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 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 70 60 50 Percent of GDP 40 30 20 10 Services Manufacturing Mining & Agriculture 1948 1959 1967 1977 1987 1999 Year 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 by Industry 80 70 60 50 Percent of U.S. Labor Force 40 30 20 Why the change… 10 Services Manufacturing Mining & Agriculture 1929 1948 1969 1977 1984 1999 Year 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

            Intangible Dominant Tangible Dominant Characteristics of Services Compared to Goods Tangibility Spectrum Salt  Soft Drinks  Detergents  Automobiles  Cosmetics  Fast-food Outlets  Intangible Dominant Tangible 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