The increased importance of the service industry has sharpened the focus on what it takes to excel in the marketing of services.40 Here are some guidelines.
1. MARKETING EXCELLENCE
Marketing excellence in services requires excellence in three broad areas: external, internal, and interactive marketing (see Figure 14.3).41 
- External marketing describes the normal work of preparing, pricing, distributing, and promoting the service to customers.
- Internal marketing describes training and motivating employees to serve customers well. Arguably the most important contribution the marketing department can make is to be “exceptionally clever in getting everyone else in the organization to practice marketing.”42
- Interactive marketing describes the employees’ skill in serving the client. Clients judge service not only by its technical quality (Was the surgery successful?), but also by its functional quality (Did the surgeon show concern and inspire confidence?).43 In interactive marketing, teamwork is often key. Delegating authority to frontline employees can allow for greater service flexibility and adaptability because it promotes better problem solving, closer employee cooperation, and more efficient knowledge transfer.
A good example of a service company achieving marketing excellence is Charles Schwab.45
CHARLES SCHWAB Charles Schwab, one of the nation’s largest discount brokerage houses, uses the telephone, Internet, and wireless devices to create an innovative combination of high-tech and high-touch services. One of the first major brokerage houses to provide online trading, the company today serves more than 8 million individual and institutional accounts. It offers account information and proprietary research from retail brokers, real-time quotes, an after-hours trading program, the Schwab learning center, live events, online chats with customer service representatives, a global investing service, and market updates delivered by e-mail. It has also been adding a slew of mobile capabilities to satisfy its customer on the go. Schwab grew during the financial crisis by offering new products for sophisticated investors, such as managed portfolio ETFs and fixed income funds. Besides the discount brokerage, the firm offers mutual funds, annuities, bond trading, and now mortgages through its Charles Schwab Bank. Its success has been driven by its efforts to lead in three areas: superior service (online, via phone, and in local branch offices), innovative products, and low prices. Its long-running “Talk to Chuck” marketing campaign reinforces how the firm is always there to help its customers.
2. TECHNOLOGY AND SERVICE DELIVERY
Technology is changing the rules of the game for services in a very fundamental way. Banking, for instance, is being transformed by the ability to bank online and via mobile apps—some customers rarely see a bank lobby or interact with an employee anymore.46 Technology also has great power to make service workers more productive. When USAirways deployed handheld scanners to better track baggage, mishandled baggage decreased almost 50 percent. The new technology paid for itself in the first year and helped contribute to a 35 percent drop in complaints.47
Sometimes new technology has unanticipated benefits. When BMW introduced Wi-Fi to its dealerships to help customers pass the time more productively while their cars were being serviced, more chose to wait rather than use loaner cars, an expensive item for dealers to maintain.48
Companies must avoid pushing technological efficiency so hard, however, that they reduce perceived quality.49 Some methods lead to too much standardization, but service providers must deliver “high touch” as well as “high tech.”50 Amazon has some of the most innovative technology in online retailing, but it also keeps customers extremely satisfied when a problem arises even if they don’t actually talk to an Amazon employee.51 More companies are introducing “live chat” features to blend technology with a human voice.52
As Chapter 5 reviewed, the Internet lets firms improve their service offerings and strengthen their relationships with customers by allowing for true interactivity, customer-specific and situational personalization, and real-time adjustments of the firm’s offerings. But as companies collect, store, and use more information about customers, they have also raised concerns about security and privacy. Companies must incorporate the proper safeguards and reassure customers about their efforts.
3. BEST PRACTICES OF TOP SERVICE COMPANIES
Well-managed service companies that achieve marketing excellence have in common a strategic concept, a history of top-management commitment to quality, high standards, profit tiers, and systems for monitoring service performance and customer complaints.
STRATEGIC CONCEPT Top service companies are “customer obsessed.” They have a clear sense of their target customers and their needs and have developed a distinctive strategy for satisfying them. At the Four Seasons luxury hotel chain, employees must pass four interviews before being hired. Each hotel also employs a “guest historian” to track guest preferences. With more than 10,000 branches in the United States, more than any other brokerage firm, Edward Jones stays close to customers by assigning a single financial advisor and one administrator to each office. Although costly, maintaining such small teams fosters personal relationships.53
TOP-MANAGEMENT COMMITMENT Companies such as Marriott, Disney, and Ace Hardware have a thorough commitment to service quality. Their managers look monthly not only at financial performance, but also at service performance. Ray Kroc of McDonald’s insisted on continually measuring each McDonald’s outlet on its conformance to QSCV: quality, service, cleanliness, and value. Some companies insert a reminder along with employees’ paychecks: “Brought to you by the customer.” Sam Walton of Walmart required the following employee pledge: “I solemnly swear and declare that every customer that comes within 10 feet of me, I will smile, look them in the eye, and greet them, so help me Sam.” Allstate, Dunkin’ Brands, Oracle, and USAA have high-level senior executives with titles such as Chief Customer Officer, Chief Client Officer, or Chief Experience Officer who have the power and authority to improve customer service across every customer interaction.54
HIGH STANDARDS The best service providers set high quality standards. In the highly regulated banking industry, Citibank still aims to answer customer phone calls within 10 seconds and letters within two days; it has been an industry leader in using social media for customer service.55 The standards must be set appropriately high. A 98 percent accuracy standard may sound good, but it would result in 64,000 lost FedEx packages a day; six misspelled words on each page of a book; 400,000 incorrectly filled prescriptions daily; 3 million lost piece of USPS mail each day; no phone, Internet, or electricity for eight days per year or 29 minutes per day; 1,000 mislabeled or (mispriced) products at a supermarket; and 6 million people unaccounted for in a U.S. census.
PROFIT TIERS Firms have decided to coddle big spenders to retain their patronage as long as possible. Customers in high-profit tiers get special discounts, promotional offers, and lots of special service; those in lower- profit tiers who barely pay their way may get more fees, stripped-down service, and voice messages to process their inquiries.
When the recent recession hit, Zappos decided to stop offering complimentary overnight shipping to firsttime buyers and offer it to repeat buyers only. The money saved was invested in a new VIP service for the company’s most loyal customers.56 Companies that provide differentiated levels of service must be careful about claiming superior service, however—customers who receive lesser treatment will bad-mouth the company and injure its reputation. Delivering services that maximize both customer satisfaction and company profitability can be challenging.
MONITORING SYSTEMS Top firms audit service performance, both their own and competitors’, on a regular basis. They collect voice of the customer (VOC) measurements to probe customer satisfiers and dissatisfiers and use comparison shopping, mystery or ghost shopping, customer surveys, suggestion and complaint forms, service- audit teams, and customers’ letters.
We can judge services on customer importance and company performance. Importance-performance analysis rates the various elements of the service bundle and identifies required actions. Table 14.2 shows how customers rated 14 service elements or attributes of an automobile dealer’s service department on importance and performance. For example, “Job done right the first time” (attribute 1) received a mean importance rating of 3.83 and a mean performance rating of 2.63, indicating that customers felt it was highly important but not performed well. The ratings of the 14 elements are divided into four sections in Figure 14.4.
- Quadrant A in the figure shows important service elements that are not being performed at the desired levels; they include elements 1, 2, and 9. The dealer should concentrate on improving the service department’s performance on these elements.
- Quadrant B shows important service elements that are being performed well; the company needs to maintain this high performance.
- Quadrant C shows minor service elements that are being delivered in a mediocre way but do not need any attention.
- Quadrant D shows that a minor service element, “Send out maintenance notices” is being performed in an excellent manner.
Perhaps the company should spend less on sending out maintenance notices and use the savings to improve performance on important elements. Management can enhance its analysis by checking on competitors’ performance levels on each element.57
SATISFYING CUSTOMER COMPLAINTS On average, 40 percent of customers who suffer through a bad service experience stop doing business with the company.58 But if those customers are willing to complain first, they actually offer the company a gift if the complaint is handled well.
Companies that encourage disappointed customers to complain—and also empower employees to remedy the situation on the spot—have been shown to achieve higher revenues and greater profits than companies without a systematic approach for addressing service failures.59 Frontline employees who adopt extra-role behaviors and who advocate the interests and image of the firm to consumers, as well as taking initiative and engaging in conscientious behavior in dealing with customers, can be a critical asset in handling complaints.60 Customers evaluate complaint incidents in terms of the outcomes they receive, the procedures used to arrive at those outcomes, and the nature of interpersonal treatment during the process.61
Companies also are increasing the quality of their call centers and their customer service representatives (CSRs). “Marketing Insight: Improving Company Call Centers” illustrates what top companies are doing.
4. DIFFERENTIATING SERVICES
Finally, customers who view a service as fairly homogeneous care less about the provider than about the price. Marketing excellence requires service marketers to continually differentiate their brands so they are not seen as a commodity. Consider how JetBlue and Southwest Airlines have succeeded through differentiation.62
JETBLUE AND SOUTHWEST AIRLINES In an industry often characterized by bankruptcies and unhappy customers, two exceptions are JetBlue and Southwest Airlines. The companies have followed very different paths on their way to financial and marketplace success. Southwest, the older of the two, developed an unusual business model for an airline: short hauls only, no travel agents, no meals, no gates at major airports, and no fees. Although the carrier has changed some of those practices, it remains determined to avoid the bag, ticket change, and other fees adopted by competing airlines, believing it would lose $1 billion in revenue from lost bookings otherwise. A true discount airline, Southwest has been able to offer low fares by virtue of a disciplined cost structure that keeps planes in the air and seats filled, all with an informal, friendly style. The company hires employees with outgoing personalities who like to work with people and empowers them to do so. JetBlue also started with a very different business model, primarily targeting leisure travelers at its JFK hub in New York City. Another discount carrier with a low-cost structure, the company had the advantage of offering comfy seats, live TV, and choice of snacks. It is building a $25 million lodge at JetBlue University in Orlando to foster culture and camaraderie among employees and exploring options for business travelers, including fancier, more expensive seating on its transcontinental routes.
PRIMARY AND SECONDARY SERVICE OPTIONS Marketers can differentiate their service offerings in many ways, through people and processes that add value. What the customer expects is called the primary service package. Vanguard, one of the world’s largest no-load mutual fund company, has a unique client ownership structure that lowers costs and permits better fund returns. Strongly differentiated from many competitors, the brand grew through word of mouth, PR, and viral marketing.63
The provider can also add secondary service features to the package. In the hotel industry, various chains have introduced such secondary service features as merchandise for sale, free breakfast buffets, and loyalty programs. Seaside Luxe has transformed sleepy gift shops into profitable revenue generators for various resorts by making them a more engaging shopping experience that reflects their particular customers and locale.64
Many companies are using the Internet to offer primary or secondary service features that were never possible before. Salesforce.com uses cloud computing—centralized computing services delivered over the Internet—to run customer-management databases for companies. Haagen-Dazs estimated it would have had to spend $65,000 for a custom-designed database to stay in contact with its retail franchises across the country. Instead, the company spent only $20,000 to set up an account with Salesforce.com and pays $125 per month for 20 users to remotely monitor franchises via the Internet.65
The service company that regularly introduces innovations can intrigue customers and stay a step ahead of any competitors.66 Sometimes it can even reinvent a service category, as Cirque du Soleil did.67
CIRQUE DU SOLEIL In its more than 25-year history, Cirque du Soleil (French for “circus of the sun”) has repeatedly broken loose from circus convention. The company takes traditional ingredients such as trapeze artists, clowns, muscle men, and contortionists and places them in a nontraditional setting with lavish costumes, new age music, and spectacular stage designs. And it eliminates other common circus elements—there are no animals. Each production is loosely tied together with a theme such as “a tribute to the nomadic soul” (Varekai) or “a phantasmagoria of urban life” (Saltimbanco). The group has grown from its Quebec street-performance roots to become a half-billion-dollar global enterprise, with 3,000 employees on four continents entertaining audiences of millions annually. Part of its success comes from a company culture that encourages artistic creativity and innovation and carefully safeguards the brand. One new production is created each year—always in-house—and is unique: There are no duplicate touring companies. In addition to Cirque’s mix of media and local promotion, an extensive interactive e-mail program to its million-plus-member Cirque Club creates an online community of fans—20 percent to 30 percent of all ticket sales come from club members. Generating $800 million in revenue annually, the Cirque du Soleil brand has expanded to encompass a record label, a retail operation, and resident productions in Las Vegas (five in all), Orlando, Tokyo, and other cities.
INNOVATION WITH SERVICES Innovation is as vital in services as in any industry.68 After years of losing customers to its Hilton and Marriott hotel competitors, Starwood decided to invest $1.7 billion in its Sheraton chain of 400 properties worldwide to give them fresher decor and brighter colors, as well as more enticing lobbies, restaurants, and cafes. In explaining the need for the makeover, one hospitality industry expert noted, “There was a time when Sheraton was one of the leading brands. But it lagged in introducing new design and service concepts and developed a level of inconsistency.”69
Cirque du Soleil defied conventions to create a totally unique and non-traditional circus experience.
On the other hand, consider how these relatively new service categories emerged and how, in some cases, organizations found creative solutions in existing categories.
- Online travel. Online travel agents such as Expedia and Travelocity offer customers the opportunity to conveniently book travel at discount prices. However, they make money only when visitors go to their Web sites and book travel. Kayak successfully entered the category later by applying the Google business model of collecting money on a per-click basis. Kayak’s marketing emphasis is on building a better search engine by offering more alternatives, flexibility, and airlines. Hipmunk is a newer online travel agency that tries to make things even simpler for the savvy traveler by fitting all search results on one easy-to-navigate page—with fewer ads—ranking flights on an “agony algorithm” that factors in price, duration, and number of stops and offering information about and discounts on nearby hotels.70
- Retail health clinics. One of the hardest areas in which to innovate is health care. But whereas the current health care system is designed to treat a small number of complex cases, retail health clinics address a large number of simple cases. Retail health clinics such as Quick Care, RediClinic, and MinuteClinic are often found in drugstores and other retail chain stores such as Target and Walmart. They typically use nurse practitioners to handle minor illnesses and injuries such as colds, flu, and ear infections; offer various health and wellness services such as physicals and exams for high school sports; and administer vaccinations. They seek to offer convenient, predictable service and transparent pricing, without an appointment, seven days (and evenings) a week. Most visits take no more than 15 minutes, and costs vary from $25 to $100.71
- Private aviation. Initially, private aviation was restricted to those who could own or charter a private plane. Fractional ownership, pioneered by NetJets, allowed customers to pay a percentage of the cost of a private plane plus maintenance and a direct hourly cost, making it more affordable for a broader customer base. Marquis Jets came up with the simple idea of prepaid time on the world’s largest, best-maintained fleet, offering the consistency and benefits of fractional ownership without the long-term commitment. The two companies merged in 2010. Along with competitor Flight Options, private aviation firms are capitalizing on business executives’ increasing dissatisfaction with commercial airline service and need for efficient travel options.72
New service categories are constantly being introduced to satisfy unmet needs and wants: Examples include drybar, the new “blow-dry bar” salon concept created around the simple promise “No Cuts. No Color. Just Blowouts for Only $40”; Reddit, a giant online digital bulletin board with tens of thousands of active forums where registered users can post content or links; and online start-up Carelinx, which functions as a matchmaking site for families with at-home elderly and nonmedical caregivers who can provide home care.73
Innovation in existing services can also have big payoffs. When Ticketmaster introduced interactive seat maps that allowed customers to pick their own seats instead of being given one by a “best seat available” function, the conversion rate from potential to actual buyers increased by 25 percent to 30 percent. Persuading a ticket buyer to add an “I’m going . . .” message to Facebook adds an extra $5 in ticket sales on average; adding reviews of a show on the site doubles the conversion rate.74
5. MARKETING insight Improving Company Call Centers
Many firms have learned the hard way that empowered customers will not put up with poor service. After Sprint and Nextel merged, they set out to run their call centers as cost centers, rather than a means to enhance customer loyalty. Employee rewards were based on keeping customer calls short, and when management started to monitor even bathroom trips, morale sank. With customer churn spinning out of control, Sprint Nextel adopted a plan to emphasize service over efficiency. The company appointed its first chief service officer and started rewarding operators for solving problems on a customer’s first call rather than for keeping their calls short. After a year, the average customer was contacting customer service only four times instead of eight.
Some firms, such as AT&T, JPMorgan Chase, and Expedia, have established call centers in the Philippines rather than India because Filipinos speak lightly accented English and are more steeped in U.S. culture than Indians, who speak British-style English and may use unfamiliar idioms. Others are getting smarter about the type of calls they send to off-shore call centers, homeshoring by directing more complex calls to highly trained domestic customer service reps. These work-at-home reps often provide higher-quality service at less cost with lower turnover.
Firms have to decide how many customer service reps they need. One study showed that cutting just four reps at a call center of three dozen sent the number of customers put on hold for four minutes or more from zero to eighty. Firms can also try to reasonably get more from each rep. Marriott and other firms such as KeyBank and Ace Hardware have consolidated call center operations into fewer locations, allowing them to maintain their number of reps in the process.
Hiring and training are influential too. An extensive study by Xerox demonstrated that a good call-center worker with a high probability to stay the six months necessary to recoup the company’s $5,000 investment was likely to have a creative rather than an inquisitive personality. Rather than emphasizing prior experience in hiring for its roughly 50,000 call-center jobs, Xerox now factors in answers to questions like “I ask more questions than most people do” and “People tend to trust what I say.”
Some firms are taking advantage of Big Data capabilities to match individual customers with the call center agent best suited to meet their needs. Using something like the methods of online dating sites, advanced analytics technology mines transaction and demographic information about customers (products or services they’ve purchased, contract terms and expiration date, record of complaints or average call wait time) and call center agents (average call handling time and sales efficiency) to identify optimal matches in real time.
Finally, keeping call center reps happy and motivated is obviously a key to boosting their ability to offer excellent customer service. American Express lets call center reps choose their own hours and swap shifts without a supervisor’s approval.
Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.