In Part 1 we covered intangibility and inseparability and the reason to highlight the service industry To recap, there are three reasons. Firstly the service industry is the strongest growth and more people are employed in services than in all other sectors put together. The second reason is the specialised nature of the market. Services have five important features that affect how they are managed and marketed. The services provided are of a specialised nature, these arise from the* intangibility of the offering,* inseparability of production and consumption,* heterogeneity - the difficulty of achieving standardization* perishable -nature of the service* ownership - the lack of full use only have the service for a limited time The third reason is some of today's service companies have developed new models of successful management practice. HeterogeneityHeterogeneity is the potential for high levels of variability in the quality and consistency of service. It's difficult to achieve a consistent level of service. For example, two visits to a restaurant may not be identical in performance. The difference will depend on the staff in charge. Unlike machines, people are not normally predictable and consistent in their attitudes and behaviour. This makes it difficult for service organisations to develop a consistent brand image.There are three ways of reducing the effects of heterogeneity; * Invest in the personal selection, motivation and training* Standardise the service such as McDonald's* Customise the service to suit the target such as an exclusive hotel PerishabilityServices cannot be saved. Hotel rooms not occupied, airline...

There are four central tasks facing managers in the service industry:  * Managing quality * Managing productivity * Managing service staff * Achieving differentiation Managing Quality The single most important factor of a service is its quality. This determines the long-term profitability and market share of the firm. However, quality is very hard to define in the service sector. Many have suggested doing it right the first time or having zero defects, but few have achieved these objectives on a consistent basis. Firstly, it's hard to measure quality because there is nothing physical to measure. There is no fuel consumption or music power to rate. Secondly, heterogeneity means that consistency can rarely be achieved. Thirdly, the inseparable nature of production and consumption make it difficult for firms to control the quality process. Lastly, the interaction of staff and customers means that customers evaluate not only the outcomes but also in terms of the process or manner in which the service is delivered. The difference can be a smiling waitress as opposed to a frowning one. Managers have to focus on the determinants of quality as follows; * Reliability - how consistent is the service? * Access - is the service easily accessible? * Credibility - can consumers trust the company? * Security - is the service free from risk and danger? * Knowledge - is every effort made to understand the needs of the customer? * Responsiveness - how willing are employees to provide service? * Competence - do staff have...

There are four central tasks facing managers in the service industry: * Managing quality* Managing productivity* Managing service staff* Achieving differentiation Managing service staffThe customer normally meets a wider spread of employees in the service sector. Each contact is a 'moment for truth,' so to speak in which it is decisively judged. In goods firms, marketing focuses mostly on external factors but, in services, it is mostly internal. Unless management meets the needs of employees, the organisation will not have staff who buys into the mission statement. The following are techniques to motivate employees:1. Employee-of-the-month awards2. Increase employees' visibility and proximity to customers by allowing them to see and hear how the customers respond to their work.3. Training and indoctrination to instil a sense of pride in the employees.4. Peer group control via commitment and team building to reinforce commitment.5 Appropriate environments such as equipment and systems to be able to satisfy the customer. Achieving differentiationIn achieving a differential advantage there are certain areas to take notice of: Integrating marketing and operationsIn services, managers are usually responsible for marketing and operations. Marketing thinking can often be forgotten by the problems of running a bank, hospital or a large IT company. Use time management systems to allocate time for marketing and operations and avoid trying to do both simultaneously. Product differentiationThere is no tangible product to compare in services and judgment is therefore purely subjective. The areas to concentrate on when servicing a client should be:The quality of serviceFriendly and courteousPunctualityBe right...

There are four central components of a service marketing strategy. 1. Target market segmentation This entails breaking down the potential market into segments; * Matching the customer needs and price sensitivity * Choosing the most attractive segment by its size, average profit and fitting into the firm's capabilities. * Researching the latent wants of customers and identifying the problems they face i.e. good quality service, and how well your competitors are servicing the expectations of customers. 2. Differential advantage After defining the market, a positional concept has to be created. The concept should be based on the most important attribute: will the customer acknowledge the difference immediately from your competitor. For example Outsurance - "you will always get something out" or KFC 'Finger-licking good" or a simple one "customer satisfaction". The concept should have sustainability as services are easily copied and improved by stronger firms. 3. Operating strategy This should transform a marketing opportunity into high performance for the firm. A few points to consider; * Search for value-cost leverage - maximise the offering and the cost in providing the service * Develop the design for service delivery * Create a strategy system that integrates the delivery system and the positioning strategy * Create a central vision with employees to build performance quality 4. Service marketing mix The last step is to create a marketing mix using product, price, place /distribution and promotion. Product Services are intangible, therefore is often difficult to understand the service being offered and the quality of...

Once you have decided on the distribution channels, the next step would be to design and operate a physical distribution system that will deliver products and services effectively and efficiently. Physical distribution or marketing logistics starts by asking how customers want to receive the product and then work backwards to the design of materials, final goods, inventory scheduling, transportation, warehousing and customer service to meet those needs. There are five key determinants of distribution costs and service levels. 1. Customer service Identify what customers want and estimate the benefits and costs of meeting these wants. Remember that the higher the service level the more it cost. * Availability - meet needs from existing stock. * Speed of delivery - customers will pay more for expeditious delivery. * Reliability - customers need to be informed of delivery and their expectation is met. * Lot size - number of units that customers are permitted to buy in one single purchase occasion, small lot sizes add to the cost. * Product variety - greater range for more convenience and choice for the customer. * Convenience - more till points and outlets. * Service and support - financial support, installation, maintenance and after-sales service. 2 Communications and order processing The re-engineering of order processing and internal communications is offering companies major sources of competitive advantage and cost savings. Modern computer systems can offer major opportunities in this area such as SAPS. 3. Production and warehousing location decisions The key determinant of stock availability is the...

Pricing is the key to a firm's profitability in the short and long term. Many markets are not pricing sensitive and the price is only one dimension of value, so the concept of creating superior value lies at the heart of the offering, and not the price. Low prices rarely provide a basis for sustainable competitive advantage. A pricing strategy should begin with an assessment of price competitiveness and the formulation of pricing objectives. The first task is to determine which competitors in the market are perceived as offering the best value. Value is a mixture of price and perceived quality. Assessing the value, therefore, requires research into how customers perceive the quality of alternative offers. There are various methods of researching such perceptions; * a} Identifying the dimensions of quality       Determine the product or service qualities or attributes that customers look for when choosing suppliers. * b) Weight quality dimensions       Establish which dimensions customers perceive as the most important. * c) Measure competitors dimensions        Customers are then asked to rate competitors offers along the dimensions of identified qualities. * d) Discover price/quality preferences The Influences on pricing decisions Underlying business objectives -the initial pricing decision will be influenced by the underlying marketing and financial objectives of the business. * Stage of the evolution of the market - introduction, young or mature stage. * Target market segments - increasing in number, becoming difficult to define, are continually evolving and are dynamic. * Competitor targets - prices are never set...

How to obtain higher prices: Many firms reduce prices since the experience curve, increasing competition and rising customer price sensitivity stimulate such actions. The other side of the coin is that inflation, stock market expectations for growing profits and the difficulty of finding enough products to replace established ones create pressure to increase margins. There are six ways to increase prices: 1. Influencing the psychology of the sales team The sales training would focus on: Profit rather than orders The benefits rather than the price. Instil courage in the sales force to take risks in pushing for a justified price increase Salesforce incentives to encourage a focus on prices Professional negotiating skills 2. Contracts and terms The shift towards long-term relationships favours such an approach and can have an enormous influence on profit margins. The common type of contract is that which has an escalation clause built in. The cost-plus formula also protects the margins. A reduction in discount acts as a price increase. 3. Demonstrating values rather than products. The aim is to demonstrate how the product differs from others in the market rather than selling a product. Sell packages that include services, technical support, terms and guarantees. Show the economic value to the customer. Build the brand to reduce the risk and confidence involved in buying a well-known brand. 4. Segmentation and positioning Recognise that customers differ greatly in the levels of price sensitivity. For some, it's the dominant criterion whilst, for others, it's the service, quality and image....

How to change prices To change prices once the product has been established is a very important strategic decision as inevitably the brand loses market share through consumer resistance to the price increase. The main determinants of price changes are: The price paid by the customer: an increase for the dealers' margin budget for advertising and promotion an increase in fuel and inflation adds to the cost of selling and distribution carrying extra inventory costs in the hope of selling more over holidays, i.e. Christmas Price received by manufacturer: ability to buy bulk raw materials increase in manufacturer margin marketing paid by the manufacturer for selling and advertising to double the awareness for the brand research and development is ongoing with new capital search other suppliers for procurement possibilities How to increase prices There are four ways in which your company can increase total profit:             Increase sales volume through aggressive advertising and promotion             Cutting costs - economies of scale             Raising prices for the market - a market leader can increase prices without jeopardizing market share             Raising prices for resellers - increase prices or reduce reseller mark-ups, discounts and allowances To increase internet marketing prices: Identify supply and demand imbalances. To take full advantage of the Internet's flexibility, companies need to spot the shifts in supply and demand that could trigger profitable price changes. Many companies already collect this information for operational purposes, but it's rarely passed along to the pricing group quickly enough to be useful. There...

Most companies today are structuring their new product development process to accelerate results and control costs. Step 1 Corporate strategy and innovation A corporate plan should make provision for the research and the development of new ideas. The innovation will be orchestrated by senior management and will dictate the resources made available to new development. Step 2 New product ideas Lots and lots of ideas are needed. After 50 new ideas maybe number 51 will be the winner. Many innovations are small improvements and line extensions and not complete breakthroughs. The team should focus on projects that are consistent with the overall strategy. New ideas can originate from: * Employees - front line people are the closest to the customer. Toyota receives 2 million suggestions per annum. * Customers - innovative customers are opinion leaders who are generally willing to talk about their requirements. * Research and Development - scientists play a pivotal role in hi-tech business. * Competitors - systematic comparison of products and a search for best practices. * Distributors - They know the end-user and competition which can be valuable allies. * Psychologists and market researchers - to find new gaps in the market * Outside sources - ideas are bought Step 3 Screening To select the maximum available number of ideas that are compatible with the firms' objectives. Step 4 Concept development The idea is developed as a consumer proposition and tested on potential customers. Customers buy solutions to their problems and not products. It is important...

Brief your staff - have a policy, especially for crisis situations. If you court press attention makes sure your staff are aware of your positions and policies. Ideally, make someone in charge of press contact, so that other staff are not forced to comment. All newspapers need press releases to help fill their pages. Local papers particularly need news submitted by the local community or they have to pay more for journalists to go out and get news. Look through your local papers and magazines to spot the PR material submitted by commercial organisations. This will encourage you as to how easy it is to provide 'news' stories for the press. Local TV and radio are also amenable to PR, but they're a bit more choosy. Nevertheless bear TV and, certainly radio, in mind for anything going on in your business of local interest or 'novelty value. Get the local editorial contact names and numbers. PR 'news' must be submitted to the news department (editorial department if it's a magazine) of the publication concerned. They like faxes in preference (it's more current) to post material that is notoriously unreliable, so don't be put off if your success rate in getting material published is a lot less than 100%. Be aware that the journalists will alter your copy, so don't agonize over the precise wording, but do enough to make it interesting and newsworthy. Generally, journalists prefer to deal directly with organisations rather than their PR agencies, so don't be shy. Remember...