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Book Title
A Preface to Marketing Management 14th Edition
ISBN 13
978-0077861063

978-0077861063 Chapter 12 Lecture Note

April 8, 2019
Chapter 12 - The Marketing of Services
Chapter 12
The Marketing of Services
High-Level Chapter Outline
I. Introduction
II. Important Characteristics of Services
A. Intangibility
B. Inseparability
C. Perishability and Fluctuating Demand
D. Client Relationship
E. Customer Effort
F. Uniformity
III. Providing Quality Services
A. Customer Satisfaction Measurement
B. The Importance of Internal Marketing
IV. Overcoming the Obstacles in Services Marketing
A. Limited View of Marketing
B. Limited Competition
C. Noncreative Management
D. No Obsolescence
V. Implications for Service Marketers
Detailed Chapter Outline
I. Introduction
Over the course of the past 40 years, the fastest-growing American segment of the American
economy has not been the production of tangibles but the performance of services.
The dominance of the service sector is not limited to the United States. The service sector accounts
for more than half the GNP and employs more than half the labor force in most Latin American
and Caribbean countries.
The American Marketing Association has defined services as follows:
oService products are often difficult to identify, since they come into existence at the same
time they are bought and consumed. They are composed of intangible elements that are
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Chapter 12 - The Marketing of Services
inseparable; they usually involve customer participation in some important way, cannot be
sold in the sense of ownership transfer, and have no title.
oServices, as a term, is also used to describe activities performed by sellers and others that
accompany the sale of a product and that aid in its exchange or its utilization (e.g., shoe
fitting, financing, an 800 number). Such services are either presale or postsale and
supplement the product but do not comprise it.
More and more manufactures are also exploiting their service capabilities as stand-alone revenue
producers.
Refer Figure 12.1 for the goods-service continuum.
II. Important Characteristics of Services
Services possess several unique characteristics that often have a significant impact on marketing
program development.
Some of the more important of these characteristics are—intangibility, inseparability, perishability
and fluctuating demand, a client relationship, customer effort, and uniformity (Figure 12.2).
A. Intangibility
The obvious basic difference between goods and services is the intangibility of services and
many of the problems encountered in the marketing of services are due to intangibility.
The fact that many services cannot appeal to a buyers sense of touch, taste, smell, sight, or
hearing, before purchase places a burden on the marketing organization.
B. Inseparability
In many cases, a service cannot be separated from the person of the seller. In other words, the
service must often be produced and marketed simultaneously.
Because of the simultaneous production and marketing of most services, the main concern of
the marketer is usually the creation of time and place utility.
The implication of inseparability on issues dealing with the selection of channels of
distribution and service quality are quite important.
Some industries, through innovative uses of technology, have been able to overcome or, at
least, alleviate challenges associated with the inseparability characteristic.
In addition to technology, tangible representations of the service can serve to overcome the
inseparability problem.
C. Perishability and Fluctuating Demand
Services are perishable and markets for most services fluctuate either by season (tourism),
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Chapter 12 - The Marketing of Services
days (airlines), or time of day (movie theaters).
The combination of perishability and fluctuating demand has created many problems for
marketers of services.
Specifically, in the areas of staffing and distribution, avenues must be found to have the
services available for peak periods, and new strategies need to be developed to make use of
the service during slack periods.
Some organizations are attempting to cope with these problems through the use of pricing
strategy.
Off-peak pricing consists of charging different prices during different times or days in order to
stimulate demand during slow periods.
Other organizations are dealing with issues related to peak period demand, through the use of
technology.
D. Client Relationship
In the marketing of many services, a client relationship, as opposed to a customer relationship,
exists between the buyer and the seller. In other words, the buyer views the seller as someone
who has knowledge that is of value.
Professionals face at least two marketing challenges:
oIn many cases, fear or hostility is brought to the transaction because the customer is
uncertain about how genuine the professional’s concern for his or her satisfaction is.
oEven high-quality service delivery by the professional can lead to dissatisfied customers.
It is vitally important that the professional service provider strive to build long-term positive
relationships with clients.
E. Customer Effort
Customers are often involved to a relatively great degree in the production of many types of
service.
Obviously, not every service requires the same degree of customer effort.
F. Uniformity
The quality of services can vary more than the quality of goods.
Producers of goods have procedures to prevent, identify and correct defects.
Quality of services can vary because they are often human performances and often customized
to the needs of the buyer.
Many service jobs such as nursing, teaching, and career counseling require a positive attitude;
how employees feel influences their performance.
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Chapter 12 - The Marketing of Services
III. Providing Quality Services
In today’s increasingly competitive environment, quality service is critical to organizational
success.
Customers determine the value of service quality in relation to available alternatives and their
particular needs.
In general, problems in the determination of good service quality are attributable to differences in
the expectations, perceptions, and experiences regarding the encounter between the service
provider and consumer. These gaps can be classified as follows:
oThe gap between consumer expectations and management perceptions of consumer
expectations.
oThe gap between management perceptions of consumer expectations and the firm’s service
quality specifications.
oThe gap between service quality specifications and actual service quality.
oThe gap between actual service delivery and external communications about the service.
In essence, the customer perceives the level of service quality as being a function of the magnitude
and direction of the gap between expected service and perceived service.
Management of a company may not even realize that they are delivering poor-quality service due
to differences in the way managers and consumers view acceptable quality levels.
To overcome this problem and to avoid losing customers, firms must be aware of the determinants
of service quality. A brief description about these determinants are as follows:
oTangibles include the physical evidence of the services.
oReliability involves the consistency and dependability of the service performance.
oResponsiveness concerns the willingness or readiness of employees or professionals to
provide service.
oAssurance refers to the knowledge and competence of service providers and the ability to
convey trust and confidence.
oEmpathy refers to the service providers efforts to understand the customers needs and then
to provide as best as possible, individualized service delivery.
Relentless efforts to continually improve service performance may well be rewarded by
improvements in customer attitudes towards the firm.
A. Customer Satisfaction Measurement
Service quality and customer satisfaction are of growing concern to business organizations
throughout the world.
Research on these topics generally focuses on two key issues:
oUnderstanding the expectations and requirements of the customer
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Chapter 12 - The Marketing of Services
oDetermining how well a company and its major competitors are succeeding in satisfying
these expectations and requirements.
Research on market leaders’ customer satisfaction measurement (CSM) found that they had
the following aspects in common:
oMarketing and sales employees were primarily responsible for designing CSM programs
and questionnaires.
oTop management and the marketing function championed the programs.
oMeasurement involved a combination of qualitative and quantitative research methods.
oEvaluation included both the company’s and the competitors satisfaction performance.
oResults of all research were made available to employees, but not necessarily to
customers.
oResearch was performed on a continual basis.
oCustomer satisfaction was incorporated into the strategic focus of the company via the
mission statement.
oThere was a commitment to increasing service quality and customer satisfaction from
employees at all levels within the organization.
B. The Importance of Internal Marketing
Properly performed customer satisfaction research can yield a wealth of strategic information
about customers. However, service quality goes beyond the relationship between a customer
and company.
It is the personal relationship between a customer and the particular employee that the
customer happens to be dealing with at the time of the service encounter that ultimately
determines service quality.
The importance of having customer-oriented, frontline people cannot be overstated.
The character and personality of an organization reflects the character and personality of its
top management.
Management must develop programs that will stimulate employee commitment to customer
service.
To be successful, these programs must contain five critical components:
oA careful selection process in hiring frontline employees
oA clear, concrete message that conveys a particular service strategy that frontline people
can begin to act on
oSignificant modeling by managers
oAn energetic follow-through process
oAn emphasis on technical employees to have good attitudes
However, organizing and implementing such programs will only lead to temporary results
unless managers practice a strategy of internal marketing.
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Chapter 12 - The Marketing of Services
Internal marketing is the continual process by which managers actively encourage, stimulate,
and support employee commitment to the company, the company’s goods and services, and
the company’s customers.
Emphasis should be placed on the word continual.
IV. Overcoming the Obstacles in Service Marketing
The factors of intangibility and inseparability, as well as difficulties in coming up with objective
definitions of acceptable service quality, make comprehension of service marketing difficult.
The area of service marketing probably offers more opportunities for imagination and creative
innovation than does goods marketing.
Unfortunately, many service firms still lag in the area of creative marketing. Even today, those
service firms that have done a relatively good job have been slow in recognizing opportunities in
all aspects of their marketing programs.
Four reasons, connected to past practices, can be given for the lack of innovative marketing on the
part of service marketers:
oA limited view of marketing
oA lack of strong competition
oA lack of creative management
oNo obsolescence
A. Limited View of Marketing
Many firms depended to a great degree on population growth to expand sales because of the
nature of their service.
Service firms must meet changing needs by developing new services and new channels and
altering existing channels to meet the changing composition and needs of the population.
For many service industries, growth has come as a result of finding new channels of
distribution.
B. Limited Competition
Many service industries such as banking, railroads, and public utilities have, throughout most
of their histories, faced very little competition; some have even been regulated monopolies.
Obviously, in an environment characterized by little competition, there was not likely to be a
great deal of innovative marketing. However, two major forces have changed this situation:
oIn the past two decades the banking, financial services, railroad, cable, airline,
telecommunications industries, and utilities have all been deregulated in varying
degrees.
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Chapter 12 - The Marketing of Services
oService marketing has taken on an international focus.
C. Noncreative Management
For many years, the management of service industries has been criticized for not being
creative and progressive.
Railroad management has long been criticized for being slow to innovate. More recently,
however, railroads have become leading innovators in the field of freight transportation
introducing such innovations as piggyback service and containerization, and in passenger
service, introducing luxury overnight accommodations on trains with exotic names such as the
Zephyr.
Some other service industries, however, have been slow to develop new services or to
innovate in the marketing of their existing services.
D. No Obsolescence
A great advantage for many service industries is the fact that many services, because of their
intangibility, are less subject to obsolescence than goods. While this is an obvious advantage,
it has also led some service firms to be sluggish in their approach to marketing.
Since service firms are often not faced with obsolescence, they often failed to recognize the
need for change.
This failure has led to wholesale changes in many industries as new operators who possessed
marketing skills revolutionized the manner in which the service is performed and provided.
V. Implications for Service Marketers
The sum total of the marketing mix elements represents the total impact of the firm’s marketing
strategy.
Services must be made available to prospective users, which imply distribution in the marketing
sense of the word.
The development of new services paves the way for companies to expand and segment their
markets. With the use of varying service bundles, new technology, and alternative means of
distributing the service, companies are now able to practice targeted marketing.
KEY TERMS
Client relationship: Relationship in which the buyer of services views the seller as someone who has
knowledge that is of value; may be of an ongoing nature.
Customer effort: For many services, the involvement of customers to some degree in the production of
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Chapter 12 - The Marketing of Services
the service (e.g., some restaurants, airline baggage).
Inseparability: An important characteristic of services, the impossibility of separating a service from
the person of the seller. In other words, services must often be produced and consumed simultaneously.
Intangibility: An important difference between goods and services is the intangibility of services which
means that most services cannot appeal to a buyers sense of touch, taste, smell, sight or hearing before
purchase, intangibility places a burden on the marketing organization.
Internal marketing: The continual process by which managers actively encourage, stimulate, and
support employee commitment to the organization and its customers.
Off-peak pricing: The different prices service marketers charge during different times or days in order
to stimulate demand during slow periods and hopefully, smooth out demand for the service.
Perishability and fluctuating demand: Services are perishable which means that unused capacity
represents business that is lost forever. The demand for many services also fluctuates by season, day of
the week, or time of the day.
Quality service: Customers’ perception of quality as a function of (1) tangibles which include physical
evidence of the service; (2) reliability which involves the consistency and dependability of the service
performance; (3) responsiveness which is the willingness or readiness of employees or professionals to
provide service; (4) assurance which refers to the knowledge and competence of service providers and
the ability to convey trust and confidence; and (5) empathy which is the service provider's efforts to
understand the customer's needs.
Services: Activities performed by sellers and others that accompany the sale of a product and that aid in
its exchange or its utilization (e.g. financing, an 800 number).
Service products: Products that are intangible, or at least substantially so. If totally intangible, they are
exchanged directly from producer to user (e.g. hair cut, medical service), cannot be transported or
stored, and are almost instantly perishable. Service products are often difficult to identify since they
come into existence at the same time they are bought and consumed.
Uniformity: An important characteristic of services is that their quality can vary more than the quality
of goods. Because they are often human performances and often customized to the needs of the buyer,
(e.g. haircut), uniformity is difficult to achieve and quality can vary.
ADDITIONAL RESOURCES
Berry, Leonard L. Discovering the Soul of Service. New York: Free Press, 2000.
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consent of McGraw-Hill Education.
Chapter 12 - The Marketing of Services
Berry, Leonard L. and Kent D. Seltman. Management Lessons from Mayo Clinic. New York:
McGraw-Hill, 2008.
Callaway, Joseph, and Ann Callaway. Clients First. Hoboken, NJ: John Wiley and Sons, 2013.
Collier, Marsha. The Ultimate Online Customer Service Guide. New York: John Wiley and Sons, 2011.
Fullerton, Sam. Sports Marketing. Burr Ridge, IL: McGraw-Hill/Irwin, 2007.
Hoffman, K. Douglas, and John E. G. Bateson, Service Marketing. Mason, OH: Thomson Southwestern,
2009.
Schultz, Mike, and John E. Doerr. Professional Service Marketing. New York: John Wiley and Sons,
2009.
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