Chapter 1

Introduction to

Services Marketing

How Important is the Service Sector in Our Economy?

In most countries, services add more economic value than agriculture, raw materials and manufacturing combined

In developed economies, employment is dominated by service jobs and most new job growth comes from services

Jobs range from high-paid professionals and technicians to minimum-wage positions

Service organizations can be any size—from huge global corporations to local small businesses

Most activities by government agencies and nonprofit organizations involve services

Examples of Service IndustriesExamples 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

Internal Services

Service elements within an organization that facilitate creation of--or add value to--its final output

Includes:accounting and payroll administrationrecruitment and training legal servicestransportationcatering and food servicescleaning and landscaping

Increasingly, these services are being outsourced

Major Trends in Service Sector (Fig. 1.3) (Lovelock)

Government Policies (e.g., regulations, trade agreements)

Social Changes (e.g., affluence, lack of time, desire for experiences)

Business Trends Manufacturers offer service Growth of chains and franchising Pressures to improve productivity and quality More strategic alliances Marketing emphasis by nonprofits Innovative hiring practices

Advances in IT (e.g., speed, digitization, wireless, Internet)

Internationalization (travel, transnational companies)

Some Impacts of Technological Change

Radically alter ways in which service firms do business: with customers (new services, more convenience) behind the scenes (reengineering, new value chains)

Create relational databases about customer needs and behavior, mine databanks for insights

Leverage employee capabilities and enhance mobility

Centralize customer service—faster and more responsive

Develop national/global delivery systems

Create new, Internet-based business models

Challenges for ServicesChallenges 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

Marketing Relevant Differences Between Goods and Services

Defining the Essence of a Service

An act or performance offered by one party to another

An economic activity that does not result in ownership

A process that creates benefits by facilitating a desired change in:

customers themselves

physical possessions

intangible assets

Defining the Essence of a Service

Services are deeds, processes and performance

Intangible, but may have a tangible component

Generally produced and consumed at the same time

Need to distinguish between SERVICE and CUSTOMER SERVICE

Differences BetweenDifferences Between Goods and ServicesGoods and Services

Intangibility

PerishabilitySimultaneous

Productionand

Consumption

Heterogeneity

No

Ow

ner

ship

Distinguishing Characteristics of Services (Table 1.1) (Lovelock)

Customers do not obtain ownership of services

Service products are ephemeral and cannot be inventoried

Intangible elements dominate value creation

Greater involvement of customers in production process

Other people may form part of product experience

Greater variability in operational inputs and outputs

Many services are difficult for customers to evaluate

Time factor is more important--speed may be key

Delivery systems include electronic and physical channels

Services cannot be patented

Tangibility Spectrum Figure 1-1 Figure 1-1 (Bitner, Zeithaml)

TangibleDominant

IntangibleDominant

SaltSoft Drinks

DetergentsAutomobiles

Cosmetics

AdvertisingAgencies

AirlinesInvestment

ManagementConsulting

Teaching

Fast-foodOutlets

Fast-foodOutlets

Marketing Implications - 1

No ownership Customers obtain temporary rentals, hiring of personnel, or access

to facilities and systems Pricing often based on time Customer choice criteria may differ for renting vs. purchase--may

include convenience, quality of personnel Can’t own people (no slavery!) but can hire expertise and labor

Services cannot be inventoried after production Service performances are ephemeral—transitory, perishable Exception: some information-based output can be recorded in electronic/printed form and re-used many times Balancing demand and supply may be vital marketing strategy Key to profits: target right segments at right times at right price Need to determine whether benefits are perishable or durable

Marketing Implications - 2

Customers may be involved in production process Customer involvement includes self-service and cooperation with

service personnel Think of customers in these settings as “partial employees” Customer behavior and competence can help or hinder

productivity, so marketers need to educate/train customers Changing the delivery process may affect role played by customers Design service facilities, equipment, and systems with customers in

mind: user-friendly, convenient locations/schedules

Intangible elements dominate value creation Understand value added by labor and expertise of personnel Effective HR management is critical to achieve service quality Make highly intangible services more “concrete” by creating and

communicating physical images or metaphors and tangible clues

Value Added by Tangible vs Intangible Elements in Goods and Services (Fig. 1.4) (Lovelock)

Fast food restaurantPlumbing repair

Office cleaningHealth club

Airline flightRetail banking

InsuranceWeather forecast

Salt

Soft drinksCD Player

Golf clubsNew car

Tailored clothingFurniture rental

Lo Hi

Hi

Ta n

gi b

l e E

l em

ents

Intangible Elements

Marketing Implications - 3

Other people are often part of the service product

Achieve competitive edge through perceived quality of employees Ensure job specs and standards for frontline service personnel reflect

both marketing and operational criteria Recognize that appearance and behavior of other customers can

influence service experience positively or negatively Avoid inappropriate mix of customer segments at same time Manage customer behavior (the customer is not always right!)

Greater variability in operational inputs and outputs

Must work hard to control quality and achieve consistency Seek to improve productivity through standardization, and by training

both employees and customers Need to have effective service recovery policies in place because it is

more difficult to shield customers from service failures

Marketing Implications - 4

Often difficult for customers to evaluate services Educate customers to help them make good choices, avoid risk Tell customers what to expect, what to look for Create trusted brand with reputation for considerate, ethical behavior Encourage positive word-of-mouth from satisfied customers

Time factor assumes great importance Offer convenience of extended service hours up to 24/7 Understand customers’ time constraints and priorities Minimize waiting time Look for ways to compete on speed

Distribution channels take different forms Tangible activities must be delivered through physical channels Use electronic channels to deliver intangible, information-based

elements instantly and expand geographic reach

Important Differences Exist among Services

Four Categories of Services Employing Different Underlying Processes (Fig. 1.5)(Lovelock)

People Processing Possession Processing

Mental Stimulus Processing

Information Processing

(directed at intangible assets)

e.g., airlines, hospitals,haircutting, restaurants hotels, fitness centers

e.g., freight, repair, cleaning, landscaping,

retailing, recycling

e.g., broadcasting, consulting,education, psychotherapy

e.g., accounting, banking, insurance, legal, research

TANGIBLE ACTS

INTANGIBLEACTS

DIRECTED AT PEOPLE

DIRECTED AT POSSESSIONS

What is the Nature of the Service Act?

Who or What is the Direct Recipient of the Service?

Implications of Service Processes (1) Seeking Efficiency May Lower Satisfaction

Processes determine how services are created/delivered—process change may affect customer satisfaction

Imposing new processes on customers, especially replacing people by machines, may cause dissatisfaction

New processes that improve efficiency by cutting costs may hurt service quality

Best new processes deliver benefits desired by customers Faster Simpler More conveniently

Customers may need to be educated about new procedures and how to use them

Implications of Service Processes: (2) Designing the Service Factory

People-processing services require customers to visit the “service factory,” so:

Think of facility as a “stage” for service performance

Design process around customer

Choose convenient location

Create pleasing appearance, avoid unwanted noises, smells

Consider customer needs--info, parking, food, toilets, etc.

Implications of Service Processes: (3) Evaluating Alternative Delivery Channels

For possession-processing, mental-stimulus processing, or information processing services, alternatives include:

1. Customers come to the service factory

2. Customers come to a retail office

3. Service employees visit customer’s home or workplace

4. Business is conducted at arm’s length through - physical channels (e.g., mail, courier service)

- electronic channels (e.g., phone, fax, email, Web site)

Implications of Service Processes: (4) Balancing Demand and Capacity

When capacity to serve islimited and demand varieswidely, problems arise becauseservice output can’t be stored:

1. If demand is high and exceeds supply, business may be lost

2. If demand is low, productive capacity is wasted

Potential solutions:

- Manage demand - Manage capacity

Implications of Service Processes: (5) Applying Information Technology

All services can benefit from IT,but mental-stimulus processingand information-processingservices have the most to gain: Remote delivery of information-

based services “anywhere, anytime”

New service features through websites, email, and internet (e.g., information, reservations)

More opportunities for self-service New types of services

Implications of Service Processes:(6) Including People as Part of the Product

Involvement in service delivery often entails contact with other people

Managers should be concerned about employees’ appearance, social skills, technical skills

Other customers may enhance or detract from service experience--need to manage customer behavior

Services are Different Table 1-2 (Bitner, Zeithaml)

Goods Services Resulting Implications Tangible 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 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.

Production separate from consumption

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.

Nonperishable Perishable It is difficult to synchronize supply and demand with services. 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.

The Services Marketing Triangle Figure 1-5 (Bitner, Zeithaml)

Internal Marketing

Interactive Marketing

External Marketing

Company(Management)

CustomersEmployees/ Providers

“enabling thepromise”

“delivering the promise”

“setting thepromise”

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

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?

The Services

Marketing Mix

Elements of The Services Marketing Mix: “7Ps” vs. the Traditional “4Ps”

Rethinking the original 4Ps

Product elements

Place and time

Promotion and education

Price and other user outlays

Adding Three New Elements

Physical environment/ evidence

Process

People

The 7Ps: (1) Product Elements

All Aspects of Service Performance that Create Value

Core product features—both tangible and intangible elements

Bundle of supplementary service elements

Performance levels relative to competition

Benefits delivered to customers (customers don’t buy a hotel room, they buy a good night’s sleep)

Guarantees

The 7Ps:(2) Place and Time

Delivery Decisions: Where, When, and How

Geographic locations served

Service schedules

Physical channels

Electronic channels

Customer control and convenience

Channel partners/intermediaries

The 7Ps:(3) Promotion and Education

Informing, Educating, Persuading, and Reminding Customers

Marketing communication tools media elements (print, broadcast, outdoor, retail, Internet, etc.) personal selling, customer service sales promotion publicity/PR

Imagery and recognition branding corporate design

Content information, advice persuasive messages customer education/training

The 7Ps:(4) Price and Other User Outlays

Marketers Must Recognize that Customer Outlays Involve More than the Price Paid to Seller

Traditional Pricing Tasks

Selling price, discounts, premiums

Margins for intermediaries (if any)

Credit terms

Identify and Minimize Other Costs Incurred by Users

Additional monetary costs associated with service usage (e.g., travel to service location, parking, phone, babysitting,etc.)

Time expenditures, especially waiting

Unwanted mental and physical effort

Negative sensory experiences

The 7Ps:(5) Physical Environment/ Evidence

Designing the Servicescape and providing tangibleevidence of service performances

Create and maintaining physical appearances buildings/landscaping interior design/furnishings vehicles/equipment staff grooming/clothing sounds and smells other tangibles

Select tangible metaphors for use in marketing communications

7Ps:(6) Process

Method and Sequence in Service Creation and Delivery

Design of activity flows

Number and sequence of actions for customers

Providers of value chain components

Nature of customer involvement

Role of contact personnel

Role of technology, degree of automation

The 7Ps:(7) People

Managing the Human Side of the Enterprise

The right customer-contact employees performing tasks well job design recruiting/selection training motivation evaluation/rewards empowerment/teamwork

The right customers for the firm’s mission fit well with product/processes/corporate goals appreciate benefits and value offered possess (or can be educated to have) needed skills (co-production) firm is able to manage customer behavior

Expanded Marketing Mix for Services Table 1-3 Table 1-3 (Bitner, Zeithaml)

Expanded Marketing Mix for Services Table 1-3 (Continued)

Ways to Use the 7 Ps

Overall Strategic Overall Strategic AssessmentAssessment

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 Specific Service ImplementationImplementation

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?

Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR Functions (Fig. 1.7) (Lovelock)

Customers

Operations Management

Marketing Management

Human Resources Management