Marketing Service Organisations

BM404 - 2006

Overview

Defining services Understanding the services economy The service sector in Australia Mega-trends and the service sector:

Professional services Characteristics of services Marketing implications

BM404 Assessment

‘Service Watch’ individual assignment: 4 September Report (1,000) words & presentation (10 mins)

Group ‘Case Study’ assignment: 30 October Written summary (500 words) & presentation (40

mins) ‘Service Encounter’ assignment:

17 November Report (2,500) plus attachments

Defining services?

Any act, performance or experience that one party can offer another; one that is essentially intangible, and does not result in the ownership of anything. Its production may or may not be tied to a physical product

Lovelock (2004)

Other service concepts

Service industries and companies: Classified within the service sector whose core product is

service Service as products:

Represent the wide range of intangible product offerings that customers value and pay for. Sold by service and non-service companies

Customer Service: Service provided in support of company’s core products

(typically not charged for) Hidden services:

Another way of thinking about products and services

The dominance of tangible versus intangible elements in goods and services

The Services sector in Australia Distribution services:

Wholesale and retail trade, transport and storage and communications

Social services: Health and community services, education and government

administration and defence Producer services:

Property and business services, finance and insurance Personal services:

Accommodation, cafes and restaurants, personal and other services, cultural and recreational services

Utilities and construction services: Electricity, gas and water, and construction

The service sector in Australia

Services dominate economic growth in Australia Account for more than three quarters of

economy’s output 4 out of every 5 jobs are in the services sector Services also provide essential inputs, eg

communications and transport, into nearly everything Australia produces

ITR (2001) Industry Brief Services Sector

Australia’s service sector

Accounts for 76% of GDP Property and business services is largest

service industry (14% of economy’s output) Retail trade is the biggest service employer

(15% of economy’s jobs) Travel services was the sector’s biggest

export earner (10%+ of economy’s exports)

Australia’s service sector

Service sector output grew at a trend annual rate of 3.6% over period 1975 – 2001

Communications was the fastest growing service industry (8.4%)

Property and business services exhibited the highest employment growth (5.8%)

Access Economics (2001b)

Australia’s service sector: the future

Service output is expected to grow over next 5 – 10 years at similar rates

Highest growth industries: communications, property & business services, finance & insurance, transport and storage

Factors responsible for the transformation of the service economy

Internationalisation (e.g. ‘Hollowing out’ effect,

Increased services trade, Global customers)

Government Regulation (e.g. Deregulation/ privatisation, New trade agreements in services)

Social Changes (e.g. Increased customer expectations, Increased affluence and leisure time, More women in the workforce)

Factors responsible for the transformation of the service economy Business trends (e.g. Relaxation of

professional association standards, Marketing emphasis by non –profit organisations, Outsourcing of non-core services, Services quality movement, Franchising and service chains)

Advances in technology (Convergence of computers and telecommunications, Miniaturisation, Digitalisation, Enhanced software)

Mega-trends impacting on Professional Services Firms Client sophistication Governance Connectivity Transparency Modularisation Globalisation Commoditisation

Characteristics of ServicesCompared to Goods

Intangibility

Perishability

SimultaneousProduction

andConsumption

Heterogeneity

Implications of Intangibility

Services cannot be inventoried

Services cannot be easily patented

Services cannot be readily displayed or communicated

Pricing is difficult

Implications of HeterogeneityService delivery and customer satisfaction depend on employee and customer actions

Service quality depends on many uncontrollable factors

There is no sure knowledge that the service delivered matches what was planned and promoted

Implications of Simultaneous Production and ConsumptionCustomers participate in and affect the transaction

Customers affect each other

Employees affect the service outcome

Decentralization may be essential

Mass production is difficult

Implications of Perishability

It is difficult to synchronize supply and demand with services

Services cannot be returned or resold

Challenges for Services

Defining and improving qualityDesigning and testing new servicesCommunicating and maintaining a consistent

imageAccommodating fluctuating demandEnsuring the delivery of consistent quality

Challenges for Services (cont.) Motivating and sustaining employee

commitment Coordinating marketing, operations, and

human resource efforts Setting prices Finding a balance between standardization

versus personalization

Further challenges for services managers Differentiation and competitive advantage may be

difficult to achieve Marketing orientation is still relatively new to many

managers Operations management, rather than marketing,

continues to dominate Customer service management and marketing is

often in the hands of lower paid subordinates, possibly in multiple locations

Limited data on competitive performance is available Problems in determining costs for pricing purposes

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

Expanded Mix for Services --The 7 Ps People

All human actors who play a part in service delivery and thus influence the buyer’s perceptions: namely, the firm’s personnel, the customer, and other customers in the service environment.

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.

Process The actual procedures, mechanisms, and flow of activities by

which the service is delivered—the service delivery and operating systems.

An expanded marketing mix for services

Customers PricePlace & Time

Promotion

Product (Service)People Process

Physical Evidence

Customers Pricecustomers

Place, Cyber-space & Time

Table 1.3

Expanded Marketing Mix for Services

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?

Internal marketing

Traditional marketing

OrganisationOrganisation

EmployeesEmployees CustomersCustomers

Satisfaction; Quality; Brand Loyalty

Relationship management

A framework for analysing servicesmarketing

Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR Functions (Fig. 1.14)

Customers

Operations Management

Marketing Management

Human Resources Management

Models of service quality

The evolution ofservice quality

Disconfirmation of expectations The Nordic model The Gaps model of service quality &

SERVQUAL The three component model Integrating perspectives

Disconfirmation of expectations (Oliver 1980)

The Nordic model (Gronroos 1990)

Represents the service experience on the basis of functional and technical elements

Technical quality refers to what the customer receives from the service

Functional quality refers to service delivery Model emphasises companies must be careful what

they promise

The SERVQUAL dimensions – Perceived Service Quality (Parasuraman, Zeithaml & Berry 1988) Reliability (dependability, accurate performance)

Assurance (competence, courtesy, credibility & security)

Tangibles (appearance of physical elements)

Empathy (easy access, good communications & customer

understanding)

Responsiveness (promptness & helpfulness)

SERVQUAL

SERVQUAL (cont.)

The Gaps model of service quality (Zeithaml, Parasuraman & Berry 1990)

The three-component model Rust & Oliver (1994)

Source: Rust & Oliver, 1994. p. 11

Hierarchical model

Model Advantages Disadvantages

Disconfirmation of expectations

Takes into consideration expectations as well as actual perceptions

The use of expectations in measuring service quality has currently come under a lot of criticism in the literature

Nordic model (Gronroos)

Focuses on the service outcome and process, that is, what the customer receives from the service and how the service is delivered

Does not explicitly consider the impact of the physical environment of the service setting on service quality perceptions. Uses the disconfirmation of expectations model as a basis

Servqual/Gaps Identifies a number of areas important to service quality assessment. Has been widely used in the literature and in practice

Uses gap scores as derived from the disconfirmation of expectations model. Does not have an outcome orientation — does not measure service outcome perceptions

Three-component model

Extends Gronroos model to include the physical environment. Has received increasing support in the literature

Some three-component models are still based on disconfirmation. Not well tested in the literature.

Integrated model

Looks at service quality in a new light. Provides a more sensitive analysis by looking at the different tiers of service quality dimensions

Has not been well tested in the literature as it is a new model. Needs more research to test its usefulness