Chapter 1Introduction to Services

Introduction to ServicesIntroduction to Services

What are services? Why services marketing? Service and Technology Characteristics of Services Compared to

Goods Services Marketing Mix Staying Focused on the Customer

What are services?What are services?

Services are deeds, processes, and performances. And intangibility is the key determinant.

From broader perspective…

“Services 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.”

“Services are going to move in this decade to being the front edge of the industry.” - former CEO, IBM (Louis V. Gerstner, 2001)

Services versus Customer ServiceServices versus Customer Service

Services (as been defined earlier) encompasses a wide range of industries.

Customer service is the service provided in support of a company’s core products. It often includes:

Answering questionsTaking ordersDealing with billing issuesHandling complaintsScheduling maintenance or repairs

It can occur on site, or via telephone, or via internet and typically there is no charge for customer service.

Federal Express markets and delivers services, but it also provides a high level of customer service.

Figure 1.1

Contributions of Service Industries toU.S. Gross Domestic Product

Figure 1.1

Contributions of Service Industries toU.S. Gross Domestic Product

Source: Inside Sam’s $100 Billion Growth Machine, by David Kirkpatrick, Fortune, June 14, 2004, p 86.

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 airline, travel agency, theme park

Others hair styling, pest control, plumbing, lawn maintenance, counseling

services, health club, interior design

Why study Services Marketing?Why study Services Marketing?

Service-based economies

Service as a business imperative in manufacturing and IT

Deregulated industries and professional service needs

Service equals profits

Services marketing is different

Tangibility SpectrumTangibility Spectrum

The concept is: most of the services are not strictly confined to intangibility although intangibility is the key determinant of service rather the extent of intangibility varies in different types of services and it is also true with the goods as well regarding tangibility.

Very few products are purely intangible or tangible.

Services tend to be more intangible than manufactured products and manufactured products tend to be more tangible than services.

Figure 1.2

Tangibility SpectrumFigure 1.2

Tangibility Spectrum

TangibleDominant

IntangibleDominant

SaltSoft Drinks

DetergentsAutomobiles

Cosmetics

AdvertisingAgencies

AirlinesInvestment

ManagementConsulting

Teaching

Fast-foodOutlets

Fast-foodOutlets

Characteristics of ServicesCompared to Goods

Characteristics of ServicesCompared to Goods

Intangibility

Perishability

SimultaneousProduction

andConsumption

Heterogeneity

Table 1.2

Goods versus ServicesTable 1.2

Goods versus Services

Source: A. Parasuraman, V.A. Zeithaml, and L. L. Berry, “A Conceptual Model of Service Quality and Its Implications for Future Research,” Journal of Marketing 49 (Fall 1985), pp. 41–50.

Implications of IntangibilityImplications of Intangibility

Services cannot be inventoried

Services cannot be easily patented

Services cannot be readily displayed or communicated

Pricing is difficult

Implications of HeterogeneityImplications of Heterogeneity

Service 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 Consumption

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 PerishabilityImplications of Perishability

It is difficult to synchronize supply and demand with services

Services cannot be returned or resold

Service Equals ProfitsService Equals Profits

Many firms jumped on the service bandwagon, investing in service initiatives and promoting service quality as ways to differentiate themselves and create competitive advantage.

Service strategies, if implemented properly, can be very profitable. Corporate strategies focused on customer satisfaction, revenue generation, and service quality may actually be more profitable than strategies focused on cost cutting or strategies that attempt to do both simultaneously.

But “Service Stinks” But “Service Stinks”

Despite the importance of service and the bottom-line profit potential for service, consumers perceive that overall the quality of service is declining.

Service based on calculated profitability of different market segments results less service than earlier.

Self-service and technology based service is perceived as less service.

Higher customer expectations might not be equally met by all companies.

Less skilled people in frontline service jobs. Delivering consistent, high-quality service is difficult but is

promised by many companies and sometimes they fail to keep their words.

Challenges for ServicesChallenges for Services

Defining and improving quality Designing and testing new services Communicating and maintaining a consistent image Accommodating fluctuating demand Motivating and sustaining employee commitment Coordinating marketing, operations, and human resource

efforts Setting prices Finding a balance between standardization versus

personalization Ensuring the delivery of consistent quality

Traditional Marketing MixTraditional 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

Expanded Mix for Services --The 7 Ps

Product Price Place Promotion 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.

Table 1.3

Expanded Marketing Mix for ServicesTable 1.3

Expanded Marketing Mix for Services

Ways to Use the 7 PsWays 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?

Table 1.1

Eight Central Paradoxes of Technological Products

Table 1.1

Eight Central Paradoxes of Technological Products

Source: D. G. Mick and S. Fournier, “Paradoxes of Technology: Consumer Cognizance, Emotions, and Coping Strategies,” Journal of Consumer Research 25 (September 1998), pp. 123–47.