2 Services Strategy & Positioning

Service Mix
Strategy &
Positioning
Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 1 - 1
SERVICE MIX STRATEGY &
POSITIONING
 The Expanded Marketing Mix Required

for Services
 Service Focus Strategies
 Service Positioning
Expanded Marketing Mix
for Services
Services Require
An Expanded Marketing Mix
 Marketing can be viewed as:
 A strategic and competitive thrust pursued by top
management
 A set of functional activities performed by line managers
 A customer-driven orientation for the entire organization
 Marketing is the only function to bring

operating revenues into a business; all other
functions are cost centers
 The “7Ps” of services marketing are needed

to create viable strategies for meeting
customer needs profitably in a competitive
marketplace
Expanded Marketing Mix for
Services
PRODUCT PLACE PROMOTION PRICE
Physical good Channel type Promotion Flexibility
features blend
Quality level Exposure Salespeople Price level

Accessories Intermediaries Advertising Terms
Packaging Outlet location Sales Differentiation
promotion
Warranties Transportation Publicity Allowances
Product lines Storage
Branding
Expanded Marketing Mix for
Services
PEOPLE PHYSICAL PROCESS
EVIDENCE
Employees Facility design Flow of activities
Customers Equipment Number of steps
Communicating Signage Level of customer

culture and values involvement
Employee research Employee dress
Other tangibles
The 7Ps of Services Marketing:
Product Elements
 A service product comprises all
elements of service performance, both
tangible and intangible, that create
value for customers
 The service concept is represented by:

A core product
Accompanied by supplementary services
Objective:
 To offer value to target customers
 To satisfy their needs better than competing
alternatives
Core Products and
Supplementary Services
 Core Product
 Central component that supplies the principal,
problem-solving benefits customers seek
 Supplementary services help to
differentiate core products and create
competitive advantage by:
 Facilitating use of core product
(a service or a good)
 Enhancing the value and appeal
of the core product
The Flower of Service
Information
Payment Consultation
Billing Core Order Taking
Exceptions Hospitality
Safekeeping
KEY:
Facilitating elements
Enhancing elements
Core and Supplementary Services at Luxury
Hotel
(Offering Much More than Cheap Motel!)
Reservation
Cashier Valet
Parking
Business
Reception
Center
A Bed for the
Room Night in an
Service Elegant Private
Baggage
Room with a
Service
Bathroom
Wake-up Cocktail
Call Bar
Internet Entertainme Restaura

nt/ Sports/
Exercise nt
What Makes Service Pricing
Strategy Different and Difficult?
 Harder to calculate financial costs of creating a

service process or performance than a
manufactured good
 Variability of inputs and outputs—how can firms
define a “unit of service” and establish basis for
pricing?
 Customers find many services hard to evaluate—
what are they getting in return for their money?
 Importance of time factor—same service may have
more value to customers when delivered faster
 Delivery through physical or electronic channels—
may create differences in perceived value
Price and Other User Outlays
 Pricing objectives can include

 Generating revenues and profit (financial
institutions)
 Building demand (Game shows online)
 Developing user base (new internet café)
 Three main foundations to pricing a service

 Cost-based pricing
 Competition-based pricing
 Value-based pricing
 Cost-based pricing seeks to recover costs plus a

margin for profit; includes both traditional and
activity-based costing
 What basis for pricing? (How define unit of

service?)
 Completing a task
 Admission to a service performance
 Time based
 Monetary value of service delivered
(e.g.commission)
 Consumption of physical resources (e.g.food and
beverages)
 Firm must be aware of competitive pricing

but may be harder to compare for services
than for goods
 Value-based pricing should reflect net
benefits to customer after deducting all
costs
 Additional monetary costs associated with service
usage (e.g., travel to service location, parking,
phone, babysitting, etc.)
 Time expenditures, especially waiting
 Unwanted mental and physical effort
 Negative sensory experiences
Trading Off Monetary and
Nonmonetary Costs
 Which clinic would you patronize if you needed a chest
x-ray (assuming all three clinics offer good quality)?
Clinic A Clinic B Clinic C
 Price $45  Price $85  Price $125

 Located 1 hour  Located 15 mins  Located next to
away by car or away by car or your office or
transit transit college
 Next available  Next available  Next
appointment is in appointment is in appointment is in
3 weeks 1 week 1 day
 Hours: Mon-Fri,  Hours: Mon-Fri,  Hours: Mon-Fri,
9AM-5PM 8AM-10PM 8AM-10PM
 Estimated wait at  Estimated wait at  By appointment—
clinic is about 2 clinic is about 30 estimated wait at
hours to 45 mins clinic is 0 to 15
Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E
mins Chapter 1 - 15
Chase’s Blink Service
 Chase advertises
its fast new credit
card scanning
service, “Blink”
 “Blink” can be
read by a point-of-
sale terminal
without being
physically touched
 Simplifies and
speeds payment
transaction, saves
customer time and
effort Courtesy of JP Morgan Chase & Company
Place & Time
 Delivery decisions: Where, When, How
 Geographic locations served
 Service schedules
 Physical channels
 Electronic channels
 Customer control and convenience
 Channel partners/intermediaries
Applying the Flow Model of
Distribution to Services
Distribution embraces three interrelated

elements:
 Information and promotion flow

 To get customer interested in buying the service
 Negotiation flow
 To sell the right to use a service
 Product flow
 To develop a network of local sites
Distribution Options for
Serving Customers
 Customers visit service site

 Convenience of service factory locations and operational
schedules important when customer has to be physically
present
 Service providers go to customers

 Unavoidable when object of service is immovable
 More expensive and time-consuming for service provider
 Service transaction is conducted remotely

 Achieved with help of logistics and telecommunications
Six Options for Service Delivery
Availability of Service Outlets

Type of Interaction between Customer Single Site Multiple Sites
and Service Organization
Theater Bus service

Customer goes to service organization
Barbershop Fast-food chain
House painting Mail delivery

Service organization comes to
customer Mobile car wash
Credit card Broadcast

Customer and service organization company network
transact remotely (mail or electronic
communications) Local TV station Telephone
company
Channel Preferences
Vary among Customers
 For complex and high-perceived risk services, people

tend to rely on personal channels. Eg. Investment –
Personal Banking
 Individuals with greater confidence and knowledge

about a service/channel tend to use impersonal and
self-service channels Eg. Online banking
 Customers with social motives tend to use personal

channels – Eg. Movie rental vs movie theatre
 Convenience is a key driver of channel choice
Time of Service Delivery
 Traditionally, schedules were restricted

 Service availability limited to daytime, 40 to 50 hours a
week
 Historically Sunday is considered as a rest day in Christian
tradition,
Saturday in Jewish tradition, and Friday in Muslim tradition
 Today
 For flexible, responsive service operations:
- 24/7 service—24 hours a day, 7 days a week, around the world
Eg. Gas Station
- Some organizations still avoid 7-day operations, for
example:
- Atlanta-based Chick-fil-A
“Being closed on Sunday is part of our value
proposition”
Distributing Services -
Intermediaries
 Intermediaries play roles in distributing
services
 Franchising brings both advantages and
disadvantages to the firm
 Other third parties to market/deliver service
concept
 Licensing agents
 Brokers
 Alliance partners
 Minority joint ventures
 Delivery in cyberspace is facilitated by
technology and e-commerce allows 24-hour
delivery, saving time and effort
Using Websites for Service Delivery
Information
Read brochure/FAQ; get schedules/
directions; check prices
Payment Consultation
Pay by bank card Conduct e-mail dialog
Direct debit Use expert systems
Billing Order-taking
Receive bill Core Make/confirm reservations
Make auction bid Submit applications
Check account status Order goods, check status
Exceptions Hospitality
Make special requests
Record preferences
Resolve problems
Safekeeping
Track package movements
Check repair status
Core: Use Web to deliver information-based core services
Promotion & Education
 Informing, educating, persuading,
reminding customers
 Marketing communication tools
Media elements (print, broadcast, outdoor,
retail, the Internet, etc.)
Personal selling, customer service
Sales promotion
Publicity/PR
 Imagery and recognition
Branding
Corporate design
Overcoming Problems of
Intangibility
 May be difficult to communicate service
benefits to customers, especially when
intangible
 Intangibility creates four problems:
 Abstractness
― No one-to-one correspondence with physical objects
 Generality
― Items that comprise a class of objects, persons, or
events
 Nonsearchability
― Cannot be searched or inspected before purchase
 Mental impalpability
― Customers find it hard to grasp benefits of complex,
multidimensional new offerings
Advertising Strategies for
Overcoming Intangibility
Intangibility problem Advertising strategy

 Generality
 objective claims Document physical system capacity
Cite past performance statistics
 subjective claims Present actual service delivery incident
 Nonsearchability Present customer testimonials

Cite independently audited performance
 Abstractness Display typical customers benefiting
 Impalpability Documentary of step-by-step process,

Case history of what firm did for customer
Narration of customer’s subjective experience
Source: Banwari Mittal and Julie Baker, “Advertising Strategies for Hospitality Services,” Cornell Hotel and Restaurant Administration Quarterly 43, April
2002, 53
Facilitate Customer Involvement in
Production
 When customers are actively involved in service
production, they need training to perform well
 Show service delivery in action
 Television and videos engage viewer
 Dentists showing patients videos of surgical procedures
before surgery
 Streaming videos on Web and podcasts are new
channels to reach active customers.
 Advertising and publicity can make customers aware of
changes in service features and delivery systems in b2b
and b2c contexts
 Sales promotions to motivate customers
 Offer incentives to make necessary changes
 Price discounts to encourage self-service on an ongoing basis
Help Customers to Evaluate
Service Offerings
 Customers may have difficulty distinguishing one firm
from another
 Provide tangible clues related to service performance
 Some performance attributes lend themselves better
to advertising than others
 Airlines
― Boast about punctuality
― Do not talk overtly in advertising about safety, admission
that things might go wrong make prospective travelers
nervous
― Use indirect approach: promote pilot expertise, mechanic’s
maintenance skills, newness of aircraft
 Firm’s expertise is hidden in low-contact services

 Need to illustrate equipment, procedures, employee
activities that take place backstage
Stimulate or Dampen Demand to
Match Capacity
 Live service performances are time-specific
and can’t be stored for resale at a later date
 For example, seats for Friday evening’s performance; haircut
at Supercuts on Tuesdays
 Advertising and sales promotions can change timing of
customer use
 Examples of demand management strategies

 Reducing usage during peak demand periods
 Stimulating demand during demand during off-peak period,
for example:
― Run promotions that offer extra value—room upgrades,
free breakfast
Promote the Contributions of
Service Personnel
 Frontline personnel are central to service
delivery in high-contact services
 Make the service more tangible and personalized
 Advertise employees at work to help customers understand
nature of service encounter.
 Show customers work performed behind the

scenes to ensure good delivery To enhance
trust, highlight expertise and commitment of
employees whom customers normally do not
normally encounter
 Advertisements must be realistic
 Messages help set customers’ expectations
 Service personnel should be informed about the content of
new advertising campaigns or brochures before launch
Marketing Communications Mix
for Services (1)
Personal Advertising Sales promotion

communications
Selling Broadcast, Sampling

podcasts
Customer Print Coupons

service
Internet Sign-up
Training
rebates
Telemarketing Outdoor Gifts
Word of Prize
* Word-of-mouth Direct mail
promotions
mouth
(other customers)
Key: * Denotes communications originating from outside the organization

Marketing Communications Mix
for Services (2)
Publicity & Instructional

public relations manuals Corporate design
Press Websites Signage

releases/kits
Press Manuals Interior decor

conferences
Special Events Brochures Vehicles
Sponsorship Interactive Equipment

software
Trade Shows, Voice mail Stationery

exhibitions
* Media-initiated
coverage Uniforms
Key: * Denotes communications originating from outside the organization

People
Services marketing is mostly dependent

on Service Providers and their interaction
with customers
‘PEOPLE’ – All human actors participating
in the service delivery and thus influencing
the buyers perceptions:
―firm’s personnel,
―the customer
―other customers in the service

environment
People
 Service Providers – appearance,

attitudes, behaviour influence
customer’s perception of service
 Customers influence their own

service outcomes as well as others
People
 Interactions between customers and
contact personnel strongly influence
customer perceptions of service
quality
 The right customer-contact
employees performing tasks well
 Job design, Recruiting, Training
 Motivation
 The right customers for firm’s
mission
 Contribute positively to experience of
other customers
 Can shape customer roles and
manage customer behavior
Process
‘PROCESS’ – the actual procedures,

mechanisms, and flow of activities
by which the service is delivered –
the service delivery and operating
systems
 e.g. appointment, registration or
payment systems
Process
 Process involves choices of method and

sequence in service creation and delivery
Design of activity flows
Number and sequence of actions for customers
Nature of customer involvement

Role of contact personnel
Role of technology, degree of automation
 Badly designed processes waste time, create
poor experiences, and disappoint customers
Physical Evidence
The environment in which the

service is delivered is central to
customer satisfaction
Physical evidence provide
excellent opportunities for firms
to send consistent and strong
messages regarding the
organisation’s purpose, intended
market segments and the nature
of the service
Physical Evidence
‘PHYSICAL EVIDENCE’ – includes

the environment in which the service
is delivered and where the firm and
customer interact, and any tangible
component that facilitates
performance or communication of the
service
All the tangible representations of
the service eg. Brochures, letterhead,
business card, signage, equipment,
servicescape
Physical Evidence
 Design servicescape and
provide tangible evidence
of service performances
 Create and maintain

physical appearances
Buildings/landscaping
Interior design/furnishings
Vehicles/equipment
Staff grooming/clothing
Sounds and smells
Other tangibles
Marketing Must Be
Integrated with
Other Management
Functions
Marketing Must Be Integrated with
Other Management Functions
(Fig 1.10)
Three management functions play central and interrelated
roles in meeting needs of service customers
Operations Marketing
Management Management
Customers
Human Resources
Management
Search for Competitive Advantage
in Services Requires Differentiation
and Focus
 Intensifying competition in service sector

threatens firms with no distinctive
competence and undifferentiated offerings
 Slowing market growth in mature service
industries means that only way for a firm to
grow is to take share from competitors
 Rather than attempting to compete in an
entire market, firm must focus efforts on
those customers it can serve best
 Must decide how many service offerings with
what distinctive (and desired) characteristics
Positioning Strategy
 “All great service companies have a clear,

compelling service strategy. They have a
“reason for being” that energises the
organisation and defines the word “service”. A
service strategy captures what gives the
service value to customers. To forge a path to
a great service, a company’s leaders must
define correctly that which makes the service
compelling. They must set in motion and
sustain a vision of service excellence, a set of
guideposts that point to the future and show
the way”. Leonard Berry
Standing Apart from the
Competition
A business must set itself apart from its competition.

To be successful it must identify and promote itself
as the best provider of attributes that are

important to target customers
George S. Day
Basic Focus Strategies for Services
BREADTH OF SERVICE OFFERINGS
Narrow Wide
Service Unfocused
Focused (Everything
Many for
everyone)
NUMBER OF
MARKETS
SERVED Fully Focused Market
(Service & Focused
Few market
focused)
Source: Robert Johnston “Achieving Focus in Service Organizations,” The Service Industries Journal, Vol. 16, January 1996, pp. 10–20
Risks and Opportunities of a
Fully Focused Strategy
 Opportunities
 Developing recognized expertise in a well-defined niche may
provide protection against would-be competitors
 Allows firms to charge premium prices
 Risks
 Market may be too small to generate needed volume of
business
 Demand for a service may be displaced by generic
competition from alternative products
 Purchasers in chosen segment may be susceptible to
economic downturn
Positioning Distinguishes a
Brand from Its Competitors
Four Principles of Positioning
Strategy
 Must establish position for firm or product in
minds of customers
 Position should be distinctive, providing one
simple, consistent message
 Position must set firm/product apart from
competitors
 A company cannot be all things to all people—
must focus its efforts
Jack Trout
Possible Dimensions for Developing
Positioning Strategies
 Product attributes – DHL “going

all the way”, FedEx “Relax its
FedEx”, UPS “Deliver more”
 Price/quality relationships – Gieico

“you can save 15% or more on car
insurance”
 Reference to competitors (usually

shortcomings) – “the bigger,
better network”
Possible Dimensions for Developing
Positioning Strategies
 Usage occasions – Ski Resorts offer

downhill and cross-country skiing in the
winter; hiking and mountain biking in the
summer
 User characteristics – CheapTicket online

services is for travelers who are
comfortable with both internet usage and
self service
 Product class – Blue Cross offers a variety

of different health insurance packages for
its corporate customers to choose from in
putting together their employment benefits
Uses of Positioning in
Marketing Management
 Understand relationships between products and

markets
 compare to competition on specific attributes
 evaluate product’s ability to meet consumer needs/expectations
 predict demand at specific prices/performance levels
 Identify market opportunities

 introduce new products
 redesign existing products
 eliminate non-performing products
 Make marketing mix decisions, respond to

competition
 distribution/service delivery
 pricing
 communication
Market, Internal, and Competitor
Analysis
- Size Define, Analyze

MARKET - Market Segments
ANALYSIS Compositio
n
- Location Select
Target
- Trends Segments
To Serve
- Resources
INTERNAL - Reputation Articulate Marketing
ANALYSIS - Constraints Desired Position Action
in Market Plan
- Values
Select Benefits
to Emphasize
to Customers
- Strengths
COMPETITOR- Weaknesses Analyze
ANALYSIS - Current Possibilities for
Positioning Differentiation
Source: Developed from an earlier schematic by Michael R. Pearce

Positioning Maps
Using Positioning Maps to Plot
Competitive Strategy
 Useful way to represent consumer perceptions of

alternative products in visual format
 Typically confined to two attributes, but 3-D models can

be used to portray positions on three attributes
simultaneously
 Information about a product can be obtained from

market data, derived from ratings by representative
consumers, or both.
 If consumer perceptions of service characteristics differ

sharply from "reality" as defined by management, then
marketing efforts may be needed to change these
perceptions
 Also known as perceptual maps

Positioning of Hotels:
Price versus Service Level
Expensive
Grand
Regency
PALACE
Shangri-La
High Moderate
Service Atlantic Service
Sheraton
Italia
Castle
Alexander IV
Airport Plaza
Less Expensive
Positioning of Hotels:
Location versus Physical Luxury
High Luxury
Regency
Grand
Shangri-La
Sheraton
PALACE
Financial Shopping District Inner
District and Convention Center Suburbs
Castle Italia
Alexander IV
Atlantic
Airport
Plaza
Moderate Luxury
Positioning after New
Construction:
Price versus Service Level
Expensive
Mandarin
New Heritage
Grand Marriott
Continental
Action?
Regency PALACE
Shangri-La
High No action? Moderate
Service Service
Atlantic
Sheraton
Italia
Castle
Alexander IV
Less Airport Plaza
Expensive
Positioning After New Construction:
Location versus Physical Luxury
High Luxury
Mandarin
New Grand
Continental Heritage
Marriott Regency
Sheraton Shangri-La
Action?
PALACE
Financial No action? Shopping District Inner

District and Convention Center Suburbs
Castle Italia
Alexander IV
Atlantic
Airport Plaza
Moderate Luxury
Positioning Maps Help
Managers to Visualize
Strategy
 Positioning maps display relative performance of
competing firms on key attributes
 Research provides inputs to development of positioning
maps—challenge is to ensure that
 Attributes employed in maps are important to target segments
 Performance of individual firms on each attribute accurately
reflects perceptions of customers in target segments
 Predictions can be made of how positions may change
in light of future developments
 Simple graphic representations are often easier for
managers to grasp than tables of data or paragraphs of
prose
 Charts and maps can facilitate “visual awakening” to
threats and opportunities, suggest alternative strategic
directions

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Service Mix

 The Expanded Marketing Mix Required

 Service Focus Strategies

 Marketing is the only function to bring

 The “7Ps” of services marketing are needed

Quality level Exposure Salespeople Price level

Customers Equipment Number of steps

Communicating Signage Level of customer

Employee research Employee dress

 The service concept is represented by:

Billing Core Order Taking

Internet Entertainme Restaura

 Harder to calculate financial costs of creating a

 Pricing objectives can include

 Three main foundations to pricing a service

 Cost-based pricing seeks to recover costs plus a

 What basis for pricing? (How define unit of

 Firm must be aware of competitive pricing

Clinic A Clinic B Clinic C

 Price $45  Price $85  Price $125

 Delivery decisions: Where, When, How

 Geographic locations served

 Customer control and convenience

Distribution embraces three interrelated

 Information and promotion flow

 Customers visit service site

 Service providers go to customers

 Service transaction is conducted remotely

Availability of Service Outlets

Theater Bus service

House painting Mail delivery

Credit card Broadcast

 For complex and high-perceived risk services, people

 Individuals with greater confidence and knowledge

 Customers with social motives tend to use personal

 Convenience is a key driver of channel choice

 Traditionally, schedules were restricted

Intangibility problem Advertising strategy

 Nonsearchability Present customer testimonials

 Abstractness Display typical customers benefiting

 Impalpability Documentary of step-by-step process,

 Firm’s expertise is hidden in low-contact services

 Examples of demand management strategies

 Show customers work performed behind the

Personal Advertising Sales promotion

Selling Broadcast, Sampling

Customer Print Coupons

Telemarketing Outdoor Gifts

Key: * Denotes communications originating from outside the organization

Publicity & Instructional

Press Websites Signage

Press Manuals Interior decor

Special Events Brochures Vehicles

Sponsorship Interactive Equipment

Trade Shows, Voice mail Stationery

Key: * Denotes communications originating from outside the organization

Services marketing is mostly dependent

―other customers in the service

 Service Providers – appearance,