Services Marketing

Distinguishing Characteristics of Services

 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
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

Hi
Salt
Soft drinks
CD Player
Golf clubs
New car
Tangible Elements

Tailored clothing
Furniture rental
Fast food restaurant
Plumbing repair
Office cleaning
Health club
Airline flight
Retail banking
Insurance
Weather forecast
Lo Intangible Elements Hi
 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
How Product Attributes Affect
Ease of Evaluation

Most Goods Most Services

Easy Difficult
to evaluate to evaluate
Restaurant meals
Clothing

Computer repair

Legal services
Complex surgery
Motor vehicle

Haircut
Foods
Chair

Education
Lawn fertilizer

Entertainment

High in search High in experience High in credence

attributes attributes attributes

Source: Adapted from Zeithaml

Important Differences
Exist among Services
High-Contact and Low-Contact Services

High Contact Services

 Customers visit service facility and remain throughout
service delivery
 Active contact between customers and service personnel
 Includes most people-processing services
Low Contact Services
 Little or no physical contact with service personnel
 Contact usually at arm’s length through electronic or
physical distribution channels
 New technologies (e.g. Web) help reduce contact levels
Levels of Customer Contact with Service
Organizations

Emphasizes encounters
High with service personnel
Nursing Home
HairCut
4-Star Hotel
Management Consulting
Good Restaurant
Telephone Banking
Airline Travel (Econ.)

Retail Banking Car Repair

Motel Insurance
Dry Cleaning
Fast Food
Movie Theater

Cable TV
Subway

• Internet Banking
Mail Based Repairs

Emphasizes encounters
with equipment
Internet-based
Services
Low
Four Categories of Services
Employing Different Underlying Processes

What is the Who or What is the Direct Recipient of the Service?

Nature of the
DIRECTED AT DIRECTED AT
Service Act? PEOPLE POSSESSIONS
TANGIBLE People Processing Possession Processing
ACTS
e.g., airlines, hospitals, e.g., freight, repair,
haircutting, restaurants cleaning, landscaping,
hotels, fitness centers retailing, recycling

INTANGIBLE Mental Stimulus Information

ACTS
Processing Processing
(directed at intangible
e.g., broadcasting, consulting, e.g., accounting,
assets) banking,
education, psychotherapy insurance, legal, research
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 is

limited and demand varies
widely, problems arise because
service 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 processing
and information-processing
services 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
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
 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
Advertising Implications for
Overcoming Intangibility

Problem Advertising Strategy

 Generality
- objective claims Document physical system capacity
Cite past performance statistics
- subjective claims Present actual service delivery incident

 Nonsearchability Present customer testimonials

Cite independently audited performance

 Abstractness Display typical customers benefiting

 Impalpability Documentary of step-by-step process,

Case history of what firm did for customer
Narration of customer’s subjective experience
Source: Mittal and Baker
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
What Makes Service Pricing Strategy Different
(and Difficult)?

 No ownership of services--hard for firms to calculate

financial costs of creating an intangible performance
 Variability of inputs and outputs--how can firms define a
“unit of service” and establish basis for pricing?
 Many services hard for customers to evaluate--what
are they getting in return for their money?
 Importance of time factor--same service may have more
value to customers when delivered faster
 Delivery through physical or electronic channels--may
create differences in perceived value
The Pricing Tripod

Pricing Strategy

Competition
Costs Value to customer
Three Main Approaches to Pricing

 Cost-Based Pricing
 Set prices relative to financial costs
(problem: defining costs)
 Competition-Based Pricing
 Monitor competitors’ pricing strategy
(especially if service lacks differentiation)
 Who is the price leader? (one firm sets the pace)

 Value-Based
 Relate price to value perceived by customer
The 7Ps:
(5) Physical Environment

Designing the Servicescape and providing tangible

evidence 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
Improving Service Quality
Perspectives on Service Quality

Transcendental: Quality = excellence. Recognized only through

experience

Product-Based: Quality is precise and measurable

User-Based: Quality lies in the eyes of the beholder

Manufacturing- Quality is conformance to the firm’s developed

Based: specifications

Value-Based: Quality is a trade-off between price and value

 SERVQUAL Model

 Services are to satisfy the desires of customers.

 That is why service quality (ServQUAL) has become
increasingly important in developing countries today.

 It allows service providers with similar output to provide

greater value, competitiveness, opportunities for growth in
services, and increase in customer satisfaction.

 SERVQUAL is a multidimensional research instrument

designed to measure service quality by capturing
respondents’ expectations and perceptions along five
dimensions of service quality.
SERVQUAL Model
Dimensions of Service Quality

 Reliability: The ability to perform the

promised service dependably and accurately

 Assurance: The knowledge and courtesy

of employees and their ability to convey
trust and confidence
 Tangibles: The appearance of physical
facilities, equipment, personnel and
communication materials

 Empathy: The provision of caring,

individualized attention to customer

 Responsiveness: The willingness to

help customers and to provide prompt
service
 Examples of matched pairs of items in the
SERVQUAL questionnaire
Dimension Sample expectations item Sample perceptions item
When excellent telephone
companies promise to do XYZ company provides its
Reliability
something by a certain time, services at the promised time
they do so

The behaviour of employees The behaviour of employees

Assurance in excellent banks will instill in the XYZ bank instils
confidence in customers confidence in you.

Excellent telephone
XYZ company has modern
Tangibles companies will have modern
looking equipment
looking equipment

Excellent banks will have

XYZ bank has convenient
Empathy operating hours convenient to
operating hours
customers
Employees of excellent
telephone companies will XYZ employees are never too
Responsiveness
never be too busy to help a busy to help you
customer
Seven Service Quality Gaps

Customer needs CUSTOMER

and expectations

1. Knowledge Gap
Management definition
of these needs
MANAGEMENT
2. Standards Gap
Translation into
design/delivery specs
3. Delivery Gap
Execution of 4. I.C.Gap Advertising and
design/delivery specs sales promises

5. Perceptions Gap 6. Interpretation Gap

Customer perceptions Customer interpretation
of product execution of communications

7. Service Gap
Customer experience
relative to expectations
Prescriptions for Closing Service Quality Gaps

 Knowledge: Learn what customers expect--conduct

research, dialogue, feedback
 Standards: Specify SQ standards that reflect expectations
 Delivery: Ensure service performance matches specs--
consider roles of employees, equipment, customers
 Internal communications: Ensure performance levels match
marketing promises
 Perceptions: Educate customers to see reality of service
delivery
 Interpretation: Pretest communications to make sure
message is clear and unambiguous.
THANKS!
Any questions?