SERVICES MARKETING

WHAT IS A SERVICE?

In General:

• Goods  Objects, Devices, Things

• Services  Deeds, Efforts, Performances

 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
 Tangibility Spectrum
Salt
 Soft Drinks
 Detergents
 Automobiles
 Cosmetics Fast-food
 Outlets
 Intangible
Dominant

Tangible

Dominant Fast-food
Outlets 
Advertising
Agencies

Airlines 
Investment
Management 
Consulting 
Teaching
Differences Between
Goods and Services

Intangibility Heterogeneity
(Differentiation)

Simultaneous
Production Perishability
and
Consumption
 Implications of Intangibility
• Services cannot be inventoried
• Services cannot be patented
• Services cannot be readily displayed or
communicated
• Pricing is difficult
 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
 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
 Implications of Perishability
• It is difficult to synchronize supply and
demand with services
• Services cannot be returned or resold
 Services are Different
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 Simultaneous Customers participate in and affect the transaction.
separate from production and Customers affect each other.
consumption consumption 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.
 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
 Changing Structure of Employment
as Economic Development Evolves

Share of
Employment
Agriculture

Services

Industry

Time, per Capita Income

Important Differences
Exist among Services
 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
• Core services vs. Supplementary 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
 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
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
Managing the 7Ps Requires Collaboration
between Marketing, Operations, and HR
Functions

Operations Marketing
Management Management

Customers

Human Resources

Management
• A Moment of Truth (MOT) occurs when
a customer comes in contact with your
company and experiences your level of
quality. A positive MOT with a customer
takes you closer to the promised land
of satisfied customers, high Share of
Inputs
 SERVICE QUALITY
• What is ‘Quality’
• Service Quality
depends on various dimensions
• Measuring 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

 Assessing Service Quality
• Customer satisfaction is a short term,
transaction-specific measure
– Is the customer happy with this single
experience?
• Service quality is a long-term measure of
performance
– Assessed through GAP ANALYSIS
• Assess expectations and experiences on
Five service quality dimensions
 GAPS MODEL
• Service quality - Service received vs.
Expectations (E)
• Service received – perceptions of
consumers about service (P)
• (E – P) = Gap
• Narrow gap – higher satisfaction
• Wider gap -- dissatisfaction
Conceptual Model of Service Quality Customer
1. Knowledge Gap expectations
Management
perceptions
of customer
COMPANY CUSTOMER
expectations
2. Standards Gap
Standards

5.Service Gap
specifying
service to be
delivered
3. Delivery Gap
Retailer
Actual communications
service about services
delivered
4. Communication Gap Customer
perception of
service
 DIAGNOSING FAILURE GAPS
IN SERVICE QUALITY

• Gap 1: The Knowledge Gap

Inadequate research orientation

Upward communication
Levels of management
 Gap 2: The Standards Gap
Perceptions of Infeasibility
Lack of Top management commitment
No culture or goal setting for services
Standardization of Tasks
 Gap 3: The Delivery Gap
Teamwork- unable or unwilling to
perform service
Employee-job fit
Technology-job fit
Role conflict
Role ambiguity
Perceived Control
Inadequate support
Gap 4: The Communication Gap

Exaggerated promises
attempts to acquire new business
attempts to beat the competition
Absence of horizontal communication
Gap 5: The Service Gap
Expectations compared to perceptions
Gap 5 = f (Gaps 1+2+3+4)
 Dimensions of Service Quality
SERVQUAL
• Tangibles
• Reliability
• Responsiveness
• Assurance
• Empathy
 Dimensions of Service Quality
Tangibles: Appearance of physical facilities,
equipment, personnel, & communication
materials
Reliability: Ability to perform the promised
service dependably & accurately
Responsiveness: Willingness to help
customers & provide prompt service
Assurance: Knowledge & courtesy of
employees & their ability to convey trust &
confidence
Empathy: Caring, individualized attention
provided customers
 MEASURING SERVICE QUALITY:
SERVQUAL
• Diagnostic tool used to determine “gap
scores”
The larger the gap, the lower the service
quality evaluation
44 Item Scale Compares “Should” to
Perceptions
 THE TANGIBLES DIMENSION
• Two-dimensional construct
Equipment and facilities
Personnel and communication materials

E1: Excellent companies will have modern looking

equipment
P1: XYZ has modern looking equipment
E2: The physical facilities at excellent companies will
be visually appealing.
 THE TANGIBLES DIMENSION
E3: Employees of excellent companies will
be neat-appearing.
E4: Materials associated with the service
(such as pamphlets or statements) will
be visually appealing in an excellent
company.
 THE RELIABILITY DIMENSION
• Reflects the consistency and
dependability of the firm’s performance
E5: When excellent companies promise to
do something by a certain time, they will
do so.
E6: When customers have a problem,
excellent companies will show a sincere
interest in solving it.
 THE RELIABILITY DIMENSION

E7: Excellent companies will perform the

service right the first time.
E8: Excellent companies will provide their
services at the time they promised to
do so.
E9: Excellent companies will insist on
error-free records.
THE RESPONSIVENESS DIMENSION
• The willingness or readiness of
employees to provide the service

E10: Employees of excellent companies will

tell customers exactly what services will
be performed.
E11: Employees of excellent companies will
give prompt service to customers.
THE RESPONSIVENESS DIMENSION

E12: Employees of excellent companies will

always be willing to help customers.

E13: Employees of excellent companies will

never be too busy to respond to customer
requests.
 THE ASSURANCE DIMENSION
• Reflects the competence of the firm, the
courtesy extended to its customers, and
the security of its operations

E14: The behavior of employees of

excellent companies will instill confidence
in customers.
 THE ASSURANCE DIMENSION
E15: Customers of excellent companies will
feel safe in their transactions.
E16: Employees of excellent companies will
be consistently courteous with
customers.
E17: Employees of excellent companies will
have the knowledge to answer
customer questions.
 THE EMPATHY DIMENSION
•The ability to experience another’s feelings
as one’s own

E18: Excellent companies will give

customers individual attention.

E19: Excellent companies will have

operating hours convenient to all their
customers.
 THE EMPATHY DIMENSION
E20: Excellent companies will have
employees who give customers
personal attention.
E21: Excellent companies will have the
customer’s best interest at heart.
E22: The employees of excellent
companies will understand the
specific needs of their customers.
 SERVQUAL CRITICISMS

• Expectation and perception questions seem

redundant
what’s the value of including the
expectation set?
compromises have been developed
• Questions need to be adjusted to fit specific
industry under examination
• Measurement issues
 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