Services Marketing

History tells us that

In addition to reading the text students must devote

Unit Description
This unit recognises the services sector as the major source of
employment growth and as the dominant force in the economies of developed and developing countries. The broad service sectors include education and health, finance, government, information, tourism, leisure and hospitality, professional and business, transportation and utilities, wholesale and retail. Services are also an important component of most goods dominant products. This unit will sensitise students to the unique characteristics of services, the behaviour of consumers in a service setting and the distinctive management approach needed to establish a competitive advantage.

Module 1
Marketing in the service economy Engineering customer satisfaction

no less than 150 hours

to successfully complete this unit and assignments

Unit Description
This unit recognises the services sector as the major source of
employment growth and as the dominant force in the economies of developed and developing countries. The broad service sectors include education and health, finance, government, information, tourism, leisure and hospitality, professional and business, transportation and utilities, wholesale and retail. Services are also an important component of most goods dominant products. This unit will sensitise students to the unique characteristics of services, the behaviour of consumers in a service setting and the distinctive management approach needed to establish a competitive advantage.

Overall objective
In this week students should gain an overall sense
that marketing is more than the marketing of fast moving consumer goods. In addition, students should start to sense that services shape our economies to a greater extent than most realise. This is due to the hidden services that bring goods to market and generally make society function.

Today we will discuss [ch.1]

How services are defined. How services contribute to a countrys economy. The forces that are transforming service markets. The key characteristics that distinguish services from goods. How services create value for consumers. The ways of categorising services. The key components of a service operations system. The expanded marketing mix for services.

Please note: the slides have been prepared to work in harmony with the preferred text

Lovelock et al textbook

Defining services
Services are acts, performances, deeds, efforts that
are directed towards the production & delivery of a product6. Services are activities that facilitate and support an exchange, they: add value for the customer cannot be dropped on your foot cannot be unbundled & resold

Services are an important part of our lives

Alternative texts

Preferred text

Services are an important part of our lives

Services are an important part of our lives

Services are an important part of our lives

Visiting a museum

Services to tourists

Source: Microsoft stock photographs

Generally there are

product components
There is a service component in every product6
Goods Services

There are

2 broad themes
1. 2. 3. 4. 5. 6. 7. 8. 9.

9 broad categories in service sector

Education and health Financial Government Information Tourism, leisure and hospitality Professional and business Transportation and utilities Wholesale and retail Other.
* a number of variations

1: Marketing of services the marketing of a service dominant product; operating within the service sector

People

Ideas

Places

Experiences

2: Marketing through service service qualities embedded within a other product6 components

differentiation

Growth in the service sector [retail for example]

How old is the postal service in Britain?

Students* often think that goods

are older and more dominant than services Is this accurate? Are services new?
Growth in service sector has coincided with a decline in manufacturing

Google

the history of the postal service

15

Some academics promote this view

years

Vignette: identify the services

Reasons for growth

The growth in service sector can

be attributed to:

Growth in franchises world brands

Consumer expectations Service quality movement Relax. professional

advertising

Increased competition Globalisation Increase in franchises Technology Social changes Government regulation
Starbucks: above in Paris, Singapore, Nanging,

Defining marketing
A classic marketing definition attributed to Kotler is

Defining services marketing

For this unit: all marketing activities that are directed at marketing a service dominant product and/or all marketing activities that are directed at differentiating a product through the service component of the product.

Marketing is about satisfaction

Marketing philosophy
Organisation needs

The human activity directed at satisfying needs and wants through the exchange process
We can see that marketing is a management philosophy that
permeates all actions throughout the organisation [not just a marketing department] and is customer centric

Satisfaction
Exchange process

Customer needs

It is said services are like theatre

The metaphor of theatre

With services there are the:

The metaphor of theatre

Key considerations:
What audience are we trying to attract is the profile of participants is the role of participants actor audience interaction are the scripts are the roles of backstage props are necessary costumes are necessary are the scenes or acts is the nature of intermissions

actors - [service personnel] [boundary

spanners]

audience - [customers] servicescape - [venue] [retail environment] performance - [actions, deeds, efforts] backstage [support staff] [equipment]

Google: Grove & Fisk (1992) Services as theater a classic article

What product components does a car retailer compete on?

Vignette: are we selling goods or services?

Service Dominant Products [B2C or B2B]

Business to Consumer [B2C] Lawn care, hairdresser, baby sitting, travel agency, airline, hotel, doctor, dentist, health, movies, theatre, education, insurance, banking, communications, photographic development, hiring a movie. Business to Business [B2B] Management consulting, secretarial services, advertising agent, office equipment, accountancy, maintenance, office cleaning, stationary supplies, logistics, communications

Activity

Services create value Services are a means to an end

Services provide outcomes

[services can result in a physical object ] [services can enable the production of a physical object]
design & construct finance

Services are about outcomes

Facilitating and enabling services are embedded in the product and cannot be separated from the outcome.

[identify the services performed in the above examples]

Services provide outcomes

[sometimes with nothing physical to show from the exchange]

Services provide outcomes

[deliver goods to market]

Services provide outcomes

[deliver goods to consumers]

Coffee shop Vienna

Services provide outcomes

[sometimes services are directed towards possessions]

Products6 have tangible and non-tangible qualities

Services: are a composite of tangible & intangible qualities

Restoring antique prints

Le Bouchon restaurant Caen, France

Tangible an intangible qualities

It is easier to try on jeans than a haircut

Most Goods Most Services

Products6 have characteristics

Easy
Tangible dominant product

Ability to Evaluation
*Intangible dominant products are those that lack physical properties that can be sensed by consumers prior to the purchase decision

Difficult
Intangible dominant product

Intangible* Inseparable Variable Perishable

* intangible is often referred to non-material

*Diagram supplied by Pearson Education

Adapted from Hofman and Bateson (2001, p.5) & Lovelock et al. (2011);

A different view of intangibility, inseparability, variability, perishability

All products have characteristics4

Special Characteristics4
The service component of a product6 requires
different marketing strategies than the goods component of the product.
[Mother characteristic] Intangible

Intangibility
The primary [mother] characteristic: Services

Services
[intangible] [intangible]

Goods
Physical properties Mental properties General properties Production & consumption Ability to maintain quality Ability to warehouse
[tangible] [tangible]

are a performance rather than possessed [verb rather

than a noun] - cannot be as easily evaluated prepurchase and are more subjective post-purchase Services: Cannot be stored, re-boxed or returned [warranty] Are more difficult to promote Are considered as higher in risk Are difficult to patent,

[intangible]

[tangible]

[simultaneous]

[separate]

[difficult] [difficult]

[less difficult]

Variable
[less difficult]

Intangibility
For example:

Managing intangibility
Strategies/tactics include: Provide physical evidence of quality Create an appropriate servicescape Provide benefit statements to position the service Clearly identify the target market Observational learning - reward punishment Create a strong brand identity Allow personalisation/interaction Provide warranties Enlist ERM, PRM & CRM tactics

Inseparability
The most elusive of the characteristics4 There are four elements:

Physically and/or mentally

the service cannot be sensed prior to purchase

1. Production and consumption happen simultaneously 2. Presence of the service provider 3. The service recipient/service provider are more
involved in the service delivery/encounter
and negative effects]

Service provider often has to visit the service recipient [factory in the field] Service recipient must visit service provider [multi-site] Arms length/remote

4. Service recipients often share the servicescape [positive

Life Assurance is a service that began in the churches of Scotland

Inseparability
For example:

Inseparability [2]
For example:

Variability
The characteristic that requires constant attention Quality is harder to manage due to intangibility,
inseparability; this is compounded by variability.
vary both day to day and from each other

the producer and the customer must come together

the customer must come together with other customers

Services are real time social interactions and people People tend to make conclusions [Gestalt] Therefore, consistent service quality is harder to achieve
[especially factory in the field or multi-site]

Zero defects is replaced with a zero defections strategy

Variability
For example:

Perishability
The often overlooked characteristic The intangible and inseparability of services means
that services cannot be produced in bulk and stored

Perishability
For example:

people vary both in skills, & from day to day

Unsold services cannot be resold [temporal nature] Demand can be higher/lower than optimal supply Pricing strategies may influence demand

the unsold seats

on an aircraft cannot be resold at a later date.

Further challenges for marketers

The 4 characteristics
PLUS+ The real time performance nature of services The inability to own a service The inability to store a service for a future delivery

8
1. 2. 3. 4. 5. 6. 7. 8.

8 generic differences goods V services

Service product considerations

Customers do not obtain ownership of services Intangible elements dominate value creation Greater involvement of customers in producing More difficult to maintain quality Often difficult to evaluate Services cannot be warehoused [unused capacity cannot be stored] Importance of temporal factors Transactions may be face to face or arms length

The degree of tangibility/intangibility Who or what is the direct recipient The place of service delivery Degree of customisation/standardisation Relationships with customers Discrete V continuous services Degree of contact [low2high]

Service product considerations

Tangible actions to peoples bodies people processing Tangible actions to goods and other physical

Service product considerations

Tangible actions to peoples bodies people processing Tangible actions to goods and other physical

Service product considerations

On the degree of contact High-contact services

possessions possession processing Intangible actions directed at peoples minds mental-stimulus processing Intangible actions directed at intangible assets information processing)

possessions possession processing Intangible actions directed at peoples minds mental-stimulus processing Intangible actions directed at intangible assets information processing)

Think - dentist

Medium-contact services
Think - electrician Low-contact services Think credit card

Type of contact
High contact service

Service product considerations

The temporal nature of services The three time zones are: Pre-purchase; Service delivery; Post-purchase Three service qualities are: Services are low in search qualities; high in experience
qualities; & often high in credence qualities

Service product considerations

Who or What is recipient of:
Business to Business Business to Consumer non-financial-profit People - possessions - mental stimulus information How is value created Customer expectations

Encounter with equipment

Encounter with people

Degree of:
Risk [types of risk, management challenges]

Hidden services in manufactured goods

Initial; enabling; & peripheral services elements

Low contact service

Service product considerations

The product
goods-service-ideas-experience-people-place components Core Supplementary Core - expected - augmented potential components Degree of: Intangibility, Perishability, Variability, Inseparability Facilitating supporting services Product differentiation Segment, target, positioning strategies Convenience, shopping, specialty, degree of unsought

Service product considerations

Service delivery methods Provided by people provided by equipment Degree of customers presence & participation Contact ... Low Medium High The place of the service

Service product considerations

Levels of complexity & divergence

Degree of customisation standardisation Labour intensity Ability to personalise Levels of service provider empowerment

marketplace [face2face] or marketspace [remote/arms length] The servicescape Duration and relationship frequency [casual-membership] Critical incidents that need to be blueprinted Front stage activities Backstage activities

Service product considerations

Pricing decisions
Low cost or differentiation Degree of price elasticity Managing Demand/Capacity/Fluctuations Causes & patterns Service quality Expectations Vs performance 5 gaps SERVQUAL
Tangibles, Reliability, Responsiveness, Assurance, Empathy

Service product considerations

Internal marketing procedures
Dovetailing with HR and operations Service recovery procedures Mindset Complaint management Hidden services in manufactured goods Initial services elements Enabling services elements Peripheral services elements

Service product considerations

Service marketing communication system: all the
different ways in which the customer may encounter or learn about the service organisation.

Role, script & controls in place

The expanded services marketing mix

Promotion

Some products6 require greater

cooperation between departments

Alternatives methods to owning

Own a physical good Rent the use of a physical good

People

Product

Processes

Marketing management
Perform the task oneself

Purchase a car and drive it

Hire a car and drive it

Price

Customer

Place

Recognised in the business plan

HR management
Operations & IT management

Hire someone to perform the task

Purchase a car and employ a Chauffer to drive it

Hire a limousine or taxi

Physical evidence

Services Marketing

Often it is more economical to hire than to own

Often it is more economical to hire than to own

Why has the service sector grown in importance in recent years

Services Marketing

Services Marketing

Services Marketing

How has the internet changed the way some services are delivered

What are the four special characteristics of services

Which are essential to know to pass this unit

Can something be intangible before purchase but be tangible during service delivery

Services Marketing

Today we will discuss [ch.11]

Customer satisfaction & quality The significance of customer satisfaction in achieving a
competitive advantage Models of satisfaction and service quality The relationship with customer perceived value, service quality, satisfaction and loyalty. The determinants of satisfaction and quality in services. How to measure and monitor satisfaction.

Marketing is about satisfaction

Marketing philosophy
Organisation needs

Module 1(b)
Quality, value, satisfaction, cumulative satisfaction & trust

Satisfaction
Exchange process

Customer needs

What is customer satisfaction?

Increased profitability

Quality

Value

Customer satisfaction is a personal post-purchase evaluation of a consumption activity; it is an affective (emotional) state & considers the pre-purchase situation, motives and expectations the qualities received and the costs incurred. Satisfaction occurs when pre-purchase expectations are exceeded. Cumulative customer satisfaction is applicable to durable or ongoing products6 where multiple transactions have taken place.
Loyal behaviour Trust Cumulative satisfaction Competitive advantage

Organisational satisfaction

Transactional satisfaction

Total quality is the sum of all material & non-material product qualities
[Quality is what you get in an exchange]

Fanning (2011) Adapted from Lovelock et al. (2011)

A product6 can be perceived as being of quality but not value

Dimensions of service quality

1. Tangibles (appearance of physical elements) 2. Reliability (dependable, accurate performance) 3. Responsiveness (promptness and helpfulness) 4. Assurance (competence, courtesy, credibility and security) 5. Empathy (easy access, good communications and customer understanding)

Expanded dimensions of service quality

Reliability consistency of performances and dependability Responsiveness willingness/readiness to provide service Competence possession of required skills and knowledge to perform Courtesy politeness, respect, consideration, friendliness Communications understand, be understood, confirm understanding Credibility trustworthiness, believability, honesty Accessibility approachability, contact ability Security the freedom from danger, risk or doubt Understanding a conscious effort to assist Tangibles the presence of physical evidence of quality of quality
Adapted from Parasuraman, Zeithaml & Berry (1985); Chen (1998); Lovelock (2001)

Modelling customer satisfaction processes

Multiple transactions
Outcome evaluated Outcome evaluated Outcome evaluated Outcome evaluated Outcome evaluated
Loyal behaviour from customer and organisation

Insulated customers Positive WOMA

Benefits

Multiple episodes of satisfaction lead to the building of trust. Trust leads to loyal behaviour.

Repeat purchasing Tolerant customers Considered set Recovery costs Communication mix costs

Internal service quality Employee satisfaction Employee retention External service quality Customer satisfaction Customer retention

Satisfaction, loyalty and retention

The non linear effects of customer satisfaction on customer loyalty

Adapted from Lovelock, Patterson & Walker (2004), Heskett, Sasser & Schlesinger, (1997)

Warning
Cost cutting programs [operational efficiency program should always be considered relative to product quality and the effect on customer satisfaction.
What is our present level of customer satisfaction? What will our level of customer satisfaction be in the future?
Quality
[+]

Big and small step improvements

Diminishing returns

Services Marketing

Question Time

[-]

Small steps: Little improvement relative to investment Cost

Big steps: Large improvement relative to investment

Services Marketing

Would you classify Starbucks as goods dominant or services dominant