28 MANAGING SERVICE DIFFRENTIATION
Dr. Puja Waalia Mann
MANAGING SERVICE DIFFRENTIATION
INTRODUCTION:
Imagine yourself to be a customer who wants to get certain routine blood tests done but do not have the time to drive a long distance for the same for giving the sample and then again for the collection of reports. How would you feel if a friend suggest you a path lab that may come to your home for the collection of sample and delivery of reports? You might feel that this is a new service and you find it very convenient! Similarly, every car manufacturer offers you few free services for regular maintenance. But how about the Car dealers staff coming in to your place with an appointment and taking the car for a service and then also dropping it back! Let us take yet another example, how about a school coming to your home to get the admission done for your child for fees and documents collection? Well, all these are certain examples of various service sellers trying to strike a differentiation chord with the actual and potential customers. In this module, let us try to understand what service differentiation means and what are the components of the same.
1.1 Learning Objectives
In this module, you will learn:
a) Meaning of Differentiation
b) Meaning of Service Differentiation
c) Components of Service Differentiation
d) What determines Value
1.2 Key Words:
Service Differentiation, Differentiation, Evidence, Focus
1.3 Introduction- Differentiation
The concept of being different is very much essential in today’s world of cut-throat competition. The difference of one product from its competitor is the revenue that it earns. Products have to be different in order to survive the competition. It is not just the domestic competition but also the competition from and in abroad, as one country produces and sells in another country while some other countries produce and sell in our country. The targeted customers have many options. Choosing among options is always based on differences, implicit and explicit. So, one must differentiate in order to attract the customer and make him/her buy the product.
Creating differentiation in one’s own product and services is a better way to avoid competition. One can offer a number of possible options in products to the customers. Every type of customer can choose a product which he/she likes. In this way, low-end, mid-end or high-end customers, all of them will have a product choose from. Common differentiations include, speed, performance, quality, responsiveness, availability, ease or integration.
1.4 Introduction- Service Differentiation
All the above mentioned points are for a tangible product. But, how can we differentiate services. It is easy when the differentiation of variables is tangible as in the case of product but, difficult in case of services. If the product has not many tangible features, then adding value-added services to the product is one of the methods. This process is called service differentiation.
In the days of intense price competition, service marketers often complain about the difficulty or how different is there service from their competitors. To the extent that customers view the services of different providers as similar, they care less about the provider than the price. The solution to price competition is to develop a differentiated offer, delivery and image. The offer can include innovative features that set one company’s offer apart from competitors’ offers. Some hotels offer car – speed internet connections in their rooms. Airlines differentiate their offers through frequent – flyer award programs and special services. For example, British Airways offers spa services at its Arrivals Lounge at Heathrow airport and softer in flight beds. Plumper pillows and cozier blankets. Says one ad:” Its simple goal is to deliver the best service customer could ask for without himu having to ask.” Service companies can differentiate their service delivery by having more able and reliable customer-contact people, by developing a superior physical environment in which the service product is delivered, or by designing a superior delivery process. Differentiation is the key to successful marketing, competing, and building your sustainable competitive advantage. A superior product or service means nothing without a way of somehow letting your prospective customers know about it. Your differentness can be any customer benefit that separates you from your competitors. You must find that difference and communicate it to your customer.
For example, many grocery chains now offer online shopping and home delivery as a better way to shop and home delivery as a better way to shop than having to drive, park, wait in line, and tote groceries home. Finally, service companies also can work on differentiate their images through symbols and branding. The harris bank adopted the lion as its symbol on its stationery, in this advertising, and even as stuffed animals offered to new depositors. The well known Harris lion confers an image of strength on the bank. Other well – known service symbols include Merrill Lynch’s bull MGM’s lion, McDonald’s golden arches, Allstate’s “good hands” and the Travelers red umbrella.
1.5 Tools for Service Differentiation
The main factors which can be used for Service Differentiation are:
1) Installation: It refers to the work done to make a product operational in its planned location, differentiation by installation is practically important for company that offer complex product such as computers.
2) Customer Training: It refers to how the customer’s employees are trained to use the vendor equipment properly & efficiently.
3) Customer Consulting: It refers to data information system & Advertising services that the seller offers to buyers.
4) Maintenance & Repairs: It refers to the service program for helping customers keep purchasing products in good working order, an important consideration for many products.
5) Delivery: It is related to how well the product or service is delivered to the customers covering speed, Accuracy & Customer Care.
6) Ordering Ease: It refers to how easy it is for you to place an order with the company.
Let us take another example of Differentiation in the Inline retailers. Amazon has build a differentiation strategy of quick delivery and easy returns. While on the other hand Snapdeal aims to differentiate itself on low price strategy. FlipKart has aimed to differentiate itself on the basis of wide collection of consumer goods at competitive process. Thus, each service firm can have a large tools from which it may choose to build a differentiation strategy.
Marketers are constantly searching for differentiation. Unless a company has a genuine scientific or technological advantage, preferably one that can be protected by a patent, competitors can more often than not match any incremental change in an ever-shortening time-scale. Taking cost out of an operation, maybe through new tools and techniques in operational management, relocating production to areas of lower labour cost, or a combination of both, likewise creates advantage that can be sustained only over a relatively short time. This is true of manufacturing and service industries alike. It is why so much manufacturing has migrated into China and so much software development and IT-based services have migrated into India.
CHECK YOUR PROGRESS
1. Describe the term “differentiation”.
2. What is the meaning of Service Differentiation. Explain with the help of an example.
3. How can ease of ordering be a tool of Differentiation?
4. Can a service Marketer make use of Customer consultation as a tool for Differentiation? How?
These moves would have happened on cost grounds alone; however there is another dimension. The general raising of educational standards and the speed with which knowledge is disseminated nowadays mean that socio-economic development is being accelerated and that certain industrialising economies are achieving rates of change that were unheard of even as recently as 20 years ago. The internet is just one tool for disseminating knowledge that is open to competing organisations worldwide. Where this tool is used to enhance an existing robust business, the effect on the established competitive structure can be very significant. This is a phenomenon that is becoming known as time compression. Companies are now in a race to bring a stream of incremental changes to product and service faster than before and this is becoming the real differentiator: the difference between the financial performance of first-in-class and third-in-class is widening and the famous bell-shaped curve applied to profitability distribution between players in a given market is becoming flatter. According to recent research across many sectors done by Stanford University, the number of companies and the percentage of sector revenue generating twice the average industry sector profit have been declining steadily over the past 20 years. The winner may not take all, but does take an increasing share of available value.
Twenty years ago one of the mainstream channels of thought in marketing strategy (indeed in business strategy more broadly) was the need to choose between price leadership and differentiation and to avoid being “stuck in the middle”. This particular distinction is now less valid. Given the wider and more even diffusion of technology and dissemination of knowledge, price is becoming much more of a differentiator. To take a simple example, the phrase “made in China” no longer signifies a lower standard of quality: the fact that well-educated and well-trained Chinese workers do not have minimum two televisions per home, do not think of a car as a necessity and do not regard two foreign holidays per year as a right means that they can use cost/price as a very effective differentiator. This argument does not (yet) apply to all products: the important issue here is that it is gradually and inexorably applying to an increasing number. It applies also in the service sector. Ryanair differentiates itself as “The Low-Fares Airline”, making price the biggest element in its marketing strategy. The success of Ryanair compared with British Airways, in parallel with its earlier counterparts in the USA and their established competitors, illustrates the power of price as a differentiator when no amount of promotional hype and advertiser’s candy-floss prose can disguise the fact that (a) economy class airline seats are not significantly differentiated and (b) everyone’s service standards have more-or-less converged.
Achieving and sustaining a competitive cost/price balance has always been required: the problem now is that it is more difficult to do, and the characteristics of the end product cannot be guaranteed to do it all for you.
1.6 “What is differentiation?” – The Question Revisited
This question looks fairly simple. Differentiation exists when consumers under conditions of competitive supply and faced with a range of choices (a) perceive that product offerings do not have the same value and (b) are prepared to dispose of unequal levels of resource (usually money) in acquiring as many of the available offerings as they wish. It is, however, a little more complicated; and it is the concept of value itself that complicates it.
What Determines Value?
There are two dimensions to this answer. The first is what can be termed “techno-economic logic”, the second “emotional logic”. What is clear, however, is that these two logics have one thing in common – they are defined by the customer, not by the supplier. Understanding the relative significance of each and communicating this to a consumer faced with increasingly wide choice are the essential requirements in achieving differentiation. Since this is getting more difficult to achieve in the first place and to sustain over time for the reasons I have set out, we need to understand two broader concepts of business. These emerging determinants of value, and the potential source of renewable differentiation, are twofold: (a) the supply chain and (b) the product experience. I believe that these two concepts are beginning to move our focus away from the three traditional elements of product, brand and service. Though I acknowledge that these three elements remain a part of marketing, my argument is that their significance has changed from being “order winners” to “order qualifiers”.
CHECK YOUR PROGRESS
5. How can Differentiation contribute in the Service Marketing strategy?
6. What shall determine customer value in Services?
7. Highlight the emerging determinants of Service differentiation with the help of a suitable example.
The Explosion of Choice
The point is that demand has not grown by anywhere near the rate of growth in choice. It is this clear trend to product/brand proliferation and increasing fragmentation of markets and market segments that poses the challenge in differentiation.
There is simply not enough product differentiation to go around. Product packages/extensions used to work: they no longer always do (at least not for very long) because they can more often be copied and improved by competitors at an increasing speed. Let us take an example of a service product with which we are all familiar – air travel.
Frequent flyer miles constitute a vivid example of just how short an innovative idea can be effective. In the mid-1980s American Airlines introduced Advantage. This differentiating concept was a great success for a while, until most other competitors realised that they could do likewise. Along with this many of American’s customers eventually amassed so many flyer miles that they could not redeem them within the period of time-to-expiry. American was engulfed in a sea of complaints from their prime segment (the frequent flyer). Goodwill was destroyed: bad will was created. Fortunately for American this problem quickly hit all competitors and thus was to some extent neutralized fairly quickly. American’s remedy was simple, namely to abolish the time-to-expiry feature of the product. The point is this: as a differentiator the effective life-cycle of frequent flyer miles/points and their differentiating power were much shorter than the airlines originally anticipated. Not surprisingly, like exchangeable currencies this “quasi-currency” has gradually been subject to inflation and value reduction.
From the early 1990s onwards the world’s major airlines joined together to form marketing alliances to offer “seamless” travel worldwide. Just about every major airline now belongs to an alliance: this mechanism was open to being copied and improved in a relatively short time, and therefore any marketing advantage was short-lived. Does this matter? Not critically, since the true benefit is found in cost-reduction. The airlines have been able to reduce their facilities worldwide and share each other’s, thereby gaining greater asset utilisation and containing investment and overhead costs. The problem now is that the benefits from this have all been realised and the airlines remain under financial pressure.
In an industry that has been protected by regulation for almost the whole of its existence (and to a great extent still is), the shake-out as markets have become freer has been severe. The profit problems of the industry have not been entirely due to the recent volume effect following 9/11 and the period of international insecurity: the airline industry was already facing declining profitability over many years despite a rising market, because a small number of truly differentiated players took advantage of several factors to enter and develop the business on the basis of a new approach. They were differentiated: their differentiation was based on the following.
a) A superior understanding of the potential of the industry’s supply chain
b) A superior understanding of the changing motivations, value concepts and decision-frames of a variety
of existing and potential customers
To consider the supply chain dimension, let us return to Ryanair. This airline bucks the trend in the business. It makes price the big differentiator and this compensates for the openly-acknowledged fact that it flies from secondary airports to secondary airports that may be slightly further from main centres than the scheduled airlines and major airports. It supports its price differential by leasing rather than owning its whole fleet; by having a standard fleet of Boeing 737 aircraft; by outsourcing many operational services; and by being 100% upfront as to what the customer gets and does not get for (not much) money spent. It is a fundamentally different approach to this business and it makes money at a time when just about every other airline is reporting losses. It illustrates the significance of understanding the supply chain and the potential that can be unlocked by looking at the supply chain in a different way.
Let’s stick with Ryanair to illustrate the changing decision-frames of the customer. Consumers realise that there is now virtually no differentiation between airlines in terms of product, even in the upper travel classes. The product is becoming commoditised and there is little opportunity for sustainable differentiation (for example, the much-publicised “flat bed” in British Airways’ business class was copied in a matter of months). Ryanair, modelling itself on the American carrier Southwest, understood that there is a point at which travellers will trade off benefits for price. For example, it required simple but effective marketing to point out that the customer was paying a very high price for an assigned seat and “free” meals. Given Ryanair’s seat price, the lack of an assigned seat became a non-issue for the customer and the availability of reasonably-priced food and beverages dealt with that aspect of customer expectations. On Ryanair flight, about one-third of the flyers were obviously business people. Ryanair’s supply chain is both focused (cost) and also differentiated (outsource-versus-own).
Think about others in various businesses that were first to re-define the supply chain in ways that customers value – Dell with Dell Direct (late industry entrant but displaced large established competitors); Amazon.com (ultimate range of choice, fast supply); E-bay (ease of access, rapid transaction). There are two key tasks that are now emerging in the quest for differentiation.
1. Configuring the supply chain
2. Building the customer’s experience
CHECK YOUR PROGRESS
9. What is the meaning of “A superior understanding of the potential of the industry’s supply chain”?
10. Compare and contrast the Focused and differentiated Supply Chain.
11. What is the role of integration in Differentiation of Services?
CONCLUSION
Differentiating on customer service is seen by many organisations as a key element of their strategy.
Converting a customer service strategy into customer service excellence holds many challenges.
“Retailers that can secure more loyal customers are the ones that will win. it’s more about customer care than service. Competitive pricing and excellent products is vital – but we add value through the quality of care we provide through our colleagues.”
On the other side of the equation the large majority (83%) of customers identify the quality of service they receive as an important driver of their loyalty. Lower levels of loyalty / greater promiscuity, Increasingly value aware, which should not be interpreted as simply lowest price, Consumers invest more time in background research before purchasing higher value goods. This covers both formal research and the less formal, less structured use of social media – influenced by a wider network of sources, Consumers are more likely to complain, either formally or through more informal channels such as social media, Consumers want to decide for themselves which media to use to communicate with the retailer, so that may be a physical encounter or an electronic one, or a mixture, but the expectation is for a consistent response, Consumers look for retailers to provide an end to end solution, ranging right from supporting their initial pre-purchase research needs through to the delivery of the product at home, possibly the installation and disposal of the old product, With increasing pressure on consumers’ available time there is an increasing reliance on being able to trust their retailer of choice.
Summary
Differentiation is a tool used by the marketers to offer some unique feature in their Marketing Mix to give an element of surprise and satisfaction to their actual and potential customers. Differentiation in Services aims to offer a unique experience to the target customers and facilitate in the establishment of a strategic positioning of these Services in the Market. Service Differentiation, thus, means to offer something out of the box to the customers, which they may not be used to being served earlier, thereby making an image of the service provider based on this unique service experience with the aim to gain competitive advantage for the service firm. Often the Service marketers is confronted with a choice between two different strategies- Differentiation and Focus. While the Differentiation intends to add various specialized aspects with regard to something unique, the Focus strategy may attempt to appeal to a niche market segment. Different industries aim to offer different strategic differentiation. Some may offer to make few dramatic differentiation in a single area of service delivery, others may strive to have little bit differences in large variables of the service delivery. A number of tools can be available with eth service firms to differentiate their offerings from the others in the market place. Food Panda and Zomato , for instance are the examples of Ordering ease for free home delivery of the food. Ion the other Hand Dominos has differentiated its home delivery service by offering speed of delivery. However, it is important to understand that the area of differentiation should be relevant to the target consumer else will not be able to reap the desired benefits. The aim of Service Differentiation is to take advantage of the competitive positioning chalked out by the Service firm to earn the top of mind recall in a differentiated service area.
Learn More:
a) Aaker, D.A. 2008, Strategic Market Management. John Wiley & Sons: NJ.
b) Coyne, K. P. 1986, Sustainable competitive advantage– what it is, what it isn’t. Business Horizons, Jan
Feb, 1986, 54-61
c) Kandampully, J. 2000, The impact of demand fluctuation on the quality of service: a tourism industry
example. Managing Service Quality 10, 10-18.
d) Kotler, P. 2003, Marketing Insights From A To Z:80 concepts every manager needs to know. New Jersey:
John Wiley & Sons
e) Smith, W. R. 1956, Product Differentiation and Market Segmentation as Alternative Marketing Strategies.
Journal of Marketing. 1956(21). 3-8