Chapter 12 ♦ Services and Nonprofit Organization Marketing 1
CHAPTER 12 Services and Nonprofit Organization Marketing
This chapter begins with the learning outcome summaries, followed by a set of lesson plans for you to use
to deliver the content in Chapter 12.
• Lecture (for large sections) on page 3
• Company Clips (video) on page 4
• Group Work (for smaller sections) on page 5
Review and Assignments begin on page 6
Review questions
Application questions
Application exercise
Ethics exercise
Video Assignment
Case assignment
Great Ideas for Teaching Marketing from faculty around the country begin on page 15
2 Chapter 12 ♦ Services and Nonprofit Organization Marketing
LEARNING OUTCOMES
12-1 Discuss the importance of services to the economy
The service sector plays a crucial role in the U.S. economy. In 2014, service industries accounted for 68 percent of
U.S. GDP and four out of five U.S. jobs. Services have unique characteristics that distinguish them from goods, and
marketing strategies need to be adjusted for these characteristics.
12-2 Discuss the differences between services and goods
Services are distinguished by four characteristics. Services are intangible performances in that they lack clearly
identifiable physical characteristics, making it difficult for marketers to communicate their specific benefits to
potential customers. The production and consumption of services occurs simultaneously. Services are heterogeneous
because their quality depends on such elements as the service provider, individual consumer, location, and the like.
Finally, services are perishable in the sense that they cannot be stored or saved. As a result, synchronizing supply
with demand is particularly challenging in the service industry.
12-3 Describe the components of service quality and the gap model of service quality
Service quality has five components: reliability (ability to perform the service dependably, accurately, and
consistently), responsiveness (providing prompt service), assurance (knowledge and courtesy of employees and their
ability to convey trust), empathy (caring, individualized attention), and tangibles (physical evidence of the service).
The gap model identifies five key discrepancies that can influence customer evaluations of service quality.
When the gaps are large, service quality is low. As the gaps shrink, service quality improves. Gap 1 is found
between customers’ expectations and management’s perceptions of those expectations. Gap 2 is found between
management’s perception of what the customer wants and specifications for service quality. Gap 3 is found between
service quality specifications and delivery of the service. Gap 4 is found between service delivery and what the
company promises to the customer through external communication. Gap 5 is found between customers’ service
expectations and their perceptions of service performance.
12-4 Develop marketing mixes for services
“Product” (service) strategy issues include what is being processed (people, possessions, mental stimulus,
information), core and supplementary services, customization versus standardization, and the service mix.
Distribution (place) decisions involve convenience, number of outlets, direct versus indirect distribution, and
scheduling. Stressing tangible cues, using personal sources of information, creating strong organizational images,
and engaging in postpurchase communication are effective promotion strategies. Pricing objectives for services can
be revenue oriented, operations oriented, patronage oriented, or any combination of the three.
12-5 Discuss relationship marketing in services
Relationship marketing in services involves attracting, developing, and retaining customer relationships. There are
four levels of relationship marketing: level 1 focuses on pricing incentives; level 2 uses pricing incentives and social
bonds with customers; level 3 focuses on customization; and level 4 uses pricing, social bonds, and structural bonds
to build long-term relationships.
12-6 Explain internal marketing in services
Internal marketing means treating employees as customers and developing systems and benefits that satisfy their
needs. Employees who like their jobs and are happy with the firm they work for are more likely to deliver good
service.
12-7 Describe nonprofit organization marketing
Nonprofit organizations pursue goals other than profit, market share, and return on investment. Nonprofit
organization marketing facilitates mutually satisfying exchanges between nonprofit organizations and their target
markets. Several unique characteristics distinguish nonbusiness marketing strategy, including a concern with
services and social behaviors rather than manufactured goods and profit; a difficult, undifferentiated, and in some
ways marginal target market; a complex product that may have only indirect benefits and elicit very low
Chapter 12 ♦ Services and Nonprofit Organization Marketing 3
involvement; distribution that may or may not require special facilities depending on the service provided; a relative
lack of resources for promotion; and prices only indirectly related to the exchange between the producer and the
consumer of services.
12-8 Discuss global issues in services marketing
The United States has become the world’s largest exporter of services. Although competition is keen, the United
States has a competitive advantage because of its vast experience in many service industries. To be successful
globally, service firms must adjust their marketing mix for the environment of each target country. Terms
LEARNING OUTCOMES
assurance
inseparability
public service advertisement (PSA)
core service
intangibility
reliability
credence quality
internal marketing
responsiveness
empathy
mass customization
search quality
experience quality
nonprofit organization
service
gap model
nonprofit organization marketing
supplementary services
heterogeneity
perishability
tangibles
LESSON PLAN FOR LECTURE
Brief Outline and Suggested PowerPoint Slides:
Learning Outcomes and Topics
PowerPoint Slides
LO1 Discuss the importance of services to the
economy
12-1 The Importance of Services
1: Services and Nonprofit Organization Marketing
2: Learning Outcomes
3: Learning Outcomes
4: The Importance of Services
5: The Importance of Services
LO2 Discuss the differences between services
and goods
12-2 How Services Differ from Goods
6: How Services Differ from Goods
7: How Services Differ from Goods
8: When Services Are Assessed
LO3 Describe the components of service quality
and the gap model of service quality
12-3 Service Quality
9: Service Quality
10: Components of Service Quality
11: Exhibit 12.1: Gap Model of Service Quality
LO4 Develop marketing mixes for services
12–4 Marketing Mixes for Services
12: Marketing Mixes for Services
13: Product Strategies for Services
14: Service as a Process
15: The Service Offering
16: Customization/Standardization
17: The Service Mix
18: Place (Distribution) Strategy
19: Promotion Strategy
20: Price Strategy
21: Pricing Objectives
LO5 Discuss relationship marketing in services
12–5 Relationship Marketing in Services
22: Relationship Marketing in Services
23: Relationship Marketing in Services
4 Chapter 12 ♦ Services and Nonprofit Organization Marketing
Learning Outcomes and Topics
PowerPoint Slides
LO6 Explain internal marketing in services
12–6 Internal Marketing in Service Firms
24: Internal Marketing in Service Firms
25: Internal Marketing
LO7 Describe nonprofit organization marketing
12-7 Nonprofit Organization Marketing
26: Nonprofit Organization Marketing
27: Nonprofit Organization
28: Nonprofit Organization Marketing Activities
29: Unique Aspects of Nonprofit Organization Marketing
Strategies
30: Objectives
31: Target Markets
32: Product Decisions
33: Product Decisions
34: Promotion Decisions
35: Pricing Decisions
LO8 Discuss global issues in services marketing
12-8 Global Issues in Services Marketing
36: Global Issues in Service Marketing
37: Global Issues in Service Marketing
38: Chapter 12 Video
39: Part 3 Video
Suggested Homework:
• The end of this chapter contains an assignment on the Pepe’s Pizzeria video and the Livestrong case.
• This chapter’s online study tools include flashcards, visual summaries, practice quizzes, and other resources that
can be assigned or used as the basis for longer investigations into marketing.
LESSON PLAN FOR VIDEO
Company Clips
Segment Summary: Pepe’s Pizzeria
Pepe’s is a family owned and operated pizzeria in Connecticut. The original Pepe earned the nickname “Old
Reliable” for his customer service, and his grandchildren carry out that value today. This video discusses the various
ways that Pepe’s Pizzeria works to provide great, consistent service and why it is important.
These teaching notes combine activities that you can assign students to prepare before class, that you can do in class
before watching the video, that you can do in class while watching the video, and that you can assign students to
complete as assignments after watching the video in class.
During the viewing portion of the teaching notes, stop the video periodically where appropriate to ask students the
questions or perform the activities listed on the grid. You may even want to give the students the questions before
starting the video and have them think about the answer while viewing the segment. That way, students will be
engaged in active viewing rather than passive viewing.
PRE-CLASS PREP FOR YOU:
PRE-CLASS PREP FOR YOUR STUDENTS:
• Preview the Company Clips video segment for
Chapter 12. This exercise reviews concepts for
LO1, LO2, LO5, and LO6
• Review your lesson plan.
• Make sure you have all of the equipment needed to
show the video to the class, including the DVD and
a way to project the video.
• You can also stream the video HERE
• Have students review and familiarize themselves with
the following terms and concepts: the importance of
services; how services differ from goods; service
quality; marketing mixes for services; and relationship
marketing in service firms.
Chapter 12 ♦ Services and Nonprofit Organization Marketing 5
VIDEO REVIEW EXERCISE
• Begin by asking students to make a list of the top ten companies or institutions with which
they engage in exchanges (or buy from).
• Discuss what percentage of the companies on students’ lists is service-oriented. What are the
implications for the economy?
• Review Exhibit 12.2, Core and Supplementary Services for a Luxury Hotel. Ask students,
“What other firms’ services would fit such a graph?”
• Discuss the components of service quality.
• Review Exhibit 12.1, Gap Model of Service Quality. Ask, “How can marketers work to reduce
those gaps?”
• Review the Company Clips questions. Remind students to keep the questions in mind while
viewing the video.
1. Would you classify Pepe’s (and other restaurants) as a service? Explain.
2. Outline Pepe’s pricing strategy for its service.
• Have students revisit the Web site for Kodak’s graphic division (see Pre-Class Prep). Ask them
to write a half–page report summarizing Kodak’s core and supplementary services.
• Divide the class into groups of three to five students and have each group brainstorm
relationship-marketing initiatives for Kodak. When finished, have each group present its ideas.
Solutions for Viewing Activities:
1. Would you classify Pepe’s (and other restaurants) as a service? Explain.
2. Outline Pepe’s pricing strategy for its services.
Students’ answers may vary. Pepe’s pricing strategy seems to be a mix of revenue– and patronage-oriented
LESSON PLAN FOR GROUP WORK
In most cases, group activities should be completed after some chapter content has been covered, probably in the
second or third session of the chapter coverage. (See “Lesson Plan for Lecture” above.)
• For “Class Activity – Nonprofit Organizations and Their Many Publics,” provide the information and the
questions asked by the class activity.
• Application questions 3, 4, 7, and 8 lend themselves well to group work. For those activities, divide the class
into small groups of four or five people. Each group should read the question and then use their textbooks, or
any work that was completed previously, to perform the exercise. Then each group should discuss or present
their work to the class.
Class Activity – Nonprofit Organizations and Their Many Publics
6 Chapter 12 ♦ Services and Nonprofit Organization Marketing
Nonprofit organizations serve several publics. Have students name five nonprofit organizations. They should then
determine the respective publics of those organizations. After that has been done, break the class into groups. Have
each group select one of the nonprofit organizations and determine the benefits that each of the identified publics
desires from the nonprofit organization. They should then design a strategy to appeal to each of the concerned
publics. After they have had time to do this, have them present their ideas and explain why they believe their
approach will achieve their objectives.
REVIEW AND ASSIGNMENTS FOR CHAPTER 12
REVIEW QUESTIONS
1. Assume you are a manager of a bank branch. Write a list of implications of intangibility for your firm.
Although students’ answers will vary, they should address some of these points: Service intangibility creates a
2. Analyze a recent experience that you have had with a service business (for example, a hairdresser, movie
theater, car repair, or restaurant) in terms of your expectations and perceptions about each of the five
components of service quality.
APPLICATION QUESTIONS
1. To keep track of how service employment is affecting the U.S. economy, go to http://www.bls.gov/bdm/.
Look at the right sidebar, which gives the latest numbers for Business Employment Dynamics. What
trends to you see? Do the numbers support the information from the chapter?
2. Over 25 years ago, Tim and Nina Zagat began publishing leisure guides containing reviews of
restaurants. Today, the renowned Zagat guides still contain reviews of restaurants, but they also rate
hotels, entertainment, nightlife, movies, shopping, and even music. Go to http://www.zagat.com. In your
opinion, are Zagat survey guides goods or services? Explain your reasoning.
Reasons for service: Zagat guides provide information that consumers use to make decisions, and therefore the
3. Form a team with at least two other classmates, and come up with an idea for a new service. Develop a
marketing mix strategy for your new service.
Here is an example:
The marketing mix for an auto-leasing company that specializes in inexpensive leases for college students:
Chapter 12 ♦ Services and Nonprofit Organization Marketing 7
4. For the new service developed in question 3, have the members of the team discuss how they would
implement a relationship marketing strategy.
Internal marketing means treating employees as customers and developing systems and benefits that satisfy
5. Choose a service with which you do a lot of business. Write a memo to the manager explaining the
importance of internal marketing and outlining what factors internal marketing includes.
The memo should include the following: definition of internal marketing (treating employees as customers and
6. Return to http://www.zagat.com and investigate what the site offers. How does Zagat propose to help
companies do internal services marketing?
Zagat has a corporate sales division that publishes special editions of its products for business clients to give to
7. What issues would you have to think about in going global with the new service that you developed in the
questions above? How would you change your marketing mix to address those issues?
Answers will vary depending on what kind of service was developed previously. However, some issues that
students should consider are: 1) the political, legal, and regulatory issues in global business (differences in
8. Form a team with two or three classmates. Using the promotion strategies discussed in the nonprofit
section of this chapter, develop a promotion strategy for your college or university.
Four promotional strategies for dealing with the unique features of services are:
APPLICATION EXERCISE
All people know quality when they see it—or do they? Let’s take a look at some goods and services and then think
about assessing their quality. For this exercise, work in teams of two to three and discuss each item before
determining its final placement.
8 Chapter 12 ♦ Services and Nonprofit Organization Marketing
Activities
1. Using the abbreviations in parentheses, place each of the following products and services along the
continuum below: a new car (C), designer jeans (J), car oil change (O), dress dry cleaning (D), haircut (H),
tax preparation software (T), college education (E).
100% physical good 100% service
2. Once you have placed the items along the continuum, consider how easy it is to assess the quality of each
item.
Easy to assess quality Difficult to assess quality
3. What assumptions can you make about the ability to assess the quality of goods compared to services? Is it
easier to assess the quality of some goods than others? What about for services?
Purpose: The purpose of this exercise is for students to think experientially about how difficult or easy it is to rate
products and services according to their quality.
Setting It Up: The activity above provides three questions, two of which are each supported by a continuum.
Students place a given set of products or services on each continuum, according to the ease with which their quality
can be assessed. This activity will work well in pairs or small groups to allow students to discuss their reasoning.
Chapter 12 ♦ Services and Nonprofit Organization Marketing 9
This exercise was inspired by the following Great Idea in Teaching Marketing:
Stacia Wert-Gray, University of Central Oklahoma
Gordon T. Gray, Oklahoma City University
ASSESSING SERVICE QUALITY
Students sometimes do not understand why service quality is difficult for consumers to assess. This exercise
illustrates that physical goods are generally easier to evaluate (for quality) than services.
Recognizing that most product offerings are a blend of physical goods and services, each student is asked to position
seven products on a scale ranging from “100% physical good” to “100% services.”
Break students into two- or three-person groups. Provide them with the following worksheet and instruct them to
place the letter for each of the products listed in the appropriate position on the scale.
All people know quality when they see it—or do they? Let’s take a look at goods and services and then at assessing
their quality. For this exercise, work in teams of two o three and discuss each item before determining final
placement.
Activities
Using the following abbreviations, place these products and services along the continuum: a new car (C), designer
jeans (J), car oil change (O), dress dry cleaning (D), haircut (H), tax preparation software (T), college education (E).
When groups are finished, the instructor should fill in the class worksheet with input from the groups. The class
worksheet often looks something like the following:
100% physical good 100% service
C J O D H E T
Each group is then asked to position the same product offerings on the following scale, which addresses how easy it
is to assess the quality of each product.
Easy to assess quality Difficult to assess quality
When the groups are finished the instructor should fill in a class worksheet with input from the groups. The class
worksheet often looks something like the following:
Easy to assess quality Difficult to assess quality
C J H D O E T
During the class discussion after completion of the two exercises, the instructor may emphasize at least two
important aspects of service quality and consider the implications for marketing practitioners.
1. Assessing the quality of physical goods is usually easier than assessing the quality of products consumers
consider services.
2. The quality of some services (e.g., a haircut) can be relatively easy to assess when compared to other
services (e.g., tax preparation).
3. Many physical goods have a “service” component, and many services have a “physical goods” component.
ETHICS EXERCISE
Web sites such as cancerpage.com and CancerSource.com offer cancer patients sophisticated medical data and
advice in exchange for personal information that is then sold to advertisers and business partners and used by the
Web sites to create products to sell back to patients. Some argue that cancer patients visiting these sites are willingly
exchanging their personal information for the sites’ medical information. Others contend that this kind of exchange
is unethical.
1. Is this practice ethical?
One point that affects this issue is who actually owns the information once it is given out. Some say that an
individual owns his or her data no matter where it is disseminated and has a right to privacy in areas that stretch
2. Does the AMA Statement of Ethics have anything to say about this issue? Go to
http://www.marketingpower.com and review the statement. Then write a brief paragraph on what the
AMA Statement of Ethics contains that relates to this scenario.
Although the AMA Statement of Ethics does not specifically mention selling of information, it does state that,
VIDEO ASSIGNMENT: Pepe’s Pizzeria
1. In what category of processing does Pepe’s Pizzeria best fit?
a. People processing
b. Possession processing
c. Mental stimulus processing
d. Information processing
2. What is the unit of service consumption that Pepe’s charges for?
a. Server’s attentive service
b. Waiting in line (the longer you wait, the less you pay)
c. Food and drink
d. Length of time sitting in a booth
Chapter 12 ♦ Services and Nonprofit Organization Marketing 11
3. Based on what you heard in the video, what level of relationship marketing does Pepe’s Practice?
a. Level 1
b. Level 2
c. Level 3
4. Jennifer Kelly discusses how she understands that grumpy customers are hungry—just like she gets grumpy
when she is hungry. What component of service quality is she embodying?
a. Assurance
b. Tangibles
c. Responsiveness
d. Empathy
5. If a server is hired and does not provide customers drinks right away and serves the salad with the pizza, rather
than with the drinks, which gap in service quality would this represent?
a. Gap 1
b. Gap 2
c. Gap 3
d. Gap 4
6. Of the promotion strategies listed, which best fits the strategy used by Pepe’s Pizzeria?
a. Engaging in postpurchase communication.
b. Creating a strong organizational image.
c. Using Personal Information Sources.
d. Stressing tangible cues.
CASE ASSIGNMENT: Livestrong
Livestrong is currently one of the most visible and active charities in the world. It is consistently praised as
resoundingly efficient and accountable; Charity Navigator recently gave Livestrong a rating of four stars (its
highest) and a score of 64 out of 70 for its financial responsibility and its transparency. However, all is not well at
Livestrong. For years, cyclist and cancer survivor Lance Armstrong has been the face of Livestrong—a living
symbol of the organization’s commitment to empowering cancer patients to live to the fullest. Hundreds and
thousands of individuals have given to Livestrong or bought a yellow wristband because they were inspired by
Armstrong’s bravery in overcoming cancer and reaching the pinnacle of sporting success.
12 Chapter 12 ♦ Services and Nonprofit Organization Marketing
However, Armstrong is now a tainted symbol. After a thorough investigation, the United States Anti
Doping Agency presented a mountain of evidence showing that Armstrong not only used performance-enhancing
drugs during his career, but that he was in charge of a systematic doping program that pressured teammates to use
drugs as well. Based on this evidence (and later confirmed by Armstrong’s own admission), the USADA banned
Armstrong from competing in any of its events, and the International Cycling Union stripped him of all seven of his
Tour de France titles. Lance Armstrong was now no longer a symbol of triumph or perseverance; in most eyes, he
was simply a cheater who got caught.
In the midst of this professional disgrace, Armstrong decided that he would step down as chairman of
Livestrong. Though he would continue to be a member of Livestrong’s board, he would no longer have a role as its
public face as he did for the past 15 years. This is, of course, was a huge blow to the organization, which lost its
founder—and its best fundraiser.
Brent Schrotenboer, “USADA Release Massive Evidence Vs. Lance Armstrong,” USA Today, October 11, 2012,
www.usatoday.com/story/sports/cycling/2012/10/10/lance-armstrong-usada-reasoned-decision-teammates-
doping/1624551/ (Accessed March 26, 2013); David Wharton and Lance Pugmire, “USADA Report Details Case
Against Lance Armstrong,” Los Angeles Times, October 11, 2012, http://articles.latimes.com/2012/oct/11/sports/la-
sp-armstrong-doping-20121011 (Accessed March 26, 2013); “Factbox: State of the Lance Armstrong Foundations’
Finances,” Chicago Tribune, October 17, 2012, http://articles.chicagotribune.com/2012-10-17/business/sns-rt–us–
cycling-armstrong-financesbre89g21g-20121017_1_testicular-cancer-lance-armstrong-foundation-austin (Accessed
March 26, 2013); Krishnadev Calamur, “Lance Armstrong Admits to Using Performance-enhancing Drugs,” NPR,
January 17, 2013, www.npr.org/blogs/thetwo-way/2013/01/17/169650077/lance-armstrong-to-admit-to-using-
performance-enhancing-drugs (Accessed March 26, 2013); “Lance Armstrong Foundation,” Charity Navigator,
www.charitynavigator.org/index.cfm?bay=search.summary&orgid=6570 (Accessed March 26, 2013); Lance
Pugmire, “Lance Armstrong Quits Livestrong Post, Loses Endorsement Deals,” Los Angeles Times, October 18,
2012, http://articles.latimes.com/2012/oct/18/sports/la–sp-lance-armstrong-20121018 (Accessed March 26, 2013);
“Where The Money Goes,” Livestrong, October 31, 2012, www.livestrong.org/What–We-Do/Our–Approach/Where-
the-Money-Goes (Accessed March 26, 2013).
TRUE/FALSE
Chapter 12 ♦ Services and Nonprofit Organization Marketing 13
1. Disney’s decision to implement new rules banning junk food advertisements suggests a societal marketing
orientation.
2. The junk food companies that want to advertise on Disney’s television channels likely have a sales orientation.
3. The type of advertisements a company chooses to broadcast on its television stations is inconsequential because
marketing does not play a very large role in society.
4. The goal of junk food advertisers to encourage marketing, whereby people giving up something (money) in order to
receive something they would rather have (junk food).
5. Because it is sold at a low price, junk food provides high customer value.
MULTIPLE CHOICE
1. Which of the following was likely not one of Disney’s considerations when determining its marketing concept?
a.
Do our customers want to see junk food advertisements on our channels and Web sites?
b.
How do junk food advertisements affect our long-term goals?
c.
Will new stricter advertising rules distinguish us from our customers?
d.
How do our television shows and Web sites affect our bottom line?
e.
What do customers picture when they think about our television channels?
2. If Disney allowed customers to choose which types of advertising they saw on its Web sites, it would be engaging
in:
a.
realistic pricing.
b.
co-creation.
c.
offering products that perform.
d.
giving the buyers facts.
e.
providing after-sales support.
3. Disney customers’ evaluations of the company’s Web sites and television channels in terms of whether those
products meet their needs and expectations is called:
a.
customer gratification.
b.
customer fulfillment.
c.
customer approval.
d.
customer agreement.
e.
customer satisfaction.
4. Which of the following describes a Disney customer service representative who has been given the authority to
respond to a complaint about junk food advertisement by pulling the advertisement in question and flagging it for
review by Disney’s marketing team?
a.
The employee is empowered.
b.
The employee is improving Disney’s customer relationship management.
c.
The employee is working in a teamwork–oriented environment.
d.
The employee is operating under a sales orientation.
e.
The employee is opposed to junk food advertisements.
5. Who at Disney needs to both be aware of and understand the company’s decision to impose strict junk food
advertising rules?
a.
The CEO.
b.
The CEO and his chief advisors.
c.
The CEO, his chief advisors, and the marketing team.
d.
The CEO, his chief advisors, the marketing team, and the financial team.
e.
Every businessperson at the company.