Year: 2020

University of Mumbai BMS Notes

Service Quality – GAP Model

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The SERVQUAL Model is an empiric model by Zeithaml, Parasuraman and Berry to compare service quality performance with customer service quality needs. It is used to do a gap analysis of an organization’s service quality performance against the service quality needs of its customers. That’s why it’s also called the GAP model.

It takes into account the perceptions of customers of the relative importance of service attributes. This allows an organization to prioritize.

There are  five core components of service quality:

  • Tangibles: Physical facilities, equipment, staff appearance, etc.
  • Reliability: Ability to perform service dependably and accurately.
  • Responsiveness: Willingness to help and respond to customer need.
  • Assurance: Ability of staff to inspire confidence and trust.
  • Empathy: The extent to which caring individualized service is given.

The four themes that were identified by the SERVQUAL developers were numbered and labelled as:

  1. Consumer expectation – Management perception gap (Gap 1)

Management may have inaccurate perceptions of what consumers (actually) expect. The reason for this gap is lack of proper market/customer focus. The presence of a marketing department does not automatically guarantee market focus. It requires the appropriate management processes, market analysis tools and attitude.

  1. Service Quality Specification gap (Gap 2)

There may be an inability on the part of the management to translate customer expectations into service quality specifications. This gap relates to aspects of service design.

  1. Service delivery gap (Gap 3)

Guidelines for service delivery do not guarantee high-quality service delivery or performance. There are several reasons for this. These include: lack of sufficient support for the frontline staff, process problems, or frontline/contact staff performance variability.

  1. External communication gap (Gap 4)

Consumer expectations are fashioned by the external communications of an organization. A realistic expectation will normally promote a more positive perception of service quality. A service organization must ensure that its marketing and promotion material accurately describes the service offering and the way it is delivered

  1. These four gaps cause a fifth gap (Gap 5)

which is the difference between customer expectations and perceptions of the service actually received Perceived quality of service depends on the size and direction of Gap 5, which in turn depends on the nature of the gaps associated with marketing, design and delivery of services. So,Gap 5 is the product of gaps 1, 2, 3 and 4. If these four gaps, all of which are located below the line that separates the customer from the company, are closed then gap 5 will close.

Management Notes

Improving Service Quality and Productivity

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Improving Service Quality

  1. Customer satisfaction and customer focus

Many of the historic sources of company superiority-technology, innovation, economies of scale-allowed companies to focus their efforts internally and prosper. Today, internal focus in many companies is shifting to an external focus on the customer. Companies are acknowledging that unless customer needs are taken into account in designing and delivering both services and goods, all the technical superiority in the world will not bring success.

When customers become scarce in an industry and competition heats up, however, the customer gains power. In the 1990s, when competition for master of business administration students intensified and Business today conducted “customer surveys” of students to rank the best business schools in India, the business school “customer” assumed a more central position in these organizations.

What students wanted in courses and experiences began to drive curricula, content, and peripherals associated with business degrees. Business Schools overhauled their MBA programs to make them more relevant to the students and the business environment.

Many B-schools revamped the course content of their programmes, recognized their key constituents (students, faculty, administrators, alumni, and corporate recruiters), and acknowledged that they needed research to understand their customer’s expectations.

  1. Value

Another key competitive factor defining the way services are bought and sold is value. In the words of the business observer, the marketing of value has “gone from a ground swell to a tidal wave.” Value reflects the growing customer concern of getting more for money, time, and effort invested.

Experts can point to many reasons why value is critical to today’s consumers: economic problems, loss of jobs due to company restructuring, and a return to the real and practical. While the 1980s could easily have been termed the decade of extravagance, the customer priority of the 1990s is turning out to be value. To thrive, companies must understand the demographic and psychographic change that reflects this new perspective.

  1. Total Quality Management and Service Quality

Many experts considered the 1980s the decade of manufacturing quality because efforts to improve quality-to make products that conformed to requirements-were initiated in some form in many companies during that time.

Total quality management (TQM) is the term widely used to capture the movement, although this concept is used in a myriad of ways. In a general sense, TQM has most often been defined as a management philosophy or way of doing business based on continuous quality improvement.

TQM has subsumed a diverse group of quality techniques and strategies, among them statistical process control, process management, employee participation, management commitment and leadership, empowerment, and team building.

  1. Emphasis on Service as a Key Differentiator in Manufacturing Firms

Competitive parity has been reached in many manufactured goods (such as personal computers, video cassette recorders, and other electronic products, to name just a few) meaning that product quality alone no longer differentiates one producer from another.

Low price as a differentiating strategy is also disappearing, especially as companies face the reality that they and their competitors accomplish little more in price wars than to eliminate their own margins. One of the few remaining strategies that can set one goods company apart from others is customer service, broadly defined as developing strong relationships with customers. Goods firm in industries such as automobiles; computers and most industrial firms are heavily focusing on service.

  1. New Measurement Systems that Link Customer Satisfaction with Financial Goals and Operational Measurements

Before the early 1990s, few companies had measurement systems that viewed the customers as a focus. While most companies were drowning in measurement, emphasis was typically on short- term financial performance, productivity, and efficiency-not on long-term customer satisfaction and value. Focusing on customers’ priorities led the company to many changes, one of the most important being a company-wide measurement effort emphasizing customer satisfaction.

When committing resources to improve service quality, company executives, want to be sure that these investments will pay off. To document the payoff, many organizations have put in place measures that capture both the costs and gains of service quality.

  1. Internationalization of Services

At one time-and indeed, not so long ago-the potential for services to be provided on a global basis was limited by the belief that services cannot be transported. That time is now past, for the internationalization of services has become a reality. Probably the most dramatic examples of global service markets are in the airline and financial services industries.

Improving Productivity

Improved productivity must, therefore, take into account effectiveness as well as efficiency.

Productivity improvements in the service sector are possible and a number of ways of improving service productivity are suggested.

  1. Improving Staff

One way is through improving the knowledge, skills, attitudes and behaviour of existing and new staff involved in service delivery and performance through better systems of recruitment, training, development and motivation.

Thus staff in contact with customers handling the visible elements of the service can be trained in handling queries and complaints, in product knowledge, in the operations of internal systems. Productivity bargaining schemes with considered measures of output and formu­lae for sharing gains can be operated to provide incentives for improved productivity. In other words staff can be encouraged to work harder and more skillfully.

  1. Introducing Systems and Technology

Service organizations can reap productivity improvements if they become more systems and technology oriented. The systems approach looks at the task as a whole. It attempts to identify key operations to be undertaken, examines alternative ways of performing them, devises alternative meth­ods, removes wasteful practices and improves co-ordination within the system as a whole.

Alterna­tive layouts, better job design and consideration of overall costs of the system are important features of the systems approach. For example productivity improvements in grocery retailing have been made possible by a systems approach to physical handling of goods, layout, job design and merchan­dising.

The systems approach to service can be applied in three ways: through hard technology, soft technology and hybrid technology.

(a) Hard technology means substituting machinery and tools for people (e.g. automatic car washes, airport x-ray surveillance equipment, automatic car parking, automatic vending equipment, audio visual equipment, and computers.)

(b) Soft technology means substituting pre-planned systems for individual service operations. The systems may involve some technology, but their basic characteristic is the system itself which is designed for optimal results (e.g. fast food outlets, pre-packaged tours).

(c) Hybrid technology is where equipment is combined with planned systems to give greater order, speed and efficiency to the service process (e.g. limited service, fast repair facilities for car exhausts, tyres and brakes).

The approach to service activities can have important effects upon productivity. The systems approach, like the marketing approach, is as much about attitude and outlook as it is about tools, techniques and hardware or engineering. But the combination of division of labour with industrial­ization of service can produce new solutions to old problems.

The effects of this kind of thinking when applied to services are reflected in features like:

(a) Greater standardization of performance and the mass production and greater impersonalization of services (e.g. telecommunications, group travel schemes);

(b) The appraisal of jobs. Attention is focused on how improvements can be made in the ways of doing the present job, what new methods can be employed to do jobs differently, and how the jobs and tasks themselves can be changed.

(c) Reconsideration of the scale of operations. Economies of operation through chain operation or franchising may be sought;

(d) Specialization of effort of markets to make labour more productive.

  1. Reducing Service Levels

Productivity can also be improved by reducing the quantity of service and/or the quality of service (e.g. doctors could give less time to each patient). There are dangers in these approaches particularly where a service organization has promised to deliver a higher level of service in the past. Also competitors can differentiate their services by broadening and upgrading their service quantity and quality.

  1. Substituting Products for Services

Productivity can be improved by providing a product substitute for the service (e.g. new data transfer technology has removed the need for the telegram service).

  1. Introducing New Services

It is possible to design a more effective service that eliminates or reduces the need for the less effective service. For example, transatlantic travel by air has largely replaced transatlantic travel by sea; the credit card has replaced the former system for obtaining overdrafts.

  1. Customer interaction

It is possible to change the way in which customers interact with service providers. This is particularly possible with ‘high contact’ services. Using the consumer more in the production pro­cess demands greater understanding of consumer behaviour and its underlying causes. Ways have to be found to hardness consumers or to change the behaviour through education and persuasion for the benefit of service delivery.

Consumers are involved in service delivery anyway, whether actively or passively. To improve the useful, active role of the customer in service delivery may mean new managerial approaches, changed organizations or organizational structures, the employment of para professionals and perhaps a changed role for the professional service manager.

He may become more of a catalyst, stimulator, orchestrator or manager directing energies toward the maximum in­volvement of the consumer, student, client, parent or whatever. In other words more consumer- intensive designs have to be developed to maximize the contribution of the customer to service performance and delivery.

  1. Reduce the Mismatch between Supply and Demand

A significant feature of many service organizations is the mismatch that often exists between supply of the service and demand for it. A major goal in marketing services is to get greater control over supply and demand and to obtain a better balance between the two. If more people want to use an airplane than there are seats available then business may be lost to competitors; unsold seats for a theatrical performance mean revenue lost forever.

Service marketer may therefore face problems of:

  • Increasing demand (e.g. using up spare capacity)
  • Decreasing demand (e.g. where demand is excessive)

Obtaining a better balanced service supply (e.g. to meet fluctuating demand patterns). Kotler has used the term ‘demarketing’ to describe the strategy which an organization may actively adopt to discourage additional customers on a temporary or a permanent basis. He uses the terms ‘syncromarketing’ to describe the strategy which an organization may actively adopt to bring supply and demand into better balance.

University of Mumbai BMS Notes

Branding of Services: Problem and Solution

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The basics of branding products and services are similar. Branding your service-based small business, though, poses challenges greater than those faced by product-driven companies. Services are intangible and each customer experience is unique. Even a small number of bad customer experiences can severely damage your brand and service reputation. This is especially true for smaller businesses in smaller communities where word of mouth spreads more easily.

Branding Basics

Branding means using marketing and communication tools to create a perception of value in the minds of your target customers. Your company’s name, logo and symbols typically serve as the centerpieces of branding efforts. Your goal is to create an image that resonates with customers when they see your company’s identifying marks. Differentiating your brand as top quality, most innovative, best value, most wholesome or lowest cost are common objectives of branding.

Problem and Solution of Branding of Services

  1. Treating brands as assets

The ongoing pressure to deliver short-term financial results coupled with the fragmentation of media will tempt organizations to focus on tactics and measurables and neglect the objective of building assets.

  1. Possessing a compelling vision

A brand vision needs to differentiate itself, resonate with customers and inspire employees. It needs to be feasible to implement, work over time in a dynamic marketplace and drive brand-building programs. Visions that work are usually multidimensional and adaptable to different contexts. They employ concepts such as brand personality, organizational values, a higher purpose and in general they simply move beyond functional benefits.

  1. Creating new subcategories

The only way to grow, with rare exceptions, is to develop “must have” innovations that define new subcategories and build barriers to inhibit competitors from gaining relevance. That requires substantial or transformational innovation and a new ability to manage the perceptions of a subcategory so that it wins.

  1. Generating breakthrough brand building

Exceptional ideas and executions that break out of the clutter are necessary in order to bring the brand vision to life. These ideas and the execution of them are more critical than the size of your budget. “Good” is just not good enough. That means making sure you get more ideas from more sources, and that you make sure you have the mechanisms in place to recognize brilliance and bring those ideas to market – quickly.

  1. Achieving integrated marketing communication (IMC)

IMC is more elusive and difficult than ever in light of the various methods you have to choose from such as advertising, sponsorships, digital, mobile, social media and more. These methods tend to compete with each other rather than reinforce because the media scene and options have become so complex, so dynamic, and because product and country silos reflect competition and isolation rather than cooperation and communication.

  1. Building a digital strategy

This arena is complex, dynamic and in need of a different mindset. The reality is, the audience is in control here. New capabilities, creative initiatives and new ways to work with other marketing modalities are required. Adjust the digital marketing focus from the offering and the brand to the customer’s sweet spot, which is to say the activities and opinions in which they are interested or even passionate about. Develop programs around that sweet spot in which the brand is an active partner, such as Pampers did with Pampers Village or what Avon did with their Walk for Breast Cancer.

  1. Building your brand internally

It is hard to achieve successful integrated marketing communications or breakthrough marketing without employees both knowing the vision and caring about it. The brand vision that lacks a higher purpose will find the inspiration challenge almost impossible.

  1. Maintaining brand relevance

Brands face three relevance threats: Fewer customers buying what the brand is offering, emerging reasons not-to-buy, and loss of energy. Detecting and responding to each requires an in-depth knowledge of the market, plus a willingness to invest and change.

  1. Creating a brand-portfolio strategy that yields synergy and clarity

Brands need well-defined roles and visions that support those roles. Strategic brands should be identified and resourced, and branded differentiators and energizers should be created and managed.

  1. Leveraging brand assets to enable growth

A brand portfolio should foster growth by enabling new offerings, extending the brand vertically or extending the brand into another product class. The goal is to apply the brand to new contexts where the brand both adds value and enhances itself.

University of Mumbai BMS Notes

Flowcharting in Service Marketing

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The concept of flowcharting in services, also known as service flow chart, process flow chart or process flow diagram constitutes a picture of the separate steps of a process in a sequential order.  Any major project that you start, will require handling multiple teams in different time frames. Over a period of time, it becomes difficult to manage these teams if you do not have the right process chart in hand. Hence, the usage of flowcharting in services.

Example of flow charting in services

Let’s take for example the construction of a building. Once you have decided upon the idea of constructing a building, the next steps come into the process. You need to think if the location is feasible for the desired construction. You need to think about the materials that you are going to need, who is in charge of buying them and who is in charge of supplying them.

You also need workers to help you with the construction and heavy machines. But imagine that. You take the decision of constructing a building, start the construction and at one point you realize that you don’t have any more material and that your supplier has run out of stock. Who is responsible for restocking the material? It can also happen that one of your employees starts working on a place which was the responsibility of other worker, thus both of them doing the same thing in the same place, making you lose both money and time. Hence, to avoid this confusion, flowcharting in services is done.

Flowcharting in Services

The flowcharting process can be considered as a tool useful for developing an understanding of how a process is done. It can be useful in any phase of business or even in personal life for that matter. The type of process can be anything, such as manufacturing processes, administrative services, project plans, etc. But it is most useful in services and is plotted regularly in services.

As in the previous example with the construction of a building, a flowcharting has to include all the steps  and people involved in the respective process, such as sequence of actions, materials or services entering or leaving the process (inputs and outputs), decisions that must be made, people who become involved at each step and process measurements.

As it can be adapted to a wide range of purposes and project, the flowcharting process is considered to be a generic tool.  The main reason why people decide to use it consists in the fact that the tool itself can provide a holistic overview of the entire project and its components.

When many people are involved in the project, the flowcharting can be used to communicate to the people how the project is going to be done. At the same time, the process is useful for documenting the project making sure that you have all the permits and certificates required, depending on the nature of the project. Moreover, it encourages better communication between people involved in the same process and it avoids confusion regarding responsibilities.

In the flowcharting process, the first step consists in defining the process that needs to be analyzed and write its title at the top of the work surface.

Afterwards, a decision should be made upon the boundaries of the project, in terms of when does it start, when should it finish, as well as the level of detail that should be included in the project. For a flowcharting process to be significantly useful it should include independent sections for brainstorming activities in the project. Once the activities have been decided upon, they should be put in a sequential order to reflect which are going to be the steps of the project and arrows should be drawn to show the flow of the process. Finally, the flowchart should be review with the people involved in the process and ask for their opinions.

Some companies with the necessary resources, usually decide to outsource this process to a specialized company. However, it is has been proven that it is better for people who actually do the process to be the one who are doing also the flowcharting. To be easier for them to create it in a systematic and structured way, nowadays there are computer software programs for drawing the flowcharts.

Another example of flowcharting in services is when you are building a restaurant. How do you get the food to your customer within 20 minutes of his entering the restaurant? Take McDonald’s for example. McDonald’s has a fixed service process for all of its outlets. They need to service a burger, fries, coke as well as any other demands of the customer, to the customer, within a minute or two.

So the backend service process needs to be highly optimized. Similarly, all restaurants have processses in place for when the flow of customers is very high as well as when the flow of customers is slow. Thus, in case of services, the process of flowcharting is important.

Management Notes

People and Physical Evidence in Service Marketing

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People

The interactive aspect of service creation and consumption brings customer and service creator in direct contact with each other in many cases. Consider services such as beauty treatment, surgery, education, and dine in restaurant. All these services require customer-employee contact.

In goods marketing this kind of interaction is rare; instead there is interaction between the customer and the good. The intensity and duration of this contact varies. For instance, in psychotherapy the customer- provider contract tends to be intense and long in comparison to fast food restaurants.

Customer contact brings to the fore two distinct aspects unique to services ’what’ and ‘how’ of service product. ‘What’ represents the technical outcome that is created for customer such as the time taken in delivery of a packet or the timeliness of an airline, whereas ‘how’ refers to the process aspect of service creation like how a customer is treated by hotel personnel in check in, room service, check out, restaurant, and club. ‘How’ aspect determines the perception of ‘what’ aspect or the technical aspect of service quality. A highly competent surgeon or doctor who is excellent in technical aspect of service is unlikely to be perceived so if his process of treating the patient is cold, gruff, and unsympathetic.

Management of service personnel assumes importance for their role as service marketer and creator. They are the service organization to customers.

The following issues are important:

(i) Any compromise on employee skills and attitude is likely to produce quality variations or heterogeneous service performance. The lack of consistency works counter to creating a cohesive brand image.

(ii) It is not only important to invest in development of technical service skills, but customer contact employees must also be trained in interpersonal aspects. This requires building customer orientation, interactional skills, and other soft aspects such as attitude and empathy.

Physical Evidence in Service Marketing

Physical evidence assumes significance because services are intangible. A physical object defines itself but an intangible is not able to do. The evidence that is discernible by senses associated with a service is carrier of meaning. That is, customer’s bank upon physical evidence to extract what a service is all about.

For instance, the service provided by two restaurants or hotels is not known with experience. However, the evidence that surround these services conveys meaning and suggests how they are different from each other. Physical evidence is a collection of tangible cues that signals service quality. Although physical evidence belongs to operations or production area, it becomes a domain of interest to marketing because of its ability to impact customers.

Cleanliness, wall colour, dress of staff, equipment appearance, signboards, stationery, toilet condition, as well as smells and paint on wall convey what a hospital is all about in terms of its quality standards and position in relation to competition.

There are two types of evidences essential and peripheral

(i) Essential Evidence

It represents those things associated with a service that are essential to its creation. Their core nature does not allow a service to be conceived without its presence. For instance, aircraft is essential to airline service and car is essential to a rent a car company.

These are so core to service that they are not passable to customers; however customer may enjoy temporary access to them. The importance of essential evidence stems from the fact that customers form their core opinion or image based on the core evidence. A rent a car company is likely to be perceived poorly if its cars are not maintained properly.

(ii) Peripheral Evidence

Evidence in this case is marginal or operates at the fringe of image-making process. Anything that does not get categorized as essential falls into this category. For instance, newspapers, receipts, magazines, dust on the window panes, and floor mats all form peripheral evidence in case of a rent a car operations. Customers make a perception about restaurant on the basis of table linen and decor.

Three things important to the creation of place of service delivery are ambience, spatial arrangement, and social setting. Ambience refers to stimuli that customer senses are sensitive about such as lighting, sound, scent, temperature, and touch. All these sensory elements must be coordinated in line with the overall service positioning.

The space dimension is about how spatial utilization. How things are to be arranged in restaurant or retail outlet depends upon the service concept. For instance, in CCD outlets the furniture is arranged in a way to facilitate conversation. Finally, social setting means what kind of social environment is created.

For instance, a service may create a formal setting while another service may promote informality. In this regard people, their behaviour, sound conditions, decor, and spatial arrangement play a defining role. The difference in social setting is discernible when a quick service restaurant is compared with fine formal dine in restaurant.

Role of service evidence

A distinction is made in services marketing between two kinds of physical evidence:

  • Peripheral evidence
  • Essential evidence

(i) Peripheral Evidence

Peripheral evidence is actually possessed as part of the purchase of a service. It has however little or no independent value. Thus a bank cheque book is of no value unless backed by the funds transfer and storage service it represents.

An admission ticket for a cinema equally has no independent value. It merely confirms the service. It is not a surrogate for it. Peripheral evidence ‘adds to’ the value of essential evidence only as far as the customer values these symbols of service.

The hotel rooms of many large international hotel groups contain much peripheral evidence like directories, town guides, pens, notepads, welcome gifts, drink packs, soaps and so on. These representations of service must be designed and developed with customer needs in mind. They often provide an important set of complementary items to the essential core service sought by customers.

(ii) Essential Evidence

Essential evidence, unlike peripheral evidence, cannot be possessed by the customer. Nevertheless essential evidence may be so important in its influence on service purchase it may be considered as an element in its own right. The overall appearance and layout of a hotel; the ‘feel’ of a bank branch; the type of vehicle rented by a car rental company; the type of aircraft used by a carrier are all examples of physical evidence.

Managing the Evidence

Service organizations with competing service products may use physical evidence to differentiate their service products in the marketplace and give their service products a competitive advantage. A physical product like a car or a camera can be augmented through the use of both tangible and intangible elements.

A car can be given additional tangible features like a sliding roof or stereophonic radio equipment; a camera can be given additional tangible features like control devices which enable use in a wide variety of light conditions.

A car may be sold with a long life antirust warranty or cost- free service for the first year of ownership; a camera with a long-life warranty or free lens insurance. Tangible and intangible elements may be used to augment the essential product offer. In fact organizations marketing tangible dominant products frequently use intangible, abstract elements as part of their communications strategy.

Service marketing organizations also try to use tangible clues to strengthen the meaning of their intangible products.

University of Mumbai BMS Notes

Place or Distribution of Service

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Distribution

Distribution means the process by which we make the goods or the service available to the end consumer. Generally, the place of production is not the same as the place of consumption. So the goods have to be distributed to overcome the barrier of place.

Now the distribution of the products can be done by the organisation itself which is direct distribution. Or it can hire intermediaries and form distributions channel i.e. indirect distributions. The plan will depend on several factors, some of which are

  • Product: Whether the product is perishable or durable will be a factor in deciding its distributions model.
  • Market: The size of the market will be a factor. In a large market, the direct distribution may not be a perfect choice. Also if the markets are scattered indirect channel will be more suitable
  • Company: The size of the company and its product-mix are also deciding factors in the decision about distributions.
  • Marketing Environment: In a slow economy or depression a shorter distributions chain is preferable. In a healthy economy, there is a wider choice for alternatives.
  • Cost: The cost of the channel like transportation, warehousing and storage, tolls etc. are obviously a factor in this decision.

Types of Intermediaries

These are the middlemen that ensure smooth and effective distribution of goods over your chosen geographical market. Middlemen are a very important factor in the distribution process. let us take a look at the types of middlemen we usually find.

  1. Agents

Agents are middlemen who represent the produces to the customer. They are merely an extension of the company but the company is generally bound by the actions of its agents. One thing to keep in mind, the ownership of the goods do not pass to the agent. They only work on fees and commissions.

  1. Wholesalers

Wholesalers buy the goods from the producers directly. One important characteristic of wholesalers is that they buy in bulk at a lower rate than retail price. They store and warehouse huge quantities of the products and sell them to other intermediaries in smaller quantities for a profit.

Wholesalers generally do not sell to the end consumer directly. They sell to other middlemen like retailers or distributors.

  1. Distributors

Distributors are similar to wholesalers in their function. Except they have a contract to carry goods from only one producer or company. They do not stock a variety of products from various brands. They are under contract to deal in particular products of only one parent company

  1. Retailers

Retailers are basically shop owners. Whether it is your local grocery store or the mall in your area they are all retailers. The only difference is in their sizes. Retailers will procure the goods from wholesaler or distributors and sell it to the final consumers. They will sell these products at a profit margin to their customers.

In the reality of the market, all producers rely on the distribution to channel to some extent. Even those who sell directly may rely on at least one of the above intermediary for any purpose. Hence the distribution channel is of paramount importance in our economy.

Management Notes

Promotion & Communication Mix

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Promotion Mix

The Promotion Mix refers to the blend of several promotional tools used by the business to create, maintain and increase the demand for goods and services.

The fourth element of the 4 P’s of Marketing Mix is the promotion; that focuses on creating the awareness and persuading the customers to initiate the purchase. The several tools that facilitate the promotion objective of a firm are collectively known as the Promotion Mix.

The Promotion Mix is the integration of Advertising, Personal Selling, Sales Promotion, Public Relations and Direct Marketing. The marketers need to view the following questions in order to have a balanced blend of these promotional tools.

  • What is the most effective way to inform the customers?
  • Which marketing methods to be used?
  • To whom the promotion efforts be directed?
  • What is the marketing budget? How is it to be allocated to the promotional tools?

Elements of Promotion Mix

  1. Advertising

The advertising is any paid form of non-personal presentation and promotion of goods and services by the identified sponsor in the exchange of a fee. Through advertising, the marketer tries to build a pull strategy; wherein the customer is instigated to try the product at least once. The complete information along with the attractive graphics of the product or service can be shown to the customers that grab their attention and influences the purchase decision.

  1. Personal Selling

This is one of the traditional forms of promotional tool wherein the salesman interacts with the customer directly by visiting them. It is a face to face interaction between the company representative and the customer with the objective to influence the customer to purchase the product or services.

  1. Sales Promotion

The sales promotion is the short term incentives given to the customers to have an increased sale for a given period. Generally, the sales promotion schemes are floated in the market at the time of festivals or the end of the season. Discounts, Coupons, Payback offers, Freebies, etc. are some of the sales promotion schemes. With the sales promotion, the company focuses on the increased short-term profits, by attracting both the existing and the new customers.

  1. Public Relations

The marketers try to build a favourable image in the market by creating relations with the general public. The companies carry out several public relations campaigns with the objective to have a support of all the people associated with it either directly or indirectly. The public comprises of the customers, employees, suppliers, distributors, shareholders, government and the society as a whole. The publicity is one of the form of public relations that the company may use with the intention to bring newsworthy information to the public.

E.g. Large Corporates such as Dabur, L&T, Tata Consultancy, Bharti Enterprises, Services, Unitech and PSU’s such as Indian Oil, GAIL, and NTPC have joined hands with Government to clean up their surroundings, build toilets and support the swachh Bharat Mission.

  1. Direct Marketing

With the intent of technology, companies reach customers directly without any intermediaries or any paid medium. The e-mails, text messages, Fax, are some of the tools of direct marketing. The companies can send emails and messages to the customers if they need to be informed about the new offerings or the sales promotion schemes.

E.g. The Shopperstop send SMS to its members informing about the season end sales and extra benefits to the golden card holders.

Thus, the companies can use any tool of the promotion mix depending on the nature of a product as well as the overall objective of the firm.

Communications mix and its role in Marketing

There are multiple components of a communications mix. The communications mix in marketing comprises of the various ways that a company can communicate with its customers. Because marketing communications is of utmost importance in today’s day and age, the communications mix and the marketing vehicles used within it are also important to marketing.

As can be seen from the concepts of marketing there were initially various different concepts which were used when manufacturing first started. They were the production concept, the sales concept etc.. However, slowly but surely we moved on to implement the marketing concept and today we generally use the customer concept in the market.

The key principle behind the marketing concept is that we should add value to our products so that the customer will automatically buy our products above that of competition. However, how will the customer know that we have value added products? This is the job of the Marcomm department and hence the communications mix is needed.

Generally when a company makes a marketing communications plan, it combines multiple forms of communication channels into the mix. This is done to ensure that the message of the company reaches the end consumer. It is also done to ensure repetition so that the customer recalls the brand because of the brand message being repeated in multiple channels at once.

The 6 most common variables of the communication mix are as follows.

  1. Advertising

We are very well with the impact that advertising has on our purchase behavior. Advertising may be in many forms but the two most common forms are ATL advertising which includes television, radio and print and the other type is BTL advertising which majorly includes out of home advertising.

Advertising is strongly used by brands who have deep pockets or who have a lot of competitors in the market. Advertising requires that you have a unique advertising message as well. The more unique and impactful the message, the more is the connect between the brand which is advertising and the consumers.

  1. Personal selling

Personal selling is the second most common method to communicate the benefits of your products to the end customer and convert him from a lead to a prospect and ultimately to your customer. This is the reason that many top companies and even small businesses nowadays are focused on personal selling.

If you enter a branded retail outlet, you will many times find that the company promoter is already present in the retail outlet. The reason that the company appoints their own brand promoter is because this ensures that the customer will have better attention from their individual brand. Along with this, the company’s salesman will also have more knowledge of product and competition as he has been dedicatedly hired by the brand.

If instead of a brand promoter, there was the retailers own salesman, he would have promoted any brand on the shelf. At the same time, the retailers salesman might not be as knowledgeable as the brand salesman because he has so many brands and products to sell. He gets overloaded and ultimately forgets the features of products he is selling. So, if a company wants to communicate the benefits of its products, convince and convert the customer, then personal selling with hand picked and trained executives is the best option.

  1. Sales promotion

There are many different ways of running sales promotions and many different tips and tactics present depending on the sector you are in. Where trade discounts and freebies work very well in FMCG, in consumer durables, free services and value addition (free installation) works better then discounts.

Sales promotion also involves providing the consumer with an incentive for the purchase of the product. At the same time, it may involve giving incentives to dealers or distributors to get the product selling & moving in the market. The expenses in Sales promotion is lower and the investment is very less because it gets the product moving.

Sales promotions is increasingly being used as a tool especially after the rising popularity of e-commerce and online sales. Every other day you will see a “Sale” or “Deal” online which will be time bound and which customers will impulsively purchase. Due to some discount being given for certain amount of time, online retailers can move huge quantities of products across the country or the region they are selling in.

  1. Public relations

Public relations is the art of spreading the news about your products or services in the public domain so that some hype is created and people talk to each other about it. One of the most commonly observed public relations exercise is when there is some news related to a Movie or related to a product which is published in the newspapers just before the movie is supposed to be released or the product is supposed to be launched.

Similarly, there are multiple public relation exercises which can be carried out by a brand. In today’s date, social media is one of the biggest platforms for public relations exercise. You will see a lot of news being published with regards to what is trending. Similarly, press conferences, face to face interaction with consumers, newspaper advertorials, involving the community are various ways that public relations exercises can be implemented.

Public relations is an important part of the communications mix. It helps in building a strong brand image and a brand can slowly release the information therefore keeping the public attention intact. In fact, if you notice, information about a movie which is going to be big starts coming in newspapers much before the movie launch date is announced.

This is nothing else but Public relations wherein the marketing manager wants the public to be hooked to whats about to happen in the movie. They want to create a hype. Off course, some movies (like the latest star wars franchise) would rather hide their details then show it to public.

  1. Direct marketing / Internet marketing

In the last few years, Digital marketing was giving tough competition to television advertising as well as newspaper advertising. As of end quarter of 2016, digital marketing has practically overtaken Television advertising and has a major spend amongst all media.

Off course, the benefit of digital advertising is that even small businesses can get involved and it is not as costly as Television advertising. As a result, the overall revenue generated from digital advertising is much more then television or newspaper. But even then, not only small businesses, even top brands take part in digital marketing because it helps the brand in reaching the end consumer.

The key attraction of digital marketing is the personal connect that the brand makes with the consumer. Your email box, your facebook wall, your twitter feed are your private space and via social marketing, brands can enter this private space and make a connection. The brand which really does good campaigns can actually walk away with a large population of digital followers.

  1. Packaging

Although packaging is supposed to be a part of the marketing mix and not the communications mix, lately, due to competition and the increasing rivalry between businesses, even packaging is considered as an important medium of communicating with your consumers.

The packaging of the product is the last point of sales for the company. When the consumer is standing in a retail aisle, he or she has a plethora of products in front of them to choose from. Many a times, the decision is made looking at the overall packaging of the product as well as the information written on the product.

If a customer wants an aloe vera shampoo, he might look at the packaging and decide against an Anti dandruff shampoo. However, if the packaging is poor, and the distinguishing feature is not mentioned clearly, the consumer might ignore the product altogether. As a result, BECAUSE even packaging communicates to the consumer, it is now considered as an element of the communications mix.

So overall, the above 6 media vehicles are the ones which are considered as the communications mix. Whenever a brand wants to communicate to their consumers, they will use one of the above methods to do the same.

University of Mumbai BMS Notes

Pricing Mix

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Price mix. is another important element of marketing mix. It is considered as very critical element. Price can be defined as the economic value of product normally expressed in form of money.

The price of product should be set in such a way that buyers can pay and company can earn adequate profits. In case of price-sensitive customers on one hand and the prestige-sensitive customers on the other hand, the pricing decisions become vital in marketing.

Pricing decisions involves:

  • Determining product development costs
  • Determining manufacturing (variable and fixed) costs the product
  • Studying pricing policies and strategies of the close competitors
  • Formulating appropriate pricing policies for the products
  • Deciding on level or margin of profits
  • Deciding on variable v/s fixed pricing, price discrimination, discounts, allowances, and seasonal effect
  • Identifying and analyzing of various relevant factors influencing pricing decisions
  • Pricing policies/strategies in different stages of product life cycle
  • Deciding on price-setting methods
  • Pricing decisions for direct and indirect distribution of products

Pricing Strategy

Price is the amount of money that your customers have to pay in exchange for your product or service. Determining the right price for your product can be a bit tricky.

A common strategy for beginning small businesses is creating a bargain pricing impression by pricing their product lower than their competitors. Although this may boost initial sales, low price usually equates to low quality and this may not be what customers to see in your product.

Your pricing strategy should reflect your product’s positioning in the market and the resulting price should cover the cost per item and the profit margin. The amount should not project your business as timid or greedy.

Low pricing hinders your business’ growth while high pricing kicks you out of the competition.

There are a number of pricing strategies that you can follow. Some strategies may call for complex computation methods and others are intuitive decisions. Select a pricing strategy that’s based on the product itself, competitive environment, customer demand, and other products that you offer.

Cost Plus

Cost Plus is taking the production cost and adding a certain profit percentage. The resulting amount will be the product’s price. You need to consider variable and fixed production costs for this pricing method.

Value Based

Instead of using the production cost as your basis, you consider the customer’s perception of the product’s value. The perception of the buyer is dependent on the product’s quality, the company’s reputation, and healthfulness, aside from the cost factors.

Competitive

You take a survey of the pricing implemented by your competitors on a similar product that you are trying to market and then decide whether to price your product lower, the same, or higher. You should also monitor their prices and be able to respond to changes.

  • Going Rate: This pricing strategy is more common in selling environments where the companies have little to no control of the market price. You price your product according to the going rate of similar products
  • Skimming: You introduce a high quality product, price it high, and target affluent customers. When the market has become saturated, you then lower the price accordingly.
  • Discount: Most commonly used for old product stocks or when you’re clearing up you inventory. You take the advertised price and lower the amount. A good example is a discount coupon.
  • Loss Leader: You take the production cost and price the product even lower. The idea is to attract your customers to your store where they can be convinced to buy your other products.
  • Psychological: You may have noticed that you rarely see pricing rounded off to the nearest whole number.

The actual money you will receive as payment for your product can be complicated by certain pricing factors so you may receive more or less than the advertised price. You need to determine the following in coming up with the appropriate price:

  • Payment Period: This is the length of time before you receive the payment.
  • Allowance: You give part of the advertised price to the retailer in return for promotional activities like in-store display that features your product.
  • Seasonal Allowances: You lower the price of certain products ordered during low sale seasons to attract customers to buy during non-peak times.
  • Product/Services Bundles: You put in similar or dissimilar products together and sell them as a bundle at a discounted price
  • Trade Discounts: You give price discounts as payments to your distribution channels for doing tasks like shelf stocking and warehousing.
  • Price Flexibility: You let the reseller or the sales person modify the price according to an agreed range.
  • Volume Discounts: You give discounts for wholesale buyers.
  • Credit Terms: You allow consumers to pay for your products at a later date.

Base your pricing strategy on the methods mentioned above to come up with the proper price for your product. Remember that Price is the only P in the ‘Four Ps of Marketing’ that actually generates profit for you. The rest are cost incurring factors.

University of Mumbai BMS Notes

The Service Product

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The term ‘service product’ encompasses a myriad of different types of services. The definition proposed is still one of the most effective in capturing the key distinguishing characteristics of different types of service products: ‘A service is an intangible product involving a deed, a performance, or an effort that cannot be physically possessed.’

There is little doubt that both intangibility and non-ownership are key characteristics of service products, although other characteristics are important. Staying with Berry’s definition, if we can see that the product is essentially intangible then the customer does not take physical possession. There are, however, tangible elements to the product of a flight: the aeroplane itself, the seat we occupy, the meals and drinks we are served are tangible aspects of the air travel product. In addition, we do take ‘physical possession’ of certain elements of the product, e.g. the seat, the meals and drinks.

However, the core benefit that the customer is purchasing is essentially intangible. This example shows that most products have a mixture of both tangible and intangible components. If we think of tangibility as a continuum, service products are those where the intangible element is predominant. This idea of a continuum of intangibility is frequently encountered in texts on services marketing and is a useful way of evaluating whether the customer is buying what is essentially a tangible product or a service. An example for business products/services adapted from Shostack2. A list of examples of where the intangible element is dominant, and hence examples of what we define as service products, includes:

  • Fast food;
  • Hotels;
  • Holidays;
  • Travel;
  • Insurance and banking;
  • Education;
  • Health care;
  • Public transport;
  • Legal/financial advice;
  • Consultancy;
  • Personal health and beauty.

There are numerous different service products. An important fact to note is that although they are usually relatively easy for the marketer to classify as being service or non-service products, ultimately it is the customer who decides whether or not a product or service is being purchased, and hence marketed, according to the relative importance attached to the tangible versus intangible elements.

A continuum of tangibility and intangibility: business/product service classifications.

Intangibility is certainly one of the key characteristics that distinguishes service products from tangible products. What about the notion of ‘non-possession’ referred to in Berry’s definition, and what are the other distinguishing or special characteristics of service products? These other suggested special characteristics of service products, including the aspect of non-possession, or non-ownership, are now outlined. As with the characteristic of tangibility these so-called ‘special characteristics’ are a matter of degree and best thought of as a continuum. For each of these characteristics we have outlined the marketing implications and issues to which these characteristics give rise.

Non-ownership

As explained in the air travel example a characteristic of many services is that they are used rather than owned. Another example is a holiday where we simply use the services of the holiday provider as opposed to taking physical possession of a product.

Non-ownership can sometimes make it difficult for a customer to assess and appreciate the advantages of purchasing the service. The marketer therefore needs to pay particular attention in emphasizing benefits of non-ownership, such as no long-term commitment and inexpensive maintenance in promotional programmes.

At one time few private car buyers in the UK would have considered leasing a car on a long-term basis as opposed to purchasing one either outright or on credit. However, partly as a way to help customers finance the use of a car, over the last ten years the majority of the major car manufacturers have introduced what effectively are leasing schemes albeit often under other names. An increasing number of customers not only find this a more convenient way of covering the costs of having access to a new car, but also find there are many benefits to not actually taking ownership of a vehicle.

University of Mumbai BMS Notes

Sensitivity of Customer’s Reluctance to Change

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Sometimes the biggest resistance to innovation comes from the person who should benefit most from it the customer. Customers can be very conservative. When you come along with an unorthodox new product or service they are often initially unimpressed. Why should the buyer take a risk with your unproven new gismo? He knows that new products often have bugs and he does not want to be the guinea pig on which you experiment. He is familiar with the current method, why should he change?

Who would want to be the first customer for a fax machine or indeed for a telephone? It seems ridiculous now but selling the first few telephones must have been really difficult. And how about laser eye treatment? How would you find the first person to try it when there was a safe alternative in a pair of spectacles?

This is understandable and needs careful handling. Your sales people will doubtless be adept at explaining the benefits of your new products but the customer is right to be sceptical. You need to find ways to reassure him and to mitigate his risk.

At the same time you need early adopters so that you can get some traction in the market, customer feedback and positive references for your innovation. So acknowledge the client’s concerns and put offers in place to allay them. You cannot just use your standard terms and conditions for a radical new product. You have to be innovative in your sales approach too. For example you could:

  • Allow them a free trial of the new product
  • Continue to provide the old service so that they can go back to it at any time.
  • Offer a money back guarantee.
  • Provide a special service level that gives them immediate access to your top support experts.
  • Agree joint service level agreements.
  • Stress the payback and benefits they will receive and even make payment dependent on their being achieved.
  • Promise to arrange a positive PR result for them in the trade press if the trial succeeds.

Above all you must choose the right early customers. Some people love new technology and others hate it. Select the best early adopters from among your top clients. Appeal to their sense of pioneering adventure. Stress the prestige that goes with early success for both of you. Make sure that they share in the recognition of a successful launch. If all goes well then ask them for a testimonial. You can help them be seen as an industry leader in trade journal stories and at conferences. You are in it together and it must be a win/win for both parties.

Entrepreneurs and business owners can do to engage customers in the change process, so they feel more like a partner and stakeholder in the changes:

1. Analyze concerns from the customers’ point of view: The buy-in to the change happens in the mind of the other person. While regulatory and legislative changes may seem easy to enforce, most customers aren’t that interested in the reasons why something has to happen a certain way – they just want to have their needs met. Get your customers involved right from the beginning by testing out the changes with them. Walk them through the changes and requirements while discussing benefits.

Most importantly, listen to their concerns. You may not be able to solve all of them, but listening and acknowledging your customers’ concerns will often still move people down the path to accept your changes.

2. Engage your customers in your ecosystem: Quite often, one change within the system will impact other areas of the system. Think of your business as a full ecosystem that is living and breathing. Ask your customers what is their experience at every encounter within this ecosystem.

Also, gather metrics on how, when, where, and why do they use your product. Provide incentives and ask your customers to share their experience online about your new product or service. This helps create a self-sustaining business ecosystem with your customers selling your product for you.

3. Don’t assume connectivity: As technological change increases, those of us in larger urban centres may assume that everyone else has the same level of connectivity. Customers with lower connectivity must be facilitated too.

Be sure to have a technical workaround so consumers who live in an area with lower bandwidth have a great customer experience as well.

4. Build real intelligence: Make sure you are using the right metrics to measure the success of your business. While we might think of sales as a success metric, that alone will not necessarily tell you if your changes are successful. If your customer bought something but never came back, is that a sign of success for your particular business? Tracking continuing customer engagement with your company as well will give you a clearer picture of how successful your change was.

5. Maintain data accuracy: Ask the right questions. Ensure customers have real time access to tracking, shipping information, profile information, and other pieces of information that are relevant to your product or service. Read between the lines of percentages. For example, if 60% of your customers liked the product, but that number only accounts for a small number of people, the data is meaningless.

Also, take both quantitative and qualitative data into account. Anecdotal evidence can be just as strong as hard data and signify trends you should pay attention to.

6. Manage expectations: Be very clear with your customers about what they can expect through every step of their customer journey. Don’t be afraid to make it simple and spell it out for them. People going through all types of changes want to know what the future will hold, what will stay the same, and what will change.

For example, when someone subscribes to your newsletter, tell them what they can expect each month, and express how grateful you are that they are sharing this journey with you. Anticipate and share the challenges. Help the customer predict the future.

7. Develop a strong customer relationship: Remember, buying strategies have changed. Your customers have access to more choices than ever. Develop and maintain a strong relationship with them. Make your customer feel like they are on the same team as you, and not simply a consumer of your products. Tell them what you will be accountable for and what you will provide. Help them create ownership with your product, service, and company.

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