1 UNIQUE CHARACTERISTICS OF SERVICES/GOODS VERSUS SERVICES VERSUS PRODUCTS

There are four unique characteristics of services which includes intangibility, inseparability, heterogeneity and perishability.
1) Intangibility. Unlike physical goods that can be seen, smelled, sounded, touched or tasted (the five senses), service is more
an experience that lacks a physical form. Hence, service cannot be stored and is difficult to display. For example, fitness
centres/gyms sell memberships that have no physical form to be inventoried and cannot be felt through the five senses.
Group fitness class is another service that can only be experienced through participation. Furthermore, physical goods
involve the transfer of ownership from the seller to the buyer and may or may not include some forms of service. On the
contrary, service may or may not involve some physical goods that usually does not involve an ownership shift. For example,
a gym provides various exercise equipment for customers to use, but the ownership of the equipment does not shift to the
customers even though they bought a membership.
2) Inseparability. Inseparability emphasises the interpersonal connections among the service provider, the customer being
served and other customers who use the same service. For example, members of a gym must be physically present at the
venue to use the equipment or to participate in the fitness classes. While doing so, the members interact with other
members and the service providers such as the receptionist and the personal trainers. Thus, the service providers and the
customers are both physically involved in the production process and the customers consume the service simultaneously.
3) Heterogeneity. Most physical goods can be standardised by utilising machinery for a consistent outcome. Unqualified final
goods can be removed or corrected before selling. However, service is mainly provided by people and usually involve high
and frequent interpersonal interactions in real time. Hence, mistakes occur during the process cannot be removed or
corrected beforehand and the consistency of service is difficult to maintain and guarantee. The difficulty of delivering a
consistent service is due to several factors. First, customers are likely to receive different interpersonal experience from
different staff due to their different personalities. Second, different staff knowledge and experience leads to a different level
of assistance provided to the same customer. Compared to a new graduate, an experienced personal trainer with previous
working experience as a physiotherapy can provide extra information and guidance to a customer with a leg injury. Third,
humans tend to have emotional fluctuation caused by the surrounding environment that influences their behaviours.
Hence, a service provider might treat customers differently at a different time or date.
4) Perishability. Perishability refers to the fact that service cannot be stored due to its intangibility, as well as it is time bond
that unused capacity cannot be reserved and restored in a later time. For example, a member cannot reserve or attend a
fitness class held the day before.
Goods: objects, devices, or things.
Services: deeds, efforts, or performances.
Product: either a good or a service.

2 THE SERVUCTION MODEL

Servuction model is used to illustrate the four factors that directly influence the customers’ service experience, including both
visible and invisible to the consumer.
1) The servicescape (visible). Refers to the use of physical evidence to design service environments which can help customers
evaluating the service. It is critical for service firms to differentiate itself from competitors, pack its offerings and services,
implement the service delivery process and socialise customers and employees. It includes ambient conditions, inanimate
objects and other physical evidence. For example, a gym can enhance the ambient conditions to create an active
atmosphere with upbeat music and videos broadcasting exercise related contents. It is essential to use inanimate objects to
deliver services, such as exercise equipment and facilities. Other physical evidence includes membership or access cards for
members, brand logos, instructional signs and symbols, as well as pictures or certificates of the personal trainers.
2) Contact personnel/service providers (visible). Employees like receptionist and cashier are the contact personnel of a gym
who briefly interact with customers. Service providers like personal trainers and activity instructors, however, are the
primary executors of the service who have a predominant impact on the service experience. Therefore, their appearance,
language and interpersonal communication skills become tangibles clues to the customers for evaluation. Service providers:
waiter or waitress, dentist, physician, college instructor etc.
3) Other customers (visible). Other customers who use the same service are important tangible evidence. One member can
influence another’s service experience and satisfaction towards a service firm positively or negatively. Members talking
loudly in the gym room may leave a bad experience for a customer who prefers a quieter environment. But a positive
comment shared by other members will increase a member’s confidence and trust for the gym.
4) Organisations and systems which are invisible to the consumers but profoundly impacting the customer’s experience. They
refer to the rules and processes used to guide a company’s operation. It is also the foundation of the previous three visible
factors in the servuction model. This is particularly important for a low variation in the service delivery and quality
3 THE CONSUMER DECISION PROCESS
Consumer decision process is the three-step process consumers use to make purchase decisions which includes the prepurchase
stage, the consumption stage and the postpurchase evaluation stage. The prepurchase stage consists of the events that occur
prior to the consumer’s acquisition of the service and includes stimulus reception, problem awareness, information search, and
evaluation of alternatives. The outcome of the prepurchase stage is a choice that takes place during the consumption stage. The
consumption stage includes the activities of buying, using, and the disposing of the product. The postpurchase stage refers to
the process by which the consumer evaluates his or her level of satisfaction with the purchase.

Compared to the consumers of goods, consumers of services at the prepurchase stage: (1) perceive higher levels of risk to be
associated with the purchase; (2) tend to be more brand loyal; (3) rely more heavily on personal sources of information; (4) tend
to have fewer alternatives to consider and (5) often include self-provision as a viable alternative. At the consumption stage, the
production, acquisition, and use of services become entangled in a single process. Also, the consumer’s postchoice evaluation
occurs both during and after, rather than only after, the use of services. The evaluation process begins soon after the customer
makes the choice of the service firm and continues throughout the consumption and postconsumption stages. The evaluation is
influenced by the unavoidable interaction of a substantial number of social, psychological, and situational variables. Service
satisfaction relies not only on the technical quality of the service and the four elements of the servuction system, but also on the
synchronisation of these elements in the service production/consumption process.

4 BLUEPRINTING
Blueprinting is the flowcharting of a service operation. It is critical and useful for developing an efficient and effective service
delivery process. It forms the logical flow of the process directions, identifies the time and costs associated in each step, as well
as spots the bottlenecks or fail points in the system. Blueprints enable the marketing manager to understand which parts in the
operating system are visible to the consumer and hence part of the servuction system – the fundamental building blocks of
consumer perceptions.

There are five components included in the service blueprint: customer

actions, onstage/visible contact employee actions, backstage/invisible
contact employee actions, support processes and physical evidence.
The customer actions are the centre of the blueprint, thus each
customer action should be supported by other blueprint elements.
Physical evidence is built according to the characteristics of the
targeted segment and the objectives set by the management. The line
of interaction separates the customer actions with the onstage/visible
contact employee actions, where the face-to-face interaction between
the customers and the contact personnel occurs. Then the line of
visibility separates the onstage/visible contact employee actions with
the backstage/invisible contact employee actions. The line of internal
line of interaction separates the backstage/invisible contact employee
actions with the support processes, which are the rules and procedures
needed for delivering the service smoothly and effectively.

Everything above the line of visibility is visible to customer which forms the frontstage of the service process, while everything
below it is invisible, which forms as the backstage, and must supported by all the other contact employee actions that are non-
visible interaction with customers. The service is delivered and distributed through the physical evidence/servicescape and the
support process.
5 OPERATIONAL EFFICIENCY
As the amount of customer contact increases within a service operation, the efficiency of the operation itself decreases. Also, it
is impossible for service firms to use inventories, to decouple production from the customer and the demand from customers
varies all the time which leads to massive problems in capacity planning and utilisation.

Strategies that attempt to increase the efficiency of the service operation by facilitating the balance of supply and demand
include minimising the servuction system by isolating the technical core; production-lining the whole system utilising hard and
soft technologies; creating flexible capacity; increasing customer participation; and moving the time of demand to fit capacity.

6 SERVICE PRICING STRATEGIES

Three alternative pricing strategies that convey value to the customer include satisfaction-based, relationship, and efficiency
pricing:
1) The primary goal of satisfaction-based pricing is to reduce the perceived risk associated with the purchase of services and
to appeal to target markets that value certainty. Satisfaction-based pricing strategies include offering guarantees, benefit-
driven pricing, and flat-rate pricing.
a. The guarantee assures customers the service firm’s commitment and confidence of delivering quality services by
offering a partial or full refund if they are less than satisfied with their purchase.
b. Benefit-driven pricing is a pricing strategy that charges customers for services actually used.
c. Flat-rate pricing means the customer pays a fixed price and the provider assumes the risk of price increases and
cost overruns. It makes the most sense when:
i. The price is competitive;
ii. The firm offering the flat rate has its costs under control and runs an efficient operation; and
iii. The opportunities to engage in a long-term relationship and to generate additional revenues with the
customer is possible.
2) The goal of relationship pricing is to enhance the firm’s relationship with its targeted consumers. Relationship pricing
techniques include offering long-term contracts and price bundling.
a. Long-term contracts: offer prospective customers price and nonprice incentives for dealing with the same provider
over several years. (cell phone plans offered by the telecommunication companies that last for one to three years)
b. Price bundling: marketing two or more services in a single package at a single price. (hotels offering weekend
packages which includes accommodations, meals, drinks or theme park entrances etc.)
Mixed bundling: price-bundling technique that allows consumers to either buy Service A and Service B together or
purchase one service separately. Mixed bundling has a greater value than the sum of the individual parts:
i. Consumer finds value in easy access to information. (International guests experience lower information
cost when purchasing a cone-day excursion sightseeing trip from the hotel)
ii. The bundling of Service B with service A can enhance a consumer’s satisfaction with Service A.
iii. The addition of Service B to Service A can enhance the total image of the firm.
3) Efficiency pricing appeals to economically minded consumers and focuses on delivering the best and most cost-effective
service for the price.

7 PRICE SEGMENTATION
(under Demand Considerations) (Question: Under what conditions is price segmentation most effective?)
Effective price segmentation benefits consumers and providers alike. Consumers often benefit from options that offer lower
prices, and providers are often able to manage demand and increase capacity utilisation. As a result, pricing is called upon to try
to smooth demand in two ways: creating new demand in off-peak, low-capacity utilisation periods, and flattening peaks by
moving existing customers from peaks to less busy times. To engage in an effective price segmentation strategy, the following six
criteria should be met:
1) Different groups of consumers must have different responses to price. For example, movie theatres have offered matinees
at a reduced fee. This strategy helped the theatre create demand for unused capacity during the day and helped smooth
demand during the evening shows. This approach has attracted additional market segments such as families with children
and individuals on fixed incomes who may not otherwise attend the higher-priced evening shows. This strategy has been
effective because the price change did not create the same response for everyone. If most consumers had shifted their
demand to the afternoon shows at lower rates, the movie theatre would have overutilized capacity in the afternoons and
would be generating lower total revenues for the firm.
2) The different segments must be identifiable, and a mechanism must exist to price them differently. Effective price
segmentation requires that consumer segments with different demand patterns be identifiable based on some readily
apparent common characteristics such as age, family-life cycle stage, gender, and/or educational status. Common forms of
segmentation identification for a price discrimination strategy based on age include college ID card holders, AARP card
holders, and drivers’ licenses.
3) No opportunity should exist for individuals in one segment who have paid a low price to sell their tickets to those in
other segments. For example, people bought the reduced-price seats are selling those tickets to full-paying customers.
4) The segment should be large enough to make the exercise worthwhile. Having little or no response to the firm’s effort
signals that either consumers are uninterested, eligible customers are few, or the firm’s price discrimination offer is off its
mark.
5) The cost of running the price segmentation strategy should not exceed the incremental revenues obtained.
6) The customers should not be confused by the use of different prices.

8 SERVICE COMMUNICATION PROCESS

Service practitioners who are following service communication process substantially increase their odds of obtaining their
communication objectives.
1) Selecting target markets. The service firm must first analyse the needs of consumers in the marketplace and then
categorise consumers with similar needs into market segments. each market segment should then be considered based on
profit and growth potential and the segment’s compatibility with organisational resources and objectives. Segments that
become the focus of the firm’s marketing efforts become target markets.
2) Establishing communication
objectives. At the broadest level,
the service firm’s communication
objectives seek to inform,
persuade, and remind current and
potential customers about the
firm’s service offerings. The
objectives of a firm’s
communication mix often relate
directly to the service offering’s
stage within the product life cycle.
When developing communication
objective, each objective should be
stated in SMART terms which are
specific, measurable, achievable,
relevant and time-bound.

3) Setting the communication budget. Ideally, the communications budget should provide the resources needed for the
service firm to meet its established communication objectives. In other words, the firm’s communication objectives should
drive the budget.

4) Formulating the positioning strategy.

Typical positioning strategies used by both goods and service firms include product differentiation, image differentiation,
personnel differentiation and service differentiation.
5) Establishing message and media strategies.
a. For targeting nonusers: either:
i. Media advertising
ii. Selling performed by a sales force rather than a service provider
iii. Public relationships
iv. Sponsorships
b. For targeting users:
i. Type 1 service staff:
1. Deal with customers quickly and effectively in “once only” transaction-based encounters where
large numbers of customers are present
2. Exchanges consist of simple information and limited responses to customer requests
Examples: front-line personnel at fast-food restaurants
ii. Type 2 service staff:
1. Requires some independent decision making on the part of the staff member
2. Communications are more intense than Type 1 situations
Example: an effective wait staff person at a fine dining establishment.
iii. Type 3 service staff: Interactions are more extended and complex and often nonrepeatable. Example: staff
members who are likely to be qualified as professionals.
6) Monitoring, evaluating and controlling the communication strategy.

9 SOR MODEL
The stimulus-organism-response model (SOR model) is a model developed by environmental psychologists to help explain the
effects of the service environment on consumer behaviour; describes environmental stimuli, emotional states, and responses to
those states. The SOR model consists of three components:
1) A set of stimuli: the various elements of the firm’s physical evidence. Stimuli are collected through the five senses of sight,
sound, touch, taste, and smell and can be effectively managed to create compelling service atmospheres.
2) An organism component: the recipients of the set of stimuli in the service encounter including employees and customers.
3) A set of responses or outcomes: consumers’ reaction or behaviour in response to stimuli.

Responses of employees and customers to the set of stimuli are influenced by the three basic emotional states, 'pleasure-
displeasure', 'arousal-nonarousal', 'dominance-submissiveness', that consumers feel in service settings. Ideally, service firms
should utilise physical evidence to build environments that appeal to pleasure and arousal states and avoid creating
atmospheres that encourage submissiveness.

Consumer and employee’s responses to the set of environmental stimuli are characterized as approach or avoidance
behaviours, that can be demonstrated in their desires of either to stay or leave the service establishment, to explore/interact
with the service environment or ignore it, to communicate with others or ignore the attempts of service providers to
communicate with them, or feel satisfaction or disappointment with the service experience.

10 STRATEGIC ROLES OF PHYSICAL EVIDENCE

Physical evidence can fall into three broad categories:
1) Facility exterior: the physical exterior of service facility; includes exterior design, signage, parking, landscaping, and the
surrounding environment.
2) Facility interior: the physical interior of service facility; includes interior design, equipment, signage, layout, air quality, and
temperature.
3) Other tangibles: other items that are part of the firm’s physical evidence, such as business cards, stationary, billing
4) statements, reports, employee appearance, uniforms, and brochures.
Service firms need to recognize the importance of managing their physical evidence in terms of, packaging the service,
facilitating the service delivery process, socializing employees and customers and realize that the physical evidence of their
service can act as a means of differentiation from competing businesses.

11 DEVELOPMENT OF SERVICESCAPES
Designing 'Servicescapes' is the use of physical evidence to design successful and enjoyable service environments. The
Servicescapes Model is a framework for understanding the environment-user relationships in service organizations. The
servicescape should be designed to meet the needs of those individuals who spend the most time within the confines of the
service firm. Service firms can be characterised as remote, self-service and interpersonal services.
1) Remote services: services in which employees are physically present while customer involvement in the service production
process is at arm’s length, such as mail order, coupon-sorting houses, and telephone and utility services. These services
require very little of the customer’s physical presence to complete the service. So, facility design should facilitate the
employees’ overall efforts and enhance employee motivation, employee productivity and employee satisfaction.
2) Self-services: services environments that are dominated by the customer’s physical presence, such as ATMs or postal kiosks.
Self-service establishment should be in conveniently accessible locations and constructed to attract customers and enhance
satisfaction.
3) Interpersonal services: service environments in which customers and providers interact, such as restaurants, hospital,
hotels, banks, and airlines. The environments of interpersonal services should be developed with the needs of both parties
in mind and should facilitate the social interaction between and among customers and employees.

Service firms should also consider the following decisions with respect to high-contact versus low-contact service firms:
1) Facility location: depends on the amount of customer contact that is necessary during the production process. For high-
contact service firms, convenient locations near customers’ homes or workplaces will offer the firm a differential advantage
over competitors. Low-contact service firms should consider locations that are more convenient for labour, source of supply
and closer to major transportation routes.
2) Facility layout: high-contact service firms should take the customers’ physical and psychological needs and expectations
into consideration, while low-contact facility layouts should be designed to maximise employee expectations and
production requirements. Designing facilities for high-contact services is often more expensive than the low-contact
services.
3) Product design: For high-contact services offering both tangible and intangible products, such as restaurants, the firms need
to manage both the physical product and the physical evidence; managing the physical evidence is vital for firms offering
purely intangible products, such as education and insurance. For low-contact services, such as mail-order operation, the
customers will define the end product by the physical product itself, the conversations with the service providers, the
quality of the mail-order catalogue, the package, the billing materials and so on.
4) Process design: in high-contact operations, each stage in the process will have a direct and immediate effect on the
customer while in low-contact services, their evaluation is based primarily on the outcome itself.

12 SERVICE PROVIDER ROLE

Service personnel are an important source of product differentiation.

13 BOUNDARY-SPANNING PERSONNEL
Boundary-spanning roles are the various parts played by contact personnel who perform dual functions of interacting with the
firm’s external environment and internal organisation. They are part of the production process, represent the organisation and
are required to collect the information from the customer needed to perform the service, but also represent the customer.
individuals who occupy boundary-spanning roles can be classified from subordinate service roles to professional service roles.

14 TYPES OF CONFLICT
The boundary spanning roles cause different kinds of stress and strains on the individual and thus cause some conflicts:
1) Person/role conflict: a bad fit between and individual’s self-perception and the specific role the person must play in an
organisation. For example, a waitress must suppress their personal feelings and are asked to smile and be helpful while
feeling miserable and aggressive.
2) Organisation/client conflicts: disagreements that arise when a customer requests services that violate the rules of the
organisation. For example, a customer asks for a free bread roll which is against the restaurant policy.
3) Inter-client conflicts: disagreements between clients that arise because of the number of clients who influence one
another’s experience. When customers do conflict, it is usually the boundary-spanning personnel who are asked to resolve
the confrontation.

15 THEATRICAL ANALOGY
The theatrical analogy is useful for managing consumer performance. The scene is set by the creation of the physical setting in
which the performance is to be played. There are two kinds of actors: employees and consumers. Actors are assigned roles in
which they must play in the “production”. The performance is scripted and works to the extent that all the actors “know their
parts”. People have a deep-set need for control and predictability.
16 CONSUMER PERFORMANCE SCRIPTS
The service performance will be efficient to the extent that both the service provider and the consumer follow the script.
Aligning consumers’ scripts with the service operation is beneficial for improving efficiency and increasing consumer satisfaction.
To be able to do so, there are seven key tasks for management:
1) Audit the consumer performance expertise. Measuring the current extent to which the consumer understands the script
that the service system has been designed to deliver.
2) Increase the share of expert consumers by attracting more existing experts and helping consumers become experts.
3) Increase consumer loyalty. Once the expert has been created, it is important for the firm to maintain that individuals’
loyalty, as they are valuable for word of mouth, pricing and cost savings, and they must be protected either through loyalty
incentive programs or recognition in the service experience.
4) Manage script changes carefully, as too big a change means that your expert consumers will have to renew their expertise
and may see the new service as a service failure and be dissatisfied.
5) Create systems to cope with novices and experts.
6) Manage your customer and service mix with compatibility management, which is the management of a diverse group of
customers with different needs within the same service setting. For example, keep the different types of consumer separate
and in homogeneous groups, train consumers in the script or use codes of conduct, as well as train the service personnel to
manage the conflicts between segments.
7) Use service provider strategies on your consumers. Consumers have been viewed as “partial employees”, and a clear
understanding of their role, ability and motivation

17 IMPORTANCE OF CUSTOMER SATISFACTION

Without customers, the service firm has no reason to exist. Every service business need to proactively define and measure
customer satisfaction. Customer satisfaction/dissatisfaction is a comparison of customer expectations to perceptions regarding
the actual service encounter. Positive word-of-mouth generated from existing customers often translates into more new
customers, and satisfied current customer often purchase more products more often than dissatisfied customers. Also, satisfied
current customers are less likely to be lost to competitors than dissatisfied customers. A high customer satisfaction ratings can
help insulate the firm from price competition, and firms that pride themselves on their customer satisfaction efforts tend to
have more positive work environment.

18 EXPECTATIONS AND PERFORMANCE RELATIONSHIP

19 FAILURE GAPS IN SERVICE QUALITY

To better understand how a firm can improve its overall service quality, the service quality process can be examined in terms of
five gaps between expectations and perceptions on the part of management, employees, and customers. The most important
gap is the service gap (Gap 5) which describes the distance between customers’ expectations of service and their perception of
the service actually delivered. The goal of the service firm is to close the service gap or at least narrow it as much as possible.
Before the firm can close the service gap, it must close or attempt to narrow four other gaps:
1) The knowledge gap (Gap 1): the difference between what consumers do expect of a service and what management
perceives that consumers expect.
2) The standards gap (Gap 2): the difference between what management perceives that consumers expect, and the quality
specifications set for service delivery.
3) The delivery gap (Gap 3): the difference between the quality specification set for service delivery and the actual quality of
service delivered. For example, do employees perform the service as they were trained?
4) The communications gap (Gap 4): the difference between the actual quality of service delivered and the quality of service
described in the firm’s external communications (e.g., advertising, point-of-purchase materials, and personal selling efforts).
The service gap is a function of the knowledge gap, the specifications gap, the delivery gap and the communications gap, that is
Gap 5 = f(Gap 1 + Gap 2 + Gap 3 + Gap 4). As each of these gaps increases or decreases, the service gap responds in a similar
manner.

20 FIVE SERVICE QUALITY DIMENSIONS

SERVQUAL is a diagnostic tool that uncovers a firm’s broad weaknesses and strengths in service quality, and it is based on five
service quality dimensions including tangibles, reliability, responsiveness, assurance and empathy.
1) Tangibles dimension: to assess a firm’s ability to manage its tangibles. It has one dimension focuses on equipment and
facilities while the other dimension focuses on personnel and communications materials.
2) Reliability dimension: to assess a firm’s consistency and dependability in service performance. Studies found that
consumers rate the reliability dimension to be the most important of the five SERVQUAL dimensions.
3) Responsiveness dimension: to assess a firm’s commitment to providing its services in a timely manner. It concerns the
willingness and/or readiness of employees to provide a service.
4) Assurance dimension: to assess a firm’s competence, courtesy to its customers and security of its operations. Competence
pertains to the firm’s knowledge and skill in performing its service. Courtesy refers to how the firm’s personnel interact with
the customer and the customer’s possessions. Security reflects a customer’s feelings of free from danger, risk and doubt.
5) Empathy dimension: to assess a firm’s ability to put itself in its customer’s place.
21 THE SERVICE ECONOMY: SUPERSECTORS AND ETHICAL CONSIDERATIONS
Service economy includes the “soft parts” of the economy consisting of nine industry supersectors: education and health
services, financial activities, government, information, leisure and hospitality, professional and business services, transportation
and utilities, wholesale and retail trade, and other services.
Five dominant service economy sectors:
1. Banking, insurance and finance;
2. Media and entertainment;
3. Tourism, retail and consulting;
4. Services provided by the government;
5. Other business and personal services.
Ethical considerations for services marketers:
1. Consumer vulnerability in services marketing
2. Issues that create ethical conflict
3. Factors influencing ethical decision making
4. The effects of ethical misconduct
5. Strategies for controlling ethical behaviour