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Chapter 1

INTRODUCTION

TO

SERVICES

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S M Objectives for Chapter 1:

Introduction to Services

• Explain what services are and identify service

trends

• Explain the need for special services marketing

concepts and practices

• Outline the basic differences between goods and

services and the resulting challenges for service

businesses

• Introduce the service marketing triangle

• Introduce the expanded services marketing mix

• Introduce the gaps model of service quality

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S M What are Services?

• In the simplest term services are deeds, processes and

performances

• Services are a form of product that consist of activities, benefits,

or satisfactions offered for sale that are essentially intangible and

do not result in the ownership of anything.

• More elaborately services can be defined as, “ Service include all

economic activities whose output is not a 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.

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S M Challenges for Services

• Defining and improving quality

• Communicating and testing new services

• Communicating and maintaining a consistent

image

• Motivating and sustaining employee commitment

• Coordinating marketing, operations and human

resource efforts

• Setting prices

• Standardization versus personalization

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S M Examples of Service

Industries

• Health Care

– hospital, medical practice, dentistry, eye care

• Professional Services

– accounting, legal, architectural

• Financial Services

– banking, investment advising, insurance

• Hospitality

– restaurant, hotel/motel, bed & breakfast,

– ski resort, rafting

• Travel

– airlines, travel agencies, theme park

• Others:

– hair styling, pest control, plumbing, lawn maintenance, counseling services, health club

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S M Tangibility Spectrum

Tangible

Dominant

Intangible

Dominant

Salt Soft Drinks

Detergents

Automobiles

Cosmetics

Advertising Agencies

Airlines Investment

Management Consulting

Teaching

Fast-food Outlets

Fast-food Outlets

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Figure 1-2

Percent of

U.S. Labor Force by Industry

0

10

20

30

40

50

60

70

80

1929 1948 1969 1977 1984 1996

Per

cen

t o

f G

DP

Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and

July 1992, Table 6.4C; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S.

Economy,” Scientific American, 244,3 (1981): 31-39.

Year

Services

Manufacturing

Mining & Agriculture

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0

10

20

30

40

50

60

70

80

1948 1959 1967 1977 1987 1996

Figure 1-3

Percent of U.S. Gross Domestic

Product by Industry P

erce

nt

of

GD

P

Year

Source: Survey of Current Business, August 1996, Table 11, April 1998, Table

B.3; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S.

Economy,” Scientific American, 244,3 (1981): 31-39.

Services

Manufacturing

Mining & Agriculture

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S M Differences Between

Goods and Services

Intangibility

Perishability

Simultaneous Production

and Consumption

Heterogeneity

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S M Implications of Intangibility

Services cannot be inventoried

Services cannot be patented

Services cannot be readily displayed

or communicated

Pricing is difficult

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S M Implications of Heterogeneity

Service delivery and customer satisfaction

depend on employee actions

Service quality depends on many

uncontrollable factors

There is no sure knowledge that the service

delivered matches what was planned and

promoted

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S M Implications of Simultaneous

Production and Consumption

Customers participate in and affect the

transaction

Customers affect each other

Employees affect the service outcome

Decentralization may be essential

Mass production is difficult

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S M Implications of Perishability

It is difficult to synchronize supply and

demand with services

Services cannot be returned or resold

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S M Table 1-2

Services are Different

Goods Services Resulting ImplicationsTangible Intangible Services cannot be inventoried.

Services cannot be patented.Services cannot be readily displayed or communicated.Pricing is difficult.

Standardized Heterogeneous Service delivery and customer satisfaction depend onemployee actions.Service quality depends on many uncontrollable factors.There is no sure knowledge that the service deliveredmatches what was planned and promoted.

Productionseparate fromconsumption

Simultaneousproduction andconsumption

Customers participate in and affect the transaction.Customers affect each other.Employees affect the service outcome.Decentralization may be essential.Mass production is difficult.

Nonperishable Perishable It is difficult to synchronize supply and demand withservices.Services cannot be returned or resold.

Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, “Problems and Strategies in Services Marketing,”

Journal of Marketing 49 (Spring 1985): 33-46.

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S M Services Marketing

• Services are growing even faster in the world economy,

making up a quarter of all international trade.

• The service industry varies greatly, consisting of

governments, private nonprofit organizations, and

business organizations. One of the chief reasons for the

growth of the service industry is the demand generated by

the time-pressed consumer.

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S M Why Services Marketing?

• A Service-Based Economy

• Service as a Business Imperative in Manufacturing and IT

• Deregulated Industries and Professional Service Needs

• Service Marketing Is Different

• Service Equals Profits

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S M Why Service Stinks

There are many theories as to why this decline in customer

satisfaction with services has occurred, but it is difficult to

point out precisely to the reason. Plausible theories include:

• Overpromises but becomes underdeliverer due to offering

various services with calculated profitability.

Increase in self service

Increase in technology based service

No/Less human interaction

No/Less human personalization

Less Service

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S M •Technology based services ( automated voice systems, internet based services etc.) are hard to implement, and there are many failures and poorly designed systems.

•Customer expectations are higher due to the excellent service they receive from some companies. Thus they expect the same from all and are frequently disappointed.

•Increased pressure to cut cost from the organizational perspective.

•Intense competitive job market results more job switching by skilled people

•Lack of internal marketing to keep the service promise of the marketer.

•Delivering consistent, high-quality service is not easy, yet many companies promise it.

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S M Figure 1-5

The Services Marketing Triangle

Internal Marketing

Interactive Marketing

External Marketing

Company (Management)

Customers Employees

“enabling the promise”

“delivering the promise”

“setting the promise”

Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler

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S M Services Marketing Triangle

Applications Exercise

• Focus on a service organization. In the context

you are focusing on, who occupies each of the

three points of the triangle?

• How is each type of marketing being carried out

currently?

• Are the three sides of the triangle well aligned?

• Are there specific challenges or barriers in any of

the three areas?

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S M Ways to Use the

Services Marketing Triangle

Overall Strategic Assessment

• How is the service

organization doing

on all three sides of

the triangle?

• Where are the

weaknesses?

• What are the

strengths?

Specific Service Implementation

• What is being promoted and by whom?

• How will it be delivered and by whom?

• Are the supporting systems in place to deliver the promised service?

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S M

Source: Adapted from A. Parasuraman

Company

Customers Providers

Technology

Figure 1-6

The Services Triangle

and Technology

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S M Service And Technology

• Potential for New Service Offerings („connected car‟)

• New Ways to Deliver Service (bill paying, tracking, Questions

checking, transaction, ordering, complaints, learn and research etc)

• Enabling both Customers and Employees (self-service via

online banking, CRM software for employees, registration software for universities

etc)

• Extending the Global Reach of Services (Internet has no

boundaries)

• The Internet is a Service (One big service: people want dependable

outcome, easy access, responsive systems, flexibility, and compensation)

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S M Services Marketing Mix:

7 Ps for Services

• Traditional Marketing Mix

• Expanded Mix for Services: 7 Ps

• Building Customer Relationships Through

People, Processes, and Physical Evidence

• Ways to Use the 7 Ps

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S M Traditional Marketing Mix

• All elements within the control of the firm that

communicate the firm’s capabilities and image to

customers or that influence customer satisfaction

with the firm’s product and services:

Product

Price

Place

Promotion

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S M Expanded Mix for Services --

the 7 Ps

• Product

• Price

• Place

• Promotion

• People

• Process

• Physical Evidence

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S M

Table 1-3

Expanded Marketing Mix for Services

PRODUCT PLACE PROMOTION PRICE

Physical goodfeatures

Channel type Promotionblend

Flexibility

Quality level Exposure Salespeople Price level

Accessories Intermediaries Advertising Terms

Packaging Outlet location Salespromotion

Differentiation

Warranties Transportation Publicity Allowances

Product lines Storage

Branding

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S M

PEOPLE PHYSICALEVIDENCE

PROCESS

Employees Facility design Flow of activities

Customers Equipment Number of steps

Communicatingculture and values

Signage Level of customerinvolvement

Employee research Employee dress

Other tangibles

Table 1-3 (Continued)

Expanded Marketing Mix for

Services

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S M PEOPLE

All human actors who play a part in service delivery and thus

influence the buyers perceptions: namely the firm’s personnel, the

customer, and other customers in the service environment.

Factors to Consider Regarding People:

Employees

– Recruiting

– Training

– Motivation

– Rewards

– Teamwork

Customers

- Education

- Training

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S M PHYSICAL EVIDENCE

The environment in which the service is delivered and where the firm and customer interact, and any tangible components that facilitate performance or communication of the service.

Factors to Consider Regarding Physical Evidence :

•Facility Design.

•Equipment

•Signage

•Employee dress.

•Other tangibles

Reports.

Business cards.

Statements.

Guarantees.

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S M PROCESS

The actual procedures, mechanisms and flow of activities by which the service is delivered- the service delivery and operating systems.

Factors to Consider Regarding Process:

• Flow of activities:

Standardized.

Customized.

• Number of steps:

Simple.

Complex.

• Customer Involvement

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S M Ways to Use the 7 Ps

Overall Strategic

Assessment

• How effective is a firm’s

services marketing mix?

• Is the mix well-aligned

with overall vision and

strategy?

• What are the strengths and

weaknesses in terms of the

7 Ps?

Specific Service

Implementation

• Who is the customer?

• What is the service?

• How effectively does the

services marketing mix for a

service communicate its

benefits and quality?

• What

changes/improvements are

needed?

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S M The Gaps

Model of

Service

Quality

Expected Service

Perceived Service

Service Delivery

Customer Service Standards

Company Perceptions of

Consumer Expectations

Company Communications to

Customers

Not knowing

what

customers

expect

Selecting

wrong service

designs and

standards

Not meeting designs

and standards

Not matching

performance

to promises

Service is not as good as expected

Zeithaml, Valarie A., Mary Jo Bitner, and Dwayne D. Gremler (2006), Services

Marketing (Fourth ed.). Boston, MA: McGraw-Hill/Irwin.

McGraw-Hill © 2000 The McGraw-Hill Companies

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S M The Gaps

Model of

Service

Quality

Zeithaml, Valarie A., Mary Jo Bitner, and Dwayne D. Gremler (2006), Services

Marketing (Fourth ed.). Boston, MA: McGraw-Hill/Irwin.

CONSUMER

MARKETER

Gap 4 G

ap

1

Personal

Needs

Word of mouth

communication

Past

Experiences

Expected

Service

Perceived

Service

Service

Delivery

Service Quality

Specifications

Management Perception

of

Customer Expectations

Gap 2

Gap 3

Gap 5

External Communication

to

Customers

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S M The

Gaps

Model of

Service

Quality

Zeithaml, Valarie A., Mary Jo Bitner, and Dwayne D. Gremler (2006), Services

Marketing (Fourth ed.). Boston, MA: McGraw-Hill/Irwin.

There are five gaps shown in the model:

Gap 1– the gap between customer expectation and

management perception

Gap 2– the gap between management perception

and service quality specification

Gap 3– the gap between service quality

specification and service delivery

Gap 4– the gap between service delivery and

external communication

Gap 5– the gap between perceived service and

expected service.