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Services Marketing (Textbook)

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Services
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– all economic activities whose output is not a physical product or construction – generally consumed at the time it is produced – provides added value through intangibles
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4 ways services can be directed
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Services directed at people’s bodies (tangible) Services directed at people’s tangible possessions Services directed at people’s minds (intangible) Services directed at intangible assets/possessions
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Tangibility spectrum
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Goods and services are on a spectrum of tangibility (ex. intangible services are dependent on tangible goods)
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5 ways to categorize/define service
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Service industries and companies Services as products Services as experiences Customer service Service dominant logic
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Service dominant logic
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Idea that products are valued for the service that they provide
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5 ways that technology influences services
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Potential for new service offerings New ways to deliver services Enabling both customers (self-service) and employees (CRM) Extending the global reach of services The Internet is a service
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Characteristics that distinguish services compared to goods
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Intangibility Heterogeneity Inseparability Perishability
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Intangibility
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Services cannot be felt/seen/smelled etc.
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Heterogeneity
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No 2 services/customers are alike –> results from human interaction
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Inseparability
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Simultaneous production and consumption Leads to customer impact
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Perishability
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Cannot save, store, resell, or return services
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Services triangle
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Framework of groups that develop, promote, and deliver service promises Top: company Bottom Right: customers Bottom left: employees Right side (company –> customers): External marketing communication Bottom (employees –> customers): interactive/real time marketing Left side (company –> employees): internal marketing communications
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Services marketing mix (8 P’s)
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Elements company uses to communicate with customers Original 4P’s: product, place, price, promotion Expanded mix: people, physical evidence, process
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Servuction system
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breaks service delivery into 2 part process: visible to customer and not visible to customer Top tier (invisible to customer): invisible organization and systems Visible to customer: Bottom tier: inanimate environment, service personnel Both point to customer/other customers
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3 types of properties of consumer products
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Search qualities Experience qualities Credence qualities
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Credence qualities
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Attributes that customer finds hard to evaluate even after purchase and consumption
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Continuum of product evaluation
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Continuum from easiest to hardest to evaluate Goods fall towards left, services fall towards the right Goods on the left high in search qualities Goods in the middle high in experience qualities Goods on the right high in credence qualities
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6 stages of consumer decision making and evaluation
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Need recognition Information search Evaluation of service alternatives Service purchase Consumer experience Post-purchase evaluation
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Which source do consumers of services rely on more, customer opinion sources or promotional services?
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Customer opinion services (personal)
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Is perceived risk higher or lower for services compared to goods?
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Higher
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Are you more or less likely to choose the first option you encounter when choosing a service compared to choosing a good?
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More likely
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Which stage tends to dominate the evaluation process?
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Consumer experience
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Elements/ideas that contribute to consumer experience
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Services as processes Service provision as drama Service roles and scripts Compatibility of service customers Customer co-production Emotions and mood
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Service as theater
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Idea that providing services is like putting on a theater production Both create impression for audience (customers) via management of actors (employees) and setting (service environment)
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Service roles
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Combinations of social cues that guide and direct behavior in a given setting
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Service script
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Logical sequence of events expected by customer
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Customer co-production
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Customer participates in service provision (more than just influencing it)
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Moods vs. emotions
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Moods are transient and occur at specific times/situations whereas emotions are more intense, stable and pervasive
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Attribution of dissatisfaction
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Customers can attribute dissatisfaction to producer, retailer, or themselves
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Is brand loyalty higher for goods or services? Why?
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Higher for services Costly to change brands, awareness of substitutes is limited, higher risk to switch services
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Customer expectations
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Beliefs about service delivery that serve as standards or reference points against which performance as judged
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Spectrum of customer expectations of service
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Top: Desired service Bottom: adequate service In between: zone of tolerance
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Desired service
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Highest level of service that customer hopes to receive –> wished for level of service performance
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Adequate service
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Bare minimum level of service customer is willing to accept –> minimum tolerable exception Threshold of acceptable service
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Zone of tolerance
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Extent to which customers recognize and are willing to accept the variation between adequate service and desired service Range in which customers do not particularly notice service performance
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Which is more stable, adequate service or desired service level?
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Desired service level
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For more important service dimensions/factors, how does that affect the spectrum of customer expectations?
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Zone of tolerance becomes smaller Both levels (adequate and desired) shift up (higher expectations)
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2 sources of desired service expectations
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Personal needs Lasting service intensifiers
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Lasting service intensifiers
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Individual stable factors leading the customer to a heightened sensitivity to service 2 types: derived service expectations, personal service philosophy
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5 sources of adequate service expectations
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Temporary service intensifiers Perceived service alternatives Self-perceived service role Situational factors Predicted service
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4 sources of both desired and predicted service expectations
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Explicit service promises Implicit service promises Word of mouth Past experiences
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What does a service marketer do if expectations are unrealistic?
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Marketers scared to ask customers about expectations because they are afraid they are unrealistic/will raise them Most people just expect performance, won’t really have unrealistic expectations Most important thing is to act based on feedback –> don’t like empty promises
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Should a company try to delight a customer? (textbook) 2 factors to consider
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Service delight: profound positive emotional state resulting from exceeding customer expectations 3 types of service features: musts, satisfiers, delights Consider benefits and costs –> staying power, competitive implications
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Do customer service expectations continually escalate?
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Adequate service expectations are very dynamic –> vary with delivery or promises rise Expectations rise quickly in highly competitive industries Desired service expectations don’t change
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5 service quality dimensions
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Reliability Responsiveness Assurance Empathy Tangibles
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Service quality
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Determined by service quality dimensions
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5 factors that affect customer satisfaction
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Service quality Product quality Price Situational factors Personal factors
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Customer satisfaction
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Customer evaluation of a product or service and if it has met their needs and expectations
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Reliability
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Ability to perform promised service dependably and accurately –> delivering on promises
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Responsiveness
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Willingness to help customers and provide prompt service –> flexibility and ability to meet customer needs
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Assurance
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Employee knowledge and courtesy and ability to inspire trust and confidence –> attentiveness and promptness
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Empathy
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Individualized attention given to customers, customers want to feel important to and understood by the firms –> personalized and customized service
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Tangibles
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Appearance of physical facilities, equipment, personnel, and written materials –> signal quality and continuity
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Nordic model of service quality
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Separates quality into technical quality and functional quality Consider service product, service delivery, and service environment
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4 core dimensions used to judge websites w/ no questions or problems
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Efficiency Fulfillment Reliability Privacy
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3 dimensions used to judge service recovery online
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Responsiveness Compensation Contact
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Service encounters (cascade)
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Touchpoints, moments of interaction with the firm Cascade is linking them together All contribute to perception of service quality
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Types of service encounters
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Remote encounters Telephone encounters Face to face encounters
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Evidence of service (3 types)
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People Process Physical Evidence
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Customer gap
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Gap between customer expectations and customer perceptions
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Gap 1
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Not knowing what customers expect Gap between company perceptions of customer expectations and customer expectations
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Key factors causing Gap 1
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Inadequate marketing research orientation Inadequate use of marketing research Insufficient relationship focus
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Gap 2
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Not selecting the right service quality designs and standards Gap between company perceptions of customer expectations and customer-driven service designs and standards
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Key factors causing Gap 2
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Poor service design Absence of customer-driven standards Inappropriate physical evidence and servicescape
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Gap 3
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Not delivering to service design and standards Gap between Customer-driven service design and standards and service delivery
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Key factors causing Gap 3
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Deficiencies in HR policies Customers who do not fulfill roles Problems with service intermediaries Failure to match supply and demand Inadequate service recovery
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Gap 4
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Not matching performance to promises Gap between service delivery and external communications to customers
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Key factors causing Gap 4
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Lack of integrated marketing communications Ineffective management of customer expectations Over promising Inadequate horizontal communications
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Draw the gaps model.
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See book pg. 103
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Types of marketing research (list at least 5)
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Complaint solicitation Critical incident studies Researching customer needs Relationship and SERVQUAL surveys Exit surveys/post-transaction surveys Service expectation meetings and reviews Process checkpoint evaluations Market-oriented ethnography Monitoring user generated content Netnography Mystery shopping Customer panels Lost customer research Future expectations research Database marketing research
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SERVQUAL survey
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Survey involving 21 survey attributes, grouped into 5 service quality dimensions Give 2 ratings: one reflecting expectation and one reflecting perception Used to calculate gap scores and evaluate performance
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Disconfirmation paradigm
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Criticism of the SERVQUAL method 3 components: – done post-experience, expectations have been influenced by the actual experience – Doesn’t make sense to do it before experience either because factors used to evaluate expectations may change (customers don’t know what they want) – Customer’s view of experience is influenced by expectations –> expectations are measured twice
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3 ways to analyze market research findings
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Graph expectation and perception scores Zone of tolerance charts Importance/performance matrices
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Relationship marketing
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strategic way of doing business that focuses on keeping and improving relationships with current customers rather than on acquiring new ones
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Bucket theory
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Sales/marketing pour customers into the top, holes in the bucket are lost customers, decreased sales –> if you don’t plug the holes, bucket will never be full
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Evolution of customer relationships
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Customers as strangers –> acquaintances –> friends –> partners Attractiveness –> satisfaction –> satisfaction and trust –> satisfaction and trust and commitment
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Customers as strangers
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Customers who are not in the market/have not yet encountered the product Could also be customers of competitors Focus on attracting the customer and acquiring their business
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Customers as acquaintances
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Customers who are familiar, have used or tried the product but not necessarily loyal to it Focus on meeting customer’s expectations and satisfying customer needs
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Customers as friends
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Repeated customer, starts to receive value in the exchange relationship Firm learns more about their needs and can create products that meet them New key element is trust Focus on retaining customer’s business
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Customers as partners
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Level of trust deepens, receive highly customized product offerings and interactions New key element is commitment, idea of reciprocity Focus on enhancing relationship, use information about customers more effectively than competitors
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3 types of customer expectations for relationships
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Transactional expectations Active relational expectations Passive relational expectations
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Benefits of relationship marketing for customers
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Confidence benefits Social benefits Special treatment benefits
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Benefits of relationship marketing for firms
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Economic benefits Customer behavior benefits HR Management benefits
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Customer lifetime value (CLV)
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Average revenues generated per relevant period over customer lifetmie Accounts for sales, sales of added products, referrals, and costs
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What should you do if CLV is negative?
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Spend more $$ to make it positive Change target segment Shift to an offensive strategy
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Customer pyramid
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Pyramid of customer profitability tiers Lead tier Iron tier Gold tier Platinum tier Least profitable customers on bottom to most profitable customers on top Top — less cost to maintain, more profit also via higher spending
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80/20 rule
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20% of customers produce 80% of the profits (platinum tier)
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Platinum tier
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Most profitable customers, heavy users of the product, not overly price sensitive, willing to invest and try new product offerings, committed customers
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Gold tier
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Heavy users but may minimize risk by switching vendors More focused on value/discounts Not as loyal
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Iron tier
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Customers who provide volume necessarily to utilize the firm’s capacity but not very loyal, profitability/usage levels don’t merit special treatment
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Lead tier
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Customers who are actually costing the company Demand more attention via trying to increase their spending or mediate problems they cause for other customers Least profitable However, could argue that they actually drive the market
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Draw the relationship development model.
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See pg. 152.
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3 Relationship Drivers
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Relationship bonds Core service provision Switching barriers
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Outcomes of strong customer relationship
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Customer benefits Firm benefits
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4 types of relationship bonds
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Financial bonds Social bonds Customization bonds Structural bonds
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2 types of switching barriers
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Customer inertia Switching costs
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What is core service provision derived from?
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Satisfaction Perceived service quality Perceived value
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Challenges of relationship marketing
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Customer is not always right Serving the wrong segment Not profitable in the long term due to non-profitable customers Difficult customers Some customers do not want relationships
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3 findings on customer profitability
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Improvement in customer satisfaction has a significant and positive impact on financial performance Link between satisfaction and firm performance is asymmetric –> negative satisfaction more adversely impacts performance compared to similar changes in positive satisfaction Strength of this link varies across industries and firms
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Offensive marketing
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Attracting new/more/better customers Higher service drives higher profits via increased market share, positive reputation, and price premiums (all via increased sales)
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Defensive marketing
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Focusing on customer retention Shown that longer customer retention leads to higher profits Cheaper to retain customers than obtain new ones Higher service drives higher customer retention and profits via lower costs, increased volume of purchases, price premiums, and strengthened WOM (all via higher margins)
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Service quality/customer intention relationship
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Higher service drives behavioral intentions, which drives both sales and positive behavior, such as praising the firm, remaining loyal
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Customer equity
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Total of discounted lifetime values summed up over all the firm’s customers (summing up CLV’s)
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3 drivers of customer equity
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Value equity Brand equity Relationship equity
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Return on marketing
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Examine impact of service on financial return but also other aspects of marketing (compare strategies for marketing based on financial return)
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Balanced scorecards (4 perspectives)
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Strategic measurement systems that evaluate firm performance on measures beyond just financial performance 4 perspectives: financial measures, operation perspective, innovation + learning perspective, customer perspective
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3 forms of service standardization
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Substitution of technology for personal contact and human effort Improvement in work methods Combination of both
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Service standards
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Measurements of service –> ex. length of time a transaction takes, accuracy with which operations are performed
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Customer-defined standardization (standards)
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Operational goals measured on pivotal customer requirements that are visible to/measured by customers from their viewpoint as opposed to company concerns such as productivity or efficiency Does NOT mean uniformity of actions
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Goal-setting
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Set specific targets for actions and behaviors Setting service standards = formalization of goal-setting
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Hard customer-defined service standards
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Customer priorities that can be counted, timed, or observed through audits Ensure reliability and responsiveness
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Soft customer-defined standards
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Customer priorities that provide direction, guidance, and feedback to employees in ways to achieve customer satisfaction Measure customer perceptions and beliefs as opposed to timings or audits
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One-time fixes
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Technology, policy, procedure changes that address customer requirements on a large scale –> can be implemented at outlets as a one time change that does not affect employees or require training/motivation
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2 ways to measure behavior and actions
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Hard measurements (counts, timed actions, audits, don’t require customer opinion) Soft measurements (document customer opinion, SERVQUAL, etc.)
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Process for setting customer-defined standards
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1. Identify existing or desired service encounter sequence. 2. Translate customer expectations into behaviors and actions. 3. Select behaviors/actions for standards. 4. Set hard or soft standards. 5. Develop feedback mechanisms (hard or soft). 6. Establish measures and target levels. 7. Track measures against standards. 8. Provide feedback about performance to employees. 9. Update target levels and measures.
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How do you select behaviors and actions for standards?
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Need to be important to customers Focus on performance that needs to be improved/maintained Possible and accepted by employees Predictive rather than reactive Challenging but realistic
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Servicescape
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Physical environment in which service is performed Encompasses facility exterior, facility interior, and other tangibles
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3 types of servicescape usage
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Self-service –> focus on marketing goals Remote service –> focus on productivity, operational efficiency Interpersonal service –> attract, satisfy and facilitate needs of both
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4 roles of servicescape
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Package Facilitator Socialiser Differentiator
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Package (servicescape role)
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Environment wraps the service, conveys an external image of what is inside/what type of service is being received
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Facilitator (servicescape role)
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Aids the performance of persons in the environment, affects flow of activity
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Socializer (servicescape role)
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Design of servicescape aids socialization of employees and customers and conveys expected roles
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Differentiator (servicescape role)
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Differentiates a firm from competitors, signals market segment that the service is intended for
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Stimulus-organism-response theory
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Underlying framework of servicescape Servicescape –> affects customers and employees –> respond accordingly and also interact
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2 forms of behavior in the servicescape:
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approach and avoidance
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Internal responses to the servicescape
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Affects cognition, emotion (pleasure/displeasure, degree of excitement), and physiology
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Environmental dimensions of the servicescape
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Ambient conditions Spatial layout and functionality Signs, symbols, and artefacts
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Service profit chain
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Focused on employee satisfaction and employee retention Internal service quality –> Employee satisfaction –> employee retention and productivity –> external service value All of which lead to revenue growth Feeds into customer satisfaction –> customer loyalty –> revenue growth and profitability Employee satisfaction and customer satisfaction are highly interdependent
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Boundary spanners
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Employees operating at the front line and interacting with customers
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Emotional labor
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goes beyond physical or mental labor, crucial to delivering quality service Aligning of displayed emotions with organizationally desired emotions (smiling, eye content, sincerity, etc.)
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Strategies to manage emotional labor
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Screen for emotional labor activities/tendencies Teach emotional management skills and appropriate behavior Fashion the physical work environment Allow employees to air their views Put management on the front line Give employees a break Hand off demanding customers to managers
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3 Sources of conflict for front-line employees
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Person/role conflict Organization/client conflict Inter-client conflict
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Internal marketing
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Strategies used to ensure that employees are willing and able to deliver quality, customer-minded service
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4 ways to build customer-oriented workforce
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Hire the right people Develop people to deliver service quality Provide needed support systems Retain the best people
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Inverted services marketing triangle
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Puts Employees and customers at the top (most important) and customers at the bottom
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Spectrum of customer participation in service delivery
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Low, moderate, high
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Low customer participation in service delivery
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Customer presence is required during service delivery
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Moderate customer participation in service delivery
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Customer inputs required for service creation
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High customer participation in service delivery
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Customer co-creates the service
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3 Customer roles in service delivery
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Customers as productive resources (self-ticketing) Customers as contributors to satisfaction (ask questions, complain, etc.) Customers as competitors (could do something themselves)
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Internal exchange vs. external exchange
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Internal exchange: do service yourself External exchange: have someone do it (service provider)
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3 strategies for enhancing customer participation
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Define customers’ jobs (help oneself, help others, WOM) Recruit, educate, and reward customers Manage the customer mix
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Benefits of electronic distribution
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Consistent delivery Low cost Customer convenience Wide distribution Customer choice and ability to customize Quick customer feedback
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Challenges of electronic distribution
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Price competition Inability to customize Changes in consumer behavior Security concerns Increased competition from widening geographies
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Service principal vs. service deliverer
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Principal: originator Deliverer: intermediary
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Functions of service intermediaries
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Coproduce the service Make services locally available –> convenience Function as glue by building trust relationship
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Types of intermediaries
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Franchisees Agents and brokers
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Benefits of company owned channels
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Control Consistency Ownership of customer relationship
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Drawbacks of company owned channels
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Bearing of financial risk Lack of local knowledge
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Franchising (benefits and drawbacks)
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Franchisor develops and licenses service format that is then delivered by other parties Benefits: consistency, increased knowledge of local markets, greater expansion potential, shared financial risk Drawbacks: difficulty in maintenance, publicized disputes, inconsistent quality, upward communication
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Agent
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Intermediary who acts on behalf of service provider or customer and is authorized to make agreements between principal and customer
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Broker
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Brings buyers and sellers together while assisting in negotiation Paid by the party who hired them
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Common problems with intermediaries
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Channel conflict over objectives and performance Difficulty controlling quality and consistency across outlets Tension between empowerment and control Channel ambiguity
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Channel conflict vs. channel ambiguity
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Conflict: do not agree over how channel should operate Ambiguity: unclear roles and responsibilities leading to confusion
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3 strategies to manage intermediaries
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Control strategies Empowerment strategies Partnership strategies
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Reference price
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Price stored in memory of good or a service –> price last paid, average price paid, price most frequently paid
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3 key differences between pricing of services and pricing of goods
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Customers have inaccurate/limited reference pricing for services Price is a key signal of quality in services Non-monetary costs
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Why do customers lack accurate reference prices for services?
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Service variability limits knowledge Providers are unwilling to estimate prices Individual customer needs may vary Collection of price info is overwhelming Prices are not visible
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Types of non-monetary costs
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Time costs Search costs Convenience costs Psychological costs
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3 approaches to pricing services
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Competition-based Cost-based Demand-based
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Cost-based pricing
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Price = direct costs + overhead costs + profit margin Ex. cost-plus pricing or fee for service
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Competition-based pricing
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Charging the same prices charged by other firms in the same industry or market (using other prices as an anchor) Used when services are standardized Ex. price signalling or going-rate pricing
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Demand-based pricing
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Based on customer perceptions of value Setting prices based on what the customer is willing to pay
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4 customer perceptions of value
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Value is low price Value is everything I want in a service Value is all that I get for all that I give Value is the quality I get for the price that I pay
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Pricing strategies for value is low price
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Discounting Odd pricing Synchro pricing (place, time, quantity, differentials) Dynamic pricing Penetration pricing
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What is the opposite of penetration pricing?
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Price skimming
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Pricing strategies for value is everything I want in a service
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Prestige pricing Price skiming
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Pricing strategies for “value is the quality that I get for the price that I pay”
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Value pricing Marget segmentation pricing
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Pricing strategies for “value is all that I get for all that I give”
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Price framing Price bundling Complementary pricing Results-based pricing
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Types of complementary pricing
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Loss leadership Two-part pricing Captive pricing
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Service recovery
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Response to service failure
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Service recovery paradox
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Failure occurs, customers are initially dissatisfied, but experience a high level of excellent service recovery, lead them to be even more satisfied and more likely to repurchase than if no problem had occurred at all
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4 Types of complainers
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Passives, voicers, irates, and activists
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Passives
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Least likely to take action Doubt the effectiveness of complaining Negative view of complaining
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Voicers
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Complain to the service providers but less likely to go to third parties, spread negative WOM, or switch providers Company’s best friend Complaining has social benefits and see complaining as positive
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Irates
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Engage in negative WOM and switch providers May complain to provider Unlikely to complain to third parties Don’t really believe in complaining but just mad and will switch Negative view of complaining
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Activists
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Will complain to everyone, will go to third parties Alienated from marketplace Positive view of complaining
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3 types of fairness in service recovery
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Outcome fairness Procedural fairness Interactional fairness
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8 Service recovery strategies
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Make the service fail-safe: do it right the first time Encourage and track complaints Act quickly Provide adequate explanations Treat customers fairly Cultivate relationships with customers Learn from lost customers Learn from recovery experiences Act before being forced to do so through legislation
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Service guarantees
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Pledge or assurance that product offered by firm will be performed as promised
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Why are service guarantees good?
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Forces customer focus Sets clear standards Alleviates customer risk perception
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4 Types of service guarantees
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Satisfaction guarantees service attribute guarantees External guarantees Internal guarantees
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4 Characteristics of effective guarantees
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Unconditional Meaningful Easy to understand Easy to invoke
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5 properties of intangibility
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Incorporeal existence Generality Abstractness Non-searchability Impalpability
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Incorporeal existence
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Service does not occupy space, showing service is difficult
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Generality
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Many service and service promises are described in generalities –> makes differentiation difficult
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Abstractness
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Do not correlate directly with objects
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Non-searchability
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Service is performance, can’t be previewed or tried in advance
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Mental impalpability
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Services are difficult to interpret – complex, difficult to grasp
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5 approaches to match service promises with delivery
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Address service intangibility Manage service promises Manage customer expectations Manage customer education Manage internal marketing communication