Unit 2.

Building the Service Model

2.1 Development of the Service Concept: Basic

and Complementary Elements
2.2 Selection of Physical and Electronic Channels
2.3 Price Management Services
2.4 Customer Education and Promotion of the
Value Proposition
2.1 Development of the Service Concept:
Basic and Complementary Elements
 Service functions are experienced, not owned.
 A very important portion of the price paid for the service is for the
knowledge and expert work (e.g. pacemakers).
 The company's offer is composed of the products - services -
value propositions - that it designs to meet the needs of its target
markets.
 All offerings can be considered a service, which creates value for the
customer when used, and can be placed on a spectrum of tangibility:

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 2.1 Development of the Service Concept:
Basic and Complementary Elements
• There are two types of
supplementary services
 Facilitators - needed for the delivery of
the service, or for the correct use of
basic elements
 Enhancement - add value for the
customer

• Strategic market
positioning helps
determine which
supplemental services to
include
2.1 Development of the Service Concept:
Basic and Complementary Elements
 Facilitators
 Information - customers need
to know how to obtain and use
the service
 Order taking - customers need
to know availability and be able
to secure a delivery
commitment
 Invoicing - accounts must be
clear, correct, and
understandable,
and understandable
 Payment - customers can pay
faster and happier if the
transaction is easy and
convenient
2.1 Development of the Service Concept:
Basic and Complementary Elements
 Information
2.1 Development of the Service Concept:
Basic and Complementary Elements
 Order Intake
2.1 Development of the Service Concept:
Basic and Complementary Elements
 Billing
2.1 Development of the Service Concept:
Basic and Complementary Elements
 Payment
 2.1 Development of the Service Concept:
Basic and Complementary Elements
 Enhancers
 Consultation - value can be added
through advice and counseling
tailored to each client's situation
and needs.
 Hospitality - customers who invest
time and effort in visiting the
business should be treated as
welcome guests.
 Safekeeping - customers don't want
to have to worry about the things
they bring to the service location
 Exceptions - customers appreciate
the flexibility and special
responsiveness if things don't go as
planned
2.1 Development of the Service Concept:
Basic and Complementary Elements
 Consultation
2.1 Development of the Service Concept:
Basic and Complementary Elements
 Hospitality
2.1 Development of the Service Concept:
Basic and Complementary Elements
 Security
2.1 Development of the Service Concept:
Basic and Complementary Elements
 Exceptions and special requests
 2.2 Selection of Physical and Electronic
Channels
 The main function of distribution is to make the
organization's offerings available for purchase by
its customers.
 The number and location of points of sale/service is
essential for contracting and providing services.
 Affects quality of service and customer perceived
convenience (non-monetary sacrifices)
 Time, accessibility, schedules, effort, comfort, etc.
 Structural variable, difficult to control as intermediaries
appear.
 Relationship with other marketing variables
 Relationship to revenue and profitability
 2.2 Selection of Physical and Electronic
Channels
 There are three types of distribution objectives:
 Scope of service (market coverage)... where are they/how many are there?
 Control (quality of service and repurchase)... do we use intermediaries?
 Operational efficiency (costs)... how much do we invest in the network?
 Service distribution can be done through physical (tangible only) and/or
electronic (information) channels.

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 2.2 Selection of Physical and Electronic
Channels
 There are three possibilities...
 Customers visit the establishment (great importance of location and opening
hours, access, etc.);
 The company visits customers (unavoidable if the object of the service
cannot be moved; more likely with B2B customers);
 The transaction is carried out remotely, by electronic means (internet,
smartphones, self-service, etc.).

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2.2 Selection of Physical and Electronic
Channels
 Some appreciations....:
 For complex services with high perceived risk, customers tend to rely
on personal channels.
 Individuals with more knowledge and confidence about a service tend to
use impersonal and self-service channels, as do more "tech-savvy"
customers.
 Socially motivated customers prefer personal channels
 Convenience is the key to channel choice

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 2.2 Selection of Physical and Electronic
Channels
• Decisions: where and when is the service provided?
• Among the factors that favor virtual establishments...
Convenience
Ease of search
Greater variety
Potential to find better prices
24-hour service
• Latest developments link websites, customer relationship management
and mobile telephony (OMNI-CHANNEL). (Best Buy Case Study)
• The integration of mobile devices into service infrastructures can be
used for:
Access to services
Alerting customers to opportunities/problems
Update
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 2.2 Selection of Physical and Electronic
Channels
• Decisions: who provides the service?

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2.2 Selection of Physical and Electronic
Channels
 "Dentist A"
 50, located 15 km from home;
 3 weeks until appointment, 1,5h wait (9-17h);
 "Dentist B"
 75, located 15 km from home;
 1 week for the appointment, 1h wait (9-17h);
 "Dentist C"
 125, located 3 km from work;
 1 week until appointment, no waiting time (8-20h)
 "Dentist D" do we have a service
 175, located 3 km from home relationship?
 This week, no waiting time (8-20h)

which dentist do we
how much does our trust the most?
tooth hurt?
 2.3 Price Management Services
 Pricing must take into account perceived value and
competition, including all the sacrifices faced by the
customer.
 Sometimes it is not easy to calculate the cost of a
service.
 Pricing plays a key role in services to balance demand
and capacity
 Consumers codify price information, using an internal
reference price ("the price that serves as a basis for
comparing actual prices"),
 Influenced by key signals in communication, by references,
and by the customer's own perceived benefits of purchase
 Fair price
 Usual price
 Last purchase price
 Competitor price
 Maximum and minimum threshold
2.3 Price Management Services

Maximum price
(Consumer)

Competition
Possible price range

Market share objectives

Regulations
Profit targets

Minimum price
Legality
(Costs)
Profitability
 2.3 Price Management Services
 Cost analysis
 Cost price + margin
 Full cost ( S costs / q)
 Partial cost (c + % CF)
 Target" costs
 Minimum price (P=c), technical (Bº = 0), target price (rK)
 Break-even analysis
 Distribution channel
 Margins to the outside (on sales price)
 Inward margins (over purchase price)
Cost-Plus Pricing

Market-Based Management Copyright 2022

2.3 Price Management Services
 Demand analysis 160
140
 Demand function
120
 Price sensitivity 100
 Differentiation 80
60
 Existence of substitutes
40
 Levels of information 20
 Level of customer involvement or 0
loyalty 10,00 15,00 20,00 25,00
 Other components of perceived Demanda a Demanda b
value
 Perceptions of value
 Competitive analysis
 Perceptions of value
Almetta Price and Purchase Likelihood

Cost-plus vs Purchase Likelihood Based Price:

Which Pricing Would You Select?
Market-Based Management Copyright 2022
Almetta Price-Volume and Gross Profit
Amazon’s Subscribe and Save Pricing Strategy

Why are these types of subscriptions increasingly becoming common?

Types of Subscription Pricing
Examples of Subscription Pricing

Market-Based Management Copyright 2022

2.3 Price Management Services
 We don't always want low prices, but something worth paying for (and we
can)
 Price-performance matrix

Gran valor Valor esperado

ALTA

SUPER VALOR PRIMA

VALOR ALTO
Calidad

BUEN VALOR SOBRE-

VALOR MEDIO CARGADO

ECONOMICO FALSA ROBO

ECONOMIA
BAJA
Valor pobre

BAJO Precio ALTO

 2.3 Price Management Services
Volumen de
demanda

 Seasonality of demand (daily, weekly,

monthly, etc.) is a major problem for Capacidad máxima

intangible (non-inventoriable) services. Capacidad óptima

 Excess Demand
 Loss of customers, decrease in quality. Exceso de Capacidad

 Demand at maximum capacity

 Decrease in quality
 Demand at optimum capacity Tiempo

 Excess capacity
 Loss of productivity
 Effects on quality?
 2.3 Price Management Services

 Yield Management**
 Dynamic pricing vs. Fixed price
 Different prices for the same service

 More effective when...

 Fixed capacity
 High fixed costs
 Variable and uncertain demand
 Demand heterogeneity in price and time
sensitivity.
 2.3 Price Management Services
 Yield Management
 Dynamic pricing vs. single price
 2.3 Price Management Services
 Yield Management
 Price brackets (each customer pays the maximum according to its value)
 2.3 Price Management Services
 Yield Management
 Price brackets (each customer pays the maximum according to its value)
 2.3 Price Management Services
 Yield Management
 Price brackets (each customer pays the maximum according to its value)
 2.3 Price Management Services
 Yield Management
 Price brackets (each customer pays the maximum according to its value)
 2.4 Customer Education and Promotion
of the Value Proposition
• The promotion...
 Offers information and advice
 Persuades customers of the merit of a service
 Encourages the customer to do something at a specific point in time

 Education is important because customers co-produce the service...

 Teaches the customer how to manage through the service process.
 Shapes customer roles, expectations and behaviors

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2.4 Customer Education and Promotion
of the Value Proposition
Challenges in the communication of a service...
• Position and differentiate the service

• Promoting the contribution of staff and non-visible operations

• Adding value through the message

• Facilitate customer involvement in the production process

• Stimulate or reduce demand to match capacity

• Making service benefits tangible for customers

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 2.4 Customer Education and Promotion
of the Value Proposition
• Intangibility creates four problems:
 General
 Items can comprise a typology of objects, persons, or events.
 No search (only experience and credibility)
 Cannot be inspected prior to purchase
 Abstraction
 There is no correspondence with a physical object
 Mental Indefinition
 Customers may find it very difficult to understand the benefits of a new
service that is complex (e.g. coaching).

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2.4 Customer Education and Promotion
of the Value Proposition
• To overcome intangibility
 Using tangible cues in advertising
 Use metaphors to communicate the benefits of service offerings.

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2.4 Customer Education and Promotion
of the Value Proposition

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Unit 2. Building the Service Model

2.1 Development of the Service Concept: Basic

and Complementary Elements
2.2 Selection of Physical and Electronic Channels
2.3 Price Management Services
2.4 Customer Education and Promotion of the
Value Proposition