Professional Documents
Culture Documents
Chapter 2: Fundamental Differences Between Goods and Services
Chapter 2: Fundamental Differences Between Goods and Services
SERVICES
PowerPoint Slide: #1
"It is wrong to imply that services are just like goods ‘except’ for intangibility. By such
logic, apples are just like oranges, except for their ‘appleness.’”
G. Lynn Shostack
Chapter Objectives:
This chapter discusses the basic differences between goods and services, the
marketing problems that arise due to these differences, and possible solutions to the
problems created by these differences.
Learning Objectives:
PowerPoint Slide: #2
After reading this chapter, you should be able to
• Simply stated, intangibility means that services have no substance and therefore
cannot be touched or evaluated like goods. Inseparability refers to the
interaction and physical presence of the service provider and the consumer
throughout the service experience. The heterogeneity of services pertains to the
variability that is inherent in the service delivery process. Perishability refers to
the service provider’s inability to store or inventory services. Services which are
not used at their appointed time, cease to exist.
• Since services are intangible, the marketing problems that arise include: (1) it is
difficult to easily display or communicate the properties of services to
consumers; (2) prices are difficult to set; (3) services are not patentable, thus
they are easily copied by competitors; and (4) services cannot be stored for
future use. Solutions suggested to minimize the problems associated with
intangibility include: (1) utilizing tangible clues to influence customer perceptions
of service delivery; (2) developing promotional plans that emphasize personal
sources of information as opposed to nonpersonal; and (3) developing the
organization's image to reduce customer levels of perceived risk.
• The marketing problems associated with inseparability are directly related to: (1)
the service provider's face-to-face interactions with the customer; (2) the
customer's involvement in the service delivery process; (3) the impact of "other
customers" that are sharing the service experience with each other; and the
difficulty involved in the centralized mass production of services. Suggested
solutions to minimize the impact of inseparability include: (1) the careful
selection and thorough training of public contact personnel; (2) a variety of
strategies which may be used to manage customers to enhance their service
experience; and (3) the use of multi-site locations to increase the convenience of
the service firm to the customer and to overcome the difficulties associated with
centralized mass production.
• One company that has excelled in the insurance sector is GEICO. The company
was based on the idea that if it could lower costs by focusing on specific target
markets, the company could charge lower premiums and still be profitable.
• Contributing to the company’s success has been the introduction of the GEICO
“gecko”. The gecko with his English voice has become a recognizable tangible
symbol and an advertising icon for the company.
Lecture Outline:
I. Introduction
PowerPoint Slide: #5
B. Marketing Problems caused by Intangibility
III. Inseparability
IV. Heterogeneity
2. Standardization
V. Perishability
2. Marketing staff must maintain a much closer relationship with the rest
of the service organization than is customary in many goods
businesses.
The major differences between the marketing of goods and the marketing of
services are most commonly attributed to four distinguishing characteristics-
intangibility, inseparability, heterogeneity, and perishability.
Intangibility means that services lack physical substance and therefore cannot be
touched or evaluated like goods. Services marketing class is an educational
experience. Inseparability reflects the interconnection between service providers and
their customers. The professors of services marketing classes engage in face-to-
face interaction with their students, who are directly involved in the educational
experience. Heterogeneity pertains to the variability inherent in the service delivery
process. The services marketing class has variability from semester to semester,
student to student, and professor to professor. Perishability refers to the service
provider’s inability to store or inventory services. Services (like services marketing
class) that are not used at their appointed time cease to exist (missing class).
Typically, products' prices are often based on cost-plus pricing. This means that the
producing firm figures the cost of producing the product and adds a markup to that
figure. The challenge involved in pricing services is that there is no cost of goods
sold. The primary cost of producing a service is labor.
Tangible clues are the physical evidence that surrounds the service. In the absence
of a physical product to evaluate, consumers look for tangible clues to base
evaluations. Insurance firms have attempted to minimize the effects of intangibility
by using tangible clues in their advertising such as Prudential's "piece of the rock."
Yes, some companies have done a better job. Answers will vary. Other uses of
tangible clues include the appearance of personnel, the office decor, and the quality
of paper used to produce insurance policies and company brochures.
The problems pertaining to mass production are twofold. First, because the service
provider is directly linked to the service being produced, an individual service
provider can produce only a limited supply. Hence, meeting the demand of the mass
market with a single provider becomes a major challenge.
The second problem directly relates to the consumer's involvement in the production
process. How can a service firm market to a geographically widespread target
market from a single location? The use of multi-site locations is one solution.
Each service organization may have several people providing the same basic
service. As individuals, each employee has their own unique personality and set of
skills and will likely interact with customers differently than other employees. Even
when dealing with the same provider from one service encounter to another
variations in the delivery process are likely to occur.
The answer depends on the needs of the consumers. Customization may provide
services that meet the exact needs of the consumer, however, the price for the
service is likely to be higher, the delivery process will be slower, and there is
uncertainty associated with the final outcome. On the other hand, standardization
may not meet an individual's specific needs but is likely to be cheaper, delivered
faster, and the uncertainty associated with the final outcome will be minimized.
8. What are the limitations associated with a service firm’s inability to maintain
inventories?
The primary difficulty associated with the inability to maintain service inventories is
balancing supply and demand. In addition, the lack of inventories limits the firm's
ability to separate production and consumption by time and space. Statistical
sampling techniques that ensure quality control of goods inventories are of little use
in service settings. Finally, because of no inventories, marketing and operations
must work much closer together than in traditional manufacturing settings.