The nature and importance of services Characteristics of services and their marketing implications

1. Services Marketing
Copyright © 2001 by McGraw-Hill Ryerson Limited

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Chapter Goals
To gain an understanding of:
• The nature and importance of services
• Characteristics of services and their
marketing implications
• Issues related to the planning and
marketing of services
• The four Rs of services marketing
• The relationship marketing approach
• The impact of technology in providing
services

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The Nature of Services
• regardless of the “product”, there is a
services component to the offerings of all
firms
• in some cases, a service is the principal
purpose of the transaction, as in the rental
of a car, a haircut, or legal services -- we
refer to this as the core service
• in others, service is performed in support
of the sale of a tangible product -- these
are referred to as supplementary services

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Goods and Services
Continuum
• There are two classes of services.
• Services that are the main purpose of a
transaction —renting a truck to move.
• Services that supplement the sale of a
tangible good — for example, an information
hotline for computer software.
• The focus here is primarily on identifiable,
intangible services that are the main object of a
transaction designed to provide want-
satisfaction to customers; supplementary
services growing in importance, however.

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Canned
foods
Ready-
made
clothes
Auto-
mobiles
Draperies,
Carpets
Rest-
aurant
meals
Repairs:
auto, house,
landscaping
Air
travel
Insurance,
Consulting,
Teaching
MOSTLY GOODS MOSTLY SERVICES
The Goods-Services
Continuum

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Importance of
Services
• Three-fourths of the Canadian labour
force is employed in service industries.
• Over 70% of the nation’s gross
national product is produced by
services.
• From 1986 to 2000, virtually all new
jobs will be in the service industries.
• Huge growth in personal services as
well as business services.
Copyright © 1998 by The McGraw-Hill Companies, Inc.

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Characteristics of
Services
• intangibility: difficult to sample and to
evaluate
• inseparability: difficult to separate services
from the service provider; mainly direct sales;
staff are essential to the delivery of quality
services
• heterogeneity: virtually every service is
different; very difficult to standardize quality
• perishability: those not sold can not be stored
• fluctuating demand: demand for some
services fluctuates by season, or even by time
of day

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Strategic Services
Management
• intangibility generally makes the
marketing of services a challenge
• understanding how people buy services
and the segments that exist is just as
important
• knowing more about the value of
customer segments is important -- some
are more valuable than others
• knowing what they value so that service
levels can be tailored is also important

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Strategic Product
Implications
• service organizations have to plan the
introduction of new services and the
management of the life cycle
• the core service can be enhanced through
the addition of supplementary services,
thereby creating added value
• the life cycle of services has to be managed
• the branding of a service can be difficult as
the customer often has nothing tangible to
show

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Managing Service Quality
• Quality is hard to define, measure, control, and
communicate
• Quality is defined by the consumer
• It’s important to measure customer satisfaction
with an organization’s service quality.
• Customers see five important components:
• Core service must measure up.
• Quality of service, meeting expectations.
• Technical aspects of delivery.
• Interaction with people who deliver service.
• Affective dimensions: How customers feel.

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Pricing Services
The characteristics of perishability, inability to
store, and fluctuating demand for services
create pricing challenges.
• Pricing Strategies include:
• Discount strategies: Cheaper by the week.
• A variable pricing strategy: Kids eat free,
movies cheaper on Tuesdays.
• Price competition.

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Distribution of Services
• because most services are tied directly to a
specific service provider, most have been
distributed directly to customers
• with advancing technology, many firms are
now delivering services through machines
• channels of distribution are necessarily
short; some firms use one agent
intermediary, such as insurance, real estate,
and travel agents
• some firms use franchises to distribute
services

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Promotion of Services
• customer contact personnel represent the
main channel of customer communication
• service providers must ensure that each
service encounter is a positive one if
customers are to develop a positive image
• many professional service firms are now
permitted to advertise
• other elements of the promotional mix are
used, including publicity and community
affairs

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Four Rs of Service Marketing
• Retention
• Referrals
• Relationships
• Recovery

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The Changing Environment
for Services
• The boom in the service economy, reduced
regulation has created an increase in competition.
• Major focus on increased productivity, efficiency
• Work on people aspects of business:
• Education, training programs
• Change technology:
• Computer-based technologies used.
• Restructure jobs.
• Bottom line: People are key to success!

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Other Considerations in
Marketing Services
• Impact of Technology:
• Remember, not everyone likes impersonal
technology
• Performance Measurement:
• Larger firms can use market share, etc.
• Customer perceptions are essential.
• Prospects for Growth:
• It is very likely that services will continue to
take an increasing share of the consumer dollar.
• The use of marketing programs in all services is
expected to increase considerably.

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Future Service Profitability
Impacted by:
1. Focusing on the right priorities
2. Increasing service quality
3. Investing in problem solving
4. Being fair to customers
5. Investing in leadership
development