Understanding Professional Services

Professional Services 
Professional services firms (e.g., law, consulting, accounting firms, advertising agencies) deliver products that are almost entirely dependent upon the quality of the employees. Unlike travel, communications, and other services, the quality of the product delivered is a combination of a number of factors-not only the people involved but the underlying technology (quality of the digital cellular connection), equipment (aircraft used), and so on. While barriers to entry are high, intangibility of the product is still a problem as is the inseparability of production and consumption, to some extent, as clients have to partici­pate in the creation of tax returns, consulting reports, and other products of professional service firms.
A high overall level of technical expertise is a given for a competitive services firm.
Key dimensions for differentiation are: specialized technical expertise (e.g., an accounting firm specializing in performing audits of universities), reputation, and integrity. For professional services, reputation is the key asset because it is the basis for positive word of mouth and reduces the amount of uncertainty inherent in service products. Reputation is the sum effect of the RATER dimensions: reliability, assurance, tangibles (expertise), empathy, and responsiveness. Reputation can also be viewed as the sum of the competitive strategy components of excellence in employee recruiting (inbound logistics), service operations, marketing and sales, and service quality.
Integrity has entered the limelight with the demise of the once-powerful Arthur Andersen accounting firm.
However, technical expertise, reputation, and integrity usually only get a profes­sional services firm into the client's evoked set. To win the account, the challenge is to make the firm's accomplishments tangible to the prospective client. As noted earlier, advertising agencies can create portfolios and reels of their creative work. Consulting firms tout money saved through new processes instituted, law firms note significant cases won, and so on. In addition, expertise can be made tangible. For example, consulting firms often sponsor symposia in their areas of expertise. The us-ual strategy of brand-building works. An example of this is the consulting firm McKinsey, which is one of the most powerful brands in the world. Finally CRM is critical, particularly in a person-to-person business such as professional services.

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Service Design

Service Design 
Because services are intangible, they are difficult to describe and, therefore, to design and redesign if a new service is desired. Perhaps the best way to understand this is to think of the design of a manufactured item. Physical goods can be blueprinted; that is, either on paper or using computer software, the physical nature of the product (width, length, circuitry design, etc.) can be described. As a result, physical product attributes can be shown, communicated, and understood easily. Service blueprinting involves creating a flowchart that describes the flow of activity from the time the customer first contacts the service provider to the time the customer receives the service.
An example of a service blueprint is a blueprint for a mail delivery service. The process or flow of the service begins when the customer calls the firm. The customer speaks with a customer service representative and then a variety of activities occur, culminating with the arrival of the package at its destination.
What is interesting about the figure is that the activities are broken down into three types. The first type, above the top line, is the parts involving customers: calling the company, giving the package for delivery, and receiving the package. The middle two types of activities describe customer contact points (what we called "moments of truth" in Chapter 14). Some of these contact points are observable to the customer, or "onstage," These include the customer interactions with the drivers picking up and delivering the package. "Backstage" contact points are those in which the contact is not face-to-face as, in this instance, this is limited to the person taking the order. If there was a problem with the delivery, a backstage contact would be with a customer service representative handling customer complaints or problems. For this service, much of the activity is below the third line, invisible to the customer.
These blueprints or flowcharts are extremely valuable to service companies. Perhaps the most valuable aspect of blueprints is simply the exercise of creating one. The act of creating a service flowchart forces you to put yourself in the shoes of the customer and thereby develop better insights about the service encounter. As a result, the moments of truth become clear. In addition, the key areas for potential service failure and thus the need for backup and recovery systems are highlighted. When the customer calls the service center to place an order, how is she greeted? How many phone rings are acceptable? After the order is placed, the com­pany needs a system to give the order efficiently and quickly to the dispatcher to get a driver to pick up the package. When the driver has the order and goes to the customer's home or place of work, how is the driver dressed? Is she or he polite and knowledge­able? These kinds of questions can be extended to the other boxes and arrows in the blueprint.
As a result. blueprints are useful tools for understanding the design of the service and for redesigning it. For example, FedEx and UPS have information systems in place, so the large space in the top half of Figure 15.11 between "Customer Gives Package" and "Customer Receives Package" could have a box labeled "Customer Tracks Package." Bar coding on each package enables the companies to know where every package is at a given time. Customers can input the package ID number using PC-based sofu,-are or the companies' web sites and obtain that location information for themselves.
To better understand customer needs, the company undertook two activities. The first was a blueprinting operation.
Their activities are divided into three parts: preflight, in-flight, and postarrival. Singapore Airlines used this flowchart in two ways. First, each block in the activity sequence was separately analyzed from a customer service, moment-of-truth perspective. Second, the airline also evaluated each block to see where technological enhancements could improve its customers' experiences and provide additional ways to differentiate from the competition.

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Singapore Airlines

Singapore Airlines 
The Singapore is only 25 percent of the size of the state of Rhode Island, Singapore Airlines is one of the world's ten biggest airlines, as measured in international tons-kilometers of load carried. The airline became successful by concentrating on marketing. The goal of the airline's management was to create an international airline with a distinctly Asian personality. At the top of the priority list was an emphasis on customer service. The company used the island's main natural resource-the natural hospitality of its people-as a competitive advantage. Through comfortable seating, free drinks and movie headsets, and the hospitality of its flight attendants, Singapore Airlines has set the world standard for international air travel quality.
In 1991, the airline was facing increased competition and improved service quality from several Western and Asian airlines, including Cathay Pacific, Japan Airlines, Thai International, and Malaysia Airlines. The challenge facing the company was how to continue to maintain its outstanding reputation for customer service and technical innovation.

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Channels of Distribution

Channels of Distribution 
Because services are intangible, the notion of physical distribution channels does not apply. However, the general principle of channels offering customers access to the product does. Because services are characterized by the inseparability of production and consumption, service organizations must be physically present when the service is delivered or engage others to be present.Any time the product leaves the producing company's hands and is put under the control of others, there is the potential for the independent channel member to do a less effective job of marketing the product than the producer would. This is an even greater problem with services because they are often delivered by people. Nonstandardization of services increases when the service is being delivered by people who do not work for your company.
As a result, we can draw a distinction between the service principal (the company or person originating the service) and the service deliverer (the person or company that actually delivers the service to customers). As with physical goods, service deliverers or intermediaries can provide a number of benefits to the principal. Service deliverers can co-produce the service with the principal. For example, franchisees delivering auto­mobile lubrication services (e.g., Jiffy Lube) execute the principal's concepts by operating
the service centers and lubricating the cars (often other services are available as well). Service intermediaries also provide the customer with locations that make it easy to purchase services. Multiple Jiffy Lube outlets in a metro­politan area make it convenient for customers to purchase the lubricating services. These local retail outlets also promote the Jiffy Lube brand name and provide local presence for the service principal.
Because services are intangible, perishable, and gener­ally not storable, services must be brought to the customer. That is, the service principal must design a channel struc­ture that brings the customer and the provider together.
The three major approaches to service distribution are franchising, agents and brokers, and electronic channels.

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Franchising and Services

Franchising 
Franchising is an extremely popular form of retail service distribution covering a wide variety of consumer and business-to-business services. A franchise is a contractual agree­ment between the originator of the service concept (the franchiser) and an individual or organization that provides retail distribution for the service (the franchisee). It works particularly well when the service can be standardized across disparate geographic locations. Elements of a typical franchise agreement are:
the nature of the service to be supplied by the franchiser
the geographic territory within which the franchisee can market the service
the percentage of the revenue generated by the franchisee that must be paid to the
franchiser
the length of the agreement
the up-front fee paid by the franchisee to the franchiser
the terms by which the franchisee agrees to operate and deliver the service
an agreement by the franchisee not to sell another company's services
the promotional support provided by the franchiser to help develop the franchisee's market
the administrative and technical support provided by the franchiser
the conditions under which the agreement can be terminated.

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Agents and Brokers for Servies

Agents and Brokers 
Many service companies use independent agents or brokers to sell their services. Well­known examples are the insurance and travel industries. There are trade-offs with using these methods for distributing any kind of product. Major advantages include a wider distribution and the fact that agents and brokers know their local markets well. Disadvantages include the loss of control, as it is very difficult to deteTj:nine what agents and brokers are doing and what they are saying about your product.

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Electronic Channels of Services

Electronic Channels 
The growth of the Internet has spawned many opportunities for distributing services. Travel services (Expedia, Travelocity, Orbitz, for example) is the largest segment of the e-commerce industry with nearly $70 billion worth of services sold in 2005. The finan­cial services industry has also taken advantage of electronic channels through services such as home banking and stock brokerage. The advantage of electronic channels is their low cost and the ease of access (for those with Internet connections). For example, rather than using a large number of branch banks or automatic teller machines ("bricks and mortar"), customers of most major banks can now check their balances, move money between accounts, and pay bills using the banks' web sites. Entertainment companies, particularly in interactive gaming and gambling, have also taken advantage of the web.

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Advertising

Advertising
A key element of service quality evaluation is the assessment of the service rela­tive to expectations. Advertising plays an important role in setting customer expectations. Therefore, marketing managers for services must be careful not to promise what cannot be delivered. All communications targeted to customers should be examined in terms of how well they reflect reality. If you do not do this, the customer certainly will. The unique aspects of service have the following implications for advertising.
First, service advertising should contain vivid information. Vivid information is more likely to hold the viewer's attention and excite the imagination. It also results in improved customer understanding of the service. Because service attributes are intangi­ble, this improved understanding is critical to a customer's ability to evaluate the quality of the service and to compare it to other options. Vividness can be achieved through three different strategies: attempts to make the service tangible; concrete, specific language; and dramatization. A good example of the latter is the former series of American Express commercials featuring actor Karl Malden that demonstrated the value and security of American Express traveler's checks by showing the disasters that can befall travelers if they use a competitor's brand.
A problem faced by customers purchasing a service is developing alternatives from which to make the final choice. The reason that this can be difficult is inherent in the way services are distributed. When a service is delivered through a franchise operation, there is only one choice at a particular location, unlike the normal assortment available from retailers of physical goods. Although some (e.g., travel agents) do offer competing services, many do not. Thus, a major problem facing service companies is how to get your brand into the customer's choice set.
The relevant communications goal is to have the customer connect your brand with the product category. This can be done with repetition or through an approach called interac­tive imagery. Imagery involves having customers visualize a concept or relationship by integrating two items in some mutual or reciprocal action. This approach can be used to enhance vividness.
Therefore, prepurchase evaluation of services is difficult. One way to approach this problem is to highlight the behind-the-scenes rules, policies, and procedures that make the service provider the best option to choose. This helps to make the service tangible to customers and gives assurance that it will be of high quality. Alternatively, a marketing manager can use the ad to show the service actually in use. The advertising for Singapore Airlines' first-class service is an example of this approach. The picture of the very com­fortable-looking passengers in the ads gives potential customers a sense of how great a trip on Singapore Airlines would be.

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Pricing

Pricing 
Customers find service prices difficult to determine and compare. You cannot put physical price tags on services. The fact that services can be delivered in many different configurations makes the task even more difficult. For example, try finding out a rate on a home mortgage. The combinations of terms (5, 15, 20, 30 years), amount of down payment, points you are willing to pay (percentage ofthe loan amount paid as a fee to the mortgage originator), and myriad other options are nearly infinite. Try the same exercise with life insurance policies. Therefore, it is important to simplify your pricing policy as much as possible to eliminate customer confusion.
More than with physical goods, price is often used as an indicator of service quality.
This is because service quality is more difficult to ascertain. Thus, the pricing of services must be consistent with the overall strategy for the product. For example, if you decide to drop the price of your service but attempt to maintain a premium brand image through your communications and other elements of the service operation, customers will become confused or skeptical: If you are so good, why are you so cheap? Although consistency between the strategy and price is important for all products, in service businesses where purchasing is driven so heavily by perceptions, it is critical.
In service industries the role of the reference price is very Un:;>onant. As described in Chapter 9, a reference price is an internal standard ag;:;lr.<;t \\~1:ich observed prices are compared. Reference prices are based on both past experience in a product category (internal reference prices) and observed prices in the marke,?lace I external reference prices). Not only is price information more difficult to collee;: ;or senices, but the large number of product alternatives can make price comparisons impossible. For example, for competing automobile insurance policies, the deductibles or other aspects of the policies are often slightly different, making exact price comparisons difficult. When a customer cannot use observed prices easily to make a purchase decision, internal reference price becomes more important as a way of simplifying the process.
To illustrate these two service pricing principles, several years ago, the author decided to have the gutters of his house cleaned before the winter rains hit. Obtaining prices for such services is time-consuming because it entails waiting at home for the (uncertain) arrival of the service providers. Two companies gave bids, one much higher than the other. With little experience to draw upon, I calculated a reference price based simply on what seemed to be reasonable. Both bids were below this price, so they both remained in the running for the work. I then chose the higher of the two, figuring that the lower-priced company would skimp on the work somehow .

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Customer Relationship Management

Customer Relationship Management
While CRM is important for physical products as well as services, it is particularly criti­cal for what are called contractual services where the contract or subscription must be renewed on a periodic basis. Examples of contractual services are health club member­ships, cable TV and cellular phone contracts, etc. What makes these different is that once dropped, it is very difficult to get the customer back. The customer will have switched to another service supplier or dropped the service entirely. If it is the former, it takes a complete subscription cycle to have the opportunity to get the customer back. However, unlike the purchase decision for most services, the decision about renewing is known and visible to the service supplier. This is clearly an advantage since the company can time its renewal communications precisely ..
It is crucial not to wait until the end of the subscription cycle to make the benefits of the service tangible to the customer. In addition, research has shown that customers form expectations about how much they will use a contractual service and make the renewal decision based upon a comparison of the expected to the actual. If the actual is less than expected, the probability of renewal decreases. It is thus incumbent upon the contractual service provider to perform two activities during the subscription cycle:
Remind the customer continuously about the benefits of the service. For example, in the context of a health club, ensure that the staff comment positively to the client about the benefits of working out.
Track the customer's usage and develop a system to remind the customer to use the service if usage level is low. For example, low usage of a cellular phone would predict the high likelihood of non-renewal. As a result, the service provider could develop special programs of discounts or new features to encourage additional usage.

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Global Aspects of Services Marketing

Global Aspects of Services Marketing 
As we have noted in this chapter, one feature of service businesses that distinguishes them from product manufacturers is that they involve interpersonal contact between the service provider and the customer. An implication of this is that, generally, service firms do not grow by producing more of the same service in the same place. There are three basic growth strategies for service businesses:
Multisite: provision of the same sMtice(s) in new locations
Multiservice: provision of a new service at existing locations
Multisegment: provision of a different class of service targeting a different market segment, at new or existing locations.

Many service and retail businesses have chosen the first option. McDonald's, for example, views global expansion as the key to its future growth. Most large professional service firms such as public accounting and law firms as well as advertising agencies have set up shop in different countries as their clients expand, or simply to build a global business.
Table 15.2 shows some ofthe difficulties in launching a service business in a different country. The two columns labeled "Target Market" and "Operating Strategy" are com­mon to physical products as well, as we describIJd earlier in this book. However, the "Service Concept" and "Service Delivery System" lists are unique to service products. For example, the notion of "fast food" was at one time a foreign service concept in most countries. In addition, the use of credit cards is a novel concept, as some cultures and religions dissuade people from going into debt. Also, fraud rates on credit-card payments are higher in some countries than others. People have different expectations about the levels and quality of service. American retail petroleum companies like Chevron need to understand that in many countries, such as Brazil, customers expect service people to fill up their gas tanks and wash their windows without paying a premium for the gas. Finally, labor markets may not provide the level of quality needed to launch a new site. Thus, McKinsey (the consulting firm) opened its branch in Bogota in 1994, it was staffed largely by Spanish-speaking consultants from other countries.

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Marketing and Euro Disney

Euro Disney 
Euro Disney resort complex opened on April 12, 1992 in Marne-la-Vallee, France, Disney theme parks had built their reputations not only on the quality of the product but on the service delivery as well. Standards of service, park design and operating details, human resource policies and practices were integrated to ensure that the Disney "play" would be performed at a uniformly high level at each location. The reason behind this outstanding level of service was the establishment of "Disney University," where new employees were oriented to Disney's strict service standards, received continuous communication and training, and gathered for frequent recognition and social events. Employees were called "cast members," as they wore "costumes," not uni­forms and were "cast in a role," not assigned to a job. When on the job, they were considered to be "on stage," with the highest priority given to satisfying "guests," The cast members had to meet stiff dress and grooming requirements as well.
The largest challenge to Euro Disney managers was to match this traditional level of customer service. The com­pany encountered significant resistance in the hiring process, whictvrwas criticized by applicants, the press, and French unions. The key resistance point was the stan­dard for grooming including a dress code, a ban on facial hair, a ban on colored stockings, standards for neat hair and fingernails, and a policy of "appropriate" undergarments. As a result, within the first nine weeks of operation, about 1,000 employees left Euro Disney, close to half voluntarily. In addi­tion, the general conclusion was that the experience of visiting Euro Disney fell short of what people had come to expect from Disney. While some of this was due to attributes of the park, much of it was attributed to the fact that the "cast members" were acting like "real" people rather than "Disney" people. Adapting this people-oriented entertainment product to Europe was not as easy as the company thought it would be. Although the park had 12.4 million visitors in 2004, Euro Disney has had trouble making a profit and has had five changes of its CEO in nine years.
Disney learned from this experience. The opening of Disney's theme park in Hong Kong in September 2005, witnessed a park modeled exactly like the original one in Anaheim, California. Rather than making the characters "Euro" in nature, the "face" characters like Cinderella will be played by white actors who speak only English. Next is Shanghai in mainland China.

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Technology and Services

Impact of Technology on Service Marketing 
The rapid improvements in and diffusion of information technology and the use of the Internet have changed marketing in general and, specifically, services marketing, for three main reasons:
As mentioned earlier in this chapter, the use of the Internet has created a new channel of distribution ideally suited for certain kinds of services, particularly those involving travel and financial transactions and entertainment services.
Recall that an important feature of services is that because they are often delivered by people, their quality is variable both at one point in time and over time (Le., they are nonstandardized). Computerization, substituting capital for labor, provides uniform service delivery at a quality level people cannot match.
As in all product categories, companies are looking for new ways to differentiate their products from competitors. Information technology and the Internet have provided powerful, tangible opportunities for such differentiation.
~d earlier in this chapter, travel services is the largest category of e-commerce, with nearly $70 billion of bookings in 2005. In the United States, 54 percent of consumers start with an online travel agent before making travel reservations. Almost 40 percent of all airline reservations are made through the Internet. Most of the bookings are done through two kinds of sites: Internet travel companies and web sites run by the airlines, hotels, and car rental firms themselves. Although it is cumbersome to book complicated air itineraries, fares for simple travel plans can be easily compared and, in fact, some airlines offer lower fares on the web than through personal contact with airline or independent agents.
The major players in the online travel industry have been the industry leader Expedia (40 percent of online travel revenue in 2004), Travelocity (20 percent), ?nd Orbitz (18 percent). A quick profile of these companies is:
Expedia: Expedia had revenues of just over $13 billion in 2004. It was started by Microsoft in 1996 and later sold to InterActiveCorp. In 2005, the company became a separately traded public company containing other travel companies owned by InterActiveCorp such as Hotels.com, Hotwire, and TripAdvisor.
Travelocity: This company is owned by Sabre Holdings. At one time, Travelocity was the number one online travel company. However, a slowdown in innovation cost the company its lead in the market.
Orbitz: Orbitz was founded in 2001 by a group of American airlines: American, Continental, Delta, Northwest, and United. It was sold for $1.25 billion in 2004 to Cendant.
However, the airlines' own sites still account for nearly 60 percent of the online bookings. The discount airlines, Southwest, JetBlue, Virgin, EasyJet, and so on, do not sell through travel agents and motivate customers to use their web sites by offering incentives such as extra credits in their loyalty programs. Southwest.com attracted over 8 million unique visitors to its web site in April 2005, with 14 percent of them resulting in sales. One of the advantages of Southwest's site is that a visitor does not have to go through the tedious process of registration. Most of the airlines have significantly boosted their bookings through their web sites by moving the reserva­tions part of the site to the home page.
A new breed of online travel service called aggregators attempt to look for the best air fares and hotel and car rates across all company sites, that is, it is a web site that searches across other web sites. The best-known example is a company called Kayak. Kayak does not sell any­thing like the travel sites, being purely a search service. Kayak connects customers with air­lines, hoteliers, and car rental sites collecting a small fee per mouse click. The site uses a new technology called Rich Internet Application architecture (RIA), which allows it to look at more than 100 web sites continuously. Other aggregators include Yahoo! Travel, SideStep, and Cheapflights.
The financial services industry has been the other major beneficiary of increased consumer use of the Internet. This has occurred in four major areas:
Mortgages. In 2003, Americans took out $812 billion in home mortgages using online services, about 29 percent of the total market, up from 13 percent in 2001. The Internet-only leader is Quicken Loans, which closed $14 billion in direct-to-consumer loans in 2004. J. P. Morgan Chase and Washington Mutual, two of the top five U.S. mortgage lenders, have also been very successful in moving their application processes online.
Stock trading. This is, of course, probably the most active area of online finance. As of 2005, total assets in customer accounts at the major online discount-brokerage firms are estimated to be· about $1.3 trillion, up from $617 billion at the end of 1998. And this under­states the amount of activity, as it does not include the online part of full-service firms like Merrill Lynch. The five largest firms in this business are Charles Schwab, Fidelity Investments, Ameritrade, E*Trade, and Scottrade Inc.
Online bill payment. In 1999, only 8 percent of households paid their bills online. This is pro­jected to grow to 37 percent by 2008. This provides a large market opportunity for companies to provide bill-paying services to banks and other financial institutions. CheckFree is the market leader whose software powers 1,600 web sites and generates nearly $800 million in revenues.
Online payments. With the meteoric rise of eBay and iTunes and similar sites, customers have a concomitant need to make secure online payments directly to such vendors. The market leader is PayPal, now owned by eBay, which generated $19 billion in payment volume in 2004. The growing market in China is served by AliPay, a unit of the popular site Alibaba.com.

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Automobile Purchasing Services

 Automobile Purchasing Services 
The most active are.as of the early Internet e-tailing boom was in automobile buying services. At one time (late 1999), there were at least 11 different web sites where a customer could order a car online (with some variations in the process): CarsDirect.com, Autobytel.com, Cars.com, DriveOff.com, CarPoint.com, carOrder.com, Autoweb.com, DealerNet.com, carclub.com, and Greenlight.com.
However, by 2005, the industry had changed dramatically. According to J.D. Power and Associates, about two-thirds of new car buyers use the Internet as part of the shopping process. They do not purchase the cars online, though, as the business model for the Internet auto sites has changed. The three major online car malls-CarsDirect.com, Autobytel.com, and Cars. com-generate the bulk of their revenues by referring customers to local dealers. For example, Autobytel delivered 1 million leads to dealers in the first quarter of 2005. Other sites such as ConsumerReports.org, Edumunds.com, and KellyBlueBook.com, also have dealer referral services but are differentiated from the malls in terms of the rich information they provide to prospective buyers such as product reviews.

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Characteristics of Services

Most services can be characterized as having experience attributes (where product quality is determined only after usage) rather than search attributes (where product quality can be ascertained before purchase).
The main characteristics of services are intangibility (lack of physical attributes). nonstandardization (because they are usually delivered by people), and inseparabil­ity of production and consumption.
Service quality is defined by the service provider's reliability, responsiveness, assur­ance, empathy, and tangibles (service features or physical aspects of the service delivery).
Service quality is assessed negatively when there is a gap between customer expec­tations and experienced quality.
Service quality can be measured through the use of survey instruments such as SERVQUAL; the financial return on investments in service quality can also be evaluated.
Some strategic issues in services marketing are making the service tangible to customers, combating low entry barriers, and using service blueprints to design services.
Because of the people-intensive nature of most services, globalizing a service business requires special attention to culture, labor market, customer expectations of service, and other conditions.
New technologies in services marketing affect channels of distribution, improved standardization of service offerings, and the establishment of competitive advantage.

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