Foundations of Services Marketing
Chapter 1
Chapter 1:
Introduction to Services Marketing
 What are services?
 Why services marketing?
 Characteristics of Services Compared to
Goods
 Services Marketing Mix
 Test your knowledge
Definition
 Services are ‘deeds, performances, efforts’.
 Is a glass of cola a service?
 Is a DVD a service?
 Is a ride in a taxicab a service?
 Other terms that includes the word ‘service’
 Service industry, service economy
 Consumer services
 Customer service
Examples of Service Industries
 Health Care
 hospital, medical practice, dentistry, eye care
 Professional Services
 accounting, legal, architectural
 Financial Services
 banking, investment advising, insurance
 Hospitality
 restaurant, hotel/motel, bed & breakfast
 ski resort, rafting
 Travel
 airline, travel agency, theme park
 Others
 hair styling, pest control, plumbing, lawn maintenance, counseling services, health
club, interior design
Examples of Customer Service
 Free car wash with fill-up
 Calling the customer by name
 Easy return policy
 Updated map of the area or GPS in rental cars
 On-time delivery
 Courtesy
 Enthusiasm
 Suggesting a less expensive option
 Package carry out
Figure 1.1
Contributions of Service Industries to
U.S. Gross Domestic Product
Source: Inside Sam’s $100 Billion Growth Machine, by David Kirkpatrick, Fortune, June 14, 2004, p 86.
Figure 1.4
Percent of U.S. Gross Domestic
Product by Industry
80
Percent of GDP
70
60
50
40
30
20
10
0
1948 1959 1967 1977 1987 1999
Year
 Services
 Manufacturing
 Mining & Agriculture
Source: Survey of Current Business, August 1996, Table 11, April 1998, Table B.3; Eli Ginzberg and George J. Vojta,
“The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.
Figure 1.3
Percent of U.S. Labor Force
Percent of U.S. Labor Force by Industry
80
70
60
50
40
30
20
10
0
1929 1948 1969 1977 1984 1999
Year
 Services
 Manufacturing
 Mining & Agriculture
Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and July 1992, Table 6.4C; Eli
Ginzberg and George J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.
Why study Services Marketing?
 Service-based economies
 Service as a business imperative in manufacturing and IT
 Deregulated industries and professional service needs
 Service equals profits
 Services marketing is different
Characteristics of
Services Compared to Goods
Intangibility
Heterogeneity
Simultaneous
Production
and
Consumption
(Inseparability)
Perishability
Characteristics of Services Compared to Goods
Tangibility Spectrum
Salt
 Soft Drinks
 Detergents
 Automobiles
 CosmeticsFast-food
 Outlets

Tangible
Dominant

Intangible
Dominant

Fast-food
Outlets
Advertising
Agencies
Airlines
Investment
Management
Consulting
Teaching




Intangibility and Inseparability
•First discussed by French economist Jean-Baptiste Say
(1803), using the example of a physician who visits a
patient, prescribes a remedy, and then leaves without
depositing any product:
“[T]he physician’s advice has been exchanged for his fee….
The act of giving was its production,
of hearing [by the invalid] its consumption,
and the production and consumption were
simultaneous.
This is what I call an immaterial product”
Implications of Intangibility
 Services cannot be inventoried
 Services cannot be easily patented
 Services cannot be readily displayed or communicated
 Pricing is difficult
Implications of Simultaneous
Production and Consumption
 Customers participate in and affect the transaction
 Customers affect each other
 Employees affect the service outcome
 Decentralization may be essential
 Mass production is difficult
Heterogeneity
 Three separate meanings in the literature:
 differentiation,
variability,
and diversity.
 A professor may be perceived completely different at the
same type by different students
 A professor may deliver the same lecture in different ways
over the time
Implications of Heterogeneity
 Service delivery and customer satisfaction depend on
employee and customer actions
 Service quality depends on many uncontrollable factors
 There is no sure knowledge that the service delivered
matches what was planned and promoted
Perishability
 First articulated by British economist Adam Smith (1776)
 • Smith, concerned with creation of wealth, distinguished between the output
of
 – productive labor, whose value could be stored in inventories of
saleable goods that could subsequently be exchanged for other items of value,
and…
 – unproductive labor such as that of government officials, the armed
forces, clergy, lawyers, physicians, “men of letters,” musicians,
singers, buffoons, or “menial servants” which, “however honorable, …useful, or
…necessary …produces nothing for which an equal quantity of service can afterwards be
procured….[This type of work] perishes in the very instant of its production.”
Implications of Perishability
 It is difficult to synchronize supply and demand with services
 Services cannot be returned or resold
Challenges for Services
Defining and improving quality
Designing and testing new services
Communicating and maintaining a consistent image
Accommodating fluctuating demand
Motivating and sustaining employee commitment
Coordinating marketing, operations, and human resource
efforts
 Setting prices
 Finding a balance between standardization versus
personalization
 Ensuring the delivery of consistent quality






Traditional Marketing Mix
 All elements within the control of the firm that communicate
the firm’s capabilities and image to customers or that
influence customer satisfaction with the firm’s product and
services:
 Product
 Price
 Place
 Promotion
Expanded Mix for Services -The 7 Ps





Product
Price
Place
Promotion
People
 All human actors who play a part in service delivery and thus influence the buyer’s
perceptions: namely, the firm’s personnel, the customer, and other customers in the
service environment.
 Physical Evidence
 The environment in which the service is delivered and where the firm and customer
interact, and any tangible components that facilitate performance or communication
of the service.
 Process
 The actual procedures, mechanisms, and flow of activities by which the service is
delivered—the service delivery and operating systems.
Table 1.3
Expanded Marketing Mix for Services
Umm…that is what we know now!
 But we want to be one step ahead of everybody else, right?
 New thinking in the field: goods and services not mutually









exclusive
Service can be provided directly or indirectly through tangible goods
Goods are appliances used in service provision
Nature of ownership
How customers perceive and consume time
Reverse channels for return of rented goods
Decisions on own vs. rent, D-I-Y vs. outsource
Distinction between value-creating elements and valueneutral/
negative elements of service delivery
New contexts for studying pricing, developing pricing strategies
Test your knowledge
 In India weddings are timed to occur when Venus is in the ascendant






and Jupiter is strong. This day is deemed lucky. In 2005, almost 15,
000 couples in New Delhi had their wedding on December 25, the
day astrologers announced would be the best day for a wedding. The
service provided by the astrologers is an excellent illustration of the
_____ of services.
A)
intangibility
B)
comparability
C)
divisibility
D)
perishability
E)
compatibility
Answer:
Test your knowledge
 The first time Terry brought his car to Auto Lube to have the oil changed he was






very satisfied with the service. The service manager consulted him several
times while his car was being serviced, asked him if there were any problems
with the car, recommended when additional services should be performed, and
answered questions directly and politely. However, when Terry went back to
Auto Lube after three months to have his oil changed again, he was not satisfied
with the service. The manager spoke to him only when he arrived and when he
paid his bill. In addition, the manager was impatient and unfriendly during the
interaction. Terry's experience at Auto Lube illustrates the _____ of services.
A)
intangibility
B)
heterogeneity
C)
simultaneous production and consumption
D)
perishability
E)
divisibility
Answer:
Test your knowledge







The Offshore Sailing School in Jersey City, New Jersey offers a
basic sailing course, which takes place in three days over two
weekends, for $495. Students enrolled in the course attend
classroom sessions that cover the theory and technology of sailing and
receive hands-on sailing instructions in the water that introduces
them to all fundamental sailing skills. Student participation in the
Offshore Sailing School's classroom sessions and hands-on sailing
instructions illustrates the_____ characteristic of services.
A)
versatility
B)
heterogeneity
C)
simultaneous production and consumption
D)
perishability
E)
intangibility
Answer:
Test your knowledge







In India weddings are timed to occur when the stars and
planets are in certain positions, which are deemed lucky. In 2005,
almost 15, 000 couples in New Delhi had their wedding on
December 25, the day astrologers announced would be the best day
for a wedding. Wedding planners had to prepare all year for this one
date instead of planning lots of weddings throughout the year. The
service provided by the Indian wedding planners illustrates the
_____ characteristic of services.
A)
versatility
B)
heterogeneity
C)
simultaneous production and consumption
D)
perishability
E)
intangibility
Answer:
Test your knowledge
 When Alicia and Jordan dined at Formia Ristorante, a contemporary Italian






restaurant in New Jersey, they both enjoyed Formia's coy, smart, and embracing
atmosphere. Formia creates this atmosphere with a single large dining room
that measures 20 by 60 feet and contains 14 roomy tables. Ceiling fans slowly
swirl as candlelight dances across the tables that are attentively cared for by
servers. Vertical pink and white florid patterns emerge from old wainscoting.
Finally, Formia's two-page menu offers guests a range of pasta, chicken, veal,
and seafood entrees, in addition to nightly specials that are handwritten and
presented on large index cards. Alicia and Jordan experienced the _____
element of Formia Ristorante's services marketing mix.
A)
product
B)
production
C)
process
D)
place
E)
physical evidence
Answer:
Test your knowledge
 Extron Electronics makes coaxial cables for connecting computers to all types of peripheral






devices like printers, modems, and fax machines. For the benefit of its customers, Extron
provides a laminated card with pictures of all the possible cable connections that a customer
could need. With this card, a customer can order from one to any number of connectors with
as many feet of cable as is needed. Orders can be placed using a toll-free number, a fax
number, or an e-mail address. Company reps are also available 24-hours a day in case the
customer is not sure which drawing on the card matches his or her needs. Orders are shipped
within 48-hours of receipt. If a customer is not completely satisfied with his or her order,
Extron has a 100 percent satisfaction guaranteed return policy. Which of the following trends
that has influenced the development of services marketing concepts and strategies as
illustrated by Extron's focus on customer service?
A)
the increasing importance of service industries to the U.S. and world
economies
B)
the increase of government regulation of service industries
C)
the growth in information-based technology
D)
increased competition in professional services
E)
manufacturing firms are placing increased emphasis on providing services
Answer: E