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Strategic
Marketing Forum
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Four
stalwarts
from the industry discussed the various dimensions
of Marketing of Services in the latest episode
of Strategic Marketing Forum. Read on...
Participants:
Zubin Karkaria (1)
Chief Operating Officer,
Outbound Division, Kuoni
Travel (India) Pvt. Ltd. (SOTC)
Robinder Singh (2)
Head of Marketing,
Personal Financial Services,
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India, HSBC
Nabil Sultan (3)
General Manager,
India & Nepal, Emirates
Anant Rangaswami (4)
Associate Vice President,
TBWA/Anthem
Moderator:
Dr. Ranjan Das (5)
Consulting Editor,
Strategic Marketing
Date: September 17, 2002
Location:
The Times of India Building, Mumbai |
Ranjan
Das (RD): Good afternoon. Welcome to the fifth
Strategic Marketing Forum. The topic for today’s
discussion is Marketing of Services and the questions
to be addressed today are:
1. Are there intrinsic differences between tangible
products and services that require the latter to be
treated differently in terms of designing marketing
programs?
2. What are the essential tasks involved in segmenting
and positioning services from a strategic point of
view?
3. How should a marketer of services tackle fundamental
issues such as branding, communication, sales promotion
and pricing?
Mr. Rangaswamy, would you like educate us on the essential
differences between services and products?
Rangaswamy: When it comes to buying services,
there is a huge difference from one person to another
in terms of expectations. For instance, if two consumers
walk in at different times and are offered the same
service, one may be satisfied with his experience
and the other might not. That’s the challenge.
A physical product like, say television, does not
face this challenge, as everything is clearly defined
– its specifications, its features and so on.
RD: It is well known that service quality is
“service delivered minus service expected”.
As per this understanding, while service delivered
is generally constant at a point of time, service
expected can differ from one person to another, implying
differences in perception among various consumers
of same service. What is your experience in financial
services, Mr. Singh?
Singh: The key difference between FMCG and
financial services is that the FMCG model essentially
works on the theory that there is a market of millions.
So the entire service propositions, product propositions,
delivery propositions are built around that market
of millions. In financial services organisations –
every individual is a unique market in himself or
herself. And that is where experiences, transactional
analyses, customer relationship management etc. become
tools that help you derive knowledge on the consumer
and also indicate to you how to empower your staff
for offering a proposition that is unique to each
consumer.
RD: Your bank has a single service delivery
system but caters to millions of customers.
We know already that perception of quality differs
from one customer to another but you serve them with
a single service delivery system. How do you achieve
this mass customisation?
Singh: Let me give you a simple analogy. The
consumer expectations in different branches and locations
differ dramatically and that is a function of competition
and of expectation. For instance, a customer is delighted
if you can make him a draft in ten minutes in Howrah
and therefore your system is geared to ensure that
you meet that time limit. Compare this with Mumbai
– where the customer expects a draft to be delivered
to him in three minutes. In both cases you are meeting
the consumer expectation, though the expectation levels
are quite different. So, while the backbone of our
system remains unchanged, your product delivery based
is on the environment you are operating in differs.
RD: One thing that is now clear to all of us
is that you have to manage expectations.
Mr. Karkaria, we have talked about service quality
and how the quality in the service industry is perceived
differently vis-à-vis that in case of FMCGs.
Given your experience in travel and tourism industry,
do you see other differences between service and physical
products?
Karkaria: At SOTC, what we sell is experience,
which is intangible. Therefore, we believe in managing
the expectations. We follow a principle called PLPM
– expanded as “promise less and perform
more”. So when a customer is travelling abroad
on a holiday to Switzerland, we give him a brochure.
We try not to raise his expectation too much through
the brochure, keeping it limited to the necessary
tourist spots and attractions. So when he goes there,
he feels that he got a lot more than the value promised
in the brochure. This is how we manage the expectations
of the customer.
Singh: In case of a product, the relationship
with the consumers is transaction-based. As against
this, in case of a service provider, success will
depend on how does one manages the customer relationship.
RD: What I gather from this is that production
and consumption of the products can be at two different
places in case of tangible products where as in case
of services, production and consumption is simultaneous.
Rangaswami: One can buy a tangible product
from a vending machine but you can't buy services
that way. A service can't just come out of a slot
somewhere. Also, the services being provided can get
defined and redefined as the experience goes on. This
can't happen in case of tangible product.
RD: That's a major difference.
Sultan: If I may just add something here, the
service itself is a product within itself. For example,
my product doesn't start from the minute the passenger
actually gets on the aircraft and starts experiencing
the real physical product. Rather, it starts from
the first point of contact, when the passenger begins
to think about travelling with Emirates and plans
to book tickets.
RD: As a matter of fact, the time one spends
in a queue for getting the ticket or for checking
in, and the experience one gets as a part of that,
should be of concern to any service provider.
Rangaswami: Sure! Human interface is a must
for any service delivery, which is not really required
in case of a tangible product.
Karkaria: In services, what you're selling
to the customer is knowledge, an experience, a feel
factor and that is why the human interface is important.
RD: Before we close our discussion on the first
part, let me state that we need to distinguish between
two categories of services. In one of these categories,
consumer is immediately able to tell you whether he
has liked the services offered by the service provider.
The other is more complex since in this case the consumer
doesn't know, even after years of trying, whether
he is benefiting from the services received. For example,
when you go to a restaurant to have a meal, you will
make your own judgement within a few minutes. But
in case of certain services, even after consuming
the service for years, one is not sure of the quality
of service received. Consulting Services is a good
example.
Two things are important for success in the second
category of services viz.: the personal expertise
of the service provider and the name that you've made
for yourself over the long run - like one particular
consulting organisation is known to be the best when
it comes to corporate strategy, or a particular doctor
is the best heart surgeon in the city. For a consumer,
who has no prior experience with a particular service
provider, it is the track record and word-of-mouth
communication that will determine whether a service
provider will be successful in the market place.
Let’s now go over to the next item - the segmentation
and positioning of services. I would start with you,
Mr. Karkaria. In services, what will be the characteristic
of segmentation? And within a particular chosen segment,
how does one position one’s services vis-à-vis
competition?
Karkaria: We generally undertake both qualitative
and quantitative researches by region to find out
the needs, beliefs and perceptions of the customers.
Once we find out the needs, beliefs, perceptions of
the customer in the region, we break down the same
in terms of language. We create a product, segment
it and then we see to it that from the beginning of
the experience, from the time that the customer comes
to the counter till the end, he gets the same experience
that we perceive he needs.
To illustrate, we realised when we did a marketing
research through IMRB, that there was a need for specialised
tour operator in the Marathi segment. So we created
a brand, which we called Bhraman Mandal and advertised
in NavBharat Times, Lok Satta, and Maharashtra Times.
If we assume that India is one market and give everybody
the same tour, either the South-Indian guy in the
bus of fifty will be upset with the behaviour of the
North-Indian guy or vice versa. Hence the need for
segmentation…
RD: You are talking about geographical dimensions,
language issues…may be education; but Mr. Rangaswamy,
we found that people with the same background, same
income bracket, same language may look same but in
terms of behaviours and psychographics they may be
very different. Mr Singh, in personal financial services,
how do you think we should segment service expectations;
will they be done better by demographic factors like
education, financial background or by psychographics,
i.e. how people think? Should psychographics come
first and demographics come later?
Singh: The big advantage as a financial services
provider is that we bank a lot more on the demographic
data available with us. For instance, because I am
a credit card issuer, I would like you to visit a
certain category of restaurants. If I knew, for instance,
that you use your credit in Hong Kong and Singapore,
I'd feel much more comfortable offering you a debit
card that is internationally valid to help you travel
more frequently overseas. Hence I think that demographics
are important somewhere down the line.
RD: Nabil, do you see that happening in the
airline industry? Classifying customers on the basis
of how they think rather than their education or income?
All I am saying is that demographics are important
but they come at the next level. For example, we have
seen that people have very different preferences not
because of their backgrounds but because of how they
think.
Sultan: For segmenting our market, we identify
a group of people who have a preferential way of looking
at the product and then, accordingly, we offer the
services. In the airlines industry, we use different
basis for segmentations. For example, we have passengers
who travel for meeting family and friends, those who
go for a business trip or those who are going abroad
to study. A student may have some excess luggage because
he may need to carry books with him. To cash in on
this point, we target all the universities and schools
and promise some concessions in weight of the luggage
if you actually buy our services. India is definitely
not one market. There are entirely different segments
of markets where, be it demographic segmentation or
the way people think, for us identifying what a specific
group of people wants and then offering the service
asked for, is the prime focus.
RD: Let’s now discuss the issue of positioning
of services within each segment chosen by a service
provider.
Karkaria: When we position a new brand vis-à-vis
a new group of customers, we always attach the new
brand with the parent brand name. Like, if it is a
brand like Bhraman Mandal, we say that it is from
SOTC. So parentage helps a lot in positioning the
product and gives a lot of credibility to the new
section of the market.
Parentage
helps a lot in positioning the product and gives
a lot of credibility to the new section of the
market.
Zubin Karkaria |
RD:
In other words, you're saying that you transfer the
goodwill of the mother brand to the new brand.
Rangaswami: Let’s consider what is happening
in the retail sales of petrol and diesel?
While fuel is a product, finally it's the service
that is really selling. More than the fuel, it is
the service quality for which you keep on returning
to the same service outlets. If you don't or can't
make the consumer believe that you're truly different,
then you're losing market share at a frightening pace.
To illustrate, let us see how BPL mobiles strive hard
to show that they are different. BPL took the positioning
as technology leader and consistently gave their consumer
better technology-led products than their rivals.
It started with SMS, which is a basic product, and
GPRS, which is Internet through mobile phone and which
is also the mobile messaging system where you can
actually send video through the phone. In all these
cases, they've proved themselves to be the technology
leader.
RD: Mr. Singh, what could be a typical positioning
for financial services organisation like HSBC?
Singh: The first thing is that you look at
our global positioning statement, which is now part
of our global advertising campaign. We never underestimate
the power of local knowledge, which therefore translates
into a line that says - The world's local bank. We
are in 81 countries. We will be celebrating our 150th
year in India i.e. we are older than even many local
banks. Being old means we are a part of the local
culture, the local ethos.
I'll give you a very simple instance where this experience
actually comes to fruition. About three years ago
when we had launched our home loan product, we were
perhaps the 20th player in the market. HDFC had been
around for decades before us. We were able to offer
a variation to the home loan called floating interest
rates wherein on a yearly basis your interest rates
got linked to the bank's prime lending rate. So if
the prime-lending rate went up then your interest
rates went up and if it went down your interest rates
went down. Now anybody could have offered this for
any number of years but no one chose to offer it.
So if your interest rates are going up the consumer
pays more but he also earns more on the deposit side
and if your interest rates are going down you pay
less. We were able to offer this very quickly because
our systems and technology were already configured
to the market.
RD: The positioning by definition should also
be sustainable.
Singh: Sustainability comes about through your
ability to constantly apply this learning. In a bank,
for any one to copy or provide a similar service is
very easy. But your ability to be able to do it again
and again is perhaps your positioning. So that’s
the key differentiator.
RD: Nabil, do you have a clear positioning
statement of your organisation?
Sultan: From Emirates perspective, we have
a statement that sums up every single service that
we offer across the world. We have used the statement
- 'an award winning airline' and we have managed to
sustain that over the years. Every single little service
we offer just comes under that brand. Few other things,
(such as on-time departure) are important features
that customers are happy about. So these are some
statements that we have carried throughout and we
have managed to deliver accordingly to the customer.
RD: Let’s now shift to the issue of branding
of services and how it differs from branding of products...
Rangaswami: As we discussed earlier, a service
is also a product; so there should not be any major
difference so far as branding of services are concerned.
RD: I read an article this morning that said
that when you communicate service brands, a few things
must come together – for example, there can be
two types of communication that may take place together
– one for influencing behavioural responses and
other for image building. A single communication normally
has to cover objectives relating to sales promotion
and brand building and also elicit direct response.
It is now believed that most ads are following the
Integrated Marketing Communication (IMC) format vis-à-vis
products, which normally talk about image building.
In
a bank, for anyone to copy or provide a similar
service is very easy. But your ability to be
able to do it again and again is perhaps your
positioning.
Robinder Singh |
Singh:
We have been practicing IMC for about eight years
now. A large amount of our communication budget is
spent on direct mail. There are also other forms of
customer communications such as statement inserts,
statement messaging etc. So, there are lots of ways
to communicate and also a purpose behind such communication.
Mass media for us is used for two purposes. Firstly,
it is used for brand building. Secondly, it could
be for customer acquisition.
RD: The paper I just referred mentioned that
in case of tangible products, the focus is either
on image building or on eliciting behavioural response
– sales promotion or direct response. As against
this, in cases of service communications, the focus
is on both sides
Now let us turn to the last item- the pricing of services.
In marketing of services, pricing is a very important
component. What are the guiding principles for pricing
of services?
Karkaria: The key guiding principle will be
what the consumer is ready to pay for the service.
What we do is to go back, look at the market and segment
it – go to our consumer and conduct a research
on what he might pay for a particular service. Based
on that, we work reverse and price the product accordingly.
Pricing depends on a number of factors viz.
a. the customer perspective (is he willing to pay
the price?),
b. competition and,
c. market environment.
Finally, if you want to penetrate the market, you
have to be a price leader and price your product accordingly.
RD: In the pricing of services, you have a
minimum baseline, isn't it?
Sultan: I'll tell you frankly, you can't relate pricing
with cost – like the cost of funds, administrative
cost etc. Sometimes you have to give it out of your
pocket, to get market share and eventually make money.
That is a part of the investment.
RD: Look at a doctor's service. He has no cost
base except his monthly expenses, and he has to price
it. Price has therefore nothing to do with cost. They
are two different subjects altogether. But in some
services, pricing is more difficult than in others.
For example, advertising agencies now have to forget
the concept of 15% commission and replace the same
with a fixed fee approach. Now, how do you go about
setting prices in such a case?
Rangaswami: We are increasingly moving away to fixed
fees and we have done that consciously.
RD: What is the principle?
Rangaswami: Trying to make a qualitative assessment
of the kind of people who would spend time on the
business and how much they would spend. In the first
few cases, where we got clients on a retainer basis,
we reviewed each quarter’s performance against
such scenarios as what would have happened had we
went on a rate card or on 15% basis. Based on such
review, we redefined pricing every quarter and it
seemed to work. That's the way many players are getting
into the retainer arrangement.
RD: The principles that you highlighted are
correct - it's all based on customer's needs and expectations.
Karkaria: Look at what’s happening in
the US now. The airlines don't pay the travel agents
any commission. They say, "You charge a flat
fee of $25-50 to the customer for the value-added
service that you're giving him." So, the agent
has to survive on the service add-on he is giving
the customer. The principal is trying to go to the
consumer directly and eliminate the middleman. It's
in all industries. He says, “If you think you're
worth it then charge for the services you are giving.
Why should I pay you for selling my products, which
I am marketing?”
Sultan: Pricing is an art by itself. And airlines
and hoteliers have really perfected that more or less
with load-management systems.
RD: Sahara does that.
Sultan: Absolutely. It's very simple. The last
seat available on the aircraft will cost you much
more than what you would pay in a normal market. And
that’s why we have these restrictions. Like you
cannot return from so and so date to so and so date;
and if you want, you are going to pay our premium
price.
RD: In some cases airlines can put ridiculous
conditions, including the possibility of not flying
at all, to enjoy the lowest fare.
Sultan: Such types of differential pricing boils down
to market segmentation. A businessman on a business
trip will probably go there and want to finish his
work in one day and come back. So he will not mind
paying a premium price but a leisure traveller may
not mind going and coming back on any day. So you
have that flexibility and that's where product pricing
has to become a lot smarter to be able to maximise
revenue.
Karkaria: The important thing is how to present
the prices.
RD: Ladies and gentlemen, we are by and large
through with the contents of today's discussion. Our
conclusion is that there are significant differences
between products and services. Though the concepts
are the same- whether products or services –
but how you deliver the services can be very different
from what we do in the case of products. We talked
extensively on segmentation, positioning, branding,
communication and pricing of services and I hope you
found value out of the views expressed by various
panellists. Before we close, I must thank all our
panellists for spending their valuable time to participate
in this discussion.
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