ADDING VALUE TO CORE PRODUCTS WITH SUPPLEMENTARY SERVICES Best definition of services from product standpoint (by Federal

Express): All action and reactions that customers perceive they have purchased. While industry matures, the core product eventually becomes a commodity (as competition increases and industry matures). Competitive advantage in a mature industry often emphasizes performance on the supplementary service elements that are bundled with the core. (However, if a company cant do a decent job on the core, it is going out of business). Core products and supplementary services. Performing well on service delivery requires service marketers to take the following steps: 1. Determine what actions and reactions customers expect the firm to provide. 2. Group these activities in core and supplementary service elements. 3. Evaluate how well the organization is performing on each one if, indeed, management even responds to each of the customers requirements. 4. Redesign existing service packages in order to offer customers in each target market segment a product offering and delivery system that meets their expectations for performance and value within the constraints of a price that will allow the provider to obtain a reasonable profit. The augmented product. Kotler, 1972: the tangible product along with the whole cluster of services that accompany it. Basic, expected, augmented product. While maturing, parts of augmented product become its expected characteristics. (Airlines offer frequent flyer program a priori). Additionally, potential product is everything that a product can become. How service researchers conceptualize the augmented product. Levitt extends Kotlers statement and is telling about keeping pushing out the boundaries of the service package, in terms of what service elements are offered and the characteristics of each one. Figure. Shostacks molecular model: passenger airline service.

Adding value to core products with supplementary services

Shostacks model is a metaphorical analogy to help marketers to visualize and manage (what she termed) total market entity. Shostak wants to determine which service elements are tangible and which are intangible in order to help formulate product policy and communication program. Eiglier and Langeard proposed a core and peripheral services model in which the core service is surrounded by a circle containing a series of peripheral services that are specific to that particular product. The scientists want to underline 2 issues: - whether supplementary services are needed to facilitate use of the core service or simply add extra appeal and - whether customers should be charged separately for each service element or whether all elements should be bundled under a single price tag. Grnroos (with a related approach from Wandermerwe) came up with another model, where customer is placed at the center of the circle and portrays a clockwise movement through a hierarchy of effects model. (First communications, then interactions, then., eventually stay or not stay with the service). Grnroos and Wandermerwe think about the sequence in which communication activities and product-related elements are involved in learning about, purchasing, and consuming a service. Classifying supplementary services. Product augmentation possibilities. After creating a list of all possible services, a provider asks: - is our organization currently providing this supplementary service? And if so, how well are we performing on quality and value relative to (a) the competition and (b) customers expectations? - If we are not providing this supplementary service, are our competitors doing so or not? And either way, do our customers expect it or would they appreciate it if we took the initiative to do so? The first step in identifying existing supplementary services for a given product is to develop a flowchart of service delivery. In many instances consumption of a product/service is sandwiched sequentially between several supplementary services that precede and follow the core. Note: radically different core services may have identical (and of limited list) supplementary services. (E.g., from information to billing and from reservations/order-taking to problem resolution). 8 major clusters of supplementary services: - Information; - Order-taking; - Safekeeping; - Billing; - Consultation; - Hospitality; - Exceptions; - Payment. (These are drawn if a form of a flower around the core for demonstrative purposes the flower of service). The metaphorical idea is to keep the flower complete, fresh-looking, and developed.
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The flower form model helps to identify which services are required, which are a potential for growth, and in case of failure, which ones performed poorly (if not the core). Generally, people-processing services tend to be accompanied by more supplementary serviced than do the other three categories (core service classification model). Also, high-contact services have more supplementary services than low-contact. Another determinant of what supplementary services to include is the market positioning strategy. Adding benefits to gain a competitive edge will probably require more supplementary services. Information. (New customers and prospects are especially information hungry: they want to know what product will best meet their needs). Instructions, directions, service hours, prices, usage conditions, conditions of sale, warnings, reminders, notifications, charges, documentation, confirmations, receipts, tickets, summaries of account activity. Sources: employees (not always knowledgeable as customers want), printed notices, brochures, instruction books, software-driven tutorials, video-displays, robotic telephone answering. E.g., GE company has 1/3 of all calls (160,000 per year) coming from callers needing more information about GE products or wanting to buy them. GE business information center (GEBIC) puts these customers in touch with one of 3000 GEBIC product experts or with the sales contact. E.g. White Flower Farm (mail order flower nursery) teaches customers which flowers best fit their requirements and conditions. It publishes the Garden Book with 10 temperature zones in US (from minus 50 lowest average to plus 10 lowest average). A customer can select flowers against such characteristics as: color, height, blooming season, hardiness zone, preferred soil conditions, amount of sun required, spacing, suitability of flowers for cutting, etc. Consultation. (Instead of pre-prepared info, consulting is a dialogue). E.g.: advice, auditing, personal counseling, tutoring/training in product usage, management or technical consultancy. Customer record may suggest appropriate solutions at lesser effort. Counseling a more subtle approach, because it involves helping customers to better understand their own situation and encouraging them to come up with their own solutions and action programs (e.g., scenario of medical treatment). Solution selling may be associated with marketing expensive industrial equipment and services; the sales engineer researches the customers situation and then offers objective advice about what particular package of equipment and systems will yield the best results for customer. Some consultancy services are offered for free; some unbundled. Order-taking. Once customers are ready to buy, a key supplementary element should come into play: accepting applications, orders, and reservations. Applications: - membership in clubs or programs; - subscription services (e.g., utilities); - prerequisite-based services (e.g., credit, college enrollment). Order entry: - on-site fulfillment; - mail/telephone order for subsequent fulfillment. Reservations: - seats; - tables;
3 Adding value to core products with supplementary services

- rooms; - rentals of vehicles or other equipment; - professional appointments; - admission to restricted facilities (e.g., exhibitions). (Typical bureaucracy at this stage should be replaced with promptness and politeness). Hospitality: taking care of the customer. Reflecting pleasure at meeting new customers and greeting old ones when they return. (Courtesy and consideration for customers needs apply to telephone interactions, too, but it is face-to-face encounters that hospitality finds its full expression). Examples of hospitality elements: - greeting; - food and beverages; - toilets and washrooms; - bathroom kits; - waiting facilities and amenities: lounges, waiting areas, seating; weather protection; magazines, entertainment, newspapers; - transportation; - security. Flowcharting customers progress through the service delivery system is a useful way to identify opportunities to improve hospitality. Safekeeping: looking after the customers possessions. Examples of safekeeping elements. Caring for possessions customers bring with them: - child care; - pet care; - parking facilities and vehicles; - valet parking; - coat room; - baggage handling; - storage space; - safety deposit/security. Caring for goods purchased (or rented by customers): - packaging; - pick-up; - transportation; - delivery; - installation; - inspection and diagnosis; - cleaning; - refueling; - preventive maintenance; - repairs and renovation; - upgrade. Exceptions.
4 Adding value to core products with supplementary services

(Group of supplementary services that fall outside the routine of normal service delivery). Examples of exception elements. Special requests in advance of service delivery: - childrens needs; - dietary requirements; - medical or disability needs; - religious observance; - deviations from standard operating procedures. Handling special communications: - complaints; - compliments; - suggestions. Problem solving: - warranties and guarantees against product malfunction; - resolving difficulties that arise from using the product; - resolving difficulties caused by accidents, service failures, and problems with staff or other customers; - assisting customers who have suffered an accident or medical surgery. Restitution: - refunds; - compensation in kind for unsatisfactory goods and services; - free repair of defective goods. Billing. Besides obvious things like inaccurate billing or time wasting waiting for a bill, the contemporary tendency is making all billing computerized, that is becoming difficult to interact with in case of error. (No payment on-time generates escalating sequence of ever larger bills (compounded interest and penalty charges), accompanied by increasingly threatening, robot-generated letters). Examples of billing elements: - periodic statements of account activity; - invoices for individual transactions; - verbal statements of amount due; - machine display of amount due; - self-billing (computed by customer). Essentially, the billing form has to have a format where a customer gets more value than just the basic requirement to knowing how much to pay at the end of the month. Marketing research can be helpful in revealing what level of detail customers need in billing format. E.g. WayBank surveyed its customers about the information customers required in the bills, however initially found no consensus; eventually, the requests were transformed into three documents, differing in level of detail and could be obtained by customers upon request. Database management becomes a crucial element when dealing with frequent transactions and large customer base. Payment. Examples of payment elements. Self-service: - exact change in machine; - cash in machine with change returned; - insert payment card;
5 Adding value to core products with supplementary services

- insert credit/charge/debit card; - insert token; - electronic funds transfer; - mail a check. Direct to payee or intermediary: - cash handling and change giving; - check handling; - credit/charge/debit card handling; - coupon redemption; - tokens, vouchers, etc. Automatic deduction from financial deposits (e.g., bank charges). Control and verification: - automated systems (e.g., machine readable tickets operate entry gate); - personal systems (e.g., gate controllers, ticket inspectors). Opportunities to use information technology. Figure. Information and physical processes of the flower of service.

How information technology enhances delivery of supplementary services. E.g., making reservations, obtaining information, billing, making payment, etc. have all benefited from easier, faster, and cheaper access to databases. Telephone keypad is becoming an interaction keyboard. (What else?). Giving employees convenient access to database transforms them to consultants. (E.g., warehousing compiled with effective logistics database makes maintenance and delivery maximum efficient; logistics operations are impossible today without maintenance of a flexible and user-friendly database). Exceptions require custom data entry and retrieval by operations to follow requests (e.g., customordered food in a flight). For billing and payment, the society is still far from being cash-less or cheque-less; however, cards gain greater share in payments.
6 Adding value to core products with supplementary services

Managerial implications. Depending on the product/service, competition, service/customer maturity, the selection of petals is upon managerial decision. The key idea is the balance between value that the mix of petals brings to customers, costs they are associated with, and as a result the realization of objectives. Product policy issues. Whether to offer some petals as optional extras (and whether or not to charge extra price for them) or whether to bundle all service elements together at a single these are the primary product and positioning policy, but they also lead into pricing strategy. There are no simple answers; one option is to offer both a la carte items and fixed price combinations, and let customers make the choice. The listings above may serve as a starting point for creating augmented product/service, but, still, a company may compete on no frills basis, offering the core at minimum price. Outsourcing. It is an important strategic decision whether to outsource specific supplementary service elements or to deliver them by the company. Retailers and distributors often offer to take responsibility for a wide array of supplementary services, including many aspects of information and consultation, order taking, problem solving, billing and payment. Sometimes companies may rely solely on their core product, outsourcing all of the rest to other companies. Critical distinction is outsourcing either front-desk or backstage operations. The first is undesirable as it leads to loss of consistency and lack of control. Transforming supplementary services into core products. Firms, performing particularly well on delivering supplementary services for their own core products sometimes develop this expertise into an outsourcing service that they can sell to other organizations. In effect, they create a new core product. E.g., AMEX developed extensive expertise in billing its charge card customers and collecting their payments. With systems and procedures already in place, it offered this service to other companies that preferred to outsource this activity. Digital Equipment, Hewlett Packard, IBM gained expertise in maintaining and repairing equipment that now they render standalone similar services to parties, that operate equipment from different suppliers.

Adding value to core products with supplementary services