346 16.

101G
Marketing Management
Copy Right : Rai University
I hope know you are quiet clear with services and its characteristics now lets move on to important
issues in service marketing to start with lets take the topic special Considerations for Service Mar-
keting first.
First all of you must consider how the intangible/inventory/inseparable/inconsistency component af-
fects the service.
Marketing strategies for service firms: - If we see traditionally four Ps marketing approach
worked well for goods, but additional elements require attention in service businesses. People, physi-
cal evidence and process provide three additional Ps for service marketing.
Most of the services are provide by People. In this case we are referring to the selection, training
and motivation of employees, which can make a huge difference in customer satisfaction.
Ideally employees should exhibit competence, a caring attitude, responsiveness, initiative, problem-
solving ability and goodwill.
Companies also try to demonstrate service quality through physical evidence and presentation. A
hotel will develop a look and observable style of dealing with customers that carry out its intended
customer value proposition, whether it is cleanliness, speed or some other benefit.
Finally service companies can choose among different processes to deliver their services. Restau-
rants have developed such different formats as cafeteria-style, fast food, buffet and candle light
service.
In view of this complexity, Gronroos has argued that service marketing requires not only external
marketing but also internal and interactive marketing. As described in the figure below
External marketing: describes the normal work to prepare, price, distribute and promote the ser-
vice to customers.
Internal marketing: describes the work to train and motivate employees to serve customers better.
Interactive marketing describes the employees skill in serving the client. Because the client judges
service not only by its technical quality but also by functional quality service providers must deliver
high-touch and high-tech products.
Interactive marketing: marketing by a service firm that recognizes that perceived service quality
depends heavily on the quality of buyer-seller interaction.
Services Marketing Triangle Applications Exercise
Unit 3
Developing Market Strategies & the Offerings
Chapter 11 - Introduction to Service Marketing
Lesson 33 - 3 More Ps, Differentiating Services
16.101G
Marketing Management
347
Copy Right : Rai University
Focus on a service organization. In the context you are focusing on, who occupies each of the three
points of the triangle?
How is each type of marketing being carried out currently?
Are the three sides of the triangle well aligned?
Are there specific challenges or barriers in any of the three areas?
Application exercise:
Focus on a service organization. In the context you are focusing on, who occupies each of the three
points of the triangle?
How is each type of marketing being carried out currently?
Are the three sides of the triangle well aligned?
Are there specific challenges or barriers in any of the three areas?
Lets look at the Expanded mix for services - By now everyone is clear knows that services are
usually produced and consumed simultaneously, customers are often present in the firms factory,
interact directly with the firms personnel and are actually part of the service production process.
Also, because services are intangible customers will often be looking for any intangible cue to help
them understand the nature of the service experience. These facts have led services marketers to
conclude that they can use additional variables to communicate with and satisfy their customers.
For example, in the hotel industry the design and dcor of the hotel as well as the appearance and
attitudes of its employees will influence customer perceptions and experiences.
Acknowledgment of the importance of these additional communication variables has led services
marketers to adopt the concept of an expanded marketing mix for services in addition to the
tradi-tional four Ps, the services marketing mix includes people, physical evidence, and
process. table 11. is presenting expanded marketing mix for services.
Lets start with the first additional P that is People:
All human actors, who play a part in service delivery and thus influence the buyers perceptions;
namely, the firms personnel, the customer, and other customers in the service environment.
All of the human actors participating in the delivery of a service provide cues to the customer regard-
ing the nature of the service itself. How these people are dressed, their personal appearance, and
their attitudes and behaviors all influence the customers per-ceptions of the service.
The service provider, or contact person can be very important. In fact, for some services, such as
348 16.101G
Marketing Management
Copy Right : Rai University
consulting, counseling, teaching, and other profes-sional relationship-based services, the-provider is
the service. In other cases the con-tact person may play what appears to be a relatively small part in
service delivery, for instance, a telephone installer, an airline baggage handler, or an equipment deliv-
ery dispatcher. Yet research suggests that even these providers may be the focal point of service
encounters that can prove critical for the organization.
In many service situations, you can also influence service deliv-ery, thus affecting service quality
and their own satisfaction.
For example, a client of a consulting company can influence the quality of service received by
providing needed and timely information and by implementing recommendations provided by the
consultant.
Similarly, health care patients greatly affect the quality of service they receive when they either
comply or dont comply with health regimens prescribed by the provider.
If you are a customers you will obviously influence your own service outcomes, but you can also
influence other customers as well.
In a theater, at a ballgame, or in a classroom, customers can influence the quality of service received
by others-either enhancing or detracting from other customers experiences.
Given the strong influence they can have on service quality and service delivery, employees, the
customer him/herself, and other customers are included within the people element of the services
marketing mix.
The second additional P is Physical evidence
It is basically related with the environment in which the service is delivered and where the firm and
customer interact, and any tangible components that facilitate performance or commu-nication of the
service.
The physical evidence of service includes all of the tangible representations of the service such as
brochures, letterhead, business cards, report formats, signage, and equipment. In some cases it in-
cludes the physical facility where the service is of-fered-the servicescape
For example, the retail bank branch facility. In other cases, such as telecommunication services, the
physical facility may be irrelevant. In this case other tangibles such as billing statements and appear-
16.101G
Marketing Management
349
Copy Right : Rai University
ance of the repair truck may be important indicators of quality.
Especially when consumers have little on which to judge the actual quality of service they will rely on
these cues, just as they rely on the cues provided by the people and the service process. Physical
evidence cues pro-vide excellent opportunities for the firm to send consistent and strong messages
re-garding the organizations purpose, the intended market segments, and the nature of the service.
Final additional P is Process:
It is related to actual procedures, mechanisms, and flow of activities by which the service is deliv-
ered-the service delivery and operating systems.
The actual delivery steps the customer experiences, or the operational flow of the service, will also
provide customers with evidence on which to judge the service.
Some services are very complex it requires you to follow a complicated and extensive series of
actions to complete the process. Highly bureaucratized services fre-quently follow this pattern, and
the logic of the steps involved often escapes the cus-tomer.
Another distinguishing characteristic of the process that can provide evidence to the customer is
whether the service follows a production-line/standardized ap-proach or whether the process is an
empowered/customized one. None of these char-acteristics of the service is inherently better or
worse than another. Rather, the point is that these process characteristics are another form of evi-
dence used by the consumer to judge service.
For example, two successful airline companies, Southwest in the United States and Singapore Air-
lines have extremely different process models.
Southwest is a no-frills (no food, no assigned seats), no exceptions, low-priced airline that offers
frequent, relatively short-length domestic flights. All of the evidence it pro-vides is consistent with its
vision and market position as figure Exhibit 1-2. Sin-gapore Airlines, on the other hand, focuses on
the business traveler and is concerned with meeting individual traveler needs. Thus the process is
highly customized to the individual, and employees are employees are empowered to provide non-
standard service when needed. Both airlines have been very successful.
SOUTHWEST AIRLINES: ALIGNING PEOPLE, PROCESSES, AND PHYSICAL EVIDENCE
Southwest Airlines occupies a solid position in the minds of U.S. air travelers as a reliable and
convenient, fun, low-fare, no-frills airline. Translated, this position means high value-a position rein-
forced by all elements of South-wests services marketing mix. It has maintained this posi-tion con-
sistently over 25 years while, at the same time, making money every year-no other U.S. airline
comes close to this record. Success has come for a number of rea-sons. One is the airlines low cost
structure. They fly only one type of plane (Boeing 737s), which lowers costs be-cause of the fuel
efficiency of the aircraft itself combined with the ability to standardize maintenance and operational
procedures. The airline also keeps its costs down by not serving meals, having no preassigned seats,
and keeping employee turnover very low. Southwest Airlines presi-dent, Herb Kelleher, is famous
for his belief that employ-ees come first, not customers. The Dallas-based carrier has managed to be
the low-cost provider and a preferred em-ployer while, at the same time, enjoying high levels of cus-
tomer satisfaction and strong customer loyalty. Southwest Airlines has the best customer service
record in the airline industry and has won the industrys Triple Crown for best baggage handling,
on-time performance, and best cus-tomer complaint statistics several years in a row. This is a feat
accomplished by no other airline.
Observing Southwest Airlines success, it is clear that all of its marketing mix is aligned around its
350 16.101G
Marketing Management
Copy Right : Rai University
highly suc-cessful market position. The three new marketing mix ele-ments all strongly reinforce the
value image of the airline:
People: Southwest uses its people and its customers very effectively to communicate its position.
Employees are unionized, yet they are trained to have fun, allowed to define what fun means, and
given authority to do what it takes to make flights lighthearted and enjoyable. People are hired at
Southwest for their attitudes; technical skills can and are trained. And, they are the most productive
work force in the U.S. airline industry. Customers also are included in the atmosphere of fun, and
many get into the act by joking with the crew and each other and by flooding the airline with letters
expressing their satisfac-tion. Herb Kelleher, the airlines fun-loving president, en-courages employ-
ees and customers alike through his infa-mous antics.
Process: The service delivery process at Southwest also reinforces its position. There are no as-
signed seats on the aircraft, so passengers line up and are herded by number onto the plane where
they jockey for seats. The airline does not transfer baggage to connecting flights on other airlines.
Food is not served in flight. In all, the process is very efficient, standardized, and low cost, al-lowing
for quick turnarounds and low fares. Customers are very much part of the service process-taking on
their roles willingly.
Physical evidence: All of the tangibles associated with Southwest further reinforce the market
position. Southwests aircraft are orange and mustard brown in color, which accentuates their unique-
ness and low-cost orientation. Employees dress casually, wearing shorts in the hot summer months to
reinforce the fun and further emphasize the airlines commitment to its employees comfort. The
reusable plastic boarding passes are another form of physical evidence that signals low cost and no
frills to customers. No meal service in flight confirms the low-price image through the absence of
tangibles-no food. Because many people joke about airline food, its ab-sence for many is not viewed
as a value detractor.
The consistent positioning using the services marketing mix reinforces the unique image in the
customers mind, giving Southwest Airlines its high-value position, which has resulted in a huge and
committed following of satisfied customers.
Source: Kevin Freiberg. and J ackie Freiberg, Nurs! Southwest Air-lines Crazy Recipe for Busi-
ness and Personal Success (Austin, TX: Bard Press, Inc., 1996): and Kenneth Labich, Is Herb
Kelleher Americas Best CEO? Fortune (May 2, 1994).
The three new marketing mix elements (people, physical evidence and process) are included in the
marketing mix as separate elements because they are within the control of the firm and any or all of
them may influence the customers initial decision to purchase a service, as well as the customers
level of satisfaction and repurchase decisions.
As all of us know that it is very difficult to differentiate your self from your competitor as most of the
services are copied in this part we will focus on how to manage differentiation.
We have seen that most of the service marketers frequently complain about the difficulty of differen-
tiating their services .The de regulation of several major service industries-communications, trans-
portation, energy, banking-precipitated intense price competition.
The alternative to price competition is to develop a differentiated offer, delivery. Or image.
Lets see what is Offer all about:
It can include innovative features. What the customer expects is called the primary service package,
and to this can be added secondary service features.
16.101G
Marketing Management
351
Copy Right : Rai University
In an airline industry, various carriers have introduced such secondary service features as movies,
merchandise for sale, air-to-ground telephone service, and frequent flier award programs.
Marriott is setting up hotel rooms for high-tech travelers who need accommodations that will support
computers, fax machines, and e-mail.
The major challenge is that most service innovations are easily copied. Still the company that regu-
larly introduces innovations will gain a succession of temporary advantages over competitors.
DELIVERY
A service company can hire and train better people to deliver its services. It can develop a more
attractive physical environment in which to deliver to service (music stores, PVR cinemas etc.) or it
can design a superior delivery process (Dominos Pizza)
IMAGE
Service Companies can also differentiate through symbols and branding.
MANAGING SERVICE QUALITY
Any service firm can win by delivering consistently higher-quality service than competitors and
exceeding customers expectations. These expectations are formed by their past experiences, word
of mouth, and advertising.
After receiving the service, customers compare the perceived service with the expected service. If
the perceived service falls below the expected service the, customers lose interest in the provider. If
the perceived service meets or exceeds their expectations, they are apt to use the provider.
Paasuraman, Zeithaml and Berry formulated a service quality that highlights the main requirements
for delivering high service quality. The model, shown in the below figure identifies five gaps that
cause unsuccessful delivery.
1.Gap between consumer expectations and management perception; Management-does not
perceive correctly what customers want. Hospital administrators may think that patients want better
food, but patients may be more concerned with nurse responsiveness.
2.Gap between management perception and service-quality specifications: management might
correctly perceive the customers wants nut not set a specified performance standard. Hospital
administrators may tell the nurses to give fast service but without specifying it quantitatively.
3.Gap between service-quality specifications and service delivery-The personnel might be
poorly trained, or incapable or unwilling to meet the standard. Or they may be held to conflicting
standards, such as taking time to listen to the customers and serving them fast.
4.Gap between service delivery and external communications; statements made by company
representatives and ads affect Consumer expectations. If a hospital brochure shows a beautiful
room, but the patient arrives and finds the room to be cheap and dirty looking, external communica-
tions have distorted the customers expectations.
5. Gap between perceived service and expected service: The gap occurs when the consumer
misperceives the service quality .The Physician may keep visiting the patient to show care, but the
patient may interpret this as an indication that something really is wrong.
Translation of perceptions into service quality specifications
352 16.101G
Marketing Management
Copy Right : Rai University
GAP 4
GAP 3
GAP 1
GAP 2
GAP 5
16.101G
Marketing Management
353
Copy Right : Rai University
Article :
Service Offerings versus Products
Most physical goods tend to be relatively high in search qualities; these are attributes that a customer
can determine prior to purchasing a product, such as colour, style, shape, price, fit, feel, hardness and
smell. Services, by contrast, may emphasise experience qualities, which can only be discerned after
purchase or during consumption; as with taste, wearability, ease of handling, quietness and personal
treatment. Finally, there are credence qualities-characteristics that customers find hard to evaluate
even after consumption like surgery, legal services, etc.
Since services are very competitive and there is a very high level of replication of products, consum-
ers do not perceive a drastic fall in quality with falling price. For highly intangible service offerings in
particular, organisation-wide factors, such as the level of functional service quality, may be emphasised
when adding value (Gronroos, 1984; Parasuraman et al, 1991). Zeithaml, Parasuraman and Berry
(1985) also highlighted the uniqueness of service offerings in terms of their intangibility, non-
standardisation, perishability and inseparability of production and consumption. In addition, contribu-
tions from Bharadwaj et al (1993), and Zeithaml (1988) suggest that extrinsic cues such as image and
reputation may be particularly important in adding value in cases where consumer understanding of
service offerings is limited. This is likely to be the case, in particular, where service offerings are
complex and, as a result, highly mentally intangible to the average consumer. Leonard L Berry, in
his model shown above, highlights the importance of the customers experience, which in turn is
based on the service performance.
The presented brand is the companys controlled communication of its identity through advertisement
while the external brand communication refers to the information customers absorb about the com-
pany that essentially is uncontrolled by the company. These factors, combined with the customers
experience, lead to increased brand awareness and brand meaning. Brand meaning refers to the
customers dominant perceptions of the brand and hence differs from awareness. Both these factors
put together lead to development of brand equity. In services marketing, unlike in product marketing,
it is the customers experience that plays a very important role and even if his services experience
differs from the advertising message, he will go more by his experience. Thus, the main differentiat-
ing role is played by the service performance.
Service brandingthe emerging paradigm
Services marketing has a very sensitive aspect where the strategy revolves around the customer.
Building a strategic relationship with the customer is very essential. By identifying the drivers of
consumer choice, a service marketer can identify the factors that can be leveraged in different
service conditions to add value to the consumer and thus differentiate the offering. The process of
adding value is in essence differentiating ones offerings effectively in the eyes of the consumer, and
this is where branding services becomes important.
Some of the reasons that make branding a valuable proposition for services are:Strong brands in-
crease customers trust of the invisible purchase. Strong-brand companies have high mind share
with targeted customers, which contributes to market share. They enable customers to better visualise
and understand intangible products.They reduce customers perceived monetary, social and safety
risks in buying services.
Steps for building a service brand With appropriate senior management commitment, building a
relevant and powerful brand for any consumer-focused company, including a bank, is a reasonable
goal. There are six components that go into successfully branding a service sector firm. These steps
blueprint the process of developing a concise message or promise that an institution wants to commu-
nicate to its customers, and for executing a strategy that delivers on that promise. The above figure
354 16.101G
Marketing Management
Copy Right : Rai University
illustrates the process of building brands.
1) The first step in building a branded business is to understand the role of the brand in that particular
business, including the leverage it can provide across markets and product categories. A brand can
provide information and communicate efficiently, qualify a product or service, or establish differen-
tiation. A truly powerful brand can do all three if necessary. To decide what role brands should play,
it is important to take a dispassionate look at the current status of the organisation and product/
service offering-how they are perceived by customers, competitors and employees. In addition, the
institution has to understand what these distinct constituencies need to know and believe about the
brand. For instance, in General Electrics (GE) appliance business, the retail trade is most interested
in product quality, marketing support and access to credit. Consumers are interested in product
quality, but in addition seek a set of design attributes. GEs brands thus play two roles.
2) Secondly, brand builders must choose a brand architecture consistent with the chosen role and the
institutions products, services and market landscape. There are three types of brand architectures:
the first is a single brandone brand that covers the entire product range, for example, Sony, Home
Depot and Visa. Then come tiered brandswith a parent brand supported by sub-brands for each
product line. Companies such as Sears and Nabisco use a tiered brand architecture, where individual
brands benefit from the corporate brand umbrella. The third architecture is multiple brandswith
each product carrying its own brand distinct from the parent. Procter & Gamble is a company that
uses multiple brand architecture, with each of its productsTide, Pampers, Ivory Soapbuilding
and supporting its own brand identity. Which brand architecture you choose depends on business
objectives and market conditions. The single brand architecture best applies when customers seek
the same attributes across market segments and product lines. The tiered brand architecture allows
the institution to build on critical foundation attributes while still tailoring the marketing message to
specific segments. Multiple brands are needed when each market segment has distinct needs.
3) The third step in branding a business and developing a brand strategy is to position the brand to
effectively communicate the value proposition. Critical here are clarity, consistency and relevance.
Volvo (safety), Nike (limitless performance) and Wal-Mart (good deals) are examples of companies
that have clear brand positions. The clarity is achieved through the consistent use of all marketing
levers (price, product design, image and channel selection) to drive home a single message.
4) In the fourth step, a company must develop the programmes needed to deliver the brand and the
brand promise. This happens through programmes or services that convey the brand message to the
target audience. Nikes support of grassroots athletic events and Visas Olympic sponsorship illus-
trate the type of programmes needed to creatively deploy brands. Nike helps amateur athletes per-
form, while Visa demonstrates its global reach.
5) Essential for generating brand performance is the fifth step in effective branding: creating or
designing an organisation to lead and manage a branded business, one that includes the right skills and
structure to execute the brand strategy. Citibank, for example, has recently recruited a number of
people with brand-building skills, including William Campbell, formerly the marketer behind many of
Philip Morris successes.
6) Finally, for a brand to be effective in the marketplace, the business system must be aligned with the
brand promise. It must start at the very top with a vision and strategy that is embraced and articulated
by senior management. Imagine Virgin Air without Richard Branson or Nike without Phil Knight and
the importance of leadership in establishing and driving a brand becomes obvious.
16.101G
Marketing Management
355
Copy Right : Rai University
Points to remember:
Slide 1
McGraw-Hill 2000 The McGraw-Hill Companies
19
S
M
Services Marketing Mix: Services Marketing Mix:
7 Ps for Services 7 Ps for Services
Traditional MarketingMix
ExpandedMixforServices: 7Ps
BuildingCustomerRelationshipsThrough
People, Processes, andPhysical Evidence
WaystoUsethe7Ps

___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________

Slide 2
McGraw-Hill 2000 The McGraw-Hill Companies
20
S
M
Traditional Marketing Mix Traditional Marketing Mix
All elementswithinthecontrol of thefirmthat
communicatethefirmscapabilitiesandimageto
customersorthatinfluencecustomersatisfaction
withthefirmsproductandservices:
Product
Price
Place
Promotion

___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________

Slide 3
McGraw-Hill 2000 The McGraw-Hill Companies
22
S
M
Table 1 Table1--3 3
Expanded Marketing Mix for Expanded Marketing Mix for
Services Services

___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________


356 16.101G
Marketing Management
Copy Right : Rai University
Slide 4
McGraw-Hill 2000 The McGraw-Hill Companies
23
S
M
PEOPLE PHYSICAL
EVIDENCE
PROCESS
Empl oyees Facili ty desi gn Flow of acti vi ties
Customers Equipment Number of steps
Communicating
culture and values
Signage Level of customer
involvement
Empl oyee research Empl oyee dress
Other tangi bl es
Table 1 Table 1- -3 (Continued) 3 (Continued)
Expanded Marketing Mix for Expanded Marketing Mix for
Services Services

___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________

Slide 5
McGraw-Hill 2000 The McGraw-Hill Companies
24
S
M Ways to Use the 7 Ps Ways to Use the 7 Ps
Overall Strategic
Assessment
Howeffectiveisafirms
servicesmarketingmix?
Isthemixwell-aligned
withoverall visionand
strategy?
What arethestrengthsand
weaknessesintermsof the
7Ps?
SpecificService
Implementation
Whoisthecustomer?
Whatistheservice?
Howeffectivelydoesthe
servicesmarketingmixfora
servicecommunicateits
benefitsandquality?
What
changes/improvementsare
needed?

___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________

Slide 6
McGraw-Hill 2000 The McGraw-Hill Companies
16
S
M
Figure 1 Figure 1- -5 5
The Services Marketing Triangle The Services Marketing Triangle
Internal
Marketing
Interactive Marketing
External
Marketing
Company
(Management)
Customers Employees
enabling the
promise
delivering the promise
setting the
promise
Source: AdaptedfromMaryJoBitner, ChristianGronroos, andPhilipKotler

___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________


16.101G
Marketing Management
357
Copy Right : Rai University
Slide 7
McGraw-Hill 2000 The McGraw-Hill Companies
17
S
M
Ways to Use the Ways to Use the
Services Marketing Triangle Services Marketing Triangle
Overall Strategic
Assessment
Howistheservice
organizationdoing
onall threesidesof
thetriangle?
Wherearethe
weaknesses?
Whatarethe
strengths?
Specific Service
Implementation
Whatisbeingpromoted
andbywhom?
Howwill itbedelivered
andbywhom?
Arethesupporting
systemsinplaceto
deliverthepromised
service?

___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________

Slide 8
The Gap Model of Service Quality The Gap Model of Service Quality
3 3
Expected Service Expected Service
Perceived Service Perceived Service
Service Delivery Service Delivery
Quality Specifications Quality Specifications
Mgmt perception Mgmt perception
Communication
with Customers
Communication
with Customers
Customer Customer
Provider Provider
GAP2 GAP 2
GAP3 GAP 3
GAP4 GAP4
GAP5 GAP5
GAP1 GAP 1

___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________


358 16.101G
Marketing Management
Copy Right : Rai University
Tutorial - I
Case study
Merrill Lynch
Merrill Lynch was founded when Charles Merrill and Edmund Lynch opened an underwriting firm on
Wall Street in 1914. The company built a legacy of personalized service, and became the first major
firm to introduce investing to the mass market. Charles Merrill coined the phrase Bringing Wall
Street to Main Street and is credited with helping to change consumer attitudes about investing.
Merrill advocated sound investment strategy and made it accessible to the American public using
advertisements with titles like How to Invest. Merrill Lynch had 400,000 clients by 1956, making it
the largest brokerage in the country. In 1971, the company unveiled its now-famous bull icon with an
advertising campaign titled Merrill Lynch Is Bullish On America. In 1977, Merrill Lynch introduced
one of its most innovative and successful products, the Cash Management Account, which combined
checking, money market, and margin accounts.
A Modern Merrill Lynch
As more Americans turned to investing to protect and build their wealth, Merrill Lynch distinguished
itself from other brokerages with the financial security it could provide, the high level of service it
offered, the personal contacts it established with its retail offices, and the advanced financial re-
search it performed. As Merrill aggressively expanded into institutional investing and banking in the
1980s, its image as a main street brokerage became somewhat muddled. The companys association
with high finance and corporate Wall Street became a negative after recession and scandals shook
the economy in the 1980s and early 1990s. So Merrill streamlined its operations and developed
advertising campaigns with themes like A Tradition of Trust that were intended to inspire confi-
dence in the everyday investor. The company continued to grow its retail brokerage businesses and
other financial services during the rest of the decade.
Recently, Merrill Lynch found itself under assault from an unlikely segment: discount brokers. Online
trading sites set up by discount brokers like Ameritrade and Charles Schwab attracted waves of new
investors as the Internet took hold in the latter half of the 1990s. Merrill was slow to move online,
primarily because its brokers were reluctant to see the company give total control of trading to
investors via an online portal, and the company was concerned about the effect of a proprietary
Internet e-commerce site on its heritage as a full-service, customer-focused broker. At the same
time, Merrill Lynch was losing current clients and failing to attract new ones as Internet technology
gained popularity among investors. In 1998, Schwabs assets under management grew by 39 per-
cent, while Merrills grew by only 18 percent. By March of that year, Merrill Lynch executives were
exhorting the rest of the company to embrace the Internet. The companys vice-chairman, J ohn L.
Steffens, argued that Merrill Lynch had to offer an online-only account or it would lose too many
assets, not to mention the next generation of investors.
Merrill Arrives OnlineMerrill Lynch decided that it would provide online trading tools that augmented
its traditional off-line services. First, the company opened a bare-bones online site, called
Merrill Lynch Online, that enabled high-value customers to access accounts and information using
the Internet. In December 1999, the company created Merrill Lynch Direct, a full-service, online-
only retail trading site. To provide content and technology, the company invested in or partnered with
a number of technology companies, such as IBM, Cisco, Microsoft, Bloomberg, and Real Networks.
For $29.95 a trade, Merrill Lynch Direct gave customers broker-less trading, real-time market up-
dates, a spectrum of services from the vaunted off-line side of the business, such as Merrill research,
access to Merrill initial public offerings, and portfolio management tools. Many customers continued
to work closely with their brokers, whom the company encourages to provide consulting-type service
16.101G
Marketing Management
359
Copy Right : Rai University
to clients. To better combine its off-line strengths with its emerging on-line capabilities, the Merrill
Lynch developed a strategy called Merrill Anywhere that links clients to their accounts via the
Internet, the telephone, and eventually a host of wireless platforms.
Merrill Lynch Direct was recognized by Financial NetNews as the best in its category in 2000. The
award for the individual investor portal applauded Merrill for outshin[ing] its counterparts in the full
service space by combining its traditional off-line service with the Internet site. The addition of
online trading technology helped Merrill Lynch achieve revenue records in every category and region
in 2000. Its institutional clients made a record $1.9 trillion in trades using Merrills online technology.
The company earned $3.8 billion in 2000, a 41 percent increase from record earnings of $2.7 billion
in 1999. Merrill Lynch may have been slow to adopt the online trading model, but today the company
is combining the Internet with its traditional financial services to yield impressive results.
What are the service marketing strategy differences between Merrill Lynch on-line, Merrill Lynch
Direct and Schwab? Merrill Lynch On-line is designed to support and / or augment the regular full
service, broker-based, operations for the Priority Client investor demographic that Merrill Lynch
seeks to replace the middle America demographic of the 1950s and 1960s. Merrill Lynch Direct is a
discount competitor to Schwab and essentially copies or responds to the Schwab concept. However,
Merrill Lynch Direct is separate from the Merrill Lynch Online and corporate operations and effec-
tively is a separate brand and company. This could present some image and branding problems for
Merrill Lynch as they work through adjustment to the fact that they have very different demograph-
ics to work with in the future.
Questions for discussions
1. Given the direction of investment firm marketing, do you believe that the Merrill Lynch marketing
service strategy is heading in the right direction? Could the Merrill Lynch marketing strategy
backfire? Discuss
2. How would you compare the service marketing concepts discussed in the text with how Merrill
Lynch operates? Why did it take Merrill Lynch so long to get on board with the 21st Century?
Test your self (See your understanding of the concept)
Multiple Choice:
1. A (n) _____________________ is any act or performance that one party can offer to another
that is essentially intangible and does not result in the ownership of anything.
offer
service
product
contract
2. Which of the following is not one of the five categories of offerings that are characteristic of the
Service Mix? [Hint]
Basic need
Pure tangible good
Tangible good with accompanying service
Pure service
3 . Because of the varying goods-to-service mix, it is difficult to generalize about services without
further distinctions. Which of the following is not one of those distinctions?
Services vary by being equipment-based or people-based.
360 16.101G
Marketing Management
Copy Right : Rai University
Services require the clients presence and some do not.
Services differ by whether they meet a personal need or a business need.
All of the above are characteristics of services.
4. Which of the following is not one of the four major characteristics that greatly affect the design of
service marketing programs? [Hint]
Intangible
Inseparable
Standardization
Perishable
5. There are a number of ways that a service provider can tangibilize a service. Which of the
following is not one of those ways?
Place
Rules
People
Price
6. Because services depend on who provides them and when and where they are provided, services
are highly __________________________.
variable
intangible
inseparable
perishable
7. There are several strategies for producing a better match between demand and supply in a service
business. Which of the following would be used to help out on the supply side?
Part-time employees can be hired to serve peak demand.
Peak-time efficiency routines can be introduced.
Shared services can be developed.
All of the above would help on the supply side.
8. Traditional four Ps marketing approaches work well for goods, but additional elements require
attention in service businesses. Which of the following is not one of the suggested three additional Ps
to consider?
People
Physical evidence
Price
Process
9. Because services are generally high in experience and credence qualities, there is more risk in the
purchase. This has several consequences. Which of the following is not one of the consequences of
the high risk?
Consumers rely on word of mouth rather than advertising.
Consumers rely more on the search qualities than the experience qualities.
Consumers rely heavily on price, personnel, and physical cues to judge quality.
Consumers are highly loyal to service providers who satisfy them.
10. Besides the price competition, there are a number of ways to differentiate among services.
Which of the following is not one of those ways to manage differentiation?
Policies for employees
16.101G
Marketing Management
361
Copy Right : Rai University
Offering
Delivery
Image
11. A service company can differentiate itself by designing a better and faster delivery system.
Which of the following is not one of the levels of differentiation?
Reliability
Resilience
Innovativeness
All of the above are levels for designing a better and faster delivery system.
12. Customers form their service expectations based on a number of elements such as word of
mouth, advertising, and which of the following?
Management surveys
Employee surveys
Past experiences
Unknown variables
13. Parasuraman, Zeithaml, and Berry formulated a service-quality model that highlights the main
requirements for delivering high service quality. Which of the following is not one of the Gaps of their
model?
Gap between consumer expectation and management perception
Gap between management perception and employees perception
Gap between service-quality specifications and service delivery
Gap between perceived service and expected service
14. Service firms are under great pressure to keep costs down and increase productivity. Which of
the following is not one of the seven approaches to improving service productivity?
Decrease the quantity of service by surrendering some quality
Have service providers work more skillfully
Design a more effective service
Increase the quantity of service by surrendering some quality
15. A service company must define customer needs carefully in designing its service support pro-
gram. Customers have three specific worries about this service. Which one of the following is not
one of these worries?
Failure frequency
Downtime duration
Out of pocket costs of maintenance and repair
All of the above are customer worries.
Essay question:
Q1. Describe the five categories of offerings and how they are distinguished with services.
Q2. There are four major characteristics of a service that make services different from products.
What are they?
Q3. In terms of marketing strategies for service firms, what are the three additional Ps that need
to be added to the four traditional Ps of marketing?