MKT350 Chapter 1 Notes: Introduction to Services
What are Services?
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Long Definition: Services encompass all economic activities where the output isn't a
physical product or construction. Generally, services are consumed at the time of
production and provide added value through intangible benefits such as convenience,
amusement, timeliness, comfort, or health for the initial purchaser.
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Short Definition: Services are deeds, processes, and performances. They are intangible
but may possess a tangible component. Generally, they are produced and consumed
simultaneously.
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Service vs. Customer Service: It's crucial to distinguish between a core service offering
and customer service, which supports a company's products. Customer service isn't
usually directly charged for and can occur on-site, via phone, or online.
Examples of Service Industries
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Health Care: Hospitals, medical practices, dentistry, eye care
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Professional Services: Accounting, legal, architectural
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Financial Services: Banking, investment advising, insurance
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Hospitality: Restaurants, hotels/motels, bed & breakfasts, ski resorts, rafting
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Travel: Airlines, travel agencies, theme parks
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Others: Hair styling, pest control, plumbing, lawn maintenance, counseling services,
health clubs
The Tangibility Spectrum: Products and services exist on a spectrum of tangibility:
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Tangible Dominant: Salt, soft drinks, detergents, automobiles
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Intangible Dominant: Advertising agencies, airlines, investment management,
consulting, teaching
Fast-food outlets sit in the middle of the spectrum.
The Growth of Services
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U.S. Labor Force: There has been a significant shift in the U.S. labor force, with a
growing percentage employed in the service sector compared to manufacturing, mining,
and agriculture.
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U.S. Gross Domestic Product (GDP): Similarly, the service sector accounts for a
substantial and increasing portion of the U.S. GDP, while the contribution from
manufacturing, mining, and agriculture has declined.
Differences Between Goods and Services; Services differ from goods in four key
characteristics, often referred to as the "Four I's":
1. Intangibility: The Elusive Nature of Services
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Core Concept: Intangibility is the defining characteristic of services. Unlike goods,
services lack a physical form that can be easily perceived by the senses. You can't hold a
haircut, try on a financial consultation, or sample a ride on an airline before you
purchase it. This inherent lack of tangibility creates unique marketing challenges.
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Elaboration: This means that a service is an abstract concept and difficult to precisely
define before purchase.
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Implications - Deeper Dive:
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Services cannot be inventoried: Because services are performances or
experiences, they can't be produced in advance and stored for later sale. An
empty seat on an airplane or an idle hour for a consultant represents a lost
opportunity for revenue that can never be recovered. This requires careful
capacity management.
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Services cannot be patented: The intangible nature of services makes it difficult
to obtain legal protection through patents. While specific processes or
technologies used in service delivery might be patentable, the overall service
concept is generally not. This encourages innovation but also means services can
be easily copied by competitors.
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Services cannot be readily displayed or communicated: It's challenging to
showcase the benefits of a service before it's experienced. Marketers must rely
on creative strategies like testimonials, visual representations of the service
environment (if applicable), and strong branding to convey the value
proposition.
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Pricing is difficult: Determining the value of an intangible service can be
subjective and complex. It's hard to compare prices directly with tangible goods.
Pricing strategies often rely on perceived value, competitor pricing, and cost-plus
calculations.
2. Heterogeneity (Variability): The Human Factor in Service Delivery
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Core Concept: Heterogeneity refers to the potential for variability in service delivery.
Because services often involve human interaction, consistency is difficult to achieve.
Each service encounter is unique, influenced by the employee providing the service, the
customer receiving it, and the context in which it occurs.
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Elaboration: This is largely due to the involvement of human element in producing and
delivering services.
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Implications - Deeper Dive:
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Service delivery and customer satisfaction depend on employee actions: The
skills, attitudes, and motivation of service employees directly impact the
customer experience. Training, empowerment, and a customer-centric culture
are essential for managing heterogeneity.
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Service quality depends on many uncontrollable factors: External factors such
as customer mood, environmental conditions, and even random events can
influence service quality.
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It's difficult to ensure the service delivered matches what was planned and
promoted: Standardizing service delivery is a constant challenge. Service
blueprints, detailed process maps, and quality control measures can help reduce
variability, but complete uniformity is rarely achievable.
3. Simultaneous Production and Consumption: The Customer's Role in Service Creation
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Core Concept: Unlike goods that are produced and then consumed, services are often
created and consumed simultaneously. In many cases, the customer is actively involved
in the service production process.
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Elaboration: The service provider is present when the customer is using or benefitting
from the service.
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Implications - Deeper Dive:
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Customers participate in and affect the transaction: The customer's behavior,
expectations, and level of involvement can influence the service outcome.
Service providers must manage customer interactions effectively.
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Customers affect each other: In shared service environments (e.g., a restaurant,
a concert), the behavior of one customer can impact the experience of others.
Managing the service environment and customer interactions is crucial.
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Employees affect the service outcome: The attitude, skills, and behavior of
employees directly affect how a customer perceives the service.
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Decentralization may be essential: To accommodate simultaneous production
and consumption, service operations may need to be decentralized to be closer
to the customer.
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Mass production is difficult: Standardizing service delivery is difficult, as
customers often have unique requests that must be addressed in real-time.
4. Perishability: The "Use It or Lose It" Nature of Services
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Core Concept: Services are perishable, meaning they cannot be saved, stored, resold, or
returned. Unused capacity represents a lost revenue opportunity.
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Elaboration: If a service is not consumed at the moment it is available, then it expires.
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Implications - Deeper Dive:
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It's difficult to synchronize supply and demand with services: Service businesses
often face fluctuating demand patterns. Strategies like differential pricing, offpeak promotions, and reservation systems are used to manage supply and
demand effectively.
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Services cannot be returned or resold: If a customer is dissatisfied with a
service, they cannot return it for a refund like a tangible product. Service
recovery efforts (e.g., offering a discount, a complimentary service) are essential
for managing customer dissatisfaction and building loyalty.
The Marketing Mix for Services: The traditional marketing mix (4 Ps) is expanded to include
three additional Ps for services:
1. Product: The Core Service Offering
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Core Concept: This refers to the central service or set of services the company offers to
meet customer needs and wants. It includes the benefits, solutions, and experiences
provided.
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Elaboration: With services, the "product" isn't just a tangible item; it's the entire
package of benefits and experiences the customer receives. This includes the core
service itself, any supplementary services, the level of quality, and the overall brand
image.
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Examples: For a hair salon, the product is the haircut, styling, and related treatments.
For a consulting firm, the product is the expertise, advice, and solutions provided to
clients.
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Marketing Considerations: Service marketers must carefully define and differentiate
their service offerings. They should focus on creating a unique value proposition that
sets them apart from competitors.
2. Price: The Value Exchange
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Core Concept: Price represents what the customer pays in exchange for the service. This
includes not only the monetary cost but also other costs, such as time, effort, and
psychological costs.
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Elaboration: Pricing services can be complex due to their intangible and variable nature.
Strategies like cost-plus pricing, value-based pricing, and competitive pricing are
commonly used. It's important to consider the perceived value of the service and how
customers perceive the price relative to the benefits they receive.
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Examples: A lawyer might charge by the hour, a gym might have a monthly membership
fee, or a consultant may charge by project.
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Marketing Considerations: Price must align with the perceived value of the service and
be competitive within the market. It can also be used as a signal of quality (e.g., a higher
price may suggest a higher quality service).
3. Place: Accessibility and Delivery
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Core Concept: Place refers to where the service is delivered and how accessible it is to
customers. This includes the physical location of the service facility, as well as the
channels through which the service is provided (e.g., online, mobile, in-person).
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Elaboration: With services, accessibility and convenience are often key factors in
customer satisfaction. Place decisions should consider customer needs, preferences,
and the overall service experience.
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Examples: A bank can offer services at physical branches, ATMs, online, or through a
mobile app. A restaurant needs to consider its location, ambiance, and accessibility.
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Marketing Considerations: Services must be delivered in a way that is convenient and
accessible to the target market. Location, hours of operation, and channel strategy are
important considerations.
4. Promotion: Communicating Value
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Core Concept: Promotion encompasses all communication activities used to inform,
persuade, and remind customers about the service offering. This includes advertising,
public relations, sales promotions, personal selling, and social media marketing.
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Elaboration: Due to the intangibility of services, promotional efforts often focus on
tangible cues, testimonials, and guarantees to build trust and reduce perceived risk.
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Examples: An advertisement for a hotel might showcase the luxurious rooms, amenities,
and positive customer reviews. A public relations campaign for a hospital might highlight
its advanced medical technology and skilled staff.
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Marketing Considerations: Effective promotion of services requires creative
communication strategies that emphasize the benefits and value of the offering.
Building a strong brand image and reputation is crucial.
5. People: The Human Element
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Core Concept: This refers to all the human actors who play a role in service delivery and
thus influence the buyer's perceptions. This includes the firm's employees, the
customer, and even other customers present during the service encounter.
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Elaboration: In many services, the people are the service. The skills, attitudes, and
appearance of employees directly impact customer satisfaction. Likewise, the behavior
of other customers can also influence the experience.
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Breakdown:
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Employees: Hiring, training, and empowering employees to deliver excellent
service is critical. This includes providing them with the skills, knowledge, and
authority to meet customer needs.
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Customers: Managing customer interactions and ensuring a positive experience
for all customers is important, especially in shared service environments.
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Communicating culture and values: How the company trains and interacts with
staff will directly impact service quality.
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Employee research: Asking the staff questions, getting feedback, and listening to
complaints can offer insights into the customer experience that can inform
service process improvements.
Marketing Considerations: Investing in employee training, creating a customer-centric
culture, and managing customer interactions are essential for delivering high-quality
services.
6. Physical Evidence: The Tangible Environment
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Core Concept: Physical evidence refers to the environment in which the service is
delivered and where the firm and customer interact. It also includes any tangible
components that facilitate service performance or communication.
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Elaboration: Since services are intangible, customers often rely on physical cues to
assess quality. The "servicescape" (the physical facility) plays a crucial role in shaping
customer perceptions.
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Breakdown:
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Facility design: The layout, décor, and ambiance of the service facility can
significantly impact customer impressions.
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Equipment: The quality and appearance of equipment used in service delivery
can also influence perceptions of quality.
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Signage: Clear and informative signage can enhance the customer experience
and reduce confusion.
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Other tangibles: Business cards, brochures, websites, and reports are all
examples of tangible elements that can communicate value.
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Employee dress: Uniforms or professional attire can create a sense of credibility
and professionalism.
7. Process: The Service Delivery System
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Core Concept: Process refers to the procedures, mechanisms, and flow of activities
involved in service delivery. This includes everything from the initial customer contact to
the final service outcome.
Elaboration: Efficient and well-designed processes can enhance customer satisfaction
and improve operational efficiency.
Breakdown:
o Flow of activities: Mapping out the steps involved in the service delivery process
can help identify areas for improvement.
o Number of steps: Streamlining processes and reducing unnecessary steps can
enhance efficiency and customer convenience.
o Level of customer involvement: Determining the appropriate level of customer
involvement in the service process is important. Some services require high
levels of customer participation, while others are more standardized.
Marketing Considerations: Service marketers should carefully manage the physical
environment to create a positive and consistent brand experience.