Analysis of Service Product Marketing - Research Paper Example

One of the major world trends over the past decade has been the dramatic growth of the service sector. Over 60% of the Global economy is accounted for by service industries and USA has become the world’s first service economy with over 74% of it’s GDP being generated through service industries. Service industries account for over 60% of the total income generation in many of the developed nations. With the growing affluence, more leisure time and increased complexity of products which require service assistance, the importance of service industries has grown while the challenges of marketing services effectively has become increasingly complex. Advent and rapid dispersion of the Internet has facilitated the emergence of many innovative Internet based service segments linked with e-comemrce. Globalization and the highly developed communication technology has created huge potential for service sector growth. In the past, service products which had inherent limitation factors such as the non stockability and inseperability from the service personnel, could not be made available easily across national boundries and cater to the global market. However with the wide-spread use of Internet, many service providers has become truly globalized, reaching across national and geographic boundaries to offer their services to vastly expanded markets. Supply of back office operation support and call center operations by countries such as India is an example of how service marketing has been revolutionized by the developments in telecommunication and information technology. Today an increasing trend referred to as servitization is being noted. In addition to pure service products, more and more of phicical products too are having a higher service component encompased in to its product offering. Companies are placing increased importance upon the service component of the product and also augmenting this component to increase and add value to operations. Virtually every product today has a service component to it. Thus, managing the marketing mix of service products is of key importance for the companies of this service era. 1. INTRODUCTION The service sector of the global economy has developed rapidly over the last few decades, transforming the way businesses are operated and how business and organizational models are being applied. Due to the nature and characteristics of service products which is distinctive and sets it apart from the physical goods marketing, the traditional business models applicable for manufacturing businesses is no longer effective for the service firms (Schlesinger & Hekette 1991). The evolution of the service sector has been fueled by five main factors including government policies, social changes, business trends, advances in informational technology and the internationalization. Service product marketing poses a key challenge for today’s managers. Need for changing organizational business models, business processes and practices has become critical for staying in business and competing effectively. Under the facilitation of world trade governing bodies such as WTO, globalization is escalating and mergers and technology transfer arrangements are common. Organizations are either integrating operations in to service industries which complements with their existing physical goods or forming alliances with service providers to complete the product offer consisting of both core product and the auxiliary services (Swartz. & Iacobucci 2000). Industries such the automobile maintenance is one such example where global manufacturers and marketers of automobiles use their licensed dealers worldwide to not only sell the automobiles but also provide auxiliary services such as maintenance and repairs. Today, an increasing number of vehicles are maintained and repaired through workshops and maintenance stations operated by the automobile dealers. These maintenance operations have the advantage of technical know-how, training from parent company as well as required equipments to provide enhanced services for the consumer. For example, it is common and preferred choice today to service your Mazda vehicle at the Mazda Licensed dealer’s maintenance station. However the maintenance and repair services are also provided by a host of other individual operators as well as small and medium scale businesses. These operations have the advantage of accessibility and being able to offer more personalized services due to their smaller scale. However in order to compete effectively it is important that they too enhance and improve their strategies applied in marketing their services. While marketing services involve the effective managing of all the marketing elements such as Product elements, Place and Time, Process, Service Quality, People, Promotion, Physical Evidence and the Price, importance of service quality is an area which merits special attention. Service quality is a subjective concept, which is dependent upon the customer’s perceptions of the service encounter. Therefore managing service quality involves managing all dimensions of quality, which contributes to the customer’s overall perception of the service encounter. This report attempts to identify the issues of managing quality in service marketing and means of improving the service quality across the key quality dimensions. The analysis is carried out in the context of Auto Clinic Pte. Ltd, which is a medium scale private enterprise offering a full range of automobile maintenance and repair services. A situational analysis with regards to the current managing of service quality at Auto Clinic is carried out to identify the gap areas needing improvements and the proposed improvements are critically evaluated against the industry environment to assess their pros and cons. 2. ORGANIZATIONAL BACKGROUND Auto Clinic Pvt. Ltd was established in 1975 in Campbell Town – New South Wales of Australia, as a proprietor owned garage workshop named Hendlman Auto Works. Over the years, with its quality and reliable services, the operations grew and the family run business expanded in to a fully-fledged auto care and maintenance workshop. In year 2004, the new chairman, the son of the founder converted the proprietorship in to a limited liability company naming it as Auto Clinic Pte Ltd. The objectives of converting to a limited liability company was that the management realized the need for change in terms of how the services were marketed, the need for a more professional image to complete in the intensely competitive field and also to access financial credit facilities to expand operations and acquire much needed technology and equipment to compete effectively against larger scale automobile dealer workshops. The company handles a full range of automobile repairs such as mechanical and electrical fault handling, wheel aligning a painting, lube servicing and interior, exterior cleaning and servicing. The company mainly caters to the local clientele as well as a number of corporate clients of whose vehicle fleets are maintained by the company. Auto Clinic has maintained its predecessor, Handlman Auto Works’ reputation for reliability and quality service. However, with the intense competition being faced by the company with the aggressive marketing drive of the main automobile dealers who are now focusing their efforts in to the maintenance sector, Auto Clinic has decided to evaluate its current service quality and identify areas needing improvement. 3. DISTINCTIVE CHALLENGES OF SERVICE MARKETING In order to evaluate effective means of services marketing, it is important to establish what is referred to as services. Services can be defined as an act or performance offered by one party to another. Although the process may be tied to a physical product, the performance is essentially intangible and does not normally result in ownership of any of the factors of production (Lovelock 2001). Another perspective of services is captured in the definition which states that services are economic activities that creates value and provide benefits for customers at specific times and places as a result of bringing about a desired change in – or on behalf of the recipient (Lovelock 2001). 3.1 Nature and Features of Service Products There are distinct features in the nature of services, which needs to be understood in order to manage the service marketing effectively. However it is important to recognize that some of these features are no longer specific to pure service products as the trend continues towards increasing the service component of physical goods (Vandermerwe & Rada 1988). With this servitization of physical goods, it can be noted that the distinctions between services and physical goods, which are discussed below, are increasingly blurring today (Gronroos, 2000). The nature of services is such that in most service offerings, the customer does not acquire ownership of any physical elements but derive value. In the case of Auto Clinic, it is the technical know-how of diagnosing and repairing the faults that makes up the key service offered. Services are intangible and therefore the benefits come from the nature of the service performance (Levitt 1981). In cases such as automobile repairs, the service component is high but also includes a tangible aspect related to the spare parts and other materials used in the process of performing the services. Service products are high in level of customer involvement in the production process. Performing high-contact services involves the customer in creating the service product. The degree of customer involvement in the service process caries implications for companies in terms of how the service locations are designed, what amenities and ambiance is offered and the timing of the service processing which should match with the customer needs. In service marketing, people become a part of the product. In high-audience services such as restaurants, sports and entertainment shows, the service personnel as well as the customers themselves become a part of the offer (Lovelock 2001). Therefore the service firms have to devote special care in selecting, training and motivating their frontline service personnel. At the same time, the service firms have to manage and shape their customer behavior as well. Another feature is the variability of service products. Higher the level of customer involvement in the processing of the service, lesser the chance of correcting a negative variability without customer detection. In certain industries where the possibility exists, replacement of service workers with automation takes place to achieve cheaper and more consistence service performance. Yet another important feature of service products, which merits consideration, is the difficulty of customer evaluation. While most physical goods tend to be relatively high in predetermined search properties such as colors, size and texture, service products emphasis experience properties which can be discerned only after purchasing or during consumption of the service. Implications for service marketers of this feature is that effort should be made to help customers match their needs to certain service features and educate customers of what to expect during and after service delivery. Because service products cannot be stored, they are in a sense perishable in nature. While companies can keep the required input to the production of services ready so that customer waiting is minimized, idle resource are a loss to the organization. Implications for a services marketer as Auto Clinic is how to manage the uneven demand for lube and servicing services which tends to peak prior to long weekends and holidays as people prefer to service their vehicles prior to setting off on long haul journeys. Importance of time factor is a resulting aspect of the inability to store service products. Therefore, speedy service becomes a key area, which needs to be developed without compromising the quality of service. While speed is critical in services, which are delivered on real time basis such as airlines, hospitals and beauty salons, elapsed times are also very important in today’s time constraint schedules. Customers expect not only speedy service but also services to be made available at times which are convenient to the customers and not to the company. Resulting implications of this has lead to many service providers becoming 24 hours operators throughout the week with very few holidays (Lovelock 2001). Auto Clinic currently operates 5 & ½ days a week closing on Saturday afternoon and Sunday. 3.2 Integrated Marketing Strategies In developing marketing strategies for service industry, it is important to adopt an integrated approach incorporating all the elements of the marketing mix. In addition to the traditional four Ps in physical goods marketing, service marketing has four more Ps, leading to an 8 P model. These include the Product elements, Place and Time, Process, Productivity and Quality, People, Promotion and Education, Physical Evidence and the Price and other user costs. An integrated approach to marketing service products realize that in order to deliver the product offering to the consumers, the skills and commitment of their service staff is critical. These companies not only focus on developing their customers but also their employees. The concept of Service – Profit – Chain management represents the interlinked relationship between employee service performance and organizational profits, which is illustrated in Figure 1. Evaluating the current marketing strategies of Auto Clinic it can be noted that out of the 8 Ps recommended for services marketing, only few elements as product, place and pricing is given consideration. That too is being done in isolation so that there is little synergy derived from each elements favorable outcome. Little or no promotional and awareness activities are currently carried out. Figure 1 – Service – Profit Chain relationship The service –profit chain indicates that for a firm to achieve its service profit and growth objectives, it is important not only to carry out external marketing but also internal marketing and interactive marketing. Figure 2 illustrates the three-pronged marketing process, which facilitates successful service marketing (Armstrong & Kotler 2000). At Auto Clinic a critical weakness can be noted in this regard. Some of the technical staff have been present at with the organization from its inception. A rift between the new recruits who has passed out from technical institutes and the old staff with hands on experience are vying for superiority among the ranks. Certain incidents where arguments among staff erupting in the presence of customers have been reported. Although most of the old staff are highly experienced, the need to ingrain customer care concepts and attitudes is also an area for addressing. Therefore internal marketing needs to be addressed at Auto Clinic as much as the external marketing. Training of contact personnel on interactive marketing aspects is also a necessity. Figure 2 – Three types of service marketing 4 MANAGING SERVICE QUALITY Service Quality is a critical element of the marketing mix for service products and managing service quality, which is by nature a subjective concept. In order to manager service quality, it is essential to understand how customers perceive service quality. It should be noted that service quality is interlinked with the concepts of customer satisfaction and customer value (Bitner 1990). Customer satisfaction is a summary of cognitive and affective reactions to a service encounter or sometimes to a long-term service relationship (Oliver 1980). Service Quality can be measured on an incident specific or cumulative basis. Customer Value includes the quality as well as price. Managing service quality involves managing the distinct aspects of designing the service product, designing the service environment and delivering the service. As service quality is associated with the total customer encounter, failures in any of the above aspects may not compensate for excellence in one or more of the other aspects. Therefore it is of critical for managers to not only consider the quality of the service product but also the quality of service environment and service delivery, which makes up the service encounter. In the case of Auto Clinic one of the key weaknesses which can be noted is that although the quality of the service product component is high, the total encounter is not up to satisfaction in most cases due to lack of attention paid to the service environment and the service delivery. For example, comfortable waiting areas are not provided and no extra amenities are available for the waiting customers. The service delivery too has remained traditional in its approach where customers are expected to come in person and receive their services. The operating hours too has impact on service delivery weaknesses where closing operations on weekends limit the flexibility and convenience offered to customers in service delivery. Service Quality is viewed in two main components by the consumer. The technical outcome quality is the final outcome of the service. In the case of Auto Clinic the technical outcome is very important because proper servicing or repairs are critical for the customer. There is also the process quality aspect where the customer judges the quality of service through how it was processed and delivered. In the case of Automobile maintenance context, these process quality elements includes how the customer inquiries were handled, how prompt attention was provided, how the damage assessments were done and quotations were provided, whether the speedy service was offered, whether there was ease of delivery as pick up and repairs, online bookings etc. Upon evaluation, it can be noted that although Auto Clinic’s technical outcome quality is high where the repairs are reliable and effective, there is significant room for improvement and adding value to service process quality. Currently no online booking services are provided and no separate staff is present to handle incoming customer inquiries and calls. The callers tend to be kept waiting on line and technicians remain unwilling to leave their work and come to the phone to update customers on the repair status. Some times, faulty information is provided on the status of repair completions, leading to customer frustration and complaints. There are incidents where certain items, which were inside the vehicle, which are removed from the vehicle during the repair process such as the carpets are not returned when dispatching the vehicle. No checklists are present to record and acknowledge status of vehicles and removable belongings, which comes in with vehicles. No mobile roadside assistance or towing facilities are offered by Auto Clinic. Assessing these points, the overall process quality is low and needs to be improved. In order to manage quality, it is important to identify the dimensions, which the customers use in judging the service quality. These include Reliability, Responsiveness, Assurance, Empathy and the Tangibles (Parasuraman, Zeithaml & Berry1988). While these service dimensions are linked with the external marketing aspects of how the company deals with its customers, it is important for an organization to simultaneously focus on internal marketing as well as interactive marketing aspects to ensure the service encounter as a whole wins the customer’s mind. 5 RECOMMENDATIONS FOR CHANGE Based on the evaluations of the current service quality management of Auto Clinic, following recommendations for change are proposed. These proposed recommendations are mainly linked to the improvement of service quality dimensions, which the customers use in forming their perceptions of the service quality. It is also recommended that the firm carries out customer care training and implement motivational rewards linked to customer satisfaction indices with the aim of improving the internal marketing and interactive marketing aspects of the company, which is also crucial in its overall marketing strategy. In order to establish a proper communicational channel between Auto Clinic and customers, setting up of a separate customer service section is recommended. Personnel in this section should posses technical know-how to advice, explain and discuss technical requirements while processing excellent interpersonal and communicational skills. This section should handle customer inquiries, liaise between workshop staff and customer, and provide updates on repair status, provide proforma quotations and estimates. Reliability Improvements –To improve this aspect, each job should be assessed and a target time frame should be provided to the customer beforehand. The progress status should be updated on each job to the customer care division. All incoming vehicles should be recorded in job cards with acknowledgment of incoming status and included movable objects as spare wheels and other personal properties. All replaced spare parts and accessories should be provided for customer inspection to validate actual replacement with new units. Customers should be briefed on the identified faults or needed repairs and maintenances and how these requirements have been fulfilled. Responsiveness improvements – In addition to the setting up of a customer care division which will greatly improve thus quality dimension, a 24 hour hotline should be set up to provide roadside assistance and service and maintenance appointments. A mobile repair unit and a tow-truck needs to be purchased. Responsiveness also encompasses flexibility and customization. Thus, operations should be made available on weekends as well. Free pickup-service and deliver back concept should be introduced to lure those customers who do not enjoy the prospects of waiting at maintenance depots. This will be an attractive feature for female customers as well as people with busy work schedules. Assurance improvement- This can be achieved through provision of continued quality service, willingness to explain and educate customers of complicated technical aspects, free inspections and diagnostic services when customers come in for regular maintenance services, and by providing tangible evidences of how qualified the service team is. This can be done through display of credentials in name cards of those senior technical staff. In addition to this the Auto Clinic should become accredited members of associations such as the National Roads and Motorists Association. These associations create public awareness through their websites and other communications and provide listings of member companies with their assurance for good quality. Empathy Improvements – refers to the caring, individualized attention the firm provides its customers (Zeithaml & Bitner 2001) Customers should be made to feel special and important. It is suggested that Auto Clinic use its customer records to familiarize staff on their names and also be aware of their special requirements. A record card should be opened in duplicate for each vehicle and one provided to the vehicle owner, with the fault diagnostic data, service details etc. Efforts should be made to use the same staff in dealing with a specific customer so that familiarity and relationships can be established. Improving the Tangibles – This is a key area, which Auto Clinic has to improve upon. A new waiting area will be created adjacent to the Customer care office and amenities such as reading material, a TV and two to three Internet connections so that value can be added to the waiting experience. The technical team will be provided with uniforms with Auto Clinic branding. The addition of tow trucks and mobile maintenance vehicles will also add to the tangible aspect improvements. New equipment including diagnostic oscilloscopes and other computerized faulty identification systems will be incorporated to raise the standards of fault detections up to the dealer workshop’s level. To monitor and control the services quality, a service charter will be formulated, a customer satisfaction index will be created, and a complaint handling and service recovery process will be established (Balachandran 1999). Employee reward systems should be linked to the customer satisfaction and service quality indicators. 6. EFFECTIVENESS OF PROPOSED CHANGES IN INDUSTRY CONTEXT There are over 35 individual automobile maintenance workshops in the Campbell Town area and service Departments of main Automobile dealers are located in diverse areas in New South Wales. Overall Australian automobile industry is rather stagnant and growing at a rate of approximately 1%. However the service and maintenance industry is experiencing growth as people are interested in providing proper car care. Customer expectations are increasing and the factory affiliated dealer workshops are setting high standards for technical know how, ease of access and customer care. At the same time, customers are demanding increased value, which is a function of quality offered and price charged. In this industrial context, change proposals have both advantages as well as disadvantages. The proposed changes, especially the addition of new equipment and electronic diagnostic systems will incur significant costs. For competitors who are authorized dealers of automobile manufacturers, these equipments are provided free or on subsidized basis and staff training for operating these equipments is free. However, Auto Clinic will have to incur substantial costs in these aspects. As most equipment is compatible with only groups of makes and brands, the need for equipment that is compatible with different vehicle makes is also required. For example diagnostic systems for European brands tend to be non-compatible with Japanese makes, thus increasing the acquisition costs. By changing operational times to 7 days a week, providing online booking facilities, by setting up a customer care hotline and a separate customer care division, the company will position itself away from other small and medium scale operators such as Dufty Automotive Services Pty Ltd, Narellan Auto Electrical Pty Ltd and Camden Automatics who are the closest competitors for Auto Clinic. However, all these small and medium scale operators have lean cost structures and use it as a means of providing low pricing for their services against the high charges of the authorized dealer workshops. Auto clinic might be placed in a disadvantageous position if the new improvements cause the cost structure to rise too much and affect the pricing and profit levels. An advantage the dealer workshops enjoy is the rub off benefits of national advertising campaigns the manufacturer carries out for the brand with the dealer affiliation information. Such advertising is beyond affordability for individual operators and therefore, Auto Clinic will have to device cost effective means of advertising and creating awareness of its newly improved service dimensions. The main advantage expected by Auto Clinic through the implementation of the marketing proposals is that the improved quality of the service encounters will lead to customer loyalty and customer referrals though word of mouth which is one of the most important promotional tools of this industry. The final outcome expected is to achieve growth and healthy profits though the management of the service- value-chain of the operation. 7. CONCLUSUION With increased options in the market place, customer choice leads to higher bargaining power of the consumer. With globalization facilitating free technology and know-how transfers the quality of technical services are developing and customer expectations of quality is elevated. Therefore, it is essential that small and medium scale operators restructure their service offerings and redesign their marketing strategies to stay abreast with industry giants. Improving upon quality dimensions, which makes up the service encounter is the key to successfully managing the customer’s perception of the organization’s service quality. In managing service quality, it is important to focus on not only the external marketing aspects but also internal and interactive marketing aspects which takes place in services marketing. References Grönroos, C, 1997, “ Value-Driven Relational Marketing: From Products to Resources and Competencies,” Journal of Marketing Management, Vol. 13, No 5, pp. 407-419 Schlesinger, L. 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