This chapter discusses the nature and marketing of services. It notes that services make up the majority of economic activity in many developed economies. The key characteristics of services that impact marketing are intangibility, inseparability, heterogeneity, perishability, and fluctuating demand. The chapter outlines strategic implications for product development, quality management, pricing, distribution, and promotion of services. It also discusses relationship marketing and the impact of technology on service delivery.

1. Services Marketing
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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