Marketing of Services

One of the very first things that a B-school student learns under marketing course is the 4Ps of marketing: Product, Place, Price and Promotion. However, many of usdo not know that there also exists something called 7Ps of marketing which are especially important for the service sector. The 7Ps comprise of the 4Ps along with People, Process and Physical evidence.

“People” includes the customers, employees, management, organisation culture and customer service orientation. If we think of it, the people in an organisation indeed play a very vital role in service industry, where there are no intangible products and the service given by the employees coupled with the overall experience of the customer counts the most. The people aspect can lend a company a huge competitive advantage, and is one of the key drivers of the success of an organisation.

“Process” talks about the service delivery process and, to some extent, service consumption process. The delivery of burgers at McDonalds in two minutes constitutes the process part of 4Ps which is giving it an advantage over many other fast food chains. Similarly, when we automatically get the delivery of our new credit card upon expiration of the older one, this fast service of the bank is also an example of process. An efficient service generates a good opinion about the company amongst its customers and further generates loyalty. It also facilitates word-of-mouth advertising. Thus the process part also forms a very important aspect for the service industry.

“Physical evidence” for a service sector deals with the infrastructure and facilities related to the service. Restaurants investing heavily in their interiors are an example of physical evidence. The restaurant chains such as Café Coffee Day which have similar interiors in all their cafes constitute the physical evidence. This is not only because the plush interiors of the cafe constitute a good experience for the customer but also becausethe identical interiors creates a unique identity for that chain which helps the restaurant in differentiating itself from its competitors. Hence physical evidence can also be the source of competitive advantage for a service sector company.

Now, let us take a look at some examples to develop a better understanding of how people, process and physical evidence can impact the perception of an organisation in the minds of its various stakeholders.

TajResorts, hotels and palaces, a part of Tata group would serve as a perfect example of the “people” aspect of marketing mix. The Taj Group imparts its employees extensive training so that they are able to provide the best in class services to their guests. It is always stressed that guests should be kept happy under all circumstances. The 26/11 Mumbai attack bears witness to the ingrained values of the well-being of guests in the work culture of the organisation and its employees. During the attack,the hotel staff did not run away to save their lives,instead the safety of the guests was given prime importance. The employees rushed the guests to safe places like basement and kitchens. The telephone operators were at their places, alerting guests to lock their rooms and not to step out. The kitchen staff formed human shields to safely evacuate their guest. Mr. Karambir Singh Kang (General Manager) even lost his wife and two sons in the attack at night, but still worked for the evacuation of the guests till next day noon. Eleven Taj employees lost their life to save 1200-1500 guests that day. This incident and the impromptu response by the Taj staff take customer service to an entirely new level. However, it should be kept in mind that organisations must have a reward system in place to motivate the employees so that they give their best. In case of the Taj Group, a Special Thanks and Recognition System (STARS) is in place, which links customer delight to employee reward, thus giving incentives to the employees to give their best.

United Airlines is one organisation where the lack of focus on the “people” and “process” led to a lot of negative publicity for the airline company. Dave Carroll, a musician was once travelling in a United Airlines flight in 2008 from Halifax to Omaha. His guitar was broken in the transit, due to the negligence of the staff of the airlines, which paid no heed to his concerns regarding the handling of the baggage. Also, some of the fellow passengers had observed that while transferring luggage from one aircraft to another, the guitar cases were being “thrown” by the luggage handlers. Mr. Dave tried getting a claim from the company for more than nine months, but to no avail. The airline had an extremely unresponsive customer service and grievance redressal system in place. Mr. Dave went on to produce a music video “United Breaks Guitars” and uploaded it on Youtube. The video became an instant hit and had over half a million hits within three days of its launch. This led to a lot of negative publicity for United Airlines and some news reports claimed that this also led to a fall of around 10% in its stock price.

If the airlines had a proper focus on the aspects of “People” and “Process”, perhaps this fiasco could have been avoided. The crew and the baggage handlers should have been trained to listen to and to respond to the concerns of a passenger instead of being indifferent. Also, the process of handling of luggage should have been designed in a manner to minimize damages to the luggage. Last, but not the least, the process for responding to grievances of the customers should have been designed in a manner that minimizes the dissatisfaction and discontent of the customers and ensures prompt action if a stakeholder has been wronged.

Flipkart is another organisation where there has been a great emphasis on the “process” aspect of the 7Ps, right from the day when it was launched. The products available for sale are divided into different categories on the home page itself, so that when a potential customer visits the site, he/she can easily manoeuvre through the website. The compare feature on the site gives a user the option to effectively compare products on several important parameters, thus making his /her purchase decision easier. Also, once a product is ordered, the customer is given various options for making payment like credit or debit card payment, net-banking, cash-on-delivery, etc, thus enhancing the convenience of the customer. Flipkart is also prompt in responding to the grievances of the customers and has a dedicated team to respond to queries pertaining to delay in delivery, etc. To sum it up, the processes are designed in a manner that maximizes customer satisfaction and thus ensures high loyalty and repeat purchases.

Big Bazaar is an excellent example of an organisation that focuses a lot on the “physical evidence” aspect. When Big Bazaar stores were launched in India, the culture of shopping in malls or organised stores was not too prevalent in the country. Most of shoppers belonging to the middle class were very hesitant to go to big stores. The Big Bazaar stores were designed in such a manner that the customers who visited the stores felt that they were visiting a normal neighbourhood “mom and pop” store. The Indian customer is more accustomed to selecting food grains after feeling them. In the Big Bazaar stores, open bags of rice, wheat, flour, etc, were a common sight, which made the customers feel more comfortable. Also, the layout and the design were such that the customer felt he/she was in a normal market and not some retail outlet meant for the elite. Big Bazaar was able to understand the typical Indian customer and was able to connect with them by careful planning and execution.

Apple stores in USA are another good example of “physical evidence”. People flock to the Apple store in USA to buy Apple products whereas they can buy the same products at places like WalMart, Target, etc., where products are often discounted in many ways. People buy from Apple store for its experience and they are willing to pay a premium for it. 

All Apple stores have the attractive and shiny white apple logo at the top. On entering the store, one is exposed to lines of neatly displayed products on shiny white counters. Products in the store can be touched, used and explored.  The employees also have a fixed uniform which is a blue coloured shirt with the Apple logo on it. Although Apple productssell for their technology, the physical evidence also plays vital role init.

Thus, we see how marketing of services is a different ball game as compared to marketing of products and how important it is to focus on “people”, “process” and “physical evidence”.

(Co-authored with Dhwani Magoo, PGDM 2012-14, IMT Ghaziabad)

Hub and Spoke Model

Friends I am sure that most of you would have heard the term “Hub and Spoke” before. In this post, let us understand the “Hub and Spoke” Model in a detailed manner (with respect to FMCG companies).

There are several small towns and villages away from the cities where it is not feasible for the distributor in the city to supply goods due to constrains of time, transportation costs, etc. In such cases, a Super Stockist (SS) is appointed by the company who receives the goods from the depot and dispatches them to the Sub Distributors/Sub Stockists (Sub DBs). The Sub DBs in turn supply the goods to the retailers.

Each SS deals with numerous Sub DBs. The town where the SS is located is generally in the centre of the towns where the Sub DBs would be located (hence the SS represents a Hub and the Sub DBs represent the spokes). The prime task of the SS is to dispatch the goods to the Sub DB and a SS is generally not required to sell the goods in the open market. The SS gets a fixed percentage of margin and also in most cases, the freight incurred to dispatch the goods to the Sub DBs is reimbursed by the company.

The prime role of the Sub DBs  is to sell the goods to the retailers (retailing) and wholesalers in their respective towns, for which they get a fixed margin (the margins given to the Sub DBs are generally higher than the margins given to a SS because of the difference in volume). A company representative generally visits the Sub DBs at regular intervals and helps them in retailing. Pilot Sales Representative (PSR), Rural Sales and Distribution Representative, Interior Sales Representative are some names given to the company representative who works with the Sub DBs.

The PSR also serves as a link between the SS and the Sub DB, and is also responsible for adding new towns and Sub DBs. The PSR generally visits the Sub DB towns based on the volume of sales, future potential, competition, etc. It is also the responsibility of the PSR to ensure that the SS and Sub DBs focus on range selling rather than focusing on some selective products that are high in demand. Also, the PSR is required to ensure that goods are dispatched to the Sub DBs on a regular basis. Regarding this, let us now understand the two terms “Distribution Efficiency” and “Billing Efficiency”.

Distribution Efficiency: Distribution efficiency refers to the % of brands that are billed to a particular SS by the depot during a month. For example, if among 20 brands and 14 of them are billed to a particular SS, the Distribution Efficiency would be 70%.

Billing Efficiency: Billing efficiency refers to the % of Sub DBs to whom goods are sent by the SS during a month. For example, if a SS is responsible for dispatching goods to 10 Sub DBs, and goods are dispatched to 9 of them in a given month, the Billing Efficiency would be 90%.

I hope that the readers found this post useful. As always, suggestions and feedback are welcome! 

Book Review and Learnings: K-mart’s Ten Deadly Sins

When one looks at the title of the book, perhaps the first thought that would come to his mind would be “another tirade a failed organisation”. However, on going through the book, the reader gets to know a number of intricate details that led to the collapse of K-mart. At the same time, the reader also gets to know what decisions should have been taken by K-mart which would have helped it to survive and grow.

Author Marcia Layton Turner reveals 10 management mistakes which made K-mart fall from grace and transformed it from a profitable retail titan to a bankrupt behemoth. The book is based on secondary sources of date like interviews of retail gurus, financial analysts, former employees, professors, etc. Also, a number of newspaper articles, books etc have been a source of information to the author. The author successfully makes the readers understand the thought process of K-mart and also enlightens them with the behind the scene happenings.

The book is very informative about retailing concepts, facts and anecdotes about this industry. At several places, comparisons have been drawn between K-mart and Wal-mart and this gives the reader an insight about the good practices in brand management, supply chain, information technology, etc which were followed by Wal-mart and contributed heavily to its success.

In the end, the author also lists out ten steps that the K-mart should take post its emergence from bankruptcy that would help it to grow and sustain in the future. It should be noted that a majority of the points mentioned here, would be applicable to most of the companies in any industry. Thus, this is a highly recommended book for anyone who not only wishes to know what went wrong at K-mart but also for those who wish to develop a better understanding of the retail sector.

In the next few paragraphs, I would try to summarize my learnings after reading K-mart’s Ten Deadly Sins.

Brand Management should be one of the key focus areas of an organisation. K-mart’s focus has been growth through expansion, and in the meantime an important aspect of brand management was ignored. K-mart stores were messy, products were often out of stock, checkout lines were very long and no customer care. In the mad rush for expansion and experimentation, K-mart forgot to reinvent its brand and there was no strategy, and lack of proper communication and tag-line along with a high degree of poor positioning that allowed the brand to deteriorate a lot.

In order to sustain and grow, an organisation needs to know its customers well. There has to be a substantial amount of investment in customer research to identify the customers and to understand their requirements. At the same time, improving the relationship with existing customers can itself provide a stimulus to the customer to frequent the store more often. Ensuring that new products are aligned to the tastes and preferences of the customers and that there is sufficient inventory of the products in demand are the stepping stones of forging long term relationship with customers. Also, there should be an increased focus on micro-segmenting and classifying the customers to ensure that their needs are met.

Acknowledging competition is another area where organisations need to focus on. In the case of K-mart, it ignored its biggest competitor Wal-mart and in the process did not align its activities to combat the steps taken by Wal-mart. It is essential for any organisation to formulate and change its strategies keeping in mind the competition. Today, several organisations adopt the steps taken by the competitors if necessary, and this was one key area where K-mart lacked. It could have easily adopted some of the best practices of Wal-mart.

The location and appearance of the store is of utmost importance, especially for retailers. The store should be located in a place such that maximum number of customers can have an easy access to it. In the case of K-mart, the focus was more on urban locations where customers were scattered. Apart from this, other aspects of real estate like future price expectations, etc too need to be kept in mind. In the real estate, it is also quite possible to have a “second-mover advantage”. The appearance and arrangement with the store is again of great importance to the retailers. Store design and layout should be modified from time to time to align with change in strategies and offers, etc. Customers should be attracted to the store and the layout should focus on bettering their shopping experience. It is essential for the organisation to ensure accountability at the store level so that the policies are implemented properly.

Technology is one aspect which organisations cannot afford to ignore. It is essential that investment is done in technology to understand the customer, to manage inventory, to increase collaboration between stores and to effectively meet competition. The issue is that a mere investment in technology would not help. There has to be a commitment from the top management too. In the case of K-mart, it did make some instrumental changes on the technology side and won awards too, however this happened haphazardly. While implementing technological changes, it should be kept in mind that the devices and the technology should be customer friendly and fiascos like P&G’s continuous replenishment and kiosks in case of K-mart should be awarded. Also, in the case of K-mart, focus on technology was required even more because its competitor Wal-mart was investing heavily in aspects like RFID, etc, and benefitting a lot.

For an organisation to succeed, it is essential that it has a focus on the supply chain aspect as well. Focusing on supply chain has several benefits like minimizing inventory, ensuring timely delivery, etc. Organisations need to keep the suppliers and other players in the supply chain in the loop while formulating strategies. Retails primarily need to choose between two options: either a responsive supply chain or an efficient supply chain that minimizes variations. It is also not uncommon for some organisations to invest heavily in supply chain and come up with own fleet of trucks, etc, like Wal-mart. An efficient supply chain ensures that the right product is available at the right time at minimum cost.

Organisations should also ensure that they do not lose their focus and fail to create effective strategies to meet competition and challenges. In the case of K-mart, the focus kept shifting from one factor to another, with the case of private labels being a classic example. Similarly, the strategy need to be modified keeping in mind the market conditions, customer preferences and competition. It is essential that the management involves the other stakeholders in formulation of strategy and implementation.

Last, but not the least, is it important that organisations learn from their mistakes. In case of K-mart, the same mistakes were repeated continuously. The management did not take technology seriously and the strategies were not changed in the light of changing market conditions. Also, issues like real estate, appearance, branding, etc were not addressed even with the change in management.

To summarise, after reading the book, one gets to know not only the causes behind the downfall of K-mart, but also gets to know the things organisations must do in order to sustain and grow. 

(With Himanshu Gupta, PGDM IMT Ghaziabad 2012-14)

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Budget 2013: Highlights

Hello friends. The 82^nd Union Budget invoked a mixed response and the BSE and NSE fell by 1.52% and 1.79% respectively. The highlights of the budget are given below. I hope the readers find it useful.

• The average economic growth rate in 11th Plan period is 8%, highest ever in any Plan period
• During the last one fiscal year, headline WPI inflation brought down to 7% and core inflation to 4.2%.
• Aim to reduce fiscal deficit to 3% by 2016-17 and revenue deficit to 1.5% of GDP.
• A TDS (Tax Deducted at Source) of one per cent will be levied on value of properties above Rs 50 lakh, with an exemption to agriculture land.
• A surcharge of 10 per cent is imposed on individuals whose taxable income is over Rs 1 crore and a 5 to 10 per cent surcharge on domestic companies whose taxable income exceeds Rs 10 crore.
• Fiscal deficit estimated at 5.2 per cent in current year and 4.8 per cent in FY 2013-14.
• The Plan expenditure in 12th Five Year Plan has been revised to Rs 14,30,825 crore or 96% of budgeted expenditure and Budget expenditure is Rs 16,65,297 crore and Plan expenditure is Rs 5,55, 322 crore.
• In 2013-14, the budget estimate is Rs 16,65,297 crore.
• Rs 37,330 crore has been allocated for Ministry of Health & Family Welfare in FY14.
• Rs 3,511 crore allocated to Minority Affairs Ministry.
• Rs 65,867 crore allocated to Ministry of HRD.
• Rs 4,727 crore allocated for medical education and research and Rs 1,069 crore to be given to department of Ayush.
• Rs 27,049 crore allocated to agriculture.
• Rs 80,194 crore set aside for rural development programs.
• Around Rs 33,000 crore has been provided to National Rural Employment Guarantee Act.
• A target of Rs 7 lakh crore agricultural credit in 2013-14 (as compared to Rs 5.75 lakh crore in the current year).
• A provision of Rs 13,215 crore to the mid-day meal scheme.
• Foodgrain production in 2012-13 expected to exceed 250 million tonnes.
• Jawaharlal Nehru National Urban Renewal Mission allocated Rs 14,873 crore for urban transportation for FY14 as against Rs 7,880 crore in the current fiscal.
• Plan to issue inflation-indexed bonds and a capital allowance of 15% has been proposed to companies on investments of more than Rs 100 crore.
• To encourage SMEs, a company investing Rs 100 crore or more in plant and machinery in April 1, 2013 to March 31, 2015 will be allowed 15 % investment deduction allowance apart from depreciation.
• SIDBI's re-financing facility to MSMEs will be doubled to Rs 10,000 crore.
• Rs 10,000 crore have been set aside for incremental cost for National Food Security Bill over and above food subsidy.
• Rs 5,387 crore to be allocated for integrated watershed program for farmers in 2013-14 as compared to Rs 3,050 crore in the current fiscal.
• A first housing loan of up to Rs 25 lakh would get additional deduction of interest of up to Rs 1 lakh in 2013-14.
• Two new major ports to be set up in West Bengal and Andhra Pradesh.
• The government will set up India's first women's bank as a public sector bank by October 2013.
• A 'Nirbhaya Fund' of Rs 1,000 crore to be set up to empower women and provide safety to them.
• A capital infusion of Rs 14,000 crore aimed in public sector banks in FY14 and Rs 6,000 crore to be allocated for rural housing fund in 2013-14.
• The Foreign Institutional Investors (FIIs) will be allowed to participate in exchange traded currency derivatives. (An investor with stake of 10% or less will be treated as FII and any stake more than 10% will be treated as FDI).
• Rs 86,741 crore capital expenditure allocated to Defence in 2013-14.
• Grant of Rs 100 crore each to AMU (Aligarh), BHU (Varanasi) and TISS (Guwahati) and INTACH. 
• Rs 5,87,082 crore to be transferred to states under share of taxes and non plan grants in 2013-14.
• No change in slabs and rate for personal income tax. A tax credit of Rs 2,000 will be provided to every person to having income of up to Rs 5 lakh. The move, Chidambaram says, will benefit 1.8 crore people. In 2011-12, tax-GDP ratio was 5.5 per cent for direct taxes and 4.6 per cent for indirect taxes.
• The import duty on set-top boxes has been raised from 5 to 10 per cent to safeguard interests of domestic producers.
• The duty free limit on gold has been raised to Rs 50,000 in case of male and Rs 100,000 in case of female.
• Import duty increased from 75 to 100 per cent on luxury vehicles. Excise duty on SUVs has been increased to 30 per cent from 27 per cent but SUVs registered as taxis have been exempted.
• The Specific excise duty on cigarettes and cigars has been raised by 18 per cent.
• The direct tax proposals are expected yield Rs 13,300 crore and indirect tax proposal is expected to yield Rs 4,700 crore. 
• The duty on mobiles above Rs 2,000 has been raised from one to six per cent, based on their maximum retail prices and a service tax will be levied on all air-conditioned restaurants.

Budget: Related Terms

Hello friends! The following are some jargons associated with the budget.

Tax Residency Certificate: A certificate from foreign tax authorities which states that an entity is a foreign tax resident and is eligible to claim treaty benefits.

Inflation-Indexed Bonds: Bonds aimed at helping savers protect the principal and interest of their investments. The principal rises with higher inflation.

Qualified Foreign Investors: Foreign investors or entities which are eligible to invest directly. They must be from countries that follow anti-money laundering rules.

Securitisation: Converting future cash flows from loans into marketable securities. Securities are issued with loans as the underlying.

Equity linked saving scheme: Resembles any diversifies mutual fund but investment in it is eligible for Section 80C rebate. The investment is locked for three years.

Indirect Taxes: Taxes like excise, service tax and customs which are paid by the producer, service provider or the importer, but their final impact is on consumers.

Fiscal Consolidation: Budget measures aimed at bringing down the government’s fiscal defcit to a manageable level, usually 3% of the GDP.

Employee Stock ownership (ESOPs): These allow employees to become stakeholders in their companies by giving them the right to buy shares at a predetermined price.

Infrastructure Debt Fund: A trust or a finance company that is set up to channelize long term funds into infrastructure projects.

Investment Allowance: A tax break given to companies for investment in plant and machinery and is over and above the depreciation benefits enjoyed by them.

Abatement: it is like a discount with reference to taxes. Abatement is given when the tax is not levied on the full amount but on a portion of the transaction.

(Source: The Economic Times)