Marketing Services
Marketing Services
Marketing Services
SESSION-1
Divergence Model Vs Convergence Model – Treating product and service as similar or different
Traditional Classification
o Tangible Vs Intangible
o Production precedes consumption Vs Simultaneous production/consumption
o Standardized Vs Heterogeneous
Service
o Definition 1: A service is essentially a product with “no mass”. Labelling something as a product or service
does not serve any purpose
o Definition 2: Is a combination of a hard asset and an operating system serving a brand concept
Hard operating system Non people, Soft operating system People. Goal of the operating system is to increase
the utilization of the hard asset
Brand Management Product, Price, Promotion, Place
Service Management People, Process, Physical Evidence
Productization is the elimination of service problems in an organization, service systems approach to solve
marketing problems
Service System
o Concept control, menu control & branding
o Service marketing – operations interface
o Service – people interface
o Service-Technology Interface
o Business Concept Vs Business Model Relationship Concept Is just used to drive the model
o Interlinkages
Service Marketing Triangle (Company, Customers, Employees)
o Stakeholder Mindset Three objective functions, no constraints
o Alternate Mindset One objective function, two constraints
o Customer-Centricity: Customers as the objective function
Service replication Robust relationship replication
Experience of one customer is a function of the behavior of other customers.
The above four tests offer protection from existing competition/legacy but not from clones/new entrants. Clones in turn
bring capital to the table, battle of capital.
SESSION-2
Apollo Case
External Target: Who? Middle/High Income groups, generally local, otherwise would go abroad; Why? Tertiary Care,
Quality sensitive (medical & non-medical)
Concept: World class doctors, quick treatment, high technology, high hospitality, variation in hospitality quality, low total
cost (function of time, convenience & likelihood of success), easy access, high likelihood of success, comprehensive
treatment
Operating Strategy: Tech intensive resource allocation, acquisition by doctors/management (a balance between what the
doctors want and the management wants), allowing referring doctors to accompany patients, formal QA system (Apollo
concentrated here on non-medical quality aspects as this is something that the patient understands. Non-medical quality
as a signal for medical quality. In medical quality Apollo only controls screening & environment/capital but in non-medical
quality they cover everything, 100% from scratch. Word of mouth)
Service Delivery: High technology, high hospitality, high quality consultants, high price-low total cost, high success rate
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Internal Target: Consultants Doctors Renowned/specialists, expats/wiling to come home, research/network sensitive,
known to the founder. Junior Doctors Freshly-minted doctors,
Concept: Consultants Doctors Come home, set your fees, replicate the research/clinical environment, low bureaucracy,
philanthropic/pioneer, no marketing expense. Junior Doctors Reputation by association, work with the best
doctors/tech, professional development.
Operating Strategy: Motivation system ‘Patriotism’ (this element has been carefully added to ensure they can pay less
then employee retention. These are the effects on the income statement. Do the fit the context and the Industry is the
key question. ‘Fun’ as in southwest case might work if it is child care and not tertiary care), flattening the organization,
reputation building, above market pay.
Model does not have any self-correcting ability against corruptibility. Concept Creep If demand stays low one way to
solve it would be to move away from tertiary care to primary care.
VH Quality W.r.t Cost, risk of attrition, scalability an organization would ideally want to be
High Quality in the bottom portion of the pyramid e.g. Southwest. Apollo is in the top most
Medium Quality portion of the pyramid. A smart system is one that can work with dumbest of
people. To move to the bottom of the pyramid, relative contribution of firm vs the
frontline should be more. i.e. move from a “Capital matchmaking system (Apollo)” to Protocol driven system (Aravind
eye care). Width of the menu will play a role in the ability to move from one system to the other. Brand enables you to
hide your business model and the brand will help you scale. Irrespective of creep, dilution.
Decapitalizing
If the business model has one weakness of having
First Mover (Use capital to be the first mover to be successfully then high
Advantage from outside) growth rate is paramount.
Operations Approach: Capacity planning, capacity utilization, scheduling, minimizing waiting time
Perceptions Approach: Control perception of time, anxiety, boredom, and anger
An Ideal system Utilization 100% (Operations Target), Waiting Time – 0 (Marketing Target)
Increase the threshold of minimum viable satisfaction
Scalability: If service time ▲, Increase server speed. If waiting time ▲, pooled capacity
Threshold – Choose the right queue format
Multi-stage queue should be used only when the service is partially consumable if not then this is the worst
If waiting time is short Overweight, rate of movement Single line over multi line
If waiting time is long Overweight length: queue length. Multi line preferred over single line
A Guarantee shrinks the expectation distribution, i.e. preferring certainty. Experience is amplified
Satisfaction is much higher until the point of guarantee than normal and vice versa
With loose expectations sensitivity to changes is low. With set expectations sensitivity to changes is high
Shrinkage of expectation Amplification
Guarantee basically amplifies your operational excellence in your marketplace
Service Concept (Value Proposition): Is determined by Product Market Selection + Basis of Competition
What is Benihana? Entertainment, Food preparation in the presence of customers, authentic Japanese ambience,
Community/casual dining, moderate prices/times, moderate duration, multisite/consistent
Income Statement
Food & Beverage: Authentic Japanese (Concept) Operating Choice (Bill of materials for food) Drives the income
statement. Since this is billed as a Japanese-Steakhouse they do not have a point of reference.
Rent: Productive Asset & Asset Utilization. Asset used for productive & non-productive mix. Simple Menu Pre-
processing space Drives the income statement and increases productive vs non-productive ratio. Communal Dining +
Food preparation in the presence of customers Starts together and ends together Minimizes variability Increases
utilization
Labor: Low headcount, Intangible compensation (Chef’s Total Compensation: Since he/she is the showman the tipping
behavior changes), low attrition. Employee Value to the firm: Firms would want it to be upward sloping w.r.t time. Ensure
employees are valuable, increase productivity through repetitive niche skills so as to block out exit options.
Time Spent in the Bar: 12 minutes. (60 minutes / 5 tables). Seats ratio and cycle ratio is the same. See capacity as defined
by cycle time instead of just seating. Threshold on total expense and total time.
Revenue Streams: Primary or secondary focus has to be questioned both on the basis of ‘concept’ and ‘financials’
SESSION-4
Brands
Starbucks
Competition
Ambience
Since all the three legs are replicable with enough capital it is important for
Starbucks to scale/grow quickly. Growth through footprint expansion
In the pursuit of this scale the brand transformed from three legged brand to a single legged brand (Just quality
coffee) because of catering to customers with opposite requirements from what they set out to.
Growth
Footprint expansion
Through Product Proliferation: If you chase growth through product proliferation then the time taken to prepare
the product is great and the soft ops (one of the core legs of the brand) will suffer
Ticket size expansion: Upselling mindset. See if you can go from Beverage Breakfast. Share grab/ Market
Expansion.
o Service side constraints: Ensure that the Barista is not occupied for a major chunk of time
o Product side constraints:
Utilize idle capacity/time to introduce different set of complementary projects
Substitutes Tea. Tazo, Teavana. Building within starbucks (one legged brand) and build it outside (three legged
brand)
Product Market Selection Does it make sense to get into the UNHI1 deposit market
Basis of competition Borrow reputation and trust from the SBI Brand. Build exclusivity using Kohinoor brand
Legs
o Customer Selectivity
o Banking Expertise (Core Banking)
o Relational Experience (Front Office)
o Menu Width (Core side, Peripheral side)
o Asset (Empty asset used to recruit customers, Day 1 experience)
Brands many a times can be built on the basis of attributes secondary to its nature.
Scalability Vs Feasibility problem (Banjara with Asset Vs Jaipur with no asset)
Slow brand as scalability depends on density of UNHIs
SESSION-5
Fairfield Inn
Fairfield Concept
Be the best in the class and not the biggest. Superior hospitality and execution
Impress guests, have committed employees, recognize and reward excellent performance
Anticipated occupancy rate 78%
600 people sample for amenities
We hire people who like to make people smile. Pay for performance system
Scorecard
What is it?
Measurement System
Performance Management System
Reward (Equitable) System
Mutual Transparency System
Quality Monitoring System
Internal Competition System
Motivation System
Basis of competition: Price, location, service, asset. Price is being used as an instrument to target-in and target-out.
Marriage of the operating system to the concept. Bringing back-end employees to the fore-front.
SESSION-6
Au-Bon Pain
What is it?
o Cost reduction system/retention system
o Appraisal/Incentives system
o Ownership transfer system
o Decentralization system
o Quality control system
o Human resource management system
Testing the Performance Pay Model
o Test run using above average managers Demonstration
o Test run using below average managers Robustness
o Test run using average managers.
o Plan is to eliminate below average and average managers’ tomorrow
What’s in it?
o Store managers have autonomy Asset (Y), Hard Ops (N), Soft Ops (Y), Menu (N), Sales (Y), Brand (X)
o Appoint manager, chooses AM
o Incremental profit 35% manager, 15% A. Manager, 50% firm
o Base Pay
o Share of profit held back
o Locally tied
o Contract period
Goal: Without monitoring you I want you to put maximum efforts and bring your ingenuity to the table. The goal is to
improve bottom line. Top line driven setup would stress on sales and not give control over costs
This model designed by the person who devised the service model. Empower/Enfranchisement
Squeezing by revising the store lease payment and ensuring that the ultimate pay is slightly above the
poaching/retention requirement.
Thick Rim High expectations/flexibility to the front-line employees
Cost, Risk, Scale
Deskilling (Frontline). Delayer (Middle Management). Indirect Control
Hub
(Output/Input) via process/technology due to reduction in manpower.
Incentive/Motivation. Talent Quality
“Notch-below” hiring process Level people from one-level lower
Brilliant people + Average people in an org Learn what the people who
Rim
achieve excellence are doing, learn and then use this to pull up the mean of
the people in the org thus reducing variance as well. Thus moving the
organization from Thick Rim Thin Rim. “Seeding-Socializing”
Innovation Engine Go for Thick Rim.
Body Shop (Complete Discretion) Thick Rim Thin Rim Rimless/Vending Machine Model (No Discretion)
SESSION-7
Marketing-Technology Interface
Everdream
Estimate capacity
Income statement for the call center/Number of minutes available per month
Time per month = 100*22*13*60 = 1,716,000 minutes
Number of minutes in contract period = 30 months * 1,716,000 = 51,480,000 min
Number of minutes consumed per customer = 586 minutes’/ contract period
Assume running capacity of 70% (As buffer is always necessary) 87859*.7 = 61,495 customers
Costs Operating cost 9 million, amortized fixed cost 0.6 million, cost of PC + VAR = 50 million. Total cost = 60
million
Annual Margin = 110 million = 60 million = 50 million
ROI 50 million/3 million = 16.67
Newer and newer ways of shrinking the denominator (cost of the assets) and increasing scalability
Everything other than the initial 3 million is completely variable
Guarantee
o Uptime
o Response time
o Problem resolution. No data loss
SESSION-8
Expectation-Disconfirmation Model
NPS = Useless
Improvement Effort/Performance Pulls NPS and Topline.
Improvement in NPS does not lead to Improvement in Revenues. Correlation is not causation
Don’t be in the business of optimizing the middle. (Overall satisfaction, NPS etc.).
Think of ROI/Re-purchase intent etc.
SESSION-9
Takeaway: Always play the asset margin game and not the expectations-performance gap. You will face people who are
customer-centric. Don’t try to swim against that current immediately. Wait and strike.
SEVQUAL
Reliability
Responsiveness
Assurance
Empathy
Tangibles
Lehman Brothers
Sourcing: Bottom of the pool, Contrarian pool, no jerk policy (checking the attitudes) and then aptitude
Development: Basic training. Unbundle output to figure out what drives the quality of the output (way one talks, number
of calls, hours etc.) and then use this to train the entire firm and raise the performance level of the entire firm
Socialization. Seeding from the outside, bringing in expertise that the firm lacked in.
Compensation: Below market compensation. “Psychic Value”. Shielding, personal rapport, fun.
Service Triangle: Talk about all the $ benefits in the boardroom. Talk about all the non $ benefits or discussions in the
pressroom.
Control System: Inputs are being controlled. Outputs I I ranking, sales generated, accuracy of prediction
Leadership’s responsibility is system design. More robust the system design, less requirement for leadership.
Employee satisfaction doesn’t matter, customer satisfaction doesn’t matter, leadership doesn’t matter
SESSION-10
Human Resource Flow: How to bring them in, how to compensate them
Management Systems (Control Bucket)
Measures of Performance: One set of measures tied to inputs and outputs of the human resource flow. Metrics
on Inputs and outputs enterprise wide
Management of service capes (assets): Kohinoor SBI case
Concept Control/Brand
Each of these models is comprehensive by itself. Do not mix and match as they are independent and different ways of
thinking.
Downside: You assume that employee satisfaction is the problem and focuses only on that. Puts on blinders to everything
else. Top line model. Other drivers of revenue. Narrow minded approach
Essence: Only thing that matters in running the enterprise is Service Quality, high quality output (Quality centric thinking
rather than a people centric thinking)
Downside: Solves the customer’s problem and not the firm’s problem. It is a top-line model and not a bottom-line model.
Post-fact model
Downside: Does not tell you what the end game is. No ways to identify the problem. We could get more profits by
improving something on the backend unrelated to the customer
Essence: Focus on actions and outcomes, not get mired in the middle. Think from right to left. Upside: Allows you to pick
your own elements
Essence: Products and services are not distinct and are interchangeable. Everyone needn’t be smart. Move from thick rim
to thin rim world. Design (product), sourcing (material), compliance (manufacturing) with a single stakeholder mindset.
Reasonable Questions
Design
Sourcing
Compliance
You don’t necessarily need to be bad to the employees and customers. Preserve the variable cost and deliver non-$ value
to both the stakeholders. One output, two constraints.
Building Blocks
Taco-Bell
Basis of Competition: “Mexican”. “Value” -> More food for the money
Income Statement: High COGS has an implication of Margin Compression. Two ways of making this viable is to either
increase the volume or lower the SGA.
Volume Increase Demand side (Increase ad spend, Footprint expansion, FACT model, Lower price points) ; Processing
Capacity (Productive Capacity, Asset Productivity – Speed of Service Initiatives)
Lower SGA People (Delayer, Deskilling, TACO for Back end, Control through Safety Nets)
Two ways of learning. Do it incrementally or do everything together as a pilot. Execution should be done simultaneously
if we are confident. Such a big change usually fails due to internal resistance. That was taken care by – Delayering,
Increasing compensation for survivors. Successful implementation of change management
Value-Cost leveraging is the best of both worlds. Increase value to the customers and reduce the cost to serve the
customers. In this case it was high value, high cost. Competitors could easily put pricing pressure on you and reduce the
value that you are giving your customers.