CHAPTER NINE • PROMOTION AND EDUCATION 205 experience through the strategic use of physical evidence. The American Automobile Association has made good use of corporate design in solidifying its brand identity. The bright red AAA logo is recognized worldwide as a reliable source of travel information and assistance. Corporate design is particularly important for companies operating in competitive markets where it's necessary to stand out from the crowd and to be instantly recognizable in different locations. For example, gasoline retailing provides striking contrasts in corporate designs, from BP's bright green and yellow service stations to Texaco's red, black, and white, and Sunoco's blue, maroon, and yellow. Companies in the highly competitive express delivery industry tend to use their names as a central element in their corporate designs. Whe n Federal Express changed its trading name to the snappier and more multilingual "FedEx," it also changed its logo to feature the new name in a distinctive typeface. Consistent applications of this design were developed for use in settings ranging from business cards to boxes and from employee caps to aircraft exteriors. Some companies use a trademarked symbol, rather than a name, as their primary logo.14 Shell makes a pun of its English name by displaying a yellow scallop shell on a red background, which has the advantage of making its vehicles and service stations instantly recognizable even in parts of the world that do not use the Roma n alphabet. McDonald's "Golden Arches" is said to be the most widely recognized corporate symbol in the world. (However, international companies operating in many countries need to select their designs carefully to avoid conveying a culturally inappropriate message through unfortunate choices of names, colors, or images.) Merrill Lynch, the global financial services company, used its famous slogan, "We're Bullish on America" as the basis for its corporate symbol—a bull. A recent advertising campaign by the company developed some intriguing variations of this highly recognizable symbol (an example is shown in Figure 9.9). FIGURE 9.9 Corporate Advertising by Merrill Lynch
206 PART THREE • SERVICE MARKETING STRATEGY servicescape; the design of any physical location where customers come to place orders and obtain service delivery. Servicescape Dimensions The term servicescape describes the design of any physical location where customers come to place orders and obtain service delivery.15 It consists of four dimensions: the physical facility; the location; ambient conditions (like temperature or lighting); and personnel. Each of these elements is a critical form of physical evidence, since the appearance of a firm's service facilities and personnel affects customers' perceptions of service quality. Corporate design consukants are sometimes asked to advise on servicescape design, to coordinate the visual elements of both interiors and exteriors— such as signage, decor, carpeting, furnishings, and uniforms—so that they may complement and reinforce the other design elements. We can think of the servicescape concept in terms of the design of the stage on which the service drama is enacted. A good set and costumes can't save a bad play but they can greatly enhance the audience's enjoyment of a good one. Conversely, a bad stage set can create a poor initial impression. Physical evidence and servicescape design are discussed in greater detail in Chapter 11. Ethical Issues in Communication Few aspects of marketing lend themselves so easily to misuse (and even abuse) as advertising, selling, and sales promotion.The fact that customers often find it hard to evaluate services makes them more dependent on marketing communication for information and advice. Communication messages often include promises about the benefits that customers will receive and the quality of service delivery. When promises are made and then broken, customers are disappointed because their expectations have not been met. 1 6 Their disappointment and even anger will be even greater if they have wasted money, time, and effort and have no benefits to show in return or have actually suffered a negative impact. Employees, too, may feel disappointed and frustrated as they listen to customers' complaints about unfulfilled expectations. Some unrealistic service promises result from poor internal communications between operations and marketing personnel concerning the level of service performance that customers can reasonably expect. In other instances, unethical advertisers and salespeople deliberately make exaggerated promises about the benefits that customers can hope to receive. Finally, there are deceptive promotions that lead people to think that they have a much higher chance of winning prizes or awards than is really the case. Fortunately, there are many consumer watchdogs on the lookout for these deceptive marketing practices. They include consumer protection agencies, trade associations Can You Recognize a Service Company from These Clues?~ How easy to recognize are the facilities, vehicles, and personnel of your own bank, favorite fast-food restaurant, taxi service, and local public transport system? Try the quiz below to see how many internationally used symbols and design elements you recognize. 1. With which rental car companies are the colors yellow, red, and green associated? 2. Which international airline has a flying kangaroo for its symbol? Which one uses a maple leaf? 3. Which stockbroker displays a ram's head as its corporate symbol? 4. How many companies can you name that use a globelike symbol? 5. Which international financial services company uses a symbol of three crossed keys? Note: The answers to this quiz can be found at the end of the chapter, before the Endnotes.
CHAPTER NINE • PROMOTION AND EDUCATION 20 7 within specific industries, and journalists who investigate customer complaints and seek to expose fraud and misrepresentation. A different type of ethical issue concerns unwanted intrusion into people's personal lives—including, perhaps, your own. You can, of course, simply turn the page if you don't want to look at an advertisem*nt in a newspaper or magazine. Perhaps you ignore television advertising by pressing the mute button on your remote and by talking to friends or family members while the commercials are on. However, the increase in telemarketing and direct mail is frustrating for those who receive unwanted sales communications. How do you feel if your evening meal at home is interrupted by a telephone call from a stranger trying to interest you in buying services in which you have no interest? Even if you are interested, you may feel, as many do, that your privacy has been violated and see the call as an unwanted intrusion. Trade associations like the Direct Marketing Association offer ways for consumers to remove their names from telemarketing and direct-mail lists in an attempt to address the growing hostility toward these types of direct-marketing techniques. MARKETING COMMUNICATIONS AND THE INTERNET The Internet is playing an increasingly important role in marketing communication. Few companies of any size are now without a Web site and a substantial industry has sprung up to support the design and implementation of Internet-based marketing activities. Perhaps the most remarkable aspect of the Internet is its ubiquity: A Web site hosted in one country can be accessed from almost anywhere in the world, offering the simplest form of international market entry available—in fact, as Christian Gronroos points out, "the firm cannot avoid creating interest in its offerings outside its local or national market."17 However, creating international access and developing an international strategy are two very different things! Internet Applications Marketers use the Internet for a variety of communications tasks. These include promoting consumer awareness and interest, providing information and consultation, facilitating two-way communications with customers through e-mail and chat rooms, stimulating product trial, enabling customers to place orders, and measuring the ); effectiveness of specific advertising or promotional campaigns. 1 8 Firms can market through their own Web sites and place advertising on other sites. Advertising on the Web allows companies to supplement conventional communications channels at a reasonable cost. But like any of the elements of the marketing communications mix, Internet advertising should be part of an integrated, well-designed communications strategy. Many early Web sites were little more than electronic brochures, featuring attractive graphics that took too long to download. By contrast, interactive Web sites allow customers to engage in dialog with a database and come up with customized information. Transportation firms like airlines and railroads offer interactive sites that allow travelers to evaluate alternative routes and schedules for specific dates, download printed information, and make reservations online. Some sites offer discounts on hotels and airfare if reservations are made over the Internet—a tactic designed to draw customers away from intermediaries like travel agents. The interactive nature of the Internet has the potential to increase customer involvement dramatically, since it enables "self-service" marketing in which individual
208 PART THREE . SERVICE MARKETING STRATEGY permission marketing: a marketing communication strategy that encourages customers to voluntarily learn more about a company's products because they anticipate receiving information or something else of value in return. customers control the nature and extent of their contact with the Web sites they visit. Many banks allow customers to pay bills electronically, apply for loans over the Internet, and check their account balances online. Whistler/Blackholm ski resort in British Columbia uses its Web site to promote advance online purchase of lift tickets at a discount. The site also offers instructions on how the online ticket window works, describes where to pick up the tickets, and provides responses to frequently asked questions. Enabling marketers to communicate and establish a rapport with individual customers is one of the Web's greatest strengths. These characteristics lend themselves to a new communication strategy called "permission marketing,"1 9 which is based on the idea that traditional advertising doesn't work as well any more because it fights for attention by interrupting people. For example, a 30-second television spot interrupts a viewer's favorite program, a telemarketing call interrupts a meal, and a print ad interrupts the flow of a magazine or newspaper article. In the permission marketing model, the goal is to persuade consumers to volunteer their attention. In essence, customers are encouraged to "raise their hands" and agree to learn more about a company and its products in anticipation of receiving something of value to them. This means that customers self-select into the target segment. Consider the approach used by the Health Communication Research Institute, which issues prepaid phone cards to patients in doctors' offices or hospitals as a way to measure patient satisfaction. To activate the card, the patient uses it to call an automated service that records responses to questions about the individual's recent experience with medical care. As a reward, the caller gets 30 minutes of free long-distance calling.20 For an illustration of how H& R Block used a promotional contest to get customers to volunteer to learn about a new tax preparation service, see the boxed story "Permission Marketing at H & R Block." Permission Marketing at H&R Block When H&R Block wanted to introduce a new service called Premium Tax, aimed at upper-income customers, it hired a firm called Yoyodyne to create a contest. This promotional event was announced using banner ads on selected Web sites that said, "H&R Block: We'll pay your taxes sweepstakes." Through the action of clicking on these banners, more than 50,000 people voluntarily provided their e-mail addresses and said "tell me more about this promotion." In return for the chance to have their taxes paid by somebody else, these people became players in a contest. Every week for 10 weeks, they received three e-mails, inviting them to answer trivia questions about taxes, H&R Block, and other relevant topics. They were given fun facts about the history of taxes or sent to H&R Block's Web site to find answers to questions. Each e-mail also included a promotional message about Premium Tax. Not everyone responded to every message—on average, about 40 percent did so. But over the life of the promotion, 97 percent of those people who entered the game stayed in. At the end of 10 weeks, surveys were conducted of: (1) those who had participated actively in the game; (2) those who had participated, but less actively; and (3) a control group of nonparticipants. Among nonparticipants, knowledge of Premium Tax was essentially nonexistent. Among less-active participants, 34 percent had a good understanding of Premium Tax, and for active participants, the figure was 54 percent. By creatively applying the concept of permission marketing, H&R Block acquired a database of prospects that had already received some information and education about its new service offering. Source: William C. Taylor, "Permission Marketing" (interview with Seth Godin), Fast Company, April-May 1998, 198-212.
CHAPTER NINE . PROMOTION AND EDUCATION 209 Web Site Design Considerations From a communication standpoint, a Web site should contain information that a company's target customers will find useful and interesting.21 Internet users expect speedy access, easy navigation, and content that is both relevant and up-to-date. Service firms should set explicit communication goals for their Web sites. Is the site to be a promotional channel; a self-service option that diverts customers away from contact with service personnel; an automated news room that disseminates information about the company and its products, as well as offering an archive of past press releases; or even all of these? Some firms choose to emphasize promotional content, seeking to present the firm and its products in a favorable light and to stimulate purchase; others view their sites as educational and encourage visitors to search for needed information, even providing links to related sites. Innovative companies are continually looking for ways to improve the appeal and usefulness of their sites. The appropriate communication content varies widely from one type of service to another. A b2b site may offer visitors access to a library of technical information; by contrast, a resort hotel may include attractive photographs featuring the location, the buildings and the guest rooms, and even short videos depicting recreational options. Meantime, a radio station may display profiles and photos of key staff members, schedules of its broadcasts, background information about its programs, and access to its broadcasts via Web radio. Marketers must also address other attributes, like downloading speed, that affect Web site "stickiness.""" A sticky site is one that encourages repeat visits and purchases by keeping its audience engaged with interactive communication presented in an appealing fashion. Online service providers like EasyAsk have exploited a profitable niche in helping other companies design sticky Web sites that make information searches and site navigation easy for their customers. stickiness: a Web site's ability to encourage repeat visits and purchases by keeping its audience engaged with interactive communication presented in an appealing fashion. PSI Net's print advertising reinforces its television campaign, which shows individuals in different global settings knocking on a window to gain the audience's attention.
210 PART THREE • SERVICE MARKETING STRATEGY A memorable Web address helps to attract visitors to a site. Unlike phone or fax numbers, it's often possible to guess a firm's Web address, especially if it's a simple one that relates to the firm's name or business. However, firms that come late to the Internet often find that their preferred name has already been taken. For instance, many industries include a company called Delta, but there can only be one delta.com. This site name belongs to Delta Financial Corporation (the U.S. airline had to use the longer address, deltaairlines.com). Web addresses must be actively promoted if they are to play an integral role in the firm's overall communication and service delivery strategy. This means displaying the address prominently on business cards, letterhead stationery, catalogs, advertising, promotional materials, and even vehicles. reciprocal marketing: a marketing communication tactic in which an online retailer allows its paying customers to receive promotions for another online retailer and vice-versa, at no upfront cost to either party. Internet Advertising The Internet has become a new advertising medium. Many firms pay to place advertising banners and buttons on portals like Yahoo or Netscape, as well as on other firms'Web sites. The usual goal is to draw online traffic to the advertiser's own site. In many instances, Web sites include advertising messages from other marketers with related but noncompeting services.Yahoo's stock quotes page, for example, features a sequence of advertisem*nts for various financial service providers. Similarly, many Web pages devoted to a specific topic feature a small message from Amazon.com, inviting the reader to identify books on these same topics by clicking the accompanying hyperlink button to the Internet retailer's book site. In such instances, it's easy for the advertiser to measure how many visits to its own site are generated by clickthroughs. However, the Internet has not proved to be as effective an advertising medium as many marketers originally anticipated. Experience shows that simply obtaining a large number of exposures ("eyeballs") to a banner ad or button doesn't necessarily lead to increases in awareness, preference, or sales for the advertiser. One consequence is that the practice of paying a flat monthly rate for banner advertising is falling out of favor. Even when visitors click through to the advertiser's site, this action doesn't necessarily result in sales. Consequently, there's now more emphasis on advertising contracts that tie fees to marketing-relevant behavior by these visitors, such as providing the advertiser with some information about themselves or making a purchase. Some companies use reciprocal marketing, where an online retailer allows its paying customers to receive promotions for another online retailer and vice-versa, at no upfront cost to either party.23 For example, RedEnvelope.com customers received an online coupon offer from Starbucks when they logged onto the RedEnvelope site. In exchange, RedEnvelope had a promotional link on Starbucks.com, enabling both companies to capture a percentage of the other site's customer base. Conclusion The marketing communication strategy for services requires a somewhat different emphasis from that used to market goods.The communication tasks facing service marketers include emphasizing tangible clues for services that are difficult to evaluate, clarifying the nature and sequence of the service performance, highlighting the performance of customer-contact personnel, and educating the customer about how to effectively participate in service delivery. Many different communication elements are available to help companies create a distinctive position in the market and reach prospective customers. The options in the
CHAPTER NINE • PROMOTION AND EDUCATION 21 1 marketing communication mix include personal communications like personal selling and customer service, as well as impersonal communications like advertising, sales promotions, public relations, corporate design, and the physical evidence offered by the servicescape of the service delivery site. Instructional materials, from brochures to Web sites, often play an important role in educating customers on how to make good choices and obtain the best use from the services they have purchased. Developments in technology, especially the Internet, are changing the face of marketing communications. We will explore the strategic implications of technology for service marketers in greater detail in Chapter 16. Answers to Symbol Quiz on Page 206 1. Hertz (yellow), Avis (red), National or Enterprise (both green) 2. Qantas (kangaroo), Air Canada (maple leaf). Note: Some regional Canadian airlines also display a maple leaf. 3. T. Rowe Price (ram) 4. AT&T and Cable & Wireless are both quite well known; aircraft of Continental Airlines have a partial golden globe on their tailfins, while those of the now-defunct airline Pan Am featured a complete blue and white globe; UPS paints a golden globe on all its trucks to emphasize its worldwide delivery capabilities. 5. UBS and subsidiaries, e.g., UBS PaineWebber (three crossed keys). Study Questions and Exercises 1. Describe four common educational and promotional objectives in service settings and provide a specific example for each of the objectives you list. 2. Which elements of the marketing communications mix would you use for each of the following scenarios? Explain your answers. • A newly established hair salon in a suburban shopping center • An established restaurant facing declining patronage because of new competitors • A large, single-office accounting firm in a major city that serves primarily business clients 3. What roles do personal selling, advertising, and public relations play in (a) attracting new customers to a service business and (b) retaining existing customers? 4. Describe the role of personal selling in service communications. Give examples of three different situations where you have encountered this approach. 5. Find examples of service promotional efforts in your local area and evaluate their strengths and weaknesses as effective communication tools. 6. Provide several current examples of public relations efforts made by service companies. 7. Discuss the relative effectiveness of brochures and Web sites for promoting (a) a ski resort, (b) a hotel, (c) a fitness center, and (d) a bank.
2 1 2 PART THREE • SERVICE MARKETING STRATEGY 8. Explore the Web sites of an airline, a bank, and an Internet retailer. Critique them for ease of navigation, content, and visual design. What, if anything, would you change about each site? Endnotes 1. Enterprise Rent-a-Car Web site, enterprise.com, February 2001 and research by Karen Sunblad. 2. For a useful review of research on this topic, see Kathleen Mortimer and Brian P. Mathews, "The Advertising of Services: Consumer Views v. Normative Dimensions," The Service Industries Journal 18 (July 1998): 14-19. 3. William R. George and Leonard L. Berry, "Guidelines for the Advertising of Services," Business Horizons, July-August 1981. 4. Donna Legg and Julie Baker, "Advertising Strategies for Service Firms," in C. Surprenant (ed.), Add Value toYour Service (Chicago, IL: American Marketing Association, 1987), 163-168. 5. Banwari Mittal, "The Advertising of Services: Meeting the Challenge of Intangibility," Journal of Service Research 2 (August 1999): 98-116. 6. Legg and Baker,"Advertising Strategies"; D.J. Hill and N. Gandhi,"Services Advertising: A Framework for Effectiveness," Journal of Services Marketing 6 (Fall 1992): 63-76. 7. Victor L. Hunter and DavidTietyen, Business to Business Marketing: Creating a Community of Customers (Lincolnwood, IL: NTC Business Books, 1997). 8. David H. Maister,"Why Cross Selling Hasn't Worked," True Professionalism (New York: The Free Press, 1997), 178-184. 9. K. M. Haywood, "Managing Word of Mouth Communications," Journal of Services Marketing 3 (Spring 1989): 55-67. 10. Eugene W.Anderson, "Customer Satisfaction and Word of Mouth," Journal of Service Research 1 (August 1998): 5-17; Magnus Soderlund,"Customer Satisfaction and Its Consequences on Customer Behaviour Revisited: The Impact of Different Levels of Satisfaction on Word of Mouth, Feedback to the Supplier, and Loyalty," International Journal of Service Industry Management 9, no. 2 (1998): 169—188. 11. Stephen J. Grove, Gregory M. Pickett, and David N. Laband,"An Empirical Examination of Factual Information Content among Service Advertisem*nts," The Service Industries Journal 15 (April 1995): 216-233. 12. Ken Peattie and Sue Peattie, "Sales Promotion—a Missed Opportunity for Service Marketers," International Journal of Service Industry Management 5, no. 1 (1995): 6—21. See also Paul W Farris and John A. Quelch,"In Defense of Price Promotion," Sloan Management Review (Fall 1987): 63-69. 13. Dana James, "Move Cautiously in Trade Show Launch," Marketing News, 20 November 2000, 4 & 6; Elizabeth Light, "Tradeshows and Expos—Putting Your Business on Show," Her Business, March-April 1998, 14-18; and Susan Greco, "Trade Shows versus Face-toFace Selling," Inc. (May 1992): 142. 14. Abbie Griffith, "Product Decisions and Marketing's Role in New Product Development," in Marketing Best Practices (Orlando, FL:The Dryden Press, 2000), 253. 15. Mary Jo Bitner,"Servicescapes:The Impact of Physical Surroundings on Customers and Employees," Journal of Marketing 56 (April 1992): 57—71. 16. Louis Fabien, "Making Promises: The Power of Engagement," Journal of Services Marketing ll,no.3 (1997): 206-214. 17. Christian Gronroos, "Internationalization Strategies for Services," The Journal of Services Marketing 13, no. 4/5 (1999): 290-297. 18. J.William Gurley,"How the Web Will Warp Advertising," Fortune, 9 November 1998, 119-120. 19. Seth Godin and Don Peppers, Permission Marketing: Turning Strangers into Friends and Friends into Customers (New York: Simon & Schuster, 1999).
CHAPTER NINE • PROMOTION AND EDUCATION 21 3 20. Kathleen V. Schmidt, "Prepaid Phone Cards Present More Info at Much Less Cost," Marketing News, 14 February 2000, 4. 21. Donald Emerick, Kim Round, and Susan Joyce, Web Marketing and Project Management (Upper Saddle River, NJ: Prentice Hall, 2000), 27-54. 22. Gary A. Poole, "The Riddle of the Abandoned Shopping Cart," grok, December 2000- January 2001, 76—82. See also Donald Emerick, Kim Round, and Susan Joyce, Web Marketing and Project Management (Upper Saddle River, NJ: Prentice Hall, 2000), 212-213. 23. Dana James, "Don't Wait—Reciprocate," Marketing News, 20 November 2000, 13 & 17.
Service Positioning and Design Desperately Seeking Service Strategies The basics of a travel agency's business have traditionally been quite straightforward. Customers call for flight, train, hotel, or cruise reservations.1 The agent finds out what's available, maybe provides a bit of advice, books the transaction, and delivers the tickets. For decades, commissions on airline tickets provided about 60 percent of a typical agency's revenues. But that situation changed when Delta Airlines announced that it would no longer pay a 10-percent commission on every ticket sold. Regardless of the purchase price, there would be caps of $25 one-way and $50 round-trip for all domestic tickets. Other major airlines soon followed suit. These commission caps were only the start of trouble for the travel agent industry. Other marketplace changes began to impact the roles that travel agents filled as information brokers and distributors of other companies' services. Travel agents are like stockbrokers, real estate agents, or consultants—their value is in what they know and what they can find out for customers. But access to information is being completely reshaped these days by computers and Web-based technologies. Customers can access travel information directly on the Internet at any time, and can handle their own bookings, too—either through a carrier's own Web site or through such Internet-based services as Travelocity or Priceline. So what's a travel agent to do in this challenging new world? Many have closed, others are trying to survive by cutting costs or seeking to add value by doing the same things better. But a few moved quickly to create totally new service strategies. Here are three service revolutionaries—see what you think of their innovative approaches to establishing a secure competitive position! THE MERCHANDISER Company: Travelfest Service Strategy: Revamp the way travel is sold Gary Hoover likes to call his Austin, Texas-based travel agency the Home Depot of the travel industry. His goal was to "yank travel out of the retail Stone Age" by designing a travel superstore where customers could shop for tickets and travel-related products in an entertaining and educational environment. Fourteen monitors play travel videos simultaneously in Travelfest stores, and backlit walls show slides from around the world. Customers can browse for travel information in the Europe room, the Africa room, the Asia room, and kids have their own special room to explore. Visa and passport applications are available, and customers can check out the Hotel and Travel Index (a resource used by most travel agents but rarely available to their clients). There are also 10,000 travel-related items for sale, including books, videos, maps, luggage and clothing, water purifiers, and language guides. Oh yes—the store is also open from 9 A.M. to 11 P.M. seven days a week, and it accepts mail, Internet, and telephone orders.
THE CONTRACTOR Company: Capital Prestige Travel Service Strategy: Change the service-delivery model Derek Messenger, owner of Capital Prestige Travel, spends $1 million a year on statewide travel ads and infomercials about discount cruise sailings. His biggest challenge is having enough trained people to take all those calls his advertising generates. Messenger has solved this problem creatively by using independent contractors who work out of their homes and pay for the privilege of affiliating with a well-known travel agency, which routes calls to them. Each homebased contractor pays $7800 to Capital Prestige. In return, contractors get a computer, software that connects them to Sabre (a national computerized reservations system), a hookup to Capital Prestige phone lines, and eight days of training. They also get paid 35 to 70 percent of the agency's ticket commissions. Capital Prestige takes care of all of the marketing and backup services like handling tickets, collecting money, and providing a help line for home agents who run into problems. With its innovative home-agent system, the company has turned fixed costs into variable costs— which saves enough money to generate more business by doing large-scale promotions and advertising. (continues) © Learning Objectives After reading this chapter, you should be able to =^> describe the four different focus approaches =£> explain the elements of competitive positioning strategy =£> discuss how perceptual maps help identify competitors' positions in a specific market =£> understand how branding relates to individual offerings within a product line =4^ define the different types of service innovation 215
216 PART THRE E . SERVICE MARKETIN G STRATEG Y THE NICHE PLAYER Company: Aspen Travel Service Strategy: Specialize in one service-intensive market niche Aspen Travel started out as a traditional travel agency. Its customer base was largely limited to Jackson Hole, Wyoming, whose isolated mountain location seemed an unlikely spot for building a large corporate clientele. Then a film production company from Los Angeles shot a movie in Jackson Hole, and Aspen did such a great job of handling its travel that the company retained Aspen's services for trips to other locations. Owners Randle Feagin and Andy Spiegel had discovered the perfect niche—and today they do 85 percent of their business with production companies from Los Angeles, New York, and Miami. Word of mouth in the tightly knit film production industry takes care of Aspen's marketing, while faxes, e-mail, and remote ticket printers allow the agency to operate from Jackson Hole. Aspen's specialized knowledge helps it outperform would-be competitors. After all, how many travel agents know how to get an AT&T phone booth to a film site in Belize or transport penguins to the deserts of Moab, Utah, without having them collapse from heatstroke? focus: the provision of a relatively narrow product mix for a particular market segment. market focus: the extent to which a firm serves few or many markets. service focus: the extent to which a firm offers few or many services. THE NEED FOR FOCUS If you ask a group of managers from different service businesses how they compete, many will simply say, "on service." Press them a little further, and they may add "value for money," "convenience," or "our people are the key." Some may even respond to the question "What makes your service different?" by saying "Truthfully, nothing. We're all pretty much the same." But no two services are ever exactly alike. It would be impossible for companies to be identical in the design of their servicescapes, the employees they attract, the personalities of their leaders, or the cultures they create. As competition intensifies for many businesses in the service sector, cultivating and communicating meaningful differences is becoming increasingly important for long-term profitability. In this chapter, we show how to find answers to the questions: How can we differentiate our service product from the competition's? and How should we go about designing new services'? Four Focus Strategies It's not usually realistic for a firm to try to appeal to all actual or potential buyers in a market, because customers are too numerous, too widely scattered, and too varied in their needs, purchasing behavior, and consumption patterns. Firms themselves vary widely in their abilities to serve different types of customers. So rather than attempting to compete in an entire market, each company needs to focus its efforts on those customers it can serve best. In marketing terms, focus means providing a relatively narrow product mix for a particular market segment—a group of customers who share comm o n characteristics, needs, purchasing behavior, or consumption patterns. Successful implementation of this concept requires firms to identify the strategically important elements in their service operations and concentrate their resources on these factors. The extent of a company's focus can be described on two different dimensions—market focus and service focus. Market focus is the extent to which a firm serves few or many markets, while service focus describes the extent to which a firm offers few or many services.These dimensions define the four basic focus strategies shown in Figure 10.1. A fully focused organization provides a very limited range of services (perhaps just a single core product) to a narrow and specific market segment. For example, Aspen Travel serves the specific needs of the film production industry. A market-focused company concentrates on a narrow market segment but has a wide range of services. Each Travelfest store serves a limited geographic market, appealing to families and individuals planning vacation trips rather than to business travelers, but offers a broad array of services. Service-focused firms offer a narrow range of services to a fairly broad market. Thus, Capital Prestige Travel specializes in the narrow field of discount cruise sailings, but reaches customers across a broad geographic market through a telephone-based delivery
CHAPTE R TE N • SERVICE POSITIONIN G AN D DESIG N 21 7 FIGURE 10.1 Basic Focus Strategies for Service Organizations Source: Adapted from Robert Johnston, "Achieving Focus in Service Organizations," The Service Industries Journal 16 (January 1996): 10-20. system. Finally, many service providers fall into the unfocused category because they try to serve broad markets and provide a wide range of services. As you can see from Figure 10.1, focusing requires a company to identify the market segments that it can serve best with the services it offers. Effective market segmentation should group customers in ways that result in similarity within each segment and dissimilarity between each segment on relevant characteristics. CREATING A DISTINCTIVE SERVICE STRATEGY Once a company has decided which market segment(s) to target, the next task is to establish an overall strategic direction—a service strategy—in order to achieve and maintain a distinctive competitive position. Leonard Berry emphasizes the importance of these service strategies: All great service companies have a clear, compelling service strategy. They have a "reason for being" that energizes the organization and defines the word "service. "A service strategy captures what gives the service value to customers. To forge a path to great service, a company's leaders must define correctly that which makes the service compelling. They must set in motion and sustain a vision of service excellence, a set ofguideposts that point to the future and show the way.s A company's service strategy can usually be expressed in a few sentences or words that guide and energize its employees. The best service strategies address basic human needs that don't change much over time. For example, Taco Bell's service strategy is to offer the best value fast meal whenever and wherever customers are hungry. While this statement sounds simple enough, it actually symbolizes a major change in the way the company defines itself and its operations. Club Med's basic service concept could be described as "a fully paid vacation package where you make your arrangements and pay the bill in advance in return for a well-managed program in which you don't need to worry much about money, transportation, food, activities or clothes." Dial-a-Mattress appeals to its target market's need for both convenience and risk reduction by selling brand-name bedding like Sealy, Serta, or Simmons over the telephone 24 hours a day, 7 days a week. Orders are delivered as soon as the customer wants them, and old mattresses are removed at no extra cost. The company's core service strategy makes buying a mattress so simple that new customers are often amazed. Founder
218 PART THRE E • SERVICE MARKETIN G STRATEG Y sustainable competitive advantage: a position in the marketplace that can't be taken away or minimized by competitors in the short run. and CE O Napoleon Barragan explains, "Buying a mattress is not a pleasurable experience; it's a chore. If you can make it easy for the customers, if you give them what they want, the way they want it, and when they want it, you can do business."7 Creating a Sustainable Competitive Advantage The first step in establishing a service strategy is to focus on customers' needs. Important service needs that are not being met by competitors provide opportunities for a company to move into an "open" position in the marketplace.Two questions should be asked about the needs and expectations of a target market relative to a specific service offering: What attributes are absolutely essential to this group of customers? And what attributes will delight them? The service strategy can then be designed to include both the essential attributes and those features that have the potential to exceed customer expectations. The best service strategies provide organizations with a sustainable competitive advantage—a way of meeting customer needs in a specific market segment better than other competitors. (By sustainable, we mean a position in the marketplace that can't be taken away or minimized by competitors in the short run.) Obtaining and keeping such an advantage presents a significant challenge, because it's hard for a firm to protect innovations legally and competitors can quickly copy many service attributes. Consider how Amtrak positions its high-speed rail service in the Boston-Washington corridor against competing air service. Transporting Business Travelers Into the Twenty-First Century Amtrak, America's national passenger railroad, illustrates a service strategy based on customers' needs related to travel in the 500 mile (800 km) Northeast Corridor that links Boston, Providence, New York, Newark, Philadelphia, Baltimore, and Washington, D.C. Over the years, air shuttles departing at 30-minute intervals on the Boston-New York and New York-Washington routes, as well as commuter flights serving other airports, had severely eroded the railroad's position in the business traveler segment of the market. The problem was particularly challenging between Boston and New York, where rail service was slow and not very reliable. But Amtrak's market research showed that in addition to speed, business travelers wanted both convenience and comfort at levels not currently available on most flights. To address these unmet needs, Amtrak obtained funds to upgrade the track on the Northeast Corridor and electrify the line all the way to Boston. In December 2000, it introduced a new, highspeed rail service, named Acela Express. Acela—a new brand name that suggests both acceleration and excellence—promises fast, comfortable, reliable, and safe transportation. Amtrak's futuristic-looking, Canadian-built electric trains can transport passengers at speeds of up to 150 miles per hour (240 km/h), making travel times between city centers competitive with the airlines, once ground travel from airport to city center is included. While seeking to match the airlines on essential attributes like convenience, reliability, and travel time, Amtrak plans to beat them on such features as customer service, spaciousness, and comfort. The company has extended its definition of the "Amtrak travel experience" beyond the core product of transportation to include elements that have the potential to delight its customers—including the service provided by on-board staff, the reservations and ticketing processes, and the train station environment. While waiting at the station, first-class passengers are entitled to use of a special lounge. The trains' interior decor reflects customer preferences for attractive modern design, appealing colors, and more space than the cramped conditions found on air shuttles. The windows of the cars are large and the seats in first and business class are bigger and more comfortable than those on short-haul aircraft. There's plenty of space for stowing baggage and even the toilets are large and attractively designed. Lighting is bright enough to work by but still soft and unobtrusive. Acela Express also offers passengers the chance to stretch their legs and obtain food and drink in a new, upscale "bistro" car; those traveling in first class can dine at their seats, enjoying meals served on chinaware. Source: Based on Ian R Murphy, "Amtrak Enlists Customers' Help to Bring Service Up to Speed," Marketing News, 27 October 1997, 14; information from the Amtrak corporate Web site, www.amtrak.com, February 2001, and news reports.
CHAPTE R TE N • SERVICE POSITIONIN G AN D DESIG N 219 SERVICE POSITIONING After a service strategy has been identified, a company must decide how to position its product most effectively. The concept of positioning involves establishing a distinctive place in the minds of target customers relative to competing products. In The New Positioning:The Latest on the World's #1 Business Strategy, Jack Trout distills the essence of positioning into the following four principles:8 1. A company must establish a position in the minds of its targeted customers. 2. The position should be singular, providing one simple and consistent message. 3. The position must set a company apart from its competitors. 4. A company cannot be all things to all people—it must focus its efforts. Cirque du Soleil is an example of a company that has taken these four principles to heart. Most Americans can't even pronounce the name (which is French for "circus of the sun"), and fewer than one in five know what Cirque offers. But the goal of the Quebec-based founders is to become a worldwide brand—a Circus Without Boundaries. Cirque provides a mystical mixture of stunningly choreographed dance, original music, exotic costumes, and amazing acrobatics that is more art than traditional circus entertainment. And the atmosphere is intimate, since the audience for most performances is limited to a few thousand people compared to crowds of ten thousand or more at typical circus events. Cirque's extravagant shows—with ticket prices of $60 to $100 per seat—are produced at multimillion dollar theaters on three different continents. The company is extremely profitable, and its long-term strategy is to become a megabrand targeted at the wealthy. Cirque has already cashed in on its brand equity with a licensed wallpaper line (a top seller in the United States), a Cirque du Soleil watch marketed by Swatch, and a $12 million IMAX film about the company that recently debuted in Berlin. positioning: establishing a distinctive place in the minds of customers relative to competing products. Positioning and Marketing Strategy Companies use positioning strategies to distinguish their services from competitors and to design communications that convey their desired position to customers and prospects in the chosen market segments. There are a number of different dimensions around which positioning strategies can be developed, including: 1. Product attributes—America Online's e-mail service is "so easy to use, no wonder it's #1 " (see Figure 10.2) 2. Price I'quality relationship—Supercuts sells good haircuts at a "reasonable" price 3. Reference to competitors—"You'd better take your Visa card, because they don't take American Express" 4. Usage occasions—Ski resorts offer downhill and cross-country skiing in the winter; hiking and mountain biking in the summer 5. User characteristics—Cheap Ticket's online ticketing service is for travelers who are comfortable with both Internet usage and self-service 6. Product class—Blue Cross provides a variety of different health insurance packages for its corporate customers to choose from in putting together their employee benefit plans Marketers often use a combination of these positioning approaches. Whatever strategy a firm chooses, the primary goal is to differentiate itself from competitors by emphasizing the distinctive advantages of its service offerings. If the core benefits are similar to those of the competition, the company may decide to stress different advan-
2 2 0 PART THRE E • SERVICE MARKETIN G STRATEG Y FIGURE 10.2 AOL E-Mail Emphasizes Ease of Use and Its Market Leadership TABLE 10.1 Principal Uses of Positioning in Marketing Management Provide a useful diagnostic tool for defining and understanding the relationships between products and markets: a. How does the product compare with competitive offerings on specific attributes? b. How well does product performance meet consumer needs and expectations on specific performance criteria? c. What is the predicted consumption level for a product with a given set of performance characteristics offered at a given price? Identify market opportunities: a. Introduce new products • What segments should be targeted? • What attributes should be offered relative to the competition? b. Redesign (reposition) existing products • Should we appeal to the same segments or to new ones? • What attributes should be added, dropped, or changed? • What attributes should be emphasized in advertising? c. Eliminate products that • Do not satisfy consumer needs • Face excessive competition Make other marketing mix decisions to preempt or respond to competitive moves: a. Distribution strategies • Where should the product be offered (locations and types of outlet)? • When should the product be available? b. Pricing strategies • How much should be charged? • What billing and payment procedures should be used? c. Communication strategies • What target audience(s) are most easily convinced that the product offers a competitive advantage on attributes that are important to them? • What message and attributes should be emphasized and which competitors, if any, should be mentioned as the basis for comparison on those attributes? • Which communication channels should be used, personal selling or different advertising media (selected not only for their ability to convey the chosen message to the target audience but also for their ability to reinforce the desired image of the product)?
CHAPTE R TE N • SERVICE POSITIONIN G AND DESIG N 221 tages in its promotional efforts. For example, at one point Sprint was stressing the price and value of its long-distance services, while AT&T emphasized reliability and expertise.Table 10.1 summarizes how positioning strategies relate to critical marketing issues like service development and delivery, pricing, and communications. Service Repositioning Market positions are rarely permanent. Competitive activity, new technologies, and internal changes may cause a company to reposition itself and its services. Repositioning involves changing the position a firm holds in a consumer's mind relative to competing services.This may be necessary to counter competitive attacks, remain attractive and appealing to current customers, or target new and additional segments. Repositioning can involve adding new services or abandoning certain offerings and withdrawing completely from some markets. In response to major changes in its business environment, Andersen Consulting recently repositioned itself and changed its name to Accenture to reflect its "accent on the future" (see the boxed story "Repositioning a Consulting Firm"). repositioning: changing the position a firm holds in a consumers mind relative to competing services. PERCEPTUAL MAPS AS POSITIONING TOOLS Many companies use perceptual mapping to help finalize their positioning strategies. Perceptual maps—also called positioning maps—help managers identify the most critical attributes of their own and competing services, as viewed by customers. These maps provide a visual picture of a service's distinctive characteristics, identify the nature of competitive threats and opportunities, and highlight gaps between customer and management perceptions about competing services (as the Palace Hotel example in the next section illustrates). perceptual map: a visual illustration of how customers perceive competing services. Repositioning a Consulting Firm Andersen Consulting, a management consulting firm whose clients include more than 5,000 companies worldwide, recently repositioned itself to reflect a new business strategy with an emphasis on cutting-edge technologies. On January 1, 2001, the company was officially "Renamed. Redefined. Reborn as Accenture." The company's name change reflects the new brand identity and repositioning strategy that it had been working on since early in 2000. According to Dave Seibel, the Canadian Managing Partner for Accenture: We are repositioning our firm in the marketplace to better reflect our new vision and strategy for becoming part of the fabric of the new economy and our strategy for getting there. We are creating new businesses through joint ventures that will help us provide our traditional consulting clients and the market with the latest technological innovations. We are also investing in emerging technology providers with applications that will benefit our clients. We are moving beyond a traditional consulting firm, delivering innovations that improve the way the world lives and works. To create awareness of its new name and its extended capabilities, Accenture implemented an integrated marketing communications program in 48 different countries at an estimated cost of $175 million. The campaign included four 30-second Super Bowl spots in addition to 6,000 other television commercials, print ads in newspapers and business journals, and extensive online advertising. Source: Scotty Fletcher, "Accenture Buys Four Super Bowl Spots," localbusiness.com, 20 November 2000; Larry Greenemeier, "Andersen Consulting Changing Name to Accenture," informationweek.com, 26 October 2000; the company's Web sites www.ac.com and www.ac.ca, December 2000 and www.accenture.com, January 2001; and conversations with Accenture consultants.
222 PART THREE • SERVICE MARKETING STRATEGY To create a perceptual map, researchers first identify attributes that are important to customers and then measure how the firm and its competitors are performing on each attribute. Th e results can then be plotted on a chart, using the horizontal axis for measures of one attribute and the vertical axis for a second. Since charts are twodimensional, perceptual maps are usually limited to two attributes. Sometimes, three-dimensional models are built so that a third dimension can be included. When marketers need to feature more than three dimensions to describe service positioning, they can create a series of two-dimensional maps or use computerized models to handle numerous attributes simultaneously. Some commonly used attributes include: >• Convenience >- Industry-specific characteristics that offer a unique benefit >- Level of personal service *- Price >• Quality of physical elements >- Reliability >» Speed >- Trustworthiness In most cases, an attribute can be delivered at several different levels. Some of these variations are easy to measure. For instance, travel times can be faster or slower and prices can be higher or lower. Reliability—a key element in service quality—can be measured by how often a service fails to perform against predefined standards (for instance, errors in posting banking deposits or late arrival of flights). Evaluation of other attributes may be more subjective. For instance, researchers may ask customers to evaluate the level of convenience, comfort, or quality of personal service they encounter in a specific context. A perceptual map is only as good as the quality of the information used in constructing it. Dynamic markets require that research be repeated periodically and perceptual maps redrawn to reflect significant changes in the competitive environment. New market entrants and repositioning of existing competitors may result in the disappearance of a formerly distinctive positioning advantage. Separate maps will have to be drawn for different market segments if research shows that there are sharp variations between segments. In the case of airlines, for instance, vacationers and business travelers may have different service priorities and vary in their willingness to pay extra for higher classes of service. Using Perceptual Maps to Evaluate Positioning Strategies To demonstrate the value of perceptual mapping, let's look at how the Palace—a successful four-star hotel in a large city that we'll call Belleville—used perceptual maps to develop a better understanding of potential threats to their established market position. The Palace was an elegant old hotel located on the edge of Belleville's booming financial district. Its competitors included 8 four-star establishments and the Grand Hotel, which had a five-star rating. The Palace had been very profitable for its owners in recent years and boasted an above-average occupancy rate. It was sold out on weekdays most of the year, reflecting its strong appeal to business travelers (who were very attractive customers because of their willingness to pay higher room rates than vacationers or convention participants). But the general manager and his staff saw problems on the horizon. Permission had recently been granted for four large new hotels in the city, and the Grand Hotel had just started a major renovation and expansion project.
CHAPTER TEN • SERVICE POSITIONING AND DESIGN 22 3 To better understand these competitive threats, the hotel's management team worked with a consultant to prepare perceptual maps that displayed the Palace's position in the business traveler market both before and after the arrival of new competition. Four attributes were selected: room price; level of physical luxury; level of personal service; and location. Information on competing hotels was not difficult to obtain. The locations were known, the physical structures were relatively easy to visit and evaluate, and the sales staff kept informed on competitors' pricing policies and discounts. The ratio of rooms per employee was a convenient surrogate measure for service level; this was easily calculated from the published number of rooms and employment data filed with city authorities. Data from travel agents provided additional insights about the quality of personal service at each of the competing hotels. The Palace's management team created scales for each attribute. Price was simple, since the average price charged to business travelers for a standard single room at each hotel was already known.The rooms per employee ratio formed the basis for a servicelevel scale, with low ratios indicating high service. This scale was then modified slightly to reflect what was known about the level of service actually delivered by each major competitor. The level of physical luxury was more subjective. The management team identified the Grand Hotel as the most luxurious hotel and decided that the Airport Plaza was the four-star hotel with the least luxurious physical facilities. The other fourstar hotels were then rated relative to these two benchmarks. The location scale was based on each hotel's distance from the stock exchange (which was in the heart of the financial district), since past research had shown that a majority of the Palace's business guests were visiting destinations in this vicinity. The set of 10 hotels lay within an area that extended from the stock exchange through the city's principal retail area (where the convention center was also located) to the inner suburbs and the nearby metropolitan airport. Two positioning maps were created to portray the existing competitive situation. The first (Figure 10.3) showed the hotels on the dimensions of price and service level; the second (Figure 10.4) displayed them on location and degree of physical luxury. A quick glance at Figure 10.3 shows a clear correlation between price and service. That's no surprise: Hotels offering higher levels of service can command higher prices. The shaded bar running from the upper left to the lower right highlights this relationship, and we would expect it to continue diagonally downward for three-star and lesserrated establishments. Further analysis indicates that there appear to be three clusters of hotels within what is already an upscale market category. At the top end, the four-star Regency is close to the five-star Grand. In the middle, the Palace is clustered with four other hotels. Another set of three hotels is positioned at the lower end. On e surprising insight from this map is that the Palace appears to be charging significantly more (on a relative basis) than its service level seems to justify. But since its occupancy rate is very high, guests are evidently willing to pay the present rate. What's the secret of its success? In Figure 10.4, we see how the Palace is positioned relative to the competition on location and physical luxury. We would not expect these two variables to be directly related and they don't appear to be so. A key insight here is that the Palace occupies a relatively empty portion of the map. It's the only hotel located in the financial district— a fact that probably explains its ability to charge more than its service level (or degree of physical luxury) would normally command. There are two clusters of hotels in the vicinity of the shopping district and convention center: a relatively luxurious group of three, and a second group of two offering a moderate level of luxury. After mapping the current situation, the Palace's management team turned to the future. Their next task was to predict the positions of the four new hotels being constructed in Belleville, as well as the probable repositioning of the Grand (see Figures 10.5 and 10.6). The construction sites were already known. Two would be in the
2 2 4 PART THREE • SERVICE MARKETING STRATEGY FIGURE 10.3 Belleville's Principal Business Hotels: Positioning Map of Service Level Versus Price Level financial district and the other two in the vicinity of the convention center. Predicting the positions of the four new hotels was not difficult since preliminary details had already been released. The owners of two of the hotels intended to aim for five-star status, although they admitted that this goal might take a few years to achieve. Three of the newcomers would be affiliated with international chains. Their strategies could be guessed by examining hotels these same chains had opened recently in other cities. Press releases distributed by the Grand had already declared FIGURE 10.4 Belleville's Principal Business Hotels: Positioning Map of Location Versus Physical Luxury
CHAPTER TEN • SERVICE POSITIONING AND DESIGN 22 5 FIGURE 10.5 Belleville's Principal Business Hotels, Following New Construction: Positioning Map of Service Level Versus Price Level FIGURE 10.6 Belleville's Principal Business Hotels after New Construction: Positioning Map of Location Versus Physical Luxury
2 2 6 PART THREE . SERVICE MARKETING STRATEG1 that the "New Grand" would be larger and even more luxurious, and its management planned to add new service features. Pricing was easy to project because new hotels use a formula for setting posted room prices (the prices typically charged to individuals staying on a weekday in high season).This price is linked to the average construction cost per room at the rate of $1 per night for every $1000 of construction costs. Thus, a 500-room hotel that costs $100 million to build (including land costs) would have an average room cost of $200,000 and would need to set a price of $200 per room night. Using this formula, Palace managers concluded that the four new hotels would have to charge significantly more than the Grand or the Regency. This would have the effect of establishing what marketers call a "price umbrella" above existing price levels and would give other competitors the option of raising their prices. To justify the high prices, the new hotels would have to offer customers very high standards of service and luxury. At the same time, the New Grand would need to increase its prices to recover the costs of renovations, new construction, and enhanced service offerings. Assuming that no changes "were made by either the Palace or the other existing hotels, the impact of the new competition clearly posed a significant threat to the Palace. It would lose its unique locational advantage and become one of three hotels in the immediate vicinity of the financial district (see Figure 10.6). The sales staff believed that many of the Palace's existing business customers would be attracted to the Continental and the Mandarin and would be willing to pay higher rates in order to obtain superior benefits. The other two newcomers were seen as more of a threat to the Shangri-La, Sheraton, and New Grand in the shopping district/convention center cluster. The New Grand and the other entrants would create a high price/high service and luxury cluster at the top end of the market, leaving the Regency in what might prove to be a distinctive—and therefore defensible—space of its own. What action should the Palace take under these circ*mstances? One option would be to do nothing in terms of service enhancements or physical improvements. But the loss of its locational advantage would probably destroy the hotel's ability to charge a price premium, leading to lower prices and profits. Some of the best staff might be enticed away by the new hotels, leading to a decline in service quality. And without renovations, there would be a gradual decline in physical luxury, too. The net result over time might be to shift the Palace into a new cluster with the Castle, serving guests who want to visit destinations in the financial district but are unable (or unwilling) to pay the high prices charged at the Mandarin and Continental. As you can see, doing nothing would have significant strategic implications! If other existing hotels decided to upgrade and the Palace did nothing, it would eventually slide even further down the scales on luxury and service, risking reclassification as a three-star hotel. An alternative strategy would be to implement renovations, service improvements, and programs to reinforce the loyalty of current guests before the new hotels are completed. The price umbrella these hotels create would allow the Palace to raise its rates to cover the additional costs. The hotel might then move to a new position where it is clustered with the Regency on the dimensions of price and service. On the dimensions of luxury and location, it would be clustered with the Mandarin and Continental but with slightly lower prices than either competitor. So what did the Palace actually do? Management selected the second option, concluding that the future profitability of the hotel lay in competing against the Continental (and to a lesser extent against the Mandarin) for the growing number of business travelers visiting Belleville's financial district.The Palace also tried to retain the loyalty of frequent guests by recording their preferences and special needs on the hotel database so that staff could provide more personalized service. Advertising and selling efforts promoted these improvements, and frequent guests were sent personalized direct
CHAPTER TEN • SERVICE POSITIONING AND DESIGN 22 7 mailings from the general manager. Despite the entrance of new and formidable competition, the Palace's occupancy levels and profits have held up very well. CREATING AND PROMOTING COMPETITIVE ADVANTAGE Creating a competitive advantage presents special challenges for service providers, who are often forced to compete with goods and customers' self-service options in addition to other service providers. Since customers seek to satisfy specific needs, they often evaluate reasonable alternatives that offer broadly similar benefits. For example, if your lawn desperately needs mowing, you could buy a lawn mower and do it yourself—or you could hire a lawn maintenance service to take care of the chore for you. Customers may make choices between competing alternatives based on their skill levels or physical capabilities and their time availability, as well as on factors like cost comparisons between purchase and use, storage space for purchased products, and anticipated frequency of need. As you can see, direct competition between goods and services is often inevitable in situations where they can provide the same basic benefits. This concept is illustrated in Figure 10.7, which shows four possible delivery alternatives for both car travel and word processing. These alternatives are based on choices between ownership or rental of physical goods and self-service or hiring other people to perform the tasks. Of course, many businesses rely on a mixture of both goods and services to satisfy customer needs. "Quasi-manufacturing" operations like fast-food restaurants sell goods supplemented by value-added service. At each site, customers can view a menu describing the restaurant's products, which are highly tangible and easily distinguishable from those of competitors. The service comes from speedy delivery of freshly prepared food items, the ability to order and pick up food from a drive-in location without leaving the car, and the opportunity to sit down and eat a meal at a table in a clean environment. Providers of less tangible services also offer a "menu" of products, representing a bundle of carefully selected elements built around a core benefit. For instance, universities provide many types of undergraduate education, ranging from two-year certification programs to the completion of bachelors' degrees, and from full-time residency to evening extension programs. Most also offer graduate studies and nondegree continuing education classes. The supplementary service elements include advising, library and computer resources, entertainment opportunities like theater and sports events, food and health care services, and a safe, pleasant campus environment. FIGUR E 10. 7 Services as Substitutes for Owning and/or Using Goods
2 2 8 PART THREE . SERVICE MARKETING STRATEGY The Power of Service Brands brand: a name, phrase, design, symbol, or some combination of these elements that identifies a company's services and differentiates it from competitors. Because of the difficult competitive challenges faced by service providers, especially the problem of differentiating an intangible performance, branding plays a special role in defining and positioning a company's service offerings. As Leonard Berry states: Strong brands enable customers to better visualize and understand intangible products. They reduce customers' perceived monetary, social or safety risk in buying services, which are difficult to evaluate prior to purchase. Strong brands are the surrogate when the company offers no fabric to touch, no trousers to try on, no watermelons or apples to scrutinize, no automobile to test-drive.'" While the product is the primary brand for packaged goods, the company itself serves as the brand for services. But what is a brand? Harry Beckwith argues in his book Selling the Invisible that for a service, a brand is more than a name or a symbol. It is an implicit promise that a service provider will perform consistently up to customer FIGURE 10.8 AARP Promotes a Fit, Fun Image to Attract New Members in Their Fifties 96 MODERN MATURITY KKMM8t»-i)»:< £>«!? XO0
CHAPTE R TE N • SERVICE POSITIONIN G AND DESIG N 22 9 expectations over time. Brands are very important to service customers, because few services have warranties—in part because they are typically difficult to guarantee. For example, how do you guarantee that a doctor's diagnosis will be accurate? That a professor's class will be educational? That a tax accountant will find every legal deduction? Customers can't experience service quality in advance of purchase, so most of the time they have to rely on the service provider's brand image as a promise of future satisfaction. Ritz-Carlton promises a particular type of luxury hotel experience; Motel 6 stands for something simpler and more affordable. Similarly, Southwest Airlines and Singapore Airlines, both respected as leaders in their industry, offer very different air travel experiences. Brands that offer good value on a consistent basis gain the trust and respect of their customers. In fact, when traveling on business or vacation, people who value consistency often seek out the same service providers that they patronize at home. Perhaps you're among them. Advertising and other marketing communications play an important role in creating a positive brand image and establishing expectations. Even nonprofit organizations like AARP have developed brand image campaigns. Figure 10.8 shows an advertisem*nt from a campaign designed, in part, to dispel misperceptions that the AARP (formerly the American Association of Retired Persons) consisted only of inactive, elderly individuals—in fact, membership is open to anyone over the age of 50. And the Chicago Symphony Orchestra experienced a 10-percent increase in donations following a communications program that introduced a modernized logo and sought to create a consistent, upbeat image for the orchestra. To maintain a well-defined brand identity, a firm must reinforce key brand attributes in all of its communications—from service encounters to television advertising. Marketing messages may vary by target audience, but there should be a consistent theme. This includes Web sites, which can be powerful communication links with customers if managed effectively. Companies like FedEx, UPS, Kinko's, and Sir Speedy use the Internet to provide online information and delivery options for their customers. These value-added services help to enhance customers' overall brand experiences. The "Branded Customer Experience" Customer satisfaction—the deep kind of satisfaction that builds loyalty—doesn't result from any one thing. A customer's decision to stay with a particular supplier or defect to another is often the result of many small encounters. Successful firms recognize this and design distinctive service strategies to ensure that ordinary events will be perceived as extraordinary. The Forum Corp., a consulting and training group in Boston, calls this creating a "branded customer experience."12 According to the Forum, the promise of the service brand should be reinforced at every point of contact between a company and its customers. Forum senior vice president Scott Timmins says: "The question is, what is our brand of customer delight—what are we known for, what do customers expect us to deliver reliably, where's our wow?" Southwest Airlines has mastered the branded service experience—with a twist. Its brand stands for the opposite of extravagant treatment, but passengers are not expecting that. Instead, the airline delights its customers by making and keeping a promise to provide simple, convenient, inexpensive service, with a little humor on the side. Southwest's positioning strategy is designed to reinforce its image as the " No Frills" carrier. This theme is emphasized in its clever advertising campaigns, the reusable plastic boarding passes, and the casual appearance and demeanor of its flight attendants.
230 PART THREE • SERVICE MARKETING STRATEGY halo effect: the tendency for consumer ratings of one prominent product characteristic to influence ratings for many other attributes of that same product. Changing Brand Perceptions Customers'perceptions about specific brands often reflect the cumulative impact of different service encounters. These experiences can result in a halo effect—either positive or negative—that makes it difficult for customers to assess the specific strengths and weaknesses of competing services.13 For instance, reported customer dissatisfaction with one attribute of a particular service may be real (and thus need corrective action) or could be the result of a negative halo effect caused by a high dissatisfaction with a second attribute or even by a high overall dissatisfaction with the brand. One problem in consumer satisfaction research is that respondents often complete survey questionnaires quickly, without carefully considering each of the different dimensions on which they are rating a service firm's performance. If they are unhappy with a service in general, they may rate all attributes poorly rather than identifying those that are actually dissatisfying. In-depth personal interviews usually offer a more reliable way to probe customers' evaluations and obtain more carefully considered responses. However, this type of research is time consuming and more expensive to administer. Improving negative brand perceptions may require extensive redesign of the core product and/or supplementary services. However, weaknesses are sometimes perceptual rather than real. Ries and Trout describe the case of Long Island Trust, historically the leading bank serving this large suburban area to the east of New York City.14 After laws were passed to permit unrestricted branch banking throughout New York State, many of the big banks from neighboring Manhattan began invading Long Island. Research showed that Long Island Trust was rated below banks like Chase Manhattan and Citibank on such key selection criteria as branch availability, full range of services offered, service quality, and capital resources. However, Long Island Trust ranked first on helping Long Island residents and the Long Island economy. The bank's advertising agency developed a campaign promoting the "Long Island position," playing to its perceived strengths rather than seeking to improve perceptions on attributes where it was perceived less favorably. The tenor of the campaign can be gauged from the following extract from a print ad: Why send your money to the city if you live on the Island? It makes sense to keep your money close to home. Not at a city bank but at Long Island Trust. Where it can work for Long Island. After all, we concentrate on developing Long Island. Not Manhattan Island or some island off Kuwait— Other advertisem*nts in the campaign promoted similar themes, such as, "The city is a great place to visit, but would you want to bank there?" When identical research was repeated 15 months later, Long Island Trust's position had improved on every attribute. The campaign had succeeded in reframing its brand image by changing its customers' frame of reference from a global to a local perspective. Although the firm had not changed any of its core or supplementary services, the perceived strength of being a Long Island bank for Long Islanders now had a strongly positive halo effect on all other attributes. NEW SERVICE DEVELOPMENT Competitive intensity and customer expectations are increasing in nearly all service industries.Thus success lies not only in providing existing services well, but also in creating new approaches to service. Because the outcome and process aspects of a service often combine to create the experience and benefits obtained by customers, both aspects must be addressed in new service development.
CHAPTER TEN • SERVICE POSITIONING AND DESIGN 23 1 A Hierarchy of Service Innovation The word "new" is popular in marketing because it's a good way to attract people's attention. However, there are different degrees of "newness" in new service development. In fact, we can identify seven categories of new services, ranging from major innovations to simple style changes. 1. 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 FedEx's introduction of overnight, nationwide, express package delivery in 1971, the advent of global news service from CNN , and eBay's launch of online auction services. 2. 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 nontraditional way. It has no permanent campus; instead its courses are offered online or at night in rented facilities. Its students get most of the core benefits of a college degree in half the time and at a much lower price than other universities.15 The existence of the Internet has led to the creation of many start-up businesses employing new retailing models that exclude the use of traditional stores, saving customers time and travel costs. Often, these models add new, information-based benefits such as greater customization, the opportunity to visit chat rooms with fellow customers, and suggestions for additional products that complement what has already been purchased. 3. 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, but the others are merely followers who are often acting defensively.These new services may be targeted at existing customers to serve a broader array of needs, designed to attract new customers with different needs, or both. Starbucks, known for its coffee shops, has extended its offerings to include light lunches (Figure 10.9). Major computer manufacturers like Compaq, Hewlett-Packard, and IBM are going beyond their traditional business definitions to offer integrated "e-solutions" based on consulting and customized service. Telephone companies have introduced numerous value-added services such as caller ID, call waiting, and call forwarding. Cable television providers are starting to offer broadband Internet access. Many banks sell insurance products in the hope of increasing the numbe r of profitable relationships with existing customers. American Express, too, offers a full range of insurance products, including auto, home, and umbrella policies. And at least one insurance company—State Farm Insurance—has gone into the banking business, relying on its well-established brand name to help draw customers. 4. Process line extensions are less innovative than process innovations. But they do often represent distinctive new ways of delivering existing products, either with the intent of offering more convenience and a different experience for existing customers or of attracting new customers wh o find the traditional approach unappealing. Most commonly, they involve adding a lower-contact distribution channel to an existing high-contact channel, as when a financial service firm develops telephone-based or Internet-based services or a bricks-and-mortar retailer adds catalog sales or a Web site. For example, Barnes and Noble, the leading bookstore chain in the United States, added a new Internet subsidiary,
2 3 2 PART THREE • SERVICE MARKETING STRATEGY FIGUR E 10. 9 Starbucks Promotes Its Expanded Service Offering BarnesandNoble.com, to help it compete against Amazon.com. Creating selfservice options for customers to complement delivery by service employees is another form of process line extension. 5. Supplementary service innovations involve adding new facilitating or enhancing service elements to an existing core service, or 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. 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 Cafe are examples of enhancing the core with new experiences. The cafes are designed to keep customers entertained with aquariums, live parrots, waterfalls, fiberglass monkeys, talking trees that spout environmentally related information, and regularly timed thunderstorms, complete with lightning.17 6. Service improvements are the most common type of innovation. They involve modest changes in the performance of current products, including improvements to either the core product or to existing supplementary services. For instance, a movie theater might renovate its interior, adding ergonomically designed seats with built-in cup holders to increase both comfort and convenience for customers during the show or an airline might add power sockets for laptops in its business-class cabins. 7. Style changes represent the simplest type of innovation, typically involving no changes in either processes or performance. However they are often highly visible, create excitement, and may serve to motivate employees. Examples include
CHAPTER TEN • SERVICE POSITIONING AND DESIGN 23 3 repainting retail branches and vehicles in new color schemes, outfitting service employees in new uniforms, introducing a new bank check design, or making minor changes in service scripts for employees. As you can see, service innovation can occur at many different levels. It's important to recognize that not every type of innovation has an impact on the characteristics of the core product or results in a significant change in the customer's experience. Creating a New Service to Fill an Empty Market Position As we noted earlier, positioning research sometimes reveals new opportunities in the marketplace. Perceptual maps can highlight positions where there is expressed or latent demand for a certain type of service but none of the existing offerings have attributes that closely meet potential customers' requirements. Whe n a firm uncovers such an opportunity, the only way to take advantage of it is to develop a new service with the desired characteristics. Service design is not typically a simple task. Most new services involve compromises, because there are usually limits to what most prospective customers are willing to pay. And service providers must be careful not to lose control of their costs in coming up with superior performance levels on the product characteristics that customers desire. So how can product planners determine what features and price will create the best value for target customers? It's hard to know without asking prospective users—hence the need for research. Let's examine how the Marriott Corporation employed market research to help develop a new service concept in the lodging industry. Marriott had identified a niche in the business travel market between full-service hotels and inexpensive motels. The opportunities were seen as especially attractive in locations where demand was not high enough to justify a large full-service hotel. Having confirmed the presence of a niche where there was unmet market demand, Marriott executives set out to develop a product to fill that gap. As a first step, the company hired marketing research experts to help establish an optimal design concept. 1 8 Since there are limits to how much service and how many amenities can be offered at any given price, Marriott needed to know how customers would make trade-offs in order to arrive at the most satisfactory compromise in terms of value for money. The intent of the research was to get respondents to trade off different hotel service features to see which ones they valued most. A sample of 601 consumers (who were part of the business travel market) from four metropolitan areas participated in the study. Researchers used a sophisticated technique known as conjoint analysis that asks survey respondents to make trade-offs between different groupings of attributes. The objective is to determine which mix of attributes at specific prices offers the highest degree of utility. The 50 attributes in the Marriott study were divided into the following seven factors (or sets of attributes), each containing a variety of different features based on detailed studies of competing offerings: 1. External factors—building shape, landscaping, pool type and location, hotel size 2. Room features—room size and decor, climate control, location and type of bathroom, entertainment systems, other amenities 3. Food-related services—type and location of restaurants, menus, room service, vending machines, guest shop, in-room kitchen 4. Lounge facilities—location, atmosphere, type of guests 5. Services—reservations, registration, check-out, airport limo, bell desk, message center, secretarial services, car rental, laundry, valet
2 3 4 PART THREE • SERVICE MARKETING STRATEGY FIGUR E 10.1 0 Wl^aHliHHMBMMHHaaiMaHMI H Sample Description of a ROOM PRICE PER NIGHT IS $44.85 Hotel Offering BUILDING SIZE, BAR/LOUNGE Large (600 rooms), 12-story hotel with: • Quiet bar/lounge • Enclosed central corridors and elevators • All rooms have very large windows LANDSCAPING/COURT Building forms a spacious outdoor courtyard • View from rooms of moderately landscaped courtyard with: —many trees and shrubs —the swimming pool plus a fountain —terraced areas for sunning, sitting, eating FOOD Small, moderately priced lounge and restaurant for hotel guests/friends • Limited breakfast with juices, fruit, Danish, cereal, bacon and eggs • Lunch—soup and sandwiches only • Evening meal—salad, soup, sandwiches, six hot entrees including steak HOTEL/MOTEL ROOM QUALITY Quality of room furnishings, carpet, etc. is similar to: • Hyatt Regency Hotels • Westin "Plaza" Hotels ROOM SIZE AND FUNCTION Room one foot longer than typical hotel/motel room • Space for comfortable sofa-bed and 2 chairs • Large desk • Coffee table • Coffee maker and small refrigerator SERVICE STANDARDS Full service including: • Rapid check in/check out systems • Reliable message service • Valet (laundry pick up/deliver) • Bellman • Someone (concierge) arranges reservations, tickets, and generally at no cost • Cleanliness, upkeep, management similar to: —Hyatts —Marriotts LEISURE • Combination indoor-outdoor pool • Enclosed whirlpool (Jacuzzi) • Well-equipped playroom/playground for kids SECURITY • Night guard on duty 7 P.M. to 7 A.M. • Fire/water sprinklers throughout hotel Source: Jerry Wind et al., "Courtyard by Marriott: Designing a Hotel Facility with Customer-Based Marketing Models," Interfaces, January/February 1989, 25-47.
CHAPTE R TE N - SERVICE POSITIONIN G AN D DESIG N 23 5 6. Leisure facilities—sauna, whirlpool, exercise room, racquetball and tennis courts, game room, children's playground 7. Security—guards, smoke detectors, 24-hour video camera For each of these seven factors, respondents were presented with a series of stimulus cards displaying different levels of performance for each attribute. For instance, the "Rooms" stimulus card displayed nine attributes, each of which had three to five different levels. Thus, amenities ranged from "small bar of soap" to "large soap, shampoo packet, shoeshine mitt" to "large soap, bath gel, shower cap, sewing kit, shampoo, special soap" and then to the highest level, "large soap, bath gel, shower cap, sewing kit, special soap, toothpaste, etc." In the second phase of the analysis, respondents were shown cards depicting a number of alternative hotel profiles, each featuring different levels of performance on the various attributes contained in the seven factors.They were asked to indicate on a fivepoint scale how likely they would be to stay at a hotel with these features, given a specific room price per night. Figure 10.10 shows one of the 50 cards that were developed for this research. Each respondent received five cards. The research yielded detailed guidelines for the selection of almost 200 features and service elements, representing those attributes that provided customers in the target segment with the highest utility for the prices they were willing to pay. An important aspect of the study was that it focused not only on what travelers wanted, but also identified what they liked but weren't prepared to pay for. (There's a difference, after all, between wanting something and being willing to pay for it!) Using these inputs, the design team was able to meet the specified price while retaining the features most desired by the study participants, who represented the desired business traveler market. Marriott was sufficiently encouraged by the findings to build three prototype hotels that were given the brand name, "Courtyard by Marriott." After testing the concept under real-world conditions and making some refinements, the company developed a large chain whose advertising slogan became "Courtyard by Marriott—the hotel designed by business travelers." The new hotel concept filled a gap in the market with a product that represented the best balance between the price customers were prepared to pay and the physical and service features they most desired. The success of this project subsequently led Marriott to develop additional customer-driven products—Fairfield Inn and Marriott Suites—using the same research methodology. Conclusion Service companies must find ways to create meaningful competitive advantages for their products by responding to specific customer needs and developing a distinctive service strategy that responds to those needs better than any competing product. Successful positioning strategies are based on relating the opportunities (and threats) uncovered by market and competitive analysis to the firm's own strengths and weaknesses. In this chapter, we introduced perceptual mapping, an important tool that companies can use to help define their competitive positions. Perceptual maps present a visual display of how competing firms perform relative to each other on key service attributes. This technique can be used to analyze opportunities for developing new services or repositioning existing ones so that companies can establish and maintain a sustainable competitive advantage by effectively addressing the needs and expectations of their target markets. Because of the difficult challenge faced by service providers in differentiating intangible performances, branding plays a special role in defining and positioning a com-
2 3 6 PART THREE • SERVICE MARKETING STRATEGY pany s service offerings. Creating a distinctive branded service experience for customers requires consistency at all stages of the service delivery process. In designing services, managers should be aware of the importance of selecting the right mix of supplementary service elements—no more and no less than needed—and creating synergy to ensure that they contribute to a consistent, positive brand image. Study Questions and Exercises 1. Give examples of companies in other industries that are facing challenges similar to those of the travel agents in the opening story. Describe what service strategies these companies might use to compete effectively. 2. Why should service firms focus their efforts? What options do they have for doing so? 3. In a sentence or two, describe Amtrak's service strategy for its new Acela Express service (refer to the boxed example on page 218). 4. Describe what is meant by the term "positioning." Choose an industry you are familiar with (like fast-food restaurants or movie theaters) and create a perceptual map showing the competitive positions of different companies in the industry. 5. Explain why branding is particularly important for services. Which service brands are you familiar with? What do they tell you about the companies they are associated with? 6. Discuss how a company's product attributes (including the core and supplementary services), price, and marketing communications all work together to create a branded customer experience. Provide an example of a service firm that you think has integrated these elements particularly well. 7. Define the seven categories of new services. Provide your own example for each category. Endnotes 1. From J. Case and J. Useem, "Six Characters in Search of a Strategy," Inc. Magazine, March 1996,46-55. 2. George S. Day, Market Driven Strategy (NewYork:The Free Press, 1990), 164. 3. See R. H. Hayes and S. C. Wheelwright, Restoring Our Competitive Edge (New York: Wiley and Sons, 1984);J. L. Heskett, Managing in the Service Economy (Boston, MA: Harvard Business School Press, 1986); and J. L. Heskett,W E. Sasser, and C.W. L. Hart, Service Breakthroughs: Changing the Rules of the Game (NewYork:The Free Press, 1990). 4. Robert Johnston, "Achieving Focus in Service Organizations," The Service Industries Journal 16 (January 1996): 10-20. 5. Leonard L. Berry, On Great Service (NewYork:The Free Press, 1995), 62-63. 6. Graham Clark, Robert Johnston, and Michael Shulver, "Exploiting the Service Concept for Service Design and Development," in New Service Development: Creating Memorable Experiences (Thousand Oaks, CA: Sage Publications, 2000), 71—91. 7. Leonard L. Berry, "Cultivating Service Brand Equity," Journal of the Academy of Marketing Science 28, no. 1(2000): 132. 8. Jack Trout, The New Positioning:The Latest on the World's #1 Business Strategy (New York: McGraw-Hill, 1997). See also Al Ries and Jack Trout, Positioning: The Battle jorYour Mind, reissue ed. (NewYork: Warner Books, 1993). 9. Information from William G. Zikmund and Michael d'Amico, Marketing: Creating and Keeping Customers in an E-Commerce World (Cincinnati, OH: South-Western College
CHAPTER TEN • SERVICE POSITIONING AND DESIGN 23 7 Publishing, 2001), 275—276; and Bruce Horovitz, "Dreaming Big Top: Cirque de Soleil Aims to Be Worldwide Brand," USA Today, 18 March 1999. 10. Berry,"Cultivating Service Brand Equity," p. 128. 11. Laura Koss Feder, "Branding Culture: Nonprofits Turn to Marketing to Improve Image and Bring in the Bucks," Marketing News, 1 January 1998, 1. 12. Thomas A. Stewart,"A Satisfied Customer Isn't Enough," Fortune, 21 July 1997,112-113. 13. Jochen Wirtz and John E. G. Bateson,"An Experimental Investigation of Halo Effects in Satisfaction Measures of Service Attributes," International Journal of Service Industry Management 6, no. 3 (1995): 84-102. 14. Al Ries and Jack Trout, Positioning :The Battle jorYour Mind, 1st ed., rev. (New York: Warner Books, 1986). 15. See James Traub, "Drive-Thru U.," The NewYorker, 20 and 27 October 1997; and Joshua Macht, "Virtual You," Inc. Magazine, January 1998, 84-87. 16. Mark Boslet and Elinor Abreu, "The New HP Way," The Industry Standard, 25 September 2000,58-61. 17. Chad Rubel,"New Menu for Restaurants: Talking Trees and Blackjack, Marketing News, 29 July 1996,1. 18. Jerry Wind, Paul E. Green, Douglas Shifflet, and Marsha Scarbrough, "Courtyard by Marriott: Designing a Hotel Facility with Consumer-Based Marketing Models," Interfaces (January-February 1989); 25-47.
Service Delivery Issues In Part IV, we address the task of how to deliver service products to the customer. As shown in Figure IV. 1, managers face three key questions: What are the options for delivering our service? How can we balance productivity and quality concerns? How should we match demand and productive capacity? Service delivery issues have been dominated traditionally by operations. But progressive service organizations also include their marketing and human resource managers in these types of decisions. Before they can make decisions on service delivery (the topic of Chapter 11), managers need to ask, What physical and electronic channels can we use? Service delivery is closely linked to the choice of service process—whether the service involves the physical person of the customer, a tangible possession, or some form of information. In high-contact services customers encounter employees and physical evidence of facilities. Even when physical channels are necessary to deliver the core service, information-based supplementary services may be delivered electronically. It's possible to deliver some information-based services entirely through automated, low-contact systems. Is it feasible to shift from highcontact to low-contact delivery? If so, Should we offer customers a choice? Abandoning existing high-contact delivery options is not necessarily a viable strategy. Some customers may not like the low-contact delivery alternatives, others may prefer having access to both physical and electronic delivery channels. Another key service delivery consideration is: When and where should our service be available? Success in services increasingly depends on offering customers convenience. Electronic delivery through the Internet has the advantage of being accessible 24 hours a day, 7 days a week, from a location of the customer's choosing. Finally, managers need to address the issue of What options exist for using third-party intermediaries? Often a case can be made for subcontracting some aspects of service delivery to intermediaries who possess special expertise and may have better access to customers. The challenge of balancing productivity and quality presents an ongoing headache for businesses. It can lead to conflict between marketers—who are advocates of customer satisfaction—and operations managers, who are concerned with efficiency and cost control. As we note in earlier chapters, customers' perceptions of service quality tend to be linked to their expectations of the service, raising the questions: What quality improvements are needed to meet or exceed customer expectations ? How can we reduce operating costs without spoiling the appeal of our service? We address these and other quality and productivity issues in Chapter 12. Making optimal use of available capacity is one way to improve productivity. However, many service businesses face wide swings in demand that result in wasted capacity when demand is low and lost business when it's too high. Chapter 13 addresses the question, What strategies can we employ to match demand and capacity?'To
FIGURE IV. 1 Decisions Involving Service Delivery resolve this challenge, strategists need to understand both the nature of productive capacity and the factors that underlie periodic variations in demand. Both marketing and operational strategies can be employed. Issues relating to waiting lines and reservations are discussed in Chapter 14. Reservations systems provide one way of balancing demand against available capacity, since they allow customers to obtain a commitment for service delivery at a specific time in the future. Another approach is to develop a strategy for managing waiting lines, designing them with reference to the anticipated volume of business and the customer mix. 239
Creating Delivery Systems in Place,Cyberspace, and Time Kinko's: From Local Copyshop to Global Business Service Provider In 1970, 22-year-old Paul Orfalea, just out of college, borrowed enough money to open a photocopy shop in Isla Vista, near the campus of the University of California at Santa Barbara.1 Covering just 100 square feet (less than 10 square meters), the tiny store contained one copy machine and also sold film processing and felt-tip highlighter pens. Orfalea, the son of Lebanese immigrants, called the store Kinko's after the nickname given to him by his college buddies because of his curly reddish hair. Thirty years later, Kinko's boasted a chain of almost one thousand printing and copying stores, operating 24 hours a day from coast to coast in the United States, plus branches in Canada, Britain, the Netherlands, Australia, United Arab Emirates, and three Asian countries. Kinko's offers ways to change companies' existing working procedures through services that include productivity consultation and outsourcing of document management. It also appeals to business travelers who may need to develop and deliver presentations, reports, and proposals far from their home offices. (A few years ago, Kinko's even ran a national advertising campaign positioning the firm as "Your Branch Office.") Technological innovations in IT and printing have revolutionized Kinko's business model and created new methods of working for both the company and its customers. At its stores, Kinko's customers can print in color in almost any size, bind their documents in many different ways, send faxes, and work on in-house computers. Many locations also offer videoconferencing technology. The company provides an array of other services and products, including rentals of conference rooms, notary public service, and sale of office supplies. Kinko's now describes itself as "the world's leading provider of visual communications services and document copying." The firm has created a global online network, employing broadband technology to link all its locations. Using Kinkonet, the firm's online service, customers can order supplies or submit files for printing. Thanks to digital file transmission, customers can compose reports in, say, Minneapolis and transmit them electronically to, say, Montreal where they can be printed and bound for a meeting. This procedure is an alternative to the traditional approach of first creating documents and graphics, then printing and binding them, and finally, shipping them physically to another location. Through a partnership with FedEx, couriers can deliver reports to local addresses in some 55 markets within only four hours.Recognizing that not all customers are in a position to transfer document files by modem and that printed materials may need to be delivered physically to their final destination, Kinko's has worked with FedEx to install "World Service Centers" at selected branches. These centers offer a full complement of express shipping solutions and provide access to late pickups. In 2000, the firm announced creation of a separate company, Kinkos.com, combining its existing Internet-based activities with newly acquired e-business expertise, online design tools, and proprietary technology. Kinkos.com aimed to become a leading online resource for the small office/home office (SOHO) market, offering
customers 24/7 access to expert advice, powerful online tools, and the worldwide Kinkos' network—all from their own desktops. Kinkos.com has a clicks-and-mortar relationship with the storebased company, using the latter's physical locations for in-store marketing, customer acquisition, and physical distribution. © Learning Objectives After reading this chapter, you should be able to £> distinguish between physical and electronic channels of delivery £> recognize that delivery systems must address issues of where, when, and how service is to be delivered to customers ^> define the three different types of service delivery channels £> understand the role of physical evidence and servicescapes in service delivery ^> explain the role of technology in enhancing the speed, convenience, and productivity of service delivery systems £> describe the role of intermediaries in service delivery 241
242 PART FOUR • SERVICE DELIVERY ISSUE S EVALUATING ALTERNATIVE DELIVERY CHANNELS This is both an exciting and challenging time for managers who are responsible for service delivery. Customers are demanding more convenience, and they expect services to be delivered where and when they want them.- As the Kinko's example shows, new technologies allow information-based services (and informational processes related to supplementary services) to be delivered almost anywhere through electronic channels. This chapter explores a key question in service management: What are the options for delivering our service? In many cases, customers are no longer obliged to visit service factories as the concept of going to a physical place for service delivery gives way to delivery in cyberspace for information-based services. In addition to moving from factory- to electronic-based delivery, progressive firms are coming up with different formats for face-to-face delivery in new locations. Such innovations include services like massage clinics on airport concourses and Wells Fargo's tiny bank branches occupying booths at the end of supermarket aisles. Physical versus Electronic Delivery As service managers consider the options for delivering their services, two key questions are, What physical and electronic channels can we use? and Is it feasible to switch from high-contact to low-contact delivery? While goods require physical distribution, those services that are information based can be delivered through either electronic or physical channels. Many of the supplementary services surrounding both intangible and tangible core products can now be delivered electronically. Even service businesses that involve physical core products—like retailing and repair—are shifting delivery of many supplementary services to the Web, closing some of their physical branches, and moving to low-contact strategies for interacting with customers. As you can see in Figure 11.1, five of the eight petals of FIGUR E 11. 1 Information and Physical Processes Within the Augmented Service Product
CHAPTE R ELEVEN • CREATIN G DELIVERY SYSTEMS IN PLACE, CYBERSPACE, AND TIM E 243 the augmented service product are information-based processes that can be delivered either physically or electronically. Consultation, order taking, billing, payment, and information can all be transmitted in the digital code of computers. The growth of electronic channels is creating a fundamental change in the nature of marketing. Customers are moving from face-to-face contacts with suppliers in fixed locations that only operate during fixed hours to remote contacts in cyberspace, "anywhere, anytime." More and more services now fall into the category of arm's length relationships rather than face-to-face interactions. As Rayport and Sviokla note: Tiie traditional marketplace interaction between physical seller and physical buyer has been eliminated. In fact, everything about this new type of transaction—what we call a marketspace transaction—is different from what happens in the marketplace. cyberspace: a term used to describe the absence of a definable physical location where electronic transactions or communications occur. The Marketplace Companies doing business in the marketplace need a physical environment in which customers can get together with suppliers to inspect merchandise or conduct service-related business. We can't get rid of the marketplace for people-processing services, because these services require customers to enter the physical environment of a service factory. In some instances, customers don't want to get rid of the marketplace because it is the physical and social environment that attracts them, like in destination resorts. marketplace: a physical location where suppliers and customers meet to do business. The Marketspace Companies doing business in the marketspace may be able to replace contact with physical objects with information about those objects (as in a paper or electronic catalog). For information-based services the context in which the transaction occurs is also different, with on-screen (or on-telephone) contact replacing physical contact; customers may also have the option to replace service from contact personnel by self-service through intelligent interactive systems. A desire to save time has been one of the driving forces behind these trends, reflecting customer preferences for ever faster and more convenient service. A second factor has been interest on the part of some customers in obtaining easily accessible information about the goods and services that they buy. Ironically, electronic contacts may bring customers "closer" to manufacturers and service suppliers. Managers are beginning to realize that the opportunity to develop increased knowledge of customers may be as important a reason for doing business in the marketspace as seeking cost savings by eliminating physical contact. Conducting dialog with customers about their needs and preferences (information that can be stored in databases for future reference) can lead to delivery of better and more customized service—which may create greater value and therefore command higher prices. marketspace: a virtual location in cyberspace, made possible by telephone and Internet linkages, where customers and suppliers conduct business electronically. Designing the Service Delivery Process The nature of the service both influences and is shaped by distribution strategy. In highcontact services, the design of the physical environment and the way in which customer-contact personnel perform their tasks help create a distinctive identity for a service firm, shape the nature of customers' experiences, and enhance both productivity and quality. However, low-contact services are often designed specifically with improved productivity in mind. More and more frequently, customers deliver these services themselves through self-service technologies rather than interacting directly with service employees. The design of service delivery systems should start with the core product and then be expanded to include the delivery of each of the supplementary services. Managers
2 4 4 PART FOUR • SERVICE DELIVERY ISSUES responsible for developing service delivery strategy will need to address the following marketing and operations issues: *- What should be the nature of contact between the service provider and its customers! Should customers come to the provider or the other way around? Or should the two parties deal at arm's length, using mail and telecommunications (ranging from telephone to the Web)? >- What should be the sequencing of the various steps in the service delivery process! Both operational and customer preferences need to be taken into account in making this decision. The blueprinting methods we discussed in Chapter 7 can be used in exploring alternative delivery sequences. >- Wliere (location) and when (scheduling) should these steps take place! The choice today is not only between different physical locations but also between physical space and cyberspace. >- Wliat should be the nature of customer involvement at each step! If customers are required to be present, should they be served in batches or individually? Alternatively, should they serve themselves? >- Wliat imagery and atmosphere should the service delivery environment (or servicescape) try to create? For a high-contact service, this concerns decisions on: facility design and layout; staff uniforms, appearance, and attitudes; the type of furnishings and equipment installed; and the use of music, lighting, and decor. ^Should a service firm take responsibility for the entire delivery process or delegate some steps to intermediaries? Some supplementary services, like information and reservations, can be handled very efficiently and cost-effectively by intermediaries. »- What should be the serving protocol? Should the firm operate a reservations system or work on a first-come, first-served basis, using queuing when necessary? Or should a priority system be established for certain types of customers (like many firms do for their larger industrial accounts or airlines do for their gold card frequent flyers)? OPTIONS FOR SERVICE DELIVERY Delivering a service to customers involves answering the questions "where? " "when? " and "how? " Service marketing strategy must address place and time, paying at least as much attention to speed, scheduling, and the potential for electronic access in cyberspace issues as to the more traditional notion of physical location. The nature of the delivery system has a powerful impact on the customer's experience with the service product. Service delivery strategy is shaped by several factors, including the nature of the business, the service processes employed, the types of customers targeted, and productivity and quality concerns. A key question is whether the nature of the service or the firm's positioning strategy requires customers to be in direct physical contact with its personnel, equipment, and facilities. If so, do customers need to visit the service organization's facilities or should personnel and equipment be sent to the customer's site? Alternatively, can transactions between provider and customer be completed at arm's length through either telecommunications or modern physical channels of distribution? A second issue concerns the firm's strategy in terms of distribution sites. Should it maintain just a single outlet or serve customers through multiple outlets at different locations? The possible options, combining both type of contact and number of sites, can be seen in Table 11.1.
CHAPTE R ELEVE N • CREATIN G DELIVERY SYSTEM S IN PLACE, CYBERSPACE, AN D TIM E 24 5 TABL E 11. 1 Method of Service Delivery Should we offer customers a choice? Just because a service can be delivered through low-contact channels doesn't necessarily mean it should be. Astute marketers recognize that preferences may vary from one customer to another and even from one situation to another for the same customer. Like Kinko's, many companies offer their customers a choice of delivery channels. Depending on the nature of the service, options may include serving a customer at a firm's own retail sites, delegating service delivery to an intermediary or franchisee, coming to the customer's house or place of business, and (in certain types of services) serving the customer at a distance through physical or electronic channels. Customers Visit the Service Site The convenience of service factory locations and operational schedules becomes an important marketing issue when customers are required to be physically present throughout service delivery—or even just to initiate and terminate the transaction. Retail gravity models and other elaborate statistical techniques are sometimes used to help decide how to locate businesses relative to where prospective customers live or work. Traffic and pedestrian counts are used to establish how many prospective customers pass certain locations each day. Construction of a new highway or the introduction of new rail or bus service may have a significant effect on travel patterns and, in turn, determine which sites are now more desirable and which, less so. Providers Come to the Customer For some types of services, the supplier visits the customer. This is, of course, essential when the target of the service is some immovable physical object like a building that needs cleaning, a large machine that needs repair, a house that requires pest-control treatment, or a garden that needs landscaping. Since it's more expensive and time consuming for service personnel and their equipment to travel to the customer than vice versa, the trend has been away from this approach where possible (few doctors make house calls nowadays!). There may still be a profitable niche in serving customers wh o are willing to pay a premium price for the convenience of receiving personal visits from service providers. On e young veterinarian has built her business around house calls to sick pets. She found that customers were glad to pay extra for a service that not only saves them time but is also less stressful for the pet than waiting in a crowded veterinary clinic, full of other animals and their worried owners. In remote areas such as Alaska or Canada's Northwest Territory, service providers may have to fly to their customers. delivery channels: the means by which a service firm (sometimes assisted by intermediaries) delivers one or more product elements to its customers. retail gravity model: a mathematical approach to retail site selection that involves calculating the geographic center of gravity for the target population and then locating a facility to optimize customers' ease of access.
2 4 6 PART FOUR • SERVICE DELIVERY ISSUE S Australia is famous for its Royal Flying Doctor Service, in which physicians fly to make house calls at remote farms and stations. Othe r more recently established services that travel to the customer include mobile car washing and windshield repair, office and in-home catering, and made-to-measure tailoring services for business people. Some Web-based businesses were developed around the concept of home delivery of retail goods in markets where this type of service delivery had not previously been a viable option. b Aggreko: A Different Kind of Rental Company You probably think of electricity as coming from a distant power station and of air conditioning and heating as fixed installations. So how would you deal with the following challenges? Luciano Pavarotti is giving an open-air concert in Miinster, Germany, and the organizers require an uninterruptible source of electrical power for the duration of the concert, independent of the local electricity supply. A tropical cyclone has devastated the small mining town of Pannawonica in Western Australia, destroying everything in its path, including power lines, and it's urgent that electrical power be restored as soon as possible so that the town and its infrastructure can be rebuilt. In Amsterdam, organizers of the World Championship Indoor Windsurfing competition need power for 27 wind turbines to create strong winds across a huge indoor pool. A U.S. Navy submarine needs a shore-based source of power when it spends time in a remote Norwegian port. Sri Lanka faces an acute shortage of electricitygenerating capability when water levels fall dangerously low at the country's major hydroelectric dams due to insufficient monsoon rains two years in a row. A large, power-generating plant in Oklahoma urgently seeks temporary capacity to replace one of its cooling towers, destroyed yesterday in a tornado. And the organizers of the 2002 Winter Olympics outside Salt Lake City need a temporary, portable electricity generating and distribution system with a capacity equivalent to that required to power a city of two million people. These are all challenges faced and met by a company called Aggreko, which describes itself as "The World Leader in Utility Rental Solutions." Aggreko operates from more than 110 depots in 20 countries around the world. It rents a "fleet" of mobile electricity generators, oil-free air compressors, and temperature control devices ranging from water chillers and industrial air conditioners to giant heaters and dehumidifiers. Aggreko's customer base is dominated by large companies and government agencies. Although a lot of its business comes from needs that are foreseen far in advance—such as the Olympics and other major events, backup operations during factory maintenance, or a package of services during the filming of a James Bond movie—the firm is also poised to resolve problems arising unexpectedly from emergencies. Much of the firm's rental equipment is contained in soundproofed, boxlike structures that can be shipped anywhere in the world and coupled together to create the specific type and level of electrical power output or climate-control capability required by the client. Consultation, installation, and ongoing technical support add value to the core service. Says a company brochure "Emphasis is placed on solving customer problems rather than just renting equipment." Some customers have a clear idea in advance of their needs, others require advice on how to develop innovative, cost-effective solutions to what may be unique problems, and still others are desperate to restore power that has been lost due to an emergency. In the last-mentioned instance, speed is of the essence since downtime can be extremely expensive and in some cases lives may depend on the promptness of Aggreko's response. Delivering service requires that Aggreko ship its equipment to the customer's site, so that the needed power or temperature control can be available at the right place and time. Following the Pannawonica cyclone, Aggreko's Western Australia team swung into action, rapidly organizing the dispatch of some 30 generators ranging in size from 60 to 750 kVA, plus cabling, refueling tankers, and other equipment. The generators were transported by means of four "road trains," each comprising a giant tractor unit hauling three 40-foot (13m) trailers. A full infrastructure team of technicians and additional equipment were flown in on two Hercules aircraft. The Aggreko technicians remained on site for six weeks, providing 24-hour service while the town was being rebuilt. Source: Aggreko's "International Magazine," 1997, Web site www.aggreko.com, January 2001.
CHAPTE R ELEVE N . CREATIN G DELIVERY SYSTEM S IN PLACE, CYBERSPACE, AND TIM E 247 Service providers are more likely to visit corporate customers at their premises than individuals in their homes, reflecting the greater volume of business purchased and the trend toward outsourcing of activities such as cleaning and security. Many organizations need short-term rentals of equipment and labor for special purposes or to boost productive capacity during busy periods. Aggreko, an international company that rents generating and cooling equipment, is prepared to go anywhere in the world—and often at very short notice (see the box, "Aggreko: A Different Kind of Rental Company"). Arm's Length Transactions Dealing with a service organization through arm's length transactions may mean that a customer never sees the service facilities or meets service personnel. As a result, service encounters tend to be fewer in number and involve telephone, mail, fax, Web sites, or e-mail.6 The outcome of using the service remains very important to the customer, but much of the service delivery process is hidden. Credit cards and insurance are examples of services that can be requested and delivered by mail or telecommunications. Small equipment repair can often be handled by shipping the item to a maintenance facility. Companies like Stamps.com sell software, and Web-based services enable business customers to send first-class, priority, and express mail right from their office computers. Mailing and shipping histories can be tracked online. Any information-based product can be delivered almost instantaneously through telecommunication channels to any point in the globe where a suitable reception terminal exists. As a result, physical logistics services, such as FedEx, UPS, and national postal services, now find themselves competing with telecommunications services. When we were writing this book, for instance, we had a choice of mail or courier services for physical shipments of the chapters in either paper or disk form. We could also fax the materials, feeding in the pages one sheet at a time. But by using e-mail, we were able to transmit chapters electronically from one computer to another, with the option of printing them out at the receiving end. In fact, we used all three methods, depending on the nature of the page (hand-drawn images and ads were faxed or mailed), time pressures, and the need for backup in the form of files saved on disks. arm's length transactions: interactions between customers and service suppliers in which mail or telecommunications minimize the need to meet face-to-face. PHYSICAL EVIDENCE AND THE SERVICESCAPE When customers visit a service facility, they expect it to be user friendly—easy to find, simple to use, and staffed by helpful personnel. Operations specialists tend to focus on the functional aspects of facility design, with an emphasis on productive use of resources and safe, efficient delivery of services. But marketers also care about the impression that service facilities and personnel make on customers and how they contribute to the overall service experience. In many instances, it's the nature of that experience that differentiates one service provider from its competitors. So marketers must address the question: What physical evidence should our facilities present? When you go to a service factory and interact directly with employees, you're exposed to more compelling evidence than when service is delivered at your home (or work locations) or through electronic channels. Physical evidence—one of the 8Ps of integrated service management—refers, first, to the tangible elements encountered by customers in the service delivery environment and, second, to the tangible metaphors used in symbols, slogans, or advertising messages. For example, the clean streets, colorful signage, and costumed employees of theme parks like Disneyland and Legoland contribute to the sense of fun and excitement that visitors encounter on arrival and throughout the service experience. Alternatively, consider the office of a successful professional business—an investment bank or a law
2 4 8 PART FOUR • SERVICE DELIVERY ISSUE S firm—where wood-paneled walls, leather-bound books, and antique furnishings are used to create an elegant and impressive atmosphere. Marketers use strategically managed physical evidence in three ways: 1. As an attention-creating medium, differentiating their company's services from those of competitors and attracting customers from target segments 2. As a message-creating medium, using symbolic cues to communicate with the intended audience about the distinctive nature and quality of the service experience 3. As an effect-creating medium, employing colors, textures, sounds, scents, and spatial design to create or heighten an appetite for certain goods, services, or experiences FIGURE 11.2 Distinctive Servicescapes, from Table Settings to Furniture and Room Design, Create Different Customer Expectations of These Two Restaurants
CHAPTER ELEVEN • CREATING DELIVERY SYSTEMS IN PLACE, CYBERSPACE, AND TIME 24 9 Antique stores provide a nice example of how carefully crafted physical evidence can become an important effect-creating medium. As Philip Kotler noted: Many antique dealers also make use of "organizational chaos" as an atmospheric principle for selling their wares. The buyer enters the store and sees a few nice pieces and a considerable amount of junk. The nice pieces are randomly scattered in different parts of the store. The dealer gives the impression, through his prices and his talk, that he doesn't really know values. The buyer therefore browses quite systematically, hoping to spot an undiscovered Old Master hidden among the dusty canvases of thirdrate artists. He ends up buying something that he regards as value. Little does he know that the whole atmosphere has been arranged to create a sense of hidden treasures.1 Take a look at Figure 11.2, which shows the interiors of two restaurants. Imagine that you have just entered one of these two dining rooms and examine the physical evidence each picture provides. Ho w is each establishment positioning itself within the restaurant industry? What sort of meal experience can you expect? Which clues do you use in making your judgments? Resort hotels provide another illustration of how physical evidence can be used as both an attention-creating and an effect-creating medium. Club Med's villages, designed to create a totally carefree atmosphere, may have provided the original inspiration for "get-away" holiday environments. The new destination resorts are not only far more luxurious than Club Med but also draw inspiration from theme park approaches to creating fantasy environments both inside and outside. Perhaps the most extreme examples come from Las Vegas. Facing competition from numerous casinos in other locations, Las Vegas has been trying to reposition itself from a purely adult destination, once described in a London newspaper as "the electric Sodom and Gomorrah," to a somewhat more wholesome resort appealing to families and convention organizers as well. The gambling is still there, of course, but many of the recently built (or rebuilt) hotels have been transformed into visually striking entertainment centers that feature such attractions as erupting "volcanoes," mock sea battles, and even reproductions of Venice and its canals. Servicescape Design The term servicescape describes the style and appearance of the physical surroundings where customers and service providers interact.8 Since servicescapes can create powerful positive or negative impressions, it is important to manage them effectively (especially in high-contact environments). Consider these examples: >• Airlines employ corporate design consultants to help them differentiate the appearance of their aircraft and employees from those of competitors. Although the flight attendants from many airlines look interchangeable in their black or navy blue outfits, some have distinctive uniforms that identify them as employees of uniquely positioned carriers like Singapore Airlines or Southwest Airlines. And most airlines have specific color combinations and logos that appear consistently in the interior decor of the plane, the napkins, the snack food packaging, etc. >- Restaurants often seem to pay more attention to design than to the food they offer. Furnishings, pictures, real or fake antiques, carpeting, lighting, and choice of live or background music all seek to reinforce a desired look and style that may or may not be related to the cuisine. Some restaurants follow themes in both decor and food service. For example, the menus for the Outback
2 5 0 PART FOUR • SERVICE DELIVERY ISSUES Steakhouse chain list hearty foods and beverages with distinctive names, and the settings are designed to make guests feel like they have just taken a journey "down under" to Australia for a meal. *- Many expensive hotels have become architectural statements. Some occupy classic buildings, lovingly restored at huge expense to a far higher level of luxury than ever known in the past, and using antique furnishings and rugs to reinforce their "old world" style. Modern hotels sometimes feature dramatic atriums in which wall-mounted elevators splash down in fountains. Resort hotels invest enormous sums to plant and maintain exotic gardens on their grounds. As in a theater, servicescape elements like scenery, lighting, music and other sounds, special effects, and the appearance of the actors (employees) and audience members (customers) all serve to create an atmosphere in which the service performance takes place. In certain types of businesses, servicescapes are enhanced by judicious use of sounds, smells, and the textures of physical surfaces. Where food and drink are served, of course, taste is also highly relevant. For first-time customers in particular, the servicescape plays an important role in helping frame expectations about both the style and quality of service to be provided. Because it's hard to evaluate many service performances in advance (or even after service delivery), customers seek pre-purchase clues about service quality. Hence, first impressions are important. But as customers move beyond the initial contact point, conLet's Go Shopping (Maybe at Your Store) 5 CART [RATING]: •f Personnel Pf Store Services Pf Creativity Pf Selection/Inventory •f Overall Store Atmosphere "Let's Go Shopping" is a regular feature filed by "mystery shoppers" who visit grocery stores across the country to report on how stores measure up in terms of personnel, services, merchandise, selection, and overall store atmosphere. Loblaws, #029 650 Dupont St. & Christie, Toronto This chain-operated store's entrance was filled with tantalizing aromas from Movenpick: one of the many kiosks lining the store. The store's most unique asset is its one-stop, "under one roof" shopping experience. The Internet, in-store pharmacy, cleaners, wine store, bank machine, etc. prove to be successful additions to the store's business. Everything is done on a larger scale. This is evident in the large aisles and large signage throughout the store and increased SKUs. To enhance the mood of the environment; music, lighting, and odors circulate to create customer comfort. There were 14 cash registers in front of the store, five of which were open. The registers were completely computerized visual systems with scanning. Cashiers provide a choice between paper and plastic bags for those customers who are concerned with recycling. Shopping carts are clean and accessible at the store front with a dollar deposit. There were sufficient cart locations outside the store to attain/dispose of carts. The pricing on the shelf after a random audit was accurate and highly visible. The overall impression of the shelves was that they were well stocked and faced with a large variety of SKUs. President's Choice, the store's private label products, are aggressively promoted with signage at shelf and throughout the store. Source: Reprinted from Canadian Grocer, November 1997, 38.
CHAPTE R ELEVE N • CREATIN G DELIVERY SYSTEM S I N PLACE, CYBERSPACE, AND TIM E 25 1 tinued exposure and experiences combine to create a more detailed impression. Consider the impressions recorded by a mystery shopper appraising a Toronto supermarket for a grocery trade magazine—see the boxed story "Let's Go Shopping (Maybe at Your Store)." Many servicescapes are purely functional. Firms that seek to convey the impression of cut-price service do so by locating in inexpensive neighborhoods, occupying buildings with a simple (even warehouse-like) appearance, minimizing wasteful use of space, and dressing their employees in practical, inexpensive uniforms like the bright red aprons worn at Home Depot. However, servicescapes don't always shape customer perceptions and behavior in ways intended by their creators, because customers often make creative use of physical spaces and objects to suit their own purposes. 9 For instance, business people (or college students) may appropriate a restaurant table for use as a temporary desk, with papers spread around and even a laptop computer and mobile phone competing for space with food and beverages. Smart designers keep an eye open for such trends, which often underlie creation of a new service concept like the cyber cafe. PLACE, CYBERSPACE, AND TIME DECISIONS How should service managers make decisions in response to the question: When and where should our service be available? The answer is likely to reflect customer needs and expectations, competitive activity, and the nature of the service operation. Some distribution strategies may be more appropriate for supplementary service elements than for the In-Store Marketing The promotional weekly flyers, store signs, and in-store features were promoted with large signage throughout the store. There was no loyalty card program or coupon clipping here, but there are store coupons available on the shelf. Similar to most stores they did accept manufacturers coupons. The primary displays included a variety of feature/advertised items, which are promoted on well-stocked displays throughout the store. The incremental displays were attractively done and promoted impulse purchases while the aisles are still clear and shoppable. While taking advantage of some good displays to cross promote, there were some obvious missed opportunities. The store has special racking for promoting some products, especially in the seasonal aisle. Overall the impression of in-store promotion was strong. Staff Customer service is definitely not a thing of the past in this store. The staff was extremely customer-focused and seemed to enjoy the work environment. They were well groomed with clean/pressed uniforms. The knowledge of store staff when asked about an item was good. The shopper was directed to the appropriate location but was not taken directly over. Full of color, the produce section was clean and well maintained. The deli section was also clean and the meat/salads were well stocked. The seafood section filled with the catch of the day looked fresh and inviting. The meat/butcher counter was acceptable. The staff was knowledgeable and helpful in all departments. General Impressions The store's biggest strength is its one-stop shopping benefits. For a taste of international flair one must definitely shop the aisles. The one disappointment of the store was the meat department. The labels indicating specific meats were stained and the overall appearance of the department was unclean. This store's overall ranking is outstanding. Shopping should be an excellent experience thus endorsing future loyalty to a store. OVERALL (RATING): S'lfH'S f
2 5 2 PART FOUR • SERVICE DELIVERY ISSUE S core product itself. Perhaps you're willing to go to a particular location at a specific time to attend a sporting or entertainment event. But you probably want greater flexibility and convenience when making an advance reservation. If so, you may expect the reservations service to be open for extended hours, to offer booking and credit card payment by phone, and to deliver tickets by mail, fax, or e-mail. Locational Issues in Service Delivery Although customer convenience is important, operational requirements set tight constraints for some services. Airports, for instance, are often inconveniently located relative to travelers' homes, offices, or destinations. Because of noise and environmental factors, finding suitable sites for new airports is a very difficult task. (A governor of Massachusetts was once asked what would be an acceptable location for construction of a second airport to serve Boston. He thought for a moment and then responded: "Nebraska!") As a result, airport sites are often far from the city centers to which many passengers wish to travel, and the only way to make them less inconvenient is to install high-speed rail links like the rail service to Hong Kong's new airport. A different type of location constraint is imposed by other geographic factors like terrain and climate. Obviously, ski resorts are limited to mountain environments while ocean beach resorts must be on the coast. The need for economies of scale may also restrict choice of locations. Major hospitals consolidate many different health-care services—even a medical school—at a single, very large facility. Customers requiring complex, in-patient treatment must come to this service factory rather than being treated at home—although an ambulance (or even a helicopter) can be sent to pick them up if they are seriously ill or injured. Some multi-site service firms have the option of creating service factories on a very small scale at locations that are close to where prospective customers live or work. For example,Taco Bell has become famous for its innovative K-Minus strategy, which involves creating restaurants without kitchens. All food preparation is done in a central commissary, with prepared meals then being shipped to restaurants and mobile food carts, where they are reheated prior to serving.10 Self-service electronic kiosks can deliver a variety of information-based services from many different locations (see box).The number of Internet kiosks is projected to increase from 151,000 worldwide in 2001 to 446,000 by 2006; over the same period, sales through kiosks are forecast to rise from $200 million to $6.5 billion.11 Another service delivery trend involves locating retail and other services close to gas stations and public transportation stops or in bus, rail, and air terminals. Major oil companies are developing chains of retail stores to complement the fuel pumps at their service stations, thus offering customers the convenience of one-stop shopping for fuel, auto supplies, food, and household products. Truck stops on intercity highways include laundromats, bathrooms, ATMs, fax machines, Internet access, and restaurants in addition to a variety of vehicle maintenance and repair services. In one of the most interesting new retailing developments, airport terminals are being transformed from nondescript ticketing and waiting areas into vibrant shopping malls. Two pioneers of this trend were London's Heathrow and Gatwick airports. Seeking to capitalize on its expertise, the airport operator, a company called BAA (which operates seven British airports), established a U.S. subsidiary and won a 15- year master-developer contract to design, build, lease, and manage the Pittsburgh Airmail, the nation's first custom-built airport retail complex. Pittsburgh is U.S. Airways' major hub and most of its passengers are domestic travelers. Goods and services available at the Airmail range from tasty take-out sandwiches for passengers who don't expect a meal on their flight to $15 massages for tired travelers with aching backs. Sales per passenger at Pittsburgh increased from $2.40 in 1992 to $8.10 in
CHAPTE R ELEVE N . CREATIN G DELIVERY SYSTEM S IN PLACE, CYBERSPACE, AND TIM E 253 2000; sales per square foot of retailing space are now four to five times those of typical U.S. regional shopping centers. 1 2 BAA also has operating contracts at Harrisburg, Indianapolis, Newark, and Boston, as well as at Mauritius, Naples (Italy), and two Australian airports. The underlying theme of modern service delivery is one of offering customers more choices in terms of where service is delivered. Some people want face-to-face contact, others like telephone contact with a human being, and still others prefer the greater anonymity and control offered by more impersonal options like self-service equipment and the Internet. Many customers also want the ability to switch between delivery alternatives depending on the specific situation at hand. Electronic Kiosks Deliver Both Commercial and Government Services' The Internet is everywhere when it comes to service delivery. Electronic kiosks are turning up in such locations as amusem*nt parks, campgrounds, bars, car washes, shopping centers, universities, libraries, and health clubs—all offering self-service options to new users and technology-savvy customers alike. Consider the following examples: 1. Simple health checks can be administered through selfservice equipment. In the United States, Web-enabled kiosks that measure blood pressure, heart rate, weight, and body mass have been installed in Kmart stores across the country. They can also provide useful health information. And in Britain, the National Health Service has purchased 153 interactive touchscreen kiosks and monitoring services for installation in pharmacies, supermarkets, post offices, shopping malls, and holiday resorts. 2. Electronic kiosks offering Internet access are becoming common in airports, shopping malls, and other public locations. Some provide a combination of services, including an ATM for banking services, a pre-paid phone card dispenser, and access to the Web. Some communication technology vendors believe that Internet terminals will eventually become as ubiquitous as conventional ATM machines are now. 3. Several countries have installed kiosks as a way to ensure that the Internet is more widely accessible to their citizens. For example, Jamaica has installed Internet kiosks in post offices and other public locations in an attempt to provide affordable access and encourage Web usage in a nation where computer ownership remains far lower than in affluent, industrialized countries. 4. Government agencies see electronic kiosks as a way to cut administrative budgets and provide 24-hour service in convenient locations. From using kiosks to dispense information about public services, tourist attractions, and transit routes and schedules, some public agencies are now moving to automate a variety of transactions that previously required intervention by a public employee. Consumers touch the screen to choose from a menu of services, which can be programmed in multiple languages. They can pay parking tickets, speeding fines, and property taxes, obtain dog licenses and copies of birth certificates, and order license plates for their cars. In Utah, five "Quickcourt" kiosks assist people in filling out paperwork for no-fault divorces—a process that takes about 45 minutes, requires no lawyer, and costs only $10.Quickcourt also computes child support payments. In San Antonio, Texas, kiosks sell permits to hold garage sales and print out information on property taxes and city job openings. Users can also view pictures of animals available for adoption at the city pound. In New York, customers can look up certain kinds of records (like landlords' histories of building code violations) and swipe their credit cards through a slot to pay municipal taxes, license fees, or speeding fines. Source: "Lifeclinic Announces Rollout of Web-Enabled Blood Pressure Kiosks to Kmart Stores Across the Country," www.spacelabs.com, 13 November 2000; "Action MultiMedia Secures NHS Direct Contract," www.kiosks.org, 1 November 2000; Yukari Iwatani, "From Bars to Car Washes Internet is Everywhere," YahoolNews, 11 September 2000; "Internet Kiosks to be Placed in Post Offices and Other Public Areas Throughout Jamaica," www.atcominfo.com, 17 May 2000; "Kiosks Could Make Public Access Common," www.usatoday.com, 28 February 1999; and Carol Jouzaitis, "Step Right Up and Pay Your Taxes and Tickets," USA Today, 2 October 1997, 4A.
254 PART FOUR • SERVICE DELIVERY ISSUE S Delivering Services in Cyberspace Technological developments during the last 20 years have had a remarkable impact on the methods by which services are produced and delivered. Advances in telecommunications and computer technology in particular continue to result in service delivery innovations. For example, personal computers and the Internet are changing the way people shop for both goods and services. In addition to placing catalog orders by mail or telephone, many people now also shop in cyberspace. The Internet's 24-hour service is particularly appealing to customers whose busy lives leave them short of time. Forrester Research says that customers are attracted to virtual stores by four factors in the following order of importance: convenience, ease of research (obtaining information and searching for desired items or services), better prices, and broad selection.13 Web sites have become an important competitive tool for service marketers. While some firms only view them as an alternative to paper brochures, others use them in more creative ways ranging from order-taking channels to electronic delivery systems. Delivery through the Internet is an option for any information-based product. Information-based services now delivered through commercial Web sites include software, news, research reports, music, and other forms of entertainment. Firms can also deliver information-based services to their customers as e-mail attachments or through corporate "extranets"—secure, private networks linking a company to its major suppliers and designated customers. Charles Schwab, the brokerage firm, offers investors wireless Internet access through its PocketBroker service. Traditional retailers have been forced to respond to stiffer competition from Internet and telephone-based catalog retailing. One company, software and computer retailer Egghead Inc., decided to get out of physical retailing altogether. It closed its 80 stores across the United States, laid off 800 of its 1,000 workers, shifted its sales entirely to the Internet, and renamed itselfEgghead.com. Other retailers, like the giant bookstore chain Barnes and Noble, have developed a strong Internet presence to complement their full-service bookstores in an effort to counter competition from "cyberspace retailers" such as Amazon.com (which has no retail outlets).14 Other store-based retailers are responding to this competitive challenge by trying to make the shopping experience more interesting and enjoyable for customers. Malls have become larger, more colorful, and more elaborate. Within the mall, individual stores try to create their own atmosphere, but tenancy agreements often specify certain design criteria to ensure that each store fits comfortably into the overall mall servicescape. The presence of "food courts" and other gathering places encourages social interaction among shoppers. Theatrical touches include live entertainment, special lighting effects, fountains, waterfalls, and eye-catching interior landscaping ranging from banks of flowers to surprisingly large trees. Individual stores try to add value by offering product demonstrations and such services as customized advice, gift-wrapping, free delivery, installation, and warranty services. Service Schedules In the past, most retail and professional services in industrialized countries followed a traditional and rather restricted schedule that limited service availability to 40 to 50 hours a week. This routine reflected social norms (and even legal requirements or union agreements) as to what were appropriate hours for people to work and for enterprises to sell things. The situation caused a lot of inconvenience for working people wh o either had to shop during their lunch break (if the stores themselves
