Service Industry: Features & Evaluation

• All businesses operate in the service industry to some extent.

Service vs. Goods

• Services differ from products due to their inseparability, intangibility, lack of inventory, and inconsistency.

Service Features

• Inseparable: Production and consumption occur simultaneously.
• Intangible: Cannot be touched, tasted, or seen.
• Inventory: Services cannot be stored.
• Inconsistent: Variability due to multiple people involved.

Dealing with Inconsistency

• Inconsistency can be addressed by:
• Implementing training and standards.
• Replacing people with machines, such as kiosks and apps.

Evaluating Services

• Consumers find it difficult to evaluate services and communicate their evaluations due to intangibility and inseparability.
• Established metrics provide practical data, numerical standards, and zones of tolerance.

Service in a Service Economy

• Service is any intangible offering that cannot be physically possessed.
• Most offerings exist on a service-product continuum.
• Developed economies are increasingly service-oriented.
• Most of the Canadian economy and jobs are service-based.

The Importance of Service

• Firms compete on customer service to add value to products and services.

Services Marketing vs. Product Marketing

• Intangible:
• It is difficult to convey benefits, so cues and images are used to convey value.
• Inseparable:
• Occurs simultaneously, with little opportunity for testing beforehand.
• Slogans, guarantees, and warranties help ensure reliability and quality.
• Inconsistent:
  • More people involved lead to more variability.
• Training, standardization, and self-service technology can help.
• Inventory:
• Services are perishable and cannot be stored.
• Discounted prices during off-peak times and cancellation fees are solutions.

Providing Great Service

• A service gap occurs when customer expectations are unmet.
• Firms must develop strategies to meet expectations.

The Gaps Model

• Identifies where dissatisfaction arises in service delivery.

Dimensions for Evaluating Services

• Reliability: Ability to perform the service dependably and accurately.
• Responsiveness: Willingness to help customers and provide prompt service.
• Assurance: Knowledge and courtesy of employees and their ability to convey trust and confidence.
• Empathy: Caring, individualized attention provided to customers.
• Tangibles: Appearance of physical facilities, equipment, personnel, and communication materials.

Knowledge Gap

• The gap between the organization's knowledge and consumer expectations.
• Understand expectations through marketing research and evaluate service quality.

Standards Gap

• The gap between the organization's aim and its standards.
• Set and document service standards, train employees, enforce standards, and empower employees.

Delivery Gap

• The gap between the organization's standards and specific delivery.
• Provide emotional and instrumental support to service providers, maintain consistent management, and reward excellent service.

Communication Gap

• The gap between the organization's intended delivery and organization's promotion.
• Manage expectations and promise only what can be delivered to avoid negative surprises.

Improving Delivery

• Address the gaps discussed in the Gaps Model.
• Empower employees, provide support and incentives, and use technology, or use service recovery instead.

Assisting Employees

• Due to inseparability, employees are in front of the consumer. Due to inconsistency, variable skills and abilities must be considered.

How to Empower Employees

• Provides: Customization on the spot to match product to expectation and the ability to address dissatisfaction.
• Cons: Can be expensive and error-prone without training.

How to Support Employees

• Four aspects:
• Addressing "Emotional labour".
• Providing systems and equipment.
• Consistency within the organization.
• Incentives for excellence.

Control Through the Use of Technology

• Electronic kiosks, POS systems, tablets, and web remote services.
• Technologies come with costs and become part of consumer expectations.

Service Recovery

• Responding to customer failures and mistakes.
• Beneficial for long-term exchange and customer lifetime value.
• Consumers desire a quick response and a fair resolution.

Price Defined

• Basic: The amount of money charged for a product or service.
• Broader: The overall sacrifice a consumer is willing to make, including monetary and nonmonetary aspects.

Price Basics

• Price and the Value of an Exchange:
• Consumer: value received vs. price paid
• Producer: value received vs. costs paid

The Importance of Price

• The only element of the marketing mix that generates revenue.
• One of the most important factors in purchase decisions.
• Signals quality and creates value perception.

Heuristics & Communication

• Consumers use price to evaluate benefit and estimate product quality.

Price signals

• Product tier/category
• Competitor comparison
• Product nature (quality, aesthetic, etc.)

Deceptive Pricing

• Deceptive Reference Prices
• Bait and Switch
• Drip Pricing

The 5 Cs of Pricing

• Company Objectives
• Customers
• Costs
• Competition
• Channel Members

Company Objectives

• Profit Orientation: Maximize profits through target profit per sale and target return/pricing.
• Sales Orientation: Focus on volume/market share.
• Competitor Orientation: Compete with rivals.
• Customer Orientation: Focus on perceived value.

Customers

• Higher prices = higher quality perception, but consumers also care about status and prestige.

Factors Affecting Price Sensitivity

• Income Effect: Higher income changes spending.
• Substitution Effect: More substitutes = more sensitivity.
• Reference Pricing: Internal comparison price.

Elasticity

• Measures how changes in price affect the quantity demanded.
• Calculated as the percentage change in quantity demanded divided by the percentage change in price.

Elasticity Factors

• Income Effect: Changes in income change the wants of consumers.
• Substitution Effect: More options for consumers, the more they will respond to price increases by changing their wants.
• Cross-Price Elasticity: Change in the price of one product changes the preferences for another, which can be due to complementary or substitute products.

Price Discrimination

• Selling products to different resellers or to ultimate consumers at different prices.
• Some price discrimination practices are acceptable, while others are more questionable or not acceptable.
• Fine: Bulk discounts, bundled discounts, haggling/negotiation, and trying to meet competitor’s price.
• Maybe Fine: Preferred member pricing.
• Not Fine: Restricting competition.

Competition

• Competition is part of the background that establishes what a price communicates.
• Crucial to consider how competitors will respond to pricing decisions.

Competition: Big Picture Horizontal Price Fixing

• Price fixing = colluding with other organizations to control prices.
• Horizontal price fixing = colluding with competitors.

Predatory Pricing

• Setting a low price with the intent of denying sufficient revenue to a competitor to drive them from the market.
• In Canada, predatory pricing is one of several abuse of dominance practices.

Abuse of Dominance

• Predatory, Exclusionary, and Disciplinary.
• Intended to reduce competition and consumer benefit.

Channel Members

• Different channel members have different goals and want to communicate different things.
• Key Question: How do we avoid or mitigate conflict?

Vertical Price Fixing / Price Maintenance

• Occurs when a supplier prevents a customer from selling a product below a minimum price or refuses to supply a customer due to their low pricing policy.
• Can be illegal if a supplier pressures a retailer to charge MSRP, affecting competition.

Methods, Strategies, and Tactics

• Overall goals and means to an end.

Pricing Methods

• Cost-Based Methods: Determine price based on cost to produce, calculate per unit cost, and add markup for price.
• Competitor-Based Methods: Determine price based on consumer interpretation of competitor signals.
• Value-Based Methods: Focus on consumer perception of value relative to their cost.

Pricing Strategies

• Everyday Low Pricing (EDLP): Retail price between regular and competitor discount price.
• High/Low Pricing: Use sales promotions at strategic times.

New Product Pricing Strategies

• Price Skimming: High initial price for innovators/early adopters, lowered later for price-sensitive segments.
• Market Penetration: Set a low price to encourage early sales and build market share and profits quickly.

Consumer Pricing Tactics

• Price Lining: Set a floor and ceiling for a product line to support differentiated targeting.
• Price Bundling: Sell multiple products together for a lower price, useful for clearing inventory or introducing new products.
• Leader Pricing: Use a low price to promote store traffic and attention.

Consumer Price Reduction Tactics

• Markdowns: Lower initial price to boost sales.
• Quantity Discounts: Buy more, pay less per unit.
• Coupons & Rebates: Promotions.

B2B Price Reduction Tactics

• Seasonal Discounts: Reduction to incentivize early orders before the season.
• Cash Discounts: Invoice reduction for early payment.
• Allowances:
• Advertising Allowance:* Manufacturer pays retailer to promote product.
• Listing Allowance:* Manufacturer pays to get new products into stores or better shelf space.
• Quantity Discounts: Price reduction based on amount purchased.
• Uniform Delivered Pricing vs. Geographic Pricing:
• Uniform:* Same delivery rate regardless of location.
• Geographic:* Delivery charges vary by area.