1. SUPPLEMENTAL “SERVICES” PRODUCT ELEMENT FRAMEWORKS FOR MKTG 490

2. 11 MKTG CHAPTER Lamb, Hair, McDaniel 2007-2008
Services and Nonprofit Organization Marketing
CHAPTER
Designed by
Amy McGuire, B-books, Ltd.
Prepared by
Deborah Baker, Texas Christian University

3. Learning Outcomes Discuss the importance of services to the economy
Discuss the differences between
services and goods
Describe the components of service quality and the gap model of service quality
LO1
LO2
LO3

4. Learning Outcomes Develop marketing mixes for services LO4
Discuss relationship marketing in services
Explain internal marketing in services
Discuss global issues in services marketing
Describe nonprofit organization marketing
LO4
LO5
LO6
LO7
LO8

5. The Importance of Services
LO1
Discuss the importance of services to the economy

6. Service
Service
The result of applying human or mechanical efforts to people or objects.
Notes:
A service is the result of applying human or mechanical efforts to people or objects. Services involve a deed, a performance, or an effort that cannot be physically possessed.
The marketing process is the same for all types of products, whether they are goods or services. In fact, many manufacturing firms can point to service as a major factor in their success. Services offered by the manufacturer are important to buyers, and is often a factor in the importance of purchasing products. For example, copiers.
Services have some unique characteristics and marketing strategies need to be adjusted for these characteristics.
LO1

7. REVIEW LEARNING OUTCOME
LO1
The Importance of Services
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
81%
Services as a percentage of GDP
Services as a percentage of employment
Services
Deed
Performance
Effort
Notes:
The service sector accounts for 81 percent of both U.S. gross domestic product and U.S. employment. The demand for services is expected to continue. As a result of demographic shifts, services are expected to account for nearly all net job growth through the year (The aging population will need nursing care, physical therapy, and social workers.)

8. How Services Differ from Goods
LO2
Discuss the differences between services and goods

9. How Services Differ from Goods
Intangible
Inseparable
Heterogeneous
Perishable
Notes:
Intangibility: Services cannot be touched, seen, tasted, heard, or felt in the same way as goods. Services cannot be stored and are easy to duplicate. Tangible cues are often used to communicate a service’s quality and nature. Facilities are a critical tangible part of a service experience.
Produced and Consumed Simultaneously: Goods are produced, sold, and then consumed. In contrast, services are often sold, produced, and consumed at the same time. Consumers are involved in the production of the services that they buy. The quality of services depends on the quality of employees.
Greater variability: Services are less standardized and uniform than goods—a characteristic known as heterogeneity. Because services are labor-intensive, consistency and quality control can be hard to achieve. Standardization and training help increase consistency and reliability.
Perishability: Services cannot be stored, warehoused, or inventoried. If not used, the revenue is lost. One of the most important challenges in many service industries, such as hotels and airlines, is finding ways to synchronize supply and demand. Deep discounts and off-peak pricing strategies encourage demand during nonpeak times.
LO2

10. How Services Differ from Goods
Intangibility
Search Qualities
Experience Qualities
Credence Qualities
Notes:
Compared to goods, services tend to exhibit fewer search qualities.
A search quality is a characteristic that can be easily assessed before purchase.
An experience quality is a characteristic that can be assessed only after use.
A credence quality is a characteristic that consumers may have difficulty assessing even after purchase because they do not have the necessary knowledge or experience.
Online
Web MD
What elements of Web MD Web site communicate the search, experience, and credence qualities of the services offered by online medical consultant?
Online
LO2

11. Service Quality
LO3
Describe the components of service quality and the gap model of service quality

12. Components of Service Quality
LO3
Tangibles
The physical evidence
of a service.
Empathy
Caring, individualized attention to customers.
Assurance
The knowledge and courtesy
of employees.
Responsiveness
The ability to provide
prompt service.
Reliability
The ability to perform the service right the first time.
Notes:
Service quality is more difficult to define and measure than is the quality of tangible goods. Business executives rank the improvement of service quality as one of their most critical challenges.
Researchers have shown that customers evaluate service quality by these five components.

13. The Gap Model of Service Quality
Notes:
A model of service quality called the gap model identifies five gaps that can cause problems in service delivery and influence customer evaluations of service quality. These gaps are shown in Exhibit 11.1.
Gap 1: the gap between what customers want and what management thinks customers want. This gap results from a lack of understanding or a misinterpretation of customers’ needs or wants. To close gap 1, keep in touch with what customers want by doing research on customer needs and customer satisfaction.
Gap 2: the gap between what management thinks customers want and the quality specifications that management develops to provide the service.
Gap 3: the gap between the service quality specifications and the service that is actually provided. If gaps 1 and 2 are closed, gap 3 is due to the inability of management/employees to do what should be done. Poorly trained or motivated workers can cause this gap. To close gap 3, employees need the skills, training, and tools to perform their jobs.
Gap 4: the gap between what the company provides and what the customer is told it provides. This is a communication gap, caused by such things as misleading or deceptive advertising campaigns. To close gap 4, companies need to create realistic customer expectations through honest, accurate, realistic communication.
Gap 5: the gap between the service that customers receive and the service they want. This gap can be positive or negative. As the gaps shrink, service quality improves.
Discussion/Team Activity:
Discuss firms who provide high levels of service quality. Examples: Ritz-Carlton, Nordstrom, Neiman Marcus, Lexus.

14. Biz Flix
Intolerable Cruelty
LO3

15. REVIEW LEARNING OUTCOME
LO3
Service Quality

16. Marketing Mixes for Services
LO4
Develop marketing mixes for services
Notes:
Due to services’ unique characteristics, elements of the marketing mix need to be adjusted to meet these special needs.

17. Product Strategies for Services
Mix
Standardization or Customization
Core and Supplementary
Process
Notes:
Product strategies for service offerings include decisions on:
Type of process involved
Core and supplementary services
Standardization or customization of the service product, and
Service mix. These are described on the following slides.
LO4

18. Service as a Process LO4 People Processing Possession Processing
Mental Stimulus Processing
People
Processing
Possession Processing
Information Processing
Notes:
Two things get processed in service organization: People and objects. In some cases, the process is physical, while in others the process is intangible. There are four types of service processing categories:
People processing takes place when the service is directed at a customer. Examples: health care, hairstyling
Possession processing occurs when the service is directed at customers’ physical possessions. Examples: lawn care, car repair, dry cleaning
Mental stimulus processing refers to services directed at people’s minds. Examples: spectator sports events, theater performances, education
Information processing describes services that use technology or brainpower directed at a customer’s assets. Examples: insurance, consulting, banking
LO4

19. The Service Factory LO4 Possession processing
Notes:
Because customer experiences and involvement differ for each of these types of services, marketing strategies may also differ. People-processing services require customers to enter the service factory. In contrast, possession-processing services typically do not require the customer to be present in the service factory. Marketing strategies for the former would require an attract, comfortable physical environment and employee training to ensure a positive employee-customer interaction.
Possession processing
Mental-stimulus processing
LO4

20. The Service Offering LO4 Core Service Supplementary Service
The most basic benefit the consumer is buying.
A group of services that support
or enhance the core service.
Notes:
The service offering is a bundle of activities that includes the core service, which is the most basic benefit, and a group of supplementary services that enhance or support the core service.
In many industries, the core service becomes a commodity product as competition increases. As a result, supplementary services are used to create competitive advantage.
Discussion/Team Activity:
Name organizations and discuss their core and supplementary services.
LO4

21. Core and Supplementary Services for FedEx
Problem solving
Billing
statements
Tracing
Documentation
Order taking
Supplies
Pickup
Advice and
information
Overnight transportation and delivery of packages
Notes:
This slide depicts the core and supplementary services offered by FedEx. The core service is overnight transportation and package delivery. Supplementary services include problem solving, advice and information, and billing statements.
LO4

22. Customization/Standardization
Mass Customization
A strategy that uses technology to deliver customized services on a mass basis.
Notes:
An important issue in developing service offerings is whether to customize or standardize. Customized services are more flexible but command a higher price. On the other hand, standardized services are more efficient and cost less.
Instead of choosing either strategy, elements of both can be incorporated into an emerging strategy called mass customization. Mass customization uses technology to deliver customized services on a mass basis, thus meeting customers’ specific needs.
Discussion/Team Activity:
Identify companies who have successfully used mass customization to deliver individualized services. Examples include: Lands’ End, airlines’ video on demand
LO4

23. The Service Mix Determine what new services to introduce
Determine target market
Decide what existing services to maintain and to eliminate
Notes:
Most service organizations market more than one service. Therefore, each part of the service mix should make a different contribution to achieving the firm’s goals.
Designing a service strategy means deciding what new services to introduce to which target market, and deciding what services to maintain and to eliminate.
LO4

24. Place (Distribution) Strategy
Scheduling
Location
Direct or indirect
distribution
Number of outlets
Convenience
Notes:
Distribution strategy for services should focus on issues shown on this slide.
Convenience
Number of outlets: the intensity of distribution should meet the target market’s needs and preferences.
Direct vs. indirect distribution: many service firms use direct distribution or franchising. The newest form of direct distribution is the Internet.
Location: the location of a service reveals the relationship between its target market strategy and distribution strategy.
Scheduling: the most important factor for time-dependent service providers like airlines, physicians, and dentists.
Discussion/Team Activity:
Identify specific service providers who have utilized the distribution strategies described above.
LO4

25. Promotion Strategy LO4 Stress tangible cues Use personal information
sources
Create a strong organizational image
Engage in postpurchase communication
Notes:
Services are less tangible and are more difficult to promote than tangible goods. Four promotion strategies are:
Stressing tangible cues
Using personal informational sources
Creating a strong organizational image
Engaging in postpurchase communication
Discussion/Team Activity:
Identify specific service providers who have utilized the promotion strategies described above.
LO4

26. Pricing Challenges for Services
Price Strategy
Pricing Challenges for Services
Define the unit of service consumption
Determine if multiple elements are “bundled” or priced separately
Notes:
The unique characteristics of services present two pricing challenges.
Defining the unit of service consumption. Should it be based on completing a service task or should it be time based?
Determining if multiple elements are bundled. Should pricing be based on a bundle of elements or whether each element should be priced separately?
Discussion/Team Activity:
Identify specific service providers who have utilized the pricing strategies described above.
LO4

27. Pricing Objectives LO4 Revenue-Oriented Pricing
Operations-Oriented Pricing
Patronage-Oriented Pricing
Maximize the surplus of income over costs
Match supply and demand by varying price
Maximize the number of customers by varying price
Online: E*Trade, Ameritrade, Schwab
Compare the pricing for services on the largest Internet financial Web sites. How can you account for the great differences in price for essentially the same service?
Notes:
Marketers should set performance objectives when pricing each service. Three categories of pricing objectives are:
Revenue-oriented pricing focuses on maximizing the surplus of income over costs.
Operations-oriented pricing seeks to match supply and demand by varying prices.
Patronage-oriented pricing tries to maximize the number of customers using the service.
A firm may need to use more than one type of pricing objective.
Online
LO4

28. REVIEW LEARNING OUTCOME
LO4
Marketing Mixes for Services
PLACE
PROMOTION
PRICE
PRODUCT = SERVICE
Process
Core and Supplementary
Mass Customization
Standardization
Number of outlets
Direct
Indirect
Location
Tangible cues
Personal information
Strong image
Post-purchase communication
Revenue oriented
Operations
oriented
Patronage oriented

29. Relationship Marketing
LO5
Discuss relationship marketing in services
Notes:
Many services involve ongoing interaction between the service organization and the customer. They can benefit from relationship marketing as a means of attracting, developing, and retaining customer relationships.
It is more cost effective to keep existing customers than to attract new ones. Increasing customer retention by 2 percent can have the same effect on profits as reducing costs by 10 percent.

30. REVIEW LEARNING OUTCOME
LO5
Relationship Marketing in Services 2
Social
Financial 1 3
Structural
Pricing incentives
Design services to meet customer needs
Creating value-added services not available elsewhere
Notes:
Relationship marketing can be practiced at three levels:
Level 1: The firm uses pricing incentives to encourage customers to continue doing business. Examples include airline frequent flyer programs. This level of relationship marketing is the least effective because its price-based advantage is easily imitated by competitive firms.
Level 2: This level uses pricing incentives as well as building social bonds with customers. The firm keeps in touch with customers. Examples include the FLOWERS online Gift Reminder Program.
Level 3: At this level, the firms adds structural bonds to the formula. This offers value-added services that are not available by competitive firms. Examples include Hertz #1 Club gold.

31. Internal Marketing in Service Firms
LO6
Explain internal marketing in services

32. Internal Marketing
LO6
Internal Marketing
Treating employees as customers and developing systems and benefits that satisfy their needs.
Notes:
Services are performances, so the quality of a firm’s employees is an important component in building long-term relationships with customers.
It is beneficial to the company to keep happy employees. Studies show that replacing an employee costs roughly 1.5 times a year’s pay. Examples of employee satisfaction programs include paying 100 percent of health insurance premiums, providing free lunches, and ongoing continuing education programs.

33. REVIEW LEARNING OUTCOME
LO6
Internal Marketing in Services

34. Global Issues in Services Marketing
Discuss global issues in services marketing

35. REVIEW LEARNING OUTCOME
LO7
Global Issues in Services Marketing
United States is world’s largest exporter of services.
U.S.A.
Notes:
International marketing of services is a major part of global business. The United States is the world’s largest exporter of services. Because of competitive advantages, services industries such as construction and engineering have great global market potential.
To be successful in the global marketplace, firms must first determine the nature of their core product, then design the marketing mix elements to take into account each country’s cultural, technological, and political environment.

36. Nonprofit Organization Marketing
LO8
Describe nonprofit organization marketing

37. Nonprofit Organization Marketing
An organization that exists to achieve some goal other than the usual business goals of profit, market share, or return on investment.
Notes:
Nonprofit organizations account for over 20 percent of the economic activity in the United States.
LO8

38. Nonprofit Organization
Marketing
Government
Museums
Theaters
Schools
Churches
Notes:
The cost of government, the predominant form of nonprofit organization, has become the biggest single item in the American family budget.
LO8

39. Nonprofit Organization Marketing
Market intangible products
Production requires
customer’s presence
Services vary greatly
Services cannot be stored
Shared Characteristics
with
Service Organizations
Notes:
Nonprofit organizations share characteristics with service firms. Both market intangible products, often require the customer to be present during the production process. Services often vary greatly, and can not be stored in the same way as tangible goods.
LO8

40. Nonprofit Organization
Marketing
Identify desired customers
Specify objectives
Develop, manage, eliminate programs and services
Decide on prices
Schedule events or programs
Communicate their availability
Notes:
Most nonprofit organizations perform the marketing activities as shown on this slide. Often, nonprofit organizations that carry out these functions do not realize they are engaged in marketing.
LO8

41. Unique Aspects of Nonprofit Organization Marketing Strategies
Setting of marketing objectives
Selection of target markets
Development of marketing mixes
LO8

42. Provide services that respond to the wants of :
Objectives
Provide services that respond to the wants of :
Users
Payers
Donors
Politicians
Appointed officials
Media
General Public
Notes:
Nonprofit organizations do not seek to make a profit for redistribution to owners or shareholders. The focus is often on generating enough funds to cover expenses.
Most nonprofit organizations are expected to provide equitable and efficient services that respond to the wants and needs of multiple constituencies.
LO8

43. Target Markets LO8 Unique Issues of Nonprofit Organizations
Apathetic or strongly opposed
targets
Pressure to adopt undifferentiated segmentation
Complementary positioning
Unique Issues of Nonprofit
Organizations
Notes:
Three issues relating to target markets are unique to nonprofit organizations:
Apathetic or strongly opposed targets: Nonprofit organizations must often target those who are apathetic about or strongly opposed to receiving their services. Examples: vaccinations, help for drug or alcohol-related problems, and psychological counseling.
Pressure to adopt undifferentiated segmentation strategies: Nonprofit organizations often fail to recognize the advantages of targeting, or are pressured to service the maximum number of people.
Complementary positioning: Nonprofit organizations must often complement, rather than compete with, the effort of other groups.
LO8

44. Distinctions between Business and Nonprofit Organizations
Product Decisions
Distinctions between Business and Nonprofit Organizations
Benefit complexity
Weak or indirect benefit strength
Low involvement
Notes:
There are three product-related distinctions between business and nonprofit organizations:
Benefit complexity: Nonprofit organizations often market complex behavior or ideas, such as the need not to smoke tobacco. The benefits that a person receive are complex, long term, and intangible, and consequently difficult to communicate to consumers.
Benefit strength: The benefit strength of nonprofit offerings may be weak or indirect. For example, donating blood or asking neighbors for contributions to a charity.
Involvement: Many nonprofit organizations market products that elicit low involvement, such as “don’t litter” campaigns.
LO8

45. Promotion Decisions LO8 Professional volunteers
Sales promotion activities
Public service advertising
Professional volunteers
Online: Advertising Council
What are the most compelling PSAs on the Ad Council site at the moment?
Notes:
Many nonprofit organizations (such as federal organizations) are prohibited from advertising, or do not have the resources to retain marketing expertise. However, special promotion resources include:
Professional volunteers, such as donation of advertising agency time. Donated services create goodwill, personal contacts, and general awareness of the organization.
Sales promotion activities that make use of existing services to draw attention to the offerings of nonprofit organizations.
Public service advertising that is donated by a medium.
Online
LO8

46. Pricing Decisions LO8 Pricing objectives Nonfinancial prices
Below-cost pricing
Separation between payers and users
Indirect payment
Nonfinancial prices
Pricing objectives
Characteristics
Distinguishing
Pricing Decisions of Nonprofit Organizations
Notes:
Five key characteristics distinguish the pricing decisions of nonprofit organizations from those of the profit sector:
Pricing objectives: The main objective is to defray all or partial costs rather than achieve a profit.
Nonfinancial prices: In many nonprofit situations, consumers must absorb nonmonetary costs, such as opportunity cost of time, embarrassment costs, and effort costs.
Indirect payment: through taxes.
Separation between payers and users: The services of many nonprofit organizations are used by those who are relatively poor and paid for by those who are better off financially.
Below-cost pricing: An example is university tuition, with services priced below cost.
LO8

47. REVIEW LEARNING OUTCOME
LO8
Nonprofit Organization Marketing
TARGET
Apathetic or strongly opposed
Undifferentiated segmentation
Complementary positioning
PRODUCT
PROMOTION
PLACE
PRICE
Professional volunteers
Sales
Public Service
Advertising
Involvement
Benefit strength
Benefit complexity
Special
facilities
Nonfinancial
Indirect payment
Separation
Below cost pricing