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  • 1. Marketing Management Unit 3 Developing Market Strategies & the Offerings Chapter 11 - Introduction to Service Marketing Lesson 28 - Introduction to Service MarketingIn our earlier session we have discussed on branding in terms of what is branding? Why is it impor-tant to brand? Then what is brand equity then? How do you position your brand then concepts likebrand extension was also discussed? In fact it is one of the most interesting topic I hope most you areclear with this concept.Now lets move out from the world of branding to the world of service marketing. Lets start with thediscussion on it. I hope all of you have been to bank at some or the other moment of life. Have youever experienced that the amount of time taken to serve you was to long and your reaction to it wasooh the services offered by XYZ bank are bad. Now tell me what do you understand from service?Why is it important to study? What is the difference between products and services? What is servicemix?All these question will be answered by you once we are through with the discussion of this lecture.Before moving on to any other topic do thisApplication exercise - Choose a service that you are familiar with and create a simple flowchart ofhow you see it; commenting on the sequence, your expectations at each stage, and encounters withother people (staff and customer).We have already discussed to much on product and I think most of you are clear with this conceptand finally discuss what are services and why is important to have services.‘Product is basically a generic term and can in many cases include services’ for the practical purposeof marketing . As all of us have studied in economics and seen in newspaper that the service sectorhas grown rapidly in the recent years in India.There are certain basic characteristics of services industries, which differentiate them from otherbusiness operations. By these characteristics I mean to say that the successful marketing and deliv-ery service requires attention to areas not really covered by the 4 P’s; who gives the service (people);how is the service given (process); the environment in which the service is given (physical evidence).The nature of quality in service is complex. This lesson discusses what are the service-quality gapsand how to bridge those gaps.In this unit you will learn about the following thing.a) The Importance of having a separate marketing mix for servicesb) The features of service marketingc) The characteristics of services and what they imply for marketing strategy16.101G © Copy Right : Rai University 333
  • 2. Marketing Managementd) The importance of people in service qualitye) The issues of service qualityCan you tell me what is service according to you?A service is an activity which has some element of intangibility associated with it, which involvessome interaction with customer or with property in their possession, and does not result in a transferof ownership.A change in condition may occur and production of the service may or may not be closely associatedwith a physical product. It includes a wide variety of services.There are the business and professional services such as advertising, marketing, research, banking,insurance, computer-programming, legal and medical advice. Then there are services which areprovided by professionals but consumed for reasons not of business, rather for leisure, recreation,entertainment and fulfillment of other psychological and emotional needs such as education, fine arts,etc.W.J Stanton “Services as fulfilling certain wants and states that, “services are those separately identifiable, es-sentially intangible activities which provide want-satisfaction, and that are not necessarily tied to thesale of a product or another service.”Why do you think manufacturing industries grew?Manufacturing industries grew because they produced tangible goods, which satisfied our physiologi-cal needs for food, shelter and clothing. As our basic needs were fulfilled there was demand forimproved satisfaction, and this led to a proliferation of variations of the same product and a numberof companies involved in its manufacture.If we talk in growth of specific service industry it is basically result of a combination of severalreasons.As we notice increased wealth coupled with the desire to utilize leisure time for leisure rather thanremaining confined to the home has led to increase in travel resorts, restaurants, shopping malls,cinema halls etc.Increasing affluence combined with increasing complexity of lie and increasing insecurity has led tothe phenomenon of credit cards and traveler’s cheques, which proved to be almost perfect substi-tutes for money. Tell me why do you use a credit card?I think because it provides convenience and safety.334 © Copy Right : Rai University 16.101G
  • 3. Marketing ManagementIn fact convenience is proving to be a key concept in the provision of services. Also with highernumber of women in the labor force there is a greater demand for crèches, baby-sitting, and house-hold domestic help.Phillip Kotler has distinguished four categories of offer, varying from a pure good to a pure service:A pure tangible good such as soap, toothpaste or salt. No services accompany the product.A tangible good with accompanying services to enhance its consumer appeal. Computers are anexample.A major service with accompanying minor goods and services such as first class airline travel.A pure service like baby-sitting and psychotherapy.First lets go through few examples of service marketing and then move on to characteristics ofservices.Examples of Service IndustriesHealth Care -Hospital, medical practice, dentistry, eye careProfessional Services - Accounting, legal, architecturalFinancial Services - Banking, investment advising, insuranceHospitality - Restaurant, hotel/motel, bed & breakfast, Ski resort, raftingTravel - Airlines, travel agencies, theme parkOthers: hair styling, pest control, plumbing, lawn maintenance, counselling services, health clubChartsshows you basic difference between product and servicesLets see what are the characteristics of services.Basically services have a number of unique characteristics that make them so different from prod-ucts. Some of the most common ones are:IntangibilityWhen you buy a cake of soap, you can see, feel, touch and use it to check its effectiveness incleaning.But when you pay fees for a term in college, you are paying for the benefit of deriving knowledge andeducation, which is delivered to you by teachers.16.101G © Copy Right : Rai University 335
  • 4. Marketing ManagementIn contrast to the soap you can immediately check its benefits, there is no way you can do so in caseof the teachers who are providing you the benefits.Teaching is an intangible service. Services cannot be felt, tasted, touched or seen in the same way as-goods.However, there are always some tangible components, which help consumers, evaluate services. Ona flight, for example the total service experience is an amalgam of many disparate components, suchas the experience at the airport, the nature of the services, on board and the in-flight entertainment.There are clearly many tangible able elements during the flight but this is hardly comparable withbuying a television or a suit, where the total product can be seen, examined and evaluated.We should see what are the result as well as marketing implication of intangibility:Intangibility actually presents several marketing challenges: Services cannot be inventoried, andtherefore fluctuations in demand are often difficult to manage.For example, there is tremendous demand for resort accommodations in XYZ in February, but littledemand in July. Yet resort owners have the same number of rooms to sell Yet-round.Services cannot be patented legally, and new service concepts can therefore easily be copied bycompetitors.Services cannot be readily displayed or easily’ communicated to customers, so quality may be diffi-cult for consumers to assess.Decisions about what to include in advertising and other pro-motional materials are challenging, as ispricing. The actual costs of a “unit of service” are hard to determine and the price/quality relationshipis complex.The range shown in fig highlights that fact that most services are a combination of product andservices having both tangible and intangible aspects. There are only a few truly pure tangible prod-ucts or pure intangible servicesThe distinguishing feature of a service is that its intangible aspect is dominant. These intangiblefeatures are: A service cannot be touched Precise standardisation is not possible There is no ownership transfer A service cannot be patented Production and consumption are inseparable336 © Copy Right : Rai University 16.101G
  • 5. Marketing Management There are no inventories of the service The consumer is a part of the production process so the delivery system must go to the market or the customer must come to the delivery systemInseparability - The most basic and universally cited, difference between goods and services isintangibility. Because services are performIn most cases services cannot be separated from the person or firm providing it. A person whopossesses a particular skill provides Service. A plumber has to be physically present to provide theservice; the beautician has to be available to perform the massageHeterogeneityAs we say services it is performances and are frequently produced by humans and no two serviceswill be precisely alike.The employees delivering the service frequently are the service in the customer’s eyes, and peoplemay differ in their performance from day to day or even hour to hour.Heterogeneity also results because no two customers are precisely alike; each will have uniquedemands or experience the service in a unique way.Thus, the heterogeneity connected with services is largely the result of human interaction (betweenand among employees and customers) and all of the vagaries that accom-pany it.For example, a tax accountant may provide a different service experience to two different customerson the same day depending on their individual needs and per-sonalities and on whether the accoun-tant is interviewing them when he or she is fresh in the morning or tired at the end of a long day ofmeetingsThe doctor who gave you his complete attention last visit may behave a little differently the next time.Airlines, restaurants, banks, hotels have a large number of standardised procedures.Resulting Marketing Implications: - Now you know that services are heterogeneous acrosstime, organizations, and people, ensuring consistent service quality is challenging.Quality actually depends on many factors that cannot be fully controlled by the service supplier, suchas the ability of the consumer to articulate his or her needs, the ability and willingness of personnel tosatisfy those needs, the presence (Of absence) of other customers, and the level of demand for theservice.Because of these compli-cating factors, the service manager cannot always know for sure that theservice is be-ing delivered in a manner consistent with what was originally planned and promoted.Sometimes services may be provided by a third party, further increasing the potential heterogeneityof the offering.For example, a consulting organization may choose to subcontract certain elements of its total offer-ing. From the customer’s perspective, these subcontractors still represent the consulting organiza-tion, even though their ac-tions cannot be totally predicted or controlled by the contractor.Perishability - Can you save the treatment given to you by your doctor?Obviously no, so it basically refers to the fact that services cannot be saved, stored, resold, or re-turned.16.101G © Copy Right : Rai University 337
  • 6. Marketing ManagementA seat on an airplane or in a restaurant, an hour of a lawyer’s time, or telephone line capacity notused cannot be reclaimed and used or resold at a later time.A car mechanic who has no cars to repair today, or spare berths on a train, unsold seats in a cinemahall represent service capacity, which is lost forever.Apart from the fact that service is not fully utilised represents a total loss, the other dimension of this.There is a peak demand time for buses in morning and evening (office hours), certain train routes arealways more heavily booked than others. This is in contrast to goods that can be stored in inventoryor resold another day, or even re-turned if the consumer is unhappy.Wouldn’t it be nice if a bad haircut could be re-turned or resold to another consumer?Perishability makes this an unlikely possibility for most services.Resulting Marketing ImplicationsA primary issue that marketers face in rela-tion to service Perishability is the inability to inventory.Demand forecasting and cre-ative planning for capacity utilization are therefore important and chal-lenging decision areas. The fact that services cannot typically be returned or resold also implies aneed for strong recovery strategies when things do go wrong.For example, while a bad hair-cut cannot be returned, the hairdresser can and should have strategiesfor recovering the customer’s goodwill if and when such a problem occurs.OwnershipAs we know that all the goods are produced first, then sold and consumed, most services are soldfirst and then produced and consumed simultaneously. For example, an automo-bile can be manufac-tured in Detroit, shipped to San Francisco, sold two months later, and consumed over a period ofyears. But restaurant services cannot be provided un-til they have been sold, and the dining experi-ence is essential produced and con-sumed at the same time. Frequently this also means that thecustomer is present while the service is being produced and thus views and may even take part in theproduction process. This also means that frequently customers will interact with each other dur-ingthe service production process and thus may affect each others’ experiences.For example, just suppose strangers are seated next to each other in an airplane may well affect thenature of the service experience for each other. That passengers understand this fact is clearlyapparent in the way business travellers will often go to great lengths to be sure they are not seatednext to families with small children.Another outcome of simultaneous production and consumption is that service producers find them-selves playing a role as part of the product itself and as an essential ingredient in the service experi-ence for the consumer. When you buy a product you become its owner –be it a pencil, book, shirt,refrigerator, or car. In case or service, you may pay for its use but you never own it. In case ofservice the payment is not for purchase, but only for the use or access to or for hire of items orfacilities.Resulting Marketing ImplicationsAs services often are produced and consumed at the same time, mass production is difficult if notimpossible.The quality of service and customer satisfaction will be highly dependent on what happens in “realtime,” including actions of employees and the interactions between employees and customers.338 © Copy Right : Rai University 16.101G
  • 7. Marketing ManagementSimilarly, it is not usually possible to gain significant economies of scale through centralization. Usu-ally operations need to be relatively decentralized so that the service can be delivered directly to theconsumer in convenient locations.Also be-cause of simultaneous production and consumption, the customer is involved in and observesthe production process and thus may affect (positively or negatively) the out-come of the servicetransaction. In a related vein, “problem customers” (those who disrupt the service process) cancause problems for themselves or others in the service setting, resulting in lowered customer satis-faction.For example, in a restaurant setting, an over demanding and intoxicated patron will command extraattention from the service provider and negatively impact the experiences of other customers.VariabilityWhen we are talking about services in terms of variability it depend on who provides you thoseservices and when and where they were provided, services are highly variable.As some of you would have experienced that’ some doctors have excellent bedside manner; othersare less patient with their patients. Some surgeons are every successful in performing a certainoperation and others are less successful. Service buyers are often aware of the variability and talk toothers before selecting a service provider.So as to improve the quality service firms can take three steps towards quality control.The first is investing in good hiring and training procedures. Recruiting the right service employeesand providing them with excellent trainingThe second step is standardising the service performance process throughout the organisation. Thisis helped by preparing a service blueprint that depicts events and process in a flowchart; with objec-tive of recognising potential fail points.The third step is monitoring customer satisfaction through suggestion and complaint systems, cus-tomer surveys, and comparison-shopping.Challenges for ServicesDefining and improving qualityCommunicating and testing new servicesCommunicating and maintaining a consistent imageMotivating and sustaining employee commitmentCoordinating marketing, operations and human resource effortsSetting pricesStandardization versus personalizationArticle :How do you make it a good one?16.101G © Copy Right : Rai University 339
  • 8. Marketing Managementby Dick Barnes, Principal, The Freeland GroupA new car dealership is an interesting business venture. Most consumers actually think the dealermakes big money selling those bright and shiny new machines. In reality it just ain’t so. The companylives or dies depending on the service department. Many business-to-business distributors may be ina very similar situation.A successful automobile dealership will likely pull half or better of its revenue from the servicedepartment. All of the profit may well come from that half. The sales portion of the business might berunning in the red and be supported by service department profits. Of course this means without asuccessful service business the entire firm will go under.As service becomes a more and more important part of what we are doing, managers often findthemselves in a quandary as to how to compete with other service providers. They may under-priceother dealers on product, not making the money they need in the process, only to lose the connectedservice contracts to some one else. Why does it happen? How can we differentiate ourselves fromothers in the oft times nebulous arena of services?An important question to ask ourselves; are the services we normally compete to provide the onlyservices we should be concerned with? Or does service start well before the sale takes place? If theanswers are respectively “no” then “yes” it means we have a “service mix.” So how do we differ-entiate each of the services in this mix so our customers will want the entire package?To help you assess your own enterprise it’s first necessary to define the different service functionsyour firm might supply. There are some services that are nearly universal; most every firm mustworry about them. There are others that are specific to a smaller number of firms.In the first category we find the service we call “Contact and Ordering Ease,” sometimes called“Transaction Ease.” This service function is supplied to some degree by just about every firm thatexists. Often times the success of the firm has to do with how great that degree of service is.To test your “Transaction Ease” ask some questions about your own firm. Can customers find yourcontact information (phone number, web address, fax number) easily? Can they call you at conve-nient hours and does someone pick up the phone within a few rings? Do they get connected immedi-ately to a salesperson or wait, on hold, for a couple of minutes or even tens of minutes? Can theyorder online on your web site? Can they reach the order section of your site easily or do they have towade through half a dozen pages of ads before they get there?Now how about the transaction itself? Do they have open accounts that are quickly accessed andapproved? Can they use purchase orders, credit cards, COD, or other means of payment and howeasy do you make it for them to give you their money? Do your order takers help them through therough spots with a smile and some patience?Believe it or not, this first service function, “Contact and Ordering Ease” is sometimes not thought ofas a service at all. It’s an easy step to overlook in differentiating yourself through service, but it’s afar too important one to do so.The next service function in the universal category is “Delivery.” This is an extremely vital servicefrom the customer’s viewpoint. Particularly in the parts supply industry, delivery might be the onething the firm does that places it above, or below, the competition. Is your delivery dependable?Accurate? Timely? Safe? Have you developed a reputation for reliability?There are firms that have carved their market niches simply by supplying this one service and supply-ing it well. They don’t have to under-price the competition or advertise hot deals. They retain their340 © Copy Right : Rai University 16.101G
  • 9. Marketing Managementcustomers because reliable delivery is the foremost service the customer wants to buy.Sometimes equipment dealers also offer to install their products. This brings us to “Installation” as aservice. It might actually be thought of as the final stage of “Delivery” as the product may be in placephysically, but is not really “there” until it is up and running. It’s good to remember that the customerwill not feel they have been delivered to until the installation is complete.Do your installers start work when the equipment reaches the site? Do they work within the customer’sschedule? Do they work efficiently and get the job done? Do they clean up the job site when they arefinished? Do they look professional? Is their attitude business like, yet pleasant and positive?Do your installers teach the customer anything about the new product? If so, this leads us logically tothe next service function, which is “Training.” Reliable delivery and installation, followed by hands-ontraining, can be the decisive factor in a buyer choosing your firm over a competitor who sells thesame equipment for a lower price.You might have follow-up training as time goes on, or give seminars or workshops, and you may havean expert go to the customer’s place of business on a regular basis and make certain employees areactually using the equipment effectively. This type of customer care service can be used to help afirm to really stand out from the crowd.To extend the training concept, you might offer the service of “Consulting.” Instead of just trainingemployees on use and maintenance, your experts are made available to make certain the equipmentis used effectively within the overall context of the business. Do their business processes coordinatewell with the equipment they are using? Can you suggest additions or changes that will make thingswork more smoothly? Many material-handling equipment suppliers are making such service avail-able these days. It results in increased good will and greater sales.Lastly we have the service of “Maintenance and Repair.” At the front of this column we spoke of thenew car dealership. It’s in maintenance and repair that such a business puts its greatest effort. It’s anarea wholesalers are putting more and more effort into as well. As margins on sales become tighterbecause of increased competition, firms need to make up the difference in service, and this functionis the most visible.Once we realize we have a mix of services, however, we know that after marketmaintenance and repair is not the only area of service we need to be concerned with. In fact, withoutsolid service skills in the remainder of the service mix, we may not reach the point of making theequipment sale that will enable us to sell the maintenance contract.So take a good look at the servicesyour firm provides the customer. Do they all work? Do they all work together as part of a totalcustomer care package? It’s by weighing all the services you make available that the customerjudges your firm. Be sure the decision is in your favour by making certain your services are up tosnuff. That will make it easy for your customer to make the decision to buy16.101G © Copy Right : Rai University 341
  • 10. Marketing Management Point to rememberSlide 1 ___________________________________ 4 ___________________________________ SM Introduction • 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 McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________Slide 2 ___________________________________ 5 ___________________________________ SM 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 McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________Slide 3 ___________________________________ Examples of Service 6 ___________________________________ SM 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 McGraw-Hill maintenance, counseling services, health club © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________ 342 © Copy Right : Rai University 16.101G
  • 11. Marketing ManagementSlide 4 ___________________________________ Figure 1-1 1- 7 ___________________________________ SM Tangibility Spectrum Salt Soft Drinks Detergents Automobiles Cosmetics ___________________________________ Fast-food Outlets Intangible Dominant Tangible Dominant Fast-food Outlets ___________________________________ Advertising Agencies Airlines Investment Management ___________________________________ Consulting McGraw-Hill Teaching © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________Slide 5 ___________________________________ Differences Between 10 ___________________________________ SM Goods and Services Intangibility Heterogeneity ___________________________________ Simultaneous Production and Perishability ___________________________________ Consumption McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________Slide 6 ___________________________________ 11 ___________________________________ SM Implications of Intangibility Services cannot be inventoried Services cannot be patented ___________________________________ Services cannot be readily displayed or communicated Pricing is difficult ___________________________________ McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________ 16.101G © Copy Right : Rai University 343
  • 12. Marketing Management Slide 7 ___________________________________ 12 ___________________________________ SM 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 McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________ Slide 8 ___________________________________ Implications of Simultaneous 13 ___________________________________ SM 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 ___________________________________ McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________ Slide 9 ___________________________________ 14 ___________________________________ SM Implications of Perishability It is difficult to synchronize supply and demand with services ___________________________________ Services cannot be returned or resold ___________________________________ McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ ___________________________________344 © Copy Right : Rai University 16.101G
  • 13. Marketing Management Slide 10 ___________________________________ 15 ___________________________________ SM Table 1-2 1- Services are Different Goods Tangible Standardized Services Intangible Resulting Implications Services cannot be inventoried. Services cannot be patented. Services cannot be readily displayed or communicated. Pricing is difficult. 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 Nonperishable Perishable Employees affect the service outcome. Decentralization may be essential. Mass production is difficult. 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. McGraw-Hill © 2000 The McGraw-Hill Companies ___________________________________ ___________________________________ Slide 11 ___________________________________ ___________________________________ 5 Core and Supplementary Services Problem solving Advice and information Order taking ___________________________________ Overnight Billing transportation Supplies statements Tracing and delivery of packages Pickup ___________________________________ Documentation ___________________________________ ___________________________________ ___________________________________16.101G © Copy Right : Rai University 345