Cultivating Service Brand Equity

This is a snapshot of an article called ‘Cultivating Service Brand Equity’ written by Leonard Berry in which he makes a case for service branding as a 'cornerstone of services marketing' for today and tomorrow after having researched 14 mature high-performance companies.

He talks about the differences in services and goods and the importance of branding in Services Marketing. He presents a service-branding model that highlights the importance of customers’ service experiences in brand formation. He discusses four primary strategies that excellent service firms use to cultivate brand equity.

So let’s start - how are services and goods different.

• In goods, the product is the primary brand. However, with services, the company is the primary brand.
• The sources of benefit where goods are concerned is again the product whereas for services its the people, facilities, equipment.
• The quality level in goods is uniform and in services its variable.

Services are essentially intangible there is nothing to see or search. There is no packaging, no labeling no display and this makes branding all the more essential. Branding is not just for tangible goods; it is a principal success driver for service organizations as well

Branding…

• Tangibilizes the intangible - it enables customers to better visualize and understand intangible products.
• It reduces customers’ perceived monetary, social and safety risks in buying services.
• Increases Trust. Strong brands are safe places for customers
• Provides Extrinsic cues - Cues such as image and reputation go a long way in adding value
• Strong-brand companies have high -mind share with targeted customers, which contributes to market share.

Berry also presents the Service Brand Model
Because services are essentially intangible, the branding of services is important and different from the branding of products. A strong brand offers many advantages in the service industry and when evaluating the strength of the brand, the concept of brand equity is used.


The presented brand is the company’s controlled communication of its identity through advertisement while the external brand communication refers to the information customers absorb about the company that essentially is uncontrolled by the company. These factors, combined with the customer’s experience, lead to increased brand awareness and brand meaning.

Brand meaning refers to the customer’s dominant perceptions of the brand, it is the snapshot of that immediately comes into the customer’s mind when exposed to a brand. It is the customer’s perception, the impressions and associations of the brand which gives that brand a special meaning to the customer. and hence differs from awareness, which is the level of knowledge the customers have about the brand. Both these factors put together lead to development of brand equity.

In services marketing, unlike in product marketing, it is the customer’s experience that plays a very important role and even if his services experience differs from the advertising message, he will go more by his experience. Thus, the main differentiating role is played by the service performance.

Brand equity is based on the extent to which the brand has high brand loyalty, name awareness, perceived quality and strong product associations it is put simply the value of a brand

So how do you build a service brand - Berry gives 4 strategies

Dare to be Different
Service companies with the strongest brands reveal a conscious effort to be different. The carve out a different path for themselves - a distinct personality that is unmistakably theirs. They stake a claim on the minds of their customers which is unique to them.They don’t imitate they innovate. E.g. Target, Starbucks.

Determine your own fame
They clearly define their reasons for being. They know what they are about and what they stand for. They differ from their competitors in all aspects. They provide a service that is valuable to the customer and they do it much more effectively than anyone else. Dial-A-Mattress

Make an Emotional Connection
Strong brands make an emotional connections with their customers which goes above and beyond the purely rational or economic one.
Howard Schultz says that the most powerful and endearing brands are made from the heart… their foundations are built with the strength of the human spirit not an ad campaign

Internalize the Brand
Service Performers are architects of brand meaning and equity. Its their actions with the customers that transform your brand vision into a reality. They can make or break a brand so it is crucial to teach, sell, and reinforce the desired brand to employees. They have to buy into you before external customers

CONCLUSION
Services differ from physical goods as they emphasize experience and credence qualities, which can only be judged after purchase or during consumption. There is no physical tangible reality that can be searched and tested.

In today’s business, service offering are integral and in the process of differentiating one self from competition effectively, branding services plays a pivotal role. Building a strategic relationship with the customer is very essential to the success of any business. Because of the growth of the services industry and increased competition, branding as become a tool for gaining competitive advantage

The use of brands has changed over the years and has developed from only representing the product’s name to now giving the product a deeper meaning (Murphy, 1992). It is no longer enough to brand a product just using its name, it is important that all the elements of the marketing mix are used in a consistent way in the marketing of the product.

When customers purchase a product, they usually pay for a solution to a specific problem. The advantage of a branded product is that the customer is willing to pay a premium price for the added values that the brand embodies. The branded product does not only satisfy the customer’s rational need, but also provides certain benefits that will satisfy emotional needs (de Chernatony & McDonald, 1998).

To develop service brands; appropriate brand architecture, brand positioning, program development are needed to deliver the brand and align the business system to the brand promise.

Services branding requires orchestrating clues to tell the service’s story

All Customers Are NOT equal

Marketing is transforming and changing directions - we started by concentrating on markets, then segments now the route is individual customers. The profitability of an individual customer can be determined by various measures and firms are therefore better able to allocate marketing efforts across consumers. Firms have to make a new set of choices - which are the customers that they want to have a relationship with and which are the ones to slowly weed out or 'unbundle' some services for.

All customers are not equal neither should they be treated equally – that would end up causing firms too much money. Customers these days want to pay less and get things at the lowest cost yet they also demand the best service. They have to realize that there will be a trade-off. If you want cheaper prices you will have to forego some aspects of service. Thats the economic reality of business. Given the difference in customer segments along this dimension, a firm’s management of their portfolio of customers to maximize profits is the central issue faced by firms.

- Customer Management - Selection of customers:
There is an interplay between customer choice and the skill sets that a company develops through serving certain types of customers. If you want to charge high prices you will have to provide exemplary service, the customer is not a fool and no matter how powerful your marketing efforts are in creating 'wants' you might get them but they will make a mental calculation and if you are not delivering as much as you are costing you can say goodbye to that particular customer.

- Different Customers need to be handled differently
With a customer profitability analysis it is possible to classify customers into different profit tiers like platinum [most profitable], gold [profitable, iron [low profitability but desirable] and lead [unprofitable and undesirable]. The company’s job is to move the customers higher up the tier. This is why concepts like priority banking and even different classes in frequency programs like Skywards are the norm of the day. The firm has to look after its hen if it's to enjoy the egg of gold.

Ultimately, marketing is the art of attracting and keeping profitable customers. Yet, companies often discover that between 20 and 40 per cent of their customers are unprofitable; furthermore, many companies report that their most profitable customers are not their largest customers, but their mid-size customers. The largest customers demand greater service and receive the deepest discounts, thereby reducing the company's profit level. The smallest customers pay full price and receive less service, but the costs of transacting with small customers reduce their profitability. In many cases, mid-size customers that pay close to full price and receive good service are the most profitable.

Customer profitability Analysis [CPA], conducted through Activity Based Costing, helps companies estimate the amount by which revenues from a given customer over time exceed the company's costs of attracting, selling and servicing that customer.

One thing to be mindful of is that a single transaction is not what decides the amount of profit a customer is bringing in and so to decide the net worth of the customer you have to calculate the customers lifetime value, which is "the net present value of the stream of future profits". To put it simply it means calculating the value of a customer over the entire history of that customer's relationship with a company - the transactions he has made, the value in money terms he brings in, in comparison to what it costs to retain that particular customer. Companies use certain data [acquisition costs, churn rate, retention rate, time period, profit margin etc] about the customer to arrive at this figure.

To create customer satisfaction, companies must manage their own value chains and the entire value delivery system in a customer centered way. If firms manage to cut costs at every step of the value chain whether through excellent operations or supply chain management, this value is passed on to the customer in the form of lower prices and excellent service.

Companies must decide the level at which they want to build relationships with different market segments and individual customers. Which is best suited, depends on a customer's lifetime value relative to the costs required to attract and retain that customer.

Ultimately how much the firm spends on its marketing is determined by the type of customer and size of account