External Services Marketing

Question 1

External Marketing Elements (4)

Answer 1

1. Product: Core service and supplementary services
2. Place: Distributing Services
3. Pricing: Service Pricing
4. Promotion: Service Marketing Communication

Question 2

Explain The Service Product:

Answer 2

● A service product comprises all elements of service performance, both tangible and intangible, that create value for customers

● The core service represents the core benefit

• > A service provider cannot survive without a well-defined core service
• > The core service not only determines customers’ experiences with a service, but also their perception without experiencing it

● Supplementary (or secondary) service represent both the
tangible and augmented product levels

Question 3

Explain the Core Service and supplementary services

Answer 3

● the core service becomes a commodity as competition increases
-> While the core service (transportation) differs little, other marketing instruments (e.g. price, supplementary services) drive customers’ purchasing decision

● Supplementary services help to differentiate core products and create competitive advantage by:

• > Facilitating use of core product (a service or a good)
• > Enhancing the value and appeal of the core product

Supplementary services’ roles:

• Facilitating supplementary services are either required for service delivery or aid in use of the core product i.e., Information, payments, billing, order taking
• Enhancing supplementary services add extra value for customers i.e., Exceptions, safekeeping, hospitality, consultation

Question 4

Managerial Implications of Core Service and supplementary services

Answer 4

● To develop product policy and pricing strategy, managers need to determine:

• > Which supplementary services should be offered as a standard package accompanying the core
• > Which supplementary elements could be offered as options for an extra charge

● In general, firms that compete on a low-cost needs fewer supplementary elements than those marketing expensive

Question 5

Explain Place: Distributing Services

Answer 5

1. Goods vs. Services Distribution Channels:
   Consumer goods:
   producer -> agent/broker -> wholesaler -> retailer -> consumer
   Services:
   service provider –> consumer or business user
   service provider –> Agent/broker –> consumer or business user
2. Direct vs. Indirect Distribution Channels:
   Direct: Hotel website &
   Indirect: Travel agency
3. Options for Service Delivery:
   - Customer goes to organization (e.g, Theater)
   - Service organization come to customer (e.g, mail delivery)
   - Customer and service organization transact remotely (e.g., credit card company)

3.1 Channel Preferences Vary among Customers
● For complex and high-perceived risk services, people tend to rely on personal channels
● Convenience is a key driver of channel choice

3.2 Re-intermediation
● Intermediaries survive (disintermediation) by adding value
● If changes in marketplace renders an intermediary’s role less valuable, then the intermediary must adapt
● If not, the old intermediary will often be replaced by a new, more valuable intermediary
● With the Internet, new types of channel intermediaries have emerged displacing traditional ones

Question 6

Explain Pricing: Service Pricing

Answer 6

1. Challenges in Service pricing:
   ● Providers: Services are produced on demand rather than in advance, providers are unwilling to estimate prices, Price is sometimes not known until after the service has been produced (e.g.,clean carpet company)
   ● Self-services: (e.g., vacuum at home)
2. Three Main Approaches to Pricing:
   ● Cost-based: focuses on price floor: minimum price that covers costs of producing the service (problem: defining costs).
   ● Value to customer-based: relates price to value perceived by customer, focuses on price ceiling: maximum price customers are willing to pay.
   ● Competition-based: establishes price in relation to competition, depending on how the organization wants to be perceived, prices are set above, below or equal to competition,
3. Perceived Costs of a Service: search costs, after costs
4. Service Pricing Issues: How much to charge?, What basis for pricing?, Who should collect payment?, Where and when should payment be made?
5. What basis for pricing?: Completing a task, Admission to a service performance, Time-based, Monetary value of service delivered (e.g., commission), Distance-based (e.g., transportation)

Question 7

Explain Promotion: Service Marketing Communication

Answer 7

1. Developing a Services Marketing Communication Strategy: –> 5 W’s - model Who is our target audience?, What do we need to communicate and achieve? Why/How should we communicate this? Where should we communicate this? When do communications need to take place?
2. Challenges for Services Marketing Communication:
   a. Services are often abstract:challenging to connect service to
   abstract concept (e.g. financial security)
   b. Services comprise a class of objects: How do you advertise a single airline seat?, Need to create distinctive value proposition
   c. Services are non-searchable: Services cannot be inspected before purchase
   d. Services can be complex: customers trouble to find benefits of complex new offerings (e.g. financial services)
   -> Using metaphors : DHL Knot
3. Demonstrate the service experience: Prepare customers for service experience and demonstrate roles, Teach customers about new technologies, new features (e.g. TSA airport demostration on what & how to pack carry on)
4. Feature customer satisfaction results: Provide tangible or statistical clues to service performance, Highlight quality of facilities, Emphasize employee qualifications, experience, professionalism, customer satisfaction.
5. Goal:
   Simulate or dampen demand to match capacity: Provide information about timing of peak, off-peak periods, Offer promotions to stimulate off-peak demand, When demand increases, number of promotions can be reduced (e.g., happy hours)

Question 8

Illustrate perceived costs of a service