MAHARSHI DAYANAND UNIVERSITY, ROHTAK

External Marks: 70
Internal Marks: 30
Time: 3 hrs.
SERVICE MARKETING
PAPER CODE: 2323/50923
UNIT-I
Foundation of Service Marketing – Definition and concept of service marketing, distinctive
characteristics and classification of services, growth in service, service marketing mix, emergence
of service economy
UNIT-II
Customer Focus – Understanding customer needs and expectations, process of market
segmentation, selecting customer portfolio, creating valued relations with customer, customer
loyalty, service encounters, measuring customer satisfaction, SERVQUAL and GAP Model,
handling complaints, service failure and recovery
UNIT-III
Designing and Delivery services – Positioning a service in the market, value addition to service
product, planning and branding service product, new service development, pricing the service
product, advertising, personnel selling and other communication in services industry, challenges
in distribution of services, role of employees, customers and intermediaries in service industry
UNIT-IV
Special Issues in Service Marketing – e-services, online consumer behaviour, self service
technologies, understanding specific service industries – financial, hospitality, health, telecom,
retail, public utilities, NGOs, travel and tourism, professional services
SUGGESTED READINGS:
1. Zeithaml, Valarie A, Bitner, Mary Jo, Service Marketing – Integrating Customer Focus Across the
Firm, Tata McGraw Hill, New Delhi
2. Lovelock, Christopher, Wirtz, Jocken and Chatterjee, Jayanta, Service Marketing – People,
Technology, Strategy, Pearson Education, New Delhi
3. Verma, Harsh, Services Marketing – Text and Cases, Pearson Education
4. Apte, Govind, Services Marketing – OUP, New Delhi
5. Jauhari, Vinnie and Kirti Dutta, Services: Marketing, Operations and Management, Oxford
University Press, New Delhi
NOTE:
1. One case study be discussed – per unit – in the class.
2. Instruction for External Examiner: The question paper will have two sections. Section ‘A’ shall
comprise 8 questions (2 questions from each unit). The students will be required to attempt four questions
(one question from each unit). Section ‘B’ will contain one CASE STUDY which will be compulsory. All
the five questions will carry equal marks.
Chapter 12:
Chapter 12 Managing Relationships and Building Loyalty

Four Stages of Brand Loyalty in a Consumer:

Four Stages of Brand Loyalty in a Consumer Cognitive loyalty – perception from brand attribute information that one
brand is preferable to its alternatives Affective loyalty – developing a liking for the brand based on cumulatively
satisfying usage occasions Conative loyalty – commitment to rebuying the same brand Action loyalty – exhibiting
consistent repurchase behavior

Loyalty is Important to Profitability : Index of Customer Profits over Time (Fig. 12.1):
Loyalty is Important to Profitability : Index of Customer Profits over Time (Fig. 12.1) Based on data from Reichheld
and Sasser

What Makes Loyal Customers More Profitable? :

What Makes Loyal Customers More Profitable? Tend to spend more as relationship develops customer’s balances
may grow may consolidate purchases to one supplier Cost less to serve less need for information and assistance
make fewer mistakes Recommend new customers to firm (act as unpaid sales people) Trust leads to willingness to
pay regular prices vs. shopping for discounts

Analyzing Why Customers Are More Profitable over Time (Fig. 12.2):
Analyzing Why Customers Are More Profitable over Time (Fig. 12.2) 1 2 3 4 5 6 7 Year Profit from price premium
Profit from references Profit from reduced op. costs Profit from increased usage Base Profit Source: Reichheld and
Sasser

Measuring Customer Equity: Calculating Life Time Value of Each Customer :

Measuring Customer Equity: Calculating Life Time Value of Each Customer Value at Acquisition revenues
(application fee + initial purchase) Less costs (marketing +credit check + account set up) Annual Value (project for
each year of relationship) revenues (annual fee + sales + service fees + value of referrals) Less costs (account
management + cost of sales + write-offs) Net Present Value Determine anticipated customer relationship lifetime
Select appropriate discount figure Sum anticipated annual values (future profits) at chosen discount rate Customer
Equity is total sum of NPVs of all current customers

Customer-Firm Relationship:
Customer-Firm Relationship Database Marketing: Involves the use of technology by delivering differentiated service
levels to consumers and subsequently tracking the relationship. Interaction Marketing: Usually in B2B context where
people and the social process also add mutually beneficial value. Network Marketing: Common in B2B context where
companies commit resources to develop positions in a network of relationships with the stakeholders and relevant
agencies. Today’s marketers seek to develop long-term relationships with customers. Relationship marketing
includes:

Types of Relationships with Customers (Table 12.1):

Types of Relationships with Customers (Table 12.1) Type of Relationship--Firm and Customer Nature of Service
Delivery “Membership” No formal relationship Continuous Cable TV Radio station Insurance Police College
enrollment Lighthouse Discrete transactions Subscriber phone Pay phone Theater subscription Movie theater
Warranty repair Public transport

Basic Segmentation Issues: Building an Appropriate Customer Portfolio :

Basic Segmentation Issues: Building an Appropriate Customer Portfolio Target customers whose needs match firm’s
capabilities Focus on value of prospective customers within each segment, not just numbers Avoid targeting
customers who might abuse: our employees, facilities other customers Create a mix of segments to reduce risks of
volatility during swings of economic cycles

Service-Relevant Segmentation Variables:

Service-Relevant Segmentation Variables Timing of service use (e.g., by hour, day, season) Level of skill and
experience as co-producer/self-server Preferred language in face-to-face contact Access to electronic delivery
systems (e.g., Internet) Attitudes toward use of new service technologies

Identifying and Selecting Target Segments (Mgt Memo 12.2):

Identifying and Selecting Target Segments (Mgt Memo 12.2) User characteristics demographics psychographics
geographic location benefits sought User behavior when, where, how services used quantity/value of purchases
frequency of use profitability of relationship sensitivity to marketing variables
Portfolio of Professional Assignments (Fig. 12.4):
Portfolio of Professional Assignments (Fig. 12.4) Analytical Work on Project Data “Bread and Butter” Projects
Significant Projects “Pacesetters” Major, State-of-the-art challenges for the firm’s principals that give the firm high
visibility Demanding client assignments offering a learning experience for the firm’s most experienced associates
Routine client projects shared among principals and associates Entry-level tasks for new associates or for research
assistants & paraprofessionals

The Customer Pyramid (Fig. 12.5):

The Customer Pyramid (Fig. 12.5) Lead Iron Gold Which segment sees high value in our offer, spends more with us
over time, costs less to maintain, and spreads positive word-of-mouth? Which segment costs us in time, effort and
money, yet does not provide the return we want? Which segment is difficult to do business with? Platinum Good
Relationship Customers Poor Relationship Customers

How Customers See Relational Benefits in Service Industries (Research Insights 12.1):
How Customers See Relational Benefits in Service Industries (Research Insights 12.1) Confidence benefits less risk
of something going wrong, less anxiety ability to trust provider know what to expect get firm’s best service level Social
benefits mutual recognition, known by name friendship, enjoyment of social aspects Special treatment benefits better
prices, discounts, special deals unavailable to others extra services higher priority with waits, faster service

The Customer Satisfaction-Loyalty Relationship (Fig. 12.6):

The Customer Satisfaction-Loyalty Relationship (Fig. 12.6) 0 20 40 60 80 100 1 2 3 4 5 Loyalty (Retention) Very
dissatisfied Dissatisfied Neither satisfied nor dissatisfied Satisfied Very Satisfied Satisfaction Near Apostle Zone of
Defection Zone of Indifference Zone of Affection Terrorist Apostle

The Wheel of Loyalty (Fig. 12.7) :

The Wheel of Loyalty (Fig. 12.7) 1. Build a Foundation for Loyalty 2. Create Loyalty Bonds 3. Reduce Churn Drivers
Customer Loyalty Be selective in acquisition Conduct churn diagnostic Segment the market Use effective tiering of
service. Deliver quality service. Deepen the relationship Give loyalty rewards Build higher level bonds Implement
complaint handling & service recovery Address key churn drivers Increase switching costs Enabled through: Frontline
staff Account managers Membership programs CRM Systems

Rewarding Value of Use, Not Just Frequency at British Airways (Best Practice in Action 12.2):
Rewarding Value of Use, Not Just Frequency at British Airways (Best Practice in Action 12.2) Dedicated reservations
Reservations assurance Priority waitlist and standby Advance notification of delays exceeding 4 hours Upgraded
check-in Preferred boarding Special services assistance Bonus air miles Upgrade for two

Drivers of Service Switching (Fig. 12.9):

Drivers of Service Switching (Fig. 12.9) Service Switching Service Encounter Failures Uncaring Impolite
Unresponsive Unknowledgeable Response to Service Failure Negative Response No Response Reluctant Response
Pricing High Price Price Increases Unfair Pricing Deceptive Pricing Inconvenience Location/Hours Wait for
Appointment Wait for Service Competition Found Better Service Ethical Problems Cheat Hard Sell Involuntary
Switching Customer Moved Provider Closed Value Proposition Others Service Failure / Recovery Core Service
Failure Service Mistakes Billing Errors Service Catastrophe Unsafe Conflict of Interest

Common CRM Applications (Mgt Memo 12.2):

Common CRM Applications (Mgt Memo 12.2) Signifies the whole process by which relationships with customers are
built and maintained. CRM as an enabler, offering a “unified customer interface” and allow firms to better understand
and segment the customers etc. Applications include: Data collection Data analysis Sales force automation Marketing
automation Call center automation

Customer Relationship Strategies with CRM Systems: Key Questions:

Customer Relationship Strategies with CRM Systems: Key Questions How should our value proposition change to
increase customer loyalty? How much customization or one-to-one marketing and service delivery is appropriate and
profitable? What is the incremental profit potential of increasing share of wallet with current customers? How much
does this vary by customer tier and/or segment? How much time and resource can we allocate to CRM right now? If
we believe in CRM, why have we not taken steps in that direction before? What can we do today to develop customer
relationship without spending on technology?