Maurice Patterson
Session 6:
Products & Services
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Maurice Patterson
Learning Outcomes.
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To identify how an understanding of the customer is central to marketing strategy.
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To explore some alternative approaches to the study of consumers.
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To assess CRM as an approach for developing and sharing customer insight.
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To appreciate how marketers should use customer insight to become customer advocates in the
organization.
Introduction.
So far in this module we have laid the foundations for an understanding of contemporary marketing practice;
introducing you to established marketing principles and paradigms, discussing the role of marketing in the
firm, and identifying how marketing can contribute value by prioritizing the role of the customer. In this
session we will discuss in more depth how marketer’s can develop customer insights (i.e. insights about
customer motivations and behaviour). Such insights can be shared across the organization to help support
strategic decision-making. Furthermore, they can be deployed by marketers in their advocacy of a customer
orientation within the organization.
Products.
A product is essentially anything that can be offered to a market in an effort to satisfy consumers. It is
helpful to think of products as bundles of benefits, comprised of more than just their physical attributes.
Indeed, the product may be seen as a bundle of tangible and intangible attributes that an organisation offers
to consumers and that satisfies needs or wants (Lusch and Lusch 1987). The combination of tangible and
intangible attributes leads us to the notion of the total product concept in which the product is envisaged as a
number of layers including the core benefit, product make-up, and services and intangibles (see Figure 6.1).
The core benefit is at the centre of the product and is that part which actually aims to satisfy the basic need of
the consumer. Added to this is the product make-up which includes the physical features of the product and
the packaging. Thus, the core benefit and product make-up combine to form the real product, or, in other
words, the product we see on the shelves etc. The final layer represents services and intangibles and tends to
be the domain in which organisations are able to differentiate their offerings from those of competitors.
Services here will include such things as after-sales service, guarantees and credit facilities. Intangibles relate
primarily to elements of branding which we will take up in the next session.
Figure 6.1 The Total Product Concept
The Product Life Cycle.
There is a general consensus that products exhibit a pattern of development quite similar to the life cycle of
living organisms. This product life cycle (see Figure 6.2) depicts the first stage of development as the
introduction. Here, the product is new on the market and it is likely that the organisation has incurred
substantial costs in establishing it. These costs will include the financial effort required to cover research and
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development in creating the product in the first place, and promotional costs involved in bringing the product
to the attention of the marketplace. Often the revenue generated by products in this stage will fail to cover
costs. This may be because initially there are relatively few customers and sales are slow. During the growth
stage costs of production begin to fall as the organisation develops economies of scale. Furthermore, wordof-mouth about the product begins to spread and the customer base begins to grow. The result is that
profitability increases dramatically. However, the potential profitability may attract other companies into the
market and so the organisation also needs to consider revitalising the product in some way so as to reduce
the competitive threat. In maturity the customer base will have stopped growing. Yet, increasing competition
drives down prices and forces companies to spend more money on advertising and promotion. Thus, profits
stagnate and the least effective competitors tend to be forced out of the market. Finally, in the decline stage
sales begin to drop off and profitability is weakened. The organisation now has a number of options and
must decide whether to continue operating as normal,
profitability, or whether to leave the market altogether.
to drastically reduce costs in an effort to shore up
Figure 6.2 The Product Life Cycle.
Consumer Adoption of New Products.
Consideration of the product life cycle also suggests that the number of consumers interested in a product
changes over the course of its development. Consumer adoption of new products mimics the product life
cycle in that it goes through an initial period of slow, gradual growth before experiencing a period of more
dramatic growth. The seminal study of the adoption process (Ryan and Gross 1943) suggests that adoption is
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primarily a social process. In their study of Hybrid Corn adoption by Iowa farmers they found that most
farmers did not adopt the new product until they had spoken to farmers that had already used it. Ryan and
Gross classified the farmers into a number of categories based on how long it took them to adopt the new
product and these have subsequently become known as adopter categories (see Figure 6.3).
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The first consumers to adopt a new product are called innovators. Innovators tend to be young, mobile and
wealthy, and they like new products because they enjoy being the first people to own a product. Their
personal circumstances mean that they are fairly comfortable taking risks on new products. The early
adopters are more integrated into the local social system and thus they tend to operate as major opinion
leaders for subsequent groups. They tend to be seen as experts by these subsequent groups and so they can be
very influential. The early majority are much more deliberate in their adoption of new products. They
interact frequently with their peers and represent the beginnings of the mass market. They do not like taking
risks but are open to new ideas if those ideas are supported by their peers and by early adopters. The early
majority will also seek out information on new products in the mass media. The late majority are sceptical
consumers who approach new products cautiously. They are slow to adopt and may only do so as a result of
pressure from their peers or out of economic necessity. They are more fond of tradition than progress and
thus would rather maintain the status quo. Finally, laggards are the last consumers top adopt a new product.
They are very traditional, tend to be older and much less socially mobile than earlier groups and their
personal resources are limited. They tend to resist innovative products and ideas at all costs.
Figure 6.3
Adopter Categories.
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Rogers (1983) suggests that consumers judge a new product based on their perceptions of certain attributes:
relative advantage, compatibility, complexity, trialability, and observability. Relative advantage is the degree
to which potential consumers perceive a new product as being superior to existing substitutes (for example,
wireless versus fixed broadband). Often such an advantage needs to be made tangible for consumers before
they will switch to the new offering. Compatibility is the degree to which potential consumers feel a new
product is consistent with their present needs, values and practices (for example, ‘low fares’ air travel versus
premium air travel). The more compatible a product is seen to be the more likely the consumer is to integrate
it into their repertoire of purchases. Complexity is the degree to which a new product is difficult to
understand or use (for example, smart phones). The more complex a new product is perceived the less
willing consumers may be to adopt it. Trialability relates to the ability to try a new product on a limited basis
before purchase. The opportunity to trial products helps to put the consumers mind at ease about the potential
risks associated with adoption (for example, test driving a new car). Finally, observability is the degree to
which a product’s benefits or attributes can be observed or imagined by consumers (for example, the use of
e-readers such as the Kindle). Observability supports the social nature of adoption as it allows consumers to
see the product being used by others.
Services.
As we saw in session 2, the 1970s saw the emergence of services marketing as a distinct subdiscipline of
marketing. However, the mix management perspective (4Ps) that dominated marketing at that time was criticised for providing “no guidance, no terminology, or practical rules for services” (Shostack, 1977: 73). During this time services were argued to be different from products on the grounds of intangibility, perishability,
inseparability and heterogeneity (Zeithaml et al., 1985) – thus requiring a different approach to marketing.
With regard to the intangibility of services we see that the customer is unable to truly experience a service
before it is bought (Wyckham et al. 1975). As a result, the customer cannot make a thorough evaluation of
the service prior to purchase and often finds it difficult to see the result of use (for example, the customer
might struggle to see the results of many medical or educational services). Intangibility particularly impacts
the manner in which the marketer communicates to the customer about the service. Principally, the organisation must transform the service into tangible offerings that can be more easily evaluated. This is often
achieved by pointing to the physical evidence or material elements associated with the service. For example,
a sporting event is loaded with material cues which the marketer can use to provide physical evidence of the
service to the customer. There might be an impressive stadium with well-located parking spaces, dining facilities, restrooms, and comfortable seating. There may also be opportunities to purchase merchandise associated with the event such as club jerseys, event programmes etc. All of these add an element of tangibility to
the service which the customer can use in evaluating it relative to competing offerings.
Perishability suggests that a service cannot be stored in the same way that goods can (Zeithaml et al. 1985).
For example, an airline cannot remove unused seats from an airplane and put them on the next flight. From a
marketing perspective this places huge emphasis on how the organisation manages supply and demand so
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that the take-up of the service is maximised. Thus, a service provider might offer special discounts during
off-peak periods to encourage consumers to avail of the service.
Inseparability means that, while goods are produced, then sold and finally consumed, services are sold first,
and then produced and consumed simultaneously. Because production and consumption occur at the same
time, consumers are forced into intimate contact with the service provider (Grönroos 1978), thus highlighting
the importance of interaction between clients and providers and on the service encounter generally. As a
consequence, service personnel need to be carefully trained in how to interact with customers. Moreover, the
nature of services also means that customers often come into intimate contact with other customers. For example, a meal out in a restaurant will inevitably require you to come into contact with other diners. Their
actions can also affect your dining experience (for example, if they are loud and boisterous this might negatively affect your enjoyment of the meal). Thus, the service provider will have to manage the customers as
much as they manage their own personnel.
Heterogeneity concerns the potential for high variability in performance of the service from producer to producer, employee to employee, and even from day to day. In essence, because services are performed by people they are never really the same twice. For example, an individual employee’s mood and performance may
fluctuate, thus raising problems with regard to consistency of performance (Langeard et al. 1981). But consumers rely on consistency of performance in their evaluations of marketing offerings. As a result the service
provider has two basic options. First, they can attempt to industrialise the service, that is, to determine a set
of rules for employees around the service such that they perform it as consistently as possible every time.
This is more or less the approach taken by fast food providers such as McDonalds. The performance of employees is regimented in such a way that no matter which restaurant you visit, or employee you interact with,
your dining experience will be pretty much the same. Second, service providers can customise the service for
each customer such that each customer gets a unique experience that they feel is tailored to their own specific needs. For example, personal trainers might tailor work-out regimes for each of their individual clients
according to their needs and abilities.
The Service Encounter.
The service encounter is generally accepted to be the period of time during which a customer interacts directly with a service provider. This “focuses on the interpersonal element of service firm performance” (Bitner et
al. 1990: 72). However, the definition of a service encounter is broad and may include the customer’s interaction with customer-contact employees, machines, automated systems, physical facilities, and any other
service provider elements. The service encounter actively involves the customer and so it may be depicted as
a triad of relationships between the service organisation, contact personnel, and the customer (see Figure
6.4).
Managers usually try to deliver a service as efficiently as possible in order to protect their margins. To
achieve such efficiency, managers will impose rules and procedures on contact personnel to limit the level of
autonomy they can exercise when serving the customer. Naturally, contact personnel would rather have more
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autonomy as it may provide greater job satisfaction but, more fundamentally, it would allow them to respond
more flexibly to customer demands. These same rules and procedures will, therefore, also limit the extent to
which contact personnel can deliver a customised service to clients and may reduce customer satisfaction.
Finally, the interaction between contact personnel and customers is influenced by the degree of perceived
control held by both parties. Personnel will want to control the behaviour of customers in an effort to make
their own work more manageable and less stressful. At the same time, customers will want control over the
service encounter so that they can maximise the benefit they derive from it.
Figure 6.4
The Service Encounter Triad (Bateson 1985).
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Customers rely upon employee behaviour in evaluating services because the service itself offers little evidence given its intangibility (Shostack 1977). More importantly, those employees are unlikely to be marketing personnel and, thus, Gummesson (1987) has coined the phrase part-time marketers in recognition of their
importance to the entire enterprise. In fact, such a stance calls into question the continued relevance of the
traditional marketing department. Rather than being housed in a specific area of the organisation, or amongst
specific personnel, marketing must truly permeate the entire service organisation. This has highlighted the
need for what Grönroos (1994) calls internal marketing, reflecting the recognition that “a service must first
be successfully marketed to the personnel so that the employees accept the service offering and thoroughly
engage in performing their marketing duties” (Grönroos 1978: 594). Internal marketing is, therefore, the process responsible for ensuring that the organisation is market-oriented (Piercy 1992) and it is integral to the
management of relationships with customers.
Service Quality.
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Researchers (e.g., Czepiel, 1990) believe that the quality of the interaction between customers and service
providers during the service encounter is important because it is at this level where customers judge the services provided to them. Because there is high variability in service provision (i.e. heterogeneity), Berry
(1995) argues that many customers are likely to seek continuity with the same provider when excellent service quality is experienced, particularly when that service is important and/or complex.
There ahve been a number of important developments in the concept of service quality. Parasuraman, Berry
and Zeithaml (1985-1996) made a significant contribution in terms of differentiating between actual quality
(in terms of how a company might measure it), and customer-perceived quality (i.e. the customer’s view of
quality). Their research effectively translates into a useful tool for practicing managers called the Gap Model
(see Figure 6.5).
Figure 6.5
The Gap Model.
Gap 1 is the gap between customer expectations and management perceptions of those expectations. If they
misunderstand customer needs management are in danger of directing resources into the wrong areas.
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Gap 2 is the gap between management perceptions of customer expectations and the translation of those perceptions into quality specifications. Here, management fail to set performance standards for contact personnel that adequately capture their understanding of customer needs.
Gap 3 is the gap between quality specifications and service delivery. In this situation, contact personnel do
not perform to the standards required by the organisation and set out in quality specifications.
Gap 4 is the gap between service delivery and external communications. The organisation promises customers they will receive a certain level of service. These promises are communicated to customers in advertising,
on websites, on sales brochures etc. Failure to live up to these promises results in customer dissatisfaction.
Gap 5 is the gap between customer-perceived service and expected service. Here, there is a disjuncture between what customers expected from the service and what they believe they received.
Five independent dimensions of service quality have been identified which help organisations measure customer-perceived quality and identify how to increase customer satisfaction (by exceeding customer expectations): tangibles, reliability, responsiveness, assurance, and empathy (Parasuraman et al. 1988). Tangibles
relate to the physical location of the service, facilities and equipment, communications material, and the appearance of contact personnel. Reliability refers to the accuracy and dependability of service performance.
Responsiveness captures the helpfulness and willingness of contact personnel to provide prompt service. Assurance relates to the courtesy, and competence of contact employees. And finally, empathy suggests the
individualised care shown to customers. It is notable that the final three components here focus on the human
component of the interaction.
Service quality may also be divided into technical quality (the quality of the service outcome) and functional
quality (the quality of the service delivery process) (Gummesson 1987; Grönroos 1990). Because it is relatively easy for organisations to reach an acceptable level of technical quality, functional quality has become
more important for differentiation, and in many cases it is the dominant criterion used by customers in evaluating a service. Thus, technical quality is important is important if the organisation is going to meet customer
expectations. However, it appears that human interaction, the delivery of the service, is ultimately the key to
exceeding customer expectations.
References.
Bateson, J. (1985) “Perceived Control and The Service Encounter” in, J. Czepiel, M. Solomon and C.
Suprenant (eds.), The Service Encounter, Lexington, MA: Lexington Books, 67-82.
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Berry, L. (1995) “Relationship Marketing of Services - Growing Interest, Emerging Perspectives”, Journal
of the Academy of Marketing Science, 23(4), 236-245.
Bitner, M., B. Booms and M. Tetreault (1990) “The Service Encounter: Diagnosing Favorable and
Unfavourable Incidents”, Journal of Marketing, 54, 71- 84.
Czepiel, J. (1990) “Service Encounters and Service Relationships: Implications for Research”, Journal of
Business Research, 20, 13-21.
Grönroos, C. (1978) “A Service-Oriented Approach to Marketing of Services”, European Journal of
Marketing, 12(8), 588–601.
Grönroos, C. (1990) Service Management and Marketing: Managing the Moments of Truth in Service
Competition, New York: Lexington Books.
Grönroos, C. (1994) “Quo Vadis Marketing? Toward a RM Paradigm”, Journal of Marketing Management,
10(5), 347-360.
Gummesson, E. (1987) “The New Marketing – Developing Long-Term Interactive Relationships”, Long
Range Planning, 20(4), 10–20.
Langeard, E., J. Bateson, C. Lovelock and P. Eaglier (1981) Services Marketing: New Insights from
Consumers and Managers, Cambridge, MA: Marketing Science Institute.
Lusch, R. and V. Lusch (1987) Principles of Marketing, Boston, MA: Kent Publishing.
Parasuraman, A., L. Berry and V. Zeithaml (1988) “SERVQUAL: A Multiple-Item Scale For Measuring
Consumer Perceptions of Service Quality”, Journal of Retailing, 64(1), 12-40.
Piercy, N. (1992) Market-Led Strategic Change, Oxford: Butterworth-Heinemann.
Rogers, E. (1983) Diffusion of Innovations (3rd ed.), New York: Free Press.
Ryan, B. and N. Gross (1943) “The Diffusion of Hybrid Seed Corn in Two Iowa Communities, ” Rural
Sociology 8 (March), 15-24.
Shostack G. (1977) “Breaking Free from Product Marketing, Journal of Marketing, 41, 73-80.
Wyckham, R., P. Fitzroy and G. Mandry (1975) “Marketing of Services: An Evaluation of the Theory,"
European Journal of Marketing, 9(Spring), 59-67.
Zeithaml V., A. Parasuraman and L. Berry (1985) “Problems and Strategies in Services Marketing, Journal
of Marketing, 49, 33-46.
Recommended Reading
Baines, P., Fill, C., and K. Page (2011) Marketing (2nd Edition), Oxford University Press, Chapter 8 and
Chapter 13.
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Day, G. (1981) “The Product Life Cycle: Analysis and Application Issues”, Journal of Marketing,
45(Autumn), 60–67.
Moore, G. (2005) Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution,
New York: Penguin.
Lovelock, C. and E. Gummesson (2004) “Whither Services Marketing?: In Search of a New Paradigm and
Fresh Perspectives”, Journal of Service Research, 7(1), 20-41.
Lovelock, C. and J. Wirtz (2011) Services Marketing – People, Technology, Strategy (7th ed.), Upper Saddle
River, NJ: Prentice Hall.
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