MG301: Services Marketing

Faculty of Business & Economics

School of Management & Public Administration
Final Examination
Semester II 2015
Face to Face Mode

Duration of Exam: 3 hours + 10 minutes

Reading Time: 10 minutes
Writing Time: 3 hours

Instructions:
1. This examination paper has two parts:
a. Part 1: 20 marks
b. Part 2: 30 marks
2. Part 1 is compulsory.
3. Part 2 has choices. Answer any six of twelve questions.
4. Write your answers in the answer booklet provided.
5. This question paper has six pages.
6. The exam is worth 50%. The minimum exam pass mark is 20/50.
7. This is a closed book examination.
8. Calculator and other materials are not needed for the examination.

Part-1: Case Study - 20 marks

Read the following Case Study (McDonalds Seeks Its Fast-Food Soul) and answer the following
question:

McDonalds Seeks Its Fast-Food Soul

By STEPHANIE STROMMARCH 7, 2015 Business Day
McDonalds is having an identity crisis. For years, it has lurched from showcasing new items
salads! Egg White Delight McMuffins! sliced apples! to mining nostalgia for its basic Big
Macs and fries. Its core customers still line up at the drive-through window for cheap, quick cups
of coffee and hash browns. But the company is also trying to appeal to more finicky eaters who
have moved onto upstart competitors like Smashburger and Chipotle, which market their quality
ingredients and food customization.Can McDonalds be both fast and bespoke? Cheap and highquality?
Steve Easterbrook seems to think so. Mr. Easterbrook took over as the chief executive of
McDonalds on March 1, and last week he was in Las Vegas, where the company presented
franchisees and suppliers with a new vision of McDonalds. That destination, as it was called,
was McDonalds as a modern, progressive burger and breakfast restaurant where
customization and made to order are essential and where executives align our food story
around the consumers definition of quality and value.
By Tuesday, when the meeting started, he was realigning the companys food story. Mr.
Easterbrooks first major act as C.E.O. was to announce that within two years all the chicken
served at its restaurants would be free of antibiotics, or at least those antibiotics also used in
humans. It was a big move for McDonalds, which is one of the biggest buyers of chicken, and
one that pleased health officials who see overuse of antibiotics in animal husbandry and the
resulting antibiotic-resistant strains of bacteria as a serious threat to human health.
A 47-year-old British national, Mr. Easterbrook has spent nearly his entire career in Europe,
most of it with McDonalds. He is credited with turning around the companys 1,200-store
business in Britain in part by doing things reducing the salt in fries, adding organic milk
that appealed to a more health-conscious consumer. While some analysts have urged the
company to stop trying new things and focus on its core burger business, Mr. Easterbrook
pushed back on that notion at a meeting with investors this year. To me, he seemed clearly
wedded to the notion that they need to try new things to restore growth, said one analyst who
attended the meeting.
Mr. Easterbrook, who declined to be interviewed, may find the challenge in the United States
particularly daunting. His predecessor certainly did. While McDonalds is among the worlds
largest restaurant chains with more than 36,000 outlets, about 14,000 of those in the United
States, its performance is slipping fast. Same-store sales have fallen over the last five years, and
last year the company turned in a miserable performance.

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Once, McDonalds was a place where every American ate now and then. But the fast-food
market has splintered, like many other parts of the economy, into the haves and the have-nots.
Upscale fast-casual restaurants like Smashburger and Chipotle attract customers who will pay
$5.99 for the Classic Smash burger (handcrafted and seared and seasoned to order) or $6.65
for a steak burrito (organic and local produce where practical). The menu might be full of
calories, but it comes with a halo of quality. The McDonalds core customer, on the other hand,
is still looking for a break: A $3.99 Big Mac, served fast. In fact, roughly two-thirds of its
customers order at a drive-through counter. If Mr. Easterbrook is trying to attract a more affluent,
food-conscious customer, he is surely aware of all the ways McDonalds has already stumbled
on that path. Mike Donahue, who headed communications at McDonalds from 1987 until 2006,
points out that the company has tried a dizzying array of tactics to reinvigorate its business and
shed its bad-food image, like new products, healthier options, lower prices, higher prices, store
revamps and greater transparency, to little avail.
Now more than ever, the company is facing the perfect storm that is challenging its very
relevancy, said Mr. Donahue. He should know. He left McDonalds to help start Lyfe Kitchen,
a restaurant chain that markets healthy meals and local ingredients.McDonalds rivals are
winning on taste and image. To catch them, the company might have to sacrifice on speed, which
has been its main advantage. And even on that score, its not doing so well.The two key words
in fast food are fast and food, and McDonalds is no longer fast, and its burgers ranked last in a
Consumer Reports survey recently, said Larry Light, chief executive of Arcature, a consulting
firm, and a former McDonalds executive. Those are their No. 1 and No. 2 challenges, but Im
not sure they know it.
Success Measured in Seconds
Thirty-seven seconds.Thats what it takes to alienate a customer.Ten years ago, customers
placing orders in the drive-through lane at McDonalds would have their food in about two and a
half minutes (or 152 seconds, if you want to get precise). Today, the same order takes a bit over
three minutes (or 189.5 seconds) on average, according to analyst research from Janney
Montgomery Scott. While a half-minute extra might not seem like a lot, it represents lost
customers and revenue at a company that can ill afford to lose either.
When Richard Adams owned a string of McDonalds franchises in Southern California, he liked
to sit outside and do paperwork. It gave him great insight into the business, he said, and how all
those seconds add up. My magic number was 13, said Mr. Adams, who now has a consulting
firm. Once 13 cars had lined up in the drive-through, all the other cars would turn around and
drive away. There was a point where people just wouldnt wait. McDonalds has ignored this
problem for a long time. The longer wait times are primarily the result of efforts to make
McDonalds more varied and relevant in a premium, fast-casual world. And perhaps nothing
exemplifies this problem better than the Premium McWrap.
In 2002, McDonalds added Chicken Selects to its menu. The strips of chicken breast in a crispy
batter proved so popular that franchisees struggled to keep up with demand. They were sold in
servings of three, five and 10, and the company simply couldnt make enough of them.

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Its response was to slowly replace the big servings of Selects with a simple snack wrap that used
just one Select strip. It was dabbed with ranch sauce, dressed with the same shredded cheese and
lettuce used in other preparations and wrapped in a tortilla. The snack wrap was so successful
that franchisees in Europe, where the menu traditionally is more limited than in the United
States, asked for a souped-up version that they could sell at a higher price. The Premium
McWrap was born.
But when McDonalds brought it back to the United States, the Premium McWrap flopped. It
took McDonalds two years just to establish a supply chain for cucumbers, which it had never
used before, and the wraps proved devilishly difficult to assemble. It takes 60 seconds on
average for a worker to assemble a Premium McWrap, according to franchisees, compared with
roughly 10 seconds to assemble a burger.Last summer, McDonalds announced that it was
testing high-density prep tables to try to address the problems with the wraps. This only
frustrated franchisees more because they had to make yet another investment in the tables to fix a
product that wasnt selling well. The problem is not that consumers dont want hamburgers, as
anyone whos been to Five Guys recently can tell you, said a former McDonalds executive
whose severance agreement effectively made it impossible for him to speak publicly about the
company without taking a financial hit. What theyre waiting for is a better hamburger from
McDonalds, not a wrap.Barry Klein, the former McDonalds marketing executive who created
Ronald McDonald, agrees. I think youll see that wrap go away, he said. It seems that
Thompson thought that by trying to be all things to all people, by getting more products into the
lineup, he would be able to maintain volumes, said Mr. Klein, referring to Don Thompson,
whom Mr. Easterbrook replaced. Instead, operations got so complicated that waiting times went
up, and people didnt come in droves for the new menu items.
Mr. Klein is among the few consumers whove had a chance to try McDonalds latest turnaround
effort a Create Your Own tablet that allows people to custom-build their sandwiches from a
menu of meats, toppings and buns. The burger he got, he said, could compete with the more
succulent ones at, say, Elevation Burger. But it also was about $1.50 more than a Big Mac and
required him to wait at a table to be served. The new burgers can be ordered only inside
restaurants, and because theyre made from raw patties, not the precooked ones used in the
standard burger, they take seven or eight minutes to prepare, an eternity for the typical
McDonalds customer. When something like two-thirds of the business is drive-through, Mr.
Klein said, this is not the solution.Also, franchisees have not forgotten that McDonalds
already tried a higher-priced burger, the Angus Deluxe, and failed. It was removed from the
menu in 2013 after a four-year run. They are wary of the new build-your-own-burger idea,
according to Mr. Adams, the franchisee turned consultant. Mr. Adams surveys about one-third of
McDonalds franchisees every quarter. For the last three or four years, theyve been saying the
biggest problem is menu complexity, he said. Now management is finally talking about menu
simplification on the one hand, and on the other hand, with this Create Your Own thing, starting
to roll out an entirely new restaurant system within the restaurants. The Create Your Own setup
will cost franchisees about $100,000 per store, Mr. Adams said.

Part-1: Case Study Question 20 Marks

Briefly summarise the case study and identify Customer Service related problems. Also suggest
strategies to resolve these problems. (20 Marks)
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Part-2: Short Essays - 30 Marks:

Answer only six of the following twelve questions. Failing to meet instructions and
answering all questions will lead to zero marks.

1. Some use the words quality and satisfaction interchangeably but there is a difference between
the two. Illustrate the difference between service quality and customer satisfaction as a
diagram. Also explain the diagram briefly. (5 marks)
2. You have been hired as the Executive Researcher in a financial institution. Discuss how you
will go about using the techniques of customer complaint solicitation, trailer calls,
mystery shopping, lost customer research and critical incident studies to conduct
research. (5 marks)
3. You are the manager of a popular restaurant. A customer ordered vegetarian dish but was
served with non-vegetarian dish. Explain how you will use the service recovery strategies of
fixing the customer and fixing the problem to regain this customers trust. (5 marks)
4. A university has hired you as a consultant to better understand student experience of
enrollment process. Prepare a service blueprint of a university enrollment process.(5 marks)
5. Think of a local hotel of your choice. Create four specific hard standards and four specific
soft standards to improve its service delivery. (5 marks)
6. Servicescape is a major part of physical evidence which is one of the seven Ps of services. A
servicescape plays four major strategic roles. Discuss the roles in the context of an airport.
(5 marks)
7. Focus on a service organization. In the context you are focusing, who occupies each of the
three points of the triangle. How is each type of marketing carried out currently? Are the
three sides of triangle well aligned? Are there specific challenges or barriers in any of these
areas? (5 marks)
8. Distinguish between defensive and offensive marketing? Also illustrate the effects of both
types of marketing on profits as a diagram. (5 marks)
9. Explain how customers of a bank widen the service performance gap. Discuss the five
specific ways. (5 marks)
10. Think of a medical centre you have been to. Discuss the eight issues that must be considered
in making waiting more pleasurable. (5 marks)

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11. Using examples, discuss any five of the thirteen approaches for addressing service
intangibility. (5 marks)
12. A) Discuss the four pricing strategies that can be used when customers define value as low
price. Give examples. (2.5 marks) and,
B) Illustrate the effects of service on behavioural intentions and behaviour as a diagram. Also
briefly explain the diagram. (2.5 marks)

END OF PAPER

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