14 Services Marketing

The Nature and Importance of Services Characteristics of Services Agenda The Nature and Importance of Services Characteristics of Services Developing and Managing Marketing Mixes for Services Service Quality Copyright © Houghton Mifflin Company. All rights reserved.

The Nature and Importance of Services An intangible product involving a deed, performance, or effort that cannot be physically possessed Application of human and/or mechanical efforts directed at people or objects Copyright © Houghton Mifflin Company. All rights reserved.

The Nature and Importance of Services (cont’d) Service Facts (U.S.) Service industries account for over 50% of GDP. Service industries employ 80% of nonfarm workers. More than half of new businesses are service firms. Services have increased in tandem with the long-term growth of the U.S. economy. Copyright © Houghton Mifflin Company. All rights reserved.

Characteristics of Services Intangibility Services are actions that have no permanent physical qualities as opposed to goods which can be touched and possessed over time. Inseparability of Production and Consumption The production of a service cannot be separated from its consumption by the customer. Services are produced, sold, and consumed all at the same time. Copyright © Houghton Mifflin Company. All rights reserved.

The Tangibility Continuum FIGURE 14.1 Copyright © Houghton Mifflin Company. All rights reserved.

How Do the Service Characteristics of Intangibility and Inseparability Affect the Marketing Strategy of Universities Like Bentley? Reprinted with permission of Bentley College. Copyright © Houghton Mifflin Company. All rights reserved.

Characteristics of Services (cont’d) Perishability Services cannot be produced ahead of time and stored until needed. Heterogeneity Variation in the quality of services delivered by individuals and organizations Client-Based Relationships Interactions that result in satisfied customers who use a service repeatedly over time Copyright © Houghton Mifflin Company. All rights reserved.

Characteristics of Services (cont’d) Customer Contact The level of interaction between the service provider and the customer necessary to deliver the service High-contact services require the customer to be present during the production of the service. High-contact services require well-trained and motivated service personnel. Low-contact services do not require the customer’s continuous presence while the service is carried out. Copyright © Houghton Mifflin Company. All rights reserved.

Does Domino’s Pizza sell a service or a good? Question Does Domino’s Pizza sell a service or a good? YES Consumers are buying guaranteed speedy delivery, which is a service. Domino’s has redefined the pizza industry as a service because it delivers a hot, recently prepared pizza to the customer’s doorstep. NO Advertising campaign stresses quality and freshness. Consumers are buying a hot, fresh pizza with their choice of toppings— tangible things implying that Domino’s is selling a tangible good. Copyright © Houghton Mifflin Company. All rights reserved.

Exercise The St. Louis Cardinals baseball organization is owned by Anheuser-Busch, which also operates Busch stadium, home of the Cardinals. Despite being located in a relatively small market, the Cardinals have set attendance records. Much of this success is the result of effective services marketing at the ballpark, which makes attending games an enjoyable experience for fans, whether the Cardinals win or lose. This exercise focuses on how recognizing the characteristics of services can enhance services marketing strategies. Question 1. You pay for a ticket that gets you a seat to watch a game, which otherwise is not tangible (possessible). In effect, you buy a memory of the ball game. Thus, to gain customer loyalty, it is important that everything influencing that memory be positive. Setting tickets prices, then, is highly related to how consumers perceive the value of the ballgame experience. More tangible products, such as food and souvenirs, are bought and should contribute positively to the experience. Sports teams make great efforts to increase tangibility by arranging events where fans meet the players (shake hands, obtain autographs). Promotional campaigns with memorable slogans are also efforts to increase tangibility. Question 2. Busch Stadium management spends extensive time training personnel to deal with unruly fans and to stop problems before they happen. Food selection includes a wide variety of quality food (pizza, Mexican, varieties of ice cream). Bad food makes bad memories, and lack of vending availability or slow food service means missed innings. Narrow rows, dirty or crowded restrooms, and limited food offerings do little to make fans want to go to a game when the team is losing. Some students may argue that having a winning team is most important, but the point should be emphasized that because team performance varies, the rest of the experience should be standardized at a high quality level. Copyright © Houghton Mifflin Company. All rights reserved.

Exercise (cont’d) What part of your experience at a baseball game is primarily intangible? What are you paying for when you go to a ballgame? Consumers have difficulty separating the producer (the Cardinals and Busch Stadium) from the consumption experience (which includes fan behavior, food vending, seats, or bleachers). Why would this be important for the management at Busch Stadium to understand? In other words, can you go see a winning team play but not enjoy the game, or vice-versa? Question 3. Ticket sales cannot be inventoried and sold at a later time. Sales promotions may be used to fill the park to capacity on slow nights or at games against weaker teams. Question 4. Any part of the service that involves people (players, attendants, vendors, food service providers) will be subject to varying levels of performance. Clearly, this means that attention should be paid to personnel selection, training, and compensation. Good service comes from meeting or exceeding customers’ expectations of consistent quality. Copyright © Houghton Mifflin Company. All rights reserved.

Exercise (cont’d) Busch Stadium holds around 55,000 fans. What difference does it make that services are highly perishable? How would this influence sales promotion activity? What aspects of the baseball game experience are susceptible to heterogeneity? What does this say about the importance of employing high-quality personnel? Copyright © Houghton Mifflin Company. All rights reserved.

Developing and Managing Marketing Mixes for Services Development of Services Package or bundle of services consists of core services that are the expected basic service experience. supplementary services that differentiate the service bundle from those of other competitors. “Basic,” “Standard,” and “Deluxe” service combinations are custom-tailored to consumers’ specific needs. Copyright © Houghton Mifflin Company. All rights reserved.

How Would an Online Brokerage Service Provider Use This Information? Visitors to Online Trading Sites by Age Source: comScore Media Matrix as reported in American Demographics, April 2004, p.30. Copyright © Houghton Mifflin Company. All rights reserved.

Developing and Managing Marketing Mixes for Services (cont’d) Promotion of Services—Overcoming the Intangibility of Services Providing tangible (symbolic) cues/images Promoting price, guarantees, availability, personnel Using concrete, specific language in advertising Using personal selling and word-of-mouth advertising Offering services on a trial basis Copyright © Houghton Mifflin Company. All rights reserved.

Developing and Managing Marketing Mixes for Services (cont’d) Pricing of Services Performance of specific tasks—car washing Amount of time to complete the service—babysitting Variable pricing based on the level of demand; high price at peak demand, lower prices when demand slackens—airline seats Bundling of services requires decisions on unit, combination, or separate pricing—telephone services Pricing as an indicator of quality is used when consumers have no other cues to indicate quality. Copyright © Houghton Mifflin Company. All rights reserved.

Service quality is judged from the customer’s viewpoint. Customers’ perception of how well a service meets or exceeds their expectations Service quality is judged from the customer’s viewpoint. Copyright © Houghton Mifflin Company. All rights reserved.

Service Quality Model FIGURE 14.2 Source: Adapted from A. Parasuraman, Leonard L. Berry, and Valarie A. Zeithaml, “An Empirical Examination of Relationships in an Extended Service Quality Model,” Marketing Science Institute Working Paper Series, Report no. 90-112 (Cambridge, MA: Marketing Science Institute, 1990). Used with permission. FIGURE 14.2 Copyright © Houghton Mifflin Company. All rights reserved.

Delivering Exceptional Service Quality Analysis of Customer Expectations Levels of customer service expectations Desired: if met, customer is very satisfied Acceptable: if met, customer is not dissatisfied Conduct marketing research Focus groups Comment cards Phone surveys Asking employees Desired Service Acceptable Service Zone of Tolerance Copyright © Houghton Mifflin Company. All rights reserved.

Delivering Exceptional Service Quality (cont’d) Service Quality Specifications Establish goals for service delivery Secure management’s commitment to service quality Employee Performance Train customer-contact employees at all levels Incorporate service quality into employee evaluation and compensation systems Copyright © Houghton Mifflin Company. All rights reserved.

Delivering Exceptional Service Quality (cont’d) Management of Service Expectations Conduct advertising campaigns that make realistic promises of service Establish good internal communications to inform employees and ensure promises are kept Copyright © Houghton Mifflin Company. All rights reserved.

Which Dimension(s) of Service Quality Does This Advertisement for Liberty Mutual Address? Reprinted with permission of Liberty Mutual Insurance Company. Copyright © Houghton Mifflin Company. All rights reserved.