investigate the relationship between service quality and customer
satisfaction and profitability.
 Apply the service dominant logic to both services and manufactured
goods.
 Discuss ways in which services can streamline operations and improve
productivity and profitability.
 Examine the nature of the customer service experience.
 Establish the relationship between customer value and sustainable
competitive advantage.
 Present several strategic tools for fine assessment of the service
process and the delivery of customer value.
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Introduction
• The service sector is the fastest growing sector in the
world economy
• Services by nature are intangible, heterogeneous,
inseparable and perishable
• Attain sustainable competitive advantage through
customer satisfaction and the creation of perceived value
• Services cannot be protected with property rights
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Nature of Services and the Service Experience
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The distinctive nature of services
• Too often it is assumed that what works for
manufactured products will also work for
services
• There are four readily accepted distinguishing
characteristics of services that create unique
strategic challenges (see Fig 9.1)
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Intangibility
• Services cannot be touched and felt
– It has to be experienced by the customers
• Intangibility intensifies any perceived risk on the part of
the consumer
• The challenge for the services marketer is to find images
as well as physical evidence that enhanced perceptions
of service quality
• Even the most intangible services, have certain tangible
aspects
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Heterogeneity
• It is difficult to be a low cost provider or to differentiate
for positioning purposes
• Require personnel meet certain standards of education,
but you cannot control the “human factor”
• The inconsistencies brought about by changes in mood
states and emotions can provide differences in
interactions
• The key challenge is “consistency”
– Standardize as much as possible
– At the same time allow enough flexibility
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Inseparability
• Customers are co-producers / designers
• Hard to reduce costs and maintain a quality
image
• The product of the service must be brought to
the customer
– Greater decentralization and employee empowerment
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The service experience
• Service strategist must know what the consumer is looking
out for when they “experience” the service in question
• Zeithaml et al. (1990) have found that service quality is a
multi-faceted construct with five dimensions
– Reliability
– Responsiveness
– Empathy
– Assurance
– Tangibles
• They created the SERVQUAL instrument to measure the
customer perceptions of service quality (see Figure 9.2)
• Perception of service quality leads to customer satisfaction,
which in turn leads to positive purchase intentions, which
leads to sales and profits (Heskett et al.,1997)
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Service dominant logic
• Assuming that products are separate and distinct
from services may be somewhat of a problematic
perspective since a service component beyond
the actual manufactured product is a key
ingredient in the ability to attract and retain
customers.
• Vargo and Lusch (2004) have introduced a
valuable new perspective for marketing which
they call service dominant logic (see Figure 9.3)
in which the firm would use the customer as a
coproducer of the service or good created.
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Service dominant logic
• Vargo and Lusch (2004) present eight different
foundational premises which differ between goodscentred and service-centred logic (see Figure 9.4):
• The application of specialized skills and knowledge is the
fundamental unit of exchange
• Indirect exchange masks the fundamental unit of exchange
• Goods are distribution mechanisms for service provision
• Knowledge in the fundamental source of competitive
advantage
• All economies are services economies
• The customer is always a coproducer
• The enterprise can only make value propositions
• A service-centred view is customer oriented and relational
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Operational Excellence
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Operational efficiencies and profitability
• Operational excellence is one way in
which service firms can achieve
strategic success
– Streamlining
– Cost cutting
– Creative strategic alliances
– Internal culture creation and enhancement
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Streamlining and cost-cutting
• Four major trends have forced service providers to
focus on cost-cutting
– Ever-intensifying competition
– Slowing industry growth projections
– Increasing level of parity across providers
– Increasing level of customer expectations
• Metters and Vargas (2000) argue that for services to
streamline and improve efficiencies, they must
redesign the jobs of the personnel involved in the
service delivery process
• Technologies become available that allow costcutting across the entire sector, while improving the
quality of the service.
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Streamlining and cost-cutting
• When these technologies are not available,
management should consider “decoupling”
service tasks to gain efficiencies
• There are four different competitive
approaches to decoupling (see Fig 9.5)
–
–
–
–
Cost leaders
Cheap convenience
Dedicated service
Premium service
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Creative Strategic Alliances
• Strategic partnering between different service
providers
• Can be used to strengthen brands and cut costs
• There are two major types of strategic alliances for
services
– Brand sharing alliances
– Asset sharing alliances
• Coopetition focuses on a continuum between
cooperation and competition, and great promise is
seen for the small service firm, particularly for
nonprofits and charitable organizations, which are
asked to accomplish much with extremely limited
budgets (Kirchner, Markowski and Ford 2007).
• Outsourcing (see Fig. 9.6)
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Differentiation and Competitive Advantage
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Customer value as sustainable
competitive advantage
• Competitive advantage for service firms lies in
continually exceeding customer expectations (Ford et al,
2001)
• Successful segmentation
–
–
–
–
Identify attractive customers
Restructure business to cater to their needs
Create sustainable perceptual differentiation
Stay focused on customer satisfaction
• Not only meet customer expectations, exceed them
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Internal employee culture creation
and enhancement
• Service firms are constantly faced with employee turnover,
and a lot of the problems experienced have to do with the lack
of care and nurturing of these important facilitators (Frei
2008).
• Setting up a supportive internal culture could keep employees
happier and more productive.
• One of the most important ways in which a company can keep
good employees and attract qualified candidates is to create
an environment in which the employees are treated in the
same way as they would treat customers.
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Relationship building with customers
•
•
Zeithaml, Rust and Lemon (2001) found that a number of successful
service firms have actually created customer pyramids which
differentiate customers by profit potential and recognize that different
groups of customers have different sets of expectations.
The authors make the following suggestions regarding when firms
should utilize this customer pyramid:
–
–
–
–
–
–
–
•
When service resources, including employee time, are limited.
When customers want different services or service levels.
When customers are willing to pay for different levels of service.
When customers define value in different ways.
When customers can be separated from each other.
When service differentials can lead to upgrading customers to another level.
When they can be accessed either as a group or individually.
One of the ways in which companies can make customers feel more of
a relationship with the service is through their greater involvement as
co-producers of the service creation and delivery (Grenci and Watts
2007).
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Customer service as differentiator
• When a service company uses customer service as
its sole focus for differentiation from its competition, it
may face perceptual difficulties.
• If everyone stands for service, then there is no
distinction in centering on customer service as the
main foundation for differentiation.
• Companies need to continually exceed their past
offerings and set new standards in their offerings of
customer service to stay ahead of the competition
(Wiersema 2001).
• Merely offering customer service is not enough,
offering incomparable service is the key to success.
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The Latest Thinking: Great Performances and
Emotional Engagement
•
Stuart (2006) argues that just any performance will not create the
appropriate emotional engagement with the customer to build an emotional
bond, and that the service provider must ensure that the presentation
creates a “great performance.”
•
Stuart (2006) studied a series of successful theatre companies and found
that there was a uniform process for the development of a successful
theatrical offering which involved five phases:
–
–
–
–
–
1) development of vision and strategic focus,
2) selection of the offering to fit the vision and focus,
3) selection of the various personnel to be involved and preplanning,
4) the handling of the artistic as well as technical design for the offering, and
5) a period of integration and experimentation in which an optimal design was
found and prepared for final offering.
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The Latest Thinking: The Harvard Business School
Services Model
• Frei (2008) reports that an extensive study of the world’s most
successful services has produced a model of services which is now
being taught at Harvard Business School that focuses on the
differences between product companies and services.
• This model is comprised of four critical elements:
–
–
–
–
the offering
the funding mechanism
the employee management system
the customer management system
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Conclusion
• Services may not be as different from manufactured goods as once
thought as the need to apply service strategies in non-service
settings increases as the service-centred dominant logic perspective
becomes increasingly relevant.
• Customer satisfaction will lead to loyalty and profitability.
• Imperative to monitor changes in the expectations of the consumers.
• It is important to streamline where possible to build on strengths and
minimise weaknesses.
• Customer service as a means for differentiation for a service firm
may not be a viable strategy, other defining characteristics may be
more viable.
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