Unit – 3: Marketing Mix, Advertising, Packaging and Branding of Services

Q. Define ‘service marketing mix’. Explain in detail about the elements of expanded marketing mix in service marketing. How do they influence service business?

Q. Define service market segmentation. Explain the factors that are generally considered by marketers in service market segmentation.

Q. Define ‘service marketing mix’. Also discuss the ‘new service development process’.

Q. What is Pricing? Explain various strategies used for pricing the services.

Q. What are the determinants of Service Quality? Discuss the causes behind service quality problems. Discuss the quality model in service marketing.       2022

Q. What is sales promotion? What are the tools of Sales Promotion? Explain with examples for any two services.

Q. Explain the meaning of advertising. What are the roles of advertising and packaging in service sector business?

Q. Define Branding and packaging. Discuss the role of Branding and Packaging in service marketing. 2022

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Service Marketing Mix or Expanded Service Marketing mix

The services marketing mix is an extension of the traditional 4-Ps framework. The essential elements of product, promotion, price and place remain but three additional variables – people, physical evidence and process – are included to 7-Ps mix. These three additional P’s of service marketing are called, Extended P’s of service marketing. The need for the extension is due to the high degree of direct contact between the service providers and the customers, the highly visible nature of the service process, and the simultaneous production and consumption. While it is possible to discuss people, physical evidence and process within the Original-Ps framework (for example people can be considered part of the product offering) the extension allows a more thorough analysis of the marketing ingredients necessary for successful services marketing. The additional Ps have been added because today marketing is far more customer oriented than ever before, and because the service sector of the economy has come to dominate economic activity in this country. These 3 extra Ps are particularly relevant to this new extended service mix. The service marketing mix comprises of the 7’ P’s. These included:

Ø People.

Ø Process.

Ø  Physical Evidence.

CHARACTERISTICS OF SERVICE MARKETING MIX

The marketing mix which is a tool used by markets to exhibit the following features:

1)  The marketing mix represents the important internal elements or ingredients that make up an organisation’ marketing programme.

2)   Services marketing mix is different from traditional marketing mix in the context of services. The four is Ps of marketing mix namely, product, place, price and promotion are derived from a list developed by Harvard Business School in the 1960s. The original list included twelve elements: Product plan, pricing, branding, channels of distribution, personal selling, advertising; promotion, packaging, display, servicing, physical handling, fact finding and analysis.

3) According to Simon Majaro, three factors determine whether or not a specific element should be included in a firm’s marketing mix: (i) The level of expenditure on a given ingredient in the marketing mix. (ii) The perceived level of elasticity in customer responsiveness. (iii) Allocation of responsibilities: A well-structured marketing mix needs a clear cut allocation of responsibilities.

4)  Making any decision about marketing mix depends upon how the service is to be positioned and the market segments to be addressed.

5) Marketing mix is a blending process.

6) Service marketing mix is an extended form of traditional marketing mix. The inclusion of additional elements (people, process, and physical evidence) is the result of the intangibility, inseparability and heterogeneity of services.

7) Each element in the marketing mix supports other elements. They reinforce the positioning of the product and deliver appropriate service quality to achieve competitive advantage.

Elements of Service marketing mix

Having identified the various features of the framework of service marketing mix, a brief description of each element is attempted in the following paragraphs:

1. PRODUCT (SERVICE PRODUCT): A product is an overall concept of objects or processes which provide some values to customers. Goods and services are sub-categories of product. The term produce is used in a broad sense to denote either a manufactured good or product and a service. Strictly speaking, customers are not buying goods or services but specific benefits and value from the total offering. This total offering to the customer is termed as “offer”. Offer represents those benefits that customers derive from the purchase of goods or service.

Flour levels of product are briefly described below:

(i) The core or generic product: The core product represents the basic services of a product. This product is at its basic level. For example, food served in a restaurant, a bed in a hotel room for the night, safety of deposits and loanable funds in a bank.

(ii) The expected product: The expected product consists of the core product together with the minimal purchase conditions which need to be met. For example, in a restaurant, in addition to basic food served, aspects such as cleanliness, timely service, polite and courteous service of bearer, availability of menu and background music are expected. In case of the banking service, apart from the safety of funds invested, customers expect accuracy of accounts, timely service, convenient banking hours, courtesy, carrying out the standing instructions are expected. Customers buying an airline ticket expect a range of additional elements such as comfortable waiting area, prompt in-flight service, good quality food, clean toilets and timely arrivals.

(iii) The augmented product: Augmented product refers to offerings (product benefit or services in addition to what customers expect). This concept enables a product to be differentiated from another. For example, though IBM has not got technologically advanced core product, they are praised for excellent customer service. This adds value to their core product in terms of reliability and responsiveness. The augmented product of a restaurant includes sparkling floors, ambience, smart employees, courtesy, music of choice, etc. In the case of banking augmented services may take the form of congenial waiting room, courteous staff with “May I help you” attitude, relationship orientation, quicker service, admission of faults, etc.

(iv) The potential product: Potential product refers to doing everything potentially feasible to hold and attract the customers. The concept of potential product of a restaurant is viewed in terms of a pleasing flower arrangement, manager’s word of thanks, readiness to go out of the way to serve, etc. The banking service may include occasional greetings at home, “The how are you Mr. X” culture, surprise gifts, readiness to go out of the way to serve the individual customer, etc. The potential product consists of added features and benefits that may or may not give benefits to the customers. Potential product offers scope for redefinition of the product in order to attract new customers.

2. PRICE: Price plays a significant role in the marketing mix by attracting revenue to the marketer. Pricing decisions are important for determining the value of the service as perceived by the customer building of an image for the service. Price serves as a basis for perception of quality. The pricing strategy should be in tune with the marketing strategy. Pricing strategy should gain competitive advantage for the firm. Generally, firms add a percentage mark up on cost.

3. PROMOTION: Promotion is an important part of the marketing mix for many marketers. The promotion element of the service marketing mix communicates the positioning of the service to customers. Promotion adds tangibility and helps the customer evaluate the service offer. The promotion of services encompasses a number of areas namely:

(a) Advertising

(b) Personal selling

(c) Sales promotion

(d) Public relations,

(e) Word of mouth; and

(f) Direct mail.

4. PLACE: Place in case of services determine where is the service product going to be located. The best place to open up a petrol pump is on the highway or in the city. A place where there is minimum traffic is a wrong location to start a petrol pump. Similarly, a software company will be better placed in a business hub with a lot of companies nearby rather than being placed in a town or rural area. Read more about the role of business locations or Place element.

5. PEOPLE:People is one of the elements of service marketing mix. People define a service. If you have an IT company, your software engineers define you. If you have a restaurant, your chef and service staff defines you. If you are into banking, employees in your branch and their behavior towards customers defines you. In case of service marketing, people can make or break an organization.

Thus many companies nowadays are involved into specially getting their staff trained in interpersonal skills and customer service with a focus towards customer satisfaction. In fact, many companies have to undergo accreditation to show that their staff is better than the rest.

6. PHYSICAL EVIDENCE: Physical evidence is another important variable to be considered in the context of services marketing. Since a service is intangible, it is important for the client to search for evidences which enables him to evaluate the, service. Physical evidences are those tangible clues which customers may receive during the process of receiving the service. The customers evaluate the worthiness of the service with the physical evidences they receive. Physical evidences can be successfully employed to describe the service-product and its distinguishing qualities.

7. PROCESSES: Service process is the way in which a service is delivered to the end customer. Let’s take the example of two very good companies – McDonalds and FedEx. Both the companies thrive on their quick service and the reason they can do that is their confidence on their processes. On top of it, the demand of these services is such that they have to deliver optimally without a loss in quality. Thus the process of a service company in delivering its product is of utmost importance. It is also a critical component in the service blueprint, wherein before establishing the service, the company defines exactly what should be the process of the service product reaching the end customer.

Branding in Services

Brand is a perceptual activity. It resides in the mindset of the customer. It is the brand on the basis of which the customer is able to distinguish the services of one provider from another. Brand means an image that the customer carries about a particular product/service. Branding deals with perceptual mapping and the virtual perceptual space. It is the brand that commands the particular price and hence its position as compared to its competitors.

According to AMA branding has been defined as the “The name, term, sign, symbol, design or a combination of them to identify the goods and services of one seller or group of sellers and to differentiate them from those of the competitors.”

Branding besides providing the differentiation also helps in recognition this also aids in the value reinforcement which ultimately leads to the repeat purchases by the customers. Branding is the end result of the customer relationship building.

Role of Branding in Service marketing

Brand value is the value that the brand commands in terms of the customer loyalty, Franchise, customer commitment. In other words, the brand is said to exhibit the brand value when no other rival brand comes close to it to substitute or displaces it from its current market positions. The best example for brand value among the Insurance sector is the Indian public sector organization LIC. It is the trust of customers in LIC that carries the highest brand value amongst the competitors. Discussing about the brand value is quite easy but the fact remains that how to gel and bond with the customers. Role of Branding are mentioned below”

a) GENERATE SERVICE FUNCTIONALITY: It is the benefits that the customers are looking for while purchasing the services of a particular service provider. Any service provider that has the ability to provide these functional benefits is the one that would command the competition. Some brands develop customer loyalty and commitment on the strength of their ability to deliver superior functional benefits. Actually the service is the bundle of ingredients, attributes, technology and form. Some brands draw their relevance and distinction from the services which they are offering such as Airtel that commands the no number position among the various competitors. 

b) PROVIDE THE EMOTIONAL BENEFITS: Emotions ride and finally shape the behavior of the individual. It is responsible for the way a person perceives the brand. More often the brand is able to provide the emotional satisfaction to the customer better it is considered. Beyond the physical side of human there is an integral and important side of emotions. Like functional satisfaction customers also seek emotional satisfaction. People care for love, empathy, romance, security, achievement, and humour. Brands delivering emotional benefits engender specific feeling during purchase and use. The idea is to trigger those feelings that the brand is designed to trigger in the emotional psyche of the customer. For instance, Maruti Suzuki brand is designed to make its owner feel Proud, safe and above all provide the much required service backup even in the remotest of the areas.

c) SELF IDENTIFICATION BENEFITS: As per the Maslow need hierarchy people need to identify themselves in the society which they are the part of they need to express self-identity on others. For instance, a person likes to express himself, confident, strong or adventurous. Brands achieve this association with the customers by becoming a means for such self-expression. Certain brands really command the respect and of course the customers who own such brands would be the proud ones. Talking about the big shot Institutions such as Harvard, LBS MIT all these are the big brands in the professional education and the students who have been associated with these brands command respect and are considered to be par excellence. Inherent to any strong brand is promise of delivery of satisfaction. Brands are carriers of unique value or benefits coveted by the target customer group. Brands become trustworthy for their consistent delivery of promised value. Consistency of delivery is crucial in any brand building effort.

STRATEGIES FOR CREATING OF A STRONG SERVICE BRAND: Some of the strategies for creating the strong service brand include the

a) DELIVERING AS PROMISED: Services are just the promises that need to be kept at any cost. Promises that are made to the customers have to be realistic in nature and they need to be fulfilled. Any promise that is not met would result in the dissatisfaction and ultimately the overall brand value would come down. Employees play an important role in this regards because they are the ones who interact with the customers and any type of over promising on their behalf would means lowering of the brand value. In simple words the service delivery, the employees and the service structure should be aligned to deliver quality to the customers.

b)      CREATE DIFFERENTIATION: It is often said that those individuals succeed who do the things differently, realizing and identifying the needs of the customer is an important parameter for the branding of the services. One brand of service provider needs to be different from the other. Differentiation can be on different parameters that may include the Service contents, quality, availability, delivery etc.

c)       AVOID VARIABILITY: Variations in the same service provided to the same segment of the customers has to be minimum. Variations create will and the customers start comparing. This comparison often is detrimental for the service provider. Heterogeneity of a product can kill a brand. Service heterogeneity must be checked and controlled by employing various mechanisms. Employee training and controls can standardize employee performance.

d) SERVICE EVALUATION: Evaluation of the services of a particular service provider depends on the nature of the services. Services with high credence and experience qualities are difficult to evaluate. In a situation of pre-purchase quality difficulty, the customer is forced to rely on other available clues and evidences. As a service provider the effectiveness would depend on the fact that how well the service provider can discover these clues and evidences and employ them creatively while communicating with the prospects.

e) EDUCATE CUSTOMER: Since services are inseparable in nature therefore the service provider should impart the training and should educate the customer about the role he is supposed to play in the service delivery. If this does not happen the role that the customer would play would be faulty still it would be the overall image of the service provider that would be tarnished because the customer will not be ready to admit his mistakes.

f) CUSTOMER FOCUS: What ever be the nature of the service to be provided the service provider should never more the customer away from its focus. This means that the service provider should always remain in contact with the customer and keep in updated about the recent developments. Companies that lack the customer focus and orientation are bound to be out of the competition and the market.

g) GENERATE EMOTIONAL HOOK: Branding is not always reasoning. It is the bond and connection that the service provider creates with the customer that would always hook the customer to the service provider. Actually it is the process of personalization of the services that the service provider should provide. Personalization helps the customer to feel like a king which in turn would maintain the brand loyalty of the customer.

h) CUSTOMER FEEDBACK: We all know how important the feedback is for the service provider and the customer also. It is the feedback through which the service provider can come to know about the relevance of the brand value in consumer mindset. The service provider needs to develop the efficient feedback mechanism with which the customer would feel free to give his views about the service provider and the services it is providing.

Service Packaging

The ‘package’ concept of service product suggests that what you offer to the market is a bundle of different services, tangible and intangible, but there is a main or substantive or ‘core’ service and around it are built the auxiliary or peripheral or facilitator services. It is important to note that facilitating services are mandatory and if these are left out, the entire service would collapse, although, there are other types of services in the service package, called supporting services. The basic difference between the two is that supporting services do not facilitate the consumption of core services, but are used to increase the value, and, thus, differentiate it from competition.

Service managers have difficulty identifying their product. This problem is partly a result of the intangible nature of services, but it is the presence of the customer in the process that creates a concern for the total Service experience. Consider the following examples. For a sit-down restaurant, atmosphere is just as important as the meal, because many diners regard the occasion as a way to get together with friends. A customer’s opinion of a bank can be formed quickly on the basis of a teller’s cheerfulness or length of the waiting line. The service package is defined as a bundle of goods and Services that is provided in some environment. This bundle consists of the following four features:

a) Supporting facility: The physical resources that must be in place before a service can be offered. Examples are a golf course, a ski lift, a hospital, and an airplane.

b) Facilitating goods: The material purchased or consumed by the buyers, or the items provided by the customer. Examples are golf clubs, skis, food items, replacement auto parts, legal documents, and medical supplies.

c) Explicating services: The benefits that are readily observable by the senses and that consist of the essential or intrinsic features of the Services. Examples are the absence of pain after a tooth is repaired, a smooth-running automobile after a tune-up, and the response time of a fire department.

d) Implicit services: Psychological benefits that the customer may sense only vaguely or the extrinsic features of the service. Examples are the status of a degree from an Ivy League school, the privacy of a local office, and work-free auto repair.

Importance of Packaging in Service Marketing

Packaging plays a significant role in service marketing as it can help businesses to communicate the value and benefits of their service to customers. Packaging can include both physical elements, such as packaging materials and design, as well as intangible elements, such as branding and customer service.Some specific ways in which packaging can be used in service marketing include:

1. Communicating value: Packaging can help businesses to communicate the value of their service to customers by highlighting the unique features and benefits of the service. This can be particularly important for intangible services, which may be more difficult for customers to understand and evaluate.

2. Creating a brand identity: Packaging can be used to create a strong brand identity and differentiate a service from competitors. This can be done through the use of visually appealing design and consistent branding elements, such as logos and color schemes.

3. Enhancing the customer experience: Packaging can be used to enhance the overall customer experience by making the service more convenient, easy to use, and appealing. For example, a service that provides home delivery could use packaging that is easy to open and dispose of, to make the experience more convenient for customers.

4. Protecting the service: Packaging can also be used to protect the service, particularly if it is an intangible service that cannot be physically handled. This can include measures such as secure packaging or digital safeguards to protect against fraud or unauthorized access.

5. Enhancing credibility: Packaging can be used to enhance the credibility of a service by demonstrating the professionalism and quality of the service. This can be done through the use of high-quality materials, clear and accurate labeling, and consistent branding.

6. Providing information: Packaging can also be used to provide information about the service to customers, such as instructions for use, terms and conditions, and contact information. This can be particularly important for complex or unfamiliar services, as it can help customers to understand the service and feel more confident in their purchase.

7. Building customer loyalty: Packaging can be used to build customer loyalty by creating a memorable and enjoyable customer experience. For example, a service that provides a gift with each purchase can use packaging that adds to the overall gift-giving experience.

8. Promoting sustainability: Packaging can be used to promote sustainability by using materials and design that minimize waste and environmental impact. This can be particularly important for businesses that are targeting environmentally conscious customers.

9. Facilitating word-of-mouth marketing: Packaging can also facilitate word-of-mouth marketing by creating a positive impression that customers are likely to share with others. This can be particularly important for services that rely on customer referrals or recommendations.

Service Quality

Service quality is the degree of excellence and perfection achieved in performing a service. Quality in services is basically a customer-oriented phenomenon. It must begin with customer needs and end with customer satisfaction. Customers are satisfied when their expectations are met, and delighted when their expectations are exceeded. Quality of service is the key to creating customer value and satisfaction. Quality is achieved when customers are provided with the best solutions or the best value for money.

Quality is subjective and hence it is difficult to give a precise definition. However, “the quality of services is the degree of conformance of all the relevant features and characteristics of service to all the aspects of the customer’s needs limited by the price and delivery he or she will accept”. Service quality when defined in terms of customer satisfaction is the degree of conformance of the perceptions of the service received to the expectations of the service desired. It is the totality of the features and characteristics of a service that bear on its ability to satisfy-stated or implied customer needs.

The nature and characteristics of services can have an impact on quality issues:

a) The intangibility of many services means that, it can be very difficult for service quality to be measured and assessed.

b) Inseparability of the service itself from the service provider highlights the role of people in the service transaction and their influence on quality levels.

c) The heterogeneous nature of services means that a service is never exactly repeated and will always be variable to some extent.

d) The perishable nature of services can lead to customer dissatisfaction if demand cannot be met.

SERVICE QUALITY GAPS/GAPS MODEL OR REASONS AFFECTING SERVICE QUALITY

Assessing the quality of the services is the most important as well as the most cumbersome process to be carried out by any organization. Service Quality may be defined as “The difference between customer expectations of service and perceived service.”

If expectations are greater than performance, then perceived quality is less than satisfactory and hence it results in customer dissatisfaction. The most lucid and well explained approach towards measuring the service quality is given in the GAPS MODEL, of service quality. Five major gaps have been identified that affect the service quality.

a) GAP – 1: CUSTOMERS’ EXPECTATIONS VERSUS MANAGEMENT: In simple terms this gap is the difference between the expectations that the customers have about the service and service provider and the understanding that the service provider develops about the customers’ expectations. Customer Perceptions are the subjective views carried by the customers about the service quality, whereas customer expectations are the standards or reference against which the experiences of the service would be compared. This Gap may exit due to of the lack of marketing research orientation, inadequate upward communication and too many layers of management in the organization. The customer expectations are generated by the image that is created by the organization through advertisement, CRM, Promotion etc., due to which the management develops a different perception about customer’s expectation resulting in this gap.

b) GAP – 2: ORGANIZATION’S PERCEPTIONS VERSUS SERVICE SPECIFICATIONS: Customer driven standards and service specification may not be same as the organizations view about customer expectations and this result in the Existence of Gap no II. This gap may develop due to following reasons.

1)      Unrealistic customer expectations: Organization believes that the customer expectations are unrealistic in nature and cannot be fulfilled at any cost.

2)      Lack of commitment: Management believes that service quality is difficult to maintain and does not show commitment of any kind towards the service quality.

3)      Infeasible: Feeling and perception of Infeasibility.

4)      Lack of Goal Setting: Inadequate task standardization and absence of formal goal setting.

c) GAP – 3: SERVICE SPECIFICATIONS AND STANDARDS VERSUS: This gap arises due to mismatch between the Service specification and actual service delivery. The most common reasons for this type of mismatch are:

1) Role ambiguity and conflict among the employees: Employees are not clear about the role they need to play is the effective delivery of services to the customers thereby causing confusion among the customers.

2) Poor Employee-job: the requirements of the job and the skills of the person do not match with each other.

3) Poor Technology-job fit: Employees have not been upgraded and are unable to provide the services through the technologically advanced systems.

4) In appropriate supervisory control systems: The system that is needed to access the performance of the employees and generate control over them is not as desired by the employees.

5) Lack of teamwork: Employees lack the feeling of team work hence they are unable to work as teams.

6) Inadequate service delivery intermediaries: All the intermediaries that are responsible for the service delivery are either inadequate or unable to provide the desired levels of the service.

7) Inability to address to the need of variability: Variability means providing different format of services according to the varying needs of the customers.

d) GAP – 4: SERVICE PERFORMANCE VERSUS PROMISES: This is a gap that occurs when there is a difference between the service delivery and service provider’s external communication. Promises that the service organizations have made to the customers through the advertisements, sales force and other media raise the potential expectations of the customers regarding the service quality whereas when it comes to the actual delivery of the promises the service performance is not up to the mark. The reasons for this kind of gap are:

1) Inadequate horizontal communication: The horizontal communication among the peer group may be inadequate that may lead to miscommunication and hence wrong promises.

2) Propensity/Tendency to over-promise: Employees in order to achieve their targets sometimes over promise the customer about the service which actually does not exist or cannot be delivered hence this leads to the failure of service.

e) GAP – 5: DIFFERENCE BETWEEN THE PERCEIVED SERVICE AND EXPECTED SERVICE: Customers always carry a perception regarding certain levels of the service that they think would be getting whereas in reality their expectations from the services may be altogether different, this mismatches results in the form of a gap that needs to be bridged to make a service a quality service.

Dimensions and perspective of Service Quality

The most important service quality model is the SERVQUAL developed by Parasuraman, Zeithaml and Berry. There are five main criteria on the basis of which service quality is determined. They have been arranged in the order of importance as given below:

1. Reliability: This implies the capacity of the service firm to deliver the promised service dependably and accurately. It means that the same service is performed every time, on time, in the same way and without mistakes.

2. Willingness: This refers to the willingness to help customers and provide prompt service. Customers do not like to wait unnecessarily and if it happens it reflects badly on the quality of service. Similarly, in case of service failure, the ability of the firm to respond professionally and quickly can create a good impact on service quality.

3. Assurance: This means the knowledge that the providers possess which enables them to perform the service competently. It also includes courtesy aspects such as politeness and respect for customers. This conveys trust and confidence and generally convinces the customer that the service provider has the customer’s best interest at heart.

4. Empathy: It basically means the power of understanding the customer’s feelings and needs which allows the server to care for him and provide personal attention to him. Due to this a customer feels that he can approach the server with confidence and has a feeling of security.

5. Tangibles: This includes the overall appearance of the surroundings,equipment, information materials and personnel. This can be visible evidence of the care and attention to details shown by service firm.Service quality has two important implications for the organization providing the service. First, decisions must be made on the basic level of quality, which will be provided to match the quality, which is expected by consumers. Secondly, decisions have to be made on the management of quality over time. These decisions have significant influence on the service offerings in the long term.

Need for New Service Development

One of the most important aspects of product strategy relates to the issue of the development of new products, a strategy, which is becoming increasingly important as the intensity of the competitive environment increases. The cost associated with the development and launch of a completely new product can be phenomenal and if the product fails to meet target sales figures, then the company may not survive. Although the risk associated with failure may be less for service providers when compared to manufacturers. Few reasons for new services development may be:

a) When a service has reached the maturity stage of its life cycle and may be moving towards decline stage,

b) When there is spare capacity.

c) To balance an organization’s existing sales portfolio and thus reduce risk of dependency on only a few services offered within a range.

d) To cater, to customer’s diverse needs.

Types of New Services: Due to intangible nature of services, it is often quite easy to make slight variations of an existing service. Thus, the term ‘new service’ can mean anything from a minor style change to a major innovation. Love lock has identified five types of ‘new services’:

a)  Change of style: This may include changes in décor or design or logo of a product.

b) Service improvements: These include the actual change to a feature of the service which is already an offer to an established market. For example, introducing computer reservation system in a travel agency to improve the efficiency of operations to satisfy the customers.

c) Service line extensions: There may be development of additional services to the existing service product range.

d) New service: The new services that are offered to its existing customers although they may be currently available from its competitors. For example, ATM service if offered by Stage Bank of Mysore.

e) Major innovations: These are purely new services through innovations for new markets.

The New Service Development Process

It is a systematic, staged process, which organizations should adopt to screen new service ideas and maximize their chances of success in the market. There are a variety of frameworks proposed to guide new service development. An appropriate framework (process) comprises the following stages:

1. Generation of ideas.

2. Screening.

3. Testing the concept.

4. Business analysis/evaluation.

5. Development.

6. Market testing.

7. Product launch.

1. Idea of Generation: Ideas can be generated from within an organization and also from outside, either formally or informally in other words it can come from both internal and external sources. The internal sources could be from sales staff, front line personnel, the suggestion box, new developments arising from existing services, and external sources could be from customers, experts in the field, market demand analysis and gap analysis.

2. Screening: A number of ideas generated in the first stage must be screened to ensure.

· Their consistency with the organization’s existing strategy.

· The extent to which they fit the image of the organization and its capability, their appeal to particular segment and

· Their cost and profitability implications.

Screening requires thorough evaluation, the application of weights to the different criteria and the development of ranking for the various ideas in terms of the suitability.

3. Testing the Concept: The ideas which constitute the new product or service must be translated into a specific feature and attributes which the product or service will display. Concept testing is usually done through marketing research. It involves presenting the idea or concept, to the target market and studying their reactions to make necessary modifications to the product before it is launched. The extensive test marketing should be carried out to set the benefits, not only in terms of feedback but also in terms of developing an appropriate marketing/campaign to find the product launch.

4. Business Analysis: At this stage, ideas which have been selected to be developed further require in depth exploration and evaluation. The important task is to produce a formal analysis of market potential of the ideas in terms of forecasting all aspects of developing and launching the service. The idea is now translated into a business proposal. The business analysis focuses on defining the market, market size and structure, consumer trends in the market, levels of demand, current and future, external environment factors likely to affect performance, competition, market share forecasts, financial forecasts, costing, break even analysis, etc.

5. Practical Development: At this stage preparation are made for developing and launching the service. The service providers undertake the work of designing and supply of literature and supporting materials. A detail marketing programme is developed to cover all aspects of marketing mix. They are Advertising and Promotional Campaigns, channel selection, packaging the new service offering, pricing policy and staff training.

6. Market Testing: Marketing research is carried to test the concept; it is necessary to test the market to reduce the risk. This may be done artificially by using panels of consumers who will use the product or service at their residence or testing in the actual market but in a small area may do it. The test marketing can help organizations to blend the elements of marketing mix to optimize the chances of success, and also be a strong indication of likely performance in the wider market.

7. Launch: The product launch is the final stage and the organization now can make decisions on when to introduce the new service, where, to whom and how to introduce the new service. It is at this stage that the life cycle is said to commence and the new service moves from being purely cost, to bringing in revenue. At this stage major decisions are taken regarding the timings of the launch, the geographical location of the launch and the specific marketing tactics to be used in support of that launch. There are different ways in which the success of new product and service can be measured. The evaluation of a new launch can vary according to which measure of success is used.

Price and Pricing

Price is defined as the amount we pay for goods or a service or an idea. Price is the only element in the marketing mix of a firm that generates revenue. All other elements generate only cost. Price is a matter of importance to both seller and buyer in the market place. Only when a buyer and a seller agree on price, we can have exchange of goods and services leading to transfer of ownership.

The term ― Price need not be confused with the term ― Pricing. Price is the value that is put to a product or service and is the result of a complex set of calculations, research and understanding and risk taking ability. But pricing is different from price. It refers to decisions related to fixing of price of a commodity. A pricing strategy takes into account segments, ability to pay, market conditions, competitor actions, trade margins and input costs, amongst others. It is targeted at the defined customers and against competitors. 

Objectives of Pricing

A business firm will have a number of objectives in the area of pricing. These objectives can be short term or long term or primary objectives: –

(i) Profit maximization in the short term.

(ii) Profit optimization in the long term.

(iii) A minimum return on investment

(iv) A minimum return on sales turnover.

(v) Achieving a particular sales volume.

(vi) Achieving a particular market share.

(vii) Deeper penetration of the market.

(viii) Entering new markets.

(ix) Target project on the entire product line.

(x) Keeping competition out, or keeping it under check.

(xi) Keeping parity with competition.

(xii) Fast turnaround and early cash recovery.

(xiii) Stabilizing price and margins in the market.

(xiv) Providing the commodities at prices affordable by weaker section.

(xv) Providing the commodities at prices that will stimulate economic development.

Importance of Pricing:

Importance of pricing is spelled out by the following points.

1. Price is the pivot for an economy: Price is the prime mover of the wheels of the economy namely, production, consumption, distribution and exchange price influences consumer purchase decision. It reflects purchasing power of currency. It can determine the general living standards of people. In essence, by and large every facet of our economy life is directly or indirectly governed by pricing.

2. Price Regulates Demand: Price increase or decrease the demand for the product or service. De- marketing strategy can be easily implemented to meet the rising demand for goods and service.

3. Price is the competitive weapon:The marketers have to perform in a highly competitive environment. Price is a very important instrument to fight competition. It is the competition that contributes maximum to the importance of pricing. Pricing is a highly dynamic function. Because of the immense competition and in meeting competition, pricing decisions acquire their real importance.

4. Price is the Determinants of profitability: Price determines the profitability of firm by influencing the revenue. Low price is not always necessary to increase profit. A right price can increase the sales volume and there by profit. The impact of price rise of fall is reflected instantly in the rise or fall of the service profitability.

5. Price is a Decision Input: Pricing is highly risky decision area and mistakes in pricing might reasonably affect the firm, its profits, growth and future.

6. Marketing Communication: Price plays an important role in marketing communication. High price may indicate higher quality. Price communicates value to the consumer. Customers are basically value-maximizes. They want to have the maximum value from a given purchase. They form an expectation of value and act on it. A buyer’s satisfaction is a function of the product’s perceived performance and the buyer’s expectations. So, if the service meets the expectations of consumers and their value definitions at the given price point, price is seen as acceptable. Otherwise consumers tend to be dissatisfied. They may say that the service is overpriced and they may reject the offer. 

The above discussion indicates that pricing is a critical element in any company’s marketing plan, because it directly affects revenue and profit goals. Effective pricing strategies must consider costs as well as customer perceptions and competitor reactions, especially in highly competitive markets. Today, many firms are trying to follow the low-price trend. At the same time, many marketers have been successful in selling more expensive products and services by combining unique product formulations with engaging marketing campaigns. 

Pricing Methods

There are several methods of pricing and they can be grouped into few broad categories: –

(1) Cost Based Pricing

(2) Demand Based Pricing

(3) Competition Oriented Pricing

(4) Value Pricing

(5) Product Line Oriented Pricing

(6) Tender Pricing

(7) Affordability Based Pricing

(8) Differentiated Pricing.

(1) Cost Based Pricing: Under the cost based pricing, different methods used are: –

Ø  Mark Up Pricing

Ø  Absorption Cost Pricing

Ø  Target Rate of Return Pricing

Ø  Marginal Cost Pricing

Mark Up Pricing: It refers to the pricing methods in which the selling price of the services is fixed by adding a margin to its cost price. The mark ups may vary depending on the nature of the service and the market. Usually, the higher the value of the service, the larger is the mark up.

Absorption Cost Pricing: ACP rests on the estimated unit cost of the service at the normal level of production and sales. The method uses standard costing techniques and works out the variable and fixed costs involved in manufacturing, selling and administering the product. By adding the costs of operations, we get the total costs. The selling price of the product is arrived by adding the required margin towards profit to such total costs.

Target Rate of Return Pricing: It is similar to absorption cost pricing. The rate of return pricing uses a rational approach to arrive at the mark up. It is arrived in such a way that the ROI criteria of the firm are met in the process. But this process amounts to an improvement over absorption costing since it uses a rational basis for arriving at the mark up.

Marginal Cost Pricing: It aims at maximizing the contribution towards fixed costs. Marginal costs include all the direct variable costs of the product. In marginal cost pricing, these direct variable costs are fully realized. In addition, a portion of the fixed costs is also realized under competitive market conditions marginal cost pricing is more useful.

(2) Demand Based Pricing: The following methods belong to the category of demand / market based pricing:

Ø  What the Traffic Can Bear’ Pricing

Ø  Skimming Pricing

Ø  Penetration Pricing

What the Traffic Can Bear’ Pricing: The seller takes the maximum price that the customers are willing to pay for the product under the given circumstances. This method is used more by retail traders than by manufacturing firms. This method brings high profits in the short term. But in the long run it is not a safe concept, chances of errors in judgment are very high.

Skimming Pricing: This method aims at high price and high profits in the early stage of marketing the product. It profitably taps the opportunity for selling at high prices to those segments of the market, which do not bother much about the price. This method is very useful in the pricing of new products, especially those that have a luxury or specialty elements.

Penetration Pricing: Penetration pricing seeks to achieve greater market penetration through relatively low price. This method is also useful in pricing of new services under certain circumstances. For e.g. when the new product is capable of bringing in large volume of sales, but it is not a luxury item and there is no affluent / price insensitive segment, the firm can choose the penetration pricing and make large size sales at a reasonable price before competitors enter the market with a similar product. Penetration pricing in such cases will help the firm have a good coverage of the market and keep competition out for some time.

In all demand based pricing methods, the price elasticity of demand is taken into account directly or indirectly.

(3) Competition Oriented Pricing: In a competitive economy, competitive oriented pricing methods are common. The methods in this category rest on the principle of competitive parity in the matter of pricing. Three policy options are available to the firm under this pricing method:

Ø  Premium Pricing

Ø  Discount Pricing

Ø  Parity Pricing

Premium pricing means pricing above the level adopted by competitors. Discount pricing means pricing below such level and parity pricing means matching competitors pricing.

(4) Value Pricing: Value pricing is a modern innovative and distinctive method of pricing. Value pricing rests on the premise that the purpose of pricing is not to recover costs, but to capture the value of the service perceived by the customer. Analysis will readily show that the following scenarios are possible with the cost value price chain:

Ø Value > Price > Costs

Ø Price > Value > Costs

Ø Price > Costs > Value

Ø Price > Value > Costs

(5) Product Line Pricing: When a firm markets a variety of services grouped into suitable product lines, a special possibility in pricing arises. As the service in a given line are related to each other, sales of one influence that of the others. They also have interrelated costs of manufacturing and distribution. It can fix the prices of the different service in such a manner that the line as a whole is priced optimally, resulting in optimal sales of all the services put together and optimal total profits from the line.

(6) Tender Pricing: Business firms are often required to fix the prices of their services on a tender basis. Such customers usually go by competitive bidding through sealed tenders. They seek the best price consistent with the minimum quality specification and thus bag the order.

(7) Affordability Based Pricing: The affordability based pricing is relevant in respect of essential commodities, which meet the basic needs of all sections of people. Idea here is to set prices in such a way that all sections of the population are in a position to buy and consume the products to the required extent.

(8) Differentiated pricing: Some firms charge different prices for the same services in different zones/ areas of the market. Sometimes, the differentiation in pricing is made on the basis of customer class rather than marketing territory.

Factors Affecting Pricing

Factors affecting pricing may be categorized into two categories- internal factors and external factors. In each of these categories some may be economic factors and some may be psychological factors. Some factors may be quantitative and some others may be qualitative. Some of the important factors affecting pricing are given below:

A. Internal Factors:

As regards pricing, the firm has certain objectives -long term as well as immediate. For example, the firm has certain costs of manufacturing and marketing; and it seeks to recover these costs through the price and thereby earning a profit. In respect of all the products, the firm may have a basic philosophy on pricing. The pricing decisions of the firm have to be consistent with this philosophy. Pricing also has to be consistent with the overall objectives of the firm. These objectives could be achieving market share, short term or long term profit. The firm may be interested in seeking a particular public image through its pricing policies. All these constitute the internal factors that influence pricing. From the above, it appears that pricing is influenced by objectives and marketing strategy of the enterprise, pricing philosophy, pricing objectives and policy. More specifically, the internal factors are: 

1. Corporate and marketing objectives of the firm: All pricing objectives emanate from the corporate and marketing objectives of the firm. A business firm will have a number of objectives in the area of pricing. Some of these objectives are long-term, while others are short-term. Profit is one of the major objectives in pricing. Firms may not be interested in profit maximization as such, they may be more interested in long term survival and growth.

2. The image sought by the firm through pricing: If a firm offers high quality goods or services at high prices, the firm will develop a premium image. 

3.The characteristics of the product or service: Sophisticated, complex and new to the world, products or services normally carry high prices. Products or services having more features carry higher prices.

4. Price elasticity of demand of the product or service: If price increases, demand decreases and if price decreases demand increases. Marketers may decide on pricing based on ‘what the traffic can bear’. The marketer takes the maximum price which the customers are willing to pay for the product under the given circumstances.

5. Extent of distinctiveness of the product or service and extent of product or service differentiation practised by the firm: Products or services having uniform size, shape and compositions can be manufactured at a lesser cost compared to products having differentiation. 

6. Other elements of the marketing mix of the firm and their interaction with pricing: Amount spent on product or service research, advertising, dealer development etc. are some factors which influence price of a product or service.

7. Composition of the product or service line of the firm: A firm may sell a number of products or services in the same product or service line. In that case, the products or services are likely to be sold under different prices depending on their quality, features etc.

B. External Factors:

In addition to the internal factors mentioned above, any business firm has to encounter a set of external factors while formulating its pricing decisions. An enterprise exists in an environment and is influenced by environmental factors. The external factors are:

1. Market characteristics: Some markets are having very stiff competition and some are having less. The number of players in a market could be more or less. Market leadership factors also may be different. Different characteristics of the market have a bearing on price.

2. Buyer behaviour in respect of the given product: Value conscious buyers are likely to be interested in low prices. Image conscious buyers may be more attracted by product image rather than low price of the product or service.

3. Bargaining power of major customers: In industrial buying situations major buyers have a bargaining power. They are in a better position to negotiate prices.

4. Bargaining power of major suppliers: Similar is the case with major suppliers. They are in a better position to supply bulk quantities. They are also in a better position to negotiate terms.

5. Competitors’ pricing policy: Firm’s decision to set a price is heavily influenced by the price set by the competitors. In case of highly unique product having a niche market, a firm can have its own price. In most of the cases, competitive reactions to the price set by the firm have to be seriously studied for future programmes.

6. Government controls/regulations on pricing: As stated earlier the Governmental measures like import duties, excise, subsidy, sales tax etc. influence pricing decisions.

7. Social considerations: Firms have a responsibility to society and to its customers. Firms are not expected to exploit consumers by unnecessarily charging high prices.

As discussed above pricing decisions are complex. For pricing an individual product or service, the firm has to consider its overall objective, prices set for other products, costs etc. These are internal factors. In addition, the pricing decisions are influenced heavily by the external factors as stated above.

Sales Promotion

Sales promotion refers to short term use of incentives or other promotional activities that stimulate the customer to buy the product or service. Sales promotion techniques are very useful because they bring short and immediate effect on sale.

Merits of sales promotion:

a) Attention values: The incentives offered in sales promotion attract attention of the people.

b) Useful in new service launch: The sales promotion techniques are very helpful in introducing the new service as it induces people to try new services.

c) Synergy in total promotion efforts: Sales promotion activities supplement advertising and personal selling efforts of the company.

d) Aid to other promotion tools: Sales promotion technique make other promotion techniques more effective. Salesmen find it easy to sell services on which incentives are available.

Demerits of sales promotion:

a) Reflect crisis: If a firm is offering sales promotion techniques again and again it indicates that there is no demand of service which can create crisis situation.

b)      Spoil service image: Use of sales promotion tool may affect the image of service as buyer feel that service is of low quality that is why firm is offering incentives.

Sales promotion techniques: (a) Rebate (b) Product combination (c) Lucky Draw (d) Contest (e) Discounts

(a) Rebate: Sometimes, the service is made available at special prices less than the original prices for a limited period of time.

(b) Product Combination: Product combination is the bonus items given free with the purchase of a product. They are effective in getting consumers to try a new product or service.

(c) Lucky Draw: A firm of purchased of a fixed amount gives a coupon to a customer which entitles them for a lucky draw.

(d) Contests: In these, consumer’ are required to participate in some competitive event involving application of skills or luck and winners are given some rewards.

(e) Discounts: These are like price promotion in which certain percentage of price is reduced as discount from the list price.

Distinguish between advertising and Sales Promotion.

Basis	Advertising	Sales promotion
Meaning	The activity of generating advertisements of products and services to commercialize them is known as Advertising.	Sales promotion refers to short term use of incentives or other promotional activities that stimulate the customer to buy the product.
Strategy	It is permanent strategy.	It is a limited time promotion strategy.
Cost	It is highly expensive.	It is cost effective.
Best suited for	It is best suited for medium and big enterprises.	It is suitable for all enterprises.
Objective	Its main objective is to build brand image and boosting sales.	Its main objective is short term sales push.

Advertising for services

Advertising is the impersonal communication used by service firms. Advertising in service marketing adds to the customer’s knowledge of the service, persuades the customer to buy and differentiates the service from other service offerings. Persistent advertising is, therefore, a must for the success of the marketing of the service. Since the core product is intangible, service marketers find promotional aspects difficult. They choose the tangible elements that come along the product for promotion. Airlines, for example, promote their service by advertising about the quality of cuisine, the width and pitch of seats and the quality of their in-flight service. Nowadays, advertising is extensively undertaken for financial services, telecommunication, retailing, etc. Service firms spend a considerable Sum on advertising. Objectives of advertising have been identified as:

a)      creating an understanding of the company in the customers’ minds by describing the company’s services, activities and its areas of expertise

b)      creating a positive image for the company

c)       building a strong sense of identification with the customer by turning his needs, values and attitudes

d)      creating a positive background for the sales people to sell the services by providing all relevant information about the company.

Significances of Advertising: Advertising is the most commonly used tool of promotion. It is an impersonal form of communication, which is paid by the marketers (sponsors) to promote goods or services. Common mediums are newspaper, magazine, television & radio. Advertisements play a very important role in offering innumerable benefits to the manufacturers, customers and to the society in general. Following are the benefits of Advertisements:

1. Advertisements attracts new buyers and maintains existing customers and to the society in general.

2. Advertisements inform the consumers about the quality and uses of the product.

3.       Advertising also acts as an information service and educates the con­sumer. It enables him to know exactly what he wants and where to get it. 

4. Advertising stimulates production and reduces the cost per unit. This reduction in the cost is generally passed on to the consumer.

5. Advertising also makes it possible to sell direct to the consumer by Mail Order Business. 

6. Advertising helps in creating goodwill, brand image and brand loyalty.

7. Advertisements help the retailers in selling the advertised products.

8. It is also helpful in getting better employees and executives.

Limitations of Advertising: Several objections have been raised against advertising and some people criticize advertising as a social waste. The main point of criticism is as follows: –

a) Creates Monopoly in the Market: Advertisement leads to promotion and cover mass level of customers at a time. Large firms can bear the advertisement expenditure but not the small firms, due to that it can eliminate the small firms from the market and creates its monopoly authority in the market.

b) Higher the Prices of Product: Investment of money in advertisement leads to increase in the price of goods and services for which consumer has to face high prices and pay for it. Hence, more the advertisement cost- more the product cost.

c) Misleading the consumers: Now days, advertisement misleads the consumers on false representation regarding their goods. Consumer attracts to those goods which are not necessary for them. Thus, advertisement misleads the consumer and sale goods to them.

d) Wasteful Consumption by the Consumers: Advertisement attracts the consumers for wasteful products which are not necessary for consumers. Due to advertisement businessmen takes undue advantage from them. They sale unhealthy and artificial goods to them and exploits consumer emotions.

e) Wastage of National Resources: There will be wastage of national resources, valuable stationary, time and energy used by the people or is ignored by them. Here, Valuable resources that can be used to create new industries are wasted in the production of needless varieties and designs.

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