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
instructors to use to deliver the content.
• Lecture (for large sections) on page 4
• Company Clips (video) on page 5
• Group Work (for smaller sections) on page 7
Review and Assignments begin on page 8
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 20
Chapter 12: Services and Nonprofit Organization Marketing
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Learning Outcomes
12-1 Discuss the importance of services to the economy
12-2 Discuss the differences between services and goods
Services are distinguished by four characteristics. Services are intangible performances. They
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
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,
Chapter 12: Services and Nonprofit Organization Marketing
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© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
and the service mix. Distribution (place) decisions involve convenience, number of outlets, direct
versus indirect distribution, location, and scheduling. Stressing tangible cues, using personal
sources of information, creating strong organizational images, and engaging in post-purchase
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
12-6 Explain internal marketing in services
Internal marketing means treating employees as customers and developing systems and benefits
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
12-8 Discuss global issues in services marketing
The United States has become the world’s largest exporter of services. Although competition is
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Key Terms
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. The Importance of Services
4. Services
LO2 Discuss the differences between
services and goods
12-2 How Services Differ from
Goods
5. How Services Differ from Goods
6. Characteristics of Services
7. Evaluating the Quality of Services
LO3 Describe the components of
service quality and the gap model
of service quality
12-3 Service Quality
8. Service Quality
9. Components of Service Quality
10. Exhibit 12.1: Gap Model of Service Quality
LO4 Develop marketing mixes for
services
12-4 Marketing Mixes for Services
11. Marketing Mixes for Services
12. Product Strategies for Service Offerings
13. Categories of Service Processes
14. Elements in Service Offering
15. Customization or Standardization
16. Service Mix
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Learning Outcomes and Topics
PowerPoint Slides
17. Issues with Place (Distribution) Strategy
18. Promotion Strategy
19. Pricing Challenges for Services
20. Categories of Pricing Objectives
LO5 Discuss relationship marketing in
services
12-5 Relationship Marketing in
Services
21. Relationship Marketing in Services
22. Levels in Relationship Marketing
LO6 Explain internal marketing in
services
12-6 Internal Marketing in Service
Firms
23. Internal Marketing in Service Firms
24. Internal Marketing
LO7 Describe nonprofit organization
marketing
12-7 Nonprofit Organization
Marketing
25. Nonprofit Organization Marketing
26. Nonprofit Organization Marketing
27. Nonprofit Organization Marketing Activities
28. Unique Aspects of Nonprofit Organization
Marketing Strategies
29. Unique Aspects of Nonprofit Organization
Marketing Strategies (continued 1)
30. Unique Aspects of Nonprofit Organization
Marketing Strategies (continued 2)
31. Unique Aspects of Nonprofit Organization
Marketing Strategies (continued 3)
LO8 Discuss global issues in services
marketing
12-8 Global Issues in Services
Marketing
32. Global Issues in Services Marketing
33. Global Issues in Service Marketing
34. Key Terms
35. Summary
36. Summary
Suggested Homework
• The end of this chapter contains an assignment on the Pepe’s Pizzeria video and the
Chapter 12: Services and Nonprofit Organization Marketing
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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.
Video Review Exercise
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• 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 the following question: “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 the following
question: “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 website 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.
Students can choose either position, but they should support their position with terms and
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
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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.)
Class Activity—Nonprofit Organizations and Their Many Publics
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 the implications of
intangibility for your firm.
Although students’ answers will vary, they should address some of the following points.
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.
Students’ answers will vary. However, they should address the following five components
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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 do you see? Do the numbers
support the information from the chapter?
Students’ answers should come directly from the website.
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
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:
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
Chapter 12: Services and Nonprofit Organization Marketing
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© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
training, stressing teamwork, giving employees freedom to make decisions, measuring and
rewarding quality, and learning about employee needs.
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: a definition of internal marketing (treating
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
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 in global business that students should consider are given below.
8. Form a team with two or three classmates. Using the promotion strategies discussed
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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 given
below.
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.
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), a car oil change (O), dress
dry-cleaning (D), a haircut (H), tax preparation software (T), and 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? Is it easy to assess
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
Chapter 12: Services and Nonprofit Organization Marketing
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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.
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 groups of two or three. 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 or three, and discuss
each item before determining its final placement.
Activities
Using the following abbreviations, place these products and services along the continuum: a new
car (C), designer jeans (J), a car oil change (O), dress dry-cleaning (D), a haircut (H), tax
preparation software (T), and 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.
Chapter 12: Services and Nonprofit Organization Marketing
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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 that 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
Certain websites, such as 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 websites 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
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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 the sale of
Video Assignment: Pepe’s Pizzeria
1. In which 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
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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 with drinks right away and instead
serves the salad with the pizza, which gap in service quality would this represent?
a. Gap 1
b. Gap 2
c. Gap 3
d. Gap 4
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
6. Of the promotion strategies listed, which best fits the strategy used by Pepe’s Pizzeria?
a. Engaging in post-purchase communication
b. Creating a strong organizational image
c. Using personal information sources
d. Stressing tangible cues
Case Assignment: Lancôme and St. Jude Children’s Research Hospital
In most people’s minds, curing childhood cancer and beauty products aren’t linked, but maybe
they should be. Since 2010, Lancôme has partnered with St. Jude’s Children’s Research Hospital
to help fund saving children and curing childhood cancer.
“The support of Lancôme, its network of ambassadors and generous customers is making
a significant difference in the lives of some of the world’s sickest children,” said Richard
Shadyac Jr., President and CEO of ALSAC, the fundraising and awareness organization for St.
Jude’s Children’s Research Hospital. “By raising awareness and funds to support our lifesaving
mission through charitable campaigns and providing makeovers for teen patients at events such
as the St. Jude Teen formal, Lancôme has been a steadfast partner for seven years and has truly
shown the beauty of philanthropy.”
St. Jude’s Children’s Research Hospital is the only National Cancer Institute–designated
Comprehensive Cancer Center dedicated exclusively to children. Research and treatment
improvements achieved at St. Jude have increased the overall childhood cancer survival rate
from 20 percent to 80 percent in the 50 years since the hospital opened. They share the
discoveries made there with doctors and scientists worldwide, hoping their efforts can be used to
save children all over the world.
Families of St. Jude’s patients never receive a bill for treatment because St. Jude’s feels
the last thing a family should worry about is money when their child is fighting for his/her life.
Chapter 12: Services and Nonprofit Organization Marketing
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The majority of funding for St. Jude’s comes from individual donations and through programs
like their partnership with Lancôme.
Lancôme, founded by Armand Petitjean in 1935, is the world’s leading luxury beauty
brand, known for their timeless glamour with a French touch. Lancôme has a presence in 130
countries with over 20,000 beauty advisors. Some of Lancôme’s most iconic products include
L’Absolu Rouge, Hypnose mascara, Dual Finish, Teint Idole, Advanced Genifique, Visionnaire,
Absolu L’Extrait, Tresor, and La Vie Est Belle.
In 2015, Lancôme launched their “Moments of Happiness” campaign to support St. Jude.
For select days in October, Lancôme donated $1 directly to St. Jude for every purchase of their
Définicils Mascara, La Vie Est Belle fragrance, and Advanced Génifique Youth Activating
Concentrate. They also donated an additional $1 to St. Jude for every Instagram shot or Twitter
post featuring a picture of the poster’s hands shaped like a heart and including the hashtag
#LancomeGivesBack posted during the campaign.
Chapter 12: Services and Nonprofit Organization Marketing
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Sources: S. Faragalli, “How to Make Your Next Lancôme Purchase Benefit St. Jude’s
Children’s Hospital,” InStyle, October 22, 2015, accessed October 23, 2016,
http://www.instyle.com/news/lancome-st-jude-charity-partnership; S. Mackler, “Lancôme
Expands Its Support for St. Jude Children’s Research Hospital,” PR Newswire, October 18,
2016, accessed October 23, 2016, http://www.prnewswire.com/news-releases/lancome-expands-
its-support-for-st-jude-childrens-research-hospital-300346674.html.
TRUE/FALSE
1. St. Jude’s Children’s Research Hospital is a nonprofit organization.
2. Lancôme is a nonprofit organization.
3. The effort by nonprofit organizations to bring about mutually satisfying exchanges with target
markets is nonprofit organization marketing.
4. Lancôme and St. Jude’s Children’s Research Hospital view profit with the same objective in
mind.
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
5. Nonprofit organizations cannot measure their success or failure in strictly financial terms.
MULTIPLE CHOICE
1. Which of the following marketing activities are performed by nonprofit organizations?
a. develop, manage, and eliminate programs and services
b. decide on prices to charge (may be called fees, donation, tuition, fares, fines, or rates)
c. schedule events or programs and communicate their availability through brochures, signs,
public service announcements, or advertisements
d. All of these
e. None of these
2. Which of the following issues relating to target markets is unique to nonprofit organizations?
a. apathetic or strongly opposed targets
b. pressure to adopt undifferentiated segmentation strategies
c. complementary positioning
d. All of these
e. None of these
3. The targets for the “Moments of Happiness” campaign are __________.
a. Lancôme customers
b. families of sick children
c. Instagram and Twitter users
d. A and C
e. All of these
f. None of these
Chapter 12: Services and Nonprofit Organization Marketing
20
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ANS: D
PTS: 1 OBJ: LO: 12-7 TOP: AACSB: Reflective Thinking
KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge
4. What is true about the benefit strength for the “Moments of Happiness” campaign?
a. Only St. Jude benefits from the campaign in the form of $1 donations.
b. There are benefits for St. Jude in the form of $1 donations and to the customer in the form of
their purchase, but Lancôme receives no benefit from the campaign.
c. The campaign has financial benefits for both St. Jude and Lancôme, and the customers benefit
in the form of a desired purchase.
d. Only Lancôme benefits from the campaign in the form of increased purchases.
5. The “Moments of Happiness” campaign is using which special promotion resource offered to
nonprofit organizations?
a. professional volunteers
b. sales promotion activities
c. public service advertising
d. All of these
e. None of these
Great Ideas for Teaching Chapter 12
Kay Blythe Tracy, Gettysburg College
Service Learning as a Marketing Project
Service learning benefits both the community and the students. This service learning project
allows marketing students to put what they are learning in class into practice and to see some of
their ideas actually implemented, while providing much needed assistance in marketing to local
not-for-profit agencies. Previous and current clients include the SPCA, Family Planning Center,
WeeCare Day Care Center, the YWCA, a rape crisis center, a shelter for battered women, Rural
Opportunities (which helps migrant workers), and the Office of Aging.