Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 1

Creating the

Service Product

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 2

Key Steps in Service Planning:Matching Opportunities to Resources

Must relate marketing opportunities to firm’s resources (physical, financial, technological, human)

Identify, evaluate firm’s marketing assets Customer portfolio/lifetime value (customer equity) Market knowledge Marketing implementation skill Product line Competitive positioning strategies Brand reputation (brand equity)

Identify, evaluate firm’s operating assets Physical facilities, equipment Technology and systems (especially IT) Human resources (numbers, skills, productivity) Leverage through alliances and partnerships Potential for customer self service Cost structure

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 3

Operating Assets(Facilities/Equipment, IT Systems, People, Op. Skills, Cost Structure)

Service Design Involves Matching Marketing Concept with Operations Concept (Fig. 4.1)

Corporate Objectivesand Resources

Service Delivery Process

Marketing Assets(Customer Base, Mkt. Knowledge,

Implementation Skills, Brand Reput.)

Service Marketing Concept

•Benefits to customer from core/ supplementary elements, style, service level, accessibility

•User costs/outlays incurred•Price/other monetary costs•Time•Mental and physical effort•Neg. sensory experiences

Service Operations Concept

•Nature of processes•Geographic scope of ops•Scheduling•Facilities design/layout•HR (numbers, skills)•Leverage (partners, self-service)•Task allocation: front/backstage staff; customers as co-producers

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 4

Understanding the Components of the

Augmented Service Product

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 5

The Augmented Product

Most firms offer customers a package of benefits:core product (a good or a service)supplementary services that add value to the cores

In mature industries, core products often become commodities

Supplementary services help to differentiate core products and create competitive advantage by:facilitating use of the core serviceenhancing the value and appeal of the core

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 6

Shostack’s Molecular Model of a Total Market Entity - Passenger Airline Service (Fig. 4-2)

DistributionPrice

Marketing Positioning (Weighted toward evidence) Source: Shostack

KEY Tangible elements Intangible elements

Service frequency

Vehicle

Transport

Pre- and post-flight

serviceFood and drink

In-flight service

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 7

What Should Be the Core and Supplementary Elements of Our Service Product?

How is our core product defined and what supplementary elements currently augment this core?

What product benefits create the most value for customers?

Is our service package differentiated from the competition in ways that are meaningful to target customers?

What are current levels of service on the core product and each of the supplementary elements?

Can we charge more for higher service levels on key attributes (e.g., faster response, better physical amenities, easier access, more staff, superior caliber personnel)?

Alternatively, should we cut service levels and charge less?

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 8

New Service

Development

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 9

New Service Development:A Hierarchy of New Service Categories

Major service innovations--new core products for previously undefined markets

Major process innovations--using new processes to deliver existing products and offer extra benefits

Product line extensions--additions to current product lines

Process line extensions--alternative delivery procedures

Supplementary service innovations--adding new or improved facilitating or enhancing elements

Style changes--visible changes in service design or scripts

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 10

New Service Development: Physical Goods as Source of Service Ideas

Customers can rent goods—use and return for a fee— instead of purchasing them

Customers can hire personnel to operate their own or rented equipment

Any new durable product may create need for after-sales services (possession processing) - Industrial Equipment Shipping Installation Problem-solving and consulting advice Cleaning Maintenance Repair Upgrading Disposal

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 11

Creating Services as Substitutes for Owning and/or Using Goods (Fig. 4-7)

Perform the

Work Oneself

Hire Someone

to Do the Work

Own a Physical GoodRent the Use

of a Physical Good

•• Hire a taxi or limousine

•• Send work to secretarial service

• Rent car and drive it

• Rent word processor and type

• Hire chauffeur to drive car

• Hire typist to use word processor

• Drive own car

• Type on own word processor

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 12

Service Development through Delivery Options: Alternative Meal Service Formats (Fig. 4-8)

HomeDelivery

Order food,

give address

Driver rings

doorbell

Pay driver,take food Eat

Telephone

Restaurant

Drive-InRestaurant(Take Out)

See sign Order viamicrophone

Get meal atpickup, pay

Drive away,eat later

Stop car atorder point

Fast-FoodRestaurant(Eat In)

See sign Park and

enter

Order meal,

and pay

Pick upmeal

Find tableand eat

Clear tableand leave

HomeCatering

Arrange to meet caterer

Plan meal, pay deposit

Food and staff arrive

Meal ispreparedand served

EatStaff cleans

up; pay

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 13

Elements of a Hotel Offering: Trading off Room Price vs. Features/Services

External building design and features

Room features

Food-related services

Lounge facilities

Services (e.g., reception)

Leisure facilities

Security—people/systems

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 4 - 14

Success Factors in New Service Development

Market synergy Good fit between new product and firm’s image/resources Advantage vs. competition in meeting customers’ needs Strong support from firm during/after launch Firm understands customer purchase decision behavior

Organizational factors Strong interfunctional cooperation and coordination Internal marketing to educate staff on new product and its

competition Employees understand importance of new services to firm

Market research factors Scientific studies conducted early in development process Product concept well defined before undertaking field studies