Marketing of

Services
CLASS: MBA
SEMESTER: III
ACADEMIC CONSULTANT: Ms Riju Agarwal
Singh
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 Course Objectives
Course aims at providing insights to –
 What services are and identify important trends in services.
 Different Characteristics of services, differences between goods and services and its impact on
marketing
 Consumer behavior in services
 Understanding service quality, its measurement and management
 Introduce the expanded marketing mix for services
 Internal marketing
 Process of operation & delivery of services
 Impact of technology on service.
 Marketing of Financial Services
 International Marketing of Services

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 Marketing of Services
 What services are, definition.
UNIT - I  Characteristics of Services
implications.
& their marketing

 Classification of Services.
 Paradigms -Services Marketing.
 Importance of CRM.
 Service Quality.
 Customer expectation & Zone of Tolerance.
 Segmentation, Targeting & Positioning of Services

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LECTURE PLAN Unit- I Sub: Marketing of Services
Academic Consultant: Riju Agarwal

Lecture no Contents (sub topics) Slide no

1 What services are, definition 6-15

2 Characteristics of Services and their marketing 17-26
implications. Difference between Product & Services
marketing.

3 Classification of Services 28-41

4 Paradigms in Services Marketing 42-52
5 Importance of CRM 54-69
6 Service Quality 71-91
7 Understanding customer expectation & Zone of 93-106
Tolerance

8 Segmentation, Targeting & Positioning of Services 108-126

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FAQ’S, CASE STUDY & ASSIGNMENTS 4
127-133
Lecture 1

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Goods - things you can touch - “tangible”
Services - things you can’t touch - but you
can see their effect “intangible”
“… services are not physical, they are
intangible…”

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 Defining Services
 Activities, benefits or satisfactions which are offered for sale or provided in
connection with the sale of goods.- AMA (1960)
First attempt; does not provide for valuing services involved in producing the tangible goods

 Any activity or benefit that one party can offer to another that is essentially
intangible and does not result in the ownership of anything. Its production may
or may not be tied to a physical product. – Philip Kotler (1984)

 ‘Deeds, processes and performances’.- Zeithmal & Bitner (1996)

Deeds are acts/actions of service provider, processes are the steps in the provision of
service and performance/experience is the customers’ understanding of how the service
has been delivered.

 Service is anything intangible that can be offered to someone to satisfy a

need or a want.

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“There are no such thing as service
industries. There are only industries
whose service components are
greater or less than those of other
industries. Everybody is in service.”
-Theodore Levitt

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 Tangibility Spectrum
Salt, FMCG

 Tech dependent- Durables


Fast-food
Outlets
 Intangible
Dominant

Tangible

Dominant Fast-food
Outlets 
Advertising
Agencies/

Airlines
Internet service
provider

Investment
Management/
Teaching 
Consulting
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Examples of Service Industries
 Health Care
 hospital, medical practice, dentistry, eye care
 Professional Services
 accounting, legal, architectural
 Financial Services
 banking, investment advising, insurance
 Hospitality
 restaurant, hotel/motel, bed & breakfast
 ski resort, rafting
 Travel
 airline, travel agency, theme park
 Others
 hair styling, pest control, plumbing, lawn maintenance, counseling
services, health club, interior design

11/17/10
 Importance of Service
Sector

 Service-based economies (in terms of GDP &

employment)-
 Services are different than goods.
 Services Marketing is different

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 Service-based economies

 Between 60-80% of GDP comes from the services sector, and 50-90%
of all new employment in many economies. In India the service sector
grew from 29% of GDP in 1950-51 to 64% in 2008-09.
 The services sector has been growing at a rate of 8% per annum in
recent years.
 This sector dominates with the best jobs, best talent and best incomes.

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Contributions of Service Industries to
India’s GDP

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Reasons for growth of Service Sector

 Government policies:
• Deregulation (LPG); increasing competition
 Advances in IT:
• High speed Internet
• Miniaturisation
• Faster, more powerful software
• Wireless networking
Resulted in e-com, e-services- new ways to
deliver service.

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 Social changes:
• Increase in affluence- increased desire for buying
experiences and reduces scope of self service
• The middle income group is rising
• Urbanisation
• % of working women is increasing
• Nuclear Families on rise
• Growth in population of DINKS
• Greater Life Expectancy
• Time constraint lifestyle
• Customers have become more demanding (Increase in
Exposure, Awareness & Customer Expectation).

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 Business Trends:
• Demand for specialised services rising. Greater
complexity of products requires services of specialists for
mfg & maintenance.
• A Research of Marketing Science Institute says ‘Corporate
strategies focused on Customer Satisfaction, Revenue
Generation & Service Quality are more profitable than the
strategies of Cost Cutting or both.
• Increase in demand for Internal Services.
• Service as a business imperative in mfg & IT- recognizing
need to provide revenue-producing services to compete.

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 Service vs Customer service

 Customer service - is the service provided

in support of a company’s core product
(Supplementary services) may include
after-sales service, consultation, finance,
shipping, installation, maintenance,
upgrades…etc

 Marketing of services - where a service

itself is the core product

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Lecture 2

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 Characteristics of Services

Intangibility Heterogeneity
can’t touch, see, smell not always delivered
the same way

Inseparability
Simultaneous Perishability
Production
& Consumption

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 Implications of Intangibility
 Creates feeling of uncertainty/ suspicion
 Hard to explain and display Services/ communicate
 Lack of ownership
 Pricing is difficult. Per unit cost is hard to determine.
 Services cannot be inventoried
 Services cannot be easily patented. Therefore new
service concepts can be easily copied by competitors.

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 Strategy
 Manage evidence so that it gives a cue about quality-
location, ambience, communication, documentation
 Make Intangible tangible to the extent possible.
 Promote word-off-mouth communication
 Use Relationship marketing- use personal
information, sources, references.

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 Implications of Inseparability
 Mass production not possible
 Quality is highly dependent on what happens in ‘real time’
 Employees action/ performance (may differ every hour)
 Customers action
 Employee customer interaction
 Presence of other customers
 Heterogeneous
 Cannot be stored/ not possible to gain economies of scale
 Customer has to wait

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Implications of Heterogeneity
 There is no sure knowledge that the service
delivered matches what was planned and
promoted.

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 Strategy
 Use agents/ brokers/ electronic media to promote &
expand market.
 Have many locations so customers can get to you.
 Focus on standardization
 Use of machines in place of humans where ever
possible
 Maintain high level of quality controls

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 Strategy

 Manage and shape customer behavior. Train &

educate customer to ensure his efficient &
effective participation
 Emphasize how much you train your people –
so their ability to give good service will be high.
 Minimize wait time & make wait pleasant.

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 Implications of Perishability
 It is difficult to synchronize supply with
fluctuation in demand, as services
cannot be stored, returned or resold.
 If demand is high
 Wait
 Loss of revenue

 If demand is low
 Underutilization of capacity

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 Strategy
 Demand-Capacity Management
• Peak period
– Hire part-time employees
– Cross-train employees
– Request overtime
– Rent/ share facilities
– Subcontract/ outsource activities
• Slack Periods
– Perform maintenance & renovations
– Schedule vacations
– Schedule employee training
– Lay-off 27
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 Goods versus Services

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Source: A. Parasuraman, V.A. Zeithaml, and L. L. Berry, “A Conceptual Model of Service Quality and Its Implications for Future Research,” Journal of Marketing
49 (Fall 1985), pp. 41–50.
Services Marketing is different
 New issues and challenges faced.
 More variables exist in the marketing mix for services.
 In service, marketing, operations & HR are more closely linked.
 A firm’s core b/s is a deed performed by an employee. Service
production process is part of the marketing process.
 Your people are as much of your product in the consumers’ mind as any
other attribute of the service.
 Customer interface is a critical component in services.
 Limitation in distribution & selling- service pdt manager competes for
the ‘mental shelf space’ of the firm’s sales person. (as there cann’t
be well-stocked shelves past which the consumer can push a cart &
make selections.
 Benefits of using price as a promotional weapon are not as
apparent. Promotional price cuts tend to erode hard- fought
positioning and image.

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Expanded Mix for Services- the 7 Ps
 Product
 Price
 Place
 Promotion
 People
 All human actors who play a part in service delivery and thus
influence the buyer’s perceptions: namely, the firm’s personnel, the
customer, and other customers in the service environment.
 Physical Evidence
 The environment in which the service is delivered and where the
firm and customer interact, and any tangible components that
facilitate performance or communication of the service.
 Process
 The actual procedures, mechanisms, and flow of activities by which
the service is delivered—the service delivery and operating
11/17/10systems.
Lecture 3

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How can services be classified?
 Industry-wise
 Nature of the service act- Who or what is
the direct recipient.
 High contact versus low contact.
 Relationship with customers & Discrete vs
continuous services.
 Customization vs standardisation
 Nature of demand and supply
 Method of service delivery
 Degree of tangibility/intangibility (SEC)

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 Industry-wise classification of
services
Entertainment Industry
• Movie & TV programmers
• Amusement & Recreation services
• Theme parks

Hospitality Industry
• Hotels & Lodging facilities
• Restaurants & Cafes
• Food catering and event organization
• ski resort, rafting

Trading
• Wholesale trade
• Retail trade
• Online trade

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 Contd.
Finance and Insurance
 Loans and advances
 Credit cards
 Banking
 Insurance
 Investment, brokerage and advice
 Real estate
 Consultancy services such as credit rating

Professional Services
• Accounting
• Legal
• Architectural
• Interior designing

Education
• School, colleges, etc.
• Training and consultancy

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 Contd.
Transportation
 Air, sea, road, and train travel
 Travel agency
 Car hire, charter, and leasing
 Goods transport by all means
 Pipeline
 Mail and courier services

Government services
 Defence
 Police and protection
 Health and education
 Foreign relations
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 Contd.
Health Care
 Hospitals and medical practice
 Gymnasium and spa
 Dentistry & eye care
 Weight reduction and recuperation programmes
 De-addiction programmes
Telecommunications
 Telephone, fax, e-mail
 Data transfer
 Mobile telephone
 Video conferencing
 ISPs - internet service providers
 Cable services 36
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 Contd.
Business services
 Cleaning
 Catering
 Security
 Training
Public utilities
 Electricity supply
 Water supply
 Drainage and sewerage
 Garbage collection and disposal
 hair styling
 pest control
 Plumbing
 lawn maintenance 37
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 Service Classification –
Nature of the Service Act
Direct Recipient of the Service
Nature of the
Service Act People Things
People’s bodies: Physical possessions:
Health care Freight transportation
Passenger transportation Repair and maintenance
Tangible actions Beauty salons Veterinary care
Exercise clinics Janitorial services
Restaurants Laundry and dry cleaning

People’s minds: Intangible assets:

Education Banking
Intangible actions Broadcasting Legal services
Information services Accounting
Theaters Securities
Museums Insurance

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 Service Classification
(Relationship with Customers)
Type of Relationship between
Service Organization & Its Customers
Nature of
Service Delivery “Membership” relationship No formal relationship

Insurance Radio station

Telephone subscription Police protection
Continuous delivery Electric Utility Lighthouse
of service Banking Public Highway

Long-distance phone calls Restaurant

Theater series tickets Pay phone
Discrete transactions Transit pass Toll highway
Sam’s Wholesale Club Movie theater
Airline frequent flyer Public transportation

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 Service Classification
(Customization vs Standardisation )
Extent to Which Service Characteristics Are Customized

Extent to which
Personnel
exercise Judgment High Low
in meeting
Customer High Surgery Preventive health programs
Needs Taxi services Education (large classes)
Gourmet restaurant Family restaurant

Telephone service Public transportation

Hotel services Spectator sports
Low Retail banking Movie theater
Cafeteria Institutional food service

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 Service Classification
(Nature of Demand and Supply)
Extent of Demand Fluctuation over Time
Extent to which Supply Wide Narrow
Is Constrained Electricity Insurance
Peak demand can Telephone Legal services
usually be met Police emergency Banking
without a major delay Hospital maternity unit Laundry and dry cleaning

Tax preparation Fast food restaurant

Peak demand regularly Passenger transportation Movie theater
exceeds capacity Hotels and motels Gas station

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 Service Classification
(Method of Service Delivery)

Availability of Service Outlets

Nature of Interaction
between Customer and
Service Organization Single site Multiple site
Customer travels to Theatre Bus service
service organization Barbershop Fast-food chain

Service provider Taxi Mail delivery

travels to customer Pest control service Emergency repairs

Transaction is at Credit card company Broadcast network

arm’s length Local TV station Telephone company

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 SEC Attributes
How product qualities affect ease of evaluation

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 Examples of the Diversity of Services

Consumer services Business services

– Airline – Accountancy
– Banking and finance – Architecture
– Insurance – Engineering
– Medical – Legal services
– Telecommunications – Printing
– Hotel – Insurance
– Restaurant – Telecommunications
– Opera/theatre – IT consulting
– Football match – Logistics consulting
– Transportation – Management consulting
– House cleaning – Marketing research
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Lecture 4

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 Facts about services
Service is the fundamental basis of exchange. Indirect exchange masks the
fundamental basis of exchange
Because service is provided through complex combinations of goods, money, and institutions,
the service basis of exchange is not always apparent

Goods are a distribution mechanism for service provision

Goods (both durable and non-durable) derive their value through use – the service they
provide

Operant resources are the fundamental source of competitive advantage

The comparative ability to cause desired change drives competition

All economies are service economies

Service (singular) is only now becoming more apparent with increased specialization and
outsourcing

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 Facts contd
The enterprise cannot deliver value, but only offer value propositions.
The customer is always a cocreator of value. Enterprises can offer their applied
resources for value creation and collaboratively (interactively) create value following
acceptance of value propositions, but can not create and/or deliver value independently.
Implies value creation is interactional.

A service-centered view is inherently customer oriented and relational

Because service is defined in terms of customer-determined benefit and co-created it is
inherently customer oriented and relational

All social and economic actors are resource integrators

Implies the context of value creation is networks of networks (resource integrators)

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 Four Rs of Service Marketing

 Retention
 Referrals
 Relationships
 Recovery

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 Other Considerations in
Marketing Services
 Impact of Technology:
 Remember, not everyone likes impersonal technology
 Performance Measurement:
 Largerfirms can use market share, etc.
 Customer perceptions are essential.
 Prospects for Growth:
 Itis very likely that services will continue to take an
increasing share of the consumer dollar.
 The use of marketing programs in all services is
expected to increase considerably.
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 The interdependence of
marketing, operations and IT & HR
 Marketing cannot operate in isolation from other
functional areas of management.

 Operations (i.e. facilities, equipment) is the

primary line function in a service business.

 HRM is responsible for job definition, recruitment,

training, reward systems and quality of work life.

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The service management trinity

Operations and information Marketing

Technology management management

Customers

Human
Resources
management

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Paradigms in Services marketing: Keys to
Success
 Do it right the first time

 Speed! Speed!! Speed!!!

 Keeping customers perspective always- Understanding and

offering what target customers perceive to be superior value.

 Understanding that service is a time bound performance

comprising core products and supplementary services.

 Recognising the importance of understanding and managing the

operational processes.

 Understanding the customer’s role in the service transaction.

 Seeking distinctive market positions for competitive strength.

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The Actions of Efficient Companies

 Evaluate and select market segments.

 Research customer needs and preferences.
 Monitor competitors’ performance, strategies, strengths and
weaknesses.
 Tailor the product to suit the chosen market segment.
 Set prices to reflect costs, competitive strategies and consumer
sensitivity to different price levels.
 Tailor location, and scheduling of service availability to customers’
needs and preferences.
 Develop communication strategies, using appropriate media to
transmit messages that inform prospective customers about the
service and promote its advantages.
 Develop performance standards and measures.
 Create programs for rewarding and reinforcing customer loyalty.
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Caveats for Service Marketers

 Setting tough standards for customer service.

 Training employees in a continuous matter.
 Creating a customer centric culture.
 Serving to the best of one’s ability within the constraints.
 Explaining the reasons, if the employees fails to deliver upto his true
potential.
 Treating every encounter as though the whole of employee’s
business depended on it.

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Lecture 5

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 Relationship Marketing
 is a philosophy of doing business, a strategic orientation, that
focuses on keeping current customers and improving relationships
with them.

 does not necessarily emphasize acquiring new customers. Current

customer is usually cheaper approx 5 times (for the firm)
 keeping a current customer costs less than attracting a new one

 thus, the focus is less on attraction, and more on retention and

enhancement of customer relationships. i.e. Creation of ‘true
customers ’ – customers who are glad they selected a firm, are
receiving value and feel valued, who are unlikely to defect to a
competitor. Leonard L Berry & A Parasuraman

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 Underlying Logic of Customer
Retention Benefits to the
Organization
Customer Satisfaction

Customer Retention & Quality

Increased Profits Service

Employee Loyalty
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Profit Impact of 5 % Increase in
Retention Rate

Source: F. F. Reichheld, “Loyalty and the Renaissance of Marketing,” Marketing Management, vol. 2, no. 4 (1994), p. 15.
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It’s all about Value

 Value are Benefits exceeding the cost (money, time, &

effort).
 Value for all stake holders:
− Customers, more satisfaction

− Owners, more profits

− Employees, better salaries, promotion, work environment

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It’s all about value (cont.)
Time value: catching a taxi, employing a
gardener.

Place (distribution/logistics) value: using a

mobile, email or Internet banking.

Form value: medical, hairdressing.

Problem solving value: buying an experience (e.g.

going to the movies) or performance (e.g.
Education).
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Ladder of Loyalty
Customer
retention

Customer
acquisition

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Benefits of Relationship Marketing
 Benefits for Customers:  Benefits for Firms:
 Receipt of greater value
 Confidence benefits:
 trust
 confidence in provider
 reduced anxiety
 Social benefits:
 familiarity
 social support
 personal relationships
 Special treatment benefits:
 special deals
 price breaks
 Economic benefits:
 increased revenues
 reduced marketing and administrative
costs
 regular revenue stream
 Customer behavior benefits:
 strong word-of-mouth endorsements
 customer voluntary performance
 social benefits to other customers
 mentors to other customers
 Human resource management
benefits:
 easier jobs for employees
 social benefits for employees
 employee retention
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CRM Objectives

Assessment of customers’ value and value to a

customer.

Turning Prospects into Advocates

Minimizing defections
Having a large proportion of loyal advocates
Using cross-selling opportunities without annoying
customers

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New private banks ‘weeding
out’ Corporate Salary
Accounts seen to be ‘non-
remunerative’
 Not maintain much money in
account
 Transact heavily, adding to
operating costs
 Plenty of freebies accompany
such accounts.
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Implementing CRM
Empowerment of employees.
Customer-oriented approach with clearly defined
objectives.

Communicate with Customers and make them a part of

team.

Regular service/product innovation to keep it in tune with

expectations.

Tangible benefits to reward loyal customers. eg. Frequent

flier programmers of airlines, second pizza at half price.
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 The Customer Pyramid
Most profitable What segment spends more with us
customers Platinum over time, costs less to maintain,
spreads positive word-of-mouth?

Gold

Iron

What segment costs us in time, effort

Lead
and money yet does not provide the
return we want? What segment is
Least profitable difficult to do business with?
customers

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Strategies for Building
Relationships
 Core Service Provision:
 service foundations built upon delivery of excellent service:
 satisfaction, perceived service quality, perceived value
 Switching Barriers:
 customer inertia
 switching costs:
 set up costs, search costs, learning costs, contractual costs
 Relationship Bonds:
 financialbonds
 social bonds
 customization bonds
 structural bonds
 Relationship Strategies Wheel

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Levels of Relationship Strategies
Stable
Volume and pricing Bundling and
frequency cross selling
rewards

1.
Integrated Financial Continuous
information relationships
bonds
systems

4. Excellent 2.
Joint service Personal
Structural Social
investments relationships
bonds and value bonds

Shared Social bonds

processes and 3. Customization
among
equipment Bonds
customers

Anticipation/ Customer
innovation intimacy
Mass
customization
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“The Customer Is NOT
Always Right”
 Not all customers are good
relationship customers:
 wrong segment
 not profitable in the long term
 difficult customers

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Can Technology build
relationships
Advantages:
 Improvise services
Convenient (24x7 world)
Cost-cutting
Efficiency
 Employees more competent in hyper-competitive environment

Challenges:
 Shoots up customer expectation.
 Lacks actual customer engagement/ relationship
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Customer Loyalty Exercise

Think of a service provider to who you are loyal.

What do you do (your behaviors, actions, feelings)
that indicates you are loyal?

Why are you loyal to this provider?

What factors have influenced the formation of your
loyalty?

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Lecture 6

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 Customer Perceptions of
Service - Objectives
Definition and understanding of customer satisfaction
and service quality

Show that service encounters or the “moments of

truth” are the building blocks of customer perceptions

Highlight strategies for managing customer

perceptions of service

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Factors Influencing
Customer Satisfaction

Product/service quality
Product/service attributes or features
Consumer Emotions
Attributions for product/service success or failure
Equity or fairness evaluations

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 Customer Perceptions of Service
Quality &
Customer Satisfaction
Reliability Situational
Factors
Responsiveness Service
Quality

Assurance
Customer
Empathy Satisfaction
Product
Quality
Tangibles

Personal
Price Factors
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Outcomes of
Customer Satisfaction

Increased customer retention

Positive word-of-mouth communications
Increased revenues

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 Relationship between Customer
Satisfaction and Loyalty in
Competitive Industries
100%
Loyalty (retention)

80%

60%

40%

20%

0%
Very Dissatisfied Neither Satisfied Very
dissatisfied satisfied nor satisfied
dissatisfied

Satisfaction measure
Source: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p. 83.

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Service Quality

 The customer’s judgment of overall

excellence of the service provided in
relation to the quality that was
expected.
 Process and outcome quality are both
important.

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 Managerial imperative
1970s - Productivity i.e. working faster &
more efficiently in order to reduce cost
1980s - Improving Quality i.e. creating
better service processes & outcomes to improve
customer satisfaction
Early 21st century - Value i.e. quality offered at the
right price

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What is service Quality
David Garvin

Product based approach

Operations based approach
User based approach
Value based approach
Transcendent view

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 SERVEQUAL
Determinants of service
quality
Reliability
Parasuraman, Ziethmal & Berry (1988)

Ability to perform the promised

Assurance service dependably and
accurately.
Knowledge and courtesy of
Tangibles employees and their ability to
convey trust and confidence.
Empathy Physical facilities, equipment,
and appearance of personnel.
Responsiveness Caring, individualized attention
the firm provides its customers.
Willingness to help customers 81
 SERVQUAL Attributes
RELIABILITY EMPATHY
■ Providing service as promised ■ Giving customers individual attention
■ Dependability in handling customers’ service ■ Employees who deal with customers in a
problems caring fashion
■ Performing services right the first time ■ Having the customer’s best interest at
■ Providing services at the promised time heart
■ Maintaining error-free records ■ Employees who understand the needs of
their customers
■ Convenient business hours
RESPONSIVENESS
■ Keeping customers informed as to when
services will be performed TANGIBLES
■ Prompt service to customers ■ Modern equipment
■ Willingness to help customers ■ Visually appealing facilities
■ Readiness to respond to customers’ requests ■ Employees who have a neat,
professional appearance
ASSURANCE ■ Visually appealing materials associated
with the service
■ Employees who instill confidence in customers
■ Making customers feel safe in their transactions
■ Employees who are consistently courteous
■ Employees who have the knowledge to answer
customer questions
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 Other Determinants of service quality
Parasuraman, Ziethmal & Berry (1988)

Credibility – trustworthiness
Security – freedom from danger/ risk
Accessibility – approachability & ease of
contact
Communication – of necessary information to
customers
Competence - possession of the required
skills & knowledge

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 The Service Encounter
 is the “moment of truth”
 occurs any time the customer interacts with the firm
 can potentially be critical in determining customer
satisfaction and loyalty
 types of encounters:
 remote encounters
 phone encounters
 face-to-face encounters
 is an opportunity to:
 build trust
 reinforce quality
 build brand identity
 increase loyalty

84
The Gaps Model of Service
Quality
The Customer Gap
The Provider Gaps:
 Gap 1 – not knowing what customers expect
 Gap 2 – not having the right service designs and standards
 Gap 3 – not delivering to service standards
 Gap 4 – not matching performance to promises
Putting It All Together: Closing the Gaps

85
The Customer Gap

Expected
service

Customer Gap

Perceived
service

86
Gaps Model of Service Quality
 Customer Gap:
 difference between customer expectations and
perceptions
 Provider Gap 1 (The Knowledge Gap):
 not knowing what customers expect
 Provider Gap 2 (The Service Design & Standards Gap):
 not having the right service designs and standards
 Provider Gap 3 (The Service Performance/delivery Gap):
 not delivering to service standards
 Provider Gap 4 (The Communication Gap):
 not matching performance to promises
87
 Key Factors Leading to the Customer
Gap
Customer
Expectations

Custom
er
Gap
 Provid
Customer
Perceptions

88
Key Factors Leading to Provider
Gap 1
Customer
Expectations
Ga
p
1  Inadequ
Insuffic
Company Resea
Perceptions of 89
Key Factors Leading to Provider
Gap 2
Customer-Driven
Service Designs
Gap and Standards
2
 Poor ser
Unsyste
Vague,
Management
Perceptions of 90
Key Factors Leading to Provider
Gap 3
Customer-Driven
Service Designs
Gap
3
 Deficiencies in hu
and Standards

Ineffective recruitm
Role ambiguity and
Poor employee -tech
Inappropriate evalu
Lack
Service of empowerm
Delivery 91
Key Factors Leading to Provider
Gap 4
Service Delivery

 Lack of in
Gap
4

Tendenc
Not inclu
External
92
Communications
 Gaps Model of Service Quality
Expected
Service
CUSTOMER
Customer
Gap Perceived
Service

External
COMPANY Service
Communicatio
Delivery Gap 4 ns to
Gap 3 Customers
Customer-Driven
Gap 1 Service Designs
and Standards
Gap 2
Company
Perceptions of
Consumer
93
Expectations
Lecture 7

94
94
Customer Expectations of
Services
Are beliefs about service delivery, that function as
reference points against which the performance is judged.
Customer satisfaction depends on the extent to which the
service provider is able to meet customer expectations.
2 levels:
Desired Service level – the ‘wished for’ service
Adequate Service level– the service that would be acceptable i.e. the
threshold/ minimum tolerable expectation

95
 Dual Customer
Expectation Levels &
Zone of Tolerance (ZOT)
Desired Service

Zone of
Tolerance

Adequate Service

ZOT is difference between the desired service and

the adequate service
96
Changes in ZOT

ZOT is not constant, it shrinks or expands.

It shrinks i.e. customer expectations has
risen, if:
Crucial/ important factors
Case of recovery- service provision effort when
the first service delivery has failed
Personality

97
 Zones of Tolerance VARY for
Different Service Dimensions
Desired Service

Zone of
Toleranc Desired
Desired Service
e Service
Adequate Service
Zone
of
Tolerance
Adequate
Adequate Service
Service

Most Important Factors Least Important Factors

Source: Berry, Parasuraman, and Zeithaml (1993) 98
 Zones of Tolerance VARY for
First-Time and Recovery Service
First-Time Service
Outcome
Process

Recovery Service
Outcome
Process
LOW HIGH
Expectations
Source: Parasuraman, Berry and Zeithaml (1991)
99
 Factors that Influence
Desired Service
Enduring Service
Intensifiers-
•Derived expectations of
others
•Personal expectations

Desired
Service
Personal Needs-
•Physical Zone
•emotinal of
•social
•Psycological Tolerance
Adequate
Service

100
 Factors that Influence
Adequate Service

Transitory Service
Intensifiers –
temporary
Desired
Perceived Service Service
Alternatives Zone
of
Self-Perceived Tolerance
Participation ability Adequate
Service

Situational
Factors
101
 Factors that Influence
Desired and Predicted Service
Explicit Service
Promises
Implicit Service
Promises-
indirect

Desired Word-of-Mouth
Service
Zone
Past Experience
of
Tolerance
Adequate Predicted
Service Service
102
Possible Influence Strategies
affecting customer service expectations
 Controllable factors:
 Explicit Service promises
 Make realistic & accurate promises
 Take feedback on the accuracy of promises
 Avoid engaging in competitive warfare
 Formalize service promises through providing service guarantees
 Implicit service promises
 Ensure service tangibles accurately reflect the service
 Ensure price premiums are justified by high level of performance

103
Contd.
 Less controllable factors:
 Personal needs & wants- Educate customers on ways
the service addresses their needs
 Derived expectations of others- Use market research to
determine sources & focus marketing strategy
 Personal expectations-Use market research to profile
personal service philosophies of customers

-
104
Contd.

 Perceived service alternatives- be fully aware of & match

competitive offerings.
 Self perceived service role – educate customers to understand
their roles & perform better.
 Emergencies – in peak periods increase service delivery.
 Situational factors – use service guarantees to assure
customers about service recovery.
 Word of mouth communication- Use incentives & simulate
favorable word-of-mouth.
 Past experience – Use market research to profile customers’
previous experiences with similar services.

105
Understanding Customer
response w.r.t. ZOT
Levels of Service performance Customer response
Delighted
1. Exceeds Desired level Becomes a loyal customer
Brand ambassadors
Satisfied
2. Meets Desired level Indifferent/ service go
3. Lies in ZOT- between unnoticed
desired & adequate level Dissatisfied
4. Meets Adequate level Frustated
5. Falls below Adequate level Search for alternative & shifts
Negative publicity

106
In services, the last
experience remains
uppermost in customers’
mind.
Therefore, it is not enough
to be good, you have to be
consistently good.

107
Questions
What are the basic characteristics of services vs.
goods?
Discuss the managerial implications of difference in
characteristics of services.

108
Lecture 8

109
109
Market segmentation

Dividing large, heterogeneous market into

smaller groups of buyers called segments
having distinct needs, characteristics, or
behavior and therefore require separate
products or marketing mixes, so that they
can be reached more efficiently and
effectively with products and services that
match their unique needs.
110
110
 Why Market segmentation?

 Buyers differ in
 Wants
 Resources
 Locations
 Buying attitudes
 Buying practices
 Limited resources which should be
utilized efficiently & effectively

111
111
 Steps in STP
(Segmentation, Targeting &
Positioning)
Market segmentation
1. Identify bases for
segmenting the Target marketing
market. Market positioning
3. Develop measure of
2. Develop segment segment 5. Develop
profiles attractiveness positioning
(differentiation) for
4. Select target target segments.
segments.
6. Develop a
marketing mix for
each segment.

112
112
Bases of Segmentation
 Geographic
• Demographic- Age, Gender, Family size, Family life cycle, Income, Occupation,
Education, Religion, race and nationality . Most popular

 Income
 Psychographic- social class, lifestyle or personality characteristics
 Behavioral- consumer knowledge, attitude, occasion, use, benefit sought or
response to a product
Using Multiple segmentation bases is common in an effort to
identify smaller, better defined target groups

113
113
Segments--Example
 Air Travel
 Business/Executive: Inflexible; relatively price
insensitive (Small number of people, but travel
often)
 Leisure Traveler/Student: Relatively flexible; very
price sensitive (other methods of travel--e.g., bus,
car, train--are feasible; travel may not be
essential) (Very large segment)
 Comfort Travelers: Comfort (e.g., space, food)
important; willing to pay (Small segment)

114
114
 Levels of Market
Segmentation
 Segment marketing
 Individual marketing
 Niche marketing- Marketers effort to position their service in very
smaller markets that have similar attributes and have been neglected by
other marketer. Segment further divided into sub segments to cater
unsatisfied needs of small group is called as niche.
 Local marketing- marketers offer customized products to suit the
local markets. KFC introduced “Muslimized” or “Pakistani” products such as
Spicy Chicken, Hilal Chicken, Zinger Extreme and more…

115
115
Requirements for effective
segmentation
 Measurable
 Accessible
 Differentiable (segment is unique)
 Actionable (can perform marketing mix to
reach this segment)

116
116
Target marketing

 The process of evaluating each market

segment’s attractiveness and selecting
one or more segments to enter
 Target market is a set of buyers sharing
common needs or characteristics that the
company decides to serve

117
117
Evaluating market segments
Segments must
 differ meaningfully from others- Segment
attractiveness
• large enough to be profitable- Segment size
• be serviceable (have need that can be met
cost effectively)
 Growth
 Company objectives and resources

118
118
 Targeting Strategies

Undifferentiated Concentrated (niche) Differentiation

Strategy Strategy Strategy
One marketing mix One marketing mix Two marketing mix
for the whole market and one segment and 2 different
Chipsy BMW segment
119
119
Product positioning

 The way that product is defined by

consumers on important attributes - the
place the product occupies in consumer’s
minds relative to competing products

120
120
Positioning Strategies
 “Head-on” competition
 Airlines (want to differentiate but have difficulty pulling it
off in practice)
 Beef products

 Differentiation
 Burger King: Grilled instead of McDonald’s fried burgers
 Halmark: “When you care to send the very best…”
 Hertz (vs. “Not exactly”)
 Zachy Farms (chicken)

121
121
Developing and Communicating a
Positioning Strategy

 Positioning According to Ries and Trout

 Strengthen own current position
 Grab an unoccupied position
 De-position
 Re-position
 Product ladders

122
122
Developing and Communicating a
Positioning Strategy
 Positioning: How many ideas to promote?
 Unique selling proposition
 Four major positioning errors
1. Underpositioning
2. Overpositioning
3. Confused positioning
4. Doubtful positioning

123
123
Theme park’s positioning
possibilities:
 Attribute positioning
 Benefit positioning
 Use or application positioning
 User positioning
 Competitor positioning
 Product category positioning
 Quality or price positioning

Which Positioning to Promote?

124
124
Differentiation Tools
 Differentiation criteria:
 Important
 Distinctive

 Superior

 Preemptive

 Affordable

 Profitable

 Performance Quality
 Conformance Quality
 Durability
 Reliability
 Reparability
 Style
 Design: The Integrating Force

125
125
Differentiation Tools
 Services Differentiation
 Ordering Ease
 Delivery
 Quick response system
 Installation
 Customer Training
 Customer
Consulting
 Maintenance
and Repair

126
126
Differentiation Tools
 Personnel Differentiation
 Competence
 Courtesy

 Creditability

 Reliability

 Responsiveness

 Communication

127
127
Differentiation Tools
 Channel Differentiation
 Image Differentiation
 Identity
 Image

 Symbols, Colors, Slogans, Special Attributes

 Physical plant
 Events and Sponsorship
 Using Multiple Image-Building Techniques

128
128
Questions

129
129
 Questions

1. Define Services. Why is there a need to study Service marketing?

2. What are the main reasons for the growing share of the service sector in India?

3. Why do marketing, operations, and HR have to be more closely linked in services than in manufacturing? Give examples.

4. Describe how consumer behavior in services differs from consumer behavior in the purchase of goods.

5. Discuss briefly any two of the following:

1. Zone of Tolerance
2. Credence Qualities
3. Demand-capacity management

130
130
 Questions

3. What are the basic characteristics of services vs. goods?

4. Discuss the managerial implications of difference in characteristics of services.

5. To what extent do you consider that the principles of marketing which have been traditionally
applied to the goods sector are appropriate for the service sector?

6. Discuss the different characteristics of services, the problems faced by service provider due to
them and strategic solutions.

7. How can services companies overcome the problem of inseparability?

131
131
 Questions
8. Review each of the different ways in which services can be classified. How would
you explain the usefulness of each framework to managers?

9. Make a list of 16 services that you have used during the past month. Categorize
them by type of process.

10. What are search and credence qualities of service? Give 5 examples of services
rich in each of them.

132
132
 Questions
11. List and define the five dimensions of service quality. Describe the services provided
by your college/ bank on each of these dimensions. In your mind, has this
organisation distinguished itself from its competitors on any particular service quality
dimension?

12. Describe any service encounter that you have had recently. How did you evaluate
the encounter, and what were the most important factors determining your
satisfaction/ dissatisfaction?

13. Assume you are the manager of a health club. Discuss general strategies you might
use to maximize customers’ positive perceptions of your club.

14. What are the basic characteristics of services vs. goods?

15. Discuss the managerial implications of difference in characteristics of services.

133
 Interactive Class Exercise
The class breaks into five groups and each group
is assigned one of the service classifications
(e.g., nature of act, relationship with customer,
customization, nature of demand, or method of
delivery) to come up with an example for each of
the four quadrants in the matrix.

134
134
Exercise to
Identify Service Attributes
In groups of five, choose a services industry and spend 10 minutes brainstorming
specific requirements of customers in each of the five service quality dimensions.
Be certain the requirements reflect the customer’s point of view.

Reliability:

Assurance:

Tangibles:

Empathy:

Responsiveness:
135
 Marketing of Services
Services Marketing Mix- Augmented marketing mix

UNIT - II •
•
Product
Price

• Place

• Promotion

• People

• Process

• Physical Evidence

• Role of Technology

136
LECTURE PLAN Unit- II Sub: Marketing of Services
Academic Consultant: Riju Agarwal

Lecture Contents (sub topics) Slide no

no

1 Augmented Marketing Mix 138-149

2 Augmented Marketing Mix 151-165

3 Developing service product 167-171

4 Service Product Planning 173-188

5 Service Pricing Strategy 190-198

6 Service Pricing Strategy 200-209

7 Services Promotion 211-218

8 Services Promotion 220-231

137
LECTURE PLAN Unit- II Sub: Marketing of Services
Academic Consultant: Riju Agarwal

Lecture Contents (sub topics) Slide no

no

9 Services distribution 233-236

10 Services distribution 238-242

11 Role of communication in Service Marketing- Internal 244-255

Communication
12 Role of communication in Service Marketing: Customer 257-262

13 Process of Operations 264-273

14 Delivery of Services 275-282

15 Role of Technology Services Marketing 284-295

16 Role of Technology Services Marketing 297-303

FAQ’S & ASSIGNMENTS

138
Lecture 1

139
Table 1.3

Expanded Marketing Mix for

Services

140
The Service Marketing
Mix

141
The Marketing Mix
 The tools available to a business to gain
the reaction it is seeking from its target
market in relation to its marketing
objectives
 7Ps – Price, Product, Promotion, Place,
People, Process, Physical Environment
 Traditional 4Ps extended to encompass
growth of service industry

142
The Marketing Mix
 Blend of the mix depends upon:
 Marketing objectives
 Type of product
 Target market
 Market structure
 Rivals’ behaviour
 Global issues – culture/religion, etc.
 Marketing position
 Product portfolio
 Product lifecycle
 Boston Matrix

143
Price

144
Price
 Pricing Strategy
 Importance of:
 knowing the market
 elasticity
 keeping an eye
on rivals

145
Pricing Services
The characteristics of perishability, inability to store,
and fluctuating demand for services create pricing
challenges.

• Pricing Strategies include:

• Discount strategies: Cheaper by the
week.
• A variable pricing strategy: Kids eat
free, movies cheaper on Tuesdays.
• Price competition.

146
Product

147
Product
 Methods used to
improve/differentiate
the product and increase sales or
target sales more effectively to gain
a competitive advantage e.g.
 Extension strategies
 Specialised versions
 New editions
 Improvements – real or
otherwise!
 Changed packaging
 Technology, etc.

148
Strategic Product
Implications
 service organizations have to plan the introduction
of new services and the management of the life
cycle
 the core service can be enhanced through the
addition of supplementary services, thereby
creating added value
 the life cycle of services has to be managed
 the branding of a service can be difficult as the
customer often has nothing tangible to show

149
Price

150
Price
 Pricing Strategy
 Importance of:
 knowing the market
 elasticity
 keeping an eye
on rivals

151
Pricing Services
The characteristics of perishability, inability to store,
and fluctuating demand for services create pricing
challenges.

• Pricing Strategies include:

• Discount strategies: Cheaper by the
week.
• A variable pricing strategy: Kids eat
free, movies cheaper on Tuesdays.
• Price competition.

152
Lecture 2

153
Promotion

154
Promotion
 Strategies
to make the
consumer aware of
the existence of a
product
or service
 NOT just advertising

155
 Promotion of Services
 customer contact personnel represent the main
channel of customer communication
 service providers must ensure that each
service encounter is a positive one if
customers are to develop a positive image
 many professional service firms are now
permitted to advertise
 other elements of the promotional mix are used,
including publicity and community affairs

156
Place

157
Place
 The means by which products and services
get from producer
to consumer and where they can be
accessed by the consumer
 The more places to buy the product and the
easier it is made to buy it, the better for the
business (and the consumer?)

158
Distribution Place of Services
 because most services are tied directly to a
specific service provider, most have been
distributed directly to customers
 with advancing technology, many firms are now
delivering services through machines
 channels of distribution are necessarily short;
some firms use one agent intermediary, such as
insurance, real estate, and travel agents
 some firms use franchises to distribute services

159
People

160
People
 People represent the business
 The image they present can be important
 First contact often human – what is the lasting image they provide to
the customer?
 Extent of training and knowledge
of the product/service concerned
 Mission statement – how relevant?
 Do staff represent the desired culture
of the business?

161
 PEOPLE
 SERVICE PERSONNEL
 CUSTOMERS
1. CAREFUL SELECTION AND TRAINING
2. LAYING DOWN NORMS, RULES,
PROCEDURES FOR PERSISTENCE
PERFORMANCE
3. CONSTITANCE APPEARANCE
4. REDUCE INTERFACE – AUTOMATION-
COMPUTERISATION 162
Process

163
Process
 How do people consume services?
 What processes do they have to go through to acquire
the services?
 Where do they find the availability
of the service?
 Contact
 Reminders
 Registration
 Subscription
 Form filling
 Degree of technology

164
Process – this means procedures, mechanism and flow of activities
by which a service is acquired. Process decisions radically affect
how a service is delivered to customers. The service in
CE includes several processes e.g. first contact with customers,
administrative procedure regarding course delivery, preparation,
delivery and evaluation of the courses.

165
Physical Environment

166
Physical Environment
 The ambience, mood or physical presentation of the environment
 Smart/shabby?
 Trendy/retro/modern/old fashioned?
 Light/dark/bright/subdued?
 Romantic/chic/loud?
 Clean/dirty/unkempt/neat?
 Music?
 Smell?

167
 Physical evidence – this is the
environment in which the service is
delivered and any tangible goods that
facilitate the performance and
communication of the service.
Customers look for clues to the likely
quality of a service also by inspecting the
tangible evidence. For example,
prospective customers may look to the
design of learning materials, the
appearance of facilities, staff, etc.
168
Lecture 3

169
 New Service Development
Cycle • Full-scale launch
• Post-launch
review

Full Launch Enablers Development

• Formulation

l
nte na
of new services

Co izatio
People objective / strategy

xt

Te
• Idea generation

am
n
ga
and screening

s
Or

• Concept
Product development and
testing
• Service design
and testing Technology Systems
• Process and system
design and testing
• Marketing program Tools
design and testing
Design Analysis
• Personnel training
• Service testing and • Business analysis
pilot run • Project
• Test marketing authorization
170
Levels of Service Innovation
Radical Innovations
 Major Innovation: new service driven by information and
computer based technology
 Start-up Business: new service for existing market
 New Services for the Market Presently Served: new services
to customers of an organization
Incremental Innovations
 Service Line Extensions: augmentation of existing service
line (e.g. new menu items)
 Service Improvements: changes in features of currently
offered service
 Style Changes: modest visible changes in appearances

171
Technology Driven Service
Innovation
 Power/energy - International flights with jet
aircraft
 Physical design - Enclosed sports stadiums
 Materials - Astroturf
 Methods - JIT and TQM
 Information - E-commerce using the Internet

172
Adoption of New Technology in
Services
 Challenges of Adopting New Technology
The Process is the Product
Back Office vs Front Office Changes
Need for Standardization
 Managing the New Technology Adoption
Process
Ten step process with concern for
employees and customers

173
 Generic Approaches to Service
Design

 Production-line
• Limit Discretion of Personnel
• Division of Labor
• Substitute Technology for People
• Standardize the Service
 Customer as Coproducer
• Substitution of Customer Labor for Provider
• Smoothing Service Demand
 Customer Contact
• Degree of Customer Contact
• Separation of High and Low Contact Operations
 Information Empowerment
• Employee and Customer

174
Lecture 4

175
Product Planning: Devising and
Managing Products That Satisfy
 Product planning is systematic decision making
relating to all aspects of the development and
management of a firm’s products, including
branding and packaging.
 Each product consists of a bundle of attributes,
which are features, functions, benefits, and uses.
 Each product is capable of exchange or use, and
is usually a mix of tangible and intangible forms.

176
 A Tangible Product
 A tangible product is a basic physical entity,
service, or idea.
 It has precise specifications and is offered
under a given description or model number.
 It denotes color, style, size, weight, durability,
quality, and price features.

177
An Augmented Product

 An augmented product includes tangible elements of

a product, as well as clusters of image and service
features.
 For example, a political candidate may possess appeal
or charisma.
 The concepts of image, status, prestige, and value-
added qualities are conveyed.

178
 Generic Products: A Customer
Perspective

 A generic product centers on what the product means to

the customer, not the seller.
 Cosmetics sells hope.
 Computers represent solutions.
 Pharmaceuticals represent cures.
 Firms must discover what each product means to the
consumer before product planning.

179

 An item is a specific model.
 A line has related items.
 A mix comprises all of the
firm’s offerings.
 Width refers to all of the
firm’s lines.
 Depth refers to the number
of items within each product
line.
Product Mix
The consistency of a
product mix is based on
the relationship among
product lines, such as,
sharing common end-
uses, distribution outlets,
consumer groups, and
price ranges.
180
Product Mix Alternatives
Width of Product Mix
Narrow Wide

Shallow Few models in one Few models in each of several

or a few product different product lines
lines
Depth of
Product Mix

Many models in Many models in each of

one or a several different
few product lines
product lines
Deep

181
 The Role of Product
Positioning
 Product positioning maps out consumer
perceptions of product attributes.
 Ideal points show the most preferred
attributes.
 Firms must constantly monitor the
environment to determine change and
customer perceptions.

182
 Branding Terms

Brand -- a name, term, design, symbol, or other feature that

identifies the goods and services of a seller.
 Brand Name -- a word, letter (number), group of words, or
letters (numbers) that can be spoken.
 Brand Mark -- a symbol, design, or distinctive coloring or
lettering that cannot be spoken.
 Trade Character -- a brand mark that is personified.
 Trademark -- a brand name, brand mark, or trade character
or combination thereof that is given legal protection.

183
 Branding Decisions

1. Selection of corporate symbols

2. Creation of a banding philosophy

Regular
Reappraisal
3. Selection of brand names

4. Decision on whether or not to seek

trademark protection
184
Mixed-Brand Strategy

 This is a cooperative strategy among

channel members to gain market share
and improve sales.
 Manufacturers and distributors negotiate
agreements with retailers re: co-op
advertising; P.O.S. signing, square
footage, inventory control, sales training,
gift w/ purchase, purchase w/purchase, etc.

185
Battle of the Brands

Occurs when:
 Highly competitive behavior is evident,
particularly in the food industry.
 Dominating brands often control entire
markets.
 Some groceries demand “slotting” fees to
gain access to their store shelves.
 There is a battle for end-aisle space.

186
 The Consumer’s Brand
Decision Process

Preference Insistence

Nonrecognition Recognition

Dislike Aversion

187
 The Boston Consulting Group’s
Growth-Share Matrix
20%-
Market Growth Rate

Stars Question marks

4
?2 ?
18%-
16%- 3 1
14%-
12%- 5 ?

?
10%-
8%- Cash cow Dogs
6%- 8
4%-
2%- 6
0
7
10x 4x 2x 1.5x 1x .5x .4x .3x .2x .1x
Relative Market Share 188
 Market Attractiveness: Competitive-
Position Portfolio Classification
BUSINESS STRENGTH
Strong Medium Weak
1.00
MARKET ATTRACTIVENESS

5.00 3.67 2.33

5.00 Joints
Low Medium High

Hydraulic Aerospace
pumps fittings
3.67
Clutches
Fuel
pumps
Flexible
2.33 diaphragms
Relief
valve
1.00
Invest/grow Selectivity/earnings Harvest/divest
189
 The Strategic-Planning Gap

Desired
Desired
sales
sales
Diversification growth
Strategic-
planning
Integrative growth gap
Sales

Intensive growth

Current
Current
portfolio
portfolio

0 5 10
Time (years) 190
Three Intensive Growth Strategies:
Ansoff’s Product/Market Expansion
Grid
Existing New
products products

Existing 1. Market 3. Product

markets penetration development

New 2. Market
markets development 4. Diversification

191
Lecture 5

192
Pricing Strategies

193
Penetration Pricing
 Price set to ‘penetrate the market’
 ‘Low’ price to secure high volumes
 Typical in mass market products – chocolate
bars, food stuffs, household goods, etc.
 Suitable for products with long anticipated life
cycles
 May be useful if launching into a new market

194
 Market Skimming
 High price, Low volumes
 Skim the profit from the
market
 Suitable for products that
have short life cycles or which
will face competition at some
point in the future (e.g. after a
patent runs out)
 Examples include:
Playstation, jewellery, digital
technology, new DVDs, etc.
Many are predicting a firesale in
laptops as supply exceeds
demand.
Copyright: iStock.com

195
Value Pricing
 Price set in
accordance with
customer perceptions
about the value of the
product/service
 Examples include
status
products/exclusive Companies may be able to set prices
according to perceived value.
products
Copyright: iStock.com

196
Loss Leader
 Goods/services deliberately sold below cost to
encourage sales elsewhere
 Typical in supermarkets, e.g. at Christmas, selling
bottles of gin at £3 in the hope that people will be
attracted to the store and buy other things
 Purchases of other items more than covers ‘loss’ on
item sold
 e.g. ‘Free’ mobile phone when taking on contract
package

197
Psychological Pricing
 Used to play on consumer perceptions
 Classic example - £9.99 instead of £10.99!
 Links with value pricing – high value
goods priced according to what
consumers THINK should be the price

198
Going Rate (Price Leadership)
 In case of price leader, rivals have difficulty in competing
on price – too high and they lose market share, too low
and the price leader would match price and force smaller
rival out of market
 May follow pricing leads of rivals especially where those
rivals have a clear dominance of market share
 Where competition is limited, ‘going rate’ pricing may be
applicable – banks, petrol, supermarkets, electrical
goods – find very similar prices in all outlets

199
Tender Pricing
 Many contracts awarded on a tender basis
 Firm (or firms) submit their price for carrying out the
work
 Purchaser then chooses which represents best value
 Mostly done in secret

200
Price Discrimination
 Charging a different price
for the same good/service
in different markets
 Requires each market to
be impenetrable
 Requires different price
elasticity of demand in
Prices for rail travel differ for the same each market
journey at different times of the day

Copyright: iStock.com

201
Lecture 6

202
Destroyer/Predatory Pricing
 Deliberate price cutting or offer of ‘free
gifts/products’ to force rivals (normally smaller
and weaker) out of business or prevent new
entrants
 Anti-competitive and illegal if it can be proved

203
Absorption/Full Cost Pricing
 Full Cost Pricing – attempting to set price
to cover both fixed and variable costs
 Absorption Cost Pricing – Price set to
‘absorb’ some of the fixed costs of
production

204
Marginal Cost Pricing
 Marginal cost – the cost of producing ONE extra
or ONE fewer item of production
 MC pricing – allows flexibility
 Particularly relevant in transport where fixed
costs may be relatively high
 Allows variable pricing structure – e.g. on a flight
from London to New York – providing the cost of
the extra passenger is covered, the price could
be varied a good deal to attract customers and
fill the aircraft

205
Marginal Cost Pricing
 Example:

Aircraft flying from Bristol to Edinburgh – Total Cost (including

normal profit) = £15,000 of which £13,000 is fixed cost*
Number of seats = 160, average price = £93.75
MC of each passenger = 2000/160 = £12.50
If flight not full, better to offer passengers chance of flying at
£12.50 and fill the seat than not fill it at all!
*All figures are estimates only

206
Contribution Pricing
 Contribution = Selling Price – Variable (direct
costs)
 Prices set to ensure coverage of variable
costs and a ‘contribution’ to the fixed costs
 Similar in principle to marginal cost pricing
 Break-even analysis might be useful in
such circumstances

207
Target Pricing
 Setting price to ‘target’ a specified profit level
 Estimates of the cost and potential revenue at
different prices, and thus the break-even have
to be made, to determine the mark-up
 Mark-up = Profit/Cost x 100

208
Cost-Plus Pricing
 Calculation of the average cost (AC) plus
a mark up
 AC = Total Cost/Output

209
Influence of Elasticity
 Any pricing decision must be mindful of the
impact of price elasticity
 The degree of price elasticity impacts on
the level of sales and hence revenue
 Elasticity focuses on proportionate
(percentage) changes
 PED = % Change in Quantity demanded/
% Change in Price

210
Influence of Elasticity
 Price Inelastic:
 % change in Q < % change in P
 e.g. a 5% increase in price would be met by a fall
in sales of something less than 5%
 Revenue would rise
 A 7% reduction in price would lead to a rise in
sales of something less than 7%
 Revenue would fall

211
Influence of Elasticity
 Price Elastic:
 % change in quantity demanded > % change in
price
 e.g. A 4% rise in price would lead to sales falling by
something more than 4%
 Revenue would fall
 A 9% fall in price would lead to a rise in sales of
something more than 9%
 Revenue would rise

212
Lecture 7

213
Elements of the Promotional Mix

 Promotional mix:
mix blend of personal selling and nonpersonal
selling designed to achieve promotional objectives
 Personal selling:
selling interpersonal promotional process involving a seller’s
person-to-person presentation to a prospective buyer
 Nonpersonal selling includes: Advertising, Product placement, Sales
promotion, Direct marketing, Public relations

214
 Advertising
 Paid,nonpersonal communication through
various media by a business firm, not-for-profit
organization, or individual identified in the
message with the hope of informing or
persuading members of a particular audience

 Product Placement
 Marketerpays a motion picture or television
program owner a fee to display his or her
product prominently in the film or show

215
 Sales Promotion
 Marketing activities that stimulates
consumer purchasing (includes:
displays, trade shows, coupons,
premiums, contests, product
demonstrations, and various
nonrecurrent selling efforts)
 Trade promotion

216
 Public relations:
relations firm’s communications and
relationships with its various publics

 Publicity:
Publicity stimulation of demand for good,
service, place, idea, person, or organization by
unpaid placement of commercially significant
news or favorable media presentations

217
 Guerilla Marketing:
Marketing Unconventional,
innovative, and low-cost marketing
techniques designed to get
consumers’ attention in unusual ways.

218
Sponsorships
 Provision of funds for a sporting or
cultural event in exchange for a direct
association with the events or activity

219
 Growth of Sponsorships
 Sponsorship has grown rapidly during the
past 30 years
 Corporate sponsorship spending has
increased faster than promotional outlays for
advertising and sales promotion
 How Sponsorship Differs from
Advertising
 Sponsor’s degree of control
 Nature of the message
 Audience reaction
 Ambush marketing
220
 Assessing Sponsorship Results
 Marketers utilize some of the same techniques
to measure both advertising and sponsorship
 The differences between the two promotional
alternatives often necessitate some unique
research techniques
 Despite the impressive visibility of special
events like soccer’s World Cup and football’s
Super Bowl, the demands do not necessarily
lead directly to increased sales or improved
brand awareness

221
Lecture 8

222
Developing an Optimal
Promotional Mix
 Factors that influence the
effectiveness of a promotional to mix:
 Nature of the market
 Nature of the product
 Stage in the product life-cycle
 Price
 Funds available for promotion

223
 Nature of the market
 Personal selling may prove effective with a market
composed of a limited number of buyers
 Advertising is more effective when a market has large
numbers of potential customers scattered over sizable
geographic areas
 Personal selling often works better for intermediary
target markets
 Nature of the product
 Highly standardized products with minimal servicing
requirements usually need less personal selling than
custom products with complex features and/or
frequent maintenance needs
 Consumer products are more likely to rely heavily on
advertising than are business products
224
 Stage in the product life-cycle
 Promotional mix must be tailored to the products stage
in the product life-cycle
 In the introductory stage, there is a heavy emphasis on
personal selling to the to the intermediaries
 However, advertising and sales promotion help to create
awareness and stimulate initial purchases
 In the growth and maturity stages, advertising gains
relative importance
 Personal selling efforts at marketing intermediaries to
expand distribution is continued
 In the maturity and early decline stages, firms frequently
reduce advertising and sales promotion expenditures

225
 Price
 Advertising dominates the promotional mix for low-
unit-value products due to the high personal contact
costs of personal selling
 Consumers a high-priced items like luxury cars expect
lots of well-presented information via videocassettes,
CDs, fancy brochures, and personal selling
 Funds available for promotion
A critical element in the promotional strategy is the
size of the promotional budget
 While the cost-per-contact of a $2 million, 30-second
TV commercial during the Super Bowl is relatively
low, such an expenditure exceeds the entire
promotional budgets of many, if not most firms

226
 Push Versus Pull Strategy

Marketing Marketing
activities Interme- activities
Producer diaries End users

Demand Push Strategy

Marketing activities

Demand Interme- Demand

Producer diaries End users

Pull Strategy 227

Pulling and Pushing
Promotional Strategies
 Pulling strategy:
strategy promotional effort by a seller
to stimulate demand among final users, who will
then exert pressure on the distribution channel
to carry the good or service, pulling it though the
marketing channel
 Pushing strategy:
strategy promotional effort by a
seller to members of the marketing channel
intended to stimulate personal selling of the
good or service, thereby pushing it through the
marketing channel

228
Budgeting for Promotional
Strategy
 Percentage-of-sales method

 Fixed-sum-per-unit method

 Meeting competition method

 Task-objective method

229
 Method Description Example
Percentage-of- Promotional budget is set as a “Last year we spent $10,500 on
sales method specified percentage of either promotion and had sales of $420,000.
past or forecasted sales. Next year we expect sales to grow to
$480,000, and we are allocating
$12,000 for promotion.”

Fixed-sum-per- Promotional budget is set as a “Our forecast calls for sales of 14,000
unit method predetermined dollar amount units, and we allocate promotion at
for each unit sold or produced. the rate of $65 per unit.”

Meeting Promotional budget is set to “Promotional outlays average 4

competition match competitor’s promotional percent of sales in our industry.”
outlays on either an absolute or
method
relative basis.

Task-objective Once marketers determine their
method specific, promotional
objectives, the amount (and
type) of promotional spending
needed to achieve them is
“By the end of next year, we want 75
percent of the area high-school
students to be aware of our new,
highly automated fast-food prototype
outlet. How many promotional 230
Measuring the Effectiveness of
Promotion
Two basic measurement tools:
 Direct sales results measures the effectiveness
of promotion by revealing the specific impact on
sales revenues for each dollar of promotional
spending
 Indirect evaluation concentrates on quantifiable
indicators of effectiveness like:
 Recall - how much members of the target
market remember about specific products or
advertisements
 Readership – size and composition of a
message’s audience
231
 Measuring Online Promotions
 Early attempts at measuring online promotional
efforts involved counting hits and visits
 Incorporating direct response and comparing
different promotions for effectiveness
 Two major techniques for setting online
advertising rates:
 Cost per impression (CPM), technique that related
the cost of an ad to every thousand people who read
it
 Cost per response (click-throughs), which assumes

that those who actually click on an ad want more

information
232
 Business Importance
 Promotional strategy has become increasingly
important to both small and large firms
 Its effectiveness to encourage attitude changes,
brand loyalty and increase sales is well-
documented
 Both business and nonbusiness enterprises
recognize the importance of promotional efforts
 Nonbusiness organizations using promotion
include governments and religions

233
 Economic Importance
 Effective promotion has allowed society to
derive benefits not otherwise available
 Promotion increases the number of units
sold; the resulting economies of scale
lower production costs and allows lower
sales prices
 Subsidizes the information contents of
newspapers and the broadcast media

234
Lecture 9

235
 Distribution
Distribution Channel
Channel
Functions
Functions
Information
Information
Transfer
Transfer Communication
Communication

Payments
Payments Negotiation
Negotiation
Physical
Physical
Distribution
Distribution Ordering
Ordering
Risk
Risk Taking
Taking Financing
Financing 236
Channel
Channel Management
Management Decisions
Decisions

Selecting
Selecting

FEEDBACK
Training
Training

Motivating
Motivating

Evaluating
Evaluating 237
Types
Types of
of Vertical
Vertical Marketing
Marketing Systems
Systems
Corporate
Corporate
Common
Common Ownership
Ownership at at Different
Different
Levels
Levels of
of the
the Channel
Channel

Administered
Administered
Leadership
Leadership is
is Assumed
Assumed by
by One
One or
or
aa Few
Few Dominant
Dominant Members
Members

Contractual
Contractual
Contractual
Contractual Agreement
Agreement Among
Among
Channel
Channel Members
Members 238
 Conventional Distribution Channel vs.
Vertical Marketing Systems
Conventional Vertical
marketing marketing
channel channel

Manufacturer Manufacturer

Wholesaler
Wholesaler

Retailer
Retailer

Consumer
Consumer 239
Lecture 10

240
 Direct Marketing
 Directcommunications other than
personal sales contact between
buyer and seller, designed to
generate sales, information requests,
or store visits

241
 Direct Mail
 Marketers combine information from internal
and external databases, surveys, coupons,
and rebates that require responses to
provide information about consumer
lifestyles, buying habits, and wants

 Catalogs
 Over 10,000 different consumer mail-order
catalogs and thousands more for business-
to- business sales are mailed each year
generating over $57 million in consumer
sales and $36 million in B2B sales
242
 Telemarketing:
Telemarketing promotional presentation
involving the use of the telephone for
outbound contacts by salespeople or
inbound contacts initiated by customers
who want to obtain information and place
orders

243
 Direct Marketing via Broadcast Channels
Broadcast direct marketing includes:
 Brief(30 to 90 and second) direct response ads
on television or radio
 Home shopping channels like:
 Quality Value Channel (QVC)
 Home Shopping Network (HSN)

 Infomercial: promotional presentation for a

single product running 30 minutes or longer in a
format that resembles a regular television
program

244
 Electronic Direct Marketing Channels
 Web advertising is an important component
of electronic direct marketing
 E-mail direct marketing is a natural and easy
extension of traditional direct mail marketing
 Other Direct Marketing Channels
 Printmedia is generally not as effective as
Web marketing or telemarketing for direct
marketers
 Magazine and newspaper ads with toll-free
telephone numbers, kiosks, and other
media are still useful in many situations

245
Lecture 11

246
 Role of Communication
 Provide Information
 Informthe market about the availability of a
particular good or service
 Increase Demand
 Some promotions are aimed at increasing
primary demand, the desire for a general
product category
 More promotions are aimed at increasing
selective demand, the desire for a specific
brand
247
 Differentiate the Product
 Homogenous demand for many products
results when consumers regard the firm’s
output as virtually identical to its
competitors’– then, the firm has virtually no
control over marketing variables
 Accentuate the Product’s Value
 Promotion can explain the greater ownership
utility of a product to buyers, thereby
accentuating its value and justifying a higher
price

248
 Stabilize Sales
 For the typical firm, sales
fluctuations may result from
cyclical, seasonal, or irregular
demand
 Stabilizing these variations is often
an objective of promotional
strategy

249
Objectives
 The Communications Process
 Developing Effective Communications
 Deciding on the Marketing
Communications Mix
 Managing and Coordinating Integrated
Marketing Communications

250
The Marketing Communications
Mix
Any
AnyPaid
PaidForm
FormofofNonpersonal
Nonpersonal
Advertising
Advertising Presentation
Presentation by anIdentified
by an Identified
Sponsor.
Sponsor.

Sales Promotion Short-term Incentives to

Encourage Trial or Purchase.

Protect and/or Promote

Public Relations Company’s Image/products.

Personal
Personal Selling
Selling Personal Presentations.

Direct Communications
Direct Marketing With Individuals to Obtain
an Immediate Response.
251
 Elements in the
Communication Process

Message
SENDER RECEIVER
Encoding Decoding
Media

Noise

Feedback Response

252
 Effective Communications
Step
Step 1.
1. Identifying
Identifying the
the Target
Target Audience
Audience

Step
Step 2.
2. Determining
Determining the
the Communication
Communication Objectives
Objectives
Buyer
Buyer Readiness
Readiness Stages
Stages
Awareness
Knowledge
Liking
Preference
Conviction
Purchase
Purchase
253
 Step
Step 3.
3. Designing
Designing the
the Message
Message

Message Content
Rational Appeals
Emotional Appeals
Moral Appeals
Message Structure
Draw Conclusions
Argument Type
Argument Order
Message Format
Layout,
Words, & Sounds,
Body Language
Message Source
Expertise,
Trustworthiness,
Congruity 254
 Step
Step 4.
4. Select
Select Communications
Communications Channel
Channel

Personal Communication
Channels
Nonpersonal Communication
Channels

255
 Step
Step 5.
5. Establish
Establish the
the Budget
Budget

% Of
Affordable
Sales

Competitive Objective
Parity & Task

256
 Step
Step 6.
6. Decide
Decide on
on Communications
Communications Mix
Mix

Advertising
Advertising
Public,
Public, Pervasive,
Pervasive, Expressive,
Expressive, Impersonal
Impersonal

Sales
Sales Promotion
Promotion
Communication,
Communication, Incentive,
Incentive, Invitation
Invitation

Public
Public Relations
Relations &
& Publicity
Publicity
Credibility,
Credibility, Surprise,
Surprise, Dramatization
Dramatization

Personal
Personal Selling
Selling
Personal
Personal Confrontation,
Confrontation, Cultivation,
Cultivation, Response
Response

Direct
Direct Marketing
Marketing
Nonpublic,
Nonpublic, Customized,
Customized, Up-to-Date,
Up-to-Date, Interactive
Interactive 257
Step
Step 7.
7. Measure
Measure Results
Results

Step
Step 8.
8. Manage
Manage the
the IMC
IMC Process
Process

258
Lecture 12

259
 Employees’ Roles in Service
Delivery
Objectives
 Illustrate the critical importance of service
employees in creating customer satisfaction and
service quality
 Demonstrate the challenges inherent in boundary-
spanning roles
 Provide examples of strategies for creating
customer-oriented service delivery
 Show how the strategies can support a service
culture where providing excellent service is a way of
life

260
Service Employees

 They are the service

 They are the firm in the customer’s eyes
 They are marketers
 Importance is evident in
 The Services Marketing Mix (People)
 The Service-Profit Chain
 The Services Triangle

261
Service Employees

 Who are they?

 “boundary spanners”
 What are these jobs like?
 emotionallabor
 many sources of potential conflict
 person/role
 organization/client

 interclient

 quality/productivity

262
Human Resource Strategies for Closing GAP 3

Hire for
r Service
fo Competenci Pr Be
te st Em efe the
pe B e e es and
m e l Service p l rre
Co th eop oy d
er
P Inclination

Tr chn d ve
Se ron ard
Re ure

Te an cti
Hire the

ai ic
I n Sk
w

n
Pr rvi g
s

ov ce
s
Right People
an ea

te ill

fo l
er

ra s

r
M

id

a
d
St

Customer Develop

Employees
Empower
Customers
Employee

Retain the - People to

Treat

oriented Deliver
s as

Best
Service Service
People Quality
Delivery

w te
Em in t ny’

k
In loy

or
am o
Provide
Co Visi

clu ee

Te rom
p he s
m on

Needed Support
de s

P
pa

De Systems
Se vel e
or rvic op sur l
In ient e- ea na
Provide M ter ce
Pr ter ed In rvi ity
oc na Supportive
es l Se al
se
s
Technology Qu
and
Equipment 263
 Empowerment
 Benefits:  Drawbacks:
 quicker  greater investments in
responses
 employees feel more selection and training
 higher labor costs
responsible
 employees tend to interact  slower and/or inconsistent

with warmth/enthusiasm delivery

 empowered employees  may violate customer

are a great source of ideas perceptions of fair play

 positive word-of-mouth  “giving away the store”

from customers (making bad decisions)

264
Service Culture

“A culture where an appreciation for good

service exists, and where giving good service
to internal as well as ultimate, external
customers, is considered a natural way of life
and one of the most important norms by
everyone in the organization.”

265
Lecture 13

266
 Customers’ Roles in Service
Delivery
Objectives
 Illustrate the importance of customers in successful
service delivery
 Enumerate the variety of roles that service customers
play
• Productive resources
• Contributors to quality and satisfaction
• Competitors
 Explain strategies for involving service customers
effectively to increase both quality and productivity

267
 Importance of Other Customers
in Service Delivery
 Other customers can detract from
satisfaction
 disruptive behaviors
 excessive crowding

 incompatible needs

 Other customers can enhance

satisfaction
 mere presence
 socialization/friendships

 roles: assistants, teachers, supporters

268
How Customers Widen Gap 3

 Lack of understanding of their roles

 Not being willing or able to perform their roles
 No rewards for “good performance”
 Interfering with other customers
 Incompatible market segments

269
Customer Roles in Service
Delivery
Productive Resources

Contributors to
Quality and
Satisfaction

Competitors

270
Customers as Productive Resources

 “partial employees”
 contributingeffort, time, or other resources
to the production process
 customer inputs can affect
organization’s productivity
 key issue:
 shouldcustomers’ roles be expanded?
reduced?
271
 Customers as Contributors to
Service Quality and
Satisfaction
 Customers can contribute to
 their own satisfaction with the service
 by performing their role effectively
 by working with the service provider

 the quality of the service they receive

 by asking questions
 by taking responsibility for their own satisfaction

 by complaining when there is a service failure

272
Customers as Competitors

 customers may “compete” with the service provider

 “internal exchange” vs. “external exchange”
 internal/external decision often based on:
 expertise
 resources
 time
 economic rewards
 psychic rewards
 trust
 control

273
 Strategies for Enhancing
Customer Participation

Effective
Define Customer
Customer Recruit, Educate,
Participation and Reward
Jobs
Customers

Manage the
Customer
Mix
274
Strategies for Enhancing
Customer Participation

1. Define customers’ jobs

- helping himself
- helping others
- promoting the company

2. Individual differences: not everyone wants

to participate

275
Strategies for Recruiting,
Educating and Rewarding Customers
1. Recruit the right customers
2. Educate and train customers to perform
effectively
3. Reward customers for their contribution
4. Avoid negative outcomes of inappropriate
customer participation

Manage the Customer Mix

276
Lecture 14

277
Process
means procedures, mechanism and flow of
activities by which a service is acquired. Process
decisions radically affect how a service is delivered
to customers. The service in CE includes several
processes e.g. first contact with customers,
administrative procedure regarding course delivery,
preparation, delivery and evaluation of the courses.

278
Characteristics of process
 Divergence
 Complexity
 Service location
 Customer participation & interaction
 The service itself

279
Planning a Service Process
Important decisions about process are related to:
 Technology
 Conversion process
 Equipment
 Flow of process
 Service personnel
 Service location
 Layout design
 Organizational structure

280
Process efficiency
Factors influencing process efficiency are
 Planning
 Service personnel
 Technology
 Location & decor
 Customer’s role

281
Service Mapping/Blueprinting
A tool for simultaneously depicting the service
process, the points of customer contact, and
the evidence of service from the customer’s
point of view.
Proces
s
Service Points of
Mappin Contact

g Evidenc
e

282
Service Blueprint Components
CUSTOMER ACTIONS

line of interaction

“ONSTAGE” CONTACT EMPLOYEE ACTIONS

line of visibility

“BACKSTAGE” CONTACT EMPLOYEE ACTIONS

line of internal interaction

SUPPORT PROCESSES

283
 Overnight Hotel Stay
Bill
EVIDENCE
CUSTOMER PHYSICAL

Desk
Hotel Cart for Desk Elevators Cart for Room Menu Delivery Food Lobby
Exterior Bags RegistrationHallways Bags Amenities Tray Hotel
Parking Papers Room Bath Food Exterior
Lobby Appearance Parking
Key
Arrive Give Bags Call Check out
Go to Receive Sleep Receive
at to Check in Room Eat and
Room Bags Shower Food
Hotel Bellperson Service Leave
(Back Stage)(On Stage)
CONTACT PERSON

Greet and
Process Deliver Deliver Process
Take
Registratio Bags Food Check Out
Bags
n

Take
Take Bags Food
to Room Order
SUPPORT PROCESS

Registration Prepare Registration

System Food System

284
 Building a Service Blueprint

Step
Step11 Step
Step22 Step
Step33 Step
Step44 Step
Step55 Step
Step66
Map Map Add
Identify
Identify Identify
Identify Mapthe
the Map Link
Link Add
the process contact evidence
evidenceof
theprocess
process the
the process contact customer
customer of
from employee service at
to
to beblue-
be blue- customer
customer fromthe
the employee and
andcontact
contact service at
printed. or customer’s actions,
actions, person each
each
printed. or customer’s person
point onstage customer
customer
customer pointof
of onstage activities
activitiesto
to customer
segment. view. and
andback-
back- needed action
action
segment. view. needed
stage.
stage. support step.
step.
support
functions.
functions.

285
Lecture 15

286
Application of Service Blueprints
 New Service Development
 concept development
 market testing

 Supporting a “Zero Defects” Culture

 managing reliability
 identifying empowerment issues

 Service Recovery Strategies

 identifying service problems
 conducting root cause analysis

 modifying processes

287
Blueprints Can Be Used By:
 Service Marketers
 creating realistic customer
expectations
 service system design
 promotion
 Operations Management
 rendering the service as
promised
 managing fail points
 training systems
 quality control
 Human Resources
 empowering the human element
 job descriptions
 selection criteria
 appraisal systems
 System Technology
 providing necessary tools:
 system specifications
 personal preference databases
288
 Service Recovery
Objectives
 Illustrate the importance of recovery from service
failures in building loyalty
 Discuss the nature of consumer complaints and why
people do and do not complain
 Provide evidence of what customers expect and the
kind of responses they want when they complain
 Provide strategies for effective service recovery
 Discuss service guarantees

289
 Unhappy Customers’
Repurchase Intentions
Unhappy Customers Who Don’t
Complain
9%
Unhappy Customers Who Do 37%
Complain

19%
Complaints Not Resolved
46%

54%
Complaints Resolved
70%

Complaints Resolved Quickly

82%
95%

Percent of Customers Who Will Buy Again

Minor complaints ($1-$5 losses)

Major complaints (over $100 losses)
Source: Adapted from data reported by the Technical Assistance Research Program. 290
 Customer Response Following
Service Failure
Service Failure

Take Action Do Nothing

Switch Providers Stay with Provider

Complain to
Complain to Complain to
Family &
Provider Friends Third Party

Switch Providers Stay with Provider

291
 Service Recovery Strategies
W
e
En lco
Co cou me
m rag an
pl
th
e ai e d
e nt
s
Saf
a il ice
F rv
Se

Ac t
Quickly
Service
Learn from
L o st
Customers

Recovery
Strategie
s

s
Le er
Re arn t om
s
Ex cov from Cu
pe er
r ie y e at
y
nc
es Tr irl
Fa
292
Pricing
• High Price
• Price Increases
•

Causes Behind Service

Unfair Pricing
• Deceptive Pricing

Inconvenience
• Location/Hours
• Wait for Appointment
• Wait for Service
Switching
Core Service Failure
• Service Mistakes
• Billing Errors
• Service Catastrophe

Service Encounter
Failures
Service
• Uncaring
• Impolite
• Unresponsive
• Unknowledgeable
Switching
Response to Service Failure
• Negative Response
Behavior
• No Response
• Reluctant Response

Competition
• Found Better Service

Ethical Problems
• Cheat
• Hard Sell
• Unsafe
• Conflict of Interest

Involuntary Switching
• Customer Moved Source: Sue Keaveney 293
• Provider Closed
 Service Guarantees

 guarantee = an assurance of the fulfillment of a condition

(Webster’s Dictionary)

 for products, guarantee often done in the form of a warranty

 services are often not guaranteed

cannot return the service
service experience is intangible
(so what do you guarantee?)

294
 Characteristics of an Effective
Service Guarantee
Unconditional
• The guarantee should make its promise unconditionally -
no strings attached.
Meaningful
• It should guarantee elements of the service that are
important to the customer.
• The payout should cover fully the customer's
dissatisfaction.
Easy to Understand and Communicate
• For customers - they need to understand what to expect.
• For employees - they need to understand what to do.
Easy to Invoke and Collect
• There should not be a lot of hoops or red tape in the way
of accessing or collecting on the guarantee.
Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August,
1988, pp. 54-62.
295
Why a Good Guarantee Works
 forces company to focus on customers

 sets clear standards

 generates feedback

 forces company to understand why it failed

 builds “marketing muscle”

296
Service Guarantees
 Does everyone need a guarantee?

 Reasons companies do NOT offer guarantees:

 guarantee would be at odds with company’s image
 too many uncontrollable external variables
 fears of cheating by customers
 costs of the guarantee are too high

297
 Service Guarantees
 service guarantees work for companies who are
already customer-focused
 effective guarantees can be BIG deals - they put
the company at risk in the eyes of the customer
 customers should be involved in the design of
service guarantees
 the guarantee should be so stunning that it
comes as a surprise -- a WOW!! factor
 “it’s the icing on the cake, not the cake”

298
Lecture 16

299
Role of Technology in the
Service Encounter
Technology Technology Technology

Customer Server Customer Server Customer Server

A. Technology-Free B. Technology-Assisted C. Technology-Facilitated

Service Encounter Service Encounter Service Encounter

Technology Technology

Customer Server Customer Server

D. Technology-Mediated E. Technology-Generated
Service Encounter Service Encounter

300
Evolution of Self-service
Service Industry Human Contact Machine Assisted Electronic Service
Service

Banking Teller ATM Online banking

Grocery Checkout clerk Self-checkout station Online order/ pickup

Airlines Ticket agent Check-in kiosk Print boarding pass

Restaurants Wait person Vending machine Online order/ delivery

Movie theater Ticket sale Kiosk ticketing Pay-for-view

Book store Information clerk Stock-availability terminal Online shopping

Education Teacher Computer tutorial Distance learning

Gambling Poker dealer Computer poker Online poker

301
 Technology Convergence
Enabling
E-Business
 Internet
 Global telephone system
 Communications standard TCP/IP
(Transfer Control Protocol/Internet Protocol)
 Addressing system of URLs
 Personal computers and cable TV
 Customer databases
 Sound and graphics
 User-friendly free browser

302
Electronic and Traditional
Services
Features Electronic Traditional
Encounter Screen-to-face Face-to-face
Availability Anytime Working hours
Access From anywhere Travel to location
Market Area Worldwide Local
Ambiance Electronic Physical
interface environment
Payment Credit card Cash or check
Differentiation Convenience Personalization
Privacy Anonymity Social interaction
303
Grocery Shopping Comparison

On-line Traditional
Shopping Shopping

Advantages Convenience See new items

Saves time Memory trigger
Less impulse Product sampling
buying Social interaction
Disadvantages Forget items Time consuming
Less control Waiting lines
Need computer Carry groceries
Delivery fee Impulse buying

304
Adoption of New Technology in
Services
Challenges of Adopting New Technology
The Process is the Product
Back Office vs Front Office Changes
Need for Standardization
Managing the New Technology Adoption
Process
Ten step process with concern for employees
and customers

305
306
Questions

307
 Questions
1. What is service blueprinting? Explain its importance in services
marketing.
2. What is service product mix? What are the decision areas in
developing service lines?
3. What is service branding? What are the benefits of service branding?
4. What are the qualities of a good service brand?
5. Discuss the pricing strategies applicable for services with suitable
examples.
6. Suggest and discuss pricing strategies for segments that perceive
value is low price.
7. What is value pricing? How can markets be divided, based on value
perceptions?
8. Evaluate the suitability of different types of intermediaries for service
distribution.
9. Suggest measures for the efficient functioning of a service
distribution system.
10. Discuss various strategies for channel management.

308
11. Explain the concept of internal marketing and analyze different roles the
employees play in the service process.
12. What is employee empowerment? Why is empowerment essential in
services?
13. Discuss different strategies of Internal Marketing.
14. What is the role of external marketing in service business?
15. How do you design promotional mix for services?
16. Discuss various promotional themes in external marketing.
17. How do customers respond to a service failure?
18. What do customers expect when they complain?
19. What do you mean by service recovery?
20. What are the different Recovery Strategies to be undertaken by the
marketer?
21. Explain the moments of truth in a service process.

309
 Assignment

1. Take a service industry of your choice and

work out its Marketing mix, referring to all
its 7 p’s
2. Take a service industry of your choice and
work out the role technology in service
provisions

310
 Marketing of
Services
CLASS: MBA
SEMESTER: III
ACADEMIC CONSULTANT: Ms Riju Agarwal Singh

311
311
 Marketing of Services

UNIT - III  Marketing of Financial Services

•
•
Credit Cards
Home Loans
Insurance
•
Banking
•
Telecom
•

312
312
LECTURE PLAN Unit- III Sub: Marketing of Services
Academic Consultant: Riju Agarwal

Lecture no Contents (sub topics) Slide no

1 Credit Cards 312-316

2 Home Loans 318-321
3 Home Loans 323-327
4 Insurance Industry 329-344
5 Insurance Industry 346-359

6 Banking Industry 361-373

7 Banking Industry 375-410

8 Telecom Industry 412-425
FAQ’S & ASSIGNMENTS 427-428
313
313
Lecture 1

314
314
Credit Cards
 A credit card is a plastic card with a magnetic strip
containing data, and is a financial instrument allowing
the holder for pay for goods or services on credit and in
lieu of cash. While credit card companies provide the
infrastructure to settle the transactions, the cards are
issued by banks and increasingly by retail outlets and
other consumer-oriented entities.

315
315
 Credit cards allow customers to buy goods and services
immediately and then settle the bill for aggregated transactions at
a later date. Debit cards, on the other hand, allow customers to
buy using funds directly debited from their accounts.

Visa and Mastercard are the two largest credit card companies
worldwide. Both were originally formed by consortia of banks.
American Express is both a credit card provider and a bank. JCB
is popular in Japan and Diners Club is also a major worldwide
provider.

316
316
Types of credit card
 Premium Credit Cards, Cash Back Credit Cards, Gold
Credit Cards, Airline Credit Cards, Silver Credit Cards,
Business Credit Cards, Balance Transfer Credit Cards,
Co-branded Credit Cards, Low Interest Credit Cards,
Lifetime Free Credit Cards and Rewards. The Rewards
credit cards may be subdivided into Points,
Hotels/Travels, Retail, Auto and Fuels cards.

317
317
Major issuers
 American Express, HSBC, ANZ, Macquarie Bank,
Aussie, NAB, BankWest, St George, Bank of
Queensland, Suncorp Metway, Citibank, Westpac and
Commonwealth Bank. The major credit card providers in
India are ABN Amro, HDFC, American Express, ICICI
Bank, Axis Bank, SBI, Bank of Baroda, Canara Bank,
Citibank, Visa, HSBC, MasterCard, Deutsche Bank,
Amex, Barclays Bank, Diners Club, Standard Chartered
and Kotak Mahindra.

318
318
Credit Card Comparison
There are many Credit Card options one can find in the market in
today's faster growing world financial market. Comparison on having a
credit card can be made by considering following points:
· Standard Interest Rates
· Interest Free Introductory Offer
· Various Kind of Rewards
· Cash Back Policy

319
319
Lecture 2

320
320
 SBI Home Loans

"THE MOST PREFERRED HOME LOAN PROVIDER" voted in

AWAAZ Consumer Awards along with the MOST PREFERRED
BANK AWARD in a survey conducted by TV 18 in association with
AC Nielsen-ORG Marg in 21 cities across India.

SBI HOME LOANS now offers Interest Rates concessions on

GREEN HOMES in accordance with SBI's commitment to
Environment protection.

SBI Home Loans come to you on the solid foundation of trust and
transparency built in the tradition of State Bank of India.

321
321
Best Practices followed in SBI

 People dealing with you-

 End to End service by Permanent employees of SBI who
are accountable to you.
 Place-
 SBI
branch of your choice will service your loan account.
You can always meet our employees face to face.

322
322
 Price
 Complete transparency.
 Interest charged on the daily reducing balance.

 Prepayment charges
 No penalty for prepayments made, out of bonafide
savings or windfall gains for which evidence is
produced.
 No hidden costs
 Transparency
 Complete transparency. All the features of our
product, including interest rates, are in the public
domain.
323
323
‘SBI-Flexi’ Home Loans
A customized product designed to enable borrowers to
hedge their Home Loan against unfavourable movement in
interest rates. The product gives you a one time irrevocable
option to choose one of the three customized combinations
of fixed and floating interest rates and also to choose the
order in which the fixed and floating rate will be availed.

Minimum Loan Amount: Rs.5 lacs

324
324
Lecture 3

325
325
‘SBI-Maxgain’ Home Loans
An innovative and customer-friendly product to enable you to earn optimal
yield on your savings and minimize interest burden on Home Loans, with
no extra cost.

The loan is granted as an Overdraft facility with the added flexibility for you
to operate your Home Loan Account like your SB or Current Account.

The product serves to minimize your interest cost by enabling you to park
your surplus funds in ‘SBI-Maxgain’ (with the benefit to withdraw the
surplus funds whenever you require), specially in the wake of low yields
from other deposit/ investment avenues.
Minimum Loan Amount: Rs.5 lacs

326
326
‘SBI-OPTIMA’ ADDITIONAL HOME LOANS
‘SBI-HOMELINE’ SPECIAL PERSONAL LOANS

 Innovative and value added products extended to existing Home

loan borrowers with a satisfactory repayment record of 3 years and
whose loan is Standard Asset, with a view to reinforce the customer
loyalty and to maintain long term relationship with the borrowers.
 Purpose
 ‘SBI-Optima’ Additional Home Loans - to meet expenditure towards
major repair, renovation, addition to their house/flat, purchase of
furniture, fixtures and consumer durables
 ‘SBI-Homeline’ Special Personal Loans - General purpose loan to
meet expenditure to meet forseen/unforeseen contingencies

327
327
‘SBI-Freedom’ Home Loans
 A revolutionary product designed for customers who are on the look out for a
source of finance for a property they want to invest in without mortgaging the same.
All you have to do is pledge any financial security that you have and you will get a
Home Loan for your dream home.
 A must-take for those who do not want to pay stamp duty for mortgage of their
property or go through the hassles of creation of mortgage.
 You also have an option to take the loan by way of mortgage of the property and
pledge financial securities in lieu of margin money.
 Repayment is highly customized, giving you the option to repay through regular
EMIs or through maturity proceeds of the securities pledged.

328
328
‘PRASHASAN PLUS’, ‘TEACHER
PLUS’ AND ‘OIL PLUS’
The above ‘ plus’ schemes offer
concessional interest rate of 0.25% below
the applicable interest rates on Home Loans
to niche client groups like Government
Employees, Teachers, employees of public
sector oil companies etc.

329
329
‘SBI-Realty’ Home Loans
A unique product if you are on the look out for a loan to purchase a plot
of land for house construction. The loan is available for a maximum
amount of Rs.1 crore* and with a comfortable repayment period of upto
25 years.

You are also eligible to avail another Housing Loan for construction of
house on the plot financed above with the benefit of running both the
loans concurrently.

(House construction should commence within 2 years from the date of

availment of ‘SBI-Realty’ Housing Loan)

330
330
Lecture 4

331
331
The Insurance Industry
 Insurance is a hedging instrument used as a precautionary measure against future
contingent losses. This instrument is used for managing the possible risks of the
future.
 This is a mode of financially insuring that if such a incident happens then the loss
does not affect the present well-being of the person. Thus, through insurance, a
person buys the future happiness and smooth living.
 Though loss of life or injuries cannot be measured in financial terms, still in this
materialistic world it is quantifiable which tries to compensate the potential future loss
financially. Meaning of Insurance can be defined as the process of reimbursing or
protecting a person from contingent risk of losses through financial means.
 It may sound that the financial reimbursement by the insurance giving company come
free of cost. But in real life, insurance is not a free commodity. The Insurance
companies do charge a regular payment from the insurance customers (known as
Insurance Premium) which are reimbursed, either in part or entirety, to the customers
in cases of actual loss (for which the insurance has been bought).

332
MARKETING –MIX FOR
INSURANCE
COMPANIES

333
Types of Insurance
Life Insurance
It insures the life of the person buying the Life Insurance Certificate. Once
a Life Insurance is sold by a company then the company remains legally
entitled to make payment to the beneficiary after the death of the policy
holder.

Medical Insurance
This is also known as mediclaim. Here, the policy holder is entitled to
receive the amount spent for his health purposes from the insurance
company.

General Insurance
This insurance type involves insuring the risks associated with the
general life such as automobiles, business related, natural incidents,
commercial and residential properties, etc.

334
Types of Insurance
 Life Insurance:
More than 80% of the life insurance business is from
Endowment Assurance (Participating), and Money Back
(Participating products.
The life insurance policy describes the terms and conditions for
accessing the insurance on life along with the premium
particulars, benefits associated with it. The span of time for the
life insurances generally have a long period of maturity. If the
insured person dies within the given time frame then the insurer,
that is the insurance company, would have to compensate the
beneficiary of the policy holder with the assured sum (as
mentioned in the Insurance Policy).

335
Contd.
 General Insurance:

This policy encompasses a wide array of policies ranging

from residential property risks to commercial property risks,
policies associated with the risk of the crops, automobile
related risks, etc. The different policies under this extensive
arena describes all the terms& conditions, premium
structure and benefits related with this insurance scheme.
 Fire and Miscellaneous insurance businesses are
predominant. Motor Vehicle insurance is compulsory.

336
Contd.
 Medical Insurance Policy
The medical Insurance Policy describes the
terms and conditions associated with the
mediclaim contracts. These policies are meant
for insuring the health of the policy holder
through repayment of the costings associated
with the health of a person. Medical insurance
companies generally reimburse the policy holder
all his expenditures associated with his ill health.

337
PRODUCT

 In India, the Life Insurance Corporation of India (LIC)

and the General Insurance Corporation (GIC) are the
two leading companies offering insurance services to
the users. Apart from offering life insurance policies,
they also offer underwriting and consulting services.

 When a person or an organisation buys an Insurance

policy from the insurance company, he not only buys
a policy, but along with it the assistance and advice
of the agent, the prestige of the insurance company
and the facilities of claims and compensation.

338
Contd.
 It is natural that the users expect a reasonable return for their investment and the
insurance companies want to maximize their profitability. Hence, while deciding
the product portfolio or the product-mix, the services or the schemes should be
motivational. The Group Insurance scheme is required to be promoted, the Crop
Insurance is required to be expanded and the new schemes and policies for the
villagers or the rural population are to be included.

 The Life Insurance Corporation has intensified efforts to promote urban savings,
but as far as rural savings are concerned, it is not that impressive. The
introduction of Rural Career Agents Scheme has been found instrumental in
inducing the rural prospects but the process is at infant stage and requires more
professional excellence. The policy makers are required to activate the efforts. It
would be prudent that the LIC is allowed to pursue a policy of direct investment for
rural development.

339
New products
 New products have been launched by life insurers. These include
linked-products. Insurance products from the new insurance
companies now give a lot more options to customers. New
insurance products are more transparent, flexible & customized to
the need of different types of individuals. "Free-look" period of 10
days where customer has the option of returning the policy within 10
days if it does not meet his requirements. Loading of riders to basic
range of products & thus providing lots of flexibility to the customers
are few of the examples.
Insurance Companies are now providing information about their
performance on a regular interval to bring transparency in declaring
bonuses.

340
Examples
 ICICI Prudential has launched the unit-linked variant of its regular policy for children, SmartKid. It
provides three scheme options: Maximiser, which has a skew towards equities; Protector, which
is biased towards debt; and Balancer, a blend of the Maximiser and Protector. Withdrawals can
be made after five policy years; a total of five withdrawals can be made over the policy term. On
the death of the parent, the sum assured is paid out immediately; payment of all future premiums
is waived and the policy benefits remain in force.
 OM Kotak Mahindra Life has launched an investment-cum-protection plan - the Kotak Safe
Investment Plan -- that offers safety of capital while permitting the policyholder to benefit from
investment opportunities in the equity, debt and money markets. This unit-linked insurance plan
is unique in that the various funds give the policyholder access to growth markets while the plan
guarantees the sum assured - on maturity or death — regardless of the performance of the
funds.
 ING Vysya Life has launched "conquering life critical illness plan", a total protection plan
combining a term life cover and a unique critical illness benefit. It plan covers the basic need for
protection and also provides for cover against 10 major critical illnesses.

341
Contd.
 ICICI Prudential has launched the unit-linked variant of its regular policy for children, SmartKid. It
provides three scheme options: Maximiser, which has a skew towards equities; Protector, which
is biased towards debt; and Balancer, a blend of the Maximiser and Protector. Withdrawals can
be made after five policy years; a total of five withdrawals can be made over the policy term. On
the death of the parent, the sum assured is paid out immediately; payment of all future premiums
is waived and the policy benefits remain in force.
 OM Kotak Mahindra Life has launched an investment-cum-protection plan - the Kotak Safe
Investment Plan -- that offers safety of capital while permitting the policyholder to benefit from
investment opportunities in the equity, debt and money markets. This unit-linked insurance plan
is unique in that the various funds give the policyholder access to growth markets while the plan
guarantees the sum assured - on maturity or death — regardless of the performance of the
funds.
 ING Vysya Life has launched "conquering life critical illness plan", a total protection plan
combining a term life cover and a unique critical illness benefit. It plan covers the basic need for
protection and also provides for cover against 10 major critical illnesses.

342
Contd.
 ICICI Bank has decided to offer `Life Time Pension Triple Advantage' exclusively designed life
insurance product from ICICI Prudential Life Insurance to its high net-worth credit cardholders
across the country. The product is a flexible unit-linked pension plan gives the customers the
advantage of reducing their tax burden along with safeguarding their post-retirement years.
Besides the tax advantage, the product also offers to provide the cardholders regular pension,
guaranteed for life.

 TATA AIG Life Insurance Co Ltd has launched `Nirvana', a pension plan for individuals. With a
minimum cover of Rs 50,000, this policy is available for anyone between 18 and 55 years of age
with the flexibility to retire between 50 and 65 years. The `Nirvana' policyholder has to pay
premiums each year till retirement, when he/she gets a maximum of 25 per cent of the sum
accumulated. This pension plan also offers a guaranteed addition of 10 per cent of the sum
assured, which will be payable either on death or on survival at the time of retirement, provided
the policy has been in force for 10 years.
 Aviva Life Insurance has also launched two individual products - PensionPlus and Secure Life.
Aviva is the fifth private insurance player to introduce a pension product. Others include-ICICI
Prudential Life, HDFC Standard Life, OM Kotak Mahindra Life and Tata AIG Life.

343
Contd.
 Life Insurance Corporation of India has launched its first co-branded
bancassurance product - Corp Jeevan Raksha, a group insurance scheme
on the life of deposit holders of Corporation Bank. This scheme is available
to all personal account holders of Corporation Bank including those having
fixed deposits, savings account and current account provided they are
between 18 to 55 years of age.
Those customers of Corporation Bank who opt for this scheme will be
eligible for a life insurance cover of Rs 1 lakh in case of natural death & Rs
2 lakh for death by accident. In the absence of any bancassurance norms,
Corpbank's role will be that of a facilitator for payment of premium to LIC
and for payment of claims to deposit holders. The admission of claims will
however be subject to clearance by LIC.

344
PRICING
 In the insurance business the pricing decisions are concerned with:
i) The premium charged against the policies,
ii) Interest charged for defaulting the payment of premium and credit facility,
and
iii) Commission charged for underwriting and consultancy activities.
With a view of influencing the target market or prospects the formulation of
pricing strategy becomes significant. In a developing country like India
where the disposable income in the hands of prospects is low, the pricing
decision also governs the transformation of potential policyholders into
actual policyholders.
The strategies may be high or low pricing keeping in view the level or
standard of customers or the policyholders.

345
Factors for determining the
Premiumum under a life insurance

• Mortality(deaths in a particular area):

When deciding upon the pricing strategy the average rate of mortality
is one of the main considerations. In a country like South Africa the
threat to life is very important as it is played by host of diseases.

• Expenses:
The cost of processing, commission to agents, reinsurance
companies as well as registration are all incorporated into the cost of
installments and premium sum and forms the integral part of the
pricing strategy.

346
• Interest:
The rate of interest is one of the major factors which
determines people’s willingness to invest in insurance.
People would not be willing to put their funds to invest in
insurance business if the interest rates provided by the
banks or other financial instruments are much greater than
the perceived returns from the insurance premiums.
The premium rates are revised if there are
any significant changes in any of these
factors.

347
347
Lecture 5

348
348
PLACE

 This component of the marketing mix is related to two important facets –

i) Managing the insurance personnel, and
ii) Locating a branch.
The management of agents and insurance personnel is found significant with the
viewpoint of maintaining the norms for offering the services. This is also to process
the services to the end user in such a way that a gap between the services- promised
and services – offered is bridged over. In a majority of the service generating
organizations, such a gap is found existent which has been instrumental in making
worse the image problem.
The transformation of potential policyholders to the actual policyholders is a difficult
task that depends upon the professional excellence of the personnel. The agents and
the rural career agents acting as a link, lack professionalism. The front-line staff and
the branch managers also are found not assigning due weightage to the degeneration
process. The insurance personnel if not managed properly would make all efforts
insensitive. Even if the policy makers make provision for the quality upgradation, the
promised services hardly reach to the end users.

349
Contd.
 It is also essential that they have rural orientation and are well aware of the lifestyles of the
prospects or users. They are required to be given adequate incentives to show their excellence.
While recruiting agents, the branch managers need to prefer local persons and provide them
training and conduct seminars. In addition to the agents, the front-line staff also needs an
intensive training programme to focus mainly on behavioral management.
Another important dimension to the Place Mix is related to the location of the insurance branches.
While locating branches, the branch manager needs to consider a number of factors, such as
smooth accessibility, availability of infrastructural facilities and the management of branch offices
and premises. In addition it is also significant to provide safety measures and also factors like
office furnishing, civic amenities and facilities, parking facilities and interior office decoration
should be given proper attention.
Thus the place management of insurance branch offices needs a new vision, distinct approach
and an innovative style. This is essential to make the work place conducive, attractive and
proactive for the generation of efficiency among employees. The branch managers need
professional excellence to make place decisions productive.

350
PROMOTION
 The insurance services depend on effective promotional measures. In a
country like India, the rate of illiteracy is very high and the rural economy
has dominance in the national economy. It is essential to have both
personal and impersonal promotion strategies. In promoting insurance
business, the agents and the rural career agents play an important role. Due
attention should be given in selecting the promotional tools for agents and
rural career agents and even for the branch managers and front line staff.
They also have to be given proper training in order to create impulse buying.
Advertising and Publicity, organisation of conferences and seminars,
incentive to policyholders are impersonal communication. Arranging Kirtans,
exhibitions, participation in fairs and festivals, rural wall paintings and
publicity drive through the mobile publicity van units would be effective in
creating the impulse buying and the rural prospects would be easily
transformed into actual policyholders.

351
PEOPLE
 Understanding the customer better allows to design
appropriate products. Being a service industry which
involves a high level of people interaction, it is very
important to use this resource efficiently in order to
satisfy customers. Training, development and strong
relationships with intermediaries are the key areas to be
kept under consideration. Training the employees, use of
IT for efficiency, both at the staff and agent level, is one
of the important areas to look into.

352
PROCESS
 The process should be customer friendly in insurance industry. The
speed and accuracy of payment is of great importance. The
processing method should be easy and convenient to the
customers. Installment schemes should be streamlined to cater to
the ever growing demands of the customers. IT & Data
Warehousing will smoothen the process flow.
IT will help in servicing large no. of customers efficiently and bring
down overheads. Technology can either complement or supplement
the channels of distribution cost effectively. It can also help to
improve customer service levels. The use of data warehousing
management and mining will help to find out the profitability and
potential of various customers product segments.

353
PHYSICAL DISTRIBUTION
 Distribution is a key determinant of success. Building a distribution network is
very expensive and time consuming. If the insurers are willing to take advantage
of India’s large population and reach a profitable mass of customers, then new
distribution avenues and alliances will be necessary.
Initially insurance was looked upon as a complex product with a high advice and
service component. Buyers prefer a face-to-face interaction and they place a
high premium on brand names and reliability. As the awareness increases, the
product becomes simpler and they become off-the-shelf commodity products.
Today, various intermediaries, not necessarily insurance companies, are selling
insurance. For example, in UK, retailer like Marks & Spencer sells insurance
products.
The financial services industries have successfully used remote distribution
channels such as telephone or internet so as to reach more customers, avoid
intermediaries, bring down overheads and increase profitability. A good example
is UK insurer Direct Line. It relied on telephone sales and low pricing. Today, it is
one of the largest motor insurance operator.

354
Contd.
 Technology will not replace a distribution network though it will offer advantages like
better customer service. Finance companies and banks can emerge as an attractive
distribution channel for insurance in India. In Netherlands, financial services firms
provide an entire range of products including bank accounts, motor, home and life
insurance and pensions. In France, half of the life insurance sales are made through
banks.
In India also, banks hope to maximize expensive existing networks by selling a range
of products. It is anticipated that rather than formal ownership arrangements, a loose
network of alliance between insurers and banks will emerge, popularly known as
bancassurance.
Another innovative distribution channel that could be used are the non-financial
organisations. For an example, insurance for consumer items like fridge and TV can
be offered at the point of sale. This increases the likelihood of insurance sales.
Alliances with manufacturers or retailers of consumer goods will be possible and
insurance can be one of the various incentives offered.

355
Insurance Premium

 Insurance Premium is the payment made by the policy

holder to the insurance company on a regular time span.
This payment has to be made by the insured person till
the maturity of the insurance. Insurance Premium may
vary from company to company along with the coverage
limit. Thus, while selecting an insurance policy one
should be very careful and should compare all the
possible options through online website services. The
customers are advised to compare the quotes offered by
the different insurance companies and select from the
wide variety of options available to them.

356
Contd.
 Insurance brokers play an important role in finding the appropriate
insurance for the customer by assessing and titrating the different
insurances available in the market. The brokers or agents calculate
the premiums on the basis of the requirement particulars of the
customer. The lowest quote offered by the insurance company is
considered to be the most suitable one for the customer.
The above mentioned work of insurance premium calculation now-
a-days are also done by the specialized websites doing the
searching, comparing and calculating the insurance premium on
behalf of the customers.
The insurance premium generally increases with the increase in the
risk perception of the company about that person.

357
Contd.
 In case of medical insurance or mediclaim, the cost of premium is
more for the smokers than the non-smokers because the insurance
company considers that the smoker possesses a greater risk of
health hazard than the non-smoker. Hence the cost of premium is
directly proportional to the risk associated.
 In case of the car insurance, the cost of premium is generally higher
than a older one because the insurance company considers that the
younger driver is more prone to accident than the latter.
 In case of Life Insurance, the insurance company considers the
aged person to be more prone to death. Hence it charges a higher
premium than from him. But when it comes to a younger person
seeking life insurance, then the premium charged from him is less.
The reason behind it is that in normal conditions a younger person
stands more chance in living a longer life span.

358
Insurance Benefits

 Insurance Benefits encompass the facilities associated with buying of

insurances. Insurance is mainly a instrument used by consumers for
hedging the future contingent risks related with life, health and non-life
general issues. Insurance benefits help the policy holder or beneficiary in
combating with the losses or hazards associated with him/her.
The policy holder buys the insurance to hedge against the future perceived
losses by paying a regular amount to he insurance company known as the
Premium. Insurance companies ensure financial reimbursement of the
insured losses to the policy holders or his/her beneficiary. This is the most
coveted Insurance Benefits.
But with time, more and more insurance companies have cropped up and
consequently the competition among them has increased. Every company is
trying to woo all the customers into its fold and in a way offering more and
more innovative Insurance Benefits to the consumers.

359
Contd.
 Affordability of Insurance
The foremost insurance benefit in todays world is the low insurance rate and
premium one has to pay. While choosing a insurance policy, every customer
looks at this rate first and then to the other associated benefits. The lesser
the insurance rate, the more affordable the insurance becomes. Thus,
among all the insurance benefits, low insurance rate and premium is the
most coveted one.
 Accessibility Of Insurance
The easy accessibility of a insurance is the next most coveted Insurance
Benefits that the customers look for. The online access to insurance
companies and their policies has made them more lucrative to the
customers. Now-a-days, customers can search, compare and select their
insurance coverage through the click of a mouse from their own residence.
This has been observed that through online services, the insurance
companies have been able to reach more number of customers and
consequently their customer base has also mopped up significantly.

360
Contd.
 Some of the other Insurance Benefits are :-
 Basic benefits of the insurance policy. That is, the person enrolling for the
policy is entitled to receive the financial compensation in case of actual
occurrence of the loss/hazard/damage.
 Optional Insurance Benefits are also given by the companies to their policy
holders in order to entice them to access their insurance package. These
optional benefits include
 health and dental insurance of the family, life insurance of the spouse and the
child,
 accidental death policy for the policy holder in addition to the actual insurance for
which he/she has enrolled for,
 long term and short term insurance plans against disability of the policy holder
 unit linked insurance schemes meant for appreciation of the accumulated capital
during the life span of the same, managed by an experienced and well-learned
fund manager
 Pre-tax insurance benefits
These benefits are an added advantage to the insurance holders because
they help them in saving a large portion of their tax payment. When the tax-
payment gets curtailed then consequently their disposable income
increases leading to more enjoyment out of a secured life.

361
Insurance Policy
-characteristics
 Type of Insurance, namely, life or non-life or medical
 Regular premium amounts needed to be paid by the insurance
policy holder
 Purpose of the insurance
 Assured amount of money to be reimbursed by the insurance
company in case of completion of the maturity period or in case of
casualty or hazard or certain loss
 Parameters issued by the specific applications
 Coverage limit of the scheme
 The ways and requirements to be fulfilled for initiation of the scheme
 Suitability criterion

362
Lecture 6

363
363
BANK MARKETING
Provides services
Aimed to satisfy customer’s needs and
wants
Needs and wants may be non financial in
nature
Competitive element, efficiency and
effectiveness
Organizational objectives are still the driving
force
Commercial objective to make profit
Social Objectives
364
Essentials for a Banks Success
Cannot exist without customer
Create, win and keep customers
Organizational design should be oriented
to the customer
Deliver total satisfaction to the customer
Customer satisfaction is affected by the
performance of all the personnel of the bank.

365
Wining companies are those that can meet
customer needs economically and
conveniently and with effective
communication

Services Marketing Mix – 7P’s

Product, Price, Place, Promotion, People, Physical evidence,
Process

366
Marketing strategy of ICICI

Hum Hain Na 367

Introduction
 India’s second largest bank
 614 branches and extension counters
 2200 ATM’S
 Biggest private sector bank in India
 Most valuable bank in India in terms of market capitalization
 Described by the competitors and industry expert in one word –
“Aggressive”

Hum Hain Na 368

 Firsts in the Industry

 Introduced concept of branding in the Indian banking industry

 Process, People and Physical evidence – brought to life by ICICI
 Product Innovation – Put the ‘customer first’ in the true sense
 Cash on the celebrity fever – Introduced the concept of brand ambassadors
 Introduction of DSA’s and DST’s
 Unleashed the power of the internet – introduced the concept of net banking and e-mail
marketing
 First bank to focus on retail banking as a driver for growth
 Comprehensive data centre availability & data protection solutions

In effect – changed and shaped the Indian Banking Industry

369
Focus areas of marketing effort
 Target marketing and customer acquisition
 Share of wallet
 Channel strategy and management
 Relationship management and database marketing
 Product development & innovation

Credit approval

Hum Hain Na 370

Basis for segmentation

 Occupation
Different products for different occupational segment identified
 Income
Minimum balance serves as a income segment barrier
 Geographical
Concentrated on Tier 1 & Tier 2 Cities trying to extend reach
 Age
Different products like student account

Hum Hain Na 371

Nature of banking in India

Banking in India was focused on the upper income

group

Hum Hain Na 372

Targeting
Differentiated Marketing Strategy

 Tailors its marketing campaigns to meet the needs of its target

prospects
 Creates differentiated product offering for different segment
 Use of technology in tracking customer segment

Hum Hain Na 373

Targeting

Hum Hain Na 374

 Positioning
 Core proposition – ‘Hum hain na’ – trust, credibility, total financial solution
provider (brought about through its cross selling effort)
 Modernization – process and physical evidence – technology as the backbone
and accelerator
Caveat
 ICICI bank is absolute appalling. Their slogan of “Hum hain na” is very apt, only
that it applies to their customers (i.e. us poor mortals). Hum hain na &&& to bank
with ICICI.
 ICICI bank the most amazing bank with a punch line as “Hum Hain Na”, i think
they mean ” Hum hain - -na (not available)”
 (Earlier I was with ICICI) I must say they rock; very good bank with great
customer support. […]

Hum Hain Na 375

Need identification

 Adapting international practices to the local context

 Information system warehouse
 Product development department – continuously studies market and
analyses competitive landscape

Hum Hain Na 376

Lecture 7

377
377
all different product lines a company
offers to its customers.

378
Product Portfolio

ICICI Bank

Personal Banking
NRI Banking Corporate Banking
Deposits
Money Transfer Corporate Net Banking
Loans
Bank Accounts Cash Management
Investments
Investments Trade Services
Cards
Property Solutions Tradeway
Insurance
Insurance Forex Online
Demat Services
Loans  SME Services
Online Services

379
Creating concepts
Selling Gold
Cash Back

CONCEPTS

Cross PRODUCTS Balance

Selling Transfer

Loans on
Co-Branding
Credit Cards
380
Offering

 ATM Network
 7-Day Banking
 Telebanking
 iConnect-Internet Banking
 24-Hour ATMs
 Photo card
 And lots more

381
PRODUCT WIDTH AND DEPTH

Width
 number of product lines a company is offering. The product width could be a narrow
one or a wide one depending from bank to bank. A wide mix encourages more sales
since the banks are able to diversify and provide more to their customers and they
also appeal to a larger target market.
 Depth

number of product items in each product line. Banks

with more schemes and services have more depths
than those offering only a few.

382
PRODUCT WIDTH AND DEPTH

383
 PRODUCT LEVELS

Core Basic Expected Product Augmented Product Potential Product

Product Product

The basic necessity toSafety of deposits Timely service Goods waiting rooms Mobile and internet
use banking services inLoanable funds etc. Long banking hours Extensive ATM network Banking
order to handle finance Low interest rates Promotional Discounts New Schemes tailored
more efficiently for specific customers

384
ATM Card Issue Free – 2 ATM cards issued free if it joint account

Add – on Card RS. 100 – Beyond 2 cards

PRICE MIX :The price mix in the banking

Duplicate Card Rs. 100

sectorgeneral
Other is nothing but the interest rates charged by
charges
the different banks.
Current Account Savings Account

Transaction Charges NIL NIL

Charges for issue of Cheques book NIL NIL

Issue of duplicate statement Rs. 25 per page Rs. 25 per page

Account closure Rs.100 Rs.100

385
inspite of the constraints in the pricing policy due
to the RBI directives there are mainly three types
of pricing methods adopted by banks.
 Value pricing:
 Going Rate pricing
 Mark up pricing:

386
Pricing
 Penetrative pricing aimed at achieving large market share
 Philosophy of profit through volume
 Effort to drive out competition
 Price leader in retail banking product
 Aggressive pricing facilitated through low cost of fund acquisition

Hum Hain Na 387

Pricing
Duration Interest Rates (% p.a) Interest Rates (% p.a)
SBI ICICI

7 days to 14 days 3.50 3.75

15 days & upto 45 days 4.75 4.5

46 days and upto 179 days 5.25 6.00

180 days to less than 1 year 6.25 6.30

1 year to less than 3 years 6.75 7.71

3 years to less than 5 years 7.00 8.32

5 years and up to 10 years 7.25 10.09

Hum Hain Na 388

PLACE MIX :the location analysis for
banks branches
 The trade area
 Population characteristics
 Commercial structure
 Industrial structure
 Banking structure
 Proximity to other convenient outlets
 Real estate ratesProximity to public transportation
 Drawing time
 Location of competition
 Visibility
 Access

389
Distribution Strategy

 Cross selling of products as a major area of focus

 Creation of concept of DSA (Direct Selling Agent)
 Creation of concept of DST (Direct Selling Team)
 Effort on the part of the bank to reach the customer rather than
waiting for the customer
 Use of internet, mobile, ATM’s and other technological device to
reach and serve the customers

Hum Hain Na 390

Channel Strategy

Hum Hain Na 391

Channels for banking products
Intangibility
Inseparability
Variability
Perishability
Client relationship
Branches
Other channels
Tele-banking
ATMs
Computerization
Plastic Cards
Virtual branches and automated video banking
392
Intermediaries in banking
services
DSA
Automobile Dealers
Merchant establishments
Physical distribution
Transportation
Warehousing
Inventory
Tasks of physical distribution
Forecasting
Order processing
Inventory management
Storage
Protective packaging
393
Transportation
Promotion Mix Two of the fastest growing
modern tools of communicating with the customers are:
Internet Banking
Mobile Banking
 SMS services
 Finalizing the Budget
 Selecting a suitable vehicle
 Making possible creativity
 Testing the Effectiveness
 Instrumentality of Branch Managers

394
Different Ways of Promotion

 Public Relations:
 Personal Selling:
 Sales Promotion:
 Word – of – mouth Promotion:
 Telemarketing:
 Internet:

395
 Promotion
Strategy

Corporate Branding Product Branding

Hum Hain Na 396

Challenging Conventions…The Brand
ICICI
Customer
Interface Preference
ICICI

Providing experiences Loyalt

to the customer which y
Businesscustomers connect with Attachme
Processes t
(Image formed
in the mind
and heart of
Outcomes
the customer )
Attitudes
Interactions
Customer’s Mind & Heart

Hum Hain Na 397

Product Promotion
 Aimed at generating sales
 Communicates product features and benefits
 Mainly through print media
 Point of purchase promotion tools for different products to reach the
relevant customer segment

Hum Hain Na 398

Advertising

Hum Hain Na 399

 A man strolls down a beach, "Zindagi naam hai,
Cut to a house, a man addresses the members,
mushkil ko aasaan banaane ka. Zindagi naam
"I am Ajay Sharma from ICICI. Ma'am your home
hai zindagi ko aasaan baane ka."
loan has been sanctioned."

MVO: "Saathi jo zindagi ko aasan banaaye."

Amitabh Bacchan turns to face the camera,
Super: 'ICICI Group. Saral. Surakshit. Samajhdar.'
"Bas. Ek bharosemand saathi hona chahiye."

400
 An old woman tells her daughter about "Ab is umar mein kya jaayenge? You want to
their neighbour's plans for going to Haridvar ka matlab nahin you have to", continues the mother.

While the young woman, with her ICICI As the older woman takes a peek at the screen,
credit card, books tickets for her, online. she is pleasantly surprised.

...the MVO adds "ICICI Credit cards.

The site downloads and the super reads,
'Haridwar in a week.' As the daughter tries to
The power to give your loved ones what they 401
really, really want."
convince her...
A couple enter ICICI Bank and are Super: How long does it take to open an
served coffee as they wait to account with ICICI Bank?
open an account.

The man takes a swig from his cup... ... disbelief and hands over the documents.
Super: Before your coffee goes cold. VO: Have you opened an ICICI Bank
The executive smiles at their... account as yet?

402
People

 employees that are the service providers. In a banking sector, the

service provider plays a very important and determinant role in
rendering the customers a satisfactory and a good service. It is
extremely essential that the service provider understand what his
customers expect from him. In the banking sector, the customer
needs to be guided in a lot of matters, which is possible only with the
help of the service provider.

 The position in the eyes of the customer will be perceived by

appearance, attitude and behavior of the customer contact
employees. Not only does the customer contact employee influence
the customer’s perception but also the customer base of the
organization does so.

403
Process Mix
the overall procedure involved in using the services offered by the
bank. It is very necessary that the process is very customer friendly.

 Let’s take for example the process for application

for a car loan.
 Now this mainly involves 3 things.

 Producing proper documents
 Filling up of application form
 Paying for the initial down payment.

404
Public Relations
Purpose - To deliver communication that is uniform in its message and yet
customised for specific target audiences

 Media relations
 Press conferences
 Press Releases
 1-1 interviews
 Investor relations
 Analyst relations
 Government relations

Hum Hain Na 405

Outdoor Activities
‘Need to be seen…everywhere!!’

 Events at corporate campus

 Promotional material at channel partner outlets
 Billboards
 Signages
 Kiosks in residential and commercial complexes

Hum Hain Na 406

 Other Initiatives
 In-film promotions - Baghban
 Co-Branding Initiatives
 Alliance with Amway India for launch of the
international credit card. The card will
enable Amway distributors to purchase
Amway products and earn and redeem
reward points
 Indian Railways Catering And Tourism
Development Corporation, in conjunction
with ICICI Bank, announced the launch of
mobile payments and ticketing system,
offering IRCTC customers to book railway
tickets via SMS and make payments
through their ICICI Bank accounts

407
 Other Initiatives
 Cross brand associations - acquiring databases
of high net worth clientele of lifestyle products :
Tie-up with ‘Woven Hues’
 Young Stars Account – Promotion through tie-up
with Cartoon Network, and in-series promotion
through Tom & Jerry
 Seminars in partnership with media channels

408
 People
 Orientation towards customer service
 Division of SME, Personal Banking
and other functions at the branch level
 Effort towards providing sophisticated
and modern image of the bank
through its people

Hum Hain Na 409

Process
 Use of technology for both internal and external processed
 Process are system driven and independent of the people handling
it
 Standardization of service across the branches
 Extensive investment in software solutions for process
systemization

Hum Hain Na 410

 Physical Evidence

 Ambience in the branch which

projects modernization and
sophistication
 Consistency across branches
in construction ambience etc.

Hum Hain Na 411

PHYSICAL EVIDENCE is the overall layout of
the place i.e. how the entire bank has been designed. Physical
evidence refers to all those factors that help make the process much
easier and smoother.

 Like HSBC is planning to introduce

uniform system for its staff all over india
,this will help customers to easily identify
the office staff and this will also add to the
uniformity among the office staff

412
Recommendation
 Extensive use of biometric chips
 Dresscode system like HSBC
 Collaboration with NGOs to explore remote areas
 Use of contingency human capital during lunch hours
 Door to door service for collection of cheques & cash
for deposits
 More use of electronic clearance system

413
 Lecture 8

Airtel-STP

414
414
Introduction
 Owner- Sunil Bharti Mittal.
 Bharti Airtel formerly known as Bharti Tele- Ventures
Limited (BTVL).
 India’s largest cellular service provider. Known for its
service.
 First cellular operator to set up cellular showrooms
‘Airtel Connect’.
 First cellular company to install a second mobile
switching centre.
 First cellular service to provide roaming services and
other value added services.
 Efficient customer care service.
 E-commerce portal.
 Introduced and involves in broadband services, long
distance services, and internet services.
415
 Market Share of Cellular Service Provider
30.00% Airtel 25.00% Reliance 20.00%
Vodafone BSNL market share(%) 15.00%
TATA 10.00% Idea 5.00% Aircel 0.00%
Spice 1 MTNL service provider BPL

416
Segmentation
► On the basis of Geography
-divided Indian market in telecom circles.
-Subdivided States into category A, B and
C.

417
Targeting
► Earlier elite class above age group of 25 years.
► Corporate people and business men.
► Again targeted youth by introducing
YOUTOPIA plan.
► Targeted women and senior citizens by
introducing post paid plans.

418
Positioning

► Tagline- “power to keep in touch”.

► Positioned in premium category aimed at elite class of
society.
► Perception of aspirational and lifestyle brand.
► Airtel decided that the brand should always connote
leadership - be it in network, innovations, offerings or
services
► Sponsored games like Golf.

419
Repositioning
► Tagline- “touch tomorrow”.
► Started capturing mass market.
► New look and the feel of the brand logo
indicated the core values of the brand i.e.
leadership, performance and dynamism.

420
Again Repositioning
► Tagline- “Live Every Moment”.
► Brand Ambassador - Sachin Tendulkar -
Shahrukh Khan - Kareena Kapoor.
► The advertisement which changed the whole
look of Airtel in the minds of Indian consumers
was full with emotions and reactions, which one
will experience in a lifetime.

421
Again Repositioning
► Tagline- “Express Yourself.”
► Changed its logo to give more energetic and
younger look.
► Advertisements in regional languages with
emotional touch.
► Advertisements were made to highlight the
capability of Airtel's network coverage.

422
► In 2002, Airtel signed on music composer
A. R Rehman and changed its tune
to \"Live every moment.
► Used 360 degree marketing. e.g.
organized Airtel Scholar Hunt with NDTV.

423
MARKETING MIX -Product
• Airtel Pre-paid
• Airtel Post-paid
• Blackberry Wireless Handheld
• Value Added Services (VAS) The different value added services provided by Caller line
♣ 24Hr recharge Facility
♣ Instant Balance Enquiry
♣ Call Hold, Call divert, Call wait
♣ identification & Multimedia messaging
♣SMS based Information Service BVIMSR
♣ Airtel Live Portal
♣service (MMS)
 Hello Tunes
 Easy Post-paid
 Voice Mail Service
 Ring Tones Gifting of Ring Tones
 bill collection & GPRS • Business
 Hello Tunes Solutions BVIMSR

424
Price
• Customer based pricing strategies.
• Flexible pricing mechanism
• Controlled by TRAI. BVIMSR

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Place
 It has wide and extensive presence even
in the remotest areas
 Airtel Customer Care Touch Points
 Distributors like E.g. Paan shops,
grocery stores, chemists, outlet etc.
BVIMSR
 Outlets BVIMSR

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Promotion
 Large scale print and video advertising.
 Big celebrities like SRK and Sachin are roped in to
endorse the product
 In 2002 Airtel got its Signature tune from A.R. Rehman,
this signature tune is perhaps the most downloaded tune
in India.
 Provides innovations such as Bollywood movie premiers,
music services such as ring back tones & many more.
BVIMSR
 \"Friendz\" pre-paid connection for youth,\" Ladies
Special\" plan, Seniors plan.
 Executives corporate plan(First to give prepaid in this
category).
 Special discounts in calling rates & sms services.
 Providing wallpapers and screensavers on website.
BVIMSR
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Conclusion
► Most successful brand in India with largest
market share.
► Success is based on three pillars- connectivity,
affordability and innovation. The core is
connectivity, i.e. the network
► Doesn’t promote its product always by
celebrities.
► Pre paid services are more expensive than post
paid service.

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Questions

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 Questions

1. Discuss the Marketing Mix Strategy of any one of the following-

ICICI

SBI Bank

2. Discuss the STP of :

LIC
ICICI
Airtel
Bharti

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 Assignments

1. Choose any two service provider in each of the following sectors and
compare their STP & Marketing Mix Strategy:

Credit Cards

Home Loans

Insurance

Banking

Telecom

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 Marketing of
Services
CLASS: MBA
SEMESTER: III
ACADEMIC CONSULTANT: Ms Riju Agarwal Singh

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Marketing of Services
 What is Global Marketing

UNIT - IV 


Recent trends
Principal driving force in Global
marketing of services
 Key decisions in Global marketing
 Service strategy
 Organising for global marketing

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LECTURE PLAN Unit- IV Sub: Marketing of Services
Academic Consultant: Riju Agarwal

Lecture no Contents (sub topics) Slide no

1 What is Global Marketing 6-9

2 Recent Trends 10- 18

3 Principal driving force 19- 23

4 Key decisions 24-32

5 Service Strategy 33-38

6 Service Strategy 39-43

7 Service Strategy 44-48

8 Organizing for Global Markets 49-52

FAQ’S, CASE STUDY & ASSIGNMENTS 53-59 434

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Lecture 1
 What is Global
Marketing?
 How is it different
from regular
marketing?

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Introduction
 Global Marketing
 Marketing  Focuses resources
 Process of planning on global market
and executing the opportunities and
conception pricing, threats; the main
promotion and difference is the
distribution of ideas, scope of activities
goods and services to because global
create exchanges that marketing occurs in
satisfy individual and markets outside the
organization goals organization’s home
country

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Reasons for Global Marketing
 Growth
 Access to new markets
 Access to resources
 Survival
 Against competitors with lower costs (due to
increased access to resources)

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Overview of Marketing
 One of the functional areas of a business
that is distinct from finance and operations
 Primary tools in marketing are product,
price, place, and promotion
 Marketing is an activity that comprises the
firm’s value chain
 Current trend is to involve marketers in all
value-related decisions – called
boundaryless marketing

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Boundaryless Marketing
 Goal is to eliminate
communication
barriers between
marketing and other
business functional
areas
 Properly implemented
it ensures that a
market orientation
permeates all value
creating activities
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Goal of Marketing
 Surpass the competition at the task of
creating perceived value for customers
 The Guide line is the value equation –

Value = Benefits/Price (Money, Time, Effort, Etc.)

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Value Chain and Boundaryless
Marketing

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Competitive Advantage

 Success over competition in industry

at value creation
 Achieved by integrating and
leveraging operations on a worldwide
scale

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Globalization
Globalization is the inexorable integration of
markets, nation-states, and technologies to a
degree never witnessed before - in a way that is
enabling individuals, corporations, and nation-states
to reach around the world farther, faster, deeper
and cheaper than ever before, and in a way that is
enabling the world to reach into individuals,
corporations, and nation-states farther, faster,
deeper, and cheaper than ever before.
- Thomas Friedman

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Global Industries
 An industry is global to the extent that a company’s industry
position in one country is interdependent with its industry position
in another country
 Indicators of globalization:
 Ratio of cross-border trade to total worldwide production
 Ratio of cross-border investment to total capital investment
 Proportion of industry revenue generated by companies that
compete in key world regions

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Competitive Advantage,
Globalization and Global Industries
 Focus
 Concentration and attention on core business and
competence
Nestle is focused: We are food and beverages. We
are not running bicycle shops. Even in food we are
not in all fields. There are certain areas we do not
touch…..We have no soft drinks because I have said
we will either buy Coca-Cola or we leave it alone. This
is focus.
Helmut Maucher

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Global Marketing: What it is and
What it isn’t
 Strategy development comes down to two
main issues similar to single country
marketing
 Targetmarket
 Marketing Mix

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Global Marketing: What it is and
What it isn’t

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Global Marketing: What it is and
What it isn’t
 Global marketing does not mean doing
business in all of the 200-plus country
markets
 Global marketing does mean widening
business horizons to encompass the world
in scanning for opportunity and threat

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The Importance of Global
Marketing
 For US-based companies, 75% of sales
potential is outside the US.
 About 90% of Coca-Cola’s operating income
is generated outside the US.
 For Japanese companies, 85% of
potential is outside Japan.
 For German and EU companies, 94% of
potential is outside Germany.

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Management Orientations

Polycentric:
Ethnocentric: Each host country Is
Home country is Unique, sees differences
Superior, sees In foreign countries
Similarities in foreign
Countries

Regiocentric:
Sees similarities and
differences in a world
Region; is ethnocentric or
polycentric in its view of
the rest of the world
Geocentric:
World view, sees
Similarities and
Differences in home
And host countries

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Lecture 2

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451
Recent Trends
 Increasing globalization or internationalization of
markets
 Increasing investments between countries
 Increasing cooperation amongst trading nations
through GATT, now the WTO
 Growth of regional cooperation groups such as EU,
NAFTA

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452
Recent Trends

 Greater acceptance of free market system

 Eastern European countries, China, India,
Latin American countries
 Liberalizing their policies
 Tremendous impact of media
or internet on dissolving borders

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Recent Trends

 Pivotal role played by IMF,

World Bank, and WTO in fostering growth
internationally, particularly developing
countries
 Growth focus on countries such as China
and India
 Huge populations and a growing consuming
middle class

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Recent Trends
 New trend in international business is the
outsourcing of services:
 Call centers
 Health data management
 Software and IT services
 Healthcare and Banking - backend
 Research and Development moving to lower cost
locations

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Lecture 3

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Forces Affecting Global Integration
and Global Marketing

Global
Integration
and
Global
Marketing

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Global Integration Forces
Driving Forces
 Technology
 Culture
 Market Needs & wants
 Free Markets
 Economic Integration
 Peace
 Transportation and communication improvements
 Product development costs
 Quality
 Management Vision, Strategy and Action
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458
Global Integration Forces
Restraining Forces
 Culture
 Market Differences
 Costs
 National Controls
 Nationalism
 Peace vs. War/ Stability
 Management Myopia
 Organizational culture
 Domestic Focus

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Challenges
 Huge Foreign indebtedness
 Unstable governments
 Foreign-exchange problems
 Foreign entry and government bureaucracy
 Tariffs and other trade barriers
 Corruption
 E-commerce---doesn’t offer complete solutions
 Technological pirating
 High cost of product and communication adaptations

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Challenges
 Markets can present higher profit
opportunities than present markets.
 Markets can offer size but not profits.
 Company needs a larger customer base
for economies of scale.
 Present customers are needing service
and products as they go international.

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Global Marketing
 Marketing has become more complex.
 Increases in new products, product extensions,
high cost of distribution and shelf space.
 Expansion of retailer control and power,
changing media habits, overload of information,
and array of communication choices.
 Ultimate goal of programs
 Timing goals

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Global Marketing
 Denotes the use of advertising and marketing on a
global basis.
 Marketing is at the threshold of a new and exciting
era: e-business, e-commerce and e-marketing
 Business has two basic functions: marketing and
innovation (Drucker)
 New era of competition, demanding customers
 More stakeholders (customers, employees, media).

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Global Marketing
 Advantages, especially if the companies
emphasize selection, availability, quality,
reliability and lower prices.
 Economies of scale.
 Lower marketing and advertising costs in
planning and control. Lower advertising
production costs.
 Exploiting your best ideas on a worldwide basis.

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Lecture 4

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Key Decisions
 Deciding to go abroad
 Deciding which markets
 Deciding how to enter markets
 Deciding on marketing programs
 Deciding on marketing organization

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Standardization versus
Adaptation
 Globalization (Standardization)
 Developing standardized products marketed worldwide
with a standardized marketing mix
 Essence of mass marketing

 Global localization (Adaptation)

 Mixing standardization and customization in a way that
minimizes costs while maximizing satisfaction
 Essence of segmentation
 Think globally, act locally

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Standardization versus
Adaptation

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Global Marketing
Global Standardization or Adaptation
 Toyota built the Corolla on a world platform. Ford
with its Focus.
 McDonald’s uses chili sauce (salsa) on its
hamburgers in Mexico. Coca-Cola is can be
sweeter, or less carbonated.
 Adaptation elements: Product features, brand
name, labeling, packaging, colors, materials,
prices, sales promotion, advertising themes,
media, execution.
 Marketing programs do work best when they are
tailored to each target group.
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469
Global Marketing
 Companies need new set of guidelines, values and
insight
 Marketing is a Strategic Business Concept
 Marketing is too important to be left to the Marketing
Department. (David Packard)
 Formulated, integrated, long-term
 Hold to the responsibilities of customers, employees,
investors

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Global Marketing
Deciding How to Enter a Market
 Indirect Export-Thru export and thru others.
 Direct Export-Handle own exports.
 Licensing-License a foreign company to use
trademark, manufacturing process, trade
secret, or other item for a fee or royalty.

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Global Marketing
 Joint Ventures- Join with local investors
 Direct Investment- Ultimate form is
direct ownership of foreign-based
assembly or manufacturing facilities.
Can buy part or full interest in a local
company.

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Alternative Market-Entry
Strategies
 An entry strategy into the international market should reflect on analysis of market
characteristics such as:
 Potential sales
 Strategic importance
 Strengths of local resources
 Cultural differences
 Country restrictions
 Companies most often begin with modest export involvement.
 A company has four different modes of foreign market entry from which to select:
 Exporting
 Contractual agreements
 Strategic alliances
 Direct foreign investments

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Exporting
 Exporting accounts for some 10% of global activity.
 Direct exporting - the company sells to a customer in another country.
 Indirect exporting – the company sells to a buyer (importer or distribution) in
the home country, who in turn exports the product.
 The Internet
 Initially,
Internet marketing focused on domestic sales, however, a surprisingly large
number of companies started receiving orders from customers in other countries,
resulting in the concept of international Internet marketing (IIM).
 Direct sales
 Particularly for high technology and big ticket industrial products.

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Indirect exporting and Importing
➲ No involvement or commitment.
➲ Very little control.
➲ Less Market Knowledge and knowhow.
➲ No opportunity to develop relations with
foreign customers or markets.

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Direct exporting and Importing
➲ Knowledge and control.
➲ Relationships and growth opportunities.
➲ Learn about markets and competitive
advantages.
➲ Obstacles in identifying segments,
promotions etc.

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International Intermediaries.
➲ For initial market entry or long term strategic collaboration (Table
11.2 - Advantages).
➲ Export management companies - EMC’s
As an agent - commission based,
establishing contacts and developing
sales strategies.
As a distributor- takes title, more risk,
higher profits.

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477
Export Management Companies -
EMCs
 An EMC is the specialist for manufacturers who want export profits but does
not have the experience or resources to directly sell abroad.
 EMCs generally act as the firm’s export department.
 In short, the EMC takes full responsibility for the export end of the business.
 For further understanding, read the material/discussion on
http://fita.org/aotm/0499.html

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Services Provided by EMCs
 Research foreign markets for a client’s products
 Travel overseas to find the best method of distributing the product
 Appoint distributors or commission representatives, frequently within an already existing network
 Exhibit the client’s products at international trade shows
 Handle the routine details in getting the product to the foreign customer – export declarations,
shipping & customs documents, insurance, banking, and instructions for export packing and
marking
 Prepare advertising/sales literature & adapt it to overseas requirements
 Correspond in the necessary foreign language
 Handle LOC details

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Trading companies.
➲ Sogoshosha - Mitsubishi, Mitsui, etc.
➲ Importing, exporting, countertrading, investing, and manufacturing
➲ Resources, market knowledge, and economies of scale.
➲ Exist in several countries including Japan, Korea, Brazil, Turkey and U.S.
➲ U.S. encourages T.C. ; bank participation, relaxed antitrust provisions.

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Sogo Shosha:
Japanese Trading Companies
 The major sogo shosha are part of large corporate networks or keiretsu,
which center on either a major bank or industrial group.
 There are hundreds of general trading companies in Japan, but the sixteen
largest control the vast majority of Japan’s exports and imports.
 Websites that may help you better understand sogo shosha are:
 www.mitsui.com or www.misui.co.jp
 www.mitsubishi.com or www.mitsubishi.co.jp
 www.itochu.com or www.itochu.co.jp
 www.marubeni.com or www.marubeni.co.jp
 www.sumitomocorp.com or www.sumitomocorp.co.jp

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Informal Cooperation & Contractual Agreements.

➲ Informal cooperation - No binding agreement, Exchange information,

management knowhow, and personnel.
➲ Contractual agreements are long-term, nonequity association
between a company and another in a foreign market.
➲ Contractual agreements - Cross-marketing or R&D., Outsourcing,
Licensing, Franchising, Contract manufacturing, Management
Contract (turnkey operation).
➲ Cross-Marketing - E.g., Nestle and General Mills – Honey nut
Cheerios and Golden Grahams made in US plants by GM and
shipped in bulk to Europe for packaging by Nestle – Complimentary
Marketing or Piggybacking.
➲ Outsourcing – General Motors buys cars and components from
Daewoo; Siemens buys computers from Fujitsu.

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 Contractual Agreement
-Licensing
• A means of establishing a foothold in foreign markets without large capital
outlays.
• A favorite strategy for small and medium-sized companies.
• Legitimate means of capitalizing on intellectual property in a foreign market.
➲ Licensing - Patents, trademarks, copyrights, technology, technical knowhow,
business skills.
➲ Less resources, less commitment, govt. regulations, test market, preempt
market - requires little depth of market knowledge, can be put in place fairly
quickly, is relatively little investment.
➲ Risks associated with Licensing - “Leakage” -- The dissipation of one’s
proprietary advantage; Your reputation now depends on another’s
performance; Creation of a new competitor.

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Contractual Agreement –
Franchising
•
Franchiser provides a standard package of products, systems, and
management services, and the franchise provides market knowledge,
capital, and personal involvement in management.
• Despite temporary setbacks, franchising is still expected to be the
fastest-growing market-entry strategy.
• Two types of franchise agreements:
 Master franchise – gives the franchisee the rights to a specific area

with the authority to sell or establish sub franchises.

 Licensing

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Franchising.
➲ Franchising - Unique product, systems (mgmt./Mktg. knowhow), brands or unique
selling propositions. Capital, market knowledge, personal involvement.
➲ Manufacturer-retailer (car dealerships); Manufacturer-wholesaler (soft drink
companies); and service firm-retailer (Fast food or hotels)

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Strategic International Alliances
 A strategic international alliance (SIA) is a business relationship established by two
or more companies to cooperate out of mutual need and to share risk in achieving a
common objective
 SIAs are sought as a way to shore up weaknesses and increase competitive
strengths.
 Firms enter SIAs for several reasons:
 Opportunities for rapid expansion into new markets
 Access to new technology
 More efficient production and innovation
 Reduced marketing costs
 Strategic competitive moves
 Access to additional sources of products and capital
 Many companies also are entering SIAs to be in strategic position to be competitive
and to benefit from the expected growth in the single European market.

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Strategic International Alliances
(continued)
 International Joint Ventures
A joint venture is a partnership of two or more participating
companies that have joined forces to create a separate legal entity.
 Four Characteristics define joint ventures:
 JVs are established, separate, legal entities
 The acknowledged intent by the partners to share in the management
of the JV
 There are partnerships between legally incorporated entities such as
companies, chartered organizations, or governments, and not between
individuals
 Equity positions are held by each of the partners

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Equity participation, Joint ventures.

➲ Equity participation - minority ownership in companies -strengths of

partner (Ford owns 33.4% of Mazda).
➲ Joint Ventures - Govt. regulations, Special skills, Distribution
System, Resources, Access to raw materials, Export base, Political
Risk.

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Strategic International Alliances
(Consortia)
 Consortia
 Consortia are similar to joint ventures and could be
classified as such except for two unique
characteristics:
 They typically involve a large number of participants
 They frequently operate in a country or market in which
none of the participants is currently active.
 Consortiaare developed to pool financial and
managerial resources and to lessen risks.

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Direct Foreign Investment
 Factors that have been found to influence the structure
and performance of direct investments:
 Timing
 The growing complexity and contingencies of contracts
 Transaction cost structures
 Technology transfer
 Degree of product differentiation
 The previous experiences and cultural diversity of acquired
firms
 Advertising and reputation barriers

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“Global Acquisitions”

 Acquisition may make most sense when you want to….

 Diversify your product line
 Access new technologies, skills, distribution channels
 Overcome barriers to entry (e.g., local content, quotas,
subsidy)
 Reduce market/competitive risk
 Get immediate results (e.g., competitive response)
 Especially if your research and planning is sufficient to
minimize the risks attending………
 Ignorance  Over valuation (pay too much?)
 The high failure rates that usually attend cross-cultural
deals

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Lecture 5 & 6

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Global Marketing
Principle of Research
 Understand the consumer-behavior perspectives.
 Be sure you are asking right questions.
 Use appropriate research techniques and controls.
 Present clear, comprehensive and “actionable” results.
 We study people using geographics, demographics,
psychographics, lifestyles, and behaviors.

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Global Marketing
 Bodily adornment, cooking, courtship, food
taboos, gift giving, language, marriage, status,
sex, and superstitions, in all societies, although
each society attaches different values and
traditions.
 The world, countries, regions, and subcultures.
 Different groups of people share subcultures---
values, customs, and traditions.
 Geomarketing uses these differences in foods,
terminology, subculture identities.

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Global Marketing
 Example: Global youth are notorious for
challenging norms and defying labels. A study of
27K teenagers in 44 countries. Insights and
motivations.
 Six different segments.
 But remember that even in a specific country the
teenagers are not homogeneous.
 Six segments in a Teen World values research
study.

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Global Marketing
 Thrills and Chills. Driving principles---fun,
excitement, irreverence and friends. Expect
everything in life. Make it a goal to get as much
and as many good times. Popular kids in
schools. Brand loyal. Mostly in Germany,
England, Greece, South Africa, Netherlands,
US, Belgium and Canada. 18%
 Resigned: Fun, Friends and Low expectations.
Little discretionary income. Cynical. Denmark,
Sweden, Korea, Norway, Germany, Belgium,
Argentina, Canada and Turkey 14%

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Global

Marketing
World Savers. Defining principles: Fun, Humanism,
and friends. Models of what gives hope to next
generation. Good kids, who care. Technologically
advanced. Motivated by new and exciting. Attracted by
honest and sincere messages. Sophisticated, sense of
humor. Hungary, Philippines, Venezuela, Brazil,
Spain, Argentina, Russia, France, Poland. 12%
 Quiet Achievers. Success, quiet, anti-indi-vidualism,
social optimism. Have deter-mination and restraint.
Study hard. Do well in school. Limit outside activities.
Thailand, China, Hong Kong, Korea, Russia, Peru.
15%

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Global Marketing
 Bootstrappers. Defining principles:
Achievement, Individualism, optimism,
determination, power. Try hard to please
parents. Determined to succeed. Positive
values. One in four in US; 14% overall.
Nigeria, Mexico, US, India, Chile, Puerto Rico,
Peru and Venezuela.
 Upholders. Family, tradition, respect for
individuals. Dreamy. Quiet. Good teens.
Follow their parents. Don’t like risks. Use
proven products. Vietnam, Indonesia, Taiwan,
China, Italy, Peru, India, 16%
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Global Marketing
Principle of Integrated Marketing:
 Marketing is everyone’s business.
 “Marketing Community”

Examples:
 Coca-Cola, Merrill Lynch, Xerox, American
Express, British Airways, Gillette.

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Global Marketing
 When all of the departments work together to
serve the customer’s interests.
 Works on two different levels: All of the various
marketing functions work together: sales force,
sales promotion, advertising, PR, Product
development, Marketing research
 Plus all of the departments work together. They
must “Think Customer.”

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Global Marketing
An endless process or principle:
 Customer attraction
 Customer satisfaction
 Customer retention.
 CEO is also the Chief Marketing Officer.

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Global Marketing
Principle of Competition: Value War
 Create long-tern customer value.
 Continuously and consistently crated customer
value.
 Look at total customer benefits vs. customer
expenses
 Ultimate goal of project
 Relationship to other projects
 High-level timing goals

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Global Marketing
Principle of Customer Satisfaction and
Retention
 Look at overall satisfaction and customer
loyalty
 Easier to retain a customer than to gain or
win a new one.
 Consistently improve customer value to
win the marketing war.
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Global Marketing
Principle of Integration:
 Learn about the needs and wants.
 There are no “average” customers.
 Concentrate on the individual differences while
looking at segmentation, targeting and
positioning.

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Global Marketing
More on Integration:
 Plan for and review differences in culture,
markets, economic development,
consumer differing needs, usage patterns,
media availability and legal restrictions.

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Global Marketing
Principle of Anticipation and Being Proactive. Not
Reactive.
 Are you ready for change? Being adaptive to the
marketplace.
 Macroenvironment Changes. The high income
growth country has shifted from Japan to US. Low
to medium has been concentrated in Southeast
Asia and southern Asia with China as a unique,
high-growth, large country in the region and the
world. Also look at Singapore, Taiwan and South
Korea.

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Global Marketing
Principle of the Growth of Internet and Information
Technology.

Principles of:
 Marketing Planning
 Marketing Mix
 7P’s

 Controls.

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Global Marketing
 The old trade model is just old.
 It stated that as a product matures,
production would shift to low-wage countries.
 Today, must look at transportation costs,
availability of skilled labor, market
responsiveness, market access and
innovation in product design and
manufacturing. Especially of products with
less than 15% of labor in total cost.
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Planning for Global Markets
 Planning is the job of making things happen that might not otherwise occur.
 Planning allows for rapid growth of the international function, changing markets, increasing
competition, and the turbulent challenges of different national markets.
 Planning relates to the formulation of goals and methods of accomplishing them, so it is
both a process and philosophy.
 Corporate planning – long-term generalized goals for the organization – corporate
philosophy, international commitment etc.
 Strategic planning – Dealing with products, capital and research and long/short term
allocation of strategic resources.
 Tactical planning – specific actions and tactics in local markets.
 Successful planning is evaluating company objectives, including management’s
commitment and philosophical orientation to international business.

509
509
Planning for Global Markets
(cont’d)
 Company objectives and resources
 Each new market can require a complete evaluation, including existing
commitments, relative to the parent company’s objectives and resources.
 Defining objectives clarifies the orientation of the domestic and international
divisions, permitting consistent policies.
 International commitment
 Commitment in terms of:
 Dollars to be invested
 Personnel for managing the international organization

 Determination to stay in the market long enough to realize a return in investments.

 The degree of commitment to an international marketing cause reflects the

extend to a company’s involvement

510
510
The Planning Process
 Phase 1: Preliminary Analysis and
Screening – Matching Company and
Country Needs.
 Phase 2: Adapting the Marketing Mix to
Target Markets.
 Phase 3: Developing the Marketing Plan
 Phase 4: Implementation and Control

511
511
International Planning Process
 Insert Exhibit 11.1

512
512
Global Marketing
Principle of Branding:
 The umbrella. Determines price and value. Be
more than a commodity.
 A brand is a name, term, sign, symbol, or
design or a combination of them to identify the
goods and services of a seller and to
differentiate them from the competitors.
 Identifies seller or maker. We see a huge
increase in the global brands for autos, food,
clothing, electronics and more.
 Increasing number of cross-border marketing
alliances.
513
513
Global Marketing
Principle of Service:
 Service before, during and after sale.
 Create long-term value and connect with
customer.
 Both products and services. It’s creating
more value.

514
514
Global Marketing
Principle of Process:
 Commands the company to be the captain of its supply-
chain. It should manage from raw materials to finish
goods. Enhance value-creating activities.
 Look at Strategic Alliances/Partners . Can be suppliers,
customers and even parts of competitors. Benchmarking,
reengineering, outsourcing, mergers, and acquisitions
are examples.
 Brand, service and process are three value-creating
principles and drivers to win customers and deliver
market share.

515
515
Global Marketing
Principles of STP:
 Segmentation, Targeting and Positioning
 Process of segmenting. Look at
demographics, geographics,
psychographics and behavior variables.
 Look for market opportunities.

516
516
Global Marketing
Principle of Differentiation:
 Don’t be different just to be different.
 Design and plan for meaningful
differences versus the competitors.
 Design truly different and unique products
for customers.

517
517
Global Marketing
Principle of Marketing Mix:
 Integrate 4P’s and 7P’s.
 Offer, Logistics and Competition.
 The whole marketing concept.

518
518
Global Marketing
Principle of Selling:
 Integrate Company, Customers and
Relationships/Partnerships.
 Create long-term relationships with customers.
 More than personal selling.
 Features and benefits of the product.
 AIDA: Awareness-Interest-Desire-Action.
 Manage communication.

519
519
Global Marketing
Principle of Balance:
 After focusing on the elements of marketing---
segmentation, targeting, positioning (STP),
differentiation, marketing mix, selling, branding,
service and process, you need to balance the
strategies, tactics and implementation.
 Share of Heart and Mind. Share of Voice.
 Dynamic environment. Timing.
 High-level timing goals

520
520
Global Marketing
Principle of Positioning:
 The act of designing the product or
service (company’s offering and image)
to occupy a distinctive place in the target
market’s mind.
 Ultimate goal of product. Differentiation
 Relationship to other products.

521
521
Global Marketing
Principle of Future:
 Manage today’s products by managing a
profit and by servicing customers of today
and tomorrow.
 Develop tomorrow’s products.
 Look at Marketing Myopia.

522
522
Global Marketing
Principle of Global Experience
 Counts for companies
 Counts in the job market for employees.
 Marketing Audits.
 Marketing is not a destination, or a goal.
It’s a process. A moving target.

523
523
Wrap-up on Global
Marketing Principles
 Companies cannot stay domestic and
expect to maintain their markets.
 Companies need to define their global
policies and objectives.
 Companies need to decide on how much
to adapt marketing mix.

524
524
Wrap-up on Global
Marketing Principles
 Market entry and market control costs can
be high.
 Product and communication adaptation
costs can be high.
 Dominant foreign firms can establish high
barriers of entry.
 Which types of markets and countries?

525
525
Global Marketing
 Ultimate goal of project
 Relationship to other projects
 High-level timing goals
 Attractiveness influenced by the product,
geography, income, population, political
climate and more factors.
 Review Forces:
---Driving and Restraining
526
526
 Globalization Framework of Service
Businesses

 Special Characteristics of Service Businesses

 Performance not an object
 Customer involvement in production

 People as part of service experience

 Quality control problems

 Harder for customers to evaluate

 Lack of inventories

 Importance of time factor

 Electronic channels of distribution

527
527
527
 Globalization Framework for Service
Businesses
 Three Categories of Services
 People processing services – involve tangible actions to customers in
person. The customer becomes a part of the production process, which
tends to be simultaneous with consumption.
ex: passenger transportation, health care, food service.
 Possession processing services – involve tangible actions to physical
objects to improve their value to customers. The object needs to be
involved in the production process, but the customer does not.
ex: freight service, car repair, laundry.
 Information based services – involve collecting, manipulating,
interpreting, and transmitting data to create value.
ex: accounting, banking, education, legal services.

528
528
528
 Globalization Framework for Service
Businesses
 Global Strategy
 Global market participation strategy – building significant share in global
strategic markets.
ex: Tokyo, London, New York.
 Global services – a standardized core product or service that requires a minimum
of local adaptation.
ex: In Britain, McDonald’s includes both coffee and tea on the menu, while it serves beer in France
and Germany.
 Global location value chain – where to locate a business’s activities and how to
coordinate them.
ex: sending checks to be processed in a different country.
 Global marketing of services – applying a uniform marketing approach around
the world, although not all elements of the marketing mix need to be identical.
ex: a strong global brand image.

529
529
529
Supplementary Services
 The Flower of Service – composed of
eight supplementary service categories.
 Supplementary services - are used to add
value and provide differentiation from
competition, enabling firms do develop
effective globalization strategies.

530
530
 8 Supplementary Services to the Core
Process.
 Information – giving customers rlevalnt information about the service.
 Payment – ease and convenience of payment.
 Consultation – involves a dialogue to probe customer requirements and then
develop a tailored solution.
 Order Taking – making it wasy to place orders or reservations in the language of
their choice.
 Hospitality – take care of the customer by considering cultural definitions of
appropriate hospitality, which may differ widely from one country to another.
 Safekeeping – looking after a customer’s possessions.
 Exceptions – fall outside of normal service delivery. This includes special
requests, handling customer complaints, and problem solving.
 Billing – clear and timely billing.

531
531
531
Implications for Types of Service
Businesses
Global Market Participation
•Adopt a professional style that fits the local culture
through extensive advertising and public relations as
well as hiring host country nationals who have obtained
education and work experience in other countries.
ex: Law firms and other professional service
providers .

532
532
532
Implications for Types of Service
Businesses
Globally Standardized Service
•Possession processing businesses can provide the most
globally standardized offerings. These services need to cope
with cultural and taste differences that vary geographically
like different voltage or measurement systems.
•People processing services almost always need some
deviation from standardization.
•Information based services deviation will vary widely from
none to near total.
ex: information on international flight schedules
(none), or tax advice (nearly total).

533
533
Implications for Types of Service
Businesses
Global Location of Value Chain
•People processing and possession processing services
depends on the extent of local presence needed. Usually more
local sites will be needed for people-processing, making that
service the most difficult to operate globally.
•Information based services should find it the easiest to locate
globally due to their “virtual nature” where no physical
presence is needed. However when information services have
a physical component, or require specialized delivery
equipment, a physical presence should be provided.

534
534
Implications for Types of Service
Businesses
Globally Uniform Marketing
•All three types of services should be able to make use
of globally uniform marketing, but the extent will differ
for each element of the marketing mix.
•People processing services have the most to gain from
uniform branding as a way to build both local and
foreign customers.
•Possession processing services often attract
multinational customers making it necessary to
coordinate global marketing strategy and offer uniform
terms of service.
535
535
• Domestic International Global marketing
• Global marketing evolution : Globalization drivers

- Marketing factors
- Cost factors
- Environmental factors
- Competitive factors
• Strategic planning models
- BCG (Boston Consulting Group) model
- Ansoff’s model
- GE model

536
536
Lecture 7

537
Business Portfolio Models
A. Boston Consultin Group (BCG) Model

Market Share – Growth Matrix

Hi

Marketing Growth Rate

Star ?

Cash cow Dog

Lo
Hi Lo
538
538
B. Ansoff’s Product-Market Development Model

Existing Product New Products

Existing
Market Market Penetration Product Development

New
Market Market Development Diversification

539
539
 C. G.E Strategic Planning Model
Business Strength
Strong Average Weak

Industry Attractiveness
High

Medium

Low
Business Strength Index Industry Attractiveness Index
* Market Share * Market size
* Price Competitiveness * Market Growth
* Product Quality * Industry Profit Margin
* Customer Knowledge * Amount of Competition
* Sales Force and Effectiveness * Seasonality
* Geographic Advantage * Cost Structure 540
* Others * Etc.
THE STRATEGIC PLANNING PROCESS

Assessment and adjustment of core strategy

(market / competitive analysis, internal analysis)

Formulation of global strategy

(choice of target countries, segments and competitive strategy)

Development of global marketing program

Implementation
(organization structure, control)
541
541
UNDERSTANDING AND ADJUSTING THE CORE STRATEGY

• The SBU : Based on product- market similarities

- Similar needs or wants to be met
- Similar end user customers to be targeted
- Similar products or services used to meet needs of specific
customers
• Analysis is the first step
- Market analysis
- Competitor analysis
- Internal analysis
• Formulating global marketing strategy starts with a series of
decisions
- Country-market choice
- Choice of competitive strategy
- Segmentation choices
542
542
• Country- Market choice
- Concentration
- Diversification
• Factors in country selection
- The stand-alone attractiveness of the market
- Global strategic importance of the market
- Possible synergies offered by the market
• Choice of competitive strategy alternatives
- Cost Leadership
- Differentiation
- Focus
• Basis for global market segmentation
- Environmental variables (Economics, Geographic, cultural, ….)
- Marketing-mix (Product, Price, Promotion, Distribution) variables
543
543
• Global marketing program development decision
- Degree of standardization in the product offering
- Marketing program beyond the product variable
- The location and extent of value-adding activities
- Competitive moves to be made
• The marketing approach to globalization
“ Think globally but act locally ”
• The location of value-added activities
- Pooling production
- Exploiting factor costs or capabilities
- Strategic alliances
- Concurrent engineering

544
544
• Competitive moves
- Cross-subsidization (Resources accumulated in one part of the
world used to fight competition in another part)
• Implementing global marketing strategy
- Success is based on a balance between local, regional/global
concerns
• The challenges of global marketing and the pitfalls to be avoided
- Insufficient research
- The tendency to over standardize
- Inflexibility in planning and implementation
• The “Not-Invented-Here” (NIH) syndrome
• Localizing global marketing
- Achieving balance between local and global managers at
headquarter
545
545
• The management process
- Enhancing the global transfer of communications
- Personnel interchange to gain experience aboard
- HQ should coordinate and leverage resources
- Permit local managers to develop their own programs within
defined parameters
• How to avoid the NIH syndrome
- Ensure local managers participation in development of global
marketing strategies
- Encourage local managers to be creative
- Product portfolio with local, regional/global brands
- Decentralization of marketing decisions

546
546
Lecture 8

547
 EMERGING GLOBAL ORGANIZATION STRUCTURES
- Global account management
- Changes in the corporate culture for going global
- Planning and executing programs on a world wide basis
- Product choices for individual markets and regions
- Make decisions between single segments and multiple segments

548
548
Organizing for Global
Competition
 Because organizations need to reflect a wide range of
company-specific characteristics, devising a standard
organizational structure is difficult.
 Companies are usually structured around one of three
alternatives:
 Global product divisions responsible for product sales throughout the
world
 Geographical divisions responsible for all products and functions within
a given geographical area
 A matrix organization consisting of either of these arrangements with
centralized sales and marketing run by a centralized functional staff, or
a combination of area operations and global product management

549
549
Organizing for Global
Competition (cont’d)
 Locus of decision
 Considerations of where decisions will be made, by whom, and by which
method constitute a major element of organizational strategy.
 Centralized versus decentralized organizations
 An infinite number of organizational patterns fro the headquarters activities
of multinational firms exist, but most fit into one of three categories:
 Centralized
 Regionalized
 Decentralized
 No single traditional organizational plan is adequate for today’s
global enterprise seeking to combine the economies of scale of a
global company with the flexibility and marketing knowledge of a
local company.

550
550
Schematic Marketing Organization Plan
Combining Product, Geographic, and Functional
Approaches
Insert Exhibit 11.4

551
551
Organizational Structure
 Stages of Companies’ “internationalization”
 Sales through Domestic sales department
 Export Sales (& marketing) department
 International Division
 Overseas offices
 Overseas Subsidiaries

 Reporting to Division VP, or SVP WW sales.

 MNC with semi-autonomous subsidiaries

 Shared global strategy
 Each subsidiary operates on own P/L

 Reports in at the Board level

16-552
552
Organizational Structure
 Internationalization con’t
 Product development affected by int’l
requirements.
 Marketing affected by need to both
internationalize “look & feel”, but also localize
to suit markets
 Senior management affected by need for top
level representation
 HR affected by differing labor laws.

16-553
553
Patterns of International
Organizational Development
 Organizations vary in
 Size
 Potential
of targeted global markets
 Local management competence
 Conflicting pressures may arise
 Forproduct and technical knowledge
 Functional area expertise
 Area and country knowledge

16-554
554
 Organizational Structure
 Different ways to organize
 Product groups
 Country/Regional Groups
 Functional Groups
 Process Groups
 Customer focused organization
 Matrix structure (function/product/geography)
 Hybrid structure
 “Flattening the organization”
 Networked global Organization

16-555
555
International Division Structure

16-556
556
 Organizational Structure
Export Sales Stage
President

FinanceProduction
Marketing Sale R&D HR
s
Important
variable
US Mrktg US Int’l Sales
Sales

EU Mrktg Asia Mrktg EU Sales Asia Sales ROW Sales

16-557
557
Regional Management Centers

16-558
558
 International Division Structure
 Four factors that lead to this structure
 Top management’s commitment to global
operations has increased enough to justify the
position
 Complexity of international operations requires a
single organizational unity
 The firm has recognized the need for internal
specialists to deal with the demands of global
operations
 Management recognizes the importance of
proactively scanning the global horizon for
opportunities and threats
16-559
559
Organizational Structure
International Division
President
HQ staff Stage

LATAM Asia ROW

Euro Div
Div Pac Div
Div

Regional EU Region
Asia/Pac
Region Sales
Regional
Mktg Sales Mktg

Munich Paris Beijing S’pore

office office office office 16-560
560
Geographical & Product
Divisions

16-561
561
 The Matrix Design
 Product or business, function, area, and
customer know-how are simultaneously
focused on the organization’s worldwide
marketing objectives
 Management must achieve organizational
balance that brings together different
perspectives and skills to accomplish
organizational objectives

16-562
562
The Matrix Design
 Geographic knowledge – understanding of
economic, social, political, and governmental market
and competitive dimensions
 Product knowledge and know-how – Product
managers that have a worldwide responsibility can
achieve new levels of product competency

16-563
563
The Matrix Design
 Functional competence – corporate staff with
worldwide responsibility contributes toward the
development of functional competence on a
global basis
 Knowledge of customer or industry and its needs
– staff with responsibility for serving industries
on a global basis assist organizations in their
efforts to penetrate specific customer markets

16-564
564
The Matrix Design

16-565
565
 Benefits of Global Marketing
 When large market segments can be identified, economies of
scale in production and marketing can be important competitive
advantages for global companies.
 Transfer of experience and know-how across countries through
improved coordination & integration of marketing activities.
 Marketing globally also ensures that marketers have access to the
toughest customers.
 Diversity of markets served carries with it additional financial
benefits.
 Firms that market globally are able to take advantage of changing
financial circumstances.

566
566
Organizing for Global
Competition
 Because organizations need to reflect a wide range of company-
specific characteristics, devising a standard organizational
structure is difficult.
 Companies are usually structured around one of three
alternatives:
 Global product divisions responsible for product sales throughout the world
 Geographical divisions responsible for all products and functions within a
given geographical area
 A matrix organization consisting of either of these arrangements with
centralized sales and marketing run by a centralized functional staff, or a
combination of area operations and global product management

567
567
Organizing for Global Competition
(cont’d)
 Locus of decision
 Considerations of where decisions will be made, by whom, and by which method
constitute a major element of organizational strategy.
 Centralized versus decentralized organizations
 An infinite number of organizational patterns fro the headquarters activities of
multinational firms exist, but most fit into one of three categories:
 Centralized
 Regionalized

 Decentralized

 No single traditional organizational plan is adequate for today’s global

enterprise seeking to combine the economies of scale of a global company
with the flexibility and marketing knowledge of a local company.

568
568
Schematic Marketing Organization Plan
Combining Product, Geographic, and Functional
Approaches
 Insert Exhibit 11.4

569
569
Lessons for Service Managers
 Management needs to understand the components of a
service and the processes by which its different elements are
created and delivered by:
- First, distinguishing between the core product and the supplementary
service elements
- Second, recognizing the three broad categories of the core product/service
- Third, using the Flower of Service model as a means of understanding and
disaggregating the package of supplementary services that augment and
add value to the core product/service.

570
570
570
Conclusion
Companies can develop effective global
strategies by systematically analyzing the
specific globalization drivers affecting their
industries and the distinctive characteristics
of their service businesses.

571
571
FAQ’s
1. For a company of your choice, identify the “push” and “pull”
factors that have led it to explore foreign market opportunities
2. What is likely to be the long-term impact, if any, of the
internet on the development of a global market in health care
industry?
3. To what extent is it true to talk about an overwhelming
tendency towards cultural convergence affecting the market
for broadcast television services?
4. Discuss the driving forces for a going global.

572
572
Assignment
 List the stages in International Marketing
involvement.
 What are the strategic orientations of
firms?

573
573
Self – Quiz..

 What is International Marketing and how

does it differ from domestic marketing?
 What are the major trends in international
trade and marketing?
 Define self reference criterion and
ethnocentrism.

574
574
 MCQS
Mark the correct answers from a-d.
1. The most important reason why marketers need to classify services is to:
a) standardise advertising programmes.
b) allocate personnel duties.
c) determine prices.
d) identify similarities in marketing needs.
2. Inseparability necessarily implies:
a) a high level of consumer-producer interaction.
b) intangibility of the service offering.
c) a high level of tangibility in the service offering.
d) variable output.
3. Inseparability can be most effectively reduced by:
a) reducing the tangible element of the service offer.
b) increasing the labour content of service inputs.
c) using electronic means of service delivery.
d) de-skilling of employees' tasks.
4. Intangibility necessarily implies a lack of::
a) quality control.
b) physical ownership.
c) product specification.
d) consistency.

575
 MCQS
5. Services with high levels of variability tend to be:
a) people based.
b) services provided on a one-to-one basis.
c) customised services.
d) all of the above.
6. The extended marketing mix for services has been developed on the basis of:
a) scientific analysis of actual decisions made by services marketing managers.
b) the need for a realistic framework for analysis.
c) intuition.
d) the need to incorporate service quality as a core element of the marketing mix.
7. Services can best be described as processes rather than outcomes. Which of the following
is a technique for graphically describing a service process?
a) Bar Charting
b) Blueprinting
c) Process charting
d) Flow analysis
8. Industrialisation of services is best facilitated by:
a) incorporating more intangibles into the service offer.
b) the contracting out of services.
c) replacing human operators with machines.
d) increasing levels of customisation.

576
 MCQS
9. Compared with high-contact services, customers of low-contact services are more likely to
judge service quality on the basis of:
a) outcomes.
b) processes.
c) quality of personnel.
d) waiting time.
10. In the services sector, critical incidents:
a) occur each time an organisation interacts with its customers.
b) necessarily involve front line employees.
c) can only be defined by management.
d) can only be defined by customers.
11. For a UK budget hotel chain seeking expansion in overseas markets, a 'push' factor may be
represented by:
a) new opportunities emerging in Eastern Europe.subsidies available for overseas expansion
b) subsidies available for overseas expansion.
c) increasing levels of competition in the domestic market.
d) increasing levels of competition in overseas markets.
12. A high level of exports of luxury consumer goods to a country with a low average level of
GDP per capita may be indicative of that country's:
a) low level of real GDP.
b) high level of GDP.
c) high level of GDP per capita.
d) uneven distribution of GDP.
577
 MCQS
13. A theme park operator considering setting up an operation in an overseas country, is most
likely to begin its research by:
a) conducting secondary research in its target market.
b) conducting primary research in its target market.
c) conducting secondary research at home.
d) conducting primary research at home.
14. Adaptation of both promotion and product specification to the requirements of overseas
markets is likely to be most thorough for:
a) an international hotel chain.
b) a car rental ca local utility sub-contractor.hain.
c) a local utility sub-contractor.
d) an airline.
15. Which of the following overseas market entry strategies is likely to give a restaurant
operator the highest level of control?
a) direct investment
b) joint venture
c) management contracting
d) franchising
16. Which of the following overseas market entry strategies is likely to present a restaurant
operator the lowest level of risk?
a) direct investment
b) joint venture
c) management contracting
d) franchising
578
 MCQS
17. The theory of comparative cost advantage holds that a national economy will:
a) aim to minimise the cost of its producers.
b) export what it is good at and import goods where it is weak.
c) import what it is good at and export goods where it is weak.
d) always aim to produce goods and service at a comparable cost compared to the most
efficient economy.
18. A trading bloc has the effect of:
a) blocking trade with all other countries.
b) increasing trade between bloc members: favouring it against other countries
c) reducing trade between bloc members: favouring against other countries.
d) reducing trade between bloc members: discriminating against other countries.
19. All of the following are examples of limitations on the concept of comparative cost
advantage except:
a) imposition of tariffs.
b) quotas on imports.
c) subsidies for export of goods.
d) lower standards of social welfare legislation.
20. Joint ventures are a desirable way to expand overseas because:
a) joint ventures are a risk free method of expansion.
b) only the local partner is liable for tax.
c) joint ventures always involve a local partner with detailed knowledge of the local market.
d) it can help overcome barriers such as access to intermediaries or government rules of the
ownership of firms.
579
 Answers
1-d) 2-a) 3-c) 4-b) 5-d)
6-b) 7-c) 8-c) 9-a) 10-d)
11-c) 12-d) 13-c) 14-c) 15-a)
16-c) 17-b) 18-b) 19-d) 20-d)

580
CASE STUDY - HOW MUCH SHOULD A TRAIN
TICKET COST?
The pricing of train fares in Britain has evolved over the past thirty years in response to changes in the operating
environment of railways. As it has evolved from a centrally planned public service to a competitive private
sector industry, new forms of pricing have emerged.
One constant theme in the development of railway pricing has been the proliferation of fares between any two
points. For a return journey from Leicester to London, no fewer than 23 different fares are currently
charged. A number of market segments have been identified and a distinctive marketing mix has been
developed for each. The business traveller typically has a need for the flexibility of travelling at any time of
the day and because an employer is often picking up the bill, this segment tends to be relatively insensitive
to the price charged. Some segments of the business market demand higher standards of quality and are
prepared to pay a price of £73.00 for an executive package which includes "First Class" accommodation
and additional services such as meals and car parking. Leisure segments are on the whole more price
sensitive and prepared to accept a lower level of flexibility. Those who are able to book their ticket one
week in advance can pay just £18.
A keen eye is kept on the competition in determining prices. Student are more likely than business travellers to
accept the coach as an alternative and therefore the Leicester to London student rail fare of £15.20 is
pitched against the equivalent student coach fare of £11.75, the higher rail fare being justified on the basis
of a superior service offering. For the business traveller, the comparison is with the cost of running a car,
parking in London, and more importantly, the cost of an employed person's time. Against these costs, the
executive fare of £73.00 is probably good value. For the family market, the most serious competition is
presented by the family car, so a family discount railcard allows the family as a unit to travel for the price of
little more than two adults.
The underlying cost of a train journey is difficult to determine as a basis for pricing. Fixed costs have to be paid
by train operating companies to Network Rail for the use of the track and terminals. In addition, trains and
staff represent a fixed cost, although many companies have sought to make these more flexible.
Companies recognise that trains operating in the morning and afternoon peak periods cost more to operate
as fixed costs of vehicles used solely for the peak period cannot be spread over other off‑peak periods.
The underlying costs of running commuter trains has been publicly cited by train operating companies as
the reason for increasing season ticket charges by greater than the rate of inflation during recent years,
although the fact that commuters often have no realistic alternative means of transport may have also been
an important consideration in raising prices.

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The political environment has had an important effect on rail pricing policies. Before the 1960s, railways were
seen as essentially a public service and fares were charged on a seemingly equitable basis which was
related to production costs. Fares were charged strictly on a cost per mile basis, with a distinction between
first and second class, and a system of cheap day returns which existed largely through tradition. From the
1960s, British Rail moved away from social objectives with the introduction of business objectives. With this
came a recognition that pricing must be used to maximise revenue rather than to provide social equality.
However, government intervention occasionally came into conflict with British Rail's business objectives ‑
for example it was instructed to curtail fare increases during the 1980s as part of the government's
anti‑inflation policy and again in the Autumn of 1991 it was instructed to reduce some proposed Inter City
fare increases on account of the poor quality of service on some routes.
The privatisation of British Railways in the mid-1990s led to further developments in pricing. Recognising the
importance of maintaining an integrated passenger network, the government appointed a regulator of rail
services with powers to specify fares charged for a range of types of tickets and to ensure that through
tickets are still available for journeys which involve more than one rail company. However, the newly
privatised companies have exploited opportunities to offer new types of tickets targeted at different
segments of the population. Virgin Railways used the experience of its airline to promote book-ahead
tickets which offered bargain prices to fill off-peak capacity. At the same time, signs of genuine price
competition between rival rail operators began to appear. Segments of the London-Scotland market were
contested by Great North Eastern Railways and Virgin, while Chiltern Railways sought to appeal to the
price sensitivity of travellers from Birmingham to London.
Privatisation had resulted in a huge range of new marketing initiatives, and a seemingly bewildering array of
special ticket prices appeared from each of the 26 rail franchise operators. With titles such as "Virgin Value
7" and "Network Stayaway", the public had become confused by the choices available. As a result, the
Train Operators' Association, which represents the franchise operators, agreed to co-operate in offering
just six "families" of ticket types, based on the validity of the ticket.

CASE STUDY REVIEW QUESTIONS

Should governments intervene to regulate rail fares?
Evaluate the financial benefits to rail operators of offering reduced fares to students.
Are train fares too expensive?

582
 CASE STUDY - INVESTING IN
ADVERTISING
It is widely accepted that a good proportion of advertising expenditure is wasted and techniques are constantly
being developed to ensure that a firm's advertising achieves maximum possible effect. Most effort has
been directed at trying to establish the effect of advertising on sales. However, another important
dimension is understanding the effects of advertising on a company's share price. With advertising
expenditure in the UK reaching over £14 billion by 1998, the search for better evaluation techniques has
never been greater.
Recent research carried out in the USA by James Gregory, CEO and founder of brand strategy company
Corporate Branding, has suggested that advertising not only helps sales, but has a positive impact on
share price too. His analysis indicates that advertising expenditure is the single biggest contributor to brand
image. The research built on earlier research, which studied fifty Fortune 100 companies over a
seven‑year period to establish a link between advertising expenditure and corporate reputation. Gregory's
work, under way since 1997, widened this to a study of 220 companies. It measured different contributing
factors which influenced share price, including a company's size, financial strength, expected cash flow
growth and new product developments. Brand image was defined as having two distinct elements:
familiarity and favourability. Familiarity is a quantitative measure of the number of buyers familiar with the
company. Favourability is the qualitative aspect of its image, based on individuals' perceptions of a
company's reputation, management, and investment potential.
Gregory discovered that corporate brand image directly explained 5 per cent of the variation of company share
price, which he described as ‘hugely significant'. The figure is not large when compared with cash flow,
earnings, and dividends (30 per cent), but it is nearly as important as the 6 per cent explained by financial
strength (stable earnings and amount of debt). Furthermore, the research indicated that brand image has
an indirect influence on 70 per cent of all the other factors which determine the share price. Such indirect
influence was manifested through cash flow, earnings and dividends, share price growth and expected
cash flow growth. The research also examined the factors that contributed towards brand image, and
advertising was shown to contribute 30 per cent of the effect. Company size was also important,
contributing some 23 per cent towards brand image, with other factors such as publicity, management
changes, and products contributing 22 per cent.

583
 CASE STUDY - INVESTING IN
ADVERTISING
Some validation of Gregory's findings can be seen in separate research undertaken by WCRS and Lehman
Bros on behalf of the UK mobile phone operator Orange. The company won the Institute of Practitioners in
Advertising's 1998 Advertising Effectiveness Award for its paper, which analysed the contribution of
advertising to the success of Orange as a FTSE 100 company. An advertising campaign launched in 1994
through television, radio, and newspapers featured the memorable slogan ‘The future is bright, the future is
Orange'. Research suggested that the advertising campaign created an earnings payback in excess of six
times its expenditure and increased Orange's implied share value by £2.49 billion. At the time of launching
the campaign, analysts had accused Orange of not fulfilling its marketing pledge, for example its coverage
was perceived as being much inferior to its main competitors, Vodafone and Cellnet. By the end of 1998,
however, the company's market capitalization had increased to around £10 billion, and while much of this
further rise could undoubtedly be attributed to the strength of demand for mobile phones, it confounded
earlier sceptics who had accused Orange of short‑termism and a preoccupation with advertising over
network development.
Many factors which affect share price are out of a company's hands, but image is within its control. It is therefore
a tool that can be used to manipulate share price performance. It follows that advertising should be seen
as an investment which yields measurable results in terms of a company's market value. Debate about
how a brand should be valued in a company's balance sheet has continued, but many take‑over bids have
been focused on the portfolio of brands which a target company owns.
Adapted from
‘Waking the City up to the Value of Brand Marketing', Marketing , 27 May 1999, p. 19.

CASE STUDY REVIEW QUESTIONS

What difficulties exist in trying to determine the link between a company's advertising expenditure and its share
price performance?
What factors other than advertising might have explained the strong share performance of Orange?
To what extent should advertising expenditure be capitalized and recognized as an asset in a company's
balance sheet?

584
 References
 Services Marketing- Zeithmal & Bitner
 Services Marketing- Lovelock
 Services Marketing- Rajendra Nagandukar
 Services Marketing- Govind Apte

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