Chapter 12
Services and Nonprot Organizaon Markeng
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
Learning Outcomes
12-1 Discuss the importance of services to the economy
A service is the result of applying human or mechanical efforts to people or objects. Services
involve a deed, a performance, or an effort that cannot be physically possessed. The service
sector substantially influences the U.S. economy, accounting for approximately 80 percent of the
country’s economic output. The service-oriented industries contributing to much of this output
include technology, financial services, health care, and retail. Services have some 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 have four unique characteristics that distinguish them from goods. Services are
intangible, inseparable, heterogeneous, and perishable. Services are intangible; they cannot be
touched, seen, tasted, heard, or felt in the same way that good can. Services are inseparable
because production and consumption of services occur simultaneously. They are heterogeneous
because consistency and quality control can be hard to achieve. 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
Business executives rank the improvement of service quality as one of the most critical
challenges facing them today. Service quality has five components: reliability (ability to perform
the service dependably, accurately, and consistently), responsiveness (ability to provide prompt
service), assurance (knowledge and courtesy of employees and their ability to convey trust),
empathy (caring, individualized attention to customers), and tangibles (the physical evidence of
the service).
A model of service quality called the gap model identifies five gaps that can cause problems in
service delivery and influence customer evaluations of service quality. 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 that is
actually provided. 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. When one or more of these gaps is
large, service quality is perceived as low. As the gaps shrink, service quality perception
improves.
12-4 Develop marketing mixes for services
Services’ unique characteristics—intangibility, inseparability of production and consumption,
heterogeneity, and perishability—make marketing more challenging. Elements of the marketing
mix (product, place, promotion, and pricing) need to be adjusted to meet the special needs
created by these characteristics. “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. Place (distribution) strategy involves
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
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
Services are performances, so the quality of a firm’s employees is an important part of building
long-term relationships with customers. Internal marketing means treating employees as
customers and developing systems and benefits that satisfy their needs. Employees who like their
jobs and are satisfied with the firm they work for are more likely to deliver superior service to
customers.
12-7 Describe nonprofit organization marketing
A nonprofit organization exists to achieve some goal other than the usual business goals of profit,
market share, or return on investment. Nonprofit organization marketing is the effort by
nonprofit organizations to bring about mutually satisfying exchanges with target markets.
Nonprofit organization marketing facilitates mutually satisfying exchanges between nonprofit
organizations and their target markets. Marketing in nonprofit organizations is unique in many
ways—including the setting of marketing objectives, the selection of target markets, and the
development of appropriate marketing mixes. 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
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. Pricing decisions include
non-financial prices, separation between prayers and users, and below-cost pricing.
12-8 Discuss global issues in services marketing
The international marketing of services is a major part of global business, and 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. For both for-profit and nonprofit service firms, the first step toward success in the
global marketplace is determining the nature of the company’s core products.
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
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.
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
Activity
Warm-up
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?
In-class
Preview
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.
Viewing
(Solutions
below)
1. Would you classify Pepe’s (and other restaurants) as a service? Explain.
2. Outline Pepe’s pricing strategy for its service.
Follow-up
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
concepts from the chapter, with a particular focus on intangibility, inseparability, and
heterogeneity.
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 pricing, although—like most businesses—some operations-oriented
pricing is involved. Pepe’s must compete in the marketplace by matching its supply and
demand by keeping prices low.
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
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.