LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. How can services be defined and classified, and how do they differ from goods?
2. What are the new services realities?
3. How can companies achieve excellence in services marketing?
4. How can companies improve service quality?
5. How can goods marketers improve customer-support services?
SUMMARY
1. A service is any act or performance that one party can offer to another that is
essentially intangible and does not result in the ownership of anything. It may or may not
be tied to a physical product.
2. Services are intangible, inseparable, variable, and perishable. Each characteristic
poses challenges and requires certain strategies. Marketers must find ways to give
tangibility to intangibles, to increase the productivity of service providers, to increase and
standardize the quality of the service provided, and to match the supply of services with
market demand.
3. Marketing of services faces new realities in the 21st century due to customer
empowerment, customer coproduction, and the need to satisfy employees as well as
customers.
4. Achieving excellence in service marketing calls not only for external marketing but
also for internal marketing to motivate employees, as well as interactive marketing to
emphasize the importance of both “high tech” and “high touch.”
5. Top service companies adopt a strategic concept, have a history of top-management
commitment to quality, commit to high standards, establish profit tiers, and pay attention
to their systems for monitoring service performance and customer complaints. They also
differentiate their brands through primary and secondary service features and continual
innovation.
6. Superior service delivery requires managing customer expectations and incorporating
self-service technologies. Customers’ expectations play a critical role in their service
experiences and evaluations. Companies must manage service quality by understanding
the effects of each service encounter.
7. Even product-based companies must provide postpurchase service. To offer the best
support, a manufacturer must identify the services customers value most and their relative
importance. The service mix includes both presale services (facilitating and
C H A P T E
R 1
4
DESIGNING AND
MANAGING SERVICES
value-augmenting services) and postsale services (customer service departments, repair
and maintenance services).
OPENING THOUGHT
The teaching of “services marketing” can pose a challenge to the instructor by the very
nature of a “service”—its intangibility, inseparability, variability, and perishability.
Challenges to the instructor in teaching this course lies in connecting these concepts to
the students in ways that they will relate to and understand. Students use services
everyday, in their role as a student, it means that they are receiving a service—
instruction.
The instructor is encouraged to use the example of “instruction” or the university setting
to demonstrate the four dimensions of services that differentiates it from a physical
product: intangible, inseparable, variability, and perishability. Most students will
understand that a service cannot be felt, touched, or inventoried; some students will not
fully understand the interconnectiveness between the service provider and the service
“receiver” or consumer.
Students may have some difficulty in conceptualizing the service dimensions of
reliability, responsiveness, assurance, empathy, and tangibles as part of the service
marketing dimensions. The instructor is encouraged to use multiple examples of excellent
service companies, guest speakers, and personal or student real life examples to illustrate
the challenges facing the marketing of services to the public.
The interaction or role that the customer plays in the delivery of a service may pose a
barrier because many students (and of course actual consumers) do not fully understand
their part in the service process or maximize their participation in the process. This topic
is a good one for an in-class discussion or outside assignment. Students, as well as
instructors, can and do like to tell service stories (positive or negative) that can illustrate
and/or demonstrate good and bad service marketing.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point in the semester-long project, those students who have selected a
“service” idea for the marketing plan must submit their offering. Students whose
project is a “product based” component do not have anything to submit for this
chapter.
2. Using the information on marketing research covered in this text, ask the students to
prepare a teaching SERQUAL® form to be administered in all the classes taught in
your department. This SERQUAL survey should focus on evaluating the student’s
understanding of their role in the service delivery process of teaching. If your college
or university has a standardized form for evaluating students’ perceptions of learning,
ask the students to compare and contrast these two measures. Where are they different
and where are they similar?
3. Sonic PDA Marketing Plan: All marketers need to develop a service strategy when
preparing their marketing plans. Marketers of intangible products must consider how
to manage customer expectations and satisfaction. Marketers of tangible products
must create suitable support services. You are planning product support services for
Sonic’s PDA. The following questions will help you map your service strategy:
What support services do buyers of PDA products want and need? Consider what
Sonic’s competitors are doing in this area.
How can Sonic identify and manage gaps between expected and perceived service
to satisfy customers?
What post-sale services must Sonic make available to customers who buy the
Sonic PDA?
What internal marketing does Sonic need to do to implement its service strategy?
Summarize your recommendations in a written marketing plan or enter the information in
the Product Offering and Service section of the Marketing Mix heading in Marketing
Plan Pro.
ASSIGNMENTS
As the opening vignette indicated, The Mayo Clinic has been built as one of the most
powerful services brands on its firmly held belief and focus on the experience of the
patient. As one staff member explained, “People don’t come to the hospital alone.” In
small groups, students should review their local hospitals (especially the one on campus)
to see if their local hospital adheres to the tenants’ of a good service provider. A starting
point is an examination of the hospital’s mission statement, beliefs, and patient rights
policies (if available).
We all have “service failure” stories to tell. As a matter of fact, most people love to tell
about the time that such and such firm provided sub-par service to us as consumers.
Sometimes these stories are humorous and other times they are sad. Ask the students to
think about such stories and prepare to tell these stories in class. These stories can either
be their own stories or that of a close friend or family member. In preparing to recount the
story line, students should first analyze the incident in terms of the concepts and tenants
presented in this chapter. For example, the restaurant that did not address a customer’s
“cold food” is a service failure. However, was that service failure due to insufficient
training, inadequate hiring practices, or an inability of the restaurant to monitor customer
expectations? Students should come to class prepared to identify (as close as possible) the
causes of the service failure.
Search and experience qualities are two characteristics of service providers. Yet each
provides consumers with differing “clues” as to the competency of the service provider.
In this assignment, students are to identify two different service providers—one that is
high in search qualities and one that is high in experience qualities. Students should
outline their understanding of how consumers select a service high in search qualities and
high in credence qualities.
In the Marketing Memo entitled, “Recommendations for Improving Service Quality,” the
authors Berry, Parasuraman, and Zeithaml, offer 10 lessons that they maintain are
essential for improving service quality across service industries. Individually or in small
groups, have the students analyze their Department, College, or University against these
10 criteria and list their recommendations for improving one of the services on campus.
Have students read Elisabeth Sullivan, “Happy Endings Lead to Happy Returns,”
Marketing News, October 30, 2009, p. 20. and interview five people about service
failures and how they reacted (e.g., did nothing, told friends, etc.). Ask the students to
analyze the responses, summarize the results, and list the implications for firms.
DETAILED CHAPTER OUTLINE
Opening vignette: As companies find it harder to differentiate their physical products, they
turn to service differentiation, whether that means on-time delivery, better and faster response
to inquiries, or quicker resolution of complaints. Top service providers know these advantages
well and also how to create memorable customer experiences. It is critical to understand the
special nature of services and what that means to marketers, in this chapter we systematically
analyze services and how to market them most effectively.
I. The Nature of Services (service = any act or performance one party can offer to
another that is essentially intangible and does not result in the ownership of
anything)
A. Service Industries Are Everywhere
i. The government sector, with its courts, employment services,
hospitals, loan agencies, military services, police and fire departments,
postal service, regulatory agencies, and schools, is in the service
business.
ii. The private nonprofit sector—museums, charities, churches, colleges,
foundations, and hospitals—is in the service business.
iii. A good part of the business sector, with its airlines, banks, hotels,
insurance companies, law firms, management consulting firms,
medical practices, motion picture companies, plumbing repair
companies, and real estate firms, is in the service business.
iv. Many workers in the manufacturing sector, such as computer
operators, accountants, and legal staff, are really service providers.
B. Categories of Service Mix
i. A pure tangible good such as soap, toothpaste, or salt with no
accompanying services.
ii. A tangible good with accompanying services (typically, the more
technologically advanced the product, the greater the need for
high-quality supporting services).
iii. A hybrid offering of equal parts goods and services.
iv. A major service with accompanying minor goods and services
v. A pure service, primarily an intangible service
vi. Additional distinctions:
1. Services are equipment-based (automated car washes, vending
machines) or people-based (window washing, accounting
services).
2. People-based services vary by whether unskilled, skilled, or
professional workers provide them.
3. Service companies can choose among different processes to
deliver their service. Some services need the client’s presence.
4. Services may meet a personal need (personal services) or a
business need (business services).
5. Service providers typically develop different marketing
programs for these markets.
6. Service providers differ in their objectives (profit or nonprofit)
and ownership (private or public).
vii. Customers typically cannot judge the technical quality of some
services even after they have received them.
1. Goods high in search qualities—characteristics the buyer can
evaluate before purchase are on one end of the continuum.
2. In the middle are goods and services high in experience
qualities—characteristics the buyer can evaluate after purchase
3. Goods and services high in credence qualities—characteristics
the buyer normally finds hard to evaluate even after
consumption, are on the other end of the continuum
4. Because services are generally high in experience and credence
qualities, there is more risk in their purchase, with several
consequences.
a. Service consumers generally rely on word of mouth
rather than advertising.
b. They rely heavily on price, provider, and physical cues
to judge quality
c. They are highly loyal to service providers who satisfy
them
d. Because switching costs are high, consumer inertia can
make it challenging to entice business away from a
competitor.
C. Distinctive Characteristics of Services
i. Intangibility: unlike physical products, services cannot be seen, tasted,
felt, heard, or smelled before they are bought.
1. To reduce uncertainty, buyers will look for evidence of quality
by drawing inferences from the place, people, equipment,
communication material, symbols, and price.
2. The service provider’s task is to “manage the evidence,” to
“tangibilize the intangible” through any number of marketing
tools:
a. Place—The layout of the checkout area and the traffic
flow should be planned carefully. Waiting lines should
not get overly long.
b. People—Checkout staff should be busy, but there
should be a sufficient number to manage the workload.
c. Equipment—UPC scanners, credit card readers, and
electronic registers should all be state of the art.
d. Communication material—signage and brochures—text
and photos—should suggest efficiency and speed.
e. Symbols—The supermarket’s name and symbol could
suggest fast service, for instance, “Speedy Shop.”
f. Price—The supermarket could advertise a $10 rebate if
customers have to wait in line more than five minutes.
3. Dimensions of brand experience can be sensory, affective,
behavioral, and intellectual
4. All aspects of the service delivery process can be branded
5. Service providers often choose brand elements—logos,
symbols, characters, and slogans—to make the service and its
key benefits more tangible
ii. Inseparability: services are typically produced and consumed
simultaneously.
iii. Variability: quality of services depends on who provides them, when
and where, and to whom; services are highly variable. Here are three
steps service firms can take to increase quality control:
1. Invest in good hiring and training procedures.
2. Standardize the service-performance process throughout the
organization.
3. Monitor customer satisfaction.
iv. Perishability: services cannot be stored, so their perishability can be a
problem when demand fluctuates
1. The right services must be available to the right customers at
the right places at the right times and right prices to maximize
profitability.
2. On the demand (customer) side:
a. Differential pricing will shift some demand from peak
to off-peak periods
b. Nonpeak demand can be cultivated.
c. Complementary services can provide alternatives to
waiting customers
d. Reservation systems are a way to manage the demand
level.
3. On the supply side:
a. Part-time employees can serve peak demand.
b. Peak-time efficiency routines can allow employees to
perform only essential tasks during peak periods.
c. Increased consumer participation frees service
providers’ time.
d. Shared services can improve offerings
e. Facilities for future expansion can be a good
investment.
II. The New Services Realities
A. A Shifting Customer Relationship
i. Customers complain about inaccurate information; unresponsive, rude,
or poorly trained workers; and long waits.
ii. Many consumers find their complaints never reach a human ear
because of slow or faulty phone or online reporting systems.
iii. They say companies mishandle online complaints by responding
selectively or inconsistently (or not at all) and by “cutting and
running,” appearing insincere, or attempting to just “bribe” the
consumer.
iv. Savvy services marketers are recognizing the new services realities,
such as the importance of the newly empowered customer, customer
coproduction, and the need to engage employees as well as customers.
B. Customer Empowerment: Customers are becoming more sophisticated about
buying product-support services, are pressing for “unbundled services” and
the right to select the elements they want, and can give feedback with a mouse
click.
C. Customer Coproduction: Customers do not merely purchase and use a
service; they play an active role in its delivery.
i. Their words and actions affect the quality of their service experiences
and those of others as well as the productivity of frontline employees.
ii. Customers often feel they derive more value, and feel a stronger
connection to the service provider, if they are actively engaged in the
service process.
iii. This coproduction can put stress on employees, however, and reduce
their satisfaction, especially if they differ from customers culturally or
in other ways
D. To avoid service failures:
i. Redesign processes and redefine customer roles to simplify service
encounters.
ii. Incorporate the right technology to aid employees and customers.
iii. Create high-performance customers by enhancing their role clarity,
motivation, and ability.
iv. Encourage “customer citizenship” so customers help each other. At
golf courses, players can not only follow the rules by playing and
behaving appropriately, they can encourage others to do so.
E. Satisfying Employees as Well as Customers
i. Excellent service companies know that positive employee attitudes
will strengthen customer loyalty
ii. Employees thrive in customer-contact positions when they have an
internal drive to (1) pamper customers, (2) accurately read their needs,
(3) develop a personal relationship with them, and (4) deliver
high-quality service to solve customers’ problems.
III. Achieving Excellence in Services Marketing
A. Marketing excellence in services requires excellence in three broad areas:
external, internal, and interactive marketing
i. External marketing describes the normal work of preparing, pricing,
distributing, and promoting the service to customers.
ii. Internal marketing describes training and motivating employees to
serve customers well.
iii. Interactive marketing describes the employees’ skill in serving the
client.
B. Technology and Service Delivery
i. Technology occasionally has unanticipated benefits.
ii. Companies must avoid pushing technological efficiency so hard,
however, that they reduce perceived quality
iii. Companies must incorporate the proper safeguards and reassure
customers about their efforts.
C. Best Practices of Top Service Companies
i. Strategic Concept: Top service companies have a clear sense of their
target customers and their needs and have developed a distinctive
strategy for satisfying them.
ii. Top-Management Commitment: Managers look monthly not only at
financial performance, but also at service performance.
iii. High Standards: The best service providers set high quality standards.
iv. Profit Tiers: Firms have decided to coddle big spenders to retain their
patronage as long as possible. Customers in high-profit tiers get
special discounts, promotional offers, and lots of special service; those
in lower-profit tiers who barely pay their way may get more fees,
stripped-down service, and voice messages to process their inquiries.
v. Monitoring Systems: Top firms audit service performance, both their
own and competitors’, on a regular basis.
D. Differentiating Services
i. Marketing excellence requires service marketers to continually
differentiate their brands so they are not seen as a commodity.
ii. People and processes add value
iii. Many companies are using the Internet to offer primary or secondary
service features that were never possible before.
E. Innovation is as vital in services as in any industry. Examples of innovative
services include:
i. Online travel
ii. Retail health clinics
iii. Private aviation
IV. Managing Service Quality
A. Service outcomes and customer loyalty are influenced by a variety of
outcomes.
B. Factors leading to customer switching behavior include:
i. Pricing
ii. Inconvenience
iii. Core Service Failure
iv. Service Encounter Failures
v. Response to Service Failure
vi. Competition
vii. Ethical Problems
viii. Involuntary Switching
C. Recommendations for improving service quality
i. Listening
ii. Reliability
iii. Basic service
iv. Service design
v. Recovery
vi. Surprising customers
vii. Fair play
viii. Teamwork
ix. Employee research
x. Servant leadership
D. Managing Customer Expectations
i. Customers form service expectations from many sources, such as past
experiences, word of mouth, and advertising.
ii. In general, they compare perceived and expected service.
iii. If the perceived service falls below the expected service, customers are
disappointed.
iv. Successful companies add benefits to their offering that not only
satisfy customers but surprise and delight them by exceeding
expectations
E. Five gaps that prevent successful delivery:
i. Gap between consumer expectation and management perception
ii. Gap between management perception and service-quality specification
iii. Gap between service-quality specifications and service delivery
iv. Gap between service delivery and external communications
v. Gap between perceived and expected service
F. Five determinants of service quality, in descending order of importance
i. Reliability—The ability to perform the promised service dependably
and accurately.
ii. Responsiveness—The willingness to help customers and provide
prompt service.
iii. Assurance—The knowledge and courtesy of employees and their
ability to convey trust and confidence.
iv. Empathy—The provision of caring, individualized attention to
customers.
v. Tangibles—The appearance of physical facilities, equipment, staff, and
communication materials.
G. Tests of the dynamic process model reveal that the two different types of
expectations have opposite effects on perceptions of service quality.
i. Increasing customer expectations of what the firm will deliver can lead
to improved perceptions of overall service quality.
ii. Decreasing customer expectations of what the firm should deliver can
also lead to improved perceptions of overall service quality.
H. Incorporating Self-Service Technologies (SSTs): intended to provide
convenience
i. Every company needs to think about improving its service using SSTs.
ii. Successfully integrating technology into the workforce thus requires a
comprehensive reengineering of the front office to identify what
people do best, what machines do best, and how to deploy them
separately and together
iii. Some companies have found the biggest obstacle is not the technology
itself, but convincing customers to use it, especially for the first time.
V. Managing Product-Support Services
A. Identifying and Satisfying Customer Needs: Customers worry about:
i. Reliability and failure frequency
ii. Downtime. The longer the downtime, the higher the cost.
iii. Out-of-pocket costs. How much does the customer have to spend on
regular maintenance and repair costs?
B. Life-cycle cost is the product’s purchase cost plus the discounted cost of
maintenance and repair less the discounted salvage value.
C. Postsale Service Strategy
i. Customer-Service Evolution: Manufacturers usually start by running
their own parts-and-service departments. They want to stay close to the
equipment and know its problems. They also find it expensive and
time consuming to train others and discover they can make good
money from parts and service if they are the only supplier and can
charge a premium price.
ii. Over time, manufacturers switch more maintenance and repair service
to authorized distributors and dealers. These intermediaries are closer
to customers, operate in more locations, and can offer quicker service.
iii. Later, independent service firms emerge and offer a lower price or
faster service.
D. The Customer-Service Imperative: Customer-service choices are increasing
rapidly, however, and equipment manufacturers increasingly must figure out
how to make money on their equipment, independent of service contracts.