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Chapter 12 - Services Marketing
12-1
CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES .......................................... 12-2
LEARNING OBJECTIVES (LO) ........................................................................................ 12-3
KEY TERMS .......................................................................................................................... 12-3
LECTURE NOTES
• Chapter Opener: Airbnb Uses Services Marketing to Help Customers “Belong
Anywhere” ................................................................................................................... 12-4
• The Uniqueness of Services (LO 12-1; LO 12-2) ....................................................... 12-5
• How Consumers Purchase Services (LO 12-3; LO 12-4) .......................................... 12-10
• Managing the Marketing of Services (LO 12-5; LO 12-6) ........................................ 12-14
• Services in the Future.................................................................................................. 12-20
APPLYING MARKETING KNOWLEDGE ..................................................................... 12-22
BUILDING YOUR MARKETING PLAN ......................................................................... 12-25
VIDEO CASE (VC)
• VC-12: LA Galaxy: Where Sports Marketing Is a Kick! ........................................... 12-26
APPENDIX D CASE (D)
• D-12: Philadelphia Phillies, Inc.: Sports Marketing 101 ............................................ 12-30
IN-CLASS ACTIVITY (ICA)
• ICA 12-1: Customer Contact Audit for a Service ....................................................... 12-36
CONNECT APPLICATION EXERCISES ………………………………………………12-40
• The Four I's of Services Click and Drag*
• LA Galaxy: Where Sports Marketing is a Kick! Video Case
• iSeeit! Video Case: Service Quality Video Case
• The Service Continuum Click and Drag*
• Marketing Analytics Analytics Exercise
*Note: An alternate version of each Click and Drag exercise is available in Connect for students with
accessibility needs.
Chapter 12 - Services Marketing
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 12-1 Services are now a larger part of the U.S. GDP than goods ........................................ 12-4
Figure 12-2 Inventory carrying costs of services depend on the cost of employees and
equipment .................................................................................................................... 12-6
Figure 12-3 The service continuum shows how offerings can vary in their balance of products
and services ................................................................................................................. 12-8
Figure 12-4 Services can be classified as equipment-based or people-based .................................. 12-9
Figure 12-5 Consumers use search, experience, and credence properties to evaluate services ...... 12-12
Figure 12-6 The five dimensions of service quality ........................................................................ 12-14
Figure 12-7 Customer contact audit for a car rental agency ........................................................... 12-17
Figure 12-8 Different prices and packages help match demand to capacity ................................... 12-20
Applying Marketing Metrics
Are JetBlue’s Flights Profitably Loaded?: Operating Income (Loss) per Available Seat Flown
One Mile (ASM) [See UMD12AirlineOperating.xls] ..................................................................... 12-21
Marketing Matters, Making Responsible Decisions, and/or Marketing Insights
Marketing Matters—Technology: Social Marketing Is a Must for Nonprofits ................................ 12-10
Marketing inSite: Managing Service Failures: The Importance of Monitoring and Guarantees ... 12-15
Videos
12-1: Airbnb Video ............................................................................................................................ 12-3
12-2: American Red Cross Video ..................................................................................................... 12-10
12-3: Amazon Prime Video .............................................................................................................. 12-18
12-4: Google Home Video ............................................................................................................... 12-22
12-5: LA Galaxy Video Case ............................................................................................................ 12-23
In-Class Activity (ICA)
ICA 12-1: Customer Contact Audit for a Service ............................................................................. 12-29
Chapter 12 - Services Marketing
12-3
LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 12-1: Describe four unique elements of services.
LO 12-2: Recognize how services differ and how they can be classified.
LO 12-3: Explain how consumers purchase and evaluate services.
LO 12-4: Develop a customer contact audit to identify service advantages.
LO 12-5: Explain the role of the seven Ps in the services marketing mix.
LO 12-6: Discuss the important roles of internal marketing and customer experience
management in service organizations.
KEY TERMS
capacity management
internal marketing
customer contact audit
off-peak pricing
customer experience management
(CEM)
service continuum
four I’s of services
services
gap analysis
seven Ps of services marketing
idle production capacity
Chapter 12 - Services Marketing
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LECTURE NOTES
AIRBNB USES SERVICES MARKETING TO HELP CUSTOMERS
“BELONG ANYWHERE”
• “Home-sharing” business Airbnb considered its mission – “Why does Airbnb exist?
What is its purpose?
a. Customers don’t want to be tourists; they want to engage with people and culture
– “belong anywhere!”
b. Airbnb marketing focuses on using technology to create community,
relationships, and sense of belonging.
c. Airbnb employees offer seminars about how to become an Airbnb host. New
hosts learn from experienced hosts.
d. Has 3,000,000 listings available in 65,000 cities and 191 countries.
[Video 12-1: Airbnb Video]
• Peer-to-peer sharing, or collaborative consumption, is a perfect match with the
changes in consumer attitudes about ownership.
• Millennials:
a. Typically don’t buy newspapers, DVDs, or CDs.
b. Find news on Facebook, stream movies from Hulu, and subscribe to music on
Pandora.
c. Are much more likely to borrow, rent, and share than previous generations.
d. As a result, many new services are being offered to accommodate them: Uber,
Lyft, Turo, Getaround, etc.
• Traditional businesses will need to make changes as consumers move from a
perspective based on ownership to this new approach based on sharing and renting.
• The marketing of services is dynamic and challenging because services differ from
traditional products with respect to:
a. How consumers make purchase decisions.
b. The ways in which the marketing mix is used.
Chapter 12 - Services Marketing
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I. THE UNIQUENESS OF SERVICES
• Services are intangible activities or benefits that an organization provides to satisfy
consumers’ needs in exchange for money or something else of value.
• [Figure 12-1] Services are a significant component of the U.S. and global economy.
a. The World Trade Organization estimates that for all countries combined:
• Exported merchandise totaled $16.4 trillion.
• Commercial services totaled $4.7 trillion.
b. The gross domestic product (GDP) composition of the U.S.:
• 46 percent came from services.
• 24 percent came from goods (both durable and nondurable).
• Other components of GDP (not shown in the figure) include the:
– 13 percent from business investment.
– 20 percent from government spending.
– Balance from net exports (which was -4 percent, resulting in net imports
instead of net exports).
• Figure 12-1 also shows that the value of services in the economy has increased more
than 200 percent since 2000.
• Projections indicate that by 2024:
a. Service firms will employ more than 129 million people.
b. Goods-producing firms will employ 19.2 million people.
• Services also represent a large export business.
a. In 2017, the U.S. had over $796 billion of services exports.
b. This is one of the few areas in which the U.S. has a trade surplus.
• The growth of this sector is the result of increased demand for both exisiting and new
services.
A. The Four I’s of Services [LO 12-1]
The four I’s of services consist of the four unique elements to services: intangibility,
inconsistency, inseparability, and inventory.
Chapter 12 - Services Marketing
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1. Intangibility.
a. Services are intangible—They cannot be held, touched, or seen before the
purchase decision.
b. Services are difficult for consumers to evaluate because they tend to be a
performance rather than an object.
c. As a result, marketers must:
• Make services tangible.
• Show the benefits of using the service.
2. Inconsistency.
a. Because services depend on the people who provide them, their quality varies
with each person’s capabilities and day-to-day job performance.
b. Inconsistency is more of a problem with services than with tangible products.
• Tangible products can be good or bad in terms of quality.
• With modern production lines, the quality of tangible products will at least
be consistent.
c. Inconsistency can be reduced through standardization and training.
3. Inseparability.
a. Consumers cannot separate the deliverer of the service from the service itself.
b. This interaction between the service provider and the consumer means that
they often co-create value together.
c. The amount of interaction between the consumer and the service provider:
• Depends on the extent to which the consumer must be physically present
to receive the service.
• Some services require that the consumer participate in its delivery.
Example: Golf lessons.
• Other services process tangible objects with less customer involvement.
Example: Car repair.
d. Some services can now be delivered electronically:
• Often requires no face-to-face customer interaction.
• Provides a more consistent experience.
• A disadvantage of some self-service technologies such as ATMs, grocery
store scanning, etc. is that consumers perceive them as being less personal.
4. Inventory.
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a. Inventory of services is different from that of products.
b. Inventory problems exist with products because many items are perishable
and there are costs associated with handling.
c. Idle production capacity occurs when the service provider is available but
there is no demand for the service.
d. With services, inventory carrying costs are more subjective.
• The inventory cost of a service is the cost of the person used to provide the
service along with any needed equipment.
• Inventory carrying costs can be low or nonexistent because idle production
capacity can be cut back by either:
– Reducing employee hours.
– Paying them on commission.
• [Figure 12-2] The scale of service inventory carrying costs vary widely:
– From the high-end airlines with highly trained, salaried specialists…
– To the low-end of real estate agencies and hair salons with employees
working on commission and needing little expensive equipment.
e. One reason service providers must maintain production capacity is because of
the importance of time to today’s customers.
B. The Service Continuum [LO 12-2]
• The four I’s differentiate services from goods in most cases, but many companies
are not exclusively service-based or product (good)-based.
• [Figure 12-3] The service continuum consists of the range of offerings
companies bring to the market, from the tangible to the intangible or product-
dominant to service-dominant.
a. With intangible, service-dominant offerings, the four I’s are concerns.
• Businesses should distinguish between their core offering—either a product or a
service—and supplementary services.
a. Example: Core service—bank account; supplementary service—deposit
assistance.
Chapter 12 - Services Marketing
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b. Supplementary services:
c. Key categories of supplementary services include consultation, finance,
shipping, installation, maintenance, and upgrades.
d. Innovation in core services relies on the creative efforts of the organization.
C. Classifying Services
Services can also be classified in three major ways:
1. Delivery by People or Equipment. [Figure 12-4]
a. People-based services.
• Professional services include those offered by management consulting
firms such as Booz, Allen & Hamilton, or Accenture.
b. Equipment-based services:
• Do not have inconsistency concerns because…
2. For-Profit or Nonprofit Organizations.
a. Many organizations involved in services distinguish themselves by their profit
or nonprofit tax status.
• Nonprofit organizations’ excesses in revenue over expenses are not taxed
or distributed to shareholders in contrast to for-profit organizations.
b. Nonprofit organizations in the U.S. now:
• Have expenditures of $1.32 trillion.
• Account for 9 percent of all wages and salaries.
Chapter 12 - Services Marketing
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c. In recent years, nonprofit organizations have turned to marketing to help
achieve their goals.
[Video 12-2: American Red Cross Video]
MARKETING MATTERS
Technology: Social Marketing Is a Must for Nonprofits
“Make It Social” is the mantra for many nonprofit organizations today. The recent
recession reduced charitable donations, so many of the 1.5 million public charities, private
foundations, universities, religious congregations, and other nonprofit organizations have
turned to social marketing and social media to engage potential contributors.
The Susan G. Komen for the Cure organization has been one of the most successful to
adapt. The Komen foundation uses Facebook, Twitter, YouTube, and Flickr to promote its
cause and fund-raising activities. The success of the organization’s marketing actions has
allowed it to raise and invest more than $1.5 billion in breast cancer research and community
outreach programs.
3. Government Sponsored.
a. Federal, state, and local government agencies provide a broad range of
services.
b. There is no direct ownership and they are nonprofit organizations.
Chapter 12 - Services Marketing
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LEARNING REVIEW
12-1. What are the four I’s of services?
12-2. To eliminate service inconsistencies, companies rely on __________ and
__________.
12-3. Would inventory carrying costs for an accounting firm with certified public
accountants be (a) high, (b) low, or (c) nonexistent?
II. HOW CONSUMERS PURCHASE SERVICES [LO 12-3]
Service organizations must understand how the consumer makes a service purchase
decision in order to assess quality so that it can present a differential advantage relative to
competing offerings.
A. The Purchase Process
• Because services cannot be displayed, demonstrated, or illustrated, consumers
cannot make a prepurchase evaluation of all the characteristics of services.
• Because service providers vary in their delivery of a service, an evaluation of a
service may change with each purchase.
• [Figure 12-5] Consumers evaluate products and services differently using:
a. Search properties. Tangible products like clothing and furniture have color,
size, and style that can be determined before purchase.
b. Experience properties. Services like restaurants and childcare can only be
discerned after purchase or during consumption.
Chapter 12 - Services Marketing
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c. Credence properties. Services that:
• To reduce the uncertainty created by these properties during the purchase decision
process, consumers turn to personal sources of information such as early adopters,
opinion leaders, and reference group members.
• The Mayo Clinic uses an approach called “evidence management” to present
customers with concrete and convincing evidence of its strengths.
B. Assessing Service Quality
• Gap analysis is a type of analysis that compares the differences between the
consumer’s expectations about and experiences with a service based on
dimensions of service quality.
• [Figure 12-6] This type of analysis asks consumers to assess their expectations
and experiences on dimensions of service quality.
• The relative importance of the various dimensions of service quality varies by the
type of service.
• Customers who experience a “service failure:”
• Service operators can increase customer satisfaction by letting customers choose
between several recovery options.
MARKETING MATTERS
Technology: Managing Service Failures: The Importance of Monitoring and Guarantees
Only 5 to 10 percent of dissatisfied customers choose to complain—the rest switch
companies or make negative comments to other people. Increasingly, the forum for personal
comments is on the many social media available to consumers. Several websites exist for
consumers to praise or vent their frustrations about the services they purchased. Most public
relations experts agree that it is best to respond to, rather than ignore, comments on the web.
Chapter 12 - Services Marketing
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C. Customer Contact and Relationship Marketing [LO 12-4]
• Consumers judge services on the entire sequence of steps, or “service
encounters,” that make up the service process.
• A customer contact audit is a flowchart of the points of interaction or “service
encounters” between consumers and a service provider.
• This is particularly important in high-contact services such as hotels, educational
institutions, and automobile rental agencies.
• A service blueprint:
a. Is another version of a customer contact audit.
b. Includes all employee actions.
c. Acknowledges that services are designed to be “experiences.”
1. A Customer’s Car Rental Activities. [Figure 12-7]
a. In a customer contact audit, there are customer contact points where…
• The customer sees the tangible aspects of the service and…
b. Example: Customer contact audit for renting a car:
• A customer decides to rent a car and contacts the rental company (1).
• A customer service representative:
– Receives the information (2).
– Checks the availability of the car at the desired location.
• When the customer arrives at the rental site (3):
• A car is assigned to the customer (5).
• The customer proceeds by bus to the car pickup (6).
Chapter 12 - Services Marketing
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• On return to the rental location (7):
– The customer checks in (8).
– A customer service representative collects information on mileage, gas
consumption, and damages (9).
– A bill is printed (10).
• Each of the steps numbered 1 to 10 is a customer contact point where the
tangible aspects of the company’s service are seen by the customer.
• The series of steps lettered A to D:
c. Service providers must create a competitive advantage in the sequence of
interactions with the customer.
[ICA 12-1: Customer Contact Audit for a Service]
2. Relationship Marketing.
a. The contact between a service provider and a customer represents a service
encounter that influences the customer’s assessment of the purchase.
b. The number of encounters in a service experience depends on the service.
c. These encounters represent opportunities to develop social bonds, or
relationships, with customers.
d. Customer relationships grow through encounters or loyalty incentives.
e. Relationship marketing provides several benefits for service customers:
• The continuity of a single provider.
f. Customers require that the relationship be balanced in terms of loyalty,
benefits, value, kinds of connections, and a respect for privacy from the
service provider.
g. Understanding the service characteristics that lead to repeat purchases can
help services managers allocate their resources to appropriate relationship
marketing activities.
Chapter 12 - Services Marketing
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LEARNING REVIEW
12-4. What are the differences between search, experience, and credence properties?
12-5. Hertz created its differential advantage at the points of __________ in its customer
contact audit.
III. MANAGING THE MARKETING OF SERVICES [LO 12-5]
• Careful management of the four Ps—product, price, place, and promotion—is
important when marketing services.
• Many service organizations have adopted a seven Ps of services marketing, which:
a. Is an expanded services marketing mix.
A. Product (Service)
• Managers of products and services must design the product/service concept with
the features and benefits that customers desire.
• Because services are intangible and more difficult to describe:
• Service organizations rely on branding strategies to distinguish themselves in the
minds of the consumers.
• Strong brand names and symbols are important for service marketers:
a. As a means of differentiation.
• A service firm with a well-established brand reputation will also find it easier to
introduce new services than firms without a brand reputation.
Chapter 12 - Services Marketing
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B. Price
• With services, price is referred to in various ways:
a. Hospitals (charges). d. Hotels (rates).
• Since services are intangible, price can indicate the quality of the service.
• When customers buy a service, they also consider nonmonetary costs, which:
a. Consist of the mental and physical efforts required to consume the service.
• Pricing also plays a role in balancing consumer demand for services:
a. Off-peak pricing involves charging different prices during different times of
the day or during different days of the week to reflect variations in demand for
the service.
C. Place (Distribution)
• Because of the inseparability of services from the producer, place or distribution
is a major factor in a service marketing strategy.
• Intermediaries are rarely involved in the distribution of a service.
• Customers used to go to the service provider’s physical location to buy it.
• Competition:
a. Has forced many service firms to consider the value of convenient
distribution.
• Technology:
a. Is being used to deliver services beyond the provider’s physical locations.
Chapter 12 - Services Marketing
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D. Promotion
• The value of promotion, specifically advertising, for many services is to:
a. Show the benefits of purchasing the service.
[Video 12-3: Space Adventures Video]
• In most cases, promotional concerns of services are similar to those of products.
• Publicity has played a major role in the promotional strategy of nonprofit services
and some professional organizations.
• Many services use public service announcements (PSAs).
a. The timing and location of a PSA are under the control of the medium, not the
organization.
• Personal selling can play an important role in services marketing because service
employees are often responsible for selling the firm’s services.
• Sales promotions, such as coupons, free trials, and contests, are often effective
tools for service firms.
E. People [LO 12-6]
• Many services depend on people for the creation and delivery of the customer
service experience.
a. The nature of the interaction between employees and customers strongly
influences the customer’s perceptions of the service experience.
Chapter 12 - Services Marketing
12-17
• Internal marketing—The notion that a service organization must focus on its
employees, or internal market, before successful programs can be directed at
customers.
a. Service firms need to ensure that employees have the attitude, skills, and
commitment to meet customer expectations and to sustain customer loyalty.
b. Employees with a commitment to mutually beneficial relationships with
customers are most suitable for services today.
c. Employee development through…is critical to the success of service firms.
• Recruitment. • Coaching.
d. Many service organizations recognize that:
• Individual customer behavior influences the service outcome for others.
e. Internal marketing programs prepare employees for their interactions with
customers so that organizations can better manage the services they provide.
• Customer experience management (CEM) is the process of managing the entire
customer experience within the company. It should be:
a. Intentional, planned, consistent, and similar so that every experience is …
b. Differentiated from other service offerings and…
F. Physical Environment
• The customer’s perception of the service is influenced by the:
a. Appearance of the environment in which the service is delivered.
b. Location where the firm and customer interact.
• The physical evidence of the service:
Chapter 12 - Services Marketing
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• Service firms:
a. Need to manage physical evidence to convey the proper impression of the
service to the customer.
b. Is known as impression, or evidence, management.
• The physical environment provides an opportunity for the firm to send consistent
and strong messages about the nature of the service to be delivered.
G. Process
• Process refers to the actual procedures, mechanisms, and flow of activities by
which the service is created and delivered.
• Each service encounter provides customers with the evidence on which to judge
the service.
• Most services have a limited capacity due to:
a. The inseparability of the service from the service provider.
b. The perishable nature of the service.
• Customers must be at the service provider’s location at the time the service is
available.
• If customers are not present or if the service provider is not available, then unused
service capacity is lost.
• Capacity management integrates the service component of the marketing mix
with efforts to influence consumer demand.
• [Figure 12-8] Service organizations must manage the availability of their
offerings so that:
a. Demand matches capacity over the duration of the demand cycle (one day,
week, month, or year).
Chapter 12 - Services Marketing
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APPLYING MARKETING METRICS
Are JetBlue’s Flights Profitably Loaded?
Operating Income (Loss) per Available Seat Flown One Mile (ASM)
Capacity management is critical in the marketing of many services, including air
travel. Airlines feature load factor as a capacity management measure on their marketing
dashboards, along with two other measures; namely the operating cost per available seat
flown one mile and the revenue generated by each seat flown one mile, which is called yield.
Load factor is the percentage of available seats flown one mile occupied by a paying
customer. These three measures combine to show airline operating income or loss per
available seat flown one mile (ASM):
Operating Income (Loss) per ASM = (Yield x Load Factor) – Operating Expense
Your Challenge.
JetBlue has asked you to determine the operating income or loss per available seat
flown one mile for the first six months of 2011. In addition, you have been asked to
determine what load factor JetBlue must reach to break even assuming its current yield and
operating expense will not change in the immediate future.
Your Findings.
JetBlue’s yield (9.83¢), load factor (82.1%), and operating expense (8.28¢) are shown
on JetBlue’s marketing dashboard display. Its operating loss is -0.21¢ per ASM during the
first six months of 2011.
[See UMD12AirlineOperating.xls]
Your Actions. JetBlue should consider:
• Revising its flight schedules to better accommodate traveler needs and advertise these
changes.
Chapter 12 - Services Marketing
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IV. SERVICES IN THE FUTURE
New and better services, and an unprecedented variety of choices, will be the result of
three factors: technological development, improved understanding of service delivery and
consumption, and the social imperative for sustainability.
• Technological advances are rapidly changing the service industry.
• The key elements of future services include:
a. Mobility. Provided through subscription services, sensors, and voice
recognition.
[Video 12-4: Google Home]
b. Personalization.
• Can increase customers’ perceptions of value.
• Excessive attempts at personalization can trigger privacy concerns.
• New data and information about service consumers and providers is also leading
to changes in service delivery and consumption.
• In some businesses, such as retailing, restaurants, and repair and installation:
a. Customer satisfaction levels are inflated because…
• A growing interest in sustainability and “green” businesses is also changing the
services industry.
a. Consumers who first became aware of environmental impact of many
products are now also assessing services and their impact.
