Services Marketing Report – John Lewis PLC

1 Report Introduction

This report has been put together to critically review John Lewis Department Stores as a service provider. It will assess a number of issues relating to Services Marketing to evaluate John Lewis as a service provider using literature from books, journals and online articles.

Although there are a great number of topics within Services Marketing which could be discussed in this report, only a small number have been included. This is because I consider these particular areas are of greatest relevance to John Lewis as a service provider. The subject areas omitted have been detailed in table 1 (see appendices).

2 What are Services?

There are many definitions within academic literature defining what service actually is. Zeithaml et al (2006. p4) describes it as “…deeds and actions performed for customers”. Quinn (1987. pp 50-58) notes his definition as

” all economic activities whose output is not physical product or construction, is generally consumed at the time it is produced and provides added value in forms (such as convenience, amusement, timeliness, comfort or health) that are essentially intangible concerns of its first purchaser”.

According to Bent (2008) the service industry is one of the main contributors to the Gross Domestic Product (GDP) in developed countries. In the UK, the greatest contribution services have made to GDP is 74% (Zeithaml.V.2006). Table 2 (see appendices) has been put together to illustrate different countries’ percentage of GDP contributed by their service industry. The information was recorded in 2004 and is taken from Zeithaml (2006. p.8). Bent (2008) notes in 1950 the percentage of GDP contributed by services in the US was 54% which had more than doubled from the 1870 figure of 26%. It is only when one looks into figures from previous years that the growth of the industry becomes apparent.

This contrasts with traditional beliefs from economists that service could not be of any considerable value to a countries economy. Levitt (1972) scrutinizes that service industries do not exist, only industries where there is more emphasis on service than others. Palmer (2001. p2) best sums up the modern position of services in today’s economy by noting “services are no longer a minor or superficial part of economies, but go to the heart of value creation within the economy.”

2.1 Characteristics of Services

A service is an intangible product offered to a customer for their benefit. Palmer (2001. p2) offers the Economists’ take on services, which is “anything that cannot be dropped on your foot”. Services differ from goods because they cannot be seen, felt or touched like a good can. The main between in goods and services are explained in Table 3 (see appendices)

Jobber (2006) explains that services possess four main characteristics:

o Intangibility

o Inseparability

o Variability

o Perishability

These are detailed in diagram 1 (see appendices).

Service can be split into different categories. Zeithaml (2006) splits it into four listed below.

o ‘Service industries and companies’ main product is a service. For example, the hotel chain Hilton, provides an accommodation service.

o ‘Services as a product’ are sold by service companies. For example a department store like Jenners offering free gift wrapping services.

o ‘Derived service’ is the theory that products and physical goods are valued on what service they provide. For example paracetamol provides a medical service and a television provides an entertainment service. Zeithaml (2006) notes that this particular service is slightly ‘abstract’ but that it may indicate how we may think of services in a broader sense in the future.

o ‘Customer service’ is a service which is provided to support a company’s core products. Keh and Teo (2001) describe customer service within a retail environment as “a set of activities and programs designed to increase the value the customers receive from the merchandise.”

Customer Service is the type of service that John Lewis will be critically evaluated on for the purpose of this report.

3 John Lewis: An Overview

The John Lewis Partnership is one of the best known names in British retailing. Established in 1864, the company has a unique “partnership” model that treats all its employees as stakeholders in the business, who have a share in the profit. The company operates in a number of sectors, but it is John Lewis’ department stores sector which is to be focused on in this report. More information on John Lewis can be found in the John Lewis Fact file (see appendices).

4 The Service Marketing Mix

A marketing mix is made up of the elements a marketing plan should be built on. The goods marketing mix, discussed by Baker (1998) and Palmer (2001) is known as the 4P’s.

o Product

o Price

o Promotion

o Place

These elements described in more detail in table 4 (see appendices)

However, as noted in Jobber (2006) the services marketing mix has three more elements.

o People

o Physical Evidence

o Processes

These elements were added to the mix due to the high level of contact between service providers and customers. These are the only elements of the marketing mix that can be controlled by John Lewis (Zeithaml, V. 2006) This is due to production and consumption happening simultaneously. Therefore, if services are produced and consumed at the same time, the staff at John Lewis are involved in real time promotion of the service and the mix has to be added to in order to accommodate this.

4.1 John Lewis and the Service Marketing Mix

4.2 People

Good service begins with good human resource management.

According to Dandy (J. 1996. p19) “…treat the staff right, and they – in turn – will treat the customers right. John Lewis’s mployees deliver exceptionally high standards of service which is largely due to the fact the John Lewis is a good manager of its people. All staff are partners which means they receive hard tangible benefits in the form of shares which are essentially money. For example, a Times online article (The Times. 2008) noted that 63,000 John Lewis employees received the equivalent of 10 weeks pay as a bonus for the back of a leap in profits. Effectively this means that how hard they work is directly responsible for how much their shares are worth.

Customers are also ‘people’ in the marketing mix as they can influence service delivery which in turn affects the quality of their service and their satisfaction (Zeithaml. V 2006). If a customer does not know what they are looking for and are advised to buy the wrong product by a member of staff as a result, their level of service is affected.

4.3 Physical Evidence

“Physical evidence cues provide excellent opportunities for the firm to send consistent and strong messages regarding the organization’s purpose…”. (Zeithaml, V. 2006. p27)

John Lewis Department Stores are well laid out and signposted making it easy for customers to find what they want. Customers value ease of access and services provided highly. John Lewis stores offer elevators, lifts, cafes and excellent baby changing facilities.

Everything sold in the store can be bought on their online catalogue. The website is attractive, very clear, simple and easy to use. It has an extensive customer service section on the website which offers a wide range of options. The page can be viewed in the appendices (see appendices)

Customers expect to be able to access everything online that is available in the store. More recently the use and ease of a website contributes to how highly a customer values a company, because as Zeithaml (2006. p27) states, “…customers have very little on to which to judge the actual quality of service.”

4.4 Processes

” The procedures, mechanisms and flow of activities by which a service is acquired (Jobber. 2006. p180)”.

When purchasing manufactured goods, the production process is usually of little concern to the customer. However when the production process is taking place in a high-contact service, like retail, the customers could then be seen as “a co-producer of the service (Palmer. 2004. p13)”. Therefore the process must meet customers expectations.

This applies to John Lewis in respect of the overall shopping experience their customers receive. This includes: queue waiting times; product availability and delivery times The speed of their website and ease of use is also a factor in the modern customer’s expectations.

An article entitled ‘John Lewis leaves customers waiting for parts’ (The Guardian. 2008) describes how a number of customers (after realising part of a product they had bought from John Lewis was faulty) had to wait up to 3 weeks for the matter to be resolved. They had requested the faulty parts to be replaced, even offered to do it themselves, but John Lewis refused and told customers they needed the whole item returned first. This is a good example of how poor process has affected customers’ service. By making things harder for the customer have put a negative slant on the otherwise good service they provide.

5 Financial Success

Although John Lewis has been criticised for lacking in service quality, the financial success of the company cannot be faulted. It retains customers and their custom year after year and is continuously beating its own records. An article entitled ‘Another Weekly Record’ (Cabinet Maker. 2007) discusses that the company’s sales reached �101 million on December 15 2007, which is an increase of 7.7% compared to the same time the previous year. In the same week most high street stores were suffering a 3% drop in sales from the previous year (The Guardian. 2007). John Lewis’s main rivals House of Fraser and Debenhams had been forced to introduce ‘50% off’ sales to try increase their revenue.

These financial successes will further promote customers’ faith in the company. Furthermore, the fact that the company can keep their ‘Never Knowingly Undersold’ policy in action and achieve these record sales figures means people cannot feel cynical that the company is making record sales as they are not charging unreasonable prices for their products and services.

6 Customer Retention at John Lewis

John Lewis may be doing well and keeping its customers happy, but according to Lovelock (2004) the hardest part of a business is customer retention. If a company does not retain its customers, inevitably it will fail. Marketing essentially means keeping customer loyalty (Preston. C. 2008). Customer retention and loyalty does not however mean high satisfaction. Hoffman (2002) discusses that often in the case of high retention and low satisfaction customers are sticking to a brand, or in some cases it is because the service they are using has few substitutes (oligopoly). John Lewis attracts brand loyalty from its customers due to the high quality products and services they are known for.

One-way of keeping customer loyalty is in knowing what customers expect. According to Zeithaml (2006), “not knowing what customers expect is one of the root causes of not delivering to customer expectations”. The ‘Listening Gap’ is a theory that there is a definite gap between what companies believe is what customers want and what customers actually want. Siu and Cheung (2001. p1) discuss the Retail Service Quality Scale. They see it as “suitable for studying retail businesses that offer a mix of services and goods , such as department or speciality stores”. If John Lewis wants to retain customers then using this scale will enable them to measure what customers think of their retail service quality. Harris, Harris and Baron (2001. p1) note how customers can be a vital resource to a firm when it comes to feedback on services in their statement:

“…(customers) can actively participate in the firm’s activities as co-producers of the service. As buyers, customers can develop a relationship with a service organization, and as recipients they register evaluations of their encounter.”

7 Report Conclusion

This report has critically reviewed John Lewis as a service provider from a services marketing perspective. After applying theories of good services marketing to the company it can be said that the company has all the right ingredients for a successful services providing organisation.

The marketing mix showed that in terms of people, John Lewis has it right. With a diverse age range within employees and an excellent reward scheme, customers will receive top class customer service from experienced, well motivated and well informed staff. Staff are what make John Lewis.

The physical evidence of John Lewis is also what makes it a success. Well located and well set out stores with well presented staff creates a pleasurable atmosphere and great accessibility with facilities for every customer’s needs. Although their processes have been criticised for problems with delivery returns, generally they are successful in making the experience for customers positive with low waiting times and an easy to use website.

John Lewis are overall a financial success. They even have managed to beat their own records when everyone else was struggling with fallen sales figures. This motivates staff and also retains customers’ confidence. They have a good mix of price, quality and brand which will enable them to hold onto customers in the future. All they must do is keep with the times as far as changing technology, products and services go and their customers will remain loyal.