Tag: services

Positioning Services

In the Brexit debate, much attention has been paid to UK having some form of custom’s union with the European Union.  Conservative politicians who support Brexit, fear such a union will remove the UK’s ability to make trade deals with other nations.  Jeremy Corbyn speaks of a unique ‘custom’s union for goods’; different from the existing EU custom’s union which includes Turkey but which does not include Norway and the other EFTA nations.

What these statements from UK politicians shows is that very few of them understand the details of international trade.  They talk of WTO rules as if they are some sort of magic bullet; not the least worst option in trade; the fall-back position; the last resort of world trade; trading terms so ‘favourable’ not a single nation in the world uses them.

Corbyn’s comment about a ‘custom’s union for goods’ is a clear indication that our politicians don’t know what they are talking about.  Custom’s unions are almost universally focused on goods.  They do not deal in services.  Service markets face different restrictions such as compliance with professional standards and government legislation.  The EU, in recent years has worked hard in recent years to remove such barriers from its single market.  The EU Services Directive, is one piece of legislation that looked to ensure that service providers could operate across the bloc.  This included attempts to provide a level playing field in terms of professional qualifications and standards.  The Consumer Credit Directive, which was largely based on the UK Consumer Credit Act 1974, looks to create a single legislative framework for the sale of unsecured loans across the whole of the EU.

In debating a ‘custom’s union for goods’, UK politicians appear to ignore the fact that since the 1980s Britain has developed as a services-based economy.  Politicians seem focused on manufacturing; they are ignoring the needs and necessary environment for service providers: Which are now the majority part of the UK economy.

Marketing services is different from marketing goods.

Services have immediacy.  They are time dependent.  Once an aircraft has taken off, you can’t put any more passengers on it.  You can’t put any more diners in a restaurant once the sitting has finished. Once a play has started, you can’t put any more patrons in the audience.  This leads to a need to balance supply and demand.  Airlines and holiday firms do this by operating fluid pricing strategies.

Increasingly services are dependent on technology.  They are often delivered remotely and by distance communication tools such as the telephone and the internet.

Increasingly, customers are involved in the delivery of services.  For example, the business who works closely with the developer to design a website.

Increasingly, customers want a customised service to meet their individual needs.  Again, a business may want a bespoke database and will employ a service provider to build it.

Positioning is about creating a distinctive place in the market for both your company and the services you provide.

This requires two decisions to be made:

  1. The choice of a target market: Where you want to compete.
  2. The creation of differential advantage:  How you want to compete.

So in positioning services, you need to be aware of the particular needs of your target customer.  These needs will determine the target segment of the market.  You then will need to create a services marketing mix which creates differential advantage based on those customer needs.

For services, the extended marketing mix was created.  This extends the 4P mix developed by Philip Kotler (Product, Promotion, Price, Place) and adds three additional ‘P’s; People, Process and Physical Evidence.

Target marketing is based on market segmentation and using positioning tools based on the needs of defined customer groups and their price sensitivity.

Using targeting tools and designing your mix for defined customer segments does not preclude sales to customers outside those groups but by targeting your marketing activity, you make best use of scarce resources such as financial budgets.  targeting marketing is targeting resources on your core customers.  Sales to those outside that core are a bonus.

As stated above, there are three additional elements to the services marketing mix:

  1. People:  People are critical to the provision of services.  Often the creation of a service and its delivery are simultaneous.  People occupy a key position in a customers perception of service quality.  Bad staff often equates to bad service so it is critical to get the right people. Training, monitoring and the REWARDING of staff is critical to good service quality.  People aren’t machines so body language, tone of voice and attitude matter. Airlines spend significant time and money training cabin crew to ensure these attributes send the right message.  If people enjoy their work, this often comes across in their body language.  Systems such as SERVQUAL aim to eliminate harmful interactions by reducing opportunities for cognitive dissonance.
  2. Physical Evidence:  This is the environment in which a service is delivered.  It is tangible evidence of service quality.  When you travel on an airline is your drink served in a plastic tumbler or a glass?  When Gordon Ramsay does a ‘Restaurant nightmare’, a big element of his revamp is to change the restaurant décor. physical evidence can be changing the ergonomics of a service e.g. the layout of equipment in a gym.  There was an outcry when Ryanair proposed ‘standing room only’ on its aircraft (although that was a likely attempt at PR spin).
  3. Process:  is the mechanisms, procedures and flow of activities by which a service is delivered.  Process changes such as the elimination of queuing can radically affect service delivery to target consumers and therefore differential advantage.  So theme parks sell priority tickets which allow patrons to dodge queues.  Airlines offer first class and business lounges. Cruise firms will pick up customers from their homes.  Others such as Amazon Prime offer reduced delivery times.

In Big Ideas in Services Marketing (Berry, 1987), seven guidelines for services marketing were declared:

  1. Marketing happens at all levels of an organisation.
  2. there must be flexibility in service provision (the ability to customise services).
  3. You need to recruit high quality staff.  You need to treat them well and communicate withthem clearly.
  4. You need to increase the usage of services by marketing to existing customers; customer retention is key.  to keep customers you will likely need to offer service extensions.
  5. You need a quick response facilities for customer service and complaint resolution.
  6. You need to engage with new technology to deliver better service at lower cost.
  7.  You need to differentiate your service through branding.  Branding works the minds of target customers.

 

 

Developing Customer Retention Strategies

Most senior managers in a business talk of developing customer or brand loyalty.  The principle is that the longer you keep a customer, the more you earn from them.   To survive in the long-term, you need to develop high lifetime value.

However, loyalty is fickle.  Successive academic studies have shown that even the most loyal of customers will switch to a competitor if the believe there is better value on offer.

In this blog we have also discussed that there is no longer a product which is purely defined by the definition goods.  All products have a service element and often the opportunity to differentiate goods from those of competitors and to add distinctive value.

This makes it odd that in some sectors little is done to retain customers and customer service is, quite frankly appalling.  For example how many of us have been stuck on the telephone line for what seems like an age to a bank or utility firms call centre with no ‘call back’ option.

Then there are industries where customer retention seems to be an alien concept and customer lifetime value appears to be the last thought of company directors.  The car insurance industry is one such sector.  The aim appears to be to get consumers to switch every year by only offering discount to new customers.

In business to business markets, where there are often fewer customers, higher purchase costs and complicated contracts, there is often a constant battle to adapt and improve service capabilities and product functionality.  In such markets, customer retention is the key to business growth and survival.

Senior managers shouldn’t confuse customer or brand loyalty with customer retention.  You don’t develop brand loyalty strategies, you develop customer retention strategies.

So how do you develop customer retention:

  1.  Target Customers:  Not all customers are worth building a relationship with over the longer-term.  Some customers are habitual brand switchers.  Some will not generate significant lifetime value; they will not provide sufficient income or their service demands incur excessive costs.  Some customers; disruptive ‘zombies’; may actually disrupt service provision and affect a firm’s relationship with other more profitable customers.  This is a classic marketing segmentation and targeting approach.  You should aim to retain, high value, frequent use, loyalty-prone customer groups who recognise your product as having high service values and utility.  You need to identify those customers  in that group who are most likely to defect to competitors and ask whether they are worth retaining.  You then need to build a value-added strategy to meet those customers demands.  For loyalty-prone customers, it is important to maintain communication bonds.  It is worth remembering the Pareto principle that 80% of turnover comes from 20% of your customer base.
  2. Bonding:  You need various levels of strategy to bond customers and service providers together.  You need to select the  level of strategy most appropriate for the bond with each customer:
    1. Level One:  You bond through financial incentives.  You provide discounts for bulk purchase or you provide a loyalty scheme for repeat purchase.  However, such financial incentives are easily copied by competitors.
    2. Level Two:  You develop more than just price incentives; you build sustainable competitive advantages through the creation of social as well as financial bonds.  Customer service encounters are often also social encounters.  To build social bonds, you require frequent communication.  You need to provide community of service through and entertainment activities.  for some customers you need to make them feel that they are being treated as an individual.  For example, Harley Davidson runs events for their owner’s club; Las Vegas casinos offer ‘High Rollers’ the use of luxury suites and special tables.
    3. Level Three:  You need to develop financial, social and structural bonds.  The relationship should feel more like a partnership than that of a supplier and a customer.  This often involves the creation of bonds which tie the customer to your company.  For example some logistics firms provide customers with packing equipment which only works with the logistics firm’s systems..  Such structural bonds often create formidable barriers against customer switching and new competitors entering the market.
  3. Internal Marketing:  To build high quality service delivery, you need high quality performance from employees.  Recruitment and employee selection is often key to bonding as is employee retention. Retained employees often develop expert knowledge about your products and services.  You need to provide high quality staff training.  You need effective communication channels with your staff and they need to be appropriately motivated.  Staff need to have technical competence but they also must be able to relate to customers.  All your staff, from your receptionist to your engineers, are part-time marketers.
  4. Promise Fulfilment:  You must make credible realistic promises, keep those promises and give your staff the knowledge and equipment to deliver upon them.  this is the keystone of maintaining customer relationships.  They are the cues to match customer expectations and to avoid customer disappointment, dissatisfaction and defection to competitors.  The mantra should be ‘under-promise; over-deliver’.  First impressions count so your first contact with customers is critical. For example, Marriot Hotels have a ‘first ten minutes strategy’ to ensure the relationship with hotel guests gets off on the right foot.
  5. Building Trust:  Customer retention relies on building trust.  Services are intangible.  To ensure retention you need to keep in touch with customers and modify services to respect their views.  This means providing guarantees which inspire confidence and which reduce perceived purchase risk.  Your policies need to be considered fair by consumers.  Staff must recognise required high levels of conduct with consumers.
  6. Service Recovery:  Solving problems can restore customer trust.  Ideally, potential problems should be eliminated before they actually happen; but that isn’t always possible.  If incidents occur, systems should be capable of modification so those incidents cannot be repeated.  This means having a quality assurance system capable of adaptation such as Kaizen or Six Sigma.  Systems should be tracked to identify service failures. Customers should be encouraged to report problems.  Monitor complaints and their resolution.  Follow up on service provision.  Most importantly, train and empower your staff to deal with problems and complaints before they escalate.  Successful resolution of a complaint can actually increase a customer’s positivity about a service provider.  This is called the recovery paradox.  But if the complaint recurs, the increased positivity can dissolve into dissatisfaction and recrimination.  Service recovery can encourage organisational learning and service staff should be motivated to report problems.  Effective service recovery systems can increase customer retention.

Customer Service – Why it Matters

I have spent the vast majority of my career working in the field of consumer protection and trading standards.  As a result I have dealt with literally thousands of consumer complaints relating to poor customer service.

Marketing is about developing a customer-focused organisation.  Therefore developing strong customer service capabilities is crucial to commercial success.

Customer service is critical to the development of successful strategic marketing processes.  The development of strong customer service policies and procedures are critical to the development of a strong brand image.

We live in a world where the core of a product offering is becoming increasingly commoditised.  If you are seeking to add value to your core products and you wish to differentiate your products from those of your competitors, product halo elements such as the development of differentiated and strong service elements is a prominent option.

Previously in this blog I have discussed the work of Treacy and Wiersema.  In particular, the three potential strategies for excellence, Product focus, Managerial Excellence and Customer Intimacy.  Managerial excellence is an inward looking strategy and developing excellence in product focus can be expensive and risky.  Therefore for many firms, particularly SMEs, the development of customer intimacy through the development of excellent customer service provision is critical to success and growth.  Developing excellence in customer service is critical to the creation of customer intimacy.

In his book, Marketing Plans, Professor Malcolm Macdonald describes the service profits chain; how the development of strong customer service strategies can be central to the growth of a firm’s profitability:

  1.  Employee Satisfaction:  Satisfied employees provide better service quality. If you have satisfied employees, you have less staff turnover.  This means your staff are better trained and more knowledgeable about your products and services.  Satisfied employees are more productive.  Satisfied employees have a greater commitment to the company and they present themselves better.
  2. Improved Service Quality:  Satisfied employees provide better quality service which leads to greater customer loyalty.
  3. Service Quality:  If you have satisfied employees you have better service quality.  Customers exhibit greater satisfaction with your brand.  They buy more.  They buy more often.  They are retained for longer.  The exhibit greater loyalty.
  4. Customer Retention:  Increased customer loyalty leads to greater customer retention.  This creates an opportunity to increase profitability.  Loyal customers are less likely to switch to your competitors simply because of a change in price.  They are willing to spend more as they have familiarity with your products and processes.  Loyal customers cost less to serve.  They can offer opportunities to lower marketing costs through lower promotional budgets than those required to gain new customers.  The longer a customer stays with your firm, the greater their lifetime value.  Customer retention also creates greater shareholder value through improved revenues and reduction in risk.
  5. Positive Feedback Loop:  Satisfied customers treat staff better.  They develop a positive relationship with your employees and with your brand.  There is a positive correlation between customer satisfaction and employee satisfaction.

I see a parallel between the positive feedback loop of the service profit chain and the feedback loop of the balanced scorecard developed by Kaplan and Norton. The theory of the balanced scorecard is that improved organisational learning leads to better internal processes; better internal processes leads to better customer service; better customer service leads to improved financial performance and in turn, better financial performance means that you can invest more in improving your organisational learning and development.

Macdonald outlines five dimensions of service quality:

  1. Tangibility:  This is closely linked to the physical evidence elements of your marketing mix.  Good service quality is linked to the physical equipment used by customers and to the appearance of your staff.
  2. Reliability:  Quality service provision must be performed dependably and accurately.  It must be accurately repeated.
  3. Responsiveness:  You must show willingness to help your customers and you must serve their service needs promptly.
  4. Assurance:  Your staff must be knowledgeable and courteous.  They must have the ability to inspire confidence amongst your customers.
  5. Empathy:  Your employees must care about customers concerns and offer them individual attention.  They must show that customers concerns are important to them.

These five dimensions of service quality are critical if you are following the principles of SERVQUAL.

Today, it is often said that consumers, in particular the incorrectly defined market segment ‘millennials’, buy experiences not goods or services.  Consumers now want products which are engaging, robust, compelling and memorable.  Customer experience goes beyond the development of service.  To develop quality experiences, you need to go beyond exceptional service quality.  You need to recognise:

  1.  Usage Processes:  This is how customers access  and use your goods and services. Usage processes influence how your customers think about your firm.  Their concept of product value develops through their use of your goods and services not at the factory gate.
  2. Peer to Peer Interactions:  The interactions between your customers are important.  They are an important part of developing robust experiences.
  3. Relationships:  Too many satisfaction/service quality services erroneously focus on individual customer transactions and encounters.  they do not examine longer term relationships over time and across multiple transactions.
  4. Brand Image/Communication:  People don’t own an iPhone or a BMW because of their functionality.  They own them because those products make a statement about the owner.
  5. Emotions:  Customers are not entirely rational.  Emotions have a big effect on their relationship with a firm and their rating of the experience you offer.

When developing a marketing plan, you need to be cognisant of customer service needs and concerns in each of the above areas.

The marketing of services

On his deathbed, Albert Einstein was still puzzling over the problem of a unified theory which allowed for the physical laws of the macro universe and the frankly bizarre behaviour found in quantum theory.  He never completed his theory and to this day physicists are still trying to unify the two sectors of physical science.

In marketing theory, there is a similar split between academics: those that believe that goods and services can be marketed in the same way and those that believe that there are crucial differences in how services and goods are marketed.

Marketing theory for many years was focused on the sale and supply of goods.  That reflected the prominent position that manufacturing had in advanced economies.  Today, certainly in the UK, the economy is focused on service provision (UK economy is 80% services-based).  Today when you buy goods, they also tend to come with a services element.

Philip Kotler developed the concept of the marketing mix in the 1960s.  Kotler’s mix contained four elements; product, price, promotion and place.  This mix sat well in economies based on goods manufacturing.  it doesn’t fit so well in the provision of services.

Other academics have extended Kotler’s marketing mix to match a services environment.  they have added three further ‘Ps’; process, people and physical evidence.  This creates a seven ‘P’ marketing mix for service providers.

The fact that in today’s markets, every product, including goods can provide a services outcome.  When you buy a drill, you buy a hole boring service. When you buy a music download or a DVD, you buy an entertainment service.

There is a marketing continuum for services ranging from basic goods, such as builder’s sand, which may have a service element in its delivery, to pure services such as life insurance, where the physical element of the product is an email document.

For products at the services end of that continuum, the following characteristics are often exhibited:

  1.  Intangibility:  The service product cannot be touched.  This makes them difficult to evaluate prior to purchase.  Services tend not to allow consumers to try before they buy and the cannot be sold on.
  2. Inseparability between production and consumption:   These happen at the same time: you watch a concert as the performance is being made.
  3. Variability:  Services tend to be produced on an individual basis so they are often variable in their nature.  This can be an advantage to the consumer e.g. the ability to vary the cooking of a steak from rare to well done.  The service can be varied at the request of the customer.  But what if the service provider is having a bad day?  The chef who overcooks the vegetables of the singer with the sore throat.
  4. Perishability:  Services cannot be stockpiled. Once a plane taxis out onto the runway, no more passengers can be put on board.  That flight can no longer be provided.  Manufacturing is also changing with Just in Time stock control and consumers being able to design their own version of a product (trainers, bicycles or cars).  This adds an element of perishability to their manufacture.

The planning and marketing of services requires the input of your employees.  They are the people who are tasked with delivering them.  They must buy into the marketing process.

You must also take into account the loading element of the demand on service delivery.  This must be managed.  Low cost airlines use variable pricing strategies to ensure that every plane leaves its gate full of passengers.  Such tactics can also be used to managed demand at peak times or to increase demand at off-peak periods.

The reason that the three further elements, process, people and physical evidence were added is the additional degree of contact between the service provider and the consumer.  Your brand name can also affect how consumers see your product e.g. Speedy Plumbers.

There are four characteristics needed for a successful brand name:

  1.  Distinctiveness:  It must immediately describe your service in the minds of consumers and distinguish your company from competitors.
  2. Relevance:  It must communicate the nature of the service and the benefits of the service.
  3. It must be memorable:  Brand names must be easily understood and remembered.
  4. Flexibility:   A service brand name must fit with existing service provision but be flexible enough to account for expansion into new service areas.

Word of mouth between consumers is crucial to the marketing of services because of their experiential nature.  Often personal influence will be crucial in who consumers choose to purchase services from.

There are four approaches to developing word of mouth.

  1.  Allowing satisfied customers to inform others of their satisfaction e.g. the use of testimonials
  2. Developing materials that consumers can pass to one another
  3. Targeting opinion leaders through advertising
  4. Getting potential customers to talk to existing customers.

Berry describes a seven point model for successful services marketing:

  • Marketing should happen at all points in your organisation from product design to after-sales service.
  • Service flexibility must be introduced.  You must customise services to meet individual consumer needs.
  • You must recruit high quality staff.  And you must communicate clearly with them.
  • Ensure that existing customers increase their uptake of your services.
  • Develop a quick response facility to rapidly deal with consumer issues and complaints.
  • Use new technology to improve service efficiency and to lower costs.
  • Use branding to differentiate between different services and to differentiate your services from those of your competitors.