Marketing Service

Organisations

BM404 - 2006
Overview

 Defining services
 Understanding the services economy
 The service sector in Australia
 Mega-trends and the service sector:
 Professional services
 Characteristics of services
 Marketing implications
BM404 Assessment
 ‘Service Watch’ individual assignment:
 4 September
 Report (1,000) words & presentation (10 mins)
 Group ‘Case Study’ assignment:
 30 October
 Written summary (500 words) & presentation (40
mins)
 ‘Service Encounter’ assignment:
 17 November
 Report (2,500) plus attachments
Defining services?

 Any act, performance or experience that one

party can offer another; one that is essentially
intangible, and does not result in the
ownership of anything. Its production may or
may not be tied to a physical product
Lovelock (2004)
Other service concepts
 Service industries and companies:
 Classified within the service sector whose core product is
service
 Service as products:
 Represent the wide range of intangible product offerings
that customers value and pay for. Sold by service and non-
service companies
 Customer Service:
 Service provided in support of company’s core products
(typically not charged for)
 Hidden services:
 Another way of thinking about products and services
The dominance of tangible versus intangible elements
in goods and services
The Services sector in Australia
 Distribution services:
 Wholesale and retail trade, transport and storage and
communications
 Social services:
 Health and community services, education and government
administration and defence
 Producer services:
 Property and business services, finance and insurance
 Personal services:
 Accommodation, cafes and restaurants, personal and other
services, cultural and recreational services
 Utilities and construction services:
 Electricity, gas and water, and construction
The service sector in Australia
 Services dominate economic growth in Australia
 Account for more than three quarters of
economy’s output
 4 out of every 5 jobs are in the services sector
 Services also provide essential inputs, eg
communications and transport, into nearly
everything Australia produces

ITR (2001) Industry Brief Services Sector

Australia’s service sector

 Accounts for 76% of GDP

 Property and business services is largest
service industry (14% of economy’s output)
 Retail trade is the biggest service employer
(15% of economy’s jobs)
 Travel services was the sector’s biggest
export earner (10%+ of economy’s exports)
Australia’s service sector

 Service sector output grew at a trend annual

rate of 3.6% over period 1975 – 2001
 Communications was the fastest growing
service industry (8.4%)
 Property and business services exhibited the
highest employment growth (5.8%)

Access Economics (2001b)

Australia’s service sector: the future

 Service output is expected to grow over next

5 – 10 years at similar rates

 Highest growth industries: communications,

property & business services, finance &
insurance, transport and storage
 Factors responsible for the transformation of
the service economy

 Internationalisation (e.g. ‘Hollowing out’ effect,

Increased services trade, Global customers)

 Government Regulation (e.g. Deregulation/

privatisation, New trade agreements in services)

 Social Changes (e.g. Increased customer

expectations, Increased affluence and leisure time, More
women in the workforce)
Factors responsible for the transformation of
the service economy

 Business trends (e.g. Relaxation of

professional association standards, Marketing
emphasis by non –profit organisations,
Outsourcing of non-core services, Services quality
movement, Franchising and service chains)

 Advances in technology (Convergence of

computers and telecommunications,
Miniaturisation, Digitalisation, Enhanced software)
Mega-trends impacting on Professional
Services Firms
 Client sophistication
 Governance
 Connectivity
 Transparency
 Modularisation
 Globalisation
 Commoditisation
Characteristics of Services
Compared to Goods

Intangibility Heterogeneity

Simultaneous
Production
and Perishability
Consumption
Implications of Intangibility

 Services cannot be inventoried

 Services cannot be easily patented

 Services
cannot be readily displayed or
communicated

 Pricing is difficult
Implications of Heterogeneity

 Service
delivery and customer satisfaction
depend on employee and customer actions

 Servicequality 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
 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 Perishability

 It
is difficult to synchronize supply and
demand with services

 Services cannot be returned or resold

Challenges for Services
 Definingand improving quality
 Designing and testing new services

 Communicating and maintaining a consistent

image
 Accommodating fluctuating demand

 Ensuring the delivery of consistent quality

Challenges for Services (cont.)

 Motivating and sustaining employee

commitment
 Coordinating marketing, operations, and
human resource efforts
 Setting prices
 Finding a balance between standardization
versus personalization
Further challenges for services managers

 Differentiation and competitive advantage may be

difficult to achieve
 Marketing orientation is still relatively new to many
managers
 Operations management, rather than marketing,
continues to dominate
 Customer service management and marketing is
often in the hands of lower paid subordinates,
possibly in multiple locations
 Limited data on competitive performance is available
 Problems in determining costs for pricing purposes
Traditional Marketing Mix

 Allelements 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
 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.
An expanded marketing mix for services

Product
People (Service)
Process
Place,
Place &
Cyber- Customers Price
Time
space customers
Customers Price
& Time

Promotion

Physical Evidence
Table 1.3

Expanded Marketing Mix for

Services
Ways 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?
A framework for analysing services
marketing
Organisation

Internal Traditional
marketing marketing

Satisfaction; Quality;
Brand Loyalty

Employees Relationship Customers

management
Managing the 7Ps Requires Collaboration between
Marketing, Operations, and HR Functions (Fig. 1.14)

Operations Marketing
Management Management

Customers

Human Resources
Management
Models of service quality
The evolution of
service quality
 Disconfirmation of expectations
 The Nordic model
 The Gaps model of service quality &
SERVQUAL
 The three component model
 Integrating perspectives
Disconfirmation of expectations (Oliver 1980)
The Nordic model
(Gronroos 1990)

 Represents the service experience on the basis of

functional and technical elements
 Technical quality refers to what the customer
receives from the service
 Functional quality refers to service delivery
 Model emphasises companies must be careful what
they promise
The SERVQUAL dimensions
– Perceived Service Quality
(Parasuraman, Zeithaml & Berry 1988)

 Reliability (dependability, accurate performance)

 Assurance (competence, courtesy, credibility & security)
 Tangibles (appearance of physical elements)
 Empathy (easy access, good communications & customer
understanding)

 Responsiveness (promptness & helpfulness)

SERVQUAL
SERVQUAL (cont.)
The Gaps model of service quality
(Zeithaml, Parasuraman & Berry 1990)
The three-component model Rust &
Oliver (1994)

Source: Rust & Oliver, 1994. p. 11

Hierarchical model
 Model Advantages Disadvantages
Disconfirmation Takes into consideration expectations as well The use of expectations in measuring service
of expectations as actual perceptions quality has currently come under a lot of
criticism in the literature
Nordic model Focuses on the service outcome and process, Does not explicitly consider the impact of the
(Gronroos) that is, what the customer receives from the physical environment of the service setting on
service and how the service is delivered service quality perceptions. Uses the
disconfirmation of expectations model as a
basis
Servqual/Gaps Identifies a number of areas important to Uses gap scores as derived from the
service quality assessment. Has been widely disconfirmation of expectations model. Does not
used in the literature and in practice have an outcome orientation — does not
measure service outcome perceptions
Three- Extends Gronroos model to include the physical Some three-component models are still based
component environment. Has received increasing support on disconfirmation. Not well tested in the
model in the literature literature.
Integrated Looks at service quality in a new light. Provides Has not been well tested in the literature as it is
model a more sensitive analysis by looking at the a new model. Needs more research to test its
different tiers of service quality dimensions usefulness