New Perspectives on Services Marketing
Overview of Session
 Why Study Services?
 What are Services?
 The Marketing Challenges Posed by Services
 The Expanded Marketing Mix Required for Services
Why Study Services?
Why Study Services? (1)
 Services dominate economy in most nations
 Understanding services offers you personal competitive
advantages
 Importance of service sector in economy is growing
rapidly:




Services account for more than 60 percent of GDP worldwide
Almost all economies have a substantial service sector
Most new employment is provided by services
Strongest growth area for marketing
Service Sector Contribution to Indian Economy
 In the Year 2010 the contribution of different sectors
was:
 Services: 58.4%
 Industry: 24.1%
 Agriculture: 17.5%
NAICS: A New Way to Classify and
Analyze the Service Economy
 NAICS—North American Industry Classification System—
now used to compile and record economic data by
national statistical agencies of the U.S., Canada, Mexico
 New classification system replaces old SIC (Standard
Industrial Classification) codes in U.S.
 Captures huge array of new service industries, each with
its own NAICS code
 NAPCS—North American Product Classification System—
assigns codes to thousands of service products
 Particularly useful for looking at rented goods services
 U.S. and Canadian data easily accessible on the Web;
information includes number of establishments and
employment
Some Newer Service Industries
Profiled by NAICS Codes But Not SIC
 Casino Hotels
 HMO Medical Centers
 Continuing Care Retirement
Communities
 Industrial Design Services
 Diagnostic Imaging Centers
 Investment Banking and
Securities Dealing
 Diet and Weight Reducing
Centers
 Management Consulting Services
 Environmental Consulting
 Satellite Telecommunications
 Golf Courses, Country Clubs
 Telemarketing Bureaus
 Hazardous Waste Collection
 Temporary Help Services
Why Study Services? (2)
 Most new jobs are generated by services
 Fastest growth expected in knowledge-based industries
 Significant training and educational qualifications required,
but employees will be more highly compensated
 Will service jobs lost to lower-cost countries? Yes, some service jobs
can be exported
Changing Structure of Employment as
Economic Development Evolves
Agriculture
Services
Industry
Time, per Capita Income
Source: IMF, 1997
Why Study Services?
 Powerful forces are transforming service markets
 Government policies, social changes, business trends,
advances in IT, internationalization
 These forces are reshaping




Demand
Supply
The competitive landscape
Customers’ choices, power, and decision making
Transformation of the Service Economy
Social
Changes
Business
Trends
Advances in
IT
Government
Policies
Globalization



New markets and product categories
Increase in demand for services
More intense competition
Innovation in service products & delivery systems, stimulated by better technology
Customers have more choices and exercise more power
Success hinges on:
 Understanding customers and competitors
 Viable business models
 Creation of value for customers and firm
Factors Stimulating Transformation
of the Service Economy (1)
Social
Changes
Business
Trends
Advances in
IT
Government
Globalization
Policies
 Changes in regulations
 Privatization
 New rules to protect customers,
employees, and the environment
 New agreement on trade in services
Factors Stimulating Transformation
of the Service Economy (2)
Social
Changes
Business
Trends
Advances in
IT
Government
Policies
Globalization
 Rising consumer expectations
 More affluence
 More people short of time
 Increased desire for buying experiences
versus things
 Rising consumer ownership of high tech
equipment
 Easier access to information
 Immigration
 Growing but aging population
Factors Stimulating Transformation
of the Service Economy (3)
Social
Changes
Business
Trends
Advances in
IT
Government
Globalization
Policies
 Push to increase shareholder value
 Emphasis on productivity and cost savings
 Manufacturers add value through service and
sell services
 More strategic alliances and outsourcing
 Focus on quality and customer satisfaction
 Growth of franchising
 Marketing emphasis by nonprofits
Factors Stimulating Transformation
of the Service Economy (4)
Social
Changes
Business
Trends
Advances in
IT
Government
Globalization
Policies
 Growth of the Internet
 Greater bandwidth
 Compact mobile equipment
 Wireless networking
 Faster, more powerful software
 Digitization of text, graphics, audio, video
Factors Stimulating Transformation
of the Service Economy (5)
Social
Changes
Business
Trends
Advances in
IT
Government
Globalization
Policies
 More companies operating on transnational
basis
 Increased international travel
 International mergers and alliances
 “Offshoring” of customer service
 Foreign competitors invade domestic markets
What Are Services?
What Are Services? (1)

The historical view
 Goes back over 200 years to Adam Smith and Jean-Baptiste Say
 Different from goods because they are perishable (Smith 1776)
 Consumption cannot be separated from production, services are
intangible (Say 1803)

A fresh perspective: Services involve a form of rental,
offering benefits without transfer of ownership
 Include rental of goods
 Marketing tasks for services differ from those involved in selling
goods and transferring ownership
What Are Services? (2)

Five broad categories within non-ownership framework:
1.
2.
3.
4.
5.

Rented goods services
Defined space and place rentals
Labor and expertise rentals
Access to shared physical environments
Systems and networks: access and usage
Implications of renting versus owning (Service Perspectives 1.1)
 Markets exist for renting durable goods rather than selling them
 Renting portions of larger physical entity (e.g., office space, apartment) can
form basis for service
 Customers more closely engaged with service suppliers
 Time plays central role in most services
 Customer choice criteria may differ between rentals and outright purchases
 Services offer opportunities for resource sharing
Defining Services
 Services
 Are economic activities offered by one party to another
 Most commonly employ time-based performances to bring about
desired results in:
― recipients themselves
― objects or other assets for which purchasers have responsibility
 In exchange for their money, time, and effort, service
customers expect to obtain value from
 Access to goods, labor, facilities, environments, professional skills,
networks, and systems
 But they do not normally take ownership of any of the physical
elements involved
Service Products versus Customer Service
and After-Sales Service
 A firm’s market offerings are divided into core product
elements and supplementary service elements
 Is everyone in service? Need to distinguish between:
 Marketing of services
 Marketing goods through added-value service
 Good service increases the value of a core physical good
 After-sales service is as important as pre-sales service
for many physical goods
 Manufacturing firms are reformulating and enhancing
existing added-value services to market them as standalone core products
Challenges Posed by Services
Services Pose Distinctive
Marketing Challenges

Marketing management tasks in the service sector
differ from those in the manufacturing sector

The eight common differences are:
1.
2.
3.
4.
5.
6.
7.
8.

Most service products cannot be inventoried
Intangible elements usually dominate value creation
Services are often difficult to visualize and understand
Customers may be involved in co-production
People may be part of the service experience
Operational inputs and outputs tend to vary more widely
The time factor often assumes great importance
Distribution may take place through nonphysical channels
What are marketing implications?
Differences, Implications, and
Marketing-Related Tasks
Difference
 Most service products
cannot be inventoried
 Intangible elements
usually dominate
value creation
 Services are often
difficult to visualize
and understand
 Customers may be
involved in coproduction
Implications
 Customers may be
turned away
 Harder to evaluate
service and distinguish
from competitors
 Greater risk and
uncertainty perceived
 Interaction between
customer and provider;
but poor task execution
could affect satisfaction
Marketing-Related Tasks
pricing, promotion, and
 Use
reservations to smooth
demand; work with ops to
manage capacity
 Emphasize physical clues,
employ metaphors and vivid
images in advertising
 Educate customers on
making good choices; offer
guarantees
 Develop user-friendly
equipment, facilities, and
systems; train customers,
provide good support
Differences, Implications, and
Marketing-Related Tasks
Difference
 People may be part of
service experience
 Operational inputs and
outputs tend to vary
more widely
Implications
 Behavior of service
personnel and customers
can affect satisfaction
assumes great
importance
 Distribution may take
place through
nonphysical channels
 Recruit, train employees to

reinforce service concept
Shape customer behavior
 Hard to maintain quality,
 Redesign for simplicity and
 Difficult to shield

 Time is money;
 Find ways to compete on
consistency, reliability
customers from failures
 Time factor often
Marketing-Related Tasks
customers want service
at convenient times
 Electronic channels or
voice telecommunications
failure proofing
Institute good service
recovery procedures
speed of delivery; offer
extended hours
 Create user-friendly,
secure websites and free
access by telephone
Value Added by Physical, Intangible Elements
Helps Distinguish Goods and Services
Physical
Elements
High
Salt
Detergents
CD Player
Wine
Golf Clubs
New Car
Tailored clothing
Fast-Food Restaurant
Low
Source; Adapted from Lynn Shostack
Plumbing Repair
Health Club
Airline Flight
Landscape Maintenance
Consulting
Life Insurance
Internet Banking
Intangible Elements
High
Progressive and REI: Two Types of
Website Reflecting Core Product
Websites can deliver info-based
services like Progressive’s car
insurance but …
…REI’s camping gear must be delivered
through physical channels to customers
after they have used the website to make
choices, order, and pay
Expanded Marketing Mix
for Services
Services Require
An Expanded Marketing Mix
 Marketing can be viewed as:
 A strategic and competitive thrust pursued by top management
 A set of functional activities performed by line managers
 A customer-driven orientation for the entire organization
 Marketing is the only function to bring operating
revenues into a business; all other functions are cost
centers
 The “8Ps” of services marketing are needed to create
viable strategies for meeting customer needs profitably
in a competitive marketplace
The 8Ps of Services Marketing
 Product
 Place and Time
 Price and Other User Outlays
 Promotion and Education
 Process
 Physical Environment
 People
 Productivity and Quality
Fig 1.9 Working in
Unison: The 8Ps of
Services Marketing
The 8Ps of Services Marketing:
(1) Product Elements
 Embrace all aspects of service performance that
create value
 Core product responds to customer’s primary need
 Array of supplementary service elements
 Help customer use core product effectively
 Add value through useful enhancements
 Planning marketing mix begins with creating a service
concept that:
 Will offer value to target customers
 Satisfy their needs better than competing alternatives
The 8Ps of Services Marketing:
(2) Place and Time
 Delivery decisions: Where, When, How
 Geographic locations served
 Service schedules
 Physical channels
 Electronic channels
 Customer control and convenience
 Channel partners/intermediaries
The 8Ps of Services Marketing:
(3) Price and Other User Outlays

Marketers must recognize that customer outlays
involve more than price paid to seller

Traditional pricing tasks:
 Selling price, discounts, premiums
 Margins for intermediaries (if any)
 Credit terms

Identify and minimize other costs incurred by users:
 Additional monetary costs associated with service usage (e.g.,
travel to service location, parking, phone, babysitting, etc.)
 Time expenditures, especially waiting
 Unwanted mental and physical effort
 Negative sensory experiences
The 8Ps of Services Marketing:
(4) Promotion and Education
 Informing, educating, persuading, reminding customers
 Marketing communication tools




Media elements (print, broadcast, outdoor, retail, the Internet, etc.)
Personal selling, customer service
Sales promotion
Publicity/PR
 Imagery and recognition
 Branding
 Corporate design
 Content
 Information, advice
 Persuasive messages
 Customer education/training
The 8Ps of Services Marketing:
(5) Process
 How firm does things may be as important as what it does
 Customers often actively involved in processes, especially
when acting as co-producers of service
 Process involves choices of method and sequence in
service creation and delivery





Design of activity flows
Number and sequence of actions for customers
Nature of customer involvement
Role of contact personnel
Role of technology, degree of automation
 Badly designed processes waste time, create poor
experiences, and disappoint customers
The 8Ps of Services Marketing:
(6) Physical Environment
 Design servicescape and provide
tangible evidence of service
performances
 Create and maintain physical
appearances






Buildings/landscaping
Interior design/furnishings
Vehicles/equipment
Staff grooming/clothing
Sounds and smells
Other tangibles
 Manage physical cues carefully—
can have profound impact on
customer impressions
The 8Ps of Services Marketing:
(7) People
 Interactions between customers and contact
personnel strongly influence customer
perceptions of service quality
 The right customer-contact employees
performing tasks well
 Job design
 Recruiting
 Training
 Motivation
 The right customers for firm’s mission
 Contribute positively to experience of
other customers
 Possess—or can be trained to have—
needed skills (co-production)
 Can shape customer roles and manage
customer behavior
The 8Ps of Services Marketing:
(8) Productivity and Quality
 Productivity and quality must work hand in hand
 Improving productivity key to reducing costs
 Improving and maintaining quality essential for building
customer satisfaction and loyalty
 Ideally, strategies should be sought to improve both
productivity and quality simultaneously—technology
often the key
 Technology-based innovations have potential to create high payoffs
 But, must be user friendly and deliver valued customer benefits
Marketing Must Be Integrated with
Other Management Functions
Marketing Must Be Integrated with
Other Management Functions
Three management functions play central and interrelated
roles in meeting needs of service customers
Operations
Management
Marketing
Management
Customers
Human Resources
Management
A Framework for Developing
Effective Service Marketing
Strategies
A Framework For Developing Effective
Service Marketing Strategies: Overview
Understanding Customer Needs, Decision Making,
and Behavior in Service Encounters
Building the Service Model
Managing the Customer Interface
Implementing Profitable Service Strategies
Framework for Developing Effective
Service Marketing Strategies: Part I
I: Understanding Customer Needs, Decision Making,
and Behavior in Service Encounters
Differences among Services Affect
Customer Behavior
Three-Stage Model of Service Consumption
Prepurchase Stage:
Search, evaluation of
alternatives, decision
Service Encounter Stage:
Role in high-contact vs.
low-contact delivery
Post-Encounter Stage:
Evaluation against
expectations, future
intentions
Framework for Developing Effective
Service Marketing Strategies: Part II
Building The Service Model
Part II: Chapters 3-7
The Value Proposition
Develop service concept: core
& supplementary elements
Select physical & electronic
channels for service delivery
Value Exchange
Set prices with reference to
costs, competition & value
The Business Model
Educate customers &
promote the value proposition
Position the value proposition
against competing alternatives
Framework for Developing Effective
Service Marketing Strategies: Part III
III: Managing the Customer
Interface
Design and manage
service processes
Balance demand against
productivity capacity
Plan the service
environment
Manage service employees
for competitive advantage
Framework for Developing Effective
Service Marketing Strategies: Part IV
IV: Implementing Profitable Service
Strategies
Create customer relationship
and build loyalty
Plan for service recovery and
create customer feedback
systems
Continuously improve service
quality and productivity
Organize for change management
and service leadership
Improving Service Quality and Productivity
Overview of Session
 Integrating service quality and productivity strategies
 What is service quality?
 The Gaps Model—a conceptual tool to identify and
correct service quality problems
 Measuring and improving service quality
Integrating Service Quality and
Productivity Strategies
Integrating Service Quality and
Productivity Strategies
 Quality and productivity are twin paths to creating value
for both customers and companies
 Quality focuses on the benefits created for customers;
productivity addresses financial costs incurred by firm
 Importance of productivity:
 Keeps costs down to improve profits and/or reduce prices
 Enables firms to spend more on improving customer service and
supplementary services
 Secures firm’s future through increased spending on R&D
 May impact service experience—marketers must work to minimize
negative effects, promote positive effects
What Is Service Quality?
Different Perspectives of Service Quality
Transcendent:
Quality = Excellence. Recognized only through
experience
Product-based: Quality is precise and measurable
User-based:
Quality lies in the eyes of the beholder
Manufacturing- Quality is in conformance to the firm’s developed
based:
specifications
Value-based:
Quality is a trade-off between price and value
Components of Quality:
Service-based (SERVQUAL)
Tangibles: Appearance of physical elements
Reliability: Dependable and accurate performance
Responsiveness: Promptness; helpfulness
Assurance: Competence, courtesy, credibility,
security
Empathy: Easy access, good communication,
understanding of customer
Capturing the Customer’s Perspective of
Service Quality: SERVQUAL (1)
 Survey research instrument based on premise that
customers evaluate firm’s service quality by comparing
 Their perceptions of service actually received
 Their prior expectations of companies in a particular industry
 Poor quality
 Perceived performance ratings < expectations
 Good quality
 Perceived performance ratings > expectations
Capturing the Customer’s Perspective of
Service Quality: SERVQUAL (2)
 Developed primarily in context of face-to-face
encounters
 Scale contains 22 items reflecting five dimensions of
service quality
 Subsequent research has highlighted some limitations of
SERVQUAL
 See Research Insights 14.1: Measuring E-Service Quality
How Customers Might Evaluate Online
Businesses: Seven Dimensions of E-S-QUAL

Accessibility : Is site easily found?

Navigation: How easy is it to move around the site?

Design and presentation: Image projected from site?

Content and purpose: Substance and richness of site

Currency and accuracy


Responsiveness:Firm’s propensity to respond to e-mails
Interactivity, customization, and personalization

Reputation and security
Source:Shohreh A. Kaynama (2000), “ A Conceptual Model to Measure Service Quality of Online Companies: E-qual, in Developments in Marketing
Science,” Harlan E. Spotts and H. Lee Meadows, eds., Proceedings of the Academy of Marketing Science, Vol. 22, pp. 46–51. For more information
pertaining to online service quality see A. Parasuraman, Vlerie A. Zeithaml, and Arvind Malhotra (2005), “E-S-QUAL: A Multiple-Item Scale for Assessing
Electronic Service Quality.” Journal of Service Research, Vol. 7. issue 3. pp. 213–234.
Other Considerations in
Service Quality Measurement
 In uncompetitive markets or in situations where
customers do not have a free choice, researchers should
use needs or wants as comparison standards
 Time constraints
 Services high in credence characteristics may cause
consumers to use process factors and tangible cues as
proxies to evaluate quality—halo effect
 Process factors: Customers’ feelings
The Gaps Model—A Conceptual Tool to
Identify and Correct Service Quality
Problems
Seven Service Quality Gaps
(Fig 14.3)
Customer needs and
expectations
CUSTOMER
1. Knowledge Gap
MANAGEMENT
Management definition
of these needs
2. Standards Gap
Translation into
design/delivery specs
4. Internal
Communications Gap
3. Delivery Gap
Execution of
design/delivery specs
4.
5. Perceptions Gap
Customer perceptions
of service execution
Advertising and sales
promises
6. Interpretation Gap
Customer interpretation
of communications
7. Service Gap
Customer experience
relative to expectations
Prescriptions for Closing the
Seven Service Quality Gaps (1)
(Table 14.3)
1. Knowledge gap: Learn what customers expect
 Understand customer expectations
 Improve communication between frontline staff and management
 Turn information and insights into action
2. Standards gap: Specify SQ standards that reflect
expectations
 Set, communicate, and reinforce customer-oriented service
standards for all work units
 Measure performance and provide regular feedback
 Reward managers and employees
Prescriptions for Closing the
Seven Service Quality Gaps (2)
(Table 14.3)
3. Delivery gap: Ensure service performance meets
standards




Clarify employee roles
Train employees in priority setting and time management
Eliminate role conflict among employees
Develop good reward system
4. Internal communications gap: Ensure that
communications promises are realistic
 Seek comments from frontline employees and operations personnel
about proposed advertising campaigns
 Get sales staff to involve operations staff in meetings with
customers
 Ensure that communications sets realistic customer expectations
Prescriptions for Closing the
Seven Service Quality Gaps (3)
(Table 14.3)
5. Perceptions gap: Educate customers to see reality of
service quality delivered
 Keep customers informed during service delivery and debrief after
delivery
 Provide physical evidence
6. Interpretation gap: Pretest communications to make
sure message is clear and unambiguous
 Present communication materials to a sample of customers in
advance of publication
7. Service gap: Close gaps 1 to 6 to meet customer
expectations consistently
Measuring and Improving
Service Quality
Soft and Hard Measures
of Service Quality
 Soft measures—not easily observed, must be collected by
talking to customers, employees, or others
 Provide direction, guidance, and feedback to employees on ways to
achieve customer satisfaction
 Can be quantified by measuring customer perceptions and beliefs
―For example: SERVQUAL, surveys, and customer
advisory panels
 Hard measures—can be counted, timed, or measured
through audits
 Typically operational processes or outcomes
 Standards often set with reference to percentage of occasions on
which a particular measure is achieved
 Control charts are useful for displaying performance over time
against specific quality standards
Soft Measures of Service Quality
 Key customer-centric SQ measures include:




Total market surveys, annual surveys, transactional surveys
Service feedback cards
Mystery shopping
Analysis of unsolicited feedback—complaints and compliments, focus
group discussions, and service reviews
 Ongoing surveys of account holders to determine satisfaction in
terms of broader relationship issues
 Customer advisory panels offer feedback/advice on performance
 Employee surveys and panels to determine:
 Perceptions of the quality of service delivered to customers on
specific dimensions
 Barriers to better service
 Suggestions for improvement
Hard Measures of Service Quality
 Control charts to monitor a single variable
 Offer a simple method of displaying performance over time against
specific quality standards
 Are only good if data on which they are based is accurate
 Enable easy identification of trends
 Service quality indexes
 Embrace key activities that have an impact on customers
Composition of FedEx’s
Service Quality Index—SQI
Failure Type
(Table 14.4)
Weighting
Number of
Daily
X
=
Factor
Incidents
Points
Late delivery—right day
Late Delivery—wrong day
Tracing request unanswered
Complaints reopened
Missing proofs of delivery
Invoice adjustments
Missed pickups
Lost packages
Damaged packages
Aircraft delays (minutes)
Overcharged (packages missing label)
Abandoned calls
1
5
1
5
1
1
10
10
10
5
5
1
Total Failure Points (SQI) =
XXX,XXX
Control Chart for Departure Delays
(Fig 14.4)
% Flights Departing Within
15 Minutes of Schedule
100%
90%
80%
70%
60%
J
F
M
A
M
J
Month
J
A
S
O
N
D
Tools to Analyze and Address
Service Quality Problems
 Fishbone diagram
 Cause-and-effect diagram to identify potential causes of problems
 Pareto Chart
 Separating the trivial from the important. Often, a majority of
problems is caused by a minority of causes (i.e. the 80/20 rule)
 Blueprinting
 Visualization of service delivery, identifying points where failures
are most likely to occur
Tools to Analyze and Address
Service Quality Problems (Appendix)
 Total Quality Management (TQM)
 ISO 9000
 Comprises requirements, definitions, guidelines, and related
standards to provide an independent assessment and certification of
a firm’s quality management system
 Malcolm Baldrige Model Applied to Services
 To promote best practices in quality management, and recognizing,
and publicizing quality achievements among U.S. firms
 Six Sigma
 Statistically, only 3.4 defects per million opportunities (1/294,000)
 Has evolved from defect-reduction approach to an overall businessimprovement approach
Cause-and-Effect Chart for
Flight Departure Delays (Fig 14.5)
Frontstage
Personnel
Facilities,
Equipment
Arrive late
Oversized bags
Customers
Customers
Procedures
Delayed check-in
Gate agents
Aircraft late to
procedure
gate
cannot process
fast enough
Mechanical
Acceptance of late
Failures
passengers
Late/unavailable
Late pushback
airline crew
Delayed
Departures
Other Causes
Weather
Air traffic
Materials,
Supplies
Late food
service
Late baggage
Late cabin
cleaners
Poor announcement of
departures
Weight and balance
sheet late
Late fuel
Backstage
Personnel
Information
Case: Analysis of Causes of
Flight Departure Delays
15.3%
23.1%
15.4%
All stations, excluding
Chicago-Midway Hub
11.7%
23.1%
15%
Late passengers
Waiting for pushback
Waiting for
fuelling
33.3%
33.3%
23.1%
NewYork
19%
9.5%
8.7%
11.3%
4.9
%
53.3%
Washington Natl.
Late weight and balance sheet
Late cabin cleaning/supplies
Other
Blueprinting
 Depicts sequence of front-stage interactions
experienced by customers plus supporting backstage
activities
 Used to identify potential fall points—where failures are
most likely to appear
 Shows how failures at one point may have a ripple
effect later
 Managers can identify points which need urgent
attention
 Important first step in preventing service quality problems
Six Sigma Methodology to
Improve and Redesign Service Processes
Process Improvement
Process Design/Redesign
Define
 Identify the problem
 Define requirements
 Set goals
 Identify specific or broad problems
 Define goal/change vision
 Clarify scope and customer requirements
Measure
 Validate problem/process
 Refine problem/goal
 Measure key steps/inputs
 Measure performance to requirements
 Gather process efficiency data
Analyze
 Develop causal hypothesis
 Identify root causes
 Validate hypothesis
 Identify best practices
 Assess process design
 Refine requirements
Improve
 Develop ideas to measure root  Design new process
causes
 Implement new process, structures, and
 Test solutions
systems
 Measure results
Control
 Establish measures to
maintain performance
 Correct problems as needed
 Establish measures and reviews to
maintain performance
 Correct problems as needed
TQM in a Service Context:
Twelve Critical Dimensions for Implementation
 Top management commitment and visionary leadership
 Human resource management
 Technical system, including service process design and process
management
 Information and analysis system
 Benchmarking
 Continuous improvement
 Customer focus
 Employee satisfaction
 Union intervention and employee relations
 Social responsibility
 Servicescapes
 Service culture