Fall+2008+Section+07-SS+Week+4

=Class Discussion For Week 4 - Services, Branding and Consumer Behavior=

1. Starbucks case 2. “Services” PowerPoint slides 3. Huella Online Travel case 4. “Consumer and Organizational Behavior” PowerPoint slides

Elliot’s words of wisdom: "There are no correct answers in marketing, just good solid logic."

The important thing to learn from this case is that it is paramount for a business to stay proactive. Being proactive allows a company to be strategic with its investments, rather than having to act out of desperation.
 * __THE STARBUCKS CASE__**

This is one of the lessons. However, the most important lesson is to understand when you are starting to serve a segment outside your intial target market. If you are then it is time to introduce another value proposition or stop trying to serve those customers. EM

Starbucks grew quickly from a coffeehouse in Seattle that focused primarily on selling whole coffee beans to coffee connoisseurs to an international coffeehouse chain. It began by catering to one segment of people (educated, white collar, 24 to 44-year-olds who are looking for “great” coffee and a “third place” where they can relax and hang out with friends). Over time, as the business grew so did the customers, including a new segment (younger, less affluent, less educated, more diverse ethnically, more suburban, and more interested in the convenience and speed of obtaining “good” coffee). Starbucks was in the process of moving from its original position to two distinct value propositions.

Starbucks is concerned about keeping its customers satisfied, but does not know how to do this because it has not properly segmented the customer base. Once the customer base has been properly segmented then they can "crunch the numbers" in order to decide which customer segment is most important to them (profitable). At this point they can focus on what will satisfy this segment.

A $40 million proposal to improve customer satisfaction is on the table. The notion is that Starbucks should not move forward with this proposal without testing it in the market first. If success is found in the test market, then Starbucks will be able to move forward with the proposal with more evidence that it will accomplish the goal; customer satisfaction. The point being that it is not prudent to move forward with initiatives without evidence that they will work. Decisions should be based on research and test marketing.

This is true, if you have time. This goes to your point above about being in a position to be proactive. Starbucks was still doing well financially. But financial analysis is a lagging indicator. By measuring customer satisfaction and recognizing it was dropping Starbucks has time to react before they are in financial distress. EM

The Starbucks case also highlighted the evolution of a brand, and how a company can take the benefits of its original brand and “adroitly” leverage it to establish a new value proposition for a new segment of customers. The problem Starbucks faced in this case was that it was trying to serve two significantly different segments of customers and not serving either very well. Fortunately, the company was in a good financial position in that it was still growing and increasing revenue.

__Suggested alternative solutions for increasing customer satisfaction:__
 * More Staff:** Use the $40 million to hire more people, serving the younger segment with increased speed of service and raising their satisfaction. At the same time, hiring more staff would serve the original customer segment by providing more “face time” with baristas, who could improve the friendly atmosphere by paying more personal attention to each customer. Naturally, a conflict arises between speedy service and creating a friendly, relaxed atmosphere. Can Starbucks do both?


 * More Training:** A second alternative suggested by Lauren is to use the money to provide more training, so baristas can better differentiate between the two segments and serve both accordingly.


 * Different Shops for Different Segments:** Cort suggested creating different shops for each segment, designing some to cater to the speed of service and the others to focus on the relaxed, friendly atmosphere. Matt followed up this suggestion by suggesting Starbucks test the concept of two different shops for different customer segments.


 * Forgo the "speed" segment:** This is truly an option. With lifetime Value analysis Elliot showed how the Very Satified far out perform the Satisfied. Starbuck's only need move some of the satisified to very satisfied to make up for the unsatisfied they lose.

Once a company recognizes a customer segment shift, it needs to test market new ways to serve customers in order to judge their behavior. It may ultimately decide that it doesn’t need to grow – it just needs to better serve its “satisfied” customers, turning them into “highly satisfied” customers. In doing so, a company may not necessarily see more revenue, but it may increase its profits.

There are two kinds of businesses: Those that mostly sell service, and those that mostly sell product. Most businesses fall somewhere in between.
 * __MARKETING FOR THE SERVICE INDUSTRY__**

Elliot says that there is no "pure" service business; that all services include a product of some sort. Kathleen wonders; what about an escort service? Cort says that they deliver a product, but I'm not talking about //that// kind of escort service. What if you have an important company function and you can't get a date and you have to hire one? This person just accompanies you to the function, charms everyone, and collects his or her pay. Could that be a "pure" service business? Or would we consider physical presence and/or charm as a product? We explored the concept of maid service being a "pure" service, but it was determined that the clean room was the product.

Services cannot be seen, felt, heard, or touched so how do we make them appealing to customers prior to purchase? Services can be made tangible through the four "P's": Place, Price, Product and Promotion. With regards to Starbucks:
 * Place: Lots of locations; appealing and comfortable, trend setting, affiliation
 * Price: High (You pay for quality) you find paying extra to affiliate with their products worth the money
 * Product: Process is very transparent and often times customized; also people who serve the produce (baristas) variety of product allows you to affiliate with their value proposition for many different reasons. Its not just about coffee, it might be about shade grown organic or small grower direct to market social value, so you buy a product, but you also buy the aura that they are presenting with each product.
 * Promotion: New drinks introduced periodically, gift cards, affiliation cards(stockholders get a special cards)

Services are typically produced and consumed simultaneously. This creates inseparability. Services usually require interactions with the customer. This creates variability in the service because the customer and his/her attitude and perception become part of the service, therefore the results can greatly vary. Two important things that you want to be sure to do are to create a service blueprint and to monitor customer satisfaction.

There are things that businesses can do to reduce this variability. Self-directed interactivity (i.e. ATM's, grocery self check-out) can reduce costs for a company and reduce variability, but it requires an in-depth knowledge of likely scripts (ATMs: Withdrawals, Deposits, Account History, Funds Transfers, etc.). Human interaction has its advantages over self-directed interactivity by creating that "personal" interaction with customers and building and growing relationships that machines cannot. Variability can also be reduced through proper hiring practices and training, service scripts and blueprints, and monitoring customer satisfaction. The decision to move to a machine interface to reduce variability may not work well for some market segments in terms of delivering value, depending on the customization of the service being offered and the market segment served.

Services are considered perishable because they cannot be stored or saved. This leads to higher fixed costs to meet erratic demand. There is also often a mismatch of supply and demand. There are ways to manage demand. Differential pricing coordinates the price of a service with demand at different times (Matinee movie prices vs. Regular movie ticket prices). You can also manage supply through part-time employees, increased customer participation and shared services (Example: Hut shuttle providing service to Portland for all of the airlines). In Europe and Asia small companies informally pool employees all the time -- a very good solution.

Service companies must focus on competitive differentiation, service quality, and productivity. Manage differentiation by deciding on whether you will offer a primary service package, secondary service features, or quality or speed of delivery.

The only problem with differential pricing is that you can take it too far. A classic case: Airlines. They use differential pricing to maximize profit. But as consumer, you price shop. There is no customer retention. We go for the lowest price we can get. Since deregulation in 1980, they have lost billions of dollars because of huge fixed costs. They cannot afford to not fill their planes, so there are price wars. There is no differentiation. (Elliot says: This commodity should never have been made a commodity. In Europe, airlines compete on quality; in U.S. everybody competes on price, so they all lose unless they are the low-cost producer (Southwest). Frequent-flyer programs are the only incentive to keep you loyal. U.S. airlines are run by operations people. Overseas airlines are run to people who think of customers first, and they don’t compete on price.)

Some of them do compete on price. They just know who they are (e.g., Ryan Air). Some compete on superior service (e.g., Lufthansa) EM

In managing quality there are five gaps that can cause unsuccessful delivery: 1. Gaps between consumer expectations and management perceptions. 2. Gaps between management perception and service quality specification. 3. Gaps between service quality specifications and service delivery 4. Gaps between service delivery and external communications. 5. Gaps between perceived services and expected services. When it comes to managing quality you must monitor systems in real time because if you can't measure it then you can't manage it. The two areas for greatest variability, resulting from greater human interaction and potential for error, are when the order is taken and the final distribution of the order, both of these tend to have the greatest amount of customization.



For some segments, machine interaction does not work very well for delivering value. Facts of the case: 1. Annual revenue of $80 million 2. Its year-to-year revenue growth has been erratic (7 to 30 percent) and it is slowing down 3. Market share stands at 4 percent, and the market is growing a lot faster than Huella 4. It has difficultly competing with brick-and-mortar travel agents, who can offer customers personal service and lower prices
 * __HUELLA TRAVEL CASE__**

Value proposition (What does Huella offer?): Internet technology, speed, convenience, a good search engine, connections with parent company (Blue Rock)

The kind of customers who seem to be best served by Huella: Tech-savvy, young people, with easy itineraries

One of the problems in this case seems to be the lack of good research. The company doesn’t seem to know what information it needs, and it included the wrong people in its focus group research. The kind of people it needed to involve were young and tech-savvy.

Alternative courses of action: 1. Get more research. The company needs to better understand the buying culture of the Hong Kong travel customer. 2. Buy out a brick-and-mortar operation with some name recognition. It was suggested that they partner with another company. However, it isn’t clear what Huella can bring to the table for its partner. Maybe it could provide back-office services, such as online price comparisons. 3. Market analysis shows Huella has low brand awareness in the Hong Kong market. It is critical that Huella increases the public's awareness of their services and competitive advantage. 4. Pull out of Hong Kong altogether in favor of a location where they can have competitive advantage. 5. Take advantage of online traffic that relies on Huella for price comparisons, and start selling that information.

__Lessons from this case:__ It’s difficult to make decisions without adequate research. In this case, Huella also doesn’t seem to know its own brand. Perhaps it’s just too early in the product life cycle – it hasn’t gone over the “chasm” yet. For some segments of the market, machine interactions don't work very well. For that reason, there may be a great cost to promote that avenue.

A potentially important lesson from the case is that even though there may be a substantial market to be served (as in Honk Kong), if you don't have a clear value proposition that differentiates you from the competition you have no business trying to serve it. (EM)

Three things that determine whether people pay attention to you:
 * __CONSUMER BEHAVIOR__**
 * Ability to pay attention (People don't pay attention to an advertisement in the middle of a drunken Super Bowl party!)
 * Motivation to pay attention
 * Opportunity to pay attention

People’s ability to take in media the way you want them to means you have to get them involved, and in a position where they can best take in the message. As Super Bowl commercials demonstrate: A number of commercials are very well liked, but they don’t get the message across. On the flip side, for example, ATT did no advertising during the Super Bowl, yet 6 percent of respondents in a Performance Research survey said they recalled seeing ATT’s ads. In fact, the ads were for MCI.

The bottom line: 1. Consumers are not rational. They tend to see what they want, not necessarily what you tell them. The key to communication with consumers is to understand their filters. 2. Consumers can and should be segmented because different groups have different filters and benefit profiles. 3. Customer Satisfaction Leads to a strong brand.

Perception is defined as the process by which people select, organize, and interpret information. People are more likely to notice stimuli that relate to a current need, that they anticipate, and whose deviations are large in relation to the normal size of the stimuli. An idea has to get through both selective distortion and selective retention before it gets stored in long-term memory.
 * __PERCEPTION__**